<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 3, 1996
REGISTRATION NO. 333-16081
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT
NO. 2
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
ZORAN CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
DELAWARE 3674 94-2794449
<S> <C> <C>
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code No.) Identification Number)
organization)
</TABLE>
2041 MISSION COLLEGE BOULEVARD, SANTA CLARA, CALIFORNIA 95054 (408) 986-1314
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------
LEVY GERZBERG, PH.D.
President and Chief Executive Officer
ZORAN CORPORATION
2041 Mission College Boulevard
Santa Clara, California 95054
(408) 986-1314
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
COPIES TO:
DENNIS C. SULLIVAN, ESQ. ANDREI M. MANOLIU, ESQ.
PAUL A. BLUMENSTEIN, ESQ. KEITH C. NASHAWATY, ESQ
Gray Cary Ware & Freidenrich Cooley Godward LLP
A Professional Corporation Five Palo Alto Square
400 Hamilton Avenue 3000 El Camino Real
Palo Alto, California 94301 Palo Alto, California 94306
(415) 328-6561 (415) 843-5000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective
and certain other conditions under the Plan of Reorganization are met or waived.
------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[LOGO]
December 5, 1996
Dear Stockholder:
As you may be aware, Zoran Corporation ("Zoran" ) has entered into an agreement
to combine with CompCore Multimedia, Inc., a California corporation
("CompCore"). At a special meeting of stockholders (the "Special Meeting") to be
held at the offices of Gray Cary Ware & Freidenrich, A Professional Corporation,
400 Hamilton Avenue, Palo Alto, California, on Friday, December 27, 1996 at
10:00 a.m., Pacific Time, you will be asked to consider and approve the issuance
of shares of Common Stock, $.001 par value per share, of Zoran ("Zoran Common
Stock") pursuant to the Amended and Restated Agreement and Plan of
Reorganization among Zoran, CompCore and See Acquisition Corporation, a Delaware
corporation and wholly-owned subsidiary of Zoran (the "Merger Proposal").
The Board of Directors of Zoran has unanimously approved the Merger Proposal and
recommends that you vote FOR approval of the Merger Proposal.
Details of the proposed merger and other important information concerning
CompCore and Zoran appear in the accompanying Joint Proxy Statement/Prospectus.
I urge you to give this material your careful consideration.
All stockholders are cordially invited to attend the Special Meeting in person.
However, whether or not you plan to attend the Special Meeting, please complete,
sign and date the accompanying proxy card and return it promptly in the enclosed
postage-prepaid envelope. If you attend the Special Meeting, you may vote in
person if you wish, even though you have previously returned your proxy. It is
very important that your shares be represented and voted at the Special Meeting.
Your prompt cooperation will be greatly appreciated.
Sincerely,
Levy Gerzberg, Ph.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ZORAN CORPORATION
2041 MISSION COLLEGE BOULEVARD - SANTA CLARA, CA 95054
(408) 986-1341 - FAX: (408) 986-1240
<PAGE>
ZORAN CORPORATION
2041 MISSION COLLEGE BOULEVARD
SANTA CLARA, CALIFORNIA 95054
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 27, 1996
------------------------
To the Stockholders of
Zoran Corporation
NOTICE IS HEREBY GIVEN that a special meeting of stockholders (the "Special
Meeting") of Zoran Corporation, a Delaware corporation ("Zoran"), will be held
on December 27, 1996, at the offices of Gray Cary Ware & Freidenrich, A
Professional Corporation, 400 Hamilton Avenue, Palo Alto, California commencing
at 10:00 a.m., Pacific Time, for the following purposes:
1. To consider and vote upon a proposal to approve the issuance of shares
of Common Stock, $.001 par value per share ("Zoran Common Stock"),
pursuant to the Amended and Restated Agreement and Plan of
Reorganization, dated as of November 27, 1996, by and among Zoran, See
Acquisition Corporation, a Delaware corporation and wholly-owned
subsidiary of Zoran ("Sub"), and CompCore Multimedia Inc., a California
corporation ("CompCore"), pursuant to which, among other things, (a) Sub
will be merged with and into CompCore, which will be the surviving
corporation and will become a wholly-owned subsidiary of Zoran, and (b)
each outstanding share of Common Stock of CompCore, no par value, will be
converted into the right to receive 0.6408 of a share of Zoran Common
Stock; and
2. To transact such other business as may properly come before the Special
Meeting or any adjournments or postponements thereof.
Stockholders of record at the close of business on November 29, 1996 are
entitled to notice of and to vote at the Special Meeting and any adjournment or
postponement thereof.
All stockholders are cordially invited to attend the Special Meeting in
person. However, to ensure your representation at the Special Meeting, you are
urged to complete and sign the enclosed proxy card and return it as promptly as
possible in the enclosed postage-prepaid envelope.
By Order of the Board of Directors
Dennis C. Sullivan
SECRETARY
December 5, 1996
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN AND
DATE YOUR PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PREPAID
ENVELOPE.
<PAGE>
[LETTERHEAD OF COMPCORE MULTIMEDIA, INC.]
DECEMBER 5, 1996
Dear Shareholder:
As most of you are aware, CompCore Multimedia, Inc. ("CompCore") has entered
into an agreement to combine with Zoran Corporation, a Delaware corporation
("Zoran"). At a special meeting of shareholders (the "Special Meeting") to be
held at the offices of Cooley Godward LLP, Five Palo Alto Square, 3000 El Camino
Real, Palo Alto, California, on Friday, December 27, 1996 at 11:00 a.m., Pacific
Time, you will be asked to consider and approve the Amended and Restated Plan of
Reorganization dated as of November 27, 1996 (the "Plan of Reorganization") by
and among CompCore, Zoran and See Acquisition Corporation, a Delaware
corporation and wholly-owned subsidiary of Zoran ("Sub"), and the merger of Sub
with and into CompCore pursuant to the Plan of Reorganization (the "Merger").
Under California law, approval of this matter will require the affirmative
vote of the holders of a majority of the shares of Common Stock of CompCore
("CompCore Common Stock") outstanding on November 29, 1996, the record date for
the Special Meeting. In addition, Zoran's obligation to effect the Merger is
subject to the approval of the Merger by the affirmative vote of the holders of
at least 92% of the outstanding shares of CompCore Common Stock. The Board of
Directors of CompCore has unanimously approved the Plan of Reorganization and
the Merger and recommends that you vote FOR the approval and adoption of the
Plan of Reorganization and approval of the Merger. If the requisite approvals of
the stockholders of Zoran and the shareholders of CompCore are obtained, the
Merger is expected to be consummated on or about December 27, 1996.
As a result of the Merger, (i) CompCore will become a wholly-owned
subsidiary of Zoran, (ii) each share of CompCore Common Stock outstanding
immediately prior to the effective time of the Merger will be converted into
0.6408 of a share of Zoran Common Stock, $0.001 par value per share ("Zoran
Common Stock"), (iii) each outstanding option to purchase CompCore Common Stock
(a "CompCore Option") will be assumed by Zoran and converted into an option to
purchase a number of shares of Zoran Common Stock equal to the number of shares
to which the optionee would be entitled in the Merger had the CompCore Option
been exercised in full prior thereto, and (iv) 10% of the shares of Zoran Common
Stock issuable to each holder of CompCore Common Stock in the Merger will be
deposited into escrow to provide a fund against which Zoran may assert claims
for indemnification under the Plan of Reorganization. The escrow will be
established and administered pursuant to an Escrow Agreement among Zoran, First
Trust of California, National Association, as Escrow Agent, and George T. Haber,
as Shareholder Representative for and on behalf of the shareholders and option
holders of CompCore. Ten percent of the shares of Zoran Common Stock issuable
upon exercise of CompCore Options assumed by Zoran in the Merger will also be
deposited into the escrow.
Details of the Merger and other important information concerning CompCore
and Zoran appear in the accompanying Joint Proxy Statement/Prospectus. I urge
you to give this material your careful consideration.
All shareholders are cordially invited to attend the Special Meeting in
person. However, whether or not you plan to attend the Special Meeting, please
complete, sign and date the accompanying proxy card and return it promptly in
the enclosed postage-prepaid envelope. If you attend the Special Meeting, you
may vote in person if you wish, even though you have previously returned your
proxy. It is very important that your shares be represented and voted at the
Special Meeting. Your prompt cooperation will be greatly appreciated.
Sincerely,
George T. Haber
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
COMPCORE MULTIMEDIA, INC.
3120 SCOTT BOULEVARD, 2ND FLOOR
SANTA CLARA, CALIFORNIA 95054
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 27, 1996
------------------------
To the Shareholders of
CompCore Multimedia, Inc.
NOTICE IS HEREBY GIVEN that a special meeting of shareholders (the "Special
Meeting") of CompCore Multimedia, Inc., a California corporation ("CompCore"),
will be held on December 27, 1996, at the offices of Cooley Godward LLP, Five
Palo Alto Square, 3000 El Camino Real, Palo Alto, California commencing at 11:00
a.m., Pacific Time, for the following purposes:
1. To consider and vote upon a proposal (i) to approve and adopt an Amended
and Restated Agreement and Plan of Reorganization, dated as of November
27, 1996, by and among Zoran Corporation, a Delaware corporation
("Zoran"), See Acquisition Corporation, a Delaware corporation and
wholly-owned subsidiary of Zoran ("Sub"), and CompCore, pursuant to
which, among other things, (a) Sub will be merged with and into CompCore,
which will be the surviving corporation and will become a wholly-owned
subsidiary of Zoran (the "Merger") and (b) each outstanding share of
Common Stock of CompCore, no par value, will be converted into the right
to receive 0.6408 shares of Common Stock, par value $.001 per share, of
Zoran, and (ii) to approve the Merger, all as more fully described in the
Joint Proxy Statement/Prospectus accompanying this Notice; and
2. To transact such other business as may properly come before the Special
Meeting or any adjournments or postponements thereof.
Shareholders of record at the close of business on November 29, 1996 are
entitled to notice of and to vote at the Special Meeting and any adjournment or
postponement thereof.
All shareholders are cordially invited to attend the Special Meeting in
person. However, to ensure your representation at the Special Meeting, you are
urged to complete and sign the enclosed proxy card and return it as promptly as
possible in the enclosed postage-prepaid envelope.
By Order of the Board of Directors
Andrei M. Manoliu
SECRETARY
December 5, 1996
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN AND
DATE YOUR PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PREPAID
ENVELOPE. DO NOT SEND ANY STOCK CERTIFICATES WITH THE ENCLOSED PROXY CARD.
<PAGE>
ZORAN CORPORATION
AND
COMPCORE MULTIMEDIA, INC.
----------------
JOINT PROXY STATEMENT
----------------
ZORAN CORPORATION
PROSPECTUS
This Joint Proxy Statement/Prospectus is being furnished to holders of
Common Stock, par value $.001 per share ("Zoran Common Stock"), of Zoran
Corporation, a Delaware corporation ("Zoran"), in connection with the
solicitation of proxies by the Board of Directors of Zoran (the "Zoran Board")
for use at a special meeting of Zoran stockholders (the "Zoran Special Meeting")
to be held on December 27, 1996, at the offices of Gray Cary Ware & Freidenrich,
A Professional Corporation, 400 Hamilton Avenue, Palo Alto, commencing at 10:00
a.m., Pacific Time, and at any adjournments or postponements thereof.
This Joint Proxy Statement/Prospectus is also being furnished to holders of
Common Stock, no par value ("CompCore Common Stock"), of CompCore Multimedia,
Inc., a California corporation ("CompCore"), in connection with the solicitation
of proxies by the Board of Directors of CompCore (the "CompCore Board") for use
at a special meeting of CompCore shareholders (the "CompCore Special Meeting")
to be held on December 27, 1996, at the offices of Cooley Godward LLP, Five Palo
Alto Square, 3000 El Camino Real, Palo Alto, California, commencing at 11:00
a.m., Pacific Time, and at any adjournments or postponements thereof.
This Joint Proxy Statement/Prospectus also constitutes a prospectus of Zoran
with respect to up to 2,315,364 shares of Zoran Common Stock to be issued in the
merger of See Acquisition Corporation, a Delaware corporation and a wholly-owned
subsidiary of Zoran ("Sub"), with and into CompCore (the "Merger") pursuant to
the Amended and Restated Agreement and Plan of Reorganization, dated as of
November 27, 1996, among Zoran, Sub and CompCore (the "Plan of Reorganization")
in exchange for outstanding shares of CompCore Common Stock. All information
contained in this Joint Proxy Statement/ Prospectus relating to Zoran has been
supplied by Zoran, and all information relating to CompCore has been supplied by
CompCore.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED BY BOTH ZORAN AND COMPCORE STOCKHOLDERS.
------------------------
THE SECURITIES TO BE ISSUED PURSUANT TO THIS JOINT PROXY STATEMENT/
PROSPECTUS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
------------------------
This Joint Proxy Statement/Prospectus and the accompanying form of proxy are
first being mailed to stockholders of Zoran and CompCore on or about December 5,
1996.
The date of this Joint Proxy Statement/Prospectus is December 5, 1996.
<PAGE>
AVAILABLE INFORMATION
Zoran is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by Zoran with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
should be available for inspection at the Commission's Regional Offices located
at 7 World Trade Center, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60611. Copies of such material also can be
obtained from the Public Reference Section of the Commission, Washington, D.C.
20549 at prescribed rates. Zoran Common Stock is traded on The Nasdaq National
Market. Reports and other information concerning Zoran can also be inspected at
the offices of the National Association of Securities Dealers, Inc., Market
Listing Section, 1735 K Street, N.W., Washington, D.C. 20006.
Zoran has filed with the Commission a Registration Statement on Form S-4
(together with any amendments thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
shares of Zoran Common Stock to be issued pursuant to the Plan of
Reorganization. This Joint Proxy Statement/Prospectus does not contain all the
information set forth in the Registration Statement. Such additional information
may be obtained from the Commission's principal office in Washington, D.C.
Statements contained in this Joint Proxy Statement/Prospectus or in any document
incorporated by reference in this Joint Proxy Statement/ Prospectus as to the
contents of any contract or other document referred to herein or therein are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement or
such other document, each such statement being qualified in all respects by such
reference.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH THE SOLICITATION OF PROXIES OR THE
OFFERING OF SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY ZORAN,
COMPCORE OR ANY OTHER PERSON. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY
PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR
ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF ZORAN OR
COMPCORE SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO ITS DATE.
ZORAN is a registered trademark of Zoran. SoftDVD, SoftPEG, SoundPEG,
SoundPEG-2 and ComPEG are trademarks of CompCore. This Joint Proxy
Statement/Prospectus also includes trade names and trademarks of other companies
that are the property of their respective holders.
UNDER THE CALIFORNIA GENERAL CORPORATION LAW (THE "CGCL"), COMPCORE
SHAREHOLDERS HAVE CERTAIN DISSENTERS' RIGHTS OF APPRAISAL IN CONNECTION WITH THE
MERGER. SEE "THE COMPCORE SPECIAL MEETING-- DISSENTERS' RIGHTS" AND APPENDIX C
HERETO.
2
<PAGE>
TABLE OF CONTENTS
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PAGE
---------
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AVAILABLE INFORMATION...................................................................................... 2
SUMMARY.................................................................................................... 5
The Companies............................................................................................ 5
Date and Place of the Special Meetings................................................................... 5
Stockholders Entitled to Vote............................................................................ 5
Purposes of the Special Meetings......................................................................... 6
Votes Required........................................................................................... 6
Effective Time of the Merger............................................................................. 6
Effects of the Merger.................................................................................... 6
Escrow and Indemnification............................................................................... 7
Recommendations of Boards of Directors................................................................... 7
Opinion of Financial Advisor to Zoran.................................................................... 7
Interests of Certain Persons in the Merger............................................................... 8
Employment Agreements.................................................................................... 8
Voting Agreements........................................................................................ 8
Noncompetition Agreements................................................................................ 8
Conditions to the Merger................................................................................. 8
Termination.............................................................................................. 9
Surrender of CompCore Stock Certificates................................................................. 9
Certain Federal Income Tax Consequences.................................................................. 9
Accounting Treatment..................................................................................... 9
Comparison of Stockholder Rights......................................................................... 9
Dissenters' Rights....................................................................................... 10
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA............................................................ 10
COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE DATA........................................................ 12
MARKET PRICE INFORMATION................................................................................... 13
RISK FACTORS............................................................................................... 14
Risks Relating to the Merger............................................................................. 14
Risks Relating to Zoran and the Combined Company......................................................... 15
Risks Relating to CompCore............................................................................... 21
THE SPECIAL MEETINGS....................................................................................... 23
General.................................................................................................. 23
Matters to be Considered at the Meetings................................................................. 23
Voting at the Meetings; Record Dates..................................................................... 23
Proxies.................................................................................................. 24
Dissenters' Rights....................................................................................... 25
THE MERGER................................................................................................. 27
Background of the Merger................................................................................. 27
Reasons for the Merger; Recommendations of the Boards of Directors....................................... 30
Opinion of Financial Advisor to Zoran.................................................................... 33
Interests of Certain Persons in the Merger............................................................... 38
Employment Agreements.................................................................................... 38
Voting Agreements........................................................................................ 39
Noncompetition Agreements................................................................................ 39
</TABLE>
3
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<TABLE>
<CAPTION>
PAGE
---------
Accounting Treatment..................................................................................... 39
<S> <C>
Certain Federal Income Tax Consequences.................................................................. 40
Federal Securities Law Consequences...................................................................... 42
Nasdaq National Market Quotation......................................................................... 42
THE PLAN OF REORGANIZATION................................................................................. 43
The Merger............................................................................................... 43
Conversion of Securities................................................................................. 43
Stock Plans and Options.................................................................................. 44
Representations and Warranties........................................................................... 44
Certain Covenants and Agreements......................................................................... 44
No Solicitation.......................................................................................... 46
Related Matters After the Merger......................................................................... 46
Escrow and Indemnification............................................................................... 47
Conditions............................................................................................... 47
Termination; Termination Fees and Expenses............................................................... 48
Amendment and Waiver..................................................................................... 49
INFORMATION CONCERNING ZORAN............................................................................... 50
Business................................................................................................. 50
Selected Consolidated Financial Data..................................................................... 66
Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 67
Management............................................................................................... 74
Security Ownership of Certain Beneficial Owners and Management........................................... 76
Executive Compensation................................................................................... 78
Certain Transactions..................................................................................... 81
INFORMATION CONCERNING COMPCORE............................................................................ 86
Business................................................................................................. 86
Selected Financial Data.................................................................................. 91
Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 92
Management............................................................................................... 95
Principal Shareholders................................................................................... 96
Executive Compensation................................................................................... 98
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.......................................................... 100
COMPARISON OF RIGHTS OF ZORAN STOCKHOLDERS AND COMPCORE SHAREHOLDERS....................................... 104
DESCRIPTION OF ZORAN CAPITAL STOCK......................................................................... 109
LEGAL MATTERS.............................................................................................. 110
EXPERTS.................................................................................................... 110
INDEX TO FINANCIAL STATEMENTS.............................................................................. F-1
APPENDIX A--AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION (TOGETHER WITH CERTAIN EXHIBITS
THERETO)................................................................................................. A-1
APPENDIX B--OPINION OF OPPENHEIMER & CO., INC.............................................................. B-1
APPENDIX C--CHAPTER 13 OF THE CALIFORNIA GENERAL CORPORATION LAW........................................... C-1
</TABLE>
4
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS JOINT PROXY STATEMENT/ PROSPECTUS. REFERENCE IS MADE TO, AND THIS SUMMARY
IS QUALIFIED IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION CONTAINED IN THIS
JOINT PROXY STATEMENT/PROSPECTUS AND THE APPENDICES HERETO. ZORAN STOCKHOLDERS
AND COMPCORE SHAREHOLDERS ARE URGED TO READ THIS JOINT PROXY
STATEMENT/PROSPECTUS AND THE APPENDICES HERETO IN THEIR ENTIRETY.
THIS JOINT PROXY STATEMENT/PROSPECTUS CONTAINS A NUMBER OF FORWARD-LOOKING
STATEMENTS WHICH REFLECT THE CURRENT VIEWS OF ZORAN AND/OR COMPCORE WITH RESPECT
TO FUTURE EVENTS THAT WILL HAVE AN EFFECT ON THEIR FUTURE FINANCIAL PERFORMANCE.
THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES,
INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE HEREIN, THAT COULD
CAUSE ZORAN'S AND COMPCORE'S ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL
RESULTS OR THOSE CURRENTLY ANTICIPATED.
THE COMPANIES
ZORAN. Zoran develops and markets integrated circuits for digital video and
audio compression applications. Zoran's integrated circuits are used in a
variety of video and audio products addressing evolving multimedia markets.
Current applications for Zoran products include professional and consumer video
editing systems, PC-based video CD systems, stand-alone video CD systems,
digital audio systems and filmless digital cameras.
Zoran Corporation was incorporated in California in 1981 and reincorporated
in Delaware in 1986. Zoran's principal offices are located at 2041 Mission
College Boulevard, Santa Clara, California 95054, and its telephone number at
that location is (408) 986-1314. Unless the context otherwise requires, the term
"Zoran," as used in this Joint Proxy Statement/Prospectus, refers to Zoran
Corporation and its wholly-owned subsidiary, Zoran Microelectronics Ltd., an
Israeli corporation.
COMPCORE. CompCore is a provider of MPEG hardware and software products for
processing digital video and audio signals. CompCore provides design "cores" for
MPEG 1 and MPEG 2 video and audio decoder integrated circuits that are used by
original equipment manufacturers ("OEMs") in the manufacture of digital video
and audio semiconductor chips. In addition, CompCore offers a software version
of its MPEG 1 decoder called "SoftPEG," which runs on most standard PCs and
workstations and enables end users to play MPEG 1 CDs without the use of
specialized hardware.
CompCore was incorporated in California in 1993. CompCore is located at 3120
Scott Boulevard, Santa Clara, California 95054, and its telephone number is
(408) 567-0552.
DATE AND PLACE OF THE SPECIAL MEETINGS
The Zoran Special Meeting will be held on December 27, 1996, at the offices
of Gray Cary Ware & Freidenrich, A Professional Corporation, 400 Hamilton
Avenue, Palo Alto, California, commencing at 10:00 a.m., Pacific Time.
The CompCore Special Meeting will be held on December 27, 1996, at the
offices of Cooley Godward LLP, Five Palo Alto Square, 3000 El Camino Real, Palo
Alto, California, commencing at 11:00 a.m., Pacific Time.
STOCKHOLDERS ENTITLED TO VOTE
Holders of record of shares of Zoran Common Stock at the close of business
on November 29, 1996 are entitled to notice of and to vote at the Zoran Special
Meeting. At such date there were 7,105,626 shares of Zoran Common Stock
outstanding, each of which will be entitled to one vote on each matter to be
acted upon or which may properly come before the Zoran Special Meeting.
5
<PAGE>
Holders of record of shares of CompCore Common Stock at the close of
business on November 29, 1996 are entitled to notice of and to vote at the
CompCore Special Meeting. At such date there were 2,849,000 shares of CompCore
Common Stock outstanding, each of which will be entitled to one vote on each
matter to be acted upon or which may properly come before the CompCore Special
Meeting.
PURPOSES OF THE SPECIAL MEETINGS
ZORAN SPECIAL MEETING. The purpose of the Zoran Special Meeting is to
consider and vote upon (i) the issuance of shares of Zoran Common Stock in
exchange for shares of CompCore Common Stock pursuant to the Plan of
Reorganization (the "Merger Proposal") and (ii) such other matters as may
properly be brought before the Zoran Special Meeting, or any adjournments or
postponements thereof.
COMPCORE SPECIAL MEETING. The purpose of the CompCore Special Meeting is to
consider and vote upon (i) a proposal to approve and adopt the Plan of
Reorganization and to approve the Merger and (ii) such other matters as may
properly be brought before the CompCore Special Meeting, or any adjournments or
postponements thereof.
VOTES REQUIRED
ZORAN. The approval of the Merger Proposal will require the affirmative
vote of a majority of the shares of Zoran Common Stock present or represented
and voting at the Zoran Special Meeting. The approval of the Merger Proposal is
required by the rules of the National Association of Securities Dealers, Inc.
governing corporations with securities listed on The Nasdaq National Market.
COMPCORE. Under the CGCL, the approval and adoption of the Plan of
Reorganization and the approval of the Merger by CompCore shareholders will
require the affirmative vote of the holders of a majority of the outstanding
shares of CompCore Common Stock. In addition, a condition of Zoran's obligation
to effect the Merger is approval of the Merger by the holders of at least 92% of
the outstanding shares of CompCore Common Stock. See "The Plan of
Reorganization--Conditions."
EFFECTIVE TIME OF THE MERGER
It is anticipated that the Merger will become effective as promptly as
practicable after the requisite approval by the stockholders of Zoran and
CompCore has been obtained and all other conditions to the Merger have been
satisfied or waived (the "Effective Time"). It is anticipated that, assuming all
conditions are met, the Merger will occur on or about December 27, 1996.
EFFECTS OF THE MERGER
Upon consummation of the Merger pursuant to the Plan of Reorganization, (i)
Sub will be merged with and into CompCore, which will be the surviving
corporation (the "Surviving Corporation") and will become a wholly-owned
subsidiary of Zoran, and (ii) each issued and outstanding share of CompCore
Common Stock, other than Dissenting Shares (as defined herein), will be
converted into the right to receive 0.6408 of a share of Zoran Common Stock (the
"Conversion Number" or "Exchange Ratio"). Fractional shares of Zoran Common
Stock will not be issued in connection with the Merger. CompCore shareholders
otherwise entitled to a fractional share will be paid the value of such
fractional share in cash determined as described below under "The Plan of
Reorganization--Conversion of Securities."
Based upon the outstanding shares of stock of CompCore and Zoran as of
October 31, 1996 (and assuming no exercise by CompCore shareholders of their
dissenters' rights), the shareholders of CompCore immediately prior to the
consummation of the Merger will own approximately 21.8% of the outstanding
shares of Zoran Common Stock immediately following consummation of the Merger.
Upon consummation of the Merger, each then-outstanding option to purchase
CompCore Common Stock, whether vested or unvested (a "CompCore Option"), will be
assumed by Zoran and will be deemed
6
<PAGE>
to constitute an option to acquire, on the same terms and conditions as were
applicable under such CompCore Option, the same number of shares of Zoran Common
Stock (rounded down to the nearest whole share) as the holder of such CompCore
Option would have been entitled to receive pursuant to the Merger had such
holder exercised such CompCore Option in full immediately prior to the
consummation of the Merger, at a price per share (rounded up to the nearest
whole cent) equal to the aggregate exercise price for the shares of CompCore
Common Stock otherwise purchasable pursuant to such CompCore Option divided by
the number of full shares of Zoran Common Stock deemed purchasable pursuant to
such CompCore Option in accordance with the foregoing. See "The Plan of
Reorganization-- Stock Plans and Options."
ESCROW AND INDEMNIFICATION
At the Effective Time, Zoran will deposit into escrow certificates
representing 10% of the shares of Zoran Common Stock otherwise issuable to the
holders of CompCore Common Stock in the Merger, on a pro rata basis. Such shares
(the "Escrow Shares") will be registered in the name of and deposited with First
Trust of California, National Association (the "Escrow Agent") pursuant to the
Plan of Reorganization and a related Escrow Agreement (the "Escrow Agreement")
to be entered into among Zoran, the Escrow Agent and George T. Haber, as
representative of the CompCore shareholders (the "Shareholder Representative"),
to constitute the "Escrow Fund." The Escrow Fund will be available to provide a
fund against which Zoran, its affiliates, and their officers, directors,
employees and attorneys may assert indemnification claims for losses, damages,
costs and expenses (including reasonable legal fees and expenses) that an
indemnified party has incurred by reason of (i) any inaccuracy in or breach of
any representation, warranty or covenant of CompCore contained in the Plan of
Reorganization or (ii) any expenses incurred by CompCore (and paid by CompCore
or payable by the Surviving Corporation) in connection with the Merger in excess
of $1,000,000 (collectively, "Zoran Losses"). Subject to certain exceptions,
claims against the Escrow Fund shall be Zoran's sole remedy following the Merger
for any Zoran Losses. Zoran's right to receive shares from the Escrow Fund is
subject to certain limitations. The indemnification period will end on the
earlier of (i) the date 12 months following the Effective Time or (ii) the date
on which Zoran releases its audited consolidated financial statements for the
year ending December 31, 1997. Shares of Zoran Common Stock issuable upon
exercise of CompCore Options assumed by Zoran in the Merger will be subject to
similar escrow provisions. See "The Plan of Reorganization--Escrow and
Indemnification."
RECOMMENDATIONS OF BOARDS OF DIRECTORS
The Zoran Board has unanimously approved the Plan of Reorganization and the
issuance of shares of Zoran Common Stock pursuant thereto and unanimously
recommends that holders of Zoran Common Stock vote in favor of the Merger
Proposal.
The CompCore Board has unanimously approved the Plan of Reorganization and
unanimously recommends that holders of CompCore Common Stock approve the Plan of
Reorganization and the Merger.
OPINION OF FINANCIAL ADVISOR TO ZORAN
Zoran retained Oppenheimer & Co., Inc. ("Oppenheimer") to act as its
financial advisor in connection with the Merger. On October 19, 1996,
Oppenheimer delivered an oral opinion to the Zoran Board to the effect that, as
of the date of such opinion, the aggregate number of shares of Zoran Common
Stock to be issued or reserved for issuance in the Merger is fair, from a
financial point of view, to the holders of Zoran Common Stock. Oppenheimer
subsequently confirmed its oral opinion by delivery of a written opinion dated
October 19, 1996. The full text of Oppenheimer's opinion, which sets forth the
assumptions made, procedures followed, matters considered and limits of its
review, is attached hereto as Appendix B
7
<PAGE>
and is incorporated herein by reference. HOLDERS OF ZORAN COMMON STOCK ARE URGED
TO, AND SHOULD, READ SUCH OPINION IN ITS ENTIRETY. See "The Merger--Opinion of
Financial Advisor to Zoran."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
As of October 31, 1996, directors and executive officers of Zoran and their
affiliates may be deemed to be beneficial owners of approximately 49.6% of the
outstanding shares of Zoran Common Stock. See "Information Concerning
Zoran--Security Ownership of Certain Beneficial Owners and Management."
As of October 31, 1996, directors and executive officers of CompCore and
their affiliates may be deemed to be beneficial owners of 2,780,589 shares of
CompCore Common Stock (including 550,000 shares of CompCore Common Stock
issuable upon exercise of stock options and 200,589 shares of CompCore Common
Stock issuable upon exercise of a convertible note), or 77.1% of the outstanding
shares of CompCore Common Stock. See "Information Concerning CompCore--Principal
Shareholders."
Zoran has entered into employment agreements with certain officers of
CompCore pursuant to which these officers will be employed as officers of Zoran
after the Merger. See "The Merger--Employment Agreements."
Pursuant to the Plan of Reorganization, Zoran has agreed to elect George T.
Haber, President and Chief Executive Officer and a director of CompCore, to the
Zoran Board as of the Effective Time.
Each of the directors of CompCore is obligated to vote or direct the vote of
all of the outstanding shares of CompCore Common Stock over which he has voting
control in favor of the approval of the Plan of Reorganization and the Merger.
See "The Merger--Voting Agreements".
EMPLOYMENT AGREEMENTS
Zoran has entered into employment agreements with George T. Haber and Sorin
C. Cismas, CompCore's President and Chief Executive Officer and its Chief
Technical Officer, respectively. Pursuant to these agreements, Messrs. Haber and
Cismas will serve as Executive Vice President and Chief Scientist, respectively,
of Zoran following the Merger. See "The Merger--Employment Agreements."
VOTING AGREEMENTS
Each of the directors of CompCore, who, as of October 31, 1996, together
held approximately 71.1% of the outstanding shares of CompCore Common Stock,
have entered into voting agreements pursuant to which such persons agreed, among
other things, (i) to vote their shares of CompCore Common Stock in favor of
approval of the Plan of Reorganization and the Merger and against any proposal
which would, or could reasonably be expected to, prohibit or discourage the
Merger and (ii) not to transfer, pledge, sell, exchange or offer to transfer or
sell or otherwise dispose of or encumber any shares of CompCore Common Stock
prior to the earliest of the Effective Time (as defined below) or the
termination of the Plan of Reorganization. See "The Merger--Voting Agreements."
NONCOMPETITION AGREEMENTS
As a condition of the Merger, Messrs. Haber and Cismas and certain other key
employees of CompCore will execute Noncompetition Agreements with Zoran. See
"The Merger--Noncompetition Agreements."
CONDITIONS TO THE MERGER
The obligations of Zoran and CompCore to consummate the Merger are subject
to the satisfaction of certain conditions, including, but not limited to,
obtaining requisite Zoran and CompCore stockholder approvals, approval for
quotation on The Nasdaq National Market of the Zoran Common Stock to be issued
pursuant to the Plan of Reorganization, the absence of any injunction
prohibiting consummation of
8
<PAGE>
the Merger, the continuing accuracy of the representations and warranties made
in the Plan of Reorganization on and as of the Effective Time, the receipt of
certain opinions with respect to legal and tax matters and the confirmation of
certain accountants' letters with respect to qualification of the Merger as a
pooling of interests transaction and with respect to CompCore's ability to enter
into a pooling of interests transaction. In addition, Zoran's obligation to
consummate the Merger is subject to the approval of the Merger by the
affirmative vote of the holders of not less than 92% of the outstanding shares
of CompCore Common Stock. See "The Merger--Accounting Treatment," "--Certain
Federal Income Tax Consequences" and "The Plan of Reorganization--Conditions."
TERMINATION
The Plan of Reorganization is subject to termination by mutual written
consent of Zoran and CompCore, at the option of either Zoran or CompCore if the
Merger is not consummated before February 28, 1997, and prior to such time upon
the occurrence of certain events. If the Plan of Reorganization is terminated
under certain circumstances, Zoran may be required to pay CompCore a termination
fee of $1,000,000. See "The Plan of Reorganization-- Termination; Termination
Fees and Expenses."
SURRENDER OF COMPCORE STOCK CERTIFICATES
If the Merger is consummated, American Stock Transfer & Trust Company (the
"Exchange Agent") will mail a letter of transmittal with instructions to all
holders of record of CompCore Common Stock immediately prior to the Merger for
use in surrendering their stock certificates in exchange for certificates
representing shares of Zoran Common Stock and a cash payment in lieu of
fractional shares, if any. CERTIFICATES SHOULD NOT BE SURRENDERED UNTIL THE
LETTER OF TRANSMITTAL IS RECEIVED. See "The Plan of Reorganization--Conversion
of Securities."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to be a tax-free reorganization so that no gain or
loss would be recognized by Zoran or CompCore and no gain or loss would be
recognized by CompCore shareholders, except in respect of cash received in lieu
of fractional shares or pursuant to the exercise of dissenters' rights. It is a
condition to the Merger that Zoran and CompCore shall have each received an
opinion of their respective counsel to the effect that the Merger will
constitute a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"). For a further discussion of
federal income tax consequences of the Merger, see "The Merger--Certain Federal
Income Tax Consequences." See also "The Plan of Reorganization--Conditions."
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for accounting
purposes. It is a condition to the Merger that Zoran and CompCore shall each
have received a letter from Price Waterhouse LLP, Zoran's and CompCore's
independent accountants, as to the appropriateness of pooling of interests
accounting for the Merger under Accounting Principles Board Opinion No. 16. See
"The Merger-- Accounting Treatment" and "The Plan of
Reorganization--Conditions."
COMPARISON OF STOCKHOLDER RIGHTS
See "Comparison of Rights of Zoran Stockholders and CompCore Shareholders"
for a summary of the material differences between the rights of holders of Zoran
Common Stock and CompCore Common Stock.
9
<PAGE>
DISSENTERS' RIGHTS
Shareholders of CompCore who do not vote in favor of the Merger, who give
proper written demand for the appraisal of their shares within the time
specified by the CGCL, and who comply with other applicable requirements of the
CGCL will have a right to receive payment in cash for the "fair value" of their
shares of CompCore Common Stock. See "The Special Meetings--Dissenters' Rights."
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following summary historical financial information of Zoran and CompCore
has been derived from financial information included elsewhere in this Joint
Proxy Statement/Prospectus and should be read in conjunction with such
information. The summary pro forma financial information of Zoran and CompCore
is derived from the unaudited pro forma combined financial statements which are
included elsewhere herein and should be read in conjunction with such pro forma
statements and the notes thereto. The pro forma information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred if the Merger had been
consummated as of the beginning of the periods indicated, nor is it necessarily
indicative of the future operating results or financial position of the combined
company.
No dividends have been declared or paid on either Zoran Common Stock or
CompCore Common Stock. All information shown is in thousands except per share
amounts.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL-ZORAN
Total revenues........................ $ 10,802 $ 7,339 $ 4,687 $ 8,058 $ 20,067 $ 13,709 $ 26,353
Operating income (loss)............... 880 (2,369) (7,467) (5,001) 1,061 591 2,315
Net income (loss)..................... 598 (2,630) (7,710) (5,235) 686 262 2,711
Net income (loss) per share........... 0.11 (0.49) (1.31) (0.83) 0.10 0.04 0.33
Total assets at end of period......... 6,304 4,584 4,907 6,026 29,085 9,376 35,538
Long-term debt, less current portion
at end of period..................... 512 1,513 1,319 1,027 601 727 395
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 12, 1993 YEARS ENDED
(INCEPTION) TO SEPTEMBER 30,
SEPTEMBER 30, --------------------
1994 1995 1996
------------------- --------- ---------
<S> <C> <C> <C>
HISTORICAL-COMPCORE
Total revenues.......................................................... $ 857 $ 2,909 $ 5,725
Income from operations.................................................. 288 435 415
Net income.............................................................. 170 287 326
Net income per share.................................................... 0.12 0.11 0.09
Total assets at end of period........................................... 802 1,611 3,925
Convertible promissory note at end of period............................ -- -- 1,000
Capital lease obligations, less current portion, at end of period....... -- -- 62
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA-ZORAN AND COMPCORE (1)
Total revenues............................. $ 10,802 $ 7,339 $ 4,729 $ 9,499 $ 23,464 $ 15,990 $ 30,964
Operating income (loss).................... 880 (2,369) (7,432) (4,441) 1,494 717 2,425
Net income (loss).......................... 598 (2,630) (7,689) (4,895) 1,013 352 2,806
Net income (loss) per share (2)............ 0.11 (0.49) (1.19) (0.68) 0.12 0.04 0.27
Total assets at end of period.............. 6,304 4,584 5,159 7,205 31,304 10,987 39,463
Long-term debt, less current portion at end
of period (3)............................. 512 1,513 1,319 1,027 601 727 457
</TABLE>
- ------------------------
(1) The combined company expects to incur charges to operations currently
estimated to be $2 million in the quarter in which the Merger is consummated
to reflect transaction fees and costs incident to the Merger. The estimated
charge is not reflected in the pro forma combined statement of operations
data. The amount of this charge is a preliminary estimate and is therefore
subject to change.
(2) Shares used to compute pro forma net income (loss) per share are calculated
by adding the number of shares used to compute Zoran historical net income
(loss) per share to the number determined through multiplying the CompCore
weighted average common and common equivalent shares for each period by the
Exchange Ratio of 0.6408 of a share of Zoran Common Stock for each share of
CompCore Common Stock.
(3) Gives effect at September 30, 1996 to the conversion of CompCore's
convertible promissory note into shares of CompCore Common Stock.
11
<PAGE>
COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE DATA
The following table sets forth certain historical per share data of Zoran
and CompCore and combined per share data on an unaudited pro forma basis after
giving effect to the Merger on a pooling of interests basis assuming 0.6408 of a
share of Zoran Common Stock is issued in the Merger in exchange for each share
of CompCore Common Stock outstanding. The information set forth below should be
read in conjunction with the summary historical financial data, the unaudited
pro forma combined condensed financial information and the historical financial
statements of Zoran and CompCore included elsewhere in this Joint Proxy
Statement/Prospectus. The unaudited pro forma combined condensed financial
information is not necessarily indicative of the operating results that would
have been achieved had the transaction been effected as of the beginning of the
periods presented and should not be construed as representative of future
results of operations. Neither Zoran nor CompCore has ever declared or paid cash
dividends on its respective shares of capital stock.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Historical--Zoran:
Net income (loss)..................................................... $ (1.31) $ (0.83) $ 0.10 $ 0.04 $ 0.33
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Book value per share (1).............................................. -- -- $ 3.10 -- $ 3.83
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED
PERIOD FROM NOVEMBER SEPTEMBER 30,
12, 1993 (INCEPTION) --------------------
TO SEPTEMBER 30, 1994 1995 1996
--------------------- --------- ---------
<S> <C> <C> <C>
Historical--CompCore
Net income................................................................ $ 0.12 $ 0.11 $ 0.09
----- --------- ---------
----- --------- ---------
Book value per share (1).................................................. $ 0.30
---------
---------
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Pro forma and equivalent pro forma combined net income (loss) per share
(2)
Pro forma per Zoran share (2)......................................... $ (1.19) $ (0.68) $ 0.12 $ 0.04 $ 0.27
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Equivalent pro forma per CompCore share (3)........................... $ (0.76) $ (0.44) $ 0.08 $ 0.03 $ 0.17
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Pro forma combined book value per share:
Pro forma per Zoran share (1)......................................... $ 2.50 $ 2.97
--------- ---------
--------- ---------
Equivalent pro forma per CompCore share (3)........................... $ 1.60 $ 1.90
--------- ---------
--------- ---------
</TABLE>
- ------------------------------
(1) Historical book value per share for Zoran and CompCore is computed by
dividing total stockholders' equity by the number of common shares
outstanding at the end of each period. Pro forma combined book value per
share is computed by dividing pro forma stockholders' equity by the pro
forma number of shares of Zoran Common Stock outstanding.
(2) For purposes of the pro forma combined data, Zoran's financial data for the
fiscal years ended December 31, 1993, 1994 and 1995 and the nine months
ended September 30, 1995 and 1996 have been combined with CompCore's
unaudited financial data for the period from November 12, 1993 (inception)
to December 31, 1993, the twelve-month periods ended December 31, 1994 and
1995 and the nine-month periods ended September 30, 1995 and 1996. See Notes
1 through 5 of Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
(3) The equivalent pro forma combined net income (loss) per CompCore share and
equivalent pro forma combined book value per CompCore share are calculated
by multiplying the respective pro forma combined per Zoran share amounts by
the exchange ratio of 0.6408 of a share of Zoran Common Stock for each share
of CompCore Common Stock outstanding.
12
<PAGE>
MARKET PRICE INFORMATION
CompCore Common Stock is not traded on an established public market.
Zoran Common Stock has been traded in the over-the-counter market and quoted
on The Nasdaq National Market under the Nasdaq symbol "ZRAN" since Zoran's
initial public offering on December 15, 1995. The following table sets forth the
range of high and low closing sale prices reported on The Nasdaq National Market
for Zoran Common Stock for the calendar quarters indicated:
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1995:
Fourth Quarter (commencing December 15)............................... $ 20.75 $ 15.00
1996:
First Quarter......................................................... 40.00 18.75
Second Quarter........................................................ 31.75 16.25
Third Quarter......................................................... 19.75 10.125
Fourth Quarter (through November 29).................................. 22.50 15.25
</TABLE>
On October 18, 1996, the last trading day prior to the announcement by Zoran
and CompCore that they had reached an agreement concerning the Merger, the
closing sale price of Zoran Common Stock as reported on The Nasdaq National
Market was $20.00 per share. As of October 31, 1996, there were approximately
395 holders of record of Zoran Common Stock.
On November 29, 1996, the most recent practicable date prior to the printing
of this Joint Proxy Statement/Prospectus, the closing sale price of Zoran Common
Stock as reported on The Nasdaq National Market was $21.00 per share.
Because the market price of Zoran Common Stock is subject to fluctuation,
the market value of the shares of Zoran Common Stock that holders of CompCore
Common Stock will receive in the Merger may increase or decrease prior to the
Merger.
ZORAN STOCKHOLDERS AND COMPCORE SHAREHOLDERS ARE URGED TO OBTAIN A CURRENT
MARKET QUOTATION FOR THE ZORAN COMMON STOCK.
Neither Zoran nor CompCore has paid any cash dividends on its Common Stock
since their respective inceptions. Following the Merger, Zoran intends to retain
any future earnings for use in its business and does not anticipate paying cash
dividends in the foreseeable future.
13
<PAGE>
RISK FACTORS
THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED BY HOLDERS OF COMPCORE
COMMON STOCK IN EVALUATING WHETHER TO APPROVE THE PLAN OF REORGANIZATION AND
THEREBY BECOME HOLDERS OF ZORAN COMMON STOCK AND BY HOLDERS OF ZORAN COMMON
STOCK IN EVALUATING WHETHER TO APPROVE THE MERGER PROPOSAL. THESE FACTORS SHOULD
BE CONSIDERED IN CONJUNCTION WITH THE OTHER INFORMATION INCLUDED IN THIS JOINT
PROXY STATEMENT/PROSPECTUS.
RISKS RELATING TO THE MERGER
INTEGRATION OF CERTAIN OPERATIONS. The managements of Zoran and CompCore
have entered into the Plan of Reorganization with the expectation that the
Merger will result in beneficial synergies for Zoran and CompCore. See "The
Merger--Reasons for the Merger; Recommendation of Boards of Directors."
Achieving the anticipated benefits of the Merger will depend in part upon
whether the integration of the two companies' businesses is accomplished in an
efficient and effective manner, and there can be no assurance that this will
occur. The combination of the two companies will require, among other things,
integration of the companies' respective product offerings and technology and
coordination of their research and development, sales and marketing, and
financial reporting efforts. There can be no assurance that such integration
will be accomplished smoothly or successfully. If significant difficulties are
encountered in the integration of the existing product lines and technology,
resources could be diverted from new product development, resulting in delays in
new product introductions. The difficulties of such integration may be increased
by the necessity of coordinating geographically separated organizations with
distinct cultures. The integration of certain operations following the Merger
will require the dedication of management and other personnel resources which
may temporarily distract attention from the day-to-day business of the combined
company. Failure to successfully accomplish the integration of the two
companies' operations could have a material adverse effect on the combined
company's business, financial condition or results of operations.
DISTRIBUTORS, RESELLERS AND CUSTOMERS. There can be no assurance that
distributors, resellers and present and potential customers of Zoran or CompCore
will continue their current buying patterns without regard to the announced
Merger. In particular, Zoran and CompCore believe that certain customers may
defer purchasing decisions as they evaluate Zoran's future product strategy. Any
such deferrals could have a material adverse effect upon the combined company's
business, financial condition or results of operations.
FIXED EXCHANGE RATIO. Under the terms of the Plan of Reorganization, each
share of CompCore Common Stock issued and outstanding at the Effective Time will
be converted into the right to receive 0.6408 of a share of Zoran Common Stock.
The Plan of Reorganization does not contain any provisions for adjustment of the
Conversion Number based on fluctuations in the price of Zoran Common Stock.
Accordingly, the value of the consideration to be received by the shareholders
of CompCore upon the Merger will depend on the market price of Zoran Common
Stock at the Effective Time. On October 18, 1996, the last trading day prior to
the date on which the original Agreement and Plan of Reorganization was executed
by Zoran, Sub and CompCore, the closing sale price of Zoran Common Stock was
$20.00. There can be no assurance that the market price of Zoran Common Stock on
and after the Effective Time will not be lower than such price. See "--Risks
Relating to Zoran and the Combined Company--Volatility of Stock Price."
TRANSACTION CHARGES. Zoran and CompCore expect that the combined company
will incur Merger-related expenses of approximately $2 million, most of which
will be incurred in the quarter ending December 31, 1996 , the quarter in which
the Merger is expected to be consummated, for transaction fees and costs for
financial advisors, legal counsel and accountants and to reflect costs
associated with combining the operations of the two companies. This amount is a
preliminary estimate and is therefore subject to change. There can be no
assurance that Zoran will not incur additional charges in subsequent quarters to
reflect costs associated with the Merger or that management will be successful
in its efforts to
14
<PAGE>
integrate the operations of the two companies. See "--Integration of Certain
Operations" and "Summary Historical and Pro Forma Financial Data."
RISKS RELATING TO ZORAN AND THE COMBINED COMPANY
PRODUCT CONCENTRATION; EVOLVING MARKETS. To date, only a limited number of
commercial and consumer products that incorporate Zoran's integrated circuits
are in volume production. Current applications for Zoran's products include
professional and consumer video editing systems, PC-based video CD systems,
stand-alone video CD systems, digital audio systems and filmless digital
cameras. During 1994 and 1995, Zoran derived a majority of its product revenues
from the sale of integrated circuits for video editing applications. Sales of
audio products have accounted for an increased percentage of product sales in
1996. Zoran expects that sales of its devices for video editing and digital
audio applications will continue to account for a significant portion of Zoran's
revenues for the near future. Over the longer term, Zoran's ability to generate
increased revenues will be dependent on the expansion of sales of its products
for use in other existing applications, as well as the development and
acceptance of new applications for Zoran's technologies and products. The
potential size of the markets for new applications and the timing of their
development and acceptance is uncertain. Zoran's future success will depend upon
whether manufacturers select Zoran's integrated circuits for incorporation into
their products, and upon the successful marketing of these products by the
manufacturers. There can be no assurance that demand for existing applications
will be sustained, that new markets will develop or that manufacturers
developing products for any of these markets will design Zoran's integrated
circuits into their products or successfully market them. The failure of
existing and new markets to develop or to be receptive to Zoran's products would
have a material adverse effect on Zoran's business, operating results and
financial condition.
The emergence of markets for Zoran's integrated circuits will be affected by
a variety of factors beyond Zoran's control. In particular, Zoran's products are
designed to conform with certain current industry standards. There can be no
assurance that manufacturers will continue to follow these standards or that
competing standards will not emerge which will be preferred by manufacturers.
The emergence of markets for Zoran's products is also dependent in part upon
third-party content providers developing and marketing content for end user
systems, such as video and audio playback systems, in a format compatible with
Zoran's products. There can be no assurance that these or other factors beyond
Zoran's control will not adversely affect the development of markets for Zoran's
products. See "Information Concerning Zoran--Business--Strategy" and
"--Business--Markets and Applications."
RELIANCE ON INDEPENDENT FOUNDRIES AND CONTRACTORS. Zoran does not operate
any manufacturing facilities, and from time to time shortages of foundry
capacity develop for certain process technologies in the semiconductor industry.
Zoran currently relies on independent foundries to manufacture substantially all
of its products. Zoran's independent foundries fabricate products for other
companies and may also produce products of their own design. Zoran does not have
a long-term supply contract with two of its principal foundries, and, therefore,
neither of these suppliers is obligated to supply products to Zoran for any
specific period, in any specific quantity or at any specified price, except as
may be provided in a particular purchase order. See "Information Concerning
Zoran--Business--Manufacturing."
Zoran's reliance on independent foundries involves a number of risks,
including the inability to obtain adequate capacity, the unavailability of or
interruption in access to certain process technologies, reduced control over
delivery schedules, quality assurance, manufacturing yields and cost, and
potential misappropriation of Zoran's intellectual property. Zoran obtains
foundry capacity through forecasts that are generated in advance of expected
delivery dates and places its purchase orders up to three months prior to
scheduled delivery. Zoran's ability to obtain the foundry capacity necessary to
meet the future demand for its products is based in part on its ability to
accurately forecast future demand. Due to current limitations on semiconductor
foundry capacity, if Zoran fails to accurately forecast its future demand, Zoran
may be unable to obtain adequate supplies of integrated circuits on a timely
basis. There can be no assurance that Zoran will be able to accurately forecast
the future demand for its products or obtain sufficient foundry
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capacity in the future. In addition, Zoran's obligation to place purchase orders
in advance of delivery subjects Zoran to inventory risks, including the risk of
obsolescence. While Zoran has not experienced any material disruptions in supply
to date, there can be no assurance that manufacturing problems will not occur in
the future. In the event that any of Zoran's foundries are unable or unwilling
to produce sufficient supplies of Zoran's products, in required volumes at
acceptable costs, Zoran will be required to reallocate production among its
other existing foundries or to identify and qualify acceptable alternative
foundries. This qualification process could take six months or longer, and no
assurance can be given that any additional source would become available to
Zoran or would be in a position to satisfy Zoran's production requirements on a
timely basis. The loss of any of Zoran's foundries as a supplier, the inability
of Zoran in a period of increased demand for its products to expand supply or
Zoran's inability to obtain timely and adequate deliveries from its current or
future suppliers could reduce or delay shipments of Zoran's products. Any of
these developments could damage relationships with Zoran's current and
prospective customers and have a material adverse effect on Zoran's business,
operating results or financial condition.
All of Zoran's semiconductor products are currently being assembled by one
of two independent contractors, ASAT, Inc. ("ASAT"), and Anam Industrial
("Anam"), and tested by those contractors or other independent contractors.
Zoran's reliance on independent assembly and testing houses limits its control
over delivery schedules, quality assurance and product cost. Disruptions in the
provision of services by Zoran's assembly or testing houses or other
circumstances that would require Zoran to seek alternative sources of assembly
or testing could lead to supply constraints or delays in the delivery of Zoran's
products. These constraints or delays could damage relationships with current
and prospective customers and have a material adverse effect on Zoran's
business, operating results or financial condition. See "Information Concerning
Zoran--Business--Manufacturing."
NEW PRODUCT DEVELOPMENT AND TIMELY INTRODUCTION OF NEW AND ENHANCED
PRODUCTS. The markets for Zoran's products are characterized by rapidly
changing technologies, evolving industry standards, frequent new product
introductions and short product life cycles. Zoran expects to increase its
expenses relating to product development, and its future success will depend to
a substantial degree upon its ability to develop and introduce, on a timely and
cost-effective basis, new and enhanced products that meet changing customer
requirements and industry standards. The development and introduction of new
semiconductor products is a complex and uncertain process requiring high levels
of innovation, the accurate anticipation of technological and market trends, the
successful and timely completion of product development, the ability of Zoran to
convince its customers to incorporate Zoran's products into the design of their
own products, the securing of sufficient foundry capacity and the achievement of
acceptable wafer yields by Zoran's independent foundries. Development of new
product designs can often require significant expenditures by Zoran, which
expenditures may precede volume sales of the new product, if any, by a year or
more. The introduction of new or enhanced products also requires Zoran to manage
the transition from older products in order to minimize disruption in customer
ordering patterns, avoid excessive levels of older product inventories and
ensure that adequate supplies of new products can be delivered to meet customer
demand. There can be no assurance that Zoran will successfully develop,
introduce or manage the transition to new products. Future delays in the
introduction or shipment of new or enhanced products, the inability of such
products to gain market acceptance or problems associated with new product
transitions could adversely affect Zoran's business, operating results and
financial condition. See "Information Concerning Zoran--Business--Industry
Background" and "--Business--Research and Development."
COMPETITION; PRICING PRESSURES. Zoran's existing and potential competitors
include many large domestic and international companies that have substantially
greater financial, manufacturing, technical, marketing, distribution and other
resources, broader product lines and longer standing relationships with
customers than Zoran. The markets in which Zoran competes are intensely
competitive and are characterized by rapid technological change, declining
average unit selling prices ("ASPs") and rapid product
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obsolescence. See "Information Concerning Zoran--Business--Competition" and
"--Management's Discussion and Analysis of Financial Condition and Results of
Operations."
CUSTOMER CONCENTRATION; CHANGE IN CUSTOMER MIX. Zoran's largest customers
have accounted for a substantial percentage of its revenues, and sales to these
large customers have varied materially from year to year. There can be no
assurance that Zoran will be able to retain its key customers or that such
customers will not cancel purchase orders to reschedule or decrease their level
of purchases. In addition, sales to these key customers may fluctuate
significantly from quarter to quarter. Any development that would result in a
substantial decrease or delay in sales to one or more key customers, including
actions by competitors or technological changes, could have a material adverse
effect on Zoran's business, operating results or financial condition. In
addition, any development that would affect the collectibility of account
balances from one or more key customers could have a material adverse effect on
Zoran's business, operating results or financial condition. See "Information
Concerning Zoran--Business--Customers," "-- Business--Sales and Marketing" and
"--Management's Discussion and Analysis of Financial Condition and Results of
Operations."
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS; NET OPERATING LOSS
CARRYFORWARDS. Zoran's quarterly operating results have varied significantly
due to a number of factors, including the timing of new product introductions by
Zoran and its competitors, market acceptance of new and enhanced versions of
Zoran's products and products of its customers, the timing of large customer
orders, the availability of development funding and the timing of development
revenue, changes in the mix of products sold and the mix of distribution
channels employed, and competitive pricing pressures. Zoran expects that its
operating results will fluctuate in the future as a result of these factors and
a variety of other factors, including the availability of adequate foundry
capacity, fluctuations in manufacturing yields, the emergence of new industry
standards, product obsolescence, changes in pricing policies by Zoran, its
competitors or its suppliers, the cyclical nature of the semiconductor industry,
the evolving and unpredictable nature of the markets for products incorporating
Zoran's integrated circuits and the amount of research and development expenses
associated with new product introductions. Zoran's operating results could also
be adversely affected by economic conditions generally or in various geographic
areas where Zoran or its customers do business, other conditions affecting the
timing of customer orders, a downturn in the markets for its customers'
products, particularly the consumer electronics market, or order cancellations
or reschedulings. These factors are difficult or impossible to forecast, and
these or other factors could materially affect Zoran's quarterly or annual
operating results. Zoran places orders to purchase its products from independent
foundries several months in advance of the scheduled delivery date, often in
advance of receiving non-cancelable orders from its customers. If anticipated
shipments or development revenue in any quarter are canceled or do not occur as
quickly as expected, expense and inventory levels could be disproportionately
high. A significant portion of Zoran's expenses is relatively fixed, and the
timing of increases in expenses is based in large part on Zoran's forecast of
future revenues. As a result, if revenues do not meet Zoran's expectations it
may be unable to quickly adjust expenses to levels appropriate to actual
revenues, which could have a material adverse effect on Zoran's business,
operating results or financial condition. To date, Zoran's operating results
have not been materially affected by seasonal factors. However, as markets for
consumer products incorporating Zoran's integrated circuits mature, Zoran
expects that sales will tend to be stronger during the last several months of
the calendar year than at other times due to increased demand for consumer
products during the holiday season. As a result of the foregoing, Zoran's
operating results and stock price may be subject to significant volatility,
particularly on a quarterly basis. Any shortfall in revenues or net income from
levels expected by securities analysts could have an immediate and significant
adverse effect on the trading price of Zoran's Common Stock.
Zoran's future net income and cash flow will also be affected by its ability
to apply its net operating losses ("NOLs"), which totaled approximately $39
million and $1 million for federal and state tax reporting purposes,
respectively, as of September 30, 1996, against taxable income in future
periods. Under
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the Tax Reform Act of 1986, the utilization of NOLs may be impaired or limited
in certain circumstances, including a cumulative ownership change of greater
than 50% over a three year period. The consummation of Zoran's initial public
offering of its Common Stock (the "IPO") in December 1995 resulted in a
cumulative ownership change of greater than 50%. Accordingly, Zoran's NOLs
incurred prior to the consummation of the IPO that can be utilized to reduce
future taxable income for federal tax purposes will be limited to approximately
$3 million per year. Zoran does not believe that the Merger will adversely
affect its ability to utilize its NOLs. However, future changes of ownership
could further limit Zoran's utilization of NOLs and could have an adverse effect
on Zoran's net income and cash flow. In addition, Zoran had approximately $2
million of Israeli NOLs as of September 30, 1996. Upon utilization of Israeli
NOLs, Zoran's Israeli subsidiary will benefit from its status as an "Approved
Enterprise" pursuant to the Israeli Law for the Encouragement of Capital
Investments, 1959, as amended. There can be no assurance that changes in tax
laws in the United States or Israel or in Zoran's status will not limit Zoran's
ability to
utilize its NOLs or its "Approved Enterprise" status. Any limitation on Zoran's
ability to utilize its NOLs or its "Approved Enterprise" status could have a
material adverse effect on Zoran's business, operating results or financial
condition.
RISKS ASSOCIATED WITH CUSTOMER FUNDED RESEARCH AND DEVELOPMENT. Zoran
historically has generated a significant percentage of its total revenues from
development contracts, primarily with key customers. These development contracts
have provided Zoran with partial funding for the development of certain of its
products. Under these contracts, Zoran receives payments upon reaching certain
development milestones. Zoran is currently conducting development work under
several development contracts. Zoran intends to continue to enter into
development contracts with strategic partners, although it expects development
revenue to remain relatively constant or decrease, and to decrease as a
percentage of total revenues. Zoran's failure to achieve the milestones
specified in its existing development contracts, the termination of either of
these existing contracts or Zoran's inability to secure future development
contracts could have an adverse effect on Zoran's business, operating results or
financial condition. See "Information Concerning Zoran--Business--Research and
Development."
POSSIBLE TRANSACTIONS TO OBTAIN ADDITIONAL FOUNDRY CAPACITY. In order to
secure additional foundry capacity, Zoran has considered and will continue to
consider various transactions, which could include, among other things, equity
investments from, option payments or other prepayments to, nonrefundable
deposits with or loans to foundries in exchange for capacity, contracts that
commit Zoran to purchase specified quantities of wafers over extended periods or
joint ventures or other partnership relationships with foundries. There can be
no assurance that Zoran will be able to make any such arrangement in a timely
fashion or at all or that such arrangements, if any, will be on terms favorable
to Zoran. If Zoran were not able to obtain additional foundry capacity as
required, its business and operating results would be materially and adversely
affected. See "Information Concerning Zoran--Business--Manufacturing."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING. Zoran may require
substantial additional capital to finance its future growth, secure additional
foundry capacity and fund its ongoing research and development activities beyond
1997. Zoran's capital requirements will depend on many factors, including, but
not limited to, acceptance of and demand for Zoran's products, the types of
arrangements that Zoran may enter into with its independent foundries and the
extent to which Zoran invests in new technology and research and development
projects. To the extent that Zoran's existing sources of liquidity and cash flow
from operations are insufficient to fund Zoran's activities, Zoran may need to
raise additional funds. If additional funds are raised through the issuance of
equity securities, the percentage ownership of Zoran's stockholders would be
reduced. Further, such equity securities may have rights, preferences or
privileges senior to those of Zoran's Common Stock. No assurance can be given
that additional financing will be available or that, if available, it will be
available on terms favorable to Zoran. See "Information Concerning
Zoran--Management's Discussion and Analysis of Financial Condition and Results
of Operations."
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MANAGEMENT OF GROWTH. Zoran has recently experienced rapid growth and
expansion which has placed, and will continue to place, a significant strain on
its administrative, operational and financial resources and has resulted, and
will continue to result, in a continuing increase in the level of responsibility
for both existing and new management personnel. Zoran anticipates that future
growth, if any, will require it to recruit and hire a substantial number of new
engineering, managerial, sales and marketing personnel. Zoran's ability to
manage its growth successfully will also require Zoran to continue to expand and
improve its administrative, operational, management and financial systems and
controls. Many of Zoran's key operations, including research and development and
a significant portion of its sales and administrative operations, are located in
Israel, while a majority of its sales and marketing and certain of its
administrative personnel, including its President and Chief Executive Officer,
are based in the United States. The geographic separation of these operations is
likely to place additional strain on Zoran's resources and its ability to
effectively manage its growth. If Zoran's management is unable to manage growth
effectively, Zoran's business, operating results or financial condition could be
materially and adversely affected. See "Information Concerning
Zoran--Management."
DEPENDENCE ON INTELLECTUAL PROPERTY; LICENSED PRODUCTS; RISK OF DISPUTES AND
LITIGATION. Zoran's ability to compete successfully is dependent in part upon
its ability to protect its proprietary technology and information. Although
Zoran relies on a combination of patents, copyrights, trademarks, trade secret
laws and licensing arrangements to protect certain of its intellectual property,
Zoran believes that factors such as the technological and creative skills of its
personnel and the success of its ongoing product development efforts are more
important in maintaining its competitive position. Zoran generally enters into
confidentiality or license agreements with its employees, distributors,
customers and potential customers and limits access to its proprietary
information. Zoran currently holds several United States patents, and has
additional patent applications pending, that pertain to technologies and
processes relating to Zoran's current business. There can be no assurance that
Zoran's intellectual property rights, if challenged, will be upheld as valid,
will be adequate to prevent misappropriation of its technology or will prevent
the development of competitive products. Additionally, there can be no assurance
that Zoran will be able to obtain patents or other intellectual property
protection in the future. Furthermore, the laws of certain foreign countries in
which Zoran's products are or may be developed, manufactured or sold, including
various countries in Asia, may not protect Zoran's products or intellectual
property rights to the same extent as do the laws of the United States and thus
make the possibility of piracy of Zoran's technology and products more likely in
these countries.
Zoran sells its Dolby AC-3 based products under a perpetual, non-exclusive
license from Dolby which permits Zoran to incorporate Dolby's AC-3 algorithm
into its products. Zoran's customers enter into license agreements with Dolby
pursuant to which they pay royalties directly to Dolby. Under Zoran's agreement
with Dolby, Zoran may sell its Dolby AC-3 based products only to customers who
are licensees of Dolby. To date, most potential customers for Zoran's Dolby AC-3
based products are licensees of Dolby. However, the failure or refusal of
potential customers to enter into license agreements with Dolby in the future
could adversely affect Zoran's business, operating results or financial
condition.
The semiconductor industry is characterized by vigorous protection and
pursuit of intellectual property rights, which have resulted in significant and
often protracted and expensive litigation. Although there is currently no
pending intellectual property litigation involving Zoran, Zoran or its foundries
may from time to time be notified of claims that Zoran may be infringing patents
or other intellectual property rights owned by third parties. Litigation by or
against Zoran relating to patent infringement or other intellectual property
matters could result in significant expense to Zoran and divert the efforts of
Zoran's technical and management personnel, whether or not such litigation
results in a determination favorable to Zoran. In the event of an adverse result
in any such litigation, Zoran could be required to pay substantial damages,
cease the manufacture, use and sale of infringing products, expend significant
resources to develop non-infringing technology, discontinue the use of certain
processes or obtain licenses to the infringing technology. There can be no
assurance that licenses would be offered or that the terms of any
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offered licenses would be acceptable to Zoran. The failure to obtain a license
from a third party for technology used by Zoran could cause Zoran to incur
substantial liabilities and to suspend the manufacture of products, or the use
by Zoran's foundries of certain processes. See "Information Concerning
Zoran--Business--Proprietary Rights and Licenses."
DEPENDENCE ON KEY PERSONNEL; POTENTIAL DIVERSION OF MANAGEMENT
ATTENTION. Zoran's success depends to a significant degree upon the continuing
contributions of its senior management, particularly Levy Gerzberg, a co-founder
of Zoran and its President and Chief Executive Officer. The loss of Dr. Gerzberg
or other key management personnel could delay product development cycles or
otherwise have a material adverse effect on Zoran's business, operating results
or financial condition. There can be no assurance that Zoran will be able to
retain the services of Dr. Gerzberg or any of its other key employees. Zoran
believes that its future success will also depend in large part on its ability
to attract and retain highly-skilled engineering, managerial, sales and
marketing personnel, both in the United States and in Israel. Competition for
such personnel is intense, and there can be no assurance that Zoran will be
successful in attracting,integrating and retaining such personnel. Failure to
attract and retain key personnel could have a material adverse effect on Zoran's
business, operating results or financial condition. See "Information Concerning
Zoran--Business--Employees" and "--Management."
In September 1995, Zoran declared a dividend to its stockholders of all of
the stock of Zoran's wholly-owned subsidiary, GC Holdings Corporation ("GCH").
Holdings holds a 50% interest in a joint venture limited liability company (the
"Joint Venture") which Zoran transferred to GCH together with $100,000 in cash
as GCH's initial capital. The Joint Venture owns Oren Semiconductor, Ltd.
("Oren"), an operating company engaged in the development and marketing of
semiconductor devices used for television image enhancement (or "ghost
cancellation"), a business conducted by Zoran until the organization of the
Joint Venture in October 1994. Zoran has no ongoing financial obligations in
connection with the Joint Venture but remains obligated under certain
representations, warranties and covenants made to its Joint Venture partner in
connection with the organization of the Joint Venture. Dr. Gerzberg and Ami
Kraft, Zoran's Vice President, Finance and Chief Financial Officer, currently
serve on the Boards of Directors of Oren and GCH and act as managers of the
Joint Venture, and Zoran believes that they will continue to serve in these
capacities for the foreseeable future. Dr. Gerzberg also is currently acting as
co-Chief Executive Officer of Oren and the Joint Venture and as Chief Executive
Officer of GCH. Currently, these responsibilities are not requiring a material
amount of the time and attention of Dr. Gerzberg or Mr. Kraft. Oren intends to
hire a full-time chief executive officer prior to commencement of volume product
shipments. However, should Oren experience delays in identifying and hiring a
permanent chief executive officer, or should Oren, GCH or the Joint Venture
require the attention of senior management or the Board of Directors, Dr.
Gerzberg or Mr. Kraft may be required to devote substantial time to the affairs
of such company. Such a diversion of the attention of Dr. Gerzberg or Mr. Kraft
could have a material adverse effect on Zoran's business, operating results or
financial condition. See "Information Concerning Zoran--Certain Transactions."
RELIANCE ON INTERNATIONAL SALES AND OPERATIONS; RELIANCE ON OPERATIONS IN
ISRAEL. Sales to non-U.S. customers in 1993, 1994, 1995 and the nine months
ended September 30, 1996 accounted for 79%, 81%, 69% and 81%, respectively, of
Zoran's total revenues, and Zoran anticipates that international sales will
continue to represent a significant portion of total revenues. In addition,
substantially all of Zoran's products are manufactured, assembled and tested
outside of the United States by independent foundries and subcontractors. Zoran
is subject to the risks of doing business internationally, including unexpected
changes in regulatory requirements, fluctuations in exchange rates, imposition
of tariffs and other barriers and restrictions and the burdens of complying with
a variety of foreign laws. Zoran is also subject to general geopolitical risks,
such as political and economic instability and changes in diplomatic and trade
relationships, in connection with its international operations.
Zoran's principal research and development facilities and a substantial
portion of its sales operations are located in the State of Israel and, as of
September 30, 1996, 58 of Zoran's 75 full-time employees were
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located in Israel, including all of Zoran's research and development personnel.
Therefore, Zoran is directly affected by the political, economic and military
conditions to which that country is subject. In addition, many of Zoran's
expenses in Israel are paid in Israeli shekels, thereby subjecting Zoran to the
risk of foreign currency fluctuations and to economic pressures resulting from
Israel's generally high rate of inflation. There can be no assurance that such
factors will not have a material adverse effect of Zoran's business, operating
results or financial condition. In the past, Zoran has obtained royalty-bearing
grants from the Chief Scientist in Israel's Ministry of Industry and Trade (the
"Chief Scientist") and the Israel-United States Binational Industrial Research
and Development Foundation ("BIRDF") to fund research and development. The terms
of the grants from the Chief Scientist prohibit the transfer of technology
developed pursuant to the terms of these grants to any person without the prior
write to consent of the Chief Scientist. Zoran may apply for additional grants
for new or existing products, although there can be no assurance that these
grants will be available in the future or that the royalty rates payable by
Zoran, or other terms of such grants, will not be less favorable to Zoran than
the terms of previous grants. See "Information Concerning
Zoran--Business--Research and Development."
VOLATILITY OF STOCK PRICE. The market price of the Zoran Common Stock has
fluctuated significantly since the IPO and is subject to material fluctuations
in the future in response to announcements concerning Zoran or its competitors
or customers, quarterly variations in operating results, announcements of
technological innovations, the introduction of new products or changes in
product pricing policies by Zoran or its competitors, proprietary rights or
other litigation, changes in analysts' earnings estimates, general conditions in
the semiconductor industry, developments in the financial markets and other
factors. In addition, the stock market has, from time to time, experienced
extreme price and volume fluctuations that have particularly affected the market
prices for technology companies and which have been unrelated to the operating
performance of the affected companies. Broad market fluctuations of this type
may adversely affect the future market price of the Common Stock.
RISKS RELATING TO COMPCORE
DEPENDENCE ON INTELLECTUAL PROPERTY; LICENSED PRODUCTS; RISK OF DISPUTES AND
LITIGATION. CompCore's ability to compete successfully is dependent in part
upon its ability to protect its proprietary technology and information. Although
CompCore relies on a combination of patents, copyrights, trademarks, trade
secret laws and licensing arrangements to protect certain of its intellectual
property, CompCore believes that factors such as the technological and creative
skills of its personnel and the success of its ongoing product development
efforts are more important in maintaining its competitive position. CompCore
generally enters into confidentiality or license agreements with its employees,
distributors, customers and potential customers and limits access to its
proprietary information. CompCore currently holds two United States patents that
pertain to technologies and processes relating to CompCore's current business.
However, there can be no assurance that CompCore's intellectual property rights,
if challenged, will be upheld as valid, will be adequate to prevent
misappropriation of its technology or will prevent the development of
competitive products. Additionally, there can be no assurance that CompCore will
be able to obtain patents or other intellectual property protection in the
future. Patents relating to the establishment, development and maintenance of
the MPEG standard are unclear and may be subject to continuing claims by
numerous third parties. Furthermore, the laws of certain foreign countries in
which CompCore's products are or may be developed, manufactured or sold,
including various countries in Asia, may not protect CompCore's products or
intellectual property rights to the same extent as do the laws of the United
States and thus make the possibility of piracy of CompCore's technology and
products more likely in these countries.
The semiconductor industry is characterized by vigorous protection and
pursuit of intellectual property rights, which have resulted in significant and
often protracted and expensive litigation. Although there is currently no
pending intellectual property litigation involving CompCore, CompCore is aware
of other parties that hold patents in fields related to CompCore's business, and
CompCore may from time to time be notified of claims that it may be infringing
patents or other intellectual property rights owned by
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third parties. Although CompCore is not aware that it is infringing any of such
patents, the uncertainty discussed above regarding patents relating to the MPEG
standard makes it more difficult to assess the possibility that CompCore's
activities in the MPEG field may give rise to patent infringement claims.
Litigation by or against CompCore relating to patent infringement or other
intellectual property matters could result in significant expense to CompCore
and divert the efforts of its technical and management personnel, whether or not
such litigation results in a determination favorable to CompCore. In the event
of an adverse result in any such litigation, CompCore could be required to pay
substantial damages, cease the manufacture, use and sale of infringing products,
expend significant resources to develop non-infringing technology, discontinue
the use of certain processes or obtain licenses to the infringing technology.
There can be no assurance that licenses would be offered or that the terms of
any offered licenses would be acceptable to CompCore. The failure to obtain a
license from a third party for technology used by CompCore could cause CompCore
to incur substantial liabilities and to suspend the manufacture of products.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING. CompCore will
require substantial additional capital to finance its future growth and fund its
ongoing research and development activities beyond the next twelve months.
CompCore's capital requirements will depend on many factors, including, but not
limited to, acceptance of and demand for CompCore's products and the extent to
which CompCore invests in new technology and research and development projects.
In the event the Merger cannot be completed for any reason, the extent that
CompCore's sources of liquidity and cash flow from operations are insufficient
to fund CompCore's activities, CompCore may need to raise additional funds. If
additional funds were to be raised through the issuance of equity securities,
the percentage ownership of CompCore's shareholders would be reduced. Further,
such equity securities may have rights, preferences or privileges senior to
those of CompCore's Common Stock. No assurance can be given that additional
financing will be available or that, if available, it will be available on terms
favorable to CompCore. See "Information Concerning CompCore--Management's
Discussion and Analysis of Financial Condition and Results of Operations."
CUSTOMER CONCENTRATION; CHANGE IN CUSTOMER MIX. CompCore's largest
customers have accounted for a substantial percentage of its revenues, and sales
to these large customers have varied materially from year to year. See
"Information Concerning CompCore--Business--Customers." There can be no
assurance that CompCore will be able to retain its key customers or that such
customers will not cancel purchase orders or reschedule or decrease their level
of purchases. In addition, sales to these key customers may fluctuate
significantly from quarter to quarter. Any development that would result in a
substantial decrease or delay in sales to one or more key customers, including
actions by competitors or technological changes, could have a material adverse
effect on CompCore's business, operating results or financial condition. In
addition, any development that would affect the collectibility of account
balances from one or more key customers could have a material adverse effect on
CompCore's business, operating results or financial condition.
DEPENDENCE ON KEY PERSONNEL. CompCore's success depends to a significant
degree upon the continuing contributions of its senior management, particularly
George Haber, CompCore's President and Chief Executive Officer, and Sorin
Cismas, CompCore's Chief Technical Officer. The loss of Mr. Haber, Mr. Cismas or
other key management personnel could delay product development cycles or
otherwise have a material adverse effect on CompCore's business, operating
results or financial condition. There can be no assurance that CompCore will be
able to retain the services of Mr. Haber, Mr. Cismas or any of its other key
employees. CompCore believes that its future success will also depend in large
part on its ability to attract and retain highly-skilled engineering,
managerial, sales and marketing personnel. Competition for such personnel is
intense, and there can be no assurance that CompCore will be successful in
attracting, integrating and retaining such personnel. Failure to attract and
retain key personnel could have a material adverse effect on CompCore's
business, operating results or financial condition.
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THE SPECIAL MEETINGS
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to holders of Zoran
Common Stock in connection with the solicitation of proxies by the Zoran Board
for use at the Zoran Special Meeting to be held at the offices of Gray Cary Ware
& Freidenrich, A Professional Corporation, 400 Hamilton Avenue, Palo Alto,
California, on December 27, 1996, commencing at 10:00 a.m., Pacific Time, and at
any adjournments or postponements thereof.
This Joint Proxy Statement/Prospectus is also being furnished to holders of
CompCore Common Stock in connection with the solicitation of proxies by the
CompCore Board for use at the CompCore Special Meeting to be held at the offices
of Cooley Godward LLP, Five Palo Alto Square, 3000 El Camino Real, Palo Alto,
California, on December 27, 1996, commencing at 11:00 a.m., Pacific Time, and at
any adjournments or postponements thereof.
This Joint Proxy Statement/Prospectus and the accompanying form of proxy are
first being mailed to stockholders of Zoran and CompCore on or about December 4,
1996.
MATTERS TO BE CONSIDERED AT THE MEETINGS
ZORAN SPECIAL MEETING. At the Zoran Special Meeting, holders of Zoran
Common Stock will consider and vote upon the Merger Proposal and such other
matters as may properly be brought before the Zoran Special Meeting, or any
adjournments or postponements thereof.
COMPCORE SPECIAL MEETING. At the CompCore Special Meeting, holders of
CompCore Common Stock will consider and vote upon a proposal to approve and
adopt the Plan of Reorganization and to approve the Merger and such other
matters as may properly be brought before the CompCore Special Meeting, or any
adjournments or postponements thereof.
RECOMMENDATIONS OF BOARDS OF DIRECTORS. The Zoran Board has unanimously
approved the Merger Proposal and recommends a vote FOR approval of the Merger
Proposal. The CompCore Board has unanimously approved the Plan of Reorganization
and the Merger and recommends a vote FOR approval and adoption of the Plan of
Reorganization and approval of the Merger.
