<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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 Section 240.14a-11(c) or Section
240.14a-12
DSP Group, Inc.
- --------------------------------------------------------------------------------
(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>
DSP GROUP, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 19, 1998
To the Stockholders of DSP GROUP, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Annual
Meeting") of DSP Group, Inc., a Delaware corporation (the "Company"), will be
held at the Company's principal executive office located at 3120 Scott
Boulevard, Santa Clara, California 95054, on Tuesday, May 19, 1998, at
9:00 a.m., local time, for the following purposes:
1. ELECTION OF DIRECTOR. To elect one Class I Director of the Company
to serve until the 2001 Annual Meeting of Stockholders or until his successor is
elected and qualified;
2. AMENDMENT AND RESTATEMENT OF THE DSP GROUP, INC. 1991 EMPLOYEE AND
CONSULTANT STOCK PLAN. To ratify and approve an amendment to the DSP Group,
Inc. 1991 Employee and Consultant Stock Plan to increase the number of shares of
Common Stock reserved for issuance thereunder from 2,800,000 to 3,800,000
shares;
3. SELECTION OF INDEPENDENT AUDITORS. To ratify the appointment of
Ernst & Young LLP as the independent auditors for the Company for the year
ending December 31, 1998; and
4. To transact such other business as may properly come before the
Annual Meeting and any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement which is attached and made a part hereof.
The Board of Directors has fixed the close of business on April 3, 1998 as
the record date for determining the stockholders entitled to notice of and to
vote at the Annual Meeting and any adjournment or postponement thereof.
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON, YOU ARE
URGED TO MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS
POSSIBLE IN THE POSTAGE-PREPAID ENVELOPE PROVIDED TO ENSURE YOUR REPRESENTATION
AND THE PRESENCE OF A QUORUM AT THE ANNUAL MEETING. IF YOU SEND IN YOUR PROXY
CARD AND THEN DECIDE TO ATTEND THE ANNUAL MEETING TO VOTE YOUR SHARES IN PERSON,
YOU MAY STILL DO SO. YOUR PROXY IS REVOCABLE IN ACCORDANCE WITH THE PROCEDURES
SET FORTH IN THE PROXY STATEMENT.
By Order of the Board of Directors
/s/ Igal Kohavi
Igal Kohavi,
CHAIRMAN OF THE BOARD
Santa Clara, California
April 14, 1998
<PAGE>
Mailed to Stockholders
on or about April 14, 1998
DSP GROUP, INC.
3120 SCOTT BOULEVARD
SANTA CLARA, CALIFORNIA 95054
PROXY STATEMENT
GENERAL INFORMATION
This Proxy Statement is furnished to the stockholders of DSP Group, Inc., a
Delaware corporation (the "Company"), in connection with the solicitation by the
Board of Directors (the "Board") of the Company of proxies in the accompanying
form for use in voting at the Annual Meeting of Stockholders of the Company (the
"Annual Meeting") to be held on Tuesday, May 19, 1998 at 9:00 a.m., local time,
at the Company's principal executive office located at 3120 Scott Boulevard,
Santa Clara, California 95054, and any adjournment or postponement thereof. The
shares represented by the proxies received, properly marked, dated, executed and
not revoked will be voted at the Annual Meeting.
REVOCABILITY OF PROXY
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is exercised by: (i) delivering to the Company
(to the attention of Avi Basher, the Company's Secretary) a written notice of
revocation or a duly executed proxy bearing a later date; or (ii) attending the
Annual Meeting and voting in person.
SOLICITATION AND VOTING PROCEDURES
The solicitation of proxies will be conducted by mail and the Company will
bear all attendant costs. These costs will include the expense of preparing and
mailing proxy materials for the Annual Meeting and reimbursements paid to
brokerage firms and others for their expenses incurred in forwarding
solicitation material regarding the Annual Meeting to beneficial owners of the
Company's Common Stock. The Company may conduct further solicitation
personally, telephonically or by facsimile through its officers, Directors and
regular employees, none of whom will receive additional compensation for
assisting with the solicitation. Additionally, solicitation of proxies of
brokers, banks, nominees and institutional investors will be made pursuant to
the special engagement of D.F. King & Co., Inc., at a cost to the Company of
approximately $7,500, plus out-of-pocket expenses.
The close of business on April 3, 1998 has been fixed as the record date
(the "Record Date") for determining the holders of shares of Common Stock of the
Company entitled to notice of and to vote at the Annual Meeting. As of the
close of business on the Record Date, the Company had 10,052,213 shares of
Common Stock outstanding and entitled to vote at the Annual Meeting. The
presence at the Annual Meeting of a majority, or 5,026,107 of these shares of
Common Stock of the Company, either in person or by proxy, will constitute a
quorum for the transaction of business at the Annual Meeting. Each outstanding
share of Common Stock on the Record Date is entitled to one vote on all matters.
Directors shall be elected by a plurality of the votes cast.
An automated system administered by the Company's transfer agent will
tabulate votes cast by proxy and an employee of the transfer agent will tabulate
votes cast in person at the Annual Meeting. Abstentions and broker non-votes
are each included in the determination of the number of shares present and
voting, and each is tabulated separately. However, broker non-votes are not
counted for purposes of determining the number of votes cast with respect to a
particular proposal. In determining whether a proposal has been approved,
abstentions are counted as votes against the proposal and broker non-votes are
not counted as votes for or against the proposal. If no specific instructions
are given with respect to matters to be acted upon at the Annual Meeting, shares
of Common Stock represented by a properly executed proxy will be voted FOR
(i) the election of management's nominee for Director listed in Proposal No. 1,
(ii) the approval of the amendment and restatement of the DSP Group, Inc. 1991
Employee and Consultant Stock Plan (the "1991 Plan"), and (iii) the ratification
of the selection of the independent auditors.
1
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTOR
The Company's Bylaws authorize the number of Directors to be not less than
five nor more than seven. The number of Directors on the Board is currently
fixed at five. The Company's Board of Directors is divided into three classes:
Class I, Class II and Class III. Each Director serves a three-year term. The
Board is currently composed of one Class I Director (Mr. Ayalon), whose term
will expire at the Annual Meeting and who has been nominated by the Company's
Board to continue to serve as a Class I Director for a three-year term following
the Annual Meeting; two Class II Directors (Messrs. Phelps and Shamir), whose
terms will expire upon the election and qualification of Directors at the annual
meeting of stockholders to be held in 1999; and two Class III Directors (Messrs.
Kaplan and Kohavi), whose terms will expire upon the election and qualification
of Directors at the annual meeting of stockholders to be held in 2000. At each
annual meeting of stockholders, Directors will be elected for full terms of
three years to succeed those Directors whose terms are expiring.
In January 1997, Mr. Avraham Fischer resigned as a Class I Director, and
the remaining Directors on the Board appointed Mr. Nathaniel de Rothschild to
fill the Class I vacancy. In September 1997, Mr. de Rothschild resigned as a
Class I Director. In November 1997, the Board subsequently amended the
Company's Bylaws to fix the number of directors at five.
At the Annual Meeting, the stockholders will elect one Class I Director,
who will serve a three-year term until the annual meeting of stockholders to be
held in 2001 or until a successor is elected or appointed and qualified or until
the Director's earlier resignation or removal. The Board has no reason to
believe that the person named below will be unable or unwilling to serve as a
nominee or as a Director if elected.
Certain information about Mr. Ayalon, the Class I nominee, is furnished
below:
ELIYAHU AYALON joined the Company in April 1996 as President, Chief
Executive Officer and Director. From May 1992 to April 1996, Mr. Ayalon served
as President and Chief Executive Officer of Mennen Medical Ltd., a developer and
manufacturer of medical instruments and apparatus.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE ELECTION OF THE NOMINEE NAMED ABOVE.
2
<PAGE>
DIRECTORS, EXECUTIVE OFFICERS AND KEY PERSONNEL
The following table sets forth certain information with respect to the
Executive Officers, Directors and key personnel of the Company:
DIRECTORS, EXECUTIVE OFFICERS AND KEY PERSONNEL
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Igal Kohavi 58 Chairman of the Board
Eliyahu Ayalon 55 President, Chief Executive Officer and Director
Avi Basher 41 Vice President of Finance,
Chief Financial Officer and Secretary
Martin M. Skowron 55 Senior Vice President -- Operations
Gideon Wertheizer 41 Vice President -- Marketing
Amir Karni 45 Vice President -- Research and Development
Leah Sade 39 Vice President -- Human Resources
Samuel L. Kaplan (1)(2) 61 Director
Millard Phelps (1)(2) 69 Director
Yair Shamir (1)(2) 52 Director
</TABLE>
- --------------------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
IGAL KOHAVI has been Chairman of the Board of the Company since September
1995. Dr. Kohavi has served since 1995 as Chairman of the Venture Funds of
Dovrat-Sherm & Co. Ltd., an Israeli investment bank at which he formerly served
as President from October 1994 to January 1996. Between March 1993 and October
1994, he served as Managing Director of Clal Electronic Industries Ltd.
Dr. Kohavi also serves as a director of Mercury Interactive Corporation (Nasdaq:
MERQ), a software company.
AVI BASHER joined the Company in October 1996 as Vice President of Finance
and Chief Financial Officer. In January 1997, he was elected to serve as
Secretary of the Company as well. Prior to joining the Company, Mr. Basher
served from December 1992 to October 1996 as Chief Financial Officer of
InterPharm Laboratories, Ltd., a healthcare biotechnology company.
MARTIN SKOWRON joined the Company in March 1991 as Vice President of
Manufacturing and became Vice President of Operations in September 1991. In
September 1996, Mr. Skowron was appointed Senior Vice President of the Company.
GIDEON WERTHEIZER joined the Company in September 1990 as Project Manager
of the Company's VLSI Design Center and became Vice President of the VLSI Design
Center in August 1995. In November 1997, Mr. Wertheizer was appointed Vice
President, Marketing of the Company.
AMIR KARNI joined the Company in July 1997 as Vice President, Research and
Development. Prior to joining the Company, Mr. Karni served as the Vice
President, Research and Development, and Research and Development Manager of
PressPoint, a newspaper distribution corporation, from June 1995 to May 1997.
From January 1993 to June 1995, he served as a manager of electronic subsystems
in the Output Imaging Division of Scitex Corporation, a printing and imaging
corporation.
LEAH SADE joined the Company in October 1996 and was appointed Vice
President, Human Resources of the Company in November 1997. Prior to joining
the Company, Ms. Sade served as the Corporate Director of
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<PAGE>
Human Resources of Mennen Medical, a medical instrument corporation, from
October 1995 to October 1996. From October 1993 to October 1995, Ms. Sade
served as the Corporate Director of Human Resources of Hipershook, a supermarket
chain corporation.
SAMUEL L. KAPLAN has been a Director of the Company since May 1993.
Mr. Kaplan has been a partner in the law firm of Kaplan, Strangis and Kaplan,
P.A. of Minneapolis, Minnesota, since October 1978. Mr. Kaplan also serves as a
trustee of USP Real Estate Investment Trust, a real estate investment trust.
MILLARD PHELPS has been a Director of the Company since July 1995.
