Tyco International Ltd.
Filed 01/28/03
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2002
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
001-13836
(Commission File Number)
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TYCO INTERNATIONAL LTD.
(Exact name of registrant as specified in its charter)
BERMUDA 04-2297459
(Jurisdiction of Incorporation) (IRS Employer Identification No.)
THE ZURICH CENTRE, SECOND FLOOR, 90 PITTS BAY ROAD, PEMBROKE HM 08, BERMUDA
(Address of registrant's principal executive office)
441-292-8674
(Registrant's telephone number)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Shares, Par Value $0.20 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III or this Form 10-K or any
amendment to this Form 10-K. / /.
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act
Rule 12b-2) Yes /X/ No / /.
The aggregate market value of voting common shares held by nonaffiliates of
registrant was $33,274,156,634 as of January 23, 2003.
The number of common shares outstanding as of January 23, 2003 was
1,996,050,188.
DOCUMENTS INCORPORATED BY REFERENCE: Not Applicable.
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INTRODUCTORY NOTE
This Amendment to Annual Report on Form 10-K/A is being filed to supplement
Tyco International Ltd.'s ("we" or "Tyco") Annual Report on Form 10-K for the
fiscal year ended September 30, 2002 to include the following information:
Part III, Item 10. Directors and Executive Officers of the Registrant
Part III, Item 11. Executive Compensation
Part III, Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
Part III, Item 13. Certain Relationships and Related Transactions
Tyco's Annual Report on Form 10-K for the fiscal year ended September 30, 2002
("fiscal 2002") was filed on December 30, 2002 and incorporated information
required under Part III by reference to Tyco's definitive proxy statement.
Although Tyco's preliminary proxy statement has been filed with the Securities
and Exchange Commission ("SEC"), Tyco's definitive proxy statement will not be
finalized within 120 days after the close of fiscal 2002. This Amendment
contains the supplemental information required under Part III.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Amendment should be read in conjunction with Tyco's Annual Report on
Form 10-K for the fiscal year ended September 30, 2002 as filed on December 30,
2002, together with the Current Reports on Form 8-K listed below that Tyco has
filed with the SEC since December 30, 2002. Tyco is "incorporating by reference"
into this Amendment the Current Reports on Form 8-K listed below that it has
filed with the SEC since December 30, 2002, which means that Tyco is disclosing
important information to you by referring you to those documents. The
information incorporated by reference is deemed to be part of this Amendment,
except for any information superseded by information contained directly in this
Amendment.
This Amendment incorporates by reference the information contained in the
following documents:
- Current Report on Form 8-K filed with the SEC on January 9, 2003
- Current Report on Form 8-K filed with the SEC on January 14, 2003
Copies of these reports are available to shareholders free of charge on
Tyco's Internet website at HTTP://INVESTORS.TYCOINT.COM/EDGAR.CFM or by writing
or calling Tyco at Tyco Shareholder Services, Tyco International Ltd., The
Zurich Centre, Second Floor, 90 Pitts Bay Road, Pembroke HM 08, Bermuda,
telephone number (441) 292-8674.
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|
INTRODUCTORY
NOTE
|
| This Amendment to Annual Report on Form 10-K/A is
being filed to supplement Tyco International Ltd.'s ("we" or "Tyco")
Annual Report on Form 10-K for the fiscal year ended September 30,
2002 to include the following information:
Part III, Item 10. Directors and Executive Officers of the Registrant
Part III, Item 11. Executive Compensation
Part III, Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
Part III, Item 13. Certain Relationships and Related Transactions
Tyco's Annual Report on Form 10-K for the fiscal year ended September 30, 2002
("fiscal 2002") was filed on December 30, 2002 and incorporated information
required under Part III by reference to Tyco's definitive proxy statement.
Although Tyco's preliminary proxy statement has been filed with the Securities
and Exchange Commission ("SEC"), Tyco's definitive proxy statement will not be
finalized within 120 days after the close of fiscal 2002. This Amendment
contains the supplemental information required under Part III. |
|
|
|
TABLE OF CONTENTS
PAGE
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PART III
Item 10. Directors and Executive Officers of the Registrant.......... 1
Item 11. Executive Compensation...................................... 5
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters.................. 23
Item 13. Certain Relationships and Related Transactions.............. 27
Signatures............................................................ 30
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND DIRECTOR NOMINEES
Tyco's Board of Directors (sometimes referred to herein as the "Board")
consists of the individuals named below. Information is also provided on
individuals whom the Board has nominated for election to the Board at Tyco's
2003 Annual General Meeting. The directors who were Board members prior to the
appointment of Tyco's new Chairman and Chief Executive Officer in July 2002 have
determined not to stand for re-election. If any vacancies occur on the Board
prior to the date of the 2003 Annual General Meeting, they will be filled by one
of the nominees who does not currently serve on the Board.
EDWARD D. BREEN Mr. Breen, age 46, has been our Chairman and Chief
Executive Officer since July 2002. Prior to joining Tyco International Ltd.
("we" or "Tyco"), Mr. Breen was President and Chief Operating Officer of
Motorola from January 2002 to July 2002; Executive Vice President and President
of Motorola's Networks Sector from January 2001 to January 2002; Executive Vice
President and President of Motorola's Broadband Communications Sector from
January 2000 to January 2001; Chairman, President and Chief Executive Officer of
General Instrument Corporation from December 1997 to January 2000; and, prior to
December 1997, President of General Instrument's Broadband Networks Group.
Mr. Breen also serves as a director of McLeod USA Incorporated.
RICHARD S. BODMAN Mr. Bodman, age 64, has been a director of Tyco and its
predecessor company since 1992. He has been the Managing General Partner of VMS
Group, a venture capital firm, since May 1996. Mr. Bodman is also a director of
Internet Security Systems, Inc. and Knology, Inc.
JOHN F. FORT, III Mr. Fort, age 61, has been a director of Tyco and its
predecessor company since 1982. He acted as our interim chief executive officer
during June and July 2002. He was the Chairman of the board of directors of
Insilco Corp., a diversified manufacturer, from November 1998 through
April 2002. Mr. Fort was the Chairman of the Board and Chief Executive Officer
of Tyco's predecessor company from 1982 through 1992. Mr. Fort is also a
director of Roper Industries, Inc.
STEPHEN W. FOSS Mr. Foss, age 60, has been a director of Tyco and its
predecessor company since 1983. He has been the Chairman and Chief Executive
Officer of Foss Manufacturing Company, Inc., a manufacturer of synthetic fibers
and non-woven fabrics, since 1969.
WENDY E. LANE Ms. Lane, age 51, has been a director of Tyco since 2000. She
has been the President and Chairman of Lane Holdings, Inc., a private equity
investment firm, since 1992. Ms. Lane is also a director of Laboratory
Corporation of America Holdings.
W. PETER SLUSSER Mr. Slusser, age 73, has been a director of Tyco and its
predecessor company since 1992. He has been the President of Slusser Associates,
Inc., an investment banking firm, since 1998. Mr. Slusser is also a director of
Ampex Corporation and Sparton Corporation.
JOHN A. KROL Mr. Krol, age 66, joined our Board of Directors in
August 2002. Mr. Krol was the Chairman and Chief Executive Officer of E.I.
DuPont de Nemours & Company, where he spent his entire career until his
retirement in 1998. E.I. DuPont Nemours is a global research and technology-
based company serving worldwide markets, including food and nutrition, health
care, agriculture, fashion and apparel, home and construction, electronics and
transportation. Mr. Krol also serves as a director of Ace Ltd., Armstrong
Holdings, Inc., MeadWestvaco Corporation and Milliken & Company. Mr. Krol
graduated from Tufts University where he received a B.S. and M.S. in chemistry.
JEROME B. YORK Mr. York, age 64, joined our Board in November 2002.
Mr. York is the Chairman, President and CEO of MicroWarehouse, Inc., a seller of
computer products through catalogs, the Internet and telemarketers. Before
Mr. York joined MicroWarehouse he was the Vice Chairman of Tracinda Corporation
from 1995 to 1999, Chief Financial Officer of IBM Corporation from 1993 to 1995
and held various positions at Chrysler Corporation from 1979 to 1993. Mr. York
graduated from the United States Military Academy, and received an M.S. from the
Massachusetts
Institute of Technology and an M.B.A. from the University of Michigan. Mr. York
also serves as a director of Metro-Goldwyn Mayer, Inc. and Apple Computer, Inc.
MACKEY J. MCDONALD Mr. McDonald, age 56, joined our Board in
November 2002. Mr. McDonald serves as the Chairman, President and CEO of VF
Corporation, a designer, manufacturer and marketer of jeanswear, intimate
apparel, playwear, workwear and daypacks. Mr. McDonald began his tenure at VF
Corporation in 1982 and was named Chairman, President and CEO in 1998. He also
was a Director, Operations at Hanes Corporation. Mr. McDonald graduated from
Davidson College and received his M.B.A. in Marketing from Georgia State
University. Mr. McDonald also serves as a director of Wachovia Corporation and
Hershey Foods Corporation.
GEORGE W. BUCKLEY Mr. Buckley, age 55, joined our Board in December 2002.
He is the Chairman and CEO of Brunswick Corporation. Mr. Buckley joined
Brunswick in 1997 and has held the role of Chairman and CEO for over two years.
Prior to that time, he served as the Chief Technology Officer (for Motors,
Controls and Appliance Components) and President of two divisions throughout his
career at Emerson Electric Company from 1993 to 1997. Mr. Buckley did combined
postgraduate work at Huddersfield and Southampton Universities and received a
Ph.D. at the University of Huddersfield in 1977. Mr. Buckley also serves as a
director of Ingersoll Rand Co. Ltd. and Polaris Industries, Inc.
BRUCE S. GORDON Mr. Gordon, age 56, joined our Board in January 2003.
Mr. Gordon is the President of Retail Markets at Verizon Communications, Inc., a
provider of wireline and wireless communications. Prior to the merger of Bell
Atlantic Corporation and GTE, which formed Verizon in July 2000, Mr. Gordon
fulfilled a variety of positions at Bell Atlantic Corporation, including Group
President, Vice President, Marketing and Sales and Vice President, Sales.
Mr. Gordon graduated from Gettysburg College and received a M.S. from
Massachusetts Institute of Technology. Mr. Gordon also serves as a director of
Southern Company and Office Depot, Inc.
DENNIS C. BLAIR Admiral Blair (U.S. Navy, Ret.), age 55, has been nominated
to join our Board. Admiral Blair retired as Commander in Chief of the U.S.
Pacific Command in 2002 after more than 30 years of service in the armed forces.
Previously, Admiral Blair served as Vice Admiral and Director of the Joint Staff
and Associate Director of Central Intelligence for Military Support. Admiral
Blair graduated from the U.S. Naval Academy and holds a masters degree from
Oxford University. Mr. Blair also serves as a director of EDO Corporation.
BRENDAN R. O'NEILL Mr. O'Neill, age 54, has been nominated to join our
Board. Mr. O'Neill is the Chief Executive Officer and a director of Imperial
Chemical Industries PLC ("ICI"). Prior to Mr. O'Neill's career at ICI, he held
numerous positions at Guinness PLC, including Chief Executive of Guinness
Brewing Worldwide Ltd, Managing Director International Region of United
Distillers, and Director of Financial Control. Mr. O'Neill also held positions
at HSBC Holdings PLC, BICC PLC and the Ford Motor Company. He has an M.A. from
the University of Cambridge and a Ph.D. in chemistry from the University of East
Anglia.
SANDRA S. WIJNBERG Ms. Wijnberg, age 46, has been nominated to join our
Board. Ms. Wijnberg is a Senior Vice President and Chief Financial Officer at
Marsh & McLennan Companies, Inc., a professional services firm with insurance
and reinsurance brokerage, consulting and investment management businesses.
Before joining Marsh & McLennan Companies, Inc. in January 2000, Ms. Wijnberg
served as a Senior Vice President and Treasurer of Tricon Global
Restaurants, Inc. and held various positions at PepsiCo, Inc., Morgan Stanley
Group, Inc. and American Express Company. Ms. Wijnberg is a graduate of the
University of California, Los Angeles and received an M.B.A. from the University
of Southern California.
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EXECUTIVE OFFICERS
Over the past several months, Tyco's Board has assembled a new senior
corporate management team. In addition to Mr. Breen, Tyco's new Chief Executive
Officer who also serves on the Board and whose biographical information is set
forth above, the executive officers of Tyco are:
DAVID J. FITZPATRICK Mr. FitzPatrick, age 48, has been our Executive Vice
President and Chief Financial Officer since September 2002. Prior to joining
Tyco, Mr. FitzPatrick was Senior Vice President and Chief Financial Officer of
United Technologies Corporation from June 1998 to September 2002; and Vice
President and Corporate Controller for Eastman Kodak Company from March 1995 to
May 1998.
WILLIAM B. LYTTON Mr. Lytton, age 54, has been our Executive Vice President
and General Counsel since September 2002. Prior to joining Tyco, Mr. Lytton was
Senior Vice President and General Counsel for International Paper Company from
January 1999 to September 2002; and Vice President and General Counsel for
International Paper from 1996 to 1999.
ERIC M. PILLMORE Mr. Pillmore, age 49, has been our Senior Vice President
of Corporate Governance since August 2002. Prior to joining Tyco, Mr. Pillmore
was Senior Vice President, Chief Financial Officer and Secretary of Multilink
Technology Corporation from July 2000 to August 2002. From April 2000 to
May 2000, Mr. Pillmore was Senior Vice President of Finance and Chief Financial
Officer of McData Corporation. From January 2000 to April 2000, Mr. Pillmore was
Senior Vice President of Finance and Director of Motorola's Broadband
Communications Sector. From December 1997 to January 2000, Mr. Pillmore was
Chief Financial Officer of General Instrument Corporation.