VOTING AT THE MEETINGS; RECORD DATES
ZORAN. The Zoran Board has fixed November 29, 1996 as the record date (the
"Zoran Record Date") for the determination of the Zoran stockholders entitled to
notice of and to vote at the Zoran Special Meeting and any adjournments or
postponements thereof. Accordingly, only holders of record of shares of Zoran
Common Stock at the close of business on the Zoran Record Date will be entitled
to notice of and to vote at the Zoran Special Meeting. As of November 29, 1996,
there were 7,105,626 shares of Zoran Common Stock outstanding and entitled to
vote, which shares were held by approximately 406 holders of record. Each holder
of record of shares of Zoran Common Stock on the Zoran Record Date is entitled
to cast one vote per share on each proposal properly submitted for the vote of
the Zoran stockholders, either in person or by properly executed proxy, at the
Zoran Special Meeting. The presence, in person or by properly executed proxy, of
the holders of a majority of the outstanding shares of Zoran Common Stock
entitled to vote is necessary to constitute a quorum at the Zoran Special
Meeting.
The affirmative vote of a majority of the shares of Zoran Common Stock
present or represented and voting at the Zoran Special Meeting is required for
approval of the Merger Proposal. The approval of the Merger Proposal is required
by the rules of the National Association of Securities Dealers, Inc. governing
corporations with securities listed on The Nasdaq National Market.
As of October 31, 1996, directors and executive officers of Zoran and their
affiliates may be deemed to be beneficial owners of approximately 49.6% of the
outstanding shares of Zoran Common Stock.
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COMPCORE. The CompCore Board has fixed November 29, 1996 as the record date
(the "CompCore Record Date") for the determination of the CompCore shareholders
entitled to notice of and to vote at the CompCore Special Meeting and any
adjournments or postponements thereof. Accordingly, only holders of record of
shares of CompCore Common Stock at the close of business on the CompCore Record
Date will be entitled to notice of and to vote at the CompCore Special Meeting.
As of November 29, 1996, there were 2,849,000 shares of CompCore Common Stock
outstanding and entitled to vote, which shares were held by 19 holders of
record. Each holder of record of shares of CompCore Common Stock on the CompCore
Record Date is entitled to cast one vote per share on each proposal properly
submitted for the vote of the CompCore Shareholders, either in person or by
properly executed proxy, at the CompCore Special Meeting. The presence, in
person or by properly executed proxy, of the holders of a majority of the
outstanding shares of CompCore Common Stock entitled to vote is necessary to
constitute a quorum at the CompCore Special Meeting.
Under the CGCL, the affirmative vote of the holders of a majority of the
outstanding shares of CompCore Common Stock is required to approve and adopt the
Plan of Reorganization and approve the Merger. In addition, Zoran's obligation
to effect the Merger is subject to the approval of the Merger by the affirmative
vote of the holders of not less than 92% of the outstanding shares of CompCore
Common Stock, although this condition may be waived by Zoran in its discretion.
See "The Plan of Reorganization--Conditions."
As of October 31, 1996, directors and executive officers of CompCore and
their affiliates may be deemed to be beneficial owners of approximately 71.1% of
the outstanding shares of CompCore Common Stock. These persons have entered into
Voting Agreements pursuant to which such persons have agreed to vote their
shares of CompCore Common Stock for approval of the Plan of Reorganization and
the Merger. See "The Merger--Voting Agreements."
Zoran owns no shares of CompCore Common Stock.
EFFECT OF ABSTENTIONS AND "BROKER NON-VOTES." At the Zoran Special Meeting,
in determining whether the Merger Proposal has received the requisite number of
affirmative votes, abstentions and broker non-votes will have no effect on the
outcome of the vote, although they will be counted for purposes of determining
the presence or absence of a quorum. A "broker non-vote" occurs when a nominee
holding shares for a beneficial owner does not vote on a proposal because, for
such proposal, the nominee does not have discretionary voting power and has not
received instructions from the beneficial owner.
At the CompCore Special Meeting, in determining whether the proposal to
approve and adopt the Plan of Reorganization and to approve the Merger has
received the requisite number of affirmative votes, abstentions will have the
same effect as a vote against such proposal. Abstentions will be counted for
purposes of determining the presence or absence of a quorum.
PROXIES
This Joint Proxy Statement/Prospectus is being furnished to Zoran and
CompCore stockholders in connection with the solicitation of proxies by and on
behalf of the Zoran Board and the CompCore Board for use at the Zoran Special
Meeting and the CompCore Special Meeting, respectively (referred to individually
as a "Meeting" or collectively as the "Meetings").
All shares of Zoran Common Stock and CompCore Common Stock which are
entitled to vote and are represented at the relevant Meeting by properly
executed proxies received prior to or at such Meeting, and not revoked, will be
voted at such Meeting in accordance with the instructions indicated on such
proxies. If no instructions are indicated (other than in the case of broker
non-votes), such proxies will be voted (i) in the case of the Zoran Special
Meeting, FOR approval of the Merger Proposal, and (ii) in the case of the
CompCore Special Meeting, FOR approval and adoption of the Plan of
Reorganization and approval of the Merger.
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If any other matters are properly presented at a Meeting for consideration
including, among other things, consideration of a motion to adjourn the Meeting
to another time and/or place (including, without limitation, for the purpose of
soliciting additional proxies), the persons named in the enclosed form of proxy
and acting thereunder will have discretion to vote on such matters in accordance
with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Zoran or CompCore, at or before the taking of the vote at
the Zoran Special Meeting or the CompCore Special Meeting, respectively, a
written notice of revocation bearing a later date than the proxy, (ii) duly
executing a later-dated proxy relating to the same shares and delivering it to
the Secretary of Zoran or CompCore, as the case may be, before the taking of the
vote at the Meeting, or (iii) attending the Meeting and voting in person
(although attendance at the Meeting will not in and of itself constitute a
revocation of a proxy). Any written notice of revocation or subsequent proxy
should be sent so as to be delivered in the case of Zoran stockholders, to Zoran
Corporation, 2041 Mission College Boulevard, Santa Clara, California 95054,
Attention: President, and in the case of CompCore shareholders, to CompCore
Multimedia, Inc., 3120 Scott Boulevard, 2nd Floor, Santa Clara, California
95054, Attention: President, or hand delivered to the Secretary of Zoran or
CompCore, as the case may be, at or before the taking of the vote at the
relevant Meeting.
All expenses of this solicitation, including the cost of preparing and
mailing this Joint Proxy Statement/Prospectus, will be borne by Zoran and
CompCore. In addition to solicitation by use of the mails, proxies may be
solicited by directors, officers and employees of Zoran and CompCore in person
or by telephone, telegram or other means of communication. Such directors,
officers and employees will not be additionally compensated, but may be
reimbursed for reasonable out-of-pocket expenses in connection with such
solicitation. Arrangements will also be made with custodians, nominees and
fiduciaries for forwarding of proxy solicitation materials to beneficial owners
of shares held of record by such custodians, nominees and fiduciaries, and Zoran
and CompCore will reimburse such custodians, nominees and fiduciaries for their
reasonable expenses incurred in connection therewith.
COMPCORE SHAREHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR
PROXY CARDS.
DISSENTERS' RIGHTS
THE FOLLOWING SUMMARY OF APPRAISAL RIGHTS UNDER CALIFORNIA LAW IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO CHAPTER 13 OF THE CALIFORNIA GENERAL CORPORATION
LAW, THE COMPLETE TEXT OF WHICH IS ATTACHED HERETO AS APPENDIX C.
FAILURE TO FOLLOW STRICTLY THE PROCEDURES SET FORTH IN CHAPTER 13 OF THE
CALIFORNIA GENERAL CORPORATION LAW MAY RESULT IN THE LOSS, TERMINATION OR WAIVER
OF APPRAISAL RIGHTS. A COMPCORE SHAREHOLDER WHO VOTES IN FAVOR OF THE MERGER
WILL NOT HAVE A RIGHT TO DEMAND APPRAISAL OF HIS OR HER SHARES.
Under the CGCL, each CompCore shareholder as of the CompCore Record Date is
entitled to demand and receive payment of the fair value of all or any portion
of such holder's shares of CompCore Common Stock if the Merger is consummated.
The fair value of shares as to which such dissenters' rights are properly
exercised ("Dissenting Shares") is determined as of October 18, 1996, the last
trading day before the first announcement of the terms of the Merger. Any
CompCore shareholder who elects to perfect such holder's dissenters' rights and
demands payment of the fair value of such holder's shares of CompCore Common
Stock must strictly comply with Chapter 13 of the CGCL. Any holder of shares of
CompCore Common Stock considering demanding dissenters' rights is advised to
consult legal counsel. Dissenters' rights will not be available unless and until
the Merger (or a similar business combination) is
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consummated. To perfect the right to dissent and receive the fair value of such
holder's shares, the shareholder must refrain from voting in favor of the
Merger.
Within 10 days after the date of approval of the Merger, CompCore will mail
to each CompCore shareholder who did not vote in favor of the Merger notice of
the approval of the Merger by CompCore shareholders (the "Notice"), accompanied
by a copy of Sections 1300-1304 of the CGCL. The Notice shall also state the
price determined by CompCore to be the fair market value of the Dissenting
Shares and a brief description of the procedure to be followed by a shareholder
who elects to dissent.
Any dissenting CompCore shareholder who desires that CompCore purchase his
or her shares of CompCore Common Stock must make written demand upon CompCore
for the purchase of such shares. The demand must be made no later than 30 days
after the Notice was mailed to the shareholder and must state the number of
shares held of record by the CompCore shareholder which the shareholder demands
that CompCore purchase, as well as a statement by the CompCore shareholder as to
what such holder believes the fair market value of such shares to have been as
of the day prior to the announcement of the Merger. The statement of fair market
value will constitute an offer by the CompCore shareholder to sell the shares at
such price. Voting against the Merger or failing to vote in favor of the Merger
does not constitute such written demand.
Within the same 30-day period following the mailing of the Notice, the
dissenting shareholder must submit to CompCore for endorsement certificates for
any shares of CompCore Common Stock that the CompCore shareholder demands
CompCore purchase. If CompCore and the CompCore shareholder agree upon the price
of the Dissenting Shares, the dissenting CompCore shareholder will be entitled
to the agreed price with interest at the legal rate on judgments from the date
of such agreement. Payment must be made within 30 days of the later of the date
of the agreement between the CompCore shareholder and CompCore or the date the
contractual conditions to the Merger are satisfied.
If CompCore and the shareholder do not agree as to the fair market value or
as to the fact that such shares are Dissenting Shares, the CompCore shareholder
may, within six months of the date of mailing of the Notice, file a complaint
with the California Superior Court for the County of Santa Clara demanding
judicial determination of such matters. CompCore will then be required to make
any payments in accordance with such judicial determination. If the complaint is
not filed within the specified six-month period, the CompCore shareholder's
rights as a dissenter are lost.
Dissenting Shares lose their status as such if (i) CompCore abandons the
Merger, (ii) the shares are transferred or are surrendered for conversion into
shares of another class, (iii) the CompCore shareholder and CompCore do not
agree as to the fair market value of such shares and a complaint is not filed
within six months of the date the Notice was mailed, or (iv) the dissenting
CompCore shareholder withdraws, with the consent of CompCore, his or her demand
for purchase of the Dissenting Shares.
At the Effective Date, the shares of CompCore Common Stock held by a
CompCore shareholder exercising his or her dissenters' rights will be canceled,
and such shareholder will be entitled to no further rights except the right to
receive payment of the fair value of such holder's shares of CompCore Common
Stock. However, if the CompCore shareholder fails to perfect or withdraws or
loses such holder's rights as a dissenter with respect to such holder's shares
of CompCore Common Stock, such holder's shares of CompCore Common Stock will be
exchanged for Zoran Common Stock as provided in the Plan of Reorganization.
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THE MERGER
BACKGROUND OF THE MERGER
The acquisition of complementary businesses and technologies is an element
of Zoran's overall business strategy. From time to time, Zoran evaluates
potential acquisition opportunities and considers potential alliances,
combinations and other strategic transactions with other participants in the
data compression industry.
From 1986 to 1988, George T. Haber, President and Chief Executive Officer of
CompCore, was employed by Zoran as Test Lab Manager.
In 1995, CompCore and Zoran entered into an agreement pursuant to which
CompCore licensed its MPEG and audio compression technologies for incorporation
into Zoran's integrated circuit devices.
In 1996, CompCore and Zoran each began collaborating with Intel Corporation
("Intel") on implementation of DVD technology for PC applications, using Zoran's
DVD4PC reference design, AC-3 decoder, PCI controller and software drivers and
CompCore's software for MPEG 2 video decompression.
During the first half of 1996, CompCore held discussions with Hambrecht &
Quist LLP ("Hambrecht & Quist") and other investment banking firms, as well as
several venture capital firms, regarding the financing alternatives available to
CompCore in the public and private market. In the course of these discussions,
the possibilty of a strategic relationship or an outright merger with another
party were also discussed. During this time, CompCore held preliminary
discussions with several potential investors and strategic partners. One of the
outcomes of these discussions was Andreas Bechtolsheim's investment of
$1,000,000 in CompCore in July 1996.
On May 24, 1996, Mr. Haber contacted Levy Gerzberg, President and Chief
Executive of Zoran, by telephone and proposed a meeting to discuss a possible
strategic combination of CompCore and Zoran. During this telephone conversation,
Mr. Haber and Dr. Gerzberg discussed CompCore's current business and prospects.
On May 30, 1996, Mr. Haber met with Dr. Gerzberg to discuss further the
business opportunities available to the two companies separately and on a
combined basis.
On June 5, 1996, Dr. Gerzberg had a telephone conversation with Zoran's
counsel to discuss the mechanics of the acquisition process and various
financial and accounting issues related to a possible acquisition. Later that
day, Dr. Gerzberg met with Mr. Haber to discuss CompCore's capabilities and
possible synergies with Zoran.
During the last two weeks of June, 1996, members of senior management of
CompCore and Zoran held a series of meetings to discuss CompCore's organization,
operating results and financial condition and the possible benefits of a
strategic alliance between the two companies.
On June 30, 1996, Zoran and CompCore executed and delivered a Joint
Confidentiality Agreement.
During the first week of July, 1996, Mr. Haber of CompCore had several
telephone conversations with Dr. Gerzberg and Ami Kraft, Vice President, Finance
and Chief Financial Officer of Zoran, regarding CompCore's capabilities, its
management and other key personnel and the markets for its products. During this
week, Dr. Gerzberg also met with representatives of Oppenheimer & Co., Inc.
("Oppenheimer") to discuss the possibility of Oppenheimer acting as Zoran's
financial advisor in connection with a possible strategic combination. During
this week, Dr. Gerzberg also met with a representative of Hambrecht & Quist to
discuss Hambrecht & Quist's role in such potential transaction.
On July 15, 1996, Mr. Haber and Sorin C. Cismas, Chief Technical Officer of
CompCore, had a series of meetings with Mr. Kraft, Dr. Gerzberg and Meir Tsadik,
Zoran's Vice President, Research and
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Development and Chief Operating Officer, to discuss CompCore's organization,
products, product markets and research and development capabilities.
On July 21, 1996, Mr. Haber of CompCore and Mr. Kraft of Zoran met to
discuss CompCore's products, product markets and strengths and the opportunities
offered by a combination of CompCore and Zoran.
On July 23, 1996, Dr. Gerzberg and two members of the Zoran Board, Uzia
Galil and Arie Kahana, visited CompCore's facilities to see demonstrations of
CompCore's products. Mr. Haber of CompCore met with Mr. Galil to discuss
CompCore's management team and its business prospects.
On July 24, 1996, at a regularly-scheduled meeting of the Zoran Board, Zoran
management delivered a presentation concerning a potential strategic combination
with CompCore, and the Zoran Board directed management to proceed with
discussions with CompCore.
On July 28, 1996, Mr. Haber and Andrei M. Manoliu, counsel to CompCore and a
member of the CompCore Board, met with Dr. Gerzberg to discuss the synergies
between the two companies, other benefits of a potential business combination
and the possible timetable for such a combination. The parties also reviewed the
composition of each company's board of directors and discussed the possibility
of certain members of the CompCore Board joining the board of directors of the
combined entity.
From the latter part of July through September 1996, members of each
company's management team held a series of telephonic and face-to-face meetings
to discuss various issues relating to CompCore's business, customers, product
strategies, capabilities relating to marketing, engineering and research and
development, recent financial results and anticipated future results, its
accounting policies and procedures, the structure and timetable of a possible
business combination between CompCore and Zoran, the possible synergies between
the two companies and issues relating to the integration of the companies'
businesses and organizations.
On September 4, Zoran engaged Oppenheimer as Zoran's financial advisor with
respect to a potential strategic combination with CompCore. That day, Dr.
Gerzberg, Mr. Kraft and other members of the management team of Zoran,
accompanied by representatives of Oppenheimer and Price Waterhouse LLP, Zoran's
accountants, attended a day-long meeting with representatives of CompCore's
management, Hambrecht & Quist and CompCore's counsel for the purpose of
conducting due diligence.
On September 6, 1996, CompCore engaged Hambrecht & Quist as its financial
advisor with respect to a potential strategic combination with Zoran.
On September 18, 1996, Mr. Haber of CompCore spoke by telepone with Dr.
Gerzberg of Zoran to discuss the terms of a possible business combination
between Zoran and CompCore.
On September 28, 1996, Zoran and CompCore agreed in writing to proceed with
further negotiations and due diligence with respect to a proposed strategic
combination and agreed, among other things, to refrain from soliciting other
strategic transactions during the pendency of such negotiations.
During the week of September 30, 1996, representatives of Zoran, its
counsel, accountants and financial advisor met with representatives of CompCore,
its counsel, accountants and financial advisor to conduct various aspects of
Zoran's due diligence review of CompCore's business, financial and legal
affairs.
On October 3, 1996, Zoran delivered a draft of a proposed Plan of
Reorganization to CompCore and its counsel.
Between October 3 and October 18, 1996, representatives of Zoran, its
counsel, accountants and financial advisor had various meetings and discussions
with representatives of CompCore, its counsel, accountants and financial
advisors regarding the structure of the potential Merger and the terms of the
proposed Plan of Reorganization and to complete various aspects of their
respective due diligence review.
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On October 5 and October 10, 1996, Mr. Haber of CompCore and Dr. Gerzberg of
Zoran spoke by telephone regarding the integration of the two companies' product
lines and the process that a business combination was likely to entail.
On October 10, 1996, representatives of Zoran, its counsel, accountants and
financial advisor met with representatives of CompCore, its counsel, accountants
and financial advisor to discuss Zoran's business and financial performance.
Later that day, at a meeting of the CompCore Board, the CompCore Board,
CompCore's counsel and CompCore's financial advisors received presentations by
Dr. Gerzberg and Mr. Kraft regarding Zoran's financial performance, its
technology and its strategy, and the CompCore Board discussed the structure of
the potential Merger and the terms of the proposed Plan of Reorganization.
On October 11, 1996, representatives of CompCore, its counsel and financial
advisor met with representatives of Zoran, its counsel and financial advisor to
discuss the terms of the proposed Plan of Reorganization and related agreements.
Also on October 11, 1996, Mr. Haber of CompCore spoke by telephone with Dr.
Gerzberg of Zoran to review the information presented at the previous day's
meetings.
On October 15, 1996, Mr. Haber of CompCore spoke by telephone with Dr.
Gerzberg of Zoran to discuss issues relating to Mr. Haber's employment with the
combined entity after an aquisition of CompCore by Zoran.
On October 16, 1996, Messrs. Haber and Cismas of CompCore met with Dr.
Gerzberg of Zoran to discuss the role Mr. Cismas would have in the combined
entity and the possible terms of his employment.
On October 16, 1996, at a special meeting of the Zoran Board, (i) management
reported to the Zoran Board regarding the status of the negotiations, (ii)
management and counsel reviewed the principal terms of the proposed Plan of
Reorganization and various issues which remained to be resolved, and (iii)
representatives of Oppenheimer reviewed the methodology used in their financial
analyses of the proposed Merger.
On October 17, 18 and 19, 1996, members of management of Zoran and CompCore
held a series of telephonic and face-to-face meetings to discuss proposed terms
of the Merger and issues relating to the integration of the companies'
organizations and the synergies between the two companies and their product
lines.
On October 19, 1996, Zoran delivered a revised draft of the proposed Plan of
Reorganization and related Merger documents to CompCore and its counsel, and
representatives of Zoran and its counsel met with representatives of CompCore
and its counsel to further discuss the terms of the proposed Plan of
Reorganization.
On October 19, 1996, at a special meeting of the Zoran Board, the Zoran
Board received presentations from (i) Messrs. Haber and Cismas regarding
CompCore, its technology and strategy, (ii) Zoran's management and counsel
regarding the principal terms of the proposed Merger, (iii) Zoran's management
regarding the benefits and potential risks of the proposed business combination,
and (iv) representatives of Oppenheimer who reviewed with the Zoran Board a
written report containing financial analyses relating to the proposed Merger and
delivered Oppenheimer's oral and written opinion to the effect that, as of such
date, the financial terms of the Merger were fair from a financial point of view
to Zoran's stockholders. See "--Opinion of Financial Advisor to Zoran." At the
meeting, the Zoran Board unanimously approved the Plan of Reorganization in the
form that was executed by the parties as of October 20, 1996 (the "Original Plan
of Reorganization"), which was substantially identical to the Plan of
Reorganization, and related matters and authorized Zoran's management to proceed
with the Merger.
On October 19, 1996, at a special meeting of the CompCore Board, the
CompCore Board reviewed further information from CompCore's management, counsel
and financial advisor as to the financial terms
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and other business terms of the proposed Merger. At the meeting, the CompCore
Board unanimously approved the Original Plan of Reorganization and related
matters and authorized CompCore's management to proceed with the Merger.
On October 20, 1996, the parties executed and delivered the Original Plan of
Reorganization, the directors of CompCore executed and delivered the Voting
Agreements, and Zoran and Messrs. Haber and Cismas executed and delivered the
Employment Agreements.
On October 21, 1996, prior to the opening of trading on The Nasdaq National
Market, Zoran and CompCore issued a joint news release announcing the Merger.
On November 27, 1996, the parties amended and restated the Original Plan of
Reorganization by executing and delivering the Plan of Reorganization.
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
THE FOLLOWING DISCUSSION OF THE PARTIES' REASONS FOR THE MERGER CONTAINS
FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. THE ACTUAL
RESULTS OF ZORAN, COMPCORE AND THE COMBINED COMPANY COULD DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS, INCLUDING THOSE FACTORS SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN
THIS JOINT PROXY STATEMENT/PROSPECTUS.
JOINT REASONS FOR THE MERGER
Zoran and CompCore have identified several potential benefits they believe
will contribute to the success of the combined company. These benefits include:
- The integration of CompCore's technology, including its MPEG 2 software
capabilities, with Zoran's circuit design, AC-3 and DVD strengths is
expected to improve the ability of the combined company to offer
next-generation DVD solutions and other compression applications in the
consumer and multimedia markets;
- The combination of the two companies' product lines will allow the
combined company to offer a wider range of compression solutions,
including hardware devices and software for use in stand-alone DVD
products and PC-based DVD products;
- The combined company may be in a position to further leverage strategic
relationships that each company has developed on a standalone basis;
- The combination of the two companies' engineering teams is expected to
produce synergies which should improve and accelerate product development;
and
- The combined company is expected to achieve other operational synergies
and efficiencies that could allow the combined company to leverage the
complementary expertise of Zoran and CompCore and reduce costs.
ZORAN'S REASONS FOR THE MERGER
The Zoran Board unanimously approved the Original Plan of Reorganization at
its meeting held on October 19, 1996. The Zoran Board believes that consummation
of the Merger is in the best interests of Zoran and its stockholders and
recommends that the stockholders of Zoran vote FOR approval of the Merger
Proposal.
In addition to the anticipated joint benefits described above, the Zoran
Board believes that the Merger provides the following potential benefits to
Zoran and its stockholders:
- CompCore will provide software engineering capability that will accelerate
Zoran's ability to address a number of compression applications,
particularly in the PC market;
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- CompCore's compression IC engineering capability will provide added depth
for Zoran's design team;
- Zoran will gain access to CompCore's established customer relationships
which may enhance its ability to address additional markets;
- CompCore will provide Zoran with an enhanced presence in the Silicon
Valley which should allow Zoran to better serve its U.S.-based customers
and may also assist it in attracting and retaining engineering,
managerial, sales and marketing personnel; and
- Zoran will gain the complementary experience and expertise of the CompCore
management team.
In arriving at its unanimous decision to approve the Original Plan of
Reorganization, the Zoran Board reviewed with Zoran management a number of
additional factors relevant to the Merger and that supported the consideration
to be paid by Zoran in the Merger. Among the factors that the Zoran Board
considered were (i) information concerning Zoran's and CompCore's respective
businesses, historical financial performance, operations and products, including
possible future product releases; (ii) CompCore's technology and the anticipated
leverage between CompCore's products and Zoran's products; (iii) an analysis of
the relative value that CompCore's technology and products might contribute to
the future business of the combined company; (iv) a comparison of the financial
terms, comparable merger and acquisition transactions and trading multiples of
publicly-traded companies; (v) the compatibility of the management and
businesses of Zoran and CompCore; (vi) reports from Zoran's management and legal
advisors on specific terms of the relevant agreements including the Plan of
Reorganization and other matters; (vii) the Zoran's Board judgment that Zoran
was unlikely to identify an alternative business opportunity that would provide
superior benefits to Zoran and its stockholders in the market for software-only
implementations of video and audio compression standards; and (viii) the
technical, sales and marketing and distribution capabilities of CompCore. In the
course of the its evaluation, Zoran reviewed certain projected CompCore
financial information compiled by CompCore management; however, no material
reliance was placed on such information by Zoran's management or the Zoran Board
in their evaluation of the Merger.
The Zoran Board also considered the terms of the proposed Original Plan of
Reorganization and noted that the Merger is expected to be accounted for as a
pooling of interests and that no goodwill is expected to be created on the books
of the combined company as a result thereof. The Zoran Board also considered the
financial presentation of Oppenheimer, including the oral and written opinion of
Oppenheimer delivered at the October 19, 1996 meeting of the Zoran Board, which
concluded that the aggregate number of shares of Zoran Common Stock to be issued
or reserved for issuance in the Merger was fair from a financial point of view
to the Zoran stockholders as of such date. See "--Opinion of Financial Advisor
to Zoran."
The Zoran Board also considered a number of potentially negative factors
relating to the Merger, including (i) the risk that the issuance of Zoran Common
Stock in the Merger could be dilutive to the Zoran stockholders if anticipated
synergies are not realized; (ii) the risk that the trading price of Zoran's
Common Stock may be adversely affected by the announcement of the Merger; (iii)
the risk that the benefits sought in the Merger would not be fully achieved;
(iv) the substantial charges expected to be incurred in connection with the
Merger, including costs of integrating the CompCore business and transaction
expenses arising from the Merger; (v) the risk that, after a public announcement
of the proposed Merger, the Merger would not be consummated; (vi) the
substantial management time and effort that will be required to consummate the
Merger and integrate CompCore's business with that of Zoran and the impact on
Zoran personnel as a result of the consolidation of certain functions; and (vii)
other risks described herein under "Risk Factors." In the view of the Zoran
Board, the potentially negative factors were not sufficient, either individually
or collectively, to outweigh the potential benefits of the Merger.
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In view of the wide variety of factors, both positive and negative, which
were considered, the Zoran Board did not find it practicable to, and did not,
quantify or otherwise assign relative weights to the specific factors
considered.
COMPCORE'S REASONS FOR THE MERGER
The CompCore Board unanimously approved the Original Plan of Reorganization
and the Merger at its meeting held on October 19, 1996. The CompCore Board
believes that consummation of the Merger is in the best interests of CompCore
and its shareholders and recommends that the shareholders of CompCore vote FOR
approval and adoption of the Plan of Reorganization and approval of the Merger.
In addition to the anticipated joint benefits described above, the CompCore
Board believes that the Merger will provide CompCore shareholders with increased
shareholder value by combining CompCore's design expertise with Zoran's
complementary expertise in bringing integrated circuit products into volume
production and providing necessary customer support, as well as Zoran's access
to capital. In addition, the Merger will provide the CompCore shareholders with
liquidity and with the potential for a more attractive return on their
investment compared to possible alternatives, including that of remaining a
separate company.
The CompCore Board views the Merger as a means by which CompCore can
integrate its technology, including its MPEG 2 software capabilities, with
Zoran's circuit design, AC-3 and DVD strengths and its chip fabrication
expertise and access to capital. Moreover, the CompCore Board views the Merger
as a means by which CompCore shareholders will be able to obtain liquidity for
their CompCore shares. The CompCore Board believes that it is in the best
interests of the CompCore shareholders to obtain marketable securities that may
be either held or sold as determined by each individual shareholder. In this
regard, the CompCore Board considered the feasibility and prospects of
alternative means to provide liquidity for CompCore shareholders, including
other potential business combinations and an initial public offering of CompCore
Common Stock (an "IPO"). The CompCore Board considered whether any other
potential acquiror might offer the same or similar benefits to CompCore, and
concluded that Zoran had the best strategic fit and offered the most benefits
available. After careful consideration, the CompCore Board concluded that an
IPO, if possible at all, would entail greater risks and a lower probability of
success than the Merger in achieving the objective of liquidity.
The CompCore Board believes that the shares of Zoran Common Stock to be
received by the shareholders of CompCore in the Merger will provide them with
the potential to realize a better return on their investment compared to
possible alternatives. Based on the closing price of $20.00 per share of Zoran
Common Stock on October 18, 1996, the last trading day immediately prior to the
public announcement of signing of the Original Plan of Reorganization, Zoran
Common Stock to be received by CompCore shareholders in exchange for each share
of CompCore Common Stock held by them had a value of approximately $12.82 per
share. In this regard, the CompCore Board recognized that no assurance can be
given that the value of Zoran Common Stock will be maintained at any particular
level, and may be subject to significant fluctuations over time. However, the
CompCore Board felt that the strategic combination of the two companies at this
time had the potential of creating additional value in the future that would not
be achievable on a stand-alone basis due to the reasons set forth above under
"--Joint Reasons for the Merger." The CompCore Board believes that products
based on its MPEG technology have substantial growth potential and believes that
a combination with Zoran will enable CompCore to exploit this opportunity more
effectively, with lower expenses, and with less risk than by remaining
independent. In addition, CompCore believes that the financial strength of Zoran
will enable the combined company to dedicate greater resources to emerging
technologies and more effectively compete in an increasingly competitive and
rapidly changing industry.
In evaluating the proposed Merger, the CompCore Board considered and
discussed a wide variety of factors. The CompCore Board reviewed the history of
merger discussions with Zoran, as well as the status
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of discussions with other potential corporate strategic partners. The CompCore
Board also considered the advantages and disadvantages that the Merger would
present to CompCore's achievement of its strategic objectives. As part of the
evaluation process, the CompCore Board reviewed extensive information about the
business, operations and future prospects of both CompCore and Zoran, including
Zoran's annual, quarterly and other reports, registration statement and
definitive proxy statements filed by Zoran with the Commission, and CompCore's
current business plan. In addition, the CompCore Board analyzed and reviewed the
proposed Original Plan of Reorganization and its effect, including the fact that
the Merger is expected to be accounted for as a pooling of interests.
The CompCore Board also considered a number of potentially negative factors
in its deliberations concerning the Merger, including, but not limited to: (i)
the loss of control over the future operations of CompCore following the Merger;
(ii) the risk that the benefits sought to be achieved in the Merger will not be
achieved; and (iii) the other risks described above under "Risk Factors." The
Board of Directors of CompCore discussed with management the prospects for
combinations with companies other than Zoran and the possibility that the
benefits described above could be achieved through any such combination, as well
as the risks and benefits of a stand-alone strategy.
After completing its evaluation, the CompCore Board concluded that the
proposed Merger would afford CompCore many advantages and a greater opportunity
to accomplish its strategic objectives, including the following:
- Immediate access to chip fabrication capabilities and expertise;
- Increased distribution capabilities through existing Zoran distribution
channels;
- Acceleration of the time period in which new products can be brought to
market;
- Increased access to a highly-talented and motivated workforce; and
- Greater ability to inform markets of products and developments through
public company reporting services.
The CompCore Board also evaluated the effect of the proposed Merger on
CompCore shareholders and concluded that the proposed Merger offered many
advantages to them as well, including the following:
- The conversion of a currently illiquid investment into a liquid
investment;
- The potential for a return for CompCore's investors on their investment in
CompCore;
- The opportunity for CompCore's shareholders to realize a future return
based on potential appreciation in Zoran's stock after the Merger; and
- The opportunity for a tax-free exchange of CompCore Stock for Zoran Common
Stock.
After considering the foregoing factors, the CompCore Board has unanimously
approved the Original Plan of Reorganization, the Plan of Reorganization and the
transactions contemplated thereby, including the Merger, and has recommended
that the shareholders of CompCore approve and adopt the Plan of Reorganization
and approve the Merger. In view of the wide variety of factors considered, both
positive and negative, the CompCore Board did not find it practicable to, and
did not, quantify or otherwise assign relative weights to the specific factors
considered.
OPINION OF FINANCIAL ADVISOR TO ZORAN
Zoran retained Oppenheimer to act as financial advisor in connection with
the Merger and to render a fairness opinion to the Zoran Board.
On October 19, 1996, Oppenheimer delivered its written opinion to the Zoran
Board that, as of the date of such opinion, the aggregate number of shares of
Zoran Common Stock to be issued or reserved for
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issuance in the Merger (the "Purchase Price") was fair, from a financial point
of view, to the holders of Zoran Common Stock.
THE FULL TEXT OF THE WRITTEN OPINION OF OPPENHEIMER, WHICH SETS FORTH
ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITS OF ITS
REVIEW, IS ATTACHED HERETO AS APPENDIX B AND IS INCORPORATED HEREIN BY
REFERENCE. OPPENHEIMER'S OPINION ADDRESSES ONLY THE FAIRNESS OF THE PURCHASE
PRICE, FROM A FINANCIAL POINT OF VIEW, TO THE HOLDERS OF ZORAN COMMON STOCK AND
DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER OF ZORAN AS TO HOW SUCH
STOCKHOLDER SHOULD VOTE AT THE ZORAN SPECIAL MEETING. THE SUMMARY OF
OPPENHEIMER'S OPINION SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION. ZORAN
STOCKHOLDERS ARE URGED TO, AND SHOULD, READ SUCH OPINION IN ITS ENTIRETY.
In connection with its opinion, Oppenheimer reviewed, among other things (i)
a draft of the Original Plan of Reorganization, (ii) the Annual Report to
Stockholders of Zoran and Annual Report on Form 10-K of Zoran for the fiscal
year ended December 31, 1995, (iii) the prospectus, dated December 15, 1995,
relating to Zoran's initial public offering, (iv) the audited historical
financial statements of CompCore from November 12, 1993 (inception) to September
30, 1994 and the fiscal year ended September 30, 1995, (v) certain interim
reports to stockholders of Zoran and Quarterly Reports on Form 10-Q of Zoran,
(vi) certain historical quarterly financial statements of CompCore through the
quarter ended June 30, 1996, (vii) certain other written communications from
Zoran and CompCore to their respective stockholders, (viii) certain publicly
available information relating to Zoran and CompCore and (ix) certain internal
financial analyses and forecasts for Zoran and CompCore prepared by their
respective managements. Oppenheimer also held discussions with members of the
senior managements of Zoran and CompCore regarding the past and current business
operations, financial condition and future prospects of their respective
companies. In addition, Oppenheimer compared certain financial information for
Zoran and CompCore and stock market information for Zoran with similar
information for certain other companies the securities of which are publicly
traded, reviewed the financial terms of certain recent business combinations in
the multimedia hardware and software and specialized semiconductor industries
specifically and in other industries generally, and performed such other studies
and analyses as it considered appropriate.
Oppenheimer relied without independent verification upon the accuracy and
completeness of all the financial and other information reviewed by Oppenheimer
for purposes of its opinion. With respect to financial forecasts and other
information as provided or otherwise discussed, Oppenheimer assumed, at the
direction of Zoran, that such forecasts and other information were reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the managements of Zoran and CompCore as to expected future
financial performance of Zoran and CompCore. Oppenheimer has not made or been
provided with an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of Zoran or of CompCore nor did
Oppenheimer make a physical inspection of all of the properties or assets of
Zoran or of CompCore. Oppenheimer also assumed, with the consent of Zoran, that
the Merger will be recorded as a pooling of interests under generally accepted
accounting principles. Oppenheimer's opinion is based upon financial conditions,
stock market and other conditions and circumstances existing and disclosed as of
the date of its opinion, and upon the information made available to Oppenheimer
by Zoran and CompCore as of such date, and upon the review and analyses
conducted by Oppenheimer as of such date.
The following is a summary of certain of the financial analyses used by
Oppenheimer in connection with providing its written opinion to Zoran's Board on
October 19, 1996, attached hereto as Appendix B.
DISCOUNTED CASH FLOW ANALYSIS. Oppenheimer performed discounted cash flow
analyses of the projected after-tax cash flows of CompCore on a stand-alone
basis over a five-year period for the calendar years ended December 31, 1997
through 2001. In performing these discounted cash flow analyses, Oppenheimer
discounted the stream of projected after-tax cash flows using discount rates of
between 25%
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and 35%, based upon estimated expected investor returns required for similar
stage equity investments. Oppenheimer applied terminal multiples of between 8x
and 14x projected earnings before interest and taxes ("EBIT"), at the end of
calendar year 2001, and discounted such values at the same discount rates.
Taking into account these discounted cash flows and terminal values, and
CompCore's current net cash balances, Oppenheimer arrived at a range of equity
values for CompCore. These discounted cash flow analyses indicated an overall
average range of values for CompCore of $81.7 million to $182.1 million.
Oppenheimer noted that the Purchase Price was below this range of values. In
arriving at its overall discounted cash flow valuation range, Oppenheimer took
into account the results of the two different discounted cash flow analyses it
performed as described below.
Oppenheimer performed a base case discounted cash flow analysis for CompCore
relying upon internal revenue projections developed by CompCore management for
the calendar year 1997 and assumptions of expenses necessary to support such
revenues based upon actual historical expense levels and Zoran management
assumptions of the ratio that cost of goods sold, sales, general and
administrative expenses and research and development expenses bear to revenues.
Oppenheimer relied upon growth rate projections developed by Zoran management as
the basis for the calendar years ended 1998 through 2001 revenue projections.
Oppenheimer relied upon assumptions developed by Zoran management of the ratio
that cost of goods sold, sales, general and administrative expenses and research
and development expenses bear to revenues as the basis for calendar years 1998
through 2001 expense projections. Working capital assumptions and capital
requirements were based upon assumptions developed by the managements of Zoran
and CompCore, historical ratios for Zoran and CompCore and projected business
growth rates. The base case discounted cash flow indicated a range of values of
$118.9 million to $263.6 million for CompCore. Oppenheimer noted that the
Purchase Price was below this range of values. Oppenheimer also performed a
Zoran management scenario discounted cash flow analysis for CompCore relying
upon revenue and expense projections developed by Zoran management for the
calendar year ended December 31, 1997. Oppenheimer assumed the same revenue
growth rate projections as the base case discounted cash flow analysis and that
the cost of goods sold, sales, general and administrative expenses and research
and development expenses bore the same relationship to revenues as in the base
case discounted cash flow analysis. Working capital assumptions and capital
requirements were based upon assumptions developed by Zoran management,
historical ratios for Zoran and CompCore and projected business growth rates.
The Zoran management scenario discounted cash flow indicated a range of values
of $44.6 million to $100.5 million for CompCore. Oppenheimer noted that the
Purchase Price was within this range of values.
COMPARABLE PUBLIC COMPANY ANALYSIS. Oppenheimer compared certain financial
data and multiples of income statement parameters of certain publicly traded
companies deemed to be generally comparable to Zoran and CompCore. Such
companies (the "Comparable Companies") were used in this analysis because they
were deemed by Oppenheimer to operate in the same general industry sectors
(audio/video software and specialized semiconductor) as Zoran and CompCore.
Financial data compared included market capitalization, aggregate value (defined
as market capitalization plus debt less cash), sales, EBIT, net income, earnings
per share ("EPS"), gross margin, EBIT margin, net margin, historical sales and
EPS growth and projected EPS and EPS growth rates. Multiples compared included
aggregate value to sales, aggregate value to EBIT, and price per share to actual
and projected EPS. Projected EPS for the Comparable Companies were based upon
the consensus published estimates of security analysts, while the projected EPS
for Zoran was based upon Oppenheimer research estimates. The projected net
income for CompCore was based upon projections developed for the base case
discounted cash flow analysis and the Zoran management scenario discounted cash
flow analysis.
The Comparable Companies used by Oppenheimer in its analysis included
Compression Labs, Inc., Lernout & Hauspie Speech Products N.V., Macromedia Inc.,
Qsound Labs Inc., Spatializer Audio Laboratories, Inc., SRS Labs, Inc., Aureal
Semiconductor, Inc., C-Cube Microsystems Inc., Cirrus Logic, Inc., Diamond
Multimedia Systems, Inc., ESS Technology, Inc., LSI Logic Corporation, Micro
Linear
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Corporation, Oak Technology, Inc., S3 Incorporated, Trident Microsystems, Inc.,
VLSI Technology, Inc. and Zoran Corporation.
Such analysis indicated that the Comparable Companies traded at a median
multiple of aggregate value to sales and EBIT, both for the trailing twelve
months ("TTM") ended June 30, 1996, of 3.0x and 12.4x, respectively. The
analysis also indicated that the Comparable Companies traded at a median
multiple of price per share to projected calendar 1996 EPS and projected
calendar 1997 EPS of 29.8x and 21.4x, respectively. Oppenheimer also included a
control premium of approximately 39% based upon the average premium to market
price paid in 54 completed and pending technology sector transactions over the
last twelve months. Based upon projected financial results for CompCore, the
above analyses resulted in a range of values of $55.6 million to $209.8 million.
Based upon 1997 projections developed for the base case discounted cash flow
analysis, the above analysis resulted in a value of $209.8 million. Based upon
the projections developed for the Zoran management scenario discounted cash flow
analysis, the above analysis resulted in a value of $55.6 million. Oppenheimer
noted that the Purchase Price was within this range of values.
Although Oppenheimer used the Comparable Companies for comparison purposes,
none of such companies is identical to CompCore.
COMPARABLE ACQUISITION ANALYSIS. Oppenheimer analyzed the multiples of
certain income statement parameters implied by the consideration paid in 12
pending and completed merger and acquisition transactions since January 1995
involving companies in the multimedia hardware and software industries and the
specialized semiconductor industry. To the extent information was publicly
available for these transactions, multiples analyzed included transaction value
(defined as the total price paid for all equity securities of a company) to TTM
net income, and aggregate transaction value (defined as transaction value plus
debt less cash) to TTM sales and TTM EBIT. For transactions involving targets
with publicly traded equity securities at the time of the announcement of the
transaction, Oppenheimer also analyzed the multiple of stock price on the day
prior to the announcement of the transaction to projected EPS. Projected EPS for
targets with publicly traded equity securities was based upon the consensus
median First Call published estimates of security analysts for the 90-day period
ending on the day prior to the closing of the transaction. The transactions
analyzed included the following (acquiree/acquiror): Vertisoft Systems,
Inc./Quarterdeck Corporation; Brooktree Corporation/Rockwell International
Corporation; DiviCom Inc./ C-Cube Microsystems Inc.; Intel Corporation's
Multibus and IRMX Subsidiary/RadiSys Corporation; Ray Dream Inc./Fractal Design
Corporation; Spea Corporation/Diamond Multimedia Systems Inc.; NexGen,
Inc./Advanced Micro Devices, Inc.; Inset Systems, Inc./Quarterdeck Corporation;
KMOS Semiconductor Inc./Orbit Semiconductor, Inc.; Wavefront Technologies,
Inc./Silicon Graphics, Inc.; Alias Research, Inc./ Silicon Graphics, Inc.; and
Digidesign, Inc./Avid Technology, Inc.
Such analysis indicated that, in the transactions analyzed, the median
multiple paid of transaction value to TTM net income was 58.1x, the median
multiple of aggregate transaction value to TTM sales and TTM EBIT was 4.0x and
26.3x, respectively, and the median price earnings multiples for those companies
with publicly traded equity securities immediately prior to the announcement of
the transaction were 28.8x and 17.7x, respectively, for one year projected EPS
and two year projected EPS. Based upon historical results for CompCore, the
above analysis resulted in a value of $20.1 million. Based upon the projections
developed for the base case discounted cash flow analysis, the above analysis
resulted in a range of values of $203.4 million to $361.8 million. Oppenheimer
noted that the Purchase Price was below this range of values. Based upon the
projections developed for the Zoran management scenario discounted cash flow
analysis, the above analysis resulted in a range of values of $53.9 million to
$138.5 million. Oppenheimer noted that the Purchase Price was within these
ranges of values.
VALUATION OF ZORAN. Oppenheimer analyzed the relative value of Zoran versus
the group of Comparable Companies described above, excluding Zoran. Such
analysis indicated that the Comparable Companies traded at a median multiple of
aggregate value to TTM sales and TTM EBIT of 2.8x and 11.7x,
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respectively, as compared to 5.3x and 71.0x, respectively, for Zoran. The
analysis also indicated that the Comparable Companies traded at a median
multiple of price per share to projected calendar 1996 EPS and projected
calendar 1997 EPS of 29.1x and 19.7x, respectively, as compared to 38.5x and
24.1x, respectively, for Zoran.
PRO FORMA MERGER ANALYSIS. Oppenheimer also analyzed certain pro forma
financial information of the combined company resulting from the Merger, based
upon historical financial results for both Zoran and CompCore, Oppenheimer
research estimates of calendar 1997 results for Zoran, and the projections
developed for the base case discounted cash flow analysis and the projections
developed for the Zoran management scenario discounted cash flow analysis for
CompCore. Based upon the Purchase Price and assuming Zoran management estimates
of cost savings that Zoran might achieve by integrating CompCore into Zoran,
such analyses indicated that, in both the base case and Zoran management
scenario, EPS for the pro forma combined company, prior to Merger-related
expenses and write-downs, would be accretive as compared to the estimated EPS of
Zoran as a stand-alone entity.
The summary set forth above sets forth the material aspects of Oppenheimer's
analyses but does not purport to be a complete description of the analyses
performed by Oppenheimer. The preparation of a fairness opinion is a complex
process and involves various determinations as to the most appropriate and
relevant methods of financial analysis and the application of these methods to
the particular circumstances and, therefore, an opinion is not necessarily
susceptible to partial analysis or summary description. The preparation of a
fairness opinion does not involve a mathematical evaluation or weighing of the
results of individual analyses performed, but requires Oppenheimer to exercise
its professional judgment in considering a wide variety of analyses taken as a
whole. Oppenheimer did not form a conclusion as to whether any individual
analysis, considered in isolation, supported or failed to support its fairness
determination. Rather, in arriving at its determination, Oppenheimer considered
each analysis in light of the other analyses and ultimately reached its opinion
based on the results of all analyses taken as a whole. Accordingly,
notwithstanding the separate factors summarized above, Oppenheimer's analyses
should be considered as a whole and selecting portions of the analyses or of the
summary set forth above, without considering the analysis as a whole, could
create an incomplete view of processes underlying Oppenheimer's opinion. No
company or transaction used in the above analysis for comparison is identical to
Zoran or CompCore or the contemplated transaction and, accordingly, an analysis
of the results of the foregoing is not purely quantitative. The analyses were
prepared solely for purposes of Oppenheimer's providing its opinion as to the
fairness, from a financial point of view, of the Purchase Price to the holders
of Zoran Common Stock and do not purport to be appraisals or necessarily reflect
the prices at which businesses or securities actually may be sold. Analyses
based upon forecasts of future results are not necessarily indicative of actual
future results, which may be significantly more or less favorable than suggested
by such analyses. Because such analyses are inherently subject to uncertainty,
being based upon numerous factors or events beyond the control of the parties or
their respective advisors, none of Zoran, CompCore or Oppenheimer or any other
person assumes responsibility if future results are materially different from
those forecast. As described above, Oppenheimer's opinion to the Zoran Board was
one of many factors taken into consideration by the Zoran Board in making its
determination to approve the Agreement. The foregoing summary does not purport
to be a complete description of the analysis performed by Oppenheimer and is
qualified by reference to the written opinion of Oppenheimer set forth in
Appendix B hereto.
Oppenheimer, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for corporate purposes. Zoran selected Oppenheimer as its
financial advisor because it is a nationally recognized investment banking firm
that has substantial experience in transactions similar to the Merger and its
familiarity with Zoran and CompCore. In the ordinary course of business,
Oppenheimer and its affiliates may actively trade the securities of Zoran for
their own account or for the accounts of
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customers and, accordingly, may at any time hold a long or short position in
such securities. Oppenheimer has performed investment banking services for Zoran
in the past and has been compensated for such services; Oppenheimer served as
the lead managing underwriter of Zoran's initial public offering in December
1995. In addition, Oppenheimer's research department provides published research
coverage of Zoran.
Pursuant to a letter agreement dated September 4, 1996 (the "Oppenheimer
Engagement Letter"), Zoran engaged Oppenheimer to act as its financial advisor
in connection with a proposed transaction with CompCore. Pursuant to the terms
of the Oppenheimer Engagement Letter, Zoran has agreed to pay Oppenheimer a
transaction fee equal to approximately $500,000 according to the following
schedule: (i) $25,000 upon signing of a letter of intent; (ii) $75,000 upon
signing of the Original Plan of Reorganization; (iii) $150,000 upon delivery of
Oppenheimer's written opinion to the Zoran Board on October 19, 1996; and (iv)
the balance upon consummation of the Merger. Zoran has agreed to indemnify
Oppenheimer against certain liabilities, including certain liabilities under
United States federal securities laws.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
As of October 31, 1996, directors and executive officers of Zoran and their
affiliates may be deemed to be beneficial owners of approximately 49.6% of the
outstanding shares of Zoran Common Stock. See "Information Concerning
Zoran--Security Ownership of Certain Beneficial Owners and Management."
As of October 31, 1996, directors and executive officers of CompCore and
their affiliates beneficially owned 2,780,589 shares of CompCore Common Stock,
or approximately 77.1% of the outstanding shares of CompCore Common Stock. See
"The Plan of Reorganization--Stock Plans and Options" and "Information
Concerning CompCore--Principal Shareholders."
Andreas Bechtolsheim, a director of CompCore, is the holder of a $1,000,000
Convertible Promissory Note of CompCore dated July 1, 1996 (the "Note"). The
Note bears interest at the annual rate of 6.625%. The outstanding principal and
accrued interest under the Note are convertible into CompCore Common Stock at a
price of $5.15 per share on or before June 30, 1997, increasing in stages
thereafter to a maximum conversion price of $6.66 per share if the Note is
converted after June 30, 2000. Pursuant to its terms, the Note will be converted
automatically immediately prior to the Effective Time. As of October 31, 1996,
the principal and accrued interest under the Note was convertible into 198,474
shares of CompCore Common Stock.
Zoran has entered into employment agreements with George T. Haber and Sorin
C. Cismas, CompCore's President and Chief Executive Officer and its Chief
Technical Officer, respectively. Pursuant to these agreements, Messrs. Haber and
Cismas will serve as Executive Vice President and Chief Scientist, respectively,
of Zoran following the Merger. See "--Employment Agreements."
Pursuant to the Plan of Reorganization, Zoran has agreed to elect Mr. Haber,
President and Chief Executive Officer and a director of CompCore, to the Zoran
Board as of the Effective Time. The Zoran Board has approved Mr. Haber's
election as a director of Zoran, effective as of the Effective Time.
Each of the directors of CompCore is obligated to vote or direct the vote of
all of the outstanding shares of CompCore Common Stock over which he has voting
control in favor of the approval and adoption of the Plan of Reorganization. See
"--Voting Agreements".
EMPLOYMENT AGREEMENTS
Zoran has entered into employment agreements (the "Employment Agreements")
with George T. Haber and Sorin C. Cismas, CompCore's President and Chief
Executive Officer and its Chief Technical Officer, respectively. Copies of the
Employment Agreements are included in Appendix A hereto. Each Employment
Agreement takes effect upon the Effective Time and continues for a term of two
years. The Employment Agreement with Mr. Haber provides that he will serve as
Executive Vice President of Zoran
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after the Merger and will report directly to Zoran's Chief Executive Officer.
Mr. Haber's Employment Agreement also provides that Zoran will use its best
efforts to cause Mr. Haber to be elected to the Zoran Board at each meeting of
stockholders held for the purpose of electing directors. The Employment
Agreement with Mr. Cismas provides that he will serve as Zoran's Chief Scientist
and will report to an officer designated by the Chief Executive Officer, who
shall initially be Mr. Haber. The Employment Agreements provide that each
employee will be entitled to a base salary of $195,000, subject to adjustment
from time to time. The Employment Agreements require each employee to devote his
full time and attention to the affairs of Zoran. Under each Employment
Agreement, if Zoran terminates the employee's employment other than for cause
(or if such employee voluntarily terminates his employment following certain
specified actions by Zoran), the employee will be entitled to a lump-sum
severance payment equal to 12 months' salary plus continued coverage under
Zoran's life, medical, dental and disability plans, as in effect on the date of
termination, for a period of 12 months after termination.
VOTING AGREEMENTS
In connection with the execution of the Original Plan of Reorganization,
each of the directors of CompCore, who, as of October 31, 1996, together held
approximately 71.1% of the outstanding shares of CompCore Common Stock, entered
into voting agreements (the "Voting Agreements") pursuant to which such persons
agreed, among other things, (i) to vote their shares of CompCore Common Stock in
favor of approval of the Plan of Reorganization and the Merger and against any
proposal which would, or could reasonably be expected to, prohibit or discourage
the Merger and (ii) not to transfer, pledge, sell, exchange or offer to transfer
or sell or otherwise dispose of or encumber any shares of CompCore Common Stock
prior to the earliest of the Effective Time or the termination of the Plan of
Reorganization.
Concurrently with the execution of each Voting Agreement, each such
shareholder has delivered to Zoran an irrevocable proxy pursuant to which such
shareholder has appointed the Zoran Board as such shareholder's proxy to vote
all shares of CompCore Common Stock owned by such shareholder in a manner
consistent with the Voting Agreement.
NONCOMPETITION AGREEMENTS
As a condition of the Merger, Messrs. Haber and Cismas and certain other key
employees of CompCore will execute Noncompetition Agreements with Zoran that
provide that, for a period of two years from the Effective Time, and for so long
as such person is employed by or serves as a consultant to Zoran, he or she will
not, directly or indirectly, (i) participate in the ownership, management,
operation, sales or control of any business that competes with the business of
CompCore or any business engaged in the research, development, design,
marketing, sales, manufacture or licensing of products that are substantially
similar to or competitive with any CompCore products, (ii) accept employment
with a customer of CompCore with the intent to deprive CompCore of business
performed by CompCore by transferring such business to the customer or a third
party, (iii) solicit any employee of or consultant to Zoran or CompCore to cease
or curtail his or her relationship with Zoran or CompCore, or (iv) interfere
with or disrupt any past, present or prospective relationship between Zoran or
CompCore and any of their customers, suppliers or employees. The foregoing
obligation on the part of each of Messrs. Haber and Cismas will terminate upon
any involuntary termination of such person's employment by Zoran other than for
cause or upon the voluntary termination of employment by such person following
certain specified actions by Zoran.
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for accounting
purposes. It is a condition to the Merger that Zoran and CompCore shall each
have received a letter from Price Waterhouse LLP, Zoran's and CompCore's
independent accountants, as to the appropriateness of pooling of interests
accounting for the Merger under Accounting Principles Board Opinion No. 16.
Under pooling of interests
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accounting, the recorded assets and liabilities of Zoran and CompCore will be
carried forward to the combined company at their recorded amounts, income of the
combined company will include income of Zoran and CompCore for the entire fiscal
year in which the combination occurs, and the reported income of the separate
companies for prior periods will be combined and restated as income of the
combined company. Consummation of the Merger is conditioned upon the written
confirmation of such letters at the Effective Time. See "The Plan of
Reorganization--Conditions" and "Pro Forma Combined Condensed Financial
Statements."
Each of the respective affiliates of Zoran and CompCore will be requested to
execute a written agreement to the effect that such person will not transfer
shares of Common Stock of either Zoran or CompCore during the period beginning
30 days preceding the Effective Time and ending on the date that Zoran publishes
financial statements which reflect 30 days of combined operations of Zoran and
CompCore, subject to certain DE MINIMIS exceptions. These agreements are
intended to preserve Zoran's ability to account for the Merger as a pooling of
interests.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion addresses certain federal income tax considerations
of the Merger that are applicable to holders of CompCore Common Stock. This
discussion supplements the opinions of Gray Cary Ware & Freidenrich, A
Professional Corporation, and Cooley Godward LLP, counsel to Zoran and CompCore,
respectively, which are attached as Exhibits 8.1 and 8.2 to the Registration
Statement of which this Joint Proxy Statement/Prospectus is a part (the "Exhibit
Opinions"). The Exhibit Opinions each contain an opinion to the effect that the
Merger will constitute a "reorganization" within the meaning of Section 368(a)
of the Code (a "Reorganization"). The Exhibit Opinions are based on certain
assumptions and representations and are subject to certain limitations and
qualifications as noted therein.
CompCore shareholders should be aware that the following discussion does not
deal with all federal income tax consequences that may result from the Merger,
including the survival or availability of any tax attributes or elections of
CompCore as a result of the Merger, and does not deal with all federal income
tax considerations that may be relevant to particular CompCore shareholders in
light of their particular circumstances, such as shareholders who are dealers in
securities, who are foreign persons or who acquired their CompCore Common Stock
through stock option or stock purchase programs or in other compensatory
transactions. In addition, the following discussion does not address the tax
consequences of transactions effectuated prior to or after the Merger (whether
or not such transactions are in connection with the Merger) including, without
limitation, the exercise of options to purchase CompCore Common Stock in
anticipation of the Merger. Finally, no foreign, state or local tax
considerations are addressed herein. ACCORDINGLY, COMPCORE SHAREHOLDERS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO
THEM OF THE MERGER AND RELATED TRANSACTIONS, INCLUDING THE APPLICABLE FEDERAL,
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF THE MERGER AND SUCH RELATED
TRANSACTIONS.
The following discussion is based on the interpretation of the Code by the
companies' respective counsel, applicable Treasury Regulations, judicial
authority and administrative rulings and practice, all as of the date hereof.
The Internal Revenue Service (the "IRS") is not precluded from adopting a
contrary position. In addition, there can be no assurance that future
legislative, judicial or administrative changes or interpretations will not
adversely affect the accuracy of the statements and conclusions set forth
herein. Any such changes or interpretations could be applied retroactively and
could affect the tax consequences of the Merger to Zoran, CompCore and/or their
respective stockholders.
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Subject to the limitations and qualifications referred to herein, provided
the Merger qualifies as a Reorganization, the following U.S. federal income tax
consequences should result from the Merger:
(a) No gain or loss will be recognized by the holders of CompCore Common
Stock upon the receipt of Zoran Common Stock solely in exchange for
CompCore Common Stock in the Merger (except to the extent of cash
received in lieu of fractional shares);
(b) The aggregate tax basis of the Zoran Common Stock to be received by the
CompCore shareholders in the Merger (including any fractional share of
Zoran Common Stock not actually received) will be the same as the basis
of the CompCore Common Stock surrendered in exchange therefor;
(c) The holding period of the Zoran Common Stock received by each CompCore
shareholder in the Merger will include the period during which the
CompCore Common Stock surrendered in exchange therefor was held, provided
that the CompCore Common Stock so surrendered is held as a capital asset
at the Effective Time;
(d) Cash received by a CompCore shareholder in lieu of a fractional share of
Zoran Common Stock will be treated as if it was received upon the sale by
such shareholder of a fractional share of Zoran Common Stock issued in
the Merger. A CompCore shareholder receiving such cash generally will
recognize gain or loss upon such payment equal to the difference (if any)
between such shareholder's basis in the fractional share and the amount
of cash received. Such gain or loss should be capital gain or loss,
provided that the Zoran Common Stock is held as a capital asset at the
time of the Merger;
(e) A CompCore shareholder who exercises dissenters' rights with respect to
such stockholder's CompCore Common Stock and receives payment for such
shares in cash will generally recognize capital gain or loss (if the
shares were held as a Capital Asset at the Effective Time) measured by
the difference between the shareholder's basis in such shares and the
amount of cash received provided the payment neither is essentially
equivalent to a dividend within the meaning of Section 302 of the Code
nor has the effect of the distribution of a dividend within the meaning
of Section 356(a)(2) of the Code (collectively, a "Dividend Equivalent
Transaction"). A sale of shares pursuant to an exercise of dissenter's
rights should generally not be a Dividend Equivalent Transaction if, as a
result of such exercise, the shareholder owns no Zoran Common Stock
(either actually or constructively within the meaning of Section 318 of
the Code); and
(f) No gain or loss will be recognized by Zoran, Sub or CompCore as a result
of the Merger.
Neither Zoran nor CompCore has requested a ruling from the IRS in connection
with the Merger. However, it is a condition of the respective obligations of
Zoran and CompCore to consummate the Merger that Zoran receive confirming tax
opinions from their respective counsel to the effect that for federal income tax
purposes, the Merger will constitute a Reorganization. The Exhibit Opinions are
not intended to satisfy this closing condition. These closing opinions, which
are collectively referred to herein as the "Tax Opinions," neither bind the IRS
nor preclude the IRS from adopting a contrary position. As with the Exhibit
Opinions, the Tax Opinions will be subject to certain assumptions, exceptions
and qualifications and will be based on the truth and accuracy of certain
representations of Zoran, CompCore, Sub and certain CompCore shareholders,
including representations contained in certain certificates of the respective
managements of Zoran, CompCore and Sub dated on or prior to the date of this
Joint Proxy Statement/Prospectus.
Of particular importance are the assumptions and representations relating to
the "continuity of interest" requirement. To satisfy the "continuity of
interest" requirement, CompCore shareholders must not, pursuant to a plan or
intent existing at or prior to the consummation of the Merger, dispose of or
transfer so much of either (i) their CompCore Common Stock in anticipation of
the Merger or (ii) the Zoran Common Stock to be received in the Merger
(collectively, "Planned Dispositions"), such that the CompCore shareholders, as
a group, would no longer have a significant equity interest in the CompCore
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business being conducted after the Merger. CompCore shareholders will generally
be regarded as having a significant equity interest as long as the Zoran Common
Stock received in the Merger (after taking into account Planned Dispositions),
in the aggregate, represents a substantial portion of the entire consideration
received by the CompCore shareholders in the Merger. No assurance can be made
that the "continuity of interest" requirement will be satisfied; if this
requirement were not satisfied, the Merger would not be treated as a
Reorganization.
A successful IRS challenge to the Reorganization status of the Merger would
result in a CompCore shareholder recognizing gain or loss with respect to each
share of CompCore Common Stock surrendered equal to the difference between the
shareholder's basis in such share and the fair market value, as of the Effective
Time, of the Zoran Common Stock received in exchange therefor. In such event, a
shareholder's aggregate basis in the Zoran Common Stock so received would equal
its fair market value, and the shareholder's holding period for such stock would
begin the day after the Merger.
Even if the Merger qualifies as a Reorganization, a recipient of shares of
Zoran Common Stock would recognize gain to the extent that such shares were
considered to be received in exchange for services or property (other than
solely for CompCore Common Stock). All or a portion of such gain may be taxable
as ordinary income. Gain would also be recognized to the extent that a CompCare
shareholder was treated as receiving (directly or indirectly) consideration
other than Zoran Common Stock in exchange for the shareholder's CompCore Common
Stock.
FEDERAL SECURITIES LAW CONSEQUENCES
All shares of Zoran Common Stock received by CompCore shareholders in the
Merger will be freely transferable, except that shares of Zoran Common Stock
received by persons who are deemed to be "affiliates" (as such term is defined
under the Securities Act) of CompCore prior to the Merger may be resold by them
only in transactions permitted by the resale provisions of Rule 145 promulgated
under the Securities Act (or Rule 144 in the case of such persons who become
affiliates of Zoran) or as otherwise permitted under the Securities Act. Persons
who may be deemed to be affiliates of CompCore or Zoran generally include
individuals or entities that control, are controlled by, or are under common
control with, such party and may include certain officers and directors of such
party as well as principal stockholders of such party. The Plan of
Reorganization requires CompCore to use its best efforts to cause each of its
affiliates to execute a written agreement to the effect that such person will
not offer or sell or otherwise dispose of any of the shares of Zoran Common
Stock issued to such person in or pursuant to the Merger in violation of the
Securities Act or the rules and regulations promulgated by the Commission
thereunder.
NASDAQ NATIONAL MARKET QUOTATION
It is a condition to the Merger that the shares of Zoran Common Stock to be
issued pursuant to the Plan of Reorganization and required to be reserved for
issuance in connection with the Merger be approved for quotation on The Nasdaq
National Market. An application has been filed for listing the shares of Zoran
Common Stock on The Nasdaq National Market.
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THE PLAN OF REORGANIZATION
THE FOLLOWING IS A BRIEF SUMMARY OF CERTAIN PROVISIONS OF THE PLAN OF
REORGANIZATION, A COPY OF WHICH (TOGETHER WITH CERTAIN EXHIBITS THERETO) IS
ATTACHED AS APPENDIX A TO THIS JOINT PROXY STATEMENT/ PROSPECTUS AND
INCORPORATED HEREIN BY REFERENCE. SUCH SUMMARY IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE PLAN OF REORGANIZATION. STOCKHOLDERS OF ZORAN AND COMPCORE ARE
URGED TO READ THE PLAN OF REORGANIZATION IN ITS ENTIRETY FOR A MORE COMPLETE
DESCRIPTION OF THE MERGER.
THE MERGER
The Plan of Reorganization provides that, following approval of the Merger
Proposal by the stockholders of Zoran and approval of the Plan of Reorganization
and the Merger by the shareholders of CompCore and the satisfaction or waiver of
the other conditions to the Merger, Sub will be merged with and into CompCore,
with CompCore continuing as the Surviving Corporation, which shall be a wholly-
owned subsidiary of Zoran.
If all such conditions to the Merger are satisfied or waived, the Merger
will become effective upon the filing by the Surviving Corporation of a duly
executed Agreement of Merger (the "Agreement of Merger") with the Secretary of
State of the State of California and a duly executed Certificate of Merger with
the Secretary of State of the State of Delaware or at such time thereafter as is
provided in the Agreement of Merger.
CONVERSION OF SECURITIES
Upon consummation of the Merger, pursuant to the Plan of Reorganization,
each issued and outstanding share of CompCore Common Stock (other than
Dissenting Shares) will be converted into the right to receive 0.6408 of a share
of Zoran Common Stock. Based upon the outstanding shares of Zoran Common Stock
and CompCore Common Stock as of October 31, 1996 (and assuming no exercise by
CompCore shareholders of their dissenters' rights), the shareholders of CompCore
immediately prior to the consummation of the Merger will own approximately 21.8%
of the outstanding shares of Zoran Common Stock immediately following
consummation of the Merger. If any holder of shares of CompCore Common Stock
would be entitled to receive a number of shares of Zoran Common Stock that
includes a fraction, then, in lieu of a fractional share, such holder will be
entitled to receive cash in an amount equal to such fractional part of a share
of Zoran Common Stock multiplied by the average of the last reported sale price
of Zoran Common Stock, as reported on The Nasdaq National Market, on each of the
ten trading days immediately preceding the date of the Effective Time. Each
share of Sub Common Stock issued and outstanding immediately prior to the
Effective Time will be converted into one share of Common Stock of the Surviving
Corporation.
Promptly after the Effective Time, American Stock Transfer & Trust Company
(the "Exchange Agent") will mail transmittal forms and exchange instructions to
each holder of record of CompCore Common Stock to be used to surrender and
exchange certificates evidencing shares of CompCore Common Stock for
certificates evidencing the shares of Zoran Common Stock to which such holder
has become entitled. After receipt of such transmittal forms, each holder of
certificates formerly representing CompCore Common Stock will be able to
surrender such certificates to the Exchange Agent, and each such holder will
receive in exchange therefor certificates evidencing the number of whole shares
of Zoran Common Stock to which such holder is entitled and any cash which may be
payable in lieu of a fractional share of Zoran Common Stock. Such transmittal
forms will be accompanied by instructions specifying other details of the
exchange. COMPCORE SHAREHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY
RECEIVE A TRANSMITTAL FORM.
After the Effective Time, each certificate evidencing CompCore Common Stock,
until so surrendered and exchanged, will be deemed, for all purposes, to
evidence only the right to receive the number of whole shares of Zoran Common
Stock which the holder of such certificate is entitled to receive and the right
to receive any cash payment in lieu of a fractional share of Zoran Common Stock.
The holder of such unexchanged certificate will not be entitled to receive any
dividends or other distributions payable by
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Zoran until the certificate has been exchanged. Subject to applicable laws, such
dividends and distributions, together with any cash payment in lieu of a
fractional share of Zoran Common Stock, will be paid without interest.
STOCK PLANS AND OPTIONS
At the Effective Time, each outstanding CompCore Option under the CompCore
1994 Stock Option Plan (the "CompCore Plan") shall be deemed to constitute an
option (an "Assumed Option") to acquire, on the same terms and conditions as
were applicable under such CompCore Option, the number of shares of Zoran Common
Stock (rounded down to the nearest whole number) that the holder of such
CompCore Option would have been entitled to receive pursuant to the Merger had
such holder exercised such CompCore Option in full immediately prior to the
Effective Time, at a price per share (rounded up to the nearest whole cent)
equal to (i) the aggregate exercise price for the shares of CompCore Common
Stock otherwise purchasable pursuant to such CompCore Option divided by (ii) the
number of whole shares of Zoran Common Stock deemed purchasable pursuant to such
CompCore Option in accordance with the foregoing as of Effective Time. As of
October 31, 1996, CompCore Options to acquire an aggregate of 1,398,000 shares
of CompCore Common Stock were outstanding under the CompCore Plan.
Zoran has agreed to reserve for issuance a sufficient number of shares of
Zoran Common Stock for delivery under the Assumed Options as described above. As
soon as practicable after the Effective Time, and not more than 30 business days
thereafter, Zoran shall file a registration statement on Form S-8 with respect
to the shares of Zoran Common Stock subject to such Assumed Options and shall
use its best efforts to maintain the effectiveness of such registration
statement and the current status of the prospectus contained therein for so long
as such Assumed Options remain outstanding. With respect to individuals, if any,
who will be subject to the reporting requirements under Section 16(a) of the
Exchange Act after the Merger, Zoran has agreed to administer the Assumed
Options in the Merger in a manner that complies with Rule 16b-3 promulgated
under the Exchange Act.
Employees of CompCore as of the Effective Time shall be permitted to
participate in the Zoran Employee Stock Purchase Plan commencing on the first
enrollment date following the Effective Time, subject to compliance with the
eligibility provisions of the plan. For purposes of such eligibility provisions,
employees of CompCore will receive credit for prior service with CompCore.
REPRESENTATIONS AND WARRANTIES
The Plan of Reorganization contains various customary representations and
warranties relating to, among other things, (a) the due organization, valid
existence and good standing of each of CompCore, Zoran and Zoran's subsidiaries
and certain similar corporate matters, (b) the capital structure of each of
Zoran and CompCore, (c) the authorization, execution, delivery and
enforceability of the Plan of Reorganization, the consummation of the
transactions contemplated by the Plan of Reorganization and related matters, (d)
the absence of conflicts under charters or bylaws, required consents or
approvals or violations of any instruments or law, (e) documents and financial
statements filed by Zoran with the Commission and the accuracy of information
contained therein, (f) the absence of undisclosed liabilities, (g) the absence
of certain material adverse changes or events, (h) taxes, tax returns and
audits, (i) properties, (j) intellectual property, (k) agreements, contracts and
commitments, (l) litigation, (m) environmental matters, hazardous materials and
hazardous materials activities, (n) employee benefit plans, (o) compliance with
laws, (p) matters affecting the availability of pooling of interests accounting,
(q) interested party transactions, (r) the accuracy of information supplied by
each of Zoran and CompCore in connection with the Registration Statement and
this Joint Proxy Statement/Prospectus, (s) the opinion of Zoran's financial
advisor, (t) the absence of pending discussions with other parties, and (u) the
interim operations of Sub.
CERTAIN COVENANTS AND AGREEMENTS
Pursuant to the Plan of Reorganization, CompCore has agreed that, during the
period from the date of the Plan of Reorganization until the Effective Time,
except as otherwise consented to in writing by
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Zoran or as contemplated by the Plan of Reorganization, CompCore will (a) carry
on its business in the ordinary course in substantially the same manner as
previously conducted, (b) pay its debts and taxes when due, subject to good
faith disputes over such debts or taxes, and pay or perform other obligations
when due, (c) preserve intact its present business organization, (d) not grant
any options under any employee plan or accelerate, amend or change the period of
exercisability of options granted under any employee stock plan, except as
required pursuant to the plan or any related agreement, (e) not transfer or
license or otherwise extend, amend or modify any rights to its intellectual
property, other than in the ordinary course of business consistent with past
practices, (f) not declare or pay any dividends on, or make other distributions
in respect of, any of its capital stock, not effect certain other changes in its
capitalization, and not purchase or otherwise acquire, directly or indirectly,
any shares of its capital stock except from former employees, directors and
consultants in accordance with agreements providing for the repurchase of shares
in connection with the termination of service, (g) not issue, or authorize or
propose to issue, any shares of its capital stock or securities convertible into
shares of its capital stock, or any subscriptions, rights, warrants, or options
to acquire, or other agreements obligating it to issue any such shares or other
convertible securities, subject to certain exceptions, (h) not engage in
material acquisitions, (i) subject to certain exceptions, not sell, lease,
license or otherwise dispose of material properties or assets, (j) not increase
the compensation payable to its officers or employees, grant additional
severance or termination pay (except as consistent with past practice) or enter
into employment agreements with officers or any non-officer employee enter into
any collective bargaining agreement or establish, adopt, enter into or amend any
plan for the benefit of its directors, officers, or employees, subject to
certain exceptions, (k) not revalue any of its assets, including writing down
the value of inventory or writing off notes or accounts receivable other than in
the ordinary course of business, (l) not incur indebtedness for money borrowed
(or guarantees thereof) other than indebtedness incurred under existing lines of
credit consistent with prior practice, (m) not amend its Articles of
Incorporation or Bylaws, except as contemplated by the Plan of Reorganization,
(n) not incur, with certain exceptions, material capital expenditures, (o) not
enter into or amend any agreements pursuant to which any third party is granted
exclusive marketing or manufacturing rights with respect to any CompCore
product, (p) not amend or terminate any material contract, agreement or license
to which it is a party except in the ordinary course of business, (q) not waive
or release any material right or claim, except in the ordinary course of
business, (r) not initiate any litigation or arbitration proceeding, (s) not
take any action that would or is reasonably likely to result in any of its
representations and warranties becoming untrue, (t) promptly notify Zoran of any
event or occurrence not in the ordinary course of business where such event or
occurrence would result in a breach of any covenant of CompCore or cause any
representation or warranty of CompCore to be untrue, and (u) confer on a regular
basis with Zoran on operational matters of materiality.
Pursuant to the Plan of Reorganization, Zoran has agreed that, during the
period from the date of the Plan of Reorganization until the Effective Time,
except as otherwise consented to in writing by CompCore or as contemplated by
the Plan of Reorganization, Zoran and its subsidiaries will (a) carry on its
business in the ordinary course in substantially the same manner as previously
conducted, (b) pay its debts and taxes when due, subject to good faith disputes
over such debts or taxes, and pay or perform other obligations when due, (c)
preserve intact its present business organization, (d) subject to certain
exceptions, not grant any options under any employee plan or accelerate, amend
or change the period of exercisability of options granted under any employee
stock plan, (e) not declare or pay any dividends on or make other distributions
in respect of any of its capital stock, not effect certain other changes in its
capitalization, and not purchase or otherwise acquire, directly or indirectly,
any shares of its capital stock except from former employees, directors and
consultants in accordance with agreements providing for the repurchase of shares
in connection with the termination of service, (f) not sell, lease, or otherwise
dispose of material properties or assets, except in the ordinary course of
business, (h) not amend its Certificate of Incorporation or Bylaws in any manner
that materially affects the rights, preferences or privileges of the holders of
its capital stock, except as contemplated by the Plan of Reorganization, (g) not
take any action that would or is reasonably likely to result in any of its
representations and warranties becoming untrue, and (i) confer on a regular
basis with CompCore on operational matters of materiality.
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NO SOLICITATION
The Plan of Reorganization provides that CompCore will not, directly or
indirectly, through any officer, director, employee, representative or agent of
CompCore, (i) solicit, initiate or encourage any inquiries or proposals that
constitute, or could reasonably be expected to lead to, a proposal or offer for
a merger, consolidation, business combination, sale of substantial assets, sale
of shares of capital stock (including without limitation by way of a tender
offer) or similar transactions involving CompCore, other than the transactions
contemplated by the Plan of Reorganization (any of the foregoing inquiries or
proposals being referred to in the Plan of Reorganization as a "CompCore
Acquisition Proposal"), (ii) engage in negotiations or discussions concerning,
or provide any nonpublic information to any person or entity relating to, any
CompCore Acquisition Proposal, or (iii) agree to, approve or recommend any
CompCore Acquisition Proposal.
In addition, the Plan of Reorganization provides that Zoran will not,
directly or indirectly, through any officer, director, employee, representative
or agent of Zoran, (i) solicit, initiate or encourage any inquiries or proposals
that constitute, or could reasonably be expected to lead to, a proposal or offer
for a merger, consolidation, business combination, sale of substantial assets,
sale of shares of capital stock (including without limitation by way of a tender
offer) or similar transactions involving a change of control of Zoran (any of
the foregoing inquiries or proposals being referred to in the Plan of
Reorganization as a "Zoran Acquisition Proposal"), (ii) engage in negotiations
or discussions concerning, or provide any nonpublic information to any person or
entity relating to, any Zoran Acquisition Proposal, or (iii) agree to, approve
or recommend any Zoran Acquisition Proposal; PROVIDED, HOWEVER, that nothing
contained in the Plan of Reorganization shall prevent Zoran or the Zoran Board
from (A) furnishing non-public information to, or entering into discussions or
negotiations with, any person or entity in connection with an unsolicited bona
fide written Zoran Acquisition Proposal by such person or entity or recommending
such an unsolicited bona fide written Zoran Acquisition Proposal to the
stockholders of Zoran, if and only to the extent that the Zoran Board determines
in good faith (after consultation with outside legal counsel) that such action
is necessary for the Zoran Board to comply with its fiduciary duties to the
Zoran stockholders under applicable law, or (B) complying with Rule 14e-2
promulgated under the Exchange Act with regard to a Zoran Acquisition Proposal.
CompCore and Zoran are each required to notify the other party (orally and
in writing) within 24 hours after receipt of any Acquisition Proposal or request
for non-public information or access to its properties, books or records in
connection with an Acquisition Proposal.
RELATED MATTERS AFTER THE MERGER
At the Effective Time, Sub will be merged with and into CompCore, and
CompCore will be the Surviving Corporation and a wholly-owned subsidiary of
Zoran. Each share of Sub Common Stock issued and outstanding immediately prior
to the Effective Time will be converted into and exchanged for one validly
issued, fully paid and nonassessable share of CompCore Common Stock. Each stock
certificate of Sub evidencing ownership of any such shares shall continue to
evidence ownership of such shares of CompCore Common Stock.
Unless otherwise determined by Zoran prior to the Effective Time, at the
Effective Time, the Articles of Incorporation of CompCore, as in effect
immediately prior to the Effective Time and as amended in accordance with the
provisions of the Plan of Reorganization, will be the Articles of Incorporation
of the Surviving Corporation, and the Bylaws of CompCore, as in effect
immediately prior to the Effective Time, will be the Bylaws of the Surviving
Corporation.
