Exhibit 99.(a)(1)(A)
TEGAL
CORPORATION
2201
South McDowell Boulevard
Petaluma,
CA 94954
(707)
763-5600
OFFER
TO EXCHANGE
CERTAIN
OUTSTANDING OPTIONS TO PURCHASE COMMON STOCK
November
8, 2006
OFFER
TO EXCHANGE
CERTAIN
OUTSTANDING OPTIONS TO PURCHASE COMMON STOCK
THIS
OFFER EXPIRES AT 11:59 P.M. PACIFIC DAYLIGHT TIME
ON
DECEMBER 7, 2006, UNLESS WE EXTEND THIS OFFER
We
are
offering you the opportunity to exchange stock options currently outstanding
under the Tegal Corporation (together with its subsidiaries, “Company” or
“Tegal”) Eighth Amended and Restated 1998 Equity Participation Plan that have an
exercise price equal to or greater than $7.70 (“Eligible Options”) for a lesser
number of either (1) restricted stock units, each one representing one share
of
Company common stock to be issued in the future (“RSUs”) or (2) new options to
purchase Tegal common stock at current fair market value (“New Options”). You
may elect whether to exchange your Eligible Options for either RSUs or New
Options. The RSUs and New Options will be issued under the Eighth Amended and
Restated 1998 Equity Participation Plan (the “Plan”) in accordance with a
specified exchange formula as described herein (the “Option Exchange Program”),
pursuant to the terms and conditions of this Offer to Exchange Certain
Outstanding Options to Purchase Common Stock (the “Offer”). You
are eligible to participate in the Offer if you are an employee of Tegal as
of
November 8, 2006, the date the Offer commenced, and you remain an employee
through the Expiration Date of the Offer and you hold Eligible
Options.
The
“Expiration Date” of the Offer is 11:59 p.m. Pacific Daylight Time on
December 7, 2006. If we extend the period of time during which this Offer
remains open, the term “Expiration Date” will refer to the latest time and date
at which this Offer expires.
The
RSUs
and New Options will be granted under the Plan approximately one
(1) business day following the Expiration Date, currently anticipated to be
December 8, 2006 (the “Grant Date”). The Board retains the discretion to
determine the Grant Date.
We
are
offering to exchange unexercised Eligible Options by determining the value
of
the Eligible Options using an option pricing model. You may elect whether to
exchange your Eligible Options for either RSUs or New Options. The number of
either RSUs or New Options that you will be granted in exchange for cancellation
of your Eligible Options will be determined by the following formula: the value
of your Eligible Options (as determined under the option pricing model) will
be
reduced by ten percent (10%), then that reduced amount will be divided by the
fair market value of a share of Company common stock on the Grant Date. “Fair
market value” for this purpose is the closing price of a share of Company common
stock as reported on the Nasdaq Capital Market on the last trading day before
the Grant Date. The option pricing model to be used is the Black-Scholes
valuation model (a widely used model for calculating the value of derivative
securities).
As
an
example, if you have an Eligible Option grant representing the right to
purchase 100 shares of common stock and you elect to exchange this
Eligible Option for RSUs, you will receive RSUs on the Grant Date representing
the right to receive the number of shares of Company common stock equal to
the
Black-Scholes valuation of your Eligible Option rights, reduced by 10%, and
divided by the closing price on the last trading date before the Grant Date.
Shares
of
our common stock are quoted on the Nasdaq Capital Market under the symbol
“TGAL”. On November 3, 2006, the closing price of our common stock as reported
on the Nasdaq Capital Market was $3.85 per share. We recommend that you
obtain current market quotations for our common stock before deciding whether
to
elect to exchange Eligible Options under this Offer. We
can provide no assurance as to the price of our common stock at any time in
the
future, and nothing contained in this document or the other documents you
receive relating to this Offer should be interpreted in any way as a claim
relating to the future prospects of the price of our common stock, nor should
any inference about such future prospects be drawn from anything contained
herein or therein.
Please
note that although you may tender as many or as few of the Eligible Options
as
you like, you must exchange all shares issuable under each particular grant
of
Eligible Options you wish to exchange. For example, if you received one grant
of
Eligible Options with the right to purchase 100 shares of our common stock
at, and another grant of Eligible Options with the right to purchase
50 shares of our common stock , you may tender one or both of these grants
of Eligible Options. However, you may not partially tender an Eligible Option
grant (e.g., 50 shares of the Eligible Option grant for 100 shares or
25 shares of the Eligible Option grant for 50 shares. In addition, you
may elect only one form of exchange per Eligible Option. For example, you can
exchange your full Eligible Option to purchase 100 shares for RSUs, but you
cannot exchange 1/2 for RSUs and 1/2 for New Options.)
We
are
making this Offer upon the terms and subject to the conditions described in
this
Offer, including the Summary of Terms and any other communications by us (which
together, as they may be amended from time to time, constitute the “Offer”).
This Offer is not conditioned upon a minimum number of option holders accepting
this Offer or a minimum number of Eligible Options being exchanged, but is
subject to other conditions that we describe in Section 6 of this
Offer.
You
will
need to make your election to exchange Eligible Options in writing using the
Stock Option Exchange Election Form that we have provided you.
This
transaction has not been approved or disapproved by the United States Securities
and Exchange Commission (the “SEC”), nor has the SEC passed upon the fairness or
merits of this transaction or upon the accuracy or adequacy of the information
contained in this Offer. Any representation to the contrary is a criminal
offense.
IMPORTANT
If
you
wish to tender some or all of your Eligible Options for exchange and
cancellation, and receive RSUs or New Options under the terms of this Offer,
you
must submit your signed Stock Option Exchange Election Form to us no later
than
11:59 p.m. Pacific Daylight Time on the Expiration Date. Submissions
instructions are included on the Form. If you have questions, please call Adam
LaVigna @ 707-765-5656 or send an e-mail to alavigna@tegal.com. If we do not
receive your signed Stock Option Exchange Election Form by 11:59 p.m.
Pacific Daylight Time on the Expiration Date, you will be deemed to have
rejected this Offer. Only those stock option agreements for Eligible Options
which we accept for exchange will be automatically cancelled.
The
Board
makes no recommendations as to whether or not you should tender your Eligible
Options for exchange. The Board recognizes that the decision to accept or reject
this Offer is an individual one that may be based on a variety of factors.
You
should consult your personal outside advisor(s) if you have questions about
your
financial or tax situation.
The
information about this Offer from Tegal is limited to this Offer, including
the
Summary of Terms and any other communications we may periodically send to you.
We have not authorized any person to make any recommendation on our behalf
as to
whether or not you should exchange your Eligible Options pursuant to this Offer,
nor have we authorized anyone to give you any information or to make any
representation in connection with this Offer other than the information and
representations contained in this Offer, including the Summary of Terms and
any
other communication we may periodically send to you. If anyone makes any
recommendation or representation to you or gives you any information, you must
not rely upon that recommendation, representation or information as having
been
authorized by Tegal.
