OfficeMax 2005 Annual Report Download - page 106

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The Company and several former officers and/or directors of the Company or its predecessor
are defendants in a consolidated, putative class action proceeding (Roth v. OfficeMax Inc., et. al,
U.S. District Court, Northern District of Illinois) alleging violations of the Securities Exchange Act of
1934. The Complaint alleges, in summary, that the Company failed to disclose (a) that vendor
income had been improperly recorded, (b) that the Company lacked internal controls necessary to
ensure the proper reporting of revenue and compliance with generally accepted accounting
principles, and (c) that the Company’s 2004 and later results would be adversely affected by the
Company’s allegedly improper practices. The relief sought includes unspecified compensatory
damages, interest and costs, including attorneys’ fees. On September 21, 2005, the defendants
filed a motion to dismiss the consolidated amended complaint, which is pending. The Company
believes there are valid factual and legal defenses to these claims and intends to vigorously defend
against them.
In June 2005, the Company announced that the SEC issued a formal order of investigation
arising from the Company’s previously-announced internal investigation into its accounting for
vendor income. The Company launched its internal investigation in December 2004 when the
Company received claims by a vendor to its retail business that certain employees acted
inappropriately in requesting promotional payments and in falsifying supporting documentation. The
internal investigation was conducted under the direction of the Company’s audit committee and
was completed in March 2005. The Company is cooperating fully with the SEC.
Putative derivative actions have been filed in the Circuit Courts of Cook County (Homstrom v.
Harad, et al.) and DuPage County, Illinois (Bryan v. Anderson, et al.) against a number of current
and former officers and/or directors of the Company or its predecessor in connection with alleged
misrepresentation of financial results (and, in the case of one former director and officer, for
allegedly selling Company common stock while in possession of material, non-public information
concerning the Company’s financial position and future prospects). Both derivative actions assert
claims for breach of fiduciary duty and unjust enrichment, and the Homstrom complaint also
includes claims for alleged abuse of control, mismanagement, and waste of corporate assets. The
relief sought from the defendants includes recovery of costs incurred by the Company in its internal
investigation and restatement, the disgorgement of compensation and, in the Homstrom case, the
attorneys’ fees incurred by the Company in defending the Roth putative class action and the
Company’s asserted exposure to a potentially substantial settlement or adverse judgment in the
Roth case. The Company is a nominal defendant in the putative derivative actions and no monetary
relief is sought from the Company. However, the Company has exposure in such cases for amounts
it may be required to advance or incur on behalf of the individual defendants under its
indemnification obligations.
The Company is also involved in other litigation and administrative proceedings arising in the
normal course of business. In the opinion of management, the Company’s recovery, if any, or
liability, if any, under such pending litigation or administrative proceedings would not materially
affect the Company’s financial position or results of operations.
102