1 LIONEL Z. GLANCY #134180 PETER A. BINKOW #173848 2 MICHAEL GOLDBERG #188669 GLANCY BINKOW & GOLDBERG LLP 3 1801 Avenue of the Stars, Suite 311 Los Angeles, California 90067 4 Telephone: (310) 201-9150 Facsimile: (310) 201-9160 5 Email: [email protected]

6 Local Counsel for Lead Plaintiff and the Class

7 LABATON SUCHAROW & RUDOFF LLP IRA A. SCHOCHET 8 CHRISTOPHER J. KELLER NICOLE M. ZEISS 9 ANDREI V. RADO ALAN I. ELLMAN 10 100 Park Avenue, 12th Floor New York, New York 10017 11 Telephone: (212) 907-0700 Facsimile: (212) 818-0477 12 Email: [email protected]

13 Lead Counsel for Lead Plaintiff and the Class

14 DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA 15

16 MURRAY ZUCKER, MIDDLESEX ) RETIREMENT SYSTEMS, and CAPITALIA ) Case No.: 3:06-cv-04843-WHA 17 ASSET MANAGEMENT SGR SPA, on ) behalf of themselves and all others similarly ) CONSOLIDATED AMENDED CLASS 18 situated, ) ACTION COMPLAINT FOR VIOLATION ) OF THE FEDERAL SECURITIES LAWS 19 Plaintiffs ) ) JURY TRIAL DEMANDED 20 v. ) ) 21 ZORAN CORPORATION, UZIA GALIL, ) LEVY GERZBERG, KARL ) 22 SCHNEIDER, RAYMOND A. ) BURGESS, JAMES D. MEINDL, JAMES ) 23 B. OWENS, JR., DAVID RYNNE, ) ARTHUR B. STABENOW, AHARON ) 24 AHARON, CAMILLO MARTINO, and ) PHILLIP M. YOUNG, ) 25 ) Defendants. ) 26 ______)

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1 TABLE OF CONTENTS

2 NATURE OF THE ACTION ...... 1 3 JURISDICTION AND VENUE ...... 6 4 PARTIES ...... 6 5 A. Plaintiffs...... 6 6 B. Defendants ...... 7 7 1. Officer Defendants...... 7 8 2. Compensation and Audit Committee Defendants...... 8 9 3. Director Defendants...... 10 10 CLASS ACTION ALLEGATIONS ...... 13 11 SUBSTANTIVE ALLEGATIONS ...... 15 12 A. Improper Option Grants...... 15 13 1. Introduction...... 15 14 2. Accounting Principles Board No. 25 ...... 16 15 3. Zoran’s Stock Option Program ...... 19 16 4. The Zoran Compensation Committee...... 22 17 5. The Zoran Audit Committee...... 25 18 6. The Stock Options Backdating Epidemic of 2006...... 28 19 7. Defendants’ Improper Stock Option Granting 20 Practices ...... 32 21 8. The Defendants’ Scheme Caused the Company to Violate Generally Accepted Accounting Principles 22 and SEC Regulations ...... 47 23 MATERIALLY FALSE AND MISLEADING STATEMENTS...... 51 24 A. Zoran’s False and Misleading Class Period Definitive Proxy Statements ...... 54 25 B. Zoran’s False and Misleading Periodic Financial 26 Statements...... 75 27 28

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1 ZORAN’S TRUE FINANCIAL CONDITION BEGINS TO EMERGE ...... 99 2 A. Zoran Initiates an Internal Investigation of the Company’s Stock Option Grants and Fails to Timely File its Second 3 Quarter 2006 Results With the SEC ...... 99 4 1. The SEC and U.S. Attorney Investigate Zoran’s Stock-Option Practices...... 101 5 2. NASDAQ Delisting...... 102 6 UNDISCLOSED ADVERSE FACTS...... 103 7 LOSS CAUSATION...... 104 8 ADDITIONAL SCIENTER ALLEGATIONS RELATED TO THE FIRST AND 9 SECOND CLAIMS ...... 104 10 APPLICABILITY OF PRESUMPTION OF RELIANCE FOR DEFENDANTS’ OMMISSIONS OF MATERIAL FACTS UNDER THE AFFILIATED UTE 11 DOCTRINE, AND/OR, IN THE ALTERNATIVE, UNDER THE FRAUD ON THE MARKET DOCTRINE...... 107 12 NO SAFE HARBOR ...... 108 13 FIRST CLAIM...... 109 14 SECOND CLAIM...... 113 15 THIRD CLAIM ...... 114 16 FOURTH CLAIM...... 115 17

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1 Court-appointed Lead Plaintiff Middlesex Retirement Systems (“Lead Plaintiff”) and 2 Plaintiff Capitalia Asset Management SGR SpA (“Capitalia AM”) (collectively, “Plaintiffs”), 3 individually and on behalf of all other persons and entities similarly situated, by their 4 undersigned attorneys, allege the following based upon personal knowledge as to themselves and 5 their own acts and on information and belief as to all other matters based upon the investigation 6 of Plaintiffs’ counsel, which included, among other things: 1) a review of United States 7 Securities and Exchange Commission (“SEC”) filings by Zoran Corporation (“Zoran” or the 8 “Company”), as well as regulatory filings and reports; 2) a review of securities analysts’ reports 9 and advisories about the Company; 3) a review of press releases, conference calls and other 10 public statements issued by the Company; 4) a review of media reports about the Company; 5) 11 interviews with former Zoran employees; and 6) a review of other publicly available information 12 about the Company. Plaintiffs believe that substantial additional evidentiary support for the 13 allegations set forth in this Consolidated Amended Class Action Complaint (“Complaint”) will 14 become known after a reasonable opportunity for discovery.

15 NATURE OF THE ACTION 16 1. This is a federal class action (“Action”) on behalf of all persons and entities, other 17 than defendants, who purchased or acquired the securities of Zoran from August 10, 2001 to 18 October 24, 2006, inclusive (the “Class Period”), who have suffered damages thereby, which 19 seeks remedies under the Securities Exchange Act of 1934, 15 U.S.C. §§ 78a et seq. (the 20 “Exchange Act”). Plaintiffs also assert claims on behalf of the following two subclasses: (i) the 21 “2005 Proxy Subclass,” consisting of all persons and entities that were entitled to vote on the 22 proxy statement filed with the SEC on or about June 1, 2005; and (ii) the “2006 Proxy Subclass” 23 consisting of all persons and entities that were entitled to vote on the proxy statement filed with 24 the SEC on or about May 1, 2006. As alleged herein, throughout the Class Period, defendants 25 (defined infra) engaged in a fraudulent scheme and/or published a series of materially false and 26 misleading statements that defendants knew, and/or were severely reckless in not knowing, were 27 materially false and misleading, and failed to disclose material information necessary to render 28

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1 such statements not false and misleading. Defendants who solicited proxies through Zoran’s 2 2005 and 2006 proxy statements were negligent in their dissemination of the false and 3 misleading proxies and are liable. 4 2. Zoran develops and sells high performance and video imaging 5 applications to equipment manufacturers of digital , DVD products, digital cameras, 6 digital printing and phones. 7 3. With respect to the fraud claims alleged herein, this Action involves a clear 8 example of uncontrolled, unchecked corporate wrongdoing carried out at the highest levels of 9 Zoran’s management. Defendants’ long-running scheme, undertaken between at least fiscal 10 years 1996 and 2005, involved the manipulation of stock option grants to the Company’s 11 executives and directors so that the stock options, when granted, were “in the money” options, 12 even though Zoran represented to the market that, and accounted for such stock option grants as 13 if, the options were granted at then current market prices. The Action is also an example of 14 repeated negligent dissemination of false and misleading proxy statements soliciting shareholder 15 action with respect to Zoran’s ongoing stock option programs and the re-elections of the very 16 board members responsible for the backdating and option manipulation. 17 4. Defendants’ fraudulent scheme was akin to placing a wager on an event after the 18 event has occurred. Through this scheme, defendants provided themselves with a direct form of 19 compensation that came at the direct expense of Zoran and its investors, and amounted to 20 undisclosed and unaccounted for compensation that materially distorted Zoran’s profitability, by 21 greatly understating its compensation expense and overstating its net income, during the Class 22 Period. 23 5. With respect to the fraud claims alleged herein, during the Class Period, 24 defendants engaged in practices whereby they improperly granted stock options, providing many 25 of Zoran’s high level executives and directors with an enhanced financial benefit, while failing to 26 adequately disclose the true financial and operational condition of the Company. Specifically, 27 defendants manipulated Zoran’s stock option grants by, inter alia: 28

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1 (a) improperly backdating grants of Zoran stock options to Zoran directors 2 and executives, in violation of the Company’s publicly disclosed and shareholder-approved 3 option plans; 4 (b) opportunistically granting executive and director stock options so that 5 such grants preceded anticipated increases in the price of Zoran stock and/or followed stock price 6 declines; 7 (c) improperly recording and accounting for the backdated stock options, in 8 violation of Generally Accepted Accounting Principles (“GAAP”); and 9 (d) preparing and disseminating to Zoran shareholders and the market false 10 and misleading proxy statements, financial statements and other SEC filings that improperly 11 recorded and accounted for the backdated option grants and concealed the opportunistic option 12 granting practices engaged in by Defendants. 13 6. During the Class Period, the defendants granted stock options to themselves and 14 to other Zoran officers and directors on dates at which Zoran stock had reached its lowest, or 15 next-lowest, price in weeks, if not months. More strikingly, these grants almost invariably 16 preceded sharp gains, and/or followed significant drops in the Company’s stock price. 17 7. As demonstrated, infra, these perfectly-timed option grants could not have been 18 the result of mere coincidence. They were, in reality, the result of defendants’ improper and 19 opportunistic option granting practices. 20 8. Because the Company failed to comply with the Generally Accepted Accounting 21 Principles governing the expensing of stock option grants, defendants’ backdating scheme had a 22 material effect on Zoran’s Class Period financial statements. As explained infra, to the extent 23 the Company failed to record, as a compensation expense, the difference between the price of 24 Zoran stock on the date of the actual grant and the “backdated” exercise price of the options, this 25 deliberate omission resulted in the material understatement of the Company’s reported 26 compensation expense measures and a material overstatement of its reported income measures 27 throughout the Class Period. 28

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1 9. The defendants’ backdating practice rendered materially false and misleading 2 each of the Company’s annual proxy statements to shareholders during the Class Period, which 3 purported to set forth the true amount and type of compensation of its most highly-compensated 4 executives, as required by rules promulgated by the SEC. 5 10. Additionally, defendants’ practice of opportunistically granting executive and 6 director stock options so that such grants preceded anticipated increases in the price of Zoran 7 stock and/or were made at the anticipated low point of stock price declines has rendered the 8 defendants’ statements regarding the Company’s executive and director stock based 9 compensation, contained in Zoran’s annual reports and annual proxy statements, materially false 10 and misleading. Defendants’ Class Period statements created the false impression that defendants 11 chose the grant dates for the options based on arbitrary or administrative factors, rather than, as 12 was in fact the case, a calculation of what would most increase the likelihood of maximum gain 13 for the executives and directors, maximize the cost to the corporation, and substantially diminish 14 the risk associated with Zoran common stock for these option recipients relative to that faced by 15 ordinary investors in Zoran common stock, such as Plaintiffs and the proposed Class and 16 Subclasses. 17 11. Moreover, according to Zoran proxy statements issued for fiscal years 1997 to 18 2006, which are discussed in more detail below, none of the options granted to the Individual 19 Defendants (defined below) have expired. Thus, the defendants are in continued violation of the 20 federal securities laws. 21 12. On May 23, 2006, Zoran disclosed that it had initiated an internal investigation of 22 its option grants in response to a May 16, 2006 report by an independent research firm, the 23 Center for Financial Research and Analysis (“CFRA”), in which CFRA announced that it 24 considered Zoran to be “at risk for having backdated option grants.” The report identified 25 options grants made in August 1998, August 1999 and September 2001 as at risk. In its press 26 release, Zoran stated that it had referred the matter to the Audit Committee of its Board of 27 Directors (“Board”), which directed a review by management and outside counsel. The 28

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1 Company claimed that this initial review found that the grants identified by CFRA were properly 2 made at regularly-scheduled meetings of the Board or its Compensation Committee and that 3 none involved backdating. The Company also reported that management had conducted a 4 broader review of all option grants made to officers since Zoran’s initial public offering in 1995 5 and found no improprieties, but that this assessment was under review by the Audit Committee 6 and counsel. 7 13. However, on July 3, 2006, the Company announced that its Audit Committee had 8 recommended that the Board create a “special committee” to conduct a further review of its 9 historical stock option practices since its initial public offering, including those identified by the 10 CFRA. Indeed Zoran also announced that it had received a grand jury subpoena from the U.S. 11 Attorney for the Northern District of California and an informal inquiry from the Securities and 12 Exchange Commission (“SEC”), both requesting documents related to its stock option grants. 13 14. On July 24, 2006, the Company reported only select second quarter financial 14 results, stating that it expected to release complete results, including its Form 10-Q for the 15 period, following the conclusion of the special committee review. In fact, since undertaking the 16 special committee review it has been unable to file any financial reports with the SEC. 17 15. The Company’s announcements on July 3, 2006, July 24, 2006 and October 24, 18 2006, inter alia, caused significant declines in Zoran’s stock prices, driving the share price down 19 more than 10%, 28% and more than 9%, respectively. As a result, of the disclosures, the 20 Company’s market capitalization has decreased by over $430 million. These announcements by 21 the Company had the effect of at least partially disclosing the prospect that Zoran’s prior 22 statements and filings as to its compensation policies and its financial results had been false and 23 misleading and that defendants had engaged in improper manipulation of Zoran’s compensation 24 practices and procedures, thereby causing injury to members of the Class who purchased shares 25 of Zoran stock during the Class Period at market prices that reflected the contrary assumption. 26 16. Certain of the defendants were motivated to commit the fraud alleged herein, 27 because, in addition to personally profiting through the options backdating scheme, the frauds 28

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1 enabled the Company to, among other things: 1) artificially inflate Zoran’s net income and stock 2 price; 2) disguise large amounts of director and employee compensation that was virtually 3 guaranteed to be received as “risk-based;” 3) complete its 2003 merger with its rival Oak 4 , Inc. in a deal valued at $392.7 million in cash and stock; and 4) acquire Oren 5 Semiconductor Inc. in June 2005 for $41.3 million in cash and stock, so that it could obtain new 6 technology for the global high definition market. Had the truth about Zoran’s 7 financial results been known, these deals would have required the Company to pay more in 8 consideration or would not have been consummated at all.

9 JURISDICTION AND VENUE 10 17. The claims asserted herein arise under and pursuant to Sections 10(b), 14(a) and 11 20(a) of the Exchange Act, 15 U.S.C. §§ 78j(b), 78n(a) and 78t(a), and Rules 10b-5 and 14a-9 12 promulgated there under by the SEC, 17 C.F.R. §240.10b-5 and 17 C.F.R. §240.14a-9. 13 18. This Court has jurisdiction over the subject matter of this action pursuant to 28 14 U.S.C. § 1331 and Section 27 of the Exchange Act, 15 U.S.C. §78aa. 15 19. Venue is proper in this judicial district pursuant to Section 27 of the Exchange 16 Act and 28 U.S.C. § 1391(b). Many of the acts and transactions alleged herein occurred in 17 substantial part in this district. Additionally, the Company maintained an executive office in this 18 district during the Class Period. 19 20. In connection with the acts, conduct and other wrongs alleged in this Complaint,

20 defendants, directly or indirectly, used the means and instrumentalities of interstate commerce, 21 including, but not limited to, the United States mails, interstate telephone communications and 22 the facilities of the national securities markets.

23 PARTIES 24 A. Plaintiffs 25 21. Middlesex Retirement Systems was appointed Lead Plaintiff by order dated 26 December 11, 2006. Lead Plaintiff is a public pension fund that manages over $700 million in 27 assets for the employees, retirees and beneficiaries of approximately 31 municipalities and 37 28

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1 other governmental subdivisions within Middlesex County, Massachusetts. The Middlesex 2 Retirement Board is the fiduciary and statutory administrator of Middlesex Retirement Systems. 3 22. Plaintiff Capitalia Asset Management SGR SpA is an asset management company 4 that manages nearly 40 different mutual funds, including 6 pension funds and the Fondo Po – 5 Capitalia USA Small Cap Growth Fund, and over 26 billion euros in assets. Capitalia AM 6 belongs to the Capitalia Group, which ranks 4th in the Italian mutual fund market. 7 23. Plaintiffs purchased Zoran common stock at artificially inflated prices and 8 received false and misleading proxy statements during the Class Period and have been damaged 9 thereby.

10 B. Defendants 11 24. Defendant Zoran was incorporated in California in December 1981 and 12 reincorporated in Delaware in 1996. Zoran is headquartered in Sunnyvale, California. The 13 Company’s stock is publicly traded on NASDAQ under the ticker symbol “ZRAN.”

14 1. Officer Defendants 15 25. Defendant Levy Gerzberg (“Gerzberg”) was at all relevant times Zoran’s 16 President and Chief Executive Officer (“CEO”), positions he has held since December 1988. He 17 co-founded the Company in 1981 and has served on its Board since that time. During the Class 18 Period, Gerzberg sold at least 450,000 shares of Zoran stock, including shares obtained by 19 exercising options granted to him by the Company, for proceeds of more than $12 million. On 20 April 27, 2006, shortly before the CFRA report, he sold 103,600 shares for more than $2.8 21 million. As set forth infra, Gerzberg issued or spoke through false and misleading press releases, 22 executed false and misleading Sarbanes-Oxley § 302(a) and § 906 certifications (“SOX 23 Certifications”) and signed false and misleading 10-K annual reports and amended reports 24 throughout the Class Period, including: SOX Certifications for every fiscal quarter and every 25 fiscal year from Q2 2002 through Q1 2006; all press releases and Form 8-Ks releasing earnings 26 results during the Class Period; as well as every 10-K annual report throughout the Class Period. 27 He also solicited every proxy sent to shareholders during the Class Period. 28

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1 26. Defendant Karl Schneider (“Schneider”) is Zoran’s Vice President, Finance and 2 Chief Financial Officer (“CFO”), positions he has held since July 1998. He was also the 3 Company’s Corporate Controller from January 1998 to July 1998. During the Class Period, 4 Schneider sold at least 128,000 shares of Zoran stock, including shares obtained by exercising 5 options granted to him by the Company, for proceeds of more than $3.6 million. Also shortly 6 before the CFRA report, on May 1, 2006, Schneider sold 113,200 shares for proceeds of more 7 than $3 million. As set forth infra, Schneider issued or spoke through false and misleading press 8 releases, executed false and misleading SOX certifications, and signed 10-Q and 10-K quarterly 9 and annual reports throughout the Class Period, including: SOX Certifications for every fiscal 10 quarter and every fiscal year from Q2 2002 through Q1 2006; Form 8-Ks announcing earnings 11 results for Q4 2004 through Q4 2005; as well as every 10-Q quarterly report and every 10-K 12 annual report throughout the Class Period. 13 27. Defendant Aharon Aharon (“Aharon”) was Zoran’s Senior Vice President and 14 Chief Operating Officer from October 1998 to October 2001; Vice President of Engineering 15 from August 1997 to October 1998; and Vice President, Engineering-Haifa Operations from 16 February 1997 to August 1997. Aharon left Zoran in October 2001 to return to citing 17 personal reasons. 18 28. Defendant Camillo Martino (“Martino”) was Zoran’s Executive Vice President 19 and Chief Operating Officer from August 2001 until July 2005. During the Class Period, 20 Martino exercised and then sold at least 67,000 shares of Zoran stock, including shares obtained 21 by exercising options granted to him by the Company, for proceeds of more than $1.76 million. 22 29. Defendants Gerzberg, Schneider, Aharon, and Martino, are collectively referred 23 to herein as the “Officer Defendants.”

24 2. Compensation and Audit Committee Defendants 25 30. Defendant Uzia Galil (“Galil”) was at all relevant times a member of the Zoran 26 , a position he has held since 1983. He has been the Chairman of the Board 27 since October 1993. Galil was a member of the Board’s Audit Committee from 2001 until he 28

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1 was replaced by David Rynne in April 2006. He has been a member of the Compensation 2 Committee since at least 1996 and has served as Chairman of the Compensation Committee 3 since at least 2004. As set forth infra, as a member of the Board, Galil signed every false and 4 misleading 10-K annual report throughout the Class Period and solicited every proxy sent to 5 shareholders in the Class Period. As a member of the Compensation and Audit Committees, he 6 reported on the committees’ activities in each Class Period proxy statement. 7 31. Defendant James A. Meindl (“Meindl”) was at all relevant times a member of 8 Zoran’s Board of Directors, a position he has held since March 1986. He was a member of the 9 Board’s Audit Committee from at least 1996 until April 2005 when he was replaced by James B. 10 Owens, Jr. Meindl has been a member of the Compensation Committee since April 2004, when 11 he replaced Owens, and was a member of the Nominating and Corporate Governance Committee 12 in 2001. As set forth infra, as a member of the Board Meindl signed every false and misleading 13 10-K annual report throughout the Class Period and solicited every proxy sent to shareholders in 14 the Class Period. As a member of the Compensation and Audit Committees, he reported on the 15 Committees’ activities each Class period proxy statement for fiscal years ended 2001 through 16 2004. 17 32. Defendant James B. Owens, Jr. (“Owens”) is a member of Zoran’s Board of 18 Directors, a position he has held since May 2003. He was a member of the Board’s 19 Compensation Committee from 2003 until April 2004, when he was replaced by Meindl. Owens 20 has been a member of the Audit Committee of the Board since April 2005, when he replaced 21 Meindl. He has been a member of the Nominating and Corporate Governance Committee since 22 2002. As set forth infra, as a member of the Board, Owens signed false and misleading 10-K 23 annual reports for fiscal years ended 2003 through 2005 and solicited proxies sent to 24 shareholders in 2003 through 2006. As a member of the Compensation Committee, he reported 25 on that committee’s activities in 2004 and 2005. As a member of the Audit Committee, he 26 reported on that committee’s activities in the 2006 proxy statement. 27 28

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1 33. Defendant Arthur B. Stabenow (“Stabenow”) was at all relevant times a member 2 of Zoran’s Board of Directors, a position he has held since November 1990. Stabenow has been 3 a member of the Board’s Compensation Committee since at least 1996. He has also been a 4 member of the Board’s Audit Committee since at least 1996 and has acted as the Audit 5 Committee Chairman since at least 2004. He has also been a member of the Board’s Nominating 6 and Corporate Governance Committee since the Committee was established in January 2001. As 7 set forth infra, as a member of the Board, Stabenow signed every false and misleading 10-K 8 annual report throughout the Class Period and solicited every proxy sent to shareholders in the 9 Class Period. As a member of the Compensation and Audit Committees, he reported on the 10 committees’ activities in each Class Period proxy statement.

11 3. Director Defendants 12 34. Defendant Raymond A. Burgess (“Burgess”) has been a director of the Company 13 since 2005 and a member of the Audit Committee since April 26, 2005. He was responsible for 14 soliciting Zoran’s 2006 Proxy statement filed with the SEC on May 1, 2006. As set forth infra, 15 as a member of the Board he signed the false and misleading 2005 10-K annual report and 16 solicited proxies sent to shareholders in 2005 and 2006. As a member of the Audit Committee, 17 he reported on the committee’s activities in 2006. 18 35. Defendant David Rynne (“Rynne”) has been a director of the Company since 19 August 2003 and he replaced Defendant Galil as a member of the Compensation Committee on 20 April 19, 2006. As set forth infra, as a member of the Board, he signed the false and misleading 21 2003 through 2005 10-K annual reports and solicited proxies sent to shareholders from 2004 to 22 2006. 23 36. Defendants Philip M. Young (“Young”) has been a director of the Company since 24 January 1986. He currently serves as a member of the Nominating and Corporate Governance 25 Committee. As set forth infra, as a member of the Board, he signed every false and misleading 26 10-K annual report throughout the Class Period and solicited every proxy sent to shareholders in 27 the Class Period. 28

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1 37. Defendants Galil, Owens, Meindl and Stabenow are referred to herein collectively 2 as the “Compensation Committee Defendants.” Defendants Galil, Meindl, Owens, Stabenow 3 and Burgess are referred to herein collectively as the “Audit Committee Defendants.” 4 Defendants Gerzberg, Galil, Meindl, Owens, Stabenow, Burgess, Rynne, and Young are referred 5 to herein collectively as the “Director Defendants”. The Officer Defendants, Compensation 6 Committee Defendants, Audit Committee Defendants and Director Defendants, identified in 7 paragraphs 25 to 36, are referred to herein collectively as the “Individual Defendants.” The 8 “Individual Defendants” together with Zoran, are referred to herein as “Defendants.” 9 38. Because of the Officer Defendants’ positions with the Company, they had access 10 to the adverse undisclosed information about the Company’s business, compensation practices, 11 operations, operational trends, financial statements, markets and present and future business 12 prospects by means of access to internal corporate documents (including the Company’s 13 operating plans, budgets and forecasts and reports of actual operations compared thereto) 14 available to them and conversations and connections with other corporate officers and 15 employees. With respect to all Individual Defendants, they had access to the adverse 16 undisclosed information about the Company’s business, compensation practices, operations, 17 operational trends, financial statements, markets and present and future business prospects 18 through, among other things, their attendance at management and Board meetings and meetings 19 of their respective board committees and through reports and other information provided to them 20 in connection therewith. 21 39. Each of the Officer Defendants, by virtue of their high-level positions with the 22 Company, directly participated in the management of the Company, was directly involved in the 23 day-to-day operations of the Company at the highest levels, and was privy to confidential 24 proprietary information concerning the Company and its business, operations, growth, financial 25 statements, and financial condition, as alleged herein. The Officer Defendants, because their 26 positions of control and authority as officers of Zoran, were involved in drafting, producing, 27 reviewing, approving and/or disseminating communications with the public and the false and 28

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1 misleading statements and information alleged herein, knew, or recklessly disregarded, that the 2 false and misleading statements were being issued regarding the Company, and approved or 3 ratified these statements, in violation of the federal securities laws. Each had the ability and/or 4 opportunity to prevent the issuance of the misstatements or cause the misstatements to be 5 corrected. Accordingly, each of the Officer Defendants is responsible for the accuracy of the 6 public reports and releases detailed herein and is therefore primarily liable for the 7 misrepresentations contained therein. 8 40. As officers and controlling persons of a publicly-held company whose common 9 stock was, and is, registered with the SEC pursuant to the Exchange Act, and was, and is, traded 10 on the NASDAQ National Market, and governed by the provisions of the federal securities laws, 11 the Officer Defendants each had a duty to disseminate promptly, accurate and truthful 12 information with respect to the Company’s financial condition and performance, growth, 13 operations, financial statements, business, markets, management, earnings and present and future 14 business prospects, and to correct any previously issued statements that had become materially 15 misleading or untrue, so that the market price of the Company’s publicly-traded common stock 16 would be based upon truthful and accurate information. The Officer Defendants’ 17 misrepresentations and omissions during the Class Period violated these specific requirements 18 and obligations. 19 41. Each of the Officer Defendants, Compensation Committee Defendants and Audit 20 Committee Defendants is liable as a participant in a fraudulent scheme and course of business 21 that operated as a fraud or deceit on purchasers of Zoran common stock by disseminating 22 materially false and misleading statements and/or concealing material adverse facts with respect 23 to the statements concerning stock options challenged herein. The scheme: (i) deceived the 24 investing public regarding Zoran’s business, operations, management and the intrinsic value of 25 Zoran common stock; (ii) enabled Zoran to acquire two competitor companies in part for stock 26 with an inflated value, while in possession of material adverse non-public information about the 27 Company; (iii) permitted the Individual Defendants to receive substantial amounts of 28

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1 compensation disguised as “risk-based;” and (iv) caused Plaintiffs and other members of the 2 Class to purchase Zoran common stock at artificially inflated prices. 3 42. The Compensation Committee Defendants and Audit Committee Defendants 4 participated in the drafting, preparation, and/or approval of the various proxy statements 5 complained of herein and were aware of, or recklessly disregarded, the misstatements contained 6 therein and omissions there from, and were aware of their materially false and misleading nature 7 with respect to the statements concerning stock options challenged herein. Because of their 8 Board memberships, each of the Compensation Committee Defendants and Audit Committee 9 Defendants had access to the adverse undisclosed information about Zoran’s business prospects 10 and financial condition and performance as particularized herein and knew (or recklessly 11 disregarded) that these adverse facts rendered the positive representations, made by or about 12 Zoran and its business, issued or adopted by the Company, materially false and misleading.

