Xerox 2006 Annual Report Download - page 96

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per-share data and unless otherwise indicated)
Legal Matters
As more fully discussed below, we are involved in a
variety of claims, lawsuits, investigations and proceedings
concerning securities law, intellectual property law,
environmental law, employment law and the Employee
Retirement Income Security Act (“ERISA”). We
determine whether an estimated loss from a contingency
should be accrued by assessing whether a loss is deemed
probable and can be reasonably estimated. We assess our
potential liability by analyzing our litigation and
regulatory matters using available information. We
develop our views on estimated losses in consultation
with outside counsel handling our defense in these
matters, which involves an analysis of potential results,
assuming a combination of litigation and settlement
strategies. Should developments in any of these matters
cause a change in our determination as to an unfavorable
outcome and result in the need to recognize a material
accrual, or should any of these matters result in a final
adverse judgment or be settled for significant amounts,
they could have a material adverse effect on our results of
operations, cash flows and financial position in the period
or periods in which such change in determination,
judgment or settlement occurs.
Litigation Against the Company:
In re Xerox Corporation Securities Litigation: A
consolidated securities law action (consisting of 17 cases)
is pending in the United States District Court for the
District of Connecticut. Defendants are the Company,
Barry Romeril, Paul Allaire and G. Richard Thoman. The
consolidated action purports to be a class action on behalf
of the named plaintiffs and all other purchasers of
common stock of the Company during the period between
October 22, 1998 through October 7, 1999 (“Class
Period”). The amended consolidated complaint in the
action alleges that in violation of Section 10(b) and/or
20(a) of the Securities Exchange Act of 1934, as amended
(“1934 Act”), and SEC Rule 10b-5 thereunder, each of
the defendants is liable as a participant in a fraudulent
scheme and course of business that operated as a fraud or
deceit on purchasers of the Company’s common stock
during the Class Period by disseminating materially false
and misleading statements and/or concealing material
facts relating to the defendants’ alleged failure to disclose
the material negative impact that the April 1998
restructuring had on the Company’s operations and
revenues. The amended complaint further alleges that the
alleged scheme: (i) deceived the investing public
regarding the economic capabilities, sales proficiencies,
growth, operations and the intrinsic value of the
Company’s common stock; (ii) allowed several corporate
insiders, such as the named individual defendants, to sell
shares of privately held common stock of the Company
while in possession of materially adverse, non-public
information; and (iii) caused the individual plaintiffs and
the other members of the purported class to purchase
common stock of the Company at inflated prices. The
amended consolidated complaint seeks unspecified
compensatory damages in favor of the plaintiffs and the
other members of the purported class against all
defendants, jointly and severally, for all damages
sustained as a result of defendants’ alleged wrongdoing,
including interest thereon, together with reasonable costs
and expenses incurred in the action, including counsel
fees and expert fees. On September 28, 2001, the court
denied the defendants’ motion for dismissal of the
complaint. On November 5, 2001, the defendants
answered the complaint. On or about January 7, 2003, the
plaintiffs filed a motion for class certification. Xerox and
the individual defendants filed their opposition to that
motion on June 28, 2005. On or about November 8, 2004,
the International Brotherhood of Electrical Workers
Welfare Fund of Local Union No. 164 (“IBEW”) filed a
motion to intervene as a named plaintiff and class
representative. Separately, on June 8, 2005, IBEW and
Robert W. Roten (“Roten”) moved to substitute as lead
plaintiffs and proposed class representatives. On May 12,
2006, the court denied, without prejudice to refiling,
plaintiffs’ motion for class certification, IBEW’s motion
to intervene and serve as named plaintiff and class
representative, and IBEW and Roten’s joint motion to
substitute as lead plaintiffs and proposed class
representatives. The court also ordered the parties to
submit to it a notice to certain putative class members to
inform them of the circumstances surrounding the
withdrawal of several lead plaintiffs, and to advise them
of the opportunity to express their desire to serve as a
representative of the putative class. On July 25, 2006, the
court so-ordered a form of notice, and plaintiffs thereafter
distributed the notice. Thereafter, Roten, Robert Agius
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