DSP GROUP INC /DE/
DEF 14A, 1999-06-18
SEMICONDUCTORS & RELATED DEVICES
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<PAGE>

                            SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

Filed by the Registrant [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[ ]   Preliminary Proxy Statement

[ ]   Confidential, for Use of the Commission Only (as permitted by
      Rule 14a-6(e)(2))

[X]   Definitive Proxy Statement

[ ]   Definitive Additional Materials

[ ]   Soliciting Material Pursuant to Rule 14a-11(c) or Rule 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:

           N/A
- -------------------------------------------------------------------------------

      (2)  Aggregate number of securities to which transaction applies:

           N/A
- -------------------------------------------------------------------------------

      (3)  Per unit price or other underlying value of transaction
           computed pursuant to Exchange Act Rule 0-11 (set forth the
           amount on which the filing fee is calculated and state how it
           was determined):

           N/A
- -------------------------------------------------------------------------------

      (4)  Proposed maximum aggregate value of transaction:

           N/A
- -------------------------------------------------------------------------------

      (5)  Total fee paid:

           N/A
- -------------------------------------------------------------------------------

[ ]   Fee paid previously with preliminary materials.

[ ]   Check box if any part of the fee is offset as provided by Exchange
      Act Rule 0-11(a)(2) and identify the filing for which the offsetting
      fee was paid previously. Identify the previous filing by registration
      statement number, or the form or schedule and the date of its filing.

      (1)  Amount previously paid:

           N/A
- -------------------------------------------------------------------------------
      (2)  Form, Schedule or Registration Statement no.:

           N/A
- -------------------------------------------------------------------------------
      (3)  Filing Party:

           N/A
- -------------------------------------------------------------------------------
      (4)  Date Filed:

           N/A
- -------------------------------------------------------------------------------

<PAGE>

                               DSP GROUP, INC.
                   NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
                           TO BE HELD JULY 19, 1999

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 offices located at 3120
Scott Boulevard, Santa Clara, California, on Monday, July 19, 1999, at 9:00
a.m., local time, for the following purposes:

          1. ELECTION OF DIRECTORS. To elect two Class II directors of the
Company to serve until the 2002 Annual Meeting of Stockholders or until their
successors are elected and qualified;

          2. AMENDMENT OF THE DSP GROUP, INC. 1993 DIRECTOR
STOCK OPTION PLAN. To ratify and approve an amendment to the DSP Group, Inc.
1993 Director Stock Option Plan to increase the number of shares of Common
Stock reserved for issuance thereunder from 175,000 to 275,000 shares;


          3. AMENDMENT 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 3,800,000 to
5,300,000 shares;

          4. AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION. To ratify
and approve an amendment to Article IV of the Company's Restated Certificate
of Incorporation to increase the number of shares of Common Stock authorized
for issuance by the Company from 20,000,000 shares to 50,000,000 shares.

          5. SELECTION OF INDEPENDENT AUDITORS. To ratify the appointment of
Kost, Forer & Gabbay, a member of Ernst & Young International, as the
independent auditors for the Company for the year ending December 31, 1999;
and

          6. 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 June 4,
1999 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.

<PAGE>

         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
June 21, 1999

<PAGE>

                                                         Mailed to Stockholders
                                                      on or about June 21, 1999


                                 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 Monday, July
19, 1999, at 9:00 a.m., local time, at the Company's principal executive
offices located at 3120 Scott Boulevard, Santa Clara, California, 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 Moshe Zelnik, 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 June 4, 1999 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 11,562,149
shares of Common Stock outstanding and entitled to vote at the Annual
Meeting. The presence at the Annual Meeting of a majority, or 5,781,075 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. 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. 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.


         The approval of the amendment of the Company's 1993 Director Stock
Option Plan and 1991 Employee and Consultant Stock Plan and the ratification
of the independent auditors of the Company for the current year will require
the affirmative vote of a majority of the shares of the Company's Common
Stock present or represented and entitled to vote at the Annual Meeting. The
amendment of the Restated Certificate of Incorporation to increase the number
of authorized shares of Common Stock will require the affirmative vote of a
majority of the shares of the Company's outstanding Common Stock. Because
abstentions are treated as shares present or represented and entitled to vote
for the purposes of determining whether a matter has been approved by the
stockholders, abstentions have the same effect as negative votes. Broker
non-votes and shares as to which proxy authority has been withheld

                                       1
<PAGE>

with respect to any matter are not deemed to be entitled to vote for purposes
of determining whether stockholder approval of that matter has been obtained
and effectively count as votes against Proposal Number 4, the amendment to
the Restated Certificate of Incorporation. However, with respect to Proposal
Numbers 2, 3 and 5, which require the affirmative vote of a majority of the
shares present and entitled to vote, broker non-votes shall have no effect.

                                       2
<PAGE>

                               PROPOSAL NO. 1
                            ELECTION OF DIRECTORS

         The Company's Bylaws authorize the number of directors to be not
less than five nor more than nine. The number of directors on the Board is
currently fixed at seven. 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 two Class I directors
(Messrs. Ayalon and Limon), whose terms will expire upon the election and
qualification of directors at the annual meeting of stockholders to be held
in 2001; three Class II directors (Messrs. Phelps, Shamir and Shani), whose
terms will expire at the Annual Meeting; 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 February 1999, in connection with the Stock Purchase Agreement
entered into between the Company and Magnum Technologies Ltd., the Board
appointed Messrs. Limon and Shani to the Board and concurrently amended the
Company's Bylaws to fix the number of directors serving on the Board at
seven.  The Board subsequently amended the Company's Bylaws, effective at the
Annual Meeting, to reduce the number of directors to six.


