SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Amendment No. 1)
Tender Offer Statement Under Section 14(d)(1) or 13(e)(1)
of the Securities Exchange Act of 1934
INTERCEPT PHARMACEUTICALS, INC.
(Name of Subject Company (Issuer) and Filing Person (Offeror))
Options to Purchase Common Stock, Par Value $0.001 Per Share
(Title of Class of Securities)
(CUSIP Number of Class of Securities)
Mary J. Grendell
Deputy General Counsel and Corporate Secretary
Intercept Pharmaceuticals, Inc.
10 Hudson Yards, 37th Floor
New York, NY 10001
(Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications on Behalf of Filing Person)
CALCULATION OF FILING FEE
|Transaction Valuation(1)||Amount of Filing Fee(2)|
|(1)||Estimated solely for purposes of calculating the amount of the filing fee. The calculation of the transaction valuation assumes that all stock options to purchase shares of the issuer’s common stock that may be eligible for repricing in the offer will be tendered pursuant to this offer. This calculation assumes stock options to purchase an aggregate of 733,613 shares of the issuer’s common stock, having an aggregate value of $2,014,589.76 as of August 12, 2021, calculated based on the Black-Scholes option pricing model, will be exchanged or cancelled pursuant to this offer.|
|(2)||The amount of the filing fee, calculated in accordance with Rule 0-11(b) of the Securities Exchange Act of 1934, as amended, equals $109.10 per $1,000,000 of the aggregate amount of the Transaction Valuation (or 0.01091% of the aggregate Transaction Valuation). The Transaction Valuation set forth above was calculated for the sole purpose of determining the filing fee and should not be used for any other purpose.|
|x||Check the box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.|
|Amount Previously Paid:||$219.79||Filing Party:||Intercept Pharmaceuticals, Inc.|
|Form or Registration No.:||Schedule TO-I||Date Filed:||August 16, 2021|
|¨||Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer.|
Check the appropriate boxes below to designate any transactions to which the statement relates:
|¨||third party tender offer subject to Rule 14d-1.|
|x||issuer tender offer subject to Rule 13e-4.|
|¨||going-private transaction subject to Rule 13e-3.|
|¨||amendment to Schedule 13D under Rule 13d-2.|
Check the following box if the filing is a final amendment reporting the results of the tender offer: ☐
If applicable, check the appropriate box(es) below to designate the appropriate rule provision(s) relied upon:
|¨||Rule 13e-4(i) (Cross-Border Issuer Tender Offer)|
|¨||Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)|
This Amendment No. 1 to the Tender Offer Statement on Schedule TO (this “Amendment No. 1”) amends and supplements the Tender Offer Statement on Schedule TO filed with the Securities and Exchange Commission (the “SEC”) on August 16, 2021 (the “Schedule TO”), by Intercept Pharmaceuticals, Inc., a Delaware corporation (the “Company”) relating to the Offer to Exchange Eligible Options for New Options, dated August 16, 2021 (the “Exchange Offer”). This Amendment No. 1 should be read in conjunction with the Schedule TO and the Exchange Offer. Capitalized terms used herein and not defined herein have the meanings given to them in the Exchange Offer.
This Amendment No. 1 is made to amend and supplement Item 12 (Exhibits) of the Schedule TO. The information in the Schedule TO, including all schedules and annexes to the Schedule TO that were previously filed with the Schedule TO, is incorporated herein by reference to answer the items required in this Amendment No. 1, except that such information is hereby amended and supplemented to the extent specifically provided in this Amendment No. 1. Except as specifically set forth herein, this Amendment No. 1 does not modify any of the information previously reported on the Schedule TO.
Item 12 of the Schedule TO is amended and supplemented by adding new Exhibits (a)(1)(N) and (a)(1)(O) and updating (a)(5)(D) and (a)(5)(E) as follows:
|(a)(1)(N)||Option Exchange Computation Tool.|
|(a)(1)(O)||Eligible Participant Communication, dated September 1, 2021.|
|(a)(5)(D)||Option Exchange Webinar Presentation Slides.|
|(a)(5)(E)||Option Exchange Webinar Presentation Script.|
After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.
