Tyco Trial Testimony Continues
A former director of Tyco International Ltd. testified Monday that during his tenure the board never approved loan forgiveness or several special bonuses granted to top executives.
Stephen Foss, a member of Tyco’s board from 1983 until earlier this year, said the board instead learned of bonuses and other unauthorized compensation to executives when it began taking a closer look at loans to executives in January 2002.
Foss testified that he became concerned about the amount of loans outstanding to executives in 2001 after learning at a Christmas party in New Hampshire that the president of one of Tyco’s operating units was financing an expensive home in the state through the company.
Foss is a prosecution witness in the trial of L. Dennis Kozlowski, Tyco’s former chairman and chief executive, and Mark Swartz, Tyco’s former chief financial officer, in State Supreme Court in Manhattan.
Kozlowski and Swartz have been accused of looting more than $600 million from the Bermuda conglomerate through unauthorized compensation and illicit stock sales, enriching themselves and others. Each faces up to 30 years in prison. They have denied wrongdoing.
Former board member Foss said neither the board nor its compensation committee approved a special bonus of $25 million to Kozlowski and $12.5 million to Swartz in August 1999.
Authority to grant bonuses and other compensation to Tyco’s top executives rested with the compensation committee or the board, Foss said. He is a former compensation committee member.
Prosecutors have charged that a bonus totaling $38.5 million was paid to Kozlowski, Swartz and Barbara Jacques, a former marketing manager at the company.
Foss testified that neither Tyco’s board nor the compensation committee approved nearly $33 million in loan forgiveness and payments to cover income taxes associated with that forgiveness to Kozlowski or $16.6 million to Swartz as a reward for their work on the initial public offering of its optical fiber subsidiary TyCom in 2000.
Instead, the board approved a share distribution to each executive, Foss said.
Patricia Prue, Tyco’s human resources director at the time, previously testified that a special bonus totaling $96 million was paid to about 50 employees in fall 2000, ostensibly for their work on the TyCom IPO, including Kozlowski and Swartz.
Foss also said the board and the compensation committee never approved a bonus for Swartz and Kozlowski associated with the sale of ADT Automotive after a merger.
Prosecutors have charged that unauthorized bonuses of $16 million and $8 million were paid to Kozlowski and Swartz for their work on the sale of the ADT Automotive unit.
At the same time, Foss said, the board never approved an expansion of the Key Employee Loan Program, or KELP, which was designed to offer certain employees loans to cover income taxes associated with the vesting of shares. At some point, key employees were able to borrow up to 50% of the value of their restricted shares.
Prosecutors have charged that Kozlowski and Swartz used the KELP loans for payments beyond the original scope of the program.
Kathy McRae, Tyco’s former director of executive treasury, testified last week that Kozlowski used KELP loans to buy jewelry, finance a $13.5-million yacht and purchase a $90,000 Porsche for Karen Mayo, who later became his wife.
The board also never approved any relocation loans for employees beyond a program that allowed certain employees to finance homes when relocating to New York, Foss said.
It never approved a program to offer employees loans to relocate to Boca Raton, Fla., or buy second homes or vacation homes, he said.
Echoing previous testimony by Richard Bodman, another board member, Foss said the board never approved a $10-million payment to Frank Walsh, a former director, or a $10-million payment to a charity he was associated with for his work on a merger with CIT.
Foss said board members asked Walsh to give the money back when they found out about it as part of a proxy disclosure in 2002.