         At the Annual Meeting, the stockholders will elect two Class II
directors.  Messrs. Shamir and Shani have each been nominated to serve a
three-year term until the annual meeting of stockholders to be held in 2002
or until their successors are elected or appointed and qualified or until the
directors' earlier resignation or removal. The Board has no reason to believe
that either Mr. Shamir or Mr. Shani will be unable or unwilling to serve as a
nominee or as a director if elected.

         YAIR SHAMIR has been a Director of the Company since October 1996
and has served as President and Chief Executive Officer of VCON
Telecommunications, Ltd., a developer and marketer of video conferencing
systems, since February 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. Mr.
Shamir currently serves as a director of Mercury Interactive, Orckit
Communications, Limited, a developer and manufacturer of local loop
communications systems and VCon Telecommunications, Ltd.

         SAUL SHANI has been a Director of the Company since February 1999.
Mr. Shani has served since 1996 as Managing Director of Limon Holdings, Ltd.,
a consulting and investment advisory firm. He also has served as Chairman and
Director of Global Village Telecom N.V., a private company engaged in
providing satellite based telephony services, since 1998. From 1990 to 1996,
Mr. Shani served as co-founder, CEO, Chairman, and Director of Sapiens
International Corporation NV (Nasdaq: SPNSF), a provider of enterprise-wide
solutions for software applications.

                THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
                  THE ELECTION OF THE NOMINEES NAMED ABOVE.

                                       3
<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:



<TABLE>
<CAPTION>
            NAME                 AGE                            POSITION
            ----                 ---                            --------
<S>                              <C>          <C>
Igal Kohavi                       59          Chairman of the Board

Eliyahu Ayalon                    56          President, Chief Executive Officer and Director

Moshe Zelnik                      44          Vice President of Finance,
                                              Chief Financial Officer and Secretary

Gideon Wertheizer                 42          Vice President-- Marketing

Samuel L. Kaplan (1)(2)           60          Director

Zvi Limon (2)                     40          Director

Millard Phelps (1)(2)             71          Director

Yair Shamir (1)(2)                53          Director

Saul Shani (1)                    44          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) ("Mercury Interactive"), a provider of
client/server and web testing tools.

         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.
("Mennen"), a developer and manufacturer of medical instruments and apparatus.


         MOSHE ZELNIK joined the Company in May 1999 as Vice President of
Finance, Chief Financial Officer and Secretary.  From May 1994 to April 1999,
Mr. Zelnik served as Senior Vice President and Chief Financial Officer of
Mennen.

         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.

         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.

         ZVI LIMON has been a Director of the Company since February 1999.
Mr. Limon has served as Chairman of Limon Holdings Ltd., a consulting and
investment advisory firm since 1993. He presently serves as a director of
Eltek Ltd. (Nasdaq: ELTKF), a developer and manufacturer of PC boards.

         MILLARD PHELPS has been a Director of DSP Group since July 1995.
Mr. Phelps has been most recently associated with Hambrecht & Quist, an
investment banking firm, where he served from 1984 to August 1997 as Advisory
Director in the corporate finance area, advising on public and private
financing matters.  Mr. Phelps has worked in the semiconductor industry for
more than 20 years at several manufacturing companies, including Texas

                                       4
<PAGE>

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.

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 1998, the Board met four times. 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 Compensation Committee held four meetings in 1998. In 1998, the
Compensation Committee consisted of Messrs. Kaplan, Phelps and Shamir. The
Compensation Committee currently consists of Messrs. Kaplan, Phelps, Shamir and
Shani. 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 1998. In 1998 the Audit
Committee consisted of Messrs. Kaplan, Phelps and Shamir. The Audit Committee
currently consists of Messrs. Kaplan, Limon, Phelps, and Shamir. 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.

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. 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 Stock 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, 1998, each of Messrs. Kaplan, Phelps and Shamir were
granted Subsequent Options to purchase up to 5,000 shares of the Company's
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 the Company's Common Stock, at an exercise
price of $19.25 per share, under the Director Option Plan.

                                       5
<PAGE>

         On July 2, 1998 each of Messrs. Ayalon and Kohavi were granted
options to purchase up to 150,000 shares of the Company's Common Stock, at an
exercise price of $18.5625, under the 1991 Stock Plan.

         On January 4, 1999, each of Messrs. Kaplan, Phelps and Shamir were
granted Subsequent Options to purchase up to 5,000 shares of the Company's
Common Stock, at an exercise price of $20.375 per share, under the Director
Option Plan.

         On January 4, 1999, each of Messrs. Kaplan and Phelps were granted
Committee Options to purchase up to 5,000 shares of the Company's Common
Stock, at an exercise price of $20.375 per share, under the Director Option
Plan.

         On February 5, 1999, the date on which they were appointed as
directors of the Company, each of Messrs. Limon and Shani were granted an
option to purchase up to 15,000 shares of the Company's Common Stock, at an
exercise price of $13.625 per share under the Director Option Plan. On the
same date, each of Messrs. Limon and Shani also were granted an option to
purchase up to 10,000 shares of the Company's Common Stock, at an exercise
price of $13.625 per share, under the 1991 Stock Plan.

         On April 21, 1999, each of Messrs. Ayalon and Kohavi were granted
options to purchase up to 225,000 shares of the Company's Common Stock, at an
exercise price of $18.4375, under the 1991 Stock 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,
1998, all Reporting Persons complied with all applicable filing requirements,
except for the following: Mr. Phelps inadvertently failed to report a sale of
the Company's Common Stock on his Form 4 for the period of the sale; such
sale was subsequently reported on a later Form 4.