13 CLASS ACTION ALLEGATIONS 14 43. Plaintiffs bring this action as a class action pursuant to Federal Rule of Civil 15 Procedure 23(a) and (b)(3) on behalf of a Class, consisting of all those who purchased or 16 acquired the securities of Zoran from August 10, 2001 to October 24, 2006, inclusive, and who 17 were damaged thereby. Plaintiffs also assert claims on behalf of the 2005 Proxy Subclass and 18 the 2006 Proxy Subclass. Excluded from the Class and Subclasses are Defendants, the officers 19 and directors of the Company, members of the immediate families of any excluded person, the 20 legal representatives, heirs, successors or assigns of any excluded person, and any entity in 21 which Defendants have or had a controlling interest. 22 44. The members of the Class and Subclasses are so numerous that joinder of all 23 members is impracticable. Throughout the Class Period, Zoran’s common stock was actively 24 traded on the NASDAQ. While the exact number of Class and Subclass members is unknown to 25 Plaintiffs at this time and can only be ascertained through appropriate discovery, Plaintiffs 26 believe that there are hundreds or thousands of members in the proposed Class and Subclasses. 27 For instance, the Company reported in its 2005 Form 10-K that there were 314 holders of record 28

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1 for its stock, which would not include shareholders who do not own stock in their own name. 2 Record owners and other members of the Class and Subclasses may be identified from records 3 maintained by Zoran or its transfer agent and may be notified of the pendency of this action by 4 mail, using the form of notice similar to that customarily used in securities class actions. 5 45. Plaintiffs’ claims are typical of the claims of the members of the Class and 6 Subclasses as all members were similarly impacted by the wrongful conduct complained of 7 herein. 8 46. Plaintiffs will fairly and adequately protect the interests of the members of the 9 Class and Subclasses and have retained counsel competent and experienced in class and 10 securities litigation. 11 47. Common questions of law and fact exist as to all members of the Class and 12 Subclasses and predominate over any questions solely affecting individual members of the Class 13 and Subclasses. Among the questions of law and fact common to the Class and Subclasses are: 14 (a) whether the federal securities laws were violated by Defendants’ acts as 15 alleged herein; 16 (b) whether statements made by Defendants to the investing public during the 17 Class Period misrepresented material facts about the business, operations and management of 18 Zoran; and 19 (c) to what extent the members of the Class and Subclasses have sustained 20 damages and the proper measure of damages. 21 48. A class action is superior to all other available methods for the fair and efficient 22 adjudication of this controversy since joinder of all members is impracticable. Furthermore, as 23 the damages suffered by individual Class and Subclass members may be relatively small, the 24 expense and burden of individual litigation make it impossible for members of the Class and 25 Subclasses to individually redress the wrongs done to them. There will be no difficulty in the 26 management of this action as a class action. 27 28

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1 SUBSTANTIVE ALLEGATIONS 2 A. Improper Option Grants 3 1. Introduction 4 49. Under certain circumstances, publicly traded companies may award their officers, 5 employees and directors stock option grants. A stock option grant provides an “optionee” with 6 the right to purchase shares of a company at a specific price – the “exercise price” or “strike 7 price” – on or after a determined date. For instance, if a company grants an employee 10 options 8 with an exercise price of $5 per share, the employee can buy 10 shares for a total of $50, 9 regardless of what the market price of the Company’s stock is on the date the options are 10 exercised. One of the advantages for investors of this form of compensation, as opposed to 11 straight payments of cash, is that typically it aligns the interests of employees, management 12 and/or directors with the company’s shareholders in that the options can only be exercised when 13 the company’s stock price rises and reaches the exercise price. 14 50. When a company grants an employee or a director stock options, it must do so 15 under a written stock option plan filed with the SEC and disclosed to the public. This is so 16 because potential gains, such as the one described above, are a form of risk based compensation 17 and, therefore, may have an impact on, among other things, the company’s compensation 18 expense, earnings per share, and net income. Thus, it is imperative that when a company awards 19 option grants to its employees, management and directors, it does so in compliance with its 20 publicly filed stock option plan and that it appropriately accounts for such grants—particularly 21 when the grants create an expense for the company. The consequence of a company’s improper 22 accounting for option grants is that investors, such as Zoran’s shareholders, will not have an 23 accurate picture of the company’s financial position. 24 51. Specifically, under accounting rules in effect prior to approximately 2006, public 25 companies in the United States were permitted to grant stock options to employees without 26 recording an expense as long as the options’ strike price was at or above the market’s closing 27 price for the stock on the day the options were granted. However, if the option granted was 28

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1 priced below the market price on the date granted, known as an “in the money” options grant, 2 SEC regulations required that any publicly traded company recognize and record the difference 3 as a compensation expense in their financial statements. See APB 25, superseded as of December 4 31, 2005 by FAS 123(R). Accounting rules also require that companies recognize the same 5 compensation expense if “in the money” options were granted to non-employees. Thus while “in 6 the money” stock options are more valuable to those to whom they are granted, the additional 7 expenses, if reported, would reduce the total amount of net income and earnings per share 8 reported to shareholders of a publicly traded company.

9 2. Accounting Principles Board No. 25 10 52. In effect through December 31, 2005, APB 25 required a company to recognize 11 compensation expense for options granted with an exercise price that was less than the market 12 price on the date of grant, i.e., an “in the money” option. Conversely, if an option was issued at 13 an exercise price equal to the extant market price on the date of grant (i.e., “at the money”), no 14 compensation expense needed to be recorded. 15 53. Thus, where an option has intrinsic value on the date of grant, i.e., the market 16 price of the stock exceeds the option’s exercise price on the date of grant, compensation cost is 17 calculated by multiplying the total number of options granted by the difference between the 18 exercise price of the option and the market price of the stock on the date of grant. Compensation 19 cost is then amortized and recognized as an expense over the option’s vesting period.

20 54. Failure to properly account for “in the money” option grants results in the 21 misstatement of a company’s financials, since the extent to which the fair market value of a 22 security exceeds the exercise price on the date of grant is in essence a direct form of 23 compensation to the option recipient that must be accounted for as a cost to the corporation. 24 Thus, a company that fails to record and properly amortize the intrinsic value of an “in the 25 money” option grant understates compensation cost and overstates net income in the year of 26 grant, and, in each year thereafter, as the option vests. 27 28

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1 55. The SEC has adopted the view that failure to properly account for backdated 2 options violates securities laws when companies fail to record as compensation expense the 3 amount by which the option grants were actually “in the money” at the time that the grant was 4 awarded. For example, in a complaint filed by the SEC against Peregrine Systems, Inc. in June 5 2003, the SEC alleged that Peregrine’s option plan administrator used a “look back” process 6 between quarterly Board meetings to identify the day with the lowest stock price over the 7 interval and then declared this date to be the grant date. The SEC viewed this as a form of 8 financial fraud because it resulted in the understatement of compensation expenses. Specifically, 9 the SEC stated that, “[u]nder the applicable accounting rules, any positive difference in the stock 10 price between the exercise price and that on the measurement date … had to be accounted for as 11 compensation expense. By failing to record the compensation expense, Peregrine understated its 12 expenses by approximately $90 million.” 13 56. Proper application of APB 25 rests upon a company’s determination of a stock

14 option’s “measurement date,” the date upon which compensation cost is to be measured. 15 Specifically, paragraph 10(b) of APB 25 defines the “measurement date” as “the first date on 16 which are known both (1) the number of shares that an individual employee is entitled to receive 17 and (2) the option or purchase price if any.” 18 57. Put differently, even if documents related to an award of options are dated as of 19 an earlier date or manipulated to reflect an earlier date, the actual “measurement date” cannot 20 occur until the date the terms of the stock option award, including the number of shares that a 21 particular employee is going to receive, are actually determined. For Zoran’s compensation 22 costs to be properly calculated pursuant to APB 25, the Company’s stock option granting

23 practices could not have resulted in an award of stock options with an exercise price that was less 24 than the fair market value of the underlying stock at the date on which the number of shares 25 that the individual optionee was entitled to receive was determined with finality. 26 27 28

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1 58. In the case of Zoran, with respect to accounting for stock-based compensation, the 2 Company stated the following, which was materially false and misleading in light of the options 3 backdating alleged herein: 4 Stock compensation 5 The Company accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board 6 Opinion No. 25 (“APB 25”), “Accounting for Stock Issued to Employees” and related interpretations. Under APB 25, 7 compensation expense is recognized based on the difference, if any, on the date of grant between the fair value of the 8 Company’s stock and the amount an employee must pay to acquire the stock. The compensation expense is recognized 9 over the periods the employee performs the related services, generally the vesting period of four years, consistent with the 10 multiple option method described in FASB Interpretation No. 28 (“FIN 28”). Except for Nogatech options assumed as part of 11 the acquisition, no other stock-based employee compensation cost is reflected in net income as all other options granted 12 under our plans had an exercise price equal to the market value of the underlying common stock on the date of grant. 13 Zoran Annual Report, Form 10-K for 2002 (in 2002 10K), filed March 31, 2003 and 14 incorporated by reference into Zoran’s 2003 Proxy Statement, Form DEF 14A (filed July 7, 15 2003) (emphasis added).1 16 17 18 19 1 Zoran’s prior Form 10-Ks contained virtually identical language. See, e.g., 1997 Form 20 10-K (filed March 31, 1998) and 1988 Form 10-K (field March 31, 1999) (“The Company accounts for stock-based compensation using the intrinsic value method prescribed in 21 Accounting Principles Board Opinion No. 25 (‘APB 25’), ‘Accounting for Stock Issued to Employees’ and related interpretations. The Company provides additional pro forma disclosures 22 as required under Statement of Financial Accounting Standards No. 123 (‘SFAS 123’), ‘Accounting for Stock-Based Compensation.’”); see also 1999 Form 10-K (filed March 30, 23 2000), 2000 Form 10-K (filed April 2, 2001), and 2001 Form10-K (filed April J, 2002) (“The Company accounts for stock-based compensation using the intrinsic value method prescribed in 24 Accounting Principles Board Opinion No. 25 (‘APB 25’), ‘Accounting for Stock Issued to Employees’ and related interpretations. Under APB No.25, compensation expense is recognized 25 based on the difference, if any, on the date of grant between the fair value of the Company’s stock and the amount an employee must pay to acquire the stock. The compensation expense is 26 recognized over the periods the employee performs the related services, generally the vesting period of four years, consistent with the multiple option method described in FASB 27 Interpretation No. 28 (‘FIN28’). The Company provides additional pro forma disclosures as required under Statement of Financial Accounting Standards No. 123 (‘SFAS 123’), ‘Accounting 28 for Stock-Based Compensation.’”).

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1 3. Zoran’s Stock Option Program 2 59. Like many technology companies, Zoran used stock-based compensation 3 incentives to attract talented personnel. As stated by the Company and the Compensation 4 Committee Defendants, “The goals of the Company’s compensation policy are to attract, retain 5 and reward executive officers who contribute to the overall success of the Company by offering 6 compensation that is competitive in the semiconductor industry, to motivate executives to 7 achieve the Company’s business objectives and to align the interests of officers with the long- 8 term interests of stockholders. The Company currently uses salary, bonuses and stock options to 9 meet these goals.” See, e.g., Proxy Statements for 2002, 2003, 2004, 2005 and 2006. 10 60. In its proxy statements throughout the Class Period, the Company reiterated the 11 purpose of using stock options to attract and retain officers and directors. 12 61. For technology companies, the granting of stock options is often a company’s 13 strongest means for obtaining skilled labor given their often limited ability to adequately 14 compensate employees with cash. 15 62. From the perspective of the Company the Officer Defendants and the 16 Compensation Committee Defendants, options were attractive for another reason. These 17 defendants were well aware of the fortunes they could have made by combining their inside 18 knowledge of the Company with their ability to improperly manipulate the Company’s stock 19 option plans. They used the option process to: 1) intentionally manipulate the pricing of stock 20 options; and 2) grant themselves options at points in time when the Company’s stock price was 21 suspiciously low and/or was poised to rise. Either way, their objective was the same – to acquire 22 the options at the lowest exercise price possible. 23 63. Throughout the relevant time period, Zoran maintained several stock option plans. 24 The primary plan, the 1993 Stock Option Plan (the “Plan” or the “1993 Plan”), was created “to 25 attract and retain the best available personnel for positions of substantial responsibility, to 26 provide additional incentives to Employees, Non-Employee Directors and Consultants of the 27 28

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1 Company and its Subsidiaries, and to promote the success of the Company’s business.” Plan, 2 Section 1.2 3 64. The Plan permitted grants of stock options, up to a specified maximum, at the 4 discretion of the Board (or an appointed committee of not less than two members of the Board), 5 each fiscal year to employees, non-employee directors and consultants of Zoran and its 6 subsidiaries. Only employees could be granted “Incentive Stock Options.” Non-employees 7 received “Nonstatutory Stock Options.” Directors receive grants pursuant to the outside 8 Directors Plan. 9 65. Zoran’s options had terms of 10 years and vested “in four substantially equal 10 installments on each of the first four anniversaries after the date of the grant of the option. . . .” 11 Plan, Section 9(a). 12 66. During all relevant times, the Plan was administered by the Compensation 13 Committee of the Zoran Board of Directors. The Plan gave broad powers to the Compensation 14 Committee, as set forth in Section 4, infra. The Compensation Committee’s role in overseeing 15 the Company’s executive compensation was reiterated in Zoran’s proxy statements throughout 16 the Class Period. The Compensation Committee also worked closely with the Officer 17 Defendants, as discussed below, in determining the terms of stock option grants. These 18 determinations were carefully controlled by the Compensation Committee Defendants and the 19 Officer Defendants. 20 67. The Plan specified that the option price was to be determined by the 21 Compensation Committee, but could not be less than “the fair market value of such Shares on the 22 date the Option is granted” in the case of Incentive Stock Options, or 85% of fair market value 23 for Nonstatutory Stock Options. Plan, Section 8(a). The Plan also stated that fair market value 24 was also to be determined by the Compensation Committee, but that “if there is a public market 25

2 26 The 1993 Plan was replaced by the 2005 Equity Incentive Plan. During the relevant time period, the Company also maintained the 2000 Nonstatutory Stock Option Plan, which was never 27 approved by shareholders, to provide additional options for executives, and the 1995 Outside Directors Stock Option Plan, which purportedly provided for formula based grants of options to 28 non-employee directors and was later replaced by the 2005 Outside Directors Equity Plan.

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1 for the Common Stock, the fair market value per Share shall be the average of the last reported 2 bid and asked price of the Common Stock on the date of the grant. . . .” Id. These limitations 3 were also reiterated in Zoran’s proxy statements throughout the Class Period. 4 68. The Plan further mandated that “[u]nless otherwise specified by the Committee, 5 the date of grant of an Option under the Plan shall be the date on which the Committee makes the 6 determination granting such Option. Notice of the determination shall be given to each Optionee 7 to whom an Option is so granted within a reasonable time after the date of such grant.” Plan, 8 Section 12. 9 69. Thus, whenever Zoran, the Officer Defendants and the Compensation Committee 10 Defendants established a stock option grant date that preceded the date upon which the stock 11 option was actually granted by the Compensation Committee, without so specifying, these 12 defendants violated the terms of the Plan. 13 70. As of June 2000, the Plan was amended to include a provision specifying that 14 “[n]o Option shall be repriced without the approval of a majority of the shares of Common Stock 15 present or represented by proxy and voting at a meeting of the stockholders of the Company . . . 16 .” 1993 Stock Option Plan (as amended through June 18, 2000), Section 5(e), attached to the 17 1999 Proxy Statement, Form DEF 14A (filed June 26, 2000). As illustrated below, this 18 provision was repeatedly violated. 19 71. When it went public in 1995, the Company also established its 1995 Outside 20 Directors Stock Option Plan (the “Outside Directors Plan”) to govern the terms under which 21 outside directors on Zoran’s Board were to receive purportedly non-discretionary options. The 22 Company initially reserved 350,000 shares for the program. 23 72. The Outside Directors Plan was also administered by the Compensation 24 Committee and specified that, “[s]ubject to execution by an Outside Director of the Appropriate

25 Option Agreement, Options shall be granted automatically and without further action of the 26 Board” when the director was first elected or appointed to the Board (or the effective date of the 27 plan for preexisting directors) and on the date immediately following Zoran’s annual shareholder 28

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1 meetings. Outside Directors Plan, Section 6.1. As was purportedly the case with the 1993 Plan, 2 the exercise price for outside director options “shall be the Fair Market Value of a share of Stock 3 on the date the Option is granted.” Id., Section 6.2. 4 73. As was the case with executive stock options, the Compensation Committee also 5 worked closely with the Officer Defendants in determining the terms of director stock option 6 grants, which determinations were carefully controlled by the Compensation Committee 7 Defendants and the Officer Defendants. 8 74. The 1993 Plan was replaced by the 2005 Equity Incentive Plan after a proposed 9 2004 plan was not approved by shareholders.3 This new Plan increased the equity incentive 10 options available to include stock appreciation rights, restricted stock, restricted stock unit 11 awards, performance share and performance unit awards, deferred compensation awards and 12 other stock-based or cash-based awards, noting in particular the recent FASB changes governing 13 the accounting treatment of share-based payments. Operating as an admission by Defendants of 14 their knowledge of the importance to investors of adhering to established and publicly disclosed 15 procedures with respect to stock option plans and grants, in the proxy materials recommending 16 that shareholders approve this new plan, Zoran’s Board of Directors acknowledged that it was 17 “well aware of the criticism that has been leveled generally against the misuse of stock-based 18 compensation by some companies. The Board believes that the 2005 Plan takes steps to address 19 possible concerns of our stockholders. Under the 2005 Plan, stock options and stock appreciation 20 rights may not be repriced without the approval of our stockholders; No discount from fair 21 market value is permitted in setting the exercise price of stock options and stock appreciation 22 rights. . . .” 2005 Proxy Statement, Form DEF 14A, (filed June 1, 2005).

23 4. The Zoran Compensation Committee. 24 75. During all relevant times, the Compensation Committee of the Zoran Board of 25 Directors was responsible for the administration and granting of stock options. The 26 27 3 No options were granted to employees in 2004, although in anticipation of the lapse of the 28 1993 plan, more options were granted in 2003 to makeup for a potential shortfall.

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1 Compensation Committee Defendants also worked closely with the Officer Defendants in 2 determining the timing and terms of Zoran’s stock option grants. 3 76. For instance, Confidential Witness 1 (“CW 1”), a former vice president of sales at 4 Zoran between July 2002 and November 2004, who reported to Defendant Martino, explained 5 that on several occasions during that time period Martino advised CW 1 that CW1’s group would 6 be receiving a “chunk” of stock options to be divided among them. CW 1 stated that Defendant 7 Schneider collected the information on the stock option offers and presented it to Defendant 8 Gerzberg for approval by the Compensation Committee Defendants. CW 1 stated that Defendant 9 Schenider was a “key person” in the approval process of stock options and that he acted as an 10 “advisor” to the Compensation Committee. 11 77. Confidential Witness 2 (“CW 2”), a former manager of Information Technology 12 (“IT”) at Zoran from August 2003 to October 2005, stated that CW 2 reported to Defendant 13 Schneider, whom CW 2 advised was involved in approving all recommendations for employees 14 to receive stock options. CW 2 explained that options for CW 2 and CW 2’s group were 15 delivered by Defendant Schneider. CW 2 also reported that much of the administration of the 16 stock options was handled by Schneider’s administrative assistant. For instance, employees 17 exercised their options through E-Trade. Schneider’s assistant inputted the stock options price 18 into the E-Trade accounts. 19 78. The Compensation Committee was to consist of not less than two members of the 20 Board and was responsible for discharging the Board’s responsibilities relating to the Plan and 21 also the compensation of Zoran’s executive officers, including reviewing the performance of 22 Zoran’s executive officers, and approving salaries and incentive compensation for such officers. 23 79. During all relevant times, Defendants Galil and Stabenow were the two main 24 members of the Compensation Committee. From 2003 to April 2004, they were joined by 25 Defendant Owens. In April 2004, Defendant Owens was replaced by Defendant Meindl. 26 80. As explained to shareholders, the Compensation Committee: 27 determines the persons to whom options are to be granted, the number of shares to be covered by each option, whether an option 28 is to be an incentive stock option or a nonstatutory stock option,

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1 the timing and terms of exercisability and vesting of each option, the exercise price and the type of consideration to be paid to the 2 Company for shares acquired pursuant to an option, the time of expiration of each option, and all other terms and conditions of 3 options granted under the Option Plan. 4 1999 Proxy Statement, Form DEF 14A (filed April 30, 1999). 5 81. The Plan defined the Compensation Committee’s role and responsibility with 6 respect to the Plan as follows: 7 (c) POWERS OF THE COMMITTEE. Subject to the provisions of the Plan, the Committee shall have the authority: (i) to determine, 8 upon review of relevant information, the fair market value of the Common Stock; (ii) to determine the exercise price of Options to 9 be granted, the Employees, Directors or Consultants to whom and the time or times at which Options shall be granted, and the 10 number of Shares to be represented by each Option; (iii) to interpret the Plan; (iv) to prescribe, amend and rescind rules and 11 regulations relating to the Plan; (v) to determine the terms and provisions of each Option granted under the Plan (which need not 12 be identical) and, with the consent of the holder thereof, to modify or amend any Option; (vi) to authorize any person to execute on 13 behalf of the Company any instrument required to effectuate the grant of an Option previously granted by the Committee; (vii) to 14 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 15 Plan; (viii) to determine whether Options granted under the Plan will be Incentive Stock Options or Nonstatutory Stock Options; 16 (ix) to make all other determinations deemed necessary or advisable for the administration of the Plan; and (x) to designate 17 which options granted under the Plan will be issued in reliance on Rule 701. 18 (d) EFFECT OF COMMITTEE’S DECISION. All decisions, 19 determinations and interpretations of the Committee shall be final and binding on all potential or actual Optionees, any other holder 20 of an Option or other equity security of the Company and all other persons. 21 Plan, Section 4(c)-(d). 22 82. The 1993 Plan, also stated, “12. TIME OF GRANTING OPTIONS. Unless 23 otherwise specified by the Committee, the date of grant of an Option under the Plan shall be the 24 date on which the Committee makes the determination granting such Option.” 25 83. The Compensation Committee Defendants, together with Defendants Gerzberg 26 and Schneider, were responsible for determining the stock option awards that are the subject of 27 this litigation. 28

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1 5. The Zoran Audit Committee. 2 84. The Audit Committee was comprised of two or three directors who were to satisfy 3 the independence and experience requirements of the Company and applicable NASDAQ rules. 4 During all relevant times, Defendant Stabenow served on the Audit Committee. From 1996 until 5 April 2005, he served with Defendant Meindl. From 2001 until April 2006, they were joined by 6 Defendant Galil. In April 2005, Defendant Owens replaced Defendant Meindl. 7 85. The Board’s Audit Committee was responsible for monitoring the Company’s 8 financial reporting, including compensation reporting. Indeed, the stated purpose of the Audit 9 Committee is as follows: 10 The primary function of the Committee is to assist the Board of Directors in fulfilling its financial oversight responsibilities by 11 reviewing and reporting to the Board upon (i) the financial reports and other financial information provided by the Company to any 12 governmental body or to the public, (ii) the Company’s systems of internal and external controls regarding finance, accounting, legal 13 compliance and ethics that management and the Board have established and (iii) the Company’s auditing, accounting and 14 financial reporting processes in general. Consistent with this function, the Committee should encourage continuous 15 improvement of, and should foster adherence to, the Company’s financial policies, procedures and practices at all levels. The 16 Committee’s primary duties and responsibilities are to: 17 - Serve as an independent and objective party to monitor the Company’s financial reporting process and internal control 18 systems. 19 - Review and appraise the audit efforts and independence of the Company’s auditors. 20 - Provide an open avenue of communication among the 21 independent auditors, financial and senior management, and the Board. 22 Zoran Corporation Charter of the Audit Committee of the Board of Directors (“Audit Committee 23 Charter”), Section I, attached as Appendix A to Zoran’s 2001 Proxy Statement, Form DEF 14A 24 (filed April 30, 2001) (the “2001 Audit Committee Charter”); see also subsequent Audit 25 Committee Charters, attached as Appendix A to Zoran’s 2002 Proxy Statement, Form DEF 14A 26 (filed April 30, 2002) (the “2002 Audit Committee Charter”), and as Appendix G to Zoran’s 27 28

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1 2003 Joint Proxy Statement/Prospectus, Form DEF 14A (filed July 7, 2003) (the “2003 Audit 2 Committee Charter”), which contain nearly identical provisions. 3 86. The Audit Committee Charter provides the Audit Committee with broad authority 4 and responsibility for the Company’s financial reporting, including the following: 5 A. Oversight of the Company’s Independent Auditor 6 The Committee shall be directly and solely responsible for the engagement of any independent auditor employed by the Company 7 for the purpose of preparing or issuing an audit report or related work and shall be directly involved in the oversight of such 8 engagement. Each independent auditor shall report directly to the Committee. 9 * * * 10 10. Review with the independent auditor the critical accounting 11 policies and practices used by the Company, all alternative treatments of financial information within generally accepted 12 accounting principles (“GAAP”) that the independent auditor has discussed with management, the ramifications of the use of such 13 alternative disclosures and treatments and the treatment preferred by the independent auditor. 14 B. Review of Financial Reporting, Policies and Processes 15 To fulfill its responsibilities and duties the Committee shall, to the 16 extent that it deems necessary or appropriate, and in addition to the items described above: 17 1. Review and discuss with management and the independent 18 auditor the Company’s annual audited financial statements, any certification, report, opinion or review rendered by the independent 19 auditor, and recommend to the Board whether the audited financial statements should be included in the Company’s annual report on 20 Form 10-K. 21 2. Review and discuss with management and the independent auditor the Company’s disclosure under “Management’s 22 Discussion and Analysis of Financial Condition and Results of Operations” in connection with the Company’s annual report on 23 Form 10-K. 24 3. Review and discuss with management and the independent auditor the Company’s quarterly financial statements and the 25 Company’s disclosure under “Management’s Discussion and Analysis of Results of Operation”. 26 4. Review and discuss press releases regarding the Company’s 27 financial results and other information provided to securities analysts and rating agencies, including any “pro forma” or adjusted 28 financial information.

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1 * * * 2 7. Review annually with management its assessment of the effectiveness of the Company’s internal control structure and 3 procedures for financial reporting (“Internal Controls”), and review annually with the independent auditor the attestation to and report 4 on, the assessment made by management, and consider whether any changes to the Internal Controls are appropriate in light of 5 management’s assessment or the independent auditor’s report. 6 8. Review quarterly with management its evaluation of the Company’s procedures and controls (“Disclosure Controls”) 7 designed to assure that information required to be disclosed in its periodic public reports is recorded, processed, summarized and 8 reported in such reports within the time periods specified by the Securities and Exchange Commission for the filing of such reports, 9 and consider whether any changes are appropriate in light of management’s evaluation of the effectiveness of such Disclosure 10 Controls. 11 * * * 12 12. Review analyses prepared by management and/or the independent or internal auditor setting forth significant financial 13 reporting issues and judgments made in connection with the preparation of the financial statements including the effects of 14 alternative GAAP methods on the financial statements. 15 * * * 16 1. Review with the Chief Executive Officer and Chief Financial Officer of the Company any report on significant deficiencies in 17 the design or operation of the Internal Controls which could adversely affect the Company’s ability to record, process, 18 summarize or report financial data, any material weaknesses in Internal Controls identified to the auditors, and any fraud, whether 19 or not material, that involves management or other employees who have a significant role in the Company’s Internal Controls. 20 * * * 21 4. Adopt a Code of Ethics for senior financial officers and provide 22 for and review prompt disclosure to the public of any change in, or waiver of, such Code of Ethics. Review conduct alleged to be in 23 violation of such Code of Ethics and adopt as necessary or appropriate, remedial, disciplinary, or other measures with respect 24 to such conduct. Take such actions, including review of conduct alleged to be in violation of the Company’s Code of Business 25 Conduct and Ethics, and adoption of remedial, disciplinary, or other measures with regard to such actions, as may be necessary or 26 appropriate under the Code of Business Conduct and Ethics. 27 * * * 28

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1 7. Discuss guidelines and policies to govern the process by which risk assessment and management is undertaken and handled. 2 Discuss with management the Company’s major financial risk exposures and the steps management has taken to monitor and 3 control such exposures. 4 8. Prepare the Committee’s report required by the rules of the Securities Exchange Commission to be included in the Company’s 5 annual proxy statement. 6 2003 Audit Committee Charter; see also 2001 and 2002 Audit Committee Charters, which 7 contain virtually identical provisions. 8 87. The Audit Committee Defendants were responsible for overseeing the integrity of 9 Zoran’s financial statements and reporting and knew, or were sincerely reckless in not knowing 10 that Zoran’s stock options were being improperly accounted for. Indeed, all of the Audit 11 Committee Defendants were Compensation Committee members for at least part of the Class 12 Period.

