<PAGE>
As filed with the Securities and Exchange Commission on October 26, 1998
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
TERAYON COMMUNICATION SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
------------------
DELAWARE 77-0328533
(State of Incorporation) (I.R.S. Employer
Identification No.)
------------------
2952 BUNKER HILL LANE
SANTA CLARA, CA 95054
(Address of principal executive offices)
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1995 STOCK OPTION PLAN
1997 EQUITY INCENTIVE PLAN
1998 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
1998 EMPLOYEE STOCK PURCHASE PLAN
Non-Plan Option Grants
(Full title of the plans)
DR. ZAKI RAKIB
CHIEF EXECUTIVE OFFICER
TERAYON COMMUNICATION SYSTEMS, INC.
2952 BUNKER HILL LANE
SANTA CLARA, CA 95054
(408) 727-4400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------
Copies to:
James C. Gaither
Karyn R. Smith
Peter M. O. Wong
Cooley Godward LLP
One Maritime Plaza
20th Floor
San Francisco, CA 94111-3580
(415) 693-2000
------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES TO AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
BE REGISTERED REGISTERED SHARE (1) PRICE (1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Stock Options and 5,505,564 $0.10-$13.00 $45,774,210.04 $12,725.23
Common Stock (par
value $0.001)
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(h). The price per share and aggregate
offering price are based upon the (a) shares subject to options previously
granted under the Terayon Communication Systems, Inc. ("Company" or
"Registrant") 1995 Stock Option Plan (the "1995 Plan"), 1997 Equity Incentive
Plan (the "1997 Plan"), 1998 Non-Employee Directors' Stock Option Plan (the
"1998 Directors' Plan") and 1998 Employee Stock Purchase Plan (the "1998
Purchase Plan") (the 1995 Plan, the 1997 Plan, the 1998 Directors' Plan and the
1998 Purchase Plan, collectively, the "Plans"), and shares subject to options
previously granted outside the Plans (pursuant to Rule 457(h) under the
Securities Act of 1933, as amended (the "Act")) and (b) the average of the high
and low prices of the Company's Common Stock as reported on the Nasdaq National
Market on October 19, 1998 for shares available for grant pursuant the Company's
1995 Stock Option Plan, 1997 Equity Incentive Plan, 1998 Non-Employee Directors'
Stock Option Plan and 1998 Employee Stock Purchase Plan, pursuant to Rule 457(c)
under the Act). The following chart shows the calculation of the registration
fee:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
TYPE OF SHARES NUMBER OF SHARES OFFERING PRICE PER AGGREGATE
SHARE OFFERING PRICE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shares issuable pursuant to outstanding options 1,202,964 $1.31 (1)(a) $1,575,882.84
under the 1995 Stock Option Plan
- ------------------------------------------------------------------------------------------------------------------------------------
Shares reserved for future grant pursuant to the 54,758 $12.57 (1)(b) $688,308.06
1995 Stock Option Plan
- ------------------------------------------------------------------------------------------------------------------------------------
Shares issuable pursuant to outstanding options 1,346,610 $5.89 (1)(a) $7,931,532.90
under the 1997 Equity Incentive Plan
- ------------------------------------------------------------------------------------------------------------------------------------
Shares reserved for future grant pursuant to the 1,901,232 $12.57 (1)(b) $23,898,486.24
1997 Equity Incentive Plan
- ------------------------------------------------------------------------------------------------------------------------------------
Shares reserved for future grant pursuant to the 200,000 $12.57 (1)(b) $2,514,000.00
1998 Non-Employee Directors' Stock Option Plan
- ------------------------------------------------------------------------------------------------------------------------------------
Shares reserved for future grant pursuant to the 700,000 $12.57 (1)(b) $8,799,000.00
1998 Employee Stock Purchase Plan
- ------------------------------------------------------------------------------------------------------------------------------------
Shares issuable pursuant to outstanding options 100,000 $3.67 (1)(a) $367,000.00
outside the Plans
- ------------------------------------------------------------------------------------------------------------------------------------
Proposed Maximum Aggregate Offering Price $45,774,210.04
- ------------------------------------------------------------------------------------------------------------------------------------
Registration Fee $12,725.23
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PART II
Item 3. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by Terayon Communication Systems, Inc. (the
"Company") with the Securities and Exchange Commission are incorporated by
reference into this Registration Statement:
(a) The Company's latest annual report on Form 10-K filed pursuant to
Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or either (1) the Company's latest prospectus filed pursuant to
Rule 424(b) under the Securities Act of 1933, as amended (the "Act"), that
contains audited financial statements for the Company's latest fiscal year for
which such statements have been filed, or (2) the Company's effective
registration statement on Form 10 or 20-F filed under the Exchange Act
containing audited financial statements for the Company's latest fiscal year.
(b) All other reports filed pursuant to Sections 13(a) or 15(d) of the
Exchange Act since the end of the fiscal year covered by the annual reports, the
prospectus or the registration statement referred to in (a) above.
(c) The description of the Company's Common Stock which is contained in a
registration statement filed under the Exchange Act, including any amendment or
report filed for the purpose of updating such description.
All reports and other documents subsequently filed by the Company pursuant
to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act prior to the filing
of a post-effective amendment which indicates that all securities offered have
been sold or which deregisters all securities then remaining unsold, shall be
deemed to be incorporated by reference herein and to be a part of this
registration statement from the date of the filing of such reports and
documents.
Item 4. DESCRIPTION OF SECURITIES
Not applicable.
Item 5. INTERESTS OF NAMED EXPERTS AND COUNSEL
The validity of the Common Stock offered hereby will be passed upon for the
Company by Cooley Godward LLP ("Cooley Godward"), San Francisco, California. As
of the date of this Registration Statement, certain partners and associates of
Cooley Godward own through investment partnerships an aggregate of 36,668 shares
of Common Stock of the Company.
Item 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware General Corporation Law, the Company has
broad powers to indemnify its directors and officers against liabilities they
may incur in such capacities, including liabilities under the Securities Act.
The Company's Bylaws require the Company to indemnify its directors and
executive officers, and permit the Company to indemnify its other officers,
employees and other agents, to the extent permitted by Delaware law. Under the
Company's Bylaws, indemnified parties are entitled to the fullest extent not
prohibited by law. The Bylaws also require the Company to advance litigation
expenses in the case of stockholder derivative actions or other actions, against
an undertaking by the indemnified party to repay such advances if it is
ultimately determined that the indemnified party is not entitled to
indemnification.
The Company has entered into indemnity agreements with each of its
directors and executive officers. Such indemnity agreements contain provisions
which are in some respects broader than the specific indemnification provisions
contained in Delaware law.
In addition, the Amended and Restated Certificate of Incorporation provides
that a director of the Company shall not be personally liable to the Company or
its stockholders for monetary damages for any breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derived an improper personal
benefit. If the Delaware General Corporation Law is amended to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director shall be eliminated or limited to
the fullest extent permitted by the Delaware General Corporation Law, as so
amended.
2
<PAGE>
Item 7. EXEMPTION FROM REGISTRATION CLAIMED
Not applicable.
Item 8. CONSULTANTS AND ADVISORS
Not applicable.
Item 9. EXHIBITS
EXHIBIT
NUMBER
4.1 Amended and Restated Certificate of Incorporation of the Company
4.2* Bylaws of the Company
4.3* Specimen Stock Certificate
5.1 Opinion of Cooley Godward LLP
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Cooley Godward LLP is contained in Exhibit 5.1 to
this Registration Statement
24.1 Power of Attorney is contained on the signature pages
99.1* 1995 Stock Option Plan, as amended on March 26, 1996
99.2* 1997 Equity Incentive Plan, as amended on June 9, 1998
99.3* 1998 Employee Stock Purchase Plan
99.4* 1998 Non-Employee Directors' Stock Option Plan
99.5 Form of Agreements used in connection with the 1995 Stock Option
Plan
99.6 Form of Agreements used in connection with the 1997 Equity
Incentive Plan
99.7 Form of Agreements used in connection with the 1998 Non-Employee
Directors' Stock Option Plan
99.8 Form of Agreements used in connection with the 1998 Employee
Stock Purchase Plan
99.9 Form of Agreements used in connection with option grants outside
the 1995 Stock Option Plan and 1997 Equity Incentive Plan
________________________
*Filed as an exhibit to the Form S-1 Registration Statement (Registration
No. 333-56911)
3
<PAGE>
Item 10. UNDERTAKINGS
1. The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) ((S) 230.424(b) of this
chapter) if, in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
Provided, however, that paragraphs (a)(i) and (a)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the issuer pursuant to
Section 13 or Section 15(d) of the Exchange Act that are incorporated by
reference herein.
(b) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
2. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of
the Exchange Act (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to
be a new registration statement relating to the securities offered herein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
3. Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-8 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF SANTA CLARA, STATE OF CALIFORNIA, ON OCTOBER 26,
1998.
TERAYON COMMUNICATION SYSTEMS, INC.
By: /s/ Ray M. Fritz
----------------------------------
Ray M. Fritz
Chief Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Dr. Zaki
Rakib and Ray M. Fritz, and each or any one of them, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in connection therewith, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitutes or
substitute, may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Zaki Rakib
- ------------------------------ Chief Executive Officer and Director October 26, 1998
DR. ZAKI RAKIB (Principal Executive Officer)
/s/ Ray M. Fritz
- ------------------------------ Chief Financial Officer (Principal October 26, 1998
RAY M. FRITZ Financial and Accounting Officer)
/s/ Shlomo Rakib
- ------------------------------ Chairman of the Board of Directors October 26, 1998
SHLOMO RAKIB
/s/ Michael D'Avella
- ------------------------------ Director October 26, 1998
MICHAEL D'AVELLA
/s/ Christopher J. Schaepe
- ------------------------------ Director October 26, 1998
CHRISTOPHER J. SCHAEPE
/s/ Lewis Solomon
- ------------------------------ Director October 26, 1998
LEWIS SOLOMON
/s/ Mark A. Stevens
- ------------------------------ Director October 26, 1998
MARK A. STEVENS
</TABLE>
5
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
4.1 Amended and Restated Certificate of Incorporation of
the Company
4.2* Bylaws of the Company
4.3* Specimen Stock Certificate
5.1 Opinion of Cooley Godward LLP
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Cooley Godward LLP is contained in
Exhibit 5.1 to this Registration Statement
24.1 Power of Attorney is contained on the signature pages
99.1* 1995 Stock Option Plan, as amended on March 26, 1996
99.2* 1997 Equity Incentive Plan, as amended on June 9,
1998
99.3* 1998 Employee Stock Purchase Plan
99.4* 1998 Non-Employee Directors' Stock Option Plan
99.5 Form of Agreements used in connection with the 1995
Stock Option Plan
99.6 Form of Agreements used in connection with the 1997
Equity Incentive Plan
99.7 Form of Agreements used in connection with the 1998
Non-Employee Directors' Stock Option Plan.
99.8 Form of Agreements used in connection with the 1998
Employee Stock Purchase Plan
99.9 Form of Agreements used in connection with option
grants outside the 1995 Stock Option Plan and 1997
Equity Incentive Plan
_________________________
* Filed as an exhibit to the Form S-1 Registration Statement (Registration
No. 333-56911)
6
<PAGE>
Exhibit 4.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
TERAYON COMMUNICATION SYSTEMS, INC.
TERAYON COMMUNICATION SYSTEMS, INC., a corporation organized and existing
under the laws of the state of Delaware (the "Corporation") hereby certifies
that:
1. The name of the Corporation is Terayon Communication Systems, Inc. The
Corporation was originally incorporated under the name Terayon Merger
Corporation.
2. The date of filing of the Corporation's original Certificate of
Incorporation was June 12, 1998.
3. The Amended and Restated Certificate of Incorporation of the
Corporation as provided in Exhibit A hereto was duly adopted in accordance with
the provisions of Section 242 and Section 245 of the General Corporation Law of
the State of Delaware by the Board of Directors of the Corporation.
4. Pursuant to Section 245 of the Delaware General Corporation Law,
approval of the stockholders of the Corporation has been obtained.
5. The Amended and Restated Certificate of Incorporation so adopted reads
in full as set forth in Exhibit A attached hereto and is hereby incorporated by
reference.
IN WITNESS WHEREOF, the undersigned has signed this certificate this 21st
day of August, 1998, and hereby affirms and acknowledges under penalty of
perjury that the filing of this Amended and Restated Certificate of
Incorporation is the act and deed of Terayon Communication Systems, Inc.
TERAYON COMMUNICATION SYSTEMS, INC.
By: /s/ Zaki Rakib
---------------------------------
Zaki Rakib
Chief Executive Officer
1
<PAGE>
EXHIBIT A
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
TERAYON COMMUNICATION SYSTEMS, INC.
I.
The name of this corporation is Terayon Communication Systems, Inc.
II.
The address of the registered office of the corporation in the State of
Delaware is 1013 Centre Road, City of Wilmington, 19805, County of New Castle
and the name of the registered agent of the corporation in the State of Delaware
at such address is Corporation Service Company.
III.
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.
IV.
This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the corporation is authorized to issue is Thirty-Five Million
(35,000,000) shares. Thirty Million (30,000,000) shares shall be Common Stock,
each having a par value of one tenth of one cent ($.001). Five Million
(5,000,000) shares shall be Preferred Stock, each having a par value of one
tenth of one cent ($.001).
The Preferred Stock may be issued from time to time in one or more series.
The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the Delaware General Corporation Law,
to fix or alter from time to time the designation, powers, preferences and
rights of the shares of each such series and the qualifications, limitations or
restrictions of any wholly unissued series of Preferred Stock, and to establish
from time to time the number of shares constituting any such series or any of
them; and to increase or decrease the number of shares of any series subsequent
to the issuance of shares of that series, but not below the number of shares of
such series then outstanding. In case the number of shares of any series shall
be decreased in accordance with the foregoing sentence, the shares constituting
such decrease shall resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
V.
A. For the management of the business and for the conduct of the affairs
of the Corporation, and in further definition, limitation and regulation of the
powers of the Corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
(1) The management of the business and the conduct of the affairs of
the Corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole
2
<PAGE>
Board of Directors shall be fixed exclusively by one or more resolutions adopted
by the Board of Directors.
(2) Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, and to any
restrictions or limitations of applicable law, following the closing of the
initial public offering pursuant to an effective registration statement under
the Securities Act of 1933, as amended, covering the offer and sale of Common
Stock to the public (the "Initial Public Offering"), the directors shall be
divided into three classes designated as Class I, Class II and Class III,
respectively. Directors shall be assigned to each class in accordance with a
resolution or resolutions adopted by the Board of Directors. At the first annual
meeting of stockholders following the closing of the Initial Public Offering,
the term of office of the Class I directors shall expire and Class I directors
shall be elected for a full term of three years. At the second annual meeting of
stockholders following the Closing of the Initial Public Offering, the term of
office of the Class II directors shall expire and Class II directors shall be
elected for a full term of three years. At the third annual meeting of
stockholders following the Closing of the Initial Public Offering, the term of
office of the Class III directors shall expire and Class III directors shall be
elected for a full term of three years. At each succeeding annual meeting of
stockholders, directors shall be elected for a full term of three years to
succeed the directors of the class whose terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this Article, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
(3) Subject to the rights of the holders of any series of Preferred
Stock, the Board of Directors or any individual director may be removed from
office at any time (i) with cause by the affirmative vote of the holders of a
majority of the voting power of all the then-outstanding shares of voting stock
of the Corporation, entitled to vote at an election of directors (the "Voting
Stock") or (ii) without cause by the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66 2/3%) of the voting power of all the then-
outstanding shares of the Voting Stock.
(4) Subject to the rights of the holders of any series of Preferred
Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
of the directors then in office, even though less than a quorum of the Board of
Directors, and not by the stockholders. Any director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term of
the director for which the vacancy was created or occurred and until such
director's successor shall have been elected and qualified.
(5) In the event that Section 2115(a) of the California Corporations
Code is applicable to this corporation, then the following shall apply:
(a) Every stockholder entitled to vote in any election of
directors of this corporation may cumulate such stockholder's votes and give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which the stockholder's shares are
otherwise entitled, or distribute the stockholder's votes on the same principle
among as many candidates as such stockholder thinks fit;
3
<PAGE>
(b) No stockholder, however, may cumulate such stockholder's
votes for one or more candidates unless (i) the names of such candidates have
been properly placed in nomination, in accordance with the Bylaws of the
Corporation, prior to the voting, (ii) the stockholder has given advance notice
to the corporation of the intention to cumulative votes pursuant to the Bylaws,
and (iii) the stockholder has given proper notice to the other stockholders at
the meeting, prior to voting, of such stockholder's intention to cumulate such
stockholder's votes; and
(c) If any stockholder has given proper notice, all stockholders
may cumulate their votes for any candidates who have been properly placed in
nomination. The candidates receiving the highest number of votes of the shares
entitled to be voted for them up to the number of directors to be elected by
such shares shall be declared elected.
B. (1) Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws
may be altered or amended or new Bylaws adopted by the affirmative vote of at
least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of
the then-outstanding shares of the Voting Stock. The Board of Directors shall
also have the power to adopt, amend, or repeal Bylaws.
(2) The directors of the Corporation need not be elected by written
ballot unless the Bylaws so provide.
(3) No action shall be taken by the stockholders of the Corporation
except at an annual or special meeting of stockholders called in accordance with
the Bylaws and following the closing of the Initial Public Offering no action
shall be taken by the stockholders by written consent.
(4) Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the Corporation shall be given in the manner provided in the
Bylaws of the Corporation.
VI.
A. A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended.
B. Any repeal or modification of this Article VI shall be prospective and
shall not affect the rights under this Article VI in effect at the time of the
alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII.
A. The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute,
4
<PAGE>
except as provided in paragraph B. of this Article VII, and all rights conferred
upon the stockholders herein are granted subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all of the then-outstanding shares of the Voting Stock, voting together
as a single class, shall be required to alter, amend or repeal Articles V, VI
and VII.
5
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF COOLEY GODWARD LLP]
October 26, 1998
Terayon Communication Systems, Inc.
2952 Bunker Hill Lane
Santa Clara, CA 95054
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by Terayon Communication Systems, Inc. (the "Company") of a
Registration Statement on Form S-8 (the "Registration Statement") with the
Securities and Exchange Commission covering the offering of up to 5,505,564
shares of the Company's Common Stock, $0.001 par value, (the "Shares"),
5,405,564 shares of which will be offered pursuant to the Company's (i) 1995
Stock Option Plan (the "1995 Plan"), (ii) 1997 Equity Incentive Plan (the "1997
Plan"), (iii) 1998 Non-Employee Directors' Stock Option Plan (the "1998
Directors' Plan") and (iv) 1998 Employee Stock Purchase Plan (the "1998 Purchase
Plan") (the 1995 Plan, the 1997 Plan, the 1998 Directors' Plan and the 1998
Purchase Plan, collectively, the "Plans"), and 100,000 shares of which will be
offered pursuant to options granted outside the Plans.
In connection with this opinion, we have examined the Registration Statement and
related Prospectus, your Certificate of Incorporation and Bylaws, as amended,
and such other documents, records, certificates, memoranda and other instruments
as we deem necessary as a basis for this opinion. We have assumed the
genuineness and authenticity of all documents submitted to us as originals, the
conformity to originals of all documents submitted to us as copies thereof, and
the due execution and delivery of all documents where due execution and delivery
are a prerequisite to the effectiveness thereof.
On the basis of the foregoing, and in reliance thereon, we are of the opinion
that the Shares, when sold and issued in accordance with the Plans, the
Registration Statement and related Prospectus, will be validly issued, fully
paid, and nonassessable (except as to shares issued pursuant to certain deferred
payment arrangements, which will be fully paid and nonassessable when such
deferred payments are made in full).
We consent to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
Cooley Godward llp
By: /s/ Deborah A. Marshall
-----------------------------------
Deborah A. Marshall
<PAGE>
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S-8) pertaining to the 1995 Stock Option Plan, the 1997 Equity
Incentive Plan, the 1998 Non-Employee Directors' Stock Option Plan, the 1998
Employee Stock Purchase Plan and Non-Plan Option Grants of Terayon
Communications Systems, Inc. of our reports dated February 6, 1998 (except for
Note 13, as to which the date is July 8, 1998), with respect to the consolidated
financial statements and schedule of Terayon Communications Systems, Inc. for
the year ended December 31, 1997, included in its Registration Statement
(Form S-1 No. 333-56911) filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
San Jose, California
October 22, 1998
<PAGE>
EXHIBIT 99.5
INCENTIVE STOCK OPTION
GRANTED PURSUANT TO THE 1995 STOCK OPTION PLAN
__________________________, Optionee:
Terayon Communication Systems, Inc. (the "Company"), pursuant to its 1995
Stock Option Plan (the "Plan"), has this day granted to you, the optionee named
above, an option to purchase shares of the common stock of the Company ("Common
Stock"). This option is intended to qualify as an "incentive stock option"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code").
The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for participation of the Company's employees
(including officers, directors and consultants) and is intended to comply with
the provisions of Rule 701 promulgated by the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Act").
The details of your option are as follows:
1. The total number of shares of Common Stock subject to this option is
_________________ (_______). Subject to the limitations contained herein, this
option shall be exercisable with respect to each installment shown below on or
after the date of vesting applicable to such installment, as follows:
DATE OF EARLIEST EXERCISE NUMBER OF SHARES
(VESTING) (INSTALLMENT)
12th months after 20% of total
Commencement Date shares subject to option
Each month thereafter 1/60 of total
until fully vested shares subject to option
The Commencement Date for purposes of this option is _____________________.
2. (a) The exercise price of this option is ________________________
($________) per share, being not less than the fair market value of the Common
Stock on the date of grant of this option.
