Stock Option Exchange Ratios

The exchange ratios of shares associated with surrendered eligible stock options into new stock options will be established shortly before the start of the Option Exchange. The exchange ratios will be established by grouping eligible awards with similar grant dates and exercise prices, and assigning an appropriate exchange ratio to each grouping.

These exchange ratios will be based on the fair value of the eligible awards (calculated using the Black-Scholes option pricing model) within the relevant grouping. The calculation of fair value using the Black-Scholes option pricing model takes into account many variables, such as the volatility of our stock and the expected term of a stock option. Setting the exchange ratios in this manner is intended to result in the issuance of new stock options that have a fair value approximately equal to the fair value of the surrendered eligible stock options that they replace. This is designed to eliminate additional compensation expense from such new stock options, other than compensation expense that might result from changes in our stock price or other variables after the exchange ratios have been established but before the time that new stock options are granted in the Option Exchange.

Although exchange ratios cannot be determined now, we are providing an example by making certain assumptions regarding the start date of the offer, the fair value of the eligible stock options, and the fair market value of our common stock. To calculate the exchange ratios in the example, we have used the applicable inputs available as of December 26, 2008 for the Black-Scholes option pricing model; one exception is the input for expected term for which we have used an expected term as of the anticipated Option Exchange date of November 2009. Note that only stock options with an exercise price above the 52-week-high daily adjusted closing price as of the grant date of the Option Exchange and meeting all the other eligibility requirements referenced earlier will be eligible to participate in the Option Exchange.

In the table below, the exchange ratio represents the number of existing stock options that an employee would be required to surrender in exchange for one new stock option. For example, if an employee surrendered 1,000 stock options granted in 2001 that have an exercise price of $30.00 per share, that employee (for purposes of this example only) would receive approximately 54 new stock options, using the exchange ratio of 18.5:1 as stipulated. The following is an example of our methodology. Note that because there were no grants in 2006 or 2008 that had exercise prices above the 52-week-high daily adjusted closing price of $24.38 as of March 23, 2009, there are no exchange ratios for those years in the example.

Examples of Stock Option Exchange Ratios

Grant Year	Exercise Price of Eligible Grants	Exchange Ratio	Maximum Number of Shares Underlying Eligible Options	Weighted Average Exercise Price	Weighted Average Remaining Life (in years)

2000	$32.00–39.00	66.8 : 1	15,760,000	$38.52	1.6
	$39.01 and above	99.6 : 1	3,134,200	$41.94	1.6
2001	$25.00–26.00	5.9 : 1	23,175,400	$25.69	2.0
	$26.01 and above	18.5 : 1	9,350,000	$30.79	2.2
2002	$28.00–30.00	3.8 : 1	17,406,800	$29.33	3.1
	$30.01 and above	6.5 : 1	2,190,800	$31.60	3.0
2003	$31.00 and above	2.5 : 1	8,673,500	$31.83	4.6
2004	$26.00–27.00	1.9 : 1	60,587,000	$27.00	5.1
	$27.01 and above	2.5 : 1	1,801,600	$32.92	4.8
2005	$27.00 and above	3.0 : 1	4,058,800	$27.26	3.3
2007	$25.00 and above	1.7 : 1	5,508,200	$26.67	5.6

Accounting Impact

Effective January 1, 2006, Intel adopted the provisions of SFAS No. 123(R), which requires employee equity awards to be accounted for under the fair value method.

This Option Exchange is intended to be "cost neutral" from an accounting standpoint. Thus, we will establish exchange ratios with the intent not to generate incremental share-based compensation expense for Intel. To be cost neutral, the value of the stock options surrendered as calculated immediately prior to their surrender must be at least equal to the value of the new stock options received by employees in the Option Exchange. We use the Black-Scholes option pricing model to estimate the fair value of all stock options granted to employees, and expect to use that same model in valuing the stock options that are part of the Option Exchange. Note that the Option Exchange ratios will be established just prior to commencement of the exchange offer. Therefore, some risk of incremental compensation does exist if there are fluctuations in Intel's common stock price or other key inputs to the Black-Scholes option pricing model between the date the Option Exchange ratios are established and the effective date of the Option Exchange.

Any unrecognized compensation expense from the surrendered stock options will be recognized prior to the end of the service period of the new stock options received in the Option Exchange. Incremental compensation cost, if any, associated with the new stock options under the Option Exchange will be recognized over the service period of the new awards. Compensation cost for stock options forfeited due to employees not meeting the applicable service requirements will not be recognized.

U.S. Tax Consequences

The exchange of stock options pursuant to the Option Exchange should be treated as a non-taxable exchange because the new stock options will have an exercise price equal to the fair market value of Intel common stock on grant date. Intel and participating employees should not recognize any income for U.S. federal income tax purposes upon the grant of the new stock options. All new stock options granted under the Option Exchange will be non-qualified stock options for U.S. federal income tax purposes. Tax effects may vary in other countries; a more detailed summary of tax considerations will be provided to all participants in the Option Exchange documents.