The directors of Sub immediately prior to the Effective Time will be the
initial directors of the Surviving Corporation.
After the Effective Time, George T. Haber, CompCore's President and Chief
Executive Officer, will join Zoran as Executive Vice President and as a member
of the Zoran Board, and Sorin C. Cismas, CompCore's Chief Technical Officer,
will join Zoran as Chief Scientist. See "The Merger--Employment Agreements."
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ESCROW AND INDEMNIFICATION
At the Effective Time (and, with respect to Dissenting Shares for which
appraisal rights have not been perfected or have been lost, such later time as
determined in accordance with Section 2.4 of the Plan of Reorganization), Zoran
will deposit into escrow certificates representing 10% of the shares of Zoran
Common Stock otherwise issuable to the holders of CompCore Common Stock in the
Merger on a pro rata basis ("Escrow Shares"). The Escrow Shares will be
registered in the name of and deposited with the Escrow Agent pursuant to the
Plan of Reorganization and the Escrow Agreement to constitute the Escrow Fund. A
copy of the Escrow Agreement is included in Appendix A hereto. The Escrow Fund
will be available to provide a fund against which Zoran, its affiliates and
their officers, directors, employees and attorneys may assert indemnification
claims for losses, damages, costs and expenses (including reasonable legal fees
and expenses) that an indemnified party has incurred by reason of (i) any
inaccuracy in or breach of any representation, warranty or covenant of CompCore
contained in the Plan of Reorganization or (ii) any legal, accounting and
financial advisory fees and expenses and other out-of-pocket expenses incurred
by CompCore in connection with the Merger, to the extent such expenses total
more than $1,000,000 (collectively, "Zoran Losses"). The indemnification period
will end on the earlier of (i) the date 12 months following the Effective Time
or (ii) the date on which Zoran releases its audited consolidated financial
statements for the fiscal year ending December 31, 1997.
Upon exercise of any Assumed Options during the indemnification period, 10%
of the shares of Zoran Common Stock issued upon such exercise will be deposited
into escrow and treated as Escrow Shares. In the case of any Assumed Options
that remain outstanding immediately following the end of the indemnification
period, the number of shares of Zoran Common Stock issuable upon any subsequent
exercise of such Assumed Options will be reduced (and the exercise price per
share will be increased) in proportion to any reduction in the number of shares
of Zoran Common Stock received by holders of Assumed Options that were exercised
during the indemnification period as a result of distributions of Escrow Shares
to satisfy indemnification claims. The intent of the foregoing is to ensure that
the aggregate number of shares of Zoran Common Stock received by a holder of any
Assumed Option after the indemnification period has expired and the Assumed
Option has been exercised will be reduced by the same proportion regardless of
whether such holder exercises the Assumed Option during or after the
indemnification period.
Notwithstanding the indemnification provisions described above,
indemnification will not be available unless and until the aggregate amount of
Zoran Losses exceeds $50,000. To receive any Escrow Shares, notice of the Zoran
Loss must be delivered to the Escrow Agent and the Shareholder Representative.
If the Shareholder Representative disputes the claim, the matter must be
resolved by binding arbitration. For the purpose of compensating Zoran for its
Zoran Losses, the Escrow Shares shall be valued at a price equal to the average
closing price of Zoran Common Stock for the 10 trading days immediately
preceding the Effective Date. In no event shall Zoran receive more than the
number of Escrow Shares then remaining in the Escrow Fund at the time of Zoran's
claim, and the maximum liability of all CompCore shareholders under the
indemnity provisions of the Plan of Reorganization shall not exceed the
forfeiture of the Escrow Shares in the Escrow Fund. Except with respect to
claims based on willful fraud or intentional misrepresentation or claims arising
under state or federal securities laws, Zoran's sole recourse with respect to
Zoran Losses is limited to the Escrow Fund.
CONDITIONS
The respective obligations of Zoran and CompCore to effect the Merger are
subject to the following conditions, among others: (a) shareholders of CompCore
shall have approved and adopted the Plan of Reorganization and approved the
Merger; (b) stockholders of Zoran shall have approved the Merger Proposal; (c)
all material governmental authorizations, consents, orders or approvals shall
have been obtained; (d) the Registration Statement shall have become effective
and shall not be the subject of a stop order or proceedings seeking a stop
order; (e) no temporary restraining order, preliminary or permanent injunction
or other order shall be in effect, nor shall there be any proceeding seeking any
of the foregoing that prevents, or seeks to prevent, the consummation of the
Merger; (f) no action shall be taken, nor any
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statute, rule, regulation, or order enacted, entered, enforced or deemed
applicable to the Merger, which makes the consummation of the Merger illegal;
(g) the receipt of a letter of Price Waterhouse LLP by each of Zoran and
CompCore, dated as of the date of this Joint Proxy Statement/Prospectus and
confirmed in writing at the Effective Time, stating that the business
combination to be effected by the Merger will qualify as a pooling of interests
transaction under generally accepted accounting principles (see "The
Merger--Accounting Treatment"); (h) the approval of the shares of Zoran Common
Stock to be issued in the Merger for quotation on The Nasdaq National Market;
(i) approval of the Merger by the affirmative vote of not less than 92% of the
outstanding shares of CompCore Common Stock; (j) receipt by Zoran of a written
opinion from Gray Cary Ware & Freidenrich, A Professional Corporation, counsel
to Zoran, and receipt by CompCore of an opinion of Cooley Godward LLP, counsel
to CompCore, both to the effect that the Merger will be treated for Federal
income tax purposes as a tax-free reorganization within the meaning of Section
368(a) of the Code (see "The Merger--Certain Federal Income Tax Consequences");
(k) Zoran's satisfaction as to the willingness of certain key employees of
CompCore to remain as employees of the combined entity following the Merger; (l)
receipt by Zoran of all state securities or "Blue Sky" permits and other
authorizations necessary to issue shares of Zoran Common Stock pursuant to the
Merger; (m) the accuracy in all material respects of the representations and
warranties of the other party set forth in the Original Plan of Reorganization
or the Plan of Reorganization; and (n) the performance in all material respects
of all obligations of the other party required to be performed under the Plan of
Reorganization.
In addition, CompCore's obligation to effect the Merger is subject to the
condition that George T. Haber be elected to the Zoran Board, effective as of
the Effective Time. The Zoran Board has approved Mr. Haber's election as a
director of Zoran, effective as of the Effective Time.
TERMINATION; TERMINATION FEES AND EXPENSES
The Plan of Reorganization may be terminated at any time prior to the
Effective Time, whether before or after approval of the matters presented in
connection with the Merger by the stockholders of Zoran and CompCore:
(a) by the mutual written consent of Zoran and CompCore;
(b) by either Zoran or CompCore, if the Merger shall not have been
consummated by February 28, 1997 (provided that the right to terminate
the Plan of Reorganization for this reason shall not be available to any
party whose failure to fulfill any obligation under the Plan of
Reorganization has been the cause of or resulted in the failure of the
Merger to occur on or before such date);
(c) by either Zoran or CompCore, if a court of competent jurisdiction or
other Governmental Entity (as defined in the Plan of Reorganization)
shall have issued a nonappealable final order, decree or ruling or taken
any other action, in each case having the effect of permanently
restraining, enjoining or otherwise prohibiting the Merger, unless the
party relying on such order, decree or ruling or other action has not
complied with its obligations under Section 6.8 of the Plan of
Reorganization (requiring each party to take all reasonable action
necessary to satisfy any legal conditions to the Merger);
(d) by Zoran, if the Board of Directors of CompCore shall have withdrawn or
modified its recommendation of the Plan of Reorganization or the Merger
or shall have publicly announced or disclosed to any third party its
intention to do any of the foregoing, or by CompCore, if the Board of
Directors of Zoran shall have withdrawn or modified its recommendation of
the Merger Proposal or shall have publicly announced or disclosed to any
third party its intention to do any of the foregoing;
(e) by Zoran, if, at the CompCore Special Meeting (including any adjournment
or postponement), the requisite vote of the shareholders of CompCore in
favor of the Plan of Reorganization and the Merger shall not have been
obtained, or by CompCore, if, at the Zoran Special Meeting (including any
adjournment or postponement), the requisite vote of the stockholders of
Zoran in favor of the Merger Proposal shall not have been obtained;
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(f) by Zoran or CompCore, if there has been a breach of any representation,
warranty, covenant or agreement on the part of the other party set forth
in the Plan of Reorganization, which breach (i) causes the conditions set
forth in Sections 7.2(a) or (b) (in the case of termination by Zoran) or
7.3(a) or (b) (in the case of termination by CompCore) of the Plan of
Reorganization (relating to the accuracy of representations and
warranties of the other party and performance by other party of certain
obligations) not to be satisfied and (ii) shall not have been cured
within 10 business days following receipt by the breaching party of
written notice of such breach from the other party;
(g) by Zoran if the Merger is not approved by the affirmative vote of the
holders of not less than 92% of the outstanding shares of CompCore Common
Stock; or
(h) by CompCore if, without CompCore's prior written consent, there occurs a
change of control of Zoran pursuant to a Zoran Acquisition Proposal that
is not approved by Zoran's Board of Directors (an "Unsolicited
Acquisition").
In the event of any termination of the Plan of Reorganization by either
Zoran or CompCore as provided above, there will be no liability or obligation on
the part of Zoran, CompCore, Sub or their respective officers, directors,
stockholders or affiliates, except to the extent that such termination results
from the willful breach by a party of any of its representations, warranties,
covenants or agreements set forth in the Plan of Reorganization, and except as
otherwise required by the provisions described below relating to the payment of
fees and expenses.
Except as described below, whether or not the Merger is consummated, all
fees, costs and expenses incurred in connection with the Plan of Reorganization
and the transactions contemplated thereby shall be paid by the party incurring
such expenses.
Zoran is required to pay CompCore a termination fee of $1,000,000 upon the
termination of the Plan of Reorganization by CompCore following an Unsolicited
Acquisition if (i) the Unsolicited Acquisition is consummated within 12 months
following such termination and (ii) immediately prior to such termination,
CompCore was not in breach of any of its material obligations under the Plan of
Reorganization.
To the extent that the legal, accounting and financial advisory fees and
expenses and other out-of-pocket expenses incurred by CompCore in connection
with the Merger exceed $1,000,000, the amount of such excess shall constitute
Zoran Losses for which the shareholders of CompCore may be required to indemnify
Zoran. See "--Escrow and Indemnification."
AMENDMENT AND WAIVER
The Plan of Reorganization may be amended at any time by action taken or
authorized by the respective Boards of Directors of Zoran and CompCore, but
after approval by the stockholders of Zoran or CompCore of the matters presented
in connection with the Merger to them, no amendment shall be made which by law
requires further approval by such stockholders, without such further approval.
Zoran and CompCore, by action taken or authorized by their respective Boards of
Directors, may extend the time for performance of the obligations or other acts
of the other parties to the Plan of Reorganization, may waive inaccuracies in
the representations or warranties contained in the Plan of Reorganization and
may waive compliance with any agreements or conditions contained in the Plan of
Reorganization.
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INFORMATION CONCERNING ZORAN
BUSINESS
THE FOLLOWING SECTION INCLUDES A NUMBER OF FORWARD-LOOKING STATEMENTS WHICH
REFLECT ZORAN'S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND FINANCIAL
PERFORMANCE. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND
UNCERTAINTIES, INCLUDING THOSE DESCRIBED UNDER "RISK FACTORS" AND ELSEWHERE IN
THIS JOINT PROXY STATEMENT/PROSPECTUS, THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM HISTORICAL RESULTS OR THOSE CURRENTLY ANTICIPATED. IN THIS JOINT
PROXY STATEMENT/PROSPECTUS, THE WORDS "ANTICIPATES," "BELIEVES," "EXPECTS,"
"INTENDS," "FUTURE" AND SIMILAR EXPRESSIONS IDENTIFY FORWARD-LOOKING STATEMENTS.
READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING
STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF.
Zoran develops and markets integrated circuits for digital video and audio
compression applications. Zoran's integrated circuits are used in a variety of
video and audio products addressing evolving multimedia markets. Current
applications for Zoran products include professional and consumer video editing
systems, PC-based video CD systems, stand-alone video CD systems, digital audio
systems and filmless digital cameras.
INDUSTRY BACKGROUND
Electronic processing of visual images and sound is pervasive in today's
society, with televisions, VCRs, computers and sound systems present in homes
and businesses throughout the developed world. Historically, video images and
audio soundtracks have been transmitted, edited and stored almost exclusively
using analog formats. More recently, however, advances in technology have
allowed video and audio to be processed and stored in digital form. Unlike
analog formats which are inherently unstable and difficult to edit and enhance,
digital formats permit the manipulation of video and audio signals, through
digital signal processing ("DSP"), and offer a number of fundamental advantages
over analog technologies. Through complex DSP operations, digital video and
audio signals may be compressed, providing significant storage and transmission
efficiencies, may be filtered, allowing for noise reduction, and may be
transmitted and reproduced without perceptible image or sound degradation.
Digital formats also provide users with additional benefits including random
access to data and superior editing capabilities.
The transition to the use of digital video and audio formats has been
dependent upon continuing technological advances which have steadily improved
the quality and flexibility of digital technology and reduced its cost. Initial
advances in DSP technology took place in military and industrial applications
where high performance and speed were of paramount importance and cost was a
secondary consideration. As costs have decreased and technology has improved,
digital technology has increasingly been applied to commercial and consumer
applications. One of the first applications of digital audio formats in the
consumer electronics market was the digital audio compact disc. The benefits of
digital audio processing led the consumer audio industry to convert from analog
long playing records to digital compact discs, resulting in the rapid growth in
the market for compact disc players. Subsequently, digital formats have
increasingly been applied in the development of a variety of consumer
electronics products such as video laser discs, video editing systems, filmless
digital cameras, digital surround sound systems, video conferencing systems,
cable television systems, direct broadcast satellite systems and multimedia
computer products.
One of the most significant barriers to the widespread acceptance of digital
technology has been the huge amount of data required to represent images and
sounds in a digital format, making cost-effective storage or transmission
impractical. For example, storage of an hour-long video program in uncompressed
digital form would require approximately 100 CD-ROMs. Through digital
compression techniques, a substantial number of the redundancies inherent in
video and audio data can be identified and eliminated, significantly reducing
the overall amount of data which needs to be retained. These compression
techniques allow the same hour long video program which required 100 CD-ROMs for
storage to be compressed and stored on a single CD-ROM. Additionally, digital
compression of video data allows previously unmanageable amounts of data to be
stored in the memory of a standard personal computer, thereby permitting the
data to be accessed and edited easily.
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To drive the implementation and speed the adoption of compression
technologies, industry participants organized committees to define international
compression standards. Leaders in consumer electronics, computers and
telecommunications joined together through the International Standards
Organization (the "ISO") to define standards for the compression of still
images, motion video and audio for consumer electronics and broadcast
applications. The first standard adopted was JPEG (Joint Photographic Experts
Group), a standard designed for the high quality compression of still images and
the real-time, low cost compression and decompression (or playback) of moving
images. The first commercial products complying with the JPEG standard were
introduced in 1992. MPEG 1 (Moving Pictures Experts Group), a standard for
compression of both video and audio, was subsequently adopted. MPEG 1 was
designed to allow the high compression ratios necessary for the limited storage
capacity of the CD-ROM format. The first commercial products complying with the
MPEG 1 standard were introduced in 1993. MPEG 2, a compression standard for both
video and audio, was designed to provide improved quality in broadcast and video
playback applications. Digital video disc ("DVD") players, the initial
commercial products complying with the MPEG 2 standards, have been announced for
volume delivery to the consumer market beginning in 1997.
In addition to the ISO standards, industry participants have from time to
time introduced technologies which have become industry standards. In 1991,
Dolby Laboratories, Inc. ("Dolby") launched Dolby AC-3, an audio compression
technique which Zoran believes is emerging as an industry standard. Dolby AC-3
was developed as a successor to Dolby's Pro-Logic analog technique for use in
multichannel digital surround sound systems. Dolby AC-3 has been principally
used in movie theater sound systems and has recently been introduced in home
theater applications. Digital compression of audio data facilitates enhanced
audio playback in video-oriented formats by allowing storage of additional
information in the limited space allocated for audio and facilitates the
seamless integration of sound with compressed video. Zoran believes that Dolby
AC-3 is the most advanced audio compression technique currently available and
will be the principal audio compression technique used in conjunction with MPEG
2 video compression in DVD players. Dolby AC-3 has also been adopted by the High
Definition Television ("HDTV") Grand Alliance, and several large cable
television operators have announced their intention to incorporate Dolby AC-3 in
their cable systems.
Each of these standard compression techniques specify data formats in which
compressed data must be presented in order to enable equipment from multiple
vendors to be integrated into a single system that can transmit and display the
data in digital video and audio form. These standards do not, however, specify
the compression or decompression methodologies to be employed or additional
functionality which may be used to enhance or manipulate digital signals. These
standards, therefore, do not determine image or sound quality, data
compatibility or compression efficiency. For example, data compression may
comply with relevant standards despite being poorly processed and containing
artifacts which result in image degradation in video applications or poor sound
quality in audio applications. As a result, there can be significant differences
in overall image or sound quality between two solutions based on the same
standard. Therefore, integrated circuit manufacturers can differentiate their
products through the quality of their compression solution, image enhancement
capabilities and audio effects.
Historically, as system vendors sought compression solutions, the cost,
complexity and time required to compress and decompress data have imposed
significant limitations on the use of digital compression. Over the last several
years, as cost-effective compression solutions have emerged, product
manufacturers have increasingly sought to design and market lower-cost digital
video and audio systems and products to address high volume consumer
applications. The current challenge to manufacturers of compression integrated
circuits is, therefore, to provide product manufacturers with high-quality,
cost-effective, standards-based solutions.
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THE ZORAN SOLUTION
Zoran provides high-quality, cost-effective, standards-based compression
solutions to address a broad range of video and audio applications. Zoran was a
pioneer in the development of high performance DSP products and has developed
expertise in digital signal processing, integrated circuit design, algorithms
and software development, as well as proprietary DSP and compression
technologies. Zoran is focused on bringing its multi-disciplinary expertise and
proprietary technologies to bear in the development of compression solutions for
commercial and consumer applications in evolving multimedia markets. The key
elements of Zoran's solution are:
STANDARDS-PLUS TECHNOLOGY. Zoran has leveraged its broad multi-disciplinary
expertise and proprietary DSP and compression technologies to develop integrated
circuits that are fully compliant with industry compression standards. Zoran's
products go beyond industry standards by improving image quality and allowing
more efficient use of memory, processing and communication resources. This
"standards-plus" functionality includes OEM-programmable effects for audio and
user-selectable compression ratios for video.
EXPANDABLE ARCHITECTURE. Zoran's integrated circuits are based on a design
that permits easy adaptation for a broad range of specific applications. This
adaptation is achieved through the addition of modules to, or deletion of
modules from, the architecture of the integrated circuit or modification of the
software embedded in the integrated circuit. Combined with the enhanced
functionality of Zoran's "standards-plus" technology, Zoran's expandable
architecture facilitates product design and upgrades and thereby substantially
accelerates customers' time to market.
COST-EFFECTIVE SOLUTIONS. Zoran focuses on reducing the feature size, power
consumption and number of integrated circuits required to perform compression
functions. This reduces the cost of manufacturing and operating end products
incorporating Zoran's integrated circuits, and permits the use of these products
in a broader variety of high volume applications. In addition, the modular
nature of Zoran's architecture lowers Zoran's cost of new product development,
and Zoran's design engineers work closely with its customers to meet new product
specification requirements within the customer's cost parameters.
INTEGRATED SYSTEM SOLUTIONS. Zoran assists its customers in solving their
total system requirements by providing integrated products that combine hardware
and software to address multiple system functions on a single integrated circuit
or chip set, thereby reducing the customer's total system cost and allowing the
customer to concentrate on differentiating its products from those of its
competitors. For example, in personal computer applications requiring the
decompression of both video and audio, Zoran has developed a single chip
solution that provides standard video decompression on the integrated circuit
and audio decompression by means of embedded software which is less costly and
more energy efficient than a full hardware solution.
STRATEGY
Zoran's objective is to be a leading provider of cost-effective,
high-performance digital video and audio compression solutions addressing
selected high volume applications in evolving multimedia markets. Key elements
of Zoran's strategy include:
FOCUS ON HIGH VOLUME CONSUMER APPLICATIONS. Zoran's strategy is to focus on
providing compression solutions for manufacturers seeking to design video and
audio products for emerging high volume consumer applications. In cooperation
with leading manufacturers of video and audio equipment in the commercial and
consumer markets, Zoran attempts to identify market segments which have the
potential for substantial growth.
MAINTAIN AND LEVERAGE TECHNOLOGICAL LEADERSHIP. Zoran's years of experience
in the fields of DSP, integrated circuit design, algorithms and software
development have enabled it to become a leader in the
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development of compression solutions. Using its multi-disciplinary expertise,
Zoran has developed new technologies for compression of both video and audio.
For example, Zoran believes that its proprietary bit rate control technology has
helped Zoran provide reliable and inexpensive JPEG-based video compression and
that its implementation of Dolby AC-3 technology on a single chip is
facilitating the emergence of Dolby AC-3 as a standard for multi-channel digital
sound. Zoran intends to continue to invest in research and development in order
to maintain its technological leadership and leverage its proprietary DSP and
compression technologies.
ESTABLISH STRATEGIC PARTNERSHIPS. Zoran works closely in the product
development process with leading manufacturers of products that incorporate
Zoran's integrated circuits. Potential products are designed to meet
customer-driven product requirements defined jointly by Zoran and its partners
with the partner providing technological input and, in selected cases, a portion
of the development funding. This strategy has permitted Zoran to develop
products with substantial financial and other assistance, while retaining
ownership of the technology and ensuring an established customer for the product
once development is completed. In some cases, Zoran's strategic partners also
provide sales and marketing support. Zoran has also established long term
relationships with strategic partners that provide manufacturing capacity and
will seek to develop additional strategic relationships with manufacturers. See
"--Research and Development," "--Sales and Marketing" and "--Manufacturing" for
descriptions of Zoran's relationships with its current strategic partners.
ACCELERATE CUSTOMERS' TIME TO MARKET. Being early to market is critical to
a customer's ability to capture market share and therefore to Zoran's ability to
make volume sales to the customer. Zoran works closely with key customers and
provides them early access to its technologies. In addition to providing
integrated solutions, Zoran provides its customers with a broad range of
engineering reference boards complete with device driver software and embedded
software, substantially shortening the customer's product design time. Zoran's
expandable modular architecture also allows the development of fully compatible
upgrade products, which accelerates its customers' time to market and reduces
their development costs.
MARKETS AND APPLICATIONS
The availability of standards-based digital and audio compression technology
has facilitated the development of products for a wide variety of multimedia
markets. Typically, new technology is adopted by manufacturers of relatively
expensive products designed primarily for commercial and high-end consumer
applications. As technology becomes less expensive to produce and is more
broadly accepted, manufacturers design lower-cost products for high-volume
consumer applications. Historically, Zoran's products have been implemented in
commercial and high-end consumer applications. Zoran believes, however, that the
markets for its products will increasingly extend to high-volume consumer
applications. Zoran's products are currently used in a variety of multimedia
applications.
VIDEO EDITING SYSTEMS
Video editing systems are used in the video post-production process to "cut
and paste" video sequences and add special audio and video effects.
Historically, professional video editing systems have been comprised of
expensive pieces of analog video and audio equipment interconnected by means of
various interface devices. Compression technology allows video images to be
stored in a computer's memory in sufficient volume to permit "cut and paste"
editing to be performed through random access to stored images. Since the early
1990s, a number of companies have introduced digital video editing systems
designed for the professional market. Companies such as Avid Technology, Inc.
("Avid"), Azeena Technologies Inc. ("Azeena"), Fast Multimedia, Inc. ("Fast"),
Matrox Electronic Systems Ltd. ("Matrox"), miro Computer Products AG ("miro")
and Truevision Inc. ("Truevision") utilize Zoran's JPEG-based products in their
professional video editing systems.
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As costs of compression technology have declined, a number of manufacturers
have designed low cost digital video editing equipment. Add-in boards and
software allowing the creation of PC-based video editing systems are now
available with list prices starting under $400. The availability of these low
cost systems has created a new category of users in the corporate, education,
government and consumer markets. Add-in boards incorporating Zoran's JPEG-based
products have been introduced by several manufacturers, including Avid, Azeena,
Fast, Matrox, miro, Spea Software AG ("Spea") and Truevision.
VIDEO PLAYBACK SYSTEMS
COMPUTER APPLICATIONS. Almost all desktop personal computers now on the
market have accelerated graphics capability, and Zoran believes that more than
half of the PCs sold in 1995 included CD-ROM and audio capabilities. MPEG 1
compression technology is currently used to accelerate video playback in
personal computers. The high compression ratios offered by this technology allow
over one hour of video to be stored in digital format on a single CD-ROM.
Companies such as Fast and Spea incorporate Zoran's MPEG 1-based products in
add-in boards for PC applications.
STAND-ALONE PLAYBACK APPLICATIONS. Currently, two types of video playback
systems are available for consumer video applications: video CD players and
laser disc players.
Video CD players are essentially CD audio players with MPEG 1 decoders and a
video output. This functionality adds between $100 and $200 to the retail cost
of a typical audio player. Video CD players offer video playback of near-VCR
quality and two-channel stereo audio playback. MPEG 1 compression enables 45 to
60 minutes of video to be stored on a single compact disc. Most major film
studios have released titles in video CD format. Video CD players can also play
karaoke titles and are particularly popular in the Far East, which Zoran
believes will continue to be the primary market for these products. Peacock AG
and OnMate Technology, Inc. are among the companies offering stand-alone video
CD players incorporating Zoran's MPEG 1-based products. LG Electronics and
Siemens AG ("Siemens") each use Zoran's MPEG 1-based products in integrated
television and computer products with video CD capability. These integrated
products are currently being marketed in the Far East and Europe.
High quality playback of audio and video is currently available on large
laser discs. Laser disc players generally cost somewhat more than video CD
players and VCRs. Laser disc technology uses no video compression, although
digital audio compression is required for storage of multi-channel audio data in
the limited space allocated for audio data on laser discs. Dolby AC-3 technology
provides audio compression and enhances audio quality by adding multi-channel
digital surround sound capability. Zoran's Dolby AC-3-based audio compression
products are currently used by manufacturers of audio receivers for use with
laser disc players, including Pioneer Electronic Corporation ("Pioneer") and
Yamaha Corporation ("Yamaha").
The next generation of video playback systems, DVD players, is currently
under development. DVD players will use MPEG 2 video compression technology to
provide significantly higher quality playback than is possible with video CD
players. Zoran also expects that DVD players will be included in some personal
computers in place of CD-ROM drives. Zoran believes that most DVD players will
use Dolby AC-3 audio compression technology for storage and playback of the
audio soundtrack. Although the MPEG standards and various competitors also
prescribe audio compression techniques, Zoran believes that Dolby AC-3 audio
compression technology provides enhanced performance. Zoran is currently selling
Dolby AC-3-based audio compression products for use by developers of DVD
systems, including Pioneer, Samsung Electronics Co., Ltd. and Toshiba
Corporation ("Toshiba"). There have been delays in the development of the DVD
market, and there still is uncertainty regarding the timing of volume production
and shipment of DVD players. Zoran currently expects DVD players to be
introduced to the consumer market in 1997.
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DIGITAL AUDIO SYSTEMS
In 1991, Dolby launched AC-3, an audio compression technique which Zoran
believes is emerging as an industry standard. Dolby AC-3 was developed as a
successor to Dolby's Pro-Logic analog technique for use in multi-channel digital
surround sound systems. Dolby AC-3 has been principally used in movie theater
sound systems and has recently been introduced in home theater applications.
Digital compression of audio data facilitates enhanced audio playback in
video-oriented formats by allowing storage of additional information in the
limited space allocated for audio and facilitates the seamless integration of
sound with compressed video. Companies such as Kenwood Corporation, Pioneer and
Yamaha incorporate Zoran's Dolby AC-3-based products into equipment used in home
theater applications, while Dolby uses Zoran components in its movie theater
playback systems. As DVD technology becomes available, Zoran expects consumer
demand for Dolby AC-3-based home systems to increase. In addition, cable and
satellite programming companies are planning to offer multi-channel digital
sound through digital television services. Zoran has sold its Dolby AC-3-based
audio decoder to a major telecommunications company for use in television
set-top boxes that will receive this type of programming. Zoran believes that
the availability of broadcast data in this form will further increase the demand
for Dolby AC-3-based systems.
FILMLESS DIGITAL CAMERAS
In 1990, Zoran introduced video compression devices that facilitated the
development of the first filmless digital cameras. These cameras allow the
capture of high resolution images, the viewing, editing and storage of such
images on a computer system and their transmission over telephone lines and
computer networks. High quality copies of these images can be printed using
color laser printers As technology has advanced and manufacturing costs have
decreased, filmless digital cameras have been introduced in the $1,000 to $5,000
price range. Recently, several manufacturers announced filmless digital cameras
with list prices below $500. Zoran believes that consumer demand for filmless
digital cameras will increase as they become available at prices approaching
those of conventional single lens reflex cameras and as the evolving desktop
multimedia market creates increasing uses for them. Zoran's JPEG-based products
are used in filmless digital cameras manufactured for the consumer market by
companies such as Fujifilm and Olympus Optical Co., Ltd.
Compression technology has also enabled the development of tapeless digital
video cameras that are currently marketed for professional use. Zoran's
JPEG-based products are currently used in tapeless digital video cameras
manufactured by Avid and Ikegami Electronics U.S.A. Inc.
COLOR LASER PRINTERS AND SCANNERS
Color laser printers and scanners have not received widespread market
acceptance to date due to the cost of the large amount of memory needed to store
and process color images. By reducing the memory required to store and process
images, compression technology has allowed the development of faster,
lower-priced color laser printers and scanners. Recently, color laser printers
using JPEG technology have been introduced with list prices under $1,000, and
color scanners have been introduced in the $1,000 to $1,500 price range. These
products are used principally in business applications. Canon Research Center
America, Inc. incorporates Zoran's JPEG-based products in its color scanners.
Zoran expects that as the cost of components continues to decline and economies
of scale are reached through higher manufacturing volumes, the development of
lower-priced color laser printers and scanners for home computer markets will
become feasible.
OTHER APPLICATIONS
Other existing and potential applications for audio and video compression
devices include arcade games and video kiosks, digital video recorders, digital
security cameras and video conferencing equipment. To date, Zoran has made
limited sales to manufacturers developing products for these markets, and
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Zoran does not anticipate that sales of its integrated circuits for use in these
products will account for significant revenues in the foreseeable future.
PRODUCTS AND TECHNOLOGY
Zoran's multimedia product line consists of three product families: video
compression and decompression products based on JPEG technology, audio and video
decompression products based on MPEG 1 technology and audio decompression
products for use in products using MPEG 2 or Dolby AC-3 technology.
The following table lists Zoran's multimedia products currently in
production, including the months in which initial production units were first
made available to customers.
<TABLE>
<S> <C> <C> <C>
MARKET PRODUCTS INITIAL PRINCIPAL APPLICATIONS
COMMERCIAL
SHIPMENT
JPEG JPEG codec (ZR36050) April 1993 PC video editing
Motion JPEG controller (ZR36055) July 1994
Color space converter (ZR36011)* December 1993 PC video editing,
Raster-to-block converter (ZR36015)* September 1993 filmless digital cameras,
Integrated converter (ZR36016)* February 1995 color scanners and
JPEG PCI Multimedia Controller (ZR36057) June 1996 color printers
MPEG MPEG 1 decoder (ZR36100) July 1994 PC-based and stand-
MPEG 1 decoder (ZR36110) February 1996 alone video CD
PCI multimedia controller (ZR36120) January 1996 players
MPEG 1 audio decoder software (ZR36SW1) September 1995
Audio 6-channel AC-3 decoder (ZR38500) December 1994 Home theater
2-channel AC-3 audio decoder (ZR38501) February 1995 DVD players and
2-channel AC-3/MPEG 2 audio decoder (ZR38521) February 1995 television set-top boxes
Programmable audio processor (ZR38001) November 1994 Programmable audio effects
</TABLE>
* Designed and manufactured by a third-party and sold by Zoran under its name
pursuant to a non-exclusive license. See "--Proprietary Rights and
Licenses."
JPEG TECHNOLOGY AND PRODUCTS
THE JPEG STANDARD. In 1991, the JPEG (Joint Photographic Experts Group)
Committee of the ISO completed a technical specification for a standard to
compress individual digitized images which may consist of still images or
consecutive frames of video data. JPEG has been widely adopted for video editing
applications, since each frame in the video is individually compressed, allowing
cutting and pasting of sequences as well as modification of individual frames or
sequences. Images are compressed through elimination of spatial redundancies
within an image and the filtering of high frequency areas to which the
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eye is less sensitive. Using these techniques, the JPEG compression standard is
able to reduce the data necessary to represent an image without significant
degradation of image quality. Still images or motion video can be compressed to
varying degrees using JPEG, with greater compression resulting in lower quality.
Typically, four-to-one or five-to-one compression yields broadcast image quality
while 20-to-one compression is similar to VHS quality.
ZORAN JPEG TECHNOLOGY. Zoran JPEG technology incorporates a proprietary bit
rate control algorithm that enables its JPEG-based products to compress any
image to a predetermined size while optimizing video quality using pre-selected
parameters. Without this feature, the JPEG compression process results in
compressed data files of various sizes based on the actual content of the
original image, given a constant degree of compression, and an image with large
amounts of visual detail will generate a larger data file than that generated
from an image with less detail. Performance of many video applications is
hampered by variability in the size of the compressed images in a video
sequence, which can result in inefficient use of available memory, bus speed or
communication channel capacity or even the loss of images. Zoran's bit rate
control is a "standards-plus" solution that uses real-time DSP algorithms to
optimize video quality based on pre-selected parameters, which can be programmed
by OEMs, without the loss of any image or video frame. Zoran's bit rate control
has been incorporated in its JPEG-based devices that are used in video editing
systems, filmless and tapeless digital cameras, color scanners, PC-based
security systems, video conferencing and other applications. Other features of
Zoran's JPEG-based products include their ability to handle a wide range of
compression ratios, to perform a "lossless" compression algorithm in the same
JPEG device and to rapidly scan or browse a large number of images. Zoran
implements these functions in a single integrated circuit while Zoran believes
most other manufacturers' solutions require multiple chips, resulting in higher
manufacturing costs and greater power consumption.
JPEG-BASED PRODUCTS. Zoran's ZR36050 codec is a compression/ decompression
device used for real time encoding and decoding of JPEG video for video editing
applications. The ZR36050 is fully compliant with JPEG standards. The ZR36050
utilizes Zoran's proprietary bit rate control technology for high quality video
capture. It also features a unique embedded "lossless" mode that allows
customers to elect to use low compression ratio techniques that result in no
data loss for applications where quality is the primary consideration. The
ZR36050 is often installed in a chipset that includes the ZR36055 motion
controller or pre/post-processing devices such as the ZR36011 color space
converter, ZR36015 raster-to-block converter and the ZR36016 integrated color
space/raster-to-block converter. The ZR36057 is a PCI controller targeting
consumer-priced but professional quality desktop video editing systems.
MPEG TECHNOLOGY AND PRODUCTS
THE MPEG STANDARDS. In 1991, the MPEG (Moving Pictures Expert Group)
Committee of the ISO completed a technical specification for a standard to
compress moving video and audio into a single data stream. Like JPEG, MPEG 1
removes spatial redundancies from single frames of video data. MPEG 1 improves
on JPEG by also removing redundancies that occur between consecutive video
frames. Because video represents movement, it is possible to detect and estimate
the movement of similar picture elements between video frames, a process called
motion estimation. MPEG motion estimation uses the content of previous and
future frames to predict the content of the current frame without using its full
content. MPEG 1 implements audio compression by exploiting psycho-acoustic
masking, taking advantage of the fact that the ear is less sensitive to a quiet
note at one frequency when a much louder note is present at a nearby frequency.
MPEG 1 often achieves video compression ratios of over 100-to-one and audio
compression ratios of six-to-one. MPEG 1 is particularly suitable for low-cost
CD-ROM applications due to its low-cost implementation.
In 1993, the MPEG 2 video committee completed a technical specification to
address the more stringent requirements of the broadcast industry. MPEG 2
provides more sophisticated prediction techniques, enabling a compression
solution to comprehend video as interlaced fields of data, rather than
individual frames. MPEG 2 also allows for operation at higher resolution and at
higher bit rates than
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MPEG 1, resulting in improved image quality for high motion, high detail video.
MPEG 2 typically achieves compression ratios of 50-to-one. Because of its higher
bit rate, MPEG 2 technology cannot be used in standard CD-ROM applications, but
will be used in DVD players.
ZORAN MPEG TECHNOLOGY. Zoran's MPEG 1 decoder technology offers an on-chip
solution for processing combined audio and video bit streams and other
system-level control data. This feature, combined with additional software
drivers, allows for high-quality audio-video synchronization and has facilitated
development of low-cost MPEG-based playback add-in boards for PC applications.
MPEG-BASED PRODUCTS. Zoran's ZR36100 and ZR36110 are single-chip system and
video decoders optimized for use in video CD playback applications. Zoran
believes the ZR36100 is the first device of its type to perform system decoding
and synchronization between audio and video functions. The recently announced
ZR36110 is designed for use with later model, higher performance video CD
players. The ZR36SW1 audio decoder software enables the effective partitioning
of the full MPEG playback process between the host CPU and dedicated hardware by
performing the audio MPEG decoding in software, thereby reducing total system
cost. The recently announced ZR36120 PCI multimedia controller enable the
cost-effective integration of high performance multimedia functions on PCI
systems. The PCI bus, which is offered in most new multimedia personal
computers, permits the high-speed transfer of digital information, including
video, within the PC. The ZR36120 provides a single PCI bus interface for chips
performing digitizer, TV tuner, JPEG, MPEG and TV out functions, thereby
eliminating numerous interfaces and minimizing the use of PCI slots.
AUDIO TECHNOLOGY AND PRODUCTS
THE DOLBY AC-3 STANDARD. In 1991, Dolby launched Dolby AC-3, an audio
compression technique which Zoran believes is emerging as an industry standard.
Dolby AC-3 was developed as a successor to Dolby's Pro-Logic analog technique
for use in multi-channel digital surround sound systems. Dolby AC-3 has been
used in sound systems that have been installed in over 3,000 movie theaters and
has recently been introduced in home theater applications. Digital compression
of audio data facilitates enhanced audio playback in video-oriented formats by
allowing storage of additional information in the limited space allocated for
audio and facilitates the seamless integration of sound with compressed video.
Zoran believes that Dolby AC-3 is the most advanced audio compression technique
currently available and will be the principal audio compression technique used
in DVD players. Dolby AC-3 has also been adopted by the HDTV Grand Alliance, and
several large cable operators have announced their intention to incorporate
Dolby AC-3 in their cable systems.
ZORAN AUDIO TECHNOLOGY. Zoran, pursuant to a development agreement with
Dolby, has developed a programmable DSP engine with an architecture optimized
for Dolby AC-3 and other demanding audio applications and was the first to
develop a single-chip solution for Dolby AC-3 decoding. Zoran's audio products
incorporate the Dolby AC-3 algorithm for decompression of multi-channel digital
surround sound, along with additional standards such as various layers of MPEG
audio decompression and other functions such as Dolby Pro-Logic decoding,
digital filtering and equalization. Zoran's programmable audio DSP architecture
enables system manufacturers to reduce system cost through software that allows
these manufacturers to program proprietary functions into Zoran's AC-3-based
decoder and eliminate the need for additional DSP devices while maintaining
their own differentiation, flexibility and standards compliance.
AUDIO PRODUCTS. The ZR38500 is a single-chip Dolby AC-3-based decoder for
high quality audio systems that can support up to six output channels and also
includes implementation of Dolby Pro-Logic. The ZR38500 affords
user-customizable memory for audio post-processing and special audio effects.
The ZR38521/501 are low cost versions of the ZR38500 which feature six-channel
AC-3 decoding and down-mixing to two-channel AC-3 or Dolby Pro-Logic output. The
ZR38521 also performs MPEG 2 audio
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decoding. The ZR38001 is a high performance digital audio signal processor with
on-chip memory resources that is used for products that produce special acoustic
effects such as echoes.
OTHER PRODUCTS
From Zoran's inception through 1991, Zoran's principal products consisted of
digital filter processors ("DFPs") and vector signal processors ("VSPs"), which
are DSP-based integrated circuits used for image enhancement and processing,
principally in military, industrial and medical applications. In mid-1994, Zoran
advised its customers that it was discontinuing production of these products. In
June 1995, Zoran licensed the manufacture of these products to a third party
under a nonexclusive ten-year license agreement. In the future, Zoran's revenues
from these products will be principally derived from license revenues. Zoran
does not expect these products to produce significant revenues in future
periods. See
"--Management's Discussion and Analysis of Financial Condition and Results of
Operations."
CUSTOMERS
The following table lists substantially all of Zoran's customers who
purchased at least $100,000 of Zoran's JPEG, MPEG or Dolby AC-3-based products
from January 1, 1995 through September 30, 1996:
<TABLE>
<S> <C> <C>
PRODUCT FAMILY CUSTOMERS
JPEG-based Products Amega Technology International Business
Avex Electronics Inc. Machines Corporation
Avid Technology, Inc. Matrox Electronic Systems Ltd.
Axis Components miro Computer Products AG
Azeena Technologies, Inc. Natsteel Electronics
Compumedia Ltd. Quadrant International
DCT Systems Corp. Solectron Washington, Inc.
Data Translation Sony Corp.
Digital Equipment Corporation Spea Software AG
Edge Electronics Co. Tektronix, Inc.
Fast Multimedia, Inc. Topas Electronics GmbH
Fujifilm Microdevices Truevision Inc.
MPEG-based Products Animation Technologies NEC Technologies
CET Ltd. Natsteel Electronics
Dynamar Computer Products Prochips
Edge Electronics Co. Samsung
Fast Multimedia, Inc. Siemens AG
Fujifilm Microdevices Co. Ltd. Spea Software AG
Jazz Multimedia Visual Circuits
Audio Products AT&T Corporation Edge Electronics Co.
Amega Technology Fujifilm Microdevices Co. Ltd.
Dolby Laboratories, Inc. NEC Technology
</TABLE>
Fujifilm purchases Zoran's products both as an original equipment
manufacturer ("OEM") and as a distributor and resells these products, in many
cases under its own trade name. Fujifilm acts as Zoran's primary distributor in
Japan and accounts for substantially all of Zoran's product sales in Japan.
Zoran's products are integrated into products purchased from Fujifilm by
consumer products manufacturers, including Denon Corporation, Kenwood, Pioneer,
Toshiba and Yamaha. See "--Sales and Marketing."
In 1994, Fujifilm accounted for approximately 56% of Zoran's revenues,
including 44% of its product sales and 97% of its development revenues. Revenues
from Fujifilm were significantly reduced in 1995 as a result of Fujifilm having
accumulated a substantial inventory of Zoran's products during 1994 and a
significant reduction of development revenue from Fujifilm. During 1995, sales
to Fujifilm accounted for
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11% of Zoran's revenues, including 5% of product sales and 67% of development
revenue. In 1995, Fast accounted for approximately 31% of Zoran's revenues,
including 35% of product sales. During the nine months ended September 30, 1996,
sales to Fujifilm accounted for 39% of Zoran's revenues, including 38% of
product sales, sales to miro accounted for 22% of revenues, including 23% of
product sales, and sales to Fast accounted for 8% of revenues, including 8% of
product sales. During the year ended December 31, 1995 and the nine months ended
September 30, 1996, Zoran's four largest customers accounted for approximately
55% and 73% of its revenues, respectively.
RESEARCH AND DEVELOPMENT
Zoran believes that its future success depends on its ability to continue to
enhance its existing products and to develop new products that maintain
technological competitiveness and compliance with new standards in rapidly
evolving video and audio compression markets. Zoran attempts to leverage its
expertise in the fields of DSP, integrated circuit design, algorithms and
software development to maintain its position as a leader in the development of
compression solutions. Accordingly, Zoran devotes a significant portion of its
resources to sustaining and upgrading its products to reduce integrated circuit
cost, feature size, power consumption and the number of integrated circuits
required to perform compression functions. In addition, Zoran seeks to design
integrated circuits which can reduce the time needed by manufacturers to
integrate Zoran's integrated circuits into the manufacturers' products
Zoran has historically generated a significant percentage of its total
revenues from development contracts with its strategic partners. These
development contracts provide that Zoran will receive payments upon reaching
certain development milestones and that Zoran will retain ownership of the
intellectual property developed. Development contracts have enabled Zoran to
fund portions of its product development efforts, to respond to the feature
requirements of its customers, to accelerate the incorporation of Zoran's
products into customer products and to accelerate the "time to market" of the
products of Company's customers. Zoran is currently developing new integrated
circuits based on JPEG, MPEG and Dolby AC-3 compression standards pursuant to a
development contract with Fujifilm under which Fujifilm is providing a portion
of the development funding. Fujifilm has participated directly in product
definition for these development programs and will have the right to sell any
resulting products in Japan under its distribution agreement with Zoran.
Fujifilm will also have the right to manufacture a portion of Zoran's
requirements for these products, subject to certain conditions. In addition,
Zoran developed its ZR36120 PCI multimedia controller pursuant to a development
contract with Siemens under which Siemens has provided a portion of the
development funding. See "--Products and Technology." Siemens participated
directly in product definition for this product and has the right to purchase
the product as an OEM customer. See "--Sales and Marketing" and
"--Manufacturing."
Zoran is a party to certain research and development agreements with the
Chief Scientist and BIRDF which fund up to 50% of incurred project costs for
approved projects up to specified contract maximums. These agreements require
Zoran to use its best efforts to achieve specified results and to pay royalties
at rates of 2 1/2% to 5% of resulting product sales and up to 30% of resulting
license revenues, up to a maximum of 100% to 150% of the total funding received.
Reported research and development expenses are net of these grants, which
fluctuate from period to period. Total grants earned during 1993, 1994, 1995 and
the nine months ended September 30, 1996 were $334,000, $549,000, $200,000 and
$182,000, respectively. The terms of Israeli Government participation also
contain restrictions on the location of research and development activities, and
the terms of the grants from the Chief Scientist prohibit the transfer of
technology developed pursuant to these grants to any person without the prior
written consent of the Chief Scientist. Zoran is currently engaged in the
development of new JPEG, MPEG and Dolby AC-3-based products under grants from
the Chief Scientist. Although Zoran has received grants from the Chief Scientist
and BIRDF in the past, Zoran intends to fund future research and development
efforts for new products primarily from its own funds and through research and
development arrangements with its major OEM customers.
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As of September 30, 1996, Zoran had a staff of 41 full-time and 14 part-time
research and development personnel, all of whom are based in Israel. During
1993, 1994, 1995 and the nine months ended September 30, 1996, Zoran's net
research and development expenses were approximately $5.0 million, $4.4 million,
$4.3 million, and $3.7 million, respectively. See "--Management's Discussion and
Analysis of Financial Condition and Results of Operations."
SALES AND MARKETING
Zoran's sales and marketing strategy is to focus on providing compression
solutions for manufacturers seeking to design video and audio products for
emerging high volume consumer applications. In cooperation with leading
manufacturers of video and audio equipment in the commercial and consumer
markets, Zoran attempts to identify market segments which have the potential for
substantial growth. To implement its strategy, Zoran has established a direct
sales force and a worldwide network of independent sales representatives and
distributors. In some cases, Zoran's strategic partners also provide sales and
marketing support to Zoran.
Zoran works closely in the product development process with strategic
partners to incorporate Zoran's integrated circuits into their products.
Potential products are designed to meet customer-specific product requirements
defined jointly by Zoran and its strategic partners with the partners providing
technological input and, in selected cases, a portion of the development
funding. This strategy has permitted Zoran to develop products with substantial
financial and other assistance, while retaining ownership of the technology and
ensuring an established customer for the product once development is completed.
In addition, Zoran's application engineers assist other customers in designing
their products to incorporate Zoran's integrated circuits.
Zoran's sales are generally made pursuant to purchase orders received
between one and six months prior to the scheduled delivery date. Zoran sells its
products, and in certain cases distributes the products of other companies,
primarily through its seven-person direct sales staff, of whom three are located
in the United States and four are located in Israel. Zoran's United States sales
staff is primarily responsible for sales in North America, South America and
Asia, and Zoran's Israeli sales staff is primarily responsible for sales in the
Middle East and Europe. In addition, Zoran sells its products indirectly through
28 commissioned sales representatives as well as certain distributors. Zoran
typically warrants its products for a 12-month period. To date, Zoran has not
experienced material product returns or warranty expense.
Zoran distributes its products in Japan primarily under an agreement with
Fujifilm. Under this agreement, Fujifilm acts as the primary distributor in
Japan of products developed by Zoran under development contracts with Fujifilm.
Fujifilm also sells certain of these products in Japan under its own name. Zoran
may sell these products directly in Japan only to specified customers and must
first buy the products from Fujifilm. Fujifilm also has a nonexclusive license
to distribute most of Zoran's products outside of Japan. Certain of Zoran's
other OEM customers also act as distributors of Zoran's products from time to
time. See "--Customers."
Zoran sells its Dolby AC-3-based products under a perpetual, non-exclusive
license from Dolby to sell products that incorporate Dolby's AC-3 algorithm.
Zoran is not required to pay license fees or royalties to Dolby under this
agreement. Zoran's customers enter into license agreements directly with Dolby,
pursuant to which they pay royalties to Dolby. Under Zoran's agreement with
Dolby, Zoran may sell its Dolby AC-3-based products only to customers who are
licensees of Dolby. To date, most potential customers for Zoran's Dolby
AC-3-based products are licensees of Dolby. However, the failure or refusal of
potential customers to enter into license agreements with Dolby in the future
could adversely affect Zoran's business, operating results or financial
condition.
Zoran licenses the manufacture and distribution of products incorporating
its DFP and VSP technologies to an OEM on a non-exclusive basis. Under this
license arrangement Zoran received a one-time
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payment and receives royalties on each sale by its licensee. Zoran does not
expect to derive significant revenues from the licensing of its DFP and VSP
technologies.
BACKLOG
Sales of Zoran's products are made pursuant to firm purchase orders.
However, Zoran at times allows customers to cancel or reschedule deliveries. In
addition, purchase orders are subject to price renegotiations and to changes in
quantities of products ordered as a result of changes in customers' requirements
and manufacturing availability. Zoran's business is characterized by short lead
times and quick delivery schedules. As a result of the foregoing factors, Zoran
does not believe that backlog at any given time is a meaningful indicator of
future sales.
MANUFACTURING
Zoran contracts its wafer fabrication, assembly and testing to independent
foundries and contractors, which enables Zoran to focus on its design strengths,
minimize fixed costs and capital expenditures and gain access to advanced
manufacturing facilities. Zoran's engineers work closely with Zoran's foundries
and subcontractors to increase yields, lower manufacturing costs and assure
quality.
Zoran's primary foundries are Taiwan Semiconductor Manufacturing Company,
Ltd. ("TSMC"), which has manufactured certain of Zoran's integrated circuits
since 1987, Fujifilm, which has manufactured certain of Zoran's integrated
circuits since 1993, and Motorola Inc. ("Motorola"), which has manufactured gate
array-based products for Zoran since 1993. In 1994 and 1995, these three
foundries manufactured substantially all of Zoran's products. Fujifilm is
currently manufacturing Zoran's JPEG codec, its JPEG-based converter products
and its MPEG 1 decoder. Motorola is currently manufacturing Zoran's motion JPEG
controller and PCI multimedia controller, and TSMC is currently manufacturing
Zoran's audio products. Zoran is currently in the process of qualifying an
additional foundry, Tower Semiconductor, Ltd. ("Tower") for the manufacture of
video and audio compression integrated circuits. Tower is currently
manufacturing wafers for Zoran on a test basis, and Zoran expects it to begin
supplying commercial volumes of certain products in 1997 if additional capacity
is required, although there can be no assurance that this additional source of
supply will become available to Zoran, that Tower will actually deliver products
in commercial volumes or that Tower will be in a position to satisfy Zoran's
production requirements on a timely basis. Zoran's independent foundries
fabricate products for other companies and may also produce products of their
own design.
Most of Zoran's devices are currently fabricated using complementary metal
oxides semiconductor ("CMOS") process technology with 0.6 micron and 0.8 micron
feature sizes. All of Zoran's semiconductor products are currently being
assembled by one of two independent contractors, ASAT, Inc. ("ASAT") and Anam
Industrial ("Anam") and tested by those contractors or other independent
contractors.
Zoran's ZR36050 JPEG codec and ZR36100 MPEG 1 decoder were developed jointly
with Fujifilm and are currently manufactured by Fujifilm pursuant to an
agreement that grants Fujifilm the right to manufacture up to 80% of Zoran's
requirements for these products subject to Fujifilm's ability to manufacture
these products on substantially the same or better terms and conditions as Zoran
could obtain from a third party. This agreement also grants Fujifilm certain
marketing rights in Japan with respect to these products. See "--Sales and
Marketing."
Zoran currently purchases products from all of its foundries under
individually negotiated purchase orders. Zoran's agreement with Fujifilm
entitles Zoran to obtain wafer foundry services from Fujifilm on most favored
pricing and availability terms, subject to Fujifilm's technological capabilities
and reasonable limitations as to quality and delivery terms requested by Zoran.
In December 1995, Tower and Zoran committed to enter into a four-year agreement
under which Tower will supply specified minimum quantities of wafers to Zoran,
based on quarterly 12-month forecasts and non-cancelable three-month purchase
orders, at the best price and on substantially the same terms given to other
customers of Tower
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for purchase of similar volumes of wafers. In conjunction with Tower's
commitment, Zoran agreed to grant to Tower a two-year warrant to purchase up to
100,000 shares of Zoran's Common Stock, at a purchase price of $10.20 per share.
Tower's minimum supply commitment is subject to specified increases at Zoran's
option. Zoran and Tower have agreed to negotiate changes in Tower's supply
commitment, based upon the value of Zoran's Common Stock on the first
anniversary of the warrant grant.
Zoran does not currently have a long-term supply contract with TSMC or
Motorola, and therefore neither TSMC nor Motorola is obligated to supply
products to Zoran for any specific period, in any specific quantity or at any
specified price, except as may be provided in a particular purchase order.
Zoran's reliance on independent foundries and assembly and testing houses
involves a number of risks. See "Risk Factors--Risks Relating to Zoran and the
Combined Company--Reliance on Independent Foundries and Contractors."
COMPETITION
Zoran's existing and potential competitors include many large domestic and
international companies that have substantially greater financial,
manufacturing, technical, marketing, distribution and other resources, broader
product lines and longer standing relationships with customers than Zoran.
Certain of Zoran's principal competitors maintain their own semiconductor
foundries and may therefore benefit from certain capacity, cost and technical
advantages. In the market for JPEG-based products for desktop video editing
applications, Zoran's principal competitors are C-Cube Microsystems, Inc.
("C-Cube") and LSI Logic Corporation. In the market for MPEG-based products for
video playback applications, Zoran's principal competitors are C-Cube, Oak
Technology, Inc., S3 Incorporated, SGS Thomson Microelectronics, NV and Winbond
Electronics Ltd. Zoran does not believe that any other companies are currently
selling commercial volumes of Dolby AC-3-based audio compression products
competitive with those of Zoran, although Zoran believes that Motorola is
shipping limited quantities of such products and LSI Logic and Texas Instruments
have announced their intention to introduce such products. These manufacturers,
as well as others, are licensed by Dolby to incorporate Dolby AC-3 technology in
their products. In addition, certain manufacturers, including Sony Corporation,
incorporate compression technologies other than Dolby AC-3 in certain audio
products that compete with products using Zoran's integrated circuits. In the
markets for JPEG-based products for use in filmless digital cameras, color
scanners and color laser printers, Zoran's principal competitors are Casio
Computer Co., Ltd. and Ricoh Co. Ltd. Zoran believes that its ability to compete
successfully in the rapidly evolving markets for high performance video and
audio compression technology depends on a number of factors, including the
price, quality and performance of Zoran's and its competitors' products, the
timing and success of new product introductions by Zoran, its customers and its
competitors, the emergence of new industry standards, Zoran's ability to obtain
adequate foundry capacity, the number and nature of Zoran's competitors in a
given market and general market and economic conditions.
The markets in which Zoran competes are intensely competitive and are
characterized by rapid technological change, declining ASPs and rapid product
obsolescence. Zoran expects competition to increase in the future from existing
competitors and from other companies that may enter Zoran's existing or future
markets with solutions which may be less costly or provide higher performance or
more desirable features than Zoran's products. For example, International
Business Machines Corporation ("IBM") has recently announced its intention to
offer integrated circuits incorporating compression technology for certain video
and audio applications. To date, IBM has not announced products competitive with
any of Zoran's products. However, there can be no assurance that IBM will not
enter Zoran's markets in the future. Historically, ASPs in the semiconductor
industry in general, and for Zoran's products in particular, have decreased over
the life of a particular product. Zoran expects that the ASPs of its products
will continue to be subject to significant pricing pressures in the future. In
order to offset expected declines in the ASPs of its products, Zoran will likely
need to reduce the cost of its products by implementing design changes that
lower the cost of manufacture, assembly or testing, negotiating reduced charges
by its
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foundries as and if volumes increase, and successfully managing its
manufacturing and subcontracting relationships. Since Zoran does not operate its
own manufacturing, assembly or testing facilities, it may not be able to reduce
its costs as rapidly as companies that operate their own facilities. The failure
of Zoran to introduce lower cost versions of its products in a timely manner or
to successfully manage its manufacturing, assembly and testing relationships
would have a material adverse effect on its business, operating results and
financial condition.
PROPRIETARY RIGHTS AND LICENSES
Zoran's ability to compete successfully is dependent in part upon its
ability to protect its proprietary technology and information. Although Zoran
relies on a combination of patents, copyrights, trademarks, trade secret laws
and licensing arrangements to protect certain of its intellectual property,
Zoran believes that factors such as the technological and creative skills of its
personnel and the success of its ongoing product development efforts are more
important in maintaining its competitive position. Zoran generally enters into
confidentiality or license agreements with its employees, distributors,
customers and potential customers and limits access to its proprietary
information. Zoran currently holds several United States patents, and has
additional patent applications pending, that pertain to technologies and
processes relating to Zoran's current business. There can be no assurance that
Zoran's intellectual property rights, if challenged, will be upheld as valid,
will be adequate to prevent misappropriation of its technology or will prevent
the development of competitive products. Additionally, there can be no assurance
that Zoran will be able to obtain patents or other intellectual property
protection in the future. Furthermore, the laws of certain foreign countries in
which Zoran's products are or may be developed, manufactured or sold, including
various countries in Asia, may not protect Zoran's products or intellectual
property rights to the same extent as do the laws of the United States and thus
make the possibility of piracy of Zoran's technology and products more likely in
these countries.
Zoran sells its Dolby AC-3-based products under a perpetual non-exclusive
license from Dolby which permits Zoran to incorporate Dolby's AC-3 algorithm
into its products. Zoran's customers enter into license agreements with Dolby
pursuant to which they pay royalties directly to Dolby. Under Zoran's agreement
with Dolby, Zoran may sell its Dolby AC-3-based products only to customers who
are licensees of Dolby. To date, most potential customers for Zoran's Dolby
AC-3-based products are licensees of Dolby. However, the failure or refusal of
potential customers to enter into license agreements with Dolby in the future
could adversely affect Zoran's business, operating results or financial
condition.
The color space converter, raster-to-block converter and integrated
converter sold by Zoran under its name are manufactured by Fujifilm and sold by
Zoran pursuant to a non-exclusive agreement which expires in 1999. This
agreement entitles Zoran to purchase these products from Fujifilm under the most
favorable terms and conditions granted by Fujifilm to its customers.
The semiconductor industry is characterized by vigorous protection and
pursuit of intellectual property rights, which have resulted in significant and
often protracted and expensive litigation. Although there is currently no
pending intellectual property litigation involving Zoran, Zoran or its foundries
may from time to time be notified of claims that Zoran may be infringing patents
or other intellectual property rights owned by third parties. Litigation by or
against Zoran relating to patent infringement or other intellectual property
matters could result in significant expense to Zoran and divert the efforts of
Zoran's technical and management personnel, whether or not such litigation
results in a determination favorable to Zoran. In the event of an adverse result
in any such litigation, Zoran could be required to pay substantial damages,
cease the manufacture, use and sale of infringing products, expend significant
resources to develop non-infringing technology, discontinue the use of certain
processes or obtain licenses to the infringing technology. There can be no
assurance that licenses would be offered or that the terms of any offered
licenses would be acceptable to Zoran. The failure to obtain a license from a
third party for technology used by Zoran could cause Zoran to incur substantial
liabilities and to suspend the manufacture of products, or the use by Zoran's
foundries of certain processes.
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<PAGE>
EMPLOYEES
As of September 30, 1996, Zoran had 75 full-time and 24 part-time and
contract employees, including 41 full-time and 14 part-time and contract
employees primarily involved in research and development activities, 17 in
marketing and sales, 17 in finance and administration and 10 in manufacturing
control and quality assurance. 58 of Zoran's full-time employees and 18 of its
part-time and contract employees, including all of the personnel who are
primarily involved in engineering and research and development, are based in
Israel, with the remainder at Zoran's headquarters in Santa Clara, California.
Zoran believes that its future success will depend, in large part, on its
ability to attract and retain highly-skilled, engineering, managerial, sales and
marketing personnel. Competition for such personnel is intense. Zoran's
employees are not represented by any collective bargaining unit, and Zoran has
never experienced a work stoppage. Zoran believes that its employee relations
are good.
FACILITIES
Zoran's executive offices and its principal administration, marketing and
sales operations are located in approximately 8,800 square feet of leased space
in Santa Clara, California under leases which expire in September 1997. Zoran's
research and development and engineering facilities and the balance of its
administration, marketing and sales operations are located in approximately
14,000 square feet of leased space in an industrial park in Haifa, Israel under
a lease which expires in 2002. The aggregate annual gross rent for Zoran's
facilities was approximately $349,000 in 1995. See Note 8 of Notes to
Consolidated Financial Statements of Zoran. Zoran believes that its current
facilities are adequate for its needs for the foreseeable future and that,
should it be needed suitable additional space will be available to accommodate
expansion of Zoran's operations on commercially reasonable terms.
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SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and the notes thereto
included elsewhere herein. The consolidated statement of operations data set
forth below with respect to the years ended December 31, 1993, 1994 and 1995 and
the consolidated balance sheet data as of December 31, 1994 and 1995 are derived
from, and are qualified by reference to, the audited consolidated financial
statements of Zoran included elsewhere herein. The consolidated statement of
operations data set forth below with respect to the years ended December 31,
1991 and 1992 and the nine-month period ended September 30, 1995 and the
consolidated balance sheet data as of December 31, 1991, 1992 and 1993 are
derived from audited consolidated financial statements not included in this
Joint Proxy Statement/Prospectus. The consolidated statement of operations data
set forth below with respect to the nine-month period ended September 30, 1996
and the consolidated balance sheet data as of September 30, 1996 are derived
from, and are qualified by reference to, the unaudited consolidated financial
statements of Zoran included elsewhere herein. The unaudited consolidated
financial statements include all normal recurring adjustments that Zoran
considers necessary for a fair presentation of its financial position and
results of operations. The results of operations for the nine months ended
September 30, 1996 are not necessarily indicative of results to be expected for
the full year ending December 31, 1996, or any other future period.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Product sales................................. $ 2,861 $ 1,490 $ 2,044 $ 6,243 $ 18,086 $ 12,399 $ 25,169
Development revenue........................... 3,997 3,321 1,898 1,815 1,831 1,235 884
Licenses and royalties........................ 3,944 2,528 745 -- 150 75 300
--------- --------- --------- --------- --------- --------- ---------
Total revenues.............................. 10,802 7,339 4,687 8,058 20,067 13,709 26,353
--------- --------- --------- --------- --------- --------- ---------
Costs and expenses:
Cost of product sales......................... 1,607 1,469 2,601 4,677 9,306 6,268 14,278
Research and development...................... 5,018 4,638 4,997 4,442 4,280 3,021 3,727
Selling, general and administrative........... 3,297 3,601 4,556 3,940 5,420 3,829 6,033
--------- --------- --------- --------- --------- --------- ---------
Total costs and expenses.................... 9,922 9,708 12,154 13,059 19,006 13,118 24,038
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss)......................... 880 (2,369) (7,467) (5,001) 1,061 591 2,315
Interest and other income (expense), net........ 8 (88) (209) (232) (186) (203) 731
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes............... 888 (2,457) (7,676) (5,233) 875 388 3,046
Provision for income taxes...................... 290 173 34 2 189 126 335
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)............................... $ 598 $ (2,630) $ (7,710) $ (5,235) $ 686 $ 262 $ 2,711
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) per share (1)................. $ 0.11 $ (0.49) $ (1.31) $ (0.83) $ 0.10 $ 0.04 $ 0.33
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Weighted average common shares and equivalents
(1)........................................... 5,366 5,339 5,880 6,284 6,453 6,400 8,256
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------- SEPTEMBER 30,
1991 1992 1993 1994 1995 1996
--------- --------- --------- --------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents and
short-term investments.............. $ 2,378 $ 1,086 $ 1,022 $ 1,054 $ 20,521 $ 19,375
Working capital (deficit)............. 1,116 (876) (258) (2,311) 19,464 24,910
Total assets.......................... 6,304 4,584 4,907 6,026 29,085 35,538
Long-term debt, less current
portion............................. 512 1,513 1,319 1,027 601 395
Accumulated deficit................... (37,331) (39,961) (47,671) (52,906) (52,320) (49,609)
Total stockholders' equity
(deficit)........................... 2,645 27 732 (1,546) 20,254 26,821
</TABLE>
(1) See Note 2 of Notes to Consolidated Financial Statements of Zoran for a
description of the computation of the number of shares and net income
(loss) per share.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS INCLUDES FORWARD-LOOKING STATEMENTS WITH RESPECT TO
ZORAN'S FUTURE FINANCIAL PERFORMANCE. THESE FORWARD-LOOKING STATEMENTS ARE
SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES, INCLUDING THE FACTORS DESCRIBED
UNDER "RISK FACTORS" AND ELSEWHERE IN THIS JOINT PROXY STATEMENT/PROSPECTUS,
THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL RESULTS OR
THOSE CURRENTLY ANTICIPATED.
OVERVIEW
From Zoran's inception in 1981 through 1991, Zoran derived the substantial
majority of its revenue from the design and sale of DFPs and VSPs, which are
DSP-based integrated circuits used for image enhancement and processing,
principally in military, industrial and medical applications. In 1989, Zoran
repositioned its business to utilize its expertise in DSP technology to develop
and market integrated circuits designed to compress video and audio data for
commercial and consumer applications in evolving multimedia markets. At that
time, Zoran discontinued development and enhancement of DFP and VSP products,
and in mid-1994, Zoran advised its customers that it was discontinuing
production of these products. "End of life sales" of DFP and VSP products
contributed substantially to revenues and operating income during the first
quarter of 1995, while sales of DFP and VSP products declined during the balance
of 1995 and have not been significant in 1996. DFP and VSP products are not
expected to contribute significant revenues in future periods.
In 1990, Zoran introduced its first product targeting the multimedia market,
a proprietary video compression chip set for use in filmless digital cameras,
and in 1992, Zoran introduced an integrated circuit used for television image
enhancement (or "ghost cancellation"). In 1993, Zoran introduced its initial
integrated circuits based on the JPEG compression standard for filmless digital
cameras and multimedia applications and also introduced a single-chip
implementation of the Dolby AC-3 audio standard. In 1994, Zoran introduced an
integrated circuit based on the MPEG 1 compression standard for video playback
applications.
Historically, ASPs in the semiconductor industry in general, and for Zoran's
products in particular, have decreased over the life of a particular product.
Although ASPs have fluctuated substantially during the past three years, these
fluctuations have been driven principally by changes in customer mix (OEM sales
versus sales to distributors) and the transition from low-volume "test" sales to
high-volume production sales rather than by factors related to product life
cycles. During 1996, Zoran has experienced pricing pressure on certain of its
first generation multimedia products which adversely affected ASPs. Zoran
believes that, as its multimedia product lines continue to mature and
competitive markets evolve, it is likely to experience further declines in the
ASPs of its multimedia products, although the timing and amount of such future
changes cannot be predicted with any certainty. There can be no assurance that
costs will decrease at the same rate as such declines in ASPs, or at all.
Zoran sells its products, either directly or through distributors or
independent sales representatives, to OEMs worldwide. Sales prices to
distributors are generally lower than selling prices for direct sales, as
distributors are responsible for certain sales and marketing expenses, customer
support and training. Lower gross margins on sales to distributors are partially
offset by reduced selling and marketing costs related to such sales. Sales in
Japan are primarily made through Fujifilm, Zoran's strategic partner and
distributor in Japan. Fujifilm provides more sales and marketing support than
Zoran's other distributors.
Zoran has historically generated a significant percentage of its total
revenues from development contracts, primarily with key customers. These
development contracts have provided Zoran with partial funding for the
development of certain of its products. Payments received by Zoran under these
development contracts are recorded as development revenue. Zoran classifies all
development costs, including costs related to these development contracts, as
research and development expenses. Zoran retains ownership of the intellectual
property developed under these development contracts. While Zoran intends
67
<PAGE>
to continue to enter into development contracts with certain strategic partners,
it expects development revenue to remain relatively constant, or decrease, and
to decrease significantly as a percentage of total revenues.
Zoran is a party to certain research and development agreements with the
Chief Scientist and BIRDF, which fund up to 50% of incurred project costs for
approved products up to specified contract maximums. These agreements require
Zoran to use its best efforts to achieve specified results and require Zoran to
pay royalties at rates of 2 1/2% to 5% of resulting product sales, and up to 30%
of resulting license revenues, up to a maximum of 100% to 150% of the total
funding received. Reported research and development expenses are net of these
grants, which fluctuate from period to period. Total grants earned during 1993,
1994, 1995 and the nine months ended September 30, 1996 were $334,000, $549,000,
$200,000, and $182,000, respectively.
Zoran conducts research and development and certain sales and marketing and
administrative operations in Israel through its wholly-owned Israeli subsidiary.
As a result, certain expenses are incurred in Israeli shekels. Until May 1995,
substantially all of Zoran's product sales were made from Zoran's U.S. facility.
In May 1995, Zoran restructured its manufacturing control and sales
organizations and began selling a portion of its products directly from its
facility in Israel. To date, substantially all of Zoran's product sales have
been denominated in U.S. dollars and most costs of product sales have been
incurred in U.S. dollars. Zoran expects that most of its sales and costs of
sales will continue to be denominated and incurred in U.S. dollars for the
foreseeable future. Zoran has not experienced material losses or gains as a
result of currency exchange rate fluctuations and has not engaged in hedging
transactions to reduce its exposure to such fluctuations. Zoran intends to
actively monitor its foreign exchange exposure and to take appropriate action to
reduce its exposure to such fluctuations. Zoran intends to actively monitor its
foreign exchange exposure and to take appropriate action to reduce its foreign
exchange risk, if such risk becomes material.
In October 1994, Zoran contributed technology relating to its ghost
cancellation products to a newly-formed company (the "Joint Venture") and to the
Joint Venture's subsidiary, Oren Semiconductor, Ltd. ("Oren"), and an unrelated
third party contributed cash, each in exchange for a 50% equity interest in the
Joint Venture. Since the organization of the Joint Venture, efforts relating to
the development and marketing of ghost cancellation products have been conducted
by the Joint Venture, through Oren. In September 1995, Zoran approved the
transfer of its interest in the Joint Venture, and $100,000 in cash, to GC
Holdings Corporation ("GCH"), a wholly-owned subsidiary of Zoran, as GCH's
initial capital and declared a dividend to its stockholders of all of its stock
in Holdings.
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<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain consolidated statement of operations
data as a percentage of total revenues for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- ------------------------
1993 1994 1995 1995 1996
------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Product sales............... 44% 77% 90% 90% 96%
Development revenue......... 40 23 9 9 3
Licenses and royalties...... 16 -- 1 1 1
--- --- --- --- ---
Total revenues............ 100 100 100 100 100
--- --- --- --- ---
Costs and expenses:
Cost of product sales....... 55 58 47 46 54
Research and development.... 107 55 21 22 14
Selling, general and
administrative............ 97 49 27 28 23
--- --- --- --- ---
Total costs and
expenses................ 259 162 95 96 91
--- --- --- --- ---
Operating income (loss)....... (159) (62) 5 4 9
Interest and other income
(expense), net.............. (5) (3) (1) (1) 3
--- --- --- --- ---
Income (loss) before income
taxes....................... (164) (65) 4 3 12
Provision for income taxes.... 1 -- 1 1 2
--- --- --- --- ---
Net income (loss)......... (165)% (65)% 3% 2% 10%
--- --- --- --- ---
--- --- --- --- ---
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1995
REVENUES. Product sales consist primarily of revenues from sales of Zoran's
integrated circuits. Product sales increased to $25.2 million in the nine months
ended September 30, 1996 from $12.4 million in the nine months ended September
30, 1995, an increase of 103%. The sales growth in the nine months ended
September 30, 1996 resulted primarily from continued growth in unit sales of
Zoran's Dolby AC-3 digital audio decoders, which are used in home audio
equipment and DVD players. Although sales of these products were up
substantially from the prior period, there have been delays in the development
of the DVD market, and there still is uncertainty regarding the timing of volume
production and shipment of DVD players. Unit sales of Zoran's JPEG-based
products also increased over the prior period, contributing to the increase in
revenues. Product sales for the nine months ended September 30, 1996 also
reflected revenue from an advance payment deferred in prior periods and
recognized in the third quarter of 1996 upon the completion of a multi-year
sales program with one of Zoran's strategic partners. Sales to Fujifilm, Zoran's
strategic partner and distributor in Japan, as well as an OEM customer,
accounted for 38% of product sales for the nine months ended September 30, 1996,
compared to 2% of product sales in the comparable period in 1995. Zoran's next
two largest customers accounted for an aggregate of 27% of product sales for the
nine months ended September 30, 1996, compared to 8% in the comparable period in
1995. Fast accounted for 8% of product sales in the nine months ended September
30, 1996, compared to 45% in the 1995 period. Sales of Zoran's discontinued DFP
and VSP product lines, which were insignificant in the nine months ended
September 30, 1996, accounted for $1.5 million in product sales during the first
nine months of 1995, most of which occurred in the first quarter.
Development and licensing revenue for the nine months ended September 30,
1996 decreased slightly in absolute dollars compared to the same period in 1995
due to the completion of several development projects.
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<PAGE>
PRODUCT GROSS PROFIT. Product gross profit consists of product sales less
cost of product sales. Cost of product sales consists primarily of the cost of
material, fabrication costs, assembly and test costs and overhead from
operations. Product gross profit increased to $10.9 million in the nine months
ended September 30, 1996 from $6.1 million in the nine months ended September
30, 1995, an increase of 78%. Product gross margin was 43% for the nine months
ended September 30, 1996, compared to 49% for the comparable period in 1995.
Zoran's product gross margin is dependent on product mix and on the relative
percentage of products sold directly to Zoran's OEM customers and indirectly
through its marketing partners who purchase Zoran's products at lower prices but
absorb most of the associated marketing and sales support expenses. The decrease
in product gross margin in the nine months ended September 30, 1996 was
primarily due to higher volume sales of relatively lower priced, lower margin
Dolby AC-3-based products and the sale of an increased percentage of such
products to Fujifilm. The decrease in product gross margin was partially offset
by the revenues recognized upon the completion of the multi-year sales program
with a strategic partner. Without the benefit of these revenues, product gross
margin for the nine months ended September 30, 1996 would have been 41%. Product
gross margin was positively impacted in the nine months ended September 30, 1995
by sales of high margin, "end-of-life" DFP and VSP products, primarily in the
first quarter. Zoran expects product and customer mix to continue to fluctuate
in future periods. In the near term, Zoran believes that the proportion of its
product sales represented by lower priced Dolby AC-3 products sold indirectly
through Fujifilm will continue to be high, placing continued pressure on product
gross margin.
RESEARCH AND DEVELOPMENT. Research and development ("R&D") expenses
primarily consist of salaries and related costs of employees engaged in ongoing
research, design and development activities and costs of engineering materials
and supplies. R&D expenses increased to $3.7 million in the nine months ended
September 30, 1996 from $3.0 million in the nine months ended September 30,
1995, an increase of 23%. The amount for the nine months ended September 30,
1996 was net of reimbursements in the amount of $182,000, compared to $200,000
for the comparable period in 1995, under product development agreements with the
Chief Scientist entered into in September 1994. As a percentage of total
revenues, R&D expenses decreased to 14% for the nine months ended September 30,
1996 from 22% for the comparable period in 1995. This decrease reflected
increased revenues. Zoran continues to believe that significant investments in
R&D are required to remain competitive, and anticipates that such expenses in
terms of absolute dollars will increase in future periods, although such
expenses as a percentage of total revenues may fluctuate.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
("SG&A") expenses consist primarily of employee-related expenses, product
promotion and other professional services. SG&A expenses increased to $6.0
million in the nine months ended September 30, 1996 from $3.8 million in the
nine months ended September 30, 1995, an increase of 58%. As a percentage of
total revenues, SG&A expenses decreased to 23% for the nine months ended
September 30, 1996 from 28% for the comparable period in 1995. The increase in
absolute dollars for the nine months ended September 30, 1996 was due primarily
to increased administrative expenses associated with Zoran's status as a
publicly-traded company, increased sales and marketing expenses to support
increased sales levels and increased royalties and commissions related to higher
product sales. Zoran expects that SG&A expenses will continue to increase in
order to support its growth.
INTEREST AND OTHER INCOME (EXPENSE), NET. Net interest and other income and
expense resulted in net other income of $731,000 for the nine months ended
September 30, 1996, compared to net other expenses of $203,000 in the comparable
period of 1995. Interest expense decreased due to the use of proceeds from the
initial public offering of the Company's Common Stock (the "IPO") in December
1995 to repay short-term debt. Interest income increased due to the investment
of the IPO proceeds, including proceeds from the January 1996 exercise of the
underwriters' over-allotment option.
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PROVISION FOR INCOME TAXES. The provision for income taxes increased to
$335,000 for the nine months ended September 30, 1996 from $126,000 for the
comparable period in 1995. Zoran's estimated effective tax rate of 11% for the
1996 reflects alternative minimum tax on its domestic earnings and foreign
withholding taxes on intercompany royalties.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
REVENUES. Product sales increased to $18.1 million in 1995 from $6.2
million in 1994, an increase of 190%. JPEG-based product sales increased
reflecting an increase in unit sales volume and a 19% increase in ASPs, which
resulted from an increase in the proportion of sales made directly to OEMs as
opposed to distributors and a shift in product mix toward higher priced chip
sets with greater functionality. During 1994, sales to Fujifilm accounted for
60% of Zoran's JPEG-based product sales. Zoran made no sales of JPEG-based
products to Fujifilm in 1995. Sales of MPEG-based products, which Zoran began
shipping in the third quarter of 1994, increased in 1995 as a result of an
increase in unit sales volume. Unit sales of audio products increased
substantially in 1995 as Zoran expanded and improved its audio product line,
Dolby AC-3 gained increased acceptance as an audio compression standard and
Zoran's customers moved from the development to the production phase. Audio
product ASPs decreased in 1995 due to volume pricing and an increase in the
proportion of sales made directly to Fujifilm. Overall, sales to Fujifilm
accounted for 11% of Zoran's total revenues in 1995, including 5% of product
sales and 67% of development revenue, compared to 56% of total revenues in 1994,
including 44% of product sales and 97% of development revenue. These reductions
in revenues from Fujifilm were more than offset by increased product sales to
other customers during 1995. Sales of Zoran's DFP and VSP product lines were
$1.5 million in 1995, most of which occurred in the first quarter, compared to
$1.2 million in 1994, approximately half of which occurred in the fourth
quarter, as a result of "end of life" announcements with respect to these
products resulting in volume shipments.
