<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act
of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-6(e)(2)
DSP COMMUNICATIONS, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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1
<PAGE>
DSP COMMUNICATIONS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 12, 1998
To the Stockholders of DSP COMMUNICATIONS, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Annual
Meeting") of DSP Communications, Inc., a Delaware corporation (the "Company"),
will be held at the Company's principal executive office located at 20300
Stevens Creek Boulevard, 4th Floor, Cupertino, California 95014, on Tuesday, May
12, 1998, at 10:00 a.m., local time, for the following purposes:
1. ELECTION OF DIRECTORS. To elect three (3) Class III Directors of
the Company to serve until the 2001 Annual Meeting of Stockholders or until
their respective successors are elected and qualified;
2. AMENDMENT TO 1996 STOCK OPTION PLAN. To approve an amendment to
the Company's 1996 Stock Option Plan to increase the number of shares of Common
Stock reserved and authorized for issuance thereunder from three million
(3,000,000) to five million (5,000,000) shares.
3. SELECTION OF INDEPENDENT AUDITORS. To ratify the appointment of
Ernst & Young LLP as the independent auditors for the Company for the year
ending December 31, 1998; and
4. To transact such other business as may properly come before the
Annual Meeting and any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement which is attached and made a part hereof.
The Board of Directors has fixed the close of business on Monday, March 23,
1998 as the record date for determining the stockholders entitled to notice of
and to vote at the Annual Meeting and any adjournment or postponement thereof.
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON, YOU ARE
URGED TO MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS
POSSIBLE IN THE POSTAGE-PREPAID ENVELOPE PROVIDED TO ENSURE YOUR REPRESENTATION
AND THE PRESENCE OF A QUORUM AT THE ANNUAL MEETING. IF YOU SEND IN YOUR PROXY
CARD AND THEN DECIDE TO ATTEND THE ANNUAL MEETING TO VOTE YOUR SHARES IN PERSON,
YOU MAY STILL DO SO. YOUR PROXY IS REVOCABLE IN ACCORDANCE WITH THE PROCEDURES
SET FORTH IN THE PROXY STATEMENT.
By Order of the Board of Directors
/s/ Nathan Hod
------------------------------------
Nathan Hod,
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
CHAIRMAN OF THE BOARD
Cupertino, California
March 30, 1998
<PAGE>
Mailed to Stockholders on or about March 30,1998
DSP COMMUNICATIONS, INC.
20300 STEVENS CREEK BLVD., CUPERTINO, CALIFORNIA 95014
PROXY STATEMENT
GENERAL INFORMATION
This Proxy Statement is furnished to stockholders of DSP Communications,
Inc., a Delaware corporation (the "Company"), in connection with the
solicitation by the Board of Directors (the "Board") of the Company of proxies
in the accompanying form for use in voting at the Annual Meeting of Stockholders
of the Company (the "Annual Meeting") to be held on Tuesday, May 12, 1998 at
10:00 a.m., local time, at the Company's principal executive office located at
20300 Stevens Creek Boulevard, 4th Floor, Cupertino, California 95014, and any
adjournment or postponement thereof. The shares represented by the proxies
received, properly marked, dated, executed and not revoked will be voted at the
Annual Meeting.
REVOCABILITY OF PROXY
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is exercised by: (i) delivering to the Company
(to the attention of Stephen P. Pezzola, the Company's Secretary) a written
notice of revocation or a duly executed proxy bearing a later date; or (ii)
attending the Annual Meeting and voting in person.
SOLICITATION AND VOTING PROCEDURES
The solicitation of proxies will be conducted by mail and the Company will
bear all attendant costs. These costs will include the expense of preparing and
mailing proxy materials for the Annual Meeting and reimbursements paid to
brokerage firms and others for their expenses incurred in forwarding
solicitation material regarding the Annual Meeting to beneficial owners of the
Company's Common Stock. The Company may conduct further solicitation
personally, telephonically or by facsimile through its Officers, Directors and
regular employees, none of whom will receive additional compensation for
assisting with the solicitation.
The close of business on Monday, March 23, 1998 has been fixed as the
record date (the "Record Date") for determining the holders of shares of Common
Stock of the Company entitled to notice of and to vote at the Annual Meeting.
As of the close of business on the Record Date, the Company had 39,779,280
shares of Common Stock outstanding and entitled to vote at the Annual Meeting.
The presence at the Annual Meeting of a majority, or approximately 19,889,641 of
these shares of Common Stock of the Company, either in person or by proxy, will
constitute a quorum for the transaction of business at the Annual Meeting. Each
outstanding share of Common Stock on the Record Date is entitled to one (1) vote
on all matters. Directors shall be elected by a plurality of the votes cast.
An automated system administered by the Company's transfer agent will
tabulate votes cast by proxy and an employee of the transfer agent will tabulate
votes cast in person at the Annual Meeting. Abstentions and broker non-votes
are each included in the determination of the number of shares present and
voting, and each is tabulated separately. However, broker non-votes are not
counted for purposes of determining the number of votes cast with respect to a
particular proposal. In determining whether a proposal has been approved,
abstentions are counted as votes against the proposal and broker non-votes are
not counted as votes for or against the proposal. If no specific instructions
are given with respect to matters to be acted upon at the Annual Meeting, shares
of Common Stock represented by a properly executed proxy will be voted (i) FOR
the election of management's nominees for Class III Directors listed in Proposal
No. 1, (ii) FOR the approval of the amendment to the 1996 Stock Option Plan to
increase the number of shares of Common Stock available for issuance thereunder
from 3,000,000 to 5,000,000 shares, and (iii) FOR the ratification of the
selection of Ernst & Young LLP as the Company's independent auditors for fiscal
1998.
1
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Company's Certificate of Incorporation authorizes the number of
Directors to be not less than six (6), nor more than nine (9). The number of
Directors on the Board is currently fixed at seven (7). The Company's Board of
Directors is divided into three classes: Class I, Class II and Class III. The
members of each class of Directors serve staggered three-year terms. The Board
is currently composed of two Class I Directors (Messrs. Dogon and Schonzeit)
whose terms will expire upon the election and qualification of Directors at the
annual meeting of stockholders to be held in 1999; two Class II Directors
(Messrs. Broad and Fischer) whose terms will expire upon the election and
qualification of Directors at the annual meeting of stockholders to be held in
2000; and three Class III Directors (Messrs. Hod, Brownstein and Iwamoto), whose
terms will expire at the Annual Meeting and who have been nominated by
management to continue to serve as Class III Directors for three year terms
following the Annual Meeting. At each annual meeting of stockholders, Directors
will be elected for a full term of three years to succeed those Directors whose
terms are expiring.
In November 1997, Davidi Gilo resigned as a Class I Director. The
remaining Directors on the Board appointed Mr. Dogon to fill the Class I vacancy
in November 1997. Each of the other Directors has served on the Board since
prior to the date of the Company's initial registered public offering of Common
Stock, which was consummated in March 1995 (the "Initial Public Offering").
At the Annual Meeting, the stockholders will elect three Class III
Directors, each of whom will serve a three-year term until the annual meeting of
stockholders to be held in 2001 or until a successor is elected or appointed and
qualified or until the Director's earlier resignation or removal. The Board has
no reason to believe that any of the persons named below will be unable or
unwilling to serve as a nominee or as a Director if elected.
Certain information about Messrs. Hod, Brownstein and Iwamoto, the Class
III nominees, is furnished below:
NATHAN HOD joined the Company in March 1994 as President, Chief Executive
Officer and Director, and was appointed Chairman of the Board in November 1997.
Between January 1993 and March 1994, he served as President and Chief Executive
Officer of Nogatech Inc., a manufacturer of image processing and video
compression technology products. Mr. Hod served as Managing Director of Scitex
Japan K.K., a subsidiary of Scitex Corporation Ltd. ("Scitex"), a company
engaged in the field of imaging and publishing systems, from June 1986 until
December 1992. He had previously held several management positions throughout
the world with both Scitex and Honeywell Corporation. Mr. Hod holds a Masters
in Business Administration from the University of Massachusetts, Amherst.
NEILL BROWNSTEIN was appointed as a member of the Board in February 1995.
Mr. Brownstein is also President of Neill H. Brownstein Corporation, a strategic
investment management consulting firm which he founded in 1976. From June 1970
to January 1995, Mr. Brownstein was associated with Bessemer Securities
Corporation and Bessemer Venture Partners, and during that period he served as a
founding general partner of three affiliated venture capital funds. Mr.
Brownstein received a Masters in Business Administration from the Kellogg
Graduate School of Management at Northwestern University and his A.B. degree
from Columbia College of Columbia University.
