TERAYON COMMUNICATION SYSTEMS
8-K, 1999-12-13
TELEPHONE & TELEGRAPH APPARATUS
Previous: CIRCLE GROUP INTERNET INC, SB-2/A, 1999-12-13
Next: RECKSON SERVICES INDUSTRIES INC, 8-K, 1999-12-13



<PAGE>

                      SECURITIES EXCHANGE AND COMMISSION

                           Washington, D. C.  20549

                                   FORM 8-K

                                CURRENT REPORT



                    Pursuant to Section 13 or 15(d) of the
                        Securities Exchange Act of 1934


      Date of Report (Date of earliest event reported): November 22, 1999



                      Terayon Communication Systems, Inc.
            (Exact name of registrant as specified in its charter)


                                   Delaware
                (State or other jurisdiction of incorporation)


             000-24647                            77-0328533
       (Commission File No.)         (I.R.S. Employer Identification No.)

                             2952 Bunker Hill Lane
                             Santa Clara, CA 95054
             (Address of principal executive offices and zip code)


      Registrant's telephone number, including area code: (408) 727-4400
<PAGE>

Item 2.   Acquisition or Disposition of Assets.

     A.   Radwiz Ltd.

     On November 22, 1999 (the "Radwiz Closing Date"), the registrant, Terayon
Communication Systems, Inc. ("Terayon"), acquired Radwiz Ltd. ("Radwiz"),
pursuant to that certain Share Purchase Agreement (the "Radwiz Agreement")
adopted by Terayon, the shareholders of Radwiz Ltd. and Radwiz Ltd. dated
October 12, 1999 (the "Radwiz Acquisition"). Radwiz develops, markets and sells
telecommunication access products to the business market that enable its users
to access integrated telephony and data over symmetrical DSL lines.

     Pursuant to the Radwiz Agreement, Terayon acquired all outstanding shares
of capital stock of Radwiz, and Radwiz became a wholly-owned subsidiary of
Terayon on November 22, 1999 (the "Effective Time"). As consideration for the
Radwiz Acquisition, the former shareholders of Radwiz received an aggregate of
Nine Hundred Forty Six Thousand One Hundred Fifty Three (946,153) shares of
Terayon common stock as described in the Radwiz Agreement attached hereto as
Exhibit 2.1. The Radwiz Agreement provides for the payment by Terayon of
certain additional consideration to the former shareholders of Radwiz in the
form of cash or additional shares of Terayon common stock (at Terayon's
option) in the event that certain pricing conditions relative to the Radwiz
Acquisition are satisfied. The Radwiz Acquisition is intended to qualify for
"purchase" accounting treatment under the requirements of Opinion 16 of the
Accounting Principles Board of the American Institute of Certified Public
Accountants ("AICPA") and the related published interpretations of the AICPA,
the Financial Accounting Standards Board and the rules and regulations of the
Securities and Exchange Commission.

     B.   Telegate Ltd.

     On or about December 20, 1999, Terayon intends to acquire Telegate Ltd.
("Telegate"), pursuant to that certain Share Purchase Agreement (the "Telegate
Agreement") adopted by Terayon, the shareholders of Telegate Ltd. and Telegate
Ltd. dated October 14, 1999 (the "Telegate Acquisition"). Telegate develops,
manufactures, markets and sells local access systems for public
telecommunication services over CATV infrastructures.

     Under the Telegate Agreement, Terayon will acquire all outstanding shares
of capital stock of Telegate, and Telegate will become a wholly-owned subsidiary
of Terayon. As consideration for the Telegate Acquisition, the shareholders of
Telegate will receive an aggregate of Two Million Two Hundred Thousand
(2,200,000) shares of Terayon common stock as described in the Telegate
Agreement attached hereto as Exhibit 2.2. The Telegate Acquisition is intended
to qualify for "purchase" accounting treatment under the requirements of Opinion
16 of the Accounting Principles Board of the American Institute of Certified
Public Accountants ("AICPA") and the related published interpretations of the
AICPA, the Financial Accounting Standards Board and the rules and regulations of
the Securities and Exchange Commission.

Item 7.   Financial Statements and Exhibits.

                                       2
<PAGE>

     a.   The financial statements required by this Item will be filed by
amendment no later than 60 days after the date of this report.

     b.   The pro forma financial statements required by this Item will be filed
by amendment no later than 60 days after this report.

     c.   The following exhibits are furnished in accordance with the provisions
of Item 601 of Regulation S-K:

                                       3
<PAGE>

          Exhibit Number      Exhibit

          2.1                 Share Purchase Agreement, dated October 12, 1999,
                              by and among Terayon Communication Systems, Inc.,
                              the shareholders of Radwiz Ltd. and Radwiz Ltd.

          2.2                 Share Purchase Agreement, dated October 14, 1999,
                              among Terayon Communication Systems, Inc., the
                              shareholders of Telegate Ltd. and Telegate Ltd.

                                       4
<PAGE>

                                   SIGNATURE

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.


                                      Terayon Communication Systems, Inc.

Dated: December 13, 1999             By: /s/ Ray M. Fritz
                                          ----------------------------------
                                          Ray M. Fritz
                                          Chief Financial Officer

                                       5
<PAGE>

                                 EXHIBIT INDEX


Exhibit
Number    Description
- ------    -----------

2.1       Share Purchase Agreement, dated October 12, 1999, by and among Terayon
          Communication Systems, Inc., the shareholders of Radwiz Ltd. and
          Radwiz Ltd.

2.2       Share Purchase Agreement, dated October 14, 1999, among Terayon
          Communication Systems, Inc., the shareholders of Telegate Ltd. and
          Telegate Ltd.

                                       6

<PAGE>

                                                                     EXHIBIT 2.1
               ________________________________________________


                            SHARE PURCHASE AGREEMENT


                                  BY AND AMONG


                      TERAYON COMMUNICATION SYSTEMS, INC.,


                THE SHAREHOLDERS SET FORTH IN SCHEDULE A HERETO,


                                      AND


                                  RADWIZ LTD.

                      __________________________________


                          Dated as of October 12, 1999

                      __________________________________



               ________________________________________________


<PAGE>

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
                       Agreement
- ---------------------------------------------------------------------------------------
<S>                    <C>                         <C>
                       Schedule A
- ---------------------------------------------------------------------------------------
                       Schedule B                  OPTIONS EMPLOYEES
- ---------------------------------------------------------------------------------------
                       Schedule 3.2 (a)            (Radwiz Captable)
- ---------------------------------------------------------------------------------------
                       Schedule 3.2 (b)
- ---------------------------------------------------------------------------------------
                       Schedule 3.3 (d)
- ---------------------------------------------------------------------------------------
                       Schedule 3.5                FINANCIAL STATEMENTS
- ---------------------------------------------------------------------------------------
                       Schedule 3.6 (a)
- ---------------------------------------------------------------------------------------
                       Schedule 3.6 (b)
- ---------------------------------------------------------------------------------------
                       Schedule 3.6 (c)            Chief Scientist Grants
- ---------------------------------------------------------------------------------------
                       Schedule 3.7 (b)
- ---------------------------------------------------------------------------------------
                       Schedule 3.7 (c)
- ---------------------------------------------------------------------------------------
                       Schedule 3.9
- ---------------------------------------------------------------------------------------
                       Schedule 3.10               Material Equipment
- ---------------------------------------------------------------------------------------
                       Schedule 3.11               List of Inventory
- ---------------------------------------------------------------------------------------
                       Schedule 3.12
- ---------------------------------------------------------------------------------------
                       Schedule 3.13
- ---------------------------------------------------------------------------------------
                       Schedule 3.13 (b)
- ---------------------------------------------------------------------------------------
                       Schedule 3.14
- ---------------------------------------------------------------------------------------
                       Schedule 3.15
- ---------------------------------------------------------------------------------------
                       Schedule 3.16
- ---------------------------------------------------------------------------------------
                       Schedule 3.17
- ---------------------------------------------------------------------------------------
                       Schedule 3.19 (a)
- ---------------------------------------------------------------------------------------
                       Schedule 3.19 (b)
- ---------------------------------------------------------------------------------------
                       Schedule 3.19 (c)
- ---------------------------------------------------------------------------------------
                       Schedule 3.19 (e)
- ---------------------------------------------------------------------------------------
                       Schedule 3.19 (f)
- ---------------------------------------------------------------------------------------
                       Schedule 3.20
- ---------------------------------------------------------------------------------------
                       Schedule 3.20 (b)
- ---------------------------------------------------------------------------------------
                       Schedule 3.21
- ---------------------------------------------------------------------------------------
                       Schedule 3.22
- ---------------------------------------------------------------------------------------
                       Schedule 3.23 (a) i
- ---------------------------------------------------------------------------------------
                       Schedule 3.23 (a) ii
- ---------------------------------------------------------------------------------------
                       Schedule 3.23 (a) iii
- ---------------------------------------------------------------------------------------
                       Schedule 3.26
- ---------------------------------------------------------------------------------------
                       Schedule 3.27
- ---------------------------------------------------------------------------------------
                       Schedule 3.31
- ---------------------------------------------------------------------------------------
                       Schedule 3.9
- ---------------------------------------------------------------------------------------
                       Schedule 4.4
- ---------------------------------------------------------------------------------------
                       Schedule 5.4
- ---------------------------------------------------------------------------------------
</TABLE>

<PAGE>

                           SHARE PURCHASE AGREEMENT
                           ------------------------

     SHARE PURCHASE AGREEMENT (this "Agreement") dated as of October 12, 1999,
by and among TERAYON COMMUNICATION SYSTEMS INC., a Delaware corporation
("Terayon"), RADWIZ LTD., a company organized under the laws of the State of
Israel (the "Company" or "RADWIZ"), Akiva Mayer (the "Shareholders
Representative") and each of the persons set forth in Schedule A to this
                                                      ----------
Agreement (each, a "Seller" and, collectively, the "Sellers").

                                   RECITALS
                                   --------

     A. RADWIZ Ltd. is engaged principally in the development, manufacturing and
marketing of telecommunication access products for the business market (the
"Business"). The Company has its principal office at Building 7, Kiryat Atidim,
Israel and shall by the Closing Date (as defined herein below) have
issued _______ ordinary shares, NIS 0.10 nominal value per share (the "Ordinary
Shares"), and 168,421 preferred shares, NIS 0.10 nominal value per share (the
"Preferred Shares"). The Ordinary Shares and the Preferred Shares are
collectively referred to herein as the "Shares." The Company has also granted
44,185 vested options to acquire 44,185 ordinary shares of the Company under the
Plans, as defined herein below (hereafter the "Vested Options")

     B. The Sellers collectively own all the issued and outstanding Ordinary
Shares and Preferred Shares of the Company. Each Seller's Ordinary Shares and
Preferred Shares are referred to in this Agreement as such "Seller's Shares" and
collectively as the "Sellers' Shares."

     C. Terayon is a Delaware corporation with its principal office located at
2952 Bunker Hill Lane, Santa Clara, CA 95054.

     D. Terayon desires to acquire all of the Sellers' Shares and each of the
Sellers desires to sell such Seller's Shares to Terayon.

     E. Terayon, RADWIZ and the Trustee for the Options Plans (defined herein
below), wish to make certain adjustments to the rights of grantees under the
RADWIZ Share Incentive Plan (1997) and the rights of the grantees under the
RADWIZ Ltd. Affiliates Key Employee Share Incentive Plan (1998) (hereafter
jointly referred to as the "Plans" and the Option Holders jointly referred to as
the "Option Holders"), providing that subject to the closing of this Agreement,
the Option Holders shall upon the exercise of each option to purchase one
ordinary share of RADWIZ (each an "Option" and collectively the "Options")
receive shares of Common Stock of Terayon in lieu of RADWIZ ordinary shares, all
as provided for herein below. The shares of Terayon Common Stock issued on the
exercise of Vested Options shall constitute part of the Purchase Consideration
(as defined below) and shares of Common Stock issued on the exercise of non-
Vested Options (options which vest after 1 January, 2000) shall not constitute
part of the Purchase Consideration but shall be issued by Terayon in addition to
the Purchase Consideration.

<PAGE>

     F. The Sellers, RADWIZ and Terayon desire to make certain representations
and warranties and other agreements in connection with the transactions
contemplated hereby.

     NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, do hereby agree
as follows:


                                   ARTICLE I
                               TERMS OF PURCHASE
                               -----------------

     SECTION 1.1.       Purchase and Sale.
                        -----------------

     (a) Subject to the terms and conditions of this Agreement, on the Closing
         Date (as defined below), each Seller shall sell, transfer, assign,
         convey and deliver to Terayon, and Terayon shall purchase from each
         Seller such Seller's Shares, in each case, free and clear of all Liens.
         The closing of the purchase and sale (the "Closing") shall take place
         at the offices of Cooley Godward LLP, One Maritime Plaza 20/th/ Floor,
         San Francisco, California 94111 at 10:00 a.m., on November 15, 1999 or
         such other business day that all the conditions set forth in Section 6
         have been satisfied or waived, or on such other date, time and place as
         the parties may mutually agree (the "Closing Date"). At the Closing,
         the Sellers shall cause the Company to deliver to Terayon one or more
         share certificates representing the Shares (collectively, the "New
         Share Certificates"), and Terayon shall (i) issue 950,000 shares of
         Common Stock of Terayon (less such number of shares of Terayon Common
         Stock the value of which shall be equal to the cash payment, as
         provided for in the last sentences of Section 2.1 below) to the
         Sellers' Representative for distribution to the Sellers and the Trustee
         (to hold in trust as provided in Section 1.1 (b) below), all in
         accordance with the column in Schedule A captioned "Closing
                                       ----------
         Consideration", and (ii) issue 50,000 shares of Common Stock of Terayon
         to the Escrow Agent, which taken together represent the aggregate
         Purchase Consideration payable to the Sellers hereunder. Terayon shall
         register the shares of Common Stock under the Securities Act as soon as
         possible after the Closing Date so that the shares that constitute the
         Purchase Consideration are tradable and are not subject to any lock up
         provision, except as set for the herein with respect shares issued to
         the Trustee.

     (b) Immediately following the Closing, Terayon shall cause RADWIZ to amend
         its Plans to provide, inter alia, that on the exercise of each Option,
         shares of Common Stock of Terayon shall be issued in lieu of ordinary
         shares of RADWIZ in accordance with the exchange ratio applicable to
         ordinary shares hereunder and shall further provide that the shares
         which derive from the exercise of Vested Options shall be transferable
         by the Trustee to the Option Holders: (i) free of any "Back-Purchase"
         rights as described in the Plans; (ii) without such

<PAGE>

         transfer being contingent on an IPO and (iii) all as if the shares were
         issued to the Option Holder as though such Option Holder were one of
         the Selling Shareholders under this Agreement (iv) but subject to the
         one year lock-up period described in Section 6.2(c) hereafter. The
         Trustee shall hold the shares of Common Stock issued and delivered to
         the Trustee in accordance with the provisions of Section 1.1 above and
         all other rights that derive therefrom according to This Agreement, in
         trust for the Option Holders who have Vested Options. Upon the exercise
         of a Vested Option, the Trustee shall transfer to the exercising Option
         Holder, subject to all the terms of the Plan, that number of shares of
         Terayon Common Stock due under the Amended Plans, together with a pro
         rata portion of the Additional Consideration, if any, which may be paid
         out in respect of that number of shares of Common Stock

     (c) Subject to the consummation of the transactions set forth in this
         Agreement, Terayon shall issue to the Trustee, from time to time,
         additional shares of Common Stock, in respect of Options which shall
         vest to the Option Holders after January 1, 2000.

     (d) In order to comply with the reporting obligations under this Agreement,
         prior to the Measurement Date, any holder of Vested Options that wishes
         to sell shares of Terayon Common Stock that derive from the exercise of
         Options, shall do so through the Trustee and the Trustee shall give the
         sale reports as required under Article II hereof.

     SECTION 1.2.  Further Assurances. If, at any time after the Closing Date,
                   ------------------
Terayon shall consider or be advised that any deeds, bills of sale, assignments
or assurances or any other acts or things are reasonably necessary, desirable or
proper (a) to vest, perfect or confirm, of record or otherwise, in Terayon, its
right to, and title or interest in, the Shares or (b) otherwise to carry out the
purposes of this Agreement, Terayon shall so advise the Sellers' Representative
in writing, and the Sellers thereupon shall execute and deliver all such deeds,
bills of sale, assignments and assurances and do all such other acts and things
reasonably necessary, desirable or proper to vest, perfect or confirm its right,
title or interest in, to or under the Shares, and otherwise to carry out the
purposes of this Agreement.

                                   ARTICLE II
              PURCHASE CONSIDERATION; OTHER CLOSING DATE PAYMENTS
              ---------------------------------------------------

     SECTION 2.1.  Purchase Consideration. The Purchase Consideration for the
                   ----------------------
Shares shall be 1,000,000 shares of Common Stock of Terayon (the "Purchase
Consideration"). On the Closing Date, Terayon shall pay the Purchase
Consideration by: (i) issuing to the Sellers and the Trustee an aggregate of
950,000 shares of Common Stock; and (ii) depositing with the Escrow Agent fifty
thousand (50,000) shares of Common Stock which shall be held in the Escrow Fund
and which shall be available to satisfy the indemnification obligations as
provided in Section 8. Terayon may elect to pay up to $250,000 of the Purchase
Consideration in cash rather than in Common Stock. In the event that Terayon
shall so elect, the number of shares of

<PAGE>

Common Stock which shall be issued to the Sellers shall be reduced
proportionately, based on the Nasdaq closing price of the Terayon Common Stock
on the last business day immediately prior to the Closing Date

     SECTION 2.2.  Method of Share Transfer. The Transfer of shares of Common
                   ------------------------
Stock as set forth in Section 2.1 above shall be made by Terayon to the Sellers'
Representative on the Closing Date. Each Seller shall receive a share
certificate in its name for all of the Seller's shares of Common Stock, other
than those shares deposited with the Escrow Agent.

     SECTION 2.3.  Shareholder Waivers. Each Seller hereby waives and releases,
                   -------------------
effective as of the Closing, any and all rights, claims and causes of action
assertable against the Company in respect of its Share ownership and any and all
agreements between such Shareholder and the Company, which agreements shall
automatically terminate as of the Closing Date. Such waiver does not detract
however from the rights of the Trustee under any agreement with the Company, or
of any Seller who is an employee of the Company under the employee's employment
agreement with the Company, or under the Plans, as amended by this Agreement.

     SECTION 2.4   The Measurement Date and Additional Consideration.
                   -------------------------------------------------

     Subject to the terms below, in the event and only in the event that the
     Measurement Date Share Price (as defined below) is less than $50, Terayon
     shall, within seven days following the first anniversary of the Closing
     (the "Measurement Date"), pay, to each of the Sellers additional
     consideration (the "Additional Consideration") which shall be calculated
     for each separate Seller as follows:

     (a) Shares Held by Seller on the Measurement Date. For the shares of Common
         ---------------------------------------------
         Stock held by the Seller on the Measurement Date which were received as
         part of the Purchase Consideration and which have not been sold since
         the transfer of the Purchase Consideration, the Seller shall be paid a
         sum equal to: (i) the aggregate number of such shares of Common Stock
         held on the Measurement Date multiplied by (ii) the difference between
         $50 and the Measurement Date Share Price; and

     (b) Shares Sold by Seller prior to the Measurement Date. If the Seller has
         ---------------------------------------------------
         sold shares received as part of the Purchase Consideration for an
         average price per share of $50 (the average price per share shall be
         the aggregate consideration received, before broker or other fees and
         commissions, divided by the total number of shares sold by such
         Seller), then the Seller shall not be entitled to any Additional
         Consideration in respect of those shares sold prior to the Measurement
         Date. If, however, the average price per share received by the Seller
         for shares which were received as part of the Purchase Consideration
         and which were sold prior to the Measurement Date is less than $50 per
         share, then in respect of the shares of Common Stock received as part
         of the Purchase Consideration and sold by the Seller prior to the
         Measurement Date, the Seller shall be paid the lower of the following
                                                        -----
         two amounts: (i) the difference between (x) the aggregate consideration
         received on the sale of the shares of Common Stock and (y) an amount
         equal to $50 per share multiplied by the number of shares sold

<PAGE>

         prior to the Measurement Date; or (ii) the amount which the Seller
         would have received in accordance with Subsection (a) above were the
         Seller to have retained the shares until the Measurement Date.

     (c) The Measurement Date Share price. The Measurement Date Share Price
         --------------------------------
         shall be the lower of: (i) the average of the closing sale prices of
         the shares of Common Stock as reported on the Nasdaq National Market
         for the thirteen (13) consecutive trading days immediately prior to the
         Measurement Date; or (ii) the average of the closing sale prices of the
         shares of Common Stock as reported on the Nasdaq National Market for
         the three (3) consecutive trading days immediately prior to the
         Measurement Date.

     (d) Terayon shall be entitled to pay the above Additional Consideration in
         cash, or by issuing to the Sellers an additional number of shares of
         Common Stock registered under the Securities Act without being subject
         to lock up provisions (such registration being substantially identical
         with the registration provisions provided for with regard to the shares
         included in the Purchase Consideration, except that the Registration
         Statement shall only be kept effective for four quarters) or any
         combination thereof, with the form of such payment, being solely at
         Terayon's discretion. If any part of the payment is made in shares, the
         number of additional shares issued shall be calculated based on the
         Measurement Date Share Price.

     (e) Notwithstanding anything to the contrary in this Agreement, if at any
         time during the period beginning on the later of: (i) the Closing Date
         or (ii) the date on which all the shares included in the Purchase
         Consideration are registered under the Securities Act without being
         subject to any lock-up provisions and ending on the Measurement Date,
         the average closing sale price for ten (10) consecutive trading days
         for a share of Common Stock as reported on the Nasdaq National Market
         is equal to or greater than Sixty US Dollars ($60) per share, no
         Additional Consideration shall be paid to the Sellers and further
         provided that the S-3 Registration Statement filed to register the
         Purchase Consideration is effective for such ten consecutive day
         trading period.

     (f) To remove all doubt, the Option Holders who hold vested RADWIZ Options
         under the Plans shall have the right to receive Additional
         Consideration, if due, and for this purpose shall be treated as
         Sellers. Additional Consideration, if due, shall be paid out to the
         Trustee of the Plans to hold on behalf of any Option Holder who has not
         exercised his vested RADWIZ Options, or has not sold the shares that
         derive from the exercise of the Options. The Option Holders who have
         sold shares which derive from the exercise of vested Options, shall
         receive directly any Additional Consideration, if due.

     (g) If the shares which constitute the Purchase Consideration are not
         registered under the Securities Act without being subject to any lock-
         up provisions (other than any restriction applicable to the Option
         Holders) within 30 days of the Closing Date, the Measurement Date will
         at the Shareholders Representative's request be deferred to the first
         anniversary of the date upon which the shares shall be registered under
         the Securities Act without being subject to any lock-up provisions. The
         Shareholder's Representative's request to defer the Measurement Date
         must be made

<PAGE>

         within 7 business days of the receipt of notice from Terayon that the
         shares of Common Stock have been registered under the Securities Act
         without being subject to any lock-up provisions (other than any
         restriction applicable to the Option Holders).

     (h) For purposes of this Section 2.4, each Seller shall provide Terayon
         with a quarterly report detailing the number of shares sold in the
         previous quarter and the average sale price for the shares. At
         Terayon's request, the Sellers shall provide Terayon with satisfactory
         information to verify the quarterly reports.

     (i) The Sellers shall not enter into any derivative transactions with
         respect to shares of Common Stock of Terayon, such as short sales,
         hedges or put options, in the last thirteen trading days immediately
         prior to the Measurement Date, unless they have received the prior
         written consent of Terayon. Apart from this restriction, Sellers shall
         be entitled to enter into derivative transactions without having to
         notify Terayon.


                                  ARTICLE III
                         REPRESENTATIONS AND WARRANTIES
                         ------------------------------
                                 OF THE SELLERS
                                 --------------

     Each of the Sellers severally but not jointly represents and warrants to
Terayon and each such representation and warranty shall be true and correct as
of the date hereof and as of the Closing Date:

     SECTION 3.1.  Organization. The Company is a corporation duly organized,
                   ------------
validly existing and in good standing under the laws of the jurisdiction of its
organization and has all requisite power and authority and all necessary
governmental approval to carry on its business as it has been and is now being
conducted. The Company is duly qualified or licensed as a foreign corporation to
do business and is in good standing in each jurisdiction where the nature of its
business or the ownership, leasing or operation of its properties makes such
qualification or licensing necessary, except where the failure to be so
qualified or licensed and in good standing, would not have a Material Adverse
Effect on the Company.

     SECTION 3.2.  Capitalization; Options and Other Rights.
                   ----------------------------------------

          (a)      The total registered share capital of the Company is NIS
100,000 divided into: (i) 700,000 Ordinary Shares each of nominal value NIS
0.10, and (ii) 300,000 Preferred Shares each of nominal value NIS 0.10. The
Company has issued 336,501 Ordinary Shares and anticipates that on the Closing
Date the total number of issued Ordinary Shares shall be 365,804 Ordinary
Shares. The Shareholder's Representative shall notify Terayon on the Closing
Date if the number of issued Ordinary Shares is not as anticipated and shall
submit an amended Schedule A based on the actual number of Ordinary Shares on
the Closing Date. Under the Plans various Option Holders have rights to acquire
Ordinary Shares of the Company. The total number of Options granted under the
Plans is 75,095 Options to acquire 75,095 Ordinary Shares. Of this number,
44,185 Options shall have vested on or prior to January 1, 2000 and the
remaining 30,910 Options shall be unvested Options on


<PAGE>

January 1, 2000. All the Ordinary Shares have been duly and validly authorized
and issued and are fully paid and nonassessable and any Ordinary Share when
issued in accordance with the terms of any Plan, share option or similar
agreement to which the Company is a party will be duly and validly authorized
and issued and fully paid and nonassessable. The Company has issued 168,421
Preferred Shares and these Preferred Shares have been duly and validly
authorized and issued and are fully paid and nonassessable. None of the Shares
has been issued, and none of the Ordinary Shares when issued in accordance with
the terms of any Plan or Option Agreement will be issued, in violation of the
preemptive rights of any shareholder of the Company. The Ordinary Shares and the
Preferred Shares were issued, and the Ordinary Shares to be issued upon exercise
of the Options will be issued, in compliance in all material respects with all
applicable laws and regulations. Each of the Persons listed on Schedule 3.2(a),
                                                               ---------------
owns or has the option to purchase, convert securities into or exercise warrants
or options for the number of Ordinary Shares, Preferred Shares or any other
capital stock of the Company set forth therein.