                                       6
<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 June 4, 1999, 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
three former executive officers) (collectively, the "Named Executive
Officers") determined for the fiscal year ended December 31, 1998; 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>
Magnum Technology, Ltd.
c/o Rothschild Corporate Fiduciary Services, Ltd.
P.O. Box 472
St. Peter's House, Le Bordage
St. Peter Port, Guernsey
Channel Islands GY1 6AX  (3)...............                    2,896,500                        25.05%

Loomis, Sayles & Company, L.P.
One Financial Center
Boston, Massachusetts 02111  (4)...........                      450,800                         3.90%

Mellon Bank Corporation
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258 (5).........                      537,300                         4.65%

Samuel L. Kaplan  (6)......................                       59,521                           *

Zvi Limon  ................................                            *                           *

Millard Phelps  (7)........................                       21,000                           *

Yair Shamir  (8)...........................                       11,667                           *

Saul Shani  ...............................                            *                           *

Eliyahu Ayalon  (9)........................                      197,883                          1.68%

Avi Basher  (10)...........................                       24,875                           *

Igal Kohavi  (11)..........................                      283,710                          2.40%

David Tolub  ..............................                       12,500                           *

Gideon Wertheizer  (12)....................                       20,558                           *

Amir Karni  ...............................                            *                           *

All directors and executive officers
as a group (9 persons)  (14)..............                       631,714                          5.19%
</TABLE>

- ------------------------------------
*      Less than 1%

                                       7
<PAGE>

(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 August 3, 1999, 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 11,562,149 shares of the Company's Common Stock outstanding
       as of June 4, 1999.

(3)    Magnum Technology, Ltd. ("Magnum") filed Amendment No. 1 to a Schedule
       13D, dated February 19, 1999, with the Securities and Exchange Commission
       on behalf of itself. Magnum reported sole voting and dispositive power
       over 2,896,500 shares.

(4)    Loomis, Sayles & Company, L.P. ("Loomis") filed a Schedule 13G, dated
       February 10, 1999, with the Securities and Exchange Commission on behalf
       of itself. Loomis reported sole voting power over 375,400 shares and
       shared dispositive power over 450,800 over shares.

(5)    Mellon Bank Corporation ("Mellon Bank") filed a Schedule 13G, dated
       February 5, 1999, with the Securities and Exchange Commission on behalf
       of itself. Mellon Bank reported sole voting power over 492,900 shares,
       sole dispositive power over 497,100 shares and shared dispositive power
       over 40,200 shares.

(6)    Includes 22,520 shares held of record by the Kaplan, Strangis and Kaplan,
       P.A. Profit Sharing Trust FBO Samuel L. Kaplan. Also includes 37,001
       shares of the Company's Common Stock, subject to options which are
       currently exercisable or will become exercisable on or before August 3,
       1999.

(7)    Includes 21,000 shares of the Company's Common Stock subject to options
       which are currently exercisable or will become exercisable on or before
       August 3, 1999.

(8)    Includes 11,667 shares of the Company's Common Stock subject to options
       which are currently exercisable or will become exercisable on or before
       August 3, 1999.

(9)    Includes 193,750 shares of the Company's Common Stock subject to options
       which are currently exercisable or will become exercisable on or before
       August 3, 1999.

(10)   Includes 24,875 shares of the Company's Common Stock subject to options
       which are currently exercisable or will become exercisable on or before
       August 3, 1999.

(11)   Includes 281,250 shares of the Company's Common Stock subject to options
       which are currently exercisable or will become exercisable on or before
       August 3, 1999.

(12)   Includes 12,500 shares of the Company's Common Stock subject to options
       which are currently exercisable or will become exercisable on or before
       August 3, 1999.

(13)   Includes 19,802 shares of the Company's Common Stock subject to
       options which are currently exercisable or will become exercisable on or
       before August 3, 1999.

(14)   See footnotes (6) through (13). Includes 601,845 shares of the Company's
       Common Stock subject to options which are currently exercisable or will
       become exercisable on or before August 3, 1999.


                                       8
<PAGE>

                               PROPOSAL NO. 2
                 AMENDMENT AND RESTATEMENT OF THE COMPANY'S
                       1993 DIRECTOR STOCK OPTION PLAN

GENERAL

         The Company's stockholders are being asked to act upon a proposal to
ratify the action of the Board amending the Company's 1993 Director Stock
Option Plan (the "Director Option Plan").

         The Board of the Directors of the Company amended the Director
Option Plan in June 1999, subject to stockholder approval to increase the
number of shares of Common Stock reserved for issuance under the Director
Option Plan from 175,000 shares to 275,000 shares.

         The purpose of the amendment is to enable the company to retain
talented personnel for service as directors of the Company and to attract new
talented personnel by offering them participation in the Company's Director
Option Plan. Management believes that without such incentive it will be
unable to attract and retain talented new personnel for the Company's Board.
In the event the stockholders do not approve the proposed increase in the
number of shares of Common Stock reserved for issuance under the Director
Option Plan, the Company will not be able to issue its directors additional
incentive stock options under the Director Option Plan because options have
already been granted with respect to substantially all of the shares reserved
under the Director Option Plan.

         A general description of the principal terms of the Director Option
Plan is set forth below. However, the summary does not purport to be a
complete description of all of the provisions of the Director Option Plan.
Any stockholder of the company who wishes to obtain a copy of the actual plan
document may obtain a copy by writing to the Company, attention: Corporate
and Investor Relations.

             THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL
            OF THE PROPOSED AMENDMENT OF THE DIRECTOR OPTION PLAN.

GENERAL DESCRIPTION

         In November 1993, the Board of Directors of the Company adopted the
Director Option Plan, which was approved by the stockholders in January 1994.
The Director Option Plan was subsequently amended and restated, as approved
by the stockholders in May 1996. A total of 175,000 shares are currently
reserved for issuance under the Director Option Plan. Options granted under
the Director Option Plan shall be nonstatutory stock options. See "Certain
Federal Income Tax Information" below for information concerning the tax
treatment of nonstatutory stock options. As of May 31, 1999, options to
purchase approximately 134,999 shares were outstanding under the Director
Option Plan, a total of approximately 6,001 options to purchase shares had
been exercised under the Director Option Plan, and approximately 34,000
shares remained reserved for issuance thereunder.