Development revenue was $1.8 million for both 1995 and 1994. License revenue
totalled $150,000 in 1995 and related to certain of Zoran's DFP and VSP
products. Zoran had no license revenue in 1994.
PRODUCT GROSS PROFIT. Product gross margin improved to 49% in 1995 from 25%
in 1994. The improved product gross margin in 1995 resulted primarily from
increased ASPs for JPEG-based products, relatively stable overhead costs applied
to substantially higher sales volumes, manufacturing yield improvements,
continued cost reductions resulting from volume purchases by Zoran and increased
"end of life" sales of Zoran's discontinued DFP and VSP products.
RESEARCH AND DEVELOPMENT. R&D expenses decreased to $4.3 million in 1995
from $4.4 million in 1994, a decrease of 4%. R&D expenses for 1995 were net of
reimbursements in the amount of $200,000, compared to $549,000 for 1994, under
product development agreements with the Chief Scientist entered into in
September 1994. As a percentage of total revenues, R&D expenses decreased to 21%
for 1995 from 55% for 1994. This decrease reflected increased revenues combined
with personnel reductions related to the transfer of several R&D personnel to
Oren and a decrease in the number of manufacturing engineers as Zoran increased
its reliance on third party contractors to perform manufacturing engineering and
testing.
SELLING, GENERAL AND ADMINISTRATIVE. SG&A expenses increased to $5.4
million in 1995 from $3.9 million in 1994, an increase of 38%. As a percentage
of total revenues, SG&A expenses decreased to 27% in 1995 from 49% in 1994. The
increase in absolute dollars for 1995 was due primarily to increased commissions
and royalties related to higher product sales. Commissions to outside sales
representatives increased to $713,000 in 1995 from $112,000 in 1994. Royalty
expense related to Zoran's research and development agreements with the Chief
Scientist and BIRDF increased to $450,000 in 1995 from $166,000 in 1994.
Employee-related expenses also increased in 1995 as Zoran expanded its
infrastructure to support increased sales.
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<PAGE>
OPERATING INCOME (LOSS). Zoran had operating income of $1.1 million in
1995, compared to an operating loss of $5.0 million in 1994. Zoran's operating
profit in 1995 was due in part to "end of life" sales of its discontinued DFP
and VSP product lines, principally in the first quarter of 1995. Without these
"end of life" sales, Zoran would have sustained an operating loss for the
quarter ended March 31, 1995 and possibly for the year. However, increased sales
of Zoran's other product lines subsequent to March 31, 1995 more than offset
decreased sales of DFP and VSP products, and Zoran would have recorded operating
profits for the second, third and fourth quarters of 1995 without sales of these
products.
INTEREST AND OTHER EXPENSE. Net interest and other expense decreased to
$186,000 in 1995 from $232,000 in 1994, due to interest income earned on the
investment of the proceeds from warrant exercises in October 1995 and Zoran's
initial public offering of its Common Stock in December 1995 which more than
offset increased interest expense related to increased borrowings earlier in the
year.
PROVISION FOR INCOME TAXES. The provision for income taxes increased to
$189,000 in 1995 from $2,000 in 1994. The income tax provision for 1995 resulted
from alternative minimum tax on Zoran's distribution of its stock in Holdings to
Zoran's stockholders and on its domestic earnings and foreign withholding taxes
on intercompany royalties.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
REVENUES. Product sales increased to $6.2 million in 1994 from $2.0 million
in 1993, an increase of 205%. This increase was primarily the result of
increased unit sales of Zoran's JPEG-based product line, as well as the
introduction of Zoran's MPEG-based product line, which began shipment in the
third quarter of 1994. Zoran's principal strategic partner, Fujifilm, accounted
for approximately $2.0 million, or approximately 47%, of the increase in Zoran's
product sales in 1994. In addition, sales of Zoran's DFP and VSP product lines
increased to $1.2 million in 1994 from $1.0 million in 1993, as "end of life"
announcements with respect to these products resulted in volume shipments. ASPs
decreased in 1994 as a result of an increased proportion of sales to a
distributor at higher discounts than those offered in sales made directly to
manufacturers.
Development and license revenue decreased to $1.8 million from $2.6 million
in 1993, a decrease of 31%. This decrease was primarily the result of a decrease
in license fees resulting from the completion in 1993 of the final phase of a
multi-year licensing agreement with Zoran's major strategic partner.
PRODUCT GROSS PROFIT (LOSS). Product gross profit increased to $1.6 million
in 1994, compared to a loss of $557,000 in 1993. Product gross margins were 25%
in 1994, compared to (27)% in 1993. This improvement was primarily due to a
decrease in manufacturing overhead and the allocation of fixed overhead costs
over a larger sales volume. Reduced per unit manufacturing costs resulting from
manufacturing yield improvements over foundry-guaranteed minimum yields, and
continued cost reductions, resulting from volume purchases, also contributed to
this improvement.
RESEARCH AND DEVELOPMENT. R&D expenses decreased to $4.4 million in 1994
from $5.0 million in 1993, a decrease of 11%. These amounts were net of
reimbursement under product development agreements with the Chief Scientist and
BIRDF of $549,000 in 1994 and $334,000 in 1993. As a percentage of total
revenues, R&D expenses decreased to 55% in 1994 from 107% in 1993. The decrease
in R&D expenses was due primarily to personnel reductions related to the
transfer of several R&D personnel to Oren and Zoran's continuing efforts to
focus its resources on a smaller number of high volume consumer product lines.
The decrease in R&D expenses as a percentage of revenues was primarily due to
the increase in revenues.
SELLING, GENERAL AND ADMINISTRATIVE. SG&A expenses decreased to $3.9
million in 1994 from $4.6 million in 1993, a decrease of 14%. As a percentage of
total revenues, SG&A expenses decreased to 49% for 1994 from 97% in 1993. The
decrease in aggregate SG&A expenses was caused primarily by personnel reductions
in the sales and marketing area related to the closing of Zoran's office in
Japan and increased
72
<PAGE>
reliance on its Japanese distributor for sales in Japan, cost savings resulting
from Zoran's move of its European sales operations from the United States to
Israel and the transfer of one marketing employee to Oren.
INTEREST AND OTHER EXPENSE. Interest and other expense increased to
$232,000 in 1994 from $209,000 in 1993, primarily due to increased interest
expense related to increased borrowings.
PROVISION FOR INCOME TAXES. Income tax expense was $34,000 in 1993,
consisting primarily of a 10% Japanese withholding tax on license revenue.
LIQUIDITY AND CAPITAL RESOURCES
Until the IPO in December 1995, Zoran had financed its operations primarily
through private placements of equity securities and, to a lesser extent,
borrowings from banks and its stockholders. Prior to the IPO, net proceeds from
the sale of Zoran's equity securities aggregated $55.1 million. Net proceeds
from the IPO and the exercise of certain warrants in connection with the IPO
totaled $17.5 million. At December 31, 1995, Zoran had $20.5 million of cash and
cash equivalents and working capital of $19.5 million. In January 1996, Zoran's
underwriters exercised their over-allotment option resulting in additional
IPO-related proceeds of $3.5 million. At September 30, 1996, the Company had
$19.4 million of cash, cash equivalents and short-term investments.
Zoran's operating activities used cash of $3.2 million in nine months ended
September 30, 1996. Cash used in operating activities reflected changes in
working capital, partially offset by net income and depreciation and
amortization. The principal change in working capital during the nine month
period was an increase in accounts receivable of $7.1 million due primarily to a
significant portion of product sales being shipped late in the period and
delayed payments from a significant customer. Accounts receivable from this
customer represented 14% of total accounts receivable at September 30, 1996.
Subsequent to September 30, 1996, Zoran received approximately half of the
September 30, 1996 balance due from this customer and most of the remainder is
supported by promissory notes due by year end. There can be no assurance that
this remaining balance will be received. During the nine month period ended
September 30, 1996, Zoran's capital expenditures were $1.5 million and it repaid
long-term debt of $235,000.
Zoran believes that its current balances of cash, cash equivalents and
short-term investments, together with anticipated cash flow from operations,
will satisfy Zoran's anticipated working capital and capital equipment
requirements through 1997.
73
<PAGE>
MANAGEMENT
The directors and executive officers of Zoran are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- ---------------------------------------------------------
<S> <C> <C>
Levy Gerzberg, Ph.D.......... 51 President, Chief Executive Officer and Director
Meir Tsadik.................. 44 Vice President, Research and Development and Chief
Operating Officer
Ami Kraft.................... 53 Vice President, Finance and Chief Financial Officer
Isaac Shenberg, Ph.D......... 46 Vice President, Sales and Marketing
Paul R. Goldberg............. 51 Vice President, Systems Solutions
Uzia Galil................... 71 Director
Arie Kahana.................. 50 Director
James D. Meindl.............. 63 Director
Arthur B. Stabenow........... 58 Director
Philip M. Young.............. 56 Director
</TABLE>
Dr. Gerzberg was a co-founder of Zoran in 1981 and has served as its
President and Chief Executive Officer since December 1988 and as a director
since 1981. Dr. Gerzberg also served as President from 1981 to 1984. From 1985
to 1988, Dr. Gerzberg served as Zoran's Executive Vice President and Chief
Technical Officer. Prior to co-founding Zoran, Dr. Gerzberg was Associate
Director of Stanford University's Electronics Laboratory. Dr. Gerzberg holds a
Ph.D. in Electrical Engineering from Stanford University and an M.S. in Medical
Electronics and a B.S. in Electrical Engineering from the Technion-Israel
Institute of Technology (the "Technion") in Haifa, Israel.
Mr. Tsadik joined Zoran as Vice President, Research and Development and
Chief Operating Officer in January 1995. From 1980 to December 1994, Mr. Tsadik
was employed by National Semiconductor Corporation, a semiconductor
manufacturer, most recently as Director of Research and Development and Site
Manager of its Israel Design Center. Mr. Tsadik holds a M.S. in Computer Science
from the Weizmann Institute of Science and a B.S. in Electrical Engineering from
the Technion.
Mr. Kraft joined Zoran as Vice President, Finance and Chief Financial
Officer in March 1994. From 1972 to 1985 and again from 1987 to February 1994,
Mr. Kraft served as Deputy Managing Director of Finance and Administration of
Kulicke & Soffa (Israel), a semiconductor equipment company. Mr. Kraft served as
International Controller of Kulicke & Soffa USA from 1985 to 1987. Mr. Kraft
graduated from Haifa University with a major in finance and accounting.
Dr. Shenberg has served as Vice President, Sales and Marketing of Zoran
since January 1995. From August 1990 to January 1995, Dr. Shenberg served as
Zoran's Product Line Business Manager. Dr. Shenberg holds a Ph.D. in Electrical
Engineering from Stanford University and a M.S. and B.S. in Electrical
Engineering from the Technion.
Mr. Goldberg joined Zoran as Vice President, Systems Solutions in June 1996.
From April 1991 to June 1996, Mr. Goldberg served as film products group leader
at Dolby Laboratories, Inc. From 1988 to 1990, Mr. Goldberg was Director of the
Tandy Electronic Research Center. From 1979 to 1988, Mr. Goldberg was employed
by Wavetek Incorporated and its spin-off, Advanced Image Data ("AID"), most
recently as Vice President of Research and Development and Market Development of
AID. Prior thereto, Mr. Goldberg was employed by Smith Kline Instruments, most
recently as Director of Biomedical Research and Development. Mr. Goldberg holds
a B.S. in Electrical Engineering from the University of Minnesota.
Mr. Galil has been a director of Zoran since 1983 and has served as Chairman
of the Board of Directors since October 1993. Mr. Galil is Chairman of the Board
of Directors of Elron Electronic
74
<PAGE>
Industries Ltd. ("Elron"), an Israeli high technology holding company, and has
been its president and Chief Executive Officer since its formation in 1962. Mr.
Galil has also served as Chairman of the Board of Directors of Elbit Ltd.
("Elbit"), an affiliate of Elron which develops, manufactures and markets
advanced computer-based electronic imaging systems and products for medical
imaging, defense, communications, and multimedia applications, since January
1981, as Chairman of the Executive Committee of Elbit's Board of Directors from
1978 to 1985 and President of Elbit from 1978 to 1985. Mr. Galil was reappointed
as Chairman of Elbit's Executive Committee in May 1986. Mr. Galil also serves as
a director of the Executive Committee of Elscint Ltd., a manufacturer of
computer-based medical diagnostic imaging systems, and as a member of the Board
of Directors of Opal, Inc., Orbotech Ltd. and NetManage Inc. From 1980 to 1990,
Mr. Galil served as Chairman of the International Board of Governors of the
Technion. Mr. Galil has been a member of the advisory committee of the Bank of
Israel since 1991. Mr. Galil holds a M.S. in Electrical Engineering from Purdue
University and a B.S. from Technion. Mr. Galil has also been awarded an honorary
doctorate in technical sciences by the Technion in recognition of his
contribution to the development of science-based industries in Israel, and
honorary doctorate in philosophy by the Weizmann Institute of Science and an
honorary doctorate in engineering by Polytechnic University, New York. Mr. Galil
is also a past recipient of the Israel Industry Prize.
Mr. Kahana has been a director of Zoran since January 1996. Mr. Kahana has
served as Vice President, Business Development--Technology of The Israel
Corporation Ltd., an Israeli investment company, since February 1993. From
January 1991 through January 1993, Mr. Kahana worked at ELOR Optironics Ltd. as
its President and Chief Executive Officer. Mr. Kahana also serves on the Board
of Directors of Tower Semiconductor Ltd., a semiconductor manufacturing company,
RDC Communications, a wireless local area network company, Idan Cable, a cable
television company, VideoSonic, a video post-production services company, and
RAPAC, a systems manufacturing and distribution company. Mr. Kahana holds an
M.B.A. from the Tel-Aviv University and a B.S. in Electrical Engineering from
the Technion.
Professor Meindl has been a director of Zoran since March 1986. Professor
Meindl has been a professor of microelectronics at Georgia Institute of
Technology since November 1993. From September 1986 to November 1993, Professor
Meindl served as Provost and Senior Vice President of Academic Affairs at
Rensselaer Polytechnic Institute. Prior thereto, Professor Meindl was a
professor of electrical engineering and Director of the Stanford Electronics
Laboratory and Center for Integrated Systems at Stanford University. Professor
Meindl is also a director of SanDisk, Inc. and Digital Microwave.
Mr. Stabenow has been a director of Zoran since November 1990. Mr. Stabenow
has served as Chief Executive Officer of Micro Linear Corporation, a
semiconductor company, since March 1986, and as Chairman of the Board of that
company since August 1989.
Mr. Young has been a director of Zoran since January 1986. Mr. Young has
been a general partner of U.S. Venture Partners, a venture capital firm, since
April 1990. Mr. Young is also a director of The Immune Response Corporation,
FemRx, Inc., CardioThoracic Systems, Inc. and Vical Incorporated.
Elron and The Israel Corporation Ltd. have entered into a stockholders
agreement (the "Stockholders Agreement") under which they have agreed to confer
and act in concert with regard to matters coming before the stockholders of
Zoran, including voting for each other's nominee as a director of Zoran. They
have also agreed to use their best efforts to ensure that certain actions of the
Board of Directors do not take place without both parties' consent. The
Stockholders Agreement expires in December 1998 but can be terminated earlier by
either party upon 90 days' notice.
75
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to Zoran relating
to the beneficial ownership of Zoran Common Stock, as of October 31, 1996, by:
(i) each person who is known by Zoran to be the beneficial owner of more than 5%
of the outstanding shares of Common Stock; (ii) Zoran's Chief Executive Officer
and the three other most highly-compensated executive officers of Zoran whose
salary and bonus for the year ended December 31, 1995 exceeded $100,000; (iii)
each director of Zoran; and (iv) all directors and executive officers of Zoran
as a group:
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY
NAME AND ADDRESS OWNED(1) PERCENT(1)
- ------------------------------------------------------------ -------------------- -------------
<S> <C> <C>
Elron Electronic Industries Ltd. (2) ....................... 1,490,965 21.2%
Advanced Technology Center
P.O. Box 1513
Haifa 31015, Israel
The Israel Corporation, Ltd. (3) ........................... 1,336,439 19.0%
Asia House, 4, Weizman Street
Tel Aviv 64239, Israel
Levy Gerzberg, Ph.D. (4) ................................... 400,064 5.4%
c/o Zoran Corporation
2041 Mission College Blvd.
Santa Clara, CA95054
Meir Tsadik (5)............................................. 112,488 1.6%
Isaac Shenberg, Ph.D. (6)................................... 82,280 1.2%
Ami Kraft (7)............................................... 54,792 *
Arthur B. Stabenow (8)...................................... 24,747 *
Uzia Galil (9).............................................. 16,449 *
James D. Meindl, Ph.D. (10)................................. 15,513 *
Arie Kahana (11)............................................ 15,166 *
Philip M. Young (12)........................................ 6,325 *
All directors and executive officers as a group (10 persons) 727,824 9.4%
(13)......................................................
</TABLE>
- ------------------------
* Represents less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of Zoran Common Stock subject to options held by that person that are
currently exercisable, or will become exercisable within 60 days after
October 31, 1996, are deemed outstanding. Such shares, however, are not
deemed outstanding for purposes of computing the percentage ownership of any
other person. In general, options granted under Zoran's 1993 Stock Option
Plan are fully exercisable from the date of grant, subject to Zoran's right
to repurchase any unvested shares at the original exercise price in the
event of termination of the optionee's employment. Unless otherwise
indicated in the footnotes to this table, the persons and entities named in
the table have sole voting and sole investment power with respect to all
shares beneficially owned, subject to community property laws where
applicable.
(2) Mr. Galil, a director of Zoran, is Chairman of the Board, President and
Chief Executive Officer of Elron. Excludes 1,336,439 shares held by The
Israel Corporation Ltd. which Elron may be deemed to beneficially own as a
result of the Stockholders Agreement, but as to which Elron disclaims
beneficial ownership.
76
<PAGE>
(3) Mr. Kahana, a director of Zoran, is Vice President of Business,
Development--Technology of the Israel Corporation Ltd. Shoul N. Eisenberg
and Erwin D. Eisenberg are Chairman of the Board and President and Chief
Executive Officer, respectively, of The Israel Corporation Ltd. In such
capacities, the foregoing individuals may be deemed to have voting and
investment control with respect to these shares. Excludes 1,490,965 shares
held by Elron which The Israel Corporation Ltd. may be deemed to
beneficially own as a result of the Stockholders Agreement, but as to which
The Israel Corporation Ltd. disclaims beneficial ownership.
(4) Includes 383,823 shares subject to stock options that are currently
exercisable, of which 301,184 shares will be vested within 60 days after
October 31, 1996.
(5) Includes 112,222 shares subject to stock options that are currently
exercisable, of which 57,708 shares will be vested within 60 days after
October 31, 1996.
(6) Includes 81,964 shares subject to stock options that are currently
exercisable, of which 57,857 shares will be vested within 60 days after
October 31, 1996.
(7) Includes 54,512 shares subject to stock options that are currently
exercisable, of which 40,445 shares will be vested within 60 days after
October 31, 1996.
(8) Includes 14,166 shares subject to stock options that are currently
exercisable, all of which shares will be vested within 60 days after October
31, 1996.
(9) Includes 3,008 shares held by Ella Galil. Mr. Galil and Ella Galil are
husband and wife. Mr. Galil may be deemed to be a beneficial owner of shares
held by Ella Galil, although Mr. Galil disclaims beneficial ownership of
such shares. Also incudes 5,000 shares subject to stock options that are
currently exercisable, all of which shares are fully vested. Excludes
1,490,965 shares held by Elron. Mr. Galil is Chairman of the Board,
President and Chief Executive Officer of Elron and may be deemed to be a
beneficial owner of shares held by it, although Mr. Galil disclaims
beneficial ownership of such shares.
(10) Includes 1,176 shares held by James and Frederica Meindl as trustees of the
Meindl Trust dated February 4, 1972. Also includes 14,166 shares subject to
stock options that are currently exercisable, all of which shares will be
vested within 60 days after October 31, 1996.
(11) Includes 14,166 shares subject to stock options that are currently
exercisable, all of which shares will be vested within 60 days after October
31, 1996. Excludes 1,336,439 shares held by The Israel Corporation Ltd. Mr.
Kahana is Vice President, Business Development--Technology of The Israel
Corporation Ltd. and may be deemed to be a beneficial owner of shares held
by it, although Mr. Kahana disclaims beneficial ownership of such shares.
(12) Includes 6,266 shares subject to stock options that are currently
exercisable, all of which shares will be vested within 60 days after Octobet
31, 1996.
(13) Includes 686,285 shares subject to stock options that are currently
exercisable, of which 510,958 shares will be vested within 60 days after
October 31, 1996. Excludes shares held by Elron and The Israel Corporation
Ltd. which may be deemed to be beneficially owned by Messrs. Galil and
Kahana, respectively, but as to which such persons disclaim beneficial
ownership. See footnotes (2), (3), (9) and (11) above.
77
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth information concerning the compensation
received for services rendered to Zoran during the years ended December 31, 1994
and 1995 by the Chief Executive Officer of Zoran and the three other most highly
compensated executive officers of Zoran whose total salary and bonus for such
fiscal year exceeded $100,000 (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION OPTIONS
------------------------ GRANTED ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS (SHARES) COMPENSATION
- --------------------------------- ---- ---------- --------- ------------ -------------------
<S> <C> <C> <C> <C> <C>
Levy Gerzberg, Ph.D.............. 1995 $ 190,866 $40,000 116,666 $876(2)
President and Chief Executive 1994 $ 175,000 -- 293,385 $983(2)
Officer
Meir Tsadik (3).................. 1995 $ 127,119 $40,000 117,222 $23,574(4)
Vice President, Research and
Development and Chief
Operating Officer
Isaac Shenberg, Ph.D. (5)........ 1995 $ 110,239 $50,000 -- $19,435(6)
Vice President, Sales and
Marketing
Ami Kraft........................ 1995 $ 96,808 $20,000 -- $20,520(7)
Vice President, Finance and 1994 $ 79,086 -- 58,612 $16,554(8)
Chief Financial Officer
</TABLE>
- ------------------------
(1) Includes amounts (if any) deferred under Zoran's 401(k) Plan.
(2) Represents premiums paid by Zoran with respect to term life insurance for
the benefit of Dr. Gerzberg.
(3) Mr. Tsadik was elected as an officer of Zoran in January 1995.
(4) Includes $19,935 in premiums paid by Zoran under an insurance policy that
covers certain vacation, severance and other benefits that may be payable to
Mr. Tsadik and $3,639 in contributions by Zoran toward a continuing
education fund for his benefit.
(5) Dr. Shenberg was elected as an officer of Zoran in January 1995.
(6) Includes $15,796 in premiums paid by Zoran under an insurance policy that
covers certain vacation, severance and other benefits that may be payable to
Dr. Shenberg and $3,639 in contributions by Zoran toward a continuing
education fund for his benefit.
(7) Includes $16,881 in premiums paid by Zoran under an insurance policy that
covers certain vacation, severance and other benefits that may be payable to
Mr. Kraft and $3,639 in contributions by Zoran toward a continuing education
fund for his benefit.
(8) Includes $12,654 in premiums paid by Zoran under an insurance policy that
covers certain vacation, severance and other benefits that may be payable to
Mr. Kraft and $3,900 in contributions by Zoran toward a continuing education
fund for his benefit.
78
<PAGE>
OPTION GRANTS
The following table sets forth information concerning grants of options to
purchase Zoran Common Stock made during the year ended December 31, 1995 to the
Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF
----------------------------------------------------- STOCK PRICE
NUMBER OF % OF TOTAL APPRECIATION
SHARES OPTIONS FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(1)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ---------------
NAME GRANTED(2) 1995 SHARE(3) DATE 5% 10%
- --------------------------- ----------- ------------ ----------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Levy Gerzberg, Ph.D........ 116,666(4) 40% $10.63 10/13/05 $779,930 $1,976,495
Meir Tsadik................ 12,556(5) 4% $ 0.15 12/01/04 $1,184 $ 3,002
104,666(4) 36% $ 0.15 03/15/05 $9,773 $24,717
Isaac Shenberg, Ph.D....... -- -- -- -- -- --
Ami Kraft.................. -- -- -- -- -- --
</TABLE>
- ------------------------
(1) Potential realizable values are net of the exercise price but before taxes
associated with the exercise. Amounts represent hypothetical gains that
could be achieved for the respective options if exercised at the end of the
option term. The assumed 5% and 10% rates of stock price appreciation are
provided in accordance with the rules of the Commission and do not represent
Zoran's estimate or projection of the future Common Stock price. Actual
gains, if any, on stock option exercises are dependant on the future
financial performance of Zoran, overall market conditions and the option
holders' continued employment through the vesting period.
(2) All options granted in 1995 are fully exercisable, subject to Zoran's right
to repurchase any unvested shares at the original exercise price in the
event of the optionee's termination.
(3) All options were granted at the fair market value of the Common Stock on the
date of grant, as determined by the Board of Directors of Zoran or, in the
case of the options granted to Dr. Gerzberg as reported on the Nasdaq
National Market.
(4) The options (or shares issued upon exercise thereof) vest at the rate of 1/4
of the shares one year from the date of grant and 1/48 of the shares monthly
thereafter.
(5) The options (or shares issued upon exercise thereof) vest in equal monthly
installments over a period of four years from the date of grant, subject to
acceleration upon the exercise of certain warrants issued in July 1994 for
an aggregate of 505,079 shares of Common Stock (the "1994 Warrants").
Vesting is accelerated in the same proportion that the number of shares
issued upon exercise of the 1994 Warrants from time to time bears to the
number of shares issuable upon exercise of all of the 1994 Warrants. All of
the 1994 Warrants have been exercised.
79
<PAGE>
OPTION EXERCISES AND YEAR-END HOLDINGS
The following table sets forth information concerning the stock options held
as of December 31, 1995 by the Named Executive Officers. None of the Named
Executive Officers exercised any options during the fiscal year ended December
31, 1995:
AGGREGATE OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED IN-THE- MONEY
UNEXERCISED OPTIONS AT
DECEMBER 31, 1995 OPTIONS AT DECEMBER 31, 1995(1)
--------------------------- ---------------------------------------
NAME EXERCISABLE(2) UNEXERCISABLE EXERCISABLE(2) UNEXERCISABLE
- --------------------------- ------------ ------------ ---------------- --------------------
<S> <C> <C> <C> <C>
Levy Gerzberg, Ph.D........ 410,052 -- 7,2$24,995 --
Meir Tsadik................ 117,222 -- 2,4$14,773 --
Isaac Shenberg, Ph.D....... 88,232 -- 1,8$17,579 --
Ami Kraft.................. 58,612 -- 1,2$07,407 --
</TABLE>
- ------------------------
(1) Based on the closing price of $20.75, as reported on the Nasdaq National
Market on December 29, 1995, less the exercise price.
(2) All options are fully exercisable, subject to Zoran's right to repurchase
any unvested shares at the original exercise price in the event of the
optionee's termination. Options (or shares issued upon exercise thereof)
vest over periods of two to four years from the date of grant.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of Uzia Galil, Arie Kahana and
Arthur B. Stabenow. Messrs. Galil and Stabenow have entered into certain
material transactions with Zoran, and Messrs. Galil and Kahana are executive
officers of Elron and The Israel Corporation Ltd., respectively, each of which
has also entered into certain material transactions with Zoran. See "--Certain
Transactions."
DIRECTOR COMPENSATION
Directors do not receive cash compensation for their services as members of
the Board of Directors.
Zoran has entered into a Professional Services Agreement with James Meindl,
pursuant to which Professor Meindl provides consulting services to Zoran. Under
this Agreement, Zoran pays Professor Meindl consulting fees of $2,500 per
quarter.
In December 1994, Zoran granted Professor Meindl an option to purchase 9,166
shares of Common Stock under Zoran's 1993 Stock Option Plan at an exercise price
of $0.15 per share. In May 1995, Zoran granted Mr. Stabenow an option to
purchase 9,166 shares of Common Stock under the 1993 Stock Option Plan at an
exercise price of $0.60 per share. These options are immediately exercisable
subject to Zoran's right to repurchase unvested shares at the original price
upon the optionee's termination as a director. The options (or shares issued
upon exercise thereof) were vested as to 4,583 shares at the date of grant, with
the remaining portions vesting in equal monthly installments over two years from
the date of grant. These options expire in December 2004.
Zoran's 1995 Outside Directors Stock Option Plan (the "Directors Plan")
provides for formula-based grants of options to non-employee directors. Under
the Directors Plan, each current non-employee director of Zoran was granted a
nonstatutory stock option to purchase 20,000 shares of Common Stock (an "Initial
Option") on December 15, 1995, the date of Zoran's initial public offering, and
each new nonemployee director of Zoran will automatically be granted an Initial
Option on the date on which such
80
<PAGE>
person first becomes a non-employee director of Zoran. Thereafter, on the date
immediately following each annual stockholders' meeting, each non-employee
director who is reelected at the meeting to an additional term shall be granted
an additional option to purchase 4,800 shares of Common Stock (an "Annual
Option") if, on such date, he shall have served on the Board of Directors for at
least six months. The Directors Plan provides that each Initial Option shall
become exercisable in installments as to one-fourth of the total number shares
subject to the option on each of the first, second, third and fourth
anniversaries of the date of grant, and each Annual Option shall become
exercisable in full one year after the date of grant, subject to the director's
continuous service. The exercise price per share of all options granted under
the Directors Plan shall be equal to the fair market value of a share of Zoran's
Common Stock on the date of grant. Options granted under the Directors Plan have
a term of 10 years.
CERTAIN TRANSACTIONS
SERIES K PREFERRED STOCK FINANCING; EARLY WARRANT EXERCISE PROGRAM
In February and March 1993, Zoran sold $3 million aggregate principal amount
of its 10% Senior Convertible Promissory Notes (the "1993 Notes") to certain of
its stockholders. The 1993 Notes bore interest at 10% per annum, were secured by
all of Zoran's assets and were convertible at the option of the holder into the
form of equity securities of Zoran to be issued in Zoran's next equity financing
resulting in aggregate gross proceeds of at least $6 million ("1993
Securities"). The purchasers of the 1993 Notes also received warrants (the "1993
Warrants") to purchase additional 1993 Securities at an exercise price equal to
the purchase price at which 1993 Securities were to be sold in the applicable
equity financing. Each of the 1993 Warrants was exercisable for 1993 Securities
having an aggregate exercise price equal to the face amount of the 1993 Note
that accompanied the issuance of such warrant. The 1993 Warrants thereafter
became exercisable for Zoran's Series K Preferred Stock at an exercise price of
$9.00 per share, as described below. The 1993 Warrants expire in July 1998. The
investors in this financing included the following officers and directors of
Zoran and holders of 5% or more of the outstanding Zoran Common Stock:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF
1993 NOTES AND
AGGREGATE EXERCISE SHARES SUBJECT
PRICE OF 1993 TO 1993
NAME WARRANTS WARRANTS (1)
- -------------------------------------------------------------- --------------------- ----------------
<S> <C> <C>
Elron(2)...................................................... $ 1,000,000 111,111
Uzia and Ella Galil........................................... $ 30,000 3,333
Levy Gerzberg, Ph.D........................................... $ 12,000 1,333
James D. Meindl, Ph.D......................................... $ 2,000 222
</TABLE>
- ------------------------
(1) As adjusted upon issuance of Series K Preferred Stock, as described
below.
(2) Uzia Galil, a director of Zoran, is Chairman of the Board and Chief
Executive Officer of Elron.
In July 1993, Zoran effected a recapitalization in which (i) all outstanding
Zoran Common Stock was subject to a 1-for-200 reverse stock split, (ii) all
outstanding Preferred Stock of Zoran was subject to a 1-for-10 reverse stock
split, (iii) the liquidation preference of the Preferred Stock was reduced from
$30.00 per share (as adjusted for the recapitalization) to $9.00 per share and
(iv) the right of holders of Zoran's Preferred Stock to participate in a
distribution of Zoran's assets upon liquidation (after payment of the foregoing
liquidation preference) was eliminated. The following table shows, with respect
to each officer,
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director and holder of 5% or more of the outstanding Zoran Common Stock, the
number of shares of Common Stock and Preferred Stock held by each such
stockholder before and after the recapitalization:
<TABLE>
<CAPTION>
SHARES HELD SHARES HELD
IMMEDIATELY BEFORE IMMEDIATELY AFTER
RECAPITALIZATION RECAPITALIZATION
---------------------- ----------------------
NAME COMMON PREFERRED COMMON PREFERRED
- ---------------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Elron............................................... 2,405,603 2,114,450 12,028 211,445
Levy Gerzberg, Ph.D................................. 257,299 43,333 1,286 4,333
Uzia and Ella Galil................................. 52,051 35,056 260 3,505
James D. Meindl, Ph.D............................... 42,625 6,231 213 623
Philip M. Young..................................... 11,931 13,303 60 1,330
</TABLE>
In July and August 1993, Zoran sold an aggregate of 944,124 shares of its
Series K Preferred Stock ("Series K Shares"), at a purchase price of $9.00 per
share, and warrants to purchase an additional 236,008 Series K Shares, at an
exercise price of $9.00 per share expiring in July 1998 (the "Series K
Warrants"). In connection with such transaction, the 1993 Notes were converted
into Series K Shares and the 1993 Warrants became exercisable for Series K
Shares at an exercise price of $9.00 per share. The investors in this financing
included the following officers and directors of Zoran and holders of 5% or more
of the outstanding Zoran Common Stock:
<TABLE>
<CAPTION>
SERIES K SHARES SUBJECT TO
NAME SHARES SERIES K WARRANTS
- -------------------------------------------------------------------------- --------- -----------------
<S> <C> <C>
The Israel Corporation Ltd. (1)........................................... 398,666 99,666
Elron..................................................................... 149,406 37,351
Uzia and Ella Galil....................................................... 3,482 870
Arthur B. Stabenow........................................................ 1,500 375
Levy Gerzberg, Ph.D....................................................... 1,392 348
James D. Meindl, Ph.D..................................................... 232 58
</TABLE>
- ------------------------
(1) Arie Kahana, a director of Zoran, is Vice President, Business
Development--Technology of The Israel Corporation Ltd.
In October 1995, Zoran offered holders of outstanding 1993 Warrants and
Series K Warrants the right, during a period ended October 23, 1995, to exercise
such warrants at an exercise price reduced by 10% to $8.10 per share. In
response to such offer, warrant holders exercised 1993 Warrants and Series K
Warrants for the purchase of an aggregate of 374,967 Series K Shares, resulting
in aggregate proceeds to Zoran of approximately $3 million, including officers
and directors of Zoran and holders of 5% or more of the outstanding Zoran Common
Stock who exercised warrants to purchase the following numbers of Series K
Shares:
<TABLE>
<CAPTION>
SERIES K
NAME SHARES
- ----------------------------------------------------------------------------------- ---------
<S> <C>
Elron.............................................................................. 148,462
The Israel Corporation Ltd......................................................... 99,666
Uzia and Ella Galil................................................................ 4,203
Levy Gerzberg, Ph.D................................................................ 1,681
Arthur B. Stabenow................................................................. 375
James D. Meindl, Ph.D.............................................................. 58
</TABLE>
The Series K Shares were converted to Zoran Common Stock upon the closing of
Zoran's initial public offering in December 1995.
The holders of Zoran Common Stock issued upon conversion or exercise of
Series K Shares, 1993 Warrants and Series K Warrants are entitled to certain
registration rights pursuant to an Amended and
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Restated Stock Rights Agreement dated July 30, 1993, as amended (the "Rights
Agreement"). See "Description of Zoran Capital Stock -- Registration Rights."
SERIES L PREFERRED STOCK FINANCING
In July and August 1994, Zoran sold approximately $1.5 million aggregate
principal amount of its 9% Secured Convertible Promissory Notes (the "1994
Notes") to certain of its stockholders. The 1994 Notes bore interest at 9% per
annum, were secured by all of Zoran's assets and were convertible into the form
of equity securities of Zoran to be issued in Zoran's next equity financing
resulting in aggregate gross proceeds of at least $1 million ("1994
Securities"). The purchasers of the 1994 Notes also received warrants (the "1994
Warrants") to purchase additional 1994 Securities at an exercise price equal to
the purchase price at which 1994 Securities were to be sold in the applicable
equity financing. Each of the 1994 Warrants was exercisable for 1994 Securities
having an aggregate exercise price equal to 50% of the face amount of the 1994
Note that accompanied the issuance of such warrant. The 1994 Warrants thereafter
became exercisable for Zoran's Series L Preferred Stock, at an exercise price of
$1.50 per share, as described below. All of the 1994 Warrants were exercised
prior to their scheduled expiration in July 1996. The investors in this
financing included the following officers and directors of Zoran and holders of
5% or more of the outstanding Zoran's Common Stock:
<TABLE>
<CAPTION>
AGGREGATE SHARES SUBJECT
PRINCIPAL EXERCISE PRICE OF TO 1994
NAME AMOUNT OF NOTES 1994 WARRANTS WARRANTS (1)
- --------------------------------------------------- --------------- ----------------- --------------
<S> <C> <C> <C>
Elron.............................................. $ 600,000 $ 300,000 200,000
The Israel Corporation Ltd......................... $ 600,000 $ 300,000 200,000
Levy Gerzberg, Ph.D................................ $ 5,000 $ 2,500 1,666
Arthur B. Stabenow................................. $ 2,000 $ 1,000 666
</TABLE>
- ------------------------
(1) As adjusted upon issuance of Series L Preferred Stock, as described
below.
In September and November 1994, Elron made loans to Zoran in the amounts of
$240,000 and $120,000, respectively, in exchange for promissory notes bearing
interest at 9% per annum and convertible into shares of Zoran's Series L
Preferred Stock in the transaction described below.
In November 1994, Zoran sold an aggregate of 2,004,122 shares of its Series
L Preferred Stock ("Series L Shares") at a purchase price of $1.50 per share. In
connection with such transaction, the 1994 Notes and the additional promissory
notes issued to Elron in September and November 1994 were converted into Series
L Shares, and the 1994 Warrants became exercisable for Series L Shares at an
exercise price of $1.50 per share. The investors in this financing included the
following officers, directors and holders of 5% or more of Zoran's Common Stock:
<TABLE>
<CAPTION>
NAME SERIES L SHARES
- --------------------------------------------------------------------------------------- ---------------
<S> <C>
Elron.................................................................................. 812,624
The Israel Corporation Ltd............................................................. 678,108
Arthur B. Stabenow..................................................................... 8,040
Levy Gerzberg, Ph.D.................................................................... 3,424
</TABLE>
The Series L Shares were converted to Zoran Common Stock upon the closing of
Zoran's initial public offering in December 1995.
The holders of Zoran Common Stock issued upon conversion or exercise of
Series L Shares and the additional shares issued upon exercise of the 1994
Warrants are entitled to certain registration rights pursuant to the Rights
Agreement. See "Description of Zoran Capital Stock -- Registration Rights."
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<PAGE>
SPIN-OFF OF INTEREST IN JOINT VENTURE
In October 1994, Zoran contributed technology relating to the Joint Venture
and to the Joint Venture's subsidiary, Oren, and an unrelated third party
contributed cash, each in exchange for a 50% interest in the Joint Venture.
Since the organization of the Joint Venture, efforts relating to the development
and marketing of ghost cancellation products have been conducted by the Joint
Venture, through Oren. In September 1995, Zoran approved the transfer of its
interest in the Joint Venture, valued at $2.5 million, together with $100,000 in
cash, to a wholly-owned subsidiary, GCH, as GCH's initial capital and declared a
dividend to Zoran's stockholders (the "Distribution") of all of its stock in
GCH. Zoran has no ongoing financial obligations in connection with the Joint
Venture but remains obligated pursuant to certain representations, warran-ties
and covenants made to its joint venture partner in connection with the
organization of the Joint Venture, although it does not expect such obligations
to materially affect its business, operating results or financial condition. GCH
stock has been distributed to stockholders of record as of October 23, 1995
(other than certain stockholders who waived their right to receive the dividend
in order to avoid associated tax liability) on the basis of one share of common
or preferred stock of GCH for each like share of the comparable class and series
of Zoran's stock held by each stockholder on such date. In addition, options to
purchase shares of GCH Common Stock representing approximately 18% of the
outstanding stock of GCH have been issued to employees and consultants of Zoran
pro rata based on the number of shares of Common Stock subject to Zoran options
held by each optionee as of October 23, 1995. GCH options issued to employees
and consultants of Zoran are subject to vesting at the same rate as the Zoran
options to which such GCH options correspond. The following directors, officers
and holders of 5% or more of Zoran's Common Stock received the indicated amounts
of GCH stock and options in the Distribution:
<TABLE>
<CAPTION>
SHARES
SUBJECT
NAME SHARES TO OPTION
- -------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
Elron............................................................... 4,601,899 --
The Israel Corporation Ltd.......................................... 4,129,324 --
Levy Gerzberg, Ph.D................................................. 48,724 1,230,162
Isaac Shenberg, Ph.D................................................ -- 264,709
Meir Tsadik......................................................... -- 351,670
Ami Kraft........................................................... -- 175,840
Arthur B. Stabenow.................................................. 31,745 27,500
Uzia and Ella Galil................................................. 34,354 --
James D. Meindl, Ph.D............................................... 3,378 27,500
Philip M. Young..................................................... 4,169 1,266
</TABLE>
Levy Gerzberg, Zoran's President and Chief Executive Officer, and Ami Kraft,
Zoran's Vice President, Finance and Chief Financial Officer, currently serve on
the Boards of Directors of Oren and Holdings and act as managers of the Joint
Venture, and Zoran believes that they will continue to serve in these capacities
for the foreseeable future. Dr. Gerzberg also is currently acting as Co-Chief
Executive Officer of Oren and the Joint Venture and as Chief Executive Officer
of Holdings. Currently, these responsibilities are not requiring a material
amount of the time and attention of Dr. Gerzberg or Mr. Kraft. Oren intends to
hire a full-time chief executive officer prior to the commencement of volume
product shipments. However, should Oren experience delays in identifying and
hiring a permanent chief executive officer, or should Oren, Holdings or the
Joint Venture require the attention of senior management or the Board of
Directors, Dr. Gerzberg or Mr. Kraft may be required to devote substantial time
to the affairs of such company.
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<PAGE>
GENERAL
From 1993 to 1995, Zoran has sold DFP products to Elbit, for an aggregate
purchase price of $190,000. Elron is the holder of more than 10% of the
outstanding capital stock of Elbit.
From 1993 to 1994, Zoran purchased integrated circuit prototypes
manufactured for it by Chip Express Corporation ("Chip Express") for an
aggregate purchase price of $109,000. Elron is the holder of more than 10% of
the outstanding capital stock of Chip Express.
Zoran believes that all transactions between Zoran and its officers,
directors, principal stockholders and other affiliates have been and will be on
terms no less favorable to Zoran than could be obtained from unaffiliated
parties. All such future transactions will be approved by a majority of Zoran's
independent and disinterested directors.
For a description of the Stockholders Agreement between Zoran's two largest
stockholders, see "--Management."
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INFORMATION CONCERNING COMPCORE
BUSINESS
THE FOLLOWING SECTION INCLUDES A NUMBER OF FORWARD-LOOKING STATEMENTS WHICH
REFLECT COMPCORE'S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND FINANCIAL
PERFORMANCE. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND
UNCERTAINTIES, INCLUDING THOSE DESCRIBED UNDER "RISK FACTORS" AND ELSEWHERE IN
THIS JOINT PROXY STATEMENT/PROSPECTUS, THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM HISTORICAL RESULTS OR THOSE CURRENTLY ANTICIPATED. IN THIS JOINT
PROXY STATEMENT/PROSPECTUS, THE WORDS "ANTICIPATES," "BELIEVES," "EXPECTS,"
"INTENDS," "FUTURE" AND SIMILAR EXPRESSIONS IDENTIFY FORWARD-LOOKING STATEMENTS.
READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING
STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF.
CompCore is a provider of MPEG hardware and software products for processing
digital video and audio signals. CompCore provides design "cores" for MPEG 1 and
MPEG 2 video and audio decoder integrated circuits that are used by OEMs in the
manufacture of digital video and audio semiconductor chips. In addition,
CompCore offers a software version of its MPEG 1 decoder called "SoftPEG," which
runs on most standard PCs and workstations and enables end users to play MPEG 1
CDs without the use of specialized hardware.
STRATEGY
From its inception in 1993, CompCore has focused on designing integrated
circuit "cores" that can be integrated into chips manufactured and distributed
by its OEM customers, rather than designing and fabricating its own stand-alone
chips. This strategy has allowed CompCore to generate revenue from its hardware
technology without incurring expensive investments in custom chip design and
fabrication. Moreover, by offering its OEM customers complete,
ready-to-manufacture chip cores, CompCore believes that it can help its
customers accelerate the "time-to-market" of their products. CompCore has
initially focused its development efforts on MPEG decoder technology, which has
allowed CompCore to utilize its in-house technical expertise to take advantage
of a fast-growing emerging market.
CompCore also offers software-based compression products that provide a
lower-cost solution than those requiring specialized hardware. In order to
provide a complete range of solutions to the marketplace, CompCore engages in
parallel development of both hardware and software applications based on common
technology and algorithms.
CompCore believes that penetration of larger markets requires compatibility
among multiple industry vendors' products; therefore, a critical component of
CompCore's business strategy is to offer products that comply with established
industry standards. CompCore's personnel have been active participants in MPEG
standards organizations in an effort both to influence the development of
technical standards and to prepare for the implementation of products that
comply with these standards. Because new standards are often set by large
corporations as well as standards committees, CompCore has pursued strategic
relationships with, influential companies in the PC and consumer electronics
industries, including Intel Corporation ("Intel"), Matsushita Electrical
Industrial Co., Ltd. ("Matsushita"), Hitachi Limited ("Hitachi"), NEC
Corporation ("NEC"), Dolby and Microsoft Corporation ("Microsoft"). CompCore
believes that such relationships provide CompCore with the opportunity to
develop valuable product planning information which can be used to improve or
develop new products.
MARKETS
At present, CompCore is focusing on narrow product applications in the
following three markets: PC applications (video CD and DVD); stand-alone DVD
players; and TV set-top boxes. All of these markets share the same need for
low-cost compression solutions.
CompCore entered the market for PC products that run video CD with the
introduction of its MPEG 1 hardware decoder core in 1994. In early 1995,
CompCore introduced SoftPEG, its MPEG 1
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<PAGE>
software decoder product, which provided the PC market with a solution for video
CD playback at a cost significantly lower than hardware implementations.
Software compression products, together with the availability of more powerful
Intel Pentium processors, have gradually removed the requirement for specialized
MPEG 1 hardware for video CD playback on the PC.
DVD players are currently being implemented in two forms: (1) as a
stand-alone DVD players used in conjunction with home entertainment systems; and
(2) as DVD drives for use with personal computers. DVD devices use video
compression technology that complies with the MPEG 2 standard. CompCore
introduced its MPEG 2 hardware decoder core earlier this year. CompCore is also
developing an all-software compression solution for implementing DVD for the PC.
See "--Products."
TV set-top boxes are currently used to allow the television consumer to
access and watch hundreds of different channels. The TV set-top box industry
uses MPEG 2 as a standard. CompCore's MPEG 2 core is currently used by Hitachi
in the manufacture of chips for use in TV set-top boxes.
PRODUCTS
HARDWARE PRODUCTS
CompCore's hardware products consist of integrated circuit "cores" that can
be integrated into chips manufactured by CompCore's OEM customers. CompCore
introduced its MPEG 1 hardware decoder core in 1994 and its MPEG 2 hardware core
in 1996. CompCore believes that a significant advantage of offering complete,
ready-to-manufacture chip cores is that it allows CompCore's OEM customers to
accelerate the "time-to-market" of complete compression solutions. CompCore
concentrates its design resources on chip architectures that are optimized
specifically for MPEG 1 and MPEG 2 applications. CompCore believes that its MPEG
hardware designs have a smaller gate count and require less memory than
competing designs, resulting in integrated circuits that offer significantly
lower cost, lower power consumption, and higher performance.
SOFTWARE PRODUCTS
CompCore's MPEG 1 software decoder, SoftPEG, is designed to offer a low cost
MPEG 1 solution by generating high video and audio quality in a PC environment
without the need for additional hardware. CompCore licenses its SoftPEG software
to manufacturers of PCs, graphics chips and graphics cards, video CD publishers,
video game developers and software developers. Current versions of SoftPEG run
on Intel Pentium processors in the Windows environment. In addition to the
standard MPEG 1 format, SoftPEG plays Video CD 2.0, CD-I and Karaoke, which are
MPEG 1 formats with added functionality.
CompCore is also developing an all-software implementation of DVD for the
PC, "SoftDVD," which will require an Intel Pentium processor that supports the
multimedia extension ("MMX") instruction set, and a DVD drive. Intel's MMX
instruction set is specifically designed to efficiently handle multimedia
processing that previously has only been possible with DSP chips or specially
designed hardware. New PCs that implement these capabilities are expected to
ship in early 1997. SoftDVD will transform such PCs into DVD players at a lower
cost, since they will require no specialized MPEG 2 or Dolby AC-3 hardware.
SoundPEG is an audio-only version of SoftPEG which implements MPEG audio
decoding and is often bundled with MPEG 1 video chips. The combination of
hardware video and software audio offers a lower-cost solution for the personal
computer market.
CUSTOMERS
As of October 31, 1996, CompCore had licensed its hardware or software
technology to over 50 OEM customers, of which eight have licensed hardware cores
and account for approximately 50% of CompCore's annual revenues and of which
over 40 have licensed software to be integrated into and shipped with finished
products.
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<PAGE>
CompCore's largest customers have accounted for a substantial percentage of
its revenues, and sales to these large customers have varied materially from
year to year. In fiscal 1994, ATI Technologies, Inc. ("ATI"), Cirrus Logic, Inc.
("Cirrus") and Adaptec Corp. ("Adaptec") accounted for 47%, 26% and 17%,
respectively, of CompCore's total revenues. In fiscal 1995, NEC, Matrox
Graphics, Inc. ("Matrox"), Cirrus and Hitachi accounted for 22%, 15%, 13% and
11%, respectively, of CompCore's total revenues. In fiscal 1996, Hitachi, NEC,
Cirrus and Matrox accounted for 28%, 13%, 13% and 11%, respectively, of
CompCore's total revenues. There can be no assurance that CompCore will be able
to retain its key customers, that customers who have licensed CompCore
technology will introduce products based on that technology, that customers who
have introduced such products will be successful or that such customers will not
decrease their level of royalty-bearing sales. In addition, royalties paid by
these key licensees may fluctuate significantly from quarter to quarter. Any
development that would result in a substantial decrease or delay in sales by one
or more key licensees, including actions by competitors or technological
changes, could have a material adverse effect on CompCore's business, operating
results or financial condition. Any development that would affect the
collectibility of royalty payments from one or more key customers could have a
material adverse effect on CompCore's business, operating results or financial
condition.
SALES AND MARKETING
CompCore sells and markets its products throughout the world principally to
OEMs. Sales are made primarily by a direct sales force in North America and
through sales representatives in Japan, Korea, Taiwan, Singapore, and Europe.
CompCore has also engaged distributors in the U.S., France and Japan to sell its
software products. CompCore typically focuses on selling to large OEM customers,
but has also licensed its software to smaller customers who meet minimum revenue
requirements and do not require custom-designed products. Distribution of
products exclusively through OEMs, augmented by sales representatives in foreign
countries, has allowed CompCore to expand its market penetration while incurring
much lower sales and marketing costs than if it were selling stand-alone
products directly to PC or consumer electronics component manufacturers.
Sales of hardware products typically involve participation of executives of
CompCore, as CompCore views its relationships with hardware customers as
strategic in nature, involving significant collaboration to develop and
customize the product for the customer's requirements. This results in a lengthy
sales cycle for CompCore's hardware products. CompCore's software products are
generally sold through sales representatives and are associated with a
comparatively shorter sales cycle.
CompCore generates revenue by charging its customers royalties and
engineering fees. Engineering fees are typically paid during the development
cycle, while royalties are generally paid quarterly within 30 to 45 days after
the OEM ships a product that incorporates a CompCore design or software product.
COMPETITION
CompCore's existing and potential competitors include many large domestic
and international companies that have substantially greater financial,
manufacturing, technical, marketing, distribution and other resources, broader
product lines and longer standing relationships with customers than CompCore. In
the market for hardware core products, CompCore's principal competitors are
David Sarnoff Research Center, Mediamatics, Hyundai/Odeum and SICAN
Microelectronics Corp. Competitors' products vary by size of core, application
specific features, maturity of design, availability of design services, and
price.
With respect to CompCore's software products, MPEG 1 and MPEG 2 are public
standards and therefore can be implemented by software programmers which have
access to the publicly available documentation. In the market for CompCore's
MPEG Software Products, CompCore's Principal Competitors are Mediamatics and
Xing.
CompCore believes that its ability to compete successfully in the rapidly
evolving markets for high performance video and audio compression technology
depends on a number of factors, including the price,
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quality and performance of CompCore's and its competitors' products, the timing
and success of new product introductions by CompCore, its customers and its
competitors, the emergence of new industry standards, the number and nature of
CompCore's competitors in a given market and general market and economic
conditions.
The markets in which CompCore competes are intensely competitive and are
characterized by rapid technological change, declining prices and rapid product
obsolescence. CompCore expects competition to increase in the future from
existing competitors and from other companies that may enter CompCore's existing
or future markets with solutions which may be less costly or provide higher
performance or more desirable features than CompCore's products.
The DVD market is in its infancy, and new DVD software competitors are
expected to enter the market in 1997 and 1998. CompCore believes that several
large Japanese consumer electronics companies may be planning to enter the DVD
market and may accordingly attempt to develop MPEG 2 hardware or software that
competes with CompCore's MPEG 2 core or SoftDVD. Most of these companies are
expected to develop captive implementations for use only with their own PCs and
consumer electronic products. It is also foreseeable that application software
vendors such as Microsoft may attempt to enter the DVD application market in the
future. As the DVD market matures, market entrants are expected to increase
competition and cause general price erosion, as commonly occurs in the computer
and consumer electronics industries.
RESEARCH AND DEVELOPMENT
CompCore believes that its future success depends on its ability to continue
to enhance its existing products and to develop new products that maintain
technological competitiveness and compliance with new standards in rapidly
evolving video and audio compression markets. CompCore's research and
development strategy is to leverage the technical expertise of its engineering
staff by engaging in parallel development of both hardware and software
applications based on common technology and algorithms.
CompCore generates a significant percentage of its total revenues from
license agreements that involve development and customization work on the part
of CompCore. These development and license agreements provide that CompCore will
receive payments upon reaching certain development milestones and that CompCore
will retain ownership of the intellectual property developed. Development
contracts have enabled CompCore to fund portions of its product development
efforts, to respond to the feature requirements of its customers and to
accelerate the "time to market" of the products of the Company's customers. In
addition, since new industry standards are often set or heavily influenced by
large corporations as well as standards committees, CompCore has pursued
strategic relationships with influential companies in the computer and consumer
electronics industries, including Intel, Matsushita, Hitachi, NEC, Dolby and
Microsoft, which CompCore believes will provide it with the opportunity to
develop valuable product planning information.
Research and development expenses were $259,000, $1,394,000 and $2,791,000
for the period from November 12, 1993 (inception) to September 30, 1994 and the
fiscal years ended September 30, 1995 and September 30, 1996, respectively,
accounting for 46%, 56% and 53%, respectively, of total operating expenses for
those periods. CompCore's hardware and software research and development
expenses have accounted for approximately 67% and 33%, respectively, of total
research and development expenses, although CompCore expects that the difference
between its research and development expenditures on hardware and software since
inception will become smaller in the near future as CompCore hires additional
software research and development personnel.
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PROPRIETARY RIGHTS AND LICENSES
CompCore's ability to compete successfully is dependent in part upon its
ability to protect its proprietary technology and information. Although CompCore
relies on a combination of patents, copyrights, trademarks, trade secret laws
and licensing arrangements to protect certain of its intellectual property,
CompCore believes that factors such as the technological and creative skills of
its personnel and the success of its ongoing product development efforts are
more important in maintaining its competitive position. CompCore generally
enters into confidentiality or license agreements with its employees,
distributors, customers and potential customers and limits access to its
proprietary information. CompCore currently holds two United States patents that
pertain to technologies and processes relating to CompCore's current business.
However, there can be no assurance that CompCore's intellectual property rights,
if challenged, will be upheld as valid, will be adequate to prevent
misappropriation of its technology or will prevent the development of
competitive products. Additionally, there can be no assurance that CompCore will
be able to obtain patents or other intellectual property protection in the
future. Patents relating to the establishment, development and maintenance of
the MPEG standard are unclear and may be subject to continuing claims by
numerous third parties. Furthermore, the laws of certain foreign countries in
which CompCore's products are or may be developed, manufactured or sold,
including various countries in Asia, may not protect CompCore's products or
intellectual property rights to the same extent as do the laws of the United
States and thus make the possibility of piracy of CompCore's technology and
products more likely in these countries.
The semiconductor industry is characterized by vigorous protection and
pursuit of intellectual property rights, which have resulted in significant and
often protracted and expensive litigation. Although there is currently no
pending intellectual property litigation involving CompCore, CompCore is aware
of other parties that hold patents in fields related to CompCore's business, and
CompCore may from time to time be notified of claims that it may be infringing
patents or other intellectual property rights owned by third parties. Although
CompCore is not aware that it is infringing any of such patents, the uncertainty
discussed above regarding patents relating to the MPEG standard makes it more
difficult to assess the possibility that CompCore's activities in the MPEG field
may give rise to patent infringement claims. Litigation by or against CompCore
relating to patent infringement or other intellectual property matters could
result in significant expense to CompCore and divert the efforts of its
technical and management personnel, whether or not such litigation results in a
determination favorable to CompCore. In the event of an adverse result in any
such litigation, CompCore could be required to pay substantial damages, cease
the manufacture, use and sale of infringing products, expend significant
resources to develop non-infringing technology, discontinue the use of certain
processes or obtain licenses to the infringing technology. There can be no
assurance that licenses would be offered or that the terms of any offered
licenses would be acceptable to CompCore. The failure to obtain a license from a
third party for technology used by CompCore could cause CompCore to incur
substantial liabilities and to suspend the manufacture of products.
EMPLOYEES
As of September 30, 1996, CompCore had 32 full-time and 3 part-time
employees, including 24 full-time and 3 part-time employees primarily involved
in research and development activities, and 8 in marketing and sales and
administrative. All of CompCore's employees are based in Santa Clara,
California. CompCore believes that its future success will depend, in large
part, on its ability to attract and retain highly-skilled, engineering,
managerial, sales and marketing personnel. Competition for such personnel is
intense. CompCore's employees are not represented by any collective bargaining
unit, and CompCore has never experienced a work stoppage. CompCore believes that
its employee relations are good.
FACILITIES
CompCore's operations are located in approximately 8,000 square feet of
leased space in Santa Clara, California under a lease that expires in June 1997.
90
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
financial statements and the notes thereto included elsewhere herein. The
statement of income data and the balance sheet data as of September 30, 1995 and
1996 set forth below are derived from the audited financial statements of
CompCore included elsewhere herein. The balance sheet data as of September 30,
1994 set forth below are derived from audited financial statements not included
in this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 12,
1993 YEAR ENDED SEPTEMBER
(INCEPTION) 30,
TO SEPTEMBER --------------------
30, 1994 1995 1996
------------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues:
Development revenue.......................................................... $ 702 $ 1,902 $ 2,198
Licenses and royalties....................................................... 155 1,007 3,527
------ --------- ---------
Total revenues............................................................. 857 2,909 5,725
------ --------- ---------
Operating expenses:
Research and development..................................................... 259 1,394 2,791
Selling, general and administrative.......................................... 310 1,080 2,519
------ --------- ---------
Total operating expenses................................................... 569 2,474 5,310
------ --------- ---------
Income from operations......................................................... 288 435 415
Interest and other income...................................................... 1 37 26
------ --------- ---------
Income before provision for income taxes....................................... 289 472 441
Provision for income taxes..................................................... 119 185 115
------ --------- ---------
Net income..................................................................... $ 170 $ 287 $ 326
------ --------- ---------
------ --------- ---------
Net income per share........................................................... $ 0.12 $ 0.11 $ 0.09
------ --------- ---------
------ --------- ---------
Weighted average shares outstanding............................................ 1,418 2,630 3,453
------ --------- ---------
------ --------- ---------
<CAPTION>
SEPTEMBER 30,
-----------------------------------
1994 1995 1996
------------- --------- ---------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................................................ $ (86) $ 176 $ 1,269
Total assets................................................................... 802 1,611 3,925
Capital lease obligations, less current portion................................ -- -- 62
Convertible promissory note.................................................... -- -- 1,000
Total shareholders' equity..................................................... $ 185 $ 496 $ 851
</TABLE>
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS INCLUDES FORWARD-LOOKING STATEMENTS WITH RESPECT TO
COMPCORE'S FUTURE FINANCIAL PERFORMANCE. THESE FORWARD-LOOKING STATEMENTS ARE
SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES, INCLUDING THE FACTORS DESCRIBED
UNDER "RISK FACTORS" AND ELSEWHERE IN THIS JOINT PROXY STATEMENT/PROSPECTUS,
THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL RESULTS OR
THOSE CURRENTLY ANTICIPATED.
OVERVIEW
CompCore is a provider of MPEG hardware and software products for processing
digital video and audio signals. CompCore provides design "cores" for MPEG 1 and
MPEG 2 video and audio decoder integrated circuits that are used by OEMs in the
manufacture of digital video and audio semiconductor chips. In addition,
CompCore offers a software version of its MPEG 1 decoder called "SoftPEG," which
runs on most standard PCs and workstations and enables end users to play MPEG 1
CDs without the use of specialized hardware.
RESULTS OF OPERATIONS
The following table sets forth certain statement of income data as a
percentage of total revenues for the periods indicated:
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 12, 1993 YEAR ENDED
(INCEPTION) TO SEPTEMBER 30,
SEPTEMBER 30, ------------------------
1994 1995 1996
----------------- ----- -----
<S> <C> <C> <C>
Revenues:
Development revenue............................................................... 82% 65% 38%
Licenses and royalties............................................................ 18 35 62
--- --- ---
Total revenues................................................................ 100 100 100
--- --- ---
Operating expenses:
Research and development.......................................................... 30 48 49
Selling, general and administrative............................................... 36 37 44
--- --- ---
Total operating expenses...................................................... 66 85 93
--- --- ---
Income from operations.............................................................. 34 15 7
Interest and other income........................................................... -- 1 1
--- --- ---
Income before provision for income taxes............................................ 34 16 8
Provision for income taxes.......................................................... 14 6 2
--- --- ---
Net income.......................................................................... 20% 10% 6%
--- --- ---
--- --- ---
</TABLE>
YEAR ENDED SEPTEMBER 30, 1995 COMPARED TO YEAR ENDED SEPTEMBER 30, 1996
REVENUES. The Company's revenues consist of development revenues, which are
primarily revenues from MPEG 1 and MPEG 2 audio and video decoder hardware
design contracts that provide for license and milestone payments to be made at
specified times, and license and royalty revenues primarily from the license of
MPEG 1 audio and video decoder software. License and royalty agreements
generally provide for the license of software for a specified period of time for
either a single fee or a fee based on the number of units distributed by the
licensee. Revenues increased 97% to $5.7 million in fiscal 1996 from $2.9
million in fiscal 1995. Development revenues increased 16% to $2.2 million in
fiscal 1996 from $1.9 million in fiscal 1995. Two development contracts
accounted for 74% of the $2.2 million in development
92
<PAGE>
revenues recognized in fiscal 1996. These contracts were substantially completed
by September 30, 1996. License and royalty revenues increased 250% to $3.5
million in fiscal 1996 from $1.0 million in fiscal 1995. The number of contracts
under which CompCore may earn license and royalty revenue increased to 39 in
fiscal 1996 from 13 in fiscal 1995. Revenues derived from export sales outside
North America represented 14% and 53% of CompCore's revenues for fiscal 1995 and
1996, respectively.
RESEARCH AND DEVELOPMENT. Research and development ("R&D") expenses consist
primarily of engineering personnel and related expenses and equipment costs. R&D
expenses increased 100% to $2.8 million in fiscal 1996 from $1.4 million in
fiscal 1995. This increase was primarily due to the hiring of engineering
personnel and outside consultants to develop enhancements to MPEG 2 video and
audio decoder proprietary technology as well as new software products that
CompCore is planning to introduce in the future. As a percentage of total
revenues, R&D expenses increased to 49% in fiscal 1996 from 48% in fiscal 1995.
CompCore anticipates that it will continue to devote substantial resources to
research and development and that such expenses will continue to increase in
absolute dollars, although such expenses as a percentage of total revenues may
fluctuate.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
("SG&A") expenses consist primarily of personnel and related expenses,
professional services and facilities costs. SG&A expenses increased 133% to $2.5
million in fiscal 1996 from $1.1 million in fiscal 1995. This increase was
primarily due to higher bonuses paid to certain key employees in 1996 based on
CompCore's 1995 financial performance and additional sales and administrative
personnel.
INTEREST AND OTHER INCOME. Interest and other income consists of interest
income on cash and cash equivalents and other income net of expenses. Interest
and other income decreased to $26,000 in fiscal 1996 from $37,000 in fiscal
1995, due primarily to changes in average cash balances held by CompCore.
PROVISION FOR INCOME TAXES. Provision for income taxes decreased to
$115,000 in fiscal 1996 from $185,000 in fiscal 1995. The effective tax rate was
39% and 26% for fiscal 1995 and 1996, respectively. The decrease in the
effective tax rate is primarily due to an increase in research and development
tax credits.
PERIOD ENDED SEPTEMBER 30, 1994 COMPARED TO YEAR ENDED SEPTEMBER 30, 1995
REVENUES. CompCore's revenues increased 239% from $0.9 million in fiscal
1994 to $2.9 million in fiscal 1995. Development revenues increased 171% from
$0.7 million in fiscal 1994 to $1.9 million in fiscal 1995. This increase was
primarily due to significant growth in development contracts to modify and
integrate CompCore's MPEG 1 technology for specific applications. License and
royalty revenues increased from $155,000 in fiscal 1994 to $1.0 million in
fiscal 1995. This increase was primarily due to an increase in the number of
contracts under which CompCore may earn license and royalty revenue from 2 to 13
for fiscal 1994 and fiscal 1995, respectively. No revenues were derived from
operations outside of North America in fiscal 1994. Revenues derived from export
sales outside of North America were 14% of CompCore's revenues in fiscal 1995.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 438%
from $259,000, or 30% of revenues, in fiscal 1994 to $1.4 million, or 48% of
revenues, in fiscal 1995. This increase was primarily due to the growth in
research and development personnel from 6 to 21 individuals during the year.
These additional personnel were hired to develop CompCore's MPEG 2 technology as
well as to enhance existing MPEG 1 technology.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased 248% from $310,000, or 36% of revenues, in fiscal 1994 to
$1.1 million, or 37% of revenues, in fiscal 1995. The increase was primarily due
to increased employee compensation and office facilities cost, as well as higher
professional service fees.
93
<PAGE>
INTEREST AND OTHER INCOME. Interest and other income increased from $1,000
in fiscal 1994 to $37,000 in fiscal 1995, primarily due to higher interest
income earned on higher invested cash balances during the period.
PROVISION FOR INCOME TAXES. Provision for income taxes increased from
$119,000 in fiscal 1994 to $185,000 in fiscal 1995, representing effective tax
rates of 41% and 39%, respectively. This decrease in the effective tax rate was
primarily due to an increase in research and development tax credits.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has funded its operations from cash
generated from operations. As of September 30, 1996, the Company had cash and
cash equivalents of $2,134,000 and working capital of $1,269,000. Net cash
provided by operating activities was $814,000, $402,000 and $1,051,000 in fiscal
1994, 1995 and 1996, respectively.
On July 1, 1996, the Company issued a Convertible Promissory Note (the
"Note") in the amount of $1 million to an individual who was simultaneously
given a seat on the Company's Board of Directors. The Note bears interest at
6.625% per annum payable annually in arrears each June 30, commencing June 30,
1997. The entire outstanding principal and accrued interest are due June 30,
2001. The Note is convertible at any time into shares of Common Stock at a rate
of $5.15, $5.49, $5.86, $6.25 or $6.66 per share if conversion occurs on or
before June 30, 1997, 1998, 1999, 2000 or 2001, respectively. Additionally, in
the event that the Company completes an initial public offering, or a merger or
a similar transaction resulting in the shareholders of the Company immediately
prior to such transaction holding less than 50% of the company surviving the
transaction, the Note automatically converts into shares of Common Stock at the
applicable rate. The proceeds of the Note are being used to fund the Company's
growing working capital requirements and to fund research and development
activities of the Company.
The Company believes that anticipated cash flows from operations and
existing cash balances will satisfy the Company's projected expenditures for the
next twelve months for working capital and general corporate purposes, including
projected increases in the Company's internal product development, primarily
comprised of additional staffing.
94
<PAGE>
MANAGEMENT
The directors, executive officers and key employees of CompCore are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- --------------------------------------------
<S> <C> <C>
George T. Haber........................... 43 President, Chief Executive Officer, Chief
Financial Officer and Director
Sorin C. Cismas........................... 37 Chief Technical Officer and Director
Andreas Bechtolsheim, Ph.D................ 37 Director
Andrei M. Manoliu, Ph.D................... 44 Secretary and Director
Sorin V. Papuc............................ 34 Software Engineer
</TABLE>
George T. Haber has served as President, Chief Executive Officer, Chief
Financial Officer and a Director of CompCore since its founding in November
1993. Prior to that time, Mr. Haber held engineering positions at Toshiba/SGI
from January to August 1993 and Sun Microsystems, Inc. ("Sun") from 1990 to
January 1993. Mr. Haber holds a B.A. degree from the Technion.
Sorin Cismas has served as Chief Technical Officer and a Director of
CompCore since its founding in November 1993. Prior to that time, Mr. Cismas was
a design engineer at LSI Logic from 1991 to November 1993. Mr. Cismas holds an
M.S.E.E. degree from the Polytechnic Institute of Bucharest, Romania.
Andreas Bechtolsheim has served as Director of CompCore since July 1996.
Since October 1996, Dr. Bechtolsheim has headed the Workgroup Business Unit of
Cisco Systems, Inc. ("Cisco"), a networking equipment manufacturer. Prior to
that time, Dr. Bechtolsheim was President and Chief Executive Officer of Granite
Systems, Inc. ("Granite") from July 1995 until Granite's acquisition by Cisco in
September 1996. Dr. Bechtolsheim was a co-founder of Sun, where he served as
Vice President of Technology from 1982 to June 1995. Dr. Bechtolsheim holds a
Ph.D. in electrical engineering from Stanford University.
Andrei M. Manoliu has served as a Director of CompCore since August 1994.
Since 1988, Dr. Manoliu has been a partner of the law firm of Cooley Godward
LLP, with which he has practiced corporate and securities law since 1982. Dr.
Manoliu holds a Ph.D. in solid state physics from the University of California
at Berkeley and a J.D. from Stanford University.
Sorin V. Papuc has served as Software Architect of CompCore since March
1994. Prior to that time, Mr. Papuc was employed as a software engineer with
Visioneer Communications from July 1992 until March 1994, and Software Recording
Corporation from June 1991 until July 1992. Mr. Papuc holds an M.S.M.E. degree
from the University of Brasov, Romania.
95
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information known to CompCore
relating to the beneficial ownership of CompCore Common Stock, as of October 31,
1996, by: (i) each person who is known by CompCore to be the beneficial owner of
more than 5% of the outstanding shares of Common Stock; (ii) CompCore's Chief
Executive Officer and the other executive officer to CompCore whose salary and
bonus for the year ended December 31, 1995 exceeds $100,000; (iii) each
director; and (iv) all directors and executive officers of CompCore as a group:
<TABLE>
<CAPTION>
NUMBER OF
SHARES
BENEFICIALLY
NAME AND ADDRESS OWNED(1) PERCENT(1)
- --------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
George T. Haber (2) ................................................. 1,290,000 41.3%
c/o CompCore Multimedia, Inc.
3120 Scott Boulevard, 2nd Floor
Santa Clara, CA 95054
Sorin C. Cismas (3) ................................................. 1,250,000 40.0%
c/o CompCore Multimedia, Inc.
3120 Scott Boulevard, 2nd Floor
Santa Clara, CA 95054
Sorin Papuc (4) ..................................................... 285,500 9.8%
c/o CompCore Multimedia, Inc.
3120 Scott Boulevard, 2nd Floor
Santa Clara, CA 95054
Andreas Bechtolsheim (5) ............................................ 200,589 6.6%
c/o CompCore Multimedia, Inc.
3120 Scott Boulevard, 2nd Floor
Santa Clara, CA 95054
Leonardo Vainsencher ................................................ 172,500 6.0%
5497 Amby Drive
San Jose, CA 95124
Andrei M. Manoliu (6)................................................ 40,000 1.4%
All current directors and executive officers as a group
(4 persons) (7).................................................... 2,780,589 77.1%
</TABLE>
- ------------------------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of CompCore Common Stock subject to options or convertible securities
held by that person that are currently exercisable or convertible, or will
become exercisable or convertible within 60 days after October 31, 1996, are
deemed outstanding. Such shares, however, are not deemed outstanding for
purposes of computing the percentage ownership of any other person. In
general, options granted under CompCore's 1994 Stock Option Plan are fully
exercisable from the date of grant, subject to CompCore's right to
repurchase any unvested shares at the original exercise price in the event
of termination of the optionee's employment. Unless otherwise indicated in
the footnotes to this table, the persons named in the table have sole voting
and sole investment power with respect to all shares beneficially owned,
subject to community property laws where applicable.
(2) Includes 400,000 shares held by Mr. Haber as custodian for the benefit of
Mr. Cismas's children. Also includes 270,000 shares of Common Stock issuable
upon exercise of stock options that are currently exercisable, of which
135,000 shares will be vested within 60 days after October 31, 1996.
96
<PAGE>
(3) Includes 400,000 shares held by Mr. Cismas as custodian for the benefit of
Mr. Haber's children. Also includes 270,000 shares of Common Stock issuable
upon exercise of stock options that are currently exercisable, of which
135,000 shares will be vested within 60 days after October 31, 1996.
(4) Includes 60,000 shares of Common Stock issuable upon exercise of stock
options that are currently exercisable, of which 47,500 shares will be
vested within 60 days after October 31, 1996.
(5) Represents shares of Common Stock issuable upon conversion of a Convertible
Promissory Note, based on the amount of principal and interest that will be
outstanding as of the date 60 days after October 31, 1996. See "The
Merger--Interests of Certain Persons in the Merger."
(6) Includes 10,000 shares of Common Stock issuable upon exercise of stock
options that are currently exercisable, all of which are fully vested.
(7) Includes 550,000 of shares of Common Stock issuable upon exercise of stock
options that are currently exercisable, of which 280,000 shares will be
vested within 60 days after October 31, 1996, and 200,589 shares that will
be issuable upon conversion of the principal and interest that will be
outstanding under a convertible promissory note as of the date 60 days after
October 31, 1996.
97
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth information concerning the compensation for
services rendered to CompCore during the fiscal year ended September 30, 1996
received by the executive officers of CompCore (the "CompCore Executives"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
ANNUAL COMPENSATION OPTIONS
---------------------- GRANTED
NAME AND PRINCIPAL POSITION SALARY BONUS (SHARES)
- -------------------------------------------------------------------------- ---------- ---------- -------------
<S> <C> <C> <C>
George T. Haber........................................................... $ 195,000 $ 250,000 270,000
President, Chief Executive Officer and
Chief Financial Officer
Sorin C. Cismas........................................................... $ 195,000 $ 250,000 270,000
Chief Technical Officer
</TABLE>
OPTION GRANTS
The following table sets forth information concerning grants of options to
purchase the Company's Common Stock made during the year ended September 30,
1996 to the CompCore Executives.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF
---------------------------------------------------------- STOCK
NUMBER OF % OF TOTAL PRICE APPRECIATION
SHARES OPTIONS FOR
UNDERLYING GRANTED EXERCISE OPTION TERM(3)
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION --------------------
NAME GRANTED(1) 1996 PER SHARE(2) DATE 5% 10%
- ------------------------------------- ------------- --------------- ------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
George T. Haber...................... 270,000 29.4% $ 0.09 4/1/01 $ 6,714 $ 14,835
Sorin C. Cismas...................... 270,000 29.4% $ 0.09 4/1/01 $ 6,714 $ 14,835
</TABLE>
- ------------------------
(1) All options granted in 1996 are fully exercisable, subject to CompCore's
right to repurchase any unvested shares at the original exercise price in
the event of the optionee's termination.
(2) All options were granted at the fair market value of the Common Stock on the
date of grant, as determined by the CompCore Board.
(3) Potential realizable values are net of the exercise price but before taxes
associated with the exercise. Amounts represent hypothetical gains that
could be achieved for the respective options if exercised at the end of the
option term. The assumed 5% and 10% rates of stock price appreciation are
provided in accordance with the rules of the Securities and Exchange
Commission and do not represent the Company's estimate or projection of the
future Common Stock price. Actual gains, if any, on stock option exercises
are dependant on the future financial performance of the Company, overall
market conditions and the option holder's continued employment through the
vesting period. This table does not take into account any appreciation in
the price of the Common Stock from the date of grant to the date of this
Joint Proxy Statement/Prospectus.
98
<PAGE>
OPTION EXERCISES AND YEAR-END HOLDINGS
The following table sets forth information concerning the stock options held
as of September 30, 1996 by the CompCore Executives. Neither of the CompCore
Executives exercised any options during the fiscal year ended September 30,
1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SEPTEMBER 30, 1996: SEPTEMBER 30, 1996(1):
----------------------------- -----------------------------
NAME EXERCISABLE(2) UNEXERCISABLE EXERCISABLE(2) UNEXERCISABLE
- ---------------------------------------------------- -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
George T. Haber..................................... 270,000 -- $ 1,595,700 --
Sorin C. Cismas..................................... 270,000 -- $ 1,595,700 --
</TABLE>
- ------------------------
(1) Based on the fair market value of CompCore Common Stock of $6.00 per share,
as determined by the Board of Directors on September 3, 1996 (the date of
the latest valuation by the Board during the year ended September 30, 1996),
minus the exercise price.
(2) All options are fully exerisable, subject to CompCore's right to repurchase
any unvested shares at the original exercise price in the event of the
optionee's termination. Options (or shares issued upon exercise thereof)
vest over a periods of two years from the date of grant.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
CompCore does not have a compensation committee. Accordingly, Messrs. Haber
and Cismas participated in deliberations concerning executive compensation
during the fiscal year ended September 30, 1996.
On July 1, 1996, Andreas Bechtolsheim made a $1,000,000 loan to CompCore in
exchange for a Convertible Promissory Note (the "Note") bearing interest at the
rate of 6.625 percent per annum. The outstanding principal and accrued interest
under the Note is convertible into CompCore Common Stock at a price of $5.15 per
share on or prior to June 30, 1997, increasing in stages thereafter to a maximum
conversion price of $6.66 per share if the Note is converted after June 30,
2000. The Note is automatically convertible upon certain events including a
transaction such as the Merger; accordingly, the Note will be automatically
converted immediately prior to the Effective Time. As of October 31, 1996, there
was $1,022,144 in principal and accrued interest outstanding under the Note.