|
SUMMARY
OF TERMS (in QUESTION and ANSWER FORMAT)
|
|
5
|
|
|
THE
OFFER
|
|
11
|
|
|
1. NUMBER
OF OPTIONS; EXPIRATION DATE
|
|
11
|
|
|
2. PURPOSE
OF THIS OFFER
|
|
12
|
|
|
3. PROCEDURES
|
|
12
|
|
|
4. CHANGE
IN ELECTION
|
|
13
|
|
|
5. ACCEPTANCE
OF ELIGIBLE OPTIONS FOR EXCHANGE AND CANCELLATION AND ISSUANCE OF
NEW
OPTIONS
OR RSUs
|
|
13
|
|
|
6. CONDITIONS
OF THIS OFFER
|
|
14
|
|
|
7. PRICE
RANGE OF COMMON STOCK
|
|
15
|
|
|
8. SOURCE
AND AMOUNT OF CONSIDERATION; TERMS OF NEW OPTION AND RSU
GRANTS
|
|
15
|
|
|
9. INTEREST
OF DIRECTORS AND EXECUTIVE OFFICERS; TRANSACTIONS AND ARRANGEMENTS
INVOLVING STOCK OPTIONS
|
|
16
|
|
|
10. STATUS
OF OPTIONS ACQUIRED BY US IN THIS OFFER; ACCOUNTING CONSEQUENCES
OF THIS
OFFER
|
|
17
|
|
|
11. LEGAL
MATTERS; REGULATORY APPROVALS
|
|
17
|
|
|
12. MATERIAL
U.S. FEDERAL INCOME TAX CONSEQUENCES
|
|
17
|
|
|
13. EXTENSION
OF THIS OFFER; TERMINATION; AMENDMENT
|
|
19
|
|
|
14. FEES
AND EXPENSES
|
|
19
|
|
|
17. ADDITIONAL
INFORMATION
|
|
19
|
|
|
APPENDIX
A INFORMATION ABOUT THE DIRECTORS AND EXECUTIVE OFFICERS OF
TEGAL
|
|
A-1
|
|
|
APPENDIX B FINANCIAL
INFORMATION
|
|
B-1
|
|
TEGAL
CORPORATION
OF
OFFER
TO EXCHANGE CERTAIN OUTSTANDING OPTIONS TO PURCHASE COMMON
STOCK
November
8, 2006
Response
Due By 11:59 p.m. Pacific Daylight Time
on
December 7, 2006, unless this Offer is Extended by Notice
The
following information should answer most of the questions that you may have
about this Offer. Please read the remainder of the Offer and the accompanying
documents carefully and in their entirety as they contain information relevant
to your decision as to whether or not to participate in this Offer. We have
included references to the relevant sections of the Offer where you can find
a
more complete description of the topics discussed in this Summary of
Terms.
GENERAL
QUESTIONS
ABOUT
THE
TERMS
OF
THE
OFFER
| |
Q1.
|
What
is the Option Exchange
Program?
|
We
are
offering Eligible Employees (as defined below) the opportunity to exchange
stock
options currently outstanding under the Eighth Amended and Restated 1998 Equity
Participation Plan that have an exercise price equal to or greater than
$7.70 per share (“Eligible Options”) for a lesser number of either (1)
restricted stock units, each of which representing a share of Tegal Corporation
common stock to be issued in the future (“RSUs”) or (2) new options to purchase
Tegal Corporation common stock (“New Options”). The RSUs and New Options will be
granted under the Eighth Amended and Restated 1998 Equity Participation Plan
in
accordance with a specified exchange formula (see Question 9 below for
additional information on the specified exchange formula) approximately
one (1) business day following expiration of the Offer, currently
anticipated to be December 8, 2006 (the “Grant Date”), although for
administrative processing reasons, you may not receive notice of your new RSU
or
New Option grant for a period of time following the Grant Date. The Board
retains the discretion to determine the Grant Date. (See Section 1 of the
Offer.)
| |
Q2.
|
Who
can participate in this
Offer?
|
You
are
eligible to participate in this Offer if you are an employee of Tegal
Corporation (together with its subsidiaries, the “Company”, or “Tegal”) as of
November 8, 2006, you continue to be employed by Tegal through the Expiration
Date of this Offer, and you hold Eligible Options (an “Eligible Employee”). An
employee of Tegal must either be on active status or on an approved leave of
absence on the Expiration Date of this Offer in order to be eligible to
participate, unless otherwise required under local law. An employee whose
employment with Tegal terminates for any reason at any time before the
Expiration Date of this Offer will not be an Eligible Employee. (See
Section 1 of the Offer.)
| |
Q3.
|
What
if I leave Tegal after the Offer begins but before my New Options
or RSUs
are granted?
|
To
receive RSUs or New Options, you must be employed by Tegal at the time the
Option Exchange Program commences through the time the RSUs or New Options
are
granted. If you elect to participate in the Option Exchange Program and your
employment terminates for any reason before the Grant Date, you would not
receive any RSUs or New Options. If you terminate from employment prior to
the
Expiration Date, you would be permitted to exercise your old options within
the
usual post-termination periods set forth in the Plan, to the extent that they
were exercisable at the time of termination. Otherwise, any Eligible Option
that
you tendered will be cancelled on the Expiration Date, and if you terminate
from
employment on or after the Expiration Date and before the Grant Date, you will
forfeit and not be permitted to exercise your old options and you will not
receive RSUs or New Options. (See Section 1 of the Offer.)
This
Offer will not change or modify any terms of your employment with Tegal.
| |
Q4.
|
Why
is Tegal making this offer to
employees?
|
We
are
making this Offer because, as a result of the volatility in our stock price,
many outstanding options have exercise prices significantly higher than the
current market price of our common stock. In many cases, these
“out-of-the-money” stock options no longer serve as effective incentives to
retain, motivate and reward our employees. We believe the Option Exchange
Program is an effective means of recognizing employee contributions to our
success and aligning employee and stockholder interests. (See Section 2 of
the Offer.)
| |
Q5.
|
Why
do I have to give up my old options? Can’t Tegal just grant new options at
a current price?
|
We
designed the Option Exchange Program to avoid the dilution in ownership to
our
stockholders that would result if we granted employees additional options to
supplement their out-of-the-money options. In addition, issuing new stock
options might cause some stockholders consider our “overhang” (the ratio of our
outstanding options to total outstanding shares) to be too high. The Option
Exchange Program will help avoid this problem.
| |
Q6.
|
How
can I tell which of my outstanding options are Eligible
Options?
|
If
you
are either an active employee or an employee on authorized leave of absence,
and
one of your outstanding options has an exercise price equal to or greater than
$7.70, that option is an Eligible Option. You will be provided with a Stock
Option Exchange Election Form which contains a summary of your Eligible Option
grants.
| |
Q7.
|
Are
there any conditions to this
Offer?
|
Yes.
This
Offer is subject to the conditions described in Section 6 of the Offer. If
any of these events occur, Tegal may terminate, postpone or amend this Offer.
However, this Offer is not conditioned on a minimum number of Eligible Employees
accepting this Offer or a minimum number of Eligible Options being exchanged.
(See Section 6 of the Offer.)
SPECIFIC
QUESTIONS
ABOUT
THE
ELIGIBLE
OPTIONS
TO
BE
EXCHANGED
| |
Q8.
|
If
I participate, how many RSUs or New Options will I
receive?
|
Under
this Offer, you may make an election to exchange your unexercised Eligible
Options for a number of either RSUs or New Options to be granted in accordance
with the following exchange formula:
Value
of
your Eligible Options (as determined using an option pricing model),
Minus
ten
percent (10%),
Divided
by the fair market value of a share of Company common stock on the Grant Date.
| |
Q9.
|
Why
are only options with an exercise price equal to or greater than
$7.70
per share eligible for
exchange?
|
We believe that options that are only moderately out-of-the-money continue
to
provide valuable incentives for employees. We set the $7.70 “floor” to provide
significant benefits to employees while continuing to be mindful of the
interests of our stockholders.
| |
Q10.
|
Why
isn’t the exchange formula simply a one-to-one ratio with my Eligible
Options?
|
We
believe the exchange ratios must balance the interests of both our employees
and
our stockholders. Therefore, in order to make the program fair, we have designed
it to be approximately “value for value.” This means that, in the aggregate, the
value of the stock options being exchanged will be approximately the same as
the
value of the RSUs or New Options to be granted. Under our pricing model, this
requires that more stock options be surrendered than new grants received in
the
exchange. The exchange formula was determined with advice from third-party
compensation consultants and on the basis of valuations under the Black-Scholes
valuation model (a widely used derivative securities pricing
model).
| |
Q11.
|
If
I elect to participate and exchange my Eligible Options, do I have
to
exchange all of my Eligible Options, or can I just exchange some
of
them?
|
You
are
not obligated to exchange all of your Eligible Option grants and will be free
to
exchange as few or as many of your individual Eligible Option grants as you
wish. However, if you elect to exchange shares from any Eligible Option grant,
you must elect to exchange all shares issuable under such Eligible Option
grant.
For
example, if you received one grant of Eligible Options with the right to
purchase 100 shares of our common stock, and another grant of Eligible
Options with the right to purchase 50 shares of our common stock, you
may tender one or both of these grants of Eligible Options. However, you may
not
partially tender an Eligible Option grant (e.g., 50 shares of the Eligible
Option grant for 100 shares at or 25 shares of the Eligible Option
grant for 50 shares).
| |
Q12.
|
If
I elect to participate and exchange my Eligible Options, do I have
to
exchange all of my Eligible Options for either only RSUs or only
New
Options, or can I elect to receive both types of
awards?
|
If
you
elect to exchange shares from any Eligible Option grant, you must elect to
exchange all shares issuable under such Eligible Option grant for one type
of
award, either RSUs or New Options. However, if you have more than one Eligible
Option grant, you may elect different types of awards for each Eligible Option
grant.
