<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 SEPTEMBER 30, 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
-------- ----------
(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 October 31, 1999 there were 12,454,218 shares of Common Stock ($.001 par
value per share) outstanding.
<PAGE>
INDEX
DSP GROUP, INC.
<TABLE>
<CAPTION>
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
- -----------------------------------------------------
<S> <C>
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets--September 30, 1999
and December 31, 1998................................................3
Condensed consolidated statements of income--Three and nine
months ended September 30, 1999 and 1998.............................4
Condensed consolidated statements of cash flows--Nine
months ended September 30, 1999 and 1998.............................5
Condensed consolidated statements of Stockholders' Equity --
Three and nine months ended September 30, 1999 and 1998..............6
Notes to condensed consolidated financial statements--
September 30, 1999...................................................8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...........................................12
Item 3. Quantitative and Qualitative Disclosures About Market Risk....................20
PART II. OTHER INFORMATION
- ---------------------------------------------
Item 1. Legal Proceedings........................................................21
Item 2. Changes in Securities....................................................21
Item 3. Defaults upon Senior Securities..........................................21
Item 4. Submission of Matters to a Vote of Security Holders......................21
Item 5. Other Information........................................................22
Item 6. Exhibits and Reports on Form 8-K..........................................22
SIGNATURES............................................................................22
</TABLE>
Page 2
<PAGE>
PART 1. FINANCIAL INFORMATION
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS
DSP GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
--------- ----------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 34,152 $ 9,038
Marketable securities and deposits 81,134 57,951
Accounts receivable, net 11,938 5,721
Inventories 2,759 2,182
Deferred income taxes 1,374 1,374
Other accounts receivable 1,532 1,608
--------- ---------
TOTAL CURRENT ASSETS 132,889 77,874
Property and equipment, at cost: 15,367 11,330
Less accumulated depreciation and amortization (8,562) (7,094)
--------- ---------
6,805 4,236
Other investments, net of accumulated amortization 13,317 1,834
Severance pay fund 1,134 864
Deferred income taxes 848 848
Other assets 1,420 135
--------- ---------
TOTAL ASSETS $ 156,413 $ 85,791
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,167 $ 2,360
Other current liabilities 10,163 6,841
--------- ---------
TOTAL CURRENT LIABILITIES 15,330 9,201
LONG TERM LIABILITIES
Accrued severance pay 1,269 895
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Common Stock 12 9
Additional paid-in capital 111,574 75,610
Retained earnings 31,096 12,129
Less cost of treasury stock (2,868) (12,053)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 139,814 75,695
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 156,413 $ 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.
Page 3
<PAGE>
DSP GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
REVENUES:
Product sales $ 18,279 $ 13,504 $ 37,474 $ 39,950
Licensing, royalties and other 5,017 3,804 12,986 9,783
-------- -------- -------- --------
TOTAL REVENUES 23,296 17,308 50,460 49,733
COST OF REVENUES:
Cost of product sales 10,646 8,110 21,545 23,698
Cost of licensing, royalties and other 20 157 106 355
-------- -------- -------- --------
TOTAL COST OF REVENUES 10,666 8,267 21,651 24,053
-------- -------- -------- --------
GROSS PROFIT 12,630 9,041 28,809 25,680
OPERATING EXPENSES:
Research and development 3,900 2,806 11,002 7,334
Sales and marketing 2,391 1,243 6,508 3,834
General and administrative 1,257 1,248 3,813 3,529
-------- -------- -------- --------
TOTAL OPERATING EXPENSES 7,548 5,297 21,323 14,697
-------- -------- -------- --------
OPERATING INCOME 5,082 3,744 7,486 10,983
OTHER INCOME (EXPENSE):
Interest and other income 1,527 926 3,794 2,784
Interest expense and other (65) (26) (162) (132)
Equity in income (loss) of equity
method investees, net 669 (8) 1,686 (123)
Gain on sale of marketable
equity security -- -- -- 1,086
Capital gain -- -- 11,780 --
-------- -------- -------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES 7,213 4,636 24,584 14,598
Provision for income taxes 1,443 1,161 3,923 3,651
-------- -------- -------- --------
NET INCOME $ 5,770 $ 3,475 $ 20,661 $ 10,947
======== ======== ======== ========
NET INCOME PER SHARE:
Basic $ 0.48 $ 0.36 $ 1.80 $ 1.11
Diluted $ 0.44 $ 0.35 $ 1.70 $ 1.08
SHARES USED IN PER SHARE COMPUTATIONS:
Basic 12,040 9,716 11,461 9,892
Diluted 13,184 9,936 12,146 10,161
</TABLE>
See notes to condensed consolidated financial statements.
Page 4
<PAGE>
DSP GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1999 1998
------ ------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 7,158 $ 9,782
INVESTING ACTIVITIES
Purchase of available-for-sale marketable
Securities and deposits (60,894) (45,222)
Sale of available-for-sale marketable securities 37,711 47,607
Purchases of equipment (4,302) (1,814)
Proceeds from sale of investment-- net 3,224 1,262
Investment in subsidiary (1,241) --
-------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (25,502) 1,833
-------- --------
FINANCIAL ACTIVITIES
Sale of Common Stock for cash upon
Exercise of options and employee
Stock purchase plan 11,743 1,042
Purchase of treasury stock (2,710) (13,627)
Issue of Common Stock to investor 34,425 --
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 43,458 (12,585)
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS $ 25,114 $ (970)
======== ========
Non-cash investing and financing information:
Liabilities assumed in connection with asset acquisitions $ 590 --
======== ========
Capitalized software acquisition in exchange
for license sale $ 2,000 --
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
Page 5
<PAGE>
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
SEPTEMBER 30, 1999 (DEFICIT)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1999 11,640 $ 12 $110,249 $ 26,517 $(12,567) $ -- $ 124,211
Net income -- -- -- 5,770 -- -- 5,770
Comprehensive income -- -- -- -- -- -- 5,770
Sale of Common Stock under
employee stock purchase 12 -- 7 (7) 200 -- 200
plan
Issue of treasury stock upon
exercise of stock options 586 -- 1,318 (1,184) 9,499 -- 9,633
Purchase of treasury stock -- -- -- -- -- -- --
Balance at September 30, 1999 12,238 $ 12 $111,574 $ 31,096 $ (2,868) $ -- $ 139,814
THREE MONTHS ENDED
SEPTEMBER 30, 1998
Balance at June 30, 1998 9,785 $ 10 $ 73,968 $ 6,164 $ (6,904) $ -- $ 73,238
Net income -- -- -- 3,475 -- -- 3,475
Comprehensive income -- -- -- -- -- -- 3,475
Exercise of Common Stock
options by employees 15 -- (167) -- 298 -- 131
Sale of Common Stock under
Employee stock purchase 19 -- (187) -- 399 -- 212
plan
Purchase of treasury stock (385) (1) -- -- (5,573) -- (5,574)
Balance at September 30, 1998 9,434 $ 9 $ 73,614 $ 9,639 $(11,780) $ -- $ 71,482
NINE MONTHS ENDED
SEPTEMBER 30, 1999
Balance at December 31, 1998 9,406 $ 9 $ 75,610 $ 12,129 $(12,053) $ -- $ 75,695
Net income -- -- -- 20,661 -- -- 20,661
Comprehensive income -- -- -- -- -- -- 20,661
Sale of Common Stock, net of
issuance cost 2,300 3 34,425 -- -- -- 34,428
Exercise of Common Stock
options by employees 22 -- (50) (61) 372 -- 261
Sale of Common Stock under
employee stock purchase 18 -- -- (107) 290 -- 183
plan
Issue of treasury stock upon
exercise of stock options 692 -- 1,589 (1,526) 11,233 -- 11,296
Purchase of Treasury stock (200) -- -- -- (2,710) -- (2,710)
Balance at September 30, 1999 12,238 $ 12 $111,574 $ 31,096 $ (2,868) $ -- $ 139,814
Page 6
<PAGE>
NINE MONTHS ENDED
SEPTEMBER 30, 1998
Balance at December 31, 1997 10,094 $ 10 $ 74,418 $ (1,308) $ -- $ 1,050 $ 74,170
Net income -- -- -- 10,947 -- -- 10,947
Comprehensive income,
Decrease in unrealized gain on
marketable equity securities,
net of reclassification
adjustment (a) -- -- -- -- -- (1,050) (1,050)
----------
Comprehensive income -- -- -- -- -- -- 9,897
Exercise of Common Stock
options by employees 72 -- (733) -- 1,448 -- 715
Sale of Common Stock under
employee stock purchase plan 32 -- (71) -- 399 -- 328
Purchase of Treasury stock (764) (1) -- -- (13,627) -- (13,628)
Balance at September 30, 1998 9,434 $ 9 $ 73,614 $ 9,639 $(11,780) $ -- $ 71,482
(a) Disclosure of
reclassification amount:
Unrealized holding gains
arising during period $ 36
Less: reclassification
for gains included in
income (1,086)
---------
Net decrease in
unrealized gain on
marketable security $(1,050)
---------
</TABLE>
Page 7
<PAGE>
DSP GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 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 and nine months ended September 30, 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>
September 30, December 31,
1999 1998
---------- ----------
<S> <C> <C>
Finished goods $2,491 $2,182
Work-in-process 268 --
------ ------
$2,759 $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):
Page 8
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<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
----- ------ ----- -----
<S> <C> <C> <C> <C>
Numerator:
Net income $ 5,770 $ 3,475 $20,661 $10,947
======= ======= ======= =======
Denominator:
Weighted average number of shares of Common
Stock outstanding during the period used to
compute basic earnings per share 12,040 9,716 11,461 9,892
Incremental shares attributable to exercise of
outstanding options (assuming proceeds would
be used to purchase treasury stock) 1,144 220 685 269
------- ------- ------- -------
Weighted average number of shares of
Common Stock used to compute diluted
income per share 13,184 9,936 12,146 10,161
======= ======= ======= =======
Basic net income per share $ 0.48 $ 0.36 $ 1.80 $ 1.11
======= ======= ======= =======
Diluted net income per share $ 0.44 $ 0.35 $ 1.70 $ 1.08
======= ======= ======= =======
</TABLE>
NOTE D - INVESTMENTS
The following is a summary of the cost of available-for-sale securities and
deposits (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------- ---------
<S> <C> <C>
Obligations of states and
political subdivisions $ 26,312 $ 25,290
Corporate obligations 56,309 33,218
Deposits 21,500 --
-------- --------
$104,121 $ 58,508
======== ========
Amounts included in
marketable securities $ 59,634 $ 57,951
Amounts included in deposits $ 21,500 --
Amounts included in
cash and cash equivalents 22,987 557
-------- --------
$104,121 $ 58,508
======== ========
</TABLE>
Page 9
<PAGE>
At September 30, 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 September 30, 1999 and 1998, were not significant. The
amortized cost of available-for-sale debt securities at September 30, 1999,
by contractual maturities, is shown below (in thousands):
<TABLE>
<CAPTION>
AMORTIZED COST
--------------
<S> <C>
Due in one year or less $71,993
Due after one year to two years 10,628
-------
$82,621
=======
</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 one distributor accounted for 53% of total revenues for the
three months ended September 30, 1999 and 47% for the three months ended
September 30, 1998. Additionally, product sales to one distributor accounted
for 45% of total revenues for the nine months ended September 30, 1999 and
47% for the nine months ended September 30, 1998. 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 including the Internet, ATM and
Frame Relay. In May 1999, we exercised our option to purchase approximately
3.5% of the outstanding stock of AudioCodes for approximately $1.1 million.
