iRobot 2008 Annual Report Download - page 38

overhang until they are exercised or expire unexercised. If approved by our stockholders, the Option
Exchange Program will reduce our overhang of outstanding stock options by eliminating the ineffective
options that are currently outstanding. Under the proposed Option Exchange Program, Eligible
Participants will receive stock options covering fewer shares than the exchanged Eligible Options. As a
result, the number of shares subject to all outstanding equity awards will be reduced, thereby reducing
the overhang. Based on the number of outstanding stock options as of March 20, 2009 and assuming
(1) a Trailing Average Price of $13.00, (2) the exchange ratios described below and (3) that all Eligible
Options are exchanged in the Option Exchange Program, we estimate Eligible Options to purchase
approximately 1,398,592 shares would be exchanged and cancelled, while New Options covering
approximately 740,558 shares would be issued. This would result in a net reduction in the overhang of
our outstanding stock options by approximately 658,034 shares, or approximately 2.64% of the number
of shares of our common stock outstanding as of March 20, 2009. The actual reduction in our overhang
that may result from the Option Exchange Program could vary significantly and is dependent upon a
number of factors, including the actual level of participation in the Option Exchange Program. All
Eligible Options that are not exchanged will remain outstanding and in effect in accordance with their
existing terms.
•Reduced Pressure for Additional Grants. If we are unable to implement the Option Exchange
Program, we may find it necessary to issue additional options to our employees at current market
prices, increasing our overhang. These grants would deplete the current pool of options available for
future grants under the 2005 Plan and would also result in increased stock compensation expense,
which could negatively impact our stock price.
Description of the Option Exchange Program
Implementing the Option Exchange Program. If the Option Exchange Program is approved by our
stockholders, it is our board of directors’ intent that Eligible Participants who were offered the opportunity to
participate in the program under a tender offer (an “Offer to Exchange”) filed with the Securities and
Exchange Commission (the “SEC”) will be able to complete their exchange by 5:00 p.m. Eastern Time on
May 29, 2009, the day following the annual meeting. From the time the Offer to Exchange commences, the
Eligible Participants will be given at least 20 business days to make an election to exchange all or a portion of
their Eligible Options on a grant-by-grant basis in exchange for New Options. The Grant Date will be the day
the Offer to Exchange expires, which we expect will be on May 29, 2009. Even if the Option Exchange
Program is approved by our stockholders, our board of directors will retain the authority, in its sole discretion,
to terminate or postpone the program at any time prior to the closing of the Offer to Exchange or to exclude
certain Eligible Options or Eligible Participants from participating in the Option Exchange Program due to tax,
regulatory or accounting reasons or because participation would be inadvisable or impractical. Stockholder
approval of the Option Exchange Program applies only to this exchange program. If we were to implement a
stock option exchange program in the future, we would once again need to seek stockholder approval.
Outstanding Options Eligible for the Option Exchange Program. To be eligible for exchange under the
Option Exchange Program, an option must have an exercise price that is greater than or equal to the higher of
(1) $13.00 or (2) the Trailing Average Price. As of March 20, 2009, options to purchase approximately
3,515,954 shares of our common stock were outstanding, of which options to purchase approximately
1,398,592 shares, would be eligible for exchange under the Option Exchange Program (assuming a Trailing
Average Price of $13.00).
Eligibility. The Option Exchange Program will be open to all of our domestic employees, except our
executive officers, who hold Eligible Options. Members of our board of directors are not eligible to participate
in the Option Exchange Program. To be eligible, an employee must be employed by us at the time the Offer
to Exchange commences. Additionally, to receive the New Options, an Eligible Participant who exchanges his
or her Eligible Options must be an employee on the Grant Date. As of March 20, 2009, approximately
354 employees held Eligible Options (assuming a Trailing Average Price of $13.00).
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