ADT 2008 Annual Report Download - page 235

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Related Party Transactions (Continued)
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. 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 Operations. The Consolidated Financial
Statements include charges of $7 million related to Mr. Kozlowski’s life insurance policy in 2006. The
$25 million that remained in the rabbi trust as of September 29, 2006 was received by Tyco during the
first quarter of 2007.
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
132 2008 Financials