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ISS Expresses Concern About Board Leadership At DSP And Recommends Withholding Votes From Former Chairman Eliyahu Ayalon

NEW YORK, June 3, 2013 /PRNewswire/ -- Starboard Value LP (together with its affiliates, "Starboard"), one of the largest shareholders of DSP Group, Inc. ("DSP" or "the Company") (NASDAQ: DSPG) beneficially owning approximately 10.1% of its outstanding common stock, today responded to the release of reports by proxy advisory firms Institutional Shareholder Services, Inc. ("ISS") and Glass Lewis & Co., LLC ("Glass Lewis") regarding Starboard's election contest at DSP.

Jeffrey C. Smith, Managing Member of Starboard Value, stated, "We agree with ISS' concern regarding Board leadership at DSP, particularly the actions of former Chairman Ayalon.  We, too, find the actions of the Board's leadership extremely troubling, including the Board's failure, according to ISS, ' to ensure that the two shareholder nominees appointed as part of the settlement in 2012 were also assigned to committees and fully integrated into board discussions.'  We believe that despite the Board's recent reactionary actions the Board continues to resist necessary change at DSP.  Therefore, we are encouraged that ISS has sought to address ' ongoing board reluctance to embrace a shareholder perspective' by recommending that DSP's shareholders WITHHOLD votes from former Chairman Ayalon at the upcoming annual meeting."

Continued Smith, "We are further encouraged that both ISS and Glass Lewis acknowledge DSP's years of underperformance, as well as the reactive nature of the recently announced changes.  As ISS stated in its report regarding these changes, ' the reactive nature of their adoption creates more concern about the board's leadership, rather than the confidence in a truly proactive sense of accountability for which shareholders might have hoped after the 2012 settlement.'  We also are pleased that Glass Lewis recognizes the skills and operational experience of our nominees.  We are disappointed, however, that ISS and Glass Lewis take the promises of the Board's leadership regarding their plan for DSP at face value despite their record of excessive spending, failed product development, poor corporate governance, and destruction of shareholder value."

Smith continued, "Glass Lewis acknowledges the disturbing nature of the Board's past governance actions, stating in its report: ' we recognize that the board has not always been as pro-shareholder friendly as it now purports to be.'  We believe that this is a dramatic understatement of the pervasive nature of the Board's governance practices and the harm they have inflicted on the Company's shareholders by excluding truly independent voices that can help turn DSP around.  Further, ISS acknowledges that the changes DSP has made to its business and governance practices are reactionary to the election contest and, as ISS states, ' rais[e] the question of whether the hearts and minds are more committed to reform than to proxy contest tactics.'"

Smith further stated, "Importantly, ISS also acknowledges that Starboard's involvement at DSP has contributed to increased oversight and a sharper focus on operational improvements, noting that ' the beginning of these improvements appear to coincide with the beginning of the dissidents' involvement with the company…so it is not unreasonable to conclude that the activist attention was at least partially responsible for the resulting improvements in operating and share price performance.'  There is still room for much more improvement at DSP, and we believe additional representation on the Board is absolutely necessary to ensure that the Board and management continue to remain singularly focused on enhancing value for the benefit of all shareholders when the election contest is over.  Vote the WHITE proxy card today for change that will create value at DSP!"

Excerpts from ISS's Analysis

On Governance at DSP:

"[The Board's] decision to not appoint either dissident director to any board committee until this month is troubling, particularly given the two independent directors were appointed as part of a shareholder monitoring mechanism, and lends some support to the dissidents' claims…Traub continues to serve on the board without committee assignments, indicating that the strain and potential for isolation of shareholder nominees remains ."

"The dissidents have argued that despite gaining these 2 seats, alternate views and hard questions are still not being properly considered due to a board and Chairman which have structurally impeded those nominees' participation in strategic discussions. The board's decision to exclude the two shareholder nominees from any committee assignments over their first year of tenure lends credence to this view. One only need look at the company's most recent Form 10-K -- which the two dissident directors refused to sign because they believed it included 'false and misleading statements about Messrs. Traub and Lacey in its disclosure' -- to see clear evidence there remains a problem with board dynamics."

"[T]he lack of committee representation for the shareholder nominees appointed in 2012 as settlement of a pending proxy contest is concerning, and suggests there is reasonable concern that the incumbent board – or at least the leadership of that board – has continued to resist appropriate change."

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