BRIEFING DOCUMENT: NVIDIA CORP FORM DEF 14A (PROXY STATEMENT)
Source: nVidia Proxy Statement for Stockholders Annual Report 2002
I. Overview:
This document is a definitive proxy statement filed by NVIDIA Corporation for its Annual Meeting of Stockholders to be held on Thursday, July 11, 2002, at 2:00 p.m. local time at the company's executive offices in Santa Clara, California. The purpose of the meeting is to address several key corporate matters requiring stockholder approval.
II. Key Themes and Proposals:
The proxy statement outlines three main items of business to be voted on by stockholders:
Election of Directors:
The Board of Directors is divided into three classes with three-year terms.
Two directors are up for election at this meeting to hold office until the 2005 Annual Meeting of Stockholders.
The nominees are Harvey C. Jones and William J. Miller, both of whom are currently NVIDIA directors.
The Board of Directors recommends a vote in favor of each named nominee.
Biographies of all current directors and nominees are provided, highlighting their professional backgrounds and other board memberships.
Approval of Increase in Authorized Shares of Common Stock:
The Board is seeking stockholder approval to amend the company's certificate of incorporation to increase the authorized number of shares of common stock from 500,000,000 to 1,000,000,000 shares.
The purpose of this increase is to provide the Board with "additional flexibility to use its capital stock for business and financial purposes in the future" without further stockholder approval. Potential uses listed include:
"raising capital;"
"providing equity incentives to employees, officers or directors;"
"establishing strategic relationships with other companies;"
"expanding the company’s business or product lines through the acquisition of other businesses or products;"
"stock dividends to existing stockholders; and"
"other purposes."
The statement explicitly notes that the additional shares "could also be used by NVIDIA to oppose a hostile takeover attempt or to delay or prevent changes in control or management of NVIDIA."
The affirmative vote of the holders of a majority of the outstanding shares of common stock is required for approval. Abstentions and broker non-votes will have the same effect as negative votes.
The Board of Directors recommends a vote in favor of Proposal 2.
Ratification of Selection of Independent Auditors:
The Audit Committee has selected KPMG LLP as the independent auditors for the fiscal year ending January 26, 2003.
Stockholder ratification is being sought as a matter of "good corporate practice," although it is not legally required.
KPMG LLP has audited NVIDIA's financial statements since April 1995.
Fees paid to KPMG LLP in the fiscal year ended January 27, 2002, included approximately $928,000 for audit services and $684,000 for other professional services (tax-related and audit-related).
Significantly, fees billed by KPMG LLP in connection with a review of certain accounting matters were approximately $2,049,000.
The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote is required for ratification. Abstentions will have the same effect as negative votes; broker non-votes are not counted for this proposal.
The Board of Directors recommends a vote in favor of Proposal 3.
III. Important Ideas and Facts:
Date and Location of Meeting: July 11, 2002, at 2:00 p.m. at the company's executive offices.
Record Date: May 15, 2002. Only stockholders of record on this date are entitled to vote.
Shares Outstanding on Record Date: 151,973,562 shares of common stock.
Voting Methods: Stockholders can vote in person, by mail (proxy card), over the telephone, or on the internet.
Quorum Requirement: A majority of the outstanding shares entitled to vote (at least 75,986,782 shares).
Accounting Matters and Restatement: The proxy statement discloses that in January 2002, the SEC and the U.S. Attorney's Office for the Northern District of California authorized a private investigation into certain accounting matters. Following a review assisted by Cooley Godward LLP and KPMG LLP, the Audit Committee and Board determined it was appropriate to restate NVIDIA's financial statements for fiscal 2000, 2001, and the first three quarters of fiscal 2002. The Audit Committee has provided extensive information to the SEC.
Audit Committee Independence: While the Audit Committee members are generally independent according to NASD standards, A. Brooke Seawell is noted as not being currently classified as independent due to his service as interim Chief Financial Officer during the fourth quarter of fiscal year 1999 and a related stock option grant. The Board, however, unanimously determined his background makes him highly qualified for the committee.
Executive Compensation Philosophy: The goals are to align executive financial interests with stockholders and attract/retain high-quality executives. Compensation includes base salary (targeted at median levels), a semi-annual incentive bonus plan based on financial performance, and long-term incentives primarily in the form of stock options.
CEO Compensation: Jen-Hsun Huang's base salary was $400,000 for fiscal 2002, and his bonus target was $600,000. He received a $400,000 bonus for fiscal 2002 performance. His base salary remained $400,000 for fiscal 2003, with an increased bonus target of $800,000. He also received significant stock option grants in fiscal 2002 and 2003.
Stock Ownership: The table on page 15 details beneficial ownership by directors, executive officers, and 5% stockholders as of March 31, 2002. Jen-Hsun Huang held the largest percentage among individuals listed, with 7.2%. FMR Corporation and Janus Capital Corporation were identified as 5% stockholders.
Director Compensation: Directors who are not employees receive stock options under the 1998 Non-Employee Directors’ Stock Option Plan and the 1998 Equity Incentive Plan. Amendments were made in May 2002 to reduce the number of shares granted, reflecting the company's growth and stock value increase.
Change of Control Agreements: Outstanding stock options under the 1998 Equity Incentive Plan would be assumed or substituted for by a surviving entity in the event of a change of control. If not assumed or substituted, they would terminate if not exercised prior to the transaction.
Performance Measurement: A graph compares the total stockholder return of NVIDIA common stock to the Standard & Poor’s 500 Index, the Nasdaq Stock Market (U.S.) Index, and the JP Morgan H&Q Technology Index from January 22, 1999 (IPO date) through January 2002. NVIDIA's stock showed significant volatility and periods of strong outperformance compared to the indices during this period.
Certain Transactions: NVIDIA has indemnity agreements with officers and directors. James C. Gaither, a director, is Senior Counsel to Cooley Godward LLP, which provides legal services to the company.
Householding: The company is implementing householding for beneficial holders to reduce printing and postage costs.
IV. Notable Quotes:
"Y OU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN P ERSON . W HETHER OR NOT YOU EXPECT TO ATTEND THE MEETING , PLEASE COMPLETE , DATE , SIGN AND RETURN THE ENCLOSED PROXY , OR VOTE OVER THE TELEPHONE OR THE I NTERNET AS INSTRUCTED IN THESE MATERIALS , AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR REPRESENTATION AT THE MEETING ."
Regarding the increase in authorized shares: "Although at present the Board of Directors has no plans to issue the additional shares of common stock, it desires to have the shares available to provide additional flexibility to use its capital stock for business and financial purposes in the future."
On the potential defensive use of additional shares: "stockholders should be aware that approval of proposal could facilit te future efforts by NVIDIA to deter or prevent changes in control of NVIDIA, including transactions in which the stockholders might otherwise receive a premium for their shares over then-current market prices."
Regarding the accounting review and restatement: "On April 29, 2002, NVIDIA announced that the Audit Committee had, with assistance from the law firm of Cooley Godward LLP and forensic auditors from the firm of KPMG LLP, concluded its review and the Board of Directors had determined that it was appropriate to restate NVIDIA’s financial statements for fiscal 2000, 2001 and the first three quarters of fiscal 2002."
On executive compensation goals: "(1) to align the financial interests of the executive officers and other key employees with those of the stockholders; and (2) to provide a means for NVIDIA to attract, retain and reward high-quality executives who contribute to our long-term success."
On long-term incentives: "We believe that equity-based compensation closely aligns the interests of executive officers with your interests as stockholders by providing an incentive to manage NVIDIA with a focus on long-term strategic objectives set by the Board of Directors relating to growth and stockholder value."
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