SUMMARY OF DIRECTOR OPTION PLAN

         PURPOSES. The purposes of the Director Option Plan are to attract
and retain the best available personnel for service as directors of the
Company, to provide additional incentive to the outside directors of the
Company to serve as directors, and to encourage their continued service on
the Board.

         ADMINISTRATION. The Director Option Plan shall be administered by
the Board, but all grants of options under the Director Option Plan shall be
automatic and nondiscretionary and shall be made strictly in accordance with
the Director Option Plan.

         The Director Option Plan provides that each eligible director is
granted an option to purchase 15,000 shares of Common Stock (the "First
Option") on the later of the effective date of the Initial Public Offering
(February 11, 1994), or the date on which the optionee first becomes a
director of the Company. Thereafter, each outside director is to be 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

                                       9
<PAGE>

six months. In addition, an option to purchase 5,000 shares of Common Stock
(a "Committee Option") is to be 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.

         The Board shall have the authority, in its discretion to determine,
upon review of relevant information, the fair market value of the Common
Stock, the exercise price per share of the options to be granted and to
interpret the Director Option Plan. All decisions, determinations and
interpretations of the Board shall be final and binding.

         ELIGIBILITY. The Director Option Plan provides that options may be
granted only to outside directors of the Company.

         STOCK OPTIONS. Each option granted under the Director Option 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. Any stock option granted under the
Director Option Plan shall be exercisable on the third anniversary of the
date of the grant of the stock option and one-third of the shares of Common
Stock shall vest every 12 months from the date of the grant. The Board may
accelerate the unvested portion of any option held by a director whose term
expires prior to an option granted under the Director Option Plan being fully
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 Company 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) any combination of the foregoing
methods or (7) such other consideration and method of payment permitted under
applicable law.

               (b) EXERCISE PRICE. The exercise price of options granted
under the Director Option Plan shall be 100% of the fair market value per
share of Common Stock on the date of grant of the option.

               (c) TERMINATION. If an outside director ceases to serve as a
director of the Company, he or she may, but only within three (3) months
after the date he or she ceases to be a director, exercise his or her options
as to all or part of the shares as to which he or she was entitled to
exercise at the date of such termination, provided that the option is not
exercised later than its expiration date.  The Board may extend the exercise
period of an option held by a director whose term is expiring to any date
prior to the option's expiration date.

               (d) DISABILITY. If a director is unable to continue his or her
service as a director with the Company as a result of total and permanent
disability, he or she may exercise, but only within six months from the date
of such disability, his or her options 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 a director should die during his or her service
to the Company, options may be exercised at any time within 12 months after
the date of death by the director's estate or a person who acquired the right
to exercise the option by bequest or inheritance, but only to the extent of
the right to exercise that would have accrued had the director continued
living and remained in continuous service as a director for six months after
the date of death, provided that the option is exercised no later than its
expiration date. If a director should die within three months after the
termination of his or her service to the Company as a director, the options
may be exercised at any time within 12 months after the date of death by the
director'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 director at the date of death, provided that the
option is exercised no later than its expiration date.

               (f) TERM OF OPTIONS. The term of each option shall be 10 years
from the date of the grant.

               (g) NONTRANSFERABILITY OF OPTIONS. An option is not
transferable by a director, other than by will or the laws of descent and
distribution, and is exercisable during the director's lifetime only by the
director.

                                       10
<PAGE>

               (h) OTHER PROVISIONS. The option agreement may contain such
other terms, provisions and conditions not inconsistent with the Director
Option Plan as may be determined by the Board.

         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 Director Option Plan and the price per share covered by each
outstanding option.

         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 Director Option 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
so assume or substitute, 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 a substitution, the Company shall notify the participant that
the option will be fully exercisable for a period of 30 days from the date of
such notice and that the option will terminate upon the expiration of such
period.

         AMENDMENT AND TERMINATION OF THE DIRECTOR OPTION PLAN. The Board may
amend the Director Option Plan at any time or from time to time or may
terminate the Director Option Plan without approval of the stockholders;
provided, however, that stockholder approval is required for any amendment to
the Director Option 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 Director Option Plan. In any event, the Director Option
Plan shall terminate in January 2004.

AMENDED PLAN BENEFITS

         The benefits or amounts that will be received by or allocated to
directors under the Director Option Plan will not change as a result of the
proposed amendment. The Company cannot now determine the number of options to
be granted in the future under the Director Option Plan to all current
directors as a group. The benefits or amounts that will be received by or
allocated to the Company's directors under the Director Option Plan will not
change as a result of the proposed amendment and remain fixed and
non-discretionary, as described above.

CERTAIN FEDERAL INCOME TAX INFORMATION

         A director will not recognize any taxable income at the time he or
she is granted a nonstatutory option under the Director Option Plan. However,
upon its exercise, the director will recognize taxable income generally
measured as the excess of the then fair market value of the shares purchased
over the purchase price.

         The Company will be entitled to a tax deduction in the same amount
as the ordinary income recognized by a director with respect to shares
acquired upon exercise of an option.

         The foregoing summary of the federal income tax consequences of
Director Option 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.

                                       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 of the Director Option Plan.

      THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE
              PROPOSED AMENDMENT OF THE DIRECTOR OPTION PLAN.
                      AN ABSTENTION WILL HAVE THE SAME
                   EFFECT AS A VOTE AGAINST THE PROPOSAL.





                                       12
<PAGE>

                                PROPOSAL NO. 3
                  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 Stock Plan.

         The Board has approved an amendment of the 1991 Stock Plan to
increase the number of shares of Common Stock reserved for issuance
thereunder by 1,500,000 shares, bringing the total number of shares issuable
under the 1991 Stock Plan to 5,300,000. 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 Stock 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 Stock Plan, the Company will not be able
to issue employees additional incentive stock options under the 1991 Stock
Plan because options have already been granted with respect to substantially
all of the shares reserved under the 1991 Stock Plan.

