Netgear 2006 Annual Report Download - page 62

Table of Contents
NETGEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
products implementing the IEEE 802.11a and 802.11g wireless LAN standards infringe its patent. In July 2006,
United States Court of Appeals for the Federal Circuit affirmed the District Court’s decision to deny CSIRO’s
motion to dismiss the action under the Foreign Sovereign Immunities Act. CSIRO has filed a petition with the
Federal Circuit requesting a rehearing en banc. This action is in the preliminary motion stages and no trial date has
been set.
SercoNet v. NETGEAR
In May 2006, a lawsuit was filed against the Company by SercoNet, Ltd., a manufacturer of computer
networking products organized under the laws of Israel, in the United States District Court for the Southern District
of New York. SercoNet alleges that the Company infringes U.S. Patents Nos. 5,841,360; 6,480,510; 6,970,538;
7,016,368; and 7,035,280. SercoNet has accused certain of the Company’s switches, routers, modems, adapters,
powerline products, and wireless access points of infringement. In July 2006, the court granted the Company’s
motion to transfer the action to the Northern District of California. This action is in the preliminary motion stages and
no trial date has been set.
These claims against the Company, or filed by the Company, whether meritorious or not, could be time
consuming, result in costly litigation, require significant amounts of management time, and result in the diversion of
significant operational resources. Were an unfavorable outcome to occur, there exists the possibility it would have a
material adverse impact on the Company’s financial position and results of operations for the period in which the
unfavorable outcome occurs or becomes probable. In addition, the Company is subject to legal proceedings, claims
and litigation arising in the ordinary course of business, including litigation related to intellectual property and
employment matters.
While the outcome of these matters is currently not determinable, the Company does not expect that the ultimate
costs to resolve these matters will have a material adverse effect on the Company’s consolidated financial position,
results of operations or cash flows.
Environmental Regulation
The European Union (“EU”)
has enacted the Waste Electrical and Electronic Equipment Directive, which makes
producers of electrical goods, including home and small business networking products, financially responsible for
specified collection, recycling, treatment and disposal of past and future covered products. The deadline for the
individual member states of the EU to enact the directive in their respective countries was August 13, 2004 (such
legislation, together with the directive, the “WEEE Legislation”). Producers participating in the market are
financially responsible for implementing these responsibilities under the WEEE Legislation beginning in August
2005. Similar WEEE Legislation has been or may be enacted in other jurisdictions, including in the United States,
Canada, Mexico, China and Japan. The Company adopted FSP SFAS 143-1, “Accounting for Electronic Equipment
Waste Obligations”, in the third quarter of fiscal 2005 and has determined that its effect did not have a material
impact on its consolidated results of operations and financial position for fiscal 2005 and fiscal 2006. The Company
is continuing to evaluate the impact of the WEEE Legislation and similar legislation in other jurisdictions as
individual countries issue their implementation guidance.
Employments Agreements
The Company has signed various employment agreements with key executives pursuant to which if their
employment is terminated without cause, the employees are entitled to receive their base salary (and commission or
bonus, as applicable) for 52 weeks (for the Chief Executive Officer) and up to 26 weeks (for other key executives),
and such employees will continue to have stock options vest for up to a one year period following the termination. If
the termination, without cause, occurs within one year of a change in control, the officer is entitled to two years
acceleration of any unvested portion of his or her stock options.
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