10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For The Fiscal Year Ended December 31, 2006

Or

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to            

Commission File Number: 0-27246

ZORAN CORPORATION

(Exact Name of registrant as specified in its charter)

Delaware	94-2794449
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
1390 Kifer Road, Sunnyvale, California	94086
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (408) 523 6500

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

	Title of each class		Name of Exchange on which registered
None		None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.001 par value

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o  No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o  No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer (as defined by Rule 12b-2 of the Act).

Large accelerated filer  x Accelerated filer  o Non-accelerated filer  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o  No x

The aggregate market value of registrant’s voting stock held by non-affiliates of registrant based upon the closing sale price of the Common Stock on June 30, 2006, as reported on the Nasdaq Global Select Market, was approximately $1,196,461,000.

Outstanding shares of registrant’s Common Stock, $0.001 par value, as of March 31, 2007: 49,448,791.

DOCUMENTS INCORPORATED BY REFERENCE

Parts of the definitive proxy statement for registrant’s 2007 Annual Meeting of Stockholders, to be filed with the Commission pursuant to Regulation 14A, are incorporated by reference into Part III of this Report. Except with respect to information specifically incorporated by reference in this Report, the Proxy Statement is not deemed to be filed as part hereof.

ZORAN CORPORATION
INDEX TO
ANNUAL REPORT ON FORM 10-K
FOR YEAR ENDED DECEMBER 31, 2006

		Page
	Special Note Regarding Forward-Looking Statements		ii
	Explanatory Note Regarding Restatements		ii
	PART I
Item 1.	Business		1
Item 1A.	Risk Factors		18
Item 1B.	Unresolved Staff Comments		34
Item 2.	Properties		34
Item 3.	Legal Proceedings		34
Item 4.	Submission of Matters to a Vote of Security Holders		36
	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		37
Item 6.	Selected Financial Data		37
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		40
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		59
Item 8.	Financial Statements and Supplementary Data		60
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		115
Item 9A.	Controls and Procedures		115
Item 9B.	Other Information		116
	PART III
Item 10.	Directors, Executive Officers of the Registrant and Corporate Governance		117
Item 11.	Executive Compensation		117
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		117
Item 13.	Certain Relationships and Related Transactions, and Director Independence		117
Item 14.	Principal Accountant Fees and Services		117
	PART IV
Item 15.	Exhibits and Financial Statement Schedules		118
Signatures			120

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Special Note Regarding Forward-Looking Statements

The Business section and other parts of this Annual Report on Form 10-K (“Form 10-K”) contain forward-looking statements that involve risks and uncertainties. Many of the forward-looking statements are located in “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements can also be identified by words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” and similar terms. Forward-looking statements are not guarantees of future performance and the Company’s actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in the subsection entitled “Risk Factors” under “Item 1A—Risk Factors” of this Annual Report on Form 10-K. The Company assumes no obligation to revise or update any forward-looking statements for any reason, except as required by law.

Explanatory Note Regarding Restatement

In this Annual Report on Form 10-K, we are restating prior fiscal periods to reflect additional stock-based compensation expense relating to stock option grants made during the period January 1, 1997 to December 31, 2003. We are also restating the pro forma disclosures for stock-based compensation expense required under Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” and SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure.” The effects of these restatements are reflected in the consolidated financial statements, selected financial data and other financial data, including quarterly data, included in this report. For additional information, see “Note 2—Restatement of Consolidated Financial Statements” in Notes to Consolidated Financial Statements. We have also included restated financial information under “Item 6. Selected Financial Data,” for the periods 2002-2006. “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” includes the income statement impact of the restatements during the period 1997 to 2005,   “Item 8. Financial Statements and Supplementary Data—Selected Quarterly Information (Unaudited),” includes restated quarterly financial information for each interim period during the years 2005 and 2006. We have not amended any of our other previously filed Annual Reports on Form 10-K for the periods affected by the restatement or our Quarterly Reports on Form 10-Q filed prior to December 31, 2005. For this reason, the consolidated financial statements and related financial information contained in such previously filed reports should no longer be relied upon.

On July 3, 2006, we announced that, at the recommendation of the Audit Committee, the Board of Directors had created a special committee of independent directors (“Special Committee”) to conduct a review of our historical stock option practices. Based on the results of the review, we have concluded that certain stock options granted during the period January 1, 1997 to December 31, 2003 were not correctly accounted for in accordance with accounting principles generally accepted in the United States applicable at the time those grants were made. As a result, we are restating our historical financial statements to record adjustments for additional stock-based compensation expense relating to past stock option grants in accordance with APB No. 25, “Accounting for Stock Issued to Employees,” to record additional stock-based compensation expense associated with options granted to a consultant and to record additional adjustments that were previously considered to be immaterial.

ii

PART I

Item 1—Business

Company Overview

Zoran Corporation is a leading provider of digital solutions in the digital entertainment and digital imaging market.

Our products consist of integrated circuits and related products used in digital versatile disc, or DVD, players, movie and home theater systems, digital cameras and video editing systems. We also provide integrated circuits, software and platforms for digital television applications that enable the delivery and display of digital video content through a set-top box or television as well as digital imaging products consisting of semiconductor hardware and software that enable users to print, scan, process and transmit documents to computer peripherals that perform printing functions. Subsequent to our acquisition of Emblaze Semiconductor Ltd. on July 8, 2004, we also provide high performance, low-power application processors, technology and products for the multimedia mobile phone market. Through the acquisition of Oren Semiconductor, Inc. on June 10, 2005, we obtained Oren’s demodulator IC technology for the global high definition television market. We sell our products to original equipment manufacturers, or OEMs that incorporate them into digital video and audio products for consumer and commercial applications.

We were incorporated in California in December 1981 and reincorporated in Delaware in November 1986. Our corporate headquarters are located at 1390 Kifer Road, Sunnyvale, California 94086, and our telephone number is (408) 523-6500. Our website can be found at www.zoran.com. Our Annual Reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, are available free of charge on our website under “Investors / SEC Filings” as soon as reasonably practicable after they are filed with the Securities and Exchange Commission. Additionally, these filings may be obtained by visiting the Public Reference Room of the SEC at 100 F Street, NE, Washington, DC 20549 or by calling the SEC at 1-800-SEC-0330, by sending an electronic message to the SEC at publicinfo@sec.gov or by sending a fax to the SEC at 1-202-777-1027. In addition, the SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically.

Industry Background

Until the mid-1990s, video images and audio soundtracks were transmitted, edited and stored almost exclusively using analog formats. Since then, advances in technology have allowed audio and video 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 audio and video signals through digital signal processing and offer a number of fundamental advantages over analog technologies. Through complex digital signal processing operations, digital audio and video signals may be compressed, providing significant storage and transmission efficiencies. They also may be filtered, allowing for noise reduction, and they may be transmitted and reproduced without perceptible image or sound degradation. Digital formats provide users with additional benefits, including higher quality audio and video, random access to data, superior editing capabilities and enhanced security features such as protection against unauthorized copying and controlled and secure access.

One of the most significant barriers to the widespread adoption of digital technology had been the huge amount of data required to represent images and sounds in a digital format, making cost-effective storage or transmission impractical. Through digital compression techniques, a substantial number of the redundancies inherent in audio and video data can be identified and eliminated, significantly reducing the overall amount of data which needs to be retained. Compression techniques introduced in the early 1990s allowed a two-hour movie to be compressed and stored on only two video CDs with video resolution

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comparable to that of a standard VHS tape. More recent techniques allow the storage of a full-length movie of more than three hours on a single DVD, with substantially improved audio and video quality and the incorporation of additional data, such as additional languages, scenes and director and actor commentary. Additionally, digital compression of video data allows previously unmanageable amounts of data to be stored in the memory of a disk drive, thereby permitting the data to be accessed and edited easily. It also allows for easier transmission of sharper resolution pictures through a standard definition or high definition television or set-top box. Digital audio compression allows efficient storage and delivery of multi-channel audio, making possible high-quality special effects such as multi-channel surround sound, virtual surround sound and wireless audio delivery via two speakers or headphones. In the field of still photography, digital compression allows dozens or hundreds of digital pictures to be stored on a single memory card, depending on the resolution desired.

To drive the implementation and speed the adoption of products based on digital formats, industry participants organized committees to define international compression standards. The principal standards in use today include the following:

·The Joint Photographic Experts Group, or JPEG, standard for the high quality compression of still images and the real-time, low-cost compression and decompression of moving images;

·The MPEG 1 standard, adopted by the Moving Pictures Experts Group, or MPEG, for the compression of both audio and video data at the high compression ratios necessary for the limited storage capacity of the CD-ROM format;

·The MPEG 2 standard, subsequently adopted by the Motion Pictures Experts Group, for the compression of both audio and video data, designed to provide improved quality in broadcast and video playback applications;

·The MPEG 4 standard, which is an extension of MPEG 1 and MPEG 2 that provides the ability to view, access and manipulate objects rather than pixels, which is especially significant in video streaming, digital television, mobile multimedia and video game applications. MPEG 4 part 10 standard, also known as Advanced Video Codec (AVC) or H.264, is an addition to the MPEG 4 standard, offering significantly improved compression efficiencies;

·DivX standard, which is a proprietary codec similar to MPEG-4 used for encoding high quality digital video at low bit rates. DivX encoded content can be viewed on the PC with a software player, on select DVD Players, portable media players and is used by some Internet-based video on demand services;

·Windows Media, Microsoft’s standard digital media software platform for developing digital media products and services; and

·Dolby Digital, developed by Dolby Laboratories, an industry standard for the compression of audio for use in multi-channel digital surround sound systems.

These industry standard techniques have enabled the dramatic growth in digital multimedia markets, including the following:

DVD Players and Recorders.DVD players and recorders primarily use MPEG 2 video compression and Dolby Digital audio technology to provide significantly higher quality playback or recording than is possible with VCR or video CD technology. According to In-Stat, sales of DVD players are estimated to be 140 million units in 2006 and expected to remain flat to slightly up in 2007 and shipments of DVD recorders are expected to increase from 18 million units in 2006 to 23 million units in 2007.

Standard Definition and High Definition Televisions and Set Top Boxes.Digital televisions receive digital content and process it to display a picture which has far greater resolution and sharper, more clearly

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defined images than televisions based on the older analog technology. Standard definition televisions generally contain 480 lines with 720 pixels per line. High definition television, or HDTV, television sets contain 1280 to 1920 pixels per line and up to 1080 lines. The aspect ratio of standard definition sets is 4:3, compared to 16:9 for HDTV. The lines may be displayed using different techniques, often referred to as interlacing or alternatively progressive scan. The functionality to receive and process digital television signals can be contained in a set-top box which then drives a television display that is capable of displaying digital content. Alternatively, this functionality can be integrated into a digital television that does not require a set-top box. Digital content is broadcast via satellite, cable networks or over the air (terrestrial broadcast) in various markets throughout the world. Intex Management Services, LTD., or IMS, estimates that over 140 million digital televisions and set-top boxes were shipped worldwide in 2006 and that over 177 million units will be shipped in 2007.

Mobile Products.Digital cameras use JPEG compression technology to capture high resolution still images that can be viewed, edited and stored on a computer system on a recordable DVD and transmitted over telephone lines and computer networks. Recently, digital cameras have been introduced that are capable of capturing and playing back quality video, using the MPEG 4 algorithm. According to IDC, sales of digital cameras are expected to exceed 105 million units in 2006 and 113 million units during 2007. The multimedia mobile phone market segment is expected to grow from 151 million units in 2006 to 463 million units in 2010, representing 37 percent of worldwide mobile phone shipments in 2010, according to IDC.

Additional products and markets are developing based on these established compression standards and additional compression technologies such as Meridian Lossless PCM, or MLP, a new standard for DVD audio, Super Audio, or SACD, Microsoft Windows Media Audio, or WMA, Advanced Audio Codec (AAC) used in conjunction with the MPEG-4 video standard and MP3, a compression standard for the download of audio recordings from the Internet.

These established and emerging compression standards specify data formats which enable products from different vendors to interact and permit the capture, transmission, storage and display of audio and video data in digital format. These standards do not specify the compression methodologies to be employed or additional functionality that may be used to enhance or manipulate digital signals. These standards, therefore, do not determine image or sound quality or compression efficiency. For example, data compression may comply with relevant standards despite being poorly processed and containing artifacts that 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 on the basis of the quality of their compression solution.

Historically, as system vendors sought compression solutions, the cost, complexity and time required to compress and decompress data 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 audio and video systems and products to address an increasing number of high volume consumer applications. In addition, product manufacturers are facing competitive pressure to introduce their products more rapidly. To address these issues, OEMs continually seek to integrate more and more functions on individual chips in order to reduce their costs, time-to-market and power consumption. They also seek solutions that can easily be integrated into their commercial and consumer products. The challenge to manufacturers of compression integrated circuits is, therefore, to provide product manufacturers with high-quality, cost-effective, standards-based solutions that enable flexible control, image enhancement, audio effects and other functions in addition to high quality compression solutions.

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Zoran Solutions

We provide feature-rich, cost-effective, standards-based solutions for a broad range of digital video, audio and imaging applications. We were a pioneer in the development of high performance digital signal processor (DSP) products, and have developed expertise in integrated mixed signal circuit design, mathematical algorithms and software development, as well as proprietary digital signal processing, and video and audio compression technologies. We apply our multi-disciplinary expertise and proprietary technologies to the development of fully-integrated solutions for high-growth multimedia markets. The key elements of our solutions include the following:

Standards-Plus Methodology.We have leveraged our broad multi-disciplinary expertise and proprietary digital signal processing and compression technologies to develop what we refer to as “standards-plus” solutions. We have enabled OEMs to improve image and sound quality and deliver superior products to end users by adding more features around compression standards, such as more efficient use of memory, processing and communication resources, as well as audio and image enhancement algorithms. We have also provided OEMs the ability to include OEM-programmable effects and features, as well as variable compression ratios for video. These “standards-plus” features allow our customers to differentiate their products from those of their competitors.

Expandable and Programmable Architectures.We design our integrated circuits to enable easy adaptation for a broad range of specific applications. We can vary the architecture of our chips by adding or deleting modules, and we can also modify the software embedded in the chips themselves to address specific applications. We also license ready-to-manufacture “cores”—building blocks of integrated circuits—that can be integrated into our customers’ chips. Combined with the enhanced functionality of our “standards-plus” technology, our expandable and programmable architecture facilitates product design, upgrades and customization, substantially accelerating our customers’ time to market with differentiated products.

Integrated System Solutions.We help our customers meet their total system requirements by providing integrated products that combine hardware and software to address required system functions and features on a single integrated circuit or chip set, reducing the number of integrated circuits, and in some cases providing a complete solution on a single chip. As a result, our customers’ total system cost is reduced and they can concentrate on differentiating their products from those of their competitors. For example, our COACH IC includes most of the electronics of a digital camera on a single chip.

Cost-Effective Products.We focus on reducing the feature size, power requirements and number of integrated circuits necessary to perform required system functions, including compression functions. This reduces our customers’ manufacturing costs for their products which incorporate our integrated circuits, and also reduces the costs of operating those products so that our products can be used in a broader range of high volume applications. The modular nature of our architecture reduces our new product development costs, and enables our design engineers to meet our customers’ new product specifications and cost parameters.

Near Production Ready System Reference Designs.We provide our customers with a broad range of engineering reference boards and products complete with device driver software, embedded software and detailed schematics. These products substantially shorten our customers’ product design time.

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Strategy

We provide cost-effective, high-performance digital audio, video and imaging solutions addressing selected high-growth applications enabled by compression in evolving multimedia markets. Key elements of our strategy include the following:

Focus on High-Growth and High Volume Applications.Our strategy is to focus on providing digital video, audio and imaging solutions for high-growth consumer electronics and printing applications. Our current focus markets include: DVD players and recorders, digital cameras, digital televisions and set-top boxes, portable multimedia devices and multifunction printing devices.

Leverage Existing Technology and Expertise.We intend to continue to identify those markets that we believe have the highest growth potential for our products and to actively pursue those markets. Our proprietary digital signal processing and compression technologies can be used to serve a number of emerging markets for digital video and audio. Potential markets include home network audio and video appliances, as well as personal digital video, audio and imaging devices.

Further Penetrate Key International Markets.Between 1998 and 2006, we expanded offices in Canada, England, Germany, Hong Kong, India, Japan, Korea, China and Taiwan. At the end of 2006 we had 476 full-time, part-time and contract employees working in these offices. We believe that by opening and expanding our presence in these offices we are better able to provide marketing and application support for our customers in these growing consumer electronics markets.

Extend Technological Leadership.Our years of experience in the fields of digital signal processing, integrated circuit design, algorithms and software development have enabled us to become a leader in the development of digital audio and video solutions enabled by compression. Using our multi-disciplinary expertise, we have developed new technologies for compression of digital audio, video and imaging. In August 2004, we acquired Emblaze Semiconductor which provided us important technologies for extending our capabilities into the growing multimedia mobile phone market. In June 2005, we acquired Oren Semiconductor, Inc. which provided us demodulator IC technology for the global high definition television market. We intend to continue to invest in our research and development, and to evaluate opportunities to acquire additional technologies in order to maintain and extend our technological leadership.

Expand Strategic Partnerships.We work closely in the product development process with leading manufacturers of products that incorporate our integrated circuits. We also work closely with key customers and provide them early access to our technologies. Potential products are designed to meet customer-driven product requirements defined by us with our partners providing technological input and, in selected cases, a portion of the development funding. This strategy has enabled us 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, our strategic partners also provide sales and marketing support. We have also established long-term relationships with strategic partners that provide manufacturing capacity and we continually seek to develop additional strategic relationships with manufacturers.

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Markets and Applications

Our products are currently used in a variety of consumer multimedia applications, including the following:

Consumer Video Playback Systems

DVD players primarily use MPEG 2 video compression and Dolby Digital or similar audio technology to provide significantly higher quality playback than is possible with earlier generation products such as VCRs, Video CD or Super Video CD players. DVD players are sold as stand-alone products and are also bundled with other functions including DVD+VCRs, DVD-receivers and DVD+TV combinations. In addition, the DVD player can act as a platform for playback and editing of digital still images from digital cameras through integrated memory card slots or via direct connection to digital cameras.

Digital Video Recording Systems

Digital video recording systems are expected to replace the analog VCR. Digital video recording systems not only store home movies and TV programs but allow them to be easily edited. In addition, digital video recording systems enable high quality time shifting of TV program viewing by recording the program so that it can be watched simultaneously or on a delayed basis. The recording media used in digital video recording systems includes DVD recordable media and hard disks. Digital video recording systems use MPEG 2 as the video compression format and Dolby Digital or MPEG audio as the audio format.

Digital Televisiosn

The digital television market represents the most significant technological shift in the consumer electronics market since color televisions were introduced in the late 1950s. Today, digital content providers broadcast programming via satellite, cable or terrestrial (over-the-air) networks. The mix of broadcast networks varies by geographic region. For example, most digital television content in Japan and Korea is broadcast via terrestrial networks, while cable networks currently predominate in the United States. Satellite networks offer an alternative source of content to consumers and are continuing to grow in various regions. Each geographic market is subject to regulations that require compliance with different governmental standards applicable to broadcast technology and content format. In each region, individual broadcasters also have developed their own proprietary standards for content, security and conditional access. This market requires television products, set-top boxes, personal video recorders and other digital consumer appliances to include sophisticated integrated circuits and embedded software that address the emerging requirements of multiple broadcast networks throughout the world. The requirement by the U.S. Federal Communications Commission, or FCC, that all new televisions contain a built-in digital receiver, has accelerated the growth of the digital television market in the U.S. We expect this growth to continue over the next several years.

Digital Imaging Print Products

The market for personal printers is beginning to undergo a shift from traditional PC-centric peripherals toward new PC-independent printing appliances. Fueling this shift is the rapid growth of digital photography, home Internet and wireless connectivity. As these new technologies make their way into the home, they are creating demand for a new class of appliance-type printers that allow image rich content such as web pages, digital photos, and scanned documents to be printed without using a PC. According to IDC, IC controllers for multifunction print devices, including ink jet for personal as well as monochrome and color laser applications in the office, are addressing a market estimated at 63 million units in 2006 and growing to 83 million units in 2010.

The market for embedded software for page description languages, or PDLs, is somewhat more mature than other areas of the imaging market. It is characterized by a small number of suppliers selling to very large OEM customers designing print devices that need to be connected to a network. The

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page description language, or PDL, enables the printer to receive a file or job from a PC and translate that file into a set of instructions that the printer can understand and lay down on paper with a great deal of precision. In general, applications are designed to send jobs to printers using one or both of two major protocol or language families. Print Control Language, or PCL, originated as a Hewlett-Packard developed protocol for page printers and has become an industry standard in office environments. Both PCL 5 and PCL XL, or PCL 6, are supported in office printers today. The application may also use the PostScript language originally developed by Adobe, which tends to be focused more on graphic arts and Apple operating system environments. Recently, page printers have also offered support for portable digital document formats that support a more complex graphics model and are designed to be widely viewed and shared. These include PDF, originally developed by Adobe, and XML Paper Specification, or XPS, introduced by Microsoft in Windows Vista.

Mobile Products

Digital cameras enable 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 printers. Digital cameras have added video capture and compression capability enabling them to provide basic camcorder functionality. Digital cameras can be connected directly to a PC for downloading of pictures or movies and to a television for display. The original digital cameras were developed for the professional market, and sold at prices of $1,000 to $3,000. As technology has advanced and manufacturing costs have decreased, digital cameras for the consumer market have been introduced in the $69 to $600 price range.

Many mobile phones now incorporate digital still camera functionality and even video clips. These phones can be connected to a PC for downloading the pictures or video clips or the files can be transmitted over the mobile phone network to another mobile phone or sent to an e-mail account. Digital camera functionality was originally included in mobile phones that sold for over $500. With the spread of the technology and decreased manufacturing costs, digital camera enabled mobile phones now are available in every price range.

Products

Our product offerings consist of four principal product families:

·DVD—high-performance integrated system-on-a-chip solutions, including video and audio compression and decompression products based on MPEG, Dolby Digital and DivX standards and front-end technology for use in DVD players and DVD recorders.

·DTV—high-performance, highly integrated ASICs and system-on-a-chip  solutions for standard and high definition digital television products including televisions, set top boxes, personal video recorders, digital video recorders, and recordable DVDs, as well as platforms, drivers and software stacks for a variety of operating systems required for digital television applications.

·Mobile—highly integrated digital camera processor and multimedia mobile phone processors including image signal processing, image and video compression and decompression products based on JPEG, MPEG 4 and other technologies for the digital camera and multimedia mobile phone markets.

·Digital imaging—IC-based controller products and digital page processing software for the digital imaging, production and printing market.

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The following table lists our principal multimedia integrated circuits currently in production, including the months in which initial production units were first made available to customers:

Product Family	Products	Initial Commercial Shipment	Principal Applications
DVD	Vaddis® 5R video playback chip (ZR36750)	July 2003	DVD recorders
	Activa® 100—MPEG 2 encoder (ZR35100)	February 2004	DVD recorders
	Vaddis® 7 integrated DVD decoder (ZR36776)	March 2004	DVD players
	HDXtreme® (ZR36721)	March 2004	DVD players and recorders
	Vaddis® 8 integrated DVD decoder (ZR36868)	August 2004	DVD players
	Vaddis® 9 integrated DVD processor (ZR36966)	December 2005	DVD players
	Activa® 200—DVD Recorder SoC (ZR35220)	December 2006	DVD recorders
DTV	Generation 9® integrated HD decoder with 64 Bit CPU and Audio DSP Core (TL 955)	June 2002	HDTV and HD set-top boxes
	Generation 9® integrated HD decoder with 64 bit CPU and audio DSP core (TL 945)	July 2002	HDTV and HD set-top boxes
	SupraTV® integrated SD decoder with 32-bit CPU and audio DSP core (ZR39140)	September 2003	SDTV and SD set-top boxes
	Generation 9® Elite integrated HD decoder with dual 32 bit CPU and audio DSP core (ZR 391055)	October 2004	HDTV and HD set-top boxes
	Cascade Demodulator (CAS-220)	June 2005	ATSC Demodulator for HDTV and set-top boxes
	SupraHD® integrated decoder (ZR39660)	August 2005	HDTV and SoC
	SupraHD® integrated decoder (ZR39640)	August 2005	ATSC decoder for CRT and set-top boxes
	Supra TV® 160 integrated processors (ZR39160)	May 2006	ATSC decoder for CRT and set-top boxes
	SupraHD® 740 Integrated processor (ZR39740)	December 2006	SDTV and SD set-top boxes
Mobile	Digital camera processor—COACH 5 (ZR36430)	June 2002	Digital cameras, security
	Digital camera processor—COACH 6 (ZR36440)	October 2003	Digital cameras, security
	Digital camera processor—COACH 7 (ZR36450)	July 2004	Digital cameras, security
	Approach® multimedia application coprocessor- (ER4521)	July 2004	Cellular and multi-media applications

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	Approach® multimedia application accelerator- (ER4525 and ER 4527)	July 2004	Cellular and multi-media applications
	Digital camera processor—COACH 8 (ZR36460)	May 2005	Digital cameras, security
	Digital camera processor—COACH 9 (ZR36470)	October 2006	Digital cameras, security
Digital Imaging	Quatro® 4110 Inkjet and laser high performance mid range print head controller platform	March 2003	Mid range inkjet MFPs and laser printers
	Quatro® 4100 Inkjet high performance low cost print head controller platform	October 2003	Low cost inkjet MFPs
	Integrated Print System (IPS) 6.0 Embedded Software	April 2003	Print devices connected to a network
	IPS Conductor (IPS/DDK)	September 2004	Print devices connected to Microsoft operating systems
	Quatro® 4200 Full feature, highly integrated SOC with high quality scanner analog front-end, USB high speed host and color LCD interface	April 2005	Print devices connected directly or to a network
	Quatro® 4050 Ultra-low-cost SOC for all-in-one printers and direct-connect photo printers.	May 2005	Print devices connected directly or to a network
	Quatro® 4230 Full feature, highly integrated SOC for printer manufacturers	September 2006	Print devices connected directly or to a network

Zoran, the Zoran logo, Activa, APPROACH, Generation 9, HDXtreme, IPS, Quatro, SupraHD, SupraTV and Vaddis are trademarks or registered trademarks of Zoran Corporation and its subsidiaries in the United States and/or other countries. All other names and brands may be claimed as property of others.

DVD.Our Vaddis® processors perform all the audio and video decoding and display requirements of the DVD specification, including MPEG 2 audio and video decoding, Dolby Digital, DivX and MLP audio decoding, on-screen display, decryption required for copyright protection and presentation of graphic information. The Vaddis® processor has additional computational power that can be utilized for customer differentiation features. For example, it can incorporate virtual surround sound algorithms without the addition of hardware. This allows the user to enjoy the theater-like sound obtained from six speakers using a system that includes only two speakers. The Vaddis® 7 processor incorporates all the functions of previous generations with the addition of MPEG 4 decoding and an interface that can support high definition television. The Vaddis® 8 adds Super Audio CD, or SACD, upscaler and HDMI transmitter functionality. In 2004, we introduced HDXtreme®technology that allows DVD play back and the viewing of JPEG pictures on an HDTV with an HDMI interface. The Activa® 200 product, announced in December 2005, delivers the entire DVD recorder capability on a single system-on-a-chip, integrating the front-end and back-end functions to greatly reduce system costs and chip count in DVD recorders. We also provide DVD player and DVD recorder reference designs based on our Vaddis®and Activa®product families that help our customers accelerate the time to market for their products.

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DTV.Our DTV Division offers integrated circuit products for both high definition and standard definition formats for digital televisions, set top boxes and related applications, including personal video recorders. In 2004, we introduced the Generation 9®Elite system-on-a-chip which utilizes dual CPUs resulting in higher performance with lower power consumption compared to its forerunner, the Generation 9® product family. During 2005, we began shipping our highly integrated SurpaHD®product line that addresses the mainstream market segment as well as high-end and entry-level segments of the flat panel display and analog-to-digital broadcast transition markets. We also shipped production volumes of our SupraTV® 150 ICs for use in the worldwide standard definition digital terrestrial, satellite and cable broadcast markets. As a result of the Oren acquisition in June 2005, we offer the Cascade 2 TV demodulator with our SupraHD®and Generation 9®back-end decoder and end-to-end solution for the US Advanced Television Systems Committee market. The Cascade 2 product is also sold to TV tuner suppliers as an integrated tuner and demodulator solution.

Mobile.Our COACH processors are integrated system-on-a-chip solutions that include most of the electronics of a digital camera, which can be connected directly to a high-resolution CCD or CMOS sensor. The COACH IC processes the video information in real time, compresses the captured image in real time, while interfacing to an LCD or micro display and to all types of flash memory. Among the unique capabilities of the COACH product is the ability to transfer in real time, over a USB bus, high quality video to the PC and function as a PC video camera. The COACH products also allow for direct connection to a printer, including color correction and special effects, for the non-PC consumer environment. The COACH product is supplemented by digital camera reference designs, “CamON” and “CamMini,” products shorten the time to market for Zoran’s customers. The newest COACH processors utilize MPEG-4 Codecs to incorporate basic digital camcorder capabilities for displaying video clips on a PC or TV. As a result of our acquisition of Emblaze Semiconductor in July 2004, our Mobile Products Division also offers mobile multimedia telephone products.

Digital Imaging.Our Quatro®product addresses the consumer market for personal printers and the increasing demand for PC - independent printing appliances. The Quatro® product is a programmable SOC solution for consumer oriented imaging and printing appliances, including multifunction color inkjet and laser devices that feature print, copy, scan and fax capabilities and that allow image-rich content such as web pages, digital photos and scanned documents to be printed without the use of a PC. Quatro®ASICs are designed for mid-range and entry level inkjet printers, color photo printers, laser printers and the new generation of dye sublimation printers. The Integrated Print System, or IPS 7.0, is a modular, scalable embedded software product that provides processing and control functions for document imaging peripheral devices. IPS was developed based on a long standing expertise in page description language interpreters such as PCL and Postscript. The IPS product line gives the OEM the ability to build high performance, network enabled devices quickly and cost effectively.

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Customers

The following table lists representative customers, as well as other OEMs who purchase our products through us or from our resellers. Each of these customers and OEMs purchased, directly or indirectly, at least $500,000 of Zoran products during 2006:

Product Family	Direct Customers and resellers		Other OEMs
DVD	Alco Electronics Ltd. Anam Electronics Co. Ltd. Eastech Electronics (hui Yang) Co. Ltd. Everbest Industrial (HK) Ltd. Fly Ring Digital Technology Ltd. LG Electronic Inc. Qisheng International Ltd. Samsung Electronics Sea Star Technology (Hong kong)	Shenzhen Kaixinda Multi-Media Co. Ltd. Sky Wise Holdings Ltd. Sony TCL Electronics (HK) Ltd. Tecobest Digital Ltd. Thomson Hong Kong Holdings Ltd. Tomei Shoji Ltd. Universal Pacific Co. Ltd. Zhongshan Dingcai AV Technology	Orion Sanyo Sharp Toshiba
DTV	3S Digital ATM Electronic Corporation Dae Jin Semiconductor Co. Ltd. Daewoo Electronics Co. Ltd. Digital Stream Technology DVN Technology Ltd. Ever Best Industrial (HK) Ltd. Homecast Co. Ltd. Hongtech Electronics Kanematsu Corporation	Lacewood International Corp. Marubun Corporation Mico Electric (HK) Ltd. Rockwell Collins Inc. Samsung Electronics Shenzhen MTC Multi-Media Co. Ltd. TPV Technology Group Trident Microsystems Inc. TTE Technology Inc. Zhongshan E-Tek Co. Ltd.	Funai JVC Mitsubishi Mitsumi Panasonic Sanyo Sony
Mobile	ASD Technology Ltd. Asia Optical International Ltd. Chicony Electronics Co. Ltd. Flextronics Grandtech Industrial Ltd. Jurong Hi-Tech (Suzhou) Co. Ltd. Kyoshin Technosonic (Asia) Ltd. Maxtek Technology Co. Ltd. Newell Hong long Ltd. Newgen Telecom Inc.	Ningbo Guangbo Digital Technology Pentax Corporation Primary Technologies Pure Digital Technologies Samsung Electronics Shenzhen Xinlikang Industrial Co. Tekom Technologies Inc. Zenitron Corporation	Funai
Digital Imaging	Avision Enterprise (BVI) Inc. Canon Inc. Foxlink Image Technology Co. Ltd. Seiko Epson Corporation Hewlett Packard Kanematsu Corporation Lite-On Technology Co	Mag-Tek Inc. OkiData Corporation Ricoh Company Ltd. Samsung Electronics Co., Ltd. Sharp Electronics Corporation Toshiba Corporation Xerox	Funai Panasonic Kyocera Mita Kodak

In 2006, one customer accounted for 14% of our total revenues, and sales to our four largest customers accounted for 36% of our total revenues. In 2005, no single customer accounted for more than 10% of our total revenues, and sales to our four largest customers accounted for 29% of our total revenues.

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Research and Development

We believe that our future success depends on our ability to continue to enhance our existing products and to develop new products that maintain technological competitiveness and compliance with new standards in rapidly evolving consumer-oriented digital audio and video markets. We attempt to leverage our expertise in the fields of digital signal processing, integrated circuit design, algorithms and software development to maintain our position as a leader in the development of digital audio, video and imaging solutions. Accordingly, we devote a significant portion of our resources to maintaining and upgrading our products to reduce integrated circuit cost, feature size, power consumption and the number of integrated circuits required to perform compression and other functions necessary for the evolving digital audio, video and imaging application markets. In addition, we seek to design integrated circuits and cores, as well as near production ready reference designs which reduce the time needed by manufacturers to integrate our ICs into their own products.

We have historically generated a portion of our revenues from development contracts with our strategic partners. These development contracts provide that we will receive payments upon reaching certain development milestones and that we will retain ownership of the intellectual property developed. Development contracts have enabled us to fund portions of our product development efforts, to respond to the feature requirements of our customers, to accelerate the incorporation of our products into our customers’ products and to accelerate the time-to-market of our customers’ products. We anticipate, however, that in the future development contracts with strategic partners will fund a smaller portion of our development efforts than in the past.

We are a party to research and development agreements with the Chief Scientist in Israel’s Ministry of Industry and Trade and the Israel-United States Bi-national Industrial Research and Development Foundation. These organizations fund up to 50% of incurred costs for approved projects up to contract maximums. The agreements require us to use our best efforts to achieve specified results and to pay royalties at rates of 3% 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. In 2004, we earned grants totaling $1.5 million. There were no grant receipts in 2005 and 2006. The terms of Israeli Government participation include 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.

Research and development expenses that qualify for the grants and the related grants are as follows (in thousands):

	Year Ended December 31,
	2006		2005			2004
			(restated)			(restated)
Research and development expenses	$	60,147		$	48,377		$	38,461
Less: grants earned	—			—			(1,460		)
	$	60,147		$	48,377		$	37,001

As of December 31, 2006, we had 645 research and development personnel, of which 523 were employed full-time, and 122 were part-time or contract employees.

Sales and Marketing

Our sales and marketing strategy is to focus on providing solutions to manufacturers seeking to design audio, video and imaging products for existing and emerging high volume consumer applications. In

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cooperation with leading manufacturers of audio, video and imaging equipment in the commercial and consumer markets, we attempt to identify market segments which have the potential for substantial growth. To implement our strategy, we have established a worldwide direct sales force in offices located near our key customers and strategic partners, and a worldwide network of independent sales representatives and resellers. In some cases, our strategic partners also provide sales and marketing support.

Our sales are generally made pursuant to purchase orders received between one and six months prior to the scheduled delivery date. We sell our products primarily through our 138-person direct sales staff, of whom 11 are located in the United States and 127 are located internationally. Our United States sales staff is primarily responsible for sales in North America, Europe and South America. Sales management and sales operations staff also reside in the United States. Our marketing staff in China, Japan, Korea and Taiwan are responsible for marketing in their respective regions. In addition, we sell our products indirectly primarily through selected resellers. We typically warrant our products for a 12-month period. To date, we have not experienced material product returns or warranty expense.

We have opened offices in other parts of the world in order to better address specific markets. We opened an office in Shenzhen, China as part of our effort to capture a leadership position in the Chinese digital audio and video markets and an office in Taipei, Taiwan in an effort to better address the digital camera market. As of December 31, 2006, we had a staff of 305 employees and 19 contractors in our China office and 66 employees in our Taiwan office, including sales support, applications and customer support employees. In addition, we opened offices in Hong Kong and Korea, which had staff of 4 employees and 25 employees, respectively, as of December 31, 2006. These offices also provide sales, applications and customer support.

We distribute our products in Japan primarily through resellers. We also operate an office in Tokyo to help promote our products in Japan, assist with the marketing of products not sold through resellers, such as integrated circuit cores and certain digital camera, digital video, digital television, imaging and JPEG products, and provide applications support for some of our customers. At December 31, 2006, we had 38 employees and 19 contractors in our Tokyo office.

We sell our Dolby technology enabled products under a perpetual, non-exclusive license from Dolby to sell products that incorporate the Dolby Digital algorithm. We are not required to pay license fees or royalties to Dolby under this agreement. Our customers enter into license agreements directly with Dolby, pursuant to which they pay royalties to Dolby. Under our agreement with Dolby, we may sell our Dolby Digital-based products only to customers who are licensees of Dolby. To date, most potential customers for our Dolby Digital-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 harm our sales.

We sell our DivX and DTS Technology-based products under a non-exclusive license from DivX Inc. and DTS Technology LLC to sell products that incorporate their algorithm. We are not required to pay royalties under this agreement. Our customers enter into license agreements directly with DivX and DTS, pursuant to which they pay royalties. Under our agreement, we may sell our DivX or DTS-based products only to customers who are licensees of DivX or DTS. The failure or refusal of potential customers to enter into license agreements with DivX or DTS in the future could harm our sales.

Backlog

Sales of our products are made pursuant to firm purchase orders. However, sometimes we allow customers to cancel or reschedule deliveries. In addition, purchase orders are subject to price renegotiations and to

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changes in quantities of products ordered as a result of changes in customers’ requirements and manufacturing availability. Our ability to order products can carry lead times of between four and sixteen weeks; however, most of our business is characterized by short lead times and quick delivery schedules. As a result of these factors, we do not believe that backlog at any given time is a meaningful indicator of future sales.

Manufacturing

We contract our wafer fabrication, assembly and testing to independent foundries and contractors, which enables us to focus on our design strengths, minimize fixed costs and capital expenditures and gain access to advanced manufacturing facilities. Our engineers work closely with our foundry partners and subcontractors to increase yields, lower manufacturing costs and assure quality.

Our primary foundry is Taiwan Semiconductor Manufacturing Company, or TSMC, which has manufactured integrated circuits for us since 1987. TSMC, Philips and Tower Semiconductor Ltd. are currently manufacturing our DVD, JPEG, DTV imaging and some of our mobile products. Fujitsu manufactures our USB multimedia controller chips. Our independent foundries fabricate products for other companies and may also produce products of their own design.

Most of our devices are currently fabricated using standard complementary metal oxide semiconductor process technology with 0.13 micron to 0.18 micron feature sizes. Most of our semiconductor products are currently being assembled by one of four independent contractors and tested by those contractors or other independent contractors.

We currently purchase products from all of our foundries under individually negotiated purchase orders. We do not currently have a long-term supply contract with TSMC, and therefore TSMC is not obligated to manufacture products for us for any specific period, in any specific quantity or at any specified price, except as may be provided in a particular purchase order.

Competition

Our existing and potential competitors include many large domestic and international companies that have substantially greater finance, manufacturing, technology, marketing and distribution resources than we have.

Some of these competitors also have broader product lines and longer standing relationships with customers than we do. Some of our principal competitors maintain their own semiconductor foundries and may therefore benefit from capacity, cost and technical advantages. Our principal competitors in the integrated audio and video devices for DVD applications include Cheertek, ESS, LSI Logic, Magnum Semiconductor, Matsushita, MediaTek, Renesas Technology, Samsung and Sunplus. In the markets for JPEG-based products for use in digital cameras, our principal competitors are in-house solutions developed and used by major Japanese OEMs, as well as products sold by Sunplus and Texas Instruments. In the market for JPEG-based products for desktop video editing applications, our principal competitor is Sunplus. Cirrus Logic (Crystal Semiconductor), Fujitsu, Freescale Semiconductor, STMicroelectronics and Yamaha are currently shipping Dolby Digital-based audio compression products. Our principal competitors for digital semiconductor devices in the digital television market include Advanced Micro Devices, Broadcom, Renesas Technology, M-Star, Mediatek and ST Microelectronics. Others who also participate in this market are ALi Corporation, Cheertek, Fujitsu, Genesis Microchip, NEC, Pixelworks and Trident Microsystems. Competitors in the Printer and Multifunction peripheral space include Sigmatel

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Inc, Marvell semiconductor, TAK Imaging, Peerless Systems, Global Graphics and in-house captive suppliers.

We believe that our ability to compete successfully in the rapidly evolving markets for high performance audio, video and imaging technology depends on a number of factors, including the following:

·price, quality, performance and features of our products;

·the timing and success of new product introductions by itself, our customers and our competitors;

·the emergence of new industry standards;

·its ability to obtain adequate foundry capacity;

·the number and nature of our competitors in a given market; and

·general market and economic conditions.

The markets in which we compete are intensely competitive and are characterized by rapid technological change, declining average unit selling prices and rapid product obsolescence. We expect competition to increase in the future from existing competitors and from other companies that may enter our existing or future markets with solutions which may be less costly or provide higher performance or more desirable features than our products.

We believe that growth of the DVD player market will be modest in the foreseeable future, and that continued strong competition will lead to further price reductions, and reduced profit margins. We believe that the DVD recorder market will continue to grow and that as technology barriers become higher, fewer competitors will enter this market.

Historically, average unit selling prices in the semiconductor industry in general, and for our products in particular, have decreased over the life of a particular product. We expect that the average unit selling prices of our products will continue to be subject to significant pricing pressures. In order to offset expected declines in the average unit selling prices of our products, we will need to continually reduce the cost of our products and continue to integrate additional functions into our ICs. We intend to accomplish this by implementing design changes that integrate additional functionality, lower the cost of manufacturing, assembly and testing, by negotiating reduced charges by our foundries as and if volumes increase, and by successfully managing our manufacturing and subcontracting relationships. Since we do not operate our own manufacturing, assembly or testing facilities, we may not be able to reduce our costs as rapidly as companies that operate their own facilities. If we fail to introduce lower cost versions of our products in a timely manner or to successfully manage our manufacturing, assembly and testing relationships, our business would be harmed.

Proprietary Rights and Licenses

Our ability to compete successfully is dependent in part upon our ability to protect our proprietary technology and information. Although we rely on a combination of patents, copyrights, trademarks, trade secret laws and licensing arrangements to protect some of our intellectual property, we believe that factors such as the technological and creative skills of our personnel and the success of our ongoing product development efforts are more important in maintaining our competitive position. We generally enter into confidentiality or license agreements with our employees, resellers, customers and potential customers and limit access to our proprietary information. We currently hold approximately 300 issued patents worldwide, and have additional patent applications pending. Our intellectual property rights, if challenged, may not be upheld as valid, may not be adequate to prevent misappropriation of our technology or may not prevent

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the development of competitive products. Additionally, we may not be able to obtain patents or other intellectual property protection in the future. In particular, the existence of several consortiums that license patents relating to the MPEG standard has created uncertainty with respect to the use and enforceability of patents implementing that standard. Furthermore, the laws of certain foreign countries in which our products are or may be developed, manufactured or sold, including various countries in Asia, may not protect our 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 our technology and products more likely in these countries.

We sell our Dolby Digital-based products under a perpetual non-exclusive license from Dolby which permits us to incorporate the Dolby Digital algorithm into our products. Our customers enter into license agreements with Dolby pursuant to which they pay royalties directly to Dolby. Under our agreement with Dolby, we may sell our Dolby Digital-based products only to customers who are licensees of Dolby. To date, most potential customers for our Dolby Digital- 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 harm our business. We sell our DTS Technology-based products under a non-exclusive license from DTS Technology LLC to sell products that incorporate the DTS algorithm. We are not required to pay royalties to DTS under this agreement. Our customers enter into license agreements directly with DTS, pursuant to which they pay royalties to DTS. Under our agreement with DTS, we may sell our DTS-based products only to customers who are licensees of DTS. The failure or refusal of potential customers to enter into license agreements with Dolby in the future could harm our sales.

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. We or our foundries from time to time are notified of claims that we may be infringing patents or other intellectual property rights owned by third parties. We have been subject to intellectual property claims and litigation in the past. See Item 3—Legal Proceedings. We may be subject to additional claims and litigation in the future. In particular, given the uncertainty discussed above regarding patents relating to the MPEG standard, it is difficult for us to assess the possibility that our activities in the MPEG field may give rise to future patent infringement claims. Litigation by or against us relating to patent infringement or other intellectual property matters could result in significant expense to us and divert the efforts of our technical and management personnel, whether or not such litigation results in a determination favorable to us. In the event of an adverse result in any such litigation, we 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. Licenses may not be offered or the terms of any offered licenses may not be acceptable to us. If we fail to obtain a license from a third party for technology that it uses, we could incur substantial liabilities and be forced to suspend the manufacture of products, or the use by our foundries of certain processes.

Employees

As of December 31, 2006, we had 1,191 full-time and 160 part-time and contract employees, including 645 full-time, part-time and contract employees primarily involved in research and development activities, 528 in marketing and sales, 128 in finance, human resources, information systems, legal and administration, and 50 in manufacturing control and quality assurance. We have 377 full-time employees and 84 part-time and contract employees based in Israel, of which 371 employees, including both full time and contract employees, are involved in engineering and research and development. We have 198 full-time employees and 29 part-time and contract employees at our facilities in Sunnyvale, California, 143 full-time employees and 6 part-time and contract employees at our facility in Woburn, Massachusetts, and 305 full-time employees and 19 part-time contract employees at our facilities in Shenzhen, China. The remaining

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employees are located in our international offices in Canada, England, Germany, Hong Kong, India, Japan, Korea and Taiwan. We believe that our future success will depend in large part on our ability to attract and retain highly-skilled, engineering, managerial, sales and marketing personnel. Competition for such personnel is intense. Our employees are not represented by any collective bargaining unit, and we have never experienced a work stoppage. We believe that our employee relations are good.

Executive Officers

The names of our executive officers and their ages as of December 31, 2006 are as follows:

NAME	AGE			POSITION
Levy Gerzberg, Ph.D		61	President, Chief Executive Officer and Director
Karl Schneider		52	Senior Vice President, Finance and Chief Financial Officer
Isaac Shenberg, Ph.D		56	Senior Vice President, Business and Strategic Development

Levy Gerzberg was a co-founder of Zoran in 1981 and has served as our President and Chief Executive Officer since 1988 and as a director since 1981. Dr. Gerzberg also served as our President from 1981 to 1984 and as our Executive Vice President and Chief Technical Officer from 1985 to 1988. 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 in Haifa, Israel.

Karl Schneider joined Zoran as Corporate Controller in 1998 and was elected Vice President, Finance and Chief Financial Officer in 1998 and Senior Vice President, Finance and Chief Financial Officer in July 2003. From 1996 through 1997, Mr. Schneider served as Controller for the Film Measurement and Robotics and Integrated Technologies divisions of KLA-Tencor, a semiconductor equipment company. Mr. Schneider served as the Corporate Controller for SCM Microsystems, Inc. from 1995 to 1996, Controller for Reply Corporation from 1994 to 1995, Director of Finance for Digital F/X from 1992 to 1994 and Controller for Flextronics from 1987 through 1991. Mr. Schneider holds a B.S. in Business Administration from San Diego State University.

Isaac Shenberg has served as Senior Vice President, Business and Strategic Development since 1998 and previously as Vice President, Sales and Marketing from 1995 through 1998. From 1990 to 1995, Dr. Shenberg served as our Product Line Business Manager. Prior to joining Zoran, Dr. Shenberg was Images Processing Group manager and Electro Optics Department manager at Rafael, a leading aerospace provider in Israel. Dr. Shenberg holds a Ph.D in Electrical Engineering from Stanford University and a B.S. and M.S. in Electrical Engineering from the Technion-Israel Institute of Technology in Haifa, Israel.

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Item 1A—Risk Factors

Our future business, operating results and financial condition are subject to various risks and uncertainties, including those described below.

The discovery that the appropriate measurement dates for financial accounting purposes of certain stock option grants differed from the recorded grant dates of those awards has had, and may continue to have, a material adverse effect on our financial results.

We cannot predict the outcome of the pending government inquiries or stockholder lawsuits, and we may face additional government actions, stockholder lawsuits and other legal proceedings related to our historical stock option practices and the remedial actions we have taken. All of these events have required us, and will continue to require us, to expend significant management time and incur significant accounting, legal, and other expenses. This could divert attention and resources from the operation of our business and adversely affect our financial condition and results of operations in a manner that could potentially be material.

The independent investigation of our historical stock option practices and resulting restatements has been time consuming and expensive, and has had a material adverse effect on our financial performance.

The independent investigation of our historical stock option practices and resulting restatement activities have required us to expend significant management time and incur significant accounting, legal and other expenses totaling $5.8 million in 2006 and we expect to incur additional costs in the future periods. The resulting restatements have had a material adverse effect on our results of operations. We have recorded additional stock-based compensation expense of $13.0 million for stock option grants, recognized over the periods from 1997 to 2005. There was no tax impact of these additional stock-based compensation expenses due to the full valuation allowance on our tax assets. In addition, we have recorded other adjustments previously considered to be immaterial totaling $1.3 million (net of tax of $0.2 million). As a result, our restated consolidated financial statements reflect a decrease in net income of $13.0 million for the period of 1997 to 2005. The effect of the restatement adjustments on our consolidated balance sheet at December 31, 2005 resulted in a $2.4 million decrease in stockholders’ equity.

Ongoing government inquiries relating to our historical stock option practices are time consuming and expensive and could result in injunctions, fines and penalties that may have a material adverse effect on our financial condition and results of operations.

The inquiries by the United States Attorney’s Office for the Northern District of California (“USAO”) and the United States Securities and Exchange Commission (“SEC”) into our historical stock option practices are ongoing. We have cooperated with the USAO and the SEC and intend to continue to do so. The period of time necessary to resolve these inquiries is uncertain, and we cannot predict the outcome of these inquiries or whether we will face additional government inquiries, investigations or other actions related to our historical stock option practices. These inquiries will likely require us to continue to expend significant management time and incur significant legal and other expenses, and could result in civil and criminal actions seeking, among other things, injunctions against the Company and the payment of significant fines and penalties by the Company, which may have a material adverse effect on our financial condition, results of operations and cash flow.

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We have not been in compliance with SEC reporting requirements and Nasdaq listing requirements and may continue to face compliance issues with both. If we are unable to remain in compliance with SEC reporting requirements and Nasdaq listing requirements, there may be a material adverse effect on us and our stockholders.

Due to the independent investigation and resulting restatements, in recent periods we were unable to file our periodic reports with the SEC on time and faced the possibility of delisting of our stock from the Nasdaq Global Select Market. As a result of our delay in filing periodic reports on a timely basis, we will not be eligible to use a registration statement on Form S-3 to register offers and sales our securities until all periodic reports have been timely filed for at least 12 months. If the Nasdaq Listing and Hearing Review Council concludes that we are not in compliance with applicable listing requirements, then we may be unable to maintain an effective listing of our stock on a national securities exchange. If this happens, the price of our stock and the ability of our stockholders to trade in our stock could be adversely affected. In addition, we would be subject to a number of restrictions regarding the registration of our stock under federal securities laws, and we would not be able to issue stock options or other equity awards to our employees or non-employees or allow them to exercise their outstanding options, which could adversely affect our business and results of operations.

We have been named as a party to stockholder derivative and class action lawsuits relating to our historical stock option practices, and we may be named in additional lawsuits in the future. This litigation could become time consuming and expensive and could result in the payment of significant judgments and settlements, which could have a material adverse effect on our financial condition and results of operations.

In connection with our historical stock option practices and resulting restatements, a number of derivative actions were filed against certain of our current and former directors, officers and certain other individuals purporting to assert claims on Zoran’s behalf. In addition, a securities class action complaint was filed against us and certain of our current and former officers and our current directors, seeking damages related to our historical stock option practices. There may be additional lawsuits of this nature filed in the future. We cannot predict the outcome of these lawsuits, nor can we predict the amount of time and expense that will be required to resolve these lawsuits. If these lawsuits become time consuming and expensive, or if there are unfavorable outcomes in any of these cases, there could be a material adverse effect on our business, financial condition and results of operations.

Our insurance coverage will not cover our total liabilities and expenses in these lawsuits, in part because we have a significant deductible on certain aspects of the coverage. In addition, we are obligated to indemnify our current and former directors, officers and employees in connection with the investigation of our historical stock option practices and the related government inquiries and litigation. We currently hold insurance policies for the benefit of our directors and officers, although our insurance coverage may not be sufficient in some or all of these matters. Furthermore, the insurers may seek to deny or limit coverage in some or all of these matters, in which case we may have to self-fund all or a substantial portion of our indemnification obligations.

We are subject to the risks of additional lawsuits from former officers and employees in connection with our historical stock option practices, the resulting restatements, and the remedial measures we have taken.

In addition to the possibilities that there may be additional governmental actions and shareholder lawsuits against us, we may be sued or taken to arbitration by former officers and employees in connection with their stock options and other matters. These lawsuits may be time consuming and expensive, and cause

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further distraction from the operation of our business. The adverse resolution of any specific lawsuit could have a material adverse effect on our business, financial condition and results of operations.

Failure to maintain effective internal controls may cause us to delay filing our periodic reports with the SEC, affect our Nasdaq listing, and adversely affect our stock price.

We are required to include a report of management on internal control over financial reporting in our Annual Report on Form 10-K that contains an assessment by management of the effectiveness of our internal control over financial reporting. In addition, our independent registered public accounting firm must attest to and report on management’s assessment of the effectiveness of the internal control over financial reporting. The restatement of financial statements in prior filings with the SEC is a strong indicator of the existence of a “material weakness” in the design or operation of internal control over financial reporting. However, we have concluded that the control deficiencies that resulted in the restatement of the previously issued consolidated financial statements did not constitute a material weakness as of December 31, 2006 because management determined that as of December 31, 2006 there were effective controls designed and in place to prevent or detect a material misstatement and therefore the likelihood of stock-based compensation, deferred compensation and deferred tax assets being materially misstated is not more than remote.

The SEC may disagree with the manner in which we have accounted for and reported, or not reported, the financial impact of past option grant measurement date errors, and there is a risk that its inquiry could lead to circumstances in which we may have to further restate our prior financial statements, amend prior filings with the SEC, or otherwise take other actions not currently contemplated. In addition, the SEC may issue guidance or disclosure requirements related to the financial impact of past option grant measurement date errors that may require us to amend this filing or prior filings with the SEC to provide additional disclosures pursuant to this guidance. Any such circumstance could also lead to future delays in filing our subsequent SEC reports and delisting of our common stock from the NASDAQ Global Select Market.

It may be difficult or costly to obtain director and officer liability insurance coverage as a result of our stock options problems.

We expect that the issues arising from our historical stock option grant practices and the related accounting will make it more difficult to obtain director and officer insurance coverage in the future. If we are able to obtain this coverage, it could be significantly more costly than in the past, which would have an adverse effect on our financial results and cash flow. As a result of this and related factors, our directors and officers could face increased risks of personal liability in connection with the performance of their duties. As a result, we may have difficultly attracting and retaining qualified directors and officers, which could adversely affect our business.

Our annual revenues and operating results fluctuate due to a variety of factors, which may result in volatility or a decline in the prices of our common stock.

Our historical operating results have varied significantly from period to period due to a number of factors, including:

·fluctuation in demand for our products;

·the timing of new product introductions or enhancements by us and our competitors;

·the level of market acceptance of new and enhanced versions of our products and our customers’ products;

·the timing or cancellation of large customer orders;

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·the length and variability of the sales cycle for our products;

·pricing policy changes by us and by our competitors and suppliers;

·the cyclical nature of the semiconductor industry;

·the availability of development funding and the timing of development revenue;

·changes in the mix of products sold;

·seasonality in demand for our products;

·increased competition in product lines, and competitive pricing pressures; and

·the evolving and unpredictable nature of the markets for products incorporating our integrated circuits and embedded software.

We expect that our operating results will continue to fluctuate in the future as a result of these factors and a variety of other factors, including:

·the cost and availability of adequate foundry capacity;

·fluctuations in manufacturing yields;

·changes in or the emergence of new industry standards;

·failure to anticipate changing customer product requirements;

·the loss or gain of important customers;

·product obsolescence; and

·the amount of research and development expenses associated with new product introductions.

Our operating results could also be harmed by:

·economic conditions generally or in various geographic areas where we or our customers do business;

·terrorism and international conflicts or other crises;

·other conditions affecting the timing of customer orders;

·changes in governmental regulations that could affect our products;

·a downturn in the markets for our customers’ products, particularly the consumer electronics market;

·disruption in commercial activities associated with heightened security concerns affecting international travel and commerce;

·reduced demand for consumer electronic products due to a potential economic slowdown;

·tightened immigration controls that may adversely affect the residence status of key non-U.S. managers and technical employees in our U.S. facilities or our ability to hire new non-U.S. employees in such facilities; or

·potential expansion of armed conflict in the Middle East which could adversely affect our operations in Israel.

These factors are difficult or impossible to forecast. We place orders with independent foundries several months in advance of the scheduled delivery date, often in advance of receiving non-cancelable orders from our customers. This limits our ability to react to fluctuations in demand for their products. If

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anticipated shipments in any quarter are canceled or do not occur as quickly as expected, or if we fail to foresee a technology change that could render a product obsolete, expense and inventory levels could be disproportionately high. If anticipated license revenues in any quarter are canceled or do not occur, gross margins may be reduced.

A significant portion of our expenses are relatively fixed, and the timing of increases in expenses is based in large part on our forecast of future revenues. As a result, if revenues do not meet our expectations, we may be unable to quickly adjust expenses to levels appropriate to actual revenues, which could harm our operating results.

Our customers experience fluctuating product cycles and seasonality, which causes their sales to fluctuate.

Because the markets that our customers serve are characterized by numerous new product introductions and rapid product enhancements, our operating results may vary significantly from quarter to quarter. During the final production of a mature product, our customers typically exhaust their existing inventories of our products. Consequently, orders for our products may decline in those circumstances, even if the products are incorporated into both mature products and replacement products. A delay in a customer’s transition to commercial production of a replacement product would delay our ability to recover the lost sales from the discontinuation of the related mature product. Our customers also experience significant seasonality in the sales of their consumer products, which affects their orders of our products. Typically, the second half of the calendar year represents a disproportionate percentage of sales for our customers due to the holiday shopping period for consumer electronics products, and therefore, a disproportionate percentage of our sales. We expect these seasonal sales fluctuations to continue for the foreseeable future.

Our ability to match production mix with the product mix needed to fill current orders and orders to be delivered in the given quarter may affect our ability to meet that quarter’s revenue forecast. In addition, when responding to customers’ requests for shorter shipment lead times, we manufacture products based on forecasts of customers’ demands. These forecasts are based on multiple assumptions. If we inaccurately forecast customer demand, we may hold inadequate, excess or obsolete inventory that would reduce our profit margins and adversely affect our results of operations and financial condition.

Our products are characterized by average selling prices that decline over relatively short time periods; if we are unable to reduce our costs or introduce new products with higher average selling prices, our financial results will suffer.

Average selling prices for our products decline over relatively short time periods, while many of our manufacturing costs are fixed. When our average selling prices decline, our revenues decline unless we are able to sell more units, and our gross margins decline unless we are able to reduce our manufacturing costs by a commensurate amount. Our operating results suffer when gross margins decline. We have experienced these problems, and we expect to continue to experience them in the future, although we cannot predict when they may occur or how severe they will be.

Product supply and demand in the semiconductor industry is subject to cyclical variations.

The semiconductor industry is subject to cyclical variations in product supply and demand. Downturns in the industry often occur in connection with, or anticipation of, maturing product cycles for both semiconductor companies and their customers and declines in general economic conditions. These downturns have been characterized by abrupt fluctuations in product demand, production over-capacity and accelerated decline of average selling prices. In some cases, these downturns have lasted more than one year. We cannot predict whether we will achieve timely, cost-effective access to that capacity when

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needed, or when there will be a capacity shortage again in the future. A downturn in the semiconductor industry could harm our sales and revenues if demand drops, or our gross margins if average selling prices decline.

Our success for the foreseeable future will depend on demand for integrated circuits for a limited number of applications.

In recent years, we have derived a substantial majority of our product revenues from the sale of integrated circuits for DVD and digital camera applications. We expect that sales of our products for these applications will continue to account for a significant portion of our revenues for the foreseeable future. Our future financial performance will also depend on our ability to successfully develop and market new products in the digital television, HDTV and digital imaging markets. If the markets for these products and applications decline or fail to develop as expected, or we are not successful in our efforts to market and sell our products to manufacturers who incorporate integrated circuits into these products, our financial results will be harmed.

Our financial performance is highly dependent on the timely and successful introduction of new and enhanced products.

Our financial performance depends in large part on our ability to successfully develop and market next-generation and new products in a rapidly changing technological environment. If we fail to successfully identify new product opportunities and timely develop and introduce new products that achieve market acceptance, we may lose our market share and our future revenues and earnings may suffer.

In the consumer electronic market, our performance has been dependent on our successful development and timely introduction of integrated circuits for DVD players, DVD recorders, digital cameras, broadband digital television and HDTV. These markets are characterized by the incorporation of a steadily increasing level of integration and numbers of features on a chip at the same or lower system cost, enabling original equipment manufacturers, or OEMs, to continually improve the features or reduce the prices of the systems they sell. If we are unable to continually develop and introduce integrated circuits with increasing levels of integration and new features at competitive prices, our operating results will suffer.

In the Imaging market, our performance has been dependent on our successful development and timely introduction of integrated circuits for printers and multi-function peripherals. These markets are characterized by the incorporation of a steadily increasing level of integration and higher speeds on a chip at the same or lower system cost, enabling original equipment manufacturers, or OEMs, to continually improve the performance and features or reduce the prices of the systems they sell. If we are unable to develop and introduce integrated circuits with increasing levels of integration, performance and new features at competitive prices, our operating results will suffer. The performance of our software licensing business is dependent on our ability to develop and introduce new releases of our software, which incorporate new or enhanced printing standards, as well as performance enhancements required by our OEM customers. If we are unable to develop and release versions of our software supporting required standards and offering enhanced performance, our operating results will suffer.

We face competition or potential competition from companies with greater resources than ours, and if we are unable to compete effectively with these companies, our market share may decline and our business could be harmed.

The markets in which we compete are intensely competitive and are characterized by rapid technological change, declining average unit selling prices and rapid product obsolescence. We expect competition to

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increase in the future from existing competitors and from other companies that may enter our existing or future markets with solutions which may be less costly or provide higher performance or more desirable features than our products. Competition typically occurs at the design stage, when customers evaluate alternative design approaches requiring integrated circuits. Because of short product life cycles, there are frequent design win competitions for next-generation systems.

Our existing and potential competitors include many large domestic and international companies that have substantially greater financial, manufacturing, technological, market, distribution and other resources. These competitors may also have broader product lines and longer standing relationships with customers and suppliers than we have.

Some of our principal competitors maintain their own semiconductor foundries and may therefore benefit from capacity, cost and technical advantages. Our principal competitors in the integrated audio and video devices for DVD applications include Cheertek, ESS, LSI Logic, Magnum Semiconductor, Matsushita, MediaTek, Renesas Technology, Samsung and Sunplus. In the markets for JPEG-based products for use in digital cameras, our principal competitors are in-house solutions developed and used by major Japanese OEMs, as well as products sold by Sunplus and Texas Instruments. In the market for JPEG-based products for desktop video editing applications, our principal competitor is Sunplus. Cirrus Logic (Crystal Semiconductor), Fujitsu, Freescale Semiconductor, STMicroelectronics and Yamaha are currently shipping Dolby Digital-based audio compression products. Our principal competitors for digital semiconductor devices in the digital television market include Advanced Micro Devices, Broadcom, Renesas Technology, M-Star, Mediatek and ST Microelectronics. Others who also participate in this market are ALi Corporation, Cheertek, Fujitsu, Genesis Microchip, NEC, Pixelworks and Trident Microsystems. Competitors in the Printer and Multifunction peripheral space include Sigmatel Inc., Marvell Semiconductor, TAK Imaging, Peerless Systems, Global Graphics and in-house captive suppliers.

We believe that growth of the DVD player market will be modest in the foreseeable future, and that continued strong competition will lead to further price reductions, and reduced profit margins. We also face significant competition in the digital Imaging and digital camera markets. The future growth of both markets is highly dependent on OEMs continuing to outsource an increasing portion of their product development work. Many of our existing competitors, as well as OEM customers that are expected to compete with us in the future, have substantially greater financial, manufacturing, technical, marketing, distribution and other resources, broader product lines and longer standing relationships with customers than we have. In addition, much of our future success is dependent on the success of our OEM customers. If we or our OEM customers are unable to compete successfully against current and future competitors, we could experience price reductions, order cancellations and reduced gross margins, any one of which could harm our business.

We must keep pace with rapid technological changes and evolving industry standards to remain competitive.

Our future success will depend on our ability to anticipate and adapt to changes in technology and industry standards and our customers’ changing demands. The consumer electronics market, in particular, is characterized by rapidly changing technology, evolving industry standards, frequent new product introductions, short product life cycles and increasing demand for higher levels of integration. Our ability to adapt to these changes and to anticipate future standards, and the rate of adoption and acceptance of those standards, will be a significant factor in maintaining or improving our competitive position and prospects for growth. If new industry standards emerge, our products or the products of our customers could become unmarketable or obsolete, and we could lose market share or be required to incur substantial unanticipated costs to comply with these new standards.

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Our success will also depend on the successful development of new markets and the application and acceptance of new technologies and products in those new markets. For example, our success will depend on the ability of our customers to develop new products and enhance existing products in the recordable DVD player market and products for the broadband digital television and HDTV markets and to introduce and promote those products successfully. These markets may not continue to develop to the extent or in the time periods that we currently anticipate due to factors outside our control, such as delays in implementation of FCC 02-320 requiring all new televisions to include a digital receiver by February 2009. If new markets do not develop as we anticipate, or if our products do not gain widespread acceptance in these markets, our business, financial condition and results of operations could be harmed. The emergence of new markets for our products is also dependent in part upon third parties developing and marketing content in a format compatible with commercial and consumer products that incorporate our products. If this content is not available, manufacturers may not be able to sell products incorporating our products, and our sales would suffer.

We rely on independent foundries and contractors for the manufacture, assembly and testing of our integrated circuits and other hardware products, and the failure of any of these third parties to deliver products or otherwise perform as requested could damage our relationships with our customers and harm our sales and financial results.

We do not operate any manufacturing facilities, and we rely on independent foundries to manufacture substantially all of our products. These independent foundries fabricate products for other companies and may also produce products of their own design. From time to time, there are manufacturing capacity shortages in the semiconductor industry. We do not have long-term supply contracts with any of our suppliers, including our principal supplier, Taiwan Semiconductor Manufacturing Company, or TSMC. Therefore, TSMC and our other suppliers are not obligated to manufacture products for us for any specific period, in any specific quantity or at any specified price, except as may be provided in a particular purchase order.

Our reliance on independent foundries involves a number of risks, including:

·the inability to obtain adequate manufacturing capacity;

·the unavailability of or interruption in access to certain process technologies necessary for manufacture of our products;

·lack of control over delivery schedules;

·lack of control over quality assurance;

·lack of control over manufacturing yields and cost; and

·potential misappropriation of our intellectual property.

In addition, TSMC and some of our other foundries are located in areas of the world that are subject to natural disasters such as earthquakes. While the 1999 earthquake in Taiwan did not have a material impact on our independent foundries, a similar event centered near TSMC’s facility could severely reduce TSMC’s ability to manufacture our integrated circuits. The loss of any of our manufacturers as a supplier, our inability to expand the supply of their products in response to increased demand, or our inability to obtain timely and adequate deliveries from our current or future suppliers due to a natural disaster or any other reason could delay or reduce shipments of our products. Any of these circumstances could damage our relationships with current and prospective customers and harm our sales and financial results.

We also rely on a limited number of independent contractors for the assembly and testing of our products. Our reliance on independent assembly and testing houses limits our control over delivery schedules,

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quality assurance and product cost. Disruptions in the services provided by our assembly or testing houses or other circumstances that would require them to seek alternative sources of assembly or testing could lead to supply constraints or delays in the delivery of our products. These constraints or delays could damage our relationships with current and prospective customers and harm our financial results.

Because foundry capacity is limited from time to time, we may be required to enter into costly long-term supply arrangements to secure foundry capacity.

If we are not able to obtain additional foundry capacity as required, our relationships with our customers would be harmed and our sales would likely be reduced. In order to secure additional foundry capacity, we have considered, and may in the future need to consider, various arrangements with suppliers, which could include, among others:

·option payments or other prepayments to a foundry;

·nonrefundable deposits with or loans to foundries in exchange for capacity commitments;

·contracts that commit us to purchase specified quantities of silicon wafers over extended periods;

·issuance of our equity securities to a foundry;

·investment in a foundry;

·joint ventures; or

·other partnership relationships with foundries.

We may not be able to make any such arrangement in a timely fashion or at all, and such arrangements, if any, may not be on terms favorable to us. Moreover, if we are able to secure foundry capacity, we may be obligated to utilize all of that capacity or incur penalties. Such penalties may be expensive and could harm our financial results.

If our independent foundries do not achieve satisfactory yields, our relationships with our customers may be harmed.

The fabrication of silicon wafers is a complex process. Minute levels of contaminants in the manufacturing environment, defects in photo masks used to print circuits on a wafer, difficulties in the fabrication process or other factors can cause a substantial portion of the integrated circuits on a wafer to be non-functional. Many of these problems are difficult to detect at an early stage of the manufacturing process and may be time consuming and expensive to correct. As a result, foundries often experience problems achieving acceptable yields, which are represented by the number of good integrated circuits as a proportion of the number of total integrated circuits on any particular wafer. Poor yields from our independent foundries would reduce our ability to deliver our products to customers, harm our relationships with our customers and harm our business.

We are dependent upon our international sales and operations; economic, political or military events in a country where we make significant sales or have significant operations could interfere with our success or operations there and harm our business.

During 2006, only 7% of our total revenues were derived from North America sales. We anticipate that international sales will continue to account for a substantial majority of our total revenues for the foreseeable future. In addition, substantially all of our semiconductor products are manufactured, assembled and tested outside of the United States by independent foundries and subcontractors.

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We are subject to a variety of risks inherent in doing business internationally, including:

·unexpected changes in regulatory requirements;

·fluctuations in exchange rates;

·political and economic instability;

·imposition of tariffs and other barriers and restrictions;

·the burdens of complying with a variety of foreign laws; and

·health risks in a particular region.

A material amount of our research and development personnel and facilities and a portion of our sales and marketing personnel are located in Israel. Political, economic and military conditions in Israel directly affect our operations. Some of our employees in Israel are obligated to perform up to 39 days of military reserve duty annually. The absence of these employees for significant periods during the work week may cause us to operate inefficiently during these periods.

Our operations in China are subject to the economic and political uncertainties affecting that country. For example, the Chinese economy has experienced significant growth in the past decade, but such growth has been uneven across geographic and economic sectors. This growth may decrease and any slowdown may have a negative effect on our business. We also maintain offices in Taipei, Taiwan, Hong Kong and Seoul, Korea, and our operations are subject to the economic and political uncertainties affecting these countries as well.

The significant concentration of our manufacturing activities with third party foundries in Taiwan exposes us to the risk of political instability in Taiwan, including the potential for conflict between Taiwan and China. We have several significant OEM customers in Japan, Korea and other parts of Asia. Adverse economic circumstances in Japan and elsewhere in Asia could affect these customers’ willingness or ability to do business with us in the future or their success in developing and launching devices containing our products.

The prices of our products may become less competitive due to foreign exchange fluctuations.

Foreign currency fluctuations may affect the prices of our products. Prices for our products are currently denominated in U.S. dollars for sales to our customers throughout the world. If there is a significant devaluation of the currency in a specific country, the prices of our products will increase relative to that country’s currency, our products may be less competitive in that country and our revenues may be adversely affected. Also, we cannot be sure that our international customers will continue to be willing to place orders denominated in U.S. dollars. If they do not, our revenue and operating results will be subject to foreign exchange fluctuations.

Because we have significant operations in Israel, our business and future operating results could be harmed by future terrorist activity or military conflict.

We conduct a significant portion of our research and development and engineering activities at our design center in Haifa, Israel, a 109,700 square foot facility where we employ approximately 390 people. We also conduct a portion of our sales and marketing operations at our Haifa facility. We have an additional 16,100 square foot facility in Kfar Netter, Israel, where we conduct research and development activities.

Haifa was a principal target in the recent armed conflict in Northern Israel, and, accordingly, our facility and personnel in Haifa were at significant risk during that conflict. Although we suffered no damage to our facilities or injury to our personnel during the recent conflicts, significant damage to our facilities in Israel,

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injury of our employees working there, or damage to the Israeli business or transportation infrastructure as a result of future military conflict or terrorist activity could materially affect our operations in Israel and harm our business. In addition, some of our employees in Israel serve in the military reserve. Any prolonged absence of a substantial number of these employees could materially harm our business.

In addition to their impact on our operations in Israel, military conflict in the Middle East or future terrorist activities there or elsewhere in the world could harm our business as a result of a disruption in commercial activity affecting international commerce or a general economic slowdown and reduced demand for consumer electronic products.

The Israeli rate of inflation may negatively impact our costs if it exceeds the rate of devaluation of the new Israeli shekel against the United States dollar.

A portion of the cost of our operations, relating mainly to our personnel and facilities in Israel, is incurred in new Israeli shekels. As a result, we bear the risk that the rate of inflation in Israel or the decline in the value of United States dollar compared to the Israeli shekel will increase our costs as expressed in United States dollars. To date, we have not engaged in hedging transactions. In the future, we may enter into currency hedging transactions to decrease the risk of financial exposure from fluctuations in the exchange rate of the United States dollar against the new Israeli shekel. These measures may not adequately protect us from the impact of inflation in Israel.

We derive most of our revenue from sales to a small number of large customers, and if we are not able to retain these customers, or they reschedule, reduce or cancel orders, our revenues would be reduced and our financial results would suffer.

Our largest customers have accounted for a substantial percentage of our revenues. In 2006, one customer accounted for 14% of our total revenues, while sales to our four largest customers accounted for 36% of our total revenues. In 2005, no single customer accounted for more than 10% of our total revenues, and sales to our four largest customers accounted for 29% of our total revenues. Sales to these large customers have varied significantly from year to year and will continue to fluctuate in the future. These sales also may fluctuate significantly from quarter to quarter. We may not be able to retain our key customers, or these customers may cancel purchase orders or reschedule or decrease their level of purchases from us. Any substantial decrease or delay in sales to one or more of our key customers could harm our sales and financial results. In addition, any difficulty in collecting amounts due from one or more key customers could harm our financial results. As of December 31, 2006 four customers accounted for approximately 13%, 12%, 10% and 10% of the net accounts receivable balance, respectively.

Our products generally have long sales cycles and implementation periods, which increases our costs in obtaining orders and reduces the predictability of our operating results.

Our products are technologically complex. Prospective customers generally must make a significant commitment of resources to test and evaluate our products and to integrate them into larger systems. As a result, our sales processes are often subject to delays associated with lengthy approval processes that typically accompany the design and testing of new products. The sales cycles of our products often last for many months. Longer sales cycles require us to invest significant resources in attempting to make sales and delay the generation of revenue.

Long sales cycles also subject us to other risks, including customers’ budgetary constraints, internal acceptance reviews and cancellations. In addition, orders expected in one quarter could shift to another because of the timing of customers’ purchase decisions. The time required for our customers to incorporate our products into their own can vary significantly with the needs of our customers and

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generally exceeds several months, which further complicates our planning processes and reduces the predictability of our operating results.

We are not protected by long-term contracts with our customers.

We generally do not enter into long-term purchase contracts with our customers, and we cannot be certain as to future order levels from our customers. Customers generally purchase our products subject to cancelable short-term purchase orders. We cannot predict whether our current customers will continue to place orders, whether existing orders will be canceled, or whether customers who have ordered products will pay invoices for delivered products. When we do enter into a long-term contract, the contract is generally terminable at the convenience of the customer. Early termination by one of our major customers would harm our financial results.

Our products could contain defects, which could reduce sales of those products or result in claims against us.

We develop complex and evolving products. Despite testing by us and our customers, errors may be found in existing or new products. This could result in, among other things, a delay in recognition or loss of revenues, loss of market share or failure to achieve market acceptance. These defects may cause us to incur significant warranty, support and repair costs, divert the attention of our engineering personnel from our product development efforts and harm our relationships with customers. The occurrence of these problems could result in the delay or loss of market acceptance of our products and would likely harm our business. Defects, integration issues or other performance problems in our products could result in financial or other damages to customers or could damage market acceptance of such products. Our customers could also seek damages from us for their losses. A product liability claim brought against us, even if unsuccessful, would likely be time consuming and costly to defend.

Regulation of our customers’ products may slow the process of introducing new products and could impair our ability to compete.

The Federal Communications Commission, or FCC, has broad jurisdiction over our target markets in the digital television business. Various international entities or organizations may also regulate aspects of our business or the business of our customers. Although our products are not directly subject to regulation by any agency, the transmission pipes, as well as much of the equipment into which our products are incorporated, are subject to direct government regulation. For example, before they can be sold in the United States, advanced televisions and emerging interactive displays must be tested and certified by Underwriters Laboratories and meet FCC regulations. Accordingly, the effects of regulation on our customers or the industries in which our customers operate may in turn harm our business. FCC regulatory policies affecting the ability of cable operators or telephone companies to offer certain services and other terms on which these companies conduct their business may impede sales of our products. In addition, our digital television business may also be adversely affected by the imposition of tariffs, duties and other import restrictions on our suppliers or by the imposition of export restrictions on products that we sell internationally. Changes in current laws or regulations or the imposition of new laws or regulations in the United States or elsewhere could harm our business. For example, any delays by the FCC in imposing its pending requirement that all new televisions have a digital receiver could have an adverse effect on our HDTV business.