         A general description of the principal terms of the 1991 Stock Plan
is set forth below. However, the summary does not purport to be a complete
description of all of the provisions of the 1991 Stock Plan. Any stockholder
of the Company who wishes to obtain a copy of the actual plan document may
obtain a copy by writing to the Company, attention: Corporate and Investor
Relations.

             THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL
      OF THE PROPOSED AMENDMENT OF THE 1991 STOCK PLAN.

GENERAL DESCRIPTION

         In October 1991, the Board of Directors of the Company adopted the
1991 Stock Plan, which was approved by the stockholders in October 1991. The
1991 Stock Plan was subsequently amended and restated, as approved by the
stockholders in January 1994, April 1994, May 1995, May 1996 and May 1998. A
total of 3,800,000 shares are currently reserved for issuance under the 1991
Stock Plan and the Company's terminated 1991 Israeli Option Plan. Options
granted under the 1991 Stock Plan may be either incentive stock options, as
defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or 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 May 31, 1998,
options to purchase approximately 2,187,622 shares were outstanding under the
1991 Stock Plan, a total of approximately 1,588,919 options to purchase
shares had been exercised under the 1991 Stock Plan, and approximately 23,459
shares remained reserved for issuance thereunder.

SUMMARY OF THE 1991 STOCK PLAN

         PURPOSES. The purposes of the 1991 Stock 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 Stock 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 Stock Plan shall be administered by the
Board or by a committee of the Board. The 1991 Stock Plan is currently
administered by the Compensation Committee of the Board.

                                       13
<PAGE>

         The administrators of the 1991 Stock 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 Stock Plan. The interpretation and construction of any
provision of the 1991 Stock 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 Stock Plan.

         ELIGIBILITY. The 1991 Stock 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 Stock 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:

               (1) 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.

               (2) EXERCISE PRICE. The exercise price of options granted
under the 1991 Stock 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.

               (3) 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.

               (4) 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.

               (5) 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.

               (6) 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 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.

                                       14
<PAGE>

               (7) 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.

               (8) OTHER PROVISIONS. The option agreement may contain such
other terms, provisions and conditions not inconsistent with the 1991 Stock
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 Stock 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 Stock 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 Stock 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 STOCK PLAN. The Board may
amend the 1991 Stock Plan at any time or from time to time or may terminate
the 1991 Stock Plan without approval of the stockholders; provided, however,
that stockholder approval is required for any amendment to the 1991 Stock
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
Stock 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 Stock Plan shall terminate in October 2001. Any options outstanding
under the 1991 Stock Plan at the time of its termination shall remain
outstanding until they expire by their terms.

AMENDED PLAN BENEFITS

         The benefits or amounts that will be received by or allocated to the
Named Executive Officers, all current executive officers and all other
employees under the 1991 Stock Plan will not change as a result of the
proposed

                                       15
<PAGE>

amendment, except that additional shares will be available for issuance under
the 1991 Stock Plan. Such benefits and amounts are not determinable because
all awards are made at the discretion of the Compensation Committee. The
benefits or amounts that will be received by or allocated to the Company's
non-employee directors under the 1991 Stock Plan will not change as a result
of the proposed amendments and remain fixed and non-discretionary, as
described above.

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
Stock 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.

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 of the 1991 Stock Plan.


             THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL
      OF THE PROPOSED AMENDMENT OF THE 1991 STOCK PLAN.
                    AN ABSTENTION WILL HAVE THE SAME EFFECT
                        AS A VOTE AGAINST THE PROPOSAL.






                                       16
<PAGE>

                                  PROPOSAL 4:
                   AMENDMENT TO ARTICLE IV OF THE COMPANY'S
               RESTATED CERTIFICATE OF INCORPORATION TO INCREASE
             THE TOTAL NUMBER OF AUTHORIZED SHARES OF COMMON STOCK

         The Company's stockholders are asked to act upon a proposal to
authorize the Board of Directors to amend, at any time prior to the next
Annual meeting of Stockholders of the Company, Article IV of the Company's
Restated Certificate of Incorporation to increase the number of authorized
shares of Common Stock from 20,000,000 shares to 50,000,000 shares. In June
1999, the Board approved this amendment of the Restated Certificate of
Incorporation, subject to stockholder approval. The Board directed that this
proposal be submitted to the Company's stockholders for consideration and
action.

         The following is the text of the first paragraph of Article IV of
the Company's Restated Certificate of Incorporation, as proposed to be
amended to effect the increase in the total number of authorized shares of
Common Stock of the Company:

         "The Corporation is authorized to issue two classes of stock to be
         designated, respectively, Preferred Stock, par value $.001 per share
         ("Preferred"), and Common Stock, par value $.001 per share ("Common").
         The total number of shares of Common that the Corporation shall have
         the authority to issue is 50,000,000. The total number of shares of
         Preferred that the Corporation shall have authority to issue is
         5,000,000. The Preferred Stock may be issued from time to time in one
         or more series."

         If this Proposal is approved by the stockholders of the Company, the
amendment to Article IV of the Restated Certificate of Incorporation would be
effected on any date (the "Effective Date") selected by the Board of
Directors on or prior to the Company's next Annual Meeting of Stockholders,
which the Board anticipates will be held in July 2000, and the Company will
file a Certificate of Amendment of its Restated Certificate of Incorporation
with the Secretary of State of the State of Delaware reflecting the increase
in authorized shares. If the amendment is not effected by such date, the
Board will take action to abandon the amendment pursuant to Section 242(c) of
the Delaware General Corporation Law.