For
example, if you received one grant of Eligible Options with the right to
purchase 100 shares of our common stock, and another grant of Eligible
Options with the right to purchase 50 shares of our common stock, you
may elect to tender one of these grants of Eligible Options for RSUs and the
other grant for New Options. However, you may not tender one Eligible Option
grant for both RSUs and New Options (e.g., you may not tender the Eligible
Option grant for 100 shares in exchange for 2/3 RSUs and 1/3 New
Options).
| |
Q13.
|
If
I choose to participate in the Option Exchange Program can I exchange
partial grants?
|
No,
we
are not accepting partial tenders of particular Eligible Option grants. You
can
elect to exchange as few or as many of your Eligible Option grants as you wish.
However, if you elect to exchange any Eligible Options, you must exchange all
of
the options from the same grant.
| |
Q14.
|
My
Eligible Options are already vested. Will my RSUs and New Options
also be
fully vested?
|
No.
All
RSUs and New Options issued through the Option Exchange Program will vest in
annual installments over a period of two (2) years. New Options will become
exercisable upon vesting. Shares will be delivered upon vesting in RSUs.
| |
Q15.
|
Can
I exchange Eligible Option grants that I have already fully or partially
exercised?
|
If
you
previously exercised an option grant in its entirety, that option grant is
no
longer outstanding and is therefore not eligible for exchange under this Offer.
However, if you previously exercised an Eligible Option grant in part, the
remaining unexercised portion of the Eligible Option grant may be exchanged
under this Offer.
| |
Q16.
|
What
happens to Eligible Option grants that I choose not to
exchange?
|
Eligible
Option grants that you choose not to exchange will retain all of their current
terms and conditions, including their current exercise price, expiration date
and vesting schedule.
| |
Q17.
|
Does
the Company recommend employees participate in the
program?
|
Tegal
cannot make a recommendation to employees whether or not to accept the Offer
and
no one from Tegal has been, or will be, authorized to provide you with
additional information in this regard. However, Tegal is providing as much
information as is allowable by the SEC to assist you to make your informed
decision. For questions regarding investment-related issues, you should talk
to
your own advisors.
SPECIFIC
QUESTIONS
ABOUT
THE
RSUS
AND
NEW
OPTIONS
| |
Q18.
|
When
will I receive my RSUs and New
Options?
|
The RSUs and New Options will be granted on the Grant Date, which is currently
anticipated to be December 8, 2006, although for administrative processing
reasons, you may not receive notice of your new grant for a period of time
following the Grant Date. (See Section 5 of the Offer.) The Board retains
the discretion to determine the Grant Date. (See Section 1 of the
Offer.)
| |
Q19.
|
What
will the purchase price of my RSUs and New Options
be?
|
One
share
of Company common stock will be delivered to you for each RSU that vests. The
purchase price of the shares of common stock to be issued upon settlement of
your RSUs will be the par value of our common stock, which is equal to one-tenth
of one cent ($0.01) and the par value will be deemed paid by your past services
rendered to Tegal. As a result, you do not have to make a payment to Tegal
to
receive the shares of common stock to be issued upon your settlement of your
RSUs.
All
New
Options will be granted with an exercise price equal to the closing price of
Tegal’s common stock as reported on the Nasdaq Capital Market as of the last
trading date prior to the Grant Date. (See Section 7 of the Offer for a
historical view of the price range of our common stock.)
| |
Q20.
|
What
will the vesting schedule of my RSUs and New Options
be?
|
The
RSUs
and New Options will vest on a different schedule than your tendered Eligible
Options. The RSUs and New Options will vest in annual installments over a period
of two (2) years, 50% on the first anniversary of the Grant Date, and 100%
on
the second anniversary of the Grant Date. For all RSUs and New Options, vesting
is contingent upon your continued employment with Tegal through the applicable
vesting dates. If you terminate from service with Tegal, you will forfeit and
have no further rights with respect to any unvested portion of your RSUs and
New
Options. (See Section 8 of the Offer.)
| |
Q21.
|
What
will the term of my New Options
be?
|
The
New
Options will have a term equal to the remaining term of your Eligible Options
exchanged, as long as you remain employed by Tegal. (See Section 8 of the
Offer.) For example, if you decide to exchange an Eligible Option which would
otherwise expire in 2009 for New Options, your New Options will also expire
in
2009.
| |
Q22.
|
What
will the other terms and conditions of my RSUs and New Options
be?
|
The
other
terms and conditions of your RSUs and New Options not described in the Offer
will be generally comparable to the other terms and conditions of other award
agreements under the Plan. If you exchange your Eligible Options for New
Options, such options will have the same exercise period as the Eligible Option
you exchanged; e.g.,
if your
Eligible Options provided that you can exercise your vested options within
3
months following your termination of employment date, your New Options will
also
allow you to exercise vested options for 3 months following
termination.
However,
all New Options will be nonqualified stock options under the U.S. Internal
Revenue Code, regardless of the tax status of the Eligible Options exchanged,
and will be granted pursuant to the Plan.
| |
Q23.
|
If
the exercise price of the New Options is higher than the exercise
price of
the Eligible Options I exchanged, can
I revert back to my original Eligible Options with their original
exercise
price?
|
| |
Q24.
|
If
the New Options granted to me end up being out-of-the-money, will
there be
another offer to
exchange?
|
We
do not
expect to implement another option exchange program.
SPECIFIC
QUESTIONS
ABOUT
THE
POTENTIAL
CONSEQUENCES
OF
ACCEPTING
OR
REJECTING
THIS
OFFER
| |
Q25.
|
What
happens if I accept this
Offer?
|
If
you
accept this Offer, the Eligible Option grants you choose to exchange will be
cancelled promptly after 11:59 p.m. Pacific Daylight Time on the Expiration
Date, and you will have no further right or interest in these Eligible Options.
If you choose to accept this Offer, you will receive notice of your RSUs and/or
New Options as promptly as possible following the Grant Date.
| |
Q26.
|
Will
I owe taxes if I participate in the Option Exchange
Program?
|
The
exchange of Eligible Options pursuant to this Offer should be treated as a
non-taxable exchange, such that no income should be recognized for
U.S. Federal or state income tax purposes upon grant of the RSUs and New
Options. However, you may recognize income for U.S. Federal income tax purposes
upon vesting of the RSUs or upon exercise of New Options (See Section 12 of
the Offer), at which time the Company will also generally have a tax withholding
obligation. Although not required to do so, the Company intends to automatically
withhold a sufficient number of otherwise distributable shares of common stock
when RSUs vest to satisfy its tax withholding obligation. You may also have
taxable income when you sell the shares issued upon settlement of your awards.
If
you
are a tax resident or subject to the tax laws in more than one country, you
should be aware that there might be additional tax and social insurance
consequences in more than one country that may apply to you. For additional
information about your personal tax situation, you should talk to your own
financial or tax advisor.
| |
Q27.
|
Do
I have to participate in the Option Exchange
Program?
|
No.
Participation in this Offer is completely voluntary. If you choose not to
participate, no changes will be made to the terms of your current option
grants.