13 6. The Stock Options Backdating Epidemic of 2006 14 88. In the spring of 2006, public corporations throughout the United States began to 15 reveal that they were under investigation for stock option granting improprieties similar to those 16 alleged herein. 17 89. On May 6, 2006, the Wall Street Journal ran an article, excerpted below, by 18 reporters Charles Forelle and James Bandler, which described the evolving options backdating 19 crisis:

20 Backdating Probe Widens as 2 Quit Firm --- Power Integrations Officials Leave Amid Options Scandal; 10 21 Companies Involved So Far 22 (Copyright (c) 2006, Dow Jones & Company, Inc.) 23 The stock-options backdating scandal continued to intensify, with the announcement by a Silicon Valley chip maker that its chairman 24 and its chief financial officer had abruptly resigned. That brought to eight the number of officials at various companies to leave their 25 posts amid scrutiny of how companies grant stock options. 26 Power Integrations Inc., of San Jose, Calif., said Chairman Howard Earhart, who is a former chief executive, and finance chief John 27 Cobb had resigned. It also said it probably will need to restate nearly seven years of financial results because of options-granting 28 problems.

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1 90. Forelle and Bandler explained that the option granting improprieties not only 2 caused numerous companies to commence internal investigations of their compensation 3 practices, but also drew the attention of the SEC, federal prosecutors and investors. The article, 4 in relevant part, stated as follows: 5 So far, at least 10 companies have been caught up in the stock- options-dating matter, with several already in effect 6 acknowledging that some improper dating occurred. A number of companies are conducting their own investigations or are the 7 subjects of Securities and Exchange Commission probes. In one case, company practices have attracted the attention of federal 8 prosecutors examining possible fraud violations. 9 The matter also is drawing concern from investors, who have bid down the stock prices of some of the companies caught up in the 10 various probes. Chip maker Vitesse Semiconductor Corp. has seen shares fall about 40% since suspending three executives, while 11 shares in giant health insurer UnitedHealth Group Inc. have fallen 18% since questions about its options-granting practices surfaced 12 in mid-March, shaving more than $13 billion off its market capitalization. 13 […] 14 At UnitedHealth, at least 11 executives, including CEO William 15 McGuire and the company's general counsel, received at least one option grant dated on the lowest price of a quarter in 2000. Many 16 executives also shared propitious option dates with Dr. McGuire through the years. The company has called its granting practices 17 “appropriate,” but its board is conducting a probe. UnitedHealth also has stopped giving option grants to some senior executives, 18 including Dr. McGuire. 19 91. As noted by Forelle and Bandler, suspicious patterns of sharp price inclines 20 following the granting of options, similar to those alleged herein, are “statistically unlikely” and 21 “raise questions about whether there has been backdating or other gaming of the system.” The 22 article, in relevant part, stated as follows: 23 UnitedHealth, Comverse Technology Inc. and Vitesse were among six companies whose options practices were examined in a March 24 article in The Wall Street Journal. The article found that the CEOs of the companies routinely received grants dated ahead of 25 sharp rises in share price, and that the likelihood of those beneficial grant dates having occurred randomly was minute. All 26 six companies have since said they've begun probes by outside directors and lawyers into their granting practices. (The Journal 27 contacted Power Integrations for the March article but didn't cite it.) 28

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1 […] 2 Typically, stock options are granted by boards of directors. They are generally supposed to carry exercise prices equal to the fair 3 market value of the company's stock at the time of the grant. But at a number of companies, grants to top executives show an unusual 4 pattern: They're frequently dated just before [a] sharp rise in the share price, and at or near the bottom of a steep dip. The 5 patterns, statistically unlikely, raise questions about whether there has been backdating or other gaming of the system. 6 […] 7 The SEC began examining options backdating more than a year 8 ago. Its attention apparently was piqued by academic research that found unusual patterns of stock activity around the time of 9 options grants, suggestive of possible backdating. The research indicates that a dating problem could go beyond the cluster of 10 companies already under scrutiny. 11 (emphasis added.) 12 92. Forelle and Bandler also noted that several of the option granting investigations 13 had led companies to announce restatements and to the suspension of corporate executives. The 14 article, in relevant part, stated as follows: 15 Both Power Integrations and Comverse, a New York maker of telecommunications software, have said their reviews indicate that 16 some options grants carried dates that “differed” from the grants’ actual dates. 17 Both companies, whose reviews continue, said they expect to 18 restate financial results to record “additional noncash charges.” Under accounting rules, companies need to report an expense for 19 grants of “in the money” options -- those that carry an exercise price below the market price at the time of the grant. Any options 20 backdated to a day when the stock was lower would be in-the- money. 21 Another company, Vitesse, has suspended three executives, 22 including CEO Louis R. Tomasetta, because of issues relating to “integrity of documents” in the options-granting process. 23 […] 24 It’s possible any executives who participated in backdating could 25 be open to civil or criminal fraud charges of enriching themselves through false or misleading records or filings. Lawyers cautioned 26 that any such criminal charges would require that an executive who took part in backdating did so intentionally. 27 […] 28

CONSOLIDATED CLASS ACTION COMPLAINT 3:06-cv-04843-WHA 30

1 Comverse, for one, acted swiftly. Within days of beginning a probe led by outside directors, it said it would probably have to restate 2 results. Within weeks, the investigation led to the resignation of Kobi Alexander, who founded Comverse more than two decades 3 ago and built it into a major supplier of voice-messaging software and other products. Two other executives also resigned. 4 93. Arthur Levitt, former Chairman of the SEC, recently described this backdating 5 scheme in the bluntest possible terms: Backdating “represents the ultimate in greed…. It is 6 stealing, in effect. It is ripping off shareholders in an unconscionable way.” Charles Forelle and 7 James Bandler, “Five More Companies Show Questionable Options Pattern,” Wall Street 8 Journal, May 22, 2006. 9 94. In testimony before the U.S. Committee on Banking, Housing, and Urban Affairs 10 on September 6, 2006, SEC Chairman Christopher Cox explained why options backdating 11 schemes are so harmful: 12 Thank you for inviting me to testify today about options 13 backdating. This issue is one of intense public interest because it strikes at the heart of the relationship among a public company’s 14 management, its directors, and its shareholders. 15 […] 16 There are many variations on the backdating theme. But here is a typical example of what some companies did: They granted an “in- 17 the-money” option—that is, an option with an exercise price lower than that day’s market price. They did this by misrepresenting the 18 date of the option grant, to make it appear that the grant was made on an earlier date when the market value was lower. That, of 19 course, is what is meant by abusive “backdating” in today’s parlance. 20 The purpose of disguising an in-the-money option through 21 backdating is to allow the person who gets the option grant to realize larger potential gains—without the company having to 22 show it as compensation on the financial statements. 23 Rather obviously, this fact pattern results in a violation of the SEC’s disclosure rules, a violation of accounting rules, and also a 24 violation of the tax laws. 25 The SEC has been after the problem of abusive options backdating for several years. 26 […] 27 But just as option compensation increased, so did the potential for 28 abuse.

CONSOLIDATED CLASS ACTION COMPLAINT 3:06-cv-04843-WHA 31

1 These [Brocade Communications Systems and Comverse Technology, Inc.] cases demonstrate some of the variations on the 2 basic theme of fraudulent backdating that the Commission has uncovered. They involve backdated option grants that are more 3 profitable to recipients; backdated option exercises that reduce recipients’ taxes at the expense of shareholders; options granted to 4 top executives; and options granted to rank and file employees. They involve actual personal gain to wrongdoers, and real harm to 5 companies that failed to properly account for the options practices. . . . 6 (http://www.sec.gov/news/testimony/2006/ts090606cc.htm). 7 7. Defendants’ Improper Stock Option Granting Practices 8 95. As demonstrated infra, through an analysis of stock option grants made by Zoran 9 between 1997 and 2005, it is evident that the Company, Officer Defendants and the 10 Compensation Committee Defendants engaged in similar fraudulent option granting activity. 11 96. In backdating option grants, Defendants have also failed to comply with APB 25, 12 the Generally Accepted Accounting Principle governing the reporting of stock-based 13 compensation expense and, thus, Zoran’s Class Period financial statements, earnings releases and 14 annual proxy statements materially misrepresented, among other financial metrics, the 15 Company’s measure of net income, retained earnings/(accumulated deficit) and earnings per 16 share. 17 97. Additionally, the Company, Officer Defendants and Compensation Committee 18 Defendants’ practice of opportunistically granting executive and director stock options so that 19 such grants preceded anticipated increases in the price of Zoran stock and/or were made at the 20 anticipated low point at stock price declines, has rendered statements regarding the formulaic 21 nature of the Company’s stock compensation plans, contained in Zoran’s annual reports and 22 proxy statements, materially false and misleading. 23 98. For instance, during the Class Period, Zoran’s proxy statements and annual 24 reports created the false impression that defendants chose the grant dates for the options based on 25 arbitrary or administrative factors, rather than, as was in fact the case, a calculation of what 26 would most increase the likelihood of maximum gain for the executives and directors, maximize 27 the cost to the corporation, and substantially diminish the risk associated with Zoran common 28

CONSOLIDATED CLASS ACTION COMPLAINT 3:06-cv-04843-WHA 32

1 stock for these option recipients relative to that faced by ordinary investors in Zoran common 2 stock. 3 99. Throughout, Defendants reiterated in Zoran’s proxy statements and annual reports 4 throughout the Class Period that the exercise price of options granted under Zoran’s stock option 5 plans would not be less than the fair market value of the common stock on the date the option 6 was granted, in the case of incentive stock options. (That is, Zoran would not grant “in the 7 money” incentive options.) By omitting any reference to the opportunistic practices of the 8 Company, Compensation Defendants and the Officer Defendants, these statements misleadingly 9 implied that the risk and uncertainty associated with the options was the same faced by any other 10 Zoran shareholder who bought Zoran common stock at current fair market prices, when, in fact, 11 as explained in detail below, the deck had been stacked for management by substantially 12 reducing any such risk, based on an insider perspective of the current and prospective fortunes of 13 the Company and the likely movement of its stock price. 14 100. By gaming either the timing of stock option grants to themselves and other 15 officers and directors, or the timing of the public disclosure of material information, defendants 16 engaged in a hidden form of direct compensation. 17 101. However, according to the terms of the Company’s shareholder-approved stock 18 option plans, as discussed supra, with limited exception, the per share exercise price of a granted 19 option should have been no less than the fair market value per share on the date of grant. 20 102. Moreover, as discussed in detail above, pursuant to APB 25, the applicable GAAP 21 provision at the time of the foregoing stock option grants purportedly followed by Zoran, if the 22 market price on the date of grant exceeded the exercise price of the options, which is the case 23 with backdated option grants, then the Company was required to recognize the difference as a 24 compensation expense. In other words, since Defendants’ backdated option grants were “in the 25 money” at the time of grant, Defendants had an obligation to record as compensation expense, 26 the difference between the market price of Zoran stock at the time of grant and the exercise price 27 of the option. 28

CONSOLIDATED CLASS ACTION COMPLAINT 3:06-cv-04843-WHA 33

1 103. During all relevant times, the Compensation Committee Defendants were 2 responsible for the administration and granting of stock options. The Compensation Committee 3 Defendants also worked closely with the Officer Defendants in determining the timing and terms 4 of Zoran’s stock option grants.

5 (i) An Analysis of the Company’s Highly Suspect Executive and Director Stock Option Grants 6 104. The Company, Officer Defendants and Compensation Defendants granted stock 7 options to themselves and to the Company’s executives and directors suspiciously on dates at 8 which Zoran stock hit new low points, which then almost invariably preceded gains – often sharp 9 gains – in the Company’s stock price. 10 105. For instance, from 1997 to 2003, these defendants granted stock options to Zoran 11 executives, including the Officer Defendants, as follows: 12 Table 1.0 13 Zoran Officer Stock Option Grants

14 Officer Purported Exercise Number of Subsequent Date of Price Options 10-day 15 Grant Increase 1/2/1997 $17.50 60,000 31.43% 16 Aharon, Aharon 8/4/1998 $5.94 20,000 36.70% 17 8/4/1998 $5.94 90,000 36.70% 8/4/1999 $20.38 30,000 49.40% 18 7/28/2000 $41.00 50,000 11.12% 2/7/2001 $15.50 35,000 none 19

20 Gerzberg, Levy 7/23/1997 $19.75 75,000 none 8/4/1998 $5.94 40,000 36.70% 21 8/4/1998 $5.94 191,666 36.70% 8/4/1999 $20.38 55,000 49.40% 22 7/28/2000 $41.00 90,000 11.12% 2/7/2001 $15.50 50,000 none 23 9/19/2001 $17.28 50,000 32.41% 24 8/9/2002 $12.36 427,500 15.53% 7/15/2003 $24.78 304,679 5.33% 25 Goldberg, Paul 7/23/1997 $19.75 10,000 none 26 8/4/1998 $5.94 15,000 36.70% 27 8/4/1998 $5.94 40,000 36.70% 8/4/1999 $20.38 15,000 49.40% 28

CONSOLIDATED CLASS ACTION COMPLAINT 3:06-cv-04843-WHA 34

1 Officer Purported Exercise Number of Subsequent Date of Price Options 10-day 2 Grant Increase 8/21/2001 $32.00 150,000 none 3 Martino, Camillo 10/31/2001 $25.29 50,000 26.06% 4 8/21/2002 $14.93 75,000 none 10/17/2002 $13.60 75,000 10.22% 5 7/15/2003 $24.78 130,000 5.33%

6 Schneider, Karl 8/4/1999 $20.38 15,000 49.40% 7 7/28/2000 $41.00 30,000 11.12% 2/7/2001 $15.50 25,000 none 8 9/19/2001 $17.28 30,000 32.41% 8/9/2002 $12.36 75,000 15.53% 9 7/15/2003 $24.78 100,000 5.33%

10 Shenberg, Isaac 7/23/1997 $19.75 40,000 none 11 8/4/1998 $5.94 15,000 36.70% 8/4/1998 $5.94 40,000 36.70% 12 8/4/1999 $20.38 20,000 49.40% 7/28/2000 $41.00 40,000 11.12% 13 2/7/2001 $15.50 30,000 none 14 9/19/2001 $17.28 37,000 32.41% 8/9/2002 $12.36 82,500 15.53% 15 7/15/2003 $24.78 100,000 5.33%

16 Sinar, Alex 7/23/1997 $19.75 30,000 7.5% 8/4/1998 $5.94 10,000 36.70% 17 8/4/1998 $5.94 30,000 36.70% 18 106. The grants listed in Table 1.0, as well as those described below, indicate a 19 revealing pattern indicative of backdating or opportunistic timing of grants. Many of the 20 foregoing grants were timed precisely at the bottom of a periodic decline in Zoran’s stock price. 21 That is to say, grants occurred precisely when Zoran had reached weekly or monthly lows, and 22 were usually granted prior to a gain – often a sharp gain – in the Company’s stock price, or 23 immediately following a significant drop in the price of Zoran common stock. 24 107. These numerous perfectly-timed options grants over a period of many years, 25 achieving maximum gains for management in numerous instances in which they were granted 26 such options, could not have been and were not the result of mere chance. They were, instead, 27 the consequence of Defendants’ improper and opportunistic “in the money” option granting 28

CONSOLIDATED CLASS ACTION COMPLAINT 3:06-cv-04843-WHA 35

1 practices, including the backdating of option grants and the opportunistic granting of executive 2 and director stock options. 3 108. In a 2006 Journal of Financial Economics article, entitled “Does backdating 4 explain the stock price pattern around executive stock option grants?”, Randall A. Heron and 5 Erik Lie provide an analytical basis for the conclusion that backdating and the opportunistic 6 timing of either grants and/or information releases around grants, are the likely explanation for 7 such abnormal stock return patterns. The article analyzes several recently published studies and 8 states, in relevant part, as follows: 9 Yermack (1997), Aboody and Kasznik (2000), Chauvin and Shenoy (2001), Lie (2005), and Narayanan and Seyhun (2005) find 10 that firms’ stock returns are abnormally high immediately after executive stock option grants. In addition, the latter three studies 11 find that the returns are abnormally low leading up to the grants. Because stock options are generally granted at the money, past 12 researchers have attributed the documented stock return pattern to opportunistic timing of either grants and/or information 13 releases around grants. 14 Yermack (1997) documents that the average abnormal stock return during the 50 trading days after 620 stock option grants to 15 CEOs between 1992 and 1994 exceeds two percent, and he interprets this as evidence that executives opportunistically time 16 grants to occur before anticipated stock price increases. Aboody and Kasznik (2000) focus on a sample of 2,039 grants to CEOs 17 between 1992 and 1996 that appear to be scheduled in an attempt to remove the effect of opportunistic grant timing. At almost two 18 percent, the average abnormal return is statistically positive even after these grants, which the authors interpret as evidence that 19 executives opportunistically time the release of information around scheduled option grants. 20 Based on a sample of 5,977 CEO stock option grants from 1992 21 through 2002, Lie (2005) reports negative abnormal returns before the grants and positive returns afterward, and finds that this pattern 22 has intensified over time. Interestingly, even the portion of the stock returns that is predicted by overall market factors is negative 23 before the option grants and positive afterward. This prompts Lie to conclude that “unless executives have an informational 24 advantage that allows them to develop superior forecasts regarding the future market movements that drive these predicted 25 returns, the results suggest that the official grant date must have been set retroactively.” 26 […] 27 Lie’s backdating hypothesis could potentially explain the bulk of 28 the abnormal stock return pattern around executive stock option

CONSOLIDATED CLASS ACTION COMPLAINT 3:06-cv-04843-WHA 36

1 grants. Recent anecdotal evidence from the SEC’s investigation of Mercury Interactive and other cases (which we discuss later) 2 supports this contention. However, Lie’s empirical evidence does not rule out alternative theories. Researchers using insider trading 3 data, including, Lakonishok and Lee (2001), Seyhun (1988, 1992), and Narayanan and Seyhun (2005), present evidence consistent 4 with the notion that some executives have the ability to forecast future market returns. Thus, it is possible that the patterns in 5 predicted returns around option grants are attributable to executives timing grants to occur shortly before they expect 6 upswings in the whole market. 7 (emphasis added.) 8 109. As recognized by Professor Lie, “in the absence of opportunistic grant timing or 9 opportunistic timing of information flows around grants, the returns before and after grant dates 10 should be similar. Consequently, if opportunistic timing is absent, the distribution of the 11 difference between the returns for a given number of days after the grants and the returns for the 12 same number of days should be centered roughly at zero.” Randall A. Heron and Erik Lie, “What 13 Fraction of Stock Option Grants to Top Executives Have Been Backdated or Manipulated” (July 14 14, 2006). 15 110. With respect to Zoran, the CFRA identified three suspicious sets of grants: 16 August 1998; August 1999; and September 2001, which, it concluded, were at risk for 17 backdating. Moreover, between 1997 and 2003 and in 2005 (no officer grants were made in 18 2004 or 2006), the Company rarely missed granting an option to the Individual Defendants at or 19 near the all time lows for the period, and the stock price rarely failed to rapidly increase shortly 20 thereafter. 21 111. Indeed as part of their investigation, Plaintiffs retained a professor of finance who 22 has authored several articles on the subject of options manipulation and is a recognized expert in 23 the field to conduct an analysis of all of Zoran’s stock option grants, based on information 24 available to Plaintiffs. The professor’s analysis reveals that the timing of the Company’s 25 suspicious option grants could not have been the result of chance. Indeed, the mathematical 26 probability of Zoran’s 32 option grants between 1996 and 2005 achieving the number of low 27 28

CONSOLIDATED CLASS ACTION COMPLAINT 3:06-cv-04843-WHA 37

1 points that they did without manipulation was one in 1,235 (or a probability of 0.08094%), which 2 are very statistically significant results. 3 112. The professor analyzed the grants as follows. First, option grant dates were 4 determined from public filings and matched with historical prices for Zoran’s stock. Each option 5 grant date was then ranked within the calendar month in which it fell, with rank 1 indicating the 6 date with the lowest share price in the period, rank 2 indicating the date with the second-lowest 7 share price in the period and so on. By this method, Plaintiffs’ expert determined rankings for 8 each option grant date as follows (dates with rank 1 or 2 are indicated): 9 Table 2. Option Ranking Within Calendar Month 10 Rank in 11 Grant Date Month

12 1/31/1996 22 6/7/1996 14 13 7/24/1996 3 14 1/2/1997 1 5/6/1997 2 15 7/23/1997 12 1/26/1998 6 16 6/11/1998 7 17 8/4/1998 2 1/20/1999 13 18 8/4/1999 1 19 10/11/1999 1 1/26/2000 4 20 7/28/2000 1 2/7/2001 9 21 3/16/2001 1 22 6/29/2001 21 8/21/2001 1 23 9/19/2001 2 24 10/31/2001 11 6/21/2002 11 25 8/9/2002 4 8/21/2002 19 26 10/17/2002 16 4/29/2003 19 27 7/15/2003 17 7/17/2003 14 28

CONSOLIDATED CLASS ACTION COMPLAINT 3:06-cv-04843-WHA 38

1 8/11/2003 6 6/21/2004 1 2 4/26/2005 3 3 8/19/2005 4 11/23/2005 16 4 Total # Days 32 # Rank 1 (of 32) 7 5 # Rank 1 or 2 (of 32) 10 6 113. Next, the probability of the number of grant dates of rank 1 and rank 2 was 7 calculated using a binomial distribution probability function, where the number of occurrences 8 was the number of grant dates of rank 1 (or ranks 1 and 2), the number of observations was the 9 total number of grant dates, and the probability was calculated by assuming twenty-two trading 10 days per month. (The binomial distribution probability function is used in problems, such as the 11 one at hand, with a fixed number of tests or trials, when the outcomes of any trial are only 12 success or failure, when trials are independent, and when the probability of success is constant 13 throughout the problem. For example, the function can calculate the probability that two of the 14 next three babies born are male.) 15 114. The probability of a one in 1,235 occurrence (or a 0.08094% likelihood), as noted 16 above, is the probability of 10 or more of the 32 grants being ranked 1 or 2 in their respective 17 calendar months. The odds are one in 1,151 that the grants would be ranked 1 in their respective 18 calendar months (or a likelihood of 0.08685%). When looking just at option grants before SOX 19 was effective, and therefore before the time when public companies, pursuant to that statute, 20 were required to file documentation of option grants within 48 hours of their issuance, the odds 21 are one in 1,327 (or a 0.07535% likelihood) that 6 or more of the 23 grants in this period would 22 be ranked 1 in their respective calendar months and one in 4,539 chance (or a 0.02203% 23 likelihood) that 9 or more of the 23 grants in this period would be ranked 1 or 2 in their 24 respective calendar months. These are very statistically significant results indicating 25 manipulation. 26 115. The professor also discerned a very statistically significant improbability when 27 looking at a subset of Zoran grants between 1997 and 2001, a period when many public 28

CONSOLIDATED CLASS ACTION COMPLAINT 3:06-cv-04843-WHA 39

1 companies have admitted to backdating. During that period, 6 out of 17 grants were ranked 1 in 2 their respective calendar months, carrying a probability of 1 in 8,353 (or a 0.01197% likelihood) 3 occurrence by chance and a one in 87,226 (or 0.00115% likelihood) chance that 9 of the 17 4 grants would be ranked either 1 or 2. These are very statistically significant results indicating 5 manipulation. Specific to Zoran, Defendant Aharon, upon information and belief the only officer 6 to have done so, left the Company at the time of the last option grants in 2001. 7 116. The following figures demonstrate graphically the Defendants’ improper and 8 opportunistic selection of Zoran’s grant dates: 9 Figure 1.0 20-Day Price Bracket – 1/2/97 Options Grant 10 28.00 11

26.00 12 13 24.00

14 22.00

15 20.00 ZoranClosing Stock Price 2-Jan-97 17.50 16 18.00

17 16.00

/1997 18 0/1996 1/6/1997 2/3/1997 12/2/1996 12/9/1996 1/13 1/20/1997 1/27/1997 12/16/1996 12/23/1996 12/3 19 Date 20

21 117. Figure 1.0 above shows gains associated with Defendants’ January 1, 1997 22 options grant. This grant received a rank of #1 by Plaintiffs’ expert and was followed by a price 23 gain of 31.43%. 24 25 26 27 28

CONSOLIDATED CLASS ACTION COMPLAINT 3:06-cv-04843-WHA 40

1 118. Figure 1.1 2 20-Day Price Bracket – 8/4/98 Options Grant

3 12.00

4 11.00

5 10.00

6 9.00 7 8.00

8 Price Stock Closing Zoran 7.00

6.00 4-Aug-98 9 5.94 10 5.00 998 998 998 998 998 998

7/2/1998 7/9/1998 8/6/1998 9/3/1998 11 7/16/1 7/23/1 7/30/1 8/13/1 8/20/1 8/27/1 Date 12 13 119. Figure 1.1 above shows gains associated with Defendants’ August 4, 1998 options 14 grant. This grant received a rank of #2 by Plaintiffs’ expert and was followed by a price gain of 15 36.70%.

16 120. Figure 1.2 20-Day Price Bracket – 8/4/99 Options Grant 17 18 35.50 33.50 19 31.50

20 29.50

27.50 21 25.50

22 23.50 Zoran Closing Stock Price Stock Closing Zoran 21.50 23 4-Aug-99 20.38 19.50 24 17.50

9 9 9 9 9 9 99 9 9 99 9 25 99 9 9 99 9 /1 /1 /19 /199 /2 3 /6/1 0/1 7 /3 7 7/9/1 /2 8 /13/19 2 /2 9 7/16/1999 7 7/30/1999 8 8/ 8 26 Date 27 28

CONSOLIDATED CLASS ACTION COMPLAINT 3:06-cv-04843-WHA 41

1 121. Figure 1.2 above shows gains associated with Defendants’ August 4, 1999 options 2 grant. This grant received a rank of #1 by Plaintiffs’ expert and was followed by a price gain of 3 49.40%. 4 Figure 1.3 20-Day Price Bracket – 7/28/00 Options Grant 5 69.00 6 64.00 7 8 59.00

9 54.00

10 49.00 Zoran Closing Stock Price Stock Closing Zoran

11 44.00 28-Jul-00 12 41.00 39.00

0 0 0 0 0 00 00 0 0 0 000 0 0 0 0 13 2 2 /2 /2 /200 /2 /2 8/ /2 /9 6 3 0 2 7/5/2000 /26/2000 8 8 /1 /2 3 6/ 7/12/ 7/19/2000 7 8 8 8/

14 Date

15

16 122. Figure 1.3 above shows gains associated with Defendants’ July 28, 2000 options 17 grant. This grant received a rank of #1 by Plaintiffs’ expert and was followed by a price gain of 18 11.12%. 19 20 21 22 23 24 25 26 27 28

CONSOLIDATED CLASS ACTION COMPLAINT 3:06-cv-04843-WHA 42

1 123. Figure 1.4 20-Day Price Bracket – 8/21/01 Options Grant 2 41.00 3 4 36.00 5 31.00 21-Aug-01 6 32.00

26.00 7 Zoran Closing Stock Price Stock Closing Zoran

8 21.00 9 16.00

1 1 1 1 0 0 0 01 0 10 0 0 0 0 0 /2 /2001 /2 /2 0 3 4 4 2 /27/2001 8/ /10/2 2 /31/2 9/7/2001 /1 /21/2001 7/ 7 8 8/17/2001 8/ 8 9 9 11 Date 12 124. Figure 1.4 above shows gains associated with Defendants’ August 21, 2001 13 options grant. This grant received a rank of #1 by Plaintiffs’ expert. 14 125. 15 Figure 1.5 20-Day Price Bracket – 9/19/01 Options Grant 16 36.00 17 18 31.00 19

20 26.00 21 Zoran Closing Stock Price Stock Closing Zoran 22 21.00

23 19-Sep-01 17.28 16.00

1 1 1 1 0 0 01 0 0 24 0 001 001 20 /20 /2001 /2001 20 /20 /2001 2 /2 7/ 4 1 1/ 8 5 1 /2 9/7 2 /2 /12/ /19 8/ 8 8/3 9/14/2 9/ 9 10/ 25 10 10 Date 26

27 28

CONSOLIDATED CLASS ACTION COMPLAINT 3:06-cv-04843-WHA 43

1 126. Figure 1.5 above shows gains associated with Defendants’ September 19, 2001 2 options grant. This grant received a rank of #2 by Plaintiffs’ expert and was followed by a price 3 gain of 32.41%.

