Exhibit 99.3
iROBOT CORPORATION
STOCK OPTION EXCHANGE PROGRAM
FREQUENTLY ASKED QUESTIONS (FAQ)
April 2, 2009
General Information
The following employee Frequently Asked Questions (FAQ) was prepared to address common
questions that you may have about our proposed stock option exchange program (the Option Exchange
Program). Stockholder approval of the Option Exchange Program and a related amendment to our
2005 Stock Option and Incentive Plan (the 2005 Plan) will be solicited at our annual meeting of
stockholders, scheduled for May 28, 2009 (the 2009 Annual Meeting).
The information in this FAQ is based on the information contained in our preliminary proxy
statement as filed today with the Securities and Exchange Commission (the SEC). You can access a
copy of our preliminary proxy statement at
http://www.sec.gov/Archives/edgar/data/1159167/000095013509002475/b74873prpre14a.htm
. Our definitive proxy statement for our
2009 Annual Meeting is expected to be filed with the SEC on or about April 13, 2009 and sent to
stockholders on or about April 21, 2009. Our board of directors has the discretion to terminate or
postpone the Option Exchange Program at any time either before launching the program or, even if
our stockholders approve the program, at any time before the program expires. The information in
this employee FAQ is as of April 2, 2009, and does not contain complete details about the Option
Exchange Program. We will send more information to you on the date we launch the Option Exchange
Program and such materials will be filed with the SEC on a Tender Offer Statement on Schedule TO.
Due to SEC regulations, we cannot advise you as to whether or not you should participate in
the Option Exchange Program.
1. Why does iRobot intend to offer the Option Exchange Program to employees?
iRobot believes that an effective and competitive employee incentive program is critical for
the future growth and success of our business. We rely heavily on our employees to implement our
strategic initiatives, expand and develop our business and satisfy customer needs.
Due to the significant decline of our stock price over the last few years, many employees now
hold stock options with exercise prices higher than the current market price of our common stock
(such options are also known as out-of-the-money stock options). For example, 67% of our
outstanding stock options had exercise prices greater than the closing price of our common stock as
reported on the NASDAQ Global Market (NASDAQ) on March 20, 2009 of $8.40. The Option Exchange
Program would be a voluntary opportunity for employees, who are eligible to participate, to
surrender certain outstanding out-of-the-money stock options in exchange for new stock options (the
New Options) exercisable for fewer shares of our common stock with a lower exercise price and a
new vesting schedule. The number shares of our common stock underlying the New Options would be
determined using exchange ratios designed to result in the New Options having a fair value (from an
accounting perspective) approximately equal to the stock options that are exchanged.
2. Who would be eligible to participate in the Option Exchange Program?
The Option Exchange Program would be open to all of our regular employees, excluding:
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members of our board of directors,
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our executive officers, and
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non-U.S. employees,
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who hold eligible stock options (Eligible Participants). To be eligible, an employee must be
employed by us at the time the Option Exchange Program commences. Additionally, an Eligible
Participant who surrenders his or her eligible options for exchange must be an employee on the date
the New Options are granted to receive the New Options.
3. When would the Option Exchange Program take place?
We are planning on commencing the Option Exchange Program on or around April 30, 2009. From
the time the Option Exchange Program commences, Eligible Participants would be given at least 20
business days to make an election to exchange all or a portion of their eligible options. If our
stockholders approve the amendment to the 2005 Plan and the Option Exchange Program at the 2009
Annual Meeting, we currently intend that the New Options would be granted as of the closing of the
Option Exchange Program, which we expect would be on May 29, 2009.
Employees should keep in mind that even if the Option Exchange Program is approved by our
stockholders at the 2009 Annual Meeting, our board of directors retains the authority, in its sole
discretion, to terminate or postpone the program, at any time prior to the closing of the Option
Exchange Program, and 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.
4. Do I have to participate in the Option Exchange Program?
Participation in the Option Exchange Program would be completely voluntary. If you choose not
to participate, you would keep all your outstanding stock options, including your Eligible Options,
and would not receive any New Options under the Option Exchange Program. No changes would be made
to the terms of your current stock options.
5. What options are eligible for exchange under the Option Exchange
Program and what would I receive if I participate in the program?
Under the Option Exchange Program, Eligible Participants would be able to elect to exchange
outstanding eligible options to purchase shares of our common stock for New Options. Eligible
Options are options with an exercise price 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 as reported by
NASDAQ for the business day on which the Option Exchange Program closes (the Trailing Average
Price).