(b) Payment of the exercise price per share is due in full upon
exercise of all or any part of each installment which has accrued to you. You
may elect, to the extent permitted by applicable statutes and regulations, to
make payment of the exercise price under one of the following alternatives:
(i) Payment of the exercise price per share in cash (including
check) at the time of exercise;
<PAGE>
(ii) Payment pursuant to a program developed under Regulation T
as promulgated by the Federal Reserve Board which results in the receipt of cash
(or check) by the Company prior to the issuance of Common Stock;
(iii) Provided that at the time of exercise the Company's Common
Stock is publicly traded and quoted regularly in the Wall Street Journal,
payment by delivery of already-owned shares of Common Stock, held for the period
required to avoid a charge to the Company's reported earnings, and owned free
and clear of any liens, claims, encumbrances or security interests, which Common
Stock shall be valued at its fair market value on the date of exercise;
(iv) Provided that the option exercise price for the
installment, or portion thereof, being purchased exceeds one thousand dollars
($1,000), payment pursuant to the deferred payment alternative as described in
paragraph 2(c) hereof; or
(v) Payment by a combination of the methods of payment
permitted by subparagraph 2(b)(i) through 2(b)(iv) above.
(c) In the event that you elect to make payment of the exercise
price pursuant to the deferred payment alternative:
(i) Not less than twenty-five percent (25%) of the aggregate
exercise price shall be due at the time of exercise, not less than twenty-five
percent (25%) of said exercise price, plus accrued interest, shall be due each
year after the date of exercise, and final payment of the remainder of the
exercise price, plus accrued interest, shall be due three (3) years from date of
exercise or, at the Company's election, upon termination of your employment with
the Company or an affiliate;
(ii) Interest shall be payable at least annually and shall be
charged at the minimum rate of interest necessary to avoid the treatment as
interest, under any applicable provisions of the Code, of any portion of any
amounts other than amounts stated to be interest under the deferred payment
arrangement; and
(iii) In order to elect the deferred payment alternative, you
must, as a part of your written notice of exercise, give notice of the election
of this payment alternative and, in order to secure the payment of the deferred
exercise price to the Company hereunder, if the Company so requests, you must
tender to the Company a promissory note and a security agreement covering the
purchased shares, both in form and substance satisfactory to the Company, or
such other or additional documentation as the Company may request.
3. This option may not be exercised for any number of shares which would
require the issuance of anything other than whole shares.
4. Notwithstanding anything to the contrary contained herein, this option
may not be exercised unless the shares issuable upon exercise of this option are
then registered under the Act or, if such shares are not then so registered, the
Company has determined that such exercise and issuance would be exempt from the
registration requirements of the Act.
5. The term of this option commences on the date hereof and, unless
sooner terminated as set forth below or in the Plan, terminates on
___________________________ (which date shall be no
2
<PAGE>
more than ten (10) years from date this option is granted). In no event may this
option be exercised on or after the date on which it terminates. This option
shall terminate prior to the expiration of its term as follows: three (3) months
after the termination of your employment with the Company or an affiliate of the
Company (as defined in the Plan) for any reason or for no reason unless:
(a) such termination of employment is due to your disability, in
which event the option shall terminate on the earlier of the termination date
set forth above or twelve (12) months following such termination of employment;
or
(b) such termination of employment is due to your death, in which
event the option shall terminate on the earlier of the termination date set
forth above or eighteen (18) months after your death; or
(c) during any part of such three (3) month period the option is not
exercisable solely because of the condition set forth in paragraph 5 above, in
which event the option shall not terminate until the earlier of the termination
date set forth above or until it shall have been exercisable for an aggregate
period of three (3) months after the termination of employment; or
(d) exercise of the option within three (3) months after termination
of your employment with the Company or with an affiliate would result in
liability under section 16(b) of the Securities Exchange Act of 1934, in which
case the option will terminate on the earlier of (i) the termination date set
forth above, (ii) the tenth (10th) day after the last date upon which exercise
would result in such liability or (iii) six (6) months and ten (10) days after
the termination of your employment with the Company or an affiliate.
However, this option may be exercised following termination of employment
only as to that number of shares as to which it was exercisable on the date of
termination of employment under the provisions of paragraph 1 of this option.
Termination of employment, for ISO purposes, includes cessation of employment,
but continued service as a director or consultant (notwithstanding that your
continuous status will not have terminated for purpose of this Stock Option
Agreement or the Plan).
6. (a) This option may be exercised, to the extent specified above, by
delivering a notice of exercise (in a form designated by the Company) together
with the exercise price to the Secretary of the Company, or to such other person
as the Company may designate, during regular business hours, together with such
additional documents as the Company may then require pursuant to subparagraph
6(f) of the Plan.
(b) By exercising this option you agree that:
(i) the Company may require you to enter an arrangement
providing for the payment by you to the Company of any tax withholding
obligation of the Company arising by reason of (1) the exercise of this option;
(2) the lapse of any substantial risk of forfeiture to which the shares are
subject at the time of exercise; or (3) the disposition of shares acquired upon
such exercise;
(ii) you will notify the Company in writing within fifteen (15)
days after the date of any disposition of any of the shares of the Common Stock
issued upon exercise of this option that occurs within two (2) years after the
date of this option grant or within one (1) year after such shares of Common
Stock are transferred upon exercise of this option; and
3
<PAGE>
(iii) the Company (or a representative of the underwriters) may,
in connection with the first underwritten registration of the offering of any
securities of the Company under the Act, require that you not sell or otherwise
transfer or dispose of any shares of Common Stock or other securities of the
Company during such period (not to exceed one hundred eighty (180) days)
following the effective date (the "Effective Date") of the registration
statement of the Company filed under the Act as may be requested by the Company
or the representative of the underwriters. For purposes of this restriction you
will be deemed to own securities which (i) are owned directly or indirectly by
you, including securities held for your benefit by nominees, custodians, brokers
or pledgees; (ii) may be acquired by you within sixty (60) days of the Effective
Date; (iii) are owned directly or indirectly, by or for your brothers or sisters
(whether by whole or half blood) spouse, ancestors and lineal descendants; or
(iv) are owned, directly or indirectly, by or for a corporation, partnership,
estate or trust of which you are a shareholder, partner or beneficiary, but only
to the extent of your proportionate interest therein as a shareholder, partner
or beneficiary thereof. You further agree that the Company may impose stop-
transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such period.
7. This option is not transferable, except by will or by the laws of
descent and distribution, and is exercisable during your life only by you. By
delivering written notice to the Company, in a form satisfactory to the Company,
you may designate a third party who, in the event of your death, shall
thereafter be entitled to exercise this option.
8. This option is not an employment contract and nothing in this option
shall be deemed to create in any way whatsoever any obligation on your part to
continue in the employ of the Company, or of the Company to continue your
employment with the Company.
9. Any notices provided for in this option or the Plan shall be given in
writing and shall be deemed effectively given upon receipt or, in the case of
notices delivered by the Company to you, five (5) days after deposit in the
United States mail, postage prepaid, addressed to you at the address specified
below or at such other address as you hereafter designate by written notice to
the Company.
4
<PAGE>
10. This option is subject to all the provisions of the Plan, a copy of
which is attached hereto and its provisions are hereby made a part of this
option, including without limitation the provisions of paragraph 6 of the Plan
relating to option provisions, and is further subject to all interpretations,
amendments, rules and regulations which may from time to time be promulgated and
adopted pursuant to the Plan. In the event of any conflict between the
provisions of this option and those of the Plan, the provisions of the Plan
shall control.
Dated the _____ day of __________________, 19___.
Very truly yours,
TERAYON COMMUNICATION SYSTEMS, INC.
By_______________________________________
Duly authorized on behalf
of the Board of Directors
ATTACHMENTS:
1995 Stock Option Plan
Notice of Exercise
5
<PAGE>
The undersigned:
(a) Acknowledges receipt of the foregoing option and the attachments
referenced therein and understands that all rights and liabilities with respect
to this option are set forth in the option and the Plan; and
(b) Acknowledges that as of the date of grant of this option, it
sets forth the entire understanding between the undersigned optionee and the
Company and its affiliates regarding the acquisition of stock in the Company and
supersedes all prior oral and written agreements on that subject with the
exception of (i) the options previously granted and delivered to the undersigned
under stock option plans of the Company, and (ii) the following agreements only:
NONE ______________________
(Initial)
OTHER ___________________________________
___________________________________
___________________________________
____________________________________________
______________________________, OPTIONEE
Address:____________________________________
____________________________________________
____________________________________________
6
<PAGE>
NOTICE OF EXERCISE
Terayon Communication Systems, Inc.
2952 Bunker Hill Lane
Santa Clara, CA 95054
Date of Exercise:___________
Ladies and Gentlemen:
This constitutes notice under my stock option that I elect to purchase the
number of shares for the price set forth below.
Type of option: ___ Incentive ___ Nonstatutory
Stock option dated: ____________________
Number of shares as
to which option is
exercised: ____________________
Certificates to be
issued in name of: ____________________
Total exercise price: $___________________
Cash payment delivered
herewith: $___________________
Value of ______ shares of
common stock delivered herewith/1/: $___________________
_____________________________
/1/ Shares must meet the public trading requirements set forth in the option.
Shares must be valued in accordance with the terms of the option being
exercised, must have been owned for the minimum period required in the option,
and must be owned free and clear of any liens, claims, encumbrances or security
interests. Certificates must be endorsed or accompanied by an executed
assignment separate from certificate.
7
<PAGE>
By this exercise, I agree (i) to provide such additional documents as you
may require pursuant to the terms of the Company's 1995 Stock Option Plan, (ii)
to provide for the payment by me to you (in the manner designated by you) of
your withholding obligation, if any, relating to the exercise of the Option, and
(iii) to the extent the Option is an incentive stock option, to notify you in
writing within fifteen (15) days after the date of any disposition of any of the
shares of Common Stock issued upon exercise of this Option that occurs within
two (2) years after the date of grant of the Option or within one (1) year after
--
such shares of Common Stock are issued upon exercise of the Option.
I further agree that, if required by the Company (or a representative of
the underwriters) in connection with the first underwritten registration of the
offering of any securities of the Company under the Securities Act, I will not
sell or otherwise transfer or dispose of any shares of Common Stock or other
securities of the Company during such period (not to exceed one hundred eighty
(180) days following the effective date of the registration statement of the
Company filed under the Securities Act as may be requested by the Company or
representatives of the underwriters. I further agree that the Company may
impose stop-transfer instructions with respect to securities subject to the
foregoing restrictions until the end of such period.
Very truly yours,
______________________________________
8
<PAGE>
EARLY EXERCISE STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made by and between TERAYON COMMUNICATION SYSTEMS, INC.,
a Delaware corporation (the "Corporation"), and ________________ ("Purchaser").
WITNESSETH:
WHEREAS, Purchaser holds an incentive/non-statutory stock option to
purchase shares of common stock of the Corporation pursuant to the Corporation's
1995 Stock Option Plan (the "Plan") which Purchaser desires to exercise; and
WHEREAS, Purchaser wishes to take advantage of the early exercise provision
of his option and therefore to enter into this Agreement;
NOW, THEREFORE, IT IS AGREED between the parties as follows:
1. Purchaser hereby agrees to purchase from the Corporation, and the
Corporation hereby agrees to sell to Purchaser, an aggregate of _______ shares
of the common stock (the "Stock") of the Corporation, for an exercise price of
$_______ per share (total exercise price: _______________ ($________)), payable
as follows:
Cash at Closing $__________________________
Promissory Note in the form $__________________________
of Exhibit E (the "Note")
Value of _____ shares of Terayon $__________________________
Communication Systems, Inc.
common stock/1/
Total Exercise Price $__________________________
The closing hereunder shall occur at the offices of the Corporation on the
date of this Agreement or at such other time and place as the parties may
mutually agree upon in writing.
At the closing, Purchaser shall deliver three (3) stock assignments in the
form of Exhibit B, duly endorsed (with date and number of shares left blank),
joint escrow instructions (the "Joint Escrow Instructions") in the form of
Exhibit C, duly executed by Purchaser, and the total exercise price (including
an executed Note in the form of Exhibit E if a portion of the total exercise
price is to be paid by promissory note) and an executed pledge agreement in the
form of
___________________________
/1/ Shares must meet the public trading requirements set forth in the option.
Shares must be valued in accordance with the terms of the option being
exercised, must have been owned for the minimum period required in the option,
and must be owned free and clear of any liens, claims, encumbrances or security
interests. Certificates must be endorsed or accompanied by an executed
assignment separate from certificate.
9
<PAGE>
Exhibit F (the "Pledge Agreement") under which all shares of the Stock
acquired by Note shall be pledged as collateral security for the payment of the
indebtedness represented by the Note; and including endorsed certificates
representing the appropriate number of shares of the Corporation's common stock
if a portion of the total exercise price is to be paid by common stock.
At the closing or as soon thereafter as practicable, the Corporation shall
deliver to the Escrow Agent (as defined in paragraph 8 below) share certificates
for all of the Stock that is to be subject to the Purchase Option (as defined in
paragraph 2 below), and shall deliver share certificates to Purchaser for all of
the Stock, if any, that is not to be subject to the Purchase Option or the
Pledge Agreement. The certificates for all of the Stock that is subject to the
Pledge Agreement but not the Purchase Option shall be retained by the
Corporation as security pursuant to the Pledge Agreement.
2. In accordance with the provisions of section 408(b) of the California
General Corporation Law, the Stock to be purchased by Purchaser pursuant to this
Agreement shall be subject to the following option ("Purchase Option"):
(a) In the event that Purchaser shall cease to be an employee of the
Corporation for any reason (including his death), or no reason, with or without
cause, the Purchase Option may be exercised. The Corporation shall have the
right at any time within sixty (60) days after such cessation of employment to
purchase from Purchaser or his personal representative, as the case may be, at
the price per share paid by Purchaser pursuant to this Agreement ("Option
Price"), up to but not exceeding the number of shares of the Stock set forth on
Exhibit A hereto which is incorporated herein by this reference.
(b) In addition, and without limiting the foregoing Purchase Option,
if at any time during the term of the Purchase Option, there occurs: (a) a
dissolution or liquidation of the Corporation; (b) a merger or consolidation
involving the Corporation in which the Corporation is not the surviving
corporation; (c) a reverse merger in which the Corporation is the surviving
corporation but the shares of the Corporation's common stock outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of other securities, cash or otherwise; or
(d) any other capital reorganization in which more than fifty percent (50%) of
the shares of the Corporation entitled to vote are exchanged, then: (i) if
there is no successor to the Corporation, the Corporation shall have the right
to exercise its Purchase Option as to all or any portion of the Stock then
subject to the Purchase Option set forth above to the same extent as if
Purchaser's employment by the Corporation had ceased on the date preceding the
date of consummation of said event or transaction or (ii) the Purchase Option
may be assigned to any successor of the Corporation, and the Purchase Option
shall apply if Purchaser shall cease for any reason to be an employee of such
successor on the same basis as set forth above. In that case, references herein
to the "Corporation" shall be deemed to refer to such successor.
(c) The Corporation shall be entitled to pay for any shares
purchased pursuant to its Purchase Option at the Corporation's option in cash,
by offset against any indebtedness given in payment for the Stock, or a
combination of both.
10
<PAGE>
(d) As used herein, employee, employment and similar terms shall
including acting as a consultant or director of the Corporation, and employment
with the Corporation shall include employment with an affiliate of the
Corporation.
(e) This Agreement is not an employment contract and nothing in this
Agreement shall be deemed to create in any way whatsoever any obligation on the
part of Purchaser to continue in the employ of the Corporation, or of the
Corporation to continue Purchaser in the employ of the Corporation.
(f) In the event that the Stock's fair market value (as defined in
the Plan) is equal to or exceeds the Option Price on the date that the
Purchaser ceases to be employed, the Company shall exercise its purchase
option to the extent permitted by law.
3. The Purchase Option may be exercised by giving written notice of
exercise delivered or mailed as provided in paragraph 14. Upon providing of
such notice and payment or tender of the purchase price, the Corporation shall
become the legal and beneficial owner of the Stock being purchased and all
rights and interests therein or related thereto.
4. If from time to time during the term of the Purchase Option there is
any stock dividend or liquidating dividend or distribution of cash and/or
property, stock split or other change in the character or amount of any of the
outstanding securities of the Corporation, then, in such event, any and all new,
substituted or additional securities or other property to which Purchaser is
entitled by reason of his ownership of Stock will be immediately subject to the
Purchase Option and be included in the word "Stock" for all purposes of the
Purchase Option with the same force and effect as the shares of Stock then
subject to the Purchase Option. While the total Option Price shall remain the
same after each such event, the Option Price per share of Stock upon exercise of
the Purchase Option shall be appropriately adjusted.
5. All certificates representing any shares of Stock of the Corporation
subject to the provisions of this Agreement shall have endorsed thereon legends
in substantially the following form:
(i) "The shares represented by this certificate are subject
to an option set forth in an agreement between the corporation and the
registered holder, or his predecessor in interest, a copy of which is on file
at the principal office of this corporation. Any transfer or attempted
transfer of any shares subject to such option is void without the prior
express written consent of the issuer of these shares."
(ii) "These securities have not been registered under the
Securities Act of 1933. They may not be sold, offered for sale, pledged or
hypothecated in the absence of an effective registration statement as to the
securities under said Act or an opinion of counsel satisfactory to the
corporation that such registration is not required."
(iii) Any legend required to be placed thereon by the California
Commissioner of Corporations.
6. Purchaser acknowledges that he is aware that the Stock to be issued to
him by the Corporation pursuant to this Agreement has not been registered under
the Securities Act of 1933,
11
<PAGE>
as amended (the "Act"), on the basis that no distribution or public offering
of the Stock is to be effected, and in this connection acknowledges that the
Corporation is relying on the following representations. In this connection,
Purchaser warrants and represents to the Corporation that he is acquiring the
Stock for investment and not with a view to or for sale in connection with any
distribution of the Stock or with any present intention of distributing or
selling the Stock and he does not presently have reason to anticipate any
change in circumstances or any particular occasion or event which would cause
him to sell the Stock. Purchaser recognizes that the Stock must be held
indefinitely unless it is subsequently registered under the Act or an
exemption from such registration is available and, further, recognizes that
the Corporation is under no obligation to register the Stock or to comply with
any exemption from such registration.
7. Purchaser is aware that the Stock may not be sold pursuant to Rule 144
adopted under the Act unless certain conditions are met and until Purchaser has
held the Stock for at least two (2) years. Among the conditions for use of Rule
144 is the availability of specified current public information about the
Corporation. Purchaser recognizes that the Corporation presently has no plans
to make such information available to the public.
Whether or not the Purchase Option is exercised or has lapsed, Purchaser
further agrees not to make any disposition of any of the Stock in any event
unless and until:
(a) There is then in effect a registration statement under the Act
covering such proposed disposition and such disposition is made in accordance
with such registration statement; or
(b) (i) Purchaser shall have notified the Corporation of the
proposed disposition and shall have furnished the Corporation with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii)
Purchaser shall have given the Corporation an opinion of counsel, which
opinion and counsel shall be satisfactory to the Corporation, to the effect
that such disposition will not require registration of the Stock under the
Act.
8. As security for his faithful performance of the terms of this
Agreement and to insure the availability for delivery of Purchaser's Stock
upon exercise of the Purchase Option herein provided for, Purchaser agrees, at
the closing hereunder (or as soon thereafter as practicable), to deliver (or
have the Corporation deliver on the Purchaser's behalf) to and deposit with
the Secretary of the Corporation ("Escrow Agent"), as Escrow Agent in this
transaction, three (3) stock assignments duly endorsed (with date and number
of shares left blank) in the form attached hereto as Exhibit B, together with
a certificate or certificates evidencing all of the Stock subject to the
Purchase Option; said documents are to be held by the Escrow Agent and
delivered by said Escrow Agent pursuant to the Joint Escrow Instructions of
the Corporation and Purchaser set forth in Exhibit C attached hereto and
incorporated herein by this reference, which instructions shall also be
delivered to the Escrow Agent at the closing hereunder (or as soon thereafter
as practicable). If a portion of the total purchase price is paid by a
promissory note, the Stock is also subject to the Pledge Agreement, and
possession of the certificates and stock assignments by the Escrow Agent shall
also constitute possession by the Corporation of such instruments pursuant to
the Pledge Agreement.
12
<PAGE>
9. Purchaser shall not sell or transfer any of the Stock subject to the
Purchase Option or any interest therein so long as such Stock is subject to the
Purchase Option or the Pledge Agreement.
10. The Corporation shall not be required (i) to transfer on its books any
shares of Stock of the Corporation which shall have been sold or transferred in
violation of any of the provisions set forth in this Agreement or (ii) to treat
as owner of such shares or to accord the right to vote as such owner or to pay
dividends to any transferee to whom such shares shall have been so transferred.
11. Subject to the provisions of paragraphs 9 and 10 above, Purchaser (but
not any unapproved transferee) shall, during the term of this Agreement,
exercise all rights and privileges of a stockholder of the Corporation with
respect to the Stock.
12. Purchaser acknowledges receipt of a copy of Section 260.141.11 of
Title 10 of the California Code of Regulations, attached hereto as Exhibit D.
13. The parties agree to execute such further instruments and to take such
further action as reasonably may be necessary to carry out the intent of this
Agreement.
14. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
any United States Post Office Box, by registered or certified mail with postage
and fees prepaid, addressed to the other party hereto at his address hereinafter
shown below his signature or at such other address as such party may designate
by ten (10) days' advance written notice to the other party hereto.
15. This Agreement shall bind and inure to the benefit of the successors
and assigns of the Corporation and, subject to the restrictions on transfer
herein set forth, inure to the benefit of and be binding upon Purchaser, his
heirs, executors, administrators, successors, and assigns. Without limiting the
generality of the foregoing, the Purchase Option of the Corporation hereunder
shall be assignable by the Corporation at any time or from time to time, in
whole or in part. Should the right of repurchase be assigned by the
Corporation, the assignee shall pay to the
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<PAGE>
Corporation cash equal to the excess, if any, of the Stock's Fair Market Value
(as defined in the Plan) over the Option Price.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the ____ day of __________, 19__.