Mr. Phelps has been most recently associated with Hambrecht & Quist, an
investment banking firm, where he served since 1984 as Advisory Director in the
corporate finance area and where he advised on public and private financing
matters until August 1997. Mr. Phelps has worked in the semiconductor industry
for more than 20 years at several manufacturing companies, including Texas
Instruments Incorporated, Fairchild Corporation, Intersil Inc. and Synertek Inc.
He currently serves as a director of Trident Microsystems, Inc., a designer,
developer and marketer of integrated circuit graphics and multimedia products,
and of Rise Technology Corporation, a designer, developer and marketer of
microprocessors.
YAIR SHAMIR has been a Director of the Company since October 1996 and has
served as President and Chief Operating Officer of VCON Telecommunications,
Ltd., a developer and marketer of video conferencing systems, since March 1997.
From July 1995 to February 1997, Mr. Shamir served as the Executive Vice
President of The Challenge Fund-Etgar L.P., a venture capital firm. From
January 1994 to July 1995, he served as Chief Executive Officer for Elite
Industries, Ltd., a food products company. From January 1988 to December 1993,
he served as Executive Vice President and General Manager of Scitex Corporation,
Ltd., an electronics company. Mr. Shamir currently serves as a director of
Mercury Interactive Corporation, a provider of client/server and web testing
tools, and Orckit Communications, Limited, a developer and manufacturer of local
loop communications systems.
RELATIONSHIPS AMONG DIRECTORS OR EXECUTIVE OFFICERS
There are no family relationships among any of the Directors or Executive
Officers of the Company.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During 1997, the Board met four times and acted by written consent one
time. No Director attended fewer than 75% of the aggregate of either (i) the
total number of Board meetings held during the period for which he was a
Director or (ii) the total number of committee meetings of the Board on which he
served held during the period for which he was a Director. The Board currently
has two committees: the Compensation Committee and the Audit Committee. The
Nominating Committee was disbanded in April 1997.
The Compensation Committee held five meetings in 1997. The Compensation
Committee currently consists of Messrs. Kaplan, Phelps and Shamir, and
Mr. Kaplan serves as its Chairman. Its functions are to establish and apply the
Company's compensation policies with respect to the Company's Executive
Officers.
The Audit Committee held four meetings in 1997. The Audit Committee
currently consists of Messrs. Kaplan, Phelps and Shamir, and Mr. Phelps serves
as its Chairman. The Audit Committee recommends the engagement of the Company's
independent auditors. In addition, the Audit Committee is primarily responsible
for approving the services performed by the Company's independent auditors and
for reviewing and evaluating the Company's accounting principles and its system
of internal accounting controls.
The Nominating Committee, which was established in April 1994, held no
meetings in 1997 and consisted of Messrs. Ayalon and Yost. Mr. Yost resigned as
a Director of the Company in March 1997. The Nominating Committee filled
vacancies on the Board of Directors. The Nominating Committee was disbanded in
April 1997.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company do not receive any additional
compensation for their services as Directors. Directors who are not employees
of the Company receive an annual retainer of $20,000, payable in quarterly
installments of $5,000 each. The retainer contemplates attendance at four Board
meetings per year.
4
<PAGE>
Additional Board meetings of a face-to-face nature are compensated at the rate
of $500 per meeting. In addition, committee meetings of a face-to-face nature
and on a telephonic basis are compensated at the rate of $500 per meeting. All
Directors are reimbursed for expenses incurred in connection with attending
Board and committee meetings.
Each outside Director of the Company is also entitled to participate in the
1993 Director Option Plan (the "Director Option Plan"). The Director Option
Plan provides for the grant of non-statutory options to non-employee Directors
of the Company. The Director Option Plan is designed to work automatically;
however, to the extent administration is necessary, it will be provided by the
Board of Directors. The Director Option Plan provides that each eligible
Director is granted an option to purchase 15,000 shares of Common Stock under
the Director Option Plan on the date on which he or she first becomes a Director
of the Company. In addition, on the same date, each new Director is granted an
option to purchase 10,000 shares of Common Stock under the 1991 Employee and
Consultant Stock Plan (the "1991 Plan"). Thereafter, each outside Director is
granted an option to purchase 5,000 additional shares of Common Stock (a
"Subsequent Option") on January 1 of each year if, on such date, he or she shall
have served on the Company's Board of Directors for at least six months. In
addition, an option to purchase 5,000 shares of Common Stock (a "Committee
Option") is granted on January 1 of each year to each outside Director for each
committee of the Board on which he or she shall have served as a chairperson for
at least six months.
On January 2, 1997, each of Messrs. Kaplan and Phelps were granted
Subsequent Options to purchase up to 5,000 shares of Common Stock, at an
exercise price of $9.38 per share, under the Director Option Plan.
On January 2, 1997, Mr. Kaplan was granted a Committee Option to purchase
up to 5,000 shares of Common Stock, at an exercise price of $9.38 per share,
under the Director Option Plan.
On August 25, 1997 each of Messrs. Ayalon and Kohavi were granted options
to purchase up to 150,000 shares of Common Stock, at an exercise price of
$26.375, under the 1991 Plan.
On January 2, 1998, each of Messrs. Kaplan, Phelps and Shamir were granted
Subsequent Options to purchase up to 5,000 shares of Common Stock, at an
exercise price of $19.25 per share, under the Director Option Plan.
On January 2, 1998, Mr. Kaplan was granted a Committee Option to purchase
up to 5,000 shares of Common Stock, at an exercise price of $19.25 per share,
under the Director Option Plan.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's Directors, Executive Officers and
persons who own more than 10% of the Company's Common Stock (collectively,
"Reporting Persons") to file reports of ownership and changes in ownership of
the Company's Common Stock with the Securities and Exchange Commission and The
Nasdaq Stock Market, Inc. Copies of these reports are also required to be
delivered to the Company.
Except as set forth below, the Company believes, based solely on its review
of the copies of such reports received or written representations from certain
Reporting Persons, that during the fiscal year ended December 31, 1997, all
Reporting Persons complied with all applicable filing requirements, except for
the following: (i) Mr. Basher inadvertently failed to report a sale of stock
pursuant to the Company's employee stock purchase plan on his Form 4 for the
period of the sale; such sale was subsequently reported on a later Form 4; and
(ii) Ms. Sade, Mr. Karni and Mr. Wertheizer each inadvertently failed to file a
Form 3 upon being appointed executive officers of the Company; each subsequently
reported such appointment on their Form 5 filings for the fiscal year ended
1997.
5
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company
with respect to beneficial ownership of the Company's Common Stock as of
April 3, 1998, by (i) each stockholder known to the Company to own beneficially
more than 5% of the Company's Common Stock; (ii) each of the Company's
Directors; (iii) the Chief Executive Officer and each of the four other most
highly compensated Executive Officers of the Company (including one former
Executive Officer) (collectively, the "Named Executive Officers") determined for
the fiscal year ended December 31, 1997; and (iv) all Directors and Executive
Officers of the Company as a group:
<TABLE>
<CAPTION>
NAME OF SHARES APPROXIMATE PERCENT
BENEFICIAL OWNER BENEFICIALLY OWNED (1) BENEFICIALLY OWNED (2)
- ---------------- ---------------------- ----------------------
<S> <C> <C>
Pilgrim Baxter & Associates Ltd. (3)
825 Duportail Road
Wayne, Pennsylvania 19087............... 504,000 5.01%
Samuel L. Kaplan (4).................... 62,188 *
Millard Phelps (5)...................... 6,500 *
Yair Shamir (6)......................... 5,000 *
Eliyahu Ayalon (7)...................... 31,467 *
Avi Basher (8).......................... 10,625 *
Igal Kohavi (9)......................... 108,392 1.07%
Martin Skowron (10)..................... 1,562 *
Gideon Wertheizer (11).................. 2,610 *
Moshe Shahaf............................ -- *
All Directors and executive officers
as a group (10 persons) (12)............ 228,782 2.24%
</TABLE>
- -------------------------------
* Less than 1%
(1) To the Company's knowledge, except as set forth in the footnotes to this
table, and subject to applicable community property laws, each person named
in this table has sole voting and investment power with respect to the
shares set forth opposite such person's name.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of the Company's
Common Stock, subject to options currently exercisable or exercisable on or
before June 2, 1998, are deemed outstanding for computing the percentage of
the person holding such options, but are not deemed outstanding for
computing the percentage of any other person. Percentages are based on
10,052,213 shares of the Company's Common Stock outstanding as of April 3,
1998.
(3) Pilgrim Baxter & Associates Ltd. ("Pilgrim Baxter") filed a Schedule 13G,
dated February 12, 1998, with the Securities and Exchange Commission on
behalf of itself. Pilgrim Baxter reported sole voting power and sole
dispositive power over 504,000 shares.
(4) Includes 22,520 shares held of record by the Kaplan, Strangis and Kaplan,
P.A. Profit Sharing Trust FBO Samuel L. Kaplan. Also includes 18,668
shares of the Company's Common Stock, subject to options which are
currently exercisable or will become exercisable on or before June 2, 1998.
6
<PAGE>
(5) Includes 5,500 shares of the Company's Common Stock subject to options
which are currently exercisable or will become exercisable on or before
June 2, 1998.
(6) Includes 5,000 shares of the Company's Common Stock subject to options
which are currently exercisable or will become exercisable on or before
June 2, 1998.
(7) Includes 30,000 shares of the Company's Common Stock subject to options
which are currently exercisable or will become exercisable on or before
June 2, 1998.
(8) Includes 10,625 shares of the Company's Common Stock subject to options
which are currently exercisable or will become exercisable on or before
June 2, 1998.
(9) Includes 107,500 shares of the Company's Common Stock subject to options
which are currently exercisable or will become exercisable on or before
June 2, 1998.
(10) Includes 1,562 shares of the Company's Common Stock subject to options
which are currently exercisable or will become exercisable on or before
June 2, 1998.
(11) Includes 2,610 shares of the Company's Common Stock subject to options
which are currently exercisable or will become exercisable on or before
June 2, 1998.
(12) See footnotes (4) through (11). Includes 181,903 shares of the Company's
Common Stock subject to options which are currently exercisable or will
become exercisable on or before June 2, 1998.
7
<PAGE>
PROPOSAL NO. 2
AMENDMENT AND RESTATEMENT OF THE COMPANY'S
1991 EMPLOYEE AND CONSULTANT STOCK PLAN
GENERAL
The Company's stockholders are being asked to act upon a proposal to ratify
the action of the Board amending the 1991 Plan.
The Board has approved an amendment and restatement of the 1991 Plan to
increase the number of shares of Common Stock reserved for issuance thereunder
by 1,000,000 shares, bringing the total number of shares issuable under the 1991
Plan to 3,800,000. The purpose of the increase is to enable the Company to
retain talented employees and consultants and to attract talented new employees
and consultants by offering them participation in the Company's 1991 Plan.
Management believes that without such incentive it will be unable to attract and
retain talented individuals providing services to the Company. In the event the
stockholders do not approve the proposed increase in the number of shares of
Common Stock reserved for issuance under the 1991 Plan, the Company will not be
able to issue employees additional incentive stock options under the 1991 Plan
because options have already been granted with respect to substantially all of
the shares reserved under the 1991 Plan.
A general description of the principal terms of the 1991 Plan is set forth
below. This description is qualified in its entirety by the terms of the 1991
Plan, as proposed to be amended and restated, which is attached to this Proxy
Statement as EXHIBIT A and is hereby incorporated herein by reference.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL
OF THE PROPOSED AMENDMENT AND RESTATEMENT OF THE 1991 PLAN.
