UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to _________
Commission File Number 1-11152
INTERDIGITAL COMMUNICATIONS CORPORATION
----------------------------------------------------
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-1882087
------------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
781 Third Avenue, King of Prussia, PA 19406
-------------------------------------------
(Address of principal executive offices) (Zip Code)
(610) 878-7800
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No _____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
48,651,195 Shares of Common Stock, par value $.01 per share, were outstanding on
October 29, 1999.
<PAGE>
INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
INDEX
PAGE
Part I - Financial Information:
Item 1. Consolidated Financial Statements 3
Consolidated Balance Sheets - 3
December 31, 1998 and September 30, 1999 (unaudited)
Consolidated Statements of Operations - 4
Three and Nine Months Ended September 30, 1999 and 1998
(unaudited)
Consolidated Statements of Cash Flows - 5
Nine Months Ended September 30, 1999 and 1998 (unaudited)
Notes to Consolidated Financial Statements (unaudited) 6
Item II. Management's Discussion and Analysis of 10
Financial Condition and Results of Operations
Part II - Other Information:
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 16,669 $ 20,059
Short term investments 63,659 32,218
Accounts receivable 6,097 14,983
Inventories 3,435 5,102
Other current assets 3,280 3,056
--------- ---------
Total current assets 93,140 75,418
--------- ---------
Property, plant and equipment, net 7,637 9,697
Patents, net 9,669 9,948
Long term deposits 2,934 2,934
Other 1,464 1,526
--------- ---------
21,704 24,105
--------- ---------
$ 114,844 $ 99,523
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Current portion of long term debt $ 490 $ 723
Accounts payable 3,456 5,973
Accrued compensation and related expenses 2,710 2,959
Deferred revenue 844 3,936
Foreign and domestic taxes payable 676 2,249
Other accrued expenses 4,438 4,826
--------- ---------
Total current liabilities 12,614 20,666
--------- ---------
LONG TERM DEBT 2,667 3,049
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 2)
SHAREHOLDERS' EQUITY:
Preferred Stock, $ .10 par value, 14,399 shares
authorized- $2.50 Convertible Preferred, 102
shares issued and outstanding 10 10
Common Stock, $.01 par value, 75,000 shares
authorized, 48,603 shares and 48,474 shares
issued and outstanding 486 484
Additional paid-in capital 236,078 235,631
Accumulated deficit (134,883) (160,039)
--------- ---------
101,691 76,086
Treasury stock, 429 and 50 shares held at cost 2,128 278
--------- ---------
Total shareholders' equity 99,563 75,808
--------- ---------
$ 114,844 $ 99,523
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------------- -----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Product $ 498 $ 2,569 $ 2,022 $ 6,331
Licensing and strategic partner 10,321 2,280 56,285 55,036
-------- -------- -------- --------
10,819 4,849 58,307 61,367
-------- -------- -------- --------
COST OF PRODUCT AND OPERATING EXPENSES:
Cost of product 1,005 3,005 4,002 10,644
Sales and marketing 745 878 2,411 2,932
General and administrative 1,693 1,235 5,133 4,116
Patents administration and licensing 216 1,836 4,540 8,591
Development 4,711 4,481 15,417 12,184
Repositioning Charges 0 -- 1,213 --
-------- -------- -------- --------
8,370 11,435 32,716 38,467
-------- -------- -------- --------
Income (loss) from operations 2,449 (6,586) 25,591 22,900
INTEREST INCOME (EXPENSE):
Interest income 1,024 651 2,829 1,674
Interest and financing expenses (77) (75) (250) (274)
-------- -------- -------- --------
Income (loss) before income taxes 3,396 (6,010) 28,170 24,300
INCOME TAX PROVISION (697) (14) (2,822) (4,920)
-------- -------- -------- --------
Net income (loss) 2,699 (6,024) 25,348 19,380
PREFERRED STOCK DIVIDENDS (64) (64) (192) (192)
NET INCOME (LOSS) APPLICABLE TO COMMON
SHAREHOLDERS $ 2,635 $ (6,088) $ 25,156 $ 19,188
======== ======== ======== ========
NET INCOME (LOSS) PER COMMON SHARE - BASIC $ 0.05 $ (0.13) $ 0.52 $ 0.40
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING - BASIC 48,285 48,427 48,383 48,349
======== ======== ======== ========
NET INCOME (LOSS) PER COMMON SHARE - DILUTED $ 0.05 $ (0.13) $ 0.52 $ 0.39
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING - DILUTED 48,819 48,427 48,789 48,782
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the nine months ended September 30,
---------------------------------------
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 25,348 $ 19,188
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation and amortization 3,557 3,422
Deferred revenue (3,092) 1,062
Repositioning charges 1,213 --
Decrease (increase) in assets-
Receivables 8,887 259
Inventories 1,667 422
Other current assets (224) (482)
Increase (decrease) in liabilities-
Accounts payable (2,517) (3,646)
Accrued compensation (566) (58)
Other accrued expenses (2,062) (1,585)
-------- --------
Net cash provided by operating activities 32,211 18,582
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments, net (31,441) (27,183)
Purchases of property and equipment (1,162) (1,068)
Patent costs (852) (1,230)
Other non-current assets 62 (22)
-------- --------
Net cash used in investing activities (33,393) (29,503)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sales of Common Stock
and exercises of stock options and warrants 449 694
Lease obligations incurred 0 120
Payments on long-term debt, including capital lease obligations (615) (800)
Cash dividends on Preferred Stock (192) --
Purchase of Treasury Stock (1,850) --
-------- --------
Net cash provided by (used in) financing activities (2,208) 14
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,390) (10,907)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 20,059 17,828
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 16,669 $ 6,921
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 224 $ 263
======== ========
Income taxes paid, including foreign witholding taxes $ 4,331 $ 4,847
======== ========
The accompanying notes are an integral part of these statements.