|Date: September 1, 2021||INTERCEPT PHARMACEUTICALS, INC.|
|By:||/s/ Rocco Venezia|
|Chief Accounting Officer and Treasurer|
Intercept Stock Option Exchange Break-Even Illustrative Excel Model General instructions: Do not change black numbers. Change blue numbers with your assumptions. If you are asked to "enable macros", say yes. Please note: Options granted on or after February 15, 2020, and/or with strike prices at or below $50.75 are not eligible; putting them into this calculator may result in an error. Steps: Assumptions and calculations: 1. Enter the current ICPT stock price ($): 14.08 2. Enter an assumed grant date price for Sept. 20, 2021 ($): 20.00 3. Enter an estimate for a future ICPT stock price to use in your modeling ($): 80.00 Old vs. new options: Old New 4. Enter the grant/strike price for your "old" options to be exchanged: Strike price ($): 100.00 20.00 Exchange ratio: 1.75 5. Enter the number of your "old" options to exchange at that price: # of options: 777 444.00 Future estimate ($): Value per option: 0.00 60.00 6. Review the hypothetical comparison in value of your "old" vs. "new" options: Total value: 0.00 26,640.00 Difference in value: -26,640.00 26,640.00 7. Click the blue "Calculate Breakeven" button: (Note: If pressing the button causes a "Microsoft Visual Basic Editor" window to open or generates a "Run Time Error", that is fine. Just close the window, or tap on the "end" button and close the window.) Breakeven determination ($): 8. At this stock price, the value of your "old" options would overtake your "new" options: Future stock price: 206.67 206.67 (Note: If the button generates a strange number (like a large negative number), Value per option: 106.67 186.67 just type a small, normal number like "0" or "100" into the blue cell and click Total value: 82,880.00 82,880.00 the button again -- this is a common problem when Excel gets "confused".) Difference in value: 0.00 0.00 9. Repeat the steps above for as many grants as you want to model. Table of exchange ratios (for reference only): Old option strike price ($) Lower bound Upper bound Exchange ratio 0.00 50.75 Not eligible 50.76 75.00 1.50 75.01 115.00 1.75 115.01 125.00 2.50 125.01 No upper bound 4.50
Notes: All numbers are illustrative examples only. Today's stock price is based on a recent historical closing price. New options will be priced based on the stock price on the grant date, which is estimated to be September 20, 2021. We cannot predict future stock prices. The stock price may go up or down. You should use your own estimates of where you think the stock price will be in September, and in the further future. For illustrative purposes, we have used the same numbers as in an example in our other materials. You should plug in your specific old option strike price and number of options. (A strike price is the price above which an option is profitable.) Please note that the old and the new options have different vesting terms and expire at different times. This model does not take that into account. The breakeven estimate provided by this model does not take into account the taxation of the old and new options, which may vary based upon a number of factors. If the stock price does not reach your target price before your options expire, or if you leave the company before your new options vest, then you will not be able to benefit from that stock price, so you need to take those factors into account and have a realistic understanding of the timing involved, in order to make an apples-to-apples comparison. Important legal information: This document does not constitute legal, financial, or investing advice. Intercept cannot provide individualized information or advise you on whether or not you should tender your options. This Excel model is for illustration purposes only. Option valuation is a complex issue. This model provides a simple valuation ("intrinsic value"), by calculating the difference between the stock price and the option's strike price, with a floor at $0. The breakeven estimate provided by this model does not take into account the taxation of the old and new options, which may vary based upon a number of factors. The taxation of options is a complex matter and you should consult with your personal tax advisor about those potential tax effects. You should consult your own advisors and consider your individual circumstances. The contents of this document do not constitute an offer. The full terms of the offer to exchange eligible options are described in the Schedule TO and accompanying documents, dated August 16, 2021, which you may access via the "Document Library" within the exchange election site, on our website at https://ir.interceptpharma.com/financial-information/sec-filings, or through the SEC website at www.sec.gov.
Date: September 1, 2021
To: All Eligible Employees
From: Total Rewards Mailbox
Subject: Option Exchange Modeling Tool & Updated Exchange Presentation
For those of you who have already attended one of the information sessions about the option exchange or reviewed the Aon exchange site, you are aware that your “old” employee stock options, and the potential “new” replacement options, both have economics that are worth considering. To aid in your review and potential decision to exchange your options, we have prepared the attached spreadsheet modeling tool. We hope you will find it helpful in evaluating the option exchange, and in particular, for calculating the Intercept stock price at which the old and new options “break even” in value.
Please note this tool is purely for educational purposes, and is not financial or investing advice. You should refer to this model if you find it helpful, but you are under no obligation to do so, and no obligation to participate in the exchange.
Additionally, based on some of the questions we have received, we thought it would also be helpful to update the Exchange Presentation to provide some basic refresher information regarding your equity compensation here at Intercept. This information can be found on Slide 4 of the presentation.
Should you have any questions, please do not hesitate to email us.
Thanks and best regards.