In May 1999, AudioCodes finalized its initial public offering (IPO) and is
now listed on the Nasdaq SmallCap Market under the symbol AUDC. In its IPO,
AudioCodes issued 3.5 million shares at a price of $14.00 per share. After
the IPO, AudioCodes had approximately 17.5 million shares outstanding. As a
result, we recorded an equity gain on the issuance of new shares of
approximately $9.3 million in the second quarter of 1999, after fully
amortizing the remaining unamortized excess of purchase price over net assets
acquired by approximately $209,000. We also participated as a selling
shareholder in the IPO and sold approximately 248,000 shares. As a result, we
recorded an additional capital gain of $2.4 million. As of September 30,
1999, we held approximately 4.0 million shares or approximately 23% of the
outstanding shares of AudioCodes. In connection with our investment in
AudioCodes, the condensed consolidated statements of income for the three
months ended September 30, 1999 include a $669,000 equity gain and the
condensed consolidated statements of income for three months ended September
30, 1998 include an $8,000 equity loss. In "Other income (expense)"
Page 10
<PAGE>
we included this one-time capital gain from AudioCodes' IPO of approximately
$11.8 million for the nine months ended September 30, 1999.
In October 1999, shortly after the end of the third quarter, AudioCodes
successfully concluded a follow-on public offering of 3.0 million shares at a
price of $41.00 per share. AudioCodes issued and sold 1.5 million shares and
an additional 1.95 million shares were sold by previous shareholders, of
which approximately 1,069,000 shares were sold by us. After the sales in
October 1999, we hold approximately 2.9 million shares of AudioCodes, which
represents approximately 15% of its outstanding shares. Our proceeds from
these sales were approximately $42.8 million, and we will record a one-time
capital gain of approximately $47.4 million in the fourth quarter of 1999.
NOTE H- REPURCHASE OF DSP GROUP COMMON STOCK
In March 1999, our Board of Directors authorized a new plan to repurchase up
to an additional 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 nine months
ended September 30, 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 September 30, 1999 is 1,014,000
shares.
NOTE I- CONTINGENCIES
We are involved in certain claims arising in the normal course of business,
including claims that we 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.
Page 11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
TOTAL REVENUES. Our total revenues were $23.3 million in the third quarter of
1999 compared to $17.3 million in the third quarter of 1998. Total revenues
in the first three quarters of 1999 increased to $50.5 million, from $49.7
million in the first three quarters of 1998. The slight increase in the first
three quarters of 1999 compared to the same period in 1998 was due to an
increase in our licensing and royalty revenues, which was off set by the
decrease in our product sales due to the phasing out of our D6xxx line of
products and our phasing in and sales of our new line of D16xxx products. Our
licensing and royalty revenues increased to $5.0 million in the third quarter
of 1999 compared to $3.8 million in the same period of 1998 primarily due to
two new licensees. One licensing agreement was for the TeakDSPCore-Registered
Trademark- and Teaklite-TM- DSPCore, while the other agreement includes our
TeakDSPCore and PalmDSPCore-Registered Trademark-.
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 94% and 88% of our total revenues for the three and
nine months ended September 30, 1999, respectively, and 96% and 95% of our
total revenues for the three and nine months ended September 30, 1998. All
export sales are denominated in U.S. dollars.
Revenues from Tomen Electronics, one of our distributors, accounted for 53%
of our total revenues for the three months ended September 30, 1999, and 47%
of our total revenues for the three months ended September 30, 1998.
Additionally, Tomen Electronics accounted for 45% of our total revenues for
the nine months ended September 30, 1999 and 47% of our total revenues for
the nine months ended September 30, 1998.
GROSS PROFIT. Gross profit as a percentage of total revenues increased to 54%
in the third quarter of 1999 from 52% in the third quarter of 1998. The
increase in gross profit was primarily due to a slightly higher gross margin
in our licensing revenues and in the product gross profit in the third
quarter of 1999, compared to the same period in 1998. Product gross profit as
a percentage of product sales increased to 42% in the third quarter of 1999,
from 40% in the third quarter of 1998, primarily due to the introduction of
the new IDT-16K products, and to successfully off - setting the continued
decline in average selling prices with a decrease in manufacturing costs.
RESEARCH AND DEVELOPMENT EXPENSES. Our research and development expenses
increased significantly to $3.9 million in the third quarter of 1999 from
$2.8 million in the third quarter of 1998. In the first nine months of 1999,
research and development expenses increased to $11.0 million from $7.3
million in the comparable period of 1998. The increases were 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 also was
attributed to an increase in research and development personnel as compared
to the same period in 1998, to greater facility costs due to the increase in
personnel and to additional expenses incurred in connection with the release
of our new line of products. Our research and development expenses as a
percentage of total revenues were 17% in the three months ended September 30,
1999 and 16% in the three months ended September 30, 1998.
Page 12
<PAGE>
SALES AND MARKETING EXPENSES. Our sales and marketing expenses increased to
$2.4 million in the third quarter of 1999 from $1.2 million in the same
quarter in 1998. In the first nine months of 1999, sales and marketing
expenses increased to $6.5 million from $3.8 million in the comparable period
of 1998. Salaries and fringe benefits increased in 1999 compared to 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 10% in the three
months ended September 30, 1999 and 7% in the three months ended September
30, 1998. The increase was attributed to our higher sales and marketing
expenses in connection with the support of our new product introductions in
1999, as compared with the same period in 1998.
GENERAL AND ADMINISTRATIVE EXPENSES. Our general and administrative expenses
were approximately $1.3 million in the three months ended September 30, 1999
and $1.2 million in the three months ended September 30, 1998. In the first
three quarters of 1999 general and administrative expenses were $3.8 million
compared to $3.5 million in the comparable period of 1998. The increase was
mainly due to higher levels of legal expenses, as well as additional rent and
utilities expenses associated with increased facilities space used in the
first three quarters of 1999 as compared to the comparable period in 1998.
These expenses as a percentage of total revenues decreased to approximately
5% in three months ended September 30, 1999, compared to 7% in the three
months ended September 30, 1998, due to the increase in total revenues.
OTHER INCOME (EXPENSE). Interest and other income and interest expense other,
net was $3.6 million for the nine months ended September 30, 1999, compared
to $2.6 million for the nine months ended September 30, 1998. The increase
was primarily the result of higher levels of cash equivalents and marketable
securities and deposits in 1999 as compared with 1998, which were partially
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 $669,000 gain for the three
months ended September 30, 1999 as compared to a $8,000 loss in the
comparable period ended September 30, 1998. In the first nine months of 1999
equity in income (loss) of equity method investees, net, was a $1.7 million
gain, as compared with a $123,000 loss in the same period in 1998.
CAPITAL GAIN. In May 1999, as a result of the AudioCodes IPO, we recorded an
equity gain of approximately $9.3 million, after fully amortizing the
remaining unamortized excess of purchase price over net assets acquired, by
approximately $209,000. We also participated as a selling shareholder in the
IPO and sold approximately 248,000 shares. As a result, we recorded an
additional capital gain of $2.4 million. In "Other income (expense)" we
included a one-time capital gain from AudioCodes' IPO, of approximately $11.8
million for the nine months ended September 30, 1999.
PROVISION FOR INCOME TAXES. In 1999 and 1998, we benefited mainly from
foreign tax holiday and tax exempt income in Israel.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES. During the nine months ended September 30, 1999, we
generated $7.2 million of cash and cash equivalents from our operating
activities as compared to $9.8 million during the nine months ended September
30, 1998. This decrease, even though we experienced an increase in net income
during the nine months ended September 30, 1999, was attributable primarily
to the non-cash effect of the capital gain recorded in connection with the
Page 13
<PAGE>
AudioCodes IPO and to the increase in accounts receivable, increase in
inventory and decrease in income taxes payable. However, these were offset by
the increase in accounts payable in the first nine months of 1999.
INVESTING ACTIVITIES. We invest excess cash in marketable securities of
varying maturity and deposits, depending on our projected cash needs for
operations, capital expenditures and other business purposes. In the first
nine months of 1999, we purchased $60.9 million and sold $37.7 million of
investments classified as marketable securities and deposits. Our capital
equipment purchases in the first nine months of 1999 totaled $4.3 million,
primarily for new equipment associated with the acquisition of wireless
communication technologies, including computers and testing equipment. In May
1999, prior to the AudioCodes IPO, we exercised our option to purchase
approximately 3.5% of the outstanding stock of AudioCodes for approximately
$1.1 million. We also participated as a selling share holder in the IPO and
sold approximately 248,000 shares and received $3.2 million, net of fees. In
October 1999, shortly after the end of the third quarter, AudioCodes
successfully concluded a follow-on public offering of 3.0 million shares at a
price of $41.00 per share. AudioCodes issued and sold 1.5 million shares and
an additional 1.95 million shares were sold by previous shareholders, of
which approximately 1,069,000 shares were sold by us. Our proceeds from these
sales were approximately $42.8 million.
