-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DXE6QisugVbIunezGKor6tFAKQJ3kOHDcxPuzUbmxwkZ2Cpl/1xPYqXo9UO/zD6x Jhm/CBzfVD/h3LfsPBfdVw== 0000950115-97-000472.txt : 19970401 0000950115-97-000472.hdr.sgml : 19970401 ACCESSION NUMBER: 0000950115-97-000472 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERDIGITAL COMMUNICATIONS CORP CENTRAL INDEX KEY: 0000354913 STANDARD INDUSTRIAL CLASSIFICATION: PATENT OWNERS & LESSORS [6794] IRS NUMBER: 231882087 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11152 FILM NUMBER: 97569590 BUSINESS ADDRESS: STREET 1: 781 THIRD AVE CITY: KING OF PRUSSIA STATE: PA ZIP: 19406-1409 BUSINESS PHONE: 6102787800 MAIL ADDRESS: STREET 1: 781 THIRD AVE CITY: KING OF PRUSSIA STATE: PA ZIP: 19406-1409 FORMER COMPANY: FORMER CONFORMED NAME: INTERNATIONAL MOBILE MACHINES CORP DATE OF NAME CHANGE: 19920703 10-K 1 ANNUAL REPORT 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. 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 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 2 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 3 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. 4 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 5 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. 6 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. 7 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 8 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 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 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 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 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:
NAME AGE POSITION ---- --- -------- 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
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 13 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 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 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 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".
1992(1) 1993 1994 1995 1996 ------- ---- ---- ---- ---- 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
- --------------------------------------- (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 (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 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 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 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 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 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 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 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 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 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 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 INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands)
DECEMBER 31, DECEMBER 31, ASSETS 1995 1996 ------- ------------ ------------- 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 ========= =========
The accompanying notes are an integral part of these statements. 29 INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED) (in thousands)
DECEMBER 31, DECEMBER 31, LIABILITIES AND SHAREHOLDERS' EQUITY 1995 1996 - ------------------------------------ ------------- ----------- 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 ========= =========
The accompanying notes are an integral part of these statements. 30 INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)
FOR THE YEAR ENDED DECEMBER 31, -------------------------------- 1994 1995 1996 -------- --------- -------- 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 ======== ======== ========
The accompanying notes are an integral part of these statements. 31 INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in thousands)
$2.50 Additional Convertible Common Paid-In Accumulated Deferred Preferred Stock Stock Capital Deficit Compensation Total -------------------------------------------------------------------------- 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 =========================================================================
32 INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
For the year ended December 31, -------------------------------- 1994 1995 1996 --------- --------- ---------- 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 ======== ======== ========
The accompanying notes are an integral part of these statements. 33 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 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 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 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 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 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 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 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 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 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):
Available For Outstanding Options Grant Number Price Range ----- ------ ----------- 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 ====== ======
1994 1995 1996 ---- ---- ---- 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 ===== ===== =====
43 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):
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 - --------------- ----------- ----------- ------------ ------------ --------------- $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 ===== ===== ====== ===== =+====
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 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 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 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 *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 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 INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS (in thousands)
Charged Balance at to Costs Charged to Balance Beginning of and Other at End Description Period Expenses Accounts Deductions of Period ----------- ------ -------- -------- ---------- --------- 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
Notes: (1) Write-off of amounts reserved in prior periods. (2) Recovery of a previously reserved receivable. 50 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 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 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 EX-10.19 2 MATERIAL CONTRACTS 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 299 1 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, 299 2 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. 299 3 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% 299 4 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. 299 5 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 299 6 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 299 7 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. 299 8 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 299 9 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. 299 10 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. 299 11 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 EX-10.20 3 PRODUCTION AGREEMENT FOR PROD IV RADIO UNITS Production Agreement for Prod IV (Model P-4R) Radio Units 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 i 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 25. GOVERNING LAW............................................. 14 26. TAXES..................................................... 14 27. INDEPENDENT CONTRACTOR.................................... 14 28. LABELING ................................................ 14 29. PUBLIC ANNOUNCEMENTS. ................................... 15 iii 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). 1 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 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 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 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 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 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 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 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 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 (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 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 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 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 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 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 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 EX-10.21 4 DEVELOPMENT AGREEMENT FOR PROD IV RADIO UNITS Development Agreement for Prod IV (Model P-4R) Radio Units TABLE OF CONTENTS 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 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