SPECIFIC
QUESTIONS
ABOUT
THE
PROCESS
OF
EXCHANGING
ELIGIBLE
OPTIONS
| |
Q28.
|
When
does this Offer expire? Can this Offer be extended, and if so, how
will I
know if it is
extended?
|
The
“Expiration Date” of the Offer is 11:59 p.m. Pacific Daylight Time on
December 7, 2006, unless we extend it. Although we do not currently intend
to do
so, we may, in our sole discretion, extend this Offer at any time prior to
the
Expiration Date. If we extend this Offer, we will announce the extension no
later than 9:00 a.m. Pacific Daylight Time on the day following the last
previously scheduled or announced Expiration Date. (See Section 13 of the
Offer.)
| |
Q29.
|
If
I decide to accept this Offer, what do I need to
do?
|
If
you
wish to accept this Offer, you must submit your Stock Option Exchange Election
Form to us pursuant to its instructions no later than 11:59 p.m. Pacific
Daylight Time on the Expiration Date. The Stock Option Exchange Election Form
is
provided in the packet regarding this Offer. If you have questions, please
call
Adam LaVigna @ 707-765-5656 or send an e-mail to alavigna@tegal.com. If we
do
not receive your signed, written Stock Option Exchange Election Form by
11:59 p.m. Pacific Daylight Time on the Expiration Date, you will be deemed
to have rejected this Offer.
| |
Q30.
|
Under
what circumstances would Tegal not accept my Eligible Option grant
for
exchange?
|
We
currently expect that we will accept promptly after the Expiration Date all
Eligible Option grants for which written elections are properly completed,
signed and submitted and have not been validly changed or withdrawn. We may,
however, reject any or all written election forms to the extent we determine
they were not properly completed, signed or submitted, to the extent we
determine it is unlawful to accept the exchanged Eligible Option grants or
to
the extent that any condition described in Section 6 of the Offer makes it
inadvisable in our reasonable judgment to proceed with this Offer. (See
Sections 3, 5 and 6 of the Offer.)
| |
Q31.
|
Can
I change my previous election prior to the Expiration
Date?
|
Yes.
You
may change your previous election or withdraw from the Offer by properly
completing, executing and submitting a new Stock Option Exchange Election Form
before the Expiration Date. You may change your election more than once. Your
last properly submitted written Stock Option Exchange Election Form will
supersede any prior election forms you may have completed, signed and submitted.
(See Section 4 of the Offer.)
| |
Q32.
|
If
I elect to participate in the Offer, do I have to return any stock
option
agreements for the Eligible Options I wish to
exchange?
|
No.
You
do not need to return any stock option agreements as they will automatically
be
cancelled when we accept your Eligible Options for exchange.
| |
Q33.
|
Who
can I talk to if I have questions about the
Offer?
|
For
general assistance, please call Adam LaVigna @ 707-765-5656 or send an e-mail
to
alavigna@tegal.com. You should consult your personal outside advisor(s) if
you
have questions about your financial or tax situation.
1. NUMBER
OF OPTIONS; EXPIRATION DATE.
We
are
offering Eligible Employees of Tegal Corporation (together with its
subsidiaries, the “Company” or “Tegal”) the opportunity to exchange stock
options currently outstanding under the Eighth Amended and Restated 1998 Equity
Participation Plan (the “Plan”) that have an exercise price equal to or greater
than $7.70 per share (“Eligible Options”) for a lesser number of either:
(1) restricted stock units, each one representing one share of Company common
stock to be issued in the future (“RSUs”) or (2) new options to purchase Company
common stock (“New Options”). The RSUs and New Options will be granted on the
next business day following expiration of the Offer, currently anticipated
to be
December 8, 2006 (the “Grant Date”), under the Eighth Amended and Restated 1998
Equity Participation Plan (the “Plan”) in accordance with a specified exchange
formula as described herein (the “Option Exchange Program”), and pursuant to the
terms and conditions of this Offer to Exchange Certain Outstanding Options
to
Purchase Common Stock (the “Offer”).
“Eligible
Employees” are employees of Tegal as of November 8, 2006 who hold Eligible
Options and continue to be employed by Tegal through 11:59 p.m. Pacific
Daylight Time on December 7, 2006 (the “Expiration Date”). If we extend the
period of time during which this Offer remains open, the term “Expiration Date”
will refer to the latest time and date at which this Offer expires. See Section
13 of this Offer for a description of our rights to extend, delay, terminate
and
amend this Offer.
If
you
wish to accept this Offer, you are free to elect to exchange as many or as
few
of the Eligible Option grants as you like; however, you must exchange all shares
issuable under each particular Eligible Option grant you wish to exchange.
For
example, if you received one grant of Eligible Options with the right to
purchase 100 shares of our common stock, and another grant of Eligible
Options with the right to purchase 50 shares of our common stock, you
may tender one or both of these Eligible Option grants. However, you may not
partially tender an Eligible Option grant (e.g., 50 shares of the Eligible
Option grant for 100 shares or 25 shares of the Eligible Option grant
for 50 shares). Also, you may elect to exchange each Eligible Option for
either RSUs or New Options, but not both. If you have more than one Eligible
Option, you may elect different types of awards for exchange with each (e.g.,
exchange an Eligible Option grant for 100 shares for RSUs, and exchange an
Eligible Option grant for 50 shares for New Options).
This
Offer is subject to the terms and conditions described herein, including the
Summary of Terms, the Stock Option Exchange Election Form and any other
communications periodically sent to you by us. We will only accept Eligible
Option grants that are properly exchanged and not validly withdrawn, in
accordance with Section 5 of this Offer, by 11:59 p.m. Pacific
Daylight Time on the Expiration Date. If we do not receive your written election
to participate by such date and time, you will be deemed to have rejected this
Offer. If your employment with Tegal is terminated for any reason on or before
the Grant Date, you will not receive any RSUs or New Options. If you terminate
prior to the Expiration Date, you would be permitted to exercise your old
options within the usual post-termination periods set forth in the Plan, to
the
extent that they were exercisable at the time of termination. Otherwise, on
the
Expiration Date your tendered old options will be cancelled, and if you
terminate on or after the Expiration Date and before the Grant Date, you will
forfeit and not be permitted to exercise your old options and you will not
receive RSUs or New Options.
In
this
Offer, each Eligible Option grant may be exchanged for RSUs or New Options,
as
elected, to be granted in accordance with the following exchange formula
(rounded down to the next whole share):
Value
of
your Eligible Options (as determined using an option pricing model),
Minus
ten
percent (10%),
Divided
by the fair market value of a share of Company common stock on the Grant
Date
“Fair
market value” for this purpose is the closing price of a share of Company common
stock as reported on the Nasdaq Capital Market on the last trading day before
the Grant Date. The option pricing model to be used is the Black-Scholes
valuation model (a widely used model for calculating the value of derivative
securities).
The
RSUs
and New Options will become 50% vested on the first anniversary of the Grant
Date, and 100% vested on the second anniversary of the Grant Date. Vesting
is
contingent upon your continuous employment with Tegal through the applicable
vesting dates. The New Options will become exercisable as they vest, and will
have an exercise price equal to the closing price of our common stock as
reported on the Nasdaq Capital Market on the last trading day prior to the
Grant
Date. We cannot guarantee that the New Options will have a lower exercise price
than the Eligible Options for which they are exchanged, because we cannot
provide any assurance as to the price of our common stock in the future. If
you
terminate from employment with the Company prior to full vesting, you will
forfeit and have no further rights with respect to any unvested portion of
your
RSUs or New Options.
All
RSUs
and New Options will be granted under the Plan. One share of Company common
stock will be delivered to you for each RSU that vests. All New Options will
be
granted with an exercise price equal to the closing price of Tegal’s common
stock as reported on the Nasdaq Capital Market as of the last trading date
prior
to the Grant Date. The New Options will have a term equal to the remaining
term
of your Eligible Options exchanged, as long as you remain employed by Tegal.
For
example, if you decide to exchange an Eligible Option which would otherwise
expire in 2009 for New Options, your New Options will also expire in
2009.
We
will
issue a press release or otherwise notify each Eligible Employee and keep the
Offer open for at least ten (10) business days after the date of such
notification if we decide to take any of the following actions prior to the
Expiration Date:
| |
|
|
|
|
•
|
increase
or decrease what we will give you in exchange for your Eligible Options;
or
|
|
|
|
|
|
•
|
increase
or decrease the number of Eligible Options to be exchanged in this
Offer.
|
A
“business day” means any day other than a Saturday, Sunday or U.S. federal
holiday and consists of the time period from 12:00 midnight through
11:59 p.m. Pacific Daylight Time.
2. PURPOSE
OF THIS OFFER.
Many
of
our outstanding options have exercise prices that are significantly higher
than
the current market price of our common stock as a result of volatility in our
stock price. In many cases, these “out-of-the-money” stock options no longer
serve as effective incentives to retain, motivate and reward our employees.
Accordingly, our Board adopted the Option Exchange Program to revitalize the
stock options held by our employees. We believe the Option Exchange Program
is
an effective means of recognizing employee contributions to our success and
aligning employee and stockholder interests.