FINANCING ACTIVITIES. During the nine months ended September 30, 1999, we
received $11.7 million upon the exercise of employee stock options and
through purchases pursuant to the employee stock purchase plan. In the first
nine 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.
At September 30, 1999, our principal source of liquidity consisted of cash
and cash equivalents totaling $34.2 million and marketable securities and
deposits with an aggregate value of $81.1 million. Our working capital at
September 30, 1999 was $117.6 million.
We believe that our current cash, cash equivalent deposits 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, increasing the total shares authorized to be repurchased to
2,000,000 shares. Accordingly, we may 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. These 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
be able to raise with additional debt or equity financing resources for these
transactions or that we will consummate these transaction. See "Factors
Affecting 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
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<PAGE>
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 are in
the final stages of this process, and anticipate that all reprogramming
efforts, will be completed by November 30, 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 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 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. Due to this, we did not have significant overall interest rate
risk exposure at November 1, 1999.
FOREIGN CURRENCY RATE RISK. As nearly all of our sales and part of our
expenses are denominated in U.S. Dollars, we have experienced only
insignificant foreign exchange gains and losses to date. We do not currently
have any significant foreign currency exposure and do not expect to incur
significant gains and losses in 1999. We did not engage in foreign currency
hedging activities during the nine months ended September 30, 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
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<PAGE>
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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<PAGE>
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 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
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
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<PAGE>
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 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. For example, due to the recent earthquake in Taiwan,
foundries that produce wafers were damaged and temporarily shut down,
resulting in a loss or destruction of a portion of the wafer supply. While
the effects of this earthquake were immaterial to our business, additional
earthquakes, aftershocks or other natural disasters in Asia, could preclude
us from obtaining an adequate supply of wafers to fill customer orders and
could harm our business, financial condition, and results of operations.
WE DEPEND ON INTERNATIONAL OPERATIONS, PARTICULARLY IN ISRAEL. We are
dependent on sales to customers outside the United States. We expect that
international sales will continue to account for the majority of our net
product and license sales for the foreseeable future. As a result, the
occurrence of any negative international political, economic or geographic
events could result in significant revenue shortfalls. These shortfalls could
cause our business, financial condition and results of operations to be
harmed. Some of the risks of doing business internationally include:
- 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 September 30, 1999, 111 of our
147 employees were located in Israel, including 77 out of 89 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
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 0.9% for the nine months ended September 30, 1999
and 4.0% for the nine months ended September 30, 1998. While
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<PAGE>
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 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 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
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<PAGE>
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 harm 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."
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
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<PAGE>
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of stockholders was held on July 19, 1999.
The following matters were voted upon at the annual meeting:
Election of two Class II Directors to serve until the annual meeting of
stockholders in 2002. The results of the voting were as
follows:
Yair Shamir
Number of shares voted FOR 10,281,371
Number of shares WITHHELD 267,800
Saul Shani
Number of shares voted FOR 10,276,171
Number of shares WITHHELD 273,000
1. Ratification and approval of the amendment and restatement of
the DSP Group, Inc. 1993 Director Option Plan to increase the
number of shares of Common Stock reserved for issuance
thereunder from 175,000 to 275,000. The results of the voting
were as follows:
Number of shares voted FOR 6,660,764
Number of shares voted AGAINST 992,341
Number of shares voted ABSTAINING 29,989
Number of broker non-votes 2,866,077
2. Ratification and approval of the amendment and restatement of
the DSP Group, Inc. 1991 Employee and Consultant Stock Plan
to increase the number of shares of Common Stock reserved for
issuance thereunder from 3,800,000 to 4,300,000. The results
of the voting were as follows:
Number of shares voted FOR 5,871,461
Number of shares voted AGAINST 1,780,144
Number of shares voted ABSTAINING 31,489
Number of broker non-votes 2,866,077
3. Ratification of the amendment and restatement of Article IV
of the DSP Group, Inc. Restated Certificate of Incorporation
to increase the number of authorized shares of Common Stock
authorized for issuance by DSP Group from 20,000,000 shares
to 50,000,000 shares. The results of the voting were as
follows:
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<PAGE>
Number of shares voted FOR 8,576,116
Number of shares voted AGAINST 1,941,891
Number of shares voted ABSTAINING 31,164
Number of broker non-votes ---
4. Ratification of the appointment of Ernst & Young LLP as the
independent auditors of the Company for fiscal 1999. The
results of the voting were as follows:
Number of shares voted FOR 10,501,413
Number of shares voted AGAINST 21,580
Number of shares voted ABSTAINING 26,178
Number of broker non-votes ---
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Amended and Restated Bylaws, dated July 20, 1999.
10.1 1991 Employee and Consultant Stock Plan, as amended and
restated July 19, 1999.
10.2 1993 Director Stock Option Plan, as amended and restated July
19, 1999.
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 September 30, 1999.
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/ MOSHE ZELNIK
-------------------------------------------------------------
Moshe Zelnik, Vice President of Finance, Chief Financial Officer
and Secretary (Principal Financial Officer and Principal Accounting Officer)
Date: November 12, 1999
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<PAGE>
================================================================================
BYLAWS
OF
DSP GROUP, INC.
(A DELAWARE CORPORATION)
================================================================================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <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
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<PAGE>
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
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<PAGE>
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
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<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
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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
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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 five (5) 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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DSP GROUP, INC.
1991 EMPLOYEE AND CONSULTANT STOCK PLAN
(As Amended and Restated Effective
January 10, 1994; April 22, 1994; May 16, 1995; May 21, 1996; May 19,1998;
and July 19, 1998)
1. PURPOSES OF PLAN. The purposes of this Stock Option Plan are:
- to attract and retain the best available personnel for
positions of substantial responsibility;
- to provide additional incentive to Employees and Consultants;
and
- to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or Nonstatutory
Stock Options, as determined by the Administrator at the time of grant.
2. DEFINITIONS. As used herein, the following definitions shall
apply:
a. "ADMINISTRATOR" means the Board or any of its
Committees as shall be administering the Plan, in accordance with Section 4 of
the Plan.
b. "APPLICABLE LAWS" means the legal requirements
relating to the administration of stock option plans under state corporate and
securities laws and the Code.
c. "BOARD" means the Board of Directors of the Company.
d. "CODE" means the Internal Revenue Code of 1986, as
amended.
e. "COMMITTEE" means a Committee appointed by the Board
in accordance with Section 4 of the Plan.
f. "COMMON STOCK" means the Common Stock of the Company.
g. "COMPANY" means DSP Group, Inc., a Delaware
corporation.
h. "CONSULTANT" means any person, including an advisor,
engaged by the Company or a Parent or Subsidiary to render services, and who is
compensated for such services, provided that the term "Consultant" shall not
include Directors who are paid only a director's fee by the Company, or who are
not compensated by the Company for their services as Directors.
i. "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT"
means that the employment or consulting relationship is not interrupted or
terminated by the Company, any Parent or Subsidiary. Continuous Status as an
Employee or Consultant shall not be considered interrupted in the case of: (i)
any leave of absence approved by the Company, including sick leave, military
leave, or any other personal leave; provided, however, that for purposes of
Incentive Stock Options, no such leave may exceed ninety (90) days, unless
re-employment upon the expiration of such leave is guaranteed by contract
(including certain Company policies) or statute; provided, further, that on the
ninety-first (91st) day of any such leave (where re-employment is not guaranteed
by contract or statute) the Optionee's Incentive Stock Option shall
automatically convert to a Nonstatutory Stock Option; or (ii) transfers between
locations of the Company or between the Company, its Parent, its Subsidiaries,
or its successor.
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j. "COVERED EMPLOYEE" means an Employee who is a
"covered employee" under Section 162(m)(3) of the Code.
k. "DIRECTOR" means a member of the Board.
l. "DISABILITY" means total and permanent disability as
defined in Section 22(e)(3) of the Code.
m. "EMPLOYEE" means any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company.
Neither service as a Director nor payment of a Director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
n. "EXCHANGE ACt" means the Securities Exchange Act of
1934, as amended.
o. "FAIR MARKET VALUE" means, as of any date, the value
of Common Stock determined as follows:
i) If the Common Stock is listed on any
established stock exchange or a national market system, including, without
limitation, the National Market System of the National Association of Securities
Dealers, Inc. Automated Quotation ("NASDAQ") System, the Fair Market Value of a
Share of Common Stock shall be the closing sales price for such stock (or the
closing bid, if no shares were reported) as quoted on such system or exchange
(or the exchange with the greatest volume of trading in Common Stock) on the
last market trading day prior to the date of determination, as reported in THE
WALL STREET JOURNAL, or such other source as the Administrator deems reliable;
ii) If the Common Stock is quoted on the NASDAQ
System (but not on the National Market System thereof), or is regularly quoted
by a recognized securities dealer, but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock on the last market trading day prior
to the day of determination, as reported in THE WALL STREET JOURNAL, or such
other source as the Administrator deems reliable;
ii) In the absence of an established market for
the Common Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
p. "INCENTIVE STOCK OPTION" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code and the regulations promulgated thereunder.
q. "NONSTATUTORY STOCK OPTION" means an Option not
intended to qualify as an Incentive Stock Option.
r. "NOTICE OF GRANT" means a written notice evidencing
certain terms and conditions of an individual Option grant. The Notice of Grant
is part of the Option Agreement.
s. "OFFICER" means a person who is an officer of the
Company within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
t. "OPTION" means a stock option granted pursuant to the
Plan.
u. "OPTION AGREEMENT" means a written agreement between
the Company and an Optionee evidencing the terms and conditions of an individual
Option grant. The Option Agreement is subject to the terms and conditions of the
Plan.
v. "OPTION EXCHANGE PROGRAM" means a program whereby
outstanding options are surrendered in exchange for options with a lower
exercise price.
