<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
[LOGO]
3260 JAY STREET
SANTA CLARA, CALIFORNIA 95054
(408) 988-7020
May 1, 1998
Dear Fellow Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
NeoMagic Corporation, which will be held on June 4, 1998 at The Westin Santa
Clara, 5101 Great America Parkway, Santa Clara, California.
This booklet includes the Notice of the Annual Meeting of Stockholders and
the Proxy Statement. The Proxy Statement describes the business to be transacted
at the Annual Meeting and also provides important information about the Company
and the items to be voted upon that you should consider when you vote your
shares.
At this meeting, among other things, you will be asked to consider and vote
upon the election of six directors. All six nominees currently are directors of
the Company. They are well qualified, and have a track record of contributing
significantly to the success of the Company. Accordingly, your Board of
Directors recommends that you vote FOR the nominees.
You will also be asked to approve an amendment to the Company's Amended 1993
Stock Plan (the "Stock Plan") to provide for an increase in the number of shares
of Common Stock available for grant under the Plan by 875,000 shares. This
amendment would allow the grant of additional options and stock purchase rights
to employees and consultants in order to provide incentives to encourage their
continued service to the Company. Your Board of Directors has approved this
amendment, and recommends that you vote FOR this proposal.
In addition, you will be asked to approve the Board of Directors'
appointment of Ernst & Young LLP ("Ernst & Young") as the Company's independent
auditors for the 1999 fiscal year. Ernst & Young has audited the Company's
financial statements since the Company's inception, and the Board considers this
firm to be well qualified for this position. Consequently, your Board of
Directors recommends that you vote FOR this proposal.
Whether or not you plan to attend the Annual Meeting, it is important that
your shares of Common Stock be represented and voted at the Annual Meeting.
Accordingly, after reading the enclosed Notice of Annual Meeting and
accompanying Proxy Statement, please fill in, date and sign the enclosed proxy
card and mail it promptly in the envelope provided.
Very truly yours,
<TABLE>
<S> <C>
[SIG] [SIG]
Kamran Elahian Prakash Agarwal
CHAIRMAN OF THE BOARD PRESIDENT AND CHIEF EXECUTIVE
OFFICER
</TABLE>
<PAGE>
NEOMAGIC CORPORATION
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 4, 1998
------------------------
To the Stockholders of NeoMagic Corporation:
The Annual Meeting of Stockholders of NeoMagic Corporation, a Delaware
corporation (the "Company"), in connection with the solicitation of proxies by
the Board of Directors for use at the Annual Meeting of Stockholders (the
"Annual Meeting") of the Company to be held on Wednesday, June 4, 1998 at 9:00
a.m., local time, at The Westin Santa Clara, 5101 Great America Parkway, Santa
Clara, California.
At the Annual Meeting, Stockholders will be asked:
1. To elect six directors;
2. To approve an amendment to the Company's Amended 1993 Stock Plan that
will increase the number of shares of Common Stock available for grant
under the plan by 875,000 shares;
3. To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ended January 31, 1999; and
4. To transact such other business as may properly come before the Annual
Meeting and any adjournment of the Annual Meeting.
Stockholders of record as of the close of business on April 20, 1998 are
entitled to notice of and to vote at the Annual Meeting and any adjournment
thereof. A complete list of stockholders entitled to vote will be available at
the Secretary's office, 650 Page Mill Road, Palo Alto, California, 94304-1050
for ten days before the Annual Meeting.
IT IS IMPORTANT THAT YOUR SHARES ARE REPRESENTED AT THIS MEETING. EVEN
IF YOU PLAN TO ATTEND THE ANNUAL MEETING, WE HOPE THAT YOU WILL PROMPTLY
MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY. THIS WILL NOT LIMIT YOUR
RIGHTS TO ATTEND OR VOTE AT THE ANNUAL MEETING.
By Order of the Board of Directors
[SIG]
Arthur F. Schneiderman
SECRETARY
Santa Clara, California
May 1, 1998
<PAGE>
NEOMAGIC CORPORATION
3260 JAY STREET
SANTA CLARA, CALIFORNIA 95054
------------------------
PROXY STATEMENT
------------------------
ANNUAL MEETING OF STOCKHOLDERS
MATTERS TO BE CONSIDERED
At the Annual Meeting of Stockholders (the "Annual Meeting"), the
Stockholders of NeoMagic Corporation (the "Company") will be asked to consider
and vote to elect six directors, to approve the Amendment to the Company's 1993
Amended Stock Plan and to ratify the appointment of Ernst & Young as the
Company's independent auditors. The Board of Directors knows of no matters that
are to be brought before the Annual Meeting other than as set forth in the
Notice of the Annual Meeting. If any other matters properly come before the
Annual Meeting, the person named in the enclosed form of proxy or their
substitutes will vote in accordance with their best judgment on such matters.
This Proxy Statement and the accompanying form of Proxy are first being
mailed on or about May 1, 1998 to all stockholders entitled to vote at the
Annual Meeting.
DATE, TIME, PLACE, RECORD DATE AND SHARES ENTITLED TO VOTE
The enclosed proxy is solicited on behalf of the Company's Board of
Directors for use at the Annual Meeting to be held on Wednesday, June 4, 1998,
at 9:00 a.m., local time, or any continuation or adjournment thereof, for the
purposes set forth herein and the accompanying Notice of Annual Meeting of
Stockholders. The Annual Meeting will be held at The Westin Santa Clara, 5101
Great America Parkway, Santa Clara, California. The telephone number at this
address is (408) 986-0700.
The Company has set April 20, 1998 as the record date (the "Record Date").
The stockholders of record at the close of business on that date are entitled to
notice of and to vote at the Annual Meeting. As of the close of business on such
date, the Company had 24,407,859 shares of Common Stock outstanding and entitled
to vote, with each share entitled to one vote.
REQUIRED VOTES
Each stockholder voting for the election of directors may cumulate his or
her votes, giving one candidate a number of votes equal to the number of
directors to be elected multiplied by the number of shares that the stockholder
is entitled to vote, or distributing the stockholder's votes on the same
principle among as many candidates as the stockholder chooses, provided that the
votes may not be cast for more than (6) candidates. However, no stockholder
shall be entitled to cumulate votes for any candidate unless the candidate's
name has been properly placed in nomination prior to the voting and the
stockholder, or any other stockholder, has given notice at the meeting prior to
the voting of the intention to cumulate votes. On all other matters, each share
has one vote.
