ADT 2008 Annual Report Download - page 121

outstanding. These outstanding cases include claims made under the Employee Retirement Income
Security Act, claims made by plaintiffs not included in the class covered by the settlement and claims
made by plaintiffs that opted out of the settlement. In connection with some of these lawsuits, we are
obligated to indemnify our directors and officers and our former directors and officers who are also
named as defendants to the extent required by Bermuda law. We do not believe that it is feasible to
predict or determine the final outcome or resolution of the unresolved proceedings. An adverse
outcome from the unresolved proceedings could materially and adversely affect our financial condition,
results of operations or cash flows.
We continue to be responsible for a portion of our contingent and other corporate liabilities following the
Separation, primarily those relating to shareholder litigation.
Under the Separation and Distribution Agreement and other agreements, subject to certain
exceptions contained in the Tax Sharing Agreement, we, Covidien and Tyco Electronics have agreed to
assume and be responsible for 27%, 42% and 31%, respectively, of certain of our contingent and other
corporate liabilities. All costs and expenses associated with the management of these contingent and
other corporate liabilities will be shared equally among the parties. These contingent and other
corporate liabilities primarily relate to legacy securities litigation and any actions with respect to the
separation plan or the Separation brought by any third party. Contingent and other corporate liabilities
do not include liabilities that are specifically related to one of the three separated companies, which are
allocated 100% to the relevant company.
If any party responsible for such liabilities were to default in its payment, when due, of any of
these assumed obligations, each non-defaulting party would be required to pay equally with any other
non-defaulting party the amounts in default. Accordingly, under certain circumstances, we may be
obligated to pay amounts in excess of our agreed-upon share of the assumed obligations related to such
contingent and other corporate liabilities including associated costs and expenses.
We could face product liability claims relating to products we manufacture or install. These claims could
result in significant costs and liabilities and reduce our profitability.
We face exposure to product liability claims in the event that any of our products results in
personal injury or property damage. In addition, if any of our products prove to be defective, we may
be required to recall or redesign such products, which could result in significant unexpected costs. Any
insurance we maintain may not be available on terms acceptable to us or such coverage may not be
adequate for liabilities actually incurred. Any claim or product recall could result in adverse publicity
against us, which could adversely affect our financial condition, results of operations or cash flows.
In addition, we could face liability for failure to respond adequately to alarm activations. The
nature of the services we provide potentially exposes us to risks of liability for employee acts or
omissions or system failures. In an attempt to reduce this risk, our alarm monitoring agreements
contain provisions limiting our liability in such circumstances. We cannot assure you, however, that
these limitations will be enforced. Losses from such litigation could be material to our financial
condition, results of operations or cash flows.
18 2008 Financials