Narration

Under Dennis Kozlowski, the Tyco CEO, the company continued its strategy of aggressive acquisitions,
acquiring thousands of companies gaining its international presence.

As part of the relocation of the company, many employees had to relocate from New Hampshire to New
York, in which Tyco initiated a program where by employees can have a loan with low interest or no
interest at all from the company to help employees to cover their expenses incurred during the
relocation. One of the requirements of the relocation program was the employee’s certification that he
or she was indeed moving from New Hampshire to New York or in some cases to Boca Raton.

There is also a Tyco program that allows high up executives to get low interest or interest free loans
from the company, called the “key employee corporate loan program” also known as “kelp”. It is meant
for high executives who have significant compensation in a form of stock options.

Kelp was established to encourage employees to own Tyco shares by offering dedicated loans to pay the
taxes due when shares granted under Tyco’s restricted share ownership plan became vested. There was
no way to pay the taxes except to sell some of the shares in exchanges for cash, and the loan program
permitted the officers to pledge their shares in exchange for cash that was then used to pay the income
tax that was due on this employee benefit. The loan then is paid back when the executives get enough
liquidity in the future.

The kelp program was explicitly described by SEC, to be utilized only for that specific program

the loan proceeds may be used for the payment of federal income taxes due upon the vesting of the
company’s common stock from time to time under the 1983 restricted stock ownership plans for key
employees, and to refinance other existing outstanding loans for such purpose.

Kozlowski and Swartz took advantage of this loan, given a hundred of millions of dollars that of course
did not go to its stated purpose.

The former CEO and chairman Dennis Kozlovski used the loan from the kelp to fund his extravagant life
style, including a $2 million toga birthday party for Kozlowski’s wife on a Mediterranean island and an
$18 million Manhattan apartment with a $6,000 shower curtain.

According to SEC documents, the former CEO borrowed more than $270 million from the kelp, but used
only about $29 million to cover intended uses for the loans. He then used the remaining $242 million of
supposed kelp loans for personal expenses including yachts, estate jewelry, luxury apartments and
vacations estates, personal business ventures and investments all unrelated to Tyco.

He also uses the said loan to buy fine arts that he then also used to evade tax. One of these instances
involved Kozlowski’s purchase of artwork, for which empty crates were sent to Tyco’s New Hampshire
address in order to avoid taxes in New York. It can be argued that these tax evasion instances were
intended to avoid raising red flags that authorities could use against Kozlowski’s other illicit activities at
the company.

The CFO, Swartz also spent about $75 million of supposed kelp loan on his personal expenses. He used
some of the money to personal investments, real estates and trust.

Both executives lied to the company and company investors by concealing this inappropriate spending.
Dennis Kozlovski also exploits the relocation loan by buying a $18 million luxury water front compound
in Boca Raton. But although this could be considered as a fair use of the benefits, the residence only
accounts for a third of the loans that he took out. Purchasing other luxury properties in New Hampshire,
Nantucket and Connecticut in which cannot be claimed as relocation residence. He also even purchases
a prestigious $7 million apartment in NY for his ex-wife whom he had been separated for many years.

Same as Kozlovski, Swartz also bought an extravagant $17 million boca Raton water front mansion,
spending also about six and a half million dollars on a New York upper east side apartment. With the
remaining $9 million dollars that he took, he bought things like a yacht and personal investments in
things like real estate.

Belnick, Tyco’s chief legal officer also stated that he was entitled to the loans because of such writings
from Mr. Kozlovski. It is despite the fact that he was a partner in a New York city law firm and would be
working in New York for Tyco. Receiving a relocation fee for a difference of 25 miles between his home
and Tyco’s New York offices, and despite the fact that he had never lived in New Hampshire. Belnick
borrowed $4 million used in purchasing and renovating an apartment in New York. Later, he borrowed
another $10 million to construct a home in park city, Utah, because he was moving his family there and
would divide his time between the two locations, and the extensive international; travel is job requires.
Mark Belnick did not disclose $14 million dollars of loans and that eventually had caused him some
criminal charges. To conclude this, it is to be known that these loans were purposely being kept off from
the company’s financial statements which caused it to be excluded from being a part of the company’s
assets and it had fought against the common principle of completeness in the internal control system

When it can’t be even worse, the two also took steps to turn those loans into gifts to themselves.