ELECTION OF DIRECTORS. Directors will be elected by a plurality vote of the
shares of the Common Stock present or represented and entitled to vote on this
matter at the Annual Meeting. Accordingly, the six candidates receiving the
highest number of affirmative votes of shares represented and voting on this
proposal at the Annual Meeting will be elected directors of the Company. Votes
withheld from a nominee and broker non-votes will be counted for purposes of
determining the presence or absence of a quorum but because directors are
elected by a plurality vote, will have no impact once a quorum is present.
OTHER MATTERS. Abstentions and broker non-votes are considered in
determining the number of votes required to attain a majority of the outstanding
shares in connection with the proposal to approve the amendment to the Company's
Amended 1993 Stock Plan. Because abstentions and broker non-votes are
<PAGE>
not affirmative votes for the matter, they will have the same effect as votes
against the matter. The affirmative vote of a majority of the votes duly cast is
required to ratify the appointment of auditors.
VOTING AND REVOCATION OF PROXIES
Stockholders are required to complete, date, sign and promptly return the
accompanying form of proxy in the envelope. Shares of Common Stock represented
by properly executed proxies received by the Company and not revoked will be
voted at the Annual Meeting in accordance with the instructions contained
therein. If instructions are not given, proxies will be voted FOR election of
each nominee for director named herein and FOR ratification of appointment of
independent auditors.
Any proxy signed and returned by a Stockholder may be revoked at any time
before it is voted. It may be revoked by filing, with the Secretary of the
Company at the Company's principal offices, located at 3260 Jay Street, Santa
Clara, California 95054, a written notice of revocation or a duly executed proxy
bearing a later date, or it may be revoked by attending the Annual Meeting and
voting in person. Attendance at the Annual Meeting will not in and of itself
constitute revocation of a proxy.
PROXY SOLICITATION
The cost for this solicitation will be borne by the Company. The Company may
reimburse brokerage firms and persons representing beneficial owners of shares
for their expenses in forwarding solicitation materials to such beneficial
owners. Original solicitation of proxies by mail may be supplemented by
telephone, telegram or personal solicitations by directors, officers or
employees of the Company. No additional compensation will be paid for any such
services.
QUORUM, ABSTENTIONS, BROKER NON-VOTES
The required quorum for the transactions of business at the Annual Meeting
is a majority of the shares of Common Stock issued and outstanding on the Record
Date. Shares "FOR", "AGAINST" or "WITHHELD FROM" a matter are treated as being
present at the Annual Meeting for purposes of establishing a quorum and are also
treated as shares "represented and voting" (the "Votes Cast") at the Annual
Meeting with respect to such matter.
While there is no definitive statutory or case law authority in Delaware as
to the proper treatment of abstentions, the Company believes that abstentions
should be counted for purposes of determining both (i) the presence or absence
of a quorum for the transaction of business and (ii) the total number of Votes
Cast with respect to a proposal (other than the election of directors). In the
absence of controlling precedent to the contrary, the Company intends to treat
abstentions in this manner. Accordingly, abstentions will have the same effects
as a vote against the proposal.
Broker non-votes will be counted for purposes of determining the presence or
absence of a quorum for the transaction of business, but will not be counted for
purposes of determining the number of Votes Cast with respect to the proposal on
which the broker has expressly not voted. Thus, a broker non-vote will not
affect the outcome of the voting on a proposal.
2
<PAGE>
ELECTION OF DIRECTORS
A board of six (6) directors is to be elected at the Annual Meeting. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
for the Company's nominees named below. All nominees are currently directors of
the Company. In the event that any nominee of the Company is unable or declines
to serve as a director at the time of the Annual Meeting, the proxies will be
voted for any nominee who shall be designated by the current Board of Directors
to fill the vacancy. It is not expected that any nominee will be unable or will
decline to serve as a director. In the event that additional persons are
nominated for election as directors, or if any nominee becomes unable or
declines to serve as director the proxy holders intend to vote all proxies
received by them in such a manner and in accordance with cumulative voting as
will assure the election of as many of the nominees listed below as possible,
and in such event the specific nominees to be voted for will be determined by
the proxy holders. The term of office of each person elected as a director will
continue until the next Annual Meeting of Stockholders or until a successor has
been duly elected and qualified. There are no arrangements or understandings
between any director or executive officer and any other person pursuant to which
he is or was to be selected as a director or officer of the Company.
NOMINEES FOR DIRECTOR
Set forth below is certain information regarding the nominees:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------ --- -----------------------------------------------------
<S> <C> <C>
Kamran Elahian.................................. 43 Chairman of the Board
Prakash C. Agarwal.............................. 44 President, Chief Executive Officer and Director
Brian P. Dougherty (2).......................... 41 Director
Irwin Federman (1).............................. 62 Director
James Lally (2)................................. 53 Director
Klaus Wiemer.................................... 60 Director
</TABLE>
- ------------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
KAMRAN ELAHIAN, a co-founder of the Company, has been Chairman of the Board
since the Company's inception in 1993. Mr. Elahian has co-founded several
Silicon Valley companies since 1981, including CAE Systems, Inc., a
computer-aided engineering software company, Cirrus Logic ("Cirrus Logic"), a
semiconductor manufacturer and Momenta Corporation, a pen-based computer
company. In addition to his duties as Chairman of the Company, Mr. Elahian is
the Chairman and Chief Executive Officer of PlanetWeb, Inc., an Internet
software company, Chairman and Chief Executive Officer of Centillium, a
telecommunications semiconductor company and the Chairman of Project Neat, Inc.,
a not for profit company. Mr. Elahian holds a BS in Computer Science, a BS in
Mathematics and a Masters of Engineering from the University of Utah.
PRAKASH C. AGARWAL, a co-founder of the Company, has been President, Chief
Executive Officer, and a Director of the Company since its inception in 1993.
Mr. Agarwal has over 20 years of engineering, marketing and general management
experience in the semiconductor industry. Prior to joining the Company, he was
employed as Vice President and General Manager of Cirrus Logic's Portable
Products Division. Mr. Agarwal holds a BS and a MS degree in Electrical
Engineering from the University of Illinois.
BRIAN P. DOUGHERTY joined the Company as a Director in January 1997. Mr.
Dougherty is a founder and serves as Chairman of Wink Communications, a
developer of interactive television software. From its inception in 1983 through
1994, Mr. Dougherty served as Chief Executive Officer of Geoworks, a consumer
computing device operating system manufacturer. Mr. Dougherty holds a BS degree
in Electrical Engineering from the University of California at Berkeley.
