Replies to post #3894 on InterDigital Inc (IDCC)

[GE_Jim]

rmarchma,

Well if your going to do it, you should do it well. You did. An interesting and factual read.eom

[F6]

rmarchma -- excellent post, but

you left out discussion of by far the single most outrageous compensation-related issue of all -- the stunningly audacious and outrageous grants of options/RSUs by Harry Campagna to Harry Campagna (tell me he needs Roath to approve those grants, and I'll say look at the extremely generous options/RSU grants to Roath); back those options grants out of the picture, and the overall options/etc. picture at IDCC is far less out of line

the time to have called Harry out on his obscenely greedy and over-reaching self-dealing was when he was up for re-election to the BOD last year -- I tried to make an issue of this at that time, but few if any followed my lead -- now it's still more than 2 years till he's up for re-election again (remember that 1.5m share options plan for outside directors shareholders approved a couple of years ago, sold on the basis that it would enable the company to attract highly qualified outside directors? -- well, we have not added one single new director, and almost all of the grants under that plan have gone [what a surprise] to Harry [with Roath getting his cut, and perhaps with a few going to the company's other true outside directors])

I think Harry should resign the chairmanship of the BOD, as well as his position on the compensation committee; and he should also instruct the company in writing that he will not ever again accept anything more than the minimum directors compensation/options/whatever -- not holding my breath, though

take another crack at that communication I recently said not to send, to include more of the substance of your post and this reply, and I will not only support it, I'll add my signature if you'd like

F6

[chartex]

Thank your for this most informative and disturbing post. It
would behoove every shareholder to read and then reread this
information. You are to be commended for gathering this information and presenting it the way you did. I support your
efforts and share your same concerns.

[plumear]

Ronny, I want to sincerely thank you for preparing this information and presenting it in the weel laid out manner that you did. I am going tp print and save your post and I will give it more thought. You have made it very clear, at least to me, that the executive that have been deciding their share of the company have been overly generous. (other descriptions come to mind)I definitely think that it is time for the shareholders to band together and address this issue with management. If the shareholders are not granted the opportunity for reasonable discussion of the matter then we should explore whatever other options we have. In light of your post, Amsag's indignation over insider selling does not seem unreasonable. Thanks again and excellent post.

[3GDollars]

Rmarchma,

Excellent post.

You have left out the 4 options for 1 open market share deal. Harry was on TV telling everyone that the executives were so confident that they were buying at the open market. Of course, he left out the special deal part; they even buried the fact in small prints.

I bought some more shares based on the open market purchase by these executive. Good things, I'm above water, else I'll take legal action against them.

[JimLur]

That post took quite a bit of time and research to put together and we all thank you for your efforts and also for sharing them with everyone.

Jim Lurgio

[Clarence]

rmarchma - We have certainly had our differences, but this time you (and Jim) have really nailed it! A few years back, many companies started hiring consultants to do compensation studies. As a consultant hired by management, you, of course want your client to be pleased with your findings. Low rates of compensation do not make such clients happy. So the consultant says, "This is what is average for your industry." Just imagine a company saying, "Well, we believe it would be in the best interests of the company if we would pay our top executives a below average rate of pay." It never happens. Add to that the fact that you started with an inflated "average," and the result is corporate compensation out of control.

[TFWG]

Ronnie, amazing analysis! One question: Why do you think Champagna is an independent outside director?

With regard to Fagan, what are you going to do? I am sure he was in the right place at the right time. It's not hard to be a CFO. Just hirer the right people and bring in the right auditors. Oh, and fully disclose your gain contingencies. CFO is the best officer job in corporate America.

Regards,

Bob

[mack12]

Great post Ron...

In your opinion, how do the discretionary insider sales square with the recent trial delay.

Do you believe that the insiders had no knowledge that a trial delay was imminent? That they were just fortunate to have unloaded those shares just prior to the announcement.

[STINVESTOR]

Last ASM, I voted every share I owned and encouraged every friend and relative who had invested in IDCC on my recommendation, to vote their proxies AGAINST the re-election of Campagna to the BOD. Unfortunately, this board largely chose to ignore the opportunity to register or send a message to the BOD as he was re-elected woth 90% of the vote. Much to my chagrin, I might add.
IMO, the BOD has been handpicked by Harry to rubber-stamp his autocratic total control of every significant decision made in the name of the Company. For my money, our investment has fallen under the control of a band of thieves. Unless and until we wake up and decide to call an end to it, IT will continue.
I have been continually invested in this company since the early '80's, so any of you Johnny-come-latelies whose stock reply is to sell if you are unhappy - save your breath. This is MY company and I will fight to my dying day to thwart the band of thieves who are not so slowly, stealing it under your nose.
Ronny, once again, my sincere Thank You for your herculean efforts to bring an "auditor's mentality and rationale" to a LOT of dim-witted posters to this board.
STINVESTOR

[Corp_Buyer]

Ronny- the exec. incentive stock options are excessive ...

...by a factor of at least 2X based on my 20 yrs experience in VC/Buyouts/M&A. The cash compensation, also excessive, seems to be based on other (much larger) wireless IP companies (i.e. QCOM), not other mid-cap companies and this was probably the guidance given to the compensation consultant to use as comparables (i.e. instructed to reference other wireless IP companies).

