UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
DSP GROUP, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED
BY RULE 14A-6(E)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-12
DSP GROUP, INC.
-----------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
-----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
N/A
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
N/A
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
N/A
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
N/A
- --------------------------------------------------------------------------------
(5) Total fee paid:
N/A
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
N/A
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.:
N/A
- --------------------------------------------------------------------------------
(3) Filing Party:
N/A
- --------------------------------------------------------------------------------
(4) Date Filed:
N/A
- --------------------------------------------------------------------------------
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
N/A
----------------------------------------------------------
(2) Aggregate number of securities to which transaction
applies:
N/A
----------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
N/A
----------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
N/A
----------------------------------------------------------
(5) Total fee paid:
N/A
----------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
N/A
----------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
N/A
----------------------------------------------------------
(3) Filing Party:
N/A
----------------------------------------------------------
(4) Date Filed:
N/A
----------------------------------------------------------
DSP GROUP, INC.
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 16, 200014, 2001
------------------------
To the Stockholders of DSP GROUP, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Annual
Meeting") of DSP Group, Inc., a Delaware corporation (the "Company"), will be
held at the Company's principal executive offices located at 3120 Scott
Boulevard, Santa Clara, California, on Tuesday,Monday, May 16, 2000,14, 2001, at 9:00 a.m., local
time, for the following purposes:
1. ELECTION OF DIRECTORS. To elect onethree Class III directorI directors of the
Company to serve until the 20032004 Annual Meeting of Stockholders or until
his
successor istheir successors are elected and qualified;
2. ADOPTION OF 2001 STOCK INCENTIVE PLAN. To adopt a 2001 Stock
Incentive Plan to replace the 1991 Employee and Consultant Stock Plan, which
expires in 2001.
3. SELECTION OF INDEPENDENT AUDITORS. To ratify the appointment of
Kost, Forer & Gabbay, a member of Ernst & Young International, as the
independent auditors for the Company for the year ending December 31, 2000;2001;
and
3.4. To transact such other business as may properly come before the
Annual Meeting and any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement which is attached and made a part hereof.
The Board of Directors has fixed the close of business on April 7, 2000March 31, 2001 as
the record date for determining the stockholders entitled to notice of and to
vote at the Annual Meeting and any adjournment or postponement thereof.
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON, YOU ARE
URGED TO MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS
POSSIBLE IN THE POSTAGE-PREPAID ENVELOPE PROVIDED TO ENSURE YOUR REPRESENTATION
AND THE PRESENCE OF A QUORUM AT THE ANNUAL MEETING. IF YOU SEND IN YOUR PROXY
CARD AND THEN DECIDE TO ATTEND THE ANNUAL MEETING TO VOTE YOUR SHARES IN PERSON,
YOU MAY STILL DO SO. YOUR PROXY IS REVOCABLE IN ACCORDANCE WITH THE PROCEDURES
SET FORTH IN THE PROXY STATEMENT.
By Order of the Board of Directors,
/s/ Eli Ayalon
Eli Ayalon
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
Santa Clara, California
April 17, 200012, 2001
Mailed to Stockholders
on or about April 17, 200012, 2001
DSP GROUP, INC.
3120 SCOTT BOULEVARD
SANTA CLARA, CALIFORNIA 95054
------------------------
PROXY STATEMENT
FOR 2001 ANNUAL MEETING OF STOCKHOLDERS
---------------------
GENERAL INFORMATION
This Proxy Statement is furnished to the stockholders of DSP Group, Inc., a
Delaware corporation (the "Company"), in connection with the solicitation by the
Board of Directors (the "Board") of the Company of proxies in the accompanying
form for use in voting at the Annual Meeting of Stockholders of the Company (the
"Annual Meeting") to be held on Tuesday,Monday, May 16, 2000,14, 2001, at 9:00 a.m., local time,
at the Company's principal executive offices located at 3120 Scott Boulevard,
Santa Clara, California, and any adjournment or postponement thereof. The shares
represented by the proxies received, properly marked, dated, executed and not
revoked will be voted at the Annual Meeting.
SOLICITATION AND VOTING PROCEDURES
The solicitation of proxies will be conducted by mail and the Company will
bear all attendant costs. These costs will include the expense of preparing and
mailing proxy materials for the Annual Meeting and reimbursements paid to
brokerage firms and others for their expenses incurred in forwarding
solicitation material regarding the Annual Meeting to beneficial owners of the
Company's Common Stock.common stock. The Company may conduct further solicitation personally,
telephonically or by facsimile through its officers, directors and regular
employees, none of whom will receive additional compensation for assisting with
the solicitation.
The close of business on April 7, 2000March 31, 2001 has been fixed as the record date
(the "Record Date") for determining the holders of shares of Common Stockcommon stock of the
Company entitled to notice of and to vote at the Annual Meeting. As of the close
of business on the Record Date, the Company had 26,450,19326,520,541 shares of Common Stockcommon
stock outstanding and entitled to vote at the Annual Meeting. The presence at
the Annual Meeting of a majority, or 13,225,09813,260,271 of these shares of Common Stockcommon stock
of the Company, either in person or by proxy, will constitute a quorum for the
transaction of business at the Annual Meeting. An automated system administered
by the Company's transfer agent will tabulate votes cast by proxy and an employeea
representative of the transfer agent will act as inspector of elections to
tabulate votes cast in person at the Annual Meeting. Each outstanding share of
Common Stockcommon stock on the Record Date is entitled to one vote on all matters.
Abstentions are included in determining the number of shares voted on the
proposals submitted to stockholders (other than the election of directors) and
will have the same effect as a "no" vote on such proposals. However, broker
non-votes are not counted. Directors are elected by a plurality of the votes of
the shares of Common Stockcommon stock represented and voted at the meeting, and abstentions
and broker non-votes will have no effect on the outcome of the election of
directors. The affirmative vote of a majority of the shares of Common Stockcommon stock
represented at the meeting in person or by proxy is required for the adoption of
the proposed stock option plan. The affirmative vote of a majority of the shares
of common stock represented at the meeting in person or by proxy is required for
the ratification of the appointment of auditors.
1
THE PROXY
The persons named as proxyholders, Eli Ayalon and Moshe Zelnik, were
selected by the Board of Directors of the Company and currently serve as
executive officers of the Company.
All shares represented by each properly executed, unrevoked proxy received
in time for the Annual Meeting will be voted in the manner specified therein. If
no specification is made on the proxy as to any one or more of the proposals,
the Common Stockcommon stock of the Company represented by the proxy will be voted as to the
proposal for which no specification is given as follows: FOR the election of the
director nomineenominees named in this Proxy Statement, FOR the adoption of the
Company's 2001 Stock Incentive Plan, FOR the ratification of the selection of
Kost, Forer & Gabbay, a member of Ernst & Young International, as the Company's
independent auditors for the 20002001 fiscal year and, with respect to any other
matters
1
that may come before the Annual Meeting, at the discretion of the
proxyholders. The Company does not presently know of any other such business to
be conducted at the Annual Meeting.
REVOCABILITY OF PROXY
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is exercised by: (i) delivering to the Company
(to the attention of Moshe Zelnik, the Company's Secretary) a written notice of
revocation or a duly executed proxy bearing a later date or (ii) attending the
Annual Meeting and voting in person.
STOCK SPLIT
All stock numbers in this Proxy Statement have been restated to give effect
retroactively to a stock dividend, which effected a two-for-one stock split of
the Company's common stock in March 2000.
2
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Company's Bylaws authorize the number of directors to be not less than
five nor more than nine. The number of directors on the Board is currently fixed
at six. The Company's Board of Directors is divided into three classes:
Class I, Class II and Class III. Each director serves a three-year term. The
Board is currently composed of three Class I directors (Messrs. Ayalon, Limon
and Silver), whose terms will expire upon the election and qualification of
directors at the annual meeting of stockholders to be held in 2001;Annual Meeting; two Class II
directors (Messrs. Shamir and Shani), whose terms will expire upon the election
and qualification of directors at the annual meeting of stockholders to be held
in 2002; and one Class III director (Mr. Tanguy), whose term will expire upon
the election and qualification of directors at the Annual Meeting.annual meeting of
stockholders to be held in 2003. At each annual meeting of stockholders,
directors will be elected for full terms of three years to succeed those
directors whose terms are expiring.
In July 1999, the Board accepted the resignation of Mr. Samuel Kaplan
as a director and concurrently amended the Company's Bylaws to fix the number of
directors serving on the Board at five. In November 1999, the Board appointed
Messrs. Silver and Tanguy to the Board and concurrently amended the Company's
Bylaws to fix the number of directors serving on the Board at seven. In January
2000, Mr. Igal Kohavi resigned as Chairman of the Board. The Board subsequently
amended the Company's Bylaws to reduce the number of directors to six.
At the Annual Meeting, the stockholders will elect onethree Class III
director. Mr. Tanguy hasI directors.
Messrs. Ayalon, Limon and Silver have been nominated to serve a three-year term
until the annual meeting of stockholders to be held in 20032004 or until his successor istheir
successors are elected or appointed and qualified or until histheir earlier
resignation or removal. The Board has no reason to believe that Mr. TanguyMessrs. Ayalon,
Limon and Silver will be unable or unwilling to serve as a nominee or as a
director if elected.
PATRICK TANGUYCLASS I DIRECTOR NOMINEES
ELI AYALON joined the Company in April 1996 as President, Chief Executive
Officer and Director. In January 2000, Mr. Ayalon was appointed to serve as the
Company's Chairman of the Board. Mr. Ayalon previously served as President and
Chief Executive Officer of Mennen Medical Ltd. ("Mennen"), a developer and
manufacturer of medical instruments and apparatus, from May 1992 to April 1996.
Mr. Ayalon also serves as a director of Optibase, Inc., a broadband digital
video streaming solutions company.
ZVI LIMON has served as a Director of the Company since February 1999.
Mr. Limon has served as Chairman of Limon Holdings Ltd., a consulting and
investment advisory firm, since October 1993. Mr. Limon also serves as a
director of Eltek Ltd., a developer and manufacturer of PC boards. The Company
elected and has agreed to nominate Mr. Limon to the Company's Board of Directors
as a representative of Magnum Technology Ltd. ("Magnum") under certain
conditions pursuant to the terms of a Stock Purchase Agreement, dated
February 11, 1999, with Magnum filed as an exhibit to the Company's quarterly
report on Form 10-Q for the quarter ended March 31, 1999.
LOUIS SILVER has served as a director of the Company since November 1999.
From October 1999, Mr. TanguySilver has served as Chairman ofAdvisor and Counsel to the Board of
Technal Group,Discount Bank & Trust Co.,
an aluminum building systems company.international bank since September 1996. From May 1998April 1992 to September
1999,December 1995,
Mr. TanguySilver served as Vice President, Secretary and General Counsel of
Corporation NV ("Sapiens International"), a directorprovider of Hays DX France, an express transport
services company. From August 1993 to April 1998, he served as the Chairman of
Groupe DAFSA, a supplier of economic data and financial information on French
companies.enterprise-wide
solutions for software applications.
REQUIRED VOTE
The nomineenominees will be elected by a plurality of the votes cast. Abstentions
and broker non-votes are not counted toward the nominee'snominees' total.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE ELECTION OF THE NOMINEENOMINEES NAMED ABOVE.
23
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers and directors of the Company:
NAME AGE POSITION
- ---- --- -------- --------------------------------------------------------
Eli Ayalon 57Ayalon........................... 58 Chairman of the Board and Chief Executive Officer
Boaz Edan 41Edan............................ 42 Vice President, Products Division Manager
Rafi Fried 37 Vice President, Research and DevelopmentPaul Ross Hayden 55Hayden..................... 56 Vice President, Sales and President, U.S. Operations
Gideon WertheizerWertheizer.................... 43 ExecutiveSenior Vice President
Moshe Zelnik 45Zelnik......................... 46 Vice President, of Finance, Chief Financial Officer and
Secretary
Zvi Limon (1) Limon(1)(2) 41...................... 42 Director
Yair Shamir (1)Shamir(1)(2) 54.................... 55 Director
Shaul Shani (1)Shani(1)(2) 45.................... 46 Director
Louis Silver 46Silver......................... 47 Director
Patrick TanguyTanguy....................... 40 Director
- --------------------------------------------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
ELI AYALON joined the Company in April 1996 as President, Chief Executive
Officer and Director. In January 2000, Mr. Ayalon was appointed to serve as the
Company's Chairman of the Board. From May 1992 to April 1996, Mr. Ayalon previously served as President and
Chief Executive Officer of Mennen Medical Ltd.
("Mennen"), a developer and manufacturer of medical instruments and apparatus.from May 1992 to April 1996. Mr. Ayalon also
serves as a director of Optibase, Inc., a broadband digital video streaming
solutions company.
BOAZ EDAN joined the Company in May 1999 as Vice President, Operations and
presently serves as Vice President, Products Division Manager. Mr. Edan
previously served as Material Director of Tower Semiconductor Ltd., a foundry
manufacturer of semiconductor integrated circuits, from January 1992 to
April 1999.
RAFI FRIED joined the Company in November 1997 as Head of VLSI Design
Center. Mr. Fried has held different positions at the Company and most recently
was appointed Vice President, Research and Development in May 1999. Prior to
joining the Company, from May 1995 to October 1997, Mr. Fried served as a
professor at Ecole Polytechnique Federale de Lausanne, a Swiss federal
university company.PAUL ROSS HAYDEN joined the Company in October 1998 as Vice President, U.S.
Operations. Mr. Hayden was appointed Vice President, Sales in April 1999.January 1999 and
President, U.S. Operations in February 2000. Mr. Hayden previously served as
Vice President, of Sales at Information Storage Devices, which designs, develops
and markets integrated circuits, from February 1997 to December 1998 and as
Director of Sales at the same company from December 1993 to February 1997.