Our ability to compete could be jeopardized if we are unable to protect our intellectual property rights.

Our success and ability to compete depend in large part upon protection of our proprietary technology. We rely on a combination of patent, trade secret, copyright and trademark laws, non-disclosure and other contractual agreements and technical measures to protect our proprietary rights. These agreements and

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measures may not be sufficient to protect our technology from third-party infringement, or to protect us from the claims of others. Monitoring unauthorized use of our products is difficult, and we cannot be certain that the steps we have taken will prevent unauthorized use of our technology, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States. The laws of certain foreign countries in which our products are or may be developed, manufactured or sold, including various countries in Asia, may not protect our 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 our technology and products more likely in these countries. If competitors are able to use our technology, our ability to compete effectively could be harmed.

The protection offered by patents is subject to numerous uncertainties. For example, our competitors may be able to effectively design around our patents, or the patents may be challenged, invalidated or circumvented. Those competitors may also independently develop technologies that are substantially equivalent or superior to our technology. Moreover, while we hold, or have applied for, patents relating to the design of our products, some of our products are based in part on standards, for which we do not hold patents or other intellectual property rights.

We have generally limited access to and distribution of the source and object code of our software and other proprietary information. With respect to our page description language software, SOC platform firmware and drivers for the digital office market and in limited circumstances with respect to firmware on SCS products, firmware and platforms for our DTV, DVDR products, we grant licenses that give our customers access to and restricted use of the source code of our software. This access increases the likelihood of misappropriation or misuse of our technology.

Claims and litigation regarding intellectual property rights could seriously harm our business and require us to incur significant costs.

In recent years, there has been significant litigation in the United States involving patents and other intellectual property rights. In the past, Zoran has been subject to claims and litigation regarding alleged infringement of other parties’ intellectual property rights, and both Oak and Zoran have been parties to a number of patent-related lawsuits, both as plaintiff and defendant. We could become subject to additional litigation in the future, either to protect our intellectual property or as a result of allegations that we infringe others’ intellectual property rights. Claims that our products infringe proprietary rights would force us to defend ourselves and possibly our customers or manufacturers against the alleged infringement. Future litigation against us, if successful, could subject us to significant liability for damages or invalidation of our proprietary rights. These lawsuits, regardless of their success, are time-consuming and expensive to resolve and require significant management time and attention. Future intellectual property litigation could force us to do one or more of the following:

·stop selling products that incorporate the challenged intellectual property;

·obtain from the owner of the infringed intellectual property right a license to sell or use the relevant technology, which license may not be available on reasonable terms or at all;

·pay damages; or

·redesign those products that use such technology.

Although patent disputes in the semiconductor industry have often been settled through cross-licensing arrangements, we may not be able in any or every instance to settle an alleged patent infringement claim through a cross-licensing arrangement. We have a more limited patent portfolio than many of our competitors. If a successful claim is made against us or any of our customers and a license is not made

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available to us on commercially reasonable terms or we are required to pay substantial damages or awards, our business, financial condition and results of operations would be materially adversely affected.

If necessary licenses of third-party technology are not available to us or are very expensive, our products could become obsolete.

From time to time, we may be required to license technology from third parties to develop new products or product enhancements. Third party licenses may not be available on commercially reasonable terms, if at all. If we are unable to obtain any third-party license required to develop new products and product enhancements, we may have to obtain substitute technology of lower quality or performance standards or at greater cost, either of which could seriously harm the competitiveness of our products.

We rely on licenses to use various technologies that are material to our products. We do not own the patents that underlie this license. Our rights to use these technologies and employ the inventions claimed in the licensed patents are subject to our abiding by the terms of the licenses. Under the license agreements we must fulfill confidentiality obligations and pay royalties. If we fail to abide by the terms of the license, we would be unable to sell and market the products under license. In addition, we do not control the prosecution of the patents subject to this license or the strategy for determining when such patents should be enforced. As a result, we are dependent upon our licensor to determine the appropriate strategy for prosecuting and enforcing those patents.

If we are not able to apply our net operating losses against taxable income in future periods, our financial results will be harmed.

Our future net income and cash flow will be affected by our ability to apply our net operating losses, or NOLs, against taxable income in future periods. Our NOLs totaled approximately $185 million for federal and $36 million for state tax reporting purposes as of December 31, 2006. The Internal Revenue Code contains a number of provisions that limit the use of NOLs under certain circumstances. During 2006 we reduced the NOL deferred tax asset for amounts which we believe will expire before they become available for utilization. Changes in tax laws in the United States may further limit our ability to utilize these NOLs. Any further limitation on our ability to utilize these respective NOLs could harm our financial condition.

Changes in, or interpretations of, tax rules and regulations may adversely affect our effective tax rates.

Unanticipated changes in our tax rates could affect our future results of operations. Our future effective tax rates could be unfavorably affected by changes in tax laws or the interpretation of tax laws, by unanticipated decreases in the amount of revenue or earnings in countries with low statutory tax rates, or by changes in the valuation of our deferred tax assets and liabilities. While we believe our tax reserves adequately provide for any tax contingencies, the ultimate outcomes of any future tax audits are uncertain, and we can give no assurance as to whether an adverse result from one or more of them will have a material effect on our operating results and financial position.

Any additional acquisitions we make could disrupt our business and severely harm our financial condition.

We have made investments in, and acquisitions of other complementary companies, products and technologies, and we may acquire additional businesses, products or technologies in the future. In the event of any future acquisitions, we could:

·issue stock that would dilute its current stockholders’ percentage ownership;

·incur debt;

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·use a significant amount of our cash;

·assume liabilities;

·incur expenses related to the future impairment of goodwill and the amortization of other intangible assets; or

·incur other large write-offs immediately or in the future.

Our operation of any other acquired business will also involve numerous risks, including:

·problems combining the purchased operations, technologies or products;

·unanticipated costs;

·diversion of management’s attention from our core business;

·adverse effects on existing business relationships with customers;

·risks associated with entering markets in which we have no or limited prior experience; and

·potential loss of key employees, particularly those of the purchased organizations.

We may not be able to successfully complete the integration of the business, products or technologies or personnel that we might acquire in the future, and any failure to do so could disrupt our business and seriously harm our financial condition.

If our goodwill or amortizable intangible assets become impaired we may be required to record a significant charge to earnings.

Under generally accepted accounting principles, we review our amortizable intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is required to be tested for impairment at least annually. Factors that may be considered a change in circumstances indicating that the carrying value of our goodwill or amortizable intangible assets may not be recoverable include a decline in stock price and market capitalization, future cash flows, and slower growth rates in our industry. We may be required to record a significant charge to earnings in our financial statements during the period in which any impairment of our goodwill or amortizable intangible assets is determined resulting in an impact on our results of operations.

We may need additional funds to execute our business plan, and if we are unable to obtain such funds, we will not be able to expand our business as planned.

We may require substantial additional capital to finance our future growth, secure additional foundry capacity and fund our ongoing research and development activities during 2007 and beyond. Our capital requirements will depend on many factors, including:

·the levels at which we maintain inventory and accounts receivable;

·the market acceptance of our products;

·the levels of promotion and advertising required to launch our new products or to enter markets and attain a competitive position in the marketplace;

·our business, product, capital expenditure and research and development plans and technology roadmap;

·volume pricing concessions;

·capital improvements to new and existing facilities;

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·technological advances;

·the response of competitors to our products; and

·our relationships with our suppliers and customers.

In addition, we may require an increase in the level of working capital to accommodate planned growth, hiring and infrastructure needs. Additional capital may also be required for additional acquisitions of businesses, products or technologies.

If we fail to manage our future growth, if any, our business would be harmed.

We anticipate that our future growth, if any, will require us to recruit and hire a substantial number of new engineering, managerial, sales and marketing personnel. Our ability to manage growth successfully will also require us to expand and improve administrative, operational, management and financial systems and controls. Many of our key operations, including a material portion of our research and development operations and a significant portion of our sales and administrative operations are located in Israel. A majority of our sales and marketing and certain of our research and development and administrative personnel, including our President and Chief Executive Officer and other officers, are based in the United States. The geographic separation of these operations places additional strain on our resources and our ability to manage growth effectively. If we are unable to manage growth effectively, our business will be harmed.

We rely on the services of our executive officers and other key personnel, whose knowledge of our business and industry would be extremely difficult to replace.

Our success depends to a significant degree upon the continuing contributions of our senior management. Management and other employees may voluntarily terminate their employment with us at any time upon short notice. The loss of key personnel could delay product development cycles or otherwise harm our business. We believe that our future success will also depend in large part on our ability to attract, integrate and retain highly-skilled engineering, managerial, sales and marketing personnel, located in the United States, Israel and China. Competition for such personnel is intense, and we may not be successful in attracting, integrating and retaining such personnel. Failure to attract, integrate and retain key personnel could harm our ability to carry out our business strategy and compete with other companies.

Provisions in our charter documents and Delaware law could prevent or delay a change in control of Zoran.

Our certificate of incorporation and bylaws and Delaware law contain provisions that could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders. These include provisions:

·prohibiting a merger with a party that has acquired control of 15% or more of our outstanding common stock, such as a party that has completed a successful tender offer, until three years after that party acquired control of 15% of our outstanding common stock;

·authorizing the issuance of up to 3,000,000 shares of “blank check” preferred stock;

·eliminating stockholders’ rights to call a special meeting of stockholders; and

·requiring advance notice of any stockholder nominations of candidates for election to our board of directors.

Our stock price has fluctuated and may continue to fluctuate widely.

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The market price of our common stock has fluctuated significantly since our initial public offering in 1995. Between January 1, 2006 and December 31, 2006, the closing sale price of our common stock, as reported on the Nasdaq Global Select Market, ranged from a low of $13.67 to a high of $29.13. The market price of our common stock is subject to significant fluctuations in the future in response to a variety of factors, including:

·results of regulatory investigations;

·announcements concerning our business or that of our competitors or customers;

·annual and quarterly variations in our operating results;

·changes in analysts’ earnings estimates;

·announcements of technological innovations;

·the introduction of new products or changes in product pricing policies by Zoran or its competitors;

·loss of key personnel;

·proprietary rights or other litigation;

·general conditions in the semiconductor industry; and

·developments in the financial markets.

From time to time the stock market experiences extreme price and volume fluctuations that have particularly affected the market prices for semiconductor companies or technology companies generally and which have been unrelated to the operating performance of the affected companies. Broad market fluctuations of this type may reduce the future market price of our common stock.

Item 1B—Unresolved Staff Comments

None

Item 2—Properties

Our executive offices and principal marketing, sales and product development operations are located in approximately 89,000 square feet of leased space in Sunnyvale, California, under a lease that expires in September 2016. A significant portion of our research and development and engineering facilities and our administration, marketing and sales operations are currently located in approximately 109,700 square feet of leased space in an industrial park in Haifa, Israel under a lease expiring in November 2016. We also lease facilities, primarily for sales, product development, and technical support, in Woburn, Massachusetts; Manchester, England; Dortmund, Germany; Tokyo, Japan; Seoul, Korea; Taipei, Taiwan and Shenzhen, Shanghai and Hong Kong, China. We believe that our current facilities are adequate for our needs for the foreseeable future and that, should it be needed, suitable additional space in each of the locations in which we operate will be available to accommodate expansion of our operations on commercially reasonable terms.

Item 3—Legal Proceedings

U.S. Attorney and SEC Investigations:On July 3, 2006, Zoran disclosed in a press release that it received a grand jury subpoena from the office of the U.S. attorney for the Northern District of California requesting documents from 1995 through the present referring to, relating to or involving stock options, and also received an informal inquiry from the SEC requesting documents related to Zoran’s stock option grants. Zoran intends to cooperate fully in all government investigations. These inquiries likely will require the Company to expend significant management time and incur significant legal and other expenses, and could result in civil and criminal actions seeking, among other things, injunctions against the Company and its

34

officers and directors and the payment of significant fines and penalties by the Company and its officers and directors, which may adversely affect its results of operations and cash flow. The Company cannot predict how long it will take to or how much more time and resources it will have to expend to resolve these government inquiries, nor can it predict the outcome of these inquiries. Also, there can be no assurance that other inquiries, investigations or actions will not be started by other United States federal or state regulatory agencies or by foreign governmental agencies.

Late SEC Filings and Nasdaq Delisting Proceedings Due to the Special Committee investigation and the resulting restatements, the Company did not file on time its Quarterly Reports on Form 10-Q for the quarters ended June 30, 2006 and September 30, 2006, or its Annual Report on Form 10-K for the year ended December 31, 2006. As a result, the Company received Nasdaq Staff Determination letters, dated August 14, 2006, November 15, 2006 and March 20, 2007 stating that the Company was not in compliance with the filing requirements of Marketplace Rule 4310(c)(14) and, therefore, that the Company’s stock was subject to delisting from the Nasdaq Global Select Market. A hearing before a Nasdaq Listing Qualifications Panel was held on September 27, 2006 and a decision to grant the Company’s request for continued listing on Nasdaq subject to certain conditions occurred on December 28, 2006. The Company has appealed this decision, and the Nasdaq Listing Council has determined to stay the December 28, 2006 Panel decision, and any future Panel determinations to suspend Zoran’s securities from trading, pending further action from the Listing Council. On March 2, 2007, the Company provided the Listing Council with an additional submission for its consideration regarding continued listing. The Listing Council will review the matter on the basis of the written record.

Shareholder Class Actions and Derivative Litigation Relating to Historical Stock Option Practices: As discussed further below, certain persons and entities identifying themselves as shareholders of Zoran have filed litigation purporting to assert claims arising out of the historical accounting for stock options.

Zucker v. Zoran Corporation, et al..On August 10, 2006, a securities class action complaint was filed against Zoran and certain of its officers and directors in the United States District Court, Northern District of California, alleging violations of federal securities laws. The Court selected Middlesex Pension Fund as lead plaintiff and approved lead plaintiff’s selection of counsel for the class. Plaintiff filed an amended complaint on February 1, 2007 and a second amended complaint on February 20, 2007. On March 8, 2007, Defendants filed a motion to dismiss. On March 20, 2007, lead plaintiff filed a notice voluntarily dismissing the action with prejudice as to the lead plaintiff.

NCEA-IBEW Pension Fund (The Decatur Plan) v. Galil, et al.On June 12, 2006, a purported shareholder derivative action was filed by the Decatur Plan against Zoran as a nominal defendant and certain of its officers and directors in the United States District Court, Northern District of California, alleging, inter alia, violations of federal and state securities laws and breaches of fiduciary duty. On December 4, 2006, Decatur Plan filed a notice of voluntary dismissal.

Pfeiffer v. Zoran Corporation et al.On September 7, 2006, a purported shareholder derivative action was filed by Milton Pfeiffer against Zoran as a nominal defendant and certain of its officers and directors in the United States District Court, Northern District of California, alleging, inter alia, violations of federal securities laws and breaches of fiduciary duties.

Gerald del Rosario v. Aharon et al.On September 26, 2006, a purported shareholder derivative action was filed by Gerald del Rosario against Zoran as a nominal defendant and certain of its current and former officers and directors in the United States District Court, Northern District of California, alleging, inter alia, violations of federal securities laws and breaches of fiduciary duty. On December 8, 2006, the Court issued an order consolidating the Del Rosario action with the Pfeiffer action. The

35

Court selected del Rosario as lead plaintiff and approved lead plaintiff’s selection of counsel for the consolidated derivative action. Plaintiffs filed a consolidated amended complaint on March 14, 2007.

Barone v. Gerzberg et al.; Durco v. Gerzberg et al.On October 23, 2006, two purported shareholder derivative actions were filed by Moshe Barone and John Durco against Zoran as a nominal defendant and certain of its current and former officers and directors in the California Superior Court of Santa Clara County, alleging, inter alia, violations of state securities laws and breaches of fiduciary duty. On January 24, 2007 the Court consolidated the Barone and Durco actions, appointed Messrs. Barone and Durco as co-lead plaintiffs and approved their selection of counsel for the consolidated derivative action. Co-Lead Plaintiffs filed a consolidated amended complaint on March 26, 2007.

On February 20, 2007, the Company filed a complaint against ArcSoft Inc. in the California Superior Court for the County of Alameda, seeking payment of $4 million in principal, together with accrued interest then in the amount of approximately $525,000, under four separate convertible promissory notes.  On February 28, 2007, the Company filed an application with the Court seeking to attach assets of ArcSoft as security for the payment of its obligations under the notes.  The notes represent amounts loaned by the Company to ArcSoft in 2004 in connection with a transaction involving the transfer to ArcSoft of rights related to a software product then under development and related agreements regarding the continued development and commercialization of the product.  On March 28, 2007, ArcSoft filed an answer denying liability under the notes and asserting various affirmative defenses.  ArcSoft also filed a cross complaint alleging fraud in the inducement of the business arrangement, fraudulent and negligent misrepresentation, breach of contract and of the implied covenant of good faith and fair dealing, and unjust enrichment and seeking monetary damages of more than $6.9 million.  The hearing on our application for an attachment is currently scheduled for May 14, 2007.

Indemnification Obligations.Subject to certain limitations, the Company is obligated to indemnify its current and former directors, officers and employees in connection with the investigation of the Company’s historical stock option practices and related government inquiries and litigation. These obligations arise under the terms of the Company’s certificate of incorporation, its bylaws, applicable contracts, and Delaware and California law. The obligation to indemnify generally means that the Company is required to pay or reimburse the individuals’ reasonable legal expenses and possibly damages and other liabilities incurred in connection with these matters. The Company is currently paying or reimbursing legal expenses being incurred in connection with these matters by a number of its current and former directors, officers and employees.

Other Legal Matters. The Company is named from time to time as a party to lawsuits in the normal course of its business. Litigation, in general, and intellectual property and securities litigation in particular, can be expensive and disruptive to normal business operations. Moreover, the results of legal proceedings are difficult to predict.

Item 4—Submission of Matters to a Vote of Security Holders

We did not submit any matters to a vote of our security holders during the fourth quarter of the year ended December 31, 2006.

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PART II

Item 5—Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is traded on the Nasdaq Global Select Market under the symbol “ZRAN.”

The following table sets forth the high and low closing sales price of our common stock as reported on The Nasdaq Global Select Market for the periods indicated:

	High		Low
2005
First Quarter	$	11.21	$	9.63
Second Quarter	$	13.95	$	8.97
Third Quarter	$	17.19	$	13.31
Fourth Quarter	$	17.38	$	12.51
2006
First Quarter	$	22.48	$	16.83
Second Quarter	$	29.13	$	21.00
Third Quarter	$	24.31	$	14.17
Fourth Quarter	$	16.54	$	13.67

As of December 31, 2006, there were 287 holders of record of our common stock.

We have never paid cash dividends on our capital stock. It is our present policy to retain earnings to finance the growth and development of our business and, therefore, we do not anticipate paying any cash dividends in the foreseeable future.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Neither we nor any affiliated purchaser repurchased any of our equity securities in the fourth quarter of 2006.

Item 6—Selected Financial Data

The consolidated balance sheet as of December 31, 2005, and the consolidated statements of operations for the years ended December 31, 2005 and 2004, have been restated as set forth in this Annual Report on Form 10-K. The data for the consolidated balance sheets as of December 31, 2004, 2003 and 2002 and the consolidated statements of operations for the fiscal years ended December 31, 2003 and 2002, have been restated to reflect the impact of the stock-based compensation adjustments, but such restated data have not been audited and is derived from the books and records of the Company. The information set forth below is not necessarily indicative of results of future operations, and should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes thereto included in Item 8 of this Annual Report on Form 10-K to fully understand factors that may affect the comparability of the information presented below. The information presented in the following tables has been adjusted to reflect the restatement of the Company’s financial results, which is more fully described in the “Explanatory Note” immediately preceding Part I, Item 1 and in Note 2, “Restatement of Consolidated Financial Statements” in Notes to Consolidated Financial Statements of this Annual Report on Form 10-K.

The Company has not amended its previously-filed Annual Reports on Form 10-K or Quarterly Reports on Form 10-Q for the periods affected by this restatement, other than the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006, which is being filed concurrently with this Annual

37

Report on Form 10-K. The financial information that has been previously filed or otherwise reported for these periods is superseded by the information in this Annual Report on Form 10-K, and the financial statements and related financial information contained in such previously-filed reports should no longer be relied upon.

The following selected consolidated financial data should be read in conjunction with the consolidated financial statements and the notes thereto included elsewhere herein.

	Year Ended December 31,
	2006			2005				2004				2003				2002
	(in thousands, except per share data)
				(As previously reported)				(As previously reported)				(As previously reported)				(As previously reported)
STATEMENTS OF OPERATIONS DATA:
Total revenues		$	495,805		$	395,758			$	378,864			$	216,528			$	149,117
Gross profit		269,545			210,209				152,629				85,477				62,213
Operating income (loss)		10,556			(27,100		)		(46,857		)		(72,004		)		6,831
Net income (loss)		16,328			(26,971		)		(47,354		)		(67,978		)		5,698
Basic net income (loss) per share(1)		$	0.34		$	(0.61	)		$	(1.11	)		$	(2.05	)		$	0.21
Diluted net income (loss) per share(1)		$	0.33		$	(0.61	)		$	(1.11	)		$	(2.05	)		$	0.20
Shares used in diluted per share calculations(1)		50,099			44,267				42,788				33,231				28,629

	Year Ended December 31,
	2006			2005				2004				2003				2002
	(in thousands, except per share data)
				(as restated)				(as restated)				(as restated)				(as restated)
STATEMENTS OF OPERATIONS DATA:
Total revenues		$	495,805		$	395,758			$	378,864			$	216,962			$	148,683
Gross profit		269,545			209,586				152,403				85,797				61,710
Operating income (loss)		10,556			(29,879		)		(45,767		)		(75,729		)		3,187
Net income (loss)		16,328			(30,272		)		(48,108		)		(71,351		)		2,093
Basic net income (loss) per share(1)		$	0.34		$	(0.68	)		$	(1.12	)		$	(2.15	)		$	0.08
Diluted net income (loss) per share(1)		$	0.33		$	(0.68	)		$	(1.12	)		$	(2.15	)		$	0.07
Shares used in diluted per share calculations(1)		50,099			44,267				42,788				33,231				28,629

	As of December 31,
	2006			2005			2004			2003			2002
	(in thousands)
				(As previously reported)			(As previously reported)			(As previously reported)			(As previously reported)
BALANCE SHEETS DATA:
Cash, cash equivalents and short-term investments	$	296,229		$	149,346		$	70,413		$	126,366			$	137,075
Working capital	314,790			170,946			109,320			146,810				159,288
Total assets	676,630			604,223			599,281			622,237				342,616
Accumulated deficit	(227,510		)	(230,795		)	(203,824		)	(156,470		)		(88,492		)
Total stockholders’ equity	$	583,997		$	499,348		$	500,627		$	534,279			$	311,012

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	As of December 31,
	2006			2005			2004			2003			2002
	(in thousands)
				(as restated)			(as restated)			(as restated)			(as restated)
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments	$	296,229		$	149,346		$	70,413		$	126,366			$	137,075
Working capital	314,790			170,114			108,597			146,528				158,854
Total assets	676,630			602,631			598,016			621,847				342,182
Accumulated deficit	(227,510		)	(243,838		)	(213,566		)	(165,458		)		(94,107		)
Total stockholders’ equity	$	583,997		$	496,924		$	498,769		$	533,607			$	310,578

Effective in fiscal year 2006, we implemented Statement of Financial Accounting Standards (“SFAS”) No. 123(R) “Share-Based Payment.” It requires us to measure all employee stock-based compensation awards using a fair value method and record such expense in our consolidated financial statements. In addition, to correct our past accounting for some stock options granted primarily from 1997 to 2003, we recorded an aggregate of $11.7 million of additional non-cash, stock-based compensation expense for the periods 1997 to 2005 under APB No. 25 and $0.4 million for 2006 under SFAS No. 123(R). There was no tax impact of these additional stock-based compensation expenses due to the full valuation allowance on our tax assets. Net income in fiscal year 2006 includes approximately $17.2 million of non-cash, stock-based compensation expense, compared to $4.5 million in fiscal year 2005, $2.6 million in fiscal year 2004, $10.2 million in fiscal year 2003 and $3.5 million in fiscal year 2002.

In connection with the restatement, the Company is recording additional non-cash adjustments that were previously considered to be immaterial relating to the timing of revenue recognition, accrued expenses, amortization of premiums and discounts on investments, additional expense related to options granted to a consultant and the calculation of amortization of stock-based compensation relating to a business combination in 2003. The Company is also recording losses under Accounting Principles Board Opinion 18 (“APB No. 18”), “The Equity Method of Accounting for Investments in Common Stock,” to record the losses on investment of the prior 17% ownership of Oren Semiconductor, Inc. under the equity method of accounting which was subsequently acquired by Zoran in 2005. These additional adjustments resulted in a cumulative expense of $1.3 million, including $0.2 million of tax expense, for the periods 2000 through 2005.

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Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations

This section and other parts of this Annual Report on Form 10-K contain forward-looking statements that involve risks and uncertainties. Forward-looking statements can also be identified by words such as “anticipates,” “expects,” “believes,” “plans,” “predicts,” and similar terms. Forward-looking statements are not guarantees of future performance and the Company’s actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in the subsection entitled “Item 1A—Risk Factors” above. The following discussion should be read in conjunction with the consolidated financial statements and notes thereto included in Item 8 of this report. The Company assumes no obligation to revise or update any forward-looking statements for any reason, except as required by law.

Restatements

On July 3, 2006, the Company announced that, at the recommendation of the Audit Committee, the Board of Directors had created a special committee of independent directors (“Special Committee”) to conduct a review of our historical stock option practices. As a result of its investigation, the Special Committee found, among other things, that some of the original measurement dates used by the Company for option grants were not adequately supported by contemporaneous records, and therefore the measurement dates used by us for accounting purposes required adjustment. The Special Committee concluded that the evidence did not establish that the errors which it identified resulted from fraud or intentional misconduct by our current senior management.

Based on the Special Committee’s findings and its own review of the facts, the Board of Directors concluded that there was no fraud or intentional misconduct by any current member of senior management. The Board also concluded that it has confidence in the integrity of the Company’s Chief Executive Officer, Dr. Levy Gerzberg, and the Company’s Chief Financial Officer, Mr. Karl Schneider.

Based on information obtained from the Special Committee’s review and additional work undertaken by the Company, management has concluded, and the Audit Committee has agreed, that the Company should restate certain previously filed financial statements, to reflect additional stock-based compensation expense with regard to certain past stock option grants. The corrections made in the restatements relate to options covering approximately 3.6 million shares. These adjustments amounted to an additional stock-based compensation expense of $0.4 million and $2.6 million in 2006 and 2005, respectively, and a benefit of $1.5 million in 2004. There was no tax impact of these additional stock-based compensation expenses due to the full valuation allowance on our tax assets.

In connection with the restatement, the Company is recording additional non-cash adjustments that were previously considered to be immaterial relating to the timing of revenue recognition, accrued expenses, amortization of premiums and discounts on investments, additional expense related to options granted to a consultant and the calculation of amortization of stock-based compensation relating to a business combination in 2003. The Company is also recording losses under Accounting Principles Board Opinion 18 (“APB No. 18”), “The Equity Method of Accounting for Investments in Common Stock,” to record the losses on investment of the prior 17% ownership of Oren Semiconductor, Inc. under the equity method of accounting which was subsequently acquired by Zoran in 2005. These additional adjustments resulted in a cumulative expense of $1.3 million, including $0.2 million of tax expense, for the periods 2000 through 2005.

Through 2005, we applied Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and its related interpretations, and provided the required pro forma disclosures under Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based

40

Compensation,” and SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure.” Under APB Opinion No. 25 (“APB No. 25”), non-cash, stock-based compensation expense was recognized for any option for which the exercise price was below the market price on the actual grant date. Because each of the options identified below (other than those which we have determined should be accounted for variably) was deemed to have an exercise price below the market price on the appropriate measurement date, we should have recognized a charge for each of those options under APB No. 25, in an amount equal to the number of shares covered by such options, multiplied by the difference between the exercise price and the market price on the appropriate measurement date. That expense should have been amortized over the vesting periods of the options. Starting in 2006, we adopted SFAS No. 123(R), “Share-Based Payment.” As a result, for 2006, the additional stock-based compensation expense required to be recorded for each of the options identified below was equal to the incremental fair value of those options on the appropriate measurement date over the remaining vesting periods of those options. We did not record such stock-based compensation expenses under APB No. 25 or SFAS No. 123(R) in our previously issued financial statements, and that is the reason for the restatement in this report. To correct our past accounting for stock options, we recorded additional pre-tax, non-cash, stock-based compensation expense of (a) $11.7 million for the periods 1997 to 2005 under APB No. 25 and (b) the remaining $0.4 million for 2006 under SFAS No. 123(R). The fair value of the options is being recorded using the accelerated amortization method under FIN 28 over the respective vesting periods of the awards.

Consistent with the accounting literature and recent guidance from the Securities and Exchange Commission (“SEC”), the Company has organized the grants with respect to which an accounting adjustment is required into categories based on grant type and process by which the grant was finalized. Based on the relevant facts and circumstances, the Company applied the relevant accounting standards to determine the measurement date for every grant within each category. The Company recorded accounting adjustments as required, resulting in stock-based compensation expense and related tax effects. The Company organized the grants where adjustments were required as follows:

·Company-wide option grants where optionees were added or grant amounts were changed after the option list was complete, or where insufficient contemporaneous documentation of the grant date exists. For seven Company-wide refresh and retention grants made between 1998 and 2003, the Company determined that some employees who were omitted from the option grant list were added to the list after the stated grant date, and that the number of shares covered by option grants to some employees was not finally determined until after the stated grant date. Further, in 2001 and 2002, insufficient contemporaneous documentation of the stated grant date existed. As a result of these issues, the Company restated its historical financial statements to increase stock-based compensation expense by approximately $6.3 million, recognized over the vesting periods of the relevant options.

·Re-priced options. In August 2002, after consideration of relevant information, the Compensation Committee rescinded its April 2002 grant, and its June 2002 grant, to executives and other key employees. The Company thereafter reissued the grants in August 2002. At the time, in consultation with our external advisors, we determined that these transactions did not require variable accounting. As a result of the Special Committee review of our historical stock option practices, we have reassessed the circumstances surrounding these transactions with our external advisors and have determined that the grants should have been accounted for variably. As a result, the Company restated its historical financial statements to increase stock-based compensation expense by a cumulative net amount of approximately $3.8 million, recognized over the vesting periods of these options.

·Acquisition-related options. The Company determined a grant given to retain employees hired in connection with an acquisition in October 2000 should have been accounted for variably. As a result, the Company restated its historical financial statements to increase stock-based

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compensation expense by approximately $0.3 million, recognized over the vesting periods of these options.

·Improper measurement dates for non-refresh stock option grants. The Company revised the measurement dates for certain grants made to new hires and for promotional and other miscellaneous non-refresh grants made between 1997 and 2003 as a result of approvals that were obtained subsequent to the stated grant dates or as a result of administrative delays or errors and a small number of stock option grants to non-executives that were determined to have been established retrospectively. As a result, the Company restated its historical financial statements to increase stock-based compensation expense by approximately $1.3 million, recognized over the vesting periods of these options.

In the aggregate, we have recorded additional stock-based compensation expense for the periods 1997 through 2005 of approximately $11.7 million on stock option grants made from 1997 through 2003.

The incremental impact from recognizing stock-based compensation expense resulting from the investigation of past stock option grants is as follows (dollars in thousands):

	Expense
	(Benefit)
Fiscal Year
1997	$	190
1998	223
1999	123
2000	120
2001	1,385
2002	3,182
2003	5,299
Cumulative effect at December 31, 2003	10,522
2004	(1,476		)
2005	2,623
	$	11,669

The cumulative effect of all of the restatements through December 31, 2003 increased additional paid-in capital by $10.7 million from $703.8 million to $714.5 million, increased accumulated deficit by $9.0 million from $156.4 million to $165.4 million, and decreased total stockholders’ equity by $0.7 million from $534.3 million to $533.6 million. All the restatements of financial statements, financial data and related disclosures described in this report are collectively referred to in this report as the “restatements.”

In December 2006, the Company amended options to purchase approximately 218,000 shares of common stock held by Dr. Gerzberg and Mr. Schneider to increase the exercise price of those options to the fair market value of the Company’s common stock on the revised measurement date so that these options are no longer subject to a penalty tax under IRC Section 409A.

We have not amended, and we do not intend to amend, any of our other previously filed Annual Reports on Form 10-K. We have amended our Quarterly Report for the period ended March 31, 2006 concurrent with the filing of our Annual Report on Form 10-K, and we do not intend to amend any of our other previously filed Quarterly Reports on Form 10-Q for the periods affected by the restatements. We present restated quarterly financial information for each of the quarters in 2006 and 2005 in “Selected Quarterly Financial Information (Unaudited)” included in this report.

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The impact of the restatements on the interim periods of each of the first three quarters of 2006 and each of the quarters of 2005 are disclosed in “Selected Quarterly Financial Information (Unaudited)” included in this report.

Internal Controls

Based on the definition of “material weakness” in the Public Company Accounting Oversight Board’s Auditing Standard No. 2, An Audit of Internal Control Over Financial Reporting Performed in Conjunction With an Audit of Financial Statements, the restatement of financial statements in prior filings with the SEC is a strong indicator of the existence of a “material weakness” in the design or operation of internal control over financial reporting. However, the Company has concluded that the control deficiencies that resulted in the restatement of the previously issued consolidated financial statements did not constitute a material weakness as of December 31, 2006 because management determined that as of December 31, 2006 the Company’s internal controls were effective.

The SEC may disagree with the manner in which we have accounted for and reported, or not reported, the financial impact of past option grant measurement date errors, and there is a risk that its inquiry could lead to circumstances in which we may have to further restate our prior financial statements, amend prior filings with the SEC, or otherwise take other actions not currently contemplated. In addition, the SEC may issue guidance on disclosure requirements related to the financial impact of past option grant measurement date errors that may require us to amend this filing or prior filings with the SEC to provide additional disclosures pursuant to this guidance. Any such circumstance could also lead to future delays in filing our subsequent SEC reports and delisting of our common stock from the NASDAQ Global Select Market.

As a result of the investigation of its historical stock option practices, we analyzed Zoran’s internal control over financial reporting for periods before January 1, 2003, and determined that the Company did not have sufficient safeguards in place to monitor its control practices regarding stock option pricing and related financial reporting and to foster an effective flow of information between those responsible for stock option pricing and those responsible for financial reporting. Inadequate training, communication and coordination in and among the Company’s human resources, stock administration, legal and finance functions prevented the Company from assuring that stock options were priced and accounted for correctly, primarily for the years 1997 through 2002.

From 2003 through 2005, in compliance with the Sarbanes-Oxley Act of 2002 and evolving accounting guidance, the Company implemented improved procedures, processes and systems to provide additional safeguards and greater internal control over its stock option granting and administration. These improvements included:

·Documenting and assessing the design and operation of internal controls;

·Segregating responsibilities, adding reviews and reconciliations, and redefining roles and responsibilities;

·Implementing a new equity accounting system and a new stock administration function; and

·Implementing, prior to the adoption of SFAS No. 123(R), the practice of using the receipt of the final Board or Compensation Committee approval as the grant and measurement date for stock option grants.

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As a result of the recommendations of the Special Committee of our Board of Directors and deliberations of the Compensation Committee of our Board of Directors, we have adopted the following policies governing all stock option grants:

·All option grants must be approved by the Compensation Committee or the Board of Directors; the authority to approve option grants may not be delegated.

·Option grants (including officer, vice president, rank and file, promotional and new hire grants) are generally considered at regularly scheduled quarterly meetings of the Compensation Committee or the Board of Directors, and action may not be taken by unanimous written consent. 

·Grants are generally effective as of the later of (i) the second trading day following the Company’s public announcement of its financial results for the preceding quarter or (ii) the date of the Board or committee meeting.  

·Grants should be recorded promptly in the Company’s option accounting database, and grantees should receive prompt written notification of their grants.

·The annual focal review process will identify a specific date to complete the process of generating recommended grant amounts, after which the recommendations will be submitted to the Compensation Committee or the Board of Directors for approval.

·Board or committee minutes are to be drafted and circulated to directors for comment as soon as reasonably possible.

The Special Committee investigation and the Company’s related activities discovered no stock option grant after December 31, 2003 that required accounting adjustments.

Related Proceedings

U.S. Attorney and SEC Requests. On July 3, 2006, Zoran disclosed in a press release that it received a grand jury subpoena from the office of the U.S. attorney for the Northern District of California requesting documents from 1995 through the present referring to, relating to or involving stock options, and also received an informal inquiry from the SEC requesting documents related to Zoran’s stock option grants. Zoran intends to cooperate fully in all government inquiries or investigations. There is no assurance that we will not be subject to inquiries related to our stock option grant practices by other federal, state or foreign regulatory agencies. All such inquiries are likely to require us to continue to expend significant management time and incur significant legal and other expenses, and could result in civil and criminal actions seeking injunctions, fines or other sanctions that could adversely affect our business and financial results.

Shareholder Class Actions and Derivative Litigation Relating to Historical Stock Option Practices: As discussed under Item 3—Legal Proceedings above, certain persons and entities identifying themselves as shareholders of Zoran have filed class action complaints against the Company and derivative actions purporting to assert claims on behalf of and in the name of the Company against various of the Company’s current and former directors and officers relating to Zoran’s historical accounting for and disclosures related to stock options. There may be additional lawsuits of this nature filed in the future. We cannot predict the outcome of any such litigation, or the amount of time and expenses that will be required to resolve them. If these lawsuits become time consuming and expensive, or if there are unfavorable outcomes in any of these cases, there could be a material adverse effect on our business, financial condition and results of operations.

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Cost of Related Proceedings and Restated Financial Statements. We have incurred substantial expenses for legal, accounting, tax and other professional services in connection with the Special Committee investigation, our own related review work, the preparation of the restated financial statements, the SEC and Department of Justice matters and inquiries from other government agencies, and the related litigation. We have recorded expenses of $5.8 million in aggregate through 2006 and we expect to incur additional costs in the future.

Restatement and Impact on Financial Statements

The following information has been adjusted to reflect the restatement of the Company’s financial results, which is more fully described in the “Explanatory Note” immediately preceding Part I, Item 1 and in Note 2, “Restatement of Consolidated Financial Statements” in Notes to Consolidated Financial Statements of this Annual Report on Form 10-K.

In connection with the restatement, the Company is recording additional non-cash adjustments that were previously considered to be immaterial relating to the timing of revenue recognition, accrued expenses, amortization of premiums and discounts on investments, additional expense related to options granted to a consultant and the calculation of amortization of stock-based compensation relating to a business combination in 2003.

For additional information, refer to “Note 2—Restatement of Consolidated Financial Statements,” in Notes to Consolidated Financial Statements.

The income statement impact of the restatements are as follows (in thousands):

	Cumulative effect at December 31, 2005				Year Ended December 31, 2005				Year Ended December 31, 2004				Cumulative effect at December 31, 2003
Net loss as previously reported						$	(26,971	)		$	(47,354	)
Additional compensation (expense) benefit resulting from improper measurement dates for stock option grants, net of tax		$	(11,669	)		(2,623		)		1,476				$	(10,522	)
Other adjustments, net of tax		(1,374		)		(678		)		(2,230		)		1,534
Total increase to net loss		(13,043		)		(3,301		)		(754		)		(8,988		)
Net loss, as restated						(30,272		)		(48,108		)

	Year Ended December 31,
	2003			2002			2001			2000			1999			1998			1997
Stock-based employee compensation expense, as previously reported	$	(6,281	)	$	(292	)	$	(544	)	$	(99	)	$	—		$	—		$	—
Additional compensation expense resulting from improper measurement dates for stock option grants	(5,299		)	(3,182		)	(1,385		)	(120		)	(123		)	(223		)	(190		)
Stock-based employee compensation expense, as restated	$	(11,580	)	$	(3,474	)	$	(1,929	)	$	(219	)	$	(123	)	$	(223	)	$	(190	)

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Overview

Zoran Corporation is a leading provider of digital solutions in the digital entertainment and digital imaging market.

Our products consist of integrated circuits and related products used in digital versatile disc, or DVD, players, movie and home theater systems, digital cameras and video editing systems. We also provide integrated circuits, software and platforms for digital television applications that enable the delivery and display of digital video content through a set-top box or television as well as digital imaging products consisting of semiconductor hardware and software that enable users to print, scan, process and transmit documents to computer peripherals that perform printing functions. Subsequent to our acquisition of Emblaze Semiconductor Ltd. on July 8, 2004, we also provide high performance, low-power application processors, technology and products for the multimedia mobile telephone market. Through the acquisition of Oren Semiconductor, Inc. on June 10, 2005, Zoran obtained Oren’s demodulator IC technology for the global high definition television market. We sell our products to original equipment manufacturers, or OEMs, who incorporate them in digital video and audio products for consumer and commercial applications.

Revenues

We derive most of our revenues from the sale of our integrated circuit products. Historically, average selling prices in the semiconductor industry in general, and for our products in particular, have decreased over the life of a particular product. Average selling prices for our hardware products have fluctuated substantially from period to period, primarily as a result of changes in our customer mix of original equipment manufacturer, or OEM, sales versus sales to resellers and the transition from low-volume to high-volume production. In the past, we have periodically reduced the prices of some of our products in order to penetrate the consumer market more broadly. We believe that, as our product lines continue to mature and competitive markets evolve, we are likely to experience further declines in the average selling prices of our products, although we cannot predict the timing and amount of such changes with any certainty.

We also derive revenue from licensing our software and other intellectual property. Licensing revenue includes one-time license fees and royalties based on the number of units distributed by the licensee. Annual licensing revenue can be significantly affected by the timing of a small number of licensing transactions, each accounting for substantial revenues. Accordingly, licensing revenues have fluctuated, and will continue to fluctuate, on an annual basis. In addition, we have historically generated a portion of our total revenues from development contracts, primarily with key customers, although development revenue has declined substantially as a percentage of total revenues over the past several years. These development contracts have provided us with partial funding for the development of some of our products. These development contracts provide for license and milestone payments which are recorded as development revenue. We classify all development costs, including costs related to these development contracts, as research and development expenses. We retain ownership of the intellectual property developed by us under these development contracts. While we intend to continue to enter into development contracts with certain strategic partners, we expect development revenue to continue to decline as a percentage of total revenues.

We recognize software license revenues in accordance with the provisions of Statement of Position (SOP) No. 97-2, Software Revenue Recognition, as amended by SOP No. 98-9, Modification of SOP No. 97-2, Software Revenue Recognition, With Respect to Certain Transactions. Our software license agreements typically include obligations to provide maintenance and other support over a fixed term and allow for renewal of maintenance services on an annual basis. We determine the fair value of our maintenance obligations with reference to substantive renewal rates within the agreement or objective

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evidence of fair value as required under SOP No. 97-2. Maintenance and support revenue is recognized ratably over the term of the arrangement. We also receive royalty revenues based on per unit shipments of products embedding our software which we recognize upon receipt of a royalty report from the customer, typically one quarter in arrears.

Cost of Hardware Product Revenues

Our cost of hardware product revenues consists primarily of fabrication costs, assembly and test costs, and the cost of materials and overhead from operations. If we are unable to reduce our cost of hardware product revenues to offset anticipated decreases in average selling prices, our product gross margins will decrease. We expect both product and customer mix to continue to fluctuate in future periods, causing fluctuations in margins.

Research and Development

Our research and development expenses consist of salaries and related costs of employees engaged in ongoing research, design and development activities and costs of engineering materials and supplies. We are a party to research and development agreements with the Chief Scientist in Israel’s Ministry of Industry and Trade and the Israel-United States Binational Industrial Research and Development Foundation, which fund up to 50% of incurred project costs for approved products up to specified contract maximums. These agreements require us to use our best efforts to achieve specified results and require us to pay royalties at rates of 3% to 5% of resulting product sales, and up to 30% of resulting license revenues, up to a maximum of 100% to 150% of total funding received. Reported research and development expenses are net of these grants, which fluctuate from period to period. From time to time, we enter into non-refundable joint development projects in which our customers reimburse us for a portion of our development costs. We classify such reimbursement of development costs as an offset to research and development expenses as we retain ownership of the intellectual property developed by us under these development arrangements. During 2006, we received approximately $347,000 in such reimbursements. We received $1.2 million in reimbursements in 2005. We believe that significant investments in research and development are required for us to remain competitive, and we expect to continue to devote significant resources to product development, although such expenses as a percentage of total revenues may fluctuate.

Selling, General and Administrative

Our selling, general and administrative expenses consist primarily of employee-related expenses, sales commissions, product promotion and other professional services. We expect that selling, general and administrative expenses will continue to increase to support our anticipated growth.

Income Taxes

Our effective income tax rate has benefited from the availability of previously unbenefitted net operating losses which we have utilized to reduce taxable income for U.S. federal income tax purposes and by our Israel based subsidiary’s status as an “Approved Enterprise” under Israeli law, which provides a ten-year tax holiday for income attributable to a portion of our operations in Israel. Our U.S. federal net operating losses expire at various times between 2017 and 2024, and the benefits from our subsidiary’s Approved Enterprise status expire at various times beginning in 2008.

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Acquisitions

Oren Semiconductor, Inc.

On June 10, 2005, we completed our acquisition of Oren Semiconductor, Inc. (“Oren”), a privately-held provider of demodulator ICs for the global high definition television market. Prior to this acquisition, we had made investments in Oren that represented a 17% ownership interest. Under the terms of the acquisition agreement, we acquired the remaining 83% of Oren’s outstanding stock by means of a merger of Oren with a wholly-owned subsidiary of Zoran, in consideration for which we paid an aggregate of $28.4 million in cash and issued 1,188,061 shares of Zoran common stock valued at $12.9 million, for total consideration of $41.3 million, to the other stockholders of Oren and to employees holding Oren options. The acquisition was accounted for under the purchase method of accounting.

Following the completion of the acquisition, the results of operations of Oren have been included in our consolidated financial statements. In addition, we recorded retroactive losses under Accounting Principles Board Opinion 18 (“APB No. 18”), “The Equity Method of Accounting for Investments in Common Stock,” to record the losses on investment of the prior 17% ownership of Oren Semiconductor, Inc. under the equity basis. Accordingly, our results of operations for the year ended December 31, 2006 include Oren’s operations for the full year; our results of operations for the year ended December 31, 2005 include Oren’s operations between June 10, 2005 and December 31, 2005 and $218,000 representing our portion of the losses incurred by Oren between January 1, 2005 and June 10, 2005; and our results of operations for the year ended December 31, 2004 do not include Oren’s operations.

Emblaze Semiconductor Ltd.

On July 8, 2004, we completed our acquisition of Emblaze Semiconductor Ltd. (“Emblaze”), a wholly-owned subsidiary of Emblaze Ltd. for $54.2 million in cash. The acquisition was accounted for under the purchase method of accounting.

Following the completion of the acquisition, the results of operations of Emblaze have been included in our consolidated financial statements. Accordingly, our results of operations for the years ended December 31, 2006 and 2005 include Emblaze’s operations for the full years presented while the results of operations for the year ended December 31, 2004 only reflect Emblaze’s operations between July 8, 2004 and December 31, 2004.

Segments

During the first quarter of 2006, we reorganized our operating structure to bring together our consumer electronic product lines under a single operating group, in recognition of the accelerating convergence of consumer products and our strategy of sharing technology among our various product lines. The new Consumer segment combines the former Digital Versatile Disc (DVD), Digital Television (DTV) and Mobile product groups whose operations were previously reported separately. We will continue to report the operations of our Imaging group as a separate operating segment.

Prior to July 2004, we had four reportable segments: Digital Versatile Disc (DVD), Imaging, Digital Camera (DC) and Digital Television (DTV). Subsequent to the Emblaze acquisition in July 2004, the operations of Emblaze were combined with the Digital Camera group and the group was renamed the Mobile segment. Each segment’s primary products are based on highly integrated application-specific integrated circuits, or ASICs, and system-on-a-chip, or SOC, solutions. The DVD, Imaging and DTV segments also license certain software and other intellectual property. The DVD group provides products for use in DVD players and recordable DVD players. The Imaging group provides products used in digital copiers, laser and inkjet printers as well as multifunction peripherals. The Mobile group focuses on

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solutions for multimedia mobile phone products and digital camera products. The DTV group provides products for standard and high definition digital television products including televisions, set top boxes and personal video recorders.

Critical Accounting Policies and Estimates

This discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including bad debt, inventories, investments, intangible assets and income taxes. We base these estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies require our most significant judgments and estimates used in the preparation of our consolidated financial statements:

·We generally recognize product sales to distributors at the time of delivery. However, in some cases we grant rights of return or provide price protection arrangements. When we are able to estimate the effect of such an arrangement, we establish a reserve for the estimated adjustment and recognize the balance of the product revenue associated with that arrangement upon shipment. When we cannot reasonably estimate the effect of such an arrangement, we defer all revenue subject to the arrangement until the return right has lapsed or the price has become fixed. The deferred revenue balance at the end of each accounting period was not material.

·Revenue from development contracts is generally recognized as the services are performed based on the specific deliverables outlined in each contract. Amounts received in advance of performance under contracts are recorded as deferred revenue and are generally recognized within one year from receipt. Costs associated with development revenues are included primarily in research and development expenses.

·Revenue from litigation settlement is recognized in accordance with the terms of the agreement when actual cash payments are received.

·Inventories are recorded at the lower of standard cost, which approximates actual cost on a first-in-first-out basis, or market value. We write down inventories to net realizable value based on forecasted demand and market conditions. Actual demand and market conditions may be different from those projected by our management. This could have a material effect on our operating results and financial position. Inventory write-downs are not reversed and permanently reduce the cost basis of the affected inventory until such inventory is sold or scrapped.

·We maintain allowances for doubtful accounts for estimated losses resulting from the delays or inability of certain customers to make required payments. These allowances are estimated based on both specific identification of facts and circumstances with respect to each doubtful account. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

·We hold minority interests in private companies having operations or technology in areas within our strategic focus. At December 31, 2006, these investments totaled $4.2 million. The investments are in start up companies engaged in development and are expected to incur losses. We record an

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investment impairment charge when we believe an investment has experienced a decline in value. We assess the value of this investment principally by using information obtained from the investee, including historical and projected financial performance and recent funding events. Future adverse changes in market conditions or unexpected operating losses of underlying investments could result in losses or an inability to recover the carrying value of the investments that may not be reflected in an investment’s current carrying value thereby possibly requiring an impairment charge in the future.

·We assess the impairment of goodwill annually, or more frequently if events or changes in circumstances indicate that the carrying value of such assets exceeds their fair value. We assess the carrying value of our long lived assets if events or circumstances indicate the carrying value of the assets exceeds the future undiscounted cash flows attributable to such assets. With respect to both goodwill and long lived assets, factors which could trigger an impairment review include significant negative industry or economic trends, exiting an activity in conjunction with a restructuring of operations, current, historical or projected losses that demonstrate continuing losses associated with an asset or a significant decline in our market capitalization for an extended period of time, relative to net book value. Impairment evaluations involve management estimates of asset useful lives and future cash flows. These estimates include assumptions about future conditions such as future revenues, gross margins, operating expenses, the fair values of certain assets based on appraisals, and industry trends. Actual useful lives and cash flows could be different from those estimated by our management. This could have a material effect on our operating results and financial position.

·Prior to January 1, 2006, we applied APB No. 25, “Accounting for Stock Issued to Employees,” and its related Interpretations and provided the required pro forma disclosures under SFAS No. 123, “Accounting for Stock-Based Compensation.” In accordance with APB No. 25, a non-cash stock-based compensation expense was recognized for any options for which the exercise price was below the market price on the actual grant date. The charge for the options with an exercise price below the market price on the actual grant date was equal to the number of options multiplied by the difference between the exercise price and the market price of the option shares on the actual grant date. That expense was amortized over the vesting period of the option. Beginning January 1, 2006, we have accounted for stock-based compensation using the fair value of stock options using a Black-Scholes valuation model, consistent with the provisions of SFAS No. 123(R), SEC Staff Accounting Bulletin (“SAB”) No. 107. We elected to adopt the modified prospective application method as provided by SFAS No. 123(R). SFAS No. 123(R) requires the use of option pricing models that were not developed for use in valuing employee stock options. The Black-Scholes option-pricing model was developed for use in estimating the fair value of short-lived exchange traded options that have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions, including the option’s expected life and the price volatility of the underlying stock. The expected stock price volatility assumption was determined using the historical volatility of the Company’s common stock. We determined that historical volatility is reflective of market conditions and a good indicator of expected volatility. Prior to the adoption of SFAS No. 123(R), we also used historical volatility in deriving the expected volatility assumption. In November 2005, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) No. 123(R)-3, “Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards” (“FSP 123R-3”). We have elected not to adopt the alternative transition method provided in the FSP 123R-3 for calculating the tax effects of stock-based compensation pursuant to SFAS No. 123(R). We followed paragraph 81 of SFAS No. 123(R) to calculate the initial pool of excess tax benefits and to determine the subsequent impact on the Additional Paid-In-Capital (“APIC”) pool and Consolidated Statements of Cash Flows of the tax effects of employee stock-based compensation awards that are outstanding upon adoption of SFAS No. 123(R). See Notes 3 and 11 to Consolidated Financial Statements for a detailed description. Additionally, the Company has restated the pro forma expense under Statement of Financial

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Accounting Standards (“SFAS”) No. 123 in Note 2 of the Notes to Consolidated Financial Statements of this Form 10-K to reflect the impact of the restatement adjustments for the years ended December 31, 2005 and 2004.

·We are subject to the possibility of losses from various contingencies. Considerable judgment is necessary to estimate the probability and amount of any loss from such contingencies. An accrual is made when it is probable that a liability has been incurred or an asset has been impaired and the amount of loss can be reasonably estimated. We accrue a liability and charge operations for the estimated costs expected to be incurred over the next twelve months of adjudication or settlement of asserted and unasserted claims existing as of the balance sheet date. See Note 9 to Consolidated Financial Statements, “Commitments and Contingencies,” for a detailed description.

·We follow the liability method of accounting for income taxes which requires recognition of deferred tax liabilities and assets for the expected future tax consequence of temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities. Realization of deferred tax assets is based on our ability to generate sufficient future taxable income. The valuation allowance was determined in accordance with the provisions of SFAS No. 109 which requires an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable; such assessment is required on a jurisdiction by jurisdiction basis. Historical operating losses and continuing business uncertainty represent sufficient negative evidence which it was difficult for positive evidence to overcome under SFAS No. 109 and accordingly, a full valuation allowance was recorded. If the facts or estimates of future financial results were to change, increasing the likelihood of realizing the deferred tax assets, judgment would have to be applied to determine the amount of valuation allowance required in any given period. We intend to maintain a full valuation allowance until sufficient positive evidence exists to support reversal of the valuation allowance.

·With respect to mergers and acquisitions, we assess the technological feasibility of in process research and development projects and determine the number of alternative future uses for the technology being developed. To the extent there are no alternative future uses we allocate a portion of the purchase price to in-process research and development expense. This expense is generally estimated based upon the projected fair value of the technology, as determined by a discounted future cash flow reduced by the cost to complete. This analysis includes certain estimates and assumptions made by management. For larger acquisitions, we have historically engaged an external appraiser to assist with the assumptions and models used in this analysis.

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Results of Operations

The following table sets forth certain consolidated statement of operations data as a percentage of total revenues for the periods indicated and percentage changes from period to period:

	Years ended December 31,								Percentage change
									2006 to			2005 to
	2006		2005			2004			2005			2004
			(restated)			(restated)			(restated)			(restated)
Revenues:
Hardware product revenues	81.5	%		85.8	%		83.3	%		18.9	%		7.6	%
Software and other revenues	11.3	%		14.2	%		16.7	%		0.1	%		(11.0	)%
License revenues related to litigation settlement	7.2	%		—			—			*			*
Total revenues	100.0	%		100.0	%		100.0	%		25.3	%		4.5	%
Cost and expenses:
Cost of hardware product revenues	45.6	%		47.0	%		59.8	%		21.5	%		(17.8	)%
Research and development	20.0	%		22.7	%		21.6	%		10.3	%		9.8	%
Selling, general and administrative	22.1	%		24.1	%		17.4	%		15.4	%		43.8	%
Amortization of intangible assets	10.1	%		12.7	%		12.0	%		(0.4	)%		10.8	%
Amortization of stock-based compensation resulting from business combinations	—			0.4	%		1.1	%		*			(61.8	)%
Restructuring expense	—			—			0.2	%		*			*
In-process research and development	—			0.7	%		—			*			*
Total costs and expenses	97.8	%		107.6	%		112.1	%		14.0	%		0.2	%
Operating income (loss)	2.2	%		(7.6	)%		(12.1	)%		*			(34.7	)%
Interest income	2.2	%		0.7	%		0.1	%		326.4	%		885.9	%
Other income (loss), net	0.1	%		(0.2	)%		(0.3	)%		*			*
Income (loss) before income taxes	4.5	%		(7.1	)%		(12.3	)%		*			(40.1	)%
Provision for income taxes	1.2	%		0.6	%		0.4	%		144.6	%		53.0	%
Net income (loss)	3.3	%		(7.7	)%		(12.7	)%		*			(37.1	)%
Supplemental Operating Data:
Product gross margin	44.0	%		45.2	%		28.3	%		15.7	%		71.9	%

(*)not meaningful

Year Ended December 31, 2006 Compared to Year Ended December 31, 2005

Total revenues increased by $100.0 million, or 25.3%, to $495.8 million in 2006 from $395.8 million in 2005. This increase was a result of a $110.2 million increase in Consumer segment revenues, partially offset by a $10.2 million decrease in the Imaging segment. Within the Consumer segment, license revenues related to the litigation settlement accounted for $35.8 million of the increase while the remaining increase was primarily a result of increase in hardware product revenues of $73.5 million. The decrease in Imaging segment revenues in 2006 was primarily due to a $9.3 million decrease in hardware product revenues due to decrease in unit shipments.

Hardware product revenues increased by $64.2 million, or 18.9%, to $403.7 million in 2006 from $339.5 million in 2005. The increase in hardware product revenues was driven by growth in Consumer segment product revenues. Within the Consumer segment, hardware product revenues increased primarily due to a $46.9 million increase in the Mobile product line and $31.0 million increase in the DTV product line, in each case driven by increased unit shipments offset by a reduction of $4.5 million in the DVD product line attributable to reductions in unit shipments and average selling prices.

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Software and other revenues remained essentially unchanged at $56.3 million and $56.2 million in 2006 and 2005, respectively.

Cost of Hardware Product Revenues

Cost of hardware product revenues were $226.3 million in 2006 compared to $186.2 million in 2005. The increase in costs was primarily a result of the corresponding increase in hardware product revenues. As a percentage of hardware product revenues, hardware product costs were 56.0% in 2006 compared to 54.8% in 2005. Hardware product costs for 2005 included adjustments resulting in a $9.4 million decrease in inventory. Excluding the benefit of the net reduction in the inventory allowance, hardware product costs as a percentage of hardware product revenues would have been 57.6 % in 2005 with no significant change in 2006. The decrease in hardware product costs as a percentage of hardware product revenues in 2006 to 56.0% compared to the adjusted costs of 57.6% in 2005 reflected a change in product mix as revenues from the lower margin DVD product line represented a smaller proportion of total hardware product revenue with a relative increase in revenue from the higher margin Mobile and DTV product lines.

Research and Development

Research and development (“R&D”) expenses increased to $99.1 million in 2006 from $89.8 million in 2005, an increase of 10.3%. The increase in 2006 was primarily due to stock-based compensation expenses of $5.5 million recorded in 2006 as a result of the adoption of SFAS No. 123(R), compared with stock-based compensation expense of $0.8 million in 2005 prior to the adoption of SFAS No. 123(R); the inclusion of the operations of Oren which was acquired in June 2005 for the full year in 2006 as well as continued investments in research and development across all of our segments.

Selling, General and Administrative

Selling, general and administrative (“SG&A”) expenses increased to $109.8 million in 2006 from $95.2 million in 2005, representing a 15.4% increase. This increase was primarily due to stock-based compensation expenses of $11.3 million recorded in 2006 as a result of the adoption of SFAS No. 123(R), compared with stock-based compensation expense of $1.7 million in 2005 prior to the adoption of SFAS No. 123(R); $5.8 million of expenses in connection with the ongoing stock option review, continued increases in marketing and field application support expenses to support revenue growth in our Asia Pacific markets and the inclusion of the operations of Oren which was acquired in June 2005 for the full year in 2006. This increase was partially offset by the reduction of legal fees as a result of the completion of the Mediatek litigation.

Amortization of Intangible Assets

Amortization of intangible assets decreased to $50.1 million in 2006 from $50.3 million in 2005. At December 31, 2006, we had approximately $69.2 million in net intangible assets acquired through the Oak, Emblaze and Oren acquisitions which we will continue to amortize on a straight line basis for various periods extending through 2010.

Amortization of Stock-Based Compensation Resulting from Business Combinations

As a result of the adoption of SFAS No. 123(R) during the first quarter of 2006, we now record a charge for all stock-based compensation expenses as described in Note 3 to Notes to Consolidated Financial Statements and no longer record a separate charge for amortization of stock-based compensation resulting from business combinations. In 2005, we recorded charges of $1.5 million related to the amortization of amortization of stock-based compensation resulting from business combinations primarily as a result of stock options granted in connection with the Oak acquisition.

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In-Process Research and Development

There were no charges recorded for in-process research and development during 2006. In 2005, approximately $2.7 million of the purchase price of Oren Semiconductor, Inc. was allocated to in-process research and development for projects which had not reached technical feasibility and had no alternative future use. Accordingly, this amount was immediately expensed upon the acquisition date. This amount was determined using management’s estimates including consultation with an independent appraiser. At December 31, 2006, there have been no material variations from the underlying assumptions that were used in the original computation of the value of the acquired in-process research and development.

Interest Income

Interest income increased by $8.5 million to $11.1 million in 2006 compared to $2.6 million in 2005. The increase was a result of higher average cash and short term investment balances and the higher interest rates during 2006.

Provision for Income Taxes

Our effective tax rate differs from the U.S. statutory rate primarily due to utilization of previously unbenefitted net operating losses (“NOLs”) and State of Israel tax benefits on foreign earnings. The provision is primarily due to domestic income offset by previously unbenefitted purchased NOLs which when utilized reduce goodwill and not tax expense. For the year ended December 31, 2006, the Company reduced its income tax reserves by $2.1 million.  This was due to an expiring statute of limitations and the settlement of a domestic income tax audit.

Realization of deferred tax assets is based on our ability to generate sufficient future taxable income. The valuation allowance was determined in accordance with the provisions of SFAS No. 109, which requires an assessment of both positive and negative evidence on a jurisdiction by jurisdiction basis when determining whether it is more likely than not that deferred tax assets are recoverable. Historical operating losses and continuing business uncertainty represent sufficient negative evidence which it was difficult for positive evidence to overcome under SFAS No. 109 and accordingly, a full valuation allowance was recorded. If the facts or estimates of future financial results were to change, increasing the likelihood of realizing the deferred tax assets, judgment would have to be applied to determine the amount of valuation allowance required in any given period. We intend to maintain a full valuation allowance until sufficient positive evidence exists to support reversal of the valuation allowance.

Year Ended December 31, 2005 Compared to Year Ended December 31, 2004

Revenues

Total revenues increased by $16.9 million, or 4.5%, to $395.8 million in 2005 from $378.9 million in 2004. This increase was a result of a $16.2 million increase in Consumer segment revenues and a $0.7 million increase in Imaging segment revenues. Within the Consumer segment, the increase in revenues was primarily as a result of increase in hardware product revenues.

Hardware product revenues increased by $23.8 million, or 7.6%, to $339.5 million in 2005 from $315.7 million in 2004. The increase in hardware product revenues was driven by growth in Consumer segment product revenues by $20.5 million and Imaging segment product revenues by $3.3 million. Within the Consumer segment, hardware product revenues increased primarily due to revenue increases of $75.8 million in the Mobile product line, $17.5 million in the DTV product line, in each case driven by increased unit shipments. These increases were partially offset by a decrease of $72.8 million in the DVD product line due to reduced unit shipments. The increase in Imaging segment revenues was due to increase in unit shipments.

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Software and other revenues decreased by $6.9 million, or 11.0%, to $56.2 million in 2005 from $63.2 million in 2004. The decrease in software and other revenues primarily resulted from decreases of $4.3 million in the Consumer segment and $2.6 million in the Imaging segment revenues. Within the Consumer segment, software and other revenues decreased by $6.3 million in the DVD product line and $2.3 million in the Mobile product line, partially offset by an increase of $4.3 million in the DTV segment. These changes were primarily due to the timing of new agreements.

Cost of Hardware Product Revenues

Cost of hardware product revenues was $186.2 million in 2005 compared to $226.5 million in 2004. This decrease in the cost of hardware product revenues was mainly due to lower unit costs primarily due to changes in product mix. In addition, part of the unit cost reduction was due to charges recorded in 2004 for inventory write-downs of $14.7 million coupled with the reduction in our inventory allowances of $9.4 million in 2005 as a result of the sale or disposal of inventory that had been fully written down in 2004. Most of the inventory write-downs in 2004, as well as the sale of previously written down inventory in 2005, primarily related to our DVD Vaddis 6 product and a companion chip. The revenue recorded in 2005 associated with the sale of these previously written down products was approximately $18.5 million. Partially offsetting these reductions in unit costs was an increase associated with increased unit shipments, primarily in the Mobile product line. As a percentage of hardware product revenues, hardware product costs were 54.8% in 2005 compared to 71.7% in 2004. The decrease in hardware product costs as a percentage of hardware product revenues was primarily due to a change in product mix to a lower percentage of DVD products which generally have higher product costs as a percentage of hardware product revenues than Mobile and DTV products. The inventory write down charges in 2004 coupled with the reduction in inventory allowances also contributed to the reduction in hardware product costs as a percentage of hardware product revenues.

Research and Development

Research and development (“R&D”) expenses increased to $89.8 million in 2005 from $81.8 million in 2004, an increase of 9.8%. This increase was driven primarily by the acquisition of Oren Semiconductor, Inc. in June 2005 and inclusion of Emblaze operations acquired in July 2004 for the full year in 2005. R&D expense included increased stock-based compensation expense of $0.8 million in 2005, compared with a benefit (credit) of $0.5 million in 2004. Actual R&D expenses in 2004 were offset in part by $1.5 million of research grants received from the Chief Scientist in Israel. We did not receive any such grants in 2005. These grants are provided by the Israeli government to fund specific R&D projects. We are not obligated to repay the grants; however, future royalties may be owed to the government if the R&D activities result in commercial product sales. We remain committed to investing in research and development to enhance our technology and development capabilities.

Selling, General and Administrative

Selling, general and administrative (“SG&A”) expenses increased to $95.2 million in 2005 from $66.2 million in 2004, representing a 43.8% increase. This increase was primarily due to increase in legal fees by $8.4 million related to our patent litigation with Mediatek, Inc., continued increases in marketing and field application support expenses to support revenue growth in our Asia Pacific markets, an increase in the allowance for doubtful accounts receivable by $4.8 million to cover slow paying accounts and potential risk with increasing business in certain regions of the world and the inclusion of the Oren and Emblaze operations in 2005. Selling, general and administrative expense included increased stock-based compensation expense of $1.8 million in 2005, compared with a benefit of $1.0 million in 2004.

55

Amortization of Intangible Assets

Amortization of intangible assets increased to $50.3 million in 2005 from $45.4 million in 2004, an increase of 10.8%. This increase was the result of amortization of approximately $24.2 million of intangible assets acquired in the Emblaze acquisition in July 2004 for the full year in 2005 and amortization of $9.1 million of intangible assets acquired in the Oren acquisition in June 2005. At December 31, 2005, we had approximately $119.2 million in net intangible assets acquired through the Oak, Emblaze and Oren acquisitions which we will continue to amortize on a straight line basis for various periods extending through 2010.

Amortization of Stock-Based Compensation Resulting from Business Combinations

Amortization of stock-based compensation resulting from business combinations was recorded primarily as a result of stock options granted in connection with the Oak acquisition. For the year ended December 31, 2005, these charges were $1.5 million compared to $4.1 million during the prior year. The 61.8 % decrease for fiscal 2005 was due to the cancellation of options held by employees who terminated their employment during the year and the lower amortization associated with the graded vesting under the FIN 28 model.

Restructuring Expense

There were no charges recorded for restructuring expenses during 2005. During the year ended December 31, 2004, we recorded restructuring charges of $746,000 due to the discontinuation of the Sensor product line of the Mobile group. This charge included $523,000 related to the reduction in force of 15 employees for severance and other termination expenses, $173,000 for lease losses on abandoned office space and other miscellaneous legal and consulting fees of approximately $50,000. The remaining accrual balance at December 31, 2005 of $73,000 relating to facilities will be paid over the lease term through June 2007.

In-Process Research and Development

In 2005, approximately $2.7 million of the purchase price of Oren Semiconductor, Inc. was allocated to in-process research and development for projects which had not reached technical feasibility and had no alternative future use. Accordingly, this amount was immediately expensed upon the acquisition date. This amount was determined using management’s estimates including consultation with an independent appraiser. The value of in-process research and development was determined using the multi-period excess earnings method by estimating the expected net cash flows from the projects once commercially viable and discounting the net cash flows back to their present value using a discount rate of 21%. This rate was based on the industry segment for the technology, nature of the products to be developed, length of time to complete the project and overall maturity and history of the development team. The net cash flows from the identified projects were based on estimates of revenue, cost of revenue, research and development expenses, selling general and administrative expenses, and applicable income taxes. These estimates did not take into account any potential synergies that could be realized as a result of the acquisition. At December 31, 2005, there have been no material variations from the underlying assumptions that were used in the original computation of the value of the acquired in-process research and development. There were no charges recorded for in-process research and development during 2004.

Interest Income

Interest income increased by $2.3 million to $2.6 million in 2005 compared to $0.3 million in 2004. The increase was a result of the higher interest rates during 2005.

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Provision for Income Taxes

Our effective tax rate differs from the U.S. statutory rate primarily due to utilization of previously unbenefitted net operating losses and State of Israel tax benefits on foreign earnings. The provision is primarily due to domestic income offset by previously unbenefitted purchased NOLs which when utilized reduce goodwill and not tax expense.

Liquidity and Capital Resources

At December 31, 2006, we had $100.0 million of cash and cash equivalents, $196.2 million of short-term investments and $314.8 million of working capital.

Our operating activities generated cash of $101.5 million during 2006, primarily due to net income of $16.3 million adjusted for non-cash items such as amortization of $50.1 million, depreciation of $9.4 million and stock based compensation expense of $17.3 million. Cash provided by operations also increased due to a net decrease of $27.6 million in accounts receivable due to the timing of collections. These increases were partially offset by a $12.4 million increase in inventories to meet the increasing demand for our products, net decrease in accounts payable, accrued expenses and other liabilities, goodwill and other long term liabilities totaling $4.8 million and a $2.0 million increase in prepaid expenses and other assets.

Cash used in investing activities was $132.6 million during 2006, principally reflecting the net purchase of investments of $123.6 million. In addition we spent $9.0 million for purchases of property and equipment.

Cash provided by financing activities during 2006 was $52.3 million consisting of proceeds received from issuances of common stock through exercises of employee stock options and proceeds from the sale of stock under our employee stock purchase plan.

Our operating activities generated cash of $51.2 million during 2005, primarily due to non-cash items such as amortization of $50.4 million, depreciation of $10.3 million, in process research and development expense of $2.7 million and stock based compensation of $4.5 million which offset our net loss of $30.3 million. Cash provided by operations also increased due to decreases of $17.6 million in net inventory primarily associated with our DVD product line due to reduction in supply chain inventory, $0.5 million in prepaid expenses and other assets and increases in accounts payable, accrued expenses and other liabilities, goodwill and other long term liabilities totaling $5.4 million which were partially offset by a $9.9 million increase in net accounts receivable due to higher revenues recorded in the fourth quarter of 2005 compared to the same period of 2004.

Cash used in investing activities was $19.2 million during 2005, principally reflecting the use of $27.6 million in the acquisition of Oren Semiconductor, Inc, partially offset by $16.8 million of net proceeds from sales and maturities of investments. In addition we spent $8.5 million for property and equipment.

Cash provided by financing activities was $9.5 million during 2005 and consisted of proceeds received from issuances of common stock through exercises of employee stock options and employee stock purchase programs.

57

Off Balance Sheet Arrangements

At December 31, 2006 and 2005, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Accordingly, we are not exposed to the type of financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

Contractual Obligations

The following is a summary of fixed payments related to certain contractual obligations (in thousands):

Contractual Obligation	Total		2007		2008		2009		2010		2011		Thereafter
Operating leases and license commitments	$	39,566	$	10,188	$	3,819	$	3,345	$	3,211	$	3,108		$	15,895
Purchase commitments	58,930		58,930		—		—		—		—			—
Total	$	98,496	$	69,118	$	3,819	$	3,345	$	3,211	$	3,108		$	15,895

We believe that our current balances of cash, cash equivalents and short-term investments, and anticipated cash flow from operations, will satisfy our anticipated working capital and capital expenditure requirements at least through the next 12 months. Nonetheless, our future capital requirements may vary materially from those now planned and will depend on many factors including, but not limited to:

·the levels at which we maintain inventory and accounts receivable;

·the market acceptance of our products;

·the levels of promotion and advertising required to launch our new products or to enter markets and attain a competitive position in the marketplace;

·our business, product, capital expenditure and research and development plans and technology roadmap;

·volume pricing concessions;

·capital improvements to new and existing facilities;

·technological advances;

·the response of competitors to our products; and

·our relationships with our suppliers and customers.

In addition, we may require an increase in the level of working capital to accommodate planned growth, hiring and infrastructure needs. Additional capital may also be required for additional acquisitions of businesses, products or technologies.

To the extent that our existing resources and cash generated from operations are insufficient to fund our future activities, we may need to raise additional funds through public or private financings or borrowings. If additional funds are raised through the issuance of debt securities, these securities could have rights, preferences and privileges senior to holders of common stock, and the terms of this debt could impose restrictions on our operations. The sale of additional equity or convertible debt securities could result in additional dilution to our stockholders. We cannot be certain that additional financing will be available in amounts or on terms acceptable to us, if at all. If we are unable to obtain this additional financing, we may

58

be required to reduce the scope of our planned product development and sales and marketing efforts, which could harm our business, financial condition and operating results.

Item 7A—Quantitative and Qualitative Disclosures about Market Risks

We are exposed to financial market risks including changes in interest rates and foreign currency exchange rates.

The fair value of our investment portfolio or related income would not be significantly impacted by either a 10% increase or decrease in interest rates due mainly to the short-term nature of the major portion of our investment portfolio.

A majority of our revenue and capital spending is transacted in U.S. dollars, although a portion of the cost of our operations, relating mainly to our personnel and facilities in Israel, is incurred in New Israeli Shekels. As a result, we bear the risk that the rate of inflation in Israel or the decline in the value of United States dollar compared to the New Israeli Shekel will increase our costs as expressed in United States dollars. We have not engaged in hedging transactions to reduce our exposure to fluctuations that may arise from changes in foreign exchange rates. Based on our overall currency rate exposure at December 31, 2006, a near-term 10% appreciation or depreciation of the New Israeli Shekel would have an immaterial affect on our financial condition.

59

Item 8—Financial Statements and Supplemental Data

Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm	61
Consolidated Balance Sheets as of December 31, 2006 and 2005	63
Consolidated Statements of Operations for each of the three years ended December 31, 2006	64
Consolidated Statements of Stockholders’ Equity for the three years ended December 31, 2006	65
Consolidated Statements of Cash Flows for each of the three years ended December 31, 2006	66
Notes to Consolidated Financial Statements	67

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Zoran Corporation:

We have completed integrated audits of Zoran Corporation’s consolidated financial statements and of its internal control over financial reporting as of December 31, 2006, in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements

In our opinion, the accompanying consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Zoran Corporation and its subsidiaries at December 31, 2006 and December 31, 2005, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2006 in conformity with accounting principles generally accepted in the United States of America. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements 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 our opinion.

As discussed in Note 2 to the Consolidated Financial Statements, the Company has restated its fiscal 2005 and fiscal 2004 consolidated financial statements.

As discussed in Note 3 to the Consolidated Financial Statements, the Company changed the manner in which it accounts for share-based compensation in fiscal 2006.

Internal control over financial reporting

Also, in our opinion, management’s assessment, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A, that the Company maintained effective internal control over financial reporting as of December 31, 2006 based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control - Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

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A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PricewaterhouseCoopers LLP

San Jose, California
April 19, 2007

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ZORAN CORPORATION

CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

	December 31, 2006				December 31, 2005
					(restated)(1)
ASSETS
Current assets:
Cash and cash equivalents		$	100,034			$	78,856
Short-term investments		196,195				70,490
Accounts receivable, net of allowance for doubtful accounts of $9,265 and $6,180, respectively		42,640				70,174
Inventory		45,044				32,616
Prepaid expenses and other current assets		10,726				11,746
Total current assets		394,639				263,882
Property and equipment, net		15,673				16,057
Other assets and investments		22,890				20,799
Goodwill		174,259				182,662
Intangible assets, net		69,169				119,231
		$	676,630			$	602,631
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	33,767			$	38,999
Accrued expenses and other liabilities		46,082				54,769
Total current liabilities		79,849				93,768
Other long-term liabilities		12,784				11,939
Commitments and contingencies (Note 9)
Stockholders’ equity:
Common stock, $0.001 par value; 105,000,000 shares authorized at December 31, 2006 and December 31, 2005; 49,433,780 shares issued and outstanding as of December 31, 2006; and 45,426,912 shares issued and outstanding as of December 31, 2005		49				45
Additional paid-in capital		807,220				738,253
Deferred stock-based compensation		—				(593		)
Accumulated other comprehensive income		4,238				3,057
Accumulated deficit		(227,510		)		(243,838		)
Total stockholders’ equity		583,997				496,924
		$	676,630			$	602,631

(1)See Note 2, “Restatement of Consolidated Financial Statements” in Notes to Consolidated Financial Statements.