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w. "OPTIONED STOCK" means the Common Stock subject to an
Option.
x. "OPTIONEE" means an Employee or Consultant who holds
an outstanding Option.
y. "PARENT" shall mean a "parent corporation," whether
now or hereafter existing, as defined in Section 424(e) of the Code.
z. "PERFORMANCE - BASED COMPENSATION" means compensation
qualifying as "performance-based compensation" under Section 162(m) of the Code.
aa. "PLAN" shall mean this 1991 Employee and Consultant
Stock Plan, as amended and restated.
bb. "RULE 16b-3" means Rule 16b-3 of the Exchange Act, or
any successor to Rule 16b-3, as in effect when discretion is being exercised
with respect to the Plan.
cc. "Share" means a share of the Common Stock, as
adjusted in accordance with Section 12 of the Plan.
dd. "SUBSIDIARY" means a "subsidiary corporation,"
whether now or hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 12
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 3,800,000 Shares. The Shares may be authorized, but
unissued, or reacquired Common Stock. However, should the Company reacquire
Shares which were issued pursuant to the exercise of an Option, such Shares
shall not become available for future grant under the Plan.
If an Option expires or becomes unexercisable without having
been exercised in full, or is surrendered pursuant to an Option Exchange
Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has been
terminated); PROVIDED, however, that Shares that have actually been issued under
the Plan shall not be returned to the Plan and shall not become available for
future distribution under the Plan.
4. ADMINISTRATION OF THE PLAN.
a. PROCEDURE.
i) MULTIPLE ADMINISTRATIVE BODIES. If permitted
by Rule 16b-3, the Plan may be administered by different bodies with respect to
Directors, Officers who are not Directors, and Employees who are neither
Directors nor Officers.
ii) ADMINISTRATION WITH RESPECT TO DIRECTORS AND
OFFICERS SUBJECT TO SECTION 16(b). With respect to Option grants made to
Employees who are also Officers or Directors subject to Section 16(b) of the
Exchange Act, the Plan shall be administered by (A) the Board, if the Board may
administer the Plan in compliance with the rules governing a plan intended to
qualify as a discretionary plan under Rule 16b-3, or (B) a committee designated
by the Board to administer the Plan, which committee shall be constituted to
comply with the rules governing a plan intended to qualify as a discretionary
plan under Rule 16b-3. Once appointed, such Committee shall continue to serve in
its designated capacity until otherwise directed by the Board. From time to
time, the Board may increase the size of the Committee and appoint additional
members, remove members (with or without cause) and substitute new members, fill
vacancies (however caused), and remove all members of the Committee and
thereafter directly administer the Plan, all to the extent permitted by the
rules governing a plan intended to qualify as a discretionary plan under Rule
16b-3;
iii) ADMINISTRATION WITH RESPECT TO OTHER
PERSONS. With respect to Option grants made to Employees or Consultants who are
neither Directors nor Officers of the Company, the Plan shall be administered by
(A) the Board; or (B) a committee designated by the Board, which committee shall
be constituted to satisfy Applicable
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Laws. Once appointed, such Committee shall serve in its designated capacity and
otherwise directed by the Board. The Board may increase the size of the new
Committee and appoint additional members, remove members (with or without
cause), and substitute new members, fill vacancies (however caused), and remove
all members of the Committee and thereafter directly administer the Plan, all to
the extent permitted by Applicable Laws.
iv) ADMINISTRATION WITH RESPECT TO COVERED
EMPLOYEES. Notwithstanding the foregoing, grants of Awards to any Covered
Employee intended to qualify as Performance-Based Compensation shall be made
only by a Committee (or subcommittee of a Committee) which is comprised solely
of two or more Directors eligible to serve on a committee making Awards
qualifying as Performance-Based Compensation. In the case of such Awards granted
to Covered Employees, references to the "Administrator" or to a "Committee"
shall be deemed to be references to such Committee or subcommittee.
b. POWERS OF THE ADMINISTRATOR. Subject to the provisions of
the Plan, and in the case of a Committee, subject to the specific duties
delegated by the Board to such Committee, the Administrator shall have the
authority, in its discretion:
i) to determine the Fair Market Value of the
Common Stock, in accordance with Section 2(n) of the Plan;
ii) to select the Consultants and Employees to
whom Options may be granted hereunder;
iii) to determine whether and to what extent
Options are granted hereunder;
iv) to determine the number of shares of Common
Stock to be covered by each Option granted hereunder;
v) to approve forms of agreement for use under
the Plan;
vi) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted hereunder. Such
terms and conditions include, but are not limited to, the exercise price, the
time or times when Options may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any Option or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
vii) to reduce the exercise price of any Option
to the then-current Fair Market Value, if the Fair Market Value of the Common
Stock covered by such Option shall have declined since the date the option was
granted;
viii) to construe and interpret the terms of the
Plan and awards granted pursuant to the Plan;
ix) to prescribe, amend and rescind rules and
regulations relating to the Plan;
x) to modify or amend each Option (subject to
Section 16 of the Plan);
xi) to authorize any person to execute on behalf
of the Company any instrument required to effect the grant of an Option
previously granted by the Administrator;
xii) to institute an Option Exchange Program;
xiii) to determine the terms and restrictions
applicable to Options; and
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xiv) to make all other determinations deemed
necessary or advisable for administering the Plan.
c. EFFECT OF ADMINISTRATOR'S DECISION. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options.
5. ELIGIBILITY. Nonstatutory Stock Options may be granted to Employees
and Consultants. Incentive Stock Options may be granted only to Employees. If
otherwise eligible, an Employee or Consultant who has been granted an Option may
be granted additional Options.
6. LIMITATIONS.
a. Each Option shall be designated in the Notice of Grant as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value: (i) of Shares subject to an Optionee's incentive stock options granted by
the Company, any Parent or Subsidiary, which (ii) become exercisable for the
first time during any calendar year (under all plans of the Company, or any
Parent or Subsidiary), (iii) exceeds $100,000, such excess Options shall be
treated as Nonstatutory Stock Options. For purposes of this Section 6.a.,
Incentive Stock Options shall be taken into account in the order in which they
were granted, and the Fair Market Value of the Shares shall be determined as of
the time of grant.
b. Neither the Plan nor any Option shall confer upon an
Optionee any right with respect to continuing the Optionee's employment or
consulting relationship with the Company, nor shall they interfere in any way
with the Optionee's right or the Company's right to terminate such employment or
consulting relationship at any time, with or without cause.
c. The following limitation shall apply to grants of Options
under the Plan:
No individual shall be granted, in any fiscal year of the
Company, Options to purchase more than 500,000 Shares.
The foregoing limitation shall be adjusted proportionately in
connection with any change in the Company's capitalization as described in
Section 12.
The limitation set forth in this Section 6.c. is intended to
satisfy the requirements applicable to Options intended to qualify as
"performance-based compensation" (within the meaning of Section 162(m) of the
Code). In the event the Administrator determines that such limitations are not
required to qualify Options as performance-based compensation, the Administrator
may modify or eliminate such limitations.
d. No Option with a per share exercise price which is greater
than the Fair Market Value shall be repriced unless approved by the stockholders
of the Company.
7. TERM OF PLAN. Subject to Section 16 of the Plan, the Plan shall
become effective upon the earlier to occur of its adoption by the Board, or its
approval by the shareholders of the Company as described in Section 18 of the
Plan. It shall continue in effect for a term of ten (10) years, unless
terminated earlier under Section 14 of the Plan.
8. TERM OF OPTION. The term of each Option shall be stated in the
Notice of Grant; provided, however, that in the case of an Incentive Stock
Option, the term shall be ten (10) years from the date of grant or such shorter
term as may be provided in the Notice of Grant. Moreover, in the case of an
Incentive Stock Option granted to an Optionee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company, or any Parent or
Subsidiary, the term of the Incentive Stock Option shall be five (5) years from
the date of grant or such shorter term as may be provided in the Notice of
Grant.
5
<PAGE>
9. OPTION EXERCISE PRICE AND CONSIDERATION.
a. EXERCISE PRICE. The per Share exercise price for the
Shares to be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
i) In the case of an Incentive Stock Option:
a) granted to an Employee who, at the
time the Incentive Stock Option is granted, owns stock representing more than
ten percent (10%) of the voting power of all classes of stock of the Company, or
any Parent or Subsidiary, the per Share exercise price shall be no less than one
hundred ten percent (110%) of the Fair Market Value per Share on the date of
grant.
b) granted to any Employee, the per
Share exercise price shall be no less than one hundred percent (100%) of the
Fair Market Value per Share on the date of grant.
ii) In the case of a Nonstatutory Stock Option,
the per Share exercise price shall be determined by the Administrator, but shall
not be less than one hundred percent (100%) of the Fair Market Value per Share
on the date of grant unless approved by the stockholders of the Company.
iii) In the case of Awards intended to qualify as
Performance-Based Compensation, the exercise or purchase price, if any, shall be
not less than one hundred percent (100%) of the Fair Market Value per Share on
the date of grant.
b. WAITING PERIOD AND EXERCISE DATES. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised. In so doing, the Administrator may specify that an
Option may not be exercised until the completion of a service period.
c. FORM OF CONSIDERATION. The Administrator shall determine
the acceptable form of consideration for exercising an Option, including the
method of payment. In the case of an Incentive Stock Option, the Administrator
shall determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
i) cash;
ii) check;
iii) promissory note;
iv) other Shares which (a) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six (6) months on the date of surrender; and (b) have a Fair Market Value
on the date of surrender equal to the aggregate exercise price of the Shares as
to which said Option shall be exercised;
v) delivery of a properly executed exercise
notice, together with such other documentation as the Administrator and the
broker, if applicable, shall require to effect an exercise of the Option and
delivery to the Company of the sale or loan proceeds required to pay the
Exercise Price;
vi) a reduction in the amount of any Company
liability to the Optionee, including any liability attributable to the
Optionee's participation in any Company-sponsored deferred compensation program
or arrangement;
vii) any combination of the foregoing methods of
payment; or
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<PAGE>
viii) such other consideration and method of
payment for the issuance of Shares to the extent permitted by Applicable Laws.