GIDEON WERTHEIZER joined the Company in September 1990 as Project Manager of
the Company'sour VLSI Design Center and became Vice President of the VLSI Design Center in
August 1995. In November 1997, Mr. Wertheizer was appointed Vice President,
Marketing of the Company. In January 2000 Mr. Wertheizer was appointed Senior
Vice President of Intellectual Property of the Company.
MOSHE ZELNIK joined the Company in May 1999 as Vice President of Finance,
Chief Financial Officer and Secretary. From May 1994 to April 1999, Mr. Zelnik previously served as Senior
Vice President and Chief Financial Officer of Mennen.
3
Mennen from May 1994 to
April 1999.
ZVI LIMON has served as a Director of the Company since February 1999.
Mr. Limon has served as Chairman of Limon Holdings Ltd., a consulting and
investment advisory firm, since October 1993. He presentlyMr. Limon also serves as a
director of Eltek Ltd., a developer and manufacturer of PC boards. The Company
elected and has agreed to nominate Mr. Limon to the Company's Board of Directors
as a
4
representative of Magnum under certain conditions pursuant to the terms of a
Stock Purchase Agreement, dated February 11, 1999, with Magnum filed as an
exhibit to the Company's quarterly report on Form 10-Q for the quarter ended
March 31, 1999.
YAIR SHAMIR has served as a Director of the Company since October 1996. He
has served as President and Chief Executive Officer of VCON
Telecommunications, Ltd., a developer and marketer of video conferencing
systems, since February 1997. From July 1995 to February 1997, Mr. Shamir served
as the Executive Vice President of The Challenge Fund-EtgarFund--Etgar L.P., a venture
capital firm. From January 1994 to July 1995, he served as Chief Executive
Officer for Elite Industries, Ltd., a food products company. Mr. Shamir
currently serves as a director of Mercury Interactive, a provider of performance
management solutions, Orckit Communications, Limited, a developer and
manufacturer of local loop communications systems and VCon
Telecommunications, Ltd., a developer and manufacturer of desktop and group
videoconferencing systems. Mr. Shamir also currently serves as the Chairman of
Catalyst Fund, a venture capital firm.
SHAUL SHANI has served as a Director of the Company since February 1999.
Mr. Shani has served since 1996 as Managing Director of Limon Holdings, Ltd., a consulting
and investment advisory firm.firm, since 1996. He also has served as Chairman and
Director of Global Village Telecom N.V., a private company engaged in providing
satellite based telephony services, since 1998.1999. From 1995 to 1996, Mr. Shani
served as a director of Sapiens International Corporation NV ("Sapiens
International"),International. The Company elected and has
agreed to nominate Mr. Shani to the Company's Board of Directors as a
providerrepresentative of enterprise-wide solutionsMagnum under certain conditions pursuant to the terms of a
Stock Purchase Agreement, dated February 11, 1999, with Magnum filed as an
exhibit to the Company's quarterly report on Form 10-Q for software
applications.the quarter ended
March 31, 1999.
LOUIS SILVER has served as a director of the Company since November 1999. From September 1996,
Mr. Silver has served as Advisor and Counsel to the Discount Bank & Trust Co.,
an international bank.bank, since September 1996. From April 1992 to December 1995,
Mr. Silver served as Vice President, Secretary and General Counsel of Sapiens
International.
PATRICK TANGUY has served as a director of the Company since November 1999.
Mr. Tanguy has served as Chief Executive Officer of Technal Group, an aluminum
building systems company, since October 1999. From May 1998 to September 1999,
Mr. Tanguy served as a director of Hays DX France, an express transport services
company. From August 1993 to April 1998, he served as the Chairman of Groupe
DAFSA, a supplier of economic data and financial information on French
companies.
RELATIONSHIPS AMONG DIRECTORS OR EXECUTIVE OFFICERS
There are no family relationships among any of the directors or executive
officers of the Company.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During 1999,2000, the Board met ninesix times. No director attended fewer than 75% of
the aggregate of either (i) the total number of Board meetings held during the
period for which he was a Director or (ii) the total number of committee
meetings of the Board on which he served held during the period for which he was
a director. The committees of the Board currently include: the Compensation
Committee the Audit Committee and the 1991 Employee Stock OptionAudit Committee.
The Compensation Committee held one meetingfour meetings in 1999.2000. The Compensation
Committee consists of Messrs. Limon, Shamir and Shani. Its functions are to
establish and apply the Company's compensation policies with respect to the
Company's executive officers.
The Audit Committee held four meetings in 1999.2000. The Audit Committee
currently consists of Messrs. Limon, Shamir and Shani. The Audit Committee
recommends the engagement of the Company's independent auditors. In addition,
the Audit Committee is primarily responsible for
5
approving the services performed by the Company's independent auditors and for
reviewing and evaluating the Company's accounting principles and its system of
internal accounting controls.
The 1991 Employee Stock OptionBoard adopted and approved the current charter for the Audit Committee
held 16 meetings in 1999.June 2000, a copy of which is attached hereto as EXHIBIT A. The 1991 Employee Stock Option Committee currently consists of Messrs. Ayalon and
Limon. This committee serves as the administratorBoard has
determined that all members of the Company's various stock
option plans and grants stock options pursuant to these stock option plans and
then reports on such grants toaudit committee are "independent" as that
term is defined in Rule 4200 of the Board.listing standards of the National
Association of Securities Dealers.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company do not receive any additional
compensation for their services as Directors.directors. Directors who are not employees of
the Company receive an annual retainer of $20,000, payable in quarterly
installments of $5,000 each. The retainer contemplates attendance at four Board
meetings per year. Additional Board meetings of a face-to-face nature are
compensated at the rate of $500 per meeting. In addition, committee meetings of
a face-to-face nature and on a telephonic basis are compensated at the rate of
$500 per
4
meeting. All directors are reimbursed for expenses incurred in
connection with attending Board and committee meetings.
Each outside director of the Company is also entitled to participate in the
1993 Director Option Plan (the "Director Option Plan"). The Director Option Plan
provides for the grant of non-statutory options to non-employee Directors of the
Company. The Director Option Plan is designed to work automatically; however, to
the extent administration is necessary, it will be provided by the Board of
Directors. The Director Option Plan provides that each eligible director is
granted an option to purchase 15,00030,000 shares of Common Stockcommon stock under the Director
Option Plan on the date on which he or she first becomes a Director of the
Company. In addition, on the same date, each new director is granted an option
to purchase 10,00020,000 shares of Common Stockcommon stock under the 1991 Employee and Consultant
Stock Plan (the "1991 Stock Plan"). Thereafter, each outside director is granted
an option to purchase 5,00010,000 additional shares of Common Stockcommon stock (a "Subsequent
Option") on January 1 of each year if, on such date, he or she shall have served
on the Company's Board of Directors for at least six months. In addition, an
option to purchase 5,00010,000 shares of Common Stockcommon stock (a "Committee Option") is
granted on January 1 of each year to each outside director for each committee of
the Board on which he or she shall have served as a chairperson for at least six
months.
The number of options and the exercise prices stated below each have
been restated to give effect retroactively to a stock dividend, which effected a
two-for-one stock split of the Company's Common Stock in March 2000.
On January 4, 1999, Mr. Shamir was granted Subsequent Options to
purchase up to 10,000 shares of the Company's Common Stock, at an exercise price
of $10.1875 per share, under the Director Option Plan.
On February 5, 1999, the date on which they were appointed as directors
of the Company, each of Messrs. Limon and Shani were granted an option to
purchase up to 30,000 shares of the Company's Common Stock, at an exercise price
of $6.8125 per share under the Director Option Plan. On the same date, each of
Messrs. Limon and Shani also were granted an option to purchase up to 20,000
shares of the Company's Common Stock, at an exercise price of $6.8125 per share,
under the 1991 Stock Plan.
On April 21, 1999, Mr. Ayalon was granted options to purchase up to
450,000 shares of the Company's Common Stock, at an exercise price of $9.2188
per share, under the 1991 Stock Plan.
On November 11, 1999, the date on which they were appointed as
directors of the Company, each of Messrs. Silver and Tanguy were granted an
option to purchase up to 30,000 shares of the Company's Common Stock, at an
exercise price of $30.875 per share, under the Director Option Plan. On the same
date, each of Messrs. Silver and Tanguy also were granted an option to purchase
up to 20,000 shares of the Company's Common Stock, at an exercise price of
$28.8125 per share, under the 1991 Plan.
On November 25, 1999, Mr. Ayalon was granted options to purchase up to
300,000 shares of the Company's Common Stock, at an exercise price of $33.4375
per share, under the 1991 Plan.
On January 3, 2000, each of Messrs. Limon, Shamir and Shani werewas granted a
Subsequent OptionsOption to purchase up to 10,000 shares of the Company's Common Stock,common stock,
at an exercise price of $48.3125 per share, under the Director Option Plan.
SECTION 16(A)16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and
persons who own more than 10% of the Company's Common Stockcommon stock (collectively,
"Reporting Persons") to file initial reports of ownership and changes in
ownership of the Company's Common Stockcommon stock with the Securities and Exchange
Commission and the Nasdaq Stock Market, Inc. Copies of these reports are also
required to be delivered to the Company.
Except as set forth below, theThe Company believes, based solely on its review of the copies of such
reports received or written representations from certain Reporting Persons, that
during the fiscal year ended December 31, 1999,2000, all Reporting Persons complied
with all applicable filing requirements, except for the following: each of Messrs. Silver and Tanguy inadvertently failed to
fileRafi Fried
was late in filing a Form 34 in a timely manner upon becoming a director of the Company.
5March, 2000, and Messrs. Ayalon, Edan and Zelnik
each filed Form 4's two days late on September 12, 2000.
6
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company with
respect to beneficial ownership of the Company's Common Stockcommon stock as of April
7, 2000,March 31,
2001, by (i) each stockholder known to the Company to own beneficially more than
5% of the Company's Common Stock;common stock; (ii) each of the Company's directors;
(iii) the Chief Executive Officer, and each of the four other most highly
compensated executive officers of the Company (includingand one former executive officer)officer,
whose total salary and bonus exceeded $100,000 during the year ended
December 31, 2000 (collectively, the "Named Executive Officers") determined for
the fiscal year ended December 31, 1999;2000; and (iv) all directors and executive
officers of the Company as a group:
NAME OF SHARES APPROXIMATE PERCENT
NAME OF BENEFICIAL OWNEROWNER(1) BENEFICIALLY OWNED (1)OWNED(2) BENEFICIALLY OWNED (2)OWNED(3)
- ---------------- ---------------------- ------------------------------------------------- --------------------- ---------------------
Magnum Technology, Ltd.
c/o Rothschild Corporate Fiduciary Services, Ltd.
P.O. Box 472
St. Peter's House, Le Bordage
St. Peter Port, Guernsey
Channel Islands GY1 6AX (3)............... 3,935,000 14.9%
Pilgrim Baxter & Associates
825 Duportail Road
Wayne, Pennsylvania 19087 (4)............ 1,646,400 6.2%6AX(4)............................ 2,935,000 11.07%
Capital International, Inc.
333 South Hope Street
Los Angeles, CA 90071................................. 2,449,100 9.23%
Capital Research and Management Co.
333 South Hope Street
Los Angeles, CA 90071................................. 1,661,000 6.26%
Eli Ayalon(5)........................................... 292,453 1.09%
Boaz Edan(6)............................................ 37,675 *
Rafi Fried(7)........................................... 15,000 *
Paul Ross Hayden(8)..................................... 47,761 *
Gideon Wertheizer(9).................................... 54,486 *
Moshe Zelnik(10)........................................ 27,848 *
Zvi Limon ................................ __Limon(11)........................................... 13,334 *
Yair Shamir .............................. __Shamir(12)......................................... 23,599 *
Shaul Shani .............................. __Shani(13)......................................... 13,334 *
Louis Silver (5).......................... 2,000Silver(14)........................................ 20,000 *
Patrick Tanguy ............................ __ *
Eli Ayalon (6)............................ 187,500 1.0%
Boaz Edan (7)............................. 17,500 *
Rafi Fried (8)............................ 12,574 *
Ross Hayden (9) .......................... 16,079 *
Gideon Wertheizer (10).................... 25,225 *
Igal Kohavi ............................... __Tanguy(15)...................................... 10,000 *
All directors and executive officers as a group (11(10
persons) (11).............. 280,878 1.1%(16).......................................... 555,490 2.05%
- ------------------------------------------------------------
* Less than 1%
(1) Except as otherwise indicated, the address of each of the executive
officers and directors is c/o DSP Group, Inc., 3120 Scott Boulevard, Santa
Clara, California 95054.
(2) To the Company's knowledge, except as set forth in the footnotes to this
table, and subject to applicable community property laws, each person named
in this table has sole voting and investment power with respect to the
shares set forth opposite such person's name.
(2)7
(3) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of the Company's Common Stock,common
stock, subject to options currently exercisable or that will become
exercisable on or before June 6, 2000,May 30, 2001, are deemed outstanding for computing
the percentage of the person holding such options, but are not deemed
outstanding for computing the percentage of any other person. Percentages
are based on 26,450,19326,520,541 shares of the Company's Common Stockcommon stock outstanding as
of April 7, 2000.
(3)March 31, 2001.
(4) Magnum Technology, Ltd. ("Magnum") filed Amendment No. 5 to a Form 4 for February 2000,Schedule 13D, dated March 3,October 31, 2000,
with the Securities and Exchange Commission on behalf of itself. Magnum
reported beneficial ownership of 3,935,0002,935,000 shares. Magnum's total
6
share amount has been restated to give effect retroactively to a stock
dividend, which was effected by a two-for-one stock split of the
Company's Common Stock in March 2000.