TERAYON COMMUNICATION SYSTEMS, INC.
By:_________________________________
Address: 2952 Bunker Hill Lane
Santa Clara, CA 95054
____________________________________
Purchaser
Address: ___________________________
___________________________
ATTACHMENTS:
Exhibit A Vesting Schedule
Exhibit B Assignment Separate from Certificate
Exhibit C Joint Escrow Instructions
Exhibit D California Code of Regulations, Title 10, Section 260.141.11
Exhibit E Promissory Note
Exhibit F Stock Pledge Agreement
14
<PAGE>
EXHIBIT A
VESTING SCHEDULE
NUMBER OF SHARES SUBJECT TO
IF CESSATION OF EMPLOYMENT OCCURS: PURCHASE OPTION:
Before __________, 19 __________ shares
After __________, 19 __________ shares
but before __________ , 19
After __________, 19 __________ shares
but before __________ , 19
After __________, 19 __________ shares
but before __________ , 19
After __________, 19 __________ shares
but before __________ , 19
After __________, 19 __________ shares
but before __________ , 19
After __________, 19 __________ shares
but before __________ , 19
After __________, 19 __________ shares
but before __________ , 19
After __________, 19 __________ shares
but before __________ , 19
After __________, 19 __________ shares
but before __________ , 19
After __________, 19 __________ shares
but before __________ , 19
15
<PAGE>
EXHIBIT B
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Early Exercise Stock
Purchase Agreement dated as of ____________, 19__ (the "Agreement"),
_________________________ hereby sells, assigns and transfers unto
_____________________________________________ (_________) shares of common stock
of Terayon Communication Systems, Inc., a Delaware corporation, standing in the
undersigned's name on the books of said corporation represented by Certificate
No. _____ herewith, and does hereby irrevocably constitute and appoint
__________________________ attorney to transfer the said stock on the books of
the said corporation with full power of substitution in the premises. This
Assignment may be used only in accordance with and subject to the terms and
conditions of the Agreement, in connection with the repurchase of shares of
Common Stock issued to the undersigned pursuant to the Agreement, and only to
the extent that such shares remain subject to the Company's Purchase Option
under the Agreement.
Dated:______________________
___________________________________
Signature
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EXHIBIT C
JOINT ESCROW INSTRUCTIONS
Terayon Communication Systems, Inc.
2952 Bunker Hill Lane
Santa Clara, CA 95054
Attn: Secretary
Dear Sir or Madam:
As Escrow Agent for both Terayon Communication Systems, Inc., a Delaware
corporation ("Corporation"), and the undersigned purchaser of stock of the
Corporation ("Purchaser"), you are hereby authorized and directed to hold the
documents delivered to you pursuant to the terms of that certain Early Exercise
Stock Purchase Agreement ("Agreement"), dated ____________________, to which a
copy of these Joint Escrow Instructions is attached as Exhibit C, in accordance
with the following instructions:
1. In the event the Corporation or an assignee shall elect to exercise
the Purchase Option set forth in the Agreement, the Corporation or its assignee
will give to Purchaser and you a written notice specifying the number of shares
of stock to be purchased, the purchase price, and the time for a closing
hereunder at the principal office of the Corporation. Purchaser and the
Corporation hereby irrevocably authorize and direct you to close the transaction
contemplated by such notice in accordance with the terms of said notice.
2. At the closing you are directed (a) to date any stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Corporation against the
simultaneous delivery to you of the purchase price (which may include suitable
acknowledgment of cancellation of indebtedness) of the number of shares of stock
being purchased pursuant to the exercise of the Purchase Option.
3. Purchaser irrevocably authorizes the Corporation to deposit with you
any certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as specified in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as his attorney-in-
fact and agent for the term of this escrow to execute with respect to such
securities and other property all documents of assignment and/or transfer and
all stock certificates necessary or appropriate to make all securities
negotiable and complete any transaction herein contemplated.
4. This escrow shall terminate upon expiration or exercise in full of the
Purchase Option, whichever occurs first.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of same to Purchaser and shall be discharged of all
further obligations hereunder; provided, however, that if at the time of
termination of this escrow you are advised by the Corporation that the property
17
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subject to this escrow is the subject of a pledge or other security agreement,
you shall deliver all such property to the pledgeholder or other person
designated by the Corporation.
6. Except at otherwise provided in these Joint Escrow Instructions, your
duties hereunder may be altered, amended, modified or revoked only by a writing
signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties or
their assignees. You shall not be personally liable for any act you may do or
omit to do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while
acting in good faith and any act done or omitted by you pursuant to the advice
of your own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law, and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court.
In case you obey or comply with any such order, judgment or decree of any court,
you shall not be liable to any of the parties hereto or to any other person,
firm or corporation by reason of such compliance, notwithstanding any such
order, judgment or decree being subsequently reversed, modified, annulled, set
aside, vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authority or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under any
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel (including without
limitation the firm of Cooley Godward llp) and other experts as you may deem
necessary properly to advise you in connection with your obligations hereunder,
may rely upon the advice of such counsel, and may pay such counsel reasonable
compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate if you
shall cease to be Secretary of the Corporation or if you shall resign by written
notice to each party. In the event of any such termination, the Corporation may
appoint any officer or assistant officer of the Corporation as successor Escrow
Agent and Purchaser hereby confirms the appointment of such successor or
successors as his attorney-in-fact and agent to the full extent of your
appointment.
13. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the securities, you
may (but are not obligated
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to) retain in your possession without liability to anyone all or any part of
said securities until such dispute shall have been settled either by mutual
written agreement of the parties concerned or by a final order, decree or
judgment of a court of competent jurisdiction after the time for appeal has
expired and no appeal has been perfected, but you shall be under no duty
whatsoever to institute or defend any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
any United States Post Box, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties hereunto entitled at the
following addresses, or at such other addresses as a party may designate by ten
days' written notice to each of the other parties hereto:
CORPORATION: TERAYON COMMUNICATION SYSTEMS, INC.
2952 Bunker Hill Lane
Santa Clara, CA 95054
PURCHASER: ___________________________________
___________________________________
___________________________________
SECRETARY: Secretary
TERAYON COMMUNICATION SYSTEMS, INC.
2952 Bunker Hill Lane
Santa Clara, CA 95054
16. By signing these Joint Escrow Instructions you become a party hereto
only for the purpose of said Joint Escrow Instructions; you do not become a
party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns. It is
understood and agreed that references to "you" or "your" herein refer to the
original Escrow Agent and to any and all successor Escrow
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Agents. It is understood and agreed that the Corporation may at any time or
from time to time assign its rights under the Agreement and these Joint Escrow
Instructions in whole or in part.
Very truly yours,
______________________________________
By____________________________________
PURCHASER:
______________________________________
ESCROW AGENT:
___________________________________
Secretary
TERAYON COMMUNICATION SYSTEMS, INC.
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EXHIBIT D
CALIFORNIA CODE OF REGULATIONS, TITLE 10, SECTION 260.141.11
21
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EXHIBIT E
PROMISSORY NOTE
$_______________ _____________, Delaware
______________, 199_
FOR VALUE RECEIVED, the undersigned hereby unconditionally promises to pay
to the order of TERAYON COMMUNICATION SYSTEMS, INC., a Delaware corporation (the
"Company"), at Santa Clara, California, or at such other place as the holder
hereof may designate in writing, in lawful money of the United States of America
and in immediately available funds, the principal sum of ________________
Dollars ($_________) together with interest accrued from the date hereof on the
unpaid principal at the rate of ______%/2/ per annum, or the maximum rate
permissible by law (which under the laws of the State of California shall be
deemed to be the laws relating to permissible rates of interest on commercial
loans), whichever is less, as follows:
PRINCIPAL REPAYMENT. The outstanding principal amount hereunder shall
be subject to scheduled amortized repayments on the dates and in the
amounts listed below.
PRINCIPAL REPAYMENT DATE REPAYMENT AMOUNT
INTEREST PAYMENTS. Interest shall be payable in arrears on each
Principal Repayment Date and shall be calculated on the basis of a 360-day
year for the actual number of days elapsed;
provided, however, that in the event that the undersigned's employment by or
association with the Company is terminated for any reason prior to payment in
full of this Note, this Note shall be accelerated and all remaining unpaid
principal and interest shall become due and payable immediately after such
termination.
If the undersigned fails to pay any of the principal and accrued interest
when due, the Company, at its sole option, shall have the right to accelerate
this Note, in which event the entire principal balance and all accrued interest
shall become immediately due and payable, and immediately collectible by the
Company pursuant to applicable law.
This Note may be prepaid at any time without penalty. All money paid
toward the satisfaction of this Note shall be applied first to the payment of
interest as required hereunder and then to the retirement of the principal.
The full amount of this Note is secured by a pledge of shares of Common
Stock of the Company, and is subject to all of the terms and provisions of the
Early Exercise Stock Purchase
___________________________
/2/ Check with Tax Department attorney to get applicable interest rate for the
month the note is made and for the terms thereof. Note that not using the
appropriate interest rate may result in there being imputed interest income.
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Agreement and the Pledge Agreement, each of even date herewith between the
undersigned and the Company.
The undersigned hereby represents and agrees that the amounts due under
this Note are not consumer debt, and are not incurred primarily for personal,
family or household purposes, but are for business and commercial purposes only.
The undersigned hereby waives presentment, protest and notice of protest,
demand for payment, notice of dishonor and all other notices or demands in
connection with the delivery, acceptance, performance, default or endorsement of
this Note.
The holder hereof shall be entitled to recover, and the undersigned agrees
to pay when incurred, all costs and expenses of collection of this Note,
including without limitation, reasonable attorneys' fees.
This Note shall be governed by, and construed, enforced and interpreted in
accordance with, the laws of the State of California, excluding conflict of laws
principles that would cause the application of laws of any other jurisdiction.
Signed_______________________________
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EXHIBIT F
STOCK PLEDGE AGREEMENT
1. As collateral security for the payment of that certain promissory note
in principal amount of $______________ issued this date to _____________________
("Pledgee") by the undersigned (hereinafter called "indebtedness"), the
undersigned hereby assigns, transfers to and pledges with the Pledgee the
securities listed on Schedule 1 hereto which were this day delivered to be
deposited with Pledgee, together with any stock rights, rights to subscribe,
dividends paid in cash or other property in connection with the complete or
partial liquidation of Pledgee, stock dividends, dividends paid in stock, new
securities or other property except cash dividends other than liquidating
dividends to which the undersigned is or may hereafter become entitled to
receive on account of such property, and in the event that the undersigned
receives any such, the undersigned will immediately deliver it to Pledgee to be
held by Pledgee hereunder in the same manner as the property originally pledged
hereunder. All property assigned, transferred to and pledged with Pledgee under
this paragraph is hereinafter called "collateral."
2. At any time, without notice, and at the expense of the undersigned,
Pledgee in its name or in the name of its nominee or of the undersigned may, but
shall not be obligated to: (1) collect by legal proceedings or otherwise all
dividends (except cash dividends other than liquidating dividends), interest,
principal payments and other sums now or hereafter payable upon or on account of
said collateral; (2) enter into any extension, reorganization, deposit, merger,
or consolidation agreement, or any agreement in any wise relating to or
affecting the collateral, and in connection therewith may deposit or surrender
control of such collateral thereunder, accept other property in exchange for
such collateral and do and perform such acts and things as it may deem proper,
and any money or property received in exchange for such collateral shall be
applied to the indebtedness or thereafter held by it pursuant to the provisions
hereof; (3) insure, process and preserve the collateral; (4) cause the
collateral to be transferred to its name or to the name of its nominee; (5)
exercise as to such collateral all the rights, powers, and remedies of an owner,
except that so long as the indebtedness is not in default the undersigned shall
retain all voting rights as to the collateral.
3. The undersigned agrees to pay prior to delinquency all taxes, charges,
liens and assessments against the collateral, and upon the failure of the
undersigned to do so Pledgee at its option may pay any of them and shall be the
sole judge of the legality or validity thereof and the amount necessary to
discharge the same.
4. All advances, charges, costs and expenses, including reasonable
attorneys' fees, incurred or paid by Pledgee in exercising any right, power or
remedy conferred by this agreement, or in the enforcement thereof, shall become
a part of the indebtedness secured hereunder and shall be paid to Pledgee by the
undersigned immediately and without demand.
5. At the option of Pledgee and without necessity of demand or notice,
all or any part of the indebtedness of the undersigned shall immediately become
due and payable irrespective of any agreed maturity, upon the happening of any
of the following events: (1) failure to keep or perform any of the terms or
provisions of this agreement; (2) default in the payment of principal or
interest when due; (3) the levy of any attachment, execution or other
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<PAGE>
process against the collateral; or (4) the insolvency, commission of an act of
bankruptcy, general assignment for the benefit of creditors, filing of any
petition in bankruptcy or for relief under the provisions of Title 11, United
States Code, Bankruptcy, of, by, or against the undersigned.
6. In the event of the nonpayment of any indebtedness when due, whether
by acceleration or otherwise, or upon the happening of any of the events
specified in the last preceding paragraph, Pledgee may then, or at any time
thereafter, at its election, apply, set off, collect or sell in one or more
sales, or take such steps as may be necessary to liquidate and reduce to cash in
the hands of Pledgee in whole or in part, with or without any previous demands
or demand of performance or notice or advertisement, the whole or any part of
the collateral in such order as Pledgee may elect, and any such sale may be made
either at public or private sale at its place of business or elsewhere, or at
any broker's board or securities exchange, either for cash or upon credit or for
future delivery; provided, however, that if such disposition is at private sale,
then the purchase price of the collateral shall be equal to the public market
price then in effect, or, if at the time of sale no public market for the
collateral exists, then, in recognition of the fact that the sale of the
collateral would have to be registered under the Securities Act of 1933 and that
the expenses of such registration are commercially unreasonable for the type and
amount of collateral pledged hereunder, Pledgee and the undersigned hereby agree
that such private sale shall be at a purchase price mutually agreed to by
Pledgee and the undersigned or, if the parties cannot agree upon a purchase
price, then at a purchase price established by a majority of three independent
appraisers knowledgeable of the value of such collateral, one named by the
undersigned within 10 days after written request by the Pledgee to do so, one
named by Pledgee within such 10 day period, and the third named by the two
appraisers so selected, with the appraisal to be rendered by such body within 30
days of the appointment of the third appraiser. The cost of such appraisal,
including all appraiser's fees, shall be charged against the proceeds of sale as
an expense of such sale. Pledgee may be the purchaser of any or all collateral
so sold and hold the same thereafter in its own right free from any claim of the
undersigned or right of redemption. Demands of performance, notices of sale,
advertisements and presence of property at sale are hereby waived, and Pledgee
is hereby authorized to sell hereunder any evidence of debt pledged to it. Any
sale hereunder may be conducted by any officer or agent of Pledgee.
7. The proceeds of the sale of any of the collateral and all sums
received or collected by Pledgee from or on account of such collateral shall be
applied by Pledgee to the payment of expenses incurred or paid by Pledgee in
connection with any sale, transfer or delivery of the collateral, to the payment
of any other costs, charges, attorneys' fees or expenses mentioned herein, and
to the payment of the indebtedness or any part hereof, all in such order and
manner as Pledgee in its discretion may determine. Pledgee shall pay any balance
to the undersigned.
8. Pledgee shall be under no duty or obligation whatsoever to make or
give any presentments, demands for performance, notices of non-performance,
protests, notices of protest or notices of dishonor in connection with any
obligations or evidences of indebtedness held by Pledgee as collateral, or in
connection with any obligations or evidences of indebtedness which constitute in
whole or in part the indebtedness secured hereunder.
9. Pledgee may at any time deliver the collateral or any part thereof to
the undersigned and the receipt of the undersigned shall be a complete and full
acquittance for the
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<PAGE>
collateral so delivered, and Pledgee shall thereafter be discharged from any
liability or responsibility therefor.
10. Upon the transfer of all or any part of the indebtedness Pledgee may
transfer all or any part of the collateral and shall be fully discharged
thereafter from all liability and responsibility with respect to such collateral
so transferred, and the transferee shall be vested with all the rights and
powers of Pledgee hereunder with respect to such collateral so transferred; but
with respect to any collateral not so transferred Pledgee shall retain all
rights and powers hereby given.
11. Until all indebtedness shall have been paid in full the power of sale
and all other rights, powers and remedies granted to Pledgee hereunder shall
continue to exist and may be exercised by Pledgee at any time and from time to
time irrespective of the fact that the indebtedness or any part thereof may have
become barred by any statute of limitations, or that the personal liability of
the undersigned may have ceased.
12. Pledgee agrees that so long as the indebtedness is not in default,
shares of Terayon Communication Systems, Inc. common stock held hereunder as
collateral for the indebtedness shall be released from pledge as the
indebtedness is paid. Such releases shall be at the rate of one share for each
$____________ of principal amount of indebtedness paid. Release from pledge,
however, shall not result in release from the provisions of those certain Joint
Escrow Instructions, if any, of even date herewith among the parties to this
Pledge Agreement and the Escrow Agent named therein or from the Purchase Option
of Terayon Communication Systems, Inc., set forth in the Early Exercise Stock
Purchase Agreement dated __________________, 19__, if any, between the parties
to this Pledge Agreement.
13. The rights, powers and remedies given to Pledgee by this agreement
shall be in addition to all rights, powers and remedies given to Pledgee by
virtue of any statute or rule of law. Pledgee may exercise its Pledgee's lien
or right of setoff with respect to the indebtedness in the same manner as if the
indebtedness were unsecured. Any forbearance or failure or delay by Pledgee in
exercising any right, power or remedy hereunder shall not be deemed to be a
waiver of such right, power or remedy, and any single or partial exercise of any
right, power or remedy hereunder shall not preclude the further exercise
thereof; and every right, power and remedy of
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<PAGE>
Pledgee shall continue in full force and effect until such right, power or
remedy is specifically waived by an instrument in writing executed by Pledgee.
Dated: __________ , 19__
_________________________________
ATTACHMENT:
Schedule 1
27
<PAGE>
SCHEDULE 1
TO
PLEDGE AGREEMENT
[SHARES PLEDGED]
28
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EXHIBIT 99.6
TERAYON COMMUNICATION SYSTEMS, INC.
STOCK OPTION GRANT NOTICE
(1997 Equity Incentive Plan)
TERAYON COMMUNICATION SYSTEMS, INC. (the "Company"), pursuant to its 1997 Equity
Incentive Plan (the "Plan"), hereby grants to Optionee an option to purchase the
number of shares of the Company's common stock set forth below. This option is
subject to all of the terms and conditions as set forth herein and in
Attachments I, II and III, which are incorporated herein in their entirety.
Optionee: _________________________________
Date of Grant: _________________________________
Vesting Commencement Date: _________________________________
Shares Subject to Option: _________________________________
Exercise Price Per Share: _________________________________
Expiration Date: _________________________________
____ Incentive Stock Option ____ Nonstatutory Stock Option
EXERCISE SCHEDULE: Immediately Exercisable.
-----------------
VESTING SCHEDULE: 20% vested 12 months from Vesting Commencement Date;
----------------
1/60th vests at the end of each month thereafter.
PAYMENT: Any or a combination of the following: (i) by cash or check, (ii)
pursuant to a Regulation T program, as set forth in the Stock Option Agreement
or (iii) by delivering shares of previously-owned common stock, as set forth in
the Stock Option Agreement.
ADDITIONAL TERMS/ACKNOWLEDGEMENTS: The undersigned Optionee acknowledges
receipt of, and understands and agrees to, this Grant Notice, the Stock Option
Agreement and the Plan. Optionee further acknowledges that as of the Date of
Grant, this Grant Notice, the Stock Option Agreement and the Plan set forth the
entire understanding between Optionee and the Company regarding the acquisition
of stock in the Company and supersede all prior oral and written agreements on
that subject with the exception of (i) options previously granted and delivered
to Optionee under the Plan, and (ii) the following agreements only:
OTHER AGREEMENTS: ___________________________________
___________________________________
___________________________________
TERAYON COMMUNICATION SYSTEMS, INC. OPTIONEE:
By:______________________ ___________________________________
Signature
Title:___________________
Date:____________________ Date:______________________________
Attachment I: Stock Option Agreement
Attachment II: 1997 Equity Incentive Plan
Attachment III: Notice of Exercise
<PAGE>
STOCK OPTION AGREEMENT
Pursuant to the Grant Notice and this Stock Option Agreement, the Company
has granted you an option to purchase the number of shares of the Company's
common stock ("Common Stock") indicated in the Grant Notice at the exercise
price indicated in the Grant Notice.
Your option is granted in connection with and in furtherance of the
Company's compensatory benefit plan for the Company's employees (including
officers), directors or consultants. Defined terms not explicitly defined in
this Stock Option Agreement but defined in the Plan shall have the same
definitions as in the Plan.
The details of your option are as follows:
1. VESTING. Subject to the limitations contained herein, your option
will vest as provided in the Grant Notice, provided that vesting will cease upon
the termination of your Continuous Status as an Employee, Director or
Consultant.
2. METHOD OF PAYMENT.
(a) PAYMENT OPTIONS. Payment of the exercise price by cash or check
is due in full upon exercise of all or any part of your option, provided that
you may elect, to the extent permitted by applicable law and the Grant Notice,
to make payment of the exercise price under one of the following alternatives:
(i) Payment pursuant to a program developed under Regulation T
as promulgated by the Federal Reserve Board which, prior to the issuance of
Common Stock, results in either the receipt of cash (or check) by the Company or
the receipt of irrevocable instructions to pay the aggregate exercise price to
the Company from the sales proceeds;
(ii) Provided that at the time of exercise the Company's Common
Stock is publicly traded and quoted regularly in the Wall Street Journal,
payment by delivery of already-owned shares of Common Stock, held for the period
required to avoid a charge to the Company's reported earnings, and owned free
and clear of any liens, claims, encumbrances or security interests, which Common
Stock shall be valued at its fair market value on the date of exercise; or
(iii) Payment by a combination of the above methods.