          (b) Except as set forth in Schedule 3.2(b), there are no existing
                                     ---------------
agreements, subscriptions, options, warrants, calls, commitments, trusts (voting
or otherwise), or rights of any kind whatsoever granting to any Person any
interest in or the right to purchase or otherwise acquire from the Company or
granting to the Company any interest in or the right to purchase or otherwise
acquire from any Person, at any time, or upon the occurrence of any stated
event, any securities of the Company, whether or not presently issued or
outstanding, nor are there any outstanding securities of the Company or any
other entity which are convertible into or exchangeable for other securities of
the Company, nor are there any agreements, subscriptions, options, warrants,
calls, commitments or rights of any kind granting to any Person any interest in
or the right to purchase or otherwise acquire from the Company any securities so
convertible or exchangeable. Except as set forth in Schedule 3.2(b) there are no
proxies, agreements or understandings with respect to the voting of the Shares.

     SECTION 3.3.   Authority.
                    ---------

     The representations and warranties made in this Section 3.3 are made
severally by each Seller with regard to itself, and no Seller shall be liable
for the representations and warranties made by any other Seller.
          (a)       Each Seller that is not a natural person warrants and
represents with regard to itself that it is duly organized, validly existing and
in good standing under the laws of the jurisdiction of its organization and has
all requisite power and authority and all necessary governmental approval to
conduct its business as now being conducted. Each Seller warrants and represents
with regard to itself that it has full power and, in the case of each Seller
that is not a natural person, authority to execute, deliver and perform this
Agreement and the transactions contemplated hereunder to be performed by it. The
execution, delivery and performance of this Agreement by each Seller that is not
a natural person has been duly authorized and approved by all necessary
corporate or other action and no corporate or other proceedings on the part of
such Seller are necessary to authorize this Agreement and the transactions
contemplated hereby. This Agreement has been duly executed and delivered by each
Seller and is the legal, valid and binding obligation of each Seller,
enforceable in accordance with its terms, except as enforceability may be
limited by
<PAGE>

applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors rights generally and by the effect of
general principles of equity (regardless of whether enforcement is considered in
a proceeding in equity or at law).

          (b)       The execution, delivery and performance of this Agreement by
each Seller that is not a natural person and the consummation by it of the
transactions contemplated hereunder do not, and will not, violate or conflict
with any provision of the charter, by-laws or other organizational documents of
such Seller. There is no liquidation payment or preference that is, or will be,
due and owing to any Seller or any other Person pursuant to the Articles of
Association of the Company in connection with the transactions contemplated
hereby and the payment to each Seller of its Ratable Share of the Purchase
Consideration in consideration for such Seller's Shares does not, and will not,
violate or conflict with any provision of the Articles of Association of the
Company, other than the rights of first refusal which all Sellers waive by their
respective signatures to this Agreement. The execution, delivery and performance
of this Agreement by each Seller and the consummation by it of the transactions
contemplated hereunder do not, and will not, (i) violate any law, rule,
regulation, order, writ, injunction, judgment or decree of any court,
governmental authority or regulatory agency applicable to such Seller except for
violations which, individually or in the aggregate, will not have a Material
Adverse Effect on such Seller, or (ii) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation or acceleration) under, any
note, bond, indenture, lien, mortgage, lease, permit, guaranty or other
agreement, instrument or obligation to which such Seller is a party or by which
any of its properties may be bound, except (i) for the Israeli Regulatory
Approvals and (ii) for violations, breaches or defaults which, individually or
in the aggregate, could not reasonably be expected to have a Material Adverse
Effect.

          (c)       The execution, delivery and performance of this Agreement by
each Seller does not, and the consummation of the transactions contemplated
hereunder by each Seller will not, on the part of such Seller require any
consent, approval, authorization or permission of, or filing with or
notification to any governmental or regulatory authority, domestic or foreign,
except for (i) Israeli Regulatory Approvals and (ii) any such consent, approval,
authorization, permission, notice or filing which if not obtained or made by
such Seller could not reasonably be expected to have a Material Adverse Effect
on such Seller.

          (d)       Each Seller owns the number of Shares set forth opposite the
name of such Seller in Schedule A under the columns captioned "Number of
                       ----------
Ordinary Shares" and "Number of Preferred Shares" free and clear of all Liens
except as set forth in Schedule 3.3(d) and such Seller shall as of the Closing
Date not have any rights to acquire any additional Shares or any other capital
stock of the Company.

          (e)       This Agreement and the transactions contemplated hereunder
has been duly authorized and approved by all necessary corporate or other action
on the part of the Company and, except for any Israeli Regulatory Approvals,
<PAGE>

no corporate or other proceedings or other governmental approvals on the part of
the Company are necessary to authorize this Agreement and the transactions
contemplated hereunder. The performance of the actions under this Agreement and
the consummation of the transactions contemplated hereunder do not, and will
not, violate or conflict with any provision of the Memorandum of Association or
Articles of Association of the Company. Subject to obtaining the Israeli
Regulatory Approvals, the consummation by the Sellers of the transactions
contemplated hereunder do not, and will not, (i) violate any law, rule,
regulation, order, writ, injunction, judgment or decree of any court,
governmental authority or regulatory agency applicable to the Company, except,
in each case, for violations which, individually or in the aggregate, will not
have a Material Adverse Effect on the Company, taken as a whole, or (ii) result
in a violation or breach of, or constitute (with or without due notice or lapse
of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under, any note, bond, indenture, lien, mortgage,
lease, permit, guaranty or other agreement, instrument or obligation to which
the Company is a party or by which any of its properties may be bound, except
for violations, breaches or defaults which, individually or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect on the
Company, taken as a whole. The consummation of the transactions contemplated
hereunder will not, require on the part of the Company any consent, approval,
authorization or permission of, or filing with or notification to any
governmental or regulatory authority, domestic or foreign, except for (i) any
Israeli Regulatory Approvals and (ii) any such consent, approval, authorization,
permission, notice or filing which if not obtained or made could not reasonably
be expected to have a Material Adverse Effect on the Company.

          (f)       All the issued and outstanding Ordinary Shares and Preferred
Shares of the Company are owned by the Sellers. After giving effect to the
consummation of the transactions contemplated hereby and the adjustment to the
Plans whereby Option Holders will receive shares of Common Stock on the exercise
of their Options, Terayon will own all the issued and outstanding Ordinary
Shares and Preferred Shares of the Company.

          (g)       Each Option Holder beneficially owns the number of Vested
Options set forth opposite the name of such Option Holder in Schedule B under
                                                             ----------
the column captioned "Number of Vested Options" free and clear of all Liens.
Following the adjustment to the Plans and the exercise of the Vested Options
(including any withholding or deduction by the Company required thereby as
payment of the exercise price for such Ordinary Shares), each Option Holder will
beneficially own the number of shares of Common Stock set forth opposite the
name of such Option Holder in Schedule B under the column captioned "Number of
                              ----------
Common Stock After Exercise". Each Option Holder will sign a lock-up undertaking
pursuant to which 50% of the shares of Common Stock which such Option Holder is
entitled by virtue of such Option Holder's Vested Options, shall be locked up
for a period of one year from the Closing Date and the balance will not be
subject to any lock up provisions.
<PAGE>

   SECTION 3.4. Charter Documents. The Company has previously furnished to
                -----------------
Terayon a true, complete and correct copy of the Memorandum of Association and
Articles of Association of the Company and each of the foregoing documents is in
full force and effect. The Company is not in violation of any provision of its
charter documents.

   SECTION 3.5. Financial Statements.
                --------------------

       (a)      True and complete copies of the following financial statements
of the Company (the "Financial Statements") are attached hereto Schedule 3.5:
                                                                ------------

          (i)   audited consolidated balance sheets of the Company as of
December 31, 1998 (the "1998 Balance Sheet") certified by Arthur Andersen Israel
(Luboschitz Kasirer) and as of December 31, 1997, certified by Schwartz, Lere
Dubshani and Somech Haikin;

          (ii)  audited consolidated statements of operations and cash flows of
the Company for the fiscal years ended December 31, 1998 certified by Arthur
Andersen Israel (Luboschitz Kasirer) and December 31, 1997, certified by
Schwartz, Lere Dubshani and Somech Haikin;

          (iii) the unaudited consolidated balance sheet of the Company as of
June 30, 1999; and

          (iv)  the unaudited consolidated statement of operations and cash
flows of the Company for the six month period ended June 30, 1999.

       (b)      The Financial Statements were prepared in accordance with
Israeli Generally Accepted Accounting Principles (except in the case of the
unaudited financial statements, for normal and recurring year-end adjustments
and the omission of footnote information) and were prepared on the basis of the
books and records of the Company (in each case, as of the date of such Financial
Statements) and present fairly, in all material respects, the financial position
of the Company and as of the dates thereof and the results of its operations and
changes in cash flows and stockholders' equity for the periods then ended.

   SECTION 3.6. Absence of Undisclosed Liabilities.
                ----------------------------------

       (a)      Except as disclosed on Schedule 3.6(a) or as set forth in the
                                       ---------------
notes to the Financial Statements, the Company has no liability or obligation of
any nature (whether absolute, accrued, contingent or otherwise) which is in
excess of amounts shown or reserved therefor in the Financial Statements other
than (i) liabilities or obligations not required under Israeli Generally
Accepted Accounting Principles on a basis consistent with that of preceding
accounting periods to be reported on or reserved in, or reflected in the notes
to, such Financial Statements and (ii) liabilities or obligations incurred after
the date of the 1998 Balance Sheet incurred in the ordinary course of business
and consistent with past practice.
<PAGE>

       (b)      Except as disclosed on Schedule 3.6(b), the Company does not
                                       ---------------
have any material Indebtedness.

       (c)      Except as disclosed in Schedule, 3.6(c), the Company has not
                                       ----------------
applied for or received any grant or allowance which the Company is not liable,
or may in the future become liable, to be repaid.

   SECTION 3.7.    Operations and Obligations
                   --------------------------

          (a)      Since December 31, 1998, there has been no event or condition
that has had or could reasonably be expected to have a Material Adverse Effect
on the Company (other than as a result of (i) general economic conditions, or
(ii) the announcement of, or actions taken by the parties as required hereunder
in order to consummate, the transactions contemplated hereunder).

          (b)      Except (i) as set forth in Schedule 3.7(b) and (ii) for
                                              ---------------
actions required to be taken hereunder or approved in advance thereof by Terayon
in writing, since December 31, 1998, the Company has conducted its business only
in the ordinary course and consistent with past practice.

          (c)      Except (i) as set forth in Schedule 3.7(b) and (ii) for
                                              ---------------
actions required to be taken hereunder or approved in advance thereof by Terayon
in writing, since December 31, 1998, the Company has not taken any of the
following actions:

               (i)       amended or otherwise changed its charter documents;

               (ii)      issued or sold or authorized for issuance or sale, or
granted any options or made other agreements with respect to, any shares of its
capital stock or any other of its securities, except for those provisions of the
agreements which the Sellers' Representative and the Escrow Agent specifically
contemplated herein which provisions are in furtherance of this Agreement;

               (iii)     declared, set aside, made or paid any dividend or other
distribution, payable in cash, stock, property or otherwise with respect to any
of its capital stock;

               (iv)      reclassified, combined, split, subdivided or redeemed,
purchased or otherwise acquired, directly or indirectly, any of its capital
Stock;

               (v)       incurred any Indebtedness or issued any debt securities
or assumed, guaranteed or endorsed, or otherwise became responsible for, the
obligations of any Person, or made any loans or advances, except in the ordinary
course of business and consistent with past practice;
<PAGE>

          (vi)      (A) acquired (including, without limitation, by merger,
consolidation, or acquisition of stock or assets) any corporation, partnership,
other business organization or any division thereof or any material amount of
assets; (B) entered into any contract or agreement (or series of related
contracts or agreements) resulting in obligations of the Company in excess of
$100,000 other than in the ordinary course of business, consistent with past
practice; (C) authorized any capital commitment which is in excess of $50,000 or
capital expenditures which are, in the aggregate, in excess of $250,000; or (D)
entered into or amended any contract, agreement, commitment or arrangement with
respect to any matter set forth in Section 3.7(c)(v) or this Section 3.7(c)(vi);

          (vii)     mortgaged, pledged or subject to Lien, any of its assets or
properties or agreed to do so, except for Permitted Liens;

          (viii)    assumed, guaranteed or otherwise became responsible for
the obligations of any other Person or agree to so do;

          (ix)      entered into, agreed to enter into or terminate (prior to
the expiration date thereof) any employment agreement;

          (x)       (A) increased the compensation or benefits payable or to
become payable to its officers or employees, except for increases in the
ordinary course of business and in accordance with past practices; (B) granted
any severance or termination pay to, or enter into any severance agreement with
any director, officer or other employee of the Company, or (C) established,
adopted, entered into or amended any collective bargaining, bonus, profit
sharing, thrift compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance or other
plan, agreement, trust fund, policy or arrangement for the benefit of any such
director, officer or employee;

          (xi)      taken any action, other than in the ordinary course of
business and consistent with past practice, with respect to accounting policies
or procedures (including, without limitation, procedures with respect to the
payment of accounts payable and collection of accounts receivables);

          (xii)     made any Tax election or settled or compromised any material
federal, state, local or foreign income Tax liability;

          (xiii)    settled or compromised any pending or threatened suit,
action or claim which is material or which relates to any of the transactions
contemplated by this Agreement;

          (xiv)      paid, discharged or satisfied any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or otherwise),
other than the payment, discharge or satisfaction, in the ordinary course of
business and consistent with past practice, of liabilities reflected or reserved
against in the 1998 Balance Sheet or subsequently incurred in the ordinary
course of business and consistent with past practice;
<PAGE>

               (xv)      except in connection with the sale of the Company's
products in the ordinary course of business and consistent with past practice,
sold, assigned, transferred, licensed, sublicensed, pledged or otherwise
encumbered any of the Intellectual Property; Rights; or

               (xvi)     announced an intention, committed or agreed to do any
of the foregoing.

     SECTION 3.8.   Properties.
                    ----------

          (a)       The Company has good and valid title to all its properties
and assets (other than Intellectual Property Rights and patents to the extent
qualified by Section 3.19 hereof) reflected on the 1998 Balance Sheet or
acquired after the date thereof except for (i) properties and assets sold or
otherwise disposed of in the ordinary course of business since the date of such
1998 Balance Sheet, (ii) leasehold interests, in which event the Company has a
valid leasehold interest and (iii) properties and assets which individually or
in the aggregate are not material to the operations of the business of the
Company.

          (b)       The Company does not own any real property.

     SECTION 3.9.   Leases. Schedule 3.9 lists all outstanding leases, both
                    ------  ------------
capital and operating, or licenses, pursuant to which the Company has (i)
obtained the right to use or occupy any real or personal property (other than
intellectual property licenses) where the value of such personal property
exceeds $20,000 in the case of any single lease or $50,000 in the aggregate (in
each case exclusive and inclusive of renewals), or (ii) granted to any other
Person the right to use any property described on Schedule 3.10.
                                                  -------------

     SECTION 3.10.  Assets.
                    ------

          (a)       Schedule 3.10 lists each material item of machinery,
                    -------------
equipment, furniture, vehicles or other personal property owned by the Company
having an original cost of $15,000 or more.

          (b)       Except as set forth in Schedule 3.10, the assets and
                                           -------------
properties owned or leased by the Company constitute all the material assets and
properties used by the Company in the operation of its business (including all
books, records, computers and computer programs and data processing systems but
excluding Intellectual Property Rights and patents) and are in good and
serviceable condition (subject, in each case, to normal wear and tear and
obsolescence and except for assets the book value of which does not exceed
$10,000 in the aggregate) and are suitable for the uses for which intended.

     SECTION 3.11.  Accounts Receivable;
                    --------------------

          (a)       All accounts receivable of the Company are valid obligations
of the customers and have arisen from bona fide transactions in the
<PAGE>

ordinary course of the Company's business; (ii) are not subject to discount
except for normal cash and immaterial trade discount and (iii) are current. The
amount carried for doubtful accounts and allowances accrued on the books of the
Company is sufficient to provide for any losses that may be sustained on
realization of the accounts receivable of the Company.

       (b)     The inventories (and any reserves established with respect
thereto) of the Company as of August 31, 1999 are described in Schedule 3.11.
                                                               -------------
All such inventories (net of any such reserves) are properly included in the
Financial Statements in accordance with GAAP and, are of such quality as to be
useable and saleable in the ordinary course of business (subject, in the case of
work-in-process inventory, to completion in the ordinary course of business) and
are reflected in the books and records of the Company at the lower of cost
(based on a first-in-first-out basis) or market value. Such inventories are
located at the locations set forth in Schedule 3.11.
                                      -------------

   SECTION 3.12     Customers and Suppliers. Except as set forth in Schedule
                    -----------------------                         --------
3.12, no customer of the Company which individually accounted for more than 5%
- ----
of the Company's gross revenues during the 12-month period preceding the date
hereof has terminated any agreement with the Company. During the 12-month period
preceding the date hereof, no material supplier of the Company has indicated
that it will stop, or decrease the rate of, supplying materials, products or
services to the Company.

   SECTION 3.13.    Contracts.
                    ---------

       (a)     Schedule 3.13 lists any of the following not otherwise listed on
               -------------
any other schedule:

               (i)       each written contract or commitment which creates an
obligation on the part of the Company in excess of $10,000;

               (ii)      each written debt instrument including, without
limitation, any loan agreement, line of credit, promissory note, security
agreement or other evidence of indebtedness, where the Company is a lender,
borrower or guarantor, in a principal amount in excess of $15,000;

               (iii)     each written contract or commitment restricting the
Company from engaging in any line of business;

               (iv)      each written contract containing a change of control
provision;

               (v)       each written contract or commitment in excess of
$10,000 to which the Company is a party for any charitable contribution;

               (vi)      each written joint development, joint venture or
partnership agreement to which the Company is a party;
<PAGE>

               (vii)     each written agreement to which the Company is a party
with respect to any assignment, discounting or reduction of any receivables of
the Company;

               (viii)    each written distributorship, sales agency, sales
representative, reseller or marketing, value added reseller, original equipment
manufacturing, technology transfer, source code license agreement and any other
agreements containing or restricting the right to sublicense software and/or
technology, in each case, to which the Company is a party;

               (ix)      each agreement, option or commitment or right, held by,
any third party to acquire any assets or properties, or any interest therein, of
the Company, except for contracts for the sale of inventory, machinery or
equipment in the ordinary course of business;

               (x)       each written employment or consulting contract entered
into by the Company (i) with any key employee of or key consultant to the
Company, (ii) involving a term of more than one year, (iii) providing for
payments by the Company in excess of $10,000 per year or (iv) which materially
differs from the standard form of employment or consulting contract previously
provided by the Company to Terayon;

               (xi)      each supply agreement to which the Company is a party
that the Company could not readily replace without a Material Adverse Effect on
the Company; and

               (xii)     all arrangements and agreements with the Office of the
Chief Scientist, the Investment Center of the State of Israel, the Marketing
Incentive Fund.

       (b)     Except as set forth on Schedule 3.13, (i) there are no oral
                                      -------------
contracts or commitments of the types described in this Section 3.13 which
                                                        ------------
create an obligation on the part of the Company, which contracts or commitments
are individually in excess of $20,000 or in the aggregate exceed $100,000, (ii)
there are no contracts or commitments between the Company and any Affiliate, and
(iii) there are no contracts, commitments or arrangements with any employee or
the Company which require a penalty, compensation or other payment as a result
of the transactions contemplated hereby in the event of the termination of such
contract, commitment or arrangement on or following the Closing Date.

   SECTION 3.14.    Absence of Default. Except as set forth in Schedule 3.14,
                    ------------------                         -------------
each of the leases, contracts and other agreements listed or required to be
listed in Schedules 3.9, 3.13, 3.19 and 3.22 that create obligations on any
Person in excess of $20,000 constitutes a valid and binding obligation of the
parties thereto and is in full force and effect and will continue in full force
and effect after giving effect to the Closing, in each case, without breaching
the terms thereof or resulting in the forfeiture or impairment of any rights
thereunder and without notice to, the consent, approval or act of, or the making
of any filing with, any other Person in connection with the Closing. The Company
has fulfilled and performed its obligations under each such
<PAGE>

lease, contract or other agreement to which it is a party to the extent such
obligations are required by the terms thereof to have been fulfilled or
performed through the date hereof, except where the failure to fulfill and
perform would not have a Material Adverse Effect on the Company, and the Company
is not, and, except as set forth in Schedule 3.14, the Company is not alleged in
                                    -------------
writing to be, in breach or default under, nor, except as set forth in Schedule
                                                                       --------
3.14, is there or is there alleged in writing to be any cause for termination
- ----
of, any such lease, contract or other agreement. No other party to any such
lease, contract or other agreement has breached or defaulted thereunder. No
event has occurred and no condition or state of facts exists which, with the
passage of time or the giving of notice or both, would constitute such a default
or breach by the Company or by any such other party. The Company is not
currently renegotiating any such lease, contract or other agreement or paying
liquidated damages in lieu of performance thereunder. Complete and correct
copies of each such lease, contract or other agreement and any amendments
thereto have heretofore been delivered to Terayon.

   SECTION 3.15.    Insurance. Schedule 3.15 sets forth a list of all policies
                    ---------  -------------
of insurance maintained, owned or held by the Company as of the date hereof, and
a brief description of any outstanding claims under any of such insurance
policies. The Company shall use all commercially reasonable efforts to keep such
insurance or comparable insurance in full force and effect through to the
Closing Date. The Company has complied in all material respects with each such
insurance policy to which it is a party and has not failed to give any notice or
present any claim thereunder in a due and timely manner, other than instances
which, individually or in the aggregate, would not result in a Material Adverse
Effect on the Company. The full policy limits (subject to deductibles provided
in such policies) are available and unimpaired under each such policy and no
insurer under any of such policies has a cause to void such policy on grounds of
non-disclosure on the part of the Company thereunder. As the Company is
generally insured as an affiliate of the RAD group, the insurance policies will
terminate on the Closing Date

   SECTION 3.16     Financial Projections. The Company has made available to
                    ---------------------
Terayon certain financial projections with respect to the business of the
Company as set forth in Schedule 3.16 which projections were prepared by the
                        -------------
Company based upon the assumptions reflected therein and Terayon acknowledges
that the projections of the Company were prepared by the Company based upon such
assumptions. The Sellers make no representation or warranty regarding the
accuracy of such projections or as to whether such projections will be achieved
or otherwise, it being understood and acknowledged by Terayon that the only
representation and warranty made by each Seller with respect to such projections
is that such projections were prepared by the Company in good faith and are
based on assumptions believed by the Company to be reasonable but no assurance
is given that such projections will be realized.

   SECTION 3.17     Litigation. Except as set forth in Schedule 3.17, (a)
                    ----------                         -------------
there are no actions, suits, arbitrations, legal or administrative proceedings
or investigations pending or, to the Best Knowledge of the Sellers, threatened
against the Company; and (b) neither the Company nor any assets, properties or
business of the Company, is subject to any judgment, order, writ, injunction or
decree of any court, governmental agency or arbitration tribunal. Except as set
forth in Schedule 3.17, the
         -------------
<PAGE>

Company is not the plaintiff in any such proceeding and the Company is not
contemplating commencing legal action against any other Person.

   SECTION 3.18.    Compliance with Law
                    -------------------

          (a) The Company has complied in all material respects with, and is not
in violation of, in any material respect, any law, ordinance or governmental
rule or regulation (collectively, "Laws") which is material to the business of
the Company; and

          (b) the Company has obtained all licenses, permits, certificates or
other governmental authorization, (collectively "Authorizations") necessary for
the ownership or use of its assets and properties or the conduct of its business
as currently conducted other than Authorizations (i) which are ministerial in
nature and which the Company has no reason to believe would not be issued in due
course and (ii) which, the failure of the Company to possess, would not subject
the Company to penalties other than fines not to exceed $10,000 in the aggregate
("Immaterial Authorizations"); and

          (c) the Company has not received notice of a material violation of, or
knows of any material violation of, any Laws to which it or its business is
subject or any Authorization necessary for the ownership or use of its assets
and properties or the conduct of its business (other than Immaterial
Authorizations).

   SECTION 3.19.    Intellectual Property.
                    ---------------------

       (a)     The Company owns, or is validly licensed or otherwise has the
right to use, all trademarks, trade secrets, trading rights, trade names, trade
name rights, service marks, service marks rights and copyrights which are
material to the conduct of the business of the Company (the "Intellectual
Property Rights"). Schedule 3.19(a) contains a list of (i) patents and patent
                   ----------------
applications, (ii) trademark registrations and applications and (iii) copyright
registrations and applications owned by the Company.

       (b)     Other than as disclosed on Schedule 3.19(b), the Company has not
                                          ----------------
interfered with, infringed upon, misappropriated or otherwise come into conflict
with any patents and Intellectual Property Rights of any other Person. Except as
disclosed on Schedule 3.19(b), neither the Company nor any of its directors,
             ----------------
officers or employees has received any written charge, complaint, claim, demand
or notice alleging any such interference, infringement, misappropriation or
violation (including any claim that the Company must license or refrain from
using any Intellectual Property Rights, patents or other proprietary information
of any other Person) which has not been settled or otherwise fully resolved. To
the best knowledge of the Company, except as disclosed in Schedule 3.19(b), no
                                                          ----------------
other Person has interfered with, infringed upon, misappropriated or otherwise
come into conflict with any Intellectual Property Rights, patents or other
proprietary information of the Company.
<PAGE>

       (c)     Except as disclosed on Schedule 3.19(c), assuming that Terayon
                                      ----------------
continues to operate the business of the Company as presently conducted, neither
the Company's nor Terayon's use of the Intellectual Property Rights or other
proprietary information which is material to the conduct of the business by the
Company will be restricted by, interfere with, infringe upon, misappropriate or
otherwise come into conflict with the Intellectual Property Rights or patents of
any third party including by virtue of any change of control or prohibition of
assignment provisions in agreements between the Company and any third party.

       (d)     Each employee, consultant, officer, director and contractor who
has materially contributed to or participated in the creation or development of
any Intellectual Property on behalf of the Company, or any predecessor in
interest thereto either: (i) is a party to a "work-for-hire" agreement under
which the Company is deemed to be the original owner/author of all property
rights therein; or (ii) has executed an assignment or an agreement to assign in
favor of the Company, or such predecessor in interest, as applicable, all right,
title and interest in such material, a copy of which assignment or agreement to
assign has been made available to Terayon.

       (e)     Except as set forth on Schedule 3.19(e), the Company has not
                                      ----------------
entered into any contract (oral or written) or other arrangement pursuant to
which the Company has agreed or is obligated to license, transfer or place in
escrow the source code for any of its products (prior or current) or restrict
the use of any of its Intellectual Property Rights or patents.

