From: Klafter, Cary [cary.klafter@intel.com] Sent: Tuesday, February 27, 2001 4:01 PM To: 'rule-comments@sec.gov' Cc: Canup, Barbara; Kosmal, Rachel E; Waldrop, Tom; Ansilio, Lisa; Klafter, Cary; 'agoodman@gibsondunn.com'; Jarrett, Jim; Kettmann, Dorenda; Tunmore, Neil Subject: File No. S7-04-01 disclosure of equity compensation plan informat ion I am the Director of Corporate Affairs in the Legal Department of Intel Corporation, Santa Clara, California, and I am submitting this comment on the above proposal on behalf of Intel. In general, we do not object to the disclosure proposal using a tabular format. However, we are concerned that there will be a temptation to make the disclosure requirement into an excessively broad item which will require the inclusion of descriptive material festooned with non-material detail and the endless noting of exceptions to more general statements. We strongly urge that any disclosure requirement that is adopted be simple, straightforward and actually limited to useful, material data. We have some specific points which are discussed below. Assumed plans. We consider it quite appropriate that the disclosure obligations relating to assumed plans be less than the disclosure obligations covering plans directly adopted by an issuer. Intel has four directly-adopted plans that might be covered by the proposed disclosures, but we have assumed more than 40 plans in connection with the acquisition of other companies. A table or other disclosure which dealt separately with each of the 44+ plans would fill the proxy statement or 10-K with non-material data, confusing readers and distracting them from the material information in the document. Typically, regardless of whether an acquired company is private or public, its existing equity compensation plans are "assumed" by the acquiror. When an acquiror assumes an acquired company's stock option plans, the acquirer's substitutes its stock for the stock of the acquired company, and it adjusts the exercise price of individual options in accordance with a formula relating to the price of each security. The vesting schedules for outstanding options are unaffected by this action unless changes have been negotiated as a part of the overall transaction. The provisions of an assumed plan are rarely amended in connection with an acquisition beyond the substitution of the underlying stock; the plan is typically assumed "as is". It is very common for an acquired company to have two or more separate plans to be assumed. In connection with the assumption, the acquiror files a Form S-8 to register its shares that will be used with the assumed plan. Intel does not grant new options under any assumed plan, either to Intel's existing employees or to the employees of the acquired company. Such a plan is "frozen" and maintained in operation only as long as previously-granted options remain outstanding. This period of operation depends upon the terms of the assumed options, and may mean that the plan will have to remain in effect for 5-10 years. Following the acquisition date, Intel makes any new grants to employees of the acquired companies only from Intel's existing, directly-adopted plans. The aggregate of all shares subject to options under the assumed plans represents a small percentage of Intel's outstanding options. No director or executive officer of Intel holds any assumed options. It would not be useful disclosure policy to treat these assumed plans in the same manner as directly-adopted plans. We recommend that, at most, the assumed plans be included in any tabular presentation on an aggregate basis and be excluded from any narrative requirements except for general references. We further propose that the aggregate data on the assumed plans be excludable from the disclosure as long as they constitute no more than 10% of the issuer's outstanding options. Narrative disclosure. We support the use of tabular disclosure instead of narrative disclosure. Most issuers will provide information on more than one plan, and narrative disclosure will inevitably be too long and filled with non-material information. Just looking at the list of proposed detail in your Release (at fn. 38) shows how this disclosure could easily become bloated and contrary to concepts of materiality. It is very important to keep in mind that many of the "material features" of a plan that you list are typically dealt with in very broad terms in the plan document itself. It is only in the actual grants that the specific exercise price, vesting schedule, option term and other matters are set forth. A listing of "material features" of plans will likely generate unnecessary and repetitive boilerplate text in the dsclosure documents. Exceptions. Intel has over 80,000 employees worldwide and ~95% of its employees receive stock option grants under its directly-adopted plans. The vast majority of these grants are made under uniform terms and in amounts derived from matrices reflecting job grades and geographic locations. In some countries, local law does not permit us to grant stock options or requires that special procedures be used to deal with securities law, currency exchange or other regulated topics. We strongly urge that any disclosure requirements be drafted in such a manner that they do not force the disclosure of non-material exceptions; the listing of exceptions will overwhelm the overall disclosure and drown it in immaterial detail. _____________________________ Cary Klafter Intel Corporation 408.765.1215 408.653.8050 (fax) 408.219.6959 (cell)