(4) Pilgrim Baxter & Associates ("Pilgrim Baxter") filed Amendment No. 2 to a
Schedule 13G, dated January 7, 2000, with the Securities and Exchange
Commission on behalf of itself. Pilgrim Baxter reported sole voting power
over 1,108,600 shares and sole dispositive power over 1,646,400 shares.
Pilgrim Baxter's total share amount has been restated to give effect
retroactively to a stock dividend, which was effected by a two-for-one
stock split of the Company's Common Stock in March 2000.
(5) Includes 2,000290,000 shares of the Company's Common Stock held by the Theodore
J. Silver Trust of which Mr. Silver disclaims beneficial ownership.
(6) Includes 187,500 shares of the Company's Common Stockcommon stock subject to options
that are currently exercisable or will become exercisable on or before
June 6, 2000.
(7)May 30, 2001.
(6) Includes 17,50036,875 shares of the Company's Common Stockcommon stock subject to options
that are currently exercisable or will become exercisable on or before
June 6, 2000.
(8)May 30, 2001.
(7) Includes 12,50115,000 shares of the Company's Common Stockcommon stock subject to options
that are currently exercisable or will become exercisable on or before
June 6, 2000.
(9)May 30, 2001.
(8) Includes 15,87546,500 shares of the Company's Common Stockcommon stock subject to options
that are currently exercisable or will become exercisable on or before
June 6, 2000.
(10)May 30, 2001.
(9) Includes 25,22554,486 shares of the Company's Common Stockcommon stock subject to options
that are currently exercisable or will become exercisable on or before
June 6, 2000.
(11) See footnotes (5) throughMay 30, 2001.
(10). Includes 278,60127,500 shares of the Company's Common Stockcommon stock subject to options
that are currently exercisable or will become exercisable on or before
June 6, 2000.
PROPOSAL NO. 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Kost, Forer & Gabbay, a memberMay 30, 2001.
(11) Includes 13,334 shares of Ernst & Young International, has been
appointedthe Company's common stock subject to options
that are currently exercisable or will become exercisable on or before
May 30, 2001.
(12) Includes 19,999 shares of the Company's common stock subject to options
that are currently exercisable or will become exercisable on or before
May 30, 2001.
(13) Includes 13,334 shares of the Company's common stock subject to options
that are currently exercisable or will become exercisable on or before
May 30, 2001.
(14) Includes 2,000 shares of the Company's common stock held by the Board to beTheodore
J. Silver Trust of which Mr. Silver disclaims beneficial ownership, 8,000
shares of the Company's independent auditors forcommon stock held by the Adrienne Silver Trust of
which Mr. Silver disclaims beneficial ownership and 10,000 shares of the
Company's fiscal year ending December 31, 2000. In the eventcommon stock subject to options that ratification
of this selection of independent auditors is not approved by a majorityare currently exercisable
or will become exercisable on or before May 30, 2001.
(15) Includes 10,000 shares of the Company's common stock subject to options
that are currently exercisable or will become exercisable on or before
May 30, 2001.
(16) See footnotes (5) through (15). Includes 537,028 shares of Common Stock voting at the Annual Meeting in personCompany's
common stock subject to options that are currently exercisable or by proxy,
management will
review its future selection of independent auditors.
A representative of Ernst & Young International is expected to be
present at the Annual Meeting. The representative will have an opportunity to
make a statement and will be able to respond to appropriate questions.
REQUIRED VOTE
The ratification of the appointment of Kost, Forer & Gabbay requires
the affirmative vote of the holders of a majority of shares of Common Stock
presentbecome exercisable on or represented and entitled to vote at the Annual Meeting. Abstentions
will have the same effect as a "no" vote on this proposal and broker non-votes
will not be treated as entitled to vote on this matter at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF KOST, FORER & GABBAY.
7before May 30, 2001.
8
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY COMPENSATION TABLE
The following table sets forth all compensation earned by the Company's
Chief Executive Officer and the Named Executive Officers of the Company for the
years ended December 31, 2000, 1999 1998 and 1997:1998:
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ----------------------
-------------------AWARDS
-------------------- ------------------
SECURITIES
NAME AND PRINCIPAL POSITION YEAR SALARY (1) BONUS (2)SALARY(1) BONUS(2) UNDERLYING OPTIONS
(3)
- --------------------------- ---- ------------------ --------- ------------------------------ ------------------
Eli Ayalon 1999 $341,298 $300,000 750,0002000 $319,282 $350,000 150,000
Chairman of the Board and 1999 341,298 300,000 750,000
Chief Executive Officer 1998 294,952 240,000 300,000
Officer 1997 283,747 212,500 300,000
Boaz Edan 1999 91,232(4) 45,000 110,0002000 163,902 70,000 95,000
Vice President, Products 1999 91,232(3) 45,000 110,000
Division Manager 1998 -- -- --
1997 -- -- --
Rafi Fried 2000 172,467 30,000 17,000
Vice President, RF(4) 1999 146,638 40,000 20,000
Vice President, Research and Development 1998 182,677 40,000 180,000
1997 15,942(5)Paul Ross Hayden(5) 2000 211,903(6) -- 40,000
Ross Hayden 1999 165,294(6) -- 85,00042,000
Vice President, Sales 1998and 1999 165,294 -- -- --
199785,000
President, U.S. Operations 1998 -- -- --
Gideon Wertheizer 2000 191,482 80,000 100,000
Senior Vice President 1999 176,744 65,000 100,000
Executive Vice President 1998 172,122 50,000 40,000
1997 146,362 45,000 30,000
Igal Kohavi (7)Moshe Zelnik 2000 141,572 50,000 70,000
Vice President, Finance 1999 346,590 200,000 450,000
Former Chairman of the Board93,473(3) 40,000 100,000
Chief Financial Officer and Secretary 1998 294,630 240,000 300,000
1997 280,620 212,500 300,000-- -- --
- --------------------------------------------------
(1) The salaries of officers located in Israel include social benefit payments
and car allowances.
(2) The Company's executive officers are eligible for annual cash bonuses. Such
bonuses are generally based upon achievement of corporate performance
objectives determined by the Company's Compensation Committee. Bonuses are
awarded by the Compensation Committee based upon individual, as well as
corporate, performance. The Company pays bonuses in the year following that
in which the bonuses were earned.
(3) The number of options have been restated to give effect retroactively to a
stock dividend, which effected a two-for-one stock split of the Company's
Common Stock in March 2000.
(4) Represents Mr. Edan'spartial year salary from his joiningMay 1, 1999 to December 31, 1999.
(4) Mr. Fried became Vice President, RF in July 2000, a non-executive officer
position.
(5) Mr. Hayden ceased to be employed with the Company as an executive
officer in May 1999.
(5) Represents Mr. Fried's salary from his joining the Company in November
1997.of March 2001.
(6) Represents Mr. Hayden's salary from his joining the Company in January
1999. Includes $40,294$82,023 of commissions earned by Mr. Hayden in 1999.
(7) Mr. Kohavi resigned as the Company's Chairman of the Board in January 2000.
89
OPTION GRANTS
The following table sets forth certain information with respect to stock
options granted during 19992000 to each of the Named Executive Officers. In
accordance with the rules of the Securities and Exchange Commission, also shown
below is the potential realizable value over the term of the option (the period
from the grant date to the expiration date) based on assumed rates of stock
appreciation of 5% and 10%, compounded annually. These amounts are based on
certain assumed rates of appreciation and do not represent the Company's
estimate of future stock price. Actual gains, if any, on stock option exercises
will be dependent on the future performance of the Company's Common Stock.common stock.
OPTION GRANTS IN 19992000
INDIVIDUAL GRANTS
(1)
POTENTIAL REALIZABLE VALUE AT
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE
SECURITIES OPTIONS VALUE AT ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OF STOCK PRICE APPRECIATIONOPTION TERM
OPTIONS EMPLOYEES EXERCISE EXPIRATION FOR OPTION TERM-----------------------------
NAME GRANTED IN 19992000 PRICE DATE 5% 10%
- ---- ---------- ------------------- -------- ---------- ------------------------------------------- -------------
Eli Ayalon 450,000(2)(3) 13.43% $9.2188 04/21/06 $1,688,840 $3,935,715
300,000(2)(3) 8.96% $33.4375 11/24/06 $4,081,839 $9,511,715Ayalon................... 150,000(1)(2) 6.73% $22.000 10/26/07 $2,451,523 $4,665,381
Boaz Edan 70,000(4)(5) 2.09% $8.875 05/03/06 $252,911 $589,391
20,000(2)(5) 0.60% $19.00Edan.................... 60,000(1)(4) 2.69% 22.000 10/01/06 $154,698 $360,513
20,000(2)(5) 0.60% $33.4375 11/24/06 $272,123 634,11426/07 980,609 1,866,152
35,000(1)(4) 1.57% 44.500 4/17/07 818,741 1,733,396
Rafi Fried 10,000(4)(5) 0.30% $9.4375 04/22/06 $38,420 $89,535
10,000(2)(5) 0.30% $33.4375 11/24/06 $136,061 $317,057Fried................... 5,000(3)(4) 0.22% 40.375 5/23/07 71,190 176,298
10,000(3)(4) 0.45% 22.000 10/26/07 163,435 311,025
2,000(3)(4) 0.09% 21.375 12/20/07 12,479 33,737
Paul Ross Hayden 70,000(4)(5) 2.09% $6.8125 02/17/06 $194,136 $452,419
15,000(2)(5)Hayden............. 10,000(1)(4) 0.45% $33.4375 11/24/06 $204,092 $475,58640.375 5/23/07 142,381 352,596
12,000(1)(4) 0.54% 22.000 10/26/07 196,122 373,230
20,000(1)(4) 0.90% 44.500 4/17/07 467,852 990,512
Gideon Wertheizer 60,000(2)(5)Wertheizer............ 60,000(1)(4) 2.69% 22.000 10/26/07 980,609 1,866,152
40,000(1)(4) 1.79% $9.2188 04/21/06 $255,179 $524,762
40,000(2)(5) 1.19% $33.4375 11/24/06 $544,245 $1,268,229
Igal Kohavi 450,000(2)(3) 13.43% $9.2188 04/21/06 $1,688,840 $3,935,71544.500 4/17/07 935,704 1,981,024
Moshe Zelnik................. 40,000(1)(4) 1.79% 22.000 10/26/07 653,739 1,244,102
30,000(1)(4) 1.35% 44.500 4/17/07 701,778 1,485,768
- ---------------------------------------
(1) The number of options and the exercise price have been restated to give
effect retroactively to a stock dividend, which effected two-for-one
stock split of the Company's Common Stock in March 2000.
(2) These options were granted under the Company's 1991 Employee and Consultant
Stock Option Plan.
(3)(2) These options vest as to 25% on the date of the grant and 25% each year
thereafter.
(4)(3) These options were granted under the Company's 1998 Non-Officer Employee
Stock Option Plan.
(5)(4) These options vest as to 25% one year from the date of the grant and 25%6.25% each
yearquarter thereafter.
910
OPTION EXERCISES AND OPTION VALUES
The following table sets forth information concerning option exercises
during 19992000 and the aggregate value of unexercised options as ofat December 31, 19992000
held by each of the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN 19992000
AND OPTION VALUES AT DECEMBER 31, 1999 (1)2000
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
AGGREGATE OPTION UNDERLYING UNEXERCISEDOPTIONS AT IN-THE-MONEY OPTIONS AT
EXERCISES IN 1999 OPTIONS AT2000 DECEMBER 31, 19992000 DECEMBER 31, 1999 (2)2000(1)
------------------------- -------------------------------------------------------- ---------------------------
SHARES
ACQUIRED ON VALUE
NAME EXERCISE REALIZED (3)REALIZED(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------------------- ----------- ------------- ----------- -------------
Eli Ayalon 572,500 $6,946,954 75,000 787,500 $979,688 $23,602,710Ayalon............... 272,500 $9,820,569 177,500 562,500 $510,861 $3,543,743
Boaz Edan -- -- -- 110,000 -- $3,445,000Edan................ 21,875 1,073,202 14,375 168,750 63,487 563,224
Rafi Fried 40,624 $407,232 2,501 96,875 $84,568 $3,309,336Fried............... 25,625 1,012,586 13,126 77,625 109,138 600,352
Paul Ross Hayden -- -- -- 85,000 -- $2,974,063Hayden......... 6,000 216,750 28,375 92,625 350,522 560,480
Gideon Wertheizer 42,214 $496,360 5,114 142,836 $190,058 $4,334,945
Igal Kohavi 747,500 $9,132,014 -- 562,500 -- $20,663,647Wertheizer........ 34,089 1,495,076 23,237 190,624 151,612 701,816
Moshe Zelnik............. 25,000 1,220,625 10,000 135,000 60,860 608,595
- --------------------------------------------------
(1) The number of options and the exercise price have been restated to give
effect retroactively to a stock dividend, which effected two-for-one
stock split of the Company's Common Stock in March 2000.
(2) Calculated on the basis of the closing price of the Company's Common
Stockcommon stock
as reported on the Nasdaq National Market on December 31, 19992000 of $46.50$21.05 per
share, minus the exercise price.
(3)(2) Calculated on the basis of the broker's reported sale price of the Company's
Common Stockcommon stock subject to the option, minus the exercise price.
EMPLOYMENT AGREEMENTS
The following Named Executive Officers have written employment agreements
with the Company: Messrs. Ayalon, Edan and Edan.Zelnik.
In April 1996, Mr. Ayalon entered into an employment agreement with DSP
Semiconductors, Ltd., the Company's wholly owned subsidiary in Israel ("DSP
Semiconductors"), pursuant to which Mr. Ayalon was to serve as the President and
Chief Executive Officer of the Company. The term of the agreement is indefinite.
