ADT 2006 Annual Report Download - page 186

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Related Party Transactions (Continued)
employment. At that time, the Company deposited $31 million into a rabbi trust to fund premiums on
the policies. In the event the investment options within the policies do not earn specified interest
amounts, Tyco had guaranteed a supplemental premium payment amount to ensure a 10% annual
return on the cash surrender value, and any unpaid premiums. This liability was 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. Tyco discontinued making premium
payments for Mr. Kozlowski’s insurance policy as of October 1, 2002. The Company filed affirmative
actions against Mr. Kozlowski, seeking disgorgement of all benefits under this executive life insurance
policy. 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. On September 27, 2006, the Company and Mr. Kozlowski entered into a
general release agreement that terminated Mr. Kozlowski’s shared ownership agreement of the split
dollar life insurance policy and the rabbi trust. As such, the Company has no continuing obligation to
make any payment or contributions with respect to the split dollar insurance policy or the rabbi trust.
The Company recorded a credit of $72 million related to this liability in 2006 within selling, general
and administrative expenses on the Consolidated Statements of Income. The Consolidated Financial
Statements include charges of $7 million, $7 million and $6 million for Mr. Kozlowski in 2006, 2005
and 2004, respectively. The Company had accrued $65 million on the Consolidated Balance Sheet as of
September 30, 2005, in connection with this arrangement. As of September 29, 2006, $25 million
remains in a rabbi trust.
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
County) and settled a civil action for violation of federal securities laws brought by the SEC in United
States District Court for the Southern District of New York. Both the felony charge and the civil action
were brought against Mr. Walsh based on such payment. The felony charge accused Mr. Walsh of
intentionally concealing information concerning the payment from Tyco’s directors and shareholders
while engaged in the sale of Tyco securities in the State of New York. The SEC action alleged that
Mr. Walsh knew that the registration statement covering the sale of Tyco securities as part of the CIT
Group acquisition contained a material misrepresentation concerning fees payable in connection with
the acquisition. Pursuant to the plea and settlement, Mr. Walsh paid $20 million in restitution to Tyco
on December 17, 2002. Our claims against Mr. Walsh are still pending.
124 2006 Financials