4 127. Figure 1.6 20-Day Price Bracket – 10/31/01 Options Grant

5 36.00

6 34.00

7 32.00

8 30.00 9 28.00 10 26.00

Zoran Closing Stock Price Stock Closing Zoran 31-Oct-01 24.00 11 25.29 22.00 12 20.00

1 1 1 1 1 0 0 13 0 0 001 001 /2 /2 2 2 /200 8 5 2/ 9/ 0 /2 0/ 1 1 /3 9 1 0/ 0/ 11/2/2001 11/9/2001 1 14 1 1 10/26/2001 11/16/200 11/23/200 1 Date 15 16 128. Figure 1.6 above shows the remarkably suspicious pricing circumstances 17 associated with Defendants’ October 31, 2001 options grant, which was followed by a sharp gain 18 of approximately $2.00. 19 129. Importantly with respect to grants in 2001, although Zoran’s proxy statement 20 disseminated in 2002 reported that only three Compensation Committee meetings took place— 21 when, according to the Plan stock option grants were approved—Plaintiffs’ expert noted that 4 22 grants were made to officers in 2001. Grants occurred on Feb. 7, 2001, Aug. 21, 2001, Sept. 19, 23 2001, and October 31, 2001. 24 25 26 27 28

CONSOLIDATED CLASS ACTION COMPLAINT 3:06-cv-04843-WHA 44

1 130. Figure 1.7 20-Day Price Bracket – 8/9/02 Options Grant

2 20.00

3 19.00 18.00 4 17.00

5 16.00 6 15.00 14.00 7 13.00 Zoran Closing Stock Price Stock Closing Zoran

12.00 8 9-Aug-02 12.36 9 11.00 10.00

2 2 2 2 2 10 0 0 0 0 02 02 0 0 0 0 0 0 /200 2 2 2 /2 /2 /2 /2002 /2002 /2002 9 6/ 3/ 0/ 6 /3/2002 7/ 1 2 3 8/ /13 /20 /27 9 /10 /17 11 7/ 7/ 7/ 8 8 8 9 9 Date 12 13 131. Figure 1.7 above shows the remarkably suspicious pricing circumstances 14 associated with Defendants’ August 9, 2002 options grant in that the grant was made at a new 15 low and followed by a sharp increase of more than $4.00 within the span of eleven days. 16 132. Zoran did not grant options to officers in 2004, because the 1993 Plan had expired 17 and a proposed replacement plan was not approved by shareholders at Zoran’s June 18, 2004 18 annual meeting. However, the following Figure 1.8 shows the remarkably suspicious pricing 19 circumstances associated with Defendants’ June 21, 2004 directors options grant in that it was 20 immediately followed by a sharp increase. 21 22 23 24 25 26 27 28

CONSOLIDATED CLASS ACTION COMPLAINT 3:06-cv-04843-WHA 45

1 Figure 1.8 20-Day Price Bracket – 6/21/04 Options Grant

2 19.50 3 19.00 18.50 4 18.00

5 17.50

17.00 6 21-Jun-04 17.16 16.50 7 16.00 Zoran Closing Stock Price Stock Closing Zoran 8 15.50 9 15.00 14.50

4 4 4 4 0 0 0 0 10 0 0 0 /2 /2004 2 /2004 /2004 8 4 8 /2/2 /9 /2 6/ /11/ /1 7 7 11 5/21/20 5 6 6 6/25/2004 7/16/2004 Date 12 133. Figure 1.9 below shows the remarkably suspicious pricing circumstances 13 associated with Defendants’ April 26, 2005 options grant, which gained almost $3.00 in four 14 weeks. 15 Figure 1.9 20-Day Price Bracket – 4/26/05 Options Grant 16 12.00 17 11.50 18 11.00 19

10.50 20

10.00 21

9.50 22 Price Stock Closing Zoran

9.00 23 26-Apr-05 9.06 24 8.50 5 5 5 5 0 0 0 0 0 005 0 0 0 /2 /2005 2 /2 /2005 /2 1 7 1 /5/2 2 6 /24/2005 4/ /2 /28/2005 5 /1 25 3 3/3 4/14/ 4 4 5 5/19/2005 5/2

Date 26

27 134. The same is true of Defendants’ August 19, 2005 options grant shown below in 28

CONSOLIDATED CLASS ACTION COMPLAINT 3:06-cv-04843-WHA 46

1 Figure 2.0. 2 Figure 2.0 20-Day Price Bracket – 8/19/05 Options Grant

3 17.50 4 17.00

16.50 5 16.00 6 15.50

7 15.00

8 14.50 Zoran Closing Stock Price Stock Closing Zoran 9 14.00

13.50 10 19-Aug-05 13.59 13.00

5 5 5 5 5 0 0 0 0 0 11 0 0 0 /2 /2005 /2005 /2 /2005 6 2 /9/2 6 0 6 /2 8/ 8 /1 /3 9/ 12 7/19/20 7 8 8/23/2005 8 9/13/20 Date 13

14 8. The Defendants’ Scheme Caused the Company to Violate Generally Accepted Accounting Principles and SEC Regulations 15 135. The defendants’ options backdating scheme and the opportunistic granting of 16 stock options carried out by Defendant Zoran, the Officer Defendants and the Compensation 17 Committee Defendants caused the Company to run afoul of GAAP and SEC Regulations both 18 for the proper reporting of its financial condition generally, and the reporting of its compensation 19 costs specifically. 20 136. According to SEC regulations, public companies must prepare their financial 21 statements in accordance with GAAP. By failing to comply with GAAP, Zoran’s financial 22 statements are presumptively in violation of those regulations. 23 137. GAAP are the principles recognized by the accounting profession as the 24 conventions, rules, and procedures necessary to define accepted accounting practices at a 25 particular time. They are the official standards accepted by the SEC and promulgated in part by 26 the American Institute of Certified Public Accountants (“AICPA”), a private professional 27 association, through three successor groups it established: the Committee on Accounting 28

CONSOLIDATED CLASS ACTION COMPLAINT 3:06-cv-04843-WHA 47

1 Procedure, the Accounting Principles Board, and the Financial Accounting Standards Board 2 (“FASB”) with the permission of the SEC (Accounting Series Release 150). 3 138. SEC Rule 4-01(a) of SEC Regulation S-X states that “[f]inancial statements filed 4 with the Commission which are not prepared in accordance with [GAAP] will be presumed to be 5 misleading or inaccurate, despite footnote or other disclosures, unless the Commission has 6 otherwise provided.” 17 C.F.R. § 210.4-01(a)(1). Regulation S-X requires that interim financial 7 statements must also comply with GAAP. 17 C.F.R. § 210.10-01(a). 8 139. As noted in AICPA auditing standard (“AU”), § 110.02, a public company’s 9 management is responsible for preparing financial statements in conformity with GAAP: 10 The financial statements are management’s responsibility … Management is responsible for adopting sound accounting policies 11 and for establishing and maintaining internal controls that will, among other things, initiate, record, process, and report 12 transactions (as well as events and conditions) consistent with management’s assertions embodied in the financial statements. 13 The entity’s transactions and the related assets, liabilities and equity are within the direct knowledge and control of 14 management…. Thus, the fair presentation of financial statements in conformity with generally accepted accounting principles is an 15 implicit and integral part of management’s responsibility. 16 140. As exemplified by the options manipulation during the Class Period, Defendants 17 wholly failed to adopt sound accounting policies and to maintain internal controls designed to 18 ensure that the Company’s public filings were fairly presented. 19 141. The SEC also regulates statements by companies “that can reasonably be 20 expected to reach investors and the trading markets, whoever the intended primary audience.” 21 Public Statements by Corporate Representatives, Exchange Act Release No. 33-6504, 3 Fed. 22 Sec. L. Rep. (CCH) ¶ 23,120B, at 17,096, 17 C.F.R. § 241.20560, 1984 WL 126134 (Jan. 13, 23 1984). 24 142. Under SEC regulations, the management of a public company has a duty “to make 25 full and prompt announcements of material facts regarding the company’s financial condition.” 26 Timely Disclosure of Material Corporate Developments, Exchange Act Release No. 34-8995, 3 27 Fed. Sec. L. Rep. (CCH) ¶ 23,120A, at 17,095, 17 C.F.R. § 241.8995, 1970 WL 10576 (Oct. 15, 28

CONSOLIDATED CLASS ACTION COMPLAINT 3:06-cv-04843-WHA 48

1 1970). The Company, Officer Defendants, Compensation Committee Defendants and Audit 2 Committee Defendants violated this regulation throughout the Class Period by deliberately 3 and/or recklessly misrepresenting the specific terms and the annual costs of the Company’s 4 employee and director stock plans. 5 143. In Securities Act Release No. 6349, 23 S.E.C. Docket 962 (Sept. 28, 1981), the 6 SEC stated that: 7 It is the responsibility of management to identify and address those key variables and other qualitative and quantitative factors which 8 are peculiar to and necessary for an understanding and evaluation of the individual company. 9 144. The Defendants violated this basic precept by: 1) concealing from the public a 10 complete understanding of material facts relating to Zoran’s employee compensation expenses, 11 specifically the costs the Company would have incurred had it properly accounted for stock 12 options that the Company, the Officer Defendants and the Compensation Defendants improperly 13 backdated; and 2) concealing from the public a complete understanding of material facts relating 14 to defendants’ practice of opportunistically granting options, specifically that: a) while the 15 options granted to executives and directors of the Company appeared, based on the usual 16 characteristics of such instruments, to be a form of “risk-based compensation,” they were, 17 instead, a disguised form of straight compensation, as defendants’ practices substantially 18 eliminated the risks faced by these option recipients; and b) by means of this subterfuge, 19 defendants’ compensation practices were performed in an unethical manner. 20 145. In Accounting Series Release 173 (July 2, 1975), the SEC reiterated the duty of 21 management to present a true representation of a company’s operations: 22 [I]t is important that the overall impression created by the financial 23 statements be consistent with the business realities of the company’s financial position and operations. 24 146. For the reasons stated above, the Defendants failed throughout the Class Period to 25 present a correct impression of Zoran’s business realities. 26 27 28

CONSOLIDATED CLASS ACTION COMPLAINT 3:06-cv-04843-WHA 49

1 147. Item 7 of Form 10-K and Item 2 of Form 10-Q, Management’s Discussion and 2 Analysis of Financial Condition and Results of Operations, requires the issuer to furnish 3 information required by Item 303 of Regulation S-K, 17 C.F.R. § 229.303. 4 148. On May 18, 1989, the SEC issued an interpretive release (Securities Act Release 5 No. 6835, 54 Fed. Reg. 22427 (May 18, 1989)), which stated, in relevant part: 6 The MD&A requirements are intended to provide, in one section of a filing, material historical and prospective textual disclosure 7 enabling investors and other users to assess the financial condition and results of operations of the registrant, with particular emphasis 8 on the registrant’s prospects for the future. As the Concept Release states: 9 The Commission has long recognized the need for a narrative 10 explanation of the financial statements, because a numerical presentation and brief accompanying footnotes alone may be 11 insufficient for an investor to judge the quality of earnings and the likelihood that past performance is indicative of future 12 performance. MD&A is intended to give the investor an opportunity to look at the company through the eyes of 13 management by providing both a short and long term analysis of the business of the company. The Item asks management to discuss 14 the dynamics of the business and to analyze the financials. 15 149. As discussed, infra, Defendants nowhere explained in the MD&A sections of 16 their annual and quarterly SEC filings that they had caused Zoran to be out of compliance with 17 GAAP or the terms of its own option plans. 18 150. Finally, Zoran’s options accounting violated, inter alia, the following 19 fundamental principles of GAAP: 20 ● the principle that financial reporting should provide information that is useful to 21 present and potential investors and creditors and other users in making rational 22 investment, credit and similar decisions. (FASB Statement of Financial Accounting 23 Concepts (“FASCON”) No. 1); 24 ● the principle that financial reporting should provide information about the economic 25 resources of an enterprise, the claims to those resources, and the effects of 26 transactions, events, and circumstances that change resources and claims to those 27 resources. (Id.); 28

CONSOLIDATED CLASS ACTION COMPLAINT 3:06-cv-04843-WHA 50

1 ● the principle that financial reporting should provide information about how 2 management of an enterprise has discharged its stewardship responsibility to 3 owners (stockholders) for the use of enterprise resources entrusted to it. (Id.); 4 ● the principle that financial reporting should provide information about an 5 enterprise’s financial performance during a certain time period. Investors and 6 creditors often use information about the past to help in assessing the prospects of 7 an enterprise. Thus, although investment and credit decisions reflect investors’ 8 expectations about future enterprise performance, those expectations are commonly 9 based at least partly on evaluations of past enterprise performance. (Id.); 10 ● the principle that the quality of reliability and, in particular, of representational 11 faithfulness leaves no room for accounting representations that subordinate 12 substance to form. (FASCON No. 2); 13 ● the principle that information should be reliable as well as relevant is a notion that 14 is central to accounting. The reliability of a measure rests on the faithfulness with 15 which it represents what it purports to represent. (Id.); 16 ● the principle of completeness, that nothing is left out of the information that may be 17 necessary to insure that it validly represents underlying events and conditions. (Id.); 18 ● the principle that conservatism be used as a prudent reaction to uncertainty to try to 19 ensure that uncertainties and risks inherent in business situations are adequately 20 considered. The best way to avoid injury to investors is to try to ensure that what is 21 reported represents what it purports to represent. (Id.); and 22 ● the principle that recognition of revenues, expenses, gains and losses and the related 23 increments or decrements in assets and liabilities… is the essence of using accrual 24 accounting to measure performance of entities. (FASCON No. 6).

25 MATERIALLY FALSE AND MISLEADING STATEMENTS 26 151. Throughout the Class Period, as demonstrated above, Defendants materially 27 misrepresented the dates and terms of stock option grants made to Zoran executives and 28

CONSOLIDATED CLASS ACTION COMPLAINT 3:06-cv-04843-WHA 51

1 directors. Then, by recording the impact of these grants made improperly in Zoran’s financial 2 statements, the Defendants materially misstated numerous crucial and often relied upon measures 3 of profitability and financial strength. 4 152. On April 30, 1998, the Company filed with the SEC and disseminated to Zoran’s 5 shareholders the Company’s annual proxy statement (the “1998 Proxy Statement”), which 6 provided, among other things, notice of and information for Zoran’s annual shareholders’ 7 meeting to be held June 10, 1998. The proxy was solicited by the Board of Directors. 8 153. In the 1998 Proxy Statement, the Directors recommended that Zoran’s 9 stockholders “approve an amendment to the Company’s 1993 Stock Option Plan to increase the 10 number of shares of Common Stock reserved for issuance thereunder by 450,000 shares.”

11 154. However, the 1998 Proxy Statement falsely reported the value of the stock option 12 grants to the Officer Defendants stating, inter alia, that “[s]tock options are granted at market 13 price of the Company’s Common Stock on the date of grant and will provide value to the 14 executive officers only when the price of the Common Stock increases over the exercise price” 15 and that “[a]ll options were granted at an exercise price equal to the fair market value of the 16 Common Stock on the date of grant.” The 1998 Proxy Statement failed to report the true value 17 of the compensation paid to the Officer Defendants or that the options were backdated as alleged 18 herein, rather than issued on the date at which the stock traded at the market value identified in 19 the proxy statement. Thus, the backdated stock options provided undisclosed compensation to 20 the executive officers on the date of their grant and rendered Zoran’s 1997 - 2001 financial 21 statements false and misleading. These options have not expired. 22 155. Similarly on April 30, 1999, the Company filed with the SEC and disseminated to 23 Zoran’s shareholders the Company’s annual proxy statement (the “1999 Proxy Statement”), 24 which provided, among other things, notice of and information for Zoran’s annual shareholders’ 25 meeting to be held June 18, 1999. The proxy was solicited by the Board of Directors. 26 156. In the 1999 Proxy Statement, the Board also recommended that Zoran’s 27 stockholders “approve an amendment to the Company’s 1993 Stock Option Plan to increase the 28

CONSOLIDATED CLASS ACTION COMPLAINT 3:06-cv-04843-WHA 52

1 number of shares of Common Stock reserved for issuance thereunder by 350,000 shares.” The 2 Compensation Committee, in its report included in the 1999 Proxy Statement, touted the benefits 3 of the Plan, stating in part that “[l]onger term incentives are provided through the 1993 Stock 4 Option Plan, which rewards executives and other employees through the growth in value of the 5 Company’s stock.” 6 157. However, the 1999 Proxy Statement, just like the 1998 Proxy Statement, falsely 7 reported the value of the stock option grants to the Officer Defendants stating, inter alia, that 8 “[s]tock options are granted at market price of the Company’s common stock on the date of grant 9 and will provide value to the executive officers only when the price of Common Stock increases 10 over the exercise price” and that “[a]ll options were granted at an exercise price equal to the fair 11 market value of the Common Stock” on the grant date. The 1999 Proxy Statement also failed to 12 report the true value of the compensation paid to the Officer Defendants or that the options were 13 backdated as alleged herein, rather than issued on the date at which the stock traded at the market 14 value identified in the proxy statement. Thus, the backdated stock options provided undisclosed 15 compensation to the executive officers on the date of the grant and rendered Zoran’s 1997 - 2001 16 financial statements false and misleading. These options have not expired. 17 158. Again, on June 26, 2000, the Company filed with the SEC and disseminated to 18 Zoran’s shareholders the Company’s annual proxy statement (the “2000 Proxy Statement”), 19 which provided, among other things, notice of and information for Zoran’s annual shareholders’ 20 meeting to be held July 18, 2000. The proxy was solicited by the Board of Directors. 21 159. As was the case with the 1998 and 1999 Proxy Statements, the 2000 Proxy 22 Statement falsely reported the value of the stock option grants to the Officer Defendants and 23 falsely stated that they were “granted at an exercise price equal to the fair market value of the 24 Common Stock on the date of the grant” and that they would only provide value to the 25 executives when the price of Zoran’s stock increased. This undisclosed compensation rendered 26 Zoran’s 1999 - 2003 financial statements false and misleading. These options have not expired. 27 28

CONSOLIDATED CLASS ACTION COMPLAINT 3:06-cv-04843-WHA 53

1 160. In the 2000 Proxy Statement, the Directors also recommended that Zoran’s 2 stockholders approve another amendment to the Company’s 1993 Stock Option Plan to increase 3 the number of shares of Common Stock reserved for issuance thereunder by 980,000 shares. 4 161. On April 30, 2001, the Company filed with the SEC and disseminated to Zoran’s 5 shareholders the Company’s annual proxy statement (the “2001 Proxy Statement”), which 6 provided, among other things, notice of and information for Zoran’s annual shareholders’ 7 meeting to be held June 29, 2001. The proxy was solicited by the Board of Directors. 8 162. The 2001 Proxy Statement continued the established pattern of falsely reporting 9 the value of the stock option grants to the Officer Defendants and reiterated that “[a]ll options 10 were granted at an exercise price equal to the fair market value of the Common Stock on the date 11 of the grant,” which was materially false and misleading in light of the backdating alleged 12 herein. This undisclosed compensation rendered Zoran’s 2000-2004 financial statements false 13 and misleading. These options have also not expired. 14 163. The Compensation Committee, in its report included in the 2001 Proxy Statement, 15 continued to falsely tout the benefits of the Plan, stating in part that “[l]onger term incentives are 16 provided through the 1993 Stock Option Plan, which rewards executives and other employees 17 through the growth in value of the Company’s stock. . . . Stock options are granted at an exercise 18 price equal to the market price of our common stock on the date of the grant and will provide 19 value to the executive officers only when the price of our common stock increases over the 20 exercise price.”

21 A. Zoran’s False and Misleading Class Period Definitive Proxy Statements 22 164. On April 30, 2002, the Company, with the effect of concealing the improper 23 option backdating, filed with the SEC and disseminated to Zoran’s shareholders the Company’s 24 annual proxy statement (the “2002 Proxy Statement”), which provided, among other things, 25 notice of and information for 2002 annual shareholders’ meeting to be held June 21, 2002. The 26 proxy was solicited by the Board of Directors. 27 28

CONSOLIDATED CLASS ACTION COMPLAINT 3:06-cv-04843-WHA 54

1 165. The 2002 Proxy Statement falsely reported the value of stock option grants to the 2 Officer Defendants and stated, inter alia, that “[a]ll options were granted at an exercise price 3 equal to the fair market value of our common stock on the date of the grant.” 4 The proxy 4 statement also stated that the Outside Directors Plan “provides for the automatic grant of 5 nonstatutory stock options to members of the board of directors who are not employees of 6 Zoran” and that it was intended “to operate automatically without discretionary administration” 7 by the Board or its designee the Compensation Committee. Specifically, the proxy reiterated that 8 the administrator “has no discretion… to set the exercise price of the options… or the time at 9 which particular options are granted….” The options granted in 2001 have not expired. 10 166. The Compensation Committee, in its report included in the 2002 Proxy 11 Statement, continued to falsely tout the benefits of the Plan, stating in part that: 12 [l]onger term incentives are provided through the 1993 Stock Option Plan, which rewards executives and other employees 13 through the growth in value of the Company’s stock.... Stock options are granted at an exercise price equal to the market price of 14 our common stock on the date of the grant and will provide value to the executive officers only when the price of our common stock 15 increases over the exercise price. . . .” 16 167. The 2002 Proxy Statement was false and misleading, because the backdating and 17 opportunistic timing ensured that executives profited even when the stock price did not increase, 18 therefore misaligning the interests of insides and shareholders. The 2002 Proxy Statement also 19 failed to report the true value of the compensation paid to the Officer Defendants or that the 20 options were backdated as alleged herein, rather than issued on the date at which the stock traded 21 at the market value identified in the proxy statement. Thus, backdated stock options provided 22 undisclosed compensation to the executive officers on the date of the grant. 23 24 25 26 4 The 2002 Proxy Statement attached as Appendix B the 1993 Stock Option Plan, which 27 stated, “ 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 28 determination granting such Option.”

CONSOLIDATED CLASS ACTION COMPLAINT 3:06-cv-04843-WHA 55

1 168. Specifically, the 2002 Proxy Statement contained the following false and 2 misleading information:

3 OPTION GRANTS IN LAST FISCAL YEAR 4 Individual Grants in 2001 Potential Realizable Value 5 % of Total at Assumed Annual Rates Number of Options of Stock Price 6 Securities Granted to Appreciation for Underlying Employees in Option Term(1) 7 Options Fiscal Exercise or Expiration Name Granted(2) Year(3) Base Price(4) Date 5% 10% 8 Current Officers 9 Levy Gerzberg 75,000 2.6% $ 11.52 9/19/11 $ 362,243 $ 917,996 75,000 2.6% $ 10.33 2/7/11 $ 324,929 $ 823,434 10 Isaac Shenberg 55,500 1.9% $ 11.52 9/19/11 $ 268,061 $ 679,317 11 45,000 1.5% $ 10.33 2/7/11 $ 194,957 $ 494,060

12 Karl Schneider 45,000 1.5% $ 11.52 9/19/11 $ 217,346 $ 550,797 37,500 1.3% $ 10.33 2/7/11 $ 162,464 $ 411,717 13 Camillo Martino 75,000 2.6% $ 16.86 10/31/11 $ 530,158 $ 1,343,525 14 225,000 7.7% $ 21.33 8/21/11 $ 2,012,463 $ 5,099,976

15 Former Officer Aharon Aharon(5) 52,500 1.8% $ 10.33 2/7/11 $ 227,450 $ 576,404 16 (1) Potential gains are net of exercise price, but before taxes associated with the exercise. These amounts represent 17 certain hypothetical gains based on assumed rates of appreciation, based on the Securities and Exchange Commission's rules, and do not represent our estimate or projection of future prices of our common stock. Actual 18 gains, if any, on stock option exercises are dependent on our future performance, overall market conditions and the optionees' continued employment through the vesting period. Accordingly, the gains reflected in this table may not 19 be achieved. (2) All options are fully exercisable from the date of grant, subject to our right to repurchase any unvested shares at 20 the original purchase price upon the optionee's termination as an employee. The options (or shares issued upon the exercise of the options) vest in 48 equal monthly installments from the date of grant, except that no options from any 21 plan may be exercised until one year of continuous employment with Zoran. (3) We granted options to purchase an aggregate of 2,914,335 shares of our common stock to employees during the 22 year. 23 (4) All options were granted at an exercise price equal to the fair market value of our common stock on the date of grant, as adjusted for the pending stock-split. 24 (5) Includes options to purchase 43,750 shares that were cancelled in connection with the termination of Mr. Aharon's employment. 25 169. In addition, in the Report of the Audit Committee included in the 2002 Proxy 26 Statement, “the audit committee recommended to the board of directors that [the Company’s] 27 audited financial statements be included in [the Company’s] annual report on Form 10-K for the 28

CONSOLIDATED CLASS ACTION COMPLAINT 3:06-cv-04843-WHA 56

1 year ended December 31, 2001.” The Audit Committee Defendants knew or reasonably should 2 have known that these financial statements were materially false and misleading for the reasons 3 set forth in paragraphs 237 to 244 herein. 4 170. As demonstrated above, Zoran’s 2002 Proxy Statement was materially false and 5 misleading because it did not accurately describe the Company’s stock option granting practices, 6 specifically that: the exercise price for options granted to the Company’s named executive 7 officers under the 1993 Plan was not equal to the fair market value of Zoran’s common stock on 8 the actual grant date; it was, instead, the lower fair market value of Zoran’s stock on the reported 9 date, which the Company Compensation Committee Defendants and Officer Defendants 10 improperly selected for the purpose of backdating these grants. 11 171. Additionally, as explained above, Zoran’s 2002 Proxy Statement was materially 12 false and misleading because the Company’s Officer Defendants and the Compensation 13 Committee Defendants improperly and opportunistically selected the exercise price of the 14 executive and director stock options granted, without adequately disclosing such practices. 15 Specifically, Zoran’s 2002 Proxy Statement created the false impression that defendants chose 16 the grant dates for the options based on arbitrary or administrative factors to motivate recipients 17 to do well by aligning their interests with those of the Company and its shareholders, rather 18 than, as was in fact the case, a calculation of what would most increase the likelihood of 19 maximum gain for the executives and directors, maximize the cost to the corporation, and 20 substantially diminish the risk associated with Zoran common stock for these option recipients 21 relative to that faced by ordinary investors in Zoran common stock. 22 172. On July 7, 2003, the Company filed with the SEC and disseminated to Zoran’s 23 shareholders the Company’s joint proxy statement/prospectus, Form DEF 14A (the “2003 Proxy 24 Statement”), which provided information concerning a merger proposal whereby Zoran would 25 acquire Oak Technology, Inc. and provided, among other things, notice of and information for 26 Zoran’s shareholders’ meeting to be held August 8, 2003. The proxy was solicited by the Board 27 of Directors. 28

CONSOLIDATED CLASS ACTION COMPLAINT 3:06-cv-04843-WHA 57

1 173. The 2003 Proxy Statement falsely reported the value of stock option grants to the 2 Officer Defendants and stated, inter alia, that “[a]ll options were granted at an exercise price 3 equal to the fair market value of Zoran common stock on the date of the grant” and that “[s]tock 4 options are granted at market price of the Company’s common stock on the date of grant and will 5 provide value to the executive officers only when the price of Common Stock increases over the 6 exercise price.” The proxy statement also stated that the Outside Directors Plan “provides for 7 formula-based grants of options to non-employee directors of Zoran. Under the Directors Plan, 8 each non-employee director is automatically granted a nonstatutory stock option….” The 9 options granted in 2002 have not expired. 10 174. The Compensation Committee, in its report included in the 2003 Proxy Statement, 11 continued to falsely tout the benefits of the Plan, stating in part that: 12 [l]onger term incentives are provided through the 1993 Stock Option Plan, which rewards executives and other employees 13 through the growth in value of the Company’s stock.... Stock options are granted at an exercise price equal to the market price of 14 Zoran common stock on the date of the grant and will provide value to the executive officers only when the price of our common 15 stock increases over the exercise price. . . .” 16 175. The 2003 Proxy Statement was false and misleading, because the backdating and 17 opportunistic timing ensured that executives profited even when the stock price did not increase, 18 therefore misaligning the interest of insiders and shareholders. The 2003 Proxy Statement also 19 failed to report the true value of the compensation paid to the Officer Defendants or that the 20 options were backdated as alleged herein, rather than issued on the date at which the stock traded 21 at the market value identified in the proxy statement. Thus, backdated stock options provided 22 undisclosed compensation to the executive officers on the date of the grant. 23 176. Specifically, the 2003 Proxy Statement contained the following false and 24 misleading information: 25 OPTION GRANTS IN LAST FISCAL YEAR 26 Individual grants in 2002 27 Potential Realizable Value at Number of % of Total Assumed Annual Rates of 28

CONSOLIDATED CLASS ACTION COMPLAINT 3:06-cv-04843-WHA 58

1 Securities Options Stock Price Appreciation for Underlying Granted to Option Term(1) 2 Options Employees in Exercise or Expiration Name Granted(2) Fiscal Year(3) Base Price(4) Date 5% 10% 3 Levy Gerzberg 427,500 16.1 %$ 12.36 8/9/12 $ 3,323,016 $ 8,421,176 4 Camillo Martino 75,000 2.8 %$ 14.93 8/21/12 $ 704,205 $ 1,784,593 5 75,000 2.8 %$ 13.60 10/17/12 $ 641,473 $ 1,625,617