The accompanying notes are an integral part of these consolidated financial statements.

63

ZORAN CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

	Year Ended December 31,
	2006		2005				2004
			(restated)(1)				(restated)(1)
Revenues:
Hardware product revenues	$	403,744		$	339,539			$	315,697
Software and other revenues	56,269			56,219				63,167
License revenues related to litigation settlement	35,792			—				—
Total revenues	$	495,805		$	395,758			$	378,864
Costs and expenses:
Cost of hardware product revenues	226,260			186,172				226,461
Research and development	99,102			89,809				81,820
Selling, general and administrative	109,825			95,206				66,195
Amortization of intangible assets	50,062			50,254				45,358
Amortization of stock-based compensation resulting from business combinations	—			1,546				4,051
Restructuring expense	—			—				746
In-process research and development	—			2,650				—
Total costs and expenses	485,249			425,637				424,631
Operating income (loss)	10,556			(29,879		)		(45,767		)
Interest income	11,057			2,593				263
Other income (loss), net	477			(630		)		(1,064		)
Income (loss) before income taxes	22,090			(27,916		)		(46,568		)
Provision for income taxes	5,762			2,356				1,540
Net income (loss)	$	16,328		$	(30,272	)		$	(48,108	)
Basic net income (loss) per share	$	0.34		$	(0.68	)		$	(1.12	)
Diluted net income (loss) per share	$	0.33		$	(0.68	)		$	(1.12	)
Shares used to compute basic net income (loss) per share	48,353			44,267				42,788
Shares used to compute diluted net income (loss) per share	50,099			44,267				42,788

(1)See Note 2, “Restatement of Consolidated Financial Statements” in Notes to Consolidated Financial Statements.

The accompanying notes are an integral part of these consolidated financial statements.

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ZORAN CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)

						Additional				Deferred				Accumulated Other Comprehensive
	Common Stock					Paid-In				Stock-Based				Income				Accumulated
	Shares		Amount			Capital				Compensation				(Loss)				Deficit				Total
Balance at December 31, 2003, as reported		42,348		$	42		$	703,812			$	(13,014	)		$	(91	)		$	(156,470	)	$	534,279
Cumulative effect of restatements on prior years		—		—			10,656				(1,147		)		(1,193		)		(8,988		)	(672		)
Balance at December 31, 2003, as restated (1)		42,348		42			714,468				(14,161		)		(1,284		)		(165,458		)	533,607
Issuance of common stock		847		1			8,021				—				—				—			8,022
Amortization of deferred stock-based compensation, net		—		—			(6,172		)		8,747				—				—			2,575
Change in unrealized gain (loss) on securities available for sale		—		—			—				—				2,673				—			2,673
Net loss, as restated		—		—			—				—				—				(48,108		)	(48,108		)
Balance at December 31, 2004, as restated (1)		43,195		43			716,317				(5,414		)		1,389				(213,566		)	498,769
Issuance of common stock		1,044		1			9,487				—				—				—			9,488
Issuance of common stock in conjunction with the acquisition of Oren Semiconductor, Inc., net of issuance costs of $89		1,188		1			12,815				—				—				—			12,816
Amortization of deferred stock-based compensation, net		—		—			(366		)		4,821				—				—			4,455
Change in unrealized gain (loss) on securities available for sale		—		—			—				—				1,668				—			1,668
Net loss, as restated		—		—			—				—				—				(30,272		)	(30,272		)
Balance at December 31, 2005, as restated (1)		45,427		45			738,253				(593		)		3,057				(243,838		)	496,924
Issuance of common stock		4,007		4			52,265				—				—				—			52,270
Elimination of deferred stock-based compensation upon adoption of SFAS No. 123(R)		—		—			(593		)		593				—				—			—
Stock-based compensation, net		—		—			17,294				—				—				—			17,294
Change in unrealized gain (loss) on securities available for sale		—		—			—				—				1,181				—			1,181
Net income		—		—			—				—				—				16,328			16,328
Balance at December 31, 2006		49,434		$	49		$	807,220			$	—			$	4,238			$	(227,510	)	$	583,997

(1)See Note 2, “Restatement of Consolidated Financial Statements” in Notes to Consolidated Financial Statements.

The accompanying notes are an integral part of these consolidated financial statements.

65

ZORAN CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

	Year Ended December 31,
	2006			2005				2004
				(restated)(1)				(restated)(1)
Cash flows from operating activities:
Net income (loss)	$	16,328			$	(30,272	)		$	(48,108	)
Adjustments to reconcile net income(loss) to net cash provided by (used in) operations:
Depreciation	9,403				10,329				9,896
Amortization	50,062				50,366				45,358
Stock based compensation expense	17,294				4,455				2,575
In-process research and development	—				2,650				—
Provision for doubtful accounts	3,085				4,771				175
Write-down of inventory	—				—				14,680
Changes in assets and liabilities, net of effect of acquisitions:
Accounts receivable	24,449				(14,706		)		5,188
Inventory	(12,428		)		17,630				(47,022		)
Prepaid expenses and other current assets and other assets	(2,034		)		464				(7,048		)
Accounts payable	(5,233		)		4,437				4,595
Accrued expenses and other liabilities, goodwill and other long term liabilities	562				1,029				2,391
Net cash provided by (used in) operating activities	101,488				51,153				(17,320		)
Cash flows from investing activities:
Purchases of property and equipment	(8,997		)		(8,492		)		(7,165		)
Proceeds from sale of property and equipment	—				—				978
Purchases of investments	(356,339		)		(43,576		)		(116,165		)
Proceeds from sales and maturities of investments	232,756				60,415				175,252
Acquisition of Emblaze, net of cash acquired	—				—				(54,161		)
Acquisition of Oren Semiconductor, Inc., net of cash acquired	—				(27,567		)		—
Net cash used in investing activities	(132,580		)		(19,220		)		(1,261		)
Cash flows from financing activities:
Proceeds from issuance of common stock	52,270				9,488				8,022
Net cash provided by financing activities	52,270				9,488				8,022
Net increase (decrease) in cash and cash equivalents	21,178				41,421				(10,559		)
Cash and cash equivalents at beginning of period	78,856				37,435				47,994
Cash and cash equivalents at end of period	$	100,034			$	78,856			$	37,435
Supplemental information:
Fair value of stock issued in Oren acquisition, net of issuance costs of $89	$	—			$	12,816			$	—

(1)See Note 2, “Restatement of Consolidated Financial Statements” in Notes to Consolidated Financial Statements.

The accompanying notes are an integral part of these consolidated financial statements.

66

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, integrated circuit cores and embedded software used by original equipment manufacturers, or OEMs, in digital audio and video products for commercial and consumer markets, digital television applications and digital imaging products. Current applications incorporating Zoran’s products and IP include digital versatile disc, or DVD, players and recorders, digital cameras, professional and consumer video editing systems, digital speakers and audio systems, applications that enable the delivery and display of digital video content through a set top box or television as well as digital imaging products consisting of semiconductor hardware and software that enable users to print, scan, process and transmit documents to computer peripherals that perform printing functions. The Company operates in two reportable segments, Consumer group which combines the former Digital Versatile Disc (DVD), Digital Television (DTV) and Mobile product groups and Imaging group.

Risk and Uncertainties

Because the markets that the Company’s customers serve are characterized by numerous new product introductions and rapid product enhancements, its operating results may vary significantly from quarter to quarter. During the final production of a mature product, its customers typically exhaust their existing inventories of the Company’s products. Consequently, orders for its products may decline in those circumstances, even if the products are incorporated into both mature products and replacement products. A delay in a customer’s transition to commercial production of a replacement product would delay the Company’s ability to recover the lost sales from the discontinuation of the related mature product. The Company’s customers also experience significant seasonality in the sales of their consumer products, which affects their orders of the Company’s products. Typically, the second half of the calendar year represents a disproportionate percentage of sales for the Company’s customers due to the holiday shopping period for consumer electronics products, and therefore, a disproportionate percentage of the Company’s sales.

Average selling prices for the Company’s products decline over relatively short time periods, while many of its manufacturing costs are fixed. When the Company’s average selling prices decline, its revenues decline unless the Company is able to sell more units, and its gross margins decline unless it is able to reduce its manufacturing costs by a commensurate amount. The Company’s operating results suffer when gross margins decline. The Company has experienced these problems, and the Company expects to continue to experience them in the future.

The Company does not operate any manufacturing facilities, and it relies on independent foundries to manufacture substantially all of its products. These independent foundries fabricate products for other companies and may also produce products of their own design. From time to time, there are manufacturing capacity shortages in the semiconductor industry. The Company does not have long-term supply contracts with any of its suppliers, including its principal supplier, Taiwan Semiconductor Manufacturing Company, or TSMC. Therefore, TSMC and the Company’s other suppliers are not obligated to manufacture products for the Company for any specific period, in any specific quantity or at any specified price, except as may be provided in a particular purchase order.

The Company anticipates that international sales will continue to account for a substantial majority of its total revenues for the foreseeable future. In addition, substantially all of its semiconductor products are manufactured, assembled and tested outside of the United States by independent foundries and

67

ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

subcontractors. The Company is subject to a variety of risks inherent in doing business internationally, including:

·unexpected changes in regulatory requirements;

·fluctuations in exchange rates;

·political and economic instability;

·imposition of tariffs and other barriers and restrictions;

·the burdens of complying with a variety of foreign laws; and

·health risks in a particular region.

Economic, political or military events in a country where the Company make significant sales or has significant operations could harm its business.

Principles of consolidation and basis of presentation

The consolidated financial statements include the accounts of Zoran and all of its subsidiaries. Intercompany transactions and balances have been eliminated in consolidation.

NOTE 2—RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS

Independent Investigation

On July 3, 2006, the Company announced that, at the recommendation of the Audit Committee, the Board of Directors had created a special committee of independent directors (“Special Committee”) to conduct a review of our historical stock option practices. As a result of its investigation, the Special Committee found, among other things, that some of the original measurement dates used by the Company for option grants were not adequately supported by contemporaneous records, and therefore the measurement dates used by us for accounting purposes required adjustment. The Special Committee concluded that the evidence did not establish that the errors which it identified resulted from fraud or intentional misconduct by our current senior management.

Based on the Special Committee’s findings and its own review of the facts, the Board of Directors concluded that there was no fraud or intentional misconduct by any current member of senior management. The Board also concluded that it has confidence in the integrity of the Company’s Chief Executive Officer, Dr. Levy Gerzberg, and the Company’s Chief Financial Officer, Mr. Karl Schneider.

Based on information obtained from the Special Committee’s review and additional work undertaken by the Company, management has concluded, and the Audit Committee has agreed, that the Company should restate certain previously filed financial statements, to reflect additional stock-based compensation expense with regard to certain past stock option grants. The corrections made in the restatements relate to options covering approximately 3.6 million shares. These adjustments amounted to an additional stock-based compensation expense of $0.4 million and $2.6 million in 2006 and 2005, respectively, and a reduction of expense of $1.5 million in 2004. There was no tax impact of these additional stock-based compensation expenses due to the full valuation allowance on our tax assets.

68

ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In connection with the restatement, the Company is recording additional non-cash adjustments that were previously considered to be immaterial relating to the timing of revenue recognition, accrued expenses, amortization of premiums and discounts on investments, additional expense related to options granted to a consultant and the calculation of amortization of stock-based compensation relating to a business combination in 2003. The Company is also recording losses under Accounting Principles Board Opinion 18 (“APB No. 18”), “The Equity Method of Accounting for Investments in Common Stock,” to record the losses on investment of the prior 17% ownership of Oren Semiconductor, Inc. under the equity method of accounting which was subsequently acquired by Zoran in 2005. These additional adjustments resulted in a cumulative expense of $1.3 million, including $0.2 million of tax expense, for the periods 2000 through 2005.

Through 2005, we applied Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and its related interpretations, and provided the required pro forma disclosures under Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” and SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure.” Under APB No. 25, non-cash, stock-based compensation expense was recognized for any option for which the exercise price was below the market price on the actual grant date. Because each of the options identified below (other than those which we have determined should be accounted for variably) was deemed to have an exercise price below the market price on the appropriate measurement date, we should have recognized a charge for each of those options under APB No. 25, in an amount equal to the number of shares covered by such options, multiplied by the difference between the exercise price and the market price on the appropriate measurement date. That expense should have been amortized over the vesting periods of the options. Starting in 2006, we adopted SFAS No. 123(R), “Share-Based Payment.” As a result, for 2006, the additional stock-based compensation expense required to be recorded for each of the options identified below was equal to the incremental fair value of those options on the appropriate measurement date over the remaining vesting periods of those options. We did not record such stock-based compensation expenses under APB No. 25 or SFAS No. 123(R) in our previously issued financial statements, and that is the reason for the restatement in this report. To correct our past accounting for stock options, we recorded additional pre-tax, non-cash, stock-based compensation expense of (a) $11.7 million for the periods 1997 to 2005 under APB No. 25 and (b) the remaining $0.4 million for 2006 under SFAS No. 123(R). The fair value of the options is being recorded using the accelerated amortization method under FIN 28 over the respective vesting periods of the awards.

Consistent with the accounting literature and recent guidance from the Securities and Exchange Commission (“SEC”), the Company has organized the grants with respect to which an accounting adjustment is required into categories based on grant type and process by which the grant was finalized. Based on the relevant facts and circumstances, the Company applied the relevant accounting standards to determine the measurement date for every grant within each category. The Company recorded accounting adjustments as required, resulting in stock-based compensation expense and related tax effects. The Company organized the grants where adjustments were required as follows:

·Company-wide option grants where optionees were added or grant amounts were changed after the option list was complete, or where insufficient contemporaneous documentation of the grant date exists.   For seven Company-wide refresh and retention grants made between 1998 and 2003, the Company determined that some employees who were omitted from the option grant list were added to the list after the stated grant date, and that the number of shares covered by option grants to some employees was not finally determined until after the stated grant date. Further, in 2001 and 2002,

69

ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

insufficient contemporaneous documentation of the stated grant date existed. As a result of these issues, the Company restated its historical financial statements to increase stock-based compensation expense by approximately $6.3 million, recognized over the vesting periods of the relevant options.

·Re-priced options.   In August 2002, after consideration of relevant information, the Compensation Committee rescinded its April 2002 grant, and its June 2002 grant, to executives and other key employees. The Company thereafter reissued the grants in August 2002. At the time, in consultation with our external advisors, we determined that these transactions did not require variable accounting. As a result of the Special Committee review of our historical stock option practices, we have reassessed the circumstances surrounding these transactions with our external advisors and have determined that the grants should have been accounted for variably. As a result, the Company restated its historical financial statements to increase stock-based compensation expense by a cumulative net amount of approximately $3.8 million, recognized over the vesting periods of these options.

·Acquisition-related options.   The Company determined a grant given to retain employees hired in connection with an acquisition in October 2000 should have been accounted for variably. As a result, the Company restated its historical financial statements to increase stock-based compensation expense by approximately $0.3 million, recognized over the vesting periods of these options.

·Improper measurement dates for non-refresh stock option grants.   The Company revised the measurement dates for certain grants made to new hires and for promotional and other miscellaneous non-refresh grants made between 1997 and 2003 as a result of approvals that were obtained subsequent to the stated grant dates or as a result of administrative delays or errors and a small number of stock option grants to non-executives that were determined to have been established retrospectively. As a result, the Company restated its historical financial statements to increase stock-based compensation expense by approximately $1.3 million, recognized over the vesting periods of these options.

In the aggregate, we have recorded additional stock-based compensation expense for the periods 1997 through 2005 of approximately $11.7 million on stock option grants made from 1997 through 2003.

70

ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The incremental impact from recognizing stock-based compensation expense resulting from the investigation of past stock option grants is as follows (dollars in thousands):

	Expense (Benefit)
Fiscal Year
1997	$	190
1998	223
1999	123
2000	120
2001	1,385
2002	3,182
2003	5,299
Cumulative effect at December 31, 2003	10,522
2004	(1,476		)
2005	2,623
	$	11,669

The cumulative effect of all of the restatements through December 31, 2003 increased additional paid-in capital by $10.7 million from $703.8 million to $714.5 million, increased accumulated deficit by $9.0 million from $156.4 million to $165.4 million, and decreased total stockholders’ equity by $0.7 million from $534.3 million to $533.6 million. All the restatements of financial statements, financial data and related disclosures described in this report are collectively referred to in this report as the “restatements.”

In December 2006, the Company amended options to purchase approximately 218,000 shares of common stock held by Dr. Gerzberg and Mr. Schneider to increase the exercise price of those options to the fair market value of the Company’s common stock on the revised measurement date so that these options are no longer subject to a penalty tax under IRC Section 409A.

We have not amended, and we do not intend to amend, any of our previously filed Annual Reports on Form 10-K. We have amended our Quarterly Report for the period ended March 31, 2006 concurrent with the filing of our Annual Report on Form 10-K, and we do not intend to amend any of our other previously filed Quarterly Reports on Form 10-Q for the periods affected by the restatements. We present restated quarterly financial information for each of the quarters in 2006 and 2005 in “Selected Quarterly Financial Information (Unaudited)” included in this report.

The impact of the restatements on the interim periods of each of the first three quarters of 2006 and each of the quarters of 2005 are disclosed in “Selected Quarterly Financial Information (Unaudited)” included in this report.

71

ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Restatement and Impact on Financial Statements

The income statement impacts of the restatements are as follows (in thousands):

	Cumulative effect at December 31, 2005				Year Ended December 31, 2005				Year Ended December 31, 2004				Cumulative effect at December 31, 2003
Net loss as previously reported						$	(26,971	)		$	(47,354	)
Additional compensation (expense) benefit resulting from improper measurement dates for stock option grants, net of tax		$	(11,669	)		(2,623		)		1,476				$	(10,522	)
Other adjustments, net of tax		(1,374		)		(678		)		(2,230		)		1,534
Total increase to net loss		(13,043		)		(3,301		)		(754		)		(8,988		)
Net loss, as restated						(30,272		)		(48,108		)

	Year Ended December 31,
	2003			2002			2001			2000			1999			1998			1997
Stock-based employee compensation expense, as previously reported	$	(6,281	)	$	(292	)	$	(544	)	$	(99	)	$	—		$	—		$	—
Additional compensation expense resulting from improper measurement dates for stock option grants	(5,299		)	(3,182		)	(1,385		)	(120		)	(123		)	(223		)	(190		)
Stock-based employee compensation expense, as restated	$	(11,580	)	$	(3,474	)	$	(1,929	)	$	(219	)	$	(123	)	$	(223	)	$	(190	)

In addition, the Company evaluated the impact of the restatements on its global tax provision. The Company and its subsidiaries file tax returns in multiple tax jurisdictions around the world. In certain jurisdictions, including, but not limited to, the United States and Israel, the Company is able to claim a tax deduction relative to stock options. In those jurisdictions, where a tax deduction is claimed, the Company has recorded deferred tax assets relative to the book compensation now recorded on the restated options. As with our other deferred tax assets, the Company recorded a full valuation allowance on all deferred tax assets relating to restated options. The Company also believes that it should not have taken a United States tax deduction of $0.6 million in prior years for stock option related amounts pertaining to certain executives under Internal Revenue Code (IRC) Section 162(m) which limits the deductibility of compensation above certain thresholds. The deferred tax asset and related valuation allowance have been adjusted accordingly. The cumulative tax effect of all components of the restatements for 1997 to 2005 is an increase in tax expense of $200,000.

On February 27, 2007, the Company elected to: (i) participate in the Internal Revenue Service remediation program 2007-18 and pay to the IRS, on behalf of affected and eligible employees (not including executive officers), their IRC 409A tax liabilities and penalties; (ii) participate in any similar remediation program that may be offered by any state for applicable state tax liabilities and penalties; (iii) act directly with any state not offering a similar remediation program to address any applicable tax liabilities and penalties on behalf of employees; and (iv) pay to such employees a “gross-up” payment to offset the associated federal and state income tax consequences. The Company took this action because the vast majority of the holders of stock options issued by the Company that are now subject to re-measurement as a result of the

72

ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Company’s option investigation were not involved in or aware of the stock option pricing determination. Employees who exercised such options in 2006, other than executive officers at the time of option grant or entering into this program, will participate in this program. The Company estimates that the total cash payments needed to deal with the adverse tax consequences of previously exercised discount priced options granted to non-officers will be approximately $0.8 million, which is expected to be recorded in 2007.

In addition, the Company may consider taking action to minimize the adverse tax consequences that may be incurred by the holders of unexercised discount options. Discount-priced stock options vesting after December 31, 2004 (“409A Affected Options”) subject U.S. option holders to a penalty tax under IRC Section 409A (and to similar penalty taxes under California and other state tax laws, as applicable). The Company may consider offering to amend the 409A Affected Options held by persons other than directors and executive officers to increase the exercise prices of those options to the market price of our common stock on the revised measurement date. The amended options would not be subject to taxation under IRC Section 409A. Under IRS regulations, the amendments for non-executives cannot be offered until after this Report is filed and do not need to be completed until December 31, 2007. The Company may also consider approving the payment of bonuses to holders of those amended options to compensate them for the resulting increase in their option exercise price. The amount of these bonuses would be effectively repaid to the Company if and when the options are exercised and the increased exercise price is paid (but there is no assurance that the options will be exercised). The Company has not estimated the expense of any such bonus payments.

The restatement adjustments did not affect the Company’s previously reported cash and cash equivalents and investments balances in prior periods. The following presents the effect of the restatement adjustments by financial statement line item for the Consolidated Balance Sheet as of December 31, 2005, Statements of Operations for the years ended December 31, 2005 and 2004 and the Statements of Cash Flows for the years ended December 31, 2005 and 2004 and the SFAS No. 123 pro forma disclosures.

73

ZORAN CORPORATION

CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

	December 31, 2005				Adjustments(1)				December 31, 2005
	(As reported)								(As restated)
ASSETS
Current assets:
Cash and cash equivalents		$	78,856			$	—			$	78,856
Short-term investments		70,490				—				70,490
Accounts receivable, net of allowance for doubtful accounts of $6,180 and $1,409, respectively		70,174				—				70,174
Inventory		32,616				—				32,616
Prepaid expenses and other current assets		11,746				—				11,746
Total current assets		263,882				—				263,882
Property and equipment, net		16,057				—				16,057
Other assets and investments		20,799				—				20,799
Goodwill		184,254				(1,592		)		182,662
Intangible assets, net		119,231				—				119,231
		$	604,223			$	(1,592	)		$	602,631
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	38,999			$	—			$	38,999
Accrued expenses and other liabilities		53,937				832				54,769
Total current liabilities		92,936				832				93,768
Other long-term liabilities		11,939				—				11,939
Stockholders’ equity:
Common stock, $0.001 par value; 105,000,000 shares authorized at December 31, 2005 and December 31, 2004; 45,426,912 shares issued and outstanding as of December 31, 2005; and 43,195,432 shares issued and outstanding as of December 31, 2004		45				—				45
Additional paid-in capital		727,597				10,656				738,253
Deferred stock-based compensation		(593		)		—				(593		)
Accumulated other comprehensive income		3,094				(37		)		3,057
Accumulated deficit		(230,795		)		(13,043		)		(243,838		)
Total stockholders’ equity		499,348				(2,424		)		496,924
		$	604,223			$	(1,592	)		$	602,631

(1)The restated consolidated balance sheet for the fiscal year ended 2005 reflects a $13.0 million increase to accumulated deficit and a $10.7 million increase to additional paid-in capital primarily due to additional stock-based compensation recorded in connection with this restatement to correct prior year stock option-related accounting errors as described above and to reflect the cumulative impact of other adjustments that were previously considered to be immaterial. The $1.6 million decrease to goodwill is the impact of recording losses associated with our investment in Oren Semiconductor under the equity method of accounting and $0.8 million increase to accrued expenses and other liabilities relates to the accrual of royalty obligations that was previously not recorded at December 31, 2005.

74

ZORAN CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

	Year Ended December 31, 2005									Year Ended December 31, 2004
	As  previously  reported			Adjust- ments (1)			As  restated			As  previously  reported			Adjust- ments (1)			As  restated
Revenues:
Hardware product revenues	$	339,539		$	—		$	339,539		$	315,697		$	—		$	315,697
Software and other revenues	56,219			—			56,219			63,167			—			63,167
Total revenues	395,758			—			395,758			378,864			—			378,864
Costs and expenses:
Cost of hardware product revenues*	185,549			623			186,172			226,235			226			226,461
Research and development*	89,028			781			89,809			82,245			(425		)	81,820
Selling, general and administrative*	93,831			1,375			95,206			67,086			(891		)	66,195
Amortization of intangible assets	50,254			—			50,254			45,358			—			45,358
Amortization of stock-based compensation resulting from business combinations	1,546			—			1,546			4,051			—			4,051
Restructuring expense	—			—			—			746			—			746
In-process research and development	2,650			—			2,650			—			—			—
Total costs and expenses	422,858			2,779			425,637			425,721			(1,090		)	424,631
Operating loss	(27,100		)	(2,779		)	(29,879		)	(46,857		)	1,090			(45,767		)
Interest income	2,705			(112		)	2,593			1,307			(1,044		)	263
Other income (loss), net	(412		)	(218		)	(630		)	(264		)	(800		)	(1,064		)
Loss before income taxes	(24,807		)	(3,109		)	(27,916		)	(45,814		)	(754		)	(46,568		)
Provision for income taxes	2,164			192			2,356			1,540			—			1,540
Net loss	$	(26,971	)	$	(3,301	)	$	(30,272	)	$	(47,354	)	$	(754	)	$	(48,108	)
Basic net loss per share	$	(0.61	)	$	(0.07	)	$	(0.68	)	$	(1.11	)	$	(0.01	)	$	(1.12	)
Diluted net loss per share	$	(0.61	)	$	(0.07	)	$	(0.68	)	$	(1.11	)	$	(0.01	)	$	(1.12	)
Shares used to compute basic net loss per share	44,267						44,267			42,788						42,788
Shares used to compute diluted loss per share	44,267						44,267			42,788						42,788

*includes the following amounts related to employee equity awards

Cost of hardware product revenues	$	—	$	57	$	57	$	—	$	(32	)	$	(32	)
Research and development	$	—	$	815	$	815	$	—	$	(459	)	$	(459	)
Selling, general and administrative	$	286	$	1,751	$	2,037	$	—	$	(985	)	$	(985	)

(1)In addition to restating the consolidated financial statements in response to the Special Committee’s findings, the Company has recorded additional non-cash adjustments that were considered to be immaterial to our previously filed consolidated financial statements relating to the timing of revenue recognition, accrued expenses, amortization of premiums and discounts on investments, additional expense related to options granted to a consultant and the amortization of stock-based compensation relating to a business combination in 2003. In addition, the Company is also recording losses under Accounting Principles Board Opinion 18 (“APB No. 18”), “The Equity Method of Accounting for Investments in Common Stock,” to record the losses on investment of the prior 17% ownership of Oren Semiconductor, Inc. under the equity method of accounting which was subsequently acquired by Zoran in 2005.

75

ZORAN CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

	Year Ended December 31, 2005											Year Ended December 31, 2004
	As previously  reported				Adjust- ments				As restated			As previously reported				Adjust- ments				As restated
Cash flows from operating activities:
Net loss		$	(26,971	)		$	(3,301	)	$	(30,272	)		$	(47,354	)		$	(754	)	$	(48,108	)
Adjustments to reconcile net loss to net cash provided by (used in) operations:
Depreciation		10,329				—			10,329				9,896				—			9,896
Amortization		50,254				112			50,366				45,358				1,044			46,402
Stock based compensation expense		1,832				2,623			4,455				4,051				(1,476		)	2,575
In-process research and development		2,650				—			2,650				—				—
Allowance for doubtful accounts		4,771				—			4,771				175				—			175
Write-down of inventory.		—				—			—				14,680				—			14,680
Changes in assets and liabilities, net of effect of acquisitions:
Accounts receivable		(14,706		)		—			(14,706		)		5,188				—			5,188
Inventory		17,630				—			17,630				(47,022		)		—			(47,022		)
Prepaid expenses and other current assets and other assets		1,784				(1,320		)	464				(7,978		)		930			(7,048		)
Accounts payable		4,437				—			4,437				4,595				—			4,595
Accrued expenses and other liabilities, goodwill and other long term liabilities		(857		)		1,886			1,029				2,135				256			2,391
Net cash provided by (used in) operating activities		51,153				—			51,153				(16,276		)		—			(16,276		)
Cash flows from investing activities:
Purchases of property and equipment		(8,492		)		—			(8,492		)		(7,165		)		—			(7,165		)
Proceeds from sale of property and equipment		—				—			—				978				—			978
Purchases of investments		(43,576		)		—			(43,576		)		(117,209		)		—			(117,209		)
Proceeds from sales and maturities of investments		60,415				—			60,415				175,252				—			175,252
Acquisition of Emblaze, net of cash acquired		—				—			—				(54,161		)		—			(54,161		)
Acquisition of Oren Semiconductor, Inc., net of cash acquired		(27,567		)		—			(27,567		)		—				—			—
Net cash used in investing activities		(19,220		)		—			(19,220		)		(2,305		)		—			(2,305		)
Cash flows from financing activities:
Proceeds from issuance of common stock		9,488				—			9,488				8,022				—			8,022
Net cash provided by financing activities		9,488				—			9,488				8,022				—			8,022
Net increase (decrease) in cash and cash equivalents		41,421				—			41,421				(10,559		)		—			(10,559		)
Cash and cash equivalents at beginning of period		37,435				—			37,435				47,994				—			47,994
Cash and cash equivalents at end of period		$	78,856			$	—		$	78,856			$	37,435			$	—		$	37,435
Supplemental information:
Fair value of stock issued in Oren acquisition, net of issuance costs of $89		$	12,816			$	—		$	12,816			$	—			$	—		$	—

76

ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

SFAS NO. 123 PRO FORMA DISCLOSURE
(in thousands)

	Year Ended December 31, 2005										Year Ended December 31, 2004
	As previously reported			Adjustments				As restated			As previously reported			Adjustments				As restated
Net loss	$	(26,971	)		$	(3,301	)	$	(30,272	)	$	(47,354	)		$	(754	)	$	(48,108	)
Adjustments:
Stock-based employee compensation expense (benefit) included in net loss	1,832				2,623			4,455			4,051				(1,476		)	2,575
Stock-based employee compensation expense determined under the fair value method	(26,831		)		(1,431		)	(28,262		)	(39,693		)		(3,119		)	(42,812		)
Pro forma net loss	$	(51,970	)		$	(2,109	)	$	(54,079	)	$	(82,996	)		$	(5,349	)	$	(88,345	)
Pro forma net loss per share:
Basic	$	(1.18	)		$	(0.05	)	$	(1.22	)	$	(1.94	)		$	(0.13	)	$	(2.07	)
Diluted	$	(1.18	)		$	(0.05	)	$	(1.22	)	$	(1.94	)		$	(0.13	)	$	(2.07	)
Net loss per share:
Basic	$	(0.61	)		$	(0.07	)	$	(0.68	)	$	(1.11	)		$	(0.01	)	$	(1.12	)
Diluted	$	(0.61	)		$	(0.07	)	$	(0.68	)	$	(1.11	)		$	(0.01	)	$	(1.12	)

NOTE 3—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.

Use of estimates

The preparation of these financial statements in conformity with generally accepted accounting principles in the Unites States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates, although such differences are not expected to be material to the consolidated financial statements.

Translation of foreign currencies

The majority of the Company’s purchasing and sales transactions are denominated in US dollars, which is considered to be the functional currency of the Company and its subsidiaries. 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 may take action in the future to reduce its foreign exchange risk. Monetary assets and liabilities of the Company’s foreign subsidiaries are remeasured into U.S. dollars from the local currency at rates in effect at period-end and non-monetary assets and liabilities are remeasured at historical rates. Revenues and expenses are remeasured at average rates during the period. In accordance with Statement of Financial Accounting Standards No. 52, gains and losses arising from the remeasurement of local currency financial statements are included in other income (loss), net and have not been significant for any of the periods presented.

77

ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Revenue recognition

The Company’s policy is to recognize revenue from product sales upon shipment, provided that persuasive evidence of an arrangement exists, the price is fixed and determinable, collectibility is reasonably assured and legal title and risk of ownership has transferred. A provision for estimated future returns and potential warranty liability is recorded at the time revenue is recognized. Warranty expenses in 2006, 2005 and 2004, were immaterial. Development revenue under development contracts is recognized as the services are performed based on the specific deliverables outlined in each contract. Amounts received in advance of performance under contracts are recorded as deferred revenue and are recognized when our obligations have been met. 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 and the customer has indicated acceptance. Periodic service and maintenance fees which provide customers access to technical support and minor enhancements to licensed releases are recognized ratably over the service or maintenance period. Royalty revenue is recognized in the period licensed sales are reported to the Company which typically ranges between one month to one quarter in arrears. Revenue from litigation settlement is recognized in accordance with the terms of the agreement when actual cash payments are received.

Research and development costs

Research and development expenses are charged to operations as incurred.

Cash equivalents and investments

All highly liquid investments purchased with an original maturity of 90 days or less are considered to be cash equivalents.

All of the Company’s investments in marketable securities are classified as available-for-sale and, therefore, are reported at fair value with unrealized gains and losses, net of related tax, if any, included as accumulated other comprehensive income (loss), a component of stockholders’ equity. Gains and losses realized upon sales of all such securities are reported in interest income. See Note 3.

When the fair value of an investment declines below its amortized cost, the Company considers all available evidence to evaluate whether an other-than-temporary decline in value has occurred. Among other things, the Company considers the duration and extent to which the market value has declined relative to our cost basis, the economic factors influencing the markets, the relative performance of the investee and its near-term prospects.

At December 31, 2006 and 2005, the Company’s marketable securities included corporate debt, US government securities, auction rate securities, foreign bonds, municipal bonds and marketable equity securities. See Note 4.

A significant portion of the Company’s portfolio is comprised of auction rate securities with stated maturity dates that may be one year or more beyond the balance sheet dates. Based on historical experience in the financial markets, the Company believes there is a reasonable expectation of completing a successful auction within a 12-month period.

Other assets and investments also include investments in non-marketable securities which are accounted for on the cost basis and amounted to $4.2 million and $5.2 million at December 31, 2006 and 2005, respectively. The Company records an investment impairment charge when the fair value of an investment

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ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

declines below its cost basis. In making this determination the Company considers all available evidence including the historical and projected financial performance and recent funding events which are ascertained from an investee. The Company recorded an investment impairment charge of $0.9 million in 2006. There were no such charges in 2005.

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, investments in marketable securities, non-marketable equity securities and trade accounts receivable. The Company places its cash in banks and cash equivalents consist primarily of certificates of deposit and commercial paper. The Company, by policy, limits the amount of its credit exposure through diversification and restricting its investments to highly rated securities. Individual securities are limited to comprising no more than 10% of the portfolio value at the time of purchase. Highly rated securities are defined as having a minimum Moody or Standard & Poor’s rating of A2 or A respectively. The average maturity of the portfolio shall not exceed 24 months. The Company has not experienced any significant losses on its cash equivalents or short-term investments.

The Company markets integrated circuits and technology to manufacturers and distributors of electronic equipment primarily in North America, Europe and the Pacific Rim. 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. As of December 31, 2006 four customers accounted for approximately 13%, 12%, 10% and 10% of the net accounts receivable balance, respectively. As of December 31, 2005 one customer accounted for approximately 14% of the net accounts receivable balance.

Inventory

Inventories are stated at the lower of standard cost (which approximates actual cost on a first-in, first-out basis) or market. Market is based on estimated net realizable value. The Company writes down inventories to net realizable value based on forecasted demand and market conditions. Inventory write-downs are not reversed and permanently reduce the cost basis of the affected inventory until such inventory is sold or scrapped.

Property and equipment

Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful 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.

Goodwill

In accordance with Financial Accounting Standards Board (“FASB”) Statement No. 142 “Goodwill and Other Intangible Assets” (“SFAS No. 142”) goodwill is not amortized. The Company monitors the recoverability of goodwill recorded in connection with acquisitions, by reporting unit, annually, or sooner if events or changes in circumstances indicate that the carrying amount may not be recoverable. For each of the years ended December 31, 2006, 2005 and 2004, the Company performed the annual analysis and concluded that goodwill was not impaired, as the fair value of each reporting unit exceeded its carrying value, including goodwill.

79

ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Other Intangibles

Other intangible assets were recorded in connection with the acquisitions of Oak Technology, Inc., Emblaze Semiconductor, Ltd and Oren Semiconductor, Inc. and are amortized on a straight-line basis over the estimated periods of benefit, which range between three and five years.

Long-lived assets

The Company evaluates the recoverability of its long-lived assets, other than goodwill, whenever events or changes in circumstance indicate the carrying amounts of the assets may not be recoverable. The Company evaluates these assets by comparing expected undiscounted cash flows to the carrying value of the related assets. If the expected undiscounted cash flows are less than the carrying value of the assets, the Company recognizes an impairment charge based on the fair value of the assets. To date, the Company has not recorded any impairment charges against the value of its long-lived assets.

Fair value of financial instruments

The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties. The carrying amounts for cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued liabilities approximate their respective fair values because of the short-term maturity of these items.

Income taxes

The Company follows the liability method of accounting for income taxes which requires recognition of deferred tax liabilities and assets for the expected future tax consequence of temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities.

The Company’s effective income tax rate has benefited from the availability of previously unbenefitted net operating losses which the Company has utilized for U.S. federal income tax purposes and by our Israel based subsidiary’s status as an “Approved Enterprise” under Israeli law, which provides a ten-year tax holiday for income attributable to a portion of our operations in Israel. Our U.S. federal net operating losses expire at various times between 2017 and 2024, and the benefits from our subsidiary’s Approved Enterprise status expire at various times beginning in 2008.

Realization of deferred tax assets is based on our ability to generate sufficient future taxable income. The valuation allowance was determined in accordance with the provisions of SFAS No. 109 which requires an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable; such assessment is required on a jurisdiction by jurisdiction basis. Historical operating losses and continuing business uncertainty represent sufficient negative evidence which it was difficult for positive evidence to overcome under SFAS No. 109 and accordingly, a full valuation allowance was recorded. If the facts or estimates of future financial results were to change, increasing the likelihood of realizing the deferred tax assets, judgment would have to be applied to determine the amount of valuation allowance required in any given period. We intend to maintain a full valuation allowance until sufficient positive evidence exists to support reversal of the valuation allowance.

Earnings per share

In accordance with Statement of Financial Accounting Standards No. 128, Zoran reports Earnings per Share (“EPS”), both basic and diluted, on the consolidated statement of operations. Basic EPS is based

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ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

upon the weighted average number of common shares outstanding. Diluted EPS is computed using the weighted average common shares outstanding plus any potential common stock, except when their effect is anti-dilutive. Potential common stock includes common stock issuable upon the exercise of stock options and restricted stock units. See Note 13.

Stock-based compensation

Effective January 1, 2006, Zoran adopted SFAS No. 123(R), using the modified prospective application transition method, which establishes accounting for stock-based awards exchanged for employee services. Accordingly, stock-based compensation cost is measured at grant date, based on the fair value of the award, over the requisite service period. The Company previously applied Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”), and related interpretations and provided the pro forma disclosures required by SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”).

Periods Prior to the Adoption of SFAS 123(R) 

Prior to the adoption of SFAS No. 123(R), the Company provided the disclosures required under SFAS No. 123, as amended by SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosures.”

Had compensation cost for the Company’s option and stock purchase plans been determined based on the fair value at the grant dates, as prescribed in SFAS No. 123, the Company’s net loss and net loss per share for each of the year ended December 31, 2005 and 2004, would have been as follows (in thousands, except per share data):

	Year ended December 31,
	2005			2004
	(restated)			(restated)
Net loss as restated	$	(30,272	)	$	(48,108	)
Adjustments:
Stock-based compensation expense included in net loss	4,455			2,575
Stock-based compensation expense determined under the fair value method	(28,262		)	(42,812		)
Pro forma net loss as restated	$	(54,079	)	$	(88,345	)
Pro forma net loss per share as restated:
Basic	$	(1.22	)	$	(2.07	)
Diluted	$	(1.22	)	$	(2.07	)
Net loss per share as restated:
Basic	$	(0.68	)	$	(1.12	)
Diluted	$	(0.68	)	$	(1.12	)

For purposes of this pro forma disclosure, the value of the options was estimated using the accelerated amortization method under FIN 28 over the respective vesting periods of the awards. Due to the valuation allowance provided on our deferred tax assets, the Company has not recorded any tax benefits attributable to pro forma stock-based compensation.

The Company provides information regarding the methodology and assumptions used for the above pro forma disclosure in Note 11.

81

ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Impact of Adoption of SFAS No. 123(R) 

During the year ended December 31 2006, the Company recorded stock-based compensation expense for awards granted prior to but not yet vested as of January 1, 2006 as if the fair value method required for pro forma disclosure under SFAS No. 123 were in effect for expense recognition purposes adjusted for estimated forfeitures. For these awards, the Company has continued to recognize compensation expense using the accelerated amortization method. For stock-based awards granted after January 1, 2006, the Company recognized compensation expense based on the grant date fair value required under SFAS No. 123(R). For these awards, the Company recognized compensation expense using a straight-line amortization method. As SFAS No. 123(R) requires that stock-based compensation expense be based on awards that are ultimately expected to vest, estimated stock-based compensation for the year ended December 31, 2006 has been reduced for estimated forfeitures. The adoption of SFAS No. 123(R) resulted in a one-time benefit of $314,000 related to unvested awards for which compensation expense had already been recorded.

The following table summarizes stock-based compensation expense related to employee stock options, employee stock purchases and restricted stock unit grants for the year ended December 31, 2006 as recorded in accordance with SFAS No. 123(R) (including the effect of the restatements) (in thousands):

	Year Ended December 31, 2006
Cost of hardware product revenues.		$	526
Research and development		5,509
Selling, general and administrative		11,259
Total costs and expenses		$	17,294

The effect of recording additional stock-based compensation expense on basic and diluted net income per share was $0.36 and $0.35 per share respectively for the year ended December 31, 2006.

Segment reporting

SFAS No. 131 establishes standards for the reporting by public business enterprises of information about operating segments, products and services, geographic areas, and major customers. The method for determining what information to report is based on the manner in which management organizes the operating segments within the Company for making operational decisions and assessments of financial performance. The Company’s chief operating decision-maker is considered to be the Chief Executive Officer.

The Company’s products are based on highly integrated application-specific integrated circuits, or ASICs, and system-on-a-chip, or SOC, solutions. The Company also licenses certain software and other intellectual property. During the first quarter of 2006, the Company reorganized its operating structure to bring together its consumer electronic product lines under a single operating group, in recognition of the accelerating convergence of consumer products and the Company’s strategy of sharing technology among its various product lines. The new Consumer group combines the former Digital Versatile Disc (DVD), Digital Television (DTV) and Mobile product groups whose operations were previously reported separately. The Company will continue to report the operations of its Imaging group as a separate operating segment.

The Consumer group provides products for use in DVD players, recordable DVD players, standard and high definition digital television products, digital camera products and multimedia mobile phone products.

82

ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Imaging group provides products used in digital copiers, laser and inkjet printers as well as multifunction peripherals.

Comprehensive Income (loss)

Comprehensive Income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Comprehensive loss includes unrealized gains and losses on available-for-sale securities.

The following are the components of comprehensive income (loss) (in thousands):

	Year ended December 31,
	2006		2005			2004
			(restated)			(restated)
Net income (loss)	$	16,328	$	(30,272	)	$	(48,108	)
Change in unrealized gain (loss) on investments, net	1,181		1,668			2,673
Total comprehensive income (loss)	$	17,509	$	(28,604	)	$	(45,435	)

The components of accumulated other comprehensive income (loss) as of December 31, 2006, 2005 and 2004 consisted of the unrealized gain (loss) on marketable securities, net of related taxes.

Recent accounting pronouncements

In February 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” This statement expands the standards under SFAS No. 157, “Fair Value Measurement,” to provide entities the one-time election (Fair Value Option or FVO) to measure financial instruments and certain other items at fair value. Most of the provisions of this statement apply only to entities that elect the fair value option. The provisions of SFAS No. 159 are effective for the Company for fiscal years beginning January 1, 2008. The Company is evaluating the impact of the provisions of this statement on its consolidated financial position, results of operations and cash flows.

In September 2006, the SEC staff issued Staff Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” SAB No. 108 was issued in order to eliminate the diversity of practice surrounding how public companies quantify financial statement misstatements. SAB No. 108 requires registrants to quantify the impact of correcting all misstatements using both the “rollover” method, which focuses primarily on the impact of a misstatement on the income statement and is the method currently used by the Company, and the “iron curtain” method, which focuses primarily on the effect of correcting the period-end balance sheet. The use of both of these methods is referred to as the “dual approach” and should be combined with the evaluation of qualitative elements surrounding the errors in accordance with SAB No. 99, “Materiality.” The provisions of SAB No. 108 are effective for the Company for the fiscal year ended December 31, 2006. The adoption of SAB No. 108 did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”), which defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. The provisions of SFAS No. 157 are effective for the Company for fiscal years beginning after December 31, 2007. The Company is evaluating the impact of the provisions of this statement on its consolidated financial position, results of operations and cash flows.

83

ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans.” SFAS No. 158 requires employers to fully recognize the obligations associated with single-employer defined benefit pension, retiree healthcare and other post-retirement plans in their financial statements. The provisions of SFAS No. 158 are effective for the Company as of the end of the fiscal year ending December 31, 2006. The adoption of SFAS No. 158 did not have a material effect on the Company’s consolidated financial position, results of operations or cash flows.

In June 2006, the FASB published FIN 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109” which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, Accounting for Income Taxes. This Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This Interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. This Interpretation is effective for the Company in fiscal years beginning January 1, 2007. The impact of the provisions of this Interpretation on the Company’s retained earnings is expected to be less than $5 million.

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments,” an amendment of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” This Statement permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation. This Statement is effective for the Company for all financial instruments acquired or issued after July 1, 2007. The adoption of SFAS No. 155 is not expected to have a material effect on the Company’s consolidated financial position, results of operations or cash flows.

In June 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections,” a replacement of APB No. 20, “Accounting Changes,” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements.” SFAS No. 154 changes the requirements for the accounting for and reporting of a change in accounting principle. Previously, most voluntary changes in accounting principles required recognition via a cumulative effect adjustment within net income of the period of the change. SFAS No. 154 requires retrospective application to prior periods’ financial statements, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS No. 154 is effective for the Company for accounting changes made in fiscal years beginning January 1, 2006; however, the Statement does not change the transition provisions of any existing accounting pronouncements. The adoption of SFAS No. 154 did not have a material effect on the Company’s consolidated financial position, results of operations or cash flows.

In March 2005, the FASB published FIN 47, “Accounting for Conditional Asset Retirement Obligations,” which clarifies that the term, conditional asset retirement obligation, as used in SFAS No. 143, “Accounting for Asset Retirement Obligations,” refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. The uncertainty about the timing and (or) method of settlement of a conditional asset retirement obligation should be factored into the measurement of the liability when sufficient information exists. The Interpretation also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. The adoption of this Interpretation did not have a material effect on the Company’s consolidated financial position, results of operations or cash flows.

84

ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE4—MARKETABLE SECURITIES

The Company’s portfolio of marketable securities at December 31, 2006 was as follows (in thousands):

	Cost		Unrealized Gains			Unrealized Losses				Estimated Fair Value
Corporate debt	$	97,175		$	10		$	(245	)	$	96,940
U.S. government securities	42,822			7			(141		)	42,688
Auction rate securities	37,550			—			—			37,550
Foreign bonds	11,427			1			(12		)	11,416
Municipal bonds	1,500			—			(1		)	1,499
Total fixed income securities	190,474			18			(399		)	190,093
Publicly traded equity securities	1,483			4,619			—			6,102
Total	$	191,957		$	4,637		$	(399	)	$	196,195

The Company’s portfolio of marketable securities at December 31, 2005 was as follows (in thousands):

	Cost		Unrealized Gains			Unrealized Losses				Estimated Fair Value
Corporate debt	$	26,211		$	—		$	(151	)		$	26,060
U.S. government securities	20,000			—			(151		)		19,849
Auction rate securities	15,125			—			—				15,125
Foreign bonds	4,474			—			(6		)		4,468
Total fixed income securities	65,810			—			(308		)		65,502
Publicly traded equity securities	1,623			3,365			—				4,988
Total	$	67,433		$	3,365		$	(308	)		$	70,490

The following table summarizes the contractual maturities of the Company’s fixed income securities at December 31, 2006 (in thousands):

	Cost		Estimated Fair Value
Less than 1 year	$	90,417	$90,310
Due in 1 to 2 years	46,389		46,178
Due in 2 to 5 years	16,118		16,055
Greater than 5 years*	37,550		37,550
Total fixed income securities	$	190,474	$	190,093

*Comprised of auction rate securities which have reset dates of 90 days or less but final expiration dates over 5 years.

Gross realized gains on sales of marketable securities were $2,398,000; $143,000 and $94,000 in 2006, 2005 and 2004, respectively. There were no gross realized losses on sales of marketable securities in 2006. Gross realized losses on sales of marketable securities were $287,000 and $104,000 in 2005 and 2004, respectively.

85

ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Interest income on cash and marketable securities was $11,057,000, $2,593,000 and $263,000 for the years ended December 31, 2006, 2005 and 2004, respectively.

NOTE 5—BALANCE SHEET COMPONENTS (in thousands)

	December 31,
Accounts receivable:	2006			2005
Trade	$	51,905		$	76,354
Less: allowance for doubtful accounts	(9,265		)	(6,180		)
	$	42,640		$	70,174

	December 31,
Inventory:	2006		2005
Purchased parts and work in process	$	18,748	$	14,904
Finished goods	26,296		17,712
	$	45,044	$	32,616

	December 31,
Property and equipment:	2006			2005
Computer equipment	$	13,992		$	15,749
Office equipment and furniture	4,079			2,512
Machinery and equipment	12,910			5,762
Software	29,397			24,196
Building and leasehold improvements	6,157			4,465
	66,535			52,684
Less: accumulated depreciation and amortization	(50,862		)	(36,627		)
	$	15,673		$	16,057

	December 31,
Accrued expenses and other liabilities:	2006		2005
			(restated)
Accrued payroll and related expenses	$	19,873	$	18,981
Accrued royalties	3,134		6,179
Taxes payable	7,579		12,188
Deferred revenue	4,360		5,590
Other accrued liabilities	11,136		11,831
	$	46,082	$	54,769

NOTE 6—GOODWILL AND OTHER INTANGIBLE ASSETS

In accordance with SFAS No. 142, goodwill is not amortized. The Company monitors the recoverability of goodwill recorded in connection with acquisitions, by reporting unit, annually, or sooner if events or changes in circumstances indicate that the carrying amount may not be recoverable. For each of the years ended December 31, 2006, 2005 and 2004, the Company performed the annual analysis and concluded that goodwill was not impaired, as the fair value of each reporting unit exceeded its carrying value, including goodwill.

86

ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Components of Acquired Intangible Assets (in thousands):

			December 31, 2006								December 31, 2005
	Life (Years)		Gross Carrying Amount		Accumulated Amortization				Net Balance		Gross Carrying Amount		Accumulated Amortization				Net Balance
Amortized intangible assets:
Purchased technology		2-3	$	195,505		$	(142,658	)	$	52,847	$	195,505		$	(105,088	)	$	90,417
Patents		3-5	40,265			(29,500		)	10,765		40,265			(19,978		)	20,287
Customer base		3-5	13,860			(9,583		)	4,277		13,860			(7,123		)	6,737
Tradename and others		3-5	3,350			(2,070		)	1,280		3,350			(1,560		)	1,790
Total			$	252,980		$	(183,811	)	$	69,169	$	252,980		$	(133,749	)	$	119,231

Estimated future intangible amortization expense, based on current balances, as of December 31, 2006 is as follows (in thousands):

Year ending December 31,	Amount
2007	$	43,224
2008	23,315
2009	1,820
2010	810
Total	$	69,169

Changes in the carrying amount of goodwill for the year ended December 31, 2006 are as follows (including the effect of the restatements related to acquisition of Oren Semiconductor, Inc.) in thousands:

	Amount
Balance at December 31, 2004	$	150,151
Acquisition of Oren Semiconductor, Inc.	33,897
Adjustment to goodwill related to acquisition of Oak	(1,386		)
Balance at December 31, 2005	182,662
Adjustment to goodwill related to acquisition of Oak	(8,403		)
Balance at December 31, 2006.	$	174,259

The adjustment to goodwill in 2006 and 2005 is related to the realization of certain pre-acquisition tax net operating losses. Realization of these net operating losses is reported as an adjustment to goodwill in accordance with FAS No. 109.

Goodwill by operating segment at December 31, 2006 and 2005 were as follows (in thousands):

	December 31,			December 31,
	2006			2005
				(restated)
Consumer		$	169,060		$	176,623
Imaging		5,199			6,039
		$	174,259		$	182,662

87

ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 7—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 3% 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 incurred in Israel are net of these grants, which fluctuate from period to period.

Research and development expenses that qualify for the grants and the related grants are as follows (in thousands):

	Year Ended December 31,
	2006		2005		2004
			(restated)
Research and development expenses	$	60,147	$	48,377	$	38,461
Less: grants earned	—		—		(1,460		)
	$	60,147	$	48,377	$	37,001

There were no grant receipts or royalty expense in 2006 and 2005. Royalty expenses related to these grants were $654,000 in 2004.

NOTE 8—DEVELOPMENT CONTRACTS

The Company has generated a portion of its total revenues from development contracts, primarily with key customers. The Company classifies costs related to these development contracts as 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. Revenues generated under these contracts were $2.7 million in 2006; $3.2 million in 2005 and $1.6 million in 2004. In addition, from time to time, we enter into non-refundable joint development projects in which our customers reimburse us for a portion of our development costs. We classify such reimbursement of development costs as an offset to research and development expenses as we retain ownership of the intellectual property developed by us under these development arrangements. During 2006 and 2005, we received approximately $370,000 and $1.2 million in such reimbursements. We did not receive any reimbursements in 2004.

NOTE 9—COMMITMENTS AND CONTINGENCIES

From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of its business activities. The Company accrues contingent liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably estimated.

88

ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Lease and license commitments

The Company rents facilities under various lease agreements expiring through 2016. Rent expense for 2006, 2005 and 2004 totaled approximately $5.4 million; $5.6 million and $4.4 million, respectively. The Company also entered into a time based license agreement for the right to use certain intellectual property. Future minimum lease and license payments required under non-cancelable agreements at December 31, 2006 are as follows: (in thousands)

Year ending December 31,	Amount
2007	$	10,188
2008	3,819
2009	3,345
2010	3,211
2011	3,108
Thereafter	15,895
Total	$	39,566

Legal proceedings

U.S. Attorney and SEC Investigations:On July 3, 2006, Zoran disclosed in a press release that it received a grand jury subpoena from the office of the U.S. attorney for the Northern District of California requesting documents from 1995 through the present referring to, relating to or involving stock options, and also received an informal inquiry from the SEC requesting documents related to Zoran’s stock option grants. Zoran intends to cooperate fully in all government investigations. These inquiries likely will require the Company to expend significant management time and incur significant legal and other expenses, and could result in civil and criminal actions seeking, among other things, injunctions against the Company and its officers and directors and the payment of significant fines and penalties by the Company and its officers and directors, which may adversely affect its results of operations and cash flow. The Company cannot predict how long it will take to or how much more time and resources it will have to expend to resolve these government inquiries, nor can it predict the outcome of these inquiries. Also, there can be no assurance that other inquiries, investigations or actions will not be started by other United States federal or state regulatory agencies or by foreign governmental agencies.

Late SEC Filings and Nasdaq Delisting Proceedings Due to the Special Committee investigation and the resulting restatements, the Company did not file on time its Quarterly Report on Form 10-Q for the quarters ended June 30, 2006 and September 30, 2006, or its Annual Report on Form 10-K for the year ended December 31, 2006. As a result, the Company received Nasdaq Staff Determination letters, dated August 14, 2006, November 15, 2006 and March 20, 2007 stating that the Company was not in compliance with the filing requirements of Marketplace Rule 4310(c)(14) and, therefore, that the Company’s stock was subject to delisting from the Nasdaq Global Select Market. A hearing before a Nasdaq Listing Qualifications Panel was held on September 27, 2006 and a decision to grant the Company’s request for continued listing on Nasdaq subject to certain conditions occurred on December 28, 2006. The Company has appealed this decision, and the Nasdaq Listing Council has determined to stay the December 28, 2006 Panel decision, and any future Panel determinations to suspend Zoran’s securities from trading, pending further action from the Listing Council. On March 2, 2007, the Company provided the Listing Council with an additional submission for its consideration regarding continued listing. The Listing Council will review the matter on the basis of the written record.

89

ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Shareholder Class Actions and Derivative Litigation Relating to Historical Stock Option Practices:As discussed further below, certain persons and entities identifying themselves as shareholders of Zoran have filed litigation purporting to assert claims arising out of the historical accounting for stock options.

Zucker v. Zoran Corporation, et al..On August 10, 2006, a securities class action complaint was filed against Zoran and certain of its officers and directors in the United States District Court, Northern District of California, alleging violations of federal securities laws. The Court selected Middlesex Pension Fund as lead plaintiff and approved lead plaintiff’s selection of counsel for the class. Plaintiff filed an amended complaint on February 1, 2007 and a second amended complaint on February 20, 2007. On March 8, 2007, Defendants filed a motion to dismiss. On March 20, 2007, lead plaintiff filed a notice voluntarily dismissing the action with prejudice as to the lead plaintiff.

NCEA-IBEW Pension Fund (The Decatur Plan) v. Galil, et al.On June 12, 2006, a purported shareholder derivative action was filed by the Decatur Plan against Zoran as a nominal defendant and certain of its officers and directors in the United States District Court, Northern District of California, alleging, inter alia, violations of federal and state securities laws and breaches of fiduciary duty. On December 4, 2006, Decatur Plan filed a notice of voluntary dismissal.

Pfeiffer v. Zoran Corporation et al.On September 7, 2006, a purported shareholder derivative action was filed by Milton Pfeiffer against Zoran as a nominal defendant and certain of its officers and directors in the United States District Court, Northern District of California, alleging, inter alia, violations of federal securities laws and breaches of fiduciary duties.

Gerald del Rosario v. Aharon et al.On September 26, 2006, a purported shareholder derivative action was filed by Gerald del Rosario against Zoran as a nominal defendant and certain of its current and former officers and directors in the United States District Court, Northern District of California, alleging, inter alia, violations of federal securities laws and breaches of fiduciary duty. On December 8, 2006, the Court issued an order consolidating the Del Rosario action with the Pfeiffer action. The Court selected del Rosario as lead plaintiff and approved lead plaintiff’s selection of counsel for the consolidated derivative action. Plaintiffs filed a consolidated amended complaint on March 14, 2007.

Barone v. Gerzberg et al.; Durco v. Gerzberg et al.On October 23, 2006, two purported shareholder derivative actions were filed by Moshe Barone and John Durco against Zoran as a nominal defendant and certain of its current and former officers and directors in the California Superior Court of Santa Clara County, alleging, inter alia, violations of state securities laws and breaches of fiduciary duty. On January 24, 2007 the Court consolidated the Barone and Durco actions, appointed Messrs. Barone and Durco as co-lead plaintiffs and approved their selection of counsel for the consolidated derivative action. Co-Lead Plaintiffs filed a consolidated amended complaint on March 26, 2007.

On February 20, 2007, the Company filed a complaint against ArcSoft Inc. in the California Superior Court for the County of Alameda, seeking payment of $4 million in principal, together with accrued interest then in the amount of approximately $525,000, under four separate convertible promissory notes.  On February 28, 2007, the Company filed an application with the Court seeking to attach assets of ArcSoft as security for the payment of its obligations under the notes.  The notes represent amounts loaned by the Company to ArcSoft in 2004 in connection with a transaction involving the transfer to ArcSoft of rights related to a software product then under development and related agreements regarding the continued development and commercialization of the product.  On March 28, 2007, ArcSoft filed an answer denying liability under the notes and asserting various affirmative defenses.  ArcSoft also filed a cross complaint alleging fraud in the inducement of the business arrangement, fraudulent and negligent misrepresentation, breach of contract and of the implied covenant of good faith and fair dealing, and unjust enrichment and

90

ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

seeking monetary damages of more than $6.9 million.  The hearing on our application for an attachment is currently scheduled for May 14, 2007.

Indemnification Obligations.Subject to certain limitations, the Company is obligated to indemnify its current and former directors, officers and employees in connection with the investigation of the Company’s historical stock option practices and related government inquiries and litigation. These obligations arise under the terms of the Company’s certificate of incorporation, its bylaws, applicable contracts, and Delaware and California law. The obligation to indemnify generally means that the Company is required to pay or reimburse the individuals’ reasonable legal expenses and possibly damages and other liabilities incurred in connection with these matters. The Company is currently paying or reimbursing legal expenses being incurred in connection with these matters by a number of its current and former directors, officers and employees. Although the maximum potential amount of future payments the Company could be required to make under these agreements is theoretically unlimited, the Company believes the fair value of this liability is adequately covered within the reserves it has established for currently pending legal proceedings.

Other Legal Matters. The Company is named from time to time as a party to lawsuits in the normal course of its business. Litigation, in general, and intellectual property and securities litigation in particular, can be expensive and disruptive to normal business operations. Moreover, the results of legal proceedings are difficult to predict.

NOTE 10—RESTRUCTURING

During the year ended December 31, 2004, the Company recorded restructuring charges of $746,000 due to the discontinuation of the Sensor product line of the Consumer operating segment. These charges included $523,000 related to the reduction in force of 15 employees for severance and other termination expenses, $173,000 for lease losses on abandoned office space and other miscellaneous legal and consulting fees of approximately $50,000. The remaining balance at December 31, 2006 of approximately $52,000 related to facilities will be paid over the lease term through June 2007.

NOTE 11—STOCKHOLDERS’ EQUITY

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. A total of 7,755,000 shares of common stock were reserved for issuance under the 1993 Option Plan. The 1993 Option Plan provided for grants of options to employees, non-employee directors and consultants. The 1993 Stock Option Plan expired during 2003 and no future shares will be granted under this plan. The option price for shares granted under the 1993 Option Plan was typically equal to the fair market value of the common stock at the date of grant.

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.

91

ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

2000 Nonstatutory Stock Option Plan

The Company’s 2000 Nonstatutory Stock Option Plan (the “2000 Option Plan”) was adopted by the Board of Directors of the Company in October 2000. A total of 450,000 shares of preferred stock were initially reserved for issuance under the 2000 Option Plan. The options to purchase preferred stock automatically converted to options to purchase common stock upon the amendment of the Company’s certificate of incorporation to affect an increase in the number of authorized shares of common stock to 55,000,000 in October 2000. A total of 13,325,000 shares of common stock were reserved for issuance under the 2000 Option Plan. The 2000 Option Plan provided for grants of options to employees or consultants. The 2000 Option Plan was modified in 2001 to allow for exercisability of stock options ahead of vesting subject to the Company’s right to repurchase the associated stock at the option exercise price through the original vesting schedule. The option price for shares granted under the 2000 Option Plan was typically equal to the fair market value of the common stock at the date of grant. Options expire ten years from the date of grant and an option generally terminates three months after termination of employment. The 2000 Stock Option Plan was terminated in 2005 and was replaced by the 2005 Equity Incentive Plan.

1995 Outside Directors Stock Option Plan

The Company’s Outside Directors Stock Option Plan (the “1995 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 525,000 shares of Common Stock were reserved for issuance under the 1995 Directors Plan. The 1995 Directors Plan provided for the grant of nonstatutory stock options to nonemployee directors of the Company. The 1995 Directors Plan provided that each new nonemployee director would automatically be granted an option to purchase 30,000 shares on the date the optionee first became a nonemployee director (the “Initial Grant”). Thereafter, on the date immediately following each annual stockholders’ meeting, each nonemployee director who was reelected at the meeting to an additional term was granted an additional option to purchase 15,000 shares of Common Stock if, on such date, he or she had served on the Company’s Board of Directors for at least six months (the “Annual Grant”). Initial Grants were exercisable in four equal annual installments, and each Annual Grant became 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 1995 Directors Plan was equal to the fair market value of the Company’s Common Stock on the date of grant. Options granted under the 1995 Directors Plan have a term of ten years. This plan was terminated in July 2005 and was replaced by the 2005 Outside Directors Equity Plan.

2005 Equity Incentive Plan

The 2005 Equity Incentive Plan (the “2005 Plan”) was adopted by the Board of Directors in May 2005 and replaced the 1993 Stock Option Plan, which expired in 2003, and the 2000 Nonstatutory Stock Option Plan, which was terminated by the Board of Directors upon stockholder approval of the 2005 Plan in July 2005. A total of 4,556,663 shares of the Company’s common stock is authorized for issuance pursuant to awards granted under the 2005 Plan. Such awards may include stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, deferred stock units and other stock-based or cash-based awards. The 2005 Plan is generally administered by the Compensation Committee of the Board of Directors and has a term of 10 years. Participation in the 2005 Plan is limited to employees and consultants of Zoran and its subsidiaries and other affiliates.

Options and stock appreciation rights granted under the 2005 Plan must have exercise prices per share not less than the fair market value of Zoran common stock on the date of grant and may not be repriced

92

ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

without stockholder approval. Such awards will vest and become exercisable upon conditions established by the Compensation Committee and may not have a term exceeding 10 years.

Except with respect to 5% of the number of shares authorized under the 2005 Plan, awards of restricted stock, restricted stock units, performance shares, performance units and other full value awards granted under the 2005 Plan generally must have service-based vesting schedules of at least three years or a performance period of at least 12 months. However, restricted stock or restricted stock units issued pursuant to a stockholder-approved option exchange program which vest based on service must have a vesting schedule of at least two years. Performance share and performance unit awards vest to the extent that pre-established performance goals based on one or more measures of business and financial performance authorized by the 2005 Plan are attained during a performance period established by the Compensation Committee. The grant or vesting of other types of awards under the 2005 Plan may similarly be based on the attainment of one or more such performance goals. The 2005 Plan provides that the number of shares remaining available for issuance will be reduced by 1.3 shares for each one share of Zoran common stock subject to a full value award granted under the 2005 Plan.

At December 31, 2006, 3,555,449 shares of the Company’s common stock were available for the grant of the options and other awards under the 2005 Plan, subject to the provisions described above that reduce the number of shares available for full value awards.

2005 Outside Directors Equity Plan

The 2005 Outside Directors Equity Plan (the “2005 Directors Plan”) was adopted by the Board of Directors in May 2005 and replaced the 1995 Outside Directors Stock Option Plan, which was terminated by the Board of Directors upon stockholder approval of the Directors Plan in July 2005. A total of 600,000 shares of the Company’s common stock is authorized for issuance pursuant to awards granted under the 2005 Directors Plan. Such awards may include stock options, stock appreciation rights, restricted stock units and deferred stock units. The 2005 Directors Plan is generally administered by the Board of Directors and has a term of 10 years. Participation in the Directors Plan is limited to non-employee members of the Zoran Board of Directors (“outside directors”). The 2005 Directors Plan provides that the number of shares remaining available for issuance will be reduced by 1.3 shares for each one share of Zoran common stock subject to a full value award granted under the 2005 Directors Plan.

Awards under the 2005 Directors Plan are granted by the Board of Directors to all outside directors on a periodic, nondiscriminatory basis within limits prescribed by the 2005 Directors Plan. Subject to appropriate adjustment for any change in the Company’s capital structure, awards granted to any outside director in any fiscal year may not exceed 20,000 shares, increased by one or more of the following: 40,000 shares upon an outside director’s initial election, 10,000 shares for service as Chairman of the Board or Lead Director, 5,000 shares for service on a Board committee as chairman and 2,500 shares for service on a Board committee other than as chairman. Stock options, stock appreciation rights, restricted stock units and deferred stock units granted under the Directors Plan are generally subject to terms substantially similar to those applicable to the same type of award granted under the 2005 Plan.

At December 31, 2006, 405,000 shares of the Company’s common stock were available for the grant of the options and other awards under the 2005 Directors Plan, subject to the provisions described above that reduce the number of shares available for full value awards.

93

ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table summarizes the Company’s stock option activity for the years ended December 31, 2006, 2005 and 2004. The weighted average exercise price for each category presented is also shown in the table below:

	Options Outstanding		Weighted Average Exercise Price
Balances, December 31, 2003	13,669,164			$	16.86
Granted	1,091,733			$	16.80
Exercised	(502,921	)		$	8.57
Canceled	(1,412,219	)		$	17.95
Balances, December 31, 2004	12,845,757			$	17.06
Granted	2,296,315			$	11.63
Exercised	(555,106	)		$	9.26
Canceled	(1,631,381	)		$	17.95
Balances, December 31, 2005	12,955,585			$	16.32
Granted	363,065			$	21.13
Exercised	(3,683,846	)		$	13.53
Canceled*	(1,538,460	)		$	23.09
Balances, December 31, 2006	8,096,344			$	16.52

*Includes 1,060,536 underwater options exchanged for restricted shares and restricted stock units. See “Restricted Shares and Restricted Stock Units” below.

Significant option groups outstanding as of December 31, 2006 and the related weighted average exercise price and contractual life information, are as follows:

	Options Outstanding										Options Exercisable
Exercise Prices	Shares Underlying Options at December 31, 2006		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price			Aggregate intrinsic value (‘000)			Shares Underlying Options at December 31, 2006		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price			Aggregate intrinsic value (‘000)
$0.00 to $9.99		577,841		5.11		$	6.27		$	4,800		539,359		4.95		$	6.12		$	4,564
$10.00 to $11.99		1,354,392		7.39		$	10.56		5,442			1,354,392		7.39		$	10.56		5,442
$12.00 to $14.99		1,632,033		6.32		$	13.00		2,581			1,389,337		5.92		$	12.86		2,364
$15.00 to $19.99		2,333,485		7.07		$	17.11		—			1,970,133		6.92		$	17.11		—
$20.00 to $25.99		1,803,997		6.66		$	24.04		—			1,566,024		6.26		$	24.21		—
$26.00 to $46.53		394,596		3.79		$	28.59		—			385,631		3.66		$	28.61		—
Total		8,096,344		6.58		$	16.52		$	12,823		7,204,876		6.35		$	16.40		$	12,370

The weighted average grant date fair value of options, as determined under SFAS No. 123(R), granted during the year ended December 31, 2006 was $11.46 per share. The weighted average grant date fair value of options granted during the year ended December 31, 2005 and 2004 as defined by SFAS No. 123, was $6.62 and $11.08 per share, respectively.

The aggregate intrinsic value in the table above represents the total pretax intrinsic value, based on the Company’s closing stock price of $14.58 as of December 31, 2006, which would have been received by the option holders had all option holders exercised their options as of that date. The total number of shares of common stock underlying in-the-money options exercisable as of December 31, 2006 was 3.3 million.

94

ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The total intrinsic value of options exercised during the year ended December 31, 2006 was $40.8 million. The total cash received from employees as a result of employee stock option exercises during the year ended December 31, 2006 was approximately $49.8 million. In connection with these exercises, there was no tax benefit realized by the Company due to the Company’s current loss position.

As of December 31, 2006, the total unrecognized compensation cost related to stock options was $8.4 million after estimated forfeitures which are expected to be recognized over an estimated amortization period of up to four years.

The Company settles employee stock option exercises with newly issued common shares.

For purposes of the disclosure requirements of SFAS No. 123 and the requirements of SFAS No. 123(R), the Company estimates the fair value of stock options using the Black-Scholes option pricing model using the following weighted-average assumptions:

	Stock Option Plans						Stock Purchase Plan
	2006		2005		2004		2006		2005		2004
Average expected term (years)	5.7		3.9		5.1		1.25		1.25		1.25
Expected volatility	70	%	68	%	75	%	57	%	46	%	59	%
Risk-free interest rate	4.6% to 5.0	%	3.8% to 4.4	%	3.0% to 3.7	%	2.3	%	2.9% to 4.3	%	1.0% to 2.3	%
Dividend yield	0	%	0	%	0	%	0	%	0	%	0	%

Expected Term: The expected term represents the period that the Company’s stock-based awards are expected to be outstanding and was determined based on the Company’s historical experience with similar awards, giving consideration to the contractual terms of the stock-based awards and vesting schedules.

Expected Volatility: The Company used historical volatility in deriving its volatility assumption. Management believes that historical volatility appropriately reflects the market’s expectations of future volatility.

Risk-Free Interest Rate: Management bases its assumptions regarding the risk-free interest rate on U.S. Treasury zero-coupon issues with an equivalent remaining term.

Expected Dividend: The Company has not paid and does not anticipate paying any dividends in the near future.

Estimated Pre-vesting Forfeitures: When estimating forfeitures, the Company considers voluntary termination behavior based on actual historical information.

Restricted Shares and Restricted Stock Units

Restricted shares and restricted stock units are granted under the 2005 Plan. On January 6, 2006, the Company filed a Tender Offer Statement with the Securities and Exchange Commission and commenced an offer to current employees to exchange outstanding options with exercise prices per share that were

95

ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

more than the greater of $20.00 and the closing sale price of Zoran common stock on the offer expiration date of February 6, 2006. The exchange offer was approved by Zoran’s stockholders at their 2005 annual meeting. On February 6, 2006, the Company accepted for exchange options to purchase an aggregate of 1,060,536 shares of Zoran common stock having an exercise price greater than $22.48. Subject to the terms and conditions of the exchange, the Company granted 197,433 restricted shares of common stock or restricted stock units in exchange for the tendered options. The shares of restricted stock and restricted stock units granted as part of this exchange vest over a period of two years. None of the directors or executive officers was eligible for participation in the exchange offer. This exchange was accounted as a modification under FAS No. 123(R). As of December 31, 2006, there was $0.3 million of total unrecognized stock-based compensation expense related to restricted shares and restricted stock units. This cost is expected to be recognized over the vesting period of two to four years.

The following is a summary of restricted shares and restricted stock units activities:

	Outstanding restricted shares and stock units			Weighted average grant- date fair value
Balances, December 31, 2005		65,333			$	13.59
Granted		197,433			$	21.56
Released		(64,986	)		$	19.56
Forfeited		(8,064	)		$	21.56
Balances, December 31, 2006		189,716			$	19.50

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. The ESPP enables 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. During the years ended December 31, 2006 and 2005, 263,349 and 488,313 shares were purchased by employees under the terms of the plan agreements at a weighted average price of $9.16 and $8.90 per share, respectively. As of December 31, 2006, 2,311,447 shares were reserved and available for issuance under this plan. Due to the delay in the filing of its periodic reports during 2006, the Company was unable to issue shares under the ESPP for the six-month segment ended October 31, 2006.

NOTE 12—RETIREMENT AND EMPLOYEE BENEFIT PLANS

We maintain a 401(k) Plan that covers substantially all of the Company’s US employees. Participants may elect to contribute a percentage of their compensation to this plan, up to the statutory maximum amount prescribed by the Internal Revenue Code. The Company has the ability to make a discretionary matching contribution to the 401(k) Plan based on a uniform percentage of the employee’s eligible contribution up to a maximum employer match of $2,000 per year per employee. Approximately $525,000, $235,000 and $384,000 in matching contributions were recorded during 2006, 2005 and 2004, respectively.

96

ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Under Israeli law, the Company is required to make severance payments to its retired or dismissed Israeli employees and Israeli employees leaving its employment in certain other circumstances. The Company’s severance pay liability to its Israeli employees, which is calculated based on the salary of each employee multiplied by the years of such employee’s employment, is reflected in the Company’s balance sheet in other long-term liabilities on an accrual basis, and is partially funded by the purchase of insurance policies in the name of the employees. The surrender value of the insurance policies is recorded in other non-current assets. The severance pay expenses for the years ended December 31, 2006, 2005 and 2004 were $979,000, $645,000 and $412,000 respectively. The severance pay detail is as follows (in thousands):

	Year Ended December 31,
	2006			2005			2004
Accrued severance	$	11,052		$	7,690		$	6,212
Less : amount funded	(9,702		)	(6,404		)	(5,492		)
Unfunded portion, net accrued severance pay	$	1,350		$	1,286		$	720

NOTE 13—EARNINGS PER SHARE

The following is a reconciliation of the numerators and denominators of the basic and diluted net income (loss) per share computations for the periods presented (in thousands except per share amounts):

	Year ended December 31,
	2006		2005			2004
			(restated)			(restated)
Net income (loss)	$	16,328	$	(30,272	)	$	(48,108	)
Shares:
Weighted average shares outstanding	48,353		44,267			42,788
Effect of dilutive options, ESPP and restricted stock units.	1,746		—			—
Dilutive weighted average shares	50,099		44,267			42,788
Net income (loss) per share:
Basic	$	0.34	$	(0.68	)	$	(1.12	)
Diluted	$	0.33	$	(0.68	)	$	(1.12	)

For the years ended December 31, 2006, 2005 and 2004 outstanding options and restricted stock units totaling 3.1 million, 13.0 million and, 12.8 million shares, respectively, were excluded from the calculation of diluted net income (loss) per share as the inclusion of such shares would have had an anti-dilutive effect.