In
order
to balance the interests of both our employees and our stockholders, we have
designed it to be an approximate “value-for-value” program. This means that, in
the aggregate, the value of the stock options being exchanged is approximately
the same as the value of the RSUs and New Options to be issued. Under our option
pricing model, this requires that more stock options be surrendered than
received in the exchange. The exchange formula was determined on the basis
of a
Black-Scholes model, a commonly used option valuation model, with advice from
third-party compensation consultants. We cannot guarantee that, if you choose
to
exchange your Eligible Options for New Options, your New Options will have
a
lower exercise price than your Eligible Options. The Board makes no
recommendation as to whether or not you should tender your Eligible Options
for
exchange. The Board recognizes that the decision to accept or reject this Offer
is an individual one that should be based on a variety of factors. You should
consult with your personal outside advisor(s) if you have questions about your
financial or tax situation.
3. PROCEDURES.
Making
Your Election. If
you wish to accept this Offer, you must submit your Stock Option Exchange
Election Form to us pursuant to the instructions on the Form no later than
11:59 p.m. Pacific Daylight Time on the Expiration
Date.
The
Stock Option Exchange Election Form is provided in the packet regarding this
Offer. If we do not receive your signed, written Stock Option Exchange Election
Form by 11:59 p.m. Pacific Daylight Time on the Expiration Date, you will
be deemed to have rejected this Offer. If we extend the period of time during
which this Offer remains open, the term “Expiration Date” will refer to the
latest time and date at which this Offer expires. You do not need to return
any
stock option agreements as they will be automatically cancelled if we accept
your Eligible Options for exchange.
If
you
have questions, please call Adam LaVigna @ 707-765-5656 or send an e-mail to
alavigna@tegal.com.
Determination
of Validity; Rejection of Elections; Waiver of Defects; No Obligation to Give
Notice of Defects.
We will
resolve, in our sole discretion, all questions as to the number of shares
subject to Eligible Options and the validity, form, eligibility (including
time
of receipt) and acceptance of written election forms. Our determination of
these
matters will be final and binding on all parties. We may reject any or all
submissions to the extent that we determine they were not properly completed,
signed and submitted, to the extent that we determine it is unlawful to accept
the Eligible Options tendered for exchange or to the extent that any condition
described in Section 6 of this Offer makes it inadvisable in our reasonable
judgment to proceed with this Offer. Otherwise, we will properly accept and
timely exchange Eligible Options that are not validly withdrawn. We may waive
any of the conditions of this Offer or any error in any written election form
with respect to any particular Eligible Options or any particular Eligible
Employee. No Eligible Options will be accepted for exchange until all errors
have been cured by the Eligible Employee exchanging the Eligible Options or
waived by us. Neither we nor any other person is obligated to give notice of
any
errors involved in the exchange of any Eligible Options, and no one will be
liable for failing to give notice of any errors.
Our
Acceptance Constitutes an Agreement.
If you
elect to exchange any of your Eligible Option grants and you tender those
Eligible Options according to the procedures described above, you will have
accepted this Offer. However, only our acceptance of your Eligible Options
that
are properly exchanged will form a binding agreement between us and you on
the
terms and subject to the conditions of this Offer.
Subject
to our right to extend, terminate and amend this Offer, we currently expect
that
we will accept promptly after the Expiration Date all properly and timely
tendered Eligible Options that have not been validly withdrawn.
4. CHANGE
IN ELECTION.
You
may
only change your election by following the procedures described in this
Section 4.
You
may
change your election at any time prior to 11:59 p.m. Pacific Daylight Time
on the Expiration Date. If we extend this Offer beyond that time, you may change
your election at any time until the extended Expiration Date. Additionally,
in
accordance with the legal requirements for tender offers, you may withdraw
any
options you elected to exchange if after forty (40) business days after the
commencement of this Offer, we have not yet closed this Offer and we have not
accepted for exchange all Eligible Option grants you elected to exchange. The
date of the fortieth (40th
)
business day after the commencement of this Offer is January 6,
2007.
You
may
change your election more than once. Your last completed, signed and properly
submitted Stock Option Exchange Election Form will supersede any prior elections
you may have submitted.
If
you
have questions regarding the process for changing your election, you may contact
Adam LaVigna @ 707-765-5656 or send an e-mail to
alavigna@tegal.com.
| 5. |
ACCEPTANCE
OF ELIGIBLE OPTIONS FOR EXCHANGE, AND THE CANCELLATION AND ISSUANCE
OF
RSUs AND NEW OPTIONS.
|
On
the
terms and subject to the conditions of this Offer, promptly following the
Expiration Date we will accept for exchange and cancellation all Eligible
Options properly tendered and not validly withdrawn as of the Expiration Date.
The RSUs and New Options will be granted approximately one (1) business day
following expiration of the Offer, currently anticipated to be December 8,
2006,
although for administrative processing reasons, you may not receive notice
of
your New Option grant for a period of time after the Grant Date. The Board
retains the discretion to determine the Grant Date.
6. CONDITIONS
OF THIS OFFER.
We
will
not be required to accept any Eligible Options that you elect to exchange,
upon
the occurrence of one or more of the conditions described below. We may
terminate or amend this Offer, or postpone our acceptance and cancellation
of
any Eligible Options that you elect to exchange, in each case, if, at any time
on or after the date hereof, and by 11:59 p.m. Pacific Daylight Time on the
Expiration Date, we determine that any condition described below has occurred
that, in our reasonable judgment, makes it inadvisable for us to proceed with
this Offer or to accept and cancel Eligible Options that you elect to exchange.
These conditions are as follows:
| |
|
|
|
|
•
|
if
any action or proceeding by any government agency, authority or tribunal
or any other person, domestic or foreign, is threatened or pending
before
any court, authority, agency or tribunal that directly or indirectly
challenges the making of this Offer, the acquisition of some or all
of the
exchanged Eligible Options, the issuance of RSUs and/or New Options,
or
otherwise relates to this Offer or that, in our reasonable judgment,
could
materially and adversely affect our business, condition (financial
or
other), income, operations or prospects;
|
|
|
|
|
|
•
|
if
any action is threatened, pending or taken, or any approval is withheld,
by any court or any authority, agency or tribunal, domestic or foreign,
that, in our reasonable judgment, would or might directly or
indirectly:
|
| |
|
|
|
(a) make it illegal for us to accept some or all of the Eligible
Options or to issue some or all of the RSUs and/or New Options or
otherwise restrict or prohibit consummation of this Offer or otherwise
relate to this Offer;
|
|
|
|
|
|
(b) delay or restrict our ability, or render us unable, to accept the
Eligible Options for exchange and cancellation or to issue RSUs and/or
New
Options for some or all of the exchanged Eligible
Options; or
|
|
|
|
|
|
(c) materially and adversely affect our business, condition
(financial or other), income, operations or
prospects;
|
| |
|
|
|
(a) any general suspension of trading in, or limitation on prices
for, securities on any national securities exchange or in the over-the
-counter market; or
|
|
|
|
|
|
(b) the declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States, whether or not
mandatory;
|
| |
|
|
|
|
•
|
if
another person publicly makes or proposes a tender or exchange offer
for
some or all of our common stock, or an offer to merge with or
acquire us;
|
| |
|
|
|
|
•
|
if
any of the following change or changes occur in our business, condition
(financial or other), assets, income, operations, prospects or stock
ownership:
|
| |
|
|
|
(a) litigation or other proceedings are instituted against us, or any
of our officers or members of our Board in their capacities as such,
before or by any federal, state or local court, commission, regulatory
body, administrative agency or other governmental or legislative
body,
domestic or foreign, in which an unfavorable ruling, decision, action,
order, decree or finding resulting from such litigation or proceeding
would materially and adversely affect Tegal collectively with our
subsidiaries;
|
|
|
|
|
|
(b) a material loss or interference with our business or properties
from fire, explosion, flood or other casualty, whether or not covered
by
insurance;
|
|
|
|
|
|
(c) the suspension of trading in our equity securities by the SEC or
by the Nasdaq Stock Market; or
|
|
|
|
|
|
(d) a material change in the prospects for our business resulting
from any number of factors such as a material adverse change in the
financial or securities markets in the United States or elsewhere,
or in
political, financial or economic conditions in the United States
or
elsewhere, or any outbreak or material escalation of foreign or domestic
hostilities or other calamity or crisis that could, in our reasonable
judgment, have a material adverse effect on the business, condition
(financial or other), operations or prospects of Tegal or our subsidiaries
or on the trading in our common
stock;
|
| |
|
|
|
|
•
|
if
we are required to extend the Expiration Date beyond January 6, 2007
as a
result of action or determination by the SEC or other regulatory
authority.
|
We
may
assert these conditions in our sole discretion at any time before the Expiration
Date and we may waive them at any time before the Expiration Date, whether
or
not we waive any other condition to this Offer. Should we decide to waive or
assert any of the conditions to this Offer, we must do so by 11:59 p.m.
