iRobot 2008 Annual Report Download - page 35

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PROPOSAL 3
Approval of an Amendment to the 2005 Stock Option and Incentive Plan and a
Stock Option Exchange Program for Eligible Employees, Excluding, Among Others,
our Executive Officers
Introduction
We are seeking stockholder approval of an amendment to our 2005 Plan and an Option Exchange
Program (defined below) that would allow us to cancel significantly out-of-the-money stock options currently
held by some of our employees in exchange for the issuance of stock options exercisable for fewer shares of
our common stock, with lower exercise prices and extended vesting terms. We are proposing this program
because we believe that it will provide a more cost-effective retention and incentive tool to our employees
rather than issuing incremental equity or paying additional cash compensation. Shares subject to exchanged
stock options will be cancelled and the net shares, which are the shares underlying the exchanged stock
options in excess of the shares underlying the new stock options granted, will not be returned to the pool of
shares available under our 2005 Plan. Based on the number of outstanding stock options as of March 20, 2009
and assuming (1) a Trailing Average Price (defined below) of $13.00, (2) the exchange ratios described below
and (3) that all Eligible Options (defined below) are exchanged in the Option Exchange Program, we estimate
a reduction in our overhang of outstanding stock options of approximately 658,034 shares.
Overview
On April 1, 2009, the compensation committee recommended to our board of directors, and our board of
directors subsequently authorized, a stock option exchange program (the “Option Exchange Program”), subject
to stockholder approval.
Stock options will be eligible for the program (“Eligible Options”) if they have exercise prices per share
greater than or equal to the higher of (1) $13.00 or (2) 40% above the 90-day average closing price of our
common stock on the NASDAQ Global Market (“NASDAQ”) for the business day on which the Option
Exchange Program closes (the “Trailing Average Price”). The opportunity to participate in the Option
Exchange Program will be offered to all of our domestic employees, excluding, among others, our executive
officers, (collectively referred to as the “Eligible Participants”) who hold Eligible Options that were granted
under either the Amended and Restated 2004 Stock Option and Incentive Plan (“2004 Plan”) or the 2005 Plan.
Eligible Options exchanged in the Option Exchange Program that were issued under the 2004 Plan or the 2005
Plan will, upon the closing of the exchange offer, be exchanged for new options (“New Options”) granted
pursuant to the 2005 Plan. No members of our board of directors will be eligible to participate in the Option
Exchange Program.
Under the proposed Option Exchange Program, each New Option will: (1) have an exercise price per
share equal to the closing price of our common stock as reported by NASDAQ on the date the New Options
are granted, which will be the day that our exchange offer expires, currently anticipated to be May 29, 2009
(the “Grant Date”), (2) have the same expiration date as the exchanged Eligible Option, (3) not be exercisable
on the date they are granted, even if the corresponding exchanged Eligible Options had previously become
exercisable and (4) will have the following vesting schedule, subject to the Eligible Participant’s continuing
service:
• If and to the extent the corresponding exchanged Eligible Option was exercisable as of the Grant Date,
a like portion of the New Option will become exercisable on the first anniversary of the Grant
Date; and
• If and to the extent the corresponding exchanged Eligible Option was not exercisable as of the Grant
Date, a like portion (or all) of the New Option will become exercisable one year from the date(s) as of
which the Eligible Option would have become exercisable in accordance with its terms.
The New Options will be exercisable for fewer shares of our common stock than the Eligible Options in
accordance with an exchange ratio schedule described below. All New Options will be non-qualified stock
33
Proxy Statement