5
<PAGE>
INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
1. BASIS OF PRESENTATION:
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments necessary to present fairly the financial
position of InterDigital Communications Corporation's (collectively with its
subsidiaries referred to as InterDigital, the Company, we, us and our) financial
position as of September 30, 1999, the results of our operations for the three
and nine month periods ended September 30, 1999 and 1998, and our cash flows for
the nine month periods ended September 30, 1999 and 1998. The accompanying
unaudited consolidated financial statements have been prepared in accordance
with the instructions for Form 10-Q and, accordingly, do not include all of the
detailed schedules, information and notes necessary for a fair presentation of
financial condition, results of operations and cash flows in conformity with
generally accepted accounting principles. These financial statements should be
read in conjunction with the financial statements and notes thereto contained in
the Company's annual report for the year ended December 31, 1998 on Form 10-K
filed with the Securities and Exchange Commission on March 31, 1999. The results
of operations for interim periods are not necessarily indicative of the results
to be expected for the entire year. Certain prior period amounts have been
reclassified to conform to the 1999 presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. CONTINGENCIES:
The Company and InterDigital Technology Corporation ("ITC"), a wholly-owned
subsidiary, are parties to a certain patent-related litigation in which ITC is
asserting that a certain third party infringes ITC's patents. ITC generally is
seeking injunctive relief and monetary damages. The alleged infringer generally
seeks declarations that ITC's patents are invalid and/or that its products do
not infringe ITC's patents as well as monetary damages. ITC is also involved in
administrative proceedings in which various parties have challenged the validity
of ITC's patents.
In addition to litigation associated with patent enforcement and licensing
activities and the other litigation described above, the Company is a party to
certain legal actions arising in the ordinary course of its business. Based on
current information, Management believes that the outcomes of these other
matters will not have a material impact on our financial position or results of
operations.
3. NOKIA AGREEMENT:
On January 22, 1999, we entered into an agreement with Nokia Corporation
("Nokia") involving the development of new technology for third generation
wireless telecommunications products designed for high data rate applications,
such as Internet access. The agreement includes royalty bearing TDMA and CDMA
patent licenses, which are paid up generally through the project period, and
provides a structure for determining the royalty payments thereafter. We
recognized $31.5 million as licensing revenue in the first quarter of 1999 and
have also recognized $7.4 million of revenue in the first nine months of 1999
related to specialized engineering services in the development effort.
6
<PAGE>
4. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS:
The Company considers investments purchased with a remaining maturity of
three months or less to be cash equivalents for purposes of the statements of
cash flows. The Company invests its excess cash in various time deposits and
marketable securities, which are included in cash and cash equivalents, as
follows:
(in thousands)
September 30, December 31,
1999 1998
------------- ------------
Money market funds and demand deposits $ 6,022 $ 3,160
Repurchase agreements 479 516
Commercial paper 10,168 16,383
------- -------
$16,669 $20,059
======= =======
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 September 30, 1999
consisted of $22.9 million in government-issued discount notes and $40.8 million
in corporate debt securities. Short-term investments available for sale as of
December 31, 1998 consisted of $18.2 million in government-issued discount notes
and $14.0 million in corporate debt securities.
5. MAJOR CUSTOMERS AND GEOGRAPHIC DATA:
Revenues by customer geography are as follows:
(in thousands)
Three Months Nine Months
Ended Ended
September 30, September 30,
-------------------- -----------------------
1999 1998 1999 1998
---- ---- ---- ----
U.S. $ 453 $ 293 $ 976 $ 1,129
Non U.S. 10,366 4,556 57,331 60,238
------- ------- ------- -------
$10,819 $ 4,849 $58,307 $61,367
======= ======= ======= =======
Licensing and strategic partner revenue for the three month period ended
September 30, 1999 includes $3.4 million in new licenses, $4.0 million related
to development efforts for Nokia and Samsung Electronics Company, Ltd.
("Samsung"), and $2.9 million in recurring royalties. Licensing and strategic
partner revenues for the three months ended September 30, 1998 consisted of $2.2
million related to development work and $112,000 in recurring royalties.
For the nine months ended September 30, 1999, 96.5% of our total revenues
were derived from licensing and strategic partner activities. These revenues
consisted of $42.7 million from new licensing agreements, $9.8 million related
to development activities for Nokia, Alcatel Espana ("Alcatel") and Samsung, and
$3.8 million from recurring royalties. During the same period in 1998, licensing
and strategic partner revenue accounted for more than 89.7% of our total revenue
and consisted of $48.1 million from new licensing agreements, $6.5 million from
strategic partners and $0.5 million in recurring royalties.
