<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant /X/
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 Section240.14a-11(c) or
Section240.14a-12
NEOMAGIC CORPORATION
- --------------------------------------------------------------------------------
(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:
N/A
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(2) Aggregate number of securities to which transaction applies:
N/A
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11
N/A
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
N/A
-----------------------------------------------------------------------
(5) Total fee paid:
N/A
-----------------------------------------------------------------------
/ / 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:
N/A
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
N/A
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(3) Filing Party:
N/A
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(4) Date Filed:
N/A
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<PAGE>
[LOGO]
3250 JAY STREET
SANTA CLARA, CALIFORNIA 95054
(408) 988-7030
May 6, 1999
Dear Fellow Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
NeoMagic Corporation (the "Company"), which will be held at 8:00 a.m. on June
10, 1999 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. Also included with this booklet is a copy of the Company's Annual Report
for the fiscal year ended January 31, 1999. We encourage you to read the Annual
Report. It includes information on the Company's operations, markets, products
and services, as well as the Company's audited financial statements.
At this meeting, among other things, you will be asked to consider and vote
upon the election of five directors. All five 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 2000 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 10, 1999
------------------------
To the Stockholders of NeoMagic Corporation:
Notice is hereby given that the Annual Meeting of Stockholders (the "Annual
Meeting") of NeoMagic Corporation, a Delaware corporation (the "Company"), will
be held on Thursday, June 10, 1999 at 8:00 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 five 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, 2000; and
4. To transact such other business as may properly come before the Annual
Meeting and any adjournment of the Annual Meeting.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice of Annual Meeting. Stockholders of record as
of the close of business on April 7, 1999 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 6, 1999
<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 five directors, to approve an amendment to the Company's 1993
Amended Stock Plan and to ratify the appointment of Ernst & Young LLP 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 6, 1999 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 Thursday, June10, 1999, at
8:00 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 7, 1999 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 24,978,906 shares of Common Stock outstanding and entitled
to vote, with each share entitled to one vote.
QUORUM; REQUIRED VOTE
A majority of the shares entitled to vote, present in person or represented
by proxy, shall constitute a quorum at the Annual Meeting. If a quorum is
present, in all matters other than the election of directors, the affirmative
vote of the majority of shares present in person or represented by proxy at the
meeting and entitled to vote on the subject matter shall be required to approve
any matter presented at the Annual Meeting. 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 (5)
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.
1
<PAGE>
Under the General Corporation Law of the State of Delaware, an abstaining
vote and a broker "non-vote" are counted as present and entitled to vote and
are, therefore, included for purposes of determining whether a quorum of shares
is present at a meeting. However, broker "non-votes" are not deemed to be "votes
cast." As a result, broker "non-votes" are not included in the tabulation of the
voting results on the election of directors or issues requiring approval of a
majority of the votes cast and, therefore, do not have the effect of votes in
opposition in such tabulations. A broker "non-vote" occurs when a nominee
holding shares for a beneficial owner does not vote on a particular proposal
because the nominee does not have discretionary voting power with respect to
that item and has not received instructions from the beneficial owner.
VOTING AND REVOCATION OF PROXIES
Stockholders are required to complete, date, sign and promptly return the
accompanying form of proxy in the envelope provided. 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 has
retained the services of Corporate Investor Communications, Inc., to assist in
the solicitation of proxies at an estimated fee of less than $10,000, plus
reimbursement of reasonable out of pocket expenses. 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.
2
<PAGE>
PROPOSAL ONE--ELECTION OF DIRECTORS
A board of five (5) directors is to be elected at the Annual Meeting. Irwin
Federman, a director of the Company since March 1994, is retiring from the board
effective immediately before the election of directors at the Annual Meeting.