JERRY R. BOGGESS Mr. Boggess, age 58, has been President of Tyco Fire and
Security Services since August 1993. Mr. Boggess has been Vice President of Tyco
since February 1996 and associated with Tyco and its predecessors since 1968
(except from 1983 to 1989 when he was President of Cosco Fire Protection, a
division of Zurn Industries).
JUERGEN W. GROMER Dr. Gromer, age 58, has been President of Tyco
Electronics since April 1999. Dr. Gromer was Senior Vice President, Worldwide
Sales and Service, of AMP Incorporated (acquired by Tyco in April 1999) from
1998 to April 1999; President, Global Automotive Division, and Corporate Vice
President of AMP from 1996 to 1998; and Vice President and General Manager of
various divisions of AMP from 1990 to 1996.
ROBERT P. MEAD Mr. Mead, age 52, has been President of Tyco Engineered
Products and Services since April 2002. Mr. Mead has been a Vice President of
Tyco and its predecessors since August 1993. Mr. Mead was President of the Flow
Control Products segment from May 1993 to May 2001; and has been associated with
Tyco and its predecessors since 1973.
RICHARD J. MEELIA Mr. Meelia, age 53, has been President of Tyco Healthcare
and Specialty Products since 1995. Mr. Meelia has been Vice President of Tyco
since June 2000 and was Group President of Kendall Healthcare Products Company
(acquired by Tyco in October 1994) from January 1991 to 1995.
DAVID E. ROBINSON Mr. Robinson, age 43, has been President of Tyco Plastics
and Adhesives since November 2002. Prior to joining Tyco, Mr. Robinson was
Executive Vice President and President of Motorola's Broadband Communications
Sector from January 2001 to June 2002; Senior Vice President and General
Manager, Digital Network Systems, for Motorola's Broadband Communications Sector
from January 2000 to January 2001, and for General Instrument Corporation from
April 1998 to January 2000; and Vice President and General Manager, Digital
Network Systems from November 1995 to April 1998.
MARTINA HUND-MEJEAN Ms. Hund-Mejean, age 42, has been our Senior Vice
President, Treasurer since December 2002. Prior to joining Tyco, Ms. Hund-Mejean
served as Senior Vice President and Treasurer at Lucent Technologies, Inc. from
November 2000 to December 2002. During the previous 12
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years, she held positions of ascending importance at General Motors, including
most recently Assistant Treasurer, Treasurer's Office.
JOHN E. EVARD, JR. Mr. Evard, Jr., age 56, has been our Senior Vice
President, Tax since December 2002. Prior to joining Tyco, Mr. Evard was Vice
President, Tax of United Technologies Corporation. Prior to joining United
Technologies, Mr. Evard held a number of positions at CNH Global N.V. and its
predecessor company, Case Corp., including Senior Vice President, Corporate
Development, and General Tax Counsel.
LAURIE SIEGEL Ms. Siegel, age 46, has been our Senior Vice President, Human
Resources since January 2003. Prior to joining Tyco, Ms. Siegel was at Honeywell
International, where she spent eight years in various roles, most recently as
Vice President, Human Resources, Specialty Materials.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board maintains three standing committees: Audit, Compensation, and
Corporate Governance and Nominating. The independent directors of the Board,
acting in executive session, elect a lead director to serve as chair of the
Corporate Governance and Nominating Committee. The lead director chairs an
executive session of the independent directors at each formal Board meeting.
Assignments to, and chairs of, the committees are recommended by the Corporate
Governance and Nominating Committee and selected by the Board. All committees
report on their activities to the Board.
AUDIT COMMITTEE. The Audit Committee monitors the integrity of Tyco's
financial statements, the independence and qualifications of the independent
auditors, the performance of Tyco's internal auditors as well as the independent
auditors, Tyco's compliance with legal and regulatory requirements and the
effectiveness of Tyco's internal controls. The Audit Committee is also
responsible for retaining, evaluating, and, if appropriate, recommending the
termination of Tyco's independent auditors. The Audit Committee held twelve (12)
formal meetings during fiscal 2002 in addition to the numerous and extensive
informal meetings and teleconferences that the Audit Committee held since the
Board and the Audit Committee learned of instances of breakdowns of certain
internal controls in January 2002.
COMPENSATION COMMITTEE. The Compensation Committee reviews and approves
compensation and benefits policies and objectives, determines whether Tyco's
officers, directors and employees are compensated according to these objectives,
and carries out the Board's responsibilities relating to the compensation of
Tyco's executives. The Compensation Committee held seventeen (17) meetings
during fiscal 2002.
CORPORATE GOVERNANCE AND NOMINATING COMMITTEE. The Corporate Governance and
Nominating Committee is responsible for identifying individuals qualified to
become Board members, recommending to the Board the director nominees for the
annual general meeting of shareholders, developing and recommending to the Board
a set of corporate governance principles, and playing a general leadership role
in Tyco's corporate governance. The Committee will consider nominations
submitted by shareholders. To recommend a nominee, a shareholder should write to
Tyco's Secretary at Tyco's registered address in Pembroke, Bermuda. Any such
recommendation must include the name and address of the candidate, a brief
biographical description or statement of the qualifications of the candidate and
the candidate's signed consent to serve as a director if elected. The Corporate
Governance and Nominating Committee held three (3) meetings during fiscal 2002.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Tyco's
officers and directors and persons who beneficially own more than ten percent of
Tyco's common shares to file reports of ownership and changes in ownership of
such common shares with the SEC and the New York Stock Exchange. These persons
are required by SEC regulations to furnish Tyco with copies of all
Section 16(a) forms they file. As a matter of practice, Tyco's administrative
staff assists Tyco's officers and directors in preparing initial reports of
ownership and reports of changes in ownership and files those reports on their
behalf. Based solely on Tyco's review of the copies of such forms it has
received
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and written representations from certain reporting persons confirming that they
were not required to file Forms 5 for specified fiscal years, Tyco believes that
all of its officers, directors and beneficial owners of more than ten percent of
its common shares complied with Section 16(a) during Tyco's fiscal year ended
September 30, 2002, except for (i) Mr. Fort who reported one transaction six
months late, (ii) Joseph F. Welch who reported one transaction eight months late
and another transaction seven months late, (iii) Mr. Breen who reported his
initial statement of beneficial ownership on Form 3 four days late,
(iv) Mr. FitzPatrick who reported four transactions 20 days late,
(v) Mr. Lytton who reported four transactions eight days late (these
transactions occurred on the same day), (vi) Mr. Slusser who reported one
transaction 7 months late, (vii) L. Dennis Kozlowski who failed to report
approximately 12 transactions and (viii) Mark H. Swartz who failed to report
approximately 14 transactions.
ITEM 11. EXECUTIVE COMPENSATION
DIRECTORS' COMPENSATION
FISCAL 2002 COMPENSATION
The fiscal 2002 compensation package for non-employee directors (other than
Mr. Krol who joined the Board on August 6, 2002) consisted of $80,000 in cash
and 20,000 stock options that vest one year after issuance. Mr. Krol was
entitled to a pro-rata cash fee of $13,333.33 and a pro-rata grant of 3,333
stock options. Directors who are also employees receive no additional
remuneration for services as a director.
For fiscal 2002, directors could make an irrevocable election to receive
some or all of their annual cash remuneration in one or more of the following
forms:
- phantom Tyco common shares under a deferred compensation plan;
- interest in a trust that is invested in Tyco common shares; or
- Tyco stock options.
Under the deferred compensation plan, a director's account is credited with
an amount equal to the dividends on the phantom common shares in the account as
if they were owned. Payments from the account are made in cash in either a lump
sum or up to ten annual installments at the prior election of the director.
Installments may begin at termination of service or, if the director is under
age 70, at a later date not to exceed age 70. In addition, a director may elect
to receive a lump sum payment at least five years after deferral, even if he
remains a director.
Under the trust arrangement, a director is the owner of the common shares
credited to the director's account. The director may vote these common shares,
and the director may withdraw the common shares from the account or sell the
common shares at any time. Any common shares remaining in the account at the
time the director terminates his service on the Board will be distributed to him
at that time.
Under the option-in-lieu-of-fee arrangement, a director is granted a number
of options with a value equal to the amount of cash remuneration foregone by the
director, calculated using the Black-Scholes option pricing model.
The fiscal 2002 option grant was made on October 1, 2001, and the options
have an exercise price of $44.70 per share. Mr. Bodman, Mr. Foss, Ms. Lane,
Mr. Slusser and our former directors Lord Ashcroft, Joshua M. Berman, James S.
Pasman, Jr., Frank E. Walsh, Jr. and Joseph F. Welch elected to receive some or
all of their cash retainer for fiscal 2002 in stock options and were granted
options to purchase 4,660 Tyco common shares (2,330 for Mr. Slusser) at an
exercise price of $44.70 per share. Mr. Krol received his pro-rata option grant
of 3,333 options on August 6, 2002, and the options have a vesting date of
August 6, 2003. In addition, Mr. Krol elected to receive his pro-rata cash
remuneration in the form of an award of 777 options (100% vested but not
exercisable until August 6, 2003). These options have an exercise price of
$12.97. Under the terms of the director restoration option described below,
Mr. Walsh received 13,105 options on December 18, 2001 with an exercise price of
$56.09 and an expiration date equal to that of the options they restored.
Mr. Foss also received a restoration
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option grant for 10,471 options on September 21, 2001 with an exercise price of
$40.77 and an expiration date equal to that of the options they restored.
Mr. Slusser also received a restoration option grant for 2,467 options on
December 13, 2001 with an exercise price of $54.35 and expiration date equal to
that of the options they restored. Upon his departure from the Board effective
February 21, 2002, the grant of 20,000 options for Mr. Walsh was cancelled.
All options are granted under the Tyco International Ltd. Long Term
Incentive Plan and, except in the case of restoration options, have a term of
ten years from date of grant. Each option provides for an automatic grant of a
restoration option to the extent the director uses Tyco common shares towards
payment of his/her option exercise price. Restoration options have a term ending
on the expiration date of the options they restore.
In fiscal 2002, some of the Board members had taxable compensation for
personal use of company aircraft. If the personal use was to take their spouse
to a Board meeting at the invitation of Tyco, Tyco approved the gross-up of this
income; otherwise, the amount was not grossed-up. The taxable income amounts are
as follows: Mr. Berman: $1,466.58 and gross-up of $542.43; Mr. Foss: $3,978.99
and gross-up of $443.71; Ms. Lane: $1,348.57 and gross-up of $498.79; and
Mr. Slusser: $600.37 and gross-up of $222.05.
For the period from June 3, 2002 through the appointment of Tyco's new
Chairman and Chief Executive Officer in July 2002, Mr. Fort assumed
responsibility for the duties of an interim chief executive officer. Mr. Fort
was not an employee on Tyco's payroll, but the Board voted to pay Mr. Fort
$600,000 for his service and for his on-going work during a transition period
after Mr. Breen was named Chief Executive Officer.
Mr. Berman was a director of Tyco until December 5, 2002. From March 1, 2000
through July 31, 2002, Mr. Berman was engaged to render legal and other
services. During this period, Tyco compensated Mr. Berman at an annual rate of
$360,000 and provided Mr. Berman with health benefits, secretarial assistance, a
cell phone and electronic security services for his homes.
FISCAL 2003 COMPENSATION
Board remuneration for fiscal 2003 was set at $80,000, payable at the
monthly rate of $6,666.66 for each full month on the Board and pro-rated for the
number of days on the Board if the director begins or ends Board service during
the month, and 20,000 stock options that will vest one year after issuance. On
October 2, 2002, Mr. Krol was granted a stock option with respect to
compensation for fiscal 2003 at an exercise price of $13.45 per share. On
January 15, 2003, Messrs. McDonald, Buckley, York and Gordon received stock
options for fiscal 2003 at an exercise price of $17.80. Directors who join the
Board after January 15, 2003 will be granted their stock options with respect to
compensation for fiscal 2003 on the date they become Board members. All options
granted to Board members will have an exercise price equal to the average of the
high and low sale price of a Tyco common share reported for the date of grant.
Directors who are not standing for re-election were not given option grants for
fiscal 2003. The Board may in the future determine to grant additional options
or other equity compensation as a component of director compensation and/or to
adjust directors' cash remuneration.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Foss, Pasman, Slusser and Welch served as members of the
Compensation Committee during fiscal 2002. Mr. Foss is the owner of a corporate
aircraft that Tyco leased from him starting in May 2001 after seeking
competitive bids, of which Mr. Foss's bid was considered the most competitive
given anticipated usage. Tyco paid Mr. Foss and a company of which he is
president an aggregate of $587,000 in lease payments for Tyco's use of the
aircraft and its pilots in fiscal 2002. These leasing arrangements were
terminated as of September 30, 2002.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The table below presents the annual and long-term compensation for services
in all capacities to Tyco and its subsidiaries for the periods shown for our new
senior corporate management team, our executives who oversee our business
segments and certain former executive officers (collectively, the "Named
Officers"). As detailed below, some of the amounts and benefits received or
obtained by L. Dennis Kozlowski, our former Chief Executive Officer, and Mark H.
Swartz, our former Chief Financial Officer, were obtained without authorization
from our Board or Compensation Committee, and thus do not constitute
compensation properly paid to such former executive officers for services to
Tyco and its subsidiaries, or may have been obtained without proper
documentation under then existing company policies. More information with
respect to these unauthorized payments and benefits was reported on
September 17, 2002 in a Current Report on Form 8-K and is set forth in Item 3
"Legal
7
Proceedings" of our Annual Report on Form 10-K for the fiscal year ended
September 30, 2002 and in the caption entitled "Related Party Transactions"
below.
ANNUAL COMPENSATION(1) LONG TERM COMPENSATION
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COMMON
SHARES
UNDERLYING
RESTRICTED STOCK STOCK OPTIONS
NAME & PRINCIPAL OTHER ANNUAL /STOCK UNITS (# OF COMMON
POSITION YEAR SALARY(2) BONUS(3) COMPENSATION(4) ($VALUE)(5) SHARES)
- ---------------- -------- ---------- ------------- ------------------ ----------------- -----------------
NEW SENIOR CORPORATE
MANAGEMENT TEAM
- --------------------------
Edward D. Breen(7)........ 2002 $ 278,846 $ 3,779,452 $ 17,314 $ 11,427,750 7,350,000
CHAIRMAN & CEO, TYCO
INTERNATIONAL LTD.
