Case 3:03-cv-03540-GEB-DEA Document 142 Filed 05/10/10 Page 1 of 12
UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY
ROSEMARIE STUMPF ) } Hon. Garrett E. Brown, Jr. v. ) Chief U.S.D.J. Docket No. 03 -CV-03540 NEIL R. GARVEY, et al. } (GEB)(DEA)
(IN RE TYCOM LTD. SECURITIES ) To Be Filed Electronically LITIGATION) )
NOTICE OF SETTLEMENT TO FEDERAL AND/OR STATE OFFICIALS
(Class Action Fairness Act, 28 U.S.C. §§ 1711 et seq.)
Pursuant to the Class Action Fairness Act of 2005, 28 U.S.C. § 1715, defendants TyCom Ltd. ("TyCom"), Tyco International Ltd. ("Tyco"), and Tyco's successors in interest, Tyco International (US) Inc. (n/k/a Tyco Electronics (US)
Inc.), Tyco Electronics, Ltd., and Covidien Ltd., L. Neil R. Garvey, Goldman,
Sachs & Co., Merrill Lynch & Co. and Salomon Smith Barney Inc. (n/k/a
Citigroup'Global Markets) (collectively "Settling Defendants") provide the following notification of the proposed settlement in In re TyCom. Ltd. Securities
Litigation, No. 03-cv-3540 (GEB)(DEA) (D.N.J.) (the "Action" ).1 The referenced
' Defendants L. Dennis Kozlowski and Mark H. Swartz (together, the "Non-Settling Defendants") are not parties to the proposed Settlement and Lead Plaintifrs claims against the Non-Settling Defendants remain pending.
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exhibits are contained on the Compact Disc enclosed herewith in .pdf files that may be read with Adobe Acrobat,
28 Description Exhibit U.S.C. Number (on § 1715(b) enclosed CD) 1 Complaint filed in Stumpf v. Garvey, No. 03-CV- la 3540 (GEB) (filed July 24, 2003) (D.N.J.). Case subsequently consolidated with No. 03-CV-4591 as In re TyCom Ltd. Securities Litigation (03-CV- 3540). 1 Complaint filed in O'Loughlin v. Garvey, No. 03- lb CV-4591 (GEB) (filed Sept. 26, 2003) (D.N.J.). Case subsequently consolidated with No. 03-CV- 3540 as In re TyCom Ltd. Securities Litigation (03- CV-3540). 1 Consolidated Securities Class Action Complaint lc filed in In re TyCom Ltd. Securities Litigation, No. 03-CV-1352 (filed Dec. 13, 2004) (D.N.H.). Case subsequently transferred to the United States District Court for the District of New Jersey under docicet number 03-CV-3540. 2 Order Preliminarily Approving, Settlement and 2 Providing for Notice of Proposed Settlement and Scheduling Settlement Hearing, entered by the Court on May 6, 2010, setting time of the Settlement Hearing as August 25, 2010 at 1:00 pm before the Honorable Garrett E. Brown, Jr., United States District Court for the District of New Jersey, Clarkson S. Fisher Courthouse, 402 E. State Street, Trenton, NJ 08608.
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28 Description Exhibit U.S.C. Number (on § 1715(b) enclosed CD)
3 Affidavit of Compliance with the Court's Order 3 Dated May 18, 209 Directing Notice to Class Members and exhibits. i Class Members were given notice and an opportunity to exclude themselves from the class through Notice of Pendency of Class Action and Summary Notice of Pendency of Class Action, which notices were provided for in an Order of the Court dated May 19, 2009. Pursuant to the Proposed Final Judgment and Order of Dismissal (attached as Exhibit 5 to the CD) with Prejudice, Class Members who did not file a timely request for exclusion from the Class by the October 1, 2009 deadline set forth in the notices of pendency will not have another opportunity to exclude themselves from the Class in connection with the proposed settlement. Class Members who filed timely exclusion requests will not be bound by the release in, or receive any benefit from, the proposed settlement unless they timely file a proof of claim. 4 Settlement Agreement and Release dated as of 4 March 26, 2010.
5 Class counsel and counsel for the defendants have N/A not entered into any settlement or other agreement contemporaneously with the Stipulation of Settlement and exhibits thereto.
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28 Description Exhibit U.S.C. Number (on § 1715(b) enclosed CD)
6 Proposed Final Judgment and Order of Dismissal 5 with Prejudice.
7 Because a substantial amount of TyCom stock was N/A purchased through "street name" accounts of various financial institutions, Settling Defendants are not able to identify all individuals and entities who purchased TyCom's stock. It is thus not feasible to identify or reasonably estimate the number of class members who reside in each State or to estimate the proportionate share of the claims of such members to the entire settlement .2 8 There are no written judicial opinions relating to the N/A materials attached as Exhibits 3 through 6.
The foregoing information is provided based on the information currently available to the Settling Defendants and on the status of the proceedings at the time of the submission of this notification. If you are unable to access any of the information included on the enclosed CD, prefer paper copies of some or all of the enclosed materials or require additional information, please contact TyCom's counsel.
z 28 U.S.C. § 1715(b)(7)(A) provides that a notification must include "if feasible, the names of class members who reside in each State and the estimated proportionate share of the claims of such members to the entire settlement—." (emphasis supplied).
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PLEASE TAKE NOTICE that pursuant to CAFA you are not required to comment on the proposed settlement. However, if you wish to comment, please file your comment at the following address:
Honorable'Clerk of Court United States District Court District of New Jersey Clarkson S. Fisher Courthouse 502 E. State Street Trenton, NJ 08608
Alternatively, the United States District Court for the District of New Jersey (the
"District Court') uses the federal electronic case filing ("ECF")system. More information about the District Court's ECF system is located at www.njd.uscourts.gov. i PLEASE TAKE NOTICE that if you choose to comment on the settlement, you should provide notice and a copy of your comment to the counsel identified below.
PLEASE TAKE NOTICE that the Settling Defendants are not under a duty to supplement this notice. If you have any questions about this notice, the underlying action, or the enclosed materials, please contact counsel for the Settling
Defendants. The parties' proposed Final Judgment and Order of Dismissal with
Prejudice shall request that the Court find that the Settling Defendants have provided notice pursuant to CAFA.
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By: Karen A. Co 'oy, Esq. Sterns & Weinroth, PC One State Street Square Office Building 50 West State Street, Suite 1400 Trenton, New Jersey 08607-1298 609-989-5012 609-392-7956 (fax) f [email protected] Counsel for Defendants TyCom Ltd. and j Tyco International Ltd.
By: Elizabeth F. Edwards, Esq. McGuire Woods LLP One James Center 901 East Cary Street Richmond, Virginia 23219 804-775-1000 703.712.5262 (fax) [email protected] Counsel for Defendants TyCom Ltd. and Tyco International Ltd.
By: Fred Bartlit, Jr., Esq. Bartlit Beck Herman Palenchar & Scott LLP 1899 Wynkoop Street, Suite 800 Denver, CO 80202 303-592-3136 303-592-3140 (fax) [email protected] Counsel for Defendants .TyCom Ltd and Tyco International Ltd.
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By: !% Idl _x 1ld.., // eth L. Kaufman, sq. choeman Updike & Kaufman LLP 60 East 42nd Street New York, NY 10165 212-661-5030 212-687-2123 (fax) [email protected] i Counsel for Defendant Neil R. Garvey l ;
By' Lawrence B. Friedman, Esq. One Liberty Plaza New York, NY 10006 Cleary Gottlieb Steen & Hamilton LLP 212-225-2000 212-225 -3999 (fax) [email protected] Counsel for Goldman, Sachs & Co., Merrill Lynch & Co. and Salomon Smith Barney Inc. (n/kla Citigroup Global Markets)
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CERTIFICATE OF SERVICE
I hereby certify that a true and exact copy of the foregoing NOTICE OF
SETTLEMENT TO FEDERAL AND/OR STATE OFFICIALS and accompanying
compact disc were mailed by Federal Express this 10 `h day of May, 2010 to the following:
Troy King John Suthers i Alabama Attorney General Colorado Attorney General 500 Dexter Avenue 1525 Sherman St. Montgomery, AL 36130 Denver, Colorado 80203 (334) 242-7300 303-866-4500
Daniel Sullivan Richard Blumenthal Alaska Attorney General Connecticut Attorney General 1031 W. 4th Ave., Suite 200 55 Elm St. Juneau, AK 99501-1994 Hartford, CT 06141-0120 (907) 465-3600 (860) 808-5318
Terry Goddard Joseph R. 'Beau" .Biden, III Arizona Attorney General Delaware Attorney General 1275 W. Washington St. 820 N. French St. Phoenix, AZ 85007 Wilmington, DE 19801 (602) 542-4266 (302) 577-8338
Dustin McDaniel Peter Nickles Arkansas Attorney General District of Columbia Attorney General 200 Tower Bldg., 323 Center St. 1350 PA Ave, NW Suite 409 Little Rock, AR 72201-2610 Washington, DC 20009 (800) 482-8982 (202) 727-3400 -
Edmund G. "Jerry" Brown, Jr. Bill McCollum California Attorney General Florida Attorney General 1300 I St., Ste. 1740 The Capitol, PL 01 Sacramento, CA 95814 Tallahassee, FL 32399-1050 (916) 445-9555 (850) 414-3300
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Thurbert E. Baker Steve Six Georgia Attorney General Kansas Attorney General 40 Capitol Square, SW 120 S.W. 10th Ave., 2nd Fl. Atlanta, GA 30334-1300 Topeka, KS 66612-1597 (404) 656-3300 (785) 296-2215
Mark J. Bennett Jack Conway Hawaii Attorney General Kentucky Attorney General 425 Queen St. 700 Capitol Avenue, Suite 118 Honolulu, HI 96813 Frankfort, KY 40601 (808) 586-1500 (502) 696-5300
Lawrence Wasden James D. "Buddy" Caldwell Idaho Attorney General Louisiana Attorney General 700 W. State Street 1885 N. Third St. Boise, ID 83 720-10 10 Baton Rouge, LA 70804 (208) 334-2400 225-326-6000
Lisa Madigan Janet T. Mills Illinois Attorney General Maine Attorney General 100 W. Randolph St. 6 State House Station Chicago, IL 60601 Augusta, ME 04333 (312) 814-3000 (207) 626-8800
Greg Zoeller Douglas F. Gansler Indiana Attorney General Maryland Attorney General 302 West Washington Street, 5th Floor 200 St. Paul Place Indianapolis, IN 46204 Baltimore, MD 21202-2202 (317) 232-6201 (410) 576-6300
Tom Miller Martha Coakley Iowa Attorney General Massachusetts Attorney General 1305 E. Walnut 1 Ashburton Place Des Moines, IA 50319 Boston, MA 02108-1698 (515) 281-5164 (617) 727-2200
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Mike Cox Catherine Cortez Masto Michigan Attorney General Nevada Attorney General 525 W. Ottawa St. Old Supreme Ct. Bldg., 100 N. Carson St. Lansing, MI 48909-0212 Carson City, NV 89701 (517) 373-1110 (775) 684-1100
Lori Swanson Michael Delaney Minnesota Attorney General New Hampshire Attorney General 445 Minnesota Street State House Annex, 33 Capitol St. St. Paul, MN 55101-2131 Concord, NH 03301-6397 (651) 296-3353 (603) 271-3658
Jim. Hood Paula T. Dow Mississippi Attorney General New Jersey Attorney General. 550 High Street, Suite 1220 25 Market Street Jackson, MS 39201 Trenton, NJ 08625 (601) 359-3680 (609) 292-8740
Chris Koster .Gary King Missouri Attorney General New Mexico Attorney General 207 W. High St. 408 Galisteo Street Jefferson City, MO 65101 Sante Fe, NM 87501 (573) 751-3321 (505) 827-6000
Steve Bullock Andrew Cuomo Montana Attorney General New York Attorney General Justice Bldg., 215 N. Sanders Washington Ave. & State Street Helena, MT 59620-1401 The Capitol, 2nd Fl. (406) 444-2026 Albany, NY 12224-0341 (518) 474-7330 Jon Bruning Nebraska Attorney General Roy Cooper 1445 K. Street North Carolina Attorney General Lincoln, NE 68509 9001 Mail Service Center (402) 471-2682 Raleigh, NC 27699-9001 (919) 716-6400
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Wayne Stenehjem Henry McMaster North Dakota Attorney General South Carolina Attorney General State Capitol, 600 E. Boulevard Ave. 1000 Assembly Street, Room 519 Bismarck, ND 58505-0040 Columbia, SC 29201 (701) 328-2210 (803) 734-3970
Richard Cordray Marty J. Jackley Ohio Attorney General South Dakota Attorney General State Office Tower, 30 E. Broad St. 1302 East Highway 14, Suite 1 Columbus, OH 43266-0410 Pierre, SD 57501-8501 (614) 466-4320 (605) 773-3215 i W. A. Drew Edmondson Robert E. Cooper, Jr. Oklahoma Attorney General Tennessee Attorney General 313 NE 21st Street 425 5th Avenue North Oklahoma City, OK 73105 Nashville, TN 37243 (405) 521-3921 615-741-3491
John Kroger Greg Abbott Oregon Attorney General Texas Attorney General Justice Bldg., 1162 Court St., NE 300 W. 15th Street Salem, OR 97301 Austin, TX 78701 (503) 378-4732 (512) 463-2100
Tom Corbett Mark Shurtleff Pennsylvania Attorney General Utah Attorney General 1600 Strawberry Square 350 North State Street, Suite 230 Harrisburg, PA 17120 Salt Lake City, UT 84114 (717) 787-3391 (801) 538-9600
Patrick C. Lynch William H. Sorrell Rhode Island Attorney General Vermont Attorney General 150 S. Main St. 109 State St. Providence, RI 02903 Montpelier, VT 05609-1001 (401) 274-4400 (802) 828-3173
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Ken Cuccinelli J.B. Van Hollen Virginia Attorney General Wisconsin Attorney General 900 East Main Street 17 W. Main Street Richmond, VA 23219 114 E. State Capitol (804) 786-2071 Madison, WI 53703 (608) 266-1221 Rob McKenna Washington Attorney General Bruce A. Salzburg 1125 Washington St. SE Wyoming Attorney General Olympia, WA 98504-0100 123 State Capitol Bldg., 200 W. 24th Street (360) 753-6200 Cheyenne, WY 82002 (307) 777-7841 Darrell V. McGraw, Jr. West Virginia Attorney General Eric H. Holder State Capitol, 1900 Kanawha Blvd. E. U.S. Attorney General Charleston, WV 25305 U.S. Department of Justice (304) 558-2021 950 Pennsylvania Avenue, N.W. Washington, DC 20530-0001 (202) 514-2000
Eliza eth F. Edwards, Esq. McGuireWoods LLP
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LAW OFFICES OF JAMES V. BASHIAN, P.C. James V. Bashian Fairfield Commons 271 Route 46 West, Suite F207 Fairfield, New Jersey 07004 (973) 227-6330
[Additional Counsel for Plaintiff Set Forth Below]
UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY
ROSEMARIE STUMPF, on Behalf of Herself and All Others Similarly Situated, No. 0 3 C q 0 C )
Plaintiff, CLASS ACTION COMPLAINT
vs. JURY TRIAL DEMANDED NEIL R. GARVEY, L. DENNIS KOZLOWSKI, MARK H. SWARTZ, TYCO INTERNATIONAL LTD., TYCOM LTD., GOLDMAN, SACHS & CO., MERRILL LYNCH, PIERCE FENNER & SMITH INCORPORATED, and CITIGROUP GLOBAL MARKETS, INC.,
Defendants.
Plaintiff, individually and on behalf of all others similarly situated, by her attorneys, alleges the following upon information and belief, except for paragraph 6, which is alleged upon personal knowledge. Plaintiffs information and belief is based on the investigation of her counsel, including a review of Tyco International Ltd. ("Tyco") and TyCom Ltd.'s ("TyCom") publicly issued press releases; filings with the Securities and Exchange Commission ("SEC"), including the Prospectus filed with the SEC on July 26, 2000 (the "Prospectus"); news stories;
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NATURE OF THE ACTION
1. Plaintiff brings this action as a class action on behalf of herself and all other persons or entities who purchased shares of TyCom common stock pursuant to or traceable to the
July 26, 2000 Prospectus to recover damages caused by defendants' violation of the federal securities laws.
JURISDICTION AND VENUE
2. This action arises under Sections 11 and 15 of the Securities Act of 1933 (the
"Securities Act"), 15 U.S.C. §§ 77k and 770, and Section 10b(5) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78j(b).
3. Jurisdiction is conferred upon this Court by Section 22 of the Securities Act, 15
U.S.C. § 77v; Section 27 of the Exchange Act, 15 U.S.C. § 78aa; and 28 U.S.C. § 1331 (federal question jurisdiction). This Court has personal jurisdiction of the defendants pursuant to Section
22 of the Securities Act, 15 U.S.C. § 77v, and Section 27 of the Exchange Act, 15 U.S.C. § 78aa.
4. Venue is proper in this District because TyCom and Tyco maintained offices in the district during the class period and many of the acts and transactions constituting the violations of law herein complained of occurred within this District, including the preparation and dissemination of materially false and misleading financial statements and corporate . documents.
5. In connection with the acts alleged herein, the defendants directly or indirectly used the means and instrumentalities of interstate commerce, including the United States mails and facilities of a national securities exchange.
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PARTIES
6. Plaintiff Rosemarie Stumpf, who resides at 17 Whiting Avenue, Floral Park, New
York 11001-1518, purchased TyCom common stock during the Class Period as alleged herein.
7. Defendant TyCom is a corporation organized and existing under the laws of
Bermuda with several offices in the United States. TyCom supplies undersea fiber optic networks and services and also designs, engineers, manufactures, and installs undersea cable and cable networks. TyCom was incorporated on March 8, 2000 as a wholly-owned subsidiary of
Tyco to serve as the holding company for its undersea fiber optic cable communications.
8. Defendant Tyco is a diversified manufacturing and service corporation organized and existing under the laws of Bermuda with offices located throughout the United States. Tyco manufactures, services, and installs electrical and electronic components, undersea telecommunications systems, and fire protection and security systems. Tyco also manufactures flow control valves, healthcare and specialty products, and plastics. During the class period,
Tyco owned 89% of TyCom's common shares outstanding. Tyco currently owns 100% of
TyCom's outstanding common stock. -
9. Defendant L. Dennis Kozlowski ("Kozlowski") was at all relevant times the
Chairman of the Board of Directors and a Director of TyCom, as well as the Chief Executive
Officer, the Chairman of the Board of Directors, and a Director of Tyco.
10. Defendant Neil R. Garvey ("Garvey") was at all relevant times the President,
Chief Executive Officer, and a Director of TyCom. Garvey also was at all relevant times the
President of the Submarine Systems, the Vice President of Tyco, and a Director of Tyco.
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11. Defendant Mark H. Swartz ("Swartz") was at all relevant times a Director of
TyCom. Swartz also was at all relevant times the Executive Vice President and Chief Financial
Officer of Tyco.
12. The defendants identified in paragraphs 9-11 may be referred to herein as
"Individual Defendants."
13. The Individual Defendants each signed the Registration Statement for the
Offering, which was materially false and misleading.
14. Goldman Sachs is a Delaware corporation with executive offices located at 85
Broad Street, New York, NY 10004 and which maintains offices in New Jersey.
15. Merrill Lynch is a Delaware corporation with executive offices located at 4 World
Financial Center, New York, NY 10080 and which maintains offices in New Jersey. On May 28,
2003, the NASD commenced action against Phua Young, the Merrill Lynch analyst who followed Tyco, for a series of research violations committed in connection with his coverage of defendant Tyco. Young was charged with disseminating biased research reports on behalf of
Merrill Lynch that contained misleading statements and exaggerated claims about Tyco and its operations between August 1999 and April 2002, a period of time that includes the Class Period.
16. Citigroup Global Markets, Inc., known as Salomon Smith Barney during the Class
Period, is a Delaware corporation with executive offices located at 388 Greenwich Street, New
York, NY 10013 and maintains offices in New Jersey.
17. Goldman Sachs, Merrill Lynch, and Citigroup Global Markets, Inc, acting as
Salomon Smith Barney (collectively, the "Underwriters"), were co-lead underwriters of the July
26, 2000 initial public offering of TyCom common stock.
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PLAINTIFF'S CLASS ACTION ALLEGATIONS
18. Plaintiff brings this action as a class action pursuant to Rules 23(a) and 23(b)(3) of the Federal Rules of Civil Procedure ("Fed.R.Civ.P."), on behalf of all persons or entities who purchased shares of TyCom common stock pursuant to or traceable to the July 26, 2000
Prospectus, including shares purchased on the open market during the period from July 26, 2000 through October 19, 2001, inclusive (the "Class Period") and were damaged thereby. Excluded
from the Class are the defendants herein, officers and directors of Tyco, TyCom, or the
Underwriters, members of the immediate family of each of the Individual Defendants, and
affiliates of the corporate defendants (the "Class").
19. The members of the Class are so numerous that joinder of all members is
impracticable. While the exact number of Class members is unknown to plaintiff at this time and
can only be ascertained through appropriate discovery, plaintiff believes there are hundreds of
members of the Class. TyCom's common stock was actively traded on the New York Stock
Exchange throughout the Class Period.
20. Plaintiff will fairly and adequately protect the interests of the members of the
Class. Plaintiff has retained competent counsel experienced in class action litigation under the
federal securities laws to further ensure such protection; he is a member of the Class; her claims
are typical of the claims of all Class members; and he does not have interests antagonistic to, or
in conflict with, those of the Class.
21. A class action is superior to other available methods for the fair and efficient
adjudication of this controversy since a multiplicity of actions could result in an unwarranted
burden on the Court system and could create the possibility of inconsistent judgments.
Moreover, a class action will allow redress for many persons whose claims would otherwise be
Doc $: 136501 Ver#:1 2929:1489 " 5 ° Case 3:03-cv-03540-GEB-DEA Document 142-1 Filed 05/10/10 Page 6 of 24 too small to litigate individually. There will be no difficulty in the management of this action as a class action.
22. There are numerous questions of law and fact which are common to the Class and which predominate over any questions affecting individual members of the Class, including:
1. whether the federal securities laws were violated by defendants' acts as alleged
herein;
2. whether the Registration Statement and Prospectus omitted to state or
misrepresented material facts concerning (i) the executive compensation of Tyco's
senior management; (ii) Tyco's reasons for having commenced the initial public
offering of a minority interest of TyCom common stock; and (iii) the business
operations and finances of TyCom; and
3. whether members of the class were damaged by virtue of their investments in
TyCom common stock during the Class Period, and if so, the appropriate measure
of damages.
SUBSTANTIVE ALLEGATIONS
Background
23. The Class Period begins on July 26, 2000, when TyCom filed a Registration
Statement and Prospectus with the SEC for the initial offering of 61,130,435 shares of TyCom common stock at $32 per share (the "Offering"). Prior thereto, 100% of the outstanding TyCom shares were owned by Tyco or its affiliates.
24. Goldman Sachs, Merrill Lynch, and Salomon Smith Barney were the co-lead underwriters of the Offering.
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25. As a result of the Offering, Tyco became the 89% owner of TyCom common
stock.
False and Misleading Statements
26. According to the Prospectus, the purpose of the Offering was to finance the design
and implementation of the TyCom Global Network, a proposed global undersea fiber optic
network which Tyco predicted would "be the most extensive and technologically advanced"
network of its kind. The Prospectus stated that $1.65 billion of the anticipated $1.85 billion net
proceeds from the Offering were to be used toward the development of the first phase of the
TyCom Global Network and the remaining $200 million of the proceeds would pay a dividend to
a wholly-owned subsidiary of Tyco.
27. The Prospectus contained (at 66) a summary compensation table for defendants
Kozlowski, Garvey, and Swartz, and TyCom's other executive officers. Included among those
disclosures (at 71) was a summary of TyCom's Employee Corporate Loan Program that,
according to the Prospectus, was "to encourage ownership of Tyco common shares by key
employees" by providing loans to be "primarily used for the payment of taxes due as a result of
the vesting of restricted stock." I 28. According to the Prospectus (at 71), the summary compensation table
"[presented.] the annual and long-term compensation for services in all capacities to Tyco and its
subsidiaries for the Chief Executive Officer of TyCom and the other four most highly
compensated executive officers of TyCom during fiscal 1999." Additionally, the Prospectus
stated that:
[a]t September 30, 1999, the amount of loans outstanding under this loan program totaled $18,569,137, of which $0 was loaned to Mr. Kozlowski, $304,363 was loaned to Mr. Garvey and $0 was loaned to Mr. Swartz. The largest amount of
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indebtedness outstanding at any time since October 1, 1998 by Mr. Kozlowski was $52,688,249, by Mr. Garvey was $1,153,645 and by Mr. Swartz was $17,435,319.
29. The Prospectus was materially false and misleading and failed to disclose that, contrary to the representations in the Prospectus that the Individual Defendants had only
$304,363 in loans outstanding to them on September 30, 1999, defendants Kozlowski and Swartz had, among other things, instituted a corporate "relocation loan" program and as of September
30, 1999 had outstanding loan balances of $35,307,668 (September 17, 2002 Form 8-K at 9) and
$7,862,532 (September 17, 2002 Form 8-K at 12), respectively.
30. The Prospectus also failed to disclose that the purpose of the Corporate Loan
Program was to confer substantial personal benefits on the Individual Defendants rather than to encourage stock ownership by providing for the payment of taxes as the Prospectus suggested.
The September 17, 2002 Form 8-K revealed that defendant Kozlowski used Tyco funds to acquire high-end real estate and make extravagant purchases as described more fully below.
31. Additionally, the Prospectus failed to disclose that the Individual Defendants were motivated in substantial part to make the Offering so that Tyco would realize a profit on the shares to be sold to public investors; instead, the Prospectus falsely represented that the Offering was made to finance the development of the TyCom Global Network. That profit was intended to be used in significant part to pay defendants Kozlowski and Swartz and other executive officers bonuses that, in turn, would be applied by them to the repayment of their outstanding
"relocation loans."
32. Plaintiff and other members of the Class purchased shares of TyCom in the
Offering and in the after-market pursuant to the Prospectus in reliance on the truth of the disclosures in the Prospectus, particularly those relating to the Individual Defendants'
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compensation and the Individual Defendants' motives for spinning off a minority interest in
TyCom.
33. The Underwriters began analyst coverage of TyCom on August 21, 2000.
Defendant Merrill Lynch initiated a near-term rating of "accumulate," a long-term rating of
"buy," and a 12-18-month target price of $60 per share. Defendant Goldman Sachs initiated a
rating of "recommend list" and a 12-month target price of $60 per share. Defendant Citigroup
Global Markets, Inc. initiated a rating of "buy" and a 12-month target price of $75 per share.
34. TyCom common stock, after initially trading at a closing high of $45.438 on
September 1, 2000, began a long decline in value to a closing price of $7.41 on September 27,
2001. Investors were not informed, however, of the Individual Defendants' underlying motive
for the Offering until September 12, 2002, at which time it was first publicly revealed that the
Offering was utilized by Kozlowski and Swartz to realize bonuses to be used to repay the I undisclosed relocation loans.
35. After achieving their objective of generating bonuses from the Offering to repay
the relocation loans, on October 19, 2001, the Individual Defendants caused Tyco and TyCom to
announce before the opening of trading that they had entered into a definitive agreement
whereby a subsidiary of Tyco would reacquire the outstanding 11 % minority interest in TyCom
(representing approximately 56 million common shares) at a ratio of .3133 shares of Tyco
common stock for every outstanding share of Tycom common stock. On December 17, 2001-, the
effective day of the merger, Tyco common stock closed at $55.80 per share, making the effective
acquisition price of the merger $17.48 per share.
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Defendants' Course of Conduct Begins to Be Revealed
36. On September 12, 2002, Tyco issued a press release that specifically described defendant Kozlowski's misconduct. The September 12, 2002 press release announced that Tyco had "filed suit against ... Kozlowski, charging that he misappropriated money and assets from the
Company and engaged in a concerted pattern of conduct to conceal larcenous acts from the Board of Directors."
37. According to the press release, the lawsuit filed by Tyco "accuse[d] Kozlowski of fraud and self-dealing that included, among other actions: abusing Tyco's relocation and Key
Employee Loan programs and obtaining, under false pretenses loans that he used to fund personal expenditures; misappropriating for himself over $100 million, including unauthorized bonuses totaling $58 million and unauthorized loans of over $43 million; taking personal credit for more than $43 million in charitable donations that actually were made by Tyco; and engaging in a number of self-dealing transactions involving property he sold the Company at inflated prices and real estate that was used by him and his family without compensating Tyco."
38. The lawsuit, which was brought only on behalf of Tyco, sought "to recover all funds misappropriated from Tyco for Kozlowski himself or awarded by Kozlowski to his senior executives and key managers without appropriate authorization from the Compensation
Committee of the Board of Directors, plus damages and other forms of relief' including "at a minimum, the recovery of all unauthorized compensation paid by Kozlowski to other employees from 1997 to 2002, repayment of outstanding loans he improperly borrowed from Tyco, and the forfeiture of all income and benefits received by him from 1997 to 2002."
39. The press release identified the following "specific actions through which
Kozlowski failed in his duties to Tyco":
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• Abuse of New York Relocation Program — In 1995, after he decided to relocate to New York City, Kozlowski transformed a Compensation Committee-approved relocation program intended for all employees into a special program for a few senior executives that was never sanctioned by the Board. Kozlowski obtained these substantial benefits under the unapproved, transformed plan:
1. Beginning in July 1997, he rented a lavish Fifth Avenue apartment in New York at an annual rent of $264,000, paid for by the Company.
2. He used an interest-free loan to buy a Company-owned, $7-million Park Avenue apartment, at depreciated book value and without appraisals, which he never occupied and instead deeded to his ex-wife a few months after the purchase.
3. He sold his Exeter, New Hampshire home to the Company for significantly more than its market value, resulting in a $3-million overpayment to him by Tyco.
4. He had the Company purchase a second, more extravagant, Fifth Avenue apartment in 2001 for $16.8 million, plus $3 million in improvements and $11 million in furnishings, without disclosing to the Board or its Compensation or Audit Committees that this home was paid for by Tyco and carried by the Company as a corporate asset.
5. He "grossed up" the benefits he received under the program to insulate himself from New York State income tax liability related to the relocation to New York.
Kozlowski knew that the benefits to him and other key executives under such a program required Compensation Committee approval and never sought such approval from the Board.
• Abuse of Key Employee Loan Program — The long-standing Key Employee Loan Program (KEL) was designed to encourage stock ownership by executives by obviating their need to liquidate shares to meet tax liabilities. However, Kozlowski systematically abused this program, turning it into a personal line of credit. From 1997 to 2002, he took more than 200 loans from the program, borrowing more than $274 million, of which more than $245 million was not used in accordance with the purpose of the program. Instead, he used these funds for a wide variety of personal needs, including purchases of everything from homes, yachts, antiques and furniture to payments to his domestic help.
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• Unauthorized Credits to KEL Program — To offset his indebtedness to Tyco, without the knowledge or approval of the Board, Kozlowski directed Chief Financial Officer Mark Swartz to effect credits of $25 million to Kozlowski's KEL account and $12.5 million to Swartz's account. (When the Board learned of these unauthorized journal entries during the course of the investigation, it directed that they be reversed.) Kozlowski continued to abuse the KEL program, and when he left the Company on June 3, 2002, he owed this program $43,840,461, plus interest, all of which is due.
• Unauthorized Florida Relocation Program.— After the 1997 reverse merger with ADT, Kozlowski decided to relocate more than 40 corporate employees to ADT's U.S. headquarters in Boca Raton, Florida and created a new relocation program by appropriating the terms of the earlier New York program. He circumvented the need for Compensation Committee approval of this program by creating a program somewhat similar to the New York program. As in New York, he created two versions of the program, one for general use that met the IRS standards and a second for the use of a few executives. Without changing his primary residence, Kozlowski used this program to obtain $29,756.110 in interest-free loans to assemble five lots into a compound and build an estate in an exclusive Boca enclave called "The Sanctuary." Kozlowski did not obtain Compensation Committee approval of this program and concealed these benefits from the Board.
• "TyCom Bonus" — Unauthorized Forgiveness of Relocation Loans — In September 2000, Kozlowski still owed Tyco more than $37 million, so he "contrived, promoted and fraudulently executed" a plan to obtain relief. He falsely informed the Senior VP of Human Resources that the Board had decided to forgive all of the Florida relocation loans to the more than 40 employees — and to "gross up" this benefit by making each employee whole on an after-tax basis for the forgiveness — as a reward for completion of the TyCom IPO. The unauthorized loan and gross-up program was in addition to a more limited program of cash bonuses and restricted stock awards that the Compensation Committee — unaware of the Kozlowski program — approved the next month. Kozlowski's unauthorized program cost Tyco close to $100 million, including Kozlowski's share of $32,644,338.
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• Unauthorized "ADT Automotive Bonus" — In November 2000, still pressed by his indebtedness to Tyco, Kozlowski contrived another special bonus program. This bonus was supposed to recognize executives for contributions to the divestiture of Tyco's ADT Automotive business via cash and "relocation" benefits, even though the beneficiaries had already recovered the grossed-up cost of their "relocations" under the TyCom forgiveness bonus. This "bonus" cost Tyco nearly $56 million, of which $25.6 million benefitted Kozlowski. As with the "TyCom Bonus," Kozlowski led other executives to believe the program was Board approved, which it was not. Adding everything up, including his authorized compensation and the money misappropriated as purported compensation, Kozlowski's income from Tyco in 2000, as reported to the IRS, was an incredible $137,491,353.39.
• Fraudulently Procured Retention Agreement —In 2001, Kozlowski pressed the Company to sign a retention agreement, which among other things, provided for ongoing compensation and benefits for three years following age 62. The monetary value of this provision, as approved by the Compensation Committee, would have been approximately $20 million. However, he fraudulently deceived the Committee into amending the compensation formula that, unbeknownst to the Committee, would have resulted in a ten-fold increase in the compensation that would be due to him.
• Unauthorized Payment to Walsh — In early 2001, Kozlowski approved the payment of a $20-million finder's fee to then-director Frank Walsh in connection with the acquisition of The CIT Group. Kozlowski and Walsh concealed this payment from the Board, which did not become aware of it until reading a draft proxy in January 2002 and demanded immediate repayment. The Board was galvanized into action by this payment and, in February 2002, undertook a review of all transactions involving senior management. Also, in early May 2002, the Board hired independent counsel, Boies Schiller & Flexner, to represent the Company with regard to the Walsh matter.
• Frustration of Board's Investigation — As a result of the Walsh payment, the Board began a wide-ranging investigation into the activities of Kozlowski and other senior managers. Throughout early 2002, while paying lip service to the heightened Board oversight, at no time did Kozlowski disclose the enormous compensation he had taken for himself and others over the past several years. From February through May 2002, Kozlowski continued to conceal the facts from the Board and attempted to delay and frustrate the investigation.
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• Failure to Report Subpoena to Board — On May 3, 2002, in the course of investigating Kozlowski's failure to pay state sales taxes, the Manhattan District Attorney served Kozlowski with a subpoena for records relating to his compensation and his recent purchases. Kozlowlski had an affirmative duty to inform the Board of this, but failed to do so. In fact, he did not inform the Board until May 31, the day he learned he was to be indicted.
• Charitable Contributions — From 1997 to 2002, Kozlowski committed donations and pledges to charitable organizations with Company money amounting to more than $106 million. At least $43 million of these donations were made for his personal benefit or were represented as his personal donations. For example, in 2001, Kozlowski donated $1.3 million of Company money to the Nantucket Conservation Foundation, Inc., which in turn purchased property adjacent to Kozlowski's own Nantucket estate to prevent future development of the land. He also pledged $10 million to the California International Sailing Association in his name. Other Tyco contributions were made in his name to schools, colleges, hospitals, and Nantucket institutions with which he had a personal connection.
• Other Elements of Kozlowski's Fraud and Self-Dealing — Other actions by Kozlowski that formed a pattern of fraud and self-dealing included expensing to the Company the following items, among others:
1. Millions of dollars for the personal use of his various residences and purchases of furniture and other items for these residences;
2. $700,000 for a personal investment in the movie, "Endurance;"
3. More than $1 million for a lavish celebration of his wife's birthday in Sardinia, Italy;
4. Reimbursement for $1 million of business expenses without proper documentation for such items as jewelry, clothing, wine, club membership dues, flowers and a private venture; and.
5 At least $110,000 for the corporate use of his personal yacht, the "Endeavour."
40. On September 17, 2002, Tyco filed a Form 8-K with the SEC further disclosing and describing Tyco's findings in its investigation of what it termed to be a three-year "pattern of improper and illegal conduct by which [Tyco's top corporate officers] enriched themselves at the
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41. The pattern of illegal and inappropriate conduct included the practice of making undisclosed "relocation loans" to selected officers and/or executives of Tyco. Although Tyco had adopted and implemented a relocation program that, by its terms, "was intended not to discriminate in scope, terms or operation in favor of executive officers or directors of the
Company," in 1995, the Form 8-K reveals that defendant Kozlowski nevertheless "implemented a different, more generous New York relocation plan, tailored to the individual circumstances of five or six executives and one assistant, which had not been authorized by the Compensation
Committee of the Board." This information was in direct contravention of the representations contained in the Prospectus, which, as discussed above, alleged that as of September 30, 1999, the total amount of loans outstanding under the relocation program totaled only $18,569,137.
42. Tyco disclosed in the Form 8-K that "[a]s a result of the foregoing [relocation loan program], certain executive officers used the relocation program to receive non-qualifying
loans and unauthorized benefits that were not generally available to all salaried employees
affected by relocations, or were not related to any Tyco relocation, enriching themselves with no
colorable benefit to Tyco."
43. Defendant Kozlowski created the relocation loan program to confer substantial
benefits on himself and the other Individual Defendants and neglected to disclose the existence,
extent, and nature of the relocation loan program. The Form 8-K reveals that as of September
17, 2002, defendant Kozlowski had "improperly borrowed approximately $29,756,000 in non-
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qualifying relocation loans to purchase land and construct a home in Boca Raton, Florida during the years 1997 to 2000, and improperly borrowed approximately $7,012,000 in non-qualifying relocation loans to purchase a cooperative apartment in New York City in 2000," and had also borrowed an additional $24,922,849 in interest free loans, bringing his total amount of unauthorized interest free relocation loans to $61,690,628.
44. Defendant Swartz received a total of $33,097,925 in unauthorized interest free loans (including $7,862,532 in loans outstanding as of September 30, 1999) and defendant
Garvey received a total of $5,000,000 in unauthorized interest free relocation loans.
45. The September 17, 2002 Form 8-K contained a discussion titled "The `TyCom
Bonus' Misappropriation" which revealed that, contrary to the representations made in the July
26, 2000 Prospectus, Tyco was motivated to make the public offering of TyCom stock on July
26, 2000 to generate funds to forgive the unauthorized interest-free loans and thereby eliminate the need to include the full charges for the loans on Tyco's financial statements. The Form 8-K revealed, in relevant part:
In September 2000, Mr. Kozlowski caused Tyco to pay a special, unapproved bonus to 51 employees who had relocation loans with the Company ... The bonus was calculated to forgive the relocation loans of all 51 employees, at a total cost of $56,415,037, and to pay compensation sufficient to discharge all of the tax liability due as a result of the forgiveness of those loans. This action was purportedly related to the successful completion of the TyCom Initial Public Offering. The total gross wages paid by the Company in this loan forgiveness program were $95,962,000, of which amount Mr. Kozlowski received $32,976,000 and Mr. Swartz $16,611,000.
These benefits were not approved by, or disclosed to, the Compensation Committee or the Board of Directors. Indeed, the opposite occurred: each of the fifty-one participating employees who was offered the forgiveness was asked to sign a confidentiality agreement in which they agreed not to disclose either the fact of the bonus or its terms to anyone other than the recipient's personal financial, tax or legal
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advisors. Breach of this confidentiality agreement would result in forfeiture of the bonus. Some employee beneficiaries of this forgiveness were not even permitted to keep a copy of their signed agreement.
According to Ms. Patricia Prue, Tyco's Senior VP of Human Resources, Mr. Kozlowski told her to process the forgiveness and the gross-ups and asserted that the Board had approved the program. Upon Ms. Prue's request for documentation of the authorization, Mr. Kozlowski sent her and her supervisor, Mark Swartz, a memo on September 11, 2000, for her files indicating that "a decision has been made to forgive the relocation loans for those individuals ...whose efforts were instrumental to successfully completing the TyCom IPO." Attached to the memorandum was the list of employees who were to receive the forgiveness benefit. Mark Foley, a Vice President of Finance, prepared a memorandum signed by Mr. Swartz [the "Swartz Memorandum"] that explained the accounting treatment for the near-$100 million charge [for the relocation loan forgiveness]. The memo stated:
"The sale of 14% of TyCom generated a one-time gain of approximately $1.76 billion on the books of Tyco. We have decided to award special bonuses to various Tyco employees for their efforts over the past few years in I c1J.l1QU%0111g u116, va1uVI v1 1 .Y' vVm GLL1u uacavvy %,VLLU1vu11tag w this gain. Selected employees will receive their bonus in the form of cash, forgiveness of relocation loans, and/or Tyco Common shares under Tyco's restricted stock program."
46. By Tyco's own admission in its Form 8-K, the Prospectus misrepresented that
defendants' primary motive for issuing stock to public investors in the Offering was to support the
development of TyCom's global telecommunications network, thereby creating the illusion of the
probability of benefitting TyCom's shareholders in the future as TyCom continued to expand its
business. The Prospectus failed to disclose the Individual Defendants' intent to use the proceeds
from the initial public offering to forgive millions of dollars it had issued in unauthorized loans, as
described in the aforementioned Swartz Memorandum.
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47. Each of defendants Kozlowski and Swartz are currently subject to criminal charges relating to their "larcenous acts."
48. On a conference call with investors before the opening of the U.S. securities markets on September 25, 2002, Edward Breen, Kozlowski's replacement as Tyco's CEO, informed investors that Tyco would take a pre-tax charge of $2.0 to $2.5 billion to write-down the value of TyCom.
Breen said that the charge was necessary because TyCom had been building global fiber-optic network amid a glut of such capacity.
49. Tyco closed on September 25, 2002, in the aftermath of the revelation of the
Individual Defendants' larcenous acts and the write-down of Tycom's value, at $15.00, making the imputed value of class members' TyCom shares (based on the .3133 exchange ratio) approximately
$4.70 (as compared to the $32.00 offering price).
50. Plaintiff and the members of the Class would not have purchased shares pursuant to the Prospectus or would not have purchased those shares at $32.00 on the Offering or at the market price subsequent to the Offering if the true facts concerning the Individual Defendants' executive compensation and anticipated bonuses had been disclosed in the Prospectus.