SHIGERU IWAMOTO has been a member of the Board since November 1994. Since
January 1998, Mr. Iwamoto has served as President and Chief Executive Officer of
Kenwood Technologies (U.S.A.) Incorporated, a newly formed company that he was
instrumental in establishing in Cupertino, California. He served as manager of
Corporate Planning of Kenwood Corporation's division of Consumer Electronics
from August 1986 to May 1993 and from June 1994 to December 1997. Between June
1993 and May 1994, Mr. Iwamoto served as Vice President and Director of both
Bluebell Japan Ltd., an importer and distributor of apparel, silverware and
other luxury goods, and Lancel Japan Ltd., an importer, distributor and retailer
of leather goods and accessories.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE ELECTION OF THE NOMINEES NAMED ABOVE.
2
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
Directors and Executive Officers of the Company:
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------- --- -------------------------------------------
<S> <C> <C>
Nathan Hod 53 President, Chief Executive Officer and
Chairman of the Board of Directors
Gerald Dogon 58 Executive Vice President, Chief Financial
Officer and Director
Joseph Perl 52 Executive Vice President of Engineering and
Chief Technical Officer
Arnon Kohavi 33 Vice President of Business Development
Stephen P. Pezzola 41 General Counsel and Corporate Secretary
Lewis S. Broad (1)(2) 41 Director
Neill H. Brownstein (1) 54 Director
Shigeru Iwamoto (2) 57 Director
Andrew W. Schonzeit (2) 41 Director
Avraham Fischer 42 Director
</TABLE>
----------------------------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
LEWIS BROAD has been a member of the Board since October 1992. Mr. Broad
is a private investor. He is also a member of the Board of MET Trading, L.L.C.,
an equity option and index option trading firm. Mr. Broad is an owner of Signs
of Imagination, Inc., a manufacturer and marketer of custom signs. He holds a
B.A. degree from Cornell University and a Masters of Business Administration
from the Wharton School, University of Pennsylvania.
GERALD DOGON joined the Company in August 1994 as Senior Vice President and
Chief Financial Officer and was appointed as Executive Vice President in July
1996, and a Director in November 1997. Between April 1992 and August 1994, he
served as Director of Finance of Nilit Ltd., an Israeli manufacturer of nylon
fibers. From March 1991 to March 1992, Mr. Dogon served as Vice President of
Finance of Mul-T-Lock Ltd., an Israeli manufacturer of high security devices.
Between March 1989 and March 1991, he served as Manager of the International
Division of the Israel General Bank Ltd. From December 1987 to March 1989, he
served as Chief Financial Officer of Indigo Ltd., an Israeli developer of
imaging systems. Prior to December 1987, he was employed for 17 years by
Scitex, where he last served as Executive Vice President and Chief Financial
Officer. Mr. Dogon holds a Bachelors degree from the University of Cape Town,
South Africa.
3
<PAGE>
AVRAHAM FISCHER, has been a member of the Board since June 1996. Mr.
Fischer is a senior partner in the law firm of I. Fischer & Co., of Tel Aviv,
Israel, where he has served since 1983.
ANDREW SCHONZEIT has been a member of the Board since October 1992. He has
served as the President of Idesco Corp., a manufacturer and distributor of
identification, security and safety products, since 1984 and as its Chairman of
the Board since 1989.
JOSEPH PERL joined the Company in July 1990 as director of the Company's
research and development activities in digital communications, and in May 1993
he was promoted to Vice President of Engineering and Chief Technical Officer.
In July 1996, Dr. Perl was appointed as Executive Vice President of Engineering
of the Company. Between August 1988 and June 1990, Dr. Perl served as the Chief
Scientist of the Communications Group of Tadiran Ltd., an Israeli electronics
and communications equipment manufacturer. Dr. Perl has also served as an
adjunct professor at Tel Aviv University and Florida State University. Dr. Perl
received his doctorate degree in electrical engineering from Colorado State
University.
ARNON KOHAVI joined the Company in July 1994 as Director of Strategic
Planning, and in October 1995 he was promoted to Vice President of Business
Development of the Company. From May 1994 until July 1994, Mr. Kohavi was
Manager of Business Development of DSP Group, Inc., and from January 1993
until February 1994, he served as Marketing Manager of Actodyne General, a
privately-owned musical instrument company. From January 1992 until January
1993, Mr. Kohavi was an associate with Robert Charles Lesser & Co., a
management consulting firm.
STEPHEN P. PEZZOLA joined the Company in September 1996 as General Counsel
and was appointed as Corporate Secretary in January 1997. Mr. Pezzola devotes
approximately one-third of his time to the Company. From May 1986 until
December 1996, Mr. Pezzola was a founding partner and president of the law firm
of Pezzola & Reinke, APC, of Oakland, California. Since September 1996, Mr.
Pezzola has also been a member of Gilo Group, LLC, an investment company. Since
September 1996, he has also served as General Counsel of Zen Research, N.V., a
developer of high-speed CD ROM-reading equipment, and of PhaseCom, Inc., a
developer of high speed cable modems. Mr. Pezzola received his Juris Doctor
degree from Boalt Hall, University of California at Berkeley.
RELATIONSHIPS AMONG DIRECTORS OR EXECUTIVE OFFICERS
There are no family relationships among any of the Directors or Executive
Officers of the Company, except that Mr. Schonzeit and Mr. Broad are
brothers-in-law.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During 1997, the Board met eight times and acted by written consent five
times. No Director attended fewer than 75% of the aggregate of the total number
of meetings of the Board, plus the total number of all meetings of committees of
the Board on which he served. The Board currently has two committees: the
Compensation Committee and the Audit Committee.
The Compensation Committee held five meetings in 1997 and acted by written
consent five times. The Compensation Committee currently consists of Messrs.
Broad, Iwamoto and Schonzeit. Its functions are to establish and apply the
Company's compensation policies with respect to the Company's Executive
Officers, and to administer the Company's stock option plans.
The Audit Committee held four meetings in 1997. The Audit Committee
currently consists of Messrs. Brownstein and Broad. The Audit Committee
recommends engagement of the Company's independent auditors and is primarily
responsible for approving the services performed by the Company's independent
auditors and for reviewing and evaluating the Company's accounting principles
and its system of internal accounting controls.
4
<PAGE>
COMPENSATION OF DIRECTORS
Directors who are employees of the Company do not receive any compensation
for their services as Directors. Each nonemployee Director receives an annual
retainer of $20,000, payable in quarterly installments of $5,000 each at the end
of each fiscal quarter. The retainer contemplates attendance at four Board
meetings per year. Additional Board meetings of a face-to-face nature are
compensated at the rate of $1,000 per meeting. Additional Board meetings on a
telephonic basis are compensated at the rate of $250 per meeting. In addition,
committee meetings of a face-to-face nature held on a day other than a Board
meeting are compensated at the rate of $500 per meeting or, if a committee
meeting is held on a telephonic basis, at the rate of $250 per meeting. All
Directors are reimbursed for expenses incurred in connection with attending
Board and committee meetings.
Each nonemployee Director of the Company is also entitled to participate in
the Company's 1995 Director Stock Option Plan (the "Director Option Plan"). The
Board of Directors and the stockholders have authorized a total of 600,000
shares of Common Stock for issuance under the Director Option Plan. The
Director Option Plan provides for the grant of nonstatutory options to
nonemployee Directors of the Company. The Director Option Plan is designed to
work automatically and not to require administration; however, to the extent
administration is necessary, it will be provided by the Board of Directors.
The Director Option Plan provides that each eligible Director is granted an
option to purchase 32,000 shares of Common Stock (the "First Option") on the
later of the effective date of the Initial Public Offering (March 7, 1995) or
the date on which the optionee first becomes a Director of the Company.
Thereafter, each nonemployee Director is to be granted an option to purchase
8,000 additional shares of Common Stock (a "Subsequent Option") on January 1 of
each year if, on such date, he or she shall have served on the Company's Board
of Directors for at least six months.
Options granted under the Director Option Plan have a term of ten years
unless terminated sooner upon termination of the optionee's status as a Director
or otherwise pursuant to the Director Option Plan. No option granted under the
Director Option Plan is transferable by the optionee other than by will or the
laws of descent and distribution, and each option is exercisable, during the
lifetime of the optionee, only by such optionee. The Director Option Plan
provides that the First Option shall become exercisable as to 25% of the shares
subject to the First Option on the first anniversary of the date of grant of the
First Option and is to become exercisable as to 6.25% of the shares subject to
the First Option at the end of each three-month period thereafter. Each
Subsequent Option becomes exercisable in full on the first anniversary of the
date of its grant.
The exercise price of all stock options granted under the Director Option
Plan is equal to the fair market value of a share of the Company's Common Stock
on the date of grant of the option. Fair Market Value is defined under the
Director Option Plan as the closing sale price of the Common Stock as reported
on the New York Stock Exchange on the date of grant.
