iRobot 2014 Annual Report Download - page 46

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Qualified Performance-Based Compensation under Code Section 162(m)
To ensure that certain awards granted under the 2015 Plan to “Covered Employees” (as defined in the Code) qualify as “performance-
based compensation” under Section 162(m) of the Code, the 2015 Plan provides that the compensation committee may require that the
vesting of such awards be conditioned on the satisfaction of performance criteria that may include any or all of the following: (1) total
stockholder return; (2) earnings before interest, taxes, depreciation and amortization; (3) net income (loss) (either before or after interest,
taxes, depreciation and/or amortization); (4) adjusted earnings (loss) before interest, taxes, depreciation and amortization, stock-based
compensation expense, merger and acquisition expense, net intellectual property litigation expense, and restructuring expense (adjusted
EBITDA); (5) changes in the market price of the common stock; (6) economic value-added; (7) funds from operations or similar measure;
(8) sales or revenue; (9) acquisitions or strategic transactions; (10) operating income (loss); (11) cash flow (including, but not limited to,
operating cash flow and free cash flow); (12) return on capital, assets, equity, or investment; (13) return on sales; (14) gross or net profit
levels; (15) productivity; (16) expense; (17) margins; (18) operating efficiency; (19) customer satisfaction; (20) working capital; (21)
earnings (loss) per share of common stock; (22) sales or market shares; and (23) number of customers, any of which may be measured
either in absolute terms or as compared to any incremental increase or as compared to results of a peer group, and which may be applied
to the Company as a whole or to a unit, division, group or subsidiary. With respect to an award granted to a “covered employee,” the
compensation committee will select the particular performance criteria within 90 days following the commencement of a performance
cycle. Subject to adjustments for stock splits and similar events, the maximum award granted to any one individual that is intended to
qualify as “performance-based compensation” under Section 162(m) of the Code will not exceed 2,500,000 shares of common stock for
any performance cycle and options or stock appreciation rights with respect to no more than 2,500,000 shares of common stock may be
granted to any one individual during any calendar year period. If a performance-based award is payable in cash, it cannot exceed $7,500,000
for any performance cycle.
Rationale for Adoption of the 2015 Plan
We previously adopted the iRobot 2005 Stock Option and Incentive Plan, as amended, or 2005 Plan. The 2005 Plan is scheduled to
expire in 2015. Accordingly, the 2015 Plan is critical to our ongoing effort to build stockholder value. Equity incentive awards are an
important component of our executive and non-executive employees’ compensation. Our compensation committee and the board of
directors believe that we must continue to offer a competitive equity compensation program in order to attract, retain and motivate the
talented and qualified employees necessary for our continued growth and success.
We manage our long-term stockholder dilution by limiting the number of equity incentive awards granted annually. The compensation
committee carefully monitors our annual net burn rate, total dilution and equity expense in order to maximize stockholder value by
granting only the number of equity incentive awards that it believes are necessary and appropriate to attract, reward and retain our
employees. Our compensation philosophy reflects broad-based eligibility for equity incentive awards for high performing employees.
By doing so, we link the interests of those employees with those of our stockholders and motivate our employees to act as owners of the
business.
If the 2015 Plan is approved by stockholders, we will have approximately 3,100,000 shares available for grant after the 2015 annual
meeting, which is based on zero shares available for grant under the 2005 Stock Option and Incentive Plan, as amended, and the 3,100,000
shares subject to this proposal. Our compensation committee determined the size of reserved pool under the 2015 Plan based on projected
equity awards to anticipated new hires, projected annual equity awards to existing employees and an assessment of the magnitude of
increase that our institutional investors and the firms that advise them would likely find acceptable.
Summary of the 2015 Plan
The following description of certain features of the 2015 Plan is intended to be a summary only. The summary is qualified in its
entirety by the full text of the 2015 Plan, which is attached hereto as Appendix A.
Plan Administration. The 2015 Plan will be administered by the compensation committee. The compensation committee will have
the full power to select, from among the individuals eligible for awards, the individuals to whom awards will be granted, to make any
combination of awards to participants, and to determine the specific terms and conditions of each award, subject to the provisions of the
2015 Plan. The compensation committee may delegate to our Chief Executive Officer, or a committee comprised of the Chief Executive
Officer and another officer or officers of iRobot, the authority to grant equity awards to employees who are not “executive officers” (as
defined in the Securities Exchange Act of 1933, as amended (the “Exchange Act”)) and who are not “officers” (as defined in Rule 16a-1
under the Exchange Act), subject to certain limitations and guidelines.
Eligibility. Persons eligible to participate in the 2015 Plan will be those full or part-time officers, employees, non-employee directors
and other key persons (including consultants) of the Company and its subsidiaries as selected from time to time by the compensation
committee in its discretion. As of April 9, 2015, approximately 523 individuals are currently eligible to participate in the 2015 Plan,
which includes six executive officers, 509 employees who are not executive officers, and eight non-employee directors.
Plan Limits. Stock options or stock appreciation rights with respect to no more than 2,500,000 shares may be granted to any one
individual during any one calendar year period and no more than 2,000,000 shares may be issued pursuant to awards to non-employee