10. EXERCISE OF OPTION.
a. PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable according to the terms of the Plan, and
at such times and under such conditions as determined by the Administrator and
set forth in the Option Agreement.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when the Company
receives: (i) written notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the stock certificate evidencing such Shares is issued (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company), no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly after the Option is exercised. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 12 of the Plan.
Exercising an Option in any manner shall decrease the number
of Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
b. TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP. Upon
termination of an Optionee's Continuous Status as an Employee or Consultant,
other than upon the Optionee's death or Disability, the Optionee may exercise
his or her Option, but only within such period of time as is determined by the
Administrator, and only to the extent that the Optionee was entitled to exercise
it at the date of such termination (but in no event later than the expiration of
the term of such Option as set forth in the Notice of Grant). In the case of an
Incentive Stock Option, the Administrator shall determine such period of time
(in no event to exceed ninety (90) days from the date of termination) when the
Option is granted. If, at the date of termination, the Optionee is not entitled
to exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified by the
Administrator, the Option shall terminate, and the Shares covered by such Option
shall revert to the Plan.
c. DISABILITY OF OPTIONEE. In the event that an Optionee's
Continuous Status as an Employee or Consultant terminates as a result of
Optionee's Disability, the Optionee may exercise his or her Option at any time
within twelve (12) months from the date of such termination, but only to the
extent that the Optionee was entitled to exercise it at the date of such
termination (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant). If, at the date of termination, the
Optionee is not entitled to exercise his or her entire Option, the Shares
covered by the unexercisable portion of the Option shall revert to the Plan. If,
after termination, the Optionee does not exercise his or her Option within the
time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
d. DEATH OF OPTIONEE. In the event of the death of an
Optionee, the Option may be exercised at any time within twelve (12) months
following the date of death (but in no event later than the expiration of the
term of such Option as set forth in the Notice of Grant), by the Optionee's
estate or by a person who acquired the right to exercise the Option by bequest
or inheritance, but only to the extent that the Optionee was entitled to
exercise the Option at the date of death. If, at the time of death, the Optionee
was not entitled to exercise his or her entire Option, the Shares covered by the
unexercisable portion of the Option shall immediately revert to the Plan. If,
after death, the Optionee's estate or a person who acquired the right to
exercise the Option by bequest or inheritance does not exercise the Option
7
<PAGE>
within the time specified herein, the Option shall terminate and the Shares
covered by such option shall revert to the Plan.
e. RULE 16b-3. Options granted to individuals subject to
Section 16 of the Exchange Act ("Insiders"), must comply with the applicable
provisions of Rule 16b-3 and shall contain such additional conditions or
restrictions as may be required thereunder to qualify for the maximum exemption
from Section 16 of the Exchange Act with respect to Plan transactions.
11. NONTRANSFERABILITY OF OPTIONS. An Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner, other than by
Will or by the laws of descent or distribution, and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER,
ASSET SALE OR CHANGE OF CONTROL.
a. CHANGES IN CAPITALIZATION. Subject to any required action
by the shareholders of the Company, the number of Shares of Common Stock covered
by each outstanding Option, and the number of Shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per Share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued Shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued Shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of Shares of Common Stock subject to an Option.
b. DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it will terminate immediately prior to the
consummation of such proposed action. The Board may, in the exercise of its sole
discretion in such instances, declare that any Option shall terminate as of a
date fixed by the Board and give each Optionee the right to exercise his or her
Option as to all or any part of the Optioned Stock, including Shares as to which
the Option would not otherwise be exercisable.
c. MERGER OR ASSET SALE. Subject to the provisions of
paragraph (d) hereof, in the event of a merger of the Company with or into
another corporation, or the sale of substantially all of the assets of the
Company, each outstanding Option shall be assumed or an equivalent option or
right shall be substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation does not agree to assume the Option or to substitute an equivalent
option, the Administrator shall, in lieu of such assumption or substitution,
provide for the Optionee to have the right to exercise the Option as to all or a
portion of the Optioned Stock, including Shares as to which it would not
otherwise be exercisable. If the Administrator makes an Option exercisable in
lieu of assumption or substitution in the event of a merger or sale of assets,
the Administrator shall notify the Optionee that the Option shall be fully
exercisable for a period of fifteen (15) days from the date of such notice, and
the Option will terminate upon the expiration of such period. For the purposes
of this paragraph, the Option shall be considered assumed if, following the
merger or sale of assets, the option confers the right to purchase, for each
Share of Optioned Stock subject to the Option immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option, for each Share of Optioned Stock
subject to the Option, to be solely common stock of the successor corporation
8
<PAGE>
or its Parent equal in fair market value to the per-share consideration received
by holders of Common Stock in the merger or sale of assets.
d. CHANGE IN CONTROL. In the event of a "Change of Control" of
the Company, as defined in paragraph (e) below, then the following acceleration
and valuation provisions shall apply:
i) Except as otherwise determined by the Board,
in its discretion, in the event of an anticipated Change in Control, any Options
outstanding on the date such Change in Control is determined to have occurred
that are not yet exercisable and vested on such date shall become fully
exercisable and vested;
ii) Except as otherwise determined by the Board,
in its discretion, in the event of an anticipated Change in Control, all
outstanding Options, to the extent they are exercisable and vested (including
Options that shall become exercisable and vested pursuant to subparagraph i)
above), shall be terminated in exchange for a cash payment equal to the Change
in Control Price (reduced by the exercise price applicable to such Options).
These cash proceeds shall be paid to the Optionee or, in the event of death of
an Optionee, prior to payment, to the estate of the Optionees or a person who
acquired the right to exercise the Option by bequest or inheritance;
iii) Any payment made pursuant to this paragraph
(d) shall not exceed the maximum amount which could be paid to an Optionee
without having the payment treated as an "excess parachute payment" within the
meaning of ss. 280G of the Code.
e. DEFINITION OF "CHANGE IN CONTROL". For purposes of
this Section 12, a "Change in Control" means the happening of any of the
following:
i) When any "person," as such term is used in
Sections 13(d) and 14(d) of the Exchange Act (other than the Company, a
Subsidiary or a Company employee benefit plan, including any trustee of such
plan acting as trustee), is or becomes the `beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing more than twenty-five percent (25%) of the combined voting
power of the Company's then-outstanding securities entitled to vote generally in
the election of directors; or
ii) A merger or consolidation of the Company
with any other corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least seventy-five
percent (75 %) of the total voting power represented by the voting securities of
the Company or such surviving entity outstanding immediately after such merger
or consolidation, or the stockholders of the Company approve an agreement for
the sale or disposition by the Company of all or substantially all the Company's
assets; or
iii) A change in the composition of the Board of
Directors of the Company occurring within a two-year period, as a result of
which fewer than a majority of the directors are Incumbent Directors. "Incumbent
Directors" shall mean directors who either (A) are directors of the Company as
of the date the Plan is approved by the stockholders; or (B) are elected, or
nominated for election, to the Board of Directors of the Company with the
affirmative votes of at least a majority of the Incumbent Directors at the time
of such election or nomination (but shall not include an individual whose
election or nomination is in connection with an actual or threatened proxy
contest relating to the election of directors to the Company).
f. CHANGE IN CONTROL PRICE. For purposes of this Section
12, "Change in Control Price" shall be, as determined by the Board: (i) the
highest Fair Market Value of a Share within the 60-day period immediately
preceding the date of determination of the Change of Control Price by the Board
(the "60-Day Period"); or (ii) the highest price paid or offered per Share, as
determined by the Board, in any bona fide transaction or bona fide offer related
to the Change in Control of the Company, at any time within the 60-Day Period;
or (iii) some lower price as the Board, in its discretion, determines to be a
reasonable estimate of the fair market value of a Share.
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<PAGE>
13. DATE OF GRANT. The date of grant of an Option shall be, for
all purposes, the date on which the Administrator makes the determination
granting such Option, or such other later date as is determined by the
Administrator. Notice of the determination shall be provided to each Optionee
within a reasonable time after the date of such grant.
14. AMENDMENT AND TERMINATION OF THE PLAN.
a. AMENDMENT AND TERMINATION. The Board may at any time
amend, alter, suspend or terminate the Plan.
b. SHAREHOLDER APPROVAL. The Company shall obtain
shareholder approval of any Plan amendment to the extent necessary and desirable
to comply with Rule 16b-3 or with Section 422 of the Code (or any successor rule
or statute or other applicable law, rule or regulation, including the
requirements of any exchange or quotation system on which the Common Stock is
listed or quoted). Such shareholder approval, if required, shall be obtained in
such a manner and to such a degree as is required by the applicable law, rule or
regulation.
c. EFFECT OF AMENDMENT OR TERMINATION. No. amendment,
alteration, suspension or termination of the Plan shall impair the rights of any
Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee and
the Company.
15. CONDITIONS UPON ISSUANCE OF SHARES.
a. LEGAL COMPLIANCE. Shares shall not be issued pursuant
to the exercise of an Option unless the exercise of such Option and the issuance
and delivery of such Shares shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, Applicable Laws,
and the requirements of any stock exchange or quotation system upon which the
Shares may then be listed or quoted, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
b. INVESTMENT REPRESENTATION. As a condition to the
exercise of an Option, the Company may require the person exercising such Option
to represent and warrant at the time of any such exercise that the Shares are
being purchased only for investment and without any present intention to sell or
distribute such Shares, if, in the opinion of counsel for the Company, such a
representation is required.
16. LIABILITY OF COMPANY.
a. INABILITY TO OBTAIN AUTHORITY. The inability of the
Company to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
b. GRANTS EXCEEDING ALLOTTED SHARES. If the Option Stock
covered by an Option exceeds, as of the date of grant, the number of Shares
which may be issued under the Plan without additional shareholder approval, such
Option shall be void with respect to such excess Optioned Stock, unless
shareholder approval of an amendment sufficiently increasing the number of
Shares subject to the Plan is timely obtained in accordance with Section 14.b.
of the Plan.
