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UNITED STATES 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, 1996
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 0-25622
DSP COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0389180
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
20300 Stevens Creek Boulevard, Cupertino, California 95014
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (408) 777-2700
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 periods 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, 1996, there were 22,188,299 shares of Common Stock ($.001
par value) outstanding.
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INDEX
DSP COMMUNICATIONS, INC.
Page No.
PART I. FINANCIAL INFORMATION
_________________________________
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets - September 30, 1996
and December 31, 1995 .....................................3
Condensed consolidated income statements-Quarter
ended September 30, 1996 and 1995, and nine months
ended September 30, 1996 and 1995 ..........................4
Condensed consolidated statements of cash flows - Nine
months ended September 30, 1996 and 1995....................5
Notes to condensed consolidated financial statements-
September 30, 1996 ......................................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .........................7
PART II. OTHER INFORMATION
__________________________
Item 1. Legal Proceedings ...................................15
Item 2. Changes in Securities ...................................15
Item 3. Defaults upon Senior Securities .......................15
Item 4. Submission of Matters to a Vote of Security Holders .....15
Item 5. Other Information ......................................15
Item 6. Exhibits and Reports on Form 8-K .......................16
SIGNATURE .......................................................17
2
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Part I. Financial Information
Item 1. Financial Statements
DSP Communications Inc
Condensed Consolidated Balance Sheets
(U.S. Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1 9 9 6 1 9 9 5
-------------- -------------
(Unaudited) (Note 1)
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 72,736 $ 10,292
Short term investments 56,068 17,696
Trade accounts receivable 9,706 8,838
Other current assets 2,148 1,448
------------- --------------
Total current assets 140,658 38,274
Property and Equipment, net 3,360 1,823
Goodwill 2,010 2,379
Other Assets 1,388 1,643
------------- --------------
$ 147,416 $ 44,119
------------- --------------
------------- --------------
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 5,915 $ 3,419
Accrued compensation and benefits 2,393 1,711
Other accrued liabilities 6,771 3,478
Deferred income 1,423 473
------------- --------------
Total current liabilities 16,502 9,081
Other Liabilities 480 170
Stockholders' Equity
Common stock (22,188,468
and 18,105,922 shares issued
and outstanding at September 30, 1996,
and December 31, 1995, respectively) 22 18
Additional paid-in capital 118,228 39,794
Contributed capital 7,232 7,232
Accumulated earnings (deficit) 4,952 (12,176)
------------- ---------------
Total stockholders' equity 130,434 34,868
------------- ---------------
$ 147,416 $ 44,119
------------- ---------------
------------- ---------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
Note 1: The balance sheet at December 31, 1995 has been derived from audited
financial statements at that date, but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
3
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DSP Communications Inc.
Condensed Consolidated Income Statements
(U.S. Dollars and shares in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Three Nine Nine
Months Ended Months Ended Months Ended Months Ended
September 30, September 30, September 30, September 30,
1 9 9 6 1 9 9 5 1 9 9 6 1 9 9 5
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Revenues
Product $ 22,998 $ 12,252 $ 58,717 $ 22,962
Technology development 402 583 2,336 2,151
------------ ------------- ------------ -------------
Total revenues 23,400 12,835 61,053 25,113
Cost of Revenues
Product 11,719 6,878 31,541 12,833
Technology development 487 765 2,161 1,757
------------ ------------- ------------ -------------
Total cost of revenues 12,206 7,643 33,702 14,590
Gross profit 11,194 5,192 27,351 10,523
Operating Expenses
Research and development 1,638 692 3,664 1,844
Sales and marketing 857 663 2,483 1,707
General and administrative 1,684 978 4,768 2,246
------------ ------------- ------------ -------------
4,179 2,333 10,915 5,797
------------ ------------- ------------ -------------
Operating income 7,015 2,859 16,436 4,726
Net interest and other income 1,675 374 3,139 752
------------ ------------- ------------ -------------
Income before provision
for income taxes 8,690 3,233 19,575 5,478
Provision for income taxes (1,087) (667) (2,447) (1,115)
------------ ------------- ------------ -------------
Net income $ 7,603 $ 2,566 $ 17,128 $ 4,363
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
Net income per share $ 0.32 $ 0.13 $ 0.76 $ 0.25
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
Shares used in computing
net income per share 24,024 19,704 22,399 17,127
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
4
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DSP Communications Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Nine
Months Ended Months Ended
September 30, September 30,
1 9 9 6 1 9 9 5
------------ -------------
<S> <C> <C>
Operating Activities:
Net income $ 17,128 $ 4,363
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 1,255 285
Loss on disposal of equipment 2 9
Other -- 125
Changes in operating assets and liabilities:
Trade accounts receivable (868) (5,260)
Other current assets (700) (361)
Accounts payable 2,588 2,405
Accrued compensation and benefits 682 100
Deferred income 950 (281)
Other accrued liabilities 3,248 973
Other liabilities 310 947
Other assets -- 53
------------ -------------
Net cash provided by operating activities 24,595 3,358
------------ -------------
Investing Activities:
Cash purchases of equipment, net (2,270) (766)
Proceeds from sales of equipment 8 17
Purchases of short term investments, net (38,606) (17,269)
------------ -------------
Net cash used in investing activities (40,868) (18,018)
------------ -------------
Financing Activities:
Repayments of lease obligations -- (190)
Issuance of common stock for cash 78,717 29,333
------------ -------------
Net cash provided by financing activities 78,717 29,143
------------ -------------
Increase in cash and cash equivalents 62,444 14,483
Cash and Cash equivalents
at beginning of period 10,292 8,146
------------ -------------
Cash and cash equivalents at end of period $ 72,736 $ 22,629
------------ -------------
------------ -------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
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DSP Communications, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of DSP
Communications, Inc. ("DSPC" or the "Company") 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 notes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the interim period are not necessarily indicative of the
results that may be expected for the full year. For further information, refer
to the consolidated financial statements and notes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1995.
2. Subsequent Event -- Merger with Proxim, Inc.
On October 28, 1996, the Company entered into a merger agreement pursuant to
which the Company will acquire Proxim, Inc., a designer and manufacturer of
high performance wireless local area data networking products. The
acquisition is intended to be accounted for as a pooling of interests and is
expected to close by the end of January 1997. The merger is subject to
various conditions, including obtaining stockholder approval and requisite
regulatory approval. Under the terms of the merger agreement, Proxim
stockholders will receive 0.70 of a share of the Comapany's Common Stock for
each share of Proxim Common Stock upon closing of the merger, subject to
certain adjustments under certain conditions. At September 30, 1996, Proxim
had approximately 9.7 million shares of Common Stock outstanding.
6
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following information should be read in conjunction with the consolidated
condensed interim financial statements and the notes thereto in Part I, Item 1
of this Quarterly Report and with Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in the Company's Annual
Report for the year ended December 31, 1995.
The results of operations for 1996 include the results of CTP Systems Ltd.
("CTP Systems"). CTP Systems is presently developing its wireless PBX product
for commercial production, and commercial quantities are expected to be first
shipped in the fourth quarter of 1996. CTP Systems' activities incurred losses
in the first, second and third quarters and are expected to continue to incur
losses in the fourth quarter of 1996.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship of certain items
from the Company's condensed consolidated statements of income as a percentage
of total revenues.
<TABLE>
<CAPTION>
Quarter ended Nine months ended
September 30, September 30,
---------------------- ------------------------
1996 1995 1996 1995
---------------------- ------------------------
<S> <C> <C> <C> <C>
Revenues:
Product 98.3% 95.5% 96.2% 91.4%
Technology development 1.7 4.5 3.8 8.6
------- ------- ------- -------
100.0 100.0 100.0 100.0
Cost of revenues:
Product 50.1 53.6 51.6 51.1
Technology development 2.1 6.0 3.5 7.0
------- ------- ------- -------
52.2 59.6 55.1 58.1
------- ------- ------- -------
Gross profit 47.8 40.4 44.9 41.9
Operating expenses:
Research and development 7.0 5.4 6.0 7.3
Sales and marketing 3.7 5.2 4.0 6.8
General and administrative 7.2 7.6 7.8 8.9
------- ------- ------- -------
17.9 18.2 17.8 23.0
------- ------- ------- -------
Operating income 29.9 22.2 27.1 18.9
Net interest and other income 7.2 2.9 5.0 3.0
------- ------- ------- -------
Income before provision for income taxes 37.1 25.1 32.1 21.9
Provision for income taxes (4.6) (5.2) (4.0) (4.4)
------- ------- ------- -------
Net income 32.5% 19.9% 28.1% 17.5%
------ ------- ------- -------
------ ------- ------- -------
</TABLE>
7
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Revenues
Total revenues increased 82% to $23.4 million in the third quarter of 1996 from
$12.8 million in the third quarter of 1995, and 143% to $61.1 million in the
nine months ended September 30, 1996 from $25.1 million in the comparable
period in 1995.
Product revenues increased 87.7% to $23.0 million in the third quarter of 1996
from $12.3 million in the third quarter of 1995, and 155.7% to $58.7 in the
nine months ended September 30, 1996 from $23.0 million in the first nine
months of 1995. The demand for the Company's baseband chip sets for the
Japanese PDC digital cellular telephone market has increased significantly.
In addition, during the first nine months of 1996 the Company commenced volume
shipments sales of its new half rate chip set.
Technology development revenues were $402,000 in the third quarter of 1996 as
compared to $583,000 in the third quarter of 1995, and $2,336,000 in the nine
months ended September 30, 1996 compared to $2,151,000 in the nine months ended
September 30, 1995. The Company's technology development revenues fluctuate
depending on the number and size of technology development agreements and
timing of related milestones and deliverables.
Gross Profit
Gross profit in the third quarter of 1996 was $11.2 million (48% of revenues)
compared to $5.2 million (40% of revenues) in the third quarter of 1995.
Gross profit in the first nine months of 1996 was $27.4 (45% of revenues),
compared to $10.5 million (42% of revenues) in the first nine months of 1995.
The gross profit on product revenues increased to 49% in the third quarter of
1996 from 44% in the third quarter of 1995. The gross profit on product
revenues increased to 46% in the first nine months of 1996 from 44 % in the
first nine months of 1995. Gross margins on product revenues increased in the
third quarter of 1996 as the Company completed its obligations to pay
royalties to the Chief Scientist of the Israel Ministry of Trade and Industry.
