EFiled: Sep 30 2009 4:55PM EDT

Transaction ID 27340965
Case No. 4933-
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

SHEET METAL WORKERS LOCAL 28, )

Individually and On Behalf of All Others )
Similarly Situated, )
)
Plaintiff, ) C.A. No.
)
v. )
)
AFFILIATED COMPUTER SERVICES, INC., )
DARWIN DEASON, LYNN BLODGETT, KURT R. )
KRAUSS, PAUL E. SULLIVAN, FRANK )
VARASANO, ROBERT ALLAN DRUSKIN, TED B. )
MILLER JR., XEROX CORPORATION, and )
BOULDER ACQUISITION CORP., )
)
Defendants. )
)

VERIFIED CLASS ACTION COMPLAINT

Plaintiff Sheet Metal Workers Local 28 (“Plaintiff”), on behalf of itself and all others

similarly situated, by its attorneys, alleges the following upon information and belief, except as

to those allegations pertaining to Plaintiff which are alleged upon personal knowledge:

NATURE OF THE ACTION

1. This is a shareholder class action complaint on behalf of the holders of the

common stock of Affiliated Computer Services, Inc. (“ACS” or the “Company”) against certain

officers and/or directors of ACS, and other persons and entities (collectively, “Defendants”)

involved in a proposed transaction through which the Company will merge with Xerox

Corporation (“Xerox”), through Xerox’s wholly-owned subsidiary Boulder Acquisition Corp.,

for inadequate consideration (the “Merger”).

2. On September 28, 2009, Xerox and ACS issued a press release announcing that

they had entered into a definitive merger agreement with an affiliate of Xerox for ACS to be

acquired in a deal valued at approximately $6.4 billion. Under the terms of the Merger, ACS
shareholders will receive a total of $18.60 per share in cash plus 4.935 Xerox stock for each ACS

share they own.

3. As described below, both the value to ACS shareholders contemplated in the

Merger and the process by which Defendants propose to consummate the Merger are

fundamentally unfair to Plaintiffs and the other public shareholders of the Company.

Defendants’ conduct constitutes a breach of the Individual Defendants’ fiduciary duties owed to

ACS’s public shareholders, and a violation of applicable legal standards governing Defendants’

conduct.

4. For these reasons and as set forth in detail herein, Plaintiff seeks to enjoin

Defendants from approving the Merger or, in the event the Merger is consummated, recover

damages resulting from Defendants’ violations of their fiduciary duties of loyalty, good faith,

due care, and full and fair disclosure.

PARTIES

5. Plaintiff currently holds shares of common stock of ACS and has held such shares

since prior to the wrongs complained of herein.

6. ACS, a Delaware corporation with its principal place of business at 2828 North

Haskell Avenue, Dallas, Texas 75204, is a provider of business process outsourcing and

information technology services to commercial and government clients. For the fiscal year

ending June 30, 2009, total revenues rose to $6.5 billion. The Company’s stock is traded on the

New York Stock Exchange (“NYSE”) under the symbol “ACS.”

7. Defendant Darwin Deason (“Deason”), one of the Company’s founders, has

served as Chairman of the Company’s Board of Directors (the “Board”) since its formation in

1988. Deason also served as the Company’s Chief Executive Officer (“CEO”) from 1988 until

February 1999. Deason controls 43.6% of the total voting power of the Company as a result of

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his ownership of 2.99% of the total shares of Class A Common stock and 100% of Class B

Common stock. In connection with the Merger, Deason entered into a Voting Agreement, dated

as of September 27, 2009 (the “Voting Agreement”), with Xerox, pursuant to which, among

other things, he agreed to vote his shares in favor of the adoption of the Merger and against any

takeover bid by a third party.

8. Defendant Lynn Blodgett (“Blodgett”) has served as a Director of ACS since

September 2005. Blodgett also serves as the Company’s President and CEO. Prior to assuming

his current responsibilities, he served as the Company’s Executive Vice President and Chief

Operating Officer. Blodgett joined ACS upon the 1996 acquisition of Unibase, a company he

co-founded with his brother.

9. Defendant Kurt R. Krauss (“Krauss”) has served as a Director of ACS since

November 2007. Krauss was a partner with Booz Allen Hamilton (“BAH”). He also served on

BAH’s Board of Directors and Executive Committee and the Board of Loudeye Corporation

alongside defendant Frank Varasano

10. Defendant Paul E. Sullivan (“Sullivan”) has served as a Director of ACS since

February 2008.

11. Defendant Frank Varasano (“Varasano”) has served as a Director of ACS since

November 2007. Prior to that, Varasano held several senior management positions during his

26-year tenure at BAH, including Senior Vice President of BAH’s Engineering and

Manufacturing practice. He also served on BAH’s Board of Directors and Executive Committee

along with defendant Krauss. Varasano also served as a director of Loudeye Corporation with

defendant Krauss.

12. Defendant Robert Allan Druskin (“Druskin”) has served as a Director of ACS

since March 2008.

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 13. Defendant Ted B. Miller, Jr., (“Miller”) has served as a Director of ACS since

November 2007.

