ADT 2003 Annual Report Download - page 104

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During fiscal 2002, L. Dennis Kozlowski, our former
Chairman and Chief Executive Officer (until June 2002), had
outstanding loans from Tyco. The rate of interest charged on
such loans was 1.91%. The amount outstanding under these
loans, plus accrued interest, was $48.0 million and $47.0 mil-
lion at September 30, 2003 and 2002, respectively.
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 2001. In connection with such
arrangements, Tyco purchased executive split dollar life insur-
ance 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 Consolidated
Financial Statements include charges of $26.7 million related
to the initial awards for Mr. Kozlowski and $13.6 million for
Mr. Swartz in fiscal 2001 and charges of $4.9 million for Mr.
Kozlowski and $2.1 million for Mr. Swartz in fiscal 2002 under
the policy, as amended. The Consolidated Financial Statements
include charges of $6.4 million for Mr. Kozlowski in fiscal 2003.
In the event the investment options within the policies do not
earn specified interest amounts, Tyco has guaranteed a supple-
mental premium payment amounting to ensure 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 ter-
mination of employment, a lump sum payment of $24.6 million,
which represented the present value of the annual premium
amounts at his termination date 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 $53.1 million
and $46.6 million on our Consolidated Balance Sheets as of
September 30, 2003 and 2002, respectively, in connection with
these arrangements, of which $23.4 million is held in the rabbi
trust as of September 30, 2003. Tyco’s ability to withdraw
monies for purposes other than premium payments from the
rabbi trust requires Mr. Kozlowski’s approval. Tyco discontin-
ued 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.
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 2003 and fiscal 2002 was $14.8 million and $16.5 million,
respectively. The amount outstanding at both September 30,
2003 and 2002 was $14.8 million. Of the $14.8 million, $14.5
million is a non-interest bearing mortgage loan collateralized
by real estate and $0.3 million is in the form of an interest bear-
ing promissory note. The interest rate on the promissory note
was 2.78% for both fiscal 2003 and fiscal 2002.
Richard J. Meelia, the President of Tyco Healthcare had an
outstanding loan under the Key Employee Loan Program. The
rate of interest charged on such loan was 2.23% and 2.06% for
fiscal 2003 and fiscal 2002, respectively. The maximum amount
outstanding under this loan during fiscal 2003 and fiscal 2002
was $18.2 thousand and $1.7 million, respectively. The amount
outstanding at September 30, 2002 was $18.2 thousand and
such loan was repaid in full prior to September 30, 2003.
During fiscal 2002, Robert P. Mead, the President of Tyco
Engineered Products and Services, had an outstanding loan
under the Key Employee Loan Program. The rate of interest
charged on such loan was 2.03%. The maximum amount out-
standing under this loan during fiscal 2002 was $0.9 million
and such loan was repaid in full prior to September 30, 2002.
TYCO INTERNATIONAL LTD.
Notes to Consolidated Financial Statements