COUNT I
Against Defendants for Violation of Sections 11 and 15 of the Securities Act
51. Plaintiff incorporates each of the foregoing paragraphs as if fully set forth herein except those allegations that sound in fraud which are specifically excluded. This Count is asserted against all defendants for violations of Sections l l and 15 of the Securities Act, 15 U.S.C. §§ 77(k) and 77(o).
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52. TyCom is the issuer of the stock sold pursuant to the July 26, 2000 Prospectus.
Defendants Kozlowski, Garvey, and Swartz signed the Registration Staternent that incorporated the materially false and misleading July 26, 2000 Prospectus. Kozlowski and Swartz were officers and directors of the Company at the time of the offerings.
53. The Registration Statement, which was supplemented by the July 26, 2000
Prospectus for the offerings, was inaccurate and misleading, contained untrue statements of material facts, omitted to state other facts necessary to make the statements made not misleading, and failed to disclose material facts as described above.
54. Defendants Kozlowski, Garvey, and Swartz, as directors and officers of TyCom and as signatories of the Registration Statement accompanying the July 26, 2000 Prospectus filed with the SEC were responsible for the preparation of the documents and failed to make a reasonable investigation or possess reasonable grounds for believing that the representations contained in those documents were true and that they disclosed all material facts. Defendants are primarily liable under
Section 11 of the Securities Act.
55. Plaintiff and the other members of the Class acquired shares of TyCom pursuant to, or traceable to, the July 26, 2000 Prospectus without knowing of untrue statements or omissions of material facts.
56. Plaintiff and the other Class members have sustained damages.
57. Defendants Kozlowski, Swartz, Garvey, and Tyco were controlling persons of
TyCom and had the ability to cause the corporate defendants to engage in the misconduct alleged herein.
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58. This action was brought within one year after the discovery of the untrue statements and omissions and within three years after TyCom common stock was offered to the public.
59. By virtue of the foregoing, defendants have violated Sections 11 and 15 of the
Securities Act.
COUNT II Against Defendants Tyco, TyCom, Swartz, Kozlowski, and Garvey for Violation of Sections 10(b) and 20(a) of the Exchange Act
60. Plaintiff realleges and incorporates by reference each and every allegation contained above.
61. Throughout the Class Period, defendants participated in a course of conduct involving misrepresentation and concealment of adverse material information about executive compensation and the business and finances of Tyco and TyCom, as specified herein.
62. Throughout the Class Period, defendants employed devices, schemes and artifices to defraud, while in possession of material adverse non-public information and engaged in acts, practices, and a course of fraudulent conduct as alleged herein in an effort to assure investors of
TyCom's unimpeded progress and expansion, which included the making of, or the participation in the making of, untrue statements of material facts and omitting to state material facts necessary in order to make the statements made about TyCom and its business, in the light of the circumstances under which they were made, not misleading. This conduct operated as a fraud and deceit upon the purchasers of TyCom securities during the Class Period.
63. The Individual Defendants, as officers and directors of TyCom and Tyco, are liable as direct participants in the wrongs complained of herein. The Individual Defendants were able to
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and did control, directly or indirectly, the content of the public statements and financial statements disseminated by TyCom. With knowledge of the falsity of the statements contained therein and in the reckless disregard of the true purpose of the TyCom spinoff, these officers and directors caused the complained of misstatements and omissions of material fact as alleged herein, and knowingly or recklessly failed in their duty to update or correct misleading statements issued by them or on their behalf.
64. Throughout the Class Period, the defendants had actual knowledge of the misrepresentations and omissions of material fact set forth herein, or acted with reckless disregard for the truth in that they failed to ascertain and to disclose such facts, even though such facts were available to them.
65. As a result of the deceptive practices and false and misleading statements and omissions, the market price of TyCom's common stock was artificially inflated during the Class
Period. In ignorance of the false and misleading nature of the representations described above and the deceptive and manipulative devices employed by said defendants, plaintiff and the other members of the Class, in reliance on either the integrity of the market and/or directly on the
statements and reports of defendants, purchased TyCom's common stock at artificially inflated prices.
66. Had plaintiff and the other members of the Class known of the material adverse
information not disclosed by defendants, or had they been aware of the truth behind defendants'
material misstatements, they would not have purchased TyCom's securities at artificially inflated
prices.
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67. Defendants Kozlowski, Swartz, Garvey, and Tyco were controlling persons of TyCom and had the ability to cause the corporate defendants to engage in the misconduct alleged herein.
68. By virtue of the foregoing, defendants have violated Sections 10(b) and 20(a) of the
Exchange Act.
69. Plaintiff and the other members of the Class have been damaged by defendants' violations as described in this Count and seek recovery for the damages caused thereby.
PRAYER FOR RELIEF
WHEREFORE, plaintiff, on behalf of herself and the other members of the Class, prays for judgment as follows:
I . Declaring this action to be a proper class action maintainable pursuant to Rule
23(b)(3) of the Fed.R.Civ.P. and declaring plaintiff to be a proper Class representative;
2. Awarding plaintiff and the other members of the Class damages suffered as a result of the wrongs complained of herein together with appropriate interest;
3. Awarding plaintiff and the other members of the Class their costs and expenses of this litigation, including reasonable attorneys' fees and experts' fees and other costs and disbursements; and
4. Awarding plaintiff and the other members of the Class such other and further relief as may be just and proper under the circumstances.
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JURY TRIAL DEMANDED
Plaintiff demands a trial by jury of all issues so triable.
Dated: July 23, 2003
Respectfully submitted,
LAW OFFICES OF JAMES V. BASHIAN, P.C.
r es V. B hian 271 Route 46 West, Suite F207 Fairfield, New Jersey 07004 (973) 227-6330
Attorney for Plaintiff
WOLF POPPER LLP Robert M. Kornreich Robert C. Finkel Caroline S. Curtiss 845 Third Avenue New York, NY 10022 (212) 759-4600
Co-Counsel for Plaintiff
Uoc#:.136501 Ver#:1 2929:1489 -23- Case 3:03-cv-03540-GEB-DEA Document 142-1 Filed 05/10/10 Page 24 of 24
G Rosemary Std hemebr start:
1. I have rsvkwed the m*lmiat mast Tycom Ltd., came of its d roctotx ad oZm%, tad the undwmitems of the July 26,20M public offm* and bave e r miaod the filing of thm complaint on my bebal£ I ttc Wn Wolfftpw LLP, as well as rwh co .comsel toy do= appropaar to associate Thth, to rases such action on a cnntimeeat fee bs,Vs.
2. I did" uqui a any Tycoom ucu dtia at the direadon of coumwl or in Dolor to patticipata iu this private at dm-
3. I am willing w =vv as a lead plaip4 eitbya' indvi&&Uy or as pact of a group, on behalf of a clan. A lead pWudff is a repwa mAve puty who gate on beW of odor clans members m divot q the action, n4 whose dutm may mcl u e tastiilSj at depos ton and trial. 1 undmwnd that to liOWwon is tsot allied, tau this is not a claim fmm and in my movay is not dependem vpoa exrec ndm of this Ca dfica don.
4. Ths#ollowiog includes sil of P]s{a ff's t umcdoas in Tyoom secud iu during the Class Period as defined in the Complain
See Attached Schedule
5. I have nm filed my action a a re;munladve peaty on beUf of a elm under the federal sacudtles taws during tba last three years,
6. 1 will-not taeept aw Paymaaot for sawing as a eve panty on bdu f of a elw except to rec eve zV pro ma shoe of my recovetp, or as orckred or opp wad by the Court, WchWb g the sward of remonWe costs and mcpaaees laebAn& lost vagu ralafmg to the rapm eaudon of the class.
I dwlmm under pawl of perjury► chat to foregoing is t=ut and Cabo t.
Dead: JWY 16, 2003 R,ommary SmuVf Case 3:03-cv-03540-GEB-DEA Document 142-2 Filed 05/10/10 Page 1 of 22
PE LLETTTERr, RARSTEIN &ALTMAN ARTHURYENN CHRISTINE LEWIS (CL-5685) 100 Nassau Park Boulevard, Suite 111 Princeton, NJ 08540 Tel: (609) 520-0900 Fax: (609) 452-8796
UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY
WILLIAM P. O'LOUGHLIN, Individually and Civ. No.. On Behalf ofAll Others Similarly Situated, CLASS ACTION plaingff COMPLAINT FOR VIOLATION Or- VS. THE FEDERALSECURT-1-TES LAWS NEIL R. CrARVEY, L. Din-NNIS KOZLOWSKI, MARK H. SWARTZ, TYCO DEMAND FOR.TURYTRJAL ,tN-MRNAT10NW,, T TQTYCOM TID—., GOLDMAN, SACHS & CO., MERRILL LYNCH, PIRRCE FENNER & SMITH INCORPORATED, and CITIGROUP GLOBAL MARKETS, INC.,
Defendants.
Plaintiff, individually and on belialf of all oth rs similarly siMt0d, alleges the llowing upon information and belief, except for paragraph 6, which is alleged upon personal knowledge,
Plaintiff's information and belief is based on the investigation of counsel, including a review of
Tro International Ltd, ("Tyco") and TyCoin I.td." q ("TyCotn") publicly issued press releases; filings with the Securities and Excbmige Commission ("SEC"'), including the Prospectus filed with the SEC on July 26, 2000 (the "Prospectus"); news stories; analysis' reports concerning
Tyco and TyCom,- and data concerning trades in Tyco and TyCom securities.
031610 WHO 11:26 Case 3:03-cv-03540-GEB-DEA Document 142-2 Filed 05/10/10 Page 2 of 22
NATURE OF THE ACTION
1. Plaintiff brings this action as a class action individually and on behalf of all other
persons or entities who purchased shares of TyCom common stock pursuant to or traccable to the
July 215, 2000 Prospectus t:o recover damages caused by defendants' violation of the federal
securities laws.
,TURISDICTIO►N AND VENUE 2. This action arises under Sections 11 and 15 of the Securities Act of 1933 (the
"Securities Act''), 15 U.S.C. §§ 77k and 770, and Section l Ob(5) of the Securities Exchange Act
of 1934 (the "Exchange Act"), 15 U.S.C. § 78j(b). 3. Jurisdiction is conferred upon this Court by Section 22 of the Securities Act, 15
U.S.C. § 77v; Section 27 of the Exchange Act, 15 U.S.C. § 78na; and 28 U.S.C. § 1331 (federal
question jurisdiction). This Court has personal jurisdiction of the defendants pursuant to Section
22 of the Securities Act, 15 U.S.C. § 77v, and Section 27 of the Exchange Act, 15 U.S.C. § 78aa.
4. Venue is proper in this District because TyCom and Tyco maintained offices in
the district during the class period and many of the acts and transactions constituting the
violations of law herein complained of occurred within this District, including; the preparation
and dissemination of materially false and misleading financial statements and corporate
documents.
5. In connection with the acts alleged herein, the defendants directly or indirectly used the means and instrumenlalitles of interstate commerce, including the United States mails
and facilities of a national securities exchange.
-2- 493i117ti I Wac O L1;26
Case 3:03-cv-03540-GEB-DEA Document 142-2 Filed 05/10/10 Page 3 of 22
PARTIES - 6. Plaintiff William P. O'Loughlin purchased TyCom common stock during the
Class Period as alleged herein.
7. Defendant TyCom is a cot'pctration organized and existing under the laws of
Bermuda with several offices in the Unitcd States. TyCom supplies undersea filter optic
networks and services and also designs, engineers, manufactures. and installs undersea cable and
cable networks. TyCom was incorporated on March 8, 2000 as a wholiy-owned subsidiary of
Tyco to serve as the holding company for its undersea filter optic cable communications.
R. Defendant Tyco is a diversified manufacturing and service corporation organized
and oxisting under the laws of Bermuda with of fices located throughout the United states, Tyco
manufactures, servic;cs. and installs electrical and electronic components, undersea
telecommunications systems, and free protection and security systems. Tyco also manufactures
flow control valvos, healthcare and speclatty products, and plastics. During the class period,
Tyco owned 99% of TyCorn's common shams outstanding. Tyco currently owns 100 11 0 of
TyCoin's outstanding common stack.
9. Defendant L. Tennis Kozlowski ("Kozlowsld") was at all relevant time; the
Chairman of the Board of Directors and a Director of TyCona, as well as the Chief Executive
officer, the Chairntan of the Board of Directors, and a Director of Tyco.
10. Defendant Neil B Garvey C"Carvey') was at all relevant runes the President,
Chief Executive Officer, and a Director of TyCom. Garvey also was at all relevant times the
President of the Submarine Systems,S stems +the Vice President of Tyco, and a Director of Tyco.
11. Defendant Mark H. Swartz {"Swartz")was at all relevant times a Director of TyCom. Swartz also was at all rcicvant times the Executive Vice President and Chiefl~inancial
officer ofTyao.
493107A n INO3 :26 Case 3:03-cv-03540-GEB-DEA Document 142-2 Filed 05/10/10 Page 4 of 22
12, The defendants identified in paragraphs 9-11 may be lcfcrred to herein as
"Individual Defandants."
13, The Individual Defendants each signed the Registration Statement for the
offering, which was materially false and misleading.
14. Goldman Sachs is it Delaware corporation with executive offices located at 85
Broad Street, New fork, NY 10004 and which maintains offices in New Jersey.
15. Morrill I.ynch is a. Delaware corporation with executive offices located at 4 World
Financial Center, New York, NY 10080 and which maintains offices in New Jersey. On May 28,
2003, the NASD commenced action against Phua Young, the Morrill Lynch analyst who followed Tyco, for a series of research violations committed in connection with his coverage of defruidani. Tyco. Young was charged with disseminating biased research reports on behalf of
Merrill Lynch that contained misleading; state~mcnts and exaggerated claims about 'Tyco and its operations between August 1999 and April 2002, a period of time that includes the Class Period,
16. Citigroup Global Markets, Inc., known as Salomon Smith Barncy during the C lase
Period, is a Delaware corporation with executive officcs located at 388 Greenwich Street, New
York, NY 14013 and maintains o ffices in New Jersey.
17. Goldman Sachs, Morrill Lynch, and Citigroup Global Markets, Inc, acting as
Salomon Smith Barney (collectively, the "l.lnderMters"), were co-lead underwriters of the July
26, 2000 initial public offering of TyCom common stock.
PLAINTIFF'S CLASS ACTION AIaI,TGATLDNS 18, Plaintiff brings this action as a class action pursuant to'Rules 23(a) and 23(h)(3) of the Federal Rules of Civil Procedure ("Fed,R.Civ.P."), on behalf of all persons or entities who purchased shares of TyCom common stock pursuant to or traceable to the July 26, 2000
-4, 493107t1 09126/03 11;26
Case 3:03-cv-03540-GEB-DEA Document 142-2 Filed 05/10/10 Page 5 of 22
Prospectus, including shares purchased on the open market dutiag the period from July 26, 2000
through October I9, 2001, inclusive (the "Clagfi Period") and were damaged thereby,
13. Excluded from the Class are the defendants herein, officers and directors of Tyco,
TyComt or the Underwriters, memhcrs of the immediate family of each of the Individual
Defendants, and affiliates tit the corporate defendants (the "Class").
20. The members of the Class are so numerous that joinder of all members is
impracticable. 'While the exact number of Class members is unknown to plaintiff at this time and
can only he aseertained through appropriate discovery, plaintiff believes there arc hundreds of
members of the Class. TyCom's common stock was actively traded on the New York Stock
Exchange throughout the Class Period,
21. Plaintiff will fairly And adequately protect the interests of the members of the
Class. Plaintiff has retained competent counsel experienced in class action litigation under the
federal securities laws to further ensure such protection; is a membor of the Class whoge claims are typical of the claims of all Class members; and dries not have interests antagonistic to, or in
conflict with, those of the Class.
22. A class action is superior to othor available methods for the fair and efficient
adjudications of this controversy since a multiplicity of actions could result in an unwarranted
burden on the Court system and could create the possibility of inconsistent judgments.
Moreover, a class action will allow ecdress for many persons whose claims would otherwise be
too small to litigate individually. There will be no diffloulty in the management of this action as
a class action,
23. There Are numerous questions of law and fact which are common to the Class and
which predominate over any questions affecting individual members or the Class, including:
-5- 491s07vt 09/2610.111:26 Case 3:03-cv-03540-GEB-DEA Document 142-2 Filed 05/10/10 Page 6 of 22
1. whether defendants' violated the federal securities laws were by virtue of the acts
as alleged herein;
2. whether the Registration Statement and Prospectus anitted to state oc
mismpresented material facts concerning (i) the executive compensation of
Tyco's senior management, (H) Tyco's reasons for having commenced the initial
public offering of a minority interest of TyCoin common stock; and (iii) the
business operations and finances of TyCom; and
3. whether members of the class were damaged by virtue of their ynvestmonts in
TyCom common stock during the Class Period, and if so, the appropriate measure
of damages.
SUBSTANTIVE AIXEGATit: NS Backeraund,
24. On ,filly 26, 2000, TyCom filed a Registration Statement and Prospectus with the
SRC for the initial offering of 61.130,43 5 shares of TyCom come- ton stock at 832 per share (the
"Offering"). Tycom had previous to that time been 100% owned by Tyco or its aff liate5.
25. Goldman Sachs, Merrill Lynch, and Salomon Smith Barney were the co-lead underwriters of the Offering.
26. As a result of the Offering, Tyco became the 89% owner of TyCom common stock.
Tall.it and Misleading Statementa
27. According to the Prospectus, the Offering was designed to finance the TyCom
Global Network, a proposed global undersea fiber optic network wbic h Tyco tooted as "the most extensive and technologically advanced" network of its kind. The Prospectus stated that $1.65
G- 193107v1 MUM 11:26 Case 3:03-cv-03540-GEB-DEA Document 142-2 Filed 05/10/10 Page 7 of 22
billion of the anticipated $1.85 billion not proceeds from the Offering were to be used toward the development of the first phase of the TP Com Global Network and the remaining $200 million of the proceeds would pay a dividend to a whol ly-owned subsidiary of Tyco.
28. The Prospectus contained a summary compensation table for defendants
KoAowski, Garvey, and Swartz, and TyCom's other executive ofri"rs. included among dlose di9closuiw (at 71) was a 29. According to the Prospectus (at 71 ), the summary compensation table "[presented] the annual and long-term compensation for services in all capacities to Tyco and its subsidiaries for the Chief Executive Officer of'i'yCorn and the other four most highly compensated executive officers of TyCom during fiscal 1999" Additionally, the Prospectus stated that: [alt September 30,1999, t111e amount of loans outstanding under this loan program totaled $18,569,137, of which $0 was loaned to Mr. Kozlowski, ;$304,363 was loaned to Mr. Garvey and $0 was loaned to Mr. Swartz. ']'be largest amount of indebtedness outstanding at any time since October 1, 1998 by Mr. Kozlowski was $52,688,249, by Mr. Garvey was 51,153,645 and by Mr. Swartz, was $17,4.35,319.9. 30, The Prospectus was materially false and misleading and failed to disclose that, contrary to the represeniadons in the Prospectus that the Individual Defendants bad only $304,363 in loans outstanding to them on September 30, 1949, defendants Kozlowski and Swartz had, among other things, instituted a corporate "relocation loate, program and as of September 30, 1999 had outstanding loan balances of $35,307,668 (September 17, 2002 Form 8-K at 9) and 57,8+62,532 (September 17, 2002 Corm 8-K at 12), respectively. -7- 4431aivl 091W03 11:20 Case 3:03-cv-03540-GEB-DEA Document 142-2 Filed 05/10/10 Page 8 of 22 31, The Prospectus also failed to disclose that the ptn-pose of the Corporate Loon Program was to confer substantial personal benc-fits on the Individual Defendents rather titan to encourage stock nwnership by providing for the payment of nixes as the Prospectus suggested. The September 17, 2002 Form R-K revealed that. defendant Kozlowski used Tyco hinds to acquiro high-end real estate and make extravagant purchases as described more frilly below, 32, Additionally, the Prospectus fulled to disclose that the Individual Der'endants were motivated in substantial part to make the Offering so that Tyco would reaHzc a prori t can the shares to be sold to public investors; instead, the Prospectus falsoly represented that the Offering was made to finance the development of the TyCom Global Networlt. That profit was intended to lie used In significant }part to pity defendants Kozlowski and Swartz and other executive officers bonuses that, in turn, would be applied by them to the repayment of their outstanding "relncntion loans," 33. Plaintifii and other members of the Class purchased shares of TyCom in the Offering and in the alter-market pursuant to the Prospectus in reliance on the truth of the disclosures in the Prospectus, particularly those relating to the Individual Der'endants' compensation and the individual Defendants' motives for spinning off a minority interest in TyCom.. 34, The Underwriters began analyst coverage of TyCom on August 21, 2000. Defendant Merrill Lyneb initiated a near-tem rating of "accumulate," a long-term rating of "buy," and a 12-18-month target price of 360 per share. Defendant C.mldirnan Sachs initiated a rating of "recommend list" and a 12-month target price oC$60 per share. Defendant Citi roue Global Markets, Inc, initiated a rating of"buy" and a 12-month target price of $75 per share. - g - 49.1107vt 09126103 11:25 Case 3:03-cv-03540-GEB-DEA Document 142-2 Filed 05/10/10 Page 9 of 22 35. TyCom common stock, after initially trading at a closing high of $45.439 on September 1, 2000, began a long decline in value to a closing price of $7.41 on September 27, 2001, investors were not informed, however, of the Individual Defendants' underlying motive for the Wering until September 12, 2002, at which time it was first publicly revealed that the Offering was utilized by Kozlowski and Swartz to realize bonuses to be used to repay the undisclosed rclocation loans. 36. Miter achieving their objective of Seneralting bonuses from the Offering to repay the relocation loans, on October 19,200 1. the individual Defendants csaused Tyco and TyCorn to announce befog the opening of trading that they had entered into a definitive agreement whereby sa subsidiary of Tyco would reacquire the outstanding 1 I % minority interest in TyCom (ropreianting approximately 56 Million common shares) at a ratio o£ 3133 shares of Tyco, common stock for ovary outstanding share of TyCom common stock. On December 17, 2401, the effective day of the merger, Tyco common stock closed at $55.80 per shame, making the effective acquisition price of the lncrger $17.49 per share. Defendants' Conme of Con,duet Mains to Be !;revealed 37. On September 12, 2002, Tyco issued a press release that gpecireally describer! defendant KoAawW's misconduct, The September 12, 2,002 press release announced that Tyco had "filed suit against— l<.ozlmvski, changing that be misappropriated money and assets from the Company and enS agcd in a concerted pattern of conduct to conceal larcenous acts from the Board of Directors" 38, According to the press release, the lawsuit filed by Tyco "accus e[d] Kozlowski of fraud and seltdcaling that included, among other actions: abusing Tyco's relocation. and Key Employee Loan programs and obtaining under false pretenses loans that lie used to fund personal expenditures; misappropriating for himself over $100 million, including unauthorized bemuses -9- 4031(13r1 MY26103 1[-.26 Case 3:03-cv-03540-GEB-DEA Document 142-2 Filed 05/10/10 Page 10 of 22 totaling $58 million and unauthorized loans of over S43 million; taking personal credit for more than $43 million in charitable donations that actually were made by Tyco; and engaging In a number of self dealing transactions involving properly he sold the Company at inflated prices and real estate that was used by him and his ;Gamily without compensating Tyco." 39. The lawsuit, which was brought only on behalf of Tyco, Sought "to recover all funds misappropriated from Tyco for Kozlowski himself or avMrded by Kozlowski to his senior executives and key managers without appropriate authorization from tho Compensatiotr Committee of the Board of Directors, plus damages and other forms of relief' including "at a minimum, the recovery of all unauthorized compensation paid by Kozlowski to other employces from 1997 to 2f1Q2, repayment of outstanding loans he improperly borrowed frrom Tyco, and the forfeiture of all income and benefits received by him from 1997 to 2002." 40. The press release Identified the following "9peeilic actions through which Kozlowski failed in his duties to Tyco": Abuse of New York Relocation Program — Tn 1995, after he decided to relocate to New York City, Kozlowski transformed a Compensation Committee-approved relocation program intended for all employees into a special prot,*ratn for a few Senior executives that was never sanctioned by the Board. Kozlowski obtained these substantial benefits under the unapproved, transformed plan: 1. Beginning in July 1997, he rented a lavish Fifth Avenue apartment in Now York at an annual rent of $2154 ;000, paid for by the company, 2. He used an interest-free loan to buy a Company-owned, $7-million Park Avenue apartment, at depreciated book value and without appraisals, which he never occupied and instead deeded to his ex-wife a few months after the purchase. 3. He sold his. Exeter, New Hampshire home to the Company for significantly more than its market value, resulting in a $3-million overpayment to him by Tyco. 4. He had the Company purchase a second, mans: extrav&gant, Fiftli Avenue apartment in 2001 far 16,9 million, plus $3 million in improvements alid. $11 million in furnishing,, without disclosing to the Board or its 493167vI OZ AM11:aG Case 3:03-cv-03540-GEB-DEA Document 142-2 Filed 05/10/10 Page 11 of 22 Compensation or Audit t`OMMittees that t1lis home was paid for by Tyco and carried by the Company` as a corporate asset. 5. He "grossed up" the beneflits lie received under the program tea hisulate himself from Now York State income tax liability related to the relocation to New York. Kozlowski knew that the henefits to him and other key executives under such a program required Compensation Committee approval and never sought such approval from the Board. + Abuse of Key Employee Loan Program -- The Bong-standing Key Employee Loan Program (KET.) wns designee] to encourage stuck ownership by executives by obviating their need to liquidate shares to meet tax liabilities, However, Kozlowski systematically abused this program, turning it into a personal' line of credit. From 1997 to 2002, he took more than 200 loans from the program, borrowing more than $274 million, ol'which more than $245 million was not used in accordance with the purpose of the program. instead, he used these faaids for a wide variety of personal needs, including purchases of everything from homes, yachts, antiques find furniture to payments to Ri domestic help. + Unauthorized Credits to KCL Program —To oi7get his indebtedness it) Tyco, without the knowledge or approval of the Board, Kozlowski directed Chief Financial Officer Mark Swartz to effect credits of $25 million to Knxlowski's KEL account and $12.5 million to Swarrtz's account. (When the Board Icarned of these unauthorized journal entries during the course of the investigation, it directed that they be reversed.) Kozlowski continued to abuse the KEL program, and when he left the Company on .Tune 3, 2002, lie owed this program $43,840,461, plus interest, all of which is due. • Unauthorized Florida Relocation Program — After the 1997 reverse merger with ADT, Kozlowski decided to relocate more than 40 corporate employees to ADT's U.S. headquarters in Boca Raton, Florida and created a new relocation program by appropriating the terms of the earlier New York program. He circumvented the need for Compensation Committee (approval of this program by creating a program somewhat similar to the New York program. As in New York, he created two versions of the program, one for general use that met the IRS standards Enid Ea second for the use of a. few executives. Without chunging, his primary residence, Kozlowski used this pwgram to obtain $29,756.110 in interest-free loans to assemble five lots into a compound and build an estate in an exclusive Boca enclave called "The Sanctuary." Kozlowski did not obtain Compensation Committee approval of this program and concealed these benefits from the Board. -11- 49,1 I o7v1 09126A)3 11:26 Case 3:03-cv-03540-GEB-DEA Document 142-2 Filed 05/10/10 Page 12 of 22 • `°TyCom ]loans" — Unautho_rieed Forgiveness of Relocation Loans —In September 2000, Kozlowski still owed Tyco more than $37 million, 5o lie "contrived, promoted and fraudulently executed" a plan to obtain belief. He falsely informed the Senior VP of Human Resources that the Board had decided to forgive all of the Florida relocation loans to the more than 40 employees - and to "gross tip" this benefit by making cash employee whole on an after-tax basfs for the forgiveness - as a, reward for completion of the TyCom IPC. The unauthorized loan and gross-up program was in addition to n more limited program of cash bonuses and restricted stock awards that the Compensation Committee - u>nawarc of the Kozlowski program - approved the next month. Kozlowski'S unauthorized program cost Tyco close to $100 million, including* Kozlowski's share of $32,644,338. Unauthorized i4ADT Automotive 13arius" — In November 2000, still pressed by his indebtedness to Tyco, Kozlowski contrived another special bonus program. This bonus was supposed to recognize executives for contributions to the divestiture of Tyco's ADT Automotive business via cash and "relocation" benefits, even though the beneficiaries had already recovered the grossed-up cast of their "relocations" under tltc 'fyCom forgiveness bonus. This "boobs" cost Tyco nearIy $56 million, ol'which $25.6 million benefited Kozlowski. As with the "TyCorn Bonus," Kozlowski led other executives to believe the progratitn was Hoard approved, Web it was not. Adding everything up, including his authorized compensation and the money misappropriated as purported compensation, Kozlowski's income from 'Tyco in 2000, as reported to the IkS, was an incredible $137,491,353.39. • Fraudulently Procilred Retention Agreement — In 2001, Kozlowski pressed the Company to sign a retention agreement, which among other things, provided for ongoing compensation and benefits for throe years following age 62, The monetary valve orthis pmvision, as approved by the Compensation Committee, would have been approximately $20 million. However, he fraudulently deceived the Committee into amending the compensation formula that, unbeknownst to the Committee, would have resulted in a ten-Mild increase in the compensation t1izt would be due to him. • Unauthorized Payment to Walsh — In early 2001, Kozlowski approved the payment of a 920-million finder's fee to then-director Drank Walsh in connection with the acquisition of The CIT Croup. Kozlowski and Walsh concealed this payment from the Board, which did not Become aware of it until reading a draft proxy in January 2002 and demanded immediate repayment. The Board was galvanized into action by this payment and, in February 2042, undertook a review of all transactions involving senior management. Also, in early May 2002, the Board hired independent -12- 403107v1 MUM 11:26 Case 3:03-cv-03540-GEB-DEA Document 142-2 Filed 05/10/10 Page 13 of 22 counsel, Roies Schiller fie 1' leaner, to represent the Company with regard to the Walsh matter. 11 * Fnistration of Board's Investigation -- As a result of the Walsh payment, the Board began a wide-ranging investigation into the activities of Kozlowski and other senior managers. TIroughout early 2002, while pitying tip scrvien to the heightened Board oversight, at no time did Kozlowski disclose the enormous compensation ho had taken for himself and other=s over the past several years, From February through May 2002, Kozlowski continued to conceal the facts from the Board and attempted to delay and frustrate the investigation. , • !Failure to Report Subpoena to Board — On May 3, 2002, fn the course of investigating Kozlowski's failure to pay state sales taxes, the Manhattan District Attorney served Kozlowski with a subpoena for records relating to his compensation and his recent purchases. Kozlowski had an affinnative duty to inform the BoaW of this, but failed to do so. In t'acl, he did not inform the Board until May 3 I, the day he learned he was to be indicted. Charitable Contributions —f=rom 1997 to 2002, Kozlowski committed donations and pledges to charitable organizations with Company money amounting to more than $106 million. At least $43 million of these donations were matte for his personal henefit or were represented as his personal donations. For example. in 2001, Kozlowski donated $13 milliotl of Company money to the Nantucket Conservation Foundation, Inc., which in turn purchased property adjacent to Kozlowski's own Nantucket estato to prevent future development of the land. He also pledged $10 million to the California International Sailing Association in his name, Other Tyco contributions were made in his name to schools, colleges, hospitals, and Nantucket institutions ►vith which he had a personal connection, 0 otke]r I rilements of Kozlowski's Fraud and Sella Dulling — Other actions by Kozlowski that formed a pattern of fraud and self dealing included expensing to the Company the fallowingi; items, an]ong others: 1. Millions of dollars for the personal use of his various residences and purchases of furniture and other items for these residences; 2. $700,004 for a personal investment iii the movie, "Endurance"; 3. More than $1 million for a lavish celebration of his wife's birthday in Sardinia, Italy; 4. Reimbursement for $1 trillion of business expenses without proper documentation for such items as jewelry, clothing, wine, club membership dues, flowers and a private venture; and. -13- 493107v] 09i26103 11:26 Case 3:03-cv-03540-GEB-DEA Document 142-2 Filed 05/10/10 Page 14 of 22 5. At least $110,000 for the corporate use of his personal yacht, the " "Endeavour,'° 41. On September 17, 2002, Tyco filed a Form 8-K with the SEC further disclosing and describing Tyco's findings in iii investigation ofwhat it termed to he a three--year "pattern of improper and illegal conduct by which [Tyco's top corporirto officers] enriched themselves at the expense of the Company with no colorable benefit to the Company and concealed their conduct from the Board and its relevant committees." The September 17, 2002 Pomp S-K also implicated defendant Swartz in the misconduct, 42, The pattern of illegal and inappropriate conduct included tic practice of making undisclosed "relocation loans" to selected officers and/or executives of'T`yco. AIthough'lyco had adopted and implemcnted a relocation program that, by its terms, "was intended not to discriminate in scope, terms or operation in favor of executive officers or directors of the Company," in 1995, the Farm S-K reveals that defendant Kozlowski nevertbeless "implcmcnted a different, more generous New 'Yorlc relocation plan, tailored to the individu=al circumstances of five or six executives and one assistant, which had not been authorized by the Compens=ation Committee of the Board." This Wormadon was in direct contravention of the representations contained in the 'prospectus, which, as disc=ussed above, alleged that as of September 30, 1999,' the total amount of loans outstanding under the relocation program totaled only $19 ,569,137, 43. Tyco disclosed in the Form 8-K that "[a]s a result of the foregoing (relocation loan program], certain executive officers used the relocation program to receive non-qualifying loans and unauthorized benefits that were not generally available to all salaried employees affected by relocations, or were not related to any Tyco relocation, enriching themselves with no colorable benefit to Tyen," -14 4^3 ^ ^17v 1 MUM H:z6 Case 3:03-cv-03540-GEB-DEA Document 142-2 Filed 05/10/10 Page 15 of 22 44. Defendant Kozlowski created the relocation loan program to confer substantial benefits on himself and the other Individual Defendants and neglected to disclose the existence, extent, and nature of the relocation loan program. The Form R-K reveals that as of September l7, 2002, defendant Kozlowski had "improperly borrowed approximately $29,756,000 in non- qualifying relocation loans to purchase land and construct a home in 11oca Raton, Florida during the years 1997 to 2000, and improperly borrowed approximately $7,012,000 in non-qualifying relocation loans to purchase a cooperativa apartment in New York City in 2000," and had also borrowed an additional $24,922,849 in interest free loans, bringing his total amount of unauthorixed interest itee irlocation loans to $61,690,628, 45. Defendant Swartz received a total of $33,097,925 in unauthorized interest free loans (including $7,862,532 in loans outstanding as of September 30, 1999) and defendant Garvey received a total of $5,000,000 in unauthorized interest free relocation loans. 46. The September 17, 2002 roan R-K contained a discussion titled "The `TyCom Bonus' Misappropriation" which revealed that, contrary to the representations made in the July 26, 2040 Prospectus, Tyco was motivated to make the public offering of TyCen) stock on July 26, 2000 to generate funds to forgive the unauthorized interest-free loans and thereby eliminate the need to include the full charges for the loans on Tyco's, financial statements. The Form ll-K. revenled, in relevant part., In September 2000, Mr. Kozlowski caused Tyco to pay a special, unapprovod bonus to 51 employees who had relocation loans with the Company... The hontis was calculated to forgive the relocation loans of all 51 employees, at a total coat of .$56,415,037, and to pay compensation suffciont to discharge all of the tax liability due as a result of the forgiveness of those loans. This action waa purportedly related to the successful completion of the TyCorn Initial Public Offering. The total gross wages paid by the Company in this loan forgiveness program were $95,962,000, of which amount Mir. Kozlowski received $32,976,000 and Mr. Swartz, $ 16,611,000. 4931O?vI n4r^rm^ > >:^^ Case 3:03-cv-03540-GEB-DEA Document 142-2 Filed 05/10/10 Page 16 of 22 These benefits were notapproved by, at disclosed to, the Compensation Committee or the Board of Director. . Indeed, the opposite occurred: each of the fifty-one participating employees who was offered the forgiveness was asked to sign a confidentiality agreement in which they agreed not to disclose either the fact of the bonus at its terms to anyone other than the recipient's personal financial, tax or legal advisors, Breach of this confidentiality agreement would result in forfeiture of the bonus. Some employee beneficiaries of this forgiveness were trot even permitted to keep a copy of their signed agreement, According to Ms. Patricia Prue, 'Tyco's Senior VF of Human Resources, Mr. Kozlowski told her to process the forgiveness and the gross-ups and assertod that. tae board had approved the program. Upon Ms. Prue's request for documentation of'the authorization, Mr. Kozlowski sent her and tier supervisor, Mark Swartz, a memo on September 11, 2000, for her tiles indicating that "a decision has been made to forgive the relocation leans for those individuals.. whose efl'oxrts were instrumental to successfully completing the TyCom IPO." Attached to the memorandum was the list of employees who were to receive the forgiveness benefit. ivlark Foley, a Vice President of Finance, prepared a memorandum signed by Mr. Swartz [the "Swartz Memorandum"] that explained the accounting treatment for the near-$100 million charge [for the relocation Ioan forgivenessl. The memo stated. "The sale of 14% of TyCom generated a one-time gain of approximately $1,76 billion on the books of Tyco. We have decided to award special bonuses to various Tyco employees for their efforts aver the past few years enhancing the value of TyCorn and thereby contributing to this lain. Selected employees will receive their lmnus iu the form of cash, forgivcncss of relocation loans, andlat Tycrr C'.ormtnon ;shur^es under Tyco's restricted stock program;' 47. By Tyco's own admission in its Form 8-K, the Prospectus misrepresented that defendants' primary motive for issuing stock to public investors in the Uflfering was to support the development of TyCom 's global telecomnninications network, thereby creating the iltusion cif 1.he probability of benefiting TyCom's shareholders in the future as TyCom continued to expand its business. The Prospectus failed to disclose the Individual Defendants' intent to use the proceeds from the initial public offering to forgive millions of dollars it herd issued in unauthorized loans, as described in the aforementioned Swartz Memorandum. 16- 4911n7vc 60,120311 ;26 Case 3:03-cv-03540-GEB-DEA Document 142-2 Filed 05/10/10 Page 17 of 22 48. Each of defendants 1Covlowski and Swartz are currently SuWcct to criminal charges relating to their "larcenous acts," 49. On a conference call with investors before the opening of the U. S. securities markets on September 25, 2002, Edward Breen, Kozlowski's replacement as't^-co's CEO, informed investors that Tyco would take a pre-tax charge of $2.0 to $2,5 billion to u-titc-down the value of TyCoin, Breen said that: the charge was-necessary because TyCom had been building global fiber-optic network amid a glut of such capacity. 50. Tyco closed on September 25, 2002, in the aftermath of the revelation of the Individual Defendants' larcenous acts and the write-down of TyCom's value, at $15.00, snaking the imputed value of class members' TyCoin shares (based on the .3133 exchange ratio) approximutely $4.70 (as compared to the $32.00 ofl'oring price), 51. Plaintiff and the members of the Class would not have purchased shares pursuant to the Prospectus or would not have purchased those shares at $32.00 on the Offering or at the market price subsequent to the Offering if the tnic facts concerning the Individual T?efendants' executive compensation and anticipated bonuses had been disclosed in the Prospechis. COUNT I A.- , 'nat Do n,ruts for Violation of Sections 11 sand 15 of the Securi i . ct 52. Plaintiff incoriaorates each of the foregoing parugraplis as if fully set forth herain- except those allegations that sound in fraud Which are specifically excluded. This Count is asscrtcd against all defendants for violations of Sections 11 and 15 of the Securities Act, MU.S.C. §§ 77(k) and 77(o). 53. TyCoin is the issuer of the stack sold pursuant to the July 26, 2000 Prospectus, Defendants Kozlowski, Garvey, and Swartz signed the Registration Statement that incorporated -17- M/2600 1I;26 Case 3:03-cv-03540-GEB-DEA Document 142-2 Filed 05/10/10 Page 18 of 22 the materially false and misleading July 26, 000 Prospectus. Kozlowski and Swartz were officers and dimaors of the Company at the time of the offerings. 54. The Registration Statement, which was suppletfonted by the July 26, 2000 Prospectus for the offerings, was inaccurate and misleading, contained untrue statements of material facts, olnittcd to state other facts neoessaiy to make the statements made not misleading, and failed to disclose material facts as described above, 55, Defendants Kozlowski, Garvey and Swartz, as directors and officer; of T^Corn and its signatories of the Registration Statement accompanying the July 215, 2000 Prospectus filled with the SEC were responsible for the preparation of the documents and failed to make a reasonable investigation or possess reasonable grounds -for believing that the representations contained in those documents were true and that they disclosed all material facts. Defendants arc primarily liable under Section 11 or the Securities Act. 56. Plaintiff and the other members of the Class acquired shares of TyCom pursuant to, or traceable to, the July 26, 2000 .Prospectus without knowing of untrue statements or omissions of material facts. 57. 'Plaintiff and the other Class members have sustained damages. 58. Defendants Kozlowski, Swartz, Garvey, and Tyco were controlling persons o1 I`yCorn and had the ability to cause the corporate defendants to engage in the misconduct alleged herein. 59. This action was btrought within one year after the discovery of the untrue statements and omissions and within three years after TyCom common stock was offered to the Public. -f8- 031Q3u1 0912663 11'26 Case 3:03-cv-03540-GEB-DEA Document 142-2 Filed 05/10/10 Page 19 of 22 60, By virtue of the foregoing, defendants have violated Sections 11 and 15 of the Securities Act. COUNT 11 Against Defendants Tyco, TyCom, Swartz, Koylowski, and Garvey for Violation of Sections 10(h) and 20 faf of the Exchange Act 61. PlaindIT real] cgcs and incorporates by reference each and every allegation contained above. 62. Throughout the Class Pcriod, derendants participated in a course of conduct involving misrepresentation and concealment of adverse material information al out executive compensation and the business and finances of Tyco rind TyCom, as specified herein. 