17. RESERVATION OF SHARES. The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.
18. SHAREHOLDER APPROVAL. Continuance of the Plan shall be subject
to approval by the shareholders of the Company within twelve (12) months before
or after the date the Plan is adopted. Such shareholder approval shall be
obtained in the manner and to the degree required under applicable federal and
state law.
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DSP GROUP, INC.
1991 EMPLOYEE AND CONSULTANT STOCK PLAN
(As Amended and Restated Effective January 10, 1994; April 22, 1994;
May 16, 1995; May 21, 1996; and May 19, 1998)
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Stock Option Agreement (the "Option
Agreement").
A. NOTICE OF STOCK OPTION GRANT
[Optionee's Name and Address]
You have been granted an option to purchase Common Stock of the
Company, subject to the terms and conditions of the Plan and this Option
Agreement, as follows:
Grant Number
--------------
Date of Grant
--------------
Vesting Commencement Date
--------------
Exercise Price per Share $
-------------
Total Number of Shares Granted
--------------
Total Exercise Price $
-------------
Type of Option Incentive Stock Option
----
Nonstatutory Stock Option
----
Term/Expiration Date
--------------
VESTING SCHEDULE:
This Option may be exercised, in whole or in part, in accordance with
the following schedule:
25% of the Shares subject to the Option shall vest 12 months
after the Vesting Commencement Date, and 6.25 % of the Shares subject
to the Option shall Vest at the end of each three-month period
thereafter.
TERMINATION PERIOD:
This Option may be exercised for ___ days after termination of the
Optionee's employment or consulting relationship with the Company. Upon the
death or disability of the Optionee, this Option may be exercised for such
longer period as provided in the Plan. In the event of the Optionee's change in
status from Employee to Consultant or Consultant to Employee, this Option
Agreement shall remain in effect. In no event shall this Option be exercised
later than the Term/Expiration Date as provided above.
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<PAGE>
B. AGREEMENT
1. GRANT OF OPTION. The Plan Administrator of the Company
hereby grants to the Optionee named in the Notice of Grant attached as Part
1. of this Agreement (the "Optionee"), an option (the "Option") to purchase a
number of Shares, as set forth in the Notice of Grant, at the exercise price
per share set forth in the Notice of Grant (the "Exercise Price"), subject to
the terms and conditions of the Plan, which is incorporated herein by
reference. Subject to Section 14.c. of the Plan, in the event of a conflict
between the terms and conditions of the Plan and the terms and conditions of
this Option Agreement, the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock
Option, this Option is intended to qualify as an Incentive Stock Option under
Section 422 of the Code. However, if this Option is intended to be an
Incentive Stock Option, to the extent that it exceeds the $100,000 rule of
Code Section 422(d), it shall be treated as a Nonstatutory Stock Option.
2. EXERCISE OF OPTION.
a. RIGHT TO EXERCISE. This Option is exercisable during its
term in accordance with the Vesting Schedule set out in the Notice of Grant and
the applicable provisions of the Plan and this Option Agreement. In the event of
Optionee's death, Disability or other termination of Optionee's employment or
consulting relationship, the exercisability of the Option is governed by the
applicable provisions of the Plan and this Option Agreement.
b. METHOD OF EXERCISE. This Option is exercisable by delivery
of an exercise notice, in the form attached as Exhibit A (the "Exercise
Notice"), which shall state the election to exercise the Option, the number of
Shares in respect of which the Option is being exercised (the "Exercised
Shares") and such other representations and agreements as may be required by the
Company pursuant to the provisions of the Plan. The Exercise Notice shall be
signed by the Optionee and shall be delivered in person or by certified mail to
the Secretary of the Company. The Exercise Notice shall be accompanied by
payment of the aggregate Exercise Price as to all Exercised Shares. This Option
shall be deemed to be exercised upon receipt by the Company of such fully
executed Exercise Notice accompanied by such aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of this
Option unless such issuance and exercise complies with all relevant provisions
of law and the requirements of any stock exchange or quotation service upon
which the Shares are then listed. Assuming such compliance, for income tax
purposes the Exercised Shares shall be considered transferred to the optionee on
the date the Option is exercised with respect to such Exercised Shares.
3. METHOD OF PAYMENT. Payment of the aggregate Exercise Price
shall be by any of the following, or a combination thereof, at the election
of the Optionee:
a. Cash; or
b. Check; or
c. Delivery of a properly executed Exercise Notice,
together with such other documentation as the Administrator and the broker,
if applicable, shall require to affect an exercise of the Option and delivery
to the Company of the sale or loan proceeds required to pay the Exercise
Price; or
d. Surrender of other Shares which (i) in the case of
Shares acquired upon exercise of an Option, have been owned by the Optionee
for more than six (6) months on the date of surrender; and (ii) have a Fair
Market Value on the date of surrender equal to the aggregate Exercise Price
of the Exercised Shares.
4. NON-TRANSFERABILITY OF OPTION. This Option may not be
transferred in any manner otherwise than by Will, or by the laws of descent
or distribution, and may be exercised during the lifetime of Optionee only by
the Optionee. The terms of the Plan and this Option Agreement shall be
binding upon the executors, administrators, heirs, successors and assigns of
the Optionee.
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<PAGE>
5. TERM OF OPTION. This Option may be exercised only within
the term set out in the Notice of Grant, and may be exercised during such
term only in accordance with the Plan and the terms of this Option Agreement.
6. TAX CONSEQUENCES. Some of the federal, California and other
states tax consequences relating to this Option, as of the date of this
Option, are set forth below. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE
TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A
TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
a. EXERCISING THE OPTION.
i) NONSTATUTORY STOCK OPTION. The Optionee may
incur regular federal income tax and California and other states income tax
liabilities upon exercise of a NSO. The Optionee will be treated as having
received compensation income (taxable at ordinary income tax rates) equal to the
excess, if any, of the fair market value of the Exercised Shares on the date of
exercise over their aggregate Exercise Price. If the Optionee is an employee,
the Company will be required to withhold from his or her compensation or collect
from Optionee and pay to the applicable taxing authorities an amount equal to a
percentage of this compensation income at the time of exercise.
ii) INCENTIVE STOCK OPTION. If this Option
qualifies as an ISO, the Optionee will have no regular federal income tax, or
California or other states income tax liabilities upon its exercise, although
the excess, if any, of the fair market value of the Exercised Shares on the date
of exercise over their aggregate Exercise Price will be treated as an adjustment
to the alternative minimum tax for federal tax purposes, and may subject the
Optionee to alternative minimum tax in the year of exercise. In the event that
the Optionee undergoes a change of status from Employee to Consultant, any
Incentive Stock Option of the Optionee that remains unexercised shall
automatically convert a Nonstatutory Stock Option on the ninety-first (91st) day
following such change of status.
b. DISPOSITION OF SHARES.
i) NSO. If the Optionee holds NSO Shares for at
least one year, any gain realized on disposition of the Shares will be treated
as long-term capital gain for federal income tax purposes.
ii) ISO. If the Optionee holds ISO Shares for at
least one year after exercise, and two years after the grant date, any gain
realized on disposition of the Shares will be treated as long-term capital gain
for federal income tax purposes. If the Optionee disposes of ISO Shares within
one year after exercise, or two years after the grant date, any gain realized on
such disposition will be treated as compensation income (taxable at ordinary
income rates) to the extent of the excess, if any, of the lesser of (A) the
difference between the fair market value of the Shares acquired on the date of
exercise and the aggregate Exercise Price; or (b) the difference between the
sale price of such Shares and the aggregate Exercise Price.
c. NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES.
If the Optionee sells or otherwise disposes of any of the Shares acquired
pursuant to an ISO on or before the later of (i) two years after the Grant
date; or (ii) one year after the exercise Date, the Optionee shall
immediately notify the Company in writing of such disposition. The Optionee
agrees that he or she may be subject to income tax withholding by the Company
on the compensation income recognized from such early disposition of ISO
Shares by payment in cash or out of the current earnings paid to the Optionee.
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By your signature and the signature of the Company's representative
below, you and the Company agree that this Option is granted under and governed
by the terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement, and fully understands all provisions of the Plan and Option
Agreement. Optionee hereby agrees to accept as binding, conclusive and final all
decisions or interpretations of the Administrator upon any questions relating to
the Plan and Option Agreement.
OPTIONEE: DSP GROUP, INC.
By:
- ---------------------------- ----------------------------
(Signature) (Signature)
Title:
- ---------------------------- ----------------------------
(Print Name)
- ----------------------------
(Print Address)
CONSENT OF SPOUSE
The undersigned spouse of Optionee has read and hereby approves the
terms and conditions of the Plan and this Option Agreement. In consideration of
the Company's granting his or her spouse the right to purchase Shares as set
forth in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
----------------------------
Spouse of Optionee
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Exhibit A
DSP GROUP, INC.
1991 EMPLOYEE AND CONSULTANT STOCK PLAN
(As Amended and Restated Effective January 10, 1994; April 22, 1994;
May 16, 1995; May 21, 1996; and May 19, 1998)
EXERCISE NOTICE
DSP Group, Inc.
3120 Scott Boulevard
Santa Clara, CA 95054
Attention: Chief Financial Officer
1. EXERCISE OF OPTION. Effective as of today, ________, 19__, the
undersigned, ("Purchaser"), hereby elects to purchase ____________ (__) shares
(the "Shares") of the Common Stock of DSP Group, Inc. (the "Company") under and
pursuant to the 1991 Employee and Consultant Stock Plan, as amended and restated
effective January 10, 1994; April 22, 1994; May 16, 1995; and May 21, 1996 (the
"Plan"), and the Stock Option Agreement dated (the "Option Agreement"). The
purchase price for the Shares shall be _____________($_____), as required by the
Option Agreement.
2. DELIVERY OF PAYMENT. Purchaser herewith delivers to the Company the
full purchase price for the Shares.
3. REPRESENTATIONS OF PURCHASER. Purchaser acknowledges that Purchaser
has received, read and understood the Plan and the Option Agreement, and agrees
to abide by and be bound by their terms and conditions.
