Tyco International Ltd CEO Dennis Kozlowski and Chief Financial Officer Mark Swartz lent US$14.1 million in 2000 to Warren Musser, a board member of former affiliate TyCom Ltd, the company said.
The loan, which has been repaid, was never publicly reported by Tyco because disclosure was "neither necessary, nor was it required," said Brad McGee, Tyco's chief strategy officer. He said he wasn't sure of the nature of the personal relationship between Kozlowski, Swartz and Musser.
"They know each professionally," McGee said. "I can say that they haven't given a loan to any other director."
A report of the loan today by the New York Times came two months after Tyco said it paid US$20 million to director Frank Walsh Jr. and a charity he controls for help in arranging the US$10 billion purchase of commercial lender CIT Group Inc. Tyco, which has been criticized by investors for allegedly using acquisitions to mask slower growth, has said the Walsh fee and Musser loan were proper.
In addition to being reported earlier today by the Times, the loan to Musser was also reported by the Philadelphia Business Journal on Jan. 12, 2001.
Musser was a board member of TyCom, the largest maker of undersea cable, when Tyco offered to buy the 11 percent of the company it didn't own for US$748 million in October 2001. Tyco reached a definitive agreement with the affiliate 15 days later.
Shareholders filed lawsuits claiming the pace at which the transaction was completed indicated the companies didn't negotiate in good faith. Tyco, based in Bermuda and run from Exeter, New Hampshire, has said the lawsuits are without merit.
Musser wasn't a member of a special committee of TyCom directors that reviewed the Tyco offer, McGee said. He repaid the loan, made in December 2000, a year later. He is chairman emeritus of Safeguard Scientifics Inc, a Wayne, Pennsylvania-based company that invests in communications and software startups. Musser founded the firm in 1953.
The Times said Musser was facing a cash crunch when he got the US$14.1 million loan from Kozlowski and Swartz.
In late 2000, Musser was forced to sell four-fifths of his stake in Safeguard Scientifics to repay borrowings used to buy securities. The 75-year-old Musser used his estate in Nantucket, Massachusetts, as collateral for the loan, the Times said. The loan had a market rate of interest, Tyco's McGee said. He said he wasn't sure what the exact rate was.
Tyco said earlier this month it will spin off the entire CIT unit, accelerating a plan to split itself into four companies to quell investor concerns about accounting transparency. The company had considered retaining a stake in the unit.
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