The Intercept Option Exchange Team
Important Legal Information
This communication, and the contents of the attached documents, do not constitute an offer. The full terms of the Exchange Offer are described in the Schedule TO and accompanying documents, which you may access via the Document Library within the exchange election site, on our website at https://ir.interceptpharma.com/financial-information/sec-filings or through the SEC website at www.sec.gov.
Participation in the Exchange Offer is entirely your decision and should be made based on your personal circumstances. No one from Intercept is, or will be, authorized to provide you with legal, tax, financial or other advice or recommendations regarding whether you should participate in the Exchange Offer. You should consult your personal financial and tax advisors if you have questions about your financial or tax situation as it relates to the Exchange Offer.
Capitalized terms used but not otherwise defined in this email shall have the meanings set forth in the Offer to Exchange Eligible Options for New Options, dated August 16, 2021.
FOR INTERNAL USE ONLY. DO NOT DUPLICATE OR DISTRIBUTE Intercept’s Option Exchange Offering An Offer to Exchange Eligible Options for New Options Employee Meetings August 2021 – September 2021
FOR INTERNAL USE ONLY. DO NOT DUPLICATE OR DISTRIBUTE Introductions Rick Johnson Vice President, Head of Total Rewards David Ford CHRO Michael Stapleton Senior Manager, Global Equity Plans John Hammond Aon 2
FOR INTERNAL USE ONLY. DO NOT DUPLICATE OR DISTRIBUTE Agenda • Refresher on the basics of equity • How it works • Eligibility to participate • Eligible options • New option terms • Ratios and example • Timeline for exchange • Process • Demo • Important disclaimers • Q & A – send all questions to: email@example.com 3
FOR INTERNAL USE ONLY. DO NOT DUPLICATE OR DISTRIBUTE Intercept’s Equity Programs • You currently receive Restricted Stock Units (RSUs) and Stock Options • RSUs are NOT part of this exchange program • Exchange Program is for Stock Options only • Quick glance at RSUs Full value shares. There is no price you pay as a recipient. The value is the full value of Intercept stock Vesting : The process of turning units into shares ◆ Vest over 4 - years Exercise: There is no exercise or decision. The shares are released at vest automatically. Gain realized upon vest ◆ Tax event The shares are yours forever once vested
FOR INTERNAL USE ONLY. DO NOT DUPLICATE OR DISTRIBUTE Intercept’s Stock Option Offering • Certain stock options are part of this exchange program • A stock option is an option to purchase Intercept stock in the future. • “Underwater” – when you could buy stock cheaper on the open market versus exercising The price is set at the grant date and equals stock price at that time The value is “how much do we grow from here?” Vesting : The process of earning the right to exercise ◆ Time and remain an employee Exercise: The process of turning your options into shares Gain only realized upon exercise ◆ Tax event Expiration: 10 - yrs from grant date ◆ The last day you can exercise your option
How an Option Exchange Works
FOR INTERNAL USE ONLY. DO NOT DUPLICATE OR DISTRIBUTE How An Option Exchange Works • Opportunity to exchange existing underwater options for new ones. – Eligible employees and eligible grants – Not required – you can retain your existing option grants • An underwater option is an option whose exercise price is above the current trading price of the stock. • The replacement options granted must be the equivalent value of your current options – Will result in change of terms and fewer options for the lower exercise price 7
FOR INTERNAL USE ONLY. DO NOT DUPLICATE OR DISTRIBUTE How An Option Exchange Works Continued • An option exchange rate/ratio is set up front – Different levels of exercise prices can have different exchange rates ◦ If the stock is trading at $20, an option with a $60 grant price is worth more than an option with a $100 grant price – Ratios were finalized as of the start of the tender offer based on the stock price at that time • When the tender offer is completed, if you chose to exchange your existing options for new options, your original award or awards are cancelled, and you receive the new award – Important: You can change your election as often as you want prior to the tender period closing. When it closes, your decisio n i s ‘locked.’ 8
FOR INTERNAL USE ONLY. DO NOT DUPLICATE OR DISTRIBUTE Eligibility • Executive Officers and Board Members are excluded • Active employees – at the beginning and end of the tender period • Have options that are eligible for the exchange 10
