BRIEFING DOCUMENT: NVIDIA CORP. 2005 ANNUAL MEETING OF STOCKHOLDERS PROXY STATEMENT
Source: nVidia Proxy Statement for Stockholders Annual Report 2005
Executive Summary:
This document outlines the proposals to be voted on at NVIDIA's 2005 Annual Meeting of Stockholders. The key matters are the election of three directors and the ratification of PricewaterhouseCoopers LLP (PwC) as the independent registered public accounting firm for the fiscal year ending January 29, 2006. The proxy statement also provides details on the composition and governance of the Board of Directors, executive compensation, equity compensation plans, and other related information for stockholders.
Key Themes and Important Ideas/Facts:
Annual Meeting Logistics and Voting:
The Annual Meeting will be held on Thursday, July 21, 2005, at 9:00 a.m. local time at NVIDIA's executive offices in Santa Clara, California.
Only stockholders of record as of the close of business on May 23, 2005, are entitled to vote.
Stockholders can vote by proxy card, telephone, or Internet, or in person at the meeting (for stockholders of record).
The proxy statement and accompanying proxy card were intended to be mailed on or about June 6, 2005.
A quorum requires at least a majority of outstanding shares entitled to vote to be represented in person or by proxy (84,719,110 shares out of 169,438,219 outstanding as of the record date).
Proposals for Vote:
Proposal 1: Election of Directors: Three directors are to be elected to hold office until the 2008 Annual Meeting. The nominees are Steven Chu, Ph.D., Harvey C. Jones, and William J. Miller. The Board of Directors unanimously recommends a vote FOR the election of each named nominee.
Proposal 2: Ratification of Independent Registered Public Accounting Firm: Stockholders are asked to ratify the selection of PricewaterhouseCoopers LLP (PwC) as the independent registered public accounting firm for the fiscal year ending January 29, 2006. The Audit Committee selected PwC after dismissing KPMG. The Audit Committee recommends a vote FOR the ratification of PwC.
Board of Directors and Corporate Governance:
The Board is comprised of nine members divided into three classes with staggered three-year terms.
The Board has three standing committees: Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee.
All directors, except for Jen-Hsun Huang (President and CEO), are considered independent under Nasdaq listing standards. Mr. Huang is also a co-founder of NVIDIA.
Mr. James C. Gaither has been appointed as the lead independent director and presides over executive sessions of the independent directors.
The Board adopted Corporate Governance Policies in January 2004, which are available on NVIDIA's website.
Stockholders can communicate with the Board or individual directors by sending written communications to the company secretary.
Audit Committee:
Composed of three independent directors (Tench Coxe, James C. Gaither, A. Brooke Seawell, and Mark A. Stevens - Note: Table shows membership differently than text description, potentially reflecting changes leading up to the meeting). The report lists Seawell, Coxe, Gaither, and Stevens as members.
Oversees accounting, financial reporting, internal control, and audit activities.
Mr. A. Brooke Seawell qualifies as an "audit committee financial expert" based on his education and experience as a chief financial officer.
Reviewed and discussed with management and the independent auditor the assessment of internal control over financial reporting as required by Section 404 of the Sarbanes-Oxley Act.
Pre-approves audit and permissible non-audit services rendered by the independent registered public accounting firm. The chairman of the Audit Committee has delegated authority for pre-approvals up to specified amounts.
Disclosed fees paid to auditors KPMG (for a portion of fiscal 2005) and PwC (for fiscal 2005 audit work):
KPMG (Jan 2004 - Mar 2005): $172,618 total fees (primarily tax and audit)
PwC (April 2005 - Fiscal 2005 audit): $1,911,468 total fees (primarily audit, including initial audit of internal controls)
Confirmed that the provision of non-audit services by PwC was compatible with their independence.
Compensation Committee:
Composed of independent directors (Messrs. Coxe, Gaither, and Jones).
Determines executive compensation, using a conservative approach for base salaries, aiming for or somewhat below the industry median.
Compensation includes annual (base salary and variable cash compensation) and long-term (primarily stock options) components.
Executive officers are at-will employees with no employment agreements or change-in-control severance arrangements.
Variable cash compensation is based on achieving company targets (net income or gross margin) and individual goals.
Equity incentives are primarily in the form of stock options granted under the 1998 Equity Incentive Plan and 2000 Nonstatutory Equity Incentive Plan at the closing price on the grant date.
Monitors stock option dilution, with a target annual dilution rate of 4.0-4.5% for fiscal 2005 and 3.5-4.0% for fiscal 2006.
In fiscal 2005, options to purchase 8,259,926 shares were issued to approximately 88% of employees, with the CEO and named executive officers receiving approximately 5.9% of these grants.
Executive officers are generally eligible for the 1998 Employee Stock Purchase Plan (except Mr. Huang due to stock ownership laws).
Maintains an "egalitarian culture" with no personal-benefit perquisites for officers.
Does not have a policy that all compensation must be deductible under Section 162(m) of the Internal Revenue Code, which limits deductions for certain executive compensation over $1 million.
