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Filed by: Zoran Corporation (Commission File No.: 0-27246)
Pursuant to Rule 425 under the Securities Act of 1933 and deemed filed
pursuant to Rule 14a-12 of the Securities Exchange Act of 1934
Subject Company: Nogatech, Inc.
Commission File No. 000-30635
Zoran expects to file a Registration Statement on Form S-4 in
connection with the transactions, and both Zoran and Nogatech
expect to mail a Proxy Statement/Prospectus to their respective
stockholders containing information about the merger. WE URGE
INVESTORS AND STOCKHOLDERS TO READ THE REGISTRATION STATEMENT
AND PROXY STATEMENT/PROSPECTUS CAREFULLY WHEN THEY BECOME
AVAILABLE, BECAUSE THEY CONTAIN IMPORTANT INFORMATION
CONCERNING ZORAN, NOGATECH, THE MERGER AND RELATED MATTERS.
INVESTORS AND SECURITY HOLDERS WILL BE ABLE TO OBTAIN FREE
COPIES OF THE REGISTRATION STATEMENT ON FORM S-4 AND THE PROXY
STATEMENT/PROSPECTUS THROUGH THE WEBSITE MAINTAINED BY THE
SECURITIES AND EXCHANGE COMMISSION AT www.sec.gov, AND FROM
ZORAN AT (408) 919-4116.
ZORAN AND ITS DIRECTOR AND CERTAIN OF ITS EXECUTIVE OFFICERS
MAY BE DEEMED, UNDER SEC RULES, TO BE SOLICITING PROXIES FROM
NOGATECH'S STOCKHOLDERS IN FAVOR OF THE PROPOSED MERGER.
INFORMATION REGARDING THE IDENTITY OF THESE PERSONS, AND THEIR
INTERESTS IN THE SOLICITATION, WILL BE SET FORTH IN A SCHEDULE
14A TO BE FILED WITH THE SEC AND AVAILABLE FREE OF CHARGE AT
THE SEC WEBSITE AND PUBLIC REFERENCE ROOMS, AND FROM ZORAN AND
THE TELEPHONE NUMBER ABOVE.
ZORAN CORPORATION
MODERATOR: KRISTYN HUTZELL
AUGUST 24, 2000
6:00 A.M. PT
Operator: Ladies and gentlemen, thank you for standing by. Welcome to
the Zoran Corporation and Nogatech Inc. conference call. At
this time, all participants are in a listen-only mode, and
later we will conduct a question-and-answer session. At that
time, if you have a question, you will need to press the 1
followed by the 4. I would now like to turn the conference
over to Ms. Kristyn Hutzell of the Carson Group. Please go
ahead, ma'am.
Kristyn Hutzell: Thank you. Good morning, everyone, and thank you for joining
us today to discuss the merger of Nogatech Inc. as a
wholly-owned subsidiary of Zoran Corporation as announced
earlier this morning. Joining us today from Zoran's management
are Dr. Levy Gerzberg, president and chief executive officer,
Karl Schneider, the company's chief financial officer, Dr.
Isaac Shenberg, senior vice president business & strategic
development, and Aharon Aharon, senior vice president and
chief operating officer. Joining us from Nogatech's management
team are Dr. Arie Heiman, president and chief executive
officer, and Nathan Hod, chairman of the board.
Now, before we begin, I'd like to remind you that any remarks
that may be made about future expectations, plans, or
prospects for the company during this conference call or that
were made in our press release constitute forward-looking
statements for the purposes of the Safe Harbor provisions of
the Private Securities Litigation Reform Act of 1995. The
company's actual results may differ materially from those
indicated by these forward-looking statements as a result of
various important factors including those discussed in the
company's annual report on Form 10K for the fiscal year ended
December, 1999, its quarterly report on Form 10Q for the
fiscal quarter ended September 30, 1999, and other filings
that have been made with the SEC.
I'd now like to turn the call over to Dr. Levy Gerzberg.
Please go ahead, Levy.
Levy Gerzberg: Thank you, Kristyn. First, I want to thank everyone for
joining us this morning. We are very excited about our
announcement today, and I appreciate the opportunity to
discuss the merger and its strategic importance to Zoran. I'm
only going to take a few minutes of your time this morning as
this is meant more as a forum to answer any questions you may
have regarding the transaction. So, after our remarks we will
open this call up directly for your questions.
