InterDigital Inc (IDCC)

[rmarchma]

Corp_Buyer re new LTI Plan and Bonus Plan

First the Long-Term Incentive Plan initiated 4/1/04 is different from IDCC's Annual Bonus Plan as amended on 9/30/04. So don't use the term LTI Bonus, because this would commingle the two separate compensation plans. However, they are similar in that both of these plans compensates IDCC employees with both Cash and with RSUs. The LTI Plan covers executives, managers, and administrative personnel, which compose about one third of IDCC's workforce or approximately 100 people. However, the Annual Bonus Plan covers all of IDCC's employees.

The LTI plan is composed of cash incentives and RSU incentives, with more being awarded through the RSU incentive portion than through the cash incentive portion. If you are trying to look at the total value of the LTI incentives per year, rather than the amount actually recorded into expense each year, then I will answer your question with a yes.

The total value of the cash incentive and RSUs granted for the nine months of 2004 under the LTI Plan was $9.5m ($2.9m cash and $6.5m total value of the RSU grant). At this point we are really not sure of the total value of the cash incentives and RSUs granted for 2005 under the LTI Plan, but I would estimate from limited data available, that it could be around $16m. We will have a much better handle on the 2005 LTI Plan cost and total value when the first quarter 10Q is published.

IDCC still has an Annual Bonus Plan, and it was amended on 9/30/04. Although the plan is for all IDCC employees, it is still heavily weighted toward the executives and managers. The new LTI Plan did not supersede the Bonus Plan, it is in addition to the Bonus Plan. The Annual Bonus plan primarily provides Cash bonuses, but up to 30% of the Bonus could be paid with RSUs. I have seen no data regarding the total cost of the Annual Bonus Plan.

It appears that the RSUs that were granted on 1/1/05 were for the LTI Plan, whereas the RSUs that were granted on 2/28/05 were for the Annual Bonus Plan. The Annual Bonus for a given year is normally paid to the employees between February 15 and March 31 of the following year, according to the amended plan document. The insiders were receiving about 20% of the number of RSUs in the February 28 Bonus compared to the number of RSUs received in the January 1 LTI Plan. However only a maximum of 30% of the Annual Bonus can be in the form of RSUs.

Olddog found IDCC's amended Annual Bonus Plan and provided the following link:

http://www.sec.gov/Archives/edgar/data/354913/000119312505067076/dex1066.htm

It is very disturbing to me that compensation is spiraling out of control at IDCC. The cost of the new LTI Incentive compensation plan will be a lot more than initially thought, plus it is dilutive to the shareholders to boot and will further beget additional insider selling. There were 370,000 RSUs granted in 2004 in conjunction with the LTI Plan, and I don't know how many were granted in conjunction with the Annual Bonus Plan. I estimate that there was probably around 470,000 RSUs granted in 2005 in conjunction with just the LTI Plan. This does not include the RSUs granted under the Annual Bonus Plan, or the RSUs granted to the Directors for their compensation.

It is appalling to me that the executives and managers are getting a double dose of additional compensation through both the LTI Plan and the Annual Bonus Plan. I was hoping that the LTI Plan would have superseded the Annual Bonus Plan, at least for those covered under the LTI Plan. Also I thought it was very bad timing by IDCC to initiate new compensation plans when they did, ie before the resolution of the Nokia and Samsung arbitrations and before 3G licenses are secured with the tier 1 manufacturers.

It just appears that IDCC is bound and determined to richly reward themselves no matter what. This excessive compensation at IDCC begins with and is instigated by Harry Campagna. I firmly believe that the starting point and best way to improve IDCC is to completely rid the company of Mr. Campagna.