David J. FitzPatrick(8)... 2002 $ 25,962 $ 500,000 $ 405 $ 3,257,000 1,650,000
EXECUTIVE VICE PRESIDENT
AND CFO, TYCO
INTERNATIONAL LTD.
William B. Lytton(9)...... 2002 $ 2,500 $ 250,000 -- $ 2,064,750 665,000
EXECUTIVE VICE PRESIDENT
AND GENERAL COUNSEL,
TYCO INTERNATIONAL LTD.
Eric M. Pillmore(10)...... 2002 $ 66,987 $ 220,832 $ 7,453 $ 495,800 300,000
SENIOR VICE PRESIDENT OF
CORPORATE GOVERNANCE,
TYCO INTERNATIONAL LTD.
BUSINESS SEGMENT
EXECUTIVES
- --------------------------
Jerry R. Boggess.......... 2002 $ 650,000 $ 2,201,230 $ 164,669 -- 641,796
PRESIDENT, TYCO FIRE & 2001 $ 600,000 7,946,791 101,726 -- 408,218
SECURITY SERVICES 2000 $ 550,000 874,083 79,224 -- 500,644
Juergen W. Gromer(11)..... 2002 $ 695,500 $ 3,392,059 -- -- 600,000
PRESIDENT, TYCO 2001 $ 660,000 $ 6,857,575 -- -- 424,261
ELECTRONICS 2000 $ 625,000 $ 12,886,945 -- -- 474,380
Robert P. Mead(12)........ 2002 $ 550,000 $ 2,157,638 $ 15,097 -- 620,000
PRESIDENT, TYCO
ENGINEERED PRODUCTS &
SERVICES
Richard J. Meelia......... 2002 $ 669,135 $ 4,330,199 $ 233,788 -- 696,970
PRESIDENT, TYCO 2001 $ 624,519 $ 11,887,909 $ 151,578 -- 264,607
HEALTHCARE & SPECIALTY 2000 $ 600,000 $ 1,574,878 $ 174,075(18) -- 128,800
PRODUCTS
FORMER EXECUTIVES(13)
- --------------------------
John F. Fort III(14)...... 2002 $ 600,000 -- -- -- --
FORMER LEAD DIRECTOR,
TYCO INTERNATIONAL LTD.
L. Dennis Kozlowski(15)... 2002 $1,327,500 -- $ 2,719,133 $ 66,991,000 3,404,000
FORMER CHAIRMAN & CEO 2001 $1,650,000 $ 4,000,000(17) $ 3,385,837(19) $ 30,398,880 1,439,135
TYCO INTERNATIONAL LTD. 2000 $1,350,000 $ 2,800,000 $ 2,320,650(19) $ 21,207,540 5,357,798
Mark H. Swartz(16)........ 2002 $ 971,122 -- $ 1,271,897 $ 38,486,500 1,703,186
FORMER EXECUTIVE VICE 2001 $ 968,750 $ 2,500,014(17) $ 1,535,151(20) $ 15,199,440 788,425
PRESIDENT & CFO TYCO 2000 $ 768,750 $ 1,400,000 $ 632,836(20) $ 10,603,770 2,692,649
INTERNATIONAL LTD.
LONG TERM COMPENSATION
------------------
NAME & PRINCIPAL ALL OTHER
POSITION COMPENSATION (6)
- ---------------- ------------------
NEW SENIOR CORPORATE
MANAGEMENT TEAM
- --------------------------
Edward D. Breen(7)........ $ 19,014
CHAIRMAN & CEO, TYCO
INTERNATIONAL LTD.
David J. FitzPatrick(8)... $ 449
EXECUTIVE VICE PRESIDENT
AND CFO, TYCO
INTERNATIONAL LTD.
William B. Lytton(9)...... --
EXECUTIVE VICE PRESIDENT
AND GENERAL COUNSEL,
TYCO INTERNATIONAL LTD.
Eric M. Pillmore(10)...... $ 8,271
SENIOR VICE PRESIDENT OF
CORPORATE GOVERNANCE,
TYCO INTERNATIONAL LTD.
BUSINESS SEGMENT
EXECUTIVES
- --------------------------
Jerry R. Boggess.......... $ 601,498
PRESIDENT, TYCO FIRE & $ 87,774(21)
SECURITY SERVICES $ 8,708,533(21)
Juergen W. Gromer(11)..... --
PRESIDENT, TYCO $ 256
ELECTRONICS --
Robert P. Mead(12)........ $ 208,790
PRESIDENT, TYCO
ENGINEERED PRODUCTS &
SERVICES
Richard J. Meelia......... $ 615,797
PRESIDENT, TYCO $ 79,462
HEALTHCARE & SPECIALTY $ 221,400
PRODUCTS
FORMER EXECUTIVES(13)
- --------------------------
John F. Fort III(14)...... --
FORMER LEAD DIRECTOR,
TYCO INTERNATIONAL LTD.
L. Dennis Kozlowski(15)... $ 5,595,619
FORMER CHAIRMAN & CEO $ 2,742,363(22)
TYCO INTERNATIONAL LTD. $ 387,547(22)
Mark H. Swartz(16)........ $ 37,246,867
FORMER EXECUTIVE VICE $ 1,297,478(23)
PRESIDENT & CFO TYCO $ 122,195(23)
INTERNATIONAL LTD.
- --------------------------
(1) Under the Tyco Deferred Compensation Plan, the total amount of salary and
bonus that has been deferred for fiscal 2002 is as follows:
Mr. Boggess--$325,276; Mr. Meelia--$231,490; and Mr. Swartz-$564,375 (which
was distributed to Mr. Swartz pursuant to his severance agreement described
below under the subcaption entitled "--Employment, Retention and Severance
Agreements"). The amounts shown in the table include the amounts deferred.
We are seeking disgorgement of all amounts received by Mr. Swartz during the
periods shown in this table. See footnote 16 below.
(2) The salaries shown for Messrs. Breen, FitzPatrick, Lytton and Pillmore are
the amounts paid or accrued from the date of hire through September 30,
2002.
8
(3) The bonus amounts shown in the table for Messrs. Breen and Pillmore include
a sign-on bonus and a pro-rated fiscal 2002 bonus, each of which was paid
pursuant to the terms of their employment agreement. The bonus amounts shown
in the table for Messrs. FitzPatrick and Lytton are sign-on bonuses.
Mr. Pillmore's sign-on bonus includes a gross-up of $55,763 so that the net
payment was $100,000. The bonus amounts shown for Messrs. Boggess, Mead,
Meelia and Dr. Gromer for fiscal 2002 reflect payments based on the
performance during fiscal 2002 of the segment headed by the executives, and,
in the cases of Mr. Boggess and Dr. Gromer, as reduced by the Compensation
Committee in consultation with new management. A portion of the bonus
amounts for Messrs. Boggess, Mead, Meelia and Dr. Gromer for fiscal 2002 was
paid in the form of Tyco common shares. The number of common shares earned
for fiscal 2002 was based on quarterly business segment performance. The
total number of bonus common shares earned by each business segment
president for fiscal 2002 is as follows: Mr. Boggess--22,631 common shares;
Dr. Gromer--25,610 common shares; Mr. Mead--29,185 common shares; and
Mr. Meelia--47,702 common shares. The amounts listed in the table include
the fair market value of the common shares on the dates such common shares
vested ($47.945 on January 15, 2002; $21.585 on April 25, 2002; $11.43 on
July 23, 2002 and $17.80 on January 15, 2003). Dr. Gromer's bonus for fiscal
2001 includes a bonus of $4,000,000 paid in November 2001 and 35,000 shares
vested in January 2002 that were initially categorized as a special bonus
for retention purposes and for managing a significant cost reduction program
for Tyco's electronics segment during fiscal 2001, but were part of his
fiscal 2001 performance bonus. The value of the share bonus is based on the
fair market value of shares on January 30, 2002 of $31.645.
(4) Includes various perquisites and personal benefits if the amount exceeds
$50,000 in any year, in addition to specifically noting tax gross-up
payments and interest credited on deferred compensation in excess of 120% of
the applicable federal long-term rate. Messrs. Breen, FitzPatrick and
Pillmore received tax gross-ups for living expenses in New York (see ALL
OTHER COMPENSATION column). The amounts shown represent their respective
estimated tax gross-ups for the period through the end of fiscal 2002. The
amounts shown in the table for fiscal 2002 include the personal use of
company cars and aircraft of $107,114 for Mr. Kozlowski and $100,827 for
Mr. Swartz valued at the rates prescribed under applicable IRS regulations;
interest credited on deferred compensation in excess of 120% of the
applicable federal long-term rate of $160,136 for Mr. Boggess, $15,097 for
Mr. Mead, $211,158 for Mr. Meelia, $166,464 for Mr. Kozlowski and $101,347
for Mr. Swartz; tax gross-ups related to perquisites of $4,533 for
Mr. Boggess and $22,631 for Mr. Meelia; reimbursement for New York state
taxes of $450,000 for Mr. Kozlowski and $419,287 for Mr. Swartz; tax
gross-ups on a portion of the executive life insurance premiums shown in the
ALL OTHER COMPENSATION column of $915,608 for Mr. Kozlowski and $480,534 for
Mr. Swartz; use and maintenance of apartments in New York in the amount of
$649,217 for Mr. Kozlowski and $130,661 for Mr. Swartz; and other
miscellaneous perquisites or other personal benefits for Mr. Kozlowski of
$430,730 and for Mr. Swartz of $39,241. We are seeking disgorgement of all
amounts received by Mr. Kozlowski and Mr. Swartz during the periods shown in
this table. See footnotes 15 and 16 below.
(5) Amounts set forth in the restricted share awards column include grants of
restricted shares and deferred share units. Under the terms of his
employment agreement, Mr. Breen was granted awards of deferred share units
("DSU") corresponding to 1,000,000 and 350,000 common shares. The larger
award vests one-fifth on each anniversary of the grant date and the other
award vests one-third on each anniversary of the grant date.
Messrs. FitzPatrick and Lytton were also awarded DSU's corresponding to
200,000 and 150,000 common shares respectively. These awards vest one-third
on each anniversary of the grant date. DSU's are credited with dividend
equivalents on the same date and amount as dividends are paid on Tyco common
shares. The value of the dividend equivalents will be used to credit
additional DSU's to the executive's DSU account. DSU's are settled by
issuance of common shares upon the executive's termination of employment.
The amount listed in the table reflects the fair market value of the DSU's
on the date they were granted (based on a share price of $8.465 on July 25,
2002 for Mr. Breen, $16.285 on September 18, 2002 for Mr. FitzPatrick, and
$13.765 on September 30, 2002 for Mr. Lytton). Mr. Pillmore was granted
40,000 restricted shares vesting one-third on each of January 1, 2003,
January 1, 2004, and January 1, 2005. The amount listed in the table
reflects the fair market value of the common shares on the date they were
granted (based on a common share price of $12.395 on August 12, 2002).
Dividends are payable on the restricted shares. The fiscal year-end value of
DSU's and restricted share holdings calculated using the share price of
$13.765, which is the average of the high and low sale price of Tyco common
shares on September 30, 2002, is $18,582,750 for Mr. Breen, $2,753,000 for
Mr. FitzPatrick, $2,064,750 for Mr. Lytton and $550,600 for Mr. Pillmore.
Messrs. Kozlowski
9
and Swartz, respectively, were granted 600,000 and 300,000 performance-based
restricted shares on October 1, 2001. Common shares were issued under the
restricted share program whereby specific performance criteria determine the
number of common shares that vest for the fiscal year. If the performance
criteria are not met, resulting in some or all of the common shares not
being earned (I.E., not vesting) within a three-year period, those common
shares are forfeited and must be returned to Tyco. In addition, in
accordance with their retention agreements, Messrs. Kozlowski and Swartz
were granted 800,000 and 500,000 time-based restricted shares on
January 22, 2002. The value shown is the fair market value on the dates of
the grants ($45.105 for the October 1, 2001 grant and $49.91 for the
January 22, 2002 grant). Mr. Kozlowski forfeited 1,105,065 of these common
shares upon termination of his employment. Under the terms of his retention
agreement, Mr. Swartz would have vested in all remaining common shares upon
a resignation for good reason (as defined therein). We are seeking
disgorgement of all amounts received by Messrs. Kozlowski and Swartz during
the periods shown in the table. See footnotes 15 and 16 below.
(6) The total amounts shown in the table for fiscal 2002 for Messrs. Breen,
FitzPatrick and Pillmore represent amounts paid by Tyco or reimbursed to
these executives for living expenses in the New York area while working in
the New York office. The amounts shown in the table for Messrs. Boggess,
Mead, Meelia, Kozlowski and Swartz reflect Tyco contributions made on their
behalf under Tyco's qualified and non-qualified defined contribution plans,
as follows:
COMPANY MATCHING CONTRIBUTION COMPANY CONTRIBUTION
NAME (QUALIFIED PLAN) (NON-QUALIFIED PLAN)
- ---- ----------------------------- --------------------
Mr. Boggess.................................... $16,000 $581,992
Mr. Mead....................................... $16,000 $190,990
Mr. Meelia..................................... $13,681 $598,469
Mr. Kozlowski.................................. $16,000 $443,200
Mr. Swartz..................................... $ 7,431 $243,657
The amount shown in the table for Mr. Boggess also includes an Employee
Stock Purchase Plan company match of $2,700, taxable life insurance of $422
and the economic value of split dollar life insurance of $384. The amount
shown in the table for Mr. Mead also includes an Employee Stock Purchase
Plan company match of $1,800. The amount shown in the table for Mr. Meelia
also includes an Employee Stock Purchase Plan company match of $1,950 and
taxable life insurance premium of $1,697. The amounts shown in the table for
Messrs. Kozlowski and Swartz also include executive life insurance premiums
of $5,136,419 and $2,610,452, respectively. In addition, in fiscal 2002
Mr. Swartz received a lump sum payment of $24,554,078, which represented a
buy-out of the future funding obligation under the executive life insurance
policy (See "Former Executive Life Insurance" on page 17), $756,250 in
consulting fees and $9,075,000 in severance. See the description of
Mr. Swartz's severance agreement under the subcaption "Employment, Retention
and Severance Agreements" beginning on page 17. We are seeking disgorgement
of all amounts received by Messrs. Kozlowski and Mr. Swartz during the
periods shown in the table. See footnotes 15 and 16 below.