7
<PAGE>
6. NET INCOME (LOSS) PER COMMON SHARE:
The following tables set forth the numerator and denominator of a
reconciliation of the shares used in the basic and diluted net income (loss) per
share computations:
</TABLE>
<TABLE>
<CAPTION>
(in thousands)
Three Months Ended Three Months Ended
September 30, 1999 September 30, 1998
------------------------------------------- ---------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income (Loss) per Share -Basic:
Income (loss) available to common
Stockholders $ 2,635 48,285 $ 0.05 $(6,088) 48,427 $(0.13)
Effect of Dilutive Options and
Warrants $ -- 534 $ -- -- -- $ --
------- ------- ------ ------- ------- ------
Income (Loss) per Share-Diluted:
Income (loss) available to
common stockholders +
assumed conversions $ 2,635 48,819 $ 0.05 $(6,088) 48,427 $(0.13)
======= ======= ====== ======= ======= ======
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1999 September 30, 1998
------------------------------------------- ---------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income (Loss) per Share--Basic:
Income (loss) available to
common stockholders $25,156 48,383 $ 0.52 $19,188 48,349 $ 0.40
Effect of Dilutive Options and
Warrants -- 406 -- -- 433 $ 0.01
------- ------- ------ ------- ------- ------
Income (Loss) per Share-Diluted
Income (loss) available to
common stockholders +
assumed conversions $25,156 48,789 $ 0.52 $19,188 48,782 $ 0.39
======= ======= ====== ======= ======= ======
</TABLE>
During the three months and the nine months ended September 30, 1999, there were
6.4 million and 6.8 million options and warrants to purchase common stock
outstanding that were excluded from the computation of diluted earnings per
share because they were antidilutive.
7. REPOSITIONING OF OPERATIONS:
In the second quarter of 1999, we recorded a pre-tax repositioning charge of
$1.2 million in connection with a change in our strategy from sales and
development of wireless local loop products to technology development for
advanced wireless applications. This action was taken after assessing our long
term business prospects associated with continued investment in the development
of wireless local loop systems. The repositioning charge included the impact of
workforce reductions (approximately 27 employees) and asset impairment charges
related to wireless local loop development equipment. The components of the
repositioning charge included severance and other benefit
8
<PAGE>
costs of $417,000, all of which are scheduled to be paid in 1999, and asset
impairment charges of $796,000 for fixed assets associated with wireless local
loop activities.
8. INVENTORIES:
(in thousands)
September 30, December 31,
1999 1998
---- ----
Component parts and work-in-progress $1,638 $2,958
Finished goods 1,797 2,144
------ ------
$3,435 $5,102
====== ======
Inventories are stated net of valuation reserves of $13.9 million as of
September 30, 1999 and $13.7 million as of December 31, 1998. Although we have
been winding down our UltraPhone(R) product business, we still have been
continuing to market our UltraPhone products, including spare parts and
enhancements, in niche markets. We are currently in the process of filling a
5,000 line order for UltraPhone systems for a customer in Namibia.
9. INCOME TAXES:
The income tax provision for the three months ended September 30, 1999
consists of alternative minimum taxes of $68,000 and foreign withholding taxes
of $629,000. For the three months ended September 30, 1998, we had a provision
for state taxes of $14,000. For the nine months ended September 30, 1999, the
tax provision includes foreign withholding taxes of $ 2.2 million and an
alternative minimum tax of $600,000. For the same period in 1998 we had a net
state tax provision of $42,000 and a foreign withholding tax provision of $4.9
million. At December 31, 1998, we had net operating loss carryforwards of
approximately $96.7 million. Since realization of the tax benefits associated
with these carryforwards is not assured, a valuation allowance of 100% of the
potential tax benefit is recorded as of September 30, 1999.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
OVERVIEW
The following discussion should be read in conjunction with the
Consolidated Financial Statements and notes thereto, contained elsewhere in this
document.
InterDigital Communications Corporation (collectively with its subsidiaries
referred to as InterDigital, the Company, we, us and our) specializes in the
design and development of advanced technology solutions for the wireless
industry. Earlier this year, we initiated a change in strategy from sales and
development of wireless local loop products to technology development for
advanced wireless applications such as Internet access and high data rates for
third generation (3G) applications. In this regard, we continued our development
project with Nokia which is focused on high data rates and wide bandwidth
technology, and initiated the development of 3G commercial "system on a chip"
technology utilizing Frequency Division Duplex (FDD) technology. The new FDD
system on a chip technology is being designed so that it can be embedded into
advanced wireless products for 3G applications, including mobile phones,
personal digital assistants and other devices. We plan to market our FDD and TDD
system on a chip capabilities and technical content to communications equipment
manufacturers and/or semiconductor companies. The Company will also seek to
generate revenues from associated specialized engineering services. We are also
continuing to wind down the remaining commercial aspects related to sale and
service of both the UltraPhone and TrueLink(TM) product lines.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL REQUIREMENTS
We experienced positive cash flow from operating activities of $32.2
million in the nine months ended September 30, 1999 compared to $18.6 million in
the same period in 1998. The positive cash flows in both periods were primarily
due to payments received from new licensees.
Net cash used in investing activities was approximately $33.4 million in
the first three quarters of 1999 and $29.5 million in the first three quarters
of 1998. In both periods, most of the investing activities were associated with
the purchase of short term investments.
During the first three quarters of 1999, we used $2.2 million in financing
activities, primarily to repurchase stock of the Company.
Our working capital at September 30, 1999 was $80.5 million compared to
$54.8 million at December 31, 1998. The $25.7 million increase mainly resulted
from the receipt of cash from licensing agreements.
We had cash, cash equivalents and short-term investments of $80.3 million
as of September 30, 1999 compared to $52.3 million at December 31, 1998.
