We have been granting stock options to our employees for more than 25 years, seeking to align employees' economic interests with the interests of our stockholders. Since 1997, our stock option program has covered nearly all full-time and part-time employees. In 2006, we began to grant RSUs to employees in addition to stock options. Stock options provide actual economic value to the holder if the price of Intel stock has increased from the grant date at the time the option is exercised. In contrast, RSUs have economic value when they vest, so they have some retention value even if the stock price declines or stays flat. Stock options motivate employees by providing more potential upside. RSUs align employees with stockholders and balance our compensation program design, as they take into account both upside and downside risk in our stock price. Because the grant date fair value of each RSU that we grant is greater than the grant date fair value of each stock option, employees on average receive fewer RSUs now than stock options in the past. We are asking for stockholders to approve the Option Exchange in order to satisfy the terms of our stock plans and NASDAQ rules, and as a matter of good corporate governance.

Many of our employees currently receive only RSUs as equity grants, while other employees receive a mix of RSUs and stock options. As a general matter, the proportion of stock options to RSUs increases as the grade level and responsibility of the employee increase. Further, the proportion of the variable pay that an employee receives as a percentage of total compensation also increases as the grade level and responsibility of the employee increase, so that more pay is at risk. Equity is an essential part of our total compensation structure, and when stock price growth is flat to down, our employees individually experience its impact through the structure of their total compensation and the broad-based reach of our equity program. Intel grants equity awards to approximately 95% of our employees annually in conjunction with our annual performance review cycle. Of Intel's 83,900 employees as of December 27, 2008, approximately 73,100 (87%) are currently holding stock options. Over the past five years, on average only 2.5% of all equity awards were granted to our listed officers. Our stock options are granted with an exercise price equal to the market value on the date of grant. The majority of outstanding stock options vest over four years in 25% annual increments and after vesting can be exercised until expiration seven to 10 years after their grant date. Our stock option grants outstanding have been made on predetermined dates throughout the year. As a result, outstanding stock options have a number of varying exercise prices, vesting, and expiration dates. Our employee stock options cannot be sold; they are either voluntarily exercised when there is a positive spread between the exercise price and the market price of Intel common stock, or they expire unexercised and provide no economic value to the employee.