Adaptec 2006 Annual Report Download - page 34

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The Consolidated Complaint generally alleges that various current and former Company directors and/or officers breached their duty of loyalty and/or duty of
care to the Company and its shareholders that these purported breaches of fiduciary duties caused harm to the Company, and the plaintiffs seek to recover
damages on behalf of the Company. The Consolidated Complaint also alleges violations of federal securities laws. The Company is a nominal defendant in the
case, but any recovery in the litigation would be paid to the Company, rather than to its shareholders. The Company has engaged independent legal counsel to
prepare joint defense arrangements for the various defendants.
UTStarcom
On November 17, 2005, UTStarcom, Inc. filed a suit against Passave in the Santa Clara County Superior Court in California. In that claim, UTStarcom raised
various demands regarding issues relating to the interaction of Passave’s PAS 5001 system-on-a-chip with a particular company’s switch used by UTStarcom in
its Fiber-to-the-home (“FTTH”) products. In the suit, UTStarcom asserts various claims for breach of contract and breach of warranty and requests indemnity
associated with the sale of Passave’s PAS 5001 products. UTStarcom claims that it incorporated those products into its FTTH products that were shipped to a
particular customer, and that customer informed UTStarcom that those FTTH products supplied by UTStarcom were experiencing unacceptable data
interruptions. UTStarcom further claims the data interruptions were caused by the failure of Passave’s PAS 5001 to properly interface with another company’s
switch in the UTStarcom product. UTStarcom also claims that Passave breached certain warranties contained in its purchase orders and is obligated to indemnify
UTStarcom and its customers for any damages that resulted from a breach of these warranties. UTStarcom further claims that its customers have submitted
claims to UTStarcom, which UTStarcom also alleges stem from its product’s failure attributable to Passave’s chips. UTStarcom also claims that it has incurred
costs and expenses in an amount exceeding $30 million in connection with the product defects it claims are attributable to the PAS 5001 products. On
January 16, 2007, Passave filed its response to the amended complaint and also filed a cross-complaint against UT Starcom alleging interference with prospective
economic advantage and breach of contract.
We believe that Passave has meritorious defenses to UTStarcom’s claims and valid basis for its cross-complaint. Nevertheless, Passave has informed UTStarcom
that it is prepared to replace a number of such system-on-a-chips that Passave had shipped to it as an accommodation to UTStarcom. Although we have
attempted to try to resolve this dispute, we may not be able to do so on reasonable terms, if at all. If we lose this litigation, a court could require us to pay
substantial damages. Any negotiated resolution of the UTStarcom claim could also require us to make substantial payments. Either of these results could have a
material adverse effect on our business, results of operations and financial condition.
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Source: PMC SIERRA INC, 10-K, March 01, 2007 Powered by Morningstar® Document Research℠