<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended MARCH 31, 1999
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission File Number 0-23006
DSP GROUP, INC.
---------------
(Exact name of registrant as specified in its charter)
DELAWARE 94-2683643
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(State or other jurisdiction of (I.R.S. employer identification number)
incorporation or organization)
3120 SCOTT BOULEVARD, SANTA CLARA, CALIFORNIA 95054
---------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (408) 986-4300
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
As of April 30, 1999 there were 11,538,081 shares of Common Stock ($.001 par
value per share) outstanding.
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INDEX
DSP GROUP, INC.
<TABLE>
<CAPTION>
PAGE NO.
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PART I. FINANCIAL INFORMATION
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<S> <C>
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets--March 31, 1999
and December 31, 1998............................................. 3
Condensed consolidated statements of income--Three
months ended March 31, 1999 and 1998................................. 4
Condensed consolidated statements of cash flows--Three
months ended March 31, 1999 and 1998................................. 5
Condensed consolidated statements of Stockholders' Equity --
Three months ended March 31, 1999 and 1998........................... 6
Notes to condensed consolidated financial statements--
March 31, 1999....................................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................... 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk................ 18
PART II. OTHER INFORMATION
- -----------------------------
Item 1. Legal Proceedings...................................................... 19
Item 2. Changes in Securities.................................................. 19
Item 3. Defaults upon Senior Securities........................................ 19
Item 4. Submission of Matters to a Vote of Security Holders.................... 19
Item 5. Other Information...................................................... 19
Item 6. Exhibits and Reports on Form 8-K....................................... 19
SIGNATURES ......................................................................... 20
</TABLE>
<PAGE>
PART 1. FINANCIAL INFORMATION
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS
DSP GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 12,090 $ 9,038
Marketable securities 85,233 57,951
Accounts receivable, net 3,486 5,721
Inventories 1,129 2,181
Deferred income taxes 1,374 1,374
Other accounts receivable 2,826 1,608
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TOTAL CURRENT ASSETS 106,138 77,873
Property and equipment, at cost: 14,082 11,330
Less accumulated depreciation and amortization (7,513) (7,094)
--------- ---------
6,569 4,236
Other investments, net of accumulated amortization
2,276 1,834
Capitalized software 1,625 --
Severance pay fund 959 864
Deferred income taxes 848 848
Other assets 135 135
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TOTAL ASSETS
$ 118,550 $ 85,790
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--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $2,165 $2,360
Other current liabilities 6,484 6,841
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TOTAL CURRENT LIABILITIES 8,649 9,201
LONG TERM LIABILITIES
Accrued severance pay 1,005 895
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Common Stock 12 9
Additional paid-in capital 110,035 75,610
Retained earning 13,150 12,129
Less cost of treasury stock (14,301) (12,053)
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TOTAL STOCKHOLDERS' EQUITY 108,896 75,695
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $118,550 $85,791
--------- ---------
--------- ---------
</TABLE>
Note: The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date. See notes to condensed consolidated financial
statements.
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DSP GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1999 1998
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<S> <C> <C>
REVENUES:
Product sales $ 6,522 $ 13,401
Licensing, royalties and other 3,940 2,275
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TOTAL REVENUES 10,462 15,676
COST OF REVENUES:
Cost of product sales 3,751 7,727
Cost of licensing, royalties and other 75 66
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TOTAL COST OF REVENUES 3,826 7,793
-------- --------
GROSS PROFIT 6,636 7,883
OPERATING EXPENSES:
Research and development 3,361 2,028
Sales and marketing 1,916 1,313
General and administrative 1,252 1,092
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TOTAL OPERATING EXPENSES 6,529 4,433
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OPERATING INCOME 107 3,450
OTHER INCOME (EXPENSE):
Interest and other income 1,130 940
Interest expense and other (104) (42)
Equity in income (loss) of equity
method investees, net 442 (66)
-------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES 1,575 4,282
Provision for income taxes 393 1,071
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NET INCOME $ 1,182 $ 3,211
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-------- --------
NET INCOME PER SHARE:
Basic $ 0.11 $ 0.32
Diluted $ 0.11 $ 0.31
SHARES USED IN PER SHARE COMPUTATIONS:
Basic 10,769 10,080
Diluted 10,953 10,387
</TABLE>
See notes to condensed consolidated financial statements.
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DSP GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1999 1998
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<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 623 $ 404
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INVESTING ACTIVITIES
Purchase of available-for-sale marketable securities (39,331) (25,069)
Sale of available-for-sale marketable securities 12,049 25,711
Purchases of equipment (2,308) (284)
-------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (29,590) 358
-------- --------
FINANCIAL ACTIVITIES
Sale of Common Stock for cash upon
exercise of options and employee
stock purchase plan 304 569
Purchase of treasury stock (2,710) (2,386)
Issue of Common Stock to investor 34,425 --
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 32,019 (1,817)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 3,052 $ (1,055)
-------- --------
-------- --------
Non-cash investing and financing information:
Liabilities assumed in connection with asset acquisitions $ 500 --
-------- --------
-------- --------
Capitalized software acquisition in exchange
for license sale $ 2,000 --
-------- --------
-------- --------
</TABLE>
See notes to condensed consolidated financial statements.
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DSP GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL RETAINED OTHER TOTAL
COMMON STOCK PAID-IN EARNINGS TREASURY COMPREHENSIVE STOCKHOLDERS'
SHARES AMOUNT CAPITAL (ACCUMULATED STOCK AT INCOME EQUITY
THREE MONTHS ENDED EARNINGS COST
MARCH 31, 1999 (DEFICIT)
---------- --------- ----------- -------------- ------------- ---------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 9,406 $ 9 $ 75,610 $ 12,129 $ (12,053) $ -- $ 75,695
1998
Net income -- -- -- 1,182 -- -- 1,182
Comprehensive income -- -- -- -- -- -- 1,182
Sale of Common Stock, net
of issuance cost 2,300 3 34,425 -- -- -- 34,428
Exercise of Common Stock
options by employees 10 -- -- (54) 172 -- 118
Sale of Common Stock under
employee stock purchase 18 -- -- (107) 290 -- 183
plan
Purchase of treasury stock (200) -- -- -- (2,710) -- (2,710)
---------- --------- ----------- -------------- ------------- ---------------- --------------
Balance at March 31, 1999 11,534 $ 12 $ 110,035 $ 13,150 $ (14,301) $ -- $ 108,896
---------- --------- ----------- -------------- ------------- ---------------- --------------
THREE MONTHS ENDED
MARCH 31, 1998
---------- --------- ----------- -------------- ------------- ---------------- --------------
Balance at December 31, 10,094 $ 10 $ 74,418 $ (1,308) $ -- $ 1,050 $ 74,170
1998
Comprehensive income
Unrealized gain on
marketable security -- -- -- -- -- 36 36
Net income -- -- -- 3,211 -- -- 3,211
Comprehensive income -- -- -- -- -- -- 3,247
Exercise of Common Stock
options by employees 44 -- -- (406) 859 -- 453
Sale of Common Stock under
Employee stock purchase 13 -- -- 116 -- -- 116
plan
Purchase of treasury stock (99) -- -- -- (2,386) -- (2,386)
---------- --------- ----------- -------------- ------------- ---------------- --------------
Balance at March 31, 1998 10,052 $ 10 $ 74,418 $ 1,613 $ (1,527) $ 1,086 $ 75,600
---------- --------- ----------- -------------- ------------- ---------------- --------------
</TABLE>
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DSP GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three months ended March 31, 1999,
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1999. For further information, reference is made to the
consolidated financial statements and footnotes thereto included in our Annual
Report on Form 10-K for the year ended December 31, 1998.
NOTE B - INVENTORIES
Inventory is valued at the lower of cost or market. Inventories are composed of
the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
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<S> <C> <C>
Finished goods $1,129 $2,182
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$1,129 $2,182
------ ------
------ ------
</TABLE>
NOTE C - NET INCOME PER SHARE
Basic net income per share is computed based on the weighted average number of
shares of common stock outstanding during the period. For the same periods,
diluted net income per share further includes the effect of dilutive stock
options outstanding during the year, all in accordance with the Financial
Accounting Standards Board issued Statement No. 128, "Earnings per Share" ("SFAS
128"). The following table sets forth the computation of basic and diluted net
income per share (in thousands except per share amounts):
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<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 1998
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<S> <C> <C>
Numerator:
Net income $ 1,182 $ 3,211
------- -------
------- -------
Denominator:
Weighted average number of shares of Common
Stock outstanding during the period used to
compute basic earnings per share 10,769 10,080
Incremental shares attributable to exercise of
outstanding options (assuming proceeds would
be used to purchase treasury stock) 184 307
Weighted average number of shares of
Common Stock used to compute diluted ------- -------
income per share 10,953 10,387
------- -------
------- -------
Basic net income per share $ 0.11 $ 0.32
------- -------
------- -------
Diluted net income per share $ 0.11 $ 0.31
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</TABLE>
NOTE D - INVESTMENTS
The following is a summary of the cost of available-for-sale securities (in
thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
--------- ------------
1999 1998
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<S> <C> <C>
Obligations of states and
political subdivisions $26,312 $25,290
Corporate obligations 62,829 33,218
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$89,141 $58,508
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------- -------
Amounts included in
marketable securities $85,233 $57,951
Amounts included in
cash and cash equivalents 3,908 557
------- -------
$89,141 $58,508
------- -------
</TABLE>
At March 31, 1999 and at December 31, 1998, the carrying amount of securities
approximated their fair market value and the amount of unrealized gain or loss
was not significant. Gross realized gains or losses for the three months ended
March 31, 1999 and 1998, were not
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significant. The amortized cost of available-for-sale debt securities at March
31, 1999, by contractual maturities, is shown below (in thousands):
<TABLE>
<CAPTION>
AMORTIZED COST
--------------
<S> <C>
Due in one year or less $ 31,122
Due after one year to two years 58,019
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$ 89,141
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---------
</TABLE>
NOTE E - INCOME TAXES
The effective tax rate used in computing the provision for income taxes is based
on projected fiscal year income before taxes, including estimated income by tax
jurisdiction. The difference between the effective tax rate and the statutory
rate is due primarily to foreign tax holiday and tax exempt income in Israel.
NOTE F - SIGNIFICANT CUSTOMERS
Product sales to a distributor accounted for 8% and 51% of total revenues for
the three months ended March 31, 1999 and 1998, respectively. Revenues from a
licensee accounted for 18% of total revenues for the three months ended March
31, 1999. The loss of one or more major distributors or customers could have a
material adverse effect on our business, financial condition and results of
operations.
NOTE G - OTHER INVESTMENTS
Other investments are comprised of: AudioCodes, Ltd.: AudioCodes, Ltd.
("AudioCodes") is an Israeli corporation primarily engaged in design,
research, development, manufacturing and marketing of hardware and software
products that enable simultaneous transmission of voice and data over
networks such as the Internet, ATM and Frame Relay. In July 1997, AudioCodes
completed a private placement of additional equity securities without our
participation and, as a result, our equity ownership interest in AudioCodes
was diluted from approximately 35% to approximately 29%. We also have an
option to purchase approximately 3.5% of the outstanding stock of AudioCodes
for approximately $1.0 million, subject to certain conditions. The condensed
consolidated statements of income for the three months ended March 31, 1999
and 1998, include a $442,000 equity gain and $66,000 equity loss,
respectively, in our investment in AudioCodes.
NOTE H- REPURCHASE OF COMPANY'S COMMON STOCK
In March 1999, our Board of Directors authorized a new plan to repurchase up to
1,000,000 shares of our Common Stock from time to time on the open-market or in
privately negotiated transactions, increasing the total shares authorized to be
repurchased to 2,000,000 shares. In the three months ended March 31, 1999, we
repurchased 200,000 shares of our Common Stock at an average purchase price of
$13.55 per share. The accumulated number of shares of Common Stock we
repurchased as of March 31, 1999 is 1,014,000 shares.
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NOTE I - DEFERRED REVENUE
During the first quarter of 1998, we successfully finalized testing on a certain
TAD chip shipped to a customer in the third and fourth quarters of fiscal 1997.
Accordingly, in the first quarter ended March 31, 1998, we recorded
approximately $2,180,000 of revenue and approximately $1,208,000 of related
inventory cost, which had been previously deferred at December 31, 1997.
NOTE J - ACQUISITIONS
In the first quarter of 1999, we entered the wireless communication product
market, which we believe to be synergistic with our existing markets. We
acquired two integrated groups of engineers specializing in the design of
integrated circuits for wireless communication. In addition, we acquired
technology and products, including associated intellectual property, related to
base band and RF for 900 Megahertz digital spread spectrum.
NOTE K- CONTINGENCIES
We are involved in certain claims arising in the normal course of business,
including claims that it may be infringing patent rights owned by third parties.
We are unable to foresee the extent to which these matters will be pursued by
the claimants or to predict with certainty the eventual outcome. However, we
believe that the ultimate resolution of these matters will not have a material
adverse effect on our financial position, results of operations or cash flow.
On February 12, 1997, BEKA Electronic GmbH ("BEKA") commenced an action in the
United States District Court for the Northern District of California against us.
The action alleges breach of contract, breach of implied covenant of good faith
and fair dealing and requests an accounting by us in connection with our
termination of the Sales Representative Agreement between BEKA and us. In April
1999, we mutually resolved the case with BEKA, without a material adverse effect
on our financial position, results of operations or cash flow. The case was
formally dismissed on May 5, 1999.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
TOTAL REVENUES. Our total revenues decreased to $10.5 million in the first
quarter of 1999 from $15.7 million in the first quarter of 1998. The decrease in
the first quarter of 1999 compared to the same period in 1998 was due to our
decreased revenues from product sales which was primarily caused by our phasing
out of our D64xx line of products and our phasing in of our new line of D16xxx
products. Our licensing and royalty revenues increased to $3.9 million in the
first quarter of 1999 compared to $2.3 million in the same period of 1998
primarily due to a new licensee which licensed the DSP TEAK Core.
Export sales, primarily consisting of TAD speech processors shipped to customers
in Europe and Asia, including Japan, as well as license fees on DSP core
designs, represented 70% of our total revenues for the three months ended March
31, 1999 and 94% of our total revenues for the three months ended March 31,
1998. All export sales are denominated in U.S. dollars.
Revenues from one of our licensees accounted for 18% of total revenues for the
first quarter of 1999. Revenues from a distributor, Tomen Electronics, accounted
for 8% of our total revenues for the three months ended March 31, 1999 and 51%
of our total revenues for the three months ended March 31, 1998.
GROSS PROFIT. Gross profit as a percentage of total revenues increased to 63% in
the first quarter of 1999 from 50% in the first quarter of 1998. The increase in
gross profit in the first quarter of 1999, was primarily due to the change in
the mix of our licensing revenues and product sale revenues, which resulted in
higher licensing revenues, which have a higher gross profit than product sales.
Product gross profit as a percentage of product sales was 42% in both first
quarters of 1999 and 1998. The Company managed to off-set the continued decline
in average selling prices with a decrease in manufacturing costs.
RESEARCH AND DEVELOPMENT EXPENSES. Our research and development expenses
increased to $3.4 million in the first quarter of 1999 from $2.0 million in the
first quarter of 1998. The increase was primarily due to our newly acquired
wireless communication technologies and products, including partial amortization
of research and development costs that have not yet reached technological
feasibility. The expense increase was also attributed to an increase in research
and development personnel as compared to the same period in 1998, and to higher
levels of depreciation, due to our acquisition of new research and development
computers and lab equipment.
SALES AND MARKETING EXPENSES. Our sales and marketing expenses increased to $1.9
million from $1.3 million in the first quarter of 1999 as compared to the same
quarter in 1998. Salaries and fringe benefits increased in the first quarter of
1999 compared to the first quarter of 1998, primarily due to an increase in
sales and marketing personnel, partially associated with our new wireless
communication activities. Our sales and marketing expenses as a percentage of
total revenues were 18% in the three months ended March 31, 1999 and 8% in the
three months ended March 31, 1998. The increase was attributed to our lower
revenues in the first three months ended March 31, 1999, as compared with the
same period in 1998.
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GENERAL AND ADMINISTRATIVE EXPENSES. Our general and administrative expenses
were approximately $1.3 million in the three months ended March 31, 1999 and
$1.1 million in the three months ended March 31, 1998. The increase was mainly
due to higher levels of legal expenses, rent and utilities expenses. These
expenses as a percentage of total revenues increased to approximately 12% in
first three months of 1999, compared to 7% in the first three months of 1998.
OTHER INCOME (EXPENSE). Interest and other income and interest expense other,
net was $1.0 million for the three months ended March 31, 1999, compared to
$898,000 for the three months ended March 31, 1998. The increase was primarily
the result of higher levels of cash equivalents and marketable securities in
1999 as compared with 1998, which were off-set by lower yields.
EQUITY IN INCOME (LOSS) OF EQUITY METHOD INVESTEES, NET. Equity in income (loss)
of equity method investees, net was a $442,000 gain for the three months ended
March 31, 1999 as compared to a $66,000 loss in the comparable period ended
March 31, 1998.