3. WHOLE SHARES. Your option may only be exercised for whole shares.
4. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, your option may not be exercised unless the shares issuable
upon exercise of your option are then registered under the Securities Act or, if
such shares are not then so registered, the Company has determined that such
exercise and issuance would be exempt from the registration requirements of the
Securities Act.
5. TERM. The term of your option commences on the Date of Grant and
expires upon the earliest of:
(i) the Expiration Date indicated in the Grant Notice;
(ii) the tenth (10th) anniversary of the Date of Grant;
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<PAGE>
(iii) eighteen (18) months after your death, if you die during, or
within three (3) months after the termination of your Continuous Status as an
Employee, Director or Consultant;
(iv) twelve (12) months after the termination of your Continuous
Status as an Employee, Director or Consultant due to disability;
(v) immediately after the termination of your Continuous Status as
Employee, Director or Consultant for Cause; or
(vi) three (3) months after the termination of your Continuous Status
as an Employee, Director or Consultant for any other reason, provided that if
during any part of such three (3)-month period the option is not exercisable
solely because of the condition set forth in paragraph 5 (Securities Law
Compliance), in which event the option shall not expire until the earlier of the
Expiration Date or until it shall have been exercisable for an aggregate period
of three (3) months after the termination of Continuous Status as an Employee,
Director or Consultant.
For these purposes, "Cause" shall include, but not be limited to, the
commission of any act of fraud, embezzlement or dishonesty, any unauthorized use
or disclosure of confidential information or trade secrets of the Company, or
any other intentional misconduct adversely affecting the business or affairs of
the Company in a material manner. The foregoing definition shall not be deemed
to be inclusive of all the acts or omissions which the Company may consider as
grounds for your dismissal or discharge.
To obtain the federal income tax advantages associated with an
"incentive stock option," the Code requires that at all times beginning on the
grant date of the option and ending on the day three (3) months before the date
of the option's exercise, you must be an employee of the Company, except in the
event of your death or permanent and total disability. The Company cannot
guarantee that your option will be treated as an "incentive stock option" if you
exercise your option more than three (3) months after the date your employment
with the Company terminates. Termination of employment, for ISO purposes,
includes cessation of employment, but continued service as a director or
consultant (notwithstanding that your continuous status will not have terminated
for purpose of this Stock Option Agreement or the Plan).
6. EXERCISE.
(a) You may exercise the vested portion of your option during its
term (and the unvested portion of your option if the Grant Notice so permits) by
delivering a notice of exercise (in a form designated by the Company) together
with the exercise price to the Secretary of the Company, or to such other person
as the Company may designate, during regular business hours, together with such
additional documents as the Company may then require.
(b) By exercising your option you agree that:
(i) as a condition to any exercise of your option, the Company
may require you to enter an arrangement providing for the payment by you to the
Company of any tax withholding obligation of the Company arising by reason of
(1) the exercise of your option; (2) the lapse of any substantial risk of
forfeiture to which the shares are subject at the time of exercise; or (3) the
disposition of shares acquired upon such exercise;
(ii) you will notify the Company in writing within fifteen (15)
days after the date of any disposition of any of the shares of the Common Stock
issued upon exercise of an incentive stock option that occurs within two (2)
years after the Date of Grant or within one (1) year after such shares of Common
Stock are transferred upon exercise of your option; and
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<PAGE>
(iii) the Company (or a representative of the underwriters) may,
in connection with the first underwritten registration of the offering of any
securities of the Company under the Act, require that you not sell or otherwise
transfer or dispose of any shares of Common Stock or other securities of the
Company during such period (not to exceed one hundred eighty (180) days)
following the effective date of the registration statement of the Company filed
under the Act as may be requested by the Company or the representative of the
underwriters. You further agree that the Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions
until the end of such period.
7. TRANSFERABILITY. Your option is not transferable, except by will or
by the laws of descent and distribution, and is exercisable during your life
only by you. Notwithstanding the foregoing, by delivering written notice to the
Company, in a form satisfactory to the Company, you may designate a third party
who, in the event of your death, shall thereafter be entitled to exercise your
option.
8. RIGHT OF FIRST REFUSAL/RIGHT OF REPURCHASE. Vested shares that are
received upon exercise of your option are subject to any right of first refusal
that may be described in the Company's bylaws in effect at such time the Company
elects to exercise its right. The Company's right of first refusal shall expire
on the date of the first registration of an equity security of the Company under
Section 12 of the Exchange Act. In addition, to the extent provided in the
Company's bylaws as amended from time to time, the Company shall have the right
to repurchase all or any part of the shares received pursuant to the exercise of
your option, which right shall be in addition to any right created by exercise
prior to vesting.
9. OPTION NOT A SERVICE CONTRACT. Your option is not an employment
contract and nothing in your option shall be deemed to create in any way
whatsoever any obligation on your part to continue in the employ of the Company,
or of the Company to continue your employment with the Company. In addition,
nothing in your option shall obligate the Company, its shareholders, board of
directors, officers or employees to continue any relationship which you might
have as a director or consultant for the Company.
10. NOTICES. Any notices provided for in your option or the Plan shall be
given in writing and shall be deemed effectively given upon receipt or, in the
case of notices delivered by the Company to you, five (5) days after deposit in
the United States mail, postage prepaid, addressed to you at the last address
you provided to the Company.
11. GOVERNING PLAN DOCUMENT. Your option is subject to all the provisions
of the Plan, the provisions of which are hereby made a part of your option,
including without limitation the provisions of the Plan relating to option
provisions, and is further subject to all interpretations, amendments, rules and
regulations which may from time to time be promulgated and adopted pursuant to
the Plan. In the event of any conflict between the provisions of your option
and those of the Plan, the provisions of the Plan shall control.
4
<PAGE>
NOTICE OF EXERCISE
Terayon Communication Systems, Inc.
2952 Bunker Hill Lane
Santa Clara, CA 95054
Date of Exercise:__________
Ladies and Gentlemen:
This constitutes notice under my stock option that I elect to purchase the
number of shares for the price set forth below.
Type of option: ___ Incentive ___ Nonstatutory
Stock option dated: ____________________
Number of shares as
to which option is
exercised: ____________________
Certificates to be
issued in name of: ____________________
Total exercise price: $___________________
Cash payment delivered
herewith: $___________________
Value of ______ shares of
common stock delivered herewith/2/: $___________________
____________________________
/2/ Shares must meet the public trading requirements set forth in the option.
Shares must be valued in accordance with the terms of the option being
exercised, must have been owned for the minimum period required in the option,
and must be owned free and clear of any liens, claims, encumbrances or security
interests. Certificates must be endorsed or accompanied by an executed
assignment separate from certificate.
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<PAGE>
By this exercise, I agree (i) to provide such additional documents as you
may require pursuant to the terms of the Company's 1997 Equity Incentive Plan,
(ii) to provide for the payment by me to you (in the manner designated by you)
of your withholding obligation, if any, relating to the exercise of the Option,
and (iii) to the extent the Option is an incentive stock option, to notify you
in writing within fifteen (15) days after the date of any disposition of any of
the shares of Common Stock issued upon exercise of this Option that occurs
within two (2) years after the date of grant of the Option or within one (1)
--
year after such shares of Common Stock are issued upon exercise of the Option.
I further agree that, if required by the Company (or a representative of
the underwriters) in connection with the first underwritten registration of the
offering of any securities of the Company under the Securities Act, I will not
sell or otherwise transfer or dispose of any shares of Common Stock or other
securities of the Company during such period (not to exceed one hundred eighty
(180) days following the effective date of the registration statement of the
Company filed under the Securities Act as may be requested by the Company or
representatives of the underwriters. I further agree that the Company may
impose stop-transfer instructions with respect to securities subject to the
foregoing restrictions until the end of such period.
Very truly yours,
_______________________________________
6
<PAGE>
EARLY EXERCISE STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made by and between TERAYON COMMUNICATION SYSTEMS, INC.,
a Delaware corporation (the "Corporation"), and ________________ ("Purchaser").
WITNESSETH:
WHEREAS, Purchaser holds an incentive/nonstatutory stock option to purchase
shares of common stock of the Corporation pursuant to the Corporation's 1997
Equity Incentive Plan (the "Plan") which Purchaser desires to exercise; and
WHEREAS, Purchaser wishes to take advantage of the early exercise provision
of his option and therefore to enter into this Agreement;
NOW, THEREFORE, IT IS AGREED between the parties as follows:
1. Purchaser hereby agrees to purchase from the Corporation, and the
Corporation hereby agrees to sell to Purchaser, an aggregate of
________________________ (______) shares of the common stock (the "Stock") of
the Corporation, for an exercise price of ___________ ($____) per share (total
exercise price: _________________________________ ($________) payable as
follows:
Cash at Closing $__________________________
Promissory Note in the form
of Exhibit E (the "Note") $__________________________
Value of _____ shares of
Terayon Communication
Systems, Inc.
common stock/1/ $__________________________
Total Exercise Price $__________________________
The closing hereunder shall occur at the offices of the Corporation on the
date of this Agreement or at such other time and place as the parties may
mutually agree upon in writing.
At the closing, Purchaser shall deliver three (3) stock assignments in
the form of Exhibit B, duly endorsed (with date and number of shares left
blank), joint escrow instructions (the "Joint Escrow Instructions") in the
form of Exhibit C, duly executed by Purchaser, and the total exercise price
(including an executed Note in the form of Exhibit E if a portion of the total
exercise price is
_______________________________
/1/ Shares must meet the public trading requirements set forth in the
option. Shares must be valued in accordance with the terms of the option being
exercised, must have been owned for the minimum period required in the option,
and must be owned free and clear of any liens, claims, encumbrances or
security interests. Certificates must be endorsed or accompanied by an
executed assignment separate from certificate.
7
<PAGE>
to be paid by promissory note) and an executed pledge agreement in the form of
Exhibit F (the "Pledge Agreement") under which all shares of the Stock
acquired by Note shall be pledged as collateral security for the payment of
the indebtedness represented by the Note; and including endorsed certificates
representing the appropriate number of shares of the Corporation's common
stock if a portion of the total exercise price is to be paid by common stock.
At the closing or as soon thereafter as practicable, the Corporation shall
deliver to the Escrow Agent (as defined in paragraph 8 below) share certificates
for all of the Stock that is to be subject to the Purchase Option (as defined in
paragraph 2 below), and shall deliver share certificates to Purchaser for all of
the Stock, if any, that is not to be subject to the Purchase Option or the
Pledge Agreement. The certificates for all of the Stock that is subject to the
Pledge Agreement but not the Purchase Option shall be retained by the
Corporation as security pursuant to the Pledge Agreement.
2. In accordance with the provisions of section 408(b) of the California
General Corporation Law, the Stock to be purchased by Purchaser pursuant to this
Agreement shall be subject to the following option ("Purchase Option"):
(a) In the event that Purchaser shall cease to have a service
relationship with the Corporation for any reason (including his death), or no
reason, with or without cause, the Purchase Option may be exercised. The
Corporation shall have the right at any time within sixty (60) days after such
cessation of employment to purchase from Purchaser or his personal
representative, as the case may be, at the price per share paid by Purchaser
pursuant to this Agreement ("Option Price"), up to but not exceeding the number
of shares of the Stock set forth on Exhibit A hereto which is incorporated
herein by this reference.
(b) In addition, and without limiting the foregoing Purchase Option,
if at any time during the term of the Purchase Option, there occurs: (a) a
dissolution or liquidation of the Corporation; (b) a merger or consolidation
involving the Corporation in which the Corporation is not the surviving
corporation; (c) a reverse merger in which the Corporation is the surviving
corporation but the shares of the Corporation's common stock outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of other securities, cash or otherwise; or
(d) any other capital reorganization in which more than fifty percent (50%) of
the shares of the Corporation entitled to vote are exchanged, then: (i) if
there is no successor to the Corporation, the Corporation shall have the right
to exercise its Purchase Option as to all or any portion of the Stock then
subject to the Purchase Option set forth above to the same extent as if
Purchaser's service relationship with the Corporation had ceased on the date
preceding the date of consummation of said event or transaction or (ii) the
Purchase Option may be assigned to any successor of the Corporation, and the
Purchase Option shall apply if Purchaser shall cease for any reason to have a
service relationship with such successor on the same basis as set forth above.
In that case, references herein to the "Corporation" shall be deemed to refer to
such successor.
(c) The Corporation shall be entitled to pay for any shares
purchased pursuant to its Purchase Option at the Corporation's option in cash,
by offset against any indebtedness given in payment for the Stock, or a
combination of both.
8
<PAGE>
(d) As used herein, service relationship and similar terms shall
include acting as a consultant or director of the Corporation.
(e) This Agreement is not a service contract and nothing in this
Agreement shall be deemed to create in any way whatsoever any obligation on the
part of Purchaser to continue in the service of the Corporation, or of the
Corporation to continue Purchaser in the service of the Corporation.
(f) In the event that the Stock's fair market value (as defined in
the Plan) is equal to or exceeds the Option Price on the date that the
Purchaser ceases to have a service relationship with the Corporation, the
Company shall exercise its purchase option to the extent permitted by law.
3. The Purchase Option may be exercised by giving written notice of
exercise delivered or mailed as provided in paragraph 14. Upon providing of
such notice and payment or tender of the purchase price, the Corporation shall
become the legal and beneficial owner of the Stock being purchased and all
rights and interests therein or related thereto.
4. If from time to time during the term of the Purchase Option there is
any stock dividend or liquidating dividend or distribution of cash and/or
property, stock split or other change in the character or amount of any of the
outstanding securities of the Corporation, then, in such event, any and all new,
substituted or additional securities or other property to which Purchaser is
entitled by reason of his ownership of Stock will be immediately subject to the
Purchase Option and be included in the word "Stock" for all purposes of the
Purchase Option with the same force and effect as the shares of Stock then
subject to the Purchase Option. While the total Option Price shall remain the
same after each such event, the Option Price per share of Stock upon exercise of
the Purchase Option shall be appropriately adjusted.
5. All certificates representing any shares of Stock of the Corporation
subject to the provisions of this Agreement shall have endorsed thereon legends
in substantially the following form:
(i) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
AN OPTION SET FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED
HOLDER, OR HIS PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL OFFICE OF THIS CORPORATION. ANY TRANSFER OR ATTEMPTED TRANSFER OF
ANY SHARES SUBJECT TO SUCH OPTION IS VOID WITHOUT THE PRIOR EXPRESS WRITTEN
CONSENT OF THE ISSUER OF THESE SHARES."
(ii) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE
SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED."
9
<PAGE>
(iii) "ANY LEGEND REQUIRED TO BE PLACED THEREON BY THE
CALIFORNIA COMMISSIONER OF CORPORATIONS.
6. Purchaser acknowledges that he is aware that the Stock to be issued
to him by the Corporation pursuant to this Agreement has not been registered
under the Securities Act of 1933, as amended (the "Act"), on the basis that no
distribution or public offering of the Stock is to be effected, and in this
connection acknowledges that the Corporation is relying on the following
representations. In this connection, Purchaser warrants and represents to the
Corporation that he is acquiring the Stock for investment and not with a view
to or for sale in connection with any distribution of the Stock or with any
present intention of distributing or selling the Stock and he does not
presently have reason to anticipate any change in circumstances or any
particular occasion or event which would cause him to sell the Stock.
Purchaser recognizes that the Stock must be held indefinitely unless it is
subsequently registered under the Act or an exemption from such registration
is available and, further, recognizes that the Corporation is under no
obligation to register the Stock or to comply with any exemption from such
registration.
7. Purchaser is aware that the Stock may not be sold pursuant to Rule 144
adopted under the Act unless certain conditions are met and until Purchaser has
held the Stock for at least two (2) years. Among the conditions for use of Rule
144 is the availability of specified current public information about the
Corporation. Purchaser recognizes that the Corporation presently has no plans
to make such information available to the public.
Whether or not the Purchase Option is exercised or has lapsed, Purchaser
further agrees not to make any disposition of any of the Stock in any event
unless and until:
(a) There is then in effect a registration statement under the Act
covering such proposed disposition and such disposition is made in accordance
with such registration statement; or
(b) (i) Purchaser shall have notified the Corporation of the
proposed disposition and shall have furnished the Corporation with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii)
Purchaser shall have given the Corporation an opinion of counsel, which
opinion and counsel shall be satisfactory to the Corporation, to the effect
that such disposition will not require registration of the Stock under the
Act.
8. As security for his faithful performance of the terms of this
Agreement and to insure the availability for delivery of Purchaser's Stock
upon exercise of the Purchase Option herein provided for, Purchaser agrees, at
the closing hereunder (or as soon thereafter as practicable), to deliver (or
have the Corporation deliver on the Purchaser's behalf) to and deposit with
the Secretary of the Corporation ("Escrow Agent"), as Escrow Agent in this
transaction, three (3) stock assignments duly endorsed (with date and number
of shares left blank) in the form attached hereto as Exhibit B, together with
a certificate or certificates evidencing all of the Stock subject to the
Purchase Option; said documents are to be held by the Escrow Agent and
delivered by said Escrow Agent pursuant to the Joint Escrow Instructions of
the Corporation and Purchaser set forth in Exhibit C attached hereto and
incorporated herein by this reference, which instructions shall also be
delivered to the Escrow Agent at the closing hereunder (or as soon
10
<PAGE>
thereafter as practicable). If a portion of the total purchase price is paid
by a promissory note, the Stock is also subject to the Pledge Agreement, and
possession of the certificates and stock assignments by the Escrow Agent shall
also constitute possession by the Corporation of such instruments pursuant to
the Pledge Agreement.
9. Purchaser shall not sell or transfer any of the Stock subject to the
Purchase Option or any interest therein so long as such Stock is subject to the
Purchase Option or the Pledge Agreement.
10. The Corporation shall not be required (i) to transfer on its books any
shares of Stock of the Corporation which shall have been sold or transferred in
violation of any of the provisions set forth in this Agreement or (ii) to treat
as owner of such shares or to accord the right to vote as such owner or to pay
dividends to any transferee to whom such shares shall have been so transferred.
11. Subject to the provisions of paragraphs 9 and 10 above, Purchaser (but
not any unapproved transferee) shall, during the term of this Agreement,
exercise all rights and privileges of a stockholder of the Corporation with
respect to the Stock.
12. Purchaser acknowledges receipt of a copy of Section 260.141.11 of
Title 10 of the California Code of Regulations, attached hereto as Exhibit D.
13. The parties agree to execute such further instruments and to take such
further action as reasonably may be necessary to carry out the intent of this
Agreement.
14. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
any United States Post Office Box, by registered or certified mail with postage
and fees prepaid, addressed to the other party hereto at his address hereinafter
shown below his signature or at such other address as such party may designate
by ten (10) days' advance written notice to the other party hereto.
15. This Agreement shall bind and inure to the benefit of the successors
and assigns of the Corporation and, subject to the restrictions on transfer
herein set forth, inure to the benefit of and be binding upon Purchaser, his
heirs, executors, administrators, successors, and assigns. Without limiting the
generality of the foregoing, the Purchase Option of the Corporation hereunder
shall be assignable by the Corporation at any time or from time to time, in
whole or in part. Should the right of repurchase be assigned by the
Corporation, the assignee shall pay to the
11
<PAGE>
Corporation cash equal to the excess, if any, of the Stock's Fair Market Value
(as defined in the Plan) over the Option Price.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the ____ of _________, 199_.
TERAYON COMMUNICATION SYSTEMS, INC.
By:____________________________________
Address: 2952 Bunker Hill Lane
Santa Clara, CA 95054
_______________________________________
_______________, Purchaser
Address: _______________________________________
_______________________________________
12
<PAGE>
ATTACHMENTS:
Exhibit A Vesting Schedule
Exhibit B Assignment Separate from Certificate
Exhibit C Joint Escrow Instructions
Exhibit D California Code of Regulations, Title 10, Section 260.141.11
Exhibit E Promissory Note
Exhibit F Stock Pledge Agreement
13
<PAGE>
EXHIBIT A
VESTING SCHEDULE
NUMBER OF SHARES
SUBJECT TO
IF CESSATION OF EMPLOYMENT OCCURS: PURCHASE OPTION:
Before __________, 199_ ______ shares
From __________, 199_ ______ shares less ______ shares
until __________, 200_ on the __ day of each month
following ____________, 199_
After______________, 200_ Zero
14
<PAGE>
EXHIBIT B
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Early Exercise Stock
Purchase Agreement dated as of ____________________, 199___ (the "Agreement"),
____________________hereby sells, assigns and transfers unto
_____________________________________________ (_________) shares of common stock
of Terayon Communication Systems, Inc., a Delaware corporation, standing in the
undersigned's name on the books of said corporation represented by Certificate
No. _____ herewith, and does hereby irrevocably constitute and appoint Cooley
Godward llp attorney to transfer the said stock on the books of the said
corporation with full power of substitution in the premises. This Assignment
may be used only in accordance with and subject to the terms and conditions of
the Agreement, in connection with the repurchase of shares of Common Stock
issued to the undersigned pursuant to the Agreement, and only to the extent that
such shares remain subject to the Company's Purchase Option under the Agreement.
Dated:______________________
Signature__________________________
15
<PAGE>
EXHIBIT C
JOINT ESCROW INSTRUCTIONS
Terayon Communication Systems, Inc.