The Company and the Board thank Mr. Federman for his years of dedicated service
to the Company. 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 director, 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 DIRECTORS
Set forth below is certain information regarding the nominees:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Kamran Elahian................... 44 Chairman of the Board
Prakash C. Agarwal............... 45 President, Chief Executive Officer and Director
Brian P. Dougherty(2)............ 42 Director
James Lally(1)(2)................ 54 Director
Klaus Wiemer(1).................. 61 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, 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
co-founder of PlanetWeb, Inc., an Internet software company, Chairman and
co-founder of Centillium Technology Corporation, a telecommunications
semiconductor company and the Co-Chairman and founder of Schools Online, a
non-profit public charity organization. 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
3
<PAGE>
consumer computing device operating system manufacturer. Mr. Dougherty holds a
BS degree in Electrical Engineering from the University of California at
Berkeley.
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,
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 8 meetings during the year ended January 31,
1999. Irwin Federman attended less than 75% of the aggregate number of meetings
of the Board of Directors.
The Board of Directors has two 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. James Lally and Klaus
Wiemer, 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, 1999 ("Last Fiscal Year"),
the Audit Committee met four times.
The Compensation Committee, which is comprised of Messrs. Dougherty and
Lally, administers the Amended 1993 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, and
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 twelve times.
DIRECTOR COMPENSATION
Although the Company does not pay any compensation to directors for serving
in that capacity, it does reimburse directors for expenses incurred in attending
board meetings.
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, 1999,
as to shares of the Company's Common Stock beneficially owned by: (i) each of
the Named Officers listed in the Summary Compensation Table provided below, (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>
Pilgram Baxter & Associates ............................................................ 1,789,700 7.2
825 Duportail Road
Wayne, PA 19087(1)
Putnam Investment Management, Inc. ..................................................... 1,248,900 5.0
One Post Office Square Boston, MA 02109(2)
Kamran Elahian(3)....................................................................... 672,272 2.7
Prakash C. Agarwal(4)................................................................... 1,132,550 4.6
Deepraj Puar(5)......................................................................... 246,949 1.0
Merle McClendon(6)...................................................................... 165,844 **
Ron Jankov(7)........................................................................... 143,192 **
James Lally(8).......................................................................... 117,256 **
Irwin Federman(9)....................................................................... 38,153 **
Brian Dougherty(10)..................................................................... 21,667 **
Klaus C. Wiemer(11)..................................................................... 11,667 **
All directors and officers as a group(3)-(12)........................................... 3,825,810 15.4%
</TABLE>
- ------------------------
* Percent ownership is based on 24,890,291 shares of Common Stock outstanding
as of January 31, 1999. Unless otherwise indicated, 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, 1999 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 February 9, 1999 pursuant to Section 13(g) of the
Securities and Exchange Act of 1934.
(2) This information was obtained from filings made with the Securities and
Exchange Commission February 9, 1999 pursuant to Section 13(g) of the
Securities and Exchange Act of 1934. Putnam Investments, which is a
wholly-owned subsidiary of Marsh and McLennon Companies, Inc., owns two
registered investment advisors: Putnam Investment Management Inc., which is
the investment advisor to the Putnam family of mutual funds, and the Putnam
Advisory Company, Inc., which is the investment advisor to Putnam's
institutional clients. Both subsidiaries have dipository power over the
shares as investment managers, but each of the mutual funds' trustees have
voting power over the shares held by each fund, and the Putnam Advisory
Company, Inc. has shared voting power over the shares held by institutional
clients.
(3) Includes an option to purchase 30,000 shares, exercisable within 60 days of
January 31, 1999.
(4) Includes an option to purchase 150,000 shares, exercisable within 60 days
of January 31, 1999.
6
<PAGE>
(5) Includes an option to purchase 163,334 shares, exercisable within 60 days
of January 31, 1999.
(6) Includes an option to purchase 164,667 shares, exercisable within 60 days
of January 31, 1999.
(7) Includes an option to purchase 21,935 shares, exercisable within 60 days of
January 31, 1999.
(8) Includes an option to purchase 20,000 shares, exercisable within 60 days of
January 31, 1999.
(9) Includes an option to purchase 20,000 shares, exercisable within 60 days of
January 31, 1999. Mr. Federman is retiring from the Company's board
effective immediately prior to electing directors at the Annual Meeting.
(10) Includes an option to purchase 21,667 shares, exercisable within 60 days
of January 31, 1999.
(11) Includes an option to purchase 11,667 shares, exercisable within 60 days
of January 31, 1999.