PROVISION FOR INCOME TAXES. In 1999 and 1998, we benefited for federal and state
tax purposes from foreign tax holiday and tax exempt income in Israel.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES. During the three months ended March 31, 1999, we generated
$623,000 of cash and cash equivalents from our operating activities as compared
to $404,000 during the three months ended March 31, 1998. This increase, even
though we experienced a decrease in net income during the three months ended
March 31, 1999, was attributable primarily to the non-cash effects of a decrease
of accounts receivable and a decrease in inventory. These decreases were offset
by our purchase of capitalized software in the first three months of 1999 and by
our recognizing deferred revenue, in the first three months of 1998.
INVESTING ACTIVITIES. We invest excess cash in marketable securities of varying
maturity, depending on our projected cash needs for operations, capital
expenditures and other business purposes. In the first three months of 1999, we
purchased $39.3 million and sold $12.0 million of investments classified as
marketable securities. Our capital equipment purchases in the first three months
of 1999 totaled $2.3 million, primarily for new equipment associated with the
acquisition of wireless communicating technologies, including computers and
testing equipment.
FINANCING ACTIVITIES. During the three months ended March 31, 1999, we received
$304,000 upon the exercise of employee stock options and through purchases
pursuant to the employee stock purchase plan. In the first three months of 1999,
we repurchased 200,000 shares of our Common Stock at an average purchase price
of $13.55 per share, for an aggregate purchase price of approximately $2.7
million.
On February 2, 1999, we announced that we had entered into a stock purchase
agreement with Magnum Technologies, Ltd., an international investment fund
("Magnum"), in which we issued and sold 2,300,000 new shares of our Common Stock
to Magnum, which represented approximately 20% of our outstanding Common Stock
at the time of the transaction, for $15 per share, or an aggregate of $34.5
million in total gross proceeds to DSP Group. As part of the agreement, Magnum
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may acquire additional shares of our Common Stock in the open market, but may
not bring its total holdings to more than 35% of our outstanding shares of
Common Stock.
At March 31, 1999, our principal source of liquidity consisted of cash and cash
equivalents totaling $12.1 million and marketable securities with an aggregate
value of $85.2 million. Our working capital at March 31, 1999 was $97.5 million.
We believe that our current cash, cash equivalent and marketable securities will
be sufficient to meet our cash requirements through at least the next twelve
months. In March 1999, we announced a new stock repurchase program pursuant to
which up to an additional 1,000,000 shares of our Common Stock may be acquired
in the open market or in privately negotiated transactions. Accordingly, we will
use part of our available cash for this purpose.
Additionally, as part of our business strategy, we occasionally evaluate
potential acquisitions of businesses, products and technologies. Accordingly, a
portion of our available cash may be used for the acquisition of complementary
products or businesses. Such potential transactions may require substantial
capital resources, which may require us to seek additional debt or equity
financing. There can be no assurance that we will consummate any such
transactions. See "Factors Affecting Future Operating Results--There are Risks
Associated with our Acquisition Strategy" for more detailed information.
YEAR 2000 READINESS
We are aware of the issues associated with the programming code in existing
computer systems as the Year 2000 approaches. The "Year 2000" problem is
concerned with whether computer systems will properly recognize date sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail. The Year 2000 problem is pervasive and complex as the computer operation
of virtually every company will be affected in some way.
Beginning in 1997, during 1998 and going forward in 1999, we have been and will
continue to utilize both internal and external resources to identify, correct or
reprogram and test our systems for Year 2000 readiness. We anticipate that all
reprogramming efforts, including testing, will be completed by July 31, 1999.
Our efforts include the evaluation of both information technology ("IT") and
non-IT systems. Non-IT systems include systems or hardware containing embedded
technology such as microcontrollers. To date the costs we have incurred with
respect to this project are not material and we do not believe that future costs
for the completion of this project will be material. However, if systems
material to our operations have not been made Year 2000 ready by the completion
of the project, the Year 2000 issue could have a material adverse effect on our
financial statements. We have not developed a contingency plan to operate in the
event that a non compliant critical system is not remedied by January 1, 2000
and do not intend to do so.
Throughout 1998 and into 1999, we have been and continue to take steps to ensure
that our products and services will continue to operate on and after January 1,
2000. We believe that our products being shipped today are Year 2000 ready. In
addition, to date, confirmations have been received from our primary processing
vendors that plans are being developed to address the processing of transactions
in the Year 2000. We also have been communicating with suppliers and other third
parties that we do business with to coordinate Year 2000
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readiness. The responses received to date indicate that such third parties are
taking steps to address this concern.
Based upon the steps being taken to address this issue and the progress to date,
we believe that Year 2000 readiness expenses will not harm our earnings.
However, we cannot assure you that Year 2000 problems will not occur with
respect to our computer systems. Furthermore, the Year 2000 problem may impact
other entities with which we transact business, and we cannot predict the effect
of the Year 2000 problem on these entities or the resulting effect on us. As a
result, if preventative and/or corrective actions mainly by those with which we
do business with are not made in a timely manner, the Year 2000 issue could
result in a failure of some of our manufacturing operations, which would harm
our business, financial condition and results of operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK. It is our policy not to enter into derivative financial
instruments. We do not currently have any significant foreign currency exposure
since we do not transact business in foreign currencies. Due to this, we did not
have significant overall currency exposure at April 1, 1999.
FOREIGN CURRENCY RATE RISK. As nearly all of our sales and expenses are
denominated in U.S. Dollars, we have experienced only insignificant foreign
exchange gains and losses to date, and do not expect to incur significant gains
and losses in 1999. We did not engage in foreign currency hedging activities
during the three months ended March 31, 1999.
EUROPEAN MONETARY UNION
Within Europe, the European Economic and Monetary Union (the "EMU") introduced a
new currency, the euro, on January 1, 1999. During 2002, all EMU countries are
expected to be operating with the euro as their single currency. Uncertainty
exists as to the effect the euro currency will have on the marketplace.
Additionally, all of the final rules and regulations have not yet been defined
and finalized by the European Commission with regard to the euro currency. We
are assessing the effect the euro formation will have on DSP Group's internal
systems and the sale of DSP Group products. We expect to take appropriate
actions based on the results of such assessment. We believe that the cost
related to this issue will not be material to us and will not have a substantial
effect on our financial condition and results of operations.
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FACTORS AFFECTING FUTURE OPERATING RESULTS
THIS FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS CONCERNING OUR FUTURE
PRODUCTS, EXPENSES, REVENUE, LIQUIDITY AND CASH NEEDS AS WELL AS OUR PLANS AND
STRATEGIES. THESE FORWARD-LOOKING STATEMENTS ARE BASED ON CURRENT EXPECTATIONS
AND WE ASSUME NO OBLIGATION TO UPDATE THIS INFORMATION. NUMEROUS FACTORS COULD
CAUSE OUR ACTUAL RESULTS TO DIFFER SIGNIFICANTLY FROM THE RESULTS DESCRIBED IN
THESE FORWARD-LOOKING STATEMENTS, INCLUDING THE FOLLOWING RISK FACTORS.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY. Our quarterly
results of operations may vary significantly in the future for a variety of
reasons, including the following:
- fluctuations in volume and timing of product orders;
- timing of recognition of license fees;
- level of per unit royalties;
- changes in demand for our products due to seasonal customer
buying patterns and other factors;
- timing of new product introductions by us or our customers,
licensees or competitors;
- changes in the mix of products sold by us;
- fluctuations in the level of sales by original equipment
manufacturers (OEMs) and other vendors of products incorporating
our products; and
- general economic conditions, including the changing economic
conditions in Asia.
Each of the above factors is difficult to forecast and thus could harm
our business, financial condition and results of operations. Through 1999, we
expect that revenues from our DSP core designs and TrueSpeech algorithms will be
derived primarily from license fees rather than per unit royalties. The
uncertain timing of these license fees has caused, and may continue to cause,
quarterly fluctuations in our operating results. Our per unit royalties from
licenses are dependent upon the success of our OEM licensees in introducing
products utilizing our technology and the success of those OEM products in the
marketplace. Per unit royalties from TrueSpeech licensees have not been
significant to date.
OUR AVERAGE SELLING PRICES CONTINUE TO DECLINE. We have experienced a decrease
in the average selling prices of our TAD speech processors, but have to date
been able to offset this decrease on an annual basis through manufacturing cost
reductions and the introduction of new products with higher performance.
However, we cannot guarantee that our on-going efforts will be successful or
that they will keep pace with the anticipated, continuing decline in average
selling prices.
WE DEPEND ON THE DIGITAL TAD MARKET WHICH IS HIGHLY COMPETITIVE. Sales of TAD
products comprise a substantial portion of our product sales. Any adverse change
in the digital TAD market or in our ability to compete and maintain our position
in that market would harm our business, financial condition and results of
operations. The digital TAD market and the markets for our products in general
are extremely competitive and we expect that competition
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<PAGE>
will only increase. Our existing and potential competitors in each of our
markets include large and emerging domestic and foreign companies, many of which
have significantly greater financial, technical, manufacturing, marketing, sale
and distribution resources and management expertise than we do. It is possible
that we may one day be unable to respond to increased price competition for TAD
speech processors or other products through the introduction of new products or
reductions of manufacturing costs. This inability would have a material adverse
effect on our business, financial condition and results of operations. Likewise,
any significant delays by us in developing, manufacturing or shipping new or
enhanced products would also have a material adverse effect on our business,
financial condition and results of operations.
WE DEPEND ON REVENUES FROM A CURRENTLY UNSTABLE ASIAN MARKET. In 1997, we
generated approximately $19.9 million, or 39% of our total product sales, from
sales to customers located in South Korea, Taiwan, Singapore and Hong Kong.
However, in 1998, due to economic problems in some of these countries, most
notably South Korea and Singapore, our product sales in this region decreased to
$10.9 million, or 22% of our total product sales. The decline in sales from
Southeast Asia countries resulted in a decrease in our backlog, but was
partially offset by increased orders from Japan. If this negative economic trend
in the Asian markets continues, it may result in a further decrease of our
backlog in 1999. We cannot provide assurance that continued negative economic
development in Asia will not have a material adverse effect on our future
operating performance.
WE DEPEND ON INDEPENDENT FOUNDRIES TO MANUFACTURE OUR INTEGRATED CIRCUIT
PRODUCTS. All of our integrated circuit products are manufactured by independent
foundries. While these foundries have been able to adequately meet the demands
of our increasing business, we are and will continue to be dependent upon these
foundries to achieve acceptable manufacturing yields, quality levels and costs,
and to allocate to us a sufficient portion of foundry capacity to meet our needs
in a timely manner. To meet our increased wafer requirements, we have added
additional independent foundries to manufacture our TAD speech processors. Our
revenues could be harmed should any of these foundries fail to meet our request
for products due to a shortage of production capacity, process difficulties, low
yield rates or financial instability.
WE DEPEND ON INTERNATIONAL OPERATIONS, PARTICULARLY IN ISRAEL. We are subject to
the risks of doing business internationally, including:
- unexpected changes in regulatory requirements;
- fluctuations in the exchange rate for the U.S. dollar;
- imposition of tariffs and other barriers and restrictions;
- burdens of complying with a variety of foreign laws;
- political and economic instability; and
- changes in diplomatic and trade relationships.
In particular, our principal research and development facilities are located in
the State of Israel and, as a result, at March 31, 1999, 106 of our 138
employees were located in Israel, including all 85 of our research and
development personnel. In addition, although DSP Group is incorporated in
Delaware, a majority of our directors and executive officers are residents of
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<PAGE>
Israel. Therefore, we are directly affected by the political, economic and
military conditions to which Israel is subject.
Moreover, many of our expenses in Israel are paid in Israeli currency which
subjects us to the risks of foreign currency fluctuations and to economic
pressures resulting from Israel's generally high rate of inflation. The rate of
inflation in Israel was (1.5%) for the three months ended March 31, 1999 and
0.1% for the three months ended March 31, 1998. While substantially all of our
sales and expenses are denominated in United States dollars, a portion of our
expenses are denominated in Israeli shekels. Our primary expenses paid in
Israeli currency are employee salaries and lease payments on our Israeli
facilities. As a result, an increase in the value of Israeli currency in
comparison to the United States dollar could increase the cost of technology
development, research and development expenses and general and administrative
expenses. We cannot provide assurance that currency fluctuations, changes in the
rate of inflation in Israel or any of the other factors mentioned above will not
have a material adverse effect on our business, financial condition and results
of operations.
WE DEPEND ON OEMS AND THEIR SUPPLIERS TO OBTAIN REQUIRED COMPLEMENTARY
COMPONENTS. Some of the raw materials, components and subassemblies included in
the products manufactured by our OEM customers, which also incorporate our
products, are obtained from a limited group of suppliers. Supply disruptions,
shortages or termination of any of these sources could have an adverse effect on
our business and results of operations due to the delay or discontinuance of
orders for our products by customers until those necessary components are
available.
WE DEPEND UPON THE ADOPTION OF INDUSTRY STANDARDS BASED ON TRUESPEECH. Our
prospects are partially dependent upon the establishment of industry standards
for digital speech compression based on TrueSpeech algorithms in the computer
telephony and Voice over IP markets. The development of industry standards
utilizing TrueSpeech algorithms would create an opportunity for us to develop
and market speech co-processors that provide TrueSpeech solutions and enhance
the performance and functionality of products incorporating these co-processors.
In February 1995, the ITU established G.723.1, which is predominately composed
of a TrueSpeech algorithm, as the standard speech compression technology for use
in video conferencing over public telephone lines. In March 1997, the
International Multimedia Teleconferencing Consortium, a nonprofit industry
group, recommended the use of G.723.1 as the default audio coder for all voice
transmissions over the Internet or for IP applications for H.323 conferencing
products.
THERE ARE RISKS ASSOCIATED WITH OUR ACQUISITION STRATEGY. DSP Group has pursued,
and will continue to pursue, growth opportunities through internal development
and acquisition of complementary businesses, products and technologies. We are
unable to predict whether or when any prospective acquisition will be completed.
The process of integrating an acquired business may be prolonged due to
unforeseen difficulties and may require a disproportionate amount of our
resources and management's attention. We cannot provide assurance that we will
be able to successfully identify suitable acquisition candidates, complete
acquisitions, integrate acquired businesses into our operations, or expand into
new markets. Once integrated, acquisitions may not achieve comparable levels of
revenues, profitability or productivity as the existing business of DSP Group or
otherwise perform as expected. The occurrence of any of these events could harm
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<PAGE>
our business, financial condition or results of operations. Future acquisitions
may require substantial capital resources, which may require us to seek
additional debt or equity financing.
PROTECTION OF OUR INTELLECTUAL PROPERTY IS LIMITED; RISKS OF INFRINGEMENT OF
RIGHTS OF OTHERS. As is typical in the semiconductor industry, we have been and
may from time to time be notified of claims that we may be infringing patents or
intellectual property rights owned by third parties. For example, AT&T has
asserted that G.723.1, which is primarily composed of a TrueSpeech algorithm,
includes certain elements covered by patents held by AT&T and has requested that
video conferencing manufacturers license the technology from AT&T. Other
organizations including Lucent Microelectronics, NTT and VoiceCraft have raised
public claims that they also have patents related to the G.723.1 technology.
If it appears necessary or desirable, we may try to obtain licenses for those
patents or intellectual property rights that we are allegedly infringing.
Although holders of these type of intellectual property rights commonly offer
these licenses, we cannot assure that licenses will be offered or that terms of
any offered licenses will be acceptable to us. Our failure to obtain a license
for key intellectual property rights from a third party for technology used by
us could cause us to incur substantial liabilities and to suspend the
manufacturing of products utilizing the technology. We believe that the ultimate
resolution of these matters will not have a material adverse effect on our
financial position, results of operations, or cash flows.
WE MAY HAVE YEAR 2000 READINESS ISSUES. We may discover Year 2000 readiness
problems in our information technology ("IT") and non-IT systems that will
require substantial revision. If we cannot fix or replace these systems before
January 1, 2000 our operating costs could be increased and we could experience
business interruptions which could harm our business.
Furthermore, the Year 2000 problem may impact other entities with which we
transact business, including suppliers, primary processing vendors and
customers, and we cannot predict the effect of the Year 2000 problem on these
entities or the resulting effect on us. As a result, if preventative and/or
corrective actions mainly by those with which we do business are not made in a
timely manner, the Year 2000 issue could harm our business, financial condition
and results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Year 2000 Readiness" for more
detailed information.
OUR STOCK PRICE MAY BE VOLATILE. Announcements of developments related to our
business, announcements by competitors, quarterly fluctuations in our financial
results, changes in the general conditions of the highly dynamic industry in
which we compete or the national economies in which we do business and other
factors could cause the price of our common stock to fluctuate, perhaps
substantially. In addition, in recent years the stock market has experienced
extreme price fluctuations, which have often been unrelated to the operating
performance of affected companies. These factors and fluctuations could have a
material adverse effect on the market price of our common stock.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Quantitative and Qualitative Disclosures About Market Risk."