Inventory levels at September 30, 1999 were $3.4 million, a 33% decrease from
$5.1 million as of December 31, 1998, reflecting product sales in niche markets.
We believe that we are capable of supporting our operating requirements
during 1999 and 2000 through internally generated and existing funds. Should the
need arise to fund new development activities, contingency resolution, external
growth activities or other matters, we may seek financing by means of a bank
loan or line of credit or through the sale of debt or equity securities. We do
not presently maintain bank lines of credit and can give no assurance that we
could secure a loan or line of credit, either at all or on acceptable terms. In
addition, there can be no assurances that we will be able to sell any such
securities, or, if we can, that we can do so on terms acceptable to us.
We believe that our investment in inventories are stated on our September
30, 1999 and December 31, 1998 balance sheets at realizable values based on
expected selling price and order volumes. Property and equipment are currently
being utilized in the Company's on-going business activities, and we believe
that no further write-downs are required at this time due to lack of use or
technological obsolescence. With respect to other assets, we believe that the
value of our patents is at least equal to the value included in the September
30, 1999 and the December 31, 1998 balance sheets.
10
<PAGE>
Results of Operations - Third Quarter of 1999 Compared to the Third Quarter
of 1998
Revenues. Revenues in the third quarter of 1999 totaled $10.8 million,
compared with $4.8 million in the same quarter of 1998. The increase was
principally due to growth in specialized engineering services, higher recurring
royalties from existing patent licensees and the recognition of revenue
associated with new licensing agreements with Japan Radio Company, Ltd. ("JRC")
and Shintom Company, Ltd. ("Shintom"). Recurring royalties from existing
licensees in the third quarter of 1999 totaled nearly $3 million.
Cost of Product. Cost of product for the third quarter of 1999 decreased to
$1.0 million from $3.0 million in the third quarter of 1998, primarily due to a
decrease in product revenues.
Other Operating Expenses. Other operating expenses include sales and
marketing expenses, general and administrative expenses, patent administration
and licensing, and product development expenses.
Sales and marketing expenses decreased 15% to $745,000 during the third
quarter of 1999 as compared to $878,000 during the third quarter of
1998. The decrease is primarily due to a decrease in activity levels, and
reduced commission expenses associated with lower product revenues in the third
quarter of 1999.
General and administrative expenses for the third quarter of 1999 increased
37% to $1.7 million from $1.2 million for the third quarter of 1998. The
increase is primarily due to higher personnel costs and the timing of certain
other strategic spending.
Patents administration and licensing activities expense decreased 88% to
$216,000 for the third quarter of 1999 as compared to $1.8 million during the
same period in 1998. The net decrease is due primarily to the recovery of
certain litigation costs associated with patent administration activities.
Development expenses for the third quarter of 1999 increased 5% to $4.7
million as compared to $4.5 million during the third quarter of 1998. The
increase is due to the ramp-up of technology development for Nokia and other
internal initiatives.
Interest Income and Expense. Interest income for the third quarter of 1999
increased to $1.0 million from $651,000 in the third quarter of 1998 due to
higher average invested cash balances in the third quarter of 1999. Interest
expense for the three month period ended September 30, 1999 was $77,000 as
compared to $75,000 for the three month period ended September 30, 1998 due to
lower outstanding debt in the period.
RESULTS OF OPERATIONS
Results of Operations - Nine Months Ended September 30, 1999 Compared to Nine
Months Ended September 30, 1998
Revenues. Total revenues for the nine months ended September 30, 1999 decreased
5% to $58.3 million from $61.4 million for the nine months ended September 30,
1998, primarily due to a decrease in product sales. Licensing and strategic
partner revenues for the nine months ended September 30, 1999 included $38.9
million from Nokia, $11.3 million from new licenses with Robert Bosch GMBH, JRC
and Shintom, $2.3 million related to the Alcatel and Samsung agreements, and
$3.8 million from recurring royalty licensing revenue. Licensing and strategic
partner revenues for the nine months ended September 30, 1998 included $48.1
million in new licenses from Sharp Corporation, Kyocera Corporation and Toshiba
Corporation, $6.5 million related to the Alcatel and Samsung agreements, and
$0.4 million of recurring royalty licensing revenue.
Cost of Product. The cost of product revenues for the nine months ended
September 30, 1999 decreased 62% to $4.0 million from $10.6 million for the nine
months ended September 30, 1998 due to decreased product sales and the absence
of changes in inventory reserves which negatively impacted the first nine months
of 1998 results.
Operating Expenses. Other operating expenses include sales and marketing
expenses, general and administrative expenses, patent administration and
licensing, and product development expenses.
11
<PAGE>
Sales and marketing expenses decreased 18% to $2.4 million during the nine
months ended September 30, 1999 compared to $2.9 million during the nine months
ended September 30, 1998. The decrease is primarily due to decreased personnel,
travel and commissions expenses, commensurate with the decreased UltraPhone
product revenues and decreased activity levels.
General and administrative expenses for the nine months ended September 30,
1999 increased 25% to $5.1 million from $4.1 million for the nine months ended
September 30, 1998. The increase is primarily due to higher personnel costs and
the timing of certain other strategic spending.
Patents administration and licensing expenses decreased 47% in the nine
months ended September 30, 1999 to $4.5 million compared to $8.6 million in the
first nine months of 1998. We have incurred less costs such as commissions and
other expenses related to our activities supporting our licensing strategy to
offer non-exclusive, royalty bearing patent, technology and know-how and
trademark licenses, and have recovered certain expenses related to an on-going
patent litigation.
