<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1998
------------------
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission File Number 0-25622
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DSP COMMUNICATIONS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 77-0389180
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
20300 Stevens Creek Boulevard, Cupertino, California 95014
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (408) 777-2700
---------------
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ___
As of November 9, 1998, there were 38,255,180 shares of Common Stock ($.001 par
value) outstanding.
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INDEX
DSP COMMUNICATIONS, INC.
<TABLE>
<CAPTION>
Page No.
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets-September 30, 1998
and December 31, 1997............................................. 3
Condensed consolidated statements of operations-quarter
ended September 30, 1998 and 1997, and nine months
ended September 30, 1998 and 1997................................. 4
Condensed consolidated statements of cash flows-nine months
ended September 30, 1998 and 1997................................. 5
Notes to condensed consolidated financial statements-
September 30, 1998................................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................... 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk .......17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................18
Item 2. Changes in Securities and Use of Proceeds.........................18
Item 3. Defaults upon Senior Securities...................................18
Item 4. Submission of Matters to a Vote of Security Holders...............18
Item 5. Other Information.................................................18
Item 6. Exhibits and Reports on Form 8-K..................................19
SIGNATURES................................................................20
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DSP COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
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(Unaudited) (Note 1)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 70,082 $ 82,322
Short term investments 44,241 34,319
Trade accounts receivable 20,397 11,200
Other current assets 6,545 7,207
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Total current assets 141,265 135,048
Property and equipment, net 4,745 4,151
Other assets 3,073 3,697
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$ 149,083 $ 142,896
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--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 11,530 $ 9,372
Accrued liabilities 18,998 17,093
Deferred income 1,180 528
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Total current liabilities 31,708 26,993
STOCKHOLDERS' EQUITY
Common stock 38 40
Additional paid-in capital 62,787 84,890
Retained earnings 54,550 30,973
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Total stockholders' equity 117,375 115,903
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$ 149,083 $ 142,896
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--------- ---------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
Note 1: The balance sheet at December 31, 1997 has been derived from
audited financial statements at that date, but does not include all
of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
3
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DSP COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(U.S. DOLLARS AND SHARES IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------- ------------------
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Product $ 34,040 $ 19,097 $ 85,522 $ 45,876
Technology development 822 1,380 2,898 3,591
---------- ---------- ---------- ----------
Total revenues 34,862 20,477 88,420 49,467
COST OF REVENUES
Product 19,701 9,489 46,537 23,509
Technology development 565 1,234 2,086 3,444
---------- ---------- ---------- ----------
Total cost of revenues 20,266 10,723 48,623 26,953
---------- ---------- ---------- ----------
Gross profit 14,596 9,754 39,797 22,514
OPERATING EXPENSES
Research and
development 3,214 1,559 8,330 4,582
Sales and marketing 1,057 935 2,995 3,002
General and
administrative 2,122 2,023 6,648 5,515
---------- ---------- ---------- ----------
6,393 4,517 17,973 13,099
---------- ---------- ---------- ----------
Operating income 8,203 5,237 21,824 9,415
Other income 1,710 1,096 4,667 4,740
---------- ---------- ---------- ----------
Income before provision for
income taxes 9,913 6,333 26,491 14,155
Provision for income taxes 1,174 423 2,914 1,400
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Net income $ 8,739 $ 5,910 $ 23,577 $ 12,755
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Earnings per share:
Basic $ 0.22 $ 0.15 $ 0.59 $ 0.30
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Diluted $ 0.21 $ 0.14 $ 0.56 $ 0.28
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Shares used in computing
earnings per share:
Basic 40,276 39,727 40,200 42,202
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Diluted 41,787 43,617 42,353 44,811
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
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DSP COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(US DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Nine
Months Ended Months Ended
September 30, September 30,
1998 1997
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income for the period $ 23,577 $ 12,755
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,976 1,665
Loss on disposal of equipment -- 3
Compensation expense related to shares issued in a subsidiary 290 370
Compensation expense related to stock options 42 --
Changes in operating assets and liabilities:
Trade accounts receivable (9,197) (5,447)
Other current assets 662 (2,540)
Accounts payable 2,045 5,469
Accrued liabilities 1,615 (431)
Deferred income 652 (2,419)
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Net cash provided by operating activities 21,662 9,425
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INVESTING ACTIVITIES:
Cash purchases of equipment (1,833) (1,718)
Proceeds from sale of equipment -- 21
Purchases of short term investments (38,188) --
Sales and maturities of short term investments 28,368 27,663
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Net cash provided by (used in) investing activities (11,653) 25,966
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FINANCING ACTIVITIES:
Repurchase of common stock (31,462) (48,219)
Issuance of common stock for cash 9,213 4,224
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Net cash used in financing activities (22,249) (43,995)
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Decrease in cash and cash equivalents (12,240) (8,604)
Cash and cash equivalents at beginning of period 82,322 77,799
--------- --------
Cash and cash equivalents at end of period $ 70,082 $ 69,195
--------- --------
--------- --------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
5
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DSP COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of DSP
Communications, Inc. ("DSPC" or the "Company") have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and notes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the interim period are not necessarily indicative of the
results that may be expected for the full year. For further information, refer
to the consolidated financial statements and notes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1997.
2. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share for the three and nine months ended September 30 as follows (in thousands
except per share data):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------- ------------------
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator for basic and diluted earnings per
share - net income $ 8,739 $ 5,910 $ 23,577 $ 12,755
------- -------- -------- -------
------- -------- -------- -------
Denominator for basic earnings per share -
weighted average shares 40,276 39,727 40,200 42,202
Effect of dilutive securities - employee stock
options 1,511 3,890 2,153 2,609
------- -------- -------- -------
Denominator for diluted earnings per share -
adjusted weighted average shares 41,787 43,617 42,353 44,811
------- -------- -------- -------
------- -------- -------- -------
Earnings per share:
Basic $ 0.22 $ 0.15 $ 0.59 $ 0.30
------- -------- -------- -------
------- -------- -------- -------
Diluted $ 0.21 $ 0.14 $ 0.56 $ 0.28
------- -------- -------- -------
------- -------- -------- -------
Potentially dilutive securities excluded from 917 0 735 0
computations as the effect would be antidilutive ------- -------- -------- -------
------- -------- -------- -------
</TABLE>
3. NEW ACCOUNTING STANDARDS
As of January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income" ("SFAS 130"). SFAS 130 establishes new rules for the
reporting and display of comprehensive income and its components; however, the
adoption of SFAS 130 had no impact on the Company's net income or stockholders'
equity. SFAS 130 requires unrealized gains or losses on the Company's
available-for-sale securities, which prior to adoption were reported separately
in stockholders' equity, to be included in other comprehensive income. For the
three months ended September 30, 1998 and 1997, total comprehensive income was
$8,882,000 and $5,936,000, respectively. During the first nine months of 1998
and 1997, total comprehensive income amounted to $23,677,000 and $12,736,000,
respectively.
6
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As of January 1, 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports issued in 1999. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. The adoption of SFAS 131 has no impact on the Company's consolidated
results of operations, financial position or cash flows.
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activity" ("SFAS 133"), which
is required to be adopted in years beginning after June 15, 1999. SFAS 133
permits early adoption as of the beginning of any fiscal quarter; however, the
Company has yet to determine its date of adoption. SFAS 133 will require the
Company to recognize all derivatives on the balance sheet at fair value. The
Company has not yet determined what the effect of SFAS 133 will be on the
earnings and financial position of the Company.
4. STOCKHOLDERS' EQUITY
In 1997, the Company implemented a repurchase program pursuant to which the
Company, from time to time and at management's discretion, may purchase shares
of the Company's common stock in open-market and privately negotiated
transactions. The number of shares in the repurchase plan, which was originally
8 million, has been increased through October 1998 to a total of 16 million
shares. During 1997, the Company repurchased 5,869,800 shares of its common
stock for an aggregate purchase price of $52,628,000, and in the first nine
months of 1998, the Company repurchased 2,632,200 shares of its common stock for
an aggregate purchase price of $31,462,000. During October 1998, the Company
repurchased 1,669,500 additional shares of its common stock for $10,790,000.
5. LITIGATION
On May 12, 1997, a class action lawsuit was filed against the Company and
several of its officers and directors in the Superior Court of California, Santa
Clara County. A second, identical lawsuit, was filed on May 22, 1997. The
complaints, which were consolidated, alleged that the Company and certain of its
officers and directors violated California securities laws in connection with
certain statements allegedly made during the first quarter of 1997, and sought
damages in an unspecified amount, interest, attorney's fees and other costs and
other equitable injunctive relief. The plaintiffs requested to have the matter
certified as a class action on behalf of certain past and present shareholders
of the Company. The court sustained the Company's demurrer with leave to amend.
On January 27, 1998, plaintiffs filed an amended and consolidated complaint. On
February 26, 1998, two of the plaintiffs in the state action filed a similar
complaint in the U.S. District Court for the Northern District of California.
The complaint makes the same allegations as the amended complaint filed in state
court, but charges violations of federal securities laws.
The parties have reached an agreement in principle to settle the lawsuits in
their entirety for $3,000,000, which will be funded by insurance proceeds. The
agreement is subject to negotiation and execution of a Stipulation of Settlement
and approval by the court. The Company continues to deny all allegations in the
lawsuit.
6. SUBSEQUENT EVENTS
In October 1998, options to purchase approximately 2.4 million shares of common
stock were repriced to $6.125 or to $6.6875 per share. Options previously
exchanged in April 1997 were not subject to the repricing. Also during October
1998, the Company granted options to purchase approximately 2.6 million shares
of common stock to employees and executives.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The following information should be read in conjunction with the condensed
consolidated interim financial statements and the notes thereto in Part I, Item
1 of this Quarterly Report and with Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997. The matters addressed
in this Management's Discussion and Analysis of Financial Condition and Results
of Operations, with the exception of the historical information presented,
contain forward-looking statements involving risks and uncertainties. The
Company's actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth under the heading "Certain Factors That May Affect Future Results"
following this Management's Discussion and Analysis section, and elsewhere in
this report.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationships of certain items
from the Company's consolidated statements of operations as a percentage of
total revenues:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
% % % %
<S> <C> <C> <C> <C>
REVENUES
Product 97.6 93.3 96.7 92.7
Technology development 2.4 6.7 3.3 7.3
----- ----- ----- -----
Total revenues 100.0 100.0 100.0 100.0
COST OF REVENUES
Product 56.5 46.3 52.6 47.5
Technology development 1.6 6.0 2.4 7.0
----- ----- ----- -----
Total cost of revenues 58.1 52.3 55.0 54.5
----- ----- ----- -----
GROSS PROFIT 41.9 47.7 45.0 45.5
OPERATING EXPENSES
Research and development 9.2 7.6 9.4 9.3
Sales and marketing 3.0 4.6 3.4 6.1
General and administrative 6.1 9.9 7.5 11.1
----- ----- ----- -----
18.3 22.1 20.3 26.5
----- ----- ----- -----
Operating income 23.6 25.6 24.7 19.0
Other income 4.9 5.4 5.3 9.6
----- ----- ----- -----
Income before provision
for income taxes 28.5 31.0 30.0 28.6
Provision for income taxes (3.4) (2.1) (3.3) (2.8)
----- ----- ----- -----
Net income 25.1 28.9 26.7 25.8
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
8
<PAGE>
REVENUES
PRODUCT: Product revenues increased to $34.0 million in the third quarter of
1998, from $19.1 million in the third quarter of 1997, and to $85.5 million in
the nine months ended September 30, 1998, from $45.9 million in the first nine
months of 1997. Product revenues have been primarily from sales of baseband chip
sets for digital cellular telephones. The increase in product revenues for the
three months and nine months ended September 30, 1998 as compared to the same
periods in 1997, was a result of stronger demand for the Company's PDC and TDMA
chip sets and the commencement of volume sales of its CDMA chip sets in the
second quarter of 1998. Revenues from sales to distributors are recognized at
the time the products are shipped by the distributor to the original equipment
manufacturer ("OEM") customer. Other product revenues are recorded when products
are shipped to customers.
TECHNOLOGY DEVELOPMENT AND OTHER: Technology development revenues decreased to
$822,000 in the third quarter of 1998 from $1,380,000 in the third quarter of
1997 and to $2.9 million in the nine months ended September 30, 1998 from $3.6
million in the first nine months of 1997. The Company's technology development
revenues fluctuate, and may continue to fluctuate, depending on the number and
size of technology development agreements and the timing of related milestones
and deliverables. The Company's subsidiary, CTP Systems, Ltd. ("CTP Systems"),
is engaged in certain reference design projects which contribute to the
technology development revenues.