6 Isaac Shenberg 82,500 3.1 %$ 12.36 8/9/12 $ 641,239 $ 1,625,139

7 Karl Schneider 75,000 2.8 %$ 12.36 8/9/12 $ 582,985 $ 1,477,399

8 (1) Potential gains are net of exercise price, but before taxes associated with the exercise. These amounts represent certain hypothetical gains based on assumed rates of appreciation, based on the Securities and Exchange 9 Commission's rules, and do not represent Zoran's estimate or projection of future prices of Zoran common stock. Actual gains, if any, on stock option exercises are dependent on Zoran's future performance, overall market 10 conditions and the optionees' continued employment through the vesting period. Accordingly, the gains reflected in this table may not be achieved. 11 (2) All options are fully exercisable from the date of grant, subject to Zoran's right to repurchase any unvested shares at the original purchase price upon the optionee's termination of service. The options (or shares issued upon 12 the exercise of the options) vest in 48 equal monthly installments from the date of grant, except that no options may be exercised until one year of continuous employment with Zoran. 13 (3) Zoran granted options to purchase an aggregate of 2,662,500 shares of its common stock to employees during the year. 14 (4) All options were granted at an exercise price equal to the fair market value of Zoran common stock on the date of grant. 15 16 177. In addition, in the Report of the Audit Committee included in the 2003 Proxy 17 Statement, “the Audit Committee recommended to the board of directors that [the Company’s] 18 audited financial statements be included in [the Company’s] annual report on Form 10-K for the 19 year ended December 31, 2002.” The Audit Committee Defendants knew or reasonably should 20 have known that these financial statements were materially false and misleading for the reasons 21 set forth in paragraphs 251 to 259 herein. 22 178. Management’s Discussion and Analysis of Financial Condition and Results of 23 Operation of Zoran, contained in the 2003 Proxy Statement, likewise misrepresented that 24 “Zoran’s consolidated financial statements. . . ha[d] been prepared in accordance with 25 accounting principles generally accepted in the United States of America.” 26 179. The 2003 Proxy statement reported the following “Selected Historical 27 Consolidated Financial Data of Zoran”: 28

CONSOLIDATED CLASS ACTION COMPLAINT 3:06-cv-04843-WHA 59

1 SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF ZORAN

2 Three Months Ended Year Ended December 31, March 31, 3 2003 2002 2002 2001 2000 1999 1998 4 (in thousands, except per share data) Consolidated 5 Statement of Operations Data: 6 Revenues Product sales $ 37,097 29,105 141,314 $ 100,012 67,782 $ 52,887 $ 33,465 7 Software, licensing and development 736 1,985 7,803 7,697 11,889 8,787 10,760 8 Total revenues 37,833 31,090 149,117 107,709 79,671 61,674 44,225 9 Costs and expenses: 10 Cost of product sales 26,710 18,832 86,904 64,740 37,993 28,523 19,036 Research and 11 development 4,479 5,5221 22,083 23,210 18,628 12,651 13,548 Selling, general and 12 administrative 6,942 5,740 24,856 21,330 19,148 14,251 11,551 Merger and related 953 2,445 8,443(1) 43,233 31,769(3) – – 13 Total costs and 14 expenses 39,084 32,538 142,286 152,513 107,538 55,425 44,135

15 Operating income (loss) (1,251) (1,448) 6,831 (44,8040) (27,867) 6,249 90 16 Interest and other income (expense), net 1,571 1,459 439(4) 10,004 9,229 1,585 1,071 17 Income (loss) before 18 income taxes 320 11 7,270 (34,800) (18,638) 7,834 1,161 Provision for income 19 taxes 127 246 1,572 1,265 1,970 1,175 232

20 Net income (loss) $ 193 $ (235) $ 5,698 (36,065) $ (20,608) $ 6,659 $ 929 Basic net income 21 (loss) per share $ 0.01 $ (0.01) $ 0.21 $ (1.38) $ (0.91) $ 0.41 $ 0.06

22 Diluted net income (loss) per share $ 0.01 $ (0.01) $ 0.20 $ (1.38) $ (0.91) $ 0.36 $ 0.06 23 Shares used to 24 compute basic net income (loss) per 25 share 27,396 26,774 27,095 26,190 22,605 16,266 15,063

26 Shares used to compute diluted net 27 income (loss) per share 28,096 26,774 28,629 26,190 22,605 18,374 16,679 28

CONSOLIDATED CLASS ACTION COMPLAINT 3:06-cv-04843-WHA 60

1

2 December 31, As of March 3 31, 2003 2002 2001 2000 1999 1998 4 (in thousands)

5 Consolidated Balance Sheet Data: Cash, cash equivalents and short-term $ 145,632(2) 6 investments $ 136,897 $ 137,075 $ 110,105 $ 175,638 $ 19,175 Working capital 165,295 159,288 130,777 197,719 157,583 30,830 7 Total assets 344,594 342,616 331,344 359,466 182,468 49,170 Accumulated deficit (88,299) (88,492) (94,190) (58,125) (37,517) (44,176) 8 Total stockholders' equity 311,448 311,012 297,838 331,454 163,445 36,186

9 180. The financial information contained in this Selected Historical Consolidated 10 Financial Data was prepared and presented in violation of GAAP. Due to the improper 11 backdating alleged herein, these financial results overstated Zoran’s net income and earnings and 12 understated Zoran’s compensation expense. 13 181. The 2003 Proxy Statement also incorporated by reference the Zoran’s Annual 14 Report, Form 10-K for fiscal year 2002, filed March 31, 2003 (as amended by the Form 10-K/A 15 filed April 30, 2003) (the “2002 Form 10-K”), signed by Defendants Gerzberg, Schneider, Galil, 16 Meindl, Stabenow and Young, among others. The 2002 Form 10-K contained the following 17 report of Zoran’s operations for fiscal years 1998 through 2002:

18 Year Ended December 31,

2002 2001 2000 1999 1998

19 (in thousands, except per share data) Consolidated Statement of Operations

20 Data:

21 Revenues:

Product sales $ 141,314 $ 100,012 $ 67,782 $ 52,887 $ 33,465

22 Software, licensing and development 7,803 7,697 11,889 8,787 10,760

Total revenues 149,117 107,709 79,671 61,674 44,225 23

Costs and expenses:

24 Cost of product sales 86,904 64,740 37,993 28,523 19,036

Research and development 22,083 23,210 18,628 12,651 13,548

25 Selling, general and administrative 24,856 21,330 19,148 14,251 11,551

Amortization of intangible assets 8,443 9,697 1,982 — — 26 Amortization of goodwill and write-off of acquired in-process research &

27 development — 33,536 29,787 — —

Total costs and expenses 142,286 152,513 107,538 55,425 44,135 28

CONSOLIDATED CLASS ACTION COMPLAINT 3:06-cv-04843-WHA 61

1 Operating income (loss) 6,831 (44,804) (27,867) 6,249 90

Interest income 7,053 9,853 9,280 1,467 1,194

2 Other income (loss)(1) (6,614) 151 (51) 118 (123)

Income (loss) before income taxes 7,270 (34,800) (18,638) 7,834 1,161

3 Provision for income taxes 1,572 1,265 1,970 1,175 232

Net income (loss) $ 5,698 $ (36,065) $ (20,608) $ 6,659 $ 929

4 Basic net income (loss) per share(2) $ 0.21 $ (1.38) $ (0.91) $ 0.41 $ 0.06

Diluted net income (loss) per share(2) $ 0.20 $ (1.38) $ (0.91) $ 0.36 $ 0.06 5 Shares used to compute basic net income (loss)

per share(2) 27,095 26,190 22,605 16,266 15,063 6 Shares used to compute diluted net income

7 (loss) per share(2) 28,629 26,190 22,605 18,374 16,679

8 182. Due to the improper backdating of the stock options alleged herein, these 9 financial statements and reports overstated Zoran’s net income and earnings and understated 10 Zoran’s compensation expense for fiscal years 1998 through 2002. 11 183. In addition, the 2003 Proxy Statement incorporated by reference Zoran’s 12 Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2003, filed May 5, 2003 13 (the “Q1 “2003 10-Q”), signed by Defendant Schneider and certified by both Gerzberg and 14 Schneider, which reported first quarter 2002 and 2003 net income (loss) of $(235) and $193, 15 respectively, and first quarter 2002 and 2003 earnings (loss) per share of $(0.0 1) and $0.01, 16 respectively. Due to the improper backdating of the stock options alleged herein, these financial 17 statements and reports overstated Zoran’s net income and earnings and understated Zoran’s 18 compensation expense for these periods. 19 184. As demonstrated above, Zoran’s 2003 Proxy Statement was materially false and 20 misleading because it did not accurately describe the Company’s stock option grating practices, 21 specifically that the exercise price for options granted to the Company’s named executive 22 officers under the 1993 Plan was not equal to the fair market value of Zoran’s common stock on 23 the actual grant date; it was, instead, the lower fair market value of Zoran’s stock on the reported 24 date, which the Company, Compensation Committee Defendants and Officer Defendants 25 improperly selected for the purpose of backdating these grants. 26 185. Additionally, as explained above, Zoran’s 2003 Proxy Statement was materially 27 false and misleading because the Company, Compensation Committee Defendants and Officer 28

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1 Defendants improperly and opportunistically selected the exercise price of the executive and 2 director stock options granted, without adequately disclosing such practices. Specifically, 3 Zoran’s 2003 Proxy Statement created the false impression that defendants chose the grant dates 4 for the options based on arbitrary or administrative factors to motivate recipients to do well by 5 aligning their interests with those of the Company and its shareholders rather than, as was in fact 6 the case, a calculation of what would most increase the likelihood of maximum gain for the 7 executives and directors, maximize the cost to the corporation, and substantially diminish the 8 risk associated with Zoran common stock for these option recipients relative to that faced by 9 ordinary investors in Zoran common stock. 10 186. On April 29, 2004, the Company filed with the SEC and disseminated to Zoran’s 11 shareholders the Company’s annual proxy statement (the “2004 Proxy Statement”), on Form 12 DEF-14A, which provided, among other things, notice of and information for Zoran’s annual 13 shareholders’ meeting to be held June 18, 2004. The proxy was solicited by the Board of 14 Directors. 15 187. For instance, the 2004 Proxy Statement proposed, and recommended that 16 shareholders approve, the re-election of seven directors (Shareholder Proposal No. 1), including 17 Defendants Gerzberg, Galil, Meindl, Owens, Rynne, Young and Stabenow. It also proposed and 18 recommended that shareholders amend Zoran’s 1995 Outside Directors Stock Option Plan to 19 increase the number of shares that could be issued to outside directors by 100,000 shares 20 (Shareholder Proposal No. 3). At the June 18, 2004 meeting, the seven directors were elected. 21 The amendment to the 1995 Outside Directors Stock Option Plan was not approved. 22 188. In addition, as of the date of the 2004 Proxy Statement, the 1993 Plan had 23 expired. Shareholder Proposal No. 2 in the 2004 Proxy Statement was consideration of the 24 adoption of the 2004 Equity Incentive Plan (the “2004 Plan”), which was subsequently not 25 approved, but was virtually identical to the 2005 Plan that was adopted the following year. 26 189. With respect to the re-election proposal, the 2004 Proxy Statement explained that 27 nominations were based on the consideration of a variety of factors, including: “various skills, 28

CONSOLIDATED CLASS ACTION COMPLAINT 3:06-cv-04843-WHA 63

1 background, experience and expected contributions;” reputation; and “independence from 2 management.” The proxy also stated, “Directors should possess the highest personal and 3 professional ethics, integrity and values and be committed to representing the long-term interests 4 of our stockholders.” The 2004 Proxy Statement did not disclose the options manipulation 5 discussed above, which involved four of the seven proposed directors (including the Chairman) 6 and was material to the shareholders’ consideration of the re-election proposal. 7 190. Shareholder Proposal No. 3, which increased the number of shares available 8 under the Outside Directors Plan, misleadingly stated that the plan “provides for the automatic 9 grant of nonstatutory stock options to members of the Board of Directors who are not employees 10 of Zoran” and that it was intended “to operate automatically without discretionary 11 administration” by the Board or its designee the Compensation Committee. Specifically, the 12 proposal reiterated that the administrator “has no discretion . . . to set the exercise price of the 13 options . . .or the time at which particular options are granted. . . .” The 2004 Proxy Statement 14 did not disclose the options manipulation discussed above, which was material to the 15 shareholders’ consideration of whether more shares should be available to the Board, or its 16 designee the Compensation Committee, under the Outside Directors Plan. 17 191. The 2004 Proxy Statement identified compensation, including options grants, paid 18 to Defendants Gerzberg, Martino, and Schneider from 2001 to 2003 and stated that in 2003 “[a]ll 19 options were granted at market value on the date of grant.” The options granted in 2003 have not 20 expired. 21 192. The Compensation Committee, in its report included in the 2004 Proxy Statement 22 attributed to Defendants Galil, Owens and Stabenow, continued to falsely tout the benefits of the 23 Plan, stating, inter alia, that: 24 [l]onger term incentives are provided through stock options, which reward executives and other employees through the growth in 25 value of Zoran’s stock. . . . Stock options are granted at an exercise price equal to the market price of Zoran common stock on the date 26 of the grant and will provide value to the executive officers only when the price of our common stock increases over the exercise 27 price.” 28

CONSOLIDATED CLASS ACTION COMPLAINT 3:06-cv-04843-WHA 64

1 193. The 2004 Proxy Statement was false and misleading, because the backdating and 2 opportunistic timing ensured that executives profited even when the stock price did not increase, 3 therefore misaligning the interest of insides and shareholders. The 2004 Proxy Statement also 4 failed to report the true value of the compensation paid to the Officer Defendants or that the 5 options were backdated as alleged herein, rather than issued on the date at which the stock traded 6 at the market value identified in the proxy statement. Thus, backdated stock options provided 7 undisclosed compensation to the executive officers on the date of the grant. 8 194. Specifically, the 2004 Proxy Statement contained the following false and 9 misleading information: 10 OPTION GRANTS IN LAST FISCAL YEAR 11 Individual Grants Potential Realized Value 12 at Assumed Annual Rates Number of % of Total of Stock Price 13 Shares Options Appreciation for Underlying Granted to Exercise Option Term(1) 14 Options Employees in Price Expiration Name Granted(2) Fiscal Year Per Share(3) Date 5% 10% 15 Levy Gerzberg, Ph.D. 304,679(4) 5.63%$ 24.78 7/15/13 $ 4,748,120 $ 12,032,669 16 304,679(5) 5.63%$ 24.78 7/15/13 $ 4,748,120 $ 12,032,669

17 Camillo Martino 130,000(4) 2.40%$ 24.78 7/15/13 $ 2,025,921 $ 5,134,082 130,000(5) 2.40%$ 24.78 7/15/13 $ 2,025,921 $ 5,134,082 18 Isaac Shenberg, Ph.D. 100,000(4) 1.85%$ 24.78 7/15/13 $ 1,558,401 $ 3,949,294 19 100,000(5) 1.85%$ 24.78 7/15/13 $ 1,558,401 $ 3,949,294

20 Karl Schneider 100,000(4) 1.85%$ 24.78 7/15/13 $ 1,558,401 $ 3,949,294 100,000(5) 1.85%$ 24.78 7/15/13 $ 1,558,401 $ 3,949,294 21 (1) Potential gains are net of exercise price, but before taxes associated with the exercise. These amounts represent 22 certain hypothetical gains based on assumed rates of appreciation, based on SEC rules, and do not represent Zoran's estimate or projection of future prices of Zoran common stock. Actual gains, if any, on stock option exercises are 23 dependent on Zoran's future performance, overall market conditions and the optionees' continued employment through the vesting period. Accordingly, the gains reflected in this table may not be achieved. 24 (2) All options are fully exercisable from the date of grant, subject to Zoran's right to repurchase any unvested shares at the original purchase price upon the optionee's termination of service, except that no options may be 25 exercised until one year of continuous employment with Zoran. Under Zoran's Executive Retention and Severance Plan covering each of its executive officers, if, in the event of a change in control of Zoran, the acquiring company 26 does not assume or substitute a participant's options, then the vesting and exercisability of those options shall be accelerated in full immediately prior to, but conditioned upon, the consummation of the change in control 27 transaction. 28 (3) All options were granted at market value on the date of grant.

CONSOLIDATED CLASS ACTION COMPLAINT 3:06-cv-04843-WHA 65

1 (4) The options (or shares issued upon the exercise of the options) vest in 48 equal monthly installments from the date of grant. 2 (5) The options (or shares issued upon the exercise of the options) vest in 48 equal monthly installments during a period beginning one year after the date of grant. 3 195. The 2004 Proxy Statement also disclosed that a number of Zoran’s officers and 4 directors, including Defendants Gerzberg, Martino and Schneider, Stabenow, Meindl, Galil, and 5 Owens had been delinquent in filing stock ownership reports during the year with the SEC. 6 196. As demonstrated above, Zoran’s 2004 Proxy Statement was materially false and 7 misleading because it did not accurately describe the Company’s stock option granting practices, 8 specifically that the exercise price for options granted to the Company’s named executive 9 officers under the 1993 Plan was not equal to the fair market value of Zoran’s common stock on 10 the actual grant date; it was, instead, the lower fair market value of Zoran’s stock on the reported 11 date, which the Company, the Compensation Committee Defendants and the Officer Defendants 12 improperly selected for the purpose of backdating these grants. 13 197. Additionally, as explained above, Zoran’s 2004 Proxy Statement was materially 14 false and misleading because the Company, the Compensation Committee Defendants and the 15 Officer Defendants improperly and opportunistically selected the exercise price of the executive 16 and director stock options granted, without adequately disclosing such practices. Specifically, 17 Zoran’s 2004 Proxy Statement created the false impression that defendants chose the grant dates 18 for the options based on arbitrary or administrative factors to motivate recipients to do well by 19 aligning their interests with those of the Company and its shareholders, rather than, as was in fact 20 the case, a calculation of what would most increase the likelihood of maximum gain for the 21 executives and directors, maximize the cost to the corporation, and substantially diminish the 22 risk associated with Zoran common stock for these option recipients relative to that faced by 23 ordinary investors in Zoran common stock. 24 198. In addition, in the Report of the Audit Committee, attributed to Defendants 25 Stabenow, Meindl and Galil, included in the 2004 Proxy Statement “the Audit Committee 26 recommended to the Board of Directors that [the Company’s] audited financial statements be 27 included in [the Company’s] annual report on Form 10-K for the year ended December 31, 28

CONSOLIDATED CLASS ACTION COMPLAINT 3:06-cv-04843-WHA 66

1 2003.” The Audit Committee Defendants knew or reasonably should have known that these 2 financial statements were materially false and misleading for the reasons set forth in paragraphs 3 266 to 273 herein. 4 199. On June 1, 2005, the Company filed with the SEC and disseminated to Zoran’s 5 shareholders the Company’s annual proxy statement (the “2005 Proxy Statement”), on Form 6 DEF-14A, which provided, among other things, notice of and information for Zoran’s annual 7 shareholders’ meeting to be held on July 13, 2005. The proxy was solicited by the Board of 8 Directors. The meeting was subsequently held on July 29, 2005. 9 200. For instance, the 2005 Proxy Statement proposed, and recommended that 10 shareholders approve, the election of eight directors (Shareholder Proposal No. 1), including 11 Defendants Gerzberg, Galil, Burgess, Owens, Rynne, Young, Meindl and Stabenow. It also 12 proposed and recommended that: shareholders adopt the new 2005 Equity Incentive Plan (“2005 13 Plan”) to replace the 1993 Plan (Shareholder Proposal No. 2); that shareholders approve the 14 exchange of outstanding stock options with exercise prices greater than $17.00 for a smaller 15 number of options with a lower exercise price (Shareholder Proposal No. 3); and that 16 shareholders adopt a new 2005 Outside Directors Equity Plan (“2005 Outside Directors Plan”) to 17 replace the expiring Outside Directors Plan (Shareholder Proposal No. 4). 18 201. The shareholders subsequently voted to elect the directors, approve the 2005 Plan, 19 approve the exchange of the outstanding stock options and approve the new 2005 Outside 20 Directors Plan. 21 202. With respect to the re-election proposal, the 2005 Proxy Statement explained that 22 nominations were based on the consideration of a variety of factors, including: “various skills, 23 background, experience and expected contributions;” reputation; and “independence from 24 management.” The proxy also stated, “Directors should possess the highest personal and 25 professional ethics, integrity and values and be committed to representing the long-term interests 26 of our stockholders.” The 2005 Proxy Statement did not disclose the self-dealing and options 27 28

CONSOLIDATED CLASS ACTION COMPLAINT 3:06-cv-04843-WHA 67

1 manipulation discussed above, which involved four of the eight proposed directors (including the 2 Chairman) and was material to the shareholders’ consideration of the re-election proposal. 3 203. With respect to shareholder Proposal No. 2, the proxy stated that the new 2005 4 Plan would increase the equity incentive options available to the plan’s administrator, the Board 5 through its designee the Compensation Committee, to include stock appreciation rights, 6 restricted stock, restricted stock unit awards, performance awards, deferred compensation awards 7 and other stock-based or cash-based awards. 8 204. The proxy also misleadingly noted the then recent FASB changes governing the 9 accounting treatment of share-based payments, explaining that “[o]nce they are effective, 10 companies must record compensation expense in their financial statements for stock options 11 granted to employees. . . .” In this regard, the proxy further stated that the Board believed that 12 “Zoran should have compensation alternatives that minimize the expense of those equity-based 13 incentives, minimize the dilution of stockholders’ ownership and voting power in the Company, 14 or that provide a form of incentive that may previously have been desirable but would have 15 resulted in disadvantageous accounting treatment compared to traditional stock options.” “We 16 believe that the ability to grant incentive awards other than stock options will be an important 17 component of compensation for our company in the future.” These statements misleadingly 18 implied that the Company’s grants prior to this change did not result in any compensation 19 expenses that were required to have been accounted for and that Zoran was able to legitimately 20 avoid such costs in the past. 21 205. It also stated that the Board was “well aware of the criticism that has been leveled 22 generally against the misuse of stock-based compensation by some companies. The Board 23 believes that the 2005 Plan takes steps to address possible concerns of our stockholders.” Under 24 the 2005 Plan, stock options and stock appreciation rights could not be canceled in exchange for 25 options or appreciation rights at a lower exercise price or amended to reduce the exercise price. 26 “The exercise price of each option may not be less than the fair market value of a share of our 27 common stock on the date of grant.” 28

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1 206. As was the case with the 1993 Plan, the 2005 Plan was to be administered by the 2 Compensation Committee, as designated by the Board. It also provided for the indemnification 3 by Zoran of any director, officer or employee against expenses incurred in connection with legal 4 action arising from their administration of the 2005 Plan. 5 207. The 2005 Proxy Statement did not disclose the self-dealing and options 6 manipulation discussed above, which was material to the shareholders’ consideration of whether 7 the 2005 Plan should be approved—including, for instance, consideration of the further 8 empowerment of the Compensation Committee and Board. 9 208. Shareholder Proposal No. 3 proposed the exchange of “out-of-the-money” 10 outstanding shares with fewer shares having a lower exercise price of $17.00 purportedly in 11 order to restore the options’ effectiveness as a performance and retention incentive and to reduce 12 the “overhang” caused by the large number of outstanding shares. The 2005 Proxy Statement 13 did not disclose the options manipulation discussed above, which was material to the 14 shareholders’ consideration of whether outstanding shares should be exchanged for “in-the- 15 money” grants. 16 209. Shareholder Proposal No. 4 proposed the replacement of the expiring Outside 17 Directors Plan with the new 2005 Outside Directors Plan, which also expanded the types of 18 incentive compensation available to outside directors in light of the then recent FASB accounting 19 changes which made stock options less desirable. 20 210. The proxy misleadingly reiterated that the Board “believes that equity ownership 21 by directors is important in aligning the interests of management and our stockholders” and that 22 under the new plan “[a]wards are granted automatically on a periodic, nondiscriminatory basis,” 23 “stock options and stock appreciation rights may not be repriced without approval of our 24 stockholders,” and “no discount from fair market value is permitted in setting the exercise price 25 of stock options and stock appreciation rights.” In fact, these were hallow assurances given that 26 the options backdating and opportunistic timing of grants alleged herein misaligned the interests 27 28

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1 of management and shareholders and allowed Zoran executives to profit at shareholders’ 2 expense. 3 211. The 2005 Proxy Statement also misleadingly reiterated the purported fact that the 4 1995 Outside Directors Plan was “formula-based” with “automatic grants” beyond the discretion 5 of the Compensation Committee or Board. It also provided a table showing the 2004 6 compensation to outside directors Defendants Galil, Meindl, Owens, Rynne, Young, Burgess and 7 Stabenow. 8 212. However, the 2005 Proxy Statement did not disclose the self-dealing and options 9 manipulation discussed above, which was material to the shareholders’ consideration of whether 10 the new Outside Directors Plan should be approved—including, for instance, consideration of the 11 further empowerment of the Compensation Committee and Board. 12 213. The 2005 Proxy Statement identified compensation, including options grants, paid 13 to Defendants Gerzberg, Martino and Schneider from 2002 to 2004. No option grants were 14 made in 2004 due to the expiration of the 1995 Plan, although grants in 2003 made up for this 15 shortfall. 16 214. The Compensation Committee, in its report included in the 2005 Proxy Statement 17 attributed to Defendants Galil, Owens and Stabenow, continued to falsely tout the benefits of the 18 Zoran’s compensation policy, stating, inter alia, that: 19 [l]onger term incentives are provided through stock options, which reward executives and other employees through the growth in 20 value of Zoran’s stock. The Compensation Committee believes that employee equity ownership s highly motivating provides a 21 major incentive for employees to build stockholder value and serves to align the interests of employees with those of 22 stockholders . . . Stock options are granted at an exercise price equal to the market price of Zoran common stock on the date of the 23 grant and will provide value to the executive officers only when the market price of the common stock increases over the exercise 24 price. 25 215. The 2005 Proxy Statement was false and misleading, because the backdating and 26 opportunistic timing ensured that executives profited even when the stock price did not increase,

27 therefore misaligning the interests of insides and shareholders. The 2005 Proxy Statement also 28

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1 failed to report the true value of the compensation paid to the Officer Defendants or that the 2 options were backdated as alleged herein, rather than issued on the date at which the stock traded 3 at the market value identified in the proxy statement. Thus, backdated stock options provided 4 undisclosed compensation to the executive officers on the date of the grant. 5 216. As demonstrated above, Zoran’s 2005 Proxy Statement was materially false and 6 misleading because it did not accurately describe the Company’s stock option granting practices 7 and defendants’ self-dealing, specifically that the exercise price for options granted to the 8 Company’s named executive officers under the 1993 Plan was not equal to the fair market value 9 of Zoran’s common stock on the actual grant date; it was, instead, the lower fair market value of 10 Zoran’s stock on the reported date, which the Company, Compensation Committee Defendants 11 and Officer Defendants improperly selected for the purpose of backdating these grants. 12 217. Additionally, as explained above, Zoran’s 2005 Proxy Statement was materially 13 false and misleading because Company, Compensation Committee Defendants and Officer 14 Defendants improperly and opportunistically selected the exercise price of the executive and 15 director stock options granted, without adequately disclosing such practices. Specifically, 16 Zoran’s 2005 Proxy Statement created the false impression that defendants chose the grant dates 17 for the options based on arbitrary or administrative factors to motivate recipients to do well by 18 aligning their interest with those of the Company and its shareholders, rather than, as was in fact 19 the case, a calculation of what would most increase the likelihood of maximum gain for the 20 executives and directors, maximize the cost to the corporation, and substantially diminish the 21 risk associated with Zoran common stock for these option recipients relative to that faced by 22 ordinary investors in Zoran common stock. 23 218. In addition, the Report of the Audit Committee, attributed to Defendants 24 Stabenow, Meindl and Galil and included in the 2005 Proxy Statement, recommended to the 25 Board of Directors that “[the Company’s] audited financial statements be included in [the 26 Company’s] annual report on Form 10-K for the year ended December 31, 2004.” The Audit 27 28