The agreement originally provided for a fixed monthly salary of NIS 47,000
(approximately U.S. $15,000)$11,217), which shall behas been adjusted monthlyfrom time to the Consumer
Price Index of Israel. In June 1997,time by the
Board of Directors increased Mr.
Ayalon's monthlyand currently provides for an annual base salary to NIS 69,295 (approximatelyof U.S.
$20,420).$245,000. Mr. Ayalon is also is entitled to an annual bonus, the amount of which is
determined at the sole discretion of the Board of Directors. The agreement may
be terminated by the Company or Mr. Ayalon, without cause (as defined in the
agreement), upon six months advance written notice. Mr. Ayalon's employment
agreement was amended in November 1997 to provide for the following:
(i) Mr. Ayalon's base compensation shall be fixed at the commencement of each
year, but shall not be subject to reduction during the term of the agreement;
(ii) if Mr. Ayalon terminates the agreement without good reason or if the
Company terminates the agreement for cause, then no further payments shall be
made to Mr. Ayalon pursuant to the agreement and he shall be subject to a
one-year prohibition against competition in addition to the customary
prohibitions against disclosure of trade secrets; (iii) upon a change of control
of the Company or if the agreement is terminated by Mr. Ayalon for good reason
or by the Company without cause, then all rights of Mr. Ayalon under the
agreement would continue for two years and all options held by Mr. Ayalon would
accelerate and immediately vest and be exercisable in whole or in part at
11
any time during the remaining two-year term of the agreement; and (iv) in the
event of death or permanent disability of Mr. Ayalon, all options shall
accelerate and immediately vest. The Board of Directors further amended
Mr. Ayalon's agreement in November 1999 and JanuaryApril 2000 to provide that
if
10
Mr. Ayalon terminates the agreement without good reason, or if the Company terminates
Mr. Ayalon without cause then within twelve months ofprior to January 24, 2000,2001 or if Mr. Ayalon terminates
the agreement voluntarily at any time, then all options held by Mr. Ayalon shall
be fully vested on the date of the notice of termination and immediately
exercisable.be exercisable in
whole or in part at any time from vesting of the options for a period of two
years from the notice of termination. Additionally, the Board approved that
commencing twelve months
after January 24, 2000,2001, all options held by Mr. Ayalon will accelerate and
immediately vest after six months following the notice date of termination and
be exercisable in whole or in part at any time from vesting of the options for a
period of two years.years following their vesting.
In May 1999, Mr. Edan entered into an employment agreement with DSP
Group, Ltd., a wholly owned subsidiary of the Company, pursuant to which
Mr. Edan is to serve as Vice President Operations of the Company. The term of
the agreement is indefinite. The agreement providedcurrently provides for a fixed
monthly salary of NIS 35,00045,000 (approximately U.S. $102,300).$10,740), subject to adjustment
from time to time. Mr. Edan also is entitled to an annual bonus, the amount of
which is determined at the sole discretion of the Company. The agreement shallmay be
terminated by either the Company or Mr. Edan by prior written notice to the
other party of ninety (90) days. However, the Company has the right not to make use of the period of prior notice to immediately terminate
Mr. Edan's employment.employment without prior notice. In such a case, Mr. Edan shall be
paid the amount due him under the prior notice period at the rate of his then
current salary for such period.
In May 1999, Mr. Zelnik entered into an employment agreement with DSP
Group, Ltd., a wholly owned subsidiary of the Company, pursuant to which
Mr. Zelnik is to serve as Vice President, Finance and Chief Financial Officer of
the Company. The term of the agreement is indefinite. The agreement currently
provides for a fixed monthly salary of NIS 41,000 (approximately U.S. $9,785),
subject to adjustment from time to time. Mr. Zelnik also is entitled to an
annual bonus, the amount of which is determined at the sole discretion of the
Company. The agreement may be terminated by either the Company or Mr. Zelnik by
prior written notice to the other party of ninety (90) days. However, the
Company has the right to terminate Mr. Zelnik's employment without prior notice.
In such a case, Mr. Zelnik shall be paid the amount due him under the prior
notice period at the rate of his then current salary for such period.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company during 19992000 consisted of
Messrs. Limon, Shamir and Shani; Mr. Shamir served as its Chairman. No member of
this committee is a present or former officer or employee of the Company or any
of its subsidiaries. No executive officer of the Company served on the board of
directors or compensation committee of any entity which has one or more
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE COMPANY'S
PREVIOUS OR FUTURE FILINGS UNDER THE SECURITIES ACT OF 1933 OR THE EXCHANGE ACT
THAT MIGHT INCORPORATE THIS PROXY STATEMENT OR FUTURE FILINGS WITH THE
SECURITIES AND EXCHANGE COMMISSION, IN WHOLE OR IN PART, THE FOLLOWING REPORT
AND THE STOCK PERFORMANCE GRAPH THAT FOLLOWS SHALL NOT BE DEEMED TO BE
INCORPORATED BY REFERENCE INTO ANY SUCH FILINGS.
The Compensation Committee of the Company's Board of Directors, which is
comprised solely of independent, non-employee Board members, has the authority
and responsibility to establish the overall compensation strategy for the
Company, including salary and bonus levels, administer the Company's incentive
compensation and benefit plans, 401(k) plans, and stock option and purchase
plans, and review and make recommendations to the Board with respect to the
Company's executive
12
compensation. Messrs. Limon, Shamir and Shani are the current members of the
Compensation Committee.
COMPENSATION POLICY. The Company's compensation policy, as established by
the Compensation Committee, states that the executive officers' total annual
cash compensation should vary with the performance of the Company and that
long-term incentives awarded to such officers should be aligned with the
interest of the Company's stockholders. The Company has designed its executive
compensation program to attract and retain executive officers who will
contribute to the Company's long-term success, to reward executive officers who
contribute to the Company's financial performance and to link executive officer
compensation and stockholder interests through the grant of stock options under
the 1991 Employee and Consultant Stock Plan (the "1991 Stock Plan").
Compensation of the Company's executive officers consists of three principal
components: salary, bonus and long-term incentive compensation consisting of
stock option grants.
SALARY. The base salaries of the Company's executive officers are reviewed
annually and are set by the Compensation Committee. When setting base salary
levels, in a manner consistent with the Compensation Committee's policy outlined
above, the Committee considers competitive market conditions for executive
compensation, the Company's performance and the performance of the individual
executive officer.
BONUS. For the fiscal year ended December 31, 1999,2000, the Compensation
Committee evaluated the performance of, and set the bonuses payable to, the
Chief Executive Officer and the other executive officers of the Company. The
performance factors utilized by the Compensation Committee in determining
whether bonuses 11
should be awarded to the Company's executive officers included
the following: (1) increased sales of the Company's products and increased
profitability of the Company during fiscal 1999;2000; (2) the officer's overall
individual performance in his position and his relative contribution to the
Company's performance during the year; and (3) the desire of the Board of
Directors to retain the executive officer in the face of considerable
competition for executive talent within the industry. The Board of Directors or
the Compensation Committee in the future may modify the foregoing criteria or
select other performance factors with respect to bonuses paid to executive
officers for any given fiscal year.
LONG-TERM INCENTIVE COMPENSATION. The Company believes that stock option
grants (1) align executive officer interests with stockholder interests by
creating a direct link between compensation and stockholder return, (2) give
executive officers a significant, long-term interest in the Company's success,
and (3) help retain key executive officers in a competitive market for executive
talent.
The 1991 Stock Plan authorizes the Board, or a committee thereof, to grant
stock options to employees and consultants of the Company, including the
executive officers. Stock option grants are made from time to time to executive
officers whose contributions have or will have a significant impact on the
Company's long-term performance. The Company's determination of whether stock
option grants are appropriate is based upon individual performance measures
established for each individual on an annual basis. Options are not necessarily
granted to each executive officer during each year. Generally, options granted
to executive officers vest as to 25% of the grant on the first anniversary of
the date of grant with the remaining options vesting quarterly over the next
three years and expire seven years from the date of grant. Details on stock
options granted to certain executive officers in 19982000 are provided in the table
entitled "Option Grants in 1999.2000."
COMPENSATION OF CHIEF EXECUTIVE OFFICER. The Board of Directors considered
the following factors in evaluating the performance of, and setting the bonus
compensation for, Mr. Ayalon, the Company's Chairman of the Board and Chief
Executive Officer: the increase in the net income of the Company from the prior
year, the Company's stock price and the time and effort that Mr. Ayalon
individually applied in connection with the execution of his duties. The
Compensation Committee believes that the
13
salary, bonus and long-term incentive compensation paid to Mr. Ayalon for the
fiscal year ended December 31, 19992000 were appropriate based on the above
criteria.
COMPENSATION POLICY REGARDING DEDUCTIBILITY. Section 162(m) of the Internal
Revenue Code, enacted in 1993, generally disallows a tax deduction to publicly
held companies for compensation exceeding $1 million paid to certain of the
corporation's executive officers. The limitation applies only to compensation
which is not considered to be performance-based. The non-performance based
compensation to be paid to the Company's executive officers in 1998 did not
exceed the $1 million limit per officer. The 1991 Stock Plan is structured so
that any compensation deemed paid to an executive officer in connection with the
exercise of option grants made under such plan will qualify as performance-based
compensation which will not be subject to the $1 million limitation. The
Compensation Committee currently intends to limit the dollar amount of all other
compensation payable to the Company's executive officers to no more than
$1 million. The Compensation Committee is aware of the limitations imposed by
Section 162(m), and the exemptions available therefrom, and will address the
issue of deductibility when and if circumstances warrant, and may use such
exemptions in addition to the exemption contemplated under the 1991 Stock Plan.
Submitted by the Compensation Committee:
Zvi Limon
Yair Shamir
Shaul Shani
1214
STOCK PERFORMANCE GRAPH
The graph below compares the cumulative total stockholder return on the
Company's Common Stockcommon stock with the cumulative total return on the Standard & Poor's
500 Index and Standard & Poor's Technology Sector Index. The period shown
commences on December 31, 19941995 and ends on December 31, 1999,2000, the end of the
Company's last fiscal year. The graph assumes an investment of $100 on
December 31, 1994,1995, and the reinvestment of any dividends.
The comparisons in the graph below are based upon historical data and are
not indicative of, nor intended to forecast, future performance of the Company's
Common Stock.common stock.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG DSP GROUP, INC., THE S&P 500 INDEX
AND THE S&P TECHNOLOGY SECTOR INDEX
[PERFORMANCE GRAPH]EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CUMULATIVE TOTAL RETURN
-------------------------------------------------------------
12/94 12/95 12/96 12/97 12/98 12/99
DSP GROUP, INC. 100 59 44 103 107 477
S & P 500 100 138 169 226 290 351 S & P TECHNOLOGY SECTOR
100 144 204 258 446 781
12/95 $100.00 $100.00 $100.00
12/96 $73.91 $122.96 $141.87
12/97 $173.91 $163.98 $178.89
12/98 $181.52 $210.84 $309.44
12/99 $808.70 $255.22 $541.93
12/00 $366.03 $231.98 $325.43
- ------------------------
* $100 INVESTED ON 12/31/9495 IN STOCK OR INDEX--INCLUDINGINDEX--
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING DECEMBER 31
1315
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
OTHER TRANSACTIONS
On February 2, 1999, the Company entered into a stock purchase
agreement with Magnum Technology, Ltd., an international investment fund
("Magnum"), in which the Company issued and sold 4,600,000 new shares of the
Company's Common Stock to Magnum. Based in part on Magnum's representations, the
transaction was exempt from the registration requirements of the Securities Act
of 1933 according to Section 4(2) of the Securities Act. These shares, which
represented 19.6% of the Company's outstanding Common Stock at the time of the
transaction, were issued for a price of $7.50 per share, or an aggregate of
$34.5 million in total net proceeds to the Company. As part of the agreement,
Magnum may acquire additional shares of the Company in the open market, but may
not bring its total holdings to more than 35% of the Company's outstanding
shares of Common Stock. Magnum has agreed to restrict its sales of the shares
until August 2000 under Rule 144(e)(i) of the Securities Act of 1933. In
connection with the closing of the transaction, the Company appointed Messrs.
Limon and Shani to the Board of Directors as representatives of Magnum.
The Company has entered into indemnification agreements with each of its
directors and executive officers. Such agreements require the Company to
indemnify such individuals to the fullest extent permitted by Delaware law.
All future transactions between the Company and its officers, directors,
principal stockholders and affiliates will be approved by a majority of the
Board of Directors, including a majority of the disinterested, non-employee
directors on the Board of Directors, and will be on terms no less favorable to
the Company than could be obtained from unaffiliated third parties.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
16
PROPOSAL 2:
APPROVAL OF THE ADOPTION OF THE 2001 STOCK INCENTIVE PLAN
The Company's stockholders are asked to vote on the proposed adoption of the
Company's 2001 Stock Incentive Plan (the "Plan"). The Plan provides for the
issuance of stock options initially covering up to 1,000,000 shares of common
stock of the Company. The Board has concluded that the proposed adoption is in
the best interests of the Company and its stockholders. The adoption of the Plan
will enable the Company to grant options and other awards as needed to retain
talented employees and to attract talented new employees. The Board of Directors
believes that the Company's long-term success is dependent upon the ability of
the Company to attract and retain highly qualified individuals who, by virtue of
their ability and qualifications, make important contributions to the Company.
The Plan is intended to enhance the Company's ability to provide individuals
with awards and incentives commensurate with their contributions and competitive
with those offered by other employers. The stock options and other awards
granted under this Plan increase stockholder value by further aligning the
interests of these individuals with the interests of the Company's stockholders,
by providing our employees an opportunity to benefit from stock price
appreciation that generally accompanies improved financial performance.
A general description of the principal terms of the Plan is set forth below.
However, the summary does not purport to be a complete description of all of the
provisions of the Plan. A copy of the Plan is attached hereto as EXHIBIT A and
is also available to any stockholder upon request.