The two colluded to wipe $37.5 million off the loans collectively owned to Tyco. That were forgiven and
thus added up to a $37.5 payment from Tyco to Kozlowski and Swartz. These forgiven loans were
disclosed to any financial reports or announcements. But the $37.5 million is only a small fraction of
what they borrowed from the company.

So, Kozlovski initiated a program called “relocation loan forgiveness” for multiple employees.

In this program, employees who received relocation had to sign an agreement stating that they would
not disclose loan forgiveness to anyone besides their financial, legal or tax advisors.

This program allows Kozlovski to have another $33 million in loan forgiven, and Swartz having $16.5
million forgiven. In which this was added up to a $50 million payment from Tyco to the CEO and CFO.

To cover the loan forgiveness program, which was a significant expense to the company Kozlovski and
Swarts buries the cost with the public offering of the company.

Up to 40 loans were later “forgiven” as part of Tyco’s loan-forgiveness program. Something to keep in
mind is that many didn’t know they were doing something wrong.

This program was concealed by another corporate action specifically the gain on divestiture by the
company, the sale of an asset by a company as a way to manage its portfolio of assets. Adding to the
other individual schemes of the two top executives of the company.
One of Kozlovski and Swartz schemes is making Tyco buy their assets three times of the original price.
They also use the company’s asset including jets and airplanes incurring large cost to the company
without ever paying for anything.

Money had also been paid out purchasing their silence about Kozlowski’s actions in the company
through the company programs. This led to further corruption of the top branch of leaders in Tyco
making Kozlowski bolder as time passed.

And lastly, they also illegally sell hundreds of millions of dollars’ worth of Tyco stock without informing
investors, which is a requirement under SEC regulations. They hid the sale of this stock by selling them
to offshore subsidiaries of Tyco.

In summary, Tyco including executives Dennis Kozlovski and Mark Swartz were under the SEC complaints
for:

 urging managers to apply accounting principles improperly to reduce the value of acquired
assets and increase the value of acquired liabilities. The managers were told to encourage
improper adjustments to a target entity's books and records, thereby reducing the value of the
assets and overstating the liabilities prior to their acquisition by Tyco. Alternatively, the
managers were urged to record improper values for acquired assets and liabilities on Tyco's
books. Personnel were also encouraged to establish purchase accounting reserves for costs that,
pursuant to accounting principles, should not be charged to such reserves. In some instances,
personnel were told to charge Tyco's then current expenses against purchase accounting
reserves. At times, incorrect guidance on acquisition accounting was also provided to managers
in other Tyco divisions, including the Electronics division and the Healthcare division. This
guidance was followed in a number of instances, resulting in an overstatement of Tyco's
earnings reported to the Commission and the investing public

 Tyco also used excess reserves to make period-end adjustments to enhance and smooth its
publicly reported results and to meet earnings forecasts. Various Tyco business units moved
amounts to reserve accounts in reporting periods in which it appeared that the units would not
need the amounts to meet their EBIT targets. If a business unit's earnings fell short of its EBIT
target in a subsequent period, the unit would make up the shortfall by reversing reserves,
including those reserves where past "excess" amounts had been stored, to its income
statement.

