iRobot 2010 Annual Report Download - page 108

Plan (the “2005 Plan” and together with the 1994 Plan and the 2004 Plan, the “Plans”). The 2005 Plan is the only one
of the three plans under which new awards may currently be granted. Under the 2005 Plan, which became effective
October 10, 2005, 1,583,682 shares were initially reserved for issuance in the form of incentive stock options, non-
qualified stock options, stock appreciation rights, deferred stock awards and restricted stock awards. Additionally,
the 2005 Plan provides that the number of shares reserved and available for issuance under the plan will
automatically increase each January 1, beginning in 2007, by 4.5% of the outstanding number of shares of
common stock on the immediately preceding December 31. Stock options returned to the Plans as a result of their
expiration, cancellation or termination are automatically made available for issuance under the 2005 Plan.
Eligibility for incentive stock options is limited to those individuals whose employment status would qualify
them for the tax treatment associated with incentive stock options in accordance with the Internal Revenue Code of
1986, as amended. As of January 1, 2011, there were 3,008,963 shares available for future grant under the 2005
Plan.
Options granted under the Plans are subject to terms and conditions as determined by the compensation
committee of the board of directors, including vesting periods. Options granted under the Plans are exercisable in
full at any time subsequent to vesting, generally vest over periods from zero to five years, and expire seven or ten
years from the date of grant or, if earlier, 60 or 90 days from employee termination. The exercise price of incentive
stock options is equal to the closing price on the NASDAQ Global Market on the date of grant. The exercise price of
nonstatutory options may be set at a price other than the fair market value of the common stock.
In connection with the initial public offering, the Company retrospectively reassessed the fair value of its
common stock for options granted during the period from July 1, 2004 to November 8, 2005. As a result of this
reassessment, the Company determined that the estimated fair market value used in granting options for the period
from July 1, 2004 to December 31, 2004 was reasonable and appropriate. Accordingly, no deferred compensation
was recorded for these grants. For the period from January 1, 2005 through November 8, 2005, the Company
determined that the estimated fair value of its common stock increased from $4.60 to $21.60 due to a number of
factors such as, among other things, the likelihood of an initial public offering, its improving operating results and
the achievement of other corporate milestones in 2005. Based upon this determination, the Company recorded
deferred compensation of approximately $3.4 million in the twelve months ended December 31, 2005 relating to
stock options with exercise prices below the retrospectively reassessed fair market value on the date of grant. The
Company recognized associated stock-based compensation expense of $0.1 million, $0.2 million and $0.3 million
for the fiscal years ended January 1, 2011, January 2, 2010 and December 27, 2008, respectively.
The Company recognized $6.4 million of stock-based compensation expense during the fiscal year ended
January 1, 2011 for stock options granted subsequent to the Company’s initial filing of its Form S-1 with the SEC.
The unamortized fair value as of January 1, 2011 associated with these grants was $12.0 million with a weighted
average remaining recognition period of 2.65 years.
On May 29, 2009, the Company completed a one-time stock option exchange program as approved by its
stockholders on May 28, 2009. In accordance with the terms and conditions of the stock option exchange program,
the Company issued new options to purchase an aggregate of 310,607 shares of the Company’s common stock in
exchange for the cancellation of options to purchase an aggregate of 678,850 of the Company’s common stock. The
exchange ratios were designed to result in the fair value, for accounting purposes, of the new options being
approximately equal to the fair value of the exchanged eligible options to ensure the Company minimized any
additional compensation expense in connection with the stock option exchange program. The Company incurred no
additional compensation expense in connection with the program.
The fair value of each option grant for the fiscal years ended January 1, 2011, January 2, 2010 (excluding the
new options issued in conjunction with the stock option exchange program described in the preceding paragraph for
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iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)