ADT 2002 Annual Report Download - page 105

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
17. Related Party Transactions (continued)
During fiscal 2002, L. Dennis Kozlowski, our former Chairman and Chief Executive Officer, had
outstanding loans from Tyco. The rate of interest charged on such loans was 1.91%. The maximum
amount outstanding under these loans during fiscal 2002 was $51.0 million plus accrued interest of
$3.2 million, and the amount outstanding at September 30, 2002 was $47.0 million.
During fiscal 2002, Mark H. Swartz, a former director and our former Chief Financial Officer, had
outstanding loans from Tyco. The rate of interest charged on such loans was 2.11%. The maximum
amount outstanding under these loans during fiscal 2002 was $25.0 million plus accrued interest of
$1.6 million and such loans were repaid in full prior to September 30, 2002.
Tyco authorized compensation arrangements to Messrs. Kozlowski and Swartz in fiscal years 2001
and 2000. In connection with such arrangements, Tyco purchased executive split dollar life insurance
policies for Messrs. Kozlowski and Swartz and entered into a shared ownership agreement with each of
them whereby the Company agreed to pay premiums for these insurance policies for an 11 year period
beginning in fiscal 2001. In 2001, amended policies were executed providing for additional company
paid premiums. The Company is a co-beneficiary of the policies, less amounts owed to Messrs
Kozlowski and Swartz. Messrs. Kozlowski and Swartz are the beneficiaries of the cash surrender values
of the policies plus the amount of any unpaid premiums. The Company’s obligations under these
arrangements were entered into in recognition of services rendered by these officers and were not
contingent upon continuing employment. In fiscal 2001, the Company deposited $30.8 million into a
consolidated rabbi trust to fund premiums on the policies. The financial statements include charges of
$26.7 million and $20.1 million in fiscal 2001 and 2000, respectively, related to the initial awards for
Mr. Kozlowski under the policy, as amended. The restated financial statements also include charges of
$13.6 million and $10.7 million in fiscal 2001 and 2000, respectively, related to the initial awards for
Mr. Swartz. In the event the investment options within the policies do not earn specified interest
amounts, Tyco has guaranteed a supplemental premium payment amounting to a 10% annual return on
the cash surrender value, and any unpaid premiums. This liability is accreted by a charge to earnings
throughout the period of the arrangements to make the specified supplemental premium payments, if
any. In conjunction with Mr. Swartz’s termination of employment, a lump sum payment of
$24.6 million, which represented the value of the annual premium amounts for the remainder of the
contractual period, was made to Mr. Swartz and in return Mr. Swartz waived Tyco’s obligation to
continue making the premium payments. The Company has accrued $46.6 million and $70.9 million on
our consolidated balance sheets as of September 30, 2002 and 2001, respectively, in connection with
these arrangements, of which $23.1 million is held in the rabbi trust as of September 30, 2002. Tyco
discontinued making premium payments for Mr. Kozlowski’s insurance policy as of October 1, 2002.
We have filed affirmative actions against Messrs. Kozlowski and Swartz, seeking disgorgement of all
benefits under these executive life insurance policies. Pending resolution of such action against
Mr. Kozlowski, premium obligations since October 2002 have been drawn down from the cash
surrender value of such policy to avoid termination of such policy’s death benefit.
During fiscal 2002, Mark A. Belnick, our former Executive Vice President and Chief Corporate
Counsel, had outstanding loans from Tyco. The maximum amount outstanding under these loans during
fiscal 2002 was $16.5 million and the amount outstanding at September 30, 2002 was $14.8 million. Of
the $14.8 million, $14.5 million is a non interest bearing mortgage loan and $0.3 million is in the form
of an interest bearing promissory note. The interest rate on the promissory note was 2.78% for fiscal
2002.
103