(12) Includes options to purchase 447,000 shares for executives not named in
the table, exercisable within 60 days of January 31, 1999.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation paid
by the Company during the fiscal year ended January 31, 1999 to the Company's
Chief Executive Officer and each of the Company's other most highly compensated
executive officers who earned in excess of $100,000 during such fiscal year
(collectively, the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION AWARDS
ANNUAL --------------------------------------------------
COMPENSATION SECURITIES
FISCAL ------------- UNDERLYING ALL OTHER
YEAR SALARY ($) OPTIONS (#)(1) BONUS(2) COMPENSATION(3)
----------- ------------- ------------------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Prakash C. Agarwal..................... 1999 $ 261,077 -- $ 294,500 $ 5,851
President and Chief Executive 1998 205,154 -- 180,000 6,229
Officer 1997 189,313 650,000 -- 6,577
Merle McClendon........................ 1999 166,927 -- 77,000 6,228
Vice President, Finance and 1998 148,769 40,000 59,500 3,810
Chief Financial Officer 1997 -- 200,000 -- --
Ron Jankov............................. 1999 236,055 80,000 110,000 2,613
Sr. VP and General Manager, 1998 208,710 80,000(4) 59,500 2,265
Multimedia Products Division 1997 167,521 100,000 -- 2,338
Deepraj Puar........................... 1999 171,161 -- 76,500 6,747
Vice President, Technology 1998 146,308 -- 59,500 5,774
1997 125,194 225,000 -- 6,558
Amnon Fisher........................... 1999 142,789 480,000(5) 120,000 5,246
Sr. VP and General Manager, 1998 -- -- -- --
Consumer Products Division 1997 -- -- -- --
</TABLE>
- ------------------------
(1) Includes previously granted options that were repriced in 1998. Effective
September 30, 1998, the Company offered repriced stock options to all
employees who held options to purchase Common Stock at exercise prices above
the September 30, 1998 market closing price of $11.50. See Option Repricing
discussion and Ten Year Option Repricings table.
(2) Includes annual incentive compensation as well as discretionary bonus.
7
<PAGE>
(3) Includes matching contributions to the Company's 401(k) plan and premiums
paid for health and life insurance.
(4) Includes options to purchase 80,000 shares granted on January 2, 1998 that
were cancelled and subsequently reissued pursuant to the repricing on
September 30, 1998. The information presented reflects both the original and
repriced grants.
(5) Includes an option to purchase 240,000 shares granted on June 16, 1998 that
was cancelled and subsequently reissued pursuant to the repricing on
September 30, 1998. The information presented reflects both the original and
repriced grants.
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 ended January 31, 1999.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS(1) VALUE AT ASSUMED ANNUAL
---------------------------------------------------------------------- RATES OF STOCK PRICE
NUMBER OF APPRECIATION FOR OPTION
SECURITIES % OF TOTAL EXPIRATION TERM(2)
UNDERLYING OPTIONS GRANTED PRICE EXPIRATION --------------------------
OPTIONS GRANTED (#) TO EMPLOYEES PER SHARE(7) DATE 5% 10%
------------------- ------------------- --------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Amnon Fisher.............. 240,000(3)(6) 6.4% $ 11.50 06/08/08 $ 1,668,352 $ 4,190,583
240,000(3) 6.4% $ 13.88 06/08/08 $ 2,089,146 $ 5,291,389
Ron Jankov................ 40,000(4)(6) 1.1% $ 11.50 01/02/08 $ 262,634 $ 651,609
40,000(5)(6) 1.1% $ 11.50 01/02/08 $ 262,634 $ 651,609
</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.
(2) 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. 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%.
(3) Vesting of this option commenced on June 8, 1998. 1/4 of the shares covered
by this option will vest on June 8, 1999 and 1/48 of shares will vest
ratably each month thereafter.
(4) Vesting of this option commenced on January 2, 1998. 1/48 of shares will
vest ratably each month for a period of four years.
(5) Vesting of this option will commence on January 2, 2001. 1/12 of shares will
vest ratably each month for a period of one year.