PURPOSES AND EFFECTS OF THE INCREASE IN THE TOTAL NUMBER OF AUTHORIZED SHARES
OF COMMON STOCK

         The amendment to the Restated Certificate of Incorporation described
in this Proposal Number 4 would increase the number of shares of Common Stock
that the Company is authorized to issue from 20,000,000 to 50,000,000 shares.
The Company believes that the availability of the additional shares will
provide it with the flexibility to meet business needs as they arise, to take
advantage of favorable opportunities and to respond to a changing corporate
environment. For example, shares of stock may be required in order to effect
such things as financings, corporate mergers or acquisitions, an increase in
the number of shares reserved under any of the Company's stock option or
stock purchase plans, stock dividends, stock splits or other corporate
purposes. At present, the Company has no specific plans, agreements or
understandings to undertake any such actions that would involve the issuance
of additional shares of capital stock. No further action or authorization by
the stockholders would be necessary prior to the issuance of additional
shares unless applicable laws or regulations require such approval.

         Stockholders should note that certain disadvantages may result from
the adoption of this Proposal Number 4. After the proposed amendment to the
Restated Certificate of Incorporation is effected, there would be a greater
number of shares of Common Stock available for issuance by the Company, and
stockholders could therefore experience a significant reduction in the
stockholders' interest in the Company with respect to earnings per share,
voting, liquidation value and book and market value per share if the
additional authorized shares are issued.

         The availability for issuance of additional shares of the Company's
Common Stock would also enable the Board to render more difficult or
discourage an attempt to obtain control of the Company. For example, the
issuance of shares in a public or private sale, merger or similar transaction
would increase the number of outstanding shares, thereby possibly diluting
the interest of a party attempting to obtain control of the Company. The
Company is not aware of any pending or threatened efforts to obtain control
of the Company.


                                       17
<PAGE>

         Each additional share of Common Stock authorized by the amendment to
the Restated Certificate of Incorporation described in this Proposal Number 4
would have the same rights and privileges as each share of Common Stock
currently authorized or outstanding.

VOTE REQUIRED

         The affirmative vote of the holders of a majority of the outstanding
shares of Common Stock entitled to vote at the Annual Meeting will be
necessary for the approval of the amendment to Article IV of the Restated
Certificate of Incorporation.

             THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL
                  OF THE PROPOSED AMENDMENT TO ARTICLE IV OF
             THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION.

                       AN ABSTENTION WILL HAVE THE SAME
                    EFFECT AS A VOTE AGAINST THE PROPOSAL.






                                       18
<PAGE>

                                PROPOSAL NO. 5
              RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS

         Kost, Forer & Gabbay, a member of Ernst & Young International, has
been appointed by the Board to be the Company's independent auditors for the
Company's fiscal year ending December 31, 1999. 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 International 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 KOST, FORER & GABBAY AS THE
              COMPANY'S INDEPENDENT AUDITORS FOR THE FISCAL YEAR
                          ENDING DECEMBER 31, 1999.








                                       19
<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, 1998, 1997 and 1996:

                          SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                                         LONG-TERM
                                                                     ANNUAL COMPENSATION             COMPENSATION AWARDS
                                                                --------------------------------     -------------------
                                                                                                         SECURITIES
                                                                   SALARY (1)          BONUS (2)     UNDERLYING OPTIONS
NAME AND PRINCIPAL POSITION                             YEAR            $                  $                (#)
- ---------------------------                             ----    ----------------    -------------    -------------------
<S>                                                     <C>     <C>                 <C>              <C>
Eliyahu Ayalon                                          1998         $294,952           $240,000           150,000
  Chief Executive Officer, President and                1997          283,747            212,500           150,000
  Director                                              1996          157,493(3)          72,000           160,000

Igal Kohavi                                             1998          294,630            240,000           150,000
  Chairman of the Board                                 1997          280,620            212,500           150,000
                                                        1996          250,000             72,000           140,000

Avi Basher (4)                                          1998          174,082             45,000            10,000
  Vice President of Finance,  Chief Financial           1997          163,299             45,000            30,000
  Officer and Secretary                                 1996           31,822(5)              --            50,000

David Tolub (6)                                         1998          110,859(7)              --            50,000
  Vice President -- Sales                               1997               --                 --                --
                                                        1996               --                 --                --

Gideon Wertheizer (8)                                   1998          172,122             50,000            20,000
  Vice President -- Marketing                           1997          146,362             45,000            15,000
                                                        1996               --                 --                --

Amir Karni (9)                                          1998          125,644             10,000            10,000
  Former Vice President, Research and                   1997           61,317(10)             --            22,000
  Development                                           1996               --                 --                --
</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 Company's 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)  Mr. Basher resigned as Vice President of Finance, Chief Financial
     Officer and Secretary in May 1999.

(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. Tolub was appointed an executive officer of the Company in May 1998
     and resigned as such in April 1999.

(7)  Includes $12,357 of commissions earned by Mr. Tolub in 1998.

(8)  Mr. Wertheizer was appointed an executive officer of the Company in
     November 1997.

(9)  Mr. Karni resigned as Vice President, Research and Development in
     November 1998.

(10) Represents Mr. Karni's salary from his appointment as Vice President of
     Research and Development of the Company in July 1997.

                                       20
<PAGE>

OPTION GRANTS

         The following table sets forth certain information with respect to
stock options granted during 1998 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.

