Xerox 2010 Annual Report Download - page 99

Notes to the Consolidated
Financial Statements
Dollars in millions, except per-share data and unless otherwise indicated.
97Xerox 2010 Annual Report
The plaintiffs in the Delaware action alleged, among other things,
that (i) the Individual Defendants breached their fiduciary duties to
ACS and its shareholders by authorizing the sale of ACS to Xerox for
what plaintiffs deemed was inadequate consideration and pursuant
to inadequate process, and the Xerox Defendants aided and abetted
those alleged breaches; (ii) the Individual Defendants breached their
fiduciary duties to ACS and its shareholders by agreeing to the provisions
of the merger agreement relating to the consideration to be paid to the
holders of Class B shares which the Delaware plaintiffs alleged violated
the ACS certificate of incorporation and was, therefore, void, and the
Xerox Defendants aided and abetted those alleged breaches; and (iii)
the Individual Defendants breached their fiduciary duties by failing to
disclose material facts in the October 23, 2009 Form S-4 filed with the
SEC in connection with the merger. The plaintiffs sought, among other
things, to enjoin the defendants from consummating the merger on the
agreed-upon terms, and unspecified compensatory damages, together
with the costs and disbursements of the action.
On May 19, 2010, the parties in the Delaware and Texas Actions entered
into a Stipulation and Agreement of Compromise and Settlement
(“Settlement”) resolving all claims by ACS shareholders arising out of
Xerox’s acquisition of ACS, including all claims in the Delaware and
Texas Actions. The defendants in the Delaware and Texas Actions did not
admit to any wrongdoing as part of the Settlement, which provided for
an aggregate payment of $69 on behalf of all defendants, including a
payment of approximately $36 by Xerox, net of insurance proceeds. The
Delaware court approved the Settlement at a hearing held on August
24, 2010. In light of the Delaware court’s approval of the Settlement, on
October 13, 2010, the Texas court signed an order dismissing the Texas
action.
Other Contingencies
Guarantees, Indemnifications and Warranty Liabilities
Guarantees and claims arise during the ordinary course of business
from relationships with suppliers, customers and nonconsolidated
affiliates when the Company undertakes an obligation to guarantee
the performance of others if specified triggering events occur.
Nonperformance under a contract could trigger an obligation of the
Company. These potential claims include actions based upon alleged
exposures to products, real estate, intellectual property such as patents,
environmental matters, and other indemnifications. The ultimate
effect on future financial results is not subject to reasonable estimation
because considerable uncertainty exists as to the final outcome of these
claims. However, while the ultimate liabilities resulting from such claims
may be significant to results of operations in the period recognized,
management does not anticipate they will have a material adverse
effect on the Company’s consolidated financial position or liquidity. As
of December 31, 2010, we have accrued our estimate of liability incurred
under our indemnification arrangements and guarantees.
the complaint. The plaintiffs’ motion for class certification was denied
by the Court in 2006, without prejudice to refiling. In February 2007, the
Court granted the motion of the International Brotherhood of Electrical
Workers Welfare Fund of Local Union No. 164, Robert W. Roten, Robert
Agius (“Agius”) and Georgia Stanley to appoint them as additional lead
plaintiffs. In July 2007, the Court denied plaintiffs’ renewed motion for
class certification, without prejudice to renewal after the Court holds
a pre-filing conference to identify factual disputes the Court will be
required to resolve in ruling on the motion. After that conference and
Agius’s withdrawal as lead plaintiff and proposed class representative,
in February 2008 plaintiffs filed a second renewed motion for class
certification. In April 2008, defendants filed their response and motion
to disqualify Milberg LLP as a lead counsel. On September 30, 2008, the
Court entered an order certifying the class and denying the appointment
of Milberg LLP as class counsel. Subsequently, on April 9, 2009, the Court
denied defendants’ motion to disqualify Milberg LLP. On November 6,
2008, the defendants filed a motion for summary judgment. Briefing
with respect to the motion is complete. The Court has not yet rendered
a decision. The parties also filed motions to exclude the testimony of
certain expert witnesses. On April 22, 2009, the Court denied plaintiffs’
motions to exclude the testimony of two of defendants’ expert
witnesses. On September 30, 2010, the Court denied plaintiffs’ motion
to exclude the testimony of another of defendants’ expert witnesses.
The Court also granted defendants’ motion to exclude the testimony
of one of plaintiffs’ expert witnesses, and granted in part and denied
in part defendants’ motion to exclude the testimony of plaintiffs’ two
remaining expert witnesses. The individual defendants and we deny any
wrongdoing and are vigorously defending the action. In the course of
litigation, we periodically engage in discussions with plaintiffs’ counsel
for possible resolution of this matter. Should developments cause a
change in our determination as to an unfavorable outcome, or result
in a final adverse judgment or a settlement for a significant amount,
there could be a material adverse effect on our results of operations,
cash flows and financial position in the period in which such change in
determination, judgment or settlement occurs.
Merger Agreement Between Xerox and Affiliated Computer Services,
Inc.: In late September and early October 2009, nine purported class
action complaints were filed by ACS shareholders challenging ACS’s
proposed merger with Xerox. Two actions were filed in the Delaware
Court of Chancery which subsequently were consolidated into
one action. Seven actions were filed in state courts in Texas, which
subsequently were consolidated into one action in the Dallas County
Court at Law No. 3. The operative complaints in the Delaware and Texas
actions named as defendants ACS and/or the members of ACS’s board
of directors (the “Individual Defendants”) and Xerox Corporation and/or
Boulder Acquisition Corp., a wholly owned subsidiary of Xerox (“Boulder”)
(ACS, the Individual Defendants, Xerox Corporation and Boulder,
collectively, the “Xerox Defendants”). A class of ACS shareholders was
certified in the Delaware action. Pursuant to a stipulation entered into
by all parties in the Delaware and Texas actions prosecution of the Texas
action was stayed and further prosecution of the Delaware and Texas
actions would proceed in the Delaware action.