ADT 2011 Annual Report Download - page 224

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. 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. The maximum
amount outstanding under these programs was $21 million as of both September 30, 2011 and
September 24, 2010. Loans receivable under these programs, as well as other unsecured advances
outstanding, were $21 million as of both September 30, 2011 and September 24, 2010, 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 as of both September 30, 2011 and September 24, 2010 and the rate
of interest charged on such loans was 0.5% in both 2011 and 2010. Interest income on these interest
bearing loans was not material for all periods presented. Certain of the above loans totaling $1 million
as of both September 30, 2011 and September 30, 2010 are non-interest bearing.
The Company filed civil complaints against Mr. Kozlowski and its former chief financial officer,
Mark Swartz, for breach of fiduciary duty and other wrongful conduct relating to alleged abuses of the
Company’s 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 the Company’s acquisition of The CIT Group, Inc. (the ‘‘CIT Group’’). 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 October 2010, the U.S. District Court for
the Southern District of New York denied Tyco’s affirmative claims for recovery of damages against
Mr. Walsh. Tyco is pursuing an appeal. This affirmative matter, and the affirmative matters against
2011 Financials 121