3
<PAGE>
IRWIN FEDERMAN has served as a Director of the Company since March 1994. Mr.
Federman has been a general partner of U.S. Venture Partners, a venture capital
firm, since 1990. Mr. Federman serves on the Boards of Directors of SanDisk
Corporation, a solid-state storage system company, Western Digital Corporation,
a disk drive manufacturer, Komag, Inc., a thin film media manufacturer, MMC
Networks, Inc., a network system component company, CheckPoint Software
Technologies, Ltd., a network security software company and several
privately-held companies. He received a BS degree in Accounting from Brooklyn
College and holds an honorary Doctorate of Engineering Science from Santa Clara
University.
JIM LALLY has served as a Director of the Company since July 1993. Mr. Lally
has been a general partner of Kleiner Perkins Caufield & Byers, a venture
capital firm, since 1981. He currently serves on the board of Ascend
Communications, Inc., a networking company. He holds a BS degree in Electrical
Engineering from Villanova University.
DR. KLAUS WIEMER has served as a director since January 1998. Mr. Wiemer is
an independent consultant in microelectronics manufacturing. He also serves on
the Board of Directors of Simtek Corporation, an integrated circuits company,
Meissner+Wurst, a company specializing in the construction of microelectronic
manufacturing facilities and InterFET Corporation, a discrete semiconductor
device company. Mr. Wiemer holds a BS degree in physics from Texas Western
College (now University of Texas, El Paso), a MS in physics from University of
Texas and a Ph.D. in physics from Virginia Polytechnic Institute.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ABOVE NAMED NOMINEES.
BOARD MEETINGS AND COMMITTEES
The Board of Directors held 7 meetings during the year ended January 31,
1998. Brian Dougherty, Jim Lally and Irwin Federman attended less than 75% of
the aggregate number of meetings of the Board of Directors.
The Board of Directors has two (2) standing committees: the Audit Committee
and the Compensation Committee. Membership on these committees is limited to
non-employee directors.
The Audit Committee, which is comprised of Messrs. Federman and Moritz,
establishes and reviews the activities of the independent auditors; reviews
recommendations of the independent auditors and responses of management; and
reviews in consultation with the independent auditors the financial statements,
accounting and other policies, accounting systems and system of internal
controls. During the year ended January 31, 1998 ("Last Fiscal Year"), the Audit
Committee met two (2) times.
The Compensation Committee, which is comprised of Messrs. Dougherty and
Lally, administers the Stock Plan, the 1997 Employee Stock Purchase Plan ("Stock
Purchase Plan") and all other areas of executive compensation. During the Last
Fiscal Year, the Compensation Committee did not meet, compensation issues were
addressed by the full Board of Directors. The Compensation Committee has a
subcommittee (appointed by the Board of Directors) responsible for approval of
the grant of stock options to employees other than executive officers. The
Subcommittee is comprised of Prakash Agarwal. During the last fiscal year, the
subcommittee met ten (10) times.
DIRECTOR COMPENSATION
The Company does not pay any compensation to directors for serving in that
capacity, it does, however, reimburse directors for expenses incurred in
attending board meetings. All of the directors other than the Chairman and Chief
Executive Officer received options to purchase 40,000 shares of Common Stock
granted during the last fiscal year. These options vest over four years as long
as the optionee continues to serve as a member of the board.
4
<PAGE>
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation limits the liability of directors
to the maximum extent permitted by Delaware law. Delaware law provides that
directors of a corporation will not be personally liable for monetary damages
for breach of their fiduciary duties as directors, except for liability (i) for
any breach of their duty of loyalty to the corporation or its stockholders, (ii)
for acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law, (iii) for unlawful payments of dividends or
unlawful stock repurchases or redemptions as provided in Section 174 of the
Delaware General Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit.
The Company's Bylaws provide that the Company shall indemnify its directors
and executive officers and may indemnify its other officers and employees and
agents to the fullest extent permitted by law. The Company believes that
indemnification under its Bylaws covers at least negligence and gross negligence
on the part of indemnified parties. The Company's Bylaws also permit the Company
to secure, and the Company has secured, insurance on behalf of any officer,
director, employee or other agent for any liability arising out of his other
actions in such capacity, regardless of whether the Bylaws would permit
indemnification.
The Company has entered into agreements to indemnify its directors and
officers in addition to indemnification provided for in the Company's Bylaws.
These agreements, among other things, indemnify the Company's directors and
officers for certain expenses (including attorneys' fees), judgments, fines and
settlement amounts incurred by any such person in any action or proceeding,
including any action by or in the right of the Company, arising out of such
person's services as a director or officer of the Company, any subsidiary of the
Company or any other Company or enterprise to which the person provides services
at the request of the Company. The Company believes that these provisions and
agreements are necessary to attract and retain qualified directors and officers.
5
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of January 31, 1998,
as to shares of the Company's Common Stock beneficially owned by: (i) each of
the Named Officers listed in the Summary Compensation Table, (ii) each of the
Company's directors, (iii) all directors and executive officers of the Company
as a group, and (iv) each person who is known by the Company to own beneficially
more than 5% of the Company's Common Stock.
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENT
BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED OWNED *
- ---------------------------------------------------------------------------------------- ----------- -------------
<S> <C> <C>
Pilgrim Baxter & Associates............................................................. 2,582,700 10.7%
825 Duportail Road
Wayne, PA 19087 (1)
Kamran Elahian (2)...................................................................... 899,290 3.7
Prakash C. Agarwal (3).................................................................. 1,352,550 5.6
Dr. Clement Leung (4)................................................................... 981,625 4.0
Deepraj Puar (5)........................................................................ 429,930 1.8
Ron Jankov (6).......................................................................... 257,070 1.1
Merle McClendon (7)..................................................................... 211,667 **
Michael Moritz (8)...................................................................... 125,402 **
James Lally (9)......................................................................... 111,842 **
Irwin Federman (8)...................................................................... 53,153 **
Brian Dougherty (10).................................................................... 11,667 **
All directors and officers as a group (2)-(11).......................................... 4,956,133 19.7%
</TABLE>
- ------------------------
* Percent ownership is based on 24,204,602 shares of Common Stock outstanding
as of January 31, 1998. Unless otherwise indicated below, the persons and
entities named in the table have sole voting and sole investment power with
respect to all shares beneficially owned, subject to community properly
laws where applicable. Shares of Common Stock subject to options that are
currently exercisable or exercisable within 60 days of January 31, 1998 are
deemed to be outstanding and to be beneficially owned by the person holding
such options or warrants for the purposes of computing the percentage
ownership of such persons, but are not treated as outstanding for the
purpose of computing the percentage ownership of any other person.