(7) Mr. Breen became Chairman and Chief Executive Officer of Tyco on July 25,
2002.
(8) Mr. FitzPatrick became Executive Vice President and Chief Financial Officer
of Tyco on September 18, 2002.
(9) Mr. Lytton became Executive Vice President and General Counsel of Tyco on
September 30, 2002.
(10) Mr. Pillmore became Senior Vice President of Corporate Governance of Tyco
on August 12, 2002.
(11) Dr. Gromer's salary and bonus are set in US Dollars, but are converted into
and paid in Euros. For fiscal 2002, Dr. Gromer's base salary was $695,500,
which at the time it was set converted into E790,409.
(12) Mr. Mead was named as an executive officer in July 2002. The amount in the
table reflects his compensation for all of fiscal 2002.
(13) Executive compensation reported for fiscal 2000 did not include
compensation paid to, and amounts received or obtained by, Mark A. Belnick,
our former Executive Vice President and Chief Corporate Counsel. Tyco has
10
alleged that Messrs. Kozlowski and Belnick conspired to manipulate internal
documents so as to avoid disclosing Mr. Belnick's compensation for fiscal
2000. Had such amounts been included in our proxy statement for fiscal 2000,
they would have been as follows: Salary--$737,500; Bonus--$4,000,000; Other
Annual Compensation--$200,254 (including executive life insurance premiums
of $2,769 and a tax gross-up on forgiveness of mortgage loans of $197,485);
Restricted Share Grant $14,009,000 (representing the value of an aggregate
of 300,000 restricted shares calculated using the average of the high and
low sale prices of Tyco common shares on the dates of grant); Common Shares
Underlying Options--211,012 Tyco options and 100,000 options to purchase
shares of Tycom Ltd.; and All Other Compensation--$293,115 (including a
qualified plan contribution of $8,500 and a non-qualified plan contribution
of $102,750, forgiveness on mortgage loans in the amount of $179,990 and an
award of 50 common shares having a fair market value of $1,875 on the date
of grant). We have filed a civil complaint against Mr. Belnick for breach of
fiduciary duty and other wrongful conduct. The action alleges that
Mr. Belnick solicited and accepted cash and stock bonuses without Board
approval; took interest-free loans from our relocation program without Board
approval; failed to disclose to the Board and to the SEC his retention
agreement and compensation; failed to advise the Board of the improper
conduct of other officers; refused to cooperate with internal
investigations; and engaged in other improper conduct. We are seeking
disgorgement of all amounts received by Mr. Belnick during such period. More
information with respect to this action was reported on September 17, 2002
in a Current Report on Form 8-K and is set forth in Item 3 "Legal
Proceedings" of our Annual Report on Form 10-K for the fiscal year ended
September 30, 2002 and in the caption entitled "Related Party Transactions"
below.
(14) Mr. Fort was Tyco's Lead Director until August 2002. He assumed
responsibility for the duties of an interim chief executive officer from
June 3, 2002 until the appointment of Tyco's new Chairman and Chief
Executive Officer in July 2002 and performed other services during a
transition period from July 25, 2002 to September 30, 2002. Mr. Fort was not
an employee on Tyco's payroll, but the Board voted to compensate Mr. Fort at
the rate of $150,000 per month for each full or partial month he acted as an
interim chief executive officer or provided transition services. The amount
shown in the table, which does not include the Board remuneration described
in "Directors' Compensation" beginning on page 5, represents the amount paid
to Mr. Fort in this capacity.
(15) Mr. Kozlowski ceased to be employed by Tyco in June 2002. We have filed a
civil complaint against Mr. Kozlowski for breach of fiduciary duty and other
wrongful conduct. The action alleges that Mr. Kozlowski misappropriated
millions of dollars from our Key Employee Loan Program and relocation
program; awarded millions of dollars in unauthorized bonuses to himself and
certain other Tyco employees; engaged in improper self-dealing real estate
transactions involving our assets; and conspired with certain other former
Tyco employees in committing these acts. We are seeking disgorgement of all
amounts received by Mr. Kozlowski during the periods shown in the table.
More information with respect to this action was reported on September 17,
2002 in a Current Report on Form 8-K and is set forth in Item 3 "Legal
Proceedings" our Annual Report on Form 10-K for the fiscal year ended
September 30, 2002 and in the caption entitled "Related Party Transactions"
below.
(16) Mr. Swartz ceased to be employed by Tyco in August 2002. We have filed an
arbitration claim against Mr. Swartz. The action alleges that Mr. Swartz
breached his fiduciary duties and otherwise engaged in wrongful conduct
relating to his employment by Tyco and misappropriated Tyco funds and other
assets and seeks to recover from Mr. Swartz all damages suffered by Tyco as
a result of such breach, wrongful conduct and misappropriation. We are
seeking disgorgement of all amounts received by Mr. Swartz during the
periods shown in the table. More information with respect to this
arbitration claim was reported on October 8, 2002 in a Current Report on
Form 8-K and is set forth in Item 3 "Legal Proceedings" of our Annual Report
on Form 10-K for the fiscal year ended September 30, 2002 and in the caption
entitled "Related Party Transactions" below.
(17) Does not include unauthorized bonuses of $700,000 received by
Mr. Kozlowski and $350,000 received by Mr. Swartz in fiscal 2001 for which
Tyco has brought claims against Mr. Kozlowski and Mr. Swartz. See footnotes
15 and 16 above.
(18) The amount in the table reflecting Mr. Meelia's OTHER ANNUAL COMPENSATION
for fiscal 2000 has been revised. The amounts shown include, among other
items, a cash payment of the unused portion of a perquisite
11
entitlement of $21,031, a tax gross-up on such entitlement of $16,838 and
the personal use of a company car and related maintenance of $20,218, as
well as interest credited on deferred compensation in excess of 120% of the
applicable federal long-term rate of $114,510.
(19) The amounts in the table reflecting Mr. Kozlowski's OTHER ANNUAL
COMPENSATION for fiscal 2001 and 2000 have been revised. The amounts shown
include: the personal use of company cars and aircraft of $152,770 for
fiscal 2001 and $103,737 for fiscal 2000 valued at rates prescribed under
applicable IRS regulations; interest credited on deferred compensation in
excess of 120% of the applicable federal long-term rate of $219,543 for
fiscal 2001 and $143,652 for fiscal 2000; a tax gross-up of the executive
life insurance premium of $1,571,190 for fiscal 2001; use and maintenance of
an apartment in New York in the amount of $947,613 for fiscal 2001 and
$485,634 for fiscal 2000; imputed interest of $16,528 in fiscal 2001 and
$1,053,713 in fiscal 2000; and other miscellaneous perquisites or other
personal benefits of $478,192 for fiscal 2001 and $533,914 for fiscal 2000.
The amounts shown do not include unauthorized tax gross-ups of $6,768,338 in
fiscal 2001 and $13,536,676 in fiscal 2000 on forgiveness of mortgage loans
and for which Tyco has brought a claim against Mr. Kozlowski. See footnote
15 above.
(20) The amounts in the table reflecting Mr. Swartz's OTHER ANNUAL COMPENSATION
for fiscal 2001 and 2000 have been revised. The amounts shown include: the
personal use of company car and aircraft of $154,862 for fiscal 2001 and
$81,619 for fiscal 2000 valued at rates prescribed under applicable IRS
regulations; interest credited on deferred compensation in excess of 120% of
the applicable federal long-term rate of $277,856 for fiscal 2001 and
$171,039 for fiscal 2000; a tax gross-up of the executive life insurance
premium of $811,942 for fiscal 2001; use and maintenance of an apartment in
New York in the amount of $256,399 for fiscal 2001 and $65,926 for fiscal
2000; imputed interest on an interest free loan of $299,009 in fiscal 2000;
and other miscellaneous perquisites or other personal benefits of $34,091
for fiscal 2001 and $15,234 for fiscal 2000. The amounts shown do not
include unauthorized tax gross-ups of $3,409,344 in fiscal 2001 and
$6,818,687 in fiscal 2000 on forgiveness of mortgage loans for which Tyco
has brought a claim against Mr. Swartz. See footnote 16 above.
(21) The amounts in the table reflecting Mr. Boggess's ALL OTHER COMPENSATION
for fiscal 2001 and 2000 have been revised. For fiscal 2001, the table
includes $2,602 in taxable life insurance and excludes $18,179 in financial
planning reimbursement that appears in the "OTHER ANNUAL COMPENSATION"
column. For fiscal 2000, the table includes forgiveness of mortgage loans
and the related tax gross-up in the combined amount of $8,481,764 for 2000.
(22) The amounts in the table reflecting Mr. Kozlowski's ALL OTHER COMPENSATION
for fiscal 2001 and 2000 have been revised. The amounts include a qualified
plan matching contribution of $13,600 in fiscal 2001 and $11,900 in fiscal
2000, a non-qualified plan contribution of $397,450 in fiscal 2001 and
$306,600 in fiscal 2000, director fees of $75,000 in fiscal 2001 and $65,00
in fiscal 2000, an executive life insurance premium of $2,256,313 for fiscal
2001 and taxable life insurance of $4,047 in fiscal 2000. The amounts shown
do not include unauthorized forgiveness of mortgage loans in the amount of
$9,719,696 in fiscal 2001 and $19,439,392 in fiscal 2000 for which Tyco has
brought a claim against Mr. Kozlowski. See footnote 15 above.
(23) The amounts in the table reflecting Mr. Swartz's ALL OTHER COMPENSATION for
fiscal 2001 and 2000 have been revised. The amounts include a qualified plan
matching contribution of $5,185 in fiscal 2001 and $8,073 in fiscal 2000, a
non-qualified plan contribution of $126,300 in fiscal 2001 and $113,375 in
fiscal 2000, an executive life insurance premium of $1,165,993 for fiscal
2001 and taxable life insurance of $747 in fiscal 2000. The amounts shown do
not include unauthorized forgiveness of mortgage loans of $4,896,000 in
fiscal 2001 and $9,792,000 in fiscal 2000 for which Tyco has brought a claim
against Mr. Swartz. See footnote 16 above.
12
OPTION GRANTS IN LAST FISCAL YEAR
The following table shows all grants of stock options to the Named Officers
during fiscal 2002 under the Tyco International Ltd. Long Term Incentive Plan
("LTIP"). Mr. Fort is not included in this table as the only options he received
were options granted to Board members and are described in "Directors'
Compensation" beginning on page 5.
INDIVIDUAL GRANTS
----------------------------------------------------------------------------------------------
NO. OF SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE EXPIRATION GRANT DATE
GRANTED(1) FISCAL YEAR(2) ($/SHARE)(3) DATE PRESENT VALUE(4)
----------------- ------------------ ------------ ------------------- ----------------
NEW SENIOR CORPORATE
MANAGEMENT TEAM
Edward D. Breen.............. 4,000,000(5) 6.67% $10.0000(14) 7/24/2012 $16,680,000
3,350,000(5) 5.58% $10.0000(14) 7/24/2012 $14,371,500
David J. FitzPatrick......... 1,650,000(5) 2.75% $16.2440 9/17/2012 $14,586,000
William B. Lytton............ 665,000(5) 1.11% $13.7516 9/29/2012 $ 4,940,950
Eric M. Pillmore............. 300,000(5) 0.50% $12.6900 8/11/2012 $ 2,052,000
BUSINESS SEGMENT EXECUTIVES
Jerry R. Boggess............. 400,000(6) 0.67% $44.7000 9/30/2011 $ 6,540,000
41,796(7) 0.07% $50.5925 10/25/2011 $ 840,518
200,000(8) 0.33% $23.8345 2/4/2012 $ 1,858,000
Juergen W. Gromer............ 400,000(6)(9) 0.67% $44.7000 9/30/11 - 10/30/11 $ 6,540,000
200,000(9)(8) 0.33% $23.8345 2/4/12 - 3/4/12 $ 1,858,000
Robert P. Mead............... 400,000(6) 0.67% $44.7000 9/30/2011 $ 6,540,000
20,000(7) 0.03% $50.5925 10/25/2011 $ 402,200
200,000(8) 0.33% $23.8345 2/4/2012 $ 1,858,000
Richard J. Meelia............ 400,000(6) 0.67% $44.7000 9/30/2011 $ 6,540,000
96,970(7) 0.16% $50.5925 10/25/2011 $ 1,950,067
200,000(8) 0.33% $23.8345 2/4/2012 $ 1,858,000
FORMER EXECUTIVES
L. Dennis Kozlowski.......... 3,000,000(10) 5.00% $44.7000 forfeited $ 0
189,065(11) 0.32% $50.5925 6/3/2003 $ 1,998,417
20,000(11) 0.03% $60.0000 6/3/2003 $ 249,000
194,935(11) 0.32% $58.1440 6/3/2003 $ 2,269,043
Mark H. Swartz............... 1,500,000(8)(12) 2.50% $44.7000 9/30/2011 $32,865,000
105,719(12)(13) 0.18% $50.5925 10/25/2011 $ 2,763,495
97,467(12)(13) 0.16% $58.1440 12/31/2011 $ 3,061,438
- --------------------------
(1) Certain options granted to the Named Officers include a restoration feature
whereby participants receive options to replace exercised options or common
shares if the common shares or share proceeds (i) are used to pay the
exercise price of stock options, (ii) are applied to satisfy tax withholding
obligations or repay indebtedness to Tyco or (iii) are sold by trusts for
tax planning purposes ("restoration options"). In certain cases, restoration
options are granted to an executive who has sold vested restricted shares to
Tyco or a subsidiary thereof, enabling the executive to maintain the level
of his equity interest in Tyco. The Restoration Option Program was
discontinued by Tyco during fiscal 2002.