In the event of a merger of the Company with or into another corporation or
a sale of substantially all of the Company's assets, the Director Option Plan
requires that each outstanding option be assumed or an equivalent option
substituted by the successor corporation. The Director Option Plan will
terminate in March 2005. The Board of Directors may amend or terminate the
Director Option Plan; provided, however, that no such action may adversely
affect any outstanding options, and the provisions of the Director Option Plan
affecting the grant and terms of options granted thereunder may not be amended
more than once in any six-month period. Executive officers of the Company are
not eligible to participate in the Director Option Plan.
On January 1, 1997, each of Lewis Broad, Neill Brownstein, Avraham
Fischer, Shigeru Iwamoto and Andrew Schonzeit, were granted Subsequent Options
to purchase 8,000 shares of Common Stock, at an exercise price of $19.375 per
share, under the Director Option Plan.
In 1997, the Company accrued $50,000 in expenses for consulting services
performed by Neill Brownstein. However, at the request of Mr. Brownstein, the
Company has deferred payment of these fees.
5
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company
with respect to beneficial ownership of the Company's Common Stock as of March
23, 1998, by (i) each stockholder known to the Company to own beneficially more
than 5% of the Company's Common Stock; (ii) each of the Company's Directors;
(iii) the Chief Executive Officer, three other Executive Officers of the Company
and two former Executive Officers; and (iv) all Executive Officers and Directors
of the Company as a group. Except as indicated in the footnotes to this table
and subject to applicable community property laws, the persons named in the
table, based on information provided by such persons, have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT & NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) PERCENT OF CLASS(1)
-------------------- ------------------------ -------------------
<S> <C> <C>
Chancellor LGT Asset Management, Inc., et al. (2) 2,717,000 6.8%
50 California Street, 27th Floor
San Francisco, CA 94111
John Hancock Mutual Life Insurance Co., et al (3) 2,302,000 5.8%
Corporate Division T-55
P.O. Box 111
Boston, MA 02117
Pioneering Management Corp. (4) 2,215,000 5.6%
60 State Street
Boston, MA 02109-1820
FMR Corp. (5)
82 Devonshire Street 2,228,400 5.6%
Boston, MA 02109
Davidi Gilo (6) 1,964,774 4.9%
Nathan Hod (7) 286,518 *
Joseph Perl (8) 174,139 *
Gerald Dogon (9) 295,056 *
Arnon Kohavi (10) 101,372 *
Lewis S. Broad (11) 194,000 *
Andrew W. Schonzeit (12) 104,464 *
Shigeru Iwamoto (13) 17,000 *
Neill H. Brownstein (14) 137,117 *
Avraham Fischer (15) 22,000 *
Michael Lubin (16) -- --
All Directors and Executive Officers as
a group (11 persons) (17)(18) 3,315,381 8.1%
</TABLE>
- ----------------------------
* Less than 1%
(1) Number of shares and percentage ownership include shares issuable pursuant
to stock options held by the person in question exercisable within 60 days
after March 23, 1998. Percentages are based on 39,779,280 shares
outstanding as of March 23, 1998.
(2) With respect to information relating to Chancellor LGT Asset Management,
Inc., and related entities, the Company has relied on information supplied
by such entities in its Schedule 13G filing with the Securities and
Exchange Commission (the "Commission") dated February 10, 1997.
(3) With respect to information relating to John Hancock Mutual Life Insurance
Company., and related entities, the Company has relied on information
supplied by such entities in its Schedule 13G filing with the Commission
dated January 27, 1998.
(4) With respect to information relating to Pioneering Management Corp., the
Company has relied on information supplied by such entity on its Schedule
13G filing with the Commission dated January 6, 1998.
(5) With respect to information relating to FMR Corporation, and related
entities, the Company has relied on information supplied by such entities
in its Schedule 13G filing with the Commission dated February 10, 1998.
Pursuant to the Schedule 13G, FMR Corporation has the sole voting power
with respect to only 142,900 of these shares and has sole investment power
with respect to all 2,228,400 shares.
(6) Includes (i) 1,313,704 shares held by Harmony Management, Inc., of which
Davidi Gilo and Shamaya Gilo are the sole shareholders, (ii) 382,657 shares
held by The Davidi and Shamaya Gilo Trust, of which Mr. Gilo serves as
trustee, and (iii) 100,000 shares held by the Gilo Family Foundation, of
which Mr. Gilo serves as President. Also includes 168,413 shares issuable
pursuant to stock options. Excludes 1,353,340 shares held in three trusts
for the benefit of Mr. Gilo's children, as to which Mr. Gilo has no voting
or investment power; Mr. Gilo disclaims any beneficial ownership of such
shares.
(7) Includes 282,037 shares issuable pursuant to stock options.
(8) Includes 172,361 shares issuable pursuant to stock options.
(9) Includes 293,422 shares issuable pursuant to stock options.
(10) Includes 92,184 shares issuable pursuant to stock options.
(11) Includes 16,000 shares issuable pursuant to stock options.
(12) Includes 32,000 shares issuable pursuant to stock options. Excludes 16,000
shares held in four trusts for the benefit of Mr. Schonzeit's children, as
to which Mr. Schonzeit has no voting or investment power. Mr. Schonzeit
disclaims any beneficial ownership of such shares.
(13) Includes 17,000 shares issuable pursuant to stock options.
(14) Includes 74,373 shares issuable pursuant to stock options.
(15) Includes 22,000 shares issuable pursuant to stock options.
(16) Mr. Lubin, a former Executive Vice President of the Company, left the
Company in December 1997.
(17) See Footnotes (6) through (15). Includes 1,184,569 shares issuable
pursuant to stock options.
(18) Includes shares beneficially owned by Davidi Gilo, who served as Chairman
of the Board through November 1997, but who is no longer an Executive
Officer or Director of the Company. Also includes shares beneficially
owned by Stephen Pezzola, the Company's General Counsel.
6
<PAGE>
PROPOSAL NO. 2
AMENDMENT OF THE COMPANY'S
1996 STOCK OPTION PLAN
The Company's stockholders are being asked to act upon a proposal to ratify
the action of the Board of Directors amending the 1996 Stock Option Plan (the
"1996 Plan"), to increase the number of shares of Common Stock reserved and
authorized for issuance under the 1996 Plan from 3,000,000 to 5,000,000 shares.
The Board adopted the amendment to the 1996 Plan to effect an increase in
the number of shares available for issuance under the 1996 Plan pursuant to
options granted to its employees, directors and consultants. The purpose of the
increase is to enable the Company to continue to retain talented personnel and
to attract new talented personnel by offering them participation in the
Company's 1996 Plan. Management believes that without such incentive it will be
unable to attract and retain talented new employees, directors and consultants.
A general description of the principal terms of the 1996 Plan, the
amendment approved by the Board of Directors, and the purpose of such amendment
are set forth below. This description is qualified in its entirety by the terms
of the 1996 Plan, as proposed to be amended, which is attached to this Proxy
Statement as EXHIBIT A and is hereby incorporated herein by reference.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PROPOSED AMENDMENT
OF THE 1996 PLAN.
GENERAL DESCRIPTION
The 1996 Plan was adopted by the Company's Board of Directors in September
1996 and was approved by the Company's stockholders in November 1996. A total
of 3,000,000 shares were initially reserved for issuance under the 1996 Plan.
In January 1998, subject to the approval of the Company's stockholders at the
Annual Meeting, the Board amended the 1996 Plan to increase the number of shares
of Common Stock reserved and authorized for issuance under the 1996 Plan from
3,000,000 to 5,000,000 shares. Options granted under the 1996 Plan may be
either incentive stock options, as defined in Section 422 of the Internal
Revenue Code of 1986, as amended ("Code"), or nonstatutory stock options. SEE,
"Certain Federal Income Tax Information" below for information concerning the
tax treatment of both incentive stock options and nonstatutory stock options.
As of March 9, 1998, there were 2,034,500 outstanding options under the
1996 Plan, 865,000 options had been exercised under the 1996 Plan and 100,500
shares remained available for issuance under the 1996 Plan. In addition, as of
March 9, 1998, there were 3,627,772 outstanding options under the Company's 1995
Employee and Consultant Stock Plan (the "1995 Plan"), and 309,644 shares
remained available for issuance under the 1995 Plan. As of March 9, 1998, there
were also 164,721 outstanding options under the Company's Israeli Key Employee
Stock Option Plan, and 290,444 outstanding options under the 1994 U.S. Employee
Stock Option Plan, both of which Plans were terminated for new grants in March
1995, and there were 242,000 outstanding options under the Company's 1996
Nonstatutory Employee and Consultant Stock Option Plan, which plan was
terminated for new grants in November 1996.
In addition to the above option plans, the Company has a 1995 Employee
Stock Purchase Plan, pursuant to which employees of the Company may purchase the
Company's Common Stock periodically through payroll deductions, and a 1995
Director Stock Option Plan, pursuant to which automatic option grants are made
annually to the Company's non-employee directors.