       (f)     Except as disclosed on Schedule 3.19(f), the Company has taken
                                      ----------------
reasonable steps with the intent of ensuring that its products are Year 2000
compliant, where Year 2000 compliant means, when used in accordance with
associated documentation on a specified platform or platforms, being capable
upon installation of (i) operating in the same manner on dates in both the
Twentieth and Twenty-First Centuries, (ii) accurately processing, providing, and
receiving date from, into, and between the Twentieth and Twenty-First centuries,
including the years 1999 and 2000, and (iii) recognizing Year 2000 as a leap
year, provided that all other non-Company products (e.g., hardware, software and
firmware) used in or in combination with the Company's products, properly
exchange data with the Company's products and are Year 2000 compliant. The
Company's internal computer, technology products and systems that are necessary
and material to the operations of their businesses are Year 2000 compliant.


   SECTION 3.20.    Tax Matters.
                    -----------

       (a)     Except as set forth on Schedule 3.20(a), (i) the Company has
                                      ----------------
filed all Tax Returns required to be filed; (ii) all such Tax Returns are
complete and accurate in all material respects and all Taxes shown to be due on
such Tax Returns have been timely paid; (iii) all Taxes (whether or not shown on
any Tax Return) owed by the Company have been timely paid or the Company has
established adequate reserves therefor; (iv) the Company has not waived or been
requested to
<PAGE>

waive any statute of limitations in respect of Taxes; (v) none of the Tax
Returns referred to in clause (i) have been examined by the appropriate taxing
authority or the period for assessment of the Taxes in respect of which such Tax
Returns were required to be filed has expired; (vi) there is no action,
investigation, audit, claim or assessment pending, proposed or threatened with
respect to Taxes of the Company; (vii) all deficiencies asserted or assessments
made as a result of any examination of the Tax Returns referred to in clause (i)
have been paid or reserved in full; (viii) Tax indemnity arrangements, if any,
will terminate prior to Closing and neither the Company nor its Affiliates shall
have any liability thereunder on or after Closing; (ix) there are no Liens for
Taxes upon the assets of the Company except Liens relating to current Taxes not
yet due; (x) all Taxes which the Company is required by law to withhold or to
collect for payment have been duly withheld and collected, and have been paid or
accrued, reserved against and entered on the books of the Company in accordance
with GAAP; (xi) the Company has not taken any action prior to the Closing Date
that would, under applicable law, limit Terayon's or the Company's ability to
utilize any net operating carry forwards of the Company; and (xii) the Company
is not or has been a member of any group of corporations filing a consolidated
tax return for United States federal or Israeli income tax purposes.

       (b)     Except as set forth in Schedule 3.20(b), no sales Taxes, use
                                      -------------
Taxes, real estate transfer Taxes, or other similar Taxes will be imposed on the
transactions contemplated by this Agreement.

   SECTION 3.21.    Employee Benefit Plans
                    ----------------------

          With respect to the Company, all amounts which the Company is required
by law or by agreement with its employees to deduct from such employees'
salaries and/or transfer to such employees' pension, life insurance, incapacity
insurance, continuing education fund or other plans have been duly paid into the
appropriate fund or funds, and the Company does not have any outstanding
obligation to make any such transfer or provision. Except as set forth on
Schedule 3.21, there are no agreements or arrangements (whether or not legally
- -------------
enforceable) for the payment of any pensions, allowances, lump sums or other
like benefits on retirement, death or termination or during periods of sickness
or disablement for the benefit of any officer or former officer or employee or
former employee of the Company or for the benefit of the dependents of any such
Person in effect as of the date hereof.

   SECTION 3.22     Executive Employees
                    -------------------

          Except as set forth in Schedule 3.22, no officer or key employee of
                                 -------------
the Company has resigned or terminated his or her employment with the Company
since December 31, 1998. Schedule 3.22 lists the names, titles and current
                         -------------
annual salary rates of and bonuses paid or payable to all present officers and
employees of the Company whose 1998 annual base salary exceeded (i) $75,000 in
the case of employees located in the United States and (ii) NIS 300,000 in the
case of employees located in Israel (collectively, the "Executive Employees").
Neither the execution delivery or performance of this Agreement, nor the
consummation of the share purchase or any other transaction contemplated by this
Agreement, will result in any
<PAGE>

payment (including any bonus, golden parachute or severance payment) to any
current or former employee, or director, of the Company (whether or not under
any Plan) or materially increase the benefits payable under any Plan, or result
in any acceleration of the time of payment or vesting of any such benefits,
other than the acceleration of the vesting period with regard to certain Options
held by the CEO and which are included in the Vested Options.

   SECTION 3.23.    Employees.
                    ---------

       (a)     With respect to the Company:

               (i)       Schedule 3:23(a)(i) contains the names and salaries of
                         -------------------
all the employees and officers of the Company as of the date hereof. All
officers and employees have personal employment agreements, copies of which have
previously been delivered to Terayon.

               (ii)      Except as set forth in Schedule 3.23(a)(ii), the
                                                --------------------
Company is not a party to any collective labor agreement, and the Company does
not have any agreement of arrangement with a trade union or over body
representing its employees.

               (iii)     Except as set forth in Schedule 3.23(a)(iii), there are
                                                ---------------------
no agreements between the Company and any of its directors, officers, executives
or employees which cannot be terminated by the Company upon 12 weeks notice or
less without giving rise to a claim for damages or compensation (except for
statutory severance pay).

               (iv)      As of the date hereof, there are no outstanding
material claims against the Company by any person who is now or has been an
officer or employee of the Company, and there have been no disputes between the
Company and any material number or category of employees.

               (v)       The Company has materially complied with all
legislative or other official provisions relating to employees, and their terms
and conditions of employment, other than instances of non-compliance which,
individually or in the aggregate, would not result in a Material Adverse Effect
on the Company.

               (vi)      The severance pay due to employees of the Company as of
December 31, 1998 is either funded or provided for on the 1998 Balance Sheet. No
cause of action exists giving right to employees (whether legally entitled to or
not) to any claim for compensation on termination of employment beyond the
statutory severance pay to which such employee is entitled and to the Best
Knowledge of the Sellers, no such claims will be made by any employee for
payment of any compensation as a result of the change of control of the Company
contemplated hereby.
<PAGE>

   SECTION 3.24.    Environmental Laws
                    ------------------

          (a)  (i)       The Company has obtained all licenses and approvals
      required under any applicable Environmental Laws (the "Environmental
      Authorizations"), except for Environmental Authorizations (i) which are
      ministerial in nature and which the Company has no reason to believe will
      not be issued in due course, and (ii) which the failure of the Company to
      possess would not subject the Company to penalties other than fines not to
      exceed $50,000 in the aggregate. True and complete copies of all
      Environmental Authorizations held by the Company, if any, have been
      provided to Terayon prior to the date hereof.

               (ii)      Each of the Environmental Authorizations is in full
force and effect and no material fees or charges are outstanding in respect of
them.

               (iii)     No proceeding or other action of whatever nature is
pending nor, to the Best Knowledge of the Sellers, is threatened in writing, or
under consideration seeking the suspension, revocation, enforcement,
prohibition, variation or limitation of any Environmental Authorization or
seeking to impose any penalty applicable under any Environmental Authorization
or related legislation.

               (iv)      To the Best Knowledge of the Sellers, the past or
present conduct of the businesses of the Company, or the use of the Company's
facilities or of their respective assets and properties, will not give rise to
any claim, proceeding or action under any Environmental Laws.

               (v)       There has not been, and there is not currently, any
material breach by the Company, or claim of any material violation, breach or
infringement made against the Company, of any of the Environmental
Authorizations or Environmental Laws.

               (vi)      The Company has no indebtedness or monetary obligation
or liability, absolute or contingent, in respect of the Environmental Laws with
respect to the storage, treatment, cleanup or disposal of any pollutant,
contaminant substance material or waste (whether solid liquid or gaseous).

               (vii)     Neither the Company nor any of its properties or
businesses, has been the subject of any environmental audit or any evaluation,
assessment, study or rest, the results of which have not been adopted or
complied with by the Company.

               (viii)    The Company has not stored, treated, transported or
disposed of, nor has any other Person, acting on behalf of the Company, stored,
transported or disposed of, on the properties which the Company occupies or uses
or has occupied or used, during the period of such occupation or use, or any
other site, any Hazardous Substance other than in a safe manner in accordance
with Environmental Authorizations and Environmental Laws.
<PAGE>

       (b)     reserved

   SECTION 3.25     Export Control Laws
                    -------------------

       (a)     The Company has conducted its export transactions in accordance
with applicable provisions of United States and Israeli export control laws and
regulations, including but not limited to the Export Administration Act and
implementing Export Administration Regulations, Israel's Import Export
Ordinance, the Supervision of Commodities and Services Law and relevant
regulations and orders issued pursuant thereto and the European Union export
laws and regulations, except for such violations which could not reasonably be
expected to have a Material Adverse Effect on the Company. Without limiting the
foregoing, but subject to the exception set forth in the immediately preceding
sentence:

               (i)       The Company has obtained all export licenses and other
approvals required for its export of products, software and technologies from
the United States and from Israel and for any other place from which the Company
exports any such products, software or technologies;

               (ii)      The Company is in compliance with the terms of all
applicable export licenses or other approvals;

               (iii)     There are no pending or, to the Best Knowledge of the
Sellers, threatened claims against the Company with respect to such export
licenses or other approvals; and

       (b)     No consents or approvals for the transfer of export licenses to
Terayon are required, or such consents and approvals can be obtained
expeditiously without material cost.

   SECTION 3.26.    Bank Accounts, Letters of Credit and Powers of Attorney.
                    -------------------------------------------------------
Schedule 3.26 lists (a) all bank accounts, lock boxes and safe deposit boxes
- -------------
relating to the business and operations of the Company (including the name of
the Bank or other institution where such account or box is located and the name
of each authorized signatory thereto), (b) all outstanding letters of credit
issued by financial institutions for the account of the Company (selling forth,
in each case, the financial institution issuing such letter of credit, the
maximum amount available under such letter of credit, the terms (including the
expiration date) of such letter of credit and the party or parties in whose
favor such letter of credit was issued), and (c) the name and address of each
Person who has a power of attorney to act on behalf of the Company. The Sellers'
Representative has heretofore delivered to Terayon true, correct and complete
copies of each letter of credit and each power of attorney described on Schedule
                                                                        --------
3.26.
- ----

   SECTION 3.27     Branch Offices; Subsidiaries. Except as disclosed in
                    ----------------------------
Schedule 3-27, the Company does not, directly or indirectly, have any ownership
- -------------
or other interest in, or control of, any Person, nor is the Company controlled
by or under common control with any Person.
<PAGE>

   SECTION 3.28     Minute Books. The minute books of the Company made available
                    ------------
to Terayon contain, in all material respects, a complete and accurate summary of
all meetings of directors and shareholders or actions by written resolutions
from the time of the Company was organized through the date of this Agreement
and reflect all transactions referred to in such minutes and resolutions
accurately, except for omissions which are not material.

   SECTION 3.29.    Complete Copies of Materials. The Company has delivered or
                    ----------------------------
made available true and complete copies of each document that has been requested
by Terayon or its counsel in connection with their legal and accounting review
of the Company.

   SECTION 3.30.    Hart-Scott-Rodino Compliance. The Company is a "foreign
                    ----------------------------
issuer" (as such term is defined in 16 C.F.R. Section 801.1(e)(2)(ii)). The
Company and all entities controlled by the Company do not hold assets located in
the United States of America having an aggregate book value of $15 million or
more, and the Company and all entities controlled by the Company did not make
aggregate sales in or into the United States of $25 million or more in the
Company's most recent fiscal year. The term "controlled" as used in the
preceding sentence shall have the meaning set forth in 16 C.F.R. 80l.l(b).

   SECTION 3.31.    Affiliate Transactions. Except for the individuals listed
                    ----------------------
on Schedule 3-31, (i) no Affiliate of the Company has any significant interest
   -------------
in any Person that is engaged in a business which is in competition with the
Business of the Company as currently conducted, and (ii) no Affiliate of the
Company is a supplier to, or a customer of, the Company, or is a party to any
contract listed on Schedules 3.9. 3.13 or 3.19 other than as detailed in
                   ----------------------------
Schedule 3.31. For the purposes of this Section 3.31 each of the following shall
be deemed to be an "Affiliate": (i) each of the Company shareholders that owns
an aggregate of five percent (5%) or more of the Company's shares; (ii) each
individual who is, or who has at any time since December 31, 1998 been an
officer of the Company; (iii) each member of the immediate family of each of the
individuals referred to in clauses "(i)" and "(ii)" above; and (iv) any trust or
other entity (other than the Company) in which any one of the individuals
referred to in clauses "(i)", (ii) and "(iii)" above holds (or in which more
than one such individuals collectively hold), beneficially or otherwise, a
material voting proprietary or equity interest.

   SECTION 3.32     Disclosure. None of the representations or warranties of the
                    ----------
Sellers contained herein, none of the information contained in the Schedules
referred to in this Section 3, and none of the other information or documents
(other than the Non-Competition Agreements, the Retention Agreements and the
Escrow Agreement) furnished or to be furnished to Terayon by the Sellers
pursuant to any specific provision of this Agreement or referenced in such
Schedules of the Sellers (including any information or documents provided in
accordance therewith by the Company on behalf of the Sellers) contains or will
contain any untrue statement of a material fact or omits or will omit to state a
material fact hereto or therein necessary in order to make the statements
contained herein or therein not misleading in any material respects.
<PAGE>

                                  ARTICLE IV
                   REPRESENTATIONS AND WARRANTIES OF TERAYON
                   -----------------------------------------

     Terayon represents and warrants to the Sellers as follows, and each such
representation and warranty shall be true and correct as of the date hereof and
as of the Closing Date:

     SECTION 4.1.   Organization. Terayon is a corporation duly organized,
                    ------------
validly existing and in good standing under the laws of the State of Delaware,
and has all requisite corporate power and authority to enter into and perform
this Agreement and the transactions contemplated hereby to be performed by it.

     SECTION 4.2.   SEC Filings; Financial Statements.
                    ---------------------------------

          (a)  Terayon has made available to the Sellers and the Company
accurate and complete copies (excluding copies of exhibits) of each report,
registration statement (on a form other than Form S-8) and definitive proxy
statement filed by Terayon with the SEC between August 17, 1998 and the date of
this Agreement (the "Terayon SEC Documents"). As of the time it was filed with
the SEC (or, if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing): (i) each of the Terayon SEC
Documents complied in all material respects with the applicable requirements of
the Securities Act or the Exchange Act (as the case may be); and (ii) none of
the Terayon SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.

          (b)  The consolidated financial statements contained in the Terayon
SEC Documents: (i) complied as to conform in all material respects with the
published rules and regulations of the SEC applicable thereto; (ii) were
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods covered, except as may be indicated in
the notes to such financial statements and (in the case of unaudited statements)
as permitted by Form 10-Q of the SEC, and except that unaudited financial
statements may not contain footnotes and are subject to year-end audit
adjustments; and (iii) fairly present the consolidated financial position of
Terayon and its subsidiaries as of the respective dates thereof and the
consolidated results of operations of Terayon and its subsidiaries for the
periods covered thereby.

     SECTION 4.3.   Authority.
                    ---------

          (a)  Terayon has full corporate power and authority to execute,
deliver and perform this Agreement and the transactions contemplated hereunder
to be performed by it. The execution, delivery and performance of this Agreement
by Terayon has been duly authorized and approved by all necessary corporate
action and, except for Israeli Regulatory Approvals, no corporate proceedings
other than actions previously taken on the part of Terayon are necessary to
authorize this Agreement and the transactions contemplated hereby. This
<PAGE>

Agreement has been duly authorized, executed and delivered by Terayon and is the
legal, valid and binding obligation of Terayon enforceable in accordance with
its terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors rights generally and by the effect of general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law).

             (b)  The execution, delivery, performance of this Agreement by
Terayon and the consummation of the transactions contemplated hereby do not, and
will not, (i) violate or conflict with any provision of the Certificate of
Incorporation or By-laws of Terayon, (ii) violate any law, rule, regulation,
order, writ, injunction, judgement or decree of any court, governmental
authority, or regulatory agency, except for violations which, individually or in
the aggregate, will not have a Material Adverse Effect on Terayon, or (iii)
result in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under, any note, bond, indenture, lien, mortgage,
lease, permit, guaranty or other agreement, instrument or obligation, oral or
written, to which Terayon is a party or by which any of the properties of
Terayon may be bound, except for violations, breaches or defaults which,
individually or in the aggregate, will not have a Material Adverse Effect on
Terayon.

             (c)  The execution, delivery and performance of this Agreement by
Terayon does not, and the consummation of the transactions contemplated
hereunder will not, require any consent, approval, authorization or permit of,
or filing with or notification to, any governmental or regulatory authority,
domestic or foreign, except for (i) Israeli Regulatory Approvals, and (ii) any
such consent, approval authorization, permission, notice or filing which if not
obtained or made could not reasonably be expected to have a Material Adverse
Effect on Terayon.

             (d)  Prior to the Closing Date, Terayon will have taken all
necessary action to permit it to issue the number of shares of Common Stock of
Terayon to be issued as the Purchase Consideration pursuant to Section 2. The
shares representing the Purchase Consideration, when issued, will be validly
issued, fully paid and nonassessable and free of any third party rights (other
than the Escrowed Shares, which are subject to the Escrow Agreement), and no
shareholder of Terayon will have any preemptive right of subscription or
purchase in respect thereof.

     SECTION 4.4. Litigation. (a) Except as set forth in Schedule 4.4, there are
                  ----------
no actions, suits, arbitration procedures, legal or administrative proceedings
or investigations pending or, to its best knowledge, threatened against Terayon;
and (b) neither Terayon nor any of its assets, properties or business is subject
to any judgment, order, writ, injunction or decree of any court, governmental
agency or arbitration tribunal, in each case, which reasonably could adversely
affect or restrict its ability to consummate the transactions contemplated by
this Agreement or to perform its obligations hereunder. Terayon is not a
plaintiff in any such proceeding and is not contemplating commencing legal
action against any other Person which reasonably could adversely affect or
restrict its ability to consummate the transactions contemplated by this
Agreement or to perform its obligations hereunder.
<PAGE>

     SECTION 4.5.   Financing. Terayon has sufficient Common Stock reserves and
                    ---------
cash, available lines of credit or other sources of immediately available funds,
to enable it to consummate the transactions contemplated hereunder.

     SECTION 4.6.   Registration of Common Stock. Terayon shall file a
                    ----------------------------
Registration Statement on Form S-3 (the "Registration Statement") to register
all of the shares of Common Stock issued as part of the Purchase Consideration.
Terayon shall use its best efforts to cause such Registration Statement to be
declared effective with the intention that the Registration Statement shall be
declared effective as soon as possible. Terayon shall respond promptly to SEC
questions, comments and requests, if any, to amend the Registration Statement
and instruct its consultants, (lawyers, accountants) to do the same. If prior to
the Closing Date Terayon shall not have completed the registration of the shares
of Common Stock, then Terayon shall advise the Sellers' Representative of the
status of the registration process and in any event shall conclude such
registration process within 60 days following the Closing Date, or in such
longer period acceptable to the Sellers' Representative. Terayon shall notify
the Seller's Representative immediately upon the Registration Statement becoming
effective, without being subject to lock up provisions (except as provided
herein with respect to the Option Holders). The Sellers shall be entitled to
sell shares received as part of the Purchase Consideration immediately upon the
effectiveness of the Registration Statement. Terayon shall pay all expenses in
connection with the filing of the Registration Statement and shall keep such
Registration Statement effective and current for eight (8) calendar quarters
immediately following the registration thereof and will duly file any and all
periodic reports required, subject to extensions as granted.

     SECTION 4.7.   Office of the Chief Scientist. Terayon has been informed
                    -----------------------------
that the Company has financed its research and development in part, by way of
funding granted by the Office of the Chief Scientist in Israel. Terayon shall
sign a standard undertaking towards the Office of the Chief Scientist to the
effect that it shall cause RADWIZ to comply with the statutory, regulatory and
financial obligations to which the RADWIZ is obligated.

     SECTION 4.8.   RAD group Affiliated Transactions. Terayon is aware that the
                    ---------------------------------
Company has functioned as a member of the RAD group of companies (the "RAD
Group") and has transacted certain activities and insurance policies as a RAD
Group member. All activities with the RAD Group, including insurance activities,
shall cease on the Closing Date except for the marketing arrangements of Bynet
Data Communications and joint tender with RAD Data Communications Ltd. in Kenya.
Written agreements with these RAD entities covering at least a 12 month period,
shall be entered into prior to the Closing Date based on RADWIZ's past
practices, all to Terayon's reasonable satisfaction.
<PAGE>

                                   ARTICLE V
                                   COVENANTS
                                   ---------

     SECTION 5.1.   Notification of Certain Matters. The Sellers' Representative
                    -------------------------------
shall give prompt notice to Terayon, and Terayon shall give prompt notice to the
Sellers' Representative, of the occurrence, or non-occurrence, of any event
which would be likely to cause (i) any covenant, condition or agreement
contained in this Agreement not to be complied with or satisfied; and (ii) any
failure of the Sellers or Terayon, as the case may be, to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided that the delivery of any notice pursuant to this Section 5.1
shall not limit or otherwise affect the remedies available to the party
receiving such notice.

     SECTION 5.2.   Actions by the Parties. Upon the terms and subject to the
                    ----------------------
conditions set forth in this Agreement, each of the parties hereto will use its
Commercial Good Faith Efforts to take or cause to be taken all actions, and to
do, or cause to be done, all things necessary, proper or advisable under
applicable law and regulations to consummate and make effective in the most
expeditious manner practicable, the transactions contemplated by this Agreement
including (i) the obtaining of all necessary actions and non-actions, waivers
and consents, if any, from any governmental agency or authority and the making
of all necessary registrations and filings and the taking of all reasonable
steps as may be necessary to obtain an approval or waiver from, or to avoid an
action or proceeding by any governmental agency or authority; (ii) the obtaining
of all necessary consents, approvals or waivers from any other Person; (iii) the
defending of any claim, investigation, action, suit or other legal proceeding,
whether judicial or administrative, challenging this Agreement or the
consummation of the transactions contemplated hereby; and (iv) the execution of
additional instruments necessary to consummate the transactions contemplated by
this Agreement. Each party will promptly consult with the other and provide
necessary information (including copies thereof) with respect to all filings
made by such party with any agency or authority in connection with this
Agreement and the transactions contemplated hereby.

     SECTION 5.3.   Employees.
                    ---------

          (a)  With respect to employees of the Company located in the United
States (the "US Employees"), as soon as practicable after the Closing Date (the
"Benefits Date"), Terayon shall provide, or cause to be provided, such employee
benefits plans, programs and arrangements as are generally made available to
non-represented employees of Terayon who are hired by Terayon after December 31,
1998.

          (b)  With respect to employees of the Company located in Israel (the
"Non-US Employees"), following the Closing Date, Terayon shall maintain, or
cause to be maintained, the employee benefit plans, programs and arrangements
provided to the Non-US Employees by the Company, as of the date hereof, with
such changes thereto which do not, in the aggregate, materially impact the
overall benefits conveyed under such benefit plans, programs and arrangements;
provided that the
<PAGE>

foregoing benefit plans, programs and arrangements shall remain in effect until
such time as Terayon shall implement employee benefit plans, programs and
arrangements applicable to all Terayon employees located in Israel at which time
the Non US Employees shall be provided such plans, programs and arrangements.

     SECTION 5.4.   Indemnification of Directors and Officers.
                    -----------------------------------------

          (a)       From and after the Closing Date, Terayon shall, or shall
cause the Company to, fulfill and honor in all respects the obligations of the
Company to indemnify each Person who is or was a director or officer (an
"Indemnified Director or Officer") of the Company pursuant to any
indemnification provision of the Company's Articles of Association, as each is
in effect on the date hereof.

          (b)       For a period of seven years after the Closing Date, Terayon
shall cause to be maintained in effect the current officers' and directors'
liability insurances maintained by the Company with respect to the Indemnified
Directors or Officers (provided that Terayon may substitute therefor policies of
at least the same coverage and amounts containing terms and conditions which are
no less advantageous to the Indemnified Directors or Officer than such existing
insurance) covering acts or omissions occurring prior to the Closing Date;
provided, that Terayon shall not be required in order to maintain or procure
such insurance coverage to pay an annual premium in excess of 200% of the
current annual premium paid by the Company, for their respective existing
insurance coverage (the "Insurance Cap"); and provided, further, that if such
existing insurance coverage cannot be maintained or equivalent coverage cannot
be obtained, or can be obtained only by paying an annual premium in excess of
the applicable Insurance Cap, Terayon shall only be required to obtain as much
coverage as can be obtained by paying an annual premium equal to such Insurance
Cap. The current annual premium paid by the Company for its existing coverage is
set forth in Schedule 5.4.
             ------------

     SECTION 5.5.   No-Shop. Until the Closing, neither the Company nor any
                    -------
Seller will, directly or indirectly, through any representative or otherwise,
solicit or entertain offers from, provide any non-public information to,
negotiate with or in any manner encourage, discuss, accept, or consider any
proposal of any other person relating to the acquisition of the shares of the
Company or its assets or business, in whole or in part, through purchase,
merger, consolidation, or otherwise; and the Company will immediately notify
Terayon regarding any contact between the Company or its representatives and any
other person regarding any such offer or proposal or any related inquiry.

     SECTION 5.6.   Pre-Closing Negative Covenant. Prior to the Closing, the
                    -----------------------------
Company shall not take any action or refrain from taking any action which would
result in a violation of any of the provisions of Section 3.7 above and the
Company shall conduct its business in the ordinary course in accordance with
this Agreement, and in the same manner as previously conducted, and use its best
effort to preserve its business organization intact, to retain the services of
its present employees and to preserve the good will of its customers and
suppliers.
<PAGE>

     SECTION 5.7.   Sellers Tax Liability. Each of the Sellers shall prior to
                    ---------------------
the Closing Date notify the Israeli Tax Authorities of this Agreement and shall
be responsible for all its tax obligations deriving from the transactions
contemplated in this Agreement

     SECTION 5.8.   Access to Information. Between the date of this Agreement
                    ---------------------
and the Closing Date, the Company will give Terayon reasonable access to all
offices and other facilities and to all books and records of the Company.

                                  ARTICLE VI
                              CLOSING CONDITIONS
                              ------------------

     SECTION 6.1.   Conditions Precedent to Each Party's Obligation to Close.
                    --------------------------------------------------------
The respective obligations of each party hereto to effect the transactions
contemplated by this Agreement shall be subject to the fulfillment or
satisfaction, prior to or on the Closing Date of the following conditions:

          (a)       Approvals. All authorizations, consents (including without
                    ---------
limitation the consent of the applicable Israeli authorities with respect to the
Israeli Regulatory Approvals) orders, declarations or approvals of, or filings
with, or terminations or expirations of waiting periods imposed by, any
governmental or regulatory authority, domestic or foreign, which the failure to
obtain, make or occur would have the effect of making any of the transactions
contemplated hereby illegal or would have a Material Adverse Effect on Terayon
or the Sellers, assuming the transactions are consummated, shall have been
obtained, made or occurred.