Sales of CTP Systems' Wireless PBX systems to Beta sites were made in small
quantities and resulted in negative margins. The Company expects that it
will continue to experience negative margins on low volume initial systems
sales until higher volume sales are achieved. Higher volume sales are
anticipated during 1997. Margins were also positively effected by a change in
the composition of products and customers. The Company anticipates that the
cost of products sold as a percentage of product revenues may increase in
subsequent quarters as the sales price of chip sets decreases as a result of
volume discounts and price pressures. The costs incurred on technology
development varies from quarter to quarter depending on the similarity or
diversity of the products and technologies developed, and as contractual
milestones are achieved. The achievement of certain contractual milestones
was delayed from the third quarter, and as a result, the related revenues were
not recognized and a gross loss resulted on technology development. The
Company believes that these milestones will be achieved in the fourth quarter.
Research and Development Expenses
Research and development expenses increased to $1,638,000 (7% of revenues) in
the third quarter of 1996 from $692,000 (5% of revenues) in the third quarter
of 1995 and to $3,664,000 (6% of revenues) in the nine months ended
September 30, 1996, compared to $1,844,000 (7% of revenues) in the nine months
ended September 30, 1995. The increase reflects an increased level of
activities in the CDMA project, growth in the number of engineering personnel
and in projects under development, and the inclusion of CTP Systems' R&D
activities.
8
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Sales and Marketing Expenses
Sales and marketing expenses increased to $857,000 (4% of revenues) in the third
quarter of 1996 from $663,000 (5% of revenues) in the third quarter of 1995, and
to $2,483,000 (4% of revenues) in the nine months ended September 30, 1996
compared to $1,707,000 (7% of revenues) in the nine months ended
September 30, 1995. The increase reflects the growth in the marketing and sales
staff at the Company's Cupertino, California, offices, increased participation
at trade exhibitions, increased promotion and market research expenses, and
increased expenses at the Company's Tokyo offices.
General and Administrative Expenses
General and administrative expenses in the third quarter of 1996 were $1,684,000
(7% of revenues) compared to $978,000 (8% of revenues) in the third quarter of
1995, and $4,768,000 (8% of revenues) in the nine months ended September 30,
1996, compared to $2,246,000 (9% of revenues) in the nine months ended
September 30, 1995. General and administrative expenses increased primarily as
a result of increased staffing levels at the Company's Cupertino offices and at
the facilities of the Company's Israeli subsidiaries, increased facility
expenses, increased administration expenses and fees, and the inclusion of
CTP Systems' administration expenses and related amortization of the goodwill
recorded with the acquisition of CTP Systems.
Other Income
Net interest and other income was $1,675,000 in the third quarter of 1996
compared to $374,000 in the third quarter of 1995, and was $3,139,000 in the
nine months ended September 30, 1996, compared to $752,000 in the nine
months ended September 30, 1995. The 1996 amount was generated primarily from
interest on the Company's cash and investment balances, including the proceeds
from the Company's follow-on public offerings completed in June 1995 and in
April 1996.
Provisions for Income Tax
The tax provision for the quarter and nine month period ended September 30,
1996, reflects Israeli taxes on the portion of the undistributed income which
is not subject to "Approved Enterprise" status and U.S. taxes on U.S. earnings
which are not offset by net operating loss carry forwards. The effective tax
rate for the third quarter of 1996 is approximately 12.5% and may increase in
the future depending on, among other factors, the elimination over time
of the tax benefits awarded with Approved Enterprise status and the possible
application of U.S. tax rules regarding the taxation of controlled foreign
corporations.
Liquidity and Capital Resources
The Company's operating activities provided $24.6 million in the nine months
ended September 30, 1996 and $3.4 million in the comparable period in 1995.
Net cash provided from operations in 1996 was composed primarily of net income
for the period, and an increase in current liabilities, set off by an increase
in trade accounts receivable.
The Company's investing activities, other than purchases of and proceeds from
short-term investments, have consisted of expenditures for fixed assets, which
totaled $2,270,000 in the first nine months of 1996 and $766,000 in the first
nine months of 1995.
9
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In obtaining approval of the Company's reorganization from Israeli tax
authorities, which was completed immediately before the closing of the Company's
initial public offering in March 1995 ("IPO"), the Company agreed to invest in
activities in Israel not less than $9.0 million out of the proceeds of the IPO
within three years after the IPO.
In October 1995, the Company completed the acquisition of CTP Systems, for $14.1
million. Prior shareholders of CTP Systems who are continuing as employees of
CTP Systems and, under certain circumstances, prior shareholders who have no
continuing role in CTP Systems, may be entitled to receive a contingent earn-out
payment on March 31, 1998. The amount of the contingent earn-out payment will be
determined by a formula based upon the profits and revenues, as defined, of CTP
Systems for fiscal years 1996 and 1997 on a combined basis, and the relationship
between such profits and revenues. The Company has the ability to extinguish the
contingent earn-out obligation by paying an additional $6.0 million by
December 1996. Based on the operating results of CTP Systems to date, the
Company does not expect that the prior shareholders of CTP Systems will be
entitled to receive such an earn-out payment. The Company does not currently
plan to extinguish the obligation by making the $6.0 million payment in 1996.
As of September 30, 1996, the Company had $128.8 million of cash, cash
equivalents and short-term investments. The Company believes that existing cash,
cash equivalents and short-term investments balances, will be sufficient to meet
its cash requirements for at least the next twelve months. While operating
activities may provide cash in certain periods, to the extent the Company may
experience growth in the future, the Company anticipates that its operating
and investing activities may use cash and consequently, such growth may require
the Company to obtain additional sources of financing. The Company may also from
time to time consider the acquisition of additional complimentary businesses,
projects or technologies which may require additional financing or require the
use of a significant portion of its existing cash.
On April 24, 1996, the Company closed a follow-on public offering of 4,000,000
shares of Common Stock at $26 per share, of which 901,368 shares were sold by a
selling shareholder. Aggregate net proceeds to the Company from the offering,
exclusive of the Company's expenses associated with the offering, were
$76,536,000.
CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS
This Form 10-Q contains forward looking statements concerning the Company's
future products, expenses, revenue, liquidity and cash needs as well as the
Company's plans and strategies. These forward looking statements are based
on current expectations, and the Company assumes no obligation to update this
information. Numerous factors could cause actual results to differ
significantly from the results described in these forward looking statements,
including the following risk factors.
RELIANCE ON A SINGLE JAPANESE DISTRIBUTOR AND A SMALL NUMBER OF OEMs.
Substantially all of the Company's sales of baseband chip sets for digital
cellular telephones are to Tomen Electronics Corp. ("Tomen"), the Company's
distributor in Japan. Tomen's sales of the Company's products are concentrated
in a small number of Japanese original equipment manufacturer ("OEM") customers.
Although Tomen has recently commenced shipments of the Company's products to
additional Japanese OEMs, prior to 1996, Kenwood Corporation, Kyocera
Corporation and Sanyo Electronic Co., Ltd. accounted for all of Tomen's sales
of the Company's baseband chip sets. The loss of Tomen as a distributor or the
loss of or significant reduction in Tomen's sales to any of these Japanese OEMs
would have a material adverse effect on the Company's business, financial
condition and results of operations. Because the world-wide cellular subscriber
equipment industry is dominated by a small number of large corporations, the
Company expects that a
10
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significant portion of its future product sales will continue to be concentrated
in a limited number of OEMS. As a result, the Company's performance is likely
to depend on relatively large orders from a limited number of distributors and
OEMS. The Company's performance will also depend significantly on gaining
additional OEM customers, both within existing markets and in new markets.
In addition, the Company believes that the manufacture of subscriber equipment
for emerging telecommunications services, such as personal communications
services ("PCS"), will also be concentrated in a limited number of OEMS. The
loss of any existing OEM customer, a significant reduction in the level of
sales to any existing customers, or the failure of the Company to gain
additional OEM customers could have a material adverse effect on the Company's
business, financial condition and results of operations.
RELIANCE ON TEXAS INSTRUMENTS AND OTHER THIRD PARTY MANUFACTURERS. All of the
Company's integrated circuits are currently fabricated by independent third
parties and the Company intends to continue using independent foundries in the
future. To date, the Company has purchased all of the DSP chips for its
baseband chip sets for cellular telephones from Texas Instruments Incorporated
("TI"). The Company also buys all of the DSP chips used in the products of CTP
Systems from TI. The Company purchases standard DSP chips from TI, and TI
embeds the Company's proprietary software algorithms in TI's chips. In
addition, the Company currently purchases its application specific integrated
circuits ("ASICs") for its PDC chip sets from VLSI Technology, Inc. ("VTI")
and Atmel ES2, a wholly-owned subsidiary of Atmel, Inc. ("Atmel ES2"); all of
its ASICs for analog baseband chip sets from TI and its ASICs for CTP Systems'
products from American Microsystems, Inc. ('AMI") and Pacific Communication
Services, Inc. ("PCSI"), a subsidiary of Cirrus Logic, Inc. Accordingly, the
Company is and will remain dependent on independent foundries, including TI,
PCSI, AMI, VTI and Atmel ES2, to achieve acceptable manufacturing yields,
to allocate to the Company a sufficient portion of foundry capacity to meet the
Company's needs and to offer competitive pricing to the Company. Although the
Company has not experienced material quality, allocation or pricing problems to
date, if such problems were to arise in the future, they would have a material
adverse effect on the Company's business, financial condition and results of
operations.
DEPENDENCE ON JAPANESE MARKET. The future performance of the Company will be
dependent, in large part, upon its ability to continue to compete successfully
in the Japanese market. The Company's ability to continue to compete in this
market will be dependent upon several factors, including no deterioration of
existing trade relations between Japan, Israel and the United States or
imposition of tariffs in the wireless personal communications industry, no
adverse changes in the Japanese telecommunications regulatory environment, the
Company's ability to develop products that meet the technical requirements of
its Japanese customers and the Company's ability to maintain satisfactory
relationships with its Japanese customers and its distributor. All of the
Company's sales to its Japanese customers are denominated in United States
dollars and, therefore, fluctuations in the exchange rate for the United
States dollar could materially increase the price of the Company's products to
these customers and require the Company to reduce prices of its products to
remain competitive. Moreover, the expected emergence of Personal HandyPhone
Services, a microcellular technology potentially competitive with today's
existing Japanese analog and digital cellular networks, could reduce sales in
Japan of digital cellular telephones incorporating the Company's baseband chip
sets. There can be no assurance that changes in the political or economic
conditions, trade policy or regulation of telecommunications in Japan will not
have a material adverse effect on the Company's business, financial condition
and results of operations.