PURPOSES. The purposes of the 1996 Plan are to attract and retain the best
available personnel for positions of substantial responsibility, to provide
additional incentive for employees, directors and consultants of the Company and
to promote the success of the Company's business.
7
<PAGE>
ADMINISTRATION. With respect to the grant of options to directors or
employees who are also officers or directors, the 1996 Plan currently is
administered by (i) the Board of Directors of the Company; or (ii) a committee
designated by the Board and constituted in such a manner as to comply with
applicable laws and to permit such grants and related transactions to be exempt
from Section 16(b) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), in accordance with Rule 16b-3. With respect to grants to
employees or consultants who are neither officers nor directors of the Company,
the 1996 Plan currently is administered by the Board or by a committee of the
Board. Currently, the 1996 Plan is administered by the Compensation Committee
of the Board with respect to grants to employees, officers and consultants of
the Company, and by the Board with respect to grants to directors who are not
employees of the Company.
The administrators of the 1996 Plan have full power to select, from among
the employees, directors and consultants of the Company eligible for grants, the
individuals to whom options will be granted, to determine the specific terms and
conditions of each grant, including the number of shares subject to each option,
to amend the terms of outstanding options granted under the 1996 Plan (except
that any amendments that would adversely affect an optionee's rights under an
outstanding option may not be made without the optionee's written consent), and
to interpret and construe the terms of the 1996 Plan and options granted
thereunder, all subject to the provisions of the 1996 Plan. The interpretation
and construction of any provision of the 1996 Plan by the administrators are
final and conclusive. Members of the Board receive no additional compensation
for their services in connection with the administration of the 1996 Plan.
ELIGIBILITY. The 1996 Plan provides that options may be granted to
employees (including officers and directors who are also employees), directors
and consultants to the Company or its subsidiaries. Options granted under the
1996 Plan may be either incentive stock options, as defined in Section 422 of
the Internal Revenue Code of 1986, as amended ("Code"), or nonstatutory stock
options. Incentive stock options may only be granted to employees. SEE,
"Certain Federal Income Tax Information" below for information concerning the
tax treatment of both incentive stock options and nonstatutory stock options.
The 1996 Plan is designed to comply with the provisions of the rules and
regulations promulgated under Section 16 of the Exchange Act.
STOCK OPTIONS. Each option granted under the 1996 Plan is to be evidenced
by a written stock option agreement between the Company and the optionee and is
subject to the following additional terms and conditions:
(a) EXERCISE OF THE OPTION. The Board or its committee determines on
the date of grant when options will become exercisable. An option is exercised
by giving written notice of exercise to the Company, specifying the number of
full shares of Common Stock to be purchased and tendering payment of the
purchase price to the Company. The acceptable methods of payment for shares
issued upon exercise of an option are set forth in the option agreement and may
consist of (1) cash; (2) check; (3) promissory note; (4) shares of Common Stock
having a fair market value equal to the aggregate exercise price of the options
being exercised; (5) the delivery of a properly executed exercise notice
together with such other documentation as the Board and the broker, if
applicable, shall require to effect an exercise and delivery to the Company of
the amount of sale or loan proceeds required to pay the exercise price; (6) any
combination of the foregoing methods; or (7) such other consideration and method
of payment as may be determined by the 1996 Plan administrators and permitted
under applicable laws.
(b) EXERCISE PRICE. The exercise price of options granted under the
1996 Plan is determined on the date of grant. The exercise price of incentive
stock options must be at least 100% of the fair market value per share of the
Common Stock at the time of grant. In the case of incentive stock options
granted to an employee who at the time of grant owns more than 10% of the voting
power of all classes of stock of the Company or any parent or subsidiary, the
exercise price must be at least 110% of the fair market value per share of the
Common Stock at the time of grant. The exercise price of nonstatutory stock
options must be at least 85% of the fair market value per share of the Common
Stock at the time of grant. In the event of the grant of a nonstatutory option
with an exercise price below the then fair market value of the Common Stock, the
difference between fair market value on the date of grant and the exercise price
would be treated as a compensation expense for accounting purposes and would
therefore affect the Company's earnings. For purposes of the 1996 Plan, fair
8
<PAGE>
market value is defined as the closing sale price of the Common Stock as
reported on the New York Stock Exchange on the date of grant.
(c) TERMINATION. If the optionee's employment, directorship or
consulting relationship with the Company is terminated for any reason (other
than death or disability), options may be exercised within such period as is
determined by the Board or its committee (up to three months in the case of
incentive stock options) after such termination as to all or part of the shares
as to which the optionee was entitled to exercise at the date of such
termination, provided that the option is exercised no later than its expiration
date.
(d) DISABILITY. If an optionee is unable to continue his or her
employment, directorship or consulting relationship with the Company as a result
of disability, options may be exercised at any time within 12 months from the
date of disability to the extent such options were exercisable at the date of
disability, provided that the option is exercised no later than its expiration
date. With respect to incentive stock options, if the disability is not a
"disability" as defined in Section 22(e)(3) of the Code, an optionee's incentive
stock options shall automatically convert into nonstatutory options on the day
three months and one day following the date of termination of the optionee.
(e) DEATH. If an optionee should die while serving as an employee,
director or consultant of the Company, options may be exercised at any time
within 12 months after the date of death by the optionee's estate or a person
who acquired the right to exercise the option by bequest or inheritance, but
only to the extent that such options would have been exercisable by the optionee
at the date of death, provided that the option is exercised no later than its
expiration date. If an optionee should die within 60 days (or such other period
of time not exceeding three months as is determined by the Board or its
committee) after the termination of his or her employment or consulting
relationship, the options may be exercised at any time within 12 months after
the date of death by the optionee's estate or a person who acquired the right to
exercise the option by bequest or inheritance, but only to the extent that such
options would have been exercisable by the optionee at the date of death,
provided that the option is exercised no later than its expiration date.
(f) TERM AND TERMINATION OF OPTIONS. At the time an option is
granted, the Board or its committee determines the period within which the
option may be exercised. In no event may the term of an incentive stock option
be longer than 10 years. No option may be exercised by any person after the
expiration of its term. An incentive stock option granted to an optionee who,
at the time such option is granted, owns stock possessing more than 10% of the
voting power of all classes of stock of the Company, may not have a term of more
than five years.
(g) TRANSFERABILITY OF OPTIONS. An incentive stock option is not
transferable by the optionee, other than by will or the laws of descent and
distribution, and is exercisable during the optionee's lifetime only by the
optionee. A nonstatutory option shall be transferable to the extent determined
by the administrator and as provided in an optionee's option agreement.
(h) OTHER PROVISIONS. The option agreement may contain such other
terms, provisions and conditions not inconsistent with the 1996 Plan as may be
determined by the Board or its committee.
ADJUSTMENTS; MERGERS AND ASSET SALES. In the event any change, such as a
stock split, reverse stock split, stock dividend, or combination or
reclassification of the Common Stock, is made in the Company's capitalization
without receipt of consideration by the Company, which results in an increase or
decrease in the number of outstanding shares of Common Stock, an appropriate
adjustment shall be made in the number of shares under the 1996 Plan and the
price per share covered by each outstanding option.
In the event of the merger or consolidation of the Company in which the
Company is not the surviving corporation, or a proposed sale, transfer or other
disposition of all or substantially all of the assets of the Company in
connection with the complete liquidation or dissolution of the Company, each
outstanding option shall automatically become fully vested and exercisable and
9
<PAGE>
released from any restrictions on transfer and repurchase or forfeiture rights,
unless such option is assumed or substituted by such successor corporation, or
such option is replaced with a comparable cash incentive program of the
successor corporation, or unless the vesting, exercisability and release of such
option is subject to other limitations imposed by the 1996 Plan administrators
at the time of granting such options.
AMENDMENT, SUSPENSION AND TERMINATION OF THE 1996 PLAN. The Board may
amend the 1996 Plan at any time or from time to time or may suspend or terminate
the 1996 Plan without approval of the stockholders; provided, however, that
stockholder approval is required for any amendment to the 1996 Plan for which
stockholder approval would be required under applicable law, as in effect at the
time. Any amendment, suspension or termination of the 1996 Plan, including the
Amendment to be voted upon at the Annual Meeting, shall not affect options
already granted, and such options shall remain in full force and effect, unless
mutually agreed otherwise in writing between the optionee and the Plan
administrators. The Board may accelerate any option or waive any condition or
restriction pertaining to such option at any time. The Board may also
substitute new stock options for previously granted stock options, including
previously granted stock options having higher option prices, and may reduce the
exercise price of any option to the then current fair market value, if the fair
market value of the Common Stock covered by such option shall have declined
since the date the option was granted. In any event, the 1996 Plan shall
terminate in September 2006. Any options outstanding under the 1996 Plan at the
time of its termination shall remain outstanding until they expire by their
terms.