14. Defendants Deason, Blodgett, Krauss, Sullivan, Varasano, Druskin, and Miller

are sometimes referred to herein as the “Individual Defendants.”

15. Defendant Xerox is a Delaware corporation with its principal place of business

located at 45 Clover Avenue, Norwalk, Connecticut 06856. Xerox is the world’s leading

document management technology and services enterprise, providing one of the document

industry’s broadest portfolio of color and black-and-white document processing systems and

related supplies, as well as document management consulting and outsourcing services. Its stock

is traded on the NYSE exchange under the symbol “XRX.”

16. Defendant Boulder Acquisition Corp. is a wholly-owned subsidiary of Xerox.

17. Defendants Xerox and Boulder Acquisition Corp., are sometimes referred to

herein as “Xerox”.

THE FIDUCIARY DUTIES OF THE INDIVIDUAL DEFENDANTS

18. By reason of the Individual Defendants’ positions with the Company as officers

and/or directors, said individuals are in a fiduciary relationship with Plaintiff and the other public

shareholders of ACS and owe Plaintiff and the other members of the Class a duty of highest

good faith, fair dealing, loyalty and full and candid disclosure.

19. By virtue of their positions as directors and/or officers of ACS, the Individual

Defendants, at all relevant times, had the power to control and influence, and did control and

influence and cause ACS to engage in the practices complained of herein.

20. Each of the Individual Defendants is required to act in good faith, in the best

interests of the Company’s shareholders and with such care, including reasonable inquiry, as

would be expected of an ordinarily prudent person. In a situation where the directors of a

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publicly traded company undertake a transaction that may result in a change in corporate control,

the directors must take all steps reasonably required to maximize the value shareholders will

receive rather than use a change of control to benefit themselves, and to disclose all material

information concerning the proposed change of control to enable the shareholders to make an

informed voting decision. To diligently comply with this duty, the directors of a corporation

may not take any action that:

(a) adversely affects the value provided to the corporation’s shareholders;

(b) contractually prohibits them from complying with or carrying out their

fiduciary duties;

(c) discourages or inhibits alternative offers to purchase control of the

corporation or its assets; or

(d) will otherwise adversely affect their duty to search for and secure the best

value reasonably available under the circumstances for the corporation’s shareholders.

21. Plaintiff alleges herein that the Individual Defendants, separately and together, in

connection with the Merger, violated duties owed to Plaintiff and the other public shareholders

of ACS, including their duties of loyalty, good faith and independence, insofar as they engaged

in self-dealing and obtained for themselves personal benefits, including personal financial

benefits, not shared equally by Plaintiff or the public shareholders of ACS common stock (the

“Class”).

CLASS ACTION ALLEGATIONS

22. Plaintiff brings this action pursuant to Court of Chancery Rule 23, individually

and on behalf of the Class. The Class specifically excludes Defendants herein, and any person,

firm, trust, corporation or other entity related to, or affiliated with, any of the Defendants.

23. This action is properly maintainable as a class action.

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 24. The Class is so numerous that joinder of all members is impracticable. As of

August 20, 2009, ACS had in excess of 91 million shares of Class A common stock and 6.5

million shares of Class B common stock outstanding. Members of the Class are scattered

throughout the United States and are so numerous that it is impracticable to bring them all before

this Court.

25. Questions of law and fact exist that are common to the Class, including, among

others:

(a) whether the Individual Defendants have fulfilled and are capable of

fulfilling their fiduciary duties owed to Plaintiff and the Class;

(b) whether the Individual Defendants have engaged and continue to engage

in a scheme to benefit themselves at the expense of ACS shareholders in violation of their

fiduciary duties;

(c) whether the Individual Defendants are acting in furtherance of their own

self interest to the detriment of the Class;

(d) whether Defendants have disclosed and will disclose all material facts in

connection with the Merger; and

(e) whether Plaintiff and the other members of the Class will be irreparably

damaged if Defendants are not enjoined from continuing the conduct described herein.

26. Plaintiff is committed to prosecuting this action and has retained competent

counsel experienced in litigation of this nature. Plaintiff’s claims are typical of the claims of the

other members of the Class and Plaintiff has the same interests as the other members of the

Class. Accordingly, Plaintiff is an adequate representative of the Class and will fairly and

adequately protect the interests of the Class.

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 27. The prosecution of separate actions by individual members of the Class would

create the risk of inconsistent or varying adjudications with respect to individual members of the

Class, which would establish incompatible standards of conduct for Defendants, or adjudications

with respect to individual members of the Class which would, as a practical matter, be

dispositive of the interests of the other members not parties to the adjudications or substantially

impair or impede their ability to protect their interests.

28. Preliminary and final injunctive relief on behalf of the Class as a whole is entirely

appropriate because Defendants have acted, or refused to act, on grounds generally applicable

and causing injury to the Class.

SUBSTANTIVE ALLEGATIONS

A. Background

29. Originally founded in 1988 as Affiliated Computer Systems, Inc, the Company

started out as a financial data processing company designed to capitalize on a developing new

trend to outsource information processing requirements to third parties. Such outsourcing

allowed businesses to focus on core operations, respond to rapidly changing technologies and

reduce data processing expenses.