NOTE 14—INCOME TAXES

The components of income (loss) before income taxes are as follows (in thousands):

	December 31,
	2006			2005			2004
				(restated)			(restated)
Current:
Federal	$	(754	)	$	(49,313	)	$	(35,593	)
Foreign	22,844			21,397			(10,975		)
	$	22,090		$	(27,916	)	$	(46,568	)

97

ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The components of the provision for income taxes are as follows:

	December 31,
	2006			2005				2004
				(restated)				(restated)
Current:
Federal	$	4,463			$	896			$	(694	)
State	(623		)		(183		)		—
Foreign	1,922				1643				2,234
	5,762				2,356				1,540
Deferred	—				—				—
Total income tax expense	$	5,762			$	2,356			$	1,540

The tax provision differs from the amounts obtained by applying the statutory U.S. Federal Income Tax Rate to income taxes as shown below.

	December 31,
	2006			2005				2004
				(restated)				(restated)
Tax provision (benefit) at U.S. statutory rate	$	7,511			$	(9,491	)	$	(15,834	)
Foreign earnings	(6,016		)		(5,632		)	3,331
State taxes net of federal benefit	259				98			—
Other differences not benefited	5,234				16,145			15,387
Permanent differences	(1,597		)		1,214			36
Alternative Minimum tax	371				22			—
Research and development credits	—				—			(1,380		)
Total income tax expense	$	5,762			$	2,356		$	1,540

Deferred income tax assets comprise the following:

	December 31,
	2006			2005			2004
				(restated)			(restated)
Deferred tax assets:
Federal and state net operating loss carryforwards	$	66,218		$	101,820		$	103,903
Tax credits	43,102			30,859			33,540
Nondeductible reserves and accruals	8,782			9,923			10,475
Total deferred tax assets	118,102			142,602			147,918
Deferred tax liabilities:
Intangible assets	(17,964		)	(34,964		)	(46,904		)
Deferred tax assets	100,138			107,638			101,014
Valuation allowance	(100,138		)	(107,638		)	(101,014		)
Net deferred tax assets	$	—		$	—		$	—

A significant portion of the deferred tax asset above relates to pre-acquisition loss carryforwards and other attributes or stock option benefits that will result in an adjustment to goodwill or paid in capital respectively, when realized. During 2006, the Company realized $7.1 million related to certain pre-acquisition tax net operating losses. Realization of these net operating losses is reported as an adjustment to goodwill in accordance with SFAS No. 109. During 2006 we reduced the NOL deferred tax asset for

98

ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

amounts which we believe will expire before they become available for utilization. As of December 31, 2006, the Company had NOLs of approximately $185 million for federal and $36 million for state tax reporting purposes. The federal NOLs expire on various dates between 2017 and 2024. The state NOLs expire between 2012 and 2014. Approximately $45 million of the valuation allowance relates to tax benefits for stock option deductions, for which a full valuation allowance has been recorded. As of December 31, 2006, the Company had tax credits of approximately $23 million for federal and $19 million for state tax purposes, which will expire beginning in 2007.

Realization of deferred tax assets is based on our ability to generate sufficient future taxable income. The valuation allowance was determined in accordance with the provisions of SFAS No. 109 which requires an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable; such assessment is required on a jurisdiction by jurisdiction basis. Historical operating results and continuing business uncertainty represent sufficient negative evidence which it was difficult for positive evidence to overcome under SFAS No. 109 and accordingly, a full valuation allowance was recorded. The amount of the deferred tax asset valuation allowance, however, could be reduced in the near term if estimates of future taxable income are realized. The calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax regulations. The Company records liabilities for anticipated tax audit issues based on its estimate of whether, and the extent to which, additional taxes may be due. Actual tax liabilities may be different than the recorded estimates and could result in an additional charge or benefit to the tax provision in the period when the ultimate tax assessment is determined.

The Company has not provided for federal income tax on approximately $55.6 million of undistributed earnings of its foreign subsidiaries since the Company intends to reinvest this amount outside the U.S. indefinitely. If the Company did not intend to permanently reinvest this amount outside the U.S., it would calculate a deferred tax liability of approximately $19.5 million related to the U.S. taxes that would be due upon repatriation.

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 eight approved programs pursuant to this law; the first was approved in 1984 and the most recent was approved in 2004. Income subject to this program is exempt from tax for two/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 eight/six years thereafter. Benefits under the programs are granted for a period of ten years limited to the earlier of fourteen years from application or twelve years from commencement of production. Benefits for the eighth program will expire on 2014. The benefit of these Approved Enterprise programs to the Company’s net income in 2006 was $7.8 million and resulted in a benefit of $5.7 million to the net loss in 2005. These tax holidays had no impact to the Company’s net loss in 2004.

NOTE 15—SEGMENT REPORTING

SFAS No. 131 establishes standards for the reporting by public business enterprises of information about operating segments, products and services, geographic areas, and major customers. The method for determining what information to report is based on the way that management organizes the operating segments within the Company for making operational decisions and assessments of financial performance. The Company’s chief operating decision-maker is considered to be the Chief Executive Officer.

99

ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Subsequent to the acquisition of Oak Technology, Inc. in 2003, the Company determined it had four reportable segments: Digital Versatile Disc (DVD), Imaging, Digital Camera (DC) and Digital Television (DTV). Subsequent to the Emblaze acquisition in July 2004, the Digital Camera segment was combined with the Emblaze Mobile business unit and was renamed the Mobile segment. Each segment’s primary products are based on highly integrated application-specific integrated circuits, or ASICs, and system-on-a-chip, or SOC, solutions. The DVD, DTV, Mobile and Imaging segments also license certain software and other intellectual property. The DVD group provides products for use in DVD players and recordable DVD players. The DTV group provides products for standard and high definition digital television products including televisions, set top boxes and personal video recorders. The Mobile group focuses on solutions for multimedia mobile phone products and digital camera products. The Imaging group provides products used in digital copiers, laser and inkjet printers as well as multifunction peripherals.

During the first quarter of 2006, we reorganized our operating structure to bring together our consumer electronic product lines under a single operating group, in recognition of the accelerating convergence of consumer products and our strategy of sharing technology among our various product lines. The new Consumer group combines the former DVD, DTV and Mobile product groups whose operations were previously reported separately. We will continue to report the operations of our Imaging group as a separate operating segment.

The Company evaluates operating segment performance based on net revenues and operating expenses of these segments. The accounting policies of the operating segments are the same as those described in the summary of accounting policies. No reportable segments have been aggregated.

Information about reported segment income or loss is as follows for the years ended December 31, 2006, 2005 and 2004 (in thousands):

	2006		2005			2004
			(restated)			(restated)
Net revenues:
Consumer	$	420,990	$	310,695		$	294,496
Imaging	74,815		85,063			84,368
	$	495,805	$	395,758		$	378,864
Operating expenses:
Consumer	$	374,435	$	312,488		$	323,637
Imaging	60,752		58,699			50,839
	$	435,187	$	371,187		$	374,476
Contribution Margin:
Consumer	$	46,555	$	(1,793	)	$	(29,141	)
Imaging	14,063		26,364			33,529
	$	60,618	$	24,571		$	4,388

100

ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following is a reconciliation of the totals reported for the operating segments to the applicable line items in the consolidated financial statements for the years ended December 31, 2006, 2005 and 2004 (in thousands):

	2006			2005			2004
				(restated)			(restated)
Contribution margin from operating segments	$	60,618		$	24,571		$	4,388
Amortization of intangibles	(50,062		)	(50,254		)	(45,358		)
Amortization of stock-based compensation resulting from business combinations	—			(1,546		)	(4,051		)
Restructuring expense	—			—			(746		)
Acquired in-process research and development	—			(2,650		)	—
Total operating income (loss)	$	10,556		$	(29,879	)	$	(45,767	)

Zoran maintains operations in the Canada, China, Germany, Israel, India, Japan, Korea, Taiwan, the United Kingdom and United States. Activities in Israel and United States consist of corporate administration, product development, logistics and worldwide sales management. Other foreign operations consist of sales, product development and technical support.

The distribution of net revenues for the years ended December 31, 2006, 2005 and 2004 was as follows (in thousands):

	Year ended December 31,
	2006		2005		2004
Revenue from unaffiliated customers originating from:
China	$	165,611	$	156,737	$	150,562
Japan	109,066		111,370		101,792
Korea	28,544		24,865		28,353
Taiwan	127,311		51,900		36,631
United States	35,949		24,201		34,403
North America (excluding United States)	65		1,206		—
Other	29,259		25,479		27,123
	$	495,805	$	395,758	$	378,864

101

ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The distribution of identifiable assets by geographic areas and property and equipment as of December 31, 2006 and 2005 was as follows (in thousands):

	December 31,
	2006		2005
			(restated)
Identifiable assets:
U.S.	$	506,885	$	476,664
Israel	162,473		117,736
China	2,744		2,399
Japan	1,867		2,722
United Kingdom	831		689
Korea	578		186
Canada	274		266
Taiwan	271		318
Other	707		1,651
	$	676,630	$	602,631
Property and equipment, net:
U.S.	$	6,080	$	7,569
Israel	6,219		4,940
China	1,367		1,388
Japan	548		685
United Kingdom	261		318
Taiwan	611		229
Canada	197		158
Korea	132		73
Other	258		697
	$	15,673	$	16,057

The following table summarizes the percentage contribution to net revenues by customers when sales to such customers exceeded 10% of net revenues:

	Year ended
	December 31,
	2006			2005		2004
Percentage of net revenues:
A		14	%		—		11	%

The above customer had accounts receivable balance greater than 10% as of the end of 2006.

NOTE 16—ACQUISITIONS

Oren Semiconductor, Inc.

On June 10, 2005, Zoran completed the acquisition of Oren Semiconductor, Inc. (“Oren”), a privately-held provider of demodulator ICs for the global high definition television market. Prior to this acquisition, Zoran had made investments in Oren that represented a 17% ownership interest with a net book value of $3.4 million at the time of the acquisition. Under the terms of the acquisition agreement, Zoran acquired

102

ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

the remaining 83% of Oren’s outstanding stock by means of a merger of Oren with a wholly-owned subsidiary of Zoran, in consideration for which Zoran paid an aggregate of $28.4 million in cash and issued 1,188,061 shares of Zoran common stock valued at $12.9 million, for total consideration of $41.3 million, to the other stockholders of Oren and to employees holding Oren options. As a result of the restatement, the Company considered the requirements under Accounting Principles Board Opinion 18 (“APB No. 18”), “The Equity Method of Accounting for Investments in Common Stock,” to record the gains or losses on investment of the prior 17% ownership under the equity method of accounting. Based on the Company’s analysis, the prior financial results of the Company were restated to record the loss on investment.

The primary purpose of the acquisition was to obtain Oren’s demodulator IC technology for the global high definition television market. This technology was combined with Zoran’s digital television technology to deliver a complete and cost-effective system solution for digital television makers. As of December 31, 2006, there have been no material variations from the underlying assumptions that were used in the original computation of the value of the acquired entity.

The transaction was accounted for under SFAS No. 141, “Business Combinations,” using the purchase method of accounting. The Company incurred approximately $375,000 for acquisition-related expenses consisting of financial advisory, legal and other consulting services. The Company completed a valuation analysis and purchase price allocation. The results of operations of Oren have been included in the consolidated financial statements from the date of acquisition. The acquisition resulted in goodwill of approximately $33.9 million. In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” goodwill will not be amortized and will be tested for impairment at least annually. The Company does not expect goodwill to be deductible for tax purposes.

Allocation of the purchase price is as follows (restated) (in thousands):

Net liabilities acquired	$	(941	)
In process research and development	2,650
Intangible assets	9,100
Goodwill	33,897
	$	44,706

Tangible assets were valued at estimates of their current fair values. The purchase price exceeded the net assets acquired resulting in the recognition of goodwill and other intangible assets. The amounts allocated to intangible assets include purchased technology totaling $7.0 million, trade name and other intangible assets totaling $1.25 million and customer base totaling $850,000 which are being amortized over their estimated useful lives of five years.

Approximately $2.7 million of the purchase price was allocated to in-process research and development which had not yet reached technological feasibility and had no alternative future use. Accordingly, this amount was immediately expensed upon the acquisition date. This amount was determined using management’s estimates including consultation with an independent appraiser. The value of the in-process research and development was determined using a discounted cash flow method and factors including projected financial results, relative risk of successful development, time-value of money and level of completion.

103

ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Emblaze Semiconductor Ltd.

On July 8, 2004, Zoran acquired Emblaze Semiconductor Ltd. (“Emblaze”), a subsidiary of Emblaze Ltd. and a provider of semiconductor-based solutions for high volume manufacturers of multimedia mobile telephones. Under the terms of the agreement, Zoran’s wholly-owned Israel based subsidiary, Zoran Microelectronics Ltd., acquired all of the outstanding common shares of Emblaze for approximately $54.2 million in cash.

The primary purpose of the acquisition was to gain high performance, low-power application processors, technology and products for the fast growing multimedia mobile phone market. This technology was combined with Zoran’s image processing technology to deliver reliable, cost-effective system solutions for mobile phone makers. As of December 31, 2006, there have been no material variations from the underlying assumptions that were used in the original computation of the value of the acquired entity.

The transaction was accounted for under SFAS No. 141, “Business Combinations,” using the purchase method of accounting. The Company incurred approximately $180,000 for acquisition-related expenses consisting of financial advisory, legal and other consulting services. The Company completed a valuation analysis and purchase price allocation with the assistance of a third party appraiser. The results of operations of Emblaze have been included in the consolidated financial statements from the date of acquisition. The acquisition resulted in goodwill of approximately $30.9 million. In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” goodwill will not be amortized and will be tested for impairment at least annually. The Company does not expect goodwill to be deductible for tax purposes.

Net liabilities acquired	$	(649	)
Intangible assets	24,150
Goodwill	30,879
	$	54,380

The purchase price exceeded the net assets acquired resulting in the recognition of goodwill and other intangible assets. The amounts allocated to intangible assets include purchased technology totaling $11.8 million and patents totaling $12.4 million which are being amortized over their estimated useful lives of three years.

104

ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Pro Forma Financial Information

The following unaudited pro forma financial information presents the combined results of operations of Zoran, Emblaze and Oren as if the acquisitions had occurred as of the beginning of each period presented, after giving effect to certain adjustments, including amortization of intangibles. The in-process research and development charge of $2.7 million related to the Oren acquisition is not reflected in the unaudited pro forma combined condensed statement of operations. The unaudited pro forma financial information does not necessarily reflect the results of operations that would have occurred had the combined companies constituted a single entity during such periods, and is not necessarily indicative of results which may be obtained in the future.

	Year Ended December 31,
	2005			2004
	(restated)			(restated)
In thousands except for per share data:
Pro forma revenues	$	396,737		$	383,131
Pro forma net loss	$	(33,024	)	$	(63,207	)
Pro forma net loss per share:
Basic	$	(0.75	)	$	(1.48	)
Diluted	$	(0.75	)	$	(1.48	)

NOTE 17—SUBSEQUENT EVENTS

On February 27, 2007, the Company elected to (i) participate in the Internal Revenue Service remediation program 2007-18 and pay to the IRS, on behalf of affected and eligible employees (not including executive officers), their IRC 409A tax liabilities and penalties; (ii) participate in any similar remediation program that may be offered by any state for applicable state tax liabilities and penalties; (iii), act directly with any state not offering a similar remediation program to address any applicable tax liabilities and penalties on behalf of employees; and (iv) pay to such employees a “gross-up” payment to offset the associated federal and state income tax consequences. The Company took this action because the vast majority of the holders of stock options issued by the Company that are now subject to re-measurement as a result of the Company’s option investigation were not involved in or aware of the stock option pricing determination. Employees who exercised such options in 2006, other than executive officers at the time of option grant or entering into this program, will participate in this program. The Company estimates that the total cash payments needed to deal with the adverse tax consequences of previously exercised discount priced options granted to non-officers will be approximately $0.8 million, which is expected to be recorded in 2007.

In addition, the Company may consider taking action to minimize the adverse tax consequences that may be incurred by the holders of unexercised discount options. Discount-priced stock options vesting after December 31, 2004 (“409A Affected Options”) subject U.S. option holders to a penalty tax under IRC Section 409A (and to similar penalty taxes under California and other state tax laws, as applicable). The Company may consider offering to amend the 409A Affected Options held by persons other than directors and executive officers to increase the exercise prices of those options to the market price of our common stock on the revised measurement date. The amended options would not be subject to taxation under IRC Section 409A. Under IRS regulations, the amendments for non-executives cannot be offered until after this Report is filed and do not need to be completed until December 31, 2007. The Company may also consider approving the payment of bonuses to holders of those amended options to compensate them for the resulting increase in their option exercise price. The amount of these bonuses would be effectively repaid to the Company if and when the options are exercised and the increased exercise price is paid (but there is no assurance that the options will be exercised). The Company has not estimated the expense of any such bonus payments.

105

The following tables contain selected unaudited quarterly financial data for the eight fiscal quarters in the period ended December 31, 2006. In management’s opinion, the unaudited data has been prepared on the same basis as the audited information and includes all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the data for the periods presented. Our results of operations have varied and may continue to fluctuate significantly from quarter to quarter. The results of operations in any period should not be considered indicative of the results to be expected from any future period.

The selected quarterly information has been restated for all quarters of fiscal 2005 and the first quarter of fiscal 2006 from previously reported information filed on Form 10-Q and Form 10-K, as a result of the restatement of our financial results discussed in this Annual Report on Form 10-K.

ZORAN CORPORATION
SELECTED QUARTERLY FINANCIAL INFORMATION
(Unaudited)
(restated)

	Three Months Ended
										Mar. 31,		Dec. 31,			Sep 30,		Jun. 30,			Mar. 31,
	Dec. 31,			Sep 30,			Jun. 30,			2006		2005			2005		2005			2005
	2006			2006			2006			(restated)		(restated)			(restated)		(restated)			(restated)
	(In thousands, except per share data)
Total revenues	$	96,251		$	129,379		$	127,929		$	142,246	$	109,311		$	117,484	$	95,079		$	73,884
Gross profit	$	50,806		$	62,569		$	67,574		$	88,596	$	59,359		$	63,575	$	49,703		$	36,949
Operating income (loss)	$	(14,644	)	$	(1,016	)	$	(496	)	$	26,712	$	(3,459	)	$	4,517	$	(12,111	)	$	(18,826	)
Net income (loss)	$	(10,986	)	$	1,852		$	4,779		$	20,683	$	(3,769	)	$	3,995	$	(11,775	)	$	(18,723	)
Basic net income (loss) per share(1)	$	(0.22	)	$	0.04		$	0.10		$	0.45	$	(0.08	)	$	0.09	$	(0.27	)	$	(0.43	)
Diluted net income (loss) per share(1)	$	(0.22	)	$	0.04		$	0.09		$	0.43	$	(0.08	)	$	0.09	$	(0.27	)	$	(0.43	)
Shares used in basic per share calculations(1)	49,426			49,333			48,461			46,207		45,249			44,877		43,707			43,213
Shares used in diluted per share calculations(1)	49,426			50,712			51,311			48,487		45,249			46,622		43,707			43,213

(1)Computed on the basis described in Note 3 of Notes to Consolidated Financial Statements.

106

The following tables present the impact of the financial statement adjustments on our previously reported Condensed Consolidated Statements of Operations for the three month period ended March 31, 2006 (in thousands, except per share data):

	Three Months Ended March 31, 2006
	As previously reported			Adjustments(1)				As restated(1)
Revenues:
Hardware product revenues		$	99,169		$	—			$	99,169
Software and other revenues		12,909			—				12,909
License revenues related to litigation settlement.		30,168			—				30,168
Total revenues		142,246			—				142,246
Costs and expenses:
Cost of hardware product revenues		54,466			(816		)		53,650
Research and development		24,151			97				24,248
Selling, general and administrative		24,755			146				24,901
Amortization of intangible assets		12,735			—				12,735
Total costs and expenses		116,107			(573		)		115,534
Operating income		26,139			573				26,712
Interest income		1,630			(37		)		1,593
Other income (loss), net		1,193			—				1,193
Income before income taxes		28,962			536				29,498
Provision for income taxes		8,202			613				8,815
Net income		$	20,760		$	(77	)		$	20,683
Basic net income per share		$	0.45		$	—			$	0.45
Diluted net income per share		$	0.43		$	—			$	0.43
Shares used to compute basic net income per share		46,207							46,207
Shares used to compute diluted income per share		48,487							48,487

(1)    In addition to restating the consolidated financial statements in response to the Special Committee’s findings, the Company has recorded additional non-cash adjustments that were considered to be immaterial to our previously filed consolidated financial statements relating to the timing of revenue recognition, accrued expenses, amortization of premiums and discounts on investments, additional expense related to options granted to a consultant and the calculation of amortization of stock-based compensation relating to a business combination in 2003.  In addition, the Company is also recording losses under Accounting Principles Board Opinion No. 18, “The Equity Method of Accounting for Investments in Common Stock,” to record the losses on investment of the prior 17% ownership of Oren Semiconductor, Inc. under the equity method of accounting which was acquired by Zoran in 2005.

107

The following tables present the impact of the financial statement adjustments on our previously reported Condensed Consolidated Statements of Operations for the three month periods ended December 31, 2005 and September 30, 2005 (in thousands, except per share data):

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

	Three Months Ended December 31, 2005												Three Months Ended September 30, 2005
	As previously reported				Adjustments(1)				As restated				As previously reported			Adjustments(1)				As restated
Revenues:
Hardware product revenues		$	95,432			$	—			$	95,432			$	104,208		$	—			$	104,208
Software and other revenues		13,879				—				13,879				13,276			—				13,276
Total revenues		109,311				—				109,311				117,484			—				117,484
Costs and expenses:
Cost of hardware product revenues		49,689				263				49,952				53,660			249				53,909
Research and development		24,138				379				24,517				23,469			213				23,682
Selling, general and administrative		24,522				815				25,337				21,817			458				22,275
Amortization of intangible assets		12,736				—				12,736				12,757			—				12,757
Amortization of stock-based compensation resulting from business combinations		228				—				228				344			—				344
Total costs and expenses		111,313				1,457				112,770				112,047			920				112,967
Operating income (loss)		(2,002		)		(1,457		)		(3,459		)		5,437			(920		)		4,517
Interest income		909				(42		)		867				689			(43		)		646
Other income (loss), net		(21		)		—				(21		)		32			—				32
Income (loss) before income taxes		(1,114		)		(1,499		)		(2,613		)		6,158			(963		)		5,195
Provision for income taxes		964				192				1,156				1,200			—				1,200
Net income (loss)		$	(2,078	)		$	(1,691	)		$	(3,769	)		$	4,958		$	(963	)		$	3,995
Basic net loss per share		$	(0.05	)		$	(0.03	)		$	(0.08	)		$	0.11		$	(0.02	)		$	0.09
Diluted net loss per share		$	(0.05	)		$	(0.03	)		$	(0.08	)		$	0.11		$	(0.02	)		$	0.09
Shares used to compute basic net loss per share		45,249								45,249				44,877							44,877
Shares used to compute diluted loss per share		45,249								45,349				46,622							46,622

(1)    In addition to restating the consolidated financial statements in response to the Special Committee’s findings, the Company has recorded additional non-cash adjustments that were considered to be immaterial to our previously filed consolidated financial statements relating to the timing of revenue recognition, accrued expenses, amortization of premiums and discounts on investments, additional expense related to options granted to a consultant and the calculation of amortization of stock-based compensation relating to a business combination in 2003.  In addition, the Company is also recording losses under Accounting Principles Board Opinion No. 18, “The Equity Method of Accounting for Investments in Common Stock,” to record the losses on investment of the prior 17% ownership of Oren Semiconductor, Inc. under the equity method of accounting which was acquired by Zoran in 2005.

108

The following tables present the impact of the financial statement adjustments on our previously reported Condensed Consolidated Statements of Operations for the three month periods ended June 30, 2005 and March 31, 2005 (in thousands, except per share data):

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

	Three Months Ended June 30, 2005												Three Months Ended March 31, 2005
	As previously reported				Adjustments(1)				As restated				As previously reported				Adjustments(1)				As restated
Revenues:
Hardware product revenues		$	80,897			$	—			$	80,897			$	59,002			$	—			$	59,002
Software and other revenues		14,182				—				14,182				14,882				—				14,882
Total revenues		95,079				—				95,079				73,884				—				73,884
Costs and expenses:
Cost of hardware product revenues		45,236				140				45,376				36,964				(29		)		36,935
Research and development		21,321				202				21,523				20,100				(13		)		20,087
Selling, general and administrative		24,318				435				24,753				23,174				(333		)		22,841
Amortization of intangible assets		12,431				—				12,431				12,330				—				12,330
Amortization of stock-based compensation resulting from business combinations		457				—				457				517				—				517
In-process research and development		2,650				—				2,650				—				—				—
Total costs and expenses		106,413				777				107,190				93,085				(375		)		92,710
Operating loss		(11,334		)		(777		)		(12,111		)		(19,201		)		375				(18,826		)
Interest income		572				(19		)		553				535				(8		)		527
Other income (loss), net		(293		)		76				(217		)		(130		)		(294		)		(424		)
Loss before income taxes		(11,055		)		(720		)		(11,775		)		(18,796		)		73				(18,723		)
Provision for income taxes		—				—				—				—				—				—
Net loss		$	(11,055	)		$	(720	)		$	(11,775	)		$	(18,796	)		$	73			$	(18,723	)
Basic net loss per share		$	(0.25	)		$	(0.02	)		$	(0.27	)		$	(0.43	)		$	—			$	(0.43	)
Diluted net loss per share		$	(0.25	)		$	(0.02	)		$	(0.27	)		$	(0.43	)		$	—			$	(0.43	)
Shares used to compute basic net loss per share		43,707								43,707				43,213								43,213
Shares used to compute diluted loss per share		43,707								43,707				43,213								43,213

(1)In addition to restating the consolidated financial statements in response to the Special Committee’s findings, the Company has recorded additional non-cash adjustments that were considered to be immaterial to our previously filed consolidated financial statements relating to the timing of revenue recognition, accrued expenses, amortization of premiums and discounts on investments, additional expense related to options granted to a consultant and the calculation of amortization of stock-based compensation relating to a business combination in 2003. In addition, the Company is also recording losses under Accounting Principles Board Opinion No. 18, “The Equity Method of Accounting for Investments in Common Stock,” to record the losses on investment of the prior 17% ownership of Oren Semiconductor, Inc. under the equity method of accounting which was acquired by Zoran in 2005.

109

The following tables present the impact of the financial statement adjustments on our previously reported Condensed Consolidated Balance Sheets as of March 31, 2006:

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	March 31, 2006				Adjustment(1)				March 31, 2006
	(As reported)								(As restated)
ASSETS
Current assets:
Cash and cash equivalents		$	113,752			$	—			$	113,752
Short-term investments		104,124				—				104,124
Accounts receivable, net		62,431				—				62,431
Inventories		38,663				—				38,663
Prepaid expenses and other current assets		9,800				—				9,800
Total current assets		328,770				—				328,770
Property and equipment, net		14,905				—				14,905
Other assets and investments		21,627				—				21,627
Goodwill		180,254				(1,592		)		178,662
Intangible assets, net		106,496				—				106,496
		$	652,052			$	(1,592	)		$	650,460
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	44,737			$	—			$	44,737
Accrued expenses and other liabilities		53,562				621				54,183
Total current liabilities		98,299				621				98,920
Other long-term liabilities		12,770				—				12,770
Stockholders’ equity:
Common stock, $0.001 par value; 105,000,000 shares authorized at March 31, 2006; 46,716,431 shares issued and outstanding as of March 31, 2006		47				—				47
Additional paid-in capital		748,792				10,907				759,699
Accumulated other comprehensive income		2,179				—				2,179
Accumulated deficit		(210,035		)		(13,120		)		(223,155		)
Total stockholders’ equity		540,983				(2,213		)		538,770
		$	652,052			$	(1,592	)		$	650,460

(1)The restated consolidated balance sheet as of March 31, 2006 reflects a $13.1 million increase to accumulated deficit and a $10.9 million increase to additional paid-in capital primarily due to additional stock-based compensation recorded in connection with this restatement to correct prior year stock option-related accounting errors as described above and to reflect the cumulative impact of other adjustments that were previously considered to be immaterial. The $1.6 million decrease to goodwill is the impact of recording losses associated with our investment in Oren Semiconductor and $0.6 million increase to accrued expenses and other liabilities relates to the tax adjustments associated with other adjustments at March 31, 2006.

110

The following tables present the impact of the financial statement adjustments on our previously reported Condensed Consolidated Balance Sheets as of December 31, 2005:

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	December 31,2005				Adjustments(1)				December 31,2005
	(As reported)								(As restated)
ASSETS
Current assets:
Cash and cash equivalents		$	78,856			$	—			$	78,856
Short-term investments		70,490				—				70,490
Accounts receivable, net		70,174				—				70,174
Inventory		32,616				—				32,616
Prepaid expenses and other current assets		11,746				—				11,746
Total current assets		263,882				—				263,882
Property and equipment, net		16,057				—				16,057
Other assets and investments		20,799				—				20,799
Goodwill		184,254				(1,592		)		182,662
Intangible assets, net		119,231				—				119,231
		$	604,223			$	(1,592	)		$	602,631
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	38,999			$	—			$	38,999
Accrued expenses and other liabilities		53,937				832				54,769
Total current liabilities		92,936				832				93,768
Other long-term liabilities		11,939				—				11,939
Stockholders’ equity:
Common stock, $0.001 par value; 105,000,000 shares authorized at December 31, 2005 45,426,912 shares issued and outstanding as of December 31, 2005		45				—				45
Additional paid-in capital		727,597				10,656				738,253
Deferred stock-based compensation		(593		)		—				(593		)
Accumulated other comprehensive income		3,094				(37		)		3,057
Accumulated deficit		(230,795		)		(13,043		)		(243,838		)
Total stockholders’ equity		499,348				(2,424		)		496,924
		$	604,223			$	(1,592	)		$	602,631

(1)The restated consolidated balance sheet for the fiscal year ended 2005 reflects a $13.0 million increase to accumulated deficit and a $10.7 million increase to additional paid-in capital primarily due to additional stock-based compensation recorded in connection with this restatement to correct prior year stock option-related accounting errors as described above and to reflect the cumulative impact of other adjustments that were previously considered to be immaterial. The $1.6 million decrease to goodwill is the impact of recording losses associated with our investment in Oren Semiconductor under the equity method of accounting and $0.8 million increase to accrued expenses and other liabilities relates to the accrual of royalty obligations that was previously not recorded at December 31, 2005.

111

The following tables present the impact of the financial statement adjustments on our previously reported Condensed Consolidated Balance Sheets as of September 30, 2005:

CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

	September 30, 2005				Adjustments(1)				September 30, 2005
	(As reported)								(As restated)
ASSETS
Current assets:
Cash and cash equivalents		$	64,782			$	—			$	64,782
Short-term investments		65,412				—				65,412
Accounts receivable, net		80,735				—				80,735
Inventories		27,331				—				27,331
Prepaid expenses and other current assets		13,151				—				13,151
Total current assets		251,411				—				251,411
Property and equipment, net		16,627				—				16,627
Other assets and investments		20,488				—				20,488
Goodwill		185,456				(1,408		)		184,048
Intangible assets, net		131,966				—				131,966
		$	605,948			$	(1,408	)		$	604,540
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	37,800			$	—			$	37,800
Accrued expenses and other liabilities		59,306				586				59,892
Total current liabilities		97,106				586				97,692
Other long-term liabilities		11,538				—				11,538
Stockholders’ equity:
Common stock, $0.001 par value; 105,000,000 shares authorized at September 30, 2005; 45,011,293 shares issued and outstanding as of September 30, 2005		45				—				45
Additional paid-in capital		723,671				10,656				734,327
Deferred stock-based compensation		(957		)		(1,219		)		(2,176		)
Accumulated other comprehensive income		3,262				(79		)		3,183
Accumulated deficit		(228,717		)		(11,352		)		(240,069		)
Total stockholders’ equity		497,304				(1,994		)		495,310
		$	605,948			$	(1,408	)		$	604,540

(1)The restated consolidated balance sheet as of September 30, 2005 reflects a $11.4 million increase to accumulated deficit and a $10.7 million increase to additional paid-in capital primarily due to additional stock-based compensation recorded in connection with this restatement to correct prior year stock option-related accounting errors as described above and to reflect the cumulative impact of other adjustments that were previously considered to be immaterial. The $1.4 million decrease to goodwill is the impact of recording losses associated with our investment in Oren Semiconductor under the equity method of accounting and $0.6 million increase to accrued expenses and other liabilities relates to the accrual of royalty obligations that were previously not recorded at September 30, 2005.

112

The following tables present the impact of the financial statement adjustments on our previously reported Condensed Consolidated Balance Sheets as of June 30, 2005:

CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

	June 30, 2005				Adjustments(1)				June 30, 2005
	(As reported)								(As restated)
ASSETS
Current assets:
Cash and cash equivalents		$	53,425			$	—			$	53,425
Short-term investments		62,618				—				62,618
Accounts receivable, net		68,454				—				68,454
Inventories		25,353				—				25,353
Prepaid expenses and other current assets		14,903				—				14,903
Total current assets		224,753				—				224,753
Property and equipment, net		17,233				—				17,233
Other assets and investments		24,435				—				24,435
Goodwill		185,456				(1,408		)		184,048
Intangible assets, net		144,724				—				144,724
		$	596,601			$	(1,408	)		$	595,193
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	38,837			$	—			$	38,837
Accrued expenses and other liabilities		56,330				353				56,683
Total current liabilities		95,167				353				95,520
Other long-term liabilities		12,250				—				12,250
Stockholders’ equity:
Common stock, $0.001 par value; 105,000,000 shares authorized at June 30, 2005; 44,759,422 shares issued and outstanding as of June 30, 2005		45				—				45
Additional paid-in capital		721,143				10,656				731,799
Deferred stock-based compensation		(1,417		)		(1,906		)		(3,323		)
Accumulated other comprehensive income		3,088				(122		)		2,966
Accumulated deficit		(233,675		)		(10,389		)		(244,064		)
Total stockholders’ equity		489,184				(1,761		)		487,423
		$	596,601			$	(1,408	)		$	595,193

(1)The restated consolidated balance sheet as of June 30, 2005 reflects a $10.4 million increase to accumulated deficit and a $10.7 million increase to additional paid-in capital primarily due to additional stock-based compensation recorded in connection with this restatement to correct prior year stock option-related accounting errors as described above and to reflect the cumulative impact of other adjustments that were previously considered to be immaterial. The $1.4 million decrease to goodwill is the impact of recording losses associated with our investment in Oren Semiconductor under the equity method of accounting and $0.4 million increase to accrued expenses and other liabilities relates to the accrual of royalty obligations that were previously not recorded at June 30, 2005.

113

The following tables present the impact of the financial statement adjustments on our previously reported Condensed Consolidated Balance Sheets as of March 31, 2005:

CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

	March 31, 2005				Adjustments(1)				March 31, 2005
	(As reported)								(As restated)
ASSETS
Current assets:
Cash and cash equivalents		$	31,025			$	—			$	31,025
Short-term investments		50,311				—				50,311
Accounts receivable, net		68,023				—				68,023
Inventories		34,207				—				34,207
Prepaid expenses and other current assets		17,995				—				17,995
Total current assets		201,561				—				201,561
Property and equipment, net		16,270				—				16,270
Other assets and investments		62,470				(1,484		)		60,986
Goodwill		150,151				—				150,151
Intangible assets, net		148,054				—				148,054
		$	578,506			$	(1,484	)		$	577,022
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	27,955			$	—			$	27,955
Accrued expenses and other liabilities		53,797				227				54,024
Total current liabilities		81,752				227				81,979
Other long-term liabilities		13,064				—				13,064
Stockholders’ equity:
Common stock, $0.001 par value; 105,000,000 shares authorized at March 31, 2005; 45,252,892 shares issued and outstanding as of March 31, 2005		43				—				43
Additional paid-in capital		705,761				10,656				716,417
Deferred stock-based compensation		(1,999		)		(2,557		)		(4,556		)
Accumulated other comprehensive income		2,505				(141		)		2,364
Accumulated deficit		(222,620		)		(9,669		)		(232,289		)
Total stockholders’ equity		483,690				(1,711		)		481,979
		$	578,506			$	(1,484	)		$	577,022

(1)The restated consolidated balance sheet as of March 31, 2005 reflects a $9.7 million increase to accumulated deficit and a $10.7 million increase to additional paid-in capital primarily due to additional stock-based compensation recorded in connection with this restatement to correct prior year stock option-related accounting errors as described above and to reflect the cumulative impact of other adjustments that were previously considered to be immaterial. The $1.5 million decrease to goodwill is the impact of recording losses associated with our investment in Oren Semiconductor under the equity method of accounting and $0.2 million increase to accrued expenses and other liabilities relates to the accrual of royalty obligations that were previously not recorded at March 31, 2005.

114

Item 9—Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A—Controls and Procedures

Disclosure Controls and Procedures

Under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of its disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2006. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely discussions regarding required disclosures.

Management’s Report on Internal Control Over Financial Reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles (“GAAP”), and includes those policies and procedures that:

1.pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

2.provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

3.provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation using criteria established in Internal Control—Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2006.

Our management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2006 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.

115

Management’s Consideration of the Restatement

As disclosed in Note 2, “Restatement of Consolidated Financial Statements,” to our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K, we restated previously issued financial statements to record incremental non-cash stock based compensation charges under APB No. 25 in the amount of $11.7 million between 1997 and 2005 and an additional $0.4 million in 2006 under SFAS No. 123(R). These accounting errors arose from the use of incorrect stock option grant measurement dates for grants made during the period 1997 to 2003.

In coming to the conclusion that our disclosure controls and procedures and our internal control over financial reporting were effective as of December 31, 2006, management considered control deficiencies related to the stock option granting process that resulted in the need to restate our previously issued financial statements.

During fiscal year 2004 in compliance with the Sarbanes-Oxley Act of 2002, the Company implemented improved procedures, processes and systems to provide additional safeguards and greater internal control over its stock option granting and administration. These improvements included:

·Segregating responsibilities, adding reviews and reconciliations, and redefining roles and responsibilities in the human resources function;

·Upgrading systems and system controls that support the grant process and improving the accuracy and timeliness of accounting for grants, including robust documentation of grant approvals and usage of a hosted stock administration system; and

·Obtaining and training more qualified competent individuals in the human resources and stock administration function.

The Company believes that these changes remediated the historical control deficiency. Consequently, the stock option grant process did not constitute a control deficiency as of December 31, 2006.

Changes to Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the fourth quarter of fiscal 2006 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B—Other Information

Not applicable.

116

PART III

Certain information required by Part III is omitted from this report in that the Company intends to file its definitive proxy statement pursuant to Regulation 14A (the “Proxy Statement”) not later than 120 days after the end of the fiscal year covered by this report and certain information therein is incorporated herein by reference.

Item 10—Directors, Executive Officers and Corporate Governance

The information concerning our directors required by this Item is incorporated by reference to the section in our Proxy Statement entitled “Proposal No. 1—Election of Directors.”

The information concerning our executive officers required by this Item is incorporated by reference to the section in our Proxy Statement entitled “Executive Officers.”

The information concerning compliance with Section 16(a) of the Securities Exchange Act of 1934 required by this Item is incorporated by reference to the section in our Proxy Statement entitled “Section 16(a) Beneficial Ownership Reporting Compliance.”

The information concerning whether we have adopted a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, is incorporated by reference to the section in our Proxy Statement entitled “Committee Charters and Other Corporate Governance Materials.”

The information concerning material changes to the procedures by which stockholders may recommend nominees to the Board of Directors required by this Item is incorporated by reference to the section in our Proxy Statement entitled “Director Nominations.”

The information concerning the audit committee of the Board of Directors required by this Item is incorporated by reference to the section in our Proxy Statement entitled “Board Meetings and Committees.”

Item 11—Executive Compensation

The information required by this Item is incorporated by reference to the section of our Proxy Statement entitled “Executive Compensation and Other Matters”.

Item 12—Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this Item is incorporated by reference to the section of our Proxy Statement entitled “Principal Stockholders and Stock Ownership by Management” and “Equity Compensation Plan Information.”

Item 13—Certain Relationships and Related Transactions, and Director Independence

The information required by this Item with respect to certain relationships and related transactions is incorporated by reference to the section of our Proxy Statement entitled “Certain Relationships and Related Transactions.”

The information required by this Item with respect to director independence is incorporated by reference to the section of our Proxy Statement entitled “Directors” “Independence of the Board of Directors and its Committees.”

Item 14—Principal Accounting Fees and Services

The information required by this Item is incorporated by reference to the section of our Proxy Statement entitled “Principal Auditor Fees and Services.”

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PART IV

Item 15—Exhibits and Financial Statement Schedules

The following documents are filed as a part of this report:

(1)   Financial Statements:

See Index to Consolidated Financial Statements at page 62 of this report.

(2)   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.

(3)   Exhibits:

EXHIBIT LIST

		Incorporated by Reference
Exhibit						Filed
Number	Exhibit Title	Form	File No.	Exhibit	Filing Date	Herewith
3.1	Restated Certificate of Incorporation of the Registrant					X
3.2	Amended Bylaws of the Registrant					X
4.1	Form of Stock Certificate					X
*10.1	Form of Indemnity Agreement for officers and directors	SB-2	33-98630	10.4	12/14/1995
*10.2	2000 Nonstatutory Stock Option Plan	10-K	000-27246	10.39	03/31/2003
*10.3	Executive Retention and Severance Plan, as amended	8-K	000-27246	99.1	10/31/05
10.4	Oak Technology, Inc. 1994 Stock Option Plan (as amended and restated)	S-8	333-104498	99.1	04/14/2003
10.5	Oak Technology, Inc. 1994 Outside Directors’ Stock Option Plan (as Amended and Restated November 21, 2002)	10-Q/A	000-25298	10.1	06/27/2003
*10.6	Form of Oak Technology, Inc. Outside Directors’ Non-Qualified Stock Option Agreement for the 1994 Stock Option Plan and 1994 Outside Director’s Stock Option Plan entered into by David Rynne and Peter Simone	10-Q	000-27246	10.46	11/14/2003
10.7	Asset Purchase Agreement between Oak Technology, Inc., and Sunplus Technology, Co. LTD. dated February 5, 2003	8-K	000-25298	2.1	02/20/2003
10.8	First Amendment to Asset Purchase Agreement between Oak Technology, Inc., and Sunplus Technology, Co. LTD. dated April 3, 2003	8-K	000-25298	2.2	04/18/2003
*10. 9	Summary of Compensation Arrangements with Named Executive Officers and Nonemployee Directors	8-K	000-27246	99.1	03/31/2006
*10.10	Offer Letter to Karl Schneider dated December 15, 1997, as amended July 15, 1998	10-K/A	000-27246	10.49	05/02/2005

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10.11	Lease Agreement dated February 2005 between ZML and Matam	POS-AM	333-125948	10.11	07/29/05
10.12	Form of Employee Proprietary Information and Invention Agreement	10-K/A	000-27246	10.51	05/02/2005
*10.13	Zoran Corporation 2005 Equity Incentive Plan	8-K	000-27246	99.1	07/13/2006
10.14	Zoran Corporation 2005 Outside Directors Equity Plan	8-K	000-27246	99.2	08/03/2005
10.15	PC Optical Storage Technology Patent License Agreement dated as of January 25, 2006 among Zoran, Zoran’s subsidiary Oak Technology, Inc., and MediaTek, Inc	10-Q	000-27246	10.54	05/10/2006
10.16	PC Optical Storage Patent Cross License Agreement dated as of January 25, 2006 among Zoran, Zoran’s subsidiary Oak Technology, Inc. and MediaTek, Inc.	10-Q	000-27246	10.55	05/10/2006
*10.17	1993 Stock Option Plan, as amended					X
*10.18	1995 Outside Directors Stock Option Plan					X
*10.19	Form of Amendment of Nonstatutory Stock Option Agreement for Outside Directors					X
10.20	Lease Agreement dated as of February 8, 2007 by and between Arturo J. Gutierrez and John A. Cataldo, Trustees of Auburn-Oxford Trust, u/d/t dated October 19, 1983 and Zoran Corporation					X
10.21	Lease Agreement dated as of May 19, 2006 by and between WTA Kifer LLC and Zoran Corporation, as amended on May 19, 2006					X
*10.22	Amended Summary of Compensation Arrangements with Named Executive Officers and Non Employee Directors	8-K	000-27246	99.1	03/31/2006
21.1	List of Subsidiaries of the Registrant					X
23.1	Consent of PricewaterhouseCoopers LLP					X
31.1	Certification of Chief Executive Officer, pursuant to Rule 13a-14(a) or 15d-14(a)					X
31.2	Certification of Chief Financial Officer, pursuant to Rule 13a-14(a) or 15d-14(a)					X
32.1	Certification of Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002					X
32.2	Certification of Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002					X

*Constitutes a management contract or compensatory plan, contract or arrangement.

119

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: April 19, 2007	ZORAN CORPORATION
	By:	/s/   LEVY GERZBERG
		Levy Gerzberg, President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

	Signature		Title		Date
/s/   LEVY GERZBERG		President, Chief Executive Officer and Director		April 19, 2007
Levy Gerzberg		(Principal Executive Officer)
/s/   KARL SCHNEIDER		Senior Vice President, Finance and Chief Financial		April 19, 2007
Karl Schneider		Officer (Principal Financial Officer and Principal Accounting Officer)
/s/   UZIA GALIL		Chairman of the Board of Directors		April 19, 2007
Uzia Galil
/s/   RAYMOND A. BURGESS		Director		April 19, 2007
Raymond A. Burgess
/s/   JAMES D. MEINDL		Director		April 19, 2007
James D. Meindl
/s/   JAMES B. OWENS		Director		April 19, 2007
James B. Owens, Jr.
/s/   DAVID RYNNE		Director		April 19, 2007
David Rynne
/s/   ARTHUR B. STABENOW		Director		April 19, 2007
Arthur B. Stabenow
/s/   PHILIP M. YOUNG		Director		April 19, 2007
Philip M. Young

120

EXHIBIT LIST

			Incorporated by Reference
Exhibit Number		Exhibit Title	Form	File No.	Exhibit		Filing Date	Filed Herewith
	3.1	Restated Certificate of Incorporation of the Registrant							X
	3.2	Amended Bylaws of the Registrant							X
	4.1	Form of Stock Certificate							X
	*10.1	Form of Indemnity Agreement for officers and directors	SB-2	33-98630		10.4	12/14/1995
	*10.2	2000 Nonstatutory Stock Option Plan	10-K	000-27246		10.39	03/31/2003
	*10.3	Executive Retention and Severance Plan, as amended	8-K	000-27246		99.1	10/31/05
	10.4	Oak Technology, Inc. 1994 Stock Option Plan (as amended and restated)	S-8	333-104498		99.1	04/14/2003
	10.5	Oak Technology, Inc. 1994 Outside Directors’ Stock Option Plan (as Amended and Restated November 21, 2002)	10-Q/A	000-25298		10.1	06/27/2003
	*10.6	Form of Oak Technology, Inc. Outside Directors’ Non-Qualified Stock Option Agreement for the 1994 Stock Option Plan and 1994 Outside Director’s Stock Option Plan entered into by David Rynne and Peter Simone	10-Q	000-27246		10.46	11/14/2003
	10.7	Asset Purchase Agreement between Oak Technology, Inc., and Sunplus Technology, Co. LTD. dated February 5, 2003	8-K	000-25298		2.1	02/20/2003
	10.8	First Amendment to Asset Purchase Agreement between Oak Technology, Inc., and Sunplus Technology, Co. LTD. dated April 3, 2003	8-K	000-25298		2.2	04/18/2003
	*10.9	Summary of Compensation Arrangements with Named Executive Officers and Nonemployee Directors	8-K	000-27246		99.1	03/31/2006
	*10.10	Offer Letter to Karl Schneider dated December 15, 1997, as amended July 15, 1998	10-K/A	000-27246		10.49	05/02/2005
	10.11	Lease Agreement dated February 2005 between ZML and Matam	POS-AM	333-125948		10.11	07/29/05
	10.12	Form of Employee Proprietary Information and Invention Agreement	10-K/A	000-27246		10.51	05/02/2005
	*10.13	Zoran Corporation 2005 Equity Incentive Plan	8-K	000-27246		99.1	07/13/2006

121

			Incorporated by Reference
Exhibit Number		Exhibit Title	Form	File No.	Exhibit		Filing Date	Filed Herewith
	10.14	Zoran Corporation 2005 Outside Directors Equity Plan	8-K	000-27246		99.2	08/03/2005
	10.15	PC Optical Storage Technology Patent License Agreement dated as of January 25, 2006 among Zoran, Zoran’s subsidiary Oak Technology, Inc., and MediaTek, Inc	10-Q	000-27246		10.54	05/10/2006
	10.16	PC Optical Storage Patent Cross License Agreement dated as of January 25, 2006 among Zoran, Zoran’s subsidiary Oak Technology, Inc. and MediaTek, Inc.	10-Q	000-27246		10.55	05/10/2006
	*10.17	1993 Stock Option Plan, as amended							X
	*10.18	1995 Outside Directors Stock Option Plan							X
	*10.19	Form of Amendment of Nonstatutory Stock Option Agreement for Outside Directors							X
	10.20	Lease Agreement dated as of February 8, 2007 by and between Arturo J. Gutierrez and John A. Cataldo, Trustees of Auburn-Oxford Trust, u/d/t dated October 19, 1983 and Zoran Corporation							X
	10.21	Lease Agreement dated as of May 19, 2006 by and between WTA Kifer LLC and Zoran Corporation, as amended on May 19, 2006							X
	*10.22	Amended Summary of Compensation Arrangements with Named Executive Officers and Non Employee Directors	8-K	000-27246		99.1	03/31/2006
	21.1	List of Subsidiaries of the Registrant							X
	23.1	Consent of PricewaterhouseCoopers LLP							X
	31.1	Certification of Chief Executive Officer, pursuant to Rule 13a-14(a) or 15d-14(a)							X
	31.2	Certification of Chief Financial Officer, pursuant to Rule 13a-14(a) or 15d-14(a)							X
	32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350							X
	32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350							X

*Constitutes a management contract or compensatory plan, contract or arrangement.

122

EX-3.1

Exhibit 3.1

RESTATED CERTIFICATE OF INCORPORATION

OF

ZORAN CORPORATION

(Pursuant to Section 245 and 242 of the General Corporation

Law of the State of Delaware)

ZORAN CORPORATION, a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows:

1.The name of the corporation is Zoran Corporation.

2.The date of filing of its original Certificate of Incorporation with the Secretary of State of the State of Delaware was November 24, 1986.

3.This Restated Certificate of Incorporation restates and integrates and further amends the Certificate of Incorporation of this corporation as herein set forth in full:

ARTICLE I

NAME

The name of the corporation is Zoran Corporation (the “Corporation”).

ARTICLE II

REGISTERED OFFICE

The address of the registered office of the Corporation in the State of Delaware is 2711 Centerville Road, Suite 400, City of Wilmington, County of New Castle, and the name of the registered agent of the Corporation in the State of Delaware at such address is The Prentice-Hall Corporation System, Inc.

ARTICLE III

PURPOSE

The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.

ARTICLE IV

CAPITAL STOCK

(A)The Corporation is authorized to issue two classes of shares, designated “Common Stock” and “Preferred Stock,” respectively.  The number of shares of Common Stock authorized to be issued is 55,000,000 shares, $.001 par value per share, and the number of shares of Preferred Stock authorized to be issued is 3,000,000 shares, $.001 par value per share.

(B)The Preferred shares authorized by this Certificate of Incorporation may be issued from time to time in one or more series.  The Board of Directors is authorized to determine, alter or eliminate any or all of the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock, and to fix, increase or decrease the number of shares comprising any such series and the designation thereof, or any of them, and to provide for the rights and terms of redemption or conversion of the shares of any such series.

ARTICLE V

BYLAWS

In furtherance and not in limitation of the powers conferred by statute, the Board of Directors shall have the power to adopt, amend, repeal or otherwise alter the Bylaws without any action on the part of the stockholders; provided, however, that any Bylaws made by the Board of Directors and any and all powers conferred by any of said Bylaws may be amended, altered or repealed by the stockholders, subject to the requirements of this Certificate of Incorporation with respect to such stockholder approval.

ARTICLE VI

DIRECTORS

To the fullest extent permitted by the Delaware General Corporation Law, as the same exists or may hereafter be amended, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director.  Neither any amendment nor repeal of this Article VI, nor the adoption of any provision of this Certificate of Incorporation inconsistent with this Article VI shall eliminate or reduce the effect of this Article VI in respect to any matter occurring, or any cause of action, suit or claim that, but for this Article VI, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision.

ZORAN CORPORATION

By:

Levy Gerzberg

President and Chief Executive Officer

2

EX-3.2

Exhibit 3.2

SECOND AMENDED AND RESTATED BYLAWS
OF
ZORAN CORPORATION

TABLE OF CONTENTS

ARTICLE	I	OFFICES
1.		Registered Office
2.		Other Offices
ARTICLE	II	CORPORATE SEAL
3.		Corporate Seal
ARTICLE	III	STOCKHOLDERS’ MEETINGS
4.		Place of Meeting
5.		Annual Meeting
6.		Special Meetings
7.		Notice of Meetings
8.		Quorum
9.		Adjournment and Notice of Adjourned Meetings
10.		Voting Rights
11.		Joint Owners of Stock
12.		List of Stockholders
13.		Action without Meeting
14.		Organization and Conduct of Meetings
ARTICLE	IV	DIRECTORS
15.		Number and Term of Office
16.		Powers
17.		Vacancies
18.		Resignation
19.		Removal
20.		Meetings
21.		Quorum and Voting
22.		Action Without Meeting
23.		Fees and Compensation
24.		Committees
25.		Organization
26.		Nominations of Director Candidates

i

ARTICLE	V	OFFICERS
27.		Officers Designated
28.		Tenure and Duties of Officers
29.		Resignations
30.		Removal
ARTICLE	VI	EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION
31.		Execution of Corporate Instruments
32.		Voting of Securities Owned by the Corporation
ARTICLE	VII	SHARES OF STOCK
33.		Form and Execution of Certificates
34.		Lost Certificates
35.		Transfers
36.		Fixing Record Dates
37.		Registered Stockholders
ARTICLE	VIII	OTHER SECURITIES OF THE CORPORATION
38.		Execution of Other Securities
ARTICLE	IX	DIVIDENDS
39.		Declaration of Dividends
40.		Dividend Reserve
ARTICLE	X	FISCAL YEAR
41.		Fiscal Year
ARTICLE	XI	INDEMNIFICATION
42.		Indemnification of Officers, Directors, Employees and Other Agents
ARTICLE	XII	NOTICES
43.		Notices
ARTICLE	XIII	AMENDMENTS
44.		Amendments

ii

SECOND AMENDED AND RESTATED BYLAWS
OF
ZORAN CORPORATION

(a Delaware corporation)

ARTICLE I
Offices

1.Registered Office.  The registered office of the corporation in the State of Delaware shall be in the City of Wilmington, County of Newcastle.

2.Other Offices.  The corporation shall also have and maintain an office or principal place of business in Santa Clara, California, at such place as may be fixed by the Board of Directors, and may also have offices at such other places, both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require.

ARTICLE II
Corporate Seal

3.Corporate Seal.  The corporate seal shall consist of a die bearing the name of the corporation and the inscription, “Corporate Seal Delaware.” Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.

ARTICLE III
Stockholders’ Meetings

4.Place of Meeting.  Meetings of the stockholders of the corporation shall be held at such place, either within or without the State of Delaware, as may be designated from time to time by the Board of Directors, or, if not so designated, then at the office of the corporation required to be maintained pursuant to Section 2 hereof.

5.Annual Meeting.  The annual meeting of the stockholders of the corporation for the purpose of election of Directors and for such other business as may lawfully come before it shall be held on such date and at such time as may be designated from time to time by the Board of Directors.

6.Special Meetings.  Special meetings of the stockholders of the corporation may be called, for any purpose or purposes, by the Chairman of the Board of Directors, the President or the Board of Directors at any time.

7.Notice of Meetings.  Except as otherwise provided by law or the Certificate of Incorporation, written notice of each meeting of stockholders shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting, such notice to specify the place, date and hour and purpose or purposes of the meeting.  Notice of the time, place and purpose of any meeting of stockholders may be waived in writing, signed by the person entitled to notice thereof, either before or after such meeting, and will be waived by any stockholder by his attendance thereat in person or by proxy, except when the stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.  Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given.

1

8.Quorum.  At all meetings of stockholders, except where otherwise provided by statute or by the Certificate of Incorporation, or by these Bylaws, the presence, in person or by proxy duly authorized, of the holders of a majority of the outstanding shares of stock entitled to vote shall constitute a quorum for the transaction of business.  Any shares, the voting of which at said meeting has been enjoined, or which for any reason cannot be lawfully voted at such meeting, shall not be counted to determine a quorum at such meeting.  In the absence of a quorum any meeting of stockholders may be adjourned, from time to time, by vote of the holders of a majority of the shares represented thereat, but no other business shall be transacted at such meeting.  The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.  Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, all action taken by the holders of a majority of the voting power represented at any meeting at which a quorum is present shall be valid and binding upon the corporation.

9.Adjournment and Notice of Adjourned Meetings.  Any meeting of stockholders, whether annual or special, may be adjourned from time to time by the vote of a majority of the shares, the holders of which are present either in person or by proxy.  When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken.  At the adjourned meeting the corporation may transact any business which might have been transacted at the original meeting.  If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

10.Voting Rights.  For the purpose of determining those stockholders entitled to vote at any meeting of the stockholders, except as otherwise provided by law, only persons in whose names shares stand on the stock records of the corporation on the record date, as provided in Section 12 of these Bylaws, shall be entitled to vote at any meeting of stockholders.  Every person entitled to vote or execute consents shall have the right to do so either in person or by an agent or agents authorized by a written proxy executed by such person or his duly authorized agent, which proxy shall be filed with the Secretary at or before the meeting at which it is to be used.  An agent so appointed need not be a stockholder.  No proxy shall be voted on after three (3) years from its date of creation unless the proxy provides for a longer period.  All elections of Directors shall be by written ballot, unless otherwise provided in the Certificate of Incorporation.

11.Joint Owners of Stock.  If shares or other securities having voting power stand of record in the names of two (2) or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety, or otherwise, or if two (2) or more persons have the same fiduciary relationship respecting the same shares, unless the Secretary is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect: (a) if only one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the majority so voting binds all; (c) if more than one (1) votes, but the vote is evenly split on any particular matter, each faction may vote the securities in question proportionally, or may apply to the Delaware Court of Chancery for relief as provided in the General Corporation Law of Delaware, Section 217(b).  If the instrument filed with the Secretary shows that any such tenancy is held in unequal interests, a majority or even-split for the purpose of this subsection (c) shall be a majority or even-split in interest.

12.List of Stockholders.  The Secretary shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder.  Such list shall be open to the examination of any stockholder,

2

for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not specified, at the place where the meeting is to be held.  The list shall be produced and kept at the time and place of meeting during the whole time thereof, and may be inspected by any stockholder who is present.

13.Action without Meeting.  Unless otherwise provided in the Certificate of incorporation, any action required by statute to be taken at any annual or special meeting of the stockholders, or any action which may be taken at any annual or special meeting of the stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.  Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing.

14.Organization and Conduct of Meetings.  At every meeting of stockholders, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the President, or, if the President is absent, the most senior Vice President present, or in the absence of any such officer, a chairman of the meeting chosen by a majority in interest of the stockholders entitled to vote, present in person or by proxy, shall act as chairman of the meeting.  The Secretary, or, in his absence, an Assistant Secretary directed to do so by the President, shall act as secretary of the meeting.  Unless otherwise approved by the chairman of the meeting, attendance at a meeting of stockholders meeting is restricted to stockholders of record, persons authorized in accordance with Section 10 of these Bylaws to act by proxy, and officers of the corporation.

The chairman of the meeting shall call the meeting to order, establish the agenda, and conduct the business of the meeting in accordance therewith or, at the chairman’s discretion, it may be conducted otherwise in accordance with the wishes of the stockholders in attendance.  The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting.

The chairman of the meeting shall conduct the meeting in an orderly manner, rule on the precedence of, and procedure on, motions and other procedural matters, and exercise discretion with respect to such procedural matters with fairness and good faith toward all those entitled to take part.  The chairman of the meeting may impose reasonable limits on the amount of time taken up at the meeting on discussion in general or on remarks by any one stockholder.  Should any person in attendance become unruly or obstruct the meeting proceedings, the chairman of the meeting shall have the power to have such person removed from participation.  Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at a meeting of the stockholders except in accordance with the procedures set forth in this Section 14.  The chairman of a meeting shall, if the facts warrant, determine and declare to the meeting that any proposed item of business was not brought before the meeting in accordance with the provisions of this Section 14, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted.

ARTICLE IV
Directors

15.Number and Term of Office.  The number of Directors which shall constitute the whole of the Board of Directors shall be eight (8).  Except as provided in Section 17, the Directors shall be elected by the stockholders at their annual meeting in each year and shall hold office until the next annual

3

meeting and until their successors shall be duly elected and qualified.  Directors need not be stockholders unless so required by the Certificate of Incorporation.  If for any cause, the Directors shall not have been elected at an annual meeting, they may be elected as soon thereafter as convenient at a special meeting of the stockholders called for that purpose in the manner provided in these Bylaws.

16.Powers.  The powers of the corporation shall be exercised, its business conducted and its property controlled by the Board of Directors, except as may be otherwise provided by statute or by the Certificate of Incorporation.

17.Vacancies.  Unless otherwise provided in the Certificate of Incorporation, vacancies and newly created directorships resulting from any increase in the authorized number of Directors may be filled by a majority of the Directors then in office, although less than a quorum, or by a sole remaining Director, and each Director so elected shall hold office for the unexpired portion of the term of the Director whose place shall be vacant and until his successor shall have been duly elected and qualified.  A vacancy in the Board of Directors shall be deemed to exist under this Section 17 in the case of the death, removal or resignation of any Director, or if the stockholders fail at any meeting of stockholders at which Directors are to be elected (including any meeting referred to in Section 19 below) to elect the number of Directors then constituting the whole Board of Directors.

18.Resignation.  Any Director may resign at any time by delivering his written resignation to the Secretary, such resignation to specify whether it will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the Board of Directors.  If no such specification is made, it shall be deemed effective at the pleasure of the Board of Directors.  When one or more Directors shall resign from the Board of Directors, effective at a future date, a majority of the Directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each Director so chosen shall hold office for the unexpired portion of the term of the Director whose place shall be vacated and until his successor shall have been duly elected and qualified.

19.Removal.  At a special meeting of stockholders called for the purpose in the manner hereinabove provided, the Board of Directors, or any individual Director, may be removed from office, with or without cause, and a new Director or Directors elected by a vote of stockholders holding a majority of the outstanding shares entitled to vote at an election of Directors.

20.Meetings.

(a)Annual Meetings.  The annual meeting of the Board of Directors shall be held immediately after the annual meeting of stockholders and at the place where such meeting is held.  No notice of an annual meeting of the Board of Directors shall be necessary and such meeting shall be held for the purpose of electing officers and transacting such other business as may lawfully come before it.

(b)Regular Meetings.  Except as hereinafter otherwise provided, regular meetings of the Board of Directors shall be held in the office of the corporation required to be maintained pursuant to Section 2 hereof.  Unless otherwise restricted by the Certificate of Incorporation, regular meetings of the Board of Directors may also be held at any place within or without the State of Delaware which has been designated by resolution of the Board of Directors or the written consent of all Directors.

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(c)Special Meetings.  Unless otherwise restricted by the Certificate of Incorporation, special meetings of the Board of Directors may be held at any time and place within or without the State of Delaware whenever called by the President or a majority of the Directors.

(d)Telephone Meetings.  Any member of the Board of Directors, or of any committee thereof, may participate in a meeting by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting.

(e)Notice of Meetings.  Written notice of the time and place of all regular and special meetings of the Board of Directors shall be given at least one (1) day before the date of the meeting.  Notice of any meeting may be waived in writing at any time before or after the meeting and will be waived by any Director by attendance thereat, except when the Director attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.

(f)Waiver of Notice.  The transaction of all business at any meeting of the Board of Directors, or any committee thereof, however called or noticed, or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present and if, either before or after the meeting, each of the Directors not present shall sign a written waiver of notice, or a consent to holding such meeting, or an approval of the minutes thereof.  All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting.

21.Quorum and Voting.

(a)Quorum  Unless the Certificate of Incorporation requires a greater number, a quorum of the Board of Directors shall consist of a majority of the exact number of Directors fixed from time to time in accordance with Section 15 of these Bylaws, but not less than one (1); provided, however, at any meeting whether a quorum be present or otherwise, a majority of the Directors present may adjourn from time to time until the time fixed for the next regular meeting of the Board of Directors, without notice other than by announcement at the meeting.

(b)Majority Vote.  At each meeting of the Board of Directors at which a quorum is present all questions and business shall be determined by a vote of a majority of the Directors present, unless a different vote be required by law, the Certificate of Incorporation or these Bylaws.

22.Action Without Meeting.  Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board of Directors or committee, as the case may be, consent thereto in writing, and such writing or writings are filed with the minutes of proceedings of the Board of Directors or committee.

23.Fees and Compensation.  Directors shall not receive any stated salary for their services as Directors, but by resolution of the Board of Directors a fixed fee, with or without expense of attendance, may be allowed for attendance at each meeting and at each meeting of any committee of the Board of Directors.  Nothing herein contained shall be construed to preclude any Director from serving the corporation in any other capacity as an officer, agent, employee, or otherwise and receiving compensation therefor.

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24.Committees.

(a)Executive Committee.  The Board of Directors may by resolution passed by a majority of the whole Board of Directors, appoint an Executive Committee to consist of one (1) or more members of the Board of Directors.  The Executive Committee, to the extent permitted by law and specifically granted by the Board of Directors, shall have and may exercise when the Board of Directors is not in session all powers of the Board of Directors in the management of the business and affairs of the corporation, including, without limitation, the power and authority to declare a dividend or to authorize the issuance of stock, except such committee shall not have the power or authority to amend the Certificate of Incorporation, to adopt an agreement of merger or consolidation, to recommend to the stockholders the sale, lease or exchange of all or substantially all of the corporation’s property and assets, to recommend to the stockholders of the corporation a dissolution of the corporation or a revocation of a dissolution or to amend these Bylaws.

(b)Other Committees.  The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, from time to time appoint such other committees as may be permitted by law.  Such other committees appointed by the Board of Directors shall consist of one (1) or more members of the Board of Directors, and shall have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committees, but in no event shall any such committee have any of the powers denied to the Executive Committee in these Bylaws.

(c)Term.  The members of all committees of the Board of Directors shall serve a term coexistent with that of the Board of Directors which shall have appointed such committee.  The Board of Directors, subject to the provisions of subsections (a) or (b) of this Section 24, may at any time increase or decrease the number of members of a committee or terminate the existence of a committee.  The membership of a committee member shall terminate on the date of his death or voluntary resignation.  The Board of Directors may at any time for any reason remove any individual committee member and the Board of Directors may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee.  The Board of Directors may designate one or more Directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.

(d)Meetings.  Unless the Board of Directors shall otherwise provide, regular meetings of the Executive Committee or any other committee appointed pursuant to this Section 24 shall be held at such times and places as are determined by the Board of Directors, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter.  Special meetings of any such committee may be held at the principal office of the corporation required to be maintained pursuant to Section 2 hereof, or at any place which has been designated from time to time by resolution of such committee or by written consent of all members thereof, and may be called by any Director who is a member of such committee, upon written notice to the members of such committee of the time and place of such special meeting given in the manner provided for the giving of written notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors.  Notice of any special meeting of any committee may be waived in writing at any time before or after the meeting and will be waived by any Director by attendance thereat, except when the Director attends such special meeting for the express purpose

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of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.  A majority of the authorized number of members of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of such committee.

25.Organization.  At every meeting of the Directors, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the President, or if the President is absent, the most senior Vice President, or, in the absence of any such officer, a chairman of the meeting chosen by a majority of the Directors present, shall preside over the meeting.  The Secretary, or in his absence, an Assistant Secretary directed to do so by the President, shall act as secretary of the meeting.

26.Nominations of Director Candidates.

(a)Nomination Procedures.  Subject to the rights of holders of any class or series of Referred Stock then outstanding, nominations for the election of Directors may be made by the Board of Directors, or a committee appointed by the Board of Directors, or by any stockholder entitled to vote in the election of Directors generally.  However, any stockholder entitled to vote in the election of Directors generally may nominate one or more persons for election as Directors at a meeting only if timely notice of such stockholder’s intent to make such nomination or nominations has been given in writing to the Secretary.  To be timely, a stockholder nomination of a Director to be elected at an annual meeting shall be received at the corporation’s principal executive offices not less than one hundred twenty (120) calendar days in advance of the date that the corporation’s proxy statement was released to stockholders in connection with the previous year’s annual meeting of stockholders, except that if no annual meeting was held in the previous year or the date of the annual meeting has been advanced by more than thirty (30) calendar days from the date contemplated at the time of the previous year’s proxy statement, notice by the stockholders to be timely must be received not later than the close of business on the tenth day following the day on which the public announcement of the date of such meeting is first made.  Each such notice shall set forth: (a) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the stockholder is a holder of record of stock of the corporation entitled to vote for the election of Directors on the date of such notice and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (d) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission, had the nominee been nominated, or intended to be nominated, by the Board of Directors; and (e) the consent of each nominee to serve as a director of the corporation if so elected.  For purposes of this Section 26, “public announcement” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Company with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  Notwithstanding the foregoing provisions of this Section 26, stockholders shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 26.  Nothing in this Section 26 shall be deemed to affect any rights of stockholders to request inclusion of proposals in the corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act.

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(b)Substitute Nominees.  In the event that a person is validly designated as a nominee in accordance with this Section 26 and shall thereafter become unable or unwilling to stand for election to the Board of Directors, the Board of Directors or the stockholder who proposed such nominee, as the case may be, may designate a substitute nominee upon delivery, not fewer than five (5) days prior to the date of the meeting for the election of such nominee, of a written notice to the Secretary setting forth such information regarding such substitute nominee as would have been required to be delivered to the Secretary pursuant to this Section 26 had such substitute nominee been initially proposed as a nominee.  Such notice shall include a signed consent of each such substitute nominee to serve as a director of the corporation, if elected.

(c)Nominations Not in Accordance With This Section.  If the chairman of the meeting for the election of Directors determines that a nomination of any candidate for election as a Director at such meeting was not made in accordance with the applicable provisions of this Section 26, such nomination shall be void; provided, however, that nothing in this Section 26 shall be deemed to limit any voting rights upon the occurrence of dividend arrearages provided to holders of Preferred Stock pursuant to the Preferred Stock designation for any series of Preferred Stock.

ARTICLE V
Officers

27.Officers Designated.  The officers of the corporation shall be the Chairman of the Board of Directors, the President, one or more Vice Presidents, the Secretary and the Chief Financial Officer, all of whom shall be elected at the annual meeting of the Board of Directors.  The order of the seniority of the Vice Presidents shall be in the order of their nomination, unless otherwise determined by the Board of Directors.  The Board of Directors may also appoint such other officers and agents with such powers and duties as it shall deem necessary.  The Board of Directors may assign such additional titles to one or more of the officers as it shall deem appropriate.  Any one person may hold any number of offices of the corporation at any one time unless specifically prohibited therefrom by law.  The salaries and other compensation of the officers of the corporation shall be fixed by or in the manner designated by the Board of Directors.

28.Tenure and Duties of Officers.

(a)General.  All officers shall hold office at the pleasure of the Board of Directors and until their successors shall have been duly elected and qualified, unless sooner removed.  Any officer elected or appointed by the Board of Directors may he removed at any time by the Board of Directors.  If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors.

(b)Duties of Chairman of the Board of Directors.  The Chairman of the Board of Directors, when present, shall preside at all meetings of the stockholders and the Board of Directors.  The Chairman of the Board of Directors shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time.

(c)Duties of President.  The President shall preside at all meetings of the stockholders and at all meetings of the Board of Directors, unless the Chairman of the Board of Directors has been appointed and is present.  The President shall be the chief executive officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the corporation.  The President shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time.

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(d)Duties of Vice Presidents.  The Vice Presidents, in the order of their seniority, may assume and perform the duties of the President in the absence or disability of the President or whenever the office of President is vacant.  The Vice Presidents shall perform other duties commonly incident to their office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.

(e)Duties of Secretary.  The Secretary shall attend all meetings of the stockholders and of the Board of Directors, and shall record all acts and proceedings thereof in the minute book of the corporation.  The Secretary shall give notice in conformity with these Bylaws of all meetings of the stockholders, and of all meetings of the Board of Directors and any committee thereof requiring notice.  The Secretary shall perform all other duties given him in these Bylaws and other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time.  The President may direct any Assistant Secretary to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each Assistant Secretary shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.

(f)Duties of Chief Financial Officer.  The Chief Financial Officer shall keep or cause to be kept the books of account of the corporation in a thorough and proper manner, and shall render statements of the financial affairs of the corporation in such form and as often as required by the Board of Directors or the President.  The Chief Financial Officer, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the corporation.  The Chief Financial Officer shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.  The President may direct any assistant financial officer to assume and perform the duties of the Chief Financial Officer in the absence or disability of the Chief Financial Officer, and each assistant financial officer shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.

29.Resignations.  Any officer may resign at any time by giving written notice to the Board of Directors or to the President or to the Secretary.  Any such resignation shall be effective when received by the person or persons to whom such notice is given, unless a later time is specified therein, in which event the resignation shall become effective at such later time.  Unless otherwise specified in such notice, the acceptance of any such resignation shall not be necessary to make it effective.

30.Removal.  Any officer may be removed from office at any time, either with or without cause, by the vote or written consent of a majority of the Directors in office at the time, or by any committee or superior officers upon whom such power of removal may have been conferred by the Board of Directors.

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ARTICLE VI
Execution of Corporate Instruments and Voting
of Securities Owned by the Corporation

31.Execution of Corporate Instruments.  The Board of Directors may, in its discretion, determine the method and designate the signatory officer or officers, or other person or persons, to execute on behalf of the corporation any corporate instrument or document, or to sign on behalf of the corporation the corporate name without limitation, or to enter into contracts on behalf of the corporation, except where otherwise provided by law or these Bylaws, and such execution or signature shall be binding upon the corporation.

Unless otherwise specifically determined by the Board of Directors or otherwise required by law, promissory notes, deeds of trust, mortgages and other evidences of indebtedness of the corporation, and other corporate instruments or documents requiring the corporate seal, and certificates of shares of stock owned by the corporation, shall be executed, signed or endorsed by the Chairman of the Board of Directors, or the President or any Vice President, and by the Secretary or Chief Financial Officer or any Assistant Secretary or assistant financial officer.  All other instruments and documents requiring the corporate signature, but not requiring the corporate seal, may be executed as aforesaid or in such other manner as may be directed by the Board of Directors.

All check and drafts drawn on banks or other depositories on funds to the credit of the corporation or in special accounts of the corporation shall be signed by such person or persons as the Board of Directors shall authorize so to do.

32.Voting of Securities Owned by the Corporation.  All stock and other securities of other corporations owned or held by the corporation for itself, or for other parties in any capacity, shall be voted, and all proxies with respect thereto shall be executed, by the person authorized so to do by resolution of the Board of Directors, or, in the absence of such authorization, by the Chairman of the Board of Directors, the President, or any Vice President.

ARTICLE VII
Shares of Stock

33.Form and Execution of Certificates.  Certificates for the shares of stock of the corporation shall be in such form as is consistent with the Certificate of Incorporation and applicable law.  Every holder of stock in the corporation shall be entitled to have a certificate signed by or in the name of the corporation by the Chairman of the Board of Directors, or the President or any Vice President and by the Chief Financial Officer or assistant financial officer or the Secretary or Assistant Secretary, certifying the number of shares owned by him in the corporation.  Where such certificate is countersigned by a transfer agent other than the corporation or its employee, or by a registrar other than the corporation or its employee, any other signature on the certificate may be a facsimile.  In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued with the same effect as if he were such officer, transfer agent, or registrar at the date of issue.

34.Lost Certificates.  A new certificate or certificates shall be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed.  The corporation may require, as a condition precedent to the issuance of a new certificate or certificates, the owner of such lost, stolen, or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require or to give the corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen, or destroyed.

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35.Transfers.  Transfers of record of shares of stock of the corporation shall be made only upon its books by the holders thereof, in person or by attorney duly authorized, and upon the surrender of a properly endorsed certificate or certificates for a like number of shares.

36.Fixing Record Dates.  In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action.  If no record date is fixed: (a) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; (b) the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is necessary, shall be the day on which the first written consent is expressed; and (c) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.  A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

37.Registered Stockholders.  The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.

ARTICLE VIII
Other Securities of the Corporation

38.Execution of Other Securities.  All bonds, debentures and other corporate securities of the corporation, other than stock certificates, may be signed by the Chairman of the Board of Directors, the President or any Vice President, or such other person as may be authorized by the Board of Directors, and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an Assistant Secretary, or the Chief Financial Officer or an assistant financial officer; provided, however, that where any such bond, debenture or other corporate security shall be authenticated by the manual signature of a trustee under an indenture pursuant to which such bond, debenture or other corporate security shall be issued, the signatures of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons.  Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Chief Financial Officer or an assistant financial officer of the corporation or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person.  In case any officer who shall have signed or attested any bond, debenture or other corporate security, or whose facsimile signature shall appear thereon or on any such interest coupon, shall have ceased to be such officer before the bond, debenture or other corporate security so signed or attested shall have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the corporation and issued and delivered as though the person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the corporation.

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ARTICLE IX
Dividends

39.Declaration of Dividends.  Dividends upon the capital stock of the corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors pursuant to law at any regular or special meeting.  Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation.

40.Dividend Reserve.  Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the Board of Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the Board of Directors shall think conducive to the interests of the corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created.

