Chartex re why Colorado Retirement liquidated its IDCC position
I don't think that Colorado Retirement's complete liquidation of their position in IDCC was due to a portfolio manager leaving in December. I'm fairly sure that they had completely sold out of their IDCC position by Thanksgiving. The chief legal counsel of Colorado Retirement said in a telephone conversation that a failed meeting with Mr. Campagna regarding corporate governance issues and concerns was a major factor in Colorado Retirement's decision to completely liquidate their position in IDCC. Harry Campagna had preliminarily agreed to meet with representatives from Heartland, Barclays, Colorado Retirement, Iowa/Wisconsin Pension Fund, a very large individual shareholder, and myself in Chicago around the middle of October.
Mr. Campagna subsequently changed his mind, and said that it was against corporate policy to meet with individual shareholders. Thus he decided not allow individual shareholders into this meeting, no matter how large their position. The chief legal counsel and the portfolio manager for Colorado Retirement then declined to attend the meeting. The chief legal counsel said that Colorado Retirement represented individual employees of the state of Colorado and if Mr. Campagna would not meet with all parties, including individual shareholders, then Colorado Retirement would not be part of the meeting. This planned October meeting fell through, and Mr. Campagna met with no one to my knowledge about these corporate governance issues.
Emails were sent to IDCC's Board of Directors in late October after the failed meeting. There was no direct response from any of IDCC's directors. Emails were sent again to the Board of Directors two weeks ago expanding upon those first emails. There have been no responses from IDCC on these emails. I sent one final email last week. Some selected excerpts from my last email as follows:
Mr. Campagna,
As you know, Mr. xxx, Mr. xxx, myself, and representatives from Heartland, Barclays, and Colorado Retirement did try to meet with you in person in October to go over our shareholder concerns and to provide some legitimate input....When we were unsuccessful in getting you to meet with us in Chicago, Colorado Retirement has since liquidated all or most of its position as one of IDCC's three largest stockholders.
The true role of a corporate director is a fiduciary responsibility to be the ultimate shareholder advocate. Mr. xxx and I thought that our initial emails to the board in October, after the failed meeting, were serious enough to at least receive direct acknowledgement by you or one of the other directors. When the directors appear to be disregarding their fiduciary role and doing things detrimental to the outside shareholders, then these are some serious concerns.
I am writing to you and the other directors to try and affect positive changes and needed improvements at IDCC. I have previously written to selected InterDigital executives for the same reasons....As long as I am a shareholder, I will not be passive but will continue to try to affect positive changes and needed improvements at IDCC. InterDigital is still a public corporation accountable to its shareholders, and not a private club that can be run at the whims of a few.
I will reiterate the shareholder concerns and suggestions that I first made to you and the other directors back in October. I have added insider selling to the list of concerns, and made minor modifications to a couple of others. Believe me when I say that there are MANY other IDCC shareholders who share my following list of concerns/suggestions:
Shareholder Concerns with IDCC and Suggestions
1. IDCC needs to foster a "shareholder friendly" environment, which would include better treatment of, accountability to, considerations for, and communications with individual and institutional investors.
2. IDCC needs to obtain greater Wall Street coverage from major brokerage firms, from prominent analysts, from more institutional investors, and from leading Wall Street publications. IDCC is a public company and not a privately run company, thus better and more effective communication with Wall Street is imperative.
3. IDCC's compensation committee needs to be expanded from two to include more outside directors. The Chairman of the Board should be taken off this committee due to possible appearances of conflict of interest. The current stock option policies should be thoroughly investigated as to the issues of excessiveness versus reasonableness, and tied to significant increases in shareholder value. There should be overall percentage limits as to the total outstanding options to the total outstanding shares. Also reasonable percentage limits should be established on the stock options granted each year, with an equitable sharing of the options between insiders and other productive IDCC employees.
4. IDCC's compensation committee needs to review the compensation packages of each company officer and each board member for reasonableness when compared to a large sampling of comparable size/type companies. Officer and director compensation at IDCC should not be significantly more than the average compensations of small-cap technological companies, unless there is clear and documented justification for doing so. This sampling should be fully documented and available upon request.
5. IDCC needs to limit discretionary insider selling to just a few specified exceptions.
Instead IDCC needs to utilize prearranged 10b5-1 Trading Plans for the vast majority of future insider selling and limited to once a year. This policy would help minimize the negative implications normally associated with significant numbers of ongoing discretionary insider sales, while still allowing insider selling to occur, no matter if they have material undisclosed insider information or not.
6. IDCC needs to critically evaluate its current top management team and current board of directors. Is the necessary talent and expertise in place at the highest echelon to take IDCC to the next level, and to turn our small-cap company into a mid-to-large cap company and sustain it there?
7. IDCC needs to have in place before or at the beginning of each year a clearly laid out Business Plan, which should achieve increased shareholder value if properly executed. This plan should include annual goals, accompanying strategies, and milestone measurements. The plan should also provide measurement milestones per quarter for certain goals, such as quarterly revenues/earnings/cash flow. The Business Plan itself and a comparison of actual results to the plan should be clearly communicated to the Board, shareholders, and analysts on an ongoing basis. Company officers should be evaluated by and held accountable for the execution of the Business Plan by the Board.
8. IDCC needs to develop a revenue model that will aid analysts in understanding and projecting IDCC's future revenues. This model should include recurring royalty from existing licensees by product (infrastructure/handsets/other devices), settlement amounts/recurring royalties from anticipated new licensees, engineering services revenues from existing/new partnerships, chip revenues, protocol software revenues, technology transfer revenues, and any other projected revenue source. A good comprehensive revenue model should aid in projecting quarterly revenues, obtaining increased analyst coverage, and providing increased institutional investment in IDCC. This revenue model may have to await resolution of the big three (Nokia, Samsung, Ericy), but should be made available soon afterwards.
9. IDCC needs to adequately disclose how much is riding on the Ericy case. Does a Nokia rate agreement hinge upon Ericy? Do we have pending licenses or memos of understanding with non-licensees, such as Motorola, tied to or contingent upon Ericy? Do we have any existing licensees whose royalty obligations are tied-to, contingent upon, being delayed by, or otherwise affected by the Ericy litigation? How many patents and claims were removed from further trial consideration in Ericy? Were the claims removed from further consideration in the Ericy lawsuit due to favorable rulings from the judge on Ericy's pretrial motions, mutual consent/agreement, mediation, or pretrial rulings favorable to IDCC? What amount of damages are we seeking from Ericy for past infringement? Are all our legal eggs in this one basket?
10. IDCC needs better disclosures dealing with its existing licensees. Which licensees are we currently receiving recurring royalty payments from, which licensees are we currently earning deferred revenues from, which licensees are we in royalty disputes with, which licensees have prepaid advance balances remaining, which licensees have 2G paid-up provisions and what are the details of these provisions? IDCC also needs more disclosure about the Nokia, Matsushita, and Alcatel licenses?
11. IDCC needs to explain why we are experiencing so much difficulty in obtaining new licensees and updated licenses. If we really have what we claim to have and if we have a licensing team of 8 to 10 attorneys trying to obtain new and updated licenses, then why are we having so much difficulty with licensing? Why haven't some of our existing licensees, who are now selling 3G products, updated their licenses?
All shareholders of InterDigital are partners, and we should all act as such. Rather than be in dispute, I suggest that it would be very positive and constructive for the Board and outside shareholders to have appropriate dialogue.
Sincerely,
Ronny Marchman, CPA