          (b)       No Injunction. No action or proceeding shall have been
                    -------------
commenced seeking any temporary restraining order, preliminary or permanent
injunction or other order from any court of competent jurisdiction or seeking
any other legal restraint or prohibition preventing the consummation of any of
the transactions contemplated hereunder other than any of the foregoing which
shall have been dismissed with prejudice.

     SECTION 6.2.   Conditions Precedent to Obligations of Terayon. All
                    ----------------------------------------------
obligations of Terayon under this Agreement are subject to the fulfillment or
satisfaction, prior to or on the Closing Date, of each of the following
conditions precedent:

          (a)       Performance of Obligations. The Sellers shall have performed
                    --------------------------
and complied in all material respects with all agreements and conditions
contained in this Agreement that are required to be performed or complied with
by them prior to or at the Closing, and the representations and warranties of
the Sellers contained in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and as of the Closing as
though made at and as of the Closing, and Terayon shall have received a
certificate to that effect signed by the Sellers' Representative.
<PAGE>

          (b)       Outstanding Options. The Company's Board of Directors shall
                    -------------------
have passed a resolution (and taken any further action necessary under
applicable law or as other reasonably requested by Terayon) adjusting the rights
of the Option Holders under the Plans and providing the number of Terayon shares
that will derive to the Option Holders for each option to purchase one RADWIZ
share.

          (c)       Lock-up Consents. Terayon shall have received from each
                    ----------------
holder of outstanding Vested Options set forth in Schedule 3.2(a), a letter in
                                                  --------------
form and substance satisfactory to Terayon pursuant to which each such Option
Holder shall have agreed to a one year lock-up, commencing on the Closing Date,
and which shall apply to 50% of the total number of shares of Common Stock that
the Option Holder would have received were such Option Holder to exercise all of
the Option Holder's Vested Options on the Closing Date.

          (d)       Non-Competition Agreements. Each of the Company's employees
                    --------------------------
listed in Exhibit 6.2 (d) (the "Key Employees") shall have entered into a Non-
Competition and Non-Disclosure Agreement (the "Non-Competition Agreements"),
each substantially in the form of Exhibit B hereto (or in another form
                                  ---------
acceptable to Terayon), with the Company and Terayon, and such agreements shall
be in full force and effect.

          (e)       Opinion of Counsel. Terayon shall have received the
                    ------------------
favorable written opinion, dated the Closing Date, of Safra, Schwartz & Co.,
counsel to the Company and the Sellers, in form and substance reasonably
satisfactory to Terayon.

          (f)       Resignations. The Sellers shall have delivered to Terayon
                    ------------
the written resignation of each director of the Company, to be effective as of
the Closing Date.

          (g)       Share Transfer. Each of the Sellers shall have duly executed
                    --------------
and had witnessed a "share transfer deed", pursuant to which they shall transfer
their respective Shares in the Company to Terayon; such share transfer form,
together with the share certificates representing the Shares (the "Existing
Share Certificates"), shall have been delivered to the Company's Board of
Directors, and such Board of Directors shall have approved such transfer,
registered the transfer in the Company's shareholders' register, and canceled
the Existing Share Certificates; and the Company shall have issued the New Share
Certificates to Terayon.

          (h)       reserved.

          (i)       Escrow Agreement. Each of the Company, the Escrow Agent and
                    ----------------
the Sellers' Representative shall have entered into an Escrow Agreement with
Terayon substantially in the form of Exhibit D hereto (the "Escrow Agreement").
                                     ---------
<PAGE>

          (j)       Balance Sheet Items. Terayon shall have received, at least
                    -------------------
two days prior to the Closing Date, a true and complete unaudited balance sheet
and statement of accounts of the Company dated as of [ ]1, 1999 which utilizes
the same line items and accounting principles as the 1998 Balance Sheet; and
Terayon shall have received a certificate signed by the Chief Financial Officer
of the Company to such effect. These balance sheets shall not indicate any
material adverse changes from the June 30 balance sheets.

          (k)       Trustee Arrangements. The Trustee, RADWIZ and Terayon, shall
                    --------------------
have entered into an arrangement satisfactory to Terayon regarding the execution
of the Trustees duties in connection with the Plans and the Option Holders
rights following the Closing.

     SECTION 6.3.   Conditions Precedent to Obligations of the Sellers. All
                    --------------------------------------------------
obligations of the Sellers under this Agreement are subject to the fulfillment
or satisfaction, prior to or on the Closing Date, of each of the following
conditions precedent:

          (a)       Performance of Obligations. Terayon shall have performed and
                    -------------------------
complied in all material respects with all agreements and conditions contained
in this Agreement that are required to be performed or complied with by it prior
to or at the Closing, and the representations and warranties of Terayon
contained in this Agreement shall be true and correct in all material respects
as of the date of this Agreement and as of the Closing as though made at and as
of the Closing, and the Sellers' Representative shall have received a
certificate to that effect signed by an officer of Terayon.

          (b)       Escrow Agreement. Terayon and the Escrow Agent shall have
                    ----------------
entered into an Escrow Agreement with the Company and the Sellers'
Representative.

          (c)       Opinion of Counsel. The Sellers shall have received the
                    ------------------
favorable written opinion dated the Closing Date of Cooley, Godward LLP, counsel
to Terayon, with respect to this Agreement, in form and substance reasonably
satisfactory to the Sellers.

                                  ARTICLE VII
                  SURVIVAL OF REPRESENTATIONS AND WARRANTIES
                  ------------------------------------------

     SECTION 7      The representations and warranties of the Sellers and
Terayon set forth in Sections 3 and 4 shall survive for six (6) months following
the Closing Date, except that (i) the representations and warranties set forth
in Section 3.19 shall survive for twelve (12) months following the Closing Date,
(ii) the representations and warranties set forth in Section 3.3 shall survive
until the expiration of the applicable statute of limitations; and (iii) if, at
any time prior to the six month anniversary of the Closing Date, any person
entitled to indemnity under this Agreement (acting in good faith) delivers to
the Seller's Representative a written notice alleging the existence of an
inaccuracy in or a breach of any of the
<PAGE>

representations and warranties made by the Sellers (and setting forth in
reasonable detail the basis for such person's belief that such an inaccuracy or
breach may exist) and asserting a claim for recovery based on such alleged
inaccuracy or breach, then the claim asserted in such notice shall survive the
six month anniversary of the Closing until such time as such claim is fully and
finally resolved. This Section shall not limit any claim for fraud.

                                 ARTICLE VIII
                                INDEMNIFICATION
                                ---------------

     SECTION 8.1.   (a)  Escrow Fund. On the Closing Date, 50,000 shares of
                         -----------
Common Stock (the "Escrow Fund"), shall be deposited with institution selected
by Terayon and approved by the Sellers Representative, which approval shall not
be unreasonably withheld), as escrow agent (the "Escrow Agent"), such deposit to
be governed by the terms set forth herein and in the Escrow Agreement. As set
forth herein and the Escrow Agreement, the Common Stock in the Escrow Fund, or
the proceeds from the sale of Common Stock if the Sellers' Representative orders
a sale of shares held in the Escrow Fund, shall be available to compensate
Terayon for the indemnification obligations of each Seller under Section 8.2 and
Section 8.5 except that Terayon may elect not to have recourse to the Escrow
Fund for any claim of fraud. It is further provided that Terayon, or any party
entitled to indemnification under this Agreement, shall only be entitled to make
a claim or claims only where such claim or claims exceeds $100,000 in the
aggregate in which case Terayon shall be entitled to full indemnification. Any
claim or claims may be made against the Escrow Fund, or otherwise against the
Sellers severally in accordance with each of the Seller's Ratable Share.

                    (b)  Limit on Liability. The aggregate of any and all claims
                         ------------------
brought against the Sellers hereunder shall not exceed the lower of (i) 750,000
shares or (ii) $37,500,000, including claims made against the Escrow Fund and
each Seller shall be severally liable for its Ratable Share of the Claim.

The limit on liability contained in this Section shall not limit any claim for
fraud.

     SECTION 8.2.        General Indemnification
                         -----------------------

          Subject to the limitations set forth in this Section 8, the Sellers
will severally indemnify and hold harmless Terayon and each Person, if any, who
controls or may control Terayon within the meaning of the Securities Act of 1933
(and the rules and regulations thereunder), and their respective officers,
directors, employees, agents and advisors (each such indemnitee being referred
to herein as an "Indemnified Person"), from and against any and all losses,
costs, damages, liabilities, obligations, impositions, inspections, assessments,
fines, deficiencies and expenses arising from claims, demands, actions, causes
of action, including, without limitation, reasonable legal fees (collectively,
"Damages") other than consequential Damages, arising out of (i) any inaccuracy
in any representation or breach of any warranty made by the Sellers in this
Agreement or in any exhibit or schedule to this Agreement or any instrument
delivered pursuant hereto or, or (ii) any breach or default by any Seller of any
of the covenants or agreements given or made by such Seller, in this Agreement,
or any
<PAGE>

exhibit or schedule to this Agreement or any instrument delivered pursuant
hereto; provided that any indemnification sought by Terayon in respect of Taxes
(or any representation or warranty made in respect thereof) will be governed by
the tax indemnity set forth in Section 8.5 and will not be subject to the
foregoing provision of this Section 8.2 or Section 8.7.


     SECTION 8.3.   Escrow Period; Release of Escrow Fund. The Escrow Fund shall
                    -------------------------------------
commence on the date hereof and terminate six months from the Closing Date (the
"Escrow Period"). On the termination of the Escrow Period, all shares and
amounts then remaining in the Escrow Fund shall be released; provided that the
amount of any claim, or shares in the value of the amount of any claim, made
pursuant to Section 8.5 or Section 8.6(a) during the Escrow Period shall be
withheld and remain in the Escrow Fund pending resolution of such claim. Any
portion of the Escrow Fund for which there is no claim pursuant to this Section
8 shall be promptly delivered by the Escrow Agent to the Sellers' Representative
and shall be distributed to the Sellers in accordance with each Seller's
percentage of the Escrow Fund as set forth in the Escrow Agreement.

     SECTION 8.4.   Claims Upon Escrow Fund. Subject to the provisions of this
                    -----------------------
Section 8, including, without limitation, Section 8.7, Terayon shall make claims
upon the Escrow Fund by delivering to the Escrow Agent on or before the last day
of the Escrow Period a notice signed by a representative of Terayon (a "Terayon
Notice") specifying in reasonable detail the individual items of Damages for
which indemnification is being sought, the date each such item was paid, or
properly accrued or arose, and the nature of the misrepresentation, breach of
warranty or claim to which such item is related. Terayon shall, concurrent with
the sending of any Terayon Notice to the Escrow Agent, provide a copy of such
Terayon Notice to the Sellers' Representative. Within 20 days after the receipt
of any Terayon Notice, the Sellers' Representative, on behalf of the Sellers,
shall deliver a notice to Terayon and the Escrow Agent (a "Sellers'
Representative Notice") certifying that the Sellers either agree with the
Terayon Notice or object to the Terayon Notice. If the Sellers agree with the
Terayon Notice, the Escrow Agent shall deliver to Terayon out of the Escrow
Fund, as promptly as practicable after receipt of the Sellers' Representative
Notice, assets held in the Escrow Fund having a value equal to such Damages. If
the Sellers' Representative objects to the Terayon Notice within the 20-day
period after receipt of the Terayon Notice, Terayon and the Sellers'
Representative shall resolve such dispute in accordance with Section 8.6. If the
Sellers' Representative fails to deliver a Sellers' Representative Notice within
such 20-day period, the Sellers' Representative shall be deemed to have
consented to the Terayon Notice and given a Sellers' Representative Notice to
Terayon and the Escrow Agent, and the Escrow Agent shall deliver to Terayon out
of the Escrow Fund, as promptly as practicable after such 20-day period, assets
held in the Escrow Fund having a value equal to such Damages.

<PAGE>

     SECTION 8.5.   Sellers Tax Indemnity
                    ---------------------

          (a)       Indemnity.
                    ----------

               (i)       Subject to the limitations set forth in this Section 8,
the Sellers will severally indemnify and hold harmless Terayon from and against
any and all Damages with respect to all Taxes of the Company pertaining to any
taxable period or portion thereof that ends on or before the Closing Date (a
"Pre-Closing Tax Period"). The several liability of each Seller shall be in
accordance with its Ratable Share. The damage will include, without limitation,
any Damage with respect to such Taxes for which the Company is liable under
joint and several liability concepts and the net tax cost to the Company of any
reduction in any of the net operating loss carry forwards of the Company (either
as a result of their application to a tax liability in a Pre-Closing Tax Period
or as a result of an adjustment by a taxing authority). In the case of Taxes
pertaining to any taxable period that does not end on or prior to the Closing
Date, the Tax apportionable to the Pre-Closing Tax Period shall be determined in
accordance with Section 8.5(a)(ii). Notwithstanding anything herein to the
contrary, there shall be no liability hereunder for accrued Taxes reflected or
provided for in the 1998 Balance Sheet.

               (ii)      The Sellers and Terayon will cause the Company, to the
extent permitted by applicable law, to elect with the relevant Taxing Authority
to close the taxable year of the Company on the Closing Date. In any case where
applicable law does not permit the Company to close its taxable year on the
Closing Date, in the case of any Taxes that are imposed on a periodic basis and
that are payable for a taxable period that begins before the Closing Date and
ends after the Closing Date, the portion of such Tax that is payable for the
Pre-Closing Tax Period shall (x) in the case of any such Taxes not based upon or
related to income or receipts, be deemed to be the amount of such Taxes for the
entire taxable period multiplied by a fraction, the numerator of which is the
number of days in the period ending on the Closing Date and the denominator of
which is the number of days in the entire taxable period; and (y) in the case of
any such Taxes based upon or related to income or receipts, be determined on the
basis of an interim closing of the books of the Company at the close of business
on the Closing Date in accordance with Section 8.5(a)(iv).

               (iii)     For purposes of Section 8.5(a)(ii)(x) any credits
against such Taxes shall be prorated based on the fraction employed in such
Section 8.5(a)(ii)(x).

               (iv)      For purposes of Section 8.5(a)(ii)(y), a liability for
any Tax with respect to a Pre-Closing Tax Period shall be the product of (x) the
Tax for the entire taxable period multiplied by (y) a fraction, the numerator of
which is the hypothetical Tax for the Pre-closing Tax Period (determined on the
basis of an interim closing of the books, without annualization) and the
denominator of which is the sum of such numerator plus the hypothetical Tax for
the balance of the taxable period (determined on the basis of such interim
closing of the books, without annualization). The hypothetical Tax for any
period shall in no case be less than zero.
<PAGE>

               (v)       Payment by the Sellers of any amount due under this
Section 8.5 shall be made from the Escrow Fund within ten (10) business days
following written notice by Terayon to the Sellers' Representative and the
Escrow Agent that payment of such amount to the appropriate Taxing Authority is
due or will be due within ten (10) days. In the case of a Tax that is contested
in accordance with the provisions of Section 8.5(c), payment of that Tax to the
appropriate Taxing Authority will not be considered to be due earlier than the
time of a Final Determination with respect to such tax.

          (b)       Preparation of Returns. The Company shall prepare or
                    ----------------------
cause to be prepared, and file or cause to be filed, all Tax Returns of the
Company for all taxable periods of the Company ending on or prior to the Closing
Date, and file or cause to be filed, all other Tax Returns of the Company
required to be filed on or before the Closing Date (determined without regard to
extensions); provided, that such Tax Return shall be prepared and filed in a
manner reasonably consistent with the prior practice of the Company (except to
the extent counsel reasonably acceptable to Terayon and the Sellers'
Representative determine that there is no basis in law therefor). Except as
otherwise provided in this paragraph, Terayon shall be responsible for preparing
and filing all Tax Returns required to be filed by or on behalf of the Company
or with respect to the operations or assets of the Company after the Closing
Date. The Sellers and Terayon agree to provide each other with all information
available to them individually and not otherwise available to the other party to
the extent reasonably necessary for the Sellers and Terayon to fulfill their
obligations under this Section 8.5(b).

          (c)       Contest Rights.
                    --------------

               (i)       Terayon shall, or shall cause the Company to, promptly
notify the Sellers' Representative in writing upon receipt by Terayon or the
Company or any Affiliate of each thereof of each written communication with
respect to any pending or threatened audit of, assessment against or court or
other proceeding against the Company for any taxable period which could give
rise to a claim for indemnity under Section 8.5(a) hereof (an "Indemnified Tax
Liability"). The Sellers' Representative shall have the sole right to represent
the interests of the Company in any audit, administrative, court or other
proceeding relating to an Indemnified Tax Liability, to employ counsel or other
representatives of its choice and to otherwise control the conduct of such audit
or proceeding in such manner as it deems fit in its sole discretion including,
without limitation, to contest, litigate, compromise and settle any adjustment
or assessment made or proposed therein. The Sellers agree to keep Terayon
informed of the progress of any such audits or proceedings and to consult in
good faith with Terayon in connection therewith. If the Sellers elect to so
represent the Company's interests, they shall within thirty (30) days of
delivery of the notice by Terayon (or sooner, if the nature of the Indemnified
Tax Liability so requires) notify Terayon in writing of their intent to do so,
and Terayon agrees, and shall cause the Company and to agree, to cooperate, at
the Sellers' sole expense, with the Sellers and their counsel or other
representatives in the defense against or compromise of any adjustment or
assessment made or proposed in any such audit or proceeding. If the Sellers
elect not to represent the Company's or interests, Terayon
<PAGE>

may pay, compromise or contest such Indemnified Tax Liability in such manner as
it deems appropriate (in its sole discretion); and the Sellers shall be deemed
to have conceded Terayon's rights to indemnification from the Sellers pursuant
to Section 8.5(a) with respect to such Indemnified Tax Liability.

               (ii)      Notwithstanding Section 8.5(c)(i), in respect of any
Indemnified Tax Liability, the Sellers' Representative may not settle,
compromise or otherwise dispose of any such liability without the consent of
Terayon, if such settlement, compromise or other disposition would have a
material adverse effect on the Company for taxable periods beginning on or after
the Closing Date. In that event, the Sellers' Representative shall permit the
Company, through counsel of the Company's own choosing and at the Company's sole
expense, to participate in the settlement, compromise or other disposition of
such Indemnified Tax Liability.

          (d)            Cooperation. The Sellers and Terayon will provide each
                         -----------
other with such cooperation and information (including without limitation
information about the Company as they may request of the other in filing any
return determining a liability for Taxes or a right to a refund of Taxes, or in
conducting an audit or other proceeding in respect of Taxes. Any information,
documents or records obtained under this Section 8.5(d) shall be kept
confidential, except as may be otherwise necessary in connection with the filing
of Tax Returns or claims for refund or in conducting an audit or other
proceeding.

     SECTION 8.6.        Objections to Claims.
                         --------------------

          (a)            If the Sellers' Representative shall object to a
Terayon Notice within the 20-day period after receipt thereof, the Terayon and
the Sellers' Representative shall use their good faith efforts to resolve such
dispute. If Terayon and the Sellers' Representative resolve such dispute, the
parties shall deliver a written notice to the Escrow Agent directing the
delivery of the Escrow Fund based upon such resolution.

          (b)            If Terayon and the Sellers' Representative are unable
to resolve such dispute within 30 days after the Sellers' Representative objects
to such Terayon Notice, either Terayon or the Sellers' Representative may, by
written notice to the other and the Escrow Agent, demand arbitration of such
dispute. Any such arbitration shall be conducted by an alternative dispute
service ("Arbitration Service") as shall be reasonably acceptable to Terayon and
the Sellers' Representative. The Arbitration Service shall select one arbitrator
reasonable acceptable to Terayon and the Sellers' Representative who shall be an
expert in the area of the Company's business, or a tax expert, depending on the
issue in dispute. The decision by the arbitrator shall be binding and conclusive
and, notwithstanding any other provisions of this Section 8, the Escrow Agent
shall be entitled to act in accordance with such decision and make payments out
of the Escrow Fund in accordance therewith.

<PAGE>

          (c)       The arbitration shall be held in Santa Clara, California.
The costs of any such arbitration shall be borne one-half for the account of
Terayon and one-half by the Sellers, to be collected from the Escrow Fund.
Judgment upon any award rendered by the arbitrator may be entered in any court
of competent jurisdiction.

     SECTION 8.7.   Third-Party Claims. If Terayon becomes aware of a third-
                    ------------------
party claim which Terayon believes may result in a demand pursuant to this
Section 8, Terayon shall promptly notify the Sellers' Representative of such
claim, and the Sellers' Representative shall be entitled, at the Sellers'
expense (such expense to be deducted from the Escrow Fund), to participate in
any defense of such claim; provided that Terayon shall control such defense, and
shall have the right to settle such claim with the consent of the Sellers'
Representative (which consent shall not be unreasonably withheld); provided
further, that no such consent of the Sellers' Representative shall be required
where the third-party claim which Terayon proposes to settle involves the
business reputation of Terayon or its Affiliates, or the possible criminal
liability of Terayon or its Affiliates or any of their respective officers,
directors or employees. In the event that the Sellers' Representative has
consented to any such settlement, the Sellers shall have no power or authority
to object under any provision of this Section 8 to the amount of any claim by
Terayon for indemnity with respect to such settlement.

     SECTION 8.8.   Sellers' Representative.
                    -----------------------

          (a)       Mr. Akiva Mayer is hereby appointed as representative (the
"Sellers' Representative") for and on behalf of the Sellers to take all actions
necessary or appropriate in the judgment of the Sellers' Representative for the
accomplishment of the terms of this Agreement. The holders of a majority in
interest of the Escrow Fund may replace the Sellers' Representative upon not
less than 10 days' prior written notice to Terayon. No bond shall be required of
the Sellers' Representative and the Sellers' Representative shall receive no
compensation for his services. To effect the Sellers' Representative duties, he
shall be entitled to make use of advisors whose fees the Company shall pay up to
$25,000. Notices of communications to or from the Sellers' Representative shall
constitute notice to or from each of the Sellers. If the Sellers' Representative
dies or is otherwise no longer able or willing to serve as the Sellers'
Representative, a new Sellers' Representative shall be chosen by the holders of
a majority of the Shares of the Company, sold pursuant to this Agreement.

          (b)       The Sellers' Representative shall not be liable for any act
done or omitted in such capacity while acting in good faith and in the exercise
of reasonable judgment, and any act done or omitted pursuant to the advise of
counsel shall be conclusive evidence of such good faith. The Sellers shall
severally indemnify the Sellers' Representative and hold him harmless against
any loss, liability or expense incurred without gross negligence or bad faith on
the part of the Sellers' Representative and arising out of or in connection with
the acceptance or administration of his duties hereunder.
<PAGE>

          (c)       Any decision, act, consent or instruction of the Sellers'
Representative shall constitute a decision of all and shall be final, binding
and conclusive upon every Seller and the Escrow Agent, and Terayon may rely upon
any decision, act, consent or instruction of each and every Seller. The Escrow
Agent and Terayon are hereby relieved from any liability to any person for acts
done by them in accordance with such decision, act, consent or instruction of
the Sellers' Representative.

          (d)       Notwithstanding the above, in the event that any action of
the Sellers' Representative is liable to have a monetary consequence to the
Sellers in excess of an aggregate of $100,000, the Sellers' Representative shall
obtain and act in accordance with the consent of the holders of 60% of the
Shares sold pursuant to this Agreement. Each Seller shall respond within seven
days to any request of the Sellers' Representative for the Sellers' consent.

     SECTION 8.9.   Access. In connection with any indemnification claim,
                    ------
Terayon shall give the Sellers' Representative reasonable access to the books,
records, and assets of the Company which relate to the act, omission or
occurrence giving rise to such Damages and the right, upon prior notice, and at
mutually acceptable times during normal business hours, to interview any
appropriate personnel of the Company with respect thereto and Terayon shall
cooperate with the Sellers' Representative in defending any third party claim.

     SECTION 8.10   Indemnification Relating to the Registration Rights. In
connection with the registration of the shares of Common Stock included in the
Purchase Consideration under the Securities Act pursuant to Section 4.6 above,
Terayon will indemnify and hold harmless each Seller of such shares of Common
Stock thereunder, against any losses, damages or liabilities, joint or several,
to which such Sellers become liable under the Securities Act insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement under which such shares
were registered under the Securities Act pursuant to Section 4.6, or any
amendment or supplement thereof, (ii) any blue sky application or other document
executed by Terayon specifically for the purpose or based upon written
information furnished by Terayon filed in any state or jurisdiction in order to
qualify any or all of the shares under the securities law thereof (any such
application, document or information herein called a "Blue Sky Application"),
(iii) the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
(iv) any violation by Terayon or its agents of any rule or regulation
promulgated under the Securities Act applicable to Terayon in connection with
such registration, and Terayon will reimburse each such Seller for legal
expenses on an on going basis or other expenses, all as incurred by him in
connection with investigating or defending any such loss, claim, damage or
liability or action, provided, however, that Terayon will not be liable in any
such case if and to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission so made in conformity with information furnished
by any such Seller, in writing specifically for use in such registration
statement, or any amendment or supplement thereof.
<PAGE>

                                  ARTICLE IX
                          BROKERS' AND FINDERS' FEES
                          --------------------------

     SECTION 9.1.   Sellers. The Sellers each severally but not jointly
                    -------
represent and warrant to Terayon that no broker, investment banker or financial
advisor is entitled to receive a brokerage fee, financing commission or other
commission from such Seller or the Company in respect of the execution of this
Agreement or the consummation of the transactions contemplated hereby. The
Sellers agree that if the transactions contemplated by this Agreement are not
consummated (other than as a result of a material breach or default by Terayon),
they shall severally indemnify and hold Terayon harmless against any and all
claims, losses, liabilities, costs or expenses which may be asserted against it
as a result of the Company's or any of its Affiliates' dealings, arrangements or
agreements with any such Person.

     SECTION 9.2.   Terayon. Terayon represents and warrants to the Sellers that
                    -------
no broker, investment banker or financial advisor is entitled to receive a
brokerage fee, financing commission or other commission from Terayon in respect
of the execution of this Agreement or the consummation of the transactions
contemplated hereby. Terayon agrees that if the transactions contemplated by
this Agreement are not consummated (other than as a result of a material breach
or default by any Seller), it shall indemnify and hold the Sellers harmless
against any and all claims, losses, liabilities, costs or expenses which may be
asserted against them, as a result of Terayon's or any of its Affiliates'
dealings, arrangements or agreements with any such Person.

                                   ARTICLE X
                                EXPENSES: TAXES
                                ---------------

     SECTION 10     Except as expressly set forth in this Agreement, each
party hereto shall pay its own expenses incidental to the preparation of this
Agreement, the carrying out of the provisions of this Agreement and the
consummation of the transactions contemplated hereby, including legal and
accounting expenses. The Company shall pay part of the legal, accounting and
other ancillary transaction expenses incurred on behalf of the Sellers in the
preparation of this Agreement in an aggregate amount of up to $215,000, whereas
expenses of the Sellers in excess of this amount will be paid by the Sellers.