63. Thrmighout the Class Period, defendants employed devices, schemes and artifices to defraud, while in possession of material adverse non-public information and engaged in acls, practices, and a course of fraudulent conduct as alleged herein in an effort to assure investors of TyCom's unimpeded progress and expansion, which included the making of, or the participation in the making or, untrue statements or material facts and omitting to state material facts necessary in order to make the statements made about TyCom and its buMness, in the light of the circumstances under which they wets made, not misleading. This conduct operated as a fraud and deceit upon the purchasers of TyCom securities during the Class Period. 64. The Individual Defendants, as nif"cws and directors ofTyColn and Tyco, are liable as direct patticipants in the wrongs complained of herein. The Individual Defendants were able to and did control, directly or inditectly, the content of the public statements and financial statements disseminated by TyCom. With knowledge of the falsity or l.he statements contained therein and in the reckless disregard of the true purpose of the TyCom spinoff these o fficers and dil-cctors caused the complained of misstatements and omissions o£ material fact as alleged -14- 4(M107v1 ORIUM 11:26 Case 3:03-cv-03540-GEB-DEA Document 142-2 Filed 05/10/10 Page 20 of 22 herein, and knowingly or recklessly failed in their duty to update or correct misleading statements issued by them or on their behalf. 65. Throughout the Class Period, the defendants had actual knowledge of the mismprc9cntations, and omissions ofmuteritrl fact set forth herein, or meted with reckless disregard for the truth in that they failed to ascertain and to disclose such facts, even though such facts were available to them. 66. M a result of the deceptive practices and false and misleading statements and omissions, the market price of TyCom's common stock was Artificially inflated during the Class Period. In ignorance of the false and misleading nature orthe r+eprosentations described above and the deceptive and manipulativc devices employed by said defendants, plaintiff and the other members of the Class, in reliance on either the integrity of the market -and/or directly on the statements and reports of defendants, purebased TyCom's common stock at artificially inflated prices. 67. Had plaintiff and the other members of the Class known of the material adverse information not disclosed by defendants, or had they been aware of the lrutb behind defendants' material misstatements, they would not have purchased'7yCom's securities at ardrJoially inflated prices, 68. Detrendants Kozlowski, Swartz, Garvey, and 'Tyco were contivIling pemsons of TyCom and had the ability to cause the corporate defendants to engage in the misconduct alleged herein. 69. By virtue of the foregolog, defendants have violated Sections 10(b) and 20(a) of the Excbe age tact. -20- •14311f7tit 0912,6M 11!26 Case 3:03-cv-03540-GEB-DEA Document 142-2 Filed 05/10/10 Page 21 of 22 70. plaintiff and the other tnembers of the Class have been damaged by deibndants' violations as described in this Count and seek, recovery for the damages caused thereby. P RAVER F(?R RELIEF WHF3RErwORE, plaintifT individually ar1d on behalf of the other member:., of the Class, prays for judgment as I IIows: 1. ]Declaring this action to be a proper class action maintainable pursuant to Rule 23(b)(3) of the Fed.R.Civ.P. and declaring plaintiff to be a proper Class representative; 2. awarding plaintiff and the other members of the Class damages suffered as a result of: the wrongs complained of herein together with appropriate interest; 3. Awarding plaintiff and the other members of the Class their costs and expenses of this litigation, including reasonable attorneys' Fees and experts' fees and other costs and disbursements; and 4. Awarding plaintiff and the other members (if the Class such other and further relief as may be just and proper under the circumstances. JURY TRIAL DEMANDED ]Plaintiff dernnuds a trial by jury of all issues so triable. -21- 493107v1 On 61113 11,26 Case 3:03-cv-03540-GEB-DEA Document 142-2 Filed 05/10/10 Page 22 of 22 Dated: September 26, 2003 PELLETTI>H RI, RABSTEIN & ALTMAN MA Aid iur e n Christine Lewis (CL-5685) 100 Nassau Park AouIcvatd, Suite l l l Princeton, NJ 08540 Tel: (609) 520-0900 Fax: (609) 452-8796 GUDDKINU LABATON RUDOFF & SUCHAROW UP Jonathan M. Plasse Christopher Keller 100 Park Avenue New York, N'Y' 10017 Tel.: (212) 907-0700 Fax; (212)818-0477 ^ttorney:s, fUr Fltritrti^`s -22- 4971o7v1 m^^a^ras i i.as Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 1 of 92 o pig , ox ^r UNITED STATES DU'fUWT COURT FI DISTRICT OF NEW BAAO'SIIIIM §M t3 1 1 01 M 'W In re Tyro lawmadonal, Ltd MDL Docket No. 02-1335-B Multidist ict Udgetion (MDL)1335 0 This Domment Relates to: Docket No. 03-CV-1352 Rosemarie Stumpf v. Neil R. Garvey, at al. O CONSOLIDATED SECURITIES CLASS ACTION COMPLAINT O Lead Plaintiff Mark Newby ("plaintiff), individually and on behalf of all similarly situaled, by his attorneys, alleges the following upon information and belief; except f ' paragraph 24, which is alleged upon personal knowledge. Plaintiff 's information and belief is . _ . • on the C investigation of his counsel, including a review of Tyco International Ltd ("Tyco') . TyCom Ltd.'s ("TyCom") publicly issued press releases; filings with the Securities and Ex Commission ("SEC"), including the Registration Statement and Prospectus filed with SEC on O July 26,2000; news stories; analysts' research reports concerning Tyco and TyCom; ' • 'ews of former employees of Tyco and TyCom; internal TyCom Ala; complaicts, - and O topm of the SEC and odw govarrmmental bodies; market resmah dam-, and data - trades in Tyco and TyCom securities. , 0 Included among the former TyCom employees who provided information - in this Complaint are: Employee A — Senior Strategic Wmm adon Manager fiorn 1999-2000. 0 DUO: 145334 VOW. 1 W53-16M Cf - Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 2 of 92 - O Employee B — President of a TyCom Operating Division with ad mWve prior acpetience p at AT&T and Bell Labs. Employee C — Project Manager at TyCom's Monistown Sciiity. Employee D — Deputy Director of Global Saks from 1997-2004. O Employee E — TyCom, Senior Director of Global Services from,1999-2002 at yCom's Morristown Facility. p Employee F — Project Manager at TyCom's Clark facility. Employee G — Shore End Installation Eag nax who worked at one of TyCom s placts between January 1997 and August 2002. O Employee H — Global Forecast Analyst who worked for TyCom from 1998-2 1 1 . Employee I — Dire;W of Tecimology at TyCom's Clark ScWty. Employee J — Terminal Engineer from January 2000 to April 2002. Employee K — Senor Manager — Terminal Commiaaioning and Network 11-. • , at Morristown from 1957 to September 2002. 0 0 0 0 DvW:1/53M V=0:1 303:16M 2 0 Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 3 of 92 O p NATURE OF THE ACTION 5 JURISDICTION AND VENUE 11 PARTIES 12 O PLAR41 FFS CLASS ACTION ALLEGATIONS 15 SUBSTANTIVE ALLEGATIONS 18 p A. The Development of Tyco's Telecommunications Cable Bemis .. , 18 B. Tyco Decides to Spin Off A Minority Intaacst of TyCom 19 C. James Brennan — the TyCom'Elmpigyee With himmy Responsibility O for the Offering — Had Been Previously Convicted of Bank Fraud 22 D. TyCom Experienced Limited Demand for Bandwidth Prior to the Offering 24 O E. The False Yankee Group Forecasts 28 F. The TyCom Public Offering 31 G. The Prospectus Was Materially False and Misleading 36 1. The Prospectus Misrepcesonted that Demand for Bandwidth Was Increasing 36 2. The Prospectus Mitropceseated The Yankee Group's O Projection of Market Demand and Failed to Disclose That TyCom's Internal Projections Were Substantially Lower 39 3. The Prospiecum --tod the Individual Defendants' Executive Compensation and Failed to Disclose That Kozlowski and Swartz Were Systematically Looting Tyco 44 O 4. The Prospectus Failed to Disclose that the Individual Defendants Were Financially Motivated to Use the Proceeds of the Offering to Satisfy Their Unauthorized Loans 42 O n.al: 143334 wa►a 3063:1620 3 O Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 4 of 92 O 5. The Prospectus Failed to Disclose That The Reported Success - f Tyco Was the Result of Systematic Accounting Manipulsti •, O Including the Manipulation of the SSI Acquisition 45 6. The Prospectus Misrepersenbed the Identity of the Members of TyCom's Executive Managementge add Failed to Disclose Brennan's Active Participation in the Offing and Criminal Q Record of Hank Fraud 49 7. The Prospectus Failed to Disclose Pervasive Analysts' 50 a. Goldman Sachs 50 b. Salomon Smith Barney 53 H. Trading In TyCom Common Stock After the Offering 58 1. The Underwriter Defendants' Materially False and O Misleading August 21, 2000 Analysts' Research Reports 59 2. TyCom Engaged in Frwdwleat Revenue, Swaps to Inflatie Revenue and Profit 62 3. TyCom's Materially False and Misleading January 29, 2001 O Proxy Statement 70 I. TyCom Experiences A Decline In Stock Price As Infinmetion Eaters the Market of An Oversupply of Bandwidth 71 Q J. Subsequent Events RevealDeftsidants' Misoonduct 76 K. Additional Scienter Allegations 83 COUNTI 86 O All fd 11 and ^ T aid the Iadividua for w 1ation o Sectina 15 of the Sties 86 COUNT II 88 O Against All Defendants (Other Than Merrill Lynch) for Violation of Section 10(b) and Against Dehadata Tyco and the individual Defendants for Violation of Section 20(a) of the Exchange Act 88 PRAYER FOR RELIEF 91 O i nom: 143334 v C 3M:1620 4 I, O Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 5 of 92 O r1ATU1RZ OFT= ACTION O 1. Plaintiff brings this action as a class action on behalf of himself and other persons or entities who purchased shares of TyCom common stock pursuant to or :. - . to the July 26, 2000 Regishaaron Statement and Prospectus ("Prospectus') for TyCom's ini public ;O oM ing (the "Offering') or who purchased TyCom common stock on the open during the period July 26, 2000 through December 17, 2001 (the "Class Period') and were thereby p (the "Class") to recover damages caused by defendants' violations of the federal - 'ties laws. Named as defendants are Tyco and TyCom; L. Dennis Kozlowski, Mark IL Swartz, Neil R Garvey (the "Individual Defendants'); and Goldman, Sachs & Co., Merrill Lynch & a ., and 'O Salomon Smith Barney Inc., the three co-lead underwriters of the Offering (the "U - 'ter Defendants"). 0 2. Plaintiff alleges a scheme among the defendants to reap over 5200 ^ ^ ' in cash j from the July 26, 2000 initial public offering of common shares in TyCom Ltd, a y-owned subsidiary of Tyco International Ltd TyCom was, at the time of the Offering, a servi .. O primarily corporation that built undersea fiber-optic cable networks for third parties, , as Global Crossing Ltd, 360aetworks Inc., and Level 3 Communications Inc. O 3. Individual Defendants Kozlowski and Swartz were at the time of the e y - , r in July 2000, indebted to Tyco for tens of millions of dollars of wo thorized loans. The Individual Defendants saw the Offering as an opportunity to generate a pool of fresh money to to G discharge those loans: O Dock.143334 Vw#:13033:1620 5 O ; Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 6 of 92 O 4. The Und+erwritea Defmdents, and their principal investment bakers ' research O analysts, had reaped, in the late 1990s and early 2000, teas of millions of dollars of ' ° fife firm initial public offerings of internst and teleCOmmunicatiolL9 eompaniea. 5. By mid-2000, through money raised by the initial and seeooday ' t of their 0 telecommunicsfiion clients, hundreds of thousands of kilometers of undersea ' . ' was laid and was sitting mostly dormant under the sea. O 6. Although undisclosed to the public, there was little demand for this - 'ty, and by mid-2000, pricing of bandwidth and the market prices of the companies brought ' ' tic by the Underwriter Defendants in the late 1990s and early 2000 were both declining. By 2000, O telecommunicationsescompani had resorted to wrapping bandwidth capacity among - 'other to continue to report increasing reveme. Recognition of revenue on those swaps vi ° generally accepted accounting principles, and the telecommunications companies did ° disclose C that the reported "revenue" wan generated by swap transactions instead of actual - of bandwidth capacity. O 7. According to confide" former TyCom employees, described ' the engineer of this scheme was Jack Grubman, the lead telecomtm nieations analyst at omon Smith Barney. Grubman had, according to those sources, convinced his willing , ,- O (Kozlowski and Swartz) to spin off a minority interest of TyCom in a duly 26, 2000 off6riAg to generate over $2 billion in proceeds. O 6. On&nan, working with TyCom's senior most owcc;utiven, devised a new business created plan, through a mark-up of Global Crossing's business plan, for TyCom to lay and own an additional 250,000 undersea kilometers of bandwidth. O Do&.143334 Vo#:! 3053:100 6 O i ^ Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 7 of 92 i 0 9. Also assisting in this enterprise was James F. Brennan, a senior T officer O hired personally by Kozlowski and charged with primary responsibility for • . this enterprise. Brennan was a convicted back felon, who had previously served 41 is prison. United States District Court Judge Mark L. Wolf', in sentencing Brennan to the um O sentence possible under federal guidelines, called Brennan a "dangerous man, who d continue to try and make his folrt m by lying if not deterred." Brennan, accordingly, the O perfect accomplice to Kozlowski, Swartz, and Grubman to take TyCom public. 10. The TyCom business plan and Offering were constructed for the . . , of reaping the proceeds of the Offering, with indh'ffea nce to whether there was demand more a bandwidth and despite defendants' knowledge that there was already a surplus of - . width supply. O 11. The scheme worked like a chasm. By virtue of the miarepreaeatat ions . omissions m the Prospectus with regard to existing demand for the now TyCom r , . Network ("TGN'), defendants were able to silly launch TyCom's Offering. 70.3 , ' s , shares O were issued in the Offering, for gross proceeds of 5214 billion. 12. Individual Defendants Kozlowski and Swartz utilized $95.5 million o Offering O proceeds to satisfy their publicly undisclosed outstanding relocation loans. 13. The Underwriter Defendants, who received an underwriting discount o S 1.60 per share (5% of the $32 offering price), generated fees of 5112.8 million from the Off-, O excluding additional millions of dollars of profits from brokerage commissions and - 7-on open market post-Offering trading. The Underwriter De&ndants, through the exercise of , 9.2 O million share over-allocation option at $32 per share, when TyCom stock was publicl trading Do* 145334 VoA:13WA6W 7 i i Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 8 of 92 O above $36 per share, were fiuthar able to allocate $40 million of gum mined profit: their O favored clients (ineiuding Grvbman's favorite chew — Bernie Ebbers, the CEO of W , , Inc.). 14. TyCom's public investors, of course, fared for worse, losing over one C dollars fi+om their invest meats in TyCom common stock as the public mwhxb cam realize that than was an extraordinary glut of bandwidth capacity. 15. Defendants' scheme was not publicly revealed until the fall of 2002 2003 when Kozlowski and Swartz were subjected to criminal proceedings for having - • _ Tyco (and O TyCom) and later, Grubman. was suspended for life from the securities industry. has fled the United States and currently resides in Ireland. 16. In an effort to recover dam' ill-gotten gains, plaintiff alleges, in action O among other things, that the July 26, 2000 Prospectus for the offering was materially , , and misleading in the following respects: a. The Prospectus mien xcmtcd that demand for bandwidth was ' , „ - and O failed to disclose that bandwidth capacity already exceeded demand was projected to continue to increase at a faster rate than demand. The ' - , O ftuther failed to disclose that (t) substantially less thaw 10% of -+ : bandwidth capacity was being utilized, (ii) pricing for fiber-optic capacity was •, wn within TyCom to have plummeted and was projected inteenally by TyCom to ► • o , ue to O plummet, (iii) TyCom had filsifie d its business plan and revenue proj - - ons at the direction of the Underwriter Defendants to make the Off smg attractive to O nose: 10334 Ve&.13033:1610 8 O i -+ Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 9 of 92 O poftatial investors, and (iv) TyCom had wgwienced no demand for sale of O bandwidth cgmmdty on the TON. b. The Prospectus mis:+eI resented that The Yankee Group had that 129% 0 demand for bmdvvift was expected to grow at 123 % (transp.cific) annual rates from 2000 through 2005 and failed to ' : that (i) TyCom's internal estimates of demand for bandwidth (66.25% 1 were O si gnific^ntty lower than The Yankee Group's estimates; (1i) T'he Y Group's actual estimated growth rate as established by internal TyCom - was 71% (tr lantic) and 95.75% (traaspecific); and (iii) The Yankee r bad O internally projected that pricing for bandwidth capacity would p - - - - - The Prospectus also failed to disclose that The Yankee Group 's pr+ojaxi • -, were based O on communications with third patties such as Salomon Smith Barney • Bents Global Crossing. Qwest, and Level 3, who weft using non-cash swaps of capacity between end-users to inflate reported revenue and customer demand f O bandwidth. C. The Prospectus mian+cpresented the-Individual DeficW4nts' executive O compensation as senior officers and directors of Tyco and TyCom and , , - • to disclose that the Individual Defendants had granted themselves, witho Board approval, or public disclosure, as required by SEC regulations, tens of of O dollars of "relocation loans" and other unuithorind payments. C. The Prospectus represented that $200 million of the offering proceeds • uld be O paid to Tyco but failed to disclose that the Individual Defendants' - D*W: 1433M vw#:13033:1M 9 O Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 10 of 92 O motivation for the Offering was to use its proceeds to award thamsel O unautborind bonuses to retire unauthorized relocation loans. f. The Prospectus meted that Tyco had the power to control , , 's O operations and would provide financial and accounting services to f e but Mad to disclose that Tyco had been able to report improved earnings y through a series of accounting manipuLtians (subsequently revealed ' Tyco's 0. December 30, 2002 Form 8-K), which were undisclosed in the g. The Prospectus represented that the Underwriter Defendants had previ y O provided nvestnent advisory services to Tyco and TyCom, but failed disclose that the Underwriter Ddmdmb had pressured their talocanon Onvicadi . analysts, who had privately turned bearish on the telecommunications industry, maintain 0 buy ratings and above-market target prices on investment banking in the telecommunications industry to secure additional investment baulking assig^nmonts, such as the TyCom offering. Those misleading in , , - t research O reports had inflated all telecommunications stocks, includ ngi the ' , , ; offering price of TyCom common stock. O h. The Prospectus purportedly identified the most senior TyCom involved in its burs, but foiled to disclose the central role of James F. B a senior member of TyCom management, to avoid disclosing that he was a con 'cted bank O felon. 17. Defendants continued their miscoeduet during the Class Period by O misrepresenting that there was demand for TyCom's products, and through the issuance by the Doct 14S334 Willa 9053:1620 10 O i Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 11 of 92 O Underwriter Dd=Wanta of ra arch analyst reports (including reports writtm by O project ng vibstenbW appreciation in the maket value of TyCom common stock. 18. Plaintiff asks this Count to find defendants liable for their misconduct regard 0 to the,Offaing and their cant finned false and misleading statements during the Class • . AND YEM 19. This action arises under Sections 11 and 15 of the Secuuities Act of 1 . 3 (the O "Securities Act-), 15 U.S.C. §§ 77k and 77o, and Sections 10(b) and 20(a) of the Exchange Act of 1934 (the "Excbange Acfj,15 U.S.C. §§ 78j(b) and 78t(a). 20. In connection with the acts alleged herein, the defendants directly or ' - y O used the means and instrumentalities of interstate commerce, including the United mails sad facilities of a national securities exchange. 0 21. Jurisdiction is conferred upon this Court by Section 22 of the Securi Act, 15 U.S.C. § 77v, Section 27 of the Exchange Act, 15 U.S.C. § 78(aa^ and 28 U.S.C. § 1: 31 (federal question jurisdiction). This Court has personal jurisdiction of the defendants , to Section 0 22 of the Securities Act, 15 U.S.C. § 77v and Section 27 of the Exchange Act, 15 U.'.C. §78(aa). 22. This litigation was originally filed in the District of New Jersey, ^ - - - TyCom O and Tyco maintained offices and operations during the Class Period. Many of the and transactions constituting defeadmu' violations of law occurred within that District,' ' , the preparation and dissemination of materially false and misleading financial statements O corporate daamms. 23. In its Order entered December 30, 2003, the Judicial Panel on Multidi^ict p Litigation transfenzd this Action to this District for coordinated pretrial proceedings. II MO 145334 VW#:J MAW 11 Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 12 of 92 O MOM O 24. Lead Plaintiff Made Newby purchased 1,000 shares of TyCom ► . stock pursuant to the Prospectus on TyCom's July 26, 2000 initial public offering and 1, shares on the open market on July 27, 2002. Mr. Newby was appointed Lead Plaintiff by s of the U.S. o District Court for the District of New Jersey, dated November 3, 2003. 25. Defendant TyCom was incorporated by Tyco as a Bermuda -,:. , on March O 8, 2000, under the laws of Bermuda as a wholly -owned subsidiary to save as the ho company for Tyco's undersea fiber optic cable communications business. According the July 26, 2000 Prospectus, TyCom was, at that time, "a leading indepardcut provider of —fiber O optic networks and services." 26. Defendant Tyoo is a diversified manufacturing and service corporal : organized and existing under the laws of Bermuda with offices located throughout the United ' . At all relevant times, Tyco manufactured, serviced, and installed electrical and electronic • , . , ; , undersea toIecommuaicstions systems, and fire protection and security system & s the Class O Period, Tyco owned 86% of TyCom's common shares outstanding. 27. Defendant L. Dennis Kozlowski was at all relevant times the Executi Chairman O and a Director of TyCom, and the President, Chief ExccWve Officer and Chairman o the Board of Directors of Tyco. 28. Defendant Neil R Garvey was at all relevant times the President, Executive O Officer, and a Director of TyCom. 29. Defendant Mark H. Swartz was at all relevant times a Vice President a^d a p Director of TyCom, and the Executive Vice President and Chief Financial Officer of Tyco. oo* ASM wfl M3:16W 12 O Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 13 of 92 'O 30. The Individual Defaadants each signed the Ramon Statement for, o Ong 31. Defendant Goldman, Sachs & Co. is a Delaware corporation with ex - -; ve of x= located at 85 Broad Street, New York, NY 10004. Goldman Sachs is a , investment O banking and securities firm that, among other things, offers underwriting services to • , ^ , ^ . , 'es seeking to sell their securities to the public. In addition to its investment banking - , - . ,; O Goldman Sachs offers extensive services to its institutional investor climb and its ' wealth management climb (principally high net worth individuals), has an active securities and trading business, and maintains a separate division to perform research on equity - . ; O 32. Defendant Merrill Lynch, Pierce, Fenner & Smith Incorporated (" Lynch' is a Delaware corporation with executive offices located at 4 World Financial Career, ew York, NY 10080. Merrill Lynch is a financial management and advisory company that . commercial, investment banking, and underwriting services. 33. Defendant Salomm Smith Barney Inc. ("Salomon"), which was O Citigroup Global Markets, Inc. subsequent to the Class Period, is a Delaware ., . , on with executive offices located at 388 Greenwich Street, New York, NY 10013. Sa1oaran at all O relevant times, a financial services institution that, through its subsidiaries and di provided commercial and investment banking services to corporate entities. 34. The Individual Defendants, as officers or directors of a company regisl^ed with O the SEC, the common stock of which was traded on the New York Stock Fxchamge ( "NYSE"), and governed by the provisions of the federal securities laws, were, during the time relevant to p this Complaint, "controlling persons" of TyCom within the meaning of Section 20(a) the nom: usM V*0 i )M:16n 13 O Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 14 of 92 O Exchange Act and Section 15 of the Securities Act, and had the power and infi - which they O exercised, to cause TyCom to engage in the unlawful conduct complained of herein. 1= 9 reason of their direct and substantial management and Board positions and ruaponsibilities, O Individual Defendants were able to and did, directly and/or indirectly, in whole or in part, control the conduct of TyCom's business and the information about its business contained in its public statements and filings with the SEC. Throughout the Class Period, the Indi 'dual O Defendants were provided with copies of, reviewed and approved, or signed the ' i : .;on Statements for the final and draft Prospectuses, press releases, and other publicly , ' - - . reports prior to or shortly after their issuance, and had the ability and opportunity to ant their O issuance or to cause them to be corrected. As a result, each of these Individual P i - , I 16, was responsible for the accuracy of the public reports and releases detailed herein, and is O. responsible and liable for the repreeartations contained therein. 35. Tyco, as the 100% shareholder of TyCom prior to the Offering, and 860A shareholder of TyCom after the Offering, was a control person of TyCom and the 'dual O Defendants and had the power and authority to direct their conduct prior to and - , ' the Class Period. The Prospectus (at 13) acknowledged that "Tyco has significant control over and may O not always execute its control in a way that benefits our public shareholders." 36. It is appropriate to treat the Individual Defendants as a group for purposes and to presume that the false and misleading information conveyed in T . 's public O filings, press releases and other publications as alleged herein are the collective actions of the Individual Defendants. Each hxhvidW Defeadaat, by virtue of his bigh level positioi i within O TyCom, directly participated in the management of the company, was directly involvc4 in the Doer: 142M V4W.13M:16M 14 O Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 15 of 92 O day-to-day operatioce of the company at the highest levels, and was privy to - , 0 prop Y information concerning the company and its operations, finances, condition, products and business prospects, as alleged herein. The Individual Defendants were volved in draftin& producing, reviewing or disseminating the false and misleading seats 0 herein, and approved or ratified those statements. 37. As direct participants in the wrongs complained of herein, TyCom, Individual Defendants, Goldman Sachs and Salomon Smith Barney are liable for the damages : c cr eed by Plaintiff and other purchasers of TyCom securities during the Class Period for their olations of Section 10(b) of the Exchange Act, and Rule l Ob-S promulgated thereunder. All O Defendants (other than Tyco) are liable for the damages suffered by the Class during Class Period for violations of Section 1 I of the Securities Act. Tyco and the Individual r e :are © liable for the damages suffewd by the Class as control persons for violations of - : 20(a) of the Exchnoge Act and 15 of the Secuuities Act. O rLAMU S CLASS ACTION ALr,EGAnON& brings 38. Plaintiff this action as a class action pursuant to Rules 23(a) 23(bx3) of the Federal Rules of Civil Procedure, on behalf of all persons or entities who - , - • shares of O TyCom common stock pmsuant to or traceable to the July 26, 2000 Prospectus for Offering. or who purchased TyCom common stock on the open market during the Class Period July 26, 2000 through December 17, 2001, inclusive) and were damaged thereby. Excluded the O Class acre the defendant, officers and directors of Tyco, TyCom, or the Un0annifer a ts, members of the immediate family of each of the Individual Defendants, and affiliates • f the p corporate defendants. Doc#* 1453M Ve*.I 3033:1620 15 .O i Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 16 of 92 39. The members of the Class we so numerous that joinder of all mem is 0 impracticable. TyCom had over 70 million shares outstanding doming the Class P While the exact number. of Class members is unknown to plaintiff at this time and can only 0 aseertaitred through appmpriiaote discovery, plaintiff believes there are hundreds of - , . of the Class. T yCom's common stock was actively traced on the New York Stock throutgbout the Class Period 40. The names and address of the Class members can be ascertained from books and records of TyCom or its traasftr agent or the undmvdters of the Offering. Noti - can be provided to such record owners by a combination of published notice and first-class - ' using 0 >Dechaiques and a form of notice similar to those customarily used in class actions under the federal securities laws. C 41. Plaintiff will fairly and adequately protect the interests of the members of the Class. Plaintiff has retained competent counsel experienced in class action litigation the federal securities laws to further ensure such protection; he is a member of the Class; claims O are typical of the claims of all Class members; and he does not have interests to, or in conflict with, those of the Class. O 42. Plaintiffs claims are typical of the claims of other members of the C because plaintiff's and all the Class member's damages arise from and were caused by the false and misleading representations and omissions made by or chargeable to defendants. 0 43. A class action is superior to other available methods for the fair and - y adjudication of this controversy since a multipfick of actions.could result in an Aed Q burden on the count system and could create the possibility of inconsistent judgements. Ded: HS334 Vw#:13033:100 16 i O Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 17 of 92 O 44. Moreover, a class action will allow redress for many persons whose would 0 otherwise be too small to WSW individually. There will be no diffcuky in the of this action as a chase action. 45. There we numerous questions of law and fact which are common to Class and 0 which predominate over any questions affecting individual members of the Class, ' uding: L whether the federal securities laws ware violated by defendants' acts alleged O ^^ b. whether the Prospectes omitted or muted material facts - (i) the business operations, fiaaaces and prospects of TyCom; (ii) the execud O conq m Won of Tyco's senior mansgetnent and Board members; and iii) dahndants' raisons for having conducted the Offering of a minority of • TyCom common stock. C. whether TyCom, the Individual Defendants, Goldman Sachs, and • ,. , , Smith Barney acted intentionally or recklessly to defraud investors; O d. Whether the Individual Defendants or Underwriter Defendants due diligence sutficumt to have determined the true facts; and O C. whether members of the Class were damaged by virtue of their in in TyCom common stock during the Class Period, and if so, the • . ' measure of recovery. O Q nooAr: MUM Ve&.19M3:16M 17 0 Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 18 of 92 O 0 A. r . t.. , ► . ' 46. Prior to April 1997, Tyco operated a Simplex Technologies unit primary 0 business was manufacturing undersea fiber optic At thst Simplex's primary customer was AT&T Submarine Systems Inc. ("SSI' , whose ' business was during and laying undersea cable systems to link to terrestrial (land) 4 e sl stems' 47. On April 11, 1997, Tyco and AT&T issued a joint press release that Tyco O had entered into an agreement with AT&T to acquire SSI for approximately $850 Tyco stated in that release that SSI would operate in conjunction with the Simplex unit to - a My integrated mmufachuer, designer, and services of undersea fiber optic cable . O 48. On July 1, 1997, Tyco completed its purchase of SSL In a joint press lease issued by Tyco and AT&T, defendant Kozlowski stated that " (t]he combination of o Simplex 0 Technologies unit and SSI creates the world's only integrated source for undersea fi optic telecommunicadon cable systems including cable system design, manufacturing, ' -, - , -7 , , and service." Tyco referred to the combination of SSI and Simplex as Tyco Submarine S Ltd. O ("Tyco Submarine"). Tyco was the 100% stock owner of Tyco Submarine. Tyco S was subsequently renamed TyCom in connection with the Offering. Tyco Submarine and i yCom are referenced herein collectively as "TyCom." a 49. Tyco's merger of Simplex and SSI was perfectly timed to benefit from the growth in telecommunications companies that were interested in owning undersea cable syste as, and Q Internet and telacommunicationa companies that were their customers. mw#: 14SM v r:t 3M:1620 18 ^O Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 19 of 92 `O 50. TyCom, which reported on a September 30 fiscal year, , experienced in revenue from $375.5 million in fiscal 1997, to 51,281.6 million in fiscal 1998, $1,63'.6 million in fiscal 1999, and $1,275.8 million in the 5rst six monms of fiscal 2000. 0 51. TyCom's growth was primarily fueled by cash raised by its largest « : in securities underwritten by the Underwriter Defendants (g g. bevel 3 Comm $3.9 billion raised through public offerings in March 1999 and Fakuwy 2000 , ' , by O Salomon Smith Barney-, 360networks, $590 million raised through an initial public o ' , - in April 2000 underwritten by Goldman Sachs; Global Crossing, over $7 billion raised • ugh stock and bond offerings undetwrium by Salomon smith Barney and Goldman M, _ • Flag a Telecom, $635 million raised in an initial public offering in February 2000 - ' • • by Salomon Smith Bamey). The moneys raised in those offerings were utilixod by , - , comptmies O to employ TyCom to build out their underwriter fiber optic cable networks. B. I A. Y INerast aT'1'+vCM 52. According to former mrmagrernent level employees of TyCom, the - M ; , , to spin O off a minority interest of TyCom and build the TyCom Global Network was made in fall of 1999, shortly after TyCom hosted an open house at its Eatontown, New Jersey facili for O telecommunication research analysts. 53. Employee A, a Senior Strategic Information Maaeger for TyCom hom 1999-2000, was a core member of the team that authored the business plan for bringing TyCom • • lic. O Employee A was responsible for developing demand models to foucast traffic and share along proposed network routes. Employee A reported to Andrew Kowalik, TyCom's Read of p Strategic information, during the course of his ee*oyment with TyCom. Door: 1433M vwr:i M3:16M 19 O Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 20 of 92 O 54. According to Employee A, during the open house for analysts, Jack a O senior equity analyst with Smith Barmy, approached Neil Garvey and James B -• , , . - who was then TyCom's Managing Director for Global Marketing and Business Development, . told them the Tyco should spin-off TyCom as part of a plan to construct Tyco's own , * s - , O u Wleraea fiber-optic cable network so that Tyco and TyCom could `retain the profit" or themselves fiom owning a fiber-optic network and selling bandwidth capacity on network. O Employee A was present at that meeting and heard Grubman's statements. 55. Employee B was at the time of the Offering the president of a TyCom © division. Employee B worked for over ten years with divisions of AT&T and Bell prior to the acquisition of those divisions by TyCom. Employee B was actively involved in business plan for the Offaing. O 56. Employee B corroborated that in September or October 1999, TyCom - telecommunications research analysts in the lobby of its Eatontown, New Jersey ' • . At that conference, Jack Gnrbman, Salomon Smith Berney's top telecommuncations analyst, told O Garvey and Brannan that they "should get a handle on the company's hidden value" "dun all of it into gold." Employee B was present during those conversations. O 57. Grubman was the primary tel industry analyst at Salo • n and a managing director until August 15, 2002, when he resigned from Salomon amidst: • fraudulent conduct. Salomon reportedly earned more than U56 million in inv ,, - banking O fees from 1999-2001 from telecommunications companies that Grubman covere& onion's fees for that period were over 40% greater tham those of its closest rival in the O Du#: 14034W01303:100 20 O r . Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 21 of 92 ^.O telecommunications industry, Merrill Lynch. Aa.a t do the New York State A C General, Grubman earned an average of $20 million a year between 1999 and 2001. 58. Grubman was permanently barred fitim the secundes industry in 2003 for providing misleading research in connection with his coverage of te 4; 1 stocks. O 59. Employee C, a Project Manager at TyCom 's Morristown facility, also that the analysts — primarily Goldman, and Salomon — was pushing Neil Garvey to take O public, saying that Garvey could make a lot of money. Employee C was pent • those coove madam O 60. Shortly after the fall 1999 conference, TyCom's most senior executi including KoziowWd, Swartz, Garvey, Peter Runge (TyCom's Vice President — Research and -lopment and Chief Technical Officer), James Brennan, and Stanley Kramer (a Managing ' - • in Global Sales), attended a weekend meeting at TyCom 's Patriot Plaza facility in 1 New Jersey to plan the Offering. According to Employees B and C, who was present at meeting, the TyCom executives put together the entire TyCom business plan during dm single - -, O mating. 61. Employee H, a GkAW Financial Analyst who worked for'1y+Coru 5om 1998- 0 2002, was subsequently informed by his supervisor, who was present at the meeting, rather than designing a busimss plan specifically suited for TyCom, the executives . • , , " copies of Global Crossing's business plan and made a few adjusts to make it sppear 6 0 1 1 the O business plan had been created for TyCom. 62. Once the plans to spin off TyCom were under way, according to Emplalyoe D, the O Deputy Director of Global Sales (from 1997 - 2004) at TyCom's Morristown headquarters, nwr: 113334 VeW.1305 AGM 21 O Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 22 of 92 O Garvey conducted "townhall moctings" at TyCom 's various locations to increase - loyees' 0 awareness of the TyCom Offering. In one such meeting witnessed by Employee D, c stated it was time for all the employees to get rich and it was "their turn to mare a million. Garvey 0 referred in those presentations to investors who had made money in other , - - - I I j I , I I I I I. . I t. 1 companies that Salomon had taken public. Cmubmw bad initiated coverage with • ratings on each of those companies. O C. Jaarss. Bien — the Tycoon tae With ft*r ► Rapoadl^lWi' 63. According to Employee A, James Bremen (TyCom's senior --director) O was the key TyCom person in the Offering. Brennan is described on his current yen's website (Corvil) as having been "responsible for the research and modeling of the Global Network that was the foundation of the TyCom initial public offering." O 64. In 1990, Brennan was convicted of bank fraud for obtaining bank low i from CambridgePort Bank totaling in excess of $21 million under false pretenses. Among other 0 things, Brennan was convicted of (i) WWly securing loans tbrough nominees, (ii) prc viding false financial statements claiming to have income over $500,000, while he actually madeI en than 0 $6,000, (iii) concealing $9 million of tamer personal loans that he had obtained from v mallhy individuals, and (iv) nuking loan repayments with bad checks. 65. Brennan was sentenced to a 41•morrth term by District Court Judge L. Wolf p of the District of Massachusetts — the longest term permissible under federal guidelines. In his sesrtencing order, Judge Wolf described Brennan as a "dangerous man, who would cwr tine to try and make his fortune by lying if not deterred" Judge Wolf a himced Brmnon 's senta cce two O NO: 145M Va#-1 3033:1620 22 0 Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 23 of 92 O levals for obstruction of justice far ` p ceived perjurious testimony" at the criminal and O sentencing hwin& f 66. The First Circuit Court of Appeals, in its decision affirming Brennan' conviction, stated, among other things, that "[tjbere was overwhelming:evidencx to support [the r ' ^ • • Court's] findings of Brennan 's perjurious testimony at trial." So^ '^ . 7 + :, ^.-, , 994 F.2d 918,930 (1" Cir.1993). O 67. According to TyCom's former employees, Kozlowski took a personW in the success of the offering and hired Brennan directly as his envoy to work for T , . on the O Offering shortly after Brennan completed his criminal sentence. Although the • - M named and described members of TyCom's senior managen=4 Bmnnan was not ref-, - - • in the Prospectus so as not to alert investors to his criminal background Employees A and O confirmed that Brennads omission from the Prospectus was intentional to conceal criminal past. Employee B stated that Brennan was referred to at TyCom as "Mr. Evil." 68. Brennan's misdeeds continued after he left TyCom. Brennan was ' - • in 2003 O by the Golf Club of New England, as General Manager to oversee construction. The r Club had been founded by wealthy New Hampshkerrs, including Craig Benson, the - of New D Hampshire, John Kehoe Jr. of General Chemical Group, Stephen Foss of Foss Man M a former Tyco board member, Neil Garvey and Dom Kozlowski. 69. The Golf Club filed for bankruptcy in February 2004, less than a you its O opening. Brennan had reportedly authorized over $25 million in escpemes and , • - - , the Golf Club to numerous lawsuits by contractors involved in building the Club. Bremen's of p S25 million of construction costs was subject to scrutiny inasmuch as the total, 1. , ' - • value of nos:14SM vnra w53:16M 23 O Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 24 of 92 I O the Club in the bankruptcy proceedings was only $11 million Brennan subsequently left the O United States and resides in heeland. D. \'A, a'.:r '.. „^. Ir A r 74. Employee B stated that after Atlantic Crossing (AC-1) was installed by TyCom for O Global Crossing in May 1998, there was more than enough bandwidth available to handle demand. "Dark fiber," as opposed to "lit fiber," is fiber that is laid undersea but not pet connected to land, primarily because of a lack of demand. Most of the fiber that was laid by TyCom and other companies in 1999 and 2000 was dark at the time of the O&oring and awaiting demand for capacity, and instill dark. O 71. Employee B said that the success of the Offering and proposed TGN (TyCom Global Network) were based on pure speculation of future growth. Employee B stated that there O was nothing on paper or in contracts that indicated that there was a significant need for more undersea cable services. According to Employee B, the only demand that TyCom experienced for the TGN at the time of the Offering was fiom companies, such as Qwest, Global Crossing, O and Level 3, who themselves had excess bandwidth capacity and were inter ested in "swapping" their excess capacity for capacity on the TGN. Swaps are transactions in which two oompamies O exchange capacity on each other's network. 72. Qwest, Global Crossing and bevel 3, along with other companies whose auditor was Arthur Andersen, and investment advisor was Jack Grubman of Salomon Smith Barney, O treated the capacity transferred on those exchanges as revenue-producing sales, even 1 no cash changed hands. Employee B had direct with YNW es Y I l 1 . Y - 1 • 1 O Door: 143334 Vas:! 3os3: W 24 'O r I Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 25 of 92 O ^; their willingness to purchase capacity+ from TyCom QWX if TyCom weax willing to O capacity 5om them in a swap. 73. Employee B seated that with the massive build-out of capacity by T 0 customers (such as Global Crossing, 360netwo&% and Level 3), there we re multipl of sufficient bandwidth capacity to meet future demand. 74. According to a Senior Director of Global Services, employed by T from © 1997 through 2002 at TyCom 's Morristown facility ("Employee E"^ TyCom's - - er eeecs, as well as other TyCom employees involved in the design aped of the were "quay" that there was not enough market demand to support an additional global O Employee E reported directly to Garvey, was responsible for the wqW" a and - of $650 million of materials annually, oversaw the Global Telecommunications Center, - assisted O in designing and implementing the Global Network. 75. At the time of the Offering, according to Employee E, bandwidth ^ .. had already outstripped demand and pricing was paummeting. Rathw than a gagog in or three O sales meetings a month with prospective customers, Employee E would only have • such meeting every few months. D 76. According to Employee E, TyCom's network sneers strongly against the spin-off, cautioning TyCom's marketing and sales division that implementing a global network would be a "bad idea" because the teleoammunications market was already 'encing O an ovarsaturation of bandwidth capacity. 77. Likewise, Employee F, a Project Manager at TyCom's Clark facility, that he p and many of the engineers believed at the time of the Offering that the TON was just duplicate DoW.143334 Va#:13053:1620 25 Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 26 of 92 0 of the other networlm already out there. When Employee F and other engineers, at show O meetings conducted by senior management to discuss the Offering, brought up the that the TON would duplicate other networks, they were not given a straight answer. 