GENERAL DESCRIPTION
In October 1991, the Board of Directors of the Company adopted the 1991
Plan, which was approved by the stockholders in October 1991. The 1991 Plan was
subsequently amended and restated, as approved by the stockholders in January
1994, April 1994, May 1995 and May 1996. A total of 2,800,000 shares are
currently reserved for issuance under the 1991 Plan and the Company's terminated
1991 Israeli Option Plan. Options granted under the 1991 Plan may be either
incentive stock options, as defined in Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"), or non-statutory stock options. See "Certain
Federal Income Tax Information" below for information concerning the tax
treatment of both incentive stock options and non-statutory stock options. As
of December 31, 1997, options to purchase approximately 1,250,931 shares were
outstanding under the 1991 Plan, a total of approximately 1,464,251 options to
purchase shares had been exercised under the 1991 Plan, and approximately 84,818
shares remained reserved for issuance thereunder.
SUMMARY OF 1991 PLAN
The essential terms of the 1991 Plan, as proposed to be amended and
restated, are summarized below. This summary does not purport to be complete,
and is subject to, and qualified by, reference to all provisions of the 1991
Plan, as proposed to be amended and restated, a copy of which is attached hereto
as EXHIBIT A.
PURPOSES. The purposes of the 1991 Plan are to attract and retain the best
available personnel for positions of substantial responsibility, to provide
additional incentive for employees and consultants of the Company and to promote
the success of the Company's business.
ADMINISTRATION. With respect to the grant of options to employees who are
also Officers or Directors subject to Section 16 of the Exchange Act, the 1991
Plan shall be administered by (i) the Board of Directors of the Company provided
that the Board may do so in compliance with Rule 16b-3 promulgated under the
Exchange Act; or (ii) a committee designated by the Board and constituted in
such a manner as to comply with Rule 16b-3. With respect to grants to employees
or consultants who are neither officers nor Directors of the Company, the 1991
Plan
8
<PAGE>
shall be administered by the Board or by a committee of the Board. The 1991
Plan is currently administered by the Compensation Committee of the Board.
The administrators of the 1991 Plan have full power to select, from among
the employees and consultants of the Company eligible for awards, the
individuals to whom awards will be granted, to make any combination of awards to
any participant, and to determine the specific terms of each grant, including
the number of shares subject to each option, subject to the provisions of the
1991 Plan. The interpretation and construction of any provision of the 1991
Plan by the administrators shall be final and conclusive. Members of the Board
receive no additional compensation for their services in connection with the
administration of the 1991 Plan.
ELIGIBILITY. The 1991 Plan provides that options may be granted to
employees (including officers and Directors who are also employees) and
consultants to the Company or its subsidiaries. Incentive stock options may
only be granted to employees. No employee or consultant may be granted in any
fiscal year of the Company, options to purchase more than 500,000 shares of
Company Common Stock.
STOCK OPTIONS. Each option granted under the 1991 Plan is to be evidenced
by a written stock option agreement between the Company and the optionee and is
subject to the following additional terms and conditions:
(a) EXERCISE OF THE OPTION. The Board or its committee determines on
the date of grant when options will become exercisable. An option is exercised
by giving written notice of exercise to the Company, specifying the number of
full shares of Common Stock to be purchased and tendering payment of the
purchase price to the Company. The acceptable methods of payment for shares
issued upon exercise of an option are set forth in the option agreement and may
consist of (1) cash; (2) check; (3) promissory note; (4) shares of Common Stock;
(5) the delivery of a properly executed exercise notice together with such other
documentation as the Board and the broker, if applicable, shall require to
effect an exercise and delivery to the Company of the amount of sale or loan
proceeds required to pay the exercise price; (6) a reduction in the amount of
any Company liability to the optionee, including any liability attributable to
the optionee's participation in any Company-sponsored deferred compensation
program or arrangement; (7) any combination of the foregoing methods; or
(8) such other consideration and method of payment permitted under applicable
law.
(b) EXERCISE PRICE. The exercise price of options granted under the
1991 Plan is determined on the date of grant. The exercise price of incentive
stock options must be at least 100% of the fair market value per share of the
Common Stock at the time of grant. In the case of incentive stock options
granted to an employee who at the time of grant owns more than 10% of the voting
power of all classes of stock of the Company or any parent or subsidiary
thereof, the exercise price must be at least 110% of the fair market value per
share of the Common Stock at the time of grant. In the event of the grant of a
non-statutory option with an exercise price below the then fair market value of
the Common Stock, the difference between fair market value on the date of grant
and the exercise price would be treated as a compensation expense for accounting
purposes and would therefore affect the Company's earnings.
(c) TERMINATION. If the optionee's employment or consulting
relationship with the Company is terminated for any reason (other than death or
total and permanent disability), options may be exercised within such period as
is determined by the Board or its committee after such termination as to all or
part of the shares as to which the optionee was entitled to exercise at the date
of such termination, provided that the option is exercised no later than its
expiration date.
(d) DISABILITY. If an optionee is unable to continue his or her
employment or consulting relationship with the Company as a result of total and
permanent disability, options may be exercised at any time within 12 months from
the date of disability to the extent such options were exercisable at the date
of disability, provided that the option is exercised no later than its
expiration date.
(e) DEATH. If an optionee should die, options may be exercised at any
time within 12 months after the date of death by the optionee's estate or a
person who acquired the right to exercise the option by bequest or inheritance,
but only to the extent that such options would have been exercisable by the
optionee at the date of death, provided that the option is exercised no later
than its expiration date.
(f) TERM AND TERMINATION OF OPTIONS. At the time an option is
granted, the Board or its committee determines the period within which the
option may be exercised. In no event may the term of an incentive stock
option be longer than ten years. No option may be exercised by any person
after the expiration of its
9
<PAGE>
term. An incentive stock option granted to an optionee who, at the time such
option is granted, owns stock possessing more than 10% of the voting power of
all classes of stock of the Company may not have a term of more than five years.
(g) NONTRANSFERABILITY OF OPTIONS. An option is not transferable by
the optionee, other than by will or the laws of descent and distribution, and is
exercisable during the optionee's lifetime only by the optionee.
(h) OTHER PROVISIONS. The option agreement may contain such other
terms, provisions and conditions not inconsistent with the 1991 Plan as may be
determined by the Board or its committee.
ADJUSTMENTS; DISSOLUTIONS; MERGERS AND ASSET SALES. In the event any
change, such as a stock split or dividend, is made in the Company's
capitalization which results in an increase or decrease in the number of
outstanding shares of Common Stock without receipt of consideration by the
Company, an appropriate adjustment shall be made in the number of shares under
the 1991 Plan, the price per share covered by each outstanding option and the
maximum number of shares that may be awarded under options to any individual in
any fiscal year of the Company.
In the event of the proposed dissolution or liquidation of the Company, all
outstanding options will terminate immediately prior to the consummation of such
proposed action. However, the Board may, in its discretion, make provision for
accelerating the exercisability of options outstanding under the 1991 Plan in
the event of such a proposed dissolution or liquidation. In the event of the
merger of the Company with or into another corporation or a proposed sale of all
or substantially all of the assets of the Company, each outstanding option shall
be assumed or substituted by such successor corporation. However, if a
successor does not assume or substitute the outstanding option, the Board may
determine, in its sole discretion and in lieu of such assumption or
substitution, that the participant shall have the right to exercise the option
as to all shares subject to such option, including shares as to which the option
would not otherwise be exercisable. If the Board determines that options shall
be fully exercisable in lieu of assumption or substitution, the Company shall
notify the participant that the option will be fully exercisable for a period of
15 days from the date of such notice and that the option will terminate upon the
expiration of such period.
In the event of a "Change of Control" of the Company, as defined in the
1991 Plan, the following acceleration and valuation provisions shall apply:
(1) except as otherwise determined by the Board, in its discretion, in the event
of an anticipated Change of Control, any options outstanding on the date such
Change of Control is determined to have occurred that are not yet exercisable
and vested on such date shall become fully exercisable and vested; (2) except as
otherwise determined by the Board, in its discretion, in the event of an
anticipated Change of Control, all outstanding options, to the extent they are
exercisable and vested (including options that shall become exercisable and
vested pursuant to (1) above), shall be terminated in exchange for a cash
payment equal to the Change of Control Price (reduced by the exercise price
applicable to such options). These cash proceeds shall be paid to the optionee
or, in the event of death of an optionee, prior to payment, to the estate of the
optionees or a person who acquired the right to exercise the option by bequest
or inheritance; and (3) any payment made in the event of a Change of Control
shall not exceed the maximum amount which could be paid to an optionee without
having the payment treated as an "excess parachute payment" within the meaning
of Section 280G of the Code.
AMENDMENT AND TERMINATION OF THE 1991 PLAN. The Board may amend the 1991
Plan at any time or from time to time or may terminate the 1991 Plan without
approval of the stockholders; provided, however, that stockholder approval is
required for any amendment to the 1991 Plan for which stockholder approval would
be required under applicable law, as in effect at the time. However, no action
by the Board of Directors or stockholders may alter or impair any option
previously granted under the 1991 Plan. The Board may accelerate the vesting of
any option or waive any condition or restriction pertaining to such option at
any time. The Board may also substitute new stock options for previously
granted stock options, including previously granted stock options having higher
option prices, and may reduce the exercise price of any option to the then
current fair market value, if the fair market value of the Common Stock covered
by such option shall have declined since the date the option was granted. In
any event, the 1991 Plan shall terminate in October 2001. Any options
outstanding under the 1991 Plan at the time of its termination shall remain
outstanding until they expire by their terms.
10
<PAGE>
AMENDED PLAN BENEFITS
The Company cannot now determine the number of options to be granted in the
future under the 1991 Plan, as proposed to be amended, to all current Executive
Officers as a group or all employees (excluding current Executive Officers) as a
group. The table under the caption "Option Grants in 1997" provides information
with respect to the grant of options to the Named Executive Officers of the
Company during 1997. The following table sets forth additional information with
respect to options granted under the 1991 Plan during 1997:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OPTIONS % OF TOTAL EXERCISE PRICE
IDENTITY OF GROUP GRANTED OPTIONS GRANTED PER SHARE
----------------- ------- --------------- ---------
<S> <C> <C> <C>
Executive Officers as a group 412,000 54.83% $24.93
Employees that are not Executive
Officers, as a group 329,400 43.84% $19.43
Directors that are not Executive
Officers, as a group 10,000 1.33% $12.13
</TABLE>
CERTAIN U.S. FEDERAL INCOME TAX INFORMATION
An optionee in the United States who is granted an incentive stock option
will not recognize taxable income either at the time of grant or 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 exercise, 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 exercise 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. Any gain or loss recognized on such a premature disposition of the
shares in excess of the amount treated as ordinary income will be characterized
as long-term or short-term capital gain or loss, depending on the holding
period.
An optionee in the United States will not recognize any taxable income at
the time he or she is granted a non-statutory stock 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 exercised by
an optionee who is also an employee or a former employee of the Company will be
subject to 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 an optionee with respect to shares acquired upon
exercise of an option.
The foregoing summary of the federal income tax consequences of 1991 Plan
transactions is based upon federal income tax laws in effect on the date of this
Proxy Statement. This summary does not purport to be complete, and does not
discuss foreign, state or local tax consequences.