30. Under the helm of its founder, defendant Deason, ACS pursued an aggressive

growth through acquisition strategy. In one of its first acquisitions, ACS acquired the data

processing and electronic funds transfer operations of First Texas Gibraltar expanding into more

and diverse services offered. ACS further diversified and expanded out of banking services

when it signed a 10-year data processing outsourcing contract with Southland Corp.

31. In its first two years alone, acquisitions accounted for an estimated 70 percent of

the Company’s growth. Revenue in its first fiscal year ending June 30, 1989, was $74 million.

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One year later, revenue for 1990 doubled to nearly $150 million. By 1993, ACS’s revenues

nearly double again to $271 million.

32. On September 27, 1994, ACS went public as Affiliated Computer Services, Inc.,

offering 2.3 million shares of stock on the NASDAQ at $16 per share.

33. At the time it went public, ACS’s principal line of business was providing ATM

services to banks. By mid-1996 ACS claimed to have more than 5,000 ATMs deployed. The

Company also provided a range of information processing services, including data processing

services for retailers, wholesale distributors, hospitals, and transportation companies.

34. In 1996, ACS acquired Unibase Technologies Inc, founded by defendant Blodgett

and his family. The acquisition expanded ACS’s capabilities in the business-process outsourcing

(“BPO”) services market and created a service segment dedicated to delivering business process

solutions.

35. In 1997 and 1998 ACS made two major acquisitions that gave it a strong presence

serving state and local governments, including, respectively, the acquisition of Computer Data

Systems of Rockville, Maryland, a major systems integrator for federal agencies for $373 million

and BRC Holdings Inc., which specialized in providing automated record-keeping services to

state and local governments.

36. For fiscal 1999, ACS reported revenue ballooned to $1.64 billion. Approximately

one-third of the Company’s revenue came from government clients.

37. In light of the dramatic rise of revenues in revenues for BPO services, in 2000

ACS established a new division for BPO. The new BPO division consolidated a variety of

outsourcing services, such as processing insurance claims, a task that was accomplished in part

by 3,000 employees working in Guatemala and Mexico. ACS estimated that BPO would account

for $950 million in fiscal 2000, or about half of the Company’s revenue. The BPO division also

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signed a $56 million contract with Government National Mortgage Association (“Ginnie Mae”)

to support the government’s mortgage-backed securities program over a three-year period. These

services include data analysis and systems administration, maintenance, and enhancement

services of Ginnie Mae’s proprietary systems and applications software.

38. Since its inception in 1988, ACS had completed more than 50 acquisitions

through the end of fiscal 2000. This aggressive growth strategy also resulted in a dramatic

increase in revenues and net income. For fiscal 2000 ACS reported revenue of $1.96 billion and

net income of $109.3 million.

39. In 2002, the Company was named, for the second year in a row, as one of the

most promising BPO companies by Forbes Magazine. Forbes noted that ACS was a leader in the

business-to-business BPO market and was truly positioned as a tier one player. The magazine

called ACS the “outsourcer to watch” and said the company is “a fast-growing up-and-comer.”

According to Forbes, as corporate tech spending stalled that year, many companies suffered

sagging revenues and stock prices. Despite the reduction in spending, there remained bright

spots in the technology sector in areas such as BPO services, and niche offerings such as

customer relationship management and supply chain management, areas vital for corporate cost

reduction, increased quality and greater productivity. This was illustrated when the Company

reported revenue of $3.79 billion and net income of $306.8 million for fiscal 2003.

40. During fiscal year 2006 the Board of Directors authorized a modified “Dutch

Auction” tender offer (the “Tender Offer”) to purchase up to 55.5 million shares of the

Company’s Class A common stock. That Tender Offer was completed in March 2006 and

7.4 million shares of Class A common stock were purchased in the Tender Offer. In connection

with the Tender Offer, defendant Deason entered into a voting agreement with the Company

dated February 9, 2006 in which he agreed to limit his ability to cause the additional voting

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power he would hold as a result of the Tender Offer to affect the outcome of any matter

submitted to the vote of the stockholders of the Company after consummation of the Tender

Offer.

41. On December 7, 2007, the Board of the Directors approved an amendment of the

voting agreement, to provide that Deason’s voting power with respect to 1,989,864 shares of

Class A common stock and 6,599,372 shares of Class B common stock held by him as of

December 7, 2007, would not exceed 45% as a result of share repurchases by the Company

pursuant to the Company’s share repurchase program.