Development expenses increased 27% for the nine months ended September 30,
1999 to $15.4 million from $12.2 million for the nine months ended September 30,
1998. The increase over the prior year period is due primarily to increased
staff and activity levels devoted to the development of advanced wireless
applications.
Repositioning of Operations. In the second quarter of 1999, we recorded a
pre-tax repositioning charge of $1.2 million in connection with a change in our
strategy from sales and development of wireless local loop products to
technology development for advanced wireless applications. This action was taken
after assessing our long term business prospects associated with continued
investment in the development of wireless local loop systems. The repositioning
charge included the impacts of workforce reductions (approximately 27 employees)
and asset impairment charges related to wireless local loop development
equipment. The components of the repositioning charge included severance and
other benefit costs of $417,000, all of which are scheduled to be paid in 1999,
and asset impairment charges of $796,000 for fixed assets associated with
wireless local loop activities.
As part of the winding down of the UltraPhone business, we entered into a
contract during the third quarter of 1999 to sell equipment supporting 5,000
lines for a customer in Namibia. In November, 1999, a prospective purchaser in
another country filed an action against us seeking, among other things, a
preliminary injunction to enjoin us from shipping any equipment in fulfillment
of the Namibia contract. If this prospective purchaser is successful in
obtaining a preliminary injunction against us, we could be precluded from
consummating the Namibia sale in accordance with our contractual requirements
and we could be liable for damages for breach of the Namibia contract, among
other things. Moreover, this could occur without the prospective purchaser
ultimately purchasing the inventory in issue.
Income and Expense. Interest income for the nine months ended September 30,
1999 was $2.8 million as compared to $1.7 million for the same period in 1998 as
a result of higher than average invested cash in 1999 as compared to 1998.
Interest expenses for the nine month period ended September 30, 1999 was
$250,000 as compared to $274,000 for the nine month period ended September 30,
1998 due to lower overall debt in the first nine months of 1999 as compared to
the same period in 1998.
Year 2000
Many currently installed computer systems in many companies are not capable
of distinguishing 21st century dates from 20th century dates. As a result,
beginning on January 1, 2000, both IT (Information Technology) and non-IT
systems used by many organizations in a wide variety of industries (including
technology, transportation, utilities, finance and telecommunications) will
produce erroneous results or fail unless they have been modified or upgraded to
process date information correctly. Significant uncertainty exists concerning
the scope and magnitude of problems associated with the century change. We
recognize the need to ensure that our operations will not be adversely affected
by Year 2000 system failures. In this regard, we have been implementing a Year
2000 compliance program, consisting of auditing, assessing, remediating,
testing, and contingency planning, to ensure that our IT and non-IT systems will
function properly beyond 1999. The program is designed to cover both systems
operated by us as well as systems operated by third parties that we consider to
be material to our operations. We
12
<PAGE>
have established a Committee consisting of members of management from various
disciplines to implement this program and have engaged a consultant to assist
the Committee.
As part of our Year 2000 compliance program, we have engaged in a
comprehensive assessment of the potential overall impact of the impending
century change on our business, financial condition and operating results. Our
compliance program is focused on systems and third parties which our management
views as High Risk, leaving compliance efforts relating to other systems and
third parties to be remediated on a resource permitting basis. We believe that
we will have the ability to allocate adequate resources to address all systems
categorized as High Risk under our Year 2000 compliance program and expect any
Year 2000 remediation applicable to our own High Risk systems to be completed on
a timely basis. We have conducted a thorough audit of our systems and have been
testing and upgrading certain systems for Year 2000 compatibility. We have
determined over 80% of our systems designated as High Risk to be in an
acceptable state of Year 2000 readiness. We anticipate a determination of
acceptable readiness of our remaining High Risk systems prior to the end of
1999. However, there can be no assurance that all of our mission critical
systems will be identified, correctly assessed or remediated on a timely basis
or successfully.
In addition, we have contacted certain third parties upon whom we rely to
ensure that those third parties have assessed the Year 2000 issues on their own
systems and are taking steps to ensure that their systems are Year 2000
compatible. Most of these third parties have responded to us that they have Year
2000 projects in process, but have not guaranteed their Year 2000 readiness. A
few of these third parties have not responded to our information requests. There
can be no assurance that the products or systems of third parties upon which we
rely will be identified, correctly assessed or remediated on a timely basis or
successfully.
With respect to our products, we have conducted a series of tests on the
UltraPhone 110 and 110A, all of which were completed successfully, revealing no
date-related failures. However, our testing of the UltraPhone 100 system
demonstrated that the operating system used in Alcyon-based UltraPhone 100
systems is not compliant. We have offered an upgrade to affected customers at
such customers' cost to address this problem. In all other respects, the tests
run on the UltraPhone 100 were completed successfully, revealing no date-related
failures.
Failure to achieve timely and successful Year 2000 compliance could cause
delays or difficulties in development efforts or result in a cessation of
business. There can be no assurance that we will be able to achieve Year 2000
compliance, either successfully or on a timely basis. Moreover, our products and
components may be integrated into larger systems that we cannot adequately
evaluate for Year 2000 compliance. We may face claims based on Year 2000
problems in delaying other companies in their operations or development efforts,
in other companies' products, or issues arising from the integration of multiple
products within an overall system. Our business, financial condition, or results
of operations could be materially adversely affected by the failure of our
systems, our customers' systems or the systems of third parties upon whom we
rely to properly operate or manage dates associated with the impending century
change.