We announced this morning that Zoran Corporation and Nogatech,
Inc. have agreed to enter into a strategic combination and to
combine their expertise to address the need for video
streaming products for digital video cameras, video capture
devices, PC-televisions, and mobile and Internet appliance
markets. As you are all well aware, Zoran has been pursuing a
strategy to strengthen its position as a leading supplier of
digital solutions for multimedia and Internet consumer market
applications. We believe this merger opportunity will help us
make significant progress towards achieving that goal more
rapidly.
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During the past year, Zoran has gained momentum in both the
DVD and Digital Camera markets, providing IC's to major
manufacturers around the world. Zoran was able to attain this
position by leveraging our pioneering efforts in compression
and desktop video editing technologies. Today we see the trend
toward convergence of DVDs, televisions, set top boxes,
digital cameras, and other mobile and Internet appliances as
additional opportunities for Zoran's video technologies and
Nogatech's connectivity expertise.
We have stated before our intention to expand into other high
growth digital audio and video markets. You may recall that
early in the first quarter we announced our agreement with
Infineon Technologies to develop a highly integrated
single-chip digital TV decoder. That agreement was designed to
address the emerging DVD, digital TV, and set top box markets
and was aimed at broadening our market and improving our
ability to leverage our DVD technology.
The merger with Nogatech is in the same vein, in that it is
meant to broaden and expand our capabilities, leverage our
existing technologies, and broaden our target markets.
Nogatech's expertise in high quality digital video streaming
technology for the mobile and Internet appliances market,
including digital televisions and PCs, and their development
efforts for MPEG-4 products, can help accelerate Zoran's
strategy to be a leader in the Multimedia and Internet
revolution.
Now for some background on Nogatech, I would like to introduce
Dr. Arie Heiman, President and Chief Executive Officer of
Nogatech, Inc.
Arie Heiman
Thank you Levy.
Founded in 1993, Nogatech pretty quickly became a leader in
video compression and connectivity technology. Over the past
seven years, Nogatech has developed a solid customer base
including SHARP, Fujitsu, Pinnacle, Kenwood, just to name a
few. Nogatech went public earlier this year and has been
working diligently in refining its expertise in video imaging
connectivity for PCs and networks.
I would like to reiterate Levy's comments, in that we view
this merger as an opportunity for both parties to make
significant leaps toward realizing our product road maps and
plans more rapidly. We believe that our teams together can
gain a more powerful position in the video IC market than
either company could individually, especially when you
consider the impact of our combined R&D, marketing and sales
efforts. We believe this merger delivers strategic benefits
for our customers, our investors and our employees.
The synergy between our two companies is strong and we believe
this will contribute to the success of this merger. Both
companies are adding significant value to the union. Together
we believe we can offer better solutions than the competition.
We promised that our remarks would be short so that there
would be time to answer any questions you may have. Now I will
turn the call back to the Operator.
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Mark Grossman
I wonder first if you could talk about the differences between MPEG2 and
MPEG4 and which market segments you would expect each to address. And then
the obvious question - are you going to give any guidance in terms of how
accretive or dilutive the acquisition will be.
Isaac Shenberg- MPEG2 is the technology that is used today in DVD and it is
the standard quality and resolution. MPEG4 will be the standard for the
future for various streaming applications, where more deep compression is
required, or when you want to collate multiple objects in the pictures.
Examples for applications for MPEG4 are digital still cameras, digital
camcorders, and mobile telephones.
Levy Gerzberg- As to the second part of the question, I'll ask Karl to answer
this, Karl.
Karl Schneider- Yes, Mark, we don't expect this transaction to close before
Q4, so we expect that it will be neutral on Zoran's operating results for
this quarter. For the year 2001, we expect his deal should be accretive.
Mark Grossman- Any sort of revenue guidance?
Karl- If you look at what the external expectations are for 2001, the revenue
number is somewhere in the 24 million dollar range.
Mark- Great, Thank you.
