Xerox 2006 Annual Report Download - page 101

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per-share data and unless otherwise indicated)
VII of the Civil Rights Act of 1964, as amended, and the
Civil Rights Act of 1871. The suit was commenced on
May 9, 2001 by six black sales representatives. The
plaintiffs allege that Xerox has engaged in a pattern or
practice of race discrimination against them and other
black sales representatives by assigning them to less
desirable sales territories, denying them promotional
opportunities, and paying them less than their white
counterparts. Although the complaint does not specify
the amount of damages sought, plaintiffs do seek, on
behalf of themselves and the classes they seek to
represent, front and back pay, compensatory and punitive
damages, and attorneys’ fees. We deny any wrongdoing.
Fact discovery has concluded and expert reports have
been exchanged. Following three days of mediation with
a private mediator, a tentative agreement was reached,
the terms of which are not material to Xerox. Counsel for
the parties are working on drafting mutually-acceptable
language for a settlement agreement and release. The
agreement will be subject to a fairness hearing and court
approval.
Derivative Litigation Brought on Behalf of the Company:
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 jurisdiction. 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
defendants. The plaintiff asserts claims for contribution
under the securities laws, negligence, negligent
misrepresentation, breach of contract, breach of fiduciary
duty and indemnification. The plaintiff seeks unspecified
compensatory damages (together with pre-judgment 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 seek dismissal on other
grounds, if the court denies the initial motion. KPMG and
the individual defendants also filed limited motions to
dismiss on the same grounds. On September 29, 2006,
the Court issued an order granting the motions and
dismissing all claims. The court entered judgment in
favor of the defendants on October 10, 2006. Plaintiff has
not filed an appeal and the time to appeal has expired.
Other Matters:
It is our policy to promptly and carefully investigate,
often with the assistance of outside advisers, allegations
of impropriety that may come to our attention. If the
allegations are substantiated, appropriate prompt
remedial action is taken. When and where appropriate,
we report such matters to the U.S. Department of Justice
and to the SEC, and/or make public disclosure.
India: In recent years we have become aware of a
number of matters at our Indian subsidiary, Xerox
Modicorp Ltd., that occurred over a period of several
years, much of which occurred before we obtained
majority ownership of these operations in mid 1999.
These matters include misappropriations of funds and
payments to other companies that may have been
inaccurately recorded on the subsidiary’s books and
certain improper payments in connection with sales to
government customers. These transactions were not
material to the Company’s financial statements. We have
reported these transactions to the Indian authorities, the
U.S. Department of Justice and to the SEC. The private
Indian investigator engaged by the Indian Ministry of
Company Affairs has completed an investigation of these
matters. In February 2005, the Indian Ministry of
Company Affairs provided our Indian subsidiary with the
investigator’s report which addresses the previously
disclosed misappropriation of funds and improper
payments and requested comments. The report included
allegations that Xerox Modicorp Ltd.’s senior officials
and the Company were aware of such activities. The
report also asserted the need for further investigation into
potential criminal acts related to the improper activities
addressed by the report. The matter is now pending in the
Indian Ministry of Company Affairs. The Company
reported these developments and made a copy of the
report received by Xerox Modicorp Ltd. available to the
U.S. Department of Justice and the SEC.
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