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Author: EasyChap Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 11006  
Subject: Making sense of Company Stock Options Date: 12/29/2005 3:42 PM
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Dear Experts on Stock Options:

My spouse works for WFI (WFII) and the company recently announced significant changes to the Employee Stock Plan and the CEO sent a letter to all the employees today. Problem is, I am a novice at stock options and can't make full sense of the email and the implications it will have for my spouse. Here is the copy of the CEO letter.

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Dear WFI Employees,

Many of you have asked me about our stock price, and what can be done to make our stock more of an incentive for all employees. Our Board of Directors and the WFI Management Team regard stock as an important aspect of employee compensation, and we listen closely to your questions and concerns about our stock. To this end, I want to let you know that the Management Team and I have asked our Board of Directors to make some important changes to our stock program that may have some important and very beneficial consequences for you. Because of sweeping changes to how Companies account for employee-owned stock, this is an opportune time to make these changes.

We announced changes to the employee stock option program yesterday in a press release. You can read the details of the announcement on Atlas or on www.wfinet.com, and I will also explain these changes below:

As a way to provide a meaningful incentive, we have asked the Board to approve of immediate vesting of all shares with a price of $6.50 and above for those employees of record as of December 31, 2005. This was done in part to effectively reward those employees with options priced above $6.50 who have remained committed and loyal to WFI. It was also done in part to eliminate the future compensation expense that WFI would otherwise recognize in its financial statements as a result of recent changes to the accounting rules. I sincerely hope you regard this move on behalf of the Management Team and the Board of Directors as a gesture of thanks and a symbol of our commitment to you, the Company's most important asset.

In addition to immediate vesting of shares as mentioned above, we have also recommended that options of over 120% above the WFI market price as of December 29, 2005 be repriced to 120% of the final share price as of market close on December 29, 2005. Like the above vesting, this will only be applicable to employees of record as of December 31, 2005, and for shares over 120% above the WFI market price.

For example, if you were given a grant of 10,000 shares priced at $7.50, your shares would be immediately vested (ie. 100% yours), and would be repriced according to the final share price at the close of trading on December 29, 2005. Assuming our stock closes at $5.50 on December 29, this would be a repricing of your shares from $7.50 to $6.60. This repricing can represent a sizeable savings for you (THIS IS THE PARAGRAPH MOST RELEVANT TO ME).

This is only an example and, as with all financial transactions, you should see your broker or financial planner for how this may impact you and/or your individual taxes.

These changes in vesting and repricing only impact those stock options that were granted under Company plans entitled "1999 and 2000 stock option plans." These changes do not include stock options that were granted under the 1997 plan. If you have a question about which plan your options were awarded under, you can view the details of your stock account on e*trade and it will indicate the plan year.

I would also like to add that because of this action which will affect the majority of our employees, the Company will not be granting stock options for most employees in 2006. The Board and the Management Team believe that it is more beneficial to the employees to reprice and accelerate existing options as opposed to granting new options with a four year vesting schedule.

I plan to explain these changes in more detail in an employee webcast in the New Year, but I wanted to get this email announcement to you today in order to provide some context around our recent announcement.

On behalf of the entire Management Team and our Board of Directors, I want to reiterate our thanks for your hard work and ongoing commitment to this Company.

Regards,
Eric Demarco
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My spouse has about 4,000 options (2,800 exercisable at $13 and 1,200 exercisable at $11.50 - pretty much worthless at this point of time). If some kind soul out there can explain in plain English the bottom line impact of this decision for us, I'll greatly appreciate it. The two questions that I have are:

1. Does this mean that the options are still worthless but if the stock price goes north of $6.50, my wife can stand to gain.

2. Does this mean that the company has decided to award my spouse 4,000 stocks for more than 5 years of service, which would be nice but seems unlikely to me.

Thanks in advance.

- EasyChap
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