OfficeMax 2006 Annual Report Download - page 97

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93
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 necessaryto 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. On September 12, 2006, the court granted the defendant
group’s joint motiontodismiss theconsolidated amended complaint. OnNovember 9, 2006, the
plaintiffs filed a purported amended complaint. On January 19,2007, the defendants filed a motion to
dismiss the amended complaint, which ispending. The Company believes there are valid factual and
legal defensesto these claims andintends to vigorously defend against them.
In June 2005, the Company announced that the SEC issued a formal order ofinvestigation arising
from the Company’s previously-announced internal investigation into its accounting for vendor income.
The Company launched its internal investigation inDecember 2004 whenthe Company receivedclaims
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 Companyhas
cooperated fully with the SEC. The Company hashad no communicationwith the SEC since
August 2005.
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 assertclaims for breach of fiduciaryduty
and unjust enrichment, and the Homstrom complaint also includes claims for alleged abuse ofcontrol,
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 theHomstrom case, the attorneys’ feesincurred 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 nomonetary 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. On February 21, 2007, the
Bryan case was dismissedwithout prejudice.
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.