InterDigital Inc (IDCC)

[Corp_Buyer]

"options sparingly last year"- NOT TRUE, since employees got about 4% of the company in 2002 and about 11% of the company the year before from grants and exercises (with over 34% of grants to management mind you). IMO, on average in recent years, employees got about 7% of the company per year, far above established norms at other companies. See these data and industry comparisons in my prior post:

http://investorshub.com/boards/read_msg.asp?message_id=1043745

Posted by: Corp_Buyer
In reply to: Corp_Buyer who wrote msg# 28292 Date:5/27/2003 12:42:24 PM Post #of 28840

ALL: FOLLOW THE MONEY …

…from shareholders to employees: The purpose of this post is to present (1) various disclosures by management over the past few years and (2) my personal view of these facts in comparison to actual norms for ISO practices.

For your reference, please see the Watson Wyatt presentation of ISO norms which clearly addresses such questions as: What is the optimum size for an ISO option pool? At what point does the “dilution effect” overtake the “incentive effect”? What is an appropriate “run rate” of ISO grants for companies in various sectors? See (wait for 300K file to download):
http://www.fei.org/download/Ira_kay.ppt

(1) First, here are the facts from IDCC, per management disclosures (see SEC filings):

GRANTS:
2000 per 10K 2,513,000
2001 per 10K 5,109,000
2002 per 10K 1,056,000
Total Grants last 3 Years 8,678,000
Average grants per year 2,892,667

EXERCISES:
2000 per 10K 686,000
2001 per 10K 184,000
2002 per 10K 695,000
Total Exercised last 3 Years 1,565,000
Average Exercised per year 521,667

TOTAL Grants and Exercises:
2000 per 10K 3,199,000
2001 per 10K 5,293,000
2002 per 10K 1,751,000
3 Year Total 10,243,000
AVERAGE per year (3 years) 3,414,333

NUMBER of shares outstanding at 12/31/1999 per 10K 48,357,000

PERCENT of IDCC to employees via grants and exercises over last few years:
2000 6.62%
2001 10.95%
2002 3.62%
3 Year Total 21.18%
AVERAGE % per year (3 years) 7.06%

"Securities to be Issued Upon Exercise" (proxy page 18) 10,769,434
"Remaining Available for Future Issuance" (proxy page 18) 5,603,153
Exercised (3 Year Total from above) 1,565,000
Total shares excluding 5M new shares 17,937,587
Shares Percent EXCLUDING 5M new shares 37.1%

5M ADDITIONAL REQUESTED SHARES 5,000,000
Total shares including 5M new shares 22,937,587
Shares Percent INCLUDING 5M REQUEST 47.4%

(2) Following are my personal views about the above facts.
Since passage of the 2000 ISO Plan in the past few years, we have witnessed multiple expansions (both approved and not approved by shareholders), a high rate of ISO grants in some years (11% of the company), and significant ISO exercises, so I will take all these factors into consideration and assess the 2000 Plan at its creation looking forward. Accordingly, IMO IDCC compares to the norms reported by Watson Wyatt as follows:

* WW identifies about 13-15% as the optimum ISO pool size for all companies in general (“Percentage of Shares for Employees”) while the highest “sweet spot” norm in the survey is 25% for “technology” companies that are highly R&D intensive. IMO, the 13-25% “sweet spot” norm compares to 37.1% (ISO shares percent EXCLUDING 5M new shares) and 47.4% (ISO shares percent including 5M request). Therefore, IDCC is extremely far into the “dilution effect” dominates range. Furthermore, the incentive effect of the ISO pool at IDCC is especially diminished, IMO, due to the rich wages at the company, the stability of incumbent management including Directors, and the fact that we have over 10.7M ISO shares already granted to employees! Incidentally, in just one year, 2001, IDCC employees enjoyed grants and exercises for 11% of the company, almost the entire ISO total pool size ( 13-15%) for all companies!

* WW identifies the 2000 “run-rate” of 2.5% for “all” companies, 2.1% for “communications”, and “4.1%” for “technology’ companies (which is also the highest reported “run-rate” norm). This norm of 2-4% compares to 7% average for IDCC. Again, our company is well above, about DOUBLE, the established run-rate norms.

* The implications of these data are clear: IDCC ISO practices are significantly dominated by the “dilution effect”, not the “incentive effect” and the ISO pool and grant rate are EXTREMELY RICH already in comparison to established norms. With due respect to management, the new request for 5M more ISO shares is entirely unnecessary and is furthermore inappropriate, IMO.

Therefore, I have voted “NO” on proxy measure #2, and I urge all other shareholders to do likewise.

All IMHO.
Regards,
Corp_Buyer