Dish, can't agree with $1 per share
The new options will cost nothing (zero dilution) unless the value of the company increases. So, we must assume a higher market capitalization to determine the cost (dilution).
Not necessarily. It is absolutely true that no one will exercise an underwater option, however, they will exercise and sell while in the money, and the dilution does not go away if the price falls. There was dilution between 1999 and 12/31/2000 when our price fell to $5.00.
Let's assume InterDig grows to a market cap of $3b OK? (The higher the number, the greater the dilution.)
At a $3b market cap the PPS is $50 assuming 60m shares outstanding.
If 5m options are exercised there would be 65m shares outstanding and the PPS would be $46.14.
The 5m exercised options would have cost us $3.86 per share.
Correct. It will cost each current investor an additional 1/13th of their investment, both the cost and profit, whenever they sell at whatever price.
However, the optionees would have paid cash for their options equal to the strike price. If the average strike price was $35 per share, there would have been $175,000,000 added to InterDig's capital (and, presumably, to its market cap). So the cost to us is reduced by $2.91 ($175m/60m).
I don't agree. You adjust the market cap for $175 million cash coming in but do not adjust for the proportionate loss of ownership of the current cash and other assets in excess of liabilities. Look at my post 22443 which lays out the valuation comparing the use of options vs. cash for compensation.
Also, InterDig gets a tax break for the options - I don't know what that's worth.
See my post 22443 regarding this as well. BSW did not respond to my comments, so I am still unclear about the tax benefit to be gained by using options instead of cash compensation.
Bottom line - the CPA's are in a tizzy over a net cost of less than $1.00 per share. Don't be fooled - as long as the law allows, options are good for your InterDigital investment.
I don't agree they are a net cost of $1.00 per share - check out the option quotes to get some parameters on the value of options. However, in the spirit of being generous, instead of giving them options lets give them a $2.00 cash per option bonus (subject to the same vesting) instead. They get double what its worth.
Dish, I respect you and understand that you do believe that management with these options will be able to increase shareholder wealth beyond the dilutions affect. With that belief you are doing what is best for the company by voting yes. I don't see any shortage of cash or available options to continue with the business plan the company is executing. I want a more definitive answer as to why the options are needed now to convince me, so I am voting no. Two calls to IR where I politely stated my question and left phone and e-mail contacts have not been returned. Has anyone else had any discussion on this with the company?
One aside - I gotta laugh at the rap CPA's are taking here. In a tizzy, wanna be consultants, bean counters. Folks, we are people who count money and work with financial information for a living. We are invested in this company and want to maximize our return. We may not be the smartest or most eloquent posters here, but when it comes to analyzing numbers don't discount our expertise.
The Count
