Blackberry 2008 Annual Report Download - page 29

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Superior Court of Justice-Commercial List by a pension fund
shareholder, seeking various orders against the Company
and named directors, the Company and the other defendants
entered into an agreement with the shareholder to settle
the Application and a proposed derivative action. Under the
settlement, among other things, RIM agreed to the payment
of CAD $1.1 million on account of the shareholder’s legal
costs, and consistent with their earlier voluntary agreement
(described above and in RIM’s March 5, 2007 press release
summarizing the results of the Review) to contribute
CAD $5.0 million each to defray the costs incurred by RIM
in connection with the Review, RIM’s co-CEO’s, Jim Balsillie
and Mike Lazaridis, agreed to pay RIM a further CAD $2.5
million each to defray the Review costs incurred by RIM. The
Company received these voluntary payments of
CAD $2.5 million each in the third quarter of fiscal 2008,
which were recorded net of income taxes as an increase to
paid-in capital.
Risks Related to the Company’s Historical Stock Option
Granting Practices
As a result of the events described above, the Company has
become subject to the following significant risks, each of
which could have a material adverse effect on the Company’s
business, financial condition and results of operations:
• The Company’s stock option granting practices are subject
to ongoing investigations by the SEC, the OSC and the
USAO. The investigations and requests for information,
including interviews with the Company’s management and
others, have required significant management attention
and resources. The period of time necessary to resolve the
investigations or to adequately respond to requests for
information is uncertain, and these matters could require
significant additional attention and resources that could
otherwise be devoted to the operation of the Company’s
business. While it is not possible to predict at this time
what action may result from the investigations or inquiries,
the Company anticipates that RIM or certain of its directors
or officers may be subject to potential enforcement action
and could be subject to other potential risks and outcomes
as described below. If the securities regulators or the
USAO determine that a violation of securities or other
laws may have occurred, or has occurred, the Company
or its officers and directors may receive notices regarding
potential enforcement action or prosecution and could be
subject to civil or criminal penalties or other remedies. For
example, the Company or its officers could be required
to pay substantial damages, fines or other penalties, the
regulators could seek an injunction against the Company
or seek to ban an officer or director of the Company
from acting as such, or the USAO could seek to impose
criminal sanctions against the Company or its officers or
directors if it determines that there was an intent to violate
securities or other laws, any of which actions would have
a material adverse effect on the Company. There can be
no assurance that other regulatory agencies in the United
States, Canada or elsewhere will not make inquiries about,
or commence investigations into, matters relating to the
Company’s stock option practices.
• As previously disclosed, the Company was served with
an application filed by a pension fund shareholder in
Ontario, Canada, which, among other things, sought to
commence a shareholder derivative action relating to the
Company’s historical option granting practices, and also
made certain demands with respect to the conduct and
scope of the Review. Such action was settled in the third
quarter of fiscal 2008. On November 5, 2007, the Ontario
Superior Court of Justice granted an order approving
the settlement and issuing a representation order that
binds all RIM shareholders to the terms of the agreement,
except for those who had opted out. Approximately
one hundred shareholders opted out of the settlement.
Those who disclosed the number of shares held by them
indicated that, combined, the opt-out shareholders hold
approximately 27,400 shares (approximately 0.005%
of all outstanding shares). However, certain opt-out
shareholders did not disclose the number of shares held
by them. On December 10, 2007, the Ontario Superior
Court of Justice issued an order extending the opt-out
deadline to January 22, 2008 for customers of Goldman
Sachs Exchange & Clearing L.P., who did not receive notice
of the settlement in the initial mailing. As a result of that
extension, additional shareholders holding 47,080 shares
as at the record date opted out. While that lawsuit has