iRobot 2012 Annual Report Download - page 105

iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
55
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, with the exception of the 2007 Plan, 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
December 29, 2012, there were 3,108,842 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 typically 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 conjunction with the acquisition of Evolution Robotics, Inc. on October 1, 2012, each outstanding and unvested
incentive stock option held by Evolution employees as of the acquisition date was automatically converted into stock options of
the Company under the same terms and conditions as were applicable to the original Evolution grants. The number of
replacement options granted and the associated exercise prices were determined utilizing a conversion ratio as defined in the
merger agreement. There were 114,248 incentive stock options issued by the Company as a result of this automatic conversion
with exercise prices ranging from $2.55 to $4.81. All of these options were granted from the 2007 Plan, which was assumed by
the Company as a result of the acquisition.
The Company recognized $4.6 million of stock-based compensation expense during the fiscal year ended December 29,
2012 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 December 29, 2012 associated with these grants was $10.8 million with a weighted-average remaining recognition
period of 2.54 years.
The fair value of each option grant for the fiscal years ended December 29, 2012, December 31, 2011 and January 1,
2011 was computed on the grant date using the Black-Scholes option-pricing model with the following assumptions:
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
December 29,
2012
December 31,
2011
January 1,
2011
Risk-free interest rate 0.63% — 0.90% 0.83% — 2.24% 1.27% — 2.28%
Expected dividend yield — — —
Expected life 4.12 — 4.18 years 4.11 — 4.31 years 4.00 — 4.75 years
Expected volatility 63.0% — 64.0% 61.0% — 63.0% 57.0% — 62.0%
The risk-free interest rate is derived from the average U.S. Treasury constant maturity rate, which approximates the rate
in effect at the time of grant, commensurate with the expected life of the instrument. The dividend yield is zero based upon the
fact the Company has never paid and has no present intention to pay cash dividends. Prior to 2010, the expected term
calculation was based upon the simplified method provided under the relevant authoritative guidance and was determined by
averaging the contractual term of the stock option grants with the associated vesting term. In 2010, the Company determined
that it had enough historical exercise experience and began to rely solely on company specific historical data for purposes of
establishing expected term assumptions. Given the Company's initial public offering in November 2005 and the resulting short
history as a public company, the Company could not rely solely on company specific historical data for purposes of establishing
expected volatility. Consequently, prior to 2010, the Company performed an analysis that included company specific historical
data combined with data of several peer companies with similar expected option lives to develop expected volatility
assumptions. During 2010, the Company began to rely solely on company specific historical data for purposes of establishing
expected volatility.
Based upon the above assumptions, the weighted average fair value of each stock option granted for the fiscal years
ended December 29, 2012, December 31, 2011 and January 1, 2011 was $13.23, $16.55 and $8.24, respectively.
Form 10-K