ADT 2007 Annual Report Download - page 127

ERISA Partial Withdrawal Liability Assessment and Demand
On June 8, 2007, SimplexGrinnell received a notice alleging that it had partially withdrawn from
the National Automatic Sprinkler Industry Pension Fund (the ‘‘Fund’’). Under Title IV of ERISA, if
the Fund can prove that an employer completely or partially withdraws from a multi-employer pension
plan such as the Fund, the employer is liable for withdrawal liability equal to its proportionate share of
the plan’s unfunded vested benefits. The alleged withdrawal results from a 1994 labor dispute between
Grinnell Fire Protection Systems, SimplexGrinnell’s predecessor, and Road Sprinkler Fitters Local
Union No. 669.
ERISA requires that payment of withdrawal liability be made in full or in quarterly installments
commencing upon receipt of a liability assessment from the plan. A plan’s assessment of withdrawal
liability generally may be challenged only in arbitration, and ERISA requires that quarterly payments
must continue to be made during the pendency of the arbitration. If the employer prevails in
arbitration (and any subsequent court appeals), its quarterly withdrawal liability payments are refunded
with interest. The Fund’s total withdrawal liability assessment against SimplexGrinnell is approximately
$25 million, and the quarterly withdrawal liability payments are $1.1 million commencing on August 1,
2007. SimplexGrinnell believes that it has strong arguments that no withdrawal liability is owed to the
Fund, and it plans to vigorously defend against the Fund’s withdrawal liability assessment by timely
filing for arbitration. Accordingly, the Company has made no provision for this contingency in its
Consolidated Financial Statements.
Tyco Litigation Against Former Senior Management
Tyco International Ltd. v. L. Dennis Kozlowski, United States District Court, Southern District of New
York, No. 02-CV-7317, filed September 12, 2002, Amended April 1, 2003. As previously reported in our
periodic filings, we filed a civil complaint against our former Chairman and Chief Executive Officer for
breach of fiduciary duty and other wrongful conduct. The Company amended that complaint on
April 1, 2003. The amended complaint alleges that the defendant misappropriated millions of dollars
from our Key Employee Loan Program and relocation program; awarded millions of dollars in
unauthorized bonuses to himself and certain other Tyco employees; engaged in improper self-dealing
real estate transactions involving our assets; and conspired with certain other former Tyco employees in
committing these acts. The amended complaint alleges causes of action for breach of fiduciary duty,
fraud, unjust enrichment, breach of contract, conversion, constructive trust, and other wrongful conduct.
The amended complaint seeks recovery for all of the losses suffered by us as a result of the former
Chairman and Chief Executive Officer’s conduct, and of all remuneration, including restricted and
unrestricted shares and options, obtained by Mr. Kozlowski during the course of this conduct. The
Judicial Panel on Multidistrict Litigation transferred this action to the United States District Court for
the District of New Hampshire. On October 6, 2003, Mr. Kozlowski filed a motion to dismiss or stay
the case and compel arbitration, which was denied on March 16, 2004, with one exception relating to
the arbitration of a claim asserting the fraudulent inducement of Mr. Kozlowski’s retention agreement.
On April 9, 2004, Mr. Kozlowski filed an Answer, Affirmative Defenses and Counterclaims, seeking
amounts allegedly due pursuant to his purported retention agreement, life insurance policies, and other
arrangements. Tyco filed its Reply to the Counterclaims on April 29, 2004. Discovery in this and the
other affirmative cases is proceeding.
Mr. Kozlowski was tried on criminal charges in New York County. The first criminal trial resulted
in a mistrial declared on April 2, 2004. The retrial of Mr. Kozlowski began on January 18, 2005 and
concluded on June 17, 2005, when the jury returned verdicts. Of the thirty-one counts submitted to it,
which were similar to certain of the claims alleged in the Company’s affirmative action described above,
twenty-two were against Mr. Kozlowski. The jury found Mr. Kozlowski guilty on all charges of grand
larceny, conspiracy and securities fraud, and all but one count of falsification of business records. On
September 19, 2005, Mr. Kozlowski was sentenced to a term of imprisonment of eight and one-third
years to twenty-five years, and ordered to pay an individual fine of $70 million and restitution, jointly
2007 Financials 35