DECLINING SALES PRICES. Manufacturers of wireless personal communications
equipment are experiencing, and are likely to continue to experience, intense
price pressure, which has resulted and is expected to continue to result in
downward pricing pressure on the Company's products. As a result, the Company
has experienced, and expects to continue to experience, declining sales prices
for its products. In addition, pricing competition among component suppliers
has increased. There can be no assurance that either increases in unit volume
or reductions in per unit costs will offset declines in per unit sales prices,
in which case the Company's gross profit would be adversely affected. Since
cellular telephone manufacturers frequently negotiate supply
11
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arrangements far in advance of delivery dates, the Company often must commit to
price reductions for its products before it is aware of how, or if, such cost
reductions can be obtained. As a result, such current or future price reduction
commitments could have, and any inability of the Company to respond to increased
price competition would have, a material adverse effect on the Company's
business, financial condition and results of operations.
RELIANCE ON A SINGLE PRODUCT; INTRODUCTION OF HALF RATE CHIP SET. Since
December 1993, the Company has relied upon sales from a single product, its
baseband chip set for digital cellular telephones for use in Japan, to generate
substantially all of its product sales. The Company is in the process of
developing additional products for digital cellular telephones, PCS and wireless
PBX applications; however, there can be no assurance that it will be successful
in doing so.
During the first nine months of 1996, the Company commenced volume shipments of
its new half rate chip set. Although the Company extensively tested the half
rate chip set prior to its introduction, design adjustments may yet be required
which could result in delays in further volume production or recalls of half
rate chip sets already sold. Although the Company has not to date experienced
any significant errors or the need for any material adjustments with respect to
the half rate chip set, the occurrence of such errors or adjustments could have
a material adverse effect on the Company's business, financial condition or
results of operations.
EXPECTED FLUCTUATIONS IN QUARTERLY OPERATING RESULTS AND POTENTIAL QUARTERLY
LOSSES. The Company's quarterly operating results depend on the volume and
timing of product orders received and delivered during the quarter and the
timing of new product introductions by the Company and its customers. The
Company anticipates that for the foreseeable future new product introductions
may cause significant fluctuations in quarterly operating results. The
Company's quarterly operating results may also vary significantly depending on
other factors, including the introduction of new products by the Company's
competitors; market acceptance of new products; the greater number of
manufacturing days in the second and third quarters; adoption of new
technologies and standards; relative prices of the Company's products;
competition; the cost and availability of components; the mix of products sold;
the quality and availability of chip sets manufactured for the Company by third
parties; changes in the Company's distribution arrangements; sales of wireless
subscriber equipment by OEMs and changes in general economic conditions. In
addition, the Company may have an obligation to make certain contingent earn-out
payments in March 1998 in connection with its acquisition of CTP Systems;
however, the Company has the right to extinguish this contingent earn-out
obligation by paying $6 million by December 1996. Based on the operating
results of CTP Systems to date, the Company does not expect that the prior
shareholders of CTP Systems will be entitled to receive such an earn-out
payment. The Company does not currently plan to extinguish the obligation by
making the $6.0 million payment in 1996.
RISK OF INCREASED INCOME TAXES. DSPC Israel Ltd. ("DSPCI") and CTP Systems, two
Israeli subsidiaries of the Company, operate as "Approved Enterprises" under
Israel's Law for the Encouragement of Capital Investments, 1959, as amended. An
Approved Enterprise is eligible for significant income tax rate reductions for
several years following the first year in which it has income subject to
taxation in Israel (after consideration of tax losses carried forward). There
can be no assurance that this favorable tax treatment will continue, and any
change in such tax treatment could have a material adverse effect on the
Company's net income and results of operations. As of this date, the Company
is not aware of any circumstances that might cause it to lose its favorable tax
treatment. If Israel's tax incentives or rates applicable to DSPCI or CTP
Systems are rescinded or changed, their income taxes could increase and their
results of operations and cash flow would be adversely affected. In addition,
the Company's income tax rate would increase if all or a portion of the earnings
of DSP Telecom, DSPCI or CTP Systems were to become subject to United States
federal and state income tax as a result of actual or deemed dividends or
through operation of United States tax rules applicable to "controlled foreign
corporations.
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MARKETS FOR THE COMPANY'S PRODUCTS ARE HIGHLY COMPETITIVE. The markets for the
Company's products are extremely competitive and the Company expects that
competition will increase. Many of the Company's competitors have entrenched
market positions, established patents, copyrights, tradenames, trademarks and
intellectual property rights and substantial technological capabilities. The
Company's current competitors in the digital cellular market include other
suppliers of DSP-based chip sets and existing cellular telephone manufacturers
that develop chip set solutions internally. Both in the cellular market and in
other wireless personal communications markets, the Company's existing and
potential competitors include large and emerging domestic and international
companies, many of which have significantly greater financial, technical,
manufacturing, marketing, sales and distribution resources and management
expertise than the Company. The Company believes that its ability to compete
successfully in the wireless personal communications market will depend upon a
number of factors both within and outside of its control, including price,
quality, availability, product performance and features; timing of new product
introductions by the Company, its customers and competitors; and customer
service and technical support. There can be no assurance that the Company
will have the financial resources, technical expertise, or marketing, sales,
distribution and customer service and technical support capabilities to compete
successfully.
RELIANCE ON INTENTIONAL OPERATIONS; RISKS OF OPERATIONS IN ISRAEL. The Company
is subject to the risks of doing business internationally, including unexpected
changes in regulatory requirements; fluctuations in the exchange rate for the
United States dollar; imposition of tariffs and other barriers and restrictions;
and the burdens of complying with a variety of foreign laws. The Company is
also subject to general geopolitical risks, such as political and economic
instability and changes in diplomatic and trade relationships, in connection
with its international operations. In particular, the Company's principal
research and development facilities are located in the State of Israel and, as a
result, at September 30, 1996, 120 of the Company's 138 employees were located
in Israel, including all of the Company's research and development personnel.
Therefore, the Company is directly affected by the political, economic and
military conditions to which that country is subject. In addition, many of the
Company's expenses in Israel are paid in Israeli currency, thereby also
subjecting the Company to foreign currency fluctuations and to economic
pressures resulting from Israel's generally high rate of inflation. The
rate of inflation in Israel for 1994 and 1995 was 14.7% and 8.1%, respectively.
While substantially all of the Company's sales and expenses are denominated in
United States dollars, a portion of the Company's expenses are denominated in
Israeli shekels. The Company's primary expense paid in Israeli currency is
employee salaries. 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. There can be no assurance that currency fluctuations, changes in the
rate of inflation in Israel or any of the other aforementioned factors will not
have a material adverse effect on the Company's business, financial condition
and results of operations.
In the past, the Company has obtained royalty-bearing grants from the Office of
the Chief Scientist in Israel's Ministry of Industry and Trade (the "Chief
Scientist") and the Israel-United States Binational Industrial Research and
Development Foundation to fund research and development. The terms of the
grants from the Chief Scientist prohibit the transfer of technology developed
pursuant to the terms of these grants to any person, without the prior written
consent of the State of Israel. The Company does not expect to apply for such
grants for the development of new products in the future but will continue to
apply for grants for existing products.
13
<PAGE>
OPERATIONAL RISKS ASSOCIATED WITH CTP SYSTEMS. On October 26, 1995, the Company
acquired for $14.1 million CTP Systems, a developer and manufacturer of wireless
private branch exchanges ("PBXs") and other low-mobility wireless communications
applications. CTP Systems' wireless PBX equipment is currently in Beta testing,
which may identify quality or operational problems in the product that require
the Company to incur additional engineering expenses to correct any problems or
redesign the product, and also may result in a delay in making the product
commercially available. CTP Systems intends to manufacture its own products and
will, therefore, be subject to various risks associated with the manufacturing
process, including errors in the manufacturing process, shortages of required
components, manufacturing equipment failures and disruptions of operations at
the manufacturing facility. Prolonged inability of CTP Systems to deliver
products in a timely manner could result in the loss of customers and a material
adverse effect on its results of operations. In addition, certain of the
components included in CTP Systems' products are obtained from a single source
or a limited group of suppliers. The partial or complete loss or delay of the
supply of components from certain of these sources could result in a significant
reduction in CTP Systems' revenues and could also damage certain customer
relationships.
MANAGEMENT OF GROWTH. The growth in the Company's business has placed, and is
expected to continue to place, a significant strain on the Company's management
and operations. To manage its growth, the Company must continue to implement
and improve its operational, financial and management information systems and
expand, train and manage its employees. The anticipated increase in product
development and marketing and sales expenses coupled with the Company's reliance
on OEMs to successfully market and develop products that incorporate the
Company's proprietary technologies could have an adverse effect on the Company's
performance in the next several quarters. The Company's failure to manage growth
effectively could have a material adverse effect on the Company's business,
financial condition and results of operations.
FUTURE ACQUISITIONS. The Company's strategy includes obtaining additional
technologies and will involve, in part, acquisitions of products, technologies
or businesses from third parties. Identifying and negotiating these
acquisitions may divert substantial management resources. An acquisition could
absorb substantial cash resources, could require the Company to incur or assume
debt obligations, or could involve the issuance of additional Common or
Preferred Stock. The issuance of additional equity securities would dilute and
could represent an interest senior to the rights of then outstanding Common
Stock of the Company. An acquisition which is accounted for as a purchase, like
the acquisition of CTP Systems, could involve significant one-time non-cash
write-offs, or could involve the amortization of goodwill and other intangibles
over a number of years, which would adversely affect earnings in those years.
Acquisitions outside the digital communications area may be viewed by outside
market analysts as a diversion of the Company's focus on digital communications.