(6) Option granted as a result of the repricing of stock options. Under the
terms of the repricing, the option grants retained their original vesting
schedule and original expiration date provided that the repriced options
could not be exercised for six months following the repricing date.
8
<PAGE>
(7) 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.
OPTION EXERCISES AND HOLDINGS
The following table set 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, 1999. 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, 1999.
AGGREGATED OPTION EXERCISES IN FISCAL 1999 AND FISCAL 1999 VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
VALUE JANUARY 31, 1999(1) JANUARY 31, 1999(1)(2)
SHARES ACQUIRED REALIZED -------------------------- ---------------------------
NAME ON EXERCISE ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------ --------------- ----------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Prakash C. Agarwal.................. -- $ -- 150,000 -- $ 984,375 $ --
Merle McClendon..................... 57,000 679,750 163,000 20,000 1,069,687 131,250
Ron Jankov.......................... 39,732 513,984 20,268 70,000 134,081 179,375
Deepraj Puar........................ 50,000 851,562 163,334 -- 1,831,217 --
Amnon Fisher........................ -- -- -- 240,000 -- 615,000
</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
ended (based on $14.0625 per share, the closing price of the Common Stock on
the Nasdaq National Market on January 29, 1999), minus the exercise price.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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,
the President, Chief Executive Officer, and a director of the Company, 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, 1999, an aggregate
amount of $464,680, which includes interest payable, remained outstanding on the
remaining promissory note. The largest aggregate amount of indebtedness
outstanding during the last fiscal year was $464,680.
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,
Senior Vice President and General Manager, Multimedia Products Division of the
Company, 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. As of January 31, 1999, an
aggregate amount of $46,468, which includes interest payable, remained
outstanding on the remaining promissory note. The largest aggregate amount of
indebtedness outstanding during the last fiscal year was $46,468.
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,
the Chairman of the Board, 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
9
<PAGE>
of an aggregate of 125,000 shares of Common Stock held by Mr. Elahian. In
September 1998, the Company provided a loan to Mr. Elahian, in the aggregate
principal amount of $110,000. On December 18, 1998, Mr. Elahian repaid the loan
in full. As of January 31, 1999, an aggregate amount of $141,170, which includes
interest payable, remained outstanding on the remaining promissory note. The
largest aggregate amount of indebtedness outstanding during the last fiscal year
was $141,170.
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 January 31,
1999, 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 creation of stockholder
value.
- 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.
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.
10
<PAGE>
COMPONENTS OF COMPENSATION
The Company's compensation package for executive officers consists of three
basic elements: (i) base salary; (ii) annual incentive compensation, and (iii)
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 1999, 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, the level of expertise, responsibility
and experience of executives 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 $212,000 to $270,000 in April 1998.
ANNUAL INCENTIVE COMPENSATION
The annual incentive compensation is a cash-based incentive bonus program.
The plan establishes a fixed percentage of the executive officer's annual salary
as the their target annual incentive opportunity. The annual incentive
compensation provides for payment of cash bonuses to executive officers 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 average annual incentive approved by the Committee for the executive
officers was 70 percent of the target incentive opportunity. The bonus column of
the Summary Compensation Table contains the annual incentive payment as well as
discretionary bonuses for fiscal 1999 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 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 employee's total compensation to the long-term interest of stockholders.
Since options are granted at the fair market value of the Company's Common Stock
and vest over a multi-year period, employees will only receive value from the
options to the extent that they remain employed by the Company and the Company's
11
<PAGE>
Common Stock price increases during the term of the options, thus generating
returns for both stockholders and executives.
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.
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.
OPTION REPRICING
On September 25, 1998, the Board of Directors approved the repricing of the
stock options, effective September 30, 1998, of all employees of the Company who
are not directors of the Company and who held options to purchase Common Stock
at exercise prices above the September 30, 1998 market closing price of $11.50.