DIRECTOR COMPENSATION
Directors do not receive cash compensation for their services as members of
the Board of Directors of CompCore.
Andrei M. Manoliu, Ph.D. is a partner of Cooley Godward LLP, CompCore's
legal counsel. In April 1996, CompCore granted Dr. Manoliu a option to purchase
10,000 shares of CompCore Common Stock under CompCore's 1994 Stock Option Plan.
The option has an exercise price of $0.08 per share and was fully vested and
exercisable as of the date of grant. The option expires in April 2006.
CERTAIN TRANSACTIONS
In July 1996, Andreas Bechtolsheim made a $1,000,000 loan to CompCore in
exchange for the Note. See "--Compensation Committee Interlocks and Insider
Participation."
99
<PAGE>
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
give effect to the combination of Zoran and CompCore on a pooling of interests
basis. The pro forma combined condensed balance sheet assumes the Merger took
place on September 30, 1996 and combines Zoran's unaudited condensed
consolidated balance sheet at that date with the historical balance sheet of
CompCore at September 30, 1996. The pro forma combined condensed statements of
operations assume that the Merger took place as of the beginning of each of the
periods presented and combine Zoran's historical condensed consolidated
statements of operations for each of the three years in the period ended
December 31, 1995 with CompCore's unaudited condensed statements of income for
the period from November 12, 1993 (inception) to December 31, 1993 and the years
ended December 31, 1994 and 1995. The pro forma combined condensed statements of
operations also combine Zoran's unaudited condensed consolidated statements of
operations for the nine months ended September 30, 1995 and 1996 with the
unaudited condensed statements of income of CompCore for the nine months ended
September 30, 1995 and 1996, respectively.
The pro forma combined condensed statements of operations are not
necessarily indicative of operating results which would have been achieved had
the Merger been consummated as of the beginning of such periods and should not
be construed as representative of future operations.
These pro forma combined condensed financial statements should be read in
conjunction with the historical financial statements and the notes thereof of
Zoran and CompCore which are included elsewhere herein.
100
<PAGE>
ZORAN AND COMPCORE
PRO FORMA COMBINED CONDENSED BALANCE SHEET
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ZORAN COMPCORE
SEPTEMBER 30, SEPTEMBER 30, PRO FORMA
1996 1996 ADJUSTMENTS COMBINED
------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 7,534 $ 2,134 $ 9,668
Short-term investments................................ 11,841 -- 11,841
Accounts receivable, net.............................. 11,600 700 12,300
Inventory............................................. 1,637 -- 1,637
Prepaids expenses and other current assets............ 620 210 830
Deferred tax assets................................... -- 186 186
------------- ------ -----------
Total current assets................................ 33,232 3,230 36,462
Property and equipment, net........................... 2,306 695 3,001
------------- ------ -----------
Total assets........................................ $ 35,538 $ 3,925 $ 39,463
------------- ------ -----------
------------- ------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................... $ 2,107 $ 159 $ 2,266
Accrued expenses and other liabilities................ 5,872 1,772 $ 2,000(3) 9,644
Current portion of long-term debt..................... 343 30 373
------------- ------ ------ -----------
Total current liabilities........................... 8,322 1,961 2,000 12,283
------------- ------ ------ -----------
Long-term debt.......................................... 395 62 457
------------- ------ -----------
Convertible promissory note............................. -- 1,000 1,000(5) --
------------- ------ ------ -----------
Deferred tax liabilities................................ -- 51 51
------------- ------ -----------
Stockholders' equity (deficit):
Common stock.......................................... 7 68 66(1) 9
Additional paid-in capital............................ 76,423 -- 1,066(1 (5) 77,489
Retained earnings (accumulated deficit)............... (49,609) 783 2,000(3) (50,826)
------------- ------ ------ -----------
Total stockholders' equity (deficit)................ 26,821 851 1,000 26,672
------------- ------ ------ -----------
Total liabilities and stockholders' equity.......... $ 35,538 $ 3,925 $ 39,463
------------- ------ -----------
------------- ------ -----------
</TABLE>
See Accompanying Notes to Pro Forma Combined Condensed Financial Statements
101
<PAGE>
ZORAN AND COMPCORE
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Product sales............................................ $ 2,044 $ 6,243 $ 18,086 $ 12,399 $ 25,169
Development revenue...................................... 1,940 2,970 3,732 2,649 2,588
Licenses and royalties................................... 745 286 1,646 942 3,207
--------- --------- --------- --------- ---------
Total revenues......................................... 4,729 9,499 23,464 15,990 30,964
--------- --------- --------- --------- ---------
Costs and expenses:
Cost of product sales.................................... 2,601 4,677 9,306 6,268 14,278
Research and development................................. 5,002 4,887 5,916 4,224 6,085
Selling, general and administrative...................... 4,558 4,376 6,748 4,781 8,176
--------- --------- --------- --------- ---------
Total costs and expenses............................... 12,161 13,940 21,970 15,273 28,539
--------- --------- --------- --------- ---------
Operating income (loss).................................... (7,432) (4,441) 1,494 717 2,425
Interest expense........................................... 277 282 320 251 119
Interest and other income.................................. 68 57 173 79 868
--------- --------- --------- --------- ---------
Income (loss) before income taxes.......................... (7,641) (4,666) 1,347 545 3,174
Provision for income taxes................................. 48 229 334 193 368
--------- --------- --------- --------- ---------
Net income (loss).......................................... $ (7,689) $ (4,895) $ 1,013 $ 352 $ 2,806
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income (loss) per share................................ $ (1.19) $ (0.68) $ 0.12 $ 0.04 $ 0.27
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average common shares and equivalents............. 6,439 7,204 8,296 8,228 10,495
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See Accompanying Notes to Pro Forma Combined Condensed Financial Statements
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ZORAN AND COMPCORE
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. The pro forma combined condensed financial statements reflect the issuance
of up to 1,957,398 shares of Zoran Common Stock for an aggregate of up to
3,054,624 shares of CompCore Common Stock (based on shares of CompCore
Common Stock outstanding as of October 31, 1996) in connection with the
Merger based upon an Exchange Ratio of 0.6408 of a share of Zoran Common
Stock for each share of CompCore Common Stock. The actual number of shares
of Zoran Common Stock to be issued will be determined at the Effective Time
of the Merger based on the Exchange Ratio and the number of shares of
CompCore Common Stock then outstanding.
2. On a combined basis, there were no material transactions between Zoran and
CompCore during any period presented.
3. The combined company expects to incur charges to operations currently
estimated to be $2 million in the quarter in which the Merger is consummated
to reflect transaction fees and costs incident to the Merger. This estimated
charge is reflected in the pro forma combined condensed balance sheet as an
increase in accumulated deficit and an increase to accrued liabilities. The
estimated charge is not reflected in the pro forma combined statement of
operations data. The amount of this charge is a preliminary estimate and
therefore subject to change.
4. Income (loss) per share is computed after taking into consideration the
dilutive effect of convertible preferred stock, stock options and warrants.
5. The Pro Forma Combined Condensed Balance Sheet reflects the conversion of
CompCore's convertible promissory note into shares of CompCore Common Stock.
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COMPARISON OF RIGHTS OF ZORAN STOCKHOLDERS AND COMPCORE SHAREHOLDERS
If the Merger is consummated, holders of CompCore Common Stock will become
holders of Zoran Common Stock and the rights of the former CompCore shareholders
will be governed by the Delaware General Corporation Law (the "DGCL") and by the
Certificate of Incorporation of Zoran (the "Zoran Certificate") and the Bylaws
of Zoran (the "Zoran Bylaws"). The rights of Zoran stockholders under the DGCL
and the Zoran Certificate and the Zoran Bylaws differ in certain respects from
the rights of CompCore shareholders under the CGCL and the Articles of
Incorporation of CompCore (the "CompCore Articles") and the Bylaws of CompCore
(the "CompCore Bylaws"). The material differences between the rights of Zoran
stockholders and CompCore shareholders are summarized below.
CUMULATIVE VOTING IN THE ELECTION OF DIRECTORS
In an election of directors under cumulative voting, each share of stock
normally having one vote is entitled to a number of votes equal to the number of
directors to be elected. A stockholder may then cast all such votes for a single
candidate or may allocate them among as many candidates as the stockholder may
choose. Without cumulative voting, the holders of a majority of the shares
present at a meeting held to elect directors would have the power to elect all
the directors to be elected at that meeting, and no person could be elected
without the support of holders of a majority of the shares voting at such
meeting.
Under the CGCL, cumulative voting in the election of directors is mandatory
for privately-held corporations. Under the DGCL, cumulative voting is permitted
only if it is specifically provided for in the corporation's certificate of
incorporation. The Zoran Certificate does not provide for cumulative voting.
SIZE OF THE BOARD OF DIRECTORS
Under the CGCL, the board of directors may fix the exact number of directors
without shareholder approval only within a stated range set forth in the
articles of incorporation or bylaws, with the maximum number of directors being
not more than one less than twice the minimum number. Any changes to this range
must be approved by the holders of a majority of the outstanding shares. The
DGCL permits the board of directors to change the authorized number of directors
by amendment of the bylaws without stockholder approval, unless the certificate
of incorporation does not authorize the directors to amend the bylaws or unless
it fixes the number of directors, in which case a change in the number of
directors may be made only by an amendment of the certificate of incorporation
approved by the stockholders. The Zoran Certificate provides, consistent with
the DGCL, that the size of the Board may be changed by an amendment of the
Bylaws either Board or by the stockholders. The CompCore Bylaws provide for a
Board of Directors consisting of between four and seven members, while the Zoran
Bylaws specify a six-member Board.
AMENDMENT OF BYLAWS
Under both the CGCL and the DGCL, the bylaws of a corporation may be amended
by the vote of either a majority of the directors or a majority of the
outstanding shares. Under the CGCL, the bylaws may not limit the power of the
shareholders to adopt amendments. Under both the CGCL and the DGCL, a
corporation may include provisions in its articles or certificate of
incorporation which require a supermajority vote for stockholders to amend the
bylaws, although the CGCL imposes restrictions on certain corporations that have
more than 100 shareholders; these restrictions (i) prohibit the adoption of
provisions requiring more than a 66 2/3% vote and (ii) require a new shareholder
vote reauthorizing the supermajority vote provision every two years. Neither the
Compcore Articles nor the Zoran Certificate contains any provision limiting
shareholders' ability to amend the bylaws by the vote of a simple majority.
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POWER TO CALL SPECIAL STOCKHOLDERS' MEETINGS
Under the CGCL, a special meeting of shareholders may be called by the board
of directors, the chairman of the board, the president, the holders of shares
entitled to cast not less than 10% of the votes at such meeting and such
additional persons as are authorized by the articles of incorporation or the
bylaws. Under the DGCL, a special meeting of stockholders may be called by the
board of directors or by any other person authorized to do so in the certificate
of incorporation or the bylaws. The Zoran Bylaws permit special meetings to be
called upon the written request of stockholders holding at least 10% of the
voting power of all stockholders, as well as by the Chairman of the Board, the
President or the Board of Directors.
REMOVAL OF DIRECTORS; CLASSIFIED BOARD OF DIRECTORS
Under the CGCL, any director or the entire board of directors may be
removed, with or without cause, with the approval of a majority of the
outstanding shares entitled to vote; however, no individual director may be
removed (unless the entire board is removed) if the number of votes cast against
such removal would be sufficient to elect the director under cumulative voting.
Under the DGCL, a director of a corporation that does not have a classified
board of directors or cumulative voting may be removed with or without cause
simply with the approval of a majority of the outstanding shares entitled to
vote. The Zoran Certificate does not provide for a classified board or
cumulative voting. Accordingly, any director of Zoran may be removed with or
without cause with the approval of a majority of the outstanding shares entitled
to vote.
DISSOLUTION
Under the CGCL, shareholders holding 50% or more of the total voting power
may authorize a corporation's dissolution. This right may not be modified by the
articles of incorporation. The DGCL requires either unanimous stockholder
approval or approval by a majority of the directors and by stockholders having a
majority of the total voting power of the corporations outstanding stock. In
addition, a Delaware corporation may include in its certificate of incorporation
a supermajority voting requirement in connection with dissolutions. The Zoran
Certificate does not contain such a provision.
DIVIDENDS AND REPURCHASES OF SHARES
The CGCL dispenses with the concepts of par value of shares as well as
statutory definitions of capital, surplus and the like. The concepts of par
value, capital and surplus are retained under the DGCL.
Under the CGCL, a corporation may not make any distribution (including a
repurchase of shares) unless either the corporation's retained earnings
immediately prior to the proposed distribution equal or exceed the amount of the
proposed distribution or, immediately after giving effect to such distribution,
the corporation's assets (exclusive of goodwill, capitalized research and
development expenses and deferred charges) would be at least equal to 1 1/4
times its liabilities (not including deferred taxes, deferred income and other
deferred credits) and the corporation's current assets would be at least equal
to its current liabilities (or 1 1/4 times its current liabilities if the
average earnings before interest expense and taxes for the preceding two fiscal
years were less than the average interest expense for such years). Such tests
are applied to corporations on a consolidated basis.
The DGCL permits a corporation to declare and pay dividends out of surplus
(defined as net assets less stated capital) or, if there is no surplus, out of
net profits for the fiscal year in which the dividend is declared or for the
preceding fiscal year so long as the amount of capital of the corporation
following the declaration and payment of the dividend is not less than the
aggregate amount of the capital represented by the issued and outstanding stock
of all classes having a preference upon the distribution of assets. In addition,
the DGCL generally provides that a corporation may redeem or repurchase its
shares only if such redemption or repurchase would not impair the capital of the
corporation.
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APPROVAL OF REORGANIZATIONS
Both the CGCL and the DGCL generally require that a majority of the
stockholders of acquiring and target corporations approve statutory mergers. The
DGCL does not require a stockholder vote of the surviving corporation in a
merger (unless the corporation provides otherwise in its certificate of
incorporation) if (a) the merger agreement does not amend the existing
certificate of incorporation, (b) each share of the surviving corporation
outstanding before the merger is an identical outstanding or treasury share
after the merger, and (c) the number of shares to be issued by the surviving
corporation in the merger does not exceed 20% of the shares outstanding
immediately prior to the merger. The CGCL contains a similar exception to its
voting requirements for reorganizations where shareholders or the corporation
itself, or both, immediately prior to the reorganization will own immediately
after the reorganization equity securities constituting more than five-sixths of
the voting power of the surviving or acquiring corporation or its parent entity.
APPRAISAL RIGHTS
Under both the CGCL and the DGCL, a stockholder of a corporation
participating in a statutory merger may, under certain circumstances, be
entitled to appraisal rights pursuant to which such stockholder may receive cash
in the amount of the fair market value of his or her shares in lieu of the
consideration he or she would otherwise receive in the transaction. In addition,
under the CGCL, such appraisal rights are available to shareholders of a
corporation participating in a sale-of-asset reorganization.
Under the DGCL, such appraisal rights are not available (a) with respect to
the sale, lease or exchange of all or substantially all of the assets of a
corporation, (b) with respect to a merger or consolidation by a corporation the
shares of which are either listed on a national securities exchange or are held
of record by more than 2,000 holders if such stockholders receive only shares of
the surviving corporation or shares of any other corporation which are either
listed on a national securities exchange or held of record by more than 2,000
holders, plus cash in lieu of fractional shares, or (c) to stockholders of a
corporation surviving a merger if no vote of the stockholders of the surviving
corporation is required to approve the merger because the merger agreement does
not amend the existing certificate of incorporation, each share of the surviving
corporation outstanding prior to the merger is an identical outstanding or
treasury share after the merger, and the number of shares to be issued in the
merger does not exceed 20% of the shares of the surviving corporation
outstanding immediately prior to the merger and if certain other conditions are
met.
Under the CGCL, shareholders of a corporation whose shares are listed on a
national securities exchange or on a list of over-the-counter margin stocks
issued by the Board of Governors of the Federal Reserve System generally do not
have appraisal rights unless the holders of at least five percent of the class
of outstanding shares claim the right or unless a transfer restriction is
imposed on the shares by the corporation or by any law or regulation. Appraisal
rights are also unavailable if the corporation or its shareholders immediately
prior to the reorganization, or both, will own immediately after the
reorganization equity securities constituting more than five-sixths of the
voting power of the surviving or acquiring corporation or its parent entity, and
if the shares of the surviving corporation have the same rights, preferences,
privileges and restrictions as the shares of the disappearing corporation that
are surrendered in exchange.
STOCKHOLDER DERIVATIVE SUITS
The CGCL provides that a shareholder bringing a derivative action on behalf
of a corporation need not have been a shareholder at the time of the transaction
in question, provided that certain tests are met. Under the DGCL, a stockholder
may only bring a derivative action on behalf of the corporation if the
stockholder was a stockholder of the corporation at the time of the transaction
in question or his or her
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stock thereafter devolved upon him or her by operation of law. The CGCL also
provides that the corporation or the defendant in a derivative suit may make a
motion to the court for an order requiring the plaintiff shareholder to furnish
a security bond. Delaware does not have a similar bonding requirement.
"BLANK CHECK" PREFERRED STOCK
Both the CompCore Articles and the Zoran Certificate permit the Board of
Directors to determine the rights, preferences, privileges and restrictions of
authorized but unissued preferred stock, commonly referred to as "blank check"
preferred stock. The issuance of preferred stock with extraordinary rights may
be used to deter hostile takeover attempts. Although Zoran's Board of Directors
has no present intention of issuing such preferred stock, it could do so in the
future without stockholder approval.
LIMITATION OF LIABILITY OF DIRECTORS AND OFFICERS
Under both the CGCL and the DGCL, a corporation may adopt a provision in its
certificate of incorporation that eliminates a director's liability for monetary
damages for a breach of such director's duty of care to the corporation or its
stockholders. Both the CompCore Articles and the Zoran Certificate contain such
a provision. Under the DGCL, as a result of such a provision, no director of
Zoran will be liable for monetary damages for negligence or gross negligence
committed in the course of his duties as a director. Directors will continue to
be subject to claims for equitable remedies, although such remedies may not be
available as a practical matter in some circumstances. In addition, under the
DGCL, each director will remain liable for engaging in a transaction from which
such director derives an improper personal benefit, for engaging in intentional
misconduct or a knowing violation of law, or for the wrongful payment of a
dividend or repurchase of shares by Zoran where such dividend or repurchase was
willfully or negligently caused by such director. A corporation also may not
limit a director's liability for violations of the federal securities laws.
Although the CGCL is substantially similar to the DGCL on limitation of
directors' liability, the CGCL permits the limitation of liability in a narrower
range of circumstances than does the DGCL. In particular, the CGCL expressly
prohibits elimination of liability for acts or omissions that (i) show a
reckless disregard for the director's duty to the corporation or its
shareholders in circumstances in which the director was aware or should have
been aware of a serious risk of injury to the corporation or the shareholders or
(ii) constitute an unexcused pattern of inattention that amounts to an
abdication of the director's duty to the corporation or its shareholders.
INDEMNIFICATION
The DGCL provides that a corporation may indemnify a director or officer (i)
for expenses in defense of (a) any action or proceeding if the director or
officer is sued by reason of his service to the corporation, to the extent that
he has been successful in defense of such action or proceeding, and (b) any
claim, issue or matter raised in such litigation, (ii) in actions other than
derivative actions, for expenses, judgments, fines, amounts paid in settlement
of such litigation, and other amounts, even if he is not successful on the
merits, if he acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the corporation (and in a criminal
proceeding, if he did not have reasonable cause to believe his conduct was
unlawful), and (iii) for expenses (but not judgments or settlements) incurred in
any action by the corporation or in a derivative action even if he is not
successful, provided that he acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the corporation,
provided that no indemnification is permitted without court approval if the
director is adjudged liable to the corporation.
The CGCL restricts a corporation from providing indemnification in certain
situations in which indemnification is permitted under the DGCL. For example,
unlike the DGCL, the CGCL expressly prohibits indemnification for amounts paid
in settling or otherwise disposing of a pending derivative action
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without court approval or for expenses incurred in defending a pending
derivative action that is settled or otherwise disposed of without court
approval. Further, the CGCL expressly prohibits the indemnification of a
director for liability resulting from certain acts or omissions that show a
reckless disregard for his duty to the corporation or its shareholders or
resulting from acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of his duty to the corporation or its
shareholders. The DGCL does not expressly prohibit indemnification in such
circumstances. Further, the CGCL and the DGCL differ slightly in the standard of
good faith that must be met by a person seeking indemnification: under the CGCL,
an indemnified person must have acted in good faith and in a manner the person
reasonably believed to be in the best interests of the corporation and its
shareholders; under the DGCL, an indemnified person must have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation.
Both the DGCL and the CGCL permit a corporation to elect to indemnify its
directors and officers under a broader range of circumstances than that provided
under the statute. Both the CompCore Bylaws and the Zoran Bylaws contain
provisions requiring the corporation to indemnify its directors and officers to
the fullest extent permitted by law, including a provision requiring the
corporation to advance litigation expenses as they are incurred by a director or
officer. In addition, Zoran has entered into indemnification agreements with its
directors and officers that provide each person with a contractual right to
indemnification where permitted by law.
BUSINESS COMBINATIONS AND CONTROL SHARE ACQUISITION
As a Delaware corporation, Zoran is subject to Section 203 of the DGCL,
which regulates large accumulations of shares, including those made by tender
offers, and is designed to deter non-negotiated acquisitions. The CGCL has no
comparable provisions, although the CGCL regulates certain tender offers or
proposals for reorganization made by "interested parties" (that is, persons who
directly or indirectly control the corporation) and imposes certain restrictions
on "cash out" mergers.
Section 203 of the DGCL prohibits certain transactions between a Delaware
corporation and an "interested stockholder," which, for purposes of Section 203,
is a stockholder that is directly or indirectly a beneficial owner of 15% or
more of the voting power of the outstanding voting stock of the corporation.
This provision prohibits certain business combinations between an interested
stockholder and a corporation for a period of three years after the date of the
acquisition that caused the stockholder to become an interested stockholder,
unless (i) the business combination is approved by the corporation's board of
directors prior to the stock acquisition date, (ii) the interested stockholder
has acquired at least 85% of the voting stock of the corporation in the
transaction in which he became an interested stockholder, or (iii) the business
combination is approved by a majority of the board of directors and the
affirmative vote by the holders of two-thirds of the stock not held by the
interested stockholder.
------------------------
The foregoing summary does not purport to be a complete statement of the
rights of holders of Zoran Common Stock and CompCore Common Stock under, and is
qualified in its entirety by reference to, the DGCL and the CGCL, the Zoran
Certificate and Zoran Bylaws, and the CompCore Articles and CompCore Bylaws. See
"Description of Zoran Capital Stock" for a summary of certain other rights
relating to the Zoran Common Stock.
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DESCRIPTION OF ZORAN CAPITAL STOCK
The authorized capital stock of Zoran consists of 20,000,000 shares of
Common Stock, $0.001 par value per share, and 3,000,000 shares of Preferred
Stock, $0.001 par value per share.
COMMON STOCK
As of October 31, 1996, there were 7,037,652 shares of Common Stock
outstanding held of record by 395 stockholders. The holders of Common Stock are
entitled to one vote for each share held of record on all matters submitted to a
vote of stockholders. Accordingly, holders of a majority of the shares of Common
Stock entitled to vote in any election of directors may elect all of the
directors standing for election. Subject to preferences that may be applicable
to any Preferred Stock, holders of Common Stock are entitled to receive ratably
such dividends as may be declared by the Board of Directors out of funds legally
available therefor. In the event of a liquidation, dissolution or winding up of
the Company, holders of Common Stock are entitled to share ratably in the assets
remaining after payment of liabilities and the liquidation preference of any
outstanding Preferred Stock. Holders of Common Stock have no preemptive,
conversion or redemption rights. All of the outstanding shares of Common Stock
are, and the shares to be sold in this offering when issued and paid for will
be, fully paid and non-assessable.
PREFERRED STOCK
Up to 3,000,000 shares of undesignated Preferred Stock are authorized for
issuance. Zoran's Board of Directors has the authority, without further action
by the stockholders, to issue such Preferred Stock in one or more series and to
fix the designations, powers, preferences, privileges and relative
participating, optional or special rights and the qualifications, limitations or
restrictions thereof, including dividend rights, conversion rights, voting
rights, terms of redemption and liquidation preferences of each such series, any
or all of which may be greater than the rights of the Common Stock. The Board of
Directors, without stockholder approval, can issue Preferred Stock with voting,
conversion or other rights that could adversely affect the voting power and
other rights of the holders of Common Stock. Preferred Stock could thus be
issued quickly with terms calculated to delay or prevent a change in control of
the Company or make removal of management more difficult. Additionally, the
issuance of Preferred Stock may have the effect of decreasing the market price
of the Common Stock. At present, the Company has no plans to issue any of the
Preferred Stock.
WARRANTS
As of October 31, 1996, there were outstanding 1993 Warrants and Series K
Warrants to purchase up to 137,841 shares of Common Stock at an exercise price
of $9.00 per share, expiring in July 1998.
Zoran has issued to Tower Semiconductor Ltd. ("Tower") a warrant to purchase
100,000 shares of Common Stock (the "Tower Warrant") in conjunction with Tower's
commitment to enter into a four-year wafer supply agreement. The Tower Warrant
has an exercise price of $10.20 per share and will expire in 1999.
REGISTRATION RIGHTS
Pursuant to the Restated Rights Agreement between Zoran and the holders
("Holders") of an aggregate of 2,703,299 shares of Common Stock that are issued
and outstanding or that are issuable upon exercise of the 1993 Warrants and the
Series K Warrants (collectively, the "Registrable Securities"), the Holders are
entitled to certain rights with respect to the registration of such shares under
the Securities Act. In the event that Zoran proposes to register any of its
securities under the Securities Act for its own account or for the account of
other security holders, the Holders are entitled to notice of such registration
and are entitled to include the Registrable Securities in such registration, at
Zoran's expense, subject to marketing and other limitations. The holders of at
least 50% of the Registrable Securities have the right to
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require Zoran, on not more than two occasions, to file a registration statement
under the Securities Act, at Zoran's expense, in order to register shares
representing at least 25% of the Registrable Securities and having an aggregate
proposed offering price of at least $5 million. Zoran may, in certain
circumstances, defer such registration, and the underwriters of such an offering
have the right, subject to certain limitations, to limit the number of shares
included in such registration. In addition, the Holders may require Zoran to
register their Registrable Securities on Form S-2 or S-3, at Zoran's expense,
when such form becomes available to Zoran, subject to a limit of one such
registration during any twelve-month period and subject to certain other
conditions and limitations.
Zoran has also agreed to register the shares of Common Stock issuable upon
the exercise of the Tower Warrant on Form S-3, at Tower's request at any time
after the first anniversary of the grant date and to include such shares in the
registration of securities for Zoran's own account, subject to the same
limitations applicable to the Registrable Securities.
CERTAIN PROVISIONS OF DELAWARE LAW
Zoran is subject to the provisions of Section 203 of the DGCL. See
"Comparison of Rights of Zoran Stockholders and CompCore Shareholders."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for Zoran's Common Stock is American Stock
Transfer & Trust Company.
LISTING
Zoran's Common Stock is listed on the Nasdaq National Market under the
trading symbol "ZRAN."
LEGAL MATTERS
The validity of the shares of Zoran Common Stock to be issued in connection
with the Merger will be passed upon for Zoran by Gray Cary Ware & Freidenrich, A
Professional Corporation, Palo Alto, California.
EXPERTS
The consolidated financial statements of Zoran at December 31, 1994 and 1995
and for each of the three years in the period ended December 31, 1995 included
in this Joint Proxy Statement/Prospectus have been so included in reliance on
the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
Effective August 25, 1995, Price Waterhouse LLP was engaged as principal
independent accountants for Zoran. Ernst & Young LLP ("E&Y"), dismissed
effective August 25, 1995, had been the principal independent accountants of
Zoran. The decision to change independent accountants was made to allow Zoran to
engage a single auditor for both Zoran and its Israeli subsidiary, Zoran
Microelectronics Ltd. ("ZML"), and was approved by Zoran's Board of Directors.
In connection with the audits of Zoran's financial statements for each of the
two years in the period ended December 31, 1994 and the subsequent interim
period, there were no disagreements with E&Y on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedures, which disagreements if not resolved to E&Y's satisfaction would have
caused them to make reference to the matter in their report. The reports of E&Y
on the financial statements of Zoran as of and for the years ended December 31,
1993 and 1994, not included herein, did not contain an adverse opinion or
disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope or accounting principles. Further, during this period, there were no
events of the type required to be reported pursuant to Item 304(a)(1)(v) of
Regulation S-K. During the
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two most recent years and through August 25, 1995, Zoran had not consulted with
Price Waterhouse LLP on items which involved either Zoran's accounting
principles or the form of audit opinion or concerned the subject matter of a
disagreement or reportable event with the former auditor. ZML has engaged an
independent auditor in Israel as its auditor since its inception in 1983. This
auditor became affiliated with Price Waterhouse LLP in 1995.
The financial statements of CompCore at September 30, 1995 and 1996, and for
the period from November 12, 1993 (inception) to September 30, 1994 and the
years ended September 30, 1995 and 1996 included in this Joint Proxy
Statement/Prospectus have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
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ZORAN CORPORATION
COMPCORE MULTIMEDIA, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
ZORAN CORPORATION
Report of Independent Accountants.......................................................................... F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 and September 30, 1996 (unaudited)............ F-3
Consolidated Statements of Operations for the Years Ended December 31, 1993, 1994 and 1995 and for the Nine
Months Ended September 30, 1995 and 1996 (unaudited)..................................................... F-4
Consolidated Statements of Stockholder's Equity (Deficit) for the Years Ended December 31, 1993, 1994 and
1995 and for the Nine Months Ended September 30, 1996 (unaudited)........................................ F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995 and for the Nine
Months Ended September 30, 1995 and 1996 (unaudited)..................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
COMPCORE MULTIMEDIA, INC.
Report of Independent Accountants.......................................................................... F-20
Balance Sheets as of September 30, 1995 and 1996........................................................... F-21
Statements of Income for the Period from November 12, 1993 (inception) to September 30, 1994 and for the
Years Ended September 30, 1995 and 1996.................................................................. F-22
Statements of Shareholders' Equity for the Period from November 12, 1993 (inception) to September 30, 1994
and for the Years Ended September 30, 1995 and 1996...................................................... F-23
Statements of Cash Flows for the Period from November 12, 1993 (inception) to September 30, 1994 and for
the Years Ended September 30, 1995 and 1996.............................................................. F-24
Notes to Financial Statements.............................................................................. F-25
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Zoran Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows present fairly, in all material respects, the financial position of Zoran
Corporation and its subsidiary at December 31, 1994 and 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
San Jose, California
February 9, 1996
F-2
<PAGE>
ZORAN CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1995
---------- ---------- SEPTEMBER 30,
1996
-------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................ $ 1,054 $ 20,521 $ 7,534
Short-term investments................................................... -- -- 11,841
Accounts receivable, net................................................. 2,261 4,479 11,600
Inventory................................................................ 784 2,255 1,637
Prepaid expenses and other current assets................................ 135 439 620
---------- ---------- -------------
Total current assets................................................. 4,234 27,694 33,232
Property and equipment, net................................................ 1,792 1,391 2,306
---------- ---------- -------------
Total assets......................................................... $ 6,026 $ 29,085 $ 35,538
---------- ---------- -------------
---------- ---------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable............................................................ $ 1,378 $ -- $ --
Accounts payable......................................................... 2,223 3,414 2,107
Accrued expenses and other liabilities................................... 2,483 4,444 5,872
Current portion of long-term debt........................................ 461 372 343
---------- ---------- -------------
Total current liabilities............................................ 6,545 8,230 8,322
---------- ---------- -------------
Long-term debt............................................................. 1,027 601 395
---------- ---------- -------------
Commitments and contingencies (Notes 4, 7 and 8)
Stockholders' equity (deficit):
Convertible Preferred Stock, $0.001 par value; 5,768,580 and 3,000,000
shares authorized; 4,031,470 shares and none issued and outstanding;... 4 -- --
Common Stock, $0.001 par value; 9,000,000 and 20,000,000 shares
authorized; 161,925, 6,538,530 and 7,007,444 shares issued and
outstanding;........................................................... -- 7 7
Additional paid-in capital............................................... 51,356 72,567 76,423
Accumulated deficit...................................................... (52,906) (52,320) (49,609)
---------- ---------- -------------
Total stockholders' equity (deficit)................................. (1,546) 20,254 26,821
---------- ---------- -------------
Total liabilities and stockholders' equity........................... $ 6,026 $ 29,085 $ 35,538
---------- ---------- -------------
---------- ---------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
ZORAN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Product sales............................................ $ 2,044 $ 6,243 $ 18,086 $ 12,399 $ 25,169
Development revenue...................................... 1,898 1,815 1,831 1,235 884
Licenses and royalties................................... 745 -- 150 75 300
--------- --------- --------- --------- ---------
Total revenues......................................... 4,687 8,058 20,067 13,709 26,353
--------- --------- --------- --------- ---------
Costs and expenses:
Cost of product sales.................................... 2,601 4,677 9,306 6,268 14,278
Research and development................................. 4,997 4,442 4,280 3,021 3,727
Selling, general and administrative...................... 4,556 3,940 5,420 3,829 6,033
--------- --------- --------- --------- ---------
Total costs and expenses............................... 12,154 13,059 19,006 13,118 24,038
--------- --------- --------- --------- ---------
Operating income (loss).................................... (7,467) (5,001) 1,061 591 2,315
Interest expense........................................... (277) (282) (320) (251) (119)
Interest and other income.................................. 68 50 134 48 850
--------- --------- --------- --------- ---------
Income (loss) before income taxes.......................... (7,676) (5,233) 875 388 3,046
Provision for income taxes................................. 34 2 189 126 335
--------- --------- --------- --------- ---------
Net income (loss).......................................... $ (7,710) $ (5,235) $ 686 $ 262 $ 2,711
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income (loss) per share................................ $ (1.31) $ (0.83) $ 0.10 $ 0.04 $ 0.33
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average common shares and equivalents............. 5,880 6,284 6,453 6,400 8,256
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
ZORAN CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED
STOCK COMMON STOCK ADDITIONAL
---------------------- ------------------------ PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ----------- ----------- ----------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992........... 1,083 $ 1 161 $ -- $ 39,987 $ (39,961) $ 27
Conversion of 10% senior convertible
promissory notes, plus accrued
interest, to Series K Preferred
Stock, net........................... 348 -- -- -- 3,099 -- 3,099
Issuance of Series K Preferred Stock,
net.................................. 596 1 -- -- 5,315 -- 5,316
Net loss............................... -- -- -- -- -- (7,710) (7,710)
--------- ----- ----- ----- ----------- ------------ ---------
BALANCE AT DECEMBER 31, 1993........... 2,027 2 161 -- 48,401 (47,671) 732
Conversion of 9% convertible promissory
notes, plus accrued interest, to
Series L Preferred Stock, net........ 1,283 1 -- -- 1,890 -- 1,891
Issuance of Series L Preferred Stock,
net.................................. 722 1 -- -- 1,064 -- 1,065
Issuance of Common Stock............... -- -- 1 -- 1 -- 1
Net loss............................... -- -- -- -- -- (5,235) (5,235)
--------- ----- ----- ----- ----------- ------------ ---------
BALANCE AT DECEMBER 31, 1994........... 4,032 4 162 -- 51,356 (52,906) (1,546)
Exercise of Series K and L Preferred
Stock Warrants....................... 875 1 -- -- 4,144 -- 4,145
Issuance of Common Stock pursuant to
public offering, net of expenses..... -- -- 1,429 2 17,038 -- 17,040
Conversion of Preferred Stock to Common
Stock................................ (4,907) (5) 4,907 5 -- -- --
Issuance of Common Stock............... -- -- 41 -- 5 -- 5
Amortization of deferred
compensation......................... -- -- -- -- 24 -- 24
Declaration of dividend................ -- -- -- -- -- (100) (100)
Net income............................. -- -- -- -- -- 686 686
--------- ----- ----- ----- ----------- ------------ ---------
BALANCE AT DECEMBER 31, 1995........... -- -- 6,539 7 72,567 $ (52,320) $ 20,254
Issuance of Common Stock (unaudited)... -- -- 468 -- 3,826 -- 3,826
Amortization of deferred compensation
(unaudited).......................... -- -- -- -- 30 -- 30
Net income (unaudited)................. -- -- -- -- -- 2,711 2,711
--------- ----- ----- ----- ----------- ------------ ---------
BALANCE AT SEPTEMBER 30, 1996
(UNAUDITED).......................... -- $ -- 7,007 $ 7 $ 76,423 $ 49,609 $ 26,821
--------- ----- ----- ----- ----------- ------------ ---------
--------- ----- ----- ----- ----------- ------------ ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
ZORAN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- ---------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................ $ (7,710) $ (5,235) $ 686 $ 262 $ 2,711
Adjustments:
Depreciation and amortization.......................... 906 882 777 590 606
Amortization of deferred compensation.................. -- -- 24 9 30
Deferred revenue....................................... (160) -- 403 104 1,335
Changes in assets and liabilities:
Accounts receivable.................................. (425) (1,276) (2,218) (2,494) (7,121)
Inventory............................................ (331) (352) (1,471) (622) 618
Prepaid expenses and other current assets............ 102 24 (304) 12 (181)
Accounts payable..................................... (68) 1,365 1,191 1,138 (1,307)
Accrued expenses and other liabilities............... (167) 1,068 1,558 968 93
--------- --------- --------- --------- ----------
Net cash provided by (used in) operating
activities....................................... (7,853) (3,524) 646 (33) (3,216)
--------- --------- --------- --------- ----------
Cash flows from investing activities:
Capital expenditures for property and equipment.......... (638) (418) (376) (260) (1,521)
Purchases of short-term investments, net................. -- -- -- -- (11,841)
Other investing activities............................... (1) 53 -- -- --
--------- --------- --------- --------- ----------
Net cash used in investing activities.............. (639) (365) (376) (260) (13,362)
--------- --------- --------- --------- ----------
Cash flows from financing activities:
Proceeds of debt......................................... 3,303 3,264 208 208 --
Repayments of debt....................................... (191) (410) (2,101) -- (235)
Proceeds from issuance of Common Stock, net.............. -- 1 17,045 5 3,826
Proceeds from issuance of Preferred Stock, net........... 5,316 1,066 4,145 656 --
Dividends paid........................................... -- -- (100) -- --
--------- --------- --------- --------- ----------
Net cash provided by financing activities.......... 8,428 3,921 19,197 869 3,591
--------- --------- --------- --------- ----------
Net increase (decrease) in cash and cash equivalents....... (64) 32 19,467 576 (12,987)
Cash and cash equivalents at beginning of period........... 1,086 1,022 1,054 1,054 20,521
--------- --------- --------- --------- ----------
Cash and cash equivalents at end of period................. $ 1,022 $ 1,054 $ 20,521 $ 1,630 $ 7,534
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
SUPPLEMENTAL DISCLOSURES:
Interest paid............................................ $ 278 $ 283 $ 319 $ 222 $ 113
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--THE COMPANY:
Zoran Corporation ("Zoran" or the "Company") was incorporated in California
in December 1981 and reincorporated in Delaware in November 1986. Zoran develops
and markets integrated circuits for digital video and audio compression
applications. The Company's integrated circuits are used in a variety of video
and audio products addressing evolving multimedia markets. Current applications
for Zoran products include professional and consumer video editing systems,
PC-based video CD systems, stand-alone video CD systems, digital audio systems
and filmless digital cameras.
The Company's principal research and development facilities and a
substantial portion of its sales operations are located in the State of Israel.
The majority of the Company's full-time employees are located in Israel,
including all of the Company's research and development personnel. Therefore,
the Company is directly affected by the political, economic and military
conditions to which that country is subject.
The semiconductor business is highly cyclical and has been subject to
significant downturns at various times that have been characterized by
diminished product demand, production, overcapacity, and accelerated erosion of
average selling prices. During the past year, the market for certain
semiconductor devices has experienced an excess of supply relative to demand
which has resulted in a significant downward trend in prices. As such, the
selling price that the Company is able to command for its products is highly
dependent on industry-wide production capacity and demand, both of which factors
could result in rapid deviations in product pricing and therefore could
adversely effect the Company's operating results.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES:
Zoran has adopted accounting policies which are generally accepted in the
industry in which it operates. The following is a summary of the Company's
significant accounting policies:
BASIS OF PRESENTATION
The consolidated financial statements include the financial statements of
the Company and its wholly-owned Israeli subsidiary, Zoran Microelectronics Ltd.
("ZML"). All significant intercompany transactions and accounts have been
eliminated. The preparation of these consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could vary
from those estimates.
REVERSE STOCK SPLIT
Share information for all periods has been retroactively adjusted to reflect
a 1-for-3 reverse stock split of Common Stock and Preferred Stock effected on
December 14, 1995.
TRANSLATION OF FOREIGN CURRENCIES
ZML treats the U.S. dollar as its functional currency. In accordance with
Statement of Financial Accounting Standards No. 52 (SFAS 52), gains and losses
resulting from translation of accounts designated in other than the functional
currency are reflected in results of operations and to date have been
insignificant.
F-7
<PAGE>
ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
To date, substantially all of the Company's product sales have been
denominated in U.S. dollars and most costs of product sales have been incurred
in U.S. dollars. The Company has not experienced material losses or gains as a
result of currency exchange rate fluctuations and has not engaged in hedging
transactions to reduce its exposure to such fluctuations. The Company intends to
actively monitor its foreign exchange exposure and to take appropriate action to
reduce its foreign exchange risk, if such risk becomes material.
REVENUE RECOGNITION
Revenue from product sales is generally recognized upon shipment. A
provision for estimated future returns and potential warranty liability is
recorded at the time revenue is recognized. Development revenue under
development contracts is recognized on the percentage-of-completion method.
Estimates are reviewed and revised periodically throughout the lives of the
contracts. Any revisions are recorded in the accounting period in which the
revisions are made. Costs associated with development revenues are included
primarily in research and development expenses. Revenue resulting from the
licensing of the Company's technology is recognized when significant contractual
obligations have been fulfilled. Royalty revenue is recognized upon the sale of
products subject to royalties.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
All highly liquid investments purchased with an original maturity of 90 days
or less are considered to be cash and cash equivalents.
CONCENTRATION OF CREDIT RISK OF FINANCIAL INSTRUMENTS
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash equivalents,
short-term investments and trade accounts receivable. The Company places its
cash in banks and cash equivalents primarily in auction rate preferred,
certificates of deposit and commercial paper. The Company, by policy, limits the
amount of credit exposure through diversification and highly-rated securities.
The Company has not experienced any significant losses on its cash equivalents.
The Company markets integrated circuits to manufacturers and distributors of
electronic equipment primarily in the Pacific Rim, North America and Europe. The
Company performs ongoing credit evaluations of its customers' financial
condition and limits the amount of credit extended when deemed necessary, but
generally does not require collateral. Management believes that any risk of loss
is significantly reduced due to the diversity of its customers and geographic
sales areas. The Company maintains a provision for potential credit losses, and
write-offs of accounts receivable were insignificant in each of the three years
in the period ended December 31, 1995.
INVENTORY
Inventory is stated at the lower of standard cost (which approximates actual
cost on a first-in, first-out basis) or market.
F-8
<PAGE>
ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is computed on the
straight-line method using estimated lives of three to five years. Leasehold
improvements are amortized on a straight-line basis over the shorter of the
estimated useful lives of the assets or the remaining term of the lease.
INCOME TAXES
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109 (SFAS 109). SFAS 109 is an
asset and liability approach that requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that
have been recognized in the Company's financial statements or income tax
returns. In estimating future tax consequences, SFAS 109 generally considers all
expected future events other than enactments of changes in the tax law or rates.
See Note 10.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed using the weighted average number of
common and common equivalent shares outstanding during the period. Common
equivalent shares consist of shares issuable upon exercise of stock options and
warrants (using the treasury stock method). Pursuant to the requirements of the
Securities and Exchange Commission, Common Stock, Preferred Stock and common
equivalent shares issued during the twelve months prior to the initial public
offering are included in the computation for all periods presented.
INTERIM RESULTS (UNAUDITED)
The accompanying consolidated balance sheet at September 30, 1996,
consolidated statement of stockholders' equity (deficit) for the nine-month
period ended September 30, 1996 and the consolidated statements of operations
and of cash flows for the nine months ended September 30, 1995 and 1996 are
unaudited. In the opinion of management, these statements have been prepared on
the same basis as the audited financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for the fair
statement of the results for the interim periods. The results of operations and
cash flows for the nine-month periods ended September 30, 1995 and 1996 are not
necessarily indicative of the results expected for any other nine-month period
or for the year ending December 31, 1996. The data disclosed in the notes to
these consolidated financial statements as of September 30, 1996 and for the
nine-month periods ended September 30, 1995 and 1996 are unaudited.
F-9
<PAGE>
ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--BALANCE SHEET COMPONENTS:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Accounts receivable:
Trade.................................................................... $ 2,411 $ 4,272
Unbilled................................................................. -- 357
--------- ---------
2,411 4,629
Less: allowances......................................................... (150) (150)
--------- ---------
$ 2,261 $ 4,479
--------- ---------
--------- ---------
</TABLE>
Unbilled accounts receivable consists of both development revenue
recognized, but not yet billed and research and development funding not yet
received. Unbilled development revenue represents revenue recognized under the
percentage-of-completion method prior to achievement of the related contract
milestones. The Company bills development revenue when contract milestones are
achieved. The Company recognizes research and development funding as
reimbursable expenses under research and development agreements are incurred.
This funding is offset against research and development expenses.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
SEPTEMBER 30,
1996
-------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Inventory:
Raw materials.......................................... $ 25 $ -- $ --
Work-in-process........................................ 572 942 845
Finished goods......................................... 187 1,313 792
--------- --------- ------
$ 784 $ 2,255 $ 1,637
--------- --------- ------
--------- --------- ------
Property and equipment:
Computer equipment..................................... $ 4,160 $ 4,279
Office equipment and furniture......................... 298 280
Machinery and equipment................................ 675 473
Leasehold improvements................................. 190 208
--------- ---------
5,323 5,240
Less: accumulated depreciation and amortization........ (3,531) (3,849)
--------- ---------
$ 1,792 $ 1,391
--------- ---------
--------- ---------
Accrued expenses and other liabilities:
Accrued payroll and related expenses................... $ 540 $ 1,154
Accrued royalties...................................... 131 296
Other accrued liabilities.............................. 767 1,546
Deferred revenue....................................... 1,045 1,448
--------- ---------
$ 2,483 $ 4,444
--------- ---------
--------- ---------
</TABLE>
F-10
<PAGE>
ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--BALANCE SHEET COMPONENTS: (CONTINUED)
In December 1994, the Company received $1 million from a customer as a
nonrefundable advance for certain of the Company's products sold over a
three-year period. The entire amount is included in deferred revenue as of
December 31, 1994. The Company recognized $76,000 during the year ended December
31, 1995 based upon product shipments to the customer. The Company recognized
the remainder of the nonrefundable advance in the nine-month period ended
September 30, 1996 upon completion of the program. In December 1995, the Company
received $375,000 from a company for a license of certain of the Company's
products sold over a ten-year period, contingent upon the company's design
approval. The Company recognized the $75,000 nonrefundable portion in 1995.
NOTE 4--RESEARCH AND DEVELOPMENT ARRANGEMENTS:
The Company is a party to certain research and development agreements with
the Chief Scientist in Israel's Ministry of Industry and Trade Department (the
"Chief Scientist") and the Israel-United States Binational Industrial Research
and Development Foundation ("BIRDF"), which fund up to 50% of incurred project
costs for approved products up to specified contract maximums. The Company is
not obligated to repay funding regardless of the outcome of its development
efforts; however, these agreements require the Company to use its best efforts
to achieve specified results and require the Company to pay royalties at rates
of 2 1/2% to 5% of resulting products sales, and up to 30% of resulting license
revenues, up to a maximum of 100% to 150% of the total funding received.
Reported research and development expenses are net of these grants, which
fluctuate from period to period.
Gross research and development expenses and the related grants are as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Research and development expenses:
Gross research and development expenses........................ $ 5,331 $ 4,991 $ 4,480
Less: grants earned............................................ (334) (549) (200)
--------- --------- ---------
$ 4,997 $ 4,442 $ 4,280
--------- --------- ---------
--------- --------- ---------
</TABLE>
Royalty expenses related to these grants were $38,000, $166,000 and $450,000
in 1993, 1994 and 1995, respectively.
In 1994, the Company entered into an agreement with another company to
operate a Delaware limited liability company ("LLC"). The Company contributed
certain technology in part to the LLC and in part to a wholly-owned Israeli
corporate subsidiary of the LLC that conducts the day-to-day operations of the
LLC. The other company contributed $4 million in cash to the LLC. In exchange
for their contributions, each company received a 50% equity interest in the LLC.
The Company has no further obligations to the LLC.
The purpose of the LLC is to perform research and development and develop
and market products based on proprietary, general purpose and
application-specific integrated circuits. Since its inception, the LLC has
incurred losses of approximately $1.0 million, primarily related to the
development of its technology. The technology contributed by the Company had no
consolidated book basis and there was
F-11
<PAGE>
ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--RESEARCH AND DEVELOPMENT ARRANGEMENTS: (CONTINUED)
significant uncertainty with regard to the realizability of the Company's
investment. Accordingly, no investment was recorded on the Company's books at
the date of the contribution.
In September 1995, the Company approved the transfer of its interest in the
LLC, together with $100,000 in cash, to GC Holdings Corporation ("Holdings"), a
100%-owned subsidiary of Zoran, as Holdings' initial capital and declared a
dividend to its stockholders of all of the stock of Holdings. As the book value
of Holdings is $100,000, this transaction is reflected as a cash dividend of
$100,000.
NOTE 5--SHORT-TERM BANK NOTES:
Short-term bank notes of $1.4 million at December 31, 1994 were denominated
in U.S. dollars. These notes were collateralized by ZML's assets and were not
subject to any financial or restrictive covenants. The notes, which were
renewable either quarterly or semiannually, bore interest at LIBOR plus 1.5% per
annum. In December 1995, the Company repaid the $1.9 million outstanding balance
with proceeds received from its initial public offering.
NOTE 6--LONG-TERM DEBT:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt:
Secured loans payable...................................................... $ 1,281 $ 957
Secured bank loan payable.................................................. 104 --
Other loans................................................................ 103 16
--------- ---------
Total debt............................................................... 1,488 973
Less current portion....................................................... 461 372
--------- ---------
$ 1,027 $ 601
--------- ---------
--------- ---------
</TABLE>
SECURED LOANS PAYABLE Secured loans payable totaling $957,000 as of
December 31, 1995 bear interest at LIBOR plus 2.875% to 3.125% (approximately
8.3125% to 8.5625% at December 31, 1995) and at 9.4% which is payable quarterly.
The loans are denominated in or linked to the U.S. dollar, secured by ZML
equipment and guaranteed by the State of Israel. The loans are payable in nine
to 21 quarterly installments which commenced in June 1993.
NOTE 7--DEVELOPMENT CONTRACTS:
The Company has generated a portion of its total revenues from development
contracts, primarily with key customers. These development contracts have
provided the Company with partial funding for the development of certain of its
products. Costs associated with development revenues are included primarily in
research and development expenses. The Company is not obligated to repay funding
regardless of the outcome of its development efforts; however, the agreements
require the Company to use its best efforts to achieve specified results as per
the agreements. The Company retains ownership of the intellectual property
developed under the contracts; however, some contracts limit the product markets
in which the Company may directly sell the developed product.
F-12
<PAGE>
ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--COMMITMENTS:
The Company rents facilities and equipment under various lease agreements
expiring through 2002. Rent expense for 1993, 1994 and 1995 totaled
approximately $406,000, $374,000 and $368,000, respectively. Future minimum
lease payments required under noncancelable leases at December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
---------------
(IN THOUSANDS)
<S> <C>
Year ending December 31:
1996........................................................................ $ 334
1997........................................................................ 299
1998........................................................................ 202
1999........................................................................ 201
2000........................................................................ 201
Thereafter.................................................................. 593
------
Total minimum lease payments................................................ $ 1,830
------
------
</TABLE>
NOTE 9--STOCKHOLDERS' EQUITY (DEFICIT):
In December 1995, the Company issued 1,428,847 shares of Common Stock at
$13.50 per share in conjunction with the Company's initial public offering
("IPO"). Proceeds, net of discounts, commissions and offering expenses, totaled
approximately $17 million. In January 1996, the underwriters exercised their
over-allotment option to purchase 307,500 additional shares of Common Stock for
total net proceeds of approximately $4 million. This transaction will be
reflected in the Company's first quarter results.
WARRANTS
In 1993 the Company granted a total of 569,322 warrants to purchase Series K
Convertible Preferred Stock ("Series K") at an exercise price of $9.00 per
share. These warrants were granted in conjunction with Series K and convertible
debt issued in 1993. In October 1995, the Company offered Series K warrant
holders a 10% discount on the $9.00 exercise price for a limited time. In
response to this offer, warrants were exercised to purchase 374,967 shares of
Series K for aggregate proceeds to the Company of approximately $3 million. In
conjunction with the IPO, 47,563 Series K warrants were exercised and converted
to Common Stock on a one-for-one basis. The remaining 146,792 warrants are
convertible into Common Stock on a one-for-one basis and expire in 1998.
In 1994, the Company granted a total of 505,079 warrants to purchase
Convertible Preferred Stock ("Series L") at an exercise price of $1.50 per
share. These warrants were granted in connection with the Series L and
convertible debt issued in 1994. In 1995, warrants to purchase 452,220 shares
of Series L were exercised for aggregate proceeds to the Company of $678,000. In
conjunction with the IPO, 233 Series L warrants were exercised and converted to
Common Stock on a one-for-one basis. The remaining 52,626 warrants are
convertible into Common Stock on a one-for-one basis and expire in 1996.
In December 1995, the Company entered into a four-year purchase agreement
(the "Agreement") with Tower Semiconductor Ltd ("Tower") pursuant to which Tower
will supply specified minimum quantities of wafers to the Company, based on
12-month forecasts and non-cancelable three month purchase orders. In
conjunction with the Agreement, the Company granted Tower warrants to purchase
up
F-13
<PAGE>
ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--STOCKHOLDERS' EQUITY (DEFICIT): (CONTINUED)
to 100,000 shares of Common Stock at $10.20 per share. These warrants expire in
1999. None of these warrants had been exercised as of December 31, 1995.
1993 STOCK OPTION PLAN
The Company's 1993 Stock Option Plan (the "1993 Option Plan") was adopted by
the Board of Directors of the Company and approved by the stockholders of the
Company in July 1993. This plan replaces the 1984 Incentive Stock Option Plan
and the 1986 Supplemental Stock Option Plan. A total of 1,490,000 shares of
Common Stock have been reserved for issuance under the 1993 Option Plan. The
1993 Option Plan provides for grants of options to employees, non-employee
directors and consultants. The 1993 Option Plan is currently being administered
by the Compensation Committee of the Board of Directors of the Company, which
determines the optionees and the terms of the options granted, including the
exercise price, number of shares subject to the option plan and the
exercisability thereof. The 1993 Option Plan will terminate in July 2003, unless
sooner terminated by the Board of Directors.
Generally, options granted under the 1993 Option Plan are fully exercisable
on and after the date of grant, subject to the Company's right to repurchase
from an optionee, at the optionee's original per share exercise price, any
unvested shares which the optionee has purchased and holds in the event of the
termination of the Optionee's employment, with or without cause. The Company's
right lapses as shares subject to the option become vested. Such shares
generally vest in monthly installments over two or four years following the date
of grant (as determined by the Compensation Committee of the Board of
Directors), subject to the optionee's continuous service. Options expire ten
years from the date of grant and an option shall generally terminate three
months after termination of employment.
F-14
<PAGE>
ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--STOCKHOLDERS' EQUITY (DEFICIT): (CONTINUED)
A summary of activity follows:
<TABLE>
<CAPTION>
AVAILABLE OPTIONS
FOR GRANT OUTSTANDING EXERCISE PRICE
----------- ----------- ----------------
<S> <C> <C> <C>
Balance at December 31, 1991......................................... 472 37,863 $12.00
Options granted...................................................... (1,659) 1,659 $12.00
Options exercised.................................................... -- (918) $12.00
Options canceled..................................................... 1,599 (1,599) $12.00
----------- -----------
Balance at December 31, 1992......................................... 412 37,005 $12.00
Additional options authorized........................................ 659,249 -- --
Options granted...................................................... (704,142) 704,142 $0.90 - $12.00
Options exercised.................................................... -- -- --
Options canceled..................................................... 217,578 (217,578) $0.90 - $12.00
----------- -----------
Balance at December 31, 1993......................................... 173,097 523,569 $0.90
Additional options authorized........................................ 793,333 -- --
Options granted...................................................... (1,047,277) 1,047,277 $0.15 - $0.90
Options exercised.................................................... -- (868) $0.90
Options canceled..................................................... 559,300 (559,300) $0.15 - $0.90
----------- -----------
Balance at December 31, 1994......................................... 478,453 1,010,678 $0.15
Options granted...................................................... (291,465) 291,465 $0.15 - $10.63
Options exercised.................................................... -- (41,433) $0.15
Options canceled..................................................... 33,892 (33,892) $0.15
----------- -----------
Balance at December 31, 1995......................................... 220,880 1,226,818 $0.15 - $10.63
----------- -----------
----------- -----------
</TABLE>
A total of 669,459 options were vested at December 31, 1995. In addition,
1,266 options, exercisable at $0.15 per share, were granted in 1991 to a
director. These options are not included in the table above.
On October 21, 1993, the Board of Directors approved a proposal under which
option holders could elect to cancel certain options in exchange for grants of
new options with exercise prices equal to the fair market value of the Company's
Common Stock on the date of board approval. Options for the purchase of a total
of 211,985 shares were canceled in exchange for newly issued options for the
purchase of 211,985 shares.
On December 1, 1994, the Board of Directors approved a second proposal under
which option holders could elect to cancel certain options in exchange for
grants of new options with exercise prices equal to the fair market value of the
Company's Common Stock on the date of board approval. Options for the purchase
of a total of 412,230 shares were canceled in exchange for newly issued options
for the purchase of 412,230 shares.
The Company has granted stock options for 52,000 shares through December 31,
1995 which were considered to have been granted below fair market value. The
Company will amortize the related compensation expense of approximately $150,000
over the related vesting period, which is generally four years.
F-15
<PAGE>
ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--STOCKHOLDERS' EQUITY (DEFICIT): (CONTINUED)
1995 EMPLOYEE STOCK PURCHASE PLAN
The Company's 1995 Employee Stock Purchase Plan ("ESPP") was adopted by the
Company's Board of Directors in October 1995, and approved by its stockholders
in December 1995. A total of 150,000 shares of Common Stock have been reserved
for issuance under the ESPP to eligible employees. As of December 31, 1995, the
Company had not yet offered or sold shares of Common Stock to employees pursuant
to the ESPP, but initiated the first offering under the ESPP in the first
quarter of 1996. The ESPP will enable employees to purchase shares through
payroll deductions at approximately 85% of the lesser of the fair value of
Common Stock at the beginning of a 24-month offering period or the end of each
six-month segment within such offering period. The ESPP is intended to qualify
as an "employee stock purchase plan" under Section 423 of the U.S. Internal
Revenue Code.
1995 OUTSIDE DIRECTORS STOCK OPTION PLAN
The Company's Outside Directors Stock Option Plan (the "Directors Plan") was
adopted by the Company's Board of Directors in October 1995, and was approved by
its stockholders in December 1995. A total of 200,000 shares of Common Stock
have been reserved for issuance under the Directors Plan. The Directors Plan
provides for the grant of nonstatutory stock options to nonemployee directors of
the Company. The Directors Plan provides that each new nonemployee director will
automatically be granted an option to purchase 20,000 shares on the date the
optionee first becomes a nonemployee director (the "Initial Grant"). Thereafter,
on the date immediately following each annual stockholders' meeting, each
nonemployee director who is reelected at the meeting to an additional term shall
be granted an additional option to purchase 4,800 shares of Common Stock if, on
such date, he or she shall have served on the Company's Board of Directors for
at least six months (the "Annual Grant"). The Initial Grant is exercisable in
four equal annual installments, and each Annual Grant shall become exercisable
in full one year after the date of grant, subject to the director's continuous
service. The exercise price of all stock options granted under the Directors
Plan is equal to the fair market value of the Company's Common Stock on the date
of grant. Options granted under the Directors Plan have a term of ten years. At
December 31, 1995, 100,000 options at an exercise price of $13.50 were
outstanding under this plan.
NOTE 10--INCOME TAXES:
The components of income (loss) before income taxes are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic.................................................... $ (3,167) $ (2,496) $ 1,168
Foreign..................................................... (4,509) (2,737) (293)
--------- --------- ---------
$ (7,676) $ (5,233) $ 875
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-16
<PAGE>
ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--INCOME TAXES: (CONTINUED)
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
U.S............................................................ $ -- $ -- $ 84
State.......................................................... 1 2 16
Foreign........................................................ 33 -- 89
--------- --------- ---------
$ 34 $ 2 $ 189
--------- --------- ---------
--------- --------- ---------
</TABLE>
For the years ended December 31, 1993 and 1994, the income tax benefit
determined by applying the U.S. statutory income tax rate differs from the
provisions recorded due to state income taxes, foreign withholding taxes and
valuation allowances for NOL benefits generated in each period. For the year
ended December 31, 1995, the income tax provision determined by applying the
U.S. statutory rate differs from the provision recorded due to utilization of
NOLs, taxable income due to the declaration of a dividend to its stockholders of
all of the stock of Holdings, foreign withholding taxes and an alternative
minimum tax liability.
The provision for income taxes for the nine months ended September 30, 1996
reflects the estimated annualized effective tax rate applied to earnings for the
interim period. The effective tax rate for the nine months ended September 30,
1996 differs from the U.S. statutory income tax rate due to utilization of NOLs
and State of Israel tax benefits on foreign earnings. For the nine months ended
September 30, 1996, the income tax provision primarily includes foreign
withholding taxes and alternative minimum taxes.
Deferred income tax assets comprise the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1993 1994 1995
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal and state net operating loss carryforwards........ $ 14,890 $ 15,250 $ 13,751
Capitalized research and development expenses............. 460 310 555
Non-deductible reserves and accruals...................... 1,010 910 1,088
---------- ---------- ----------
Deferred tax assets....................................... 16,360 16,470 15,394
Less valuation allowance.................................. (16,360) (16,470) (15,394)
---------- ---------- ----------
Net deferred tax asset.................................. $ -- $ -- $ --
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
As of December 31, 1995, the Company has NOLs of approximately $40.0 million
and $1.0 million for federal and state tax reporting purposes, respectively. The
differences between the federal and state NOLs is attributed to research and
development expenditures capitalized for state tax purposes and California's
statutory limitation on the amount of net operating losses which may be carried
forward to subsequent years. The federal NOLs expire on various dates between
2000 and 2009. The state NOLs expire in 2009. Management has recorded a full
valuation allowance against all U.S. deferred tax assets on the basis that
significant uncertainty exists regarding the realizability of the assets.
F-17
<PAGE>
ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--INCOME TAXES: (CONTINUED)
Pursuant to the Tax Reform Act of 1986, the amounts of and the benefit from
NOLs that can be carried forward may be impaired or limited in certain
circumstances, including a cumulative stock ownership change of more than 50%
over a three-year period. The Company's IPO resulted in a cumulative change of
ownership of greater than 50%. Accordingly, the Company's NOLs incurred prior to
the completion of the IPO that can be utilized to reduce future taxable income
for federal tax purposes will be limited to approximately $3.0 million per year.
The Company's Israeli subsidiary has been granted the status of an "Approved
Enterprise" pursuant to the Israeli law for the Encouragement of Capital
Investments, 1959, as amended. The Company has three approved programs pursuant
to this law. The first program was approved in 1984. Income subject to this
program is taxed at an annual rate of 10% from the first year in which the
enterprise generates taxable income (net of NOLs). Benefits under the first
program expire in 1997. The second program was approved in 1991. Income subject
to this program is exempt from tax for two years from the first year in which
the Company has taxable income (net of NOLs) and is taxed at a rate of 10%
thereafter. Benefits under the second program expire in 2003. The third program
was approved in 1995 and has a maximum term of 14 years. Income subject to this
program is exempt from tax for four years from the first year in which the
Company has taxable income (net of NOLs) and is taxed at a rate of 10% for the
remainder of the program. As of December 31, 1995, the Company has Israeli NOLs
of approximately $5.0 million that do not expire. Management has not reflected
the Israeli NOLs as deferred tax assets on the basis that these NOLs are to be
utilized as a reduction of income which would otherwise be exempt from tax under
the Company's "Approved Enterprise" status.
NOTE 11--GEOGRAPHIC REPORTING AND CUSTOMER CONCENTRATION:
Sales to customers by geographical areas are as follows:
<TABLE>
<CAPTION>
UNITED PACIFIC
STATES RIM EUROPE TOTAL
--------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues from third parties:
Year ended December 31, 1993
Domestic.......................................... $ 977 $ 3,525 $ 185 $ 4,687
Foreign........................................... -- -- -- --
--------- --------- --------- ---------
$ 977 $ 3,525 $ 185 $ 4,687
--------- --------- --------- ---------
--------- --------- --------- ---------
Year ended December 31, 1994........................
Domestic.......................................... $ 1,568 $ 3,414 $ 1,357 $ 6,339
Foreign........................................... -- 1,710 9 1,719
--------- --------- --------- ---------
$ 1,568 $ 5,124 $ 1,366 $ 8,058
--------- --------- --------- ---------
--------- --------- --------- ---------
Year ended December 31, 1995
Domestic.......................................... $ 5,698 $ 1,738 $ 4,260 $ 11,696
Foreign........................................... 495 2,596 5,280 8,371
--------- --------- --------- ---------
$ 6,193 $ 4,334 $ 9,540 $ 20,067
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
F-18
<PAGE>
ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--GEOGRAPHIC REPORTING AND CUSTOMER CONCENTRATION: (CONTINUED)
Reporting by geographical areas are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating income (loss):
U.S......................................................... $ (2,958) $ (2,193) $ 1,081
Israel...................................................... (4,509) (2,808) (20)
--------- --------- ---------
Total................................................... $ (7,467) $ (5,001) $ 1,061
--------- --------- ---------
--------- --------- ---------
Identifiable assets:
U.S......................................................... $ 2,616 $ 4,133 $ 22,120
Israel...................................................... 2,291 1,893 6,965
--------- --------- ---------
Total................................................... $ 4,907 $ 6,026 $ 29,085
--------- --------- ---------
--------- --------- ---------
</TABLE>
Significant customers are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Customers comprising 10% or more of the Company's total
revenues for the periods indicated:
A....................................................... 64% 56% 11%
B....................................................... -- -- 31%
</TABLE>
F-19
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
CompCore Multimedia, Inc.
In our opinion, the accompanying balance sheets and the related statements
of income, of shareholders' equity and of cash flows present fairly, in all
material respects, the financial position of CompCore Multimedia, Inc. at
September 30, 1995 and 1996, and the results of its operations and its cash
flows for the period from November 12, 1993 (inception) to September 30, 1994
and for the years ended September 30, 1995 and 1996, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
On October 20, 1996, the Company entered into an Agreement and Plan of
Reorganization with another corporation setting forth terms for the acquisition
of the Company, whereby the Company will become a wholly owned subsidiary of the
other corporation.
PRICE WATERHOUSE LLP
San Jose, California
November 1, 1996
F-20
<PAGE>
COMPCORE MULTIMEDIA, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Current assets:
Cash......................................................................................... $ 631 $ 2,134
Accounts receivable.......................................................................... 575 700
Prepaid expenses and other current assets.................................................... 30 210
Deferred tax assets.......................................................................... 15 186
--------- ---------
Total current assets....................................................................... 1,251 3,230
Property and equipment, net.................................................................. 360 695
--------- ---------
$ 1,611 $ 3,925
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................................. $ 38 $ 159
Accrued expenses and other liabilities....................................................... 673 911
Current portion of capital lease obligations................................................. -- 30
Deferred revenue............................................................................. 364 861
--------- ---------
Total current liabilities.................................................................. 1,075 1,961
Capital lease obligations...................................................................... -- 62
Convertible promissory note.................................................................... -- 1,000
Deferred tax liabilities....................................................................... 40 51
--------- ---------
1,115 3,074
--------- ---------
Commitments and contingencies (Note 6) -- --
Shareholders' equity:
Preferred Stock, no par value, 5,000,000 shares authorized; no shares issued and
outstanding................................................................................ -- --
Common Stock, no par value; 20,000,000 shares authorized; 2,964,500 and 2,865,750 shares
issued and outstanding..................................................................... 81 77
Deferred stock compensation.................................................................. (42) (9)
Retained earnings............................................................................ 457 783
--------- ---------
Total shareholders' equity................................................................. 496 851
--------- ---------
$ 1,611 $ 3,925
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
COMPCORE MULTIMEDIA, INC.
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 12,
1993
(INCEPTION) YEAR ENDED SEPTEMBER
TO 30,
SEPTEMBER 30, --------------------
1994 1995 1996
------------- --------- ---------
<S> <C> <C> <C>
Revenues:
Development revenue.......................................................... $ 702 $ 1,902 $ 2,198
Licenses and royalties....................................................... 155 1,007 3,527
------ --------- ---------
Total revenues............................................................. 857 2,909 5,725
------ --------- ---------
Operating expenses:
Research and development..................................................... 259 1,394 2,791
Selling, general and administrative.......................................... 310 1,080 2,519
------ --------- ---------
Total operating expenses................................................... 569 2,474 5,310
------ --------- ---------
Income from operations......................................................... 288 435 415
Interest and other income...................................................... 1 37 26
------ --------- ---------
Income before provision for income taxes....................................... 289 472 441
Provision for income taxes..................................................... 119 185 115
------ --------- ---------
Net income..................................................................... $ 170 $ 287 $ 326
------ --------- ---------
------ --------- ---------
Net income per share........................................................... $ 0.12 $ 0.11 $ 0.09
------ --------- ---------
------ --------- ---------
Weighted average shares outstanding............................................ 1,418 2,630 3,453
------ --------- ---------
------ --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
COMPCORE MULTIMEDIA, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------------ DEFERRED STOCK RETAINED STOCKHOLDERS'
SHARES AMOUNT COMPENSATION EARNINGS EQUITY
----------- ----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock to founders on November 12,
1993................................................. 1,000 $ 5 $ -- $ -- $ 5
Issuance of common stock to director................... 460 10 -- -- 10
Net income............................................. -- -- -- 170 170
----- --- --- ----- -----
Balance at September 30, 1994.......................... 1,460 15 -- 170 185
Issuance of common stock to employees.................. 1,942 78 (65) -- 13
Repurchases of unvested common stock................... (437) (12) -- -- (12)
Amortization of deferred compensation.................. -- -- 23 -- 23
Net income............................................. -- -- -- 287 287
----- --- --- ----- -----
Balance at September 30, 1995.......................... 2,965 81 (42) 457 496
Issuance of common stock upon exercise of options...... 3 -- -- -- --
Repurchases of unvested common stock................... (102) (4) -- -- (4)
Amortization of deferred compensation.................. -- -- 33 -- 33
Net income............................................. -- -- -- 326 326
----- --- --- ----- -----
Balance at September 30, 1996.......................... 2,866 $ 77 $ (9) $ 783 $ 851
----- --- --- ----- -----
----- --- --- ----- -----
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
COMPCORE MULTIMEDIA, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 12,
1993 YEAR ENDED
(INCEPTION) TO SEPTEMBER 30,
SEPTEMBER 30, --------------------
1994 1995 1996
--------------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................... $ 170 $ 287 $ 326
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................. 52 189 301
Compensation expense resulting from common stock issuances and option
grants.................................................................. -- 23 133
Deferred income taxes..................................................... 103 (78) (160)
Changes in assets and liabilities:
Accounts receivable..................................................... (25) (550) (125)
Prepaid expenses and other current assets............................... -- (30) (180)
Accounts payable........................................................ 12 26 121
Accrued expenses and other liabilities.................................. 25 648 138
Deferred revenue........................................................ 477 (113) 497
----- --------- ---------
Net cash provided by operating activities............................. 814 402 1,051
----- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment......................................... (358) (243) (537)
----- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible promissory note......................... -- -- 1,000
Repurchases of unvested common stock.......................................... -- (12) (4)
Proceeds from issuance of common stock........................................ 15 13 --
Payment of capital lease obligations.......................................... -- -- (7)
----- --------- ---------
Net cash provided by financing activities............................. 15 1 989
----- --------- ---------
Net change in cash............................................................ 471 160 1,503
Cash at beginning of period................................................... -- 471 631
----- --------- ---------
Cash at end of period......................................................... $ 471 $ 631 $ 2,134
----- --------- ---------
----- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE>
COMPCORE MULTIMEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 1--THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY
CompCore Multimedia, Inc. (the "Company") was incorporated in California on
November 12, 1993. The Company develops, markets and supports decompression
technology for digital video and audio applications. The Company's technology is
used in a variety of products addressing evolving multimedia markets. Current
applications include PC based video CD systems and stand alone video CD systems.
The Company operates in one business segment.
The Company's significant accounting policies are set forth below:
REVENUE RECOGNITION
Revenue from long-term software license and royalty agreements is recognized
in the period licensed sales are reported to the Company. Nonrefundable license
fees are recognized as revenue when there is no significant continuing
performance obligation under the agreement and collection of the fees is
probable.
Revenue from contract development services is generally recognized as the
services are performed using the percentage of completion method based on costs
incurred to date compared to total estimated costs to completion. Amounts
received in advance of performance under contracts are recorded as deferred
revenue and are generally recognized within one year from receipt. Contract
losses are recorded as a charge to income in the period such losses are first
identified. Costs associated with development revenue are included in research
and development expenses.
The Company does not provide customers with product return or exchange
rights in connection with the sale of software licenses. Periodic service and
maintenance fees received provide customers access to technical support and
minor enhancements to licensed releases and are recognized ratably over the
service or maintenance period.
RESEARCH AND DEVELOPMENT COSTS
Costs related to the conceptual formation and design of internally developed
software are expensed as research and development as incurred. It is the
Company's policy that certain internal software development costs incurred after
technological feasibility has been demonstrated and which meet recoverability
tests are capitalized and amortized over the estimated economic life of the
product. To date, the Company has incurred no significant internal software
development costs which meet the criteria for capitalization.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash and accounts receivable.
Substantially all of the Company's cash is invested in high credit quality
financial institutions. The Company licenses its technology to companies in Asia
and North America. The Company performs ongoing credit evaluations of its
customers' financial condition and limits the amount of credit extended when
considered necessary, but generally does not require collateral. Management
believes that any risk of loss is significantly reduced due to the size and
reputation of its customers. The Company has not had any write-offs of accounts
receivable since inception. The Company's revenues are denominated in U.S.
dollars.
F-25
<PAGE>
COMPCORE MULTIMEDIA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 1--THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Revenues from significant customers which represented 10% or more of total
revenues for the respective periods were as follows:
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 12, 1993 YEAR ENDED SEPTEMBER 30,
(INCEPTION) TO
SEPTEMBER 30, ------------------------
1994 1995 1996
----------------- ----- -----
<S> <C> <C> <C>
Customer A................................................. -- 11% 28%
Customer B................................................. 6% 22% 13%
Customer C................................................. 47% 9% 3%
Customer D................................................. 26% 13% 13%
Customer E................................................. 17% -- --
Customer F................................................. -- 15% 11%
</TABLE>
At September 30, 1995 and 1996, three and two customers accounted for 90%
and 73% of accounts receivable, respectively.
The following summarizes the geographic components of the Company's
revenues.
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 12,
1993 YEAR ENDED SEPTEMBER
(INCEPTION) TO 30,
SEPTEMBER 30, --------------------
1994 1995 1996
--------------- --------- ---------
<S> <C> <C> <C>
North America (principally in the U.S.).................... $ 857 $ 2,489 $ 2,704
Asia (export sales, principally in Japan).................. -- 420 3,021
----- --------- ---------
$ 857 $ 2,909 $ 5,725
----- --------- ---------
----- --------- ---------
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment, including leasehold improvements, are stated at
cost. Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, generally two to five years, or the remaining life
of the lease, whichever is shorter.
NET INCOME PER SHARE
Net income per share is computed on the basis of the weighted average number
of common and common equivalent shares from dilutive stock options outstanding
during the period.
MANAGEMENT ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the
F-26
<PAGE>
COMPCORE MULTIMEDIA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 1--THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
STOCK COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"). FAS 123 requires companies that elect not to adopt
the fair value based method of accounting for stock compensation plans to make
pro forma disclosures of net income and net income per share as if they had
adopted the fair value accounting method. Upon adopting FAS 123 in fiscal 1997,
the Company plans to present the required pro forma disclosures rather than
change its present method of accounting for employee stock options.
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for income taxes was $0 for the period from November 12, 1993
(inception) to September 30, 1994, and $59 and $331 for the years ended
September 30, 1995 and 1996, respectively.
During the year ended September 30, 1996, the Company recorded $99 of
equipment financed under capital leases.
NOTE 2--BALANCE SHEET COMPONENTS:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Accounts receivable:
Billed...................................................................... $ -- $ 548
Unbilled.................................................................... 575 152
--------- ---------
$ 575 $ 700
--------- ---------
--------- ---------
</TABLE>
Unbilled amounts relate to contract development services and generally
become billable at contractually specified dates or upon the attainment of
milestones.
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Property and equipment:
Computer equipment......................................................... $ 521 $ 1,082
Furniture, fixtures and leasehold improvements............................. 80 155
--------- ---------
601 1,237
Less: accumulated depreciation and amortization............................ 241 542
--------- ---------
$ 360 $ 695
--------- ---------
--------- ---------
</TABLE>
Accumulated amortization on assets under capital leases was $33 at September
30, 1996.
F-27
<PAGE>
COMPCORE MULTIMEDIA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 2--BALANCE SHEET COMPONENTS: (CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Accrued expenses and other liabilities:
Taxes payable............................................................... $ 220 $ 164
Compensation and related.................................................... 433 693
Other....................................................................... 20 54
--------- ---------
$ 673 $ 911
--------- ---------
--------- ---------
</TABLE>
NOTE 3--CONVERTIBLE PROMISSORY NOTE:
On July 1, 1996, the Company issued a Convertible Promissory Note (the
"Note") in the amount of $1,000 to an individual who was simultaneously given a
seat on the Company's Board of Directors. The Note bears interest at 6.625% per
annum payable annually in arrears each June 30, commencing June 30, 1997. The
entire outstanding principal and accrued interest are due September 30, 2001.
The Note is convertible at any time into shares of Common Stock at a rate of
$5.15, $5.49, $5.86, $6.25 or $6.66 per share if conversion occurs on or before
June 30, 1997, 1998, 1999, 2000 or 2001, respectively. Additionally, in the
event that the Company completes an initial public offering, or a merger or a
similar transaction resulting in the shareholders of the Company immediately
prior to such transaction holding less than 50% of the company surviving the
transaction, the Note automatically converts into shares of Common Stock at the
applicable rate.
NOTE 4--SHAREHOLDERS' EQUITY:
PREFERRED STOCK
The Company's Board of Directors is authorized to issue up to 5,000,000
shares of one or more series of preferred stock with rights, preferences and
privileges to be determined by the Board of Directors. As of September 30, 1996,
no preferred stock has been issued by the Company.
