ADT 2005 Annual Report Download - page 188

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Related Party Transactions (Continued)
respectively. Purchases from other companies noted above during 2003 aggregated less than
$15 million.
In 2001, Tyco authorized compensation arrangements to L. Dennis Kozlowski and Mark H. Swartz,
the Company’s Chief Financial Officer and Director until August 2002. 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 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 2001, the Company deposited $31 million into a consolidated rabbi trust to fund
premiums on the policies. The Consolidated Financial Statements include charges of $27 million related
to the initial awards for Mr. Kozlowski and $14 million for Mr. Swartz in 2001 and charges of
$5 million for Mr. Kozlowski and $2 million for Mr. Swartz in 2002 under the policy, as amended. The
Consolidated Financial Statements include charges of $7 million and $6 million for Mr. Kozlowski in
2005 and 2004, respectively. In the event the investment options within the policies do not earn
specified interest amounts, Tyco has guaranteed a supplemental premium payment amount 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 termination of employment, a lump sum
payment of $25 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 premium payments. The Company has accrued
$65 million and $58 million on our Consolidated Balance Sheets as of September 30, 2005 and 2004,
respectively, in connection with these arrangements, of which $24 million is held in the rabbi trust as of
September 30, 2005. Tyco’s ability to withdraw monies from the rabbi trust for purposes other than
premium payments requires Mr. Kozlowski’s approval. Tyco discontinued making premium payments
for Mr. Kozlowski’s insurance policy as of October 1, 2002. The Company 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.
The Company filed civil complaints against Messrs. Kozlowski and Swartz for breach of fiduciary
duty and other wrongful conduct relating to alleged abuses of our Key Employee Loan Program and
relocation program, unauthorized bonuses, unauthorized payments, self-dealing transactions and other
improper conduct.
In June 2002, the Company filed a civil complaint against Frank E. Walsh, Jr., a former director,
for breach of fiduciary duty, inducing breaches of fiduciary duty and related wrongful conduct involving
a $20 million payment by Tyco, $10 million of which was paid to Mr. Walsh with the balance paid to a
charity of which Mr. Walsh is trustee. The payment was purportedly made for Mr. Walsh’s assistance in
arranging our acquisition of The CIT Group, Inc. On December 17, 2002, Mr. Walsh pleaded guilty to
a felony violation of New York law in the Supreme Court of the State of New York, (New York
112 2005 Financials