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Former Tyco International Ltd. general counsel Mark A. Belnick took the stand in his own defense Tuesday, describing how his initial enthusiasm about joining Tyco in 1998 quickly turned to concern that he had “made a very big mistake.” In his daylong testimony, a mild-mannered Belnick presented himself as a shy outsider stepping into a hard-charging corporate culture. As he struggled to define his role, the former general counsel said, he encountered resistance. Then-Tyco Chairman L. Dennis Kozlowski often failed to support his new chief lawyer or keep him in the loop, Belnick testified. On one occasion, he said, he told Kozlowski: “You’re wasting your money paying me a salary.” What Kozlowski ultimately paid Belnick is at the root of the criminal charges against the former general counsel. The Manhattan District Attorney’s Office has charged Belnick with grand larceny, securities fraud and several counts of falsifying business records in connection with his receipt of more than $30 million in bonuses and loans. Prosecutors say the payments were never authorized by Tyco’s board of directors. Instead, they allege Kozlowski paid Belnick because the lawyer covered up the chairman’s own thefts from the company. Kozlowski and Mark Swartz, the former Tyco chief financial officer, have been separately indicted for grand larceny, securities fraud and falsifying business records. Belnick’s lawyers have long maintained that their client fully earned his compensation at a company where high performance was lavishly rewarded. Belnick said Tuesday that Kozlowski told him at their first meeting that compensation at Tyco was “very generous.” At the time of that meeting, Belnick was a partner at Paul, Weiss, Rifkind, Wharton & Garrison, where he had worked for 26 years. But he said he was open to leaving the firm at the time because his chief mentor and close friend, Arthur Liman, had died the previous year. He said that Kozlowski presented him with his initial pay package, which included a $750,000 base salary, a guaranteed bonus of $1.5 million in his first year and a large grant of stock and even more options. He said he told Kozlowski that he would not have had the “nerve to ask for this much.” Belnick also said he asked Kozlowski in the course of negotiations if his compensation package required board approval. He said the chairman responded that he was fully authorized to negotiate and set Belnick’s compensation. Kozlowski also allowed Belnick to participate in the company’s New York relocation loan program, which provided interest-free loans to employees moving to the city. Belnick, who lived in Westchester County at the time but wanted to move into the city, testified that he learned from the paperwork that the relocation loan program applied specifically to employees moving from Tyco’s New Hampshire offices. He said he asked Swartz about whether he was eligible for the program and was reassured that he was. He ultimately borrowed over $4 million to purchase and renovate an apartment on Central Park West. Under direct examination by defense lawyer Reid Weingarten of Washington, D.C.’s Steptoe & Johnson, Belnick maintained a gentle, affable demeanor through most of his testimony, even cracking the occasional joke. He also made frequent fond references to Randy Belnick, his wife of 30 years, who was present in the courtroom with their three children. But in the course of discussing the paperwork he filled out so Tyco could “secure” his relocation loans, his tone shifted to indignation. “They had another form of security and I mean it,” he said. “They had my word.” Belnick also said he still intends to pay back both the New York loan and a later, larger Tyco loan he used to buy a home in Utah. “The loan will be paid back in full,” he said. “In full. Not forgiven, paid back.” Belnick told Weingarten that no Tyco director had ever asked him about his compensation. “But they most assuredly knew that I wasn’t working for free,” he said. Belnick said he had other, non-financial aspirations at Tyco. Noting that he had not even heard of the company before 1998, he said he became impressed by Kozlowski’s record of expanding the company to one with $30 billion a year in revenue. He said he also admired Kozlowski’s vision of turning the company into a second General Electric. Belnick said he told Kozlowski that he wanted to play a non-legal role at the company and hoped to be part of the senior management team formulating corporate strategy. Kozlowski assented, as he had to almost all of Belnick’s requests. But things did not work out that way. As a former litigator, Belnick said he had never longed to handle the disclosures to the Securities and Exchange Commission that Tyco entrusted to the financial rather than legal department. But he said he sought to centralize the firm’s legal resources. He began seeking to review many ongoing transactions and other matters at Tyco. He also insisted on final approval of all outside counsel. SUGGESTIONS REBUFFED He said his insistence on approval of outside counsel brought him in conflict almost immediately with others at the company accustomed to choosing their own lawyers. He said he was immediately concerned about the firm’s regular use of New York’s Kramer, Levin, Naftalis & Frankel, where Tyco director Joshua M. Berman was a partner at the time. “That to me posed a very troublesome conflict of interest,” he said. He clashed with Berman on other issues, he said, noting that the director had been the main lawyer for Tyco before Belnick’s arrival. “He’d yell at me on the phone and tell me I wasn’t doing the right thing and he had different ideas,” he said. Belnick testified that Kozlowski often seemed to take the side of Berman and other employees in instances of conflict. When Berman proposed that the company should argue to the SEC that it was governed by Bermuda law on the issue of shareholder proposals appearing on proxy statements, Belnick objected on the grounds that the SEC would regard the proposal, and the company, as frivolous. But Kozlowski supported the proposal, which was rejected by the SEC. After Belnick expressed dissatisfaction with his deputy, Byron Kalogerou, to Kozlowski, the chairman insisted Kalogerou be fired. Belnick, who said he had only wanted Kalogerou transferred elsewhere, obliged, only to learn the next day that Kozlowski had re-hired the man in another position. On another occasion, after Kozlowski had responded positively to Belnick’s suggestion that the company’s all-white, all-male board needed to become more diverse, the lawyer had actively recruited a female candidate to the board. Kozlowski never followed up with the woman, Belnick said Tuesday. Belnick said he and in-house lawyer Fatemeh Sadeghi-Nejad, a securities lawyer he had recruited from Cravath, Swaine & Moore, frequently felt isolated at Tyco. He said Sadeghi-Nejad had once complained to him that a Tyco financial executive had withheld information from her on the grounds that it was only available “on a need-to-know basis and she didn’t need to know.” The general counsel said he angrily called Swartz and complained that he and Sadeghi-Nejad were being treated like “interlopers.” He said he never developed much of a working relationship with Kozlowski and no social relationship whatsoever. By late 1999, he said, “I was concerned that I had made a very big mistake in giving up a senior partnership at one of the great law firms of America and coming here and doing this.” Assistant District Attorneys John Moscow and Amy Schwartz have been the primary prosecutors on the case, which is before Manhattan Supreme Court Justice Michael J. Obus.

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