ADT 2010 Annual Report Download - page 214

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Commitments and Contingencies (Continued)
In the normal course of business, the Company is liable for contract completion and product
performance. In the opinion of management, such obligations will not significantly affect the
Company’s financial position, results of operations or cash flows.
In connection with the Separation, the Company entered into a liability sharing agreement
regarding certain legal actions that were pending against Tyco prior to the Separation. Under the
Separation and Distribution Agreement, the Company, Covidien and Tyco Electronics are jointly and
severally liable for the full amount of any judgments resulting from the actions subject to the
agreement, which generally relate to legacy matters that are not specific to the business operations of
any of the companies. The Separation and Distribution Agreement also provides that the Company will
be responsible for 27%, Covidien 42% and Tyco Electronics 31% of payments to resolve these matters,
with costs and expenses associated with the management of these contingencies being shared equally
among the parties. In addition, under the 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. Additionally, at
the time of the Separation, the Company, Covidien and Tyco Electronics agreed to allocate
responsibility for certain legacy tax claims pursuant to the same formula under the Tax Sharing
Agreement. See Note 6.
Legacy Securities Matters
As previously disclosed, the Company and certain of its officers and directors were subject to a
number of lawsuits alleging violations of federal and state securities laws and related claims. Since
June 2007, the Company has resolved substantially all of these claims, although a number of matters
have not reached final resolution. The most significant of these is the previously disclosed settlement
for $79 million of the Stumpf v. Tyco International Ltd. matter, a class action lawsuit arising from Tyco’s
July 2000 initial public offering of common stock of TyCom Ltd. The settlement received final court
approval on August 25, 2010 from the United States District Court for the District of New Jersey,
although certain contingencies for the matter will remain outstanding until the end of calendar year
2010. The settlement is subject to the liability sharing provisions of the Separation and Distribution
Agreement with Covidien and Tyco Electronics. The Company believes its remaining reserve related to
legacy securities matters is sufficient to satisfy the final resolution of this matter.
Tyco is also a party to several lawsuits involving disputes with former management, among which
are affirmative cases brought by Tyco against Mr. Dennis L. Kozlowski, Tyco’s former chief executive
officer, Mr. Mark Swartz, its former chief financial officer, and Mr. Frank Walsh Jr., a former director.
In connection with these affirmative actions, Messrs. Kozlowski and Swartz are seeking an aggregate of
approximately $128 million allegedly due in connection with their compensation and retention
arrangements and under ERISA, and Mr. Walsh has made claims alleging that Tyco is required to
indemnify him for his defense costs and settlement amounts paid by him in connection with securities
lawsuits and arising from his role as a Tyco director. Tyco intends to vigorously defend each of these
actions. In October 2010, the U.S. District Court for the Southern District of New York denied Tyco’s
affirmative claims for indemnification against Mr. Walsh. Tyco intends to appeal this decision.
Mr. Walsh’s claims against Tyco remain outstanding.
126 2010 Financials