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In re NVIDIA Corp. Derivative Litigation

March 18, 2009

IN RE NVIDIA CORP. DERIVATIVE LITIGATION


The opinion of the court was delivered by: The Honorable Saundra Brown Armstrong United States District Judge

This Document Relates To: ALL ACTIONS.

[PROPOSED] ORDER APPROVING SETTLEMENT AND ENTERING FINAL JUDGMENT, AS AMENDED

The parties are before the Court on Plaintiffs' Motion for Final Approval of Derivative Settlement. The Court has received, read and considered the papers filed in connection with the motion as well as the papers filed in connection with the preliminary settlement approval, per the Court's order of December 22, 2008. Based on the record submitted and the lack of objection to the settlement, the Court hereby grants final approval of the settlement (the "Settlement") of this action.*fn1 Further, the Court hereby approves the payment of the negotiated attorneys' fees and expenses.

Moreover, this Court has determined that it has jurisdiction over the subject matter of the Action, including all matters necessary to effectuate the Settlement and this Final Judgment.

I. BACKGROUND

The parties to this action have requested approval of the Settlement of the derivative claims brought on behalf of NVIDIA Corporation ("NVIDIA") against certain of its officers and directors. The terms of the Settlement are set forth in the Settlement Agreement. The Settlement resolves the derivative claims pending in this Court, as well as a consolidated derivative action filed in the Superior Court of the State of California, County of Santa Clara, captioned In re NVIDIA Corporation Derivative Litigation, Case No. 1:06-CV-073475 (the "Santa Clara Action").*fn2 The core allegations underlying the complaints filed in each of the actions relate to an alleged options backdating scheme that rendered NVIDIA's financial statements during the period of 1999 through 2006 materially false and misleading.

The Settlement Agreement negotiated between the parties includes several elements, each of which provides substantial benefit to NVIDIA and its shareholders. The Settlement Agreement includes an agreement to enact and/or continue numerous corporate governance policies and changes that will strengthen NVIDIA's internal controls and the independence and accountability of NVIDIA's Board of Directors (the "Board"). These corporate governance policies and changes, which are set forth in Exhibit A to the Settlement Agreement, include, but are not limited to, modifications to policies and procedures regarding the appointment and duties of a Lead Independent Director, the composition of NVIDIA's Board, the compensation of NVIDIA's officers and directors, stock ownership requirements for NVIDIA's officers and non-employee directors and the education of the Company's directors. To ensure adherence to these policies, the Board will adopt resolutions and amend committee charters or the Corporate Governance Policies of the Board such that the policies will remain in effect for a period of three years following the Settlement Date or through the end of NVIDIA's fiscal year 2012, whichever is later. The Court finds that theses corporate governance policies and changes provide substantial value to NVIDIA and its shareholders.

In addition to these valuable corporate governance policies and changes, under the terms of the Settlement Agreement NVIDIA shall receive a direct economic benefit of $15,816,000. The economic benefit to NVIDIA and its shareholders consists of: (a) a cash payment of $8,000,000 from NVIDIA's D&O insurance carrier; (b) $456,000 in value from defendant Jen-Hsun Huang's ("Huang") completed voluntary re-pricing of mispriced stock options; (c) $3,500,000 million in value from defendant Huang via future re-pricing and/or cancellation of unexercised options; and (d) $3,860,000 million in value from a completed 409A tender offer.

II. BASIS FOR GRANTING APPROVAL

There is a strong policy favoring compromises that resolve litigation, and case law in the Ninth Circuit reflects that strong policy. "There is an overriding public interest in settling and quieting litigation." MWS Wire Indus., Inc. v. California Fine Wire Co., 797 F.2d 799, 802 (9th Cir. 1986), quoting United States v. McInnes, 556 F.2d 436, 441 (9th Cir. 1977). "Because shareholder derivative actions are 'notoriously difficult and unpredictable . . . settlements are favored.'" In re AOL Time Warner Shareholder Derivative Litigation, 2006 U.S. Dist. LEXIS 63260, *8 (S.D.N.Y. September 6, 2006) (citations omitted).

Federal Rule of Civil Procedure 23.1 governs the settlement of derivative actions. Wiener v. Roth, 791 F.2d 661 (8th Cir. 1986). A derivative action "may be settled, voluntarily dismissed, or compromised only with the court's approval. Notice of a proposed settlement, voluntary dismissal, or compromise must be given to shareholders or members in the manner that the court orders." Fed. R. Civ. P. 23.1(c). Pursuant to this Court's Order dated December 19, 2008 preliminarily approving the Settlement (the "Preliminary Approval Order"), NVIDIA provided notice to shareholders of the Settlement (the "Notice") pursuant to and in the manner directed by the Preliminary Approval Order. Proof of mailing of the Notice was filed with the Court, and full opportunity to be heard has been offered to all Parties and stockholders. The form and manner of the Notice is hereby determined to have been the best notice practicable under the circumstances and to have been given in full compliance with each of the requirements of Federal Rule of Civil Procedure Rule 23.1 and due process.

The district court must exercise "sound discretion" in approving a settlement. Ellis v. Naval Air Rework Facility, 87 F.R.D. 15, 18 (N.D. Cal. 1980), aff'd, 661 F.2d 939 (9th Cir. 1981); Torrisi v. Tucson Elec. Power Co., 8 F.3d at 1370 (9th Cir. 1993). The Ninth Circuit defines the limits of the inquiry to be made by the court in the following manner:

Therefore, the settlement or fairness hearing is not to be turned into a trial or rehearsal for trial on the merits. Neither the trial court not this court is to reach any ultimate conclusions on the contested issues of fact and law which underlie the merits of the dispute, for it is the very uncertainty of outcome in litigation and avoidance of wasteful and expensive litigation that induce consensual settlements. The proposed settlement is not to be judged against a hypothetical or speculative measure of what might have been achieved by the negotiators.

Id. (emphasis in original). The Ninth Circuit has provided factors which may be considered in evaluating the ...


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