                                  ARTICLE XI
                                PRESS RELEASES
                                --------------

     SECTION l1     Except as required by law or Terayon's listing agreement
with the Nasdaq, neither Terayon nor the Sellers shall issue any press release
or otherwise make public any information with respect to this Agreement nor the
transactions contemplated hereby without the prior written consent of Terayon
and the Sellers' Representative. The Sellers shall cause the Company to comply
with its obligations under this Section 11.

<PAGE>

                                  ARTICLE XII
                           MISCELLANEOUS PROVISIONS
                           ------------------------

     SECTION 12.1.   Contents of Agreement; Parties in Interest: Schedules and
                     ---------------------------------------------------------
Exhibits, etc. This Agreement and the agreements referred to or contemplated
- -------------
herein, set forth the entire understanding of the parties hereto with respect to
the transactions contemplated hereby, and, except as set forth in this
Agreement, such other agreements, the exhibits hereto, and the Confidentiality
Agreement, there are no representations or warranties, express or implied, made
by any party to this Agreement with respect to the subject matter of this
Agreement and the Confidentiality Agreement. Except for the matters set forth in
the Confidentiality Agreement, any and all previous agreements and
understandings between or among the parties regarding the subject matter hereof,
whether written or oral, are superseded by this Agreement and the agreements
referred to or contemplated herein. All statements contained in schedules,
exhibits, certificates and other instruments attached hereto shall be deemed
representations and warranties (or exceptions thereto) by the Sellers or
Terayon, as the case may be.

     SECTION 12.2.  Assignment and Binding Effect. Terayon may assign its rights
                    -----------------------------
and obligations under this Agreement only to any directly or indirectly wholly-
owned Subsidiary of Terayon, upon written notice to the Sellers' Representative
if the assignee shall assume the obligations of Terayon hereunder, and Terayon
shall remain liable for its obligations hereunder. Each one of the Sellers shall
be entitled to assign its rights and obligations under this Agreement to any
person or entity upon receipt of advance written consent of Terayon, which
consent shall not be unreasonably withheld, provided that the transferring
Seller may assign its rights and obligations without such written consent to an
assignee who is a "Permitted Transferee" of such Seller in accordance with the
RADWIZ Articles of Association as in effect as of the date hereof, and provided
that the Seller shall remain liable for its obligations. All the terms and
provisions of this Agreement shall be binding upon and inure to the benefit of
and be enforceable by the respective successors and assigns of the parties
hereto.

     SECTION 12.3   Definitions. As used in this Agreement the terms set forth
                    -----------
below shall have the following meanings:

     "Affiliate" of a Person shall mean any other Person who (i) directly or
      ---------
indirectly through one or more intermediaries controls, is controlled by or is
under common control with, such Person or (ii) owns more than 5% of the capital
stock or equity interest in such Person. "Control" means the possession of the
                                          -------
power, directly or indirectly, to direct or cause the direction of the
management and policies of a Person whether through the ownership of voting
securities, by contract or otherwise.

     "Benefit Plan" shall mean any bonus, pension, profit sharing, deferred
      ------------
compensation, incentive compensation, stock ownership, stock purchase, stock
option, phantom stock, retirement, vacation, severance, disability, death
benefit, hospitalization, medical or other material plan, arrangement or
understanding (whether or not legally binding) providing material benefits to
any current or former employee, officer or director of the Company.

<PAGE>

               "Code" shall mean the Internal Revenue Code of 1986, as amended.
                ----

          "Commercial Good Faith Efforts" shall mean prompt, substantial and
           -----------------------------
persistent efforts as a prudent Person desirous of achieving a result would use
in similar circumstances; provided that the Sellers, the Company and Terayon
                          --------
shall be required to expend only such resources as are commercially reasonable
in the applicable circumstances.

          "Dollars" and "$" shall mean the lawful currency of the United States
           -------       -
of America.

          "Environmental Laws" shall mean all applicable national, federal,
           ------------------
state, local or foreign laws, rules and regulations, orders, decrees, judgments,
permits, filings and licenses relating (i) to protection and clean-up of the
environment and activities or conditions related thereto, including those
relating to the generation, handling, disposal, transportation or release of
Hazardous Substances and (ii) the health or safety of employees in the workplace
environment, all as amended from time to time, and shall also include any common
law theory based on nuisance, trespass, negligence or other tortious conduct.

          "Final Determination" shall mean (i) a decision, judgment, decree or
           -------------------
other order by any court of competent jurisdiction, which has become final and
is either no longer subject to appeal or for which a determination not to appeal
has been made; (ii) any disallowance of a claim for refund or credit in respect
of an overpayment of Tax unless a suit related thereto is filed on a timely
basis; (iii) any final disposition by reason for the expiration of the
applicable statute of limitations; or (iv) the actual payment by the Company of
Taxes.

          "GAAP" shall mean generally accepted accounting principles in the
           ----
country in which the entity to which such accounting principles are being
applied has its principal place of business. In the case of the Company, "GAAP"
                                                                          ----
shall mean accounting principles generally accepted in Israel.

          "Hazardous Substances" shall mean any and all hazardous and toxic
           --------------------
substances, wastes or materials, any pollutants, contaminants, or dangerous
materials (including, but not limited to, polychlorinated biphenyls, PCBs,
friable asbestos, volatile and semi-volatile organic compounds, oil, petroleum
products and fractions, and any materials which include hazardous constituents
or become hazardous, toxic, or dangerous when their composition or state is
changed), or any other similar substances or materials which are included under
or regulated by any Environmental Laws (excluding, however, Hazardous Substances
contained in any product used by the Company which are commonly utilized for
office or janitorial purposes).

          "Indebtedness" shall mean as at any date of determination, any of the
           ------------
following: (i) obligations of the Company for borrowed money, including all fees
and obligations thereunder (including, without limitation, any prepayment or
termination fees arising or which will arise out of the prepayment of such
Indebtedness prior to its maturity and termination), (ii) obligations of the
Company to pay the acquisition price
<PAGE>

of property or services, other than trade or accounts payable arising, and
accrued expenses incurred, in the ordinary course of business consistent with
past practice, (iii) the face amount of all letters of credit issued for the
account of the Company and all drafts thereunder, (iv) capital lease obligations
of the Company, if any, and (v) any obligation of the Company guaranteeing any
Indebtedness or other obligations of any other Person (including any obligations
under any keep well or support agreements).

          "Israeli Regulatory Approvals" shall mean the following regulatory
           ----------------------------
approvals or exemptions to be obtained from one or more Israeli government
offices or agencies:

          (i)   The approval of the Investment Center for the purchase of the
Shares pursuant to the provisions of the Encouragement of Capital Investment Law
and the approvals issued to the Company pursuant thereto;

          (ii)  The approval of the Office of the Chief Scientist to the
transactions contemplated hereby; and

          (iii) The approval of the Israel Controller of Trade Practices

          "Liens" shall mean any mortgage, pledge, lien, security interest,
           -----
conditional or installment sale agreement, encumbrance, charge or other claims
of third parties of any kind.

          "Material Adverse Effect" shall mean (unless otherwise specified):
           -----------------------

          (i)   when used with respect to the Sellers or any Seller: (a)
materially impair the ability of any Seller to perform his obligations under
this Agreement or (b) prevent or materially delay the consummation of the
transactions contemplated under this Agreement;

          (ii)  when used with respect to the Company: (a) have a material
adverse effect on the assets, business, financial condition or operations of the
Company, or (b) prevent or materially delay the consummation of the transactions
contemplated under this Agreement; and

          (iii) when used with respect to Terayon: (a) materially impair the
ability of Terayon to perform its obligations under this Agreement or (b)
prevent or materially delay the consummation of the transactions contemplated
under this Agreement.

          "NIS" shall mean the lawful currency of Israel.
           ---

          "Permitted Liens" shall mean (a) Liens for taxes, assessments, or
           ---------------
similar charges, incurred in the ordinary course of business that are not yet
due and payable or are being contested in good faith; (b) pledges or deposits
made in the ordinary course of business; (c) Liens of mechanics, materialmen,
warehousemen or other like Liens securing obligations incurred in the ordinary
course of business that are not yet
<PAGE>

due and payable or are being contested in good faith; and (d) similar Liens and
encumbrances which are incurred in the ordinary course of business and which do
not in the aggregate materially detract from the value of such assets or
properties or materially impair the use thereof in the operation of such
business.

          "Person" shall mean any individual, corporation, partnership, limited
           ------
partnership, limited liability company, trust, association or entity or
government agency or authority.

          "Ratable Share" of any Seller shall mean a fraction the numerator of
           -------------
which is the aggregate applicable Purchase Consideration received by such Seller
on the Closing Date in respect of its Ordinary Shares and/or Preferred Shares
and the denomination of which is the aggregate Purchase Consideration received
on the Closing Date by all Sellers in respect of their Ordinary Shares and
Preferred Shares.

          "Subsidiary" of a Person shall mean any corporation, partnership,
           ----------
joint venture or other entity in which such person (a) owns, directly or
indirectly, 50% or more of the outstanding voting securities or equity interests
or (b) is a general partner.

          "Tax" (and, with correlative meaning, "Taxes" and "Taxable") shall
           ---                                   -----       -------
mean any United States, Israel, state, local, municipal or foreign net income,
gross income, gross receipts, windfall profit, severance, property, production,
sales, use, license, excise, franchise, employment, payroll, withholding,
alternative or add-on minimum, ad valorem, value-added, transfer, stamp, or
environmental tax, or any other tax, custom duty, tariff, levy, impost,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest or penalty, addition to tax or additional amount
imposed by any governmental authority (domestic or foreign) responsible for the
imposition of any such Taxes (a "Taxing Authority").

          "Tax Return" shall mean any return, report, declaration, form,
           ----------
information return, claim for refund, statement or similar document required to
be filed with respect to any Tax (including any supporting information or
schedules and any amended returns related thereto), including, without
limitation, any information return, claim for refund, amended return or
declaration of estimated Tax.

   SECTION 12.4.    Notices. Any notice, request, demand, waiver, consent,
                    -------
approval, or other communication which is required or permitted to be given to
any party hereunder shall be in writing and shall be deemed given only if
delivered to the party personally or sent to the party by facsimile transmission
(promptly followed by a hard-copy delivered in accordance with this Section
12.4) or by registered or certified mail (return receipt requested), with
postage and registration or certification fees thereon prepaid, addressed to the
party at its address set forth below:

                    If to the Company, Terayon or Purchaser, to:

                    Terayon Communication Systems Inc.
                    2952 Bunker Hill Lane
                    Santa Clara California 95054
                    Attention: Karyn Smith
                    Facsimile No: 415 951 3699
<PAGE>

                    with copies to:
                    Cooley Godward LLP
                    One Maritme Plaza, 20/th/ Floor
                    San Francisco California 94111
                    Attention: Karyn R. Smith Esq.
                    Facsimile No: 415 951 3699

                    and

                    Naschitz Brandes & Co., Advocates and Notaries
                    5 Tuval Street,
                    Tel Aviv, Israel
                    Attention: Sharon A. Amir
                    Facsimile: ++972-3-623-5005

          If to the Sellers:

                    Inventech Investment Company Ltd.,
                    Migdal Shalom Meir,
                    9 Achad Ha'am St.,
                    Tel Aviv, Israel
                    Attention: Akiva Mayer
                    Facsimile No.: ++972-3-5175275

                    With a copy to:
                    Safra, Schwartz & Co., Advocates
                    Clal Building Audim,
                    P.O. Box 58312 Tel Aviv, Israel
                    Attention: Michael Safra
                    Facsimile No: ++972-3-6489455

or to such other address or Person as Terayon or the Sellers' Representative, as
the case may be, may have specified in a notice duly given to the other party as
provided herein. Such notice, request, demand, waiver, consent, approval or
other communication will be deemed to have been given as of the date so
delivered, telegraphed or mailed.

   SECTION 12.5.    Amendment. This Agreement may be amended, modified or
                    ---------
supplemented at any time by mutual agreement of the parties hereto. Any
amendment, modification or revision of this Agreement and any waiver of
compliance or consent with respect hereto shall be effective only if in a
written instrument executed by the parties hereto.

   SECTION 12.6.    Governing Law; Jurisdiction. This Agreement shall be
                    ---------------------------
governed by and interpreted and enforced in accordance with the laws of the
State of
<PAGE>

Delaware as applied to contracts made and fully performed in such state. The
Parties hereby submit to the exclusive jurisdiction of the state and federal
courts in the state of Delaware, USA.

   SECTION 12.7.    No Benefit to Others. The representations, warranties,
                    --------------------
covenants and agreements contained in this Agreement are for the sole benefit of
the parties hereto, and their respective successors and assigns, and they shall
not be construed as conferring, and are not intended to confer, any rights on
any other Person.

   SECTION 12.8.    Severability. If any term or other provision of this
                    ------------
Agreement is determined to be invalid, illegal or incapable of being enforced by
any rule of law or public policy, all other terms and provisions of the
Agreement shall remain in full force and effect. Upon such determination, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
give effect to the original intent of the parties to the fullest extent
permitted by applicable law.

   SECTION 12.9.    Section Headings. All section headings are for convenience
                    ----------------
only and shall in no way modify or restrict any of the terms or provisions
hereof.

   SECTION 12.10.   Schedules and Exhibits. All Schedules and Exhibits referred
                    ----------------------
to herein are intended to be and hereby are specifically made a part of this
Agreement.

   SECTION 12.11.   Counterparts. This Agreement may be executed in two or more
                    ------------
counterparts, each of which shall be deemed an original, and each of the Sellers
and Terayon may become a party hereto by executing a counterpart hereof. This
Agreement and any counterpart so executed shall be deemed to be one and the same
instrument.

   SECTION 12.12.   Section 236. In the event that Sellers holding in the
                    -----------
aggregate 10% or less of the issued and outstanding share capital of the Company
on a fully-diluted basis (the "Non-Accepting Sellers") have not executed this
Agreement concurrently with the execution hereof by each of the other Sellers,
this Agreement shall nonetheless be in full force and effect and the Sellers and
Terayon nonetheless agree to consummate the purchase and sale of the Shares held
by all Sellers other than the Non-Accepting Sellers. Following the consummation
hereof, Terayon may, if it so elects, take such action as necessary or desirable
to acquire the Shares held by the Non-Accepting Sellers pursuant to Section 236
of the Israel Companies Ordinance, 1983 (the "Companies Ordinance"), and/or the
Articles of Association of the Company and the transactions contemplated hereby
shall be considered a "plan or contract" within the meaning of Section 236 of
the Companies Ordinance.

   SECTION 12.13.    Termination. If the Closing shall not have occurred on or
                     -----------
before December 31, 1999, then this Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Closing, provided, however, that the right to terminate this Agreement shall not
be available to any party whose breach of this Agreement has been the cause of,
or resulted in, the
<PAGE>

failure of the Closing to occur on or before such date. In the event of
termination and abandonment of the transactions contemplated hereby pursuant to
this Section 12.13, written notice thereof shall forthwith be given to the other
parties to this Agreement and this Agreement shall terminate and the
transactions shall be abandoned, without further action by any of the parties
hereto. If this Agreement is terminated as provided herein no party hereto shall
have any liability or further obligation to any other party to this Agreement
resulting from such termination except (i) that the provision of this Section
12.13 shall remain in full force and effect and (ii) no party waives any claim
or right against a breaching party to the extent that such termination results
from the breach by a party hereto of any of its representations, warranties,
covenants or agreements set forth in this Agreement.

           [The remainder of this page is intentionally left blank]
<PAGE>

   IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby,
have duly executed this Agreement as of the date first above written.


                              TERAYON COMMUNICATION SYSTEMS INC
                              ---------------------------------

                              By:  /s/ Zaki Rakib
                                  -----------------------------
                              Name:  Zaki Rakib
                                   ----------------------------
                              Title: CEO
                                    ---------------------------

                   ________________________________________
                   AKIVA MAYER, THE SELLER'S REPRESENTATIVE


RADWIZ LTD.                             INVENTECH INVESTMENT COMPANY LTD.

By: /s/ Adoram Gaash                    By: _____________________________
    ----------------------------
Name:   Adoram Gaash                    Name: ___________________________
      --------------------------
Title:  CEO                             Title: __________________________
       -------------------------

YEHUDA ZISAPEL                          ZOHAR ZISAPEL


________________________________        _________________________________

HOLLAND VENTURES III B.V.               JAFCO CO., LTD

By: Mr. Moshe Harel                     By: _____________________________
    ----------------------------
Name: __________________________        Name: ___________________________

Title: _________________________        Title: __________________________


D.M.N. Point Technologies Ltd.          COREX ISRAELI INDUSTRIES LTD.

By: ____________________________        By: _____________________________

Name: __________________________        Name: ___________________________

Title: _________________________        Title: __________________________


RONCHAL INVESTMENTS N.V.                CS TELECOM S.A..

By: Mr. Moshe Harel                     By: _____________________________
    ----------------------------
Name: __________________________        Name: ___________________________

Title: _________________________        Title: __________________________


ISAL AMLAT INVESTMENTS (1993) LTD.      BYNET DATA COMMUNICATIONS LTD.

By: ____________________________        By: _____________________________

Name: __________________________        Name: ___________________________

Title: _________________________        Title: __________________________

YOSEF ELIHAV, in trust for others       TRUSTEE for the Option Holders holding
                                        Vested Options under the Plan

________________________________        _________________________________



<PAGE>

   IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby,
have duly executed this Agreement as of the date first above written.


                       TERAYON COMMUNICATION SYSTEMS INC
                       ---------------------------------

                       By:    __________________________

                              Name: _________________________

                              Title: ________________________

                   ________________________________________
                   AKIVA MAYER, THE SELLER'S REPRESENTATIVE


RADWIZ LTD.                             INVENTECH INVESTMENT COMPANY LTD.

By: ____________________________        By: ____________________________

Name: __________________________        Name: __________________________

Title: _________________________        Title: _________________________


YEHUDA ZISAPEL                          ZOHAR ZISAPEL

/s/ Yehuda Zisapel
- --------------------------------        ________________________________

HOLLAND VENTURES III B.V.               JAFCO CO., LTD

By: Mr. Moshe Harel                     By: ____________________________
    ----------------------------
Name: __________________________        Name: __________________________

Title: _________________________        Title: _________________________


D.M.N. Point Technologies Ltd.          COREX ISRAELI INDUSTRIES LTD.

By: ____________________________        By: ____________________________

Name: __________________________        Name: __________________________

Title: _________________________        Title: _________________________


RONCHAL INVESTMENTS N.V.                CS TELECOM S.A..

By: Mr. Moshe Harel                     By: ____________________________
    ----------------------------
Name: __________________________        Name: __________________________

Title: _________________________        Title: _________________________


ISAL AMLAT INVESTMENTS (1993) LTD.      BYNET DATA COMMUNICATIONS LTD.

By: ____________________________        By: _____________________________

Name: __________________________        Name: ___________________________

Title: _________________________        Title: __________________________

YOSEF ELIHAV, in trust for others       TRUSTEE for the Option Holders holding
                                        Vested Options under the Plan

________________________________        _________________________________


ADORAM GAASH

___________________
<PAGE>

   IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby,
have duly executed this Agreement as of the date first above written.


                       TERAYON COMMUNICATION SYSTEMS INC.
                       ----------------------------------

                       By: ______________________________

                           Name:_________________________

                           Title:________________________

                   ________________________________________
                   AKIVA MAYER, THE SELLER'S REPRESENTATIVE


RADWIZ LTD.                             INVENTECH INVESTMENT COMPANY LTD.

By: _____________________________       By: ____________________________

Name: ___________________________       Name: __________________________

Title: __________________________       Title: _________________________


YEHUDA ZISAPEL                          ZOHAR ZISAPEL

                                        /s/ Zohar Zisapel
_________________________________       --------------------------------

HOLLAND VENTURES III B.V.               JAFCO CO., LTD.

By: Mr. Moshe Harel                     By: ____________________________
    -----------------------------

Name: ___________________________       Name: __________________________

Title: __________________________       Title: _________________________


D.M.N. Point Technologies Ltd.          COREX ISRAELI INDUSTRIES LTD.

By: _____________________________       By: ____________________________

Name: ___________________________       Name: __________________________

Title: __________________________       Title: _________________________


RONCHAL INVESTMENTS N.V.                CS TELECOM S.A.

By:  Mr. Moshe Harel                    By: ____________________________

Name: ___________________________       Name: __________________________

Title: __________________________       Title: _________________________


ISAL AMLAT INVESTMENTS (1993) LTD.      BYNET DATA COMMUNICATIONS LTD.

By: _____________________________       By: ____________________________

Name: ___________________________       Name: __________________________

Title: __________________________       Title: _________________________

YOSEF ELIHAV, in trust for others       TRUSTEE for the Option Holders holding
                                        Vested Options under the Plan

_________________________________        _______________________________


<PAGE>


     IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have duly executed this Agreement as of the date first above written.


                              TERAYON COMMUNICATION SYSTEMS INC


                              By: ____________________________________
                                  Name:
                                  Title:

                              ________________________________________
                              AKIVA MAYER, THE SELLER'S REPRESENTATIVE


RADWIZ LTD.                                       INVENTECH INVESTMENT COMPANY
                                                  LTD.

By:____________________________                   By:___________________________
Name:__________________________                   Name:_________________________
Title:_________________________                   Title:________________________


YEHUDA ZISAPEL                                    ZOHAR ZISAPEL

_______________________________                   ______________________________


HOLLAND VENTURES III B.V.                         JAFCO CO., LTD

By: Mr. Moshe Harel                               By:___________________________
Name:__________________________                   Name:_________________________
Title:_________________________                   Title:________________________


D.M.N. Point Technologies Ltd.                    COREX ISRAELI INDUSTRIES LTD.

By:____________________________                   By:___________________________
Name:__________________________                   Name:_________________________
Title:_________________________                   Title:________________________


RONCHAL INVESTMENTS N.V.                          CS TELECOM S.A..

By:  Mr. Moshe Harel                              By:___________________________
Name:__________________________                   Name:_________________________
Title:_________________________                   Title:________________________


ISAL AMLAT INVESTMENTS (1993)                     BYNET DATA COMMUNICATIONS LTD.
LTD.

By:____________________________                   By: /s/ [ILLEGIBLE]
Name:__________________________                      ---------------------------
Title:_________________________                   Name:_________________________
                                                  Title:________________________

YOSEF ELIHAV, in trust for others                 TRUSTEE for the Option Holders
                                                  holding Vested Options under
                                                  the Plan

_______________________________                   ______________________________

ADORAM GAASH

____________
<PAGE>

IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby,
have duly executed this Agreement as of the date first above written.


                              TERAYON COMMUNICATION SYSTEMS INC


                              By:          _____________________________________
                                           Name:
                                           Title:
                              ________________________________________
                              AKIVA MAYER, THE SELLER'S REPRESENTATIVE


RADWIZ LTD.                                  INVENTECH INVESTMENT COMPANY
                                             LTD.

By:____________________________              By:________________________________
Name:__________________________              Name:______________________________
Title:_________________________              Title:_____________________________


YEHUDA ZISAPEL                               ZOHAR ZISAPEL

_____________                                ______________________


HOLLAND VENTURES III B.V.                    JAFCO CO., LTD

By:  Mr. Moshe Harel                         By:________________________________
Name:__________________________              Name:______________________________
Title:_________________________              Title:_____________________________


D.M.N. Point Technologies Ltd.               COREX ISRAELI INDUSTRIES LTD.

By:____________________________              By:________________________________
Name:__________________________              Name:______________________________
Title:_________________________              Title:_____________________________


RONCHAL INVESTMENTS N.V.                     CS TELECOM S.A..

By:  Mr. Moshe Harel                         By:________________________________
Name:__________________________              Name:______________________________
Title:_________________________              Title:_____________________________


ISAL AMLAT INVESTMENTS (1993)                BYNET DATA COMMUNICATIONS LTD.
LTD.

By:____________________________              By:________________________________
Name:__________________________              Name:______________________________
Title:_________________________              Title:_____________________________


YOSEF ELIHAV, in trust for others            TRUSTEE for the Option Holders
                                             holding Vested Options under the
                                             Plan

_______________________________              ___________________________________


ADORAM GAASH

/s/ Adoram Gaash
- -------------------------------
<PAGE>

IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby,
have duly executed this Agreement as of the date first above written.


                    TERAYON COMMUNICATION SYSTEMS INC

                    By: _____________________________________
                        Name:
                        Title:

                    _________________________________________
                    AKIVA MAYER, THE SELLER'S REPRESENTATIVE


RADWIZ LTD.                             INVENTECH INVESTMENT COMPANY
                                        LTD.

By:_______________________________      By:_____________________________________
Name:_____________________________      Name:___________________________________
Title:____________________________      Title:__________________________________


YEHUDA ZISAPEL                          ZOHAR ZISAPEL

__________________________________      ________________________________________


HOLLAND VENTURES III B.V.               JAFCO CO., LTD

By:  Mr. Moshe Harel                    By: ____________________________________
Name:_____________________________      Name:___________________________________
Title:____________________________      Title:__________________________________


D.M.N. Point Technologies Ltd.          COREX ISRAELI INDUSTRIES LTD.

By:_______________________________      By:_____________________________________
Name:_____________________________      Name:___________________________________
Title:____________________________      Title:__________________________________


RONCHAL INVESTMENTS N.V.                CS TELECOM S.A..

By:  Mr. Moshe Harel                    By:_____________________________________
Name:_____________________________      Name:___________________________________
Title:____________________________      Title:__________________________________


ISAL AMLAT INVESTMENTS (1993)           BYNET DATA COMMUNICATIONS LTD.
LTD.

By:_______________________________      By:_____________________________________
Name:_____________________________      Name:___________________________________
Title:____________________________      Title:__________________________________

YOSEF ELIHAV, in trust for others       TRUSTEE for the Option Holders holding
                                        Vested Options under the Plan

/s/ Yosef Elihav                        /s/ Yosef Elihav
- ----------------------------------      ----------------------------------------


ADORAM GAASH

__________________________________

<PAGE>

IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby,
have duly executed this Agreement as of the date first above written.


                         TERAYON COMMUNICATION SYSTEMS INC

                         By: ____________________________________
                             Name:
                             Title:


                         ________________________________________
                         AKIVA MAYER, THE SELLER'S REPRESENTATIVE


RADWIZ LTD.                                  INVENTECH INVESTMENT COMPANY
                                             LTD.

By:_____________________________             By:________________________________
Name:___________________________             Name:______________________________
Title:__________________________             Title:_____________________________


YEHUDA ZISAPEL                               ZOHAR ZISAPEL

________________________________             ___________________________________


HOLLAND VENTURES III B.V.                    JAFCO CO., LTD

By:  Mr. Moshe Harel                         By:________________________________
Name:__________________________              Name:______________________________
Title:_________________________              Title:_____________________________


D.M.N. Point Technologies Ltd.               COREX ISRAELI INDUSTRIES LTD.