                             OPTION GRANTS IN 1998
                             INDIVIDUAL GRANTS (1)

<TABLE>
<CAPTION>
                                                                                             POTENTIAL REALIZABLE
                            NUMBER OF                                                    VALUE AT ASSUMED ANNUAL RATES
                           SECURITIES       % OF TOTAL                                    OF STOCK PRICE APPRECIATION
                           UNDERLYING        OPTIONS                                            FOR OPTION TERM
                             OPTIONS        GRANTED TO
                             GRANTED        EMPLOYEES       EXERCISE       EXPIRATION
      NAME                     (#)           IN 1998          PRICE           DATE            5%               10%
- ----------------------     ----------       ----------     ----------     -----------    ------------     ------------
<S>                        <C>              <C>            <C>            <C>            <C>              <C>
Eliyahu Ayalon               150,000          18.94%         $18.563        07/02/05      $1,133,551       $2,641,655

Igal Kohavi                  150,000          18.94%          18.563        07/02/05       1,133,551        2,641,655

Avi Basher                    10,000          1.26%           18.875        08/03/05          76,840          179,070

David Tolub                   50,000          6.31%           19.50         05/27/05         396,923          924,999

Gideon Wertheizer             20,000          2.53%           18.875        08/03/05         153,680          358,141

Amir Karni                    10,000          1.26%           18.875        08/03/05          76,840          179,070
</TABLE>

- --------------------------
(1)    All options were granted pursuant to the 1991 Stock Plan.





                                       21
<PAGE>


OPTION EXERCISES AND OPTION VALUES

         The following table sets forth information concerning option
exercises during 1998 and the aggregate value of unexercised options as of
December 31, 1998 held by each of the Named Executive Officers.

                      AGGREGATED OPTION EXERCISES IN 1998
                    AND OPTION VALUES AT DECEMBER 31, 1998

<TABLE>
<CAPTION>
                                                        NUMBER OF SECURITIES             VALUE OF UNEXERCISED
                             AGGREGATE OPTION      UNDERLYING UNEXERCISED OPTIONS       IN-THE-MONEY OPTIONS AT
                             EXERCISES IN 1998          AT DECEMBER 31, 1998              DECEMBER 31, 1998 (1)
                         ------------------------  ------------------------------     -----------------------------
                           SHARES
                          ACQUIRED       VALUE
                         ON EXERCISE   REALIZED
      NAME                   (#)         ($)(2)     EXERCISABLE     UNEXERCISABLE     EXERCISABLE     UNEXERCISABLE
- -----------------        -----------  -----------  -------------    -------------     -----------     -------------
<S>                      <C>          <C>          <C>              <C>               <C>             <C>
Eliyahu Ayalon                  --           --        85,000          257,500          $423,594         $735,781

Igal Kohavi                     --           --       177,500          252,500           719,219          686,406

Avi Basher                  12,500     $146,945        11,250           53,750           115,313          543,438

David Tolub                     --           --            --           50,000                --           68,750

Gideon Wertheizer            5,586       57,959         8,437           36,645            21,563           94,160

Amir Karni                      --           --         6,874           25,126            20,193           64,432
</TABLE>

- --------------------------
(1)    Calculated on the basis of the closing price of the Company's Common
       Stock as reported on the Nasdaq National Market on December 31, 1998 of
       $20.875 per share, minus the exercise price.

(2)    Calculated on the basis of the broker's reported sale price of the
       Company's Common Stock subject to the option, minus the exercise price.






                                       22
<PAGE>

EMPLOYMENT AGREEMENTS

         The following Named Executive Officers have written employment
agreements with the Company: Messrs. Ayalon 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 of Directors 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 of
Directors. 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 made 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 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 Directors 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 of
Directors. 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 made 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 of the Company during 1998 consisted of
Messrs. Kaplan, Phelps and Shamir; Mr. Kaplan served 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 Company's Board of Directors or Compensation Committee. Mr.
Kohavi serves as the Chairman of the Board of VCON Telecommunications, Ltd.,
a public company listed on the Nouveau Marcheand located in Israel, for which
Mr. Shamir serves as President and CEO.

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

                                       23
<PAGE>

STATEMENT IN WHOLE OR IN PART, THE FOLLOWING REPORT AND THE STOCK PERFORMANCE
GRAPH THAT FOLLOWS SHALL NOT BE DEEMED TO BE INCORPORATED BY REFERENCE INTO
ANY SUCH FILINGS.

         The Compensation Committee of the Company's Board of Directors,
which is comprised solely of independent, non-employee Board members, has the
authority and responsibility to establish the overall compensation strategy
for the Company, including salary and bonus levels, administer the Company's
incentive compensation and benefit plans, 401(k) plans, and stock option and
purchase plans, and review and make recommendations to the Board with respect
to the Company's executive compensation. Messrs. Kaplan, Shamir and Shani are
the current members of the Compensation Committee.

         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 Employee and Consultant Stock Plan (the
"1991 Stock 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, 1998, 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: (1) increased sales of the Company's products and
increased profitability of the Company during fiscal 1998; (2) the officer's
overall individual performance in his position and his relative contribution
to the Company's performance during the year; and (3) the desire of the Board
of Directors 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 (1) align executive officer interests with stockholder
interests by creating a direct link between compensation and stockholder
return, (2) give executive officers a significant, long-term interest in the
Company's success, and (3) help retain key executive officers in a
competitive market for executive talent.

         The 1991 Stock 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 1998 are provided in the table entitled "Option Grants in 1998."

         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

                                       24
<PAGE>

compensation paid to Mr. Ayalon for the fiscal year ended December 31, 1998
were appropriate based on the above criteria.

         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 1998 did not exceed the $1 million limit per officer. The 1991
Stock 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 Stock Plan.