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<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 12, 1997, BEKA Electronic GmbH ("BEKA") commenced an action in the
United States District Court for the Northern District of California against DSP
Group. The action alleges breach of contract, breach of implied covenant of good
faith and fair dealing and requests an accounting by us in connection with our
termination of the Sales Representative Agreement between BEKA and us. In April
1999, we mutually resolved the case with BEKA. The case was formally dismissed
on May 5, 1999.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Amendment to the Company's Bylaws, effective as of
February 5, 1999
4.1 Registration Rights Agreement, dated as of February
2, 1999, by and between the Company and Magnum
Technology Limited
10.1 Stock Purchase Agreement, dated as of February 2,
1999, by and between the Company and Magnum
Technology Limited
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
three months ended March 31, 1999.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DSP GROUP, INC.
(Registrant)
By /s/ AVI BASHER
-----------------------------------------------------------
Avi Basher, Vice President of Finance, Chief Financial Officer
and Secretary (Principal Financial Officer and Principal Accounting Officer)
Date: May 13, 1999
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<PAGE>
Exhibit 3.1
- --------------------------------------------------------------------------------
BYLAWS
OF
DSP GROUP, INC.
(A DELAWARE CORPORATION)
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C> <C>
ARTICLE I CORPORATE OFFICES.......................................................................................1
1.1 REGISTERED OFFICE....................................................................1
1.2 OTHER OFFICES........................................................................1
ARTICLE II MEETINGS OF STOCKHOLDERS...............................................................................1
2.1 PLACE OF MEETINGS....................................................................1
2.2 ANNUAL MEETING.......................................................................1
2.3 SPECIAL MEETING......................................................................3
2.4 NOTICE OF STOCKHOLDERS'MEETINGS......................................................3
2.5 MANNER OF GIVING NOTICE, AFFIDAVIT OF NOTICE.........................................3
2.6 QUORUM...............................................................................4
2.7 ADJOURNED MEETING; NOTICE............................................................4
2.8 VOTING...............................................................................4
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE, CONSENT....................................5
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING..............................5
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS..........................6
2.12 PROXIES..............................................................................6
2.13 INSPECTORS OF ELECTION...............................................................7
ARTICLE III DIRECTORS.............................................................................................7
3.1 POWERS...............................................................................7
3.2 NUMBER AND TERM OF OFFICE............................................................7
3.3 CLASSES OF DIRECTORS.................................................................8
3.4 RESIGNATION AND VACANCIES............................................................8
3.5 REMOVAL..............................................................................9
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE.............................................9
3.7 FIRST MEETINGS......................................................................10
3.8 REGULAR MEETINGS....................................................................10
3.9 SPECIAL MEETINGS; NOTICE............................................................10
3.10 QUORUM..............................................................................10
3.11 WAIVER OF NOTICE....................................................................11
3.12 ADJOURNMENT.........................................................................11
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C> <C>
3.13 NOTICE OF ADJOURNMENT...............................................................11
3.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING...................................11
3.15 FEES AND COMPENSATION OF DIRECTORS..................................................11
3.16 APPROVAL OF LOANS TO OFFICERS.......................................................12
ARTICLE IV COMMITTEES............................................................................................12
4.1 COMMITTEES OF DIRECTORS.............................................................12
4.2 MEETINGS AND ACTION OF COMMITTEES...................................................12
ARTICLE V OFFICERS 13
5.1 OFFICERS............................................................................13
5.2 ELECTION OF OFFICERS................................................................13
5.3 SUBORDINATE OFFICERS................................................................13
5.4 REMOVAL AND RESIGNATION OF OFFICERS.................................................13
5.5 VACANCIES IN OFFICES................................................................14
5.6 CHAIRMAN OF THE BOARD...............................................................14
5.7 CHIEF EXECUTIVE OFFICER.............................................................14
5.8 VICE PRESIDENTS.....................................................................14
5.9 SECRETARY...........................................................................14
5.10 CHIEF FINANCIAL OFFICER.............................................................15
ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS....................................15
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS...........................................15
6.2 INDEMNIFICATION OF OTHERS...........................................................16
6.3 INSURANCE...........................................................................16
ARTICLE VII RECORDS AND REPORTS..................................................................................16
7.1 MAINTENANCE AND INSPECTION OF RECORDS...............................................16
7.2 INSPECTION BY DIRECTORS.............................................................17
7.3 ANNUAL STATEMENT TO STOCKHOLDERS....................................................17
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS......................................17
ARTICLE VIII GENERAL MATTERS.....................................................................................17
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING...............................17
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS...........................................18
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C> <C>
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED...................................18
8.4 STOCK CERTIFICATES; PARTLY PAID SHARES..............................................18
8.5 SPECIAL DESIGNATION ON CERTIFICATES.................................................19
8.6 LOST CERTIFICATES...................................................................19
8.7 CONSTRUCTION; DEFINITIONS...........................................................19
ARTICLE IX AMENDMENTS............................................................................................19
ARTICLE X DISSOLUTION............................................................................................20
ARTICLE XI CUSTODIAN.............................................................................................20
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES.........................................20
11.2 DUTIES OF CUSTODIAN.................................................................21
</TABLE>
iii
<PAGE>
BYLAWS
OF
DSP GROUP, INC.
(A DELAWARE CORPORATION)
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the corporation shall be fixed in the
Certificate of Incorporation of the corporation.
1.2 OTHER OFFICES
The board of directors may at any time establish branch or subordinate
offices at any place or places where the corporation is qualified to do
business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place within or outside
the State of Delaware designated by the board of directors. In the absence of
any such designation, stockholders' meetings shall be held at the registered
office of the corporation.
2.2 ANNUAL MEETING
(a) The annual meeting of stockholders shall be held each year
on a date and at a time designated by the board of directors. In the absence of
such designation, the annual meeting of stockholders shall be held on the third
Tuesday of May in each year at 10:00 a.m. However, if such day falls on a legal
holiday, then the meeting shall be held at the same time and place on the next
succeeding full business day. At the meeting, directors shall be elected, and
any other proper business may be transacted.
(b) At an annual meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting, business must be: (A)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors, (B) otherwise properly brought before
the meeting by or at the direction of the Board of Directors, or (C) otherwise
properly brought before the meeting by a stockholder. For business to be
properly brought before an annual meeting by a stockholder, the stockholder must
have given timely notice thereof in writing to the Secretary of the corporation.
To be timely, a stockholder's notice must be delivered to or mailed and received
at the principal executive offices of the corporation not
1
<PAGE>
less than one hundred twenty (120) calendar days in advance of the date
specified in the corporation's proxy statement released to stockholders in
connection with the previous year's annual meeting of stockholders: provided,
however, that in the event that no annual meeting was held in the previous year
or the date of the annual meeting has been changed by more than thirty (30) days
from the date contemplated at the time of the previous year's proxy statement,
notice by the stockholder to be timely must be so received a reasonable time
before the solicitation is made. A stockholder's notice to the Secretary shall
set forth as to each matter the stockholder proposes to bring before the annual
meeting: (i) a brief description of the business desired to be brought before
the annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and address, as they appear on the corporation's books,
of the stockholder proposing such business, (iii) the class and number of shares
of the corporation which are beneficially owned by the stockholder, (iv) any
material interest of the stockholder in such business and (v) any other
information that is required to be provided by the stockholder pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the "1934
Act"), in his capacity as a proponent to a stockholder proposal. Notwithstanding
the foregoing, in order to include information with respect to a stockholder
proposal in the proxy statement and form of proxy for a stockholder's meeting,
stockholders must provide notice as required by the regulations promulgated
under the 1934 Act. Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted at any annual meeting except in accordance with the
procedures set forth in this paragraph (b). The chairman of the annual meeting
shall, if the facts warrant, determine and declare at the meeting that business
was not properly brought before the meeting and in accordance with the
provisions of this paragraph (b), and, if he should so determine, he shall so
declare at the meeting that any such business not properly brought before the
meeting shall not be transacted.
(c) Only persons who are nominated in accordance with the
procedures set forth in this paragraph (c) shall be eligible for election as
Directors. Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of stockholders by or at the direction of
the Board of Directors or by any stockholder of the corporation entitled to vote
in the election of Directors at the meeting who complies with the notice
procedures set forth in this paragraph (c). Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant to
timely notice in writing to the Secretary of the corporation in accordance with
the provisions of paragraph (b) of this Section 2.2. Such stockholder's notice
shall set forth (i) as to each person, if any, whom the stockholder proposes to
nominate for election or reelection as a Director: (A) the name, age, business
address and residence address of such person, (B) the principal occupation or
employment of such person, (C) the class and number of shares of the corporation
which are beneficially owned by such person, (D) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nominations are to be made by the stockholder, and (E) any other information
relating to such person that is required to be disclosed in solicitations of
proxies for elections of Directors, or is otherwise required, in each case
pursuant to Regulation 14A under the 1934 Act (including without limitation such
person's written consent to being named in the proxy statement, if any, as a
nominee and to serving as a Director if elected); and (ii) as to such
stockholder giving notice, the information required to be provided pursuant to
paragraph (b) of this Section 2.2. At the request of the Board of Directors, any
person nominated by a stockholder for election as a Director shall furnish to
the Secretary of the corporation that
2
<PAGE>
information required to be set forth in the stockholder's notice of nomination
which pertains to the nominee. No person shall be eligible for election as a
Director of the corporation unless nominated in accordance with the procedures
set forth in this paragraph (c). The chairman of the meeting shall, if the facts
warrants, determine and declare at the meeting that a nomination was not made in
accordance with the procedures prescribed by these Bylaws, and if he should so
determine, he shall so declare at the meeting, and the defective nomination
shall be disregarded.
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time by the
board of directors, or by the chairman of the board, or in the absence of the
chairman of the board by the chief executive officer. No other person or persons
are permitted to call a special meeting.
If a special meeting is called by any person or persons other than the
board of directors, the request shall be in writing, specifying the time of such
meeting and the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the chairman of the board, the president, chief
executive officer, or the secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice. The
officer receiving the request shall cause notice to be promptly given to the
stockholders entitled to vote, in accordance with the provisions of Sections 2.4
and 2.5, that a meeting will be held at the time requested by the person or
persons who called the meeting, not less than thirty-five (35) nor more than
sixty (60) days after the receipt of the request. If the notice is not given
within twenty (20) days after the receipt of the request, the person or persons
requesting the meeting may give the notice. Nothing contained in this paragraph
of this Section 2.3 shall be construed as limiting, fixing, or affecting the
time when a meeting of stockholders called by action of the board of directors
may be held.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
Except as set forth in Section 2.3, all notices of meetings of
stockholders shall be sent or otherwise given in accordance with Section 2.5 of
these bylaws not less than ten (10) nor more than sixty (60) days before the
date of the meeting. The notice shall specify the place, date, and hour of the
meeting and (i) in the case of a special meeting, the general nature of the
business to be transacted (no business other than that specified in the notice
may be transacted) or (ii) in the case of the annual meeting, those matters
which the board of directors, at the time of giving the notice, intends to
present for action by the stockholders (but any proper matter may be presented
at the meeting for such action). The notice of any meeting at which directors
are to be elected shall include the name of any nominee or nominees who, at the
time of the notice, the board intends to present for election.
2.5 MANNER OF GIVING NOTICE, AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders shall be given either
personally or by first-class mail or by telegraphic or other written
communication. Notices not personally delivered shall be sent charges prepaid
and shall be addressed to the stockholder at the address of that stockholder
appearing on the books of the corporation or given by the shareholder to the
corporation for the purpose of notice. If no such address appears on the
corporation's books or is
3
<PAGE>
given, notice shall be deemed to have been given if sent to that stockholder by
mail or telegraphic or other written communication to the corporation's
principal executive office, or if published at least once in a newspaper of
general circulation in the county where that office is located. Notice shall be
deemed to have been given at the time when delivered personally or deposited in
the mail or sent by telegram or other means of written communication.
If any notice addressed to a stockholder at the address of that
stockholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the stockholder
at that address, then all future notices or reports shall be deemed to have been
duly given without further mailing if the same shall be available to the
stockholder on written demand of the stockholder at the principal executive
office of the corporation for a period of one (1) year from the date of the
giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
stockholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.6 QUORUM
The presence in person or by proxy of the holders of a majority of the
shares entitled to vote thereat constitutes a quorum for the transaction of
business at all meetings of stockholders. The stockholders present at a duly
called or held meeting at which a quorum is present may continue to do business
until adjournment, notwithstanding the withdrawal of enough stockholders to
leave less than a quorum, if any action taken (other than adjournment) is
approved by at least a majority of the shares required to constitute a quorum.
2.7 ADJOURNED MEETING; NOTICE
Any stockholders' meeting, annual or special, whether or not a quorum
is present, may be adjourned from time to time by the vote of the majority of
the shares represented at that meeting, either in person or by proxy. In the
absence of a quorum, no other business may be transacted at that meeting except
as provided in Section 2.6 of these bylaws.
When any meeting of stockholders, either annual or special, is
adjourned to another time or place, notice need not be given of the adjourned
meeting if the time and place are announced at the meeting at which the
adjournment is taken. However, if a new record date for the adjourned meeting is
fixed or if the adjournment is for more than thirty (30) days from the date set
for the original meeting, then notice of the adjourned meeting shall be given.
Notice of any such adjourned meeting shall be given to each stockholder of
record entitled to vote at the adjourned meeting in accordance with the
provisions of Sections 2.4 and 2.5 of these bylaws. At any adjourned meeting the
corporation may transact any business which might have been transacted at the
original meeting.
2.8 VOTING
The stockholders entitled to vote at any meeting of stockholders shall
be determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of
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Sections 217 and 218 of the General Corporation Law of Delaware (relating to
voting rights of fiduciaries, pledgors and joint owners, and to voting trusts
and other voting agreements).
Except as may be otherwise provided in the Certificate of
Incorporation, each outstanding share, regardless of class, shall be entitled to
one vote on each matter submitted to a vote of the stockholders. Any stockholder
entitled to vote on any matter may vote part of the shares in favor of the
proposal and refrain from voting the remaining shares or, except when the matter
is the election of directors, may vote them against the proposal; but, if the
stockholder fails to specify the number of shares which the stockholder is
voting affirmatively, it will be conclusively presumed that the stockholder's
approving vote is with respect to all shares which the stockholder is entitled
to vote.
If a quorum is present, the affirmative vote of the majority of the
shares represented and voting at a duly held meeting (which shares voting
affirmatively also constitute at least a majority of the required quorum) shall
be the act of the stockholders, unless the vote of a greater number or a vote by
classes is required by law or by the Certificate of Incorporation.
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE, CONSENT
The transactions of any meeting of stockholders, either annual or
special, however called and noticed, and wherever held, shall be as valid as
though they had been taken at a meeting duly held after regular call and notice,
if a quorum be present either in person or by proxy, and if, either before or
after the meeting, each person entitled to vote, who was not present in person
or by proxy, signs a written waiver of notice or a consent to the holding of the
meeting or an approval of the minutes thereof. The waiver of notice or consent
or approval need not specify either the business to be transacted or the purpose
of any annual or special meeting of stockholders. All such waivers, consents,
and approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of and presence at that meeting, except when the person objects at the
beginning of the meeting to the transaction of any business because the meeting
is not lawfully called or convened. Attendance at a meeting is not a waiver of
any right to object to the consideration of matters required by law to be
included in the notice of the meeting but not so included, if that objection is
expressly made at the meeting.
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise provided in the Certificate of Incorporation, any
action which may be taken at any annual or special meeting of stockholders may
be taken without a meeting and without prior notice, if a consent in writing,
setting forth the action so taken, is signed by the holders of outstanding
shares having not less than the minimum number of votes that would be necessary
to authorize or take that action at a meeting at which all shares entitled to
vote on that action were present and voted.
Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in
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writing. If the action which is consented to is such as would have required the
filing of a certificate under any section of the General Corporation Law of
Delaware if such action had been voted on by stockholders at a meeting thereof,
then the certificate filed under such section shall state, in lieu of any
statement required by such section concerning any vote of stockholders, that
written notice and written consent have been given as provided in Section 228 of
the General Corporation Law of Delaware.
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
For purposes of determining the stockholders entitled to notice of any
meeting or to vote thereat or entitled to give consent to corporate action
without a meeting, the board of directors may fix, in advance, a record date,
which shall not be more than sixty (60) days nor less than ten (10) days before
the date of any such meeting nor more than sixty (60) days before any such
action without a meeting, and in such event only stockholders of record on the
date so fixed are entitled to notice and to vote or to give consents, as the
case may be, notwithstanding any transfer of any shares on the books of the
corporation after the record date.
If the board of directors does not so fix a record date:
(a) the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the business day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the business day next
preceding the day on which the meeting is held; and
(b) the record date for determining stockholders entitled to
give consent to corporate action in writing without a meeting, (i) when no prior
action by the board has been taken, shall be the day on which the first written
consent is given, or (ii) when prior action by the board has been taken, shall
be at the close of business on the day on which the board adopts the resolution
relating to that action.
The record date for any other purpose shall be as provided in Article
VIII of these bylaws.