PLAN AMENDMENT: INCREASE SHARES RESERVED FOR ISSUANCE
The Company has reserved 2,800,000 shares of Common Stock for issuance
under the 1991 Plan. In order to increase the number of shares available to
attract new talented employees, it is proposed that the 1991 Plan be amended and
restated to increase the total number of shares of Common Stock issuable under
the 1991 Plan to 3,800,000 through the reservation of an additional
1,000,000 shares of Common Stock for issuance thereunder.
11
<PAGE>
VOTE REQUIRED
The affirmative vote of the holders of a majority of the shares of the
Company's Common Stock present or represented at the Annual Meeting is required
to approve the amendment and restatement of the 1991 Plan which will increase
the number of shares of Common Stock reserved for issuance thereunder by
1,000,000 shares, bringing the total number of shares issuable under the 1991
Plan to 3,800,000.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL
OF THE PROPOSED AMENDMENT AND RESTATEMENT OF THE 1991 PLAN.
AN ABSTENTION WILL HAVE THE SAME EFFECT
AS A VOTE AGAINST THE PROPOSAL.
12
<PAGE>
PROPOSAL NO. 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Ernst & Young LLP served as the Company's independent auditors in 1997, and
have been appointed by the Board to continue as the Company's independent
auditors for the Company's fiscal year ending December 31, 1998. In the event
that ratification of this selection of independent auditors is not approved by a
majority of the shares of Common Stock voting at the Annual Meeting in person or
by proxy, management will review its future selection of independent auditors.
A representative of Ernst & Young LLP is expected to be present at the
Annual Meeting. The representative will have an opportunity to make a statement
and will be able to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT OF
ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE FISCAL YEAR
ENDING DECEMBER 31, 1998.
13
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY COMPENSATION TABLE
The following table sets forth all compensation earned by the Company's
Chief Executive Officer and the Named Executive Officers of the Company for the
years ended December 31, 1997, 1996 and 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------- ------
SECURITIES
UNDERLYING
SALARY (1) BONUS (2) OPTIONS
NAME AND PRINCIPAL POSITION YEAR $ $ (#)
--------------------------- ---- ---------- --------- -----------
<S> <C> <C> <C> <C>
Eliyahu Ayalon 1997 $283,747 $212,500 150,000
Chief Executive 1996 157,493 (3) 72,000 160,000
Officer, President 1995 -- -- --
and Director
Igal Kohavi 1997 280,620 212,500 150,000
Chairman of the Board 1996 250,000 72,000 140,000
1995 62,500 (4) -- 60,000
Avi Basher 1997 163,299 45,000 30,000
Vice President of 1996 31,822 (5) -- 50,000
Finance, Chief 1995 -- -- --
Financial Officer and
Secretary
Martin Skowron 1997 131,250 40,000 40,000
Senior Vice President-- 1996 113,674 40,000 25,000
Operations 1995 105,708 20,000 --
Gideon Wertheizer 1997 146,362 (6) 45,000 15,000
Vice President 1996 -- -- --
Marketing 1995 -- -- --
Moshe Shahaf 1997 153,956 (7) -- --
Former Vice President, 1996 108,104 10,000 70,000
Research and 1995 -- -- --
Development and Chief
Technical Officer
</TABLE>
- --------------------------
(1) The salaries of officers located in Israel include social benefit payments
and car allowances.
(2) The Company's executive officers are eligible for annual cash bonuses.
Such bonuses are generally based upon achievement of corporate performance
objectives determined by the Compensation Committee. Bonuses are awarded
by the Compensation Committee based upon individual, as well as corporate,
performance. The Company pays bonuses in the year following that in which
the bonuses were earned.
(3) Represents Mr. Ayalon's salary from his appointment as Chief Executive
Officer, President and Director of the Company in April 1996.
(4) Represents Mr. Kohavi's salary from his appointment as Chairman of the
Board in September 1995.
14
<PAGE>
(5) Represents Mr. Basher's salary from his appointment as Vice President of
Finance, and Chief Financial Officer of the Company in October 1996.
(6) Mr. Wertheizer was appointed an executive officer of the Company in
November 1997.
(7) Mr. Shahaf was appointed an executive officer of the Company in April 1996.
Mr. Shahaf resigned as Vice President, Research and Development of the
Company as of June 1997 and as Chief Technical Officer of the Company as of
October 1997, and terminated his employment with the Company in January
1998.
15
<PAGE>
OPTION GRANTS
The following table sets forth certain information with respect to stock
options granted during 1997 to each of the Named Executive Officers. In
accordance with the rules of the Securities and Exchange Commission, also shown
below is the potential realizable value over the term of the option (the period
from the grant date to the expiration date) based on assumed rates of stock
appreciation of 5% and 10%, compounded annually. These amounts are based on
certain assumed rates of appreciation and do not represent the Company's
estimate of future stock price. Actual gains, if any, on stock option exercises
will be dependent on the future performance of the Company's Common Stock.
<TABLE>
<CAPTION>
OPTION GRANTS IN 1997
INDIVIDUAL GRANTS (1)
----------------------------------------------
POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED
SECURITIES % OF TOTAL ANNUAL RATES OF STOCK
UNDERLYING OPTIONS PRICE APPRECIATION FOR
OPTIONS GRANTED TO OPTION TERM
GRANTED EMPLOYEES EXERCISE EXPIRATION ---------------------------
NAME (#) IN 1997 PRICE DATE 5% 10%
- -------------- ---------- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Eliyahu Ayalon 150,000 20.23% $26.375 08/25/02 $1,093,039 $2,415,330
Igal Kohavi 150,000 20.23% 26.375 08/25/02 1,093,039 2,415,330
Avi Basher 30,000 4.05% 10.625 05/06/02 88,065 194,600
Martin Skowron 15,000 2.02% 22.50 08/20/02 93,245 206,047
25,000 3.37% 34.375 10/08/02 237,429 524,657
Gideon Wertheizer 15,000 2.02% 22.50 08/20/02 93,245 206,047
Moshe Shahaf -- -- -- -- -- --
</TABLE>
- --------------------------
(1) All options were granted pursuant to the 1991 Plan.
16
<PAGE>
OPTION EXERCISES AND OPTION VALUES
The following table sets forth information concerning option exercises
during 1997 and the aggregate value of unexercised options as of December 31,
1997 held by each of the Named Executive Officers:
AGGREGATED OPTION EXERCISES IN 1997
AND OPTION VALUES AT DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
AGGREGATE OPTION OPTIONS AT THE-MONEY OPTIONS AT
EXERCISES IN 1997 DECEMBER 31, 1997 DECEMBER 31, 1997 (1)
----------------- ----------------- --------------------
SHARES
ACQUIRED
ON VALUE
EXERCISE REALIZED
NAME (#) ($) (2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------ -------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Eliyahu Ayalon 117,500 $1,571,250 -- 192,500 -- $742,500
Igal Kohavi 70,000 1,677,625 82,500 197,500 $219,375 725,625
Avi Basher 12,500 336,625 -- 67,500 -- 745,313
Martin Skowron 18,513 312,388 -- 58,164 -- 207,827
Gideon Wertheizer 19,022 187,135 2,239 28,429 14,144 94,058
Moshe Shahaf 24,791 569,100 2,917 42,292 24,065 348,909
</TABLE>
- --------------------------
(1) Calculated on the basis of the closing price of the Common Stock as
reported on the Nasdaq National Market on December 31, 1997 of $20.00 per
share, minus the exercise price.
(2) Calculated on the basis of the broker's reported sale price of the Common
Stock subject to the option, minus the exercise price.
17
<PAGE>
EMPLOYMENT AGREEMENTS
The following Named Executive Officers have written employment agreements
with the Company: Messrs. Ayalon, Basher, and Kohavi.
In April 1996, Mr. Ayalon entered into an employment agreement with DSP
Semiconductors, Ltd., the Company's wholly owned subsidiary in Israel ("DSP
Semiconductors"), pursuant to which Mr. Ayalon is to serve as the President and
Chief Executive Officer of the Company. The term of the agreement is
indefinite. The agreement originally provided for a fixed monthly salary of NIS
47,000 (approximately U.S. $15,000), which shall be adjusted monthly to the
Consumer Price Index of Israel. In June 1997, the Board increased Mr. Ayalon's
monthly salary to NIS 69,295 (approximately U.S. $20,500). Mr. Ayalon also is
entitled to an annual bonus, the amount of which is determined at the sole
discretion of the Board. The agreement may be terminated by the Company or Mr.
Ayalon, without cause (as defined in the agreement), upon six months advance
written notice. Mr. Ayalon's employment agreement was amended in November 1997
to provide for the following: (i) Mr. Ayalon's base compensation shall be fixed
at the commencement of each year, but shall not be subject to reduction during
the term of the agreement; (ii) if Mr. Ayalon terminates the agreement without
good reason or if the Company terminates the agreement for cause, then no
further payments shall be to Mr. Ayalon pursuant to the agreement and he shall
be subject to a one year prohibition against competition in addition to the
customary prohibitions against disclosure of trade secrets; (iii) upon a change
of control of the Company or if the agreement is terminated by Mr. Ayalon for
good reason or by the Company without cause, then all rights of Mr. Ayalon under
the agreement would continue for two years and all options held by Mr. Ayalon
would accelerate and immediately vest and be exercisable in whole or in part at
any time during the remaining two-year term of the agreement; and (iv) in the
event of death or permanent disability of Mr. Ayalon, all options shall
accelerate and immediately vest.
In February 1997, Mr. Basher entered into an employment agreement with DSP
Semiconductors, Ltd. pursuant to which Mr. Basher is to serve as the Vice
President of Finance and Chief Financial Officer of the Company. The term of
the agreement is indefinite. The agreement provides for a fixed monthly salary
of NIS 31,970 (approximately U.S. $10,000), which shall be adjusted monthly to
the Consumer Price Index of Israel. Mr. Basher also is entitled to an annual
bonus, the amount of which is determined at the sole discretion of the Board.
The agreement may be terminated by DSP Semiconductors or Mr. Basher, without
cause (as defined in the agreement), upon three months advance written notice.
In June 1997, Mr. Kohavi entered into an employment agreement with DSP
Semiconductors, pursuant to which Mr. Kohavi is to serve as the Chairman of the
Board of the Company. The term of the agreement is indefinite. The agreement
provided for a fixed monthly salary of NIS 69,295 (approximately U.S. $20,500),
which shall be adjusted monthly to the Consumer Price Index of Israel. Mr.
Kohavi also shall be entitled to an annual bonus, the amount of which is
determined at the sole discretion of the Board. The agreement may be terminated
by the Company or Mr. Kohavi, without cause (as defined in the agreement), upon
six months advance written notice. Mr. Kohavi's employment agreement was
amended in November 1997 to provide for the following: (i) Mr. Kohavi's base
compensation shall be fixed at the commencement of each year, but shall not be
subject to reduction during the term of the agreement; (ii) if Mr. Kohavi
terminates the agreement without good reason or if the Company terminates the
agreement for cause, then no further payments shall be to Mr. Kohavi pursuant to
the agreement and he shall be subject to a one year prohibition against
competition in addition to the customary prohibitions against disclosure of
trade secrets; (iii) upon a change of control of the Company or if the agreement
is terminated by Mr. Kohavi for good reason or by the Company without cause,
then all rights of Mr. Kohavi under the agreement would continue for two years
and all options held by Mr. Kohavi would accelerate and immediately vest and be
exercisable in whole or in part at any time during the remaining two-year term
of the agreement; and (iv) in the event of death or permanent disability of Mr.