AMENDED PLAN BENEFITS
The Company cannot now determine the number of options to be granted in the
future under the 1996 Plan, as proposed to be amended, to its executive
officers, directors or employees. The table under the caption "Option Grants in
1997" provides information with respect to the grant of options to the Named
Executive Officers of the Company during 1997. The following table sets forth
additional information with respect to options granted under the 1996 Plan
during 1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
% OF TOTAL EXERCISE
OPTIONS OPTIONS PRICE PER
IDENTITY OF GROUP GRANTED(1) GRANTED SHARE(1)
----------------------------- ---------- -------- ----------
<S> <C> <C> <C>
Executive Officers as a group 1,620,000 46.3% $ 10.03
Employees that are not
Executive Officers, as a group 1,880,500 53.7% $ 13.89
Directors that are not
Executive Officers, as a group -- -- --
</TABLE>
(1) The number of options granted and the exercise prices include the repricing
of options under the Repricing Program. See "-- Repricing of Options."
CERTAIN FEDERAL INCOME TAX INFORMATION
An optionee who is granted an incentive stock option will not recognize
taxable income either at the time of grant or exercise, although the exercise
may subject the optionee to the alternative minimum tax. Upon the sale or
exchange of the shares more than two years after grant of the option and one
year after exercise, any gain or loss will be treated as capital gain or loss.
If these holding periods are not satisfied, the optionee will recognize ordinary
income at the time of sale or exchange equal to the difference between the
exercise price and the lower of (i) the fair market value of the shares at the
date of the option exercise, or (ii) the sale price of the shares. A different
rule for measuring ordinary income upon such a premature disposition may apply
if the optionee is subject to Section 16 of the Exchange Act. Any gain or loss
recognized on such a premature disposition of the shares in excess of the amount
treated as ordinary income will be characterized as capital gain.
10
<PAGE>
An optionee will not recognize any taxable income at the time he or she is
granted a nonstatutory option. However, upon its exercise, the optionee will
recognize taxable income generally measured as the excess of the then fair
market value of the shares purchased over the purchase price. Any taxable
income recognized in connection with an option exercise by an optionee who is
also an employee of the Company will be subject to tax withholding by the
Company. Upon resale of such shares by the optionee, any difference between the
sales price and the optionee's purchase price, to the extent not recognized as
taxable income as described above, will be treated as capital gain or loss.
An optionee's gain or loss on the sale or exchange of his shares, to the
extent any gain is not treated as ordinary income under the foregoing rules,
will generally represent capital gain. As of 1997, the rules governing the
holding period computations for capital gain have changed. Under current law,
the following holding periods and maximum federal tax rates will generally
apply:
<TABLE>
<CAPTION>
CLASSIFICATION OF MAXIMUM FEDERAL
HOLDING PERIOD GAIN OR LOSS TAX RATE
-------------- ---------------- ----------------
<S> <C> <C>
One Year or Less Short-Term 39.6%
More Than One Year, Mid-Term 28.0%
Not More Than 18 Months
More Than 18 Months Long-Term 20.0%
</TABLE>
These classifications and maximum rates are subject to several special
computational rules, and optionees are instructed to consult their personal tax
advisors concerning their own tax situations.
The Company will generally be entitled to a tax deduction in the same
amount as the ordinary income recognized by an optionee with respect to shares
acquired upon exercise of an option.
The foregoing summary of the federal income tax consequences of 1996 Plan
transactions is based upon federal income tax laws in effect on the date of this
Proxy Statement. This summary does not purport to be complete, and does not
discuss foreign, state or local tax consequences.
SHARES RESERVED FOR ISSUANCE
The Company has reserved 3,000,000 shares of Common Stock for issuance
under the 1996 Plan. In order to continue to attract new talented employees,
directors and consultants, it is proposed that the 1996 Plan be amended, and
that the Company increase the number of shares of Common Stock reserved for
issuance thereunder to 5,000,000 shares of Common Stock.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the shares of the
Company's Common Stock present or represented by proxy at the Annual Meeting is
required to approve the amendment of the 1996 Plan to increase the number of
shares of Common Stock reserved and authorized for issuance under the 1996 Plan
from 3,000,000 to 5,000,000 shares.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PROPOSED AMENDMENT
OF THE 1996 PLAN. AN ABSTENTION WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE
PROPOSAL.
11
<PAGE>
PROPOSAL NO. 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Ernst & Young LLP served as the Company's independent auditors in 1997, and
have been appointed by the Board to continue as the Company's independent
auditors for the Company's fiscal year ending December 31, 1998. In the event
that ratification of this selection of auditors is not approved by a majority of
the shares of Common Stock voting at the Annual Meeting in person or by proxy,
management will review its future selection of auditors.
A representative of Ernst & Young LLP is expected to be present at the
Annual Meeting. The representative will have an opportunity to make a statement
and will be able to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION
OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT
AUDITORS FOR THE YEAR ENDING DECEMBER 31, 1998
12
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY COMPENSATION TABLE
The following table sets forth all compensation earned for the years ended
December 31, 1997, 1996 and 1995, by the Company's Chief Executive Officer, each
of the three other most highly compensated Executive Officers of the Company and
two former Executive Officers of the Company (collectively, the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
ANNUAL COMPENSATION Awards
----------------------------------- ------------
Securities
Underlying All Other
SALARY Bonus(1) Options Compensation(2)
NAME AND PRINCIPAL POSITION YEAR ($) ($) (#) ($)
- ---------------------------------- ----------- ------------ ---------------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
Nathan Hod 1997 $200,000 $ -- 400,000(3) $23,838(4)
Chairman of the Board, Chief 1996 200,000 250,000 200,000 --
Executive Officer and 1995 175,000 85,000 219,356 --
President
Gerald Dogon 1997 $169,812 $ -- 200,000(5) $29,550(6)
Executive Vice President and 1996 162,853 130,000 200,000 12,060
Chief Financial Officer 1995 143,173 43,757 242,600 27,442
Joseph Perl 1997 $191,695 $ -- -- $24,384(8)
Executive Vice President of 1996 176,678 130,000 400,000 12,574
Engineering and Chief 1995 196,190(7) 47,095 266,060 52,690
Technical Officer
Arnon Kohavi 1997 $129,320 $ 26,235 140,000(9) --
Vice President of Business 1996 121,800 27,500 -- --
Development 1995 86,604 40,000 200,000 --
Davidi Gilo (10) 1997 $300,000 $ -- 1,170,000(11) --
Former Chairman of the Board 1996 300,000 375,000 770,000 --
1995 261,667 162,223 354,840 --
Michael Lubin (12) 1997 $153,788 $ -- 800,000(5) $88,846(13)
Former Executive Vice President 1996 69,167 25,000 800,000 --
1995 -- -- -- --
</TABLE>
- ---------------------------------------
(1) The Company's Executive Officers are eligible for annual cash bonuses.
Such bonuses are generally based upon achievement of corporate performance
objectives determined by the Compensation Committee; however, the bonuses
of the Chief Executive Officer and the Chief Financial Officer are
specified in employment agreements, subject to increases as may be awarded
by the Compensation Committee. Bonuses are awarded by the Chief Executive
Officer based upon individual, as well as corporate performance (except the
bonuses provided in employment agreements). The Company generally pays
bonuses in the year following that in which the bonuses were earned.
(2) On behalf of Dr. Perl and Mr. Dogon, the Company makes monthly payments to
a severance fund, a pension fund and a risk/disability fund. The amounts
held in such funds on their behalf are generally payable to them upon
termination of their employment with the Company. Amounts paid in 1995
include (i) $1,741 in retroactive severance pay to Mr. Dogon for 1994, and
(ii) $26,950 in retroactive severance pay to Dr. Perl for previous years.
(3) 200,000 of such options represent options granted prior to 1997 that were
repriced in March 1997 in connection with the repricing program.
See "--Repricing of Options."
(4) Payment to Mr. Hod for accrued but unused vacation pay.
(5) All of such options represent options granted prior to 1997 that were
repriced in March 1997 in connection with the repricing program.
See "--Repricing of Options."
(6) Includes $16,842 paid to Mr. Dogon for accrued but unused vacation, and
$12,708 paid to the severance, pension and disablity funds referenced in
footnote 2.
(7) Includes forgiveness of a loan to Dr. Perl in the amount of $25,000.
(8) Includes $10,224 paid to Dr. Perl for accrued but unused vacation, and
$14,160 paid to the severance, pension and disablity funds referenced in
footnote 2.
(9) Includes 70,000 options that were granted in January 1997 and were
subsequently terminated in March 1997 in connection with the repricing
program. See "--Repricing of Options."
(10) Mr. Gilo resigned as Chairman of the Board in November 1997.
(11) 770,000 of such options represent options granted prior to 1997 that were
repriced in March 1997 in connection with the repricing program.
See "--Repricing of Options."
(12) Mr. Lubin joined the Company in June 1996 and left the Company in December
1997.
(13) Severance and unused vacation payment in connection with Mr. Lubin's
termination from the Company.