2.12 PROXIES
Every person entitled to vote for directors, or on any other matter,
shall have the right to do so either in person or by one or more agents
authorized by a written proxy signed by the person and filed with the secretary
of the corporation, but no such proxy shall be voted or acted upon after three
(3) years from its date, unless the proxy provides for a longer period. A proxy
shall be deemed signed if the stockholder's name is placed on the proxy (whether
by manual signature, typewriting, telegraphic transmission or otherwise) by the
stockholder or the stockholder's attorney-in-fact. The revocability of a proxy
that states on its face that it is irrevocable shall be governed by the
provisions of Section 212(c) of the General Corporation Law of Delaware.
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2.13 INSPECTORS OF ELECTION
Before any meeting of stockholders, the board of directors may appoint
an inspector or inspectors of election to act at the meeting or its adjournment.
If no inspector of election is so appointed, then the chairman of the meeting
may, and on the request of any stockholder or a stockholder's proxy shall,
appoint an inspector or inspectors of election to act at the meeting. The number
of inspectors shall be either one (1) or three (3). If inspectors are appointed
at a meeting pursuant to the request of one (1) or more stockholders or proxies,
then the holders of a majority of shares or their proxies present at the meeting
shall determine whether one (1) or three (3) inspectors are to be appointed. If
any person appointed as inspector fads to appear or fads or refuses to act, then
the chairman of the meeting may, and upon the request of any stockholder or a
stockholder's proxy shall, appoint a person to fill that vacancy.
Such inspectors shall:
(a) determine the number of shares outstanding and the voting
power of each, the number of shares represented at the meeting, the existence of
a quorum, and the authenticity, validity, and effect of proxies,
(b) receive votes, ballots or consents;
(c) hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine when the polls shall close;
(f) determine the result; and
(g) do any other acts that may be proper to conduct the
election or vote with fairness to all stockholders.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware
and to any limitations in the Certificate of Incorporation or these bylaws
relating to action required to be approved by the stockholders or by the
outstanding shares, the business and affairs of the corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
board of directors.
3.2 NUMBER AND TERM OF OFFICE
The authorized number of directors shall be not less than five (5) nor
more than nine (9). The exact number of directors shall be seven (7) until
changed, within the limits specified above,
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by a bylaw amending this Section 3.2, duly adopted by the board of directors or
by the stockholders. The indefinite number of directors may be changed, or a
definite number may be fixed without provision for an indefinite number, by a
duly adopted amendment to the Certificate of Incorporation or by an amendment to
this bylaw adopted by the vote or written consent of holders of a majority of
the outstanding shares entitled to vote or by resolution of a majority of the
board of directors.
No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office expires.
If for any cause, the directors shall not have been elected at an annual
meeting, they may be elected as soon thereafter as convenient at a special
meeting of the stockholders called for that purpose in the manner provided in
these Bylaws.
3.3 CLASSES OF DIRECTORS
Following the closing of the corporation's initial public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "1933 Act"), covering the offer and sale of Common Stock
of the corporation (the "Initial Public Offering"), the Directors shall be
divided into three classes designated as Class I, Class II and Class III,
respectively. Directors shall be assigned to each class in accordance with a
resolution or resolutions adopted by the Board of Directors. At the first annual
meeting of stockholders following the closing of the Initial Public Offering,
the term of office of the Class I Directors shall expire and Class I Directors
shall be elected for a full term of three years. At the second annual meeting of
stockholders following the closing of the Initial Public Offering, the term of
office of the Class II Directors shall expire and Class II Directors shall be
elected for a full term of three years. At the third annual meeting of
stockholders following the closing of the Initial Public Offering, the term of
office of the Class III Directors shall expire and Class III Directors shall be
elected for a full term of three years. At each succeeding annual meeting of
stockholders, Directors shall be elected for a full term of three years to
succeed the Directors of the class whose terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this Article, each Director
shall serve until his successor is duly elected and qualified or until his
earlier death, resignation or removal. No decrease in the number of Directors
constituting the Board of Directors shall shorten the term of any incumbent
Director.
3.4 RESIGNATION AND VACANCIES
Any director may resign effective on giving written notice to the
chairman of the board, the president, the secretary or the board of directors,
unless the notice specifies a later time for that resignation to become
effective. If the resignation of a director is effective at a future time, the
board of directors may elect a successor to take office when the resignation
becomes effective.
Vacancies in the board of directors may be filled by a majority of the
remaining directors, even if less than a quorum, or by a sole remaining
director; however, a vacancy created by the removal of a director by the vote or
written consent of the stockholders or by court order may be
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filled only by the affirmative vote of a majority of the shares represented and
voting at a duly held meeting at which a quorum is present (which shares voting
affirmatively also constitute a majority of the required quorum), or by the
unanimous written consent of all shares entitled to vote thereon. Each director
so elected shall hold office until the next annual meeting of the stockholders
and until a successor has been elected and qualified.
Unless otherwise provided in the Certificate of Incorporation or these
bylaws:
(i) Vacancies and newly created directorships resulting from
any increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or
series thereof are entitled to elect one or more directors by the provisions of
the certificate of incorporation, vacancies and newly created directorships of
such class or classes or series may be filled by a majority of the directors
elected by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten (10) percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office as aforesaid,
which election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 REMOVAL
Subject to any limitations imposed by law, and unless otherwise
provided in the Certificate of Incorporation, the Board of Directors, or any
individual Director, may be removed from office at any time by the affirmative
vote of the holders of at least a majority of the then outstanding shares of the
capital stock of the corporation entitled to vote at an election of Directors.
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
Regular meetings of the board of directors may be held at any place
within or outside the State of Delaware that has been designated from time to
time by resolution of the board. In the
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absence of such a designation, regular meetings shall be held at the principal
executive office of the corporation. Special meetings of the board may be held
at any place within or outside the State of Delaware that has been designated in
the notice of the meeting or, if not stated in the notice or if there is no
notice, at the principal executive office of the corporation.
Any meeting, regular or special, may be held by conference telephone or
similar communication equipment, so long as all directors participating in the
meeting can hear one another; and all such directors shall be deemed to be
present in person at the meeting.
3.7 FIRST MEETINGS
The first meeting of each newly elected board of directors shall be
held at such time and place as shall be fixed by the vote of the stockholders at
the annual meeting and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting, provided a quorum
shall be present. In the event of the failure of the stockholders to fix the
time or place of such first meeting of the newly elected board of directors, or
in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
board of directors, or as shall be specified in a written waiver signed by all
of the directors.
3.8 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice
if the times of such meetings are fixed by the board of directors.
3.9 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes
may be called at any time by the chairman of the board, or in the absence of the
chairman of the board by the chief executive officer or any three directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least seven (7) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or telegram, it shall be delivered personally or by telephone or to
the telegraph company at least seventy-two (72) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
3.10 QUORUM
A majority of the authorized number of directors shall constitute a
quorum for the transaction of business, except to adjourn as provided in Section
3.10 of these bylaws. Every act
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or decision done or made by a majority of the directors present at a duly held
meeting at which a quorum is present shall be regarded as the act of the board
of directors, subject to the provisions of the Certificate of Incorporation and
applicable law.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
3.11 WAIVER OF NOTICE
Notice of a meeting need not be given to any director (i) who signs a
waiver of notice or a consent to holding the meeting or an approval of the
minutes thereof, whether before or after the meeting, or (ii) who attends the
meeting without protesting, prior thereto or at its commencement, the lack of
notice to such directors. All such waivers, consents, and approvals shall be
filed with the corporate records or made part of the minutes of the meeting. A
waiver of notice need not specify the purpose of any regular or special meeting
of the board of directors.
3.12 ADJOURNMENT
A majority of the directors present, whether or not constituting a
quorum, may adjourn any meeting to another time and place.
3.13 NOTICE OF ADJOURNMENT
Notice of the time and place of holding an adjourned meeting need not
be given unless the meeting is adjourned for more than twenty-four (24) hours.
If the meeting is adjourned for more than twenty-four (24) hours, then notice of
the time and place of the adjourned meeting shall be given before the adjourned
meeting takes place, in the manner specified in Section 3.8 of these bylaws, to
the directors who were not present at the time of the adjournment.
3.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action required or permitted to be taken by the board of directors
may be taken without a meeting, provided that all members of the board
individually or collectively consent in writing to that action. Such action by
written consent shall have the same force and effect as a unanimous vote of the
board of directors. Such written consent and any counterparts thereof shall be
filed with the minutes of the proceedings of the board.
3.15 FEES AND COMPENSATION OF DIRECTORS
Directors and members of committees may receive such compensation, if
any, for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the board of directors. This Section 3.14 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
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3.16 APPROVAL OF LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing contained in this section shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one (1) or more committees, each
consisting of two or more directors, to serve at the pleasure of the board. The
board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent member at any meeting of the committee.
The appointment of members or alternate members of a committee requires the vote
of a majority of the authorized number of directors. Any committee, to the
extent provided in the resolution of the board, shall have all the authority of
the board, but no such committee shall have the power or authority to (i) amend
the Certificate of Incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the board of directors as provided in Section 151(a) of the
General Corporation Law of Delaware, fix any of the preferences or rights of
such shares relating to dividends, redemption, dissolution, any distribution of
assets of the corporation or the conversion into, or the exchange of such shares
for, shares of any other class or classes or any other series of the same or any
other class or classes of stock of the corporation), (ii) adopt an agreement of
merger or consolidation under Sections 251 or 252 of the General Corporation Law
of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, (iv)
recommend to the stockholders a dissolution of the corporation or a revocation
of a dissolution, or (v) amend the bylaws of the corporation; and, unless the
board resolution establishing the committee, the bylaws or the Certificate of
Incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.
4.2 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these bylaws, Section
3.5 (place of meetings), Section 3.7 (regular meetings), Section 3.8 (special
meetings and notice), Section 3.9 (quorum), Section 3.10 (waiver of notice),
Section 3.11 (adjournment), Section 3.12 (notice of adjournment), and Section
3.13 (action without meeting), with such changes in the context of
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those bylaws as are necessary to the committee and its members for the board of
directors and its members; provided, however, that the time of regular meetings
of committees may be determined either by resolution of the board of directors
or by resolution of the committee, that special meetings of committees may also
be called by resolution of the board of directors, and that notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee. The board of directors
may adopt rules for the government of any committee not inconsistent with the
provisions of these bylaws.
ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the corporation shall be a chairman of the board, a
chief executive officer, a secretary and a chief financial officer. The
corporation may also have, at the discretion of the board of directors, a
president, one or more vice presidents, one or more assistant secretaries, one
or more assistant treasurers, and such other officers as may be appointed in
accordance with the provisions of Section 5.3 of these bylaws. Any number of
offices may be held by the same person.
5.2 ELECTION OF OFFICERS
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Section 5.3 or Section 5.5 of
these bylaws, shall be chosen by the board, subject to the rights, if any, of an
officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or may empower the president to
appoint, such other officers as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and perform
such duties as are provided in these bylaws or as the board of directors may
from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by the
board of directors at any regular or special meeting of the board or, except in
case of an officer chosen by the board of directors, by any officer upon whom
such power of removal may be conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
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5.5 VACANCIES IN OFFICES
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these bylaws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall serve
as the corporation's general manager, and shall have general supervision,
direction and control of the corporation's business and its officers, and, if
present, preside at meetings of the stockholders and the board of directors and
exercise and perform such other powers and duties as may from time to time be
assigned to him by the board of directors or as may be prescribed by these
bylaws. If there is no chief executive officer, then the chairman of the board
shall also be the chief executive officer of the corporation and shall have the
powers and duties prescribed in Section 5.7 of these bylaws. The chairman of the
board shall report to the board of directors.
5.7 CHIEF EXECUTIVE OFFICER
Subject to such powers, if any, as may be given by the board of
directors to the chairman of the board, if there be such an officer, the chief
executive officer shall, subject to the control of the chairman of the board, or
the board of directors if there is no chairman of the board, have general
supervision, direction, and control of the business and the officers of the
corporation. He or she shall preside at all meetings of the stockholders and the
board of directors, in the absence or nonexistence of a chairman of the board.
He or she shall have the general powers and duties of management usually vested
in the office of president of a corporation, and shall have such other powers
and duties as may be prescribed by the board of directors or these bylaws.
5.8 VICE PRESIDENTS
In the absence or disability of the president, the vice presidents, if
any, in order of their rank as fixed by the board of directors or, if not
ranked, a vice president designated by the board of directors, shall perform all
the duties of the president and when so acting shall have all the powers of, and
be subject to all the restrictions upon, the president. The vice presidents
shall have such other powers and perform such other duties as from time to time
may be prescribed for them respectively by the board of directors, these bylaws,
the president or the chairman of the board.
5.9 SECRETARY
The secretary shall keep or cause to be kept, at the principal
executive office of the corporation or such other place as the board of
directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors and stockholders. The minutes shall show the
time and place of each meeting, whether regular or special (and, if special, how
authorized and the notice given), the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings, and the proceedings thereof.
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The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the board of
directors, a share register, or a duplicate share register, showing the names of
all stockholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the board of directors required to be given by law or
by these bylaws. He or she shall keep the seal of the corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the board of directors or by these bylaws.
5.10 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be
kept and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings and shares. The books of account shall at all reasonable times
be open to inspection by any director.
The chief financial officer shall deposit all money and other valuables
in the name and to the credit of the corporation with such depositaries as may
be designated by the board of directors. He or she shall disburse the funds of
the corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of all of his or
her transactions as chief financial officer and of the financial condition of
the corporation, and shall have such other powers and perform such other duties
as may be prescribed by the board of directors or these bylaws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER
AGENTS
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent and in the manner
permitted by the General Corporation Law of Delaware, indemnify each of its
directors and officers against expenses (including attorneys' fees), judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with any proceeding, arising by reason of the fact that such person
is or was an agent of the corporation. For purposes of this Section 6.1, a
"director" or "officer" of the corporation includes any person (i) who is or was
a director or officer of the corporation, (ii) who is or was serving at the
request of the corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was a
director or officer of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
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6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the maximum extent and in the
manner permitted by the General Corporation Law of Delaware, to indemnify each
of its employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the corporation (other
than a director or officer) includes any person (i) who is or was an employee or
agent of the corporation, (ii) who is or was serving at the request of the
corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was an employee or agent of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.3 INSURANCE
The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify him or her
against such liability under the provisions of the General Corporation Law of
Delaware.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive office or at
such place or places as designated by the board of directors, keep a record of
its stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these bylaws as amended to date,
accounting books and other records.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each
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stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall he specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders and its other books and records for a purpose
reasonably related to his or her position as a director. The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether a director
is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the president, any vice president, the chief
financial officer, the secretary or assistant secretary of this corporation, or
any other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority herein
granted may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.
ARTICLE VIII
GENERAL MATTERS
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
For purposes of determining the stockholders entitled to receive
payment of any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any other lawful
action (other than action by stockholders by written consent without a meeting),
the board of directors may fix, in advance, a record date, which shall not be
more than sixty (60) days before any such action. In that case, only
stockholders of record at the close of business on the date so fixed are
entitled to receive the dividend, distribution or allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of
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any shares on the books of the corporation after the record date so fixed,
except as otherwise provided by law.
If the board of directors does not so fix a record date, then the
record date for determining stockholders for any such purpose shall be at the
close of business on the day on which the board adopts the applicable resolution
or the sixtieth (60th) day before the date of that action, whichever is later.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
The board of directors, except as otherwise provided in these bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.4 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of a corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply to
shares represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by, the chairman or vice-chairman
of the board of directors, or the president or vice-president, and by the chief
financial officer, the secretary or an assistant secretary of such corporation
representing the number of shares registered in certificate form. Any or all of
the signatures on the certificate may be a facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate has ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the corporation
with the same effect as if he or she were such officer, transfer agent or
registrar at the date of issue.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon
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partly paid shares of the same class, but only upon the basis of the percentage
of the consideration actually paid thereon.
8.5 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.6 LOST CERTIFICATES
Except as provided in this Section 8.6, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and canceled at the same time. The board of
directors may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of replacement
certificates on such terms and conditions as the board may require; the board
may require indemnification of the corporation secured by a bond or other
adequate security sufficient to protect the corporation against any claim that
may be made against it, including any expense or liability, on account of the
alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
8.7 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the General Corporation Law of Delaware shall
govern the construction of these bylaws. Without limiting the generality of this
provision, the singular number includes the plural, the plural number includes
the singular, and the term "person" includes both a corporation and a natural
person.
ARTICLE IX
AMENDMENTS
The original or other bylaws of the corporation may be adopted, amended
or repealed by the stockholders entitled to vote, provided, however, that the
corporation may, in its Certificate of Incorporation, confer the power to adopt,
amend or repeal bylaws upon the directors. The fact that such power has been so
conferred upon the directors shall not divest the stockholders of the power, nor
limit their power to adopt, amend or repeal bylaws.
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ARTICLE X
DISSOLUTION
If it should be deemed advisable in the judgment of the board of
directors of the corporation that the corporation should be dissolved, the
board, after the adoption of a resolution to that effect by a majority of the
whole board at any meeting called for that purpose, shall cause notice to be
mailed to each stockholder entitled to vote thereon of the adoption of the
resolution and of a meeting of stockholders to take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the outstanding stock of the corporation entitled
to vote thereon votes for the proposed dissolution, then a certificate stating
that the dissolution has been authorized in accordance with the provisions of
Section 275 of the General Corporation Law of Delaware and setting forth the
names and residences of the directors and officers shall be executed,
acknowledged, and filed and shall become effective in accordance with Section
103 of the General Corporation Law of Delaware. Upon such certificate's becoming
effective in accordance with Section 103 of the General Corporation Law of
Delaware, the corporation shall be dissolved.