Kohavi, all options shall accelerate and immediately vest.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of Messrs. Kaplan, Phelps and
Shamir; Mr. Kaplan serves as its Chairman. No member of this committee is a
present or former officer or employee of the Company or any of its subsidiaries.
Other than Mr. Kohavi, no Executive Officer of the Company served on the board
of directors or compensation committee of any entity which has one or more
executive officers serving as a member of the
18
<PAGE>
Company's Board or Compensation Committee. Mr. Kohavi serves as the chairman of
the board of VCON Telecommunication Ltd., a private company located in Israel,
for which Mr. Shamir serves as President.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE COMPANY'S
PREVIOUS FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE EXCHANGE
ACT, THAT MIGHT INCORPORATE FUTURE FILINGS, INCLUDING THIS PROXY STATEMENT, IN
WHOLE OR IN PART, THE FOLLOWING REPORT AND THE PERFORMANCE GRAPH WHICH FOLLOWS
SHALL NOT BE DEEMED TO BE INCORPORATED BY REFERENCE INTO ANY SUCH FILINGS.
COMPENSATION POLICY. The Company's compensation policy, as established by
the Compensation Committee, states that the Executive Officers' total annual
cash compensation should vary with the performance of the Company and that
long-term incentives awarded to such officers should be aligned with the
interest of the Company's stockholders. The Company has designed its executive
compensation program to attract and retain Executive Officers who will
contribute to the Company's long-term success, to reward Executive Officers who
contribute to the Company's financial performance, and to link Executive Officer
compensation and stockholder interests through the grant of stock options under
the 1991 Plan.
Compensation of the Company's Executive Officers consists of three
principal components: salary, bonus and long-term incentive compensation
consisting of stock option grants.
SALARY. The base salaries of the Company's Executive Officers are reviewed
annually and are set by the Compensation Committee. When setting base salary
levels, in a manner consistent with the Compensation Committee's policy outlined
above, the Committee considers competitive market conditions for executive
compensation, the Company's performance and the performance of the individual
Executive Officer.
BONUS. For the fiscal year ended December 31, 1997, the Compensation
Committee evaluated the performance of, and set the bonuses payable to, the
Chief Executive Officer and the other Executive Officers of the Company. The
performance factors utilized by the Compensation Committee in determining
whether bonuses should be awarded to the Company's Executive Officers included
the following: increased sales of the Company's products and increased
profitability of the Company during fiscal 1997; the officer's overall
individual performance in his position and his relative contribution to the
Company's performance during the year; and the Board's desire to retain the
Executive Officer in the face of considerable competition for executive talent
within the industry. The Board of Directors or the Compensation Committee in
the future may modify the foregoing criteria or select other performance factors
with respect to bonuses paid to Executive Officers for any given fiscal year.
LONG-TERM INCENTIVE COMPENSATION. The Company believes that stock option
grants (i) align Executive Officer interests with stockholder interests by
creating a direct link between compensation and stockholder return, (ii) give
Executive Officers a significant, long-term interest in the Company's success,
and (iii) help retain key Executive Officers in a competitive market for
executive talent.
The 1991 Plan authorizes the Board, or a committee thereof, to grant stock
options to employees and consultants of the Company, including the Executive
Officers. Stock option grants are made from time to time to Executive Officers
whose contributions have or will have a significant impact on the Company's
long-term performance. The Company's determination of whether stock option
grants are appropriate is based upon individual performance measures established
for each individual on an annual basis. Options are not necessarily granted to
each Executive Officer during each year. Generally, options granted to
Executive Officers vest as to 25% of the grant on the first anniversary of the
date of grant with the remaining options vesting quarterly over the next three
years and expire five years from the date of grant. Details on stock options
granted to certain Executive Officers in 1997 are provided in the table entitled
"Option Grants in 1997."
COMPENSATION OF CHIEF EXECUTIVE OFFICER. The Board of Directors considered
the following factors in evaluating the performance of, and setting the bonus
compensation for, Mr. Ayalon, the Company's Chief Executive Officer and
President since April 1996: the increase in the net income of the Company from
the prior year, the Company's stock price, and the time and effort that
Mr. Ayalon individually applied in connection with the execution of his duties.
The Compensation Committee believes that the salary, bonus and long-term
incentive compensation paid to Mr. Ayalon for the fiscal year ended December 31,
1997 were appropriate based on the above criteria.
19
<PAGE>
COMPENSATION POLICY REGARDING DEDUCTIBILITY. Section 162(m) of the
Internal Revenue Code, enacted in 1993, generally disallows a tax deduction to
publicly held companies for compensation exceeding $1 million paid to certain of
the corporation's executive officers. The limitation applies only to
compensation which is not considered to be performance-based. The
non-performance based compensation to be paid to the Company's Executive
Officers in 1997 did not exceed the $1 million limit per officer. The 1991 Plan
is structured so that any compensation deemed paid to an Executive Officer in
connection with the exercise of option grants made under such plan will qualify
as performance-based compensation which will not be subject to the $1 million
limitation. The Compensation Committee currently intends to limit the dollar
amount of all other compensation payable to the Company's Executive Officers to
no more than $1 million. The Compensation Committee is aware of the limitations
imposed by Section 162(m), and the exemptions available therefrom, and will
address the issue of deductibility when and if circumstances warrant, and may
use such exemptions in addition to the exemption contemplated under the 1991
Plan.
Submitted by the Compensation Committee:
Samuel L. Kaplan
Millard Phelps
Yair Shamir
20
<PAGE>
STOCK PERFORMANCE GRAPH
The graph below compares the cumulative total stockholder return on the
Company's Common Stock with the cumulative total return on the Standard & Poor's
500 Index and Standard & Poor's Technology Sector Index. The period shown
commences on February 11, 1994, the date that the Company's Common Stock was
registered under Section 12 of the Exchange Act, and ends on December 31, 1997,
the end of the Company's last fiscal year. The graph assumes an investment of
$100 on February 11, 1994, and the reinvestment of any dividends.
The comparisons in the graph below are based upon historical data and are
not indicative of, nor intended to forecast, future performance of the Company's
Common Stock.
TOTAL RETURN TO STOCKHOLDERS
FEBRUARY 11, 1994 TO DECEMBER 31, 1997
[GRAPH]
<TABLE>
<CAPTION>
MEASUREMENT S&P TECHNOLOGY
PERIOD DSP GROUP, INC. S&P 500 INDEX SECTOR
- -------------- --------------- --------------- ----------------
<S> <C> <C> <C>
02/11/94 $100.00 $100.00 $100.00
03/31/94 116.07 93.04 99.01
06/30/94 110.71 93.44 94.61
09/30/94 158.48 98.00 103.63
12/31/94 139.29 97.99 111.14
03/31/95 162.50 107.53 125.29
06/30/95 178.79 117.80 153.93
09/30/95 126.79 127.16 163.49
12/31/95 82.14 134.82 160.09
03/31/96 89.29 142.05 169.15
06/30/96 66.07 148.43 183.41
09/30/96 58.93 153.02 200.84
12/31/96 60.71 165.77 227.12
03/31/97 66.07 170.22 228.67
06/30/97 107.14 199.93 278.83
09/30/97 280.36 214.91 326.18
12/31/97 142.86 221.08 286.39
</TABLE>
21
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
OTHER TRANSACTIONS
The service agreement entered into in August 1996, by DSP Semiconductors
and Niko Consulting and Management (1995) Ltd., an Israeli company that is
wholly owned by Mr. Kohavi, pursuant to which Mr. Kohavi was to serve as
Chairman of the Board of Directors of DSP Semiconductors and the Company, was
rescinded as the Company and DSP Semiconductors entered into an employment
agreement with Mr. Kohavi in June 1997. See "Employment Agreements."
The Company has entered into indemnification agreements with each of its
Directors and Executive Officers. Such agreements require the Company to
indemnify such individuals to the fullest extent permitted by Delaware law.
All future transactions between the Company and its officers, Directors,
principal stockholders and affiliates will be approved by a majority of the
Board of Directors, including a majority of the disinterested, non-employee
Directors on the Board of Directors, and will be on terms no less favorable to
the Company than could be obtained from unaffiliated third parties.
LEGAL PROCEEDINGS
In November 1995, after the Company's stock price declined, several
lawsuits were filed in the United States District Court for the Northern
District of California accusing the Company, its former Chief Executive Officer,
and its former Chief Financial Officer of issuing materially false and
misleading statements in violation of the federal securities laws. These
lawsuits were consolidated into a single amended complaint in February 1996. In
the amended complaint, plaintiffs sought unspecified damages on behalf of all
persons who purchased shares of the Company's Common Stock during the period
June 6, 1995 through November 10, 1995. On June 11, 1996, the Court granted the
Company's motion to dismiss the lawsuit, with leave to amend. The plaintiffs
filed an amended complaint on July 11, 1996. On March 7, 1997, the Court issued
an order dismissing with prejudice all claims based on statements issued by the
Company. The Court permitted plaintiffs to proceed with their claims regarding
statements the Company allegedly made to securities analysts, and also permitted
plaintiffs to amend their complaint as to their claim that the Company was
responsible for the statements contained in analysts' reports. Plaintiffs chose
not amend their complaint after the March 7, 1997 order. On November 5, 1997,
the parties reached an agreement in principle to settle this litigation. The
proposed settlement requires that the Company fund approximately $50,000 of the
settlement amount to fulfill the retention amounts under the Company's insurance
policy. The proposed settlement is subject to the execution of a stipulation of
settlement and court approval.
On February 12, 1997, BEKA Electronic GmbH ("BEKA") commenced an action in
the United States District Court for the Northern District of California against
the Company. The action alleges breach of contract, breach of implied covenant
of good faith and fair dealing and requests an accounting by the Company in
connection with the Company's termination of the Sales Representative Agreement
between BEKA and the Company. The complaint seeks an unspecified amount of
damages. The Company filed an answer to the complaint on April 14, 1997,
denying all causes of action. The Company believes the lawsuit to be without
merit and intends to defend itself vigorously.
In February 1997, a lawsuit between the Company and Elk Industries, Inc.
("Elk") was settled. The litigation had been pending since April 1996 in the
United States District Court for the Southern District of Florida. Elk had
alleged patent infringement by the Company in connection with the Company's
making, selling and using an audio storage and distribution system allegedly
covered under a patent held by Elk.
STOCKHOLDER PROPOSALS
To be considered for presentation to the Annual Meeting of the Company's
stockholders to be held in 1999, a stockholder proposal must be received by Avi
Basher, Secretary, DSP Group, Inc., 3120 Scott Boulevard, Santa Clara,
California 95054, no later than December 15, 1998.
22
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OTHER MATTERS
The Board of Directors knows of no other business which 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 respect thereof in accordance with the judgments of the persons voting the
proxies.
It is important that the proxies be returned promptly and that your shares
be represented. Stockholders are urged to mark, date, execute and promptly
return the accompanying proxy card in the enclosed envelope.