(2) Represents the percentage of all options granted in fiscal 2002 under Tyco's
option plans: the LTIP and the Tyco International Ltd. Long Term Incentive
Plan II.
(3) Options were granted at an exercise price equal to the fair market value of
the Tyco common shares on the date of grant (except for options granted to
Mr. Breen, which were granted with an exercise price above the average high
and low sale price). Fair market value was determined based on either the
average of the high and low reported sale price of Tyco common shares on the
date of grant, the volume weighted average sale price, the closing price,
the low reported sale price of Tyco common shares on the date of grant or,
in the case of restoration options, the sale price of the Tyco common shares
that gave rise to such grant.
(4) Tyco chose to use the Black-Scholes option pricing model to value the
options. The Black-Scholes model is a method of calculating the hypothetical
value of the options on the date of grant. With the exception of
Mr. Breen's option grants, all options were granted at an exercise price
equal to the fair market value of
13
Tyco's common shares on the date of grant (see footnotes 3 and 14). The
following assumptions were used in calculating the Black-Scholes values: The
value shown on the table for the options: expected life of five years
(except for Mr. Kozlowski, for which the actual life is until June 3,
2003--see footnote 11); interest rates of 2.24%-4.72%; assumed annual
volatility of underlying common shares of 39.15%-67.56%; and the vesting
schedule listed for the option grant. For all of the above, the interest
rates represent the yield of a zero coupon Treasury strip with a maturity
date similar to the assumed exercise period; and the assumed annual
volatility and dividend yield of underlying common shares was calculated
based on 36 months of historical Tyco share price movement and the dividend
payments. In addition, the value has been discounted for risk of forfeiture
based on the vesting schedule of the grant, by 3% for options which vest
after one year, by 8.7% for options which vest after three years, by 5.9%
for options which vest in equal installments over three years and by 8.6%
for options which vest in equal installments over five years.
(5) Options vest one-third per year on each anniversary of the grant date,
except for Mr. Breen's grant of options on 4,000,000 common shares, which
vest 20% per year on each anniversary of the grant date. Option vesting is
subject to acceleration upon the executive's termination of employment by
Tyco other than for "cause" or following a "change in control" or by the
executive for "good reason" (in each case as defined in the executive's
employment agreement or option agreement) and in the case of Mr. Breen, upon
a change in control. Options have a ten year term, subject in certain cases
to earlier expiration following termination of employment.
(6) Options vest 100% on the third anniversary of the grant date. Options have a
ten year term, subject in certain cases to earlier expiration following
termination of employment.
(7) Represents restoration options which are fully vested on the grant date,
granted at fair market value and have a ten year term, subject in certain
cases to earlier expiration following termination of employment.
(8) Options vests one-third per year on each anniversary of the grant date.
Options have a ten year term, subject in certain cases to earlier expiration
following termination of employment. In the case of Mr. Swartz, we are
seeking disgorgement of all amounts received by Mr. Swartz during the
periods shown in the SUMMARY COMPENSATION TABLE. See footnote 16 to SUMMARY
COMPENSATION TABLE above.
(9) The portion of Dr. Gromer's options that are allocated to his Swiss
compensation expire ten years and one month from the date of grant.
(10) Option vests one-third per year on each anniversary of the grant date.
Option has a ten-year term, subject in certain cases to earlier expiration
following termination of employment. The value of $0 shown on the table
reflects that this option grant was cancelled as a result of
Mr. Kozlowski's termination of employment. The grant date present value for
this option grant using a term of three years (the original estimated period
of exercise) was $49,560,000. We are seeking disgorgement of all amounts
received by Mr. Kozlowski during the periods shown in the SUMMARY
COMPENSATION TABLE. See footnote 15 to SUMMARY COMPENSATION TABLE above.
(11) Represents restoration options which are fully vested on the grant date but
not exercisable for a period of two months from the grant date, granted at
fair market value and have a ten year term, subject in certain cases to
earlier expiration following termination of employment. The values in the
table shown for these grants reflect their actual expiration date of
June 3, 2003, which is a shortened term due to Mr. Kozlowski's termination
of employment. The grant date present value for these options using a term
of three years (the original estimated period of exercise) would be
$3,722,690, $483,800, and $4,577,074, respectively. We are seeking
disgorgement of all amounts received by Mr. Kozlowski during the periods
shown in the SUMMARY COMPENSATION TABLE. See footnote 15 to SUMMARY
COMPENSATION TABLE above.
(12) Under the terms of his retention agreement, Mr. Swartz would have vested in
all options upon a resignation for good reason (as defined therein). We are
seeking disgorgement of all amounts received by Mr. Swartz during the
periods shown in the table. See footnote 16 to SUMMARY COMPENSATION TABLE
above.
(13) Represents restoration options which are fully vested on the grant date but
not exercisable for a period of two months from the grant date, granted at
fair market value and have a ten year term, subject in certain cases to
earlier expiration following termination of employment. We are seeking
disgorgement of all amounts received by Mr. Swartz during the periods shown
in the SUMMARY COMPENSATION TABLE. See footnote 16 to SUMMARY COMPENSATION
TABLE above.
(14) Options granted with an exercise price of $10.00, which is $1.535 (18.13%)
higher than the average high and low sale price reported for the grant date.
14
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
Shown below is information with respect to aggregate option exercises by the
Named Officers in the fiscal year ended September 30, 2002 and with respect to
unexercised stock options held by them at September 30, 2002. Mr. Fort is not
included in this table. Options he received for service as a Board member are
described in "Directors' Compensation" beginning on page 5.
NUMBER OF NO. OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
COMMON UNEXERCISED OPTION AT FISCAL IN-THE-MONEY OPTIONS HELD
SHARES YEAR END AT FISCAL YEAR END(1)
ACQUIRED VALUE ------------------------------ ---------------------------
ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ----------- ----------- ------------- ----------- -------------
NEW SENIOR CORPORATE
MANAGEMENT TEAM
Edward D. Breen............... -- -- -- 7,350,000 -- $27,672,750
David J. FitzPatrick.......... -- -- -- 1,650,000 -- $ 0
William B. Lytton............. -- -- -- 665,000 -- $ 8,911
Eric M. Pillmore.............. -- -- -- 300,000 -- $ 322,500
BUSINESS SEGMENT EXECUTIVES
Jerry R. Boggess.............. -- -- 398,894 1,450,000 -- --
Juergen W. Gromer............. -- -- 648,641 1,450,000 -- --
Robert P. Mead................ 50,000 $ 1,944,195 499,159 1,050,000 -- --
Richard J. Meelia............. -- -- 1,255,941 900,000 -- --
FORMER EXECUTIVES
L. Dennis Kozlowski........... -- -- 10,712,787(2) 0 -- --
Mark H. Swartz................ -- -- 7,280,740(2) 0 -- --
- --------------------------
(1) Based on $13.765, which is the average of the high and low sale price of
Tyco common shares on September 30, 2002.
(2) We are seeking disgorgement of all amounts received by Messrs. Kozlowski and
Swartz during the periods shown in the SUMMARY COMPENSATION TABLE above. See
footnotes 15 and 16 to SUMMARY COMPENSATION TABLE above.
RETIREMENT PLANS
Messrs. Breen, FitzPatrick, Lytton, Pillmore and Dr. Gromer participate in
defined benefit or actuarial retirement plans ("pension plans") maintained by
Tyco or a subsidiary, as described below.
As part of his employment agreement, Mr. Breen is provided with a
Supplemental Retirement Benefit. Commencing at age 60, Mr. Breen will receive a
monthly annuity based upon 50% of his highest average earnings from Tyco during
any consecutive 36-month period within the 60-month period prior to his
termination. This monthly annuity is offset by any benefits provided under a
defined benefit plan maintained by any prior employer and his benefits
attributable to the company match under Tyco's 401(k) and supplemental plans,
adjusted to reflect earnings. At his current pay level, Mr. Breen will have a
lifetime benefit of $95,782 per month, commencing at his normal retirement age
of 60. One-half of this amount will continue to his surviving spouse in the
event of his death. Retirement benefits are available at an earlier age but
would be reduced by .25% for each month that the benefit commences prior to age
60 and could result in a forfeiture of any unvested portion. Mr. Breen may elect
to receive the actuarial equivalent of his annuity in the form of a lump sum
payment.
As part of his employment agreement, Mr. FitzPatrick is provided with a
Supplemental Retirement Benefit. Commencing at age 62, Mr. FitzPatrick will
receive a monthly annuity based upon 2% multiplied by his years of service plus
an additional 10% multiplied by his highest average earnings from Tyco during
any consecutive 36-month period within the 60-month period prior to his
termination. This monthly annuity is offset by any benefits provided under a
defined benefit plan maintained by his
15
immediately preceding employer and his benefits attributable to the company
match under Tyco's 401(k) and supplemental plans, adjusted to reflect earnings.
At his current pay level, Mr. FitzPatrick will have a lifetime benefit of
$34,794 per month, commencing at his normal retirement age of 62. One-half of
this amount will continue to his surviving spouse in the event of his death.
Retirement benefits are available at an earlier age but would be reduced by .25%
for each month that the benefit commences prior to age 62 and could result in a
forfeiture of any unvested portion. Mr. FitzPatrick may elect to receive the
actuarial equivalent of his annuity in the form of a lump sum payment.
As part of his employment agreement, Mr. Lytton is provided with a
Supplemental Retirement Benefit. Commencing at age 62, Mr. Lytton will receive a
monthly annuity based upon 6.25% of his highest average earnings from Tyco
during any consecutive 36-month period within the 60-month period prior to his
termination multiplied by his years of service with Tyco. This monthly annuity
is offset by any benefits provided under a defined benefit plan maintained by
his immediately preceding employer and his benefits attributable to the company
match under Tyco's 401(k) and supplemental plans, adjusted to reflect earnings.
At his current pay level, Mr. Lytton will have a lifetime benefit of $48,779 per
month, commencing at his normal retirement age of 62. One-half of this amount
will continue to his surviving spouse in the event of his death. Retirement
benefits are available at an earlier age but would be reduced by .25% for each
month that the benefit commences prior to age 62 and could result in a
forfeiture of any unvested portion. Mr. Lytton may elect to receive the
actuarial equivalent of his annuity in the form of a lump sum payment.
As part of his employment agreement, Mr. Pillmore is provided with a
Supplemental Retirement Benefit. Commencing at age 62, Mr. Pillmore will receive
a monthly annuity based upon 2% of his highest average earnings from Tyco during
any consecutive 36-month period within the 60-month period prior to his
termination multiplied by his years of service with Tyco. This monthly annuity
is offset by his benefits attributable to the company match under Tyco's 401(k)
and supplemental plans, adjusted to reflect earnings. At his current pay level,
Mr. Pillmore will have a lifetime benefit of $12,716 per month, commencing at
his normal retirement age of 62. Retirement benefits are available at an earlier
age but would be reduced by .25% for each month that the benefit commences prior
to age 62 and could result in a forfeiture of any unvested portion.
Mr. Pillmore may elect to receive the actuarial equivalent of his annuity in the
form of a lump sum payment.
At the time of Tyco's acquisition of AMP in 1999, Dr. Gromer was a
participant in a defined benefit pension plan that covered eligible AMP
employees in Germany. As a result, Dr. Gromer is entitled to receive from Tyco
upon retirement at age 65 a defined pension benefit that is determined primarily
based on his annual base salary as of three years prior to the date of his
retirement and his years of service with Tyco at the time of his retirement. The
following table sets forth the estimated annual benefits payable under the Tyco
Electronics (formerly AMP) pension plan for the compensation amounts and the
years of credited service specified in the table, assuming benefits are paid in
the form of a single life annuity upon normal retirement at age 65:
YEARS OF CREDITED SERVICE AND RELATED ESTIMATED
ANNUAL BENEFITS PAYABLE UPON RETIREMENT
-------------------------------------------------
COMPENSATION 15 20 25 30
- ------------ ---------- ---------- ---------- ----------
$717,223 $255,101 $357,615 $468,041 $586,301
753,084 272,586 380,750 496,727 620,433
788,945 290,460 404,300 525,799 654,874
824,807 308,722 428,264 555,259 689,629
860,668 327,351 452,642 585,107 724,728
CONVERTED FROM EUROS USING A CONVERSION RATIO OF $1.00 TO E0.9768.
The compensation of Dr. Gromer covered by the pension plan would be the base
salary amount that is noted in the "Salary" column of the SUMMARY COMPENSATION
TABLE above, less statutory
16
payments for specified holiday and vacation time. Dr. Gromer's current covered
compensation, designated in Euro is E700,584, which converts to $717,223 using a
conversion ratio of $1.00 to E0.9768. Under the pension plan, no more than a
maximum of 30 years of credited service may be recognized for benefit accrual
purposes. As of September 30, 2002, for purposes of calculating benefits accrued
under the pension plan, Dr. Gromer had 24 years and 9 months of credited service
with Tyco.
Dr. Gromer is a beneficiary under another AMP pension benefit funded through
an insurance policy. At September 30, 2002, Dr. Gromer had accrued a taxable
pension of $3,849 per year payable at retirement through this insurance. This
amount is subject to increase in future periods only to the extent of dividends
on the insurance policy.