GROSS PROFIT
Gross profit in the third quarter of 1998 was $14.6 million (41.9% of revenues),
compared to $9.8 million (47.7% of revenues) in the third quarter of 1997. Gross
profit in the first nine months of 1998 was $39.8 million (45.0% of revenues),
compared to $22.5 million (45.5% of revenues) in the first nine months of 1997.
The gross margins on product revenues are affected by changes in the customer
and product mix from quarter to quarter and by price pressures (or alleviation
thereof) which are impacted by, among other factors, fluctuations in the
dollar/yen rate of exchange. For the three months and nine months ended
September 30, 1998 as compared to the same periods in 1997, the effect of the
continued decrease in sales prices of the Company's chip sets has partially been
offset by cost reductions received from the Company's suppliers due to increased
order volumes and by cost reductions resulting from a weaker yen which reduced
in dollar terms the cost of components quoted in, or linked to, yen based prices
(See also discussion in Foreign Currency Issues and Impact of Inflation section
below).
Sales of wireless private branch exchange ("PBX") systems of CTP Systems,
resulted in relatively low margins. The Company expects that it will continue to
experience relatively low margins on sales of these wireless PBX systems unless
and until higher quantity sales can be achieved. CTP Systems is currently
engaged in a cost reduction program, the initial effects of which are
anticipated to be felt towards the end of 1998 and further cost reductions will
be implemented during 1999.
The Company anticipates that the average sales prices of chip sets may continue
to decrease as a result of volume discounts and price pressures, which would
increase the cost of products sold as a percentage of product revenues; however,
any such price decreases may be offset to a certain extent by changes in the
Company's terms of trade, and further cost reductions from suppliers if the
Company's order volumes increase.
The costs incurred on technology development vary from quarter to quarter
depending on the similarity or diversity of the products and technologies
developed, and as contractual milestones are achieved.
During the third quarter of 1998, the Company entered into dollar/yen option
transactions in an attempt to hedge partially against the increase in value of
the US dollar against the yen and to somewhat decrease the net exposure to
currency-driven sales price pressure. The Company additionally has some of its
vendor purchases quoted in, or linked to, yen based prices.
9
<PAGE>
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased to $3.2 million in the third quarter
of 1998 from $1.6 million in the third quarter of 1997 and to $8.3 million in
the first nine months of 1998 from $4.6 million in the first nine months of
1997. The increases were a result of growth in research and development
activities during those periods, a decrease in the allocation of engineering
costs to technology development due to a decrease in technology development
activity, and growth in the number of engineering personnel. As a percentage of
total revenues, research and development expenses increased to 9.2% in the third
quarter of 1998, from 7.6% in the third quarter of 1997, and to 9.4% in the
first nine months of 1998 from 9.3% in the first nine months of 1997. The
Company expects that its research and development expenses will increase in the
future, in absolute dollars.
The Company records software development costs in accordance with Statement of
Financial Accounting Standards No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed." To date, the Company has
expensed all of its software costs.
SALES AND MARKETING EXPENSES
Sales and marketing expenses were $1.1 million (3.0% of revenues) in the third
quarter of 1998, $0.9 million (4.6% of revenues) in the third quarter of 1997
and were $3.0 million (3.4% of revenues) in the first nine months of 1998 and
$3.0 million (6.1% of revenues) in the first nine months of 1997. These expenses
are mainly comprised of the sales and marketing staff at the Company's
headquarters in Cupertino, California, its offices in Israel and Tokyo,
participation at trade exhibitions, and other promotional and marketing research
activities.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses were $2.1 million (6.1% of revenues) in the
third quarter of 1998 compared to $2.0 million (9.9% of revenues) in the third
quarter of 1997 and $6.6 million (7.5% of revenues) in the first nine months of
1998 compared to $5.5 million (11.1% of revenues) in the first nine months of
1997. General and administrative expenses increased, in absolute dollars, as a
result of increased staffing levels at the facilities of DSPC Israel Ltd.
("DSPCI"), an Israeli subsidiary of the Company, increased facility expenses
resulting from additional space that was leased by DSPCI, and increased
administration expenses and fees.
OTHER INCOME
Other income includes net interest income, investment income, and foreign
currency remeasurement gains and losses and other expenses. Other income
increased to $1.7 million in the third quarter of 1998 from $1.1 million in the
third quarter of 1997. In the first nine months of both 1998 and 1997, other
income was $4.7 million. Other income in the first nine months of 1998 and 1997
was generated primarily from interest and realized gains on the Company's cash
and investment balances, which were at an average level of approximately $114
million and $118 million, during the first nine months of 1998 and 1997,
respectively.
Other income fluctuates as a result of changes in the level of the Company's
cash and investment balances, which was primarily caused by the repurchase of
shares (see below - Liquidity and Capital Resources), changes in the rate of
exchange between the Japanese yen and the United States dollar and between the
Israeli shekel and the United States dollar, and fluctuations in the available
interest rates applicable to the Company's deposits and investments.
PROVISION FOR INCOME TAXES
The Company's effective tax rate was 11.0% for the first nine months of 1998
compared to 12.5% for the first nine months of 1997. In the third quarter of
1997, the Company reduced its regular provision of 12.5% by the amount of
$370,000, following the receipt of final tax assessments for two of the
Company's Israeli subsidiaries for the years 1992 through 1995. The effective
tax rate is substantially below the federal statutory rate primarily due to the
tax benefits achieved by the status of certain of the Company's Israeli
subsidiaries as "Approved Enterprises" granted by the State of Israel, which
provides for a tax holiday or a reduced corporate tax rate of 10% on the
Company's
10
<PAGE>
undistributed Israeli earnings. The decrease in the Company's effective tax rate
is mainly due to the increase in the Company's revenues, which is allocated to
an investment program within the "Approved Enterprises" that benefits from a tax
holiday. Over time, the Company's tax rate is expected to increase as the tax
benefits awarded with Approved Enterprise status become eliminated, as well as
potential increases due to rules regarding controlled foreign corporations
("CFC"). Losses incurred by the Company or any of its subsidiaries in one
country generally will not be deductible by entities in other countries in the
calculation of their respective local taxes. In addition, losses generated by
one Israeli entity will not offset income generated by another Israeli entity.
Therefore, losses incurred by one Israeli entity or a combined loss of the U.S.
entities will increase the Company's effective tax rate.
FOREIGN CURRENCY ISSUES AND IMPACT OF RATE OF INFLATION
The United States dollar is the Company's functional currency as it is the
primary currency in the economic environment in which the Company operates.
Accordingly, monetary accounts maintained in currencies other than the dollar
(principally cash and liabilities) are remeasured using the foreign exchange
rate at the balance sheet date. Operational accounts and nonmonetary balance
sheet accounts are remeasured and recorded at the rate in effect at the date of
the transaction. The effects of foreign currency remeasurement are reported in
current operations, and have been immaterial to date.
While a substantial portion of the Company's revenues and costs are denominated
in United States dollars, a material portion of the sales prices for certain
products sold by the Company, and prices of certain components purchased by the
Company for the manufacture of its products, are quoted in, or linked to, yen
based prices. Therefore, fluctuations in the exchange rate of the yen in
relation to the United States dollar could have a material adverse effect on the
Company's results of operations and financial condition.
A portion of the Company's expenses are denominated in Israeli shekels. The
Company's primary expense paid in Israeli currency is Israeli-based employee
salaries. In addition, the Company also has certain Israeli shekel-based
liabilities and assets. As a result, fluctuations in the value of Israeli
currency in comparison to the United States dollar and inflationary pressures on
the Israeli shekel could affect the cost of technology development, research and
development expenses, general and administrative expenses and the Company's
effective income tax rate and could have a material adverse affect on the
Company's results of operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities provided cash of $21.7 million in the first
nine months of 1998 compared to $9.4 million in the first nine months of 1997.
Net cash provided from operations in the first nine months of 1998 was comprised
primarily of net income and an increase in current liabilities, less an increase
in accounts receivable. Trade accounts receivable were $20.4 million at
September 30, 1998 due to the timing of shipments and payment terms.
The Company's investing and financing activities for the first nine months of
1998, other than purchases of and proceeds from, short-term investments, have
consisted of expenditures for fixed assets which totaled 1.8 million, and the
repurchase of common stock for cash which totaled $31.5 million, in the first
nine months of 1998.
In the first nine months of 1998, the Company repurchased 2,632,200 shares of
its common stock in its repurchase program, bringing the total number of shares
repurchased through September 30, 1998, in this repurchase program, to 8,502,000
shares with a total aggregate purchase price of approximately $84.1 million.
During October 1998, the Company repurchased an additional 1,669,500 shares of
its common stock for an aggregate purchase price of approximately $10.8 million.
The Company may from time to time repurchase additional shares of its Common
Stock under its share repurchase program.
In obtaining approval from Israeli tax authorities of the Company's
reorganization, which was completed immediately before the closing of the
Company's initial public offering ("IPO") in March 1995, the Company agreed to
invest in activities in Israel an amount of not less than $9.0 million out of
the proceeds of the IPO within three years after the IPO. In the first quarter
of 1998, the Company received approval from the Israeli tax authorities for a
two year extension of this requirement. Through September 30, 1998, $6.5 million
has been transferred to Israel.
11
<PAGE>
As of September 30, 1998, the Company had $114.3 million of cash, cash
equivalents and short-term investments. The Company believes that its existing
cash, cash equivalents and short-term investment balances, will be sufficient to
meet its cash requirements for at least the next twelve months.
While operating activities may provide cash in certain periods, to the extent
the Company may experience growth in the future, the Company anticipates that
its operating and investing activities may use cash and consequently, such
growth may require the Company to obtain additional sources of financing. The
Company may also from time to time consider the acquisition of complimentary
businesses, projects or technologies which may require additional financing or
require the use of a significant portion of its existing cash, although the
Company has no present understandings, commitments or agreements, nor is it
engaged in any discussions or negotiations with respect to any such transaction.
IMPACT OF YEAR 2000
Many currently installed computer systems and software products experience
problems handling dates beyond the year 1999 and will need to be modified before
the year 2000 in order to remain functional. As a result, before the year 2000,
computer systems and/or software products and applications used by many
companies may need to be upgraded to comply with such year 2000 requirements.
The Company is currently expending resources to review its internal systems,
products and the readiness of third parties with whom the Company has business
relationships and has assigned a dedicated task force to develop and implement a
Year 2000 plan (the "Plan") which is designed to cover all of the Company's
activities. The Plan, which has executive sponsorship, is reviewed regularly by
senior management and includes the evaluation of both information technology
("IT") and non-IT systems. The Plan consists of five steps.
Step one involves increasing awareness by educating and involving all
appropriate levels of management regarding the need to address Year 2000 issues.
Step two consists of identifying all of the Company's systems, products and
relationships that may be impacted by Year 2000. Step three involves determining
our current state of Year 2000 readiness for those areas identified in step two
and prioritizing areas that need to be fixed. Step four will consist of
developing a plan for those areas identified as needing correction. Step five
will be the implementation and execution of the Company's Plan and completing
the steps identified to attain Year 2000 readiness. The Company has completed
step one and is currently completing step two. Based on the Company's assessment
to date, it has determined that it is unlikely that the Company has any exposure
to contingencies related to the Year 2000 issue for the products that it has
sold, that all of the Company's products that are currently being sold are Year
2000 compliant, and that the Company expects to complete implementation of the
Plan, including completing any necessary modifications or replacements of its
internal IT and non-IT systems, by the middle of 1999.
The costs to the Company of implementing the Plan to date have not been
material, and the Company does not believe that the costs of completing the Plan
will be material. The Company is currently evaluating modification or
replacement of certain of its internal IT systems in connection with the
Company's growth, and the majority of the costs associated with the Plan for the
Year 2000 are expected to represent resources used in this related expansion
effort. The Company believes that modifications deemed necessary will be made on
a timely basis and does not believe that the cost of such modifications will
have a material effect on the Company's operating results. In addition, the
Company is in the process of evaluating the need for contingency plans with
respect to year 2000 requirements. The necessity of any contingency plan must be
evaluated on a case-by-case basis and may vary considerably in nature depending
on the year 2000 issue it may address.
The Company's statements above regarding its expectations as to the extent and
timeliness of modifications or replacements required in order to achieve Year
2000 compliance are forward-looking statements subject to risks and
uncertainties. Actual results may vary materially as a result of a number of
factors, including, among others, those described above in this section. There
can be no assurance however, that unexpected delays or problems, including the
failure to ensure Year 2000 compliance of systems or products supplied to the
Company by third parties, will not have an adverse effect on the Company, its
financial performance and results of operations. In addition, the Company cannot
predict the effect of the Year 2000 issues on its customers or the resulting
effect on the Company. As a result, if such customers do not take preventative
and/or corrective actions in a timely manner, the Year 2000 issue could have an
adverse effect on their operations and accordingly have a material adverse
effect
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on the Company's business, financial condition and results of operations.
