You are one who has been advocating some harmony on this board, but you still want to attack me and dredge up some previous issues, which have caused some wounds on this board. I tried not to bring up these past issues due to possible board disharmony, but you have now forced me to revisit these concerns to set the record straight.
We had more than just Colorado Retirement involved in the failed meeting with Mr. Campagna in October. There were four institutions involved, three of which were from IDCC’s five largest institutional owners at that time. One of the individuals involved is probably IDCC’s largest individual shareholder. Doesn’t a group composed of the very largest IDCC shareholders say something about the legitimacy of our shareholder concerns? We were all going to Chicago to meet directly with Harry at his convenience before the meeting got called off. Harry subsequently changed his mind and refused to allow the individual shareholders into the prearranged meeting. The institutions refused to meet under this subsequent condition.
Since the meeting was called off, we tried to address these concerns to Mr. Campagna and the BOD through emails. I did post the shareholder concerns and a couple of these emails on the board. My first email in early October, which I did not post, as follows:
Dear Mr. Campagna,
I am a long-term owner of IDCC stock since the early 1990s. I have also influenced family and friends to purchase IDCC stock. At times, I have even promoted InterDigital in correspondence with certain investment journalists, newsletter writers, and money managers. I still believe in the tremendous potential and possibility that is IDCC.
However, many other shareholders and I have some concerns about this company that we believe need to be addressed. I was hoping to meet with you in person, along with our major institutional investors (Heartland, Barclays, and Colorado Retirement) and some other large individual investors, to share these concerns directly with you. I understand that you decided against individual shareholders being allowed into this meeting due to corporate policy. I don't understand how there can be a policy that allows members of IDCC's board of directors to meet with institutional investors, but not with individual investors, and stay within the current SEC FD guidelines. Nonetheless, I will try to address our shareholder concerns in an email instead of in person.
One of the major areas of shareholder concern dealt with governance issues at IDCC. Are there proper checks and balances with true accountability in place at IDCC, or is too much power and control concentrated in one person? It is the understanding of many that you make most of the decisions at IDCC and control most of the operating policies, such as the communication policies. Because of your daily involvement in the affairs at IDCC, you can not properly be considered as a true independent "outside" director. Proper checks and balances would normally be provided by company officers under the ultimate control of independent outside directors. However in IDCC's case, you determine the compensation and continuing employment for all the company officers, and the compensation of all the directors. I am not accusing you of any actual wrongdoing; I just think this current situation at IDCC is not very healthy.
It appears that any needed changes at IDCC will have to originate with you, and you are ultimately accountable to the shareholders. This is not a private company that can be controlled virtually by one individual. Necessary checks and balances and accountability are imperative for the proper functioning of any public corporation. Certain shareholder concerns and issues need to be addressed and not ignored. I have compiled a list of current concerns based upon the input of many other IDCC shareholders as follows:
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. Therefore, better promotion/marketing of who we are and what we have 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 top management 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 critically evaluate its current top management team and current board of directors. Is the necessary talent and expertise in place to take IDCC to the next level, and to turn our small-cap company into a mid-to-large cap company and keep it there? Does the current board need to be expanded with more independent outside directors, who can provide added credibility and important contacts?
6. IDCC needs to have in place before or at the beginning of each and every 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
7. 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.
8. IDCC needs to adequately disclose how much is riding on the Ericy case. Does a Nokia rate agreement possibly hinge upon developments in the Ericy litigation? 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? What are the repercussions if we win Ericy? What are the repercussions if lose Ericy? Are all our legal eggs in this one basket?
9. 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? Why do we explain the 3G paid-up provisions in the 10K and not the 2G paid-up provisions, which may be affecting our revenue streams currently? IDCC also needs more disclosure about the Nokia, Matsushita, and Alcatel licenses?
10. IDCC needs to explain why we are experiencing so much difficulty in obtaining new licensees and updated licenses. There have been no new licensees in about two and a half years since Ubinetics in May 2000. 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 licenses, then why can't we get any new licensees? Why haven't some of our existing licensees, who are now selling 3G products, updated their licenses?