ARTICLE X
Fiscal Year

41.Fiscal Year.  Unless otherwise fixed by resolution of the Board of Directors, the fiscal year of the corporation shall end on the last day of December.

ARTICLE XI
Indemnification

42.Indemnification of Officers, Directors, Employees and Other Agents.

(a)Directors.  The corporation shall indemnify its Directors to the fullest extent permitted by the Delaware General Corporation Law, as the same exits or may hereafter be amended (but, in the case of alleged occurrences of actions or omissions preceding any such amendment, only to the extent that such amendment permits the corporation to provide broader indemnification rights than said Law permitted the corporation to provide prior to such amendment).

(b)Officers, Employees and other Agents.  The corporation shall have power to indemnify its officers, employees and other agents as set forth m the Delaware General Corporation Law.

(c)Good Faith.

(i)For purposes of any determination under this Bylaw, a Director shall be deemed to 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, and, with respect to any criminal action or proceeding, to have had no reasonable cause to believe that his conduct was unlawful, if his action is based on the records or books of account of the corporation or another enterprise, or on information supplied to him by the officers of the corporation or another enterprise in the course of their duties, or on the advice of legal counsel for the corporation or another enterprise or on information or records given or reports made to the corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the corporation or another enterprise.

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(ii)The termination of any proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal proceeding, that he had reasonable cause to believe that his conduct was unlawful.

(iii)The provisions of this paragraph (c) shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth by the Delaware General Corporation Law.

(d)Expenses.  The corporation shall advance, prior to the final disposition of any proceeding, promptly following request therefor, all expenses incurred by any Director in connection with such proceeding upon receipt of an undertaking by or on behalf of such person to repay said amounts if it should be determined ultimately that such person is not entitled to be indemnified under this Bylaw or otherwise.

(e)Enforcement.  Without the necessity of entering into an express contract, all rights to indemnification and advances under this Bylaw shall be deemed to be contractual rights and be effective to the same extent and as if provided for in a contract between the corporation and the Director who serves in such capacity at any time while this Bylaw and other relevant provisions of the Delaware General Corporation Law and other applicable law, if any, are in effect.  Any right to indemnification or advances granted by this Bylaw to a Director shall be enforceable by or on behalf of the person holding such right in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefor.  The claimant in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting his claim.  It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any proceeding in advance of its final disposition when the required undertaking has been tendered to the corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law for the corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the corporation.  Neither the failure of the corporation (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct.

(f)Non-Exclusivity of Rights.  The rights conferred on any person by this Bylaw shall not be exclusive of any other right which such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding office.  The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advances, to the fullest extent permitted by the Delaware General Corporation Law.

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(g)Survival of Rights.  The rights conferred on any person by this Bylaw shall continue as to a person who has ceased to be a Director, officer, employee or other agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

(h)Insurance.  To the fullest extent permitted by the Delaware General Corporation Law, the corporation, upon approval by the Board of Directors, may purchase insurance on behalf of any person required or permitted to be indemnified pursuant to this Bylaw.

(i)Amendments.  Any repeal or modification of this Bylaw shall only be prospective and shall not affect the rights under this Bylaw in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of the corporation.

(j)Savings Clause.  If this Bylaw or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each agent to the full extent permitted by any applicable portion of this Bylaw that shall not have been invalidated, or by any other applicable law.

(k)Certain Definitions.  For the purposes of this Bylaw, the following definitions shall apply:

(i)The term “proceeding” shall be broadly construed and shall include, without limitation, the investigation, preparation, prosecution, defense, settlement and appeal of any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative.

(ii)The term “expenses” shall be broadly construed and shall include, without limitation, court costs, attorneys’ fees, witness fees, fines, amounts paid in settlement or judgment and any other costs and expenses of any nature or kind incurred in connection with any proceeding.

(iii)The term “the corporation” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Bylaw with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued.

(iv)References to a “director,” “officer,” “employee,” or “agent” of the corporation shall include, without limitation, situations where such person is serving at the request of the corporation as a director, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise.

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(v)References to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to “serving at the request of the corporation” shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the corporation” as referred to in this Bylaw.

ARTICLE XII
Notices

43.Notices.

(a)Notice to Stockholders.  Whenever, under any provisions of these Bylaws, notice is required to be given to any stockholder, it shall be given in writing, timely and duly deposited in the United States mail, postage prepaid, and addressed to his last known post office address as shown by the stock record of the corporation or its transfer agent.

(b)Notice to Directors.  Any notice required to be given to any Director may be given by the method stated in subsection (e) of Section 20 of these Bylaws except that such notice other than one which is delivered personally shall be sent to such address as such Director shall have filed in writing with the Secretary, or, in the absence of such filing, to the last known post office address of such Director.

(c)Address Unknown.  If no address of a stockholder or Director be known, notice may be sent to the office of the corporation required to be maintained pursuant to Section 2 hereof.

(d)Affidavit of Mailing.  An affidavit of mailing, executed by a duly authorized and competent employee of the corporation or its transfer agent appointed with respect to the class of stock affected, specifying the name and address or the names and addresses of the stockholder or stockholders, or Director or Directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall be conclusive evidence of the statements therein contained.

(e)Time Notices Deemed Given.  All notices given by mail, as above provided, shall be deemed to have been given as at the time of mailing and all notices given by telegram shall be deemed to have been given as at the sending time recorded by the telegraph company transmitting the notices.

(f)Methods of Notice.  It shall not be necessary that the same method of giving notice be employed in respect of all Directors, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others.

(g)Failure to Receive Notice.  The period or limitation of time within which a any stockholder may exercise any option or right, or enjoy any privilege or benefit, or be required to act, or within which any Director may exercise any power or right, or enjoy any privilege, pursuant to any notice sent him in the manner above provided, shall not be affected or extended in any manner by the failure of such stockholder or such Director to receive such notice.

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(h)Notice to Person with Whom Communication Is Unlawful.  Whenever notice is required to be given, under any provision of law or of the Certificate of Incorporation or these Bylaws, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person.  Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given.  In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the Delaware General Corporation Law, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful.

ARTICLE XIII
Amendments

44.Amendments.  These Bylaws may be repealed, altered or amended or new Bylaws adopted by the stockholders.  The Board of Directors shall also have the authority, if such authority is conferred upon the Board of Directors by the Certificate of Incorporation, to repeal, alter or amend these Bylaws or adopt new Bylaws (including, without limitation, the amendment of any Bylaw setting forth the number of Directors who shall constitute the whole Board of Directors) subject to the power of the stockholders to change or repeal such Bylaws and provided that the Board of Directors shall not make or alter any Bylaws fixing the qualifications, classifications, term of office or compensation of Directors.

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EX-4.1

Exhibit 4.1

COMMON STOCK		COMMON STOCK
NUMBER		SHARES
	ZORAN CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE		SEE REVERSE FOR CERTAIN DEFINITIONS
		CUSIP  98975F 10 1

THIS CERTIFIES THAT

is the record holder of

FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $0.001 PER SHARE, OF

ZORAN CORPORATION

transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this Certificate properly endorsed. This Certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar.

WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers.

SECRETARY PRESIDENT AND CHIEF EXECUTIVE OFFICER

COUNTERSIGNED AND REGISTERED:
	AMERICAN STOCK TRANSFER & TRUST COMPANY
			TRANSFER AGENT AND REGISTRAR
				AUTHORIZED SIGNATURE

The Corporation shall furnish without charge to each stockholder who so requests a statement of the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock of the Corporation or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.  Such requests shall be made to the Corporation’s Secretary at the principal office of the Corporation.

The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations.

TEN COM	—	as tenants in common	UNIF GIFT MIN ACT —					Custodian
TEN ENT	—	as tenants by the entireties		(Cust)						(Minor)
JT TEN	—	as joint tenants with right of		Under Uniform Gifts to Minors
		survivorship and not as tenants in		Act
		common			(State)
			UNIF TRF MIN ACT —			Custodian (Until age					)
				(Cust)
							Under Uniform Transfers
				(Minor)
				to Minors Act
									(State)

Additional abbreviations may also be used though not in the above list.

FOR VALUE RECEIVED,                                                      hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER

IDENTIFYING NUMBER OF ASSIGNEE

(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)

                                                                                                                                                                                                  Shares of the common stock represented by the within Certificate, and do hereby irrevocably constitute and appoint

                                                                                                                                                                                                Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises.

Dated

	X
	X
NOTICE:		THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.

Signature(s) Guaranteed

By

THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM, PURSUANT TO S.E.C. RULE 17Ad-15.

EX-10.17

Exhibit 10.17

ZORAN CORPORATION

1993 STOCK OPTION PLAN

(As Amended Through April 21, 2002)

1.Purposes of the Plan.  The purposes of this Stock Option Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentives to Employees, Non-Employee Directors and Consultants of the Company and its Subsidiaries, and to promote the success of the Company’s business.  Options granted hereunder may be either Incentive Stock Options or Nonstatutory Stock Options at the discretion of the Committee.

2.Definitions.  As used herein, and in any Option granted hereunder, the following definitions shall apply:

(a)“Board” shall mean the Board of Directors of the Company.

(b)“Code” shall mean the Internal Revenue Code of 1986, as amended, and any applicable regulations promulgated thereunder.

(c)“Common Stock” shall mean the Common Stock of the Company.

(d)“Company” shall mean Zoran Corporation, a Delaware corporation.

(e)“Committee” shall mean the Committee appointed by the Board in accordance with paragraph (a) of Section 4 of the Plan.  If the Board does not appoint or ceases to maintain a Committee, the term “Committee” shall refer to the Board.

(f)“Consultant” shall mean any independent contractor retained to perform services for the Company.

(g)“Continuous Service” shall mean the absence of any interruption or termination of service with the Company, a successor of the Company or any Parent or Subsidiary, whether in the capacity of an Employee, a Non-Employee Director, or a Consultant.  Continuous Service shall not be considered interrupted (i) during any period of sick leave, military leave or any other leave of absence approved by the Board, (ii) in the case of transfers between locations of the Company or between the Company and any Parent, Subsidiary or successor of the Company, or (iii) merely as a result of a change in the capacity in which the Optionee renders such service provided that no interruption or termination of the Optionee’s service occurs.

(h)“Employee” shall mean any person, including officers (whether or not they are directors), employed by the Company or any Subsidiary.

(i)“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

(j)“Incentive Stock Option” shall mean any option granted under this Plan and any other option granted to an Employee in accordance with the provisions of Section 422 of the Code, and the regulations promulgated thereunder.

(k)“Non-Employee Director” shall mean any director of the Company or any Subsidiary who is not employed by the Company or such Subsidiary.

(l)“Nonstatutory Stock Option” shall mean an Option granted under the Plan that is subject to the provisions of Section 1.83-7 of the Treasury Regulations promulgated under Section 83 of the Code.

(m)“Option” shall mean a stock option granted pursuant to the Plan.

(n)“Option Agreement” shall mean a written agreement between the Company and the Optionee regarding the grant and exercise of Options to purchase Shares and the terms and conditions thereof as determined by the Committee pursuant to the Plan.

(o)“Optioned Shares” shall mean the Common Stock subject to an Option.

(p)“Optionee” shall mean an Employee, Non-Employee Director or Consultant who receives an Option.

(q)“Parent” shall mean a “parent corporation,” whether now or hereafter existing, as defined by Section 424(e) of the Code.

(r)“Plan” shall mean this 1993 Stock Option Plan.

(s)“Registration Date” shall mean the effective date of the first registration statement filed by the Company pursuant to Section 12(g) of the Exchange Act with respect to any class of the Company’s equity securities.

(t)“Section 162(m)” means Section 162(m) of the Code.

(u)“Securities Act” shall mean the Securities Act of 1933, as amended.

(v)“Share” shall mean a share of the Common Stock subject to an Option, as adjusted in accordance with Section 11 of the Plan.

(w)“Subsidiary” shall mean a “subsidiary corporation,” whether now or hereafter existing, as defined in Section 424(f) of the Code.

3.Stock Subject to the Plan.  Subject to the provisions of Section 11 of the Plan, the maximum aggregate number of Shares which may be issued under the Plan shall be five million one hundred seventy thousand (5,170,000).  If an Option expires or becomes unexercisable for any reason without having been exercised in full, the Shares which were subject to the Option but as to which the Option was not exercised shall, unless the Plan shall have been terminated, become available for other Option grants under the Plan.

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The Company intends that as long as it is not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act and is not an investment company registered or required to be registered under the Investment Company Act of 1940, all offers and sales of Options and Shares issuable upon exercise of any Option shall be exempt from registration under the provisions of Section 5 of the Securities Act, and the Plan shall be administered in such a manner so as to preserve such exemption.  The Company intends that the Plan shall constitute a written compensatory benefit plan within the meaning of Rule 701(b) of 17 CFR Section 230.701 promulgated by the Securities and Exchange Commission pursuant to such Act.  The Committee shall designate which Options granted under the Plan by the Company are intended to be granted in reliance on Rule 701.

4.Administration of the Plan.

(a)Procedure.  The Plan shall be administered by the Board.  The Board may appoint one or more Committees to administer the Plan, subject to such terms and conditions as the Board may prescribe.  Once appointed, the Committee shall continue to serve until otherwise directed by the Board.  From time to time, the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies, however caused, and remove all members of the Committee and, thereafter, directly administer the Plan.

Members of the Board or Committee who are either eligible for Options or have been granted Options may vote on any matters affecting the administration of the Plan or the grant of options pursuant to the Plan, except that no such member shall act upon the granting of an Option to himself, but any such member may be counted in determining the existence of a quorum at any meeting of the Board or the Committee during which action is taken with respect to the granting of an Option to him or her.

The Committee shall meet at such times and places and upon such notice as the chairperson determines.  A majority of the Committee shall constitute a quorum.  Any acts by the Committee may be taken at any meeting at which a quorum is present and shall be by majority vote of those members entitled to vote.  Additionally, any acts reduced to writing or approved in writing by all of the members of the Committee shall be valid acts of the Committee.

(b)Procedure After Registration Date.  Notwithstanding subsection (a) above, after the date of registration of the Company’s Common Stock on a national securities exchange or the Registration Date, the Board shall take all action necessary to administer the Plan in accordance with the then effective provisions of Rule 16b-3 promulgated under the Exchange Act, provided that any amendment to the Plan required for compliance with such provisions shall be made consistent with the provisions of Section 13 of the Plan, and said regulations.

(c)Powers of the Committee.  Subject to the provisions of the Plan, the Committee shall have the authority:  (i) to determine, upon review of relevant information, the fair market value of the Common Stock; (ii) to determine the exercise price of Options to be granted, the Employees, Directors or Consultants to whom and the time or times at which Options shall be granted, and the number of Shares to be represented by each Option; (iii) to interpret the Plan; (iv) to prescribe, amend and rescind rules and regulations relating to the Plan; (v) to determine

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the terms and provisions of each Option granted under the Plan (which need not be identical) and, with the consent of the holder thereof, to modify or amend any Option; (vi) to authorize any person to execute on behalf of the Company any instrument required to effectuate the grant of an Option previously granted by the Committee; (vii) to accelerate or (with the consent of the Optionee) defer an exercise date of any Option, subject to the provisions of Section 9(a) of the Plan; (viii) to determine whether Options granted under the Plan will be Incentive Stock Options or Nonstatutory Stock Options; (ix) to make all other determinations deemed necessary or advisable for the administration of the Plan; and (x) to designate which options granted under the Plan will be issued in reliance on Rule 701.

(d)Effect of Committee’s Decision.  All decisions, determinations and interpretations of the Committee shall be final and binding on all potential or actual Optionees, any other holder of an Option or other equity security of the Company and all other persons.

5.Eligibility and Option Limitations.

(a)Persons Eligible for Options.  Options under the Plan may be granted only to Employees, Non-Employee Directors or Consultants whom the Committee, in its sole discretion, may designate from time to time.  For purposes of the foregoing sentence, “Employees,” “Non-Employee Directors” and “Consultants” shall include prospective Employees, prospective Non-Employee Directors and prospective Consultants to whom Options are granted in connection with written offers of employment or other service relationship.  Incentive Stock Options may be granted only to Employees.  Any person who is not an Employee on the effective date of grant of an Option to such person may be granted only a Nonstatutory Stock Option.  An Employee who has been granted an Option, if he or she is otherwise eligible, may be granted an additional Option or Options.  However, the aggregate fair market value (determined in accordance with the provisions of Section 8(a) of the Plan) of the Shares subject to one or more Incentive Stock Options grants that are exercisable for the first time by an Optionee during any calendar year (under all stock option plans of the Company and its Parents and Subsidiaries) shall not exceed $100,000 (determined as of the grant date).

(b)Section 162(m) Grant Limit.  Subject to adjustment as provided in Section 11, no Employee shall be granted one or more Options within any fiscal year of the Company which in the aggregate are for the purchase of more than five hundred thousand (500,000) Shares (the “Section 162(m) Grant Limit”).  An Option which is canceled in the same fiscal year of the Company in which it was granted shall continue to be counted against the Section 162(m) Grant Limit for such period.

(c)No Right to Continuing Employment.  Neither the establishment nor the operation of the Plan shall confer upon any Optionee or any other person any right with respect to continuation of employment or other service with the Company or any Subsidiary, nor shall the Plan interfere in any way with the right of the Optionee or the right of the Company (or any Parent or Subsidiary) to terminate such employment or service at any time.

(d)Option Repricing.  No Option shall be repriced without the approval of a majority of the shares of Common Stock present or represented by proxy and voting at a meeting

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of the stockholders of the Company at which a quorum representing a majority of all outstanding shares of Common Stock is present or represented by proxy.

6.Term of Plan.  The Plan shall become effective upon its adoption by the Board or its approval by vote of the holders of the outstanding shares of the Company entitled to vote on the adoption of the Plan (in accordance with the provisions of Section 18 hereof), whichever is earlier.  It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 13 of the Plan.

7.Term of Option.  Unless the Committee determines otherwise, the term of each Option granted under the Plan shall be ten (10) years from the date of grant.  The term of the Option shall be set forth in the Option Agreement.  No Incentive Stock Option shall be exercisable after the expiration of ten (10) years from the date such Option is granted, and no Incentive Stock Option granted to any Employee who, at the date such Option is granted, owns (within the meaning of Section 424(d) of the Code) more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or subsidiary shall be exercisable after the expiration of five (5) years from the date such Option is granted.

8.Option Price and Consideration.

(a)Option Price.  Except as provided in subsection (b) below, the option price for the Shares to be issued pursuant to any Option shall be such price as is determined by the Committee, which shall in no event be less than:  (i) in the case of Incentive Stock Options, the fair market value of such Shares on the date the Option is granted; or (ii) in the case of Nonstatutory Stock Options, 85% of such fair market value.  Fair market value of the Common Stock shall be determined by the Committee, using such criteria as it deems relevant; provided, however, that if there is a public market for the Common Stock, the fair market value per Share shall be the average of the last reported bid and asked prices of the Common Stock on the date of grant, as reported in The Wall Street Journal (or, if not so reported, as otherwise reported by the NASDAQ System) or, in the event the Common Stock is listed on a national securities exchange (within the meaning of Section 6 of the Exchange Act) or on the NASDAQ National Market System (or any successor national market system), the fair market value per Share shall be the closing price on such exchange on the date of grant of the Option, as reported in The Wall Street Journal.

(b)Ten Percent Shareholders.  No Option shall be granted to any Employee who, at the date such Option is granted, owns (within the meaning of Section 424(d) of the Code) more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, unless the option price for the Shares to be issued pursuant to such Option is at least equal to 110% of the fair market value of such Shares on the grant date determined by the Committee in the manner set forth in subsection (a) above.

(c)Consideration.  The consideration to be paid for the Optioned Shares shall be payment in cash or by check unless payment in some other manner, including other shares of the Company’s Common Stock or such other consideration and method of payment for the issuance of Optioned Shares as may be permitted under Section 152 of the Delaware General Corporation Law, is authorized by the Committee at the time of the grant of the Option.  Any cash or other

5

property received by the Company from the sale of Shares pursuant to the Plan shall constitute part of the general assets of the Company.

9.Exercise of Option.

(a)Voting Period.  Any Option granted hereunder shall be exercisable at such times and under such conditions as determined by the Committee and as shall be permissible under the terms of the Plan, which shall be specified in the Option Agreement evidencing the Option.  Unless the Committee specifically determines otherwise at the time of the grant of the option, each Option shall vest and become exercisable, cumulatively, in four substantially equal installments on each of the first four anniversaries of the date of the grant of the option, subject to the Optionee’s Continuous Service.  However, no Option granted to a prospective Employee, prospective Non-Employee Director or prospective Consultant may become exercisable prior to the date on which such person commences service.

(b)Exercise Procedures.  An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option, and full payment for the Shares with respect to which the Option is exercised has been received by the Company.  An Option may not be exercised for fractional shares or for less than ten (10) Shares.  As soon as practicable following the exercise of an Option in the manner set forth above, the Company shall issue or cause its transfer agent to issue stock certificates representing the Shares purchased.  Until the issuance of such stock certificates (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Shares notwithstanding the exercise of the Option.  No adjustment will be made for a dividend or other rights for which the record date is prior to the date of the transfer by the Optionee of the consideration for the purchase of the Shares, except as provided in Section 11 of the Plan.  After the Registration Date, the exercise of an Option by any person subject to short-swing trading liability under Section 16(b) of the Exchange Act shall be subject to compliance with all applicable requirements of Rule 16b-3(d) or (e) promulgated under the Exchange Act.

(c)Death of Optionee.  In the event of the death during the Option period of an Optionee who is at the time of his death, or was within the ninety (90) day period immediately prior thereto, an Employee, Non-Employee Director or Consultant, and who was in Continuous Service from the date of the grant of the Option until the date of death or termination, the Option may be exercised, at any time within one (1) year following the date of death, by the Optionee’s estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent of the accrued right to exercise at the time of the termination or death, whichever comes first.

(d)Disability of Optionee.  In the event of the permanent and total disability during the Option period of an optionee who is at the time of such disability, or was within the ninety (90) day period prior thereto, an Employee, Non-Employee Director or Consultant, and who was in Continuous Service from the date of the grant of the Option until the date of disability or termination, the Option may be exercised at any time within one (1) year following the date of disability, but only to the extent of the accrued right to exercise at the time of the termination or

6

disability, whichever comes first, subject to the condition that no option shall be exercised after the expiration of the Option period.

(e)Other Termination of Continuous Service.  If the Continuous Service of an Optionee shall cease for any reason other than permanent and total disability or death, he or she may, but only within ninety (90) days (or such other period of time as is determined by the Committee) after the date his or her Continuous Service ceases, exercise his or her Option to the extent that he or she was entitled to exercise it at the date of such termination of Continuous Service, subject to the condition that no Option shall be exercisable after the expiration of the Option period.

(f)Exercise of Option With Stock After Registration Date.  After the Registration Date, the Committee may permit an Optionee to exercise an Option by delivering shares of the Company’s Common Stock.  If the Optionee is so permitted, the option agreement covering such Option may include provisions authorizing the Optionee to exercise the Option, in whole or in part, by:  (i) delivering whole shares of the Company’s Common Stock previously owned by such Optionee (whether or not acquired through the prior exercise of a stock option) having a fair market value equal to the aggregate option price for the Optioned Shares issuable on exercise of the Option; and/or (ii) directing the Company to withhold from the Shares that would otherwise be issued upon exercise of the Option that number of whole Shares having a fair market value equal to the aggregate option price for the Optioned Shares issuable on exercise of the Option.  Shares of the Company’s Common Stock so delivered or withheld shall be valued at their fair market value at the close of the last business day immediately preceding the date of exercise of the Option, as determined by the Committee, in accordance with the provisions of Section 8(a) of the Plan.  Any balance of the exercise price shall be paid in cash.  Any shares delivered or withheld in accordance with this provision shall not again become available for purposes of the Plan and for Options subsequently granted thereunder.

(g)Tax Withholding.  After the Registration Date, when an Optionee is required to pay to the Company an amount with respect to tax withholding obligations in connection with the exercise of an option granted under the Plan, the optionee may elect prior to the date the amount of such withholding tax is determined (the “Tax Date”) to make such payment, or such increased payment as the Optionee elects to make up to the maximum federal, state and local marginal tax rates, including any related FICA obligation, applicable to the Optionee and the particular transaction, by:  (i) delivering cash; (ii) delivering part or all of the payment in previously owned shares of Common Stock (whether or not acquired through the prior exercise of an Option); and/or (iii) irrevocably directing the Company to withhold from the Shares that would otherwise be issued upon exercise of the Option that number of whole Shares having a fair market value equal to the amount of tax required or elected to be withheld (a “Withholding Election”).  If an Optionee’s Tax Date is deferred beyond the date of exercise and the Optionee makes a Withholding Election, the Optionee will initially receive the full amount of Optioned Shares otherwise issuable upon exercise of the option, but will be unconditionally obligated to surrender to the Company on the Tax Date the number of Shares necessary to satisfy his or her minimum withholding requirements, or such higher payment as he or she may have elected to make, with adjustments to be made in cash after the Tax Date.

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Any withholding of Optioned Shares with respect to taxes arising in connection with the exercise of an Option by any person subject to short swing trading liability under Section 16(b) of the Exchange Act shall satisfy the following conditions:

(i)An advance election to withhold Optioned Shares in settlement of a tax liability must satisfy the requirements of Rule 16b-3(d)(1)(i), regarding participant-directed transactions;

(ii)Absent such an election, the withholding of Optioned Shares to settle a tax liability may occur only during the quarterly window period described in Rule 16b-3(e);

(iii)Absent an advance election or window-period withholding, the Optionee may deliver shares of Common Stock owned prior to the exercise of an Option to settle a tax liability arising upon exercise of the Option, in accordance with Rule 16b-3(f); or

(iv)The delivery of previously acquired shares of Common Stock (but not the withholding of newly acquired Shares) will be allowed where an election under Section 83(b) of the Code accelerates the Tax Date to a day that occurs less than six (6) months after the advance election and is not within the quarterly window period described in Rule 16b-3(e).

Any adverse consequences incurred by an Optionee with respect to the use of shares of Common Stock to pay any part of the option Price or of any tax in connection with the exercise of an option, including without limitation any adverse tax consequences arising as a result of a disqualifying disposition within the meaning of Section 422 of the Code, shall be the sole responsibility of the Optionee.  Shares withheld in accordance with this provision shall not again become available for purposes of the Plan and for Options subsequently granted thereunder.

10.Non-Transferability of Options.  An Option may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent and distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee.

11.Adjustments Upon Changes in Capitalization.  Subject to any required action by the shareholders of the Company, the number of shares subject to the Plan, the Section 162(m) Grant Limit set forth in Section 5(b), the number of Optioned Shares covered by each outstanding Option, and the per share exercise price of each such Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, recapitalization, combination, reclassification, the payment of a stock dividend on the Common Stock or any other increase or decrease in the number of such shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.”  Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive.  Except as expressly provided herein, no issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof

8

shall be made with respect to, the number or price of shares of Common Stock subject to an Option.

The Committee may, if it so determines in the exercise of its sole discretion, also make provision for adjusting the number or class of securities covered by any Option, as well as the price to be paid therefor, in the event that the Company effects one or more reorganizations, recapitalizations, rights offerings, or other increases or reductions of shares of its outstanding Common Stock, and in the event of the Company being consolidated with or merged into any other corporation.

Unless otherwise determined by the Board, upon the dissolution or liquidation of the Company the Options granted under the Plan shall terminate and thereupon become null and void.

Upon any merger or consolidation, if the Company is not the surviving corporation, the Options granted under the Plan shall either be assumed by the new entity or shall terminate in accordance with the provisions of the preceding paragraph.

12.Time of Granting Options.  Unless otherwise specified by the Committee, the date of grant of an Option under the Plan shall be the date on which the Committee makes the determination granting such Option.  Notice of the determination shall be given to each Optionee to whom an Option is so granted within a reasonable time after the date of such grant.

13.Amendment and Termination of the Plan.  The Board may amend or terminate the Plan from time to time in such respects as the Board may deem advisable, except that, without approval of the shareholders of the Company, no such revision or amendment shall change the number of Shares subject to the Plan or change the designation of the class of employees eligible to receive Options.  Any such amendment or termination of the Plan shall not affect Options already granted, and such Options shall remain in full force and effect as if the Plan had not been amended or terminated.

14.Conditions Upon Issuance of Shares.  Shares shall not be issued with respect to an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance.  As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law.

15.Reservation of Shares.  During the term of this Plan the Company will at all times reserve and keep available the number of Shares as shall be sufficient to satisfy the requirements of the Plan.  Inability of the Company to obtain from any regulatory body having jurisdiction and authority deemed by the Company’s counsel to be necessary to the lawful issuance and sale of

9

any Shares hereunder shall relieve the Company of any liability in respect of the nonissuance or sale of such Shares as to which such requisite authority shall not have been obtained.

16.Information to Optionee.  During the term of any option granted under the Plan, the Company shall provide or otherwise make available to each Optionee a copy of its financial statements at least annually.

17.Option Agreement.  Options granted under the Plan shall be evidenced by Option Agreements.

18.Shareholder Approval.  The Plan shall be subject to approval by the shareholders of the Company within twelve (12) months before or after the Plan is adopted.  Any option granted before shareholder approval is obtained and any exercise of such option must be rescinded if such shareholder approval is not obtained within twelve (12) months after the Plan is adopted.  Shares issued upon the exercise of such options shall not be counted in determining whether such approval is obtained.  Shareholder approval of the Plan and any amendments thereto requiring shareholder approval shall be by the affirmative vote of the holders of a majority of the capital stock of the Company present or represented and entitled to vote at a duly held meeting or by the written consent of the holders of a majority of the outstanding capital stock of the Company entitled to vote.

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EX-10.18

Exhibit 10.18

ZORAN CORPORATION

1995 OUTSIDE DIRECTORS STOCK OPTION PLAN

(As Amended Through April 21, 2002)

1.Establishment, Purpose and Term of Plan.

1.1Establishment.  The Zoran Corporation 1995 Outside Directors Stock Option Plan (the “Plan”) is hereby established effective as of the effective date of the initial registration by the Company of its Stock under Section 12 of the Exchange Act (the “Effective Date”).

1.2Purpose.  The purpose of the Plan is to advance the interests of the Participating Company Group and its stockholders by providing an incentive to attract and retain highly qualified persons to serve as Outside Directors of the Company and by creating additional incentive for Outside Directors to promote the growth and profitability of the Participating Company Group.

1.3Term of Plan.  The Plan shall continue in effect until the earlier of its termination by the Board or the date on which all of the shares of Stock available for issuance under the Plan have been issued and all restrictions on such shares under the terms of the Plan and the agreements evidencing Options granted under the Plan have lapsed.  However, all Options shall be granted, if at all, within ten (10) years from the Effective Date.

2.Definitions and Construction.

2.1Definitions.  Whenever used herein, the following terms shall have their respective meanings set forth below:

(a)“Board” means the Board of Directors of the Company.  If one or more Committees have been appointed by the Board to administer the Plan, “Board” also means such Committee(s).

(b)“Code” means the Internal Revenue Code of 1986, as amended, and any applicable regulations promulgated thereunder.

(c)“Committee” means a committee of the Board duly appointed to administer the Plan and having such powers as shall be specified by the Board.  Unless the powers of the Committee have been specifically limited, the Committee shall have all of the powers of the Board granted herein, including, without limitation, the power to amend or terminate the Plan at any time, subject to the terms of the Plan and any applicable limitations imposed by law.

(d)“Company” means Zoran Corporation, a Delaware corporation, or any successor corporation thereto.

(e)“Consultant” means any person, including an advisor, engaged by a Participating Company to render services other than as an Employee or a Director.

(f)“Director” means a member of the Board or the board of directors of any other Participating Company.

(g)“Employee” means any person treated as an employee (including an officer or a Director who is also treated as an employee) in the records of a Participating Company; provided, however, that neither service as a Director nor payment of a director’s fee shall be sufficient to constitute employment for purposes of the Plan.

(h)“Exchange Act” means the Securities Exchange Act of 1934, as amended.

(i)“Fair Market Value” means, as of any date, if there is then a public market for the Stock, the closing price of the Stock (or the mean of the closing bid and asked prices of the Stock if the Stock is so reported instead) as reported on the National Association of Securities Dealers Automated Quotation (“NASDAQ”) System, the NASDAQ National Market System or such other national or regional securities exchange or market system constituting the primary market for the Stock.  If the relevant date does not fall on a day on which the Stock is trading on NASDAQ, the NASDAQ National Market System or other national or regional securities exchange or market system, the date on which the Fair Market Value shall be established shall be the last day on which the Stock was so traded prior to the relevant date.  If there is then no public market for the Stock, the Fair Market Value on any relevant date shall be as determined by the Board without regard to any restriction other than a restriction which, by its terms, will never lapse.

(j)“Option” means a right to purchase Stock (subject to adjustment as provided in Section 4.2) pursuant to the terms and condition of the Plan.

(k)“Optionee” means a person who has been granted one or more Options.

(l)“Option Agreement” means a written agreement between the Company and an Optionee setting forth the terms, conditions and restrictions of the Option granted to the Optionee.

(m)“Outside Director” means a Director of the Company who is not an Employee.

(n)“Parent Corporation” means any present or future “parent corporation” of the Company, as defined in Section 424(e) of the Code.

(o)“Participating Company” means the Company or any Parent Corporation or Subsidiary Corporation.

(p)“Participating Company Group” means, at any point in time, all corporations collectively which are then Participating Companies.

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(q)“Rule 16b–3” means Rule 16b–3 as promulgated under the Exchange Act, as amended from time to time, or any successor rule or regulation.

(r)“Service” means the Optionee’s service with the Participating Company Group, whether in the capacity of an Employee, a Director or a Consultant.  The Optionee’s Service shall not be deemed to have terminated merely because of a change in the capacity in which the Optionee renders Service to the Participating Company Group or a change in the Participating Company for which the Optionee renders such Service, provided that there is no interruption or termination of the Optionee’s Service.  The Optionee’s Service shall be deemed to have terminated either upon an actual termination of Service or upon the corporation for which the Optionee performs Service ceasing to be a Participating Company.

(s)“Stock” means the common stock, par value $0.001, of the Company, as adjusted from time to time in accordance with Section 4.2.

(t)“Subsidiary Corporation” means any present or future “subsidiary corporation” of the Company, as defined in Section 424(f) of the Code.

2.2Construction.  Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of the Plan.  Except when otherwise indicated by the context, the singular shall include the plural, the plural shall include the singular, and use of the term “or” shall include the conjunctive as well as the disjunctive.

3.Administration.

3.1Administration by the Board.  The Plan shall be administered by the Board, including any duly appointed Committee of the Board.  All questions of interpretation of the Plan or of any Option shall be determined by the Board, and such determinations shall be final and binding upon all persons having an interest in the Plan or such Option.  Any officer of a Participating Company shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, determination or election which is the responsibility of or which is allocated to the Company herein, provided the officer has apparent authority with respect to such matter, right, obligation, determination or election.

3.2Limitations on Authority of the Board.  Notwithstanding any other provision herein to the contrary, the Board shall have no authority, discretion, or power to select the Outside Directors who will receive Options, to set the exercise price of the Options, to determine the number of shares of Stock to be subject to an Option or the time at which an Option shall be granted, to establish the duration of an Option, or to alter any other terms or conditions specified in the Plan, except in the sense of administering the Plan subject to the provisions of the Plan.

4.Shares Subject to Plan.

4.1Maximum Number of Shares Issuable.  Subject to adjustment as provided in Section 4.2, the maximum aggregate number of shares of Stock that may be issued under the Plan shall be three hundred fifty thousand (350,000) and shall consist of authorized but unissued shares or reacquired shares of Stock or any combination thereof.  If an outstanding Option for any reason expires or is terminated or canceled or shares of Stock acquired, subject to

3

repurchase, upon the exercise of an Option are repurchased by the Company, the shares of Stock allocable to the unexercised portion of such Option, or such repurchased shares of Stock, shall again be available for issuance under the Plan.

4.2Adjustments for Changes in Capital Structure.  In the event of any stock dividend, stock split, reverse stock split, recapitalization, combination, reclassification or similar change in the capital structure of the Company, appropriate adjustments shall be made in the number and class of shares subject to the Plan, to the “Initial Option” and “Annual Option” (as defined in Section 6.1), and to any outstanding Options, and in the exercise price of any outstanding Options.  If a majority of the shares which are of the same class as the shares that are subject to outstanding Options are exchanged for, converted into, or otherwise become (whether or not pursuant to an Ownership Change Event as defined in Section 8.1) shares of another corporation (the “New Shares”), the Board may unilaterally amend the outstanding Options to provide that such Options are exercisable for New Shares.  In the event of any such amendment, the number of shares subject to, and the exercise price of, the outstanding Options shall be adjusted in a fair and equitable manner as determined by the Board, in its sole discretion.  Notwithstanding the foregoing, any fractional share resulting from an adjustment pursuant to this Section 4.2 shall be rounded down to the nearest whole number, and in no event may the exercise price of any Option be decreased to an amount less than the par value, if any, of the stock subject to the Option.

5.Eligibility and Type of Options.

5.1Persons Eligible for Options.  An Option shall be granted only to a person who, at the time of grant, is an Outside Director.

5.2Options Authorized.  Options shall be nonstatutory stock options; that is, options which are not treated as incentive stock options within the meaning of Section 422(b) of the Code.

6.Terms and Conditions of Options.  Options shall be evidenced by Option Agreements specifying the number of shares of Stock covered thereby, in such form as the Board shall from time to time establish.  Option Agreements may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions:

6.1Automatic Grant of Options.  Subject to execution by an Outside Director of the appropriate Option Agreement, Options shall be granted automatically and without further action of the Board, as follows:

(a)Initial Option.  Each person who is (i) an Outside Director on the Effective Date, or (ii) first elected or appointed as an Outside Director after the Effective Date shall be granted an Option to purchase twenty thousand (20,000) shares of Stock on the Effective Date or the date of such initial election or appointment, respectively (an “Initial Option”).  Notwithstanding anything herein to the contrary, a Director of the Company who previously did not qualify as an Outside Director shall not receive an Initial Option in the event that such Director subsequently becomes an Outside Director.

4

(b)Annual Option.  Each Outside Director (including any Director of the Company who previously did not qualify as an Outside Director but who subsequently becomes an Outside Director) shall be granted, on the date immediately following the date of each annual meeting of the stockholders of the Company (an “Annual Meeting”) following which such person remains an Outside Director, an Option to purchase ten thousand (10,000) shares of Stock (an “Annual Option”).  Notwithstanding the foregoing, an Outside Director who has not served continuously as a Director of the Company for at least six (6) months as of the date immediately following such Annual Meeting shall not receive an Annual Option on such date.

(c)Right to Decline Option.  Notwithstanding the foregoing, any person may elect not to receive an Option by delivering written notice of such election to the Board no later than the day prior to the date such Option would otherwise be granted.  A person so declining an Option shall receive no payment or other consideration in lieu of such declined Option.  A person who has declined an Option may revoke such election by delivering written notice of such revocation to the Board no later than the day prior to the date such Option would be granted pursuant to Section 6.1(a) or (b), as the case may be.

6.2Exercise Price.  The exercise price per share of Stock subject to an Option shall be the Fair Market Value of a share of Stock on the date the Option is granted.

6.3Exercise Period.  Each Option shall terminate and cease to be exercisable on the date ten (10) years after the date of grant of the Option unless earlier terminated pursuant to the terms of the Plan or the Option Agreement.

6.4Right to Exercise Options.

(a)Initial Option.  Except as otherwise provided in the Plan or in the Option Agreement, an Initial Option shall (i) first become exercisable on the date which is one (1) year after the date on which the Initial Option was granted (the “Initial Option Vesting Date”); and (ii) be exercisable on and after the Initial Option Vesting Date and prior to the termination thereof in an amount equal to the number of shares of Stock initially subject to the Initial Option multiplied by the Vested Ratio as set forth below, less the number of shares previously acquired upon exercise thereof.  The Vested Ratio described in the preceding sentence shall be determined as follows:

	Vested Ratio
Prior to Initial Option Vesting Date	0
On Initial Option Vesting Date, provided the Optionee’s Service is continuous from the date of grant of the Initial Option until the Initial Option Vesting Date	1/4
Plus
For each full year of the Optionee’s continuous Service from the Initial Option Vesting Date until the Vested Ratio equals 1/1, an additional	1/4

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(b)Annual Option.  Except as otherwise provided in the Plan or in the Option Agreement, an Annual Option shall first become exercisable on the date which is one (1) year after the date on which the Annual Option was granted (the “Annual Option Vesting Date”), provided the Optionee’s Service is continuous from the date of grant of the Annual Option until the Annual Option Vesting Date.  The Annual Option shall be exercisable on and after the Annual Option Vesting Date and prior to the termination thereof in an amount equal to the number of shares of Stock initially subject to the Annual Option, less the number of shares previously acquired upon exercise thereof.

6.5Payment of Exercise Price.

(a)Forms of Consideration Authorized.  Except as otherwise provided below, payment of the exercise price for the number of shares of Stock being purchased pursuant to any Option shall be made (i) in cash, by check, or cash equivalent, (ii) by tender to the Company of shares of Stock owned by the Optionee having a Fair Market Value not less than the exercise price, (iii) by the assignment of the proceeds of a sale or loan with respect to some or all of the shares being acquired upon the exercise of the Option (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System) (a “Cashless Exercise”), or (iv) by any combination thereof.

(b)Tender of Stock.  Notwithstanding the foregoing, an Option may not be exercised by tender to the Company of shares of Stock to the extent such tender of Stock would constitute a violation of the provisions of any law, regulation or agreement restricting the redemption of the Company’s stock.  Unless otherwise provided by the Board, an Option may not be exercised by tender to the Company of shares of Stock unless such shares either have been owned by the Optionee for more than six (6) months or were not acquired, directly or indirectly, from the Company.

(c)Cashless Exercise.  The Company reserves, at any and all times, the right, in the Company’s sole and absolute discretion, to establish, decline to approve or terminate any program or procedures for the exercise of Options by means of a Cashless Exercise.

6.6Tax Withholding.  The Company shall have the right, but not the obligation, to deduct from the shares of Stock issuable upon the exercise of an Option, or to accept from the Optionee the tender of, a number of whole shares of Stock having a Fair Market Value equal to all or any part of the federal, state, local and foreign taxes, if any, required by law to be withheld by the Participating Company Group with respect to such Option or the shares acquired upon exercise thereof.  Alternatively or in addition, in its sole discretion, the Company shall have the right to require the Optionee to make adequate provision for any such tax withholding obligations of the Participating Company Group arising in connection with the Option or the shares acquired upon exercise thereof.  The Company shall have no obligation to deliver shares of Stock until the Participating Company Group’s tax withholding obligations have been satisfied.

6

7.Standard Form of Option Agreement.

7.1Initial Option.  Unless otherwise provided for by the Board at the time an Initial Option is granted, each Initial Option shall comply with and be subject to the terms and conditions set forth in the form of Nonstatutory Stock Option Agreement for Outside Directors (Initial Option) adopted by the Board concurrently with its adoption of the Plan and as amended from time to time.

7.2Annual Option.  Unless otherwise provided for by the Board at the time an Annual Option is granted, each Annual Option shall comply with and be subject to the terms and conditions set forth in the form of Nonstatutory Stock Option Agreement for Outside Directors (Annual Option) adopted by the Board concurrently with its adoption of the Plan and as amended from time to time.

7.3Authority to Vary Terms.  Subject to the limitations set forth in Section 3.2, the Board shall have the authority from time to time to vary the terms of any of the standard forms of Option Agreement described in this Section 7 either in connection with the grant or amendment of an individual Option or in connection with the authorization of a new standard form or forms; provided, however, that the terms and conditions of any such new, revised or amended standard form or forms of Option Agreement are not inconsistent with the terms of the Plan.  Such authority shall include, but not by way of limitation, the authority to grant Options which are immediately exercisable subject to the Company’s right to repurchase any unvested shares of Stock acquired by the Optionee upon the exercise of an Option in the event such Optionee’s Service is terminated for any reason.  In no event, however, shall the Board be permitted to vary the terms of any standard form of Option Agreement if such change would cause the Plan to cease to qualify as a formula plan pursuant to Rule 16b–3 at any such time as any class of equity security of the Company is registered pursuant to Section 12 of the Exchange Act.

8.Transfer of Control.

8.1Definitions.

(a)An “Ownership Change Event” shall be deemed to have occurred if any of the following occurs with respect to the Company:

(i)the direct or indirect sale or exchange in a single or series of related transactions by the stockholders of the Company of more than fifty percent (50%) of the voting stock of the Company;

(ii)a merger or consolidation in which the Company is a party;

(iii)the sale, exchange, or transfer of all or substantially all of the assets of the Company; or

(iv)a liquidation or dissolution of the Company.

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(b)A “Transfer of Control” shall mean an Ownership Change Event or a series of related Ownership Change Events (collectively, the “Transaction”) wherein the stockholders of the Company immediately before the Transaction do not retain immediately after the Transaction, in substantially the same proportions as their ownership of shares of the Company’s voting stock immediately before the Transaction, direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding voting stock of the Company or the corporation or corporations to which the assets of the Company were transferred (the “Transferee Corporation(s)”), as the case may be.  For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting stock of one or more corporations which, as a result of the Transaction, own the Company or the Transferee Corporation(s), as the case may be, either directly or through one or more subsidiary corporations.  The Board shall have the right to determine whether multiple sales or exchanges of the voting stock of the Company or multiple Ownership Change Events are related, and its determination shall be final, binding and conclusive.

8.2Affect of Transfer of Control on Options.  In the event of a Transfer of Control, the surviving, continuing, successor, or purchasing corporation or parent corporation thereof, as the case may be (the “Acquiring Corporation”), may either assume the Company’s rights and obligations under outstanding Options or substitute for outstanding Options substantially equivalent options for the Acquiring Corporation’s stock.  In the event the Acquiring Corporation elects not to assume or substitute for outstanding Options in connection with a Transfer of Control, any unexercisable or unvested portion of the outstanding Options shall be immediately exercisable and vested in full as of the date ten (10) days prior to the date of the Transfer of Control.  The exercise or vesting any Option that was permissible solely by reason of this Section 8.2 shall be conditioned upon the consummation of the Transfer of Control.  Any Options which are neither assumed or substituted for by the Acquiring Corporation in connection with the Transfer of Control nor exercised as of the date of the Transfer of Control shall terminate and cease to be outstanding effective as of the date of the Transfer of Control.  Notwithstanding the foregoing, shares acquired upon exercise of an Option prior to the Transfer of Control and any consideration received pursuant to the Transfer of Control with respect to such shares shall continue to be subject to all applicable provisions of the Option Agreement evidencing such Option except as otherwise provided in such Option Agreement.  Furthermore, notwithstanding the foregoing, if the corporation the stock of which is subject to the outstanding Options immediately prior to an Ownership Change Event described in Section 8.1(a)(i) constituting a Transfer of Control is the surviving or continuing corporation and immediately after such Ownership Change Event less than fifty percent (50%) of the total combined voting power of its voting stock is held by another corporation or by other corporations that are members of an affiliated group within the meaning of Section 1504(a) of the Code without regard to the provisions of Section 1504(b) of the Code, the outstanding Options shall not terminate.

9.Nontransferability of Options.  During the lifetime of the Optionee, an Option shall be exercisable only by the Optionee or the Optionee’s guardian or legal representative.  No Option shall be assignable or transferable by the Optionee, except by will or by the laws of descent and distribution.

8

10.Indemnification.  In addition to such other rights of indemnification as they may have as members of the Board or officers or employees of the Participating Company Group, members of the Board and any officers or employees of the Participating Company Group to whom authority to act for the Board is delegated shall be indemnified by the Company against all reasonable expenses, including attorneys’ fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan, or any right granted hereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such person is liable for gross negligence, bad faith or intentional misconduct in duties; provided, however, that within sixty (60) days after the institution of such action, suit or proceeding, such person shall offer to the Company, in writing, the opportunity at its own expense to handle and defend the same.

11.Termination or Amendment of Plan.  The Board may terminate or amend the Plan at any time.  However, subject to changes in the law or other legal requirements that would permit otherwise, without the approval of the Company’s stockholders, there shall be (a) no increase in the total number of shares of Stock that may be issued under the Plan (except by operation of the provisions of Section 4.2), and (b) no expansion in the class of persons eligible to receive Options.  Furthermore, to the extent required by Rule 16b–3, provisions of the Plan addressing eligibility to participate in the Plan and the amount, price and timing of Options shall not be amended more than once every six (6) months, other than to comport with changes in the Code, the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder.  In any event, no termination or amendment of the Plan may adversely affect any then outstanding Option, or any unexercised portion thereof, without the consent of the Optionee, unless such termination or amendment is necessary to comply with any applicable law or government regulation.

IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies that the foregoing sets forth the Zoran Corporation 1995 Outside Directors Stock Option Plan was duly adopted and amended by the Board through April 21, 2002.

Secretary

9

EX-10.19

Exhibit 10.19

ZORAN CORPORATION
AMENDMENT OF
NONSTATUTORY STOCK OPTION AGREEMENT FOR OUTSIDE DIRECTORS

THIS AMENDMENT OF NONSTATUTORY STOCK OPTION AGREEMENT FOR OUTSIDE DIRECTORS is made by and between Zoran Corporation, a Delaware corporation (the “Company”), and                       (the “Optionee”).

RECITALS

WHEREAS, on                      , the Company granted the Optionee an option to purchase               shares of the Company’s common stock at a price of $           per share (the “Option”), which was evidenced by a form of Nonstatutory Stock Option Agreement for Outside Directors (the “Option Agreement”);

WHEREAS, the Option Agreement currently provides for a one year post-termination exercise period following the Optionee’s termination of service if the termination was due to the Optionee’s death or Disability (as defined in the Option Agreement) and a 3 month post-termination exercise period following the Optionee’s termination of service for terminations due to other reasons; and

WHEREAS, the Company and the Optionee wish to amend the Option to provide that if the Optionee ceases to be a director due to the Optionee’s retirement, or if, after the Optionee has continuously served on the Board for two years, the Optionee’s service terminates because of the Optionee’s death or disability, the Option, to the extent unexercised and exercisable, shall be exercisable at any time prior to the Option Expiration Date (as defined in the Option Agreement) pursuant to the terms and conditions set forth below;

AGREEMENT

NOW, THEREFORE, the Company and the Optionee agree as follows:

1.Effective Date.  This Amendment is effective as of                  , 2001.

2.Exercise Period Upon Retirement.  Notwithstanding any provisions of the Option Agreement to the contrary, the Option Agreement shall be amended as follows:

a.Section 7.1(a) is restated in its entirety to read as follows:

“(a) Disability. If the Optionee’s Service with the Participating Company Group is terminated because of the Disability of the Optionee, the Option, to the extent unexercised and exercisable on the date on which the Optionee’s Service terminated, may be exercised by the Optionee (or the Optionee’s guardian or legal representative) at any time prior to the expiration of one (1) year after the date on which the Optionee’s Service terminated, but in any event no later than the Option Expiration Date; provided, however, that if the Optionee has served continuously on the Board for at least 2 years prior to such termination of Service, the Option,

to the extent unexercised and exercisable on the date on which the Optionee’s Service terminated, may be exercised by the Optionee (or the Optionee’s guardian or legal representative) at any time prior to the Option Expiration Date.”

b.Section 7.1(b) is restated in its entirety to read as follows:

“(b) Death. If the Optionee’s Service with the Participating Company Group is terminated because of the death of the Optionee, the Option, to the extent unexercised and exercisable on the date on which the Optionee’s Service terminated, may be exercised by the Optionee (or the Optionee’s legal representative or other person who acquired the right to exercise the Option by reason of the Optionee’s death) at any time prior to the expiration of one (1) year after the date on which the Optionee’s Service terminated, but in any event no later than the Option Expiration Date; provided, however, that if the Optionee has served continuously on the Board for at least 2 years prior to such termination of Service, the Option, to the extent unexercised and exercisable on the date on which the Optionee’s Service terminated, may be exercised by the Optionee (or the Optionee’s legal representative or other person who acquired the right to exercise the Option by reason of the Optionee’s death) at any time prior to the Option Expiration Date. The Optionee’s Service shall be deemed to have terminated on account of death if the Optionee dies within three (3) months after the Optionee’s termination of Service.”

c.Section 7.1 (c) is restated in its entirety to read as follows:

“(c) Retirement. If the Optionee’s Service with the Participating Company Group is terminated because of the “Retirement” (as defined below) of the Optionee, the Option, to the extent unexercised and exercisable on the date on which the Optionee’s Service terminated, may be exercised at any time prior to the Option Expiration Date. For purposes of this Option Agreement, “Retirement” shall mean a termination of the Optionee’s Service as a result of either of the following, provided that the Optionee has served continuously on the Board for at least 2 years: (i) the Optionee’s resignation from the Board or (ii) the expiration of the Optionee’s term as a Director of the Company after the Optionee has declined to stand for reelection.”

d.Section 7.1(c) shall be redesignated as Section 7.1(d) of the Option Agreement and shall read as follows:

“(d) Other Termination of Service. If the Optionee’s Service with the Participating Company Group terminates for any reason, except Disability, death or Retirement, the Option, to the extent unexercised and exercisable by the Optionee on the date on which the Optionee’s Service terminated, may be exercised by the Optionee within three (3) months after the date on which the Optionee’s Service terminated, but in any event no later than the Option Expiration Date.”

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3.Continuation of Other Terms.  Except as set forth herein, all other terms and conditions of the Option Agreement shall remain in full force and effect.

4.Applicable Law.  This Agreement shall be governed 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 the State of California.

ZORAN CORPORATION

By:

Title:

OPTIONEE:

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EX-10.20

Exhibit 10.20

LEASE

BETWEEN

Arturo J. Gutierrez and John A. Cataldo,

Trustees of Auburn-Oxford Trust

u/d/t dated October 19, 1983

and recorded with the

Middlesex South Registry of the Land Court

as Document No. 652932

AND

Zoran Corporation,

a Delaware corporation.

FOR

 54,736 Square Feet

within One Wall Street

Burlington, Massachusetts

I N D E X

ARTICLE 1 - REFERENCE DATA		4
1.1	Subject Referred To	4
1.2	Exhibits	6
ARTICLE 2 - PREMISES AND TERM:		7
2.1	Premises	7
2.2	Term	7
ARTICLE 3 - CONSTRUCTION:		8
3.1	Initial Construction	8
3.2	Preparation of Premises for Occupancy	8
3.3	General Provisions Applicable to Construction	9
3.4	Representatives	10
3.5	Arbitration by Architects	10
3.6	Warranty of Landlord’s Work	10
ARTICLE 4 - RENT:		11
4.1	Rent	11
4.2	Operating Cost Escalation	11
4.3	Payments	19
ARTICLE 5 - LANDLORD’S COVENANTS:		19
5.1	Landlord’s Covenants during the Term	19
5.2	Interruptions	22
ARTICLE 6 - TENANT’S COVENANTS:		23
6.1	Tenant’s Covenants during the Term	23
ARTICLE 7 - CASUALTY AND TAKING:		31
7.1	Casualty and Taking	31
7.2	Reservation of Award	31
7.3	Additional Casualty Provisions	32

2

I N D E X

(Continued)

ARTICLE 8 - RIGHTS OF MORTGAGEE:		33
8.1	Priority of Lease	33
8.2	Limitation on Mortgagee’s Liability	33
8.3	Mortgagee’s Election	33
8.4	No Prepayment or Modification, etc.	33
8.5	No Release or Termination	34
8.6	Continuing Offer	34
8.7	Mortgagee’s Approval	34
8.8	Submittal of Financial Statement	35
ARTICLE 9 - DEFAULT:		35
9.1	Events of Default	35
9.2	Tenant’s Obligations After Termination	36
ARTICLE 10 - MISCELLANEOUS:		37
10.1	Titles	37
10.2	Notice of Lease	37
10.3	Relocation	37
10.4	Notices from One Party to the Other	37
10.5	Bind and Inure	38
10.6	No Surrender	38
10.7	No Waiver, etc.	38
10.8	No Accord and Satisfaction	38
10.9	Cumulative Remedies	38
10.10	Partial Invalidity	39
10.11	Landlord’s Right to Cure	39
10.12	Estoppel Certificate	40
10.13	Waiver of Subrogation	40
10.14	Brokerage	40
10.15	Covenants Independent	40
10.16	Access	40
10.17	Entire Agreement	41
10.18	Governing Law	41
10.19	Additional Representations	41
10.20	Signage	41
ARTICLE 11 - SECURITY:		42

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Date of Lease Execution:  February  8, 2007

REFERENCE DATA

1.1           SUBJECTS REFERRED TO:

Each reference in this Lease to any of the following subjects shall incorporate the data stated for that subject in this Section 1.1.

Landlord:	Arturo J. Gutierrez and John A. Cataldo,
	as Trustees of Auburn-Oxford Trust u/d/t
	dated October 19, 1983 and recorded with
	Middlesex South Registry District of the
	Land Court as Document No. 652932
Managing Agent:	The Gutierrez Company
Landlord’s and Managing Agent’s	Burlington Office Park
Address:	One Wall Street
	Burlington, Massachusetts 01803
Landlord’s Representative:	John A. Cataldo
Tenant:	Zoran Corporation, a Delaware corporation
Tenant’s Address (for Notice &
Billing):	1390 Kifer Road
	Sunyvale, CA 94086
	Attn: Shungo Goto, Corporate Controller
Tenant’s Representative:	Lori Johnson, Senior HR  Director
Building:	One Wall Street, Burlington, Massachusetts
Premises:	Entire third Floor and a portion of fourth
	Floor, as depicted on Exhibit A and subject
	to expansion under Exhibit L, and subject to
	the exclusions set forth in Section 2.1.
Rentable Floor Area of Tenant’s Premises:	54,736 Rentable Square Feet.
Total Rentable Floor Area of the
Building:	192,000 Rentable Square Feet
Scheduled Term Commencement Date:	August 1, 2007

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Term Commencement Date:	Per Section 2.2.
Outside Delivery Date:	Per Section 3.2
Term Expiration Date:	The last day of the tenth (10th) Year (as
	defined below) following the Term
	Commencement Date, subject to extension
	in accordance with Exhibit F or earlier
	termination pursuant to Exhibit K.
Term:	The “Initial Term” shall mean the period of
	approximately ten (10) years commencing
	on the Term Commencement Date and
	ending on the original Term Expiration
	Date.  The Initial Term is subject to
	extension in accordance with Exhibit F or
	earlier termination pursuant to Exhibit K.
	The Initial Term, as the same may be
	extended or earlier terminated herein, is
	referred to as the “Term”.
Rent Commencement Date:	The date that is the later of (i) November 1,
	2007, or (ii) the date ninety (90) days after
	the Term Commencement Date.
Fixed Rent (excludes tenant electricity):	Years 1 - 3: $1,231,560.00/Year;
	$102,630.00/Month;
	$22.50/RSF
	(subject, however, to Section 4.1)
	Years 4-7: $1,286,296.00/Year;
	$107,191.33/Month;
	$23.50/RSF
	Years 8-10: $1,341,032.00/Year;
	$111,752.67/Month;
	$24.50/RSF
	As used herein, the first “Year” shall
	commence on the Term Commencement
	Date and (if such date does not occur on the
	first day of the month) shall include the
	balance of any partial calendar month in
	which the first anniversary of the Term
	Commencement Date occurs, and each

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	subsequent Year shall mean each successive
	twelve (12) calendar month period thereafter.
Estimated Cost of Electrical Service to
Tenant’s Space (Excluded from Fixed Rent):	$1.00 per rentable square foot  -
	Payable by Tenant pursuant to Exhibit D,
	Paragraph IX
Base Year Operating Costs:	The amount of Operating Costs for the
	calendar year ending December 31, 2008
	(the “Base Year”), grossed up to reflect
	95% occupancy in accordance with
	Section 4.2.
Security Deposit:	$102,630.00 per Article 11 hereof.
Guarantor:	None
Permitted Uses:	General Office, Computer Laboratory,
	Research and Development, and shipping
	and receiving, and other lawful uses that are
	ancillary and accessory thereto
Real Estate Broker(s):	Richards, Barry Joyce & Partners, LLC and
	Studley, Inc.
Public Liability Insurance -
Bodily Injury and Property Damage:	Each Occurrence: $1,000,000
	Aggregate: $2,000,000
Special Provisions:	Option to Extend (per Exhibit F)
	Rent Abatement (per Section 4.1)
	Right to Terminate (per Exhibit K)
	Right of First Refusal (per Exhibit L)

1.2           EXHIBITS

The Exhibits listed below in this Section are incorporated in this Lease by reference and are to be construed as part of this Lease:

EXHIBIT A	Plan Showing Tenant’s Space
EXHIBIT B	Estoppel Certificate
EXHIBIT C	Preliminary Plans and Outline Specifications of Landlord’s Work
EXHIBIT C-1	List of Landlord’s Work (Base Building)
EXHIBIT C-2	Additional Work

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EXHIBIT C-3	Zoran Relocation Project Schedule
EXHIBIT D	Landlord’s Services
EXHIBIT E	Rules and Regulations
EXHIBIT F	Option to Extend
EXHIBIT G	Notice of Lease
EXHIBIT H	Definition of Market Rent
EXHIBIT I	Letter of Credit Form
EXHIBIT J	Form of SNDA
EXHIBIT K	Right to Terminate
EXHIBIT L	Right of First Refusal

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ARTICLE 2

PREMISES AND TERM

2.1           PREMISES

Subject to and with the benefit of the provisions of this Lease, Landlord hereby leases to Tenant, and Tenant leases from Landlord, the Premises.  The Premises exclude the exterior faces of exterior walls, the common facilities area and building service fixtures and equipment serving exclusively or in common other parts of the Building.

Tenant shall have, as appurtenant to the Premises, the right to use in common with others entitled thereto, subject to reasonable rules of general applicability to tenants of the Building from time to time made by Landlord of which Tenant is given notice (provided such reasonable rules do not materially increase Tenant’s obligations or diminish Tenant’s rights under this Lease):  (a) the common areas and  facilities included in the Building or on the parcel of land (the “Lot”) on which the Building is located, including, without limitation, a fitness center, locker rooms (including shower facilities) and a cafeteria, and within Burlington Office Park I (the “Park”) and all means of access to and from the Premises and the Building to the common areas and facilities, including without limitation the service, loading and parking areas (i.e., having a ratio of approximately 3.0 cars per 1,000 rentable square feet), all sidewalks, roads, driveways and the like, to the extent from time to time designated by Landlord; and (b) the Building service fixtures and equipment serving the Premises.  Without limiting the generality of the foregoing, Tenant may use the internal building fire stairs for access to and from the floors on which the Premises are located and (subject to the provisions of Article 3) may install, at Tenant’s sole cost, security access equipment to permit entry by its employees from the fire stairs into the Premises, subject to Landlord’s reasonable approval.

Landlord reserves the right from time to time, without unreasonable interference with Tenant’s occupancy and use of the Premises or use of the common areas and facilities of the Building and the Park, (a) to install, repair, replace, use, maintain and relocate for service to the Premises and to other parts of the Building or either, building service fixtures and equipment wherever located in the Building, and (b) to alter or relocate any other common facility provided that substitutions are substantially equivalent or better.  Landlord’s exercise of the foregoing rights shall not materially increase Tenant’s obligations or diminish Tenant’s rights hereunder, or materially interfere with Tenant’s parking rights.

2.2           TERM

To have and to hold for a period (the “Term”) commencing two (2) business days after the Premises are Ready for Occupancy as provided in Section 3.2 (said date being hereafter referred to as the “Commencement Date” or the “Term Commencement Date”) and continuing until the Term Expiration Date, unless sooner terminated as provided in Section 3.2, Section 7.1, Article 9, or in Exhibit K, or extended as provided in Exhibit F.  Notwithstanding anything to the contrary contained in this Lease, in no event shall Tenant be obligated to pay Fixed Rent prior to the Rent Commencement Date, even if the Commencement Date has occurred prior to the Scheduled Term Commencement Date.

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ARTICLE 3

CONSTRUCTION

3.1           INITIAL CONSTRUCTION

Landlord shall, at its sole cost and expense, cause (a) certain leasehold improvements to be substantially completed in the Premises in accordance with the preliminary plans and outline specifications, which plans and specifications are attached hereto as Exhibit C and made a part hereof and (b) certain other improvements to be made as set forth in Exhibit C-1 attached hereto and made a part hereof (collectively, all such work under clauses (a) and (b) is referred to herein as “Landlord’s Work”) prior to the Scheduled Term Commencement Date set forth in Section 1.1 hereof.  All of the Landlord’s Work shall be performed by Landlord’s general contractor, Gutierrez Construction Co., Inc. (“GCCI”).  Any additional work beyond the Landlord’s Work (“Additional Work”) requested by Tenant shall be performed by Landlord, at Tenant’s expense, in an amount equal to the incremental additional direct cost to GCCI of the Additional Work (exclusive of any GCCI fees or general conditions) plus a mark-up of six (6%) percent of such direct cost.  In no event shall any Additional Work be a condition of substantial completion of Landlord’s Work as hereafter provided in Section 3.2, to the extent the same would delay the schedule for completing Landlord’s Work.  Landlord acknowledges that (i) Tenant may include one or more of the items of Additional Work listed on Exhibit C-2 attached hereto, (ii) that the same shall not delay the schedule, provided that Landlord is notified in writing on or before the Tenant’s Plan Submission Deadline which item(s) Tenant wishes to include and provides Landlord all relevant necessary information relating thereto prior to such time and (iii) that the same may remain in the Premises at the expiration or earlier termination of the Term.

In connection therewith, ADD Inc. (“Tenant’s Architect”) shall, on Tenant’s behalf and at Tenant’s expense but subject to the allowance set forth below, prepare a set of design development control documents (as described hereafter) (the “Tenant’s Plans”) incorporating the preliminary plans and specifications attached hereto as Exhibit C for Landlord’s review and approval on or before March 19, 2007 (the “Tenant’s Plan Submission Deadline”).  The parties shall review and approve Tenant’s Plans, each acting diligently and in good faith, and shall initial the development control plans upon approval by both parties.  Landlord’s review and approval of Tenant’s Plans shall not be unreasonably withheld, conditioned or delayed, and Landlord shall provide comments on or an approval of Tenant’s Plans within five (5) business days after the date that such Tenant’s Plans are first submitted to Landlord for Landlord’s review and approval and within three (3) business days after the date that any revisions to Tenant’s Plans are submitted to Landlord for Landlord’s review and approval.  Landlord’s failure to provide comments within such time periods shall be deemed Landlord’s approval of Tenant’s Plans.  Landlord hereby agrees to provide Tenant with an allowance equal to $21,500 to be applied by Tenant towards the cost of having Tenant’s Architect prepare and complete the Tenant’s Plans.  Such reimbursement shall be made by Landlord to Tenant within 20 days after receipt of an invoice therefore containing reasonable back-up documentation evidencing same.  Upon final approval of Tenant’s Plans, Landlord shall, at its expense, utilize the final, approved Tenant’s Plans to produce the final set of construction plans and specifications necessary to price the cost of Landlord’s Work (collectively, the “Construction Documents”), which shall be

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consistent in all respects with the final approved Tenant’s Plans.  Landlord shall provide Tenant with copies of the complete set of the Construction Document promptly upon completion thereof for Tenant’s review and approval, and Tenant shall provide any comments on the Construction Documents within five (5) business days after the date that such Construction Documents are first submitted to Tenant for Tenant’s review and approval and within three (3) business days after the date that any revisions to the Construction Documents are submitted to Tenant for Tenant’s review and approval.  Any failure by Tenant to provide comments within such time periods shall be deemed to be a Tenant Delay.  The final, approved Construction Documents shall replace the preliminary set of plans and outline specifications attached hereto as Exhibit C, whereupon said final set of Construction Documents shall be known and referred to hereunder as the “Landlord’s Plans.”  Tenant may thereafter submit change orders to the Landlord’s Plans, which Landlord shall review and approve in accordance with the foregoing procedures (i.e., within five (5) business days for any submission and three (3) business days for any revisions), and Landlord’s response shall advise Tenant of any anticipated cost increases (or decreases in which case an appropriate credit shall be given to Tenant) or Tenant Delay associated with such change order.  Landlord shall not charge any costs to Tenant for the review of plans or management or oversight of the design process.

All Tenant improvements, changes and additions shall be part of the Premises and shall remain therein at the end of the Term, except that Tenant’s business fixtures, equipment and personal property (which shall include, without limitation, Tenant’s demountable partitions, business equipment, and telephone or computer systems, but exclude telephone and computer systems wiring) shall remain the property of Tenant and shall be removed at the expiration of the Term.  Tenant agrees to repair, at its sole cost and expense, any damage to the Premises caused by any such removal by Tenant in accordance with this paragraph.

3.2           PREPARATION OF PREMISES FOR OCCUPANCY

Landlord agrees to use reasonable good faith efforts to have the Premises Ready for Occupancy on or before the Scheduled Term Commencement Date, which shall, however, be extended for a period equal to that of any delays due to (i) Acts of God, (ii) changes in governmental regulations, (iii) casualty, (iv) strike or other such labor difficulties, (v) unusual weather conditions, (vi) unusual scarcity of or inability to obtain supplies, parts or employees to furnish such services, or (vii) other acts reasonably beyond Landlord’s, Tenant’s or GCCI’s (or its subcontractor’s) reasonable control, but in no event shall the term include economic or financing difficulties or failure by GCCI or its subcontractors to perform its obligations in a timely manner except to the extent caused by any of the foregoing (i) — (vii) above (each, a “Force Majeure Delay”), or any Tenant Delay.  Landlord acknowledges its sole responsibility for causing the existing tenant (Cooper) on the 3rd floor to vacate such space in order to perform the Landlord’s Work by the Scheduled Term Commencement Date, and any delay in such tenant’s departure shall not be deemed a Force Majeure Delay.  Landlord shall promptly notify Tenant of the occurrence of any Force Majeure Delay or Tenant Delay.  For purposes of this Lease, a “Tenant Delay” shall mean any one of the following:  (i) changes requested by Tenant to Landlord’s Plans to the extent such changes actually delay the date on which the Premises shall be deemed Ready for Occupancy (as defined below); (ii) Tenant’s failure to comply with any of its obligations under this Lease, including a delay without limitation in providing the

10

Tenant’s Plans to Landlord, provided such failure delays the completion of Landlord’s Work; (iii) a written request by Tenant to stop work, or (iv) the specification of any materials or equipment comprising the Landlord’s Work with lead times that, given the Tenant’s Plan Submission Deadline, make it unreasonable for Landlord to substantially complete Landlord’s Work by the Scheduled Term Commencement Date provided that Landlord notifies Tenant of the expected delay due to such long-lead items in its approval of Tenant’s Plans.

The Premises shall be deemed ready for occupancy (“Ready for Occupancy”) on the earlier of:

(a)the date on which Tenant occupies all of the Premises for its operations for the regular conduct of its business (which shall not be deemed to have occurred by virtue of Tenant’s installation or testing of computers, equipment, furniture, or other personal property); or

(b)the date on which all of the following have occurred:  (i) the Landlord’s Work is substantially completed in compliance with Landlord’s Plans as certified by Landlord’s contractor and architect, except for punch list items which do not interfere with Tenant’s use of the Premises for its operations, and Landlord has obtained a Certificate of Occupancy (temporary or final) for the Premises and has provided Tenant with a copy thereof; provided, however, that if Landlord is unable to substantially complete construction by the Scheduled Term Commencement Date due to any Tenant Delay, then the Premises shall be deemed substantially completed on the date the Premises would have been completed, but for a Tenant Delay, subject to Tenant’s right to dispute the same as hereinafter provided; (ii) Landlord has delivered legal possession of the Premises and the Landlord’s Work to Tenant, with the Building, Premises and exterior areas in good operating condition and free and clear of debris and ready for Tenant’s use and occupancy; (iii) Tenant has had a reasonable period of time (consistent with the periods of time more particularly set forth in the Zoran Relocation Project Schedule on the attached Exhibit C-3) for early access to the Premises prior to the Commencement Date for the purposes set forth in the next grammatical paragraph below; and (iv) Landlord has obtained all approvals and permits from the appropriate governmental authorities required for the legal occupancy of the Premises and the Landlord’s Work.  Landlord and Tenant acknowledge and agree that the schematic plans attached hereto as Exhibit C shall be deemed replaced by final plans and construction documents when finally approved by Landlord and Tenant pursuant to Section 3.1.

During the construction period, Landlord shall hold weekly job meetings with GCCI and Tenant may have one or more representatives present at such meetings.  Tenant (including its contractors, agents or employees) shall have access to the Premises prior to the Commencement Date for purposes of telephone/data cabling, installation of security systems, installation of modular furniture, computer equipment and related data center equipment, wiring, and other purposes reasonably approved by Landlord, provided that (i) Tenant’s contractors, agents or employees work in a harmonious labor relationship with GCCI, (ii) reasonable prior notice is

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given to GCCI (if such entry is not made in accordance with the Zoran Relocation Project Schedule), and (iii) no work, as reasonably determined by Landlord, shall be done or fixtures or equipment installed by Tenant in such manner as to unreasonably interfere with any work being done by or for Landlord on the Premises.  During the period of such entry into the Premises by Tenant prior to the Commencement Date, no Fixed Rent, additional rent or other charges shall accrue or be payable, but otherwise such entry by Tenant shall be subject to all the terms, covenants and conditions contained in this Lease, other than terms that are inapplicable to or inconsistent with a non-exclusive entry into the Premises by Tenant for the foregoing installation and set-up purposes.

If the Premises are not Ready for Occupancy on or before the Outside Delivery Date (as defined below) for whatever reason, Tenant may (i) cancel this Lease at any time thereafter while the Premises are not deemed Ready for Occupancy by giving notice to Landlord of such cancellation which shall be effective ten (10) days after such notice, unless within such ten (10) day period Landlord delivers the Premises Ready for Occupancy, in which event such notice of cancellation shall be rendered null and void and of no further force or effect, or (ii) enforce Landlord’s covenants to construct the Premises in accordance with the terms of this Lease.  In the event the Premises are not Ready for Occupancy on or before the Outside Delivery Date and the parties mutually agree on a revised schedule for Landlord to substantially complete Landlord’s Work by a revised Outside Delivery Date, then Tenant shall also have the right to terminate this Lease if Landlord fails to substantially complete the Premises within such additional period of time.  In the event Landlord’s Work is not substantially completed on or before such date which is thirty (30) days beyond the Scheduled Term Commencement Date (as extended for the period of any Tenant Delay and/or Force Majeure Delay), then the Fixed Rent shall be abated by one day after the Rent Commencement Date for each day of such delay beyond expiration of said thirty (30) day period.  The foregoing rights shall be the Tenant’s sole remedy at law or in equity for Landlord’s failure to have the Premises Ready for Occupancy as required hereunder.

For purposes hereof, the “Outside Delivery Date” shall be deemed to refer to that certain date which is sixty (60) days following the Scheduled Term Commencement Date, as such date may be extended for a period equal to that of (i) any Force Majeure Delay (not to exceed a total of sixty (60) days), or (ii) the number of days of any Tenant Delay.

Landlord and Tenant agree to resolve any disputes under this Article 3 pursuant to the provisions of Article 3.5 hereof, unless the parties agree otherwise.

3.3           GENERAL PROVISIONS APPLICABLE TO CONSTRUCTION

All construction work required or permitted by this Lease, whether by Landlord or by Tenant, shall be done in a good and workmanlike manner and in compliance with all applicable laws and all lawful ordinances, regulations and orders of governmental authority and insurers of the Building.  Either party may inspect the work of the other at reasonable times.  Landlord and Tenant shall perform a walk-through of the Premises at a mutually convenient time prior to the substantial completion date, and Landlord shall promptly thereafter provide Tenant with a draft punchlist for review and comment.  Tenant shall give Landlord notice of any incomplete or defective items in the Landlord’s Work that are observed by Tenant (including, without

12

limitation, punch list items, which shall be added to Landlord’s punchlist) within thirty (30) days after the Commencement Date, and Landlord shall diligently cause such items to be completed within thirty (30) days after such notice.  If Tenant shall not have identified any uncompleted items within thirty (30) days after receipt of a certificate by a licensed architect or registered engineer (as to either, not affiliated with Landlord) stating that all required work has been completed, such certificate shall be conclusive evidence that Landlord has performed all such obligations except for items stated in such certificate to be incomplete or not in conformity with such requirements, and punch list items of which Tenant has notified Landlord and Landlord has not yet completed.  Tenant shall give notice to Landlord of any other incomplete or defective items thereafter observed no later than the end of the standard one-year warranty period for Landlord’s Work under Landlord’s construction contract with GCCI, and after receipt of such notice Landlord shall diligently cause any such items to be corrected in accordance with Section 3.6.

3.4           REPRESENTATIVES

Each party authorizes the other to rely in connection with their respective rights and obligations under this Article 3 upon approval and other actions on the party’s behalf by Landlord’s Representative in the case of Landlord or Tenant’s Representative in the case of Tenant or by any person designated in substitution or addition by notice to the party relying.

3.5        ARBITRATION BY ARCHITECTS

Whenever there is a disagreement between the parties with respect to construction by Landlord of Landlord’s Work, such disagreement shall be definitively determined by the following procedure: Each of Landlord and Tenant shall appoint one (1) architect, such two (2) architects will then (within five (5) days of their appointment) appoint a third architect licensed in the Commonwealth of Massachusetts with not less than ten (10) years experience.  Each architect shall establish within ten (10) days of their appointment the matter in dispute.  In case of any dispute with respect to dollar amounts or lengths of time or dates such as the date of Substantial Completion, the dollar amount or length of time or date shall be the average of the two closest determinations by the three (3) architects, with the determination of the architect which was not closest to another architects’ determination excluded from such calculation.  In case of any dispute not involving dollar amounts or lengths of time or dates (i.e. the approval of plans) the determination by at least two (2) of the three (3) architects shall be required in order to resolve the matter in dispute.  Landlord and Tenant shall each bear the cost of the architect selected by them respectively and shall share equally the cost of the third architect.  During such arbitration period, the parties agree to cooperate with one another so as to proceed with construction and with their respective obligations hereunder in a timely manner.  Each determination under this Section 3.5 shall be binding upon Landlord and Tenant.