2952 Bunker Hill Lane
Santa Clara, CA 95054
Attn: Secretary
Dear Sir or Madam:
As Escrow Agent for both Terayon Communication Systems, Inc., a Delaware
corporation ("Corporation"), and the undersigned purchaser of stock of the
Corporation ("Purchaser"), you are hereby authorized and directed to hold the
documents delivered to you pursuant to the terms of that certain Early Exercise
Stock Purchase Agreement ("Agreement"), dated ____________________, 199__, to
which a copy of these Joint Escrow Instructions is attached as Exhibit C, in
accordance with the following instructions:
1. In the event the Corporation or an assignee shall elect to exercise
the Purchase Option set forth in the Agreement, the Corporation or its
assignee will give to Purchaser and you a written notice specifying the number
of shares of stock to be purchased, the purchase price, and the time for a
closing hereunder at the principal office of the Corporation. Purchaser and
the Corporation hereby irrevocably authorize and direct you to close the
transaction contemplated by such notice in accordance with the terms of said
notice.
2. At the closing you are directed (a) to date any stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Corporation against the
simultaneous delivery to you of the purchase price (which may include suitable
acknowledgment of cancellation of indebtedness) of the number of shares of stock
being purchased pursuant to the exercise of the Purchase Option.
3. Purchaser irrevocably authorizes the Corporation to deposit with you
any certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as specified in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as his attorney-in-
fact and agent for the term of this escrow to execute with respect to such
securities and other property all documents of assignment and/or transfer and
all stock certificates necessary or appropriate to make all securities
negotiable and complete any transaction herein contemplated.
4. This escrow shall terminate upon expiration or exercise in full of the
Purchase Option, whichever occurs first.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of same to Purchaser and shall be discharged of all
further obligations hereunder; provided, however, that
16
<PAGE>
if at the time of termination of this escrow you are advised by the
Corporation that the property subject to this escrow is the subject of a
pledge or other security agreement, you shall deliver all such property to the
pledgeholder or other person designated by the Corporation.
6. Except at otherwise provided in these Joint Escrow Instructions, your
duties hereunder may be altered, amended, modified or revoked only by a writing
signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties or
their assignees. You shall not be personally liable for any act you may do or
omit to do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while
acting in good faith and any act done or omitted by you pursuant to the advice
of your own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law, and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court.
In case you obey or comply with any such order, judgment or decree of any court,
you shall not be liable to any of the parties hereto or to any other person,
firm or corporation by reason of such compliance, notwithstanding any such
order, judgment or decree being subsequently reversed, modified, annulled, set
aside, vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authority or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under any
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel (including without
limitation the firm of Cooley Godward llp) and other experts as you may deem
necessary properly to advise you in connection with your obligations hereunder,
may rely upon the advice of such counsel, and may pay such counsel reasonable
compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate if you
shall cease to be Secretary of the Corporation or if you shall resign by written
notice to each party. In the event of any such termination, the Corporation may
appoint any officer or assistant officer of the Corporation as successor Escrow
Agent and Purchaser hereby confirms the appointment of such successor or
successors as his attorney-in-fact and agent to the full extent of your
appointment.
13. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
17
<PAGE>
14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities, you may (but are not obligated to) retain in your possession
without liability to anyone all or any part of said securities until such
dispute shall have been settled either by mutual written agreement of the
parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or
defend any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
any United States Post Box, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties hereunto entitled at the
following addresses, or at such other addresses as a party may designate by ten
days' written notice to each of the other parties hereto:
CORPORATION: TERAYON COMMUNICATION SYSTEMS, INC.
2952 Bunker Hill Lane
Santa Clara, CA 95054
PURCHASER: ________________________________________
________________________________________
________________________________________
SECRETARY: Secretary
TERAYON COMMUNICATION SYSTEMS, INC.
2952 Bunker Hill Lane
Santa Clara, CA 95054
16. By signing these Joint Escrow Instructions you become a party hereto
only for the purpose of said Joint Escrow Instructions; you do not become a
party to the Agreement.
18
<PAGE>
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns. It
is understood and agreed that references to "you" or "your" herein refer to
the original Escrow Agent and to any and all successor Escrow Agents. It is
understood and agreed that the Corporation may at any time or from time to
time assign its rights under the Agreement and these Joint Escrow Instructions
in whole or in part.
Very truly yours,
TERAYON COMMUNICATION SYSTEMS, INC.
By__________________________________
PURCHASER:
____________________________________
ESCROW AGENT:
_________________________________
Secretary
TERAYON COMMUNICATION SYSTEMS, INC.
19
<PAGE>
EXHIBIT D
CALIFORNIA CODE OF REGULATIONS, TITLE 10, SECTION 260.141.11
STATE OF CALIFORNIA - CALIFORNIA ADMINISTRATIVE CODE
----------------------------------------------------
TITLE 10. Investment - Chapter 3. Commissioner of Corporations
260.141.11: RESTRICTION ON TRANSFER. (a) The issuer of any security upon which
- ---------- -----------------------
a restriction on transfer has been imposed pursuant to Sections 260.102.6,
260.141.10 or 260.534 shall cause a copy of this section to be delivered to each
issuee or transferee of such security at the time the certificate evidencing the
security is delivered to the issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate a sale or
transfer of such security, or any interest therein, without the prior written
consent of the Commissioner (until this condition is removed pursuant to Section
260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in subdivision (i) of Section
25102 of the Code or Section 260.105.14 of these rules;
(4) to the transferor's ancestors, descendants or spouse,
or any custodian or trustee for the account of the transferor or the
transferor's ancestors, descendants, or spouse; or to a transferee by a
trustee or custodian for the account of the transferee or the transferee's
ancestors, descendants or spouse;
(5) to holders of securities of the same class of the same
issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code
(either acting as such or as a finder) to a resident of a foreign state,
territory or country who is neither domiciled in this state to the knowledge
of the broker-dealer, nor actually present in this state if the sale of such
securities is not in violation of any securities law of the foreign state,
territory or country concerned;
(8) to a broker-dealer licensed under the Code in a
principal transaction, or as an underwriter or a member of an underwriting
syndicate or selling group;
(9) if the interest sold or transferred is a pledge or
other lien given by the purchaser to the seller upon a sale of the security
for which the Commissioner's written consent is obtained or under this rule
not required;
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<PAGE>
(10) by way of a sale qualified under Sections 25111,
25112, 25113, or 25121 of the Code, of the securities to be transferred,
provided that no order under Section 25140 or Subdivision (a) of Section 25143
is in effect with respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such
corporation, or by a wholly owned subsidiary of a corporation to such
corporation;
(12) by way of an exchange qualified under Section 25111,
25112 or 25113 of the Code, provided that no order under Section 25140 or
Subdivision (a) of Section 25143 is in effect with respect to such
qualification;
(13) between residents of foreign states, territories or
countries who are neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed
Property Law or to the administrator of the unclaimed property law of another
state; or
(15) by the State Controller pursuant to the Unclaimed
Property Law or by the administrator of the unclaimed property law of another
state if, in either such case, such person (i) discloses to potential
purchasers at the sale that transfer of the securities is restricted under
this rule, (ii) delivers to each purchaser a copy of this rule, and (iii)
advises the Commissioner of the name of each purchaser;
(16) by a trustee to a successor trustee when such
transfer does not involve a change in the beneficial ownership of the
securities;
(17) by way of an offer and sale of outstanding securities
in an issuer transaction that is subject to the qualification requirement of
Section 25110 of the Code but exempt from that qualification requirement by
subdivision (f) of Section 25102; provided that any such transfer is on the
condition that any certificate evidencing the security issued to such
transferee shall contain the legend required by this section.
(c) The certificates representing all such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend, prominently stamped or printed
thereon in capital letters of not less than 10-point size, reading as
follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
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<PAGE>
EXHIBIT E
PROMISSORY NOTE
$_______________ ______, California
__________, 199_
FOR VALUE RECEIVED, the undersigned hereby unconditionally promises to pay
to the order of TERAYON COMMUNICATION SYSTEMS, INC., a Delaware corporation (the
"Company"), at Santa Clara, California, or at such other place as the holder
hereof may designate in writing, in lawful money of the United States of America
and in immediately available funds, the principal sum of ________________
Dollars ($_________) together with interest accrued from the date hereof on the
unpaid principal at the rate of ______%/2/ per annum, or the maximum rate
permissible by law (which under the laws of the State of California shall be
deemed to be the laws relating to permissible rates of interest on commercial
loans), whichever is less, as follows:
PRINCIPAL REPAYMENT. The outstanding principal amount hereunder shall
be subject to scheduled amortized repayments on the dates and in the
amounts listed below.
PRINCIPAL REPAYMENT DATE REPAYMENT AMOUNT
INTEREST PAYMENTS. Interest shall be payable in arrears on each
Principal Repayment Date and shall be calculated on the basis of a 360-day
year for the actual number of days elapsed;
provided, however, that in the event that the undersigned's service relationship
or association with the Company is terminated for any reason prior to payment in
full of this Note, this Note shall be accelerated and all remaining unpaid
principal and interest shall become due and payable immediately after such
termination.
If the undersigned fails to pay any of the principal and accrued interest
when due, the Company, at its sole option, shall have the right to accelerate
this Note, in which event the entire principal balance and all accrued interest
shall become immediately due and payable, and immediately collectible by the
Company pursuant to applicable law.
This Note may be prepaid at any time without penalty. All money paid
toward the satisfaction of this Note shall be applied first to the payment of
interest as required hereunder and then to the retirement of the principal.
_______________________
/2/ CHECK WITH TAX DEPARTMENT ATTORNEY TO GET APPLICABLE INTEREST RATE FOR THE
MONTH THE NOTE IS MADE AND FOR THE TERMS THEREOF. NOTE THAT NOT USING THE
APPROPRIATE INTEREST RATE MAY RESULT IN THERE BEING IMPUTED INTEREST INCOME.
22
<PAGE>
The full amount of this Note is secured by a pledge of shares of Common
Stock of the Company, and is subject to all of the terms and provisions of the
Early Exercise Stock Purchase Agreement and the Pledge Agreement, each of even
date herewith between the undersigned and the Company.
The undersigned hereby represents and agrees that the amounts due under
this Note are not consumer debt, and are not incurred primarily for personal,
family or household purposes, but are for business and commercial purposes only.
The undersigned hereby waives presentment, protest and notice of protest,
demand for payment, notice of dishonor and all other notices or demands in
connection with the delivery, acceptance, performance, default or endorsement of
this Note.
The holder hereof shall be entitled to recover, and the undersigned agrees
to pay when incurred, all costs and expenses of collection of this Note,
including without limitation, reasonable attorneys' fees.
This Note shall be governed by, and construed, enforced and interpreted in
accordance with, the laws of the State of California, excluding conflict of laws
principles that would cause the application of laws of any other jurisdiction.
Signed_________________________________
23
<PAGE>
EXHIBIT F
STOCK PLEDGE AGREEMENT
1. As collateral security for the payment of that certain promissory note
in principal amount of $______________ issued this date to _____________________
("Pledgee") by the undersigned (hereinafter called "indebtedness"), the
undersigned hereby assigns, transfers to and pledges with the Pledgee the
securities listed on Schedule 1 hereto which were this day delivered to be
deposited with Pledgee, together with any stock rights, rights to subscribe,
dividends paid in cash or other property in connection with the complete or
partial liquidation of Pledgee, stock dividends, dividends paid in stock, new
securities or other property except cash dividends other than liquidating
dividends to which the undersigned is or may hereafter become entitled to
receive on account of such property, and in the event that the undersigned
receives any such, the undersigned will immediately deliver it to Pledgee to be
held by Pledgee hereunder in the same manner as the property originally pledged
hereunder. All property assigned, transferred to and pledged with Pledgee under
this paragraph is hereinafter called "collateral."
2. At any time, without notice, and at the expense of the undersigned,
Pledgee in its name or in the name of its nominee or of the undersigned may, but
shall not be obligated to: (1) collect by legal proceedings or otherwise all
dividends (except cash dividends other than liquidating dividends), interest,
principal payments and other sums now or hereafter payable upon or on account of
said collateral; (2) enter into any extension, reorganization, deposit, merger,
or consolidation agreement, or any agreement in any wise relating to or
affecting the collateral, and in connection therewith may deposit or surrender
control of such collateral thereunder, accept other property in exchange for
such collateral and do and perform such acts and things as it may deem proper,
and any money or property received in exchange for such collateral shall be
applied to the indebtedness or thereafter held by it pursuant to the provisions
hereof; (3) insure, process and preserve the collateral; (4) cause the
collateral to be transferred to its name or to the name of its nominee; (5)
exercise as to such collateral all the rights, powers, and remedies of an owner,
except that so long as the indebtedness is not in default the undersigned shall
retain all voting rights as to the collateral.
3. The undersigned agrees to pay prior to delinquency all taxes, charges,
liens and assessments against the collateral, and upon the failure of the
undersigned to do so Pledgee at its option may pay any of them and shall be the
sole judge of the legality or validity thereof and the amount necessary to
discharge the same.
4. All advances, charges, costs and expenses, including reasonable
attorneys' fees, incurred or paid by Pledgee in exercising any right, power or
remedy conferred by this agreement, or in the enforcement thereof, shall become
a part of the indebtedness secured hereunder and shall be paid to Pledgee by the
undersigned immediately and without demand.
5. At the option of Pledgee and without necessity of demand or notice,
all or any part of the indebtedness of the undersigned shall immediately
become due and payable irrespective of any agreed maturity, upon the happening
of any of the following events: (1) failure to keep or perform any of the
terms or provisions of this agreement; (2) default in the
24
<PAGE>
payment of principal or interest when due; (3) the levy of any attachment,
execution or other process against the collateral; or (4) the insolvency,
commission of an act of bankruptcy, general assignment for the benefit of
creditors, filing of any petition in bankruptcy or for relief under the
provisions of Title 11, United States Code, Bankruptcy, of, by, or against the
undersigned.
6. In the event of the nonpayment of any indebtedness when due, whether
by acceleration or otherwise, or upon the happening of any of the events
specified in the last preceding paragraph, Pledgee may then, or at any time
thereafter, at its election, apply, set off, collect or sell in one or more
sales, or take such steps as may be necessary to liquidate and reduce to cash
in the hands of Pledgee in whole or in part, with or without any previous
demands or demand of performance or notice or advertisement, the whole or any
part of the collateral in such order as Pledgee may elect, and any such sale
may be made either at public or private sale at its place of business or
elsewhere, or at any broker's board or securities exchange, either for cash or
upon credit or for future delivery; provided, however, that if such
disposition is at private sale, then the purchase price of the collateral
shall be equal to the public market price then in effect, or, if at the time
of sale no public market for the collateral exists, then, in recognition of
the fact that the sale of the collateral would have to be registered under the
Securities Act of 1933 and that the expenses of such registration are
commercially unreasonable for the type and amount of collateral pledged
hereunder, Pledgee and the undersigned hereby agree that such private sale
shall be at a purchase price mutually agreed to by Pledgee and the undersigned
or, if the parties cannot agree upon a purchase price, then at a purchase
price established by a majority of three independent appraisers knowledgeable
of the value of such collateral, one named by the undersigned within 10 days
after written request by the Pledgee to do so, one named by Pledgee within
such 10 day period, and the third named by the two appraisers so selected,
with the appraisal to be rendered by such body within 30 days of the
appointment of the third appraiser. The cost of such appraisal, including all
appraiser's fees, shall be charged against the proceeds of sale as an expense
of such sale. Pledgee may be the purchaser of any or all collateral so sold
and hold the same thereafter in its own right free from any claim of the
undersigned or right of redemption. Demands of performance, notices of sale,
advertisements and presence of property at sale are hereby waived, and Pledgee
is hereby authorized to sell hereunder any evidence of debt pledged to it. Any
sale hereunder may be conducted by any officer or agent of Pledgee.
7. The proceeds of the sale of any of the collateral and all sums
received or collected by Pledgee from or on account of such collateral shall
be applied by Pledgee to the payment of expenses incurred or paid by Pledgee
in connection with any sale, transfer or delivery of the collateral, to the
payment of any other costs, charges, attorneys' fees or expenses mentioned
herein, and to the payment of the indebtedness or any part hereof, all in such
order and manner as Pledgee in its discretion may determine. Pledgee shall pay
any balance to the undersigned.
8. Pledgee shall be under no duty or obligation whatsoever to make or
give any presentments, demands for performance, notices of non-performance,
protests, notices of protest or notices of dishonor in connection with any
obligations or evidences of indebtedness held by Pledgee as collateral, or in
connection with any obligations or evidences of indebtedness which constitute
in whole or in part the indebtedness secured hereunder.
25
<PAGE>
9. Pledgee may at any time deliver the collateral or any part thereof to
the undersigned and the receipt of the undersigned shall be a complete and full
acquittance for the collateral so delivered, and Pledgee shall thereafter be
discharged from any liability or responsibility therefor.
10. Upon the transfer of all or any part of the indebtedness Pledgee may
transfer all or any part of the collateral and shall be fully discharged
thereafter from all liability and responsibility with respect to such collateral
so transferred, and the transferee shall be vested with all the rights and
powers of Pledgee hereunder with respect to such collateral so transferred; but
with respect to any collateral not so transferred Pledgee shall retain all
rights and powers hereby given.
11. Until all indebtedness shall have been paid in full the power of sale
and all other rights, powers and remedies granted to Pledgee hereunder shall
continue to exist and may be exercised by Pledgee at any time and from time to
time irrespective of the fact that the indebtedness or any part thereof may have
become barred by any statute of limitations, or that the personal liability of
the undersigned may have ceased.
12. Pledgee agrees that so long as the indebtedness is not in default,
shares of Terayon Communication Systems, Inc. common stock held hereunder as
collateral for the indebtedness shall be released from pledge as the
indebtedness is paid. Such releases shall be at the rate of one share for each
$____________ of principal amount of indebtedness paid. Release from pledge,
however, shall not result in release from the provisions of those certain Joint
Escrow Instructions, if any, of even date herewith among the parties to this
Pledge Agreement and the Escrow Agent named therein or from the Purchase Option
of Terayon Communication Systems, Inc., set forth in the Early Exercise Stock
Purchase Agreement dated __________________, 19__, if any, between the parties
to this Pledge Agreement.
13. The rights, powers and remedies given to Pledgee by this agreement
shall be in addition to all rights, powers and remedies given to Pledgee by
virtue of any statute or rule of law. Pledgee may exercise its Pledgee's lien
or right of setoff with respect to the indebtedness in the same manner as if the
indebtedness were unsecured. Any forbearance or failure or delay by Pledgee in
exercising any right, power or remedy hereunder shall not be deemed to be a
waiver of such right, power or remedy, and any single or partial exercise of any
right, power or remedy hereunder shall not preclude the further exercise
thereof; and every right, power and remedy of Pledgee shall continue in full
force and effect until such right, power or remedy is specifically waived by an
instrument in writing executed by Pledgee.
Dated:_________________, 19__
_______________________________
ATTACHMENT:
Schedule 1
26
<PAGE>
SCHEDULE 1
TO
PLEDGE AGREEMENT
[SHARES PLEDGED]
27
<PAGE>
Exhibit 99.7
TERAYON COMMUNICATION SYSTEMS
1998 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
NONSTATUTORY STOCK OPTION
(INITIAL GRANT)
_______________, Optionee:
On __________________, 199__, (the "Grant Date") an option was
automatically granted to you (the "optionee") pursuant to the Terayon
Communications Systems (the "Company") 1998 Non-Employee Directors' Stock Option
Plan (the "Plan") to purchase shares of the Company's common stock ("Common
Stock"). This option is not intended to qualify and will not be treated as an
--- ---
"incentive stock option" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"). Defined terms not explicitly
defined in this Stock Option Agreement but defined in the Plan shall have the
same definitions as in the Plan.
The details of your option are as follows:
1. The total number of shares of Common Stock subject to this option is
___________ (__________) shares.
2. The exercise price of this option is _________________________
($________) per share.
3. Thirty-three percent (33%) of the shares subject to this option shall
vest on the first anniversary of the Grant Date and one thirty-sixth (1/36) of
the shares shall vest monthly thereafter over the remaining 24 months, provided
that, during the entire period prior to each such vesting installment date, you
have continuously served as a Non-Employee Director of the Company or employee
or member of the Board of Directors of or consultant to the Company or any
Affiliate of the Company. If your service as a Non-Employee Director or
employee or member of the Board of Directors of or consultant to the Company or
any Affiliate of the Company terminates for any reason or for no reason, this
option shall be exercisable only to the extent vested on such termination date,
and shall terminate to the extent not exercised on the earlier of the Expiration
Date (as defined below) or the date three (3) months following the date of
termination of all such service; provided, however, if such termination of
service is due to your permanent and total disability, this option shall
terminate on the earlier of the Expiration Date or twelve (12) months following
the date of your permanent and total disability; provided further, that if such
termination of service is due to your death, this option shall terminate on the
earlier of the Expiration Date or eighteen (18) months following the date of
your death.
4. (a) You may exercise this option, to the extent specified above, by
delivering a notice of exercise (in a form designated by the Company) together
with the exercise price to the Secretary of the Company, or to such other person
as the Company may designate, during regular business hours, together with such
additional documents as the Company may then require pursuant to Section 6 of
the Plan. You may exercise this option only for whole shares.
<PAGE>
(b) You may elect to pay the exercise price under one of the
following alternatives:
(i) Payment in cash or check at the time of exercise;
(ii) Provided that at the time of the exercise the Common Stock
is publicly traded and quoted regularly in The Wall Street Journal, payment by
delivery of shares of Common Stock already owned by you, held for the period
required to avoid a charge to the Company's reported earnings, and owned free
and clear of any liens, claims, encumbrances or security interest, which Common
Stock shall be valued at its Fair Market Value on the date preceding the date of
exercise;
(iii) Payment pursuant to a program developed under Regulation T
as promulgated by the Federal Reserve Board which results in the receipt of cash
(or check) by the Company either prior to the issuance of shares of the Common
Stock or pursuant to the terms of irrevocable instructions issued by you prior
to the issuance of shares of the Common Stock; or
(iv) Payment by a combination of the methods of payment
specified in subparagraphs (i) through (iii) above.
