iRobot 2008 Annual Report Download - page 45

If an incentive option is exercised at a time when it no longer qualifies for the tax treatment described
above, the option will be treated as a non-qualified option. Generally, an incentive option will not be eligible
for the tax treatment described above if it is exercised more than three months following termination of
employment (or one year in the case of termination of employment by reason of disability). In the case of
termination of employment by reason of death, the three-month rule does not apply.
Non-Qualified Options. No income is realized by the optionee at the time the option is granted.
Generally (1) at exercise, ordinary income is realized by the optionee in an amount equal to the difference
between the option price and the fair market value of the shares of our common stock on the date of exercise,
and we receive a tax deduction for the same amount, and (2) at disposition, appreciation or depreciation after
the date of exercise is treated as either short-term or long-term capital gain or loss depending on how long the
shares of our common stock have been held. Special rules will apply where all or a portion of the exercise
price of a non-qualified option is paid by tendering shares of our common stock. Upon exercise, the optionee
will also be subject to Social Security taxes on the excess of the fair market value over the exercise price of
the option.
Stock Appreciation Rights. No taxable income is generally realized upon the grant of a stock apprecia-
tion right. Upon exercise of a stock appreciation right, the grantee will have taxable ordinary income equal to
the cash or fair market value of the shares of our common stock received from us, and we will be entitled to a
corresponding deduction for tax purposes. Such income is also subject to Social Security taxes.
Restricted Stock Awards. No income is generally realized by the grantee at the time the restricted stock
award is granted unless the grantee makes an election under Section 83(b) of the Code within 30 days of the
grant. If the grantee makes such a “Section 83(b) election” within the 30-day period, (1) the grantee will
realize taxable compensation income equal to the value of the shares minus the purchase price, if any, and
(2) we will be entitled to a corresponding tax deduction. When the grantee sells the shares after making a
Section 83(b) election, he or she will realize capital gain or loss equal to the difference between the proceeds
from the sale and the value of the shares on the grant date. If the grantee makes a Section 83(b) election and
subsequently forfeits the shares, he or she will not be entitled to a deduction as a result of the forfeiture, but
we must include as ordinary income the amount we previously deducted in the year of grant with respect to
such shares.
If the grantee does not make a Section 83(b) election, (1) he or she will realize taxable compensation
income when the restricted stock vests equal to the value of the shares upon vesting minus the purchase price,
if any, and we will be entitled to a tax deduction for the same amount, and (2) at disposition, appreciation or
depreciation after the vesting date is treated as either short-term or long-term capital gain or loss, depending
on how long the shares have been held. Upon vesting, the grantee will also be subject to Social Security taxes
on the value of the shares upon vesting minus the purchase price, if any.
Deferred Stock Awards. No taxable income is generally realized upon the grant of a deferred stock
award. When a deferred stock award is distributed to the grantee in shares of our common stock, the grantee
will be taxed at ordinary income rates on the fair market value of the shares of our common stock on the date
that the shares of our common stock are issued to the grantee. We generally will be entitled to a corresponding
deduction for tax purposes.
Parachute Payments. Any “parachute payments” (as defined in the Code) may be non-deductible to us,
in whole or in part, and may subject the recipient to a non-deductible 20% federal excise tax on all or a
portion of such payment (in addition to other taxes ordinarily payable).
Limitation on Deductions. As a result of Section 162(m) of the Code, our deduction for certain awards
under the 2005 Plan may be limited to the extent that the chief executive officer, or other named executive
officers, receives compensation in excess of $1 million a year (other than performance-based compensation
that otherwise meets the requirements of Section 162(m) of the Code). The 2005 Plan is structured to allow
grants to qualify as performance-based compensation.
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Proxy Statement