I do hope that you, the other directors, and the company officers will give proper heed and attention to these valid concerns and issues. If you would like to speak with me directly concerning these issues, my work phone …..
A second round of emails were sent to the BOD in January. I posted these emails on the board linked as follows:
I noticed a calculation error in my January email and followed up with one last email dealing with share dilution in February as follows:
Mr. Campagna,
I had previously estimated the dilution from options and warrants to be about 28% over the prior three years for which we have data: 1999, 2000, and 2001. I am writing this email to correct that previous error and to set the record straight. From a previous email to you dated Jan. 21 as follows:
….”The outstanding options and warrants of 12m combined with 2.5m already exercised in the last three years is an earnings dilution of 28% based on 52m outstanding shares before the 2.5m exercised options. This dilution % does not even include any option grants for 2002.”
The problem with the above analysis brought to light by further personal research is that I only factored in stock options exercised during the last three years, but did not factor in stock warrants that had been exercised, nor did I factor in the restricted stock exercised or outstanding. When I adjust for these additional factors, I calculate a dilution factor of 39% over the last three years rather than 28%. This is injustice to the outside shareholders.
IDCC’s issued shares were 48.4 million at 12/31/98. Three years later IDCC’s issued shares were exactly 6m more at 54.4 million as of 12/31/01. The exercising of stock options accounted for 2.6m, but that was just part of the story. The remainder of the increase over the last three years came from insiders exercising stock warrants amounting to 2.2m shares and from issuing restricted shares to insiders amounting to 800,000. The final 400,000 additional issued shares came from employee stock purchase plans of 300,000 and the conversion of preferred into common of 100,000.
The amount of future dilution through common stock equivalents outstanding at 12/31/01 is composed of 10.6m in stock options, 1.4m in stock warrants, and .7m of restricted stock shares = 12.7m additional future common shares. The total dilution affect since 12/31/98 therefore includes 6m of actual exercised/issued shares and 12.7m of outstanding equivalents for a total of 18.7m shares divided by 48.4 million beginning issued shares at 12/31/98 = 39% dilution increase in just over the three years of 1999, 2000, and 2001.
We already know that some of the outstanding options did get exercised in 2002, as well as some more of the restricted stock got issued in 2002. However, this has already been picked-up and included in the previous dilution calculations as outstanding at 12/31/01. But the outside shareholders still do not know how many additional stock options got granted in 2002, and we won’t know until the 10K is published. Additional option grants in 2002 will only add to the previously calculated dilution percentage. Over 5m options were granted in 2001 alone. Dilution will cost the outside common shareholder tremendously in the future through decreased earnings per share, and thus lower stock prices.
I believe that the top executives at IDCC are already getting far above reasonable cash compensation in salaries and bonuses from a small-cap company for their efforts. This is their job and what they are paid to do. The outside stockholders, who are investing their cash at the prevailing market prices, are the ones who are taking all the risks with this company. For that risk, our only compensation is through the future stock price appreciation, if the company pays no dividend. And that future stock price appreciation should not be tremendously reduced through dilution by those who take no risk through options/warrants/restricted stock, and have already received overly generous cash compensation.
Have you and the other directors done anything illegal in this matter? NO. Have you and the other directors done things that are unfair and unjust to the outside shareholder in this matter? My opinion is a resounding YES. I am still upset with IDCC directors’ lack of dialogue on this issue and other shareholder concerns. Therefore, I will probably greatly cut back on my personal time and energy devoted to this stock. However, I would still welcome any dialogue from you or the other directors on any of these matters, if you so choose.
Sincerely,
(Final note: I hope and pray that the additional option issue is soundly defeated. Harry has got to receive the message that he can't run this public company any way he sees fit and to hell with the outside shareholders. They did not need the additional options, they still have 5.6m stock equivalents that are still available for granting. This was meant as a message to dissident shareholders that they could do what they wanted to do with this company IMO. I also believe the last round of insider selling was also part of this same arrogant message to the outside shareholders, that they can do as they please.)
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