 From September 1996 through early 2002, Tyco failed to disclose in its annual Reports on Form
10-K and in its proxy statements certain executive indebtedness, executive compensation, and
related party transactions of former executives Kozlowski, Swartz, and Belnick. The executive
indebtedness and executive compensation that Tyco failed to disclose involved, in large part,
loans made under Tyco's Key Employee Loan Program ("KELP") and its relocation loan programs.
Tyco also failed to disclose millions of dollars that Kozlowski and Swartz received under Tyco7s
relocation loan programs between 1996 and 2002. And failed also to disclose certain executive
indebtedness of Belnick.
 On three separate occasions in 2000 and 2001, Tyco incorrectly accounted for certain executive
bonuses it had paid by classifying these bonuses in its financial statements so that they did not
negatively impact operating income. Jn July 2000, Tyco successfully completed an initial public
offering ("PO") of part of its previously wholly owned subsidiary, TyCom Ltd., which served as
the holding company for Tyco7s undersea fiber optic cable communication business. The TyCom
PO generated a one-time gain of approximately $1.76 billion on Tyco7s books. In September
2000, Kozlowski granted bonuses to fifty-one Tyco executives, managers, and employees
totaling in the aggregate approximately $95.9 million. Of the $95.9 million in total bonuses paid,
Tyco classified approximately $44.6 million as an expense of the TyCom PO, in spite of the fact
that the bonuses were not direct and incremental costs of the IPO. Accordingly, that $44.6
million in bonus expense was recorded in Tyco's financial statements in such a manner that it
had no effect on Tyco's operating income. 45. In October 2000, Tyco sold its ADT Automotive
business for approximately $1 billion, with a net gain on the sale of approximately $400 million.
In November 2000, Kozlowski used the ADT Automotive divestiture as a vehicle for the payment
of $56 million in bonuses to a small group of Tyco executives and managers. Rather than
recording the $56 million in bonuses as an expense in its operating earnings, Tyco offset the
entire expense against the gain realized on the sale of the ADT Automotive business.
Consequently, these bonuses did not negatively impact Tyco's operating income.

 From 1999 through 2002, on at least one occasion, Tyco employees or retained agents made use
of the mails or of a means or instrumentality. of interstate commerce in furtherance of the
payment of money or things of value to foreign officials to obtain or retain business for Tyco.
False entries were made to Tyco's books and records in an attempt to conceal these illicit
payments. Moreover, the misconduct was made possible by Tyco's failure to implement
procedures sufficient to prevent and detect FCPA misconduct. In 1998, Tyco acquired
Multiservice Engenharia Ltda., a Brazilian engineering company, and renamed it Earth Tech
Brasil Ltda. ("Earth Tech Brazil"). Tyco acquired Earth Tech Brazil notwithstanding that its due
diligence for the acquisition revealed that illicit payments to government officials were common
in Brazil and were portrayed as necessary in the industries in which Earth Tech Brazil conducted
business. From 1999 through 2002, employees at Earth Tech Brazil repeatedly paid money to
various Brazilian officials for the purpose of obtaining business, primarily in the construction and
operation of municipal water and wastewater treatment systems. The payments to Brazilian
officials were so widespread during this time that approximately sixty percent of Earth Tech
Brazil's total contracts involved some form of payment to a government official. At times, the
payments were made by lobbyists that Earth Tech Brazil retained with full knowledge that all or
a portion of the money that Earth Tech Brazil paid to the lobbyists would be given to various
Brazilian officials for the purpose of obtaining work for Earth Tech Brazil. Executives located at
Earth Tech's corporate offices in Long Beach, California received e-mail communications,
participated in telephone calls, and attended meetings where illicit payments to Brazilian
officials for the purpose of obtaining or retaining business for Earth Tech Brazil were discussed.
False invoices from companies that were owned by various Earth Tech Brazil. employees were
typically submitted to obtain the funds for the illicit payments and to conceal these payments on
Earth Tech Brazil's books and records. In some instances, lobbyists submitted inflated invoices to
Earth Tech Brazil to obtain the funds needed to make the payments. 52. From 1999 through
 2002, on at least one additional occasion, false entries were made to Tyco's books and records
in an attempt to conceal illicit payments and entertainment that were provided to foreign
officials by Tyco employees to obtain or retain business for Tyco. This misconduct was made
possible by Tyco's failure to implement procedures sufficient to prevent and detect FCPA
misconduct, despite knowledge and awareness within the company that corruption and illicit
payments were common practices in the foreign country where the unlawful payments were
made.
 From September 1996 through the fiscal quarter ended December 31,2002, Tyco filed with the
Commission false and misleading annual and quarterly reports, proxy statements, and
registration statements. Those reports and registration statements included, directly or by
incorporation, financial statements that materially misrepresented Tyco's financial results,
including significantly overstating its operating income. The annual reports and proxy
statements also misrepresented or omitted to disclose certain executive compensation,
executive indebtedness, and transactions between Tyco and its executives.