ADT 2006 Annual Report Download - page 90

from our Key Employee Loan Program and relocation program; awarded millions of dollars in
unauthorized bonuses to himself and certain other Tyco employees; engaged in improper self-dealing
real estate transactions involving our assets; and conspired with certain other former Tyco employees in
committing these acts. The amended complaint alleges causes of action for breach of fiduciary duty,
fraud, unjust enrichment, breach of contract, conversion, constructive trust, and other wrongful conduct.
The amended complaint seeks recovery for all of the losses suffered by us as a result of the former
Chairman and Chief Executive Officer’s conduct, and of all remuneration, including restricted and
unrestricted shares and options, obtained by Mr. Kozlowski during the course of this conduct. The
Judicial Panel on Multidistrict Litigation transferred this action to the United States District Court for
the District of New Hampshire. On October 6, 2003, Mr. Kozlowski filed a motion to dismiss or stay
the case and compel arbitration, which was denied on March 16, 2004, with one exception relating to
the arbitration of a claim asserting the fraudulent inducement of Mr. Kozlowski’s retention agreement.
On April 9, 2004, Mr. Kozlowski filed an Answer, Affirmative Defenses and Counterclaims, seeking
amounts allegedly due pursuant to his purported retention agreement, life insurance policies, and other
arrangements. Tyco filed its Reply to the Counterclaims on April 29, 2004. Discovery in this and the
other affirmative cases is proceeding.
Mr. Kozlowski was tried on criminal charges in New York County. The first criminal trial resulted
in a mistrial declared on April 2, 2004. The retrial of Mr. Kozlowski began on January 18, 2005 and
concluded on June 17, 2005, when the jury returned verdicts. Of the thirty-one counts submitted to it,
which were similar to certain of the claims alleged in the Company’s affirmative action described above,
the jury found Mr. Kozlowski guilty on all charges of grand larceny, conspiracy and securities fraud,
and all but one count of falsification of business records. On September 19, 2005, Mr. Kozlowski was
sentenced to a term of imprisonment of eight and one-third years to twenty-five years, and ordered to
pay an individual fine of $70 million and restitution, jointly and severally with Mr. Swartz, to Tyco of
$134 million within one year. On September 19, 2005, Mr. Kozlowski filed a notice of appeal from his
conviction and on October 3, 2006 filed a brief in support of his appeal. Tyco has initiated the process
of collecting the restitution payment owed to it, and on November 17, 2006, the Supreme Court of the
State of New York ordered $98 million to be released from an escrow account under the supervision of
the Manhattan District Attorney to Tyco on January 2, 2007.
Tyco International, Ltd. v. Mark H. Swartz, United States District Court, Southern District of New York,
No. 03-CV-2247 (TPG), filed April 1, 2003. As previously reported in our periodic filings, we filed an
arbitration claim against Mark H. Swartz, our former Chief Financial Officer and director, on
October 7, 2002. As a consequence of Mr. Swartz’s refusal to submit to the jurisdiction of the
American Arbitration Association, we filed a civil complaint against him on April 1, 2003, for breach of
fiduciary duty and other wrongful conduct. The action alleges that the defendant misappropriated
millions of dollars from our Key Employees Loan Program and relocation program; approved and
implemented awards of millions of dollars of unauthorized bonuses to himself and certain other Tyco
employees; awarded millions of dollars in unauthorized payments to himself; engaged in improper self
dealing real estate transactions involving our assets; and conspired with certain other former Tyco
employees in committing these acts. The complaint alleges causes of action for breach of fiduciary duty,
fraud, unjust enrichment, conversion, and constructive trust, and other wrongful conduct. The action
seeks recovery for all of the losses suffered by us as a result of the former Chief Financial Officer and
director’s conduct, and all remuneration, including restricted and unrestricted shares and options,
obtained by Mr. Swartz’s during the course of this conduct. The Judicial Panel on Multidistrict
Litigation transferred this action to the United States District Court for the District of New Hampshire.
Mr. Swartz moved to dismiss Tyco’s complaint and to compel arbitration of the parties’ respective
claims. The court denied Swartz’s motion and he has appealed the court’s decision to the United States
Court of Appeals for the First Circuit. His appeal was heard on December 8, 2004. The First Circuit
affirmed the District Court’s decision on September 7, 2005. Discovery in this and the other affirmative
cases is proceeding.
28 2006 Financials