78. A Shone End Installation Engineer wlq worked stone of TyCom 's F between O January 1997 and August 2002 ("Employee G') stated that in the late 1990s a mum - of companies had produced "more than enough capacity." Employee G was response for O installing submarine and terrestrial fiber optic cable system including the TON. 79. Employee G said that building a cable system takes at least five years a "lot of O planning." According to Employee G, as a result of lack of sufficient planning for TON, TyCom constructed a $34 million terminal in Hawaii, but never ran cable to it, and - - the company attempted to bring a cable between the United States and China onto land ' , California, O the cable failed because no one had secured the permits and other official studies - - - ^ - - to clear the cable. The eoaxsnns within TyCom and Tyco about waning madcet demand and . -:I bandwidth capacity were not disclosed to the public. Instead, according to Employee E, O TyCom's marketing and sales division "continued to forecast a huge market" to the lic. 80. The forma Global Forecast Analyst ("Employee H'), who worked for TyCom Q from 1998-2002, confirmed that TyCom's business plan was bogus. Commencing in July 2000, Employee H was responsible for on developing and docimnenting the fo:ecaating Process for Tyco,on which" included periodically updating the , - plan 0 81. Employee H also interacted directly with the sake staff, who were of the fornca^ting. Commencing in July 2000, Employee H reported directly to Andrew K O Dan* 145334 Vogl 3M:IM 26 O Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 27 of 92 O 82. When Employee H attempted to verify and update, altar the Offering, business plan that was used for the Offering, she was informed by Kowalik that the plan -1 , 1.. - : for the Offering, which bad been. provided by The Yankee Group, hod been fabricated and , no reasonable basis. C 83. Kowalik had, prior to the'Offering, reported directly to Brennan, the 'cted bank felon (who in turn reported to Garvey). O 84. A former Director of Technology for TyCom at its Clark, New Jersey 'ty ("Employee I"), who,had worked with AT&T Submarine prior to its acquisition by T stated that at the time TyCom went public, concern over bandwidth demand was • ' . • y O expressed among TyCom employees. Koziowald visited his facility and Kozlowski . one of Employee I's co-workers: "What is everyone afraid of? If the stock falls way down, 'll just buy it all back. What are they worried about?" 85. According to Employee D, six months prior to the Offering, ' , in early 2000, the sales staff, which had previously been employed in efforts to sell undersea • le O systems, was instructed to sell bandwidth in anticipation of TyCom building out its o network. Notwithstanding their best efforts, including the lowering of prices on almost a , - basis, the Q sales staff was not successful in malting any sales. No bandwidth was sold from the , -:: of 2000 until the middle of 2041. 86. TyCom and its executives were well-aware that no sales had been , on the O TGN prior to the Offering. Garvey met frequently with his sales staff, including • oyee D, prior to the Offering and was informed that there had been no sales of bandwidth ^: ^ . and p few expressions of interest from customers. Dour: 143334 VO0.1 M:iam 27 O 1 ^ Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 28 of 92 O 87. Similarly, Employee H i ibmieed plaf"s counsel that "tile ^ ; ^ , - and the 0 contracts that wen part of the hype" referred to in the Offering did not exist, and TyCom was setting goals and manufacturing a great deal, "it wits all to look good" to investors. Employee J, a Terminal Engineer responsible for activating cabin (and hence . O bandwidth), who was employed by TyCom from January 2000 to April 2002, shed in many terminals only 1/32 of the capacity was being used. Empbyee J also stated that man of TyCom's contracts were being modified at the time of the Offering for less capacity. i . , , - J stated that TyCom was absorbing the cancellations in the contracts by assuming of the capacity that was installed and completed. G E. Tina Faye Ya dMiEW f Forecasts 88. Employee H was informed by Kowalik that the Underwriter r , , had 0 instructed him and the executives above him what the eerier and revenue projections to be to induce, investors to purchase shares of TyCom. .89. Accordngi to Employee H, the Underwriter Defendants instructed to O "come back with the numbers to support those farccasts." Kowahk reported those ly inflated demand numbers reflecting growth in excess of TyCom's internal projections to The O Yankee Group, a telecommunications and networking research and consAting firm - . , uartered in Boston, Massachusetts, and requested that The Yankee Group prepare a market analysis based on the f ibricsted figures. O 90. On January 12, 2000, Robert M. Luczak, TyCom 's Strategic Specialist, C kAW Marketing dt Business Development, seat a Request for Quotation 4 Qj to p The Yankee Group for the preparation of "a demand analysis for various traffic - ;ens- for NO: 141334 Ve&. 13W-,16M 28 O Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 29 of 92 O the period from 2000 through 2009. Luczak informed The Yankee Group in the RF I. that O "[TyCom] had already completed a basic Global Supply and Demand-side analysis" - that it "would like [The Yankee Group] to use this analysis as a starting point for the Y Croup's analysis." T6e RFQ emphashW that "the Yankee Croup's final presaugstion is , to be a O validation of previous RWom] efforts ... intended to serve [in anticipated SEC ] as an objective third-party view of global demand for network capacity.- O 91. Luczak further stated in the RFQ that titer the Yankee Getup pert, its "own demand analysis" it would be required to "evaluate the r1W=] Demand model and 'ections and render an assessin t as to its approach and consolidations" amd "improve its • model if O warranted...." 92. The RFQ was "carbon copied" to members of TyCom senior O Travis Kassay, Stan Kamer, and Andrew Kowalik. 93. Employee H was told by Andrew Kowali k that The Yankee Croup's - predicted much larger demand growth than TyCom's in6=1 analyses because The Y , - O Group had relied on TyCom's falsified projections. 94. On February 25, 2000, TyCom completed a "Final View" of the Market O View. That Market View projected that demand for the trans-adantie and rings for the years 2001 through 2005, measured in units of equivalent synchronous transport - es, level one ("STM-1 s') — circuits that carry 155.52 million bits per second ("mbpls') o bandwidth O capacity -- would on an annual compounded rate of 66.25% (calculated by - average ofthe eight annual growth rates indicated below), as follows: O DoW:1453H V@&.13M:1W 29 0 Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 30 of 92 0 (1.) 301 3M 3M3 39" 3MS Am O Did of 87M-1 6.170 9X2 14J M 22,211 33,107 % a.Na yDNaaw4 M M% slut 45% 51.25% O (L) Tnati^lOE.iiit 3M1 .3M1 3MO 304 am Am Dmomd of RM-1 IA32 2^4 SAl2 2,771 15,349 % 12 01 d rfDww d IM 73% 75% 73% 81.25% p 95. In June 2000, TyCon1 compiled a speeadsbeet comparing its own - of demand, as set forth in the February 25, 2000 Market View, to those of The Yankee c . Annexed as Exhibit A. The Yankee Group's demand forecasts of 71% average growth in O the transatlantic region and $5.75% average armual growth in the pacific regiow- whi • according to Employee H were bond on fdsified TyCom data — ware ignific andy higher that a , actual O demand forecasts prepared by TyCom, particularly the forecasts for trans-stlentic , , for the years 2001 through 2005: O 201 2M 3883 28M 3M Are. 'hawMliwlie 7yCan 0170 9,372 14,308 22,212 32,207 %Orowlh 60% 30% 50% 45% 51.25!% YM*W Omop 9,412 13,379 30,564 58,415 76M %Goo 63% 99% 9!% 31% 71.006 1?wrltidae TYCM 1,432 2,664 5,012 8,771 15,349 %f)t 100% 75% 75% 75% 81.25% Ye" ON" 11,007 26,169 $6,487 92,833 115,761 %Gow& 138% 116% 64% 23% 83.73% 0 30 O Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 31 of 92 O i 96. According to Employee B, The Yankee Group's projections (and Ty(^om's O internal projections) were inflated by inclusion of non-cash swaps of bandwidth betw^m carriers, and did not reflect end-user demand. The Yankee Group's projections were based on TyCom's inflated projections and with companies, such as Global Crossing, Qwest, and O Level 3, whose auditors were Arthur Anderson and investment advisor was Jack Grubman, and who had (according to Employee B) principally reported revenues based on swa p in ^iol ri of O GAAP. F. 97. On January 17, 2000, just five days after sending the RFQ to The Yan^c Group O and the same day that Tyco was scheduled to receive The Yankee Group's response, tyco issued a press release announcing that in response to rapidly increasing market demand for undersea O bandwidth, it planned to develop TyCom into a publicly traded company for the Fap^se of designing, building, installing, operating, and maintaining its own global undersea fib er optic commuaicationa network, to be known as the TyCom Global Network, that would be the "largest O and most advanced global undersea telecommunications fiber optic network." The release stated: O "Undersea ca W has been a contributor of strong earnings and cash flow to for nearly 30 years," said L. Dennis Kozlowski, Chairman and Chief Executi ve Officer of Tyco. "In r^eeent years, due to both growing demand and Tyco's mar wt leadership, the undesea fiber optics business has significantly increased its backlog of underact contracts; developed and implemenWd several k O technologies in umderaea telecommunications, primarily related to inc reming uederaea cable capacity; partnered wittr-kgy customers d .novigr equity participation; and crated innovative bang-term maintenance contracts such as p rtviously annormced SEAHORSE(rM) global operation and main== program. The TyCom Global Network will enable Tyco to realize additional value O for out shareholders by putting our expertise to work not just as a designer, 31 O Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 32 of 92 O i builder and maintainer of systepas, but-also as an owner and seller of undasoe cable bandwidth to-the telicwiions carriers of the wort$." O i The decision.tu commit Two's uadersea fiber optics business to inmlemcnt TGN O worldwide cotmmm . The hftgm don of the Internet into the daily lives of the world's population, combined with to burgeoning needs of global commerce and industry for data and other broadband ggbcxtions, continue to drive gwwth and demand. As broadband terrestrial fiber optic networks are completed, they require the availability of undersea systems to comnect with O rest of the wenld. Tyco's current position as the premier indepe cideert, fully integrated supplier and maintainer of the newest technologies for undersea fiber optic natwo ks provides it with a unique set of abilities to meet the currant and ongoing needs of a true global tiele:commuaications network. O • ^ s I Tyco intends to offer up to 20% percent of its undersea fiber optic able business for sale in an initial public offering. Tyco expects that a registration stmt will be filed with the Securities and Exchange Commission in the first calendar quarter G of 2000 and to complete the offering by mid-year, subject to market condidons^ [imphasis added l 98. Tyco common stock rose $5 . 125 on January 18, 2000 in response to in^ O enthusiasm for the proposed offering and Tyco's reports of improved operating results 99. On July 26, 2000, TyCom Sled an amended. Registration Statement and final Prospectus with the SEC for the initial offering of 61,130,435 shames of T) Com - _ + ++ n stock at O $32 per sham (excluding the ova-allotment option). 100. Of the $1,854, 115,000 in estimated net proceeds fim the Offering (e=c udmg the p over--allolment option,), the Prospectus represented that 51,654,115,224 would be used +`toward the deployment of the first phase of the TyCom Global Network and $200,000,000" would; be paid to a wholly-owned subsidiary of Tyco. O 32 O Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 33 of 92 i O i 101. Goldman Sachs, Merrill Lynch, and Salomon Smith Barney were the co-lead O cmderwrito - of the Offering. wait 102. Asa result of the Offering, Tyco owning 100% of TyCom's common 0 stock to being the 86% owner of TyCom common stock. 103. The Prospectus (at 3) stated with regard to TyCom that: We have designed, engineered, manufactured and installed over 300,000 0 kilometers of undersea cable. With our Beet of eleven ships, we have played a principal role in the deployment and maintenance of most of the world's undersea cable netwwotks. Over the last nine years, our laboratory division, TyCom IAborstodes ... has achieved milestones in the laboratory environment by increasing the amount of data that can be transmitted on undersea fiber optic networks. 4 104: The Prospectus (at 3) represented that TyCom planned to go into ' in competition with its than existing customers, for whom it had been manufacturing • and O "to use our expertise to design, manufacture, install, own, operate, maintain, and sell 'dth capacity on what we believe will be the most extensive and technologically advanced undersea fiber optic network — the TyCom. Global. Network." O 105. The Prospectus added (at 3) that TyCom would, in competition with its position itself "as an indepernda t provide of bandwidlh solutions to telooemmuuniceti old. O providers, Internet and application service providers, and odw s, requiring significant • 'dth capacity," while still intending "to reserve a portion of our cable system supply - for the needs of our customers." O 106. With regard to the timing of development of the TyCom Global Networ^ the Prospect us represented (at 3) that: O 33 O Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 34 of 92 O The first phase of our network will be designed to offer bandwidth upgradeable to a minimum of 2.56 terabits per second, span apptmcimately 70 + + O undersea kilometers and conned 27 of the world 's major telecommunication centers, including New York, London, Paris, Tokyo and Hong Kong. We anticipate that the trams lantic portion of the first phase will be operational in second half of 2001 and the remainder, consisting of the transpacific and - portions, by the and of 2002. We plan to Amd the Scat phase of our network th O cash fevm operations, all or a pmdon of the proceeds from this offering and drawn under our credit agceaew with Tyco. We seeped that the entire Global Network will be completed in apps+oximately ten years and that it will approximately 250,000 undersea kilometers, linking tanstrial networks on all six inhabited continents. O 107. The Prospectus (at 23) estimated that "the total cost to implement the < phase of TyCom Global Network, as currently o - __1 - ated, will be approximately $5.7 , ' ' , 0 108. According to the Prospectus (at 3), the principal elm of TyCom's strategy were to: Deploy the TyCom Global Network told Tess O We are launching the TyCom Global Network to address the 7., for undersea fiber optic bandwidth driven by the g rowth of the Internet and intensive applications. [Emphasis added.] • 71,ansform boo a Provkkr of Undersea Bandwtdtk Services. We ' o— to O build on our record of technological innovation, our experience in undersea 1 supply and our customer relationships to focus on providing a broad spectrum of bandwidth services. • Deliver Customer-Driven Network Solutions. We expect to offer our O customers a wide range of undersea bandwidth capacity options and fimible ' to tenurial networks and develop customer-driven network and bandwidth - ^ ^ - , i solutions, inchxftg virtual private networks and selected Intamet enabling . . " and services. 0 .109. The Prospectus further indicated that the TGN was likely to be successfW because, based on research conducted by The Yankee Group, global demand for undersea ban**h capacity was expected to rapidly incase, stating (at 36) that: O 34 ,o Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 35 of 92 - O jrlecent research conducted for us by The Yankee GroW VCts the transadaptic. 1 i, /Jr,i it 111 ti, ,11 " 1, . -k-: II Yf: 111 . - iJ ,' i .I-1 '(lU^.l(i t:I'- 1 O . As a result of the rapid development of terrestrial networks in the United States and Europe over the last few yews, demand for underms bandwidth capacity to link to those and other networks is increasing. This need for i --, r -tmecdvity requires the deployment of large bmdwidth transoceanic systems. According to The Yankee Gro 0 i ( ii Ali 1 11. " • I.M t•:''. r1,11U 1,,.. i .../;.'1 tl J', 111 ( II 1 '. -i i to , 4l li -.i .`- 12996 ham 2000 thrill& 2005. Demand for large bendandzh transoceame systems is developing. in part as a result of the use -of wireless Internet and the ongoing deployment of terrestrial networks in the region. I •1_N .-.1 (' 1 1 tlil 1 Y 'J 1 ktil ifl ^ ''ill 1^ •; '1{ i 1 ".-/^t 1 X11 ^ O MAdM especially those that have the technology, capital and infrastructure required for fast deployment and reliable maintenance of undersea. fiber optic cable system. [Emphasis added.) 110. The Prospectus contained (at 66) a summary compensation table for / a (^ 1 4 . 111 k 'O Kozlowski, Garvey, and Swartz; and TyCom's other executive officers. Included 1 111' 1 ' those disclosures (at 71) was a summary of TyCom's Key Employee Corporate Lowe ' 1 i ("KEL") td that, according to the Prospectus, was "to encourage ownership of Tyco common i by key employees" by providing loans to be "primarily used for the payment of taxes due as a result of the vesting of restricted stock." 0 tow"jxesenwl 111. According to the Prospectus (at 71), the summary c01IIp m--tlon the annual and long-term compeasstion for services man capacities to Tyco and its sulmdizies O for the Chief Executive Officer of TyComm and the other four most highly compensated executive officers of TyCom during fiscal 1999." 112. The Prospectus stated (at 71 under the heading "Employee Corporate Donn O Program," that. 35 0 Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 36 of 92 O Tyco US established the 1983 Kay FWloyea Corpw to Loan Program, as D ^_:rl . 1,^ rr f ^ . , _, 1 kr / .. 11 .1 ,_ 1( . f.. . _1 .1 a ^.,;e. r f unrestricted aback. The Tyco compensation committee administers this 1oan•p mgram. The Tyco compematioru committee au thmizes loans, which may not exceed the amount O ak ""c under any regulation of the United States Treasury or other apoRcab statute or regulation.... [alt September 30,1999, the amount of loans outstanding under this loan C totaled $18,569,137, of which $0 was loaned to Mr. Kozlowski, $304,363 was loaned to Mr. Garvey and $0 was loaned to Mr. Swartz. The largest amount o' indebtedness outstanding at any time since October 1,1998 by Mr. Kozlowski 55208,249, by Mr. Garvey was $1 , 153,645 and by Mr. Swartz was $17 ,435 19. [Emphasis added.] 113. The Prospectus also stated (at 65) that after the closing of the Offering, r r TyCom Board (which than consisted only of Kozlowski, Swartz, and Garvey would be q. ' //- 1 to add three "independent" non-mmagemant directors: Brenda C. Barnes, Frank P. Doyle r r Warren V. G Musser. G. 11w N 114. The Prospectus was materially false and misleading because it 1--,,--that d TyCom was making the Offering to capitalize on the increasing demand for bandwi 1 r 1 115. In fact, the telecommumications market was oversaturated with bandwidth capacity and TyCom knew that capacity was continuing to increase at a Smater rate than demand. Q 116. By way of example, the Securities and Exchange Commission alleged ir^ a i Complaint against Qwest Communications International Inc. dated October 21, 20 04 ir^ .f 2, . l r ' . «., r • r l 1 ' .. « - (at pares. 28-29) that O 36 i O Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 37 of 92 O "[i]n 1999 and 2000 ... other mi jor fiber-optic network providers had flooded the with O capacity by forming their own networks. Further, as a result of rapid teclmological ^ ^ ^ - the trans mission capacity of new and existing fiber-optic networks substantially ' For example, by 1999 each strand of fiber that Qwest had built could carry 256 times . ; capacity 0 than when it was originally installed. As the technologically advanced and capacity ' - - .the price at which Qwest could sell its excess fiber-optic capacity declined dramatically." 117. TyCom, because of its position as a dominant mamificturer and serve - -- of xmderwater fiber-optic cable, bad actual knowledge that "major fiber-optic providers = flooded the market with capacity." O 118. The lack of demand for fiber-optic capacity at the time of the Offing is feather established by the information provided by the following former TyCom employees: a. Employee B (the only demand for bandwidth was Erom companies look ing to swap; most bandwidth was still dark; there was nothing on paper or incontrac Is that indicated that there was a great need for more undersea cable services; whole O TO was a Brand'); b. Employee D (although the sales staff "tried its best" to sell banctridth rt the O proposed TON starting six months prior to the Offerin& not a single sal c of TON bandwidth had been made as of the time of the Offering); C. Employee E (bandwidth capacity had already outstripped demand and p^icing was O plug): d. Employee F (the TON was just a delicate of the other networks already out there); D 37 ^O Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 38 of 92 O C. Employee G (in late 1990s a number of companies had producad than O enough cqac.* f. Employee H (nn plan numbers for the Offing had been fabricated. customers and the contracts that were pad of the hype" in the Offering 'not O exist. The Underwriter Defendants had instructed Kowalik what the so Ws and revenue projections had to be for the Offering to be saleable); and O g. Employee J (only 1/32 of the opacity was being used). 119. Although the Prospectus disclosed (at 14) that "demand for bandwidth that we expect may not occur," and that "the supply of bandwidth capacity may expand ^ ^ • rapidly O than we carped" — the Prospectus failed to disclose that demand for the Global N was already non-existent and that there was already an over-supply of bandwidth. were 120. Fiutheamon, the false reprwentartions about market demand in the made even more misleading by TyCom's failure to disclose other relevant inf.. a , - ; In the same June 2000 spreadsheet in which TyCom compared its own forecasts to those of Yankee O Group, TyCom also comps W its own and The Yankee Group's future projections of pricing ofbandwidth capacity. The decline in pricing through 2005, is reflected as follows: TYCOM •. TAM= Old ANALYSIS OF M &i MCM 2"1 2882 290 2884 2885 O Tnss,AWNie Tyc= SLSO $1.02 $0.69 $0.32 $0.42 Ymkft Group $190 $1.27 $0.83 SOM $038 '1rmwjedae Tycem 52.00 $1.40 $1.05 $0.79 Yankee Grow $1.33 $693 WAS $0.46 38 O Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 39 of 92 O I 121. As this comparison dam, both TyCom and The Yankee c lad determined that bandwidth pricing would decrease significantly through 2005 (and . , ^ ; - ue its decline through 2009). Nonetheless, the Prospectus failed to reveal in its discussion - market demand that prices for bandwidth capacity were expected to plummet and that a, ^ were O projected to increase at a dramatically reduced rate than otherwise indicated by the ' , - -, . 122. Although the Prospectus did disclose (at 14) that TyCom "expected... ' ^ -: for our services ... to decline," it failed to disclose the dramatic decline in pricing that ' anticipated in the same manner as it disclosed (albeit falsely) the increase in demand that was 'paced. 2. The Prespadr 19" — The Ya dm Group's C Projedian adMarbst Deumd amd Failed to Diselose r –_ vt . 11 s .t..., , 123. The Prospectus' representations with regard to The Yankee Group wen materially 4 false and misleading inasmuch as the Prospectus failed to disclose that (i) The Yankee Group's forecasts of 123% transatlantic and 129% transpacific bandwidth growth had been moi leled on O TyCom internal forecasts that were inflated at the direction of the Underwriter De • (ii) TyCom's actual internal projections of market demand were materially lower (66.25% growth) than 71e Yankee Group's projections, and (iii) both TyCom and The Yankee Group Im d projected that pricing would substanitially decline from an oversupply of bandwidth. 124. TyCom's internal comparison of its projections to The Yankee Group 's projections O (Exhibit A) further demonstrates that The Yankee Group was M projecting 123% annul growth in the atlantic region and 129% annual gmwth .in the pacific.raoon, as reptesented. -in toe Prospectus, but rather much lower growth rates of 71 % and 85.75X., respectively. O 39 O Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 40 of 92 O 125. According to Employee B, The Yankee Omnip's (and TyCom's O projections) were Rather materially false and misleading because they were based on comm^mications between The Yankee Group and companies such as Global Crossing, Qwest, Q Level 3, and 360network3, which were recognizing revenue and projecting demand fix bandwidth based on anticipated swaps of bandwidth capacity — where two companies with excess capacity on their networks merely swapped each other 's capacity in non-cash generating transactio ns. 126. Moreover, The Yankee Group's projections were not objective. Rather The Yankee Group Lad been directed by TyCom to make its projections based on TyCom's own Q internal projections and was told that its projections will be included in documents to to used for the saw of Tycomu securities. 3. The Frarpsetu meted fire Ian hIdo d Ddmdaab' 4 Eseeadve een4swtloa said Farina to Disclose That 127. SFAS No. 57 requires that financial statenimb identify material related party Q transactions and disclose (a) the nature of the relationships) involved; (b) a description of the transactions; (c) the dollar amounts of transactions for each period for which an ' , - • 1, , statement is pmented; and (d) the amounts due from or to the related parties as of tha date of , balance O sheet. 128. Further, Item 402(2) of Regulation S-K "requires clear, concise and p disclosure of all plan and non-plan compensation awarded to, earned by, or paid to the Gamed executive officers ... and directors ... by any person for all services rendered in all capa4ities... " Similarly, Item 404(a) and (c) requires disclosure of "any transactions, or series of similar O 40 O ^7 Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 41 of 92 O transactions, [or indebtedness, between management and the rem], since the - • , of the O - resistraat's last fiscal year ... in which the amount exceeds $60,000." numerous 129. Tyco, Kozlowski and Swartz engaged in matarW related and self- ° dealing transactions that were not disclosed in the Prospectus in violation of SFAS N • 57, and Items 402(2) and 404 of Regulation S-K. 130. The Prospectus was materially false and misleading because it failed to disclose that, in addition to the Key Employee Corporate Loan Program, defendants Kozlo • and Swartz had, without Board approval, instituted a corporate "relocation loan" program and as • September O 30, 1999 had outstanding loan balances of $35,307,668 (September 17, 2002 Tyoo F • 8-K at 9) and $7,862,532 (September 17, 2002 Tyco Form &K at 12), respectively. 131. In violation of the terms of Tyco's relocation loan program, Kozlowski •, 4 approximately $29.7 million fitim Tyco to purchase land and construct a home in = • Raton, Florida from 1997 to 2000, and improperly "borrowed" apprOXlIDately $7 million to a p cooperative ap@rtMMt in New York City in 2000. 132. The Prospectus also failed to disclose that the true purpose of the C • , • Loan Program was to confer substantial personal benefits on the Individual Defendants , - than to O encourage stock ownership by providing for the payment of taxes as stated in the Tyro's September 17, 2002 Form &K (the "September 8K') subsequently revealed { 20) that O defendant Kozlowski used in excess of $55 million in Tyco funds acquired through thel Corporate Loan Program principally to acquire high-end real estate and males extravagant pzdvises. O 41 O Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 42 of 92 O 133. The September 8K further established that Kozlowski and Swartz lead ' O repres ated in the Prospectus their indebtedness under the Corporate Loom Program of Sepbeaaber 30,1999 at $0 by causing unauthorized accounting entries reducing their 0 by S25 million (Kozlowski) amd 512.5 million (Swartz). Those amounts were subseq - reinstated on Tyco's books and records as Kozlowski's and Swartz's obligations the O Corporate Loam Program as of September 30, 1999. 134. These material related party transactions (to which Tyco has admitted) not disclosed in the Prospectus, rendering the Prospectus materially false and misleading. O 4. The hupedus Failed to Diaeiasa that the IdvWwd Deinda is Wave FhowimW Mod"dad to use the Proceeds 135. The Prospectus failed to disclose that the Individual Defendants were • - vated O to make the Offering so that Tyco would realize a $200 million dividend to be used in - to pay defendants Kozlowski and Swartz and other cteeutive officers bonuses that, in turn, be p applied by them to the repayment of their oubumding key employee and relocation 136. In September 2000, shortly after the closing of the Offering, defendant zlowski caused Tyco to pay "special" bonuses from the proceeds of the TyCom Offering. bonuses O approximated $% million, of which defendant Kozlowski and Swartz received y S33 Million and $17 million, respectively. O 137. In connection with the above arrangement, a Tyco Vice President of Finance prepared a memorandum signed by defendant Swartz that explained: The sale of 14'/0 of TyCom generated a ode-time gain of approximately $1.76 billion on the books of Tyco. We have decided to awwd special bonuses to various 42 O Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 43 of 92 O Tyco employees for their efforts over the past few years in enhancing the val - of TyCom and thereby contributing to this gain. Selected employees will receive their O bonus in the form of cash, forgiveness of relocation looms, and /or Tyco ...... shares under Tyco's restricted stock program. 1.38. Kozlowski and Swartz, aware that the use of proceeds from the Off- ' to pay p these bonuses should have been-disclowd in the Offering, sought to bury the bonuses Tyco's books and records. The September 8K admitted that "this extraordinary $100 million was allocated to several differant accounts and appears in the general lodger and financial O 139. The Wall Street Job, on September 30, 2002, reported on Tyco's , - ber 17, 2002 Form 8-K, as follows: O [TJhe TyCom bonus was booked in three dirt accounts totalling $97.4 • ' on — a slightly larger figure than the bonus payments, which Tyco didn 't explain. About $44.6 million of the total was booked as part of the TyCom offering expense.... O The other $52.8 million, however, doesn't appear to have been counted as an expense at 4 according to three accounting mcperts who mvkwW Tyco's Instead, Tyco scans to have hidden the sum in two di#Yma t reserve accounts bad been previously established on the balance sheet for unrelated purposes. majority of the money, $41 million, was booked against "Accrued Federal • , Tax," the filing says, in effect reducing roans that Tyco had put aside to pay its O federal corporate taxes. "It looks like a Mutant misstatement of both the income statement and the sheet," said Charles Mulford, an accounting professor at Georgia Institute of Technology in Atlanta, who reviewed the Tyco report but isn't involved in the O case. Based on the filing, Mr. Mulford said the maneuver appears to have improperly inflated Tyco 's pretax income by $52.8 million in the period, the fo quarter of fiscal 2000. For that quarter, Tyco reported net income of $1.1 billi before the TyCom gain." O 140. Tyco, in its Complaint filed against Kozlowski in the United States Disi rict Court for the Southern District of New York, dated September 12, 2002 (Civ. No. 02-ev-731 (at 1M 44- O 43 'O i -^ Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 44 of 92 O , 46), confnms that the Offering was motivated by Kozlowski to generate a pool of money to O discharge his unauthorized loans: By the summer of 2000, Kozlowskd's indebtedness had again risen to over 137 million, in large past -because of Lis $25 million Flo" Relocation intend loans on the acquisition of his compound in [Florida.) O Kozlowski than contrived, promoted and fi nuduleady executed a plan to grant himself relief from Lis excessive level of relocation indebtedness by granting himself benefits of a type that, if legitimate, would not need to be disclosed in Company's proxy statement and could therefore be concealed from the Board. O Thus, in early September 2000, Kozlowski falsely informed Tyco's Senior VP - f Human Resources that, in addition to cash and share bonuses for the ,... -, :, completion of a public otering ("kPOI of some of the shares of a Company subsidiary (TyCom) the Board had decided to forgive all of the relocation 1 • : for O all of the more than 40 employees who had relocated to Florida in 1998. He exacerbated his fraud even finther by falsely representing that the Board .. - to "gross-up" the bewdiits, making such each employee whole on an attar-tax - s for the forgiveness of a loan. to effect, he falsely rued that the Company both forgive the loans and pay the employee's income taxes associated therewi ; O 141. The Individual Defendants' true motivation for the Offering — to offering proceeds to pay bonuses — if disclosed, what have cast material doubt among on the fabricated motivation fee the offering — to meet the purportedly "fi=ftsing . O . " for bandwidth. 142. Employee B stated that only after learning about Kozlowski and Swartz's O unauthorized loans from Tyco and the payment of unauthorized bonuses from the proceeds of the TyCom public offering, and the additional bonuses paid on completion of the TGN, d4 he recosmze that "the whole TO was a fraud." O O 44 O Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 45 of 92 O S. 7W Prapeatos FWbd to Disclose, That The Reported Sagas of o Tyco wag dt Raga of Systta n& AcceaatiK Muipalatleas, 143. The Prospectus (at 72) disclosed that Tyco would retain control of T after the O Offering and continue to provide TyCom with management and administrative _ including, most significantly, financial, securities Slings, professional services (including - serviees^ and investor r"ons/investment advisory services. O " 144. In fact, the success of the Offering was based in substantial part on the I Riblicly reported history of profitability and increasing stock prices of Tyco, and Tyco's ability to continue O to successMy manage T)Com's operations. From 1997, when Kozlowski became tbe CEO and Chairman of Tyco, to July 2000, Tyco's stock price had soared $+ore $15 to $50 per share. 145. Byway of example, the IPO Reporter stated in an news article dated Jut► 24, 2000, O two days prior to the Offering, that: 3 Then there is the Kozlowski factor. The TyCom owcutive chairman - first Dennis - has been with Tyco since 1975, serving as its chief executive since J Q 1997, and leading the company to one of its most prosperous periods. "Kozlo is a major creator of wealth," said Comack. "That's a deal I wouldn't bet : 146. Given the central role of Tyco in the Offering, de&ndants Lad an obli - on to disclose all material facia relevant to Tyco's reported operating success. The - µ however, failed to disclose that Tyco's purported growth had been orche^ th ro systematic financial fraud. As Tyco admitted in its Form 8-K filed on December 30, 2002 (the " _, I 1 O 8K') (at 5), during at least the five years preceding Kozlowskd s resignation in June 2002, Tyco pursued a `tern of aggressive accounting" that was "intended" to "increase current e^s O 45 10 Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 46 of 92 O above what they would have been if a more conservative accounting approach had been O followed" 147. The December 8K specifically stated (at 17) that with regard to twelve eucquuaitions by Tyco that used purchase method accounting, including the acquisition of SSI in O 1997, there was a `notable lack of documentation supporting the establishment and utilization of naerves and a pattern of aggressive purchase accounting." Indeed, the December 8K p acknowledged (at 4) that Tyco "in general suffered from poor ; inadeq policies and procedures to prevent the misconduct of senior executives that occurred; ps+ocxdures for proper corporate au ihorizations; io&Wpu oe approval procedures and O docution; a lack of oversight by senior management at the corporate level; a of using aggressive accounting that, even when not erroneous, was undertaken with the . . , and affect O of increased reported results above what they would have boon if more conservative , , 1, were used; pressure on, and inducements to, segment and unit managers to hx nase earrings, including by decisions as to what accounting treatment to employ, and a of a stated O and demonstrable commitment by former senior corporate management to set standards of ethics, integrity, accounting, and corporate governance." 148. Moreover, the December 8K acknowledged (at 15) that: O Mhere were instances where management appeared to influence the management of an acquisition target into adopting accounting its that "over-accrued" expeesea prior to an acquisition's consummation or otherwise exceeded what was permitted by GAAP. G 149. With regard to SSI, as alleged above, according to Employee C, the "ect Manager at TyCom's Morristown facility, during the period prior to the July 1, 1997 adquisition O 46 O Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 47 of 92 O from AT&T, management of SSI were encouraged to defer dye recognition of from O contracts so that Tyco could report inflated operating results in subsequent periods. December 8K further determined (at 23) that SSI had established prior to the Tyco -. - , a $45.8 million reserve towards the cost of purchasing fiber optic cable fi+mn a third that likely O violated GAAP, mad would have inflated Tyco 's operating ranks after the acquisiti 150. The Dmembw-$K &rther indicated (at 7) that Tyco intentionally : to p manipulate its reported financial results, as follows: Tyco's aggressive accounting in the past was not neutral as to the timing of recognition ofmvenues and =pan=. The Company, for example, devoted considerable less attention to identifying appropriate accounting adjustments O would reduce reported earnings in the period immediately after an acquisition it devoted to identifying appcopriste acco uyting adjustments that would reported earnings after an acquisition. 151. Tyco also admitted (in the December SK at 4) that it was unable to " judgements O about the appropriateness of accounting treatments because of "die Company's past , ure to document many decisions contemporaneously," and because documentation .. • its transactions is `sot always available" and is " O often dispersed." 152. Tyco's `pattern" of "aggressive" accounting and its employment of "financial engineering" practices ` u destaken with the purpose and effect of ' - « , reported ranks- caused T to issue financial statements duringwring the Class Period that were useful, complete, neutral, conservative, nor unbiased. ,o December 8K at 4, 6, and 12. 153. Accordingly, Tyco has admitted that it violated fundamental precepts of generally O accepted accounting principles (" GAAP'), and that its "sWeadve" accounting poach* rendered its financial statementsduring the Class Period materially false and misleading. O 47 ^O Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 48 of 92 O 154. In 1999 and 2000, the SEC conducted a Mow Under bxp&7 (MUI) - O Tyco's acquisition accounting. At the beginning of the inquiry, the SEC requested . Tyco produce various categories of documents. 155. In July 2000, the SEC closed its informal inquiry. However, Tyco - in its O December 8K (at 29) that "[a] large quantity of documents collected by Tyco and its ^ ^ t in connection with the SEC's document request had not been produced to the SEC at the ; „ the p SEC closed its inquiry." 156. An article in the December 27, 2002 The wall stmet Journal also sho that Tyco's outside counsel knew in early 2000 that Tyco had serious accounting problems and that O corporate finds were being misused by Kozlowski, Swartz, and Tyco's other senior - , ; ves. 157. The Wall Street Journal quoted two of the emails: O March 23, 2000 e-mail from Lewis Liman [outside counsel] to Marls Belnick, former Tyco General Counsel: "There am payments to a woman whom the fo in finance describe to be Dennis's girlfriend. I do not know Deoais 's situation, this is an embarrassing fact." ['Phis refers to payments hom the KEL account 1997 to Karen Mayo, now Kam Kozlowski.] ° May 25, 2000 e-mail from William McLucas [outside counsel] to Belmck: "W . have found issues that will likely intent the SEC ... creWvmess is employed hitting the forecasts..." "Ibere is also a bad letter from the Sigma people just before the acquisition confirming that they wen asimd to bold pooduct shi . p just before the closing." The some o-mail also said that the company's reports suggest "something fimny which is likely apparent if any decent looks at this." 158. This Court, in its opinion III c> • , ^, -, t ; + , l : r K ; ., , _ O 2004 U.S. Dist. LEXIS 20733 (D.N.H. Oct. 14, 2004), sustained similar allegations of : fraud by the class reproaentative kad plaintiffs in that action against Tyco, Kozlowski, O Swartz, among others. 48 O Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 49 of 92 O ' 159. Tyco's ftAdent accounting practices ware used to generate cash to Tyco's © acquisition strategy. The looft in turn, occurred both to benefit the individual - and to create incentives to continue with the accounting fiaud. 160. The accounting manipulations and lack of corporate governance and , u viability O in existence at Tyco as of the time of the Offaring were the same issues that would - , , to plague TyCom during its existence as a public compmy — such as the misrepteeentation of and p demand and the payment of perfamance bonuses on the build-out of the first leg of TON (discussed below), which had no economic justification. The accounting and , • • issues revealed with regard to Tyco in dw September and December 9U if publicly - : at the time O . of the Offering, would have ahated prospective TyCom investors to the true risks of , TyCom common stock. n O 6. The Propreetna Miarepr+asented the Idea ky of the Me hm of ' MIS F^eentive MrrnsDstaaat a" FaW to Diseb" Bre n 's Active , s M, ' ..'a Jr. ' 161. The Prospectus identified (at 62) the "directors, director nominees, and - : vc O offices of TyCom Ltd., and other key management of some principal business of TyCom (US) Inc... as of July 6,2000." 162. The Prospectus however failed to disclose James F. Brennan's central le in the O planning of the Offing and his criminal record of bank fined and suspicion of perj , 163. Brennan's participation in the Offaring was a material fad that, if disci • - would O have affected the total mix of information in the Prospectus and would have had actual significance to a reasonable investor's willingness to invest in TyCom common stock the Offering and in the aftenmarket. O 49 O Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 50 of 92 I 7. O 164. The Prospectus was further materially false and misleading because it to disclose that telecommuaiic ations stocks such as TyCom were being buoyed by the U Defendants' analyst research recommendations, which were motivated to establish or O investment banking relationships. Rather, the only "cou is r disclosed in the ' - • (at 87) was that the Underwriter Defendants had `performed certain in^ent banking and p services for Tyco and TyCom." 165. Inasmuch as the Prospects sought to disclose certain underwriter n it had a duty to disclose all such relationships. O 166. In fact, Kozlowski affirmatively and falsely stated in connection with ► -'s Offering, according to a July 27, 2000 _Hlo mh= News report that: "thetas a wall - - the O analysts who follow Tyco and the people on the investment-banking side, who are capable of handling this sale. I don't we that there's a conflict at all." a. Goidsaaa Sacks O 167. According to a Consent Order entered into between Goldman Sachs the Division of Securities of the Department of Commerce of the State of Utah, Goldman', telecommunications' analysts had turned pessimistic on the prospects for the - - - , , , cnications O industzy prior to the July 26, 2000 Offering but continued to publicly rite those stocks '. to secure profitable underwriting retentions. O 168. Among other things, the Goldman analyst assigned to provide research ^n TyCom — Frank J. Governali — had a subjective belief that Global Crossing, TyCom 's primary customer and competitor, was over-rated by Goldman. O 50 .O ^ ^ 4 Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 51 of 92 O 169. Goldman bad initiated coverage of Global Crowing on October 14, 1 ... by p analysts Robert M. Pomeroy and Frank J. Governali with a new "Recommend List" $50.00 per share prim target — wben Global Crossing was trading at $34.813 per share.. p 170. On March 26, 2000, Pomeroy wrote Governeli in an email titled "GB -I think they arc bullshitting us;" "I am now convinced, more than ever, that their guidance . , - not make any sense.... They are hiding behind the complexity of their accounting. I am - • , there is C now an X factor that is sucking cash flow out of GBLX." 171. Governali responded by stating: "their guidance for 2000 must be ..." O 172. Goldman, however, failed to downgrade Global Crossing because (i) it d shortly, on March 31, 2000, be named co-head underwriter with Salomon and Merrill ynch, on a $3.25 billion Global Crossing common and prefenvd stock offering, and (ii) was in .. - midst of O the registration process for TyCom's Offering. A Goldman downgrade of Global Cro would have an adverse impact an the Global Crossing and.TyCom Offerings. 