Western Digital (WDC)

 

WESTERN DIGITAL CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

result, and monetary liability or financial impact to the Company from these legal proceedings, lawsuits and other claims could differ materially from those projected.

 

After the Company announced on July 27, 2006 that it was conducting a company-initiated, voluntary review of its historical stock option grants, the following purported shareholder derivative actions were filed challenging conduct by certain of the Company’s current and former board members and officers in connection with various stock option grants: (1) In re Western Digital Corporation Derivative Litigation, United States District Court for the Central District of California (the “Federal Derivative Action”); and (2) In re State Court Western Digital Corporation Derivative Litigation, Superior Court of the State of California for the County of Orange (the “State Derivative Action”). The complaints in these actions asserted claims for accounting, breach of fiduciary duty and/or aiding and abetting, constructive fraud, waste of corporate assets, unjust enrichment, rescission, breach of contract, violation of the California Corporations Code, abuse of control, gross mismanagement, and constructive trust in connection with the Company’s option granting practices. The complaint in the Federal Derivative Action also alleged violations of Sections 10(b), 14(a) and 20(a) of the Securities Exchange Act. The complaints sought unspecified monetary damages and other relief against the individual defendants and certain governance reforms affecting the Company. The Company was named solely as a nominal defendant in each action.

 

The parties in these actions executed a Stipulation of Settlement on March 21, 2008. The financial impact of the settlement was not material to the Company. The court in the Federal Derivative Action granted final approval of the settlement on June 9, 2008, and entered a judgment dismissing the action. Based on this judgment, the parties requested a voluntary dismissal of the State Derivative Action, which the court overseeing that action granted on July 29, 2008.

 

On January 22, 2007, StorMedia Texas LLC filed a complaint against the Company and several other companies, including other disk drive manufacturers, for patent infringement in the Eastern District of Texas alleging infringement of U.S. Patent No. 6,805,891. The Company has entered a Settlement Agreement dated August 13, 2008, on behalf of the Company and its subsidiaries, including WD Media, Inc., the successor to the business of Komag, Inc., which disposes of this lawsuit in its entirety. The financial impact of the settlement was not material to the Company.

 

On October 9, 2007, the United States International Trade Commission (“ITC”) issued a notice of investigation In the Matter of Certain Hard Disk Drives, Components thereof, and Products Containing the Same regarding a complaint filed on September 10, 2007 by Steven F. Reiber and Mary L. Reiber (the “Reibers”). The complaint named as respondents the Company and several other companies, including certain other disk drive manufacturers and personal computer vendors. The Reibers also filed a complaint in the United States District Court for the Eastern District of California on September 10, 2007. On April 28, 2008 the Reibers dismissed the district court action without prejudice, and on May 13, 2008 the ITC investigation was terminated.

 

On June 20, 2008, Convolve, Inc. (“Convolve”), filed a complaint against the Company and two other companies for patent infringement in the Eastern District of Texas alleging infringement of U.S. Patent Nos. 6,314,473 and 4,916,635 (the “Asserted Patents”) and is seeking unspecified monetary damages and injunctive relief. One of these patents allegedly relates to a method to reduce vibration and noise in physical systems, and the other allegedly relates to interface technology to select between certain modes of a disk drive’s operations relating to speed and noise. The United States Patent Office is currently reexamining the Asserted Patents in connection with a lawsuit involving Convolve and other parties and has issued preliminary rejections of both patents. The Company intends to defend itself vigorously in this matter.

 

 

In the normal course of business, the Company is subject to
legal proceedings, lawsuits and other claims. Although the
ultimate aggregate amount of probable monetary liability or
financial impact with respect to these matters is subject to
many uncertainties and is therefore not predictable with
assurance, management believes that any monetary liability or
financial impact to the Company from these matters or the
specified matters below, individually and in the aggregate would
not be material to the Company’s financial condition.
However, there can be no assurance with respect to such

 

WESTERN
DIGITAL CORPORATION

 

NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)

 

result, and monetary liability or financial impact to the
Company from these legal proceedings, lawsuits and other claims
could differ materially from those projected.