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1 Committee Defendants knew or reasonably should have known that these financial statements 2 were materially false and misleading for the reasons set forth in paragraphs 283 to 290 herein. 3 219. On May 1, 2006, the Company filed with the SEC and disseminated to Zoran’s 4 shareholders the Company’s annual proxy statement (the “2006 Proxy Statement”), on Form 5 DEF-14A, which provided, among other things, notice of and information for Zoran’s annual 6 shareholders’ meeting to be held June 22, 2006. The proxy was solicited by the Board of 7 Directors. 8 220. For instance, the 2006 Proxy Statement proposed, and recommended that 9 shareholders approve, the re-election of eight directors (Shareholder Proposal No. 1), including 10 Defendants Gerzberg, Galil, Burgess, Owens, Young, Meindl and Stabenow. It also proposed 11 and recommended that shareholders amend Zoran’s new 2005 Plan to increase the number of 12 shares that could be issued 2,500,000 shares (Shareholder Proposal No. 2). 13 221. With respect to the re-election proposal, the 2006 Proxy Statement explained that 14 nominations were based on the consideration of a variety of factors, including: “various skills, 15 background, experience and expected contributions;” reputation; and “independence from 16 management.” The proxy also stated, “Directors should possess the highest personal and 17 professional ethics, integrity and values and be committed to representing the long-term interests 18 of our stockholders.” The 2006 Proxy Statement did not disclose the options manipulation 19 discussed above, which involved five of the eight proposed directors (including the Chairman) 20 and was material to the shareholders’ consideration of the re-election proposal. 21 222. Shareholder Proposal No. 2, which increased the number of shares available 22 under the recently approved 2005 Plan, essentially undid whatever was achieved by the 2005 23 exchange of “under-water” options proposed to reduce the then “overhang” of outstanding shares 24 that was seen as dilutive. Although the 2005 Shareholder Proposal No. 3 received approval for a 25 subsequent increase of 1,250,000 shares, the 2006 Shareholder Proposal No. 2 went substantially 26 above that to ask shareholders for twice that amount. In seeking this authorization, the 2006 27 Proxy misleadingly reiterated that the purpose of Zoran’s incentive program was to provide 28

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1 employees with an “equity stake in our success,” that the Compensation Committee could not 2 reprice options or incentive awards without shareholder approval and that options were only 3 granted at fair market value. 4 223. The 2006 Proxy Statement did not disclose the options manipulation and self- 5 dealing discussed above, which was material to the shareholders’ consideration of whether more 6 shares should be available to the Board, or its designee the Compensation Committee, under the 7 2005 Plan. 8 224. The 2006 Proxy Statement identified compensation, including options grants, paid 9 to Defendants Gerzberg, Martino and Schneider from 2003 to 2005 and stated that in 2005 “[a]ll 10 options were granted at market value on the date of grant.” 11 225. The Compensation Committee, in its report included in the 2006 Proxy Statement 12 attributed to Defendants Galil, Owens and Stabenow, continued to falsely tout that “Zoran has 13 designed its equity compensation program to align the interests of officers with the long-term 14 interests of stockholders” and stated, inter alia, that: 15 [l]onger term incentives are provided through stock options. . . which reward executives and other employees through the growth 16 in value of Zoran’s stock. The Compensation Committee believes that employee equity ownership is highly motivating, provides a 17 major incentive for employees to build stockholder value and serves to align the interests of employees with those of 18 stockholders. . . .Stock options are granted at an exercise price equal to the market price of Zoran common stock on the date of the 19 grant and will provide value to the executive officers only when the price of our common stock increases over the exercise price.” 20 226. The 2006 Proxy Statement was false and misleading because the backdating and 21 opportunistic timing ensured that executives profited even when the stock price did not increase, 22 therefore misaligning the interests of insides and shareholders. The 2006 Proxy Statement also 23 failed to report the true value of the compensation paid to the Officer Defendants or that the 24 options were backdated as alleged herein, rather than issued on the date at which the stock traded 25 at the market value identified in the proxy statement. Thus, backdated stock options provided 26 undisclosed compensation to the executive officers on the date of the grant. 27 28

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1 227. Specifically, the 2006 Proxy Statement contained the following false and 2 misleading information: 3 OPTION GRANTS IN LAST FISCAL YEAR

4 Individual Grants 5 Potential Realized Value 6 Number of % of Total at Assumed Annual Rates Shares Options Exercise of Stock Price 7 Underlying Granted to Price Appreciation for Option Options Employees Per Term(1) 8 Granted in Share Expiration Name (2) Fiscal Year (3) Date 5% 10% 9 Levy Gerzberg, Ph.D. 180,000(4) 8.3177% $ 13.59 8/19/15 $ 1,538,402 $3,898,612 10 Camillo Martino — — — — — — Isaac Shenberg, Ph.D. 54,000(4) 2.4953% $ 13.59 8/19/15 $ 461,520 $1,169,583 11 Karl Schneider 60,000(4) 2.7726% $ 13.59 8/19/15 $ 512,800 $1,299,537

12 (1) Potential gains are net of exercise price, but before taxes associated with the exercise. These amounts represent certain hypothetical gains based on assumed rates of appreciation, based on SEC rules, and do not represent 13 Zoran’s estimate or projection of future prices of Zoran common stock. Actual gains, if any, on stock option exercises are dependent on Zoran’s future performance, overall market conditions and the optionees’ continued 14 employment through the vesting period. Accordingly, the gains reflected in this table may not be achieved.

15 (2) Excluding options granted under the 2005 Equity Incentive Plan, all options are fully exercisable from the date of grant, subject to Zoran’s right to repurchase any unvested shares at the original purchase price upon the 16 optionee’s termination of service. Upon termination of an executive officer within 18 months following a change in control, the outstanding options of such executive officer shall be immediately exercisable and fully 17 vested and shall generally remain exercisable for a period of one year after such termination. Under Zoran’s Executive Retention and Severance Plan covering each of its executive officers, if, in the event of a change in 18 control of Zoran, the acquiring company does not assume or substitute a participant’s options, then the vesting and exercisability of those options shall be accelerated in full immediately prior to, but conditioned upon, the 19 consummation of the change in control transaction.

20 (3) All options were granted at market value of Zoran common stock on the date of grant.

21 (4) The options (or shares issued upon the exercise of the options) vest in 48 equal monthly installments from the date of grant, or in one installment equal to 1/4 of the shares and 36 equal monthly installments of 1/48 22 of the shares thereafter, in the case of options granted upon commencement of employment.

23 228. As demonstrated above, Zoran’s 2006 Proxy Statement was materially false and 24 misleading because it did not accurately describe the Company’s stock option granting practices 25 and defendants’ self-dealing, specifically that the exercise price for options granted to the 26 Company’s named executive officers under the 2005 Plan was not equal to the fair market value 27 of Zoran’s common stock on the actual grant date. It was, instead, the lower fair market value of 28

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1 Zoran’s stock on the reported date, which the Company, Compensation Committee Defendants 2 and Officer Defendants improperly selected for the purpose of backdating these grants. 3 229. Additionally, as explained above, Zoran’s 2006 Proxy Statement was materially 4 false and misleading because the Company, Compensation Committee Defendants and Officer 5 Defendants improperly and opportunistically selected the exercise price of the executive and 6 director stock options granted, without adequately disclosing such practices. Specifically, 7 Zoran’s 2006 Proxy Statement created the false impression that defendants chose the grant dates 8 for the options based on arbitrary or administrative factors to motivate recipients to do well by 9 aligning their interests with those of the Company and its shareholders, rather than, as was in fact 10 the case, a calculation of what would most increase the likelihood of maximum gain for the 11 executives and directors, maximize the cost to the corporation, and substantially diminish the 12 risk associated with Zoran common stock for these option recipients relative to that faced by 13 ordinary investors in Zoran common stock. 14 230. In addition, the Report of the Audit Committee, included in the 2006 Proxy 15 Statement and attributed to Defendants Stabenow, Owens, Burgess and Galil, “recommended to 16 the Board of Directors that [the Company’s] audited financial statements be included in [the 17 Company’s] annual report on Form 10-K for the year ended December 31, 2005.” The Audit 18 Committee Defendants knew or reasonably should have known that these financial statements 19 were materially false and misleading for the reasons set forth in paragraphs 297 to 304 herein.

20 B. Zoran’s False and Misleading Periodic Financial Statements 21 231. Throughout the Class Period, Defendants filed, or caused to be filed, Annual 22 Reports on Form 10-K, Quarterly Reports on Form 10-Q, and numerous earnings releases with 23 the SEC that contained materially false and misleading statements. As explained more fully 24 above, these statements were materially false and misleading because, in violation of GAAP and 25 Zoran’s own accounting policies, they misrepresented the effects that the Defendants’ improper 26 option granting practices had on Zoran’s financial results, and failed to disclose these practices. 27 28

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1 232. Thus, the Company’s quarterly reports, annual reports, earnings releases, and each 2 document that incorporated those documents by reference, materially misstated, inter alia, the 3 Company’s compensation expense and its net income. 4 233. As also discussed above, paragraphs 58, 240, 255, 270, 287, and 301, Zoran 5 repeatedly misstated in each of its Form 10-Ks filed with the SEC that it accounted for its stock- 6 based compensation in conformity with APB 25. See 2001 10-K, 2002 10-K, 2003 10-K, 2004 7 10-K, 2005 10-K (defined below). 8 234. Furthermore, between fiscal year 1997 and the present, the Company, with the 9 effect of concealing the improper options backdating, filed with the SEC numerous Form 4s that 10 failed to disclose the backdating of stock option grants to the Individual Defendants. The 11 Individual Defendants knew or should have known about these misstatements and omissions and 12 failed to prevent or correct them.

13 (ii) The Company’s Annual and Quarterly Reports For Fiscal Year Ended 2001 14 235. On August 14, 2001, Zoran filed a quarterly report with the SEC for the fiscal 15 quarter ending June 30, 2001 on Form 10-Q (the “Q2 2001 10-Q”). The financial results for the 16 quarter ended June 30, 2001 were earlier reported in an earnings release issued July 18, 2001. 17 The Q2 2001 10-Q, signed by Defendant Schneider, reported the following unaudited quarterly 18 financial metrics in the Company’s condensed consolidated financial statements: 19 ● Operating income (loss) of ($13,195,000); 20 ● Total costs and expenses of $35,119,000; 21 ● Net income (loss) of ($10,617,000); and 22 ● Basic and diluted net income (loss) per share of ($0.62). 23 236. On November 14, 2001, Zoran filed a quarterly report with the SEC for the fiscal 24 quarter ending September 30, 2001 on Form 10-Q (the “Q3 2001 10-Q”). The financial results 25 for the quarter ended September 30, 2001 were earlier reported in an earnings release issued 26 October 18, 2001. The Q3 2001 10-Q, signed by Defendant Schneider, reported the following 27 28

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1 unaudited quarterly financial metrics in the Company’s condensed consolidated financial 2 statements: 3 ● Operating income (loss) of ($9,981,000); 4 ● Total costs and expenses of $40,405,000; 5 ● Net income (loss) of ($8,055,000); and 6 ● Basic net income (loss) per share of ($0.46). 7 237. On April 1, 2002, Zoran filed its Annual Report for the fiscal year ended 8 December 31, 2001 with the SEC on Form 10-K (the “2001 10-K”). The financial results for the 9 fourth quarter and full year 2001 were earlier reported in an earnings release issued January 31, 10 2002. The 2001 10-K was signed by Defendants Gerzberg, Schneider, Galil, Meindl, Stabenow 11 and Young. 12 238. The 2001 10-K reported the following full year financial metrics in the 13 Company’s condenses consolidated financial statements: 14 ● Operating income (loss) of ($44,804,000); 15 ● Total costs and expenses of $152,513,000; 16 ● Net Income (loss) of ($36,065,000); and 17 ● Basic net income (loss) per share of ($2.07). 18 239. The Notes to the Consolidated Financial Statements in the 2001 10-K include the 19 following language with respect to the Company’s Stock Compensation Plans: 20 The Company’s 1993 Stock Option Plan (the “1993 Option Plan”) was adopted by the Board of Directors of the Company and 21 approved by the stockholders of the Company in July 1993. A total of 4,420,000 shares of common stock have been reserved for 22 issuance under the 1993 Option Plan. The 1993 Option Plan provides for grants of options to employees, non-employee 23 directors and consultants. The 1993 Option Plan is currently being administered by the Compensation Committee of the 24 Board of Directors of the Company, which determines the optionees and the terms of the options granted, including the 25 exercise price, number of shares subject to the option plan and the exercisability thereof. The option price for shares granted 26 under the 1993 Option Plan is typically equal to the fair market value of the common stock at the date of grant. The 27 1993 Option Plan will terminate in July 2003, unless terminated sooner by the Board of Directors. 28

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1 (emphasis added). This description notes the fact that non-incentive based Nonstatutory Stock 2 Options, which could be given to non-employee directors, were granted at 85% of their market 3 value. With respect to the Outside Director Plan, the 2001 10-K also reiterated that grants under 4 that plan were “automatic.” 5 240. The Company noted in the 2001 10-K the following accounting procedure for 6 stock-based compensation: 7 The Company accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board 8 Opinion No. 25 (“APB 25”), “Accounting for Stock Issued to Employees” and related interpretations. Under APB 25, 9 compensation expense is recognized based on the difference, if any, on the date of grant between the fair value of the 10 Company’s stock and the amount an employee must pay to acquire the stock. The compensation expense is recognized over 11 the periods the employee performs the related services, generally the vesting period of four years, consistent with the multiple option 12 method described in FASB Interpretation No. 28 (“FIN 28”). The Company provides additional pro forma disclosures as required 13 under Statement of Financial Accounting Standards No. 123 (“SFAS 123”), “Accounting for Stock-Based Compensation.” See 14 Note 7. 15 (emphasis added.) The purported “Fair Value Disclosures” in Note 7 repeated the net income 16 and net income per share figures reported in the financial statements. 17 241. In addition, the 2001 10-K stated: 18 Item 11. Executive Compensation. 19 The information required by this Item is incorporated by reference to information set forth in the [2002] Proxy Statement under the 20 heading “Executive Compensation.” 21 242. As also explained above, the preceding statements and financial metrics contained 22 in the Q2 2001 10-Q, Q3 2001 10-Q, 2001 10-K and related earnings releases were materially 23 false and misleading and were known by the Company, the Compensation Committee 24 Defendants, the Officer Defendants and the Audit Committee Defendants, those in place at that 25 time, to be false and misleading at that time, or were recklessly disregarded as such, for the 26 following reasons, among others: 27 28

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1 (a) the improper backdated grants of Zoran stock options in violation of the 2 Company’s shareholder-approved option plans; 3 (b) the improper and opportunistic grants of options to the Individual 4 Defendants and other executives and directors so that such grants preceded anticipated increases 5 in the price of Zoran stock and/or followed anticipated stock price declines, without properly 6 disclosing such practices; and 7 (c) the improper accounting for compensation expense in connection with the 8 improperly dated stock options, in violation of Generally Accepted Accounting Principles. 9 243. As explained supra, to the extent the Company failed to record, as a 10 compensation expense, the difference between the price of Zoran stock on the date of the actual 11 grant and the “backdated” exercise price of the options, this deliberate omission resulted in the 12 material understatement of the Company’s reported compensation expense measures and a 13 material overstatement of its reported income measures throughout the Class Period. 14 244. Thus, the Company’s net income, retained earnings/(accumulated deficit), and net 15 income per common share, for the interim fiscal quarters and year end 2001, were materially 16 misstated.

17 (iii) The Company’s Annual and Quarterly Reports For Fiscal Year Ended 2002 18 245. On May 15, 2002, Zoran filed a quarterly report with the SEC for the fiscal 19 quarter ending March 31, 2002 on Form 10-Q (the “Q1 2002 10-Q”). The financial results for 20 the quarter ended March 31, 2002 were earlier reported in an earnings release issued April 23, 21 2002. The Q1 2002 10-Q, signed by Defendant Schneider, reported the following unaudited 22 quarterly financial metrics in the Company’s condensed consolidated financial statements: 23 ● Operating loss of ($1,448,000); 24 ● Total costs and expenses of $32,538,000; 25 ● Net loss of ($235,000); and 26 ● Basic net loss per share of ($0.01). 27 28

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1 246. On August 14, 2002, Zoran filed a quarterly report with the SEC for the fiscal 2 quarter ending June 30, 2002 on Form 10-Q (the “Q2 2002 10-Q”). The financial results for the 3 quarter ended June 30, 2002 were earlier reported in an earnings released issued on July 18, 4 2002. The Q2 2002 10-Q, signed by Defendant Schneider, reported the following unaudited 5 quarterly financial metrics in the Company’s condensed consolidated financial statements: 6 ● Operating loss of ($436,000); 7 ● Total costs and expenses of $34,430,000; 8 ● Net income of $1,030,000; and 9 ● Basic net income per share of $0.04. 10 247. The 1993 Plan and Outside Directors Plan, reiterating that option grants were 11 made at fair market value and the formulaic granting of options to directors, respectively, were 12 also attached as exhibits to the filing. 13 248. Additionally, the Company’s Q2 2002 10-Q contained certifications by 14 Defendants Gerzberg and Schneider which attest that the information contained in the Q2 2002 15 10-Q fairly presents in all material respects the financial condition and results of operations of 16 Zoran, as follows: 17 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED 18 PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 19 In connection with the Quarterly Report of Zoran Corporation (the “Company”) on Form 10-Q for the period ended June 30, 2002, as 20 filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Levy Gerzberg, President and Chief 21 Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the 22 Sarbanes-Oxley Act of 2002, that: 23 (1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and 24 (2) The information contained in the Report fairly presents, in all 25 material respects, the financial condition and result of operations of the Company. 26 Dated: August 14, 2002 27 /s/ Levy Gerzberg 28 Levy Gerzberg

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1 President and Chief Executive Officer

2 In connection with the Quarterly Report of Zoran Corporation (the “Company”) on Form 10-Q for the period ended June 30, 2002, as 3 filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Karl Schneider, Vice President, Finance 4 and Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 5 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 6 13(a) of the Securities Exchange Act of 1934; and 7 (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of 8 operations of the Company. 9 Dated: August 14, 2002 10 /s/ Karl Schneider Karl Schneider 11 Vice President, Finance and Chief Financial Officer 12 249. On November 14, 2002, Zoran filed a quarterly report with the SEC for the fiscal 13 quarter ending September 30, 2002 on Form 10-Q (the “Q3 2002 10-Q”). The Q3 2002 10-Q, 14 signed by Defendant Schneider, reported the following unaudited quarterly financial metrics in 15 the Company’s condensed consolidated financial statements: 16 ● Operating income of $3,812,000; 17 ● Total costs and expenses of $40,245,000; 18 ● Net Income of $4,707,000; and 19 ● Basic net income per share of $0.17. 20 250. Additionally, the Company’s Q3 2002 10-Q contained certifications by 21 Defendants Gerzberg and Schneider which attested that the information contained in the Q3 22 2002 10-Q fairly presented in all material respects the financial condition and results of 23 operations of Zoran, and that the filing did not contain any untrue statement of material fact or 24 omit to state any material facts that were necessary to make the statements made, in light of the 25 circumstances under which such statements were made, not misleading. 26 251. On March 31, 2003, Zoran filed its Annual Report for the fiscal year ended 27 December 31, 2002 with the SEC on Form 10-K (the “2002 10-K”). The financial results for the 28

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1 fourth quarter and full year 2002 were earlier reported in an earnings release issued January 30, 2 2003. The 2002 10-K was signed by Defendants Gerzberg, Schneider, Galil, Meindl, Stabenow 3 and Young. 4 252. Additionally, the Company’s 2002 10-K contained certifications by Defendants 5 Gerzberg and Schneider which attested that the information contained in the 2002 Form 10-K 6 fairly presented in all material respects the financial condition and results of operations of Zoran, 7 and that the filing did not contain any untrue statement of material fact or omit to state any 8 material facts that were necessary to make the statements made, in light of the circumstances 9 under which such statements were made, not misleading. 10 253. The 2002 10-K reported the following full year financial metrics in the 11 Company’s consolidated financial statements: 12 ● Operating income (loss) of $6,831,000; 13 ● Total costs and expenses of $142,286,000; 14 ● Net income (loss) of $5,698,000; and 15 ● Basic net income (loss) per share of $.21. 16 254. The Notes to the Consolidated Financial Statements in the 2002 10-K include the 17 following language with respect to the Company’s Stock Compensation Plans: 18 The Company’s 1993 Stock Option Plan (the “1993 Option Plan”) was adopted by the Board of Directors of the Company and 19 approved by the stockholders of the Company in July 1993. A total of 7,755,000 shares of common stock have been reserved for 20 issuance under the 1993 Option Plan. The 1993 Option Plan provides for grants of options to employees, non-employee 21 directors and consultants. The 1993 Option Plan is currently being administered by the Compensation Committee of the 22 Board of Directors of the Company, which determines the optionees and the terms of the options granted, including the 23 exercise price, number of shares subject to the option plan and the exercisability thereof. The option price for shares granted 24 under the 1993 Option Plan is typically equal to the fair market value of the common stock at the date of grant. The 25 1993 Option Plan will terminate in July 2003, unless terminated sooner by the Board of Directors. 26 (emphasis added.) This description notes the fact that non-incentive based Nonstatutory Stock 27 Options, which could be given to non-employee directors, were granted at 85% of their market 28

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1 value. With respect to the Outside Director Plan, the 2001 10-K also reiterated that grants 2 under that plan were “automatic.” 3 255. The Company noted in the 2002 10-K the following accounting procedure for 4 stock-based compensation: 5 The Company accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board 6 Opinion No. 25 (“APB 25”), “Accounting for Stock Issued to Employees” and related interpretations. Under APB 25, 7 compensation expense is recognized based on the difference, if any, on the date of grant between the fair value of the 8 Company’s stock and the amount an employee must pay to acquire the stock. The compensation expense is recognized over 9 the periods the employee performs the related services, generally the vesting period of four years, consistent with the multiple option 10 method described in FASB Interpretation No. 28 (“FIN 28”). Except for Nogatech options assumed as part of the 11 acquisition, no other stock-based employee compensation cost is reflected in net income as all other options granted under 12 our plans had an exercise price equal to the market value of the underlying common stock on the date of grant. 13 (emphasis added.) The purported “Fair Value Disclosures” in the Notes repeated the net income 14 and net income per share figures reported in the financial statements. 15 256. On April 30, 2003, Zoran filed an amended Annual Report for the fiscal year 16 ended December 31, 2002 with the SEC on Form 10-K/A (the “2002 10-K/A”) to amend 17 information concerning Items 10 through 13 of Part III and Item 15 of Part IV of the 2002 10-K. 18 The 2002 10-K/A purported to report each of the 2002 option grants made to Defendants 19 Gerzberg, Martino, and Schneider and stated, “[a]ll options were granted at an exercise price 20 equal to the fair market value of our common stock on the date of grant.” The 2002 10-K/A was 21 signed by Defendant Gerzberg and certified by Defendants Gerzberg and Schneider. 22 257. As explained above, the preceding statements, certifications and financial metrics 23 contained in the Q1 2002 10-Q, Q2 2002 10-Q, Q3 2002 10-Q, 2002 10-K, 2002 10-K/A and 24 related earnings releases were materially false and misleading and were known by the Company, 25 the Officer Defendants, the Compensation Committee Defendants and the Audit Committee 26 Defendants, those in place at that time, to be false at that time, or were recklessly disregarded as 27 such, for the following reasons, among others: 28

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1 (a) the improper backdated grants of Zoran stock options in violation of the 2 Company’s shareholder-approved option plans; 3 (b) the improper and opportunistic grants of options to the Individual 4 Defendants and other executives and directors so that such grants preceded anticipated increases 5 in the price of Zoran stock and/or followed anticipated stock price declines, without properly 6 disclosing such practices; and 7 (c) the improper accounting for compensation expense in connection with the 8 improperly dated stock options, in violation of Generally Accepted Accounting Principles. 9 258. As explained supra, to the extent the Company failed to record, as a 10 compensation expense, the difference between the price of Zoran stock on the date of the actual 11 grant and the “backdated” exercise price of the options, this deliberate omission resulted in the 12 material understatement of the Company’s reported compensation expense measures and a 13 material overstatement of its reported income measures throughout the Class Period. 14 259. Thus, the Company’s net income, retained earnings/(accumulated deficit), and net 15 income per common share, for the interim fiscal quarters and year end 2002, were materially 16 misstated.

17 (iv) The Company’s Annual and Quarterly Reports For Fiscal Year Ended 2003 18 260. On May 15, 2003, Zoran filed a quarterly report with the SEC for the fiscal 19 quarter ending March 31, 2003 on Form 10-Q (the “Q1 2003 10-Q”). The financial results for 20 the quarter ended March 31, 2003 were earlier reported in an earnings release issued April 24, 21 2003. The Q1 2003 10-Q, signed by Defendant Schneider, reported the following unaudited 22 quarterly financial metrics in the Company’s condensed consolidated financial statements: 23 ● Operating loss of ($1,251,000); 24 ● Total costs and expenses of $39,084,000; 25 ● Net Income of $193,000; and 26 ● Basic net income per share of $0.01. 27 28

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1 261. Additionally, the Company’s Q1 2003 10-Q contained certifications by 2 Defendants Gerzberg and Schneider which attested that the information contained in the Q1 3 2003 10-Q fairly presented in all material respects the financial condition and results of 4 operations of Zoran, and that the filing did not contain any untrue statement of material fact or 5 omit to state any material facts that were necessary to make the statements made, in light of the 6 circumstances under which such statements were made, not misleading. 7 262. On August 14, 2003, Zoran filed a quarterly report with the SEC for the fiscal 8 quarter ending June 30, 2003 on Form 10-Q (the “Q2 2003 10-Q”). The financial results for the 9 quarter ended June 30, 2003 were earlier reported in an earnings release issued July 24, 2003. 10 The Q2 2003 10-Q, signed by Defendant Schneider, reported the following unaudited quarterly 11 financial metrics in the Company’s condensed consolidated financial statements: 12 ● Operating income of $3,523,000; 13 ● Total costs and expenses of $41,208,000; 14 ● Net Income of $4,233,000; and 15 ● Basic net income per share of $0.15. 16 263. Additionally, the Company’s Q2 2003 10-Q contained certifications by 17 Defendants Gerzberg and Schneider which attested that the information contained in the Q2 18 2003 10-Q fairly presented in all material respects the financial condition and results of 19 operations of Zoran, and that the filing did not contain any untrue statement of material fact or 20 omit to state any material facts that were necessary to make the statements made, in light of the 21 circumstances under which such statements were made, not misleading. 22 264. On November 14, 2003, Zoran filed a quarterly report with the SEC for the fiscal 23 quarter ending September 30, 2003 on Form 10-Q (the “Q3 2003 10-Q”). The financial results 24 for the quarter ended September 30, 2003 were earlier reported in an earnings release issued 25 October 23, 2003. The Q3 2003 10-Q, signed by Defendant Schneider, reported the following 26 unaudited quarterly financial metrics in the Company’s condensed consolidated financial 27 statements: 28

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1 ● Operating income (loss) of ($55,488,000); 2 ● Total costs and expenses of $122,908,000; 3 ● Net Income (loss) of ($54,484,000); and 4 ● Basic net income (loss) per share of ($1.53). 5 265. Additionally, the Company’s Q3 2003 10-Q contained certifications by 6 Defendants Gerzberg and Schneider which attested that the information contained in the Q3 7 2003 10-Q fairly presented in all material respects the financial condition and results of 8 operations of Zoran, and that the filing did not contain any untrue statement of material fact or 9 omit to state any material facts that were necessary to make the statements made, in light of the 10 circumstances under which such statements were made, not misleading. 11 266. On March 15, 2004, Zoran filed its Annual Report for the fiscal year ended 12 December 31, 2003 with the SEC on Form 10-K (the “2003 10-K”). The financial results for the 13 fourth quarter and full year 2003 were earlier reported in an earnings release issued February 23, 14 2004. The 2003 10-K was signed by Defendants Gerzberg, Schneider, Galil, Meindl, Owens, 15 Rynne, Stabenow, Young and Director Peter Simone of Oak . 16 267. Additionally, the Company’s 2003 10-K contained certifications by Defendants 17 Gerzberg and Schneider which attested that the information contained in the 2003 Form 10-K 18 fairly presented in all material respects the financial condition and results of operations of Zoran, 19 and that the filing did not contain any untrue statement of material fact or omit to state any 20 material facts that were necessary to make the statements made, in light of the circumstances 21 under which such statements were made, not misleading. 22 268. The 2003 10-K reported the following full year financial metrics in the 23 Company’s condensed consolidated financial statements: 24 ● Operating income (loss) of ($72,004,000); 25 ● Total costs and expenses of $288,532,000; 26 ● Net income (loss) of ($67,978,000); and 27 ● Basic net income (loss) per share of ($2.05). 28

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1 269. The Notes to the Consolidated Financial Statements in the 2003 10-K include the 2 following language with respect to the Company’s Stock Compensation Plans: 3 The Company's 1993 Stock Option Plan (the "1993 Option Plan") was adopted by the Board of Directors of the Company and 4 approved by the stockholders of the Company in July 1993. A total of 7,755,000 shares of common stock have been reserved for 5 issuance under the 1993 Option Plan. The 1993 Option Plan provides for grants of options to employees, non-employee 6 directors and consultants. The 1993 Option Plan is currently being administered by the Compensation Committee of the 7 Board of Directors of the Company, which determines the optionees and the terms of the options granted, including the 8 exercise price, number of shares subject to the option plan and the exercisability thereof. The option price for shares granted 9 under the 1993 Option Plan is typically equal to the fair market value of the common stock at the date of grant. 10 (emphasis added). This description notes the fact that non-incentive based Nonstatutory Stock 11 Options, which could be given to non-employee directors, were granted at 85% of their market 12 value. With respect to the Outside Director Plan, the 2003 10-K also reiterated that grants under 13 that plan were “automatic.” Both the 1993 Plan and the Outside Directors Plan were attached as 14 exhibits. 15 270. The Company noted in the 2003 10-K the following accounting procedure for 16 stock-based compensation: 17 The Company accounts for stock-based compensation using the 18 intrinsic value method prescribed in Accounting Principles Board Opinion No. 25 ("APB 25"), “Accounting for Stock Issued to 19 Employees" and related interpretations. Under APB 25, compensation expense is recognized based on the difference, if 20 any, on the date of grant between the fair value of the Company's stock and the amount an employee must pay to 21 acquire the stock. The compensation expense is recognized over the periods the employee performs the related services, generally 22 the vesting period of four years, consistent with the multiple option method described in FASB Interpretation No. 28 ("FIN 28"). 23 Except for options assumed as part of acquisitions, no other stock- based employee compensation cost is reflected in net income as all 24 other options granted under our plans had an exercise price equal to the market value of the underlying common stock on the date of 25 grant. 26 (emphasis added.) The purported “Fair Value Disclosures” in Note 2 repeated the net income 27 and net income per share figures reported in the financial statements. 28

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1 271. As explained above, the preceding statements, certifications and financial metrics 2 contained in the Q1 2003 10-Q, Q2 2003 10-Q, Q3 2003 10-Q, 2003 10-K and related earnings 3 releases were materially false and misleading and were known by the Company, the 4 Compensation Defendants, the Officer Defendants and the Audit Committee Defendants, those 5 in place at that time, to be false at that time, or were recklessly disregarded as such, for the 6 following reasons, among others: 7 (a) the improper backdated grants of Zoran stock options in violation of the 8 Company’s shareholder-approved option plans; 9 (b) the improper and opportunistic grants of options to the Individual 10 Defendants and other executives and directors so that such grants preceded anticipated increases 11 in the price of Zoran stock and/or followed anticipated stock price declines, without properly 12 disclosing such practices; and 13 (c) the improper accounting for compensation expense in connection with the 14 improperly dated stock options, in violation of Generally Accepted Accounting Principles. 15 272. As explained supra, to the extent the Company failed to record, as a 16 compensation expense, the difference between the price of Zoran stock on the date of the actual 17 grant and the “backdated” exercise price of the options, this deliberate omission resulted in the 18 material understatement of the Company’s reported compensation expense measures and a 19 material overstatement of its reported income measures throughout the Class Period. 20 273. Thus, the Company’s net income, retained earnings/(accumulated deficit), and net 21 income per common share, for the interim fiscal quarters and year end 2003, were materially 22 misstated.

