NVIDIA 2003 Annual Report Download - page 64

NVIDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Rent expense for the years ended January 26, 2003, January 27, 2002 and January 28, 2001 was
approximately $25.6 million, $13.8 million and $3.1 million, respectively.
Litigation
On February 19, 2002 an NVIDIA stockholder, Dominic Castaldo, on behalf of himself and purportedly on
behalf of a class of Company stockholders, filed an action in the United States District Court for the Northern
District of California (the “Northern District”) against the Company and certain current and former officers of the
Company, alleging violations of the federal securities laws arising out of the Company’s announcement on
February 14, 2002 of an internal investigation of certain accounting matters. Approximately 13 similar actions
were filed in the Northern District, one additional individual action was filed in the Southern District (together,
the “Federal Class Actions”), along with three related derivative actions against the Company, certain of its
current and former executive officers, directors and its independent auditors, KPMG LLP, in California Superior
Court and in Delaware Chancery Court (collectively the “Actions”). The two related derivative actions filed in
California Superior Court have been consolidated and are currently stayed pursuant to a voluntary stipulation
agreement. The Actions allege claims in connection with various alleged statements and omissions to the public
and to the securities markets and seek damages together with interest and reimbursement of costs and expenses
of the litigation. The derivative actions also seek disgorgement of alleged profits from insider trading by officers
and directors. The Actions are in the preliminary stages. The Federal Class Actions have been consolidated and
lead plaintiffs appointed. Plaintiffs filed a consolidated amended complaint and, in response, NVIDIA filed a
motion to dismiss. On March 28, 2003 the court granted NVIDIA’s motion and dismissed the consolidated
amended complaint as to all claims and defendants with leave to amend. Plaintiffs must file their second
consolidated amended complaint by May 12, 2003. NVIDIA has also filed a motion to dismiss the derivative
action filed in Delaware. A hearing on this motion was held April 23, 2003 and a ruling is expected within the
next month. The Company is obligated to indemnify its officers and directors in connection with the Actions to
the extent permitted by the law, and has insurance for such individuals, to the extent of the limits of the
applicable insurance policies and subject to potential reservations of rights. The Company intends to vigorously
defend these Actions. The Company is unable, however, to predict the ultimate outcome of the Actions. There
can be no assurance the Company will be successful in defending the Actions, and if the Company is
unsuccessful the Company may be subject to significant damages. Even if the Company is successful, defending
the Actions is likely to be expensive and may divert management’s attention from other business concerns and
harm the Company’s business.
The staff of the Enforcement Division of the Securities & Exchange Commission (“SEC”) informed the
Company in January 2002 that it had concerns relating to certain accounting matters and that the SEC along with
the U.S. Attorney’s Office for the Northern District of California had authorized investigations into such matters.
In accordance with the suggestion and advice of the SEC staff, the Company launched a review of these matters.
On April 29, 2002, the Company announced that the Audit Committee of its Board of Directors had, with
assistance from the law firm of Cooley Godward LLP and forensic auditors from the accounting firm of KPMG
LLP, concluded its review and determined that it was appropriate to restate the Company’s financial statements
for fiscal 2000, 2001 and the first three quarters of fiscal 2002. The Audit Committee has worked and continues
to work in cooperation with the SEC. See Note 14 for recent developments regarding this matter.
On April 18, 2001, the Company completed the purchase of certain assets of 3dfx, including patents and
patent applications. Under the terms of the Asset Purchase Agreement, 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 Asset Purchase Agreement also provides, subject to the other provisions thereof, that if 3dfx
certifies to the Company’s satisfaction that all its debts and other liabilities have been provided for, then the
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