Replies to post #25530 on InterDigital Inc (IDCC)

[Dishfan]

fmilt - ole friend - I stand by my $1 cost 100%

You said: 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.

Agree. This statement has no affect whatsoever on my calculation.

You said:It will cost each current investor an additional 1/13th of their investment, both the cost and profit, whenever they sell at whatever price.

You left out the second part of the calculation - the fact that options are paid for.

You said: 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.

My adjustment for lost equity by existing shareholders is the 60m shars vs. the 65m shares. That's the 1/13th you're talking about above. When the options are exercised $175,000,000 is added to capital (assuming a reasonable strike price of $35). That $175,000,000 payment by the optionees is equity owned by all shareholders and should be added to market cap.

For example, If InterDig received a one time payment from an old infringer of $175,000,000, what would happen to the share price? There should be no P/E applied - but the share price should go up by the amount of the payment only (or $175,000,000/55m shares=$3.18 per share). You simply must agree with me on this - there is no other way to look at it.

You said: . 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.

The tax benefit is that InterDig can deduct the cost of the option as compensation expense. I'm just not familiar with the actual calculation - otherwise I would include it and show that options cost nothing.) LOL

And you said: 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.

I'm talking about cost to the shareholder - the real issue here. You're talkng about value based on Black/Scholes modeling.

I've worked with a lot of CPA's and usually enjoy and respect them a great deal. No business can be run without them.

But, I stand by my calculation 100%. Using my (very reasonable) assumptions the 5,000,000 will cost us shareholders less than a buck or less than 2% of the share price.