ADT 2005 Annual Report Download - page 208

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
20. Share Plans (Continued)
The 2004 Plan provides for a maximum of 160 million common shares to be issued as Awards,
subject to adjustment as provided under the terms of the 2004 Plan. In addition, any common shares
that have been approved by the Company’s shareholders for issuance under the 1994 Plan and the
LTIP Plans but which have not been awarded thereunder as of January 1, 2004, reduced by the number
of common shares related to Awards made under the LTIP Plans between January 1, 2004 and
March 25, 2004, the date the 2004 Plan was approved by shareholders, (or which have been awarded
but will not be issued, owing to expiration, forfeiture, cancellation, return to the Company or
settlement in cash in lieu of common shares on or after January 1, 2004) and which are no longer
available for any reason (including the termination of the 1994 Plan or the LTIP Plans) will also be
available for issuance under the 2004 Plan. When common shares are issued pursuant to a grant of
restricted stock, restricted units, deferred stock units, promissory stock, performance units or as
payment of an annual performance bonus or other stock-based award, the total number of common
shares remaining available for grant will be decreased by a margin of at least 1.8 per common share
issued. At September 30, 2005, there were approximately 172 million shares available for future grant
under the 2004 Plan (including shares available under both the LTIP I and LTIP II Plans which are
now assumable under the 2004 Plan).
The 1994 Plan provided for the issuance of restricted stock grants to officers and non-officer
employees. In November 2004, and upon expiration of the 1994 Plan, all 20 million shares available for
future issuance under the 1994 Plan were assumed by the 2004 Plan. At September 30, 2005, 21 million
shares had been granted, of which 5 million were granted under the 2004 Plan and 16 million were
granted under the former 1994 Plan.
The LTIP I Plan reserved common shares for issuance to Tyco’s directors, executives and managers
as share options. This plan is administered by the Compensation and Human Resources Committee of
the Board of Directors of the Company, which consists exclusively of independent directors of the
Company. Tyco had reserved 140 million common shares for issuance under the LTIP I Plan. At
September 30, 2005, there were approximately 28 million shares originally reserved for issuance under
this plan but now available for future grant under the 2004 Plan.
The LTIP II Plan was a broad-based option plan for non-officer employees. Tyco had reserved
100 million common shares for issuance under the LTIP II Plan. The terms and conditions of this plan
are similar to the LTIP I Plan. At September 30, 2005, there were approximately 24 million shares
originally reserved for issuance under this plan but now available for future grant under the 2004 Plan.
Restricted Shares—Common shares are awarded subject to certain restrictions. Conditions of
vesting are determined at the time of grant under the 2004 Plan; unless otherwise stated, stock vests in
equal annual installments over a period of four years. However, the majority of Tyco’s restricted share
grants cliff vest after three years. All restrictions on the stock will lapse upon normal retirement, death
or disability of the employee.
For grants which vest based on certain specified performance criteria, the fair market value of the
shares are expensed over the period of performance, once achievement of criteria is deemed probable.
For grants that vest through passage of time, the fair market value of the shares at the time of the
grant is amortized to expense over the period of vesting. Unamortized compensation expense is
recorded as a reduction of shareholders’ equity. Recipients of restricted shares have the right to vote
such shares and receive dividends. Income tax benefits resulting from the vesting of restricted shares,
including a deduction for the excess, if any, of the fair market value of restricted shares at the time of
132 2005 Financials