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Minutes: Tyco Board Aware Of Perks

Sep 23, 2002 | AP

Minutes from a board meeting early this year contradict Tyco International's testament to regulators that board members had no knowledge of excessive pay packages allegedly arranged by former chief executive L. Dennis Kozlowski.

Internal documents also show that a human resources official said she was pressured by a board member to do something "dishonest" during the company's internal investigation.

Tyco last week filed a document with the Securities and Exchange Commission ( news - web sites) saying the internal investigation found board members had no knowledge of excessive pay packages for Kozlowski, former general counsel Mark Belnick and former chief financial officer Mark Swartz.

However, minutes for a Feb. 21 meeting of the board's compensation committee, disclosed by a lawyer familiar with the internal investigation, listed some of the loans given to top executives for relocation costs, including $14.9 million to Belnick. Not all the employees who received these loans had actually relocated and many of the loans were later forgiven.

Board members Stephen Foss, James Pasman and Peter Slusser, who also sit on Tyco's compensation committee, were at the meeting in Bermuda, where Tyco is based, the minutes show.

In a story published Monday, The New York Times said the minutes also show loans of $18.8 million to Kozlowski and $7 million to Swartz. Those amounts were not listed on a copy of the minutes given to The Associated Press.

In addition, Patricia Prue, Tyco's human resources director, sent a memo to Swartz and John Fort, who served as interim chief executive after Kozlowski resigned in June, saying director Josh Berman tried to get her to do something improper relative to the internal investigation.

"As you know, I plan as always to assist you and the board with whatever request you have in conjunction with my role as head of human resources," Prue wrote in the June 7 memo. "However, as a result of the fact that I was recently pressured by Josh Berman to engage in conduct which I regarded as dishonest and which I refused to do, I will decline to have any personal contact with him in the future."

The memo does not specify the conduct, but the Times reported Monday that Prue told a Manhattan grand jury Berman had asked her to alter minutes from the Feb. 21 compensation committee meeting to show that the board had not approved Belnick's loan.

A source close to the board said Prue told at least one director that Berman was "abusive" to her, but never mentioned that he had asked her to alter meeting minutes.

Prue herself received a forgiven loan of about $1.3 million. There was no answer at her home in Boca Raton, Fla., on Monday. Efforts to reach Berman through the company were not successful Monday.

The loans in question, as well as other loans to Kozlowski and Swartz and tens of millions more in forgiven loans to dozens of other Tyco employees from various levels and divisions, were not individually disclosed by the company until last week, following an internal investigation that began in June.

New York prosecutors and Tyco's directors say the board was misled by Kozlowski, Belnick and Swartz.

Kozlowki and Swartz have been charged in New York with grand larceny and enterprise corruption related to $600 million that was allegedly looted from Tyco. Belnick has been charged with falsifying business records to cover up $14 million in improper loans.

The three men have pleaded innocent. They say they disclosed any loans they received to the board.

Tyco director Wendy Lane, in an interview with The AP on Monday, maintained that the board was not informed of any improper loans to Kozlowski, Belnick and Swartz nor millions more in forgiven loans to employees.

"The indictment that was written shows the board was a victim of a well-crafted scheme by the most senior management," Lane said in a telephone interview.

She said the board launched a thorough investigation of senior executives' financial transactions in June once Kozlowski resigned and allegations of mismanagement were revealed.

The board, meanwhile, has asked David Boies, whose law firm is leading the internal investigation, to give directors a detailed chronology of who knew what, and when.

The minutes also show that the compensation committee authorized Belnick's pay agreement, worth about $20 million.

Tyco said in a statement late Monday that the compensation committee did indeed discover in late February the size of certain loans to certain executives, but not the abuses of the company's loan programs or the extent of forgiveness of the loans.

"Following the discovery of the size of certain loans to certain executives, directors (including Richard Bodman of the Audit Committee and of the Corporate Governance and Nominating Committee, and Joshua Berman of the Corporate Governance and Nominating Committee) undertook additional investigations relating to the compensation of Mark Belnick and others," Tyco said.

A lawyer for Swartz, Charles Stillman, declined to comment. Lawyers for Belnick and Kozlowski could not immediately be reached for comment.

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