GENERAL DESCRIPTION.
The Plan was approved by the Board of Directors in March 2001. The purposes
of the Plan are to give the Company's employees and others who perform
substantial services to the Company an incentive, through ownership of the
Company's common stock, to continue in service to the Company, and to help the
Company compete effectively with other enterprises for the services of qualified
individuals.
Initially, 1,000,000 shares of common stock are reserved for issuance under
the Plan. The number of shares initially reserved will be increased by the
remaining number of shares reserved under our 1991 Employee and Consultant Stock
Plan and available for grant on the date the Plan is approved by the
stockholders, as well as any shares subject to awards under the 1991 Employee
and Consultant Stock Plan that are forfeited, expire or are cancelled following
the adoption of the Plan.
TERMS.
The Plan permits the grant of incentive stock options within the meaning of
Section 422 of the Internal Revenue Code (the "Code") only to employees of the
Company or any parent or subsidiary corporation of the Company. Non-qualified
stock options and other awards may be granted to employees, directors and
consultants. The Plan authorizes the administrator to select the employees,
directors and consultants of the Company to whom incentive stock options,
non-qualified stock options and other awards may be granted and to determine the
terms and conditions of any award; however, the term of an award may not be for
more than 10 years (or 5 years in the case of incentive stock options granted to
any grantee who owns stock representing more than 10% of the combined voting
power of the Company or any parent or subsidiary corporation of the Company).
The maximum number of shares with respect to which options may be granted to any
participant in any fiscal year of the Company shall be 750,000 shares. However,
in connection with his or her commencement of services with the Company, a
participant may be granted options for up to an additional 750,000 shares which
shall not count against the limit set forth in the previous sentence. In
addition, under the Plan, awards may be granted to employees, directors or
consultants who are residing in foreign jurisdictions, as the administrator of
the Plan may determine from time to time.
17
The Plan authorizes the administrator to grant incentive stock options at an
exercise price of not less than 100% (or 110%, in the case of incentive stock
options granted to any grantee who owns stock representing more than 10% of the
combined voting power of the Company or any parent or subsidiary corporation of
the Company) of the fair market value of the common stock on the date the option
is granted. The exercise price of non-qualified stock options shall not be less
than 85% of the fair market value. The exercise price of awards intended to
qualify as performance-based compensation for purposes of Code Section 162(m)
shall not be less than 100% of the fair market value. The exercise price is
generally payable in cash or, in certain circumstances, with such documentation
as the administrator and the broker, if applicable, shall require to effect an
exercise of an award and delivery to the Company of the sale or loan proceeds
required to pay the exercise price, or with shares of common stock. The
aggregate fair market value of the common stock with respect to any incentive
stock options that are exercisable for the first time by an eligible employee in
any calendar year may not exceed $100,000.
The awards may be granted subject to vesting schedules and restrictions on
transfer and repurchase or forfeiture rights in favor of the Company as
specified in the agreements to be issued under the Plan. If a third party
acquires the Company through the purchase of all or substantially all of its
assets, a merger or other business combination, where the acquiror assumes or
replaces awards granted under the Plan, none of these awards will be subject to
accelerated vesting. However, where the acquiror does not assume or replace
awards granted under the Plan, all of these awards become fully vested upon the
consummation of the corporate transaction or change of control. Effective upon
the consummation of the corporate transaction or change of control, all
outstanding awards under the Plan will terminate unless assumed or replaced by
the acquiror.
During their lifetime, those who hold the incentive stock options granted
under this plan cannot transfer these options. The options may be distributed by
a will or the laws of descent upon the death of the option holder. No one is
allowed to exercise the incentive stock options except the person to whom the
options were first issued while that person is alive. Stock or options other
than incentive stock options which are issued under the Plan can be transferred
to the extent agreed upon at the time of the award.
In the event a participant in the Plan terminates employment, or is
terminated for any reason, other than cause, death or disability, any options
which have become exercisable prior to the time of termination shall remain
exercisable for three months from the date of termination. If termination was
caused by death or disability, any options which have become exercisable prior
to the time of termination shall remain exercisable for twelve months from the
date of termination. If a participant is terminated for cause, any options which
have become exercisable shall terminate and cease to be exercisable on the date
of termination.
Under the Plan, the administrator may establish one or more programs under
the Plan to permit selected grantees the opportunity to elect to defer receipt
of consideration payable under an award. The administrator also may establish
separate programs for the grant of particular forms of awards to one or more
classes of grantees.
ADMINISTRATION. The Plan is administered, with respect to grants to
directors, officers, consultant, and other employees, by the administrator of
the Plan, which is the Board or a committee designated by the Board. The
committee is constituted in such a manner as to satisfy applicable laws,
including Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as
amended ("Rule 16b-3"). With respect to awards subject to Section 162(m) of the
Code, the committee will be comprised solely of two or more "outside directors"
as defined under Code Section 162(m) and applicable tax regulations. For grants
of awards to individuals not subject to Rule 16b-3 and Code Section 162(m), the
Board of Directors may authorize one or more officers to grant such awards.
18
AMENDMENT AND TERMINATION. The Board may at any time amend, suspend or
terminate the Plan. To the extent necessary to comply with 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 awards granted to residents therein,
the Company will obtain stockholder approval of any amendment to the Plan in
such a manner and to such a degree as required. The Plan will terminate in
March, 2011 unless it is terminated by the Board of Directors prior to that
date.
CERTAIN FEDERAL TAX CONSEQUENCES.
The grant of a non-qualified stock option under the Plan will not result in
any federal income tax consequences to the optionee or to the Company. Upon
exercise of a non-qualified stock option, the optionee is subject to income
taxes at the rate applicable to ordinary compensation income on the difference
between the option exercise price and the fair market value of the shares on the
date of exercise. This income is subject to withholding for federal income and
employment tax purposes. The Company is entitled to an income tax deduction in
the amount of the income recognized by the optionee. Any gain or loss on the
optionee's subsequent disposition of the shares of common stock will receive
long or short-term capital gain or loss treatment, depending on whether the
shares are held for more than one year following exercise. The Company does not
receive a tax deduction for any such gain.
The grant of an incentive stock option under the Plan will not result in any
federal income tax consequences to the optionee or to the Company. An optionee
recognizes no federal taxable income upon exercising an incentive stock option
(subject to the alternative minimum tax rules discussed below), and the Company
receives no deduction at the time of exercise. In the event of a disposition of
stock acquired upon exercise of an incentive stock option, the tax consequences
depend upon how long the optionee has held the shares of common stock. If the
optionee does not dispose of the shares within two years after the incentive
stock option was granted, nor within one year after the incentive stock option
was exercised, the optionee will recognize a long-term capital gain (or loss)
equal to the difference between the sale price of the shares and the exercise
price. The Company is not entitled to any deduction under these circumstances.
If the optionee fails to satisfy either of the foregoing holding periods, he
or she must recognize ordinary income in the year of the disposition (referred
to as a "disqualifying disposition"). The amount of such ordinary income
generally is the lesser of (i) the difference between the amount realized on the
disposition and the exercise price, or (ii) the difference between the fair
market value of the stock on the exercise date and the exercise price. Any gain
in excess of the amount taxed as ordinary income will be treated as a long or
short-term capital gain, depending on whether the stock was held for more than
one year. The Company, in the year of the disqualifying disposition, is entitled
to a deduction equal to the amount of ordinary income recognized by the
optionee.
The "spread" under an incentive stock option -- i.e., the difference between
the fair market value of the shares at exercise and the exercise price -- is
classified as an item of adjustment in the year of exercise for purposes of the
alternative minimum tax.
The grant of restricted stock will subject the recipient to ordinary
compensation income on the difference between the amount paid for such stock and
the fair market value of the shares on the date that the restrictions lapse.
This income is subject to withholding for federal income and employment tax
purposes. The Company is entitled to an income tax deduction in the amount of
the ordinary income recognized by the recipient, subject to possible limitations
imposed by Section 162(m) of the Code. Any gain or loss on the recipient's
subsequent disposition of the shares will receive long or short-term capital
gain or loss treatment depending on whether the shares are held for more than
one year and
19
depending on how long the stock has been held since the restrictions lapsed. The
Company does not receive a tax deduction for any such gain.
Recipients of restricted stock may make an election under Internal Revenue
Code Section 83(b) ("Section 83(b) Election") to recognize as ordinary
compensation income in the year that such restricted stock is granted the amount
equal to the spread between the amount paid for such stock and the fair market
value on the date of the issuance of the stock. If such an election is made, the
recipient recognizes no further amounts of compensation income upon the lapse of
any restrictions and any gain or loss on subsequent disposition will be long or
short-term capital gain to the recipient. The Section 83(b) Election must be
made within thirty days from the time the restricted stock is issued.
Recipients of stock appreciation rights generally should not recognize
income until such rights are exercised (assuming there is no ceiling on the
value of the right). Upon exercise, the participating individual will normally
recognize ordinary compensation income for federal income tax purposes equal to
the amount of cash and the fair market value of stock, if any, received upon
such exercise. Participating individuals who are employees will be subject to
withholding with respect to income recognized upon exercise of a stock
appreciation right.
The Company will be entitled to a tax deduction to the extent and in the
year that ordinary income is recognized by the participating individual, so long
as the Company withholds the appropriate taxes with respect to such income and
the individual's total compensation is deemed reasonable in amount.
Participating individuals will recognize gain upon the disposition of any stock
received on exercise of a stock appreciation right equal to the excess of
(1) the amount realized on such disposition over (2) the ordinary income
recognized with respect to such stock under the principles set forth above. That
gain will be taxable as long or short-term capital gain depending on whether the
stock was held for more than one year.
THE FOREGOING IS ONLY A SUMMARY OF THE CURRENT EFFECT OF FEDERAL INCOME
TAXATION UPON THE GRANTEE AND THE COMPANY WITH RESPECT TO THE SHARES PURCHASED
UNDER THE PLAN. REFERENCE SHOULD BE MADE TO THE APPLICABLE PROVISIONS OF THE
CODE. IN ADDITION, THE SUMMARY DOES NOT DISCUSS THE TAX CONSEQUENCES OF A
GRANTEE'S DEATH OR THE INCOME TAX LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN
COUNTRY TO WHICH THE GRANTEE MAY BE SUBJECT.
PLAN BENEFITS.
As of the date of this Proxy Statement, no executive officer, director and
no associates of any executive office or director, has been granted any options
subject to stockholder approval of the proposed Plan. The benefits to be
received pursuant to the Plan by the Company's executive officers, directors and
employees are not determinable at this time.
REQUIRED VOTE
The affirmative vote of the holders of a majority of the shares of the
Company's common stock present or represented at the Annual Meeting is required
to approve the adoption of the Plan. Abstentions will have the same effect as a
"no" vote on this proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PROPOSED ADOPTION
OF THE 2001 STOCK INCENTIVE PLAN.
20
PROPOSAL NO. 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Kost, Forer & Gabbay, a member of Ernst & Young International, has been
appointed by the Board to be the Company's independent auditors for the
Company's fiscal year ending December 31, 2001. In the event that ratification
of this selection of independent auditors is not approved by a majority of the
shares of common stock voting at the Annual Meeting in person or by proxy,
management will review its future selection of independent auditors.
A representative of Ernst & Young International is expected to be present at
the Annual Meeting. The representative will have an opportunity to make a
statement and will be able to respond to appropriate questions.
REQUIRED VOTE
The ratification of the appointment of Kost, Forer & Gabbay requires the
affirmative vote of the holders of a majority of shares of common stock present
or represented and entitled to vote at the Annual Meeting. Abstentions will have
the same effect as a "no" vote on this proposal and broker non-votes will not be
treated as entitled to vote on this matter at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE APPOINTMENT
OF KOST, FORER & GABBAY.
21
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE COMPANY'S
PREVIOUS FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"),
THAT MIGHT INCORPORATE FUTURE FILINGS, INCLUDING THIS PROXY STATEMENT, IN WHOLE
OR IN PART, THE FOLLOWING REPORT SHALL NOT BE DEEMED TO BE INCORPORATED BY
REFERENCE INTO ANY SUCH FILINGS, NOR SHALL THE FOLLOWING REPORT BE DEEMED TO BE
INCORPORATED BY REFERENCE INTO ANY FUTURE FILINGS UNDER THE SECURITIES ACT OR
THE EXCHANGE ACT.
The Audit Committee hereby reports as follows:
1. The Audit Committee has reviewed and discussed the audited financial
statements with the Company's management.
2. The Audit Committee has discussed with Kost, Forer & Gabbay, a member of
Ernst & Young International, the Company's independent accountants, the matters
required to be discussed by SAS 61 (Communication with Audit Committees).
3. The Audit Committee has received the written disclosures and the letter
from Kost, Forer & Gabbay required by Independence Standards Board Standard
No. 1 (Independence Discussions with Audit Committees), and has discussed with
Kost, Forer & Gabbay their independence from the Company.
4. Based on the reviews and discussions referred to in paragraphs
(1) through (3) above, the Audit Committee recommended to the Board of Directors
of DSP Group, and the Board has approved, that the audited financial statements
be included in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2000, for filing with the Securities and Exchange Commission.
Submitted by the Audit Committee
Zvi Limon
Yair Shamir
Shaul Shani
Audit Fees
Kost, Forer & Gabbay performed services for DSP Group in 2000 related to
financial statement audit work, quarterly reviews, Forms S-8 reviews, Forms S-3
reviews, tax services, special projects and other ongoing consulting projects.
Fees paid to the independent auditors were as follows: Audit Fees: $174,000.00
for the audit of consolidated financial statements for the fiscal year ended
December 31, 2000 and the review of financial statements included in the
Company's quarterly filings on form 10-Q; and Other Fees: $120,000.00 for all
other services, including tax services.