For these and other reasons, the market for the Company's stock may react
negatively to the announcement of any acquisition. An acquisition will continue
to require attention from the Company's management to integrate the acquired
entity into the Company's operations, may require the Company to develop
expertise in fields outside its current area of focus and may result in
departures of management of the acquired entity. An acquired entity may have
unknown liabilities, and its business may not achieve the results anticipated at
the time of the acquisition. For example, the Company entered into an agreement
to acquire Proxim, Inc. ("Proxim") on October 28, 1996, the closing of which is
subject to certain conditions. The successful integration of Proxim with the
Company will require, among other things, integration and/or co-ordination of
the Company's and Proxim's marketing and research and development departments.
There can be no assurance that the combination of the Company and Proxim will be
accomplished efficiently or successfully, and the inability of the Company's
management to successfully integrate the Company and Proxim could have a
material adverse effect on the business, results of operations and financial
condition of the combined company.
14
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None.
Item 2. CHANGES IN SECURITIES
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
On September 20, 1996, the Board of Directors approved amendments to the
Company's Certificate of Incorporation (i) effecting a two-for-one stock
split of the Company's Common Stock, and (ii) increasing the number of shares
of Common Stock that the Company is authorized to issue from 70,000,000 to
110,000,000 shares. These amendments were approved by the stockholders at a
meeting held on November 12, 1996. The Board has established November 13,
1996 as record date for the 2-for-1 stock split and it is anticipated that the
new share price reflecting the stock split will be reported on the Nasdaq
National Market commencing on, or about, December 3, 1996.
On October 28, 1996, the Company, Proxim and Data Merger Corporation, a
wholly-owned subsidiary of the Company ("Sub"), entered into an Agreement and
Plan of Merger (the "Merger Agreement") providing for the merger of Proxim
with and into Sub. Under the terms of the Merger Agreement, Proxim
stockholders will receive 0.70 shares of the Company's common stock for each
share of Proxim common stock, subject to certain adjustments. The merger is
intended to qualify as a tax-free reorganization and pooling of interests for
accounting and financial reporting purposes, and is subject to certain
conditions, including the approval of the respective stockholders of the
Company and Proxim, and requisite regulatory approval. On October 31, 1996,
the Company filed a current report on Form 8-K with the Securities and
Exchange Commission relating to this transaction.
15
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Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.42 1996 Stock Option Plan
10.43 Employment Agreement, dated as of June 15, 1996, between DSP
Telecom, Inc. and Michael Lubin
11 Statement Re: Computation of Per Share Earnings
27 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, 1996.
16
<PAGE>
SIGNATURE
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.
Date: November 12, 1996
DSP COMMUNICATIONS, INC.
By: /s/Gerald Dogon
- --------------------------------------------------------------------------
Gerald Dogon, Executive Vice President and Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer)
17
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EXHIBIT 10.42
DSP COMMUNICATIONS, INC.
1996 STOCK OPTION PLAN
1. PURPOSES OF THE 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, Directors and
Consultants of the Company and its Subsidiaries and to promote the success of
the Company's business. Options granted under the Plan may be Incentive
Stock Options or Non-Qualified 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 the Committees appointed
to administer the Plan.
b. "AFFILIATE" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act.
c. "APPLICABLE LAWS" means the legal requirements relating to the
administration of stock option plans, if any, under applicable provisions of
federal securities laws, state corporate and securities laws, the Code, the
rules of any applicable stock exchange or national market system, and the
rules of any foreign jurisdiction applicable to Options granted to residents
therein.
d. "BOARD" means the Board of Directors of the Company.
e. "CODE" means the Internal Revenue Code of 1986, as amended.
f. "COMMITTEE" means any committee appointed by the Board to
administer the Plan.
g. "COMMON STOCK" means the common stock of the Company.
h. "COMPANY" means DSP Communications, Inc., a Delaware corporation.
i. "CONSULTANT" means any person who is engaged by the Company or
any Parent or Subsidiary to render consulting or advisory services as an
independent contractor and is compensated for such services.
j. "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.
k. "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means
that the employment, director or consulting relationship with the Company,
any Parent, or Subsidiary, is not interrupted or terminated. Continuous
Status as an Employee, Director or
<PAGE>
Consultant shall not be considered
interrupted in the case of (i) any leave of absence approved by the Company
or (ii) transfers between locations of the Company or between the Company,
its Parent, any Subsidiary, or any successor. A leave of absence approved
by the Company shall include sick leave, military leave, or any other personal
leave approved by an authorized representative of the Company. For purposes
of Incentive Stock Options, no such leave may exceed ninety (90) days, unless
reemployment upon expiration of such leave is guaranteed by statute or
contract.
l. "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.
m. "COVERED EMPLOYEE" means an Employee who is a "covered employee"
under Section 162(m)(3) of the Code.
n. "DIRECTOR" means a member of the Board.
o. "EMPLOYEE" means any person, including an Officer or Director, who
is an employee of the Company or any Parent or Subsidiary of the Company for
purposes of Section 422 of the Code. The payment of a director's fee by the
Company shall not be sufficient to constitute "employment" by the Company.
p. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
q. "FAIR MARKET VALUE" means, as of any date, the value of Common Stock
determined as follows:
i. Where there exists a public market for the Common Stock, the
Fair Market Value shall be (A) the closing sales price for a Share for the
last market trading day prior to the time of the determination (or, if no
sales were reported on that date, on the last trading date on which sales
were reported) on the stock exchange determined by the Administrator to be
the primary market for the Common Stock or the Nasdaq National Market,
whichever is applicable or (B) if the Common Stock is not traded on any such
exchange or national market system, the average of the closing bid and asked
prices of a Share on the Nasdaq Small Cap Market for the day prior to the
time of the determination (or, if no such prices were reported on that date,
on the last date on which such prices were reported), in each case, as
reported in The Wall Street Journal or such other source as the Administrator
deems reliable; or
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<PAGE>
ii. In the absence of an established market of the type described in
(i), above, for the Common Stock, the Fair Market Value thereof shall be
determined by the Administrator in good faith.
r. "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code
s. "NON-QUALIFIED STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.
t. "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.
u. "OPTION" means a stock option granted pursuant to the Plan.
v. "OPTION AGREEMENT" means the written agreement evidencing the
grant of an Option executed by the Company and the Optionee, including any
amendments thereto.
w. "OPTIONED STOCK" means the Common Stock subject to an Option.
x. "Optionee" means an Employee, Director or Consultant who receives
an Option under the Plan.
y. "PARENT" means 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" means this 1996 Stock Option Plan.
bb. "RULE 16b-3" means Rule 16b-3 promulgated under the Exchange Act
or any successor thereto.
cc. "SHARE" means a share of the Common Stock.
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.
a. Subject to the provisions of Section 10, below, the maximum
aggregate number of Shares which may be optioned and sold under the Plan is
1,500,000 Shares. The Shares may be authorized, but unissued, or reacquired
Common Stock.
b. If an Option expires or becomes unexercisable without
having been exercised in full, or is surrendered pursuant to an Option
exchange program, such unissued or retained Shares shall become available for
future grant under the Plan (unless the Plan has terminated). Shares that
actually have been issued under the Plan shall not be returned to the
3
<PAGE>
Plan and shall not become available for future distribution under the Plan,
except that if unvested Shares are forfeited, or repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
a. PLAN ADMINISTRATOR.
i. ADMINISTRATION WITH RESPECT TO DIRECTORS AND OFFICERS. With
respect to grants of Options to Directors or Employees who are also Officers
or Directors 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 in such a manner as to satisfy the Applicable Laws and to permit
such grants and related transactions under the Plan to be exempt from
Section 16(b) of the Exchange Act in accordance with Rule 16b-3.
Once appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board.
ii. ADMINISTRATION WITH RESPECT TO CONSULTANTS AND OTHER EMPLOYEES.
With respect to grants of Options 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 in such a manner as to satisfy the Applicable Laws. Once
appointed, such Committee shall continue to serve in its designated capacity
until otherwise directed by the Board. The Board may authorize one or more
Officers to grant such Options and may limit such authority by requiring that
such Options must be reported to and ratified by the Board or a Committee
within six (6) months of the grant date, and if so ratified, shall be
effective as of the grant date.
iii. ADMINISTRATION WITH RESPECT TO COVERED EMPLOYEES.
Notwithstanding the foregoing, grants of Options 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 granting Options qualifying
as Performance-Based Compensation. In the case of such Options granted to
Covered Employees, references to the "Administrator" or to a "Committee" shall
be deemed to be references to such Committee or subcommittee.
iv. ADMINISTRATION ERRORS. In the event an Option is granted in a
manner inconsistent with the provisions of this subsection (a), such Option
shall be presumptively valid as of its grant date to the extent permitted by
the Applicable Laws.
b. Powers of the Administrator. Subject to Applicable Laws and the
provisions of the Plan (including any other powers given to the Administrator
hereunder), and except as otherwise provided by the Board, the Administrator
shall have the authority, in its discretion:
i. to select the Employees, Directors and Consultants to whom
Options may be granted from time to time hereunder;
ii. to determine whether and to what extent Options are granted
hereunder;
4
<PAGE>
iii. to determine the number of Shares to be covered by each Option
granted hereunder;
iv. to approve forms of Option Agreement for use under the Plan;
v. to determine the terms and conditions of any Option granted
hereunder;
vi. to establish additional terms, conditions, rules or procedures
to accommodate the rules or laws of applicable foreign jurisdictions and to
afford Optionees favorable treatment under such laws; provided, however, that
no Option shall be granted under any such additional terms, conditions, rules
or procedures with terms or conditions which are inconsistent with the
provisions of the Plan;
vii. to amend the terms of any outstanding Option granted under
the Plan, including a reduction in the exercise price of any Option to
reflect a reduction in the Fair Market Value of the Common Stock since the
grant date of the Option, provided that any amendment that would adversely
affect the Optionee's rights under an outstanding Option shall not be made
without the Optionee's written consent;
viii. to construe and interpret the terms of the Plan and Options
granted pursuant to the Plan; and
ix. to take such other action, not inconsistent with the
terms of the Plan, as the Administrator deems appropriate.
c. EFFECT OF ADMINISTRATOR'S DECISION. All decisions, determinations
and interpretations of the Administrator shall be conclusive and binding on
all persons.
5. ELIGIBILITY. Non-Qualified Stock Options may be granted to Employees,
Directors and Consultants. Incentive Stock Options may be granted only to
Employees. An Employee, Director or Consultant who has been granted an Option
may, if otherwise eligible, be granted additional Options. Options may be
granted to such Employees of the Company and its subsidiaries who are residing
in foreign jurisdictions as the Administrator may determine
from time to time.