** Less than 1%
(1) This information was obtained from filings made with the Securities and
Exchange Commission pursuant to Section 13(g) of the Securities Exchange
Act of 1934 ("Exchange Act"). Of such 2,582,700 shares, Pilgrim Baxter &
Associates has sole voting power as to 2,532,300 shares, shared voting
power as to 2,582,700 and sole dispositive power as to 2,582,700 shares.
(2) Includes an option to purchase 30,000 shares, exercisable within 60 days of
January 31, 1998.
(3) Includes 15,000 registered in the name of Agarwal Foundation. Mr. Agarwal
is a principal officer of the Foundation. Mr. Agarwal disclaims beneficial
ownership of the Common Stock held by the Foundation. Includes an option to
purchase 150,000 shares, exercisable within 60 days of January 31, 1998.
(4) Includes an option to purchase 225,000 shares exercisable with 60 days of
January 31, 1998.
(5) Includes 20,000 shares registered in the name of Dhruv Raj Puar and 20,000
shares registered in the name of Rahul Raj Puar, who are Mr. Puar's
children, of which Mr. Puar disclaims beneficial ownership. Includes an
option to purchase 213,334 shares, exercisable within 60 days of January
31, 1998.
6
<PAGE>
(6) Includes an option to purchase 50,000 shares, exercisable within 60 days of
January 31, 1998.
(7) Includes an option to purchase 211,667 shares, exercisable within 60 days
of January 31, 1998.
(8) Includes an option to purchase 10,000 shares, exercisable within 60 days of
January 31, 1998.
(9) Does not include 1,172,515 shares beneficially owned by KPCB VI Associates,
the general partner of Kleiner Perkins Caufied & Buyers VI and KPCB VI
Founders Fund. Mr. Lally is one of seven general partners of KPCB VI
Associates and as general partner shares voting and investment power over
the shares held by KPCB VI Associates. Mr. Lally disclaims beneficial
ownership of the shares held by such entity except to the extent of his
proportionate interest therein. Includes an option to purchase 10,000
shares, exercisable within 60 days of January 31, 1998.
(10) Includes an option to purchase 11,667 shares, exercisable within 60 days
of January 31, 1998.
(11) Includes options to purchase 177,500 shares for executives not named in
the table, exercisable within 60 days of January 31, 1998.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation paid
by the Company during the fiscal year ended January 31, 1998 to the Company's
Chief Executive Officer and each of the Company's other most highly compensated
executive officers who earned in excess of $100,000 during such fiscal year
(collectively, the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION AWARDS
ANNUAL ----------------------------------------------
COMPENSATION SECURITIES
------------- UNDERLYING OPTIONS ALL OTHER
YEAR SALARY ($) (#) BONUS (1) COMPENSATION
--------- ------------- ------------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Prakash C. Agarwal....................... 1998 $ 205,154 -- $ 180,000 $ 6,229
President and Chief Executive
Officer 1997 189,313 650,000 -- 6,577
Ron Jankov............................... 1998 208,710 80,000 59,500 2,265
Vice President, Sales 1997 167,521 100,000 -- 2,338
Merle McClendon.......................... 1998 148,769 40,000 59,500 3,810
Vice President, Finance and 1997 -- 200,000 -- --
Chief Financial Officer
Deepraj Puar............................. 1998 146,308 -- 59,500 5,774
Vice President, Technology 1997 125,194 225,000 -- 6,558
Dr. Clement Leung........................ 1998 146,308 -- 59,500 4,123
Vice President, Engineering 1997 125,102 225,000 -- 4,800
</TABLE>
- ------------------------
(1) Includes annual incentive compensation as well as discretionary bonus.
7
<PAGE>
STOCK OPTIONS
The following tables provides information concerning grants of options to
purchase the Company's Common Stock made to each of the Named Officers during
the fiscal year ended January 31, 1998.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
INDIVIDUAL GRANTS (1) ASSUMED ANNUAL RATES OF STOCK
------------------------------------------------------------------------ PRICE APPRECIATION FOR OPTION
NUMBER OF SECURITIES % OF TOTAL OPTIONS TERM (3)
UNDERLYING OPTIONS GRANTED TO EXERCISE PRICE EXPIRATION -------------------------------
GRANTED (#) EMPLOYEES PER SHARE DATE 0% 5% 10%
--------------------- ------------------- --------------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Ron Jankov.......... 80,000(4) 5.5% $ 13.31(2) 01/02/08 -- $ 669,773 $1,697,336
Merle McClendon..... 40,000(5) 2.8% $ 7.50 06/19/07 490,000 $ 986,827 $1,749,057
</TABLE>
- ------------------------
(1) All options granted during the fiscal year were granted under the Stock
Plan. Each option becomes exercisable according to a vesting schedule,
subject to the employee's continued employment with the Company. See
"Employee Benefit Plans."
(2) Options were granted at an exercise price equal to the fair market value
based on the closing market value of Common Stock on the Nasdaq National
Market on the date of grant.
(3) Potential gains are net of the exercise price but before taxes associated
with the exercise. The 5% and 10% assumed annual rates of compounded stock
appreciation based upon the deemed fair market value are mandated by the
rules of the Securities and Exchange Commission and do not represent the
Company's estimate or projection of the future common stock price. The
market price of the underlying securities of Ms. McClendon on the date of
grant was $19.75. Actual gains, if any, on stock option exercises are
dependent on the future financial performance of the Company, overall market
conditions and the option holders' continued employment through the vesting
period. This table does not take into account any appreciation in the deemed
fair market value of the Common Stock from the date of grant to the date of
this Proxy Statement, other than the columns reflecting assumed rates of
appreciation of 5% and 10%.
(4) Vesting for the first 40,000 shares covered by this option to commence on
January 2, 1998, and 1/48 of these shares will vest ratably each month
thereafter. Vesting for the second 40,000 shares covered by this option to
commence vesting on January 1, 2001 and 1/12 of shares will vest ratably
each month thereafter.
(5) Vesting of this option to commence on March 27, 1997. One-fourth of the
shares covered by this option will vest on March 27, 1998 and 1/48 of shares
will vest ratably each month thereafter.