13
<PAGE>
OPTION GRANTS
The following table sets forth certain information with respect to stock
options granted during 1997 to each of the Named Executive Officers. In
accordance with the rules of the Securities and Exchange Commission, also shown
below is the potential realizable value over the term of the option (the period
from the grant date to the expiration date) based on assumed rates of stock
appreciation of 5% and 10%, compounded annually, calculated based on the closing
price of the Common Stock on the grant date. These amounts are based on certain
assumed rates of appreciation and do not represent the Company's estimate of
future stock price. Actual gains, if any, on stock option exercises will be
dependent on the future performance of the Common Stock.
OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
------------------------------------------------
NUMBER OF POTENTIAL REALIZABLE VALUE AT
SECURITIES % OF TOTAL ASSUMED ANNUAL RATES OF STOCK
UNDERLYING OPTIONS PRICE APPRECIATION FOR OPTION TERM
OPTIONS GRANTED TO ------------------------------------
NAME GRANTED EMPLOYEES EXERCISE EXPIRATION
5% 10%
(#) IN 1997 PRICE ($/Sh) DATE
------------ ----------- ------------- ----------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Nathan Hod 100,000(2) 1.61% $ 10.875 3/06/02 $ 172,828 $ 502,879
100,000(2) 1.61% $ 10.875 3/06/03 $ 235,844 $ 661,916
200,000 3.23% $ 6.813 4/25/02 $ 376,461 $ 831,881
Gerald Dogon 100,000(2) 1.61% $ 10.875 3/06/02 $ 172,828 $ 502,879
100,000(2) 1.61% $ 10.875 3/06/03 $ 235,844 $ 661,916
Joseph Perl -- -- -- -- -- --
Arnon Kohavi 70,000(3) 1.13% $ 24.250 1/16/02 $ 468,988 $1,036,341
70,000 1.13% $ 10.875 3/06/02 $ 120,980 $ 352,015
Davidi Gilo 420,000(2) 6.78% $ 10.875 3/06/02 $ 725,878 $2,112,090
350,000(2) 5.65% $ 10.875 3/06/03 $ 825,456 $2,316,708
400,000 6.46% $ 6.813 4/25/02 $ 752,923 $1,663,762
Michael Lubin(4) 400,000(2) 6.46% $ 10.875 3/06/03 $ 943,378 $2,647,666
400,000(2) 6.46% $ 10.875 3/06/05 $1,485,949 $4,117,176
</TABLE>
- -----------------------------
(1) All options were granted pursuant to the 1995 Employee and Consultant Stock
Plan or the 1996 Stock Option Plan.
(2) Represents options granted prior to 1997 that were repriced in March 1997
in connection with the repricing program. The previously granted options
were terminated in the repricing program. See "-- Repricing of Options."
(3) These options were granted in January 1997, and were subsequently
terminated in March 1997 in connection with the repricing program. See "--
Repricing of Options."
(4) Mr. Lubin, a former Executive Vice President, left the Company in December
1997. All options granted to Mr. Lubin were cancelled upon the termination
of Mr. Lubin's employment.
14
<PAGE>
OPTION EXERCISES AND OPTION VALUES
The following table sets forth information concerning option exercises
during 1997, and the aggregate value of unexercised options as of December 31,
1997 held by each of the Named Executive Officers:
AGGREGATED OPTION EXERCISES IN 1997
AND OPTION VALUES AT DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
AGGREGATE OPTION OPTIONS AT IN-THE-MONEY OPTIONS AT
EXERCISES IN 1997 DECEMBER 31, 1997 DECEMBER 31, 1997(1)
---------------------------- ------------------------------ --------------------------------
SHARES VALUE
ACQUIRED ON REALIZED
NAME EXERCISE (#) ($)(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------ -------------- ------------ -------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Nathan Hod 245,000 $ 3,362,387 178,520 314,038 $ 1,811,908 $ 1,241,703
Gerald Dogon 65,500 $ 1,263,909 200,305 328,053 $ 1,654,743 $ 1,298,352
Joseph Perl 139,500 $ 2,638,829 147,625 499,773 $ 1,119,924 $ 1,450,341
Arnon Kohavi 24,262 $ 411,217 49,765 164,513 $ 334,828 $ 720,198
Davidi Gilo 816,989 $ 6,340,035 14,785 693,066 $ 120,128 $ 1,711,161
Michael Lubin (3) -- -- -- -- -- --
</TABLE>
- -----------------------
(1) Calculated on the basis of the closing sale price of the Common Stock as
reported on the New York Stock Exchange on December 31, 1997 of $12.00 per
share, minus the exercise price.
(2) Calculated on the basis of the closing sale price of the Common Stock as
reported on the Nasdaq National Market (where the Common Stock was traded
prior to being listed on the New York Stock Exchange in December 1997), on
the date of exercise, minus the exercise price.
(3) Mr. Lubin, a former Executive Vice President, left the Company in December
1997.
REPRICING OF OPTIONS
COMPENSATION COMMITTEE REPORT ON REPRICING OF OPTIONS
In March 1997, the Compensation Committee adopted an option repricing
program for previously granted options to the Company's officers and employees.
The Compensation Committee believed that the relationship between the exercise
price of certain of its options and the recent market price of the Company's
Common Stock did not provide effective equity incentives for the Company's
officers and employees. Equity incentives are a significant component of the
total compensation package of the Company's employees and play a substantial
role in the Company's ability to retain the services of individuals essential to
the Company's long-term success. The Compensation Committee felt that the
Company's ability to retain key employees would be significantly impaired unless
value was restored to their options. Accordingly, the Compensation Committee
determined it was necessary to effect an option repricing program ("Repricing
Program") to provide realistic incentives for the officers and employees to whom
such options had been granted.
In light of the Company's circumstances at the time and the competitive
environment for its employees, the Compensation Committee adopted the Repricing
Program to reprice certain options. Under the terms of the Repricing Program,
for a period of thirty days after the date on which the Company delivered
written notice to the employees and officers of the Company: (i) employees of
the Company whose option exercise prices were
15
<PAGE>
greater than $9.875 per share were offered the opportunity to reprice their
option exercise prices to $9.875 per share, the closing market price of the
Company's Common Stock as reported on the Nasdaq National Market
("NASDAQ\NMS") on March 6, 1997, on which the Company's Common Stock was
traded prior to being listed on the New York Stock Exchange in December 1997,
and (ii) officers of the Company whose option exercise prices were greater
than $10.875 per share were offered the opportunity to reprice their option
exercise prices to $10.875 per share. In addition, under the terms of the
Repricing Program, notwithstanding any prior vesting of the options, the
vesting period of the repriced options was amended to provide that the
repriced options vest over three years, with one-third of the shares subject
to the repriced options vesting on March 6, 1998, and the remaining shares
subject to the repriced options vesting in equal monthly installments at the
end of each of the following twenty-four months. Certain options which vest
at the rate of 10% per year for four years, and 60% on the fifth anniversary
from the date of grant, retained the same vesting schedule except that the
vesting commencement date was amended to March 6, 1997. All repriced options
were extended to expire five years or six years, as applicable, after March
6, 1997. With respect to the Named Executive Officers, certain options for
Messrs. Hod, Dogon and Kohavi were repriced, and certain options for Mr.
Gilo, the former Chairman of the Board, and Mr. Lubin, a former Executive
Vice President, were also repriced.
Submitted by the Compensation Committee:
Lewis S. Broad
Shigeru Iwamoto
Andrew W. Schonzeit
The following table sets forth the number of options repriced for the Named
Executive Officers and the Directors for the fiscal year ended December 31,
1997:
<TABLE>
<CAPTION>
OPTION REPRICINGS IN 1997
Number of Length of
Securities Original
Underlying Market Price Exercise Option Term
Options at Time of Price at Time New Exercise Remaining at
Date of Repriced Repricing of Repricing Price Date of
NAME Repricing (#) ($/Sh) ($/Sh) ($/Sh) Repricing
------------------------------------- ------------ ---------- ----------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Nathan Hod 3/06/97 100,000 $9.875 $21.25 $10.875 4.75 years
Chairman of the Board, Chief 3/06/97 100,000 $9.875 $21.25 $10.875 5.75 years
Executive Officer and President
Gerald Dogon 3/06/97 100,000 $9.875 $21.25 $10.875 4.75 years
Executive Vice President and 3/06/97 100,000 $9.875 $21.25 $10.875 5.75 years
Chief Financial Officer
Arnon Kohavi 3/06/97 70,000 $9.875 $24.25 $10.875 4.87 years
Vice President of
Business Development
Davidi Gilo 3/06/97 350,000 $9.875 $22.75 $10.875 5.50 years
Former Chairman of the Board 3/06/97 210,000 $9.875 $24.00 $10.875 4.75 years
3/06/97 210,000 $9.875 $28.00 $10.875 4.75 years
Michael Lubin 3/06/97 400,000 $9.875 $18.250 $10.875 5.29 years
Former Executive Vice President 3/06/97 400,000 $9.875 $18.250 $10.875 7.29 years
(1)
</TABLE>
- ---------------------
(1) Mr. Lubin left the Company in December 1997. All of Mr. Lubin's options
have terminated, unexercised.