Furthermore, the Company's current understanding of expected costs is subject to
change as the project progresses and does not include the cost of internal
software and hardware replaced in the normal course of business whose
installation otherwise may be accelerated to provide solutions to Year 2000
compliance issues.
CERTAIN FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
This Form 10-Q contains forward looking statements concerning the
Company's future products, expenses, revenue, liquidity and cash needs as well
as the Company's plans and strategies. These forward looking statements are
based on current expectations, and the Company assumes no obligation to update
this information. Numerous factors could cause actual results to differ
significantly from the results described in these forward looking statements,
including, among others, the following risk factors.
RELIANCE ON A LIMITED NUMBER OF PRODUCTS; NEED FOR NEW PRODUCT
INTRODUCTIONS. Substantially all of the Company's sales are from three products:
its PDC baseband chip set for digital cellular telephones for use in Japan, its
TDMA chip set for use outside of Japan, and its CDMA chip set for use in the US,
Japan, Korea and other parts of the world. The Company believes that its success
will depend both on continued sales of its PDC, TDMA and CDMA chip sets and on
its ability to successfully develop, introduce and market successive generations
of its products. Although the Company continuously works to develop future
generations of its products, there can be no assurance that it will be
successful in doing so, or that completion of development of products will not
be delayed. The Company's future success may also be dependent on commencing new
product development and successful introduction of new products. The success of
new product generations and new products, will also depend upon, among other
things, the ability of the Company to market the products successfully, the
growth of the relevant markets for the products, and the success of the
Company's OEM customers in completing in a timely manner their development of
handsets or other OEM products utilizing the Company's products and in
successfully competing in the applicable markets. In addition, the Company will
likely use independent foundries to manufacture any such products, and there can
be no assurance that the products will be able to be manufactured in a timely
manner, in commercial quantities, at reasonable cost, and with acceptable yields
and quality standards, particularly with new products, such as further
generations of PDC, TDMA and CDMA products, that may incorporate new
manufacturing technology. If the Company is unable, for technological or other
reasons, to develop, introduce and manufacture in a timely manner new product
generations and new products and to market them successfully, or if the
Company's OEMs are unable to successfully develop and market their products, the
Company's business and results of operations could be materially and adversely
affected.
MARKETS FOR THE COMPANY'S PRODUCTS ARE HIGHLY COMPETITIVE. The markets
for the Company's products are extremely competitive, and the Company expects
that competition will increase. Many of the Company's competitors have
entrenched market positions, established patents, copyrights, tradenames,
trademarks and intellectual property rights and substantial technological
capabilities. The Company's current competitors in the digital cellular market
include other suppliers of DSP-based chip sets, such as existing cellular
telephone manufacturers that develop chip set solutions internally and smaller
companies offering design solutions. The Company also expects new competitors to
enter the chip set manufacturing market as the wireless communications markets
expand. Both in the cellular market and in other wireless personal
communications markets, the Company's existing and potential competitors include
large and emerging domestic and international companies, many of which have
significantly greater financial, technical, manufacturing, marketing, sales and
distribution resources and management expertise than the Company. The Company
believes that its ability to compete successfully in the wireless personal
communications market will depend upon a number of factors both within and
outside of its control, including price, quality, availability, product
performance and features; timing of new product introductions by the Company,
its customers and competitors; and customer service and technical support. There
can be no assurance that the Company will have the financial resources,
technical expertise, intellectual property, or marketing, sales, distribution
and customer service and technical support capabilities to compete successfully.
DECLINING SALES PRICES. Manufacturers of wireless personal
communications equipment are experiencing, and are likely to continue to
experience, intense price pressure, which has resulted and is expected to
continue to result in downward pricing pressure on the Company's products. As a
result, the Company has experienced, and expects to continue to experience,
declining sales prices for its products. In addition, pricing competition among
handset manufacturers and component suppliers has increased. There can be no
assurance that either increases in
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unit volume, changes in the Company's terms of trade, or reductions in per
unit costs will offset declines in per unit sales prices, in which case the
Company's gross profit would be adversely affected. Since cellular telephone
manufacturers frequently negotiate supply arrangements well in advance of
delivery dates, the Company often must commit to price reductions for its
products before it is aware of how, or if, such cost reductions can be
obtained. As a result, such current or future price reduction commitments
could have, and any inability of the Company to respond to increased price
competition would have, a material adverse effect on the Company's business,
financial condition and results of operations.
RELIANCE ON A SMALL NUMBER OF OEMS AND ON TWO DISTRIBUTORS; COMPETITION
IN THE OEM MARKET. Substantially all of the Company's sales of baseband chip
sets for digital cellular telephones are to Tomen Electronics Corp. (TEC), the
Company's distributor in Japan, and to Tomen Electronics America Inc. (TEA), the
Company's distributor in the United States. These distributors' sales of the
Company's products are concentrated in a small number of OEM customers. During
the first half of 1998, seven OEM customers accounted for substantially all of
the sales of the Company's PDC baseband chip sets, while two OEM customers
accounted for all sales of the Company's TDMA chip sets and two OEM customers
accounted for all sales of the Company's CDMA chip sets. The loss of TEC or TEA
as a distributor or the loss of or significant reduction in the distributors'
sales to any of these OEMs could have a material adverse effect on the Company's
business, financial condition and results of operations.
Because the world-wide cellular subscriber equipment industry is
dominated by a small number of large corporations, the Company expects that a
significant portion of its future product sales will continue to be concentrated
in a limited number of OEMs. In addition, the Company believes that the
manufacture of subscriber equipment for emerging telecommunications services,
such as personal communications services ("PCS"), will also be concentrated in a
limited number of OEMs. As a result, the Company's performance is likely to
continue to depend on relatively large orders from a limited number of
distributors and OEMs. The Company's performance will also depend in part on
gaining additional OEM customers, both within existing markets and in new
markets. Sales of the Company's PDC, TDMA and CDMA chip sets will depend on the
success of the Company's OEM customers in continuing to develop and introduce
competitive handsets using these chip sets, and in successfully competing in
these intensely competitive wireless personal communications markets. In
addition, sales of CTP Systems' PBX systems will depend on the success of CTP
Systems' OEM customers in the wireless PBX market. The loss of any existing OEM
customer, a significant reduction in the level of sales to any existing
customers, or the failure of the Company to gain additional OEM customers could
have a material adverse effect on the Company's business, financial condition
and results of operations.
UNCERTAINTIES RELATED TO CERTAIN NEW MARKETS FOR THE COMPANY'S
PRODUCTS. The success of the Company in marketing its TDMA-based and CDMA-based
chip sets will be dependent on, among other things, the success of the
relatively new TDMA and CDMA standards and growth of these markets worldwide.
There can be no assurance that these standards will be widely adopted or that
the TDMA or CDMA chip sets or successive generations of these products, will be
successful in the marketplace. In addition, increased sales of CTP Systems'
wireless PBX systems will be dependent on, among other things, growth in the
market for PBX systems and other low-mobility wireless communications
applications. This market has to date not experienced the rate of growth
previously anticipated, and there can be no assurance that the PBX market will
become large enough to support significant sales of CTP Systems' products.
DEPENDENCE ON JAPANESE AND GLOBAL MARKETS AND ECONOMIES; FLUCTUATION OF
EXCHANGE RATES. A substantial portion of the Company's revenues are derived from
sales of its products in Japan and may be materially affected by the current
difficulties in the Japanese economy. A continued weakness in the Japanese
economy or a further decline of economic conditions in Japan could have a
material adverse effect on the Company's business, financial condition and
results of operations. The future performance of the Company will be dependent,
in large part, upon its ability to continue to compete successfully in the
Japanese market. The Company's ability to continue to compete in this market
will be dependent upon several factors, including no deterioration of existing
trade relations between Japan, Israel and the United States or imposition of
tariffs in the wireless personal communications industry, no adverse changes in
the Japanese telecommunications regulatory environment, the Company's ability to
develop products that meet the technical requirements of its Japanese customers,
and the Company's ability to maintain satisfactory relationships with its
Japanese customers and its distributor in Japan. While virtually all of the
Company's sales to its Japanese customers are denominated in United States
dollars, a
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<PAGE>
material portion of the sales prices for certain products sold to
these customers by the Company are quoted in dollars linked to yen based prices.
Therefore, fluctuations in the exchange rate for the United States dollar in
relation to the yen could materially affect the price of the Company's products
in Japan and could have a material adverse effect on the Company's sales and
results of operations. In addition, an increasing portion of the components
purchased by the Company for the manufacture of its products are quoted in, or
linked to, yen based prices and, therefore, strengthening of the exchange rate
of the yen in relation to the United States dollar could materially increase the
cost of these materials and thereby have a material adverse effect on the
Company's results of operations and financial conditions. Changes in the
political or economic conditions, trade policy or regulation of
telecommunications in Japan could have a material adverse effect on the
Company's business, financial condition and results of operations.
An increasing amount of the Company's sales are made outside of Japan.
The economies of other global regions in which the Company or its OEM customers
do business, such as North and South America, may also be negatively affected by
the current economic difficulties in Japan and Asia and other causes.
Deterioration of economic conditions in these regions could have a material
negative impact on the Company's business, financial condition and results of
operations.
EXPECTED FLUCTUATIONS IN QUARTERLY OPERATING RESULTS AND POTENTIAL
QUARTERLY LOSSES. The Company's quarterly operating results depend on the volume
and timing of product orders received and delivered during the quarter and the
timing of new product introductions by the Company and its customers. The
Company anticipates that for the foreseeable future new product introductions
may cause significant fluctuations in quarterly operating results. In addition,
the Company's quarterly operating results have in the past and may continue to
vary significantly as a result of other factors, including the introduction of
new products by the Company's competitors; market acceptance of new products;
the greater number of manufacturing days in the second and third quarters;
changes in general economic conditions, particularly in Japan, the Far East and
North and South America; adoption of new technologies and standards; relative
prices of the Company's products; competition of the Company and its OEMs; the
cost and availability of components; the mix of products sold; the quality and
availability of chip sets manufactured for the Company by third parties; changes
in the Company's distribution arrangements; and sales of wireless subscriber
equipment by OEMs.
SHORT VISIBILITY. The market for the Company's baseband chip sets is
characterized by short-term order and shipment schedules. Accordingly, since the
Company's revenue expectations and planned operating expenses are in large part
based on estimates rather than on firm customer orders, the Company's quarterly
operating results could be materially adversely affected if orders and revenues
do not meet expectations.
RELIANCE ON THIRD PARTY MANUFACTURERS. All of the Company's integrated
circuit products and certain of the components included in CTP Systems' products
are currently fabricated by independent third parties, and the Company intends
to continue using independent foundries in the future. Accordingly, the Company
is and will remain dependent on independent foundries to achieve acceptable
manufacturing yields, to allocate to the Company a sufficient portion of foundry
capacity to meet the Company's needs and to offer competitive pricing to the
Company. Although the Company has not experienced material quality, allocation
or pricing problems to date, if such problems were to arise in the future, they
would have a material adverse effect on the Company's business, financial
condition and results of operations.
VOLATILITY OF STOCK PRICE. The price of the Company's Common Stock has
experienced substantial fluctuation, and the Company believes that factors such
as announcements of developments related to the Company's business,
announcements by customers or competitors, quarterly fluctuations in the
Company's financial results and general conditions in the wireless personal
communications industry in which the Company competes or the national and
regional economies in which the Company does business, fluctuations in levels of
consumer spending for cellular telephones in Japan and North and South America,
and other factors could cause the price of the Company's Common Stock to
continue to fluctuate in the future, perhaps substantially. In addition, in
recent years the stock market in general, and the market for shares of
technology stocks in particular, have experienced extreme price fluctuations,
which have often been unrelated to the operating performance of affected
companies. Such fluctuations could have a material adverse effect on the market
price of the Company's Common Stock.
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RISK OF INCREASED INCOME TAXES. DSPCI and CTP Systems, two Israeli
subsidiaries of the Company, operate as "Approved Enterprises" under Israel's
Law for the Encouragement of Capital Investments, 1959, as amended. An Approved
Enterprise is eligible for significant income tax rate reductions for several
years following the first year in which it has income subject to taxation in
Israel (after consideration of tax losses carried forward). There can be no
assurance that this favorable tax treatment will continue, and any change in
such tax treatment could have a material adverse effect on the Company's net
income and results of operations. As of this date, the Company is not aware of
any circumstances that might cause it to lose its favorable tax treatment. If
Israel's tax incentives or rates applicable to DSPCI or CTP Systems are
rescinded or changed, their income taxes could increase and their results of
operations and cash flow would be adversely affected. In addition, the Company's
income tax rate would increase if all or a portion of the earnings of DSP
Telecommunications Ltd., DSPCI or CTP Systems were to become subject to United
States federal and state income tax as a result of actual or deemed dividends or
through operation of United States tax rules applicable to "controlled foreign
corporations."