6. TERMS AND CONDITIONS OF OPTIONS.
a. DESIGNATION OF OPTIONS. Each Option shall be designated as either
an Incentive Stock Option or a Non-Qualified Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair
Market Value of Shares subject to Options designated as Incentive Stock
Options which become exercisable for the first time by an Optionee during any
calendar year (under all plans of the Company or any Parent or Subsidiary)
exceeds $100,000, such excess Options, to the extent of the Shares covered
thereby in excess of the foregoing limitation, shall be treated as
Non-Qualified Stock Options. For this purpose, 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 date the Option with
respect to such Shares is granted.
5
<PAGE>
b. CONDITIONS OF OPTION. Subject to the terms of the Plan, the
Administrator shall determine the provisions, terms, and conditions of each
Option including, but not limited to, the Option vesting schedule, repurchase
provisions, rights of first refusal, forfeiture provisions, and satisfaction
of any performance criteria. The performance criteria established by the
Administrator may be based on any one of, or combination of, increase in share
price, earnings per share, total stockholder return, return on equity, return
on assets, return on investment, net operating income, cash flow, revenue,
economic value added, personal management objectives, or other measure of
performance selected by the Administrator. Partial achievement of the
specified criteria may result in vesting corresponding to the degree of
achievement as specified in the Option Agreement.
c. INDIVIDUAL OPTION LIMIT. The maximum number of Shares with respect
to which Options may be granted to any Employee in any fiscal year of the
Company shall be four hundred thousand (400,000) Shares. The foregoing
limitation shall be adjusted proportionately in connection with any change in
the Company's capitalization pursuant to Section 10, below. To the extent
required by Section 162(m) of the Code or the regulations thereunder, in
applying the foregoing limitation with respect to an Employee, if any Option
is canceled, the canceled Option shall continue to count against the maximum
number of Shares with respect to which Options may be granted to the Employee.
For this purpose, the repricing of an Option shall be treated as the
cancellation of the existing Option and the grant of a new Option.
d. TERM OF OPTION. The term of each Option shall be the term stated
in the Option Agreement, provided, however, that the term of an Incentive
Stock Option shall be no more than ten (10) years from the date of grant
thereof. However, in the case of an Incentive Stock Option granted to an
Optionee who, at the time the 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 Option shall be five (5)
years from the date of grant thereof or such shorter term as may be provided
in the Option Agreement.
e. TRANSFERABILITY OF OPTIONS. Incentive Stock Options 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.
Non-Qualified Stock Options shall be transferable to the extent provided in
the Option Agreement.
f. TIME OF GRANTING OPTIONS. The date of grant of an Option shall
for all purposes, be the date on which the Administrator makes the
determination to grant such Option, or such other date as is determined by
the Administrator. Notice of the grant determination shall be given to each
Employee, Director or Consultant to whom an Option is so granted within a
reasonable time after the date of such grant.
7. OPTION EXERCISE PRICE, CONSIDERATION AND TAXES.
a. EXERCISE PRICE. The exercise price for an Option shall be as
follows:
i. In the case of an Incentive Stock Option:
6
<PAGE>
(1) granted to an Employee who, at the time of the grant of
such Incentive Stock Option 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 not less than one
hundred ten percent (110%) of the Fair Market Value per Share on the date of
grant.
(2) granted to any Employee other than an Employee described
in the preceding paragraph, the per Share exercise price shall be not less
than one hundred percent (100%) of the Fair Market Value per Share on the
date of grant.
ii. In the case of Options intended to qualify as
Performance-Based Compensation, the per Share exercise price shall be not
less than one hundred percent (100%) of the Fair Market Value per Share on
the date of grant.
iii. In the case of a Non-Qualified Stock Option, the per Share
exercise price shall be not less than eighty-five percent (85%) of the Fair
Market Value per Share on the date of grant.
b. CONSIDERATION. Subject to Applicable Laws, the consideration to be
paid for the Shares to be issued upon exercise of an Option including the
method of payment, shall be determined by the Administrator (and, in the case
of an Incentive Stock Option, shall be determined at the time of grant). In
addition to any other types of consideration the Administrator may determine,
the Administrator is authorized to accept as consideration for Shares issued
under the Plan the following:
i. cash;
ii. check;
iii. delivery of Optionee's promissory note with such recourse,
interest, security, and redemption provisions as the Administrator determines
as appropriate;
iv. surrender of Shares (including withholding of Shares
otherwise deliverable upon exercise of the Option) which 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 (but only to the extent
that such exercise of the Option would not result in an accounting
compensation charge with respect to the Shares used to pay the exercise price
unless otherwise determined by the Administrator);
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; or
vi. any combination of the foregoing methods of payment.
c. TAXES. No Shares shall be delivered under the Plan to any Optionee
or other person until such Optionee or other person has made arrangements
acceptable to the Administrator for the satisfaction of any foreign, federal,
state, or local income and employment tax withholding obligations, including,
without limitation, obligations incident to the receipt of
7
<PAGE>
Shares or the disqualifying disposition of Shares received on exercise of an
Incentive Stock Option. Upon exercise of an Option, the Company shall
withhold or collect from Optionee an amount sufficient to satisfy such tax
obligations.
8. EXERCISE OF OPTION.
a. PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER.
i. Any Option granted hereunder shall be exercisable at such
times and under such conditions as determined by the Administrator under the
terms of the Plan and specified in the Option Agreement.
ii. 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. 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 Optioned Stock, notwithstanding the exercise of an Option.
The Company shall issue (or cause to be issued) such stock certificate
promptly upon 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 the Option Agreement or
Section 10, below.
b. EXERCISE OF OPTION FOLLOWING TERMINATION OF EMPLOYMENT, DIRECTOR
OR CONSULTING RELATIONSHIP.
i. Upon termination of an Optionee's Continuous Status as an
Employee, Director or Consultant, other than upon the Optionee's death or
disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration
of the term of such Option as set forth in the Option Agreement). In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for three (3) months following the Optionee's termination. If,
on the date of termination, the Optionee is not vested as to his or her
entire Option, the Shares covered by the unvested 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.
ii. DISABILITY OF OPTIONEE. If an Optionee's Continuous
Status as an Employee, Director or Consultant terminates as a result of the
Optionee's disability, the Optionee may exercise the Option to the extent the
Option is vested on the date of termination, but only within twelve (12)
months from the date of such termination (and in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement). If such disability is not a "disability" as such term is defined
in Section 22(e)(3) of the Code, in the case of an Incentive Stock Option
such Incentive Stock Option shall automatically convert to a Non-Qualified
Stock Option on the day three months and one day following such termination.
If, on the date of termination, the Optionee is not vested as to the entire
Option, the Shares covered by the unvested portion of the Option shall revert
to the Plan. If, after termination, the Option
8
<PAGE>
is not exercised within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
iii. 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 Option Agreement) to the extent vested on the
date of death. If, at the time of death, the Optionee is not vested as to
the entire Option, the Shares covered by the unvested portion of the Option
shall revert to the Plan. The Option may be exercised by the executor or
administrator of the Optionee's estate or, if none, by the person(s) entitled
to exercise the Option under the Optionee's will or the laws of descent or
distribution. If the Option is not so exercised within the time specified
herein, the Option shall terminate, and the Shares covered by such Option
shall revert to the Plan.
c. BUYOUT PROVISIONS. The Administrator may at any time offer to
buy out for a payment in cash or Shares, an Option previously granted, based
on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
9. CONDITIONS UPON ISSUANCE OF SHARES.
a. 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 Applicable Laws, and shall be
further subject to the approval of counsel for the Company with respect to
such compliance.
b. 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 Applicable Laws.
10. ADJUSTMENTS UPON 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, 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 similar event resulting in an increase or decrease in the number of
issued shares of Common Stock. 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 hereof shall be made with respect to, the number or
price of Shares subject to an Option.
11. CORPORATE TRANSACTIONS.
a. In the event of any Corporate Transaction, each Option which is at
the time outstanding under the Plan automatically shall become fully vested
and exercisable and be
9
<PAGE>
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.
However, an outstanding Option under the Plan shall not so fully vest and be
exercisable and released from such limitations if and to the extent: (i)
such Option is, in connection with the Corporate Transaction, either to be
assumed by the successor corporation or Parent thereof or to be replaced with
a comparable Option with respect to shares of the capital stock of the
successor corporation or Parent thereof, (ii) such Option is to be replaced
with a cash incentive program of the successor corporation which preserves
the compensation element of such Option existing at the time of the Corporate
Transaction and provides for subsequent payout in accordance with the same
vesting schedule applicable to such Option or (iii) the vesting,
exercisability and release from such limitations of such Option is subject to
other limitations imposed by the Administrator at the time of the grant of
the Option. The determination of Option comparability under clause (i) above
shall be made by the Administrator, and its determination shall be final,
binding and conclusive.
b. Effective upon the consummation of the Corporate Transaction, all
outstanding Options under the Plan shall terminate and cease to remain
outstanding, except to the extent assumed by the successor company or its
Parent.
c. The portion of any Incentive Stock Option accelerated under this
Section 11 in connection with a Corporate Transaction shall remain
exercisable as an Incentive Stock Option under the Code only to the extent
the $100,000 dollar limitation of Section 422(d) of the Code is not exceeded.
To the extent such dollar limitation is exceeded, the accelerated excess
portion of such Option shall be exercisable as a Non-Qualified Stock Option.
12. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the stockholders of the
Company. It shall continue in effect for a term of ten (10) years unless
sooner terminated.
13. AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN.
a. The Board may at any time amend, suspend or terminate the
Plan. To the extent necessary to comply with Applicable Laws, the Company
shall obtain stockholder approval of any Plan amendment in such a manner and
to such a degree as required.
b. No Option may be granted during any suspension of the Plan or
after termination of the Plan.
c. Any amendment, suspension or termination of the Plan shall
not affect Options already granted, and such Options shall remain in full
force and effect as if the Plan had not been amended, suspended or
terminated, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee
and the Company.
10
<PAGE>
14. RESERVATION OF SHARES.
a. The Company, during the term of the Plan, will at all times
reserve and keep available such number of Shares as shall be sufficient to
satisfy the requirements of the Plan.
b. 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.