42. Most recently, the Company has once again performed well under the current

economic climate. For example, on April 30, 2009, the Company reported strong earnings

results for the Third Quarter and Nine Months Ended March 31, 2009 that beat analysts'

expectations as the Company signed new contracts at a record pace. For the quarter, the

Company reported sales of $1.61 billion, up from $1.54 billion in the same period last year and

net profit of $93.2 million, or 95 cents per share, from $82.6 million, or 85 cents per share, a year

ago. Excluding certain charges, earnings per share came in at $1. Analysts had been expecting

a profit of 93 cents per share. For the nine months, the Company reported net income of

$252,396,000 or $2.58 earnings per share diluted, pretax profit of $407,988,000 on revenues of

$4,826,953,000 against net income of $230,378,000 or $2.32 earnings per share diluted, pretax

profit of $351,565,000 on revenues of $4,546,895,000 against a year ago. Commenting on the

results, defendant Blodgett stated:

[O]ur business demonstrated remarkable performance in the current economic

climate. We signed a record level of new business, we grew revenues and profit,
and generated the highest level of adjusted earnings per share in history. These
results can be attributed to diverse client base, hard working employees and
resilient business model which continues to perform at a very high level.”

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 43. In an interview, as reported by the Dallas Morning News (April 30, 2009),

defendant Blodgett reiterated: “To me, the future is very bright, . . . We're very, very bullish.”

44. Furthermore, on the April 30, 2009, third quarter fiscal year 2009 earnings

conference call, defendant Blodgett stated:

I am very proud of ACS and our performance this quarter. At a time when most
companies are seeing a slowdown in new business opportunities, we posted the
highest booking quarter in our history at $342 million of annual recurring
revenue. In an environment where our peer group showed revenue declines of
mid-single digits, we grew 5%, excluding divestitures. Our adjusted margins
increased to 11.3%; and finally, we posted the highest adjusted EPS in our history
at $1.00.

45. Similarly, on August 6, 2009, ACS announced record results for the Fourth

Quarter and Full Year Ended June 30, 2009. Fourth quarter fiscal year 2009 revenues of $1.70

billion, represented a 6% increase, compared to the prior year quarter Fourth quarter new

business signings were the second highest in the Company’s history and totaled $271 million of

annual recurring revenue with an estimated total contract value of $1.2 billion. Total contract

value of all signings, including new business signings, renewals and non-recurring revenue, was

$2.2 billion for the fourth quarter of fiscal year 2009. Adjusted net income was $97.1 million or

$0.99 per diluted share against $93.1 million or $0.95 per diluted share for the same period a

year ago. Net cash provided by operating activities was $426 million against $267 million for the

same period a year ago. Free cash flow was $326 million against $177 million for the same

period a year ago.

46. For the full year, the Company reported operating income of $686 million, pretax

profit of $554.23 million and net income of $345 million or $3.57 per diluted share on revenues

of $6,523.16 million against operating income of $645.1 million, pretax profit of $496.2 million

and net income of $329.01 million or $3.32 per diluted share on revenues of $6,160.6 million for

the same period a year ago.

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 47. Commenting on the results, defendant Blodgett reiterated:

Fiscal 2009 was a remarkable year for ACS as our business model demonstrated
consistency and resiliency amidst a very difficult economic backdrop, . . . We
achieved record levels of revenue, profit, earnings per share and new business
signings. I am proud of our employees for their dedication to ACS, appreciative
of our clients for their trust and optimistic about our prospects for fiscal 2010.

48. Rather than permitting the Company’s shares to trade freely and allowing its

public shareholders to reap the benefits of the Company’s increasingly positive prospects, the

Individual Defendants have acted for their own benefit and the benefit of Xerox, and to the

detriment of the Company’s public shareholders, by entering into the Merger. In so doing, the

Individual Defendants have effectively placed a cap on ACS’s corporate value at a time when the

Company’s stock price was suffering the effect of a lingering economic recession and when it

was poised to capitalize on its positive and encouraging financial outlook.

B. The Merger

49. On August 5, 2009, Xerox and ACS issued a press release announcing that they

had signed a definitive agreement for Xerox to acquire ACS in a cash and stock transaction

valued at approximately $6.4 billion.

50. Under the terms of the agreement, ACS shareholders will receive a total of $18.60

per share in cash plus 4.935 Xerox shares for each ACS share they own. In addition, Xerox will

assume ACS’s debt of $2 billion and issue $300 million of convertible preferred stock to ACS’s

Class B shareholder.

51. Specifically, the Agreement and Plan of Merger (“Merger Agreement”), entered

into by and among the Company, Xerox, Boulder Acquisition Corp., a wholly-owned subsidiary

of Xerox (“Merger Sub”) provides that the Company will be merged with and into the Merger

Sub, and as a result the separate corporate existence of the Company shall cease and Merger Sub

shall continue as the surviving corporation of the Merger.

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 52. In connection with the execution of the Merger Agreement, defendant Deason,

owner of 43.6% of the outstanding voting power of ACS as of September 28, 2009, entered into

a voting agreement, dated as of September 27, 2009 (the “Voting Agreement”), with Xerox,

pursuant to which, among other things, Deason agreed to vote his shares in favor of the adoption

of the Merger Agreement and against any takeover bid by a third party. The Voting Agreement

is subject to limitations if the ACS board of directors changes its recommendation with respect to

the Merger.

53. Pursuant to the Merger Agreement, at the effective time of the Merger, each

outstanding share of ACS’s Class A common stock, other than shares owned by Xerox, Merger

Sub, or ACS and other than those shares with respect to which appraisal rights are properly

exercised and not withdrawn will be cancelled and converted into the right to receive a

combination of (i) 4.935 shares of common stock of Xerox and (ii) $18.60 in cash, without

interest.