COMMON STOCK
All of the Company's Common Stock has been issued to certain directors,
officers and employees of the Company.
Certain Common Stock was issued to employees pursuant to Restricted Stock
Purchase Agreements that provide that, in the event any shareholder ceases to be
an employee of the Company, the Company has the right to repurchase all or any
portion of shares held by the employee, subject to a two year vesting period, at
the original purchase price per share. The number of shares subject to the
Company's repurchase option was 289,500 at September 30, 1996.
STOCK OPTION PLAN
In August 1994, the Board of Directors adopted the 1994 Stock Plan (the
"Plan") which provides for the granting of up to 1,500,000 incentive stock
options, non-qualified stock options and stock purchase rights. Under the Plan,
incentive stock options may be granted to employees, officers and directors of
the Company and nonqualified stock options and stock purchase rights may be
granted to consultants,
F-28
<PAGE>
COMPCORE MULTIMEDIA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 4--SHAREHOLDERS' EQUITY: (CONTINUED)
employees, directors and officers of the Company. Options granted under the Plan
are for periods not to exceed ten years, and must be issued at prices not less
than 100% and 85%, for incentive and nonqualified stock options, respectively,
of the fair market value of the stock as determined by the Board of Directors on
the date of grant. Options granted to shareholders who own greater than 10% of
the outstanding stock are for periods not to exceed five years and must be
issued at prices not less than 110% of the fair market value of the stock as
determined by the Board of Directors on the date of grant. Options granted under
the Plan generally vest 25% after each of the first two years and 6.25% for each
of the next eight quarters.
A summary of the Plan's activity is as follows:
<TABLE>
<CAPTION>
OPTIONS OPTIONS OUTSTANDING
AVAILABLE -------------------------
FOR GRANT SHARES PRICE
----------- ---------- -------------
<S> <C> <C> <C>
Options authorized in August 1994................... 1,500,000 -- --
----------- ---------- -------------
Balance at September 30, 1995....................... 1,500,000 -- --
Options granted..................................... (1,451,250) 1,451,250 $0.08-$6.00
Options exercised................................... -- (3,250) $0.08
----------- ---------- -------------
Balance at September 30, 1996....................... 48,750 1,448,000 $0.08-$6.00
----------- ---------- -------------
----------- ---------- -------------
</TABLE>
During the year ended September 30, 1996, the Company granted options for
the purchase of 1,410,250 shares of Common Stock to employees at exercise prices
ranging from $0.08 to $6.00 per share, of which 428,000 shares are vested as of
September 30, 1996. Management will amortize approximately $127 of compensation
expense over the vesting period relating to these options, of which $95 has been
recorded during the year ended September 30, 1996. During the year ended
September 30, 1996, the Company also granted options to purchase 41,000 shares
of Common Stock to consultants in exchange for services at an exercise price of
$0.08 per share. The Company has recorded expense totaling $5 based on the
estimated fair value of these options.
F-29
<PAGE>
COMPCORE MULTIMEDIA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 5--INCOME TAXES:
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER
PERIOD FROM NOVEMBER 30,
12, 1993 (INCEPTION) --------------------
TO SEPTEMBER 30, 1994 1995 1996
--------------------- --------- ---------
<S> <C> <C> <C>
Current:
Federal................................................ $ 13 $ 165 $ 10
Foreign................................................ -- 58 264
State.................................................. 3 40 1
----- --------- ---------
16 263 275
----- --------- ---------
Deferred:
Federal................................................ 81 (62) (141)
State.................................................. 22 (16) (19)
----- --------- ---------
103 (78) (160)
----- --------- ---------
$ 119 $ 185 $ 115
----- --------- ---------
----- --------- ---------
</TABLE>
Significant components of the Company's deferred tax balances are as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Development contracts........................................................ $ (172) $ --
Compensation related accruals................................................ 187 58
Credit carryforwards......................................................... -- 170
Depreciation................................................................. (40) (51)
Other........................................................................ -- (42)
--------- ---------
$ (25) $ 135
--------- ---------
--------- ---------
</TABLE>
Deferred tax assets at September 30, 1996 include $70 of research and
development tax credit carryforwards that expire in 2011 and $100 of foreign tax
credit carryforwards that expire in 2001.
A reconciliation of the provision for income taxes to the amount computed by
applying the statutory federal income tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
PERIOD FROM NOVEMBER
12, 1993 (INCEPTION) TO ------------------------
SEPTEMBER 30, 1994 1995 1996
----------------------- ----- -----
<S> <C> <C> <C>
Statutory federal rate................................ 34% 34% 34%
State income taxes, net............................... 6 5 --
Research and development tax credits.................. (3) (8) (16)
Other, net............................................ 4 8 8
-- -- --
41% 39% 26%
-- -- --
-- -- --
</TABLE>
F-30
<PAGE>
COMPCORE MULTIMEDIA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 6--COMMITMENTS AND CONTINGENCIES:
The Company leases its office facilities and certain office equipment under
noncancelable operating leases expiring in 1997 to 1999. Total rent expense
under the leases was $15 for the period from November 12, 1993 (inception) to
September 30, 1994, and $49 and $103 for the years ended September 30, 1995 and
1996, respectively.
Future minimum lease payments under noncancelable capital and operating
leases are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
----------- -----------
<S> <C> <C>
Year ending September 30,
1997................................................................... $ 44 $ 87
1998................................................................... 44 10
1999................................................................... 32 1
----- -----
Total minimum lease payments............................................. 120 $ 98
-----
-----
Less: amount representing interest....................................... (28)
-----
Present value of future minimum lease payments........................... $ 92
-----
-----
</TABLE>
The Company is not a party to any material litigation and is not aware of
any pending or threatened litigation that could have a material adverse effect
upon the Company's business, operating results, financial condition or cash
flows.
NOTE 7--SUBSEQUENT EVENT:
On October 20, 1996, the Company entered into an Agreement and Plan of
Reorganization with Zoran Corporation, setting forth terms for Zoran
Corporation's acquisition of the Company (the "Merger"). Under the terms of the
Merger, the Company will become a wholly owned subsidiary of Zoran Corporation.
The Merger will be effected through the exchange of Common Stock based upon an
agreed upon exchange ratio. The Merger is intended to qualify as a pooling of
interests for financial reporting.
F-31
<PAGE>
APPENDIX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
AMONG
ZORAN CORPORATION,
A DELAWARE CORPORATION
("ZORAN"),
SEE ACQUISITION CORPORATION,
A DELAWARE CORPORATION AND WHOLLY-OWNED
SUBSIDIARY OF ZORAN,
AND
COMPCORE MULTIMEDIA, INC.,
A CALIFORNIA CORPORATION
DATED NOVEMBER 27, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
ARTICLE I THE MERGER.......................................................................... A-1
Section 1.1 Effective Time of the Merger........................................................ A-1
Section 1.2 Closing............................................................................. A-1
Section 1.3 Effects of the Merger............................................................... A-1
Section 1.4 Directors and Officers.............................................................. A-2
ARTICLE II CONVERSION OF SECURITIES............................................................ A-2
Section 2.1 Conversion of Capital Stock......................................................... A-2
Section 2.2 Exchange of Certificates............................................................ A-3
Section 2.3 Escrow.............................................................................. A-4
Section 2.4 Appraisal Rights.................................................................... A-5
ARTICLE III REPRESENTATIONS AND WARRANTIES OF COMPCORE.......................................... A-5
Section 3.1 Organization, Standing and Power.................................................... A-5
Section 3.2 CompCore Capital Structure.......................................................... A-6
Section 3.3 Authority; Required Filings and Consents............................................ A-6
Section 3.4 Financial Statements................................................................ A-7
Section 3.5 Absence of Undisclosed Liabilities.................................................. A-7
Section 3.6 Accounts Receivable................................................................. A-7
Section 3.7 Inventory........................................................................... A-8
Section 3.8 Absence of Certain Changes or Events................................................ A-8
Section 3.9 Taxes............................................................................... A-9
Section 3.10 Tangible Assets and Real Property................................................... A-9
Section 3.11 Intellectual Property............................................................... A-10
Section 3.12 Bank Accounts....................................................................... A-11
Section 3.13 Contracts........................................................................... A-11
Section 3.14 Labor Difficulties.................................................................. A-12
Section 3.15 Trade Regulation.................................................................... A-12
Section 3.16 Environmental Matters............................................................... A-12
Section 3.17 Employee Benefit Plans.............................................................. A-13
Section 3.18 Compliance with Laws................................................................ A-13
Section 3.19 Employees and Consultants........................................................... A-13
Section 3.20 Litigation.......................................................................... A-13
Section 3.21 Restrictions on Business Activities................................................. A-14
Section 3.22 Governmental Authorization.......................................................... A-14
Section 3.23 Insurance........................................................................... A-14
Section 3.24 Pooling of Interests................................................................ A-14
Section 3.25 Interested Party Transactions....................................................... A-14
Section 3.26 Registration Statement; Proxy Statement/Prospectus.................................. A-15
Section 3.27 No Existing Discussions............................................................. A-15
Section 3.28 Real Property Holding Corporation................................................... A-15
Section 3.29 Corporate Documents................................................................. A-15
Section 3.30 No Misrepresentation................................................................ A-15
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ZORAN AND SUB..................................... A-15
Section 4.1 Organization........................................................................ A-16
Section 4.2 Zoran Capital Structure............................................................. A-16
Section 4.3 Authority; No Conflict; Required Filings and Consents............................... A-17
Section 4.4 SEC Filings; Financial Statements................................................... A-17
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
Section 4.5 Absence of Undisclosed Liabilities.................................................. A-18
<S> <C> <C>
Section 4.6 Absence of Certain Changes or Events................................................ A-18
Section 4.7 Intellectual Property............................................................... A-19
Section 4.8 Agreements, Contracts and Commitments............................................... A-19
Section 4.9 Litigation.......................................................................... A-19
Section 4.10 Compliance with Laws................................................................ A-19
Section 4.11 Pooling of Interests................................................................ A-20
Section 4.12 Interested Party Transactions....................................................... A-20
Section 4.13 Registration Statement; Proxy Statement/Prospectus.................................. A-20
Section 4.14 Opinion of Financial Advisor........................................................ A-20
Section 4.15 Interim Operations of Sub........................................................... A-20
Section 4.16 No Existing Discussions............................................................. A-20
Section 4.17 Corporate Documents................................................................. A-20
Section 4.18 No Misrepresentation................................................................ A-20
ARTICLE V CONDUCT OF BUSINESS................................................................. A-21
Section 5.1 Covenants of CompCore............................................................... A-21
Section 5.2 Covenants of Zoran.................................................................. A-22
Section 5.3 Cooperation......................................................................... A-23
ARTICLE VI ADDITIONAL AGREEMENTS............................................................... A-23
Section 6.1 No Solicitation by CompCore......................................................... A-23
Section 6.2 No Solicitation by Zoran............................................................ A-24
Section 6.3 Proxy Statement/Prospectus; Registration Statement.................................. A-24
Section 6.4 Consents............................................................................ A-24
Section 6.5 Current Nasdaq Quotation............................................................ A-25
Section 6.6 Access to Information............................................................... A-25
Section 6.7 Stockholders' Meetings.............................................................. A-25
Section 6.8 Legal Conditions to Merger.......................................................... A-25
Section 6.9 Public Disclosure................................................................... A-25
Section 6.10 Tax-Free Reorganization............................................................. A-25
Section 6.11 Pooling Accounting.................................................................. A-25
Section 6.12 Affiliate Agreements................................................................ A-26
Section 6.13 Nasdaq Quotation.................................................................... A-26
Section 6.14 Stock Options....................................................................... A-26
Section 6.15 Brokers or Finders.................................................................. A-27
Section 6.16 Additional Agreements; Reasonable Efforts........................................... A-27
Section 6.17 Expenses............................................................................ A-27
Section 6.18 CompCore Financial Statements....................................................... A-27
Section 6.19 Employee Benefits................................................................... A-27
ARTICLE VII CONDITIONS TO MERGER................................................................ A-28
Section 7.1 Conditions to Each Party's Obligation to Effect the Merger.......................... A-28
Section 7.2 Additional Conditions to Obligations of Zoran and Sub............................... A-28
Section 7.3 Additional Conditions to Obligations of CompCore.................................... A-29
ARTICLE VIII TERMINATION AND AMENDMENT........................................................... A-30
Section 8.1 Termination......................................................................... A-30
Section 8.2 Effect of Termination............................................................... A-31
Section 8.3 Termination Fee..................................................................... A-31
Section 8.4 Amendment........................................................................... A-31
Section 8.5 Extension; Waiver................................................................... A-31
</TABLE>
A-ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
ARTICLE IX ESCROW AND INDEMNIFICATION.......................................................... A-32
<S> <C> <C>
Section 9.1 Survival of Representations and Warranties.......................................... A-32
Section 9.2 Indemnification by CompCore Shareholders............................................ A-32
Section 9.3 Procedures for Indemnification...................................................... A-32
Section 9.4 Defense of Third Party Claims....................................................... A-33
Section 9.5 Settlement of Third Party Claims.................................................... A-33
Section 9.6 Manner of Indemnification........................................................... A-33
Section 9.7 Shareholder Representative.......................................................... A-34
ARTICLE X GENERAL PROVISIONS.................................................................. A-34
Section 10.1 Notices............................................................................. A-34
Section 10.2 Interpretation...................................................................... A-35
Section 10.3 Counterparts........................................................................ A-36
Section 10.4 Severability........................................................................ A-36
Section 10.5 Entire Agreement.................................................................... A-36
Section 10.6 Governing Law....................................................................... A-36
Section 10.7 Assignment.......................................................................... A-36
Section 10.8 Third Party Beneficiary............................................................. A-36
</TABLE>
EXHIBITS
Exhibit A - Escrow Agreement
Exhibit B-1 - Form of Employment Agreement - Haber
Exhibit B-2 - Form of Employment Agreement - Cismas
Exhibit C - Form of Non-Competition Agreements
Exhibit D - Opinion of Counsel to CompCore
Exhibit E - Opinion of Counsel to Zoran
A-iii
<PAGE>
TABLE OF DEFINED TERMS
<TABLE>
<CAPTION>
CROSS-REFERENCES
TERMS IN AGREEMENT
- ------------------------------------------------------------------------------------------------- ---------------
<S> <C>
Affiliate........................................................................................ Section 6.12
Affiliate Agreement.............................................................................. Section 6.12
Agreement........................................................................................ Preamble
Assumed Option................................................................................... Section 6.14
Bechtolsheim Note................................................................................ Section 3.2
Certificate(s)................................................................................... Section 2.2
Change of Control................................................................................ Section 6.2
Closing.......................................................................................... Section 1.2
Closing Date..................................................................................... Section 1.2
Code............................................................................................. Preamble
CompCore......................................................................................... Preamble
CompCore Acquisition Proposal.................................................................... Section 6.1
CompCore Authorizations.......................................................................... Section 3.22
CompCore Balance Sheets.......................................................................... Section 3.5
CompCore Common Stock............................................................................ Section 2.1
CompCore Components.............................................................................. Section 3.11
CompCore Disclosure Schedule..................................................................... Article III
CompCore Employee Plan(s)........................................................................ Section 3.17
CompCore Financial Statements.................................................................... Section 3.4
CompCore Intellectual Property Rights............................................................ Section 3.11
CompCore Option Plan............................................................................. Section 2.1
CompCore Options................................................................................. Section 2.1
CompCore Preferred Stock......................................................................... Section 3.2
CompCore Product................................................................................. Section 3.11
CompCore Shareholders' Meeting................................................................... Section 3.26
CompCore Transaction Expenses.................................................................... Section 6.17
Confidentiality Agreement........................................................................ Section 6.6
Constituent Corporations......................................................................... Section 1.3
Conversion Number................................................................................ Section 2.1
date hereof...................................................................................... Section 10.2
date of this agreement........................................................................... Section 10.2
Dissenting Shareholders.......................................................................... Section 2.4
Dissenting Shares................................................................................ Section 2.4
Effective Time................................................................................... Section 1.1
Employment Agreements............................................................................ Section 7.2
Environmental Permits............................................................................ Section 3.16
Escrow........................................................................................... Section 2.3
Escrow Agent..................................................................................... Section 2.3
Escrow Agreement................................................................................. Section 2.3
Escrow Shares.................................................................................... Section 2.3
Exchange Act..................................................................................... Section 3.3
Exchange Agent................................................................................... Section 2.2
Exchange Fund.................................................................................... Section 2.2
Floor............................................................................................ Section 9.2
GAAP............................................................................................. Section 3.4
GCL.............................................................................................. Section 1.1
Governmental Entity.............................................................................. Section 3.3
</TABLE>
A-iv
<PAGE>
<TABLE>
<CAPTION>
CROSS-REFERENCES
TERMS IN AGREEMENT
- ------------------------------------------------------------------------------------------------- ---------------
Hazardous Material............................................................................... Section 3.16
<S> <C>
Hazardous Materials Activities................................................................... Section 3.16
incentive stock options.......................................................................... Section 6.14
include, includes and including.................................................................. Section 10.2
Indemnification Claim............................................................................ Section 9.3
Indemnitee....................................................................................... Section 9.3
Joint Proxy Statement............................................................................ Section 3.26
knowledge........................................................................................ Article III
Licensed Intellectual Property................................................................... Section 3.11
made available................................................................................... Section 10.2
Material Adverse Affect.......................................................................... Article III
Material Tangible Assets......................................................................... Section 3.10
Merger........................................................................................... Preamble
Merger Agreement................................................................................. Section 1.1
NNM.............................................................................................. Section 2.2
Officers' Certificates........................................................................... Section 1.1
Original Agreement............................................................................... Preamble
Registration Statement........................................................................... Section 3.26
Returns.......................................................................................... Section 3.9
Rule 145......................................................................................... Section 6.12
SEC.............................................................................................. Section 3.3
Securities Act................................................................................... Section 3.3
Shareholder Representative....................................................................... Section 9.7
Sub.............................................................................................. Preamble
Subsidiary....................................................................................... Article IV
Surviving Corporation............................................................................ Section 1.3
Tax(es).......................................................................................... Section 3.9
Termination Date................................................................................. Section 9.1
Third Party Claim................................................................................ Section 9.4
Transaction Documents............................................................................ Section 3.3
United States real property holding corporation.................................................. Section 3.28
without limitation............................................................................... Section 10.2
Zoran............................................................................................ Preamble
Zoran Acquisition Proposal....................................................................... Section 6.2
Zoran Balance Sheets............................................................................. Section 4.4
Zoran Common Stock............................................................................... Section 2.1
Zoran Disclosure Schedule........................................................................ Article IV
Zoran Group...................................................................................... Section 9.2
Zoran Intellectual Property Rights............................................................... Section 4.7
Zoran Losses..................................................................................... Section 9.2
Zoran Material Contract.......................................................................... Section 4.8
Zoran Option Plans............................................................................... Section 4.2
Zoran Plans...................................................................................... Section 6.19
Zoran Preferred Stock............................................................................ Section 4.2
Zoran Product.................................................................................... Section 4.7
Zoran Purchase Plan.............................................................................. Section 4.2
Zoran Reports.................................................................................... Section 4.4
Zoran Stockholders' Meeting...................................................................... Section 3.26
</TABLE>
A-v
<PAGE>
AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION
AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement"),
dated as of November 27, 1996, by and among Zoran Corporation, a Delaware
corporation ("Zoran"), See Acquisition Corporation, a Delaware corporation and a
wholly-owned subsidiary of Zoran ("Sub"), and CompCore Multimedia, Inc., a
California corporation ("CompCore").
WHEREAS, the Boards of Directors of Zoran, Sub and CompCore deem it
advisable and in the best interests of each corporation and its respective
stockholders that Zoran and CompCore combine in order to advance the long-term
business interests of Zoran and CompCore;
WHEREAS, the combination of Zoran and CompCore shall be effected by the
terms of this Agreement through a transaction (the "Merger") in which Sub will
merge with and into CompCore, CompCore will become a wholly-owned subsidiary of
Zoran and the shareholders of CompCore will become stockholders of Zoran;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, for accounting purposes, it is intended that the Merger shall be
accounted for as a pooling of interests; and
WHEREAS, in consideration of the foregoing, the parties have previously
entered into an Agreement and Plan of Reorganization dated as of October 20,
1996 (the "Original Agreement"), which the parties now desire to amend and
restate in the form set forth below;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
parties hereby amend and restate the Original Agreement as follows:
ARTICLE I
THE MERGER
Section 1.1 EFFECTIVE TIME OF THE MERGER. Subject to the provisions of
this Agreement, an agreement of merger (the "Merger Agreement") containing the
substantive provisions of this Article I and Article II and in such form as is
required by the relevant provisions of the California General Corporation Law
(the "GCL") shall be duly prepared, executed and acknowledged by Sub and by
CompCore as the Surviving Corporation (as defined in Section 1.3(a)) and
thereafter delivered to the Secretary of State of the State of California for
filing, along with certificates of officers ("Officers' Certificates") of the
Constituent Corporations (as defined in Section 1.3(a)), as soon as practicable
on or after the Closing Date (as defined in Section 1.2). The Merger shall
become effective upon the filing of the Merger Agreement and the Officers'
Certificates with the Secretary of State of the State of California or at such
time thereafter as is provided in the Merger Agreement (the "Effective Time").
Section 1.2 CLOSING. The closing of the Merger (the "Closing") will take
place at 10:00 a.m., Pacific Time, on a date to be specified by Zoran and
CompCore (the "Closing Date"), which shall be (i) no later than the second
business day after satisfaction of the latest to occur of the conditions set
forth in Sections 7.1, 7.2(b) (other than the delivery of the officers'
certificate referred to therein) and 7.3(b) (other than the delivery of the
officers' certificate referred to therein) provided that the other closing
conditions set forth in Article VII have been met or waived as provided in
Article VII at or prior to the Closing, at the offices of Gray Cary Ware &
Freidenrich, 400 Hamilton Avenue, Palo Alto, CA 94301 unless another date or
place is agreed to in writing by Zoran and CompCore.
A-1
<PAGE>
Section 1.3 EFFECTS OF THE MERGER.
(a) At the Effective Time (i) the separate existence of Sub shall cease and
Sub shall be merged with and into CompCore (the "Surviving Corporation"), (ii)
the Articles of Incorporation of CompCore shall be amended so that Article III
of such Articles of Incorporation shall read as follows: "The total number of
shares of all classes which this corporation shall have authority to issue shall
be 1,000, all of which shall consist of Common Stock, par value $.001 per
share," and, as so amended, such Articles of Incorporation shall be the Articles
of Incorporation of the Surviving Corporation, and (iii) the Bylaws of CompCore
as in effect immediately prior to the Effective Time shall be the Bylaws of the
Surviving Corporation. (Sub and CompCore are sometimes referred to herein as the
"Constituent Corporations.")
(b) At and after the Effective Time, the Surviving Corporation shall possess
all the rights, privileges, powers and franchises of a public as well as of a
private nature, and be subject to all the restrictions, disabilities and duties
of each of the Constituent Corporations; and all and singular rights,
privileges, powers and franchises of each of the Constituent Corporations, and
all property, real, personal and mixed, and all debts due to either of the
Constituent Corporations on whatever account, as well as for stock subscriptions
and all other things in action or belonging to each of the Constituent
Corporations, shall be vested in the Surviving Corporation, and all property,
rights, privileges, powers and franchises, and all and every other interest
shall be thereafter as effectually the property of the Surviving Corporation as
they were of the Constituent Corporations, and the title to any real estate
vested by deed or otherwise, in either of the Constituent Corporations, shall
not revert or be in any way impaired; but all rights of creditors and all liens
upon any property of either of the Constituent Corporations shall be preserved
unimpaired, and all debts, liabilities and duties of the Constituent
Corporations shall thereafter attach to the Surviving Corporation, and may be
enforced against it to the same extent as if such debts and liabilities had been
incurred by it.
Section 1.4 DIRECTORS AND OFFICERS. The directors and officers of Sub
immediately prior to the Effective Time shall be the initial directors and
officers of the Surviving Corporation, each of whom will hold office in
accordance with the Articles of Incorporation and Bylaws of the Surviving
Corporation, in each case until their respective successors are duly elected or
appointed.
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 CONVERSION OF CAPITAL STOCK. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holder of any
shares of Common Stock, no par value, of CompCore ("CompCore Common Stock") or
capital stock of Sub:
(a) CAPITAL STOCK OF SUB. Each issued and outstanding share of the capital
stock of Sub shall be converted into and become one fully paid and nonassessable
share of Common Stock, $.001 par value, of the Surviving Corporation.
(b) EXCHANGE RATIO FOR COMPCORE COMMON STOCK. Subject to Section 2.2, each
issued and outstanding share of CompCore Common Stock (other than Dissenting
Shares as defined in Section 2.4) shall be converted into the right to receive
0.6408 fully paid and nonassessable shares of Common Stock, $.001 par value, of
Zoran ("Zoran Common Stock"), which amount shall be subject to adjustment to
reflect any stock split or stock dividend effected between the date of this
Agreement and the Effective Time (the "Conversion Number"). All such shares of
CompCore Common Stock, when so converted, shall no longer be outstanding and
shall automatically be canceled and retired and shall cease to exist, and each
holder of a certificate representing any such shares shall cease to have any
rights with respect thereto, except the right to receive the shares of Zoran
Common Stock and any cash in lieu of fractional shares of Zoran Common Stock to
be issued or paid in consideration therefor upon the surrender of such
certificate in accordance with this Article II.
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(c) COMPCORE STOCK OPTIONS. At the Effective Time, all then outstanding
options to purchase CompCore Common Stock (the "CompCore Options") issued under
CompCore's 1994 Stock Plan (the "CompCore Option Plan") not exercised as of the
Effective Time will be assumed by Zoran in accordance with Section 6.14.
Section 2.2 EXCHANGE OF CERTIFICATES. The procedures for exchanging
outstanding shares of CompCore Common Stock for Zoran Common Stock pursuant to
the Merger are as follows:
(a) EXCHANGE AGENT. As of the Effective Time, Zoran shall deposit with an
exchange agent designated by Zoran (the "Exchange Agent"), for the benefit of
the holders of shares of CompCore Common Stock, for exchange in accordance with
this Section 2.2, through the Exchange Agent, certificates representing the
shares of Zoran Common Stock issuable pursuant to Section 2.1 less the Escrow
Shares, as defined in Section 2.3 (such shares of Zoran Common Stock deposited
with the Exchange Agent, together with any dividends or distributions with
respect thereto, being hereinafter referred to as the "Exchange Fund"), in
exchange for outstanding shares of CompCore Common Stock.
(b) EXCHANGE PROCEDURES. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of CompCore Common Stock (each a "Certificate,"
and collectively, the "Certificates") whose shares were converted pursuant to
Section 2.1 and the Merger Agreement into the right to receive shares of Zoran
Common Stock (i) a letter of transmittal, which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent and shall be in
such form and have such other provisions as Zoran and CompCore may reasonably
specify, and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for certificates representing shares of Zoran Common
Stock. Upon surrender of a Certificate for cancellation to the Exchange Agent or
to such other agent or agents as may be appointed by Zoran, together with a duly
executed letter of transmittal, the holder of such Certificate shall be entitled
to receive in exchange therefor a certificate representing that number of whole
shares of Zoran Common Stock which such holder has the right to receive pursuant
to the provisions of Section 2.1(b) less such holder's pro rata portion of the
Escrow Shares, and the Certificate so surrendered shall immediately be canceled.
In the event of a transfer of ownership of CompCore Common Stock which is not
registered in the transfer records of CompCore, a certificate representing the
proper number of shares of Zoran Common Stock may be issued to a transferee if
the Certificate representing such CompCore Common Stock is presented to the
Exchange Agent, accompanied by all documents required to evidence and effect
such transfer and by evidence that any applicable stock transfer taxes have been
paid. Until surrendered as contemplated by this Section 2.2, each Certificate
shall be deemed at any time after the Effective Time to represent only the right
to receive upon such surrender the certificate representing shares of Zoran
Common Stock and cash in lieu of any fractional shares of Zoran Common Stock as
contemplated by this Section 2.2. The instructions for effecting the surrender
of the Certificates shall set forth procedures that must be taken by the holder
of any Certificate that has been lost, destroyed or stolen. It shall be a
condition to the right of such holder to receive a certificate representing
shares of Zoran Common Stock that the Exchange Agent shall have received, along
with the letter of transmittal, a duly executed lost certificate affidavit,
including an agreement to indemnify Zoran, signed exactly as the name or names
of the registered holder or holders appeared on the books of CompCore
immediately prior to the Effective Time, together with such other documents as
Zoran or the Exchange Agent may reasonably require in connection therewith;
provided that such holder shall not be required to furnish a bond.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or
other distributions declared or made after the Effective Time with respect to
Zoran Common Stock with a record date after the Effective Time shall be paid to
the holder of any unsurrendered Certificate with respect to the shares of Zoran
Common Stock represented thereby and no cash payment in lieu of fractional
shares shall be paid to any such holder pursuant to subsection (e) below until
the holder of record of such Certificate shall surrender such Certificate.
Subject to the effect of applicable laws, following surrender of any such
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Certificate, there shall be paid to the record holder of the certificates
representing whole shares of Zoran Common Stock issued in exchange therefor,
without interest, (i) at the time of such surrender, the amount of any cash
payable in lieu of a fractional share of Zoran Common Stock to which such holder
is entitled pursuant to subsection (e) below and the amount of dividends or
other distributions with a record date after the Effective Time previously paid
with respect to such whole shares of Zoran Common Stock, and (ii) at the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to surrender and a payment date
subsequent to surrender payable with respect to such whole shares of Zoran
Common Stock.
(d) NO FURTHER OWNERSHIP RIGHTS IN COMPCORE COMMON STOCK. All shares of
Zoran Common Stock issued upon the surrender for exchange of shares of CompCore
Common Stock in accordance with the terms hereof (including any cash paid
pursuant to subsection (c) or (e) of this Section 2.2 and the Escrow Shares)
shall be deemed to have been issued in full satisfaction of all rights
pertaining to such shares of CompCore Common Stock, and there shall be no
further registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of CompCore Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Section 2.2.
(e) NO FRACTIONAL SHARES. No certificate or scrip representing fractional
shares of Zoran Common Stock shall be issued upon the surrender for exchange of
Certificates, and such fractional share interests will not entitle the owner
thereof to vote or to any rights of a stockholder of Zoran. Notwithstanding any
other provision of this Agreement, each holder of shares of CompCore Common
Stock exchanged pursuant to the Merger who would otherwise have been entitled to
receive a fraction of a share of Zoran Common Stock (after taking into account
all Certificates delivered by such holder) shall receive, in lieu thereof, cash
(without interest) in an amount equal to such fractional part of a share of
Zoran Common Stock multiplied by the average of the last reported sale prices of
Zoran Common Stock, as reported on the Nasdaq National Market (the "NNM"), on
each of the ten (10) trading days immediately preceding the date of the
Effective Time.
(f) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund which
remains undistributed to the shareholders of CompCore for one year after the
Effective Time shall be delivered to Zoran, upon demand, and any shareholders of
CompCore who have not previously complied with this Section 2.2 shall thereafter
look only to Zoran for payment of their claim for Zoran Common Stock, any cash
in lieu of fractional shares of Zoran Common Stock, and any dividends or
distributions with respect to Zoran Common Stock.
(g) NO LIABILITY. Neither Zoran nor CompCore shall be liable to any holder
of shares of CompCore Common Stock or Zoran Common Stock, as the case may be,
for such shares (or dividends or distributions with respect thereto) delivered
to a public official pursuant to any applicable abandoned property, escheat or
similar law.
Section 2.3 ESCROW. At the Closing, Zoran will deduct from the number of
shares of Zoran Common Stock deliverable to the shareholders of CompCore
pursuant to Section 2.1 and will deposit into escrow (the "Escrow") certificates
representing ten percent (10%) of the shares of Zoran Common Stock issuable to
the shareholders of CompCore in the Merger on a pro rata basis (the "Escrow
Shares"). The Escrow Shares shall be held by First Trust of California (or such
other institution as shall be agreed upon by Zoran and the Shareholder
Representative (as defined in Section 9.7)), as escrow agent (the "Escrow
Agent"), in accordance with and subject to the provisions of an Escrow Agreement
substantially in the form of EXHIBIT A hereto (the "Escrow Agreement"). The
Escrow Shares shall be held as collateral for the indemnification obligations of
the persons who were shareholders of CompCore immediately prior to the Effective
Time under Article IX. Upon exercise of any of the Assumed Options (as defined
in Section 6.14) during the term of the Escrow Agreement, ten percent (10%) of
the shares of Zoran Common Stock issued upon such exercise will be deducted from
the number of shares otherwise issuable to the
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holder thereof pursuant to Section 6.14, deposited into the Escrow and
thereafter treated as Escrow Shares.
Section 2.4 APPRAISAL RIGHTS. Any shares of CompCore Common Stock held by
shareholders of CompCore who properly exercise and perfect the dissenters'
appraisal rights set forth in Chapter 13 of the GCL ("Dissenting Shares") shall
not be converted into the right to receive Zoran Common Stock but shall instead
be converted into the right to receive such consideration as may be determined
to be due with respect to such Dissenting Shares pursuant to the provisions of
the GCL. CompCore shall give Zoran prompt notice of any demand received by
CompCore for appraisal of CompCore Common Stock, and Zoran shall have the right
to control all negotiations and proceedings with respect to such demand.
CompCore agrees that, except with the prior written consent of Zoran or as
required under the GCL, it will not voluntarily make any payment with respect
to, or settle or offer to settle, any such demand for appraisal. Each holder of
Dissenting Shares (a "Dissenting Shareholder") who, pursuant to the provisions
of the GCL, becomes entitled to payment of the value of shares of CompCore
Common Stock shall receive payment therefor (but only after the value therefor
shall have been agreed upon or finally determined pursuant to the provisions of
the GCL). In the event that any holder of shares of CompCore Common Stock fails
to make an effective demand for payment or otherwise loses his or her status as
a Dissenting Shareholder, Zoran shall, as of the later of the Effective Time or
the occurrence of such event, issue and deliver, upon surrender by such
Dissenting Shareholder of its Certificate or Certificates, the shares of Zoran
Common Stock and any cash payment in lieu of fractional shares, in each case
without interest thereon, to which such Dissenting Shareholder would have been
entitled to under Section 2.1 and the Merger Agreement (less such Dissenting
Shareholder's pro rata portion of the Escrow Shares).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF COMPCORE
In this Agreement, any reference to a "Material Adverse Effect" with respect
to any entity or group of entities means a material adverse effect on the
business, assets (including intangible assets), financial condition, or results
of operations of such entity and its subsidiaries, taken as a whole.
In this Agreement, any reference to a party's "knowledge" means such party's
actual knowledge after reasonable inquiry of its directors, officers, and other
management level employees reasonably believed to have knowledge of such
matters.
Except as disclosed in the disclosure schedule provided to Zoran on or
before the date of the Original Agreement (the "CompCore Disclosure Schedule"),
CompCore represents and warrants to Zoran as follows:
Section 3.1 ORGANIZATION, STANDING AND POWER. CompCore is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California, has all requisite corporate power to own, lease and operate
its properties and to carry on its business as currently being conducted and as
currently proposed to be conducted, and is duly qualified to do business and is
in good standing in each jurisdiction in which the failure to be so qualified
and in good standing would have a Material Adverse Effect on CompCore. CompCore
has delivered true and correct copies of the Articles of Incorporation and
Bylaws of CompCore, each as amended to date, to Zoran. CompCore is not in
violation of any of the provisions of its Articles of Incorporation, Bylaws or
other charter documents. CompCore does not directly or indirectly own any equity
or similar interest in, or any interest convertible or exchangeable or
exercisable for any equity or similar interest in, any corporation, partnership,
joint venture or other business association or entity.
Section 3.2 COMPCORE CAPITAL STRUCTURE.
(a) The authorized capital stock of CompCore consists of 20,000,000 shares
of CompCore Common Stock and 5,000,000 shares of Preferred Stock, no par value
("CompCore Preferred Stock"). As of the date
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of the Original Agreement, 2,847,000 shares of CompCore Common Stock were issued
and outstanding, and held of record by those persons set forth on the CompCore
Disclosure Schedule. All such outstanding shares of CompCore Common Stock have
been duly authorized, validly issued, fully paid and are nonassessable, have
been issued in compliance with all applicable federal and state securities laws,
and are subject to no preemptive rights or rights of first refusal created by
statute, the charter documents of CompCore or any agreement to which CompCore is
a party or by which it is bound. As of the date of the Original Agreement, (i)
1,496,750 shares of CompCore Common Stock were reserved for issuance under the
CompCore Option Plan, 1,402,000 of which were subject to outstanding options
held by those persons set forth in the CompCore Disclosure Schedule, and 94,750
of which were reserved for future option grants and (ii) 198,122 shares of
CompCore Common Stock (plus an additional 35.244 shares accruing daily
thereafter) were reserved for issuance under a Convertible Promissory Note dated
July 1, 1996, in the principal amount of $1,000,000, payable to Andreas
Bechtolsheim (the "Bechtolsheim Note"). As of the date hereof, no shares of
CompCore Preferred Stock are issued or outstanding.
(b) Except as set forth in this Section 3.2, as of the date of the Original
Agreement, there were (i) no equity securities of any class of CompCore, or any
securities exchangeable into or exercisable for such equity securities, issued,
reserved for issuance, or outstanding and (ii) no outstanding subscriptions,
options, warrants, puts, calls, rights, or other commitments or agreements of
any character to which CompCore is a party or by which it is bound obligating
CompCore to issue, deliver, sell, repurchase or redeem, or cause to be issued,
delivered, sold, repurchased or redeemed, any equity securities of CompCore or
obligating CompCore to grant, extend, accelerate the vesting of, change the
exercise price of, or otherwise amend or enter into any such option, warrant,
call, right, commitment or agreement. There are no contracts, commitments or
agreements relating to voting, purchase or sale of CompCore's capital stock (i)
between or among CompCore and any of its shareholders or (ii) to the best
knowledge of CompCore, between or among any of CompCore's shareholders.
Section 3.3 AUTHORITY; REQUIRED FILINGS AND CONSENTS.
(a) CompCore has all requisite corporate power and authority to enter into
this Agreement and all other documents required to be executed and delivered by
CompCore hereunder, including the Merger Agreement (collectively, the
"Transaction Documents"), and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and the other
Transaction Documents to which CompCore is or will be a party and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of CompCore, subject
only to the approval of the Merger by CompCore's Shareholders under the GCL.
This Agreement and the other Transaction Documents to which CompCore is or will
be a party have been or will be duly executed and delivered by CompCore and
constitute or will constitute the valid and binding obligations of CompCore,
enforceable against CompCore in accordance with their respective terms, except
as such enforceability may be limited by (i) bankruptcy, insolvency, moratorium
or other similar laws affecting or relating to creditors' rights generally, and
(ii) general principles of equity.
(b) The execution and delivery by CompCore of this Agreement and the other
Transaction Documents to which it is or will be a party does not, and the
consummation of the transactions contemplated hereby and thereby will not, (i)
conflict with, or result in any violation or breach of any provision of, the
Articles of Incorporation or Bylaws of CompCore, (ii) result in any violation or
breach of, or constitute (with or without notice or lapse of time, or both) a
default under, or give rise to a right of termination, cancellation or
acceleration of any material obligation or loss of any material benefit under,
any note, mortgage, indenture, lease, contract or other agreement or obligation
to which CompCore is a party or by which CompCore or any of its properties or
assets may be bound, or (iii) conflict with or violate any permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to CompCore or any of its properties or assets, except in
the case of clauses (ii) and (iii) above for any such conflicts, violations,
defaults, terminations, cancellations or accelerations which would not be
reasonably likely to have a Material Adverse Effect on CompCore.
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(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality ("Governmental Entity") is
required by or with respect to CompCore in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby, except for (i) the filing by Zoran of the Registration Statement (as
defined in Section 3.26) with the Securities and Exchange Commission (the "SEC")
in accordance with the Securities Act of 1933, as amended (the "Securities
Act"), (ii) the filing of the Merger Agreement and Officer's Certificates with
the California Secretary of State in accordance with the GCL, (iii) the filing
of a certificate of merger with the Delaware Secretary of State, (iv) the filing
of the Joint Proxy Statement (as defined in Section 3.26) and related proxy
materials with the SEC in accordance with the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), (v) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable federal and state securities laws, and (vi) such other consents,
authorizations, filings, approvals and registrations which, if not obtained or
made, would not have a Material Adverse Effect on CompCore and would not prevent
or materially alter or delay any of the transactions contemplated by this
Agreement.
Section 3.4 FINANCIAL STATEMENTS. CompCore has delivered to Zoran its
audited financial statements for the fiscal years ended September 30, 1996 and
September 30, 1995 and the period from November 12, 1993 (inception) to
September 30, 1994 (collectively, the "CompCore Financial Statements"). The
CompCore Financial Statements were prepared in accordance with generally
accepted accounting principles ("GAAP") applied on a consistent basis throughout
the periods involved. The CompCore Financial Statements present fairly the
financial position of CompCore as of the respective dates and the results of its
operations and cash flows for the periods indicated. CompCore maintains and will
continue to maintain a standard system of accounting established and
administered in accordance with GAAP.
Section 3.5 ABSENCE OF UNDISCLOSED LIABILITIES. CompCore does not have any
liabilities, either accrued or contingent (whether or not required to be
reflected in financial statements in accordance with GAAP), and whether due or
to become due, which individually or in the aggregate would be reasonably likely
to have a Material Adverse Effect on CompCore, other than (i) liabilities
reflected or provided for on the balance sheet as of September 30, 1996 (the
"CompCore Balance Sheet") contained in the CompCore Financial Statements, (ii)
liabilities specifically described in this Agreement or the CompCore Disclosure
Schedule, and (iii) normal or recurring liabilities incurred since September 30,
1996 in the ordinary course of business consistent with past practices.
Section 3.6 ACCOUNTS RECEIVABLE. The accounts receivable shown on the
CompCore Balance Sheet arose in the ordinary course of business and have been
collected or are collectible in the book amounts thereof, less an amount not in
excess of the allowance for doubtful accounts and returns provided for in the
CompCore Balance Sheet. The accounts receivable of CompCore arising after the
date of the CompCore Balance Sheet and prior to the Closing Date arose, or will
arise, in the ordinary course of business and have been collected or will be
collectible in the book amounts thereof, less allowances for doubtful accounts
and returns determined in accordance with the past practices of CompCore. None
of such accounts receivable is subject to any material claim of offset or
recoupment or counterclaim, and CompCore has no knowledge of any specific facts
that would be likely to give rise to any such claim. No material amount of such
accounts receivable is contingent upon the performance by CompCore of any
obligation and no agreement for deduction or discount has been made with respect
to any such accounts receivable.
Section 3.7 INVENTORY. The inventories shown on the CompCore Balance Sheet
or thereafter acquired by CompCore consist of items of a quantity and quality
usable or salable in the ordinary course of business. Since September 30, 1996,
CompCore has continued to replenish inventories in a normal and customary manner
consistent with past practices. CompCore has not received notice that it will
experience in the foreseeable future any difficulty in obtaining, in the desired
quantity and quality and at a reasonable price and upon reasonable terms and
conditions, the supplies or component products required for the
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manufacture, assembly or production of its products. The value at which
inventories are carried reflect the inventory valuation policy of CompCore,
which is consistent with its past practice and in accordance with GAAP. Due
provision has been made on the books of CompCore, consistent with past
practices, to provide for all slow-moving, obsolete, or unusable inventories at
their estimated useful or scrap values, and such inventory reserves are adequate
to provide for such slow-moving, obsolete or unusable inventory and inventory
shrinkage.
Section 3.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since September 30,
1996, CompCore has conducted its business in the ordinary course and in a manner
consistent with past practices and, since such date, CompCore has not:
(a) suffered any event or occurrence that has had a Material Adverse Effect
on CompCore;
(b) suffered any damage, destruction or loss, whether covered by insurance
or not, materially and adversely affecting its properties or business;
(c) granted any material increase in the compensation payable or to become
payable by CompCore to its officers or employees;
(d) declared, set aside or paid any dividend or made any other distribution
on or in respect of the shares of its capital stock or declared any direct or
indirect redemption, retirement, purchase or other acquisition of such shares;
(e) issued any shares of its capital stock or any warrants, rights, or
options for, or entered into any commitment relating to such capital stock;
(f) made any change in the accounting methods or practices it follows,
whether for general financial or tax purposes, or any change in depreciation or
amortization policies or rates;
(g) sold, leased, abandoned or otherwise disposed of any real property or
any material amounts of machinery, equipment or other operating property other
than in the ordinary course of business;
(h) sold, assigned, transferred, licensed or otherwise disposed of any
patent, trademark, trade name, brand name, copyright (or pending application for
any patent, trademark or copyright), invention, work of authorship, process,
know-how, formula or trade secret or interest thereunder or other material
intangible asset except for standard end-user license transactions entered into
in the ordinary course of its business;
(i) entered into any material commitment or transaction (including without
limitation any borrowing or capital expenditure) other than in the ordinary
course of business;
(j) incurred any material liability, except in the ordinary course of
business and consistent with past practice;
(k) permitted or allowed any of its property or assets to be subjected to
any mortgage, deed of trust, pledge, lien, security interest or other
encumbrance of any kind, except for liens for current taxes not yet due and
purchase money security interests incurred in the ordinary course of business;
(l) made any capital expenditure or commitment for additions to property,
plant or equipment individually in excess of $20,000, or in the aggregate, in
excess of $75,000;
(m) paid, loaned or advanced any amount to, or sold, transferred or leased
any properties or assets to, or entered into any agreement or arrangement with
any of its officers, directors or shareholders or any affiliate of any of the
foregoing, other than employee compensation and benefits and reimbursement of
employment related business expenses incurred in the ordinary course of
business;
(n) agreed to take any action described in this Section 3.8 or which would
constitute a breach of any of the representations or warranties of CompCore
contained in this Agreement; or
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(o) except as disclosed in the CompCore Disclosure Schedule, taken any other
action that would have required the consent of Zoran pursuant to Section 5.1 of
this Agreement (and which has not been obtained) had such action occurred after
the date of this Agreement.
Section 3.9 TAXES.
(a) For purposes of this Agreement, a "Tax" or, collectively, "Taxes," means
any and all material federal, state and local taxes of any country, assessments
and other governmental charges, duties, impositions and liabilities, including
taxes based upon or measured by gross receipts, income, profits, sales, use and
occupation, and value added, ad valorem, transfer, franchise, withholding,
payroll, recapture, employment, excise and property taxes, together with all
interest, penalties and additions imposed with respect to such amounts and any
obligations under any agreements or arrangements with any other person with
respect to such amounts and including any liability for taxes of a predecessor
entity.
(b) CompCore has accurately prepared and timely filed all returns,
estimates, information statements and reports required to be filed with any
taxing authority ("Returns") relating to any and all Taxes concerning or
attributable to CompCore or its operations and such Returns are true and correct
in all material respects and have been completed in all material respects in
accordance with applicable law.
(c) CompCore, as of the Closing Date: (i) will have paid all Taxes it is
required to pay prior to the Closing Date and (ii) will have withheld with
respect to its employees all Taxes required to be withheld, except where any
failure to make such payment or withholding would not be reasonably likely to
have a Material Adverse Effect on CompCore.
(d) There is no Tax deficiency outstanding or assessed or, to CompCore's
knowledge, proposed against CompCore that is not reflected as a liability on the
CompCore Balance Sheet nor has CompCore executed any agreements or waivers
extending any statute of limitations on or extending the period for the
assessment or collection of any Tax.
(e) CompCore has no material liabilities for unpaid Taxes that have not been
accrued for or reserved on the CompCore Balance Sheet, whether asserted or
unasserted, contingent or otherwise.
(f) CompCore is not a party to any tax-sharing agreement or similar
arrangement with any other party, or any contractual obligation to pay any Tax
obligations of, or with respect to any transaction relating to, any other person
or to indemnify any other person with respect to any Tax.
Section 3.10 TANGIBLE ASSETS AND REAL PROPERTY.
(a) CompCore owns or leases all tangible assets and properties which are
necessary for the conduct of its business as currently conducted or which are
reflected on the CompCore Balance Sheet or acquired since the date of the
CompCore Balance Sheet (the "Material Tangible Assets"). The Material Tangible
Assets are in good operating condition and repair, subject to reasonable wear
and tear. CompCore has good and marketable title to all Material Tangible Assets
that it owns (except properties, interests in properties and assets sold or
otherwise disposed of since the date of the CompCore Balance Sheet in the
ordinary course of business), free and clear of all mortgages, liens, pledges,
charges or encumbrances of any kind or character, except for liens for current
taxes not yet due and payable. Assuming the due execution and delivery thereof
by the other parties thereto, all leases of Material Tangible Assets to which
CompCore is a party are in full force and effect and valid, binding and
enforceable in accordance with their respective terms. The CompCore Disclosure
Schedule sets forth a true and correct list of all such leases, and true and
correct copies of all such leases have been provided to Zoran.
(b) CompCore owns no real property. The CompCore Disclosure Schedule sets
forth a true and complete list of all real property leased by CompCore. Assuming
the due execution and delivery thereof by the other parties thereto, all such
real property leases are in full force and effect and valid, binding and
enforceable in accordance with their respective terms. True and correct copies
of all such real property leases have been provided to Zoran.
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Section 3.11 INTELLECTUAL PROPERTY.
(a) CompCore owns, or is licensed or otherwise possesses legally enforceable
rights to use, all patents, trademarks, trade names, service marks, copyrights
and mask works, and any applications for and registrations of such patents,
trademarks, trade names, service marks, copyrights and mask works and all
processes, formulae, methods, schematics, technology, know-how, computer
software programs or applications and tangible or intangible proprietary
information or material that are necessary to conduct the business of CompCore
as currently conducted, or as currently proposed to be conducted, the absence of
which rights would be reasonably likely to have a Material Adverse Effect on
CompCore (all of which are hereinafter referred to as the "CompCore Intellectual
Property Rights"), free and clear of all liens, claims or encumbrances. The
foregoing representation as it relates to Licensed Intellectual Property (as
defined below) is limited to CompCore's interest pursuant to licenses from third
parties, each of which is in full force and effect, is valid, binding and
enforceable and grants CompCore such rights to such intellectual property as are
necessary to the business of CompCore as currently conducted or currently
proposed to be conducted.
(b) The CompCore Disclosure Schedule contains an accurate and complete
dscription of (i) all patents and patent applications and all trademarks, trade
names, service marks and registered copyrights included in the CompCore
Intellectual Property Rights, including the jurisdictions in which each such
CompCore Intellectual Property Right has been issued or registered or in which
any such application for such issuance and registration has been filed, (ii) all
licenses, sublicenses, distribution agreements and other agreements to which
CompCore is a party and pursuant to which any person is authorized to use any
CompCore Intellectual Property Rights or has the right to manufacture,
reproduce, market or exploit any product of CompCore (a "CompCore Product") or
any adaptation, translation or derivative work based on any CompCore Product or
any portion thereof, (iii) all licenses, sublicenses and other agreements to
which CompCore is a party and pursuant to which CompCore is authorized to use
any third party technology, trade secret, know-how, process, patent, trademark
or copyright, including software ("Licensed Intellectual Property"), which is
used in the manufacture of, incorporated in or forms a part of any CompCore
Product, (iv) all joint development agreements to which CompCore is a party, and
(v) all agreements with Governmental Entities or other third parties pursuant to
which CompCore has obtained funding for research and development activities.
(c) CompCore is not, nor will it be as a result of the execution and
delivery of this Agreement or the performance of its obligations under this
Agreement, in breach of any license, sublicense or other agreement relating to
the CompCore Intellectual Property Rights or Licensed Intellectual Property, the
breach of which would be likely to have a Material Adverse Effect on CompCore.
(d) To CompCore's knowledge, all patents and registered trademarks, service
marks and copyrights claimed by or issued to CompCore which relate to any
CompCore Product are valid and subsisting. CompCore (i) has not received notice
that it has been sued in any suit, action or proceeding which involves a claim
of infringement of any patent, trademark, service mark, copyright, trade secret
or other proprietary right of any third party, (ii) has no knowledge that the
manufacturing, marketing, licensing or sale of any CompCore Product infringes
any patent, trademark, service mark, copyright, trade secret or other
proprietary right of any third party, and (iii) has no knowledge of any claim
challenging or questioning the validity or effectiveness of any license or
agreement relating to any CompCore Intellectual Property Rights or Licensed
Intellectual Property.
(e) All designs, drawings, specifications, source code, object code,
documentation, flow charts and diagrams incorporating, embodying or reflecting
any CompCore Product at any stage of its development (the "CompCore Components")
were written, developed and created solely and exclusively by employees of
CompCore without the assistance of any third party or were created by third
parties who assigned ownership of their rights with respect thereto to CompCore
by means of valid and enforceable agreements, which are listed and described in
the CompCore Disclosure Schedule and copies of which have been
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provided to Zoran. CompCore has at all times used commercially reasonable
efforts to treat the CompCore Products and CompCore Components as containing
trade secrets and has not disclosed or otherwise dealt with such items in such a
manner as to cause the loss of such trade secrets by their release into the
public domain.
(f) Each person currently or formerly employed by CompCore (including
independent contractors, if any) that has or had access to confidential
information of CompCore has executed and delivered to CompCore a confidentiality
and non-disclosure agreement in the form previously provided to Zoran. To
CompCore's knowledge, neither the execution or delivery of any such agreement,
nor the carrying on of CompCore's business as currently conducted and as
currently proposed to be conducted by any such person, as an employee or
independent contractor, has or will conflict with or result in a breach of the
terms, conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such persons is obligated.
Section 3.12 BANK ACCOUNTS. The CompCore Disclosure Schedule sets forth
the names and locations of all banks and other financial institutions at which
CompCore maintains accounts of any nature, the type of accounts maintained at
each such institution and the names of all persons authorized to draw thereon or
make withdrawals therefrom.
Section 3.13 CONTRACTS.
(a) Except as set forth in the CompCore Disclosure Schedule, CompCore is not
a party or subject to any agreement, obligation or commitment, written or oral:
(i) that calls for any fixed or contingent payment or expenditure or any
related series of fixed or contingent payments or expenditures by or to CompCore
totalling more than $50,000 in any calendar year;
(ii) with agents, advisors, salesmen, sales representatives, independent
contractors or consultants that are not cancelable by it on no more than thirty
(30) days' notice and without liability, penalty or premium;
(iii) that restricts CompCore from carrying on anywhere in the world its
business or any portion thereof as currently conducted;
(iv) to provide funds to or to make any investment in any other person or
entity (in the form of a loan, capital contribution or otherwise); or
(v) with respect to obligations as guarantor, surety, co-signer, endorser,
co-maker, indemnitor or otherwise in respect of the obligation of any other
person or entity;
(vi) for any line of credit, standby financing, revolving credit or other
similar financing arrangement;
(vii) with any distributor, original equipment manufacturer, value added
remarketer or other person for the distribution of any of the CompCore Products.
(b) To CompCore's knowledge, no party to any such contract, agreement or
instrument has expressed its intention to cancel, withdraw, modify or amend such
contract, agreement or instrument.
(c) CompCore is not in default under or in breach or violation of, nor is
there any valid basis for any claim of default by CompCore under, or breach or
violation by CompCore of, any contract, commitment or restriction to which
CompCore is a party or by which CompCore or any of its properties or assets is
bound or affected, where such defaults, breaches, or violations would, in the
aggregate, have a Material Adverse Effect on CompCore. To CompCore's knowledge,
no other party is in default under or in breach or violation of, nor, to
CompCore's knowledge, is there any valid basis for any claim of default by any
other party under, or any breach or violation by any other party of, any
contract, commitment, or restriction to which CompCore is a party or by which
CompCore or any of its properties or assets is bound or affected, where such
defaults, breaches, or violations would, individually or in the aggregate, have
a Material Adverse Effect on CompCore.
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Section 3.14 LABOR DIFFICULTIES. To CompCore's knowledge, CompCore is not
engaged in any unfair labor practice or in violation of any applicable laws
respecting employment, employment practices or terms and conditions of
employment. There is no unfair labor practice complaint against CompCore
pending, or to CompCore's knowledge threatened, before any Governmental Entity.
There is no strike, labor dispute, slowdown, or stoppage pending, or to
CompCore's knowledge threatened, against CompCore. CompCore is not now and has
never been subject to any union organizing activities. CompCore has not
experienced any work stoppage or other labor difficulty. To CompCore's
knowledge, (i) the consummation of the transactions contemplated by this
Agreement will not have a material adverse effect on its relations with CompCore
employees, and (ii) none of the CompCore employees intends to leave their
employment, whether as a result of the transactions contemplated by this
Agreement or otherwise.
Section 3.15 TRADE REGULATION. CompCore has not terminated its
relationship with or refused to ship CompCore Products to any dealer,
distributor, third party marketing entity or customer which had theretofore paid
or been obligated to pay CompCore in excess of $10,000 over any consecutive
twelve (12) month period. All of the prices charged by CompCore in connection
with the marketing or sale of any of their products or services have been in
compliance with all applicable laws and regulations. No claims have been
asserted or, to CompCore's knowledge, threatened against CompCore with respect
to the wrongful termination of any dealer, distributor or any other marketing
entity, discriminatory pricing, price fixing, unfair competition, false
advertising, or any other material violation of any laws or regulations relating
to anti-competitive practices or unfair trade practices of any kind, and, to
CompCore's knowledge, no specific situation, set of facts, or occurrence
provides any basis for any such claim.
Section 3.16 ENVIRONMENTAL MATTERS.
(a) As of the date hereof, except as set forth in the CompCore Disclosure
Schedule, no material amount of any substance that has been designated by
applicable law or regulation to be radioactive, toxic, hazardous or otherwise a
danger to human health or the environment, excluding office and janitorial
supplies, and other similar substances (a "Hazardous Material"), is present, as
a result of the actions of CompCore or, to CompCore's knowledge, as a result of
any actions of any third party or otherwise, in, on or under any property,
including the land and the improvements, ground water and surface water, that
CompCore has at any time owned, operated, occupied or leased. To the knowledge
of CompCore, no underground storage tanks are present under any property that
CompCore has at any time owned, operated, occupied or leased.
(b) At no time has CompCore transported, stored, used, manufactured,
disposed of, released or exposed its employees or others to Hazardous Materials
(collectively, "Hazardous Materials Activities") in violation of any law, rule,
regulation or treaty promulgated by any Governmental Entity, except for
Hazardous Materials Activities which have not had and are not likely to have a
Material Adverse Effect on CompCore.
(c) CompCore currently holds all environmental approvals, permits, licenses,
clearances and consents (the "Environmental Permits") necessary for the conduct
of its business as such businesses is currently being conducted, except for such
Environmental Permits the absence of which would not be likely to have a
Material Adverse Effect on CompCore.
(d) No action, proceeding, writ, injunction or claim is pending or, to the
knowledge of CompCore, threatened concerning any Environmental Permit or any
Hazardous Materials Activity of CompCore. CompCore is not aware of any fact or
circumstance which could reasonably be expected to involve CompCore in any
environmental litigation or impose upon CompCore any liability concerning
Hazardous Materials Activities which would be likely to have a Material Adverse
Effect on CompCore.
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Section 3.17 EMPLOYEE BENEFIT PLANS.
(a) CompCore has set forth in the CompCore Disclosure Schedule (i) all
employee benefit plans, (ii) all bonus, stock option, stock purchase, incentive,
deferred compensation, supplemental retirement, severance and other similar
employee benefit plans, and (iii) all unexpired severance agreements, written or
otherwise, for the benefit of, or relating to, any current or former employee of
CompCore (individually, a "CompCore Employee Plan," and collectively, the
"CompCore Employee Plans").
(b) With respect to each CompCore Employee Plan, CompCore has made available
to Zoran a true and correct copy of (i) such CompCore Employee Plan and (ii)
each trust agreement and group annuity contract, if any, relating to such
CompCore Employee Plan.
(c) With respect to the CompCore Employee Plans, individually and in the
aggregate, no event has occurred, and, to the knowledge of CompCore, there
exists no condition or set of circumstances in connection with which CompCore
could be subject to any liability that would be reasonably likely to have a
Material Adverse Effect on CompCore.
(d) With respect to the CompCore Employee Plans, individually and in the
aggregate, there are no funded benefit obligations for which contributions have
not been made or properly accrued and there are no unfunded benefit obligations
which have not been accounted for by reserves, or otherwise properly footnoted
in accordance with GAAP, on the financial statements or books of CompCore, which
obligations would be reasonably likely to have a Material Adverse Effect on
CompCore.
(e) Except as described in or contemplated by this Agreement, CompCore is
not a party to any oral or written (i) union or collective bargaining agreement,
(ii) agreement with any officer or other key employee of CompCore, the benefits
of which are contingent, or the terms of which are materially altered, upon the
occurrence of a transaction involving CompCore of the nature contemplated by
this Agreement, (iii) agreement with any officer of CompCore providing any term
of employment or compensation guarantee or for the payment of compensation in
excess of $100,000 per annum, or (iv) agreement or plan, including any stock
option plan, stock appreciation right plan, restricted stock plan or stock
purchase plan, any of the benefits of which will be increased, or the vesting of
the benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of any of the transactions contemplated
by this Agreement.
Section 3.18 COMPLIANCE WITH LAWS. CompCore has complied with, is not in
violation of, and has not received any notices of violation with respect to, any
statute, law or regulation applicable to the ownership or operation of its
business, except for failures to comply or violations which would not be likely
to have a Material Adverse Effect on CompCore.
Section 3.19 EMPLOYEES AND CONSULTANTS. The CompCore Disclosure Schedule
contains a list of the names of all employees and consultants of CompCore and
their salaries or wages, other compensation, dates of employment and positions.
Section 3.20 LITIGATION. There is no action, suit, proceeding, claim,
arbitration or investigation pending before any agency, court or tribunal or, to
the knowledge of CompCore, threatened against CompCore or any of its properties
or officers or directors (in their capacities as such) that, individually or in
the aggregate, could reasonably be expected to have a Material Adverse Effect on
CompCore. There is no judgment, decree or order against CompCore or, to the
knowledge of CompCore, any of its directors or officers (in their capacities as
such) that could prevent, enjoin or materially alter or delay any of the
transactions contemplated by this Agreement, or that could reasonably be
expected to have a Material Adverse Effect on CompCore. All litigation to which
CompCore is a party (or, to the knowledge of CompCore threatened to become a
party) is disclosed in the CompCore Disclosure Schedule.
Section 3.21 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement,
judgment, injunction, order or decree binding upon CompCore which has or could
reasonably be expected to have the effect of
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prohibiting or materially impairing any current or future business practice of
CompCore, any acquisition of property by CompCore, or the conduct of business by
CompCore as currently conducted or as currently proposed to be conducted.
Section 3.22 GOVERNMENTAL AUTHORIZATION. CompCore has obtained each
governmental consent, license, permit, grant or other authorization of a
Governmental Entity that is required for the operation of the business of
CompCore (collectively, the "CompCore Authorizations"), and all of such CompCore
Authorizations are in full force and effect, except where the failure to obtain
or have any such CompCore Authorizations could not reasonably be expected to
have a Material Adverse Effect on CompCore.
Section 3.23 INSURANCE. CompCore has insurance policies of the type and in
amounts customarily carried by persons conducting businesses or owning assets
similar to those of CompCore. The CompCore Disclosure Schedule contains a list
and description of all such policies. There is no material claim pending under
any of such policies as to which coverage has been questioned, denied or
disputed by the underwriters of such policies. All premiums due and payable
under all such policies have been paid, and CompCore is otherwise in compliance
with the terms of such policies. CompCore has no knowledge of any threatened
termination of, or material premium increase with respect to, any of such
policies.
Section 3.24 POOLING OF INTERESTS. Neither CompCore nor, to its knowledge,
any of its directors, officers or shareholders has taken any action which would
interfere with Zoran's ability to account for the Merger as a pooling of
interests.
Section 3.25 INTERESTED PARTY TRANSACTIONS.
(a) To the knowledge of CompCore, no director, officer or shareholder of
CompCore has any interest in (i) any material equipment or other property or
asset, real or personal, tangible or intangible, including, without limitation,
any of the CompCore Intellectual Property Rights, used in connection with or
pertaining to the business of CompCore, (ii) any creditor, supplier, customer,
manufacturer, agent, representative, or distributor of any of the CompCore
Products, (iii) any entity that competes with CompCore, or with which CompCore
is affiliated or has a business relationship, or (iv) any agreement, obligation
or commitment, written or oral, to which CompCore is a party; PROVIDED, HOWEVER,
that no such person shall be deemed to have such an interest solely by virtue of
ownership of less than five percent (5%) of the outstanding stock or debt
securities of any publicly held company, the stock or debt securities of which
are traded on a recognized stock exchange or on the NNM.
(b) Except as contemplated by the Transaction Documents, CompCore is not a
party to any (i) agreement with any officer or other employee of CompCore the
benefits of which are contingent, or the terms of which are materially altered,
upon the occurrence of a transaction involving CompCore in the nature of any of
the transactions contemplated by this Agreement, or (ii) agreement or plan,
including, without limitation, any stock option plan, stock appreciation right
plan or stock purchase plan, any of the benefits of which will be increased, or
the vesting of benefits of which will be accelerated, by the occurrence of any
of the transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement.
Section 3.26 REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS. The
information supplied by CompCore for inclusion in the registration statement on
Form S-4 pursuant to which shares of Zoran Common Stock issued in the Merger
will be registered with the SEC (the "Registration Statement") shall not at the
time the Registration Statement is declared effective by the SEC contain any
untrue statement of a material fact or omit to state any material fact required
to be stated in the Registration Statement or necessary in order to make the
statements in the Registration Statement, in light of the circumstances under
which they were made, not misleading. The information supplied by CompCore for
inclusion in the joint proxy statement/prospectus (the "Joint Proxy Statement")
to be sent to the shareholders of CompCore and Zoran in connection with the
meeting of CompCore's shareholders to consider this Agreement and the Merger
(the "CompCore Shareholders' Meeting") and in connection with the meeting
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of Zoran's stockholders to consider the issuance of shares of Zoran Common Stock
pursuant to the Merger (the "Zoran Stockholders' Meeting") shall not, on the
date the Joint Proxy Statement is first mailed to shareholders of CompCore or
Zoran, at the time of the CompCore Shareholders' Meeting, at the time of the
Zoran Stockholders' Meeting, or at the Effective Time, contain any statement
which, at such time and in light of the circumstances under which it was made,
is false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements made in the Joint Proxy
Statement not false or misleading; or omit to state any material fact necessary
to correct any statement in any earlier communication with respect to the
solicitation of proxies for the CompCore Shareholders' Meeting or the Zoran
Stockholders' Meeting which has become false or misleading. If at any time prior
to the Effective Time any event relating to CompCore or any of its Affiliates,
officers or directors should be discovered by CompCore which should be set forth
in an amendment to the Registration Statement or a supplement to the Joint Proxy
Statement, CompCore shall promptly inform Zoran.
Section 3.27 NO EXISTING DISCUSSIONS. As of the date hereof, CompCore is
not engaged, directly or indirectly, in any discussions or negotiations with any
other party with respect to a CompCore Acquisition Proposal (as defined in
Section 6.1).
Section 3.28 REAL PROPERTY HOLDING CORPORATION. CompCore is not a "United
States real property holding corporation" within the meaning of Section
897(c)(2) of the Code.
Section 3.29 CORPORATE DOCUMENTS. CompCore has furnished to Zoran, or its
representatives, for its examination (i) its minute book containing all records
required to be set forth of all proceedings, consents, actions, and meetings of
the shareholders, the Board of Directors and any committees thereof and (ii) all
permits, orders, and consents issued by any Governmental Entity with respect to
CompCore. The corporate minute books and other corporate records of CompCore are
complete and accurate in all material respects, and the signatures appearing on
all documents contained therein are the true signatures of the persons
purporting to have signed the same. All actions reflected in such books and
records were duly and validly taken in compliance with the laws of the
applicable jurisdiction. CompCore has delivered or made available to Zoran or
its representatives true and complete copies of all documents which are referred
to in this Article III or in the CompCore Disclosure Schedule.
Section 3.30 NO MISREPRESENTATION. No representation or warranty by
CompCore in this Agreement, or any statement, certificate or schedule furnished
or to be furnished by or on behalf of CompCore pursuant to this Agreement, when
taken together, contains or shall contain any untrue statement of a material
fact or omits or shall omit to state a material fact required to be stated
therein or necessary in order to make such statements, in light of the
circumstances under which they were made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ZORAN AND SUB
As used in this Agreement, the word "Subsidiary" means, with respect to any
party, any corporation or other organization, whether incorporated or
unincorporated, of which (i) such party or any other Subsidiary of such party is
a general partner (excluding partnerships, the general partnership interests of
which held by such party or any Subsidiary of such party do not have a majority
of the voting interest in such partnership) or (ii) at least a majority of the
securities or other interests having by their terms ordinary voting power to
elect a majority of the Board of Directors or others performing similar
functions with respect to such corporation or other organization is directly or
indirectly owned or controlled by such party or by any one or more of its
Subsidiaries, or by such party and one or more of its Subsidiaries.
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Except as set forth in the disclosure schedule delivered by Zoran to
CompCore on or before the date of this Agreement and attached hereto (the "Zoran
Disclosure Schedule"), Zoran and Sub represent and warrant to CompCore as
follows:
Section 4.1 ORGANIZATION. Each of Zoran, Sub and Zoran's Subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation, has all requisite corporate power to
own, lease and operate its property and to carry on its business as now being
conducted and as proposed to be conducted, and is duly qualified to do business
and is in good standing as a foreign corporation in each jurisdiction in which
the failure to be so qualified would have a Material Adverse Effect on Zoran.
Except as set forth in the Zoran SEC Reports (as defined in Section 4.4) or the
Zoran Disclosure Schedule, neither Zoran nor any of its Subsidiaries directly or
indirectly owns any equity or similar interest in, or any interest convertible
into or exchangeable or exercisable for, any corporation, partnership, joint
venture or other business association or entity.
Section 4.2 ZORAN CAPITAL STRUCTURE.
(a) The authorized capital stock of Zoran consists of 20,000,000 shares of
Zoran Common Stock and 3,000,000 shares of Preferred Stock, $.001 par value
("Zoran Preferred Stock"). As of September 30, 1996: (i) 7,007,444 shares of
Zoran Common Stock were issued and outstanding, all of which are validly issued,
fully paid and nonassessable; (ii) no shares of Zoran Common Stock were held in
the treasury of Zoran or by Subsidiaries of Zoran; (iii) approximately 1,350,662
shares of Zoran Common Stock were reserved for issuance pursuant to stock
options granted and outstanding under Zoran's stock option plans (the "Zoran
Option Plans"), and rights outstanding under Zoran's employee stock purchase
plan (the "Zoran Purchase Plan"); and (iv) 237,841 shares of Zoran Common Stock
were reserved for issuance upon exercise of outstanding warrants. No material
change in such capitalization has occurred between September 30, 1996 and the
date of this Agreement. As of the date of this Agreement, none of the shares of
Zoran Preferred Stock are issued and outstanding. All shares of Zoran Common
Stock subject to issuance as specified above, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are issuable,
shall be duly authorized, validly issued, fully paid and nonassessable. All of
the outstanding shares of capital stock of Sub are duly authorized, validly
issued, fully paid and nonassessable, and all such shares are owned by Zoran
free and clear of all security interests, liens, claims, pledges, agreements,
limitations on Zoran's voting rights, charges or other encumbrances of any
nature.
(b) Except as set forth in this Section 4.2 or as reserved for future grants
of options under the Zoran Option Plans or the Zoran Purchase Plan, there are
(i) no equity securities of any class of Zoran, or any security exchangeable
into or exercisable for such equity securities, issued, reserved for issuance or
outstanding and (ii) no outstanding subscriptions, options, warrants, puts,
calls, rights or other commitments or agreements of any character to which Zoran
is a party or by which it is bound obligating Zoran to issue, deliver, sell,
repurchase or redeem or cause to be issued, delivered, sold, repurchased or
redeemed any equity securities of Zoran or obligating Zoran to grant, extend,
accelerate the vesting of, change the exercise price of or otherwise amend or
enter into any such option, warrant, call, right, commitment or agreement. To
the best knowledge of Zoran, there are no voting trusts, proxies or other
agreements or understandings with respect to the shares of capital stock of
Zoran.
(c) The shares of Zoran Common Stock to be issued pursuant to the Merger,
when issued, will be duly authorized, validly issued, fully paid, and
nonassessable.
Section 4.3 AUTHORITY; NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) Zoran and Sub have all requisite corporate power and authority to enter
into this Agreement and the other Transaction Documents to which they are or
will be parties and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and the other Transaction
Documents to which Zoran or Sub is or will be a party and the consummation of
the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action on the part
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of Zoran and Sub, respectively, subject only to the approval by Zoran's
stockholders of the issuance of Zoran Common Stock pursuant to the Merger. This
Agreement and the other Transaction Documents to which Zoran and/or Sub are
parties have been or will be duly executed and delivered by Zoran and/or Sub and
constitute or will constitute the valid and binding obligations of Zoran and/or
Sub, enforceable in accordance with their terms, except as such enforceability
may be limited by (i) bankruptcy laws and other similar laws affecting
creditors' rights generally and (ii) general principles of equity.
(b) The execution and delivery by Zoran and Sub of this Agreement and the
other Transaction Documents to which they are or will be parties does not, and
the consummation of the transactions contemplated hereby and thereby will not,
(i) conflict with, or result in any violation or breach of any provision of the
Certificate of Incorporation or Bylaws of Zoran or Sub, (ii) result in any
violation or breach of, or constitute (with or without notice or lapse of time,
or both) a default under, or give rise to a right of termination, cancellation
or acceleration of any material obligation or loss of any material benefit
under, any note, mortgage, indenture, lease, contract or other agreement,
instrument or obligation to which Zoran or Sub is a party or by which either of
them or any of their properties or assets may be bound, or (iii) conflict with
or violate any permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Zoran or Sub or any of
its or their properties or assets, except in the case of clauses (ii) and (iii)
above for any such conflicts, violations, defaults, terminations, cancellations
or accelerations which would not be reasonably likely to have a Material Adverse
Effect on Zoran.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to Zoran or any of its Subsidiaries in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby, except for (i) the filing by Zoran of the Registration Statement with
the SEC in accordance with the Securities Act, (ii) the filing of the Merger
Agreement and the Officers' Certificates with the California Secretary of State
in accordance with the GCL, (iii) the filing of a certificate of merger with the
Delaware Secretary of State, (iv) the filing of the Joint Proxy Statement and
related proxy materials with the SEC in accordance with the Exchange Act, (v)
such consents, approvals, orders, authorizations, registrations, declarations
and filings as may be required under applicable federal and state securities
laws and the laws of any foreign country and (vi) such other consents,
authorizations, filings, approvals and registrations which, if not obtained or
made, would not be reasonably likely to have a Material Adverse Effect on Zoran.
Section 4.4 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Zoran has filed and made available to CompCore all forms, reports and
documents required to be filed by Zoran with the SEC since December 31, 1995
other than registration statements on Form S-8 (collectively, the "Zoran SEC
Reports"). The Zoran SEC Reports (i) at the time filed, complied in all material
respects with the applicable requirements of the Securities Act and the Exchange
Act, as the case may be, and (ii) did not at the time they were filed (or if
amended or superseded by a filing prior to the date of this Agreement, then on
the date of such filing) contain any untrue statement of a material fact or omit
to state a material fact required to be stated in such Zoran SEC Reports or
necessary in order to make the statements in such Zoran SEC Reports, in the
light of the circumstances under which they were made, not misleading. None of
Zoran's Subsidiaries is required to file any forms, reports or other documents
with the SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes) contained in the Zoran SEC Reports, including any Zoran SEC
Reports filed after the date of this Agreement until the Closing, complied or
will comply as to form in all material respects with the applicable published
rules and regulations of the SEC with respect thereto, was or will be prepared
in accordance with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes to such financial statements
or, in the case of unaudited statements, as permitted by Form 10-Q
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promulgated by the SEC) and presented fairly or will present fairly, in all
material respects, the consolidated financial position of Zoran and its
Subsidiaries as at the respective dates and the consolidated results of its
operations and cash flows for the periods indicated, except that the unaudited
interim financial statements were or are subject to normal and recurring
year-end adjustments which were not or are not expected to be material in
amount. The unaudited consolidated balance sheet of Zoran as of September 30,
1996 is referred to herein as the "Zoran Balance Sheet."
Section 4.5 ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed in the
Zoran SEC Reports, Zoran and its Subsidiaries do not have any liabilities,
either accrued or contingent (whether or not required to be reflected in
financial statements in accordance with GAAP), and whether due or to become due,
which individually or in the aggregate would be reasonably likely to have a
Material Adverse Effect on Zoran, other than (i) liabilities reflected or
provided for on the Zoran Balance Sheet, (ii) liabilities specifically described
in this Agreement, or in the Zoran Disclosure Schedule, and (iii) normal or
recurring liabilities incurred since September 30, 1996 in the ordinary course
of business consistent with past practices.
Section 4.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since September 30,
1996, Zoran has conducted its business in the ordinary course and in a manner
consistent with past practices and, since such date, except as disclosed in the
Zoran SEC Reports, Zoran has not:
(a) suffered any event or occurrence that has had a Material Adverse Effect
on Zoran;
(b) suffered any damage, destruction or loss, whether covered by insurance
or not, materially and adversely affecting its properties or business;
(c) declared, set aside or paid any divided or made any other distribution
on or in respect of the shares of its capital stock or declared any direct or
indirect redemption, retirement, purchase or other acquisition or such shares;
(d) issued any shares of its capital stock or any warrants, rights, or
options for, or entered into any commitment relating to such capital stock
except for options and rights to purchase shares of Zoran Common Stock granted
under the Zoran Option Plans and the Zoran Purchase Plan, in the ordinary course
of business and consistent with past practices, and shares of Zoran Common Stock
issued upon the exercise of stock options and rights;
(e) made any material change in the accounting methods or practices it
follows, whether for general financial or tax purposes, or any change in
depreciation or amortization policies or rates;
(f) sold, assigned, transferred, licensed or otherwise disposed of any
material patent, trademark, trade name, brand name, copyright (or pending
application for any patent, trademark or copyright), invention, work of
authorship, process, know-how, formula or trade secret or interest thereunder or
other material intangible asset except for transactions entered into in the
ordinary course of its business;
(g) entered into any material commitment or transaction (including without
limitation any borrowing or capital expenditure) other than in the ordinary
course of business;
(h) incurred any material liability, except in the ordinary course of
business and consistent with past practice;
(i) paid, loaned or advanced any amount to, or sold, transferred or leased
any properties or assets to, or entered into any agreement or arrangement with
any of its officers, directors or shareholders or any affiliate of any of the
foregoing, other than employee compensation and benefits and reimbursement of
employment related business expenses incurred in the ordinary course of
business;
(j) agreed to take any action described in this Section 4.6 or which would
constitute a breach of any of the representations or warranties of Zoran
contained in this Agreement; or
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(k) except as disclosed in the Zoran Disclosure Schedule, taken any other
action that would have required the consent of CompCore pursuant to Section 5.2
(and which has not been obtained) had such action occurred after the date of
this Agreement.
Section 4.7 INTELLECTUAL PROPERTY.