STOCKHOLDER PROPOSALS
REQUIREMENTS FOR STOCKHOLDER PROPOSALS TO BE BROUGHT BEFORE AN ANNUAL
MEETING. To be considered for presentation to the Annual Meeting of the
Company's stockholders to be held in 2001,2002, a stockholder proposal must be
received by Moshe Zelnik, Secretary, DSP Group, Inc., 3120 Scott Boulevard,
Santa Clara, California 95054, no later than December 19, 2001.
REQUIREMENTS FOR STOCKHOLDER PROPOSALS TO BE CONSIDERED FOR INCLUSION IN THE
COMPANY'S PROXY MATERIALS. Stockholder proposals submitted pursuant to
Rule 14a-8 under the Exchange Act and intended to be presented at the Company's
2001 Annual Meeting of Stockholders must be received by the Company no later
than December 19, 2001 in order to be considered for inclusion in the Company's
proxy materials for that meeting.
22
OTHER MATTERS
The Board of Directors knows of no other business which will be presented at
the Annual Meeting. If any other business is properly brought before the Annual
Meeting, it is intended that proxies in the enclosed form will be voted in
respect thereof in accordance with the judgments of the persons voting the
proxies.
It is important that the proxies be returned promptly and that your shares
be represented. Stockholders are urged to mark, date, execute and promptly
return the accompanying proxy card in the enclosed envelope.
By Order of the Board of Directors,
/s/ Eli Ayalon
Eli Ayalon
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
April 17, 200012, 2001
Santa Clara, California
23
EXHIBIT A
DSP GROUP, INC.
2001 STOCK INCENTIVE PLAN
1. PURPOSES OF THE PLAN. The purposes of this Stock Incentive Plan are to
attract and retain the best available personnel, to provide additional incentive
to Employees, Directors and Consultants and to promote the success of the
Company's business.
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 incentive 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 Awards granted to
residents therein.
(d) "ASSUMED" means that (i) pursuant to a Corporate Transaction defined
in Section 2(q)(i), 2(q)(ii) or 2(q)(iii) or a Related Entity Disposition,
the contractual obligations represented by the Award are assumed by the
successor entity or its Parent in connection with the Corporate Transaction
or Related Entity Disposition or (ii) pursuant to a Corporate Transaction
defined in Section 2(q)(iv) or 2(q)(v), the Award is affirmed by the
Company. The Award shall not be deemed "Assumed" for purposes of terminating
the Award (in the case of a Corporate Transaction) and the termination of
the Continuous Service of the Grantee (in the case of a Related Entity
Disposition) if pursuant to a Corporate Transaction or a Related Entity
Disposition the Award is replaced with a comparable award with respect to
shares of capital stock of the successor entity of its Parent. However, for
purposes of determining whether the vesting of the Award accelerates, the
Award shall be deemed "Assumed" if the Award is replaced with such a
comparable stock award or the Award is replaced with a cash incentive
program of the successor entity or Parent thereof which preserves the
compensation element of such Award existing at the time of the Corporate
Transaction or Related Entity Disposition and provides for subsequent payout
in accordance with the same vesting schedule applicable to such Award. The
determination of Award comparability shall be made by the Administrator and
its determination shall be final, binding and conclusive.
(e) "AWARD" means the grant of an Option, Restricted Stock, or other
right or benefit under the Plan.
(f) "AWARD AGREEMENT" means the written agreement evidencing the grant
of an Award executed by the Company and the Grantee, including any
amendments thereto.
(g) "BOARD" means the Board of Directors of the Company.
(h) "CAUSE" means, with respect to the termination by the Company or a
Related Entity of the Grantee's Continuous Service, that such termination is
for "Cause" as such term is expressly defined in a then-effective written
agreement between the Grantee and the Company or such Related Entity, or in
the absence of such then-effective written agreement and definition, is
based on, in the determination of the Administrator, the Grantee's:
(i) performance of any act or failure to perform any act in bad faith and to
the detriment of the Company or a Related Entity; (ii) dishonesty,
intentional misconduct or material breach of any agreement with the Company
or a
1
Related Entity; or (iii) commission of a crime involving dishonesty, breach
of trust, or physical or emotional harm to any person.
(i) "CHANGE IN CONTROL" means a change in ownership or control of the
Company effected through either of the following transactions:
(i) the direct or indirect acquisition by any person or related group
of persons (other than an acquisition from or by the Company or by a
Company-sponsored employee benefit plan or by a person that directly or
indirectly controls, is controlled by, or is under common control with,
the Company) of beneficial ownership (within the meaning of Rule 13d-3 of
the Exchange Act) of securities possessing more than fifty percent (50%)
of the total combined voting power of the Company's outstanding
securities pursuant to a tender or exchange offer made directly to the
Company's stockholders which a majority of the Continuing Directors who
are not Affiliates or Associates of the offeror do not recommend such
stockholders accept, or
(ii) a change in the composition of the Board over a period of
thirty-six (36) months or less such that a majority of the Board members
(rounded up to the next whole number) ceases, by reason of one or more
contested elections for Board membership, to be comprised of individuals
who are Continuing Directors.
(j) "CODE" means the Internal Revenue Code of 1986, as amended.
(k) "COMMITTEE" means any committee appointed by the Board to administer
the Plan.
(l) "COMMON STOCK" means the common stock of the Company.
(m) "COMPANY" means DSP Group, Inc., a Delaware corporation.
(n) "CONSULTANT" means any person (other than an Employee or a Director,
solely with respect to rendering services in such person's capacity as a
Director) who is engaged by the Company or any Related Entity to render
consulting or advisory services to the Company or such Related Entity.
(o) "CONTINUING DIRECTORS" means members of the Board who either
(i) have been Board members continuously for a period of at least thirty-six
(36) months or (ii) have been Board members for less than thirty-six
(36) months and were elected or nominated for election as Board members by
at least a majority of the Board members described in clause (i) who were
still in office at the time such election or nomination was approved by the
Board.
(p) "CONTINUOUS SERVICE" means that the provision of services to the
Company or a Related Entity in any capacity of Employee, Director or
Consultant, is not interrupted or terminated. Continuous Service shall not
be considered interrupted in the case of (i) any approved leave of absence,
(ii) transfers among the Company, any Related Entity, or any successor, in
any capacity of Employee, Director or Consultant, or (iii) any change in
status as long as the individual remains in the service of the Company or a
Related Entity in any capacity of Employee, Director or Consultant (except
as otherwise provided in the Award Agreement). An approved leave of absence
shall include sick leave, military leave, or any other authorized personal
leave. For purposes of each Incentive Stock Option granted under the Plan,
if such leave exceeds ninety (90) days, and reemployment upon expiration of
such leave is not guaranteed by statute or contract, then the Incentive
Stock Option shall be treated as a Non-Qualified Stock Option on the day
three (3) months and one (1) day following the expiration of such ninety
(90) day period.
2
(q) "CORPORATE TRANSACTION" means any of the following transactions:
(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);
(iii) approval by the Company's shareholders of any plan or proposal
for the complete liquidation or dissolution of the Company;
(iv) 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; or
(v) acquisition by any person or related group of persons (other than
the Company or by a Company-sponsored employee benefit plan) of
beneficial ownership (within the meaning of Rule 13d-3 of the Exchange
Act) of securities possessing more than fifty percent (50%) of the total
combined voting power of the Company's outstanding securities (whether or
not in a transaction also constituting a Change in Control).
(r) "COVERED EMPLOYEE" means an Employee who is a "covered employee"
under Section 162(m)(3) of the Code.
(s) "DIRECTOR" means a member of the Board or the board of directors of
any Related Entity.
(t) "DISABILITY" means as defined under the long-term disability policy
of the Company or the Related Entity to which the Grantee provides services
regardless of whether the Grantee is covered by such policy. If the Company
or the Related Entity to which the Grantee provides service does not have a
long-term disability plan in place, "Disability" means that a Grantee is
unable to carry out the responsibilities and functions of the position held
by the Grantee by reason of any medically determinable physical or mental
impairment. A Grantee will not be considered to have incurred a Disability
unless he or she furnishes proof of such impairment sufficient to satisfy
the Administrator in its discretion.
(u) "EMPLOYEE" means any person, including an Officer or Director, who
is an employee of the Company or any Related Entity. The payment of a
director's fee by the Company or a Related Entity shall not be sufficient to
constitute "employment" by the Company.
(v) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(w) "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 price for a Share for the last
market trading day prior to the time of the determination (or, if no
closing price was reported on that date, on the last trading date on
which a closing price was 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
3
(ii) In the absence of an established market for the Common Stock of
the type described in (i), above, the Fair Market Value thereof shall be
determined by the Administrator in good faith.
(x) "GRANTEE" means an Employee, Director or Consultant who receives an
Award under the Plan.
(y) "IMMEDIATE FAMILY" means any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law, father-in-law, son-in law, daughter-in-law, brother-in-law,
or sister-in-law, including adoptive relationships, any person sharing the
Grantee's household (other than a tenant or employee), a trust in which
these persons (or the Grantee) have more than fifty percent (50%) of the
beneficial interest, a foundation in which these persons (or the Grantee)
control the management of assets, and any other entity in which these
persons (or the Grantee) own more than fifty percent (50%) of the voting
interests.
(z) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code.
(aa) "NON-QUALIFIED STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(bb) "OFFICER" means a person who is an officer of the Company or a
Related Entity within the meaning of Section 16 of the Exchange Act and the
rules and regulations promulgated thereunder.
(cc) "OPTION" means an option to purchase Shares pursuant to an Award
Agreement granted under the Plan.
(dd) "PARENT" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(ee) "PERFORMANCE-BASED COMPENSATION" means compensation qualifying as
"performance-based compensation" under Section 162(m) of the Code.
(ff) "PLAN" means this 2001 Stock Incentive Plan.
(gg) "RELATED ENTITY" means any Parent, Subsidiary and any business,
corporation, partnership, limited liability company or other entity in which
the Company, a Parent or a Subsidiary holds a substantial ownership
interest, directly or indirectly.
(hh) "RELATED ENTITY DISPOSITION" means the sale, distribution or other
disposition by the Company, a Parent or a Subsidiary of all or substantially
all of the interests of the Company, a Parent or a Subsidiary in any Related
Entity effected by a sale, merger or consolidation or other transaction
involving that Related Entity or the sale of all or substantially all of the
assets of that Related Entity, other than any Related Entity Disposition to
the Company, a Parent or a Subsidiary.
(ii) "RESTRICTED STOCK" means Shares issued under the Plan to the
Grantee for such consideration, if any, and subject to such restrictions on
transfer, rights of first refusal, repurchase provisions, forfeiture
provisions, and other terms and conditions as established by the
Administrator.
(jj) "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor thereto.
(kk) "SHARE" means a share of the Common Stock.
(ll) "SUBSIDIARY" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
4
3. STOCK SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 10, below, the maximum aggregate
number of Shares which may be issued pursuant to all Awards is 1,000,000 Shares,
increased by (i) any Shares available for future Awards under the Company's 1991
Employee and Consultant Stock Plan as of May 15, 2001 and (ii) any Shares that
are represented by Awards under the Company's 1991 Employee and Consultant Stock
Plan that are forfeited, expire or are cancelled without delivery of the Shares
or which result in forfeiture of the Shares back to the Company on or after
May 15, 2001. Notwithstanding the foregoing, subject to the provisions of
Section 10, below, of the number of Shares specified above, the maximum
aggregate number of Shares available for grant of Incentive Stock Options shall
be 1,000,000 Shares and the maximum aggregate number of Shares which may be
issued pursuant to all Awards of Restricted Stock is 1,000,000 Shares. The
Shares to be issued pursuant to Awards may be authorized, but unissued, or
reacquired Common Stock.
(b) Any Shares covered by an Award (or portion of an Award) which is
forfeited or canceled, expires or is settled in cash, shall be deemed not to
have been issued for purposes of determining the maximum aggregate number of
Shares which may be issued under the Plan. Shares that actually have been issued
under the Plan pursuant to an Award shall not be returned to the Plan and shall
not become available for future issuance under the Plan, except that if unvested
Shares are forfeited, or repurchased by the Company at their original purchase
price, such Shares shall become available for future grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) PLAN ADMINISTRATOR.
(i) ADMINISTRATION WITH RESPECT TO DIRECTORS AND OFFICERS. With respect
to grants of Awards to Directors or Employees who are also Officers or
Directors of the Company, the Plan shall be administered by (A) the Board or
(B) a Committee designated by the Board, which Committee shall be
constituted in such a manner as to satisfy the Applicable Laws and to permit
such grants and related transactions under the Plan to be exempt from
Section 16(b) of the Exchange Act in accordance with Rule 16b-3. Once
appointed, such Committee shall continue to serve in its designated capacity
until otherwise directed by the Board.
(ii) ADMINISTRATION WITH RESPECT TO CONSULTANTS AND OTHER EMPLOYEES.
With respect to grants of Awards 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 Awards and may limit such authority as the
Board determines from time to time.
(iii) ADMINISTRATION WITH RESPECT TO COVERED EMPLOYEES. Notwithstanding
the foregoing, grants of Awards to any Covered Employee intended to qualify
as Performance-Based Compensation shall be made only by a Committee (or
subcommittee of a Committee) which is comprised solely of two or more
Directors eligible to serve on a committee making Awards qualifying as
Performance-Based Compensation. In the case of such Awards granted to
Covered Employees, references to the "Administrator" or to a "Committee"
shall be deemed to be references to such Committee or subcommittee.
(iv) ADMINISTRATION ERRORS. In the event an Award is granted in a manner
inconsistent with the provisions of this subsection (a), such Award shall be
presumptively valid as of its grant date to the extent permitted by the
Applicable Laws.
