ADT 2007 Annual Report Download - page 132

is possible that the Company may be subject to civil or criminal proceedings and may be required to
pay judgments, suffer penalties or incur settlements in amounts that may have a material adverse effect
on our financial position, results of operations or cash flows.
Indenture Trustee Litigation
On June 4, 2007, The Bank of New York (‘‘BONY’’), as indenture trustee under the indentures
dated as of June 9, 1998 and November 12, 2003, of Tyco International Group S.A. (‘‘TIGSA’’), a
wholly-owned subsidiary of Tyco, commenced an action against TIGSA and Tyco in the United States
District Court for the Southern District of New York. BONY served an amended complaint on
October 18, 2007, which added Tyco International Finance S.A. (‘‘TIFSA’’) as an additional defendant.
As amended, the complaint alleges that the Separation breached the indentures and seeks damages on
behalf of noteholders in excess of $4.1 billion, consisting of principal plus accrued interest on the notes
issued under the indentures, plus a ‘‘make-whole’’ amount payable under the indentures in the event of
early redemption of the notes. The amended complaint also seeks a judgment declaring that BONY
was not required to sign supplemental indentures proposed by TIGSA, TIFSA and Tyco in connection
with the Separation. BONY also seeks a declaratory judgment that TIGSA is obligated to pay BONY
reasonable compensation and to reimburse BONY for all reasonable expenses, including attorneys’ fees
incurred in connection with the Separation and in resolving the proper interpretation of the indentures.
On November 15, 2007, Tyco and TIFSA filed counterclaims against BONY, alleging that its refusal to
sign the supplemental indentures in connection with the Separation and the filing of the amended
complaint constituted a breach of the indentures and a breach of the duty of good faith and fair
dealing implied in the indentures. They seek unspecified damages on these claims. Tyco and TIFSA
also seek a declaratory judgment that no default has occurred and that BONY is required to sign the
supplemental indentures.
On November 8, 2007, BONY delivered to the Company a Notice of Events of Default, claiming
that the actions taken by the Company in connection with the Separation constitute events of default
under the indentures. The claims made in the Notice of Events of Default are the same as those
alleged by BONY in the litigation, and the Company continues to believe that no default or event of
default has occurred. The indentures provide for a 90-day cure period following delivery of the notice
of default, after which BONY could declare any outstanding amounts under the indentures immediately
due and payable. We would contest such an acceleration.
TIGSA, TIFSA and Tyco continue to believe that the Separation and the proposed supplemental
indentures are permitted under the indentures and that no ‘‘make-whole’’ amount is payable. The
Company intends to vigorously defend the claims of default and believes it will prevail in legal
proceedings.
If we did not have liquidity available to repay the outstanding debt under the 1998 and 2003
indentures under our 364-day bridge facility, such an acceleration of the outstanding notes would have
permitted a majority of the lenders under each of our bank and letter of credit facilities to demand
repayment of amounts outstanding under those facilities, and to terminate their commitments to extend
additional credit thereunder. As a result, on November 27, 2007, the Company secured additional firm
commitments from certain of its lenders under the bridge facility, providing the Company with
additional borrowings of up to $4.0 billion to repay such notes. The additional commitments expire on,
and any borrowings under the facility would mature on, November 25, 2008. The facility may only be
used to repay, settle or otherwise extinguish the amounts required to be paid in connection with the
litigation with BONY.
Other Matters
Earth Tech v. City of Phoenix is a contract dispute arising from Earth Tech’s contract with the City
of Phoenix, Arizona for expansion of the City’s 91st Avenue Waste Water Treatment Plant. On
40 2007 Financials