The effective income tax rate of DSPCI and CTP Systems is sensitive to
the relationship between the rate of inflation in Israel and to the change in
the rate of exchange between the US dollar and the New Israeli Shekel ("NIS").
As a result, fluctuations in this rate of exchange in relation to the rate of
inflation in Israel could increase the Company's effective income tax rate and
as a result have a material adverse effect on the Company's net income and
results of operations.
FUTURE ACQUISITIONS. The Company's strategy includes obtaining
additional technologies and may involve, in part, acquisitions of products,
technologies or businesses from third parties. Identifying and negotiating these
acquisitions may divert substantial management resources. An acquisition could
absorb substantial cash resources, could require the Company to incur or assume
debt obligations, or could involve the issuance of additional Common or
Preferred Stock. The issuance of additional equity securities would dilute and
could represent an interest senior to the rights of then outstanding Common
Stock of the Company. An acquisition which is accounted for as a purchase, like
the acquisition of CTP Systems, could involve significant one-time, non-cash
write-offs, or could involve the amortization of goodwill and other intangibles
over a number of years, which would adversely affect earnings in those years.
Acquisitions outside the digital communications area may be viewed by outside
market analysts as a diversion of the Company's focus on digital communications.
For these and other reasons, the market for the Company's stock may react
negatively to the announcement of any acquisition. An acquisition will continue
to require attention from the Company's management to integrate the acquired
entity into the Company's operations, may require the Company to develop
expertise in fields outside its current area of focus, and may result in
departures of management of the acquired entity. An acquired entity may have
unknown liabilities, and its business may not achieve the results anticipated at
the time of the acquisition.
RELIANCE ON INTERNATIONAL OPERATIONS; RISKS OF OPERATIONS IN ISRAEL.
The Company is subject to the risks of doing business internationally, including
unexpected changes in regulatory requirements; fluctuations in the exchange rate
for the United States dollar; imposition of tariffs and other barriers and
restrictions; and the burdens of complying with a variety of foreign laws. The
Company is also subject to general geopolitical risks, such as political and
economic instability and changes in diplomatic and trade relationships, in
connection with its international operations. In particular, the Company's
principal research and development facilities are located in the State of Israel
and, as a result, as September 30, 1998, 176 of the Company's 190 employees were
located in Israel, including a substantial portion of the Company's senior
management and all of the Company's research and development personnel.
Therefore, the Company is directly affected by the political, economic and
military conditions to which that country is subject. In addition, many of the
Company's expenses in Israel are paid in Israeli currency, thereby also
subjecting the Company to foreign currency fluctuations and to economic
pressures resulting from Israel's generally high rate of inflation. The rate of
inflation in Israel for 1996, 1997 and the first nine months of 1998 was 10.6%,
7.0% and 4.0%, respectively. While the Company's functional currency is the
United States dollar, a portion of the Company's expenses are denominated in
Israeli shekels. The Company's primary expense paid in Israeli currency is
Israeli-based employee salaries. In addition, the Company also has certain
Israeli shekel-based liabilities and assets. As a result, fluctuations in the
value of Israeli currency in comparison to the United States dollar and
inflationary pressures on the Israeli shekel could increase the cost of
technology development, research and development expenses, general and
administrative expenses and the Company's effective income tax rate. There can
be no assurance that currency fluctuations, changes in the rate of inflation in
Israel or any of the other aforementioned factors will not have a material
adverse effect on the Company's business, financial condition and results of
operations.
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In the past, the Company has obtained royalty-bearing grants from the
Office of the Chief Scientist in Israel's Ministry of Industry and Trade (the
"Chief Scientist") and the Israel-United States Binational Industrial Research
and Development Foundation to fund research and development. The terms of the
grants from the Chief Scientist prohibit the transfer of technology developed
pursuant to the terms of these grants to any person, without the prior written
consent of the State of Israel.
MANAGEMENT OF GROWTH. The growth and development in the Company's
business has placed, and is expected to continue to place, a significant strain
on the Company's management and operations. To manage its growth and
development, the Company must continue to implement and improve its operational,
financial and management information systems and expand, train and manage its
employees. The anticipated increase in product development, general and
administrative, and marketing and sales expenses coupled with the Company's
reliance on OEMs to successfully market and develop products that incorporate
the Company's proprietary technologies could have an adverse effect on the
Company's performance. The Company's failure to manage growth effectively and
efficiently could have a material adverse effect on the Company's business,
financial condition and results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously disclosed in the Company's reports on Form 10-K for the
fiscal year ended December 31, 1997 and on Form 10-Q for the quarterly periods
ended June 30, 1997, September 30, 1997, March 31, 1998 and June 30, 1998, on
May 12, 1997, a class action lawsuit was filed against the Company and several
of its officers and directors in the Superior Court of California, Santa Clara
County, bearing the caption BERT PERL, ET AL. V. DSP COMMUNICATIONS, INC.,
DAVIDI GILO, LEWIS S. BROAD, GERALD DOGON, NATHAN HOD, ARNON KOHAVI AND JOSEPH
PERL. A second identical lawsuit, captioned GERSHON SONTAG, ET AL. V. DSP
COMMUNICATIONS, INC., ET AL. was filed on May 22, 1997. The complaints, which
were consolidated, alleged that the Company and certain of its officers and
directors violated California securities laws in connection with certain
statements allegedly made during the first quarter of 1997, and sought damages
in an unspecified amount, interest, attorney's fees and other costs and other
equitable injunctive relief. The plaintiffs requested to have the matter
certified as a class action on behalf of certain past and present shareholders
of the Company. The court sustained the Company's demurrer with leave to amend.
On January 27, 1998, plaintiffs filed an amended and consolidated complaint. On
February 26, 1998, two of the plaintiffs in the state action filed a similar
complaint in the U.S. District Court for the Northern District of California,
captioned ROBERT MISHELOW, ET AL. V. DSP COMMUNICATIONS, INC., ET AL. The
complaint makes the same allegations as the amended complaint filed in state
court, but charges violations of federal securities laws.
The parties have reached an agreement in principle to settle the
lawsuits in their entirety for $3,000,000, which will be funded by insurance
proceeds. The agreement is subject to negotiation and execution of a Stipulation
of Settlement and approval by the court. The Company continues to deny all
allegations in the lawsuit.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
On October 12, 1998, Nathan Hod resigned as Chairman of the Board and
as a director of the Company and Davidi Gilo, the Company's founder and former
Chairman, was appointed as Chairman of the Board of Directors of the Company.
Mr. Hod will remain employed with the Company as an advisor to Mr. Gilo until
December 31, 1998.
In addition, on October 12, 1998, Gerald Dogon resigned as the
Company's Executive Vice President and Chief Financial Officer. Mr.
Dogon will remain as a director of the Company. David Aber, formerly Vice
President of Finance of the Company, was appointed as the Company's Chief
Financial Officer.
In connection with Mr. Gilo's appointment as Chairman of the Board, the
Company sold 350,000 shares of the Company's common stock to Mr. Gilo on October
12, 1998. The purchase price was $2,340,625, or $6.6875 per share, which was the
closing share price of the common stock as reported on the New York Stock
Exchange on October 12, 1998. The purchase price was paid by delivery by Mr.
Gilo to the Company of a promissory note in the principal amount of $2,340,625.
The note bears interest at the rate of 6.5% per annum. Principal and interest
under the note are payable on December 31, 2001. The note is secured by a deed
of trust on certain real property owned by Mr. Gilo. The sale of the shares to
Mr. Gilo was deemed to be exempt from registration under the Securities Act of
1933 in reliance on Section 4(2) thereof.
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In October 1998, the Company increased its share repurchase program,
originally adopted in April 1997, by six million shares, to a total of 16
million shares. Pursuant to the repurchase program, the Company is authorized to
purchase, from time to time and at management's discretion, up to the authorized
16 million shares of the Company's common stock in the open market or in
privately negotiated transactions. In the third quarter of 1998, the Company
repurchased 1,359,400 shares for approximately $13.6 million. In addition, in
October 1998, the Company repurchased 1,669,500 shares, bringing the total
number of shares repurchased in this repurchase program to 4,301,700 shares in
1998 and to 10,171,500 shares since its inception, with an aggregate purchase
price of approximately $94.9 million. The Company may, from time to time,
repurchase additional shares of its common stock under the repurchase program.
On October 7, 1998, the Board of Directors adopted a 1998 Non-Qualified
Stock Option Plan, pursuant to which 5,000,000 shares of common stock are
reserved for issuance upon exercise of options that may be granted to employees
and consultants of the Company.
On October 7, 1998, the Board of Directors adopted a share option
repricing program pursuant to which options to purchase an aggregate of
1,579,476 shares of common stock, held by non-officer employees of the Company
under the Company's stock option plans, were repriced to have an exercise price
equal to the closing market price of the common stock on October 7, 1998, which
price was $6.125 per share. In addition, on October 12, 1998, the Board of
Directors adopted a share option repricing program pursuant to which options to
purchase an aggregate of 810,000 shares of common stock, held by certain
officers of the Company under the Company's stock option plans, were repriced to
have an exercise price equal to the closing market price of the common stock on
October 12, 1998, which price was $6.6875 per share.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.29 Employment Agreement, dated as of July 22, 1998, by and
between DSP Telecom, Inc. and Joseph Perl.
10.30 Promissory Note, dated June 22, 1998, issued by Dr. and Mrs.
Joseph Perl to the Company.
10.31 Amendment to Employment and Option Agreements, dated as of
October 12, 1998, by and between DSPC Israel Ltd., the
Company, and Nathan Hod.
10.32 Stock Purchase Agreement, dated as of October 12, 1998, by and
between the Company and Davidi Gilo.
10.33 Promissory Note, dated October 12, 1998, issued by Davidi Gilo
to the Company.
10.34 1998 Non-Qualified Stock Option Plan of the Company.
27.1 Financial Data Schedule - Nine Months Ended September 30, 1998
27.2 Financial Data Schedule - Nine Months Ended September 30, 1997
(b) Reports on Form 8-K
None.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 12, 1998
DSP COMMUNICATIONS, INC.
By: /s/ David Aber
------------------------------
David Aber, Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer)
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EXHIBIT 10.29
EMPLOYMENT AGREEMENT
OF JOSEPH PERL
WITH
DSP TELECOM, INC.
THIS EMPLOYMENT AGREEMENT (this "Agreement"), is made and entered into
effective as of this 22nd day of July, 1998, by and between DSP TELECOM, INC., a
California corporation (hereinafter the "Corporation"), and JOSEPH PERL
(hereinafter "Perl").
RECITAL
A. The Corporation hereby agrees to employ Perl, and Perl hereby agrees
to accept employment with the Corporation, on the terms and conditions
hereinafter set forth.
AGREEMENT
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. EMPLOYMENT DUTIES.
a. CORPORATION'S DUTIES. The Corporation shall allow Perl to, and
Perl shall, perform responsibilities normally incident to his position as Chief
Executive Officer of both the Corporation and DSP Communications, Inc. ("DSPC"),
commensurate with his background, education, experience and professional
standing. The Corporation shall provide Perl with a private office,
stenographic help, office equipment, supplies, customary services and
cooperation suitable for the performance of his duties. These duties shall be
performed primarily in Cupertino, California. Perl agrees that he may be
reassigned by the Board of Directors to another executive position within the
Corporation in Cupertino, California, with a direct reporting relationship to
the Chairman of the Board of the Corporation, provided that Perl's salary,
benefits, and bonuses are not reduced.
b. PERL'S DUTIES. Unless otherwise agreed to by the parties, Perl
shall serve as the Chief Executive Officer of both the Corporation and DSPC.
Perl shall devote his full productive time, attention, energy, and skill to the
business of the Corporation and DSPC during the employment term set forth below,
and shall not become engaged to render similar services on behalf of any other
entity while employed hereunder, without the Corporation's consent. Perl shall
report directly to the Corporation's Board of Directors and the Chairman of the
Board. Perl, however, shall be allowed to perform services for the
Corporation's affiliates, including, without limitation, DSP Telecommunications,
Ltd.; CTP Systems, Ltd.; DSPC Israel, Ltd.; DSPC Japan, Inc., and CTP Systems,
Inc.