5
(b) POWERS OF THE ADMINISTRATOR. Subject to Applicable Laws and the
provisions of the Plan (including any other powers given to the Administrator
hereunder), and except as otherwise provided by the Board, the Administrator
shall have the authority, in its discretion:
(i) to select the Employees, Directors and Consultants to whom Awards
may be granted from time to time hereunder;
(ii) to determine whether and to what extent Awards are granted
hereunder;
(iii) to determine the number of Shares or the amount of other
consideration to be covered by each Award granted hereunder;
(iv) to approve forms of Award Agreements for use under the Plan;
(v) to determine the terms and conditions of any Award granted
hereunder;
(vi) to amend the terms of any outstanding Award granted under the Plan,
provided that any amendment that would adversely affect the Grantee's rights
under an outstanding Award shall not be made without the Grantee's written
consent;
(vii) to construe and interpret the terms of the Plan and Awards,
including without limitation, any notice of award or Award Agreement,
granted pursuant to the Plan;
(viii) to establish additional terms, conditions, rules or procedures to
accommodate the rules or laws of applicable foreign jurisdictions and to
afford Grantees favorable treatment under such rules or laws; provided,
however, that no Award 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; and
(ix) to take such other action, not inconsistent with the terms of the
Plan, as the Administrator deems appropriate.
5. ELIGIBILITY. Awards other than Incentive Stock Options may be granted
to Employees, Directors and Consultants. Incentive Stock Options may be granted
only to Employees of the Company, a Parent or a Subsidiary. An Employee,
Director or Consultant who has been granted an Award may, if otherwise eligible,
be granted additional Awards. Awards may be granted to such Employees, Directors
or Consultants who are residing in foreign jurisdictions as the Administrator
may determine from time to time.
6. TERMS AND CONDITIONS OF AWARDS.
(a) TYPE OF AWARDS. The Administrator is authorized under the Plan to award
any type of arrangement to an Employee, Director or Consultant that is not
inconsistent with the provisions of the Plan and that by its terms involves or
might involve the issuance of (i) Shares, (ii) an Option or similar right with a
fixed or variable price related to the Fair Market Value of the Shares and with
an exercise or conversion privilege related to the passage of time, the
occurrence of one or more events, or the satisfaction of performance criteria or
other conditions, or (iii) any other security with the value derived from the
value of the Shares. Such awards include, without limitation, Options or sales
or bonuses of Restricted Stock, and an Award may consist of one such security or
benefit, or two (2) or more of them in any combination or alternative.
(b) DESIGNATION OF AWARD. Each Award shall be designated in the Award
Agreement. In the case of an Option, the Option shall be designated as either an
Incentive Stock Option or a Non-Qualified Stock Option. However, notwithstanding
such designation, to the extent that the aggregate Fair Market Value of Shares
subject to Options designated as Incentive Stock Options which become
exercisable for the first time by a Grantee during any calendar year (under all
plans of the Company or any Parent or Subsidiary) exceeds $100,000, such excess
Options, to the extent of the Shares covered thereby in excess
6
of the foregoing limitation, shall be treated as Non-Qualified Stock Options.
For this purpose, Incentive Stock Options shall be taken into account in the
order in which they were granted, and the Fair Market Value of the Shares shall
be determined as of the grant date of the relevant Option.
(c) CONDITIONS OF AWARD. Subject to the terms of the Plan, the Administrator
shall determine the provisions, terms, and conditions of each Award including,
but not limited to, the Award vesting schedule, repurchase provisions, rights of
first refusal, forfeiture provisions, form of payment (cash, Shares, or other
consideration) upon settlement of the Award, payment contingencies, 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 a payment or vesting corresponding to the
degree of achievement as specified in the Award Agreement.
(d) ACQUISITIONS AND OTHER TRANSACTIONS. The Administrator may issue Awards
under the Plan in settlement, assumption or substitution for, outstanding awards
or obligations to grant future awards in connection with the Company or a
Related Entity acquiring another entity, an interest in another entity or an
additional interest in a Related Entity whether by merger, stock purchase, asset
purchase or other form of transaction.
(e) DEFERRAL OF AWARD PAYMENT. The Administrator may establish one or more
programs under the Plan to permit selected Grantees the opportunity to elect to
defer receipt of consideration upon exercise of an Award, satisfaction of
performance criteria, or other event that absent the election would entitle the
Grantee to payment or receipt of Shares or other consideration under an Award
(but only to the extent that such deferral programs would not result in an
accounting compensation charge unless otherwise determined by the
Administrator). The Administrator may establish the election procedures, the
timing of such elections, the mechanisms for payments of, and accrual of
interest or other earnings, if any, on amounts, Shares or other consideration so
deferred, and such other terms, conditions, rules and procedures that the
Administrator deems advisable for the administration of any such deferral
program.
(f) SEPARATE PROGRAMS. The Administrator may establish one or more separate
programs under the Plan for the purpose of issuing particular forms of Awards to
one or more classes of Grantees on such terms and conditions as determined by
the Administrator from time to time.
(g) INDIVIDUAL OPTION LIMIT. The maximum number of Shares with respect to
which Options may be granted to any Grantee in any fiscal year of the Company
shall be seven hundred and fifty thousand (750,000) Shares. In connection with a
Grantee's commencement of Continuous Service, a Grantee may be granted Options
for up to an additional seven hundred and fifty thousand (750,000) Shares which
shall not count against the limit set forth in the previous sentence. The
foregoing limitations 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 limitations with respect to a Grantee, 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 Grantee. 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.
(h) EARLY EXERCISE. The Award Agreement may, but need not, include a
provision whereby the Grantee may elect at any time while an Employee, Director
or Consultant to exercise any part or all of the Award prior to full vesting of
the Award. Any unvested Shares received pursuant to such exercise may be subject
to a repurchase right in favor of the Company or a Related Entity or to any
other restriction the Administrator determines to be appropriate.
7
(i) TERM OF AWARD. The term of each Award shall be the term stated in the
Award Agreement, provided, however, that the term of an Award shall be no more
than ten (10) years from the date of grant thereof. However, in the case of an
Incentive Stock Option granted to a Grantee who, at the time the Option is
granted, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the term of
the Incentive Stock Option shall be five (5) years from the date of grant
thereof or such shorter term as may be provided in the Award Agreement.
(j) TRANSFERABILITY OF AWARDS. Incentive Stock Options may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Grantee, only by the Grantee; provided, however, that
the Grantee may designate a beneficiary of the Grantee's Incentive Stock Option
in the event of the Grantee's death on a beneficiary designation form provided
by the Administrator. Other Awards shall be transferred by will and by the laws
of descent and distribution, and during the lifetime of the Grantee, by gift and
or pursuant to a domestic relations order to members of the Grantee's Immediate
Family to the extent and in the manner determined by the Administrator.
(k) TIME OF GRANTING AWARDS. The date of grant of an Award shall for all
purposes be the date on which the Administrator makes the determination to grant
such Award, or such other date as is determined by the Administrator. Notice of
the grant determination shall be given to each Employee, Director or Consultant
to whom an Award is so granted within a reasonable time after the date of such
grant.
7. AWARD EXERCISE OR PURCHASE PRICE, CONSIDERATION AND TAXES.
(a) EXERCISE OR PURCHASE PRICE. The exercise or purchase price, if any, for
an Award shall be as follows:
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, at the time of the grant of such
Incentive Stock Option owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be not less than
one hundred ten percent (110%) of the Fair Market Value per Share on the
date of grant; or
(B) granted to any Employee other than an Employee described in the
preceding paragraph, the per Share exercise price shall be not less than
one hundred percent (100%) of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Non-Qualified Stock Option, the per Share exercise
price shall be not less than eighty-five percent (85%) of the Fair Market
Value per Share on the date of grant.
(iii) In the case of Awards intended to qualify as Performance-Based
Compensation, the exercise or purchase price, if any, shall be not less than
one hundred percent (100%) of the Fair Market Value per Share on the date of
grant.
(iv) In the case of other Awards, such price as is determined by the
Administrator.
(v) Notwithstanding the foregoing provisions of this Section 7(a), in
the case of an Award issued pursuant to Section 6(d), above, the exercise or
purchase price for the Award shall be determined in accordance with the
principles of Section 424(a) of the Code.
(b) CONSIDERATION. Subject to Applicable Laws, the consideration to be paid
for the Shares to be issued upon exercise or purchase of an Award including the
method of payment, shall be determined by the Administrator (and, in the case of
an Incentive Stock Option, shall be determined at the time of grant). In
addition to any other types of consideration the Administrator may determine,
the
8
Administrator is authorized to accept as consideration for Shares issued under
the Plan the following, provided that the portion of the consideration equal to
the par value of the Shares must be paid in cash or other legal consideration
permitted by the Delaware General Corporation Law:
(i) cash;
(ii) check;
(iii) delivery of Grantee's promissory note with such recourse, interest,
security, and redemption provisions as the Administrator determines as
appropriate;
(iv) surrender of Shares or delivery of a properly executed form of
attestation of ownership of Shares as the Administrator may require
(including withholding of Shares otherwise deliverable upon exercise of the
Award) which have a Fair Market Value on the date of surrender or
attestation equal to the aggregate exercise price of the Shares as to which
said Award shall be exercised (but only to the extent that such exercise of
the Award 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) with respect to Options, payment through a broker-dealer sale and
remittance procedure pursuant to which the Grantee (A) shall provide written
instructions to a Company designated brokerage firm to effect the immediate
sale of some or all of the purchased Shares and remit to the Company, out of
the sale proceeds available on the settlement date, sufficient funds to
cover the aggregate exercise price payable for the purchased Shares and
(B) shall provide written directives to the Company to deliver the
certificates for the purchased Shares directly to such brokerage firm in
order to complete the sale transaction; or
(vi) any combination of the foregoing methods of payment.
(c) TAXES. No Shares shall be delivered under the Plan to any Grantee or
other person until such Grantee or other person has made arrangements acceptable
to the Administrator for the satisfaction of any foreign, federal, state, or
local income and employment tax withholding obligations, including, without
limitation, obligations incident to the receipt of Shares or the disqualifying
disposition of Shares received on exercise of an Incentive Stock Option. Upon
exercise of an Award the Company shall withhold or collect from Grantee an
amount sufficient to satisfy such tax obligations.
8. EXERCISE OF AWARD.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER.
(i) Any Award 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 Award Agreement.
(ii) An Award 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 Award by the person entitled to exercise the Award and full payment for
the Shares with respect to which the Award is exercised, including, to the
extent selected, use of the broker-dealer sale and remittance procedure to
pay the purchase price as provided in Section 7(b)(v). Until the issuance
(as evidenced by the appropriate entry on the books of the Company or of a
duly authorized transfer agent of the Company) of the stock certificate
evidencing such Shares, no right to vote or receive dividends or any other
rights as a stockholder shall exist with respect to Shares subject to an
Award, notwithstanding the exercise of an Option or other Award. The Company
shall issue (or cause to be issued) such stock certificate promptly upon
exercise of the Award. 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 Award Agreement or Section 10, below.
9
(b) EXERCISE OF AWARD FOLLOWING TERMINATION OF CONTINUOUS SERVICE.
(i) An Award may not be exercised after the termination date of such
Award set forth in the Award Agreement and may be exercised following the
termination of a Grantee's Continuous Service only to the extent provided in
the Award Agreement.
(ii) Where the Award Agreement permits a Grantee to exercise an Award
following the termination of the Grantee's Continuous Service for a
specified period, the Award shall terminate to the extent not exercised on
the last day of the specified period or the last day of the original term of
the Award, whichever occurs first.
(iii) Any Award designated as an Incentive Stock Option to the extent not
exercised within the time permitted by law for the exercise of Incentive
Stock Options following the termination of a Grantee's Continuous Service
shall convert automatically to a Non-Qualified Stock Option and thereafter
shall be exercisable as such to the extent exercisable by its terms for the
period specified in the Award Agreement.
9. CONDITIONS UPON ISSUANCE OF SHARES.
(a) Shares shall not be issued pursuant to the exercise of an Award unless
the exercise of such Award 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 Award, the Company may require the
person exercising such Award 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 Award, and the number of Shares which have been authorized for
issuance under the Plan but as to which no Awards have yet been granted or which
have been returned to the Plan, the exercise or purchase price of each such
outstanding Award, the maximum number of Shares with respect to which Options
may be granted to any Grantee in any fiscal year of the Company, as well as any
other terms that the Administrator determines require adjustment shall be
proportionately adjusted for (i) any increase or decrease in the number of
issued Shares resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Shares, or similar transaction affecting
the Shares, (ii) any other increase or decrease in the number of issued Shares
effected without receipt of consideration by the Company, or (iii) as the
Administrator may determine in its discretion, any other transaction with
respect to Common Stock to which Section 424(a) of the Code applies or a similar
transaction; provided, however that conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Administrator and its
determination shall be final, binding and conclusive. Except as the
Administrator determines, 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 Award.
11. CORPORATE TRANSACTIONS/CHANGES IN CONTROL/RELATED ENTITY DISPOSITIONS.
(a) TERMINATION OF AWARD TO EXTENT NOT ASSUMED.
(i) CORPORATE TRANSACTION. Effective upon the consummation of a
Corporate Transaction, all outstanding Awards under the Plan shall
terminate. However, all such Awards shall not terminate to the extent they
are Assumed in connection with the Corporate Transaction.
10
(ii) RELATED ENTITY DISPOSITION. Effective upon the consummation of a
Related Entity Disposition, for purposes of the Plan and all Awards, there
shall be a deemed termination of Continuous Service of each Grantee who is
at the time engaged primarily in service to the Related Entity involved in
such Related Entity Disposition and each Award of such Grantee which is at
the time outstanding under the Plan shall be exercisable in accordance with
the terms of the Award Agreement evidencing such Award. However, such
Continuous Service shall not be deemed to terminate as to the portion of any
such award that is Assumed.
