Deloitte Tax LLP Employee Presentation Materials

Meeting Objectives

•

Understand

–

The §

409A issue

–

What NVIDIA is doing

–

Your choices

•

Review your next steps

Why are we here today?

•

NVIDIA determined that you hold certain stock

options that may be negatively impacted by a recent

Internal Revenue Code change

•

NVIDIA has developed a solution that may reduce or

eliminate your exposure to potentially adverse

personal income tax consequences, but which

requires your participation and permission to

implement

•

If you do not participate, you may have adverse

personal income tax consequences for which you will

be solely responsible

What does §409A do?

•

The proposed regulations of §

409A of the Internal

Revenue Code impose adverse tax consequences on

certain stock option grants

•

What are the consequences of §

409A?

–

Potential federal income taxation

prior to exercise

–

20% additional federal excise tax

–

Potential federal interest and penalties

–

Potential parallel state income tax, interest and penalties

Which options are impacted?

•

Options that were or may have been granted at a

price below the stock’s fair market value (FMV) on

the grant date (“Discount Options”)

•

Only options that vest AFTER 12/31/04

•

Portions of grants issued prior to §409A’s enactment could

be impacted by 409A if they vested on 1/1/05 and later

•

Options

vesting

prior

1/1/05

are

“grandfathered”

and

not

subject

§409A

How did I get discounted options?

•

Audit Committee and internal review

identified a number of occasions when

NVIDIA used incorrect grant measurement

dates for accounting purposes

•

When the FMV on the revised measurement

date was higher than the FMV on the original

grant date the options are deemed

discounted for accounting purposes

Example:

–

Option

granted

Jan

2003

–

10,000

–

Exercise price = $29

–

FMV at accounting measurement date = $31

Vesting: 2,500 options vested on Jan 1, 2004

2,500 options vest on a monthly basis during 2004

2,500 options vest on a monthly basis during 2005

2,500 options vest on a monthly basis during 2006

CONCLUSION:

The

5,000

options

that

vested

prior

1/1/05

are

NOT

subject

§409A.

The 5,000 options that vest after 12/31/04 may be subject to §409A

because it has been determined that they may have been granted at less

than fair market value on the date of grant.

Example: (continued)

•

As of 12/31/2006 NVIDIA stock price = $40 and no options were

exercised.

§409A Estimated Impact in 2006

•

2006 W-2 Income Inclusion: $55,000

5,000

options

subject

§409A

$11

($40

FMV

$29

Option

Price))

Fed Ordinary Income

$19,250

(35%)

CA Ordinary Income

$ 5,115

(9.3%)

Normal Stock Gain Rate

$24,365

44.3%

§409A Tax

$11,000

(20%)

§409A Interest

$ 4,950

(9%)

Tax Rate w/§409A

$40,315

73.3%

(1)

The tax rate described above may be higher than the percentage indicated if state tax laws similar to

§409A are applied to the taxable income amount

•

This will occur each year until exercise or expiration of the option.

NVIDIA’s Solution: Tender Offer

•

Employees Choose Exercise Year(s) for Eligible

Option Grants

•

Only the Eligible Portion of the grant may be

amended through the tender offer:

–

Vested after 12/31/04

–

Unexercised at the time the Tender Offer closes

•

All other terms will remain the same (including the

exercise price, number of shares and vesting schedule)

Example

•

Option granted on Jan 1, 2003 = 8,000 shares

•

Exercise price = $29

•

FMV at accounting measurement date = $31

•

Vesting:

–

2,000 vest on 1/1/04 –

not subject to §409A

–

2,000

vest

monthly

2004

–

not

subject

§409A

–

2,000

vest

monthly

2005

–

potentially

subject

§409A

–

2,000

vest

monthly

2006

–

potentially

subject

§409A

•

Option Amendment:

–

4,000

options

vested

12/31/04

–

CHANGE

–

4,000

options

vesting

2005-2006

–

choose

exercise

year

Eligibility

•

Must be an employee as of the close of the Tender

Offer (estimated: December 29, 2006) and be on the

U.S. payroll

•

Offer covers unexercised options that may have

been granted at a discount and vest after 12/31/04

•

You can select which of your Eligible Option Grants

to tender (i.e., to exercise in what year), but once

selected, the entire unexercised portion which is

eligible for tender must be tendered

Eligibility: Exercised Options?

•

Options Exercised in 2005

–

Should not be subject to adverse tax treatment

pursuant to transitional relief provided under

§409A

•

Options Exercised in 2006

–

No transitional relief provided for exercises after

12/31/05

–

May still be subject to adverse tax treatment

under §409A

–

Awaiting final guidance from the IRS

What if I do nothing?

•

Tax Impact:

–

Potential federal income taxation

prior to exercise

–

20% additional federal excise tax

–

Potential federal interest penalty

–

Potential parallel state income tax and penalties

•

Tax and penalties may occur each year for the

vested portion until exercise or expiration of the

discounted options

•

Tender offer is a one-time offer to minimize or

eliminate potentially adverse tax consequences

Tender Offer Timeline

•

Tender Offer Begins: November 29, 2006

•

Tender Offer Ends: December 29, 2006

–

All

elections

MUST

submitted

and

received

6PM

Pacific

Time

12/29

–

Late submissions will not be accepted

•

How to submit your election:

–

Access Tender Offer Website via e-mail instructions

–

https:\\tenderoffer.nvidia.com

•

Confirmation screen online, print a copy

•

E-mail will be issued to you one business day after your on-line

submission

•

Participation is voluntary, but everyone who receives an email must

access the website to either elect to amend or reject the offer

Personalized Emails

•

You have received two emails

•

Email #1:

–

Tender

Offer

Documents

(includes

FAQs

and

this

presentation)

–

Instructions how to access the website and make your

election

•

Email #2:

–

Personalized Statement(s)

•

Contains personalized information regarding your affected

options

•

Each potentially impacted grant will be emailed separately so

you may have multiple statements

Frequently Asked Questions

•

Sample questions:

–

Which options are eligible for this offer?

–

When will I receive my amended options?

–

What will be the exercise price of my amended options?

–

Can I choose which options with respect to which I want to

accept this offer?

–

Can I accept this offer with respect to shares of NVIDIA

common stock that I previously acquired upon exercise of

NVIDIA options?

–

Can I change my mind and withdraw from this offer?

–

What happens to my amended options if I leave the

company?

What if I still have questions?

•Follow-up meetings:

–December 4, 2006

•All questions should be directed to

Deloitte at NVIDIA409A@deloitte.com.

Tax Advice

•

Taxation of stock option transactions can be very

complicated

•

NVIDIA policy prohibits any employees from

providing personal income tax advice to any other

employee

•

This presentation is general and you should consult

with your personal tax advisor for advice relevant to

your specific situation

Circular 230 Disclaimer Notice

•

Any tax advice included in this presentation was not

intended or written to be used, and it cannot be

used by the taxpayer, for the purpose of avoiding

any penalties that may be imposed by any

governmental taxing authority or agency;

•

This tax advice was written to support the promotion

of the matter addressed by the presentation; and

•

The taxpayer should seek advice based on the

taxpayer’s particular circumstances from an

independent tax advisor.