<PAGE>
2. TERM. This Agreement shall terminate August 31, 2001, unless
(a) extended as set forth herein, or (b) terminated sooner under the terms of
this Agreement. Thereafter, this Agreement may be renewed by Perl and the Board
of Directors of the Corporation on such terms as the parties may agree to in
writing. Absent written notice to the contrary, thirty (30) days prior to the
end of the employment term, this Agreement will be renewed for consecutive one
(1) year extensions. As used herein, the term "employment term" refers to the
entire period of employment of Perl hereunder, including any agreed-to
extension(s).
3. COMPENSATION. Perl shall be compensated as follows:
a. FIXED SALARY. Perl shall receive a fixed annual salary of Two
Hundred Twenty-five Thousand Dollars ($225,000). The Corporation agrees to
review the fixed salary following the end of each twelve (12) month period
during the employment term based upon Perl's services and the Corporation's
financial results during the calendar year, and to make such increases as may be
determined appropriate in the discretion of the Corporation's Board of
Directors.
b. PAYMENT. Perl's fixed salary shall be payable on a semi-monthly
basis.
c. BONUS COMPENSATION. During the employment term, Perl shall
participate in each bonus plan adopted by the Corporation's Board of Directors.
Commencing in 1998, Perl shall be entitled to receive an annual bonus equal to
(i) twenty-five percent (25%) of his annual base salary should the Corporation
meet eighty percent (80%) of its plan as presented to the Board in January of
each year, during the term of Perl's employment ("Yearly Plan"); (ii) fifty
percent (50%) of his annual base salary should the Corporation meet its Yearly
Plan; and (iii) one hundred percent (100%) of his annual base salary should the
Corporation meet one hundred twenty percent (120%) of its Yearly Plan, with the
bonus prorated if the Yearly Plan is met between eighty percent (80%) and one
hundred percent (100%); or between one hundred percent (100%) and one hundred
twenty percent (120%). For purposes of this Section, the meeting of the Yearly
Plan shall be based upon the actual revenues and earnings per share for each
applicable year (each weighted fifty percent (50%)) compared to the revenues and
earnings per share projected in the Yearly Plan (with each item weighted fifty
percent (50%)), and no item shall be counted if it is not at least eighty
percent (80%) met.
d. VACATION. Perl shall accrue paid vacation at the rate of
twenty-two (22) working days for each twelve (12) months of employment. Perl
shall be compensated at his usual rate of compensation during any such vacation.
Perl shall be entitled to ten (10) paid holidays during each twelve (12) months
of employment.
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<PAGE>
e. BENEFITS. During the employment term, Perl and his dependents
shall be entitled to participate in any group plans or programs maintained by
the Corporation for any employees relating to group health, disability, life
insurance and other related benefits as in effect from time to time. The level
of benefits shall be based on the salary payable to Perl. The Corporation and
DSPC shall provide Perl with Director and Officer Insurance, if reasonably
available to the Corporation and DSPC, and all of its officers and directors.
Perl shall in no event receive less insurance coverage than that available to
any other employee. Additionally, the Corporation shall loan to Perl One
Million Dollars ($1,000,000) on an interest-free basis to be used to purchase a
home in the Cupertino area since Perl is relocating from Israel. The loan shall
be repaid at the first to occur of Perl's employment termination (unless he
remains on as a consultant, in which event the occurrence of the termination of
the consultant arrangement shall be the triggering event) with the Corporation,
or the sale of the home. If, however, Perl's employment is terminated by reason
of his death, the loan will be extended for six (6) months after his death. The
loan will be evidenced by a note secured by a second deed of trust on the home,
junior in interest only to a loan on the home that enables Perl to complete the
purchase of the home. To the extent that the sales price of the home (less
applicable real estate brokerage commissions) is less than the purchase price,
the Corporation agrees to allow a reduction of the principal amount of the
interest-free loan equal to the difference between the purchase price of the
home and the sales price (less applicable real estate brokerage commissions);
provided that the Corporation is given the option of purchasing the home at the
proposed sale price and/or has agreed to the sales price. For purposes of this
Section, "purchase price" refers to the amount paid by Perl for his home, and
"sales price" refers to the price paid by a subsequent buyer of the Perl home.
4. EXPENSES. The Corporation shall reimburse Perl for expenses as
follows:
a. BUSINESS. For Perl's normal and reasonable expenses incurred for
travel, entertainment and similar items in promoting and carrying out the
business of the Corporation in accordance with the Corporation's general policy
as adopted by the Corporation's management from time to time, and for all
expenses incurred at the Corporation's or DSPC's request. As a condition of
reimbursement, Perl agrees to provide the Corporation with copies of all
available invoices and receipts, and otherwise account to the Corporation in
sufficient detail to allow the Corporation to claim an income tax deduction for
such paid item, if such item is deductible. Reimbursements shall be made on a
monthly, or more frequent, basis.
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<PAGE>
b. PROFESSIONAL DUES. The Corporation shall also reimburse Perl for
all professional membership dues incurred, if any; all technical books purchased
by Perl.
c. RELOCATION EXPENSES. The Corporation agrees to reimburse Perl
for all reasonable expenses incurred for moving Perl and his family from Israel
to California, as approved by the Chairman of the Board. The Corporation also
agrees to reimburse Perl for the cost of a forty (40) foot container to ship
household belongings from California to Israel, and other reasonable expenses
incurred to relocate Perl and his family back to Israel at the conclusion of
Perl's employment with the Corporation.
d. INTERIM HOUSING. The Corporation agrees to reimburse Perl and
his family up to Five Thousand Dollars ($5,000) per month, for costs associated
with interim housing, in the event that Perl is unable to purchase a home in
Cupertino area, California.
e. TRAVEL TO ISRAEL. For each six (6) months of Perl's employment
with the Corporation, Perl and his spouse will be entitled to travel once to
Israel by business class, and Perl's children once by economy class, at the
Corporation's expense.
5. CONFIDENTIALITY AND COMPETITIVE ACTIVITIES. Perl agrees that during
the employment term he is in a position of special trust and confidence and has
access to confidential and proprietary information about the Corporation's
business and plans. Perl agrees that he will not directly or indirectly, either
as an employee, employer, consultant, agent, principal, partner, stockholder,
corporate officer, director, or in any similar individual or representative
capacity, engage or participate in any business that is in competition, in any
manner whatsoever, with the Corporation. Notwithstanding anything in the
foregoing to the contrary, Perl shall be allowed to invest as a shareholder in
publicly-traded companies, or through a venture capital firm or an investment
pool.
For purposes of this Section 5, the term "Corporation" shall also mean DSPC
or any of its subsidiaries.
6. TRADE SECRETS.
a. SPECIAL TECHNIQUES. It is hereby agreed that the Corporation has
developed or acquired certain products, technology, unique or special method,
manufacturing and assembly processes and techniques, trade secrets, special
written marketing plans and special customer arrangements, and other proprietary
rights and confidential information and shall during the employment term
continue to develop, compile and acquire said items (all hereinafter
collectively referred to as the "Corporation's Property"). It is expected that
Perl will gain knowledge of and utilize the Corporation's Property during the
course and scope of
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<PAGE>
his employment with the Corporation, and will be in a position of trust with
respect to the Corporation's Property.
b. CORPORATION'S PROPERTY. It is hereby stipulated and agreed that
the Corporation's Property shall remain the Corporation's sole property. In the
event that Perl's employment is terminated, for whatever reason, Perl agrees not
to copy, make known, disclose or use, any of the Corporation's Property without
the Corporation's prior written consent which shall not be unreasonably
withheld. In such event, Perl further agrees not to endeavor or attempt in any
way to interfere with or induce a breach of any prior proprietary contractual
relationship that the Corporation may have with any employee, customer,
contractor, supplier, representative, or distributor for nine (9) months. Perl
agrees upon termination of employment to deliver to the Corporation all
confidential papers, documents, records, lists and notes (whether prepared by
Perl or others) comprising or containing the Corporation's Property. Perl
recognizes that violation of covenants and agreements contained in this
Section 6 may result in irreparable injury to the Corporation which would not be
fully compensable by way of money damages.
c. COVENANT NOT TO COMPETE. For a period of one (1) year from the
date of any termination of Perl's employment with the Corporation, provided that
he has sold substantially all of his stock in the Corporation, Perl shall not,
directly or indirectly, either as an employee, employer, consultant, agent,
principal, partner, stockholder, corporate officer, Director, or in any other
individual or representative capacity, engage or participate in any activities
within the State of California, which are the same as, or directly competitive
with, the activities in which the Corporation is presently engaged.
d. CORPORATION DEFINED. For purposes of this Section 6, the term
"Corporation" shall also mean DSPC and any of its subsidiaries.
7. TERMINATION.
a. GENERAL. The Corporation may terminate Perl's employment under
this Agreement without cause, upon ninety (90) days' advance written notice to
Perl. Perl may voluntarily terminate his employment hereunder upon ninety (90)
days' advance written notice to the Corporation.
b. TERMINATION FOR CAUSE. The Corporation may immediately terminate
Perl's employment at any time for cause. Termination for cause shall be
effective from the receipt of written notice thereof to Perl specifying the
grounds for termination and all relevant facts. Cause shall be deemed to
include clearly proven: (i) material neglect of his duties or a
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<PAGE>
significant violation of any of the provisions of this Agreement, which
continues after written notice and a reasonable opportunity (not to exceed
thirty (30) days) in which to cure; (ii) fraud, embezzlement, defalcation or
conviction of any felonious offense; or (iii) intentionally imparting
confidential information relating to the Corporation or DSPC or their
business to competitors or to other third parties other than in the course of
carrying out his duties hereunder. The Corporation's exercise of its rights
to terminate with cause shall be without prejudice to any other remedy it may
be entitled at law, in equity, or under this Agreement.
c. TERMINATION UPON DEATH OR DISABILITY. This Agreement shall
automatically terminate upon Perl's death. In addition, if any disability or
incapacity of Perl to perform his duties as the result of any injury, sickness,
or physical, mental or emotional condition continues for a period of thirty (30)
business days (excluding any accrued vacation) out of any one hundred twenty
(120) calendar day period, the Corporation may terminate Perl's employment upon
written notice. Payment of salary to Perl during any sick leave shall only be
to the extent that Perl has accrued sick leave or vacation days. Perl shall
accrue sick leave at the same rate generally available to the Corporation's
employees.
d. SEVERANCE PAY. If this Agreement is terminated by the
Corporation without cause pursuant to Section 7.a (above), the Corporation
shall pay Perl a severance fee equal to his monthly salary at his then current
rate of fixed salary compensation, multiplied by the number of full months left
until the end of the term stated herein, during which time Perl shall remain as
an employee of the Corporation in a non-policy making role, devoting substantive
productive time, and his options in DSPC shall continue to vest for the period
of continuous employment. The above severance fee shall be payable in
accordance with the Corporation's normal payroll practices. The Corporation
shall pay Perl a severance fee equal to his monthly salary at his then-current
rate of fixed salary compensation, multiplied by the number six (6) if this
Agreement is terminated pursuant to Section 7.b (i) (above) or if Perl or the
Corporation elects not to renew this Agreement. The Corporation shall pay Perl
a severance fee equal to his monthly salary at his then-current rate of fixed
salary compensation, multiplied by the lesser of the number twelve (12) or the
number of months left in the original term of this Agreement as set forth herein
plus six (6), if Perl voluntarily elects to terminate his employment, unless the
Corporation successfully claims that a termination in accordance with Sections
7.b(ii) or (iii) is in order. There shall be no severance in the event that
this Agreement is terminated in accordance with Section 7.b (ii) or (iii).
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<PAGE>
8. CORPORATE OPPORTUNITIES.
a. DUTY TO NOTIFY. In the event that Perl, during the employment
term, shall become aware of any material and significant business opportunity
related to the Corporation's or DSPC's business, Perl shall promptly notify the
Corporation's Directors of such opportunity. Perl shall not appropriate for
himself or for any other person other than the Corporation, or any affiliate of
the Corporation, any such opportunity unless, as to any particular opportunity,
the Board of Directors of the Corporation fails to take appropriate action
within thirty (30) days. Perl's duty to notify the Corporation and to refrain
from appropriating all such opportunities for thirty (30) days shall neither be
limited by, nor shall such duty limit, the application of the general law of
California relating to the fiduciary duties of an agent or employee.
b. FAILURE TO NOTIFY. In the event that Perl fails to notify the
Corporation of, or so appropriates, any such opportunity without the express
written consent of the Board of Directors, Perl shall be deemed to have violated
the provisions of this Section, notwithstanding the following:
i. The capacity in which Perl shall have acquired such
opportunity; or
ii. The probable success in the Corporation's hands of such
opportunity.
