Zoran Urges Stockholders to Reject Bid to Replace Board

Zoran urged stockholders to reject dissident shareholder Ramius’ effort to replace its board, saying Ramius nominees lack “substantive experience” with the company’s business and will advance a “short-term agenda,” according to an SEC filing.

Ramius has “no other plan” for Zoran than “prematurely” shutting down its DTV and DVD businesses at a “critical stage in the current design cycle,” Zoran said. By reducing operating expenses 13 percent, Zoran’s DTV business can break even on annual basis in 2012 with $140 million in revenue, the company said. With design wins with tier one TV suppliers for its SupraHD processor chips, Zoran’s DTV group could break even on a quarterly basis by Q3 with revenue of $30 million to $35 million, company officials have said.

"Prematurely shutting down these businesses -- shortly before shareholders are in a position to evaluate the success of the current DTV design cycle -- is not in the best interests of Zoran’s shareholders,” Zoran said. “The company is currently engaged with many tier-one customers and believes that its recent investments in new DTV products will deliver positive returns to the company and its stockholders in the near future.” Zoran’s new portfolio of multistandard DTV, 3D TV and Internet-capable ICs paired with frame-rate conversion chips position the company to gain market share, Zoran said. Zoran SupraHD chips are shipping in Toshiba and Samsung LCD TVs and other designs have been added, Zoran said.

Zoran’s forecast for 2011 DTV-related revenue is more than 50 percent higher than Ramius’ top-end estimate of $50 million, Zoran said. The “inaccuracy” in Ramius’ projections would be “even more pronounced” if set-top box (STB) sales were included in 2011 DTV revenue. Zoran’s STB business, which includes the SupreXD and SupraTV ICs, is in the “investment phase,” but the company has design wins with Cisco and Samsung, the company said.

Ramius’ estimate that Zoran’s DTV, DVD and STB businesses suffered $56 million total in operating losses through Sept. 30 is “broadly accurate,” Zoran said. But Ramius “inaccurately projects” that closing the businesses would produce operating profit equal to those losses. “Our business model and progress thus far suggests otherwise,” Zoran said.

Since buying a stake in Zoran in the fall, Ramius hasn’t had “substantive dialogue” with the board and management to “fully understand” the strategy, Zoran said. Ramius, which owns 9.3 percent of Zoran, had a conference call with the company’s management Dec. 17 to discuss replacing the board and moved to nominate its own slate at the annual meeting in June, Zoran said.

A “wholesale replacement” of the board would produce “unnecessary disruption to the operations of the company,” Zoran said. Zoran’s board includes CEO Levy Gerzberg and Chairman Uzia Galil, who have been directors since the early 1980s. Gerzberg owns 2.46 percent of Zoran, and Isaac Shenberg, senior vice president of corporate marketing and business development, controls 1.07 percent, Zoran said.

Zoran’s largest shareholder is Blackrock, which owns 10.34 percent of the company. Gerzberg’s total compensation in 2010 was $1.4 million -- $420,000 in salary and $984,996 in options to buy 200,500 shares at $9.86. That was down from $1.61 million the previous year -- a $398,100 salary and $1.21 million in options. Gerzberg also is eligible for $2.99 million in severance pay within 18 months of the company’s changing hands if he’s dismissed “without cause,” Zoran said. Shenberg and Chief Financial Officer Karl Schneider can get $671,432 and $821,471 in severance.

Ramius pushed for similar changes at silicon tuner designer Microtune, which Zoran acquired last fall. Ramius bought up Microtune shares in fall of 2009 and suggested adding four directors to the board. Under a settlement, three of Ramius’s proposed directors were nominated. Ramius began buying Zoran stock in late October 2010 and by Nov. 1 owned more than 5 percent of the company, Zoran said.