 

After the Company announced on July 27, 2006 that it was
conducting a company-initiated, voluntary review of its
historical stock option grants, the following purported
shareholder derivative actions were filed challenging conduct by
certain of the Company’s current and former board members
and officers in connection with various stock option grants:
(1) In re Western Digital Corporation Derivative
Litigation, United States District Court for the Central
District of California (the “Federal Derivative
Action”); and (2) In re State Court Western Digital
Corporation Derivative Litigation, Superior Court of the State
of California for the County of Orange (the “State
Derivative Action”). The complaints in these actions
asserted claims for accounting, breach of fiduciary duty
and/or
aiding and abetting, constructive fraud, waste of corporate
assets, unjust enrichment, rescission, breach of contract,
violation of the California Corporations Code, abuse of control,
gross mismanagement, and constructive trust in connection with
the Company’s option granting practices. The complaint in
the Federal Derivative Action also alleged violations of
Sections 10(b), 14(a) and 20(a) of the Securities Exchange
Act. The complaints sought unspecified monetary damages and
other relief against the individual defendants and certain
governance reforms affecting the Company. The Company was named
solely as a nominal defendant in each action.

 

The parties in these actions executed a Stipulation of
Settlement on March 21, 2008. The financial impact of the
settlement was not material to the Company. The court in the
Federal Derivative Action granted final approval of the
settlement on June 9, 2008, and entered a judgment
dismissing the action. Based on this judgment, the parties
requested a voluntary dismissal of the State Derivative Action,
which the court overseeing that action granted on July 29,
2008.

 

On January 22, 2007, StorMedia Texas LLC filed a complaint
against the Company and several other companies, including other
disk drive manufacturers, for patent infringement in the Eastern
District of Texas alleging infringement of U.S. Patent
No. 6,805,891. The Company has entered a Settlement
Agreement dated August 13, 2008, on behalf of the Company
and its subsidiaries, including WD Media, Inc., the successor to
the business of Komag, Inc., which disposes of this lawsuit in
its entirety. The financial impact of the settlement was not
material to the Company.

 

On October 9, 2007, the United States International Trade
Commission (“ITC”) issued a notice of investigation In
the Matter of Certain Hard Disk Drives, Components thereof, and
Products Containing the Same regarding a complaint filed on
September 10, 2007 by Steven F. Reiber and Mary L. Reiber
(the “Reibers”). The complaint named as respondents
the Company and several other companies, including certain other
disk drive manufacturers and personal computer vendors. The
Reibers also filed a complaint in the United States District
Court for the Eastern District of California on
September 10, 2007. On April 28, 2008 the Reibers
dismissed the district court action without prejudice, and on
May 13, 2008 the ITC investigation was terminated.

 

On June 20, 2008, Convolve, Inc. (“Convolve”),
filed a complaint against the Company and two other companies
for patent infringement in the Eastern District of Texas
alleging infringement of U.S. Patent Nos. 6,314,473 and
4,916,635 (the “Asserted Patents”) and is seeking
unspecified monetary damages and injunctive relief. One of these
patents allegedly relates to a method to reduce vibration and
noise in physical systems, and the other allegedly relates to
interface technology to select between certain modes of a disk
drive’s operations relating to speed and noise. The United
States Patent Office is currently reexamining the Asserted
Patents in connection with a lawsuit involving Convolve and
other parties and has issued preliminary rejections of both
patents. The Company intends to defend itself vigorously in this
matter.

 

Central District of California, filed September 14, 2006; and (iii) Mason v. Massengill, et al., Case No. CV06-6845 PA (RZx), United States District Court for the Central District of California, filed October 27, 2006. Pursuant to the consolidation order, the plaintiffs filed a Consolidated Derivative Complaint on December 15, 2006. The Consolidated Derivative Complaint asserts claims for violations of Sections 10(b), 14(a) and 20(a) of the Securities Exchange Act, accounting, breach of fiduciary duty and/or aiding and abetting, constructive fraud, waste of corporate assets, unjust enrichment, rescission, breach of contract, violations of the California Corporations Code in connection with our option granting practices, and breach of fiduciary duty for insider selling and misappropriation of information. Under the current scheduling order, defendants will file their motion to dismiss on October 15, 2007. Plaintiffs’ opposition brief is due on November 14, 2007, and the defendants’ reply must be filed by November 28, 2007. The hearing on the motion to dismiss is scheduled for December 17, 2007.

 

 

The parties in both this action and the related In re Western Digital Corporation Derivative Litigation, SACV 06-729 AG (RNBx) (see above) engaged in a voluntary mediation before the Hon. Daniel Weinstein (Ret.) on June 6, 2007, and these discussions are continuing.