Chief Executive Officer Compensation (Jen-Hsun Huang):
Base salary maintained at $400,000 for fiscal years 2003, 2004, and 2005.
Fiscal 2005 variable compensation target was $800,000, conditioned on achieving financial and individual targets. Received $480,000 in variable cash compensation for fiscal 2005.
Awarded a performance stock option grant of 200,000 shares in fiscal 2005 with a seven-year term, vesting beginning four years and three months after grant, fully vested on the fifth anniversary.
Awarded a performance stock option grant of 250,000 shares in fiscal 2006 with a five-year term, vesting beginning four years and three months after grant, fully vested on the fifth anniversary.
Beneficial Ownership and Executive Officer Holdings:
Provides a table showing beneficial ownership of common stock for directors, named executive officers, and the group as a whole as of May 1, 2005.
Jen-Hsun Huang and his wife are listed as beneficial owners of 11,362,335 shares (6.6%), primarily held in a trust and an investment partnership.
As a group, directors and executive officers beneficially owned 19,970,366 shares (11.4%) as of May 1, 2005, including shares issuable from options exercisable within 60 days.
Disclosure on Section 16(a) compliance for executive officers, directors, and greater than 10% stockholders indicates all filing requirements were complied with during the fiscal year ended January 30, 2005.
Equity Compensation Plan Information:
Provides details on shares authorized, outstanding options, and shares available for future issuance under approved and non-approved equity compensation plans as of January 30, 2005.
Total outstanding options across all plans were 46,160,157 with a weighted average exercise price of $16.10.
Total securities remaining available for future issuance were 35,974,350.
Discusses vesting terms for option grants, noting changes in 2004 to a three-year quarterly vesting schedule for new employees and performance grants to existing employees, with performance grants starting to vest after the second anniversary of the grant date.
Outlines change-of-control provisions for the 1998 Equity Incentive Plan and 2000 Nonstatutory Equity Incentive Plan, which may result in acceleration of vesting if awards are not assumed or substituted by a surviving entity.
Performance Measurement Comparison:
Includes a graph comparing the cumulative total return of NVIDIA common stock, the S&P 500 Index, and the S&P 500 Semiconductors Index from January 2000 to January 2005.
Highlights that the comparison is based on historical results and is not indicative of future performance.
Other Matters:
NVIDIA has entered into indemnity agreements with executive officers and directors to the fullest extent permitted by law.
Discusses "householding," the practice of sending a single copy of proxy materials to multiple stockholders at the same address to reduce printing and postage costs.
Quotes from the Original Source:
"You are cordially invited to attend the Annual Meeting of Stockholders of NVIDIA Corporation... The meeting will be held on Thursday, July 21, 2005 at 9:00 a.m. local time at our executive offices, 2701 San Tomas Expressway, Santa Clara, California..."
"Only stockholders of record at the close of business on May 23, 2005 will be entitled to vote at the annual meeting."
"There are two matters scheduled for a vote: * the election of three directors; and * the ratification of PricewaterhouseCoopers LLP as our independent registered public accounting firm for our fiscal year ending January 29, 2006."
"To be approved, Proposal 2, the ratification of PricewaterhouseCoopers LLP as our independent registered public accounting firm, must receive a 'For' vote by the holders of a majority of the shares present in person or represented by proxy and entitled to vote at the annual meeting."
"As required by The Nasdaq Stock Market, Inc.'s, or Nasdaq, listing standards, a majority of the members of our Board must qualify as 'independent,' as affirmatively determined by the Board... Consistent with these considerations... the Board has determined that all of the directors are independent directors as independence is currently defined in Rule 4200(a)(15) of Nasdaq's listing standards, except for Mr. Huang."
"The Board has appointed Mr. Gaither lead independent director meaning that, among other things, he will preside over the executive sessions of the independent directors."
"The Board has determined that Mr. Seawell qualifies as an 'audit committee financial expert.'"
"The Audit Committee has selected PricewaterhouseCoopers LLP, or PwC, to serve as our independent registered public accounting firm for our fiscal year ending January 29, 2006."
"The Committee's approach regarding base salaries for executives is conservative, with the goal of maintaining base salaries at or somewhat below the industry median for comparable semiconductor and other similar companies."
"NVIDIA employees, including its executive officers, are employed at will and do not have employment agreements, severance payment arrangements or payments arrangements that would be triggered by a 'change in control' of NVIDIA."
"For fiscal 2005, the Compensation Committee established a target annual dilution from new stock option grants at a range of 4.0-4.5%... In fiscal 2005, the annual dilution rate from new stock option grants was 3.9%."
"NVIDIA seeks to maintain an egalitarian culture in its facilities and operations. NVIDIA does not provide officers with reserved parking spaces or separate dining or other facilities."
"Following review of compensation paid to chief executive officers of other comparable technology companies in February 2004, the Committee maintained Mr. Huang's base salary for fiscal 2005 at $400,000, the same base compensation level has been provided for the previous four fiscal years."
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