(b) ACCELERATION OF AWARD UPON CORPORATE TRANSACTION/CHANGE IN
CONTROL/RELATED ENTITY DISPOSITION.
(i) CORPORATE TRANSACTION. Except as provided otherwise in an individual
Award Agreement, in the event of a Corporate Transaction, for the portion of
each Award that is not Assumed, such portion of the Award shall
automatically become fully vested and exercisable and be released from any
repurchase or forfeiture rights (other than repurchase rights exercisable at
fair market value) for all of the Shares at the time represented by such
portion of the Award, immediately prior to the specified effective date of
such Corporate Transaction.
(ii) CHANGE IN CONTROL. Except as provided otherwise in an individual
Award Agreement, in the event of a Change in Control (other than a Change in
Control which also is a Corporate Transaction), each Award which is at the
time outstanding under the Plan automatically shall become fully vested and
exercisable and be released from any repurchase or forfeiture rights (other
than repurchase rights exercisable at fair market value), immediately prior
to the specified effective date of such Change in Control, for all of the
Shares at the time represented by such Award.
(iii) RELATED ENTITY DISPOSITION. Except as provided otherwise in an
individual Award Agreement, effective upon the consummation of a Related
Entity Disposition, for the portion of each Award of a Grantee who is at the
time engaged primarily in service to the Related Entity involved in such
Related Entity Disposition that is not Assumed, such portion of the Award of
such Grantee automatically shall become fully vested and exercisable and be
released from any repurchase or forfeiture rights (other than repurchase
rights exercisable at fair market value) for all of the Shares at the time
represented by such portion of the Award, immediately prior to the specified
effective date of such Related Entity Disposition.
(c) EFFECT OF ACCELERATION ON INCENTIVE STOCK OPTIONS. The portion of any
Incentive Stock Option accelerated under this Section 11 in connection with a
Corporate Transaction, Change in Control or Related Entity Disposition shall
remain exercisable as an Incentive Stock Option under the Code only to the
extent the $100,000 dollar limitation of Section 422(d) of the Code is not
exceeded. To the extent such dollar limitation is exceeded, the accelerated
excess portion of such Option shall be exercisable as a Non-Qualified Stock
Option.
12. EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become effective upon
the earlier to occur of its adoption by the Board or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten
(10) years unless sooner terminated. Subject to Section 17, below, and
Applicable Laws, Awards may be granted under the Plan upon its becoming
effective.
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 Award may be granted during any suspension of the Plan or after
termination of the Plan.
(c) Any amendment, suspension or termination of the Plan (including
termination of the Plan under Section 12, above) shall not affect Awards already
granted, and such Awards shall remain in full
11
force and effect as if the Plan had not been amended, suspended or terminated,
unless mutually agreed otherwise between the Grantee and the Administrator,
which agreement must be in writing and signed by the Grantee 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/CONSULTING RELATIONSHIP. The Plan
shall not confer upon any Grantee any right with respect to the Grantee's
Continuous Service, nor shall it interfere in any way with his or her right or
the Company's right to terminate the Grantee's Continuous Service at any time,
with or without Cause, and with or without notice. The Company's ability to
terminate the employment of a Grantee who is employed at will is in no way
affected by its determination that the Grantee's Continuous Service has been
terminated for Cause for the purposes of this Plan.
16. NO EFFECT ON RETIREMENT AND OTHER BENEFIT PLANS. Except as
specifically provided in a retirement or other benefit plan of the Company or a
Related Entity, Awards shall not be deemed compensation for purposes of
computing benefits or contributions under any retirement plan of the Company or
a Related Entity, and shall not affect any benefits under any other benefit plan
of any kind or any benefit plan subsequently instituted under which the
availability or amount of benefits is related to level of compensation. The Plan
is not a "Retirement Plan" or "Welfare Plan" under the Employee Retirement
Income Security Act of 1974, as amended.
17. STOCKHOLDER APPROVAL. The grant of Incentive Stock Options under the
Plan shall be subject to approval by the stockholders of the Company within
twelve (12) months before or after the date the Plan is adopted excluding
Incentive Stock Options issued in substitution for outstanding Incentive Stock
Options pursuant to Section 424(a) of the Code. Such stockholder approval shall
be obtained in the degree and manner required under Applicable Laws. The
Administrator may grant Incentive Stock Options under the Plan prior to approval
by the stockholders, but until such approval is obtained, no such Incentive
Stock Option shall be exercisable. In the event that stockholder approval is not
obtained within the twelve (12) month period provided above, all Incentive Stock
Options previously granted under the Plan shall be exercisable as Non-Qualified
Stock Options.
12
EXHIBIT B
DSP GROUP, INC.
CHARTER OF THE AUDIT COMMITTEE
PURPOSE:
The Audit Committee will make such examinations as are necessary to monitor
DSP Group, Inc. and its subsidiaries' (the "COMPANY") systems of internal
control, corporate financial reporting and its internal and external audits, to
provide to the Board of Directors the results of its examinations and
recommendations derived therefrom, to outline to the Board of Directors
improvements made, or to be made, in internal accounting controls, to nominate
independent auditors, and to provide to the Board of Directors such additional
information and materials as it may deem necessary to make the Board of
Directors aware of significant financial matters that require the Board of
Directors' attention.
In addition, the Audit Committee will undertake those specific duties and
responsibilities listed below and such other duties as the Board of Directors
from time to time prescribe.
MEMBERSHIP:
The Audit Committee members will be appointed by, and will serve at the
discretion of, the Board of Directors and will consist of at least three
(3) members of the Board of Directors:
1. Each of whom will be able to read and understand fundamental financial
statements, in accordance with the NASDAQ National Market Audit
Committee requirements;
2. At least one of whom will have past employment experience in finance or
accounting, requisite professional certification in accounting, or
other comparable experience or background, including a current or past
position as a chief executive or financial officer or other senior
officer with financial oversight responsibilities; and
3. Each of whom will (i) be an independent director; or (ii) if the Board
of Directors determines it to be in the best interests of the Company
and its stockholders to have one (1) non-independent director, and the
Board of Directors discloses the reasons for the determination in the
Company's next annual proxy statement, then the Company may appoint one
(1) non-independent director to the Audit Committee if the director is
not a current employee or officer, or an immediate family member of a
current employee or officer.
RESPONSIBILITIES:
The responsibilities of the Audit Committee shall include:
1. Reviewing on a continuing basis the adequacy of the Company's system of
internal controls;
2. Reviewing on a continuing basis the activities, organizational
structure and qualifications of the Company's internal audit function;
3. Reviewing the independent auditors' proposed audit scope, approach, and
independence;
4. Conducting a post-audit review of the financial statements and audit
findings, including any significant suggestions for improvements
provided to management by the independent auditors;
5. Reviewing the performance of the independent auditors, who shall be
accountable to the Board and the Audit Committee;
13
6. Recommending the appointment of independent auditors to the Board of
Directors;
7. Reviewing fee arrangements with the independent auditors;
8. Reviewing before release the audited financial statements and
Management's Discussion and Analysis in the Company's annual report on
Form 10-K;
9. Reviewing before release the unaudited quarterly operating results in
the Company's quarterly earnings release;
10. Overseeing compliance with the requirements of the Securities and
Exchange Commission for disclosure of independent auditor's services
and audit committee members and activities;
11. Reviewing management's monitoring of compliance with the Company's
Standards of Business Conduct and with the Foreign Corrupt Practices
Act;
12. Reviewing, in conjunction with counsel, any legal matters that could
have a significant impact on the Company's financial statements;
13. Providing oversight and review of the Company's asset management
policies, including an annual review of the Company's investment
policies and performance for cash and short-term investments;
14. If necessary, instituting special investigations and, if appropriate,
hiring special counsel or experts to assist;
15. Reviewing related party transactions for potential conflicts of
interest;
16. Providing a report in the Company's proxy statement in accordance with
the requirements of Item 306 of Regulations S-K and S-B and Item
7(e)(3) of Schedule 14A; and
17. Performing other oversight functions as requested by the full Board of
Directors.
In addition to the above responsibilities, the Audit Committee will
undertake such other duties as the Board of Directors delegates to it, and will
report, at least annually, to the Board regarding the Committee's examinations
and recommendations.
MEETINGS:
The Audit Committee will meet at least two times each year. The Audit
Committee may establish its own schedule which it will provide to the Board of
Directors in advance.
The Audit Committee will meet separately with the Chief Executive Officer
and separately with the Chief Financial Officer of the Company at least annually
to review the financial affairs of the Company. The Audit Committee will meet
with the independent auditors of the Company, at such times as it deems
appropriate, to review the independent auditor's examination and management
report.
MINUTES:
The Audit Committee will maintain written minutes of its meetings, which
minutes will be filed with the minutes of the meetings of the Board of
Directors.
14
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF DSP GROUP, INC.
FOR THE 20002001 ANNUAL MEETING OF STOCKHOLDERS
MAY 16, 200014, 2001
The undersigned stockholder of DSP GROUP, INC., a Delaware corporation,
hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders and
Proxy Statement, each dated April 17, 2000,12, 2001, and the 19992000 Annual Report to
Stockholders and hereby appoints Eli Ayalon and Moshe Zelnik or either of them,
proxies, with full power to each of substitution, on behalf and in the name of
the undersigned, to represent the undersigned at the 20002001 Annual Meeting of
Stockholders of DSP GROUP, INC. to be held on May 16, 200014, 2001 at 9:00 a.m., local
time, at DSP GROUP, INC.'s principal executive offices located at 3120 Scott
Boulevard, Santa Clara, California, and at any adjournment or adjournments
thereof, and to vote all shares of Common Stock which the undersigned would be
entitled to vote if then and there personally present, on the matters set forth
below.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR THE ELECTION OF A DIRECTOR,DIRECTORS, FOR THE ADOPTION OF THE
2001 STOCK INCENTIVE PLAN, FOR THE RATIFICATION OF THE APPOINTMENT OF KOST,
FORER & GABBAY AS INDEPENDENT AUDITORS, AND AS SAID PROXIES DEEM ADVISABLE ON
SUCH MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
1. ELECTION OF A DIRECTOR:DIRECTORS:
____ FOR the nomineenominees listed below ____ WITHHOLD AUTHORITY to vote for the
(except as indicated) for the nomineenominees listed below
IF YOU WISH TO WITHHOLD AUTHORITY TO VOTE FOR THE NOMINEE, STRIKE A LINE THROUGH
SUCH NOMINEE'S NAME LISTED BELOW.
PATRICK TANGUYELI AYALON
ZVI LIMON
LOUIS SILVER
2. PROPOSAL TO ADOPT THE 2001 STOCK INCENTIVE PLAN:
_____ FOR _____ AGAINST _____ ABSTAIN
3. PROPOSAL TO RATIFY THE APPOINTMENT OF KOST, FORER & GABBAY
AS THE INDEPENDENT AUDITORS OF DSP GROUP, INC. FOR FISCAL 2000:2001:
_____ FOR _____ AGAINST _____ ABSTAIN
DATED: _____________________, 2000
-----------------------------------_____________________________, 2001
___________________________________________
(Signature)
-----------------------------------___________________________________________
(Signature)
This Proxy should be marked, dated and
signed by the stockholder(s) exactly as his
or her name appears hereon, and returned
promptly in the enclosed envelope. Persons
signing in a fiduciary capacity should so
indicate. If shares are held by joint
tenants or as community property, both
should sign.
DSP GROUP, INC.
2000 ANNUAL MEETING OF STOCKHOLDERS
MAY, 16, 2000
9:00 A.M.
DSP GROUP, INC.
3120 SCOTT BOULEVARD
SANTA CLARA, CA
DSP GROUP, INC.
3120 SCOTT BOULEVARD, SANTA CLARA, CA PROXY
_______________________________________________________________________________
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF DSP GROUP,
INC. FOR THE 2000 ANNUAL MEETING OF STOCKHOLDERS ON MAY 16, 2000.
The undersigned stockholder of DSP GROUP, INC., a Delaware corporation,
hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders
and Proxy Statement, each dated April 17, 2000, and the 1999 Annual Report to
Stockholders and hereby appoints Eli Ayalon and Moshe Zelnik or either of
them, proxies, with full power to each of substitution, on behalf and in the
name of the undersigned, to represent the undersigned at the 2000 Annual
Meeting of Stockholders of DSP GROUP, INC. to be held on May 16, 2000 at 9:00
a.m., local time, at DSP GROUP, INC.'s principal executive offices located at
3120 Scott Boulevard, Santa Clara, California, and at any adjournment or
adjournments thereof, and to vote all shares of Common Stock which the
undersigned would be entitled to vote if then and there personally present,
on the matters set forth below.
SEE REVERSE FOR VOTING INSTRUCTIONS.
1. Election of a director: 01 Patrick Tanguy / / Vote FOR / / Vote WITHHELD
the nominee from the nominee
2. Proposal to ratify the appointment of Kost, Forer & Gabbay as the
independent auditors of DSP GROUP, INC. for fiscal 2000: / / For / / Against / / Abstain
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED, WILL BE VOTED FOR THE ELECTION OF A
DIRECTOR, FOR THE RATIFICATION OF THE APPOINTMENT OF KOST, FORER & GABBAY AS INDEPENDENT AUDITORS, AND AS SAID PROXIES
DEEM ADVISABLE ON SUCH MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
Address Change? Mark Box / / Dated:______________________, 2000
Indicate changes below:
________________________________________________
________________________________________________
Signature(s) in Box
This Proxy should be marked, dated and signed by
the stockholder(s) exactly as his or her name
appears hereon, and returned promptly in the
enclosed envelope. Persons signing in a fiduciary
capacity should so indicate. If shares are held by
joint tenants or as community property, both
should sign.