173. The Utah Consent Order furdw stated (para. 56) that ms's - , analysts C had miatepresented the business prospects of companies in the global telecommuni . • sector, consisting of TyConrand its major competitors, such as Global Crossing, as well as a ; tive 0 Focal Exchange Carriers ("CLECS'), in the Summer of 2000 — at the time of the T • , Offering: O In August 2000, James Golub, the co-head of global teleoommnunications services, wrote Frank Govecnsk the odier co-head, about the "anomalous situation where our sector has been tadkiing for 3-4 months and we ~y still have aM*M of stocks as Recommended) L[ist] as that is an the Wksaw and clients Golub suggested drat Gove nali at least consider the approach he had ta Europe,we have found tat honour is preserved if we have a stockas a C cFIW71" 51 'O r Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 52 of 92 O O[ugx former] and the companies can't complain because [it's] batter then a M[wkcl P[erformer].- Governali agreed, saying he planned'io w4i t+e most f the p CLECs, which is where the problem is most egregious. The ratings were resi from [a depicted analyst], and I never changed them, not warming to dianrpt too much. But, it's ridiculous. rve already met with the barkers, and plum to move moat of the c ompania-dmn to Wadmi] O[ ' ] Srom R[ocomnaanded] Mist)-before [anther analyst] takes over comp] Wy in September.... I don't think I would end up leaving only 7 .5%.as R[eoomerrded L[ist], but the present 68% is ridiculous." 174. CLECs provided local commimic itions services in competition with In unbent p Local Exchange Carriers such as Bell Atlantic, Bell South, and GTE and wee signific mt customers for bandwidth at the time of the Offering. A Goldman downgrade of Glo Crossing, other telarommunications companies, or the CLECs prior to the Offering to reflect the Goldman's O analysts' true beliefs in those companies' diminished prospects, would have had a material adverse impact on Goldman 's ability to sectm the TyCom wndewriting or to take TyCom public at $32 per share. 175. The Utah Consent Order concluded (pare. 92) that Goldman's analyst research was biased and subject to pr+easure by investment bankers and maintained buy ratings on stocks such as Global Crossing to secure underwriting commitments on other companies, such as TyCom, in the same sector: Goldman Sachs research was subject to pressures or influences by investment d bankers. At times, bankers were allowed to review and comment on research reports and pressured.aoalyats about the timing to initiate coverage on specific issues. At least one analyst felt it was sometimes difficult to voice-strong opinions•/ t n t, t , t, t • t t. ^/ t '1 I. • , ...art si, t /. _. „• . e ' t '.. .. k.:l^ .. • .• •I Q Il Osemnlitlas.e Iaalraca soured nes ware told.whwh aaalvats wncild be .',t . ,• •^t ^^i . ^,.. ^;e^ ,••, 7ar-: t .e t. o;.}'. y et.'c ,r •^e a -y• y ^ ] 52 O i Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 53 of 92 t O b. Selesmas Soft Barney q 176. Salomon's stunning success was a complex scheme that the New Ya Attorney General described as "commercial bribery." To obtain the coveted investment banking services and fees, Salomon enticed top executives of telecommunications companies with a package of O Wall Street's hottest currencies: (1) a guaraatee of favorable analyst reports and to bolsw the value of the potential client's stocks, and (2) for the decision-makers at the , clients, p lucrative shames in "hot" initial public offerings. This illicit, multi-faceted ad sl^ arrangement was nova disclosed to TyCom investors, who relied on the supposed integrity of Salomon's underwriting process and the independence of Salomon's research. II O 177. In April 2003, the New York Attorney General's Office released findings and conclusions arising firm its investigation of Salomon's investmant banking and research C activities. is jg the Matter of Citi=W Global Markets Inc. (jWa Salomon Smith Rwq Inc.). Asuluaace of Discontinuance Pursuant to Executive Law of 6B(15), dated April 21, 2003 ("Ci igroup Assurance of Discontinuance"). The Attorney General found that Sal • .. , . • had long assured investors that their research analysts were `providing independent objective unbiased information, reports, rating and recommendations upon which investors could rely in reaching invest a t decisions." Citigroup Assurance of Discontinuance 114. However, - - , ^ ^ -, . referred to in the Citigroup Assu nme of Diseontiauar ►ce, and elsewhere, demonstrate Salomon had a very different idea of the role of the research analyst in affiecting , - - n making. O 178. According to the Attorney General'sinfindings the' Citigroupgroup Ash of Discontinuance, Salomon's business practices "intertwined research with investnw blanking to exert inappropriate influence over research analysts." Moreover, the Attorney General found that O 53 O Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 54 of 92 i O Salomon "failed to manage the resulting conflicts of interest in an adequate or Q manner." This was because the incentives for integrating the two services and, even so, fostering the conflicts of intent were clear. as the Attorney General found, - : , was a coat ce eat' for Salomon, whereas investment banking business generated substantial pro O 179. It was well known at Salomon that the purportedly independent process was a farce. In December 2000, John Hoffman (Salomods chief of equity research) - Id Michael p Ca gwacr (Salomon's Chairman and CEO) that there was "legitimate concern" about , objectivity of Salomon's analysts. In a potation addressing Salomon's research ; , at a Salomon equities man Wment meeting in early 2001, Hoffman slowed that, of the 11 r 9 public C ♦; companies that Salomon rates, there were ma "sell" ratings and only go "I arating. -^ . _- n He described these ratings as the "worst" and "Mculouus on face" in handwritten , , , -- attached to the presentation. He also observed that there was a "rising issue of research integrity" . a G "basic inherent conflict" between investment banking and tweacch. In a February 200 memorandum, Jay Mandelbaum, the global head of Salomon's retail stock selling di ' • , told Q Hoffmman that Salomon's `research was basically worthless." 180. As revealed in the New York Attorney General's September 20, 2002 - leint concerning Salomon Smith Barney's allocation of "hot" IPO shares (the "IPO - -, -, and O' confirmed in the Citigrouip Assurance of Diacontinuraace, Salomon involved research in the underwriting process — including due diligence — and, finther, in the very process o C developing the lists of potarctiat investment banking clients and in the "beaarty contest" for prospective investment banking services. Since the top Wall Street invest banks have traditionally charged similar underwriting fees, the prospect of favorable research coverage by a O 54 i0 i Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 55 of 92 well-recognized and widely-followed analyst became a key factor in a company's x - M of an Q underwriter. Since the mid-1990'x, it was clear that, at least with respect to the telecommunications industry section, Salomon could deliver the research coverage of telecom executive's dream: Slowing analyst reports written by Jack Grubman. O 181. Gnmbman was Salomon's top teleoommunicetmons analyst, and one of - , most powerful men on Wall Street. As observed by on August S, 2002, "- big 0 investor knew Grubman was the `ax,' the one man who could make or break any : , An [the tel000mmunicationaJ industry with a thumbs-up or thumbs-down." The financial referred to Grubman as the "Pied Piper" of telecom. O 182. Although Grubman's research was presented to the public as the factors and documents revealed in connection with various governmental investigsti, into © Salomon's practices demonstrate that Grubman was in no way "iodependee of the . • ; he covered. 183. Although Grubman was prohibited by SEC regulations fi+om pub ' research on O TyCom common stock until 21 days after the Offering, Grubman sought to promote Offering by hyping the telecommunications sector on the date of the Offering. On July 26, 2 — the date of the Offering — Grubman reiterated his "Buy" rating on Global Crossing common and O stated that he expected Global Crossing to exceed Salomon's prior second quarter 2 revenue, estimate of $1.3 billion and adjusted EBrMA of $383 million when Global Crossing • • - G earnings on August 1, 2000. Grubman also aggressively set Global Crossing's target sf ock price on July 26, 2000 at $70 per share, while it was tra ft at $28.50 per share. O 55 Q Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 56 of 92 O 184. Grubman's July 26, 2000 research analyst report on Global Crossing Q materially false and misleading and was idmded twor was reckless in duuaegard for i - impact on TyCom's Oftering. 185. Grubman reiterated his bullish buy rating on Global Crossing common on O August 1, 2000, after Global Crowing reported second quarter 2000 operating results. 186. Similarly, Grubman's efforts to inflate the telecommunications sector -, 'or to the G July 26, 2000 Offering is reflected by (i) his July 14, 2000 research report on World —stating:stating: "we believe WCOM is categorically the best combination of growth and value in their, - - . We believe this stock will double by the middle to end of next year," and (ii) his July 20, 2 1 + + Qwest C rtxarchwithreport a $80 pricepri target, at a time when Qwest common stock was at ' S55.63^ per share. 187. As revealed by documents produced by Salomon to the New York S-^ ^ • Attorney General, Grubman admitted in an internal e-mail that he only failed to timely . • - - the telecommunications stocks in his sector, including Global Crossing, in June 2000, ' , to the C Offering, becausepressure offrom his mveswunt banking colleagues. In a June 2001 mail to Kevin McCaffrey, Salomon's head of U.S. research management, Givbman observed: [M)ost of our bog* clients are going to zero and you know I wanted to C downgrade then moeft ago but Sot huge puW*ack fiew banking. I wonder o what use banters are if all they can depend on to get business is analysts who recommend their banking clients. 188. At about that satire time, Grubman emailed a research colleague about app uupc oming O dinner meeting at which he expected to hear two senior mvestmemt bankers complain a^ou t some O 56 O Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 57 of 92 O of his recent commentary on tcleeom stocks. Grubman stated: -Screw [the bankers]. O We should have put a Solt on everything a year ago." 189. Grubman's conflicted role as both investment banker and analyst did go unnoticed by Salomon's own brokers. As shown in documents referenced in the O General's September 20, 2002 complaint and the Chigroup Assurance of o', - , , - , numerous fo m Salomon retail brokers who wodwd with Grubman behaved that c 's stock ratings — and in particular his ratings on Global Crossing, Qwest, and World — were f dw and misleading: O Our blind support of banking (a la WCOWI) is hurting our retail cliffs. W rocent SEC company communication restrictiot, analysis is more important ever. We caanot affon'an overpriced cheerleader like Ondmun. s•+ G Grubman's analysis and recommendations to buy (1 Ranking) WCOM [WorldCom], OX [Global Crossing], Q [Qwest] Wwas careleag O His ridiculously bullish calls on WCOM and OX cost our clients a lot of d How can an analyst be so wrong and atiltkeep°lus job? 190. On July 18, 2001, notwithstanding the decline in TyCom common stor* to $14.55 p per shore, Grubman reiterated his "buy" rating• 191. On April 28, 2003, a jovn press release of the SEC, New York Attomvy General's Office, the NASD, the NYSE, and the North American Securities ors Association O 57 O i Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 58 of 92 'O announced the conclusion of `joint investigations by the regulators of allegations of Q influence of investment banking interests on securities resesech at brokerage firms." global settlement involved teen hwastment banks and two individual analysts. 71m of those banks, Salomon, Goldman Sachs, and Merrill Lynch, are Underwriter Defendants in this One of O the two analysts is Grubman. 192. Salomon agreed to pay $400 million to resolve the investigation, ' $150 O million in penalties and 5150 million in disgorgement, the largest penalty assessed any of the tea firms. 193. Salomon has also agreed to pay $2.575 million to investors to settle , t aimilar C to the claims asserted in this action regarding its activities as underwriters and analysts with regard to the miance and trading of WorldCom securities. O 194. The Prospectus, by disclosing certain business relationships between + Underwriter Defendants and Tyco and TyCom, but not the more pervasive analysts' . > > ' was O materially false and misleading. H. O 195. TyCom common stock rose $4.52 per share on July 27, 2000, as in rs reacted positively to the Offering. 196. The Underwriter Defendants benefitted by the Brat day rise in price by excising O their rights to purchase an additional 9.17 million shares from TyCom at the $32 o i price and guaranteeing their most favored clients a 541.265 million profit based on the . price of 0 the shares (calculated by multiplying the size of the over-allotment-option (9.17 million shares) by 58 ;O i Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 59 of 92 O ' the amount that TyCom common stock was then trading at above the Offering pike .52 per O Share)). 1. Tie Uadawriitsr Daub' MaterhAy False MWLVWNdWLA=d 21,2M It DAMMRA^ft 197. MwUndawriterDefendentsbeMamlyacovaspofTyComonAuSad2l, 2000. Under SEC regulations, the Underwriter Defendants were prohibited from ' research reports prior to that date. j 198. Analyst Craig Irvine of Merrill Lynch initiated coverage of TyCom wid k a treat tam rating of "accumulate," a long team razing of "buy," and a 12-1 &-mouth target prim of $60 O per share. On October 17, 2000, Irvine reiterated that rating and price target. 199. Analyst Frank J. Governali of Goldman Sachs initiated coverage of T c with a O rating of "recommend lied" and a 12-mouth target price of $60 per share — • , , his private misgivings regarding the telecommunications market. 200. On August 21, 2000, Jack Grubman initiated coverage of TyCom with O Speculative Buy rating and a $7512-18 month price target. OnA maw's report stated: Dum* the fiscal year ending September 2000 we estimate that this bumess (which currently tupresents 100% of TyCom's results) will grow revenues 55.3 O to $2.3 billion; the company is EPS positive today. •s« O We continue to view the subsea business as out of the hAu t y 's mayor and believe that demand for capacity will condwe to out * supply. P. c, . cons uitins Stem the Yaskee Group projects a five year demand CAGR of more than a 1206A for Transatlaa c and Transpacific circuits. O 59 O Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 60 of 92 O O We would argue that both Global Crossing and TyCom represent attractive ., ^..r fr .•, r r e rr ^ r ' Ir r r 1 .1 investments at these levels, • • rf "l,' . , , , TSB into r f p for itself creates a sf g& ratiaMd competitor as opposed to a cbdre ofpoteatiail icraticow c oil.... O Most importantly, we would argue with the premise that the consequence of TyCom entering into this market will create more supply than there would r . been otherwise. TyCom will be using its manufacuring capabilities to build l itself rather than supplying many new competitors, which is probably good for r O industry overall. TyCom, was it not building this network, might have - , r . ' - . •ten new competitors.... From market Vic, pricing radonale and market - -., f . ^ ^ r 'c perspectives, we would argue that the industry is better off having TyCom, G - . Crossing, Flag and possibly one other global network as competitors in the r r , than having TyCom enable ten other new competitors to enter the market. O We have been unabashed bulls on the demand of bandwidth over the years.... one looks at all the subsea networks being built mound Europe, Africa, Asia, P O Asia, transatlantic and transpacific, they amount to 40 terabits of capacity - the 180 terabits of demand forecast by Yankee Group. Ultimately, we do not • r whether the Yankee Group will be correct but directionally their forecast tells u that the demand for subsea bandwidth is going to massively outstrip supply, regardless of the hair cuts or tweaks made to these various forecasts. O 201. Grubman was motivated to initiate coverage on TyCom with a buy and 75 per share price target because, unbeknownst to public investors, as alleged by the SEC in - , • - - - ' r r O against Salomon Smith Barney and Gnibman, Grubman had secured shares of TyCom - - mmon stock for favored clients such as Bernard Ebbers, the Chairman and CEO of W - • - f f and Grubman was eager for TyCom to rise in value to maximize the profits of those fa - r clients. O 60 O ^ I Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 61 of 92 O ' 202. Mmeover, as explained above, the analysts' positive buy mfings on TyCom Q common stock were the undisclosed "W M for the underwriting retention. 203. According to Wte mel Salomon Smith Barney docunwn , Gr bmw , - . the August 21, 2000 research report to create an appearance that his assumptions were ; ve, O while actually using massive assumptions that inflated his valuation of TyCom . , . . . + . , . • . stock. Thus, Jan P. Marks, a Salomon investment banker, wrote to senior owcutives of Asia obal D Crossing, shortly after August 21, 2000, in connection with that company's initW stock offering, that Grubman, in his August 21, 2000 report, had "dated the . of bang conservative" but in fact had positioned TyCom in Grnbrnan 's August 21, 2000 report O Jade's initiating coverage on TyCom ... Caine Out this morning.... Obviously, ' including every , nn,- nadv" system, in their business plan, TyCom gives appearance of being conservative with respect to multiples rell Live to the -, despite a very ave mode. O 204. Grabman and Governali, by virtue of their access to senior TyCom - prior to and after the OJfaring, and their relationship with the other large bandwidth -, " , • - in the industry, knew that there was no demand for the Global Network other than , , - - ue . producing swaps, and in private communications (4uoted above) the Goldman had O expcesaed misgivings on the entire telecommtsaicatiam sector. Moreover, according Employee K the Underwriter Defendaats had specifically directed Andrew Kowalik to 51sify his projections to support the valuation of the Offering. 0 205. The August 21, 2000 research reports were materially false and misleading and did not reflect the research analysts' true opinion of TyCom common stock or the teleooinr^puaications O industry' 61 O Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 62 of 92 O 206. In response to the August 21, 2000 analyst coverage, TyCom stock cla wd on p August 21, 2000 at $42.875, up from the previous trading day's close of $37.75, on vc lume of 3,674,500 shares, — apps+oadmately throe times the prior week 's average daily volume. 207. TyCom common stock closed at a high of $45.438 on September 1, 2000. On O October 18, 2000, Governali of Goldman Sachs reiterated his "recommend hse'rxtmg of TyCom common stock and his 560 price target — notwitlmtsodiag his private m3agivinga an D telrmoommunicattions industry. ^^,<< 2. ► ^ J... , ..e ,^.. p 208. On January 16, 2001, after the close of U.S. trading, TyCom announced a `Major" $82.5 mullion capacity sale to DishnetDSL Limited of India, on the transatlantic route of the TON. Regan H the sae, Defendant Garvey stated: G This capacity sale on the TyCom Global Network is a signiScod addition to business. Our deployment of the TyCom Global Network is proceeding on schedule, and we believe that TON's combination of global reach, technical innovation, and flexriWe capacity offering have great value in the marketplace. O 209. On January 17, 2001, before the opening of U.S. trading, Tyco® - its financial results for the quarterly period ended December 31, 2000. In a press release C "TyCom Reports 16% Increase in New Income for First Quarter; Construction of TyCom Global Network on Schedule," Kozlowski stated: O Tycom is coming off 1 - - IN great quartet. We believe the business is well positioned to provide strong earnings driven by the supply of Wrd-patty systems and ndps of cgpady on the TON. [Emphasis added.] 210. In the some press release, Garvey stated: O 62 O Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 63 of 92 O Tbis is a great sort for the year and a solid fouodWon for contmaued strong pesfWmence.... We have recorded outstanding results. Cash Rows fire® our w .9 O billion backlog combined with our available cash of $2 .0 billion. will - to provide the funding for the build out of the TON. , „, - •: r - ►: 100 IG1^Q1^^. and conaftaction activities are proceeding an sebedule. 0 ( +added-) 211. On February 13, 2001, TyCom filed its Form 10-Q forte quarterly - od ended December 31, 2000. In the Form 10-Q, which was signed by Swartz, TyCom O At December 31, 2000, we had a backlog of unfilled orders of approximately $2,9331 million, compered to a backlog of approximately $2,941 .7 million at September 30, 2000. Backlog decreased from September 30, 2000 because we devoting a substantial portion of our resources to designing and nuuwAduring the D TON and thereforre taking on less walk as a supplier of undersea fiber optic systems for otheas. MOW offact by A, -111 •..)t • , .+1-: 1, .. M ._• i 1 i:J( ,^. ,a 'J, _ ill ► . af, .., il . Backlog also includes maimenence contrscts of $6M .7 million and $632.7 million as of December 31, 2000 and September 30, 2000, respectively. 's O added.] 212. On February 23, 2001, after the close of U.S. trading, TyCom issued a release stating that "the transatlantic portion of the TyCom Global Network (TGN), scheduled to be O placed in service in July 2001, will have its capacity increased sooner than planned to demand for larger bandwidth incrammts, including wavelengths.- O 213. Garvey represented in that press release that TyCom's decision to incm w capacity was based on market demand: p Our discussions whb customers iadicabe the need for prrobcxed wavelengths p higher STM-kvel capacity increments, rather than lent STM -1 cimsits. Our order for Usnadmidc capacity, announced last moatb, fell is W this category. j I O 63 j^ Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 64 of 92 O 214. On April 18, 2001, before the opening of the U.S. securities markets, • r p announced its financial results for the quarterly period ended March 31, 2001. In a release entitled, "TyCom Reports Second Quarter Earnings of 13 Cents Per Share; Company lber eases Full-Year Earrings Estimates for Fisca12001; Garvey started: O We're pleased to have recently signed two major system shy agreenumb f • , the Asia-Pacific region: SEACN, vAich wss aped -during the quarter, and FLAG Pacific, announced awHar this week. -These agrees will add to our bwAd - and help sustain cash flow. ,, ,r ,. O :•,• r,> , •li: —., -J'I ^ •, . , t i i ) : .. a .-o_ 14 .. r i d •. •: r , i!t^ but does not yet include these two systems, which will result in an additiona1$2 billion in bookings. [Emphasis added.] 215. In r+esponee to the information disseminated by TyCom's press release O conference call, on April 18, 2001, TyCom shares rose 53 .72, or 26%, to $18.25. 216. On May 11, 2001, TyCom filed its Form 10-Q for the quarterly period ended O March 31, 2001. In the Form 10-Q, which was signed by Swartz, TyCom reported: At Much 31, 2001, we had a backlog of unfilled orders of app+oximately $2,522.6 million, compared to a bacdog of approximately 52,941.7 minion at C September 30, 2000. Backlog decreased from September 30, 2000 because are devoting a substantial portion of our resources to desigo!ag, contracting and deploying the TON and dneref n taking on less walk as a supplier of fiber optic cable systems for others. o.* .. 'r , • ,, +; , TGN, Backlog as of March 31, 2001 excluded on estim aced 530 billion of anticipawd bookings related to the SEACN and FLAG} Telecom. Backlog includes mWnftimce contracts of $677 .3 million and $632 .7 million as of 31, 2001 and September 30, 2000, respectively. Pnphamis added.] O 217. On June 4, 2001, TyCom issued a press release announcing that "the tr*watian is i segment of the TyCom Global Network (-TON-) ... [has] been installed and is in the *W testing p phase." The press release added that "TyCom has also received orders for STM-level broadband 64 O Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 65 of 92 O capacity on the traositlentic system and other parts of the TON in rec ent weeks and a portion of p the revenue will be recognized in the current quarw ending June 30." 218. On July 18, 2001, before the opening of the U.S. securities markets, TyCom. announced its financial results for the quarterly period ended June 30, 2001. Ina release O entitled, 'IW= Reports Tbird Quarter Earnings of 23 Cents Per Share; Company Increases Full-Yew Earnings Estimatea for Fiscal 2001; Recognizes $35 Million in O Sales on TyCom Global Network," Kozlowski stated, "TyCom's strong performance demonstrated once again this quarter by our ability to light the first network segment of schedule and generate capacity sales earlier than anbcgxft ." O 219. In the same press please, Garvey stated, "We're pleased to be W nmter+cial traffic on the trwantlandc route of the TyCom Global Network, which wdet hito O service a month early.,, T 220. Also on July 19, 2001, TyCom spokesman Peter Fermis stated in a prms release that TyCom expected earnings of 32 cents to 34 cents a share in the quarter ending Sq ftmber 30, O 2001, higher than an April forecast of 30 cents. Ferris indicated dW one of the s profit would beat estimates was because TyCom had stoned selling- space an the TOM 0 221. In response to this favorable news about TyCom's financial condition, yet n shares rose 55 cents to $15.10. D 222. On August 13, 2001, TyCom filed its Form 10-Q for the quwb y period ended June 30, 2001. In the Form 10-Q, which was signed by Swartz, TyCom reported: O 65 O I ^ Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 66 of 92 i O At June 30, 2001, we had a backlog of unfilled orders of app-+wdmately S2, # : ' .0 million, compared to a backlog of approximately $2,941 .7 million at September 30, 2 . O Backlog demumd from September 30, 2000 pdmwUy because we are r - - * 1 a substantial portion of our resources to designarg, coa sbu ling and deploying 4 the TGN and tberefae+e taking on less work as a supplier of =xkn sa fiber optic cable .,11. for others. Additionally, we removed the remdft backlog of $53.8 million on supply contract as a result of tare ba nkniptcy Sling by a customer. it' ' r , r •fir ^^ .^r. ^ .1 .,i ^ li • • rr Ir r ^.; r vr,ll^. mot. .^ vl 1... ^ 1.. •.f^ a Y.rfl.Lllii• Lam° M. TyCom and the Individual Defendants' follegorag its during 1 r Class O Period were materially false and misleading inasmuch as the purported contracts send r r - r for the TON, including the DishudDSL transaction, were not in the farm of sales but r swaps of capaci ♦ ty that WY not qualify for revenue m/ idon under ll ac cepted ^ i l l l y O 224. Moreover, defendants £ailed to disclose that the first segue of the was O only completed and -Hf ahead of schedule in June 2001 becauree Garvey had r - - • to ace 1 - - FU the build-out of the Global Network to achievo undisclosed performance •. • . established by TyCom's Compensation Committee. O 225. Although not disclosed in TyCom's January 2001 Proxy Statement, it adnequently revealed in exhibits to Tyco's September 17, 2002 Farm S-K that Gary - had been O inaaed z by TyCom's Compensation Committee, in a meeting conducted on Jan 10, 2001, if the ftow h ntic network was "lit" and the first capacity sales of bandwidth the Global O Network a--- mmplisbed by June 30, 2001, by the promise of a $3 .0 million cash bonus and 200,000 TyCom common shock options. Other four other senior TyCom officers were) promised awe cash bonuses of $6.3 million and 370,000 cash options for meeting that obj e. O 66 0 Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 67 of 92 O 226. Defendants' rep esengdions of "cenhums signed for capacity sake on , - TON O and demand for the TON were materially false and misleading inasmuch as those "-. - - 1, " sales," and "demand" consisted only swaps by TyCom fw capacity on other - and did not qualify for revanne recognition. O 227. A Senior Manager — Terminal Carnmisaianing and Netwodc Design , yee K), who was employed by TyCom from 1997 to September 2002 in Morristown, N Jersey, 0 confirmed that Defendants were "swapping:' According to Employee K, the " -.",,-, -- ^ problem" was that the cry was recognizing IRU's and capacity swaps as revenues, when, , G3AAP, it was inappropriate to recognize such revenue. Employee K brought up the • , O swapping at a "townhall meeting" with senior management and asked how they wen to "make money" on them. Instead of responft the exectifm s gave Employee K a 0 look" and the issue was dropped. 228. Employee H confirmed that "swapping" was a familiar practice at T • , stating 4 that TyCom would take a large block of dark fiber and exchange it for dark fiber on : , company's proposed cable netwodL When Employee H asked Kowalik about the" he stated to put it in the business plan and the forecast. O 229. Employee C said that TyCom swapped capacity with other carriers - ' , , the auditors knowing. No fiords would be exchanged but they would prior the dark wire - the going rate and recognize it as revenue. This was done by TyCom to substantially boost thou revenue O numbers. O 67 O Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 68 of 92 O 230. An internal company documet►t (annexed as Exhibit B) entitled "TON Bandwidth p Sales Through Mid-September 2002" establishes that the purported sak to Dishnet - crenced in the January 16, 2001 press release was merely (i) a swap of capacity, on the SEAM that TyCom was building fbr Dishaet, for (ii) capacity on TyCom's Global Network. The hill 0 entry with regard to the Dialmet "sale" stabs: "Castemer not carrying traffic. Deal ' , lved SWAP of capacity on forthcoming SEACN system to India. The feat two 10 Gbps vdwgths O Ion the TON] were sobsequmdy resold by Siva to Williams in another swap type to show revenue for SEACN." (Rafeamices to "Siva" are to the Chairman and owner of ) 231. Exhibit B establishes that the only transactions that TyCom a *mgW ' , for "sales" O of bandwidth in excess of $720,000 fi+om inception of the Global Network through ^ ^ . September 2002 were not actually revenue generating transactions but merely three 1, U swaps -- p (i) the Dishnet swap, (ii) a Qwest swap valued at $140,000,000 described as "C ,, , not carrying traffic. Deal involved exchanged for tenesrtial capacity on Qweses - network," and (iii) a Emergia swap valued at $40,000,000, described as "Deal involved for d capacity (or right to sell capacity) on SAM-1 system South America to Florida." 232. In contrast, the sum of the other twelve, non-swap lease transactions, ' cared on O Exhibit B, which are the only other sales purportedly achieved by TyCom on the 0 , Network through mid%%ptember 2002, is only valued at $3,436,651. 233. Specifically with regard to the SEACN and FLAG Telecom transections, O according to Employee B, the SEAM nor RAG Telecom contracts were completed: ISEACN] wasn't even a swap, I wouldn't even put it on that level.... Dishnet had no money.... O 68 'O Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 69 of 92 I i O I don't see how they Lad any revenue recognition, because they didn't have any [on the p transaction]. We Probably gave them the money to give back to us." "[The FLAG :on] was the stupidest thing I had ever seen We didn't think FLAG had a shot or a that it i would succeed as a company." Employee B also informed plaintiff that defendant o acied him on sales meetings and had actual knowledge that TyCom was to sell capacity on the TON accept through swaps of bandwidth. O 234. An internal Global Crossing email, quoted in the Consolidated Class ;on Complaint in 02 Civ. 910 (GEL) (S. i N.Y.), emphasizes TyCom's willingness to participate in $aaduleat transactions intended to 0 TyCom's and Global Crossing's reported financial results: Just got off the phone with Brian Roussel amy-counterpart at TyCom. It had [Andersen] and ] together all day and think that PW a O will not give them the accounting treatment they need - this is on the structure Perrone wed and their CFO agreed to: we an buying Usuadantic under a capital lease IRU. They are buying their ONO from us structured as operating lease. Even THAT may not W allowed. 7be suggestion that Brian Roussel had was for TyCom to buy fiom [Global Crossing], we can buy fins O Dishnet and D=hmet buys from TyCom - essentially putting Dishnet in the , , - , . e. This could work if TWom agrees to a "quiet eagoyrne W letter for. us stating if Siva doesn't pay or get 8ninciing, or anything, that:they won'tturn us off have a rather strongly worded letter that TyCom is already reviewing which ask for as security for the Dishmet deal. O' 235. The IRU swaps essentially exchanged capacity for capacity and, as constituted non-monetary exchanges under APB No. 29. The IRU sales wen, in fact, - « procal Q transactions pursuant to which TyCom was obligated to purchase a like amount of capacity with the same market value as the capacity sold. O 69 10 Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 70 of 92 O 3. TyComm's Mshrialbr Use amd Mislsadkg 29, 2M S6,61111111109 236. On Janmry 29, 2001, TyCom filed its 2001 Proxy Statement. 237. The Proxy Statemnt disclosed, as stated by 0 Grubman to Garvey prior to the Offering, that the Outing had made GWvey rich, and at the same time , • : that the Offating and Global Network had been a success: [Gravey'sj cash bomm for the period October 1, 1999 to the end of fiscal 2 was $7,273,724.... IMr. Garvey was dm ged with lading TyColn through the initial public offering, while at the same time meeting stiff perfmmme - - , ' , -A criteria.... In addition, as an incentive to contimte guiding TyCom and mots : - , worldwide employees to reach the C mpmy''s objective of owning the world' C longest, most extensive, and most advanced undersea - - Mr. Garvey received options to punahm one million shares at the time of the initial public offering which vest pro-rata over four years.... He also received options to purchase Tyco shares from Tyco prior to the initial public offering. a 238. In the section entitled, -Board Compation Committee Report on - ve Compmsation," the Proxy Statement further mimapraseuted the indepmdcnoe of one - f its Board members ( 0 at 10): TheComp Committee of the Board of Directors includes throe independent diractors who have no intedodriag relationships with Tycom are subject to disclosure. D 239. The Proxy Sit was materially false and misleading because it ad to disclose that consimult with the practice of com*ting the W*g* of Tyco and T ^ ^ Vs 0 cfl"Fonte practices, Kozlowski and Garvey had made over $14 million in loans to Wiliam V. Amer, one of the members of the TyCom Compensation Committee and one of the so-called O 70 O Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 71 of 92 I O "independent" directors on the Board. (Musser was also a purest at Dennis Kozl 's infl noes ^} birthday party in June 2001 for Kozlowski 's wife in Sardinia.) 240. in the section entitled, "Certain R"onships and Related T ; , "the Proxy Statement stated (at 16): Mr. Garvey received relocation loans fioom Tyco in the aggregate of $3 r ' r on June 23, 2000, which remained outstanding on September 30, 2000. p 241. The January 29, 2001 Proxy Statement was signed by Defendant Kozl - wski. 242. The statements in the January 29, 2001 Proxy Statement concerning r 's relocation loans were materially false and misleading when made, because, as lager O Defendants foiled to disclose, that in addition to the $3 million loan relocation loan was reported, Defendants Kozlowski and Swartz had tens of millions of dollars of ^ . ^ ^ ^ ' , - O Corporate IA= Program and relocation loans outstanding and had used the proceeds r r the TyCom Offering to repay over $50 million in undisclosed personal loans that those . r , borrowed illegally fiom the Company's corporate relocation program. O L TyCona Zxpu4saaees A Dsdhw La Rio Price As loeraraaatlee O 243. TyCom stock began a long decline in value from its high of $45.4375 r r September 1, 2000, to a low closing price of $7.41 on September 27, 2001 (the last - , of the Class Periods as a result of a series of partial disclosures concerning reduced r - , r over- supply, and declining pricing of bandwidth — facts all of which weave known to defendants at the tine of the Offering. O 244. A March 1, 2001 's :wdcle enured "Trouble in Octo n Garden" 71 O Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 72 of 92 0 attributed the decline in TyCom's common stock to the oversupply of bandwiddt and . C P^ bandwid^ per: ^ VUn a market where priew are dropping 70% per yar and 100% amtul inarmw have to be shared by as many as ten new operators on thick mutes, O TyCom rums the dsk of Homing itself into the ground. 245. After the close of trading on March 1, 2001, TyCom compatitor 3. + reported that it had lost $355 million, or 55 cents a share, for the year ended Deeem 31, 2000. © 360networlks further announced that it was scaling back its forecasts for profit, rev, and capital spending to deal with a slowdown in the telecommunications industry, cutting its 2001 revenue far+ecast by about $700 million to a range between $2.4 billion and $2.6 , .. , and { revising its 2001 gross profit forecast to a range of $1.8 billion to $1.9 billion, down its earlier estimate of $2.6 billion. d 246. In reaction to this armouaoement, TyCom stock, which had traded as high as $25.09 in the preceding week, closed down at $18.04 on March 2, 2001, on trading volume of 4.8 million shares. 247. TyCom announced on March 2, 2001, in an attempt to dampen the imp act of the that 360networks announce meat on its stock price, it would buy back as much as million of O its common stock on the open market 248. TyCom's buy-shock had the effect of temporarily buoying TyCom ,s stock price in O early March 2001. 249. However, the price of TyCom stock soon cominued its decline and ck+d at $9.99 ^ on April 4, 2001. 72 O r Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 73 of 92 O 250. On April 26, 2001, Governali (of Goldman Sachs) reiterated his ,lint" Q r+ecommeidation on TyCom common dock, but cut the price target to $40 to $60 per share. 251. An April 12, 2001 Business Wine article entitled "BaodwWtb Glut v2. e . TeWcography Adds Up the Numbers" stated, in relevant part: O It has been a tough year for bandwidth investors. Just one year ago, many analysts foresaw a nearly limitless pool of demwd . • , driven by exponentW bxwo m in bdmwt use sad bight 'ry'` ' t phicAiau such as 0 videoconfenncang. The crash of the technology sector has simce cast these projections in doubt. In its new report, 2001. TdeGC3eogra by compares . , . • • .. , -up" demand models with original " top4owe r+eroareh. The WmItinglon, DC- _ research D group has cwefi* analyzed dye popilar approaches for pred+eti:ng mduser and tested them against actoal network deployment. "An initial glance at the results of our analysis may frigbkn some investors, a closer C look will comfort others," explains Tim Stroup, Director of Research. Most models forecast demaad_basa . on and-ter traffic. To test the accuracy f this approach, TeleGeography built an historical inventory of bandwidth actually - in voice and data networks. Alarmingly, TeleOeography's research shows that O bandwidth deployments are for smaller than predicted. 252. On April 17, 2001, TyCom issued a press release stating that "it has --inin C principle, with FLAG Telecom for the two oompegies to join their previously : , -, - , . , .. - transpacific networks in a joint development arrangement"— aci mowledging the lack - f demand for an indepaadent network. 0 253. On June 22, 2001, The Wall Street Journal OWiM reported that prices for bandwidth were falling "as much as 6OW and that the "amount of uode ruled long fiber O capacity in the U.S. is about 97%." 73 0 Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 74 of 92 O 254. On August 8, 2001, with TyCom common stock trading at $11.40 per share, Jack O Grubman downgraded TyCom common stock to "neutral" from `buy." Even then, only reduced the rating to "Neutral," not "Sell.". 7 255. An internal Salomon e-mail made public through the venous in e • - by the 0 SEC and various other governmental departments establishes that Salomon had - . negative on TyCom long before the August 6, 2001 downgrade. An e-mail from a member of c a I . I's C team, Arzu Cevik, dated Febnrary► 28, 2001, when TyCom was trading at $19.75 per states that when it came to the "names [to] absolutely stay away from": [Y]ou have to be caredW with WCO [Williams Ccitnmunicst aoa] (they need O moneys T [AT&T] is dead money until restructuring and I would keep an eye on WCOM [WorldCom]. Also don't like TyCom or 360 (Tsix). 256. As referenced in the Attorney Genersl's NO Complaint and the Citi O Assurance of Discorrtinuaace, it was Grubman's practice not to downgrade T YCom . . stock or other issuer clients so as not to adversely impact Salomon's investment . , , • , O relationship with TyCom or other companies within the talecommunicetions industry would be affected by such a downgrade. 257. According to Employee B, during the fourth quarter of fiscal 2001, TyCoin O edged in conversations with its outside auditor PricewaterhouseCoopers UP ("PW concerning the appropriate accounting treatnient for TyCom's swaps of bandwidth. P C O informed TyCom in those conversations that it would not issue an opinion letter on T"'s financial statements that classified those swaps as revenue. 258. On October 4, 2001, Tyco announced an initial offer to buy-back the TyCom O 74 'O Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 75 of 92 O shares it did not already own for .2997 shares of Tyco common stock per TyCom O 259. TyCom's public shareholders, who were unaware at that time of the misconduct and the false statenients in the Prospectus and subsequent open market commenced ten separate actions in throe Mar+ent steles against TyCom arguing that .2997 0 Tyco share offer undervalued TyCom 's business. 260. On October 19, 2001, the Individual Defendants caused Tyco and T to announce bef n the opening of trading that they had entered mt o a definitive _ - whereby a su P*4iWof Tyco would reacquire the outstanding 11% minority interest in (representing approximately 56 million .commoa shares) at a ratio of .3133 shares of yco O common stock for every outstanding share of TyCom common stock — an increase of 0136 shares of Tyco comm stock from the initial offer. 261. On December 17, 2001, the effective day of the merger, Tyco , . , , stock closed at $55 .80 per share, making the effective acquisition price of the merger $17. , per share. p 262. Employee B has Warmed plaintiffs that it is his belief that Tyco : - . - - - the minority interest in TyCom common stock to avoid TyCom issuing separate audited statements for fiscal 2001. According to Employee B, those fiscal 2001 audited O its would have revealed the lade of demand for TyCom's bandwidth capacity the extant to which the purported danand and contracts had been rep=ented by IRU O transactions that did not qualify for revenue recognition under GAAP. 263. In fact, Tyco in its Form 10-Ka for fiscal 2001 or 2002, did net discloei TyCom's bandwidth sales for those fiscal years. Only in Tyco's Form 10-K for fiscal 2003, issued on O ' 75 O i l ^ Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 76 of 92 D December 17, 2003 (at 63) slid Tyco reveal that total TyCom net mvenues for the TG 14 p businesses in fiscal 2001 wen only $1.7 million — substen&lly below defiodents' repe+esendtioos during the Class Period. 264. The other teleoommrnmic adons companies undmvMtten by Salomon Goldman O suffered a similar fate as investors gnrduaW becvime swwre,4urhrg dw Clasa,Pwiod, f the gross oversupply of bandwidth: G Cotuuv, 7/26/.fi0Ptocic Price 12/17/01 Stmt Pace Global Cmasing $29.50 $ 0.56 o Qwest $47.56 $13.44 Flag Telecom $18.00 $ 1.55 Level $76.44 $ 5.60 360networks $17.56 $ 0.08 J. O 265. Tie Individual Defendants' true underlying motive for the Offering wa 5 not revealed to TyCom's investors until September 12, 2002, at which time it was first publicly C revealed that the Offering was utilized by Kozlowski and Swartz for personal profit a d to realize bonuses to repay their undisclosed relocation loans. p 266. Prior to September 12, 2002, TyCom's public investors had no reason tp suspect that defendants had a egad in any misconduct. 267. On September 12, 2002, Tyco issued a press release that bed O 76 ,O Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 77 of 92 O defendwnt KcalovMd's misconduct. The September 12, 2002 press release . - that Tyco p had `filed suit Whist ... Kozlowski, clanging that he misappropriated money and fivm the Company and engaged in a concerted pattern of conduct to conceal larcenous acts , . the Board of Directors." , , 268. According to the pews release, the kwwlf Tyco "accuse[d] ,, owsld of fraud and self-dealing that included, among outer actions: abusing Tyco's relocation Key O Employee Corporate low programs and obtaining under Use pretenses loans that , - used to find personal arperiditures; miaappr+opriatiag for himself over S100 million, incl unauthorized bonuses totsling S58 million and unauthorized loans of over $43 milli, • taking O personal credit £or more than $43 million in charitable donations that actually were ,, by Tyco; and engaging is a number of self-dealing transactions involving property he so the p Company at inflated prices and real estate that was used by him and his family wi , , up waing Tyco." 269. The lawsuit, which was brought only on behalf of Tyco, sougW "to --- er all O fiords misappropriated from Tyco, for Korlowda himself or awarded by KoeAwaki to his senior executives and key managers without appropriate authorization-fiom the Compensad D Committee of the Board of Directors, plus danwW and other forms of relief ' , ' , "at a mi^nimurn, the recovery of all unauthorized compensation paid by Kozlowski to other - , , , , , - from 1997 to 2002, repayment of outstanding loans he improperly borrowed from T , , and the O forfeitinre of all income and benefits received by him from 1997 to 2002." 