23 (v) The Company’s Annual and Quarterly Reports For Fiscal Year Ended 2004 24 274. On May 10, 2004, Zoran filed a quarterly report with the SEC for the fiscal 25 quarter ending March 31, 2004 on Form 10-Q (the “Q1 2004 10-Q”), subsequently amended on 26 May 14, 2004 by Form 10-Q/A and on March 31, 2005 on Zoran’s 2004 Form 10-K. The 27 financial results for the quarter ended March 31, 2004 were earlier reported in an earnings 28

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1 release issued April 27, 2004. The Q1 2004 10-Q, signed by Defendant Schneider, reported the 2 following unaudited quarterly financial metrics in the Company’s condensed consolidated 3 financial statements: 4 ● Operating (loss) of ($11,028,000); 5 ● Total costs and expenses of $91,665,000; 6 ● Net income (loss) of ($10,689,000); and 7 ● Basic net income (loss) per share of ($0.25). 8 275. These Q1 2004 10-Q results were restated at the end of the year when an error 9 related to the accounting for compensation expense related to the 2003 acquisition of Oak 10 Technology, Inc. was discovered. The 2004 10-K reported the following financial metrics for 11 Q1 2004: 12 ● Operating loss of ($10,324,000); 13 ● Net loss of ($9,985,000); and 14 ● Basic net loss per share of ($0.23). 15 276. Additionally, the Company’s Q1 2004 10-Q contained certifications by 16 Defendants Gerzberg and Schneider which attested that the information contained in the Q1 17 2004 10-Q fairly presented in all material respects the financial condition and results of 18 operations of Zoran, and that the filing did not contain any untrue statement of material fact or 19 omit to state any material facts that were necessary to make the statements made, in light of the 20 circumstances under which such statements were made, not misleading. 21 277. On August 9, 2004, Zoran filed a quarterly report with the SEC for the fiscal 22 quarter ending June 30, 2004 on Form 10-Q (the “Q2 2004 10-Q”), which were later restated in 23 Zoran’s 2004 10-K. The financial results for the quarter ended June 30, 2004 were earlier 24 reported in an earnings release issued July 27, 2004. The Q2 2004 10-Q, signed by Defendant 25 Schneider, reported the following unaudited quarterly financial metrics in the Company’s 26 condensed consolidated financial statements: 27 ● Operating income (loss) of ($5,203,000); 28

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1 ● Total costs and expenses of $108,919,000; 2 ● Net income (loss) of ($6,145,000); and 3 ● Basic net income (loss) per share of ($0.14). 4 278. Additionally, the Company’s Q2 2004 10-Q contained certifications by 5 Defendants Gerzberg and Schneider which attested that the information contained in the Q2 6 2004 10-Q fairly presented in all material respects the financial condition and results of 7 operations of Zoran, and that the filing did not contain any untrue statement of material fact or 8 omit to state any material facts that were necessary to make the statements made, in light of the 9 circumstances under which such statements were made, not misleading. 10 279. These Q2 2004 10-Q results were also restated at the end of the year when an 11 error related to the accounting for compensation expense related to the 2003 acquisition of Oak 12 Technology, Inc. was discovered. The 2004 10-K reported the following financial metrics for 13 Q2 2004: 14 ● Operating loss of ($3,658,000); 15 ● Net loss of ($4,600,000); and 16 ● Basic net loss per share of ($0.11). 17 280. On November 9, 2004, Zoran filed a quarterly report with the SEC for the fiscal 18 quarter ending September 30, 2004 on Form 10-Q (the “Q3 2004 10-Q”), which was later 19 restated in Zoran’s 2004 10-K. The financial results for the quarter ended September 30, 2004 20 were earlier reported in an earnings release issued October 26, 2004. The Q3 2004 10-Q, signed 21 by Defendant Schneider, reported the following unaudited quarterly financial metrics in the 22 Company’s condensed consolidated financial statements: 23 ● Operating loss of ($1,381,000); 24 ● Total costs and expenses of $121,128,000; 25 ● Net loss of ($3,519,000); and 26 ● Basic net loss per share of ($0.08). 27 28

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1 281. Additionally, the Company’s Q3 2004 10-Q contained certifications by 2 Defendants Gerzberg and Schneider which attested that the information contained in the Q3 3 2004 10-Q fairly presented in all material respects the financial condition and results of 4 operations of Zoran, and that the filing did not contain any untrue statement of material fact or 5 omit to state any material facts that were necessary to make the statements made, in light of the 6 circumstances under which such statements were made, not misleading. 7 282. These Q3 2004 10-Q results were also restated at the end of the year when an 8 error related to the accounting for compensation expense related to the 2003 acquisition of Oak 9 Technology, Inc. was discovered. The 2004 10-K reported the following financial metrics for 10 Q3 2004: 11 ● Operating loss of ($501,000); 12 ● Net loss of ($2,639,000); and 13 ● Basic net loss per share of ($0.06). 14 283. On March 31, 2005, Zoran filed its Annual Report for the fiscal year ended 15 December 31, 2004 with the SEC on Form 10-K (the “2004 10-K”), which was subsequently 16 amended on May 2, 2005 to add substantive compensation information (“2004 10-K/A”). The 17 financial results for the fourth quarter and full year 2004 were earlier reported in an earnings 18 release filed on Form 8-K, dated January 27, 2005. The 2004 10-K was signed by Defendants 19 Gerzberg, Schneider, Galil, Meindl, Owens, Rynne, Stabenow and Young. The 2004 10-K/A 20 was signed by Defendant Gerzberg. 21 284. Additionally, the Company’s 2004 10-K contained certifications by Defendants 22 Gerzberg and Schneider which attested that the information contained in the 2004 10-K fairly 23 presented in all material respects the financial condition and results of operations of Zoran, and 24 that the filing did not contain any untrue statement of material fact or omit to state any material 25 facts that were necessary to make the statements made, in light of the circumstances under which 26 such statements were made, not misleading. 27 28

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1 285. The 2004 10-K reported the following full year financial metrics in the 2 Company’s condensed consolidated financial statements: 3 ● Operating income (loss) of ($46,857,000); 4 ● Total costs and expenses of $425,721,000; 5 ● Net Income (loss) of ($47,354,000); and 6 ● Basic net income (loss) per common share of ($1.11). 7 286. The Notes to the Consolidated Financial Statements in the 2004 10-K include the 8 following language with respect to the Company’s Stock Compensation Plans: 9 The Company’s 1993 Stock Option Plan (the “1993 Option Plan”) was adopted by the Board of Directors of the Company and 10 approved by the stockholders of the Company in July 1993. A total of 7,755,000 shares of common stock were reserved for 11 issuance under the 1993 Option Plan. The 1993 Option Plan provided for grants of options to employees, non-employee 12 directors and consultants. The 1993 Stock Option Plan expired during 2003 and no future shares will be granted under this plan. 13 The option price for shares granted under the 1993 Option Plan was typically equal to the fair market value of the 14 common stock at the date of grant. 15 (emphasis added). This description notes the fact that non-incentive based Nonstatutory Stock 16 Options, which could be given to non-employee directors, were granted at 85% of their market 17 value. With respect to the Outside Director Plan, the 2004 10-K also reiterated that grants under 18 that plan were “automatic.” Both the 1993 Plan and the Outside Directors Plan were attached as 19 exhibits. 20 287. The Company noted in the 2004 10-K the following accounting procedure for 21 stock-based compensation: 22 The Company accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board 23 Opinion No. 25 (“APB 25”), “Accounting for Stock Issued to Employees” and related interpretations. Under APB 25, 24 compensation expense is recognized based on the difference, if any, on the date of grant between the fair value of the Company’s 25 stock and the amount an employee must pay to acquire the stock. The compensation expense is recognized over the periods the 26 employee performs the related services, generally the vesting period of four years, consistent with the multiple option method 27 described in FASB Interpretation No. 28 (“FIN 28”). Except for options assumed as part of acquisitions, no other stock-based 28 employee compensation cost is reflected in net income as all

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1 other options granted under our plans had an exercise price equal to the market value of the underlying common stock on 2 the date of grant. 3 (emphasis added). 4 288. As explained above, the preceding statements, certifications and financial metrics 5 contained in the Q1 2004 10-Q, Q2 2004 10-Q, Q3 2004 10-Q, 2004 10-K, 2004 10-K/A and 6 related earnings releases were materially false and misleading and were known by the Company, 7 the Compensation Committed Defendants, the Officer Defendants and the Audit Committee 8 Defendants, those in place at that time, to be false at that time, or were recklessly disregarded as 9 such, for the following reasons, among others: 10 (a) the improper backdated grants of Zoran stock options in violation of the 11 Company’s shareholder-approved option plans; 12 (b) the improper and opportunistic grants of options to the Individual 13 Defendants and other executives and directors so that such grants preceded anticipated increases 14 in the price of Zoran stock and/or followed anticipated stock price declines, without properly 15 disclosing such practices; and 16 (c) the improper accounting for compensation expense in connection with the 17 improperly dated stock options, in violation of Generally Accepted Accounting Principles. 18 289. As explained supra, to the extent the Company failed to record, as a 19 compensation expense, the difference between the price of Zoran stock on the date of the actual 20 grant and the “backdated” exercise price of the options, this deliberate omission resulted in the 21 material understatement of the Company’s reported compensation expense measures and a 22 material overstatement of its reported income measures throughout the Class Period. 23 290. Thus, the Company’s net income, retained earnings/(accumulated deficit), and net 24 income per common share, for the interim fiscal quarters and year end 2004, were materially 25 misstated. 26 27 28

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1 (vi) The Company’s Annual and Quarterly Reports For Fiscal Year Ended 2005 2 291. On May 10, 2005, Zoran filed a quarterly report with the SEC for the fiscal 3 quarter ending March 31, 2005 on Form 10-Q (the “Q1 2005 10-Q”). The financial results for 4 the quarter ended March 31, 2005 were earlier reported in an earnings release filed on Form 8-K, 5 dated April 28, 2005. The Q1 2005 10-Q, signed by Defendant Schneider, reported the 6 following unaudited quarterly financial metrics in the Company’s condensed consolidated 7 financial statements: 8 ● Operating loss of ($19,201,000); 9 ● Total costs and expenses of $93,085,000; 10 ● Net loss of ($18,796,000); and 11 ● Basic net loss per share of ($0.43). 12 292. Additionally, the Company’s Q1 2005 10-Q contained certifications by 13 Defendants Gerzberg and Schneider which attested that the information contained in the Q1 14 2005 10-Q fairly presented in all material respects the financial condition and results of 15 operations of Zoran, and that the filing did not contain any untrue statement of material fact or 16 omit to state any material facts that were necessary to make the statements made, in light of the 17 circumstances under which such statements were made, not misleading. 18 293. On August 9, 2005, Zoran filed a quarterly report with the SEC for the fiscal 19 quarter ending June 30, 2005 on Form 10-Q (the “Q2 2005 10-Q”). The financial results for the 20 quarter ended June 30, 2005 were earlier reported in an earnings release filed on Form 8-K, dated 21 July 26, 2005. The Q2 2005 10-Q, signed by Defendant Schneider, reported the following 22 unaudited quarterly financial metrics in the Company’s condensed consolidated financial 23 statements: 24 ● Operating loss of ($11,334,000); 25 ● Total costs and expenses of $106,413,000; 26 ● Net loss of ($11,055,000); and 27 ● Basic net loss per share of ($0.25). 28

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1 294. Additionally, the Company’s Q2 2005 10-Q contained certifications by 2 Defendants Gerzberg and Schneider which attested that the information contained in the Q2 3 2005 10-Q fairly presented in all material respects the financial condition and results of 4 operations of Zoran, and that the filing did not contain any untrue statement of material fact or 5 omit to state any material facts that were necessary to make the statements made, in light of the 6 circumstances under which such statements were made, not misleading. 7 295. On November 9, 2005, Zoran filed a quarterly report with the SEC for the fiscal 8 quarter ending September 30, 2005 on Form 10-Q (the “Q3 2005 10-Q”). The financial results 9 for the quarter ended September 30, 2005 were earlier reported in an earnings release filed on 10 Form 8-K, dated October 26, 2005. The Q3 2005 10-Q, signed by Defendant Schneider, 11 reported the following unaudited quarterly financial metrics in the Company’s condensed 12 consolidated financial statements: 13 ● Operating Income of $5,437,000; 14 ● Total costs and expenses of $112,047; 15 ● Net income of $4,958,000; and 16 ● Basic net income per share of $0.11. 17 296. Additionally, the Company’s Q3 2004 10-Q contained certifications by 18 Defendants Gerzberg and Schneider which attested that the information contained in the Q3 19 2004 10-Q fairly presented in all material respects the financial condition and results of 20 operations of Zoran, and that the filing did not contain any untrue statement of material fact or 21 omit to state any material facts that were necessary to make the statements made, in light of the 22 circumstances under which such statements were made, not misleading. 23 297. On March 14, 2006, Zoran filed its Annual Report for the fiscal year ended 24 December 31, 2005 with the SEC on Form 10-K, the “2005 10-K”. The financial results for the 25 fourth quarter and full year 2005 were earlier reported in an earnings release filed on Form 8-K, 26 dated January 30, 2006. The 2005 10-K was signed by Defendants Gerzberg, Schneider, Galil, 27 Burgess, Meindl, Owens, Rynne, Stabenow and Young. 28

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1 298. Additionally, the Company’s 2005 10-K contained certifications by Defendants 2 Gerzberg and Schneider contained certifications by Defendants Gerzberg and Schneider which 3 attested that the information contained in the 2005 10-K fairly presented in all material respects 4 the financial condition and results of operations of Zoran, and that the filing did not contain any 5 untrue statement of material fact or omit to state any material facts that were necessary to make 6 the statements made, in light of the circumstances under which such statements were made, not 7 misleading. 8 299. The 2005 10-K reported the following full year financial metrics in the 9 Company’s condensed consolidated financial statements: 10 ● Operating loss of ($27,100,000); 11 ● Total costs and expenses of $422,858,000; 12 ● Net loss of ($26,971,000); and 13 ● Basic net loss per share of ($0.61). 14 300. The Notes to the Consolidated Financial Statements in the 2005 10-K include the 15 following language with respect to the Company’s Stock Compensation Plans: 16 The Company’s 1993 Stock Option Plan (the “1993 Option Plan”) was adopted by the Board of Directors of the Company and 17 approved by the stockholders of the Company in July 1993. A total of 7,755,000 shares of common stock were reserved for 18 issuance under the 1993 Option Plan. The 1993 Option Plan provided for grants of options to employees, non-employee 19 directors and consultants. The 1993 Stock Option Plan expired during 2003 and no future shares will be granted under this plan. 20 The option price for shares granted under the 1993 Option Plan was typically equal to the fair market value of the 21 common stock at the date of grant. 22 (emphasis added). This description notes the fact that non-incentive based Nonstatutory Stock 23 Options, which could be given to non-employee directors, were granted at 85% of their market 24 value. With respect to the Outside Director Plan, the 2005 10-K also reiterated that grants under 25 that plan were “automatic.” Both the 1993 Plan and the Outside Directors Plan were attached as 26 exhibits. 27 28

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1 301. The Company noted in the 2005 10-K the following accounting procedure for 2 stock-based compensation: 3 The Company accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board 4 Opinion No. 25 (“APB 25”), “Accounting for Stock Issued to Employees” and related interpretations. Under APB 25, 5 compensation expense is recognized based on the difference, if any, on the date of grant between the fair value of the 6 Company’s stock and the amount an employee must pay to acquire the stock. The compensation expense is recognized over 7 the periods the employee performs the related services, generally the vesting period of four years, consistent with the multiple option 8 method described in FASB Interpretation No. 28 (“FIN 28”). Stock based compensation includes the amortization of restricted stock 9 units and the amortization of certain stock options assumed as part of acquisitions. No other stock-based employee compensation 10 cost is reflected in net income as all other options granted under stock option plans had an exercise price equal to the 11 market value of the underlying common stock on the date of grant. 12 (emphasis added.) 13 302. As explained above, the preceding statements, certifications and financial metrics 14 contained in the Q1 2005 10-Q, Q2 2005 10-Q, Q3 2005 10-Q, 2005 10-K and related earnings 15 releases were materially false and misleading and were known by the Company, the Officer 16 Defendants, the Compensation Committee Defendants and the Audit Committee Defendants, 17 those in place at that time, to be false at that time, or were recklessly disregarded as such, for the 18 following reasons, among others: 19 (a) the improper backdated grants of Zoran stock options in violation of the 20 Company’s shareholder-approved option plans; 21 (b) the improper and opportunistic grants of options to the Individual 22 Defendants and other executives and directors so that such grants preceded anticipated increases 23 in the price of Zoran stock and/or followed anticipated stock price declines, without properly 24 disclosing such practices; and 25 (c) the improper accounting for compensation expense in connection with the 26 improperly dated stock options, in violation of Generally Accepted Accounting Principles. 27 28

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1 303. As explained supra, to the extent the Company failed to record, as a 2 compensation expense, the difference between the price of Zoran stock on the date of the actual 3 grant and the “backdated” exercise price of the options, this deliberate omission resulted in the 4 material understatement of the Company’s reported compensation expense measures and a 5 material overstatement of its reported income measures throughout the Class Period. 6 304. Thus, the Company’s net income, retained earnings/(accumulated deficit), and net 7 income per common share, for the interim fiscal quarters and year end 2005, were materially 8 misstated.

9 (vii) The Company’s Quarterly Reports For Fiscal Year 2006 10 305. On May 10, 2006, Zoran filed its only financial report of last year with the SEC 11 for the fiscal quarter ending March 31, 2006 on Form 10-Q (the “Q1 2006 10-Q”). The financial 12 results for the quarter ended March 31, 2006 were earlier reported in an earnings release filed on 13 Form 8-K, dated April 24, 2006. The Q1 2006 10-Q, signed by Defendant Schneider, reported 14 the following unaudited quarterly financial metrics in the Company’s condensed consolidated 15 financial statements: 16 ● Operating income of $26,139,000; 17 ● Total costs and expenses of $116,107,000; 18 ● Net income of $20,760,000; and 19 ● Basic net income per share of $0.45.

20 306. Additionally, the Company’s Q1 2006 10-Q contained certifications by 21 Defendants Gerzberg and Schneider which attested that the information contained in the Q1 22 2006 10-Q fairly presented in all material respects the financial condition and results of 23 operations of Zoran, and that the filing did not contain any untrue statement of material fact or 24 omit to state any material facts that were necessary to make the statements made, in light of the 25 circumstances under which such statements were made, not misleading. 26 307. Zoran was unable to file any other financial reports in 2006 due to the fact that its 27 Special Committee had not completed its review of the Company’s historical stock option grants. 28

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1 308. As explained above, the preceding statements, certifications and financial metrics 2 contained in the Q1 2006 10-Q and the Company’s April 24, 2006 earnings release were 3 materially false and misleading and were known by the Company, the Compensation Committee 4 Defendants, the Officer Defendants and the Audit Committee Defendants, those in place at that 5 time, regarded as such, for the following reasons, among others: 6 (a) the improper backdated grants of Zoran stock options in violation of the 7 Company’s shareholder-approved option plans; 8 (b) the improper and opportunistic grants of options to the Individual 9 Defendants and other executives and directors so that such grants preceded anticipated increases 10 in the price of Zoran stock and/or followed anticipated stock price declines, without properly 11 disclosing such practices; and 12 (c) the improper accounting for compensation expense in connection with the 13 improperly dated stock options, in violation of Generally Accepted Accounting Principles. 14 309. As explained supra, to the extent the Company failed to record, as a 15 compensation expense, the difference between the price of Zoran stock on the date of the actual 16 grant and the “backdated” exercise price of the options, this deliberate omission resulted in the 17 material understatement of the Company’s reported compensation expense measures and a 18 material overstatement of its reported income measures throughout the Class Period. 19 310. Thus, the Company’s net income, retained earnings/(accumulated deficit), and net 20 income per common share, for the interim fiscal quarters of 2006, were materially misstated.

21 ZORAN’S TRUE FINANCIAL CONDITION BEGINS TO EMERGE 22 A. Zoran Initiates an Internal Investigation of the Company’s Stock Option Grants and Fails to Timely File its Second Quarter 2006 Results 23 With the SEC 24 311. On May 23, 2006, Zoran announced that it had been identified by the Center for 25 Financial Research and Analysis in a May 16, 2006 report as one of seventeen companies that 26 CFRA believed to be “at risk for having backdated option grants.” CFRA specifically identified 27 28

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1 options that Zoran had granted to its executives in August 1998, August 1999 and September 2 2001. 3 312. However, the Company also misleadingly reassured the marketplace by stating in 4 its press release that: 5 Under the direction of the Audit Committee, the Company’s management, assisted by outside counsel, conducted an internal 6 compliance review and concluded that each of the option grants identified by the CFRA report had been properly made at a 7 regularly-scheduled meeting of the Board of Directors or its Compensation Committee and that none of these grants had 8 involved any ‘backdating.’ Management has also conducted a broader review of all other option grants made to the Company’s 9 officers since Zoran’s initial public offering in 1995 and has reported to the Audit Committee that, in the opinion of 10 management, all such grants have been properly made. 11 Press Release, Zoran Corporation, “Zoran Corporation Responds to Report Regarding Option 12 Grants,” issued May 23, 2006. 13 313. In response to this misleading reassuring news, Zoran’s stock price closed higher 14 on May 23, 2006. 15 314. On June 12, 2006, Zoran’s stock price fell approximately $2.84 per share or 16 almost 11% on heavy volume in reaction to a Reuters news article entitled, “Companies linked to 17 U.S. option probe,” which named Zoran. Although the article reiterated Zoran’s May 23, 2006 18 denial of impropriety, it discussed that federal prosecutors and regulators continue to investigate 19 the granting of stock options and indicated that Zoran was one of two companies that recently 20 issued statements denying research reports that suggested possible irregularities in their stock 21 option grants. The June 12, 2006 decline cannot be explained by market-forces and no other 22 Company or industry specific negative news was released that would explain the decline. 23 315. Despite Zoran’s assurances based on a purported internal review, on July 3, 2006 24 Zoran issued a press release entitled, “Zoran Corporation Announces Creation of Special 25 Committee to Continue Review of Stock Option Practices,” which disclosed that, inter alia, on 26 the recommendation of its Audit Committee, the Board had created a special committee of 27 independent members of the Board: 28

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1 to conduct a further review of the Company’s historical stock option practices. . . . The special committee is empowered to 2 review the Company’s option practices and all option grants since its initial public offering in 1995, including those option grants 3 referenced in the Company’s May 23, 2006 press release. The special committee will also make recommendations regarding the 4 Company’s ongoing option granting procedures.

5 1. The SEC and U.S. Attorney Investigate Zoran’s Stock-Option Practices 6 316. Importantly, the July 3, 2006 press release also stated, in relevant part that: 7 [Zoran] has received a grand jury subpoena from the office of the U.S. Attorney for the Northern District of California requesting 8 documents from 1995 through the present referring to, relating to, or involving stock options, and that it also has received an informal 9 inquiry from the Securities and Exchange Commission requesting documents related to the Company’s stock option grants. The 10 Company intends to cooperate fully with the office of the U.S. Attorney in connection with the subpoena and with the SEC in 11 connection with its request for information. 12 317. The formation of the special committee was disclosed after the close of NASDAQ 13 and during the July 4th holiday. While Zoran’s stock closed at $24.31 per share on July 3, 2006, 14 on July 5, 2006 it closed at a price of $21.79 per share, a drop of $2.52 per share and a company 15 specific decline of more than 10%. 16 318. Shortly thereafter, on July 24, 2006, again after the close of the market, Zoran 17 issued only selected results for its Second Quarter of 2006, and stated that it would delay 18 announcing its complete results and delay filing its quarterly report for the period until “the 19 conclusion of a previously announced review of its historical stock option practices being 20 conducted by a special committee of its Board of Directors.” Press Release, Zoran Corporation, 21 “Zoran Corporation Reports Selected Results for its Second Quarter 2006.” 22 319. Zoran’s stock price reacted sharply to the announcement due, at least in material 23 part, to the stock option review news. Although Zoran’s stock had closed at a trading price of 24 $19.73 per share on July 24, 2006, the next day it opened only at $15.00 per share and closed at 25 $14.17 per share on approximately 10 times normal volume, a drop of $5.56 and a company 26 specific decline of more than 28%. 27 28

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1 320. On October 24, 2006, again Zoran issued only selected results for its Third 2 Quarter of 2006, stating that it would announce its complete results and file its quarterly report 3 for the period “following the conclusion of a previously announced review of its historical stock 4 option practices being conducted by a special committee of its Board of Directors.” Press 5 Release, Zoran Corporation, “Zoran Corporation Reports Selected Results for its Third Quarter 6 2006.” 7 321. Zoran’s stock price reacted to the announcement due, at least in material part, to 8 the stock option review news. The stock price fell approximately $1.60 per share on 9 approximately 4 times normal volume, a company specific one day drop of more than 9%.