3.6WARRANTY OF LANDLORD’S WORK

Notwithstanding anything to the contrary contained in this Lease, Landlord hereby warrants and guarantees, at Landlord’s sole cost and expense, that the Landlord’s Work shall be free from defects in workmanship and materials for a period of one (1) year after the Term

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Commencement Date.  Upon expiration of said one (1) year period, Landlord shall assign to Tenant any and all warranties and guarantees with respect to Landlord’s Work and, to the extent that any such warranties and guarantees are not assignable, Landlord agrees to enforce the same for the benefit of Tenant, at Tenant’s sole cost and expense.  Tenant shall not be responsible to pay for any such warranties of less than one (1) year duration or enforcement by Landlord against its own employees or against Gutierrez Construction Co., Inc., or against any of its other affiliates (including their respective employees).  Landlord agrees to repair, at its sole cost and expense, any latent defects in Landlord’s Work promptly after receipt of notice therefrom from Tenant, provided that such notice from Tenant is received by Landlord within said one (1) year period.  In connection therewith, Tenant shall notify Landlord promptly after it becomes aware of any such defects.  Any repairs or replacements or alterations to Landlord’s Work after said initial one (1) year period shall be chargeable to Tenant in accordance with and subject to the provisions of Section 4.2 hereof.

ARTICLE 4

RENT

4.1           RENT

Tenant agrees to pay, without any offset or reduction whatever, Fixed Rent equal to 1/12th of the annual Fixed Rent set forth in Section 1.1 hereof in equal installments in advance on or before the first day of each calendar month included in the Term; and for any portion of a calendar month at the beginning or end of the Term, at the rate payable for such portion in advance.  The term “Rent” shall at all times be used herein to mean Fixed Rent plus additional rent or other sums of money payable under the Lease (including, without limitation, Section 4.2 hereof and electricity pursuant to Exhibit D, Paragraph IX hereof).

Notwithstanding the foregoing and anything to the contrary in Section 1.1, (a) no monthly Fixed Rent shall be due for the Premises from and after the Term Commencement Date through the day immediately preceding the Rent Commencement Date (the “Free Rent Period”) (b) during the Free Rent Period, Tenant shall pay to Landlord additional rent equal to (i) the costs of electricity used in the Premises under Exhibit D, paragraph IX, during the Free Rent Period, plus (ii) the costs of supplying HVAC and cleaning services to the Premises during the Free Rent Period [as set forth on Exhibit D], currently estimated at $.42/RSF per month for the items referenced in clauses (i) and (ii) above and (c) Tenant’s obligation to pay Fixed Rent shall be phased in at the following rates, regardless of Tenant’s occupancy of space:

Year 1 (for the portion of Year 1 following the Rent Commencement Date):

$900,000/Year; $75,000/Month; $22.50/RFF based on 40,000 RSF

Year 2:                    $1,012,500.00/Year; $84,375.00/Month; $22.50 based on 45,000 RSF

Year 3:                    $1,231,560.00/Year; $102,630.00/Month; $22.50/RSF based on 54,736

If Tenant shall at any time during the Free Rent Period materially default under this

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Lease beyond any applicable notice and cure period, then Tenant’s abatement hereunder shall cease and Tenant shall immediately pay to Landlord all sums abated hereunder.

4.2OPERATING COST ESCALATION

With respect to each Fiscal Year (as defined below) of the Term commencing on or after January 1, 2009, Tenant shall pay to Landlord, as additional rent, Tenant’s share of the Operating Cost Escalation (as defined below), if any, on or before the thirtieth (30th) day following receipt by Tenant of Landlord’s Statement (as defined below).  As soon as practicable after the end of each such Fiscal Year during the Term and after Lease termination, Landlord shall render a statement (“Landlord’s Statement”) in reasonable detail and according to usual accounting practices certified by Landlord and showing for the preceding Fiscal Year or fraction thereof, as the case may be, Landlord’s Operating Costs (as defined below) and Tenant’s share of the Operating Cost Escalation.

“Landlord’s Operating Costs” shall include all commercially reasonable expenses of operating, repairing, and maintaining the Building and the Lot, including without limitation:  real estate taxes on the Building and Lot; installments and interest on assessments levied on the Building or Lot for public betterments or public improvements; expenses of any proceedings for abatement of taxes and assessments with respect to any Fiscal Year or fraction of a Fiscal Year; premiums for insurance in commercially reasonable amounts, coverages, and deductibles; compensation and all fringe benefits, workmen’s compensation, insurance premiums and payroll taxes paid by Landlord to, for or with respect to all persons engaged in the operating, maintaining, or cleaning of the Building and Lot; water, sewer, gas, telephone and the electricity to operate the base building heating, ventilating, air conditioning systems, elevators and parking lot lighting, and other utility charges not billed directly or to tenants by Landlord or the utility companies (the cost for the electricity consumed by the tenant for interior lighting, plugs, equipment, supplemental air conditioning and fixtures in shall be billed monthly to Tenant by Landlord as set forth in Paragraph IX of Exhibit D, and the cost of electricity for such services provided to other tenants shall not be included in Operating Costs); costs of building and cleaning supplies and equipment (including rental); cost of maintenance, cleaning and repairs; cost of snow plowing or removal, or both, and care of landscaping; payments to independent contractors under service contracts for cleaning, operating, managing, maintaining and repairing the Building and Lot (which payments may be to affiliates of Landlord provided the same are at reasonable rates consistent with the type of occupancy and the services rendered and are consistently applied in the Base Year and future years); the Building’s pro rata share (i.e. 68.84% as hereinafter provided) of the cost of operating, maintaining and repairing the common areas and facilities within the Park (such as, but not limited to, snow plowing, sanding, sand removal, lot sweeping, landscaping, common area and street lighting, and management); and all other reasonable and necessary expenses paid in connection with the operation, cleaning, maintenance, and repair of the Building and Lot, or either, and properly chargeable against income.   If Landlord (i) installs a new, used or replacement capital item for the purposes of reducing Landlord’s Operating Costs, or otherwise improving the efficiency of the Building (such that the annual cost savings exceed the annual amortized cost of such capital item as set forth below), or (ii) is required to perform capital repairs or replacements or to install capital items in order to comply with changes in applicable law first effected after the Commencement Date (each a

15

“Capital Item”), the costs thereof as reasonably amortized by Landlord over their useful life in accordance with generally accepted accounting principles, consistently applied, with legal interest (not to exceed seven percent (7%) per annum) (“Agreed Interest Rate”) on the unamortized amount, shall be included in “Landlord’s Operating Costs”.  Landlord agrees that all of such services to be included in Landlord’s Operating Costs shall be obtained by Landlord at commercially reasonable, competitive market rates consistent with the operation and management of comparable “Class A” office buildings in the suburban Boston area.

Notwithstanding anything to the contrary contained herein, in no event shall Landlord’s Operating Costs include (nor shall Tenant have any obligation to pay any Operating Cost Escalation on account of) the following:

(a)Costs, expenses and fees relating to solicitation of, advertising for and entering into leases and other occupancy arrangements for space in the Park, including but not limited to legal fees, space planners’ fees, lease concessions, improvement costs or allowances, real estate brokers’ leasing commissions and advertising expenses.

(b)All costs and expenses associated with (i) any lawsuits or disputes with any mortgagee (except as the actions of Tenant may be in issue); (ii) selling, syndicating, financing, mortgaging or hypothecating any of Landlord’s interest in the Park (or any part thereof); (iii) any lawsuits or disputes between Landlord and its employees, over Landlord’s title to the Building, Lot or Park or any part thereof,  between Landlord and building management, or between Landlord and other tenants, invitees or adjacent property owners.

(c)Costs of correcting defects in the Building or the Building equipment or replacing defective equipment solely to the extent such costs relate to items covered by warranties of manufacturers, suppliers or contractors or are otherwise borne by parties other than Landlord and for which Landlord receives reimbursement.

(d)Costs of installations paid by or constructed for specific tenants or other occupants.

 (e)Interest, points, other finance charges and principal payments on mortgages, and other costs of indebtedness, if any.

(f)All amounts which are allocable to, specifically charged to or otherwise paid by any other tenant or other occupant of the Building or the Park, or for items or services which Landlord provides selectively to one or more tenants (other than Tenant) without reimbursement.

(g)Any bad debt loss, rent loss or reserves for bad debts or rent loss.

(h)The salary and indirect compensation (including, without limitation, all fringe benefits, workmen’s compensation, insurance premiums and payroll taxes) of any

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employee above the trade of property manager, and the wages and indirect compensation of any employee to the extent such employee devotes his or her time to property other than the Building.

(i)            Amounts, if any, paid as ground rental by Landlord.

(j)Costs and expenses related to third-party landlord-tenant disputes.

(k)Any cost of any service or items sold or provided to tenants of the Building or Park or other occupants for such service or has been or is entitled to be reimbursed by insurance or otherwise compensated by parties (e.g. easement holders) other than tenants of the Building and for which Landlord receives reimbursement.

(l)The costs of repair, replacement, or restoration work occasioned by any casualty or condemnation above the deductible amount on the insurance policy or condemnation award.

(m)Any depreciation allowance or expense, expense reserve and other non-cash items including reserves for Landlord’s repair, replacement or improvement of the Building, Lot, Park or common areas or any portions thereof.

(n) The costs of management fees to the extent that they exceed comparable fees in comparable office buildings in other comparable office building projects in the relevant market area and/or to the extent that they exceed comparable fees charged to other tenants in the Building (except that the parties agree that, as of the Commencement Date, a management fee of 5% of collected rents is acceptable, which such rate is being charged on the date hereof and will be reflected in the Base Year Operating Costs as though no free rent or phase in rent applied).

(o) Except for management fees, Landlord’s general overhead and any overhead or profit increment to any subsidiary or affiliate of Landlord for services on or to the Building, Common Areas, and/or the Park, to the extent that the cost of such service exceeds competitive costs for such services rendered by persons or entities of similar skill, competence and experience other than a subsidiary or affiliate of Landlord.

(p) Any costs or expenses representing any amount paid for services and/or materials to a person, firm, or entity that is personally related to any person associated with Landlord or affiliated with Landlord to the extent such amount exceeds the amount that would have been paid for such service or materials at the then existing market rates in the absence of such relationship.

(q) Costs incurred in connection with the presence of any Hazardous Materials in, on, under or about the Premises, Building, Lot or Park, except to the extent caused by

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the release or emission of the Hazardous Materials in question by Tenant, in which event the provisions of Section 6.1.17 shall control.

(r)The cost of any work or service furnished to any tenant or occupant of the Building to a materially greater extent or in a materially more favorable manner than that furnished generally to the tenants and other occupants of the Building, or the costs of work or services furnished exclusively for the benefit of any tenant or occupant of the Building or at such tenant’s cost.

(s) The costs for items and services which any tenant is required to reimburse Landlord or pay third persons.

(t) The costs of repairs or maintenance which are covered by warranties or service contracts and to the extent such maintenance and repairs are made at no cost to Landlord.

(u)The costs of repairs, alterations and general maintenance necessitated by the negligence or willful misconduct of Landlord or its agents, employees, or contractors or invitees.

(v) Interest or penalties due to the late payment of taxes, utility bills or other Landlord’s Operating Costs, unless caused by Tenant, in which event Tenant shall be responsible for same.

(w)Any other cost or expense which, under generally accepted accounting principles, consistently applied, would not be a normal maintenance or operating expense of the Building, including bad debt expenses and charitable contributions and donations.

(x)The costs and expenses attributable to Landlord’s breach of the following warranty:

As of the Commencement Date, Landlord shall warrant to Tenant that (a) the roof, foundation, footings, slab, structural walls, exterior windows and skylights (including seals), plumbing, fire sprinkler/life safety system, lighting, heating, ventilation and air conditioning systems, electrical systems, and the passenger and freight elevators serving the Premises shall be in good operating condition and repair (except to the extent modified or otherwise impaired by any improvements constructed by Tenant); (b) the Premises, Building and Lot shall be free of all mold, comply with all laws, codes and regulations and free of latent defects in the construction thereof.  Landlord shall promptly correct any non-

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compliance with the foregoing warranty, at its sole cost and expense (i.e., not as part of Landlord’s Operating Costs), provided that Tenant shall notify Landlord of such non-compliance not later than one hundred twenty (120) days from and after the Commencement Date.

(y)The costs and expenses associated with any capital improvement, repair or replacement except for Capital Items as permitted by the second full paragraph of this Section 4.2.

(z)Any costs, fines, interest, or penalties incurred due to violations by Landlord of any governmental rule or authority or failure to make any payment when due, except if caused by Tenant hereunder in which event Tenant shall be responsible for such costs.

(aa)The cost of any service provided to Tenant or other occupants of the Building or Park for which Landlord is actually reimbursed.

(bb)Costs or fees payable to public authorities in connection with any future construction, renovation and/or improvements to the Park (other than the Landlord’s Work or any improvements made to the Premises by or for Tenant).

(cc)Organizational expenses associated with the creation, maintenance and operation of the entity which constitutes Landlord.

(dd)Any item of Landlord’s Operating Costs which is duplicative of any other item of Landlord’s Operating Costs.

(ee)Taxes on Landlord’s income from all sources.

In case of services which are not rendered to all areas of the Building on a comparable basis, the proportion allocable to the Premises shall be the same proportion which the Rentable Floor Area of Tenant’s Premises bears to the total rentable floor area to which such service is so rendered (such latter to be determined in the same manner as the Total Rentable Floor Area of the Building), or shall be re-allocated by Landlord on a reasonable basis taking into consideration such factors as usage of a particular tenant in the Park and/or such other pertinent factors as reasonably determined by Landlord.

Landlord’s Operating Costs shall also include the costs of maintaining and operating the exterior common areas and facilities of the Park that serve the Building and other buildings in the Park in common (subject to the exclusions and limitations set forth above), which shall be allocated by Landlord between the Building and such other buildings in the Park in a consistent, commercially reasonable manner based upon the following:  upon the ratio of the square footage of the Premises to the aggregate square footage of all completed buildings in the Park, as such buildings are completed from time to time (i.e., the Building’s current share of Park-related costs is 68.84% based on the fact that the Park currently contains 278,908 Rentable Square Feet).

“Tenant’s Proportionate Share” shall mean the proportion that the Rentable Floor Area of Tenant’s Premises bears to the Total Rentable Floor Area of the Building (i.e., initially,

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28.51%).

“Operating Cost Escalation” shall mean the product of (i) Tenant’s Proportionate Share and (ii) an amount equal to the excess, if any, of:

(a)Landlord’s Operating Costs for the Fiscal Year in question; over

(b)the Base Year Operating Costs (as grossed up in accordance with this Section 4.2).

In calculating both the Base Year Operating Costs and Landlord’s Operating Costs for any Fiscal Year, if the Building not fully occupied during such year, the actual costs of the elements of Landlord’s Operating Costs that vary with occupancy shall be adjusted to the amount of Landlord’s Operating Costs that would have been incurred had the Building been 95% occupied.

If, with respect to any Fiscal Year or fraction thereof during the Term, Tenant is obligated to pay Operating Cost Escalation, then Tenant shall pay, as additional rent, on the first day of each month of ensuing Fiscal Year (until Landlord’s Statement for an ensuing Fiscal Year reflects an adjusted Operating Cost Escalation), “Estimated Monthly Escalation Payments” equal to 1/12th of the annualized Operating Cost Escalation for the immediately preceding Fiscal Year.  Estimated Monthly Escalation Payments for each ensuing Fiscal Year shall be made retroactively from the first day of such Fiscal Year and on account of the payment to be made pursuant to the first sentence of this Section 4.2 for such Fiscal Year, with an appropriate additional payment or refund to be made at the time such payment is due for the previous year.

The term “Fiscal Year” as used in this Article shall mean the period of twelve (12) consecutive months commencing on January 1st and ending on December 31st.

The term “real estate taxes” as used above shall mean all taxes of every kind and nature assessed by any governmental authority on the Lot, the Building and improvements, or both, and in the common areas of the Park (allocated among the Building and other buildings as set forth above), which the Landlord shall become obligated to pay because of or in connection with the ownership, leasing and operation of the Lot, the Building and improvements, or both, and the Park, subject to the following:  there shall be excluded for such taxes all income taxes, excess profits taxes, excise taxes, franchise taxes, gift, estate, succession, inheritance and transfer taxes, provided, however, that if at any time during the Term the present system of ad valorem taxation of real property shall be changed so that in lieu of the whole or any part of the ad valorem tax on real property, there shall be assessed on Landlord a capital levy or other tax on the gross rents received with respect to the Lot, Building and improvements, or both, a federal, state, county, municipal, or other local income, franchise, excise or similar tax, assessment, levy or charge (distinct from any now in effect) measured by or based, in whole or in part, upon any such gross rents, then any and all of such taxes, assessments, levies or charges, to the extent so measured or based, shall be deemed to be included within the term “real estate taxes”.

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If the total of the monthly payments paid by Tenant with respect to any Fiscal Year exceeds the actual Operating Cost Escalation for such Fiscal Year, then, at Landlord’s option, such excess shall be either (i) credited against the next due payments of Fixed Rent, or (ii) refunded by Landlord to Tenant no later than 120 days after the end of the Fiscal Year in question, unless the Term shall expire on or prior to said 120-day period, in which event Landlord shall refund such excess on the last day of the Term.

Tenant shall have the right, but not the obligation, to contest (or request that Landlord so contest on behalf of all tenants of the Building) in good faith by appropriate proceedings diligently pursued the imposition or amount of any real estate taxes assessed against the Lot or the Building or such personal property taxes payable by it hereunder, including the right on behalf of, and in the name of the Landlord, to seek abatements thereto.  The Landlord shall reasonably cooperate with Tenant, at Tenant’s sole expense, in any such contest or abatement proceedings.  In the event that Tenant determines not to contest such taxes and Landlord desires to file such contest (or Tenant requests that Landlord file such contest), Landlord shall give written notice of that fact to all affected tenants, including Tenant, and shall have the sole right as to such tax bill to contest in good faith by appropriate proceedings diligently pursued the imposition or amount of any real estate taxes assessed against the Lot or the Building or such other taxes payable by Tenant hereunder, including the right to seek abatements thereto.  In such event, the Tenant shall reasonably cooperate with Landlord, at no cost to Tenant, in any such contest or abatement proceedings.  Landlord shall also reasonably cooperate and assist Tenant, at no cost to Landlord, in procuring any applicable tax credits or incentives.

If Landlord shall receive on behalf of the Lot or the Building a rebate or abatement on any tax with respect to which a payment is made by Tenant, then after deducting therefrom any costs reasonably incurred by Landlord in obtaining such rebate or abatement, all of such net rebate or abatement relating to the Lot or the Building shall promptly be returned to Tenant to the extent that such rebate or abatement relates to payment made by the Tenant and not reimbursed by Landlord.  If Tenant shall receive on behalf of the Lot or the Building a rebate or abatement on any tax with respect to which a payment is made by Tenant, then after deducting therefrom any costs reasonably incurred by Tenant in obtaining such rebate or abatement, all of such net rebate or abatement related to the Lot, the Building or to personal property taxes assessed against the Tenant’s property shall be retained by Tenant, as its sole property, to the extent such rebate or abatement relates to a payment made by Tenant and not reimbursed by Landlord.  The remaining portion of such net rebate or abatement shall promptly be returned to Landlord.

In the event that Landlord receives a refund on account of real estate taxes after the expiration of the Term, which refund relates to a Fiscal Year during the Term, the amount of such refund fairly allocable to Tenant shall promptly be refunded to Tenant by Landlord with a reasonably detailed accounting of the payments, abatement and costs, as aforesaid.  All references to real estate taxes “for” a particular Fiscal Year shall be deemed to refer to real estate taxes due and payable during such Fiscal Year without regard to when such impositions are assessed or levied.

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All records that the Landlord is required to maintain hereunder shall be maintained by the Landlord for a period of three (3) years following the expiration of the Fiscal Year to which such records relate.  Tenant shall have the right, through its representatives, to examine, copy and audit such records at reasonable times upon not less than thirty (30) days prior written notice to Landlord given within one hundred and eighty (180) days of receipt of Landlord’s Statement.  Such records shall be maintained at Landlord’s Address set forth in Section 1.1, or such other place within the Commonwealth of Massachusetts as Landlord shall designate from time to time for the keeping of such records.  The costs of such audits shall be borne by Tenant; provided, however, that if such audit establishes that the actual Operating Cost Escalation for the Fiscal Year in question is less than the Landlord’s final determination of the Operating Cost Escalation as set forth in the Landlord’s Statement submitted to Tenant by at least five percent (5%), then Landlord shall pay the reasonable cost of such audit.  If, as a result of such audit, it is determined that Tenant must pay additional amounts to Landlord on account of the Operating Cost Escalation, or that Tenant has overpaid Landlord on account of the Operating Cost Escalation, then the undercharged or overpaid party shall promptly reimburse the other party for the payment due.

Notwithstanding anything contained to the contrary in this Lease, the responsibility for the payment of all real estate taxes with respect to the Building and the Park shall be upon the Landlord and the Landlord agrees to pay the same as required by law.  Landlord shall provide Tenant with copies of all tax bills and a computation of Tenant’s pro rata share thereof, and upon Tenant’s request, copies of all tax bills.  In the event that any special assessments are assessed and payable, the allocation of the same to Landlord’s Operating Costs shall be calculated as if such assessments were being paid by Landlord over the longest period of time permitted by applicable law.

Landlord shall have the right from time to time to change the periods of accounting under this Section 4.2 to any annual period other than the Fiscal Year and upon any such change all items referred to in this Section shall be appropriately apportioned.  In all Landlord’s Statements, rendered under this Section, amounts for periods partially within and partially without the accounting periods shall be appropriately apportioned, and any items which are not determinable at the time of a Landlord’s Statement shall be included therein on the basis of Landlord’s estimate, and with respect thereto Landlord shall render promptly after determination a supplemental Landlord’s Statement, and appropriate adjustment shall be made according thereto.   All Landlord’s Statements shall be prepared on an accrual basis of accounting and shall be certified either by a certified public accountant or by an officer of Landlord.

Notwithstanding any other provision of this Section 4.2, if the Term expires or is terminated as of a date other than the last day of a Fiscal Year at the end of the Term, Tenant’s last payment to Landlord under this Section 4.2 shall be made on the basis of Landlord’s best estimate of the items otherwise includable in Landlord’s Statement and shall be made on or before the later of (a) twenty (20) days after Landlord delivers such estimate to Tenant, or (b) the last day of the Term, with an appropriate payment or refund to be made upon submission of Landlord’s Statement.  Without limitation, the obligation of Tenant to pay the Operating Cost Escalation with respect to any Fiscal Year during the Term (or portion thereof) or the Landlord’s obligation to make a refund therefore, as applicable, shall survive the expiration or earlier

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termination of the Term.

4.3           PAYMENTS

All payments of Fixed Rent and additional rent shall be made to Managing Agent, or to such other person as Landlord may from time to time designate by notice to Tenant.  If any installment of rent, fixed or additional, or on account of leasehold improvements is paid after the due date thereof, at Landlord’s election, it shall bear interest at the rate of the “Prime Rate” then being charged by the major banks in Boston, Massachusetts, plus two percent (2.0%) per annum from such due date, which interest shall be immediately due and payable as further additional rent; provided, however, Landlord hereby acknowledges and agrees that Tenant shall have one (1) grace period of an additional five (5) days after notice per each calendar year of the Term before which such interest shall be charged by Landlord.

ARTICLE 5

LANDLORD’S COVENANTS

5.1           LANDLORD’S COVENANTS DURING THE TERM

Landlord covenants during the Term:

5.1.1        Building Services - To furnish, through Landlord’s employees or independent contractors, the services listed in Exhibit D (which are common services provided to all tenants of the Building).

5.1.2        Additional Building Services - To furnish, through Landlord’s employees or independent contractors, reasonable additional Building operation services upon reasonable advance request of Tenant at reasonable and competitive rates from time to time established by Landlord to be paid by Tenant;

5.1.3        Repairs - Except as otherwise provided in Article 7, except as resulting from Tenant’s negligence or misuse, except as resulting from settling or sagging within standard engineering tolerance (provided that the settling or sagging does not affect the surface or structural integrity of the Building or in any way materially affect the ordinary and customary use of the Premises, or any part thereof by Tenant), Landlord shall maintain the structural integrity of the Building, including but not limited to the roof, exterior walls, and windows and skylights. Landlord shall also be responsible for (i) all exterior maintenance, repairs and replacements necessary to keep in good condition and working order all common areas of the Building and the Park, and the trees, shrubs, plants, landscaping, parking areas, driveways and walkways on the Lot or elsewhere in the Park, including but not limited to, all lighting and other fixtures and equipment serving such parking areas, driveways and walkways, (ii) providing the services to the Building and Premises (including all utilities) and performing the maintenance work set forth in Section 4.2 and Article V hereof, and (iii) performing necessary repairs and replacements to maintain the watertight integrity of the Building, including but not limited to the

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roof, exterior wall, windows and skylights.  Landlord shall also maintain, repair and replace the HVAC equipment in the Building, such that it shall be in good operation condition throughout the Term, reasonable wear and tear excepted.  Landlord shall make all of such repairs and replacements necessary to maintain the foregoing in good condition and working order and in compliance with all laws and all costs and expenses under this Section 5.1.3 shall be included in Landlord’s Operating Costs pursuant to the provisions of Section 4.2, except as set forth therein to the contrary. All other repairs and maintenance, except as specifically otherwise provided for herein, shall be the responsibility of Tenant.

In the event that Tenant gives notice to Landlord of a condition which Tenant believes requires Landlord’s repairs or a condition which, if left uncorrected, will necessitate Landlord’s repair, then, in accordance with the terms of this Section 5.1.3, Landlord shall respond promptly to investigate such condition, and, if such repairs are Landlord’s obligation hereunder, Landlord shall commence promptly to repair same and to diligently complete said repair.  Tenant agrees during the Term to provide Landlord notice as soon as reasonably possible of any condition known to Tenant which might require, or if left uncorrected will necessitate Landlord’s repair pursuant to this Section 5.1.3. Tenant shall have the right to require, at reasonable times and with reasonable advance notice, a representative of Landlord to inspect the Premises for repairs which may be the responsibility of Landlord;

5.1.4        Quiet Enjoyment - That Landlord has the right to make this Lease and that Tenant, on paying the rent and performing its obligations hereunder, shall peacefully and quietly have, hold and enjoy the Premises throughout the Term without any manner of hindrance or molestation from Landlord or anyone claiming under Landlord, subject, however, to all the terms and provisions hereof;

5.1.5        Landlord’s Insurance - Beginning with the commencement of Landlord’s Work and thereafter throughout the Term, Landlord shall purchase and keep in force, broad-form commercial general liability insurance, or the equivalent then-customary form providing comparable coverages, written out on an occurrence basis containing provisions adequate to protect the Landlord from and against claims for bodily injury, including death and personal injury and claims for property damage occurring within the Park and/or the Building, such insurance having body injury and property damage combined limits of not less than five million dollars ($5,000,000) per occurrence.  In addition, Landlord shall procure and continue in force during the Term, as the same may be extended hereunder, fire and extended coverage insurance, including vandalism, sprinkler leakage and malicious mischief, upon the Building on a full replacement cost basis, agreed cost value endorsement with agreed values for the Building and tenant improvements initially installed by Landlord, as determined annually by the Landlord’s insurer.  Landlord shall also procure and continue in force during the Term (including without limitation during the Base Year), as the same may be extended hereunder, rental interruption insurance for twelve (12) months.  Copies of certificates of insurance evidencing the foregoing shall be furnished to Tenant, upon Tenant’s reasonable request.  All insurance required of Landlord pursuant to this Section shall be effected under policies issued by insurers or recognized responsibility (which are rated A or A+ by Best’s Rating Service or a comparable rating by an equivalent service).  The coverages required by this Section 5.1.6 may be provided by a single “package policy” or by a combination of “package policy” and umbrella;

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5.1.6        Landlord’s Indemnity - Landlord covenants and agrees to defend, with counsel reasonably acceptable to Tenant, save harmless and indemnify Tenant from any liability for  injury, loss, accident or damage to any person or property on the Premises, the Building or the Park, and from any claims, actions, proceedings and reasonable expenses and costs in connection therewith (including, without implied limitation, reasonable counsel fees), to the extent arising from the negligent acts and/or omissions or willful acts of Landlord, its agents, employees, contractors or licensees, not caused by the negligent acts, omissions and/or willful acts of Tenant, its agents, employees, contractors or licensees.  In no event shall Landlord be obligated to indemnify Tenant for any willful or negligent act or omission of Tenant or of any of Tenant’s employees, agents, contractors or licensees.  Notwithstanding anything to the contrary contained in this Lease, in no event shall Landlord be liable to Tenant for any indirect, consequential, special, exemplary, incidental or punitive damages arising from or relating to this Lease. The covenants and indemnifications set forth in this Section 5.1.6 shall survive the expiration or earlier termination of this Lease;

5.1.7        Hazardous Materials - Landlord represents and warrants that, to the best of Landlord’s knowledge having made no independent inquiry as of the date of this Lease (i) there does not exist  any leak, spill, release, discharge, emissions or disposal of Hazardous Materials (as defined in Section 6.1.17 below) on the Lot (including the Building to be located thereon), and (ii) the Premises do not contain any Hazardous Materials, except as may be contained in customary cleaning supplies or in such other supplies (e.g., paint) that are necessary for Landlord to perform its obligations hereunder.  In the event that any such leak, spill, release, discharge, emission or disposal of Hazardous Materials not caused by Tenant, its agents, employees or contractors, shall occur on the Lot or (apart from de minimis amounts of such materials used for cleaning and maintenance purposes or in connection with the operation of loading docks) the Park, Landlord, at no cost to Tenant, shall take any and all actions necessary to bring the Premises, the Park and/or the Building (excluding all portions thereof leased to tenants) into compliance with applicable law and other governmental requirements relating thereto; and

5.1.8        Tenant’s Costs - In case Tenant shall, without any fault on its part, be made party to any litigation commenced by or against Landlord or by or against any parties in possession of the Premises or any part thereof claiming under Landlord, Landlord agrees to reimburse Tenant for all reasonable costs, including without implied limitation, reasonable counsel fees and costs incurred by or imposed upon Tenant in connection with such litigation and to pay all such reasonable costs and fees incurred in connection with the successful enforcement by Tenant of any obligations of Landlord under this Lease.

Except as specifically provided to the contrary in Section 4.2, Landlord shall include in Landlord’s Operating Costs under the provisions of Section 4.2 (and subject to the exclusions and limitations set forth therein) the costs incurred by Landlord in connection with the services and/or repairs set forth in Section 5.1.1, 5.1.2, 5.1.3 and 5.1.5 above, except as otherwise specifically provided in this Lease.

5.2           INTERRUPTIONS

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Except as expressly set forth in this Lease, Landlord shall not be liable to Tenant for any compensation or reduction of rent by reason of inconvenience or annoyance or for loss of business arising from power losses or shortages or from the necessity of Landlord’s entering the Premises for any of the purposes in this Lease authorized, or for repairing the Premises or any portion of the Building or Lot, provided such inconvenience or annoyance is not caused by the willful misconduct or negligence of Landlord or Landlord’s agents, employees or contractors.  In case Landlord is prevented or delayed from making any repairs, alterations or improvements, or furnishing any service or performing any other covenant or duty to be performed on Landlord’s part, by reason of any cause reasonably beyond Landlord’s control, Landlord shall not be liable to Tenant therefor, nor, except as expressly otherwise provided below or in Article 7, shall Tenant be entitled to any abatement or reduction of rent by reason thereof, nor shall the same give rise to a claim in Tenant’s favor that such failure constitutes, actual or constructive, total or partial, eviction from the Premises.

Notwithstanding any language to the contrary, if electricity, heat, air conditioning, water or any other service or utility that Tenant is entitled to receive under this Lease is interrupted, and such interruption renders the Premises (or any portion thereof) untenantable, or any portion thereof is reasonably inaccessible by Tenant, or makes it impracticable for Tenant to conduct its business in the Premises, and such interruption is caused due to Landlord’s failure to perform any of its obligations under Article 5 of this Lease (expressly excluding, however, any interruptions caused by reasons beyond Landlord’s reasonable control, such as, for example, failure to provide utilities due to third party actions [e.g. Town damages lines during performance of work on Cambridge Street]), then if such interruption or cessation shall continue for a period of five (5) consecutive days after notice thereof from Tenant to Landlord that the Premises are untenantable, or reasonably inaccessible, or Tenant cannot conduct its business as a result thereof, then the Fixed Rent shall be proportionately abated for each successive day such interruption or cessation continues to the extent that Tenant’s operations in the Premises are adversely affected by such interruption (other than for reasons of casualty or eminent domain where the provisions of Article VII shall govern).  For purposes of this Section, Landlord and Tenant hereby acknowledge and agree that if the Premises (or portion thereof) is accessible by at least one passenger elevator, then the Premises (or such portion) will not be deemed “reasonably inaccessible” for the purposes hereof.

Landlord reserves the right to stop any service or utility system when necessary by reason of accident or emergency or until necessary repairs have been completed.  Except in case of emergency repairs, Landlord will give Tenant reasonable advance notice of any contemplated stoppage and will use reasonable efforts to avoid unnecessary inconvenience to Tenant by reason thereof.  The foregoing rights shall be Tenant’s sole and exclusive remedies for any interruptions described in this Section 5.2.

ARTICLE 6

TENANT’S COVENANTS

6.1           TENANT’S COVENANTS DURING THE TERM

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Tenant covenants during the Term and such further time as Tenant occupies any part of the Premises:

6.1.1        Tenant’s Payments - Except during Tenant’s early entry pursuant to Section 3.2 above, to pay when due (a) all Fixed Rent and additional rent, (b)  all taxes which may be imposed on Tenant’s personal property in the Premises (including, without limitation, Tenant’s fixtures and equipment) regardless to whomever assessed, (c) all charges by public utility for telephone and other utility services (including service inspections therefore and the charges as may be imposed pursuant to Exhibit D hereof) rendered to the Premises not otherwise required hereunder to be furnished by Landlord without charge and not consumed in connection with any services required to be furnished by Landlord without charge, and (d) as additional rent, all charges due for Operating Cost Escalations under Section 4.2 (including on account of services rendered by Landlord pursuant to Sections 5.1.1, 5.1.2, 5.1.3 and 5.1.5 hereof);

6.1.2        Repairs and Yielding Up.  Except as otherwise provided in Article 7 and Section 5.1.3, to keep the Premises in as good order, repair and condition as exist on the date the Premises are Ready for Occupancy (excepting only reasonable wear; damage by fire, casualty or act of God; the effect of eminent domain; Hazardous Materials not stored, used, released or disposed of by Tenant, its agents, employees, contractors or invitees; and damage caused by the act or omission of Landlord or its employees, agents, or contractors), and at the expiration or termination of this Lease peaceably to yield up the Premises and all changes and additions therein made by Tenant after the date the Premises are Ready for Occupancy as designated by Landlord pursuant to its right to do so as improvements to be removed on termination in such order, repair and condition, first removing all goods and effects of Tenant and any items, the removal of which is required by Section 3.1 above or specified to be removed at Tenant’s election and which Tenant elects to remove, and repairing all damage caused by such removal and restoring the Premises and leaving them clean and neat; any property not so removed shall be deemed abandoned and may, upon five (5) days’ prior written notice to Tenant,  be removed and disposed of by Landlord, in such manner as Landlord shall determine, and Tenant shall pay Landlord the entire reasonable cost and expense incurred by it by effecting such removal and disposition and in making any incidental repairs and replacements to the Premises for use and occupancy during the period after the expiration of the term; it being agreed that the acceptance of reasonable use and wear shall not apply so as to permit Tenant to keep the Premises in anything less than suitable, tenantable and usable condition, considering the nature of the Premises and the use reasonably made thereof, or in less than good and tenantable repair.  Notwithstanding the foregoing, (a) under no circumstances shall Tenant be obligated to restore the Premises to the condition existing prior to the date on which the Premises are Ready for Occupancy and (b) Tenant shall have the right, exercisable in Tenant’s sole discretion, to remove any personal property the purchase of which was paid for by Tenant or financed by Tenant through Fixed Rent provided Tenant repairs any damage caused by such removal;

6.1.3        Occupancy and Use — Not to use and occupy the Premises for any purpose other than the Permitted Uses; and not to injure or deface the Premises, Building or Lot or Park; and not to permit in the Premises any auction sale, nuisance, or the emission from the Premises of any objectionable noise or odor; nor any use thereof which is, in Landlord’s reasonable judgment, improper or offensive, or contrary to law or ordinances, or invalidates or increases the

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premiums for any insurance on the Building or its contents or liable to render necessary any alteration or addition to the Building unless Tenant agrees to pay the cost of the increased premiums or required alteration or addition;

6.1.4        Rules and Regulations - To comply with the Rules and Regulations set forth in Exhibit E and all other reasonable Rules and Regulations hereafter made by Landlord (provided such reasonable rules do not materially increase Tenant’s obligations or diminish Tenant’s rights under this Lease), of which Tenant has been given notice, for the care and use of the Building, Lot and Park and their facilities and approaches, it being understood that Landlord shall not be liable to Tenant for the failure of other tenants of the Building or Park to conform to such Rules and Regulations, provided that Landlord enforces such rules against all tenants of the Building in a non-discriminatory fashion;

6.1.5        Compliance with Laws and Safety Appliances - To keep the Premises equipped with all safety appliances required by law or ordinance or any other regulation of any public authority (other than life safety equipment required for the Premises to be Ready for Occupancy as set forth in Section 3.2) because of any particular manner of use made by Tenant other than Tenant’s Permitted Use and to procure all licenses and permits so required because of such use, it being understood that the foregoing provisions shall not be construed to broaden in any way Tenant’s Permitted Uses.  Tenant shall have the right, upon giving notice to the Landlord, to contest any obligation imposed upon it pursuant to the provisions of this Section 6.1.5, and provided the enforcement of such requirement or law is stayed during such contest and such contest will not subject the Landlord to penalty or jeopardize the title to the Premises or otherwise affect the Premises in any adverse way. Landlord shall cooperate with Tenant in such contest and shall execute any documents reasonably required in the furtherance of such purpose.  Notwithstanding the foregoing, or any other contrary provision set forth in this Lease, Tenant shall not be required to construct or pay the cost of complying with any private restrictions, laws or insurance underwriter’s requirements requiring construction of improvements to the Premises or to any other portion of the Building, common area or the Park, unless such compliance is necessitated solely because of Tenant’s particular and unique use of the Premises or any alterations to the Premises made by or for Tenant;

6.1.6        Assignment and Subletting -Tenant shall have the right, subject to the requirement of obtaining Landlord’s prior written consent, such consent not to be unreasonably withheld, conditioned or delayed by Landlord, to assign this Lease or sublet the whole or any portion of the Premises, which assignment or sublease shall be only for the Permitted Uses, it being understood that Tenant shall, as additional rent, reimburse Landlord promptly for reasonable legal and other out-of-pocket expenses incurred by Landlord in connection with any request by Tenant for consent to assignment or subletting, not to exceed $1,500.00 per request for consent.  No assignment or subletting shall affect the continuing primary liability of Tenant (which, following assignment, shall be joint and several with the assignee).  Such consent by Landlord to any of the foregoing in a specific instance (i) shall be reasonable, subject to the provisions hereinafter provided, and (ii) shall be subject to the prior written approval of Landlord’s mortgagee(s) if specifically required under the applicable mortgage(s).  Landlord’s consent shall not be treated as having been withheld unreasonably if, in connection with any such proposed assignment or subletting:  (i) the terms of the proposed assignment or subletting do not prohibit further

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assignments of the Lease or subletting of the Premises without the written consent of Landlord, the granting of which consent shall be subject to the terms and conditions hereof, and in any event shall not be unreasonably withheld or delayed; and (ii) in connection with an assignment of this Lease, the assignee does not agree directly with Landlord, by written instrument in form reasonably satisfactory to Landlord, to be bound by all the obligations of Tenant hereunder arising from and after the effective date of such assignment, including, without limitation, the covenant against further assignment and subletting without the written consent of Landlord, subject to the terms and conditions of this Section..  No consent to any of the foregoing in a specific instance shall operate as waiver in any subsequent instance.  If an assignment or subletting is proposed to be made and Landlord’s consent is required as hereinabove provided, Tenant shall give Landlord prior notice of such proposal, which such notice shall include the terms of the proposed transaction as well as such information (including creditworthiness information for any proposed assignee or subtenant of all or substantially all of the Premises) as Landlord may reasonably request relative to facts which would bear upon the factors entering into the determination whether Landlord’s approval is to be granted.  Within ten (10) days of Landlord’s receipt of such information, Landlord shall (1) notify Tenant in writing if it refuses to consent to the proposed transaction (which such notice shall explain the reason for such refusal) and (2) provide Tenant with a draft consent form, if required by Landlord for Tenant’s review and comments.  If Landlord fails to deliver such notice within the time set forth above, and such failure continues for an additional five (5) day period after Tenant’s notice to Landlord of such failure, Landlord shall be deemed to have approved the proposed transaction.  Notwithstanding the foregoing, such time period for Landlord’s approval shall be reasonably extended if Landlord’s mortgagee so requests an extension, Landlord hereby agreeing to use diligent efforts to obtain approval as quickly as possible.

Notwithstanding any provision contained in this Lease, no consent of Landlord shall be required for the assignment of this Lease or the subletting of any portion (or the whole) of the Premises (each of which shall be a “Permitted Transfer”), (i) to any person(s) or entity who controls, is controlled by or is under common control with Tenant, (ii) to any entity resulting from the merger, acquisition, consolidation or other reorganization with Tenant, whether or not Tenant is the surviving entity, (iii) to any person or legal entity which acquires all or substantially all of the assets or stock of Tenant (each of the foregoing is hereinafter referred to as a “Tenant Affiliate”); provided that before such transfer shall be effective, (x) the Tenant Affiliate shall assume in writing, in full, the obligations of Tenant under the Lease (in the case of an assignment of the Lease), (y) Landlord shall be given written notice of such transfer and (z) the use of the Premises by the Tenant Affiliate shall be as set forth in Section 1.1 above.  For purposes of this Section, a sale or offering of Tenant securities is a Permitted Transfer and the term “control” means possession, directly or indirectly, of the power to direct or cause the direction of the management, affairs and policies of anyone, whether through the ownership of voting securities, by contract or otherwise.

If this Lease shall be assigned, or if the Premises or any part hereof shall be sublet or occupied by any person other than Tenant, Landlord may, at any time and from time to time, following an uncured, continuing Event of Default, collect rent (or any amounts due to Landlord hereunder) from the assignee, subtenant or occupant and apply the net amount collected to the annual Fixed Rent, additional rent and all other charges herein reserved, but no such assignment,

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subletting, occupancy or collection shall be deemed a waiver of the provisions of this Section 6.1.6, or acceptance of the assignee, subtenant or occupant as tenant, or a release of Tenant from the further performance of the terms, covenants and conditions of this Lease on the part of Tenant to be performed.  In such event, after deducting Landlord’s share of the Rent Differential, equitably determined on a monthly basis, if applicable as hereinafter provided, Landlord agrees to remit to Tenant any excess on a month to month basis.

If Landlord’s approval of a sublease or assignment is necessary and Landlord  approves a sublease or assignment, and said sublease or assignment is for a total rental amount which on an annualized basis is greater than the Fixed Rent and additional rent due from Tenant to Landlord under this Lease, the following provisions of this paragraph shall apply (it being agreed that none of the provisions of this paragraph shall apply to any Permitted Transfer, regardless of the size of the space involved).  For any such approved sublease(s) totaling up to twenty five percent (25%) of the Premises in the aggregate, Tenant shall retain all sublease profits, if any.  To the extent any such approved assignment or approved sublease(s) totalling more than twenty five percent (25%) of the Premises in the aggregate, Tenant shall pay to Landlord, forthwith upon Tenant’s receipt of each installment of such excess rent, during the term of any approved sublease or assignment, as additional rent hereunder (in addition to the Fixed Rent and other payments due under this Lease), an amount equal to fifty percent (50%) of the positive excess of (x) all Fixed Rent and additional rent received by Tenant under the sublease or assignment over (y) the Fixed Rent and the additional rent due hereunder for the space in question (the “Rent Differential”), after Tenant has recouped, in full, its reasonable out-of-pocket expenses with respect to such sublease or assignment, including without limitation, reasonable real estate brokerage commissions, reasonable legal fees, reasonable free rent, reasonable marketing costs and the reasonable costs of refurbishment of the Premises for such sublease or assignment, and the unamortized costs of tenant improvements paid for by Tenant.  Further, the parties agree that Landlord shall have the right to recapture the Premises proposed to be sublet and/or assigned for the period of time so proposed, provided that Tenant shall sublease and/or assign more than fifty percent (50%) of the Premises, exercisable by giving Tenant written notice thereof within thirty (30) days after receipt of such request, whereupon this Lease shall terminate as of the date set forth in Landlord’s notice to Tenant unless Tenant notifies Landlord in writing within ten (10) days after receipt of Landlord’s recapture notice that it does not desire to consummate the sublease and/or assignment that entitled Landlord to recapture the Premises in which case the Lease shall remain in full force and effect.  The Rent Differential shall not include the sales or rental proceeds received by Tenant in connection with the sale or lease of its personal property to a proposed transferee.  In the event the sublease is for less than the full Premises hereunder, the rent payable by Tenant shall be proportionately adjusted in determining the excess (but all expenses to be recouped will be deducted) pro rated on a square foot basis.  Anything contained in the foregoing provisions of this section to the contrary notwithstanding, neither Tenant nor any other person having interest in the possession, use, occupancy or utilization of the Premises shall enter into any lease, sublease, license, concession or other agreement for use, occupancy or utilization of space in the Premises which provides for rental or other payment for such use, occupancy or utilization based, in whole or primarily on the net income or profits derived by any person from the Premises leased, used, occupied or utilized (other than an amount based on a fixed percentage or percentages of receipts or sales), and any such purported lease, sublease, license, concession or other agreement shall be absolutely void and ineffective as a conveyance of any right or interest in the possession use, occupancy or utilization of any part of the Premises;

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6.1.7        Indemnity - To defend, with counsel reasonably acceptable to Landlord, save harmless, and indemnify Landlord  from any liability for injury, loss, accident or damage to any person or property occurring on the Premises, in the Building or the Lot, or elsewhere in the Park, and from any claims, actions, proceedings and expenses and costs in connection therewith (including, without implied limitation, reasonable counsel fees):  (i) to the extent arising from the negligent acts, omissions and/or willful misconduct of Tenant or any of Tenant’s employees, agents, contractors, subtenants, assignees, licensees or invitees, not caused by the negligent acts, omissions and/or willful acts of Landlord, its agents, employees, contractors or invitees or (ii) resulting from the failure of Tenant to perform and discharge its covenants and obligations under this Lease.  In no event shall Tenant be obligated to indemnify Landlord for any willful or negligent act or omission of Landlord or of any of Landlord’s employees, agents, contractors or licensees.  Notwithstanding anything to the contrary contained in this Lease, in no event shall Tenant be liable to Landlord for any indirect, consequential, special, exemplary, incidental or punitive damages arising from or relating to this Lease, except that the damages set forth in Section 6.1.16 for a holdover shall be deemed to be damages that are recoverable by Landlord so long as Landlord shall give Tenant at least thirty (30) days prior written notice before which any such damage may occur (e.g., Landlord loses a lease in place due to Tenant’s holding over), as more particularly set forth in Section 6.1.16 hereof.  The covenants and indemnifications set forth in this Section 6.1.7 shall survive the expiration or earlier termination of this Lease;

6.1.8        Tenant’s Liability Insurance - To maintain public liability insurance in the Premises in amounts which shall, at the beginning of the Term, be at least equal to the limits set forth in Section 1.1 and, not more than two times during the Term, shall be for such higher limits, if any, as are customarily carried in the area in which the Premises are located on property similar to the Premises and used for similar purposes and to furnish Landlord (and/or its mortgagees) with the certificates thereof, prior to occupancy hereunder, evidencing such coverage and providing that the insurance indicated therein shall not be cancelled without at least ten (10) days’ prior written notice to Landlord.  Landlord and its mortgagee shall be named as additional insureds on any such policies;

6.1.9        Tenant’s Workmen’s Compensation Insurance - To keep all Tenant’s employees working in the Premises covered by workmen’s compensation insurance in statutory amounts;

6.1.10      Landlord’s Right of Entry — Upon not less than twenty-four (24) hours notice or other reasonable notice and during regular business hours (except in the event of an emergency), to permit Landlord and Landlord’s agents entry for the following purposes: (a) to examine the Premises at reasonable times and, if Landlord shall so elect, to make repairs or replacements; (b) to remove, at Tenant’s expense, any changes, additions, signs, curtains, blinds, shades, awnings, aerials, flagpoles, or the like not consented to in writing; and (c) to show the Premises to prospective tenants during the twelve (12) months preceding expiration of the Term and to prospective purchasers and mortgagees at all reasonable times.  Notwithstanding anything to the contrary contained in this Lease, any entry by Landlord and Landlord’s agents shall not impair Tenant’s operations more than reasonably necessary and shall comply with Tenant’s reasonable

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security procedures, and Tenant shall have the right to have an employee accompany Landlord and/or its agents at all times that Landlord and/or its agents are present on the Premises;

6.1.11      Loading - Not to place a load upon the Premises exceeding an average rate of fifty (50) pounds of live load per square foot of floor area; and not to move any safe, vault or other heavy equipment in, about or out of the Premises except in such a manner and at such times as Landlord reasonably shall in each instance approve; Tenant’s business machines and mechanical equipment which cause vibration or noise that may be transmitted to the Building structure or to any other leased space in the Building shall be placed and maintained by Tenant in settings of cork, rubber, spring, or other types of vibration eliminators sufficient to eliminate such vibration or noise;

6.1.12      Landlord’s Costs - In case Landlord shall, without any fault on its part, be made party to any litigation commenced by or against Tenant or by or against any parties in possession of the Premises or any part thereof claiming under Tenant, to pay, as additional rent, all reasonable costs including, without implied limitation, reasonable counsel fees incurred by or imposed upon Landlord in connection with such litigation and as additional rent, also to pay all such costs and fees incurred by Landlord in connection with the successful enforcement by Landlord of any obligations of Tenant under this Lease;

6.1.13      Tenant’s Property - All the furnishings, fixtures, equipment, effects and property of every kind, nature and description of Tenant and of all persons claiming by, through or under Tenant which, during the continuance of this Lease or any occupancy of the Premises by Tenant or anyone claiming under Tenant, may be on the Premises or elsewhere in the Building or on the Lot or elsewhere in the Park shall be at the sole risk and hazard of Tenant, and if the whole or any part thereof shall be destroyed or damaged by fire, water or otherwise, or by the leakage or bursting of water pipes, steam pipes, or other pipes, by theft, or from any other cause, no part of said loss or damage is to be charged to or to be borne by Landlord except to the extent arising from Landlord negligence or willful misconduct, or that of its agents, employees or contractors, as required by law;

6.1.14      Labor or Materialmen’s Liens - To pay promptly when due the entire cost of any work done on the premises by Tenant, its agents, employees, or independent contractors; not to cause or permit any liens for labor or material performed or furnished in connection therewith to attach to the Premises; and immediately to discharge any such liens which may so attach within twenty (20) days after receipt of written notice of such attachment;

6.1.15      Changes or Additions — Except in connection with the construction of Landlord’s Work hereunder, not to make any material changes or additions to the Premises without Landlord’s prior written consent, which such consent shall not be unreasonably withheld, conditioned or delayed.  Notwithstanding the foregoing, Tenant may, from time to time, at its own cost and expense and without the consent of Landlord, make non-structural alterations, additions or improvements to the Premises that are decorative in nature, so long as they do not affect any of the mechanical, electrical or plumbing systems of the Building (collectively herein called “Permitted Alterations”) whose cost in any one instance is Fifteen Thousand Dollars ($15,000.00) or less, provided that Tenant first notifies Landlord in writing of any such

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Alterations.  If Tenant desires to make any alterations costing in excess of Fifteen Thousand Dollars ($15,000.00) in any one instance or any other alteration, including any structural alteration or alteration affecting any of the mechanical, electrical or plumbing systems of the Building (each an “Approval Alteration”; Permitted Alterations and Approval Alterations are collectively referred to herein as “Alterations”), Tenant must first obtain the consent of Landlord thereto, which consent shall not be unreasonably withheld, conditioned or delayed.  If Landlord reasonably concludes that the Approval Alterations involve any construction, alterations or additions requiring unusual expense to readapt the Premises to normal office use on the Term Expiration Date, Landlord shall notify Tenant in writing at the time of approval that such re-adaptation will be required to be made by Tenant prior to such Term Expiration Date without expense to Landlord.  Landlord’s failure to so notify Tenant shall mean that no such re-adaptation shall be required on or before the Term Expiration Date in connection with such Alteration.

To secure Landlord’s consent for an Approval Alteration, Tenant shall submit to Landlord working drawings and specifications prepared by an architect or such other information regarding the Approval Alteration as Landlord may reasonably request (collectively, the “Working Drawings and Specifications”).  Within ten (10) business days following Tenant’s initial submission of the Working Drawings and Specifications, and within five (5) business days for any other submission to Landlord, Landlord shall approve (by signing a copy thereof) or shall disapprove the Working Drawings and Specifications.

Any and all Alterations shall be performed by GCCI at Tenant’s expense, which shall equal the direct cost to GCCI (without fees or general conditions) plus a markup equal to six percent (6%) of such direct costs and shall be on a “competitive bid” and “open book” basis, unless GCCI elects not to so perform the same.  In such event that GCCI elects not to perform the same, Tenant may engage another contractor provided such contractor is reputable, bondable by reputable bonding companies, carries the kind of insurance and in the amounts set forth herein, and will work in harmony with Landlord’s contractors and laborers in the Building and such contractor is reasonably approved by Landlord (each an “Approved Contractor”).  Notwithstanding the foregoing, no such bonding is required for any such work.

Tenant in making any Alterations  shall cause all work to be done in a good and workmanlike manner using all new materials substantially equal to or better than those used in the construction of the Premises and shall comply with or cause compliance with all laws and with any direction given by any public officer pursuant to law and GCCI’s standard consistent with other similarly situated Class A buildings in the area in which the Building is located.  Tenant shall obtain or cause to be obtained and maintain in effect, as necessary, all building permits, licenses, temporary and permanent certificates of occupancy and other governmental approvals which may be required in connection with the making of the alterations, including the Alterations.  Landlord shall cooperate with Tenant in the obtaining thereof and shall execute any documents reasonably required in furtherance of such purpose, provided any such cooperation shall be without expense and/or liability to Landlord, unless Landlord elects to have GCCI perform the same in which event it agrees to cause GCCI to comply with the foregoing provisions, including the obligation of GCCI to use all new materials in connection with any construction hereunder, and other provisions set forth herein applicable to Tenant’s contractor.

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At least annually if such Alterations or any other alterations hereunder have occurred during the past calendar year, Tenant shall furnish to Landlord as-built sepias and, if applicable, operating manuals, or, at Landlord’s option and only if Tenant’s computer system is compatible with that of Landlord’s, computer disk specifications compatible with Landlord’s computer system of the work done by Tenant during such past year and copies of all permits issued in connection therewith.

Tenant shall have its contractor procure and maintain in effect during the term of such alterations, including Alterations, reasonably satisfactory insurance coverages with an insurance company or companies authorized to do business in the Commonwealth of Massachusetts, and shall, upon Landlord’s request, furnish Landlord with certificates thereof;

6.1.16      Holdover - To pay to Landlord one hundred seventy five (175%) percent of the Fixed Rent, together with the additional rent, then applicable for each month or portion thereof Tenant shall retain possession of the Premises or any part thereof after the termination of this Lease, whether by lapse of time or otherwise, and also to pay all damages proximately sustained by Landlord on account thereof, except that the holdover rent for the first thirty (30) days shall be at only one hundred fifty (150%) percent of the Fixed Rent, and no damages shall be due except after holdover by Tenant exceeding thirty (30) days and after receipt of at least thirty (30) days’ prior written notice (which such notice may be given prior to the expiration of said period or the Term) notifying Tenant that Landlord has entered into a lease with a new tenant and that damages may be incurred if Tenant continues to holdover.  The provisions of this subsection shall not operate as a waiver by Landlord of any right of re-entry provided in this Lease;

6.1.17      Hazardous Materials - Tenant shall not (either with or without negligence) cause or permit the escape, disposal or release of any Hazardous Materials onto, in or under the Premises, the Lot or Park, except in accordance with the requirements of applicable laws and regulations.  Tenant shall not allow the storage or use of such substances or materials in any manner not sanctioned by law or by the highest standards prevailing in the industry for the storage and use of such substances or materials, nor allow to be brought into the Premises any such materials or substances except to use in the ordinary course of Tenant’s business, and then only after written notice is given to Landlord of the identity of such substances or materials.  Landlord hereby consents to Tenant’s use of ordinary office and cleaning products in amounts reasonably necessary for Tenant’s Permitted Use of the Premises.  Without limitation, “Hazardous Materials” shall include those hazardous materials and substances described in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601 et seq., the Resource Conservation and Recovery Act, as amended, 42 U.S.C. Section 6901 et seq., the Massachusetts Hazardous Waste Management Act, as amended, M.G.L. c.21C, the Massachusetts Oil and Hazardous Material Release Prevention and Response Act, as amended, M.G.L. c.21E, any applicable local ordinance or bylaw, and the regulations adopted under these acts, (collectively, the “Hazardous Waste Laws”).  If any lender or governmental agency shall ever require testing to ascertain whether or not there has been any release of any Hazardous Materials, then the reasonable costs thereof shall be reimbursed by Tenant to Landlord within twenty (20) days after receipt of demand as additional charges if and only if the following conditions are satisfied:  (i) if such requirement applies to the Premises, and

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(ii) if an independent, reputable third party engineer employed by Landlord or persons acting under Landlord conclusively determines that such release has been or is likely to have been solely and exclusively caused by Tenant or persons acting under Tenant.  If Tenant receives from any federal, state or local governmental agency any notice of violation or alleged violation of any Hazardous Waste Law, or if Tenant is obligated to give any notice under any Hazardous Waste Law, Tenant agrees to forward to Landlord a copy of any such notice within five (5) business days of Tenant’s receipt or transmittal thereof.  In addition, Tenant shall execute reasonable affidavits, representations and the like from time to time at Landlord’s reasonable request concerning Tenant’s best actual knowledge or belief regarding the presence of Hazardous Materials on the Premises.  In all events, Tenant shall indemnify Landlord in the manner elsewhere provided in this Lease from any release of hazardous materials on the Premises or elsewhere in the Park occurring while Tenant is in possession if caused by Tenant or persons acting under Tenant.  Landlord retains the right to inspect the Premises at all reasonable times, upon reasonable notice to Tenant, to ensure compliance with this paragraph.  The within covenants shall survive the expiration or earlier termination of the Term;

6.1.18      Tenant’s Authority - Tenant has the power and authority to enter into this Lease and perform the obligations of Tenant hereunder.  This Lease and all other documents executed and delivered by Tenant in connection herewith constitute legal, valid, binding and enforceable obligations of Tenant; and

6.1.19      Confidentiality - This Lease document is a confidential document by and between Landlord and Tenant and Tenant agrees that this Lease shall not be copied and distributed or circulated to any person(s) other than to such parties, and their respective mortgagees, successors or assigns, their legal counsel or their accountants or to any prospective sublessees and assignees or affiliates of Tenant, or to any prospective acquirers, investors, or lenders of Tenant, or to regulatory authorities, or to the directors, shareholders or officers of Tenant, unless required by law or court order, without the prior written consent of Landlord.  All public announcements regarding this Lease prior to Tenant’s occupancy hereunder must be approved by Landlord and Tenant in advance.  Notwithstanding the foregoing, Tenant may, if requested by Tenant’s outside counsel, file a copy of this Lease with the Securities and Exchange Commission and any other regulatory body without attempting to secure any confidential treatment for information in this Lease.

6.1.20.  Signage - Tenant shall not, without the prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed so long as Tenant shall have not assigned the Lease or sublet more than fifteen (15%) percent of the Premises in the aggregate (excluding Permitted Transfers), (a) paint, place or replace any signs on the Lot or the Premises or anywhere on the exterior of the Building, or (b) place any curtains, blinds (other than standard vertical blinds), shades, awnings, or flagpoles, or the like, in the Premises or anywhere on or in the Building visible from outside the Building.  Tenant shall pay all expenses involved in the erection of any signage and of obtaining the permits therefor, except as provided in Exhibit D.  Tenant warrants that it shall obtain (and furnish copies thereof to Landlord) all necessary permits and approvals in compliance with local codes and ordinances prior to erecting any such exterior sign(s) and, at Landlord’s request, Tenant shall remove said sign(s) upon the termination of this Lease.

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In connection with Tenant’s initial Building signage, Landlord shall use reasonable efforts to obtain, on Tenant’s behalf, all necessary permits and approvals required pursuant to local codes and ordinances for Tenant to place an exterior sign on the Building, the location of which shall be mutually agreed upon by Landlord and Tenant.  Tenant’s signage on the Building shall be non-exclusive and shall at all times be subject to the aforesaid leasing requirement.  Tenant shall reimburse Landlord for the actual out-of-pocket third-party reasonable costs and expenses incurred by Landlord in connection with obtaining said permits and approvals, including reasonable attorneys fees and disbursements.  Tenant agrees to cooperate with Landlord during the permitting process by (i) promptly executing the necessary documentation reasonably requested by Landlord, and (ii) by furnishing the same to Landlord promptly upon Landlord’s request, but in no event later than seven (7) days following Landlord’s request.  Further, the construction and erection of the Building signage for Tenant shall be Tenant’s sole responsibility and at Tenant’s sole cost and expense.  In no event shall such Building exterior signage be part of Landlord’s Work hereunder.

ARTICLE 7

CASUALTY AND TAKING

7.1           CASUALTY AND TAKING

In case during the Term any substantial part of the Premises, or all or any substantial part of the Building, or Lot or any one or more of them, are, in the reasonable, good faith judgment of Landlord’s architect, damaged materially by fire or any other cause, or by action of public or other authority in consequence thereof or are taken by eminent domain or Landlord receives compensable damage by reason of anything lawfully done in pursuance of public or other authority, this Lease shall terminate at Landlord’s or Tenant’s election, which may be made, notwithstanding Landlord’s entire interest may have been divested, by notice given to the other within sixty (60) days after the occurrence of the event giving rise to the election to terminate, which notice shall specify the effective date of termination which shall be not less than thirty (30) nor more than sixty (60) days after the date of notice of such termination.  Landlord shall cause its architect to deliver to Tenant a certification as to such restoration period within forty-five (45) days after the casualty.  For purposes of this Section 7.1, a substantial part of the Building or Lot or material damage to the Premises or Building shall be damage that a will take, using reasonable diligence, more than nine (9) months from the date of such casualty to repair.  If in any such case the Premises are rendered unfit for use and occupation and the Lease is not terminated, Landlord shall promptly commence and diligently prosecute the restoration of the Premises, or in case of taking, what may remain thereof,  into substantially the condition immediately prior to the casualty, subject to applicable law to the extent permitted by the net award of insurance or damages, and a just proportion of the Fixed Rent and additional rent according to the nature and extent of the injury shall be abated until the Premises or such remainder shall have been put by Landlord in such condition; and in case of a taking which permanently reduces the area of the Premises, a just proportion of the Fixed Rent and additional rent shall be abated for the remainder of the Term and an appropriate adjustment shall be made to the Annual Estimated Operating Expenses.  In the event that such restoration is not completed within twelve (12) months after the date of such casualty (as such period may be extended by

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Force Majeure Delays [not to exceed an additional thirty (30) days] and/or Tenant Delays), Tenant shall have the right to terminate the Lease by notice to Landlord.

7.2           RESERVATION OF AWARD

Landlord reserves to itself any and all rights to receive awards made for damages to the Premises, Building or Lot and the leasehold hereby created, or any one or more of them, accruing by reason of exercise of eminent domain or by reason of anything lawfully done in pursuance of public or other authority.  Tenant hereby releases and assigns to Landlord all Tenant’s rights to such awards, and covenants to deliver such further assignments and assurances thereof as Landlord may from time to time reasonably request, hereby irrevocably designating and appointing Landlord as its attorney-in-fact to execute and deliver in Tenant’s name and behalf all such further assignments thereof.  It is agreed and understood, however, that Landlord does not reserve to itself, and Tenant does not assign to Landlord, any damages payable for (i) Tenant’s Property (as defined in Section 7.3(a) below, or (ii) relocation and moving expenses recoverable by Tenant from such authority in a separate action.

7.3           ADDITIONAL CASUALTY PROVISIONS

(a)           Landlord shall not be required to repair or replace any of Tenant’s business machinery, equipment, furniture, personal property or other installations not originally installed by Landlord (collectively, “Tenant’s Property”).

(b)           In the event of any termination of this Lease pursuant to this Article 7, the Term of this Lease shall expire as of the effective termination date as fully and completely as if such date were the date herein originally scheduled as the Term Expiration Date.  Tenant shall have access to the Premises at Tenant’s sole risk for a period of thirty (30) days after the date of termination in order to remove Tenant’s personal property except as prohibited by any applicable governmental agency or official.

(c)           Notwithstanding any language to the contrary contained in this Article 7, if all or any substantial or material part of the Premises and/or the Building or Lot or any part thereof (as hereinabove defined), shall be damaged by fire or other casualty or taken by eminent domain during the last twelve (12) months of the Term of this Lease as the Lease may have theretofore been extended, then either Landlord or Tenant may terminate this Lease effective as of the date of such fire or other casualty or taking upon notice to the other as aforesaid.  Also notwithstanding anything to the contrary contained in this Article 7, Tenant may render any notice of Landlord’s termination null and void by exercising early an option to extend the initial Term or then Extended Term of this Lease for five (5) additional years in accordance with Exhibit F.  In the event of such early exercise, Landlord and Tenant agree to determine the Fixed Rent for the applicable Extended Term at least twelve (12) months prior to the commencement date of the Extended Term in accordance with and in the manner set forth in said Exhibits F and H.

(d)             Notwithstanding anything to the contrary contained in this Lease:  (i) Landlord shall not have the right to terminate this Lease if damage to or destruction of the Premises or the Building, or both, results from a casualty ordinarily covered by insurance required to be carried by

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Landlord under this Lease; or (ii) in the event of damage to the Premises which is not required to be covered by insurance, and is not covered by insurance actually carried or required to be carried, Landlord shall not have the right to terminate this Lease (a) if the damage is minor (i.e. taking less than 60 days to repair) or it would cost less than ten percent (10%) of the replacement cost of the Premises, or (b) if Tenant agrees to pay the cost of repair not covered by insurance; or (iii) if the Premises are damaged by any peril and Landlord does not elect to terminate this Lease or is not entitled to terminate this Lease pursuant to its terms, then as soon as reasonably practicable, Landlord shall furnish Tenant with a written opinion of Landlord’s architect or construction consultant as to when the restoration work required of Landlord may be completed.  Tenant shall have the option to terminate this Lease in the event any of the following occurs, which option may be exercised by delivery to Landlord of a written notice of election to terminate within thirty (30) days after Tenant receives from Landlord the estimate of the time needed to complete such restoration: (y) the Premises, with reasonable diligence, cannot be fully repaired by Landlord within nine (9) months after the damage or destruction; or (z) if the Premises are damaged by any peril within twelve (12) months of the last day of Term, and cannot be substantially restored within sixty (60) days after the date of such damage.

ARTICLE 8

RIGHTS OF MORTGAGEE

8.1           PRIORITY OF LEASE

Landlord shall have the option to subordinate this Lease to any future mortgagee or deed of trust of the Lot or Building, or both (“the mortgaged premises”), provided that the holder thereof enters into a commercially reasonable agreement with Tenant by the terms of which the holder will agree to recognize the rights of Tenant under this Lease, assume the obligations of Landlord under this Lease and to accept Tenant as tenant of the Premises under the terms and conditions of this Lease in the event of acquisition of title by such holder through foreclosure proceedings or otherwise and Tenant will agree to recognize the holder of such mortgage as Landlord in such event, which agreement shall be made to expressly bind and inure to the benefit of the successors and assigns of Tenant and of the holder and upon anyone purchasing the mortgaged premises at any foreclosure sale.  Any such mortgage to which this Lease shall be subordinated may contain such terms, provisions and conditions as the holder reasonably deems usual or customary.  Further, Landlord agrees, as a condition to the effectiveness of this Lease to obtain a Subordination, Non-Disturbance and Attornment Agreement from its current lender, New England Teamsters and Trucking Industry Pension Fund, substantially in accordance with Exhibit J attached hereto.

8.2           LIMITATION ON MORTGAGEE’S LIABILITY

Upon entry and taking possession of the mortgaged premises for any purpose other than foreclosure, the holder of a mortgage shall have all rights of Landlord, and during the period of such possession, the duty to perform all Landlord’s obligations hereunder.  Except during such period of possession, no such holder shall be liable, either as mortgagee or as holder of a collateral assignment of this Lease, to perform, or be liable in damages for failure to perform any

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of the obligations of Landlord unless and until such holder shall enter and take possession of the mortgaged premises for the purpose of foreclosing a mortgage.  Upon entry for the purpose of foreclosing a mortgage, such holder shall be liable to perform all of the obligations of Landlord accruing after said entry (including performance of obligations arising prior to said entry but which constitute continuing obligations), provided that a discontinuance of any foreclosure proceeding shall terminate the liability of the holder as Landlord.

8.3           MORTGAGEE’S ELECTION

Intentionally Deleted.

8.4           NO PREPAYMENT OR MODIFICATION, ETC.

No Fixed Rent, additional rent, or any other charge shall be paid more than ten days prior to the due dates thereof, and payments made in violation of this provision shall (except to the extent that such payments are actually received by a mortgagee in possession or in the process of foreclosing its mortgage) be a nullity as against such mortgagee, and Tenant shall be liable for the amount of such payments to such mortgagee.  No assignment of this Lease and no agreement to make or accept any surrender, termination or cancellation of this Lease and no agreement to modify so as to reduce the rent, change the Term, or otherwise materially change the rights of Landlord under this Lease, or to relieve Tenant of any obligations or liability under this Lease, shall be valid as against a mortgagee unless consented to in writing by such Landlord’s mortgagee and only as to mortgagees of record, if any, which consent shall not be unreasonably withheld, conditioned or delayed.

8.5           NO RELEASE OR TERMINATION

No act or failure to act on the part of Landlord which would entitle Tenant under the terms of this Lease, or by law, to be relieved of Tenant’s obligations hereunder or to terminate this Lease, shall result in a release or termination of such obligations or a termination of this Lease unless (i) Tenant shall have first given written notice of Landlord’s act or failure to act to Landlord’s mortgagees of record, if any, the addresses for whom previously have been provided in writing to Tenant, specifying the act or failure to act on the part of Landlord which could or would give basis to Tenant’s rights, and (ii) such mortgagees, after receipt of such notice, have failed or refused to correct or cure the condition complained of within a reasonable time thereafter, but nothing contained in this Section 8.5 shall be deemed to impose any obligation on any such mortgagee to correct or cure any such condition.  “Reasonable time” as used above means and includes a reasonable time to obtain possession of the mortgaged premises, if the mortgagee elects to do so, and a reasonable time to correct or cure the condition if such condition is determined to exist.

8.6           CONTINUING OFFER

The covenants and agreements contained in this Lease with respect to the rights, powers and benefits of a mortgagee (particularly, without limitation thereby, the covenants and agreements contained in this Article 8) constitute a continuing offer to any person, corporation or

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other entity, which by accepting or requiring an assignment of this Lease or by entry or foreclosure assumes the obligations herein set forth with respect to such mortgagee, and such mortgagee shall be entitled to enforce such provisions in its own name.  Tenant agrees on request of Landlord to execute and deliver from time to time any agreement which may reasonably be deemed necessary to implement the provisions of this Article 8 provided such agreement does not materially increase Tenant’s obligations or diminish Tenant’s rights under this Lease.

8.7           MORTGAGEE’S APPROVAL

Landlord’s obligation to perform its covenants and agreements hereunder is subject to the condition precedent that this Lease be approved by the holder of any mortgage of which the Premises are a part and by the issuer of any commitment to make a mortgage loan which is in effect on the date hereof.  Unless Landlord gives Tenant written notice within fifteen (15) days after the Date of Lease Execution set forth on page 3 of this Lease that such holder or issuer, or both, disapprove this Lease, then this condition shall be deemed to have been satisfied or waived and the provisions of this Section 8.7 shall be of no further force or effect.

8.8           SUBMITTAL OF FINANCIAL STATEMENT

At any time, but not more than annually, during the Term of this Lease, within fifteen (15) days after request therefor by Landlord and, if so requested and provided by Tenant, Landlord’s execution of a commercially reasonable non-disclosure agreement, Tenant shall supply to Landlord and/or Landlord’s mortgagee a current financial statement, which shall include, without limitation, a balance sheet and income statement or such other financial information as may be reasonably required by Landlord (or its mortgagee).  Notwithstanding anything to the contrary contained in this Section, Landlord acknowledges that Tenant is a public company and that for as long a Tenant remains a public company Landlord shall not request Tenant’s financial statements.

ARTICLE 9

DEFAULT

9.1           EVENTS OF DEFAULT

It shall be an “Event of Default” under this Lease, if (i) Tenant fails to pay Fixed Rent or additional rent for more than ten (10) days, after notice thereof specifying such failure and that such failure may be an Event of Default hereunder; (ii) Tenant fails to perform its other non-monetary obligations hereunder for more than thirty (30) days after notice thereof from Landlord, together with such additional time, if any, as is reasonably required to cure the default if the default is of such a nature that it cannot reasonably be cured in thirty (30) days; or (iii) if Tenant makes any assignment for the benefit of creditors, or files a petition under any bankruptcy or insolvency law; or (iv) if such a petition is filed against Tenant and is not dismissed within sixty (60) days; or (v) if a receiver becomes entitled to Tenant’s leasehold hereunder and it is not returned to Tenant within ninety (90) days; or (vi) such leasehold is taken on execution or other process of law in any action

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against Tenant; Landlord and the agents and servants of Landlord may, in addition to and not in derogation of any remedies for any preceding breach of covenant, immediately or at any time thereafter while such default continues and without further notice except as required by applicable law enter into and upon the Premises or any part thereof in the name of the whole and repossess the same as of Landlord’s former estate and expel Tenant and those claiming through or under Tenant and remove its and their effects without being deemed guilty of any manner of trespass and without prejudice to any remedies which might otherwise be used for arrears of rent or prior breach of covenant, and upon such entry or mailing as aforesaid, this Lease shall terminate, but Tenant shall remain liable as hereinafter provided.  After the occurrence of an Event of Default as aforesaid, Tenant hereby waives all statutory rights of redemption, if any to the extent such rights may be lawfully waived, and Landlord, without notice to Tenant, may store Tenant’s effects and those of any person claiming through or under Tenant at the expense and risk of Tenant and, if Landlord so elects, may sell such effects at public auction or private sale and apply the net proceeds to the payment of all sums due to Landlord from Tenant, if any, and pay over the balance, if any, to Tenant.

9.2           TENANT’S OBLIGATIONS AFTER TERMINATION

In the event that this Lease is terminated under any of the provisions contained in Section 9.1 or shall be otherwise terminated for breach of any obligation of Tenant, Tenant covenants as follows:

a)If Landlord elects to liquidate its damages by notice to Tenant given within two (2) months after the date of such termination to pay forthwith to Landlord, as compensation, a sum equal to the present value of the total rent reserved for the residue of the Term minus the rental value of the Premises for said residue of the Term.  In calculating the rent reserved, there shall be included, in addition to the Fixed Rent and all additional rent, the value of all other consideration agreed to be paid or performed by Tenant for said residue; and

b)as an additional and cumulative obligation, to pay punctually to Landlord all of the sums and perform all of the obligations which Tenant covenants in this Lease to pay and to perform in the same manner and to the same extent and at the same time as if this Lease had not been terminated.  In calculating the amounts to be paid by Tenant under this sub clause (b), Tenant shall be credited with: (i) any amount paid to Landlord as compensation as provided in sub clause (a) of this Section 9.2; and (ii) the net proceeds of any rents obtained by Landlord by reletting the Premises, after deducting all of Landlord’s reasonable expenses in connection with such reletting, including, without implied limitation, all repossession costs, brokerage commissions, tenant improvements costs paid or tenant improvement allowances granted, fees for legal services, and any other expenses of reletting the Premises or preparing the Premises for the new tenant or tenants (which reletting costs shall be amortized on a straight-line basis of the term of the new lease and the only portion allocable to the terminated term of this Lease shall be charged to Tenant).

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Landlord agrees to use commercially reasonable efforts to relet the Premises following termination provided, however, that Landlord: (x) may relet the Premises or any part or parts thereof for a term or terms which may, at Landlord’s option, be equal to or less than or exceed the period which would otherwise have constituted the balance of the Term, and may grant such concessions and free rent as Landlord in its sole judgment considers advisable or necessary to relet same; (y) may make such alterations, repairs and decorations in the Premises as Landlord, in its sole judgment, considers advisable or necessary to relet the same, and no action of Landlord in accordance with the foregoing sub clauses (x) and/or (y), or Landlord’s failure to relet or to collect the rent through reletting, shall operate or be construed to release or reduce Tenant’s liability as aforesaid; and (z) shall have no duty to relet the Premises to a prospective tenant who is also interested in leasing other space that Landlord (or its affiliate(s)) then has available in the Park.

