ADT 2013 Annual Report Download - page 95

FORM 10-K
purchasing power, available capital for investments and opportunities to pursue integrated strategies with Tyco’s
other businesses. As an independent, publicly-traded company, we do not have similar diversity or integration
opportunities and may not have similar purchasing power or access to capital markets.
The ownership by our executive officers and some of our directors of common shares, options or other
equity awards of Tyco or Pentair may create, or may create the appearance of, conflicts of interest.
Because of their former positions with Tyco, substantially all of our executive officers, including our chief
executive officer and some of our non-employee directors, own common shares of Tyco and Pentair, options to
purchase common shares of Tyco and Pentair or other equity awards in Tyco and Pentair. The individual
holdings of common shares, options to purchase common shares or other equity awards of Tyco and Pentair may
be significant for some of these persons compared to their total assets. These equity interests may create, or
appear to create, conflicts of interest when these directors and officers are faced with decisions that could benefit
or affect the equity holders of Tyco or Pentair in ways that do not benefit or affect us in the same manner.
We might not be able to engage in desirable strategic transactions and equity issuances because of
restrictions relating to U.S. federal income tax requirements for tax-free distributions.
Our ability to engage in significant equity transactions could be limited or restricted in order to preserve, for
U.S. federal income tax purposes, the tax-free nature of the Distribution. Even if the Distribution otherwise
qualifies for tax-free treatment under Section 355 of the Code, it may result in corporate-level taxable gain to
Tyco and certain of its affiliates under Section 355(e) of the Code if 50% or more, by vote or value, of our shares
or Tyco’s shares are acquired or issued as part of a plan or series of related transactions that includes the
Distribution. Any acquisitions or issuances of our shares or Tyco’s shares within two years after the Distribution
will generally be presumed to be part of such a plan, although we or Tyco may be able to rebut that presumption.
To preserve the tax-free treatment to Tyco of the Distribution, under the 2012 Tax Sharing Agreement, we are
prohibited from taking or failing to take any action that prevents the Distribution and related transactions from
being tax-free. Further, for the two-year period following the Distribution, without obtaining the consent of Tyco
and Pentair, a private letter ruling from the IRS or an unqualified opinion of a nationally recognized law firm, we
may be prohibited from:
• approving or allowing any transaction that results in a change in ownership of more than 35% of our
common shares when combined with any other changes in ownership of our shares,
• redeeming equity securities,
• selling or otherwise disposing of more than 35% of ADT’s assets, or
• engaging in certain internal transactions.
These restrictions may limit our ability to pursue strategic transactions or engage in new business or other
transactions that may maximize the value of our business. Moreover, the 2012 Tax Sharing Agreement provides
that we will be responsible for any taxes imposed on Tyco or any of its affiliates or on Pentair or any of its
affiliates as a result of the failure of the Distribution or the internal transactions to qualify for favorable treatment
under the Code if such failure is attributable to certain actions taken after the Distribution by or in respect of us,
any of our affiliates or our shareholders.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
We operate through a network of approximately 200 sales and service offices, eight monitoring facilities,
four customer and field support locations and two national sales call centers, located throughout the United States
and Canada. Additionally, during fiscal year 2013, we began operations at our new regional distribution center,
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