4. RIGHTS AS SHAREHOLDER. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment will
be made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 12 of the
Plan.
5. TAX CONSULTATION. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
6. ENTIRE AGREEMENT; GOVERNING LAW. The Plan and Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties and supersede in their
entirety all prior undertakings and agreements of the Company and Purchaser with
respect to the subject matter hereof, and such agreement is governed by
California law, except for that body of law pertaining to conflict of laws.
15
<PAGE>
Submitted by: Accepted by:
PURCHASER: DSP GROUP, INC.:
By:
- ---------------------------- -------------------------
(Signature) (Signature)
- ---------------------------- ----------------------------
(Print Name and Title)
ADDRESS: ADDRESS:
3120 Scott Boulevard
Santa Clara, CA 95054
16
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DSP GROUP, INC.
1993 DIRECTOR STOCK OPTION PLAN
(As Amended July 19, 1999)
1. PURPOSES OF THE PLAN. The purposes of this Director Stock
Option Plan are to attract and retain the best available personnel for service
as Directors of the Company, to provide additional incentive to the Outside
Directors of the Company to serve as Directors, and to encourage their continued
service on the Board.
All options granted hereunder shall be "nonstatutory stock options."
2. DEFINITIONS. As used herein, the following definitions shall
apply:
a. "BOARD" shall mean the Board of Directors of the
Company.
b. "CODE" shall mean the Internal Revenue Code of 1986,
as amended.
c. "COMMON STOCK" shall mean the Common Stock of the
Company.
d. "COMPANY" shall mean DSP Group, Inc., a Delaware
corporation.
e. "CONTINUOUS STATUS AS A DIRECTOR" shall mean the
absence of any interruption or termination of service as a Director.
f. "DIRECTOR" shall mean a member of the Board.
g. "EFFECTIVE DATE" shall have the meaning as set forth
in Section 6 below.
h. "EMPLOYEE" shall mean any person, including officers
and Directors, employed by the Company or any Parent or Subsidiary of the
Company. The payment of a Director's fee by the Company shall not be sufficient
in and of itself to constitute "employment" by the Company.
i. "EXCHANGE ACT" shall mean the Securities Exchange Act
of 1934, as amended.
j. "FIRST OPTION" shall have the meaning as set forth in
Section 4.b.ii. below.
k. "OPTION" shall mean a stock option granted pursuant
to the Plan.
l. "OPTIONED STOCK" shall mean the Common Stock subject
to an Option.
m. "OPTIONEE" shall mean an Outside Director who
receives an Option.
n. "OUTSIDE DIRECTOR" shall mean a Director who is not
an Employee.
o. "PARENT" shall mean a "parent corporation," whether
now or hereafter existing, as defined in Section 424(e) of the Code.
p. "PLAN" shall mean this 1993 Director Stock Option
Plan.
q. "SHARE" shall mean a share of the Common Stock, as
adjusted in accordance with Section 11 of the Plan.
r. "SUBSEQUENT OPTION" shall have the meaning as set
forth in Section 4.b.iii. below.
s. "SUBSIDIARY" shall mean a "Subsidiary Corporation,"
whether now or hereafter existing, as defined in Section 424(f) of the Code.
t. "AFFILIATE" and "ASSOCIATE" shall have the respective
meanings ascribed to such terms in Rule 126-2 promulgated under the Exchange
Act.
u. "CHANGE IN CONTROL" means a change in ownership or
control of the Company effected through either of the following transactions:
(i) the direct or indirect acquisition by any person
or related group of persons (other than an acquisition from or by
the Company or by a Company-sponsored employee benefit
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plan or by a person that directly or indirectly controls, is
controlled by, or is under common control with, the Company) of
beneficial ownership (within the meaning of Rule 13d-3 of the
Exchange Act) of securities possessing more than fifty percent
(50%) of the total combined voting power of the Company's
outstanding securities pursuant to a tender or exchange offer made
directly to the Company's stockholders which a majority of the
Continuing Directors who are not Affiliates or Associates of the
offeror do not recommend such stockholders accept, or
(ii) a change in the composition of the Board over a
period of thirty-six (36) months or less such that a majority of
the Board members (rounded up to the next whole number) ceases, by
reason of one or more contested elections for Board membership, to
be comprised of individuals who are Continuing Directors.
v. "CONTINUING DIRECTORS" means members of the Board who
either (i) have been Board members continuously for a period of at least
thirty-six (36) months or (ii) have been Board members for less than thirty-six
(36) months and were elected or nominated for election as Board members by at
least a majority of the Board members described in clause (i) who were still in
office at the time such election or nomination was approved by the Board.
w. "CORPORATE TRANSACTION" means any of the following
stockholder-approved transactions to which the Company is a party:
(i) a merger or consolidation in which the Company is
not the surviving entity, except for a transaction the principal
purpose of which is to change the state in which the Company is
incorporated;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company (including the
capital stock of the Company's subsidiary corporations) in
connection with the complete liquidation or dissolution of the
Company; or
(iii) any reverse merger in which the Company is the
surviving entity but in which securities possessing more than fifty
percent (50%) of the total combined voting power of the Company's
outstanding securities are transferred to a person or persons
different from those who held such securities immediately prior to
such merger.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of
Section 11 of the Plan, the maximum aggregate number of Shares which may be
optioned and sold under the Plan is 275,000 Shares (the "Pool") of Common Stock.
The Shares may be authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan. If Shares which were acquired upon exercise of an
Option are subsequently repurchased by the Company, such Shares shall not in any
event be returned to the Plan and shall not become available for future grant
under the Plan.
4. ADMINISTRATION OF AND GRANTS OF OPTIONS UNDER THE PLAN.
a. ADMINISTRATOR. Except as otherwise required herein,
the Plan shall be administered by the Board.
b. PROCEDURE FOR GRANTS. All grants of Options hereunder
shall be automatic and nondiscretionary and shall be made strictly in accordance
with the following provisions:
i) No person shall have any discretion to
select which Outside Directors shall be granted Options or to determine the
number of Shares to be covered by Options granted to Outside Directors.
ii) Each person who is an Outside Director on
the Effective Date of this Plan and each Outside Director who subsequently
becomes a member of the Board of Directors shall be automatically granted an
Option to purchase 15,000 Shares (the "First Option") on the date on which the
later of the following events occurs: (A) the Effective Date of this Plan, as
determined in accordance with Section 6
2
<PAGE>
hereof; or (B) the date on which such person first becomes an Outside Director,
whether through election by the stockholders of the Company or appointment by
the Board of Directors to fill a vacancy.
iii) Additionally, beginning on January 1, 1997,
each Outside Director shall be automatically granted (i) an Option to purchase
5,000 Shares (a "Subsequent Option"), on January 1 of each year, if on such
date, he or she shall have served on the Board for at least six (6) months and
(ii) an Option to purchase 5,000 Shares (a "Committee Option"), on January 1 of
each year, for each committee of the Board on which he or she shall have served
as the chairperson for at least six (6) months on such date.
iv) Notwithstanding the provisions of
subsections (ii) and (iii) hereof, in the event that a grant would cause the
number of Shares subject to outstanding Options, plus the number of shares
previously purchased upon exercise of Options to exceed the Pool, then each such
automatic grant shall be for that number of Shares determined by dividing the
total number of Shares remaining available for grant by the number of grants to
be made on the automatic grant date. Any further grants shall then be deferred
until such time, if any, as additional Shares become available for grant under
the Plan through action of the stockholders to increase the number of Shares
which may be issued under the Plan or through cancellation or expiration of
Options previously granted hereunder.
v) Notwithstanding the provisions of
subsections ii) and iii) hereof, any grant of an Option made before the Company
has obtained stockholder approval of the Plan in accordance with Section 17
hereof shall have their exercisability conditioned upon obtaining such
stockholder approval of the Plan in accordance with Section 17 hereof.
vi) The terms of any Option granted hereunder
shall be as follows:
a) The Option shall be
exercisable only while the Outside Director remains a Director of the Company,
except as set forth in Section 9 hereof.
b) The exercise price per Share shall
be 100% of the fair market value (as defined in Section 8.b. hereunder) per
Share on the date of grant of the Option.
c) The Option shall vest and
become exercisable as to one-third of the Shares subject to the Option on
the first anniversary of the date of grant of the Option, and shall vest
and become exercisable as to one-third of the Shares subject to the Option
at the end of each twelve-month period thereafter, subject to the provisions set
forth in Section 9, below.
d) The Board may accelerate the unvested
portion of any Option held by any Director whose term expires prior to an
Option granted under the Plan being fully exercisable.
c. POWERS OF THE BOARD. Subject to the provisions and
restrictions of the Plan, the Board shall have the authority, in its discretion:
(i) to determine, upon review of relevant information and in accordance with
Section 8.b. of the Plan, the fair market value of the Common Stock; (ii) to
determine the exercise price per share of Options to be granted, which exercise
price shall be determined in accordance with Section 8.a. of the Plan; (iii) to
interpret the Plan; (iv) to prescribe, amend and rescind rules and regulations
relating to the Plan; (v) to authorize any person to execute on behalf of the
Company any instrument required to effectuate the grant of an Option previously
granted hereunder; and (vi) to make all other determinations deemed necessary or
advisable for the administration of the Plan.
d. EFFECT OF BOARD'S DECISION. All decisions,
determinations and interpretations of the Board shall be final and binding on
all Optionees and any other holders of any Options granted under the Plan.
5. ELIGIBILITY. Options may be granted only to Outside Directors.
All Options shall be automatically granted in accordance with the terms set
forth in Section 4.b. hereof. An Outside Director who has been granted an Option
may, if he or she is otherwise eligible, be granted an additional Option or
Options in accordance with such provisions.
The Plan shall not confer upon an Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate his or her directorship at any time.
6. TERM OF PLAN; EFFECTIVE DATE. The Plan shall become effective
on the date on which the Company's registration statement on Form S-1 (or any
successor form thereof) is declared effective by the Securities and Exchange
Commission (the "Effective Date"). It shall continue in effect for a term of ten
(10) years, unless sooner terminated under Section 13 of the Plan, subject to
the limitations set forth in this Plan.