54. Additionally each outstanding share of Class B common stock of ACS (of which

defendant Deason owns 100%), will be converted into the right to receive (i) 4.935 shares of

Common Stock, (ii) $18.60 in cash, without interest and (iii) a fraction of a share of a new series

of convertible preferred stock to be issued by Xerox and designated as Series A Convertible

Perpetual Preferred Stock (“Convertible Preferred Stock”) equal to (x) 300,000 divided by (y)

the number of shares of Class B common stock of ACS issued and outstanding as of the effective

time of the merger. The Convertible Preferred Stock is anticipated to carry an annual cumulative

dividend of 8%. Additionally, each share of Convertible Preferred Stock may be converted at

any time, at the option of the holder, into 89.8876 shares of Common Stock (which reflects an

initial conversion price of approximately $11.125 per share of Common Stock, which is a 25%

premium over $8.90, which was the average closing price of the Common Stock over the 7-

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trading day period ended on September 14, 2009), subject to customary anti-dilution

adjustments. On or after the fifth anniversary of the issue date, Xerox will have the right, at its

option, to cause, under certain circumstances, any or all of the Convertible Preferred Stock to be

converted into shares of Common Stock at the then applicable conversion rate.

55. The Merger Agreement also provides that, upon termination under specified

circumstances, the Company would be required to pay Xerox a termination fee of up to $194

million.

56. In connection with the announcement of the Merger, defendant Deason stated:

When ACS was founded, we had a vision of becoming a best-in-class company

by working harder than our competitors. More than 20 years and 74,000
employees later, as the world's top BPO company, we have now found a partner
to help us reach even greater heights, . . . This is a tremendous outcome for our
shareholders driven by the commitment of a strong management team and
incredibly dedicated employees. At closing, I will become one of the combined
company's largest individual shareholders, and I intend to remain a long-term
investor because I could not be more optimistic about the future of the combined
company.

57. Moreover, Ursula M. Burns, Xerox’s CEO stated:

By combining Xerox's strengths in document technology with ACS's expertise in

managing and automating work processes, we're creating a new class of solution
provider, . . . A game-changer for Xerox, acquiring ACS helps us expand our
business and benefit from stronger revenue and earnings growth.

Xerox becomes a $22 billion global company, of which $17 billion is recurring
revenue - a significant boost to our profitable annuity stream, . . . The revenue we
generate from services will triple from $3.5 billion in 2008 to an estimated $10
billion next year.

58. The consideration offered to ACS’s public stockholders in the Merger is unfair

and grossly inadequate because, among other things, the intrinsic value of ACS’s common stock

is materially in excess of the amount offered for those securities in the proposed acquisition

given the Company’s prospects for future growth and earnings.

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 59. According to a research note by Credit Swiss on September 28, 2009, Xerox’s

$6.4 billion offer for ACS values the Company at 14x current year 2010 Earnings Per Share

(“EPS”) estimates of $4.51. By comparison, Dell, Inc. is paying a 68% premium, or about 30x

EPS for Perot Systems Corporation. Moreover, Hewlett-Packard Company’s acquisition of

Electronic Data Systems Corporation last year was valued at 16x EPS.

60. On September 28, 2009, Bloomberg reported that the Merger will “help [Xerox]

expand into a market Xerox values at about $150 billion and gives [Xerox] a foothold in

managing administrative operations for multiple arms of the U.S. government.” Moreover,

according to analyst firm NelsonHall, the BPO market is forecast to hit $450 billion by 2012.

61. Although the Individual Defendants are duty-bound to protect the interests of

ACS shareholders by obtaining the maximum value reasonably available in any sale or merger of

the Company, Defendants entered into the Merger at a woefully inadequate price. Despite the

insufficient consideration offered in the Merger, certain of the Individual Defendants and certain

executive officers of ACS stand to receive lucrative payments upon consummation of the

Merger, including the automatic vesting and triggering of cash payments associated with stock

options and restricted stock, as well as change-in-control payments.

62. While the Individual Defendants were negotiating the Merger, they also arranged

for the continued employment of certain defendants and executives of ACS with Xerox.

63. Specifically ACS, which will operate as an independent organization and initially

will be branded “ACS, a Xerox Company”, will be led by defendant Blodgett who will report to

Ursula Burns, Xerox’s CEO.

64. Additionally, on September 27, 2009, ACS and Xerox entered into Senior

Executive Agreements (the “Executive Agreements”) with defendant Blodgett, Tom Burlin

(ACS’s Executive Vice President and Chief Operating Officer), John Rexford (ACS’s Executive

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Vice President for Corporate Development), Kevin Kyser (ACS’s Executive Vice President and

Chief Financial Officer) and Tom Blodgett (ACS’s chief operating officer of ACS’s commercial

operations and brother of defendant Blodgett). The Executive Agreements provide that the

executive officers listed above will be eligible to receive aggregate retention payments generally

equal to the payments each executive officer would have otherwise been entitled to receive

immediately upon the effective time of the Merger under his prior change of control agreement

with ACS (or in the case of defendant Blodgett, under his prior employment agreement with

ACS).