16
<PAGE>
EMPLOYMENT AGREEMENTS
Effective in November 1995, Nathan Hod entered into an amended and restated
employment agreement with the Company, pursuant to which Mr. Hod served as Chief
Executive Officer and President of the Company, and effective January 1, 1998,
Mr. Hod entered into an employment agreement with the Company which replaced the
prior agreement and pursuant to which he also serves as Chairman of the Board.
The term of the agreement extends through December 31, 2000, with automatic
annual one-year extensions until either party gives notice of termination,
unless sooner terminated in accordance with the terms of the agreement. The
agreement provides for an annual base salary of $250,000, with annual increases
as may be determined by the Board of Directors in its discretion. In addition,
Mr. Hod is entitled to participate in each bonus plan adopted by the Board of
Directors. Mr. Hod's annual bonus under the agreement will be equal to (i) 25%
of Mr. Hod's base salary should the Company meet 80% of its Yearly Plan during
the term of Mr. Hod's employment; (ii) 50% of his base salary should the Company
meet 100% of its Yearly Plan; and (iii) 100% of his base salary should the
Company meet 120% of its Yearly Plan, with the bonus prorated if the Yearly Plan
is met between 80% and 100%, or between 100% and 120%. The agreement may be
terminated by Mr. Hod upon 90 days' prior written notice. In the event the
Company terminates the agreement without cause (as defined in the agreement),
the Company shall pay Mr. Hod a severance fee equal to his then-current-rate of
fixed monthly salary multiplied by the number of months left until December 31,
2000, during which time Mr. Hod will remain as an employee of the Company in a
non-policy making role. If the agreement is terminated for certain types of
cause (as defined in the agreement), or Mr. Hod or the Company elect not to
renew the agreement, the Company shall pay Mr. Hod a severance fee equal to his
then-current-rate of fixed monthly salary multiplied by six (6). If the Company
terminates the agreement for certain types of cause involving wilful misconduct,
no severance will be paid. If Mr. Hod voluntarily elects to terminate his
employment, then the Company shall pay Mr. Hod a severance fee equal to his
then-current-rate of fixed monthly salary multiplied by the lesser of the number
18 or the number of months left in the original term of the agreement plus eight
(8).
Effective January 1, 1998, Mr. Dogon entered into an employment
agreement with the Company pursuant to which he serves as Chief Financial
Officer and Executive Vice President. The term of the agreement extends
through December 31, 2000, with automatic annual one-year extensions until
either party gives notice of termination, unless sooner terminated in
accordance with the terms of the agreement. The agreement provides for an
annual base salary of $165,135, which amount includes an annual vehicle
allowance, with annual increases as may be determined by the Board of
Directors in its discretion. In addition, Mr. Dogon is entitled to
participate in each bonus plan adopted by the Board of Directors. Mr.
Dogon's annual bonus under the agreement will be equal to (i) 25% of Mr.
Dogon's base salary should the Company meet 80% of its Yearly Plan during the
term of Mr. Dogon's employment; (ii) 50% of his base salary should the
Company meet 100% of its Yearly Plan; and (iii) 100% of his base salary
should the Company meet 120% of its Yearly Plan, with the bonus prorated if
the Yearly Plan is met between 80% and 100%, or between 100% and 120%. The
agreement may be terminated by Mr. Dogon upon 90 days' prior written notice.
In the event the Company terminates the agreement without cause (as defined
in the agreement), the Company shall pay Mr. Dogon a severance fee equal to
his then-current-rate of fixed monthly salary multiplied by the number of
months left until December 31, 2000, during which time Mr. Dogon will remain
as an employee of the Company in a non-policy making role. If the agreement
is terminated for certain types of cause (as defined in the agreement), or
Mr. Dogon or the Company elect not to renew the agreement, the Company shall
pay Mr. Dogon a severance fee equal to his then-current-rate of fixed monthly
salary multiplied by six (6). If the Company terminates the agreement for
certain types of cause involving wilful misconduct, no severance will be
paid. If Mr. Dogon voluntarily elects to terminate his employment, then the
Company shall pay Mr. Dogon a severance fee equal to his then-current-rate of
fixed monthly salary multiplied by the lesser of the number 12 or the number
of months left in the original term of the agreement plus six (6).
In September 1996, Stephen Pezzola entered into an employment agreement
with the Company, which agreement was amended and restated effective as of
January 1, 1998, pursuant to which Mr. Pezzola serves as General Counsel of the
Company and devotes approximately 13 hours per week to his duties as General
Counsel.
17
<PAGE>
The term of the agreement extends through December 31, 1998, with
automatic annual one-year extensions until either party gives notice of
termination, unless sooner terminated in accordance with the terms of the
agreement. The agreement provides that Mr. Pezzola receive an annual base
salary of $115,000, with annual increases as may be determined by the Board of
Directors in its discretion. In addition, Mr. Pezzola is entitled to
participate in each bonus plan adopted by the Board of Directors, and may
receive such other bonus pay in the discretion of the Compensation Committee.
If the Company terminates the agreement without cause (as defined in the
agreement), the Company shall pay Mr. Pezzola a severance fee equal to the full
amount of compensation that Mr. Pezzola could have expected to be paid under the
agreement, during which time Mr. Pezzola will remain as an employee of the
Company in a non-policy making role. If the agreement is terminated for certain
types of cause (as defined in the agreement), or Mr. Pezzola or the Company
elect not to renew the agreement, or Mr. Pezzola voluntarily elects to terminate
his employment, the Company shall pay Mr. Pezzola a severance fee equal to his
monthly salary at his then-current-rate of fixed salary compensation multiplied
by three (3). If the Company terminates the agreement for certain types of
cause involving wilful misconduct, no severance will be paid.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of Directors Broad, Iwamoto
and Schonzeit.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE COMPANY'S
PREVIOUS FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, THAT MIGHT INCORPORATE FUTURE FILINGS,
INCLUDING THIS PROXY STATEMENT, IN WHOLE OR IN PART, THE FOLLOWING REPORT AND
THE PERFORMANCE GRAPH WHICH FOLLOWS SHALL NOT BE DEEMED TO BE INCORPORATED BY
REFERENCE INTO ANY SUCH FILINGS.
COMPENSATION POLICY. The Company's Compensation Policy as established by
the Compensation Committee is that Executive Officers' total annual cash
compensation should vary with the performance of the Company and that long-term
incentives awarded to such officers should be aligned with the interest of the
Company's stockholders. The Company's executive compensation program is
designed to attract and retain Executive Officers who will contribute to the
Company's long-term success, to reward Executive Officers who contribute to the
Company's financial performance and to link Executive Officer compensation and
stockholder interests through the grant of stock options under the 1995 Employee
and Consultant Stock Plan and the 1996 Stock Option Plan (the "Option Plans").
Compensation of the Company's Executive Officers consists of three
principal components: salary, bonus and long-term incentive compensation
consisting of stock option grants.
SALARY. The base salaries for the Company's Executive Officers are
reviewed annually and set by the Compensation Committee. When setting base
salary levels, in a manner consistent with the Compensation Committee's policy
outlined above, the Committee considers competitive market conditions for
executive compensation, Company performance and individual performance.
BONUS. The Compensation Committee evaluated the performance and set
bonuses payable to the Executive Officers for the 1997 fiscal year. The
performance factors utilized by the Compensation Committee to determine whether
bonuses should be awarded to Company Executive Officers for fiscal 1997 included
the following: the level of sales of the Company's products during fiscal 1997;
the officer's overall individual performance in his position and relative
contribution to Company performance during the year; and the Board's desire to
retain the Executive Officer in the face of considerable competition for
executive talent within the industry. Based on the Company's performance in
1997, no bonuses were paid to Executive Officers for 1997 except to one Vice
President of the Company. The bonuses of the Chief Executive Officer and the
former Chairman of the Board were specified in employment agreements, subject to
increase by the Compensation
18
<PAGE>
Committee based on the performance factors discussed above. The Board of
Directors or the Compensation Committee in the future may modify the
foregoing criteria or select other performance factors with respect to
Executive Officer bonuses for a given fiscal year.
LONG-TERM INCENTIVE COMPENSATION. The Company believes that option grants
(i) align executive interests with stockholder interests by creating a direct
link between compensation and stockholder return, (ii) give executives a
significant, long-term interest in the Company's success, and (iii) help retain
key Executive Officers in a competitive market for executive talent.