8
<PAGE>
OPTION EXERCISES AND HOLDINGS
The following table sets forth for each of the Named Officers certain
information concerning the number of shares subject to both exercisable and
unexercisable stock options at January 31, 1998. Also reported are values for
"in-the-money" options that represent the positive spread between the respective
exercise prices of outstanding stock options and the fair market value of the
Company's Common Stock as of January 31, 1998.
AGGREGATED OPTION EXERCISES IN FISCAL 1998 AND FISCAL 1998 VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT JANUARY 31, IN-THE-MONEY OPTIONS AT
VALUE 1998 (1)(2) JANUARY 31, 1998 (1)(2)
SHARES ACQUIRED REALIZED -------------------------- ---------------------------
NAME ON EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------- --------------- ----------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Prakash C. Agarwal........ -- $ -- 150,000 -- $ 1,218,750 --
Ron Jankov................ -- -- 50,000 80,000 606,250 185,000
Merle McClendon........... -- -- 210,000 30,000 1,706,250 243,750
Deepraj Puar.............. 11,666 221,487 213,334 -- 2,827,677 --
Dr. Clement Leung......... -- -- 225,000 -- 3,000,625 --
</TABLE>
- ------------------------
(1) Certain of the options granted under the Stock Plan may be exercised
immediately upon grant and prior to full vesting, subject to the optionee's
entering a restricted stock purchase agreement with the Company with respect
to any unvested shares. Other options granted under the Stock Plan are
exercisable during their term in accordance with the Vesting Schedule set
out in the Notice of Grant.
(2) Market value of securities underlying in-the-money options at fiscal year
end (based on $15.625 per share, the closing price of the Common Stock on
the Nasdaq National Market on January 23, 1998), minus the exercise price.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In March 1994, in connection with the purchase of restricted shares of
Common Stock, the Company provided a loan to Prakash Agarwal, the President,
Chief Executive Officer, and a director of the Company, in the principal amount
of $34,925 at an annual interest rate of 4.01%, pursuant to a promissory note
secured by a pledge of 1,397,000 shares of Common Stock held by Mr. Agarwal. On
March 4, 1997 Mr. Agarwal repaid $39,126 in principal and interest. In April
1996, in connection with the exercise of an option to purchase restricted shares
of Common Stock, the Company provided a loan to Mr. Agarwal in the aggregate
principal amount of $400,000 at an annual interest rate of 5.88% pursuant to two
promissory notes secured by a pledge of an aggregate of 500,000 shares of Common
Stock held by Mr. Agarwal. As of January 31, 1998, an aggregate amount of
$441,160 remained outstanding on the two remaining promissory notes. The largest
aggregate amount of indebtedness outstanding during the last fiscal year was
$458,726.
In December 1995, in connection with the purchase of restricted shares of
Common Stock, the Company provided a loan to Ron Jankov, the Vice President,
Sales of the Company, in the principal amount of $76,950 at an annual interest
rate of 5.91%, pursuant to a promissory note secured by a pledge of 270,000
shares of Common Stock held by Mr. Jankov. In April 1996, in connection with the
exercise of an option to purchase restricted shares of Common Stock, the Company
provided a loan to Mr. Jankov in the aggregate principal amount of $40,000 at an
annual interest rate of 5.88% pursuant to a promissory note secured by a pledge
of an aggregate of 50,000 shares of Common Stock held by Mr. Jankov. On March 4,
1997 Mr. Jankov repaid $82,256 in principal and interest. As of January 31,
1998, an aggregate amount of $44,116 remained outstanding on the remaining
promissory note. The largest aggregate amount of indebtedness outstanding during
the last fiscal year was $124,216.
In December 1995, in connection with the purchase of restricted shares of
Common Stock, the Company provided a loan to Niall Bartlett, the Vice President,
Marketing of the Company, in the principal amount of $57,000 at an annual
interest rate of 5.91%, pursuant to a promissory note secured by a pledge
9
<PAGE>
of 200,000 shares of Common Stock held by Mr. Bartlett. On March 4, 1997 Mr.
Bartlett repaid the $60,930 in principal and interest. The largest aggregate
amount of indebtedness outstanding during the last fiscal year was $60,930.
In March 1994, in connection with the purchase of restricted shares of
Common Stock, the Company provided a loan to Kamran Elahian, the Chairman of the
Board, in the principal amount of $22,450 at an annual interest rate of 4.01%,
pursuant to a promissory note secured by a pledge of 898,000 shares of Common
Stock held by Mr. Elahian. In April 1996, in connection with the exercise of an
option to purchase restricted shares of Common Stock, the Company provided a
loan to Mr. Elahian in the aggregate principal amount of $100,000 at an annual
interest rate of 5.88% pursuant to a promissory note secured by a pledge of an
aggregate of 125,000 shares of Common Stock held by Mr. Elahian. On March 4,
1997, Mr. Elahian repaid $25,151 in principal and interest. As of January 31,
1998, an aggregate amount of $110,290 remained outstanding on the remaining
promissory note. The largest aggregate amount of indebtedness outstanding during
the last fiscal year was $130,051.
The Company believes that all related-party transactions described above
were on terms no less favorable than could have been otherwise obtained from
unrelated third parties. All future transactions between the Company and its
principal officers, directors and affiliates will be approved by a majority of
the independent disinterested members of the Board of Directors and will be on
terms no less favorable that could be obtained from unrelated third parties. In
addition, the Board of Directors has voted that any loans or guarantees in the
future by the Company for its officers, directors or affiliates will be approved
by a majority of the disinterested members of the Board on the basis that such
loans or guarantees will be made only for bona fide business purposes.
REPORT OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION*
The Company's Compensation programs and policies applicable to its executive
officers are administered by either the Compensation Committee of the Board of
Directors or the Board of Directors. During the fiscal year ended 1998, the
Board of Directors administered the Company's compensation programs and
policies. The Board did not modify or reject any action or recommendation by the
Compensation Committee. The Compensation Committee is made up entirely of
non-employee directors. The programs and policies are designed to provide
competitive compensation and to enhance stockholder value by aligning the
financial interests of the executive officers of the Company with those of its
stockholders.
COMPENSATION PHILOSOPHY
The Board of Directors has adopted a management compensation program based
on the following compensation principles:
- The Company provides the level of total compensation necessary to attract
and retain the best executives in its industry.
- Compensation is linked to performance and to the interest of stockholders.
- Compensation balances rewards for short-term versus long-term results.
- Compensation programs include features that encourage executives to make a
long-term career commitment to the Company and its stockholders.