(c) By exercising this option you agree that the Company may require
you to enter an arrangement providing for the cash payment by you to the Company
of any tax-withholding obligation of the Company arising by reason of the
exercise of this option. Notwithstanding anything to the contrary contained
herein, you may not exercise this option unless the shares issuable upon
exercise of this option are then registered under the Securities Act of 1933, as
amended (the "Securities Act"), or, if such shares are not then so registered,
the Company has determined that such exercise and issuance would be exempt from
the registration requirements of the Securities Act.
5. Your option is not transferable, except by will or by the laws of
descent and distribution, and is exercisable during your life only by you.
Notwithstanding the foregoing, by delivering written notice to the Company, in a
form satisfactory to the Company, you may designate a third party who, in the
event of your death, shall thereafter be entitled to exercise your option.
6. The term of this option ("Expiration Date") is ten (10) years measured
from the Grant Date, subject, however, to earlier termination upon your
termination of service, as set forth in Section 6 of the Plan.
7. Any notices provided for in this option or the Plan shall be given in
writing and shall be deemed effectively given upon receipt or, in the case of
notices delivered by the Company to you, five (5) days after deposit in the
United States mail, postage prepaid, addressed to you at the address specified
below or at such other address as you hereafter designate by written notice to
the Company.
8. This option is subject to all the provisions of the Plan, a copy of
which is attached hereto, and its provisions are hereby made a part of this
option, including without limitation the provisions of Section 6 of the Plan
relating to option provisions, and is further subject to all interpretations,
amendments, rules and regulations which may from time to time be promulgated and
adopted pursuant to the Plan. In the event of any conflict between the
provisions of this option and those of the Plan, the provisions of the Plan
shall control.
2
<PAGE>
9. Notwithstanding anything to the foregoing, this option shall not be
---
exercisable in whole or in part unless and until the Company's shareholders have
approved the Plan.
Dated the ____ day of ____, 19___.
Very truly yours,
TERAYON COMMUNICATION SYSTEMS
By:_____________________________________________
Duly authorized on behalf of the Board of
Directors
ATTACHMENTS:
1998 Non-Employee Directors' Stock Option Plan
Notice of Exercise
3
<PAGE>
The Undersigned:
(a) Acknowledges receipt of the foregoing option and the attachment
referenced therein and understands that all rights and liabilities with respect
to this option are set forth in the option and the Plan; and
(b) Acknowledges that as of the date of grant of this option, it
sets forth the entire understanding between the undersigned optionee and the
Company and its Affiliates regarding the acquisition of Common Stock in the
Company and supersedes all prior oral and written agreements on that subject
with the exception of (i) the options and any other stock awards previously
granted and delivered to the undersigned under stock award plans of the Company
and (ii) the following agreements only:
NONE: _____________________________
OTHER:_____________________________
_____________________________
_____________________________
_____________________________
Optionee
4
<PAGE>
TERAYON COMMUNICATION SYSTEMS
1998 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
NONSTATUTORY STOCK OPTION
(ANNUAL GRANT)
_______________, Optionee:
On __________________, 199__, (the "Grant Date") an option was
automatically granted to you (the "optionee") pursuant to the Terayon
Communications Systems (the "Company") 1998 Non-Employee Directors' Stock Option
Plan (the "Plan") to purchase shares of the Company's common stock ("Common
Stock"). This option is not intended to qualify and will not be treated as an
--- ---
"incentive stock option" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"). Defined terms not explicitly
defined in this Stock Option Agreement but defined in the Plan shall have the
same definitions as in the Plan.
The details of your option are as follows:
1. The total number of shares of Common Stock subject to this option is
_____________(______) shares. [Note: pro-rated if less than 12 months continuous
service prior to Grant Date]
2. The exercise price of this option is _________________________
($________) per share.
3. Thirty-three percent (33%) of the shares subject to this option shall
vest on the first anniversary of the Grant Date and one thirty-sixth (1/36) of
the shares shall vest monthly thereafter over the remaining 24 months, provided
that, during the entire period prior to each such vesting installment date, you
have continuously served as a Non-Employee Director of the Company or employee
or member of the Board of Directors of or consultant to the Company or any
Affiliate of the Company. If your service as a Non-Employee Director or
employee or member of the Board of Directors of or consultant to the Company or
any Affiliate of the Company terminates for any reason or for no reason, this
option shall be exercisable only to the extent vested on such termination date,
and shall terminate to the extent not exercised on the earlier of the Expiration
Date (as defined below) or the date three (3) months following the date of
termination of all such service; provided, however, if such termination of
service is due to your permanent and total disability, this option shall
terminate on the earlier of the Expiration Date or twelve (12) months following
the date of your permanent and total disability; provided further, that if such
termination of service is due to your death, this option shall terminate on the
earlier of the Expiration Date or eighteen (18) months following the date of
your death.
4. (a) You may exercise this option, to the extent specified above, by
delivering a notice of exercise (in a form designated by the Company) together
with the exercise price to the Secretary of the Company, or to such other person
as the Company may designate, during regular business hours, together with such
additional documents as the Company may then require pursuant to Section 6 of
the Plan. You may exercise this option only for whole shares.
(b) You may elect to pay the exercise price under one of the
following alternatives:
5
<PAGE>
(i) Payment in cash or check at the time of exercise;
(ii) Provided that at the time of the exercise the Common Stock
is publicly traded and quoted regularly in The Wall Street Journal, payment by
delivery of shares of Common Stock already owned by you, held for the period
required to avoid a charge to the Company's reported earnings, and owned free
and clear of any liens, claims, encumbrances or security interest, which Common
Stock shall be valued at its Fair Market Value on the date preceding the date of
exercise;
(iii) Payment pursuant to a program developed under Regulation T
as promulgated by the Federal Reserve Board which results in the receipt of cash
(or check) by the Company either prior to the issuance of shares of the Common
Stock or pursuant to the terms of irrevocable instructions issued by you prior
to the issuance of shares of the Common Stock; or
(iv) Payment by a combination of the methods of payment
specified in subparagraphs (i) through (iii) above.
(c) By exercising this option you agree that the Company may require
you to enter an arrangement providing for the cash payment by you to the Company
of any tax-withholding obligation of the Company arising by reason of the
exercise of this option. Notwithstanding anything to the contrary contained
herein, you may not exercise this option unless the shares issuable upon
exercise of this option are then registered under the Securities Act of 1933, as
amended (the "Securities Act"), or, if such shares are not then so registered,
the Company has determined that such exercise and issuance would be exempt from
the registration requirements of the Securities Act.
5. Your option is not transferable, except by will or by the laws of
descent and distribution, and is exercisable during your life only by you.
Notwithstanding the foregoing, by delivering written notice to the Company, in a
form satisfactory to the Company, you may designate a third party who, in the
event of your death, shall thereafter be entitled to exercise your option.
6. The term of this option ("Expiration Date") is ten (10) years measured
from the Grant Date, subject, however, to earlier termination upon your
termination of service, as set forth in Section 6 of the Plan.
7. Any notices provided for in this option or the Plan shall be given in
writing and shall be deemed effectively given upon receipt or, in the case of
notices delivered by the Company to you, five (5) days after deposit in the
United States mail, postage prepaid, addressed to you at the address specified
below or at such other address as you hereafter designate by written notice to
the Company.
8. This option is subject to all the provisions of the Plan, a copy of
which is attached hereto, and its provisions are hereby made a part of this
option, including without limitation the provisions of Section 6 of the Plan
relating to option provisions, and is further subject to all interpretations,
amendments, rules and regulations which may from time to time be promulgated and
adopted pursuant to the Plan. In the event of any conflict between the
provisions of this option and those of the Plan, the provisions of the Plan
shall control.
6
<PAGE>
9. Notwithstanding anything to the foregoing, this option shall not be
---
exercisable in whole or in part unless and until the Company's shareholders have
approved the Plan.
Dated the ____ day of ____, 19___.
Very truly yours,
TERAYON COMMUNICATION SYSTEMS
By:_____________________________________________
Duly authorized on behalf of the Board of
Directors
ATTACHMENTS:
1998 Non-Employee Directors' Stock Option Plan
Notice of Exercise
7
<PAGE>
The Undersigned:
(a) Acknowledges receipt of the foregoing option and the attachment
referenced therein and understands that all rights and liabilities with respect
to this option are set forth in the option and the Plan; and
(b) Acknowledges that as of the date of grant of this option, it
sets forth the entire understanding between the undersigned optionee and the
Company and its Affiliates regarding the acquisition of Common Stock in the
Company and supersedes all prior oral and written agreements on that subject
with the exception of (i) the options and any other stock awards previously
granted and delivered to the undersigned under stock award plans of the Company
and (ii) the following agreements only:
NONE: ____________________________
OTHER:____________________________
____________________________
____________________________
____________________________
Optionee
8
<PAGE>
TERAYON COMMUNICATION SYSTEMS
1998 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
NONSTATUTORY STOCK OPTION
(COMMITTEE GRANT)
_______________, Optionee:
On __________________, 199__, (the "Grant Date") an option was
automatically granted to you (the "optionee") pursuant to the Terayon
Communications Systems (the "Company") 1998 Non-Employee Directors' Stock Option
Plan (the "Plan") to purchase shares of the Company's common stock ("Common
Stock"). This option is not intended to qualify and will not be treated as an
--- ---
"incentive stock option" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"). Defined terms not explicitly
defined in this Stock Option Agreement but defined in the Plan shall have the
same definitions as in the Plan.
The details of your option are as follows:
1. The total number of shares of Common Stock subject to this option is
_______________(______) shares. [Note: pro-rated if less than 12 months
continuous service prior to Grant Date]
2. The exercise price of this option is _________________________
($________) per share.
3. Thirty-three percent (33%) of the shares subject to this option shall
vest on the first anniversary of the Grant Date and one thirty-sixth (1/36) of
the shares shall vest monthly thereafter over the remaining 24 months, provided
that, during the entire period prior to each such vesting installment date, you
have continuously served as a Non-Employee Director of the Company or employee
or member of the Board of Directors of or consultant to the Company or any
Affiliate of the Company. If your service as a Non-Employee Director or
employee or member of the Board of Directors of or consultant to the Company or
any Affiliate of the Company terminates for any reason or for no reason, this
option shall be exercisable only to the extent vested on such termination date,
and shall terminate to the extent not exercised on the earlier of the Expiration
Date (as defined below) or the date three (3) months following the date of
termination of all such service; provided, however, if such termination of
service is due to your permanent and total disability, this option shall
terminate on the earlier of the Expiration Date or twelve (12) months following
the date of your permanent and total disability; provided further, that if such
termination of service is due to your death, this option shall terminate on the
earlier of the Expiration Date or eighteen (18) months following the date of
your death.
4. (a) You may exercise this option, to the extent specified above, by
delivering a notice of exercise (in a form designated by the Company) together
with the exercise price to the Secretary of the Company, or to such other person
as the Company may designate, during regular business hours, together with such
additional documents as the Company may then require pursuant to Section 6 of
the Plan. You may exercise this option only for whole shares.
9
<PAGE>
(b) You may elect to pay the exercise price under one of the
following alternatives:
(i) Payment in cash or check at the time of exercise;
(ii) Provided that at the time of the exercise the Common Stock
is publicly traded and quoted regularly in The Wall Street Journal, payment by
delivery of shares of Common Stock already owned by you, held for the period
required to avoid a charge to the Company's reported earnings, and owned free
and clear of any liens, claims, encumbrances or security interest, which Common
Stock shall be valued at its Fair Market Value on the date preceding the date of
exercise;
(iii) Payment pursuant to a program developed under Regulation T
as promulgated by the Federal Reserve Board which results in the receipt of cash
(or check) by the Company either prior to the issuance of shares of the Common
Stock or pursuant to the terms of irrevocable instructions issued by you prior
to the issuance of shares of the Common Stock; or
(iv) Payment by a combination of the methods of payment
specified in subparagraphs (i) through (iii) above.
(c) By exercising this option you agree that the Company may require
you to enter an arrangement providing for the cash payment by you to the Company
of any tax-withholding obligation of the Company arising by reason of the
exercise of this option. Notwithstanding anything to the contrary contained
herein, you may not exercise this option unless the shares issuable upon
exercise of this option are then registered under the Securities Act of 1933, as
amended (the "Securities Act"), or, if such shares are not then so registered,
the Company has determined that such exercise and issuance would be exempt from
the registration requirements of the Securities Act.
5. Your option is not transferable, except by will or by the laws of
descent and distribution, and is exercisable during your life only by you.
Notwithstanding the foregoing, by delivering written notice to the Company, in a
form satisfactory to the Company, you may designate a third party who, in the
event of your death, shall thereafter be entitled to exercise your option.
6. The term of this option ("Expiration Date") is ten (10) years measured
from the Grant Date, subject, however, to earlier termination upon your
termination of service, as set forth in Section 6 of the Plan.
7. Any notices provided for in this option or the Plan shall be given in
writing and shall be deemed effectively given upon receipt or, in the case of
notices delivered by the Company to you, five (5) days after deposit in the
United States mail, postage prepaid, addressed to you at the address specified
below or at such other address as you hereafter designate by written notice to
the Company.
8. This option is subject to all the provisions of the Plan, a copy of
which is attached hereto, and its provisions are hereby made a part of this
option, including without limitation the provisions of Section 6 of the Plan
relating to option provisions, and is further subject to all interpretations,
amendments, rules and regulations which may from time to time be promulgated and
adopted pursuant to the Plan. In the event of any conflict between the
provisions of this option and those of the Plan, the provisions of the Plan
shall control.
10
<PAGE>
9. Notwithstanding anything to the foregoing, this option shall not be
---
exercisable in whole or in part unless and until the Company's shareholders have
approved the Plan.
Dated the ____ day of ____, 19___.
Very truly yours,
TERAYON COMMUNICATION SYSTEMS
By:__________________________________________
Duly authorized on behalf of the Board of
Directors
ATTACHMENTS:
1998 Non-Employee Directors' Stock Option Plan
Notice of Exercise
11
<PAGE>
The Undersigned:
(a) Acknowledges receipt of the foregoing option and the attachment
referenced therein and understands that all rights and liabilities with respect
to this option are set forth in the option and the Plan; and
(b) Acknowledges that as of the date of grant of this option, it
sets forth the entire understanding between the undersigned optionee and the
Company and its Affiliates regarding the acquisition of Common Stock in the
Company and supersedes all prior oral and written agreements on that subject
with the exception of (i) the options and any other stock awards previously
granted and delivered to the undersigned under stock award plans of the Company
and (ii) the following agreements only:
NONE: _______________________________
OTHER:_______________________________
_______________________________
_______________________________
_______________________________
Optionee
12
<PAGE>
NOTICE OF EXERCISE
Terayon Communications Systems
2952 Bunker Hill Lane
Santa Clara, CA 95054
Date of Exercise:____________________
Ladies and Gentlemen:
This constitutes notice under my stock option that I elect to purchase the
number of shares for the price set forth below.
Stock option dated: _______________
Number of shares as to which
option is exercised: _______________
Certificates to be
issued in name of: _______________
Total exercise price: $______________
Cash payment delivered
herewith: $______________
Value of __________ shares
of common stock delivered
herewith/3/: _______________
By this exercise, I agree (i) to provide such additional documents as you
may require pursuant to the terms of the Company's 1998 Non-Employee Directors'
Stock Option Plan and (ii) to provide for the payment by me to you (in the
manner designated by you) of your withholding obligation, if any, relating to
the exercise of this option.
Very truly yours,
_______________________________________
_____________________________
/3/ Shares must meet the public trading requirements set forth in the option.
Shares must be valued in accordance with the terms of the option being
exercised, must have been owned for the minimum period required in the option,
and must be owned free and clear of any liens, claims, encumbrances or security
interests. Certificates must be endorsed or accompanied by an executed
assignment separate from certificate.
13
<PAGE>
Exhibit 99.8
Terayon Communications Systems, Inc.
1998 EMPLOYEE STOCK PURCHASE PLAN ("ESPP")
ENROLLMENT/CHANGE FORM
<TABLE>
<CAPTION>
Action Complete Sections:
------ ------------------
<S> <C>
- --------------- [_] New Enrollment 2, 3, 6, 7
SECTION 1: [_] Payroll Deduction Change 2, 4, 7
- --------------- [_] Withdrawal 2, 5, 7
ACTIONS [_] Beneficiary Change 2, 6, 7
====================================================================================================================================
SECTION 2:
- ---------------
<S> <C>
Name______________________________________________________________________________
Last First MI
EMPLOYEE
DATA Home Address______________________________________________________________________
Street
__________________________________________________________________________________
City State Zip Code
Social Security #: [_][_][_] - [_][_] - [_][_][_][_]
====================================================================================================================================
SECTION 3:
- --------------- Effective:
[_] Initial Offering Payroll Deduction Amount: _____% of Earnings (whole percentage,
NEW maximum 15%) or $ _____ (whole dollar amount, maximum 15%
ENROLLMENT [_] _____________________ of Earnings
====================================================================================================================================
SECTION 4:
- ---------------
Effective _____________________, I authorize the following new level of payroll deduction: (circle one)
PAYROLL 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15%
DEDUCTION
CHANGE
I understand that I may reduce my payroll deduction one time only during a Purchase Period, and that any
subsequent reduction or increase to my payroll deduction level shall be effective only as of the next Purchase
Period or the next Offering pursuant to my election on this form prior to such Purchase Period or Offering.
NOTE: To stop your payroll deductions during an Offering and receive a refund of your payroll deductions,
----
complete Section 5. You may change your rate of payroll deductions to become effective as of the first day of
the next Purchase Period or Offering.
====================================================================================================================================
SECTION 5:
- ---------------
Effective with the pay period beginning _____________________, I withdraw from the ESPP. I understand that my
withdrawal will be effective during the specified pay period if administratively practicable, and may actually
occur in the following pay period. I also understand that I may not withdraw during the ten (10)-day period
immediately preceding a Purchase Date.
Your election to withdraw from the Offering cannot be changed, and you may not resume participation in the ESPP
prior to the commencement of the next Offering. In connection with your withdrawal, your payroll deductions
will be refunded to you as soon as practicable, without interest.
NOTE: If your employment (or eligibility) terminates for any reason you will immediately cease to participate
----
in the ESPP, and any payroll deductions collected and not previously used to purchase stock will automatically
be refunded to you as soon as practicable, without interest.
====================================================================================================================================
SECTION 6: Beneficiary Relationship of Beneficiary
- ---------------- ----------- ---------------------------
BENEFICIARY
DESIGNATION ___________________________________________ ______________________________________________
====================================================================================================================================
SECTION 7:
- ----------------
AUTHORIZATION
I hereby authorize Terayon Communications Systems, Inc. to enroll me in the ESPP, to make regular deductions in the amount indicated
above, and to purchase shares for me. If I have elected to withdraw from the ESPP, I authorize Terayon Communications Systems, Inc
to distribute my accumulated deductions to me. Any authorization for payroll deductions will continue until canceled or changed by
me in accordance with the terms of the ESPP. Deductions will cease upon the termination of my status as an eligible employer or
termination of the ESPP or if I have elected to withdraw from the ESPP. I agree to be bound by the terms and provisions of the ESPP,
as described in the official text of the ESPP, and any applicable offering document.
Date:_____________________ Signature:____________________________________________________________________________________
</TABLE>
<PAGE>
EXHIBIT 99.9
NONSTATUTORY STOCK OPTION
((1)), Optionee:
TERAYON COMMUNICATION SYSTEMS, INC. (the "Company") has this day granted
to you, the optionee named above, an option to purchase shares of the common
stock of the Company ("Common Stock"). This option is not intended to qualify as
and will not be treated as an "incentive stock option" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). This
option is being granted to you in replacement of the option to purchase ((2))
shares of common stock that was granted to you on ((3)), a copy of which is
attached as Exhibit A hereto (the "Prior Option"). This grant is not under the
---
Company's 1995 Stock Option Plan or the Company's 1997 Equity Incentive Plan.
The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for participation of the Company's employees
(including officers, directors and consultants).
The details of your option are as follows:
1. The total number of shares of Common Stock subject to this option is
((2)). Subject to the limitations contained herein, this option shall be
exercisable with respect to each installment shown below on or after the date of
vesting applicable to such installment, as follows:
DATE OF EARLIEST EXERCISE NUMBER OF SHARES
(VESTING) (INSTALLMENT)
((4)) shares
((5)) shares
((6)) shares
The Commencement Date for purposes of this option is ((3)).
2. (a) The exercise price of this option is ______________ ($______)
per share.
(b) Payment of the exercise price per share is due in full upon
exercise of all or any part of each installment which has accrued to you. You
may elect, to the extent permitted by applicable statutes and regulations, to
make payment of the exercise price under one of the following alternatives:
(i) Payment of the exercise price per share in cash
(including check) at the time of exercise;
(ii) Payment pursuant to a program developed under Regulation
T as promulgated by the Federal Reserve Board which results in the receipt of
cash (or check) by the Company prior to the issuance of Common Stock;
<PAGE>
(iii) Provided that at the time of exercise the Company's
Common Stock is publicly traded and quoted regularly in the Wall Street Journal,
payment by delivery of already-owned shares of Common Stock, held for the period
required to avoid a charge to the Company's reported earnings, and owned free
and clear of any liens, claims, encumbrances or security interests, which Common
Stock shall be valued at its fair market value on the date of exercise;
(iv) Provided that the option exercise price for the
installment, or portion thereof, being purchased is at least one thousand
dollars ($1,000), payment pursuant to the deferred payment alternative as
described in paragraph 2(c) hereof; or
(v) Payment by a combination of the methods of payment
permitted by subparagraph 2(b)(i) through 2(b)(iv) above.
