Replies to post #41605 on InterDigital Inc (IDCC)

[Desert dweller]

dumpter, I disagree with you when you said:

I just wanted to get the point out that the Form 4 would not be the beginning of a run of 4's.

If the insiders have any competent financial planning going on, we will see a long string of f4's being filed. Insiders have a whole lot of options that they could exercise at significantly less than today's stock price. If they were smart, they would exercise all of their low priced options today which would start the holding period for long term capital gains treatment. If they hold for 1 year or more they would then be taxed at 15% federal rate on the difference between the exercise price and their ultimate selling price.

If instead they hold off and just exercise and sell 1 year from now they will pay ordinary income tax rates on the difference, which is at 35%. The total difference in tax could be HUGE especially when you factor in the potential Nokia settlement. I believe this is the strategy that Howard, who is a CPA, is currently using. Hopefully he has shared this with the other members of the board and other insiders so we can then start to see some buying by insiders. Their risk is almost none by exercising these low priced options. I can't see any reason that the stock 1 year from now wont be much higher than their $5-10 exercise price and personally think it will be significantly higher than today.

The other reason for insiders to exercise and hold today is because of the AMT tax. When options are exercised and held, it gives rise to AMT taxable income equal to the difference between the market price and the option exercise price. This does does not necessarily cause AMT tax. In a year when insiders have large ordinary income such as this year with all the option exercises and sales, it would reduce the likelihood of AMT tax being owed. With the current weakness in the stock price, the difference between the exercise price on many options and the current market price is low. Today's exercise would amount to roughly $110,000 in AMT taxable income. He would probably not owe any AMT tax due to how it is calculated.

So I hope that we see a long string of F4's being filed showing management buying and holding large option exercises. Is this a stretch? Maybe, but I think it is a very strong possibility.