So long as at least twelve (12) months of the Term remain unexpired at the time of such termination, in lieu of any other damage of indemnity and in lieu of full recovery by Landlord of all sums payable under all the foregoing provisions of this Section 9.2, Landlord may, by written notice to Tenant, at any time given within thirty (30) days after this Lease is terminated under any of the provisions contained in Section 9.1, or is otherwise terminated for breach of any obligation of Tenant and before such full recovery, elect to recover, and Tenant shall thereupon pay, as liquidated damages, an amount equal to the aggregate of the Fixed Rent and additional rent accrued under Article IV in the twelve (12) months ended next prior to such termination (or if the Term has not yet commenced, the Fixed Rent and additional rent that would be due for said time period) plus the amount of Fixed Rent and additional rent of any kind accrued and unpaid at the time of termination and less the amount of any recovery by Landlord under the foregoing provisions of this Section 9.2 up to the time of payment of such liquidated damages.

Nothing contained in this Lease shall, however, limit or prejudice the right of Landlord to prove and obtain in proceedings for bankruptcy or insolvency by reason of the termination of this Lease, an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, the damages are to be proved, whether or not the amount be greater, equal to, or less than the amount of the loss or damages referred to above.

ARTICLE 10

MISCELLANEOUS

10.1         TITLES

The titles of the Articles are for convenience and are not to be considered in construing this Lease.

10.2         NOTICE OF LEASE

Concurrently with the execution of this Lease, both parties shall execute and deliver, after the Term begins, a short form of this Lease in the form attached hereto as Exhibit G.  If this

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Lease is terminated before the Term expires, the parties will execute an instrument acknowledging the date of termination.

10.3         RELOCATION

Intentionally Deleted.

10.4         NOTICES FROM ONE PARTY TO THE OTHER

No notice, approval, consent requested or election required or permitted to be given or made pursuant to this Lease shall be effective unless the same is in writing.  Communications shall be addressed, if to Landlord, at Landlord’s Address, with a copy to Gloria M. Gutierrez, Esq., The Gutierrez Company, One Wall Street, Burlington, MA 01803, or at such other address as may have been specified by prior notice to Tenant and, if to Tenant, at Tenant’s Address, or at such other place as may have been specified by prior notice to Landlord.  Any communication so addressed shall be deemed duly served if mailed by registered or certified mail, return receipt requested, delivered by hand, or by overnight express service by a carrier providing a receipt of delivery.

10.5         BIND AND INURE

The obligations of this Lease shall run with the land, and this Lease shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Landlord named herein and each successive owner of the Premises shall be liable only for the obligations accruing during the period of its ownership, said liability terminating as to future liability upon termination of such ownership and passing to the successor in ownership.  Neither the Landlord named herein nor any successive owner of the Premises whether an individual, trust, a corporation or otherwise shall have any personal liability beyond their equity interest in the Project, and the sales, rental, insurance and condemnation proceeds therefrom.

10.6         NO SURRENDER

The delivery of keys to any employees of Landlord or to Landlord’s agent or any employee thereof shall not operate as a termination of this Lease or a surrender of the Premises.

10.7         NO WAIVER, ETC.

The failure of Landlord or of Tenant to seek redress for violation of, or to insist upon the strict performance of any covenant or condition of this Lease or, with respect to such failure of Landlord, any of the Rules and Regulations referred to in Section 6.1.4, whether heretofore or hereafter adopted by Landlord, shall not be deemed a waiver of such violation nor prevent a subsequent act, which would have originally constituted a violation, from having all the force and effect of an original violation.  The receipt by Landlord of Fixed Rent or additional rent with knowledge of the breach of any covenant of this Lease shall not be deemed a waiver of such breach by Landlord, unless such waiver be in writing signed by Landlord.  No consent or waiver, express or implied, by Landlord or Tenant to or of any breach of any agreement or duty shall be construed as a waiver or consent to or of any other breach of the same or any other agreement or

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duty.

10.8         NO ACCORD AND SATISFACTION

No acceptance by Landlord of a lesser sum than the Fixed Rent and additional rent then due shall be deemed to be other than on account of the earliest installment of such rent due, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as rent be deemed as accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord’s right to recover the balance of such installment or pursue any other remedy in this Lease provided.

10.9         CUMULATIVE REMEDIES

The specific remedies to which Landlord may resort under the terms of this Lease are cumulative and are not intended to be exclusive of any other remedies or means of redress to which it may be lawfully entitled in case of any breach or threatened breach by Tenant of any provisions of this Lease.  In addition to the other remedies provided in this Lease, Landlord or Tenant shall be entitled to the restraint by injunction of the violation or attempted or threatened violation of any of the covenants, conditions or provisions of this Lease or to a decree compelling specific performance of any such covenants, conditions or provisions.

10.10       PARTIAL INVALIDITY

If any term of this Lease, or the application thereof to any person or circumstances shall to any extent be invalid or unenforceable, the remainder of this Lease, or the application of such term to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby, and each term of this Lease shall be valid and enforceable to the fullest extent permitted by law.

10.11       RIGHT TO CURE

If Tenant shall at any time default, beyond applicable notice and cure periods, in the performance of any obligation under this Lease, Landlord shall have the right, but shall not be obligated, upon five (5) days’ prior notice to Tenant (except in the event of an emergency where at least verbal notice will be given as soon as reasonably possible), to enter upon the Premises and to perform such obligation, notwithstanding the fact that no specific provision for such substituted performance by Landlord is made in this Lease with respect to such default.  In performing such obligation, Landlord may make any payment of money or perform any other act.  All sums so paid by Landlord (together with interest at the rate set forth in Section 4.3 hereof), and all necessary incidental costs and expenses in connection with the performance of any such acts by Landlord, shall be deemed to be additional rent under this Lease and shall be payable to Landlord immediately on demand.  Landlord may exercise the foregoing rights without waiving any other of its rights or releasing Tenant from any of its obligations under this Lease.  Landlord shall not be deemed to be in default of its obligations unless Landlord fails to perform any covenant, condition or agreement contained in this Lease and fails to cure the

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nonperformance within a reasonable time under all the circumstances, but not later than thirty (30) days after receiving written notice of the failure, provided, however, that if the nature of Landlord’s failure to perform reasonably requires more than thirty (30) days to cure, then Landlord shall not be deemed in default if Landlord commences to cure such failure within said thirty (30) day period and thereafter diligently and in good faith prosecutes such cure to completion.

10.12       ESTOPPEL CERTIFICATE

Tenant agrees on the Commencement Date, and from time to time thereafter, upon not less than thirty (30) days’ prior written request by Landlord, to execute, acknowledge and deliver to Landlord a statement in writing in substantially the form attached hereto as Exhibit B, correcting as appropriate any statements therein.   Landlord agrees on the Commencement Date, and from time to time thereafter, upon not less than thirty (30) days’ prior written request by Tenant, to execute, acknowledge and deliver to Tenant a statement in writing in substantially the form attached hereto as Exhibit B, correcting as appropriate any statements therein.

10.13       WAIVER OF SUBROGATION

Landlord and Tenant mutually agree, with respect to any hazard which is covered by casualty or property insurance then being carried by them, or required to be carried hereunder (whether or not such insurance is then in effect) to release each other from any and all claims with respect to such loss; and they further mutually agree that their respective insurance companies shall have no right of subrogation against the other on account thereof.  If extra premium is payable by either party as a result of this provision, the other party shall reimburse the party paying such premium the amount of such extra premium.

10.14       BROKERAGE

Landlord and Tenant each represent to the other that they have dealt with no real estate brokers, finders, agents or salesmen in connection with this transaction, except Studley, Inc., and Richards, Barry Joyce & Partners, LLC representing Tenant, and Richards, Barry Joyce & Partners, LLC, representing Landlord (“Brokers”).   Each party agrees to hold the other party harmless from and against all claims for brokerage commissions, finder’s fees, or other compensation made by any other agent, broker, salesman or finder as a consequence of said party’s actions or dealings with such agent, broker, salesman, or finder.  Landlord agrees to pay a fee to Tenant’s broker pursuant to a separate agreement.

10.15       COVENANTS INDEPENDENT

Each provision hereof constitutes an independent covenant, enforceable separately from each other covenant hereof.  To the extent any provision hereof or any application of any provision hereof may be declared unenforceable, such provision or application shall not affect any other provision hereof or other application of such provision.  Tenant acknowledges and agrees that Tenant’s obligation to pay Fixed Rent and additional rent is independent of any and all obligations of Landlord hereunder, with the result that Tenant’s sole remedy for any alleged

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breach by Landlord of its obligation hereunder shall be to commence a judicial proceeding against Landlord seeking specific performance or damages, except as provided in this Lease.

10.16       ACCESS

Subject to the terms and provisions of this Lease and all laws applicable to the Premises, Tenant shall have twenty-four (24) hours, seven (7) days per week, fifty-two (52) weeks per year, access to the Premises.

10.17       ENTIRE AGREEMENT

This instrument contains the entire and only agreement between the parties as to the Premises, and no oral statements or representations or prior written matter not contained in this instrument shall have any force or effect.  This Lease shall not be modified in any way except by a writing subscribed by both parties.

10.18       GOVERNING LAW

This Lease shall be governed by and construed and enforced in accordance with the laws and the Courts of the Commonwealth of Massachusetts.

10.19       ADDITIONAL REPRESENTATIONS

Landlord represents and warrants to Tenant as follows:

(a)that Landlord has the right and authority to enter into this Lease and grant Tenant possession of the Premises and other rights set forth herein, and that the person executing this Lease has the power to sign this Lease and bind Landlord hereto; and

(b)that Landlord is the fee simple owner of the Lot and that Landlord (or its affiliate(s) or an affiliate(s) of The Gutierrez Company) are the fee simple owners of the Park; and

(c)that the Building (including the Landlord’s Work) and the Lot will, upon substantial completion of Landlord’s Work and the Commencement Date hereunder and issuance of all necessary permits and approvals required to be obtained from any and all necessary governmental agencies prior to occupancy of the Premises by Tenant, if necessary, including without limitation, a certificate of occupancy from the Town of Burlington, which allows Tenant to use and occupy the Building as herein provided, comply with all dimensional, use, parking, loading and other zoning requirements of the Town of Burlington, and all applicable building codes and governmental requirements, including, without limitation, all ADA, local and state requirements and regulations promulgated thereunder and other applicable laws and rules governing access to and use of

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facilities by people with disabilities, including the Massachusetts Architectural Access Board regulations; and

(d)the Building (including the roof in accordance with industry standards and all mechanical and electrical systems), Premises, common areas, and Lot shall be, on the Commencement Date, be in good operating condition and repair, free and clean of debris, and ready for Tenant’s use and occupancy; and

(e)that no other tenants of the Building will be provided within their lease a parking ratio of greater than 3.0 spaces per 1,000 RSF leased throughout the Term (including any extensions hereof), and that parking shall be free of charge throughout the Term (including any extensions thereof); and

(f)that Landlord shall, by the Term Commencement Date, at its cost, repair and/or replace any windows or glazing in the Premises which, as of this date, show water leakage or have failed in other ways, including loose or damaged caulking, “fogged” glazing units or glazing units with failed seals; and

(g)that Landlord has, prior to the date of this Lease, provided Tenant with full and complete copies of any and all reports or information regarding any Hazardous Materials previously located or currently located in, on, under or about the Premises, Building, Lot and Park currently within its possession.

If any of the foregoing representations are untrue or warranties not satisfied as of the Term Commencement Date, Landlord shall promptly correct the same, at its sole cost and expense and not as a Landlord’s Operating Costs following receipt of written notice from Tenant.

ARTICLE 11

SECURITY

     Security in the amount of One Hundred Two Thousand Six Hundred Thirty Dollars ($102,630.00) shall be delivered by Tenant to Landlord promptly following the effectiveness of this Lease which shall occur upon the satisfaction of the conditions set forth in Sections 8.1 and 8.7 above (the “Security”).  Such Security shall be, at Tenant’s option, in the form of (i) cash, or (ii) in substantially the form of the sample Letter of Credit attached hereto as Exhibit I, and shall, if it is in the form of a Letter of Credit, (a) name the Landlord as its beneficiary, (b) expire not less than one (1) year after the issuance thereof, and (c) be drawn on an FDIC-insured financial institution reasonably satisfactory to Landlord.  The Tenant shall have the right exercisable at any time during the Term hereof to replace any cash Security with a Letter of Credit, subject to the provisions of Article 11 hereof.  If the initial term of the Letter of Credit will expire, Tenant shall from time to time, as necessary, renew or replace or amend the original and any subsequent Letter of Credit no fewer than twenty-five banking (25) days prior to the expiry date of the Letter of Credit then held by Landlord, and if Tenant fails to renew or replace or amend said Letter of Credit by not later than twenty-five (25) banking days prior to expiry date, Landlord may draw upon such Letter of Credit and hold the proceeds thereof in an account as Security, without

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interest until Tenant provides to Landlord a replacement letter of credit complying with the requirements for the original Letter of Credit as set forth above.

     Landlord may, from time to time, without prejudice to any other remedy, use all or a portion of the Security to cure any continuing Event of Default, including any uncured default in connection with any arrearages of Rent, costs incurred by Landlord to repair damage to the Premises caused by Tenant (subject to Section 10.13), and any reasonable costs incurred by Landlord to repair (other than normal wear and tear or damage caused by Landlord, its agents or employees) the Premises upon termination of this Lease.  Following any such application of the Security, Tenant shall, within five (5) business days after receipt of written demand, restore the cash security or letter of credit to its full amount, as applicable.  Tenant shall not have the right to call upon Landlord to apply all or any part of the Security to cure any continuing Event of Default, but such use shall be solely in the discretion of Landlord.  If there is no continuing Event of Default, at the termination of this Lease, after Tenant surrenders the Premises to Landlord in accordance with this Lease and all amounts then due Landlord from Tenant are finally determined and paid by Tenant or through application of the Security, the balance of the Security, either cash or the Letter of Credit, as applicable, shall be returned to Tenant and in any event, within thirty (30) days of expiration of the Term of this Lease and surrender of the Premises.  If Landlord transfers its interest in the Building during the Term, Landlord shall assign the Security to the transferee, Landlord shall notify Tenant of the assignment and thereafter have no further liability for the return of the Security so transferred to the transferee (as successor Landlord).  If the Security is in the form of a Letter of Credit, Landlord shall have no further liability for the return of such Letter of Credit once the assignee has assumed Landlord’s obligations with respect to the return of the Letter of Credit and Landlord has notified Tenant of the assignment. Upon any such delivery, Tenant hereby releases Landlord herein named of any and all liability with respect to the Letter of Credit, its application and return, and Tenant agrees to look solely to such grantee or transferee.  It is further understood that this provision shall also apply to subsequent grantees or transferees.  Upon request by Tenant, Landlord shall provide Tenant with a copy of the assignment and assumption or other written documentation that was entered into to effectuate the transfer of the Letter of Credit.  Landlord shall not be required to segregate the Security from its other accounts or to pay interest thereon, as aforesaid.

In the event the Lease is assigned by Tenant, Tenant’s assignee may provide a replacement Letter of Credit and the original Letter of Credit held by Landlord shall be returned to Tenant, provided that such Letter of Credit shall remain subject to all of the terms and conditions of this Article 11.  Landlord shall deliver the original prior Letter of Credit to the prior tenant simultaneously upon the delivery of the replacement letter of credit by Tenant’s assignee or as soon as possible thereafter.

Remainder of Page Intentionally Left Blank

Signature Page to Follow

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EXECUTED as a sealed instrument in two or more counterparts on the day and year first above written.

TENANT:		LANDLORD:
ZORAN CORPORATION,		AUBURN-OXFORD TRUST
a Delaware corporation
By:	/s/ Karl Schneider	By:	/s/ John A. Cataldo
		John A. Cataldo,
Duly Authorized Sr. VP, Finance & CFO		as Trustee on behalf of himself and
		his co-Trustee, and not individually

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EXHIBIT “A”

Plan Showing Tenant’s Space

[SEE ATTACHED]

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51

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EXHIBIT “B”

ESTOPPEL CERTIFICATE

THIS CERTIFICATE is made to _____________________, (the “Bank”) with respect to a lease between Auburn-Oxford Trust (“Landlord”) and the undersigned, covering a building located at One Wall Street, Burlington, Massachusetts, such lease being dated January ____, 2007 [as amended] (the “Lease”).

The undersigned has been advised that the Bank is about to enter into a transaction whereby the Bank is making a loan secured by the aforesaid real estate and the Lease to the undersigned, and under which the Bank may acquire an ownership interest in such real estate.  In connection with this transaction, the entire interest of the Landlord under the Lease to the undersigned will be assigned to the Bank.  The undersigned acknowledges that the Bank is and will be relying upon the truth, accuracy and completeness of this letter in proceeding with the transaction described above.

The undersigned, for the benefit of the Bank, their successors and assigns, hereby certifies, represents, warrants, agrees and acknowledges that:

1.The Lease is in full force and effect in accordance with its terms without modification or amendment except as noted below and the undersigned is the holder of the Tenant’s interest under the Lease.

2.Except as noted below, the undersigned is in possession of all of the Premises described in the Lease under and pursuant to the Lease and is doing business thereon; and the Premises are completed as required by the Lease.

3.Except as noted below, the undersigned has no claims or offsets with respect to any of its obligations as Tenant under the Lease, and neither the undersigned nor the Landlord is claimed to be in default under the Lease.

4.Except as noted below, the undersigned has not paid any rental or installments thereof in advance of the due date as set forth in the Lease.

5.Except as noted below, the undersigned has no notice of prior assignment, hypothecation or pledge of rents of the Lease or the Landlord’s interest thereunder or of the Tenant’s interest thereunder.

6.The Term of the Lease has commenced and is presently scheduled to expire on ___________.  If there are any rights of extension or renewal under the terms of the Lease, the same have not, as of the date of this estoppel, been exercised.

7.Until such time as the Bank shall become the Landlord, if the undersigned should assert a claim that the Landlord has failed to perform an obligation to the undersigned under the terms of the Lease or otherwise, notice thereof shall

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promptly be furnished to the Bank at the following address: __________________________; and the undersigned agrees that the undersigned will not exercise any rights which the undersigned might otherwise have on account of any such failure until notice thereof has been given to the Bank, and the Bank has had the same opportunity to cure any such failure as the Landlord may have under the terms of the Lease.

8.Each of the statements set forth in Paragraphs 1 through 7 are true, accurate and complete except as follows (state specifically any exception):

DATED:
ATTEST:	Zoran Corporation,
	a Delaware corporation
	By:
	Name:
	Title:

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EXHIBIT “C”

PRELIMINARY PLANS AND OUTLINE SPECIFICATIONS

OF LANDLORD’S WORK

(TENANT IMPROVEMENT WORK FOR PREMISES)

See attached Preliminary Plans and the outline specifications set forth below

GWB Partitions

·All partitions to be 3 5/8” studs 24” o.c. with 5/8” GWB on each side to 6” above ceiling.

·Full height partitions (to deck above) at: Conference Rooms, Training Room, V.P. offices, enclosed labs and computer room/lab with sound insulation.  Walls at corridors, storage rooms (unoccupied areas) do not need full height partitions.

Flooring

·General flooring to be carpet tile.  Include an allowance of $35/S.Y. to furnish and install.

·Upgrade flooring at V.P. offices, large conference rooms and training room to $40/S.Y. to furnish and install.

·VCT flooring (Armstrong Standard Excellon) at enclosed labs, storage rooms, computer room/lab, utility rooms and lunch room.

·Include 4” vinyl base at all vertical surfaces

·The total allowance for all the flooring and base is $191,000.00.

Wall Treatment

·Painted GWB eggshell finish all areas.

·Fabric-wrapped panels to be F&I by Tenant.

·Include an allowance of $6,000.00 to F&I.  200 S.F. of

wood panels at the lobby/reception.

Ceiling

·2x2x5/8 reveal edge ACT Armstrong #704 in a standard “T” grid.   l Manufacturers Standard White finish.

·Includes an allowance of $6,000 to F&I 1,500 S.F. of GWB ceilings or/and soffits.

Doors/Frames&Glazing

·Entrance doors, frames to be 3’-0” x 8’-4” plain sliced Red Oak Factory finished door in a K.D. hollow metal frame w/heavy duty lever handle lockset, 2 pair bb hinges, door stop and electric strike.

·Interior doors and frames to be 3’0”x7’0” plain sliced Red Oak Factory finished door in a K.D. hollow metal frames w/heavy duty latchset, 1 ½ pair hinges and door stop.

·Side lights to be 2’x7’ welded hollow metal frame painted with ¼” clear safety glass and vertical blind at all offices, conference rooms and training room.  An allowance of $36,000.00 is included for 48 sidelights.

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Millwork

·Includes an allowance of $36,000.00 for plastic laminate countertops and base cabinets at mail room, copy room and pantry.  Includes adjustable malamene shelving above counters in the mail and copy rooms and overhead plastic laminate cabinets in the pantry.  Allowance also includes coat closet pole and shelf and adjustable shelving.

Specialties

·Includes an allowance of $18,000.00 for recessed ceiling mounted projection screens.

·Includes and allowance of $3,000.00 for appliances.

·Includes an allowance of $6,000.00 to add card readers to three existing elevators.  Card Readers and wiring by Tenant’s security subcontractor.

·Marker Boards will be provided by Tenant’s subcontractor.

·Video Conference Infrastructure will be provided by Tenant’s subcontractor.

·Card Readers security system to be provided by Tenant’s subcontractor.

·Systems Furniture to be provided by Tenant’s subcontractor.

·Furniture will be provided by Tenant’s subcontractor.

·Voice and Data Equipment and wiring to be provided by Tenant’s subcontractor.

Electrical Lighting

·Linear Pendant Indirect-Large Conference Rooms, “A” (VP) Offices.

·2x4 and 2x2 Recessed Indirect — Open Office areas. “B” Offices, Pantry Areas, Training Room, Med&Small Conference Rooms.

·2x4 Recessed Indirect — Enclosed Labs.

·2x4 Recessed Acrylic Lens — Storage, Computer Room.

·Dimming Systems for Large Conf&Training Rooms.

·Includes and allowance of $100,000.00 for lighting fixtures with lamps and the lighting controls which consist of programmable lighting relay control panels and occupancy sensors.  Also included are cast aluminum L.E.D. exit signs.  This allowance is for the material including sales tax not for the installation.

·Specialty lighting for lobby/reception is included in the lighting fixture allowance.

·Includes an allowance of $7,500.00 for wiring special purpose LAB receptacles and/or equipment.

·Maintained lighting levels shall be in accordance with the Illuminating Engineering Society of North America 9th Edition.

Power

·Distribution system panelboards, cables and circuit breakers shall be sized for present loads and future allowance.  Future allowance shall include 20% spare/space for future feeder and branch circuit breakers in all  panelboards.

·Unless otherwise specially approved, all new wiring will be concealed.

·The minimum wire size for power will be #12 AWG.

·Ground fault protection for receptacles will be provided in accordance with National Electric Code requirements.

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·All interior receptacles shall be commercial grade, white thermoplastic with brushed stainless steel plates.

·Provide one single pole 10-amp circuit breaker per 120 gross S.F. for general office loads and miscellaneous power.  One duplex wall receptacle shall be provided for every 500 square feet of open office area.  Each enclosed office and conference rooms shall be provided with three duplex receptacles.

·Provide four (4) standard 120 volt duplex wall outlets at each lab.  Provide Eight (8) standard 120 volt duplex wall outlets at the large lab and the computer room.

·A single common ground or grounding bus shall be provided for the entire Premises.

·Lighting control panels shall be provided for control of open area lighting in lobbies and open office spaces.  System shall be provided with low voltage override switches to control zones for “after hours” use.

·Occupancy sensors should be provided for enclosed offices, conference rooms, etc, to achieve compliance with the automatic lighting shutoff requirements of the Massachusetts Energy Code.

·Wall mounted occupancy sensor switches will be provided in all full heights offices in conformance with The Massachusetts Energy Code.

·All emergency life safety egress lighting in exist corridors will be connected to the existing base building life safety system.

·Exit lights and emergency path of egress lighting will be provided in quantities in accordance with applicable codes.

·Exit signs will be LED type.

·New fire alarm devices shall be provided in compliance with all applicable codes and authorities having jurisdiction.  New devices shall match building standard.

·Smoke detectors will be installed in new tel/data rooms and electric rooms and will be connected to remote indicating lights located outside of the rooms.

·Telephone/data closets will have plywood backboards and ground bar.

·Fire alarm interface shall be provided to unlock all doors during fire alarm notification evacuation if required by code.

·Provide tel/data/power floor boxes in each large and Medium Conference Room.

Plumbing

·Includes an allowance of $7,000 to provide stainless steel sink at Pantry areas with water connections for ice maker and coffee service.

Mechanical

·The HVAC system will be sized to maintain indoor conditions of 75º Fdb at 50% relative humidity during summer conditions and  70º Fdb (no humidity control) under heating conditions.  Use outdoor conditions as published in the 1997 ASHRAE Fundamentals Handbooks, 1% conditions for cooling and dehumidification design and 99.6% conditions for heating design.

·Ductwork will be galvanized sheet metal, low and medium pressure, in accordance with SMACNA standards.

·Interior partitioned offices shall have at least one temperature zone per 10 offices.

·Perimeter partitioned offices shall have at least one temperature zone per 5 offices.

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·Corner offices shall be provided with their own temperature control zone.

·Conference rooms shall be provided with their own temperature control zone, separate exhaust fans and acoustically lined transfer ducts for return air.

·Testing and balancing of the system will be performed by a certified contractor.

·Includes a Sanyo 36,000 BTU (3 Tons A/C) wall mounted air conditioning unit for the computer room.

·Air conditioning for the labs will be provided by the “House” system.

Telecommunications

·Provide a plaster ring and pull string for each tel/data outlet.

·Provide (2) locations per each office.

·Provide a minimum of (1) jack location for any room or work area not noted above.

·Provide a minimum of (10) jack locations for each Enclosed Lab.

·Provide power/data floor boxes in each Large Conference Room.

·Provide (12) power/data floor boxes in Training Room.

·Any floor feeds shall be in conduit in the spaces below the tenant’s floor.

·Provide plywood backboards in telephone rooms and data closets.

·Provide “rings & strings” from recessed wall junction boxes to points above the ceiling for each tel/data outlet, at a minimum one per 500 square feet of open floor area.

·Cableways shall be provided to link the main telephone/data room to the building data closets.

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EXHIBIT “C-1”

LIST OF LANDLORD’S WORK

(BASE BUILDING)

In addition to the work contemplated by the plans and specifications attached as Exhibit C and to provide additional detail that may not be included in such plans and specifications, Landlord shall perform the following work on or before the Commencement Date at its sole cost and expense and not as a Landlord’s Operating Cost:

·Inspect the roof, present evidence to Tenant of current condition, describe all necessary repairs and perform such repairs to the roof in a manner consistent with industry standards for such roofs.

·Ensure that all mechanical and electrical systems in the Building are in good working order as of the Commencement Date and present to Tenant records of such systems’ condition and evidence of all maintenance and repairs has been performed.

·Perform all work necessary to achieve ADA compliance.

·Repair and replace any windows or glazing which show water leakage or have failed in other ways including loose or damaged caulking, “fogged” glazing units or glazing units with failed seals.

·Renovate the existing rest rooms on both the 3rd and 4th floors of the Building in accordance with specifications consistent with comparable first class office buildings in the Burlington, Massachusetts market, which will include, at a minimum, upgrading of the floors, walls, ceiling finishes, and lighting of such rest rooms.

·Renovate the common lobby and hallway on the 4th floor of the Building, including new carpeting, lighting, wall paint/covering, door finishes and hardware, and ceilings in accordance with specifications consistent with comparable first class office buildings in the Burlington, Massachusetts market.

·Refinish/repaint the elevator doors and frames on the 3rd and 4th floors of the Building.

·Replace or re-finish window sills in the Premises, as necessary.

·Provide new window treatments for the Premises, as necessary.

·Exterior landscaping, including pruning and tree removal required to maximize Tenant’s views from the Premises.

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EXHIBIT C-2

Additional Work

1.	Computer room systems including supplemental air conditioning (beyond what is included within Landlord’s Work), UPS systems, and gaseous fire suppression equipment.
2.	Network equipment including racks, cable management and server equipment
3.	Audio visual equipment including projectors, motorized screens and speaker systems.
4.	Videoconferencing systems
5.	Enclosed lab supplemental air conditioning
6.	Lobby reception station
7.	Security system and access control devices
8.	Systems furniture
9.	Appliances
10.	Emergency Generator — Subject to the following provision: Subject to the provisions hereinafter provided, Tenant
shall have the right, at no additional charge, to place a generator and fuel supply on the Lot, at Tenant’s sole cost and expense. Subject to all applicable law, matters of title and the consent of Landlord and the first floor tenant, not to be unreasonably withheld, conditioned or delayed, Tenant has the right to install the same. The size and location of the installation shall not be unreasonably withheld or delayed by Landlord. All installations shall be in accordance with sound construction practices, and in accordance with applicable law, and in a good and workmanlike manner, and shall not materially interfere with other tenants of the Building or Park or decrease the number of parking spaces on the Lot. The cost of any environmental review of the proposed equipment shall be at Tenant’s expense. Tenant shall indemnify, defend and hold Landlord harmless from and against any and all liability or loss arising (except as a result of the negligence or willful misconduct or Landlord, its agents, employees or contractors) from or out of the installation, use or removal of such generator and fuel supply. Upon expiration of the Term, Tenant shall be responsible for the removal of the same and for repairing any damage caused therefrom. This Section shall survive the expiration or earlier termination of this Lease.

Note: Some items may be installed by Tenant’s contractors prior to Commencement Date

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EXHIBIT C-3

Zoran Relocation Project Schedule

[SEE ATTACHED]

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EXHIBIT “D”

LANDLORD’S SERVICES

I.              CLEANING

A.            Building Lobbies and Common Areas

1.Entrance doors and partition glass to be cleaned nightly.  Wipe down frames and fixtures as needed.

2.Remove entrance mats and clean sand and dirt from pits and floors, clean and replace mats nightly.

3.Floors to be swept and washed nightly.  Maintain a high luster finish following manufacturer’s specifications.

4.Walls to be dusted and spot cleaned as necessary, thoroughly washed twice a year.

5.Empty and wipe clean trash receptacles nightly including exterior smoker’s stations.

6.Dust, with treated cloth, security desks, window sills, directory frames, planters, etc., nightly.

7.             Clean director glass nightly.

8.Vacuum all carpeted areas nightly, treat and spot clean stains, clean fully as needed.

9.Vinyl tile floors to be dry mopped nightly, spot washed with clean water as needed and spray buffed weekly.

10.Sweep all stairwells in building nightly and keep in clean condition, washing same as necessary.

11.Do all high dusting (not reached in nightly cleaning) quarterly, which includes the following:

(a)           Dust all pictures, frames, charts, graphs and similar wall hangings.

(b)Dust exposed piped, ventilation and air conditioning grilles, louvers, ducts and high molding, as needed.

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12.Clean and maintain luster on ornamental metal work as needed within arm’s reach.

13.Dust all drapes and blinds as needed.

14.Wash and disinfect drinking fountains using a non-scented disinfectant nightly.  Polish all metal surfaces on the unit nightly.

15.Strip and wax all resilient tile floors yearly.

16.Shampoo all common area carpets at additional contract price at least once per year.

B.Lavatories — Nightly

1.Empty paper towel receptacles, bag and transport waste paper to designated area, disinfect receptacle and add new liner.

2.Empty sanitary napkin disposal receptacles, bag and transport waste, disinfect receptacle and add new liner.

3.Refill toilet tissue, hand towel dispensers, and sanitary napkin dispensers.

4.Scour, wash and disinfect all basins, bowls and urinals using non-scented disinfectants.

5.Wash, disinfect and wipe dry both sides of toilet seat using non-scented disinfectants.

6.Wash and polish all mirrors, counters, faucets, flushometers, bright work and enameled surfaces.

7.Spot clean toilet partitions, doors, door frames, walls, lights and light switches.

8.Remove all cobwebs from walls and ceilings.

9.Sweep and wash all floors, using proper non-scented disinfectants.

10.Add water to floor drains weekly, disinfect monthly.

11.Turn off lights.

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C.Elevators — Nightly

1.Thoroughly clean walls.

2.Wipe clean control panels, door frames and mirrors.

3.Vacuum cab and floor door tracks.

4.Vacuum floors, shampoo as needed, wash stone floors.

5.Dust ceilings.

D.General Cleaning (Monday through Friday — Holidays Excluded)

Tenant Areas Nightly — Unless Noted

1.Empty and clean all waste receptacles nightly and remove waste paper and waste materials, including folded paper boxes and cartons, to designated area.  Replace liners as needed.  Check and wash waste baskets if soiled.  Abnormal waste removal (e.g. computer installation paper, bulk packaging, wood or cardboard crates, refuse from cafeteria operation, etc.) shall be Tenant’s responsibility.

2.Weekly hand dust with treated cloth and wipe clean or feather dust[er] all accessible areas on furniture, desks, files, telephones, fixtures and window sills.

3.Clean all table tops and tenant entrance glass.  Spot clean partitions.

4.Spot clean all walls, door frames and light switches.

5.Wipe clean and polish all bright metal work as needed within arm’s reach.

6.All stone, ceramic, tile, marble, terrazzo and other unwaxed flooring to be swept, using approved dust-down preparation.

7.All wood, linoleum, rubber asphalt, vinyl and other similar type of floors to be swept, using approved dust-down preparation and mopped or cleaned with dry system cleaner nightly.

8.Reception areas, halls, high traffic areas to be vacuumed nightly.

9.Offices and cubicles to be spot vacuumed nightly.  Complete vacuum weekly.

10.Spot clean carpet stains.

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11.Wash and clean all water fountains and coolers nightly.  Sinks and floors adjacent to sinks to be washed nightly.

12.Dust blinds as needed.

13.Vinyl tile floors to be dry mopped nightly, spot washed with clean water as needed and spray buffed every two weeks.

14.           Start dishwasher. (To be billed separately by Landlord to Tenant)

15.           Wipe down microwaves. (To be billed separately by Landlord to Tenant)

16.Wash whiteboards with whiteboard cleaner supplied by Tenant. (To be billed separately by Landlord to Tenant)

E.Common Showers

1.Wash shower walls and floors nightly, using proper non-scented disinfectants.

2.Clean and disinfect shower curtains weekly.

3.Scrub showers with bleach weekly.

4.Wash tile walls with proper grout cleaning compound as needed.

5.Add water to floor drains weekly, disinfect monthly.

6.Turn off lights.

Note:  Landlord agrees that the aforesaid janitorial/general management services under this Section I shall be provided to all multi-tenant/single tenant floors and the costs (i.e. the initial costs only as such costs can increase over the Term) thereof are included in the Base Year Operating Costs.

II.            HEATING, VENTILATING AND AIR CONDITIONING

1.Heating, ventilation and air conditioning as required to provide reasonably comfortable temperatures for normal business day occupancy (except holidays), Monday through Friday, from 8:00 AM to 6:00 PM, and Saturday from 8:00 AM to 1:00 PM, if so requested by Tenant, by providing at least 24 hours notice.  HVAC services beyond the aforesaid hours of operation can be made available to

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Tenant, if so requested by Tenant, by providing at least 24 hours prior written notice and at a cost of $25.00 per hour per unit.

2.Maintenance on any additional or special air conditioning equipment, and the associated operating cost thereof, will be at Tenant’s expense.

III.           WATER

Hot water for lavatory and kitchen purposes and cold water for drinking, kitchen, lavatory and toilet purposes.

IV.           ELEVATORS

Elevators for the use of all tenants and the general public for access to and from all floors of the Building, programming of elevators (including, but not limited to, service elevators), shall be as Landlord from time to time determines best for the Building as a whole.

V.            SECURITY/ACCESS

Twenty-four (24) hour entry to the Building is available to Tenant and Tenant’s employees, after normal Building hours of operation.  Tenant shall have unrestricted access to its Premises at all times, and not just during normal building hours and operation.  All security within the Premises shall be the responsibility of the Tenant and Tenant shall have the right to control its space, including the right to install additional security measures.

VI.           BUILDING HOURS

Normal building hours of operation are Monday through Friday from 8:00 AM to 6:00 PM.  The Building operates on Saturday from 8:00 AM to 1:00 PM, with access to the Building subject to the provisions as outlined in Item V contained herein.  Except for the heating, ventilating and air conditioning system, which operates in accordance with the schedule as described in Item II contained herein, all Building systems, including but not limited to electrical, mechanical, elevator, fire safety and sprinkler, and water, operates 24 hours per day, 7 days per week, subject to repairs, failures and interrupted service beyond Landlord’s control.

VII.CAFETERIA, VENDING AND PLUMBING INSTALLATIONS/INTERIOR LAVATORIES AND SHOWERS

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1.Except as expressly set forth in this Exhibit, any space to be used primarily for lunchroom or cafeteria operation within the Premises shall be Tenant’s responsibility to keep clean and sanitary.  Cafeteria, vending machines or refreshment service installations by Tenant must be approved by Landlord in writing, which approval shall not be unreasonably withheld, conditioned or delayed.  All maintenance, repairs and additional cleaning necessitated by such installations shall be at Tenant’s expense.

2.Tenant is responsible for the maintenance and repair of plumbing fixtures and related equipment installed in the Premises for its exclusive use (such as in coffee room, cafeteria or employee exercise area within the Premises), except for the Base Building restrooms which Landlord shall maintain on multi-tenant and single tenant floors.

VIII.        SIGNAGE

Tenant shall be entitled to the Building’s standard signage at Tenant’s main entry and on the Building’s lobby directories.  See also Section 6.1.20.

IX.           ELECTRICITY

Tenant shall, in addition to paying Fixed Rent, pay for all electricity consumed in the Premises during the Term pursuant to a Landlord installed electric sub-meter or check meter to measure Tenant’s actual usage consumed within the Premises.  Tenant shall reimburse Landlord for any costs of such electricity (without any mark-up) on a monthly basis, specifically within thirty (30) days upon receipt of Landlord’s invoice therefor.  Common area electricity and Building HVAC electric charges are included in the Landlord’s Operating Costs set forth in Section 4.2 of this Lease.

Tenant’s use of electrical service in the Premises shall not at any time exceed the capacity of any of the electrical conductors or other equipment in or otherwise serving the Premises or the Building standard, as hereinafter provided.  To ensure that such capacity is not exceeded and to avert possible adverse effects upon the Building’s electrical system, Tenant shall not, without at least thirty (30) days prior written notice to and consent of Landlord as set forth in Section 6.1.15 of the Lease in each instance, connect to the Building electric distribution system any fixtures, appliances or equipment which operates on a voltage in excess of 277/480 volts nominal, or make any alteration or addition to the electric system of the Premises.  In the event Tenant shall use (or request that it be allowed to use) electrical service in excess of that reasonably deemed by Landlord to be standard for the Building, Landlord may condition its consent to such service upon such conditions as Landlord reasonably requires (including, but not limited to, the installation of utility service upgrades, sub-meters, air handlers or cooling units), and all such additional usage (except to the extent prohibited by law), installation and maintenance thereof shall be paid for by Tenant, as additional rent, upon Landlord’s demand, so long as no other tenants are receiving excess usage.

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It is understood that the electrical generated service to the Premises may be furnished by one or more generators of electrical power and that the cost of electricity may be billed as a single charge or divided into and billed in a variety of categories, such as distribution charges, transmission charges, generation charges, congestion charges, public good charges, and other similar categories, and may also include a fee, commission or other charge by an unaffiliated broker, aggregator or other intermediary for obtaining or arranging the supply of generated electricity.  Landlord shall have the right to select the generator of electricity to the Premises and to purchase generated electricity for the Premises through a broker, aggregator or other intermediary and/or buyers group or other group and to change the generator of electricity and/or manner of purchasing electricity from time to time. Under no circumstances shall Landlord charge Tenant any mark-up on electricity provided to the Premises, Building or Park.

If Landlord successfully undertakes activities for the purpose of reducing Tenant’s operating costs (such as negotiating an agreement with a utility or another energy generator or engaging an energy consultant or undertaking conservation or other energy efficient measures that may require capital expenditures), the reasonable out of pocket costs and expenses associated with such actions shall be included in Landlord’s Operating Costs (subject to the provisions of Section 4.2) [including, but not limited to, brokers’ commissions and legal fees, but excluding capital expenditures, which shall be amortized as set forth in Section 4.2 of the Lease]).

As used herein, the term “generator of electricity” shall mean one or more companies (including, but not limited to, an electric utility, generator, independent or non-regulated company) that provides generated power to the Premises or to the Landlord to be provided to the Premises, as the case may be.

X.            OTHER UTILITIES

Tenant shall be responsible for the payment of all other utilities consumed by Tenant in the Premises, including telephone, cable, and other communications.  Tenant shall pay for such consumption directly to the provider of such utilities.

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EXHIBIT E

RULES AND REGULATIONS

1.The entrance, lobbies, passages, corridors, elevators and stairways shall not be encumbered or obstructed by Tenant, Tenant’s agents, servants, employees, licensees, and visitors, or be used by them for any purpose other than for ingress and egress to and from the Premises.  The moving in or out of all safes, freight, furniture, or bulky matter of any description must take place during the hours which Landlord may reasonably determine from time to time.  Landlord reserves the right to inspect all freight and bulky matter to be brought into the Building and to exclude from the Building all freight and bulky matter which violates any of these Rules and Regulations or the Lease of which these Rules and Regulations are a part.

2.No curtains, blinds, shades, screens, advertisements, or signs, other than those furnished by Landlord, shall be attached to, hung in, or used in connection with any window or door of the Premises without the prior written consent of the Landlord.  Interior signs on doors shall be painted or affixed for Tenant by Landlord or by sign painters first approved by Landlord, at the expense of Tenant, and shall be of a size, color and style reasonably acceptable to Landlord.

3.Tenant shall furnish Landlord with master keys or access devices for any security (door access) system provided and installed by Tenant, so long as the same has been approved by Landlord, which approval shall not be unreasonably withheld, conditioned or delayed.  Tenant shall be allowed to place additional locks or bolts upon doors and windows within the Premises, as long as Tenant provides master keys to Landlord as aforesaid as these additional locks and bolts could prove to be a hindrance to Landlord providing building services, such as cleaning and maintenance.  Tenant must, upon the termination of its tenancy, remove all additional locks and bolts and restore all original door hardware (unless Landlord has approved the installation of such hardware and notified Tenant at the time that Landlord approved the hardware that the hardware need not be removed upon the expiration or earlier termination of the Lease) and provide Landlord all Building keys either furnished to or otherwise procured by Tenant; and in the event of the loss of any keys so furnished, Tenant shall pay to Landlord the reasonable replacement cost thereof.

4.Canvassing, soliciting and peddling in the Building, or on the Lot or in the Park if applicable, are prohibited, and Tenant shall cooperate to prevent the same.

5.Tenant shall comply with all reasonably necessary security measures from time to time established by Landlord for the Building or Park, if applicable.

6.Tenant agrees that there shall be no smoking allowed anywhere in the Premises or Building.

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7.No animals, with the exception of “assistance animals” (e.g., seeing eye dogs) shall be brought into the Building by Tenant, Tenant’s agents, servants, employees, invitees, subtenants and assigns.

8.Users of any common fitness room or shower facilities within the Building (if applicable) shall only place a lock on a locker only during the time they are using the fitness, locker room and/or shower facilities.

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EXHIBIT “F”

OPTIONS TO EXTEND

The Tenant has the options to extend the Initial Term of this Lease for two (2) successive five (5) year term(s) (each an “Extended Term” or collectively, the “Extended Terms”), the exercise of which shall automatically extend the Term of this Lease without the necessity of additional documentation.  So long as there does not exist any continuing, uncured Event of Default hereunder at such time of exercise, the option to extend the first Extended Term shall be deemed to have been exercised by Tenant’s notification to Landlord that it elects to exercise its option to extend at least twelve (12) months, but not more than eighteen (18) months, prior to the end of the Initial Term hereunder and, as to the second Extended Term, at least twelve (12) months, but not more than eighteen (18) months, prior to the end of the first Extended Term.  The Extended Term(s) shall be upon the same terms and conditions as are set forth in this Lease, including, without limitation, the Tenant’s obligations to pay Operating Cost Escalation as set forth in Section 4.2, except that (i) there shall be no additional option to extend after the termination of the second Extended Term or the failure to exercise the first or second option, as applicable option, whichever shall first occur, (ii) the annual Fixed Rent for the Extended Terms shall be equal to ninety-five percent (95%) of the Market Rent (as defined in and determined in accordance with Exhibit H), and (iii) there shall be no allowances, abatements or initial rental concessions as may have been provided for herein with respect to the Initial Term and (iv) the Base Year Operating Costs for such Extended Term shall be the amount of Landlord’s Operating Costs for the calendar year ending December 31 of the first year of such Extended Term (grossed up to reflected 95% occupancy as set forth in Section 4.2).  Notwithstanding the foregoing, in no event, however, shall the annual Fixed Rent for the first Extended Term be less than the annual Fixed Rent and additional rent payable during the last year of the Initial Term (after taking into account the free rent and other concessions applicable to the Initial Term, which for such purposes shall be amortized on a straight line basis over the Initial Term), and in no event shall the annual Fixed Rent for the second Extended Term be less than the annual Fixed Rent and additional rent payable during the last year of the first Extended Term.

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EXHIBIT “G”

NOTICE OF LEASE

In accordance with the provisions of Massachusetts General Laws (Ter. Ed.) Chapter 183, Section 4, as amended, notice is hereby given of a certain lease (hereinafter referred to as the “Lease”) dated as of February __, 2007 by and between Arturo J. Gutierrez and John A. Cataldo, as trustees of Auburn-Oxford Trust, u/d/t dated October 19, 1983, and recorded with the Middlesex South Registry District of the Land Court as Document No. 652932 (hereinafter referred to as “Landlord”) and Zoran Corporation, a Delaware corporation (hereinafter referred to as “Tenant”).

W I T N E S S E T H:

1.The address of the Landlord is c/o The Gutierrez Company, One Wall Street, Burlington, Massachusetts 01803.

2.             The address of the Tenant is  1390 Kifer Road, Sunnyvale, California 94086.

3.             The Lease was executed on February __, 2007.

4.The Term of the Lease is a period of ten (10) years beginning on the Commencement Date determined in accordance with Section 3.2 of the Lease, currently scheduled for August 1, 2007.

5.Subject to the provisions of the Lease, the Tenant has the option to extend the Term of the Lease for two 5-year term pursuant to Exhibit “F” of the Lease.

6.The demised premises is approximately 54,736 square feet within a six-story building containing approximately 192,000 rentable square feet located at One Wall Street, Burlington, Massachusetts 01803 (the “Building”), and the areas of which are the subject of all appurtenant rights and easements set forth in Section 2.1 of the Lease.  Tenant has a right of first refusal on space on floors 4 and 5 of the Building, in accordance with the terms of the Lease.

7.             The lot upon which the Building is located is described in Exhibit “A” attached.

This Notice of Lease has been executed merely to give notice of the Lease, and all of the terms, conditions and covenants of which are incorporated herein by reference.  The parties hereto do not intend this Notice of Lease to modify or amend the terms, conditions and covenants of the Lease which are incorporated herein by reference.

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IN WITNESS WHEREOF, the parties hereto have duly executed this Notice of Lease as of this ___ day of _____________, 2007.

LANDLORD:
AUBURN-OXFORD TRUST
By:
	Arturo J. Gutierrez, as trustee
	in his capacity as said trustee
	and not individually

COMMONWEALTH OF MASSACHUSETTS

MIDDLESEX, SS

On this ____day of ____________, 2007, before me, the undersigned notary public, personally appeared Arturo J. Gutierrez, as Trustee of Auburn-Oxford Trust, proved to me through satisfactory evidence of identification, which was personal knowledge of the undersigned, to be the person whose name is signed on the preceding or attached document(s), and acknowledged to me that he signed it voluntarily for its stated purpose.

(official seal)

Notary Public

TENANT:

ZORAN CORPORATION

By:

Name:

Title:

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STATE OF ________________

County of _________________________

On this _______ day of ______________, 2007, before me, the undersigned notary public, personally appeared ___________________________, the _________________ of Zoran Corporation, proved to me through satisfactory evidence of identification, which was o photographic identification with signature issued by a federal or state governmental agency, o oath or affirmation of a credible witness, o personal knowledge of the undersigned, to be the person whose name is signed on the preceding or attached document(s), and acknowledged to me that he/she signed it voluntarily for its stated purpose.

(official seal)

Notary Public

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EXHIBIT “A” TO EXHIBIT “G”

A parcel of land with the buildings and improvements thereon located off of Cambridge Street and Wall Street in Burlington, Middlesex County, Massachusetts, being shown as Lot 15B on the plan entitled “Plan of Land in Burlington, Massachusetts (Middlesex County)” prepared for Auburn-Oxford Trust, Scale 1” = 40’ dated November 23, 1999 by The BSC Group, Inc., which plan is recorded with the Middlesex South Registry of Deeds as Plan No. 20 of 2000.  Portions of said Lot 15B are registered land being Lot 3 and Lot 4 as shown on Land Court Plan 34820A and Lot 5 as shown on Land Court Plan 24820B.

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EXHIBIT “H”

MARKET RENT

The market rent for the Premises shall mean the then fair market rent for the Premises for the applicable Extended Term, including annual increases (if any), being charged at the time for renewals similar in kind for similar office/R&D buildings in the area, taking into account the location, age and condition of the buildings, lease term length, inducements (e.g., improvement allowances, rent concessions, etc.), brokerage commissions and all other relevant factors (the “Market Rent”).  Market Rent shall be determined as follows:

(a)The Market Rent shall be proposed by Landlord within fifteen (15) days of receipt of Tenant’s notice that it intends to exercise its option to extend the Term as specified in Exhibit F, which such proposal shall also include market comparables (the “Landlord’s Proposed Market Rent”).  The Landlord’s Proposed Market Rent shall be the Market Rent unless Tenant notifies Landlord, within thirty (30) days of Tenant’s receipt after Landlord’s Proposed Market Rent, that Landlord’s Proposed Market Rent is not satisfactory to Tenant and (a) that Tenant desires to revoke its election to extend the Term pursuant to Exhibit F (whereupon receipt the same shall be treated as if no initial notice had been sent by Tenant pursuant to Exhibit F) or (b) that Tenant elects to continue to have discussions with Landlord and proceed to a binding arbitration pursuant to subparagraph (b) below (“Tenant’s Rejection Notice”).

(b)If Tenant delivers Tenant’s Rejection Notice and the Market Rent is not otherwise agreed upon by Landlord and Tenant within forty-five (45) days after Landlord’s receipt of Tenant’s Rejection Notice, then the Market Rent shall be determined by the following appraisal procedure:

1.Within five (5) days of the expiration of said forty-five (45) day period, Tenant shall give notice to Landlord, which notice shall specify the name and address of the appraiser designated by Tenant (the “Tenant’s Appraisal Notice”).  Landlord shall within five (5) days after receipt of Tenant’s Appraisal Notice, notify Tenant of the name and address of the appraiser designated by Landlord.  Such two appraisers shall, within twenty (20) days after the designation of the second appraiser, make their determinations of the Market Rent in writing and give notice thereof to each other and to Landlord and Tenant.  Such two (2) appraisers shall have twenty (20) days after the receipt of notice of each other’s determination to confer with each other and to attempt to reach agreement as to the determination of the Market Rent.  If such appraisers shall concur in such determination, they shall give notice thereof to Landlord and Tenant and such concurrence shall be final and binding upon Landlord and Tenant.  If such appraisers shall fail to concur as to such determination within said twenty (20) day period, they shall give notice thereof to Landlord and Tenant and shall immediately designate a third appraiser.  If the two appraisers shall fail to agree upon the designation of such third appraiser within five (5) days after said twenty (20) day period, then they or either of them shall give notice of such failure to agree to Landlord and

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Tenant and if Landlord and Tenant fail to agree upon the selection of such third appraiser within five (5) days after the appraiser(s) appointed by the parties give notice as aforesaid, then either party on behalf of both may apply to the American Arbitration Association or any successor thereto, or on his or her failure, refusal or inability to act, to a court of competent jurisdiction, for the designation of such third appraiser.

2.All appraisers shall be independent real estate appraisers or consultants who shall have had at least seven (7) years continuous experience in the business of appraising real estate in the suburban Boston area.

3.The third appraiser shall conduct such hearings and investigations as he or she may deem appropriate and shall, within ten (10) days after the date of his or her designation, make an independent determination of the Market Rent.  For purposes of the determination of Market Rent it shall be assumed the Landlord and Tenant are each ready, willing and able to enter into such a lease but are under no compulsion to do so.

4.If none of the determinations of the three appraisers varies from the mean of the determinations of the other appraisers by more than ten percent (10%), the average of the determinations of the three (3) appraisers shall be the Market Rent for the Premises.  If, on the other hand, the determination of any single appraiser varies from the average of the determinations of the other three (3) appraisers by more than ten percent (10%), the average of the determination of the two (2) appraisers whose determinations are closest shall be the Market Rent.

5.The determination of the appraisers, as provided above, shall be conclusive upon the parties and shall have the same force and effect as a judgment made in a court of competent jurisdiction.

6.Each party shall pay fees, costs and expenses of the appraiser selected by it, its own counsel fees, and one-half (1/2) of all other expenses and fees of any such appraisal.

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EXHIBIT “I”

FORM OF LETTER OF CREDIT

[subject to Zoran’s bank’s review]

IRREVOCABLE STANDBY LETTER OF CREDIT NUMBER:                                                                                                     

DATE:                                                                                                                                      DELIVERY BY COURIER SERVICE

BENEFICIARY: APPLICANT:

AMOUNT:	USD	$	EXPIRY
DATE:
		AT OUR COUNTERS IN

LADIES AND GENTLEMEN:

WE HEREBY ESTABLISH OUR IRREVOCABLE STANDBY LETTER OF CREDIT NO. __________ IN YOUR FAVOR EFFECTIVE IMMEDIATELY, BY ORDER AND FOR THE ACCOUNT OF __________ FOR A SUM OR SUMS NOT EXCEEDING A TOTAL OF ________________________________________________ (USD ________) AVAILABLE BY YOUR DRAFT(S) AT SIGHT DRAWN ON US AND ACCOMPANIED BY THE FOLLOWING DOCUMENTS:

1.THE ORIGINAL OF THIS LETTER OF CREDIT AND ALL AMENDMENTS THERETO, IF ANY.

2.A NOTARIZED STATEMENT FROM [INSERT LANDLORD] AS   FOLLOWS:

“REFERENCE IS HEREBY MADE TO THAT CERTAIN LEASE (THE “LEASE”) DATED _____________, 200_ BETWEEN _________ AND ____________ AS LANDLORD (THE “LANDLORD”).  I HEREBY CERTIFY THAT I AM AN AUTHORIZED REPRESENTATIVE OF LANDLORD OR PERMITTED TRANSFEREE AND FURTHER CERTIFY THAT:

(I)EITHER (A) AN EVENT OF DEFAULT (AS DEFINED IN THE LEASE) HAS OCCURRED AND REMAINS UNCURED BEYOND THE APPLICABLE CURE PERIOD, OR (B)  HAS NOT RENEWED, REPLACED OR AMENDED THE LETTER OF CREDIT BY NOT LATER THAN TWENTY-FIVE (25) BANKING DAYS PRIOR TO THE EXPIRATION THEREOF, IN ACCORDANCE WITH THE REQUIREMENTS OF SECTION _ OF THE LEASE; AND

(II)THIS DRAWING IN THE AMOUNT OF USD ___________ (INSERT AMOUNT, NOT TO EXCEED AVAILABLE CREDIT) REPRESENTS FUNDS DUE TO LANDLORD UNDER AND PURSUANT TO THE LEASE.”

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THIS LETTER OF CREDIT IS TRANSFERABLE IN ITS ENTIRETY (BUT NOT IN PART) TO ANY PERSON OR ENTITY THAT SUCCEEDS LANDLORD UNDER THE LEASE [AND TO _________________________, AS THE HOLDER OF A FIRST MORTGAGE ON THE PROPERTY TO WHICH THE LEASE RELATES AND TO ANY PERSON OR ENTITY THAT SUCCEEDS _________________________ AS HOLDER OF THE FIRST MORTGAGE ON SUCH PROPERTY.]  TRANSFER OF THIS LETTER OF CREDIT TO SUCH TRANSFEREE SHALL BE EFFECTED ONLY BY PRESENTATION TO THE ISSUING BANK OF THE ORIGINAL OF THIS LETTER OF CREDIT TOGETHER WITH AMENDMENTS, IF ANY, ACCOMPANIED BY A SIGNED AND COMPLETED TRANSFER CERTIFICATE IN THE FORM ATTACHED HERETO AS EXHIBIT “A” AND PAYMENT OF A TRANSFER FEE EQUAL TO _________________________.  UPON SUCH PRESENTATION, THE BANK SHALL FORTHWITH TRANSFER THE LETTER OF CREDIT TO THE DESIGNATED TRANSFEREE, OR IF SO REQUESTED BY SUCH TRANSFEREE, ISSUE A NEW LETTER OF CREDIT TO THE TRANSFEREE IN THE SAME FORM AS THIS LETTER OF CREDIT.  THIS LETTER OF CREDIT MAY NOT BE TRANSFERRED TO ANY PERSON OR ENTITY WITH WHICH U.S. PERSONS ARE PROHIBITED FROM DOING BUSINESS UNDER U.S. FOREIGN ASSETS REGULATIONS OR OTHER APPLICABLE U.S. LAWS AND REGULATIONS.

ADDITIONAL CONDITION:  PARTIAL DRAWINGS ARE ALLOWED.

ALL DOCUMENTS INCLUDING DRAFT(S) MUST INDICATE THE NUMBER AND DATE OF THIS CREDIT.

EACH DRAFT PRESENTED HEREUNDER MUST BE ACCOMPANIED BY THIS ORIGINAL LETTER OF CREDIT FOR OUR ENDORSEMENT THEREON OF THE AMOUNT OF SUCH DRAFT(S).

THE LEASE AGREEMENT MENTIONED ABOVE IS FOR IDENTIFICATION PURPOSES ONLY AND IT IS NOT INTENDED THAT SAID LEASE AGREEMENT BE INCORPORATED HEREIN OR FORM PART OF THIS CREDIT.

DOCUMENTS MUST BE SENT TO US VIA OVERNIGHT COURIER (I.E. FEDERAL EXPRESS, UPS, DHL OR ANY OTHER EXPRESS COURIER) AT OUR ADDRESS:  ________________________________________

ATTENTION: ___________________________.

WE HEREBY ENGAGE WITH DRAWERS AND/OR BONAFIDE HOLDERS THAT DRAFT(S) DRAWN UNDER AND NEGOTIATED IN CONFORMANCE WITH THE TERMS AND CONDITIONS OF THE SUBJECT CREDIT WILL BE DULY HONORED ON PRESENTATION.

EXCEPT SO FAR AS OTHERWISE EXPRESSLY STATED HEREIN, THIS LETTER OF CREDIT IS SUBJECT TO THE “UNIFORM CUSTOMS AND PRACTICES FOR DOCUMENTARY CREDIT (1993 REVISION), INTERNATIONAL CHAMBER OF COMMERCE PUBLICATION NO. 500”.

VERY TRULY YOURS,

AUTHORIZED OFFICIAL

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Exhibit “A”

TO:	BANK	DATE:
		RE: LETTER OF CREDIT ISSUED BY:
		LETTER OF CREDIT NO.
	ATTN:	AVAILABLE AMOUNT

GENTLEMEN:

FOR VALUE RECEIVED, THE UNDERSIGNED BENEFICIARY HEREBY IRREVOCABLY TRANSFERS TO:

_________________________

(NAME OF TRANSFEREE)

_________________________

(ADDRESS)

ALL RIGHTS OF THE UNDERSIGNED BENEFICIARY TO DRAW UNDER THE ABOVE LETTER OF CREDIT UP TO ITS AVAILABLE AMOUNT AS SHOWN ABOVE AS OF THE DATE OF THIS TRANSFER.

BY THIS TRANSFER, ALL RIGHTS OF THE UNDERSIGNED BENEFICIARY IN SUCH LETTER OF CREDIT ARE TRANSFERRED TO THE TRANSFEREE.  TRANSFEREE SHALL HAVE THE SOLE RIGHTS AS BENEFICIARY THEREOF, INCLUDING SOLE RIGHTS RELATING TO ANY AMENDMENTS, WHETHER INCREASES OR EXTENSIONS OR OTHER AMENDMENTS, AND WHETHER NOW EXISTING OR HEREAFTER MADE.  ALL AMENDMENTS ARE TO BE ADVISED DIRECT TO THE TRANSFEREE WITHOUT NECESSITY OF ANY CONSENT OF OR NOTICE TO THE UNDERSIGNED BENEFICIARY.

THE ORIGINAL OF SUCH LETTER OF CREDIT IS RETURNED HEREWITH, AND WE ASK YOU TO ENDORSE THE TRANSFER ON THE REVERSE THEREOF, AND FORWARD IT DIRECT TO THE TRANSFEREE WITH YOUR CUSTOMARY NOTICE OF TRANSFER.

	YOURS VERY TRULY,
(BANK)		SIGNATURE OF
		BENEFICIARY
AUTHORIZED SIGNATURE

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EXHIBIT “J”

SUBORDINATION, NON-DISTURBANCE

AND ATTORNMENT AGREEMENT

This Subordination, Non-Disturbance and Attornment Agreement (the “Agreement”) is dated as of the ___ day of __________, 200__, among New England Teamsters and Trucking Industry Pension Fund, having a place of business at One Wall Street, Burlington, Massachusetts 01803 (“Lender”), and __________________________________________________________, under Declaration of Trust dated ______________________ and recorded with the Middlesex South Registry District of the Land Court as Document No. ___________, having a place of business at c/o The Gutierrez Company, One Wall Street, Burlington, Massachusetts 01803 (“Landlord” or “Borrower”), and Zoran Corporation, a ____________ Corporation, having a place of business at __________________________ (“Tenant”).

RECITALS

A.            Tenant is the tenant under a certain lease (the “Lease”) dated ________ _, 200__ with Landlord, of premises described in the Lease (the “Premises”) located in a certain office building known as ________________ located in Burlington, County of Middlesex, Commonwealth of Massachusetts and more particularly described in Exhibit A attached hereto and made a part hereof (such office building, including the Premises, is hereinafter referred to as the “Property”).

B.            This Agreement is being entered into in connection with a mortgage loan (the “Loan”) made by Lender (or its predecessor in interest) to Landlord, secured by, among other things: (a) a first mortgage, deed of trust or deed to secure debt on and of the Property (the “Mortgage”) recorded with the registry or clerk of the county in which the Property is located; and (b) a first assignment of leases and rents on the Property (as amended, the “Assignment of Leases and Rents”) to be recorded. The Mortgage and the Assignment of Leases and Rents are hereinafter collectively referred to as the “Security Documents”.

C.            Tenant acknowledges that Lender will rely on this Agreement in making the Loan to Landlord.

AGREEMENT

For mutual consideration, including the mutual covenants and agreements set forth below, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.             Tenant agrees that the Lease is and shall be subject and subordinate to the lien of the Security Documents and to all present or future advances under the obligations secured thereby and all renewals, amendments, modifications, consolidations, replacements and extensions of the secured obligations and the Security Documents, to the full extent of all amounts secured by the Security Documents from time to time. Said subordination is to have the same force and effect as if the Security Documents and such renewals, modifications, consolidations, replacements and extensions thereof had been executed, acknowledged, delivered

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and recorded prior to the Lease, any amendments or modifications thereof and any notice thereof.

2.             Lender agrees that, if the Lender exercises any of its rights under the Security Documents, including an entry by Lender pursuant to the Mortgage or a foreclosure of the Mortgage, then (i) Lender shall not disturb Tenant’s right of quiet possession of the Premises (or Tenant’s right to use the appurtenant areas under the Lease) under the terms of the Lease so long as Tenant is not in default beyond any applicable grace period of any term, covenant or condition of the Lease, (ii) Lender shall not join Tenant as a party defendant in any foreclosure proceeding with respect to the Mortgage (unless required by law) and (iii) Lender shall, subject to the terms and provisions of this Agreement (including, without limitation, Section 4 below), recognize Tenant as the tenant under the Lease. In addition, if Lender (or the purchaser at foreclosure) succeeds to Landlord’s interest under the Lease and acquires title to the Premises, then, provided Tenant is not in default under the Lease beyond any applicable grace period set forth in the Lease and subject to the other terms and provisions of this Agreement (including, without limitation, Section 4 below), the Lease shall continue in lull force and effect as a direct lease between Lender (or such purchaser), as landlord, and Tenant, upon the terms and conditions of the Lease, for the balance of the term of the Lease.

3.             Tenant agrees that, in the event of a foreclosure of the Mortgage by Lender or the acceptance of a deed in lieu of foreclosure by Lender or any other succession of Lender to fee ownership, Tenant will attorn to and recognize Lender (or such purchaser) as its landlord under the Lease for the remainder of the term of the Lease (including all extension periods which have been or are hereafter exercised) upon the same terms and conditions as are set forth in the Lease, and Tenant hereby agrees to pay and perform all of the obligations of Tenant pursuant to the Lease thereafter arising.

4.             Tenant agrees that, in the event Lender succeeds to the interest of Landlord under the Lease, Lender shall not be:

(a)liable for any act or omission of any prior Landlord (including, without limitation, the then defaulting Landlord), except as specifically set forth in the last paragraph of this Section 4, or

(b)subject to any defense or offsets which Tenant may have against any prior Landlord (including, without limitation, the then defaulting Landlord), except as specifically set forth in the last paragraph of this Section 4, or

(c)bound by any payment of rent or additional rent which Tenant might have paid for more than one month in advance of the due date under the Lease to any prior Landlord (including, without limitation, the then defaulting Landlord), or

(d)accountable for any monies deposited with any prior Landlord (including security deposits), except to the extent such monies are actually received by Lender, or

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(e)bound by any surrender, termination, amendment or modification of the Lease made without the consent of Lender, except as expressly set forth in the Lease.

Nothing contained in Section 4(a) above shall relieve Lender from its obligation to cure any repair or maintenance default under the Lease by any prior landlord under the Lease (including Landlord) which is continuing when Lender succeeds to Landlord’s interest under the Lease and acquires title to the Premises, provided that (i) Lender had written notice of such default in accordance with Section 6 below prior to succeeding to Landlord’s interest under the Lease and acquiring title to the Premises, (ii) Lender had an opportunity to cure such default in accordance with Section 6 below prior to succeeding to Landlord’s interest under the Lease and acquiring title to the Premises, and (iii) Lender’s obligation to cure such default shall be limited solely to performing the repair or maintenance obligation as required pursuant to the terms of the Lease (and in no event shall Lender have any other liability or obligation with respect to such default).

5.             Tenant agrees that, notwithstanding any provision hereof to the contrary, the terms of the Mortgage shall continue to govern with respect to the disposition of any insurance proceeds or eminent domain awards, and any obligations of Landlord to restore the real estate of which the Premises are a part shall, insofar as they apply to Lender, be limited to insurance proceeds or eminent domain awards received by Lender after the deduction of all costs and expenses incurred in obtaining such proceeds or awards.

6.             Tenant hereby agrees to give to Lender copies of all notices of Landlord default(s) under the Lease in the same manner as, and whenever, Tenant shall give any such notice of default to Landlord, and no such notice of default shall be deemed given to Landlord unless and until a copy of such notice shall have been so given to Lender. Lender shall have the right to remedy any Landlord default under the Lease, or to cause any default of Landlord under the Lease to be remedied, and for such purpose Tenant hereby grants Lender such additional period of time as may be reasonable to enable Lender to remedy, or cause to be remedied, any such default in addition to the period given to Landlord for remedying, or causing to be remedied, any such default. Tenant shall accept performance by Lender of any term, covenant, condition or agreement to be performed by Landlord under the Lease with the same force and effect as though performed by Landlord.  No Landlord default under the Lease shall exist or shall be deemed to exist (i) as long as Lender, in good faith, shall have commenced to cure such default within the above referenced time period and shall be prosecuting the same to completion with reasonable diligence, subject to force majeure, or (ii) if possession of the Premises is required in order to cure such default, or if such default is not susceptible of being cured by Lender, as long as Lender, in good faith, shall have notified Tenant that Lender intends to institute proceedings under the Security Documents, and, thereafter, as long as such proceedings shall have been instituted and shall be prosecuted with reasonable diligence. In the event of the termination of the Lease by reason of any default thereunder by Landlord, upon Lender’s written request, given within thirty (30) days after any such termination, Tenant, within fifteen (15) days after receipt of such request, shall execute and deliver to Lender or its designee or nominee a new lease of the Premises for the remainder of the term of the Lease upon all of the terms, covenants and conditions of the Lease. Lender shall have the right, without Tenant’s consent, to foreclose the Mortgage or to accept a deed in lieu of foreclosure of the Mortgage or to exercise any other

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remedies under the Security Documents.  Lender shall have no obligation to cure any default under the Lease.

7.             Tenant hereby consents to the Assignment of Leases and Rents from Landlord to Lender in connection with the Loan, Tenant acknowledges that the interest of the Landlord under the Lease is to be assigned to Lender solely as security for the purposes specified in said assignments, and Lender shall have no duty, liability or obligation whatsoever under the Lease or any extension or renewal thereof, either by virtue of said assignments or by any subsequent receipt or collection of rents thereunder, unless Lender shall specifically undertake such liability in writing or unless Lender or its designee or nominee becomes, and then only with respect to periods in which Lender or its designee or nominee becomes, the fee owner of the Premises. Tenant agrees that upon receipt of a written notice from Lender of a default by Landlord under the Loan, Tenant will thereafter, if requested by Lender, pay rent to Lender in accordance with the terms of the Lease. By its signature below, Landlord agrees that delivery by Tenant of any amounts to Lender pursuant to the immediately preceding sentence shall satisfy Tenant’s obligations under the Lease with respect to the payment of rent.

8.             The Lease shall not be assigned by Tenant, or terminated (except for an assignment or a termination that is permitted in the Lease without Landlord’s consent) without Lender’s prior written consent in each instance. In addition, Tenant shall not enter into a Material Amendment without Lender’s prior written consent. “Material Amendment” means any amendment or modification of the Lease which (i) amends the term of the Lease, (ii) reduces the rent or additional rent payable under the Lease, (iii) materially increases Landlord’s obligations under the Lease or materially decreases Tenant’s obligations under the Lease, or (iv) otherwise materially amends any other provision of the Lease. Notwithstanding anything contained in this Section 8, Lender’s consent shall not be required pursuant to this Section 8 for any document which simply memorializes and documents the exercise by Tenant of any right or option specifically granted to Tenant in the Lease.

9.             Tenant understands that Lender is relying upon the following estoppel representations, statements and agreements in connection with making and maintaining the Loan. The Tenant hereby represents and certifies to, and agrees with, Lender as set forth below.

(a)The Lease has not been assigned, amended or modified in any way except for the  following:

(b)A true and complete copy of the Lease, including, if any, all amendments and modifications, is attached hereto as Exhibit A.  There are no side letters or other arrangements relating to the Premises or the Property.

(c)The Lease is presently in full force and effect according to its terms and is the valid and binding obligation of Tenant.

(d)To the best of Tenant’s knowledge, Tenant is not in default under the Lease nor to the best of Tenant’s knowledge does any state of facts exist which with the passage of time or the giving of notice, or both, could constitute any such default under the Lease.

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(e)All conditions under the Lease to be performed by Landlord including, without limitation, all work, if any, to be performed by Landlord in the Premises or the Property will be satisfied in accordance with the terms of the Lease, and all contributions, if any, required to be paid by Landlord will be paid in accordance with the terms of the Lease.

(f)Tenant will be in possession of the premises on the Term Commencement Date and will be fully obligated to pay and is paying the rent and other charges due under the Lease and is fully obligated to perform and is performing all of the other obligations of Tenant under the Lease, in accordance with the terms of the Lease.

(g)On this date, to the best of Tenant’s knowledge, there are no existing defenses or off-sets which Tenant has against the enforcement of the Lease by Landlord or claims by Tenant against Landlord for any reason (including as a result of any default by Landlord under the Lease).

(h)No rent has been paid more than one (1) month in advance of the due date and no security has been deposited with the Landlord.

(i)The Tenant has no options to extend the Lease, to lease additional space at the Property, or to purchase the Property, and the Tenant has no right of refusal with respect to leasing additional space or with respect to purchasing the Property, except as outlined in the Lease.

(j)There are no actions, whether voluntary or otherwise, pending or threatened against the Tenant, or any guarantor of the Tenant’s obligations under the Lease, pursuant to the bankruptcy or insolvency laws of the United States or any similar state laws.

(k)The interest of the Tenant in the Lease has not been assigned or encumbered, and no part of the Premises has been sublet.

10.           Any notice, election, communication, request or other document or demand required or permitted under this Agreement shall be in writing and shall be deemed delivered on the earlier to occur of (a) receipt or (b) the date of delivery, refusal or nondelivery indicated on the return receipt, if deposited in a United States Postal Service Depository, postage prepaid, sent certified or registered mail, return receipt requested, or if sent via a recognized commercial courier service providing for a receipt, addressed to Tenant or Lender, as the case may be, at the following addresses:

If to Tenant:

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with a copy to:

and with a further copy to:

If to Lender:

New England Teamsters and Trucking Industry Pension Fund

One Wall Street

Burlington, Massachusetts 01803

Telephone:            781-345-4400

Facsimile:               781-345-4423

with a copy to:

11.           The term “Lender” as used herein includes any successor or assign of the named Lender herein, including without limitation, any co-lender at the time of making the Loan, any purchaser at a foreclosure sale and any transferee pursuant to a deed in lieu of foreclosure, and their successors and assigns, and the terms “Tenant” and “Landlord” as used herein include any successor and assign of the named Tenant and Landlord herein, respectively; provided, however, that such reference to Tenant’s or Landlord’s successors and assigns shall not be construed as Lender’s consent to any assignment or other transfer by Tenant or Landlord.

12.           If any provision of this Agreement is held to be invalid or unenforceable by a court of competent jurisdiction, such provision shall be deemed modified to the extent necessary to be enforceable, or if such modification is not practicable, such provision shall be deemed deleted from this Agreement, and the other provisions of this Agreement shall remain in full force and effect, and shall be liberally construed in favor of Lender.

13.           Neither this Agreement nor any of the terms hereof may be terminated, amended, supplemented, waived or modified orally, but only by an instrument in writing executed by the party against which enforcement of the termination, amendment, supplement, waiver or modification is sought.

This Agreement shall be construed in accordance with the laws of the state of in which the Property is located.

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The person executing this Agreement on behalf of Tenant is authorized by Tenant to do so and execution hereof is the binding act of Tenant enforceable against Tenant.

[Signature Pages Follow]

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Witness the execution hereof under seal as of the date first above written.

LENDER:

NEW ENGLAND TEAMSTERS AND
TRUCKING INDUSTRY PENSION FUND

By:

Name:

Title:

Date executed by Lender:

TENANT:

ZORAN CORPORATION, a Delaware corporation

By:

Name:

Title:

Date executed by Lender:

The undersigned Landlord hereby consents to the foregoing Agreement and confirms the facts stated in the foregoing Agreement.

LANDLORD:
AUBURN-OXFORD TRUST
By:
	John A. Cataldo, as Trustee on behalf of himself and his co-Trustee and not individually
Date executed by Borrower:

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THE COMMONWEALTH OF MASSACHUSETTS

MIDDLESEX, SS

On this      day of                                , 2007, before me, the undersigned notary public, personally appeared _______________________________ of New England Teamsters and Trucking Industry Pension Fund, proved to me through satisfactory evidence of identification, which was o photographic identification with signature issued by a federal or state governmental agency, o oath or affirmation of a credible witness, o personal knowledge of the undersigned, to be the person whose name is signed on the preceding or attached document(s), and acknowledged to me that he signed it voluntarily for its stated purpose.

(official seal)

Notary Public

My Commission Expires:

THE STATE OF ______________

____________, SS

On this ____ day of __________, 2007, before me, the undersigned notary public, personally appeared ________________________________, of Zoran Corporation, proved to me through satisfactory evidence of identification, which was o photographic identification with signature issued by a federal or state governmental agency, o oath or affirmation of a credible witness, o personal knowledge of the undersigned, to be the person whose name is signed on the preceding or attached document(s), and acknowledged to me that he signed it voluntarily for its stated purpose.

(official seal)

Notary Public

My Commission Expires:

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THE COMMONWEALTH OF MASSACHUSETTS

MIDDLESEX, SS

On this ____ day of ___________________, 2007, before me, the undersigned notary public, personally appeared John A. Cataldo, as Trustee on behalf of himself and his co-Trustee and not individually, proved to me through satisfactory evidence of identification, which was personal knowledge of the undersigned, to be the person whose name is signed on the preceding or attached document(s), and acknowledged to me that he/she signed it voluntarily for its stated purpose.

(official seal)

Notary Public

My Commission Expires:

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EXHIBIT A

Legal Description

A parcel of land with the buildings and improvements thereon located off of Cambridge Street and Wall Street in Burlington, Middlesex County, Massachusetts, being shown as Lot 15B on the plan entitled “Plan of Land in Burlington, Massachusetts (Middlesex County)” prepared for Auburn-Oxford Trust, Scale 1” = 40’ dated November 23, 1999 by The BSC Group, Inc., which plan is recorded with the Middlesex South Registry of Deeds as Plan No. 20 of 2000.  Portions of said Lot 15B are registered land being Lot 3 and Lot 4 as shown on Land Court Plan 34820A and Lot 5 as shown on Land Court Plan 24820B.