FOR INTERNAL USE ONLY. DO NOT DUPLICATE OR DISTRIBUTE Eligible Options | An Outstanding Option 11 Held by an Eligible Participant Outstanding as of the end of the tender offering Granted before February 15, 2020 Has a grant date strike price greater than $50.75 Granted under the 2012 Equity Plan Grant price, Exercise price, Strike price, and Option price – 4 terms that mean the same thing – the price you pay for the option
New Option Terms
FOR INTERNAL USE ONLY. DO NOT DUPLICATE OR DISTRIBUTE New Option Terms 13 Expected Grant Date – September 20, 2021 Exercise Price (Grant / Strike) will be as of close on that date New Options will be Non - Qualified grants which is consistent with our current practice and policy Expiration date will be up to 6.5 years New Vesting – even if grant already vested Vested options – vests 1 year from grant date Unvested options – vests 2 years from grant date
FOR INTERNAL USE ONLY. DO NOT DUPLICATE OR DISTRIBUTE 14 Ratios and Example Eligible Option Grant Price Range Exchange Ratio (Surrendered Eligible Options: New Options)* $50.75 to $75.00 1.50 to 1 $75.01 to $115.00 1.75 to 1 $115.01 to $125.00 2.50 to 1 $125.01 and up 4.50 to 1 *Ratios in your tender offer document
FOR INTERNAL USE ONLY. DO NOT DUPLICATE OR DISTRIBUTE 15 Ratios and Example Eligible Option Exercise Price Range Exchange Ratio (Surrendered Eligible Options: New Options)* $50.75 to $75.00 1.50 to 1 $75.01 to $115.00 1.75 to 1 $115.01 to $125.00 2.50 to 1 $125.01 and up 4.50 to 1 *Ratios in your tender offer document Current: 1,000 eligible options at original $120.00 grant price Closing Stock Price: on September 20 th , is $20.00 Offer to Exchange: Would be receiving 400 new options at $20.00 grant price
FOR INTERNAL USE ONLY. DO NOT DUPLICATE OR DISTRIBUTE A more detailed example to aid in your decision (#1) • Example: 777 eligible options at $100.00 grant price • Closing stock price on September 20 th is $20 (hypothetical) • Offer to exchange would be receiving 444 options at $20 grant price (1.75 – 1) • At a hypothetical future Intercept stock price of $80, the Original options still are underwater (no value) • Breakeven – $206.67. If the stock exceeds $206.67, retaining your original award would have been more profitable (different ratios and grant prices have different breakeven points) 16 Eligible Option Grant Price Range Original Options Exchanged Options Grant Price $100.00 $20.00 Your Options 777 444 Future ICPT Stock Price $80.00 $80.00 Value -- $26,640 Eligible Option Grant Price Range Original Options Exchanged Options Grant Price $100.00 $20.00 Your Options 777 444 Future ICPT Stock Price $206.67 $206.67 Value $82,880 $82,880 At a future ICPT stock price of $80.00, the original options are still underwater and do not have any value, however the exchanged options are now worth $26,640.00 Intercept’s stock price would need to exceed $206.67 for your original options to break even with your new exchanged offer
FOR INTERNAL USE ONLY. DO NOT DUPLICATE OR DISTRIBUTE A more detailed example to aid in your decision (#2) • Example: 750 eligible options at $75.00 grant price • Closing stock price on September 20 th is $20 (hypothetical) • Offer to exchange would be receiving 500 options at $20 grant price (1.5 – 1). • At a hypothetical future Intercept stock price of $70, the Original options still are underwater (no value) • Breakeven – $185.00. If the stock exceeds $185.00, retaining your original award would have been more profitable (different ratios and grant prices have different breakeven points) 17 Eligible Option Grant Price Range Original Options Exchanged Options Grant Price $75.00 $20.00 Your Options 750 500 Future ICPT Stock Price $70.00 $70.00 Value -- $25,000.00 Eligible Option Grant Price Range Original Options Exchanged Options Grant Price $75.00 $20.00 Your Options 750 500 Future ICPT Stock Price $185.00 $185.00 Value $82,500.00 $82,500.00 At a future ICPT stock price of $70.00, the original options are still underwater and do not have any value, however the exchanged options are now worth $25,000.00 Intercept’s stock price would need to exceed $185.00 for your original options to break even with your new exchanged offer
FOR INTERNAL USE ONLY. DO NOT DUPLICATE OR DISTRIBUTE 18 Timeline For Exchange Opened August 16 th Closes Friday, September 17 th at 11:59PM (EDT)* Grant Date September 20 th Exchange Statements Week of September 20 th Early October BAML System Updates with New Grant Paperwork * The Company retains the ability to extend the closing date from Friday, September 17 th . If we do so, we will let you know. That would mean that the grant date (and subsequent events) would occur later as well.