By Order of the Board of Directors,
/s/ Igal Kohavi
Igal Kohavi,
CHAIRMAN OF THE BOARD
April 14, 1998
Santa Clara, California
23
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EXHIBIT A
DSP GROUP, INC.
1991 EMPLOYEE AND CONSULTANT STOCK PLAN
(As Amended and Restated Effective
January 10, 1994; April 22, 1994; May 16, 1995; May 21, 1996; and May 19, 1998)
1. PURPOSES OF PLAN. The purposes of this Stock Option Plan are:
- to attract and retain the best available personnel for positions of
substantial responsibility;
- to provide additional incentive to Employees and Consultants; and
- to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or Nonstatutory
Stock Options, as determined by the Administrator at the time of grant.
2. DEFINITIONS. As used herein, the following definitions shall apply:
a. "ADMINISTRATOR" means the Board or any of its Committees as shall
be administering the Plan, in accordance with Section 4 of the Plan.
b. "APPLICABLE LAWS" means the legal requirements relating to the
administration of stock option plans under state corporate and securities laws
and the Code.
c. "BOARD" means the Board of Directors of the Company.
d. "CODE" means the Internal Revenue Code of 1986, as amended.
e. "COMMITTEE" means a Committee appointed by the Board in
accordance with Section 4 of the Plan.
f. "COMMON STOCK" means the Common Stock of the Company.
g. "COMPANY" means DSP Group, Inc., a Delaware corporation.
h. "CONSULTANT" means any person, including an advisor, engaged by
the Company or a Parent or Subsidiary to render services, and who is compensated
for such services, provided that the term "Consultant" shall not include
Directors who are paid only a director's fee by the Company, or who are not
compensated by the Company for their services as Directors.
i. "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" means that the
employment or consulting relationship is not interrupted or terminated by the
Company, any Parent or Subsidiary. Continuous Status as an Employee or
Consultant shall not be considered interrupted in the case of: (i) any leave of
absence approved by the Company, including sick leave, military leave, or any
other personal leave; provided, however, that for purposes of Incentive Stock
Options, no such leave may exceed ninety (90) days, unless re-employment upon
the expiration of such leave is guaranteed by contract (including certain
Company policies) or statute; provided, further, that on the ninety-first (91st)
day of any such leave (where re-employment is not guaranteed by contract or
statute) the Optionee's Incentive Stock Option shall automatically convert to a
Nonstatutory Stock Option; or (ii) transfers between locations of the Company or
between the Company, its Parent, its Subsidiaries, or its successor.
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j. "COVERED EMPLOYEE" means an Employee who is a "covered employee"
under Section 162(m)(3) of the Code.
k. "DIRECTOR" means a member of the Board.
l. "DISABILITY" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
m. "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. Neither
service as a Director nor payment of a Director's fee by the Company shall be
sufficient to constitute "employment" by the Company.
n. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
o. "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
i) If the Common Stock is listed on any established stock
exchange or a national market system, including, without limitation, the
National Market System of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, the Fair Market Value of a Share of
Common Stock shall be the closing sales price for such stock (or the closing
bid, if no shares were reported) as quoted on such system or exchange (or the
exchange with the greatest volume of trading in Common Stock) on the last market
trading day prior to the date of determination, as reported in THE WALL STREET
JOURNAL, or such other source as the Administrator deems reliable;
ii) If the Common Stock is quoted on the NASDAQ System (but not
on the National Market System thereof), or is regularly quoted by a recognized
securities dealer, but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in THE WALL STREET JOURNAL, or such other source as
the Administrator deems reliable;
ii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
p. "INCENTIVE STOCK OPTION" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
q. "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
r. "NOTICE OF GRANT" means a written notice evidencing certain terms
and conditions of an individual Option grant. The Notice of Grant is part of
the Option Agreement.
s. "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
t. "OPTION" means a stock option granted pursuant to the Plan.
u. "OPTION AGREEMENT" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of the Plan.
v. "OPTION EXCHANGE PROGRAM" means a program whereby outstanding
options are surrendered in exchange for options with a lower exercise price.
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w. "OPTIONED STOCK" means the Common Stock subject to an Option.
x. "OPTIONEE" means an Employee or Consultant who holds an
outstanding Option.
y. "PARENT" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
z. "PERFORMANCE-BASED COMPENSATION" means compensation qualifying
as "performance-based compensation" under Section 162(m) of the Code.
aa. "PLAN" shall mean this 1991 Employee and Consultant Stock Plan,
as amended and restated.
bb. "RULE 16b-3" means Rule 16b-3 of the Exchange Act, or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
cc. "Share" means a share of the Common Stock, as adjusted in
accordance with Section 12 of the Plan.
dd. "SUBSIDIARY" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 12 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 3,800,000 Shares. The Shares may be authorized, but unissued,
or reacquired Common Stock. However, should the Company reacquire Shares which
were issued pursuant to the exercise of an Option, such Shares shall not become
available for future grant under the Plan.
If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Option Exchange Program, the
unpurchased Shares which were subject thereto shall become available for future
grant or sale under the Plan (unless the Plan has been terminated); PROVIDED,
however, that Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan.
4. ADMINISTRATION OF THE PLAN.
a. PROCEDURE.
i) MULTIPLE ADMINISTRATIVE BODIES. If permitted by Rule 16b-3,
the Plan may be administered by different bodies with respect to Directors,
Officers who are not Directors, and Employees who are neither Directors nor
Officers.
ii) ADMINISTRATION WITH RESPECT TO DIRECTORS AND OFFICERS
SUBJECT TO SECTION 16(b). With respect to Option grants made to Employees who
are also Officers or Directors subject to Section 16(b) of the Exchange Act, the
Plan shall be administered by (A) the Board, if the Board may administer the
Plan in compliance with the rules governing a plan intended to qualify as a
discretionary plan under Rule 16b-3, or (B) a committee designated by the Board
to administer the Plan, which committee shall be constituted to comply with the
rules governing a plan intended to qualify as a discretionary plan under Rule
16b-3. Once appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time, the Board
may increase the size of the Committee and appoint additional members, remove
members (with or without cause) and substitute new members, fill vacancies
(however caused), and remove all members of the Committee and thereafter
directly administer the Plan, all to the extent permitted by the rules governing
a plan intended to qualify as a discretionary plan under Rule 16b-3;
iii) ADMINISTRATION WITH RESPECT TO OTHER PERSONS. With respect
to Option grants made to Employees or Consultants who are neither Directors nor
Officers of the Company, the Plan shall be administered by (A) the Board; or (B)
a committee designated by the Board, which committee shall be constituted to
satisfy Applicable
A-3
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Laws. Once appointed, such Committee shall serve in its designated capacity and
otherwise directed by the Board. The Board may increase the size of the new
Committee and appoint additional members, remove members (with or without
cause), and substitute new members, fill vacancies (however caused), and remove
all members of the Committee and thereafter directly administer the Plan, all to
the extent permitted by Applicable Laws.
iv) ADMINISTRATION WITH RESPECT TO COVERED EMPLOYEES.
Notwithstanding the foregoing, grants of Awards to any Covered Employee intended
to qualify as Performance-Based Compensation shall be made only by a Committee
(or subcommittee of a Committee) which is comprised solely of two or more
Directors eligible to serve on a committee making Awards qualifying as
Performance-Based Compensation. In the case of such Awards granted to Covered
Employees, references to the "Administrator" or to a "Committee" shall be deemed
to be references to such Committee or subcommittee.
b. POWERS OF THE ADMINISTRATOR. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(n) of the Plan;
ii) to select the Consultants and Employees to whom Options may
be granted hereunder;
iii) to determine whether and to what extent Options are granted
hereunder;
iv) to determine the number of shares of Common Stock to be
covered by each Option granted hereunder;
v) to approve forms of agreement for use under the Plan;
vi) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder. Such terms and
conditions include, but are not limited to, the exercise price, the time or
times when Options may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any Option or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
vii) to reduce the exercise price of any Option to the then-
current Fair Market Value, if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the option was granted;
viii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
ix) to prescribe, amend and rescind rules and regulations
relating to the Plan;
x) to modify or amend each Option (subject to Section 16 of the
Plan);
xi) to authorize any person to execute on behalf of the Company
any instrument required to effect the grant of an Option previously granted by
the Administrator;
xii) to institute an Option Exchange Program;
xiii) to determine the terms and restrictions applicable to
Options; and
A-4
<PAGE>
xiv) to make all other determinations deemed necessary or
advisable for administering the Plan.
c. EFFECT OF ADMINISTRATOR'S DECISION. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options.
5. ELIGIBILITY. Nonstatutory Stock Options may be granted to Employees
and Consultants. Incentive Stock Options may be granted only to Employees. If
otherwise eligible, an Employee or Consultant who has been granted an Option may
be granted additional Options.
6. LIMITATIONS.
a. Each Option shall be designated in the Notice of Grant as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value: (i) of Shares subject to an Optionee's incentive stock options granted by
the Company, any Parent or Subsidiary, which (ii) become exercisable for the
first time during any calendar year (under all plans of the Company, or any
Parent or Subsidiary), (iii) exceeds $100,000, such excess Options shall be
treated as Nonstatutory Stock Options. For purposes of this Section 6.a.,
Incentive Stock Options shall be taken into account in the order in which they
were granted, and the Fair Market Value of the Shares shall be determined as of
the time of grant.
b. Neither the Plan nor any Option shall confer upon an Optionee any
right with respect to continuing the Optionee's employment or consulting
relationship with the Company, nor shall they interfere in any way with the
Optionee's right or the Company's right to terminate such employment or
consulting relationship at any time, with or without cause.
c. The following limitation shall apply to grants of Options under
the Plan:
No individual shall be granted, in any fiscal year of the Company,
Options to purchase more than 500,000 Shares.
The foregoing limitation shall be adjusted proportionately in
connection with any change in the Company's capitalization as described in
Section 12.
The limitation set forth in this Section 6.c. is intended to satisfy
the requirements applicable to Options intended to qualify as "performance-based
compensation" (within the meaning of Section 162(m) of the Code). In the event
the Administrator determines that such limitations are not required to qualify
Options as performance-based compensation, the Administrator may modify or
eliminate such limitations.
7. TERM OF PLAN. Subject to Section 16 of the Plan, the Plan shall
become effective upon the earlier to occur of its adoption by the Board, or its
approval by the shareholders of the Company as described in Section 18 of the
Plan. It shall continue in effect for a term of ten (10) years, unless
terminated earlier under Section 14 of the Plan.
8. TERM OF OPTION. The term of each Option shall be stated in the Notice
of Grant; provided, however, that in the case of an Incentive Stock Option, the
term shall be ten (10) years from the date of grant or such shorter term as may
be provided in the Notice of Grant. Moreover, in the case of an Incentive Stock
Option granted to an Optionee who, at the time the Incentive Stock Option is
granted, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company, or any Parent or Subsidiary, the term of
the Incentive Stock Option shall be five (5) years from the date of grant or
such shorter term as may be provided in the Notice of Grant.
9. OPTION EXERCISE PRICE AND CONSIDERATION.
a. EXERCISE PRICE. The per Share exercise price for the Shares to
be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
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i) In the case of an Incentive Stock Option:
a) granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company, or any Parent or
Subsidiary, the per Share exercise price shall be no less than one hundred ten
percent (110%) of the Fair Market Value per Share on the date of grant.
b) granted to any Employee, the per Share exercise price
shall be no less than one hundred percent (100%) of the Fair Market Value per
Share on the date of grant.
ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator.
iii) In the case of Awards intended to qualify as Performance-
Based Compensation, the exercise or purchase price, if any, shall be not less
than one hundred percent (100%) of the Fair Market Value per Share on the date
of grant.
b. WAITING PERIOD AND EXERCISE DATES. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised. In so doing, the Administrator may specify that an
Option may not be exercised until the completion of a service period.
c. FORM OF CONSIDERATION. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
i) cash;
ii) check;
iii) promissory note;
iv) other Shares which (a) in the case of Shares acquired upon
exercise of an Option, have been owned by the Optionee for more than six (6)
months on the date of surrender; and (b) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
v) delivery of a properly executed exercise notice, together
with such other documentation as the Administrator and the broker, if
applicable, shall require to effect an exercise of the Option and delivery to
the Company of the sale or loan proceeds required to pay the Exercise Price;
vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
vii) any combination of the foregoing methods of payment; or
viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
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10. EXERCISE OF OPTION.
a. PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable according to the terms of the Plan, and
at such times and under such conditions as determined by the Administrator and
set forth in the Option Agreement.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when the Company receives:
(i) written notice of exercise (in accordance with the Option Agreement) from
the person entitled to exercise the Option, and (ii) full payment for the Shares
with respect to which the Option is exercised. Full payment may consist of any
consideration and method of payment authorized by the Administrator and
permitted by the Option Agreement and the Plan. Shares issued upon exercise of
an Option shall be issued in the name of the Optionee or, if requested by the
Optionee, in the name of the Optionee and his or her spouse. Until the stock
certificate evidencing such Shares is issued (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of the
Company), no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. The Company shall issue (or cause to be issued) such
stock certificate promptly after the Option is exercised. No adjustment will be
made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 12 of the
Plan.
Exercising an Option in any manner shall decrease the number of Shares
thereafter available, both for purposes of the Plan and for sale under the
Option, by the number of Shares as to which the Option is exercised.
b. TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP. Upon
termination of an Optionee's Continuous Status as an Employee or Consultant,
other than upon the Optionee's death or Disability, the Optionee may exercise
his or her Option, but only within such period of time as is determined by the
Administrator, and only to the extent that the Optionee was entitled to exercise
it at the date of such termination (but in no event later than the expiration of
the term of such Option as set forth in the Notice of Grant). In the case of an
Incentive Stock Option, the Administrator shall determine such period of time
(in no event to exceed ninety (90) days from the date of termination) when the
Option is granted. If, at the date of termination, the Optionee is not entitled
to exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified by the
Administrator, the Option shall terminate, and the Shares covered by such Option
shall revert to the Plan.
c. DISABILITY OF OPTIONEE. In the event that an Optionee's
Continuous Status as an Employee or Consultant terminates as a result of
Optionee's Disability, the Optionee may exercise his or her Option at any time
within twelve (12) months from the date of such termination, but only to the
extent that the Optionee was entitled to exercise it at the date of such
termination (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant). If, at the date of termination,
the Optionee is not entitled to exercise his or her entire Option, the Shares
covered by the unexercisable portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
d. DEATH OF OPTIONEE. In the event of the death of an Optionee, the
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the expiration of the term of such Option
as set forth in the Notice of Grant), by the Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent that the Optionee was entitled to exercise the Option at the
date of death. If, at the time of death, the Optionee was not entitled to
exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall immediately revert to the Plan. If, after death,
the Optionee's estate or a person who acquired the right to exercise the Option
by bequest or inheritance does not exercise the Option within the time specified
herein, the Option shall terminate and the Shares covered by such option shall
revert to the Plan.
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e. RULE 16b-3. Options granted to individuals subject to Section 16
of the Exchange Act ("Insiders"), must comply with the applicable provisions of
Rule 16b-3 and shall contain such additional conditions or restrictions as may
be required thereunder to qualify for the maximum exemption from Section 16 of
the Exchange Act with respect to Plan transactions.
11. NONTRANSFERABILITY OF OPTIONS. An Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner, other than by
Will or by the laws of descent or distribution, and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER, ASSET
SALE OR CHANGE OF CONTROL.
a. CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the number of Shares of Common Stock covered by
each outstanding Option, and the number of Shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per Share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued Shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued Shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of Shares of Common Stock subject to an Option.
b. DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it will terminate immediately prior to the
consummation of such proposed action. The Board may, in the exercise of its
sole discretion in such instances, declare that any Option shall terminate as of
a date fixed by the Board and give each Optionee the right to exercise his or
her Option as to all or any part of the Optioned Stock, including Shares as to
which the Option would not otherwise be exercisable.
c. MERGER OR ASSET SALE. Subject to the provisions of paragraph (d)
hereof, in the event of a merger of the Company with or into another
corporation, or the sale of substantially all of the assets of the Company, each
outstanding Option shall be assumed or an equivalent option or right shall be
substituted by the successor corporation or a Parent or Subsidiary of the
successor corporation. In the event that the successor corporation does not
agree to assume the Option or to substitute an equivalent option, the
Administrator shall, in lieu of such assumption or substitution, provide for the
Optionee to have the right to exercise the Option as to all or a portion of the
Optioned Stock, including Shares as to which it would not otherwise be
exercisable. If the Administrator makes an Option exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee that the Option shall be fully
exercisable for a period of fifteen (15) days from the date of such notice, and
the Option will terminate upon the expiration of such period. For the purposes
of this paragraph, the Option shall be considered assumed if, following the
merger or sale of assets, the option confers the right to purchase, for each
Share of Optioned Stock subject to the Option immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option, for each Share of Optioned Stock
subject to the Option, to be solely common stock of the successor corporation or
its Parent equal in fair market value to the per-share consideration received by
holders of Common Stock in the merger or sale of assets.
A-8
<PAGE>
d. CHANGE IN CONTROL. In the event of a "Change of Control" of the
Company, as defined in paragraph (e) below, then the following acceleration and
valuation provisions shall apply:
i) Except as otherwise determined by the Board, in its
discretion, in the event of an anticipated Change in Control, any Options
outstanding on the date such Change in Control is determined to have occurred
that are not yet exercisable and vested on such date shall become fully
exercisable and vested;
ii) Except as otherwise determined by the Board, in its
discretion, in the event of an anticipated Change in Control, all outstanding
Options, to the extent they are exercisable and vested (including Options that
shall become exercisable and vested pursuant to subparagraph i) above), shall be
terminated in exchange for a cash payment equal to the Change in Control Price
(reduced by the exercise price applicable to such Options). These cash proceeds
shall be paid to the Optionee or, in the event of death of an Optionee, prior to
payment, to the estate of the Optionees or a person who acquired the right to
exercise the Option by bequest or inheritance;
iii) Any payment made pursuant to this paragraph (d) shall not
exceed the maximum amount which could be paid to an Optionee without having the
payment treated as an "excess parachute payment" within the meaning of Section
280G of the Code.
e. DEFINITION OF "CHANGE IN CONTROL". For purposes of this Section
12, a "Change in Control" means the happening of any of the following:
i) When any "person," as such term is used in Sections 13(d)
and 14(d) of the Exchange Act (other than the Company, a Subsidiary or a Company
employee benefit plan, including any trustee of such plan acting as trustee), is
or becomes the 'beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing more
than twenty-five percent (25%) of the combined voting power of the Company's
then-outstanding securities entitled to vote generally in the election of
directors; or
ii) A merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least seventy-five percent
(75%) of the total voting power represented by the voting securities of the
Company or such surviving entity outstanding immediately after such merger or
consolidation, or the stockholders of the Company approve an agreement for the
sale or disposition by the Company of all or substantially all the Company's
assets; or
iii) A change in the composition of the Board of Directors of the
Company occurring within a two-year period, as a result of which fewer than a
majority of the directors are Incumbent Directors. "Incumbent Directors" shall
mean directors who either (A) are directors of the Company as of the date the
Plan is approved by the stockholders; or (B) are elected, or nominated for
election, to the Board of Directors of the Company with the affirmative votes of
at least a majority of the Incumbent Directors at the time of such election or
nomination (but shall not include an individual whose election or nomination is
in connection with an actual or threatened proxy contest relating to the
election of directors to the Company).
f. CHANGE IN CONTROL PRICE. For purposes of this Section 12,
"Change in Control Price" shall be, as determined by the Board: (i) the highest
Fair Market Value of a Share within the 60-day period immediately preceding the
date of determination of the Change of Control Price by the Board (the "60-Day
Period"); or (ii) the highest price paid or offered per Share, as determined by
the Board, in any bona fide transaction or bona fide offer related to the Change
in Control of the Company, at any time within the 60-Day Period; or (iii) some
lower price as the Board, in its discretion, determines to be a reasonable
estimate of the fair market value of a Share.
13. DATE OF GRANT. The date of grant of an Option shall be, for all
purposes, the date on which the Administrator makes the determination granting
such Option, or such other later date as is determined by the Administrator.
Notice of the determination shall be provided to each Optionee within a
reasonable time after the date of such grant.
A-9
<PAGE>
14. AMENDMENT AND TERMINATION OF THE PLAN.
a. AMENDMENT AND TERMINATION. The Board may at any time amend,
alter, suspend or terminate the Plan.
b. SHAREHOLDER APPROVAL. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Rule 16b-3 or with Section 422 of the Code (or any successor rule or
statute or other applicable law, rule or regulation, including the requirements
of any exchange or quotation system on which the Common Stock is listed or
quoted). Such shareholder approval, if required, shall be obtained in such a
manner and to such a degree as is required by the applicable law, rule or
regulation.
c. EFFECT OF AMENDMENT OR TERMINATION. No. amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
15. CONDITIONS UPON ISSUANCE OF SHARES.
a. LEGAL COMPLIANCE. Shares shall not be issued pursuant to the
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, Applicable Laws,
and the requirements of any stock exchange or quotation system upon which the
Shares may then be listed or quoted, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
b. INVESTMENT REPRESENTATION. As a condition to the exercise of an
Option, the Company may require the person exercising such Option to represent
and warrant at the time of any such exercise that the Shares are being purchased
only for investment and without any present intention to sell or distribute such
Shares, if, in the opinion of counsel for the Company, such a representation is
required.
16. LIABILITY OF COMPANY.
a. INABILITY TO OBTAIN AUTHORITY. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
b. GRANTS EXCEEDING ALLOTTED SHARES. If the Option Stock covered by
an Option exceeds, as of the date of grant, the number of Shares which may be
issued under the Plan without additional shareholder approval, such Option shall
be void with respect to such excess Optioned Stock, unless shareholder approval
of an amendment sufficiently increasing the number of Shares subject to the Plan
is timely obtained in accordance with Section 14.b. of the Plan.
17. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
18. SHAREHOLDER APPROVAL. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the manner and to the degree required under applicable federal and state law.
A-10
<PAGE>
DSP GROUP, INC.
1991 EMPLOYEE AND CONSULTANT STOCK PLAN
(As Amended and Restated Effective January 10, 1994; April 22, 1994; May 16,
1995; and May 21, 1996)
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Stock Option Agreement (the "Option
Agreement").