- Plans include measurements based on continuous growth and performance
relative to peer companies.
COMPENSATION METHODOLOGY
The Company strives to provide a comprehensive executive compensation
program that is both innovative and competitive, in order to attract and retain
superior executive talent.
Each year the Board of Directors reviews market data and assesses the
Company's competitive position in each component of executive compensation
including base salary, annual incentive compensation and long term incentives.
10
<PAGE>
The descriptions below of the components of compensation contain additional
detail regarding compensation methodology. Compensation decisions regarding
individual executives may also be based on factors such as individual
performance, level of responsibility or unique skills of the executives.
COMPONENTS OF COMPENSATION
The Company's compensation package for executive officers consists of three
basic elements: (1) base salary; (2) annual incentive compensation and (3)
long-term incentives in the form of stock options granted pursuant to the
Company's Amended 1993 Stock Plan. Other elements of compensation include a
defined contribution 401(k) plan and medical and life insurance benefits
available to employees, generally.
Each element of compensation has a different purpose. Salary and incentive
payments are mainly designed to reward current and past performance. Stock
options are primarily designed to provide a strong incentive for superior
long-term future performance and are directly linked to stockholders' interest
because the value of the awards will increase or decrease based upon the future
price of the Company's Common Stock.
BASE SALARY
Base salaries for fiscal 1998 reported herein were determined by the Board
of Directors. The Board of Directors reviews salaries recommended by the Chief
Executive Officer for executive officers other than the Chief Executive Officer.
In conducting its review, the Board of Directors takes into consideration the
overall performance of the Company, the Chief Executive Officer's evaluation of
individual executive officer performance and independent compensation surveys
such as the Radford Survey for High Technology Companies. Final decisions on
base salary adjustments for executives other than the Chief Executive Officer
are made in conjunction with the Chief Executive Officer. The Board of Directors
independently determines the base salary for the Chief Executive Officer by: (i)
examining the Company's performance against its preset goals, (ii) examining the
Company's performance within the semiconductor industry, (iii) evaluating the
overall performance of the Chief Executive Officer, and (iv) comparing the base
salary of the Chief Executive Officer to that of other chief executive officers
in the semiconductor, computer graphics and personal computer software
industries. Based upon the data and performance, the Chief Executive Officer's
base salary was raised from $200,000 to $212,000 in March 1997.
ANNUAL INCENTIVE COMPENSATION
The annual incentive compensation is a cash-based incentive bonus program.
The plan establishes a fixed percentage of the executives annual salary as an
executive's target annual incentive opportunity. The annual incentive
compensation provides for payment of cash bonuses to each named executive
officer that are directly related to the profitability and gross revenues of the
Company as well as accomplishing specific milestone achievements such as
production related events and achieving strategic design wins. In addition, the
Board of Directors from time to time may authorize the Company to pay
individuals a discretionary bonus based on the individual employee's overall
performance.
The Company exceeded the profitability and gross revenue targets as well as
meeting milestone objectives for the year ended January 31, 1998. As a result,
the average annual incentive approved by the Committee for the executive
officers was 100 percent of the target incentive opportunity. The bonus column
of the Summary Compensation Table on page 7 contains the annual incentive
payment as well as discretionary bonuses for fiscal 1998 for each of the most
highly compensated executive officers.
STOCK OPTIONS
Long-term incentives are provided through stock option grants to key
employees, including the Named Executive Officers. The number of shares subject
to each stock option grant is based on the employee's current and anticipated
future performance and ability to affect achievement of strategic goals and
objectives. The Company grants options in order to directly link a significant
portion of each executive's total compensation to the long-term interest of
stockholders. Since options are granted at the
11
<PAGE>
fair market value of the Company's common stock and vest over a multi-year
period, executives will only receive value from the options to the extent that
they remain employed by the Company and the Company's common stock price
increases during the term of the options, thus generating returns for both
stockholders and executives.
STOCK PURCHASE PLAN
The Company maintains a qualified employee stock purchase plan subject to
provisions of the Internal Revenue Code, which is generally available to all
employees, and pursuant to which employees can purchase Company stock through
payroll deductions of up to 10% of their base salary. This plan allows
participants to buy Company stock at a discount from the market price.
It is the Company's policy generally to qualify compensation paid to
executive officers for deductibility under section 162(m) of the Internal
Revenue Code. Section 162(m) generally prohibits the Company from deducting the
compensation of executive officers that exceeds $1,000,000 unless that
compensation is based on the satisfaction of objective performance goals. The
Company's Stock Plan and the executive bonus programs are structured to qualify
awards under such plans as performance-based compensation and to maximize the
tax deductibility of such awards. However, the Company reserves the discretion
to pay compensation to its executive officers that may not be deductible.
The foregoing report has been furnished by the Board of Directors of
NeoMagic Corporation:
Kamran Elahian
Prakash Agarwal
Brian P. Dougherty
Irwin Federman
James Lally
Michael Moritz
Klaus Wiemer
- ------------------------
* The disclosures contained in this section of the Proxy Statement are not
incorporated by reference into any filings by the Company under the
Securities Act of 1933 or the Securities Act of 1934 that incorporated
filings or portions thereof (including this Proxy Statement or the
"Executive Compensation" section of this Proxy Statement) without specific
reference to the incorporation of this section of the Proxy Statement.
COMPENSATION COMMITTEE INTERLOCKS
Mr. Dougherty and Mr. Lally are members of the Compensation Committee. No
interlocking relationship exists between the Company's Board of Directors or
Compensation Committee and the board of directors or compensation committee of
any other Company, nor has any such interlocking relationship existed in the
past.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers and directors, and persons who own more than 10
percent of a registered class of the Company's equity securities, to file
reports of ownership on Forms 3, 4 and 5 with the Securities and Exchange
Commission (the "SEC"). Officers, directors and greater than 10 percent
stockholders are required by SEC regulation to furnish the Company with copies
of all Forms 3, 4 and 5 they file.
Based solely on the Company's review of the copies of such forms it has
received and written representation from certain reporting persons that they
were not required to file Forms 5 for specified fiscal years, the Company
believes that all of its officers, directors and greater than 10 percent
beneficial owners complied with all filing requirements applicable to them with
respect to transactions during the fiscal year ended January 31, 1998.
