On January 24, 2007,
RightNow Technologies, Inc. (RightNow) filed a suit in the Eighteenth Judicial District Court of Gallatin County, Montana against the Company and four former RightNow employees who had joined the Company. The suit alleges violation of
certain provisions of employment agreements, misappropriation of trade secrets, as well as other claims, and seeks damages. We believe we have meritorious defenses to these claims and intend to defend against this action vigorously.
On March 16, 2006, Polaris IP, LLC (Polaris) filed suit against the Company, Sirius Satellite Radio, Inc., Priceline.com, Capital One,
Continental Airlines, Inc., and E*Trade Financial, in the U.S. District Court for the Eastern District of Texas, alleging infringement of U.S. Patent Nos. 6,411,947 and 6,278,996, and seeking injunctive relief, damages and attorneys fees. In
exchange for payment of a quarterly license fee through 2011, Polaris granted the Company a perpetual license to certain patents, including those at issue in the litigation, and the parties dismissed their claims against each other with prejudice on
April 26, 2007. The terms of the settlement included the release and dismissal of the Companys customers named in the lawsuit.
The underwriters for our initial public offering, Goldman Sachs & Co., Lehman Bros., Hambrecht & Quist LLC and Wit Soundview Capital Corp., the Company and certain current and former officers of the Company were named as
defendants in federal securities class action lawsuits filed in the U. S. District Court for the Southern District of New York. The cases allege violations of various securities laws by more than 300 issuers of stock, including the Company, and the
underwriters for such issuers, on behalf of a class of plaintiffs who, in the case of the Company, purchased the Companys common stock between September 21, 1999 and December 6, 2000 in connection with our initial public offering.
Specifically, the complaints allege that the underwriter defendants engaged in a scheme concerning sales of the Companys and other issuers securities in the initial public offering and in the aftermarket. In July 2003, we decided to join
in a settlement negotiated by representatives of a coalition of issuers named as defendants in this action and their insurers. Although we believe that the plaintiffs claims have no merit, we have decided to accept the settlement proposal to
avoid the cost and distraction of continued litigation. Because the settlement will be funded entirely by the Companys insurers, we do not believe that the settlement will have any effect on our financial condition, results of operation or
cash flows. The proposed settlement agreement is subject to final approval by the court. Should the court fail to approve the settlement agreement, we believe we have meritorious defenses to these claims and will defend against the action
Other third parties have from time to time claimed, and others may claim in the future that we have infringed their past,
current or future intellectual property rights. We have in the past been forced to litigate such claims. These claims, whether meritorious or not, could be time-consuming, result in costly litigation, require expensive changes in our methods of
doing business or could require us to enter into costly royalty or licensing agreements, if available. As a result, these claims could harm our business.
The ultimate outcome of any litigation is uncertain, and either unfavorable or favorable outcomes could have a material negative impact on our results of operations, consolidated balance sheets and cash flows, due to
defense costs, diversion of management resources and other factors.
Information regarding the
Companys risk factors appears in Part I. Financial Information Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations of this Quarterly Report on Form 10-Q and in Part
I. Item 1A. Risk Factors on our Annual Report on Form 10-K for the fiscal year ended December 31, 2006. There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2006 other than the material changes set forth below:
We have added our entry into a definitive agreement with eVergance in May 2007 to the risk factor entitled If we acquire companies, products, or technologies,
we may face risks associated with those acquisitions. This amended risk factor is provided in Part I. Financial Information Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations of this
Quarterly Report on Form 10-Q.