Why is KLA-Tencor offering employees a tender offer for stock options?

KLA-Tencor is offering this tender offer because an internal investigation found that certain stock options were granted with exercise prices below the fair market value on the actual grant date. This could lead to adverse tax consequences for employees under Section 409A of the Internal Revenue Code, and the offer is a corrective measure to help employees avoid these taxes.

What happens to the stock options if an employee tenders them?

If an option is tendered for amendment, its exercise price will be adjusted to the lower of the fair market value on the original grant date or the closing price on the amendment date. If this adjustment results in a higher exercise price, the employee will also receive a special cash bonus. If the adjusted exercise price is not higher than the current one, the option will be canceled and immediately replaced with a new option with identical terms but a new grant date.

What is the financial impact of this tender offer on KLA-Tencor?

The maximum aggregate cash bonus payable to employees is estimated to be approximately $21.5 million, assuming all eligible options are tendered and result in an exercise price increase. The company is also re-granting some options, which would not involve a cash bonus payment.

Who is Robert M. Calderoni and why is he being nominated for the Board?

Robert M. Calderoni is a nominee for election as a Class I Director at the company's next Annual Meeting. He has significant experience in executive leadership roles, having served as Chairman and CEO of Ariba, Inc., and previously holding finance executive positions at Ariba and Avery Dennison Corporation.

KLAC 8-K SEC Disclosure

Summary

KLA-Tencor Corporation (KLAC) announced on February 27, 2007, a formal tender offer to its employees concerning outstanding stock options. This initiative is a response to a company investigation that identified certain options were granted with exercise prices below the fair market value on the actual grant date. This condition could lead to adverse tax consequences for employees under Section 409A of the Internal Revenue Code for options unvested as of December 31, 2004. The tender offer aims to allow employees to amend or replace these problematic options to avoid these tax issues. Employees participating will have their option exercise prices adjusted, and in cases where the exercise price increases, they will receive a special cash bonus. The company has also nominated Robert M. Calderoni for election as a Class I Director at the upcoming annual meeting.

Key Highlights

1KLA-Tencor initiated a tender offer for employees to amend or replace certain outstanding stock options due to pricing issues.
2The issue stems from options being granted with exercise prices below the fair market value on the actual grant date.
3The tender offer is a remedial action to comply with Section 409A of the Internal Revenue Code and avoid adverse tax consequences for employees.
4Employees whose options are amended to a higher exercise price will receive a special cash bonus, capped at approximately $21.5 million.
5Options with exercise prices that would not increase after adjustment will be canceled and re-granted with a new grant date.
6A total of 5,139,344 stock options are eligible for this tender offer.
7Robert M. Calderoni has been nominated as a Class I Director for the upcoming Annual Meeting of stockholders.

KLA CORP 8-K Report, Corporate Update (Feb 27, 2007)

Summary

Key Highlights

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