Each New Option would have: (1) an exercise price per share equal to the closing price of our
common stock as reported by NASDAQ on the date the New Option is granted, (2) have the same
expiration date as the exchanged Eligible Option, (3) not be exercisable on the date it is granted,
even if the corresponding exchanged Eligible Option had previously become exercisable, and (4) have
a different vesting schedule as outlined in Question 10 below.
6. Why would only stock options with an exercise price greater than or
equal to the higher of $13.00 or the Trailing Average Price be
eligible for exchange?
We believe that options that are not significantly out-of-the-money continue to provide
valuable incentives for employees. We set the floor at the higher of $13.00 or the Trailing
Average Price to provide significant benefits to employees while providing a reasonable proposal to
stockholders who must approve the Option Exchange Program.
7. If I participate in the Option Exchange Program, how many New Options would I receive?
In the Option Exchange Program, Eligible Participants would be offered a one-time opportunity
to exchange their Eligible Options for New Options exercisable for fewer shares of our common stock
based upon a specified methodology for determining exchange ratios. We would be using an industry
standard option valuation model to determine the actual exchange ratios used in the Option Exchange
Program. The
exchange ratios would be determined by our compensation committee of our board of directors
shortly before the commencement of the Option Exchange Program.
Although the actual exchange ratios would not be finalized until shortly before the
commencement of the Option Exchange Program, the following table shows a
hypothetical
example of
the exchange ratios that could be applied to calculate the number of shares of our common stock
underlying New Options to be granted for exchanged Eligible Options. The exchange ratios set forth
in the table were calculated assuming a fair market value of our common stock of $8.40 per share
and using exchange ratios that result in the fair value of the New Options being approximately
equal to the fair value (from an accounting perspective) of the Eligible Options surrendered based
on valuation assumptions made as of the close of the Option Exchange Program.
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Hypothetical Average Exchange
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Eligible Option
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Ratio (Shares Underlying Eligible
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Exercise Price
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Options to Shares Underlying New
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Range
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Options)
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$13.00 - $16.00
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1.50 to 1
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$16.01 - $18.00
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1.75 to 1
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$18.01 - $20.00
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2.00 to 1
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$20.01 - $22.00
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2.50 to 1
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$22.01 and above
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3.00 to 1
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8. Why isnt the exchange ratio 1-to-1 for all eligible options?
We believe the exchange ratios must balance the interests of both our employees and our
stockholders. As a result, to make the program more attractive to our stockholders, we have
designed it to be value-for-value. This means that the exchange ratios used to determine the
number of shares of our common stock underlying New Options that would be granted in exchange for
Eligible Options will be calculated to result, from an accounting perspective, in the fair value of
Eligible Options being approximately equal to the fair value of the New Options. By calculating
the exchange ratios in such a manner, we do not expect to recognize any significant incremental
compensation expense for financial reporting purposes as a result of the Option Exchange Program.
9. What would my new exercise price be?
Each New Option would be granted with an exercise price equal to the closing price of our
common stock as reported by NASDAQ on the day which the Option Exchange Program closes, which we
currently expect to be May 29, 2009.
10. What would be the vesting schedule of the New Options?
Each New Option would have the following new vesting schedule, subject to the Eligible
Participants continuing service:
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If and to the extent the corresponding exchanged Eligible Option was exercisable
as of the Grant Date, a like portion of the New Option would become exercisable on
the first anniversary of the Grant Date; and
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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 would
become exercisable one year from the date(s) as of which the Eligible Option would
have become exercisable in accordance with its terms.
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Below is an example which assumes that the Option Exchange Program closes on May 29, 2009:
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Original Vesting Date
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of the Eligible Option
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Vesting Date of the
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Exchanged
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New Option
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Already vested as of May 29, 2009
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May 29, 2010
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June 10, 2009
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June 10, 2010
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June 10, 2010
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June 10, 2011
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June 10, 2011
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June 10, 2012
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11. When would I receive my New Options?
Our stockholders must approve the Option Exchange Program before we can close the offer to
exchange and issue the New Options. Assuming the Option Exchange Program is approved by our
stockholders at the 2009 Annual Meeting, we expect to close the Option Exchange Program and grant
the New Options on the date following our 2009 Annual Meeting, which we currently expect to be May
29, 2009. The New Options would appear in your E*Trade account as soon as administratively
feasible after the close of the Option Exchange Program.
