The Mistery of Tower Options Solved

I am following Tower (TSEM) warrants but not me nor my friends ever understood its dramatic and unexplained ups and downs. The options were valued at 25 dollars when the price of the stock is about 1.3 - 1.4 dollar So the value of the options is negative, but the facts were that someone bought options. Now, at last, an explanation from Globes:

Owners of Tower Semiconductor Ltd. (Nasdaq: TSEM; TASE: TSEM) options have already despaired about their options. Even if the options could be exercised, at the company’s current share price of $1.30, it is doubtful if there would be any point in exercising options that bear a strike price of say, $20-25. Some Tower employees actually own such options, which have little more use than as wallpaper. Tower is now repricing employee options. According to a letter recently sent to employees in the US and Israel, employees have until September 17 to decide whether to keep their existing options or replace them with new options with a strike price of $1.45. As of early May 2006, Tower directors and employees held options for 13 million shares exercisable at $4.15 per share. The company’s share has not traded at this price since July 2004.

Tower’s options are exercisable at prices ranging from $4.16 per share to $25, but it is not worthwhile for everyone to exercise their options. Firstly, options that have already matured will lose all rights. The vesting period of the new options will be restarted commencing on May 17, 2006 - the date the new options were granted pursuant to the decision of the company's board. The new options’ vesting period is four years, in equal annual installments. Some employees may have no plans to stay on at the company throughout the entire period.

Secondly, for some of Tower’s Israeli employees, replacing the options that have not yet matured could have been considered a tax event liable to a 25% tax. Tower stated that it has reached a settlement with the Israel Tax Authority under which collection of the tax owing on the replacement of the existing options will be deferred until the exercise of the new options. Tower has 1,300 employees in Israel.

Tower does not yet know the cost of the repricing, since the cost will be calculated after employees decide whether or not to replace their existing options, and if they do replace them, how many. Tower will report the expense in its profit and loss statement (with no cash cost) during the four years of the new options’ vesting period.