15. NO EFFECT ON TERMS OF EMPLOYMENT. The Plan shall not confer upon
any Optionee any right with respect to continuation of employment or
consulting relationship with the Company, nor shall it interfere in any way
with his or her right or the Company's right to terminate his or her
employment or consulting relationship at any time, with or without cause.
16. STOCKHOLDER APPROVAL. The grant of Incentive Stock Options under
the Plan shall be subject to approval by the stockholders of the Company
within twelve (12) months before or after the date the Plan is adopted. Such
stockholder approval shall be obtained in the degree and manner required
under Applicable Laws. The Administrator may grant Incentive Stock Options
under the Plan prior to approval by the stockholders, but until such approval
is obtained, no such Incentive Stock Option shall be exercisable. In the
event that stockholder approval is not obtained within the twelve (12) month
period provided above, all Incentive Stock Options previously granted under
the Plan shall terminate.
11
<PAGE>
EXHIBIT 10.43
EMPLOYMENT AGREEMENT
OF MICHAEL LUBIN
WITH
DSP TELECOM, INC.
THIS EMPLOYMENT AGREEMENT (this "Agreement"), is made and entered into
effective as of the 15th day of June, 1996, by and between DSP TELECOM, INC., a
California corporation (hereinafter the "Corporation"), and MICHAEL LUBIN
(hereinafter "Lubin").
RECITAL
The Corporation hereby agrees to employ Lubin, and Lubin hereby agrees to
accept employment with the Corporation and expects to be elected as the
Executive Vice-President of the Corporation, and of its parent corporation, DSP
COMMUNICATIONS, INC., a Delaware corporation ("DSPC"), and as Chairman of the
Board of CTP SYSTEMS, INC., a California corporation and Chairman of the Board
of CTP SYSTEMS, LTD., an Israeli corporation (collectively CTP Systems, Ltd. and
CTP Systems, Inc. shall be referred to as "CTP"), on terms and conditions set
forth herein.
AGREEMENT
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. EMPLOYMENT DUTIES.
a. CORPORATION'S DUTIES. The Corporation shall allow Lubin to, and
Lubin shall, perform responsibilities normally incident to his positions and
commensurate with his background, education, experience and professional
standing. The Corporation shall provide Lubin with an office, stenographic
help, office equipment, supplies, customary services and cooperation suitable
and necessary for the performance of his duties.
b. LUBIN'S DUTIES. Lubin shall devote his full productive time,
attention, energy, and skill to the business of the Corporation during the
employment term set forth below, and shall not become engaged to render similar
services on behalf of any other entity while employed hereunder, without the
Corporation's consent, except that Lubin shall, for the months of June, July,
August and September of 1996 ("Start-up Months") be allowed to conclude current
duties in other businesses. Lubin shall report directly to the Chief Executive
Officer of the Corporation, the Chief Executive Officer of DSPC, and the Board
of Directors of CTP.
<PAGE>
2. TERM. This Employment Agreement shall commence as of even date
herewith. Lubin shall be an employee at will. As used herein, the term
"employment term" refers to the entire period of employment of Lubin hereunder.
3. COMPENSATION. Lubin shall be compensated as follows:
a. FIXED SALARY. Lubin shall receive a fixed salary at the rate of
Thirteen Thousand Seven Hundred Fifty United States Dollars (U.S. $13,750.00)
per month, (the "Fixed Monthly Salary"), except for the Start-up Months when
there will be an appropriate reduction.
b. PAYMENT. Lubin's Fixed Monthly Salary shall be payable on a
semi-monthly basis in arrears.
c. BONUSES.
i. During the employment term, Lubin shall be eligible to
receive a bonus of up to One Hundred Thousand Dollars ($100,000) in any calendar
year. Bonuses shall be payable at the discretion of the Board of Directors of:
the Corporation, DSPC, and CTP (collectively, the "Board"), at anytime in
December of the year in which the bonus is earned, or in January or February of
the following year. Bonuses shall only be payable if Lubin remains employed
with the Corporation full-time through the end of the applicable year, and if
Lubin's performance and that of the Corporation warrant such bonuses.
ii. During the employment term, Lubin shall also be eligible for
an additional cash bonus, under certain conditions, as follows:
(a) It shall be determined on a pro forma basis without
regard to extraordinary items, the annual net income of CTP Systems, Inc. and
CTP Systems, Ltd. and any other business affiliated with the Corporation or DSPC
(which is attributable to Lubin's efforts as agreed upon by both Lubin and the
Corporation) on each of December 31, 1998, December 31, 1999, and December 31,
2000 (each shall be referred to as a "Measurement Date").
(b) The amount of net income will be multiplied by the
group average price earnings multiple prepared by Oppenheimer & Co. for
Comparable Valuation Analysis using comparison companies in the semiconductor,
wireless components and wireless equipment business, for the last month before
each of the Measurement Dates ("Deemed Value").
(c) Between twenty (20) and forty-five (45) days after each
Measurement Date, Lubin will be entitled to receive one and two-thirds percent
(1-2/3%) of the Deemed Value, less the Option Value (described below). For
example, if Lubin's operations
<PAGE>
bring $1-Million to the bottom line of the Corporation or its affiliated
companies at a Measurement Date, and the average multiple is thirty (30), Lubin
would be entitled to receive one and two-thirds percent (1-2/3%) of the
$30-Million value (or Five Hundred Thousand Dollars ($500,000)), reduced by the
Option Value.
(d) The Option Value shall equal one-third (1/3) of (a) the
amount determined by multiplying the aggregate number of Lubin's vested shares
of DSPC granted as outlined in Section 3.f. (below), by the increase, if any, in
the market value of such shares over the exercise price; and (b) fifty percent
(50%) of the amount determined by multiplying the number of Lubin's unvested
shares by the increase, if any, in the market value of such shares over the
exercise price.
(e) The term net income will be defined by the
Corporation's certified independent public accountants taking into account the
then-current inter-company agreements allocating certain expenses and overhead
among the Corporation's various affiliates.
(f) The term market value shall be the market value of
DSPC's Common Stock as of the third (3rd) business day after DSPC's annual
earnings are released after each Measurement Date for each Measurement Date.
d. VACATION. Lubin shall accrue paid vacation at the rate of twenty
(20) days for each twelve (12) months of employment. Lubin shall be compensated
at his usual rate of compensation during any such vacation. Lubin shall be
entitled to ten (10) paid holidays during each twelve (12) months of employment.
Lubin need not take the vacation in any particular calendar year and shall be
entitled to carry forward his current vacation accrual and any other vacation
that accrues during the term of this Agreement, except that Lubin may not
continue accruing vacation beyond forty (40) business days without the
Corporation's approval.
e. BENEFITS. During the employment term, at the Corporation's
expense, Lubin (and his spouse and his other dependents, if any, provided that
Lubin pays for the extra cost to cover his spouse and such dependents) shall be
entitled to participate in any group plans or programs maintained by the
Corporation for any employees relating to group health and other related
benefits as in effect from time to time. The level of benefits shall be based
on the fixed salary payable to Lubin.
f. STOCK OPTIONS/WARRANTS. Subject to the approval of the Board and
any shareholder approval deemed to be required in the best interests of the
Corporation by the Board, the Corporation's parent company, DSPC, shall grant to
Lubin options to purchase up
<PAGE>
to four hundred thousand (400,000) shares of this Corporation's Common Stock at
a per share exercise price equal to the fair market value of said shares at the
date of grant, and on such other terms as are mutually agreed upon by the
parties.
g. SICK LEAVE. Payment of salary to Lubin during any sick leave
shall only be to the extent that Lubin has accrued sick leave or vacation days.
Lubin shall accrue sick leave at the same rate generally available to the
Corporation's employees.
3. EXPENSES. The Corporation shall reimburse Lubin for his normal and
reasonable expenses incurred for travel, entertainment and similar items in
promoting and carrying out the business of the Corporation in accordance with
the Corporation's general policy as adopted by the Corporation's management from
time to time. As a condition of reimbursement, Lubin agrees to provide the
Corporation with copies of all available invoices and receipts, and otherwise
account to the Corporation in sufficient detail to allow the Corporation to
claim an income tax deduction for such paid item, if such item is deductible.
Reimbursements shall be made on a monthly, or more frequent, basis.
4. CONFIDENTIALITY AND COMPETITIVE ACTIVITIES. Lubin agrees that during
the employment term he is in a position of special trust and confidence and has
access to confidential and proprietary information about the Corporation's and
its clients' business and plans. Lubin agrees that he will not directly or
indirectly, either as an employee, employer, consultant, agent, principal,
partner, stockholder, corporate officer, director, or in any similar individual
or representative capacity, engage or participate in any business that is in
competition, in any manner whatsoever, with the Corporation without advance
written approval by the Corporation. Notwithstanding anything in the foregoing
to the contrary, Lubin shall be allowed to invest as a shareholder in publicly
traded companies, or through a venture capital firm or an investment pool.
Lubin agrees to sign the Employee Proprietary Information and Inventions
Agreement of the Corporation (as set forth in Exhibit A attached hereto and
incorporated herein by this reference).
5. TERMINATION.
a. GENERAL. Each of Lubin and the Corporation may terminate this
Agreement without cause upon ninety (90) days' notice.
b. TERMINATION FOR CAUSE. The Corporation may immediately terminate
Lubin's employment at any time For Cause without notice. Such for cause
termination shall be effective upon receipt of written notice thereof to Lubin
specifying the grounds for termination and all relevant facts. "For Cause"
shall be deemed to include: (i) fraud, embezzlement, defalcation or conviction
of any felonious offense relating to this Corporation's
<PAGE>
business; (ii) intentionally imparting confidential information relating to the
Corporation or its business to competitors or to other third parties other than
in the course of carrying out his duties hereunder; or (iii) breaching the terms
of Section 5 (above) or any other terms of this Agreement. The Corporation's
exercise of its rights to terminate For Cause shall be without prejudice to any
other remedy it may be entitled at law, in equity, or under this Agreement.
c. TERMINATION UPON DEATH OR DISABILITY. This Agreement shall
automatically terminate upon Lubin's death, or if any disability or incapacity
of Lubin to perform his duties as the result of any injury, sickness, or
physical, mental or emotional condition is of such a degree that two (2)
independent physicians state in writing that Lubin will be unable to ever return
to work.
d. SEVERANCE PAYMENT. If Lubin remains employed hereunder on a
full-time basis for six (6) months or more, and his employment is thereafter
terminated hereunder by the Corporation, CTP and DSPC without cause, Lubin shall
be entitled to a severance pay equal to six (6) months of Lubin's Fixed Monthly
Salary upon such termination. If Lubin remains employed hereunder on a
full-time basis for three (3) years or more, and his employment is thereafter
terminated hereunder by the Corporation, CTP and DSPC without cause, Lubin shall
be entitled to a severance pay equal to nine (9) months of Lubin's Fixed Monthly
Salary upon such termination.
e. BENEFITS. To the extent permissible, the Corporation shall keep
in effect during the six (6) months or nine (9) months, as applicable, severance
period all insurance coverage for disability, health, or dental insurances then
in effect.