270. The pass release idendfled the following "specific actions tbrougb wh4i Kozlowski failed in his duties to Tyco:" 77 ,O i Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 78 of 92 i I ^ O 1 Abuse d New York R lh epram — In 1995, after decided to relocate to New York City, Kozlowski tranndermed a Compenatlfion - O approved relocation j x 1p l as intended for all employees into a program for a few senior execWves that was never sanctioned by the Board.... K+odowsla knew that the bm is to him and other key executives such a program required Co- 1 a-- -tion Committae approval and never such O approval from the Hoard. • . Abuse of Key Rupkyee Lou Prepraaa — The long-standing Key Employee Lean Program (KEL) wan desigod to encourage stock ownembip O by executives by obviating their need to liquidate shares to meet tax ' - ' ' ; However, Korloweld systatnatically abased this program, turning it ' a personal line of credit. From 1997 to 2002, he took more them 200 from the program, borrowing more than $274 million, of which more than $24' million was not used in accordance with the purpose of the program. Install, wed p these funds for a wide variety of personal needs, including purchases " everything from homes, yachts, antiques and fun itur+e to payments to his . , help. • U—riled Credlis to KEL Prosren — To offset his indebtedness to Tyco, without the knowledge or approval of the O Kozlowski directed Chief Financial Officer Made Swartz to effect - - of $25 million to Kozhowski's KEL account and 812.5 million to S • , -'s account. (When the Hoard learned of these=mAmbed journal entri during the course of the investigation, it dizec%W that they be reversed O Kozlowski cm*n ell to abuse the KEL pognm, and t en he left the Company on June 3, 2002, he owed this program $43,840,461, plus interest, all of which is due. • UsauRariaed Fbrida Rdeestkm Pragraaas — After the 1997 O reverse merger with ADT, Kozlowsk decided to relocate more than corporate employees to ADT's U.S. headquartms in Boca Raton, Flori and created a new relocation program by app mprinting the teems of earlier New York program. He circumvented the need for Compensati Committee approval of this program by creating a program somewhat O similar to the New York program. As in New York, be created two versions of the program, one for general use that met the IRS standards and a second for the use of a few executives. Without chnzing his primary residence, Kozlowski used this program to obtain $29,756,11 , in interest -five loses to assemble five lots into a compound and=Ws^ p estate in an exclusive Boca enclave-called "'rho Sanctuary." 78 O Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 79 of 92 O did not obtain Compauation C4 mmium 440YA l of this program conc eslad these befits from the Bout O • wfyCod fond" - Unsuft rued Forgivemas of Relocation - In 3eptombe r 2000, Kozlowski still owed Tyco more than $37 so he "conWved, Promoted sod fine iaadly ace A%r a plan to obtain ' - . He falsely informed the Senior VP of Hunan R =row that the Boar! had - - to O forgive alt of the Florida relocation loans to the more than 40 - and to "gross up" this ba uffi by making each employee whole on an - basis for the b*vemess - as a reward for coon of the Tyc, m lPo. The loon and gods-up program was in addition to a more lied program f cash bonuses and restricted shack awards that the Compensation - cmawase O of tiro Kozlowalu l ogi -r- - approved the next month. Kozbwald'a program cost Tyco close to $100 million, including KoAowald 's sbare of $32,644,338. • Cberikble Camufx adod - Frnm 1997 to 2002, Kozlowski oommittod donations cad pbx4p to charitable or+ganiri,oes with ... , . , .y money amounting to more than $106 mifflon. At Ind $43 million of , p donations were made for his personal benefit or were represented as ' , pmsamal donations.... 271. On September 17, 2002, Tyco filed a Form 8-K with the SEC furdier losing 0 and describing Tyco's findings in its investigation of what it termed (at S) to be a year "pattern of improper and illegal conduct by which [Kozlowski and Swartz] enriched ves p st the expanse of the Company with no colorable benefit to the Company and - , , • - their eoeduot m the Board and its relevant committees." The September 17, 2002 Form K also stated (at 4) that "the former executives' misconduct [had] harmed Tyco's reputation T d O credibility with investors, lenders, wad others." 272. According to the September Form 8-K (at 14), dekadant Garvey also "^orrowed i O $5 million in relocation loans related to his relocation to New Hampshire in 2000." 79 0 Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 80 of 92 o I 273. The pattern of illegal and inappropriate conduct included the practice , f making p undisclosed "relocation loans" to selected officers =Nor executives of Tyco. Altho Tyco had adopted and implemented a relocation program that, by its terms, `was intended t to discriminate in scope, terms or operation in fivm of erecWve offers or directors o the O Company," in 1995, the Form 8-K revealed that defendant Kozlowski nevertheless a diifermrt, more generous New Yorlt miocation plan, tailored to the individraal , - - of C five or six ececutives and one assistant, which had not ban authorized by the Committee of the Hoard." This information was in direct contravention of the contained in the Prospectus, which, as discussed above, alleged that as of September +,1999, the total amount of loans outstanding under the relocation program totaled only $18,5.,,137. 274. The Form 8-K revealed that as of September 17, 2002, defendant weld had 4 "improperly borrowed ag; dmately $29,756,000 in nonVialifying relocation loan purchase land and construct a home in Boca Raton, Florida during the years 1997 to 2000, and . , . y borrowed appuroximately $7,012,000 in non-qualifying relocation loans to purchase a ^ ; ve 4 apartment in New York City in 2000," and had also-borrowed, an additional S24,92 2, :- 9 in interest free loans, bringing his total amount of unauthorized interest free relocation , • , : to p $61,690,628. 275. Defendant Swartz received a total of $33,097 ,925 in unauthorized in -, ^: ^ fro loans (including $7,862,532 in loans outstanding as of September 30,1999) and a O Garvey received a total of $5,000,000 in unauthorized interest free relocation loans. 276. The September 17, 2002 Form 8-K contained a discussion titled " Ile 'TyCom C Bonus' Misappropriation" which revealed that, contrary to the representations made in the July 80 O I Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 81 of 92 O 26, 2000 Prospectus, Tyco was motivated to make the public offering of TyCoM on July p 26, 2000 to generate funds to forgive the ummhorized iatGrest-five loans and -- - eliminate the need to include the full charges for the loons on Tyco's financial stalemOUL Form 8-K revealed, in relevant pent: 0 In September 2000, Mr. Kozlowski caused Tyco to pay a special, unapproved bonsai to 51 employees who had relocation loans with the Company ...The - , was calculated to forgive the relocation loans of all 51 employees, at a total of $56,415,037, and to pay cmapeasationsuf5cicattodiscAmpallofthetax O liability due as a result of the forgiveness, of those leans. This action was puToriedly related to the successful completion of the TyCom Initial Public Offwing. The total gross wages paid by the Company is this loan foreveness program were $95,962,000, of which amount Mr. Kozlowski received $32,976,000 and Mr. Swartz $16,611,000. O These benefits were not approved by, or disclosed to, the Compensation • , , ' - or the Board of Directors. Indeed, the opposite occurred: each of thefilly-one . O employees who was offered the forgiveness was asked to sign a • , , ; .., - * agreement in which they agreed not to disclose either the fsct of the boa is or its terms to , other than the recipient's pmov al Oniandid tax or legel advisors. Breach of con>idmtiality agreement would rM t is fatfeiture of the bonus. Some _ beneficiarim Of this forgiveness were not even permitted to keep a copy of signed o ate. According to Ms. Patricia Prue, Tyco's Senior VP of Human Resources, Mr. - owsid told her to pmooess the Acove ness and the gross-ups and aw+tted that the :. . had approved the program. Upon Ms. Pr ov's request foidoamsnamd of the O Mr. Kozlowski sent her and bar supervisor, Mark Swartz, a memo on 11, 2000, for her fries indicating that "a decision has been made to forgive the lows for those individuals ...whose efforts were instrumental to suecessMy the TyCom IPO." Attached to the memorandum was the list of employees , , were to receive the f eve ness benefit. p 277. By Tyco's own admission in its Form 8-K, the Prospectus defeadarns' primary motive for issuing stock to public investors m the Offering was support O 81 'O Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 82 of 92 —^ 'O dye development of TyCom 's global telecommuaicetiona network thereby illusion of O dye probability of benefitting TyCom 's shareholders in the Tatum as TyCom , > , ; - . to cgmd .. its business. The Prospectus failed to disclose the Individual Defendants' intact to the proceeds fi+om the initial public offing to forgive millions of dollars it had issued O unauthorized loans, as described in the sformundowd Swartz Memorandum. 278. Each of defendants Kozlowski and Swartz an currently subject to O chow relating to their "larcenous acts." 279. On a conference call with investors before the opening of the U.S. - 'ties markets on September 25, 2002, Edward Breen, Kozlowski's replant as Tyco's • O informed investors that Tyco would take a pretax charge of $2.0 to $2.5 billion to to-down the value of TyCom. Breen said that the charge was necessary because TyCom had O building global fiber-optic network amid a glut of such capacity. 280. Tyco closed on September 25, 2002, in the aftwmath OSAW revelation Df the Individual Defendants' hmmus acts and the write-down of TyCom's value, at $1 5 -C 0, making O the imputed value of class members' TyCom shares (based on the .3133 cuhange ) approximately 54.70 (as compared to the $32 .00 offering price). O 281. Plaintiff and the members of the Class would not have purchased share s purse m to the Prospectus or would not have purchased these shores at $32 .00 on the Offering or at the p market price subsequent to the Offering if the true facts concerning the Individual Def fndants' executive compensation and anticipated bonuses had been disclosed in the Prospectus] O 82 O r I Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 83 of 92 O x O 282. hummich as Tyco was the 86% shareholder of TyCom, the TyCan Offering bad a material positive impact on Tyco's stock pricy Tyco's stock price rose f am $6.125 per share on Jamuwy 18, 2000, the first trading day after Tyco first announced the proposed OI'faciing, and O closed at his class period high of S58 .50 per Where on September 1, 2000, the same day as TyCom closed at its Class Period high of $45.4375 per share. 0 283. Defendants Kozlowski and Swartz beoafitted from the inflation in Tyco's common stock from the TyCom Offering by selling large blocks of Tyco 's stock at actificaaUy 0 inflated prices without disclosing the material adverse facts about TyCom to which they were privy. Such sales were unusual in their amount and in their timing. The numerous and repeated insider sales by the Individual Defend eats imposed upon them an additional duty of full 0 disclosure of all of the material facts alleged in this complaint. 284. The following table shows the heavy insider selling (toWing more that $675 O million) by Y"Jawaki and Swartz during the Class Period: INi'll IMAL D18FINDANTSO CLASS PAD V480M SHAM Naas hate _ $ Vake 0 L. Dennis Kozknvsid 09/07/00 54,457,822.76 09/07/00 54,457,822.76 09/07/00 26,295,411.48 09/07/00 26,;95,411.48 09/07/00 1,784,883.28 09/07/00 1,784,883.28 O 83 O 1 ^ ^ Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 84 of 92 O 09/11/00 57,250,598.83 O 09/11/00 57,150,598.83 09/11/00 13,667,671.83 09/11/00 I3,667,671.93 p 09/11/00 437,591.00 09/11/00 437,591.00 09/12/00 12,105,661.75 p 09/12100 12,105,661.75 09/12/00 2,890,017.00 09/12/00 2,890,017.00 09/12/00 92,488.50 09/12/00 92,488.50 09/14/00 5,027,383.90 09/14/00 _ 5,027,383.90 O !0/24/00 32,587,500.00 1051100 8,389,750.00 01/30101 21,980,00.00 O 06/20/01 5,716,231.60 07/03/01 8,521,900.00 001/01 6,055,542.40 O TOTAL Mark I3. Swartz 09/07/00 21,458,521.16 O 09/07/00 21,458,521.16 09/11/00 53,670,138.34 09/11/00 53,670,138.34 O 84 o Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 85 of 92 O 09/12/00 11,348,571.00 O 09/12/00 11,348,571.00 10/24/00 16,293,750.00 10131/00 4,195,875.00 p 01130/01 10,990,000.00 02/01/01 6,581,119.68 06/20/0 l 2,161,970.01 O 07/03/01 4,260,950.00 TOTAL SZIS,t.f9 Neil R. Garvey 10/24/00 $1,440,802 0 06/18/01 $4,185,000 TOTAL $,S,iZS,sl3 O 285. In addition to their open market sales, Kozlowdd and Swartz sold numerous Tyco shares to Tyco. Due to a loophole that does not require, innamliate disclosure of sales of stock by company execWves — regardless of their magnitude — what the sale is made to the issuing O company, these sales were not reported until the Sling of a Form F-5, up to thirteen months after the sales. Although the proceeds from these sales we not disclosed in the Form F•5, plaintiffs O estimate that KozlowWd's proceeds exceeded $65 million and Swartz, proceeds exceeded $38 Million. 286. According to the complaint filed by Tyco against Kozlowski in September 2002, O anodw Kozlowski deception about his purported compensation in 2001 related to the vesting of 290,000 Tyco shares for KozlowWd's executive officers and key managers as the ream- of a purported gain on the swap of TyCom shares for an equity interest in Flag Telecom Holdings Ltd. 85 O Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 86 of 92 ^p The Company reported a 579,264,700 gain associated with the swap of TyCom shares p for the Flag equity on June 20, 2001(baud on the then inflated price of TyrCom common dock — $14.57 per share). According to the complaint, shortly %nufter Kozlowski authorized the ar r A Rated vesting of shares to various key individuals, includ ngi at least 155,000 abates for O himself. 77,500 for Swartz; and 60,000 shares for certain of KozlowWs other senior executives and key managers, based upon that apparent gain an the transaction. Those shares were sold d back to the Company and cash delivered to the recipients in August 2001. Ko7kwski did not seek or obtain approval for his own and Swartz's bonuses until two nwntbs later, at the October 1, 2001 Compensstion Committee meeting. By this time, the grain had become an unrealized loss . as a result of the decline in Flag Telecom common stock - dpificandy in excess of the Jwre 20 gain - yet the Committee was misled into awarding the bonuses "in conjunction with the gain on C the sale of TyCom shares." Kozlowski never sought any approval fi+om the Compensation Committee for the grant of shares awarded to the other senior executives and key managers. The total coat to the Company related to the award of these ahaes exceeded $15,378 ,700. Mote than half of this amount, $8,219,650, accrued to the benefit of Kozlowski indivi&nlly. COUNT I Agsinst AS Ddmdnb ilor Viol flan of Ssetisn 11 and Apinat Tye* and dw M. Plaintiff incorporates each of the foregoing paragraphs as if fully set forth herein Q except those auogations that sound in fiaud which are specifically exchided. This Count is asserted against all defrendants for violations of Sections 11 and 15 of the Securities A^t,15 p U.S.C. ff 77(k) and 77(0). 86 I I Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 87 of 92 O 288. TyCom is the issuer of the stock sold pursuant to the July 26, 2000 p Def indsma Kozlowski, Oacvey, and Swartz signed the Rapdretion Stat emat that the materially false and misleading July 26, 2000 Prospectus. Kozlowski and S • - were officers and directors of tha Company at the time of the Offering. The Underwriter r O were the underwriters of the Offering. 289. The Registration Statement, and aceomp-ying Prospectus, were ' and O misleading, contained untrue statements of material facts, omitted to stab other bob - • , to make the statemaats made not misleading, and failed to disclose material facts as - 'bed above. O 290. Demos Kozlowsld, Garvey, and Swartz, as directors and officers TyCom and as signatories of the Registration Statement accompanying the July 26, 2000 0 filed with the SEC, and the Underwriter Defendants, as underwriters of the Off ring, responsible for the preparation of the documents and Sailed to make a reasonable in ; , or poaseas reasonable grounds for believing that the repres ®tations contained in those O were true sad that they disclosed all material facts. 291. Plaintiff and the other members of the Class acquired shares of T ^ ^ ^ p =uM d to, or traceable to, the July 26, 2000 Prospectus without lmowWg of the untrue ,,. -• ^ t-, or omissions of material facts. p 292. Plaintiff and the other Class members have sustained damages. 293. Defendnob Kozlowsld, Swartz, .Garvey, and Tyco ware controlling. - , ^ of TyCom and had the ability to cause the corporate defendants to engage in the misconduct alleged O ' 87 O i i ' Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 88 of 92 ,. O herein. 294. This action was brought within one year aver the discovery of the statements and omissions and within three years aver TyCom common stock was offixed to the public. O 295. By virtue of the foregoing, defendant have violated Sections 11 and 1 of the Securities Act. O COUNT Q Apinst AN Dahadah (066 Than MwM Lynch) for Vi bdba a(Seedw 10) and ApkdBe iodooft 3y►eo mid the iaih MuW 296. Plaintiff realleges and incorpmtes by reference each and every 0 cotiteined above. 297. Throughout the Class Period, defendant participated in a course of ., involving. misrepresentation and concealment of a hwu material information about • - - ve 0 compensation and the business and finances of Tyco and TyCom, as specified herein. 298. Throughout the Class Period, defendants employed devices, schemes , artifices O to defraud, while in possession of material adverse non public information and - - • - ..... in acts, Practices, and a course of fimxhdc t conduct as alleged herein in an effort to assure in - rs of TyCom's unimpeded progt+ess and expansion, which included the making of, or the . 'pction O in the malting of untrue statement of material facts and omitting to state material necessary in order to make the statements made about TyCom and it business, in the light of 64 O circurnrtances under which they were made, not misleading. This conduct operated as a &cud 88 O Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 89 of 92 O and deceit upon the pmdw ms of TyCom securities during the Class Period. O 299. hicludW among the mis ; resentations that intLted the price of T common stock during the Class Period, were the material m1i ons and omissions is Pi+ospectus, which remained alive during the Class Period. O 300. The lndividuai Defmdants, as officers and directors of TyCom. and T are liable as direct pemcipaata in the wrongs complained of herein. The Individual r , -, , 0 1 were O able to sad did control, directly or indirectly, the content of the public sus and financial statements disseminated by TyCom. With knowledge of the falsity of the statements - • , therein and in the reckless dimgprd of the true purpose of the TyCom q*mA these fficers and C directors caused the complained of misstatements and omissions of materiel fact as egad herein, and knowingly or recldessly failed in their duty to update or cot. statements C issued by them or on their behalf. 301. Throughout the Class Period, the .defer hall actual knowledge of r misrapcesemtations and omissions of material fact set forth herein, or acted with . O disregard for the truth in that they failed to amomuk*nd to &,close such facts, ever p i , I such facts were available to them. O 302. The Individual Defendants were each active participants in the • i - ' and the operations of TyCom after the Offering. At its height, Tyco's 86% stock ownership TyCom O had a market value of 520.32 billion, equal to approximately 20% of Tyco's market *talizat 0n of approximately $100 billion. Thug, Kozlowski and Swartz, as senior officers and shareholders of Tyco, had a financial interest in maintaining strict oversight of TyCon^. In fact, D 89 i^ 1 ^ ^ Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 90 of 92 ^p 3 i as alleged harem, dafendnots Kozlowski and Swartz sped the Regrstrabon Statement for the p Offering and defendant Swartz signed TyCom's Form lo-Qs during the Class Period` had a duty to investigate the accuracy of those statements, and were actively involved in TyCom's business and either k tww or wm+e recldess in failing to know that TyCom's public statements, as alleged O herein, including as to mwkd demand and confracts for sale of bandwidth capacity, were materially false. O 303. The Individual Defendants, by virtue of their mrthocizod and unmAorized bonuses relating to TyCom and insider sales of Tyco further had a motive and opportunity to commit fraud. O 304. As a result of the deceptive practices and false and misleading statements and omissions, the marled price of TyCom's common stock was artificially inflated during the Class O Period. In ignorance of the false and misleading nature of the s described above and the deceptive and manipulative: devices employed by said defendants, plaintiff and the other members of the Class, in reliance on either the in tep ty of the market and/or directly on the O statements and reports of defendants, purchased TyCom 's common stock at artificially inflated prices. O 305. Had plaintiff and the other members of the Class known of the material adverse information not disclosed by defendants, or had they been aware of the truth behind defendants' O material misstataaents, they would not have purchased TyCom's securities at artificially inflated prices. 306. Defendants Kozlowski, Swartz, Garvey, and Tyco were controlling . of 0 90 'o Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 91 of 92 ^O E TyCom and had the ability to cause the corporate ddendants to eagaga in the alleoed t herein. f0 307. By virtue of the foregoing, defendants have violated Sections 1 a of the Exchange Act. O 308. Plaindff and the other members of the Class have ban damaged by . violations as described in this Coot and seek recovery for the damages caused - O Rn WHEREFORE, pLinIM on behalf of himself and the other members of the prays for judgment as follows: C Declaring this action to be a proper class action maintainable pursuant to ' 23(bx3) of the Fed.RCiv.P. and declaring plaintiff to be a proper Class rrepr+esenotative; O Awarding plaintiff and the other members of the Class damages s dknd as a -_, of the wrongs complained of herein together with expropriate interest; O Awarding plaintiff and the other members of the Class their costs and , • . e . of this litigation, including reasonable attorneys' fees and experts' fees and other costs and A diaburaenum 0; and O A%wdmg pialin'tiff and the other members of the Class such other and fiatha O O 91 O Case 3:03-cv-03540-GEB-DEA Document 142-3 Filed 05/10/10 Page 92 of 92 O relief as may be just and proper under the ohhe wtances. O Dated: December 10, 2004 WOLF! • ' ' ER . By: i Marian P. Rosner (MR 0410) Robert C. Finkel (RF 2373) Cwolim.S. C du (CC 7475) 845 Third Avenue New York, New York 10022 Tel.: 212.759.4600 O CHrrWOOD dt HARLEY Sum J. Guber Tabu*'M. Woodward 2360 Promenade II 1230 Peacl*w Street, N.E. O Atlanta, GA 30309 Tel.: 404.873.3900 OF COUNSEL: O James Baebiaa LAW OFFICES OF JAMES V. BASHIAN 500 Fiflb Avenue New York, New York 10110 O Tel.: 212.921.1110 j M — Plasse GOODKIND LABATON RUDOFF 8t SUCHAROW, LLP 100 Park Avenue p New York, Now York 10017-5563 Te1.: 212.907.0700 O O 92 O tCaseCase 3:03-cv-03540-GEB-DEA3:03-cv-03540-GEB-DEA DocumentDocument 142-4 4 F1fl& 05/10/105/06/ 0 RagePage 1 ofof T2 RECEIVED UNITED STATES DISTRIMYCA DISTRICT OF NEWY LLIAM 7 WALSH CLERK ) ROSEMARIE STUMPF } } Hon. Garrett E. Brown, Jr. v, } Chief U.S.D.J. Docket No. 03-CV-03540 NEIL R. GARVEY, et al. ) (GEB)(DEA) (IN RE TYCOM LTD. SECURITIES } To Be Filed Electronically LITIGATION) ) ORDER PRELIMINARILY APPROVING SETTLEMENT AND PROVIDING FOR NOTICE OF PROPOSED SETTLEMENT EXHIBIT A WHEREAS, a class action is pending before the Court entitled Rosemarie Stumpf . v. Neil R. Garvey, et al. (In re TyCom Ltd. Securities Litigation), Civil Action No. 03-CV-03540, United States District Court for the District of New Jersey (Hon. Garrett E. Brown, Jr.) (the "Action"); -I- CaseCase 3:03-cv-03540-GEB-DEA3:03-cv-03540-GEB-DEA DocumentDocument 142-4141 FiledFiled 05/06/1005/10/10 PagePage 2 2 ofof1212 WHEREAS, the Court has received the Settlement Agreement and Release dated as of March 26, 2010 (the "Settlement Agreement")', which has been entered into by the Lead Plaintiff and the Settling Defendants, and the Court has reviewed the Settlement Agreement and its attached Exhibits; WHEREAS, the parties having made application, pursuant to Federal Rule of Civil Procedure 23(e), for an order preliminarily approving the settlement of this Action, in accordance with the Settlement Agreement which, together with the Exhibits annexed thereto, sets forth the terms and conditions for a proposed settlement of the Action and for dismissal of the Action with prejudice upon the terms and conditions set forth therein; and the Court having read and considered the Settlement Agreement and the Exhibits annexed thereto; and NOW, THEREFORE, IT IS HEREBY ORDERED: I . The Court does hereby preliminarily approve the Settlement Agreement and the Settlement set forth therein, subject to further consideration at the Settlement Hearing described below. For purposes of this Order, the Court adopts all defined terms as set forth in the Settlement Agreement, and the terms used herein shall have the same meaning as in the Settlement Agreement. -2- CaseCase 3:03-cv-03540-GEB-DEA3:03-cv-03540-GEB-DEA DocumentDocument 142-4141 FiledFiled 05/06/1005/10/10 PagePage 3 3 ofof1 122 2. The Court fords that: (a) the Settlement Agreement resulted from arm's-length negotiations; and (b) the Settlement Agreement is sufficiently fair, reasonable and adequate as to the Class Members to warrant providing notice of the Settlement to Class Members and holding a Settlement Hearing. 3. The Settlement Hearing shall be held before this Court on A L tkSf Z,; , 2010, at I: o -e—.m., to determine whether the proposed settlement of the Action on the terms and conditions provided for in the Settlement Agreement is fair, reasonable and adequate to the Class and should be approved by the Court; whether a Judgment as provided in the Settlement Agreement should be entered herein; whether the proposed Plan of Allocation should be approved; whether to approve Lead Plaintiffs application for his reasonable costs and expenses (including lost wages) directly relating to his representation of the Class; and to determine the amount of fees and expenses that should be awarded to Plaintiffs' counsel. The Court may adjourn the Settlement Hearing without further notice to Members of the Class. 4. The Court approves, as to form and content, the Notice of Proposed Settlement of Class Action, Motion for Attorneys' Fees and Settlement Fairness Hearing (the "Notice"), the Proof of Claim and Release form (the "Proof of -3- CaseCase 3:03-cv-03540-GEB-DEA3:03-cv-03540-GEB-DEA DocumentDocument 142-4141 FiledFiled 05/06/1005/10/10 PagePage 4 4 ofof1212 Claim"), anu ^«ary Notice ("Summary Notice") annexed as Exhibits A-1, A-2 and A-3 hereto, and finds that the mailing and distribution of the Notice and publishing of the Summary Notice substantially in the manner and form set forth in this Ord — -equirements of Federal Rule of Civil Procedure 23 and Due Process, and is the best , -tice practicable under the circumstances and shall constitute due and sufficient notice to all Persons entitled thereto. 5. Class Members, having been given a full and fair opportunity to opt out of the Class in connection with the prior Notice of Pendency of Class Action, will not have another opportunity to exclude themselves from the Class in connection with the Settlement. 6. Pending final determination by the Court as to whether the Settlement, as set forth in the Settlement Agreement, is fair, reasonable and adequate and should be finally approved and whether the Judgment dismissing the Action with prejudice should be approved, no Class Member, either directly, representatively or in any other capacity, shall assert, commence or prosecute against any of the Settling Defendants any of the Released Claims in this Action, or in any other proceeding or forum. This injunction is necessary to protect and effectuate the Settlement, this Order, and the Court's flexibility and authority to effectuate the -4- CaseCase 3:03-cv-03540-GEB-DEA3:03-cv-03540-GEB-DEA DocumentDocument 142-4141 FiledFiled 05/06/1005/10/10 PagePage5 5 ofof1 122 Settlement and to enter judgment when appropriate, and is ordered in aid of the Court's jurisdiction and to protect its judgments. 7. The Court appoints The Garden City Group, Inc. ("Claims Administrator") to supervise and administer the notice procedure as well as the processing of claims as more fully set forth below: (a) Not later than twenty (20) business days after the date of this Order (the "Notice Date"), the Claims Administrator shall cause a copy of the Notice and the Proof of Claim, substantially in the forms annexed as Exhibits A-1 and A-2 hereto, to be mailed by first class mail to all Class Members who can be identified with reasonable effort; (b) Not later than thirty (30) business days after the date of this Order, the Claims Administrator shall cause the Summary Notice to be published once in The Wall Street Journal, and on a different day shall cause the Summary Notice to be published in PR Newswire; (c) Not later than twenty (20) business days after the date of this Order, the Claims Administrator shall cause the Settlement Agreement and its Exhibits and a copy of the Notice to be posted on the following website: www.GardenCityGroup.com ; and -5- CaseCase 3:03-cv-03540-GEB-DEA3:03-cv-03540-GEB-DEA DocumentDocument 142-4141 FiledFiled 05/06/1005/10/10 PagePage 6 6 ofof1212 (d) Not later than seventy (70) days after the date of this Order, Lead Counsel shall cause to be served on Settling Defendants' counsel and filed with the Court proof, by affidavit or declaration, of such mailing and publishing. 8. Nominees who purchased or acquired TyCom common stock between July 26, 2000 and December 17, 2001, shall send the Notice and the Proof of Claim to all beneficial owners of such TyCom common stock within twenty (20) days after receipt thereof, or send a list of the names and addresses of such beneficial owners to the Claims Administrator within twenty (20) days of receipt thereof, in which event the Claims Administrator shall promptly mail the Notice and the Proof of Claim to such beneficial owners. Lead Counsel shall, if requested, reimburse banks, brokerage houses or other nominees solely for their reasonable out-of-pocket expenses incurred in providing notice to beneficial owners who are Class Members out of the Settlement Fund, which expenses would not have been incurred except for the sending of such notice, subject to further order of this Court with respect to any dispute concerning such compensation. 9. All Members of the Class shall be bound by all determinations and judgments in the Action concerning the Settlement, whether favorable or unfavorable to the Class. -6- CaseCase 3:03-cv-03540-GEB-DEA3:03-cv-03540-GEB-DEA DocumentDocument 142-4141 FiledFiled 05/06/1005/10/10 PagePage 7 7 ofof1 122 10. Class Members who wish to collect in the Settlement shall complete and submit Proof of Claim forms in accordance with the instructions contained therein. Unless the Court orders otherwise, all Proof of Claim forms must be postmarked no later than one hundred and twenty (120) days from the Notice Date. Any Class Member who does not timely submit a Proof of Claim within the time provided for shall be barred from sharing in the distribution of the proceeds of the Net Settlement Fund, unless otherwise ordered by the Court. 11. Any Member of the Class may enter an appearance in the Action, at their own expense, individually or through counsel of their own choice. If they do not enter an appearance, Lead Counsel will represent them. 12. Any Member of the Class may appear and show cause, if he, she or it has any reason, why the proposed settlement of the Action should or should not be approved as fair, reasonable and adequate, why a judgment should or should not be entered thereon, why the Plan of Allocation should or should not be approved, or why attorneys' fees and reimbursement of expenses should or should not be awarded to Lead Counsel or Lead Plaintiff; provided, however, that no Class Member or any other Person shall be heard or entitled to contest the approval of the terms and conditions of the proposed Settlement, or, if approved, the Judgment -7- CaseCase 3:03-cv-03540-GEB-DEA3:03-cv-03540-GEB-DEA DocumentDocument 142-4141 FiledFiled 05/06/1005/10/10 PagePage 8 8 ofof1212 to be entered thereon approving the same, or the order approving the Plan of Allocation, the expenses to be reimbursed to Lead Plaintiff, or the attorneys' fees and expenses to be awarded to Lead Counsel, unless that Person has filed said objections, papers and briefs with the Clerk of the United States District Court for the District of New Jersey, on or before twenty-eight (28) days prior to the Settlement Hearing and delivered copies of any such papers to counsel identified in the Notice, such that they are received on or before such date. Any Member of the Class who does not make his, her or its objection in the manner provided shall be deemed to have waived such objection and shall forever be foreclosed from making any such objection, unless otherwise ordered by the Court. 13. All funds held by the Escrow Agent shall be deemed and considered to be in custodia legis of the Court, and shall remain subject to the jurisdiction of the Court, until such time as such funds shall be distributed pursuant to the Settlement Agreement or further order(s) of the Court. 14. All papers in support of the Settlement, the Plan of Allocation, Lead Plaintiff's application for reimbursement of expenses, and the application for attorneys' fees or expenses, shall be filed and served not later than forty-two (42) -8- CaseCase 3:03-cv-03540-GEB-DEA3:03-cv-03540-GEB-DEA DocumentDocument 142-4141 FiledFiled 05/06/1005/10/10 PagePage 9 9 ofof1212 days prior to the Settlement Hearing. Any reply briefs shall be filed and served no later than fourteen (t4) days prior to the Settlement Hearing. 15. Neither the Settling Defendants nor their Related Parties shall have any responsibility for or liability with respect to the Plan of Allocation or any application for attorneys' fees or expenses submitted by Plaintiffs' counsel, and such matters will be considered separately from the fairness, reasonableness and adequacy of the Settlement. 16. At or after the Settlement Hearing, the Court shall determine whether the Plan of Allocation proposed by Lead Counsel, and any application for attorneys' fees or expenses, and reimbursement of Lead Plaintiff's reasonable costs and expenses, shall be approved. 17. All reasonable expenses incurred in identifying and notifying Class Members, as well as administering the Settlement Fund, shall be paid as set forth in the Settlement Agreement. In the event the Settlement is not approved by the Court, or otherwise fails to become effective, neither the Lead Plaintiff nor Lead Counsel shall have any obligation to repay any amounts actually and properly disbursed from the Settlement Fund. -9- CaseCase 3:03-cv-03540-GEB-DEA3:03-cv-03540-GEB-DEA DocumentDocument 142-4141 FiledFiled 05/06/1005/10/10 PagePage 1010 ofof1212 18. Neither the Settlement Agreement, nor any of its terms or provisions, nor any of the negotiations or proceedings connected with it, shall be construed as an admission or concession by the Settling Defendants of the truth of any of the allegations in the Action, or of any liability, fault, or wrongdoing of any kind and shall not be construed as, or deemed to be evidence of or an admission or concession that Lead Plaintiff or any Glass Members have suffered any damages, harm, or loss. 19. In the event that the Settlement does not become effective in accordance with the terms of the Settlement Agreement or the Effective Date does not occur, or in the event that the Settlement Fund, or any portion thereof, is returned to the Settling Defendants, then this Order shall be rendered null and void to the extent provided by and in accordance with the Settlement Agreement and shall be vacated and, in such event, all orders entered and releases delivered in connection herewith shall be null and void to the extent provided by and in accordance with the Settlement Agreement. 20. Pending the Settlement Hearing, the Court stays all proceedings in the Action, other than proceedings necessary to carry out or enforce the terms and conditions of the Settlement Agreement. In the event the Settlement does not get -10- CaseCase 3:03-cv-03540-GEB-DEA3:03-cv-03540-GEB-DEA DocumentDocument 142-4141 FiledFiled 05/06/1005/10/10 PagePage 111 ofof1212 approved or for whatever other reason does not become final: (i) the Class may not use any finding, ruling, order, trial testimony, verdict or judgment or any attribution of fault or responsibility to Settling Defendants, for any purpose whatsoever against Settling Defendants in this Action or in any other proceeding or forum; (ii) any finding, ruling, order, trial testimony, verdict or judgment or any attribution of fault or responsibility to Settling Defendants shall not be admissible for any purpose whatsoever as against Settling Defendants in this Action or in any other proceeding or forum; and (iii) any finding, ruling, order, trial testimony, verdict or judgment or any attribution of fault or responsibility to Settling Defendants shall not constitute collateral estoppel or res judicata as to Settling Defendants in this Action or in any other proceeding or forum. 21. The Court reserves the right to adjourn the date of the Settlement Hearing without further notice to the Members of the Class, and retains jurisdiction to consider all further applications arising out of or connected with the Settlement. The Court may approve the Settlement, with such modifications as may be agreed to by the Settling Parties, if appropriate, without further notice. to the Class. 22. Subject to further Order of this Court, only those Class Members who file valid and timely Proofs of Claim pursuant to this Order will be entitled to -11- CaseCase 3:03-cv-03540-GEB-DEA3:03-cv-03540-GEB-DEA DocumentDocument 142-4141 FiledFiled 05/06/1005/10/10 PagePage 1212 ofof1212 notice of any future settlement of claims against the Non-Settling Defendants (Mark H. Swartz and L. Dennis Kozlowski). There shall be no further opportunity for Class Members who do not file a Proof of Claim pursuant to this Settlement to file a proof of claim with respect to any future settlements with the Non-Settling Defendants. The Proof of Claim filed with respect to this Settlement shall be used with respect to any future settlement. 7 DATED: 4Y i', v LUniTh Honorable Garrett E. Brown, J^ rd States District Judge - 12- CaseCase3:03-cv-03540-GEB-DEA3:03-cv-03540-GEB-DEA DocumentDocument 131142-5 FiledFiled1/19/20905/10/10 PagePage1 of1 of1818 UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY ROSEMARIE STUMPF ) v. ) NEIL R. GARVEY, et al. ) Docket No. 03-CV-03540 (GEB) (IN RE TYCOM LTD. SECURITIES LITIGATION) ) ) AFFIDAVIT OF COMPLIANCE WITH THE COURT’S ORDER DATED MAY 18, 2009 DIRECTING NOTICE TO CLASS MEMBERS STATE OF NEW YORK ) ) ss.: COUNTY OF SUFFOLK ) Jose C. Fraga, being duly sworn, deposes and says: 1. I am a Senior Director of Operations for The Garden City Group, Inc. (“GCG”). Pursuant to the Court’s May 18, 2009 Order on Consent Concerning the Notice of Pendency of Class Action (the “Order”), GCG was authorized to act as Notice Administrator in connection with the mailing of the Notice of Pendency of Class Action (the “Notice”). I have personal knowledge of the facts stated herein. 2. Pursuant to the Order, GCG was responsible for disseminating the Notice to potential Class Members. Attached hereto as Exhibit A is a copy of the Notice. 3. Toward that end, on or about June 12, 2009, GCG received from Mellon Investor Services, TyCom’s transfer agent, the names and addresses of 1,018 record purchasers who purchased TyCom’s common stock during the period July 26, 2000 through December 17, 2001. GCG entered these names and addresses into the GCG database created for this Notice. C :03-cv-03540-GEH-DEA3:03-cv-03540-GEB-DEA DD= pnwdt 1IM2-5 FiledFiled1/19/20905/10/10 PagePace2 of2 oF1818 4. Also pursuant to the Order, GCG entered into the GCG database created for this Notice the names and addresses of 4,960 claimants in the Tyco International Ltd. Securities Litigation who claimed ownership of TyCom common stock at the time of its merger with Tyco International Ltd. Notice Packets were disseminated by first-class mail on July 3, 2009 to all 5,978 potential Class Members. 5. As in most securities class actions, the large majority of Class Members are beneficial purchasers whose securities are held in “street name” in the name of the Nominee, on behalf of the beneficial purchasers – i.e., the securities are purchased by brokerage firms, banks, institutions and other third-party nominees (“Nominees”). GCG maintains a proprietary database with 2,471 names and addresses of the largest and most common Nominees (the “Nominee Database”). 6. Paragraph V of the Notice requested Nominees who purchased publicly traded TyCom common stock between July 26, 2000 and December 17, 2001 for the beneficial interest of a person or entity other than themselves, within twenty (20) business days of receipt of the Notice to either (a) provide the Administrator the name and last known address of each person or entity for whom they purchased such TyCom securities during the Class Period or (b) request additional copies of the Notice from the Administrator, and within thirty (30) business days of receipt, mail the Notice by first class mail directly to the beneficial owners of the TyCom securities. Accordingly, on July 3, 2009, GCG caused Notice Packets to be mailed to 2,471 nominee names and addresses in its Nominee Database. 7. Further, pursuant to the Order, GCG Communications, the media division of GCG, caused the Summary Notice of Pendency of Class Action (the “Summary Notice”) to be published July 15, 2009 in The Wall Street Journal. Attached hereto as Exhibit B is the affidavit of Erin Ostenson attesting to that publication for the publisher of The Wall Street Journal. On July 16, 2009, the Summary Notice was issued over the PR Newswire; attached hereto as Exhibit C is a letter from Stephen Tretinik of PR Newswire attesting to that issuance. 2 CaseCasb3,039M903404GEEBBEA M=m%zht11M2-5 FiledFilbd1/19/209M5/1M/1M P of3 of1818 8. As of October 14, 2009, GCG has received 155,811 names and addresses of potential Class Members from individuals or from brokerage firms, banks, institutions and other nominees, in the form of disks, e-mails, labels, etc., requesting that GCG mail Notices directly to these individuals and entities. GCG promptly mailed copies of the Notice to each of these 155,811 names and addresses. 9. As of October 14, 2009, GCG has also received requests from Nominees for an additional 11,550 Notices to be send to them in bulk (without disclosing their clients' identities to us) for forwarding by these Nominees to their customers. GCG promptly provided these Nominees with the requested Notices. 