We are at work on the completion of contingency plans to address potential
problems with our internal systems and third party interactions, as well as
mobilization plans designed to reduce the impact of Year 2000 failures and
facilitate business resumption in the event of interruptions caused by Year 2000
failures. These plans include 1999 actions designed to mitigate failures,
century rollover assessment procedures, procedures and plans for dealing with a
major disruption of internal business systems, procedures and plans for dealing
with a business shutdown and identification of alternative vendors of materials
and services. Contingency planning is intended to cover all systems and third
parties designated as High Risk as well as most systems and many third parties
not designated as High Risk. Contingency and mobilization planning will continue
through the end of 1999. The potential ramifications of a Year 2000 type failure
are potentially far-reaching and largely unknown. We cannot assure you that a
contingency plan or a mobilization plan in effect at the time of a system
failure or business interruption will adequately address the immediate or long
term effects of a failure or interruption, either at all or in a timely manner,
or that such a failure or interruption would not have a material adverse impact
on our operations or financial results in spite of careful planning. For
example, replacement of certain development tools could require design and
customization prior to implementation. With very limited exception, we do not
intend to acquire secondary systems prior to January 1, 2000 as part of
contingency planning.
To date, we have not incurred any material costs directly associated with
our Year 2000 compliance efforts. We have incurred the compensation expense
associated with salaried employees who have devoted some of their time to
13
<PAGE>
its Year 2000 assessment, the cost of our remediation efforts and the cost
of our consultant. We do expect to expend additional resources on remediation
efforts out of general corporate funds, but at this time do not expect the total
cost of Year 2000 remediation efforts to be material to our business, financial
condition and operating results. During the months prior to the century change,
we will continue to remediate and/or test our remaining High Risk systems which
are still not in an acceptable state of compliance, as well as certain systems
provided to us by third parties, to the extent reasonably practicable to
determine whether they are Year 2000 compliant. Despite this assessment, we may
not identify, assess and/or correct all significant Year 2000 problems on a
timely basis. Year 2000 compliance efforts may involve significantly more time
and expense than expected, and unremediated problems could affect our business,
financial condition and operating results.
The preceding Year 2000 disclosure is designated a "Year 2000 Readiness
Disclosure" under the Year 2000 Information and Readiness Disclosure Act.
STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The foregoing Management's Discussion and Analysis contains forward looking
statements reflecting, among other things, our current beliefs and expectations
as to product operations and Year 2000 compliance. Words such as "plan",
"believe" and "expect", 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. We caution the
readers that important factors in some cases 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. For
example, our plans to shift our strategic emphasis to 3G technology and products
and to market our FDD system on a chip capabilities and technology content and
the ability to generate revenues from assoicated specialized engineering
services could be affected by shifts in our strategy, the ability to generate
sufficient revenues to support our development activities (which could itself be
affected by numerous factors including, without limitation, the ability to
secure new and enforce existing license agreements and the ability to enter into
new strategic relationships), unanticipated development costs, difficulties or
delays in engineering projects, failure to successfully enter into additional
strategic relationships, inability to hire or retain adequate personnel, Nokia's
exercise of its rights to terminate the development project for convenience, and
the failure of the 3G market to materialize in the manner or timeframe
anticipated. Year 2000 compliance could be affected by the failure of the
Company or third parties to successfully identify, assess or remediate Year 2000
problems on a timely basis or successfully, as well as on the successful
development and implementation of our contingency and mobilization plans. In
addition, factors affecting one forward looking statement may affect other
forward looking statements and other factors may exist that are not listed above
or that are not fully known to us at this time. We undertake no obligation to
publicly update any forward looking statements, whether as a result of new
information, future events or otherwise.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
There have been no material changes in quantitative and qualitative market
risk from the disclosure included in the December 31, 1998 Form 10-K.
14
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
As reported in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998 and Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1999 and June 30, 1999, InterDigital is a party to a lawsuit involving
Ericsson Inc. During the third quarter 1999, Ericsson filed a Motion to file a
Fifth Amended Complaint to add claims for breach of contract and fraud. This
Motion has not yet been decided by the Court.
In addition to the litigation described above, the Company is a party to
certain legal actions described in Item 2 "Management's Discussion and Analysis"
herein, associated with patent enforcement and licensing activities and arising
out of the other in the ordinary course of its business. Based on current
information, Management believes that the outcomes of these other matters will
not have a material impact on our financial position or results of operations.
Item 6. Exhibits and Reports on Form 8-K.
(a) The following is a list of exhibits filed as part of this Form 10-Q:
Exhibit 10.25 Separation and Confidentiality Agreement dated
September 23, 1999 by and between InterDigital and
William A. Doyle.