Whenever all the stockholders entitled to vote on a dissolution consent
in writing, either in person or by duly authorized attorney, to a dissolution,
no meeting of directors or stockholders shall be necessary. The consent shall be
filed and shall become effective in accordance with Section 103 of the General
Corporation Law of Delaware. Upon such consent's becoming effective in
accordance with Section 103 of the General Corporation Law of Delaware, the
corporation shall be dissolved. If the consent is signed by an attorney, then
the original power of attorney or a photocopy thereof shall be attached to and
filed with the consent. The consent filed with the Secretary of State shall have
attached to it the affidavit of the secretary or some other officer of the
corporation stating that the consent has been signed by or on behalf of all the
stockholders entitled to vote on a dissolution; in addition, there shall be
attached to the consent a certification by the secretary or some other officer
of the corporation setting forth the names and residences of the directors and
officers of the corporation.
ARTICLE XI
CUSTODIAN
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES
The Court of Chancery, upon application of any stockholder, may appoint
one or more persons to be custodians and, if the corporation is insolvent, to be
receivers, of and for the corporation when:
(i) at any meeting held for the election of directors the
stockholders are so divided that they have failed to elect successors to
directors whose terms have expired or would have expired upon qualification of
their successors; or
(ii) the business of the corporation is suffering or is
threatened with irreparable injury because the directors are so divided
respecting the management of the affairs
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of the corporation that the required vote for action by the board of directors
cannot be obtained and the stockholders are unable to terminate this division,
or
(iii) the corporation has abandoned its business and has
failed within a reasonable time to take steps to dissolve, liquidate or
distribute its assets.
11.2 DUTIES OF CUSTODIAN
The custodian shall have all the powers and title of a receiver
appointed under Section 291 of the General Corporation Law of Delaware, but the
authority of the custodian shall be to continue the business of the corporation
and not to liquidate its affairs and distribute its assets, except when the
Court of Chancery otherwise orders and except in cases arising under Sections
226(a)(3) or 352(a)(2) of the General Corporation Law of Delaware.
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Exhibit 4.1
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and
entered into as of February 2, 1999 by and between DSP GROUP, INC., a Delaware
corporation (the "Company"), and MAGNUM TECHNOLOGY LIMITED, a British Virgin
Islands corporation or any transferee, acquiror or assignee who agrees to become
bound by the provisions of this Agreement in accordance with Section 6 hereof
(the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Purchaser has agreed to purchase 2,300,000 shares of
common stock, $.025 par value, of the Company (the "Common Stock") pursuant to
that certain Stock Purchase Agreement, dated of even date herewith, by and
between the Company and the Purchaser (the "Stock Purchase Agreement"), and as a
condition of entering into the Stock Purchase Agreement has required the Company
to grant to the Purchaser the rights contained herein.
NOW, THEREFORE, in consideration of the foregoing recital and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following capitalized terms shall have
the following respective meanings:
EXCHANGE ACT. The term "Exchange Act" shall mean the United States
Securities Exchange Act of 1934, as amended.
PERSON. The term "Person" shall mean an individual, partnership,
corporation, trust or unincorporated organization, or a government or agency or
political subdivision thereof.
REGISTRABLE SECURITIES. The term "Registrable Securities" shall mean
all the Common Stock purchased by and issued to the Purchaser pursuant to the
Stock Purchase Agreement; EXCLUDING in all cases, however, any of such
securities (i) sold by a Person in a transaction in which rights under this
Agreement are not assigned in accordance with this Agreement, or (ii) (A) sold
in a transaction exempt from the registration and prospectus delivery
requirements of the Securities Act under Section 4(1) thereof so that all
transfer restrictions, and restrictive legends with respect thereto, if any, are
removed upon the consummation of such sale or (B) the registration rights
associated with such securities have been terminated pursuant to Section 5 of
this Agreement.
REGISTRATION. The terms "register," "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act, and the declaration or ordering
of effectiveness of such registration statement.
REGISTRATION STATEMENT. The term "Registration Statement" shall mean a
Registration Statement on Form S-3, or other applicable form, filed by the
Company with the SEC under the Securities Act providing for the offer and sale
of Registrable Securities.
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SEC. The term "SEC" shall mean the United States Securities and
Exchange Commission.
SECURITIES ACT. The term "Securities Act" shall mean the United States
Securities Act of 1933, as amended.
2. REGISTRATION RIGHTS.
2.1. REGISTRATION OF THE REGISTRABLE SECURITIES.
Pursuant to Section 3.3 of the Stock Purchase Agreement, the Company
shall cause to be filed the Registration Statement under the Securities Act to
provide for the resale of the Registrable Securities purchased by and issued to
the Purchaser. The Company shall use its best efforts to cause the Registration
Statement to be declared effective by the SEC prior to six (6) months from the
date hereof. In the event that the Purchaser is not permitted to resell the
Registrable Securities pursuant to the Registration Statement (due to the
Company's non-compliance with its obligations under the Exchange Act or for any
other similar reason), the Company shall use its best efforts to cause a
Registration Statement on such other appropriate form to be effective within
such six (6) month period which will permit the Purchaser to resell the
Registrable Securities pursuant to such Registration Statement.
2.2. UNDERWRITING.
If the Registration Statement is for an underwritten offering for
Common Stock of the Company, the right of the Purchaser to include all or a
portion of the Registrable Securities in a registration pursuant to this Section
2 shall be conditioned upon the Purchaser's participation in such underwriting
and the inclusion of the Registrable Securities in the underwriting to the
extent provided herein. If the Purchaser proposes to distribute the Registrable
Securities through such underwriting, it shall enter into an underwriting
agreement in customary form with the managing underwriter or underwriter(s)
selected for such underwriting. Notwithstanding any other provision of this
Agreement, if the managing underwriter determines in good faith that marketing
factors require a limitation of the number of shares to be underwritten, then
the Company and the Purchaser shall determine the number of shares each Party
shall include in such underwriting. If the Purchaser disapproves of the terms of
any such underwriting, the Purchaser may elect to withdraw therefrom by written
notice to the Company and the underwriter, delivered at least ten (10) business
days prior to the effective date of the Registration Statement. Any Registrable
Securities excluded or withdrawn from such underwriting shall be excluded and
withdrawn from the registration.
2.3. EXPENSES.
All expenses incurred in connection with the registration pursuant to
this Section 2 (excluding underwriters' or brokers' fees, discounts and
commissions), including, without limitation, all federal and blue sky
registration and qualification fees, printers' and accounting fees, fees and
disbursements of counsel for the Company and fees and disbursements of counsel
for the Purchaser shall be borne by the Company.
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3. REGISTRATION PROCEDURES.
3.1. OBLIGATIONS OF THE COMPANY.
In effectuating the registration of the Registrable Securities pursuant
to Section 2 of this Agreement, the Company shall:
(a) Prepare and file with the SEC the Registration Statement, respond
as promptly as possible to any comments received from the SEC, and use its best
efforts to cause the Registration Statement to become effective pursuant to
Section 2 of this Agreement and, upon the request of the Purchaser, keep the
Registration Statement effective for up to two (2) years.
(b) Prepare and file with the SEC such amendments and supplements to
the Registration Statement and the prospectus used in connection with the
Registration Statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by the
Registration Statement.
(c) Furnish to the Purchaser such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of the Registrable Securities owned by them that
are included in such registration.
(d) Use diligent best efforts to register and qualify the securities
covered by the Registration Statement under such other securities or blue sky
laws of such jurisdictions as shall be reasonably requested by the Purchaser,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) At any time when a prospectus relating thereto is required to be
delivered under the Securities Act, notify the Purchaser as promptly as
practicable after becoming aware of the happening of any event as a result of
which the prospectus included in the Registration Statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing.
(f) Provide a transfer agent and registrant for the Registrable
Securities registered pursuant to such Registration Statement not later than the
effective date of such registration.
3.2. OBLIGATIONS OF THE PURCHASER.
(a) FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Section 2 that (i) the
Purchaser, prior to the resale of the Registrable Securities, furnish to the
Company such information regarding itself, the Registrable Securities held by
it, and the intended method of disposition of such securities as shall be
reasonably required to timely effect the registration of their Registrable
Securities and
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(ii) the Purchaser cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of any Registration
Statement hereunder.
(b) DISCONTINUE SALES. If an event requires the filing of a post
effective amendment or supplement to the Registration Statement, the Purchaser
shall promptly discontinue any sales of Registrable Securities upon receipt of
notice of the occurrence of such event. At the end of the period during which
the Company is obligated to keep the Registration Statement current and
effective as described in Section 3.1(a), if the Purchaser is still holding
shares of Registrable Securities included in the registration, the Purchaser
shall discontinue sales of shares pursuant to such Registration Statement upon
receipt of notice from the Company of its intention to remove from registration
the shares of Registrable Securities covered by such Registration Statement that
remain unsold, and the Purchaser shall notify the Company of the number of such
shares registered that remain unsold immediately upon receipt of such notice
from the Company.
(c) OBJECTION. The Company shall not file the Registration Statement or
any amendments or supplements thereto to which the Purchaser shall reasonably
object.
4. INDEMNIFICATION.
In the event any Registrable Securities are included in the
Registration Statement:
4.1. BY THE COMPANY.
To the fullest extent permitted by law, the Company will indemnify and
hold harmless the Purchaser and any underwriter (as defined in the Securities
Act) for the Purchaser and each person, if any, who controls or is deemed to
control the Purchaser or underwriter within the meaning of the Securities Act or
the Exchange Act ("Controlling Person"), against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the
Securities Act, the Exchange Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation"):
(a) any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement, including any preliminary prospectus or
final prospectus contained therein or any amendments or supplements thereto;
(b) the omission or alleged omission to state in the Registration
Statement a material fact required to be stated therein, or necessary to make
the statements therein not misleading; or
(c) any violation or alleged violation by the Company of the Securities
Act, the Exchange Act, any federal or state securities law or any rule or
regulation promulgated under the Securities Act, the Exchange Act or any federal
or state securities law in connection with the offering covered by the
Registration Statement;
and the Company will reimburse the Purchaser, underwriter or Controlling Person
for any legal or other expenses reasonably incurred by them, as incurred, in
connection with investigating or
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defending any such loss, claim, damage, liability or action; PROVIDED, HOWEVER,
that the indemnity agreement contained in this section 4.1 shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in any such
case for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by the Purchaser or partner, officer, director,
underwriter or Controlling Person of the Purchaser.
4.2. BY THE PURCHASER.
To the extent permitted by law, the Purchaser will indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement, each person, if any, who controls or is
deemed to control the Company within the meaning of the Securities Act or the
Exchange Act and the underwriter, against any losses, claims, damages or
liabilities (joint or several) to which the Company or any such director,
officer or controlling person of the Company or the underwriter may become
subject under the Securities Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by the Purchaser expressly
for use in connection with such registration; and the Purchaser will reimburse
any legal or other expenses reasonably incurred by the Company or any such
director, officer or controlling person of the Company or the underwriter, in
connection with investigating or defending any such loss, claim, damage,
liability or action; PROVIDED, HOWEVER, that the indemnity agreement contained
in this section 4.2 shall not apply to amounts paid in settlement of any such
loss, claim, damage liability or action if such settlement is effected without
the consent of the Purchaser, which consent shall not be unreasonably withheld;
and PROVIDED FURTHER that the total amounts payable in indemnity by the
Purchaser under this section 4.2 in respect of any Violation shall not exceed
the net proceeds received by the Purchaser in the registered offering out of
which such Violation arises.
4.3. NOTICE.
Promptly after receipt by an indemnified party under this Section 4 of
notice of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this Section 4, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the parties; PROVIDED,
HOWEVER that an indemnified party shall have the right to retain its own
counsel, with the fees and expenses of one such counsel to be paid by the
indemnifying party, if representation of such indemnified party by the counsel
retained by the indemnifying party would be inappropriate due to actual or
potential conflict of interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to
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defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 4 resulting from the failure of such
notice to have been timely delivered, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 4.
4.4. DEFECT ELIMINATED IN FINAL PROSPECTUS.
The foregoing indemnity agreements of the Company and the Purchaser are
subject to the condition that, insofar as they relate to any Violation made in a
preliminary prospectus but eliminated or remedied in the amended prospectus on
file with the SEC at the time the Registration Statement becomes effective or
the amended prospectus filed with the SEC pursuant to Rule 424(b) under the
Securities Act (the "Final Prospectus"), such indemnity agreement shall not
inure to the benefit of any person if a copy of the Final Prospectus was
furnished to the indemnified party and was not furnished to the person asserting
the loss, liability, claim or damage at or prior to the time such action is
required by the Securities Act.
4.5. CONTRIBUTION.
In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which either (i) the Purchaser
exercising rights under this Agreement, or any controlling person of the
Purchaser, makes a claim for indemnification pursuant to this Section 4 but it
is judicially determined (by the entry of a final judgment or decree by a court
of competent jurisdiction and the expiration of time to appeal or the denial of
the last right of appeal) that such indemnification may not be enforced in such
case notwithstanding the fact that this Section 4 provides for indemnification
in such case, or (ii) contribution under the Securities Act may be required on
the part of the Purchaser or any such controlling person of the Purchaser in
circumstances for which indemnification is provided under this Section 4; then,
and in each such case, the Company and the Purchaser will contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that the Purchaser is
responsible for the portion represented by the percentage that the price of the
Registrable Securities offered by and sold under the Registration Statement
bears to the price of all other securities offered by and sold under the
Registration Statement, if any, and the Company and other sellers, if any, are
responsible for the remaining portion; PROVIDED, HOWEVER that, in any such case,
(A) the Purchaser will not be required to contribute any amount in excess of the
price of the Registrable Securities offered and sold by the Purchaser pursuant
to the Registration Statement; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section II (f) of the Securities Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation.
4.6. SURVIVAL.
The obligations of the Company and the Purchaser under this Section 4
shall survive the completion of any offering of the Registrable Securities in a
registration statement, and otherwise.
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5. TERMINATION OF THE COMPANY'S OBLIGATIONS.
The Company shall have no obligations pursuant to Sections 3 and 4 with
respect to any of the Registrable Securities which the Purchaser decides not to
include in the Registration Statement.
6. ASSIGNMENT AND AMENDMENT.
6.1. ASSIGNMENT.
Notwithstanding anything herein to the contrary:
(a) REGISTRATION RIGHTS. The registration rights of the Purchaser under
Section 2 hereof may be assigned to a party who acquires Registrable Securities
from the Purchaser (or a Purchaser's permitted assigns) (an "Acquiror/Assignee")
only if (i) the Purchaser agrees in writing with the Acquiror/Assignee to assign
such rights, and the Company consents to such assignment and is given written
notice by the assigning party at the time of such assignment stating the name
and address of the Acquiror/Assignee and identifying the securities of the
Company as to which the rights in question are being assigned; and (ii) the
Acquiror/Assignee agrees in writing with the Company to be bound by all of the
terms and conditions of this Agreement, including, without limitation, the
provisions of this Section 6.
6.2. AMENDMENT OF RIGHTS.
Any provision of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and the Purchaser (and/or any of their permitted successors or assigns) holding
shares representing a majority of all the Registrable Securities. Any amendment
or waiver effected in accordance with this section 6.2 shall be binding upon the
Purchaser, a permitted successor of the Purchaser, an Acquiror/Assignee or the
Company.
7. GENERAL PROVISIONS.
7.1. NOTICES.
Any notice, request or other communication required or permitted
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered, if sent by facsimile transmission or if deposited in the
U.S. mail by registered or certified mail, return receipt requested, postage
prepaid, as follows:
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(a) if to the Purchaser:
Magnum Technology Limited
c/o Rothschild Corporate Fiduciary Services Ltd. (Guernsey)
P.O. Box 472
St. Peter's House
Le Bordage
St. Peter Port, Guernsey
Channel Islands GY1 6AX
Attention: Mr. Nicholas Moss
(b) if to the Company:
DSP Group, Inc.
3120 Scott Boulevard
Santa Clara, CA 95054
Fax: 408-__________
Any party hereto (and such party's permitted assigns) may by notice so given
change its address for future notices hereunder. Notice shall conclusively be
deemed to have been given when personally delivered, if sent by facsimile
transmission, upon confirmation of error-free receipt, or when deposited in the
mail in the manner set forth above.
7.2. ENTIRE AGREEMENT.
This Agreement constitutes and contains the entire agreement and
understanding of the parties with respect to the subject matter hereof and
supersedes any and all prior negotiations, correspondence, agreements,
understandings, duties or obligations between the parties respecting the subject
matter hereof.
7.3. GOVERNING LAW.
This Agreement shall be governed by and construed exclusively in
accordance with the internal laws of the State of New York without regard to
conflict of laws and choice of law provisions.
7.4. SEVERABILITY.
If one or more provisions of this Agreement are held to be
unenforceable under applicable law, then such provision(s) shall be excluded
from this Agreement and the balance of this Agreement shall be interpreted as if
such provision(s) were so excluded and shall be enforceable in accordance with
its terms.