Pacific Daylight Time on the Expiration Date.
Our
failure to exercise any of these rights is not a waiver of any of these rights.
The waiver of any particular right is not, and will not be construed as, the
waiver of any other right. However, once we choose to waive a particular right,
we may not reassert that particular right again in this Offer. Any determination
we make concerning the events described in this Section 6 will be final and
binding on all Eligible Employees.
We
currently expect that we will accept all Eligible Options that are properly
submitted to be exchanged and have not been validly withdrawn.
7. PRICE
RANGE OF COMMON STOCK.
There
is
no established trading market for the Eligible Options. The securities
underlying the Eligible Options are shares of our common stock. Our common
stock
is quoted on the Nasdaq Capital Market under the symbol “TGAL”. The following
table shows, for the periods indicated, the high and low sale prices per share
of our common stock as reported by the Nasdaq Capital Market.
|
Year
ended March 31, 2005
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
34.20
|
|
$
|
15.24
|
|
|
Second
Quarter
|
|
|
24.12
|
|
|
9.84
|
|
|
Third
Quarter
|
|
|
23.52
|
|
|
12.60
|
|
|
Fourth
Quarter
|
|
|
20.4
|
|
|
10.44
|
|
|
Year
ended March 31, 2006
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
17.52
|
|
$
|
11.64
|
|
|
Second
Quarter
|
|
|
12.00
|
|
|
7.56
|
|
|
Third
Quarter
|
|
|
9.48
|
|
|
6.00
|
|
|
Fourth
Quarter
|
|
|
8.40
|
|
|
5.76
|
|
|
Year
ended March 31, 2007
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
8.64
|
|
$
|
3.96
|
|
|
Second
Quarter
|
|
|
5.04
|
|
|
2.62
|
|
|
Third
Quarter (through November 3, 2006)
|
|
|
4.79
|
|
|
3.61
|
|
As
of
November 3, 2006, the last reported sale price of our common stock as reported
on the Nasdaq Capital Market was $3.85 per share.
The
number of shares of our common stock outstanding as of November 3, 2006 was
7,072,289.
If
you
elect to receive New Options, we cannot guarantee that the New Options will
have
a lower exercise price than the Eligible Options. We recommend that you obtain
and consider current market quotations for our common stock among other factors,
before deciding whether to exchange your Eligible Options.
8. SOURCE
AND AMOUNT OF CONSIDERATION; TERMS OF RSUs AND NEW OPTION
GRANTS.
Consideration.
In this
Offer, each Eligible Option may be exchanged for either RSUs or a New Option
to
be granted in accordance with the following exchange formula (rounded down
to
the next whole share): the value of your Eligible Options (as determined under
an option pricing model) will be reduced by ten percent (10%), then that reduced
amount will be divided by the fair market value of a share of Company common
stock on the Grant Date. “Fair market value” for this purpose is the closing
price of a share of Company common stock as reported on the Nasdaq Capital
Market on the last trading day before the Grant Date. The option pricing model
to be used is the Black-Scholes valuation model (a widely used model for
calculating the value of derivative securities).
Exercise
Price of New Options.
All New
Options will be granted with an exercise price equal to the closing price of
our
common stock as reported on the Nasdaq Capital Market the last trading day
prior
to the Grant Date. We cannot guarantee that the New Options will have a lower
exercise price than the Eligible Options for which they are exchanged, because
we can provide no assurance as to the price of our common stock in the
future.
Vesting
of RSUs and New Options.
The RSUs
and New Options will be completely unvested at the time of grant, regardless
of
the vesting schedule of the tendered Eligible Options, and the RSUs and New
Options will vest in two annual installments: 50% vested on the first
anniversary of the Grant Date, and 100% vested on the second anniversary of
the
Grant Date. Vesting is contingent upon your continuous employment with the
Company through the applicable vesting dates. The New Options will become
exercisable as they vest, and will have an exercise price equal to the closing
price of our common stock as reported on the Nasdaq Capital Market on the last
trading day prior to the Grant Date. One share of Company common stock will
be
delivered to you for each RSU that vests. The purchase price of the shares
of
common stock to be issued upon settlement of your RSUs will be the par value
of
our common stock, which is equal to one-tenth of one cent ($0.01) and the par
value will be deemed paid by your past services rendered to Tegal. As a result,
you do not have to make a payment to Tegal to receive the shares of common
stock
to be issued upon your settlement of your RSUs.
If
you
terminate from employment with the Company prior to full vesting, you will
forfeit and have no further rights with respect to any unvested portion of
your
RSUs and/or New Options.
For
example, a fully vested Eligible Option grant would be exchangeable for a New
Option grant with an exercise price set at the current market price on the
trading day before the Grant Date and vesting over two years in annual
installments, with vesting beginning on the first anniversary following the
Grant Date.
Term
of the New Options.
The New
Options will have a term equal to the remaining term of your Eligible Options
exchanged, as long as you remain employed by Tegal. (See Section 8 of the
Offer.) For example, if you decide to exchange an Eligible Option which would
otherwise expire in 2009 for New Options, your New Options will also expire
in
2009.
Other
Terms and Conditions of the RSUs and New Options.
All RSUs
and New Options will be issued under and subject to the terms of the Plan.
The
New Options will not be exercisable prior to vesting. Shares of common stock
will not be delivered under the RSUs until vesting. The other terms and
conditions of the RSUs and New Options will be set forth in an award agreement
to be entered into as of the Grant Date. Such other terms and conditions will
be
generally comparable to the other terms and conditions of other similar awards
issued under the Plan. All New Options will be nonstatutory stock options
granted under the Plan regardless of the tax status of the Eligible Options
tendered for exchange. The shares of common stock that the RSUs represent and
for which the New Options will be exercised are registered with the
SEC.
| 9. |
INTEREST
OF DIRECTORS AND EXECUTIVE OFFICERS; TRANSACTIONS AND ARRANGEMENTS
INVOLVING STOCK OPTIONS.
|
A
list of
executive officers and members of our Board is attached to this Offer as
Appendix A. Our executive officers are eligible to participate in this
Offer. The members of our board of directors, however are not eligible to
participate in this offer.
As
of
November 3, 2006, all of our executive officers as a group (6 persons) held
options outstanding under the Plan to purchase a total of 301,736 shares of
our
common stock. This represented approximately 44% of the shares subject to all
options outstanding under the Plan and the Fifth Amended and Restated Stock
Option Plan for Outside Directors.
Since
September 3, 2006, none of our executive officers have engaged in transactions
which involved options to purchase our common stock or involved a purchase
or
sale of our common stock.
There
is
no agreement, arrangement or understanding between Tegal or, to the best of
our
knowledge, any of our executive officers or members of our Board, and any other
person for the purchase or acquisition from Tegal of any of our securities,
except for the following as of November 3, 2006:
| |
|
|
|
|
•
|
outstanding
options granted to executive officers to purchase an aggregate of
217,581
shares of common stock pursuant to the Plan; and
|
|
|
|
|
|
•
|
outstanding
options granted to members of our Board to purchase an aggregate
of
84,155 shares of common stock pursuant to our Fifth Amended and
Restated Stock Option Plan for Outside
Directors.
|
10. STATUS
OF OPTIONS ACQUIRED BY US IN THIS OFFER; ACCOUNTING CONSEQUENCES OF THIS
OFFER.
We
will
cancel the difference between Eligible Options surrendered and RSUs and New
Options issued and the shares of stock underlying such Eligible Options will
be
added to the number of shares reserved for issuance under the Eighth Amended
and
Restated 1998 Equity Participation Plan. Assuming exchange of all of the
Eligible Options for RSUs and New Options, an aggregate of 65,013 options
will be returned to the reserved share pool.