Exhibit 27 Financial Data Schedule
(b) The following is a list of Current Reports on Form 8-K filed during the
third quarter of 1999:
None.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERDIGITAL COMMUNICATIONS CORPORATION
Date: November 11, 1999 /s/ Howard E. Goldberg
--------------------------------
Howard E. Goldberg , Interim
President
Date: November 11, 1999 /s/ R. J. Fagan
--------------------------------
Richard J. Fagan, Executive Vice
President and Chief Financial
Officer
- ------------------------------------------------------------------------------
SEPARATION AND CONFIDENTIALITY AGREEMENT
- ------------------------------------------------------------------------------
THIS SEPARATION AND CONFIDENTIALITY AGREEMENT is made effective as of the
23rd day of September 1999 by and between WILLIAM A. DOYLE, 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, Executive has been employed by the Company in the capacity of
President, is a member of the Board of Directors of the Company, and holds
various positions in executive management and on the boards of the Company's
subsidiaries; and
WHEREAS, during his tenure as President of the Company, Executive and
Company entered into an Employment Agreement dated November 20, 1996 (the
"Employment Agreement") which provided for certain obligations and benefits upon
the termination of Executive's employment; and
WHEREAS, Executive intends to submit his resignation from his positions as
a director, officer and employee of the Company, and the Company intends to
accept such resignation; 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 reimburse Executive for
reasonable Company business expenses incurred prior to September 23, 1999, (iii)
any agreement under which Executive holds options, and (iv) Sections 6, 7, 8c,
and 8d of the Employment Agreement (all such agreements and understandings other
than those
<PAGE>
described in clause (i), (ii), (iii) and (iv) 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 September 23, 1999, 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 President and member of the 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 September 23, 1999, 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. Employment Agreement. Company waives its rights under Sections 8a and 8b
of the Employment Agreement. Executive and Company waive any prior notice
requirements applicable to Executive's resignation. Executive reaffirms his
obligations under Sections 6 and 7 of the Employment Agreement.
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 provided Executive does not revoke this Agreement pursuant to
Section 8 herein:
(a) Salary Continuation. Company shall pay to Executive all accrued but
unpaid (as of September 23, 1999) base salary and vacation. In addition, Company
shall pay to Executive severance in an amount equal to Executive's current base
salary (i.e., $275,000 per annum) for the period of thirteen (13) months. All
such amounts shall be payable in accordance with Company's normal payroll
practices.
(b) Executive Bonuses. Company shall pay Executive on the earlier of
March 31, 2000 or the date the Company pays bonuses to executives and employees
for 1999, Executive's full bonus applicable to the 1999 calendar year as if
Executive had fully served during such term as President. Such bonus shall be
determined in accordance with the 1999 Employee Bonus Plan to be adopted by the
Company's Board of Directors. In determining such bonus, Executive shall (i) be
assigned an annual target incentive bonus of no less than ten percentage points
above the annual incentive target bonus for Executive Vice Presidents, (ii) be
deemed to have achieved an individual performance appraisal rating of no less
than "3" (equating to an achievement of 80% of the target bonus associated with
the individual goal) and (iii) to have a base salary of $275,000. With regard to
the Executive, the entire bonus shall be
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<PAGE>
paid in cash notwithstanding the option of the Company under the Plan to
pay a portion of such bonus in non-cash consideration. Notwithstanding the
foregoing, Executive's minimum bonus shall be $90,000.
(c) 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 and dental
insurance will continue insofar as permitted by the contracts with the
Company's group insurance providers and by applicable law through September
22, 2000. Any required employee contribution to the medical or dental plan
premium will be deducted from Executive's 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 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 September 22, 2000 provided that Executive
elects COBRA coverage and that he satisfies the statutory eligibility
criteria.
(iii) The Company's obligation to continue medical and dental
coverage will cease if Executive is eligible 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 Gary Isaacs, Vice President of
Human Resources of the Company.
(d) Stock Options. As of the date hereof, Executive holds the options
set forth on the table below. Notwithstanding any vesting schedules
applicable to such options, all such options shall be fully vested. In
addition, notwithstanding termination of Executive's employment with the
Company, the Company represents and agrees that the termination dates of
these options shall be extended, as reflected on the table below, subject to
the change of control provisions in the applicable stock option plan under
which the stock options were granted.
<TABLE>
<CAPTION>
Options Option Exercise Current Expiration Early New
Outstanding Price Date Termination Termination
Date Date
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
30,000 $4.0000 12/31/2000 12/31/2000 12/31/2000
60,000 $5.2500 8/24/2002 8/24/2002 8/24/2002
5,000 $9.2500 12/27/2002 12/27/2002 12/27/2002
20,000 $4.3750 3/22/2004 3/22/2004 3/22/2004
200,000 $5.4375 9/21/2007 9/21/2007 9/21/2007
10,000 $5.8750 2/20/2001 12/23/1999 2/20/2001
33,334 $3.0000 12/10/2004 3/23/2000 9/22/2001
40,000 $7.6875 10/5/2006 3/23/2000 9/22/2001
</TABLE>
-3-
<PAGE>
(e) Computer Equipment. Executive may retain, and the Company hereby
conveys all right and title to Executive, for the laptop computer at his home
and the Palm Pilot previously provided to him by the Company.
(f) Subscription. Company shall maintain Executive's Wall Street
Journal subscription on his behalf through the end of the subscription
period. Company shall arrange for delivery of this subscription to
Executive's home address.
(g) Voice Mail, Email, Cell Phone and Card Access. William Merritt,
General Counsel to the Company, will screen Executive's email and forward to
him any personal messages through the end of 1999. In addition, the Company
will maintain an active voice mail for Executive through the end of 1999.
Executive may retain, and the Company hereby conveys all right and title to
the cellular phone provided to Executive by Company, and Company agrees to
reimburse Executive for all termination or early cancellation charges
incurred by Executive as a result of any change to or cancellation of the
AT&T cellular plan in which the Executive is currently subscribed. Executive
shall retain his office keys and Executive's card access to the building will
be maintained so that Executive can retrieve his personal belongings until
September 27, 1999.