Messrs. Kozlowski and Swartz participated in individual Executive Retirement
Arrangements maintained by Tyco (the "ERA"). Under the ERA, Mr. Kozlowski has a
fixed lifetime benefit commencing at his normal retirement age of 65 that has a
present value of $372,708 monthly. Mr. Swartz's fixed lifetime benefit at his
normal retirement age of 65 has a present value of $167,446 monthly. Retirement
benefits are available at earlier ages and alternative forms of benefits can be
elected. Any such variations would be actuarially equivalent to the fixed
lifetime benefit starting at age 65. We are seeking disgorgement of all benefits
to Messrs. Kozlowski and Swartz under their ERAs. See footnotes 15 and 16 to
SUMMARY COMPENSATION TABLE above.
FORMER EXECUTIVE LIFE INSURANCE
Tyco purchased executive life insurance policies for Messrs. Kozlowski and
Swartz and agreed to pay premiums of a specified amount for these insurance
policies for an 11-year period beginning in fiscal 2001. In the event the
policies do not earn specified interest amounts, Tyco agreed to make specified
supplemental premium payments. The amounts paid for premiums in fiscal 2002 and
2001 are included under the caption ALL OTHER COMPENSATION in the SUMMARY
COMPENSATION TABLE above. In conjunction with Mr. Swartz's termination of
employment, a lump sum payment of $24,554,078, which represented the value of
the annual premium amounts for the remainder of the eleven-year period, was made
to Mr. Swartz and in return Mr. Swartz waived Tyco's obligation to continue
making the premium payments. Tyco discontinued making premium payments for
Mr. Kozlowski's insurance policy as of October 1, 2002. We are seeking
disgorgement of all benefits to Messrs. Kozlowski and Swartz under their
executive life insurance policies. See footnotes 15 and 16 to SUMMARY
COMPENSATION TABLE above.
EMPLOYMENT, RETENTION AND SEVERANCE AGREEMENTS
Tyco has entered into employment agreements with Messrs. Breen, FitzPatrick,
Lytton and Pillmore. Tyco is also party to a retention agreement with
Mr. Meelia.
Our employment agreement with Mr. Breen is dated as of July 25, 2002 and is
filed as an exhibit to our Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 2002. The agreement provides for Mr. Breen to serve as our
President, Chief Executive Officer and Chairman for an initial term of three
years and, thereafter, for additional successive terms of one year each unless
terminated by us or Mr. Breen at the end of the initial term or any additional
term. Under the agreement, Mr. Breen is entitled to an annual base salary of at
least $1,500,000, a sign-on bonus of $3,500,000, a guaranteed pro-rated annual
bonus for fiscal 2002 based upon his base salary and a guaranteed annual bonus
for fiscal 2003 of at least 100% of his base salary. Thereafter, Mr. Breen is
eligible to earn an annual bonus of at least 100% of his base salary, based upon
Tyco's satisfaction of objective financial performance criteria to be determined
by the Board. Mr. Breen is required to return a pro rata portion of the net
after-tax amount of his sign-on bonus in the event that his employment is
terminated by us for cause or by him without good reason (each as defined in the
agreement) prior to the one year anniversary of the agreement. Under the
agreement, Mr. Breen is entitled to receive a sign-on option
17
to purchase 3,350,000 common shares of Tyco at an exercise price of $10 per
share and a sign-on grant of 350,000 deferred share units, both of which vest in
three equal annual installments over the first three anniversaries of the
agreement, as well as an option to purchase 4,000,000 common shares of Tyco at
an exercise price of $10 per share and a grant of 1,000,000 deferred share
units, both of which vest in five equal annual installments over the first five
anniversaries of the agreement. All of the awards vest in full in the event of a
change in control of Tyco or the termination of Mr. Breen's employment due to
death or disability, by us other than for cause or disability or by Mr. Breen
for good reason (each as defined therein). Mr. Breen is also entitled to
participate in all of our employee benefit plans available to senior executives
at a level commensurate with his position, and to receive a term life insurance
policy, supplemental retirement benefits, certain tax gross-up payments,
including a gross-up payment for any taxes he must pay as a result of receiving
compensation that is contingent upon a change in control, and certain
relocation, travel and other perquisites. In the event that Mr. Breen's
employment is terminated by us other than for cause or by Mr. Breen for good
reason, then, provided that Mr. Breen executes a general release in favor of
Tyco in the form provided in the agreement, Tyco is obligated to pay Mr. Breen a
lump sum of three times his base salary and target annual bonus (or, if higher,
his most recent annual bonus), as well as a pro rata portion of any annual bonus
for the year in which such termination occurs, and to offer him continued
participation in our health and welfare plans for a period of three years. "Good
reason" includes any termination by the executive during the 30-day period
immediately following the first anniversary of the date of a change in control
or the breach of the following representation made by us if such breach has a
material adverse impact on Tyco. Tyco has represented in Mr. Breen's employment
agreement that, as of the effective date of the agreement, all financial
statements for each quarter and fiscal year since October 1, 1999 fairly present
in all material respects Tyco's financial position in conformity with generally
accepted accounting principles as of the applicable reporting dates, except as
reported in the notes to those financial statements. The agreement restricts
Mr. Breen from soliciting Tyco's employees and customers or competing with Tyco
during the term of his employment and for a period of one year following
termination. Both Tyco and Tyco International (US) Inc. have agreed, pursuant to
the agreement, to indemnify Mr. Breen to the fullest extent permitted by law and
under Tyco's bye-laws.
Our employment agreement with Mr. FitzPatrick is dated as of September 18,
2002 and is filed as an exhibit to our Annual Report on Form 10-K for the fiscal
year ended September 30, 2002. The agreement provides for Mr. FitzPatrick to
serve as our Executive Vice President and Chief Financial Officer for an initial
term of two years and, thereafter, for additional successive terms of one year
each unless terminated by us or Mr. FitzPatrick at the end of the initial term
or any additional term. Under the agreement, Mr. FitzPatrick is entitled to an
annual base salary of at least $750,000, a sign-on bonus of $500,000 and a
guaranteed annual bonus for fiscal 2003 of at least 100% of his base salary.
Thereafter, Mr. FitzPatrick is eligible to earn an annual bonus of at least 100%
of his base salary, based upon Tyco's satisfaction of objective financial
performance criteria to be determined by the Board. Under the agreement,
Mr. FitzPatrick is entitled to receive a sign-on option to purchase 1,150,000
common shares of Tyco at an exercise price of $16.24 per share and a sign-on
grant of 90,000 deferred share units, both of which vest in three equal annual
installments over the first three anniversaries of the agreement, as well as an
option to purchase 500,000 common shares of Tyco at an exercise price of $16.24
per share and a grant of 110,000 deferred share units, both of which vest in
three equal annual installments over the first three anniversaries of the
agreement. All of the awards vest in full in the event of the termination of
Mr. FitzPatrick's employment due to death or disability, by us other than for
cause or disability or by Mr. FitzPatrick for good reason (each as defined
therein). Mr. FitzPatrick is also entitled to participate in all of our employee
benefit plans available to senior executives at a level commensurate with his
position, and to receive a universal life insurance policy, supplemental
retirement benefits and certain relocation, travel, tax gross-up, financial and
tax planning and other perquisites. In the event that Mr. FitzPatrick's
employment is terminated by us other than for cause or by Mr. FitzPatrick for
good reason, then, provided that Mr. FitzPatrick executes a general
18
release in favor of Tyco in the form provided in the agreement, Tyco is
obligated to pay Mr. FitzPatrick a lump sum of two times his base salary and
target annual bonus (or, if higher, his most recent annual bonus), as well as a
pro rata portion of any annual bonus for the year in which such termination
occurs, to credit him with two additional years of service for purposes of
calculating his supplemental retirement benefits and to offer him continued
participation in our health and welfare plans for a period of three years. In
the event that Mr. FitzPatrick's employment is terminated in connection with or
following a change in control (as defined therein), then Tyco is obligated to
pay Mr. FitzPatrick a lump sum of three times his base salary and target annual
bonus (or, if higher, his most recent annual bonus), to provide him a gross-up
payment for any taxes he must pay as a result of receiving compensation that is
contingent upon a change in control, to credit him with three additional years
of service for purposes of calculating his supplemental retirement benefits and
all of his outstanding equity awards will vest. "Good reason" includes any
termination by the executive during the 30-day period immediately following the
15-month anniversary of the date of a change in control or the breach of the
following representation made by us if such breach has a material adverse impact
on Tyco. Tyco has represented in Mr. FitzPatrick's employment agreement that, as
of the effective date of the agreement, all financial statements for each
quarter and fiscal year since October 1, 1999 fairly present in all material
respects Tyco's results of operations, financial position and cash flows in
conformity with generally accepted accounting principles as of the applicable
reporting dates, except as reported in the notes to those financial statements.
The agreement restricts Mr. FitzPatrick from soliciting Tyco's employees and
customers or competing with Tyco during the term of his employment and for a
period of one year following termination. Both Tyco and Tyco International
(US) Inc. have agreed, pursuant to the agreement, to indemnify Mr. FitzPatrick
to the fullest extent permitted by law and under Tyco's bye-laws.
Our employment agreement with Mr. Lytton is dated as of September 30, 2002
and is filed as an exhibit to our Annual Report on Form 10-K for the fiscal year
ended September 30, 2002. The agreement provides for Mr. Lytton to serve as our
Executive Vice President and General Counsel for an initial term of two years
and, thereafter, for additional successive terms of one year each unless
terminated by us or Mr. Lytton at the end of the initial term or any additional
term. Under the agreement, Mr. Lytton is entitled to an annual base salary of at
least $650,000, a sign-on bonus of $250,000 and a guaranteed annual bonus for
fiscal 2003 of at least 100% of his base salary. Thereafter, Mr. Lytton is
eligible to earn an annual bonus of at least 100% of his base salary, based upon
Tyco's satisfaction of objective financial performance criteria to be determined
by the Board. Under the agreement, Mr. Lytton is entitled to receive a sign-on
option to purchase 315,000 common shares of Tyco at an exercise price of $13.75
per share and a sign-on grant of 73,000 deferred share units, both of which vest
in three equal annual installments over the first three anniversaries of the
agreement, as well as an option to purchase 350,000 common shares of Tyco at an
exercise price of $13.75 per share and a grant of 77,000 deferred share units,
both of which vest in three equal annual installments over the first three
anniversaries of the agreement. All of the awards vest in full in the event of
the termination of Mr. Lytton's employment due to death or disability, by us
other than for cause or disability or by Mr. Lytton for good reason (each as
defined therein). Mr. Lytton is also entitled to participate in all of our
employee benefit plans available to senior executives at a level commensurate
with his position, and to receive supplemental retirement benefits and certain
relocation, travel, tax gross-up, financial and tax planning and other
perquisites. In the event that Mr. Lytton's employment is terminated by us other
than for cause or by Mr. Lytton for good reason, then, provided that Mr. Lytton
executes a general release in favor of Tyco in the form provided in the
agreement, Tyco is obligated to pay Mr. Lytton a lump sum of two times his base
salary and target annual bonus (or, if higher, his most recent annual bonus), as
well as a pro rata portion of any annual bonus for the year in which such
termination occurs, to credit him with two additional years of service for
purposes of calculating his supplemental retirement benefits and to offer him
continued participation in our health and welfare plans for a period of three
years. In the event that Mr. Lytton's employment is terminated in connection
with or
19
following a change in control (as defined therein), then Tyco is obligated to
pay Mr. Lytton a lump sum of three times his base salary and target annual bonus
(or, if higher, his most recent annual bonus), to provide him a gross-up payment
for any taxes he must pay as a result of receiving compensation that is
contingent upon a change in control, to credit him with three additional years
of service for purposes of calculating his supplemental retirement benefits and
all of his outstanding equity awards will vest. "Good reason" includes any
termination by the executive during the 30-day period immediately following the
15-month anniversary of the date of a change in control or the breach of the
following representation made by us if such breach has a material adverse impact
on Tyco. Tyco has represented in Mr. Lytton's employment agreement that, as of
the effective date of the agreement, all financial statements for each quarter
and fiscal year since October 1, 1999 fairly present in all material respects
Tyco's results of operations, financial position and cash flows in conformity
with generally accepted accounting principles as of the applicable reporting
dates, except as reported in the notes to those financial statements. The
agreement restricts Mr. Lytton from soliciting Tyco's employees and customers or
competing with Tyco during the term of his employment and for a period of one
year following termination. Both Tyco and Tyco International (US) Inc. have
agreed, pursuant to the agreement, to indemnify Mr. Lytton to the fullest extent
permitted by law and under Tyco's bye-laws.
Our employment agreement with Mr. Pillmore is dated as of August 12, 2002.
The agreement provides for Mr. Pillmore to serve as our Senior Vice President,
Corporate Governance for an initial term of three years and, thereafter, for
additional successive terms of one year each unless terminated by us or
Mr. Pillmore at the end of the initial term or any additional term. Under the
agreement, Mr. Pillmore is entitled to an annual base salary of at least
$475,000, a sign-on bonus of $100,000 (net after tax), a guaranteed pro-rated
annual bonus for fiscal 2002 based upon his base salary and a guaranteed annual
bonus for fiscal 2003 of at least 100% of his base salary. Thereafter,
Mr. Pillmore is eligible to earn an annual bonus of at least 100% of his base
salary, based upon Tyco's satisfaction of objective financial performance
criteria to be determined by the Board. Under the agreement, Mr. Pillmore is
entitled to receive a sign-on option to purchase 300,000 common shares of Tyco
at an exercise price of $12.69 per share, which vests in three equal annual
installments over the first three anniversaries of the agreement, and a sign-on
grant of 40,000 restricted shares, which vests in three equal annual
installments on January 1, 2003, January 1, 2004 and January 1, 2005, and, in
fiscal 2003, an option to purchase 225,000 common shares of Tyco at an exercise
price equal to the fair market value of Tyco common shares on the grant date,
and a grant of 30,000 deferred share units, both of which will vest in three
equal annual installments over the first three anniversaries of the agreement.
All of the awards vest in full in the event of the termination of
Mr. Pillmore's employment due to death or disability, by us other than for cause
or disability or by Mr. Pillmore for good reason (each as defined therein).