By:____________________________              By:________________________________
Name:__________________________              Name:______________________________
Title:_________________________              Title:_____________________________


RONCHAL INVESTMENTS N.V.                     CS TELECOM S.A

By:  Mr. Moshe Harel                         By:________________________________
Name:__________________________              Name:______________________________
Title:_________________________              Title:_____________________________

ISAL AMLAT INVESTMENTS (1993)                BYNET DATA COMMUNICATIONS LTD.
LTD.

By:____________________________              By:________________________________
Name:__________________________              Name:______________________________
Title:_________________________              Title:_____________________________

YOSEF ELIHAV, in trust for others            TRUSTEE for the Option Holders
                                             holding Vested Options under the
                                             Plan
/s/ Yosef Elihav
- -------------------------------              ___________________________________


ADORAM GAASH

_______________________________


<PAGE>

   IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby,
have duly executed this Agreement as of the date first above written.


                         TERAYON COMMUNICATION SYSTEMS INC

                         By: ____________________________________
                             Name:
                             Title:


                         ________________________________________
                         AKIVA MAYER, THE SELLER'S REPRESENTATIVE


RADWIZ LTD.                                  INVENTECH INVESTMENT COMPANY
                                             LTD.

By:_____________________________             By:________________________________
Name:___________________________             Name:______________________________
Title:__________________________             Title:_____________________________


YEHUDA ZISAPEL                               ZOHAR ZISAPEL

________________________________             ___________________________________


HOLLAND VENTURES III B.V.                    JAFCO CO., LTD

By:  Mr. Moshe Harel                         By:________________________________
Name:__________________________              Name:______________________________
Title:_________________________              Title:_____________________________


D.M.N. Point Technologies Ltd.               COREX ISRAELI INDUSTRIES LTD.

By:____________________________              By: /s/ Basil Selwin Gamsu
                                                --------------------------------
Name:__________________________              Name: BASIL SELWIN GAMSU
                                                   -----------------------------
Title:_________________________              Title: MANAGING DIRECTOR
                                                   -----------------------------


RONCHAL INVESTMENTS N.V.                     COMPAGNIE des SIGNAUX.

By:  Mr. Moshe Harel                         By:________________________________
Name:__________________________              Name:______________________________
Title:_________________________              Title:_____________________________

ISAL AMLAT INVESTMENTS (1993)                BYNET DATA COMMUNICATIONS LTD.
LTD.

By:____________________________              By:________________________________
Name:__________________________              Name:______________________________
Title:_________________________              Title:_____________________________

YOSEF ELIHAV, in trust for others            TRUSTEE for the Option Holders
                                             holding Vested Options under the
                                             Plan

_______________________________              ___________________________________


ADORAM GAASH

_______________________________
<PAGE>

   IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby,
have duly executed this Agreement as of the date first above written.


                         TERAYON COMMUNICATION SYSTEMS INC


                         By:  _______________________________
                              Name:
                              Title:

                         ________________________________________
                         AKIVA MAYER, THE SELLER'S REPRESENTATIVE


RADWIZ LTD.                                  INVENTECH INVESTMENT COMPANY
                                             LTD.
By:___________________________
Name:_________________________               By:____________________________
Title:________________________               Name:__________________________
                                             Title:_________________________


YEHUDA ZISAPEL                               ZOHAR ZISAPEL

_______________                              _______________

HOLLAND VENTURES III B.V.                    JAFCO CO., LTD

By:  Mr. Moshe Harel                         By:____________________________
Name:_________________________               Name:__________________________
Title:________________________               Title:_________________________

D.M.N. Point Technologies Ltd.               COREX ISRAELI INDUSTRIES LTD.

By: /s/ David Binamowitoh                    By:____________________________
   ---------------------------               Name:__________________________
Name: David Binamowitoh                      Title:_________________________
     -------------------------
Title: C.E.O
      ------------------------

RONCHAL INVESTMENTS N.V.                     COMPAGNIE des SIGNAUX

By:  Mr. Moshe Harel                         By:____________________________
                                             Name:__________________________
Name:_________________________               Title:_________________________
Title:________________________

ISAL AMLAT INVESTMENTS (1993)                BYNET DATA COMMUNICATIONS LTD.
LTD.

By:____________________________              By:____________________________
Name:__________________________              Name:__________________________
Title:_________________________              Title:_________________________


YOSEF ELIHAV, in trust for others            TRUSTEE for the Option Holders
                                             holding Vested Options under the
                                             Plan
_______________________________
                                             _______________________________

ADORAM GAASH

___________________

<PAGE>

   IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby,
have duly executed this Agreement as of the date first above written.


                         TERAYON COMMUNICATION SYSTEMS INC

                         By:  ________________________
                              Name:
                              Title:

                         ________________________________________
                         AKIVA MAYER, THE SELLER'S REPRESENTATIVE


RADWIZ LTD.                                  INVENTECH INVESTMENT COMPANY
                                             LTD.
By:____________________________
Name:__________________________              By:____________________________
Title:_________________________              Name:__________________________
                                             Title:_________________________

YEHUDA ZISAPEL                               ZOHAR ZISAPEL


______________                               ______________

HOLLAND VENTURES III B.V.                    JAFCO CO., LTD

By:  Mr. Moshe Harel                         By:____________________________
                                             Name:__________________________
Name: /s/ Moshe Harel                        Title:_________________________
     --------------------------
Title:_________________________

D.M.N. Point Technologies Ltd.               COREX ISRAELI INDUSTRIES LTD.

By:____________________________              By:____________________________
Name:__________________________              Name:__________________________
Title:_________________________              Title:_________________________

RONCHAL INVESTMENTS N.V.                     COMPAGNIE des SIGNAUX

By:  Mr. Moshe Harel                         By:____________________________
                                             Name:__________________________
Name: /s/ Moshe Harel                        Title:_________________________
     --------------------------
Title:_________________________

ISAL AMLAT INVESTMENTS (1993)                BYNET DATA COMMUNICATIONS LTD.
LTD
                                             By:____________________________
By:____________________________              Name:__________________________
Name:__________________________              Title:_________________________
Title:_________________________

YOSEF ELIHAV, in trust for others            TRUSTEE for the Option Holders
                                             holding Vested Options under the
_______________________________              Plan

                                             _______________________________
ADORAM GAASH

_____________

<PAGE>

   IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby,
have duly executed this Agreement as of the date first above written.


                         TERAYON COMMUNICATION SYSTEMS INC


                         By:  ____________________________________
                              Name:
                              Title:

                          ________________________________________
                          AKIVA MAYER, THE SELLER'S REPRESENTATIVE


RADWIZ LTD.                                  INVENTECH INVESTMENT COMPANY
                                             LTD.
By:____________________________
Name:__________________________              By:____________________________
Title:_________________________              Name:__________________________
                                             Title:_________________________

YEHUDA ZISAPEL                               ZOHAR ZISAPEL

_______________                              ______________

HOLLAND VENTURES III B.V.                    JAFCO CO., LTD

By:  Mr. Moshe Harel                            /s/ Hitoshi Imuta
                                                ----------------------------
Name:__________________________              Name:  Hitoshi Imuta
                                                  --------------------------
Title:_________________________              Title: Managing Director
                                                   -------------------------

D.M.N. Point Technologies Ltd.               COREX ISRAELI INDUSTRIES LTD.

By:____________________________              By:____________________________
Name:__________________________              Name:__________________________
Title:_________________________              Title:_________________________

RONCHAL INVESTMENTS N.V.                     CS TELECOM S.A..

By:  Mr. Moshe Harel                         By:____________________________
Name:_________________________               Name:__________________________
Title:________________________               Title:_________________________

ISAL AMLAT INVESTMENTS (1993)                BYNET DATA COMMUNICATIONS LTD.
LTD.
                                             By:____________________________
By:____________________________              Name:__________________________
Name:__________________________              Title:_________________________
Title:_________________________

YOSEF ELIHAV, in trust for others            TRUSTEE for the Option Holders
                                             holding Vested Options under the
_______________________________              Plan

                                             _______________________________

ADORAM GAASH

____________

<PAGE>

   IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby,
have duly executed this Agreement as of the date first above written.


                         TERAYON COMMUNICATION SYSTEMS INC


                         By:  ______________________________
                              Name:
                              Title:

                          /s/ A. Mayer
                         ----------------------------------------
                         AKIVA MAYER, THE SELLER'S REPRESENTATIVE


RADWIZ LTD.                               INVENTECH INVESTMENT COMPANY
                                          LTD.
By:____________________________
Name:__________________________           By: /s/ Inventure Investment Company
Title:_________________________              ---------------------------------
                                          Name: Inventure Investment Company
                                               -------------------------------
                                          Title:  C.E.O
                                                ------------------------------

YEHUDA ZISAPEL                            ZOHAR ZISAPEL

_______________                           ______________

HOLLAND VENTURES III B.V.                 JAFCO CO., LTD

By:  Mr. Moshe Harel                      By:_________________________________
Name: _________________________           Name:_______________________________
Title:_________________________           Title:______________________________

D.M.N. Point Technologies Ltd.            COREX ISRAELI INDUSTRIES LTD.

By:____________________________           By:_________________________________
Name:__________________________           Name:_______________________________
Title:_________________________           Title:______________________________

RONCHAL INVESTMENTS N.V.                  COMPAGNIE des SIGNAUX

By:  Mr. Moshe Harel                      By:_________________________________
Name: _________________________           Name:_______________________________
Title:_________________________           Title:______________________________

ISAL AMLAT INVESTMENTS (1993)             BYNET DATA COMMUNICATIONS LTD.
LTD.
                                          By:_________________________________
By:____________________________           Name:_______________________________
Name:__________________________           Title:______________________________
Title:_________________________

YOSEF ELIHAV, in trust for others         TRUSTEE for the Option Holders
                                          holding Vested Options under the
_______________________________           Plan

                                          ____________________________________
ADORAM GAASH

____________

<PAGE>

   IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby,
have duly executed this Agreement as of the date first above written.


                         TERAYON COMMUNICATION SYSTEMS INC.

                         By:  _____________________________
                              Name:
                              Title:

                         ________________________________________
                         AKIVA MAYER, THE SELLER'S REPRESENTATIVE

RADWIZ LTD.                                    INVENTECH INVESTMENT COMPANY
                                               LTD.
By:_______________________________________
Name:_____________________________________     By:____________________________
Title:____________________________________     Name:__________________________
                                               Title:_________________________

YEHUDA ZISAPEL                                 ZOHAR ZISAPEL

_______________                                ______________

HOLLAND VENTURES III B.V.                      JAFCO CO., LTD

By:  Mr. Moshe Harel                           By:____________________________
Name:_____________________________________     Name:__________________________
Title:____________________________________     Title:_________________________

D.M.N. Point Technologies Ltd.                 COREX ISRAELI INDUSTRIES LTD.

By:_______________________________________     By:____________________________
Name:_____________________________________     Name:__________________________
Title:____________________________________     Title:_________________________

RONCHAL INVESTMENTS N.V.                       COMPAGNIE des SIGNAUX

By:  Mr. Moshe Harel                           By:____________________________
Name:_____________________________________     Name:__________________________
Title:____________________________________     Title:_________________________

ISAL AMLAT INVESTMENTS (1993)                  BYNET DATA COMMUNICATIONS LTD.
LTD.
                                               By:____________________________
By: /s/ Isal Arniat Investments (1993) Ltd.    Name:__________________________
   ---------------------------------------     Title:_________________________
Name: Hugo Chanta E Oded Kohen
     -------------------------------
Title: President and Vice President
      ------------------------------

YOSEF ELIHAV, in trust for others              TRUSTEE for the Option Holders
                                               holding Vested Options under the
_______________________________                Plan

                                               _______________________________
ADORAM GAASH

____________


<PAGE>

IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby,
have duly executed this Agreement as of the date first above written.


                         TERAYON COMMUNICATION SYSTEMS INC


                         By:  ___________________________________
                              Name:
                              Title:


                         ________________________________________
                         AKIVA MAYER, THE SELLER'S REPRESENTATIVE


RADWIZ LTD.                                  INVENTECH INVESTMENT COMPANY
                                             LTD.
By:____________________________
Name:__________________________
Title:_________________________              By:____________________________
                                             Name:__________________________
                                             Title:_________________________

YEHUDA ZISAPEL                               ZOHAR ZISAPEL

_______________                              _______________

HOLLAND VENTURES III B.V.                    JAFCO CO., LTD

By:  Mr. Moshe Harel                         By:____________________________
Name:__________________________              Name:__________________________
Title:_________________________              Title:_________________________

D.M.N. Point Technologies Ltd.               COREX ISRAELI INDUSTRIES LTD.

By:____________________________              By:____________________________
Name:__________________________              Name:__________________________
Title:_________________________              Title:_________________________

RONCHAL INVESTMENTS N.V.                     CS TELECOM S.A..

By:  Mr. Moshe Harel                         By: /s/ Armand Sibony
Name:__________________________                 ----------------------------
Title:_________________________              Name: Armand Sibony
                                                  --------------------------
                                             Title: Senior Vice President
                                                   --------------------------

ISAL AMLAT INVESTMENTS (1993)                BYNET DATA COMMUNICATIONS LTD.
LTD.

By:____________________________              By:____________________________
Name:__________________________              Name:__________________________
Title:_________________________              Title:_________________________

YOSEF ELIHAV, in trust for others            TRUSTEE for the Option Holders
                                             holding Vested Options under the
_______________________________              Plan

                                             _______________________________

ADORAM GAASH

____________


<PAGE>

                                                                     EXHIBIT 2.2

================================================================================


                           SHARE PURCHASE AGREEMENT


                                    among:


                     Terayon Communication Systems, Inc.,
                            a Delaware corporation;


                  The Sellers set forth on Schedule A hereto,



                                      and


                                Telegate Ltd.,
                 a company organized under the laws of Israel



                         -------------------------------

                           Dated as of October 14, 1999

                         -------------------------------


================================================================================
<PAGE>

                           SHARE PURCHASE AGREEMENT

     THIS SHARE PURCHASE AGREEMENT (this "Agreement") is made and entered into
as of October 14, 1999, by and among: TERAYON COMMUNICATION SYSTEMS, INC., a
Delaware corporation ("Parent"); EHUD ILONI (the "Founder"); each of the Persons
set forth in Schedule A to this Agreement (each, a "Seller", and collectively
with the Founder, the "Sellers"); and TELEGATE LTD., a company organized under
the laws of Israel (the "Company"). Certain other capitalized terms used in this
Agreement are defined in Exhibit A.

                                   Recitals

     A.  The Company is engaged principally in the development, manufacturing
and marketing of local access systems for the provision of a wide range of
public telecommunication services over CATV infrastructures. The Company has its
principal office at 7 Haplada Street, Or Yehuda, Israel and has authorized
3,000,000 Ordinary Shares, NIS 0.10 nominal value per share, of which 1,077,339
shares are issued and outstanding (the "Ordinary Shares").

     B.  The Sellers collectively own all the issued and outstanding Ordinary
Shares (the "Shares"), Warrants (as defined below) and Debentures (as defined
below) of the Company (the "Securities"). Each Seller's Ordinary Shares,
Warrants and Debentures are referred to in this Agreement as such "Seller's
Securities" and collectively as the "Sellers' Securities."

     C.  Parent desires to acquire all of the Sellers' Securities and each of
the Sellers desires to sell such Seller's Securities to Parent.

     D.  The Company and Parent desire to make certain representations and
warranties and other agreements in connection with the transactions contemplated
hereby.

     E.  Prior to the Closing, the Company's Board of Directors shall adopt a
resolution pursuant to which the Plan for the Issuance of Options to Directors,
Executives and Senior Employees of Telegate shall be terminated upon the
Closing, and the Company shall have obtained the consent of each of the Option
Holders (as defined below) to the termination of all Options (as defined below)
held by such Option Holder upon the Closing in consideration for the issuance by
Parent to such Option Holder of Parent Options (as defined below).

     F.  For accounting purposes, it is intended that the transaction
contemplated by this Agreement be treated as a "purchase."

     G.  This Agreement has been approved by the respective boards of directors
of Parent and the Company.

                                   Agreement

     The parties to this Agreement agree as follows:

<PAGE>

Section 1.  Description of Transaction.

     1.1    Purchase and Sale. Subject to the terms and conditions of this
Agreement, on the Closing Date (as defined below), each Seller shall sell.
transfer, assign, convey and deliver to Parent, and Parent shall purchase from
each Seller such Seller's Securities, in each case, free and clear of all Liens.
The closing of the purchase and sale (the "Closing") shall take place at the
offices of Naschitz Brandes & Co., 5 Tuval Street, Tel Aviv, Israel at 10:00
a.m., on November 15, 1999, or such later business day that all the conditions
set forth in Section 6 and 7 have been satisfied or waived, or on such other
date, time and place as the parties may mutually agree (the "Closing Date"). At
the Closing, the Sellers shall cause the Company to deliver to Parent one or
more instruments representing the Seller's Securities, and Parent (i) shall
issue the Initial Consideration to the Sellers' Representative (as defined
below) for distribution to the Sellers in accordance with the column in Schedule
A captioned "Initial Consideration", (ii) shall pay the Cash Payment to the
Sellers' Representative (as defined below) for distribution to the Sellers in
accordance with the column in Schedule A captioned "Cash Payment' and (iii)
shall deposit the Escrow Shares (as defined below) with the Escrow Agent, which
amounts together represent the aggregate portion of the Purchase Consideration
(as defined below) payable to the Sellers hereunder

     1.2    Further Assurances. If, at any time after the Closing Date, Parent
shall consider or be advised that any deeds, bills of sale, assignments or
assurances or any other acts or things are reasonably necessary, desirable or
proper (a) to vest, perfect or confirm, of record or otherwise, in Parent, its
right to, and title or interest in, the Sellers' Securities or (b) otherwise to
carry out the purposes of this Agreement, Parent shall so advise the Sellers'
Representative in writing, and the Sellers thereupon shall execute and deliver
all such deeds, bills of sale, assignments and assurances and do all such other
acts and things reasonably necessary, desirable or proper to vest, perfect or
confirm its right, title or interest in, to or under the Sellers' Securities,
and otherwise to carry out the purposes of this Agreement.

     1.3    Purchase Price. The consideration for the Sellers Securities
together with the consideration to the Option Holders (as defined below),
assuming the exercise of all Parent Options (as defined below) granted to the
Option Holders pursuant to Section 1.9(b) (the "Purchase Consideration"), shall
be 2,200,000 shares of Common Stock of Parent ("Common Stock") (subject to
adjustment in the event of any stock split, stock dividend, recapitalization,
issuance of bonus shares or other adjustment of the Common Stock) plus the Cash
Payment (as defined below). In accordance with Section 1.1, on the Closing Date,
Parent shall issue to the Sellers 2,200,000 shares of Common Stock (the "Initial
Consideration"), of which shares of Common Stock with a value equal to ten
million US dollars ($10,000,000) (the "Escrow Shares") shall be deposited with
the Escrow Agent to be held in the Escrow Fund with respect to each Seller in
accordance with the column in Schedule A captioned "Escrow Shares" and shall be
available to satisfy the indemnification obligations as provided in Section 9.
In addition, Parent shall pay the Sellers' Representative cash in an aggregate
amount equal to The Company's Net Cash as of the Closing Date less two million
US dollars ($2,000,000) (the "Cash Payment"), in accordance with the provisions
of Section 1.4 below. The number of the Escrow Shares shall be calculated based
on the average closing price of

<PAGE>

Parent's Common Stock as reported on the Nasdaq National Market for the fourteen
(14) trading days immediately preceding the Closing Date.

     1.4    Method of Share Transfer. The Transfer of Common Stock as set forth
in Section 1.3 above shall be made by Parent to the Sellers' Representative on
the Closing Date. All cash payments made by Parent to the Sellers'
Representative on the Closing Date shall be made by wire transfer of immediately
available funds to the accounts specified by the Sellers' Representative in
writing to Parent at least two (2) business days prior to the Closing Date (the
"Accounts"). Ten (10) days prior to the Closing, the Company shall provide to
Parent, the mount of projected Net Cash that is expected to be available to the
Company at the Closing Date. Parent shall deduct two million US Dollars
($2,000,000) and an additional amount equal to 30% of such projected Net Cash,
and pay the remainder to the Sellers' Representative at the Closing Date (the
"Initial Cash Payment"). Within twenty (20) days following the Closing Date,
Parent shall verify the actual sum of the Company's Net Cash as of the Closing
Date, upon which Parent shall transfer to the Accounts of the Sellers'
Representative an mount in immediately available funds equal to the difference
between the Initial Cash Payment and the Company's actual Net Cash as at the
Closing Date, less two million US Dollars ($2,000,000).

     1.5    Seller and Founder Waivers. Each Seller and the Founder hereby
waives and releases, effective as of the Closing, any and all rights, claims and
causes of action assertable against the Company in respect of its ownership of
any securities of the Company and any and all agreements between such Seller or
the Founder and the Company, which agreements shall automatically terminate as
of the Closing Date.

     1.6    Measurement Date and Additional Consideration. Subject to the terms
below, in the event and only in the event that the Measurement Date Share Price
(as defined below) is less than $45.46, Parent shall, within seven (7) days of
the nine-month anniversary (and with respect to the Escrow Shares, fourteen (14)
trading days after the release of the Escrow Shares from escrow) of the later of
(i) Closing Date and (ii) the date on which the Registration Statement (as
defined below) is declared effective by the SEC (the "Measurement Date"), pay to
each of the Sellers additional consideration (the "Additional Consideration")
which shall be calculated for each individual Seller as follows:

            (a)   Shares Held by Seller on the Measurement Date. With respect to
any shares of Common Stock that were received by the Seller as part of the
Purchase Consideration and have not been Sold (as defined below) in the period
of time between the Closing Date and the Measurement Date, Parent shall pay to
the Seller a sum equal to: (i) the aggregate number of such shares of Common
Stock held by the Seller on the Measurement Date, multiplied by (ii) the
difference between $45.46 and the Measurement Date Share Price; and

            (b)   Shares Sold or Otherwise Disposed of by Seller Prior to the
Measurement Date.

<PAGE>

              (i)   If shares of Common Stock that were received by the Seller
as part of the Purchase Consideration are Sold prior to the Measurement Date for
an Average Price Per Share (as defined below) of $45.46 or more, the Seller
shall not be entitled to any Additional Consideration in respect of those shares
of Common Stock sold prior to the Measurement Date.

              (ii)  If the aggregate consideration received by the Seller for
shares of Common Stock which were received as part of the Purchase Consideration
and that were Sold prior to the Measurement Date (before deduction of broker or
other fees and commissions) divided by the total number of such shares of Common
Stock sold by such Seller (the "Average Price Per Share") is less than $45.46,
then in respect of the shares of Common Stock received as part of the Purchase
Consideration and sold by the Seller prior to the Measurement Date, Parent shall
pay to the Seller the lesser of the following two amounts: (i) the difference
                      ------
between (x) the aggregate consideration received on the Sale of the shares of
Common Stock and (y) an amount equal to $45.46 per share of Common Stock
multiplied by the number of shares received as part of the Purchase
Consideration and Sold prior to the Measurement Date; or (ii) the amount which
the Seller would have received with respect to those shares in accordance with
Subsection (a) above were the Seller to have retained the shares until the
Measurement Date.

            (c)   The Measurement Date Share Price. The "Measurement Date Share
Price" shall mean the average of the closing sale price of the shares of Common
Stock as reported on the Nasdaq National Market for the fourteen (14)
consecutive trading days immediately prior to the Measurement Date.

            (d)   Method of Payment of Additional Compensation. Parent shall be
entitled to pay the above Additional Consideration in cash or by issuing to the
Sellers an additional number of unrestricted, registered and freely tradable
shares of Common Stock, with the form of such payment being solely at Parent's
discretion; provided, however, that Parent shall be obligated to pay the above
Additional Consideration in cash if such payment is made pursuant to Section
1.6(f). If the payment is made in shares, the number of additional shares issued
shall be calculated based on the Measurement Date Share Price.

            (e)   Automatic Release. Notwithstanding anything to the contrary in
this Agreement, if at any time during the period beginning on the later of
(i) the Closing Date and (ii) the date on which the Registration Statement is
declared effective by the SEC, and ending on the Measurement Date, the closing
sale price on each of the fourteen (14) consecutive trading days for a share of
Common Stock as reported on the Nasdaq National Market is equal to or greater
than fifty-five US Dollars ($55.00) per share, Parent shall not be obligated to
pay any Additional Consideration to the Sellers, other than with respect to the
Escrow, Shares to which this Section 1.6(e) shall not apply.

            (f)   Adjustment of Measurement Date. Parent may at any time during
the nine-month period following the later of (i) the Closing Date and (ii) the
date on which the Registration Statement is declared effective by the SEC,
change the date of the

<PAGE>

Measurement Date (except with respect to the Escrow Shares, for which the
Measurement Date shall remain the date fourteen (14) wading days after such
shares are actually released from escrow) from the date set forth above to any
date within such nine-month period (provided that Parent shall give the Sellers
notice of such change within two (2) days following such changed Measurement
Date). In the event of such change, the provisions of the preamble to
Sections 1.6, and Subsections 1.6(a) and 1.6(b) above, shall be read as though
each reference to $45.46 per share of Common Stock was a reference to $55.00 per
share of Common Stock.

            (g)   Reporting. For purposes of this Section 1.6, each Seller shall
provide Parent with a quarterly report detailing the number of shares Sold in
the previous quarter and the average sale price for the shares. At Parent's
request, the Sellers shall provide Parent with satisfactory information to
verify the quarterly reports.

            (h)   Deemed Sales. For the purposes of this Section 1.6 any short
sales, put options or hedges in which the Seller has the right to put or sell
his shares of Common Stock to a non-affiliated third party at a guaranteed
minimum net price, shall be deemed a Sale of the underlying shares at the price
equal to such minimum net price.

            (i)   Certain Definitions. For the purposes of this Section 1.6, the
terms "Sold" and "Sale" shall mean any bona fide sale by a Seller to a
non-affiliated third party through a broker dealer on the Nasdaq National
Market.

     1.7    Additional Consideration. At the Closing, Parent will deposit two
hundred thousand (200,000) shares of Common Stock (subject to adjustment under
Section 7.6) in an escrow fund satisfactory to the Sellers' Representative (the
"Additional Consideration Escrow Fund") as a security for the payment of the
Additional Consideration, if any. Prior to the Closing, the parties shall agree
upon the terms and conditions of such escrow, which shall provide without
limitation that (i) the shares of Common Stock held in the Additional
Consideration Escrow Fund shall not be released before the Escrow Shares are
released from escrow and all Additional Consideration is paid to the Sellers in
full and (ii) any payments made from the escrow to the Sellers (including any
release of the Escrow Shares to the Sellers) shall be allocated among the
Sellers in accordance with Schedule A.