(h) Outplacement. Company will pay for Executive to receive six (6)
months of outplacement service, such outplacement service to be commensurate
with the type of position held by the Executive in the Company. Further,
Executive may extend the outplacement, at his option and at Company's
expense, on a month to month basis for an additional three (3) months and for
such further time as may be mutually agreed to (Company's agreement not to be
unreasonably withheld).
(h) Miscellaneous Benefits. (i) Executive's (but not Company's)
contributions to the 401(k) Savings Plan will continue if Company is
permitted to do so by law and under the terms of the Plan. Otherwise,
Executives payroll deductions will cease effective September 23, 1999.
(ii) If Executive is a participant in Flexible Reimbursement Account,
he has the option to continue participation in the plan through deductions
from salary continuation or cancel his deductions effective September 23,
1999. If Executive wishes to cancel this deduction, he should complete a
Flexible Reimbursement Account change form and return to Mr. Isaacs, Vice
President of Human Resources to effect this change.
(iii) Executives life and disability insurance shall terminate on
September 23, 1999. Executive should contact Mr. Isaacs for information about
converting insurance policies to an individual policy.
-4-
<PAGE>
(iv) Executive may be eligible to file for unemployment benefits
immediately. Executive's salary continuance and vacation day pay should not
reduce the unemployment compensation. There is a one week waiting period for
eligibility. Executive should contact his state unemployment office and sign
up as soon as possible.
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, records, notebooks, files,
correspondence, reports, memorandum, personal property owned by the Company,
or any other documents and material containing Confidential Information.
Executive represents that he has returned all door and file
-5-
<PAGE>
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(e) and 4(g) herein. Executive further agrees that he will not make, retain,
remove or distribute any copies of any of the foregoing.
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 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.
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 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
-6-
<PAGE>
origin, religion or sex;
(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 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(d) of this
Agreement.
(b) In executing this Agreement and the general release contained in
this Section 8 above, Executive acknowledges the following:
(i) Executive has read all of the terms of this Agreement, and has
had an opportunity to discuss it with individuals of his own choice who are
not associated with the Company. Executive has been advised by the Company to
consult with an attorney of his own choosing.
(ii) Executive has been given the opportunity to take a period of at
least twenty-one (21) days within which to consider this Agreement. If
Executive chooses to sign this Agreement before that date, he has done so
knowingly and voluntarily.
(iii) Executive understands that he has the right to change his mind
and cancel this Agreement within seven (7) days following the date that he
signed it. This Agreement will not be effective until the end of this period,
without revocation.
(iv) Executive understands the terms of this Agreement, including the
fact that he has permanently and irrevocably severed his employment
relationship with the Company and that this Agreement releases forever the
Company from any legal action rising from his employment relationship and the
termination of his employment relationship with the Company. Executive signs
this Agreement of his own free will in exchange for the consideration
-7-
<PAGE>
to be given to him, as listed above, which he acknowledges as adequate and
satisfactory. Neither the Company, nor its agents, representatives or
employees, have made any representations to Executive concerning the terms of
effects for this Agreement, other than those contained in this Agreement.
Executive also acknowledges that the parties have complied with the
requirements of the Older Workers Benefit Protection Act of 1990.
(v) 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 or directorship with the Company or the
termination of that employment or directorship. 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.
(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.
-8-
<PAGE>
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. (a) Executive agrees to cooperate and provide
assistance to Company as reasonably necessary in connection with his
resignation and the change-over resulting therefrom.
(b) 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, 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, as well
as any other actions or proceedings currently pending or threatened against
the Company or hereafter initiated against the Company. In this regard,
Company shall reimburse Executive for lost work time. In addition, assist
time (other than time spent testifying) shall not exceed one and one-half
(1-1/2) days for each day of anticipated testimony time. 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 William Merritt, Senior Vice President, General Counsel &
Secretary, InterDigital Communications Corporation, 781 Third Avenue, King of
Prussia, Pennsylvania 19406-1409 (Fax No. 610-878-7844) 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.
12. Entire Agreement. This Agreement constitutes 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.
-9-
<PAGE>
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 Executive 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.
18. Enforcement. All remedies at law and equity shall be available
for the enforcement of this Agreement.
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
-10-
<PAGE>
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.
Witness:
- ---------------------------------- -----------------------------
WILLIAM A. DOYLE
Date:
--------------------
INTERDIGITAL COMMUNICATIONS CORPORATION:
By: Attest:
------------------------------ -----------------------------
Title:
---------------------------
Date:
---------------------------
-11-
<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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1999
<CASH> 16,669
<SECURITIES> 63,659
<RECEIVABLES> 6,171
<ALLOWANCES> 74
<INVENTORY> 3,435
<CURRENT-ASSETS> 93,140
<PP&E> 24,588
<DEPRECIATION> 16,951
<TOTAL-ASSETS> 114,844
<CURRENT-LIABILITIES> 12,614
<BONDS> 2,667
0
10
<COMMON> 486
<OTHER-SE> 99,067
<TOTAL-LIABILITY-AND-EQUITY> 114,844
<SALES> 2,022
<TOTAL-REVENUES> 58,307
<CGS> 4,002
<TOTAL-COSTS> 32,817
<OTHER-EXPENSES> 1,213
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 250
<INCOME-PRETAX> 28,170
<INCOME-TAX> 2,822
<INCOME-CONTINUING> 25,348
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,348
<EPS-BASIC> .52
<EPS-DILUTED> .52
</TABLE>