6. CORPORATE OPPORTUNITIES.
a. DUTY TO NOTIFY. In the event that Lubin, during the employment
term, shall become aware of any business opportunity related to the
Corporation's business, Lubin shall promptly notify the Corporation's Directors
of such opportunity. Lubin shall not appropriate for himself or for any other
person other than the Corporation, or any affiliate of the Corporation, any such
opportunity unless, as to any particular opportunity, if a majority of
disinterested Directors of the Corporation fails to take appropriate action
within forty-five (45) days. Lubin's duty to notify the Corporation and to
refrain from appropriating all such opportunities for forty-five (45) days shall
neither be limited by, nor shall such duty limit, the application of the general
corporate law of California relating to the fiduciary duties of an agent or
employee.
b. FAILURE TO NOTIFY. In the event that Lubin fails to notify the
Corporation of, or so appropriates, any such opportunity without the express
written consent of a majority
<PAGE>
of disinterested Directors, Lubin shall be deemed to have violated the
provisions of this Section notwithstanding the following:
i. The capacity in which Lubin shall have acquired such
opportunity; or
ii. The probable success in the Corporation's hands of such
opportunity.
c. EXCLUSIONS. Activities listed on Exhibit B, attached hereto and
incorporated herein by this reference, shall be excluded from Sections 4 and 6
(above); provided that any increase in such activities shall be brought to the
Board's attention, and provided further that Lubin may not spend any significant
amount of time on such activities while employed by the Corporation, DSPC, or
CTP.
7. MISCELLANEOUS.
a. ENTIRE AGREEMENT. This Agreement and the exhibits attached
hereto constitute the entire agreement and understanding between the parties
with respect to the subject matters herein and therein, and supersede and
replace any prior agreements and understandings, whether oral or written between
them with respect to such matters. The provisions of this Agreement may be
waived, altered, amended or repealed in whole or in part only upon the written
consent of both parties to this Agreement.
b. NO IMPLIED WAIVERS. The failure of either party at any time to
require performance by the other party of any provision hereof shall not affect
in any way the right to require such performance at any time thereafter, nor
shall the waiver by either party of a breach of any provision hereof be taken or
held to be a waiver of any subsequent breach of the same provision or any other
provision.
c. PERSONAL SERVICES. It is understood that the services to be
performed by Lubin hereunder are personal in nature and the obligations to
perform such services and the conditions and covenants of this Agreement cannot
be assigned by Lubin. Subject to the foregoing, and except as otherwise
provided herein, this Agreement shall inure to the benefit of and bind the
successors and assigns of the Corporation.
d. SEVERABILITY. If for any reason any provision of this Agreement
shall be determined to be invalid or inoperative, the validity and effect of the
other provisions hereof shall not be affected thereby, provided that no such
severability shall be effective if it causes a material detriment to any party.
<PAGE>
e. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, applicable to
contracts between California residents entered into and to be performed entirely
within the State of California.
f. NOTICES. All notices, requests, demands, instructions or other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given upon delivery, if
delivered personally, or if given by prepaid telegram, or mailed first-class,
postage prepaid, registered or certified mail, return receipt requested, shall
be deemed to have been given seventy-two (72) hours after such delivery, if
addressed to the other party at the addresses as set forth on the signature page
below. Either party hereto may change the address to which such communications
are to be directed by giving written notice to the other party hereto of such
change in the manner above provided.
g. VENUE. Any action or proceeding arising directly or indirectly
from this Agreement shall be litigated in an appropriate state or federal court
in the County of Santa Clara, State of California.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
DSP TELECOM, INC.
a California corporation
20300 Stevens Creek Blvd., 4th Floor
Cupertino, CA 95014
By: /S/ NATHAN HOD /S/ MICHAEL LUBIN
-------------------------------- -----------------------------------
NATHAN HOD,. MICHAEL LUBIN
Chief Executive Officer 14014 Rue d'Antibes
Del Mar, California
<PAGE>
EXHIBIT A
STATEMENT REGARDING
EMPLOYEE PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
WITH DSP COMMUNICATIONS, INC.
Attached to this Statement is your Employee Proprietary Information and
Inventions Agreement (the "Agreement") with DSP COMMUNICATIONS, INC., a Delaware
corporation (the "Corporation").
Please take the time to review the Agreement carefully. The Agreement
contains material restrictions on your right to disclose or use, during or after
your employment, information learned or developed by you during your employment
with the Corporation.
The Corporation considers this Agreement to be very important to the
protection of its business. The Corporation intends to enforce the terms of the
Agreement and to pursue, as appropriate, injunctions, restraining orders and
money damages, should you violate the Agreement.
If you have any questions concerning the Agreement you may wish to consult
an attorney. The employees and agents of the Corporation are not authorized to,
and will not, give you legal advice concerning the Agreement.
If you have read and understand the Agreement, and if you agree to its
terms and conditions, please return a fully executed copy of it to the
Corporation, retaining one copy for yourself.
Reviewed and Understood:
DATED:
------------------------- -------------------------
Employee's Signature
<PAGE>
DSP COMMUNICATIONS, INC.
EMPLOYEE PROPRIETARY INFORMATION
AND INVENTIONS AGREEMENT
PROPRIETARY INFORMATION
1. I understand that, in the course of my work as an Employee of DSP
COMMUNICATIONS, INC., a Delaware corporation (the "Corporation"), I have had and
may have access to Proprietary Information (as defined below) concerning the
Corporation and its clients. In consideration of my employment by the
Corporation, I agree to hold in confidence all such Proprietary Information and
will not disclose such information directly or indirectly to anyone outside of
the Corporation, or use, copy, publish, summarize, make lists of or remove from
Corporation premises such information (or remove from the premises any other
property of the Corporation) except (a) during my employment to the extent
necessary to carry out my responsibilities as an employee of the Corporation;
and (b) after termination of my employment, as specifically authorized by the
Corporation's Board of Directors. I further understand that the publication of
any Proprietary Information through literature or speeches must be approved in
advance in writing by the President of the Corporation, or his designee.
2. I understand that the reference to "Proprietary Information" in this
Agreement means all information and any idea in whatever form, tangible or
intangible, whether disclosed to, or learned by or developed by me, pertaining
in any manner to the business of the Corporation (or any affiliate of it that
might be formed) and of the Corporation's clients unless: (a) the information is
or becomes publicly known through lawful means; (b) the information was
rightfully in my possession or part of my general knowledge prior to my
employment by the Corporation; or (c) the information is disclosed to me without
confidential or proprietary restriction by a third party who rightfully
possesses the information (without confidential or proprietary restriction) and
did not learn of it directly or indirectly, from the Corporation. I further
understand that the Corporation considers the following information to be
included, without limitation, in such definition of Proprietary Information:
(v) digital signal processing; (w) formulas, teaching techniques, processes,
trade secrets, electronic codes,
<PAGE>
proprietary techniques, inventions, improvements and research projects; (x)
information about costs, profits, markets, sales, and lists of customers; (y)
plans for future development and new product concepts; and (z) all documents,
books, papers, drawings, models, sketches and other data of any kind and
description, including electronic data recorded or retrieved by any means, that
have been or will be given by the Corporation (or any affiliate of it that might
be formed) to me, as well as written or verbal instructions or comments.
3. I agree that I will maintain at my workstation, or in other places
under my control, only such Proprietary Information which I have a current
"need-to-know," and that I will return to the appropriate person or otherwise
properly dispose of Proprietary Information once my need to know is no longer
extant. I agree that I will not make copies of information unless I have a
legitimate need for such copies in connection with my work.
4. I hereby acknowledge and agree that all personal property, including,
without limitation, all books, manuals, records, models, reports, notes,
contracts, lists and other documents, Proprietary Information and equipment
furnished to or prepared by me in the course of or incident to my employment,
belongs to the Corporation and shall be promptly returned to the Corporation
upon termination of my employment by the Corporation.
5. I also hereby acknowledge that the pursuit of the activities forbidden
by this Section 5 would necessarily involve the use or disclosure of Proprietary
Information in breach of Section 1, but that proof of such breach would be
extremely difficult. To forestall such disclosure, use and breach, and in
consideration of my continued employment, I agree that for the term of this
Agreement and a period equal to either one (1) year after termination of my
employment with the Corporation if the termination is voluntary by me, or "for
cause" by the Corporation, or for a period equal to the number of months of
severance payment to Employee for (a) termination by the Corporation without
cause; (b) for my voluntary termination because the Corporation substantially
reduced my job title or responsibilities; or (c) if I resign within the first
six (6) months. I shall not for myself or any third party,
-2-
<PAGE>
directly or indirectly (a) divert or attempt to divert from the Corporation (or
any affiliate of it that might be formed) any business in which it is engaged,
including, without limitation, the solicitation of or interference with any of
its suppliers or customers; (b) solicit for employment, or recommend for
employment any person employed by the Corporation, or by any affiliate of it
that might be formed, during the period of such person's employment; or
(c) engage in any business activity relating to digital signal processing in the
cellular market and related applications, markets, and technologies that is or
may be competitive with the Corporation or any affiliate of it that might be
formed.