(c) In the event that you elect to make payment of the exercise
price pursuant to the deferred payment alternative:
(i) Not less than twenty-five percent (25%) of the aggregate
exercise price shall be due at the time of exercise, not less than twenty-five
percent (25%) of said exercise price, plus accrued interest, shall be due each
year after the date of exercise, and final payment of the remainder of the
exercise price, plus accrued interest, shall be due three (3) years from date of
exercise or, at the Company's election, upon termination of your employment with
the Company or an affiliate;
(ii) Interest shall be payable at least annually and shall be
charged at the minimum rate of interest necessary to avoid the treatment as
interest, under any applicable provisions of the Code, of any portion of any
amounts other than amounts stated to be interest under the deferred payment
arrangement; and
(iii) In order to elect the deferred payment alternative, you
must, as a part of your written notice of exercise, give notice of the election
of this payment alternative and, in order to secure the payment of the deferred
exercise price to the Company hereunder, if the Company so requests, you must
tender to the Company a promissory note and a security agreement covering the
purchased shares, both in form and substance satisfactory to the Company, or
such other or additional documentation as the Company may request.
3. The minimum number of shares with respect to which this option may be
exercised at any one time is one hundred (100), except (a) as to an installment
subject to exercise, as set forth in paragraph 1, which amounts to fewer than
one hundred (100) shares, in which case, as to the exercise of that installment,
the number of shares in such installment shall be the minimum number of shares,
and (b) with respect to the final exercise of this option this minimum shall not
apply. In no event may this option be exercised for any number of shares which
would require the issuance of anything other than whole shares.
4. Notwithstanding anything to the contrary contained herein, this
option may not be exercised unless the shares issuable upon exercise of this
option are then registered under the Act or, if such shares are not then so
registered, the Company has determined that such exercise and issuance would be
exempt from the registration requirements of the Act. You represent that you (i)
are an officer or director of the Company, or (ii) have a preexisting personal
or business relationship with the Company or one or more of its officers,
directors, or controlling persons, or (iii) by reason of your
2
<PAGE>
business or financial experience or the business or financial experience of your
professional advisors who are unaffiliated with and who are not directly or
indirectly compensated by the Company or any affiliate of the Company, you have
the capacity to protect your own interests in connection with the grant of this
option. You also represent that you are acquiring this option for your own
account and not with a view to or for sale in connection with any distribution
of this security. You also represent that you have acquired this option
unaccompanied by the publication of any advertisement. The Company may, upon
advice of counsel to the Company, place legends on stock certificates issued
pursuant to the exercise of this option as such counsel deems necessary and
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of stock.
5. The term of this option commences on the date hereof and, unless
sooner terminated as set forth below, terminates on ((7)) (which date shall be
no more than ten (10) years from the date this option is granted). In no event
may this option be exercised on or after the date on which it terminates. This
option shall terminate prior to the expiration of its term as follows: three (3)
months after the termination of your employment with the Company or an affiliate
of the Company for any reason or for no reason unless:
(a) such termination of employment is due to your permanent and total
disability (within the meaning of Section 422(c)(6) of the Code), in which event
the option shall terminate on the earlier of the termination date set forth
above or twelve (12) months following such termination of employment; or
(b) such termination of employment is due to your death, in which
event the option shall terminate on the earlier of the termination date set
forth above or eighteen (18) months after your death; or
(c) during any part of such three (3) month period the option is not
exercisable solely because of the condition set forth in paragraph 5 above, in
which event the option shall not terminate until the earlier of the termination
date set forth above or until it shall have been exercisable for an aggregate
period of three (3) months after the termination of employment; or
(d) exercise of the option within three (3) months after termination
of your employment with the Company or with an affiliate would result in
liability under section 16(b) of the Securities Exchange Act of 1934, in which
case the option will terminate on the earlier of (i) the termination date set
forth above, (ii) the tenth (10th) day after the last date upon which exercise
would result in such liability or (iii) six (6) months and ten (10) days after
the termination of your employment with the Company or an affiliate.
However, this option may be exercised following termination of
employment only as to that number of shares as to which it was exercisable on
the date of termination of employment under the provisions of paragraph 1 of
this option.
6. (a) This option may be exercised, to the extent specified above, by
delivering a notice of exercise (in a form designated by the Company) together
with the exercise price to the Secretary of the Company, or to such other person
as the Company may designate, during regular business hours, together with such
additional documents as the Company may then reasonably require.
3
<PAGE>
(b) By exercising this option you agree that:
(i) the Company may require you to enter an arrangement
providing for the cash payment by you to the Company of any tax withholding
obligation of the Company arising by reason of: (1) the exercise of this option;
(2) the lapse of any substantial risk of forfeiture to which the shares are
subject at the time of exercise; or (3) the disposition of shares acquired upon
such exercise; and
(ii) the Company (or a representative of the underwriters) may,
in connection with the first underwritten registration of the offering of any
securities of the Company under the Act, require that you not sell or otherwise
transfer or dispose of any shares of Common Stock or other securities of the
Company during such period (not to exceed one hundred eighty (180) days)
following the effective date (the "Effective Date") of the registration
statement of the Company filed under the Act as may be requested by the Company
or the representative of the underwriters. For purposes of this restriction you
will be deemed to own securities which (1) are owned directly or indirectly by
you, including securities held for your benefit by nominees, custodians, brokers
or pledgees; (2) may be acquired by you within sixty (60) days of the Effective
Date; (3) are owned directly or indirectly, by or for your brothers or sisters
(whether by whole or half blood) spouse, ancestors and lineal descendants; or
(4) are owned, directly or indirectly, by or for a corporation, partnership,
estate or trust of which you are a shareholder, partner or beneficiary, but only
to the extent of your proportionate interest therein as a shareholder, partner
or beneficiary thereof. You further agree that the Company may impose stop-
transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such period.
7. During the term of this option, the Company shall keep available at
all times the number of shares of stock required to satisfy the exercise of such
option.
8. (a) If any change is made in the stock subject to this option
(through merger, consolidation, reorganization, recapitalization, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or otherwise), this option will be appropriately adjusted in the
class(es), number of shares and price per share of stock subject to the option.
(b) In the event of: (i) a merger or consolidation in which the
Company is not the surviving corporation; or (ii) a reverse merger in which the
Company is the surviving corporation but the shares of the Company's common
stock outstanding immediately preceding the merger are converted by virtue of
the merger into other property, whether in the form of securities, cash or
otherwise, then, to the extent permitted by applicable law: (1) any surviving
corporation shall assume this option or shall substitute a similar option (if
this option is still outstanding), or (2) this option shall continue in full
force and effect. In the event any surviving corporation refuses to assume or
continue this option, or to substitute a similar option for this option (if
still outstanding), then this option shall be terminated if not exercised prior
to such event. In the event of a dissolution or liquidation of the Company,
this option (if still outstanding) shall terminate if not exercised prior to
such event.
9. This option is not transferable, except by will or by the laws of
descent and distribution, and is exercisable during your life only by you. By
delivering written notice to the Company, in a form satisfactory to the Company,
you may designate a third party who, in the event of your death, shall
thereafter be entitled to exercise this option.
4
<PAGE>
10. This option is not an employment contract and nothing in this option
shall be deemed to create in any way whatsoever any obligation on your part to
continue in the employ of the Company, or of the Company to continue your
employment with the Company. In the event that this option is granted to you in
connection with the performance of services as a consultant or director, or in
the event that this option is granted to you in connection with the performance
of services as an employee and you subsequently performs services as a
consultant or director, references to employment, employee and similar terms
shall be deemed to include the performance of services as a consultant or a
director, as the case may be, provided, however, that no rights as an employee
shall arise by reason of the use of such terms.
11. Any notices provided for in this option shall be given in writing and
shall be deemed effectively given upon receipt or, in the case of notices
delivered by the Company to you, five (5) days after deposit in the United
States mail, postage prepaid, addressed to you at the address specified below or
at such other address as you hereafter designate by written notice to the
Company.
12. This option may be amended by the Board of Directors (the "Board") of
the Company at any time; provided, however, that any change that would adversely
affect your rights in this option must first be approved by you in writing
before becoming effective.
13. This option is subject to all interpretations, amendments, rules and
regulations which may from time to time be promulgated and adopted by the
Company. This authority shall be exercised by the Board, or by a committee of
one or more members of the Board in the event that the Board delegates its
authority to a committee. The Board, in exercise of this authority, may correct
any defect, omission or inconsistency in this option in a manner and to the
extent the Board shall deem necessary or desirable to make this option fully
effective. References to the Board shall mean the committee if a committee has
been appointed by the Board. Any interpretations, amendments, rules and
regulations promulgated by the Board shall be final and binding upon the Company
and its successors in interest as well as you and your heirs, assigns, and other
successors in interest.
5
<PAGE>
14. Neither you nor any person to whom this option is transferred under
paragraph 10 of this option shall be deemed to be the holder of, or to have any
of the rights of a holder with respect to, any shares subject to this option
unless and until such person has satisfied all requirements for exercise of this
option pursuant to its terms.
Dated the _______ day of ____________________, 199__.
Very truly yours,
TERAYON COMMUNICATION SYSTEMS, INC.
By:________________________________________
Duly authorized on behalf
of the Board of Directors
ATTACHMENTS:
Notice of Exercise
6
<PAGE>
The undersigned:
(a) Acknowledges receipt of the foregoing option and the attachments
referenced therein and understands that all rights and liabilities with respect
to this option are set forth in the option; and
(b) Acknowledges that as of the date of grant of this option, it
sets forth the entire understanding between the undersigned optionee and the
Company and its affiliates regarding the acquisition of stock in the Company and
supersedes all prior oral and written agreements on that subject with the
exception of (i) the options previously granted and delivered to the undersigned
under stock option plans of the Company, and (ii) the following agreements only:
NONE _____________________
(Initial)
OTHER _____________________________________
_____________________________________
_____________________________________
_______________________________________
((1)), OPTIONEE
7
<PAGE>
NOTICE OF EXERCISE
Terayon Communication Systems, Inc.
2952 Bunker Hill Lane
Santa Clara, California 95054
Date of Exercise: ____________________
Ladies and Gentlemen:
This constitutes notice under my stock option that I elect to purchase the
number of shares for the price set forth below.
Type of option: ___ Incentive ___ Nonstatutory
Stock option dated: _____________________
Number of shares as to which
option is exercised: _____________________
Certificates to be
issued in name of: _____________________
Total exercise price: $____________________
Cash payment delivered herewith: $____________________
Value of ______ shares of common
Stock delivered herewith: $____________________
By this exercise, I agree (i) to provide such additional documents as you
may require; and (ii) to provide for the payment by me to you (in the manner
designated by you of your withholding obligation, if any, relating to the
exercise of the Option.
I hereby make the following certifications and representations with respect
to the number of shares of Common Stock (the "Shares"), which are being acquired
by me for my own account upon exercise of the option as set forth above:
I further acknowledge that I will not be able to resell the Shares for at
least ninety (90) days after the stock of the Company becomes publicly traded
(i.e., subject to the reporting requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended) under Rule 701 and that more
restrictive conditions apply to affiliates of the Company under Rule 144.
8
<PAGE>
I further acknowledge that all certificates representing any of the Shares
subject to the provisions of the Option shall have endorsed thereon appropriate
legends reflecting the foregoing limitations, as well as any legends reflecting
restrictions pursuant to the Company's Articles of Incorporation, Bylaws and/or
applicable securities laws.
I further agree that, if required by the Company (or a representative of
the underwriters) in connection with the first underwritten registration of the
offering of any securities of the Company under the Securities Act, I will not
sell or otherwise transfer or dispose of any shares of Common Stock or other
securities of the Company during such period (not to exceed one hundred eighty
(180) days following the effective date of the registration statement of the
Company filed under the Securities Act as may be requested by the Company or
representatives of the underwriters. I further agree that the Company may
impose stop-transfer instructions with respect to securities subject to the
foregoing restrictions until the end of such period.
Very truly yours,
_________________________________
9
<PAGE>
EARLY EXERCISE STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made by and between TERAYON COMMUNICATION SYSTEMS, INC.,
a Delaware corporation (the "Corporation"), and ________________ ("Purchaser").
WITNESSETH:
WHEREAS, Purchaser holds a nonstatutory stock option to purchase shares of
common stock of the Corporation outside the Corporation's 1995 Stock Option Plan
and the Corporation's 1997 Equity Incentive Plan (the "Plans") which Purchaser
desires to exercise; and
WHEREAS, Purchaser wishes to take advantage of the early exercise provision
of his option and therefore to enter into this Agreement;
NOW, THEREFORE, IT IS AGREED between the parties as follows:
1. Purchaser hereby agrees to purchase from the Corporation, and the
Corporation hereby agrees to sell to Purchaser, an aggregate of
________________________ (______) shares of the common stock (the "Stock") of
the Corporation, for an exercise price of ___________ ($____) per share (total
exercise price: _________________________________ ($________) payable as
follows:
Cash at Closing $_______________________
Promissory Note in the form
of Exhibit E (the "Note") $_______________________
Value of _____ shares of Terayon
Communication Systems, Inc.
common stock $_______________________
Total Exercise Price $_______________________
The closing hereunder shall occur at the offices of the Corporation on the
date of this Agreement or at such other time and place as the parties may
mutually agree upon in writing.
At the closing, Purchaser shall deliver three (3) stock assignments in the
form of Exhibit B, duly endorsed (with date and number of shares left blank),
joint escrow instructions (the "Joint Escrow Instructions") in the form of
Exhibit C, duly executed by Purchaser, and the total exercise price (including
an executed Note in the form of Exhibit E if a portion of the total exercise
price is to be paid by promissory note) and an executed pledge agreement in the
form of Exhibit F (the "Pledge Agreement") under which all shares of the Stock
acquired by Note shall be pledged as collateral security for the payment of the
indebtedness represented by the Note; and including endorsed certificates
representing the appropriate number of shares of the Corporation's common stock
if a portion of the total exercise price is to be paid by common stock.
10
<PAGE>
At the closing or as soon thereafter as practicable, the Corporation shall
deliver to the Escrow Agent (as defined in paragraph 8 below) share certificates
for all of the Stock that is to be subject to the Purchase Option (as defined in
paragraph 2 below), and shall deliver share certificates to Purchaser for all of
the Stock, if any, that is not to be subject to the Purchase Option or the
Pledge Agreement. The certificates for all of the Stock that is subject to the
Pledge Agreement but not the Purchase Option shall be retained by the
Corporation as security pursuant to the Pledge Agreement.
2. In accordance with the provisions of section 408(b) of the California
General Corporation Law, the Stock to be purchased by Purchaser pursuant to this
Agreement shall be subject to the following option ("Purchase Option"):
(a) In the event that Purchaser shall cease to have a service
relationship with the Corporation for any reason (including his death), or no
reason, with or without cause, the Purchase Option may be exercised. The
Corporation shall have the right at any time within sixty (60) days after such
cessation of service relationship to purchase from Purchaser or his personal
representative, as the case may be, at the price per share paid by Purchaser
pursuant to this Agreement ("Option Price"), up to but not exceeding the number
of shares of the Stock set forth on Exhibit A hereto which is incorporated
herein by this reference.
(b) In addition, and without limiting the foregoing Purchase Option,
if at any time during the term of the Purchase Option, there occurs: (a) a
dissolution or liquidation of the Corporation; (b) a merger or consolidation
involving the Corporation in which the Corporation is not the surviving
corporation; (c) a reverse merger in which the Corporation is the surviving
corporation but the shares of the Corporation's common stock outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of other securities, cash or otherwise; or
(d) any other capital reorganization in which more than fifty percent (50%) of
the shares of the Corporation entitled to vote are exchanged, then: (i) if
there is no successor to the Corporation, the Corporation shall have the right
to exercise its Purchase Option as to all or any portion of the Stock then
subject to the Purchase Option set forth above to the same extent as if
Purchaser's service relationship with the Corporation had ceased on the date
preceding the date of consummation of said event or transaction or (ii) the
Purchase Option may be assigned to any successor of the Corporation, and the
Purchase Option shall apply if Purchaser shall cease for any reason to have a
service relationship with such successor on the same basis as set forth above.
In that case, references herein to the "Corporation" shall be deemed to refer to
such successor.
(c) The Corporation shall be entitled to pay for any shares
purchased pursuant to its Purchase Option at the Corporation's option in cash,
by offset against any indebtedness given in payment for the Stock, or a
combination of both.
(d) As used herein, service relationship and similar terms shall
include acting as a consultant or director of the Corporation.
(e) This Agreement is not a service contract and nothing in this
Agreement shall be deemed to create in any way whatsoever any obligation on
the part of Purchaser to continue in the service of the Corporation, or of the
Corporation to continue Purchaser in the service of the Corporation.
11
<PAGE>
(f) In the event that the Stock's fair market value (as defined in
the Plan) is equal to or exceeds the Option Price on the date that the
Purchaser ceases to have a service relationship with the Corporation, the
Company shall exercise its purchase option to the extent permitted by law.
3. The Purchase Option may be exercised by giving written notice of
exercise delivered or mailed as provided in paragraph 14. Upon providing of
such notice and payment or tender of the purchase price, the Corporation shall
become the legal and beneficial owner of the Stock being purchased and all
rights and interests therein or related thereto.
4. If from time to time during the term of the Purchase Option there is
any stock dividend or liquidating dividend or distribution of cash and/or
property, stock split or other change in the character or amount of any of the
outstanding securities of the Corporation, then, in such event, any and all new,
substituted or additional securities or other property to which Purchaser is
entitled by reason of his ownership of Stock will be immediately subject to the
Purchase Option and be included in the word "Stock" for all purposes of the
Purchase Option with the same force and effect as the shares of Stock then
subject to the Purchase Option. While the total Option Price shall remain the
same after each such event, the Option Price per share of Stock upon exercise of
the Purchase Option shall be appropriately adjusted.
5. All certificates representing any shares of Stock of the Corporation
subject to the provisions of this Agreement shall have endorsed thereon legends
in substantially the following form:
(i) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO AN OPTION SET FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE
REGISTERED HOLDER, OR HIS PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE
AT THE PRINCIPAL OFFICE OF THIS CORPORATION. ANY TRANSFER OR ATTEMPTED
TRANSFER OF ANY SHARES SUBJECT TO SUCH OPTION IS VOID WITHOUT THE PRIOR
EXPRESS WRITTEN CONSENT OF THE ISSUER OF THESE SHARES."
(ii) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE
SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED."
(iii) ANY LEGEND REQUIRED TO BE PLACED THEREON BY THE
CALIFORNIA COMMISSIONER OF CORPORATIONS.
6. Purchaser acknowledges that he is aware that the Stock to be issued to
him by the Corporation pursuant to this Agreement has not been registered under
the Securities Act of 1933, as amended (the "Act"), on the basis that no
distribution or public offering of the Stock is to be effected, and in this
connection acknowledges that the Corporation is relying on the following
representations. In this connection, Purchaser warrants and represents to the
Corporation that he
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is acquiring the Stock for investment and not with a view to or for sale in
connection with any distribution of the Stock or with any present intention of
distributing or selling the Stock and he does not presently have reason to
anticipate any change in circumstances or any particular occasion or event
which would cause him to sell the Stock. Purchaser recognizes that the Stock
must be held indefinitely unless it is subsequently registered under the Act
or an exemption from such registration is available and, further, recognizes
that the Corporation is under no obligation to register the Stock or to comply
with any exemption from such registration.
7. Purchaser is aware that the Stock may not be sold pursuant to Rule 144
adopted under the Act unless certain conditions are met and until Purchaser has
held the Stock for at least two (2) years. Among the conditions for use of Rule
144 is the availability of specified current public information about the
Corporation. Purchaser recognizes that the Corporation presently has no plans
to make such information available to the public.
Whether or not the Purchase Option is exercised or has lapsed, Purchaser
further agrees not to make any disposition of any of the Stock in any event
unless and until:
(a) There is then in effect a registration statement under the Act
covering such proposed disposition and such disposition is made in accordance
with such registration statement; or
(b) (i) Purchaser shall have notified the Corporation of the
proposed disposition and shall have furnished the Corporation with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii)
Purchaser shall have given the Corporation an opinion of counsel, which
opinion and counsel shall be satisfactory to the Corporation, to the effect
that such disposition will not require registration of the Stock under the
Act.
8. As security for his faithful performance of the terms of this
Agreement and to insure the availability for delivery of Purchaser's Stock
upon exercise of the Purchase Option herein provided for, Purchaser agrees, at
the closing hereunder (or as soon thereafter as practicable), to deliver (or
have the Corporation deliver on the Purchaser's behalf) to and deposit with
the Secretary of the Corporation ("Escrow Agent"), as Escrow Agent in this
transaction, three (3) stock assignments duly endorsed (with date and number
of shares left blank) in the form attached hereto as Exhibit B, together with
a certificate or certificates evidencing all of the Stock subject to the
Purchase Option; said documents are to be held by the Escrow Agent and
delivered by said Escrow Agent pursuant to the Joint Escrow Instructions of
the Corporation and Purchaser set forth in Exhibit C attached hereto and
incorporated herein by this reference, which instructions shall also be
delivered to the Escrow Agent at the closing hereunder (or as soon thereafter
as practicable). If a portion of the total purchase price is paid by a
promissory note, the Stock is also subject to the Pledge Agreement, and
possession of the certificates and stock assignments by the Escrow Agent shall
also constitute possession by the Corporation of such instruments pursuant to
the Pledge Agreement.
9. Purchaser shall not sell or transfer any of the Stock subject to the
Purchase Option or any interest therein so long as such Stock is subject to the
Purchase Option or the Pledge Agreement.
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10. The Corporation shall not be required (i) to transfer on its books any
shares of Stock of the Corporation which shall have been sold or transferred in
violation of any of the provisions set forth in this Agreement or (ii) to treat
as owner of such shares or to accord the right to vote as such owner or to pay
dividends to any transferee to whom such shares shall have been so transferred.
11. Subject to the provisions of paragraphs 9 and 10 above, Purchaser (but
not any unapproved transferee) shall, during the term of this Agreement,
exercise all rights and privileges of a stockholder of the Corporation with
respect to the Stock.