Question 2
Brian Alger, Pacific Growth
Brian - I'm just wondering on the competitive landscape. How does Nogatech
feel it's positioned; I know there's been a lot of development on the MPEG4,
and there's been a lot of posturing about the quality of some people's
compression. Maybe Zoran can comment on their thinking of other technologies
out there. There's probably 4 or 5 in the Valley alone. Why did you choose
Nogatech, and how is their solution different?
Levy- I will answer the first part, and then ask Arie to add to it. First of
all, in terms of our decision process and why we've chosen Nogatech.
Nogatech today has a number of existing technologies which are on the market,
in over 1 million devices already. Nogatech is probably the leader in the
area of capturing video from outside the PC into the PC. You might recall,
that Zoran was the pioneer in desktop video editing and capture video, where
our technology was used primarily inside the PC in editing boards, with our
JPEG plus chip. Nogatech has developed a very economical and high technology
which can also be scaled upward and is used in peripheral devices to capture
the video and TV programs and fit it into your PC. The market expectations
for this type of applications is that growth in this market will be fairly
high and we also see a trend for this type of application that capture
functions are being implemented outside the PC especially with the low cost
mobile PC. So Nogatech has a lot of know-how in the area of capturing and
streaming the video into the PC. In the area of MPEG4 which is becoming a
very exciting application like Digital Camera and digital camcorders, and all
kinds of internet
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mobile appliances. There we were excited about the MPEG4 technology from
Nogatech which is in a very advanced stage of development because it's done
in a way that their core technology can be used in a variety of applications.
Combined with the Zoran expertise in these areas, we believe we will have
the superior technology. I will ask Arie Heiman to add to this as far as the
difference in the different MPEG technologies.
Arie- Let me explain the architecture first. I think we have a very unique
situation; we have a very scalable architecture that captures dif't
applications and changes very easy. This is number one. In addition to that,
as you know, MPEG4 is the standard, saying that, there is a lot of freedom to
do innovative compression techniques under the MPEG4 umbrella. We've
developed many technology processes that we believe will be superior to our
competitors. It means that our technology will be much better than others.
All of that we believe will lead us to be a very successful position in the
market.
Brian- Arie, can you give us a little sense as to the quality of this? How do
we measure your solution versus others?
Arie- It's very simple. Yes we are working in all of these ways, and in all
of these ways, we have the optimization to provide the best quality up to
this point. MPEG4 has some kind of the standard, and we believe our quality
is much better than the others.
Question 3
Lenny Bracken, Feirstein Capital
Lenny- Thanks. Can you be a little more specific as to the synergies of the
various products on the market. A little more specificity on that subject?
Levy- Yes, Lenny in terms of synergy related to the product. Today, Zoran
with the JPEG devices we have that was developed several years ago for
desktop video editing. Most of these devices are being used to inside the PC
to capture video and to do various quality video editing. The Nogatech
devices are lower-cost devices that are much more suitable for external
devices. There are many types of products on the market from companies like
Pinnacle, Hotbug and other companies on the market that are selling the
Nogatech devices. These are very low cost. The limitation of the Nogatech
includes not only the compression itself, but also the USB experience.
Nogatech has a lot of experience in how the hardware and software are related
to the connectivity with the PC which has been a real problem on the market.
Belkin for example is another large customer of Nogatech. They used to be in
the cable industry, and they added a product which looks almost like a cable;
it's a little thicker in one area. This is where the Nogatech chip is and
basically just like connecting this cable from Belkin, now you can capture
video real-time programming and you can see a window of the program while you
are surfing the net. So you can surf the net and watch football game at the
same time. Now, so the ability for this type of external devices is where
Nogatech has technology that Zoran did not have. And also in terms of the
MPEG 4 technology, the stage of development by Nogatech is more advanced than
Zoran, and it's done in a way that as we mentioned earlier that we can use
the technology as a core, and add to it some of Zoran's technology around it
in silicon to many different applications. So this will save us time to
market and engineering effort and enable us to
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get into all kinds of new digital camcorders and mobile phones and digital
cameras and other applications for digital streaming.
Question 4
Terry Eiseman, Tiedemann
Terry- I just wanted to understand how far away we are from a MPEG product.