Under
Statement of Financial Accounting Standards No. 123 (Revised), Share-Based
Payment
(“SFAS 123R”), we would be required to recognize an expense as a result of
the grant of New Options in exchange for Eligible Options to the extent the
fair
value of the New Options exceeds the fair value of the Eligible Options
surrendered under an applicable option valuation model. We would be required
to
recognize an expense of the grant of RSUs to the extent that the number of
shares underlying the RSUs multiplied by the last reported sales price of
Company common stock on the Grant Date exceeds the fair value of the Eligible
Options immediately before their cancellation. Because the Offer has been
designed as an approximate value-for-value exchange, we expect to incur little
or no charge to earnings for financial accounting purposes as a result of this
Offer. However, due to a number of factors, including but not limited to our
inability to predict which or how many Eligible Options will be exchanged,
or
what the future market price of our common stock will be on the Grant Date,
we
cannot predict what exact charge to earnings might result from the Option
Exchange Program.
11. LEGAL
MATTERS; REGULATORY APPROVALS.
We
are
not aware of any license or regulatory permit material to our business that
might be adversely affected by this Offer, or of any approval or other action
by
any government or regulatory authority or agency, other than SEC review and
certain exemption or notice filings that may be required in certain countries
outside the United States, that is required for the exchange of Eligible Options
for RSUs and New Options. If any other approval, exemptive filing, notice filing
or action should be required, we presently intend to seek the approval, make
such filing or take the action. This could require us to delay the acceptance
of
any Eligible Options that you elect to exchange. We cannot assure you that
we
would be able to obtain any required approval, make such filing or take any
other required action. Our obligation under this Offer to accept exchanged
Eligible Options and to issue RSUs and New Options is subject to the conditions
described in Section 6 of this Offer.
12. MATERIAL
U.S. FEDERAL INCOME TAX CONSEQUENCES.
The
following is a summary of the material U.S. federal income tax consequences
of
the exchange of eligible options for RSUs and New Options pursuant to the Offer
for those Eligible Employees subject to U.S. Federal income tax. This discussion
is based on the Internal Revenue Code, its legislative history, treasury
regulations thereunder and administrative and judicial interpretations as of
the
date of this offering circular, all of which are subject to change, possibly
on
a retroactive basis. This summary does not discuss all of the tax consequences
that may be relevant to you in light of your particular circumstances, nor
is it
intended to be applicable in all respects to all categories of option holders.
If you are a citizen or a resident of the United States, but are also subject
to
the tax laws of another country, you should be aware that there might be other
tax and social security consequences in more than one country that may apply
to
you.
We
recommend that you consult your own tax advisor with respect to the United
States federal, state and local tax consequences of participating in the offer,
as the tax consequences to you are dependent on your individual tax
situation.
U.S.
Federal Income Tax Consequences of Restricted Stock Units (RSUs).
The
exchange of Eligible Options should be treated as a non-taxable exchange and
no
income should be recognized for U.S. federal or state income tax purposes
upon grant of RSUs. Instead, you will recognize ordinary income when the RSU
vests and no longer can be forfeited, and the shares of stock are delivered,
at
which time Tegal will also generally have a tax withholding obligation. The
amount of ordinary income you recognize will equal the fair market value of
the
shares on the vesting date, less the amount, if any, you paid for the shares.
Although not obligated to do so, Tegal intends to automatically withhold a
sufficient number of otherwise distributable shares of common stock when RSUs
vest to satisfy all tax withholding obligations.
U.S.
Federal Income Tax Consequences of New Options.
The
exchange of Eligible Options, whether non-qualified options or incentive stock
options under Section 422 of the Internal Revenue Code, should be treated as
a
non-taxable exchange and no income should be recognized for U.S. federal or
state income tax purposes upon grant of the New Options. However, when you
exercise a New Option, the difference between the exercise price of such option
and the fair market value of the shares subject to the option on the date of
exercise will be treated as taxable compensation income to you, and you will
be
subject to withholding of income and employment taxes at that
time.
All
of
the New Options you will be issued in exchange for your Eligible Options will
be
nonqualified stock options. The subsequent sale of the shares acquired pursuant
to the exercise of a nonqualified stock option generally will give rise to
capital gain or loss equal to the difference between the sale price and the
sum
of the exercise price paid for the shares plus the ordinary income previously
recognized with respect to the shares, and these capital gains or losses will
be
treated as long-term capital gains or losses if you held the shares for more
than one year following exercise of the option.
U.S.
Federal Income Tax Consequences of Incentive Stock Options. So
that
you are able to compare the tax consequences of RSUs and New Options to those
of
any of your Eligible Options that are incentive stock options under Section
422
of the Internal Revenue Code, we have included the following summary as a
reminder of the tax consequences generally applicable to incentive stock options
under U.S. Federal income tax law:
Under
current U.S. tax law, an option holder will not realize taxable income upon
the
grant of an incentive stock option. In addition, an option holder generally
will
not realize taxable income upon the exercise of an incentive stock option.
However, an option holder’s alternative minimum taxable income will be increased
by the amount that the aggregate fair market value of the shares underlying
the
option, which is generally determined as of the date of exercise, exceeds the
aggregate exercise price of the option. Except in the case of an option holder’s
death or disability, if an option is exercised more than three (3) months
after the option holder’s termination of employment, the option ceases to be
treated as an incentive stock option and is subject to taxation under the rules
that apply to nonstatutory stock options.
If
an
option holder sells the option shares acquired upon exercise of an incentive
stock option, the tax consequences of the disposition depend upon whether the
disposition is qualifying or disqualifying. The disposition of the option shares
is qualifying if it is made:
|
|
•
|
|
more
than 2 years after the date the incentive stock option was granted;
and
|
|
|
•
|
|
more
than 1 year after the date the incentive stock option was
exercised.
|
If
the
disposition of the option shares is qualifying, any excess of the sale price
of
the option shares over the exercise price of the option will be treated as
long-term capital gain taxable to the option holder at the time of the sale.
Any
such capital gain will be taxed at the long-term capital gain rate in effect
at
the time of sale.
If
the
disposition is not qualifying, which we refer to as a “disqualifying
disposition,” the excess of the fair market value of the option shares on the
date the option was exercised (or, if less, the amount realized on the
disposition of the shares) over the exercise price will be taxable income to
the
option holder at the time of the disposition.
Of
that
income, the amount up to the excess of the fair market value of the shares
at
the time the option was exercised over the exercise price will be ordinary
income for income tax purposes and the balance, if any, will be long-term or
short-term capital gain, depending upon whether or not the shares were sold
more
than 1 year after the option was exercised.
Unless
an
option holder engages in a disqualifying disposition, we will not be entitled
to
a deduction with respect to an incentive stock option. If an option holder
engages in a disqualifying disposition, we will be entitled to a deduction
equal
to the amount of compensation income taxable to the option holder.
If
you
exchange an Eligible Option that is an incentive stock option, the New Options
you receive will be nonqualified stock options. Accordingly, you would be giving
up the tax treatment of incentive stock options if you participate in this
Offer.
13. EXTENSION
OF THIS OFFER; TERMINATION; AMENDMENT.
We
may,
at any time prior to the Expiration Date, extend the period of time during
which
this Offer is open and delay accepting any tendered Eligible Options by
announcing the extension and giving oral or written notice of the extension
to
Eligible Employees.
You
may
withdraw your options at any time before the Expiration Date by following the
procedures described in Section 3.
Additionally,
in accordance with the legal requirements for tender offers, you may withdraw
any options you elected to exchange if after forty (40) business days after
the commencement of this Offer, we have not yet closed this Offer and we have
not accepted for exchange all Eligible Option grants you elected to exchange.
The date of the fortieth (40th
)
business day after the commencement of this Offer is January 6,
2007.
We
may,
at any time prior to the Expiration Date, terminate, postpone or amend this
Offer. To postpone accepting or canceling Eligible Options, we must announce
the
postponement and give oral or written notice of the postponement to the Eligible
Employees. Our right to postpone accepting and canceling Eligible Options may
be
limited by Rule 13e-4(f)(5) under the Securities Exchange Act of 1934 (the
“Exchange Act”), which requires that we pay the consideration offered or return
the Eligible Options promptly after we terminate or withdraw this
Offer.
