NVIDIA 2007 Annual Report Download - page 84

NVIDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Note 3 − 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 agreement, which closed on April 18, 2001, to purchase certain graphics chip assets from 3dfx. 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 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 two 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 agreement 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, we were served with a complaint filed by the Trustee appointed by the Bankruptcy Court which sought,
among other things, payments from us as additional purchase price related to our purchase of certain assets of 3dfx. In early
November 2005, after many months of mediation, NVIDIA and the Official Committee of Unsecured Creditors, or the Creditors'
Committee, reached a conditional settlement of the Trustee's claims against NVIDIA. This conditional settlement, presented as the
centerpiece of a proposed Plan of Liquidation in the bankruptcy case, was subject to a confirmation process through a vote of creditors
and the review and approval of the Bankruptcy Court after notice and hearing. The Trustee advised that he intended to object to the
settlement, which would have 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.
However, the conditional settlement never progressed substantially through the confirmation process. On December 21, 2005, the
Bankruptcy Court determined that it would schedule trial of one portion of the Trustee's case against NVIDIA. On January 2, 2007,
NVIDIA exercised its right to terminate the settlement agreement on grounds that the bankruptcy court had failed to proceed toward
confirmation of the Creditors' Committee's plan. Beginning on March 21, 2007, NVIDIA and the Trustee are scheduled to try the
question of the value of the assets 3dfx conveyed to NVIDIA and, in particular, whether the price NVIDIA paid for those assets was
reasonably equivalent to the value of the assets 3dfx sold to NVIDIA.
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 see Note 12 for further information regarding this litigation.
Fair Market Value Straight−Line Amortization Period
(In thousands) (Years)
Property and equipment $ 2,433 1−2
Trademarks 11,310 5
Goodwill 85,418 −−
Total $ 99,161
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Source: NVIDIA CORP, 10−K, March 16, 2007