iRobot 2008 Annual Report Download - page 41

will not be recognized; however, we would recognize any unamortized compensation expense from the
exchanged Eligible Options which would have been recognized under the original vesting schedule.
United States Federal Income Tax Consequences. The following is a summary of the anticipated
material United States federal income tax consequences of participating in the Option Exchange Program. A
more detailed summary of the applicable tax considerations to participants will be provided in the Offer to
Exchange. We believe the exchange of Eligible Options for New Options pursuant to the Option Exchange
Program should be treated as a non-taxable exchange, and no income should be recognized for United States
federal income tax purposes by us or our employees upon the grant of the New Options. However, the Internal
Revenue Service is not precluded from adopting a contrary position, and the laws and regulations themselves
are subject to change.
Upon exercise of the New Options, the Eligible Participant will recognize ordinary income equal to the
excess, if any, of the fair market value of the purchased shares on the exercise date over the exercise price
paid for those shares. Such income is considered compensation subject to employment taxes. Upon disposition
of the shares, the Eligible Participant will recognize capital gain or loss (which will be long- or short-term
depending upon whether the stock were held for more than one year from the date of exercise) equal to the
difference between the selling price and the sum of the amount paid for the stock plus any amount recognized
as ordinary income upon acquisition of the stock.
All holders of Eligible Options are urged to consult their own tax advisors regarding the tax treatment of
participating in the Option Exchange Program under all applicable laws prior to participating in the Option
Exchange Program.
Potential Modifications to Terms to Comply with Governmental Requirements. The terms of the Option
Exchange Program will be described in an Offer to Exchange that we will file with the SEC. Although we do
not anticipate that the SEC will require us to modify the terms significantly, it is possible we will need to alter
the terms of the Option Exchange Program to comply with comments from the SEC. Changes in the terms of
the Option Exchange Program may also be required for tax purposes as the laws and regulations are subject to
change.
Text of Proposed Amendment to the 2005 Plan
Immediately following approval of the 2005 Plan, our board of directors resolved that no further grants of
stock options or other awards would thereafter be made under the Amended and Restated 1994 Stock Plan,
Amended and Restated 2001 Special Stock Option Plan and 2004 Plan. Therefore, the New Options must be
granted under the 2005 Plan. The 2005 Plan does not currently permit us to reduce the exercise price of
outstanding options or effect repricing through cancellation and re-grants, with certain exceptions relating to
recapitalizations, reorganizations and similar events.
The proposed amendment gives the compensation committee the authority to implement the Option
Exchange Program described in this proxy statement. If our stockholders approve this proposal, the 2005 Plan
shall be amended by amending and restating Section 14 in its entirety as follows:
“SECTION 14. AMENDMENTS AND TERMINATION
The Board may, at any time, amend or discontinue the Plan and the Administrator may, at any time,
amend or cancel any outstanding Award for the purpose of satisfying changes in law or for any other
lawful purpose, but no such action shall adversely affect rights under any outstanding Award without the
holder’s consent. Except as provided in Section 3(c) or 3(d), without prior stockholder approval in no
event may the Administrator exercise its discretion to reduce the exercise price of outstanding Stock
Options or Stock Appreciation Rights or effect repricing through cancellation and re-grants, including
cancellation in exchange for cash. Any material Plan amendments (other than amendments that curtail the
scope of the Plan), including any Plan amendments that (i) increase the number of shares reserved for
issuance under the Plan, (ii) expand the type of Awards available under, materially expand the eligibility
to participate in, or materially extend the term of, the Plan, or (iii) materially change the method of
determining Fair Market Value, shall be subject to approval by the Company stockholders entitled to vote
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Proxy Statement