ADT 2010 Annual Report Download - page 203

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Related Party Transactions
The Company has amounts due related to loans and advances issued to employees in prior years
under the Company’s Key Employee Loan Program, relocation programs and other advances made to
executives. Loans were provided to employees under the Company’s Key Employee Loan Program,
which is now discontinued, except for outstanding loans for the payment of taxes upon the vesting of
shares granted under our Restricted Share Ownership Plans. During the fourth quarter of 2002, the
Board of Directors and new senior management adopted a policy under which no new loans are
allowed to be granted to any officers of the Company and existing loans are not allowed to be extended
or modified. There have been no loans made to any of the Company’s current executives. The
outstanding loans are not collateralized and bear interest, payable annually, at a rate based on the six-
month LIBOR, calculated annually as the average of the rates in effect on the first day of each of the
preceding 12 months. Loans are generally repayable in ten years; however, earlier payments are
required under certain circumstances, such as when an employee is terminated. In addition, the
Company made mortgage loans to certain employees under employee relocation programs. These loans
are generally payable in 15 years and are collateralized by the underlying property. During 2010 and
2009, the maximum amount outstanding under these programs was $21 million and $22 million,
respectively. Loans receivable under these programs, as well as other unsecured advances outstanding,
were $21 million and $22 million as of September 24, 2010 and September 25, 2009, respectively. The
total outstanding loans receivable includes loans to L. Dennis Kozlowski, the Company’s former
chairman and chief executive officer (until June 2002). The amount outstanding under these loans, plus
accrued interest, was $28 million and $27 million as of September 24, 2010 and September 25, 2009,
respectively, and the rate of interest charged on such loans was 0.5% and 1.9% for 2010 and 2009,
respectively. Interest income on these interest bearing loans totaled nil in both 2010 and 2009 and
$1 million in 2008. Certain of the above loans totaling $1 million as of both September 24, 2010 and
September 25, 2009 are non-interest bearing.
The Company filed civil complaints against Messrs. Kozlowski and its former chief financial officer,
Mark 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. In connection with the Company’s civil complaint against Mr. Walsh, in
October 2010, the United States District Court for the Southern District of New York ruled that while
Mr. Walsh breached his fiduciary duties to the Company, the Company’s Board of Directors implicitly
2010 Financials 115