(a) Zoran owns, or is licensed or otherwise possesses legally enforceable
rights to use, all patents, trademarks, trade names, service marks, copyrights
and mask works, and any applications for and registrations of such patents,
trademarks, trade names, service marks, copyrights and mask works and all
processes, formulae, methods, schematics, technology, know-how, computer
software programs or applications and tangible or intangible proprietary
information or material that are necessary to conduct the business of Zoran as
currently conducted, or as currently proposed to be conducted, the absence of
which rights would be reasonably likely to have a Material Adverse Effect on
Zoran (all of which are referred to as the "Zoran Intellectual Property
Rights"), free and clear of all liens, claims or encumbrances.
(b) Zoran is not, nor will it be as a result of the execution and delivery
of this Agreement or the performance of its obligations under this Agreement, in
breach of any license, sublicense or other agreement relating to the Zoran
Intellectual Property Rights, the breach of which would be likely to have a
Material Adverse Effect on Zoran.
(c) To Zoran's knowledge, all patents and registered trademarks, service
marks and copyrights claimed by or issued to Zoran which relate to any product
of Zoran ("Zoran Product") are valid and subsisting. Zoran (i) has not received
notice that it has been sued in any suit, action or proceeding which involves a
claim of infringement of any patent, trademark, service mark, copyright, trade
secret or other proprietary right of any third party, (ii) has no knowledge that
the manufacturing, marketing, licensing or sale of any Zoran Product infringes
any patent, trademark, service mark, copyright, trade secret or other
proprietary right of any third party, and (iii) has no knowledge of any claim
challenging or questioning the validity or effectiveness of any license or
agreement relating to any Zoran Intellectual Property Rights.
Section 4.8 AGREEMENTS, CONTRACTS AND COMMITMENTS. Zoran has not breached,
or received in writing any claim or threat that it has breached, any of the
terms or conditions of any material agreement, contract or commitment filed as
an exhibit to the Zoran SEC Reports ("Zoran Material Contracts") in such a
manner as would permit any other party to cancel or terminate the same or would
permit any other party to collect material damages from Zoran under any Zoran
Material Contract. Each Zoran Material Contract that has not expired or been
terminated is in full force and effect and is not subject to any material
default thereunder of which Zoran is aware by any party obligated to Zoran
pursuant to such Zoran Material Contract.
Section 4.9 LITIGATION. Except as described in the Zoran SEC Reports,
there is no action, suit or proceeding, claim, arbitration or investigation
against Zoran pending or as to which Zoran has received any written notice of
assertion, which is reasonably likely to have a Material Adverse Effect on Zoran
or a material adverse effect on the ability of Zoran to consummate the
transactions contemplated by this Agreement.
Section 4.10 COMPLIANCE WITH LAWS. Zoran has complied with, is not in
violation of, and has not received any notices of violation with respect to, any
federal, state or local statute, law or regulation with respect to the conduct
of its business, or the ownership or operation of its business, except for
failures to comply or violations which would not be reasonably likely to have a
Material Adverse Effect on Zoran.
Section 4.11 POOLING OF INTERESTS. Neither Zoran nor, to its knowledge,
any of its directors, officers, or stockholders has taken any action which would
interfere with Zoran's ability to account for the Merger as a pooling of
interests.
Section 4.12 INTERESTED PARTY TRANSACTIONS. Except as set forth in the
Zoran SEC Reports, since the date of Zoran's last proxy statement, no event has
occurred that would be required to be reported by
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Zoran as a Certain Relationship or Related Transaction pursuant to Item 404 of
Regulation S-K promulgated by the SEC.
Section 4.13 REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS. The
information supplied by Zoran for inclusion in the Registration Statement shall
not at the time the Registration Statement is declared effective by the SEC
contain any untrue statement of a material fact or omit to state any material
fact required to be stated in the Registration Statement or necessary in order
to make the statements in the Registration Statement, in light of the
circumstances under which they were made, not misleading. The information
supplied by Zoran for inclusion in the Joint Proxy Statement shall not, on the
date the Joint Proxy Statement is first mailed to shareholders of Zoran or
CompCore, at the time of the CompCore Shareholders' Meeting, at the time of the
Zoran Stockholders' Meeting, or at the Effective Time, contain any statement
which, at such time and in light of the circumstances under which it was made,
is false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements made in the Joint Proxy
Statement not false or misleading; or omit to state any material fact necessary
to correct any statement in any earlier communication with respect to the
solicitation of proxies for the CompCore Shareholders' Meeting or the Zoran
Stockholders' Meeting, which has become false or misleading. If at any time
prior to the Effective Time any event relating to Zoran or any of its
Affiliates, officers or directors should be discovered by Zoran which should be
set forth in an amendment to the Registration Statement or a supplement to the
Joint Proxy Statement, Zoran shall promptly inform CompCore.
Section 4.14 OPINION OF FINANCIAL ADVISOR. The financial advisor of Zoran,
Oppenheimer & Co., Inc., has delivered to Zoran an opinion dated the date of
this Agreement to the effect that the Conversion Number is fair from a financial
point of view to the stockholders of Zoran.
Section 4.15 INTERIM OPERATIONS OF SUB. Sub was formed solely for the
purpose of engaging in the transactions contemplated by this Agreement, has
engaged in no other business activities and has conducted its operations only as
contemplated by this Agreement.
Section 4.16 NO EXISTING DISCUSSIONS. As of the date hereof, Zoran is not
engaged, directly or indirectly, in any discussions or negotiations with any
other party with respect to a Zoran Acquisition Proposal (as defined in Section
6.2).
Section 4.17 CORPORATE DOCUMENTS. Zoran has furnished or made available to
CompCore, or its representatives, for its examination its minute book containing
all records required to be set forth of all proceedings, consents, actions, and
meetings of the shareholders, the Board of Directors and any committees thereof.
The corporate minute books and other corporate records of Zoran are complete and
accurate in all material respects, and the signatures appearing on all documents
contained therein are the true signatures of the persons purporting to have
signed the same. All actions reflected in such books and records were duly and
validly taken in compliance with the laws of the applicable jurisdiction. Zoran
has delivered or made available to CompCore or its representatives true and
complete copies of all documents which are referred to in this Article IV or in
the Zoran Disclosure Schedule.
Section 4.18 NO MISREPRESENTATION. No representation or warranty by Zoran
or Sub in this Agreement, or any statement, certificate or schedule furnished or
to be furnished by or on behalf of Zoran or Sub pursuant to this Agreement, when
taken together, contains or shall contain any untrue statement of a material
fact or omits or shall omit to state a material fact required to be stated
therein or necessary in order to make such statements, in light of the
circumstances under which they were made, not misleading.
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ARTICLE V
CONDUCT OF BUSINESS
Section 5.1 COVENANTS OF COMPCORE. During the period from the date of the
Original Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, CompCore agrees (except to the extent that
Zoran shall otherwise consent in writing), to carry on its business in the
usual, regular and ordinary course in substantially the same manner as
previously conducted, to pay its debts and Taxes when due, subject to good faith
disputes over such debts or Taxes, to pay or perform its other obligations when
due, and, to the extent consistent with such business, to use all reasonable
efforts consistent with past practices and policies to (i) preserve intact its
present business organization, (ii) keep available the services of its present
officers and key employees and (iii) preserve its relationships with customers,
suppliers, distributors, licensors, licensees and others having business
dealings with it. CompCore shall promptly notify Zoran of any event or
occurrence not in the ordinary course of business of CompCore where such event
or occurrence would result in a breach of any covenant of CompCore set forth in
this Agreement or cause any representation or warranty of CompCore set forth in
this Agreement to be untrue as of the date of, or giving effect to, such event
or occurrence. Except as expressly contemplated by this Agreement, CompCore
shall not, without the prior written consent of Zoran:
(a) Grant any options under any employee plan of CompCore, accelerate, amend
or change the period of exercisability under any outstanding options, or
authorize cash payments in exchange for any options granted under any of such
plans except as required by the terms of such plans or any related agreements in
effect as of the date of this Agreement;
(b) Transfer or license to any person or entity or otherwise extend, amend
or modify any rights to the CompCore Intellectual Property Rights other than in
the ordinary course of business consistent with past practices;
(c) Declare or pay any dividends on or make any other distributions (whether
in cash, stock or property) in respect of any of its capital stock, or split,
combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock, or purchase or otherwise acquire, directly or
indirectly, any shares of its capital stock except from former employees,
directors and consultants in accordance with agreements providing for the
repurchase of shares in connection with any termination of service by such
party;
(d) Issue, deliver or sell or authorize or propose the issuance, delivery or
sale of, any shares of its capital stock or securities convertible into shares
of its capital stock, or subscriptions, rights, warrants or options to acquire,
or other agreements or commitments of any character obligating it to issue any
such shares or other convertible securities, other than the issuance of shares
of CompCore Common Stock upon the exercise of CompCore Options outstanding as of
the date of this Agreement;
(e) Acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or substantial portion of the assets
of, or by any other manner, any business or any corporation, partnership or
other business organization or division, or otherwise acquire or agree to
acquire any assets other than acquisitions involving aggregate consideration of
not more than $50,000;
(f) Sell, lease, license or otherwise dispose of any of its properties or
assets which are material, individually or in the aggregate, to the business of
CompCore, except for transactions entered into in the ordinary course of
business;
(g) Take any action to (i) increase or agree to increase the compensation
payable or to become payable to its officers or employees, (ii) grant any
additional severance or termination pay to, or enter into any employment or
severance agreements with, officers, (iii) grant any severance or termination
pay to, or enter into any employment or severance agreement, with any
non-officer employee, except in accordance with past practices, (iv) enter into
any collective bargaining agreement, or (v) establish, adopt, enter into or
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amend in any material respect any bonus, profit sharing, thrift, compensation,
stock option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, trust, fund, policy or
arrangement for the benefit of any directors, officers or employees;
(h) Revalue any of its assets, including writing down the value of inventory
or writing off notes or accounts receivable other than in the ordinary course of
business;
(i) Incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities or guarantee any debt securities of others, other
than indebtedness incurred under outstanding lines of credit consistent with
past practice;
(j) Amend or propose to amend its Articles of Incorporation or Bylaws,
except as contemplated by this Agreement;
(k) Incur or commit to incur any individual capital expenditure in excess of
$20,000 or aggregate capital expenditures in excess of $75,000, in addition to
the existing commitments set forth in the CompCore Disclosure Schedule;
(l) Enter into or amend any agreements pursuant to which any third party is
granted exclusive marketing or manufacturing rights with respect to any CompCore
product;
(m) Amend or terminate any material contract, agreement or license to which
it is a party except in the ordinary course of business;
(n) Waive or release any material right or claim, except in the ordinary
course of business;
(o) Initiate any litigation or arbitration proceeding; or
(p) Take or agree to take, in writing or otherwise, any of the actions
described in Sections (a) through (o) above, or any action which is reasonably
likely to make any of CompCore's representations or warranties contained in this
Agreement or the Original Agreement untrue or incorrect in any material respect
on the date made (to the extent so limited) or as of the Effective Time.
Section 5.2 COVENANTS OF ZORAN. During the period from the date of the
Original Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, Zoran agrees (except to the extent that
CompCore shall otherwise consent in writing), to carry on its business in the
usual, regular and ordinary course in substantially the same manner as
previously conducted, to pay its debts and Taxes when due, subject to good faith
disputes over such debts or Taxes, to pay or perform its other obligations when
due, and, to the extent consistent with such business, use all reasonable
efforts consistent with past practices and policies to (i) preserve intact its
present business organization, (ii) keep available the services of its present
officers and key employees and (iii) preserve its relationships with customers,
suppliers, distributors, licensors, licensees and others having business
dealings with it. Zoran shall promptly notify CompCore of any event or
occurrence not in the ordinary course of business of Zoran where such event or
occurrence would result in a breach of any covenant of Zoran set forth in this
Agreement or cause any representation or warranty of Zoran set forth in this
Agreement to be untrue as of the date of, or giving effect to, such event or
occurrence. Except as expressly contemplated by this Agreement, Zoran shall not,
without the prior written consent of CompCore:
(a) Grant any options under any employee plan of Zoran (except for options
and rights to purchase shares of Zoran Common Stock granted under the Zoran
Option Plans and the Zoran Purchase Plan, in the ordinary course of business and
consistent with past practices), accelerate, amend or change the period of
exercisability under any outstanding options, or authorize cash payments in
exchange for any options granted under any of such plans except as required by
the terms of such plans or any related agreements in effect as of the date of
this Agreement;
(b) Declare or pay any dividends on or make any other distributions (whether
in cash, stock or property) in respect of any of its capital stock, or split,
combine or reclassify any of its capital stock or issue
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or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock, or purchase or otherwise
acquire, directly or indirectly, any shares of its capital stock except from
former employees, directors and consultants in accordance with agreements
providing for the repurchase of shares in connection with any termination of
service by such party;
(c) Sell, lease, license or otherwise dispose of any of its properties or
assets which are material, individually or in the aggregate, to the business of
Zoran, except for transactions entered into in the ordinary course of business;
(d) Amend or propose to amend its Certificate of Incorporation or Bylaws, in
any manner that materially affects the rights, preferences or privileges of the
holders of its capital stock, except as contemplated by this Agreement; or
(e) Take or agree to take, in writing or otherwise, any of the actions
described in Sections (a) through (d) above, or any action which is reasonably
likely to make any of CompCore's representations or warranties contained in this
Agreement or the Original Agreement untrue or incorrect in any material respect
on the date made (to the extent so limited) or as of the Effective Time.
Section 5.3 COOPERATION. Subject to compliance with applicable law, from
the date hereof until the Effective Time, each of Zoran and CompCore shall
confer on a regular and frequent basis with one or more representatives of the
other party to report operational matters of materiality and the general status
of ongoing operations and shall promptly provide the other party or its counsel
with copies of all filings made by such party with any Governmental Entity in
connection with this Agreement, the Merger and the transactions contemplated
hereby.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 NO SOLICITATION BY COMPCORE.
(a) During the period from the date of the Original Agreement until the
earlier of the termination of this Agreement or the Effective Time, CompCore
shall not, directly or indirectly, through any officer, director, employee,
representative or agent, (i) solicit, initiate, or encourage any inquiries or
proposals that constitute, or could reasonably be expected to lead to, a
proposal or offer for a merger, consolidation, business combination, sale of
substantial assets, sale of shares of capital stock (including without
limitation by way of a tender offer) or similar transactions involving CompCore,
other than the transactions contemplated by this Agreement (any of the foregoing
inquiries or proposals being referred to in this Agreement as a "CompCore
Acquisition Proposal"), (ii) engage in negotiations or discussions concerning,
or provide any non-public information to any person or entity relating to, any
CompCore Acquisition Proposal, or (iii) agree to, approve or recommend any
CompCore Acquisition Proposal.
(b) CompCore shall notify Zoran no later than twenty-four (24) hours after
receipt by CompCore (or its advisors) of any CompCore Acquisition Proposal or
any request for nonpublic information in connection with a CompCore Acquisition
Proposal or for access to the properties, books or records of CompCore by any
person or entity that informs CompCore that it is considering making, or has
made, a CompCore Acquisition Proposal. Such notice shall be made orally and in
writing and shall indicate in reasonable detail the identity of the offeror and
the terms and conditions of such proposal, inquiry or contact.
Section 6.2 NO SOLICITATION BY ZORAN.
(a) During the period from the date of the Original Agreement until the
earlier of the termination of this Agreement or the Effective Time, Zoran shall
not, directly or indirectly, through any officer, director, employee,
representative or agent, (i) solicit, initiate, or encourage any inquiries or
proposals that constitute, or could reasonably be expected to lead to, a
proposal or offer for a merger, consolidation, business combination, sale of
substantial assets, sale of shares of capital stock (including without
limitation
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by way of a tender offer) or similar transactions involving a Change of Control
(as hereinafter defined) of Zoran (any of the foregoing inquiries or proposals
being referred to in this Agreement as a "Zoran Acquisition Proposal"), (ii)
engage in negotiations or discussions concerning, or provide any non-public
information to any person or entity relating to, any Zoran Acquisition Proposal,
or (iii) agree to, approve or recommend any Zoran Acquisition Proposal;
PROVIDED, HOWEVER, that nothing contained in this Agreement shall prevent Zoran
or its Board of Directors from (A) furnishing non-public information to, or
entering into discussions or negotiations with, any person or entity in
connection with an unsolicited bona fide written Zoran Acquisition Proposal by
such person or entity or recommending such an unsolicited bona fide written
Zoran Acquisition Proposal to the stockholders of Zoran, if and only to the
extent that the Board of Directors of Zoran determines in good faith (after
consultation with outside legal counsel) that such action is necessary for such
Board of Directors to comply with its fiduciary duties to Zoran's stockholders
under applicable law, or (B) complying with Rule 14e-2 promulgated under the
Exchange Act with regard to a Zoran Acquisition Proposal.
(b) Zoran shall notify CompCore no later than twenty-four (24) hours after
receipt by Zoran (or its advisors) of any Zoran Acquisition Proposal or any
request for nonpublic information in connection with a Zoran Acquisition
Proposal or for access to the properties, books or records of Zoran by any
person or entity that informs Zoran that it is considering making, or has made,
a Zoran Acquisition Proposal. Such notice shall be made orally and in writing
and shall indicate in reasonable detail the identity of the offeror and the
terms and conditions of such proposal, inquiry or contact.
(c) As used in this Agreement, "Change of Control" means a transaction or
series of transactions pursuant to which any person (or group of persons) other
than the current affiliates of Zoran acquires more than fifty percent (50%) of
Zoran's outstanding voting securities or more than fifty percent (50%) of the
outstanding voting securities of an entity surviving any such transaction
involving Zoran, or of any direct or indirect parent of such entity.
Section 6.3 PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT.
(a) Zoran and CompCore shall use all reasonable efforts to cause the
Registration Statement to become effective as soon after such filing as
practicable. The Joint Proxy Statement included in the Registration Statement
shall include the recommendation of the Board of Directors of CompCore in favor
of this Agreement and the Merger and the recommendation of the Board of
Directors of Zoran in favor of the issuance of shares of Zoran Common Stock
pursuant to the Merger.
(b) Zoran and CompCore shall make all necessary filings with respect to the
Merger under the Securities Act, the Exchange Act and applicable state blue sky
laws and the rules and regulations thereunder.
Section 6.4 CONSENTS. Each of Zoran and CompCore shall use all reasonable
efforts to obtain all necessary consents, waivers and approvals under any of
Zoran's or CompCore's material agreements, contracts, licenses or leases as may
be necessary or advisable to consummate the Merger and the other transactions
contemplated by this Agreement.
Section 6.5 CURRENT NASDAQ QUOTATION. Zoran agrees to continue the
quotation of Zoran Common Stock on the NNM during the term of this Agreement.
Section 6.6 ACCESS TO INFORMATION. Upon reasonable notice, CompCore and
Zoran shall each afford to the officers, employees, accountants, counsel and
other representatives of the other, reasonable access, during normal business
hours during the period prior to the Effective Time, to all its properties,
books, contracts, commitments and records and, during such period, each of
CompCore and Zoran shall furnish promptly to the other (i) a copy of each
report, schedule, registration statement and other document filed or received by
it during such period pursuant to the requirements of federal securities laws
and (ii) all other information concerning its business, properties and personnel
as such other party may reasonably request. Unless otherwise required by law,
the parties will treat any such information which is nonpublic in
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confidence in accordance with the Joint Confidentiality Agreement dated June 30,
1996 (the "Confidentiality Agreement") between Zoran and CompCore, which
Confidentiality Agreement shall continue in full force and effect in accordance
with its terms. No information or knowledge obtained in any investigation
pursuant to this Section 6.6 shall affect or be deemed to modify any
representation or warranty contained in this Agreement or the conditions to the
obligations of the parties to consummate the Merger.
Section 6.7 STOCKHOLDERS' MEETINGS. CompCore and Zoran each shall call a
meeting of its respective stockholders to be held as promptly as practicable for
the purpose of voting, in the case of CompCore, upon this Agreement and the
Merger and, in the case of Zoran, upon the issuance of shares of Zoran Common
Stock pursuant to the Merger. CompCore and Zoran will, through their respective
Boards of Directors, recommend to their respective stockholders approval of such
matters and will coordinate and cooperate with respect to the timing of such
meetings and shall use their best efforts to hold such meetings on the same day
and as soon as practicable after the date hereof.
Section 6.8 LEGAL CONDITIONS TO MERGER. Each of Zoran and CompCore will
take all reasonable actions necessary to comply promptly with all legal
requirements which may be imposed on itself with respect to the Merger (which
actions shall include, without limitation, furnishing all information in
connection with approvals of or filings with any Governmental Entity) and will
promptly cooperate with and furnish information to each other in connection with
any such requirements imposed upon either of them or any of their Subsidiaries
in connection with the Merger. Each of Zoran and CompCore will take all
reasonable actions necessary to obtain (and will cooperate with each other in
obtaining) any consent, authorization, order or approval of, or any exemption
by, any Governmental Entity or other third party, required to be obtained or
made by CompCore, Zoran or any of their Subsidiaries in connection with the
Merger or the taking of any action contemplated thereby or by this Agreement.
Section 6.9 PUBLIC DISCLOSURE. Zoran and CompCore shall consult with each
other before issuing any press release or otherwise making any public statement
with respect to the Merger or this Agreement and shall not issue any such press
release or make any such public statement prior to such consultation, except as
may be required by law or by the rules of the NASD.
Section 6.10 TAX-FREE REORGANIZATION. Zoran and CompCore shall each use
its best efforts to cause the Merger to be treated as a reorganization within
the meaning of Section 368(a) of the Code.
Section 6.11 POOLING ACCOUNTING. Zoran and CompCore shall each use its
best efforts to cause the business combination to be effected by the Merger to
be accounted for as a pooling of interests. Each of Zoran and CompCore shall use
its best efforts (i) to cause its respective Affiliates (as defined in Section
6.12) not to take any action that would adversely affect the ability of Zoran to
account for the business combination to be effected by the Merger as a pooling
of interests and (ii) to cause its respective Affiliates to sign and deliver to
Zoran a customary "pooling letter" in form and substance agreed upon by CompCore
and Zoran to the extent that receipt of such letter is required to assure the
availability of pooling of interests accounting treatment.
Section 6.12 AFFILIATE AGREEMENTS. Zoran and CompCore have provided each
other with a list of those persons who are, in Zoran's or CompCore's respective
reasonable judgment, "affiliates" of Zoran or CompCore, respectively, within the
meaning of Rule 145 promulgated under the Securities Act ("Rule 145"). (Each
such person who is an "affiliate" of Zoran or CompCore within the meaning of
Rule 145 is referred to herein as an "Affiliate.") Zoran and CompCore shall
provide each other such information and documents as CompCore or Zoran shall
reasonably request for purposes of reviewing such list and shall notify the
other party in writing regarding any change in the identity of its Affiliates
prior to the Closing Date. CompCore has delivered or caused to be delivered to
Zoran from each of the Affiliates of CompCore an executed Affiliate Agreement by
which such Affiliate of CompCore has agreed to comply with the applicable
requirements of Rule 145 ("Affiliate Agreement"). Zoran shall be entitled to
place appropriate legends on the certificates evidencing any Zoran Common Stock
to be received by such
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Affiliates of CompCore pursuant to the terms of this Agreement, and to issue
appropriate stop transfer instructions to the transfer agent for the Zoran
Common Stock, consistent with the terms of the Affiliate Agreements.
Section 6.13 NASDAQ QUOTATION. Zoran shall use its best efforts to cause
the shares of Zoran Common Stock to be issued in the Merger to be approved for
quotation on the NNM, subject to official notice of issuance, prior to the
Closing Date.
Section 6.14 STOCK OPTIONS.
(a) At the Effective Time, each outstanding CompCore Option, whether vested
or unvested, shall be deemed to constitute an option (an "Assumed Option") to
acquire, on the same terms and conditions as were applicable under the CompCore
Option, such number of shares of Zoran Common Stock as the holder of such
CompCore Option would have been entitled to receive pursuant to the Merger had
such holder exercised such option in full immediately prior to the Effective
Time (rounded down to the nearest whole share), at a price per share (rounded up
to the nearest whole cent) equal to (x) the aggregate exercise price per share
of CompCore Common Stock otherwise purchasable pursuant to such CompCore Option
immediately prior to the Effective Time divided by (y) the number of full shares
of Zoran Common Stock deemed purchasable pursuant to such CompCore Option in
accordance with the foregoing; PROVIDED, HOWEVER, that, in the case of any
CompCore Option to which Section 422 of the Code applies ("incentive stock
options"), the option price, the number of shares purchasable pursuant to such
option and the terms and conditions of exercise of such option shall be
determined in order to comply with Section 425(a) of the Code and PROVIDED
FURTHER, that in the case of any Assumed Option that remains outstanding as of
the termination of the Escrow (as provided in Article IX and the Escrow
Agreement) the number of shares of Zoran Common Stock issuable upon the
subsequent exercise of such Assumed Option shall be reduced in proportion to any
reduction in the number of shares of Zoran Common Stock received by holders of
Assumed Options exercised prior to the termination of the Escrow as a result of
any distribution of Escrow Shares to members of the Zoran Group pursuant to
Article IX and the Escrow Agreement.
(b) As soon as practicable after the Effective Time, Zoran shall deliver to
the participants in the CompCore Option Plan an appropriate notice setting forth
such participants' rights pursuant thereto and the grants pursuant to the
CompCore Option Plan shall continue in effect on the same terms and conditions
(subject only to the adjustments required by this Section 6.14 after giving
effect to the Merger). Zoran shall comply with the terms of the CompCore Option
Plan and ensure, to the extent required by and subject to the provisions of the
CompCore Option Plan, that the Assumed Options representing assumed CompCore
Options which qualified as incentive stock options prior the Effective Time
continue to qualify as incentive stock options after the Effective Time.
(c) Zoran shall take all corporate action necessary to reserve for issuance
a sufficient number of shares of Zoran Common Stock for delivery under the
Assumed Options. Within thirty (30) days after the Effective Time, Zoran shall
file a registration statement on Form S-8 (or any successor or other appropriate
forms), or another appropriate form, with respect to the shares of Zoran Common
Stock subject to the Assumed Options and shall use its best efforts to maintain
the effectiveness of such registration statement or registration statements (and
maintain the current status of the prospectus or prospectuses in connection
therewith) for so long as any Assumed Options remain outstanding. With respect
to those individuals who subsequent to the Merger will be subject to the
reporting requirements under Section 16(a) of the Exchange Act, where
applicable, Zoran shall administer the Assumed Options in a manner that complies
with Rule 16b-3 promulgated under the Exchange Act.
(d) Employees of CompCore as of the Effective Time shall be permitted to
participate in the Zoran Employee Stock Purchase Plan commencing on the first
enrollment date following the Effective Time, subject to compliance with the
eligibility provisions of such plan.
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Section 6.15 BROKERS OR FINDERS. Each of Zoran and CompCore represents, as
to itself, its Subsidiaries and its Affiliates, that no agent, broker,
investment banker, financial advisor or other firm or person is or will be
entitled to any broker's or finder's fee or any other commission or similar fee
in connection with any of the transactions contemplated by this Agreement except
Hambrecht & Quist LLC, financial advisor to CompCore, whose fees will be paid by
CompCore in accordance with CompCore's agreement with such firm (a copy of which
has been delivered by CompCore to Zoran prior to the date of this Agreement),
and Oppenheimer & Co., Inc., financial advisor to Zoran, whose fees and expenses
will be paid by Zoran in accordance with Zoran's agreement with such firm (a
copy of which has been delivered by Zoran prior to the date of this Agreement),
in each case subject to the provisions of Section 6.17, and each of Zoran and
CompCore agrees to indemnify and hold the other harmless from and against any
and all claims, liabilities or obligations with respect to any other fees,
commissions or expenses asserted by any person on the basis of any act or
statement alleged to have been made by such party or its Affiliate.
Section 6.16 ADDITIONAL AGREEMENTS; REASONABLE EFFORTS. Subject to the
terms and conditions of this Agreement, each of the parties agrees to use all
reasonable efforts to take, or cause to be taken, all action and to do, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, including cooperating fully with the other party, including by
provision of information. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement or to vest the Surviving Corporation with full title to all
properties, assets, rights, approvals, immunities and franchises of either of
the Constituent Corporations, the proper officers and directors of each party to
this Agreement shall take all such necessary action.
Section 6.17 EXPENSES. The parties shall each pay their own legal,
accounting and financial advisory fees and other out-of-pocket expenses related
to the negotiation, preparation and carrying out of the Original Agreement and
this Agreement and the transactions herein contemplated. In the event the Merger
is consummated, legal, accounting and financial advisory fees and expenses and
other out-of-pocket expenses incurred by CompCore relating to the negotiation,
preparation and carrying out of this Agreement and the transactions herein
contemplated (the "CompCore Transaction Expenses") shall be borne by the
Surviving Corporation, subject to Zoran's rights to indemnification under
Section 9.2(a) with respect to CompCore Transaction Expenses in excess of
$1,000,000, in aggregate. A schedule of all CompCore Transaction Expenses
incurred or to be incurred through the Closing shall be submitted to Zoran not
later than two (2) business days prior to the Closing.
Section 6.18 EMPLOYEE BENEFITS. All CompCore employees who remain
employees of Zoran, CompCore or any other Subsidiary of Zoran following the
Effective Time shall be entitled to participate in all employee benefit plans
and programs (the "Zoran Plans") that are available to other Zoran employees
holding comparable positions. The Zoran Plans shall give full credit for each
participant's period of continuous service with CompCore prior to the Effective
Time, to the extent permitted by such Zoran Plans. In the case of medical and
health insurance coverage, Zoran shall cause the Surviving Corporation to
continue to insure CompCore employees under CompCore's existing insurance plans
or provide them with the opportunity to participate in Zoran Plans providing
generally comparable medical and health insurance coverage.
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ARTICLE VII
CONDITIONS TO MERGER
Section 7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of each party to this Agreement to effect
the Merger shall be subject to the satisfaction prior to the Closing Date of the
following conditions:
(a) This Agreement and the Merger shall have been approved and adopted by
the affirmative vote of the holders of a majority of the outstanding shares of
CompCore Common Stock, and the issuance of shares of Zoran Common Stock pursuant
to the Merger shall have been approved by the stockholders of Zoran.
(b) All authorizations, consents, orders or approvals of, or declarations or
filings with, or expirations of waiting periods imposed by, any Governmental
Entity the failure of which to obtain or comply with would be reasonably likely
to have a Material Adverse Effect on Zoran or CompCore shall have been filed,
occurred or been obtained.
(c) The Registration Statement shall have become effective under the
Securities Act and shall not be the subject of any stop order or proceedings
seeking a stop order.
(d) No temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or other legal or
regulatory restraint or prohibition preventing the consummation of the Merger or
limiting or restricting Zoran's conduct or operation of the business of Zoran or
CompCore after the Merger shall have been issued, nor shall any proceeding
brought by a domestic administrative agency or commission or other domestic
Governmental Entity, seeking any of the foregoing be pending; nor shall there be
any action taken, or any statute, rule, regulation or order enacted, entered,
enforced or deemed applicable to the Merger which makes the consummation of the
Merger illegal.
(e) Zoran and CompCore shall have received letters from Price Waterhouse LLP
dated the date of the Joint Proxy Statement and confirmed in writing at the
Effective Time and addressed to Zoran and CompCore stating that the business
combination to be effected by the Merger will qualify as a pooling of interests
transaction under GAAP.
(f) The shares of Zoran Common Stock to be issued in the Merger shall have
been approved for quotation on the NNM.
(g) Zoran shall have received all permits and other authorizations required
under applicable state blue sky laws for the issuance of shares of Zoran Common
Stock pursuant to the Merger.
Section 7.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF ZORAN AND SUB. The
obligations of Zoran and Sub to effect the Merger are subject to the
satisfaction of each of the following conditions, any of which may be waived in
writing exclusively by Zoran and Sub:
(a) The representations and warranties of CompCore set forth in the Original
Agreement and this Agreement shall be true and correct in all material respects
as of the date of the Original Agreement and the date of this Agreement,
respectively, and (except to the extent such representations and warranties
speak as of an earlier date) as of the Closing Date as though made on and as of
the Closing Date, except for (i) changes contemplated by this Agreement and (ii)
where the failure to be true and correct would not be reasonably likely to have
a Material Adverse Effect on CompCore, or a material adverse effect upon the
consummation of the transactions contemplated hereby; and Zoran shall have
received a certificate to such effect signed on behalf of CompCore by the chief
executive officer and the chief financial officer of CompCore.
(b) CompCore shall have performed in all material respects all obligations
required to be performed by it under this Agreement at or prior to the Closing
Date, and Zoran shall have received a certificate to
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such effect signed on behalf of CompCore by the chief executive officer and the
chief financial officer of CompCore.
(c) Zoran shall have received from CompCore written evidence that the
execution, delivery and performance of CompCore's obligations under this
Agreement have been duly and validly approved and authorized by the Board of
Directors and the shareholders of CompCore.
(d) Zoran shall have received a written opinion from Gray Cary Ware &
Freidenrich, A Professional Corporation, counsel to Zoran, to the effect that
the Merger will be treated for Federal income tax purposes as a tax-free
reorganization within the meaning of Section 368(a) of the Code.
(e) Zoran shall have been furnished with evidence satisfactory to it of the
consent or approval of those persons whose consent or approval shall be required
in connection with the Merger under the material contracts of CompCore, as set
forth on SCHEDULE 7.2(E) hereto.
(f) Zoran shall have received from each of the Affiliates of CompCore an
executed Affiliate Agreement.
(g) George T. Haber and Sorin C. Cismas shall have executed and delivered
Employment Agreements in the form of EXHIBITS B-1 AND B-2 hereto, respectively
(the "Employment Agreements").
(h) Each person listed in the preamble to EXHIBIT C hereto shall have
executed and delivered to Zoran Non-Competition Agreements, in the form of
EXHIBIT C hereto.
(i) Zoran shall be satisfied in its sole discretion that not less than
ninety percent (90%) of CompCore's key employees listed on SCHEDULE 7.2(I)
hereto are ready, willing and able to remain employed by CompCore or Zoran after
the Effective Time on terms reasonably satisfactory to Zoran.
(j) The Merger shall have been approved by the affirmative vote of the
holders of not less than ninety-two percent (92%) of the outstanding shares of
CompCore Common Stock.
(k) Zoran shall have received a legal opinion from Cooley Godward LLP,
counsel to CompCore, substantially in the form of EXHIBIT D hereto.
(l) The Escrow Agreement shall have been executed and delivered by the
Shareholder Representative (as defined in Section 9.7) and the Escrow Agent.
(m) The Bechtolsheim Note shall have been converted in full into shares of
CompCore Common Stock in accordance with its terms.
Section 7.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF COMPCORE. The
obligation of CompCore to effect the Merger is subject to the satisfaction of
each of the following conditions, any of which may be waived, in writing,
exclusively by CompCore:
(a) The representations and warranties of Zoran and Sub set forth in the
Original Agreement and this Agreement shall be true and correct in all material
respects as of the date of the Original Agreement and the date of this
Agreement, respectively, and (except to the extent such representations speak as
of an earlier date) as of the Closing Date as though made on and as of the
Closing Date, except for (i) changes contemplated by this Agreement and (ii)
where the failure to be true and correct would not be reasonably likely to have
a Material Adverse Effect on Zoran and its Subsidiaries, taken as a whole, or a
material adverse effect upon the consummation of the transactions contemplated
hereby; and CompCore shall have received a certificate to such effect signed on
behalf of Zoran by the chief executive officer and the chief financial officer
of Zoran. For purposes of the foregoing condition, neither Zoran's failure to
achieve operating results predicted by financial analysts nor reductions in the
trading price of Zoran Common Stock, as reported on the NNM, occurring at any
time or from time to time between the date hereof and the Closing Date, shall be
deemed to be an event or occurrence having a Material Adverse Effect on Zoran.
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(b) Zoran and Sub shall have performed in all material respects all
obligations required to be performed by them under this Agreement at or prior to
the Closing Date, and CompCore shall have received a certificate to such effect
signed on behalf of Zoran by the chief executive officer and the chief financial
officer of Zoran.
(c) CompCore shall have received from Zoran and Sub written evidence that
the execution, delivery and performance of Zoran's and Sub's obligations under
this Agreement have been duly and validly approved and authorized by the Boards
of Directors and stockholders of Zoran and Sub.
(d) CompCore's shareholders shall have received the opinion of Cooley
Godward LLP, counsel to CompCore, to the effect that the Merger will be treated
for Federal income tax purposes as a tax-free reorganization within the meaning
of Section 368(a) of the Code.
(e) CompCore shall have received copies of Affiliate Agreements executed by
each Affiliate of Zoran.
(f) Zoran shall have executed and delivered the Employment Agreements.
(g) CompCore shall have received a legal opinion from Gray Cary Ware &
Freidenrich, A Professional Corporation, counsel to Zoran, substantially in the
form of EXHIBIT E hereto.
(h) The Escrow Agreement shall have been executed and delivered by Zoran and
the Escrow Agent.
(i) George T. Haber shall have been duly elected as a member of Zoran's
Board of Directors, effective as of the Effective Time.
ARTICLE VIII
TERMINATION AND AMENDMENT
Section 8.1 TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time (with respect to Sections 8.1(b) through 8.1(i), by
written notice by the terminating party to the other party):
(a) by the mutual written consent of Zoran and CompCore;
(b) by either Zoran or CompCore if the Merger shall not have been
consummated by February 28, 1997 (provided that the right to terminate this
Agreement under this Section 8.1(b) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause of or
resulted in the failure of the Merger to occur on or before such date);
(c) by either Zoran or CompCore if a court of competent jurisdiction or
other Governmental Entity shall have issued a nonappealable final order, decree
or ruling or taken any other action, in each case having the effect of
permanently restraining, enjoining or otherwise prohibiting the Merger, except
if the party relying on such order, decree or ruling or other action has not
complied with its obligations under Section 6.8 of this Agreement;
(d) by Zoran, if the Board of Directors of CompCore shall have withdrawn or
modified its recommendation of this Agreement or the Merger in a manner adverse
to Zoran or shall have publicly announced or disclosed to any third party its
intention to do any of the foregoing;
(e) by CompCore, if the Board of Directors of Zoran shall have withdrawn or
modified its recommendation of this Agreement or the Merger in a manner adverse
to CompCore or shall have publicly announced or disclosed to any third party its
intention to do any of the foregoing;
(f) by Zoran if the shareholders of CompCore shall fail to approve this
Agreement and the Merger at the CompCore Shareholders' Meeting, or by CompCore
if the stockholders of Zoran shall fail to
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approve the issuance of Zoran Common Stock pursuant to the Merger at the Zoran
Stockholders' Meeting;
(g) by Zoran or CompCore, if there has been a material breach of any
representation, warranty, covenant or agreement on the part of the other party
set forth in this Agreement, which breach (i) causes the conditions set forth in
Section 7.2(a) or (b) (in the case of termination by Zoran) or 7.3(a) or (b) (in
the case of termination by CompCore) not to be satisfied and (ii) shall not have
been cured within ten (10) business days following receipt by the breaching
party of written notice of such breach from the other party;
(h) by Zoran if the condition specified in Section 7.2(j) is not satisfied;
or
(i) by CompCore if, without CompCore's prior written consent, there has been
a Change of Control of Zoran pursuant to a Zoran Acquisition Proposal that has
not been approved by a majority of Zoran's Board of Directors.
Section 8.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement as provided in Section 8.1, there shall be no liability or obligation
on the part of Zoran, CompCore, Sub or their respective officers, directors,
shareholders or Affiliates, except as set forth in Section 8.3 and further
except to the extent that such termination results from the willful breach by a
party of any of its representations, warranties or covenants set forth in this
Agreement; provided that, the provisions of Sections 6.6 (second sentence),
6.15, 6.17 and 8.3 of this Agreement shall remain in full force and effect and
survive any termination of this Agreement.
Section 8.3 TERMINATION FEE. Zoran shall pay CompCore a termination fee of
$1,000,000 if: (i) CompCore terminates this Agreement pursuant to Section
8.1(i), (ii) the Change of Control of Zoran contemplated by the Zoran
Acquisition Proposal is consummated within twelve (12) months following such
termination, and (iii) immediately prior to such termination, CompCore was not
in breach of any of its material obligations under this Agreement.
Section 8.4 AMENDMENT. This Agreement may be amended by the parties
hereto, by action taken or authorized by their respective Boards of Directors,
at any time before or after approval of the matters presented in connection with
the Merger by the shareholders of CompCore and the stockholders of Zoran, but,
after any such approval, no amendment shall be made which by law requires
further approval by such shareholders or stockholders without such further
approval. This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto.
Section 8.5 EXTENSION; WAIVER. At any time prior to the Effective Time,
the parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party.
ARTICLE IX
ESCROW AND INDEMNIFICATION
Section 9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. If the Merger
occurs, all of the representations and warranties contained in this Agreement
shall survive the Closing Date and shall continue in full force and effect until
the earlier of (i) twelve months following the Effective Time or (ii) the date
on which Zoran releases its audited consolidated financial statements for the
year ending December 31, 1997 (the "Termination Date"), except for the
representations and warranties of CompCore set forth in Section 3.9, which shall
survive until the applicable statutes of limitations expire.
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Section 9.2 INDEMNIFICATION BY COMPCORE SHAREHOLDERS.
(a) Subject to the terms and conditions contained herein, each of the
shareholders of CompCore shall indemnify, defend and hold harmless Zoran, its
officers, directors, employees and attorneys, all Subsidiaries and Affiliates of
Zoran, and the respective officers, directors, employees and attorneys of such
entities (all such persons and entities being collectively referred to as the
"Zoran Group") from, against, for and in respect of any and all losses, damages,
costs and expenses (including reasonable legal fees and expenses) which any
member of the Zoran Group may sustain or incur which are caused by or arise out
of (i) any inaccuracy in or breach of any of the representations, warranties or
covenants made by CompCore in this Agreement, including the CompCore Disclosure
Schedule or (ii) any CompCore Transaction Expenses in excess of $1,000,000, in
aggregate (collectively, "Zoran Losses"). References to shareholders of
CompCore, CompCore shareholders or words of similar import in this Article IX
shall be deemed to be references to the persons who were shareholders of
CompCore immediately prior to the Effective Time.
(b) No shareholder of CompCore shall be required to indemnify any member of
the Zoran Group for any Zoran Losses until the aggregate amount of all Zoran
Losses under all claims shall exceed $50,000 (the "Floor"); provided, however,
that if the aggregate amount of Zoran Losses in respect of such claims exceeds
the Floor, the shareholders of CompCore shall indemnify such member or members
of the Zoran Group for all Zoran Losses (including the initial $50,000) in
respect of such claims, subject to the further limitations set forth herein; and
provided, further, except as specifically provided in Section 9.2(d), the
maximum aggregate liability of the shareholders of CompCore pursuant to Section
9.2(a) shall in no event exceed the value of the Escrow Shares, as determined
pursuant to the Escrow Agreement.
(c) The obligation of the shareholders of CompCore to indemnify members of
the Zoran Group for a Zoran Loss under this Article IX is subject to the
condition that the Shareholder Representative shall have received a claim for
such Zoran Loss on or before the Termination Date.
(d) The provisions of Section 9.2(b) and (c) above and 9.6 below shall not
limit, in any manner any remedy at law or in equity to which any member of the
Zoran Group shall be entitled against CompCore or any shareholder of CompCore as
a result of willful fraud or intentional misrepresentation by CompCore, any
shareholder of CompCore or any of their respective representatives or any rights
Zoran has or may have under any state or federal securities laws.
Section 9.3 PROCEDURES FOR INDEMNIFICATION.
(a) As used in this Article IX, the term "Indemnitee" means the member or
members of the Zoran Group seeking indemnification hereunder.
(b) A claim for indemnification hereunder (an "Indemnification Claim") shall
be made by Indemnitee by delivery of a written notice to the Shareholder
Representative and the Escrow Agent requesting indemnification and specifying
the basis on which indemnification is sought in reasonable detail (and shall
include relevant documentation related to the Indemnification Claim), the amount
of the asserted Zoran Losses and, in the case of a Third Party Claim (as defined
in Section 9.4), containing (by attachment or otherwise) such other information
as Indemnitee shall have concerning such Third Party Claim.
(c) If the Indemnification Claim involves a Third Party Claim, the
procedures set forth in Section 9.4 hereof shall be observed by Indemnitee and
the Shareholder Representative.
(d) The Escrow Agent will not release any Escrow Shares held in the Escrow
Account pursuant to an Indemnification until such Indemnification Claim has been
resolved in accordance with Section 9.6 below.
Section 9.4 DEFENSE OF THIRD PARTY CLAIMS. Should any claim be made, or
suit or proceeding be instituted against an Indemnitee which, if prosecuted
successfully, would be a matter for which such Indemnitee is entitled to
indemnification under this Article IX (a "Third Party Claim"), the obligations
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and liabilities of the parties hereunder with respect to such Third Party Claim
shall be subject to the following terms and conditions:
(a) Indemnitee shall give the Shareholder Representative and the Escrow
Agent written notice of any such claim promptly after receipt by Indemnitee of
notice thereof, and the Shareholder Representative may undertake control of the
defense thereof by counsel of its own choosing reasonably acceptable to
Indemnitee. Indemnitee may participate in the defense through its own counsel at
its own expense. The assumption of the defense of any Third Party Claim by the
Shareholder Representative shall be an acknowledgment by the Shareholder
Representative that such Third Party Claim is subject to indemnification under
the provisions of this Article IX. If, however, the Shareholder Representative
fails or refuses to undertake the defense of such Third Party Claim within
fifteen (15) days after written notice of such claim has been delivered to the
Shareholder Representative by Indemnitee, Indemnitee shall have the right to
undertake the defense, compromise and, subject to Section 9.5, settlement of
such Third Party Claim with counsel of its own choosing. In the circumstances
described in the preceding sentence, Indemnitee shall, promptly upon its
assumption of the defense of such Third Party Claim, make an Indemnification
Claim as specified in Section 9.3(b), which shall be deemed an Indemnification
Claim that is not a Third Party Claim for the purposes of the procedures set
forth herein. Failure of Indemnitee to furnish written notice to the Shareholder
Representative or the Escrow Agent of a Third Party Claim shall not release the
shareholders of CompCore from their obligations hereunder, except to the extent
they are prejudiced by such failure.
(b) Indemnitee and the Shareholder Representative shall cooperate with each
other in all reasonable respects in connection with the defense of any Third
Party Claim, including making available records relating to such claim and
furnishing employees of Indemnitee as may be reasonably necessary for the
preparation of the defense of any such Third Party Claim or for testimony as
witness in any proceeding relating to such claim.
Section 9.5 SETTLEMENT OF THIRD PARTY CLAIMS. Unless the Shareholder
Representative has failed to fulfill its obligations under this Article IX, no
settlement by Indemnitee of a Third Party Claim shall be made without the prior
written consent by or on behalf of the Shareholder Representative, which consent
shall not be unreasonably withheld or delayed. If the Shareholder Representative
has assumed the defense of a Third Party Claim as contemplated by Section 9.4,
no settlement of such Third Party Claim may be made by the Shareholder
Representative without the prior written consent by or on behalf of Indemnitee,
which consent shall not be unreasonably withheld or delayed, unless such
settlement includes a complete release of all claims against Indemnitee.
Section 9.6 MANNER OF INDEMNIFICATION.
(a) To provide a fund against which members of the Zoran Group may assert
claims of indemnification under this Article IX, the Escrow Shares shall be
withheld and deposited into Escrow pursuant to the Escrow Agreement in
accordance with the provisions of Section 2.3 hereof. The Escrow Shares so
deposited shall be held and distributed in accordance with the Escrow Agreement.
(b) Each claim for indemnification asserted against the shareholders of
CompCore pursuant to this Article IX shall be made only in accordance with the
Escrow Agreement, subject to the provisions of Section 9.2(d) hereof.
Section 9.7 SHAREHOLDER REPRESENTATIVE. For purposes of this Agreement the
shareholders of CompCore, without any further action on the part of any such
shareholder, shall be deemed to have consented to the appointment of George T.
Haber as the representative of such shareholders (the "Shareholder
Representative"), as the attorney-in-fact for and on behalf of each such
shareholder, and the taking by the Shareholder Representative of any and all
actions and the making of any decisions required or permitted to be taken by him
under this Agreement, including, without limitation, the exercise of the power
to (i) execute the Escrow Agreement, (ii) authorize delivery to Zoran of the
Escrow Shares, or any portion thereof, in satisfaction of Indemnification
Claims, (iii) agree to, negotiate, enter into settlements
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<PAGE>
and compromises of, and demand arbitration and comply with orders of courts and
awards of arbitrators with respect to such Indemnification Claims, (iv) resolve
any Indemnification Claims and (v) take all actions necessary in the judgment of
the Shareholder Representative for the accomplishment of the foregoing and all
of the other terms, conditions and limitations of this Agreement and the Escrow
Agreement. Accordingly, the Shareholder Representative has unlimited authority
and power to act on behalf of each shareholder of CompCore with respect to this
Agreement and the Escrow Agreement and the disposition, settlement or other
handling of all Indemnification Claims, rights or obligations arising from and
taken pursuant to this Agreement. The shareholders of CompCore will be bound by
all actions taken by the Shareholder Representative in connection with this
Agreement, and Zoran shall be entitled to rely on any action or decision of the
Shareholder Representative. The Shareholder Representative will incur no
liability with respect to any action taken or suffered by him in reliance upon
any notice, direction, instruction, consent, statement or other document
believed by him to be genuine and to have been signed by the proper person (and
shall have no responsibility to determine the authenticity thereof), nor for any
other action or inaction, except his own willful misconduct, bad faith or gross
negligence. In all questions arising under this Agreement or the Escrow
Agreement, the Shareholder Representative may rely on the advice of counsel, and
for anything done, omitted or suffered in good faith by the Shareholder
Representative based on such advice, the Shareholder Representative will not be
liable to anyone. The Shareholder Representative will not be required to take
any action involving any expense unless the payment of such expense is made or
provided for in a manner satisfactory to him. At any time during the term of the
Escrow Agreement, holders of a majority of the Escrow Shares can appoint a new
Shareholder Representative by written consent by sending notice and a copy of
the written consent appointing such new Shareholder Representative signed by
holders of a majority of the Escrow Shares to Zoran and the Escrow Agent. Such
appointment will be effective upon the later of the date indicated in the
consent or the date such consent is received by Zoran and the Escrow Agent.
ARTICLE X
GENERAL PROVISIONS
Section 10.1 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with confirmation of receipt) to the parties
at the following addresses (or at such other address for a party as shall be
specified by like notice):
(a) if to Zoran or Sub, to:
Zoran Corporation
2041 Mission College Boulevard
Santa Clara, CA 95054
Attention: President
Fax: (408) 986-0539
Tel: (408) 986-1314
with a copy to:
Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, CA 94301
Attention: Dennis C. Sullivan
Fax: (415) 327-3699
Tel: (415) 328-6561
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<PAGE>
(b) if to CompCore, to
CompCore Multimedia, Inc.
3120 Scott Boulevard, 2nd Floor
Santa Clara, CA 95054
Attention: President
Fax: (408) 567-0586
Tel: (408) 567-0552
with a copy to:
Cooley Godward LLP
Five Palo Alto Square
Palo Alto, CA 94306
Attention: Andrei M. Manoliu
Fax: (415) 857-0663
Tel: (415) 843-5000
(c) if to the Shareholder Representative, to
Mr. George T. Haber
c/o CompCore Multimedia, Inc.
3120 Scott Boulevard, 2nd Floor
Santa Clara, CA 95054
Fax: (408) 567-0586
Tel: (408) 567-0552
with a copy to:
Cooley Godward LLP
Five Palo Alto Square
Palo Alto, CA 94306
Attention: Andrei M. Manoliu
Fax: (415) 857-0663
Tel: (415) 843-5000
Section 10.2 INTERPRETATION. When a reference is made in this Agreement to
an Article or Section, such reference shall be to an Article or Section of this
Agreement unless otherwise indicated. The words "include," "includes" and
"including" when used herein shall be deemed in each case to be followed by the
words "without limitation." The phrase "made available" in this Agreement shall
mean that the information referred to has been made available if requested by
the party to whom such information is to be made available. The phrases "the
date of this Agreement," "the date hereof," and terms of similar import, unless
the context otherwise requires, shall be deemed to refer to November 27, 1996.
The table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
Section 10.3 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
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<PAGE>
Section 10.4 SEVERABILITY. In the event that any provision of this
Agreement, or the application thereof, becomes or is declared by a court of
competent jurisdiction to be illegal, void or unenforceable, the remainder of
this Agreement will continue in full force and effect and the application of
such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further agree
to replace such void or unenforceable provision of this Agreement with a valid
and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
Section 10.5 ENTIRE AGREEMENT. Except as otherwise set forth herein, this
Agreement (including the documents and the instruments referred to herein)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, other than the Confidentiality Agreement.
Section 10.6 GOVERNING LAW. This Agreement shall be governed and construed
in accordance with the laws of the State of California without regard to any
applicable conflicts of law.
Section 10.7 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
Section 10.8 THIRD PARTY BENEFICIARY. Nothing contained in this Agreement
is intended to confer upon any person other than the parties hereto and their
respective successors and permitted assigns, any rights, remedies or obligations
under, or by reason of this Agreement, except that (i) the persons who are
shareholders of CompCore immediately prior to the Effective Time (and their
successors and assigns) are express intended third party beneficiaries of
Articles I and II, Section 6.8 and Article IX, (ii) the persons who hold
CompCore Options immediately prior to the Effective Time (and their lawful
successors and assigns) are express intended third party beneficiaries of
Section 6.14, (iii) each of the foregoing persons is an express intended third
party beneficiary of Section 6.11 and, to the extent relevant to any of the
foregoing, Article X and as such are entitled to rely on the provisions hereof
as if a party hereto.
IN WITNESS WHEREOF, Zoran, Sub, CompCore and the Escrow Agent have caused
this Agreement to be signed by their respective officers thereunto duly
authorized, and the Shareholder Representative has signed this Agreement, as of
the date first written above.
<TABLE>
<CAPTION>
COMPCORE MULTIMEDIA, INC. ZORAN CORPORATION
<S> <C>
By: By:
Title: Title:
SEE ACQUISITION CORPORATION
By:
Title:
</TABLE>
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<PAGE>
EXHIBIT A
ESCROW AGREEMENT
THIS ESCROW AGREEMENT is made and entered into as of , 1996 by and
among a Zoran Corporation, Delaware corporation ("Zoran"), First Trust of
California, National Association (the "Escrow Agent"), and George T. Haber (the
"Shareholder Representative") for and on behalf of the shareholders (the
"Shareholders") and option holders (the "Option Holders" or, collectively with
the Shareholders, the "Securityholders") of CompCore Multimedia, Inc., a
California corporation ("CompCore").
RECITALS
A. Pursuant to that certain Amended and Restated Agreement and Plan of
Reorganization dated as of November 27, 1996 (the "Plan of Reorganization"),
Zoran will issue to the Shareholders shares of Zoran Common Stock, $.001 par
value ("Zoran Common Stock), pursuant to the merger (the "Merger") of See
Acquisition Corporation, a California corporation and wholly-owned subsidiary of
Zoran ("Sub"), with and into CompCore and may issue additional shares of Zoran
Common Stock to the Option Holders upon exercise of Assumed Options (as defined
in the Plan of Reorganization);
B. Pursuant to Article IX of the Plan of Reorganization, a copy of which is
attached hereto as Appendix I and incorporated herein by reference, the
Shareholders have agreed to indemnify Zoran and other members of the Zoran Group
(as therein defined) with respect to inaccuracies in or breaches of
representations, warranties or covenants made by CompCore in the Plan of
Reorganization and certain other matters; and
C. In accordance with the Plan of Reorganization, the parties desire to
establish an escrow for the purpose of providing a fund against which Zoran (on
behalf of itself and other members of the Zoran Group) may seek indemnification
under the Plan of Reorganization.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
obligations herein, the parties agree as follows:
1. ESTABLISHMENT OF ESCROW. At the Closing (as defined in the Plan of
Reorganization), or as soon thereafter as practicable, Zoran shall deliver to
the Escrow Agent for deposit into escrow (the "Escrow") certificates
representing an aggregate of shares of Zoran Common Stock otherwise
distributable to the Shareholders in the Merger (the "Initial Escrow Shares").
In addition, from time to time, upon the exercise (if any) of any Assumed
Options prior to the Termination Date (as defined in the Plan of
Reorganization), Zoran will deliver to the Escrow Agent for deposit into the
Escrow an additional certificate or certificates representing 10% of the shares
of Zoran Common Stock otherwise issuable to the Option Holders upon exercise of
such Assumed Options (the "Option Escrow Shares"). The Initial Escrow Shares and
the Option Escrow Shares are herein referred to collectively as the "Escrow
Shares." The Escrow Shares so delivered to the Escrow Agent and any other
securities, cash or other property from time to time held by the Escrow Agent
pursuant to the terms hereof is herein referred to as the "Escrow Fund." The
Escrow Agent agrees to accept the Escrow Shares and to hold the Escrow Fund in
escrow subject to the terms and conditions of this Agreement.
2. MAINTENANCE OF THE ESCROW. The Escrow Agent shall establish a separate
account for each Securityholder showing the number of Escrow Shares and the
amount and type of other property, if any, held in the Escrow for such
Securityholder on the basis of a list of the Securityholders' respective
ownership percentage provided to the Escrow Agent by the Shareholder
Representative. The Escrow Agent shall maintain records showing each
Securityholder's Proportionate Interest in the Escrow Fund and shall adjust each
Securityholder's account to reflect distributions from, and additions or
substitutions to, the property held for the account of such Securityholder in
the Escrow. For purposes of this Agreement, each Securityholder's "Proportionate
Interest" in the Escrow Fund as of a specific date shall be equal to
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the percentage that the value of the Escrow Shares and other property held for
the account of such Securityholder in the Escrow bears to the value of all
property held for the account of all Securityholders in the Escrow as of such
date. For purposes of the provisions of this Agreement relating to
indemnification and claims, the Escrow Shares shall be deemed to have a value
equal to the average closing sale price of Zoran Common Stock (as quoted on the
Nasdaq National Market and reported in THE WALL STREET JOURNAL) for the ten (10)
trading days preceding the Effective Time (as defined in the Plan of
Reorganization). The Escrow Agent is hereby granted the power to effect any
transfer of Escrow Shares required by this Agreement. Zoran shall cooperate with
the Escrow Agent in promptly issuing, or causing its transfer agent to promptly
issue, such stock certificates as shall be required to effect such transfers.
All Escrow Shares and any other securities from time to time held in the Escrow
Fund shall be registered in the name of the Escrow Agent or its nominee.
3. SHAREHOLDER REPRESENTATIVE. From and after the establishment of the
Escrow as provided in Section 1 hereof, the Shareholders shall be represented by
the Shareholder Representative, or his successor appointed in accordance with
Section 9.7 of the Plan of Reorganization, who shall have the duties and
authority set forth in said section.
4. DIVIDENDS, VOTING AND RIGHTS OF OWNERSHIP. Except for tax-free
dividends paid in stock declared with respect to the Escrow Shares pursuant to
Section 305(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
which shall be treated in the manner set forth in Section 1 hereof, any cash
dividends, dividends payable in securities or other distributions of any kind
made in respect of the Escrow Shares will be distributed currently to the
Securityholders and, if distributed to the Escrow Agent, shall promptly be paid
over to the Securityholders. Each Securityholder will have voting rights with
respect to the Escrow Shares deposited in the Escrow with respect to such
Securityholder so long as such Escrow Shares are held in escrow, and Zoran shall
take all reasonable steps necessary to allow the exercise of such rights. While
the Escrow Shares remain in the Escrow Agent's possession pursuant to this
Agreement, the Securityholders will retain and will be able to exercise all
other incidents of ownership of said Escrow Shares which are not inconsistent
with the terms and conditions of this Agreement. Subject to the rights of Zoran
and the other members of the Zoran Group under the Plan of Reorganization and
this Agreement, all beneficial interest in the Escrow Fund shall be the property
of the Securityholders from and after the Closing, and Zoran shall have no
interest therein. None of the rights of the Securityholders hereunder shall be
transferable except as otherwise provided by law. Each of the Securityholders
shall be obligated for all federal, state or local taxes applicable to such
Securityholder's interest in the Escrow Fund.
5. CLAIMS FOR INDEMNIFICATION; DISPOSITION THEREOF.
(a) If an Indemnitee (as defined in the Reorganization Agreement) shall have
any claim (a "Claim") for indemnification pursuant to Article IX of the Plan of
Reorganization, the Indemnitee or Zoran shall promptly deliver to the
Shareholder Representative and the Escrow Agent an Indemnification Claim in
accordance with Section 9.3 of the Plan of Reorganization Agreement.
(b) If the Shareholder Representative shall not have notified Zoran and the
Escrow Agent objecting to the delivery of any of the Escrow Fund out of the
Escrow to Zoran for application to such Claim within thirty (30) calendar days
after delivery of such Indemnification Claim (determined in accordance with
Section 14(d)), the Escrow Agent shall, as promptly as practicable following the
expiration of such period, deliver out of the Escrow to Zoran the number of
whole Escrow Shares having an aggregate value most nearly equal to the amount of
such Claim.
(c) If the Shareholder Representative gives notice to the Escrow Agent and
Zoran objecting to the delivery of any of the Escrow Fund out of the Escrow to
Zoran for application to a Claim (a "Contested Claim") within the 30-day period
specified in Section 5(b) hereof, the Escrow Agent shall make no delivery to
Zoran out of the Escrow Fund with respect to such Contested Claim until the
rights of the Securityholders and the Indemnitee with respect thereto have been
agreed upon between the Shareholder Representative and Zoran or until such
rights are finally determined by arbitration pursuant to Section 13
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hereof. If the arbitrator in such proceeding shall determine that the Escrow
Fund, or any part thereof, is to be delivered out of the Escrow to Zoran to
satisfy such Contested Claim, the Escrow Agent shall, as promptly as practicable
following receipt of such determination, deliver out of the Escrow to Zoran the
number of whole Escrow Shares having an aggregate value most nearly equal to the
amount of such Contested Claim.
6. DISTRIBUTION OF ESCROW FUND; TERMINATION OF ESCROW. The portion of the
Escrow Fund not previously distributed in accordance with the terms of Section 5
hereof shall be held by the Escrow Agent until ten (10) business days following
the Termination Date (the "Release Date"). Notwithstanding the foregoing, there
shall be retained in the Escrow the lesser of (i) the number of Escrow Shares
having an aggregate value equal to 100% of the amount of all pending Claims
asserted pursuant to Section 5 hereof and expenses reasonably estimated by Zoran
to be necessary for the disposition of all such Claims, and (ii) the entire
remaining Escrow Fund. The Escrow Fund not so distributed shall be retained by
the Escrow Agent until all such pending Claims are resolved and the remaining
Escrow Fund deliverable to any Zoran as a result thereof, if any, shall have
been delivered to Zoran. Thereafter, the Escrow Agent shall, as promptly as
practicable, deliver the remaining Escrow Fund to the Shareholders in accordance
with their Proportionate Interests.
7. TERM OF ESCROW AGREEMENT. This Agreement shall terminate upon the
distribution by the Escrow Agent of all property held in the Escrow Fund.
8. FEES OF THE ESCROW AGENT. The fees of the Escrow Agent shall be paid by
Zoran. In the event that the Escrow Agent renders any service hereunder not
provided for herein or there is any assignment of any interest in the subject
matter of the Escrow or modification hereof, the Escrow Agent shall be
reasonably compensated for such extraordinary services by the party that is
responsible for or requests such services.
9. LIABILITY OF THE ESCROW AGENT. In performing any of its duties under
this Agreement, the Escrow Agent shall not be liable to any party for damages,
losses or expenses, except in the event of gross negligence or willful
misconduct on its part. The Escrow Agent shall not incur any such liability for
(i) any act or failure to act made or omitted in good faith, or (ii) any action
taken or omitted in reliance upon any instrument, including any written
statement or affidavit provided for in this Agreement that the Escrow Agent
shall in good faith believe to be genuine; nor will the Escrow Agent be liable
or responsible for forgeries, fraud, impersonations, or determining the scope of
any agent's authority. In addition, the Escrow Agent may consult with legal
counsel in connection with its duties under this Agreement and shall be fully
protected in any act taken, suffered, or permitted by it in good faith in
accordance with the advice of counsel. The Escrow Agent is not responsible for
determining and verifying the authority of any person acting or purporting to
act on behalf of any party to this Agreement.
10. CONTROVERSIES. If any controversy arises between the parties to this
Agreement, or with any other party, concerning the subject matter of the Escrow,
its terms or conditions, the Escrow Agent will not be required to determine the
controversy or to take any action regarding it. The Escrow Agent may hold all
documents and funds and may wait for settlement of any such controversy by final
appropriate legal proceedings or other means as, in the Escrow Agent's
discretion, it may require, despite what may be set forth elsewhere in this
Agreement. In such event, the Escrow Agent will not be liable for interest or
damage. Furthermore, the Escrow Agent may at its option, file an action of
interpleader requiring the parties to answer and litigate any claims and rights
among themselves. The Escrow Agent is authorized to deposit with the clerk of
the court all documents and funds held in the Escrow, except all costs,
expenses, charges and reasonable attorneys' fees incurred by it due to the
interpleader action and which the parties jointly and severally agree to pay.
Upon initiating such action, the Escrow Agent shall be fully released and
discharged of and from all obligations and liability imposed by the terms of the
Escrow.
11. INDEMNIFICATION OF ESCROW AGENT. Zoran and the Securityholders and
their respective successors and assigns agree jointly and severally to indemnify
and hold the Escrow Agent harmless against any and all losses, claims, damages,
liabilities and expenses, including reasonable costs of investigation, counsel
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<PAGE>
fees, including allocated costs of in-house counsel, and disbursements that may
be imposed on the Escrow Agent, or incurred by it in connection with the
performance of its duties under this Agreement, including but not limited to any
arbitration or litigation arising from this Agreement or involving its subject
matter. Nothing contained in this Section 11 shall impair the rights of the
Securityholders and Zoran, as between themselves, including without limitation,
their rights to enforce the provisions of Section 8 hereof with respect to the
allocation of the Escrow Agent's fees.
12. RESIGNATION OF ESCROW AGENT. The Escrow Agent may resign at any time
upon giving at least thirty (30) days written notice to the other parties;
PROVIDED, HOWEVER, that no such resignation shall become effective until the
appointment of a successor Escrow Agent which shall be accomplished as follows:
Zoran and the Shareholder Representative shall use their best efforts to agree
on a successor Escrow Agent within thirty (30) days after receiving such notice.
If the parties fail to agree on a successor Escrow Agent within such time, the
Escrow Agent shall have the right to appoint a successor Escrow Agent authorized
to do business in the State of California. The successor Escrow Agent shall
execute and deliver to the Escrow Agent an instrument accepting such
appointment, and the successor Escrow Agent shall, without further acts, be
vested with all the estates, property rights, powers, and duties of the
predecessor Escrow Agent as if originally named as Escrow Agent herein. The
predecessor Escrow Agent then shall be discharged from any further duties and
liability under this Agreement.
13. ARBITRATION.
(a) Each Contested Claim will be settled by binding arbitration pursuant to
Section 13(c) hereof unless otherwise agreed by the Shareholder Representative
and Zoran. Any portion of the Claim which is not contested shall be resolved as
set forth in Section 5(b) hereof. The final decision of the arbitrator shall be
furnished to the Escrow Agent, the Shareholder Representative and Zoran in
writing and will constitute a conclusive determination of the issue in question,
binding upon CompCore, the Securityholders and Zoran and shall not be contested
or appealed by any of them. After notice that the Claim is contested by the
Shareholder Representative, the Escrow Agent will continue to hold in the Escrow
Fund Escrow Shares having a value sufficient to cover such Claim, as determined
pursuant to Section 2 hereof (notwithstanding the expiration of the Release
Date), until the earlier of (i) execution of a settlement agreement by Zoran and
the Shareholder Representative setting forth a resolution of the Indemnification
Claim, or (ii) receipt of a copy of the final award of the arbitrator.
(b) The number of Escrow Shares to be delivered or held in Escrow pursuant
to a Contested Claim shall be equal to (i) the aggregate dollar amount of the
Contested Claim as determined pursuant to this Section 13 divided by (ii) the
value of the Escrow Shares on the date that the Indemnification Claim is
delivered to the Shareholder Representative, as determined pursuant to Section 2
hereof.
(c) Any Contested Claim shall be settled by arbitration in Palo Alto,
California and, except as herein specifically stated, in accordance with the
commercial arbitration rules of the American Arbitration Association ("AAA
Rules") then in effect. However, in all events, these arbitration provisions
shall govern over any conflicting rules which may now or hereafter be contained
in the AAA Rules. Any judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction over the subject matter thereof. The
arbitrator shall have the authority to grant any equitable and legal remedies
that would be available in any judicial proceeding instituted to resolve a
Contested Claim.
14. MISCELLANEOUS.
(a) ASSIGNMENT; BINDING UPON SUCCESSORS AND ASSIGNS. None of the parties
hereto may assign any of its rights or obligations hereunder without the prior
written consent of the other parties. This Agreement will be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
(b) SEVERABILITY. If any provision of this Agreement, or the application
thereof, shall for any reason and to any extent be held to be invalid or
unenforceable, the remainder of this Agreement and the
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application of such provision to other persons or circumstances shall be
interpreted so as best to reasonably effect the intent of the parties hereto.
The parties further agree to replace such invalid or unenforceable provision of
this Agreement with a valid and enforceable provision which will achieve, to the
extent possible, the economic, business and other purposes of the invalid or
unenforceable provision.
(c) ENTIRE AGREEMENT. This Agreement, the Appendices hereto, the documents
referenced herein, and the exhibits thereto, constitute the entire understanding
and agreement of the parties hereto with respect to the subject matter hereof
and thereof and supersede all prior and contemporaneous agreements or
understandings, inducements or conditions, express or implied, written or oral,
between the parties with respect hereto and thereto. The express terms hereof
control and supersede any course of performance or usage of the trade
inconsistent with any of the terms hereof.
(d) NOTICES. No notice or other communication shall be deemed given unless
sent in the manner, and to the persons, specified in this Section 14(d). All
notices and other communications hereunder will be in writing and will be deemed
given (i) upon receipt if delivered personally (or if mailed by registered or
certified mail), (ii) the day after dispatch if sent by overnight courier, or
(iii) upon dispatch if transmitted by facsimile (and confirmed by a copy
delivered in accordance with clause (i) or (ii)), addressed to the parties at
the following addresses:
<TABLE>
<S> <C>
To the Escrow Agent: First Trust of California, National
Association
Global Escrow Depository Services
One California Street, Fourth Floor
San Francisco, California 94111
Attn: Barbara Wise
To Zoran: Zoran Corporation
2041 Mission College Boulevard
Attn: President
with a copy to: Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, California 94301
Facsimile: (415) 327-3699
Attn: Dennis C. Sullivan, Esq.
To the Shareholder Representative: George T. Haber
with a copy to: Cooley Godward LLP
Five Palo Alto Square
Palo Alto, CA 94306
Facsimile: (415) 857-0663
Attn: Andrei M. Manoliu, Esq.
</TABLE>
Any party may change its address for such communications by giving notice
thereof to the other parties.
(e) OTHER REMEDIES. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party shall be deemed cumulative with
and not exclusive of any other remedy conferred
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hereby or by law on such party, and the exercise of any one remedy shall not
preclude the exercise of any other.
(f) AMENDMENT AND WAIVERS. Any term or provision of this Agreement may be
amended, and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or prospectively)
only by a writing signed by the party to be bound thereby. The waiver by a party
of any breach hereof for default in payment of any amount due hereunder or
default in the performance hereof shall not be deemed to constitute a waiver of
any other default or any succeeding breach or default.
(g) FURTHER ASSURANCES. Each party agrees to cooperate fully with the
other parties and to execute such further instruments, documents and agreements
and to give such further written assurances, as may be reasonably requested by
any other party to better evidence and reflect the transactions described herein
and contemplated hereby and to carry into effect the intents and purposes of
this Agreement.
(h) ABSENCE OF THIRD PARTY BENEFICIARY RIGHTS. No provisions of this
Agreement are intended, nor shall be interpreted, to provide or create any third
party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, shareholder, partner of any party hereto or any other
person or entity unless specifically provided otherwise herein, and, except as
so provided, all provisions hereof shall be solely between the parties to this
Agreement.
(i) GOVERNING LAW. It is the intention of the parties hereto that the
internal laws of the State of California (irrespective of its choice of law
principles) shall govern the validity of this Agreement, the construction of its
terms, and the interpretation and enforcement of the rights and duties of the
parties hereto.
(j) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.
<TABLE>
<S> <C>
ZORAN CORPORATION SHAREHOLDER REPRESENTATIVE
By:
George T. Haber
Title:
FIRST TRUST OF CALIFORNIA,
National Association
By:
Title:
</TABLE>
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<PAGE>
EXHIBIT B-1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into as of October 20, 1996 by
and between Zoran Corporation, a Delaware corporation (the "Company"), and
George T. Haber (the "Employee"). This Agreement shall become effective on the
effective date of the merger (the "Effective Date") of See Acquisition
Corporation, a California corporation and wholly-owned subsidiary of the Company
("Sub"), with and CompCore Multimedia, Inc., a California corporation
("CompCore"), pursuant to an Agreement of Merger of even date herewith by and
between Sub and CompCore.
RECITALS
A. The Employee is currently employed as the President and Chief Executive
Officer of CompCore; and
B. The Company desires to employ the Employee on the terms and subject to
the conditions of this Agreement, and the Employee desires to accept such
employment. The employment of the Employee pursuant to this Agreement is
hereinafter sometimes referred to as the "Employment";
NOW THEREFORE, in consideration of the premises and the agreements,
representations and warranties contained in this Agreement, the Company and the
Employee hereby agree as follows:
1. DUTIES, TERM AND EXCLUSIVE EMPLOYMENT.
1.1 DUTIES AND RESPONSIBILITIES. The Employee will be employed as
Executive Vice President of the Company. Within the limitations established by
the Bylaws of the Company, the Employee shall have each and all of the duties
and responsibilities of that position and such other duties on behalf of the
Company, CompCore or any other subsidiary of the Company (collectively, the
"Company Group") consistent with that position as may be assigned from time to
time by the Company's Chief Executive Officer. Subject to the direction of the
Company's Chief Executive Officer, the Employee shall have the duties,
responsibilities and authority summarized in the job description attached hereto
as APPENDIX A. As part of his duties it is contemplated that the Employee shall
serve as a member of the Board of Directors of the Company during the
Employment. The Company shall use its best efforts to cause the Employee to be
elected to such position and periodically reelected at each meeting of
stockholders held for that purpose (and in each stockholder action by written
consent taken for that purpose) during the Employment.
1.2 TERM OF EMPLOYMENT. The Employment shall begin on the Effective
Date and, unless earlier terminated as provided in Paragraph 3 hereof, the
Employment shall continue until midnight on the second anniversary of the
Effective Date, unless the Employment hereunder shall have been extended beyond
such date by written agreement of the parties. Any continued employment of the
Employee by the Company following such termination shall be at will.
1.3 NO OTHER EMPLOYMENT OR PRODUCTIVE ACTIVITIES. During the term of
the Employment, the Employee shall diligently and conscientiously devote all of
his working time and attention to discharging his duties to the Company Group
and shall not, without the express prior written consent of the Company, render
to any other person, corporation, partnership, firm, company, joint venture or
other entity any services of any kind for compensation or engage in any other
activity that would in any manner whatsoever interfere with the performance of
the Employee's duties on behalf of the Company Group. The foregoing
notwithstanding, nothing herein shall prevent the Employee from (i) engaging in
charitable or professional activities or from managing on his own personal time
any personal investments in entities not in competition with any actual or
proposed business of the Company Group, or (ii) owning, as a passive investor,
up to five percent (5%) of the outstanding shares of any class of equity
securities of a corporation engaged in any such competition whose securities are
listed on a national securities exchange or quoted daily in the over-the-counter
listings of THE WALL STREET JOURNAL ("Permitted Shares").
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1.4 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. Concurrently
with his delivery of this Agreement, the Employee will execute and deliver to
the Company a Proprietary Information and Inventions Agreement in the form of
APPENDIX B hereto (the "Proprietary Information and Inventions Agreement").
1.5 INDEMNITY AGREEMENT. Concurrently with the delivery of this
Agreement, the parties will execute and deliver an officer and director
Indemnity Agreement in the form of APPENDIX C hereto (the "Indemnity
Agreement").
2. COMPENSATION. In full and complete consideration for the Employment and
each and all of the services to be rendered by the Employee to the Company or
any other member of the Company Group, the Employee shall receive compensation
as follows, except as otherwise provided in Paragraph 3 hereof:
2.1 BASE SALARY. The Employee shall be entitled to receive from the
Company a base salary, at the initial rate of $195,000 per annum, payable in
equal installments, on the Company's regular payroll dates, during the term of
the Employment. The base salary will be reviewed annually and may be increased
by the Company in its sole discretion based upon such factors as it deems
relevant, including the financial condition and operating results of the
Company, but may not be decreased except in connection with a general decrease
in salaries of the Company's officers. From each of the Employee's salary
payments the Company will withhold and pay to the proper governmental
authorities any and all amounts required by law to be withheld from the
Employee's salary. The Company will also deduct from the Employee's salary
payments those sums, if any, authorized by the Employee in writing and approved
by the Company. The Company will make all payments and contributions that are
required by law to be made by the Company for the Employee's benefit without any
deduction from the Employee's salary payments.
2.2 INCENTIVE BONUS PLAN. For each fiscal year of the Company during
the Employment, the Employee will be eligible to receive, in addition to his
base salary, annual incentive compensation (the "Annual Bonus"). The amount of
the Annual Bonus, if any, for each year will be based on the achievement of
financial goals and performance objectives to be determined by the Company. The
Company will solicit the Employee's input in connection with the determination
of such goals and objectives, but all such goals and objectives shall be finally
determined by the Company. Each Annual Bonus will be deemed to be earned on the
last day of the applicable fiscal year, subject to the Employee's continued
Employment as of that date, and will be paid to the Employee within thirty (30)
days following the end of such fiscal year, or as soon thereafter as achievement
of the applicable goals and objectives can be determined, whether or not the
Employment has been terminated between the end of the fiscal year and such
payment date. Notwithstanding the foregoing, in the event that the Employment is
terminated by the Company other than "For Cause," pursuant to Paragraph 3.3
hereof, or by the Employee with "Good Reason," pursuant to Paragraph 3.4 hereof,
prior to the last day of a fiscal year, the Annual Bonus payable with respect to
such fiscal year shall be paid on a pro-rata basis. In such event, (i) that
portion of the Annual Bonus, if any, that is based on the achievement of
personal performance objectives shall be deemed to have been earned at the time
of such termination, and the pro-rata portion thereof (based upon the days of
Employment during the fiscal year) shall be paid to the Employee within thirty
(30) days following such termination; and (ii) that portion of the Annual Bonus,
if any, that is based on the achievement of financial goals or other Company
performance objectives shall remain subject to the achievement of such goals and
objectives, and the pro-rata portion thereof shall be paid to the Employee as
soon as such achievement can be determined, on a basis consistent with that for
continuing executives of the Company. Upon the adoption by the Company of a
management bonus plan for the benefit of officers generally, the Employee shall
be entitled to participate in such plan, in lieu of the provisions of this
Section 2.2
2.3 VACATION. The Employee shall be entitled to paid vacation in
accordance with the Company's vacation policy, as in effect from time to time.
For purposes of calculating the Employee's eligibility for vacation benefits,
his period of employment by CompCore shall be counted as employment by the
Company.
