ADT 2008 Annual Report Download - page 67

The Company did not make an annual grant of equity in fiscal 2008. Rather, it made an
accelerated grant of equity for fiscal 2008 in the third quarter of fiscal 2007. The purpose of this
accelerated grant was to align the compensation of our named executive officers and other key
employees with the long-term performance of post-Separation Tyco measured from the date of the
Separation. The award consisted of stock options, RSUs and performance shares.
As discussed above, during fiscal 2008 the Company made special equity awards to
Messrs. Gursahaney and Oliver. These awards had a grant-date value of approximately $1.0 million
each and consisted of time-based stock options (50%) and RSUs (50%). The stock options vest in two
equal installments, on the third and fourth anniversary of the grant date, while the RSUs vest at one
time, on the fourth anniversary of the grant date.
When the Company grants stock options, the exercise price equals the fair market value of our
common stock on the date of grant. For the accelerated fiscal 2008 equity awards, fair market value
was calculated as the closing price on the NYSE on the grant date, and these amounts were reported
in the proxy statement for the 2008 Annual General Meeting. Stock options granted as part of the
accelerated fiscal 2008 award generally vest in equal installments over a period of four years, beginning
on the first anniversary of the grant date. Each option holder has 10 years to exercise his or her stock
option from the date of grant, unless forfeited earlier. Forfeiture provisions for the named executive
officers are described above under the heading ‘‘Change in Control and Severance Benefits.’’
RSUs granted as part of the accelerated 2008 equity award generally vest over a period of four
years, in three equal installments beginning on the second anniversary of the grant. RSUs earn
dividend-equivalent units during the vesting period and do not carry voting rights until they are settled
in shares. Forfeiture provisions with respect to RSUs for the named executive officers are described
under the heading ‘‘Change in Control and Severance Benefits.’’
Performance shares generally vest in full at the end of the performance period. The number of
shares that are actually earned depends on whether, and at what level, the performance criteria have
been met. Performance shares do not accrue dividends prior to vesting and do not have any voting
rights. For performance shares granted in connection with the accelerated fiscal 2008 equity award, the
relevant metric is Tyco’s three-year total shareholder return between July 2, 2007 and June 30, 2010.
That return is to be compared with the total shareholder return of all the companies in the S&P 500
Industrials Index for the same period. The total shareholder return measure is based on the average of
the closing stock price for the first and last 20 trading days of the performance period, plus a total
return factor to reflect the reinvestment of dividends during the three-year period. If the minimum
performance measure is not met (i.e., Tyco’s total shareholder return over the performance period is
not equal to or better than the total shareholder return of the top 65% of the companies constituting
the S&P 500 Industrials Index), no performance shares will be earned. In addition, if Tyco’s total
shareholder return is negative at the end of the performance period, the maximum payout is capped at
125% of target.
50 2009 Proxy Statement