12. If I choose to participate in the Option Exchange Program can I exchange partial grants?
No. Under the Option Exchange Program, you would be able to exchange Eligible Options on a
grant-by-grant basis. This means that you may choose to exchange some Eligible Options, and choose
not to exchange others. You cannot exchange a portion of an Eligible Option from a single grant.
13. Can I exchange options that are already exercisable or about to become exercisable?
Yes. Under the Option Exchange Program, you would be able to exchange Eligible Options that
are already exercisable or about to become exercisable; although exchanged Eligible Options would
be subject to a new vesting schedule as outlined in Question 10 above.
14. Can I exchange shares of iRobot common stock that I acquired upon
exercise of my iRobot stock options?
No. This offer applies only to outstanding iRobot stock options that would be eligible under
the Option Exchange Program. You would not be able to exchange shares of iRobot stock that you own
outright.
15. Why would I have to give up my old options? Cant iRobot just grant
new options at the current price?
We designed the Option Exchange Program to avoid the dilution in ownership to our stockholders
that would result if we granted employees additional stock options to supplement their
out-of-the-money stock options. If we were simply to issue new stock options, we would increase our
stock compensation expense, which could negatively impact our stock price.
16. What if the stockholders do not approve the Option Exchange Program?
If the Option Exchange Program is not approved by the stockholders at the 2009 Annual Meeting,
then we will not be able to proceed with the program. In that situation, you would retain your
Eligible Options, whether or not you have already tendered them for exchange, and no changes would
be made to the terms of those stock options.
17. What if I leave iRobot after the program begins but before my New Options are granted?
To receive New Options, you would need to be employed by iRobot at the time the Option
Exchange Program is launched and at the time the New Options are granted. If you elect to
participate in the Option Exchange Program and your employment terminates for any reason before the
New Options are granted,
your exchange election would be cancelled and you would not receive any New Options. If this
occurs, no changes would be made to the terms of your Eligible Options.
18. What if I elect to participate and leave iRobot after the New Options are granted?
If you elected to participate in the Option Exchange Program and your employment ends for any
reason after you receive a New Option, the terms and conditions of the New Option would apply.
19. Does iRobot recommend that employees participate in the program, if approved?
iRobot is providing as much information as possible to assist you to make your own informed
decision. You may seek your own outside legal counsel, accountant and/or financial advisor for
further advice. No one from iRobot is, or would be, authorized to provide you with advice,
recommendations or additional information in this regard.
20. Would I owe taxes if I participate in the program?
We believe the exchange of Eligible Options should be treated as a non-taxable exchange and no
income should be recognized for U.S. federal or state income tax purposes upon grant of the New
Options. The Internal Revenue Service, however, is not precluded from adopting a contrary
position, and the laws and regulations themselves are subject to change. We recommend that you
consult your own accountant or financial advisor for additional information about your personal tax
situation.
21. I currently have incentive stock options. Would my New Options be incentive stock options?
No. All New Options would be non-qualified stock options. Please consult with your tax
advisor regarding the differences in the tax treatment of incentive stock options versus
non-qualified stock options.
22. Where can I get more information about the Option Exchange Program?
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a.
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You can access a copy of our preliminary proxy statement that was
filed today with the SEC at
http://www.sec.gov/Archives/edgar/data/1159167/000095013509002475/b74873prpre14a.htm
.
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b.
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You can read the Tender Offer Statement on Schedule TO, including the
offer to exchange and other related materials, when those materials
become available. Copies of such documents can be accessed, when
available, at
http://investors.irobot.com/sec.cfm
or
www.sec.gov
.
This additional, more detailed information would be sent to Eligible
Participants at the time the Option Exchange Program commences.
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The tender offer described in this FAQ has not yet commenced. At the time the Option Exchange
Program commences, iRobot Corporation will provide option holders who are eligible to participate
in the Option Exchange Program with written materials explaining the precise terms and timing of
the Option Exchange Program. Persons who are eligible to participate in the Option Exchange
Program should read the Tender Offer Statement on Schedule TO, including the Offer to Exchange and
other related materials, when those materials become available because they will contain important
information about the Option Exchange Program. iRobot Corporation will file the Tender Offer
Statement on Schedule TO with the Securities and Exchange Commission upon the commencement of the
Option Exchange Program. iRobot Corporation stockholders and option holders will be able to obtain
these written materials and other documents filed by iRobot Corporation with the Securities and
Exchange Commission free of charge from either the Securities and Exchange Commissions website at
www.sec.gov
or by written request to iRobot Corporation at 8 Crosby Drive, Bedford,
Massachusetts 01730.