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2.4 INSURANCE AND OTHER BENEFITS. The Employee shall be entitled to
participate in the life, medical, dental and/or disability insurance plans,
together with any supplemental insurance plans, offered by the Company to its
officers, generally. The Employee shall be eligible to participate in any other
fringe benefits as may be provided by the Company to its officers, generally,
during the Employment. For purposes of calculating the Employee's eligibility
for such benefits, his period of employment by CompCore shall be counted as
employment by the Company, except as prohibited by the terms of any plan.
3. TERMINATION OF EMPLOYMENT. The Employment may be terminated prior to
the end of the term specified in Paragraph 1.2 hereof upon the occurrence of any
of the following:
3.1 DEATH OR DISABILITY. The Employment shall automatically terminate
upon the death of the Employee. The Company shall have the unrestricted right,
but not the obligation, to terminate the Employment at any time following
determination of the Employee's "permanent disability" (as then defined in the
Company's long-term disability insurance plan covering the Employee). In the
event of the Employee's death or permanent disability, the Employee or his
estate shall be entitled to receive (i) the Employee's base salary through the
date of termination of the Employment, plus (ii) any Annual Bonus earned by the
Employee and payable as of the date of termination of the Employment pursuant to
Paragraph 2.2 hereof but not yet paid, plus (iii) any other benefits to which
the Employee is entitled pursuant to the plans described in Paragraph 2.4
hereof.
3.2 TERMINATION OF EMPLOYMENT BY THE COMPANY "FOR CAUSE". The Company
shall have the unrestricted right, but not the obligation, to terminate the
Employment at any time "For Cause" in the event of the Employee's (i) conviction
of a felony or any act involving moral turpitude, (ii) commission of any act of
theft, fraud or dishonesty against, or involving the records of, the Company or
any other member of the Company Group, (iii) material breach of the Employee's
obligations hereunder, or under the Confidential Information and Inventions
Agreement, which, if curable, is not cured within thirty (30) days following
notice thereof by the Company, (iv) intentional act or gross negligence that has
a material detrimental effect on the reputation or business of the Company or
any other member of the Company Group, or (v) repeated failure or inability
(other than as a result of physical disability) to perform any duties reasonably
assigned hereunder, which failure or inability has been documented and discussed
with the Employee and has not been cured within thirty (30) days following
written notice thereof by the Company. The decision to terminate the Employment
For Cause, to take other action or to take no action in response to such
occurrence shall be in the sole and exclusive discretion of the Company. Upon
any termination of the Employment by the Company For Cause, the Employee shall
be entitled to receive (A) the Employee's base salary through the date of such
termination, plus (B) any Annual Bonus earned by the Employee and payable as of
the date of termination of the Employment pursuant to Paragraph 2.2 hereof but
not yet paid, plus (C) any other benefits to which the Employee is entitled
pursuant to the plans described in Paragraph 2.4 hereof.
3.3 OTHER TERMINATION OF EMPLOYMENT BY THE COMPANY. The Company shall
have the right to terminate the Employment at any time. However, if the
Employment is terminated by the Company for any reason other than pursuant to
Paragraphs 1.2, 3.1 or 3.2 hereof, the Employee shall be entitled to receive his
base salary through the date of termination of the Employment, plus an amount
(the "Severance Payment") equal to his then-current base salary for a period of
twelve (12) months following the date of termination (the "Severance Period").
The Severance Payment shall be paid in a single lump-sum payment within thirty
(30) days following the date of termination and shall be in lieu of any other
severance pay to which the Employee might otherwise be entitled. In addition, in
the event of such a termination, the Company will, to the extent its plans
permit, continue to provide to the Employee, at the current level of employee
contribution by the Employee prevailing at the date of termination, coverage
under its life, medical, dental and/or disability plans, as in effect on the
date of termination, during the Severance Period. The Employee shall also be
entitled, upon any such termination, to receive (i) any Annual Bonus earned by
the Employee and payable as of the date of termination of the Employment
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pursuant to Paragraph 2.2 hereof but not yet paid, plus (ii) any other benefits
to which the Employee is entitled pursuant to the plans described in Paragraph
2.4 hereof.
3.4 TERMINATION OF EMPLOYMENT BY THE EMPLOYEE FOR "GOOD REASON". The
Employee shall have the right to terminate the Employment at any time for "Good
Reason" in the event that, other than pursuant to Paragraph 3.1 or 3.2 hereof,
without the Employee's prior written consent, (i) the Company materially alters
or reduces the Employee's duties, responsibilities and authority from those
described in APPENDIX A hereto; (ii) the Company materially breaches the terms
of this Agreement in respect to the payment of compensation or benefits or in
any other material respect and such breach is not cured within thirty (30) days
after the Company receives notice thereof; (iii) the Company requires the
Employee, as a condition to the Employment, to perform illegal or fraudulent
acts or omissions; (iv) the Company requires the Employee, as a condition to the
Employment, to be based more than one hundred (100) miles from CompCore's
principal place of business as of the date of this Agreement; (v) the Employee
is involuntarily removed from the Company's Board of Directors or the
stockholders of the Company fail to re-elect the Employee to the Company's Board
of Directors in any vote taken for that purpose, except in either case where the
Employment has been terminated "For Cause" pursuant to Paragraph 3.2 hereof; or
(vi) there has been, subsequent to the Effective Date, a transaction or series
of transactions pursuant to which any person (or group of persons) other than
the current affiliates of the Company acquires more than fifty percent (50%) of
the outstanding shares of the Company's voting securities, pursuant to a tender
offer, exchange offer or otherwise, where such transaction or transactions have
not been approved by a majority of the Company's Board of Directors. If the
Employee voluntarily terminates the Employment for Good Reason pursuant to this
Paragraph 3.4, the Employee shall be entitled to receive the payments and other
benefits specified in Paragraph 3.3 hereof with respect to a termination by the
Company other than For Cause.
3.5 TERMINATION OF EMPLOYMENT BY THE EMPLOYEE WITHOUT "GOOD
REASON". Upon any voluntary termination of the Employment by the Employee,
other than for Good Reason pursuant to Paragraph 3.4 hereof, the Employee shall
be entitled to receive (i) the Employee's base salary through the date of such
termination, plus (ii) any Annual Bonus earned by the Employee and payable as of
the date of termination of the Employment pursuant to Paragraph 2.2 hereof but
not yet paid, plus (iii) any other benefits to which the Employee is entitled
pursuant to the plans described in Paragraph 2.4 hereof.
4. EXPENSES. The Company will reimburse the Employee for those customary,
ordinary and necessary business expenses incurred by him in the performance of
his duties and activities on behalf of the Company or any other member of the
Company Group. Such expenses will be reimbursed upon presentation by the
Employee of appropriate documentation to substantiate such expenses pursuant to
the policies and procedures of the Company governing reimbursement of business
expenses to its executive officers, to the extent such policies are consistently
applied. The Employee shall present such documentation for any unreimbursed
expenses not later than thirty (30) days after the termination of the
Employment.
5. AUTHORITY; NONCOMPETITION. The Employee covenants, warrants and
represents to the Company that he has the full, complete and entire right and
authority to enter into the Employment and this Agreement, that he has no
agreement, duty, commitment or responsibility of any kind or nature whatsoever
with any other person, corporation, partnership, firm, company, joint venture or
other entity which would conflict in any manner whatsoever with any of his
duties, obligations or responsibilities to the Company or any other member of
the Company Group pursuant to the Employment and/or this Agreement, and that he
is fully ready, willing and able to perform each and all of such duties,
obligations and responsibilities. As a condition of the Employment and of the
Company's entering into this Agreement, the Employee hereby specifically agrees,
covenants, warrants and represents that, during the Employment, he will not,
without the Company's express prior written consent, accept any employment,
contractual or other relationship of any kind or nature whatsoever or engage in
any association or dealing of any kind or nature whatsoever with any person,
corporation, partnership, firm, company, joint venture,
AB1-4
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or other entity, in competition with any business of the Company or any other
member of the Company Group currently conducted or conducted during that period;
provided that nothing in this Paragraph 5 shall prohibit the Employee from
owning Permitted Shares.
6. DUTIES OF THE EMPLOYEE AFTER ANY NOTICE OF TERMINATION OF THE
EMPLOYMENT. Following any notice of termination of the Employment, the Employee
shall fully cooperate with the Company in all matters relating to the winding up
of the Employee's work on behalf of the Company and the orderly transfer of all
pending work and of the Employee's duties and responsibilities to such other
person or persons as may be designated by the Company in its sole discretion.
Upon any termination of the Employment, the Employee will immediately deliver to
the Company any and all of the property of the Company or any other member of
the Company Group of any kind or nature whatsoever in the Employee's possession,
custody or control, including, without limitation any and all Proprietary
Information as that term is defined in the Confidentiality and Inventions
Agreement.
7. ARBITRATION. Except as otherwise expressly provided in this Agreement,
any controversy, dispute and/or claim in any manner arising out of or relating
to this Agreement or the Employment shall be fully and finally resolved solely
by binding arbitration conducted by the American Arbitration Association in San
Jose, California. Judgment on any decision rendered by the arbitrator may be
entered in any court having jurisdiction. All costs of the arbitration,
including, without limitation, the costs of any record or transcript of the
arbitration proceedings, administrative fees, the fee of the arbitrator, the
fees and expenses of the attorneys for each party and all other fees and costs
shall be borne by the party not prevailing in the arbitration, as determined by
the arbitrator, or apportioned as the arbitrator shall determine if, in the
judgment of the arbitrator, neither party prevails. Except as otherwise
expressly provided in this Agreement, the arbitration provisions set forth above
in this Paragraph 7 are intended by the Employee and by the Company to be
absolutely exclusive for all purposes whatsoever and applicable to each and
every controversy, dispute and/or claim in any manner arising out of or relating
to this Agreement, and the Employment, the meaning, application and/or
interpretation of this Agreement, any breach or claimed breach hereof and/or any
voluntary or involuntary termination of this Agreement with or without cause,
including, without limitation, any such controversy, dispute and/or claim which,
if pursued through any state or federal court or administrative agency, would
arise at law, in equity and/or pursuant to statutory, regulatory and/or common
law rules, regardless of whether such dispute, controversy and/or claim would
arise in and/or from contract, tort or any other legal and/or equitable theory
or basis. The arbitrator who hears and decides any controversy, dispute and/or
claim between the Company and/or Sub and the Employee shall, in determining a
remedy, have jurisdiction and authority only to award compensatory damages to
make whole a party suffering foreseeable economic damages, and, other than
foreseeable economic damages, the arbitrator shall not have any authority or
jurisdiction to make any award of any kind or nature whatsoever as compensation
for any damages and/or any award of damages for pain and suffering, emotional
distress or any other kind or form of non-economic damages and/or non-
foreseeable economic damages. Notwithstanding anything to the contrary contained
in this Paragraph 7, the Company shall at all times have and retain the full,
complete and unrestricted right to immediate and permanent injunctive and other
relief as provided in Paragraph 8 below.
8. THE COMPANY'S RIGHT TO IMMEDIATE INJUNCTIVE RELIEF. The Employee
recognizes, acknowledges and agrees that any breach or any threatened breach of
any Paragraph, term, provision or covenant of any of Paragraphs 5, 6 or 7 of
this Agreement would cause irreparable injury to the Company which could not be
adequately compensable in monetary damages and that the remedy at law for any
such breach will be entirely insufficient and inadequate to protect their
legitimate interests. Therefore, the Employee specifically recognizes,
acknowledges and agrees that the Company shall at any and all times be and
remain fully entitled to seek and obtain immediate temporary, preliminary and
permanent injunctive relief for any such breach or threatened breach from any
court of competent jurisdiction. The prevailing party in any action instituted
pursuant to this Paragraph 8, or in any appeal from any arbitration pursuant to
Paragraph 7
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<PAGE>
hereof, shall be entitled to recover from the other party its reasonable
attorneys' fees and other expenses incurred in such litigation.
9. SURVIVAL OF CERTAIN PROVISIONS OF THIS AGREEMENT. Except as may
otherwise be provided herein, each and all of the terms, provisions and
covenants of each of Paragraphs 1.4, 5, 6, 7, 8, 9 and 10 of this Agreement
shall, for any and all purposes whatsoever, survive any termination of the
Employment, regardless of whether such termination is by the Employee, by the
Company, by expiration or otherwise.
10. GENERAL.
10.1 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
inure to the benefit of and be binding upon the Company, the Employee and each
and all of their respective heirs, legal representatives, successors and
assigns. The duties, responsibilities and obligations of the Employee under this
Agreement shall be personal and not assignable or delegable by the Employee in
any manner whatsoever to any person, corporation, partnership, firm, company,
joint venture or other entity. The Employee may not assign, transfer, convey,
mortgage, pledge or in any other manner encumber the compensation or other
benefits to be received by him or any rights which he may have pursuant to the
terms and provisions of this Agreement.
10.2 WAIVER. No waiver of any breach of any warranty, representation,
agreement, promise, covenant, paragraph, term or provision of this Agreement
shall be deemed to be a waiver of any preceding or succeeding breach of the same
or any other warranty, representation, agreement, promise, covenant, paragraph,
term and/or provision of this Agreement. No extension of the time for the
performance of any obligation or other act required or permitted by this
Agreement shall be deemed to be an extension of the time for the performance of
any other obligation or any other act required or permitted by this Agreement.
10.3 SOLE AND ENTIRE AGREEMENT. This Agreement, the attachments hereto
and the other agreements referred to herein, including the Company's benefit
plans, are the sole, complete and entire contract, agreement and understanding
between the Company, and the Employee concerning the Employment, the terms and
conditions of the Employment, the duration of the Employment, the termination of
the Employment and the compensation and benefits to be paid and provided by the
Company to the Employee pursuant to the Employment. Except as otherwise provided
herein, this Agreement supersedes any and all prior contracts, agreements,
plans, agreements in principle, correspondence, letters of intent,
understandings, and negotiations, whether oral or written, concerning the
Employment, the terms and conditions of the Employment, the duration of the
Employment, the termination of the Employment and the compensation and benefits
to be paid by the Company and Sub to the Employee pursuant to the Employment.
10.4 AMENDMENTS. No amendment, modification, waiver, or consent
relating to this Agreement will be effective unless and until it is embodied in
a written document signed by the Company and by the Employee.
10.5 ORIGINALS. This Agreement may be executed by the Company and the
Employee in counterparts, each of which shall be deemed an original and which
together shall constitute one instrument.
10.6 HEADINGS. Each and all of the headings contained in this
Agreement are for reference purposes only and shall not in any manner whatsoever
affect the construction or interpretation of this Agreement or be deemed a part
of this Agreement for any purpose whatsoever.
10.7 SAVINGS PROVISION. To the extent that any provision of this
Agreement or any Paragraph, term, provision, sentence, phrase, clause or word of
this Agreement shall be found to be illegal or unenforceable for any reason,
such Paragraph, term, provision, sentence, phrase, clause or word shall be
modified or deleted in such a manner as to make this Agreement, as so modified,
legal and enforceable under applicable laws. The remainder of this Agreement
shall continue in full force and effect.
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10.8 APPLICABLE LAW. This Agreement shall be governed in all respects
by the laws of the State of California as such laws are applied to agreements
between California residents entered into and to be performed entirely within
California.
10.9 CONSTRUCTION. The language of this Agreement and of each and
every paragraph, term and provision of this Agreement shall, in all cases, for
any and all purposes, and in any and all circumstances whatsoever be construed
as a whole, according to its fair meaning, not strictly for or against the
Employee, the Company and with no regard whatsoever to the identity or status of
any person or persons who drafted all or any portion of this Agreement.
10.10 NOTICES. Any notices to be given pursuant to this Agreement by
either party to the other party may be effected by personal delivery or by
registered or certified mail, postage prepaid with return receipt requested.
Mailed notices shall be addressed to the parties at the addresses stated below,
but each party may change its or his address by written notice to the other in
accordance with this Paragraph 10.10. Notices delivered personally shall be
deemed received on the date of delivery. Notices delivered by mail shall be
deemed received on the third business day after the mailing thereof.
Mailed notices to the Employee shall be addressed as follows:
George T. Haber
____________________________
____________________________
Mailed notices to the Company shall be addressed as follows:
Zoran Corporation
2041 Mission College Boulevard
Santa Clara, CA 95054
Attention: President
IN WITNESS WHEREOF the Company and the Employee have each duly executed this
Agreement as of the date first set forth above.
ZORAN CORPORATION
By: __________________________________
Title: _______________________________
EMPLOYEE
______________________________________
George T. Haber
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APPENDIX A
JOB DESCRIPTION
Title: Executive Vice President
The Employee will report to the Company's Chief Executive Officer.
The Employee will have responsibilities in the areas of strategic marketing
and engineering.
STRATEGIC MARKETING:
The Employee will have responsibilities in the strategic marketing area, as
a part of the Company's Marketing organization, in coordination with the
Company's Vice President of Marketing. These responsibilities include:
- Establish long-term partnerships with industry leaders:
- Propose and discuss potential cooperation ideas and products
- Follow key industry interest groups and have team members participate
in standard committees and activities
- Lead the Company's product planning process based upon input from:
- Marketing and Sales
- Engineering
- Strategic Partners
- Keep up with market developments:
- Participate in industry shows and events
- Follow the press and leading analysts
ENGINEERING:
The Employee will also have a senior management role in the Company's
engineering organization, to be shared with other senior engineering personnel
as determined by the Chief Executive Officer.
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EXHIBIT B-2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into as of October 20, 1996 by
and between Zoran Corporation, a Delaware corporation (the "Company"), and Sorin
C. Cismas (the "Employee"). This Agreement shall become effective on the
effective date of the merger (the "Effective Date") of See Acquisition
Corporation, a California corporation and wholly-owned subsidiary of the Company
("Sub"), with and into CompCore Multimedia, Inc., a California corporation
("CompCore"), pursuant to an Agreement of Merger of even date herewith by and
between Sub and CompCore.
RECITALS
A. The Employee is currently employed as the Chief Technical Officer of
CompCore; and
B. The Company desires to employ the Employee on the terms and subject to
the conditions of this Agreement, and the Employee desires to accept such
employment. The employment of the Employee pursuant to this Agreement is
hereinafter sometimes referred to as the "Employment";
NOW THEREFORE, in consideration of the premises and the agreements,
representations and warranties contained in this Agreement, the Company and the
Employee hereby agree as follows:
1. DUTIES, TERM AND EXCLUSIVE EMPLOYMENT.
1.1 DUTIES AND RESPONSIBILITIES. The Employee will be employed as
Chief Scientist of the Company. Within the limitations established by the Bylaws
of the Company, the Employee shall have each and all of the duties and
responsibilities of that position and such other duties on behalf of the
Company, CompCore or any other subsidiary of the Company (collectively, the
"Company Group") consistent with that position as may be assigned from time to
time by the Company's Chief Executive Officer. Subject to the direction of the
Company's Chief Executive Officer, the Employee shall have the duties,
responsibilities and authority summarized in the job description attached hereto
as APPENDIX A.
1.2 TERM OF EMPLOYMENT. The Employment shall begin on the Effective
Date and, unless earlier terminated as provided in Paragraph 3 hereof, the
Employment shall continue until midnight on the second anniversary of the
Effective Date, unless the Employment hereunder shall have been extended beyond
such date by written agreement of the parties. Any continued employment of the
Employee by the Company following such termination shall be at will.
1.3 NO OTHER EMPLOYMENT OR PRODUCTIVE ACTIVITIES. During the term of
the Employment, the Employee shall diligently and conscientiously devote all of
his working time and attention to discharging his duties to the Company Group
and shall not, without the express prior written consent of the Company, render
to any other person, corporation, partnership, firm, company, joint venture or
other entity any services of any kind for compensation or engage in any other
activity that would in any manner whatsoever interfere with the performance of
the Employee's duties on behalf of the Company Group. The foregoing
notwithstanding, nothing herein shall prevent the Employee from (i) engaging in
charitable or professional activities or from managing on his own personal time
any personal investments in entities not in competition with any actual or
proposed business of the Company Group, or (ii) owning, as a passive investor,
up to five percent (5%) of the outstanding shares of any class of equity
securities of a corporation engaged in any such competition whose securities are
listed on a national securities exchange or quoted daily in the over-the-counter
listings of THE WALL STREET JOURNAL ("Permitted Shares").
1.4 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. Concurrently
with his delivery of this Agreement, the Employee will execute and deliver to
the Company a Proprietary Information and Inventions Agreement in the form of
APPENDIX B hereto (the "Proprietary Information and Inventions Agreement").
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1.5 INDEMNITY AGREEMENT. Concurrently with the delivery of this
Agreement, the parties will execute and deliver an officer and director
Indemnity Agreement in the form of APPENDIX C hereto (the "Indemnity
Agreement").
2. COMPENSATION. In full and complete consideration for the Employment and
each and all of the services to be rendered by the Employee to the Company or
any other member of the Company Group, the Employee shall receive compensation
as follows, except as otherwise provided in Paragraph 3 hereof:
2.1 BASE SALARY. The Employee shall be entitled to receive from the
Company a base salary, at the initial rate of $195,000 per annum, payable in
equal installments, on the Company's regular payroll dates, during the term of
the Employment. The base salary will be reviewed annually and may be increased
by the Company in its sole discretion based upon such factors as it deems
relevant, including the financial condition and operating results of the
Company, but may not be decreased except in connection with a general decrease
in salaries of the Company's officers. From each of the Employee's salary
payments the Company will withhold and pay to the proper governmental
authorities any and all amounts required by law to be withheld from the
Employee's salary. The Company will also deduct from the Employee's salary
payments those sums, if any, authorized by the Employee in writing and approved
by the Company. The Company will make all payments and contributions that are
required by law to be made by the Company for the Employee's benefit without any
deduction from the Employee's salary payments.
2.2 INCENTIVE BONUS PLAN. For each fiscal year of the Company during
the Employment, the Employee will be eligible to receive, in addition to his
base salary, annual incentive compensation (the "Annual Bonus"). The amount of
the Annual Bonus, if any, for each year will be based on the achievement of
financial goals and performance objectives to be determined by the Company. The
Company will solicit the Employee's input in connection with the determination
of such goals and objectives, but all such goals and objectives shall be finally
determined by the Company. Each Annual Bonus will be deemed to be earned on the
last day of the applicable fiscal year, subject to the Employee's continued
Employment as of that date, and will be paid to the Employee within thirty (30)
days following the end of such fiscal year, or as soon thereafter as achievement
of the applicable goals and objectives can be determined, whether or not the
Employment has been terminated between the end of the fiscal year and such
payment date. Notwithstanding the foregoing, in the event that the Employment is
terminated by the Company other than "For Cause," pursuant to Paragraph 3.3
hereof, or by the Employee with "Good Reason," pursuant to Paragraph 3.4 hereof,
prior to the last day of a fiscal year, the Annual Bonus payable with respect to
such fiscal year shall be paid on a pro-rata basis. In such event, (i) that
portion of the Annual Bonus, if any, that is based on the achievement of
personal performance objectives shall be deemed to have been earned at the time
of such termination, and the pro-rata portion thereof (based upon the days of
Employment during the fiscal year) shall be paid to the Employee within thirty
(30) days following such termination; and (ii) that portion of the Annual Bonus,
if any, that is based on the achievement of financial goals or other Company
performance objectives shall remain subject to the achievement of such goals and
objectives, and the pro-rata portion thereof shall be paid to the Employee as
soon as such achievement can be determined, on a basis consistent with that for
continuing executives of the Company. Upon the adoption by the Company of a
management bonus plan for the benefit of officers generally, the Employee shall
be entitled to participate in such plan, in lieu of the provisions of this
Section 2.2
2.3 VACATION. The Employee shall be entitled to paid vacation in
accordance with the Company's vacation policy, as in effect from time to time.
For purposes of calculating the Employee's eligibility for vacation benefits,
his period of employment by CompCore shall be counted as employment by the
Company.
2.4 INSURANCE AND OTHER BENEFITS. The Employee shall be entitled to
participate in the life, medical, dental and/or disability insurance plans,
together with any supplemental insurance plans, offered by the Company to its
officers, generally. The Employee shall be eligible to participate in any other
fringe benefits as may be provided by the Company to its officers, generally,
during the Employment. For
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purposes of calculating the Employee's eligibility for such benefits, his period
of employment by CompCore shall be counted as employment by the Company, except
as prohibited by the terms of any plan.
3. TERMINATION OF EMPLOYMENT. The Employment may be terminated prior to
the end of the term specified in Paragraph 1.2 hereof upon the occurrence of any
of the following:
3.1 DEATH OR DISABILITY. The Employment shall automatically terminate
upon the death of the Employee. The Company shall have the unrestricted right,
but not the obligation, to terminate the Employment at any time following
determination of the Employee's "permanent disability" (as then defined in the
Company's long-term disability insurance plan covering the Employee). In the
event of the Employee's death or permanent disability, the Employee or his
estate shall be entitled to receive (i) the Employee's base salary through the
date of termination of the Employment, plus (ii) any Annual Bonus earned by the
Employee and payable as of the date of termination of the Employment pursuant to
Paragraph 2.2 hereof but not yet paid, plus (iii) any other benefits to which
the Employee is entitled pursuant to the plans described in Paragraph 2.4
hereof.
3.2 TERMINATION OF EMPLOYMENT BY THE COMPANY "FOR CAUSE". The Company
shall have the unrestricted right, but not the obligation, to terminate the
Employment at any time "For Cause" in the event of the Employee's (i) conviction
of a felony or any act involving moral turpitude, (ii) commission of any act of
theft, fraud or dishonesty against, or involving the records of, the Company or
any other member of the Company Group, (iii) material breach of the Employee's
obligations hereunder, or under the Confidential Information and Inventions
Agreement, which, if curable, is not cured within thirty (30) days following
notice thereof by the Company, (iv) intentional act or gross negligence that has
a material detrimental effect on the reputation or business of the Company or
any other member of the Company Group, or (v) repeated failure or inability
(other than as a result of physical disability) to perform any duties reasonably
assigned hereunder, which failure or inability has been documented and discussed
with the Employee and has not been cured within thirty (30) days following
written notice thereof by the Company. The decision to terminate the Employment
For Cause, to take other action or to take no action in response to such
occurrence shall be in the sole and exclusive discretion of the Company. Upon
any termination of the Employment by the Company For Cause, the Employee shall
be entitled to receive (A) the Employee's base salary through the date of such
termination, plus (B) any Annual Bonus earned by the Employee and payable as of
the date of termination of the Employment pursuant to Paragraph 2.2 hereof but
not yet paid, plus (C) any other benefits to which the Employee is entitled
pursuant to the plans described in Paragraph 2.4 hereof.
3.3 OTHER TERMINATION OF EMPLOYMENT BY THE COMPANY. The Company shall
have the right to terminate the Employment at any time. However, if the
Employment is terminated by the Company for any reason other than pursuant to
Paragraphs 1.2, 3.1 or 3.2 hereof, the Employee shall be entitled to receive his
base salary through the date of termination of the Employment, plus an amount
(the "Severance Payment") equal to his then-current base salary for a period of
twelve (12) months following the date of termination (the "Severance Period").
The Severance Payment shall be paid in a single lump-sum payment within thirty
(30) days following the date of termination and shall be in lieu of any other
severance pay to which the Employee might otherwise be entitled. In addition, in
the event of such a termination, the Company will, to the extent its plans
permit, continue to provide to the Employee, at the current level of employee
contribution by the Employee prevailing at the date of termination, coverage
under its life, medical, dental and/or disability plans, as in effect on the
date of termination, during the Severance Period. The Employee shall also be
entitled, upon any such termination, to receive (i) any Annual Bonus earned by
the Employee and payable as of the date of termination of the Employment
pursuant to Paragraph 2.2 hereof but not yet paid, plus (ii) any other benefits
to which the Employee is entitled pursuant to the plans described in Paragraph
2.4 hereof.
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3.4 TERMINATION OF EMPLOYMENT BY THE EMPLOYEE FOR "GOOD REASON". The
Employee shall have the right to terminate the Employment at any time for "Good
Reason" in the event that, other than pursuant to Paragraph 3.1 or 3.2 hereof,
without the Employee's prior written consent, (i) the Company materially alters
or reduces the Employee's duties, responsibilities and authority from those
described in APPENDIX A hereto; (ii) the Company materially breaches the terms
of this Agreement in respect to the payment of compensation or benefits or in
any other material respect and such breach is not cured within thirty (30) days
after the Company receives notice thereof; (iii) the Company requires the
Employee, as a condition to the Employment, to perform illegal or fraudulent
acts or omissions; (iv) the Company requires the Employee, as a condition to the
Employment, to be based more than one hundred (100) miles from CompCore's
principal place of business as of the date of this Agreement; (v) the Employee
is involuntarily removed from the Company's Board of Directors or the
stockholders of the Company fail to re-elect the Employee to the Company's Board
of Directors in any vote taken for that purpose, except in either case where the
Employment has been terminated "For Cause" pursuant to Paragraph 3.2 hereof; or
(vi) there has been, subsequent to the Effective Date, a transaction or series
of transactions pursuant to which any person (or group of persons) other than
the current affiliates of the Company acquires more than fifty percent (50%) of
the outstanding shares of the Company's voting securities, pursuant to a tender
offer, exchange offer or otherwise, where such transaction or transactions have
not been approved by a majority of the Company's Board of Directors. If the
Employee voluntarily terminates the Employment for Good Reason pursuant to this
Paragraph 3.4, the Employee shall be entitled to receive the payments and other
benefits specified in Paragraph 3.3 hereof with respect to a termination by the
Company other than For Cause.
3.5 TERMINATION OF EMPLOYMENT BY THE EMPLOYEE WITHOUT "GOOD
REASON". Upon any voluntary termination of the Employment by the Employee,
other than for Good Reason pursuant to Paragraph 3.4 hereof, the Employee shall
be entitled to receive (i) the Employee's base salary through the date of such
termination, plus (ii) any Annual Bonus earned by the Employee and payable as of
the date of termination of the Employment pursuant to Paragraph 2.2 hereof but
not yet paid, plus (iii) any other benefits to which the Employee is entitled
pursuant to the plans described in Paragraph 2.4 hereof.
4. EXPENSES. The Company will reimburse the Employee for those customary,
ordinary and necessary business expenses incurred by him in the performance of
his duties and activities on behalf of the Company or any other member of the
Company Group. Such expenses will be reimbursed upon presentation by the
Employee of appropriate documentation to substantiate such expenses pursuant to
the policies and procedures of the Company governing reimbursement of business
expenses to its executive officers, to the extent such policies are consistently
applied. The Employee shall present such documentation for any unreimbursed
expenses not later than thirty (30) days after the termination of the
Employment.
5. AUTHORITY; NONCOMPETITION. The Employee covenants, warrants and
represents to the Company that he has the full, complete and entire right and
authority to enter into the Employment and this Agreement, that he has no
agreement, duty, commitment or responsibility of any kind or nature whatsoever
with any other person, corporation, partnership, firm, company, joint venture or
other entity which would conflict in any manner whatsoever with any of his
duties, obligations or responsibilities to the Company or any other member of
the Company Group pursuant to the Employment and/or this Agreement, and that he
is fully ready, willing and able to perform each and all of such duties,
obligations and responsibilities. As a condition of the Employment and of the
Company's entering into this Agreement, the Employee hereby specifically agrees,
covenants, warrants and represents that, during the Employment, he will not,
without the Company's express prior written consent, accept any employment,
contractual or other relationship of any kind or nature whatsoever or engage in
any association or dealing of any kind or nature whatsoever with any person,
corporation, partnership, firm, company, joint venture, or other entity, in
competition with any business of the Company or any other member of the Company
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Group currently conducted or conducted during that period; provided that nothing
in this Paragraph 5 shall prohibit the Employee from owning Permitted Shares.
6. DUTIES OF THE EMPLOYEE AFTER ANY NOTICE OF TERMINATION OF THE
EMPLOYMENT. Following any notice of termination of the Employment, the Employee
shall fully cooperate with the Company in all matters relating to the winding up
of the Employee's work on behalf of the Company and the orderly transfer of all
pending work and of the Employee's duties and responsibilities to such other
person or persons as may be designated by the Company in its sole discretion.
Upon any termination of the Employment, the Employee will immediately deliver to
the Company any and all of the property of the Company or any other member of
the Company Group of any kind or nature whatsoever in the Employee's possession,
custody or control, including, without limitation any and all Proprietary
Information as that term is defined in the Confidentiality and Inventions
Agreement.
7. ARBITRATION. Except as otherwise expressly provided in this Agreement,
any controversy, dispute and/or claim in any manner arising out of or relating
to this Agreement or the Employment shall be fully and finally resolved solely
by binding arbitration conducted by the American Arbitration Association in San
Jose, California. Judgment on any decision rendered by the arbitrator may be
entered in any court having jurisdiction. All costs of the arbitration,
including, without limitation, the costs of any record or transcript of the
arbitration proceedings, administrative fees, the fee of the arbitrator, the
fees and expenses of the attorneys for each party and all other fees and costs
shall be borne by the party not prevailing in the arbitration, as determined by
the arbitrator, or apportioned as the arbitrator shall determine if, in the
judgment of the arbitrator, neither party prevails. Except as otherwise
expressly provided in this Agreement, the arbitration provisions set forth above
in this Paragraph 7 are intended by the Employee and by the Company to be
absolutely exclusive for all purposes whatsoever and applicable to each and
every controversy, dispute and/or claim in any manner arising out of or relating
to this Agreement, and the Employment, the meaning, application and/or
interpretation of this Agreement, any breach or claimed breach hereof and/or any
voluntary or involuntary termination of this Agreement with or without cause,
including, without limitation, any such controversy, dispute and/or claim which,
if pursued through any state or federal court or administrative agency, would
arise at law, in equity and/or pursuant to statutory, regulatory and/or common
law rules, regardless of whether such dispute, controversy and/or claim would
arise in and/or from contract, tort or any other legal and/or equitable theory
or basis. The arbitrator who hears and decides any controversy, dispute and/or
claim between the Company and/or Sub and the Employee shall, in determining a
remedy, have jurisdiction and authority only to award compensatory damages to
make whole a party suffering foreseeable economic damages, and, other than
foreseeable economic damages, the arbitrator shall not have any authority or
jurisdiction to make any award of any kind or nature whatsoever as compensation
for any damages and/or any award of damages for pain and suffering, emotional
distress or any other kind or form of non-economic damages and/or non-
foreseeable economic damages. Notwithstanding anything to the contrary contained
in this Paragraph 7, the Company shall at all times have and retain the full,
complete and unrestricted right to immediate and permanent injunctive and other
relief as provided in Paragraph 8 below.
8. THE COMPANY'S RIGHT TO IMMEDIATE INJUNCTIVE RELIEF. The Employee
recognizes, acknowledges and agrees that any breach or any threatened breach of
any Paragraph, term, provision or covenant of any of Paragraphs 5, 6 or 7 of
this Agreement would cause irreparable injury to the Company which could not be
adequately compensable in monetary damages and that the remedy at law for any
such breach will be entirely insufficient and inadequate to protect their
legitimate interests. Therefore, the Employee specifically recognizes,
acknowledges and agrees that the Company shall at any and all times be and
remain fully entitled to seek and obtain immediate temporary, preliminary and
permanent injunctive relief for any such breach or threatened breach from any
court of competent jurisdiction. The prevailing party in any action instituted
pursuant to this Paragraph 8, or in any appeal from any arbitration pursuant to
Paragraph 7 hereof, shall be entitled to recover from the other party its
reasonable attorneys' fees and other expenses incurred in such litigation.
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<PAGE>
9. SURVIVAL OF CERTAIN PROVISIONS OF THIS AGREEMENT. Except as may
otherwise be provided herein, each and all of the terms, provisions and
covenants of each of Paragraphs 1.4, 5, 6, 7, 8, 9 and 10 of this Agreement
shall, for any and all purposes whatsoever, survive any termination of the
Employment, regardless of whether such termination is by the Employee, by the
Company, by expiration or otherwise.
10. GENERAL.
10.1 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
inure to the benefit of and be binding upon the Company, the Employee and each
and all of their respective heirs, legal representatives, successors and
assigns. The duties, responsibilities and obligations of the Employee under this
Agreement shall be personal and not assignable or delegable by the Employee in
any manner whatsoever to any person, corporation, partnership, firm, company,
joint venture or other entity. The Employee may not assign, transfer, convey,
mortgage, pledge or in any other manner encumber the compensation or other
benefits to be received by him or any rights which he may have pursuant to the
terms and provisions of this Agreement.
10.2 WAIVER. No waiver of any breach of any warranty, representation,
agreement, promise, covenant, paragraph, term or provision of this Agreement
shall be deemed to be a waiver of any preceding or succeeding breach of the same
or any other warranty, representation, agreement, promise, covenant, paragraph,
term and/or provision of this Agreement. No extension of the time for the
performance of any obligation or other act required or permitted by this
Agreement shall be deemed to be an extension of the time for the performance of
any other obligation or any other act required or permitted by this Agreement.
10.3 SOLE AND ENTIRE AGREEMENT. This Agreement, the attachments hereto
and the other agreements referred to herein, including the Company's benefit
plans, are the sole, complete and entire contract, agreement and understanding
between the Company, and the Employee concerning the Employment, the terms and
conditions of the Employment, the duration of the Employment, the termination of
the Employment and the compensation and benefits to be paid and provided by the
Company to the Employee pursuant to the Employment. Except as otherwise provided
herein, this Agreement supersedes any and all prior contracts, agreements,
plans, agreements in principle, correspondence, letters of intent,
understandings, and negotiations, whether oral or written, concerning the
Employment, the terms and conditions of the Employment, the duration of the
Employment, the termination of the Employment and the compensation and benefits
to be paid by the Company and Sub to the Employee pursuant to the Employment.
10.4 AMENDMENTS. No amendment, modification, waiver, or consent
relating to this Agreement will be effective unless and until it is embodied in
a written document signed by the Company and by the Employee.
10.5 ORIGINALS. This Agreement may be executed by the Company and the
Employee in counterparts, each of which shall be deemed an original and which
together shall constitute one instrument.
10.6 HEADINGS. Each and all of the headings contained in this
Agreement are for reference purposes only and shall not in any manner whatsoever
affect the construction or interpretation of this Agreement or be deemed a part
of this Agreement for any purpose whatsoever.
10.7 SAVINGS PROVISION. To the extent that any provision of this
Agreement or any Paragraph, term, provision, sentence, phrase, clause or word of
this Agreement shall be found to be illegal or unenforceable for any reason,
such Paragraph, term, provision, sentence, phrase, clause or word shall be
modified or deleted in such a manner as to make this Agreement, as so modified,
legal and enforceable under applicable laws. The remainder of this Agreement
shall continue in full force and effect.
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<PAGE>
10.8 APPLICABLE LAW. This Agreement shall be governed in all respects
by the laws of the State of California as such laws are applied to agreements
between California residents entered into and to be performed entirely within
California.
10.9 CONSTRUCTION. The language of this Agreement and of each and
every paragraph, term and provision of this Agreement shall, in all cases, for
any and all purposes, and in any and all circumstances whatsoever be construed
as a whole, according to its fair meaning, not strictly for or against the
Employee, the Company and with no regard whatsoever to the identity or status of
any person or persons who drafted all or any portion of this Agreement.
10.10 NOTICES. Any notices to be given pursuant to this Agreement by
either party to the other party may be effected by personal delivery or by
registered or certified mail, postage prepaid with return receipt requested.
Mailed notices shall be addressed to the parties at the addresses stated below,
but each party may change its or his address by written notice to the other in
accordance with this Paragraph 10.10. Notices delivered personally shall be
deemed received on the date of delivery. Notices delivered by mail shall be
deemed received on the third business day after the mailing thereof.
Mailed notices to the Employee shall be addressed as follows:
Sorin C. Cismas
____________________________
____________________________
Mailed notices to the Company shall be addressed as follows:
Zoran Corporation
2041 Mission College Boulevard
Santa Clara, CA 95054
Attention: President
IN WITNESS WHEREOF the Company and the Employee have each duly executed this
Agreement as of the date first set forth above.
ZORAN CORPORATION
By: __________________________________
Title: _______________________________
EMPLOYEE
______________________________________
Sorin C. Cismas
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APPENDIX A
JOB DESCRIPTION
Title: Chief Scientist
The Employee shall report to the Chief Executive Officer or another officer
of the Company designated by the Chief Executive Officer. George T. Haber,
Executive Vice President, is initially designated as the officer to whom the
Employee shall report.
The Employee's duties shall include:
- Monitoring and investigating new technologies and capabilities for their
application to the development and enhancement of the Company's products.
- Providing technical guidance and support to the Company's engineering,
marketing and applications organizations.
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APPENDIX B
[LETTERHEAD OF OPPENHEIMER & CO., INC.]
October 19, 1996
The Board of Directors
Zoran Corporation
2041 Mission College Boulevard
Santa Clara, CA 95054
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the Common Stock of Zoran Corporation ("Zoran") of the
Purchase Price (as defined below) pursuant to the terms and conditions set forth
in a draft of the Agreement and Plan of Reorganization (the "Agreement") as of
October 19, 1996, among Zoran, See Acquisition Corporation, a direct
wholly-owned subsidiary of Zoran ("See"), and CompCore Multimedia, Inc.
("CompCore"), pursuant to which each issued and outstanding share of Common
Stock, no par value per share, of CompCore (the "CompCore Stock") will be
transferred to See in exchange for that number of newly-issued Common Stock, par
value $0.001 per share, of Zoran (the "Zoran Stock"), and each outstanding
option to purchase CompCore Stock will be converted into an option to purchase
Zoran Stock (the "Exchange"). The aggregate number of shares to be issued or
reserved for issuance in the Exchange will be 2,853,229 shares of Zoran Stock
(the "Purchase Price").
In arriving at our opinion, we reviewed the Agreement and held discussions
with certain senior officers, directors and other representatives and advisors
of CompCore and of Zoran concerning the business, operations and prospects of
CompCore and Zoran. We visited certain facilities operated by CompCore and Zoran
and examined certain business and financial information relating to CompCore and
Zoran as well as certain financial forecasts and other data which were provided
to us by the senior managements of CompCore and Zoran. We reviewed the financial
terms set forth in the Agreement in relation to, among other things: current and
historical market prices and trading volumes of the Zoran Stock; and the
historical and projected earnings of CompCore and Zoran. We also considered, to
the extent publicly available, the financial terms of certain other transactions
recently effected which may be considered generally comparable to the
transaction set forth in the Agreement and analyzed certain financial, stock
market and other publicly available information relating to the businesses of
other companies whose operations may be considered generally comparable to those
of CompCore and Zoran. In addition to the foregoing, we conducted such other
analyses and examinations and considered such other financial, economic and
market criteria as we deemed necessary to arrive at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information furnished to us or otherwise discussed with us by the managements of
CompCore and Zoran, in addition to all other public information. With respect to
financial forecasts and other information so provided or otherwise discussed
with us, we assumed, at the direction of CompCore and Zoran, that such forecasts
and other information were
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The Board of Directors
Zoran Corporation
October 19, 1996
Page 2
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the managements of CompCore and Zoran as to the expected future
financial performance of CompCore and Zoran. We have not made or been provided
with an independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise) of CompCore or Zoran nor have we made physical
inspection of all of the properties or assets of CompCore or Zoran. Our opinion
is based upon economic, financial, stock market and other conditions and
circumstances existing and disclosed to us as of the date hereof.
Oppenheimer & Co., Inc. ("Oppenheimer") was engaged to render financial
advisory services to Zoran in connection with the activities leading up to the
Exchange set forth in the Agreement. Oppenheimer will receive a fee for its
services which include the delivery of this opinion. Oppenheimer has performed
investment banking services for Zoran in the past and has been compensated for
such services; Oppenheimer served as lead managing underwriter of Zoran's
initial public offering of Common Stock in December, 1995. Oppenheimer makes a
market in the Common Stock of Zoran. In the ordinary course of business,
Oppenheimer and its affiliates may actively trade the securities of Zoran for
their own account or for the accounts of customers and, accordingly, may at any
time hold a long or short position in such securities. Previously, Oppenheimer
has not performed investment banking services for CompCore. In additional,
Oppenheimer's research department provides published research coverage of Zoran.
Our advisory services and the opinion expressed herein are directed at the
Board of Directors of Zoran in its evaluation of the proposed Agreement and do
not constitute a recommendation to any stockholder of Zoran, and our opinion may
not be published or otherwise used or referred to, in whole or in part, nor
shall any public reference to Oppenheimer be made without our prior written
consent; provided that this opinion may be included in its entirety in the Form
S-4 Registration Statement that will be filed by Zoran with the Securities and
Exchange Commission with respect to the Exchange contemplated by the Agreement
and the transactions related thereto.
Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and other factors we deemed relevant, we
are of the opinion that, as of the date hereof, the Purchase Price, pursuant to
the Agreement, is fair, from a financial point of view, to the holders of Zoran
Common Stock.
Very truly yours,
/s/ OPPENHEIMER & CO., INC.
OPPENHEIMER & CO., INC.
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APPENDIX C
CALIFORNIA GENERAL CORPORATION LAW
CHAPTER 13
DISSENTERS' RIGHTS
SECTION1300. RIGHT TO REQUIRE PURCHASE--"DISSENTING SHARES" AND "DISSENTING
SHAREHOLDER" DEFINED.
(a) If the approval of the outstanding shares (Section 152) of a corporation
is required for a reorganization under subdivisions (a) and (b) or subdivision
(e) or (f) of Section 1201, each shareholder of the corporation entitled to vote
on the transaction and each shareholder of a subsidiary corporation in a
short-form merger may, by complying with this chapter, require the corporation
in which the shareholder holds shares to purchase for cash at their fair market
value the shares owned by the shareholder which are dissenting shares as defined
in subdivision (b). The fair market value shall be determined as of the day
before the first announcement of the terms of the proposed reorganization or
short-form merger, excluding any appreciation or depreciation in consequence of
the proposed action, but adjusted for any stock split, reverse stock split, or
share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange certified by
the Commissioner of Corporations under subdivision (o) of Section 25100 or
(B) listed on the list of OTC margin stocks issued by the Board of Governors
of the Federal Reserve System, and the notice of meeting of shareholders to
act upon the reorganization summarizes this section and Sections 1301, 1302,
1303 and 1304; PROVIDED, HOWEVER, that this provision does not apply to any
shares with respect to which there exists any restriction on transfer
imposed by the corporation or by any law or regulation; and PROVIDED,
FURTHER, that this provision does not apply to any class of shares described
in subparagraph (A) or (B) if demands for payment are filed with respect to
5 percent or more of the outstanding shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; PROVIDED, HOWEVER, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case where
the approval required by Section 1201 is sought by written consent rather
than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the recordholder
of dissenting shares and includes a transferee of record.
SECTION1301. DEMAND FOR PURCHASE.
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the
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corporation to purchase their shares for cash, such corporation shall mail to
each such shareholder a notice of the approval of the reorganization by its
outstanding shares (Section 152) within 10 days after the date of such approval,
accompanied by a copy of Sections 1300, 1302, 1303, 1304 and this section, a
statement of the price determined by the corporation to represent the fair
market value of the dissenting shares, and a brief description of the procedure
to be followed if the shareholder desires to exercise the shareholder's right
under such sections. The statement of price constitutes an offer by the
corporation to purchase at the price stated any dissenting shares as defined in
subdivision (b) of Section 1300, unless they lose their status as dissenting
shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of record
by the shareholder which the shareholder demands that the corporation purchase
and shall contain a statement of what such shareholder claims to be the fair
market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
SECTION1302. ENDORSEMENT OF SHARES.
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
SECTION1303. AGREED PRICE--TIME FOR PAYMENT.
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
C-2
<PAGE>
SECTION1304. DISSENTER'S ACTION TO ENFORCE PAYMENT.
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
SECTION1305. APPRAISERS' REPORT--PAYMENT--COSTS.
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file a report
in the office of the clerk of the court. Thereupon, on the motion of any party,
the report shall be submitted to the court and considered on such evidence as
the court considers relevant. If the court finds the report reasonable, the
court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time as
may be allowed by the court or the report is not confirmed by the court, the
court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
SECTION1306. DISSENTING SHAREHOLDERS' STATUS AS CREDITOR.
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
C-3
<PAGE>
SECTION1307. DIVIDENDS PAID AS CREDIT AGAINST PAYMENT.
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
SECTION1308. CONTINUING RIGHTS AND PRIVILEGES OF DISSENTING SHAREHOLDERS.
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A dissenting
shareholder may not withdraw a demand for payment unless the corporation
consents thereto.
SECTION1309. TERMINATION OF DISSENTING SHAREHOLDER STATUS.
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement in
accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
SECTION1310. SUSPENSION OF PROCEEDINGS FOR PAYMENT PENDING LITIGATION.
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings under
Sections 1304 and 1305 shall be suspended until final determination of such
litigation.
SECTION1311. EXEMPT SHARES.
This chapter, except Section 1312, does not apply to classes of shares whose
terms and provisions specifically set forth the amount to be paid in respect to
such shares in the event of a reorganization or merger.
SECTION1312. ATTACKING VALIDITY OF REORGANIZATION OR MERGER.
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal
C-4
<PAGE>
terms of the reorganization are approved pursuant to subdivision (b) of Section
1202, is entitled to payment in accordance with the terms and provisions of the
approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days'
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
C-5
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") permits
indemnification of officers, directors and other corporate agents under certain
circumstances and subject to certain limitations. The Registrant's Certificate
of Incorporation and Bylaws provide that the Registrant shall indemnify its
directors, officers, employees and agents to the full extent permitted by the
DGCL, including in circumstances in which indemnification is otherwise
discretionary under such law. In addition, with the approval of the Board of
Directors and the stockholders, the Registrant has entered into separate
indemnification agreements with its directors, officers and certain employees
which require the Registrant, among other things, to indemnify them against
certain liabilities which may arise by reason of their status or service (other
than liabilities arising from willful misconduct of a culpable nature) and to
obtain directors' and officers' insurance, if available on reasonable terms.
These indemnification provisions may be sufficiently broad to permit
indemnification of the Registrant's officers, directors and other corporate
agents for liabilities (including reimbursement of expenses incurred) arising
under the Securities Act of 1933.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or other agent of the Registrant in which
indemnification is being sought nor is the Registrant aware of any threatened
litigation that may result in a claim for indemnification by any director,
officer, employee or other agent of the Registrant.
The Registrant has obtained liability insurance for the benefit of its
directors and officers.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
2.1 Amended and Restated Agreement and Plan of Reorganization dated November 27, 1996 among the
Registrant, See Acquisition Corporation ("Sub") and CompCore Multimedia, Inc. ("CompCore")
(included as Appendix A to the Prospectus).
3.1(1) Form of Restated Certificate of Incorporation of the Registrant.
3.2(2) Bylaws of the Registrant, as amended.
4.1(3) Amended and Restated Stock Rights Agreement dated July 30, 1993 among the Registrant and certain of
its stockholders, as amended.
4.2(3) Stockholders Agreement dated October 19, 1995 between The Israel Corporation Ltd. and Elron
Electronic Industries Ltd. ("Elron").
5.1 Opinion of Gray Cary Ware & Freidenrich, A Professional Corporation.
8.1 Opinion of Gray Cary Ware & Freidenrich, A Professional Corporation, as to tax matters.
8.2 Opinion of Cooley Godward LLP as to tax matters.
10.1(3) 1993 Stock Option Plan, as amended.
10.2(3) 1995 Outside Directors Stock Option Plan.
10.3(4) Amended and Restated 1995 Employee Stock Purchase Plan.
10.4(3) Form of Indemnity Agreement for officers and directors.
+10.5(3) Agreement dated June 28, 1991 between the Registrant and Fujifilm Microdevices Co., Ltd.
("Fujifilm"), as amended.
+10.6(3) Agreement dated July 27, 1992 between the Registrant and Fujifilm.
10.7(3) Letter Agreement dated December 16, 1991 between the Registrant and Dolby Laboratories Licensing
Corporation, as amended.
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
+10.8(3) Cooperation Agreement date October 12, 1994 between the Registrant and Siemens AG ("Siemens").
+10.9(3) Sales and Purchase Agreement dated November 30, 1994 between the Registrant and Siemens.
10.10(3) Office Leases dated August 4, 1995 between the Registrant and Koll/Intereal Bay Area.
10.11(3) Lease Agreement dated October 1, 1992 between the Registrant's subsidiary, Zoran Microelectronics
Ltd. ("ZML"), and Matam-Haifa Scientific Industries Center Ltd. ("Matam").
+10.12(3) License Agreement for ZR33891 Digital Filter Processor dated June 8, 1995 between the Registrant and
Atmel Corporation ("Atmel").
+10.13(3) License Agreement for ZR34325 Vector Signal Processor dated June 8, 1995 between the Registrant and
Atmel.
+10.14(3) Cooperation and Project Funding Agreement dated June 16, 1991 between ZML and the Israel-United
States Binational Industrial Research and Development Foundation ("BIRDF").
+10.15(3) Cooperation and Project Funding Agreement dated June 9, 1992 between ZML and BIRDF.
10.16(3) Note of Approval No. 17391 dated September 5, 1994 issued to ZML by the Office of Chief Scientist,
Head of the Industrial Research and Development Administration of the Israeli Ministry of Industry
and Trade (the "Chief Scientist"), together with ZML's Letter of Undertaking dated September 4,
1994.
10.17(3) Note of Approval No. 17337 dated September 5, 1994 issued to ZML by the Chief Scientist, together
with ZML's Letter of Undertaking dated September 4, 1994.
10.18(3) Loan Agreements dated July 25, 1995, August 1, 1995, August 15, 1995, August 31, 1995 and November 1,
1995 between ZML and the Israel Discount Bank.
10.19(3) Employment Agreement dated April 16, 1990 between the Registrant and Levy Gerzberg.
10.20(3) Form of Stock Purchase Warrant issued to purchasers of 10% Senior Convertible Promissory Notes.
10.21(3) Form of Stock Purchase Warrant issued to purchasers of Series K Preferred Stock.
10.22(3) Form of Stock Purchase Warrant issued to purchasers of 9% Secured Convertible Promissory Notes.
10.23(3) Form of 9% Secured Convertible Promissory Note.
10.24(3) 9% Convertible Promissory Notes Issued to Elron on September 28 and November 1, 1994.
10.25(3) Series L Preferred Stock Purchase Agreement dated November 14, 1994.
10.26(3) Loan Agreement dated June 28, 1991 between ZML and Discount Industrial Finance Bank, with Addenda and
Application for a State Guaranteed Loan.
10.27(3) Bond dated July 1, 1991 between ZML and Discounted Industrial Finance Bank with Addendum, as amended.
10.28(3) Agreement dated December 13, 1995 between the Registrant and Tower Semiconductor Ltd.
10.29(5) Summary of Discussion dated April 23, 1996 between ZML and Matam regarding Lease Agreement dated
October 1, 1992 between ZML and Matam.
10.30(6) Memorandum of Understanding dated April 23, 1996 between ZML and IBM Israel Ltd. regarding Lease
Agreement dated October 1, 1992 between ZML and Matam.
10.31 Amended and Restated Agreement and Plan of Reorganization dated November 27, 1996 among the
Registrant, Sub and CompCore. Reference is made to Exhibit 2.1.
*11.1 Statement re Computation of Earnings Per Share for the Registrant.
*11.2 Statement re Computation of Earnings Per Share for CompCore.
16.1(3) Letter from Ernst & Young LLP re change in certifying accountant.
21.1(3) List of Subsidiaries of the Registrant.
*23.1 Consent of Price Waterhouse LLP for the Registrant.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
*23.2 Consent of Price Waterhouse LLP for CompCore.
23.3 Consent of Gray Cary Ware & Freidenrich, A Professional Corporation (included in Exhibits 5.1 and
8.1).
23.4 Consent of Cooley Godward LLP (included in Exhibit 8.2).
23.5 Consent of Oppenheimer & Co., Inc. (included in Exhibit 99.1).
*24.1 Power of Attorney.
99.1 Opinion of Oppenheimer & Co., Inc. (included as Appendix B to the Prospectus).
99.2 Form of Proxy Card of the Registrant.
99.3 Form of Proxy Card of CompCore.
</TABLE>
- ------------------------
* Previously filed.
+ Confidential treatment has been granted as to a portion of this
Exhibit.
(1) Incorporated by reference to Exhibit 3.2 to Registrant's Form SB-2
Registration Statement (No. 33-98630-LA), which became effective on
December 14, 1995 (the "1995 Registration Statement").
(2) Incorporated by reference to Exhibit 3.3 to the 1995 Registration
Statement.
(3) Incorporated by reference to indentically numbered exhibit to the 1995
Registration Statement.
(4) Incorporated by reference to identically numbered exhibit to the
Registrant's Form 10-K Annual Report for the year ended December 31,
1995.
(5) Incorporated by reference to Exhibit 10.1 to the Registrant's Form
10-Q Quarterly Report for the quarter ended June 30, 1996 (the "June
1996 Form 10-Q").
(6) Incorporated by reference to Exhibit 10.2 to the June 1996 Form 10-Q.
(B) FINANCIAL STATEMENT SCHEDULES
All financial statement schedules are omitted because they are not
applicable or not required, or because the required information is included in
the Consolidated Financial Statements and Notes thereto which are included
herein.
ITEM 22. UNDERTAKINGS.
A. The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, as amended (the "Securities Act"),
each filing of the Registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in this Registration Statement shall be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
B. The Registrant hereby undertakes as follows:
1. That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the Registrant undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
2. That every prospectus (i) that is filed pursuant to paragraph (i)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to this Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment
II-3
<PAGE>
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
C. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer of controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
D. The Registrant hereby undertakes to respond to requests for information
that is incorporated by reference into the prospectus pursuant to Items 4,
10(b), 11, or 13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of this Registration Statement through the date
of responding to the request.
E. The Registrant hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in this
Registration Statement when it became effective.
F. The Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represents a fundamental change in the information set forth
in the Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
PROVIDED HOWEVER, that the paragraphs (1)(i) and (1)(ii) do not apply if
the Registration Statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the Registrant pursuant to Section 13
or Section 15(d) of the Exchange Act that are incorporated by reference in
the Registration Statement.
2. That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Santa Clara, State of
California, on the 29th day of November, 1996.
ZORAN CORPORATION
By: /s/ AMI KRAFT
-----------------------------------
Ami Kraft,
VICE PRESIDENT, FINANCE
AND CHIEF FINANCIAL OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------- ------------------------------ --------------------
<C> <S> <C>
President, Chief Executive
LEVY GERZBERG* Officer and Director
- ------------------------- (Principal Executive November 29, 1996
Levy Gerzberg Officer)
Vice President, Finance and
/s/ AMI KRAFT Chief Financial Officer
- ------------------------- (Principal Financial and November 29, 1996
Ami Kraft Accounting Officer)
UZIA GALIL*
- ------------------------- Chairman of the Board of November 29, 1996
Uzia Galil Directors
JAMES D. MEINDL*
- ------------------------- Director November 29, 1996
James D. Meindl
ARIE KAHANA*
- ------------------------- Director November 29, 1996
Arie Kahana
ARTHUR B. STABENOW*
- ------------------------- Director November 29, 1996
Arthur B. Stabenow
PHILIP M. YOUNG*
- ------------------------- Director November 29, 1996
Philip M. Young
</TABLE>
*By: /s/ AMI KRAFT
-------------------------
Ami Kraft,
ATTORNEY-IN-FACT
II-6
<PAGE>
- --------------------------
GRAY CARY WARE
& FREIDENRICH
A PROFESSIONAL CORPORATION
Attorneys at Law
400 Hamilton Avenue
Palo Alto, CA 94301-1825
Tel (415) 328-6561
Fax (415) 327-3699
http://www.gcwf.com
Our File No.
1260147-901300
November 29, 1996
VIA EDGAR
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: ZORAN CORPORATION
REGISTRATION STATEMENT ON FORM S-4
Ladies and Gentlemen:
As counsel to Zoran Corporation, a Delaware corporation (the "Company"),
we are rendering this opinion in connection with the proposed issuance of
those certain shares of the Company's Common Stock, as set forth in the
Registration Statement on Form S-4 to which this opinion is being filed as
Exhibit 5.1 (the "Shares"), upon consummation of the proposed merger of See
Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary
of the Company, with and into CompCore Multimedia, Inc., a California
corporation. We have examined all instruments, documents and records which
we deemed relevant and necessary for the basis of our opinion hereinafter
expressed. In such examination, we have assumed the genuineness of all
signatures and the authenticity of all documents submitted to us as originals
and the conformity to the originals of all documents submitted to us as
copies.
We express no opinion with respect to (i) the availability of equitable
remedies, including specific performance, or (ii) the effect of bankruptcy,
insolvency, reorganization, moratorium or equitable principles relating to or
limiting creditors' rights generally.
Based on such examination, we are of the opinion that the Shares
identified in the above-referenced Registration Statement will be, upon
effectiveness of the Registration Statement and receipt by the Company of
payment therefor, validly authorized, legally issued, fully paid and
nonassessable.
SAN DIEGO . SAN DIEGO/GOLDEN TRIANGLE . PALO ALTO . LA JOLLA . SAN JOSE .
IMPERIAL VALLEY . MEXICO CITY . TIJUANA
<PAGE>
GRAY CARY WARE & FREIDENRICH
Securities and Exchange Commission
November 29, 1996
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
above-referenced Registration Statement and to the use of our name wherever
it appears in said Registration Statement, including the Prospectus
constituting a part thereof, as originally filed or as subsequently amended.
Respectfully submitted,
/s/ GRAY CARY WARE & FREIDENRICH
-------------------------------------
GRAY CARY WARE & FREIDENRICH
A Professional Corporation
<PAGE>
- --------------------------
GRAY CARY WARE
& FREIDENRICH
A PROFESSIONAL CORPORATION
Attorneys at Law
400 Hamilton Avenue
Palo Alto, CA 94301-1825
Tel (415) 328-6561
Fax (415) 327-3699
http://www.gcwf.com
Our File No.
1260147-901300
November 29, 1996
Zoran Corporation
2041 Mission College Blvd., Suite 255
Santa Clara, CA 95054
Dear Sir or Madam:
This opinion is being delivered to you in connection with the filing of
a registration statement on Form S-4 of Joint Proxy Statement/Prospectus of
Parent and the Company (the "Registration Statement") and in accordance with
the Agreement and Plan of Reorganization dated October 20, 1996 (the "Plan of
Reorganization"), as amended, by and among Zoran Corporation, a Delaware
corporation ("Parent"), See Acquisition Corporation, a Delaware corporation
and a wholly-owned subsidiary of Parent ("Merger Sub"), and CompCore
Multimedia, Inc., a California corporation (the "Company"). Merger Sub will
merge with and into the Company (the "Merger") pursuant to the Plan of
Reorganization and related Agreement of Merger (collectively, including the
exhibits and schedules to each, the "Agreements").
Except as otherwise provided, capitalized terms referred to herein have
the meanings set forth in the Agreements or in certificates delivered to us
by Parent, Merger Sub and the Company containing certain representations of
Parent, Merger Sub and the Company (the "Certificates of Representations").
All section references, unless otherwise indicated, are to the Internal
Revenue Code of 1986, as amended (the "Code").
We have acted as legal counsel to Parent in connection with the Merger.
As such, and for the purpose of rendering this opinion, we have examined
originals, certified copies or copies otherwise identified to our
satisfaction as being true copies of the original of the following documents
(including all exhibits and schedules attached thereto):
1. the Agreements;
2. the Certificates of Representations;
SAN DIEGO . SAN DIEGO/GOLDEN TRIANGLE . PALO ALTO . LA JOLLA . SAN JOSE .
IMPERIAL VALLEY . MEXICO CITY . TIJUANA
<PAGE>
GRAY CARY WARE & FREIDENRICH
Zoran Corporation
November 29, 1996
Page 2
3. Continuity of Interest Certificates and affiliate agreements
executed by certain Company shareholders (the "Continuity of Interest
Certificates" and "Affiliates Agreements"); and
4. such other instruments and documents related to the formation,
organization and operation of Parent, Merger Sub and the Company and related
to the consummation of the Merger and the transactions contemplated thereby
as we have deemed necessary or appropriate.
In connection with rendering this opinion, we have assumed or obtained
representations (and are relying thereon, without any independent
investigation or review thereof) that:
1. Original documents (including signatures) are authentic, documents
submitted to us as copies conform to the original documents, and there is (or
will be prior to the Closing) due execution and delivery of all documents
where due execution and delivery are prerequisites to effectiveness thereof;
2. The truth and accuracy at all relevant times, of all
representations, warranties and statements made or agreed to by Parent,
Merger Sub and the Company, their managements, employees, officers, directors
and shareholders in connection with the Merger, including but not limited to
those set forth in the Agreements, the Certificates of Representations, the
Continuity of Interest Certificates and the Affiliates Agreements; and that
all covenants contained in such agreements are performed without waiver or
breach of any material provision thereof;
3. Any representation or statement made "to the best of knowledge" or
similarly qualified is correct without such qualification. As to all matters
in which a person or entity making a representation referred to above has
represented that such person or entity either is not a party to, does not
have, or is not aware of, any plan or intention, understanding or agreement,
there is in fact no such plan, intention, understanding or agreement;
4. All of the Company's debt will be treated as debt for federal
income tax purposes;
5. There is no plan or intention on the part of the Company's
shareholders (a "Plan") to engage in a sale, exchange, transfer,
distribution, pledge or other disposition (including a distribution by a
corporation to its shareholders) or any transaction which results in a
reduction of risk of ownership, or a direct or indirect disposition (a
"Sale") of shares of Parent Common Stock to be received in the Merger
<PAGE>
GRAY CARY WARE & FREIDENRICH
Zoran Corporation
November 29, 1996
Page 3
that would reduce the Company shareholders' ownership of Parent Common Stock
to a number of shares having an aggregate fair market value, as of the
Effective Time, of less than fifty percent (50%) of the value of all of the
stock of the Company outstanding immediately prior to the Merger. Shares of
the Company stock with respect to which dissenters' rights are exercised in
the Merger, which are exchanged for cash in lieu of fractional shares of
Parent Common Stock or which are sold, redeemed or disposed of in a
transaction that is in contemplation of or related to the Merger shall be
considered shares of the Company stock held by shareholder of the Company
immediately before the Merger which are exchanged in the Merger for shares of
Parent Company Stock which are then disposed of pursuant to a Plan;
6. The Merger will be consummated pursuant to applicable state law;
7. An opinion of counsel, received by the Company from Cooley Godward
LLP, substantially identical in substance to this opinion, has been delivered
and not withdrawn; and
8. The Merger will be reported by the Company and Parent on their
respective federal income tax returns in a manner consistent with the opinion
set forth below.
Based on our examination of the foregoing items and subject to the
limitations, qualifications, assumptions and caveats set forth herein, we are
of the opinion that for federal income tax purposes, the Merger will
constitute a "reorganization" as defined in Section 368(a) of the Code.
This opinion addresses only classification of the Merger as a
reorganization under Section 368(a) of the Code. No opinion is expressed as
to any other matter, including any other tax consequences of the Merger or
any other transaction (including any transaction undertaken in connection
with the Merger) under any federal, state, local or foreign tax law.
No opinion is expressed as to any transaction other than the Merger as
described in the Agreements or to any transaction whatsoever, if all the
transactions described in the Agreements are not consummated in accordance
with the terms of the Agreements and without waiver or breach of any material
provision thereof or if all of the representations, warranties, statements
and assumptions upon which we relied are not true and accurate at all
relevant times. To the extent any of the representations, warranties,
statements or assumptions upon which we have relied to issue this opinion is
not complete, correct, true and accurate in all material respects at all
relevant times, our opinion might be adversely affected and may not be relied
upon.
<PAGE>
GRAY CARY WARE & FREIDENRICH
Zoran Corporation
November 29, 1996
Page 4
This opinion only represents our best judgment regarding the application
of federal income tax laws arising under the Code, existing judicial
decisions, administrative regulations and published rulings and procedures.
Our opinion is not binding upon the Internal Revenue Service or the courts,
and the Internal Revenue Service is not precluded from successfully asserting
a contrary position. No assurance can be given that future legislative,
judicial or administrative changes, on either a prospective or retroactive
basis, would not adversely affect the accuracy of the conclusions stated
herein. Nevertheless, we undertake no responsibility to advise you of any
new developments in the application or interpretation of the federal income
tax laws.
This opinion has been delivered to you solely for the purposes set forth
in the Plan of Reorganization and may not be relied upon or utilized for any
other purpose by any other person or entity, and may not be distributed or
otherwise made available to any other person or entity without our prior
written consent, except that we consent to the reference to our firm name
whenever appearing in the Registration Statement and to the filing of this
opinion as an exhibit to the Registration Statement.
Very truly yours,
/s/ GRAY CARY WARE & FREIDENRICH
------------------------------------
GRAY CARY WARE & FREIDENRICH
A Professional Corporation
<PAGE>
[COOLEY GODWARD LLP LETTERHEAD]
WEBB B. MORROW III
415 843-5080
[email protected]
November 29, 1996
CompCore Multimedia, Inc.
3120 Scott Boulevard, 2nd Floor
Santa Clara, CA 95054
Dear Sir or Madam:
This opinion is being delivered to you in accordance with the Agreement and Plan
of Reorganization dated October 20, 1996 (the "Plan of Reorganization") by and
among Zoran Corporation, a Delaware corporation ("Parent"), See Acquisition
Corporation, a Delaware corporation and wholly owned subsidiary of Parent
("Merger Sub") and CompCore Multimedia, Inc., a California corporation (the
"Company"). Merger Sub will merge with and into the Company (the "Merger")
pursuant to the Plan of Reorganization and related Agreement of Merger
(collectively, including the exhibits to each, the "Agreements").
Except as otherwise provided, capitalized terms not defined herein have the
meanings set forth in the Agreements or in certificates dated November 29, 1996
delivered to us by Parent, Merger Sub and the Company containing certain
representations of Parent, Merger Sub and the Company (the "Certificates of
Representations"). All section references, unless otherwise indicated, are to
the Internal Revenue Code of 1986, as amended (the "Code").
We have acted as counsel to the Company in connection with the Merger. As such,
and for the purpose of rendering this opinion, we have examined originals,
certified copies or copies otherwise identified to our satisfaction as being
true copies of the original of the following documents (including all exhibits
and schedules attached thereto):
(a) the Agreements;
(b) the Certificates of Representations;
(c) Continuity of Interest Certificates from certain Company shareholders
(the "Continuity of Interest Certificates"); and
(d) such other instruments and documents related to the formation,
organization and operation of Parent, Merger Sub and the Company and related to
the consummation of the Merger and the transactions contemplated thereby as we
have deemed necessary or appropriate.
In connection with rendering this opinion, we have assumed (without any
independent investigation or review thereof):
<PAGE>
CompCore Multimedia, Inc.
November 29, 1996
Page 2
1. Original documents (including signatures) are authentic, documents
submitted to us as copies conform to the original documents, and there is (or
will be prior to the Closing) due execution and delivery of all documents where
due execution and delivery are a prerequisite of the effectiveness thereof;
2. The truth and accuracy at all relevant times, of all representations,
warranties and statements made or agreed to by Parent, Merger Sub and the
Company, their managements, employees, officers, directors and shareholders in
connection with the Merger, including but not limited to those set forth in the
Agreements (including the exhibits), the Certificates of Representations and the
Continuity of Interest Certificates; and that all covenants contained in such
agreements are performed without waiver or breach of any material provision
thereof;
3. All of the Company's debt will be treated as debt for federal income
tax purposes; and
4. There is no plan or intention on the part of the Company's
shareholders (a "Plan") to engage in a sale, exchange, transfer, distribution,
pledge, or other disposition (including a distribution by a corporation to its
shareholders) or any transaction which results in a reduction of risk of
ownership, or a direct or indirect disposition (a "Sale") of shares of Parent
Common Stock to be received in the Merger that would reduce the Company
shareholders' ownership of Parent Common Stock to a number of shares having an
aggregate fair market value, as of the Effective Time, of less than fifty
percent (50%) of the value of all of the stock of the Company outstanding
immediately prior to the Merger. Shares of the Company stock with respect to
which dissenters' rights are exercised in the Merger, which are exchanged for
cash in lieu of fractional shares of Parent Common Stock or which are sold,
redeemed or disposed of in a transaction that is in contemplation of or related
to the Merger shall be considered shares of the Company stock held by
shareholders of the Company immediately before the Merger which are exchanged in
the Merger for shares of Parent Common Stock which are then disposed of pursuant
to a Plan.
Based on our examination of the foregoing items and subject to the limitations,
qualifications, assumptions and caveats set forth herein, we are of the opinion
that for federal income tax purposes the Merger will be a reorganization within
the meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code.
This opinion does not address the various state, local or foreign tax
consequences that may result from the Merger. In addition, no opinion is
expressed as to any federal income tax consequence
<PAGE>
CompCore Multimedia, Inc.
November 29, 1996
Page 3
of the Merger except as specifically set forth herein, and this opinion may
not be relied upon except with respect to the consequences specifically
discussed herein.
No opinion is expressed as to any transaction other than the Merger as described
in the Agreements or to any other transaction whatsoever including the Merger if
all the transactions described in the Agreements are not consummated in
accordance with the terms of the Agreements and without waiver of any material
provisions thereof. To the extent any of the representations, warranties,
statements and assumptions material to our opinion and upon which we have relied
are not complete, correct, true and accurate in all material respects at all
relevant times, our opinion would be adversely affected and should not be relied
upon.
This opinion only represents our best judgment as to the federal income tax
consequences of the Merger and is not binding on the Internal Revenue Service or
the courts. The conclusions are based on the Code, existing judicial decisions,
administrative regulations and published rulings. No assurance can be given
that future legislative, judicial or administrative changes would not adversely
affect the accuracy of the conclusions stated herein. Nevertheless, by
rendering this opinion, we undertake no responsibility to advise you of any new
developments in the application or interpretation of the federal income tax
laws.
This opinion has been delivered to you solely for the purposes set forth in the
Agreement of Reorganization and may not be relied upon or utilized for any other
purpose or by any other person or entity, and may not be distributed or
otherwise made available to any other person or entity without our prior written
consent, except that we consent to the reference to our firm under the caption
"Certain Federal Income Tax Consequences" included in the Registration Statement
and to the filing of this opinion as an exhibit to the Registration Statement.
Sincerely,
COOLEY GODWARD LLP
By: /s/ WEBB B. MORROW III
--------------------------
Webb B. Morrow III
WBM/ekh
21212604
<PAGE>
EXHIBIT 99.2
ZORAN CORPORATION
PROXY FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 27, 1996
SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Levy Gerzberg and Ami Kraft, and each of
them, with full power of substitution, to represent the undersigned and to vote
all of the shares of stock in Zoran Corporation, a Delaware corporation (the
"Company"), which the undersigned is entitled to vote at the Special Meeting of
Stockholders of the Company to be held at the offices of Gray Cary Ware &
Freidenrich, A Professional Corporation, 400 Hamilton Avenue, Palo Alto,
California on December 27, 1996, commencing at 10:00 a.m., Pacific Time, and at
any adjournment or postponement thereof (1) as hereinafter specified upon the
proposals listed on the reverse side and as more particularly described in the
Joint Proxy Statement/Prospectus of the Company dated December 5, 1996, receipt
of which is hereby acknowledged, and (2) in their discretion upon such other
matters as may properly come before the meeting.
THE SHARES REPRESENTED HEREBY SHALL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, SUCH SHARES SHALL BE VOTED FOR THE PROPOSAL.
SEE REVERSE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
<PAGE>
/X/ Please mark
votes as in
this example.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO
SIGN AND PROMPTLY MAIL THIS PROXY IN THE RETURN ENVELOPE SO THAT YOUR STOCK
MAY BE REPRESENTED AT THE MEETING.
A vote FOR the following proposal is recommended by the Board of Directors:
To consider and approve the issuance of shares of common stock of Zoran
Corporation, a Delaware corporation ("Zoran"), $.001 par value per share ("Zoran
Common Stock"), pursuant to the Amended and Restated Agreement and Plan of
Reorganization dated as of November 27, 1996, by and among Zoran, See
Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary of
Zoran ("Sub"), and CompCore Multimedia, Inc., a California corporation
("CompCore"), pursuant to which, among other things, (a) Sub will be merged with
and into CompCore, which will be the surviving corporation and will become a
wholly-owned subsidiary of Zoran, and (b) each outstanding share of common stock
of CompCore, no par value, will be converted into the right to receive 0.6408 of
a share of Zoran Common Stock.
/ / FOR / / AGAINST / / ABSTAIN
MARK HERE / / MARK HERE IF / /
FOR ADDRESS YOU PLAN TO
CHANGE AND ATTEND THE
NOTE AT LEFT MEETING
PLEASE SIGN HERE. If shares of Signature: Date:
stock are held jointly, both or all ----------------------- ---------------
of such persons should sign. Signature: Date:
Corporate or partnership proxies ----------------------- ---------------
should be signed in full corporate
or partnership name by an
authorized person. Persons signing
in a fiduciary capacity should
indicate their full titles in such
capacity.
<PAGE>
EXHIBIT 99.3
COMPCORE MULTIMEDIA, INC.
PROXY FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 27, 1996
SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints George T. Haber and Sorin C. Cismas, and
each of them, with full power of substitution, to represent the undersigned and
to vote all of the shares of stock in CompCore Multimedia, Inc., a California
corporation (the "Company"), which the undersigned is entitled to vote at the
Special Meeting of Shareholders of the Company to be held at the offices of
Cooley Godward LLP, Five Palo Alto Square, 3000 El Camino Real, Palo Alto,
California on December 27, 1996, commencing at 11:00 a.m., Pacific Time, and at
any adjournment or postponement thereof (1) as hereinafter specified upon the
proposals listed on the reverse side and as more particularly described in the
Joint Proxy Statement/Prospectus of the Company dated December 5, 1996, receipt
of which is hereby acknowledged, and (2) in their discretion upon such other
matters as may properly came before the meeting.
THE SHARES REPRESENTED HEREBY SHALL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, SUCH SHARES SHALL BE VOTED FOR THE PROPOSAL.
SEE REVERSE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
<PAGE>
/X/ Please mark
votes as in
this example.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO
SIGN AND PROMPTLY MAIL THIS PROXY IN THE RETURN ENVELOPE SO THAT YOUR STOCK
MAY BE REPRESENTED AT THE MEETING.
A vote FOR the following proposal is recommended by the Board of Directors:
To (i) approve and adopt the Amended and Restated Agreement and Plan of
Reorganization dated as of November 27, 1996 by and among Zoran Corporation, a
Delaware corporation ("Zoran"), See Acquisition Corporation, a Delaware
corporation and wholly-owned subsidiary of Zoran ("Sub"), and CompCore
Multimedia, Inc., a California corporation ("CompCore"), pursuant to which,
among other things, (a) Sub will be merged with and into CompCore, which will be
the surviving corporation and will become a wholly-owned subsidiary of Zoran
(the "Merger"), and (b) each outstanding share of common stock of CompCore, no
par value, will be converted into the right to receive 0.6408 of a share of
Common Stock, par value $.001 per share, of Zoran, and (ii) approve the Merger.
/ / FOR / / AGAINST / / ABSTAIN
MARK HERE / / MARK HERE IF / /
FOR ADDRESS YOU PLAN TO
CHANGE AND ATTEND THE
NOTE AT LEFT MEETING
PLEASE SIGN HERE. If shares of Signature: Date:
stock are held jointly, both or all ----------------------- ---------------
of such persons should sign. Signature: Date:
Corporate or partnership proxies ----------------------- ---------------
should be signed in full corporate
or partnership name by an
authorized person. Persons signing
in a fiduciary capacity should
indicate their full titles in such
capacity.