     1.8    Accounting Treatment. For accounting purposes, the transaction
contemplated by this Agreement is intended to be treated as a "purchase."

     1.9    Employee Options.

            (a)   There are currently outstanding and unexercised options to
acquire Ordinary Shares (the "Options") issued by the Company to employees,
directors and consultants listed in Schedule A (the "Option Holders"). The names
of all of the Option Holders and the number of Ordinary Shares covered by each
Option are set forth on Schedule A.

            (b)   At Closing, all Options shall be cancelled, and in
consideration of such

<PAGE>

cancellation, Parent shall grant to each Option Holder such number of fully
vested options to purchase Common Stock ("Parent Options") indicated opposite
such Option Holder's name on Schedule A. All such options shall have an exercise
price equal to the par value of the underlying Common Stock and shall be
exercisable at any time during the five (5) year period following the Closing
Date. Prior to the Closing, no Option Holder shall exercise or transfer any
Options.

            (c)   As soon as practicable following the date hereof and in any
event prior to the Closing, the Company shall secure the written agreement, in
the form and substance reasonably acceptable to Parent, of each Option Holder to
the terms and conditions of this Agreement (the "Option Holder Consent Letter
and Counterpart Signature Page"). Each Option Holder shall become part), to this
Agreement and the Escrow Agreement immediately upon the execution and delivery
to the Company by such Option Holder of the Option Holder Consent Letter and
Counterpart Signature Page and shall be deemed a "Seller" hereunder and
thereunder. For the avoidance of doubt, the total number of shares of Common
Stock to be issued to the Sellers and the Option Holders hereunder shall be
equal to the Purchase Consideration.

Section 2.  Representations and Warranties of The Company.

     The Company represents and warrants, to and for the benefit of the
Indemnitees, as follows:

     2.1    Due Organization; No Subsidiaries; Etc.

            (a)   The Company is duly organized and validly existing under the
laws of the State of Israel. The Company has all requisite corporate power and
authority to conduct its business in the manner in which its business is
currently being conducted and to own and use its assets in the manner in which
its assets are currently owned and used.

            (b)   Except as set forth in Part 2.1 of the Disclosure Schedule,
the Company has not conducted any business under or otherwise used, for any
purpose or in any jurisdiction, any fictitious name, assumed name, trade name or
other name, other than the name "Telegate Ltd."

            (c)   The Company is not and has not been required to be qualified,
authorized, registered or licensed to do business as a foreign corporation in
any jurisdiction, except where the failure to be so qualified, authorized,
registered or licensed has not had and will not have a Material Adverse Effect
on the Company.

            (d)   Part 2.1 of the Disclosure Schedule accurately sets forth
(i) the names of the members of the Company's board of directors, (ii) the names
of the members of each committee of the Company's board of directors, and
(iii) the names and titles of the Company's officers.

            (e)   The Company does not own any controlling interest in any
Entity and the Company has never owned, beneficially or otherwise, any shares or
other securities of, or

<PAGE>

any direct or indirect equity interest in, any Entity. The Company has not
agreed and is not obligated to make any future investment in or capital
contribution to any Entity. The Company has not guaranteed and is not
responsible or liable for any obligation of any of the Entities in which it owns
or has owned any equity interest.

     2.2    Articles of Association and Memorandum of Association; Records.
Except as set forth in Part 2.2 of the Disclosure Schedule, the Company has
delivered to Parent accurate and complete copies of: (1) the Memorandum of
Association and Articles of Association of the Company, including all amendments
thereto; (2) the stock records of the Company; and (3) the minutes and other
records of the meetings and other proceedings (including any actions taken by
written consent or otherwise without a meeting) of the stockholders of the
Company, the board of directors of the Company and all committees of the board
of directors of the Company. There have been no formal meetings or other
proceedings of the stockholders of the Company, the board of directors of the
Company or any committee of the board of directors of the Company that are not
fully reflected in such minutes or other records. Except as set forth in Part
2.2 of the Disclosure Schedule, there has not been any violation of any of the
provisions of the Company's Articles of Association or Memorandum of
Association, nor has the Company taken any action that is inconsistent with any
resolution adopted by the Company's stockholders, the Company's board of
directors or any committee of the Company's board of directors, which would have
a Material Adverse Effect on the Company. Except as set forth in Part 2.2 of the
Disclosure Schedule, the books of account, stock records, minute books and other
records of the Company are accurate, up-to-date and complete in all material
respects, and have been maintained in accordance with prudent business
practices.

     2.3    Capitalization. The issued and outstanding share capital of the
Company, on a fully diluted and as-converted basis raking into consideration all
convertible or exchangeable securities and other interests in the Company is set
forth in Part 2.3 of the Disclosure Schedule. Except as set forth in Part 2.3 of
the Disclosure Schedule, at the Closing Date, there will not be any outstanding
or authorized subscriptions, options, warrants, calls, rights, commitments,
convertible securities, or any other agreements of any character directly or
indirectly obligating the Company to issue any additional shares or any
securities convertible into, or exchangeable for, or evidencing the right to
subscribe for, any shares.

     2.4    Financial Statements.

            (a)   The Company has delivered to Parent the following financial
statements and notes (collectively, the "Company Financial Statements"):

                  (i)    The audited balance sheets of the Company as of
December 31, 1998, 1997 and 1996, and the related audited statements of
operations, statements of stockholders' equity and statements of cash flows of
the Company for the years then ended, together with the notes thereto and the
unqualified report and opinion of a recognized firm of independent certified
accountants relating thereto; and

<PAGE>

                  (ii)   the unaudited balance sheet of the Company as of
June 30, 1999 (the "Unaudited Interim Balance Sheet"), and the related unaudited
statement of operations of the Company for the six months then ended.

            (b)   The Company Financial Statements are accurate and complete in
all material respects and present fairly the financial position of the Company
as of the respective dates thereof and the results of operations and (in the
case of the financial statements referred to in Section 2.4(a)(i)) cash flows of
the Company for the periods covered thereby. The Company Financial Statements
have been prepared to accordance with generally accepted accounting principles
consistently applied in Israel throughout the periods covered (except that the
financial statements referred to in Section 2.4(a)(ii) do not contain footnotes
and are subject to normal and recurring year-end audit adjustments, which will
not, individually or in the aggregate, be material in magnitude) and comply with
the requirements of all applicable Israeli regulations.

            (c)   Except as set forth in Part 2.2 of the Disclosure Schedule,
all proper and necessary books of account, minute books, registers and records
have been maintained by the Company, are in its possession and contain accurate
information relating to all material transactions to which the Company' has been
a party, except where the failure to maintain such books of account, minute
books, registers and records would not have a Material Adverse Effect on the
Company.

            (d)   A complete list of the Company's debts and loan facilities as
of June 30, 1999, is set forth in Part 2.4(d) of the Disclosure Schedule.

     2.5    Absence of Changes. Except as set forth in Part 2.5 of the
Disclosure Schedule, since June 30, 1999:

            (a)   there has not been any material adverse change in the
Company's business, prospects, operations, assets, liabilities, debts, work
force or its condition (financial or otherwise) and no event has occurred that
will, or could reasonably be expected to, have a Material Adverse Effect on the
Company;

            (b)   there has not been any material loss, damage or destruction
to, or any material interruption in the use of, any of the Company's assets
(whether or not covered by insurance);

            (c)   the Company has not declared, accrued, set aside or paid any
dividend or made any other distribution in respect of any shares of capital
stock, and has not repurchased, redeemed or otherwise reacquired any shares of
capital stock or other securities;

            (d)   except as set forth in Part 2.3 of the Disclosure Schedule,
the Company has not sold, issued or authorized the issuance of (i) any capital
stock or other securities, (ii) any option or right to acquire any capital stock
or any other security or (ii) any instrument convertible into or exchangeable
for any capital stock or other security;

<PAGE>

            (e)   the Company has not amended or waived any of its rights under,
or permitted the acceleration of vesting under (except where such accelerated
vesting is permitted under the terms of an existing agreement of option plan),
(i) any provision of the Plan for the Issuance of Options to Directors,
Executives and Senior Employees of Telegate, (ii) any provision of any agreement
evidencing any outstanding Option or Warrant, or (iii) any restricted stock
purchase agreement;

            (f)   there has been no amendment to the Company's Articles of
Association or Memorandum of Association, and the Company has not effected or
been a party to any Acquisition Transaction, recapitalization, reclassification
of shares, stock split, reverse stock split or similar transaction;

            (g)   the Company has not formed any subsidiary or acquired any
equity interest or other interest in any other Entity;

            (h)   the Company has not made any capital expenditure which, when
added to all other capital expenditures made on behalf of the Company since
June 30, 1999, exceeds $25,000;

            (i)   the Company has not (i) entered into or permitted any of the
assets owned or used by it to become bound by any Contract that is or would
constitute a Material Agreement (as defined in Section 2.10(a)), or (ii) amended
or prematurely terminated, or waived any material right or remedy under, any
such Contract;

            (j)   the Company has not (i) acquired, leased or Licensed any right
or other asset from any other Person, (ii) sold or otherwise disposed of, or
leased or licensed, any right or other asset to any other Person, or
(iii) waived or relinquished any right, except for immaterial rights or other
immaterial assets acquired, leased, licensed or disposed of in the ordinary
course of business and consistent with the Company's past practices;

            (k)   the Company has not written off as uncollectible, or
established any extraordinary reserve with respect to, any account receivable or
other indebtedness;

            (l)   the Company has not made any pledge of any of its assets or
otherwise permitted any of its assets to become subject to any Encumbrance,
except for pledges of immaterial assets made in the ordinary course of business
and consistent with the Company's past practices;

            (m)   the Company has not (i) lent money to any Person (other than
pursuant to routine advances made to employees in the ordinary course of
business), or (ii) incurred or guaranteed any indebtedness for borrowed money;

            (n)   the Company has not (i) established or adopted any Employee
Benefit Plan, (ii) other than in the ordinary course of business and in a manner
consistent with past practice, paid any bonus or made any profit-sharing or
similar payment to, or increased the amount of the wages, salary, commissions,
fringe benefits or other compensation or

<PAGE>

remuneration payable to, any of its directors, officers or employees, or
(iii) hired any new employees;

            (o)   there has been no resignation or termination of employment of
any officer or key employee of the Company;

            (p)   the Company has not changed any of its methods of accounting
or accounting practices in my respect;

            (q)   the Company has not made any Tax election;

            (r)   the Company has not commenced or settled any Legal Proceeding;

            (s)   the Company has not entered into any transaction or taken any
other action outside the ordinary course of business or inconsistent with its
past practices; and

            (t)   the Company has not agreed or committed to take any of the
actions referred to in clauses "(c)" through "(s)" above.

     2.6    Properties and Assets. Full and accurate details of the Company's
properties and assets are contained in Part 2.6 of the Disclosure Schedule.
Except as disclosed in Part 2.6 of the Disclosure Schedule or in the notes to
the Company Financial Statements, the Company has good and marketable title to
its assets, including without limitation those reflected in the Company
Financial Statements, free and clear of any right, interest or equity of any
individual or entity (including any right to acquire, option, or right of
preemption) or any mortgage, charge, pledge, lien, or assignment, or my other
encumbrance or security interest or arrangement of whatsoever nature over or in
the relevant property ("Security Interests"). With respect to the assets that
are leased, the Company is in compliance with all material provisions of such
leases, such leases are valid and binding, and, to the best of its knowledge,
the Company holds leasehold interests in such assets free and clear of all
Security Interest, except for Security Interests that, both individually and in
the aggregate with all other exceptions to any of the representations in this
Section 2 which are not specified in the Disclosure Schedule, would not have a
material adverse effect on the Company.

     2.7    Bank Accounts; Receivables.

            (a)   Part 2.7(a) of the Disclosure Schedule provides accurate
information with respect to each account maintained by or for the benefit of the
Company at any bank or other financial institution.

            (b)   Part 2.7(b) of the Disclosure Schedule provides an accurate
and complete breakdown and aging of all accounts receivable, notes receivable
and other receivables of the Company as of June 30, 1999. Except as set forth in
Part 2.7(b) of the Disclosure Schedule, all existing accounts receivable of the
Company (including those accounts receivable reflected on the Unaudited Interim
Balance Sheet that have not yet been collected and those accounts receivable
that have arisen since June 30, 1999 and have not yet been collected)
(i) represent valid obligations of customers of the Company arising from bona

<PAGE>

fide transactions entered into in the ordinary course of business, (ii) are
current and will be collected in full when due, without any counterclaim or set
off (net of an allowance for doubtful accounts not to exceed $25,000 in the
aggregate).

     2.8    Equipment; Leasehold.

            (a)   All material items of equipment and other tangible assets
owned by or leased to the Company are adequate for the uses to which they are
being put, are in good condition and repair (ordinary wear and tear excepted)
and are adequate for the conduct of the Company's business in the manner in
which such business is currently being conducted.

            (b)   The Company does not own any real property or any interest in
real property, except for the leasehold created under the real property lease
identified in Part 2.10 of the Disclosure Schedule.

     2.9    Intellectual Property and Other Intangible Assets.

            (a)   As used herein, the term "Intellectual Property" shall mean
all registered patents, designs and trademarks, all applications for
registration thereof, and all computer programs including, but not limited to,
computer programs embodied in semiconductor chips, and related flow-charts,
programmer notes, updates and data, whether in object or source code form,
developed, or used in connection with the business of the Company, and all
hardware, algorithms, utilities flowcharts, logic, documentation, processes,
formulations, data, experimental methods, or results, descriptions, business or
scientific plans, depictions, customer lists and any other written, printed or
electronically stored materials or information, including specifications,
pricing plans, market research or data, potential marketing strategies,
prospective users and distribution channels, engineering drawings, information
concerning specialized suppliers, specifications for products and/or processes
and/or software, test protocols, and all other materials relating thereto, and
copies thereof in any storage media, and all other works of authorship,
inventions, concepts, ideas, and discoveries developed, discovered, conceived,
created, made, reduced to practice, or used by the Company and all intellectual
property rights therein, including, without limitation, all copyrights in the
United States, Israel and elsewhere, including all rights of registration and
publication, rights to create derivative works, and all other rights incident to
copyright ownership, for the residue now unexpired of the present term of any
and all such copyrights and any term thereafter granted during which such
information is entitled to copyright, and all inventions (patentable or
unpatentable), trade secrets, know-how, ideas and confidential information
embodied or reflected in such information, including any shop rights, for the
longest period of protection accorded to such interests under applicable law.

            (b)   Except as specifically set forth in Part 2.9(b) of the
Disclosure Schedule, the Company (i) owns or has the right to use, free and
clear of all liens, claims and restrictions the Intellectual Property used in
the conduct of its business, and (ii) to the best knowledge of the Company, such
Intellectual Property does not infringe upon or violate any right, lien, or
claim of others, including without limitation of its present or former employees
or the former employers of all such persons. Except as set forth in Part 2.9(b)
of the

<PAGE>

Disclosure Schedule, the Company is not currently obligated or under any
liability whatsoever to make any payments by way of royalties, fees or otherwise
to any owner or licensee of, or other claimant to, any patent, trademark,
service mark, trade name, copyright or other intangible asset, with respect to
The use thereof or in connection with the conduct of its business or otherwise.

          (c) Any and all Intellectual Property of any kind which has been
developed or, is currently being developed, by any of the Company or any
employees of the Company shall be the property solely of the Company. The
Company has taken security measures to protect the secrecy, confidentiality and
value of all the Intellectual Property, which measures are reasonable and
customary in the industry in which the Company operates. Each person who, either
alone or in concert with others, developed, invented, discovered, derived,
programmed or designed the Intellectual Property, or who has knowledge of or
access to information about the Intellectual Property, has entered into a
written non-disclosure agreement with the Company regarding ownership and
treatment of the Intellectual Property, in a form reasonably satisfactory to the
Company.

          (d) Except as specifically set forth to Part 2.9(d) of the Disclosure
Schedule, neither The Company nor, to the best knowledge of the Company, any of
its directors, officers or employees has received any communications alleging
that the Company has violated or by conducting its business as currently
conducted, would violate, any of the patents, trademarks, service marks, trade
names, copyrights or trade secrets or other proprietary rights of any other
person or entity. Except as set forth in Part 2.9(d) of the Disclosure Schedule,
neither the Company nor, to the best knowledge of the Company, any of its
directors, officers or employees has received notice nor is it otherwise aware
of any infringement of or conflict with asserted rights of others, with respect
to any of the Intellectual Property, or of any facts, or assertion of any facts,
which would render any of The Intellectual Property invalid or unenforceable.

          (e) To the best knowledge of the Company, none of the Company's
employees, officers or directors are obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or subject
to any judgment, decree or order of any court or administrative agency, that
would interfere with the use of such persons' best efforts to promote the
interests of the Company or that would conflict with the Company's business as
conducted and as proposed to be conducted. To the best knowledge of the Company,
neither the execution nor delivery of the Agreement, nor the carrying on of the
Company's business by employees of the Company, nor the conduct of The Company's
business as proposed to be conducted, will materially conflict with or result in
a material breach of the terms, conditions or provisions of, or constitute a
material default under, any contract, covenant or instrument under which any of
The Company's employees, officers or directors is now obligated. It is not, and
will not become, necessary to utilize any inventions, and specifically, patent
applications, of any of the Company's employees (or people the Company currently
intends to hire) made prior to their employment by the Company other than those
that have been assigned to the Company pursuant to valid and legally binding
instruments of assignment.
<PAGE>

          (f) The Intellectual Property owned by the Company constitutes all of
the Intellectual Property necessary to enable the Company to conduct its
business in the manner in which such business has been and is being conducted.
Except as set forth in Part 2.9(f) of the Disclosure Schedule, the Company has
not licensed any of the Company Intellectual Property to any Person on an
exclusive basis, nor has the Company entered into any covenant not to compete or
Contract limiting its ability to exploit fully any of its Intellectual Property
or to transact business in any market or geographical area or with any Person.

          (g) The Company's products (the "Products") will not experience fatal
errors and/or invalid and/or incorrect results as a result of the change of year
from 1999 to 2000; provided, that the Products receive correct and properly
formatted date inputs from all software and hardware that exchange data with or
provide data to the Products.

     2.10 Agreements and Trading.

          (a) All the material agreements to which the Company is a party
(including instruments, leases, licenses, arrangements, or undertakings of any
nature, written or oral) (the "Material Agreements") are listed in Part 2.10(a)
of the Disclosure Schedule.

          (b) To the best of the Company's knowledge, and except as set forth in
Part 2.10(c) of the Disclosure Schedule, all the Material Agreements are in full
force and effect and the Company has no knowledge of the invalidity of or
grounds for rescission, avoidance or repudiation of any of the Material
Agreements and, except as set forth in Part 2.10(b) of the Disclosure Schedule,
the Company has not received any notice of any intention to terminate any such
agreement.

          (c) To the best of the Company's knowledge and other than as set forth
in Part 2.10(c) of the Disclosure Schedule, the Company and all third parties
with whom it has transacted business have performed in all respects all of their
material obligations under the Material Agreements, except for such non
performance that, both individually and in the aggregate with all other
exceptions to any of the representations in this Section 2 which are not
specified on schedules hereto, would not have a Material Adverse Effect on the
Company. To the best of the Company's knowledge, and except as set forth in Part
2.10(c) of the Disclosure Schedule, no party to any of the Material Agreements
is in breach or in default in any respect of its material obligations
thereunder. Except as set forth in Part 2.10(c) of the Disclosure Schedule, no
party to any of the material Agreements has made a claim of which the Company is
aware to the effect that the Company has failed to perform a material obligation
thereunder.

          (d) Except as set forth in Part 2.10(d) of the Disclosure Schedule,
there are no agreements, promises or understandings in force restricting the
competitive freedom of the Company to provide and take goods and services by
such means and from and to such individuals or entities as it may from time to
time think fit.

          (e) The Company has delivered to Parent accurate and complete copies
of all written Material Agreements identified in Part 2.10(a) of the Disclosure
Schedule, including all amendments thereto. Part 2.10(a) of the Disclosure
Schedule provides an
<PAGE>

accurate description of the terms of each Material Agreement that is not in
written form. Except as set forth in Parts 2.10(b) and 2.10(c) of the Disclosure
Schedule, each Material Agreement identified in Part 2.10(a) of the Disclosure
Schedule is valid and in full force and effect, and, To the Company's best
knowledge, is enforceable by the Company in accordance with its terms, subject
to (i) laws of general application relating to bankruptcy, insolvency and the
relief of debtors, and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies.

          (f) Except as set forth in Part 2.10(c) of the Disclosure Schedule:

               (i)    the Company has not violated or breached, or committed any
material default under, any Material Agreement, and, to the Company's best
knowledge, no other Person has violated or breached, or committed any material
default under, any Material Agreement;

               (ii)   no event has occurred, and no circumstance or condition
exists, that (with or without notice or lapse of time) will, or could reasonably
be expected to, (A) result in a material violation or breach of any of the
provisions of any Material Agreement, (B) give any Person the right to declare a
material default or exercise any remedy under any Material Agreement, (C) give
any Person the right to accelerate the maturity or performance of any Material
Agreement, or (D) give any Person the right to cancel, terminate or modify any
Material Agreement;

               (iii)  since December 31, 1997, the Company has nor received any
notice or other communication regarding any actual or possible material
violation or breach of, or material default under, any Material Agreement; and

               (iv) the Company has not waived any of it's material rights under
any Material Agreement.

          (g) Except as set forth in Part 2.10(c) of the Disclosure Schedule, no
Person is renegotiating, or has a right pursuant to the terms of any Material
Agreement to renegotiate, any amount paid or payable to the Company under any
Material Agreement or any other material term or provision of any Material
Agreement.

          (h) The Material Agreements identified in Part 2.10(a) of the
Disclosure Schedule collectively constitute all of the Contracts necessary to
enable the Company to conduct its business in the manner in which its business
is currently being conducted.

          (i) Part 2.10(i) of the Disclosure Schedule identifies and provides a
brief description of each proposed Contract as to which any bid, offer, award,
written proposal, term sheet or similar document has been submitted or received
by the Company regarding the business of the Company since January 1, 1999, or
which is otherwise still pending.

          (j) Part 2.10(j) of the Disclosure Schedule provides an accurate
description and breakdown of the Company's backlog under Material Agreements.
<PAGE>

     2.11  Capital Expenditure and Commitments. Except as disclosed in Part 2.11
of the Disclosure Schedule or to the Company Financial Statements:

          (a) The Company has not undertaken to make any material capital
commitment, expenditure or purchase in excess of $150.000.

          (b) The Company is not a party to any material hire: hire purchase,
credit sale or conditional sale agreement or any contract providing for payment
on deferred terms in respect of assets purchased by the Company.

          (c) The Company is not in breach of any material obligation under any
material deed, agreement or transaction to which it is a party, and to the best
of it's knowledge, no third party that has transacted business with the Company
is in breach of any of its material obligations under any material deed,
agreement, or transaction with the Company to which it is a party.

          (d) The Company is not aware of any Security Interest on, over or
affecting the issued or unissued share capital of the Company, nor is the
Company aware of any agreement or commitment to give or create any such Security
Interest and no claim has been made by any Person to be entitled to any such
Security Interest.

          (e) The Company has not given any guarantee, indemnity or security
for, or otherwise agreed to become directly or contingently liable for, any
obligation of any other individual or entity, except in its ordinary course of
business, and to the best of its knowledge, no individual or entity has given
any guaranty of or security for any of the Company's obligations.

          (f) There are in force no powers of attorney given by the Company with
respect to any asset or business of the Company, and no individual or entity, as
agent, representative, distributor or otherwise, is entitled or authorized to
bind or commit the Company to any obligation not in the ordinary course of the
Company's business.

          (g) The Company has not applied for or received any grant or allowance
from any governmental authority.

     2.12 Compliance with Legal Requirements.

          (a) To the best of its knowledge, information and belief, and except
as set forth in Part 2.12(a) of the Disclosure Schedule, the Company has carried
on its business and affairs in all material respects in accordance with all
applicable laws and regulations, to the extent material to the Company's
business or assets, including, inter alia, in accordance with the provisions of
the Israel Companies Ordinance [New Version], 1983, and in accordance with the
Company's Memorandum of Association and Articles of Association, and, the
Company is not aware of any material violation or default with respect to any
statute, regulation, order, decree, or judgment of any court or any governmental
agency which could have a material adverse effect upon the Company's assets or
business, and the Company has been granted and there are now in force all
material approvals, consents, and licenses
<PAGE>

necessary for the carrying on of its business in the places and in the manner in
which it is now carried on, and, except as set forth in Part 2.12(a) of the
Disclosure Schedule, the Company is not aware of any circumstances which
evidence or indicate that any such approvals, consents or licenses, to the
extent material to the Company's business or assets, are likely to be suspended,
canceled, revoked or not renewed.

          (b) The copy of each of the Memorandum of Association and Articles of
Association of the Company provided to Parent, is complete, true and accurate,
has not been amended or repealed and the Articles of Association will be in
effect until such time as the Articles of Association are amended under Section
17.15 of the Amended and Restated Stockholders Agreement among the Company, the
Founder and certain of the Sellers.

          (c) To the best of the Company's knowledge, and except as specifically
set forth in Part 2.12(c) of the Disclosure Schedule, all documents required to
be filed with or delivered to the Registrar of Companies in respect of the
Company have been properly filed or delivered in a timely manner, except for
such non compliance that, both individually and in the aggregate with all other
exceptions to any of the representations in this Section 2 which are not
specified on schedules hereto, would not have a Material Adverse Effect on the
Company.

     2.13  Governmental Authorizations. Part 2.13 of the Disclosure Schedule
identifies each material Governmental Authorization held by the Company, and the
Company has delivered to Parent accurate and complete copies of all Governmental
Authorizations identified in Part 2.13 of the Disclosure Schedule. The
Governmental Authorizations identified in Part 2.13 of the Disclosure Schedule
are valid and in full force and effect, and collectively constitute all
Governmental Authorizations necessary to enable the Company to conduct its
business in the manner in which its business is currently being conducted.
Except as set forth in Part 2.13 of the Disclosure Schedule, the Company is, and
at all times since December 31, 1997 has been, in substantial compliance with
the terms and requirements of the respective Governmental Authorizations
identified in Part 2.13 of the Disclosure Schedule. Since December 31, 1997, the
Company has not received any notice or ocher communication from any Governmental
Body regarding (a) any actual or possible violation of or failure to comply with
any term or requirement of any Governmental Authorization, or (b) any actual or
possible revocation, withdrawal, suspension, cancellation, termination or
modification of any Governmental Authorization.

