Xerox 2003 Annual Report Download - page 81

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the Company’s affairs and grossly mismanaged or
aided and abetted the gross mismanagement of the
Company and its assets. The second amended com-
plaint also asserted claims of negligence, negligent
misrepresentation, breach of contract and breach of
fiduciary duty against KPMG. Additionally, plaintiffs
claimed that KPMG is liable to Xerox for contribution,
based on KPMG’s share of the responsibility for any
injuries or damages for which Xerox is held liable to
plaintiffs in related pending securities class action liti-
gation. On behalf of the Company, the plaintiffs seek a
judgment declaring that the director defendants violat-
ed and/or aided and abetted the breach of their fiduci-
ary duties to the Company and its shareholders;
awarding the Company unspecified compensatory
damages against the director defendants, individually
and severally, together with pre-judgment and post-
judgment interest at the maximum rate allowable by
law; awarding the Company punitive damages against
the director defendants; awarding the Company com-
pensatory damages against KPMG; and awarding
plaintiffs the costs and disbursements of this action,
including reasonable attorneys’ and experts’ fees. On
December 16, 2002, the Company and the individual
defendants answered the complaint. The plaintiffs
filed a third consolidated and amended derivative
action complaint on July 23, 2003 adding factual alle-
gations relating to subsequent acts and transactions,
namely indemnification of six former officers for dis-
gorgements imposed pursuant to their respective set-
tlements with the SEC and related legal fees, and
adding a demand for injunctive relief with respect to
that indemnification. On September 12, 2003, Xerox
and the individuals filed an answer to the third consol-
idated and amended derivative action complaint. The
individual defendants deny any wrongdoing and are
vigorously defending the action.
Pall v. KPMG, et al.: On May 13, 2003, a shareholder
commenced a derivative action in the United States
District Court for the District of Connecticut against
KPMG and four of its current or former partners. The
Company was named as a nominal defendant. The
plaintiff had filed an earlier derivative action against
certain current and former members of the Xerox
Board of Directors and KPMG. That action, captioned
Pall v. Buehler, et al., was dismissed for lack of jurisdic-
tion. Plaintiff purports to bring this current action
derivatively on behalf and for the benefit of the
Company seeking damages allegedly caused to the
Company by KPMG and the named individual defen-
dants. The plaintiff asserts claims for contribution
under the securities laws, negligence, negligent mis-
representation, breach of contract, breach of fiduciary
duty and indemnification. The plaintiff seeks unspeci-
fied compensatory damages (together with pre-judg-
ment and post-judgment interest), a declaratory
judgment that defendants violated and/or aided and
abetted the breach of fiduciary and professional duties
to the Company, an award of punitive damages for the
Company against the defendants, plus the costs and
disbursements of the action. On November 7, 2003,
the Company filed a limited motion to dismiss the
complaint on jurisdictional grounds and reserved its
right to later seek dismissal on other grounds. KPMG
and the individual defendants also filed limited
motions to dismiss. The motions have not been fully
briefed or argued before the court.
Lerner v. Allaire, et al.: On June 6, 2002, a shareholder,
Stanley Lerner, commenced a derivative action in the
United States District Court for the District of
Connecticut against Paul A. Allaire, William F. Buehler,
Barry D. Romeril, Anne M. Mulcahy and G. Richard
Thoman. The plaintiff purported to bring the action
derivatively, on behalf of the Company, which was
named as a nominal defendant. Previously, on June
19, 2001, Lerner made a demand on the Board of
Directors to commence suit against certain officers
and directors to recover unspecified damages and
compensation paid to these officers and directors. In
his demand, Lerner contended, inter alia, that man-
agement was aware since 1998 of material accounting
irregularities and failed to take action and that the
Company has been mismanaged. At its September 26,
2001 meeting, the Board of Directors appointed a spe-
cial committee to consider, investigate and respond to
the demand. In this action, plaintiff alleged that the
individual defendants breached their fiduciary duties
of care and loyalty by disguising the true operating
performance of the Company through improper undis-
closed accounting mechanisms between 1997 and
2000. The complaint alleged that the defendants bene-
fited personally, through compensation and the sale of
company stock, and either participated in or approved
the accounting procedures or failed to supervise ade-
quately the accounting activities of the Company. The
plaintiff demanded a judgment declaring that defen-
dants intentionally breached their fiduciary duties to
the Company and its shareholders; awarding unspeci-
fied compensatory damages to the Company against
the defendants, individually and severally, together
with pre-judgment and post-judgment interest; award-
ing the Company punitive damages; and awarding the
plaintiff the costs and disbursements of the action,
including reasonable attorneys’ and experts’ fees. On
September 18, 2002, the individual defendants and
Xerox filed a motion to dismiss the action, or alterna-
tively to stay the action pending the disposition of In
re Xerox Derivative Actions. On September 29, 2003,
the court issued an order granting the defendants’
motion to dismiss and on November 24, 2003 entered
judgment dismissing the action. The plaintiff did not
file an appeal and the appeal period expired on or
about December 26, 2003.