Subject
to applicable law, we may amend this Offer in any way, including decreasing
or
increasing the consideration offered in this Offer to Eligible Employees or
by
decreasing or increasing the number of Eligible Options to be exchanged or
surrendered in this Offer.
We
may
amend this Offer at any time prior to the expiration of this Offer by announcing
the amendment. If we extend the length of time during which this Offer is open,
the amendment must be announced no later than 9:00 a.m. Pacific Daylight
Time on the next business day after the last previously scheduled or announced
Expiration Date. Any announcement relating to this Offer will be sent promptly
to Eligible Employees in a manner reasonably designed to inform Eligible
Employees of the change.
If
we
materially change the terms of the Offer or the information concerning the
Offer, or if we waive a material condition of the Offer, we will extend the
Offer to the extent required by Rules 13e-4(d)(2) and 13e-4(e)(3) under the
Exchange Act. These rules require that the minimum period during which a tender
or exchange offer must remain open following material changes in the terms
of
the offer or information concerning the offer, other than a change in price
or a
change in percentage of securities sought, will depend on the facts and
circumstances, including the relative materiality of such terms or
information.
In
addition, if we decide to take any of the following actions, we will publish
a
notice electronically or otherwise inform you in writing of such action and
keep
the exchange offer open for at least 10 business days after the date of
such notification: (a) we increase or decrease the amount of consideration
offered for the Eligible Options; or (b) we increase or decrease the number
of Eligible Options that may be tendered in the Offer.
14. FEES
AND EXPENSES.
We
will
not pay any fees or commissions to any broker, dealer or other person pursuant
to this Offer.
15. ADDITIONAL
INFORMATION.
|
|
(a) our Annual Report on Form 10-K for our fiscal year ended
March 31, 2006, filed with the SEC on June 13, 2006;
|
|
|
|
| |
(b) our Quarterly Report on Form 10-Q for our quarter ended June
30, 2006, filed with the SEC on August 14, 2006;
|
| |
|
|
|
(c) our Definitive Proxy Statement for our 2006 Annual Meeting of
Stockholders, filed with the SEC on June 20, 2006; and
|
| |
|
| |
(d) the description of the common stock contained in our Registration
Statement on Form 8-A (File No. 01-26824), which was declared effective
by
the Commission on October 18, 1995, including any subsequently filed
amendments and related reports.
|
We
are
subject to the information requirements of the Securities Exchange Act of 1934,
as amended. Accordingly, we file annual, quarterly and periodic reports, proxy
statements and other information with the SEC relating to our business,
financial statements and other matters. You may read and copy any documents
we
have filed with the SEC at prescribed rates at the SEC’s Public Reference Room
at 100 F Street, N.E., Washington, DC 20549. You can obtain information on
the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
Our
SEC filings are also available to you free of charge at the SEC’s web site at
www.sec.gov and our Exchange Act filings are also available at our web site
at
www.tegal.com.
Our
common stock is currently quoted on the Nasdaq Capital Market under the symbol
“TGAL”.
We
will
also provide without charge to each person to whom we deliver a copy of this
Offer, upon their written or oral request, a copy of any or all of the documents
to which we have referred you, other than exhibits to these documents (unless
the exhibits are specifically incorporated by reference into the documents).
Requests should be directed to:
Tegal
Investor Relations
2201
South McDowell Boulevard
Petaluma,
CA 94954
or
the
investor relations portion of our website at http://www.Tegal.com or by
telephoning us at (707) 763-5600.
As
you
read the documents listed above, you may find some inconsistencies in
information from one document to another. If you find inconsistencies between
the documents, or between a document and this offer to exchange, you should
rely
on the statements made in the most recent document.
The
information contained in this Offer about us should be read together with the
information contained in the documents to which we have referred you, in making
your decision as to whether or not to participate in this Offer.
16. FINANCIAL
STATEMENTS
Attached
as Appendix B to this Offer are our financial statements included in our
Annual Report on Form 10-K for our fiscal year ended March 31, 2006 and our
financial statements included in our most recent Quarterly Report on Form
10-Q
for the quarter ended June 30, 2006. In addition, set forth below is our
ratio
of earnings to fixed charges for the fiscal years ended March 31, 2004, 2005,
and 2006 and for the quarter ended June 30, 2006, and the book value per
share
information as of June 30, 2006.
| |
|
Fiscal
Year Ended March 31,
|
|
Three
Months Ended
|
|
| |
|
2004
|
|
2005
|
|
2006
|
|
June
30, 2006
|
|
|
Ratio
of earnings to fixed charges (1)
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
| (1) |
For
purposes of computing the ratio of earnings to fixed charges, fixed
charges consist of interest expense on capital leases and interest
on
debenture financing. Earnings were insufficient to cover fixed
charges by
$41,463, $4,000, $0, and $0 in fiscal years 2004, 2005, 2006 and
the three
months ended June 30, 2006.
|
The
book
value per share of the Company at June 30, 2006 was $.29, based on 7,023,000
shares (on a post-reverse split basis) outstanding as of June 30,
2006.
More
complete financial information may be obtained by accessing our public filings
with the SEC by following the instructions in Section 15 of this
Offer.
We
are
not aware of any jurisdiction where the making of the Offer is not in compliance
with applicable law. If we become aware of any jurisdiction where the making
of
the Offer is not in compliance with any valid applicable law, we will make
a
good faith effort to comply with such law. If, after such good faith effort,
we
cannot comply with such law, the offer will not be made to, nor will options
be
accepted from the option holders residing in such jurisdiction.
We
have not authorized any person to make any recommendation on our behalf as
to
whether you should elect to exchange your Eligible Options through the Offer.
You should rely only on the information in this document or documents to which
we have referred you. We have not authorized anyone to give you any information
or to make any representations in connection with the offer other than the
information and representations contained in this offer to exchange and in
the
related option exchange program documents. If anyone makes any recommendation
or
representation to you or gives you any information, you must not rely upon
that
recommendation, representation or information as having been authorized by
us.
INFORMATION
ABOUT THE DIRECTORS AND EXECUTIVE OFFICERS OF TEGAL
The executive officers and members of the board of directors of Tegal and their
positions and offices as of November 3, 2006, are set forth in the following
table:
|
Name
|
|
Position
and Offices Held
|
| |
|
|
|
Thomas
R Mika
|
|
President,
Chief Executive Officer and Chairman
of the Board
|
| |
|
|
|
Christine
T Hergenrother
|
|
VP,
Chief Financial Officer, Secretary and Treasurer
|
| |
|
|
|
Scott
L Brown
|
|
Vice
President
|
| |
|
|
|
Murali
Narasimhan
|
|
Vice
President
|
| |
|
|
|
Steve
Selbrede
|
|
Vice
President, Chief Technology Officer
|
| |
|
|
|
Vahan
Tchakerian
|
|
Vice
President
|
| |
|
|
|
Edward
Dohring
|
|
Director
|
| |
|
|
|
Jeffrey
Krauss
|
|
Director
|
| |
|
|
|
Duane
Wadsworth
|
|
Director
|
The business address of each director and executive officer is: c/ o Tegal
Corporation, 2201 South McDowell Boulevard, Petaluma, CA, 94954. The business
telephone number of each director and executive officer is (707) 763-5600.
|
|
|
Shares
Beneficially
|
|
|
|
|
Name
|
|
Owned
|
|
Percent
of Class (%)
|
|
|
Thomas
R Mika
|
|
|
85,541
|
|
|
1.20
|
|
|
Christine
T Hergenrother
|
|
|
7,862
|
|
|
*
|
|
|
Scott
L Brown
|
|
|
0
|
|
|
—
|
|
|
Murali
Narasimhan
|
|
|
10,417
|
|
|
*
|
|
|
Steve
Selbrede
|
|
|
35,416
|
|
|
*
|
|
|
Vahan
Tchakerian
|
|
|
17,461
|
|
|
*
|
|
|
Edward
Dohring
|
|
|
30,064
|
|
|
*
|
|
|
Jeffrey
Krauss
|
|
|
30,898
|
|
|
*
|
|
|
Duane
Wadsworth
|
|
|
15,900
|
|
|
*
|
|
|
Total
|
|
|
233,559
|
|
|
3.28
|
|
*
Less
than one percent.