FOR INTERNAL USE ONLY. DO NOT DUPLICATE OR DISTRIBUTE Process • You received an email with election account opening details – We’ll demo this shortly • You can go in the Aon site as often as you want and change your ‘current’ election until it closes – It is locked at close REMINDER • Grant price determined with the September 20 th stock price * • Final exchange statements will be sent out week of September 20 th • YOU MUST ACCEPT your new grant when delivered via BAML system in October (same process as all standard grants) 19 * The Company retains the ability to extend the closing date from Friday, September 17 th . If we do so, we will let you know. That would mean that the grant date (and subsequent events) would occur later as well.
FOR INTERNAL USE ONLY. DO NOT DUPLICATE OR DISTRIBUTE Important Disclaimers 20
FOR INTERNAL USE ONLY. DO NOT DUPLICATE OR DISTRIBUTE Demo • You have an e - mail from Aon (firstname.lastname@example.org) • You’ll click the link – use the provided code and register with your Intercept e - mail only • Aon cannot validate your account with a Gmail, or other personal email • You will get an authentication e - mail
FOR INTERNAL USE ONLY. DO NOT DUPLICATE OR DISTRIBUTE Q&A – email questions to: email@example.com 22
FOR INTERNAL USE ONLY. DO NOT DUPLICATE OR DISTRIBUTE APPENDIX
FOR INTERNAL USE ONLY. DO NOT DUPLICATE OR DISTRIBUTE Your Intercept Equity Offerings • In general, as part of your compensation package, Intercept has typically offered two types of equity awards 24 • Example of how a Stock Option works – NQSO awarded on August 1, 2021 for 100 shares with a grant price of $20.00 with a one - year vesting period. – On August 1, 2022, these shares become vested and available to exercise. The current stock market price for ICPT stock is $5 0. ◦ The employee exercises all 100 options at the grant price (exercise price) of $20. ▪ The exercise costs the employee $2,000 (100 shares X $20), but the employee receives $5,000 in value (100 shares X $50), or a $3 0 gain per share. – If the shares vested and the stock price was $10, the award is under water. Meaning the employee could purchase shares on th e o pen market for a cheaper price than the grant would allow. • Non - Qualified Stock Options (NQSO) – A promise by Intercept to our employees to have the option to purchase shares of Intercept stock at a predetermined price (grant price, strike price, exercise price). For the length of the award, this price will not change. – A vested option is not a share until it is exercised. The value in a NQSO is the difference between the exercise price and the current market value upon exercise. – If the exercise price is higher than the market value, the award is considered under water . – Only stock option awards are available to participate in our Underwater Stock Option Exchange • Restricted Stock Units (RSU) – A non - cash compensation in which Intercept pays our employees in shares of stock for time employed. – Once vested, you OWN shares of Intercept stock. These shares are yours and do not expire. – RSU shares are valued at time of vesting. – RSUs are considered income and are taxed as regular income upon vesting.
FOR INTERNAL USE ONLY. DO NOT DUPLICATE OR DISTRIBUTE Glossary of Terms • Award / Grant – A non - cash employee incentive • Exchange - An opportunity to exchange a current option for a new option with different terms • Exercise – A purchase of company stock at the option exercise price • Exercise Price – The price at which the employee has the option to purchase company stock • Expiration – The date by which options must be exercised before they expire • Option – An award that gives an employee the right to purchase company stock at a set price for a limited period of time • Option Exchange – an opportunity for eligible employees with eligible underwater option grants to exchange their options for new ones • Stock/Share – A security representing ownership in a company • Tender Offering - The offer from the company to exchange the current option for an option with different terms • Underwater Option – an option whose exercise price, as stated in your grant agreement, is above the current trading price of the stock • Vesting Schedule - the period in which an option becomes exercisable 25
FOR INTERNAL USE ONLY. DO NOT DUPLICATE OR DISTRIBUTE Disclaimer • The materials in this presentation speak in general terms. Award terms are based on the details in our compensation plan documents and your award contracts. You need to refer to your specific situation for the authoritative terms of your awards. We cannot give you legal, investing, financial, or tax advice, and your tax treatment may vary. Please talk to your own professional advisors if necessary. Participation in the Exchange Offer is entirely your decision, and should be made based on your personal circumstances. • This material is not an offer to exchange options. For the full terms of the Exchange Offer, please refer to the Schedule TO and other documents that are (1) posted in the exchange election website Document Library, (2) available on our website at https://ir.interceptpharma.com/financial - information/sec - filings, and (3) available on the SEC website at sec.gov. • All numerical examples and stock prices are examples only, and do not represent actual eligible awards. We cannot predict future stock prices, which may be higher or lower than the current stock price. 26
Cover – Transition to Slide 2
Slide 2: Hello and welcome to our presentation on Intercept’s Option Exchange Offering – which is now open as of August 16th. I'm Rick Johnson, and I am the head of Total Rewards for Intercept. I am joined by David Ford, our chief human resources officer, and Michael Stapleton, Sr. Manager of equity plans. We also have John Hammond from Aon, who will help us walk through a demo of the exchange site today.
