A key prosecution witness in the trial of two former top executives at Tyco International Ltd. said Thursday that the company's compensation committee might have unwittingly signed off on disputed bonuses for those executives.
Patricia Prue, Tyco's former human resources director, testified that the committee in August 2001 had approved an amended retention agreement for L. Dennis Kozlowski, Tyco's former chairman and chief executive.
The agreement called for Kozlowski, if he was let go by Tyco, to receive three times his annual salary and a payment equal to his highest annual cash bonus, shares and other considerations he received over an eight-year period.
The amendment changed language approved by the committee in March 2001 that would have paid him three times his salary and his highest cash bonus as reported in the Bermuda-based firm's proxy statement.
The defense argued that by agreeing to the new deal, the committee might have unwittingly approved loan forgiveness and other payments given to Kozlowski and Mark Swartz, Tyco's former chief financial officer, as rewards for their work on an initial public offering of the company's TyCom subsidiary and the sale of Tyco's ADT Automotive unit.
The trial in New York state's trial-level Supreme Court involves charges that Kozlowski and Swartz improperly used Tyco funds to enrich themselves. Each faces up to 30 years in prison. They have denied wrongdoing.
Prosecutors have charged that Tyco's compensation committee and board of directors didn't know about a $96-million "special" bonus given to about 50 employees, including Swartz and Kozlowski, for the TyCom IPO.
Kozlowski received about $33 million in loan forgiveness and income tax payments from the TyCom IPO bonus; Swartz received $16.6 million. Kozlowski received a $16-million bonus for the sale of home-security business ADT; Swartz got $8 million.
Under questioning Thursday from James Devita, an attorney for Kozlowski, Prue testified that the classification of other considerations in Kozlowski's retention agreement could include the bonuses from the TyCom IPO bonus and the ADT sale.