65. These retention payments equal $5,013,300, $3,104,100, $2,664,354, $2,224,605

and $2,835,129, respectively (plus, in each case, an amount equal to a pro-rata portion of the

target annual bonuses based upon the percentage of the fiscal year which expires as of the date

of the Merger), 30% of which will be paid upon the second anniversary of the effective time of

the Merger and 70% of which will be paid upon the third anniversary of the effective time of the

Merger (except for Mr. Kyser’s payments, which will be paid in three equal installments on each

of the first three anniversaries of the effective time of the Merger), subject to the executive

officer’s continued employment on such dates.

66. In addition, with respect to stock options to purchase ACS common stock granted

to each of the executive officers in August 2009 (which will be converted into stock options to

purchase Xerox common stock pursuant to the Merger Agreement), each executive officer

agreed to waive accelerated vesting of such stock options, and they will instead vest according to

their regular vesting schedule, subject to accelerated vesting upon the achievement of certain

performance goals. Additionally, the Executive Agreements provide for an initial grant of

performance shares with respect to Xerox common stock. The target value of the performance

shares will equal each executive officer’s annual rate of base salary, and the performance shares

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will vest upon the third anniversary of the effective time of the Merger, subject to achieving

specified performance goals. In addition, the vesting of the August 2009 stock options will fully

accelerate, and the vesting of the performance shares will accelerate on a prorated basis based

upon actual performance, in the event the executive officer is terminated without cause or for

good reason, or due to death or disability (with full vesting of the performance shares at “target”

in the event of death). The Executive Agreements also provide for health and welfare benefits

during continued employment through the end of 2012 (and continued coverage through the third

anniversary of the Merger in the event of termination without cause or for good reason prior to

the third anniversary of the Merger), participation in Xerox’s equity incentive plans during

continued employment, outplacement services for 1 year in the event of termination without

cause or for good reason prior to the third anniversary of the Merger, continued directors and

officers liability insurance until the fifth anniversary of the Merger and a golden parachute

excise tax gross-up payment, which each executive officer is already entitled to receive pursuant

to his employment agreement or change of control agreement with ACS.

67. Additionally, ACS, Xerox and defendant Deason entered into a Separation

Agreement (the “Separation Agreement”). The Separation Agreement provides that upon

consummation of the Merger, Deason will resign as Chairman of ACS. The Separation

Agreement further provides that until May 18, 2014, Deason will receive base salary and annual

bonus continuation payments, at his current annual rate of base salary ($1,017,437) and at his

current target annual bonus ($2,543,591.20), health and welfare benefits (subject to earlier

cessation of such health and welfare benefits if Deason becomes employed by a new employer in

certain circumstances), home office support and, subject to certain limitations, his current

perquisites and fringe benefits. In addition, Deason will be entitled to continued Directors and

Officers liability insurance through May 18, 2014 (and throughout the period of any applicable

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statute of limitation), additional service and age credits through May 18, 2004 for purposes of

determining eligibility under the Company’s post-retirement welfare benefits, to be reimbursed

for any incremental taxation he incurs on such entitlements by virtue of no longer being an

employee, and to tax gross up payments for any golden parachute excise taxes incurred by him

pursuant to Section 4999 of the Internal Revenue Code. The Separation Agreement generally

preserves Deason’s rights under his current Amended and Restated Employment Agreement with

the Company, dated December 7, 2007 and amended as of December 30, 2008 (the “Deason

Employment Agreement”). Also, pursuant to the Deason Employment Agreement, Deason

became entitled to a change of control payment upon the approval of the Merger by the Board of

Directors of ACS.

68. Under the employment agreement, Deason will be entitled to a payment if:

(i) ACS undergoes a consolidation or merger in which ACS is not the surviving company or in

which ACS’s common stock is converted into cash, securities or other property such that holders

of ACS common stock do not have the same proportionate ownership of the surviving

company’s common stock as they held of ACS common stock prior to the merger or

consolidation; (ii) ACS sells, leases or transfers all or substantially all of the Company’s assets to

a company in which ACS owns less than 80% of the outstanding voting securities; (iii) ACS

adopts or implements a plan or proposal for ACS’s liquidation; (iv) a person or entity (other than

one or more trusts established by ACS for the benefit of the Company’s employees) becomes the

beneficial owner of 20% or more of ACS outstanding common stock; or (v) during any period of

24 consecutive months there is a turnover of a majority of the Board of Directors.