Before we dive into the presentation, David would you like to say a few words on behalf of Management? Turn over to David.
Thanks Rick and hello everyone. We’re excited to be able to talk to you today about the Option Exchange Offering.
This has been a project that has been a long time in the making and that a lot of people in the company have worked hard on since late last year when the idea was first being developed. I’m grateful to the team, made up of members of our HR, Legal and Finance who worked on the initiative and got us to the point where we could open the Exchange on the 16th of August.
I’m also grateful to the Board of Directors – and particularly the Compensation Committee – for their support in accepting and understanding the need for this initiative and being actively involved in our dialogue with shareholders on the project.
Finally, I would like to acknowledge the very strong support we received from shareholders for the Exchange, with the proposal receiving more than 98% votes in favor at the recent Annual General Meeting.
I’d like to think that we got this support because our proposal is clear and fair; fair to shareholders from a value standpoint – but also fair to our people who make up Intercept. My hope with the Option Exchange Offering is that it provides an opportunity for Intercept employees who want to take advantage of the Offering, to reset their long-term incentives and look forward to being part of the exciting journey ahead of us.
While much good work has been done to get us to this point, the Exchange is not a simple tool – so I’m going to stop here and hand back to Rick so that we can make the best use of the time we have together to tell you as much as we can about the Option Exchange Offering.
Rick: Thanks David – so with that said, let’s get started with the presentation.
Slide 3: So as you can see, the first thing we want to do is provide a little refresher on the basics of your equity offering - - and then from there, we’ll move on to discuss purely the Options Exchange – starting with how the exchange program works, - - - What the eligibility requirements for participation are, - - - We’ll review of the more detailed aspects of program in terms of the eligible options, new option grant terms, the RATIOS of how your existing options can be exchanged for new ones – which will include some examples, we’ll discuss the key timelines and administrative process on making your elections, and end with a demo and plenty of time for your questions.
From a housekeeping perspective, we’ll have all lines muted – and if you have questions as we go, certainly please feel free to send them to firstname.lastname@example.org and we'll get to your questions at the end. This will make it easier to manage and respond in this remote environment. I’m also going to be speaking a little slower and more deliberate that I typically would to ensure I don’t gloss over any of these fairly technical details that will be discussed today.
|-||As a basic reminder, you currently receive Restricted Stock Units (or RSUs) and Stock Options as part of your compensation package|
|-||For the purposes of this Option Exchange program, it’s important to know that your RSUs are not part of the exchange program|
|-||The exchange is for Options only|
|-||With that said, I’m going to spend just a minute to discuss what an RSU is. An RSU is a full value share. So whatever the ICPT stock price is on any given day, that is what your RSU is worth – and once the RSU vests, you OWN the stock.|
|-||So to understand the value of your RSUs, you simply will tally up the number of RSUs you’ve been granted and multiply that number by the current stock price – it’s as simple as that.|
|-||Now, there are other details on how your RSUs vest and tax implications, etc. that we won’t go into today in order to stay focused on the exchange, but should you need a deeper understanding of this information, I encourage you to reach out to Michael who is always happy to further educate you on your equity (subject to the disclaimer that we can help explain to you what you have as part of your compensation package, but we can’t provide you with legal, investing, financial, or tax advice). We also added an appendix to this presentation with some general educational information on your equity compensation – and a glossary that you can refer to should you need it|
|-||Now let me refresh you on Stock Options – which is the main focus for the Exchange. A stock option is simply an “Option” to purchase Intercept Stock in the future.|
|-||The price of the Option is determined as of the day it is granted and is the closing price of Intercept’s Stock on that day.|
|-||So from there, the value of the option is then determined by how much the Intercept stock price grows from the time you were granted the option, to the time you decide to exercise it|
|-||And the term “exercise”, means the process when you decide to turn your option into a full value share|
|-||So if at that time – when you go to exercise – the Intercept Stock price is greater than what the grant price of your option is – the difference is your gain.|
|-||If the ICPT stock price is less than your grant price was, then that means your stock options are currently “underwater” - - which brings us all here today and is a good segue to start talking about the exchange offering and how it may be beneficial to you.|
Slide 6: Ok moving on to how to how an options exchange works.