9. MISCELLANEOUS.
a. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and understanding between the parties with respect to the subject
matters herein, and supersedes and replaces any prior agreements and
understandings, whether oral or written between them with respect to such
matters, specifically excluding stock option agreements, the terms of which
shall not change by the mere fact that Perl is employed by the Corporation and
not the Israeli affiliate of the Corporation. The provisions of this Agreement
may be waived, altered, amended or repealed in whole or in part only upon the
written consent of both parties to this Agreement.
b. NO IMPLIED WAIVERS. The failure of either party at any time to
require performance by the other party of any provision hereof shall not affect
in any way the right to require such performance at any time thereafter, nor
shall the waiver by either party of a breach of any provision hereof be taken or
held to be a waiver of any subsequent breach of the same provision or any other
provision.
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<PAGE>
c. PERSONAL SERVICES. It is understood that the services to be
performed by Perl hereunder are personal in nature and the obligations to
perform such services and the conditions and covenants of this Agreement cannot
be assigned by Perl. Subject to the foregoing, and except as otherwise provided
herein, this Agreement shall inure to the benefit of and bind the successors and
assigns of the Corporation.
d. SEVERABILITY. If for any reason any provision of this Agreement
shall be determined to be invalid or inoperative, the validity and effect of the
other provisions hereof shall not be affected thereby, provided that no such
severability shall be effective if it causes a material detriment to any party.
e. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, applicable to
contracts between California residents entered into and to be performed entirely
within the State of California.
f. NOTICES. All notices, requests, demands, instructions or other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given upon delivery, if
delivered personally, or if given by prepaid telegram, or mailed first-class,
postage prepaid, registered or certified mail, return receipt requested, shall
be deemed to have been given seventy-two (72) hours after such delivery, if
addressed to the other party at the addresses as set forth on the signature page
below. Either party hereto may change the address to which such communications
are to be directed by giving written notice to the other party hereto of such
change in the manner above provided.
g. MERGER, TRANSFER OF ASSETS, OR DISSOLUTION OF THE CORPORATION.
This Agreement shall not be terminated by any dissolution of the Corporation
resulting from either merger or consolidation in which the Corporation is not
the consolidated or surviving corporation or a transfer of all or substantially
all of the assets of the Corporation. In such event, the rights, benefits and
obligations herein shall automatically be assigned to the surviving or resulting
corporation or to the transferee of the assets.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Employment Agreement as
of the date first written above.
DSP TELECOM, INC.,
a California corporation
20300 Stevens Creek Blvd, 4th Floor
Cupertino, California 95014
By: /s/ Stephen P. Pezzola /s/ Joseph Perl
----------------------- ----------------
STEPHEN P. PEZZOLA, JOSEPH PERL
Secretary ----------------
----------------
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EXHIBIT 10.30
PROMISSORY NOTE
$1,000,000 Cupertino, California June 22, 1998
FOR VALUE RECEIVED, the undersigned, DR. AND MRS. JOSEPH PERL (hereinafter
collectively "MAKERS"), hereby jointly and severally promise to pay to DSP
COMMUNICATIONS, INC., or order (hereinafter "HOLDER"), in Cupertino, California,
or at such other place as HOLDER may from time to time designate, in United
States of America currency, the sum of One Million Dollars ($1,000,000)
interest-free.
This loan is to be used by MAKERS for the purchase of a home, and shall be
repaid at the first to occur of JOSEPH PERL's employment termination with the
HOLDER (unless he remains on as a consultant, in which event the occurrence of
the termination of the consultant arrangement shall be the triggering event)
with the HOLDER, or the sale of the home. If, however, Perl's employment is
terminated by reason of his death, the loan will be extended for six (6) months
after his death. To the extent that the sales price of the home (less applicable
real estate brokerage commissions) is less than the purchase price, the
Corporation agrees to allow a reduction of the principal amount of the
interest-free loan equal to the difference between the purchase price of the
home and the sales price (less applicable real estate brokerage commissions);
provided that the Corporation is given the option of purchasing the home at the
proposed sale price and/or has agreed to the sales price. For purposes of this
Section, "purchase price" refers to the amount paid by Perl for his home, and
"sales price" refers to the price paid by a subsequent buyer of the Perl home.
MAKERS shall have the right to prepay all of any part of the unpaid
principal of this Note from time to time without any penalty or premium;
provided that any such prepayments shall be applied first against any accrued
but unpaid interest, and then against principal.
MAKERS shall be deemed to be in default if MAKERS fail to repay the Note
when due in accordance with the terms of this Note. In such event, the total
sum of principal and accrued interest shall become immediately due and payable
at HOLDER's option.
If a party breaches this Note, the breaching party shall pay all costs and
attorneys' fees incurred by the other party in connection with such breach,
whether or not any litigation is commenced.
This Note shall be secured by a Deed of Trust and Assignment of Rents.
Consent by HOLDER to waive one default shall not be deemed to be a waiver
of the right to require consent to waive future or successive defaults.
This Note shall be governed as to its construction, interpretation and
enforcement and in all other respects by the laws of the State of California.
This Note shall not be changed, modified, amended or cancelled except in
writing by the MAKERS and HOLDER.
MAKERS waive demand, presentment, protest, notice of nonpayment, notice of
protest and any and all lack of diligence or delays which may occur in the
collection of this Note.
IN WITNESS WHEREOF, the MAKERS have caused this Promissory Note to be duly
executed at Cupertino, California.
MAKERS:
/s/ Joseph Perl /s/ Judith Perl
------------------- ---------------------
<PAGE>
EXHIBIT 10.31
AMENDMENT TO EMPLOYMENT AND OPTION AGREEMENTS
THIS AMENDMENT TO EMPLOYMENT AND OPTION AGREEMENTS (this "Amendment"), is
entered into effective as of the 12th day of October 1998, by and between DSPC
ISRAEL, LTD., an Israeli company (the "Company"), DSP COMMUNICATIONS, INC., a
Delaware corporation ("DSPC"), and NATHAN HOD ("Hod").
RECITALS
A. Effective January 1, 1998, Hod and the Company entered into an
Employment Agreement (the "Employment Agreement"), for the provision by Hod of
certain services to the Company.
B. Effective June 2, 1995, Hod and the Company's parent corporation,
DSPC, entered into an Option Agreement pursuant to which Hod was granted an
option to purchase up to two hundred nineteen thousand three hundred fifty-six
(219,356) shares of the DSPC's Common Stock.
C. Effective March 6, 1997, Hod and DSPC entered into an Option Agreement
under which Hod was granted an option to purchase up to two hundred thousand
(200,000) shares of DSPC's Common Stock.
D. Effective June 16, 1998, Hod and DSPC entered into an Option Agreement
under which Hod was granted an option to purchase up to two hundred thousand
(200,000) shares of DSPC's Common Stock.
E. Effective October 12, 1998 (the "Effective Date"), Hod resigned from
his position as Chairman of the Board and as a Director of DSPC, which
resignation was accepted by the Board of DSPC.
F. Notwithstanding Hod's resignation as an Officer and Director of DSPC,
Hod and the Company desire that Hod shall continue to provide services through
December 31, 1998, as a full-time employee, in a non-policy making role, to aid
in the transition.
G. The Company, DSPC and Hod desire to amend the Employment Agreement
according to the terms and conditions set forth in this Amendment, as well as
various amended option agreements as set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual agreements and covenants
contained in this Amendment, the parties hereby agree as follows:
1. DUTIES OF HOD. Notwithstanding anything in the Employment Agreement
to the contrary, Hod shall no longer provide services to the Company in the
capacity of Chairman of the Board, or as a Director of DSPC; Hod shall instead
act as an advisor to Davidi Gilo, DSPC's Chairman of the Board, and shall report
to Mr. Gilo in a non-policy making role, spending at least a majority of his
weekly working hours on DSPC matters.
<PAGE>
2. TERM OF AGREEMENT. Section 2 of the Employment Agreement is hereby
amended and restated to read in full as follows:
"2. TERM. This Agreement shall terminate on December 31, 1998."
3. BONUS. Hod shall be entitled to the annual bonus for 1998, as
provided in and subject to, Section 3.b. of the Employment Agreement.
4. SEVERANCE PAY. Section 7.d. of the Employment Agreement is hereby
amended and restated to read in full as follows:
"D. SEVERANCE PAY. The Company shall pay Hod a severance fee
equal to Six Hundred Thousand Dollars ($600,000) on or before December
31, 1998."
5. OTHER TERMS OF EMPLOYMENT AGREEMENT. Except as amended hereby, the
terms and conditions of the Employment Agreement shall remain in full force and
effect.
6. OPTIONS. With respect to the certain of the Common Stock options that
have been granted to Hod, the parties hereby agree as follows:
a. The Option Agreement relating to the June 2, 1995 grant of an
option to purchase up to two hundred nineteen thousand three hundred sixteen
(219,316) of the Company's Common Stock shares is hereby amended such that: (i)
all one hundred thirty-three thousand three hundred fifty-six (133,356) options
currently outstanding under the Option Agreement are immediately vested and
exercisable in full; and (ii) the right to exercise such options shall terminate
on December 31, 2000, notwithstanding any provision to the contrary in the
Option Agreement, and notwithstanding Hod's earlier termination as an Officer,
Director and employee of the Company.
b. The Stock Option Agreement relating to the March 6, 1997 grant of
an option to purchase up to two hundred thousand (200,000) of the Company's
Common Stock shares is hereby terminated, and all two hundred thousand (200,000)
options outstanding under such Option Agreement are immediately terminated.
c. The Stock Option Agreement relating to the June 16, 1998 grant of
an option to purchase up to two hundred thousand (200,000) of DSPC's Common
Stock shares is hereby amended such that: (i) one hundred fifty thousand
(150,000) of the options currently outstanding under the Option Agreement are
immediately vested and exercisable in full; (ii) the right to exercise such one
hundred fifty thousand (150,000) fully-vested options shall terminate on
December 31, 2000, notwithstanding any provision to the contrary in the Option
Agreement, and notwithstanding Hod's earlier termination as an Officer, Director
and employee of the Company; and (iii) such one hundred fifty thousand (150,000)
options shall have an exercise price of Six and 6875/1000 Dollars ($6.6875) per
share, which is the closing per share price as reported on the New York Stock
Exchange on October 12, 1998. The remaining fifty thousand (50,000) options
outstanding under such Option Agreement are immediately terminated.
d. Except as amended hereby, the terms and conditions of the Option
Agreements specified in Sections 6.a., b. and c. shall remain in full force and
effect.
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7. OFFICE. The Company shall allow Hod an allowance of Five Hundred
Dollars ($500.00) per month to use his current office for the period starting
January 1, 1999, and ending when the Company desires to sublease the office
space, or use it for another purpose. Hod shall pay the allocated difference,
if any, for any period beyond January 1, 1999, in which he elects to use the
office. The Company shall give Hod at least two (2) weeks notice.
8. CONFLICT. The parties acknowledge that Venture Counsel Associates,
LLP ("VCA") is counsel to each of them. The parties have been made aware of the
conflict and advised to seek independent counsel. Hod acknowledges that VCA
advised the Company and DSPC, and not Hod. Hod hereby acknowledges the conflict
and waives it as to VCA's participation in this Amendment. The Company, DSPC,
and Hod acknowledge the conflict and waive it as to VCA's participation in this
Amendment.
The parties also acknowledge that Stephen P. Pezzola is General Counsel to
DSPC, but has advised Mr. Hod in the past on matters other than his employment.
Hod acknowledges that in the preparation of this Amendment, Stephen P. Pezzola
advised the Company, DSPC, and not Hod. The parties have been made aware of the
conflict and advised to seek independent counsel. The Company, DSPC, and Hod
acknowledge the conflict and waive it as to Stephen P. Pezzola's participation
in this Amendment.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first written above.
DSPC ISRAEL, LTD.
an Israeli company
11 Ben Gurion Street
Givat Shmuel 51905, ISRAEL
By: /s/ Gerald Dogon /s/ Nathan Hod
--------------------------- -----------------------------
Gerald Dogon Nathan Hod
Marine Heights 6 Levitan Street
93 Ramot Yam Neve Avivim, Tel Aviv, Israel
Herzliya Pituah 46851 Israel
DSP COMMUNICATIONS, INC.
a Delaware corporation
20300 Stevens Creek Boulevard
Suite 465
Cupertino, California 95014
By: /s/ Davidi Gilo
------------------------------------
Davidi Gilo, Chairman of the Board
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EXHIBIT 10.32
THE SECURITIES TO WHICH THIS STOCK PURCHASE AGREEMENT RELATES HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR UNDER ANY STATE SECURITIES LAWS ("BLUE SKY LAWS"), AND MAY NOT BE OFFERED OR
SOLD WITHOUT REGISTRATION UNDER THE SECURITIES ACT, AND AS REQUIRED BY BLUE SKY
LAWS IN EFFECT AS TO SUCH OFFER AND SALE, UNLESS AN EXEMPTION FROM SUCH
REGISTRATION UNDER FEDERAL AND STATE LAW IS AVAILABLE.