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7.5. THIRD PARTIES.
Nothing in this Agreement, express or implied, is intended to confer
upon any person, other than the parties hereto and their successors and assigns,
any rights or remedies under or by reason of this Agreement.
7.6. CAPTIONS.
The captions to sections of this Agreement have been inserted for
identification and reference purposes only and shall not be used to construe or
interpret this Agreement.
7.7. COUNTERPARTS.
This Agreement may be executed in multiple counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
7.8. COSTS AND ATTORNEYS' FEES.
In the event that any action, suit or other proceeding is instituted
concerning or arising out of this Agreement or any transaction contemplated
hereunder, the prevailing party shall recover all of such party's costs and
attorneys' fees incurred in each such action, suit or other proceeding,
including any and all appeals or petitions therefrom.
7.9. BLACKOUT PERIODS.
The Purchaser agrees that it will not dispose of any Registrable
Securities during any period in which directors of the Company are subject to a
"blackout period" or other prohibitions against the sale or disposition of
Common Stock.
7.10. ADJUSTMENTS FOR STOCK SPLITS, ETC.
Wherever in this Agreement there is a reference to a specific number of
shares of Common Stock of the Company of any class or series, then, upon the
occurrence of any subdivision, combination or stock dividend of such class or
series of stock, the specific number of shares so referenced in this Agreement
shall automatically be proportionally adjusted to reflect the effect on the
outstanding shares of such class or series of stock by such subdivision,
combination or stock dividend.
7.11. EXECUTION.
This Agreement may be executed by facsimile transmission each of which
will be deemed an original.
7.12. REMEDIES.
In the event of a breach by the Company or by Purchaser, of any of
their obligations under this Agreement, the Purchaser or the Company, as the
case may be, in addition to being entitled to exercise all rights granted by law
and under this Agreement, including recovery of
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damages, will be entitled to specific performance of its rights under this
Agreement. The Company and the Purchaser agree that monetary damages would not
provide adequate compensation for any losses incurred by reason of a breach by
it of any of the provisions of this Agreement and hereby further agrees that, in
the event of any action for specific performance in respect of such breach, it
shall waive the defense that a remedy at law would be adequate.
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of the date first written above.
DSP GROUP, INC.
By: /s/ IGAL KOHAVI
---------------------------
Name: Igal Kohavi
Title: Chairman of the Board
MAGNUM TECHNOLOGY LIMITED
By: /s/ ZVI LIMON
---------------------------
Name: Zvi Limon
Title:
10
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Exhibit 10.1
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
DATED AS OF FEBRUARY 2, 1999
BY AND BETWEEN
MAGNUM TECHNOLOGY LIMITED
(THE "PURCHASER")
AND
DSP GROUP, INC.
(THE "COMPANY")
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C> <C>
ARTICLE I Purchase and Sale of Common Stock.......................................................................1
Section 1.1 Sale and Purchase......................................................................1
Section 1.2 Purchase Price.........................................................................1
Section 1.3 The Closing............................................................................1
Section 1.3.1 Time and Place.........................................................................1
Section 1.3.2 Actions to be taken by the Company.....................................................1
Section 1.3.3 Actions to be taken by the Purchaser...................................................2
ARTICLE II Representations and Warranties.........................................................................2
Section 2.1 Representation and Warranties of the Company...........................................2
(a) Organization, Good Standing and Power.........................................2
(b) Authorization; Enforcement....................................................2
(c) Capitalization................................................................3
(d) Issuance of Shares............................................................3
(e) No Conflicts..................................................................4
(f) Commission Documents, Financial Statements....................................4
(g) Subsidiaries..................................................................5
(h) [Omitted].....................................................................5
(i) No Undisclosed Liabilities....................................................5
(j) No Undisclosed Events or Circumstances........................................5
(k) Indebtedness..................................................................6
(l) Title to Assets...............................................................6
(m) Actions Pending...............................................................6
(n) Compliance with Law...........................................................6
(o) Taxes.........................................................................7
(p) Certain Fees..................................................................7
(q) Disclosure....................................................................7
(r) Intellectual Property; Operation of Business..................................7
(s) Books and Records.............................................................8
(t) Material Agreements...........................................................8
(u) Transactions with Affiliates..................................................8
(v) Securities Act of 1933........................................................8
(w) Governmental Approvals........................................................8
(x) Employees.....................................................................9
(y) Absence of Certain Developments...............................................9
(z) Use of Proceeds...............................................................9
(aa) Public Utility Holding Company Act and Investment
Company Act Status............................................................9
(bb) Israeli Employment Benefits...................................................9
(cc) Acknowledgment Regarding Purchaser's Purchase of Shares......................10
</TABLE>
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<TABLE>
<S> <C> <C> <C>
(dd) Commitments..................................................................10
(ee) "Material Adverse Effect"....................................................10
Section 2.2 Representations and Warranties of the Purchaser.......................................10
(a) Organization and Standing of the Purchaser...................................10
(b) Authorization and Power......................................................10
(c) No Conflicts.................................................................11
(d) Acquisition for Investment...................................................11
(e) Accredited Purchaser.........................................................12
ARTICLE III Covenants............................................................................................12
Section 3.1 Securities Compliance.................................................................12
Section 3.2 Registration and Listing..............................................................12
Section 3.3 Registration Statement................................................................12
Section 3.4 Compliance with Laws..................................................................13
Section 3.5 Keeping of Records and Books of Account...............................................13
Section 3.6 Reporting Requirements................................................................13
Section 3.7 Covenants Regarding Board Representation..............................................13
Section 3.8 Lockup Agreement......................................................................15
Section 3.9 Amendments............................................................................15
Section 3.10 Other Agreements......................................................................15
Section 3.11 Purchaser's Filing of Schedule 13D....................................................15
Section 3.12 Additional Purchases..................................................................15
ARTICLE IV Indemnification.......................................................................................16
Section 4.1 General Indemnity.....................................................................16
Section 4.2 Indemnification Procedure.............................................................16
ARTICLE V Miscellaneous..........................................................................................17
Section 5.1 Fees and Expenses.....................................................................17
Section 5.2 Specific Enforcement, Consent to Jurisdiction.........................................17
Section 5.3 Entire Agreement; Amendment...........................................................18
Section 5.4 Notices...............................................................................18
Section 5.5 Waivers...............................................................................19
Section 5.6 Headings..............................................................................19
Section 5.7 Successors and Assigns................................................................19
Section 5.8 No Third Party Beneficiaries..........................................................20
Section 5.9 Governing Law.........................................................................20
Section 5.10 Survival..............................................................................20
Section 5.11 Counterparts..........................................................................20
Section 5.12 Publicity.............................................................................20
Section 5.13 Severability..........................................................................20
Section 5.14 Further Assurances....................................................................21
</TABLE>
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STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") is dated as of
February 2, 1998 by and between DSP GROUP, INC., a Delaware corporation (the
"Company"), and MAGNUM TECHNOLOGY LIMITED, a British Virgin Islands corporation
(the "Purchaser").
For good and valid consideration, the sufficiency of which is
acknowledged by the parties, the parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF COMMON STOCK
SECTION 1.1 SALE AND PURCHASE.
Subject to the terms and conditions of this Agreement, the Company, on
the Closing Date (as defined herein), is selling and issuing to the Purchaser
and the Purchaser is purchasing from the Company, in reliance upon the
representations, warranties and other terms and conditions of this Agreement,
2,300,000 shares of Common Stock of the Company (the "Shares").
SECTION 1.2 PURCHASE PRICE.
The purchase price for the Shares is thirty-four million five hundred
thousand ($34,500,000) Dollars (the "Purchase Price"), and shall be paid by wire
transfer to an account designated by the Company in writing.
SECTION 1.3 THE CLOSING.
SECTION 1.3.1 TIME AND PLACE.
The closing of the transactions contemplated hereby (the
"Closing") shall take place at the offices of Parker Chapin Flattau & Klimpl LLP
at 10: 00 a.m. New York City time on February 5, 1999 (the "Closing Date").
SECTION 1.3.2 ACTIONS TO BE TAKEN BY THE COMPANY.
Subject to the representations and warranties of the Purchaser being
true and correct in all material respects and the satisfaction of all actions
taken by the Purchaser, on or before the Closing Date, the Company shall deliver
to the Purchaser the following:
(a) stock certificates representing the Shares;
(b) a duly executed registration rights agreement in
the form annexed hereto as Exhibit A (the "Registration Rights Agreement");
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(c) the opinion of Morrison & Foerster LLP, attorneys
for the Company, dated as of the date hereof substantially in the form of
Exhibit B attached hereto; and
(d) the Certificate of Incorporation of the Company
(the "Certificate") and Bylaws of the Company (the "By-laws") as in effect on
the date hereof and the resolutions of the Board of Directors of the Company,
certified by the Secretary of the Company, authorizing the execution, delivery
and performance of this Agreement and each of the other documents and
instruments being executed and delivered by the Company herewith. Such
resolutions of the Board of Directors of the Company shall include the election
of two of the directors named in Section 3.7(a) herein.
(e) a certificate duly executed by an executive
officer of the Company certifying that the representations and warranties made
as of the date hereof are true and correct in all material respects as of the
Closing Date.
SECTION 1.3.3 ACTIONS TO BE TAKEN BY THE PURCHASER.
Subject to the representations and warranties of the Company being true
and correct in all material respects and the satisfaction of all actions to be
taken by the Company under Section 1.3.2, on the Closing Date, the Purchaser
shall pay to the Company the Purchase Price.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
SECTION 2.1 REPRESENTATION AND WARRANTIES OF THE COMPANY.
The Company hereby makes the following representations and warranties
to the Purchaser:
(a) ORGANIZATION, GOOD STANDING AND POWER.
The Company is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware and has the requisite
corporate power to own, lease and operate its properties and assets and to
conduct its business as it is now being conducted. The Company and each such
subsidiary is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary except for
any jurisdiction in which the failure to be so qualified will not have a
material adverse effect on the Company's financial condition.
(b) AUTHORIZATION; ENFORCEMENT.
The Company has the requisite corporate power and authority to enter
into and perform this Agreement and to issue and sell the Shares in accordance
with the terms hereof. The execution, delivery and performance of this Agreement
by the Company and the consummation by it of the transactions contemplated
hereby and thereby have been
2
<PAGE>
duly and validly authorized by all necessary corporate action, and no further
consent or authorization of the Company or its Board of Directors or
stockholders is required. This Agreement has been duly executed and delivered by
the Company. This Agreement constitutes, or shall constitute when executed and
delivered, a valid and binding obligation of the Company enforceable against the
Company in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation, conservatorship, receivership or similar laws relating to, or
affecting generally the enforcement of, creditor's rights and remedies or by
other equitable principles of general application.
(c) CAPITALIZATION.
The authorized capital stock of the Company is 20,000,000 shares of
Common Stock and there are 9,432,520 shares thereof currently issued and
outstanding. All of the outstanding shares of the Company's Common Stock have
been duly and validly authorized. No shares of Common Stock are entitled to
preemptive rights or registration rights and except as set forth on SCHEDULE
2.1(C) there are no outstanding options, warrants, scrip, rights to subscribe
to, call or commitments of any character whatsoever relating to, or securities
or rights convertible into, any shares of capital stock of the Company.
Furthermore, except as set forth in this Agreement and as set forth on SCHEDULE
2.1(C), there are no contracts, commitments, understandings, or arrangements by
which the Company is bound to issue additional shares of the capital stock of
the Company or options, securities or rights convertible into shares of capital
stock of the Company (such SCHEDULE 2.1 shall provide the exercise term,
exercise price, vesting period, holders of such options and number of options
granted to each holder). Except for customary transfer restrictions contained in
agreements entered into by the Company in order to sell restricted securities or
SCHEDULE 2.1(C) hereto, the Company is not a party to any agreement granting
registration rights to any person with respect to any of its equity or debt
securities. The Company is not a party to, and it has no knowledge of, any
agreement restricting the voting or transfer of any shares of the capital stock
of the Company. The offer and sale of all capital stock, convertible securities,
rights, warrants, or options of the Company issued prior to the Closing complied
with all applicable Federal and, to the best of the Company's knowledge, all
applicable state securities laws, and no stockholder has a right of rescission
or damages against the Company with respect thereto. The Company has furnished
or made available to the Purchaser true and correct copies of the Certificate as
in effect on the date hereof, and the Bylaws as in effect on the date hereof.
(d) ISSUANCE OF SHARES.
The Shares to be issued under this Agreement have been duly authorized
by all necessary corporate action and, when paid for or issued in accordance
with the terms hereof, the Shares shall be validly issued and outstanding, fully
paid and nonassessable, and the Purchaser shall be entitled to all rights
accorded to a holder of Common Stock subject to the restrictions contained
herein.
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(e) NO CONFLICTS.
The execution, delivery and performance of this Agreement by the
Company and the consummation by the Company of the transactions contemplated
therein do not (i) violate any provision of the Company's Certificate or Bylaws,
(ii) conflict with, or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any material
agreement, mortgage, deed of trust, indenture, note, bond, license, lease
agreement, instrument or obligation to which the Company is a party, (iii)
create or impose a lien, charge or encumbrance on any material property of the
Company under any agreement or any commitment to which the Company is a party or
by which the Company is bound or by which any of its respective material
properties or assets are bound, or (iv) result in a violation of any federal,
state, local or foreign statute, rule, regulation, order, judgment or decree
(including Federal and state securities laws and regulations) applicable to the
Company or any of its subsidiaries or by which any property or asset of the
Company or any of its subsidiaries are bound or affected, the violation of which
would have a Material Adverse Effect (as defined below). The Company is not
required under Federal, state or local law, rule or regulation to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or perform any
of its obligations under this Agreement, or issue and sell the Shares in
accordance with the terms hereof.
(f) COMMISSION DOCUMENTS, FINANCIAL STATEMENTS.
The Common Stock of the Company is registered pursuant to Section 12(b)
or 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, the Company has timely filed all reports, schedules, forms,
statements and other documents required to be filed by it with the Securities
and Exchange Commission (the "Commission") pursuant to the reporting
requirements of the Exchange Act, including material filed pursuant to Section
13(a) or 15(d) of the Exchange Act (all of the foregoing including filings
incorporated by reference therein being referred to herein as the "Commission
Documents"). As a result the Company is eligible to file a registration
statement on Form S-3 with the Commission. The Company has delivered or made
available to the Purchaser true and complete copies of the Commission Documents
filed with the Commission since December 31, 1997. As of their respective dates,
the Form 10-K for the year ended December 31, 1997 and the Forms 10-Q for the
fiscal quarters ended March 31, 1998, June 30, 1998 and September 30, 1998
complied in all material respects with the requirements of the Exchange Act and
the rules and regulations of the Commission promulgated thereunder and other
Federal, state and local laws, rules and regulations applicable to such
documents, and, as of their respective dates, none of the Form 10-K and the
Forms 10-Q referred to above contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. The financial statements of the Company
included in the Commission Documents comply as to form in all material respects
with applicable accounting requirements and the published rules and regulations
of the Commission or other applicable rules and regulations with respect
thereto. Such financial statements
4
<PAGE>
have been prepared in accordance with generally accepted accounting principles
("GAAP") applied on a consistent basis during the periods involved (except (i)
as may be otherwise indicated in such financial statements or the notes thereto
or (ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed) and fairly present in all material
respects the financial position of the Company and its subsidiaries as of the
dates thereof and the results of operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments).
(g) SUBSIDIARIES.
SCHEDULE 2.1(G) hereto sets forth each subsidiary of the Company,
showing the jurisdiction of its incorporation or organization and showing the
percentage of each person's ownership of the outstanding stock or other
interests of such subsidiary. For the purposes of this Agreement, "subsidiary"
shall mean any corporation or other entity of which at least a majority of the
securities or other ownership interest having ordinary voting power (absolutely
or contingently) for the election of directors or other persons performing
similar functions are at the time owned directly or indirectly by the Company
and/or any of its other subsidiaries. All of the outstanding shares of capital
stock of each subsidiary have been duly authorized and validly issued, and are
fully paid and nonassessable. There are no outstanding preemptive, conversion or
other rights, options, warrants or agreements granted or issued by or binding
upon any subsidiary for the purchase or acquisition of any shares of capital
stock of any subsidiary or any other securities convertible into, exchangeable
for or evidencing the rights to subscribe for any shares of such capital stock.
Neither the Company nor any subsidiary is subject to any obligation (contingent
or otherwise) to repurchase or otherwise acquire or retire any shares of the
capital stock of any subsidiary or any convertible securities, rights, warrants
or options of the type described in the preceding sentence. Neither the Company
nor any subsidiary is party to, nor has any knowledge of, any agreement
restricting the voting or transfer of any shares of the capital stock of any
subsidiary.
(h) [OMITTED]
(i) NO UNDISCLOSED LIABILITIES.
Except as disclosed in the Commission Documents or on SCHEDULE 2.1(I)
hereto, to the knowledge of the Company neither the Company nor any of its
subsidiaries has incurred since December 31, 1997 any liabilities, obligations,
claims or losses (whether liquidated or unliquidated, secured or unsecured,
absolute, accrued, contingent or otherwise) that would have a Material Adverse
Effect.
