Dell 2006 Annual Report Download - page 18

Table of Contents
deficiencies identified by management as a result of the investigation and our internal reviews, and management's plan to
remediate those deficiencies, see "Part II — Item 9A — Controls and Procedures." Although the Audit Committee
investigation has been completed, the investigations being conducted by the SEC and the SDNY are ongoing. We continue
to cooperate with the SEC and the SDNY.
Dell and several of our current and former directors and officers are parties to securities, Employee Retirement Income
Security Act of 1974 ("ERISA"), and shareholder derivative lawsuits all arising out of the same events and facts. Four
putative securities class actions that were filed in the Western District of Texas, Austin Division, against Dell and certain of
our current and former officers have been consolidated as In re Dell Inc. Securities Litigation, and a lead plaintiff has been
appointed by the court. The lead plaintiff has asserted claims under sections 10(b), 20(a), and 20A of the Securities
Exchange Act of 1934 based on alleged false and misleading disclosures or omissions regarding our financial statements,
governmental investigations, known battery problems, business model, and insiders' sales of our securities. This action also
includes our independent registered public accounting firm, PricewaterhouseCoopers LLP, as a defendant. Four other
putative class actions that were also filed in the Western District by purported participants in the Dell Inc. 401(k) Plan have
been consolidated as In re Dell Inc. ERISA Litigation, and lead plaintiffs have been appointed by the court. The lead plaintiffs
have asserted claims under ERISA based on allegations that Dell, certain current officers, and certain current and former
directors imprudently invested and managed participants' funds and failed to disclose information regarding our stock held in
the 401(k) Plan. In addition, seven shareholder derivative lawsuits that were filed in three separate jurisdictions (the Western
District of Texas, Austin Division; the Delaware Chancery Court; and the state district court in Travis County, Texas) have
been consolidated into three actions, one in each of the respective jurisdictions, as In re Dell Inc. Derivative Litigation, and
name various current and former officers and directors as defendants and Dell as a nominal defendant. On October 8, 2007,
the shareholder derivative lawsuit filed in the Western District of Texas was dismissed without prejudice by the court. The
Travis County, Texas action has been transferred to the state district court in Williamson County, Texas. The shareholder
derivative lawsuits assert claims derivatively on behalf of Dell under state law, including breaches of fiduciary duties. Finally,
one purported shareholder has filed an action against us in Delaware Chancery Court under Section 220 of the Delaware
General Corporation Law, Baltimore County Employees' Retirement System v. Dell Inc., seeking inspection of certain of our
books and records related to the internal investigation and government investigations. We intend to defend all of these
lawsuits vigorously.
Copyright Levies
Proceedings against the IT industry in Germany seek to impose levies on equipment, such as personal computers,
multifunction devices, and printers that facilitate making private copies of copyrighted materials. The total levies due, if
imposed, would be based on the number of products sold and the per-product amounts of the levies, which vary. We, along
with other companies and various industry associations, are opposing these levies and instead are advocating compensation
to rights holders through digital rights management systems.
There are currently three levy cases involving other equipment manufacturers pending before the German Federal Supreme
Court. Adverse decisions in these cases could ultimately impact us. The cases involve personal computers, printers, and
multifunctional devices. The equipment manufacturers in these cases recently lost in the lower courts and have appealed.
The amount allowed by the lower courts with respect to PCs is €12 per personal computer sold, for reprographic copying
capabilities. The amounts claimed with respect to printers and multifunctional devices depend on speed and color and vary
between €10 and €300 for printers and between €38 and €600 for multifunctional devices. On December 29, 2005,
Zentralstelle Für private Überspielungsrechte ("ZPÜ"), a joint association of various German collection societies, instituted
arbitration proceedings against our German subsidiary before the Arbitration Body in Munich. ZPÜ claims a levy of €18.4 per
PC that we sold in Germany from January 1, 2002 through December 31, 2005. On July 31, 2007, the Arbitration Body
recommended a levy of €15 on each PC sold during that period, for audio and visual copying capabilities. Dell and ZPÜ
rejected the recommendation and we expect that the matter will proceed to court. We will continue to defend this claim
vigorously.
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