12
<PAGE>
STOCK PRICE PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return of the
Company's Common Stock with The Nasdaq Stock Market Index (U.S.) and The Nasdaq
Electronic Components Stock Index. The comparison assumes the investment of $100
on March 13, 1997 (the date the Company's Common Stock became registered under
Section 12 of the Securities Exchange Act of 1934) based on the initial public
offering price of such stock on that date and that dividends were reinvested
when paid. The comparisons in the graph are required by the Securities and
Exchange Commission and are not intended to forecast or be indicative of
possible future performance of the Company's Common Stock.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COMPARISON OF 10 MONTH CUMULATIVE TOTAL RETURN*
<S> <C> <C> <C>
AMONG NEOMAGIC CORPORATION, THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE NASDAQ ELECTRONIC COMPONENTS INDEX
DOLLARS
NEOMAGIC CORPORATION
3/14/97 100.00
1/31/98 142.00
* $100 INVESTED ON 3/14/97 IN STOCK OR ON 2/28/97
IN INDEX - INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING JANUARY 31.
<CAPTION>
COMPARISON OF 10 MONTH CUMULATIVE TOTAL RETURN*
<S> <C>
AMONG NEOMAGIC CORPORATION, THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE NASDAQ ELECTRONIC COMPONENTS INDEX
DOLLARS
NASDAQ STOCK MARKET (U.S.)
3/14/97 100.00
1/31/98 125.00
* $100 INVESTED ON 3/14/97 IN STOCK OR ON 2/28/97
IN INDEX - INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING JANUARY 31.
<CAPTION>
COMPARISON OF 10 MONTH CUMULATIVE TOTAL RETURN*
AMONG NEOMAGIC CORPORATION, THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE NASDAQ ELECTRONIC COMPONENTS INDEX
DOLLARS
NASDAQ ELECTRONIC COMPONENTS
3/14/97 100.00
1/31/98 111.00
* $100 INVESTED ON 3/14/97 IN STOCK OR ON 2/28/97
IN INDEX - INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING JANUARY 31.
</TABLE>
13
<PAGE>
APPROVAL OF AN AMENDMENT TO THE AMENDED 1993 STOCK PLAN
The Company's Stock Plan was approved by the Board of Directors and by the
stockholders in July 1993. On April 2, 1998 the Board of Directors approved an
amendment to the Stock Plan to further increase the number of shares of Common
Stock authorized for issuance thereunder by 875,000 shares, bringing the total
number of shares reserved under the Plan to 8,650,000 shares of Common Stock.
Stock options play a key role in the Company's ability to recruit, reward
and retain executives and key employees and consultants. Technology companies
have historically used stock options as an important part of recruitment and
retention packages. The Company competes directly with these technology
companies for experienced executives and engineers and must be able to offer
comparable packages to attract the caliber of individuals that the Company
believes is necessary to provide the growth that stockholders desire. The Stock
Plan provides for the grant of options and stock purchase rights to employees
and consultants to provide additional incentive to encourage their continued
service to the Company.
The essential provisions of the Stock Plan are outlined below.
SUMMARY OF THE STOCK PLAN
GENERAL. The purpose of the Stock Plan is to attract and retain the best
available personnel for positions of substantial responsibility within the
Company, to provide additional incentives to the employees and consultants of
the Company and to promote the success of the Company's business. Options and
stock purchase rights granted under the Stock Plan may be either "incentive
stock options," as defined in Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), or nonstatutory stock options and stock purchase rights
("SPRs").
ADMINISTRATION. The Stock Plan may be administered by the Board of
Directors or a committee of the Board (the "Committee"), which Committee shall,
in the case of options intended to qualify as "performance-based compensation"
within the meaning of Section 162(m) of the Code, consist of two or more
"outside directors" within the meaning of Section 162(m) of the Code. The
Committee has the power to determine the terms of the options or SPRs granted,
including the exercise price, the number of shares subject to each option or
SPR, the exercisability thereof, and the form of consideration payable upon such
exercise. In addition, the Committee has the authority to amend, suspend or
terminate the Stock Plan, provided that no such action may affect any share of
Common Stock previously issued and sold or any option previously granted under
the Stock Plan.
TERMS AND CONDITIONS OF OPTIONS. Options and SPRs granted under the Stock
Plan are not generally transferable by the optionee, and each option and SPR is
exercisable during the lifetime of the optionee only by such optionee. Options
granted under the Stock Plan must generally be exercised within three months of
the end of the optionee's status as an employee or consultant of the Company, or
within twelve months after such optionee's termination by death or disability,
but in no event later than the expiration of the option's ten year term. In the
case of SPR's, unless the Committee determines otherwise, the restricted stock
purchase agreement shall grant the Company a repurchase option exercisable upon
the voluntary or involuntary termination of the purchaser's employment with the
Company for any reason (including death or disability). The purchase price for
Shares repurchased pursuant to the Restricted Stock Purchase Agreement shall be
the original price paid by the purchaser and may be paid by cancellation of any
indebtedness of the purchaser to the Company. The repurchase option shall lapse
at a rate determined by the Committee. The exercise price of all incentive stock
options granted under the Stock Plan must be at least equal to the fair market
value of the Common Stock on the date of grant. The exercise price of
nonstatutory stock options and SPRs granted under the Stock Plan is determined
by the Committee, but with respect to nonstatutory stock options intended to
qualify as "performance-based compensation" within the meaning of Section 162(m)
of the Code, the exercise price must be at least equal to the fair market value
of the Common Stock on the date of grant. With respect to any participant who
owns stock possessing more than 10% of the voting power of all classes of the
Company's outstanding capital stock,
14
<PAGE>
the exercise price of any incentive stock option must be at least 110% of the
fair market value on the grant date and the term of such incentive stock option
must not exceed five years. The term of all other options granted under the
Stock Plan may not exceed ten years. The Company will receive no monetary
consideration for the granting of options or SPRs under the Stock Plan.
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. The Stock Plan provides that in
the event of a merger of the Company with or into another corporation, a sale of
substantially all of the Company's assets or a like transaction involving the
Company, each option shall be assumed or an equivalent option substituted by the
successor corporation. If the outstanding options are not assumed or substituted
as described in the preceding sentence, the Optionee shall fully vest in and
have the right to exercise the option or SPR as to all of the optioned stock,
including shares as to which it would not otherwise be exercisable. If an option
or SPR becomes fully vested and exercisable in the event of a merger or sale of
assets, the Administrator shall notify the optionee that the option or SPR shall
be fully vested and exercisable for a period of fifteen (15) days from the date
of such notice, and the option or SPR will terminate upon the expiration of such
period.
