ADT 2007 Annual Report Download - page 167

terms and conditions of the Separation and Distribution Agreement, the Company will manage and
control all the legal matters related to assumed contingent liabilities as described in the Separation and
Distribution Agreement, including the defense or settlement thereof, subject to certain limitations.
Tyco has assumed 27%, Covidien has assumed 42% and Tyco Electronics has assumed 31% of
certain Tyco pre-Separation contingent and other corporate liabilities, which include securities class
action litigation, ERISA class action litigation, certain legacy tax contingencies and any actions with
respect to the spin-offs or the distributions made or brought by any third party except for litigation
related to our public debt. Any amounts relating to these contingent and other corporate liabilities paid
by Tyco after the spin-offs that are subject to the allocation provisions of the Separation and
Distribution Agreement will be shared among Tyco, Covidien and Tyco Electronics pursuant to the
same allocation ratio. As described in the Separation and Distribution Agreement, Tyco, Tyco
Electronics and Covidien are jointly and severally liable for all amounts relating to the previously
disclosed securities class action settlement. All costs and expenses that Tyco incurs in connection with
the defense of such litigation, other than the amount of any judgment or settlement, which will be
allocated in the manner described above, will be borne equally by Covidien, Tyco Electronics and Tyco.
Legal Matters
Class Actions
For a detailed discussion of contingencies related to Tyco’s securities class actions, class action
settlement, securities class action proceedings, shareholder derivative litigation, ERISA related
litigation, Tyco litigation against former senior management, litigation related to our public debt and
various other legal matters, see Item 3. Legal Proceedings. We are generally obligated to indemnify our
directors and officers and our former directors and officers who are named as defendants in some or
all of these matters to the extent required by Bermuda law. In addition, our insurance carriers may
decline coverage, or our coverage may be insufficient to cover our expenses and liability, in some or all
of these matters. While we may from time to time seek to engage plaintiff’s counsel in settlement
discussions, we are unable at this time to estimate what our ultimate liability in these matters may be,
and it is possible that we will be required to pay judgments or settlements and incur expenses, in excess
of any insurance coverage, in aggregate amounts that could have a material adverse effect on our
financial position, results of operations or cash flows.
Investigations
For a detailed discussion of contingencies related to governmental investigations related to Tyco,
see Item 3. Legal Proceedings—Subpoenas and Document Requests From Governmental Entities. We
cannot predict when these investigations will be completed, nor can we predict what the results of these
investigations may be. It is possible that we will be required to pay material fines, consent to
injunctions on future conduct, lose the ability to conduct business with government entities or
instrumentalities (which in turn could negatively impact our business with non-governmental customers)
or suffer other penalties or adverse impacts, each of which could have a material adverse effect on our
business. It is not possible to estimate the amount of loss, or range of possible loss, if any, that might
result from an adverse resolution of these matters.
Environmental Matters
For a detailed discussion of contingencies related to Tyco’s environmental matters, see Item 1.
Business—Environmental Matters.
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