The Company's Option Plans authorize the Committee to grant stock options
to employees and consultants, including Executive Officers. Option grants are
made from time to time to Executive Officers whose contributions have or will
have a significant impact on the Company's long-term performance. The Company's
determination of whether option grants are appropriate each year is based upon
individual performance measures established for each individual. Options are
not necessarily granted to each Executive Officer during each year. Generally,
options granted to Executive Officers vest 25% on the first anniversary of the
date of grant and thereafter in equal monthly installments over a period of
three years, and expire five years from the date of grant. Details on stock
options granted to certain Executive Officers in 1997 are provided in the table
entitled "Option Grants in 1997."
COMPENSATION OF CHIEF EXECUTIVE OFFICER. As described above in "Employment
Agreements," the minimum salary and bonus of Nathan Hod, the Chief Executive
Officer, are provided in an employment agreement and are subject to increases as
determined by the Board of Directors. Mr. Hod's bonus under his employment
agreement is based on the Company's performance each year. In 1997, the
performance milestones set forth in Mr. Hod's employment agreement to determine
the amount of his bonus were not met, and therefore no bonus was paid to Mr.
Hod in 1997.
COMPENSATION POLICY REGARDING DEDUCTIBILITY. The Company is required to
disclose its policy regarding qualifying executive compensation for
deductibility under Section 162(m) of the Internal Revenue Code which provides
that, for purposes of the regular income tax and the alternative minimum tax,
the otherwise allowable deduction for compensation paid or accrued with respect
to a covered employee of a publicly-held corporation is limited to $1 million
per year. For the fiscal year ended December 31, 1997, no Executive Officer of
the Company received $1 million. It is not expected that the compensation to be
paid to the Company's Executive Officers for fiscal 1998 will exceed the $1
million limit for any officer. The Company's Option Plans are structured so
that any compensation deemed paid to an Executive Officer when he exercises an
outstanding option under either of the Option Plans, with an exercise price
equal to the fair market value of the option shares on the grant date, will
qualify as performance-based compensation which will not be subject to the $1
million limitation. The Compensation Committee currently intends to limit the
dollar amount of all other compensation payable to the Company's Executive
Officers to no more than $1 million.
Submitted by the Compensation Committee:
Lewis S. Broad
Shigeru Iwamoto
Andrew W. Schonzeit
19
<PAGE>
STOCK PERFORMANCE GRAPH
The graph below compares the cumulative total stockholder return on the
Company's Common Stock with the cumulative total return on the Standard & Poor's
500 Index and the Hambrecht & Quist Communications Index. The period shown
commences on March 7, 1995, the date that the Company's Common Stock was
registered under Section 12 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and ends on December 31, 1997, the end of the Company's
last fiscal year. The graph assumes an investment of $100 on March 7, 1995, and
the reinvestment of any dividends.
The comparisons in the graph below are based upon historical data and are
not indicative of, nor intended to forecast, future performance of the Company's
Common Stock.
TOTAL RETURN TO STOCKHOLDERS
MARCH 7, 1995 TO DECEMBER 31, 1997
[EDGAR representation of graph]
<TABLE>
<CAPTION>
3/07/95 12/95 12/96 12/97
------- ------ ------ ------
<S> <C> <C> <C> <C>
DSP COMMUNICATIONS, INC. $100 $436 $775 $480
S & P 500 100 130 160 214
HAMBRECHT & QUIST COMMUNICATIONS 100 161 185 175
</TABLE>
20
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective in November 1996, Davidi Gilo entered into an amended and
restated employment agreement with the Company pursuant to which Mr. Gilo served
as Chairman of the Board of Directors and devoted approximately 50% of his time
to the Company. In November 1997, Mr. Gilo resigned as Chairman of the Board,
and the Company amended Mr. Gilo's employment agreement pursuant to which Mr.
Gilo serves as an advisor to Nathan Hod, the Company's Chief Executive Officer
and Chairman of the Board, in a non-policy making capacity. The term of the
amended agreement is through April 6, 1998, unless terminated by Mr. Gilo upon
90 days' prior written notice or extended and renewed by the parties. The
agreement provides for an annual base salary of $300,000, with annual increases
as may be determined by the Board of Directors in its discretion. In addition,
Mr. Gilo was entitled to receive his annual bonus for 1997 which, under the
agreement, will be equal to (i) 25% of Mr. Gilo's base salary should the Company
meet 80% of its plan for revenues and earnings per share as presented to the
Board in January of each year ("Yearly Plan"), during the term of Mr. Gilo's
employment; (ii) 50% of his base salary should the Company meet 100% of its
Yearly Plan; and (iii) 100% of his base salary should the Company meet 120% of
its Yearly Plan, with the bonus prorated if the Yearly Plan is met between 80%
and 100%, or between 100% and 120%. However, after December 31, 1997, Mr. Gilo
is only entitled to receive bonuses as may be determined by the Board of
Directors in its sole discretion. If the Company terminates the agreement
without cause (as defined in the agreement), the Company shall pay to Mr. Gilo a
severance/consulting fee equal to the total amount of compensation Mr. Gilo
could have expected to receive under the agreement. If the Company terminates
the agreement for certain types of cause (as defined in the agreement), Mr. Gilo
is entitled to receive severance compensation equal to his monthly salary at his
then-current-rate of fixed salary compensation salary multiplied by six (6). If
Mr. Gilo voluntarily elects to terminate the agreement, or if either party
elects not to renew the agreement, Mr. Gilo is entitled to receive severance
compensation equal to his monthly salary at his then-current-rate of fixed
salary compensation salary multiplied by eighteen (18). If the agreement is
terminated for any reason other than for cause, Mr. Gilo is entitled to receive
all of his accrued, but unused vacation days as of the date of termination, and
to retain all of the Company's office equipment, computers, cellular telephones
and furniture that he was using for Company business. If the Company terminates
the agreement for certain types of cause involving wilful misconduct, no
severance will be paid.
Avraham Fischer, a Director of the Company, is a senior partner of the law
firm of I. Fischer & Co., which serves as legal counsel on matters regarding
Israeli law for the Company and its Israeli subsidiaries. The Company paid
approximately $386,000 in legal fees to I. Fischer & Co. during 1997.
The Company has entered into indemnification agreements with each of its
Directors and Executive Officers. Such agreements require the Company to
indemnify such individuals to the fullest extent permitted by Delaware law.
The Company believes that the transactions described above were made on
terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future material transactions between the
Company and its officers, Directors, principal stockholders and affiliates will
be approved by a majority of the Board of Directors, including a majority of the
disinterested, nonemployee Directors on the Board of Directors, and will be on
terms no less favorable to the Company than could be obtained from unaffiliated
third parties.
21
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's Directors,
Executive Officers and persons who own more than 10% of the Company's Common
Stock (collectively, "Reporting Persons") to file reports of ownership and
changes in ownership of the Company's Common Stock to the Securities and
Exchange Commission ("SEC"), and the New York Stock Exchange. Copies of these
reports are also required to be delivered to the Company.
Except as set forth below, the Company believes, based solely on its review
of the copies of such reports received or written representations from certain
Reporting Persons, that during fiscal 1997, all Reporting Persons complied with
all applicable filing requirements: EXCEPTIONS: (i) Stephen Pezzola, the
Company's General Counsel, inadvertently filed a late Form 4 relating to one
transaction effected in February 1997; the required Form 4 was filed in March
1997; and (ii) Arnon Kohavi, a Vice President of the Company, inadvertently
filed two late Form 4s relating to six transactions in January 1997 and six
transactions in February 1997; the required Form 4s were filed in March 1997.
STOCKHOLDER PROPOSALS
To be considered for presentation to the annual meeting of the Company's
stockholders to be held in 1999, a stockholder proposal must be received by
Stephen P. Pezzola, Secretary, DSP COMMUNICATIONS, INC., 20300 Stevens Creek
Boulevard, Cupertino, California 95014, no later than December 1, 1998.
OTHER MATTERS
The Board of Directors knows of no other business which will be presented
at the Annual Meeting. If any other business is properly brought before the
Annual Meeting, it is intended that proxies in the enclosed form will be voted
in respect thereof in accordance with the judgment of the persons voting the
proxies.
It is important that the proxies be returned promptly and that your shares
be represented. Stockholders are urged to mark, date, execute and promptly
return the accompanying proxy card in the enclosed envelope.
By Order of the Board of Directors,
/S/ Nathan Hod
--------------------------------------
Nathan Hod
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
CHAIRMAN OF THE BOARD
March 30, 1998
Cupertino, California
22
<PAGE>
EXHIBIT A
DSP COMMUNICATIONS, INC.
1996 STOCK OPTION PLAN
(AS AMENDED AND RESTATED ON MAY 12, 1998)
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 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.
<PAGE>
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
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.
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<PAGE>
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 5,000,000
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 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
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<PAGE>
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;
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.
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<PAGE>
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.
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 eight hundred thousand (800,000) 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.
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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:
(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 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.
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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 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.
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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 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
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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.
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.
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