3Ware 2005 Annual Report Download - page 51

• ability of the acquired companies to meet their financial projections; and
• assumption of unknown liabilities, or other unanticipated events or circumstances.
Any of these risks could materially harm our business, financial condition and results of operations.
As with past acquisitions, future acquisitions could adversely affect operating results. In particular,
acquisitions may materially and adversely affect our results of operations because they may require large
one-time charges or could result in increased debt or contingent liabilities, adverse tax consequences, substantial
additional depreciation or deferred compensation charges. Our past purchase acquisitions required us to
capitalize significant amounts of goodwill and purchased intangible assets. As a result of the slowdown in our
industry and reduction of our market capitalization, we have been required to record various significant
impairment charges against these assets as noted in our financial statements. At March 31, 2005, we have $534.5
million of goodwill and purchased intangible assets. There can be no assurance that we will not be required to
take additional significant charges as a result of an impairment to the carrying value of these assets, due to further
declines in market conditions.
We have been named as a defendant in securities class action litigation that could result in substantial
costs and divert management’s attention and resources, and while we have reached an agreement to settle
part of such litigation, the settlement may not be approved by the court or its costs may be higher than
expected.
We along with certain executive officers and directors were sued for alleged violations of federal securities
laws related to alleged misrepresentations regarding our financial prospects in fiscal 2001. In January 2005, we
entered into a Memorandum of Understanding containing the essential terms of a settlement of this litigation. In
April 2005, our insurance carriers and we paid $60 million into a Settlement Fund following the court’s
preliminary approval of a definitive Stipulation of Settlement. All costs of class notice and administration of the
settlement, along with all fees and expenses awarded to the plaintiffs’ counsel, will be paid out of the Settlement
Fund. Our insurance carriers paid approximately $31 million of the Settlement Fund. The settlement is
conditioned upon final approval by the court and a final judgment of dismissal with prejudice of the litigation.
We do not expect the court to grant final approval before June 2005. There is a risk that the settlement will not be
approved by the court.
In addition, JNI Corporation, which we acquired in October 2003, also has a number of pending lawsuits.
We believe that the claims pending against JNI Corporation are without merit, and we intend to engage in a
vigorous defense against such claims. If we are not successful in our defense against such claims, we could be
forced to make significant payments to the plaintiffs and their lawyers, and such payments could have a material
adverse effect on our business, financial condition and results of operations if not covered by our insurance
carriers. Even if such claims are not successful, the litigation could result in substantial costs including, but not
limited to, attorney and expert fees, and divert management’s attention and resources, which could have an
adverse effect on our business. Though insurers have paid defense costs to date, there can be no assurance that
they will continue to pay such costs, judgments or other expenses associated with the lawsuit.
We may not be able to protect our intellectual property adequately.
We rely in part on patents to protect our intellectual property. We cannot assure you that our pending patent
applications or any future applications will be approved, or that any issued patents will adequately protect the
intellectual property in our products, provide us with competitive advantages or will not be challenged by third
parties, or that if challenged, will be found to be valid or enforceable. Others may independently develop similar
products or processes, duplicate our products or processes or design around any patents that may be issued to us.
To protect our intellectual property, we also rely on the combination of mask work protection under the
Federal Semiconductor Chip Protection Act of 1984, trademarks, copyrights, trade secret laws, employee and
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