Slide 7: This program provides you with an opportunity to exchange eligible existing underwater options for new ones during the open window of what is known as the Tender Offer period that runs from August 16th 2021 to September 17th 2021. There was a brief video sent out in the initial e-mail from David on Monday August 16th. If you’ve had a chance to watch that, it goes through a nice explanation of option exchanges and how they work. We're going to discuss some the same type of information today, but in more detail.
There are certain employees that are not considered eligible – we’ll discuss that shortly – but note that no executive officers or members of the Board of Directors are eligible.
As I referenced the term “eligible underwater options” a moment ago – understand that not every grant can be exchanged – and we’ll also talk about this in the coming slides.
Your participation is optional, and you are not required to make an election under the exchange. You can keep your current options and you do not have to do take part in exchange if you do not want to.
Definitionally speaking, an underwater option is an option whose grant price (also known as Option price, Exercise price and strike price – all synonyms) is above or higher than the current trading price of the stock.
As a rule, the replacement option that you receive in exchange must be generally equivalent in value to your current option. So, for that to happen, you're going to end up with fewer options at the new lower strike price – and that is how the math will end up working from a value perspective. The exchange will result in a change of terms with respect to vesting as well and we’ll talk more about that shortly.
Slide 8 (continued from slide 7): The exchange ratio is set up front. Different option grant prices can have different exchange ratios and that is the case with ours. And it makes sense if you think about it – the more an option is underwater, the lower the value, so options are grouped together in ranges for the exchange ratios. Ratios were finalized right before the start of the tender offer period. When the offer period is completed, if you choose to exchange your eligible options, your original options award is canceled, and you receive the new award. You can change your election as often as you want prior to the close of the period. When it closes, then your decision is locked.
Slide 9: Eligibility - Eligibility
Slide 10: As mentioned, executive officers and board members are excluded from the offer. You also have to be an active employee, not just at the beginning of the tender offer period, but also at the end of the tender offering period. And you must have options that are eligible for the exchange. Let’s talk about that next.
Slide 11: Eligible options. First thing – your option must be outstanding, as in, it needs to still exist – and is held by an eligible participant as defined previously. It must be outstanding as of the end of the tender offering – anything that expires in the next few weeks during the offer period would not be included as eligible. The award must be granted before February 15th, 2020 – and have a grant price greater than $50 dollars and 75 cents - And of course the options must have been granted under the 2012 equity plan – which is our current Equity Plan.
It’s important to understand, I said grant a moment ago, but we’ll use the term "exercise price" in the official tender offer documents. We may also need to say, "option price". Again, all synonymous terms – and I think you are most familiar with "grant price" as that is what the Merrill Lynch system uses. Again, all four of those terms mean exactly the same thing. It's the price you pay for the option.
Slide 12: - New option terms.
Slide 13: The expected grant date will be September 20th – which is the Monday after the exchange closes. The grant price will be the stock’s closing price on that day. New options will be non-qualified grants, which is consistent with what we're currently doing. The Expiration date will be up to six and a half years. Also - even if the grant is currently vested, there will be a new vesting schedule for the entire grant. The exchanged equivalent of any vested options will have a new 1-year vest from the grant date, and for any unvested options that are exchanged, they will have a 2-year vest – which means they will vest 2 years from the grant date.
Slide 14: Okay. Slide 12. This is where a lot of this will start to get clarified. Here are the grant price ranges for the existing options and what the exchange rates or ratios will be for those options.
So, as you can see for any options with a grant price of $50.75 to $75, the ratio is 1.50 to 1. So, to be clear, for every 1 and a half options you exchange within this tier of grant price, you will receive 1 option back in return. Whereas for $75.01 to $115, it’s 1 ¾ to 1. For $115.01 to $125 the ratio is 2 ½ to 1. And above $125 – it will be 4 ½ to 1. As I mentioned earlier, the more an option is underwater, the lower the value, so therefore, for the exchange to be of relative equal value at the new grant price, you need to exchange more options.
Slide 15: Let’s look at an example – and here we are just focusing on the exchange math. Let's say you have one thousand eligible options at a $120 grant price or strike price – and then let’s assume the closing stock price on September 20th is $20. Here you would receive 400 new options, as in you exchanged two and a half options for every 1 you get back. So, take the 1,000 original options, divided by 2 point 5. If you exchange, you're going to get 400 new options at a new grant or strike price of $20.