69. The benefit to be received by Deason upon a change of control event includes a

lump sum payment, equal to:

(a) the number of years (including partial years) remaining under his employment
agreement times the sum of (i) his per annum base salary at the time of the change
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 of control, plus (ii) the greater of (x) his bonus for the immediately preceding
fiscal year or (y) the average of his bonus for the immediately preceding two
fiscal years, plus (b) his target bonus for the then-current fiscal year, pro rated to
reflect the number of days the executive was employed by us in that fiscal year.
Among other things, the employment agreement also provides that we will, (a) for
up to three years following Deason’s termination of employment, continue to
(i) provide insurance (medical, dental, life insurance, disability and accidental
death and dismemberment) benefits to the executive at the highest level of
coverage provided to Deason prior to the change of control until the executive
secures employment that provides replacement insurance and (ii) provide
insurance benefits to the executive to the extent any new insurance the executive
receives from a subsequent employer does not cover a pre-existing condition, and
(b) provide outplacement counseling assistance and (c) maintain director’s and
officer’s liability insurance on behalf of the executive, at the level in effect
immediately prior to the change of control, for the three (3) year period following
the change of control, and throughout the period of any applicable statute of
limitations. Under the employment agreement, we will also pay accrued but
unpaid compensation and deferred compensation upon termination of
employment. Also, when determining Deason’s eligibility for post-retirement
benefits under any welfare benefit plan, he will be credited with three years of
participation and age credit. Deason will also become vested in the benefits
provided under any Company retirement or successor plan.

70. In the Company’s Proxy Statement, Schedule 14A, filed on April 14, 2009, it was

estimated that the “Change of Control” benefits, including: (i) the estimated amounts of cash

compensation and the estimated value of non cash benefits per the terms of the employment and

change of control agreements, as well as the Supplemental Executive Retirement Agreement for

Deason; (ii) the estimated excise tax amounts based on the cash and non cash benefits and the

values attributable to the accelerated vesting of stock options under Rev. Proc. 2003-68; and

(iii) the vesting of unvested stock options, assuming a change of control on June 30, 2008 (and

the closing price of $53.49 for the Class A shares on that date), payable at June 30, 2008,

amounted to $43,803,934.

71. In addition to the Change of control payments, on September 29, 2009, the Wall

Street Journal reported that defendant Deason will net approximately $800 million in a mix of

cash and Xerox stock, citing a person familiar with the matter. According to the article:

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 [Deason] will receive about $167 million in cash and Xerox stock for his Class A
and B shares. There is also a special sweetener of $300 million in convertible
preferred Xerox stock for his Class B ACS shares. (Deason’s Class B shares
essentially give him voting control over the company). In addition, Deason
receives 44 million in Xerox common stock, which today is worth about $325
million . . .

72. Moreover, defendant Deason has structured the Merger to obtain a premium over

and above what the public shareholders of ACS will receive, despite agreeing to limit his voting

power to 45%. On September 29, 2009, the NY Times reported:

Mr. Deason, who owns 6.6 million class B shares with 10 votes each, will receive
an additional $300 million in Xerox convertible preferred. This works out to $45
per class B share and an additional $32 a share for all of Mr. Deason’s holdings
above the class A price.

In comparison, the public shareholders are receiving $63.11 a share. Note that all
of these prices came at the time of the announcement. Xerox’s shares declined 14
percent on Monday, lowering these amounts.

This is still approximately a 50 percent premium for Mr. Deason over the public
shareholders, a premium paid to a man who was a buyer two and a half years ago,
albeit at a slightly lower price.

Such dual-class differential payments are not common and often heavily
criticized. The most recent one I can remember is Constellation Brands’
acquisition of the Robert Mondavi Corporation in 2004. In Delaware, though,
they are allowed as a premium paid for control. But in this case, Mr. Deason does
not have true control since he is limited by an agreement with the company to a
45 percent ownership or voting stake.

73. Under the circumstances, however, the Individual Defendants are obligated to

explore all alternatives to maximize shareholder value.

74. Moreover, the Merger suffers from serious conflicts of interests. The press

release announcing the Merger notes that Citigroup Global Markets Inc. (“Citigroup”) served as

one of the financial advisors to ACS. Citigroup, however, has a close working relationship with

Xerox that compromises its independence as adviser to ACS. In 2007, it was reported that

Citigroup served as one of the Joint Bookrunning Managers and several other participating

underwriters in connection with Xerox Corporation's registered offering of $1.1 billion of senior
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notes. In 2008, it was reported that Citigroup served as one of the underwriters in connection

with Xerox's registered offering of $1.4 billion of senior notes comprised of $400,000,000 5.65%

Senior Notes due 2013 and $1,000,000,000 6.35% Senior Notes due 2018. In 2009, it was

reported that Citigroup served as one the underwriters in connection with Xerox’s registered

offering of $750,000,000 of 8.25% senior notes due 2014.

75. Moreover, Anne M. Mulcahy, Xerox’s current chairman and CEO is a board

director of Citigroup.

76. The value offered to Xerox’s public shareholders in the Merger is inadequate

when considering both the monetary value of the Xerox common stock they will receive as well

as the fact that ACS is poised to achieve significant growth in the near future.

77. The Merger comes at a time when the Company’s stock price is undervalued but

its prospects for growth and increased revenue are substantially increasing as the economic

recession is ending. ACS insiders are well aware of the Company’s intrinsic value and that ACS

shares are significantly undervalued. Xerox recognized ACS’s solid performance and potential

for growth and determined to capitalize on the recent downturn in the Company’s stock price at

the expense of ACS’s public shareholders. Xerox is seeking to engage in a transaction that

secures an opportunity to benefit from the Company’s growth, while the Company’s

shareholders are provided inadequate consideration without the benefit of a full and fair

transaction process.

