NVIDIA 2009 Annual Report Download - page 115

NVIDIA CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
After the Bankruptcy Court denied our motion to dismiss on September 6, 2006, the Equity Committee again amended its
complaint, and NVIDIA moved to dismiss that amended complaint as well. On December 21, 2006, the Bankruptcy Court granted the
motion as to one of the Equity Committee’s claims, and denied it as to the others. However, the Bankruptcy Court also ruled that
NVIDIA would only be required to answer the first three causes of action by which the Equity Committee seeks determinations that
(1) the APA was not terminated before 3dfx filed for bankruptcy protection, (2) the 3dfx bankruptcy estate still holds some rights in
the APA, and (3) the APA is capable of being assumed by the bankruptcy estate.
Because of the trial of the Trustee's fraudulent transfer claims against NVIDIA, the Equity Committee's lawsuit did not
progress substantially in 2007. On July 31, 2008, the Equity Committee filed a motion for summary judgment on its first three causes
of action. On September 15, 2008, NVIDIA filed a cross-motion for summary judgment. On October 24, 2008, the Court held a
hearing on the parties’ cross-motions for summary judgment. On January 6, 2009, the Bankruptcy Court issued a Memorandum
Decision granting NVIDIA’s motion and denying the Equity Committee’s motion, and entered an Order to that effect on January 30,
2009. On February 27, 2009, the Bankruptcy Court entered judgment in favor of NVIDIA. The Equity Committee has waived its right
to appeal by stipulation entered on February 18, 2009, and the judgment is now final.
Proceedings, SEC inquiry and lawsuits related to our historical stock option granting practices
In June 2006, the Audit Committee of the Board of NVIDIA ("Audit Committee"), began a review of our stock option practices
based on the results of an internal review voluntarily undertaken by management. The Audit Committee, with the assistance of outside
legal counsel, completed its review on November 13, 2006 when the Audit Committee reported its findings to our full Board. The
review covered option grants to all employees, directors and consultants for all grant dates during the period from our initial public
offering in January 1999 through June 2006. Based on the findings of the Audit Committee and our internal review, we identified a
number of occasions on which we used an incorrect measurement date for financial accounting and reporting purposes.
We voluntarily contacted the SEC regarding the Audit Committee’s review. In late August 2006, the SEC initiated an inquiry
related to our historical stock option grant practices. In October 2006, we met with the SEC and provided it with a review of the status
of the Audit Committee’s review. In November 2006, we voluntarily provided the SEC with additional documents. We continued to
cooperate with the SEC throughout its inquiry. On October 26, 2007, the SEC formally notified us that the SEC's investigation
concerning our historical stock option granting practices had been terminated and that no enforcement action was recommended.
Concurrently with our internal review and the SEC’s inquiry, since September 29, 2006, ten derivative cases have been filed in
state and federal courts asserting claims concerning errors related to our historical stock option granting practices and associated
accounting for stock-based compensation expense. These complaints have been filed in various courts, including the California
Superior Court, Santa Clara County, the United States District Court for the Northern District of California, and the Court of Chancery
of the State of Delaware in and for New Castle County. The California Superior Court cases were subsequently consolidated as were
the cases pending in the Northern District of California. All of the cases purport to be brought derivatively on behalf of NVIDIA
against members of our Board and several of our current and former officers and directors. Plaintiffs in these actions allege claims for,
among other things, breach of fiduciary duty, unjust enrichment, insider selling, abuse of control, gross mismanagement, waste, and
constructive fraud. The Northern District of California action also alleges violations of federal provisions, including Sections 10(b)
and 14(a) of the Securities Exchange Act of 1934. The plaintiffs seek to recover for NVIDIA, among other things, damages in an
unspecified amount, rescission, punitive damages, treble damages for insider selling, and fees and costs. Plaintiffs also seek an
accounting, a constructive trust and other equitable relief.
On August 5, 2007, our Board authorized the formation of a Special Litigation Committee to investigate, evaluate, and make a
determination as to how NVIDIA should proceed with respect to the claims and allegations asserted in the underlying derivative cases
brought on behalf of NVIDIA. The Special Litigation Committee has made substantial progress in completing its work, but has not yet
issued a report.
97
Source: NVIDIA CORP, 10-K, March 13, 2009 Powered by Morningstar® Document Research℠