Mr. Pillmore is also entitled to participate in all of our employee benefit
plans available to senior executives at a level commensurate with his position,
and to receive supplemental retirement benefits and certain relocation, travel,
tax gross-up, financial and tax planning and other perquisites. In the event
that Mr. Pillmore's employment is terminated by us other than for cause or by
Mr. Pillmore for good reason, then, provided that Mr. Pillmore executes a
general release in favor of Tyco in the form provided in the agreement, Tyco is
obligated to pay Mr. Pillmore a lump sum of two times his base salary and target
annual bonus (or, if higher, his most recent annual bonus), as well as a pro
rata portion of any annual bonus for the year in which such termination occurs,
to credit him with two additional years of service for purposes of calculating
his supplemental retirement benefits and to offer him continued participation in
our health and welfare plans for a period of two years. In the event that
Mr. Pillmore's employment is terminated in connection with or in the 16-month
period following a change in control (as defined therein), then Tyco is
obligated to pay Mr. Pillmore a lump sum of three times his base salary and
target annual bonus (or, if higher, his most recent annual bonus), to provide
him a gross-up payment for any taxes he must pay as a result of receiving
compensation that is contingent upon a change in control, pay him a lump sum
representing the present value of the increase in the supplemental retirement
benefits that he would have accrued
20
assuming he had been credited with three additional years of service and all of
his outstanding equity awards will vest. "Good reason" includes any termination
by the executive during the 30-day period immediately following the 15-month
anniversary of the date of a change in control or the breach of the following
representation made by us if such breach has a material adverse impact on Tyco.
Tyco has represented in Mr. Pillmore's employment agreement that, as of the
effective date of the agreement, all financial statements for each quarter and
fiscal year since October 1, 1999 fairly present in all material respects Tyco's
results of operations, financial position and cash flows in conformity with
generally accepted accounting principles as of the applicable reporting dates,
except as reported in the notes to those financial statements. The agreement
restricts Mr. Pillmore from soliciting Tyco's employees and customers or
competing with Tyco during the term of his employment and for a period of one
year following termination. Both Tyco and Tyco International (US) Inc. have
agreed, pursuant to the agreement, to indemnify Mr. Pillmore to the fullest
extent permitted by law and under Tyco's bye-laws.
Tyco is party to a retention agreement with Richard J. Meelia, which is
filed as an exhibit to our Quarterly Report on Form 10-Q for the fiscal quarter
ended December 31, 2001. Under the agreement, if Mr. Meelia is terminated by us
without cause or upon disability or Mr. Meelia resigns for good reason (each as
defined in the agreement) prior to February 28, 2005, then he is entitled to
receive a lump sum payment equal to three times the sum of his annual base
salary, average cash bonus during the prior four fiscal years and the greater of
10% of his base salary or $20,000, as well as a pro rata portion of the maximum
annual bonus that he would have been eligible for in the year of termination.
Mr. Meelia would also be entitled to receive certain welfare, fringe, and other
benefits comparable to those provided to him prior to termination for a period
of three years from his termination date. Additionally, all options and
restricted shares owned by Mr. Meelia and not already vested would continue to
vest for a period of three years from termination. Under the agreement, if
Mr. Meelia is terminated by us without cause or upon disability or Mr. Meelia
resigns for any reason at any time after February 28, 2005 and prior to June 1,
2005, Mr. Meelia may elect to receive substantially the same severance benefits
if he agrees not to disparage or compete with us or to solicit managerial level
employees or customers of Tyco for a period of three years following his
termination. The payments provided for in the agreement are subject to
additional gross-up payments in the event that such payments are subject to
federal excise tax. All of Mr. Meelia's unvested options and restricted shares
vest in full immediately upon a change in control of Tyco (as defined therein).
On January 22, 2001, Tyco entered into a retention agreement with
Mr. Kozlowski. The agreement, as amended on August 1, 2001, was not properly
approved, but purported to provide for an award of 800,000 restricted shares to
be made on January, 22, 2002, with 1/8 of the common shares vesting each year
beginning in January 2002 and full vesting upon Mr. Kozlowski's 62nd birthday on
November 16, 2008. The agreement further provided that Mr. Kozlowski could sell
the restricted shares to Tyco once the common shares vest at the fair market
value on the date he elects to do so. The agreement provided that Mr. Kozlowski
could retire at any time after November 16, 2008, and, with the consent of
Tyco's Board, could retire before that date. If Mr. Kozlowski were terminated
for "cause" or voluntarily resigned without "good reason" (each as defined in
the retention agreement) prior to November 16, 2008, the agreement provided that
he would receive no retirement payments under the agreement and any remaining
common shares would not vest. However, if Mr. Kozlowski were terminated by the
Board without cause or left for good reason, the agreement provided that he
would receive a lump sum payment equal to three times the sum of his annual base
salary and highest annual incentive compensation earned within the prior eight
year period. Additionally, all options and restricted shares under the agreement
or any company program not already vested would become vested at that time. The
agreement also provided that he would receive payment for his services as a
consultant annually in the amount of 1/12 of the sum of his last annual base
salary and highest annual incentive compensation. The agreement provided that
Mr. Kozlowski would continue to receive welfare, fringe, and other benefits
comparable to those provided prior to retirement including, among other
benefits, access to company facilities and services, and would receive three
additional years of credits under the
21
nonqualified retirement plan. Mr. Kozlowski resigned on June 3, 2002. Tyco has
taken the position that the agreement is not valid or enforceable because of
Mr. Kozlowski's fraudulent misrepresentation, breach of fiduciary duty and other
misconduct. In addition, Tyco has brought an action against Mr. Kozlowski
seeking disgorgement of all compensation and forfeiture of all benefits to him
under the retention agreement. See footnote 15 to the SUMMARY COMPENSATION TABLE
above.
On January 22, 2001, Tyco entered into a retention agreement with
Mr. Swartz. The agreement, as amended on August 1, 2001, was not properly
approved, but purported to provide for an award of 500,000 restricted shares to
be made on January, 22, 2002, with full vesting of the common shares on
January 22, 2006. The agreement further provided that Mr. Swartz could sell the
restricted shares to Tyco once the common shares vest at their fair market value
on the date he elects to do so. If Mr. Swartz were terminated for "cause" or
voluntarily resigned without "good reason" (each as defined in the retention
agreement) prior to January 22, 2006, the agreement provided that he would
receive no retirement payments under the agreement and any remaining common
shares would not vest. However, if Swartz were terminated by the Board without
cause or left for good reason, the agreement provided that he would receive a
lump sum payment equal to three times the sum of his annual base salary and
highest annual incentive compensation earned within the prior six year period.
Additionally, all options and restricted shares under the agreement or any
company program not already vested would become vested at that time. The
agreement also provided that he would receive payment for his services as a
consultant annually for a period of three years in the amount of 1/12 of the sum
of his last annual base salary and highest annual incentive compensation. The
agreement provided that Mr. Swartz would continue to receive welfare, fringe,
and other benefits comparable to those provided prior to retirement including,
among other benefits, access to company facilities and services, and would
receive three additional years of credits under the nonqualified retirement
plan. Mr. Swartz resigned in August 2002.
On August 1, 2002, Tyco entered into a severance agreement with Mr. Swartz
which provided that Mr. Swartz would waive his rights under the August 1, 2001
amendment to his retention agreement and that Tyco would treat Mr. Swartz's
leaving Tyco as if it were a resignation for good reason. The severance
agreement provided that Tyco would pay Mr. Swartz amounts due Mr. Swartz under
Tyco's Deferred Compensation Plan, the current value of Mr. Swartz's Executive
Life Insurance Program, amounts due to Mr. Swartz under his 401(k) plan and
amounts due to Mr. Swartz under his Supplemental Executive Retirement Program.
In connection with the severance agreement, Mr. Swartz retained his claim to any
amounts owned to him under his Executive Retirement Agreement. The agreement
also provided that all disputes between Tyco and Mr. Swartz arising from or
concerning his employment at Tyco would be subject to binding arbitration. Tyco
has filed an arbitration claim against Mr. Swartz seeking disgorgement of all
compensation and forfeiture of all benefits to him under the retention agreement
and severance agreement. See footnote 16 to the SUMMARY COMPENSATION TABLE
above.
22
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of Tyco common
shares by (i) those persons known by Tyco to own beneficially more than 5% of
Tyco's outstanding common shares; (ii) each executive officer named in the
SUMMARY COMPENSATION TABLE under "EXECUTIVE COMPENSATION" below; (iii) each
existing director or director nominee; and (iv) all existing directors and
executive officers of Tyco as a group.
NUMBER OF
COMMON SHARES % OF OUTSTANDING
OWNED COMMON SHARES
BENEFICIAL OWNER BENEFICIALLY(1) OWNED BENEFICIALLY
- ---------------- --------------- ------------------
AXA Financial, Inc.(2)...................................... 116,829,620 5.9
NEW SENIOR CORPORATE MANAGEMENT TEAM:
Edward D. Breen............................................. 10 *
David J. FitzPatrick........................................ -- --
William B. Lytton........................................... 1,215 *
Eric M. Pillmore............................................ 45,000(3) *
BUSINESS SEGMENT EXECUTIVES:
Jerry R. Boggess............................................ 958,358(4) *
Juergen W. Gromer........................................... 934,967(5) *
Robert P. Mead.............................................. 1,272,858(6) *
Richard J. Meelia........................................... 1,519,512(7) *
FORMER EXECUTIVES:
L. Dennis Kozlowski......................................... 13,731,168(8) *
Mark H. Swartz.............................................. 8,844,745(9) *
CURRENT DIRECTORS:
Richard S. Bodman........................................... 227,913(10) *
George W. Buckley........................................... -- --
John F. Fort III............................................ 186,707(11) *
Stephen W. Foss............................................. 170,147(12) *
Bruce S. Gordon............................................. -- --
John A. Krol................................................ 100 *
Wendy E. Lane............................................... 59,070(13) *
Mackey J. McDonald.......................................... -- --
W. Peter Slusser............................................ 59,810(14) *
Jerome B. York.............................................. 35,000 *
DIRECTOR NOMINEES:
Dennis C. Blair............................................. -- --
Brendan R. O'Neill.......................................... -- --
Sandra S. Wijnberg.......................................... -- --
All current directors and executive officers as a group (18 5,470,667 *
persons)..................................................
- --------------------------
* Less than 1%.
23
(1) The amounts shown are the number of common shares owned beneficially as of
October 31, 2002 (except for AXA Financial, Inc., where the amounts are as
of February 12, 2002, and Messrs. Kozlowski and Swartz, where the amounts
are as of the date they terminated employment with Tyco) based on
information furnished by the persons named, public filings and Tyco's
records. A person is deemed to be the beneficial owner of common shares if
such person, either alone or with others, has the power to vote or to
dispose of such common shares. Except as otherwise indicated below and
subject to applicable community property laws, each owner has sole voting
and sole investment authority with respect to the common shares listed. To
the extent indicated in the notes below, common shares beneficially owned by
a person include common shares of which the person has the right to acquire
beneficial ownership within 60 days, including under stock options that were
exercisable on October 31, 2002, or that become exercisable within 60 days
after October 31, 2002. There were 1,995,866,326 Tyco common shares
outstanding as of October 31, 2002.
(2) The amount shown and following information is derived from Amendment No. 4
to Schedule 13G dated February 12, 2002 filed jointly on behalf of AXA
Financial, Inc. and five French mutual insurance companies (AXA Assurances
I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle, AXA Conseil Vie Assurance
Mutuelle, AXA Courtage Assurance Mutuelle and AXA) as a group. According to
the Schedule 13G, each of the French mutual insurance companies and AXA has
sole voting power over 54,730,227 of such common shares, shared voting power
over 27,089,802 of such common shares, sole dispositive power over
116,581,703 of such common shares and shared dispositive power over 247,917
of such common shares. AXA Financial, Inc. has sole voting power over
50,928,674 of such common shares, shared voting power over 27,089,802 of
such common shares, sole dispositive power over 112,792,550 of such common
shares and shared dispositive power over 129,417 of such common shares. The
common shares are beneficially owned directly by AXA entities or
subsidiaries of AXA Financial, Inc. as follows: AXA (30,000 common shares),
AXA Investment Managers Paris (909,750 common shares), AXA Investment
Managers Hong Kong Ltd. (131,310 common shares), AXA Investment Managers
UK Ltd. (2,631,003 common shares), AXA Investment Managers Den Haag (87,090
common shares), AXA Rosenberg Investment Management LLC (118,500 common
shares), Alliance Capital Management L.P. (113,192,054 common shares, which
includes 1,486,100 common shares which may be acquired or disposed of upon
exercise of options) and The Equitable Life Assurance Society of the United
States (1,291,013 common shares, which includes 75,000 common shares which
may be acquired or disposed of upon exercise of options). The address of AXA
is 25, avenue Matignon, 75008 Paris, France. In the Schedule 13G, each of
the French mutual insurance companies, collectively, and AXA expressly
declares that the filing shall not be construed as an admission that it is,
for purposes of Section 13(d), the beneficial owner of any securities, and
state that each of the AXA Financial, Inc. subsidiaries operates under
independent management and makes independent decisions. The addresses of the
French mutual companies are as follows: AXA Conseil Vie Assurance Mutuelle,
AXA Assurances I.A.R.D. Mutuelle and AXA Assurances Vie Mutuelle, 370, rue
Saint Honore, 75001 Paris, France; and AXA Courtage Assurance Mutuelle, 26,
rue Louis le Grand, 75002 Paris, France. The address of AXA Financial, Inc.
is 1290 Avenue of the Americas, New York, New York 10104.
(3) Includes 5,000 common shares and 40,000 restricted shares vesting one-third
on each of January 1, 2003, January 1, 2004 and January 1, 2005.
(4) Includes 159,464 common shares personally owned and options to purchase
798,894 common shares.
(5) Includes 286,326 common shares personally owned, including 41,390 unvested
restricted shares, and options to purchase 648,641 common shares.