DSP COMMUNICATIONS, INC.
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of
October 12, 1998, by and between DSP COMMUNICATIONS, INC., a Delaware
corporation (the "Corporation"), and DAVIDI GILO, an individual ("Gilo").
RECITALS
A. Gilo has been appointed as Chairman of the Board of Directors of the
Corporation.
B. Gilo desires to purchase 350,000 shares of the Corporation's common
stock from the Corporation, and the Corporation desires to sell such shares to
Gilo on the terms and conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual agreements, covenants,
representations and warranties contained in this Agreement, the parties hereto
agree as follows:
1. AGREEMENT TO SELL AND PURCHASE THE SHARES. On the basis of the
representations, warranties and agreements contained in this Agreement, but
subject to the terms and conditions hereof, the Corporation agrees to issue and
sell to Gilo, and Gilo agrees to purchase from the Corporation, Three Hundred
Fifty Thousand (350,000) shares of Common Stock, $0.001 par value (the
"Shares"). The purchase price for the Shares shall be $6.6875 per Share, for an
aggregate purchase price of $2,340,625 (the "Purchase Price"). Gilo shall pay
the Purchase Price by delivering to the Corporation a promissory note in the
principal amount of $2,340,625, payable to the Corporation, in substantially the
form attached hereto as Exhibit A (the "Note").
2. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION. The Corporation
hereby represents and warrants to Gilo as follows:
a. CORPORATE ORGANIZATION AND STANDING. The Corporation is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite power and authority to carry on
its business as presently conducted.
b. ISSUANCE AND DELIVERY OF THE PURCHASED SHARES. The offer,
issuance, sale and delivery of the Shares in accordance with this Agreement have
been duly authorized by all requisite corporate action of the Corporation. This
Agreement, when executed and delivered by the Corporation, shall constitute a
valid and binding obligation of the Corporation, enforceable in accordance with
its terms, except as the enforceability thereof may be limited by applicable
bankruptcy, insolvency, reorganization or other similar laws relating to or
affecting creditors' rights generally and by general equitable principles,
regardless of whether such enforceability is considered in a proceeding in
equity or at law.
<PAGE>
c. NO BREACH. Neither the execution or delivery of this Agreement,
nor compliance by the Corporation with the terms hereof, will conflict with, or
result in a breach or violation of, any of the terms, conditions or provisions
of (i) any judgment, order, injunction, decree, or ruling of any court or
governmental authority, domestic or foreign, or (ii) any agreement, contract,
lease or commitment to which the Corporation is a party or to which it is
subject.
d. CAPITALIZATION. As of the effective date of this Agreement, the
Corporation's authorized capital stock shall include only two (2) authorized
classes of capital stock, consisting of: (A) five million (5,000,000) shares of
Preferred Stock; and (B) one hundred ten million (110,000,000) shares of Common
Stock. Immediately prior to the issuance of the Shares, the capitalization of
the Corporation will be as follows: (A) no shares of Preferred Stock
outstanding; (B) Thirty-Seven Million Eight Hundred Eighty-Six Thousand One
Hundred Sixty-Four (37,886,164) shares of Common Stock outstanding; and (C)
Fourteen Million Nine Hundred Seventy-Seven Thousand Seven Hundred Twenty-One
(14,977,721) shares of Common Stock reserved for issuance under the
Corporation's stock option plans and stock purchase plan, under which there are
currently outstanding options to purchase up to Six Million Five Hundred
Seventy-Nine Thousand One Hundred Thirty-One (6,579,131) shares of Common Stock.
e. TAX IMPLICATIONS. The Corporation makes no representation with
respect to the tax implications to Gilo in connection with its purchase of the
Shares hereunder.
f. ADDITIONAL INFORMATION. The Corporation has made available to
Gilo the opportunity to ask questions and receive answers concerning the terms
and conditions of the offering of the Shares and to obtain any additional
information that the Corporation possesses or can acquire without unreasonable
effort or expense that is necessary to verify the accuracy of the information
furnished in accordance herewith.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF GILO. Gilo hereby
represents, warrants and covenants to the Corporation as follows:
a. COMPLIANCE WITH SECURITIES LAWS. Gilo understands and
acknowledges that the Shares have not been registered under the Securities Act
or qualified under any applicable state securities or blue sky law by reason of
a specific exemption from the registration provisions thereof which depends
upon, among other things, the bona fide nature of the investment as expressed
herein.
b. STATUS OF GILO.
i. INVESTMENT. Gilo is purchasing the Shares for his own
account for investment purposes and not with a view to, or for resale in
connection with, any distribution thereof.
ii. KNOWLEDGE AND EXPERIENCE; ACCREDITED INVESTOR. Gilo has
such knowledge and experience in financial and business matters that he is
qualified to make decisions with respect to investments in restricted securities
such the Shares, and has requested, received, reviewed and considered all
information he deems relevant in making a decision to execute this Agreement and
to purchase the Shares. Gilo acknowledges that he is capable of evaluating the
merits and risks of the investment in the Shares and he is able to bear the
economic risk of such investment. Gilo represents that he is an "accredited
investor" within the meaning of Rule 501of Regulation D promulgated under the
Securities Act.
iii. ACCESS TO INFORMATION. Gilo acknowledges that the
Corporation has made available to him the opportunity to (A) discuss the
Corporation's business, management and financial affairs with its management,
(B) ask questions and receive answers concerning the terms and conditions of the
offering of the Shares, and (C) obtain any additional information that the
Corporation possesses or can acquire without unreasonable effort or expense that
is necessary to verify the
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accuracy of the information furnished in accordance herewith or to decide
whether or not to purchase the Shares. Gilo acknowledges, warrants and
agrees that Gilo has received sufficient information to enable Gilo to make
the investment contemplated in this Agreement. Gilo acknowledges that no
other representation or warranty has been made by the Corporation or any
agent thereof except as set forth in this Agreement.
iv. RISK OF INVESTMENT. Gilo understands that an investment in
the Corporation involves a high degree of risk and is suitable only for
investors who can afford a loss of their entire investment and who have no need
for liquidity from their investment.
v. SUITABILITY. Gilo has carefully considered and has, to the
extent Gilo deems necessary, discussed with Gilo's own professional legal, tax
and financial advisers the suitability of an investment in the Shares for Gilo's
particular tax and financial situation, and Gilo has determined that the Shares
are a suitable investment.
vi. RESTRICTIONS ON RE-SALES. Gilo understands and acknowledges
that because the Shares have not been registered under the Securities Act, such
Shares must be held indefinitely unless subsequently registered under the
Securities Act or an exemption from such registration is available. Gilo
further understands and acknowledges that the Securities Act prohibits resales
of securities except pursuant to an effective registration statement or an
exemption from registration for which such securities and Gilo qualifies. Gilo
understands and acknowledges that there can be no assurance that Gilo will be
able to qualify for such an exemption from registration.
vii. COMPLIANCE WITH SECURITIES ACT. Gilo will not, directly
or indirectly, voluntarily offer, sell, pledge, transfer or otherwise dispose
of (or solicit any offers to buy, purchase or otherwise acquire or take a
pledge of) its rights under this Agreement or the Shares or any interest
therein otherwise than in compliance with the Securities Act, any applicable
state securities or blue sky laws, and the rules and regulations promulgated
thereunder.
c. LEGENDS. Gilo agrees that the certificate representing the
Shares shall bear a legend substantially in the form set forth below:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OR UNDER ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD,
TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE ACT OR AN OPINION
OF COUNSEL SATISFACTORY TO THE CORPORATION THAT AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE.
d. DUE AUTHORIZATION, DELIVERY AND PERFORMANCE OF THIS AGREEMENT AND
THE NOTE. Gilo has full right, power, authority and capacity to enter into this
Agreement and the Note and to consummate the transactions contemplated hereby
and thereby. This Agreement and the Note, when executed and delivered by Gilo,
shall constitute valid and binding obligations of Gilo, enforceable in
accordance with their respective terms, except as the enforceability thereof may
be limited by applicable bankruptcy, insolvency, reorganization or other similar
laws relating to or affecting creditors' rights generally and by general
equitable principles, regardless of whether such enforceability is considered in
a proceeding in equity or at law.
e. GOVERNMENTAL CONSENTS. No consent, approval, order,
authorization or registration, qualification, designation, license, declaration
or filing with any governmental authority is required on the part of Gilo in
connection with the consummation of the transactions contemplated herein.
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f. NO BREACH. Neither the execution and delivery of this Agreement
or the Note, nor compliance by Gilo with the terms and provisions hereof or
thereof, will conflict with, or result in a breach or violation of, any of the
terms, conditions and provisions of (i) any judgment, order, injunction, decree,
or ruling of any court or governmental authority, domestic or foreign, or (ii)
any agreement, contract, lease, license or commitment to which Gilo is a party
or to which he is subject.
g. TAX IMPLICATIONS. Gilo has consulted with his tax advisors as to
the tax implications of his investment hereunder. Gilo acknowledges that Gilo
is purchasing the Shares with full knowledge and understanding of the tax
implications of this investment. Gilo warrants that he understands that the
issuance of stock under this agreement may be a taxable event for him, and that
he will be liable for, and will pay, any tax that may be due and payable by him
with respect to the issuance of stock.
h. RELIANCE. Gilo understands and acknowledges that the Corporation
is relying on the accuracy of the representations and warranties of Gilo
contained herein to establish compliance with federal and state securities laws.
Gilo agrees that if any such representation or warranty is not true and accurate
in any respect, Gilo shall immediately notify the Corporation in writing and
shall be cause for recision by the Corporation, at its sole election.
4. MISCELLANEOUS.
a. Survival. The representations, warranties, covenants and
agreements made herein shall survive the closing of the transactions
contemplated hereby.
b. EXECUTION AND DELIVERY OF OTHER DOCUMENTS. The parties agree
that they will execute and deliver such other documents as may be reasonably
requested by the other party to complete the transactions contemplated hereby.
c. SEVERABILITY. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect or limit the validity or
enforceability of the remaining provisions of this Agreement.
d. SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
e. ENTIRE AGREEMENT. This Agreement and the exhibits attached
hereto and the other documents delivered pursuant hereto constitute the full and
entire understanding and agreement between and among the parties with regard to
the subjects hereof and thereof.
f. NOTICE. Any notice, demand, consent or other communication under
this Agreement shall be in writing addressed to the other party at its address
on the signature page to this Agreement, or to such other address as such party
shall have theretofore furnished by like notice, and either served personally,
sent by express, registered or certified first class mail, postage prepaid, sent
by facsimile transmission, or delivered by reputable commercial courier. Such
notice shall be deemed given (i) when so personally delivered, or (ii) if mailed
as aforesaid, five (5) days after the same shall have been posted, or (iii) if
sent by facsimile transmission, as soon as the sender receives written or
telephonic confirmation that the message has been received and such facsimile is
followed the same day by mailing by prepaid express, registered or certified
mail as set forth herein, or (iv) if delivered by commercial courier, upon
receipt.
g. FINDER'S AND BROKER'S FEES. Each party hereto represents and
warrants that it has retained no finder or broker in connection with the
transactions contemplated by this Agreement, and hereby agrees to indemnify and
to hold the other harmless from any liability for any finder's or
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broker's fee to any broker or other person or firm (and the costs and
expenses of defending against such liability or asserted liability) for which
such indemnifying person, or any of its employees or representatives, are
responsible.
h. HEADINGS. The headings of the Sections and subsections of this
Agreement are for convenience of reference only and shall not affect the meaning
or interpretation of the contents of this Agreement.
i. APPLICABLE LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California applicable to
contracts between California residents entered into and to be performed entirely
within the State of California.
j. ARBITRATION. Any dispute between the parties arising out of this
Agreement shall be submitted to final and binding arbitration in the County of
Santa Clara, State of California, under the Commercial Arbitration Rules of the
American Arbitration Association then in effect, upon written notification and
demand of either party therefor. In the event either party demands such
arbitration, the American Arbitration Association shall be requested to submit a
list of prospective arbitrators consisting of persons experienced in matters
involving securities offerings. The provisions of California Code of Civil
Procedure Section 1283.05 and the laws of the State of California are
incorporated herein and shall be applicable to the arbitration. In making the
award, the arbitrator shall award recovery of costs and expenses of the
arbitration and reasonable attorneys' fees to the prevailing party. Any award
may be entered as a judgment in any court of competent jurisdiction. Should
judicial proceedings be commenced to enforce or carry out this provision or any
arbitration award, the prevailing party in such proceedings shall be entitled to
reasonable attorneys' fees and costs in addition to other relief. Either party
shall have the right, prior to receiving an arbitration award, to obtain
preliminary relief from a court of competent jurisdiction to avoid injury or
prejudice to that party.
k. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
l. FACSIMILE SIGNATURES. The parties shall be entitled to rely upon
and enforce a facsimile of any authorized signature as if it were the original.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be
effective as of the date first set forth above.