A. NOTICE OF STOCK OPTION GRANT
[Optionee's Name and Address]
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Grant Number
Date of Grant
Vesting Commencement Date
Exercise Price per Share $
Total Number of Shares Granted
Total Exercise Price $
Type of Option Incentive Stock Option
Nonstatutory Stock Option
Term/Expiration Date
VESTING SCHEDULE:
This Option may be exercised, in whole or in part, in accordance with the
following schedule:
25% of the Shares subject to the Option shall vest 12 months after the
Vesting Commencement Date, and 6.25 % of the Shares subject to the Option
shall Vest at the end of each three-month period thereafter.
TERMINATION PERIOD:
This Option may be exercised for ___ days after termination of the
Optionee's employment or consulting relationship with the Company. Upon the
death or disability of the Optionee, this Option may be exercised for such
longer period as provided in the Plan. In the event of the Optionee's change in
status from Employee to Consultant or Consultant to Employee, this Option
Agreement shall remain in effect. In no event shall this Option be exercised
later than the Term/Expiration Date as provided above.
A-11
<PAGE>
B. AGREEMENT
1. GRANT OF OPTION. The Plan Administrator of the Company hereby grants
to the Optionee named in the Notice of Grant attached as Part 1. of this
Agreement (the "Optionee"), an option (the "Option") to purchase a number of
Shares, as set forth in the Notice of Grant, at the exercise price per share set
forth in the Notice of Grant (the "Exercise Price"), subject to the terms and
conditions of the Plan, which is incorporated herein by reference. Subject to
Section 14.c. of the Plan, in the event of a conflict between the terms and
conditions of the Plan and the terms and conditions of this Option Agreement,
the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option,
this Option is intended to qualify as an Incentive Stock Option under Section
422 of the Code. However, if this Option is intended to be an Incentive Stock
Option, to the extent that it exceeds the $100,000 rule of Code Section 422(d),
it shall be treated as a Nonstatutory Stock Option.
2. EXERCISE OF OPTION.
a. RIGHT TO EXERCISE. This Option is exercisable during its term in
accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement. In the event of
Optionee's death, Disability or other termination of Optionee's employment or
consulting relationship, the exercisability of the Option is governed by the
applicable provisions of the Plan and this Option Agreement.
b. METHOD OF EXERCISE. This Option is exercisable by delivery of an
exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares") and such
other representations and agreements as may be required by the Company pursuant
to the provisions of the Plan. The Exercise Notice shall be signed by the
Optionee and shall be delivered in person or by certified mail to the Secretary
of the Company. The Exercise Notice shall be accompanied by payment of the
aggregate Exercise Price as to all Exercised Shares. This Option shall be
deemed to be exercised upon receipt by the Company of such fully executed
Exercise Notice accompanied by such aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with all relevant provisions of law
and the requirements of any stock exchange or quotation service upon which the
Shares are then listed. Assuming such compliance, for income tax purposes the
Exercised Shares shall be considered transferred to the optionee on the date the
Option is exercised with respect to such Exercised Shares.
3. METHOD OF PAYMENT. Payment of the aggregate Exercise Price shall be
by any of the following, or a combination thereof, at the election of the
Optionee:
a. Cash; or
b. Check; or
c. Delivery of a properly executed Exercise Notice, together with
such other documentation as the Administrator and the broker, if applicable,
shall require to affect an exercise of the Option and delivery to the Company of
the sale or loan proceeds required to pay the Exercise Price; or
d. Surrender of other Shares which (i) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six (6) months on the date of surrender; and (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares.
4. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in
any manner otherwise than by Will, or by the laws of descent or distribution,
and may be exercised during the lifetime of Optionee only by the Optionee. The
terms of the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
A-12
<PAGE>
5. TERM OF OPTION. This Option may be exercised only within the term set
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option Agreement.
6. TAX CONSEQUENCES. Some of the federal, California and other states
tax consequences relating to this Option, as of the date of this Option, are set
forth below. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND
REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER
BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
a. EXERCISING THE OPTION.
i) NONSTATUTORY STOCK OPTION. The Optionee may incur regular
federal income tax and California and other states income tax liabilities upon
exercise of a NSO. The Optionee will be treated as having received compensation
income (taxable at ordinary income tax rates) equal to the excess, if any, of
the fair market value of the Exercised Shares on the date of exercise over their
aggregate Exercise Price. If the Optionee is an employee, the Company will be
required to withhold from his or her compensation or collect from Optionee and
pay to the applicable taxing authorities an amount equal to a percentage of this
compensation income at the time of exercise.
ii) INCENTIVE STOCK OPTION. If this Option qualifies as an ISO,
the Optionee will have no regular federal income tax, or California or other
states income tax liabilities upon its exercise, although the excess, if any, of
the fair market value of the Exercised Shares on the date of exercise over their
aggregate Exercise Price will be treated as an adjustment to the alternative
minimum tax for federal tax purposes, and may subject the Optionee to
alternative minimum tax in the year of exercise. In the event that the Optionee
undergoes a change of status from Employee to Consultant, any Incentive Stock
Option of the Optionee that remains unexercised shall automatically convert a
Nonstatutory Stock Option on the ninety-first (91st) day following such change
of status.
b. DISPOSITION OF SHARES.
i) NSO. If the Optionee holds NSO Shares for at least one
year, any gain realized on disposition of the Shares will be treated as long-
term capital gain for federal income tax purposes.
ii) ISO. If the Optionee holds ISO Shares for at least one year
after exercise, and two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If the Optionee disposes of ISO Shares within one year
after exercise, or two years after the grant date, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the excess, if any, of the lesser of (A) the difference
between the fair market value of the Shares acquired on the date of exercise and
the aggregate Exercise Price; or (b) the difference between the sale price of
such Shares and the aggregate Exercise Price.
c. NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If the
Optionee sells or otherwise disposes of any of the Shares acquired pursuant to
an ISO on or before the later of (i) two years after the Grant date; or (ii) one
year after the exercise Date, the Optionee shall immediately notify the Company
in writing of such disposition. The Optionee agrees that he or she may be
subject to income tax withholding by the Company on the compensation income
recognized from such early disposition of ISO Shares by payment in cash or out
of the current earnings paid to the Optionee.
A-13
<PAGE>
By your signature and the signature of the Company's representative below,
you and the Company agree that this Option is granted under and governed by the
terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement, and fully understands all provisions of the Plan and Option
Agreement. Optionee hereby agrees to accept as binding, conclusive and final
all decisions or interpretations of the Administrator upon any questions
relating to the Plan and Option Agreement.
OPTIONEE: DSP GROUP, INC.
By:
- --------------------------- ---------------------------
(Signature) (Signature)
- --------------------------- Title:
(Print Name) ------------------------
- ---------------------------
(Print Address)
CONSENT OF SPOUSE
The undersigned spouse of Optionee has read and hereby approves the terms
and conditions of the Plan and this Option Agreement. In consideration of the
Company's granting his or her spouse the right to purchase Shares as set forth
in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
-----------------------------
Spouse of Optionee
A-14
<PAGE>
Exhibit A
DSP GROUP, INC.
1991 EMPLOYEE AND CONSULTANT STOCK PLAN
(As Amended and Restated Effective January 10, 1994; April 22, 1994; May 16,
1995; and May 21, 1996)
EXERCISE NOTICE
DSP Group, Inc.
3120 Scott Boulevard
Santa Clara, CA 95054
Attention: Chief Financial Officer
1 EXERCISE OF OPTION. Effective as of today, ________, 19__, the
undersigned, ("Purchaser"), hereby elects to purchase ____________ (__) shares
(the "Shares") of the Common Stock of DSP Group, Inc. (the "Company") under and
pursuant to the 1991 Employee and Consultant Stock Plan, as amended and restated
effective January 10, 1994; April 22, 1994; May 16, 1995; and May 21, 1996 (the
"Plan"), and the Stock Option Agreement dated (the "Option Agreement"). The
purchase price for the Shares shall be _____________($_____), as required by the
Option Agreement.
2. DELIVERY OF PAYMENT. Purchaser herewith delivers to the Company the
full purchase price for the Shares.
3. REPRESENTATIONS OF PURCHASER. Purchaser acknowledges that Purchaser
has received, read and understood the Plan and the Option Agreement, and agrees
to abide by and be bound by their terms and conditions.
4. RIGHTS AS SHAREHOLDER. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the stock certificate is issued, except as provided in Section 12 of
the Plan.
5. TAX CONSULTATION. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
6. ENTIRE AGREEMENT; GOVERNING LAW. The Plan and Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties and supersede in their
entirety all prior undertakings and agreements of the Company and Purchaser with
respect to the subject matter hereof, and such agreement is governed by
California law, except for that body of law pertaining to conflict of laws.
A-15
<PAGE>
Submitted by: Accepted by:
PURCHASER: DSP GROUP, INC.:
By:
- --------------------------- --------------------------
(Signature) (Signature)
--------------------------
(Print Name and Title)
ADDRESS: ADDRESS:
- ------- -------
3120 Scott Boulevard
Santa Clara, CA 95054
A-16
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF DSP GROUP, INC.
FOR THE 1998 ANNUAL MEETING OF THE STOCKHOLDERS
MAY 19, 1998
The undersigned stockholder of DSP GROUP, INC., a Delaware corporation,
hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders and
Proxy Statement, each dated April 14, 1998, and the 1997 Annual Report to
Stockholders and hereby appoints Eliyahu Ayalon and Avi Basher or either of
them, proxies, with full power to each of substitution, on behalf and in the
name of the undersigned, to represent the undersigned at the 1998 Annual Meeting
of Stockholders of DSP GROUP, INC. to be held on May 19, 1998 at 9:00 a.m.,
local time, at DSP GROUP, INC.'s principal executive office located at 3120
Scott Boulevard, Santa Clara, California 95054, and at any adjournment 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 below.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR THE ELECTION OF A DIRECTOR, FOR THE AMENDMENT AND
RESTATEMENT OF THE DSP GROUP, INC. 1991 EMPLOYEE AND CONSULTANT STOCK PLAN, FOR
THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT
AUDITORS, AND AS SAID PROXIES DEEM ADVISABLE ON SUCH MATTERS AS MAY PROPERLY
COME BEFORE THE MEETING.
<TABLE>
<S> <C> <C> <C>
1. ELECTION OF A DIRECTOR: / / FOR the nominee listed below / / WITHHOLD AUTHORITY
(except as indicated) to vote for the nominee listed
below
</TABLE>
IF YOU WISH TO WITHHOLD AUTHORITY TO VOTE FOR THE NOMINEE, STRIKE A LINE THROUGH
THE NOMINEE'S NAME LISTED BELOW.
ELIYAHU AYALON
2. PROPOSAL TO RATIFY AND APPROVE THE AMENDMENT AND RESTATEMENT OF THE DSP
GROUP, INC. 1991 EMPLOYEE AND CONSULTANT STOCK PLAN TO INCREASE THE NUMBER OF
SHARES RESERVED FOR ISSUANCE THEREUNDER:
/ / FOR / / AGAINST / / ABSTAIN
<PAGE>
3. PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS THE INDEPENDENT
AUDITORS OF DSP GROUP, INC. FOR FISCAL 1998:
/ / FOR / / AGAINST / / ABSTAIN
DATED: ______________________, 1998
___________________________________
(Signature)
___________________________________
(Signature)
This Proxy should be marked, dated
and 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.