FIRST CAUSE OF ACTION

Claim for Breach of Fiduciary Duties Against the Individual Defendants

78. Plaintiff repeats and realleges each allegation set forth herein.

79. The Individual Defendants have violated fiduciary duties of care, loyalty, candor

and good faith owed to public shareholders of ACS and certain of them have acted to put their

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personal interests ahead of the interests of ACS shareholders or acquiesced in those actions by

fellow directors or executive officers.

80. By the acts, transactions and courses of conduct alleged herein, defendants,

individually and acting as a part of a common plan, are attempting to unfairly deprive plaintiff

and other members of the Class of the true value of their investment in ACS.

81. As demonstrated by the allegations above, the Individual Defendants failed to

exercise the care required, and breached their duties of loyalty, good faith, candor and

independence owed to the shareholders of ACS because, among other reasons, they failed to take

steps to maximize the value of ACS to its public shareholders, by, among other things, failing to

adequately consider potential acquirers, instead favoring their own, or their fellow directors or

executive officers’, interests to secure all possible benefits with a friendly suitor, rather than

protect the best interests of ACS’s shareholders.

82. The Individual Defendants dominate and control the business and corporate

affairs of ACS, and are in possession of private corporate information concerning ACS’s assets,

business and future prospects. Thus, there exists an imbalance and disparity of knowledge and

economic power between them and the public shareholders of ACS which makes it inherently

unfair for them to benefit their own interests to the exclusion of maximizing shareholder value.

83. By reason of the foregoing acts, practices and course of conduct, the defendants

have failed to exercise ordinary care and diligence in the exercise of their fiduciary obligations

toward plaintiff and the other members of the Class.

84. As a result of the actions of defendants, plaintiff and the Class will suffer

irreparable injury in that they have not and will not receive their fair portion of the value of

ACS’s assets and businesses and have been and will be prevented from obtaining a fair price for

their common stock.

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 85. Defendants are engaging in self-dealing, are not acting in good faith toward

plaintiff and the other members of the Class, and have breached and are breaching their fiduciary

duties to the members of the Class. Unless defendants are enjoined by the Court, they will

continue to breach their fiduciary duties owed to plaintiff and the members of the Class, all to the

irreparable harm of the members of the Class.

86. Plaintiff and the members of the Class have no adequate remedy at law. Only

through the exercise of this Court’s equitable powers can plaintiff and the Class be fully

protected from the immediate and irreparable injury which defendants’ actions threaten to inflict.

SECOND CAUSE OF ACTION

On Behalf of Plaintiff and the Class

Against Xerox for Aiding and Abetting the
Individual Defendants’ Breach of Fiduciary Duty

87. Plaintiff incorporates by reference and realleges each and every allegation

contained above, as though fully set forth herein.

88. Xerox has acted and is acting with knowledge of, or with reckless disregard to,

the fact that the Individual Defendants are in breach of their fiduciary duties to ACS’s public

shareholders, and has participated in such breaches of fiduciary duties.

89. Xerox knowingly aided and abetted the Individual Defendants’ wrongdoing

alleged herein. In so doing, Xerox rendered substantial assistance in order to effectuate the

Individual Defendants’ plan to consummate the Merger in breach of their fiduciary duties.

90. Plaintiff has no adequate remedy at law.

PRAYER FOR RELIEF

WHEREFORE, Plaintiff demands injunctive relief in its favor and in favor of the Class

and against Defendants as follows:

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 A. Declaring that this action is properly maintainable as a Class action and certifying

Plaintiff as Class representative;

B. Enjoining Defendants, their agents, counsel, employees and all persons acting in

concert with them from consummating the Merger, unless and until the Company adopts and

implements a procedure or process to obtain a merger agreement providing the best possible

terms for shareholders;

C. Rescinding, to the extent already implemented, the Merger or any of the terms

thereof, or granting Plaintiff and the Class rescissory damages;

D. Directing the Individual Defendants to account to Plaintiff and the Class for all

damages suffered as a result of the Individual Defendants’ breaches of their fiduciary duties;

E. Awarding Plaintiff the costs and disbursements of this action, including

reasonable attorneys’ and experts’ fees; and

F. Granting such other and further equitable relief as this Court may deem just and

proper.

Dated: September 30, 2009 ROSENTHAL, MONHAIT & GODDESS, P.A.

By: /s/ Carmella P. Keener

Carmella P. Keener (Del. Bar No. 2810)
919 N. Market Street, Suite 1401
Citizens Bank Center
OF COUNSEL: P.O. Box 1070
Wilmington, DE 19801
SAXENA WHITE P.A. (302) 656-4433
2424 North Federal Highway, Suite 257 ckeener@rmgglaw.com
Boca Raton, Florida 33431
(561) 394-3399

FARUQI & FARUQI, LLP

369 Lexington Avenue, 10th Fl.
New York, NY 10017
(212) 983-9330

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