ii 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 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 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 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 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 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 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 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 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 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 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 11 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 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 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 EX-10.22 5 AGREEMENT =============================================================================== EMPLOYMENT AGREEMENT BETWEEN GREGORY WEBB AND INTERDIGITAL COMMUNICATIONS CORPORATION OCTOBER 14, 1996 =============================================================================== -1- 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"). -1- 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 -2- 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- 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- 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- 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- (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 -7- 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 -8- 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- 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 -10- 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. -11- (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 -12- 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 -13- (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. -14- 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 -15- 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 -16- 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. -17- 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 -18- EX-10.23 6 AGREEMENT =============================================================================== EMPLOYMENT AGREEMENT BETWEEN JAMES W. GARRISON AND INTERDIGITAL COMMUNICATIONS CORPORATION NOVEMBER 20, 1996 =============================================================================== = 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 1 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 2 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 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 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 (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 or affiliate of the Company as conducted during the Term with respect to any period during the Term, or upon the termination of Employee's employment hereunder with respect to any period thereafter, or become interested in (as owner, stockholder, lender, partner, co-venturer, director, officer, employee, agent, consultant or otherwise) any portion of the business of any person, firm, corporation, association or other entity where such portion of such business is competitive with the business of the Company or of any subsidiary or affiliate of the Company as conducted during the Term with respect to any period during the Term, or upon termination of Employee's employment hereunder with respect to any period thereafter. Notwithstanding the foregoing, Employee may hold not more than one percent (1%) of the outstanding securities of any class of any publicly-traded securities of a company that is engaged in activities referenced in Section 8(a) hereof; (c) influence or attempt to influence any licensee, strategic partner, supplier, or customer of the Company or potential licensee, strategic partner, supplier or customer of the Company to terminate or modify any written or oral agreement or course of dealing with the Company; or (d) influence or attempt to influence any person to either (i) terminate or modify his employment, consulting, agency, distributorship or other arrangement with the Company, or (ii) employ or retain, or arrange to have any other person or entity employ or retain, any person who has been employed or retained by the Company as an employee, consultant, agent or distributor of the Company at any time during the twelve (12) month period immediately preceding the termination of Employee's employment hereunder. For purposes of this Section 8, the Restricted Period shall constitute (as applicable) (i) the period, if any, that Employee shall receive severance as set forth in Section 9 hereof, (ii) in the event Employee's employment hereunder is terminated for cause pursuant to Section 9 hereof, a period of one (1) year following such termination, or (iii) in the event that Employee terminates this Agreement without Good Reason, so long as the Company voluntarily pays severance to Employee (which the Company shall be under no obligation to do), for the period that Employee shall 7 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 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 9 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 10 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 11 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 12 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, 13 (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. 14 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. 15 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. 16 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 17 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 EX-10.24 7 AGREEMENT =============================================================================== EMPLOYMENT AGREEMENT BETWEEN HOWARD E. GOLDBERG AND INTERDIGITAL COMMUNICATIONS CORPORATION February 25, 1997 ============================================================================== 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 1 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. 