(j) NO UNDISCLOSED EVENTS OR CIRCUMSTANCES.
Except as disclosed in the Commission Documents or on Schedule 2.1(j)
hereto, to the knowledge of the Company since December 31, 1997, no event or
circumstance has occurred or exists with respect to the Company or its
subsidiaries or their respective
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businesses, properties, prospects, operations or financial condition, which, is
reasonably likely to have a Material Adverse Effect,
(k) INDEBTEDNESS.
SCHEDULE 2.2.1(K) hereto sets forth as of the date hereof all
outstanding secured and unsecured Indebtedness of the Company or any subsidiary,
or for which the Company or any subsidiary has commitments. For the purposes of
this Agreement, "Indebtedness" shall mean (a) any liabilities for borrowed money
or amounts owed in excess of $100,000 (other than trade accounts payable
incurred in the ordinary course of business), (b) all guaranties, endorsements
and other contingent obligations in respect of Indebtedness of others, whether
or not the same are or should be reflected in the Company's balance sheet (or
the notes thereto), except guaranties by endorsement of negotiable instruments
for deposit or collection or similar transactions in the ordinary course of
business; and (c) the present value of any lease payments in excess of $100,000
due under leases required to be capitalized in accordance with GAAP. Neither the
Company nor any subsidiary is in default with respect to any Indebtedness.
(l) TITLE TO ASSETS.
Each of the Company and the subsidiaries has good and marketable title
to all of its real and personal property having a value in excess of $100,000
and reflected in the Commission Documents free of any mortgages, pledges,
charges, liens, security interests or other encumbrances, except for those
indicated on SCHEDULE 2.1(1) hereto or such that do not result in a Material
Adverse Effect. All leases which require payments of at least $100,000 per year
of the Company and each of its subsidiaries are valid and subsisting and in full
force and effect.
(m) ACTIONS PENDING.
There is no action, suit, claim, investigation or proceeding pending
or, to the knowledge of the Company, threatened against the Company or any
subsidiary which questions the validity of this Agreement or the transactions
contemplated hereby or any action taken or to be taken pursuant hereto or
thereto. Except as set forth on SCHEDULE 2.2.1(M) hereto, there is no action,
suit, claim, investigation or proceeding pending or, to the knowledge of the
Company, threatened, against or involving the Company, any subsidiary of the
Company or any of their respective properties or assets. There are no
outstanding orders, judgments, injunctions, awards or decrees of any court,
arbitrator or governmental or regulatory body against the Company or any
subsidiary.
(n) COMPLIANCE WITH LAW.
The business of the Company and the subsidiaries has been and is
presently being conducted in accordance with all applicable Federal, state and
local governmental laws, rules, regulations and ordinances, domestic and
foreign, except where the conduct of the business of the Company in violation of
any of such laws, rules, regulations and ordinances could not reasonably result
in a Material Adverse Effect. The Company and each of its subsidiaries have all
franchises, permits, licenses, consents and other
6
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governmental or regulatory authorizations and approvals necessary for the
conduct of its business as now being conducted by it unless the failure to
possess such franchises, permits, licenses, consents and other governmental or
regulatory authorizations and approvals, individually or in the aggregate, could
not reasonably be expected to have a Material Adverse Effect.
(o) TAXES.
The Company and each of the subsidiaries has accurately prepared and
filed all Federal, state and other tax returns required by law, domestic and
foreign, to be filed by it, has paid or made provisions for the payment of all
taxes shown to be due and all additional assessments, and adequate provisions
have been and are reflected in the financial statements of the Company and the
subsidiaries of the Company for all current taxes and other charges to which the
Company or any subsidiary of the Company is subject and which are not currently
due and payable except where the failure to prepare and file such tax returns or
the failure to pay or make provision for the payment of all such taxes could not
reasonably result in a Material Adverse Effect. Except as disclosed on SCHEDULE
2.2.1(O) hereto, none of the Federal income tax returns of the Company or any
subsidiary of the Company for the years subsequent to December 31, 1994 have
been audited by the Internal Revenue Service or other foreign governmental tax
agency. The Company has no knowledge of any additional assessments, adjustments
or contingent tax liability (whether federal or state) pending or threatened
against the Company or any subsidiary of the Company for any period that would
have a Material Adverse Effect, nor of any basis for any such assessment,
adjustment or contingency.
(p) CERTAIN FEES.
No brokers, finders or financial advisory fees or commissions will be
payable by the Company or any subsidiary of the Company with respect to the
transactions contemplated by this Agreement.
(q) DISCLOSURE.
To the best of the Company's knowledge, neither this Agreement nor the
Schedules hereto nor any of the Commission Documents furnished to the Purchaser
by or on behalf of the Company or any subsidiary of the Company in connection
with the transactions contemplated by this Agreement contain any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements made herein or therein, in the light of the
circumstances under and at the time at which they were made herein or therein,
not misleading.
(r) INTELLECTUAL PROPERTY; OPERATION OF BUSINESS.
In the conduct of its business as now conducted, the Company or a
subsidiary of the Company owns or possesses all patents, know how, licenses and
authorizations from third parties, ("Intellectual Property") free and clear of
all liens, charges or encumbrances that are necessary. Neither the Company, nor
its subsidiaries has received a notice of a claim of infringement relating to
the Intellectual Property, except as set forth on Schedule
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2.1(r) or knows of any reasonable basis for a claim that such an infringement or
violation exists.
(s) BOOKS AND RECORDS.
The records and documents of the Company and its subsidiaries
accurately reflect in all material respects the information relating to the
business of the Company and its subsidiaries, the location of their assets, and
the nature of all transactions giving rise to the obligations or accounts
receivable of the Company or any subsidiary of the Company.
(t) MATERIAL AGREEMENTS.
There is no agreement that has not been filed with the Commission as an
exhibit to a registration statement or other applicable form the breach of which
could cause a Material Adverse Effect.
(u) TRANSACTIONS WITH AFFILIATES.
Except for employment agreements and consulting agreements, there are
no loans, leases, agreements, contracts, royalty agreements, management
contracts or arrangements or other continuing transactions exceeding $60,000
between (a) the Company, any subsidiary of the Company or any of their
respective customers or suppliers on the one hand, and (b) on the other hand,
any officer or director of the Company, or any of its subsidiaries, or any
person owning any capital stock of the Company or any subsidiary of the Company
or any member of the immediate family of such officer, director or stockholder
or any corporation or other entity controlled by such officer, director or
stockholder, or a member of the immediate family of such officer, director or
stockholder.
(v) SECURITIES ACT OF 1933.
The Company has complied and will comply with all applicable Federal
and state securities laws in connection with the offer, issuance and sale of the
Shares hereunder in order that the issuance and sale of the Shares will not be
subject to the registration provisions of the Securities Act of 1933, as amended
(the "Securities Act"), and applicable state securities laws. Neither the
Company nor any of its affiliates, nor any person acting on its or their behalf,
has engaged in any form of general solicitation or general advertising (within
the meaning of Regulation D under the Securities Act) in connection with the
offer or sale of the Shares.
(w) GOVERNMENTAL APPROVALS.
Except for the filing of any notice prior or subsequent to the Closing
that may be required under applicable state and/or Federal securities laws
and/or other applicable laws of territories in which the Company conducts
business (which if required, shall be filed on a timely basis), including the
filing of a registration statement or statements pursuant to this Agreement, no
authorization, consent, approval, license, exemption of, filing or registration
with any court or governmental department, commission, board,
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bureau, agency or instrumentality, domestic or foreign, is or will be necessary
for, or in connection with, the delivery of the Shares, or for the performance
by the Company of its obligations under this Agreement.
(x) EMPLOYEES.
Neither the Company nor any subsidiary of the Company has any
collective bargaining arrangements or agreements covering any of its employees,
except as set forth on SCHEDULE 2.1(X) hereto. Since December 31, 1997, no
officer, consultant or key employee of the Company or any subsidiary of the
Company whose termination, either individually or in the aggregate, could have a
Material Adverse Effect, has terminated or, to the knowledge of the Company, has
any present intention of terminating his or her employment or engagement with
the Company or any subsidiary of the Company.
(y) ABSENCE OF CERTAIN DEVELOPMENTS.
Except as set forth in the Commission Documents or on SCHEDULE 2.2.1(Y)
hereto, since December 31, 1997, neither the Company nor any subsidiary has:
(i) sold, assigned or transferred any tangible
assets, or canceled any debts or claims, except in the ordinary course of
business;
(ii) suffered any substantial losses or waived any
rights of material value, whether or not in the ordinary course of business; or
(iii) experienced any material problems with labor or
management in connection with the terms and conditions of their employment.
(z) USE OF PROCEEDS.
The proceeds from the sale of the Shares will be used by the Company
and its subsidiaries for acquisitions and general corporate purposes.
(aa) PUBLIC UTILITY HOLDING COMPANY ACT AND INVESTMENT COMPANY
ACT STATUS.
The Company is not a "holding company" or a "public utility company" as
such terms are defined in the Public Utility Holding Company Act of 1935, as
amended. The Company is not, and as a result of and immediately upon Closing
will not be, an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.
(bb) ISRAELI EMPLOYMENT BENEFITS.
The Company has accrued on its financial statements or paid on behalf
of every Israeli employee all necessary monies in excess of $100,000 required
under applicable Israeli law.
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(cc) ACKNOWLEDGMENT REGARDING PURCHASER'S PURCHASE OF SHARES.
The Company acknowledges and agrees that the Purchaser is acting solely
in the capacity of arm's length purchaser with respect to this Agreement and the
transactions contemplated hereunder. The Company further acknowledges that the
Purchaser is not acting as a financial advisor or fiduciary of the Company (or
in any similar capacity) with respect to this Agreement and the transactions
contemplated hereunder and any advice given by the Purchaser or any of its
representatives or agents in connection with this Agreement and the transactions
contemplated hereunder is merely incidental to the Purchaser's purchase of the
Shares. The Company further represents to the Purchaser that the Company's
decision to enter into this Agreement has been based solely on the independent
evaluation by the Company and its representatives.
(dd) COMMITMENTS.
The Company does not have any existing commitments for future capital
expenditures in excess of $1,000,000.
(ee) "MATERIAL ADVERSE EFFECT" shall mean any effect on the
business, operations, properties or financial condition of the Company that is
material and adverse to the Company and its subsidiaries and affiliates, taken
as a whole and/or any condition, circumstance, or situation that would prohibit
or otherwise interfere with the ability of the Company to enter into and perform
any of its obligations under this Agreement or the Registration Rights Agreement
in any material respect.
SECTION 2.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
The Purchaser hereby makes the following representations and warranties
to the Company:
(a) ORGANIZATION AND STANDING OF THE PURCHASER.
The Purchaser is a corporation duly incorporated, validly existing and
in good standing under the laws of the jurisdiction of its incorporation. The
Purchaser, formerly known as Magnum Technology Fund, has multiple investments.
(b) AUTHORIZATION AND POWER.
The Purchaser has the requisite power and authority to enter into and
perform this Agreement and to purchase the Shares being sold to it hereunder.
The execution, delivery and performance of this Agreement by the Purchaser and
the consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary corporate action.
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(c) NO CONFLICTS.
The execution, delivery and performance of this Agreement and the
consummation by the Purchaser of the transactions contemplated hereby or
relating hereto do not and will not (i) result in a violation of the Purchaser's
charter documents or bylaws or (ii) conflict with, or constitute a default (or
an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of any agreement, indenture or instrument to which the Purchaser is
a party, or result in a violation of any law, rule, or regulation, or any order,
judgment or decree of any court or governmental agency applicable to the
Purchaser or its properties (except for such conflicts, defaults and violations
as would not, individually or in the aggregate, have a Material Adverse Effect.
The Purchaser is not required to obtain any consent, authorization or order of,
or make any filing or registration with, any court or governmental agency in
order for it to execute, deliver or perform any of its obligations under this
Agreement or to purchase the Shares in accordance with the terms hereof,
provided that for purposes of the representation made in this sentence, the
Purchaser is assuming and relying upon the accuracy of the relevant
representations and agreements of the Company herein.
(d) ACQUISITION FOR INVESTMENT.
Such Purchaser is purchasing the Shares solely for its own account for
the purpose of investment and not with a view to or for sale in connection with
distribution. The Purchaser does not have a present intention to sell the
Shares, nor a present arrangement (whether or not legally binding) or intention
to effect any distribution of the Shares to or through any person or entity;
PROVIDED, HOWEVER, that by making the representations herein, the Purchaser
reserves the right, subject to the provisions of Section 3.8 herein, to dispose
of the Shares at any time in accordance with Federal securities laws applicable
to such disposition (except that from the date hereof until the day immediately
prior to the first anniversary of the date hereof, the Purchaser may not dispose
of the Shares and from the first anniversary of the date hereof until the day
six months from the first anniversary of the date hereof the Purchaser may
dispose of the Shares only up to the limits set forth in Rule 144(e)(i) under
the Securities Act) provided, however, that the Purchaser agrees that it will
not dispose of any Shares during any period in which directors of the Company
are subject to a "blackout period" or other prohibitions against the sale or
disposition of Common Stock. The Purchaser acknowledges that it is able to bear
the financial risks associated with an investment in the Shares and that it has
been given full access to such records of the Company and the subsidiaries of
the Company and to the officers of the Company and the subsidiaries of the
Company as it has deemed necessary or appropriate to conduct its due diligence
investigation. The Purchaser is capable of evaluating the risks and merits of an
investment in the Shares by virtue of its experience as an investor and its
knowledge, experience, and sophistication in financial and business matters and
the Purchaser is capable of bearing the entire loss of its investment in the
Shares.
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(e) ACCREDITED PURCHASER.
The Purchaser is an "accredited investor" as defined in Regulation D
promulgated under the Securities Act.
ARTICLE III
COVENANTS
The Company covenants with the Purchaser as follows, which covenants
are for the benefit of the Purchaser and its permitted assignees (as defined
herein).
SECTION 3.1 SECURITIES COMPLIANCE.
(a) The Company shall notify the Commission and NASD, if
applicable, in accordance with their rules and regulations, of the transactions
contemplated by this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Shares to the Purchaser or
subsequent holders.
(b) The Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
the Purchaser set forth herein in order to determine the applicability of
Federal and state securities laws exemptions and the suitability of the
Purchaser to acquire the Shares.
SECTION 3.2 REGISTRATION AND LISTING.
The Company will cause its Common Stock to continue to be registered
under Sections 12(b) or 12(g) of the Exchange Act, will comply in all respects
with its reporting and filing obligations under the Exchange Act, will comply
with all requirements related to any registration statement filed pursuant to
this Agreement, and will not take any action or file any document (whether or
not permitted by the Securities Act or the rules promulgated thereunder) to
terminate or suspend such registration or to terminate or suspend its reporting
and filing obligations under the Exchange Act or Securities Act, except as
permitted herein. The Company will take all action necessary to continue the
listing or trading of its Common Stock on the NASDAQ system, if applicable, and
will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the NASD and NASDAQ system.
SECTION 3.3 REGISTRATION STATEMENT.
The Company shall cause to be filed a registration statement under the
Securities Act ("Registration Statement"), which Registration Statement shall
provide for the resale of the Shares purchased by and issued to the Purchaser in
accordance of this Agreement. The Company shall use its best efforts to
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cause such Registration Statement to be declared effective by the Commission
prior to six months from the date hereof. In the event the Purchaser is not
permitted to resell the Shares pursuant to the Registration Statement, (due to
the Company's non-compliance with its obligations under the Exchange Act or for
any other similar reason), the Company shall use its best efforts to cause a
Registration Statement on such other appropriate form to be effective within
such six month period which will permit the Purchaser to resell the Shares
pursuant to such Registration Statement. All costs and expenses associated with
the Registration Statement shall be borne by the Company.
SECTION 3.4 COMPLIANCE WITH LAWS.
The Company shall comply, and cause each subsidiary of the Company to
comply, with all applicable laws, rules, regulations and orders, noncompliance
with which could have a Material Adverse Effect.
SECTION 3.5 KEEPING OF RECORDS AND BOOKS OF ACCOUNT.
The Company shall keep and cause each subsidiary of the Company to keep
adequate records and books of account, in which complete entries will be made in
accordance with GAAP consistently applied, reflecting all financial transactions
of the Company and its subsidiaries, and in which, for each fiscal year, all
proper reserves for depreciation, depletion, obsolescence, amortization, taxes,
bad debts and other purposes in connection with its business shall be made.
SECTION 3.6 REPORTING REQUIREMENTS.
The Company shall furnish the following to the Purchaser so long as
such Purchaser shall beneficially own any Shares:
(a) Quarterly Reports filed with the Commission on Form 10-Q
as soon as available, and in any event within 45 days after the end of each of
the first three fiscal quarters of the Company; and
(b) Annual Reports filed with the Commission on Form 10-K as
soon as available, and in any event within 90 days after the end of each fiscal
year of the Company.
(c) Any other filings made with the Commission, any press
releases issued or any communications sent to stockholders.
SECTION 3.7 COVENANTS REGARDING BOARD REPRESENTATION.