Submitted by the Compensation Committee:

         Samuel L. Kaplan
         Millard Phelps
         Yair Shamir













                                       25
<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, 1998, 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, 1998

<TABLE>
<CAPTION>
                                                   CUMULATIVE TOTAL RETURN
                          -----------------------------------------------------------------------
                          2/11/94   3/94   6/94   9/94   12/94   3/95   6/95   9/95   12/95  3/96
<S>                       <C>       <C>    <C>    <C>     <C>    <C>    <C>    <C>    <C>    <C>

DSP GROUP, INC.            $100     $116   $###    $158   $139   $163   $179   $127   $ 82   $ 89
S&P 500                     100       93     93      98     98    108    118    127    135    142
S&P TECHNOLOGY SECTOR       100       99     95     104    111    125    154    163    160    169

<CAPTION>
                                                   CUMULATIVE TOTAL RETURN
                          --------------------------------------------------------------------------
                          6/96   9/96  12/96   3/97   6/97   9/97  12/97   3/98  6/98  9/98  12/98
<S>                       <C>    <C>   <C>     <C>    <C>    <C>   <C>     <C>   <C>   <C>   <C>

DSP GROUP, INC.           $ 66   $ 59   $ 61   $ 66   $107   $280   $143   $137  $141  $105   $149
S&P 500                    148    153    166    170    200    215    221    252   260   234    284
S&P TECHNOLOGY SECTOR      183    201    227    229    279    326    286    346   375   369    495
</TABLE>






                                       26
<PAGE>

                CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

OTHER TRANSACTIONS

         The Company entered into a consulting agreement, date as of June 29,
1998, with Mr. Phelps, an outside director of the Company. Pursuant to the
terms of the agreement, from May 1998 through December 1998, Mr. Phelps was
to provide advice to the Company's Chairman of the Board regarding
identifying potential merger and acquisition candidates. The agreement
provided that Mr. Phelps be paid $4,000 per month for his services.

         On February 2, 1999, the Company entered into a stock purchase
agreement with Magnum Technologies, Ltd., an international investment fund
("Magnum"), in which the Company issued and sold 2,300,000 new shares of the
Company's Common Stock to Magnum. Based in part on Magnum's representations,
the transaction was exempt from the registration requirements of the
Securities Act of 1933 according to Section 4(2) of the Securities Act. These
shares, representing 19.6% of the Company's outstanding Common Stock at the
time of the transaction, were issued for a price of $15 per share, or an
aggregate of $34.5 million in total net proceeds to the Company. As part of
the agreement, Magnum may acquire additional shares of the Company in the
open market, but may not bring its total holdings to more than 35% of the
Company's outstanding shares of Common Stock. Furthermore, Magnum has agreed
not to sell any of the shares of the Company's Common Stock it purchased
without the prior written consent of the Company for a period of one year
following the date of this transaction, and also to restrict its sales of the
shares for an additional six-month period under Rule 144(e)(i) of the
Securities Act of 1933.

         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.

                             STOCKHOLDER PROPOSALS

         To be considered for presentation to the Annual Meeting of the
Company's stockholders to be held in 2000, a stockholder proposal must be
received by Moshe Zelnik, Secretary, DSP Group, Inc., 3120 Scott Boulevard,
Santa Clara, California 95054, no later than February 18, 2000.

                                 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.









                                       27
<PAGE>

         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


June 21, 1999
Santa Clara, California













                                       28
<PAGE>

                               PROXY

                 THIS PROXY IS SOLICITED ON BEHALF OF
               THE BOARD OF DIRECTORS OF DSP GROUP, INC.
            FOR THE 1999 ANNUAL MEETING OF THE STOCKHOLDERS

                           JULY 19, 1999








DSP GROUP, INC.
3120 SCOTT BOULEVARD, SANTA CLARA, CA                                    PROXY
- ------------------------------------------------------------------------------

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 June 21, 1999, and the 1998 Annual Report to
Stockholders and hereby appoints Eliyahu Ayalon and Moshe Zelnik 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 1999 Annual
Meeting of Stockholders of DSP GROUP, INC. to be held on July 19, 1999 at
9:00 a.m., local time, at DSP GROUP, INC.'s principal executive offices
located at 3120 Scott Boulevard, Santa Clara, California, 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 DIRECTORS, FOR THE AMENDMENT OF
THE DSP GROUP, INC. 1993 DIRECTOR OPTION PLAN, FOR THE AMENDMENT OF THE DSP
GROUP 1991 EMPLOYEE AND CONSULTANT STOCK PLAN, FOR THE AMENDMENT AND
RESTATEMENT OF ARTICLE IV OF THE RESTATED CERTIFICATE OF INCORPORATION, FOR
THE RATIFICATION OF THE APPOINTMENT OF KOST, FORER & GABBAY AS INDEPENDENT
AUDITORS, AND AS SAID PROXIES DEEM ADVISABLE ON SUCH MATTERS AS MAY PROPERLY
COME BEFORE THE MEETING.



                     SEE REVERSE FOR VOTING INSTRUCTIONS
<PAGE>

1. Election of Directors:       01 Yair Shamir         02 Saul Shani

   / / FOR all nominees listed (except as marked to the contrary below)

   / / WITHHOLD AUTHORITY

(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDICATED NOMINEE, WRITE
              THE NUMBER(S) OF THE NOMINEE(S) IN THE BOX PROVIDED TO THE RIGHT.)

2. Proposal to ratify and approve the amendment of the DSP
   Group, Inc. 1993 Director Option Plan to increase the number of shares
   reserved for issuance thereunder:

   / / FOR        / / AGAINST     / / ABSTAIN

3. Proposal to ratify and approve the amendment of the DSP
   Group, Inc. 1991 Employee and Consultant Stock Plan to increase the number
   of shares reserved for issuance thereunder:

   / / FOR        / / AGAINST     / / ABSTAIN

4. Proposal to ratify the amendment and restatement of
   Article IV of the Restated Certificate of Incorporation to increase the
   number of authorized shares of common stock:

   / / FOR        / / AGAINST     / / ABSTAIN

5. Proposal to ratify the appointment of Kost, Forer &
   Gabbay as the independent auditors of DSP Group, Inc. for fiscal 1999:

   / / FOR        / / AGAINST     / / ABSTAIN


  / / Address change?  Mark Box and indicate changes below






Date
     ------------------------


[           Box              ]

Signature(s) in Box

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.



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