(6) Includes 371,201 common shares personally owned, including 10,406 unvested
restricted shares, 2,498 common shares owned by Mr. Mead's spouse, and
options to purchase 899,159 common shares.
(7) Includes 263,571 common shares personally owned, including 7,322 unvested
restricted shares, and options to purchase 1,255,941 common shares.
(8) Includes 1,068,436 common shares personally owned, 1,949,945 shares owned by
DCS Family Partnership L.P. and KFT Family Partnership LP, collectively, and
options to purchase 10,712,787 common shares. The information on
Mr. Kozlowski's beneficial ownership is as of June 3, 2002, and is based on
filings under Section 16 of the Securities Exchange Act of 1934 and Tyco's
records. Tyco has not received information from Mr. Kozlowski as to his
beneficial ownership of common shares. We are seeking disgorgement of all
amounts
24
received by Mr. Kozlowski during the periods shown in the SUMMARY
COMPENSATION TABLE below. See footnote 15 to SUMMARY COMPENSATION TABLE
above.
(9) Includes 1,094,542 common shares personally owned, 469,463 shares owned by
KMS Family Partnership L.P. and by Mr. Swartz's minor children,
collectively, and options to purchase 7,280,740 common shares. The
information on Mr. Swartz's beneficial ownership is as of August 1, 2002,
and is based on filings under Section 16 of the Securities Exchange Act of
1934 and Tyco's records. Tyco has not received information from Mr. Swartz
as to his beneficial ownership of common shares. We are seeking disgorgement
of all amounts received by Mr. Swartz during the periods shown in the
SUMMARY COMPENSATION TABLE above. See footnote 16 to SUMMARY COMPENSATION
TABLE above.
(10) Includes 157,260 common shares personally owned and options to purchase
70,653 common shares.
(11) Includes 125,647 common shares personally owned, an aggregate of 7,005
common shares owned by Mr. Fort's spouse, daughter and stepdaughter and
options to purchase 54,055 common shares.
(12) Includes 56,347 common shares personally owned, an aggregate of 52,856
common shares owned by the A.S. Foss Foundation and the Foss Mfg. Co.
pension and options to purchase 60,944 common shares.
(13) Includes 13,152 common shares personally owned and options to purchase
45,918 common shares.
(14) Includes 8,107 common shares personally owned, including 1,794 common
shares owned through the Tyco directors trust and options to purchase 51,703
common shares.
25
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of September 30, 2002 with
respect to Tyco's common shares issuable under its equity compensation plans:
NUMBER OF SECURITIES
REMAINING AVAILABLE
FOR FUTURE ISSUANCE
NUMBER OF SECURITIES UNDER EQUITY
TO BE ISSUED UPON WEIGHTED-AVERAGE COMPENSATION PLANS
EXERCISE OF EXERCISE PRICE OF (EXCLUDING SECURITIES
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, REFLECTED IN COLUMN
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS (A))
- ------------- -------------------- -------------------- ---------------------
(A) (B) (C)
Equity compensation plans approved by
security holders.......................
LTIP(1)(2)............................. 51,850,730 $33.61 18,562,935
1994 Restricted Stock Plan(3).......... -- -- 34,401,602
ESPP(4)................................ -- -- 3,505,482
------------ --------------
Subtotal............................... 51,850,730 -- 56,470,019
------------ --------------
Equity compensation plans not approved by
security holders.......................
LTIP II(1)............................. 81,876,362 38.09 14,610,528
SAYE(5)................................ 763,834 38.79 9,224,350
Irish Bonus Plan(4).................... -- -- 1,180,233
------------ --------------
Subtotal............................... 82,640,196 -- 25,015,111
------------ --------------
Total................................ 134,490,926 81,485,130
============ ==============
- ------------------------------
(1) The Tyco International Ltd. Long Term Incentive Plan ("LTIP") allows for the
granting of share options and other equity or equity-based grants to Board
members, officers and non-officer employees. LTIP II allows for the granting
of share options and other equity or equity-based grants to employees who
are not officers of Tyco. See Note 23 to Consolidated Financial Statements
included in Tyco's Annual Report on Form 10-K for the fiscal year ended
September 30, 2002.
(2) Excludes 21,606,501 outstanding share options assumed in connection with
acquisitions at a weighted-average exercise price of $46.45. No additional
options may be granted under those assumed plans. Includes 1,700,000
Deferred Stock Units.
(3) 1994 Restricted Stock Ownership Plan for Key Employees ("1994 Restricted
Stock Plan") provides for the issuance of restricted share grants to
officers and non-officer employees. The number of shares available for
issuance under the 1994 Restricted Stock Plan was reduced to 999,524 in
October 2002, but will automatically increase by 0.05% of the total common
shares outstanding on each of October 1, 2003 and October 1, 2004. See
Note 23 to Consolidated Financial Statements included in Tyco's Annual
Report on Form 10-K for the fiscal year ended September 30, 2002.
(4) This table includes an aggregate of 5,367,199 shares available for future
issuance under the Tyco Employee Stock Purchase Plan ("ESPP") and the Tyco
International (Ireland) Employee Share Scheme ("Irish Bonus Plan"), which
represents the number of remaining shares registered for issuance under
these two plans. All of the shares delivered to participants under the ESPP
and Irish Bonus Plan are purchased in the open market. All shares delivered
to participants under the Irish Bonus Plan are purchased on a pre-tax basis.
See Note 23 to Consolidated Financial Statements included in Tyco's Annual
Report on Form 10-K for the fiscal year ended September 30, 2002.
(5) Tyco International Ltd. UK Savings Related Share Option Plan ("SAYE") is an
Inland Revenue approved plan for UK employees that grants employees options
to purchase shares at the end of three years of service at a 15% discount
off the market price at time of grant. Employees make monthly contributions
which are at the election of the employee used for the purchase price or
returned to the employee. See Note 23 to Consolidated Financial Statements
included in Tyco's Annual Report on Form 10-K for the fiscal year ended
September 30, 2002.
26
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Tyco has amounts due related to loans and advances issued to employees under
Tyco's Key Employee Loan Program, relocation programs and other advances made to
executives. Loans were provided to employees under Tyco's Key Employee Loan
Program for the payment of taxes upon the vesting of common shares granted under
our restricted share ownership plans. The loans are unsecured and bear interest,
payable annually, at a rate based on the six month LIBOR rate, calculated
annually as the average of the 12 rates in effect on the first day of the month.
Loans are generally repayable in ten years, except that earlier payments are
required under certain circumstances. In addition, Tyco made loans secured by
mortgages to certain employees under employee relocation programs. These loans
are generally payable in 15 years and are secured by the underlying property.
During fiscal 2002, the maximum amount outstanding under these programs was
$117.5 million. Loans receivable under these programs, as well as other
unsecured advances outstanding, were $88.1 and $93.4 million at September 30,
2002 and 2001, respectively. Certain of the above loans totaling $30.3 million
and $33.7 million at September 30, 2002 and 2001, respectively, are non-interest
bearing. Interest income on interest bearing loans totaled $5.5 million,
$1.3 million, and $3.7 million in fiscal 2002, fiscal 2001 and fiscal 2000,
respectively.
During fiscal 2002, Mr. Kozlowski had outstanding loans from Tyco. The rate
of interest charged on such loans was 1.91%. The maximum amount outstanding
under these loans during fiscal 2002 was $51.0 million plus accrued interest of
$3.2 million, and the amount outstanding at September 30, 2002 was
$47.0 million. During fiscal 2001 and 2000, Mr. Kozlowski had outstanding loans
from Tyco under our Key Employee Loan Program. The maximum amount of such loans
previously reported in each of fiscal 2001 and 2000 were understated by
approximately $25 million, plus accrued interest at the time. In addition,
during fiscal 2001 and fiscal 2000, Mr. Kozlowski received $9,719,696 and
$19,439,392 in unauthorized mortgage loans that were later forgiven without
proper approval. Mr. Kozlowski also received an unauthorized gross-up payment to
cover taxes payable due to income associated with such forgiveness. See footnote
21 to the SUMMARY COMPENSATION TABLE set forth in the caption entitled
"Executive Compensation" above.
During fiscal 2002, Mr. Swartz had outstanding loans from Tyco. The rate of
interest charged on such loans was 2.11%. The maximum amount outstanding under
these loans during fiscal 2002 was $25.0 million plus accrued interest of
$1.6 million and such loans were repaid in full prior to September 30, 2002.
During fiscal 2001 and 2000, Mr. Swartz had outstanding loans from Tyco under
our Key Employee Loan Program. The maximum amount of such loans previously
reported in each of fiscal 2001 and 2000 were understated by approximately
$12.5 million, plus accrued interest at the time. In addition, during fiscal
2001 and fiscal 2000, Mr. Swartz received $4,896,000 and $9,792,000,
respectively, in unauthorized mortgage loans that were later forgiven without
proper approval. Mr. Swartz also received an unauthorized gross-up payment to
cover taxes payable due to income associated with such forgiveness. See footnote
22 to the SUMMARY COMPENSATION TABLE set forth in the caption entitled
"Executive Compensation" above.
During fiscal 2002, Mr. Belnick had outstanding loans from Tyco. The maximum
amount outstanding under these loans during fiscal 2002 was $16.5 million and
the amount outstanding at September 30, 2002 was $14.8 million. Of the
$14.8 million, $14.5 million is a non-interest bearing mortgage loan and
$0.3 million is in the form of an interest bearing promissory note. The interest
rate on the promissory note was 2.78% for fiscal 2002. We have filed a civil
complaint against Mr. Belnick for breach of fiduciary duty and other wrongful
conduct. More information with respect to this action was reported on
September 17, 2002 in a Current Report on Form 8-K and is set forth in Item 3
"Legal Proceedings" of our Annual Report on Form 10-K for the fiscal year ended
September 30, 2002.
27
During fiscal 2002, Mr. Boggess had an outstanding loan under the Key
Employee Loan Program. The rate of interest charged on such loan was 2.03%. The
maximum amount outstanding under this loan during fiscal 2002 was $0.4 million
and such loan was repaid in full prior to September 30, 2002.
During fiscal 2002, Mr. Mead had an outstanding loan under the Key Employee
Loan Program. The rate of interest charged on such loan was 2.03%. The maximum
amount outstanding under this loan during fiscal 2002 was $0.9 million and such
loan was repaid in full prior to September 30, 2002.
During fiscal 2002, Mr. Meelia had an outstanding loan under the Key
Employee Loan Program. The rate of interest charged on such loan was 2.06%. The
maximum amount outstanding under this loan during fiscal 2002 was $1.7 million
and the amount outstanding at September 30, 2002 was $18,200.
During the fourth quarter of fiscal 2002, the Board and our new senior
corporate management team adopted a policy under which no new loans are allowed
to be granted to any officers of Tyco and existing loans are not allowed to be
extended or modified.
Certain Tyco directors and executive officers owned TyCom Ltd. common shares
or options, which were converted to Tyco common shares and Tyco options upon the
amalgamation of a subsidiary of Tyco with TyCom Ltd. on December 18, 2001 at the
exchange ratio applicable to all holders of TyCom Ltd. common shares and
options.
Joshua M. Berman was a director of Tyco until December 5, 2002. From
March 1, 2000 through July 31, 2002, Tyco also engaged Mr. Berman to render
legal and other services. During this period, Tyco compensated Mr. Berman at an
annual rate of $360,000 and provided Mr. Berman with health benefits,
secretarial assistance, a cell phone and electronic security services for his
homes. Tyco also reimbursed Mr. Berman for legal fees and expenses incurred by
him in connection with matters relating to Tyco pursuant to indemnification
provisions applicable to all directors of Tyco. Mr. Berman is a retired counsel
to the law firm Kramer Levin Naftalis & Frankel LLP, which provided legal
services to us in fiscal 2002.
As previously reported in our Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 2002, and our Annual Report on Form 10-K for the fiscal
period ended September 30, 2002, Tyco and certain of our current and former
directors are defendants in four pending actions purporting to bring suit
derivatively on behalf of Tyco against certain former officers and certain
current and former directors of Tyco and against Tyco as a nominal defendant in
connection with alleged improper conduct of former officers of Tyco relating to
the use of our funds, our Key Employee Loan Program and assets. The ultimate
resolution of these actions is not yet determinable.
As previously reported on September 17, 2002 and October 8, 2002 in our
Current Reports on Form 8-K, Tyco has filed civil complaints against
Mr. Kozlowski and Mr. Belnick, and an arbitration claim against Mr. 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 or other improper conduct.
As previously reported on September 17, 2002 in our Current Report on
Form 8-K, on June 17, 2002, Tyco filed a civil complaint against our former
director Frank E. Walsh, Jr. 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 went to Mr. Walsh with the balance going 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 Securities and
Exchange Commission 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
28
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 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. Our
claims against Mr. Walsh are still pending.
Tyco has filed a civil complaint against Messrs. Kozlowski and Swartz
pursuant to Section 16(b) of the Securities Exchange Act of 1934 for
disgorgement to Tyco of short-swing profits from transactions in our common
shares believed to exceed $40 million. The action seeks disgorgement of profits,
interest, attorneys' fees and costs.
29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Form 10-K/A to be
signed on its behalf by the undersigned, thereunto duly authorized.
TYCO INTERNATIONAL LTD.
By:
/s/ WILLIAM B. LYTTON
-----------------------------------------
William B. Lytton
EXECUTIVE VICE PRESIDENT
AND GENERAL COUNSEL
Date: January 28, 2003
30
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Edward D. Breen, certify that:
1. I have reviewed this annual report on Form 10-K/A of Tyco
International Ltd.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: January 28, 2003
/s/ EDWARD D. BREEN
----------------------------
Edward D. Breen
CHIEF EXECUTIVE OFFICER
31
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, David J. FitzPatrick, certify that:
1. I have reviewed this annual report on Form 10-K/A of Tyco
International Ltd.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: January 28, 2003
/s/ DAVID J. FITZPATRICK
----------------------------
David J. FitzPatrick
CHIEF FINANCIAL OFFICER
32