10. In the aggregate, 179,929 Notices (including 4,119 Notices that were remailed to updated addresses provided to GCG by the US Postal Service) were promptly disseminated to potential Class Members by first-class mail. 11. Paragraph III of the Notice informed potential Class Members that written requests for exclusion were to be postmarked no later than October 1, 2009, addressed to In re TyCom Securities Litigation Exclusions, c/o The Garden City Group, Inc., PO Box 9349, Dublin, OH 43017-4249. To date, GCG has received forty-four timely requests, and one late request, for exclusion from the Class. Attached hereto as Exhibit D is a report of these requests for exclusion from the Class. j Jose C. Fraga Sworn to before me this AV day of October, 2009 do A - A A0 A/ Notary Public 40 VANESSA M. VIGILANTE Notary Public, State of New York No. 01 VI6143817 Qualified in Queens County MY Commission Expires y i^. ^n 3 CaseCase3:03-cv-03540-GEB-DEA3:03-cv-03540-GEB-DEA DocumentDocument 131142-5 FiledFiled1/19/20905/10/10 PagePage4 of4 of1818 EXHIBIT A C :G39&e9'03AS4GE]E--B0EA 0D= pnwdt11M2-5 FiledFilbd1/19/209®5/1®/1® P £f dV8 UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY ROSEMARIE STUMPF ) v. ) NEIL R. GARVEY, et al. ) Docket No. 03-CV-03540 (GEB) (IN RE TYCOM LTD. SECURITIES LITIGATION) ) ) NOTICE OF PENDENCY OF CLASS ACTION TO: ALL PERSONS OR ENTITIES WHO PURCHASED OR OTHERWISE ACQUIRED SHARES OF TYCOM LTD. DURING THE PERIOD JULY 26, 2000 THROUGH DECEMBER 17, 2001. This lawsuit has been certified by the Court as a Class Action on behalf of a defined Class of investors in TyCom common stock (stock symbol: 914149Q; cusip G9144B106). During the Class Period, TyCom's stock symbol on the New York and Bermuda Stock Exchanges was "TCM". THIS NOTICE MAY AFFECT YOUR RIGHTS. PLEASE READ THIS ENTIRE NOTICE CAREFULLY. IF YOU DO NOT REQUEST TO BE EXCLUDED FROM THE CLASS BY OCTOBER 1, 2009 AS DESCRIBED BELOW, YOU WILL BE BOUND BY THE OUTCOME OF THIS LAWSUIT. IN THE EVENT OF A RECOVERY AGAINST THE DEFENDANTS, AFTER SETTLEMENT OR TRIAL, YOU WILL BE REQUESTED TO FILE A PROOF OF CLAIM AT A LATER DATE. YOU ARE URGED TO MAINTAIN ALL RECORDS OF YOUR TRANSACTIONS AND HOLDINGS OF TYCOM COMMON STOCK, WHICH MAY BE REQUIRED TO SUPPORT YOUR PROOF OF CLAIM. I. Description And Status Of The Lawsuit The purpose of this Notice is to inform you of a class action lawsuit that is pending in the United States District Court for the District of New Jersey (the “Court”). The lawsuit was recently remanded back to the Court after having been consolidated with related cases in the United States District Court for the District of New Hampshire for pretrial proceedings at MDL Docket No. 02-1335-B. This Action is separate from the action brought by other plaintiffs against Tyco International, Ltd. and other defendants arising out of the amalgamation of TyCom into Tyco on December 18, 2001 and claims for damages incurred on or after December 18, 2001. In re Tyco International Ltd. Securities Litigation, Civil Action No. 02-226-PB. That action has been resolved and a notice of settlement and proof of claim form has been mailed to class members. This Action concerns investments in TyCom and claims for damages incurred prior to December 18, 2001 and is still pending. Even if you read the notice of settlement and filed a claim form in that other action, you need to read this Notice of Pendency of Class Action in full and file a claim form at a future date to share in any recovery in this action. This lawsuit (the “Action”) arises from TyCom’s $2.2 billion IPO of 70.3 million newly issued shares at $32 per share. Lead Plaintiff, Mark Newby (“Lead Plaintiff”), alleges that TyCom made materially false and misleading statements and omissions in its Prospectus for the July 26, 2000 IPO and on the open market thereafter through December 17, 2001, regarding the business operations of TyCom, and the prospects for TyCom’s new global network of undersea cable (the “TGN”). Specifically, Lead Plaintiff alleges, among other things, that defendants misrepresented the demand for undersea bandwidth and failed to disclose the oversupply of undersea bandwidth that existed for the foreseeable future. Defendants deny the allegations and assert that their public statements concerning TyCom, and the projected demand for undersea bandwidth, were accurate at the time made and not intended to mislead investors in TyCom securities. A. The Complaint Mark Newby was appointed Lead Plaintiff and filed his Consolidated Class Action Complaint (the “Consolidated Complaint”) on December 10, 2004 against TyCom and its parent company, Tyco International, Ltd. (“Tyco), former Tyco and TyCom executives, L. Dennis Kozlowski, Mark H. Swartz, and Neil R. Garvey (“Individual Defendants”), and Goldman, Sachs & Co., Merrill Lynch & Co., and Salomon Smith Barney Inc., the three co-lead underwriters of the IPO (“Underwriter Defendants”). C :03-cv-03540-GEB-DEA3:®3-cv-®354®-GEB-DEA 0D= pnwdt11M2-5 FiledFilbd1/19/209®5/1®/1® P of6 of1818 B. Substantive Motions Defendants’ Motion to Dismiss the Amended Complaint for failure to state a claim for violation of Section 11 and 10(b) was denied by Order dated September 2, 2005 as to Tyco, TyCom, and the Individual Defendants based on alleged misrepresentations and omissions concerning undersea bandwidth supply and demand. In the same Order, the Underwriter Defendants’ Motion to Dismiss the Amended Complaint was granted as to all claims asserted for violations of Sections 11 and 15 of the Securities Act and Sections 10(b) and 20(a) of the Exchange Act. By Order dated January 6, 2006, Lead Plaintiff’s Motion to Clarify was granted in part and denied in part, one of Lead Plaintiff’s claims was reinstated against the Underwriter Defendants under Section 11 of the Securities Act, in which Lead Plaintiff asserts that the July 26, 2000 Registration Statement and Prospectus included false statements concerning the demand for bandwidth. On January 13, 2006, Tyco, TyCom and Neil Garvey answered the Amended Complaint. The Underwriter Defendants answered on April 10, 2006. C. Discovery The parties have completed discovery in the case. Specifically, counsel for Lead Plaintiff, Wolf Popper LLP and Chitwood Harley Harnes LLP (“Lead Counsel”), has reviewed documents produced by defendants and non-parties, and has conducted depositions of current and former officers and employees of Tyco, TyCom, Underwriter Defendants, and non-party witnesses. Expert reports have been exchanged, and expert depositions have been completed. The Court has not decided whether the Class or the Defendants are right. Absent a settlement, the lawyers for the Class will have to prove their claims at trial. II. The Class By Order dated June 12, 2007, this lawsuit was certified to proceed as a Class Action pursuant to Rule 23 of the Federal Rules of Civil Procedure. The Order also certified Mark Newby as the Class Representative represented by Wolf Popper LLP and Chitwood Harley Harnes LLP as Lead Counsel. The Class in this Action consists of all persons or entities who purchased TyCom common stock, either pursuant to or traceable to the July 26, 2000 Registration Statement and Prospectus for TyCom’s IPO, or who purchased TyCom common stock on the open market during the period July 26, 2000 through December 17, 2001 and were damaged thereby. Excluded from the Class are the defendants, officers and directors of Tyco, TyCom, or the Underwriter Defendants, members of the immediate family of each of the Individual Defendants, and majority owned affiliates of the corporate defendants. III. Your Rights As A Class Member Except for persons excluded from the Class, if you purchased or acquired publicly traded TyCom common stock during the Class Period and were damaged as a result, you are a Class member. If you are a Class member, you have the right to decide whether to remain a member of the Class. IF YOU ARE A CLASS MEMBER AND YOU CHOOSE TO REMAIN A CLASS MEMBER, YOU DO NOT NEED TO DO ANYTHING AT THIS TIME. IF YOU ARE A CLASS MEMBER AND YOU DO NOTHING, YOU WILL AUTOMATICALLY BE INCLUDED IN THE CLASS. If you choose to remain in the Class: You will be eligible to receive a share of any money awarded to the Class either through a trial or judgment of the Court or through a settlement with the defendants, provided that, at the appropriate time, you submit a valid proof of claim form. If you choose to remain in the Class, you will be bound by any class judgment rendered by the Court. If the Court dismisses one or more of the claims against any defendant, or if the defendants prevail at trial, you will be bound by that decision and all prior decisions of the Court. You will not be personally responsible for the fees of the Lead Counsel or the costs they incur in representing you as a Class member. Lead Counsel have agreed to represent the Class on a contingent basis, which means they will be awarded attorneys’ fees and reimbursement of expenses only from any recovery obtained on behalf of the Class at trial or through settlement. If such a recovery is obtained, you will receive another notice instructing you on how to make a claim and informing you of any further rights you may have. 2 C :G39&e9'03AS4GE]E_-B0EA DD= pnwdt 11M2-5 FiledFiled1/19/20905/10/10 PagePage7 of7 dB18 If you want to attempt to pursue a claim on your own outside of the Class Action, and that claim arises from the facts alleged in the Amended Complaint, then you must submit a written request for exclusion from the Class, as described below. To request Exclusion from the Class, you must submit a written request for exclusion that includes: (1) the name of this Action; (2) your name, address, telephone number, fax number (if available), and e-mail address (if available); and (3) a list of all purchases and sales of TyCom securities during the Class Period. In your request for exclusion you should clearly state: “I wish to be excluded from the TyCom class,” or similar words. You must sign the request. Your mailed request for exclusion must be postmarked no later than October 1, 2009. It must be mailed to: In re TyCom Securities Litigation Exclusions c/o The Garden City Group, Inc. PO Box 9349 Dublin, OH 43017-4249 If you choose to be excluded from the Class, you will not be bound by the decisions of the Court in this Action or by any Judgment in this Action, whether favorable or unfavorable, and you will not be entitled to share in any money that is distributed to the Class. If you choose to pursue a lawsuit on your own, you will be responsible for any fees and costs that your attorney charges you. Note: If you are requesting exclusion on behalf of an entity, trust, or the like, you must state your position and explain the basis for your authority to act on behalf of that entity, trust, or the like. IV. Please Keep Your Address Current If you should change your address, or if this Notice was not mailed to your correct address, you should immediately provide your current address to the Administrator for the TyCom Securities Litigation, as identified below, by letter or email, to ensure that you receive future communications about this lawsuit. If the Administrator does not have your correct address, you might not receive notice of important developments in this Class Action and you might not receive your share of any money recovered by the Class. IN THE EVENT OF A JUDGMENT AGAINST THE DEFENDANTS OR A SETTLEMENT OF THE ACTION YOU WILL BE REQUESTED TO FILE A PROOF OF CLAIM. YOU ARE URGED TO MAINTAIN ALL RECORDS OF YOUR TRANSACTIONS AND HOLDINGS OF TYCOM COMMON STOCK, WHICH MAY BE REQUIRED TO FILE THAT PROOF OF CLAIM. V. Special Notice to Nominees If you purchased publicly traded TyCom common stock between July 26, 2000 and December 17, 2001 for the beneficial interest of a person or entity other than yourself, the Court has directed that, within twenty (20) business days of your receipt of this Notice, you either (a) provide the Administrator the name and last known address of each person or entity for whom or which you purchased such TyCom securities during the Class Period or (b) request additional copies of the Notice from the Administrator, which will be provided to you free of charge, and within thirty (30) business days of receipt, mail the Notice by first class mail directly to the beneficial owners of the TyCom securities. If you choose to follow alternative (b), the Court has directed that, upon such mailing, you send a statement to the Administrator confirming that the mailing was made as directed. Additionally, if you elect to mail the Notice directly to your customers, the Court has further directed that you retain the list of names and addresses of the persons and entities to whom the Notice was mailed so that it will be available for future mailings. Upon full compliance with these directives, you may seek reimbursement of the reasonable expenses actually incurred in providing Notice to beneficial owners. Requests for reimbursement of expenses should be directed to the Administrator and must be accompanied by proper documentation supporting the expenses for which reimbursement is sought. All communications should be directed to the Administrator at the following address: In re TyCom Securities Litigation c/o The Garden City Group, Inc. PO Box 9349 Dublin, OH 43017-4249 3 C :03-cv-03540-GEB-DEA3:03-cv-03540-GEB-DEA DD= pnwdt 11M2-5 FiledFiled1/19/20905/10/10 PagePage8 of8 of1818 ALL NOMINEES WHO PURCHASED TYCOM STOCK FOR THE BENEFICIAL INTERESTS OF OTHERS ARE FURTHER DIRECTED BY ORDER OF THE DISTRICT COURT TO RETAIN ALL RECORDS OF TRADING IN TYCOM COMMON STOCK DURING THE CLASS PERIOD JULY 26, 2000 THROUGH DECEMBER 17, 2001, PENDING THE FINAL DETERMINATION OF THIS ACTION VI. Additional Information This Notice gives only a summary of this Action, the claims asserted by the Lead Plaintiff, and the positions taken by the defendants. For more detailed information, you may review the pleadings filed by Lead Counsel and defendants’ Counsel and the written decisions and opinions issued by the Court in this Action during normal business hours, at the Office of the Clerk of Court, Clarkson S. Fisher Building & U.S. Courthouse, 402 East State St., Room 2020, Trenton, NJ 08608. If you have any questions regarding this Notice or the Action, you may contact Lead Counsel by writing: WOLF POPPER LLP OR CHITWOOD HARLEY HARNES LLP Robert C. Finkel, Esq. Gregory E. Keller, Esq. Natalie M. Mackiel, Esq. John F. Harnes, Esq. 845 Third Avenue Mary Kathryn King, Esq. New York, NY 10022 1230 Peachtree St NE 2300 Promenade II Atlanta, Georgia 30309 DO NOT WRITE OR TELEPHONE THE CLERK OF COURT OR THE JUDGE REGARDING THIS NOTICE OR THIS LAWSUIT By Order of the United States District Court For the District of New Jersey Dated: July 3, 2009 The Honorable Garrett E. Brown, Jr. United States District Judge 4 C :03-cv-03540-GEH-DEA3:03-cv-03540-GEB-DEA DD= pnwdt 1IM2-5 FiledFiled1/19/20905/10/10 PagePage9 of9 of1818 EXHIBIT B CaseCase3:03-cv-03540-GEB-DEA3:M3-cv-M354M-GEB-DEA M=m%zht131142-5 FiledFiled1/19/209M5/1M/1M PagePage1M 10of of1$18 AFFIDAVIT STATE OF TEXAS ) Ss: CITY AND COUNTY OF DALLAS) I, Erin Ostenson, being duly sworn, depose and say that I am the Advertising Clerk of the Publisher of THE WALL STREET JOURNAL, a daily national newspaper of general circulation throughout the United States, and that the Notice attached to this Affidavit has been regularly published in THE WALL STREET JOURNAL for national distribution for one insertion(s) on the following date(s): July 15, 2009; advertiser: Tycom Ltd.; and that the foregoing statements are true and correct to the best of my knowledge. Sworn to before me this 16th day of July, 2009. GViv C-L^/^ Notary Public ,.;,>..N9 P4^ ^ ALBERT FOX 3 ^: :"^= Notary Public, State of Texas y. r'ti My Commission Expires %:; 00% February 15, 2012 CLASS ACTIONS tip :'ii', A, 111)(wMll ,.r I iai _ W • /^ UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY ROSEMARIE STUMPF ) V. ) NEIL R. GARVEY, et al. ) Docket No. (IN RE TYCOM LTD. ) 03-CV-03540 (GEB) SECURITIES LITIGATION) ) SUMMARY NOTICE OF PENDENCY OF CLASS ACTION TO: ALL PERSONS OR ENTITIES WHO PURCHASED OR OTHERWISE ACQUIRED SHARES OF TYCOM LTD. DURING THE PERIOD JULY 26, 2000 THROUGH DECEMBER 17, 2001. This lawsuit has been certified as a Class Action on behalf of a defined Class of investors in TyCom common stock (stock symbol: 914149Q; cusip G91448106). During the Class Period, 'lycom's stock symbol on the New York and Bermuda Stock Exchanges was "TCM". A description of the allegations and proceedings in this action is contained in the Notice of Pendency of Class Action, which has been mailed to Class members. The Notice describes the rights of Class members. Class members may exclude themselves from the Class. If people or entities believe that they are members of the Class identified above and have not received the Notice, they may obtain copies by contacting the Court- approved Administrator, as follows: In re TyCom Securities Litigation c/o The Garden City Group, Inc. PO Box 9349 Dublin, OH 43017-4249 A copy of the Notice is also available on the websites of the Court-approved Co-Lead Counsel for the Class, Wolf Popper LLP and Chitwood Harley Haynes LLP, at www.wolfpopper.com and www.classlaw.com, respectively. PLEASE DO NOT WRITE OR TELEPHONE THE CLERK OF COURT OR THE JUDGE FOR INFORMATION OR ADVICE Dated: July 15, 2009 By Order of the 5 United Statgs District Court For the District of New Jersey C :G39&eQO3AS4GBEB8EA MmmmwbtlIM2-5 FiledFilbd1/19/209M5/1M/1M PJgbPage12 12of of1818 EXHIBIT C CaseCase3:03-cv-03540-GEB-DEA3:03-cv-03540-GEB-DEA DocumentDocument 131142-5 FiledFiled10/19/200905/10/10 PagePage13 13of of1818 July 16, 2009 Julie McBee GCG Communications 5335 SW Meadows Road, Suite 365 Lake Oswego, OR 97035 Dear Julie: This letter confirms that the press release titled "All Persons or Entities Who Purchased or Otherwise Acquired Shares of Tycom Ltd. During; the Period July 26, 2000 Through December 17, 2001" was issued over PR Newswire's US I Distribution list on 'Thursday, July 16, 2009, Sincerely, Stephen Tivtinik PR Newswire TO/T0 39Vd SMI11 M 1N3I'10 NNd Tb96b999TZ Z5:60 600Z /LT/L0 C :G39&eQO3AS4GBEB8EA DocumentDocument 1IM2-5 FiledFiled1/19/20905/10/10 PagePage14 14of of1818 EXHIBIT D CaseCase3:03-cv-03540-GEB-DEA3:03-cv-03540-GEB-DEA DocumentDocument 131142-5 FiledFiled10/19/200905/10/10 PagePage15 15of of18 Who 4f-aralw "tly c3mmw, 11w. TYCOM, LTD. SECURITIES LITIGATION EXCLUSION REPORT EXHIBIT D NME ID NAME POSTMARK SECURITY SECTION TRADE QUA DATE CD CD DATE 1056640 ELIZABETH S AHLSTEDT 7/27/09 1073110 JAMES W BERRY 6/24/09 1071908 DONALD DEAN CLARK & 8/3/09 BARBARA AGNES CLARK TR DEE & BARBARA CLARK TRUST 1154176 FMT CO CUST IRA ROLLOVER 9/1/09 CS P 10/6/00 5 FBO ROBERT L BEVAN 9/1/09 CS S 10/24/00 5 1067746 JOHN L CURRY IRA R/O 8/11/09 CS P 20 FCC AS CUSTODIAN 1017187 DUNCAN B CUTLER AND 7/29/09 SHARON CUTLER JTTEN 1184 THE ANDREW DASKALAKIS FAMILY TRUST 9/25/09 1098 ELSIE DOHERTY 9/14/09 CS P 8/3/00 10 1001811 ELSIE DOHERTY JOHN T DOHERTY (DECD) (ASSOCIATED EXCLUSION) 1017050 JOHN T DOHERTY AND ELSIE DOHERTY JTTEN (ASSOCIATED EXCLUSION) 1 CaseCase3:03-cv-03540-GEB-DEA3:03-cv-03540-GEB-DEA DocumentDocument 131142-5 FiledFiled10/19/200905/10/10 PagePage16 16of of18 NME ID NAME POSTMARK SECURITY SECTION TRADE QUA DATE CD CD DATE 1046557 ROBERT F ENNIS IRA 7/21/09 FCC AS CUSTODIAN U/A DATED 11-11-98 1099875 CHARLES B FINCHER TTEE 7/30/09 CS P 10 CHARLES B FINCHER IRREV TRUST U/A DTD 8-16-89 1143863 BARBARA FITZGERALD 7/28/09 CS P 10 1004602 DONALD F. GERMAN, MD, TTEE 9/4/09 CS P 6/19/01 6 FBO THE DERSHIMER EXEMPT 9/4/09 CS P 6/4/01 39 EXEMPTION TRUST DTD 7/11/85 9/4/09 CS P 9/19/01 14 9/4/09 CS P 8/3/01 3 9/4/09 CS P 8/24/01 3 1030753 GERALDINE GORECKI R/O IRA 7/27/09 FCC AS CUSTODIAN 1148664 CHRISTOPHER GROSSMAN 10/8/09 1102200 MARY ANN HANELINE IRA 9/21/09 FCC AS CUSTODIAN 1093991 BETH DEAN HARRIS REV LVG TR 8/6/09 BETH DEAN HARRIS TTEE UA DTD 10/11/91 1135915 MLPF& S CUST FPO 9/19/09 TED HELMHOLT IRRA FBO TED HELMHOLT 1102939 SYLVIA S HICKMAN & 8/21/09 BILL J HICKMAN JT TEN 1073762 CAROL E HIMES 7/31/09 CS S 7/18/01 10 1157300 ARNOLD HOPLER AND 10/1/09 LYNDA D HOPLER JT TEN 1074029 MILDRED G HUDDLESTON 8/7/09 1060700 ALIDA C. JOHNSON 8/4/09 2 CaseCase3:03-cv-03540-GEB-DEA3:03-cv-03540-GEB-DEA DocumentDocument 131142-5 FiledFiled10/19/200905/10/10 PagePage17 17of of18 NME ID NAME POSTMARK SECURITY SECTION TRADE QUA DATE CD CD DATE 1069479 ALVIN S JONES & 9/2/09 SOONYEH JONES JTWROS 1105936 THERESA L LANNI 7/31/09 1069 ROBERT MCCLINTOCK 8/10/09 1037733 MARGERY T. MCCLINTOCK AND ROBERT V. MCCLINTOCK (ASSOCIATED EXCLUSION) 1107983 LINDA M MCFARLAN D IRA 8/4/09 FCC AS CUSTODIAN 1096 HOWARD L MCGEE 8/26/09 1021999 HOWARD L MCGEE & VIRGINIA L. MCGEE JTWROS (ASSOCIATED EXCLUSION) 1030419 A RICHARD MERCIER SR 8/2/09 1109126 ANDREA H MULZER 7/30/09 1104663 K & A MULZER 7/30/09 ENTERPRISES LP 1110627 KRISTIN J MULZER 7/30/09 1082067 BARBARA H MURPHY & 8/19/09 RICHARD MURPHY JT TEN 1064666 ADRIAN B OBRYAN & 7/20/09 DIANA C OBRYAN JTWROS 1001700 DARLENE POWELL 7/12/09 1073854 CAROLINE PRESTON 9/9/09 ROGER J PRESTON JTTEN 1063046 JANICE N ROWLAND 9/5/09 CS P 8/16/2001 15 TOD JANE ROWLAND FLANDERS & 9/5/09 CS S 1/3/02 15 DR J CHRISTOPHER ROWLAND 3 CaseCase3:03-cv-03540-GEB-DEA3:03-cv-03540-GEB-DEA DocumentDocument 131142-5 FiledFiled10/19/200905/10/10 PagePage18 18of of18 NME ID NAME POSTMARK SECURITY SECTION TRADE QUA DATE CD CD DATE 1060017 KIM FRANCES SCULLY 9/10/09 CS P 1/17/01 10 9/10/09 CS P 10/17/01 20 1060012 KIM F. FRANCES SCULLY IRA FCC AS CUSTODIAN (ASSOCIATED EXCLUSION) 1019630 BARBARA J SMITH 8/27/09 1019631 BARBARA J SMITH CHARLES SCHWAB & CO INC. CUS (ASSOCIATED EXCLUSION) 1038875 WENDELL L SMITH AND 8/12/09 ELAINE R SMITH JT/TEN 1066666 MAYNARD STELZER & 7/27/09 VIVIAN STELZER JTWROS 1090313 RIVER CITY STOCKETTES 7/30/2009 CS P 6/21/2001 5 HELEN H HARPER AGENT 7/30/2009 CS S 2/13/2006 5 1116141 JOHN J. THONE 7/29/09 1118207 CHARLES D TRADO IRA 7/21/09 FCC AS CUSTODIAN 1094212 JOSE A VILLANUEVA 8/17/09 1140550 STANLEY M VONTILZER AND 8/12/09 BERNICE VONTILZER JTWROS Total B: 0 Total P: 1,703.00 Claims with Purchase Transactions: 9 Claims without Purchase Transac 4 Case 3:03-cv-03540-GEB-DEA Document 142-6 Filed 05/10/10 Page 1 of 47 UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY ROSEMARIE STUMPF, Hon. Garrett E. Brown, Jr. Chief U.S.D.J. v. Docket No. 03-CV-03540 (GEB)(DEA) NEIL GARVEY, et al. (IN RE TYCOM LTD. To Be Filed Electronically SECURITIES LITIGATION) SETTLEMENT AGREEMENT AND RELEASE This Settlement Agreement and Release dated as of March 26, 2010 (the “Settlement” or “Settlement Agreement”), is made and entered into by and among the following Settling Parties (as defined herein) to the above-entitled action (the “Action”): (i) the Lead Plaintiff (on behalf of himself and each of the Class Members), by and through his counsel of record in the Action; and (ii) the Settling Defendants. The Settlement Agreement is intended by the Settling Parties to fully, finally and forever resolve, discharge and settle the Released Claims, upon and subject to the terms and conditions hereof and subject to the approval of the Court. I. THE ACTION This Action arises from TyCom Ltd. (“TyCom”)’s, $2.2 billion initial public offering (“IPO”) of 70.3 million newly issued shares at $32 per share. Among other things, Lead Plaintiff alleges that TyCom made materially false and Case 3:03-cv-03540-GEB-DEA Document 142-6 Filed 05/10/10 Page 2 of 47 misleading statements and omissions in its July 26, 2000 Registration Statement and Prospectus (the “Prospectus”) for the IPO and on the open market thereafter through December 17, 2001, regarding the business operations of TyCom, and the prospects for TyCom's new global network of undersea cable (the “TGN”). Lead Plaintiff alleges that there were materially false and misleading statements in the Prospectus and omissions concerning the demand for undersea bandwidth and the oversupply of undersea bandwidth that existed for the foreseeable future. The Settling Defendants deny the allegations and assert that the Prospectus and other public statements concerning TyCom, and the projected demand for undersea bandwidth, were accurate at the time they were made in all respects. This Action was filed on July 24, 2003 in the United States District Court for the District of New Jersey (the “Court” or “New Jersey Court”) on behalf of purchasers of securities of TyCom, and assigned to United States District Judge, Honorable Garrett E. Brown, Jr. The Court appointed Mark Newby as Lead Plaintiff pursuant to § 21D(a)(3)(B) of the Securities Exchange Act of 1934 (the “Exchange Act”) as amended by the Private Securities Litigation Reform Act of 1995 (“PSLRA”), and § 27(a)(3)(B) of the Securities Act of 1933 (the Securities Act”), as amended by the PSLRA. The Court also approved Lead Plaintiff’s selection of Wolf Popper LLP and Chitwood Harley Harnes LLP as Lead Counsel and the Law Offices of James V. Bashian, P.C. as Liaison Counsel. By order dated 2 Case 3:03-cv-03540-GEB-DEA Document 142-6 Filed 05/10/10 Page 3 of 47 October 30, 2003, the Judicial Panel on Multidistrict Litigation (“JPML”) transferred the Action to the United States District Court for the District of New Hampshire (the “MDL Court”) for pre-trial proceedings pursuant to 28 U.S.C. § 1407. The operative complaint in the Action is the Consolidated Class Action Complaint (the “Complaint”), filed on December 10, 2004 in the MDL Court, against Defendants TyCom; Tyco International Ltd. (“Tyco”); L. Dennis Kozlowski (“Kozlowski”), Mark H. Swartz (“Swartz”), and Neil R. Garvey (“Garvey”) (collectively, “Individual Defendants”); and Goldman, Sachs & Co., Merrill Lynch & Co., and Salomon Smith Barney Inc. (collectively, “Underwriter Defendants”). The Complaint alleges violations of §§ 10(b) and 20(a) of the Exchange Act and §§ 11 and 15 of the Securities Act, on behalf of a class of purchasers of TyCom common stock from July 26, 2000 through December 17, 2001. In February and March, 2005, the Defendants filed motions to dismiss the Complaint. By Order dated September 2, 2005, the MDL Court denied the motion by Tyco, TyCom and the Individual Defendants for an order dismissing the Complaint for failure to state a claim for violation of Sections 11 and 15 of the Securities Act and Sections 10(b) and 20(a) of the Exchange Act. In the same Order, the MDL Court granted the Underwriter Defendants’ motion for an Order 3 Case 3:03-cv-03540-GEB-DEA Document 142-6 Filed 05/10/10 Page 4 of 47 dismissing the Complaint as to all claims against the Underwriter Defendants. By Order dated January 6, 2006, the MDL Court granted in part and denied in part Lead Plaintiff’s motion for an order clarifying the MDL Court’s September 2, 2005 Order, and reinstated Lead Plaintiff’s claim against the Underwriter Defendants under Section 11 of the Securities Act, in which Lead Plaintiff asserts that the Prospectus included false statements concerning the demand for bandwidth. On January 13, 2006, Tyco, TyCom and Garvey answered the Complaint, and the Underwriter Defendants answered on April 10, 2006. On March 8, 2006, Lead Plaintiff moved for certification of a class. The MDL Court granted Lead Plaintiff’s motion for class certification by order dated June 12, 2007. On November 17, 2008, the MDL Court finding that pretrial proceedings on common matters had been substantially completed, recommended to the JPML that it remand this Action to the New Jersey Court, where it was originally filed. A conditional remand order was entered by the JPML on December 15, 2008. This Action was remanded to the New Jersey Court on March 16, 2009. On April 21, 2009, Lead Plaintiff moved pursuant to Fed. R. Civ. P. 23(c)(2)(B) and (d)(1)(B) for entry of an order directing that individual notice of pendency of the class action be mailed to members of the certified class and that a summary notice and press release be published thereafter. Lead Plaintiff also moved the Court to modify the 4 Case 3:03-cv-03540-GEB-DEA Document 142-6 Filed 05/10/10 Page 5 of 47 definition of the Class in a form that was consented to by the Parties. On May 19, 2009, the Court approved of the forms of notice and ordered that notice be mailed to the Class and published accordingly with the following amended Class definition: All persons or entities who purchased TyCom common stock, either pursuant to or traceable to the July 26, 2000 Registration Statement and Prospectus for TyCom’s IPO, or who purchased TyCom common stock on the open market during the period July 26, 2000 through December 17, 2001 and were damaged thereby. Excluded from the Class are the defendants, officers and directors of Tyco, TyCom, or the Underwriter Defendants, members of the immediate family of each of the Individual Defendants, and majority owned affiliates of the corporate defendants. On July 3, 2009, Notice of Pendency of Class Action was mailed to potential Class Members as provided in the Court’s Order dated May 19, 2009. A Summary Notice of Pendency of Class Action was published in The Wall Street Journal on July 15, 2009, and issued over the PR Newswire on July 16, 2009. Forty-four (44) persons requested exclusion from the Class by October 1, 2009, the deadline provided in the Notice of Pendency of Class Action for requesting exclusion. On May 29, 2009, Lead Plaintiff and defendants Tyco, TyCom, and the Underwriter Defendants each filed motions for summary judgment. On June 12, 2009, defendants Kozlowski and Garvey filed motions for summary judgment. Briefing on the motions was completed on July 31, 2009. 5 Case 3:03-cv-03540-GEB-DEA Document 142-6 Filed 05/10/10 Page 6 of 47 While the Settling Parties each continue to believe that the positions set forth in their respective motions for summary judgment are correct, and further believe that they would prevail at any trial on the merits, the Settling Parties, in order to avoid the continuing risk of litigation and the risks presented by trial and appeal, have agreed to settle the Action on the terms set forth below. II. TERMS OF SETTLEMENT NOW, THEREFORE, IT IS HEREBY STIPULATED AND AGREED by and among the Lead Plaintiff (for himself and all Class Members) and the Settling Defendants, that, subject to the approval of the Court, the Action and the Released Claims shall be finally and fully compromised, settled and released, and the Action shall be dismissed with prejudice, as to all Settling Parties, upon and subject to the terms and conditions of the Settlement, as follows. 1. Definitions As used in the Settlement Agreement, the following terms have the meanings specified below: 1.1. “Action” means In re TyCom Ltd. Securities Litigation, No. 03-CV- 3540 (GEB)(DEA) (D.N.J.) and all complaints consolidated therewith. 1.2. “Claimant” means any Class Member who files a Proof of Claim in such form and manner, and within such time, as the Court shall prescribe. 1.3. “Claims Administrator” means The Garden City Group, Inc. 6 Case 3:03-cv-03540-GEB-DEA Document 142-6 Filed 05/10/10 Page 7 of 47 1.4. “Class” means all persons or entities who purchased TyCom common stock, either pursuant to or traceable to the July 26, 2000 Registration Statement and Prospectus for TyCom’s IPO, or who purchased TyCom common stock on the open market during the period July 26, 2000 through December 17, 2001 and were damaged thereby. Excluded from the Class are the defendants, officers and directors of Tyco, TyCom, or the Underwriter Defendants, members of the immediate family of each of the Individual Defendants, and majority owned affiliates of the corporate defendants. Also excluded from the Class are those Persons who timely and validly requested exclusion from the Class by the October 1, 2009 deadline pursuant to the Notice of Pendency of Class Action and do not file a proof of claim substantially in the form of Exhibit A-2 hereof. There will be no other exclusions from the Class. 1.5. “Class Member” or “Member of the Class” means a Person who falls within the definition of the Class as set forth in ¶1.4 above. 1.6. “Class Period” means the period between and including July 26, 2000 and December 17, 2001. 1.7. “Complaint” means the Consolidated Class Action Complaint, filed on December 10, 2004 in the New Hampshire Court. 1.8. “Court” or “New Jersey Court” means the United States District Court for the District of New Jersey. 7 Case 3:03-cv-03540-GEB-DEA Document 142-6 Filed 05/10/10 Page 8 of 47 1.9. “Defendants” means the Settling Defendants (TyCom, Tyco, Garvey, and the Underwriter Defendants) and the Non-Settling Defendants (Kozlowski and Swartz). 1.10. “Effective Date” means the first date by which all of the events and conditions specified in ¶7.1 of the Settlement Agreement have been met and have occurred. 1.11. “Escrow Agent” means the law firms of Wolf Popper LLP and Chitwood Harley Harnes LLP or their successors. 1.12. “Fee and Expense Application” means the application that Lead Counsel may submit for distribution from the Settlement Fund of an award of attorneys’ fees and expenses incurred in connection with prosecuting the Action, plus any interest thereon at the same rate and for the same period as earned by the Settlement Fund (until paid), and reimbursement of Lead Plaintiff’s reasonable costs and expenses (including lost wages) directly related to his representation of the Class. 1.13. “Fee and Expense Award” means the award that the Court may grant in connection with the Fee and Expense Application, with interest thereon. 1.14. “Final” means when the last of the following with respect to the Judgment, substantially in the form of Exhibit B hereto, shall occur: (i) the expiration of the time to file a motion to alter or amend the Judgment under 8 Case 3:03-cv-03540-GEB-DEA Document 142-6 Filed 05/10/10 Page 9 of 47 Federal Rule of Civil Procedure 59(e) without any such motion having been filed; (ii) the expiration of the time in which to appeal the Judgment without any appeal having been taken, which time shall be deemed to be within thirty (30) days following the entry of the Judgment, unless the date to take such an appeal shall have been extended by Court order or otherwise, or unless the 30th day falls on a weekend or a Court holiday, in which case the date for purposes of this Settlement Agreement shall be deemed to be the next business day after such 30th day; or (iii) if a motion to alter or amend the Judgment is filed under Federal Rule of Civil Procedure 59(e) or if an appeal of the Judgment is taken, immediately after the determination of that motion or appeal so that it is no longer subject to any further judicial review or appeal whatsoever, whether by reason of affirmance by a court of last resort, lapse of time, voluntary dismissal of the appeal or otherwise, and in such a manner as to permit the consummation of the settlement substantially in accordance with the terms and conditions of this Settlement Agreement. Any proceeding or order, or any appeal or petition for a writ of certiorari pertaining solely to the issue of attorneys’ fees and reimbursement of costs or the Plan of Allocation of the Settlement Fund shall not in any way delay or preclude the Judgment from becoming final and shall not be considered an appeal within the meaning of this paragraph. 1.15. “Individual Defendants” means Kozlowski, Swartz, and Garvey. 9 Case 3:03-cv-03540-GEB-DEA Document 142-6 Filed 05/10/10 Page 10 of 47 1.16. “IPO” means the July 26, 2000 initial public offering of 70.3 million shares of TyCom common stock at $32 per share. 1.17. “Judgment” means the Judgment and Order of Dismissal with Prejudice to be rendered by the Court, substantially in the form attached hereto as Exhibit B. 1.18. “Lead Counsel” means Wolf Popper LLP and Chitwood Harley Harnes LLP. 1.19. “Lead Plaintiff” means Mark Newby. 1.20. “Net Settlement Fund” means the amount of the Settlement Fund after payments of: the Fee and Expense Award; costs and expenses reasonably and actually incurred in connection with providing notice, locating Class Members, soliciting Class Members’ Proofs of Claims, assisting with the filing of Proofs of Claims, administering and distributing the Net Settlement Fund to Authorized Claimants, processing Proofs of Claims, and bank escrow services; and Taxes and Tax Expenses. 1.21. “Non-Settling Defendants” means L. Dennis Kozlowski and Mark H. Swartz. 1.22. “Notice” means the Notice of Proposed Settlement of Class Action, Motion for Attorneys’ Fees and Settlement Fairness Hearing to be approved to the Court and sent to Class Members, containing the general terms of the Settlement, 10 Case 3:03-cv-03540-GEB-DEA Document 142-6 Filed 05/10/10 Page 11 of 47 the general terms of the Fee and Expense Application and the date of the Settlement Hearing, substantially in the form attached hereto as Exhibit A-1. 1.23. “Notice of Pendency of Class Action” means the notice given to potential Class members as provided in the Court’s Order dated May 19, 2009. 1.24. “Person” means an individual, corporation, partnership, limited partnership, limited liability partnership, professional corporation, limited liability corporation, association, joint stock company, estate, legal representative, trust, unincorporated association, government or any political subdivision or agency thereof, and any business or legal entity and their spouses, heirs, predecessors, successors, representatives, or assignees. 1.25. “Plan of Allocation” means a plan or formula of allocation of the Settlement Fund whereby the Net Settlement Fund shall be distributed to Authorized Claimants after payment of expenses of notice and administration of the settlement, Taxes and Tax Expenses, such attorneys’ fees, costs, expenses and interest as may be awarded by the Court. Any Plan of Allocation is not part of the Settlement, and the Settling Defendants and their Related Parties shall have no responsibility therefore or liability with respect thereto. 1.26. “Preliminary Approval Order” means the order for which Lead Plaintiff shall apply to the Court, requesting preliminary approval of the Settlement 11 Case 3:03-cv-03540-GEB-DEA Document 142-6 Filed 05/10/10 Page 12 of 47 and such other matters as set forth in ¶3.1 hereto and substantially in the form attached hereto as Exhibit A. 1.27. “Proof of Claim” means the Proof of Claim and Release substantially in the form attached hereto as Exhibit A-2. 1.28. “Prospectus” means the July 26, 2000 Registration Statement and Prospectus for the IPO. 1.29. “Related Parties” means parents, subsidiaries and affiliates, and all their past, present and future respective directors, officers, employees, partners, insurers, co-insurers, reinsurers, agents, controlling shareholders, attorneys, accountants, auditors, advisors, investment advisors, personal or legal representatives, predecessors, successors, divisions, joint ventures, assigns, spouses, heirs, related or affiliated entities, any entity in which a Settling Defendant has a controlling interest, any members of an Individual Defendant’s immediate family, and any trust of which an Individual Defendant is the settlor or which is for the benefit of an Individual Defendant’s family, but not including either Kozlowski or Swartz. 1.30. “Release” means the release contained in ¶4 of this Settlement Agreement and in the Judgment. 1.31. “Released Claims” shall collectively mean all claims (including “Unknown Claims” as defined in ¶1.42 hereof), demands, rights, liabilities and 12 Case 3:03-cv-03540-GEB-DEA Document 142-6 Filed 05/10/10 Page 13 of 47 causes of action of every nature and description whatsoever, known or unknown, suspected or unsuspected, contingent or non-contingent, matured or unmatured, whether or not concealed or hidden, which now exist, or heretofore has existed, asserted or that might have been asserted by the Class or any member of the Class, including, without limitation, class, derivative, direct actions, claims for negligence, gross negligence, breach of duty of care and/or breach of duty of loyalty, fraud, breach of fiduciary duty, or violations of any state or federal statutes, rules or regulations including, without limitation, the federal securities laws and the regulations promulgated pursuant to the federal securities laws, or common law principles against the Released Persons or any of them, arising out, based upon or in any way related to the purchase, acquisition or holding of the common stock of TyCom during the Class Period and the acts, failures to act, facts, transactions, events, disclosures, statements or omissions that were or could have been alleged by the Class or any member of the Class in the Action. 1.32. “Released Persons” means each and all of the Settling Defendants and each and all of their Related Parties, but not including either Kozlowski or Swartz. 1.33. “Settlement” means all of the terms and conditions agreed to in this Settlement and Release. 13 Case 3:03-cv-03540-GEB-DEA Document 142-6 Filed 05/10/10 Page 14 of 47 1.34. “Settlement Fund” means the principal amount of Seventy-Nine Million Dollars ($79,000,000) in cash paid to the Escrow Agent pursuant to ¶2(a) of this Settlement Agreement, plus all interest earned thereon pursuant to ¶2.4. 1.35. “Settlement Hearing” means the hearing that Lead Plaintiff will request the Court hold in order to finally approve the Settlement as set forth herein, the Fee and Expense Application, and Plan of Allocation. 1.36. “Settling Defendants” means, collectively, each of the Defendants, other than Kozlowski and Swartz. 1.37. “Settling Parties” means, collectively, each of the Settling Defendants, and the Lead Plaintiff on behalf of himself and the Class Members. 1.38. “Summary Notice” means the published notice, substantially in the form attached hereto as Exhibit A-3. 1.39. “Tyco” means Tyco International Ltd., Tyco Electronics Ltd., and Covidien Ltd. and each of their predecessors, or Successors-in-Interest. 1.40. “TyCom” means TyCom Ltd.. 1.41. “Underwriter Defendants” means Goldman, Sachs & Co. (“Goldman”), Merrill Lynch & Co. (“Merrill”) and Salomon Smith Barney Inc. (“Salomon”) (n/k/a Citigroup Global Markets Inc. (“Citigroup”)). 1.42. “Unknown Claims” shall collectively mean all claims, demands, rights, liabilities, and causes of action of every nature and description which the 14 Case 3:03-cv-03540-GEB-DEA Document 142-6 Filed 05/10/10 Page 15 of 47 Lead Plaintiff or any Class Member does not know or suspect to exist in his, her or its favor at the time of the release of the Released Persons which, if known by him, her or it, might have affected his, her or its settlement with and release of the Released Persons, or might have affected his, her or its decision not to object to this Settlement. With respect to any and all Released Claims, the Settling Parties stipulate and agree that, upon the Effective Date, the Lead Plaintiff shall expressly waive, and each of the Class Members shall be deemed to have waived, and by operation of the Judgment shall have waived, the provisions, rights and benefits of California Civil Code § 1542, which provides: A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor. The Lead Plaintiff shall expressly and each of the Class Members shall be deemed to have, and by operation of the Judgment shall have, expressly waived any and all provisions, rights and benefits conferred by any law of any state or territory of the United States, or principle of common law, which is similar, comparable or equivalent to California Civil Code § 1542. The Lead Plaintiff and Class Members may hereafter discover facts in addition to or different from those which he, she or it now knows or believes to be true with respect to the subject matter of the Released Claims, but the Lead Plaintiff shall expressly fully, finally and forever settle and release, and each Class Member, upon the Effective Date, 15 Case 3:03-cv-03540-GEB-DEA Document 142-6 Filed 05/10/10 Page 16 of 47 shall be deemed to have, and by operation of the Judgment shall have, fully, finally and forever settled and released, any and all Released Claims, known or unknown, suspected or unsuspected, contingent or non-contingent, whether or not concealed or hidden, which now exist, or heretofore have existed, upon any theory of law or equity now existing or coming into existence in the future, including, but not limited to, conduct which is negligent, intentional, with or without malice, or a breach of any duty, law or rule, without regard to the subsequent discovery or existence of such different or additional facts. The Lead Plaintiff acknowledges, and the Class Members shall be deemed by operation of the Judgment to have acknowledged, that the foregoing waiver was separately bargained for and a key element of the settlement of which this release is a part. 2. The Settlement a. The Settlement Fund Account 2.1. Within ten (10) days after entry of the Preliminary Approval Order, Lead Counsel shall establish at a federally-insured financial institution identified to and agreed on by counsel for Tyco, a Settlement Fund Account. 2.2. Within twenty (20) days following the date by which Proof of Claim forms are due, the Escrow Agent shall set aside in a separate escrow account at the same federally-insured financial institution an amount equal to 50% of what would be the remaining opt outs’ estimated pro rata share of the Net Settlement Fund, for 16 Case 3:03-cv-03540-GEB-DEA Document 142-6 Filed 05/10/10 Page 17 of 47 the benefit of Tyco, to be used to compensate Tyco for any costs, expenses and liabilities associated with resolving any claims by the remaining opt outs, through settlement or otherwise. Any amounts remaining after all the opt out claims have been fully and finally resolved shall be returned to the Net Settlement Fund for distribution to the Class. The Settling Parties agree that the escrow established under this paragraph shall be released if no claim by the remaining opt outs is outstanding as of December 1, 2010. b. The Class Settlement Amount 2.3 In consideration of the terms of this Settlement Agreement, Tyco International Ltd. will cause to be deposited into the Settlement Fund Account the aggregate sum of Seventy-Nine Million Dollars ($79,000,000) within twenty (20) days following the entry of the Preliminary Approval Order. No Settling Defendant other than Tyco International Ltd. will have any obligation to fund or contribute to the Settlement Fund. c. The Escrow Agent 2.4. The Escrow Agent may invest the Settlement Fund deposited pursuant to ¶2(a) hereof in instruments backed by the full faith and credit of the United States Government or fully insured by the United States Government or an agency thereof and shall reinvest the proceeds of these instruments as they mature in similar instruments at their then-current market rates. The Settling Defendants 17 Case 3:03-cv-03540-GEB-DEA Document 142-6 Filed 05/10/10 Page 18 of 47 shall not bear any risk or liability related to investment of the Settlement Fund. 2.5. The Escrow Agent shall not disburse the Settlement Fund except as provided in the Settlement Agreement, by an order of the Court, or with the written agreement of counsel for the Settling Defendants. 2.6. Subject to further order and/or direction as may be made by the Court, the Escrow Agent is authorized to execute such transactions on behalf of the Class Members as are consistent with the terms of the Settlement Agreement. 2.7. All funds held by the Escrow Agent shall be deemed and considered to be in custodia legis of the Court, and shall remain subject to the jurisdiction of the Court, until such time as such funds shall be distributed pursuant to this Settlement Agreement and/or further order(s) of the Court. 