One more point with respect to the stock option plans - Shame on us shareholders for approving a 10M share (10 year) plan at the ASM in 2000 and then only 2 years later we then approved another 2M share additional plan! Shame on us, too. Hopefully, shareholders who want to protect thier investments will vote their shares more thoughtfully, but what's done, is done.

Regards,
Corp_Buyer

[Dishfan]

Ronny, you're one of the best around - I am in awe of the time, effort and expertise you apply to assist your fellow InterDigital holders.

But, I disagree with most of the referenced post.

In this post, I will briefly discuss those areas of disagreement that aren't big issues with me. In my next post, I will discuss "insider sales", a potentially serious problem for InterDigital holders.

Firstly, I'd like to clarify that only members of the BoD have true "fiduciary" responsibilities. A fiduciary is someone who represents or acts for another. Senior management does not fall into this category, unless they are also board members.

Secondly, there must be some balance between the BoD's duty to shareholders, duty to management and duty to themselves. If we take your argument (Outside shareholders interests should be place before the self-interests of the insider shareholders, period.) to the extreme, all board members should earn nothing because their pay detracts from shareholder returns. Absurd, right?

Thirdly, I'm not prepared to do a compensation survey (as InterDigital did), but I would guess that InterDig is not that far off, given all of the circumstances. If you and others want to grouse about executive and board compensation, that's fine by me - the same stuff can be found on every company's message boards all over the internet. I doubt that experienced investors or analysts are paying serious attention.

Fouthly, I have to admit that complaints that InterDigital's jobs are easy (and therefore not deserving of high compensation) bug me. My opinion: this really is rocket science - this really is (as difficult as) brain surgery. InterDigital is involved in two of the most difficult enterprises known to man: 1) inventing ultra-high speed wireless data transmission technology, and, 2) enforcing its patents with some of the largest and most powerful companies in the world. Questioning the role of InterDigital's COO or CFO indicates to me a gross misunderstanding of the incredible challenges InterDigital faces.

Fifthly, you make assumptions about Harry Campagna's role (he's running the show like a master puppeteer). That's OK in an internet message board environment - but, this assumption is pure speculation and reduces your credibilty. I have talked to Janet Point about Harry's role - he's not there on a day-to-day basis - my impression is that he is a good and active and responsible Chairman of the Board. The same can be said about your speculation that InterDigital's compensation survey was based on a study of Qualcomm - how can you maintain credibility with these types of outlandish assertion?

Sixthly, many companies have combination CFO/CBoD. Not InterDigital - let's give our little gem some credit - we have three separate offices: CoB, CEO, and, COO. (Consider this: if Harry were CoB/CEO we would be totally incensed - especially if there was no COO. InterDig had divided the main jobs among three people - THIS IS A GOOD THING). (There's always something to complain about ;)

Next post (maybe tomorrow) - why your views of insider selling are unnecessarily inflammatory.

I apologize in advance for typos - I haven't seen the need yet for premium membership.

[Dishfan]

Ronny, this post of yours to Jimlur is misleading.

And, because you are among the most highly respected here, I need to respond.

You said: "The recent flood of discretionary insider selling activity at IDCC beginning in the middle of November is another of my concerns. The psychological impacts that all of these ongoing individual SEC form 4s are having upon the stockholders is unnerving to say the least. With almost every officer discretionally selling stock as the critical events rapidly approach, is definitely sending a bad signal to the investment community as to management's perceived ability to resolve these critical events in a favorable manner."

Generally, I agree that insider selling and insider buying are important signals. But, InterDigital is different. Because options are a big part of Interdigital's compensation package, all InterDigital insiders are awash in options - there will likely never be a need for an insider to actually go into the market and buy InterDigital stock. Conversely, we should fully expect options to be exercised and shares sold on a regular basis (as part of each insiders compensation).

But here's the part that is causes me concern. You provided a graph showing 10 recent insider sales and the percentage of shares sold (unfortunatly I cannot reproduce the chart here). The percentage of shares sold ranged from 13% to 77%.

We both know that sales of this magnitude can be very alarming.

We also both know that the sales were not of any such magnitude. The percentage of shares sold is highly misleading because of the requirements of the SEC Form 4.

Let's look at the big picture;

There are a total of 15 "insiders" (executive officers and directors) at InterDigital. (For reference, I am working from page 20 of the most recent Proxy Statement).

10 of these 15 insiders sold shares as noted in your chart.

The total number of shares sold by these 10 insiders since Novemeber (per your chart) is 147,000.

The total number of shares and exercisable options held by the 15 insiders is 3,471,000.

Therefore the recent insider sales equals 4.2% of insider holdings when you include exercisable options. This number is close to insignificant.

Further, each of these insiders receive additional options every year. For example, Goldberg sold 12,800 but he received 70,000 in 2001 and will probably receice a like number in 2002 and 2003. Lemmo sold 10,000 but received 50,000 in 2001. Merrit sold 8,091 but received 125,000 in 2001 (due to his promotion?).

My bottom line is that insider sales at InterDigital are to be expected and are not, in any way, a bearish indicator.