DSP COMMUNICATIONS, INC. GILO
a Delaware corporation
By: /s/ Joseph Perl /s/ Davidi Gilo
------------------------------------ ---------------------------
Joseph Perl, CEO Davidi Gilo
20300 Stevens Creek Blvd., 4th Floor 100 Why Worry Lane
Cupertino, CA 95014 Woodside, CA 94062
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EXHIBIT A
SECURED PROMISSORY NOTE
$2,340,625 Woodside, California October 12, 1998
FOR VALUE RECEIVED, the undersigned, DAVIDI GILO (hereinafter the "MAKER"),
hereby promises to pay to DSP COMMUNICATIONS, INC. (hereinafter the "PAYEE"), or
order, in Cupertino, California, or at such other place as PAYEE may from time
to time designate, in United States of America currency, the sum of Two Million
Three Hundred Forty Thousand Six Hundred Twenty-Five Dollars ($2,340,625), with
interest on the unpaid principal balance. Interest shall accrue from the date
of this Note at the rate of six and one-half percent (6.5%) per annum.
The principal amount under this Note and any accrued and unpaid interest
thereon shall be due and payable in full on December 31, 2001.
The MAKER shall have the right to prepay all or any part of the unpaid
principal of this Note from time to time without any penalty or premium,
provided that any such prepayments shall be applied first against any accrued
interest, and then against principal.
In the event of default in the payment of any installment of principal or
interest for more than thirty (30) days after such comes due, the entire
outstanding balance of principal and interest shall become immediately due and
payable at the option of the holder of this Note.
If a party breaches this Note, the breaching party shall pay all costs and
attorneys' fees incurred by the other party in connection with such breach,
whether or not any litigation is commenced.
This Note is secured by a Deed of Trust and Assignment of Rents.
Consent by the PAYEE to waive one default shall not be deemed to be a
waiver of the right to require consent to waive future or successive defaults.
This Note shall be governed as to its construction, interpretation and
enforcement and in all other respects by the laws of the State of California
without regard to the conflicts of laws provisions thereof.
This Note shall not be modified, amended or canceled except in writing by
the MAKER and PAYEE or other assignee of this Note.
The MAKER waives demand, presentment, protest, notice of nonpayment, notice
of protest and any and all lack of diligence or delays which may occur in the
collection of this Note.
IN WITNESS WHEREOF, the MAKER has caused this Note to be duly executed in
Woodside, California.
/s/ Davidi Gilo
---------------------
Davidi Gilo
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EXHIBIT 10.33
SECURED PROMISSORY NOTE
$2,340,625 Woodside, California October 12, 1998
FOR VALUE RECEIVED, the undersigned, DAVIDI GILO (hereinafter the "MAKER"),
hereby promises to pay to DSP COMMUNICATIONS, INC. (hereinafter the "PAYEE"), or
order, in Cupertino, California, or at such other place as PAYEE may from time
to time designate, in United States of America currency, the sum of Two Million
Three Hundred Forty Thousand Six Hundred Twenty-Five Dollars ($2,340,625), with
interest on the unpaid principal balance. Interest shall accrue from the date
of this Note at the rate of six and one-half percent (6.5%) per annum.
The principal amount under this Note and any accrued and unpaid interest
thereon shall be due and payable in full on December 31, 2001.
The MAKER shall have the right to prepay all or any part of the unpaid
principal of this Note from time to time without any penalty or premium,
provided that any such prepayments shall be applied first against any accrued
interest, and then against principal.
In the event of default in the payment of any installment of principal or
interest for more than thirty (30) days after such comes due, the entire
outstanding balance of principal and interest shall become immediately due and
payable at the option of the holder of this Note.
If a party breaches this Note, the breaching party shall pay all costs and
attorneys' fees incurred by the other party in connection with such breach,
whether or not any litigation is commenced.
This Note is secured by a Deed of Trust and Assignment of Rents.
Consent by the PAYEE to waive one default shall not be deemed to be a
waiver of the right to require consent to waive future or successive defaults.
This Note shall be governed as to its construction, interpretation and
enforcement and in all other respects by the laws of the State of California
without regard to the conflicts of laws provisions thereof.
This Note shall not be modified, amended or canceled except in writing by
the MAKER and PAYEE or other assignee of this Note.
The MAKER waives demand, presentment, protest, notice of nonpayment, notice
of protest and any and all lack of diligence or delays which may occur in the
collection of this Note.
IN WITNESS WHEREOF, the MAKER has caused this Note to be duly executed in
Woodside, California.
/s/ DAVIDI GILO
---------------
Davidi Gilo
<PAGE>
EXHIBIT 10.34
DSP COMMUNICATIONS, INC.
1998 NON-QUALIFIED STOCK OPTION PLAN
1. PURPOSES OF THE PLAN. The purposes of this 1998 NON-QUALIFIED STOCK
OPTION PLAN (the "Plan") are to attract and retain the best available personnel
for positions of substantial responsibility, to provide additional incentive to
Employees and Consultants of the DSP COMMUNICATIONS, INC. (the "Company") and
its Subsidiaries, and to promote the success of the Company's business. Options
granted under the Plan shall be Non-Qualified Stock Options.
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. "CONTINUOUS STATUS AS AN EMPLOYEE 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
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.
<PAGE>
k. "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.
l. "COVERED EMPLOYEE" means an Employee who is a "covered employee"
under Section 162(m)(3) of the Code.
m. "DIRECTOR" means a member of the Board.
n. "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. Neither service as a Director nor payment
of a Director's fee by the Company shall be sufficient to constitute
"employment" by the Company.
o. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
p. "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
i. Where there exists a public market for the Common Stock,
the Fair Market Value shall be (A) the closing sales price for a Share for
the last market trading day prior to the time of the determination (or, if no
sales were reported on that date, on the last trading date on which sales
were reported) on the stock exchange determined by the Administrator to be
the primary market for the Common Stock or the Nasdaq National Market,
whichever is applicable; or (B) if the Common Stock is not traded on any such
exchange or national market system, the average of the closing bid and asked
prices of a Share on the Nasdaq Small Cap Market for the day prior to the
time of the determination (or, if no such prices were reported on that date,
on the last date on which such prices were reported), in each case, as
reported in THE WALL STREET JOURNAL or such other source as the Administrator
deems reliable; or
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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.
q. "INCENTIVE STOCK OPTION" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code.
r. "NON-QUALIFIED STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
s. "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
t. "OPTION" means a stock option granted pursuant to the Plan.
u. "OPTION AGREEMENT" means the written agreement evidencing the
grant of an Option executed by the Company and the Optionee, including any
amendments thereto.
v. "OPTIONED STOCK" means the Common Stock subject to an Option.
w. "OPTIONEE" means an Employee or Consultant who receives an
Option under the Plan.
x. "PARENT" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
y. "PERFORMANCE-BASED COMPENSATION" means compensation qualifying
as "performance-based compensation" under Section 162(m) of the Code.
z. "PLAN" means this 1998 Non-Qualified Stock Option Plan.
aa. "RULE 16b-3" means Rule 16b-3 promulgated under the Exchange
Act or any successor thereto.
bb. "SHARE" means a share of the Common Stock.
cc. "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 five
million (5,000,000) Shares. The Shares may be authorized, but unissued, or
reacquired Common Stock.
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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 EMPLOYEES WHO ARE ALSO DIRECTORS
OR OFFICERS. With respect to grants of Options to Employees who are also
Officers or Directors of the Company, the Plan shall be administered by (A) the
Board, or (B) a Committee designated by the Board, which Committee shall be
constituted in such a manner as to satisfy the Applicable Laws and to permit
such grants and related transactions under the Plan to be exempt from Section
16(b) of the Exchange Act in accordance with Rule 16b-3. Once appointed, such
Committee shall continue to serve in its designated capacity until otherwise
directed by the Board.
ii. ADMINISTRATION WITH RESPECT TO CONSULTANTS AND OTHER EMPLOYEES.
With respect to grants of Options to Employees or Consultants who are neither
Directors nor Officers of the Company, the Plan shall be administered by (A) the
Board, or (B) a Committee designated by the Board, which Committee shall be
constituted in such a manner as to satisfy the Applicable Laws. Once appointed,
such Committee shall continue to serve in its designated capacity until
otherwise directed by the Board. The Board may authorize one or more Officers
to grant such Options and may limit such authority by requiring that such
Options must be reported to and ratified by the Board or a Committee within six
(6) months of the grant date, and if so ratified, shall be effective as of the
grant date.
iii. ADMINISTRATION WITH RESPECT TO COVERED EMPLOYEES.
Notwithstanding the foregoing, grants of Options to any Covered Employee
intended to qualify as Performance-Based Compensation shall be made only by a
Committee (or subcommittee of a Committee) which is comprised solely of two (2)
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:
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i. to select the Employees 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. Options may be granted to Employees and Consultants. An
Employee or Consultant who has been granted an Option may, if otherwise
eligible, be granted additional Options. Options may be granted to such
Employees of the Company and its subsidiaries who are residing in foreign
jurisdictions as the Administrator may determine from time to time.
6. TERMS AND CONDITIONS OF OPTIONS.
a. DESIGNATION OF OPTIONS. Each Option shall be designated in the
Option Agreement as a Non-Qualified Stock Option.
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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 under this Plan to any Employee in
any fiscal year of the Company shall be one million (1,000,000) 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.
e. TRANSFERABILITY OF OPTIONS. Options shall be transferable only
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 or Consultant
to whom an Option is so granted within a reasonable time after the date of such
grant.
7. OPTION EXERCISE PRICE, CONSIDERATION AND TAXES.
a. EXERCISE PRICE. The exercise price for an Option shall be as
follows:
i. In the case of 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.
ii. In the case of all other Options, 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
6
<PAGE>
determined by the Administrator. 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. Upon exercise of an Option, the Company shall withhold or collect
from Optionee an amount sufficient to satisfy such tax obligations.
8. EXERCISE OF OPTION.
a. PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER.
i. Any Option granted hereunder shall be exercisable at such times
and under such conditions as determined by the Administrator under the terms of
the Plan and specified in the Option Agreement.
ii. An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Until the issuance (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company) of the
7
<PAGE>
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 OR
CONSULTING RELATIONSHIP.
i. Upon termination of an Optionee's Continuous Status as an
Employee or Consultant, other than upon the Optionee's death or disability, the
Optionee may exercise his or her Option 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 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, 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.
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.
8
<PAGE>
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.
9
<PAGE>
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.
12. TERM OF PLAN. The Plan shall become effective upon its adoption by
the Board. 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.
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS IN THE QUARTERLY REPORT ON FORM 10-Q OF DSP COMMUNICATIONS,
INC. FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 70,082
<SECURITIES> 44,241
<RECEIVABLES> 20,397
<ALLOWANCES> 150
<INVENTORY> 2,428
<CURRENT-ASSETS> 141,265
<PP&E> 9,818
<DEPRECIATION> 5,073
<TOTAL-ASSETS> 149,083
<CURRENT-LIABILITIES> 31,708
<BONDS> 0
0
0
<COMMON> 38
<OTHER-SE> 117,337
<TOTAL-LIABILITY-AND-EQUITY> 149,083
<SALES> 85,522
<TOTAL-REVENUES> 88,420
<CGS> 46,537
<TOTAL-COSTS> 48,623
<OTHER-EXPENSES> 17,973
<LOSS-PROVISION> 150
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 26,491
<INCOME-TAX> 2,914
<INCOME-CONTINUING> 23,577
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,577
<EPS-PRIMARY> 0.59
<EPS-DILUTED> 0.56
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS IN THE QUARTERLY REPORT ON FORM 10-Q OF DSP COMMUNICATINS,
INC. FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 69,195
<SECURITIES> 31,352
<RECEIVABLES> 12,633
<ALLOWANCES> 132
<INVENTORY> 0
<CURRENT-ASSETS> 118,961
<PP&E> 7,510
<DEPRECIATION> 3,343
<TOTAL-ASSETS> 127,033
<CURRENT-LIABILITIES> 20,598
<BONDS> 0
0
0
<COMMON> 40
<OTHER-SE> 105,545
<TOTAL-LIABILITY-AND-EQUITY> 105,585
<SALES> 45,876
<TOTAL-REVENUES> 49,467
<CGS> 23,509
<TOTAL-COSTS> 26,953
<OTHER-EXPENSES> 4,582
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 14,155
<INCOME-TAX> 1,400
<INCOME-CONTINUING> 12,755
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,755
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.28
</TABLE>