2.8. Prior to the Effective Date, Lead Counsel may authorize payment of the actual costs and expenses reasonably and actually incurred in connection with providing notice of the settlement to the Class and administering the Settlement without further order or authorization by the Court. d. Taxes 2.9. (a) The Settling Parties and the Claims Administrator agree to treat the Settlement Fund as being at all times a “qualified settlement fund” within the meaning of Treas. Reg. §1.468B-1. In addition, the Escrow Agent shall timely make such elections as necessary or advisable to carry out this Settlement 18 Case 3:03-cv-03540-GEB-DEA Document 142-6 Filed 05/10/10 Page 19 of 47 Agreement including the “relation-back election” (as defined in Treas. Reg. §1.468B-1) back to the earliest permitted date. Such elections shall be made in compliance with the procedures and requirements contained in such regulations. It shall be the responsibility of the Escrow Agent to timely and properly prepare and deliver the necessary documentation for signature by all necessary parties, and thereafter to cause the appropriate filing to occur. (b) All (i) Taxes (including any estimated Taxes, interest or penalties) arising with respect to the income earned by the Settlement Fund, including any Taxes or tax detriments that may be imposed upon the Settling Defendants or their Related Parties with respect to any income earned by the Settlement Fund for any period during which the Settlement Fund does not qualify as a “qualified settlement fund” for federal or state income tax purposes (“Taxes”), and (ii) expenses and costs incurred in connection with the operation and implementation of this paragraph (including, without limitation, expenses of tax attorneys and/or accountants and mailing and distribution costs and expenses relating to filing (or failing to file) the returns described in this paragraph ) (“Tax Expenses”), shall be paid out of the Settlement Fund; in no event shall the Settling Defendants or their Related Parties have any responsibility for or liability with respect to the Taxes or the Tax Expenses. The Escrow Agent shall indemnify and hold each of the Settling Defendants and their Related Parties harmless for Taxes and Tax Expenses 19 Case 3:03-cv-03540-GEB-DEA Document 142-6 Filed 05/10/10 Page 20 of 47 (including, without limitation, Taxes payable by reason of any such indemnification). Further, Taxes and Tax Expenses shall be treated as, and considered to be, a cost of administration of the Settlement Fund and shall be timely paid by the Escrow Agent out of the Settlement Fund without prior order from the Court and the Escrow Agent shall be obligated (notwithstanding anything herein to the contrary) to withhold from distribution to Authorized Claimants any funds necessary to pay such amounts, including the establishment of adequate reserves for any Taxes and Tax Expenses (as well as any amounts that may be required to be withheld under Treas. Reg. §1.468B-2(1)(2)); neither the Settling Defendants nor their Related Parties are responsible therefore nor shall they have any liability with respect thereto. The Settling Parties hereto agree to cooperate with the Escrow Agent, each other, and their tax attorneys and accountants to the extent reasonably necessary to carry out these provisions. e. Termination of Settlement 2.10. The Settlement shall be canceled and terminated subject to ¶7.4 hereof in the event the Court does not approve, in substance, the terms set forth in the Preliminary Approval Order and permits Class Members who did not opt of the Class in connection with the prior Notice of Pendency of Class Action to exclude themselves from the Class. 20 Case 3:03-cv-03540-GEB-DEA Document 142-6 Filed 05/10/10 Page 21 of 47 2.11. In the event that the Settlement is not approved, or is terminated, canceled, or fails to become effective for any reason, or the Court permits additional opt outs, the Settlement Fund, including accrued interest, less reasonable costs and expenses actually incurred and properly due and owing in connection with the settlement provided for herein, including, without limitation, for the class notice, administration and Taxes, shall be refunded to the Settling Defendants who created the Settlement Fund, as provided in ¶7.3 below. 3. Preliminary Approval Order and Settlement Hearing 3.1. Promptly after execution of the Settlement Agreement, the Settling Parties shall submit the Settlement Agreement together with its Exhibits to the Court and shall apply for entry of the Preliminary Approval Order, substantially in the form of Exhibit A hereto, requesting, inter alia, (1) preliminary approval of the Settlement, (2) approval of the Notice for mailing, substantially in the form of Exhibit A-1 hereto, (3) approval of the Proof of Claim form to be executed by Class Members in making a claim under the settlement, substantially in the form of Exhibit A-2 hereto; (4) approval of a form of Summary Notice for publication, substantially in the form of Exhibit A-3 hereto, (5) that Class Members, having been given a full and fair opportunity to opt out of the Class in connection with the prior Notice of Pendency of Class Action, will not have another opportunity to exclude themselves from the Class in connection with the settlement, and (6) that a 21 Case 3:03-cv-03540-GEB-DEA Document 142-6 Filed 05/10/10 Page 22 of 47 Settlement Hearing be set for the Court’s final consideration of approval of the Settlement, the Plan of Allocation, and the Fee and Expense Application. The Notice shall include the general terms of the Settlement as set forth in this Settlement Agreement, the proposed Plan of Allocation, the general terms of the Fee and Expense Application and the date of the Settlement Hearing. 3.2. Lead Counsel shall request that after notice is given, the Court hold the Settlement Hearing and approve the Settlement as set forth herein. At or after the Settlement Hearing, Lead Counsel also will request that the Court approve the proposed Plan of Allocation and the Fee and Expense Application. 3.3 The Settling Parties will request that the Court schedule the Settlement Hearing on a date: (a) after Class Members have received notice; (b) after the time to object to the Settlement has expired; and (c) no earlier than ninety (90) days after the Settling Defendants have effected service of the notice required by the Class Action Fairness Act of 2005, with such service occurring no later than ten (10) days after the date this Settlement Agreement is filed with the Court. 3.4. At the Settlement Hearing, the Settling Parties shall jointly request entry of the Judgment: (a) finally approving the Settlement as fair, reasonable and adequate, within the meaning of Fed. R. Civ. P. 23, and directing its consummation pursuant to its terms; 22 Case 3:03-cv-03540-GEB-DEA Document 142-6 Filed 05/10/10 Page 23 of 47 (b) directing that the Action be dismissed without cost, except as otherwise provided therein, and with prejudice, and releasing, as against the Released Persons, the Released Claims by the Class and all Class Members and each other; (c) permanently barring and enjoining the institution and prosecution by any and all Class Members and the Class of any action against any Released Person in any court asserting Released Claims; (d) reserving jurisdiction over the Action, Class Members, or Non- Settling Defendants, including all future proceedings concerning the administration, consummation and enforcement of this Settlement Agreement; (e) containing bar order and judgment reduction provisions as set forth in the form of Final Judgment attached as Exhibit B hereto. 4. Releases 4.1. Upon the Effective Date the Lead Plaintiff and each of the Class Members shall be deemed to have, and by operation of the Judgment shall have, fully, finally and forever released, relinquished and discharged all Released Claims against the Released Persons, whether or not such Class Member executes and delivers a Proof of Claim and Release form. 23 Case 3:03-cv-03540-GEB-DEA Document 142-6 Filed 05/10/10 Page 24 of 47 4.2. All Class Members shall be bound by the releases set forth in this Settlement Agreement and in the Judgment whether or not they submit a valid and timely Proof of Claim and Release. 4.3. Upon the Effective Date, each of the Released Persons shall be deemed to have, and by operation of the Judgment shall have, fully, finally, and forever released, relinquished and discharged the Lead Plaintiff, each and all of the Class Members, and Lead Counsel (and other plaintiffs’ counsel) from all claims (including, without limitation, Unknown Claims) arising out of, relating to, or in connection with the institution, prosecution, assertion, settlement or resolution of the Action or the Released Claims. 4.4. Nothing in this Settlement Agreement shall bar any suit or action to enforce the terms of this Settlement or the Judgment. 5. Administration and Calculation of Claims, Final Awards, and Supervision and Distribution of Settlement Fund 5.1. The Claims Administrator shall administer and calculate the claims submitted by Class Members. 5.2. The Settlement Fund shall be applied as follows: (a) to pay all the costs and expenses reasonably and actually incurred in connection with providing notice, locating Class Members, assisting with the filing of claims, administering and distributing the Settlement Fund to 24 Case 3:03-cv-03540-GEB-DEA Document 142-6 Filed 05/10/10 Page 25 of 47 Authorized Claimants, processing Proof of Claim forms and paying escrow fees and costs, if any; (b) to fund the escrow account established in accordance with ¶2.2 hereof; (c) to pay the Taxes and Tax Expenses described in ¶2.9 hereof; (d) to pay the Fee and Expense Award to the extent allowed by the Court; and (e) after the Effective Date, to distribute the Net Settlement Fund to Authorized Claimants as allowed by the Settlement Agreement, the Plan of Allocation, or the Court. 5.3. Upon the Effective Date and thereafter, and in accordance with the terms of the Settlement Agreement, the Plan of Allocation, or such further approval and further order(s) of the Court as may be necessary or as circumstances may require, the Net Settlement Fund shall be distributed to Authorized Claimants, subject to and in accordance with the following. 5.4. Within ninety (90) days after the mailing of the Notice or such other time as may be set by the Court, each Person claiming to be an Authorized Claimant shall be required to submit to the Claims Administrator a completed Proof of Claim, substantially in the form of Exhibit A-2 hereto, signed under 25 Case 3:03-cv-03540-GEB-DEA Document 142-6 Filed 05/10/10 Page 26 of 47 penalty of perjury and supported by such documents as are specified in the Proof of Claim. 5.5. Lead Counsel will cause copies of the Notice to be mailed to those persons who are current opt outs. The Notice will advise the current opt outs of their rights to revoke their opt out and join the Settlement by submitting Proof of Claim and Release forms. 5.6. All Class Members who fail to timely submit a Proof of Claim and Release within such period, or such other period as may be ordered by the Court, or otherwise allowed, shall be forever barred from receiving any payments pursuant to the Settlement Agreement and the Settlement set forth herein, but will in all other respects be subject to and bound by the provisions of this Settlement Agreement, the releases contained herein, and the Judgment. 5.7. The Net Settlement Fund shall be distributed to Authorized Claimants substantially in accordance with a Plan of Allocation to be described in the Notice and approved by the Court. If there is any balance remaining in the Net Settlement Fund after six (6) months from the date of distribution of the Net Settlement Fund (whether by reason of tax refunds, uncashed checks or otherwise), Lead Counsel shall, if feasible, reallocate such balance among Authorized Claimants in an equitable and economic fashion. Thereafter, any balance which still remains in the Net Settlement Fund shall be donated to one or more appropriate, non-profit, non- 26 Case 3:03-cv-03540-GEB-DEA Document 142-6 Filed 05/10/10 Page 27 of 47 sectarian organizations, unaffiliated with Lead Counsel, to be designated by Lead Counsel with the consent of Tyco International, such consent not to be unreasonably withheld. 5.8. The Settlement is not a claims-made settlement and, if all conditions of the Settlement are satisfied and the Settlement becomes Final, no portion of the Settlement Fund will be returned to the Settling Defendants. The Settling Defendants and their Related Parties shall have no responsibility for, interest in, or liability whatsoever with respect to the distribution of the Net Settlement Fund, the Plan of Allocation, the determination, administration, or calculation of claims, the payment or withholding of Taxes or Tax Expenses, or any losses incurred in connection therewith. 5.9. No Person shall have any claim against Settling Defendants or Settling Defendants’ counsel, Lead Counsel (or other plaintiff’s counsel), the Claims Administrator or other entity designated by Lead Counsel based on distributions made substantially in accordance with the Settlement Agreement and the settlement contained herein, the Plan of Allocation, or further order(s) of the Court. 5.10. It is understood and agreed by the Settling Parties that any proposed Plan of Allocation of the Net Settlement Fund including, but not limited to, any adjustments to an Authorized Claimant’s claim set forth therein, is not a part of this 27 Case 3:03-cv-03540-GEB-DEA Document 142-6 Filed 05/10/10 Page 28 of 47 Settlement and is to be considered by the Court separately from the Court’s consideration of the fairness, reasonableness and adequacy of the Settlement set forth in this Settlement Agreement, and any order or proceeding relating to the Plan of Allocation shall not operate to terminate or cancel this Settlement or affect or delay the finality of the Court’s Judgment approving this Settlement Agreement and the settlement set forth therein (including the releases contained herein), or any other orders entered pursuant to this Settlement Agreement. 6. Lead Counsel’s Attorneys’ Fees and Expenses 6.1. Lead Counsel may submit a Fee and Expense Application for distributions to them from the Settlement Fund for: (a) an award of attorneys’ fees; plus (b) payment of expenses, including the fees of any experts or consultants, incurred in connection with prosecuting the Action, plus any interest on such attorneys’ fees and expenses at the same rate and for the same periods as earned by the Settlement Fund (until paid), as may be awarded by the Court. Lead Counsel reserves the right to make additional applications for fees and expenses incurred in representing the Class after the Court approves the settlement, however any such additional fees and expenses shall be paid solely from the Settlement Fund. 6.2. The attorneys’ fees and expenses, as awarded by the Court, shall be paid to Lead Counsel from the Settlement Fund, as ordered, immediately after the Court executes an order awarding such fees and expenses. Lead Counsel may 28 Case 3:03-cv-03540-GEB-DEA Document 142-6 Filed 05/10/10 Page 29 of 47 thereafter allocate the attorneys’ fees and expenses among all counsel for Plaintiffs in a manner in which they in good faith believe reflect the contributions of such counsel to the institution, prosecution and resolution of the Action. In the event that the Effective Date does not occur, or the Judgment or the order making the Fee and Expense Award is reversed or modified, or the Settlement is canceled or terminated for any other reason, and in the event that the Fee and Expense Award has been paid to any extent, then it shall be Lead Counsel’s joint and several obligation to refund to the Settlement Fund the fees and expenses previously paid to them from the Settlement Fund plus interest thereon at the same rate as earned by the Settlement Fund in an amount consistent with such reversal or modification, within fifteen (15) business days from receiving notice from Settling Defendants’ counsel or from a court of appropriate jurisdiction. 6.3. Application will also be made for reimbursement to the Lead Plaintiff for his reasonable costs and expenses (including lost wages) directly relating to his representation of the Class. Any such costs and expenses shall be paid solely from the Settlement Fund. 6.4. The procedure for and the allowance or disallowance by the Court of any applications by counsel for the Plaintiffs for attorneys’ fees and expenses, including the fees of experts and consultants, to be paid out of the Settlement Fund, are not part of the Settlement set forth in this Settlement Agreement, and are to be 29 Case 3:03-cv-03540-GEB-DEA Document 142-6 Filed 05/10/10 Page 30 of 47 considered by the Court separately from the Court’s consideration of the fairness, reasonableness and adequacy of the Settlement set forth in this Settlement Agreement. Any order or proceedings relating to the Fee and Expense Application, or any appeal from any order relating thereto or reversal or modification thereof, shall not constitute grounds for cancellation or termination of this Settlement and shall not operate to terminate or cancel this Settlement Agreement or affect or delay the finality of the Judgment approving the Settlement Agreement and the settlement of the Action set forth therein (including the releases contained herein). 6.5. The Settling Defendants and their Related Parties shall have no responsibility for or liability with respect to any payment of attorneys’ fees and expenses to any counsel for Plaintiffs over and above payment from the Settlement Fund. 7. Conditions of Settlement, Effect of Disapproval, Cancellation or Termination 7.1 The Effective Date of this Settlement shall be conditioned on the occurrence of all of the following events: (a) the Settlement Fund has been paid or caused to be paid as required by ¶2(a) hereof; 30 Case 3:03-cv-03540-GEB-DEA Document 142-6 Filed 05/10/10 Page 31 of 47 (b) the Court has entered the Preliminary Approval Order, as required by ¶3.1 hereof; (c) the Court has entered the Judgment; and (d) the Judgment has become Final, as defined in ¶1.14 hereof. 7.2. Upon the occurrence of all of the events referenced in ¶7.1 hereof, any and all remaining interest or right of the Settling Defendants, or any one of them, in or to the Settlement Fund, if any, shall be absolutely and forever extinguished. If all of the conditions specified in ¶7.1 hereof are not met, then the Settlement shall be canceled and terminated subject to ¶7.4 hereof unless Lead Counsel and counsel for the Settling Defendants mutually agree in writing to proceed with the Settlement Agreement and the Settlement. 7.3. Unless otherwise ordered by the Court, in the event the Settlement shall terminate, or be canceled, or shall not become effective for any reason, then within ten (10) business days after written notification of such event is sent by counsel for the Settling Defendants to the Escrow Agent and in accordance with the terms of ¶2.11 hereof, the Settlement Fund (including accrued interest), less any expenses and costs reasonably and actually incurred pursuant to the terms of this Settlement Agreement, shall be refunded by the Escrow Agent to the entity which deposited the Settlement Fund pursuant to written instructions from that entity. At the request of counsel for the Settling Defendants, the Escrow Agent or 31 Case 3:03-cv-03540-GEB-DEA Document 142-6 Filed 05/10/10 Page 32 of 47 its designee shall apply for any tax refund owed on the Settlement Fund and pay the proceeds, after deduction of any fees or expenses incurred in connection with such application(s) for refund, pursuant to written direction from counsel for the Settling Defendants. 7.4. In the event that the Settlement Agreement is not approved by the Court or the Settlement set forth in the Settlement Agreement is terminated or fails to become effective in accordance with its terms, the Settling Parties shall be restored to their respective positions in the Action as of the day prior to the signing of the Settlement Agreement. In such event, the terms and provisions of the Settlement Agreement, except as provided herein, shall have no further force and effect with respect to the Settling Parties and shall not be used in this Action or in any other proceeding for any purpose, and any judgment or order entered by the Court in accordance with the terms of the Settlement shall be treated as vacated, nunc pro tunc. No order of the Court or modification or reversal on appeal of any order of the Court concerning the Plan of Allocation or the amount of any attorneys’ fees, costs, expenses and interest awarded by the Court to Lead Counsel shall constitute grounds for cancellation or termination of the Settlement. 7.5. If the Effective Date does not occur, or if the Settlement is terminated pursuant to its terms, neither the Lead Plaintiff, Plaintiffs or Lead Counsel (or other plaintiffs’ counsel), shall have any obligation to repay any amounts actually and 32 Case 3:03-cv-03540-GEB-DEA Document 142-6 Filed 05/10/10 Page 33 of 47 properly disbursed for notice costs pursuant to ¶ 2.8. In addition, any expenses already incurred and properly chargeable pursuant to ¶2.8 hereof at the time of such termination or cancellation, but which have not been paid, shall be paid by the Escrow Agent in accordance with the terms of the Settlement Agreement prior to the balance being refunded in accordance with ¶¶2.11 and 7.3 hereof. 7.6. Each defendant contributing to the Settlement Fund warrants that, as to the payments made by or on its behalf, at the time of such payment that the Defendant was not insolvent, nor did nor will the payment required to be made on its behalf render such Defendant insolvent, within the meaning of and/or for the purposes of the United States Bankruptcy Code, including U.S.C. §§ 101 and 547 thereof. 7.7. If a case is commenced under Title 11 of the United States Code (Bankruptcy) in respect to any Settling Defendant that has made a transfer to the Settlement Fund, or a trustee, receiver or conservator is appointed for such Settling Defendant under any similar law, and in the event of the entry of a final order of a court of competent jurisdiction determining that Settling Defendant’s transfer to the Settlement Fund to be a preference, voidable transfer, fraudulent transfer or similar transaction, and such Settlement Fund is still held in escrow and is required to be returned, then, at the election of Lead Plaintiff, the parties shall jointly move the Court to vacate and set aside the releases given and Judgment entered in favor 33 Case 3:03-cv-03540-GEB-DEA Document 142-6 Filed 05/10/10 Page 34 of 47 of the Settling Defendants pursuant to this Stipulation, which releases and Judgment shall be null and void, and the Settlement shall be terminated, and the parties shall be restored to their respective positions in the Action and any amounts in the Settlement Fund shall be returned as provided herein. 8. Miscellaneous Provisions 8.1. The Settling Parties (a) acknowledge that it is their intent to consummate this Settlement; and (b) agree to cooperate to the extent reasonably necessary to effectuate and implement all terms and conditions of the Settlement Agreement and to exercise their reasonable best efforts to accomplish the foregoing terms and conditions of the Settlement Agreement. 8.2. The Settling Parties intend this Settlement to be a final and complete resolution of all disputes between them with respect to the Action. The Settlement compromises claims that are contested and shall not be deemed an admission by any Settling Party as to the merits of any claim or defense. The Final Judgment will contain a statement that during the course of the Action, the parties and their respective counsel at all times complied with the requirements of Federal Rule of Civil Procedure 11. The Settling Parties reserve their right to rebut, in a manner that such party determines to be appropriate, any contention made in any public forum that the Action was brought or defended in bad faith or without a reasonable basis. 34 Case 3:03-cv-03540-GEB-DEA Document 142-6 Filed 05/10/10 Page 35 of 47 8.3. Neither the Settlement Agreement nor the Settlement contained therein, nor any document submitted therewith including the Plan of Allocation, nor any act performed or document executed pursuant to or in furtherance of the Settlement Agreement or the Settlement: (a) is or may be deemed to be or may be used as an admission of, or evidence of, the validity of any Released Claim, or of any wrongdoing or liability of any of the Settling Defendants; or (b) is or may be deemed to be or may be used as an admission of, or evidence of, any fault or omission of any of the Settling Defendants in any civil, criminal or administrative proceeding in any court, administrative agency or other tribunal. Settling Defendants may file the Settlement Agreement and/or the Judgment in any action that may be brought against them in order to support a defense or counterclaim based on principles of res judicata, collateral estoppel, release, good faith settlement, judgment bar or reduction or any other theory of, without limitation, claim preclusion or issue preclusion or similar defense or counterclaim. 8.4. All agreements made and orders entered during the course of the Action relating to the confidentiality of information shall survive this Settlement, pursuant to their terms. 8.5. All of the Exhibits to the Settlement Agreement are material and integral parts hereof and are fully incorporated herein by this reference. 35 Case 3:03-cv-03540-GEB-DEA Document 142-6 Filed 05/10/10 Page 36 of 47 8.6. Before entry of the Judgment, the Settlement Agreement may be amended or modified only by a written instrument signed by or on behalf of all Settling Parties or their respective successors-in-interest. Following entry of the Judgment, the Settlement Agreement may be amended or modified only by a written instrument signed by or on behalf of all Settling Parties or their respective successors-in-interest and approved by the Court. 8.7. The Settlement Agreement and the Exhibits attached hereto constitute the entire agreement among the parties hereto and no representations, warranties or inducements have been made to any party concerning the Settlement Agreement or its Exhibits other than the representations, warranties and covenants contained and memorialized in such documents. Except as otherwise provided herein, each party shall bear its own costs. 8.8. Lead Counsel, on behalf of the Class, are expressly authorized by the Lead Plaintiff to take all appropriate action required or permitted to be taken by the Class pursuant to the Settlement Agreement to effectuate its terms and also are expressly authorized to enter into any modifications or amendments to the Settlement Agreement on behalf of the Class which they deem appropriate. 8.9. Each counsel or other Person executing the Settlement Agreement or any of its Exhibits on behalf of any party hereto hereby warrants that such Person has the full authority to do so. 36 Case 3:03-cv-03540-GEB-DEA Document 142-6 Filed 05/10/10 Page 37 of 47 8.10. The Settlement Agreement may be executed in one or more counterparts. All executed counterparts and each of them shall be deemed to be one and the same instrument. A complete set of original executed counterparts shall be filed with the Court. 8.11. The Settlement Agreement shall be binding upon, and inure to the benefit of, the successors and assigns of the parties hereto. 8.12. The Court shall retain jurisdiction with respect to implementation and enforcement of the terms of the Settlement Agreement, and all Settling Parties submit to the jurisdiction of the Court for purposes of implementing and enforcing the settlement embodied in the Settlement Agreement. 8.13. The Settlement Agreement and the Exhibits hereto shall be considered to have been negotiated, executed and delivered, and to be wholly performed, in the State of New Jersey, and the rights and obligations of the parties to the Settlement Agreement shall be construed and enforced in accordance with, and governed by, the internal, substantive laws of the State of New Jersey without giving effect to that State’s choice-of-law principles. 8.14. Any notice, demand, or other communication under this Settlement Agreement (other than the Class Notice or other notice given at the direction of the Court) shall be in writing and shall be deemed duly given upon receipt if it is addressed to each of the intended recipients as set forth below and delivered by 37 Case 3:03-cv-03540-GEB-DEA Document 142-6 Filed 05/10/10 Page 38 of 47 both (i) facsimile or email and (ii) by registered or certified mail (postage prepaid) or delivered by reputable express overnight courier: If to Plaintiffs: Robert C. Finkel, Esq. Gregory E. Keller, Esq. Wolf Popper LLP Chitwood Harley Harnes LLP 845 Third Avenue 1230 Peachtree Street, NE New York, NY 10022 2300 Promenade II (212) 759-4600 Atlanta, Georgia 30309 (212) 486-2093 (fax) (404) 873-3900 [email protected] (404) 876-4476 (fax) [email protected] If to the Settling Defendants: Elizabeth F. Edwards Karma M. Giulianelli McGuireWoods LLP Bartlit Beck Herman Palenchar & One James Center Scott LLP 901 East Cary Street 1899 Wynkoop Street Richmond, Virginia 23219 8th Floor (804) 775-4390 Denver, CO 80202 (804) 698-2045 (fax) (303)592-3165 [email protected] (303) 592-3140 (fax) [email protected] Lawrence B. Friedman, Esq. Beth L. Kaufman, Esq. Cleary Gottlieb Steen & Hamilton LLP Schoeman Updike & Kaufman LLP One Liberty Plaza 60 East 42nd Street New York, NY 10006 New York, NY 10165 (212) 225 2000 (212) 661-5030 (212) 225 3999 (fax) (212) 687-2123 (fax) [email protected] [email protected] 38 Case 3:03-cv-03540-GEB-DEA Document 142-6 Filed 05/10/10 Page 39 of 47 The parties hereto or their counsel have caused the Settlement Agreement to be executed, as follows: FOR THE LEAD PLAINTIFF: ,goo" s, 2_ - / o e_ Dated: ^'/'^-' Y Bp0hert .nkel, Esq. Wolf Popper LLP 845 Third Avenue New York, NY 10022 (212) 759-4600 (212) 486-2093 (fax) rfmkel@wo1 opper.com 2G t U Dated: 3' By:re regory E. Keller, Esq, Chitwood Harley Harnes LLP 1230 Peachtree Street, NE 2300 Promenade: II Atlanta, Georgia 30309 (404) 873-3900 (404) 876-4476 (fax) [email protected] Lead Counsel for Plaintiff and the Class Dated: TYCO INTERNATIONAL LTD. By: Dated: TYCO ELECTRONICS LTD. By: 39 Case 3:03-cv-03540-GEB-DEA Document 142-6 Filed 05/10/10 Page 40 of 47 ' The parties hereto or their counsel have caused the Settlement Agreement to be executed, as follows: FOR THE LEAD PLAINTIFF: Dated: By: Robert C. Finkel, Esq. Wolf Popper LLP 845 Third Avenue New York, NY 10022 (212) 759-4600 (212) 486-2093 (fax) [email protected] Dated: By: Gregory E. Keller, Esq. Chitwood Harley Harnes LLP 1230 Peachtree Street, NE 2300 Promenade II Atlanta, Georgia 30309 (404) 873-3900 (404) 876-4476 (fax) [email protected] Lead Counsel for Plaintiff and the Class Dated: TYCO INTERNATIONAL LTD. By: Dated: TYCO ELECTRONICS LTD, By. 39 Case 3:03-cv-03540-GEB-DEA Document 142-6 Filed 05/10/10 Page 41 of 47 04-08-10 12 45pm From-FedEx Office Business Center 5613843851 T-ITT P.002/002 F-586 The parties hereto or their counsel have caused the Settlement Agreement to bo executed, as follows. FORM-W, LEAD PLAINTIFF: Dated- By:_-Robert C. Finkel, Esq. Wolf Popper UP 845 Third Avenue New York, Nil' 10022 (212) 759-4600 (212) 485--2093 (fax) [email protected] Dated: _ By: Ciegory E. feller, Esq. Chit-wood Harley Harries LLP 1230 Peachtree Street, WE 2300 Promenade IT Atlanta, Georgia 30309 (403)873-3900 (404)876-4476 (fax) gkeller@chitwoodiawxom Lead Counsel for Plaintiff and the Class Dated: TYCO 1NTRFNA'I` 0NAL 'LTD, By: Dated: TYCO ELECTRONICS LTD. By: 1141 1a• x 39 i Case 3:03-cv-03540-GEB-DEA Document 142-6 Filed 05/10/10 Page 42 of 47 Dated: .. - !L: COVIDIEN LTD, By: Uated.: TYCO, BLECTRONICS LTD, ON .BEHALF OF TYCOM LTD, By: Dated: GO.LLDIvMA:N, SACHS & CO. Dated', MERRILL. LYNCH .& CO'. By: Dated: SA.LOMON. SMITH BARNEY INC. (n/k/a CITIOROUP' GLOBAL MARKETS Tng4 By:. Dated.: NEIL. R. GARVEY By: i E i 40 3 I • I Case 3:03-cv-03540-GEB-DEA Document 142-6 Filed 05/10/10 Page 43 of 47 Dated: COVIDIEN LTD, By: Dated: TYCO ELECTRONICS LTD. ON B .l ALF •, TY G OM LTD. B j Dated: GOLDMAN, SACHS & CO. By: Dated: MERRILL LYNCH & CO, By: Dated; SALOMON SMITH BARNEY INC. (pWa CITIGROUP GLOBAL MARKETS Inc.) By: Dated: NEIL R. GARVEY By: 40 Case 3:03-cv-03540-GEB-DEA Document 142-6 Filed 05/10/10 Page 44 of 47 APR-01-2010 12:04 From:123123456 Pa9e:1/1 Dated: COVIDIEN LTD. By: Dated: TYCO ELECTRONICS LTD. ON 13EHALF OF TYCOM LTD. By: Dated: L111110 GOLDMAN, = A.CH I & CO. By:^,% Dated: CH & CO. Elated: SALOMON SMITH BARNEY INC. (n/k/a CITIGROUF GLOBAL MARKETS Inc.) By: Dated: NEIL R. GARVEY By: 40 Case 3:03-cv-03540-GEB-DEA Document 142-6 Filed 05/10/10 Page 45 of 47 Dated: COVIDIEN LTD. By: Dated: TYCO ELECTRONICS LTD. ON BEHALF OF TYCOM LTD. By: Dated: GOLDMAN, SACHS & CO. By: n Dated: ig `'r S"^f b MERRELL LYNCH & CO. By: ^u^'^ ScGcorr Dated: SALOMON SMITH BARNEY INC. (n/k/a CITIGROUP GLOBAL MARKETS Inc.) By: Dated: NEIL R. GARVEY By: 40 Case 3:03-cv-03540-GEB-DEA Document 142-6 Filed 05/10/10 Page 46 of 47 i Dated: C.OVIDIEN LTD. By: Dated: TYCO ELECTRONICS LTD. ON BEHALF OF TYCOM LTD. By: Dated: GOLDMAN, SACHS & CO. By: Dated: MERRILL LYNCH & CO. j By. Dated: ` i C> SALOMMON SMITH BARNEY INC. (n/k/a C.ITIGROUP GLOBAL MARKETS Inc' By: Dated: NEIL R. GARVEY By: i 40 Case 3:03 -cv -03540-GEB-DEA Document 142-6 Filed 05/1 0/10 Page 47 of 47 Dated: COVIDIEN LTD. By: Dated: TYCO ELECTRONICS LTD. ON BEHALF OF TYCOM LTD. By: Dated: GOLDMAN, SACHS & CO. By: Dated: MERRILL LYNCH & CO. By: Dated: SALOMON SMITH BARNEY INC. (n/k/a CITIGROUP GLOBAL MARKETS Inc.) By: Dated: 3 o2c^ /^ NEIL R. GARVEY By: /._A / / A. t^^.. f i f i 40 CaseCase 3:03-cv-03540-GEB-DEA3:03-cv-03540-GEB-DEA DocumentDocument 142-7138 FiledFiled 04/19/1005/10/10 PagePage 1 1 ofof1010 UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY ) ROSEMARIE STUMPF ) ) Hon. Garrett E. Brown, Jr. v. ) Chief U.S.D.J. ) Docket No. 03-CV-03540 NEIL R. GARVEY, et al. ) (GEB)(DEA) ) (IN RE TYCOM LTD. SECURITIES ) To Be Filed Electronically LITIGATION) ) ) FINAL JUDGMENT AND ORDER OF DISMISSAL WITH PREJUDICE (EXHIBIT B) This matter came before the Court for hearing pursuant to an Order of this Court, dated , 2010, on the application of the Settling Parties for approval of the Settlement set forth in the Settlement Agreement and Release dated as of March 26, 2010 (the “Settlement Agreement”). Due and adequate notice having been given of the Settlement as required in said Order, and the Court having considered all papers filed and proceedings held herein and otherwise being fully informed in the premises and good cause appearing therefore, IT IS HEREBY ORDERED, ADJUDGED AND DECREED that: - 1 - CaseCase 3:03-cv-03540-GEB-DEA3:03-cv-03540-GEB-DEA DocumentDocument 142-7138 FiledFiled 04/19/1005/10/10 PagePage 2 2 ofof 1010 1. This Judgment incorporates by reference the definitions in the Settlement Agreement, and all terms used herein shall have the same meanings set forth in the Settlement Agreement. 2. This Court has jurisdiction over the subject matter of the Action and over all parties to the Action, including all Members of the Class who did not timely file a request for exclusion from the Class by the October 1, 2009 deadline pursuant to the Court’s Order dated May 19, 2009. 3. The distribution of the Notice and the publication of the Summary Notice, as provided for in the Preliminary Approval Order, constituted the best notice practicable under the circumstances, including individual notice to all Members of the Class who could be identified through reasonable effort. Said notices provided the best notice practicable under the circumstances of those proceedings and of the matters set forth therein, including the proposed Settlement set forth in the Settlement Agreement, to all Persons entitled to such notices, and said notices fully satisfied the requirements of Federal Rule of Civil Procedure 23, Section 27(a)(7) of the Securities Act of 1933, Section 21D(a)(7) of the Securities and Exchange Act of 1934, the requirements of Due Process, and any other applicable law. 4. The Court finds that the Settling Defendants have provided notice pursuant to the Class Action Fairness Act of 2005, 28 U.S.C. §§ 1711 et seq. - 2 - CaseCase 3:03-cv-03540-GEB-DEA3:03-cv-03540-GEB-DEA DocumentDocument 142-7138 FiledFiled 04/19/1005/10/10 PagePage 3 3 ofof1010 5. Pursuant to Rule 23 of the Federal Rules of Civil Procedure, this Court hereby approves the Settlement set forth in the Settlement Agreement and finds that said Settlement is, in all respects, fair, reasonable and adequate to, and is in the best interests of, the Lead Plaintiff, the Class and each of the Class Members. This Court further finds the Settlement set forth in the Settlement Agreement is the result of arm’s-length negotiations between experienced counsel representing the interests of the Lead Plaintiff, Class Members and the Settling Defendants. Accordingly, the Settlement embodied in the Settlement Agreement is hereby approved in all respects and shall be consummated in accordance with its terms and provisions. The Settling Parties are hereby directed to perform the terms of the Settlement Agreement. 6. Except as to any individual claim of those Persons (identified in Exhibit 1 attached hereto), who pursuant to the Notice of Pendency of Class Action, timely requested exclusion from the Class before the October 1, 2009 deadline, the Action and all claims contained therein, including all of the Released Claims, are dismissed with prejudice as to the Lead Plaintiff and the other Members of the Class, and as against each and all of the Released Persons. The parties are to bear their own costs, except as otherwise provided in the Settlement Agreement. 7. Upon the Effective Date, the Lead Plaintiff and each of the Class Members shall be deemed to have, and by operation of the Judgment shall have, fully, - 3 - CaseCase 3:03-cv-03540-GEB-DEA3:03-cv-03540-GEB-DEA DocumentDocument 142-7138 FiledFiled 04/19/1005/10/10 PagePage 4 4 ofof1010 finally, and forever released, relinquished and discharged all Released Claims against the Released Persons, whether or not such Class Member executes and delivers a Proof of Claim and Release form. 8. The Non-Settling Defendants and any other Person, including but not limited to any other person or entity later named as a defendant or third-party in the Action, are hereby permanently barred, enjoined and restrained from commencing, prosecuting, or asserting any claim for contribution or indemnification against the Released Persons (or any other claim against the Released Persons where the injury consists of actual or threatened liability to the Lead Plaintiff, the Class or any Class Member(s), including but not limited to any amounts paid in settlement of such actual or threatened liability, and any other costs or expenses, including attorneys’ fees) based upon the Released Claims and/or the Action, whether as claims, cross-claims, counterclaims, third-party claims or otherwise, whether or not asserted in the Complaint, and whether asserted in this Court, in any federal or state court, or in any other court, arbitration proceeding, administrative agency, or other tribunal or forum in the United States or elsewhere, provided, however, that a Non-Settling Defendant shall not be barred from pursuing claims against Tyco or TyCom for indemnification in connection with the Action to the extent of such Non-Settling Defendant’s contractual or statutory rights. - 4 - CaseCase 3:03-cv-03540-GEB-DEA3:03-cv-03540-GEB-DEA DocumentDocument 142-7138 FiledFiled 04/19/1005/10/10 PagePage 5 5 ofof1010 9. The Released Persons are hereby permanently barred, enjoined and restrained from commencing, prosecuting or asserting against the Non-Settling Defendants and any other Person, including but not limited to any other person or entity later named as a defendant or third-party in the Action, any claim for contribution or indemnification (or any other claim where the injury to such Released Person(s) is any Person’s actual or threatened liability to the Lead Plaintiff, the Class or any Class Member(s), including but not limited to any amounts paid in settlement of such actual or threatened liability, and any other costs or expenses, including attorneys’ fees) based upon the Released Claims and/or the Action, whether as claims, cross-claims, counterclaims, third-party claims or otherwise, whether or not asserted in the Complaint, and whether asserted in this Court, in any federal or state court, or in any other court, arbitration proceeding, administrative agency, or other tribunal or forum in the United States or elsewhere, provided, however, (a) that Tyco and TyCom shall not be barred from pursuing (i) claims against a Non-Settling Defendant for defense fees and costs incurred in defense of claims asserted against Tyco, TyCom and/or any Settling Defendant in the Action or (ii) claims against a Non-Settling Defendant asserted by Tyco and/or TyCom as of the date of this Settlement and (b) that nothing in this Stipulation or otherwise shall be deemed to release or affect any indemnification or contribution claims and/or rights between or among the - 5 - CaseCase 3:03-cv-03540-GEB-DEA3:03-cv-03540-GEB-DEA DocumentDocument 142-7138 FiledFiled 04/19/1005/10/10 PagePage 6 6 ofof1010 Underwriter Defendants, Tyco and TyCom relating to the IPO, including those arising under (i) the Underwriting Agreement for the IPO dated July 26, 2000, and (ii) the Agreement Among Underwriters for the IPO dated July 26, 2000. 10. The Court shall reduce a future verdict or judgment entered against the non-Settling Defendants with respect to the Action for any claims as to which the non- Settling Defendants’ rights have been extinguished by virtue of the bar order contained in ¶ 8 of this Order by such amount determined by the Court under applicable law. 11. Upon the Effective Date hereof, each of the Released Persons shall be deemed to have, and by operation of this Judgment shall have, fully, finally, and forever released, relinquished and discharged the Lead Plaintiff, each and all of the Class Members and Lead Counsel from all claims (including Unknown Claims), arising out of, relating to, or in connection with the institution, prosecution, assertion, settlement or resolution of the Action or the Released Claims. 12. Any further orders or proceedings solely regarding the Plan of Allocation shall in no way disturb or affect this Judgment and shall be separate and apart from this Judgment. 13. Neither the Settlement Agreement nor the Settlement contained therein, nor any act performed or document executed pursuant to or in furtherance of the - 6 - CaseCase 3:03-cv-03540-GEB-DEA3:03-cv-03540-GEB-DEA DocumentDocument 142-7138 FiledFiled 04/19/1005/10/10 PagePage 7 7 ofof1010 Settlement Agreement or the Settlement: (a) is or may be deemed to be or may be used as an admission of, or evidence of, the validity of any Released Claim, or of any wrongdoing or liability of the Settling Defendants; or (b) is or may be deemed to be or may be used as an admission of, or evidence of, any fault or omission of any of the Released Persons in any civil, criminal or administrative proceeding in any court, administrative agency or other tribunal. The Released Persons may file the Settlement Agreement and/or the Judgment in any other action that may be brought against them in order to support a defense or counterclaim based on principles of res judicata, collateral estoppel, release, good faith settlement, judgment bar or reduction or any other theory of claim preclusion or issue preclusion or similar defense or counterclaim. 14. Without affecting the finality of this Judgment in any way, this Court hereby retains continuing jurisdiction over: (a) implementation of this Settlement and any award or distribution of the Settlement Fund, including interest earned thereon; (b) disposition of the Settlement Fund; (c) hearing and determining applications for attorneys’ fees and expenses in the Action; and (d) all parties hereto for the purpose of construing, enforcing and administering the Settlement Agreement. - 7 - CaseCase 3:03-cv-03540-GEB-DEA3:03-cv-03540-GEB-DEA DocumentDocument 142-7138 FiledFiled 04/19/1005/10/10 PagePage 8 8 ofof1010 15. The Court finds that during the course of the Action, the Settling Parties and their respective counsel at all times complied with the requirements of Federal Rule of Civil Procedure 11. 16. In the event that the Settlement does not become effective in accordance with the terms of the Settlement Agreement or the Effective Date does not occur, or in the event that the Settlement Fund, or any portion thereof, is returned to the Settling Defendants, then this Judgment shall be rendered null and void to the extent provided by and in accordance with the Settlement Agreement and shall be vacated and, in such event, all orders entered and releases delivered in connection herewith shall be null and void to the extent provided by and in accordance with the Settlement Agreement. 17. The Court hereby GRANTS Lead Counsel attorneys’ fees of % of the Settlement Fund and expenses in an amount of $ together with the interest earned thereon for the same time period and at the same rate as that earned on the Settlement Fund until paid. Said fees shall be allocated by Lead Counsel in a manner which, in their good-faith judgment, reflects each counsel’s contribution to the institution, prosecution and resolution of the Action. The Court finds that the amount of fees awarded is fair and reasonable in light of the time and labor required, the novelty and difficulty of the case, the skill required to prosecute the - 8 - CaseCase 3:03-cv-03540-GEB-DEA3:03-cv-03540-GEB-DEA DocumentDocument 142-7138 FiledFiled 04/19/1005/10/10 PagePage 9 9 ofof1010 case, the experience and ability of the attorneys, awards in similar cases, the contingent nature of the representation and the result obtained for the Class. 18. The Court hereby GRANTS Lead Plaintiff reimbursement of his reasonable costs and expenses (including lost wages) directly related to his representation of the Class in the amount of $ . 19. The awarded attorney fees and expenses, and interest earned thereon, shall be paid to Lead Counsel from the Settlement Fund immediately after the date this Order is executed subject to the terms, conditions, and obligations of the Settlement Agreement and in particular ¶6.2 thereof, which terms, conditions, and obligations are incorporated herein. 20. The Court expressly determines that there is no just reason for delay in entering this Judgment and directs the Clerk of the Court to enter this Judgment pursuant to Fed. R. Civ. P. 54(b). DATED: The Honorable Garrett E. Brown, Jr. United States District Judge - 9 - CaseCase 3:03-cv-03540-GEB-DEA3:03-cv-03540-GEB-DEA DocumentDocument 142-7138 FiledFiled 04/19/1005/10/10 PagePage 1010 ofof1010 EXHIBIT 1 List of Persons and Entities Excluded from the Class in Rosemarie Stumpf et al. v. Neil R. Garvey, et al. (In re TyCom Ltd. Securities Litigation) Civil Action No. 03-CV-03540 (GEB)(DEA) The following persons and entities, and only the following persons and entities, properly excluded themselves from the Class by the October 1, 2009 deadline pursuant to the Court’s Order dated May 19, 2009: IN RESPONSE TO THE NOTICE OF PENDENCY OF CLASS ACTION - 10 -