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Ex-Tyco Exec: Committee
Never Approved $96M Bonus
Patricia Prue, Tyco's former head of human resources, is a key witness in the trial in state Supreme Court here of former Tyco chief executive L. Dennis Kozlowski and former chief financial officer Mark Swartz. The defendants are accused of looting $600 million from Tyco in unauthorized pay and illicit stock sales. They have denied wrongdoing.
On Wednesday, Prue's testimony focused on a $96 million bonus paid to about 50 employees in September 2000, ostensibly for work on a successful initial public offering of the company's Tycom optical-fiber subsidiary. Earlier in the week, Prue testified that Kozlowski told her that the bonus had been approved by Philip Hampton, head of the board's compensation committee.
But, Prue said Wednesday she never brought up the issue with Hampton in a meeting on the eve of a "discussion session" among committee members in late September 2000 and the special bonus was never discussed by the full committee in its meeting a few days later. Hampton, who was ill with cancer, died in 2001.
The committee instead awarded vesting of restricted shares at its October 2000 meeting to a handful of executives associated with the Tycom IPO, including Kozlowski and Swartz.
The special bonus forgave millions of dollars in loans to certain employees who had purchased properties near its Boca Raton corporate offices and provided a payment, or gross-up, to account for any income taxes on that loan forgiveness. Prosecutors have charged Kozlowski received about $32 million in loan forgiveness and gross-ups; Swartz about $16 million.
Employees who received the special bonus were asked to sign a confidentiality agreement, ostensibly to avoid a morale issue among staff who didn't receive the bonus, Prue testified Wednesday.
Prue is expected to continue her testimony next week, likely facing cross- examination from defense attorneys beginning sometime Monday. Prosecutors have not yet released their witness list for next week. There will be no testimony Tuesday, as it is election day in New York.
Meanwhile, Prue said that the compensation committee's minutes never reflected that the committee approved accelerated stock vesting for several employees, including Kozlowski, Swartz and herself, as part of a bonus program associated with the sale of ADT Automotive, following ADT Ltd.'s merger with Tyco.
Prosecutors have said Kozlowski received a $16 million bonus and Swartz an $8 million bonus related to the merger.
At the same time, Prue testified that she wasn't aware of $12.5 million in additional loan forgiveness for Swartz until she was contacted by an attorney from Boies Schiller & Flexner, which had been retained by the company to investigate a $20 million payment to former Tyco director Frank Walsh and other improprieties.
She confronted Swartz on the matter, who said that he planned to repay the loan and that his lawyer was planning to meet with the Boies firm.
Prosecutors have charged that Kozlowski, Swartz and Barbara Jacques, a former marketing manager at the company, received about $38.5 million in improper loan forgiveness.
Dressed in a dark blue suit with a lavender top, Prue testified that Kozlowski suggested that Tyco include the compensation of its operating presidents, instead of other executives, as part of its proxy statement for fiscal year 2000. She said the proxy is supposed to include the compensation of the five highest paid executives at the firm.
As a result, the compensation of Mark Belnick, Tyco's former general counsel, wasn't included in the proxy that year.
Belnick is facing separate charges that he received a special $12 million bonus as an incentive for helping end a probe by the Securities and Exchange Commission (News - Websites) in 2000. The SEC began an inquiry in late 1999 into the company's handling of more than 100 acquisitions. The agency informed Tyco in 2000 that it wasn't taking any action.
On Wednesday, Prue testified that Kozlowski didn't discuss Belnick's bonus as part of a formal compensation committee meeting, instead he told her that he planned to discuss the bonus as part of a board meeting that she and other staff members weren't invited to.
Prue said she assumed the bonuses had been approved by the board because she was later asked to process a request to pay the bonus. After a discrepancy about the size of the bonus, she testified Kozlowski told her the correct amount to process for Belnick.