(a) The Company will cause Zvi Limon and Shaul Shani to be
elected to the Company's Board of Directors as of the Closing Date one of which
shall be elected to the Company's Audit Committee and one of which shall be
elected to the Company's Compensation Committee. Subject to Section 3.7(e), the
Company shall cause any two of Zvi Limon, Shaul Shani, Ron Zuckerman and Dan
Tocatly (the "Purchaser Representatives") or instead of one or more Purchaser
Representatives, such other person designated by Purchaser who is approved by a
majority of the members of the Board of Directors who are not Affiliates or
Associates (within the meaning of Rule 405 under the Securities Act) of
Purchaser or a Purchaser Representative to be included in the slate of nominees
recommended by such Board to the Company's stockholders for
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election as directors at each annual meeting of the stockholders of the Company
or to serve as a member of the Company's Audit Committee or Compensation
Committee. In the event that any designee of the Purchaser for election to the
Company's Board of Directors pursuant to the foregoing provisions shall cease to
serve as a director or member of the Company's Audit Committee or Compensation
Committee, the vacancy resulting therefrom shall be filled according to the
procedures described in the preceding sentence (subject to Section 3.7 (e)).
(b) The Company will furnish to such designee on the Company's
Board of Directors all information that is provided to the other directors of
the Company.
(c) It is the Company's policy to discuss with the Board of
Directors any proposed merger, consolidation, reorganization or acquisition or
disposition of material assets other than in the ordinary course of business and
other transactions out of the ordinary course of business that would have a
material impact on the Company's financial position or results of operations.
(d) The parties acknowledge and agree that any director
nominated or designated by Purchaser will be under an obligation to the
Purchaser not to disclose to any person other than the Purchaser, or use other
than in the Purchaser's business, any confidential information or material
relating to the business of the Purchaser or its subsidiaries. The parties
acknowledge that there shall be no obligation on the part of such director to
disclose any such information or material to the Company, even if such
disclosure would be of interest or value to the Company.
(e) The Purchaser shall be entitled to designate, for each
annual meeting of stockholders, two directors to the Company's Board of
Directors in accordance with Section 3.7(a); provided, however, in the event the
Purchaser shall own less than 821,276 shares of the Company's Common Stock
(subject to appropriate adjustment in the event of a recapitalization, spin-off,
stock split, reverse stock split or other similar transaction (each, a
"Capitalization Event") and 7% of the Company's outstanding shares of Common
Stock (without giving effect to shares of Common Stock issued upon the exercise
of stock options after the date hereof) then one director designated by the
Purchaser shall resign and Purchaser shall thereafter be entitled to designate
only one director in accordance with the provisions of Section 3.7(a) hereof.
(f) Except as may be otherwise provided herein, the Company
shall not increase the number of directors to serve on the Board of Directors
without the approval of the Purchaser.
(g) As long as the Purchaser owns at least 15% of the
outstanding shares of Common Stock of the Company (without giving effect to
shares of Common Stock issued upon the exercise of stock options after the date
hereof ), or a designee of Purchaser, pursuant to subparagraph (e) above, is a
director of the Company, the Purchaser shall vote for the slate of nominees
recommended by the Board for election as directors at each annual meeting of
stockholders of the Company.
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SECTION 3.8 LOCKUP AGREEMENT.
Without the prior written consent of the Company, (i) for a period
commencing on the date hereof and ending on the day immediately prior to the
first anniversary of the date hereof, the Purchaser will not sell, transfer or
otherwise dispose of any of the Shares or any other shares of Common Stock of
the Company owned by the Purchaser or any shares of Common Stock of the Company
owned by Purchaser and (ii) from the period commencing on the first anniversary
of the date hereof and ending on the day six months from the first anniversary
of the date hereof the Purchaser may dispose of the Shares or any shares of
Common Stock of the Company owned by Purchaser only up to the limits set forth
in Rule 144(e)(i) under the Securities Act; PROVIDED, HOWEVER, that the
Purchaser agrees that it will not dispose of any Shares or any other shares of
Common Stock of the Company owned by the Purchaser during any period in which
directors of the Company are subject to a "blackout period" or other
prohibitions against the sale or disposition of Common Stock.
SECTION 3.9 AMENDMENTS.
The Company shall not amend or waive any provision of the Certificate
or Bylaws in any way that would adversely affect the dividend rights or voting
rights of the holders of the Shares. However, the Company shall amend a certain
Rights Agreement dated as of June 5, 1997 between the Company and Norwest Bank
Minnesota, N.A as provided in Exhibit C attached hereto.
SECTION 3.10 OTHER AGREEMENTS.
The Company shall not enter into any agreement which would restrict or
impair the right of the Company or any subsidiary of the Company to perform its
obligations under this Agreement or the Certificate.
SECTION 3.11 PURCHASER'S FILING OF SCHEDULE 13D.
The Purchaser shall file a statement on Schedule 13D with the
Commission in accordance with Section 13(d)(i) of the Exchange Act which shall
report the Purchaser's beneficial ownership of Common Stock of the Company as
well as its intention to purchase 35% of the outstanding shares of Common Stock
of the Company.
SECTION 3.12 ADDITIONAL PURCHASES.
Without the consent of the Board of Directors of the Company, the
Purchaser nor any corporation or entity controlled by, controlling or under
common control with the Purchaser (collectively, the "Purchaser's Affiliates")
shall not, directly or indirectly, acquire any shares of Common Stock of the
Company to the extent that the effect of such purchase is that the Purchaser and
the Purchaser's Affiliates would beneficially own in the aggregate, the greater
of (i) 35% of the outstanding shares of Common Stock of the Company or (ii)
4,106,381 shares of the Company's Common Stock (subject to appropriate
adjustment in the event of a Capitalization Event).
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ARTICLE IV
INDEMNIFICATION
SECTION 4.1 GENERAL INDEMNITY.
The Company agrees to indemnify and hold harmless the Purchaser (and
its directors, officers, affiliates, agents, successors and assigns) from and
against any and all losses, liabilities, deficiencies, costs, damages and
expenses (including, without limitation, reasonable attorney's fees, charges and
disbursements) incurred by the Purchaser as a result or arising out of the
negotiation, execution or performance of this Agreement (including but not
limited to those arising from any claims or actions challenging the transaction,
no matter how meritless the claim may be) or any steps taken by the Company in
connection therewith or any material inaccuracy in or material breach of the
representations, warranties or covenants made by the Company herein. The
Purchaser agrees to indemnify and hold harmless the Company and its directors,
officers, affiliates, agents, successors and assigns from and against any and
all losses, liabilities, deficiencies, costs, damages and expenses (including,
without limitation, reasonable attorneys fees, charges and disbursements)
incurred by the Company as result of any material inaccuracy in or material
breach of the representations, warranties or covenants made by the Purchaser
herein.
SECTION 4.2 INDEMNIFICATION PROCEDURE.
Any party entitled to indemnification under this Article IV (an
"indemnified party") will give written notice to the indemnifying party of any
matters giving rise to a claim for indemnification; provided, that the failure
of any party entitled to indemnification hereunder to give notice as provided
herein shall not relieve the indemnifying party of its obligations under this
Article IV except to the extent that the indemnifying party is actually
prejudiced by such failure to give notice. In case any action, proceeding or
claim is asserted against an indemnified party in respect of which
indemnification is sought hereunder, the indemnifying party shall be entitled to
participate in and, unless in the reasonable judgment of the indemnified party a
conflict of interest between it and the indemnifying party may exist with
respect of such action, proceeding or claim, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. In the event that the
indemnifying party advises an indemnified party that it will contest such a
claim for indemnification hereunder, or fails, within thirty (30) days of
receipt of any indemnification notice to notify, in writing, such person of its
election to defend, settle or compromise, at its sole cost and expense, any
action, proceeding or claim (or discontinues its defense at any time after it
commences such defense), then the indemnified party may, at its option, defend,
settle or otherwise compromise or pay such action or claim. In any event, unless
and until the indemnifying party elects in writing to assume and does so assume
the defense of any such claim, proceeding or action, the indemnified party's
costs and expenses arising out of the defense, settlement or compromise of any
such action, claim or proceeding shall be losses subject to indemnification
hereunder. The indemnified party shall cooperate fully with the indemnifying
party in connection with any negotiation or defense of any such action or claim
by the indemnifying party and shall furnish to the indemnifying party all
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information reasonably available to the indemnified party which relates to such
action or claim. The indemnifying party shall keep the indemnified party fully
apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto. If the indemnifying party elects to defend
any such action or claim, then the indemnified party shall be entitled to
participate in such defense with counsel of its choice. The indemnifying party
shall not be liable for any settlement of any action, claim or proceeding
effected without its prior written consent. Notwithstanding anything in this
Article IV to the contrary, the indemnifying party shall not, without the
indemnified party's prior written consent, settle or compromise any claim or
consent to entry of any judgment in respect thereof which imposes any future
obligation on the indemnified party or which does not include, as an
unconditional term thereof, the giving by the claimant or the plaintiff to the
indemnified party of a release from all liability in respect of such claim. The
indemnification required by this Article IV for an action or claim brought
against the Purchaser by a third party shall be made by periodic payments of the
amount thereof during the course of investigation or defense, as and when bills
are received for expenses related to the legal defense or investigation, so long
as the indemnified party irrevocably agrees to refund such moneys if it is
ultimately determined by a court of competent jurisdiction that such party was
not entitled to indemnification. The indemnity agreements contained herein shall
be in addition to (a) any cause of action or similar rights of the indemnified
party against the indemnifying party or others, and (b) any liabilities the
indemnifying party may be subject pursuant to the law.
ARTICLE V
MISCELLANEOUS
SECTION 5.1 FEES AND EXPENSES.
The Company and the Purchaser shall each pay all fees and expenses
which it incurs related to the transactions contemplated by this Agreement;
PROVIDED that, the Company is paying at the Closing, attorneys fees and expenses
incurred by the Purchaser not to exceed $25,000 in connection with the
preparation, negotiation, execution and delivery of this Agreement and the
transactions contemplated hereunder. The Company shall pay all stamp or other
similar taxes and duties levied in connection with issuance of the Shares
pursuant hereto.
SECTION 5.2 SPECIFIC ENFORCEMENT, CONSENT TO JURISDICTION.
(a) The Company and the Purchaser acknowledge and
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent or cure
breaches of the provisions of this Agreement and to enforce specifically the
terms and provisions hereof or thereof, this being in addition to any other
remedy to which any of them may be entitled by law or equity.
(b) Each of the Company and the Purchaser (i) hereby
irrevocably submits to the jurisdiction of the United States District Court and
other courts
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of the United States sitting in the Southern District of New York for the
purposes of any suit, action or proceeding arising out of or relating to this
Agreement and (ii) hereby waives, and agrees not to assert in any such suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of such court, that the suit, action or proceeding is brought in an
inconvenient forum or that the venue of the suit, action or proceeding is
improper. Each of the Company and the Purchaser consents to process being served
in any such suit, action or proceeding by mailing a copy thereof to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof Nothing in this Section shall affect or limit any right to serve process
in any other manner permitted by law.
SECTION 5.3 ENTIRE AGREEMENT; AMENDMENT.
This Agreement contains the entire understanding of the parties with
respect to the matters covered hereby and, except as specifically set forth
herein, neither the Company nor the Purchaser makes any representations,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived or amended other than by a written instrument
signed by the party against whom enforcement of any such amendment or waiver is
sought.
SECTION 5.4 NOTICES.
Any notice, demand, request, waiver or other communication required or
permitted to be given hereunder shall be in writing and shall be effective (a)
upon hand delivery by telex (with correct answer back received), telecopy or
facsimile at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the second business day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for such
communications shall be:
If to the Company: DSP Group, Inc.
3120 Scott Boulevard
Santa Clara, CA 95054
Attention: Igal Kohavi
Fax: 408- 986-4442
with copies to: Morrison & Foerster LLP
425 Market Street
San Francisco, CA 94105-2482
Attention: Bruce Alan Mann
Telephone: 415- 268-7584
Fax: 415-268-7522
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Morrison & Foerster LLP
1290 Avenue of the Americas
New York, New York 10104
Attention: Mark L. Mandel
Telephone: 212-468-8000
Fax: 212-468-7900
If to the Purchaser: Magnum Technology Limited
c/o Rothschild Corporate Fiduciary Services Ltd.
(Guernsey)
P.O. Box 472
St. Peter's House
Le Bordage
St. Peter Port, Guernsey
Channel Islands GY1 6AX
Attention: Mr. Nicholas Moss
with copies to: Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
Attention: Henry I. Rothman, Esq.
Telephone Number: (212) 704-6000
Fax: (212) 704-6288
Any party hereto may from time to time change its address for notices
by giving at least ten (10) days written notice of such changed address to the
other party hereto.
SECTION 5.5 WAIVERS.
No waiver by either party of any default with respect to any provision,
condition or requirement of this Agreement shall be deemed to be a continuing
waiver in the future or a waiver of any other provisions, condition or
requirement hereof, nor shall any delay or omission of any party to exercise any
right hereunder in any manner impair the exercise of any such right accruing to
it thereafter.
SECTION 5.6 HEADINGS.
The article, section and subsection headings in this Agreement are for
convenience only and shall not constitute a part of this Agreement for any other
purpose and shall not be deemed to limit or affect any of the provisions hereof.
SECTION 5.7 SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and inure to the benefit of the
parties and their successors and assigns; provided, however, that the parties
hereto may not amend this Agreement or assign any rights or obligations
hereunder without the prior written consent of the Company and the Purchaser.
After the Closing, the assignment by a party
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to this Agreement of any rights hereunder shall not affect the obligations of
such party under this Agreement.
SECTION 5.8 NO THIRD PARTY BENEFICIARIES.
This Agreement is intended for the benefit of the parties hereto and
their respective permitted successors and assigns and is not for the benefit of,
nor may any provision hereof be enforced by, any other person.
SECTION 5.9 GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with
the internal laws of the State of New York, without giving effect to the choice
of law provisions.
SECTION 5.10 SURVIVAL.
Except as otherwise provided herein, the representations, warranties
and the agreements of the Company and the Purchaser contained in Articles I, II,
IV and V shall survive the execution and delivery hereof, and the agreements and
covenants set forth in Articles III of this Agreement shall survive the
execution and delivery hereof until the Purchaser no longer owns any Shares.
SECTION 5.11 COUNTERPARTS.
This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one and the same instrument and shall
become effective when counterparts have been signed by each party and delivered
to the other parties hereto, it being understood that all parties need not sign
the same counterpart. In the event any signature is delivered by facsimile
transmission, the party using such means of delivery shall cause four additional
executed signature pages to be physically delivered to the other parties within
five days of the execution and delivery hereof.
SECTION 5.12 PUBLICITY.
The Company agrees that it will not disclose, and will not include in
any public announcement, the name of the Purchaser, unless and until such
disclosure is required by law or applicable regulation, and then only to the
extent of such requirement. Any press release regarding this Agreement shall be
agreed to by the parties hereto.
SECTION 5.13 SEVERABILITY.
The provisions of this Agreement are severable and, in the event that
any court of competent jurisdiction shall determine that any one or more of the
provisions or part
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
20
<PAGE>
of the provisions contained in this Agreement shall, for any reason, be held to
be invalid, illegal or unenforceable in any respect, such invalidity, illegality
or unenforceability shall not affect any other provision or part of a provision
of this Agreement shall be reformed and construed as if such invalid or illegal
or unenforceable provision, or part of such provision, had never been contained
herein, so that such provisions would be valid, legal and enforceable to the
maximum went possible.
SECTION 5.14 FURTHER ASSURANCES.
From and after the date of this Agreement, upon the, request of the
Purchaser or the Company, each of the Company and the Purchaser shall execute
and deliver such instrument, documents and other writings as may be reasonably
necessary or desirable to confirm and carry out and to effectuate fully the
intent and purposes of this Agreement and the Shares.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officer as of the date first above
written.
MAGNUM TECHNOLOGY LIMITED
By: /s/ ZVI LIMON
---------------------------------
Name: Zvi Limon
Title:
DSP GROUP, INC.
By: /s/ IGAL KOHAVI
---------------------------------
Name: Igal Kohavi
Title: Chairman of the Board
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS IN THE QUARTERLY REPORT ON FORM 10-Q OF DSP GROUP, INC. FOR
THE QUARTER ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 12,090
<SECURITIES> 85,233
<RECEIVABLES> 3,800
<ALLOWANCES> 314
<INVENTORY> 1,129
<CURRENT-ASSETS> 106,138
<PP&E> 14,082
<DEPRECIATION> 7,513
<TOTAL-ASSETS> 118,550
<CURRENT-LIABILITIES> 8,649
<BONDS> 0
0
0
<COMMON> 12
<OTHER-SE> 108,884
<TOTAL-LIABILITY-AND-EQUITY> 118,550
<SALES> 6,522
<TOTAL-REVENUES> 10,462
<CGS> 3,751
<TOTAL-COSTS> 3,826
<OTHER-EXPENSES> 3,361
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 104
<INCOME-PRETAX> 1,575
<INCOME-TAX> 393
<INCOME-CONTINUING> 1,182
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,182
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.11
</TABLE>