12. Purchaser acknowledges receipt of a copy of Section 260.141.11 of
Title 10 of the California Code of Regulations, attached hereto as Exhibit D.
13. The parties agree to execute such further instruments and to take such
further action as reasonably may be necessary to carry out the intent of this
Agreement.
14. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
any United States Post Office Box, by registered or certified mail with postage
and fees prepaid, addressed to the other party hereto at his address hereinafter
shown below his signature or at such other address as such party may designate
by ten (10) days' advance written notice to the other party hereto.
15. This Agreement shall bind and inure to the benefit of the successors
and assigns of the Corporation and, subject to the restrictions on transfer
herein set forth, inure to the benefit of and be binding upon Purchaser, his
heirs, executors, administrators, successors, and assigns. Without limiting the
generality of the foregoing, the Purchase Option of the Corporation hereunder
shall be assignable by the Corporation at any time or from time to time, in
whole or in part. Should the right of repurchase be assigned by the
Corporation, the assignee shall pay to the
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Corporation cash equal to the excess, if any, of the Stock's Fair Market Value
(as defined in the Plan) over the Option Price.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the ____ of _________, 199_.
TERAYON COMMUNICATION SYSTEMS, INC.
By:_________________________________
Address: 2952 Bunker Hill Lane
Santa Clara, CA 95054
____________________________________
_______________, Purchaser
Address: ____________________________________
____________________________________
Attachments:
Exhibit A Vesting Schedule
Exhibit B Assignment Separate from Certificate
Exhibit C Joint Escrow Instructions
Exhibit D California Code of Regulations, Title 10, Section 260.141.11
Exhibit E Promissory Note
Exhibit F Stock Pledge Agreement
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EXHIBIT A
VESTING SCHEDULE
NUMBER OF SHARES
SUBJECT TO
IF CESSATION OF EMPLOYMENT OCCURS: PURCHASE OPTION:
Before __________, 199_ ______ shares
From __________, 199_
until __________, 200_ ______ shares less ____ shares
on the ____day of each month
following __________, 199_
After __________, 200_ Zero
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EXHIBIT B
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Early Exercise Stock
Purchase Agreement dated as of ____________________, 199___ (the "Agreement"),
____________________hereby sells, assigns and transfers unto
_____________________________________________ (_________) shares of common stock
of Terayon Communication Systems, Inc., a Delaware corporation, standing in the
undersigned's name on the books of said corporation represented by Certificate
No. _____ herewith, and does hereby irrevocably constitute and appoint Cooley
Godward llp attorney to transfer the said stock on the books of the said
corporation with full power of substitution in the premises. This Assignment
may be used only in accordance with and subject to the terms and conditions of
the Agreement, in connection with the repurchase of shares of Common Stock
issued to the undersigned pursuant to the Agreement, and only to the extent that
such shares remain subject to the Company's Purchase Option under the Agreement.
Dated:_____________________
Signature_____________________________
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EXHIBIT C
JOINT ESCROW INSTRUCTIONS
Terayon Communication Systems, Inc.
2952 Bunker Hill Lane
Santa Clara, CA 95054
Attn: Secretary
Dear Sir or Madam:
As Escrow Agent for both Terayon Communication Systems, Inc., a Delaware
corporation ("Corporation"), and the undersigned purchaser of stock of the
Corporation ("Purchaser"), you are hereby authorized and directed to hold the
documents delivered to you pursuant to the terms of that certain Early Exercise
Stock Purchase Agreement ("Agreement"), dated ____________________, 199__, to
which a copy of these Joint Escrow Instructions is attached as Exhibit C, in
accordance with the following instructions:
1. In the event the Corporation or an assignee shall elect to exercise
the Purchase Option set forth in the Agreement, the Corporation or its
assignee will give to Purchaser and you a written notice specifying the number
of shares of stock to be purchased, the purchase price, and the time for a
closing hereunder at the principal office of the Corporation. Purchaser and
the Corporation hereby irrevocably authorize and direct you to close the
transaction contemplated by such notice in accordance with the terms of said
notice.
2. At the closing you are directed (a) to date any stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Corporation against the
simultaneous delivery to you of the purchase price (which may include suitable
acknowledgment of cancellation of indebtedness) of the number of shares of stock
being purchased pursuant to the exercise of the Purchase Option.
3. Purchaser irrevocably authorizes the Corporation to deposit with you
any certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as specified in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as his attorney-in-
fact and agent for the term of this escrow to execute with respect to such
securities and other property all documents of assignment and/or transfer and
all stock certificates necessary or appropriate to make all securities
negotiable and complete any transaction herein contemplated.
4. This escrow shall terminate upon expiration or exercise in full of the
Purchase Option, whichever occurs first.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of same to Purchaser and shall be discharged of all
further obligations hereunder; provided, however, that if at the time of
termination of this escrow you are advised by the Corporation that the property
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subject to this escrow is the subject of a pledge or other security agreement,
you shall deliver all such property to the pledgeholder or other person
designated by the Corporation.
6. Except at otherwise provided in these Joint Escrow Instructions, your
duties hereunder may be altered, amended, modified or revoked only by a writing
signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties or
their assignees. You shall not be personally liable for any act you may do or
omit to do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while
acting in good faith and any act done or omitted by you pursuant to the advice
of your own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law, and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court.
In case you obey or comply with any such order, judgment or decree of any court,
you shall not be liable to any of the parties hereto or to any other person,
firm or corporation by reason of such compliance, notwithstanding any such
order, judgment or decree being subsequently reversed, modified, annulled, set
aside, vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authority or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under any
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel (including without
limitation the firm of Cooley Godward llp) and other experts as you may deem
necessary properly to advise you in connection with your obligations hereunder,
may rely upon the advice of such counsel, and may pay such counsel reasonable
compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate if you
shall cease to be Secretary of the Corporation or if you shall resign by written
notice to each party. In the event of any such termination, the Corporation may
appoint any officer or assistant officer of the Corporation as successor Escrow
Agent and Purchaser hereby confirms the appointment of such successor or
successors as his attorney-in-fact and agent to the full extent of your
appointment.
13. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the securities, you
may (but are not obligated
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to) retain in your possession without liability to anyone all or any part of
said securities until such dispute shall have been settled either by mutual
written agreement of the parties concerned or by a final order, decree or
judgment of a court of competent jurisdiction after the time for appeal has
expired and no appeal has been perfected, but you shall be under no duty
whatsoever to institute or defend any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
any United States Post Box, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties hereunto entitled at the
following addresses, or at such other addresses as a party may designate by ten
days' written notice to each of the other parties hereto:
CORPORATION: TERAYON COMMUNICATION SYSTEMS, INC.
2952 Bunker Hill Lane
Santa Clara, CA 95054
PURCHASER: ________________________________________
________________________________________
________________________________________
SECRETARY: Secretary
TERAYON COMMUNICATION SYSTEMS, INC.
2952 Bunker Hill Lane
Santa Clara, CA 95054
16. By signing these Joint Escrow Instructions you become a party hereto
only for the purpose of said Joint Escrow Instructions; you do not become a
party to the Agreement
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17. This instrument shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns. It
is understood and agreed that references to "you" or "your" herein refer to
the original Escrow Agent and to any and all successor Escrow Agents. It is
understood and agreed that the Corporation may at any time or from time to
time assign its rights under the Agreement and these Joint Escrow Instructions
in whole or in part.
Very truly yours,
TERAYON COMMUNICATION SYSTEMS, INC.
By___________________________________
PURCHASER:
_____________________________________
ESCROW AGENT:
___________________________________
Secretary
TERAYON COMMUNICATION SYSTEMS, INC.
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EXHIBIT D
CALIFORNIA CODE OF REGULATIONS, TITLE 10, SECTION 260.141.11
STATE OF CALIFORNIA - CALIFORNIA ADMINISTRATIVE CODE
----------------------------------------------------
TITLE 10. Investment - Chapter 3. Commissioner of Corporations
260.141.11: RESTRICTION ON TRANSFER. (a) The issuer of any security upon which
- ---------- -----------------------
a restriction on transfer has been imposed pursuant to Sections 260.102.6,
260.141.10 or 260.534 shall cause a copy of this section to be delivered to each
issuee or transferee of such security at the time the certificate evidencing the
security is delivered to the issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate a sale or
transfer of such security, or any interest therein, without the prior written
consent of the Commissioner (until this condition is removed pursuant to Section
260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in subdivision (i) of Section
25102 of the Code or Section 260.105.14 of these rules;
(4) to the transferor's ancestors, descendants or spouse,
or any custodian or trustee for the account of the transferor or the
transferor's ancestors, descendants, or spouse; or to a transferee by a
trustee or custodian for the account of the transferee or the transferee's
ancestors, descendants or spouse;
(5) to holders of securities of the same class of the same
issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code
(either acting as such or as a finder) to a resident of a foreign state,
territory or country who is neither domiciled in this state to the knowledge
of the broker-dealer, nor actually present in this state if the sale of such
securities is not in violation of any securities law of the foreign state,
territory or country concerned;
(8) to a broker-dealer licensed under the Code in a
principal transaction, or as an underwriter or a member of an underwriting
syndicate or selling group;
(9) if the interest sold or transferred is a pledge or
other lien given by the purchaser to the seller upon a sale of the security
for which the Commissioner's written consent is obtained or under this rule
not required;
(10) by way of a sale qualified under Sections 25111,
25112, 25113, or 25121 of the Code, of the securities to be transferred,
provided that no order under Section 25140 or Subdivision (a) of Section 25143
is in effect with respect to such qualification;
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(11) by a corporation to a wholly owned subsidiary of such
corporation, or by a wholly owned subsidiary of a corporation to such
corporation;
(12) by way of an exchange qualified under Section 25111,
25112 or 25113 of the Code, provided that no order under Section 25140 or
Subdivision (a) of Section 25143 is in effect with respect to such
qualification;
(13) between residents of foreign states, territories or
countries who are neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed
Property Law or to the administrator of the unclaimed property law of another
state; or
(15) by the State Controller pursuant to the Unclaimed
Property Law or by the administrator of the unclaimed property law of another
state if, in either such case, such person (i) discloses to potential
purchasers at the sale that transfer of the securities is restricted under
this rule, (ii) delivers to each purchaser a copy of this rule, and (iii)
advises the Commissioner of the name of each purchaser;
(16) by a trustee to a successor trustee when such
transfer does not involve a change in the beneficial ownership of the
securities;
(17) by way of an offer and sale of outstanding securities
in an issuer transaction that is subject to the qualification requirement of
Section 25110 of the Code but exempt from that qualification requirement by
subdivision (f) of Section 25102; provided that any such transfer is on the
condition that any certificate evidencing the security issued to such
transferee shall contain the legend required by this section.
(c) The certificates representing all such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend, prominently stamped or printed
thereon in capital letters of not less than 10-point size, reading as
follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
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EXHIBIT E
PROMISSORY NOTE
$___________ Santa Clara, California
_____________, 199_
FOR VALUE RECEIVED, the undersigned hereby unconditionally promises to pay
to the order of TERAYON COMMUNICATION SYSTEMS, INC., a Delaware corporation (the
"Company"), at Santa Clara, California, or at such other place as the holder
hereof may designate in writing, in lawful money of the United States of America
and in immediately available funds, the principal sum of ________________
Dollars ($_________) together with interest accrued from the date hereof on the
unpaid principal at the rate of ______% per annum, or the maximum rate
permissible by law (which under the laws of the State of California shall be
deemed to be the laws relating to permissible rates of interest on commercial
loans), whichever is less, as follows:
PRINCIPAL REPAYMENT. The outstanding principal amount hereunder shall
be subject to scheduled amortized repayments on the dates and in the
amounts listed below.
PRINCIPAL REPAYMENT DATE REPAYMENT AMOUNT
INTEREST PAYMENTS. Interest shall be payable in arrears on each
Principal Repayment Date and shall be calculated on the basis of a 360-day
year for the actual number of days elapsed;
provided, however, that in the event that the undersigned's service relationship
or association with the Company is terminated for any reason prior to payment in
full of this Note, this Note shall be accelerated and all remaining unpaid
principal and interest shall become due and payable immediately after such
termination.
If the undersigned fails to pay any of the principal and accrued interest
when due, the Company, at its sole option, shall have the right to accelerate
this Note, in which event the entire principal balance and all accrued interest
shall become immediately due and payable, and immediately collectible by the
Company pursuant to applicable law.
This Note may be prepaid at any time without penalty. All money paid
toward the satisfaction of this Note shall be applied first to the payment of
interest as required hereunder and then to the retirement of the principal.
The full amount of this Note is secured by a pledge of shares of Common
Stock of the Company, and is subject to all of the terms and provisions of the
Early Exercise Stock Purchase Agreement and the Stock Pledge Agreement, each of
even date herewith between the undersigned and the Company.
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The undersigned hereby represents and agrees that the amounts due under
this Note are not consumer debt, and are not incurred primarily for personal,
family or household purposes, but are for business and commercial purposes only.
The undersigned hereby waives presentment, protest and notice of protest,
demand for payment, notice of dishonor and all other notices or demands in
connection with the delivery, acceptance, performance, default or endorsement of
this Note.
The holder hereof shall be entitled to recover, and the undersigned agrees
to pay when incurred, all costs and expenses of collection of this Note,
including without limitation, reasonable attorneys' fees.
This Note shall be governed by, and construed, enforced and interpreted in
accordance with, the laws of the State of California, excluding conflict of laws
principles that would cause the application of laws of any other jurisdiction.
Signed________________________________
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EXHIBIT F
STOCK PLEDGE AGREEMENT
1. As collateral security for the payment of that certain promissory note
in principal amount of $______________ issued this date to Terayon Communication
Systems, Inc. ("Pledgee") by the undersigned (hereinafter called
"indebtedness"), the undersigned hereby assigns, transfers to and pledges with
the Pledgee the securities listed on Schedule 1 hereto which were this day
delivered to be deposited with Pledgee, together with any stock rights, rights
to subscribe, dividends paid in cash or other property in connection with the
complete or partial liquidation of Pledgee, stock dividends, dividends paid in
stock, new securities or other property except cash dividends other than
liquidating dividends to which the undersigned is or may hereafter become
entitled to receive on account of such property, and in the event that the
undersigned receives any such, the undersigned will immediately deliver it to
Pledgee to be held by Pledgee hereunder in the same manner as the property
originally pledged hereunder. All property assigned, transferred to and pledged
with Pledgee under this paragraph is hereinafter called "collateral."
2. At any time, without notice, and at the expense of the undersigned,
Pledgee in its name or in the name of its nominee or of the undersigned may, but
shall not be obligated to: (1) collect by legal proceedings or otherwise all
dividends (except cash dividends other than liquidating dividends), interest,
principal payments and other sums now or hereafter payable upon or on account of
said collateral; (2) enter into any extension, reorganization, deposit, merger,
or consolidation agreement, or any agreement in any wise relating to or
affecting the collateral, and in connection therewith may deposit or surrender
control of such collateral thereunder, accept other property in exchange for
such collateral and do and perform such acts and things as it may deem proper,
and any money or property received in exchange for such collateral shall be
applied to the indebtedness or thereafter held by it pursuant to the provisions
hereof; (3) insure, process and preserve the collateral; (4) cause the
collateral to be transferred to its name or to the name of its nominee; (5)
exercise as to such collateral all the rights, powers, and remedies of an owner,
except that so long as the indebtedness is not in default the undersigned shall
retain all voting rights as to the collateral.
3. The undersigned agrees to pay prior to delinquency all taxes, charges,
liens and assessments against the collateral, and upon the failure of the
undersigned to do so Pledgee at its option may pay any of them and shall be the
sole judge of the legality or validity thereof and the amount necessary to
discharge the same.
4. All advances, charges, costs and expenses, including reasonable
attorneys' fees, incurred or paid by Pledgee in exercising any right, power or
remedy conferred by this agreement, or in the enforcement thereof, shall become
a part of the indebtedness secured hereunder and shall be paid to Pledgee by the
undersigned immediately and without demand.
5. At the option of Pledgee and without necessity of demand or notice,
all or any part of the indebtedness of the undersigned shall immediately
become due and payable irrespective of any agreed maturity, upon the happening
of any of the following events: (1) failure to keep or perform any of the
terms or provisions of this agreement; (2) default in the
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<PAGE>
payment of principal or interest when due; (3) the levy of any attachment,
execution or other process against the collateral; or (4) the insolvency,
commission of an act of bankruptcy, general assignment for the benefit of
creditors, filing of any petition in bankruptcy or for relief under the
provisions of Title 11, United States Code, Bankruptcy, of, by, or against the
undersigned.
6. In the event of the nonpayment of any indebtedness when due, whether
by acceleration or otherwise, or upon the happening of any of the events
specified in the last preceding paragraph, Pledgee may then, or at any time
thereafter, at its election, apply, set off, collect or sell in one or more
sales, or take such steps as may be necessary to liquidate and reduce to cash
in the hands of Pledgee in whole or in part, with or without any previous
demands or demand of performance or notice or advertisement, the whole or any
part of the collateral in such order as Pledgee may elect, and any such sale
may be made either at public or private sale at its place of business or
elsewhere, or at any broker's board or securities exchange, either for cash or
upon credit or for future delivery; provided, however, that if such
disposition is at private sale, then the purchase price of the collateral
shall be equal to the public market price then in effect, or, if at the time
of sale no public market for the collateral exists, then, in recognition of
the fact that the sale of the collateral would have to be registered under the
Securities Act of 1933 and that the expenses of such registration are
commercially unreasonable for the type and amount of collateral pledged
hereunder, Pledgee and the undersigned hereby agree that such private sale
shall be at a purchase price mutually agreed to by Pledgee and the undersigned
or, if the parties cannot agree upon a purchase price, then at a purchase
price established by a majority of three independent appraisers knowledgeable
of the value of such collateral, one named by the undersigned within 10 days
after written request by the Pledgee to do so, one named by Pledgee within
such 10 day period, and the third named by the two appraisers so selected,
with the appraisal to be rendered by such body within 30 days of the
appointment of the third appraiser. The cost of such appraisal, including all
appraiser's fees, shall be charged against the proceeds of sale as an expense
of such sale. Pledgee may be the purchaser of any or all collateral so sold
and hold the same thereafter in its own right free from any claim of the
undersigned or right of redemption. Demands of performance, notices of sale,
advertisements and presence of property at sale are hereby waived, and Pledgee
is hereby authorized to sell hereunder any evidence of debt pledged to it. Any
sale hereunder may be conducted by any officer or agent of Pledgee.
7. The proceeds of the sale of any of the collateral and all sums
received or collected by Pledgee from or on account of such collateral shall
be applied by Pledgee to the payment of expenses incurred or paid by Pledgee
in connection with any sale, transfer or delivery of the collateral, to the
payment of any other costs, charges, attorneys' fees or expenses mentioned
herein, and to the payment of the indebtedness or any part hereof, all in such
order and manner as Pledgee in its discretion may determine. Pledgee shall pay
any balance to the undersigned.
8. Pledgee shall be under no duty or obligation whatsoever to make or
give any presentments, demands for performance, notices of non-performance,
protests, notices of protest or notices of dishonor in connection with any
obligations or evidences of indebtedness held by Pledgee as collateral, or in
connection with any obligations or evidences of indebtedness which constitute
in whole or in part the indebtedness secured hereunder.
9. Pledgee may at any time deliver the collateral or any part thereof to
the undersigned and the receipt of the undersigned shall be a complete and full
acquittance for the
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collateral so delivered, and Pledgee shall thereafter be discharged from any
liability or responsibility therefor.
10. Upon the transfer of all or any part of the indebtedness Pledgee may
transfer all or any part of the collateral and shall be fully discharged
thereafter from all liability and responsibility with respect to such collateral
so transferred, and the transferee shall be vested with all the rights and
powers of Pledgee hereunder with respect to such collateral so transferred; but
with respect to any collateral not so transferred Pledgee shall retain all
rights and powers hereby given.
11. Until all indebtedness shall have been paid in full the power of sale
and all other rights, powers and remedies granted to Pledgee hereunder shall
continue to exist and may be exercised by Pledgee at any time and from time to
time irrespective of the fact that the indebtedness or any part thereof may have
become barred by any statute of limitations, or that the personal liability of
the undersigned may have ceased.
12. Pledgee agrees that so long as the indebtedness is not in default,
shares of Terayon Communication Systems, Inc. common stock held hereunder as
collateral for the indebtedness shall be released from pledge as the
indebtedness is paid. Such releases shall be at the rate of one share for each
$____________ of principal amount of indebtedness paid. Release from pledge,
however, shall not result in release from the provisions of those certain Joint
Escrow Instructions, if any, of even date herewith among the parties to this
Pledge Agreement and the Escrow Agent named therein or from the Purchase Option
of Terayon Communication Systems, Inc., set forth in the Early Exercise Stock
Purchase Agreement dated __________________, 19__, if any, between the parties
to this Pledge Agreement.
13. The rights, powers and remedies given to Pledgee by this agreement
shall be in addition to all rights, powers and remedies given to Pledgee by
virtue of any statute or rule of law. Pledgee may exercise its Pledgee's lien
or right of setoff with respect to the indebtedness in the same manner as if the
indebtedness were unsecured. Any forbearance or failure or delay by Pledgee in
exercising any right, power or remedy hereunder shall not be deemed to be a
waiver of such right, power or remedy, and any single or partial exercise of any
right, power or remedy hereunder shall not preclude the further exercise
thereof; and every right, power and remedy of Pledgee shall continue in full
force and effect until such right, power or remedy is specifically waived by an
instrument in writing executed by Pledgee.
Dated:______________, 19__
___________________________________
ATTACHMENT:
Schedule 1
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SCHEDULE 1
TO
PLEDGE AGREEMENT
[SHARES PLEDGED]
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