NVIDIA 2009 Annual Report Download - page 100

NVIDIA CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Note 5 - 3dfx
During fiscal year 2002, we completed the purchase of certain assets from 3dfx Interactive, Inc., or 3dfx, for an aggregate purchase
price of approximately $74.2 million. On December 15, 2000, NVIDIA Corporation and one of our indirect subsidiaries entered into
an Asset Purchase Agreement, or the APA, which closed on April 18, 2001, to purchase certain graphics chip assets from 3dfx. Under
the terms of the APA, the cash consideration due at the closing was $70.0 million, less $15.0 million that was loaned to 3dfx pursuant
to a Credit Agreement dated December 15, 2000. The APA also provided, subject to the other provisions thereof, that if 3dfx properly
certified that all its debts and other liabilities had been provided for, then we would have been obligated to pay 3dfx one million
shares, which due to subsequent stock splits now totals six million shares, of NVIDIA common stock. If 3dfx could not make such a
certification, but instead properly certified that its debts and liabilities could be satisfied for less than $25.0 million, then 3dfx could
have elected to receive a cash payment equal to the amount of such debts and liabilities and a reduced number of shares of our
common stock, with such reduction calculated by dividing the cash payment by $25.00 per share. If 3dfx could not certify that all of
its debts and liabilities had been provided for, or could not be satisfied, for less than $25.0 million, we would not be obligated under
the APA to pay any additional consideration for the assets.
In October 2002, 3dfx filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the Northern
District of California. In March 2003, the Trustee appointed by the Bankruptcy Court to represent 3dfx’s bankruptcy estate served his
complaint on NVIDIA. The Trustee’s complaint asserts claims for, among other things, successor liability and fraudulent transfer and
seeks additional payments from us. On October 13, 2005, the Bankruptcy Court heard the Trustee’s motion for summary
adjudication, and on December 23, 2005, denied that motion in all material respects and held that NVIDIA may not dispute that the
value of the 3dfx transaction was less than $108 million. The Bankruptcy Court denied the Trustee’s request to find that the value of
the 3dfx assets conveyed to NVIDIA was at least $108 million. In early November 2005, after several months of mediation, NVIDIA
and the Official Committee of Unsecured Creditors, or the Creditors’ Committee, agreed to a Plan of Liquidation of 3dfx, which
included a conditional settlement of the Trustee’s claims against us. This conditional settlement was subject to a confirmation process
through a vote of creditors and the review and approval of the Bankruptcy Court. The conditional settlement called for a payment by
NVIDIA of approximately $30.6 million to the 3dfx estate. Under the settlement, $5.6 million related to various administrative
expenses and Trustee fees, and $25.0 million related to the satisfaction of debts and liabilities owed to the general unsecured creditors
of 3dfx. Accordingly, during the three month period ended October 30, 2005, we recorded $5.6 million as a charge to settlement costs
and $25.0 million as additional purchase price for 3dfx. The Trustee advised that he intended to object to the settlement. The
conditional settlement never progressed substantially through the confirmation process.
On December 21, 2006, the Bankruptcy Court scheduled a trial for one portion of the Trustee’s case against NVIDIA. On
January 2, 2007, NVIDIA terminated the settlement agreement on grounds that the Bankruptcy Court had failed to proceed toward
confirmation of the Creditors’ Committee’s plan. A non-jury trial began on March 21, 2007 on valuation issues in the Trustee's
constructive fraudulent transfer claims against NVIDIA. Specifically, the Bankruptcy Court tried four questions: (1) what did 3dfx
transfer to NVIDIA in the APA?; (2) of what was transferred, what qualifies as "property" subject to the Bankruptcy Court's
avoidance powers under the Uniform Fraudulent Transfer Act and relevant bankruptcy code provisions?; (3) what is the fair market
value of the "property" identified in answer to question (2)?; and (4) was the $70 million that NVIDIA paid "reasonably equivalent" to
the fair market value of that property? The parties completed post-trial briefing on May 25, 2007. On April 30, 2008, the Bankruptcy
Court issued its Memorandum Decision After Trial, in which it provided a detailed summary of the trial proceedings and the parties'
contentions and evidence and concluded that "the creditors of 3dfx were not injured by the Transaction." This decision did not
entirely dispose of the Trustee's action, however, as the Trustee's claims for successor liability and intentional fraudulent conveyance
were still pending. On June 19, 2008, NVIDIA filed a motion for summary judgment to convert the Memorandum Decision After
Trial to a final judgment. That motion was granted in its entirety and judgment was entered in NVIDIA’s favor on September 11,
2008. The Trustee filed a Notice of Appeal from that judgment on September 22, 2008, and on September 25, 2008, NVIDIA
exercised its election to have the appeal heard by the United States District Court, where the appeal is pending.
While the conditional settlement reached in November 2005 never progressed through the confirmation process, the Trustee’s
case still remains pending appeal. As such, we have not reversed the accrual of $30.6 million - $5.6 million as a charge to settlement
costs and $25.0 million as additional purchase price for 3dfx – that we recorded during the three months ended October 30, 2005,
pending resolution of the appeal of the Trustee’s case. We do not believe the resolution of this matter will have a material impact on
our results of operations or financial position.
The 3dfx asset purchase price of $95.0 million and $4.2 million of direct transaction costs were allocated based on fair values
presented below. The final allocation of the purchase price of the 3dfx assets is contingent upon the outcome of all of the 3dfx
litigation. Please refer to Note 12 of these Notes to the Consolidated Financial Statements for further information regarding this
litigation.
Fair Market
Value
Straight-Line
Amortization
Period
(In thousands) (Years)
Property and equipment $ 2,433 1-2
Source: NVIDIA CORP, 10-K, March 13, 2009 Powered by Morningstar® Document Research℠