Exhibit (a)(1)(I)
Hello, Im Brit Wittman of the Human Resources department here at Intel, and for the next few
minutes, Ill explain some important aspects of Intels stock option exchange program.
Ill cover the four things you need to consider before making a decision to exchange or keep your
eligible grants. Ill show you the My Option Exchange tool which youll use to model different
scenarios for each of your grants and where youll register your decisions. Finally, Ill review
your next steps and key dates.
The stock option exchange is an opportunity for you to consider what to do with your underwater
stock options you can either keep them or exchange them for new stock options. But how do you
make this decision? It may feel a bit overwhelming at first, but Ill break it down into a few
simple steps to help you determine the right decision for you on each of your eligible grants.
There are four factors you need to consider as you make your decision: The first is understanding
your current grants; second is understanding the new grant you would receive should you choose to
exchange; third is your expectations of Intels stock price growth; and fourth is the potential
future value of your current and new grants. Lets take a look at each of these in a little more
depth...
First, you need to understand the details of your eligible grants. For each of your grants, you
need to know the number of options, the grant prices, and the expiration dates. All these details
will be loaded into the My Option Exchange tool. You also can find them on the UBS website, where
you can always view the details of all your stock grants.
Second, youll want to understand the details of the new grant you would receive. If you exchange
any or all of your eligible grants, youll receive a single new grant. Again, the pertinent
information is the new grant price, expiration date, vesting schedule, and the number of new
options in the grant.
Three of these factors are beyond your control: The new grant price will be the price of Intel
stock on the grant date, which will be the last day of the exchange window. The expiration date
will be seven years from the day of grant. And, the new grant will vest 25% per year over four
years. The last factor the number of new options you would receive depends on how many
current options you decide to exchange. So, how is the number of new options determined?
You may have read that the option exchange is intended to be value for value, in other words,
employees will receive the same value in new options as the current options they exchange. The
value of new stock options is derived using an accepted accounting formula called the Black-Scholes
formula. This formula is also used to determine a current value for underwater stock options. Of
course, underwater stock options will be less valuable according to the formula than new stock
options, so it will take more than one underwater option to equal one new option.
By applying the formula to both the current and new options, a ratio can be established that
results in equal value. The total value of your new options will equal the total value of all the
options you choose to exchange. For example, if the Black-Scholes formula says your current
underwater options are worth $2 each and the new options are worth $6 each, then the exchange ratio
would be 3-to-1; meaning you would have to give up 3 current options (worth $2 each) to receive one
new option worth $6. Youll see that a ratio has been established for each eligible grant and
youll be able to see how many new options you would receive for exchanging any of your current
options. Now, you dont need to go start up a spreadsheet, the My Option Exchange tool does all
these calculations for you as youll see in a moment.
Now you might be wondering, if the value of the current options and the new options is the same,
why bother? Well, its because the potential future value of these options can be very different.
And that brings me to the third factor you need to consider to make your exchange decisions.
Determining whether its best for you to keep your current options or exchange for new ones really
depends on what you think is going to happen to Intels stock price in the future. Do you think
the stock price is going to go up? If so, how quickly will it climb? Or, instead, do you think
itll stay level for awhile or decrease? Of course, when it comes to stock prices, no one can
predict the future, and as the saying goes past performance is not a guarantee of future results.
However, in order to make a decision on the exchange, you have to ask yourself how you expect the
stock to perform. And on this point, I cant provide any help this is a voluntary program and
these are individual decisions every participant must make. In fact, no one from the company is
permitted to give you any advice on whether you should keep or exchange any of your grants its
your option.
The reason your expectations of Intels stock price growth are so important is that the potential
future value of any of your options, current or new, is directly dependent upon it. And
understanding the potential future value of your options is the fourth factor in determining
whether to exchange or keep your grants. Now lets put all these factors together to see how
theyll assist you in making these decisions.
As you can see, new stock options would begin to have value as soon as the stock rises above the
current price (although they must vest before you would be able to realize this value). However,
remember the exchange ratio you exchange more current options for fewer new options. So, if the
stock price were to climb high enough, there comes a point at which the value of the current
options would exceed the value of the new ones because there are more of them. This is referred to
as the cross-over point. Any stock price above the cross-over point would deliver more value if
you kept your current options. At any stock price below the cross-over point, there would be more
value in exchanging your options but dont forget to take vesting into account when youre
deciding.
So, as you look at all the data for your current and new grants and think about your expectations
for Intels stock price growth, you need to consider one more critical element that impacts
potential future value: the expiration date of your current grants. The question to ask yourself
is: do my current options expire before or after they reach the cross-over point? If they expire
before the crossover point, the new options would deliver more value. If they expire after the
crossover point, your current options would have more potential future value.
If this all seems a bit complex, well... it is. But keep in mind the My Option Exchange tool is
designed to make it easier for you to see how all this information comes together. Lets run
through some examples and then well look at the tool so you can see what youll be working with.
Lets look at a hypothetical employee: Wendy Wimax. Wendy took the first step and looked at her
current options. One of her grants has 65 options with a grant price of $21.52 and they expire in
2014. She learned that the exchange ratio for this grant is 1.3:1 so she would receive 50 new
options in exchange for her 65 current options. The grant price for the new options would be set
at the end of the exchange window, but lets assume a price near Intels current price; lets say
$19 for this example. Now its time to model the potential future value of these grants. First,
Wendy looks at what happens with a growth assumption for Intel stock of 5% a year. Under this
scenario, in 2013 the stock would be at about $23 and Wendys current options would be worth around
$100. If she exchanged this grant, her new options would be worth around $200 in 2013 so shes
about $100 ahead if she exchanges this grant in this scenario.
