Replies to post #44358 on InterDigital Inc (IDCC)

[Corp_Buyer]

Yes, the pattern is well established. However, this time it may be different e.g. Howard might wait until after the court ruling on the NOK motion to avoid any appearance of insider trading, even though everyone is in the dark about the court ruling. And, if the NOK motion is denied, as expected, Howard might make a few bucks for waiting until then.

In any case, I hope our management is more sensitized now to the appearances and the negative effects of unplanned insider stock sales.

Of course, you are right about the long term capital gains treatment being a significant advangtage if the options are exercised and the stock is held for a year.

Hopefully, shareholders have changed management's view of options from a renewable source of current income to a long term investment instrument to be cherished by deserving recipients since we have voted down further expansion of the ISO pool at the last ASM.

Regards,
Corp_Buyer

[F6]

Desert_Dweller -- I believe your short-term cap gains v. long-term cap gains point re HG (and other IDCC insiders) is nothing but a straw dog, a red herring

specifically re HG: as clearly disclosed on the Form 4, these newly-acquired options shares are NOT his only shares -- he can sell OTHER shares that he HAS ALREADY held for more than 1 year, can he not? -- i.e., like any other shareholder, he can sell using the SPECIFIC LOTS method, and for that matter even the default FIFO method would also first sell from his long-term cap gains shares, right?

if you're not making the obviously incorrect assumption that these 15,000 shares HG just acquired are his only shares, then you are postulating that he can sell ONLY using a LIFO method -- what possible authority could you have for that?

[Danny Detail]

Desert Dweller .. His risk of loss is negligible when you consider he only paid $6 for an $18 stock today. What is the likelihood this will go down below his strike price?

From an investment perspective, the strike price, since it is a sunk cost, is irrelevant in determining whether or not he has a "loss" after one year. He has an opportunity to guarantee a gain of $12/share now, pay ordinary income tax, and reinvest the net proceeds in an alternative investment other than IDCC, hold that for a year and pay capital gains tax on any gain if he has one. It is that opportunity that needs to be compared against the net result of holding the 15,000 IDCC shares for one year and then paying capital gains tax on any gain if there is one that would determine whether there was a loss by holding on to the shares. There are intangible factors, such as the prudence of diversification, that also should be weighed in the decision.

The point is the stock does not have to fall below the strike price in order for him to lose (i.e. be worse off) given the myriad alternative investment strategies available to him at this point in time as a result of the option exercise. The tax effect is only one factor, albeit an important one, to be weighed in investment decisions such as the one any investor would face in a similar situation. Minimizing taxes is tempting to use in the investment decision making process because it is readily calculated, but it can cause one to leave a lot of investment gains on the table in my experience if it is the primary factor in the decision.

Having said that, like you, it is hard for me to see the stock appreciably below where it is now in a year.

Regards,
Danny

[Losha]

I believe that under current tax law Howard must pay ordinary income tax on the difference between the exercise price and the closing price of the stock the day he exercised WHETHER OR NOT he sells the stock. And his new basis becomes the closing price the day he exercised. This is the reason so many dotcomers went down the toilet in 2000-01.

For this reason he should cover his butt by selling at least enough stock to pay his taxes in the event the stock declines below the closing price the day he exercised. If I'm missing something please let me know.