2 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 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 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 (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 competitive with the Business of the Company or of any subsidiary or affiliate of the Company as conducted during the Term with respect to any period during the Term, or upon the termination of Employee's employment hereunder with respect to any period thereafter, or become interested in (as owner, stockholder, lender, partner, co-venturer, director, officer, employee, agent, consultant or otherwise) any portion of the business of any person, firm, corporation, association or other entity where such portion of such business is competitive with the business of the Company or of any subsidiary or affiliate of the Company as conducted during the Term with respect to any period during the Term, or upon termination of Employee's employment hereunder with respect to any period thereafter. Notwithstanding the foregoing, Employee may hold not more than one percent (1%) of the outstanding securities of any class of any publicly-traded securities of a company that is engaged in activities referenced in Section 8(a) hereof; (c) influence or attempt to influence any licensee, strategic partner, supplier, or customer of the Company or potential licensee, strategic partner, supplier or customer of the Company to terminate or modify any written or oral agreement or course of dealing with the Company; or (d) influence or attempt to influence any person to either (i) terminate or modify his employment, consulting, agency, distributorship or other arrangement with the Company, or (ii) employ or retain, or arrange to have any other person or entity employ or retain, any person who has been employed or retained by the Company as an employee, consultant, agent or distributor of the Company at any time during the twelve (12) month period immediately preceding the termination of Employee's employment hereunder. For purposes of this Section 8, the Restricted Period shall constitute (as applicable) (i) the period, if any, that Employee shall receive severance as set forth in Section 9 hereof, (ii) in the event Employee's employment hereunder is terminated for cause pursuant to Section 9 hereof, a period of one (1) year following such termination, or (iii) in the event that Employee terminates this Agreement without Good Reason, so long as the Company voluntarily pays severance to Employee (which the Company shall be under no obligation to do), for the period that Employee shall 7 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 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 9 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 10 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 11 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 12 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, 13 (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. 14 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. 15 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. 16 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 17 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 EX-10.25 8 AGREEMENT =============================================================================== EMPLOYMENT AGREEMENT BETWEEN WILLIAM A. DOYLE AND INTERDIGITAL COMMUNICATIONS CORPORATION NOVEMBER 20, 1996 =============================================================================== 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 1 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 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 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 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 (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 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. 7 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 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 9 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 10 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 11 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 12 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, 13 (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. 14 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. 15 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. 16 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 17 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 18 EX-10.26 9 AGREEMENT =============================================================================== EMPLOYMENT AGREEMENT BETWEEN CHARLES R. TILDEN AND INTERDIGITAL COMMUNICATIONS CORPORATION NOVEMBER 18, 1996 =============================================================================== -1- 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"). -1- 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 -2- 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, -3- 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 -4- 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 -5- 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- (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 -7- 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- 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- 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- 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- 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- (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- 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- 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- 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- 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- 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- EX-10.27 10 AGREEMENT SEVERANCE BENEFIT AGREEMENT BETWEEN INTERDIGITAL COMMUNICATIONS CORPORATION AND D. RIDGELY BOLGIANO 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. 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 - ------------------------------------ EX-10.29 11 AGREEMENT SEVERANCE BENEFIT AGREEMENT BETWEEN INTERDIGITAL COMMUNICATIONS CORPORATION AND MARK LEMMO 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. 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 - ------------------------------------ EX-10.30 12 CONSULTING AGREEMENT 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 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. 2 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. 3 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 EX-10.31 13 SEPARATION AGREEMENT - ------------------------------------------------------------------------------ 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 -1- 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: -2- (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 -3- 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 -4- 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. -5- 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 -6- 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 -7- 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; -8- (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. -9- (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, -10- 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. -11- 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. -12- 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- INTERDIGITAL COMMUNICATIONS CORPORATION: By: /s/ Harry Campagna Attest: /s/ Jane Schultz --------------------------- ------------------------- Harry Campagna Title: Chairman of the Board Date: May 17, 1996 -14- EX-11 14 COMPUTATION OF PER SHARE EARNINGS 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. EX-23.1 15 CONSENT OF EXPERTS 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 EX-27 16 ARTICLE 5 FOR 1996 10-K
5 EXHIBIT 27 INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES Financial Data Schedule (Unaudited) 1,000 YEAR DEC-31-1996 DEC-31-1996 11,954 43,063 14,479 558 13,863 86,714 18,900 8,383 112,636 29,638 4,221 0 10 481 72,016 112,636 24,974 53,693 27,370 27,370 21,609 (339) 271 (7,200) 3,554 (11,644) 0 0 0 (11,644) (.26) (.26)
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