Replies to post #100872 on InterDigital Inc (IDCC)

[olddog967]

Did a little more quick research. According to the S-4 the options were granted under the 1995 option plan. The 1995 plan calls for both incentive and non-incentive options to be issued. So unless we see the grant award notice, cannot tell which one was granted, or the tax rules that apply. Abstracts from the plan, (note highlighted wording);

Section 1. Purposes.

The purposes of the Plan are (a) to recognize and compensate selected Employees and Outside Directors of the Company and its Subsidiaries who contribute to the development and success of the Company and/or its
Subsidiaries; (b) to maintain the competitive position of the Company and its Subsidiaries by attracting and retaining qualified Employees and Outside Directors of the Company; and (c) to provide inventive compensation to Employees based upon the Company's performance as measured by the appreciation in Common Stock. The Options granted pursuant to the Plan are intended to constitute either Incentive Stock Options within the meaning of Section 422 of the Code on (sp?) Non-Qualified Stock Options except that no Incentive Stock Option will be granted to persons other than Employees as that term is specifically defined with respect to Incentive Stock Options. The terms of this Plan shall be
incorporated in any Option Agreement to be executed by an Optionee and the type of Options granted will be specified in the Agreement.


(d) Form of Option. The Option Agreement shall state whether the Option granted is an Incentive Stock Option or a Non-Qualified Stock Option, and will constitute a binding determination as to the form of the Option granted.

[Desert dweller]

Re: Howard's option exercise: Remember Howard is a CPA and I would guess has a very good understanding of how this exercise will impact him tax wise. Previously, when he exercised options, I posted some messages regarding this in detail. IMO, Howard did this because he feels we are going to win the arbitration. I also believe it MAY signal his expectations that the arbitration will be over before the May 31 date.

Here is why I believe this: If Howard waited until the last possible moment to exercise his stock, it would have cost him the same amount of money out of pocket, regardless of the stock price. Where it could cost him is the tax impact of this exercise. By exercising today, I believe what this does is adds to his alternative minimum taxable income to the tune of $400,000 the difference between the current market price of roughly $16 and his exercise price of $6. If he waited until after the arbitration award is handed down, the price could be substantially higher than it is today which would increase the resulting addition to the alternative minimum taxable income. Due to the complexity of the AMT tax, he may not owe AMT taxes on today's exercise or he could owe up to 28% or somewhere in between. Without knowing his personal tax situation it is impossible to know what the current impact to his tax situation.

Where he stands to benefit tremendously, is if he holds these newly acquired shares for over a year. By exercising and holding these shares today, he will start the clock ticking for long term capital gain treatment. He could benefit tremendously because LTCG tax is only 15% compared with ordinary income taxes of upwards of 35%. If you look at Howard's past history, he has been exercising and holding more shares than he sells. I have been posting about this in the past in more detail that explains this more fully for anyone interested in searching my posts on the subject.

Bottom line, IMO, I believe this is bullish and very crafty from a tax angle. Even if he sells some stock in order to pay the AMT tax that could be due, it is not a big deal IMO. He just plunked down $240,000 to purchase stock. Sure it is at discounted prices but if he had any thoughts that we were going to lose, he would have waited until the last possible moment to exercise. Today's option exercise is a show of faith in IDCC' near term future.

[vg_future]

olddog967, thanks for the clarification. Seems like the options that HG exercised today are from around 1997....so, they might not be ISOs, right?

-vg_future