How long will it take you to get the product out the door? As well as how
long were you in discussions regarding this. Also, is this a fixed ratio? Is
there any collar on the ratio?
Levy- Let me start w/ the last part of the question. It's a fixed ratio.
There's no collar or any other adjustments. Now in terms of our
relationship with Nogatech, we've known Nogatech for quite some time. First
as a potential partner, because we've seen them in the market. We did not
have discussions on the merger until very recently. The discussions have
been really short. We've seen Nogatech in the market honestly in some
accounts where we were selling JPEG devices, and our customers switched to
Nogatech because their solutions were more suitable for portable and external
devices. Actually we planned our original desktop video editing technology
to eventually phase out of the market. We planned that and we discussed that
in public because we didn't have the bandwidth to go the next level there,
except in our digital cameras which are also peripheral devices. So seeing
the increasing strength of Nogatech in the market, and as a stand alone
company in the market, and as a competitor, led us to this discussion
recently. In addition to the fact that we are developing strong momentum in
the digital camera market led us to the decision that we needed to come out
as soon as we can with an MPPEG 4 technology for new kinds of cameras. With
the combination of Nogatech, we are going to significantly shorten the time
to market and our camera technology will enable us to introduce many new
products. Now with the specific timing you asked about, we expect the
devices to be on the market during the second half of next year. Nogatech
has been developing relationships with customers that will be ready to take
these products when they are out. Following the introduction of course, we
are planning a whole roadmap that will be based on that.
Terry- On the customer issue. Did you guys speak to their major customers?
Are there any overlaps? Are there any synergies there?
Levy- In terms of our customers and Nogatech's customers, it is very
interesting to see our corporate presentation and Nogatech's corporate
presentation. Some of the names are the same for the same products. We
believe these names will continue to be on our customer list for quite some
time. Some of the names that are common to both companies include, Pinnacle,
Sharp, Hotbug, and a few others. So there is an overlap and Nogatech has a
number of customers that we are not selling to today. Such as IU Data, and
Fujifilm, and Belkin and Kenwood to name a few.
Terry- So one would think that the customers will be very supportive of this
acquisition.
Levy - Oh, we believe our customers will love it. Plus the new customers
that we have already. In addition, thanks to the broad Zoran base, in
millions of living rooms all over we will be able
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to get the Nogatech product current and future planned product into those
accounts shortly. So our sales and marketing folks will be extremely happy
to add more products to their portfolio. We believe we will sell more to our
existing customer base and expand the customer base.
Terry- Sure, and your due diligence is completed?
Levy- Oh yeah, definitely. The reason why we were able to do this
acquisition relatively fast is because we are very familiar with this market.
Many of the customers as I mentioned are common customers to both companies.
It was very easy to get the real story from the market, and because the
geographical operations of our office in Israel, we are about less than one
hour drive from each other there and the development centers. Also since
Nogatech is a public company, a lot of information is available and it made
the process very efficient.
Terry- Thank you.
Question 5
Scott Randall, Wit Soundview
Scott- Good morning. Levy can you discuss some of the market opportunities
Nogatech positions you for.
Levy- First of all we are excited because Nogatech is a real company and is
selling already. We aren't talking about future potential. We are talking
about real sales, and real customers in the Nogatech solution. So we are
excited about that as a starting condition. And of course, the MPEG4
technology and the beauty of it and in terms of the scalability and ability
to expand it in many many applications; we are very excited about that. And
the synergy with our COACH device, the camera on a chip device, is another
outstanding possibility. As you may know, we have been aiming at the high
quality cameras. We announces recently several new cameras that we are in
with our COACH device. These are cameras with high resolution; more than one
megapixel. And about the current technology will enable us to capture
another market segment which is the lower cost camera segment, which we have
not been aiming at so far. Plus will enable us to augment the COACH family
capabilities with the MPEG4. As to the size of the opportunity, in the
camera market the market we've been aiming so far is about a 5 million unit
opportunity, going to 8 or more million units this year for the high quality
cameras, and growing in a couple of years to over 20 million cameras. The
opportunity there is already big and it is going to be expanded and increased
significantly because we will also address the lower end market with this
technology. Especially with the synergy of our sensor technology. If you
recall, we acquired a CMOS sensor company a couple months ago, PixelCam, and
their sensor technology is excellent for the higher quality cameras, and of
course for the lower cost cameras. With the addition of the Nogatech
technology, we believe we will find ourselves in many devices for video
conferencing, for mobile telephony, for all kinds of mobile peripherals. As
to the other market, the PC PV market, I'll ask Isaac Shenberg to talk about
the opportunity for the market size there. Isaac.