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EXHIBIT “K”

RIGHT TO TERMINATE

So long as there does not then exist an uncured, continuing Event of Default as defined in Section 9.1 of this Lease, Tenant may, at its sole option, terminate this Lease (the “Termination Option”) effective on the fifth (5th) year anniversary or seventh (7th) year anniversary of the  Commencement Date (the “Early Termination Date”), by delivering notice of its election to terminate the Lease (the “Termination Notice”) to Landlord at least twelve (12) months in advance, and paying on or before the effective date of such Termination Option the applicable “Termination Fee” as set forth below.  If Tenant fails to timely deliver its Termination Notice and pay the Termination Fee, Tenant will be deemed to have waived such Termination Option.  The Termination Fee shall be equal to $2,534,116.35 if Tenant exercises the Termination Option effective on the fifth (5th) year anniversary of the  Commencement Date or $1,608,046.78 if Tenant exercises the Termination Option effective on the seventh (7th) year anniversary of the  Commencement Date.  If Tenant properly exercises its Termination Option in accordance with the foregoing, then this Lease shall automatically terminate as of the Early Termination Date (with the same effect as if such Early Termination Date were the Term Expiration Date set forth in Section 1.1) without the necessity of any additional documentation.

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EXHIBIT L

RIGHT OF FIRST REFUSAL

In no event shall Landlord, during the Term hereunder, lease or decide to lease, agree to lease, or accept any offer to lease space that from time to time becomes available during said period on all or any portion of the fourth (4th) and fifth (5th) floors within the Building (each and collectively, the “ROFR Space”), unless Landlord first affords Tenant an opportunity to lease such area in accordance with the provisions of this Exhibit L and only after written notice to Tenant, provided that there does not then exist an uncured, continuing Event of Default under this Lease.  Such notice shall contain Landlord’s summary of the essential terms and conditions of any bonafide, third party written offer received by Landlord (i.e., description of such rentable area, the term and any options to extend or cancel the term, the annual fixed rent amounts, the basic operating cost provisions, and the allowances and other monetary concessions, if any) with respect to such rentable area (such summary shall herein in this Exhibit L be referred to as the “Offer”).  Upon receipt of such notice and the Offer from Landlord, and as aforesaid, provided further that there does not then exist an uncured, continuing Event of Default under this Lease, then Tenant shall have a right to lease any such space on the terms set forth in the Offer (except as hereinafter provided) by giving notice to Landlord to such effect within seven (7) business days after Tenant’s receipt of Landlord’s notice of such Offer.  If such notice is not so timely given by Tenant, then Landlord shall be free to lease the subject space, or portion thereof, to any third party on the terms and conditions contained in the Offer (or such greater price or more favorable lease terms to Landlord or such lower price or less favorable terms to Landlord so long as such less favorable terms are within five percent (5%) of the net effective rent (e.g. taking into account the Rent, free rent, other comparable concessions and TIA, Term) offered to Tenant at any time after the expiration of said five (5) day period).  If Tenant declines to lease the space covered by the Offer and Landlord fails to close the leasing transaction contemplated within the Offer within six months after Tenant’s receipt of the Offer, Landlord shall repeat the process set forth above prior to leasing the space covered by the Offer.  The non-exercise by Tenant of its rights under this Exhibit L as to any one Offer by Landlord shall not be deemed to waive any of Tenant’s rights of first refusal as to the remainder of space that becomes available within the ROFR Space, or as to the rentable area described in the Offer if Landlord determines to substantially modify or substantially amend the terms by more than five percent (5%) of the aforesaid net effective rent offered in such notice and Offer given by Landlord to Tenant hereunder (in which event Tenant’s rights hereunder shall revive and continue with respect to such modified or amended terms) or the space covered by the Offer following expiration of any lease executed with respect to such space.

In the event that Tenant accepts Landlord’s offer to lease such rentable space within the ROFR Space, then Landlord and Tenant hereby agree that they shall enter into a mutually acceptable amendment to this Lease, specifying that such rentable area is a part of the Premises under this Lease and demising said premises to Tenant on the terms of the Offer with respect to such rentable space.  Such amendment shall also contain other appropriate terms and provisions relating to the addition of such rentable space to this Lease or the leasing of such rentable space, as applicable, and as mutually agreed upon by the parties.  The amendment shall be signed by

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Tenant within twenty (20) days of receipt of the proposed agreement from the Landlord in the form as hereinabove required, Landlord and Tenant hereby agreeing to use good faith efforts to finalize the form of amendment as quickly as possible and within said twenty day period.  In no event shall the foregoing affect the Tenant’s obligation to lease such space once Tenant provides Landlord with its notice exercising its option hereunder as aforesaid, as the parties hereby agree that Tenant’s notice shall serve as Tenant’s acceptance of Landlord’s offer to lease such space and that the amendment merely serves as confirmation that the parties shall enter into a written amendment to memorialize the previously accepted terms.

Notwithstanding anything to the contrary in this Exhibit L, if Tenant notifies Landlord of its election to lease such rentable space within the ROFR Space and then fails to execute and deliver the required amendment to this Lease once the terms of the amendment have been mutually agreed upon by Landlord and Tenant in accordance with this Exhibit L, and such failure continues for more than five (5) days, then (i)  Tenant shall be deemed to have waived its rights under this Exhibit L, (ii) Tenant’s right of first refusal as to any other rentable space within the ROFR Space hereunder shall terminate and be of no further force and effect.  The recording by the Landlord of an affidavit to such effect shall be conclusive evidence of the termination or waiver of Tenant’s first refusal hereunder.

Notwithstanding any language to the contrary, Tenant’s rights hereunder are subject to Nuance Communications, Inc.’s Right of First Refusal to lease 10,000 square feet on the fifth floor of the Building pursuant to its lease with Landlord dated October 11, 2006.

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EX-10.21

Exhibit 10.21

LEASE

THIS LEASE (“Lease”) is made on the 19th day of May, 2006 by and between WTA Kifer LLC, a California limited liability company (hereinafter called “Lessor”) and Zoran Corporation, a Delaware corporation (hereinafter called “Lessee”).

IN CONSIDERATION OF THE MUTUAL PROMISES HEREIN CONTAINED, THE PARTIES AGREE AS FOLLOWS:

1.             Premises.  Lessor leases to Lessee, and Lessee leases from Lessor, upon the terms and conditions herein set forth, those certain Premises (“Premises”) situated in the City of Sunnyvale, County of Santa Clara, California, as outlined in Exhibit “A” attached hereto and described as follows: approximately 88,924 rentable square foot building located at 1390 Kifer Road, Sunnyvale, California.  Square footage is calculated from exterior face of the building.  Lessee’s pro-rata share of the building is 100%.  Lessee’s Pro-Rata Share (“Pro-Rata Share”) of the project (the “Project”) is +/- 53.73% based on the rear building of the project being approximately 76,573 rentable square feet (the “Rear Building”).

2.             Term.  The term of this Lease shall be for ten (10) years, commencing October 1, 2006 (“Lease Commencement Date”) and terminating September 30, 2016, subject to Lessee’s right to extend the term pursuant to Section 4 below.

Lessee shall have the one time right to terminate the Lease at the end of the seventh (7th) lease year upon providing nine (9) months’ prior written notice to Lessor.  In the event Lessee exercises its right to terminate, Lessee shall pay to Lessor $895,188 in addition to the unamortized balance of (a) the cost of the tenant improvement allowance set forth in Section 7 and (b) any leasing commissions payable in connection with this Lease amortized at a rate of eight percent (8%) over the ten (10) year term of the Lease.

3.             Rent.  Lessee shall pay to Lessor rent for the Premises in lawful money of the United States of America, as provided for in the schedule below.  Except as set forth herein, Rent shall be paid without deduction or offset, prior notice, or demand, at such place as may be designated from time to time by Lessor.  A deposit of $185,000.00 as a Security Deposit shall be made by Lessee and held by Lessor pursuant to Paragraph 5 of this Lease, and shall be paid upon full execution and delivery of the Lease.  Notwithstanding that the Premises shall consist of approximately 88,924 rentable square feet throughout the term, for purposes of determining Base Rent, the Premises shall be deemed to consist of 75,000 rentable square feet during Months 1 - 12, 80,000 rentable square feet during Months 13 - 18 and 88,924 rentable square feet for the remainder of the Term thereafter for purposes of providing Lessee with a partial rent abatement.

Monthly rent (referred to herein as “Monthly Rent” or “Base Rent”) shall be paid in advance on the first (1st) day of each calendar month as follows:

Period	Per RSF/mo		Monthly Rent
Months 1 - 2 (75,000 RSF)	$	1.275	$	128,125.00	**
Months 3 -12 (75,000 RSF)	$	1.275	$	95,625.00

Period	Per RSF/mo		Monthly Rent
Months 13 -18 (80,000 RSF)	$	1.326	$	106,080.00
Months 19 - 24 (88,924 RSF)	$	1.326	$	117,913.22
Months 25 — 36 (88,924 RSF)	$	1.379	$	122,626.19
Months 37 -48 (88,924 RSF)	$	1.434	$	127,517.01
Months 49 60 (88,924 RSF)	$	1.492	$	132,674.60
Months 61 72 (88,924 RSF)	$	1.551	$	137,921.12
Months 73 84 (88,924 RSF)	$	1.613	$	143,434.41
Months 85 — 96 (88,924 RSF)	$	1.678	$	149,214.47
Months 97 -108 (88,924 RSF)	$	1.745	$	155,172.38
Months 109 -120 (88,924 RSF)	$	1.815	$	161,397.06

** Rent for months 1-2 include $32,500.00 for early termination of Yahoo lease.

Rent for any period during the term hereof which is for less than one (1) full month shall be a pro-rata portion of the monthly rent payment.  Lessee acknowledges that late payment by Lessee to Lessor of rent or any other payment due Lessor will cause Lessor to incur costs not contemplated by this Lease, the exact amount of such costs being extremely difficult and impracticable to fix.  Such costs include, without limitation, processing and accounting charges, and late charges that may be imposed on Lessor by the terms of any encumbrance and note secured by any encumbrance covering the Premises.  Therefore, if any installment of rent or other payment due from Lessee is not received by Lessor within ten (10) days following the date it is due and payable, Lessee shall pay to Lessor an additional sum of seven percent (7%) of the overdue amount as a late charge.  Notwithstanding anything contained in this paragraph, if Lessee is delinquent in the payment of Rent and is subject to a late charge, Lessor agrees to waive the late charge if the Rent or Additional Rent due is paid within five (5) days of Lessor’s written notice to Lessee of the delinquent amount owed and provided Lessee has not been delinquent in its payment of Rent or Additional Rent owed under this Lease during the twelve (12) month period preceding the rent delinquency in question, However, Lessor shall only be obligated to notify Lessee once of its intent to assess a late charge in any twelve (12) month period.  The parties agree that this late charge represents a fair and reasonable estimate of the costs that Lessor will incur by reason of late payment by Lessee.  Acceptance of any late charge shall not constitute a waiver of Lessee’s default with respect to the overdue amount, nor prevent Lessor from exercising any of the other rights and remedies available to Lessor.

All taxes, insurance premiums, Outside Area Charges, late charges, costs and expenses which Lessee is required to pay hereunder, together with all interest and penalties that may accrue thereon in the event of Lessee’s failure to pay such amounts, and all reasonable damages, costs, and attorney’s fees and expenses which Lessor may incur by reason of any default of Lessee or failure on Lessee’s part to comply with the terms of this Lease, shall be deemed to be additional rent (hereinafter, “Additional Rent”), and, in the event of non-payment by Lessee, Lessor shall have all of the rights and remedies with respect thereto as Lessor has for the non-payment of monthly installment of rent.

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4.             Option to Extend Term.

A.            Lessee shall have the option to extend the term on all the provisions contained in this Lease for one (1) five (5) year period (“extended term”) at an adjusted rental calculated as provided in Subparagraph B below on the condition that:

(1)Lessee has given to Lessor written notice of exercise of that option (“option notice”) at least fourteen (14) months but no more than fifteen (15) months before expiration of the initial term.

(2)Lessee is not in default in the performance of any of the terms and conditions of the Lease beyond any applicable cure period on the date of giving the option notice, and Lessee is not in default beyond any applicable cure period on the date that the extended term is to commence.

B.            RENT FOR OPTION PERIOD:  The rent during the extended term shall be the then current fair market monthly rent (“Fair Market Rent”) for the Premises as of the commencement date of the extended term.  Lessee shall include with its option notice Lessee’s estimate of Fair Market Rent.  Within fifteen (15) business days of receipt of the option notice, Lessor shall either accept Lessee’s estimate of Fair Market Rent (in which case the parties shall execute a mutually acceptable amendment extending the term of the Lease) or notify Lessee in writing that Lessor disagrees with Lessee’s estimate and propose Lessor’s own estimate of Fair Market Rent.  If Lessor disagrees with Lessee’s estimate, the parties shall negotiate in good faith to promptly resolve their differences.  if the parties cannot agree within thirty (30) from receipt of notice, then the Fair Market Rent shall be determined by commercial real estate brokers as detailed below.  In determining the Fair Market Rent, the parties (and in the absence of their agreement, the brokers) shall determine the Fair Market Rent by taking into consideration the rents being charged at the time such determination is to be made for similar office/R&D space in similar properties in the Sunnyvale area pursuant to leases with terms and provisions substantially similar to those contained in this Lease, taking into account the location, age, and condition of the Building, lease term length, inducements (e.g., improvement allowances, rent concessions, etc.), brokerage commissions and all other relevant factors.  All other terms and conditions contained in the Lease, as the same may be amended from time to time by the parties in accordance with the provisions of the Lease, shall remain in full force and effect and shall apply during the extended term.

If it becomes necessary to determine the Fair Market Rent with the assistance of commercial real estate brokers, all of whom shall have at least five (5) years experience specializing in leasing commercial space located in the vicinity of the Premises and none of whom shall have worked for either Lessor or Lessee in the five (5) year period preceding the commencement date of the extended term, such brokers shall be appointed and shall act in accordance with the following procedures:

1.             If the parties are unable to agree on the Fair Market Rent within the allowed time, either party may demand a determination by brokers by giving written notice to the other party, which demand to be effective must state the name, address and qualifications of a broker selected by the party demanding a determination (the

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“Notifying Party”).  Within ten (10) days following the Notifying Party’s determination demand, the other party (the “Non-Notifying Party”) shall either approve the broker selected by the notifying party or select a second properly qualified broker by giving written notice of the name, address and qualification of said broker to the Notifying Party.  If the Non-Notifying Party fails to select a broker within the ten (10) day period, the broker selected by the Notifying Party shall be deemed selected by both parties and no other broker shall be selected.  If two brokers are selected, they shall select a third appropriately qualified broker.

2.             If only one broker is selected, that broker shall notify the parties in simple letter form of its determination of the Fair Market Rent for the Premises within fifteen (15) days following his selection.

3.             If multiple brokers are selected, the brokers shall meet no later than ten (10) days following the selection of the last brokers.  At such meeting the brokers shall attempt to determine the Fair Market Rent for the Premises as of the commencement date of the extended term by the agreement of at least two (2) of the brokers.

4.             If two (2) or more of the brokers agree on the Fair Market Rent for the Premises at the initial meeting, the agreeing brokers shall, in simple letter form executed by the agreeing brokers, notify both Lessor and Lessee of the amount set by such agreement.  If multiple brokers are selected and two (2) brokers are unable to agree on the Fair Market Rent for the Premises, all brokers shall submit to Lessor and Lessee an independent determination of the Fair Market Rent for the Premises in simple letter form within twenty (20) days following appointment of the final broker.  The parties shall then determine the Fair Market Rent for the Premises by averaging the determinations.

5.             The brokers’ determination of Fair Market Rent shall be based on rental for similar office/R&D space in similar properties in the Sunnyvale area pursuant to leases with terms and provisions substantially similar to those contained in this Lease, taking into account the location, age, and condition of the Building, lease term length, inducements (e.g., improvement allowances, rent concessions, etc.), brokerage commissions and all other relevant factors.  In determining Fair Market Rent, the brokers shall take into account the improvements that have been installed in the Premises at Lessor’s expense but shall not consider any improvements or alterations that have been installed in the Premises at Lessee’s expense.

6.             If only one broker is selected, then each party shall pay one-half of the fees and expenses of that broker, If three brokers are selected, each party shall bear the fees and expenses of the broker it selects and one-half of the fees and expenses of the third broker.

7.             If the parties are unable to agree upon the fair market rent within ninety (90) days after Lessor’s receipt of Lessee’s option notice, neither party shall have any obligation to extend the term of the lease.

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8.             Neither party shall be bound by any determination of market rent by any third party.

C.            The option to extend shall be personal to Lessee, and shall not be transferable or assignable to any other person or entity other than a person or entity to which this Lease was assigned or to which the Premises were subleased in connection with a Permitted Transfer as provided for in Section 21.  If Lessee has exercised its option to extend, the phrase “Lease term” as used in this Lease shall mean the initial term of the Lease and the extended term.

5.             Security Deposit.  Lessor acknowledges that Lessee has deposited with Lessor a Security Deposit in the sum of One Hundred Eighty-Five Thousand and 00/100 Dollars ($185,000.00) to secure the full and faithful performance by Lessee of each term, covenant, and condition of this Lease.  If Lessee shall at any time fail to make any payment or fail to keep or perform any term, covenant, or condition on its part to be made or performed or kept under this Lease, Lessor may, but shall not be obligated to and without waiving or releasing Lessee from any obligation under this Lease, use, apply, or retain the whole or any part of said Security Deposit (a) to the extent of any sum due to Lessor; or (b) to compensate Lessor for any loss, damage, attorneys’ fees or expense sustained by Lessor due to Lessee’s default.  In such event, Lessee shall, within five (5) business days of written demand by Lessor, remit to Lessor sufficient funds to restore the Security Deposit to its original sum.  No interest shall accrue on the Security Deposit.  Should Lessee comply with all the terms, covenants, and conditions of this Lease and, at the end of the term of this Lease, leave the Premises in the condition required by this Lease, then said Security Deposit or any balance thereof, less any sums owing to Lessor, shall be returned to Lessee within fifteen (15) days after the termination of this Lease and vacancy of the Premises by Lessee.  Lessor can maintain the Security Deposit separate and apart from Lessor’s general funds, or can co-mingle the Security Deposit with the Lessor’s general and other funds.

6.             Use of the Premises.  The Premises shall be used exclusively for the purpose of general office, computer laboratory, research and development, shipping and receiving.

Lessee shall not use or permit the Premises, or any part thereof, to be used for any purpose or purposes other than the purpose for which the Premises are hereby leased; and no use shall be made or permitted to be made of the Premises, nor acts done, which will increase the existing rate of insurance upon the building in which the Premises are located, or cause a cancellation of any insurance policy covering said building, or any part thereof, nor shall Lessee sell or permit to be kept, used, or sold, in or about the Premises, any article which may be prohibited by the standard form of fire insurance policies.  Lessee shall not commit or suffer to be committed any waste upon the Premises or any public or private nuisance or other act or thing which may disturb the quiet enjoyment of any other tenant in the building in which the Premises are located; nor, without limiting the generality of the foregoing, shall Lessee allow the Premises to be used for any improper, immoral, unlawful, or objectionable purpose,

Lessee shall not place any harmful liquids in the drainage system of the Premises or of the building of which the Premises form a part.  No waste materials or refuse shall be dumped upon or permitted to remain upon any part of the Premises outside of the building proper except in trash containers placed inside exterior enclosures designated for that purpose by Lessor, or inside the building proper where designated by Lessor.  No materials, supplies, equipment,

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finished or semi-finished products, raw materials, or articles of any nature shall be stored upon or permitted to remain on any portion of the Premises outside of the building proper.

Lessor represents and warrants to Lessee that to the best of its knowledge there are no Toxic or Hazardous materials present on, at or under the Premises, which shall be deemed to include underlying land and groundwater, at the time of Lessee’s occupancy.  Lessor shall be responsible for and indemnify, defend and hold harmless Lessee, its partners, directors, officers, employees, lenders, and successors against all claims, obligations, liabilities, demands, damages, judgments, and costs, including reasonable attorneys’ fees arising from or in connection with any prior Toxic or Hazardous Materials (as defined below) that existed prior to Lessee’s occupancy of the Premises or not caused by Lessee, its agents, employees, invitees or contractors.  This indemnity shall survive the termination of the Lease.  Lessee in turn represents to Lessor that it does not now and will not in the future permit the use or storage on the Premises of Toxic or Hazardous Materials, excluding, however basic janitorial, maintenance and office supplies, and materials commonly used in connection with Lessee’s business as described in paragraph 6 hereof.  For purposes of this Section 6, ‘Toxic or Hazardous Materials” shall mean any product, substance, chemical, material or waste whose presence, nature, quality and/or intensity or existence, use, manufacture, disposal, transportation, spill, release or effect, either by itself or in combination with other materials expected to be on the Premises, is either (i) potentially injurious to the public health, safety or welfare, the environment, or the Premises; (ii) regulated or monitored by any governmental authority; or (iii) a basis for potential liability of Lessee and Lessor to any governmental agency or third party under any applicable statute or common law theory.  “Toxic or Hazardous Materials” shall include, but not be limited to, hydrocarbons, petroleum, gasoline, crude oil or any products or by-products thereof.

Lessee hereunder shall be responsible for and indemnify, and hold Lessor and its partners, directors, officers, employees, lenders, successors and assigns harmless from all claims, obligations, liabilities, demands, damages, judgments and costs, including reasonable attorneys’ fees arising at any time during or in connection with Lessee’s causing or permitting any Toxic or Hazardous Materials to be brought upon, stored, manufactured, generated, handled, disposed, or used on, under or about the Premises.  Lessee’s and Lessor’s obligations hereunder shall survive the termination of this Lease.

If, at any time during the term of this Lease, Lessor suspects that any Toxic or Hazardous Materials may be present on the Premises, Lessor may order a soils report, or its equivalent, at Lessee’s expense and Lessee shall pay such costs if it is determined that Lessee or Lessee’s agents, employees or contractors released or caused Toxic or Hazardous Materials on or about the Premises.  If any such Toxic or Hazardous Materials are found on or about the Premises and it is determined that Lessee or Lessee’s agents, employees or contractors caused such contamination, Lessor shall consult with Lessee regarding remediation plans and Lessee shall deposit with Lessor, within fifteen (15) days of notice from Lessor to Lessee to do so, the amount necessary to remove the substances and remedy the problem in accordance with applicable law, which Lessor shall use to do the required remediation and shall return to Lessee any unused monies.

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Lessee shall abide by all laws, ordinances, and statutes, as they now exist or may hereafter be enacted by legislative bodies having jurisdiction thereof, relating to its use and occupancy of the Premises.

7.             Improvements:  Lessee currently occupies the Premises and therefore accepts the Premises in its “AS IS” condition.  However, Lessor shall provide Lessee with a tenant improvement allowance of Five and 00/100 Dollars ($5.00) per rentable square foot, or $444,620.00 total, for mutually agreed upon tenant improvements to be installed by a licensed and insured contractor reasonably acceptable to Lessor (the ‘Tenant improvements”).  in addition, Lessor shall provide Lessee with an allowance of One and 00/100 Dollar ($1.00) per rentable square foot, or $88,924.00 total, to be used for the installation of a generator.  All tenant improvement work shall be competitively bid.  Lessee shall have the right, in its sole discretion, to identify the improvements for which the allowance shall pay.  Lessor will not charge any supervisory, management or other fee, or require union labor in connection with the Tenant Improvements.

8.             Taxes and Assessments.

A.            Lessee shall pay before delinquency any and all taxes, assessments, license fees, and public charges levied, assessed, or imposed upon or against Lessee’s fixtures, equipment, furnishings, furniture, appliances, and personal property installed or located on or within the Premises.  Lessee shall cause said fixtures, equipment, furnishings, furniture, appliances, and personal property to be assessed and billed separately from the real property of Lessor.  If any of Lessee’s said personal property shall be assessed with Lessor’s real property, Lessee shall pay to Lessor the taxes attributable to Lessee within ten (10) days after receipt of a written statement from Lessor setting forth the taxes applicable to Lessee’s property.

B.            All property taxes or assessments levied or assessed by or hereafter levied or assessed by any governmental authority against the Premises or any portion of such taxes or assessments which becomes due or accrued during the term of this Lease shall be paid by Lessor.  Lessee shall pay to Lessor Lessee’s Pro-Rata Share of such taxes or assessments twenty (20) days after receipt of an invoice therefor.  Lessee’s liability hereunder shall be prorated to reflect the commencement and termination dates of this Lease.  Lessee shall have the right, in good faith, to contest any tax or assessment, provided that Lessee indemnifies Lessor from any loss or liability in connection therewith.  Lessor shall use its best efforts to assist Lessee in its efforts to contest any tax or assessment.  Said right does not preclude Lessee from paying such taxes by the date due.

C.            During the first two (2) years of the Lease term, Lessee shall not be obligated to pay any portion of the increase in property taxes resulting from the sale, refinance or change in ownership of 1390 Kifer Road or any other part of the Project.

9.             Insurance.

A.            Indemnity.  Lessee agrees to indemnify, defend and save Lessor against and hold Lessor harmless from any and all demands, claims, causes of action, judgments, obligations, or liabilities, and all reasonable expenses incurred in investigating or resisting the same (including

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reasonable attorneys’ fees) on account of, or arising out of, the condition, use, or occupancy of the Premises by Lessee, its employees, agents or contractors, except to the extent of Lessor’s gross negligence or intentional misconduct.  This Lease is made on the express condition that, except as otherwise provided herein, Lessor shall not be liable for, or suffer loss by reason of, injury to person or property, from whatever cause, in any way connected with the condition, use, or occupancy of the Premises, specifically including, without limitation, any liability for injury to the person or property of Lessee, its agents, officers, employees, licensees, and invitees, except to the extent of Lessor’s gross negligence or intentional misconduct.  Notwithstanding anything to the contrary in this Lease, Lessor agrees to indemnify, defend and save Lessee against and hold Lessee harmless from any and all demands, claims, causes of action, judgments, obligations, or liabilities, and all reasonable expenses incurred in investigating or resisting the same (including reasonable attorneys’ fees) on account of, or arising out of, the operation, maintenance or repair of the Project’s common areas or the negligence or willful misconduct of Lessor, its employees, agents, contractors or invitees.

B.            Liability Insurance.  Lessee shall, at its expense, obtain and keep in force during the term of this Lease a policy of Commercial General Liability insurance insuring Lessor and Lessee, with cross-liability endorsements, against any liability arising out of the condition, use, or occupancy of the Premises and all areas appurtenant thereto, including parking areas.  Such insurance shall be in an amount satisfactory to Lessor of not less than three million dollars ($3,000,000) for bodily injury or death as a result of one occurrence, and one million dollars ($1,000,000) for damage to property as a result of any one occurrence.  The insurance shall be with an insurance company who carries a financial rating of not less than “A-VII”, as designated in the most current Best’s Insurance Reports.  Prior to possession, Lessee shall deliver to Lessor a certificate of insurance evidencing the existence of the policy which (1) names Lessor as an additional insured, (2) shall not be canceled or altered without thirty (30) days’ prior written notice to Lessor, (3) insures performance of the indemnity set forth in this Section 9(A), and (4) coverage is primary and any coverage by Lessor is in excess thereto.

C.            Lessor’s Insurance.  Lessor shall obtain and keep in force during the term of this Lease a policy or policies of insurance covering loss or damage to the Premises (which may include earthquake and/or flood insurance), in the amount of the full replacement value thereof.  Lessee shall pay to Lessor its Pro-Rata Share of the cost of said insurance (including deductibles) within twenty (20) days of Lessee’s receipt of Lessor’s invoice demanding such payment.  In no event shall the annual premium for earthquake insurance be more than one and on-half (1-1/2) times the premium for the property insurance.  Lessor shall also carry, on the Project, during the term, Commercial General Liability Insurance with an insurance company who carries a financial rating of not less than “A-VII”, as designated in the most current Best’s Insurance Reports, providing coverage of not less than Five Million Dollars ($5,000,000.00) in combined Bodily Injury and Property Damage Liability.

D.            Waiver of Subrogation.  Notwithstanding anything to the contrary in this Lease, the parties hereto release each other and their respective agents, employees, successors, assigns and sublessees from all liability for damage to any property that is caused by or results from a risk which is actually insured against or which is required to be insured against under this Lease, without regard to the negligence or willful misconduct of the entity so released.  Each party shall use its best efforts to cause each insurance policy it obtains to provide that the insurer thereunder

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waives all rights of recovery by way of subrogation as required herein in connection with any injury or damage covered by the policy.  If the insurance policy cannot be obtained with the waiver of subrogation, or if the waiver of subrogation is available only at additional cost and the party for whose benefit the waiver is not obtained does not pay the additional cost, then the party obtaining the insurance immediately shall notify the other party of that fact.

10.           Reimbursable Expenses and Utilities.  Lessee shall pay its Pro-Rata Share of all water, gas, light, heat, power, electricity, telephone (for the fire safety system), trash removal, landscaping, sewer charges, and all other services, including normal and customary property management fees capped at 2.5% of the Base Rent (“Management Fee”), supplied to or consumed on the Premises.  .  All capital expenditures shall be amortized over the useful life of the applicable item; as used herein, “capital expenditures” means expenditures which, in accordance with generally accepted accounting principles, are not fully chargeable to current expense in the year the expenditure is incurred.  In the event that any such services are billed directly to Lessor, then Lessee shall pay Lessor for such expenses within twenty (20) days of Lessee’s receipt of Lessor’s invoice demanding payment.  In the event that utilities to the Premises are interrupted to the Premises for more than three (3) days, Lessee’s Rent shall abate for the time that utilities are down to the extent that insurance proceeds are available to Lessor.

Notwithstanding the foregoing, Reimbursable Expenses and Utilities shall not, however, include:

(A)any payments under a ground lease or master lease;

(B)the cost of any item reimbursable under the terms of any insurance policy or condemnation proceeds or which would be reimbursable from insurance required to be maintained by Lessor under this Lease provided that such proceeds are actually received.  Lessor will use its best efforts to obtain any such proceeds it is entitled to;

(C)marketing and promotional costs, including but not limited to leasing commissions, real estate brokerage commissions, and attorneys’ fees in connection with the negotiation and preparation of letters, deal memos, letters of intent, leases, subleases and/or assignments, space planning costs, and other costs and expenses incurred in connection with lease, sublease and/or assignment negotiations and transactions with present or prospective tenants;

(D)costs incurred by Lessor due to any violation of the terms and conditions of any other lease of space or occupancy agreement in the Project (excluding the Premises);

(E)interest, principal, attorneys’ fees, environmental investigations or reports, points, fees and other lender costs and dosing costs on debts or amortization on any mortgage or mortgages or any other debt instrument encumbering the Project or any part thereof or on any unsecured debt;

(F)Lessor’s general corporate overhead and general and administrative expenses, including costs relating to accounting, payroll, legal and computer services;

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(G)except for the Management Fee, salaries of officers, executives or other employees of Lessor, any affiliate of Lessor, or partners or affiliates of such partners or affiliates, excluding the hourly rate of Lessor’s maintenance personnel for services provided to the Project or Premises;

(H)advertising and promotional expenditures, including but not limited to tenant newsletters and promotional gifts, events or parties for existing or future occupants, and the costs of signs (other than the Buildings’ directory) in or on the Buildings identifying the owner of the buildings or other tenants’ signs and any costs related to the celebration or acknowledgment of Holidays;

(I)electric power or other utility costs for which any other tenant directly contracts with the local public service company;

(J)costs, penalties, fines, or awards and interest incurred from (i) the negligence, or intentional misconduct of Lessor or its agents, or of any other tenant, or any vendors, contractors or providers of materials or services selected, hired or engaged by Lessor or its agents, (ii) Lessor’s violations of law, or (iii) negligence or inability or unwillingness to make payments and/or to file any income tax, other tax or informational returns when due;

(K)costs which are paid under any contractor, manufacturer or supplier warranty; .

(L)except to the extent caused by Lessee, its employees, agents or contractors, costs arising from the presence or removal of Hazardous Substances located in the Project, including, without limitation, any costs incurred pursuant to the requirements of any governmental laws, ordinances, regulations or orders relating to health, safety or environmental conditions, including but not limited to regulations concerning asbestos, soil and ground water conditions or contamination regarding Hazardous Substances;

(M)costs arising from Lessor’s charitable or political contributions;

(N)costs arising from any type of insurance maintained by Lessor which is nor required or allowed to be maintained by Lessor pursuant to Section 9 of this Lease;

(0)the cost of maintaining (excluding routine maintenance costs) of any sculpture, paintings or other objects of art, the costs for sculpture, paintings or other objects of art or the insuring (except if such insurance is part of Lessor’s standard insurance and does not require any additional premium), repair or maintenance thereof;

(P)subject to Section 26, the costs (including in connection therewith all attorneys’ fees and costs of settlement judgments and payments in lieu thereof) arising from claims, disputes or potential disputes in connection with potential or actual claims; litigation or arbitrations pertaining to Lessor and/or the Project

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(Q)costs incurred in removing and storing the property of former tenants or occupants of the Project;

(R)(i) the cost of installing, operating and maintaining any specialty service, observatory, broadcasting facilities, luncheon club, museum, athletic or recreational club, or child care facility, and (ii) the cost of installing, operating and maintaining any other service operated or supplied by or normally operated or supplied by a third party under an agreement between a third party and a landlord, provided that none of the above are imposed on Lessee;

(S)reserves of any kind, including but not limited to replacement reserves, and reserves for bad debts or lost rent or any similar charge not involving the payment of money to third parties, excluding however impounds for property taxes and/or insurance if required by Lessor’s lender,

(T)Lessee’s pro-rata share for expenses in maintaining and repairing the parking lot only shall be approximately 54.73% (based on Lessee receiving 330 parking spaces of the total of 603 spaces in the Project).

Lessor shall maintain at all times during the term of this Lease, at the office of Lessor, complete and accurate books of account and records prepared in accordance with generally accepted accounting principles with respect to Reimbursable Expenses and Utilities and property taxes, and shall retain such books and records, as well as contracts, bills, vouchers, and checks, and such other documents as are reasonably necessary to properly audit the Reimbursable Expenses and Utilities and property taxes.  Lessee shall have the right, at its own cost and expense (except as provided below) to audit or inspect Lessor’s records with respect to Reimbursable Expenses and Utilities and property expenses for any Lease year.  Lessee’s right to audit must commence within ninety (90) days from Lessee’s receipt of an invoice from Lessor.  Lessee shall give Lessor not less than thirty (30) days prior written notice of its intention to conduct such audit.  Lessor shall cooperate with Lessee during the course of any such audit, which shall be conducted during normal business hours.  If such audit discloses that the amount paid by Lessee as Reimbursable Expenses and/or Utilities and/or property taxes has been overstated by more than ten percent (10%), then, in addition to immediately repaying such overpayment to Lessee with interest, Lessor shall also pay the reasonable costs by Lessee in connection with such audit.

11.           Repairs and Maintenance.

A.            Subject to provisions of Section 15, Lessor shall keep and maintain in good order, condition and repair the structural elements of the Premises including the roof, roof membrane, paving, floor slab, foundation, exterior walls, landscaping, irrigation and elevators.  Lessor shall make such repairs, replacements, alterations or improvements as Lessor deems reasonably necessary with respect to its obligations above.  Lessee shall pay to Lessor, within twenty (20) days of Lessor’s invoice to Lessee therefore, Lessee’s Pro-Rata Share of such repairs, replacements, alterations or improvements.  In the event that the cost of any replacement or improvement required pursuant to the above obligation exceeds $20,000 per occurrence, the amount in excess of $20,000 shall be amortized over the useful life of such replacements or

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improvements.  Lessee shall be responsible to pay its pro-rata share of such excess on a monthly basis, as Additional Rent, for as long as the useful life coincides with the lease term.  Notwithstanding the foregoing, if the reason for any repair, replacement, alteration or improvement is caused by Lessee or arises because of a breach of Lessee’s obligations under this Lease, then Lessee shall pay 100% of the costs or expense to remedy the same.

B.            Except as expressly provided in Section 11(A) above, Lessee shall, at its sole cost, keep and maintain the entire Premises and every part thereof, including, without limitation, the windows, window frames, plate glass, glazing, truck doors, doors, all door hardware, interior of the Premises, interior walls and partitions, and electrical, plumbing, lighting, heating, and air conditioning systems in good and sanitary order, condition, and repair.  Lessee shall, at all times during the Lease term and at his expense, have in effect a service contract for the maintenance of the heating, ventilating, and air-conditioning (HVAC) equipment with an HVAC repair and maintenance contractor approved by Lessor which provides for periodic inspection and servicing at least once every three (3) months during the term hereof.  Lessee shall further provide Lessor with a copy of such contract and all periodic service reports.

Should Lessee fail to maintain the Premises or make repairs required of Lessee hereunder within ten (10) days after written notice from Lessor, lessor, in addition to all other remedies available hereunder or by law, and without waiving any alternative remedies, may make the same, and in that event, Lessee shall reimburse Lessor as additional rent for the cost of such maintenance or repairs on the next date upon which rent becomes due.

12.           Alterations and Additions.  Lessee shall not make, or suffer to be made, any alterations, improvements, or additions in, on, or about, or to the Premises or any part thereof, except those improvements that are nonstructural in nature and do not affect the building mechanical systems including but not limited to the electrical, plumbing, and HVAC systems without prior written consent of Lessor, which consent shall not be unreasonably withheld, conditioned or delayed, and without a valid building permit issued by the appropriate governmental authority.  In the event of any alteration, addition or improvements to the Premises, Lessee shall provide Lessor notification by submission of plans.  As it pertains to structural alterations or improvements, Lessor retains, at his sole option, the right to retain a General Contractor of his own choosing, provided that said General Contractor is competitive in its costs, to perform all repairs, alterations, improvements, or additions in, on, about, or to said Premises or any part thereof.  As a condition to giving such consent, Lessor may require that Lessee agree to remove any such alterations, improvements, or additions made by Lessee at the termination of this Lease and to restore the Premises to their prior condition, provided that Lessor notifies Lessee of its obligation to do so at the time of providing its consent to such alterations.  Any alteration, addition, or improvement to the Premises shall become the property of Lessor upon installation, and shall remain upon and be surrendered with the Premises at the termination of this Lease.  Alterations and additions which are not to be deemed as trade fixtures include heating, lighting, electrical systems, air conditioning, partitioning, carpeting, or any other installation which has become an integral part of the Premises (except for Lessee’s signage).

Notwithstanding anything to the contrary herein, if, during the term hereof, any alteration, addition, or change of any sort through all or any portion of the Premises or of the building of which the Premises form a part, is required by law, regulation, ordinance, or order of

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any public agency then if such legal requirement is not imposed because of Lessee’s specific use of the Premises and is not “triggered” by Lessee’s alterations or Lessee’s application for a building permit or any other governmental approval (in which instance Lessee shall be responsible for 100% of the cost of such improvement) and if such legal requirement was not in effect on the Lease Commencement Date, Lessor shall be responsible for constructing such improvement and Lessee shall be responsible for its proportional share of the cost for said improvement, amortized over the useful life of such improvement that coincides with the remaining Lease term including any extensions.

13.           Acceptance of the Premises and Covenant to Surrender.  By entry and taking possession of the Premises pursuant to this Lease, Lessee accepts the Premises as being in good and sanitary order, condition, and repair, and accepts the Premises in their condition existing as of date of such entry.

Lessee agrees on the last day of the term hereof, or on sooner termination of this Lease, to surrender the Premises, together with all alterations, additions, and improvements which may have been made in, to, or on the Premises by Lessor or Lessee, unto Lessor in good and sanitary order, condition, and repair, excepting for such wear and tear as would be normal for the period of the Lessee’s occupancy and damage and destruction.  Lessee, on or before the end of the term or sooner termination of this Lease, shall remove all its personal property and trade fixtures from the Premises, and all property not so removed shall be deemed abandoned by Lessee.  Lessee further agrees that at the end or sooner termination of this Lease, Lessee, at its sole expense, shall have the carpets steamed cleaned, the walls and columns painted, the flooring waxed, any damaged ceiling tiles replaced, the windows cleaned, the drapes cleaned, and any damaged doors replaced if necessary to restore the Premises to its original condition, normal wear and tear excepted.

If the Premises are not surrendered at the end of the term or sooner termination of this Lease, Lessee shall indemnify Lessor against loss or liability resulting from delay by Lessee in so surrendering the Premises, including, without limitation, any claims made by any succeeding tenant founded on such delay.

14.           Default.  The occurrence of any one or more of the following events shall constitute a material default and breach of the Lease by Lessee:

Monetary Default.  Failure by Lessee to make any payment required within ten (10) days following written notice that the same is past due;

Non-Monetary Default.  Failure by Lessee to observe or perform any of the covenants, conditions, or provisions of this Lease, other than the making of any payment, where such failure shall continue for a period of thirty (30) days after written notice from Lessor; provided, that if the nature of Lessee’s obligation is such that more than thirty (30) days are required for performance, Lessee shall not be in default if Lessee commences performance within thirty (30) days of Lessor’s written notice and thereafter diligently completes Lessee’s performance within a period of not more than ninety (90) days.

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In the event of any breach of this Lease by the Lessee, the Lessor has the option of (1.) removing all persons and property from the Premises and repossessing the Premises, in which case any of the Lessee’s property which the Lessor removes from the Premises may be stored in a public warehouse or elsewhere at the cost of, and for the account of, Lessee; or (2.) allowing the Lessee to remain in full possession and control of the Premises.  If the Lessor chooses to repossess the Premises, the Lease will automatically terminate in accordance with the provisions of the California Civil Code, Section 1951.2.  In the event of such termination of the Lease, the Lessor may recover from the Lessee: (a) the worth at the time of award of the unpaid rent which had been earned at the time of termination, including interest at Bank of America’s Prime Rate plus 2%, (b) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided, including interest at Bank of America’s Prime Rate plus 2%, (c) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided; and (d) any other amount necessary to compensate the Lessor for all the detriment proximately caused by the Lessee’s failure to perform his obligations under the Lease or which, in the ordinary course of things, would be likely to result therefrom.  ‘The worth at the time of award,” as used in (a) and (b) of this Paragraph, is to be computed by allowing interest at Bank of America’s Prime Rate plus 2%.  “The worth at the time of award,” as used in (c) of this Paragraph, is to be computed by discounting the amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award, plus one percent (1%).

If the Lessor chooses not to repossess the Premises, but allows the Lessee to remain in full possession and control of the Premises, then, in accordance with provisions of the California Civil Code, Section 1951.4, the Lessor may treat the Lease as being in full force and effect, and may collect from the Lessee all rents as they become due through the termination date of the Lease, as specified in the Lease.  For the purpose of this paragraph, the following do not constitute a termination of Lessee’s right to possession: (1.) acts of maintenance or preservation, or efforts to relet the property; (2.) the appointment of a receiver on the initiative of the Lessor to protect his interest under this Lease.

If Lessor elects to relet the Premises as provided in this Paragraph, rent that Lessor receives from reletting shall be applied to the payment of: (1.) any indebtedness from Lessee to Lessor other than rent due from Lessee; (2.) all costs, including for maintenance, incurred by Lessor in reletting; (3.) rent due and unpaid under this Lease.  After deducting the payments referred to in this Paragraph, any sum remaining from the rent Lessor receives from reletting shall be held by Lessor and applied in payment of future rent as rent becomes due under this Lease.  In no event shall Lessee be entitled to any excess rent received by Lessor, provided such excess rent shall be applied to all amounts due and owing under this Lease.  If, on the date rent is due under this Lease, the rent received from reletting is less than the rent due on that date, Lessee shall pay to Lessor, in addition to the remaining rent due, all costs, including for maintenance, Lessor incurred in reletting that remain after applying the rent received from the reletting, as provided in this Paragraph.

Lessor, at any time after Lessee commits a default, shall have the right to cure the default at Lessee’s cost, after giving Lessee at least ten (10) days’ written notice of such default.  If

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Lessor at any time, by reason of Lessee’s default, pays any sum or does any act that requires the payment of any sum, the sum paid by Lessor shall be due immediately from Lessee to Lessor at the time the sum is paid, and if paid at a later date shall bear interest at Bank of America’s Prime Rate plus 2% from the date the sum is paid by Lessor until Lessor is reimbursed by Lessee.  The sum, together with interest on it, shall be additional rent.

Rent not paid when due shall bear interest at Bank of America’s Prime Rate plus 2% from the date due until paid.

15.           Destruction.

A.            Repair of Damage to Premises by Lessor.  If the Premises or any common areas of the Project serving or providing access to the Premises shall be damaged by fire or other casualty, Lessor shall promptly and diligently, subject to reasonable delays for insurance adjustment or other matters beyond Lessor’s reasonable control, and subject to all other terms of this Section 15, restore the Premises and the common areas of the Project serving or providing access to the Premises.  Such restoration shall be to substantially the same condition of the Project, the Premises, and common areas prior to the casualty, except for modifications required by zoning and building codes and other laws, provided access to the Premises and any common restrooms serving the Premises shall not be materially impaired.  Upon the occurrence of any damage to the Premises, Lessor shall repair any injury or damage to the Tenant Improvements and alterations installed in the Premises pursuant to Section 12, and shall return such Tenant Improvements and alterations to their original condition.  In connection with such repairs and replacements, Lessee shall, prior to the commencement of construction, submit to Lessor for Lessor’s review and approval, all plans, specifications and working drawings relating thereto, and Lessor shall select the contractors to perform such improvement work with the input of Lessee.  Lessor shall not be liable for any inconvenience or annoyance to Lessee or its visitors, or injury to Lessee’s business resulting from such damage or the repair thereof, provided however, that if such fire or other casualty shall have damaged the Premises or common areas necessary to Lessee’s occupancy, Lessor shall allow Lessee a proportionate abatement of Rent during the time and to the extent the Premises are unfit for occupancy for the purposes permitted under this Lease, and not occupied by Lessee as a result thereof; provided, however, that if the Premises is damaged such that the remaining portion thereof is not sufficient to allow Lessee to conduct its business operations from such remaining portion and Lessee does not conduct its business operations therefrom, Lessor shall allow Lessee a total abatement of Rent during the time and to the extent the Premises are unfit for occupancy for the purposes permitted under this Lease, and not occupied by Lessee as result of the subject damage.

B.            Damage Near End of Term.  In the event that the Premises are destroyed or damaged to any substantial extent (i.e. fifty (50%) or more of the Premises) during the last twelve months of the Lease Term, and Lessee does not exercise an available option to extend the Term (which Extension Option in the event of such substantial damage, notwithstanding the terms of Section 4, must be exercised within ninety (90) of the date of such damage), then notwithstanding anything contained in this Section 15, either Lessor or Lessee shall have the option to terminate this Lease by giving written notice to the other party of the exercise of such option within sixty (60) days after such damage or destruction, or if the damage has occurred such that Lessee has not yet been obligated to exercise its Extension Option, then within thirty

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(30) days following the lapse of Lessee’s ninety (90) day period to exercise its Extension Option, in which event this Lease shall cease and terminate as of the date of such notice, Lessee shall pay the Rent properly apportioned up to such date of damage, and both parties hereto shall thereafter be freed and discharged of all further obligations hereunder, except as provided for in provisions of this Lease which by their terms survive the expiration or earlier termination of the Term.

C.            Uninsured Risks.  If the Premises is damaged as a result of any casualty not covered by Lessor’s insurance required to be maintained pursuant to Section 9 above, and if the cost to Lessor of repair would exceed fifteen percent (15%) of the replacement cost of the Premises, Lessor may within sixty (60) days following the date of such damage commence repair, reconstruction or restoration of the Premises and prosecute the same diligently to completion, in which event this Lease shall continue in full force and effect; or within said sixty (60) day period elect not to so repair, reconstruct or restore the Premises, in which event this Lease shall terminate with respect to the Premises effective as of the date of such damage or destruction.  If the cost to Lessor of repair would not exceed fifteen percent (15%) of the replacement cost of the Premises, Lessor shall be obligated to repair such damage as soon as reasonably possible.  In the event Lessor has the right to terminate this Lease, Lessor shall give Lessee written notice of its intention within said sixty (60) day period.  In the event Lessor provides Lessee written notice of Lessor’s intention to terminate the Lease pursuant to the above provision, Lessee shall have the right within sixty (60) days after receipt of such notice to give Lessor written notice of Lessee’s intention to pay for the repair of the portion of said damage in excess of fifteen percent (15%) of the replacement cost of the Premises so damaged, in which event this Lease shall continue in full force and effect; and Lessee shall promptly deposit with Lessor the amount necessary to pay for the repairs of the portion of said damage in excess of fifteen percent (15%) of the replacement cost of the Premises or provide other suitable security for the payment of such costs, and thereafter Lessor shall proceed to make such repairs as soon as reasonably possible.

D.            Lessee’s Right to Terminate.  If Lessor does not elect to terminate this Lease pursuant to Lessor’s termination night as provided above, and the repairs cannot be completed within twenty-four (24) months after the date of damage (as mutually agreed by Lessor and Lessee), Lessee may elect, no earlier than sixty (60) days after the date of the damage and not later than the later of (A) Lessor’s delivery of notice to Lessee that Lessor is not electing to terminate this Lease or (B) ninety (90) days after the date of such damage, to terminate this Lease by written notice to Lessor effective as of the date specified in the notice, which date shall not be less than thirty (30) days nor more than sixty (60) days after the date such notice is given by Lessee.  Furthermore, if neither Lessor nor Lessee have terminated this Lease, and the repairs are not actually completed within such twenty-four (24) month period, Lessee shall have the right to terminate this Lease during the first five (5) business days of each calendar month following the end of such period until such time as the repairs are complete, by notice to Lessor (the “Damage Termination Notice”), effective as of a date set forth in the Damage Termination Notice (the “Damage Termination Date”), which Damage Termination Date shall not be earlier than the end of each such month.  Lessee may at any time prior to any Damage Termination Date void any previously delivered Damage Termination Notice.  Notwithstanding the foregoing, if Lessee delivers a Damage Termination Notice to Lessor, then Lessor shall have the right to suspend the occurrence of the Damage Termination Date for a period ending thirty (30) days after the Damage Termination Date set forth in the Damage Termination Notice by delivering to

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Lessee, within five (5) business days of Lessor’s receipt of the Damage Termination Notice, a certificate of Lessor’s contractor responsible for the repair of the damage certifying that it is such contractor’s good faith judgment that the repairs shall be substantially completed within thirty (30) days after the Damage Termination Date.  If repairs shall be substantially completed prior to the expiration of such thirty day period, then the Damage Termination Notice shall be of no force or effect, but if the repairs shall not be substantially completed within such thirty-day period, then this Lease shall terminate upon the expiration of such thirty-day period.  At any time, from time to time, after the date occurring sixty (60) days after the date of the damage, Lessee may request that Lessor inform Lessee of Lessor’s reasonable opinion of the date of completion of the repairs and Lessor shall respond to such request within five (5) business days.

E.             Obligations Upon Termination.  Upon termination of this Lease with respect to one or both Buildings under any provisions of this Section 15, the parties shall be released thereby without further obligations to the other party with respect to the Premises so damaged with the surrender of possession of the Premises to Lessor, except for items which have theretofore accrued and be then unpaid.  In the event of any termination, all proceeds from the fire and extended coverage insurance under Section 9, excluding only proceeds for trade fixtures, merchandise, other personal property, and that portion of such proceeds equal to the unamortized cost of Tenant Improvements paid by Lessee, such amortization to be over the period of the initial term of this Lease, shall be disbursed to Lessor (and in the event that the total insurance proceeds shall be less than the cost of restoring the damaged Premises, Lessee shall be entitled to receive a pro rata share of the unamortized cost of the Tenant Improvements paid by Lessee, such pro rata share to be based upon the proportion that the insurance proceeds paid by the insurer bears to the total cost of restoring the damaged Premises).

16.           Condemnation.  If any part of the Premises or parking areas associated with the Premises shall be taken for any public or quasi-public use, under any statute of by right of eminent domain, or private purchase in lieu thereof, and a part thereof remains, which is susceptible of occupation hereunder, this Lease shall, as to the part so taken, terminate as of the date title shall vest in the condemnor or purchaser, and the rent payable hereunder shall be adjusted so that the Lessee shall be required to pay for the remainder of the term only such portion of such rent as the value of the part remaining after taking such bears to the value of the entire Premises prior to such taking.  Lessor, or Lessee if 30% or more of the Premises is taken, shall have the option to terminate this Lease in the event that such taking causes a reduction in rent payable hereunder by fifty percent (50%) or more.  If all of the Premises or such part thereof be taken so that there does not remain a portion susceptible for occupation hereunder, as reasonably necessary for Lessee’s conduct of its business as contemplated in this Lease, this Lease shall thereupon terminate.  If a part of all of the Premises be taken, all compensation awarded upon such taking shall go to the Lessor, and the Lessee shall have no claim thereto, and the Lessee hereby irrevocably assigns and transfers to the Lessor any right to compensation or damages to which the Lessee may become entitled during the term hereof by reason of the purchase or condemnation of all or a part of the Premises, except that Lessee shall have the right to recover its share of any award or consideration for (1.) moving expenses; (2.) loss or damage to Lessee’s trade fixtures, furnishings, equipment, and other personal property; and (3.) business goodwill and (4.) Tenant Improvements paid for by Lessee.  Each party waives the provisions of the Code of Civil Procedure, Section 1265.130, allowing either party to petition the Superior Court to terminate this Lease in the event of a partial taking of the Premises.

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17.           Free from Liens.  Except for Tenant Improvements which Lessor is responsible, Lessee shall (1.) pay for all labor and services performed for materials used by or furnished to Lessee, or any contractor employed by Lessee with respect to the Premises, and (2.) indemnify, defend, and hold Lessor and the Premises harmless and free from any liens, claims, demands, encumbrances, or judgments created or suffered by reason of any labor or services performed for materials used by or furnished to Lessee or any contractor employed by Lessee with respect to the Premises, and (3.) give notice to Lessor in writing five (5) days prior to employing any laborer or contractor to perform services related, or receiving materials for use upon the Premises, and (4.) shall post, on behalf of Lessor, a notice of non-responsibility in accordance with the statutory requirements of the California Civil Code, Section 3904, or any amendment thereof.  In the event an improvement bond with a public agency in connection with the above is required to be posted, Lessee agrees to include Lessor as an additional obligee.

18.           Compliance with Laws.  Subject to Section 12, Lessee shall, at its own cost, comply with and observe all requirements of all municipal, county, state, and federal authority now in force, or which may hereafter be in force, pertaining to the use and occupancy of the Premises.

19.           Subordination.  Lessee agrees that this Lease shall, at the option of Lessor, be subjected and subordinated to any mortgage, deed of trust, or other instrument of security, which has been or shall be placed on the land and building, or land or building of which the Premises form a part, and this subordination is hereby made effective without any further act of Lessee or Lessor.  The Lessee shall, at any time hereinafter, on demand, execute any commercially reasonable instruments, releases, or other documents that may be required by any mortgagee, mortgagor, trustor, or beneficiary under any deed of trust, for the purpose of subjecting or subordinating this Lease to the lien of any such mortgage, deed of trust, or other instrument of security.  If Lessee fails to execute and deliver any such documents or instruments, Lessee irrevocably constitutes and appoints Lessor as Lessee’s special attorney-in-fact to execute and deliver any such documents or instruments.  Any such subordination shall be conditioned upon Lessor obtaining a Non-disturbance Agreement in lender’s standard form.

20.           Abandonment.  Lessee shall not abandon the Premises at any time during the term; and if Lessee shall abandon or surrender said Premises, or be dispossessed by process of law, or otherwise, any personal property belonging to Lessee and left on the Premises shall be deemed to be abandoned, at the option of Lessor, except such property as may be mortgaged to Lessor; provided, however, that Lessee shall not be deemed to have abandoned the Premises so long as Lessee continues to pay all rents as and when due, and otherwise performs pursuant to the terms and conditions of this Lease.

21.           Assignment and Subletting.

A.            Definitions.  For purposes of this Paragraph 21, the following terms shall be defined as follows:

(i)Sublet.  The term “Sublet” shall mean any transfer, sublet, assignment, license or concession agreement, change of ownership, mortgage, or hypothecation of this Lease or the Lessee’s interest in the Lease or in and to all or a portion of the Premises.

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(ii)Subrent.  The term “Subrent” shall mean any consideration of any kind received, or to be received, by Lessee from a Sublessee if such sums are related to Lessee’s interest in this Lease or in the Premises, including, but not limited to, bonus money and payments (in excess of book value) for Lessee’s assets including its trade fixtures, equipment and other personal property, goodwill, general intangibles, and any capital stock or other equity ownership of Lessee.

(iii)Sublessee.  The term “Sublessee” shall mean the person or entity with whom a Sublet agreement is proposed to be or is made.

B.            Lessor’s Consent.  Lessee shall not enter into a Sublet without Lessor’s prior written consent, which consent’ shall not be unreasonably withheld, conditioned or delayed.  Any attempted or purported Sublet without Lessor’s prior written consent shall be void and confer no rights upon any third person and, at Lessor’s election, shall terminate this Lease.  In determining whether or not to consent to a proposed Sublet, Lessor may consider the following factors, among others, all of which shall be deemed reasonable: (i) whether the proposed Sublessee has a net worth sufficient to allow it to meet its obligations under the proposed sublease; (ii) whether the proposed use of the Premises by the proposed Sublessee is consistent with the permitted use for the Premises set forth in Paragraph 6 of this Lease; (iii) whether the rent payable by the Sublessee under the proposed Sublet is set below the current fair market rent for the subleased Premises as a subterfuge to avoid paying Lessor its share of the profit on such transaction; (iv) whether Lessor’s consent will result in a breach of any other lease or agreement to which Lessor is a party affecting the Building; and (v) whether the proposed Sublet requires any non-standard building modifications.  Each Sublessee shall agree in writing, for the benefit of Lessor, to assume, to be bound by, and to perform the terms and conditions and covenants of this Lease to be performed by Lessee.  Notwithstanding anything contained herein, Lessee shall not be released from liability for the performance of each term, condition and covenant of this Lease by reason of Lessor’s consent to a Sublet unless Lessor specifically grants such release in writing.  Consent by Lessor to any Sublet shall not be deemed a consent to any subsequent Sublet.  Lessee shall reimburse Lessor for all reasonable costs and reasonable attorneys’ fees incurred by Lessor in connection with the evaluation, processing and/or documentation of any requested Sublet, whether or not Lessor’s consent is granted; provided, however such costs and fees shall not exceed Five Thousand Dollars ($5,000.00), Lessor’s reasonable costs shall include the cost of any review or investigation by Lessor of any hazardous or toxic materials which may be used, stored, or disposed of at the Premises by the Sublessee, including fees paid to consultants hired to perform such review or investigation.

C.            Information to be Furnished.  If lessee desires at any time to Sublet the Premises or any portion thereof, it shall first notify Lessor of its desire to do so and shall submit in writing to Lessor.  (i) the name and legal composition of the proposed Sublessee, (ii) the nature of the proposed Sublessee’s business to be carried on in the Premises; (iii) the terms and provisions of the proposed Sublet and a copy of the proposed Sublet form containing a description of the subject premises; (iv) a statement of all consideration to be paid by the Sublessee in connection with the Sublet; (v) a current financial statement of Lessee; and (vi) such financial information, including financial statements, as Lessor may reasonably request concerning the proposed Sublessee.

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D.            Lessor’s Alternatives.  At any time within ten (10) business days after the Lessor’s receipt of the information specified in Section 21.C, Lessor may, by written notice to Lessee, elect: (i) to consent to the Sublet by Lessee; (ii) to refuse its consent to the Sublet, or (iii) elect to terminate this Lease, or in the case of a partial Sublet for the entire remainder of the term, terminate this Lease as to the portion of the Premises proposed to be Sublet, provided, however, Lessor shall not have the right to terminate this Lease in connection with a Permitted Transfer.  if Lessor consents to the Sublet, Lessee may thereafter enter into a valid Sublet of the Premises.  or portion thereof, upon the terms and conditions and.  with the proposed Sublessee set forth in the information furnished by Lessee to Lessor pursuant to Section 21.8., subject, however, at Lessor’s election, to the condition that seventy-five percent (75%) of any excess of the Subrent over the Rent (after deducting Lessee’s brokers’ fees, attorneys’ fees and costs of tenant improvements associated with the Sublet) be required to be paid by Lessee to Lessor, provided, however, Lessee shall not be required to pay such excess in connection with a Permitted Transfer.

E.             Proration.  If a portion of the Premises is Sublet, the pro rata share of the Rent attributable to such partial area of the Premises shall be determined by Lessor by dividing the Rent payable by Lessee hereunder by the total square footage of the Premises and multiplying the resulting quotient (the per square foot rent) by the number of square feet of the Premises which are Sublet.

F.             Exempt Sublets.  Notwithstanding the other provisions of this Section, any reorganization, merger, sale, assignment, transfer or hypothecation of any ownership interest in Lessee, the sale of all or substantially all of the assets of Lessee, the sale of Lessee’s stock to an individual(s) or to the public or the assignment or sublease of the Premises, or any portion thereof, to any subsidiary, parent company or affiliate (collectively, “Permitted Transfers”) shall not be deemed an assignment of this Lease or subletting of the Premises, provided, that such transaction is not a subterfuge by Lessee to avoid its obligations under this Lease and, further, provided that if Lessee exists as an entity after such transaction, it shall remain liable to Lessor for its obligations under this Lease.

22.           Parking Charges.  Lessee agrees to pay upon demand, based on its percent of occupancy of the entire Premises, its pro-rata share of any parking charges, surcharges, or any other cost hereafter levied or assessed by local, state, or federal governmental agencies in connection with the use of the parking facilities serving the Premises, including, without limitation, parking surcharge imposed by or under the authority of the Federal Environmental Protection Agency.  Lessor represents that at the time of Lease execution, there are no such parking charges.  Lessor agrees to use its best efforts to challenge any such parking charges that may arise.  Other than parking charges that may be imposed by a governmental agency, Lessor shall not charge Lessee any fees or charges for parking in the Project.

23.           Insolvency or Bankruptcy.  Either (1.) the appointment of a receiver to take possession of all or substantially all of the assets of Lessee, or (2.) a general assignment by Lessee for the benefit of creditors, or (3.) any action taken or suffered by Lessee under any insolvency or bankruptcy act shall constitute a breach of this Lease by Lessee.  Upon the happening of any such event, this Lease shall terminate ten (10) days after written notice of termination from

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Lessor to Lessee.  This section is to be applied consistent with the applicable state and federal law in effect at the time such event occurs.

24.           Lessor Loan or Sale.  Lessee agrees promptly following request by Lessor to (1.) execute and deliver to Lessor any documents, including estoppel certificates presented to Lessee by Lessor, (a.) certifying that this Lease is unmodified and in full force and effect, or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect and the date to which the rent and other charges are paid in advance, if any, and (b.) acknowledging that there are not, to Lessee’s knowledge, any uncured defaults on the part of Lessor hereunder, and (c.) evidencing the status of the Lease as may be required either by a lender making a loan to Lessor, to be secured by deed of trust or mortgage covering the Premises, or a purchaser of the Premises from Lessor, and (2.) deliver to Lessor the current financial statements (annual report or 10K) of Lessee.  Lessee’s failure to deliver an estoppel certificate within ten (10) business days following such request shall constitute a default under this Lease and shall be conclusive upon Lessee that this Lease is in full force and effect and has not been modified except as may be represented by Lessor.  Failure of Lessee to deliver the estoppel certificates within the ten (10) business days shall be deemed a breach of this Lease.

25.           Surrender of Lease.  The voluntary or other surrender of this Lease by Lessee, or a mutual cancellation thereof, shall not work a merger nor relieve Lessee of any of Lessee’s obligations under this Lease, and shall, at the option of Lessor, terminate all or any existing Subleases or Subtenancies, or may, at the option of Lessor, operate as an assignment to it of any or all such Subleases or Subtenancies.

26.           Attorneys’ Fees.  If, for any reason, any suit be initiated to enforce any provision of this Lease, the prevailing party shall be entitled to legal costs, expert witness expenses, and reasonable attorneys’ fees, as fixed by the court.

27.           Notices.  All notices to be given to Lessee may be given in writing, personally, or by depositing the same in the United States mail, postage prepaid, and addressed to Lessee at the said Premises, whether or not Lessee has departed from, abandoned, or vacated the Premises.  Any notice or document required or permitted by this Lease to be given Lessor shall be addressed to Lessor at the address set forth below, or at such other address as it may have theretofore specified by notice delivered in accordance herewith:

LESSOR:	WTA Kifer LLC
	900 Welch Road, Suite 10
	Palo Alto, California 94304
LESSEE:	Zoran Corporation
	1390 Kifer Road
	Sunnyvale, CA 94086

28.           Transfer of Security.  If any security be given by Lessee to secure the faithful performance of all or any of the covenants of this Lease on the part of Lessee, Lessor shall either deliver the security, as such, to the purchaser of the reversion or return it to Lessee, in the event that the reversion be sold, and thereupon Lessor shall be discharged from any further liability in

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reference thereto, provided in the event the security is delivered to such purchaser, such purchaser agrees to assume in writing Lessor’s obligations under this Lease.

29.           Waiver.  The waiver by Lessor or Lessee of any breach of any term, covenant, or condition, herein contained shall not be deemed to be a waiver of such term, covenant, or condition, or any subsequent breach of the same or any other term, covenant, or condition herein contained.  The subsequent acceptance of rent hereunder by Lessor shall not be deemed to be a waiver of any preceding breach by Lessee of any term, covenant, or condition of this Lease, other than the failure of Lessee to pay the particular rental so accepted, regardless of Lessor’s knowledge of such preceding breach at the time of acceptance of such rent.

30.           Holding Over.  Any holding over after the expiration of the term or any extension thereof, with the consent of Lessor, shall be construed to be a tenancy from month-to-month, at a rental of one and one-half (1-1/2) times the previous month’s rental rate per month, and shall otherwise be on the terms and conditions herein specified, so far as applicable.

31.           Covenants, Conditions, and Restrictions.  Not applicable.

32.           Limitation on Lessors Liability.  If Lessor is in default of this Lease, and, as a consequence, Lessee recovers a money judgment against Lessor, the judgment shall be satisfied only out of the interest of Lessor in the Premises, or in the building, other improvements, and land of which the Premises are part, and out of rent or other income from such real property receivable by Lessor or out of the consideration received by Lessor from the sale or other disposition of all or any part of Lessor’s right, title, and interest in the Premises or in the building, other improvements, and land of which the Premises are part.  Neither Lessor nor any of the partners comprising the partnership designated as Lessor shall be personally liable for any deficiency.

33.           Disclosure.  Lessor’s listing brokers, Dennis Chamber and Steve Horton of CPS, are minority members of WTA Kifer LLC, the ownership entity of the Project.

34.           Recording of Lease.  Neither party may record this Lease.  However, Lessee shall have the right to record a Memorandum of Lease provided that Lessee removes any such Memorandum of Lease upon Lease expiration.

35.           Signage.  Lessee, at Lessee’s sole cost and expense, shall have the right to display its corporate name and logo on the top of the building in which the Premises are located and in the front of the project entrance.  In addition, Lessee shall have the right to signage (its Pro-Rata Share on the top position) on a monument at the street entrance.  Lessor shall provide the monument for said signage.  All signage shall comply with City of Sunnyvale rules and regulations and must be approved by Lessor, which consent shall not be unreasonably withheld.  Lessee shall be responsible for removing all building signage (excluding the monument signage) and restoring the affected areas at the termination of the Lease.

36.           Use of the Roof.  Lessee shall have the nonexclusive right to use the roof of the Premises at no charge to place and maintain telecommunications antennas, microwave or satellite dishes and other communications equipment.  Such use of the roof shall be subject to receipt of all required government approvals, at Lessee’s sole cost and expense.  The placements of any such

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antennas or satellite dishes or other communications equipment on the roof, the modifications of the roof to accommodate such equipment, and the installation of any such equipment shall be subject to Lessor’s reasonable prior approval of plans and methods therefor.  Such use of the roof shall not restrict, impair or negate any warranty relating to the roof and Lessee shall be responsible for any and all damage, leakage or extraordinary wear and tear to the roof occurring as a result of such use of the roof.  Installation of such equipment shall be supervised by Lessor and performed in a first class workmanlike manner.  Lessee shall remove any such equipment at the termination of the Lease and repair and restore the affected areas.

Lessee shall not be allowed to rent or lease the roof to third parties.

37.           Option to Purchase.  Lessee shall have a one time right of first offer to purchase the Project (1390 and 1400 Kifer Road).  In the event Lessor decides to sell the Project, Lessor shall notify Lessee of its intent in writing.  If Lessor and Lessee cannot agree on a purchase price and business terms within fifteen (15) calendar days of Lessee’s receipt of Lessor’s notice, then Lessor shall have no further obligation to Lessee and shall have the right to market the building for sale to any third party.

38.           Brokers.  Each party represents and warrants to the other that it has had no dealing with any broker or agent other than Studley and CPS (the “Brokers”), who shall be compensated by Lessor in accordance with a separate agreement between Lessor and the Brokers.  Lessee and Lessor shall each indemnify, defend and hold the other party harmless from and against any and all liabilities for commissions or other compensation or charges claimed by any other broker or agent based on dealings with the indemnifying party with respect to this Lease.  The foregoing indemnity shall survive termination or earlier expiration of this Lease.

39.           Miscellaneous.

A.Time is of the essence of this Lease, and of each and all of its provisions.

B.The term “building” shall mean the building in which the Premises are situated.

C.If the building is leased to more than one tenant, then each such tenant, its agents, officers, employees, and invitees, shall have the non-exclusive right (in conjunction with the use of the part of the building leased to such tenant) to make reasonable use of any driveways, sidewalks, and parking areas located on the parcel of land on which the building is situated, except such parking areas as may from time to time be leased for exclusive use by other tenant(s), provided that at all times 330 parking spaces shall be assigned, on a nonexclusive basis, to Lessee.

D.The term “assign” shall include the term “transfer.”

E.The invalidity or unenforceability of any provision of this Lease shall not affect the validity or enforceability of the remainder of this Lease.

F.All parties hereto have equally participated in the preparation of this Lease.

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G.The headings and titles to the Paragraphs of this Lease are not a part of this Lease and shall have no effect upon the construction or interpretation of any part thereof.

H.Lessor has made no representation(s) whatsoever to Lessee (express or implied) except as may be expressly stated in writing in this Lease instrument.

I.This instrument contains all of the agreements and conditions made between the parties hereto, and may not be modified orally or in any other manner than by agreement in writing, signed by all of the parties hereto or their respective successors in interest.

J.It is understood and agreed that the remedies herein given to Lessor shall be cumulative, and the exercise of any one remedy by Lessor shall not be to the exclusion of any other remedy.

K.The covenants and conditions herein contained shall, subject to the provisions as to assignment, apply to and bind the heirs, successors, executors, and administrators, and assigns of all the parties hereto; and all of the parties hereto shall jointly and severally be liable hereunder.

L.This Lease has been negotiated by the parties hereto and the language hereof shall not be construed for or against either party.

M.All exhibits to which reference is made are deemed incorporated into this Lease, whether covenants or conditions, on the part of Lessee shall be deemed to be both covenants and conditions.

IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease on the date first above-written.

LESSOR: WTA Kifer LLC		LESSEE: Zoran Corporation
By:		By:
	Carolee White, Trustee WTA Kifer LLC Managing Member		Kan Schneider Senior Vice President, Finance and CFO
		By:
			Christopher Denten Vice President and General Counsel
Date:		Date:

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EXHIBIT A

Site plan to be attached

EXHIBIT B - page 4 (see First Floor Plan page 1)

Tenant Improvement Restoration Summary for 1390 Kifer Road

Lessor retains the right to have the Lessee restore the premises, as noted, at the term of the lease:

Restoration shall include the removal of the Theater and Demo Room finishes and improvements and related use rooms to convert back to the Open Office/Conference Room building standards and shall include but, not be limited to;

1.Removal of all fixed theater seating, floor lighting strips, raised stage platform & steps, projection and display equipment, speakers, screens and curtains.

2.Removal of all walls that block the exterior windows including patching of the portion of walls to remain.

3.Removal of curtain pocket wall (Rm.1008) and related patching to enclose room.

4.Replacement of the building standard white ceiling grid & tiles including the removal of the secondary can and spot lighting system.  Lighting shall be provided with building standard switching.  HVAC grills shall be white.  Fire sprinkler heads and escutcheons shall match the building standard.

5.Removal of all acoustical wall panels, including the patching of wall due to removal.

6.Removal of all display casework and free-standing displays.

The Lessee shall provide all necessary design and permit fees, construction restoration drawings, supervision, and clean-up as required for move-out.  Lessee shall coordinate the complete scope of work with H&S, Inc. property managers and obtain approval from the Lessor, prior to beginning any of the work.

FIRST AMENDMENT TO LEASE AGREEMENT

FIRST AMENDMENT dated as of the 19th day of May, 2006 by and between Wta Kifer LLC (hereinafter called “Lessor”) and Yahoo! Inc. (hereinafter called “Lessee”).

RECITALS

A.            Lessor and Lessee entered into that certain Lease Agreement (hereinafter referred to as the “Lease”) dated the 1st day of March, 1999, covering the Premises situated in the City of Sunnyvale, County of Santa Clara, California: +/- 88,924 square foot building known as 1390 Kifer Road, Sunnyvale, California for a lease term expiring November 30, 2006.

Lessee subsequently entered into that certain Sublease Agreement (hereinafter referred to as the “Sublease Agreement”) dated the 18th day of June, 2001 by and between Yahoo! Inc. and Oak Technology, Inc. (predecessor-in-interest to Zoran Corporation (“Sublessee”)).

B.            Lessor and Lessee desire to amend the Lease for the purpose of mutual cancellation of the Lease as of September 30th, 2006 (“Early Termination Date”).

NOW THEREFORE, in consideration of the mutual covenants and conditions herein contained, Lessor and Lessee hereby agree as follows:

1.             The Lease shall be terminated and the Premises surrendered as of the Early Termination Date pursuant to the following terms and conditions:

a.All Rent and operating expenses shall be paid by Lessee through the Early Termination Date.

b.Lessee shall have no obligation to remove any alterations pursuant to Section 12 of the Lease.

c.Lessor shall pay to Lessee, on or before September 30, 2006, $65,000 as a termination fee and not as a penalty.

2.             Pursuant to Section 8 (Termination of Master Lease) of the Sublease Agreement, Lessor, Lessee and Sublessee acknowledge and agree the Sublease Agreement shall also be terminated effective as of September 30, 2006.

3.             Provided that the provisions contained in Sections 1 and 2 above are satisfied, the Lease and Sublease Agreement shall be terminated as of the Early Termination Date.

4.             Except for the obligations which survive the expiration of the term of the Lease and the obligations set forth in this First Amendment to Lease Agreement, Lessor and Lessee, effective as of the Early Termination Date, do hereby mutually release each other, their respective heirs, personal representatives, successors and assigns of and from all claims, demands, actions and causes of actions of every kind and nature whatsoever arising out of the Lease.

Except as modified herein, all other terms and conditions of the Lease remain in full force and effect.

IN WITNESS WHEREOF, the parties hereto have executed this First Amendment to Lease Agreement as of the day and year first above written.

WTA Kifer LLC (“Lessor”)		YAHOO! INC. (“Lessee”)
By:		By:
	Carolee White, Trustee Managing Member
Date:		Date:
Acknowledged and Agreed to by:
ZORAN CORPORATION (“Sublessee”)
By:
	Karl Schneider, Senior Vice President, Finance and CFO
Date:

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EX-21.1

Exhibit 21.1

Subsidiaries of Zoran Corporation

Name	Jurisdiction of Registration
Zoran Taiwan Corporation	Taiwan
Zoran Digital Technologies (Shenzhen) Ltd	China
Zoran GmbH	Germany
Zoran Microelectronics Ltd.	Israel
Zoran Japan K.K.	Japan
Zoran Korea Ltd.	South Korea
Zoran Asia Pacific Ltd.	Hong Kong
Zoran UK Ltd.	United Kingdom
Zoran Electronics Singapore Pte. Ltd.	Singapore
Zoran International, Inc.	Delaware, U.S.A.
Oak Technology, Inc.	Delaware, U.S.A.
Pixel Magic, Inc.	Delaware, U.S.A

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (Nos. 333-127354, 333-107988, 333-101828, 333-74610, 333-59843, 333-37111, 333-49350, 333-52598 and 333-20225) of Zoran Corporation of our report dated April 19, 2007 relating to the financial statements, and management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

PricewaterhouseCoopers LLP
San Jose, California

April 19, 2007

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER, PURSUANT TO RULE 13A-14(A) OR 15D-14(A)

I, Levy Gerzberg, certify that:

1.I have reviewed this Annual Report on Form 10-K of Zoran Corporation;

2.Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with a respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)disclosed in this  report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report information; and

(b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/   LEVY GERZBERG

Levy Gerzberg
President and Chief Executive Officer

Dated: April 19, 2007

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER, PURSUANT TO RULE 13A-14(A) OR 15D-14(A)

I, Karl Schneider, certify that:

1.I have reviewed this Annual Report on Form 10-K of Zoran Corporation;

2.Based on my knowledge, this  report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with a respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this  report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this  report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)disclosed in this  report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions) :

(a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report information; and

(b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/   KARL SCHNEIDER

Karl Schneider
Senior Vice President, Finance and Chief Financial Officer

Dated: April 19, 2007

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350

In connection with the Annual Report of Zoran Corporation (the “Company”) on Form 10-K for the year ended December 31, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Levy Gerzberg, President and Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

A signed original of this written statement required by Section 906 has been provided to Zoran Corporation and will be retained by Zoran Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

	/s/ Levy Gerzberg
Dated: April 19, 2007	Levy Gerzberg President and Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350

In connection with the Annual Report of Zoran Corporation (the “Company”) on Form 10-K for the period ended December 31, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Karl Schneider, Senior Vice President, Finance and Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

A signed original of this written statement required by Section 906 has been provided to Zoran Corporation and will be retained by Zoran Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

	/s/ Karl Schneider
Dated: April 19, 2007	Karl Schneider Senior Vice President, Finance and Chief Financial Officer