6. I also agree, in consideration of my continued employment by the
Corporation, that I will maintain adequate and current written records on my
conception and development of all Invention Ideas and to disclose to the
Corporation all Invention Ideas and relevant records. Invention Ideas as used
in this Agreement shall mean any and all ideas, processes, trademarks, service
marks, inventions, discoveries, patents, copyrights and improvements to the
foregoing that are conceived, developed or created by me alone or with others
during my employment with the Corporation -- whether or not conceived, developed
or created during regular work hours -- and that: (a) fall within the existing
or contemplated business of the Corporation or any affiliate of it that might be
formed; (b) relate to actual or demonstrably anticipated research or development
of the Corporation (or any affiliate of it that might be formed); (c) result
from work done by me for or at the request of the Corporation (or any affiliate
of it that might be formed); or (d) result from my use of or access to any
Proprietary Information or any equipment, supplies, facilities, memoranda, data,
customer lists, processes or the like of the Corporation (or any affiliate of it
that might be formed).
7. I further agree that all information and records pertaining to any
idea, process, trademark, service mark, invention, discovery, patent or
copyright that I do not believe to be an Invention Idea, but that is conceived,
developed or created by me (alone or with others) during my employment with the
Corporation relating to digital signal processing in the cellular market and
-3-
<PAGE>
related applications, markets, and technologies, shall be promptly disclosed to
the Corporation (such disclosure to be received in confidence). The Corporation
shall examine such information to determine if in fact the idea, process or
invention, etc., is an Invention Idea subject to this Agreement.
8. During employment by the Corporation, I further agree to assign to the
Corporation, if possible, without further consideration, my entire right, title
and interest (throughout the United States and in all foreign countries), free
and clear of all liens and encumbrances, in and to each Invention Idea relating
to digital signal processing in the cellular market and related applications,
markets, and technologies, which shall be the sole property of the Corporation,
whether or not patentable. In the event any Invention Idea shall be deemed by
the Corporation to be patentable or otherwise registrable, I shall assist the
Corporation (at its expense) in obtaining letters patent or other applicable
registrations thereon and shall execute all documents and do all other things
(including testifying at the Corporation's expense) necessary or proper to
obtain letters patent or other applicable registrations thereon and vest to the
Corporation, or any affiliate of it that might be formed, as specified by the
Board of Directors of the Corporation, with full title thereto. Should the
Corporation be unable to secure my signature on any document necessary to apply
for, prosecute, obtain or enforce any patent, copyright or other right or
protection relating to any Invention Idea, whether due to my mental or physical
incapacity or any other cause, I hereby irrevocably designate and appoint the
Corporation and each of its duly authorized officers and agents as my agent and
attorney-in-fact, to act for and in my behalf and stead, to execute and file any
such document and to do all other lawfully permitted acts to further the
prosecution, issuance and enforcement of patents, copyrights or other rights or
protections with the same force and effect as if executed and delivered by me.
9. I acknowledge that there are no idea, processes, trademarks, service
marks, inventions, discoveries, patents, copyrights or improvements to the
foregoing that I desire to exclude from this Agreement other than those
specified on the back of this form. To
-4-
<PAGE>
the best of my knowledge, there is no existing contract in conflict with this
Agreement or any other contract to assign ideas, processes, inventions,
trademarks, service marks, discoveries, patents or copyrights that is now in
existence between me and any other person, corporation, partnership or other
business or governmental entity. I will not disclose to the Corporation, or
use, or induce the Corporation to use, an proprietary information or trade
secrets of others. I represent and warrant that I have returned all property
and confidential information belonging to all prior employers.
10. Because of the difficulty of establishing when any idea, process,
invention, etc., is first conceived by me, or whether it results from access to
proprietary information of the Corporation or the Corporation's equipment,
facilities and data, I further agree that any idea, process, trademark, service
mark, invention, discovery, patent, copyright or any improvement to the
foregoing shall be presumed to be an Invention Idea relating to digital signal
processing in the cellular market and related applications, markets, and
technologies if it falls within subsection 6(a), (b) or (c) AND is made, used,
sold, exploited or reduced to practice by me or with my aid within one (1) year
after termination of my employment with the Corporation. In any legal dispute
concerning this Section 10, I can rebut the above presumption if I can prove
that the idea, process, etc., in question was not first conceived of during my
employment with the Corporation, did not result from, or was in any way affected
by, the use of Proprietary Information of the Corporation, and did not involve
the use of the Corporation's equipment, facilities or data.
11. I understand that, pursuant to California Labor Code Section 2870, the
above provisions do not apply to an invention to which I used no equipment,
supply facility, or secret information of the Corporation and which was
developed entirely on my own time and (a) which does not relate to the
Corporation's business relating to digital signal processing in the cellular
market and related applications, markets, and technologies or the Corporation's
actual or demonstrably anticipated research or development relating to
-5-
<PAGE>
digital signal processing in the cellular market and related applications,
markets, and technologies; or (b) which does not result from any work I
performed for the Corporation.
12. I further understand that the Corporation may assign to another person
or entity the Corporation's rights to Invention Ideas covered by this Agreement,
and the Corporation's other rights under this Agreement.
13. Nothing in Sections 1 through 12 are intended to limit any remedy of
the Corporation under the California Uniform Trade Secrets Act (California Civil
Code Section 3426), or otherwise available under law. In the event of
termination (voluntary or otherwise) of my employment with the Corporation, I
agree promptly and without request, to deliver to and inform the Corporation of
all documents and data pertaining to my employment and the Proprietary
Information and Invention Ideas of the Corporation or its clients, whether
prepared by me or otherwise coming into my possession or control, and to sign
any requested documentation in furtherance of the foregoing. I will not retain
any written or other tangible material containing any information concerning or
disclosing any of the Proprietary Information or Invention Ideas of the
Corporation or its clients. I recognize that the unauthorized taking of any of
the Corporation's trade secrets is a crime under California Penal Code Section
499c, and is punishable by imprisonment in a state prison in a county jail for a
time not exceeding one year, or by a fine not exceeding Five Thousand Dollars
($5,000), or both such fine and such imprisonment. I further recognize that
such unauthorized taking of the Corporation's trade secrets could also result in
civil liability under the California Civil Code Section 3426, and that willful
misappropriation may result in an award against for triple the amount of the
Corporation's damages and the Corporation's attorneys' fees in collection of
such damages. In addition, I recognize that breach of this Agreement may cause
the Corporation irreparable harm for which money is inadequate compensation. I
therefore agree that the Corporation will be entitled to injunctive relief to
enforce this Agreement, in addition to damages and other available remedies.
-6-
<PAGE>
14. The validity, interpretation, enforceability and performance of this
Agreement shall be governed by and construed in accordance with the laws of the
State of California. If any provision of this Agreement, or application thereof
to any person, place or circumstance, shall be held by a court of competent
jurisdiction to be invalid, unenforceable or void, the remainder of this
Agreement and such provision as applied to other persons, places and
circumstances shall remain in full force and effect.
15. The parties intend that the terms of this Agreement shall be the final
expression of their agreement with respect to the subject matter hereof and may
not be contradicted by evidence of any prior or contemporaneous agreement. The
parties further intend that this Agreement shall constitute the complete and
exclusive statement of its terms and that no extrinsic evidence whatsoever may
be introduced in any judicial administrative, or other legal proceeding
involving this Agreement. This Agreement may not be amended except by an
agreement in writing signed by me and by a duly authorized representative of the
Corporation.
16. This Agreement shall be binding upon me and my heirs, executors,
administrators, successors and assigns and shall inure to the benefit of the
Corporation's successors and assigns.
I HAVE READ THIS AGREEMENT CAREFULLY AND UNDERSTAND ITS TERMS. I HAVE
COMPLETELY NOTED ON EXHIBIT 1 TO THIS FORM ANY IDEAS, PROCESSES, TRADEMARKS,
SERVICE MARKS, INVENTIONS, DISCOVERIES, PATENTS, COPYRIGHTS OR IMPROVEMENTS TO
THE FOREGOING THAT I DESIRE TO EXCLUDE FROM THIS AGREEMENT.
- ------------------------------ -----------------------------
Witness Name Employee's Name
- ------------------------------ -----------------------------
Witness Signature Employee's Signature
Date: Date:
------------------------ -----------------------
-7-
<PAGE>
EXHIBIT 1
LIST OF EXCLUDED INVENTIONS
Specific application of CDPD in cellular telephones that was developed by
Michael Lubin for his former employers and placed into patent applications.
<PAGE>
EXHIBIT B
LIST OF EXCLUDED ACTIVITIES
1. Lubin remains an employee without duties or responsibilities of PCSI
until March 1997.
2. Lubin is a director and may become a shareholder of Peregrine
SemiConductor.
3. Lubin is an advisor to GTECH, a publicly trade company that runs the
California Lottery.
4. Lubin consults for Airnet and may become a shareholder.
5. Lubin is an investor in Siliscape.
6. Lubin may become an advisor and shareholder of a merchant banking
entity.
None of the foregoing shall take up any significant amount of Lubin's time
after September 1996.
<PAGE>
EXHIBIT 11
DSP COMMUNICATIONS, INC.
STATEMENT REGARDING COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Quarter ended September 30, Nine months ended September 30,
-------------------------- -------------------------------
1996 1995 1996 1995
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Shares used in calculation
of net income per share:
Average Class B Ordinary
shares and Common shares
outstanding 22,086 17,604 20,505 14,191
Net effect of dilutive stock
option and warrants 1,938 2,100 1,894 1,730
Class A Convertible Ordinary
shares, if converted -- -- -- 1,206
--------- --------- --------- ---------
24,024 19,704 22,399 17,127
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income $ 7,603 $2,566 $17,128 $ 4,363
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income per share $ 0.32 $ 0.13 $ 0.76 $ 0.25
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
18
<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 COMMUNICATIONS,
INC. FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 72,736
<SECURITIES> 56,068
<RECEIVABLES> 9,706
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 140,658
<PP&E> 3,360
<DEPRECIATION> 0
<TOTAL-ASSETS> 147,416
<CURRENT-LIABILITIES> 16,502
<BONDS> 0
0
0
<COMMON> 22
<OTHER-SE> 130,412
<TOTAL-LIABILITY-AND-EQUITY> 147,416
<SALES> 58,717
<TOTAL-REVENUES> 61,053
<CGS> 31,541
<TOTAL-COSTS> 33,702
<OTHER-EXPENSES> 3,664
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 19,575
<INCOME-TAX> 2,447
<INCOME-CONTINUING> 17,128
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,128
<EPS-PRIMARY> 0.76
<EPS-DILUTED> 0.76
</TABLE>