3
<PAGE>
7. TERM OF OPTION. The term of each Option shall be ten (10)
years from the date of grant thereof.
8. EXERCISE PRICE AND CONSIDERATION.
a. EXERCISE PRICE. The per Share exercise price for the
Shares to be issued pursuant to exercise of an Option shall be 100% of the fair
market value per Share on the date of grant of the Option.
b. FAIR MARKET VALUE. The fair market value per Share
shall be the mean of the bid and asked prices of the Common Stock in the
over-the-counter market on the date of grant, as reported in THE WALL STREET
JOURNAL (or, if not so reported, as otherwise reported by the National
Association of Securities Dealers Automated Quotation ("NASDAQ") System) or, in
the event that the Common Stock is traded on the NASDAQ National Market System
or listed on a stock exchange, the fair market value per Share shall be the
closing price on such system or exchange on the date of grant of the Option, as
reported in THE WALL STREET JOURNAL; provided, however, that if such market or
exchange is closed on the date of the grant of the Option then the fair market
value per Share shall be based on the most recent date on which such trading
occurred immediately prior to the date of the grant of the Option; provided,
further, that for purposes of First Options granted on the Effective Date, the
fair market value per share shall be the initial public offering price as set
forth in the final prospectus filed with the Securities and Exchange Commission
pursuant to Rule 424 under the Securities Act of 1933, as amended.
c. FORM OF CONSIDERATION. The consideration to be paid
for the Share to be issued upon exercise of an Option shall consist entirely of
cash, check, other Shares having a fair market value on the date of surrender
equal to the aggregate exercise price of the Shares as to which said Option
shall be exercised (which, if acquired from the Company, shall have been held
for at least six months), delivery of a properly executed exercise notice,
together with such other documentation as the Company and the broker, if
applicable, shall require to effect an exercise of the Option and delivery to
the Company of the sale or loan proceeds required to pay the exercise price, or
any combination of such methods of payment and/or any other consideration or
method of payment as shall be permitted under applicable corporate law.
9. EXERCISE OF OPTION.
a. PROCEDURE FOR EXERCISE: RIGHTS AS A STOCKHOLDER. An
Option granted hereunder shall be exercisable at such times as are set forth in
Section 4.b. hereof; provided, however, that no Options shall be exercisable
until stockholder approval of the Plan in accordance with Section 17 hereof has
been obtained.
An option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 8.c. of the Plan. Until the issuance (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the stock certificate evidencing such Shares,
no right to vote or receive dividends or any other rights as a stockholder shall
exist with respect to the Optioned Stock, notwithstanding the exercise of the
Option. A share certificate for the number of Shares so acquired shall be issued
to the Optionee as soon as practicable after exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
b. TERMINATION OF STATUS AS A DIRECTOR. If an Outside
Director ceases to serve as a Director, he or she may, but only within three
(3) months after the date he or she ceases to be a Director of the Company,
exercise his or her Option to the extent that he or she was entitled to
exercise it at the date of such termination. Notwithstanding the foregoing,
in no event may the Option be exercised after its term set forth in Section 7
has expired. The Board may extend the exercise period of an Option held by a
Director whose term is expiring to any date prior to the Option's expiration
date. To the extent that such Outside Director was not entitled to exercise
an Option at the date of such termination, or does not exercise such Option
(which he or she was entitled to exercise) within the time specified herein,
the Option shall terminate.
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c. DISABILITY OF OPTIONEE. Notwithstanding the
provisions of Section 9.b. above, in the event a Director is unable to continue
his or her service as a Director with the Company as a result of his or her
total and permanent disability (as defined in Section 22.3 of the Internal
Revenue Code), he or she may, but only within six (6) months from the date of
such termination, exercise his or her Option to the extent he or she was
entitled to exercise it at the date of such termination. Notwithstanding the
foregoing, in no event may the Option be exercised after its term set forth in
Section 7 has expired. To the extent that he or she was not entitled to exercise
the Option at the date of termination, or if he or she does not exercise such
Option (which he or she was entitled to exercise) within the time specified
herein, the Option shall terminate.
d. DEATH OF OPTIONEE. In the event of the death of an
Optionee:
i) during the term of the Option who is, at the
time of his or her death, a Director of the Company and who shall have been in
Continuous Status as a Director since the date of grant of the Option, the
Option may be exercised, at any time within twelve (12) months following the
date of death, by the Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the extent of the
right to exercise that would have accrued had the Optionee continued living and
remained in Continuous Status as Director for six (6) months after the date of
death. Notwithstanding the foregoing, in no event may the Option be exercised
after its term set forth in Section 7 has expired.
ii) within three (3) months after the
termination of Continuous Status as a Director, the Option may be exercised, at
any time within twelve (12) months following the date of death, by the
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent of the right to exercise that
had accrued at the date of termination. Notwithstanding the foregoing, in no
event may the option be exercised after its term set forth in Section 7 has
expired.
10. NONTRANSFERABILITY OF OPTIONS. The Option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution. The designation of a
beneficiary by an Optionee does not constitute a transfer. An Option may be
exercised during the lifetime of an Optionee only by the Optionee or a
transferee permitted under this Section.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION,
MERGER OR ASSET SALE.
a. CHANGES IN CAPITALIZATION. Subject to any required
action by the stockholders of the Company, the number of Shares covered by each
outstanding Option and the number of Shares which have been authorized for
issuance under the Plan but as to which no Options have yet been granted or
which have been returned to the Plan upon cancellation or expiration of an
Option, as well as the price per Share covered by each such outstanding Option,
shall be proportionately adjusted for an increase or decrease in the number of
issued Shares resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or prices of Shares subject to an Option.
b. DISSOLUTION OR LIQUIDATION. In the event of the
proposed dissolution or liquidation of the Company, to the extent that an Option
has not been previously exercised, it will terminate immediately prior to the
consummation of such proposed action. The Board may, in the exercise of its sole
discretion in such instances, declare that any Option shall terminate as of a
date fixed by the Board and give each Optionee the right to exercise his or her
Option as to all or any part of the Optioned Stock, including Shares as to which
the Option would not otherwise be exercisable.
c. MERGER OR ASSET SALE. In the event of a Corporate
Transaction, each Option which is at the time outstanding under the Plan
automatically shall become fully vested and exercisable and be released from any
restrictions on transfer and repurchase or forfeiture rights, immediately prior
to the specified effective date of such Corporate Transaction, for all of the
Shares at the time represented by such Option. Effective upon the consummation
of the Corporate Transaction, all outstanding Options under the Plan shall
terminate unless assumed by the successor company or its Parent. In the event of
a Change in Control (other than a Change in Control which also is a Corporate
Transaction), each Option which is at the time outstanding under the Plan
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<PAGE>
automatically shall become fully vested and exercisable and be released from any
restrictions on transfer and repurchase or forfeiture rights, immediately prior
to the specified effective date of such Change in Control, for all of the Shares
at the time represented by such Options. Each such Option shall remain
exercisable until the expiration or sooner termination of the applicable Option
term.
12. TIME OF GRANTING OPTIONS. The date of grant of an Option
shall, for all purposes, be the date determined in accordance with Section 4.b.
hereof. Notice of the determination shall be given to each Outside Director to
whom an Option is so granted within a reasonable time after the date of such
grant.
13. AMENDMENT AND TERMINATION OF THE PLAN.
a. AMENDMENT AND TERMINATION. The Board may amend or
terminate the Plan from time to time in such respects as the Board may deem
advisable; provided that, to the extent necessary and desirable to comply with
Rule 16b-3 under the Exchange Act (or any other applicable law or regulation),
the Company shall obtain approval of the stockholders of the Company to Plan
amendments to the extent and in the manner required by such law or regulation.
Notwithstanding the foregoing, the provisions set forth in Section 4 of this
Plan (and any other Sections of this Plan that affect the formula award terms
required to be specified in this Plan by Rule 16b-3) shall not be amended more
than once every six months, other than to comport with changes in the Code, the
Employee Retirement Income Security Act of 1974, as amended, or the rules
thereunder.
b. EFFECT OF AMENDMENT OR TERMINATION. Any such
amendment or termination of the Plan that would impair the rights of any
Optionee shall not affect Options already granted to such Optionee and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
15. RESERVATION OF SHARES. The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.
16. OPTION AGREEMENT. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
17. STOCKHOLDER APPROVAL.
a. Continuance of the Plan shall be subject to approval
by the stockholders of the Company at or prior to the first annual meeting of
stockholders held subsequent to the granting of an Option hereunder. If such
stockholder approval is obtained at a duly held stockholders' meeting, it may be
obtained by the affirmative vote of the holders of a majority of the outstanding
shares of the Company present or represented and entitled to vote thereon. If
such stockholder approval is obtained by written consent, it may be obtained by
the written consent of the holders of a majority of the outstanding shares of
the Company.
Any required approval of the stockholders of the Company shall
be solicited substantially in accordance with Section 14.a. of the Exchange Act
and the rules and regulations promulgated thereunder.
6
<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 SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUVCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 34,152
<SECURITIES> 81,134
<RECEIVABLES> 12,514
<ALLOWANCES> 576
<INVENTORY> 2,759
<CURRENT-ASSETS> 132,889
<PP&E> 15,367
<DEPRECIATION> 8,562
<TOTAL-ASSETS> 156,413
<CURRENT-LIABILITIES> 15,330
<BONDS> 0
0
0
<COMMON> 12
<OTHER-SE> 139,802
<TOTAL-LIABILITY-AND-EQUITY> 156,413
<SALES> 18,279
<TOTAL-REVENUES> 23,296
<CGS> 10,646
<TOTAL-COSTS> 10,666
<OTHER-EXPENSES> 3,900
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 65
<INCOME-PRETAX> 7,213
<INCOME-TAX> 1,443
<INCOME-CONTINUING> 5,770
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,770
<EPS-BASIC> 0.48
<EPS-DILUTED> 0.44
</TABLE>