Slide 16: Now we put together another slightly more detailed example that is designed to allow you to see a side-by-side comparison on how the math works for the exchange relative to a break-even point. Here you will see we have assumed there are 777 eligible options, at a $100 original grant price – and let's say you chose to exchange them at the 1.75: 1 ratio - - this would result in 444 new options at a $20 grant price (so essentially, we just took 777 original options / the 1.75 ratio = which results in 444 new options).
Using that information and a hypothetical future intercept stock price of $80, the original options still would not have any profit to them at that point. They would still be underwater. But if you had elected to exchange, your new exchanged grant would be worth $26 thousand, Six hundred and forty dollars.
Now let’s have a look at the break-even. In this example, it’s $206.67. Intercepts future stock price would need to exceed $206.67 for the original options to be more financially beneficial. In this case, at a $206.67 stock price, the options would net $82,880 for both versions.
Slide 17: Here is a similar side-by-side example, just with a different ratio to show you that, even with the ratio changing or other inputs changing, conceptually speaking, the calculation is the same. Here you will see we have assumed there are 750 eligible options, at a $75 original grant price – and let's say you chose to exchange them at the 1.50: 1 ratio - - this would result in 500 new options at a $20 grant price (750 / 1.5 = 500).
Using that information and a hypothetical future intercept stock price of $70, the original options still would not have any profit to them at that point. They would still be underwater. But if you had elected to exchange, your new exchanged grant would be worth $25 thousand dollars.
Now let’s have a look at the break-even. In this example, it’s $185.00 Intercepts future stock price would need to exceed $185.00 for the original options to be more financially beneficial. In this case, at a $185 stock price, the options would net $82,500 for both versions.
Slide 18: Let’s now review the timeline. As mentioned, the tender period opened August 16th and closes Friday, September 17th. The grant date for the new options however will be September 20th – the Monday after the exchange period closes. Exchange statements will be created the week of the September 20th and then you'll be looking for the Bank of America Merrill Lynch system to be updated with the new awards and the new grant paperwork in the early October timeframe.
Slide 19: The process. So, by now, you’ve received an email from Aon with your election account opening details and links. We'll go ahead and demo the site here shortly – but know that that you can go into the site as often as you want during the offer period and change your election until the period closes. And just as a reminder again, your final election is locked in at the close – and the grant price for your award is determined with the September 20th closing stock price. Final exchange statements will be sent out week of September 20th. Lastly and Importantly, we need you to accept your new grant when delivered via the Merrill Lynch system – which is same process you are used to for standard equity grants.
Slide 20: Before I turn it over to John to provide a demo of the exchange site, just a friendly heads up that we are not able to provide any financial advice and cannot advise you on what to do. This is a financial decision that is entirely yours. We are happy to answer any questions we can about what has been covered in today’s program, but we cannot tell you if you should or should not participate in the program. Be sure to keep your election documents safe and be mindful of the deadline of September 17th – as you must complete your tender offer on time – so please don’t wait until the last day to make your elections! And with that, I’ll hand over to John to talk about accessing the site and giving a demo. John, I’ll pass you the ball and you can take it from here.
Slide 21: You received an email on Monday the 16th that looked like this one on the top left. If you have clicked through, you will receive an email that looked like the bottom one saying confirm your email address. The email was from email@example.com. Click the link, use the provider code, register with an intercept email only. Aon cannot validate your personal emails and since this is connected to Intercept, we will use your Intercept email to authenticate and provide you access to your election information.
Now let’s link over to the site. Most people can navigate a website and this one is quite simple. Across the top, we have 5 links for pages – Home, FAQ, Document Library, My Options and Logout. The home page shows you a snapshot of the awards. What’s outstanding and what can be exchanged.
The FAQ page shows frequently asked questions – you’ll have access to those. The document library shows the official exchange documents and has a copy of this PowerPoint deck. My Options is where all the work gets done. On the left side you have your existing options that are eligible for the exchange. On the right side, you have the ratios applied and what you would be exchanging for. You do not know the final grant price, but this gives you how many new options you would receive. The last column shows ‘do not exchange’ as the default, and this is where you select your grants to exchange. I will select a couple. Here you will get a pop up – another view, but you have not confirmed yet. I will confirm and submit. The dot lets you know it’s working. And you exit to the home page. Here you will see the highlighted rows – those are the ones I selected. This helps you see visually that those are different than the others. If I go back to my options – same thing, except now the default for those 2 is exchange. If I exit and come back in a week, this will still be there. We want it to be easy to know if you exchanged everything or nothing or split your decision.
You will also get an email with the confirmation from awardchoice within a minute or 2. You will receive an email every time you submit changes.
Slide 22: Let’s go to the questions that came into the e-mail
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