10 2. NASDAQ Delisting 11 322. As a result of the delay in its second quarter filing, on August 15, 2006, Zoran 12 announced in a press release entitled, “Zoran Corporation Receives NASDAQ Notice Regarding 13 Delayed Filing of Form 10-Q,” that it had received a written Staff Determination notice from 14 NASDAQ stating that it was not in compliance with NASDAQ’s Marketplace Rule 4310(c)(14), 15 because it had not timely filed its report on Form 10-Q for the quarter ended June 30, 2006 and 16 that, therefore, Zoran’s securities are subject to delisting from the NASDAQ Global Select 17 Market. 18 323. As a result of the delay in its third quarter filing, on November 15, 2006, Zoran 19 announced in a press release entitled, “Zoran Corporation Receives NASDAQ Notice Regarding 20 Delayed Filing of Form 10-Q,” that it had received a second written Staff Determination notice 21 from NASDAQ stating that it was not in compliance with NASDAQ’s Marketplace Rule 22 4310(c)(14), because it had not timely filed its report on Form 10-Q for the quarter ended 23 September 30, 2006 and that, therefore, Zoran’s securities are subject to delisting from the 24 NASDAQ Global Select Market. 25 324. The Company has remained listed pending a decision by the Listing 26 Qualifications Panel, which considered the Company’s situation at a September 27, 2006 27 hearing—later supplemented to cover the delayed third quarter filing. 28

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1 UNDISCLOSED ADVERSE FACTS 2 325. The market for Zoran’s common stock was open, well-developed and efficient at 3 all relevant times. As a result of these materially false and misleading statements and failures to 4 disclose, Zoran’s common stock traded at artificially inflated prices during the Class Period. 5 Plaintiffs and other members of the Class purchased or otherwise acquired Zoran common stock 6 relying upon the integrity of the market price of Zoran’s common stock and market information 7 relating to Zoran, and have been damaged thereby. 8 326. During the Class Period, Defendants materially misled the investing public, 9 thereby inflating the price of Zoran’s common stock, by publicly issuing false and misleading 10 statements and omitting to disclose material facts necessary to make Defendants’ statements, as 11 set forth herein, not false and misleading. Said statements and omissions were materially false 12 and misleading in that they failed to disclose material adverse information and misrepresented 13 the truth about the Company, its business and operations, as alleged herein. 14 327. At all relevant times, the material misrepresentations and omissions particularized 15 in this Complaint directly or proximately caused or were a substantial contributing cause of the 16 damages sustained by Plaintiffs and other members of the Class. As described herein, during the 17 Class Period, Defendants made or caused to be made a series of materially false or misleading 18 statements about Zoran’s business, prospects and operations. These material misstatements and 19 omissions had the cause and effect of creating in the market an unrealistically positive 20 assessment of Zoran and its business, prospects and operations, thus causing the Company’s 21 common stock to be overvalued and artificially inflated at all relevant times. When Defendants 22 partially revealed facts that provided a material basis to at least infer or deduce the truth about 23 the Company, the price inflation caused by their prior misrepresentations and omissions was at 24 least partially removed from the price of Zoran stock. Defendants’ materially false and 25 misleading statements during the Class Period resulted in Plaintiffs and other members of the 26 Class purchasing the Company’s common stock at artificially inflated prices, thus causing the 27 damages complained of herein. 28

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1 LOSS CAUSATION 2 328. As detailed herein, throughout the Class Period, the Company, the Officer 3 Defendants, the Audit Committee Defendants and the Compensation Committee Defendants 4 engaged in a scheme to deceive the market and engaged in a course of conduct that artificially 5 inflated the price of Zoran securities. As a result, Plaintiffs and the Class purchased Zoran 6 securities at artificially inflated prices and were damaged thereby when the artificial inflation 7 began to come out of the price of the securities as a result of the, at least partial, disclosures 8 during the Class Period. 9 329. Although the full extent of Zoran’s fraud has not been revealed, the allegations in 10 paragraphs 311 to 324, supra, allege the disclosures to date that at least provide a material and 11 substantial basis to infer or deduce Zoran’s true compensation practices and financial condition. 12 The truth will not be fully known until the Company files its 2006 financial statements, the 13 Company completes its special committee review, and the SEC and U.S. Attorney complete their 14 review of Zoran’s stock option practices.

15 ADDITIONAL SCIENTER ALLEGATIONS RELATED TO THE FIRST AND SECOND CLAIMS 16 330. As alleged herein, the Company, the Officer Defendants, the Compensation 17 Committed Defendants and the Audit Committee Defendants acted with scienter in that they 18 knew that the public documents and statements issued or disseminated in the name of the 19 Company were materially false and misleading; knew that such statements or documents would 20 be issued or disseminated to the investing public; and knowingly and substantially participated or 21 acquiesced in the issuance or dissemination of such statements or documents as primary 22 violations of the federal securities laws. As set forth elsewhere herein in detail, these defendants, 23 by virtue of their receipt of information reflecting the truth regarding Zoran, their control over, 24 and/or receipt and/or modification of Zoran’s allegedly false and materially misleading 25 misstatements and/or their associations with the Company which made them privy to 26 confidential proprietary information concerning Zoran, participated in the fraudulent scheme 27 alleged herein. 28

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1 331. The Company, Officer Defendants, Compensation Committee Defendants and 2 Audit Committee Defendants knew and/or recklessly disregarded the falsity and misleading 3 nature of the information that they caused to be disseminated to the investing public. The 4 ongoing fraudulent scheme described in this complaint could not have been perpetrated over a 5 substantial period of time, as has occurred, without the knowledge and complicity of the 6 personnel at the highest level of the Company, including these defendants. 7 332. With respect to the Company’s, Officer Defendants’, Compensation Committee 8 Defendants’ and Audit Committee Defendants’ false and misleading statements and omissions of 9 material fact regarding manipulation of the Company’s stock options plans, there is ample 10 support for a strong inference of intent and/or severe recklessness, including but not limited to 11 the following allegations: 12 (a) The Compensation Committee Defendants were aware of the precise 13 terms under which the Company’s stock options were granted because they were charged with 14 the responsibility of administering the stock option plans, as set forth in paragraphs 59 to 83; 15 (b) As reported by CW 1 and CW 2, the Compensation Committee worked 16 closely with the Officer Defendants in determining the terms of stock option grants. These 17 determinations were carefully controlled by the Compensation Committee Defendants and the 18 Officer Defendants. 19 (c) All of the Audit Committee Defendants were, at some point during the 20 Class Period, members of the Compensation Committee, as set forth in paragraphs 30-36; 21 (d) The Company, Officer Defendants, Compensation Committee Defendants 22 and Audit Committed Defendants were collectively responsible for the dissemination of the false 23 and misleading information regarding executive compensation contained in Zoran’s proxy 24 statements and other SEC filings; 25 (e) The Company, Officer Defendants, Compensation Committee Defendants 26 and Audit Committed Defendants knew that, despite expressly representing the Company’s full 27 28

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1 compliance with APB No. 25 and its own stock options plans, their practice of backdating 2 options violated both; 3 (f) The Officer Defendants, Compensation Committee Defendants and Audit 4 Committee Defendants were direct beneficiaries of the fraud they committed, having received 5 stock options, the exercise price of which they improperly backdated, and thus, knew or were 6 reckless in not knowing that this fraud was taking place; 7 (g) During the Class Period, Defendant Gerzberg sold at least 450,000 shares 8 of Zoran stock, including shares obtained by exercising options granted to him by the Company, 9 for proceeds of more than $12 million. On April 27, 2006, shortly before the CFRA report, he 10 sold 103,600 shares for more than $2.8 million; 11 (h) During the Class Period, Defendant Schneider sold at least 128,000 shares 12 of Zoran stock, including shares obtained by exercising options granted to him by the Company, 13 for proceeds of more than $3.6 million. Also shortly before the CFRA report, on May 1, 2006, 14 Schneider sold 113,200 shares for proceeds of more than $3 million; 15 (i) During the Class Period, Martino exercised and then sold at least 67,000 16 shares of Zoran stock, including shares obtained by exercising options granted to him by the 17 Company, for proceeds of more than $1.76 million; 18 (j) The Officer Defendants, Compensation Committee Defendants and Audit 19 Committee Defendants had strong personal motives to manipulate the exercise price of the 20 Company’s stock options, as that manipulation inured to their direct financial benefit, and to 21 those of their peers and employees; 22 (k) The Officer Defendants, Compensation Committee Defendants and Audit 23 Committee Defendants had a clear opportunity to engage in the stock option fraud alleged herein 24 as they were responsible for both the issuance of the Company’s stock option grants, and, for the 25 misrepresentation of the terms of those grants in the Company’s public filings; and 26 27 28

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1 (l) The nature of the wrong doing alleged is such that the acts covered only 2 have occurred by the knowing and intentional conduct of the Officer Defendants, Compensation 3 Committee Defendants and Audit Committee Defendants. 4 333. Additionally, the Company, Officer Defendants, Compensation Committee 5 Defendants and Audit Committee Defendants, were motivated to materially misrepresent, to the 6 SEC and investors, the true financial condition of the Company because it enabled Defendants to 7 acquire two of Zoran’s competitors: (1) in August 2003, Zoran merged with a rival Oak 8 Technology, Inc. whereby Oak became a wholly-owned subsidiary of Zoran through the 9 conversion of each outstanding share of Oak Common Stock into the right to receive 0.2323 10 shares or Zoran Common Stock and $1.78 in cash. Total consideration paid was $392.7 million, 11 of which $100.9 million was in cash, $227.5 million was in Zoran Stock and $101 million was 12 converted from Oak Stock. This acquisition enabled Zoran to expand into the high-definition 13 TV market. Until this deal, Zoran’s products were used in standard digital TVs − a low tech 14 version of televisions that are sold in China and overseas markets, rather than in the new U.S. 15 market for “HDTV”; and (2) in June 2005, Zoran acquired Oren Semiconductor for $28.4 16 million in cash and 1.l8 million shares of stock valued at $12.9 million. The Oren purchase also 17 allowed Zoran to obtain new technology for the high definition television market.

18 APPLICABILITY OF PRESUMPTION OF RELIANCE FOR DEFENDANTS’ OMISSIONS OF MATERIAL FACTS 19 UNDER THE AFFILIATED UTE DOCTRINE, AND/OR, IN THE ALTERNATIVE, UNDER THE FRAUD ON THE MARKET DOCTRINE 20 334. Plaintiffs are entitled to a presumption of reliance under Affiliated Ute v. United 21 States, 406 U.S. 128 (1972), because the claims asserted herein against defendants are primary 22 predicated upon omission of material fact, for which defendants had a duty to disclose. 23 335. In the alternative, Plaintiffs are entitled to a presumption of reliance under the 24 fraud on the market doctrine as established below. 25 336. At all relevant times, the market for Zoran’s common stock was an efficient 26 market for the following reasons, among others: 27 28

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1 (a) Zoran’s common stock met the requirements for listing, and was listed and 2 actively traded on the NASDAQ, a highly efficient and automated market; 3 (b) As a regulated issuer, Zoran filed periodic public reports with the SEC and 4 the NASDAQ; 5 (c) Zoran regularly communicated with public investors through established 6 market communication mechanisms, including through regular disseminations of press releases 7 on the national circuits of major newswire services and through other wide-ranging public 8 disclosures, such as communications with the financial press and other similar reporting services; 9 and 10 (d) Zoran was followed by more than ten securities analysts, including, “star 11 analysts”, employed by major brokerage firms, such as Oppenheimer & Co., J.P. Morgan and 12 CIBC World Markets, who wrote reports that were distributed to the public and certain 13 customers of their respective brokerage firms. Each of these reports was publicly available and 14 entered the public marketplace. 15 337. As a result of the foregoing, the market for Zoran’s common stock promptly 16 digested current information regarding Zoran from all publicly available sources and reflected 17 such information in Zoran’s stock price. Under these circumstances, all purchasers of Zoran’s 18 common stock during the Class Period suffered similar injury through their purchase of Zoran’s 19 common stock at artificially inflated prices and a presumption of reliance applies.

20 NO SAFE HARBOR 21 338. The statutory safe harbor provided for forward-looking statements under certain 22 circumstances does not apply to any of the allegedly false statements pleaded in this complaint. 23 Many of the specific statements pleaded herein were not identified as “forward-looking 24 statements” when made. To the extent there were any forward-looking statements, there were no 25 meaningful cautionary statements identifying important factors that could cause actual results to 26 differ materially from those in the purportedly forward-looking statements. Alternatively, to the 27 extent that the statutory safe harbor does apply to any forward-looking statements pleaded 28

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1 herein, Defendants are liable for those false forward-looking statements because at the time each 2 of those forward-looking statements was made, the particular speaker knew that the particular 3 forward-looking statement was false, and/or the forward-looking statement was authorized 4 and/or approved by an executive officer of Zoran who knew that those statements were false 5 when made.

6 FIRST CLAIM

7 Violation of Section 10(b) of the Exchange Act and Rule 10b-5(a), (b), and (c) Promulgated 8 Thereunder Against Zoran, The Officer Defendants, The Compensation Committee Defendants and the Audit Committee Defendants 9 339. Plaintiffs repeat and reallege allegations contained in paragraphs 1 to 337, as if 10 fully set forth herein. 11 340. During the Class Period, Zoran, the Officer Defendants, the Compensation 12 Committee Defendants and the Audit Committee Defendants carried out a plan, scheme and 13 course of conduct which was intended to and, throughout the Class Period, did: (i) deceive the 14 investing public, including Plaintiffs and other Class members, as alleged herein; (ii) artificially 15 inflate and maintain the market price of Zoran common stock; and (iii) cause Plaintiffs and other 16 members of the Class to purchase Zoran common stock at artificially inflated prices. 17 341. In furtherance of this unlawful scheme, plan and course of conduct, Zoran, the 18 Officer Defendants, the Compensation Committee Defendants and the Audit Committee 19 Defendants jointly and individually, took the actions set forth herein. These defendants: (a) 20 employed devices, schemes, and artifices to defraud; (b) made untrue statements of material fact 21 and/or omitted to state material facts necessary to make the statements not misleading; and (c) 22 engaged in acts, practices, and a course of business which operated as a fraud and deceit upon 23 the purchasers of the Company’s common stock in an effort to maintain artificially high market 24 prices for Zoran’s common stock in violation of Section 10(b) of the Exchange Act and Rule 25 10b-5. Defendants are sued either as primary participants in the wrongful and illegal conduct 26 charged herein or as controlling persons as alleged below. 27 28

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1 342. In addition to the duties of full disclosure imposed on Zoran, the Officer 2 Defendants, the Compensation Committee Defendants and the Audit Committee Defendants as a 3 result of their making affirmative statements and reports, or participation in the making of 4 affirmative statements and reports to the investing public, had a duty to promptly disseminate 5 truthful information that would be material to investors, in compliance with GAAP and the 6 integrated disclosure provisions of the SEC as embodied in SEC Regulations S-X (17 C.F.R. 7 §§ 210.01 et seq.) and S-K (17 C.F.R. §§ 229.01 et seq.) and other SEC regulations, including 8 truthful, complete and accurate information with respect to the Company’s operations and 9 performance so that the market prices of the Company’s common stock would be based on 10 truthful, complete and accurate information. 11 343. Zoran, the Officer Defendants, the Compensation Committee Defendants and the 12 Audit Committee Defendants, individually and in concert, directly and indirectly, by the use, 13 means or instrumentalities of interstate commerce and/or of the mails, engaged and participated 14 in a continuous course of conduct to conceal adverse material information about the business, 15 operations and future prospects of Zoran as specified herein. 16 344. These defendants employed devices, schemes and artifices to defraud, while in 17 possession of material adverse non-public information and engaged in acts, practices, and a 18 course of conduct as alleged herein in an effort to assure investors of Zoran’s value and 19 performance and continued substantial growth, which included the making of, or the 20 participation in the making of, untrue statements of material facts and omitting to state material 21 facts necessary in order to make the statements made about Zoran and its business operations and 22 future prospects in the light of the circumstances under which they were made, not misleading, 23 as set forth more particularly herein, and engaged in transactions, practices and a course of 24 business which operated as a fraud and deceit upon the purchasers of Zoran common stock 25 during the Class Period. 26 345. Each of the Compensation Committee Defendants’ primary liability arises from 27 the following facts: (i) the Compensation Committee Defendants were directors at the Company 28

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1 during the Class Period and were members of the Company’s Compensation Committee; (ii) 2 each of these defendants, by virtue of his responsibilities and activities as a director of the 3 Company, was privy to and participated in the creation, development and reporting of the 4 Company’s internal budgets, plans, projections and/or reports; (iii) each of these defendants 5 enjoyed significant personal contact and familiarity with the other Defendants and was advised 6 of and had access to other members of the Company’s management team, internal reports and 7 other data and information about the Company’s finances, operations, and sales at all relevant 8 times; and (iv) each of these defendants was aware of the Company’s dissemination of 9 information to the investing public which they knew or recklessly disregarded was materially 10 false and misleading. 11 346. Zoran, the Officer Defendants, the Compensation Committee Defendants and the 12 Audit Committee Defendants had actual knowledge of the misrepresentations and omissions of 13 material facts set forth herein, or acted with reckless disregard for the truth in that they failed to 14 ascertain and to disclose such facts, even though such facts were available to them. Such 15 defendants’ material misrepresentations and/or omissions were done knowingly or recklessly and 16 for the purpose and effect of concealing Zoran’s operating condition and future business 17 prospects from the investing public and supporting the artificially inflated price of its common 18 stock. As demonstrated by Zoran’s, the Officer Defendants’, the Compensation Committee 19 Defendants’ and the Audit Committee Defendants’ misstatements of the Company’s business, 20 compensation practices, operations and earnings throughout the Class Period, these defendants, if 21 they did not have actual knowledge of the misrepresentations and omissions alleged, were 22 reckless in failing to obtain such knowledge by deliberately refraining from taking those steps 23 necessary to discover whether those statements were false or misleading. 24 347. As a result of the dissemination of the materially false and misleading information 25 and failure to disclose material facts, as set forth above, the market price of Zoran’s common 26 stock was artificially inflated during the Class Period. In ignorance of the fact that market prices 27 of Zoran’s publicly-traded common stock were artificially inflated, and relying directly or 28

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1 indirectly on the false and misleading statements made by these defendants, or upon the integrity 2 of the market in which Zoran’s common stock trades, and/or on the absence of material adverse 3 information that was known to or recklessly disregarded by these defendants but not disclosed in 4 public statements by these defendants during the Class Period, Plaintiffs and the other members 5 of the Class acquired Zoran common stock during the Class Period at artificially high prices and 6 were damaged thereby. 7 348. At the time of said misrepresentations and omissions, Plaintiffs and other 8 members of the Class were ignorant of their falsity, and believed them to be true. Had Plaintiffs, 9 the other members of the Class, and the marketplace known the truth regarding Zoran’s 10 compensation practices and financial results, which were not disclosed by Defendants, Plaintiffs 11 and other members of the Class and Subclasses would not have purchased or otherwise acquired 12 their Zoran common stock, or, if they had acquired such common stock during the Class Period, 13 they would not have done so at the artificially inflated prices which they paid and would not 14 have suffered economic harm. 15 349. By virtue of the foregoing, Zoran, the Officer Defendants, the Compensation 16 Committee Defendants and the Audit Committee Defendants have violated Section 10(b) of the 17 Exchange Act, and Rule 10b-5 promulgated thereunder. 18 350. Zoran, the Officer Defendants, the Compensation Committee Defendants and the 19 Audit Committee Defendants’ fraudulent acts artificially inflated the price of Zoran securities. 20 As a result, Plaintiffs and the Class purchased Zoran securities at artificially inflated prices and 21 were damaged thereby when the artificial inflation began to come out of the price of the 22 securities as a result of the, at least partial, disclosures during the Class Period. 23 351. As a direct and proximate result of the wrongful conduct of Zoran, the Officer 24 Defendants, the Compensation Committee Defendants and the Audit Committee Defendants, 25 Plaintiffs and the other members of the Class suffered damages in connection with their 26 respective purchases and sales of the Company’s common stock during the Class Period. 27 28

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1 SECOND CLAIM

2 Violation of Section 20(a) of the Exchange Act Against the Officer Defendants, The Compensation 3 Committee Defendants and the Audit Committee Defendants 4 352. Plaintiffs repeat and reallege allegations contained in paragraphs 1 to 351, as if 5 fully set forth herein. 6 353. The Compensation Committee Defendants, Officer Defendants and Audit 7 Committee Defendants acted as controlling persons of Zoran within the meaning of Section 8 20(a) of the Exchange Act as alleged herein. By virtue of their ownership and contractual rights, 9 substantial participation in and/or awareness of the Company’s operations and/or intimate 10 knowledge of the false financial statements filed by the Company with the SEC and disseminated 11 to the investing public, the Compensation Committee Defendants, Officer Defendants and Audit 12 Committee Defendants had the power to influence and control and did influence and control, 13 directly or indirectly, the decision-making of the Company, including the content and 14 dissemination of the various statements which Plaintiffs contend are false and misleading. The 15 Compensation Committee Defendants, Officer Defendants and Audit Committee Defendants 16 were provided with or had unlimited access to copies of the Company’s reports, press releases, 17 public filings and other statements alleged by Plaintiffs to be misleading prior to and/or shortly 18 after these statements were issued and had the ability to prevent the issuance of the statements or 19 cause the statements to be corrected. 20 354. As set forth above, Zoran, the Officer Defendants, the Compensation Committee 21 Defendants and the Audit Committee Defendants each violated Section 10(b) and Rule 10b-5 by 22 their acts and omissions as alleged in this Complaint. By virtue of their positions as controlling 23 persons, the Officer Defendants, the Compensation Committee Defendants and the Audit 24 Committee Defendants are liable pursuant to Section 20(a) of the Exchange Act. As a direct and 25 proximate result of Defendants’ wrongful conduct, Plaintiffs and other members of the Class 26 suffered damages in connection with their purchases of the Company’s common stock during the 27 Class Period. 28

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1 THIRD CLAIM

2 Violation of §14(a) of the Exchange Act and Rule 14a-1 to 14a-9 By the 2005 Proxy Subclass Against Defendants Gerzberg, Galil, Burgess 3 Meindl, Owens, Stabenow, Rynne and Young 4 355. Plaintiffs repeat and reallege allegations contained in paragraphs 1 to 3, 6 to 15, 5 17 to 234, 311 to 327, as if fully set forth herein, excluding any and all allegations that contain 6 facts necessary to prove any element not required to state a §14(a) claim. 7 356. This Claim is brought pursuant to Section 14 of the Exchange Act on behalf of the 8 2005 Proxy Subclass. 9 357. Defendants caused the 2005 Proxy Statement to be issued and distributed to 10 shareholders of Zoran in order to solicit their approval of: (1) the election of eight persons to 11 serve on the Board (Shareholder Proposal No. 1); (2) the new 2005 Plan to replace the 1993 Plan 12 (Shareholder Proposal No. 2); (3) the exchange of outstanding stock options with exercise prices 13 greater than $17.00 for a smaller number of options with a lower exercise price (Shareholder 14 Proposal No. 3); and (4) the new 2005 Outside Directors Plan (Shareholder Proposal No. 4). 15 358. The 2005 Proxy Statement was a “proxy solicitation” within the meaning of 16 Section 14 of the Exchange Act. 17 359. The 2005 Proxy Statement was false and misleading in that it contained false and 18 misleading statements of material facts and failed to disclose material facts necessary to make 19 the statements made not false and misleading as described above at paragraphs 49 to 150, 199 to 20 218. 21 360. Defendants sought to secure shareholder approval of the aforementioned 22 Shareholder Proposals No. 1 through 4 by means of the materially false and misleading 2005 23 Proxy Statement and permitted the use of their names to solicit proxies from the members of the 24 2005 Proxy Subclass. 25 361. Each of the misstatements and omissions described above at paragraphs 199 to 26 218 was material to the determination by the 2005 Proxy Subclass of whether or not to approve 27 the aforementioned Shareholder Proposals No. 1, 2, 3 and/or 4. 28

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1 362. Defendants, at the time they issued or caused to be issued the 2005 Proxy 2 Statement, acted negligently in distributing and causing to be distributed the 2005 Proxy 3 Statement containing the false and misleading statements and omissions. 4 363. The 2005 Proxy Statement shareholder proposals required a majority vote of the 5 shares of Zoran at the Annual Meeting of Stockholders held on July 13, 2005. Accordingly, the 6 materially false 2005 Proxy Statement was an essential link in the approval of the 7 aforementioned Shareholder Proposals No. 1, 2, 3 and/or 4. 8 364. As a result of the foregoing, Defendants violated Section 14(a) of the Exchange 9 Act and Rules 14a-1 to 9 promulgated thereunder. 10 365. Members of the 2005 Proxy Subclass have sustained injury and damages by 11 reason of Defendants’ misrepresentations in connection with the 2005 Proxy Statement.

12 FOURTH CLAIM

13 Violation of §14(a) of the Exchange Act and Rule 14a-1 to 14a-9 By the 2006 Proxy Subclass Against Defendants Gerzberg, Galil, Burgess, Meindl 14 Owens, Rynne, Stabenow and Young 15 366. Plaintiffs repeat and reallege allegations contained in paragraphs 1 to 3, 6 to 15, 16 17 to 234, and 311 to 327, as if fully set forth herein, excluding any and all allegations that 17 contain facts necessary to prove any element not required to state a §14(a) claim. 18 367. This Claim is brought pursuant to Section 14 of the Exchange Act on behalf of the 19 2006 Proxy Subclass. 20 368. Defendants caused the 2006 Proxy Statement to be issued and distributed to 21 shareholders of Zoran in order to solicit their approval of: (1) the election of eight persons to 22 serve on the Board (Shareholder Proposal No. 1); and (2) the amendment of the 2005 Plan to 23 increase the number of available shares by 2,500,000 shares (Shareholder Proposal No. 2). 24 369. The 2006 Proxy Statement was a “proxy solicitation” within the meaning of 25 Section 14 of the Exchange Act. 26 370. The 2006 Proxy Statement was false and misleading in that it contained false and 27 misleading statements of material facts and failed to disclose material facts necessary to make 28

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1 the statements made not false and misleading as described above at paragraphs 49 to 150, 219 to 2 234. 3 371. Defendants sought to secure shareholder approval of the aforementioned 4 Shareholder Proposals No. 1 and 2 by means of the materially false and misleading 2006 Proxy 5 Statement and permitted the use of their names to solicit proxies from the members of the 2006 6 Proxy Subclass. 7 372. Each of the misstatements and omissions described above at paragraphs 219 to 8 234 was material to the determination by the 2006 Proxy Subclass of whether or not to approve 9 the aforementioned Shareholder Proposals No. 1 and/or 2. 10 373. Defendants, at the time they issued or caused to be issued the 2006 Proxy 11 Statement, acted negligently in distributing and causing to be distributed the 2006 Proxy 12 Statement containing the false and misleading statements and omissions. 13 374. The 2006 Proxy Statement shareholder proposals required a majority vote of the 14 shares of Zoran at the Annual Meeting of Stockholders held on June 22, 2006. Accordingly, the 15 materially false 2006 Proxy Statement was an essential link in the approval of the 16 aforementioned Shareholder Proposals No. 1 and/or 2. 17 375. As a result of the foregoing, Defendants violated Section 14(a) of the Exchange 18 Act and Rules 14a-1 to 9 promulgated thereunder. 19 376. Members of the 2006 Proxy Subclass have sustained injury and damages by 20 reason of Defendants’ misrepresentations in connection with the 2006 Proxy Statement. 21 WHEREFORE, Plaintiffs pray for relief and judgment, as follows: 22 (a) Determining that this action is a proper class action, certifying Lead 23 Plaintiff Middlesex and Plaintiff Capitalia AM as class representatives under Rule 23 of the 24 Federal Rules of Civil Procedure and Plaintiffs’ counsel as Lead Counsel; 25 (b) Awarding compensatory damages in favor of Plaintiffs and the other Class 26 and Subclass members against all Defendants, jointly and severally, for all damages sustained as 27 28

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1 a result of Defendants’ wrongdoing, in an amount to be proven at trial, including interest 2 thereon; 3 (c) Declaring authorizations secured by Defendants Gertzberg, Galil, Burgess, 4 Meindl, Owens, Rynne, Stabenow, and Young pursuant to the false and misleading 2005 and 5 2006 Proxy Statements null and void, requiring that any resolicitation of shareholder votes shall 6 be pursuant to Court supervision and Court approved Proxy materials, and cancelling any stock 7 options granted pursuant to the 2005 and/or 2006 Proxy Statements; 8 (d) Awarding Plaintiffs, the Class and Subclasses their reasonable costs and 9 expenses incurred in this action, including counsel fees and expert fees; and 10 (e) Such other and further equitable or monetary relief as the Court may deem 11 just and proper.

12 JURY TRIAL DEMANDED 13 Plaintiffs hereby demand a trial by jury. 14 Dated: February 1, 2007

15 Respectfully submitted,

16 LABATON SUCHAROW & RUDOFF LLP

17

18 By: /s/ Ira A. Schochet Ira A. Schochet, Esq. 19 Christopher J. Keller, Esq. Nicole M. Zeiss, Esq. 20 Andrei V. Rado, Esq. Alan I. Ellman, Esq. 21 100 Park Avenue, 12th Floor 22 New York, NY 10017 Telephone: (212) 907-0700 23 Facsimile: (212) 818-0477

24 Lead Counsel for Lead Plaintiff and the Class 25 GLANCY BINKOW & GOLDBERG LLP 26 By: /s/ Peter A. Binkow 27 28

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1 Lionel Z. Glancy #134180 Michael Goldberg #188669 2 1801 Avenue of the Stars, Suite 311 Los Angeles, California 90067 3 Telephone: (310) 201-9150 4 Facsimile: (310) 201-9160

5 Local Counsel for Lead Plaintiff and the Class 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27

28

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