Isaac- For the other market that will be open for the technology is the PC
PV market that will be about 4 million units, and we are talking here analog.
The digital TV market may also start
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growing next year, and this opens up a whole new set of capabilities. And
there was recently an announcement of Nogatech regarding this. Another
market opportunity that we could not find estimates to, but that may
potentially become huge has to do with the Microsoft Windows Millennium. The
Nogatech products are really the perfect solution for the Windows product
capability, and one of Nogatech's customers was mentioned in the Microsoft
press release on the Windows Millenium that just hit the wire. So if this
product will become even a small percentage of the sales of the Windows
Millennium, it may represent a very big upside to what Nogatech has. The low
cost segment of the digital camera market represents market segment of I
would say 5 million units today and growing over the next year to parallel
the number of units Levy mentioned for the high capability cameras. Other
applications for other MPEG4 are the digital camcorders which are supposed to
replace the analog camcorders even though it is about 4 or 5 years ahead of
time. This market segment today is around 10 million units per year, and that
is MPEG technology. The biggest opportunity is the third generation of
mobile phones, which market opportunity is really huge.
Scott- On Nogatech's current product lines. Is there a broadening to what
Zoran may do as well, or will Nogatech revert to being mainly a chip company
like Zoran?
Levy-Nogatech and Zoran are primarily solution on a chip companies and this
is our main business. We are planning to fully support the existing Nogatech
customer base and we have been designing reference designs for many years.
This is what helped us in the DVD market, including in China and Japan.
Because of the system expertise that we have and the ability to help out
customers to basically productize our systems designs and take it to the
market really fast. Nogatech has some system level product, that are very
small systems and we will continue to support it. Our plan is not to become
a system company by selling many many boxes, but basically to provide
reference designs and if we have complete designs for customers, we will
provide them on an OEM basis. I'll ask Arie to add to this.
Arie- Nogatech is not selling today a product to the end users. There are
some customers that would like to have end solutions to time to market help
from us. We have tiny quantities under their name, but we do not have our
brand name on the market. Basically Nogatech will continue to focus on the
chips because this is our strength and here we have the best margins.
Scott- Karl, if you look at operating expenses from a margin model
perspective, is Nogatech above or below or equal tot he net margin
contribution to Zoran?
Karl- Actually from a product margin perspective, Nogatech is very similar
to Zoran. If you look at the models their analysts have been talking about
in their reports and models. So we think they will fit in quite nicely.
Question 6
Tim Miller- CE Unterberg Towbin
Tim- How far away from a MPEG 4 product were you before this? How far along
were you in your development?
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Levy- We were at relatively early stage, it was more in architectural level.
It was to develop audio visual cores. So the relationship with Nogatech, and
the combination of the two companies is happening at an excellent time for
us. Because we are at the stage where we can optimize the various MPEG 4
devices that we want to get into using the Nogatech MPEG 4 core. So we were
at an early stage which the combination is moving way ahead to a point where
the design is very close to completion.
Tim- Great. Thank you
Question 7
John DeMassey - Sticksteen and Co.
John- Just in terms of stock price of Zoran moving up or down, is there any
price where a walk away may be triggered?
Levy- No, there is no such clause.
John- So the deal will move forward as long as the vote is obtained.
Levy- That is correct. We are very excited about this deal. In terms of the
synergies of the companies and technologies it is excellent and we mentioned
in the press release that most of the Nogatech team is in the center of the
county. So having two design centers in Israel will make it easier for Zoran
to recruit new employees and give us a significant advantage from that point
of view. Also our teams are very complementary. We see very little
overlap, and both teams will be enhanced. We are working now to combine the
two teams in an effective manner, and Aharon is working now on putting the
two teams together.
