Apple offers to fix option tax penalties

In wake of its option-backdating fiasco, Apple is offering affected employees the opportunity to amend their past options and to receive cash payments for such amended eligible options in an effort to avoid tax penalties. As noted previously, the Cupertino-based company recently announced that certain stock option grants made to employees between 1997 and 2002 were erroneously assigned grant dates that preceded the finalization of those grants and that as a result, the exercise prices of these stock option grants were lower than they would have been if the grants had been dated when they were actually finalized. Questions around Apple and Pixar CEO Steve Jobs role in negotiations of an employment contract with film director John Lasseter and Pixar via a large stock-options grant carrying a 'well-timed' date and federal officials are reportedly investigating Apple's stock grant to Jobs, including an outside lawyer who helped negotiate the offer.

he company noted that some misdated stock options exercised after 2005 are now subject to additional taxes, including an additional 20 percent tax and interest, under Section 409A of the Internal Revenue Code. In email to employees, the company explained the optional plan that would allow them to avoid these penalties.

The offer, which expires on April 16th, 2007, was emailed to affected employees on Friday; the value of the affected stock options under the offer was $67,142, according to the company.

From: stockquestions@apple.com
Date: March 16, 2007
Subject: Action Required: Urgent Information Regarding Your Unexercised Stock Options

This email contains important information about your unexercised stock options.

As you may know, Apple recently announced that certain stock option grants made to employees between 1997 and 2002 were erroneously assigned grant dates that preceded the finalization of those grants. As a result, the exercise prices of these stock option grants were lower than they would have been if the grants had been dated when they were actually finalized. Some misdated stock options exercised after 2005 are now subject to additional taxes, including an additional 20% tax and interest, under Section 409A of the Internal Revenue Code.

Our records indicate that some of your Apple stock options will fall into this category if you exercise them in the future. These options are listed in the attached Addendum.

To help you avoid Section 409A charges, Apple is offering to amend the strike price on your misdated stock options. This would raise the strike price on these options to reflect the price that would have existed if the grants had been dated when they were actually finalized. Apple will then issue you a cash payment to make up for the difference between the new strike price and the price at which you were originally granted the stock options.

Participation in this offer is completely voluntary. Changing the strike price requires a “Tender Offer” to you from Apple, which is included with this letter. Cash payments will be paid on or promptly following January 25, 2008, and will be subject to normal tax withholdings. The remaining terms and conditions of your stock options will remain unchanged.

It is extremely important that you carefully review the documents attached to this letter, as they contain the information that you need in order to decide whether or not to participate in this offer.

Filed under: Apple