Now, Wendy runs the scenario again with the same grants and exchange ratio. But this time, she
looks at what will happen with a stock growth assumption of 18% a year. In this scenario, in 2013
Intel stock would be trading at around $37 and Wendys current options would be worth around $996.
If she exchanges this grant, her new options would be worth $892 in 2013 so in this scenario,
shes ahead by about $100 by keeping her current options.
As you can see, in Wendys first run through the model at a 5% annual growth rate, her current
options expire before they cross-over, so the new options have more value. However, when she
models an 18% growth rate, her current options do cross-over before they expire and become more
valuable than the new options. Wendy then determines that for the current option to reach the
exact cross-over point before expiration requires an annual growth rate of 12%. And the cross-over
point for this grant, where the current and new options have the equal value, is right around $30
any stock price higher than that delivers more value in the current options; any stock price
less than that delivers more value in the new options.
Now its decision time for Wendy does she think Intel stock will rise quickly enough that she
should keep her current options, or does she think that the stock price will grow more slowly and
her current options might expire before they cross-over, in which case she might exchange. Her
decision to keep or exchange really depends on which stock price growth scenario she thinks is more
likely.
Okay, weve talked about the four factors to consider when making your decision to keep or
exchange. Now, lets see how these factors come together in the My Option Exchange tool.
The best way to access the My Option Exchange tool is through the Stock Option Exchange Program
page on Circuit, by clicking the link here.
Once youre in the tool, the first thing to consider is the data on your current options. On the
main page of the tool, youll see your eligible grants, and for each one, you can see the grant
date, expiration date, number of options, and the grant price. Next to that, youll see the
information about the new options. Youll see the exchange ratio for each grant and the quantity
of new options you would receive if you choose to exchange. The third factor you need to consider
is your expectations for stock price growth. To help you do this, the tool has a modeling
capability. And because your option exchange decision needs to be made on each grant, the modeling
functionality is at the individual grant level. Lets take a closer look at how the modeling
works.
This is the modeling window. Its here where youll model the cross-over point as you compare the
potential future value of your current and new options. Notice the grant price of the current
grant is displayed at the top, there is a table of quantities and projected values arranged by
year, which will also be graphed below. The hypothetical new grant price sliding bar provides the
ability to model various grant prices for the new options.
You also see the hypothetical annual stock price growth rate slide bar. Yes, thats quite a name,
but simply put, this is how you model your expectations for Intels stock price and hence, the
cross-over point. Its shown as a linear growth rate percentage. Changes to this slide bar drive
the prices shown in the table below as well as on the graph. The expiration of your current grants
is shown and the projected value in the first 4 years of the new grant reflects the vesting
schedule.
So, youve thought through the four things to consider and youve decided whether or not to
exchange your current grant. Youre now ready to register your decision. Back on the main page,
you see there are buttons to either keep your current options or exchange them for new ones.
Remember, you register your decisions on a grant-by-grant basis. If you dont register a decision
on a grant, no change will be made to your options. After you click submit, youll need to read
and accept the terms and conditions of the option exchange.
Youll then see a page showing your registered decisions. You may want to print out the
confirmation of your final decisions and keep it for your records. An email with this same
information will be sent automatically to your Intel email account. You can come back as many
times as you like during the exchange window to make or change your decisions but when the
exchange window closes, you cant make any more changes and your decisions are final. There will
be no exceptions, so ensure you register your decisions in time.
Ive discussed the exchange ratios and how they are a critical decision factor, but there is one
last important piece of information about the ratios that you need to know. The exchange ratios
will be set at the beginning of the exchange window. HOWEVER, because the stock price will
continue to move while the exchange window is open we may need to revise the exchange ratios. IF,
and its only an if, the stock price moves significantly, the ratios will be reset. If that were
to happen, the final ratios would be set approximately 10 days prior to the close of the exchange
window. Youll be notified of this by email and you may then want to reconsider your choices based
on the final ratios. If its not necessary to reset the ratios, then the original ones in effect
when the exchange window opens will become the final ratios for the program.
I understand this is a lot of information and you may have additional questions along the way. The
best place to go for help is the Stock Option Exchange Program page on Circuit. There youll find
the most current information and a host of additional resources. Its also important that you
review the Offer to Exchange document, which contains all of the details of the Option Exchange
Program.
Now, lets quickly review the four decision factors and then talk about what youll need to do.
The first decision factor is the information on your current grants: number of options, grant
prices, and expiration dates. The second is the information on a potential new grant: the grant
price, expiration date, vesting schedule, and number of options. Third are your expectations of
Intels stock price growth rate. And fourth is using the cross-over point to evaluate whether your
current or new options would have the most potential future value.
So what do you need to do now? After the exchange window opens on September 28th, go
into the My Option Exchange tool, look at your grants, the exchange ratios, and model the
cross-over points. Then, make the best decision for you on each of your grants and register them
in the My Option Exchange tool. Be aware that there may be a change to the exchange ratios
approximately 10 days prior to the close of the exchange window, which is October 30th.
Thats also the day the new grant price will be set and your new options will be officially
granted. The new grant will become viewable in your UBS account within a few weeks after the
exchange closes.
Im Brit Wittman, and this has been Intels stock option exchange. Thanks for your time and
attention. Please remember to register your decisions during the option exchange window. The
deadline is October 30th ...but dont wait until the last minute. The stock option
exchange: its your option.