These stock options were repriced to $11.50, which was the market closing price
on September 30, 1998. Two of the Named Officers, Ron Jankov and Amnon Fisher,
had options which qualified for repricing. The Board believes the repricing of
its stock options was essential to enable it to retain and attract its
workforce. The Company repriced these stock options because it believes that the
decline in its stock price reflects industry and Company specific conditions
that are likely to be long-term in nature. The existence of "out of the money"
options for such an extended period of time would severely impact the Company's
ability to retain its existing workforce and attract new employees. The Company
believes that the suspension of the ability to exercise options for six months
and possible forfeiture of all options should the employee voluntarily resign
during that period in exchange for the new option pricing is a substantive
contribution by the employee for the new price. The Company does not believe
that this repricing causes its stock option plan to be subject to variable plan
accounting.
12
<PAGE>
TEN YEAR OPTION REPRICINGS
The following table sets forth certain information concerning the repricings
of options held by the executive officers of the Company over the past ten
years, all of which occurred on September 30, 1998:
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES MARKET PRICE EXERCISE PRICE LENGTH OF
UNDERLYING OF STOCK AT OF STOCK AT ORIGINAL OPTION
OPTIONS/SARS TIME OF TIME OF NEW TERM REMAINING AT
REPRICED OR REPRICING OR REPRICING OR EXERCISE DATE OF REPRICING
NAME AMENDED(#) AMENDMENT($) AMENDMENT($) PRICE($) PRICE($)
- ------------------------------------- ------------------- --------------- --------------- ----------- ------------------
<S> <C> <C> <C> <C> <C>
Amnon Fisher ........................ 240,000 $ 11.50 $ 13.88 $ 11.50 9 years 252 days
Senior VP & General Manager,
Consumer Products Division
Daniel V. Hauck ..................... 170,000 11.50 17.25 11.50 9 years 161 days
VP, Worldwide Sales
Ron Jankov .......................... 40,000 11.50 13.31 11.50 9 years 94 days
Senior VP & General Manager, 40,000 11.50 13.31 11.50 9 years 94 days
Multimedia Products Division
Ibrahim Korgav ...................... 25,000 11.50 13.31 11.50 9 years 94 days
VP, Manufacturing Operations
Kenneth Murray ...................... 120,000 11.50 14.69 11.50 9 years 42 days
VP, Human Resources
</TABLE>
The foregoing report has been furnished by the Board of Directors of
NeoMagic Corporation:
Kamran Elahian
Prakash Agarwal
Brian P. Dougherty
James Lally
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.
13
<PAGE>
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 January 31, 1999 except as
provided below.
Ibrahim Korgav, the Company's Vice President, Manufacturing Operations, did
not file on a timely basis one Form 4 reflecting changes in beneficial ownership
after one transaction. Dan Hauck, the Company's Vice President, Worldwide Sales,
did not file on a timely basis a Form 3 reflecting his initial beneficial
ownership of Company securities upon becoming an officer of the Company.
14
<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.
COMPARISON OF 22 MONTH CUMULATIVE TOTAL RETURN AMONG NEOMAGIC CORPORATION,
THE NASDAQ STOCK MARKET INDEX (U.S.) AND THE NASDAQ ELECTRONIC COMPONENTS STOCK
INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NEOMAGIC CORPORATION NASDAQ STOCK MARKET (U.S.)
<S> <C> <C>
3/14/97 100 100
1/98 142 126
1/99 117 198
*$100 Invested on 3/14/97 in stock or
index
including reinvestment of dividends.
Fiscal year ending January 31.
<CAPTION>
NASDAQ ELECTRONIC COMPONENTS
<S> <C>
3/14/97 100
1/98 115
1/99 186
*$100 Invested on 3/14/97 in stock or
index
including reinvestment of dividends.
Fiscal year ending January 31.
</TABLE>
15
<PAGE>
PROPOSAL TWO--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 20, 1999, 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 9,525,000 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.
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, consists 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 one month 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,
16
<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.
TAX CONSEQUENCES. 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 BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
17
<PAGE>
PROPOSAL THREE--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, 2000, 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, 1999 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, 2000 must be received by the Secretary of the
Company no later than January 6, 2000, 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 6, 1999
18
<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 10, 1999
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 6, 1999, 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 10, 1999, at 8:00
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 APPROVAL 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 James Lally
Prakash Agarwal Klaus Wiemer
Brian P. Dougherty
[ ] 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, 2000:
[ ] 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: ________