An optionee who is granted an incentive stock option will not recognize
taxable income either at the time the option is granted or upon its exercise,
although the exercise may subject the optionee to the alternative minimum tax.
Upon the sale or exchange of the shares more than two years after grant of the
option and one year after exercising the option, any gain or loss will be
treated as long-term capital gain or loss. If these holding periods are not
satisfied, the optionee will recognize ordinary income at the time of sale or
exchange equal to the difference between the excise price and the lower of (i)
the fair market value of the shares at the date of the option exercise or (ii)
the sale price of the shares. A different rule for measuring ordinary income
upon such a premature disposition may apply if the optionee is also an officer,
director or 10% stockholder of the Company. The Company will be entitled to a
deduction in the same amount as the ordinary income recognized by the optionee.
Any gain recognized on such a premature disposition of the shares in excess of
the amount treated as ordinary income will be characterized as long-term capital
gain, depending on the holding period.
All other options which do not qualify as incentive stock options are
referred to as nonstatutory options. An optionee will not recognize any taxable
income at the time he is granted a nonstatutory option. However, upon its
exercise, the optionee will recognize taxable income generally measured as the
excess of the then fair market value of the shares purchased over the purchase
price. Any taxable income recognized in connection with an option exercise by an
optionee who is also an employee of the Company will be subject to a tax
withholding by the Company. Upon resale of such shares by the optionee, any
difference between the sales price and the optionee's purchase price, to the
extent not recognized as taxable income as described above, will be treated as
long-term or short-term capital gain or loss, depending on the holding period.
The Company will be entitled to a tax deduction in the same amount as the
ordinary income recognized by the optionee with respect to shares acquired upon
exercise of a nonstatutory option.
The foregoing is only a summary of the effect of federal income taxation
upon the optionee and the Company with respect to the grant and exercise of
options under the Stock Plan and does not purport to be complete. Reference
should be made to the applicable provisions of the Code. In addition, this
summary does not discuss the tax consequences of the optionee's death or the
income tax laws of any municipality, state or foreign country in which an
optionee may reside.
The Company intends to register the shares underlying the options on a
Registration Statement on Form S-8.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
15
<PAGE>
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
Upon the recommendation of the Audit Committee, the Board of Directors has
appointed the firm of Ernst & Young LLP as the Company's independent auditors
for the fiscal year ended January 31, 1999, subject to ratification by the
stockholders. Ernst & Young LLP has audited the Company's financial statements
since the Company's inception in May 1993. In the event that a majority of the
Votes Cast are against the ratification, the Board of Directors will reconsider
its selection.
Representatives of Ernst & Young LLP are expected to be present at the
Company's Annual Meeting. They will have an opportunity to make a statement, if
they desire to do so, and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
ANNUAL REPORT
A copy of the Company's Annual Report to Stockholders for the fiscal year
ended January 31, 1998 is being furnished to stockholders concurrently herewith.
PROPOSALS BY STOCKHOLDERS
Proposals of stockholders of the Company that are intended to be presented
by such stockholders at the Company's Annual Meeting of Stockholders for the
fiscal year ended January 31, 1999 must be received by the Secretary of the
Company no later than January 1, 1999, in order that they may be considered for
possible inclusion in the proxy statement and form of proxy relating to that
meeting.
OTHER MATTERS
The Company knows of no other business that will be presented at the Annual
Meeting. If any other business is properly brought before the Annual Meeting, it
is intended that proxies in the enclosed form will be voted in accordance with
the judgment of the persons voting the proxies.
Whether or not you intend to be present at the Annual Meeting, we urge you
to return your signed proxy promptly.
BY ORDER OF THE BOARD OF DIRECTORS,
[SIG]
Arthur F. Schneiderman
SECRETARY
Santa Clara, California
May 1, 1998
16
<PAGE>
NEOMAGIC CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 4, 1998
The undersigned stockholder of NeoMagic Corporation, a Delaware
corporation (the "Company"), hereby acknowledges receipt of the Notice of
Annual Meeting of Stockholders and Proxy Statement, each dated as of May 1,
1998, and hereby appoints PRAKASH AGARWAL and MERLE MC CLENDON, or either of
them, proxies and attorneys-in-fact, with full power to each of substitution,
on behalf and in the name of the undersigned, to represent the undersigned at
the Annual Meeting of Stockholder of NeoMagic Corporation to be held on June
4, 1998, at 9:00 a.m., local time, at the Westin Santa Clara, 5101 Great
America Parkway, Santa Clara, California, and at any adjournments or
adjournments thereof, and to vote all shares of Common Stock which the
undersigned would be entitled to vote, if then and there personally present,
on the matters set forth on the reverse side.
<PAGE>
NEOMAGIC CORPORATION [LOGO] DIFFERENTIATION THROUGH INTEGRATION
NeoMagic designs, develops and markets multimedia accelerators for sale to
notebook PC manufactures.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR THE ELECTION OF DIRECTORS AND FOR THE APPOVAL OF
EACH OF PROPOSALS 2, 3 AND 4 SET FORTH BELOW, AND AS SAID PROXIES DEEM
ADVISABLE ON SUCH OTHER MATTERS AS MAY COME BEFORE THE MEETING AND ANY
ADJOURNMENT(S) THEREOF.
1. ELECTION OF DIRECTORS
Nominees:
Kamran Elahian Irwin Federman
Prakash Agarwal James Lally
Brian P. Dougherty Klaus Wiemer
/ / FOR all nominees listed above
/ / WITHHOLD authority to vote for all nominees listed above
/ / FOR _______________________________
all nominees except as noted above
2. PROPOSAL TO AMEND THE 1993 STOCK OPTION PLAN TO INCREASE THE NUMBER OF
SHARES OF COMMON SOTCK AVAILABLE FOR GRANT UNDER THE PLAN BY 875,000 SHARES:
/ / FOR / / AGAINST / / ABSTAIN
3. PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S
INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDED JANUARY 31, 1999:
/ / FOR / / AGAINST / / ABSTAIN
4. IN THEIR DISCRETION THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
MATTER OR MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING OR ANY
ADJOURNMENT OR ADJOURNMENTS THEREOF.
/ / FOR / / AGAINST / / ABSTAIN
(This proxy should be marked, dated, signed by the stockholder(s) exactly as
his or her name appears hereon, and returned promptly in the enclosed
envelope. Persons signing in a fiduciary capacity should so indicate. If
shares are held by joint tenants or as community property, both should sign.)
Signature: Date: Signature: Date:
---------------- ------- -------------- ---------