     2.14 Tax Matters.

          (a) To the best of the Company's knowledge, except as specifically set
forth in Part 2.14(a) of the Disclosure Schedule, the Company Financial
Statements make full provisions for all Taxes for which the Company was then or
thereafter became or may hereafter become liable or accountable in respect of or
by reference to any income, profit, receipt, gain, transaction, agreement,
distribution or event which was earned, accrued, received, or realized, entered
into except as specifically set forth in Part 2.14(a) of the Disclosure
Schedule, paid, made or accrued on or before December 31, 1998, and the Company
promptly paid or fully provided in its books of account for all Taxes for which
it
<PAGE>

has or may hereafter become liable or accountable in the period from the date of
its incorporation to the Closing Date.

          (b) To the best of the Company's knowledge, and except as set forth in
Part 2.14(b) of the Disclosure Schedule, the Company has at all times and within
the requisite time limits promptly, fully and accurately observed, performed and
complied with all material obligations or conditions imposed on it, or to which
any claim, deduction, allowance or relief made, claimed by or afforded to it was
made subject, under any legislation relating to Taxes, except for such non
compliance that, both individually and in the aggregate with all other
exceptions to any of the representations in this Section 2 which are not
specified in the Disclosure Schedule, would not have a Material Adverse Effect
on the Company.

          (c) Except as specifically set forth in Part 2.14(c) of the Disclosure
Schedule, the Company is not aware of any circumstances which will or may,
whether by lapse of time or the issue of any notice of assessment or otherwise,
give rise to any dispute with any relevant Government Body in relation to its
liability or accountability for Taxes, any claim made by it, any rebel,
deduction, or allowance afforded to it, or in relation to the status or
character of the Company or any of its enterprises under or for the purpose of
any provision of any legislation relating to Taxes, except for such dispute or
claim that, both individually and in the aggregate with all other exceptions to
any of the representations in this Section 2 which are not specified on
schedules hereto, would not have a Material Adverse Effect on the Company.

     2.15 Employees.

          (a) Full particulars of all the officers, employees and consultants of
the Company (each, an "Employee"), including their present compensation
packages, are disclosed in Part 2.15(a) of the Disclosure Schedule, which
particulars show all material benefits including, without limitation, salaries,
directors' fees, social benefits, bonuses, commissions, profit shares,
automobile, reimbursement of expenses and benefits in kind ("Benefits") payable
or which the Company is bound to provide (whether now or in the future) to each
officer, employee and consultant of the Company and are true, accurate and
complete.

          (b) Except as set forth in Part 2.15(b) of the Disclosure Schedule, no
key employee of the Company has been dismissed in the last six months or has
given notice of termination of his employment.

          (c) The employment agreements of each of Ehud Iloni, E. Levy, P. Paz,
R. Karp, Y. Meiman and M. Fourier were previously provided to Parent and its
counsel. Part 2.15(c) of the Disclosure Schedule includes the form of contracts
under which substantially all the Employees of the Company at the date hereof
are engaged.

          (d) Subject to the provisions of any applicable Israeli law and
binding custom and except as set forth in Part 2.15(a) of the Disclosure
Schedule, there are no agreements or arrangements (whether legally enforceable
or not) for the payment of any pensions, allowances, lump sums, or other like
benefits on retirement or on death or
<PAGE>

termination or during periods of sickness or disablement for the benefit of any
officer or former officer or employee or former employee of the Company or for
the benefit of the dependents of any such individual in operation at the date
hereof.

          (e) Except as set forth in Part 2.15(e) of the Disclosure Schedule,
all the Benefits to which any officer or former officer or employee or former
employee of the Company is or may be entitled including, inter alia, severance
pay, leave and health, have been paid or adequately provided for in the Company
Financial Statements.

          (f) A complete list of all of the shares and options granted to or
purchased by employees, directors, officers or consultants of the Company, and
their respective vesting schedules, is set forth in Part 2.15(f) of the
Disclosure Schedule. Except as set forth therein, the Company does not operate
any share incentive scheme, share option scheme or profit sharing scheme for the
benefit of any of its directors, officers, employees or consultants.

          (g) Neither the execution, delivery or performance of this Agreement,
nor the consummation of any of the other transactions contemplated by this
Agreement, will result in any payment (including any bonus, golden parachute or
severance payment) to any current or former Employee or director of the Company
(whether or not under any Plan), or materially increase the benefits payable
under any Plan, or result in any acceleration of the time of payment or vesting
of any such benefits, except as provided therein.

          (h) Part 2.15(a) f the Disclosure Schedule contains a list of all
salaried employees of the Company as of the date of this Agreement, and
correctly reflects, in all material respects, their salaries, any other
compensation payable to them (including compensation payable pursuant to bonus,
deferred compensation or commission arrangements), their dates of employment and
their positions. The Company is not a party to any collective bargaining
contract or other Contract with a labor union involving any of its Employees
except for those provisions of general agreements between the Federation of
Labor Unions and the Coordination Bureau of Economic Organizations which may be
applicable to certain classes of employees by virtue of Extension Orders. All of
the Company's employees are "at will" employees.

          (i) Part 2.15(i) of the Disclosure Schedule identifies each Employee
who is not fully available to perform work because of disability or other leave
and sets forth the basis of such leave and, the anticipated date of return to
full service.

          (j) Except as set forth in Part 2.15(j) of the Disclosure Schedule,
the Company is in compliance in all material respects with all applicable Legal
Requirements and Contracts relating to employment, employment practices, wages,
bonuses and terms and conditions of employment, including employee compensation
matters.

          (k) The Company is not aware of any organizational campaigns,
petitions or other unionization activities seeking recognition of a collective
bargaining unit which could affect the Company; nor is the Company aware of any
controversies, strikes, slowdowns or work stoppages pending or threatened
between the Company and any of its employees. To the Company's best knowledge,
the consummation of any of the transactions
<PAGE>

contemplated by this Agreement will not have a material adverse effect on the
Company's labor relations, and none of The Company's key employees has notified
the Company of any intention to terminate his or her employment with the
Company.

     2.16 Environmental Matters. The Company is in compliance in all material
respects with all applicable Environmental Laws, which compliance includes the
possession by the Company of all permits and other Governmental Authorizations
required under applicable Environmental Laws, and compliance with the terms and
conditions thereof. The Company has not received any notice or other
communication (in writing or otherwise), whether from a Governmental Body,
citizens group, employee or otherwise, that alleges that the Company is not in
compliance with any Environmental Law, and, to the Company's best knowledge,
there are no circumstances that may prevent or interfere with the Company's
compliance with any Environmental Law in the future. To the Company's best
knowledge, no current or prior owner of any property leased or controlled by the
Company has received any notice or other communication (in writing or
otherwise), whether from a Government Body, citizens group, employee or
otherwise, that alleges that such current or prior owner or the Company is not
in compliance with any Environmental Law with respect to such property. All
Governmental Authorizations currently held by the Company pursuant to
Environmental Laws are identified in Part 2.16 of the Disclosure Schedule. (For
purposes of this Section 2.16: (i) "Environmental Law" means any federal, state,
local or foreign Legal Requirement relating to pollution or protection of human
health or the environment (including ambient air, surface water, ground water,
land surface or subsurface strata), including any law or regulation relating to
emissions, discharges, releases or threatened releases of Materials of
Environmental Concern, or otherwise relating To the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Materials of Environmental Concern; and (ii) "Materials of Environmental
Concern" include chemicals, pollutants, contaminants, wastes, toxic substances,
petroleum and petroleum products and any other substance that is now regulated
by any Environmental Law or that is otherwise a danger to health, reproduction
or the environment.)

     2.17 Insurance.

          (a) Full and accurate details of the Company's insurance policies are
contained in Part 2.17(a) of the Disclosure Schedule, including such policies as
are required under The Company's agreements with its customers.

          (b) Except as specifically set forth in Part 2.17(b) of the Disclosure
Schedule, the Company has the benefit of adequate insurance against all risks
and losses usually insured against by companies carrying on the same or a
similar business and (without prejudice to the generality of the foregoing) for
the full replacement or reinstatement value of all its assets of an insurable
nature and against accident, damage, injury, third party loss (including product
liability) and loss of profits with a well established and reputable insurer.

          (c) Except as specifically set forth in Part 2.17(c) of The Disclosure
Schedule, the Company has not done anything or suffered any damage which has
rendered or might render any policies of insurance taken out by it void or
voidable or which might result
<PAGE>

in an increase in premiums and the Company has complied with all conditions
attached to such policies.

          (d) There is no claim outstanding under any of such policies nor, to
the best of the Company's knowledge, are there any circumstances likely to give
rise to such a claim.

     2.18 Related Party Transactions. Except as set forth in Part 2.18 of the
Disclosure Schedule: (a) no Related Party has, and no Related Party has at any
time since December 31, 1997 had any direct or indirect interest in any material
asset used in or otherwise relating to the business of the Company; (b) no
Related Party is, or has at any time since December 31, 1997 been, indebted to
the Company; (c) since December 31, 1997, no Related Party has entered into, or
has had any direct or indirect financial interest in, any Material Agreement,
transaction or business dealing revolving the Company; (d) no Related Party is
competing, or has at any time since December 31, 1997 competed, directly or
indirectly, with the Company; and (e) no Related Party has any claim or  against
the Company (other than rights under Options and rights to receive compensation
for services performed as an employee of the Company). (For purposes of this
Section 2.18 each of the following shall be deemed to be a "Related Party": (i)
each of the Company Stockholders that owns an aggregate of five percent (5%) or
more of the capital stock of the Company; (ii) each individual who is, or who
has at any time since December 31, 1997 been, an officer of the Company; (iii)
ach member of the immediate family of each of the individuals referred to in
clauses "(i)" and "(ii)" above; and (iv) any trust or other Entity (other than
the Company) in which any one of the individuals referred to in clauses "(i)",
"(ii)" and "(iii)" above holds (or in which more than one of such individuals
collectively hold), beneficially or otherwise, a material voting, proprietary or
equity interest.)

     2.19 Legal Proceedings; Orders.

          (a) As of three days prior to the date hereof and three days prior to
the Closing Date, except as set forth in Part 2.19 of the Disclosure Schedule
there is no, nor will there have been any pending Legal Proceeding, and, to the
Company's best knowledge, no Person has threatened to commence any Legal
Proceeding: (i) that involves the Company or any of the assets owned or used by
the Company or any Person whose liability the Company has or may have retained
or assumed, either contractually or by operation of law; or (ii) that
challenges, or that may have the effect of preventing, delaying, making illegal
or otherwise interfering with, any of the transactions contemplated by this
Agreement. To the Company's best knowledge, no event has occurred, and no claim,
dispute or other condition or circumstance exists, that will, or that could
reasonably be expected to, give rise to or serve as a basis for the commencement
of any such Legal Proceeding.

          (b) Except as set forth in Part 2.19 of the Disclosure Schedule, no
Legal Proceeding has ever been commenced by or has ever been pending against the
Company.

          (c) As of three days prior to the date hereof and three days prior to
the Closing Date, there is no order, writ, injunction, judgment or decree to
which the Company,
<PAGE>

or any of the assets owned or used by the Company, is subject. To the Company's
best knowledge, no officer or other employee of the Company is subject to any
order, writ, injunction, judgment or decree that prohibits such officer or other
employee from engaging in or continuing any conduct, activity or practice
relating to the Company's business.

     2.20 Authority; Binding Nature of Agreement. Except as set forth in Part
2.21 of the Disclosure Schedule, the Company has The absolute and unrestricted
right, power and authority to enter into and to perform its obligations under
this Agreement; and the execution, delivery and performance by the Company of
This Agreement have been duly authorized by all necessary action on the part of
the Company and its board of directors. This Agreement constitutes the legal,
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, subject to (i) laws of general application relating
to bankruptcy, insolvency and The relief of debtors, and (ii) rules of law,
governing specific performance, injunctive relief and other equitable remedies.

     2.21 Non-Contravention; Consents. Except as set forth in Part 2.21 of the
Disclosure Schedule, neither (1) the execution, delivery or performance of this
Agreement or any of the other agreements referred to in this Agreement, nor (2)
the consummation of any of the transactions contemplated by this Agreement, will
directly or indirectly (with or without notice or lapse of time):

          (a) contravene, conflict with or result in a violation of (i) any of
the provisions of The Company's Articles of Association or Memorandum of
Association, or (it) any resolution adopted by the Company's stockholders, the
Company's board of directors or any committee of the Company's board of
directors;

          (b) contravene, conflict with or result in a violation of, or give any
Governmental Body or other Person the right to challenge any of the transactions
contemplated by this Agreement or to exercise any remedy or obtain any relief
under, any Legal Requirement or any order, writ, injunction, judgment or decree
to which the Company, or any of the assets owned or used by the Company, is
subject;

          (c) contravene, conflict with or result in a violation of any of the
terms or requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate or modify, any Governmental Authorization
that is held by the Company or that otherwise relates to the Company's business
or To any of the assets owned or used by the Company;

          (d) contravene, conflict with or result in a material violation or
breach of, or result in a material default under, any provision of any Material
Agreement that is or would constitute a Material Agreement, or give any Person
the right to (i) declare a default or exercise any remedy under any such
Material Agreement, (ii) accelerate the maturity or performance of any such
Material Agreement, or (iii) cancel, terminate or modify any such Material
Agreement; or

          (e) result in the imposition or creation of any lien or other
Encumbrance upon or with respect to any asset owned or used by the Company
(except for minor liens that
<PAGE>

will not, in any case or in the aggregate, materially detract from the value of
the assets subject thereto or materially impair the operations of the Company).

Except as set forth in Part 2.21 of the Disclosure Schedule, the Company is not
and will not be required to make any filing with or give any notice to, or to
obtain any Consent from, any Person in connection with (x) the execution,
delivery or performance of this Agreement or any of the other agreements
referred to in this Agreement, or (y) the consummation of any of the
transactions contemplated by this Agreement.

     2.22 No Conflicting Interest. Except as set forth in Part 2.22 of the
Disclosure Schedule, the Company is not aware that any director, officer, key
employee or Related Party of The Company has any interest in any corporation,
partnership, or other entity that is engaged in a business which is in
competition with that of the Company, is a supplier or customer of the Company,
or is a party to any contract which may have any effect on the business of the
Company.

     2.23 Full Disclosure. This Agreement (including the Disclosure Schedule)
does not, and the Company Closing Certificate will not, (i) contain any
representation, warranty or information that is false or misleading with respect
to any material fact, or (ii) to the Company's best knowledge, omit to state any
material fact necessary in order to make the representations, warranties and
information contained and to be contained herein and therein (in the light of
the circumstances under which such representations, warranties and information
were or will be made or provided) not false or misleading.

SECTION 3.  REPRESENTATIONS AND WARRANTIES OF PARENT

     Parent represents and warrants to the Company and the Sellers as follows:

     3.1  Due Organization. Parent is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Parent
has all requisite corporate power and authority to own, lease and operate its
properties and to carry on its businesses as now conducted.

     3.2  SEC Filings; Financial Statements.

          (a) Parent has timely filed all required forms, reports and documents
with the SEC since August 17, 1998, each of which has complied in all material
respects with all applicable requirements of the Securities Act and the Exchange
Act and the roles and regulations promulgated thereunder, each as in effect on
the dates such forms, reports, and documents were filed. Parent has made
available to the Company and the Sellers accurate and complete copies (excluding
copies of exhibits) of each report, registration statement (on a form other than
Form S-8) and definitive proxy statement filed by Parent with the SEC between
August 17, 1998 and the date of this Agreement (the "Parent SEC Documents"). As
of the time it was filed with the SEC (or, if amended or superseded by a filing
prior to The date of this Agreement, then on the date of such filing): (i) each
of the Parent SEC Documents, including, any financial statements or schedules
included or incorporated by reference therein, complied in all material respects
with the applicable requirements of the
<PAGE>

Securities Act or the Exchange Act (as the case may be); and (ii) none of the
Parent SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required To be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.

          (b) The consolidated financial statements contained in the Parent SEC
Documents: (i) complied as to form in all material respects with the published
rules and regulations of the SEC applicable thereto; (ii) were prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods covered, except as may be indicated in the notes to
such financial statements and (in the case of unaudited statements) as pertained
by Form 10-Q of the SEC, and except that unaudited financial statements may not
contain footnotes and are subject to year-end audit adjustments; and (iii)
fairly present the consolidated financial position of Parent and its
subsidiaries as of the respective dates thereof and the consolidated results of
operations of Parent and its subsidiaries for the periods covered thereby.
Except as and to the extent disclosed in the Parent SEC Reports, since August
17, 1998, there has not been any event, occurrence or development which does or
could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on the Parent.

     3.3  Authority; Binding Nature of Agreement. Parent has the absolute and
unrestricted right, power and authority to perform their obligations under this
Agreement; and the execution, delivery and performance by Parent of this
Agreement (including The contemplated issuance of Common Stock in accordance
with this Agreement) have been duly authorized by all necessary action on the
part of Parent and its board of directors. No vote of Parent's stockholders is
needed to approve any of the transactions contemplated by this Agreement. This
Agreement constitutes the legal, valid anti binding obligation of Parent,
enforceable against it in accordance with its terms, subject to (i) laws of
general application relating to bankruptcy, insolvency and the relief of
debtors, and (ii) rules of law governing specific performance, injunctive relief
and other equitable remedies.

     3.4  Valid Issuance. The Common Stock to be issued in the transactions
contemplated by this Agreement will, when issued in accordance with the
provisions of this Agreement, be validly issued, fully paid and nonassessable.

     3.5  Consents and Approvals. Except as set forth on Schedule 3.5 hereto, no
filing or registration with, no notice to and no permit, authorization, consent
or approval of any third party or any Governmental Body is necessary for the
consummation by Parent of the transactions contemplated by this Agreement.

     3.6  No Violation. Neither the execution and delivery of this Agreement by
Parent, the performance by Parent of its obligations hereunder nor the
consummation by Parent of the transactions contemplated hereby will (a) violate,
conflict with or result in any breach of any provision of the Certificate of
Incorporation or Bylaws of Parent, (b) violate, conflict with or result in a
violation or breach of, or constitute a default (with or without due notice or
lapse of time or both) under the terms, conditions of provisions of any note,
bond, mortgage, indenture, deed of mast, license, lease or agreement to which
Parent is a party or

<PAGE>

(c) violate any order, writ, judgment, injunction, decree, statute, rule or
regulation of any court or domestic or foreign Governmental Body applicable to
Parent.

     3.7    Legal Proceedings. Except as set forth in Schedule 3.7 hereto,
Parent is not aware of any pending Legal Proceeding, and, to Parent's best
knowledge, no Person has threatened to commence any Legal Proceeding: (i) that
revolves Parent or any of the assets owned or used by Parent or any Person whose
liability Parent has or may have retained or assumed, either contractually or by
operation of law; or (ii) that challenges, or that may have the effect of
preventing, delaying, making illegal or otherwise interfering with, any of the
transactions contemplated by this Agreement. To Parent's best knowledge, no
event has occurred, and no claim, dispute or other condition or circumstance
exists, that will, or that could reasonably be expected to, give rise to or
serve as a basis for the commencement of any such Legal Proceeding.

     3.8    Experience; Receipt of Information. Parent has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks relating to the acquisition of the Company, and has reviewed
and inspected all of the data and information provided to it by the Company in
connection with this Agreement. Parent has been furnished by the Company with
all the documents and information regarding the Company which Parent has
requested, and has been afforded the opportunity to ask questions of and receive
answers from duly authorized officers or other representatives of the Company
concerning the Company's business, assets and financial position.

     3.9    Brokers. No broker, finder or investment banker, for which the
Company or the Sellers may be liable, is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the Parent or any of
its directors, officers, employees or agents.

     3.10   Full Disclosure. This Agreement does not, and the Parent Closing
Certificate will not, (i) contain any representation, warranty or information
that is false or misleading with respect to any material fact, or (ii) to the
Parent's best knowledge, omit to state any material fact necessary in order to
make the representations, warranties and information contained and to be
contained hereto and therein (in the light of the circumstances under which such
representations, warranties and information were or will be made or provided)
not false or misleading.

Section 4.  Certain Covenants of the Company.

     4.1    Access and Investigation. During the period from the date of this
Agreement through the Closing, or the earlier termination hereof in accordance
with Section 8 (the "Pre-Closing Period"), the Company shall, and shall cause
its Representatives to: (a) provide Parent and Parent's Representatives with
reasonable access to the Company's Representatives, personnel and assets and to
all existing books, records, Tax Returns, work papers and other documents and
reformation relating to the Company; and (b) provide Parent and Parent's
Representatives with copies of such existing books, records, Tax Returns, work
papers and other documents and information relating to the Company, and with
such additional financial,

<PAGE>

operating and other data and information regarding the Company, as Parent may
reasonably request.

     4.2  Operation of the Company's Business. Other than as contemplated
hereunder, during the Pre-Closing Period:

          (a) the Company shall conduct it's business and operations in the
ordinary course and in substantially the same manner as such business and
operations have been conducted prior to the date of this Agreement;

          (b) the Company shall use reasonable efforts to preserve intact its
current business organization, keep available the services of its current
officers and employees and maintain its relations and good will with all
suppliers, customers, landlords, creditors, employees and other Persons having
business relationships with the Company;

          (c) the Company shall keep in full force all insurance policies
referred to in Part 2.17 of the Disclosure Schedule;

          (d) the Company shall cause its officers to report regularly (but in
no event less frequently than weekly) to Parent concerning the status of the
Company's business;

          (e) the Company shall not declare, accrue, set aside or pay any
dividend or make any other distribution in respect of any shares of capital
stock, and shall not repurchase, redeem or otherwise reacquire any shares of
capital stock or other securities

          (f) the Company shall not sell, issue or authorize the issuance of (i)
any capital stuck or other securities, (ii) any option or right to acquire any
capital stock or other security, or (iii) any instrument convertible into or
exchangeable for any capital stock or other security (except that the Company
shall be permitted (x) to grant stock options to employees in accordance with
its past practices, and (y) to issue Ordinary Shares to employees upon the
exercise of outstanding Options);

          (g) the Company shall nor amend or waive any of its rights under, or
permit the acceleration of vesting under, (i) any provision of the Plan for
Issuance of Options to Directors Executives and Senior Employees of Telegate,
(ii) any provision of any agreement evidencing any outstanding Option, or (iii)
any provision of any restricted stock purchase agreement;

          (h) the Company shall not amend or permit the adoption of any
amendment to the Company's Articles of Association, except to the extent
necessary to comply with Section 17.15 of the Amended and Restated Stockholders
Agreement among the Company, file Founder and certain of the Sellers, or
Memorandum of Association, or effect or permit the Company to become a party to
any Acquisition Transaction. recapitalization, reclassification of shares, stock
split, reverse stock split or similar Transaction;

          (i) the Company shall not form any subsidiary or acquire any equity
interest or other interest in any other Entity;

<PAGE>

          (j) the Company shall not make any capital expenditure, except for
capital expenditures that, when added to all other capital expenditures made on
behalf of the Company during the Pre-Closing Period, do not exceed $25,000 per
month;

          (k) the Company shall not, other than in the ordinary course of
business, (i) enter into, or permit any of the assets owned or used by it to
become bound by, any Contract that is or would constitute a Material Agreement,
or (ii) amend or prematurely terminate, or waive any material right or remedy
under, any such Contract;

          (l) the Company shall not (i) acquire, lease or license any right or
other asset from any other Person, except for rights or other assets acquired,
leased or licensed in the ordinary course of business, including the possible
lease of additional space in the Company's current facilities, (ii) sell or
otherwise dispose of, or lease or license, any right or other asset to any other
Person, except for rights or other assets disposed of, leased or licensed in the
ordinary course of business, or (iii) waive or relinquish any right, except for
assets acquired, leased, licensed or disposed of by the Company pursuant to
Contracts that are not Material Agreements;

          (m) the Company shall not (i) end money to any Person other than to
its employees, in the ordinary course of business and consistent with past
practices, or (ii) incur or guarantee any indebtedness for borrowed money other
than in the ordinary course of business and consistent with past practices;

          (n) the Company shall not (i) establish, adopt or amend any employee
benefit plan, (ii) pay any bonus or make any profit-sharing payment, cash
incentive payment or similar payment to, or increase the amount of the wages,
salary, commissions, fringe benefits or other compensation or remuneration
payable to, any of its directors, officers or employees, or (iii) him any new
key employee;

          (o) the Company shall not change any of its methods of accounting or
accounting practices in any material respect;

          (p) the Company shall not make any Tax election;

          (q) the Company shall not commence or settle any material Legal
Proceeding;

          (r) the Company shall not agree or commit to take any of the actions
described in clauses "(e)" through "(q)" above.

Notwithstanding the foregoing, the Company may take any action described in
clauses "(e)" through "(r)" above if Parent gives its prior written consent to
the taking of such action by the Company, which consent will not be unreasonably
withheld (it being understood that Parent's withholding of consent to any action
will not be deemed unreasonable if Parent determines in good faith that the
taking of such action would not be in the best interests of the Company,
currently and/or under the ownership of Parent).

<PAGE>

     4.3  Notification; Updates to Disclosure Schedule,

          (a)  During the Pre-Closing Period, the Company shall promptly notify
Parent in writing of:

               (i)   the discovery by the Company of any event, condition, fact
or circumstance that occurred or existed on or prior to the date of this
Agreement and that caused or constitutes an inaccuracy in or breach of any
representation or warranty made by the Company in this Agreement;

               (ii)  any event, condition, fact or circumstance that occurs,
arises or exists after the date of this Agreement and that would cause or
constitute an inaccuracy in or breach of any representation or warranty made by
the Company in this Agreement if (A) such representation or warranty had been
made as of the rime of the occurrence, existence or discovery of such event,
condition, fact or circumstance, or (B) such event, condition, fact or
circumstance had occurred, arisen or existed on or prior to the date of this
Agreement;

               (iii) any material breach of any material covenant or obligation
of the Company; and

               (iv)  any event, condition, fact or circumstance that would make
the timely satisfaction of any of the conditions set forth in Section 6 or
Section 7 impossible or unlikely.

          (b)  If any event, condition, fact or circumstance that is required to
be disclosed pursuant to Section 4.3(a) requires any change in the Disclosure
Schedule, or if any such event, condition, fact or circumstance would require
such a change assuming the Disclosure Schedule were dated as of the date of the
occurrence, existence or discovery of such event, condition, fact or
circumstance, then the Company shall promptly deliver to Parent an update to the
Disclosure Schedule specifying such change. No such update shall be deemed to
supplement or amend the Disclosure Schedule for the purpose of (i) determining
the accuracy of any of the representations and warranties made by the Company in
this Agreement, or (ii) determining whether any of the conditions set forth in
Section 6 has been satisfied.

     4.4  No Negotiation. During the Pre-Closing Period. the Company shall not
directly or indirectly:

          (a)  solicit or encourage the initiation of any inquiry, proposal or
offer from any Person (other than Parent) relating to a possible Acquisition
Transaction;

          (b)  participate in any discussions or negotiations or enter into any
agreement with, or provide any non-public information to, any Person (other than
Parent) relating to or in connection with a possible Acquisition Transaction; or

          (c)  consider, entertain or accept any proposal or offer from any
Person (other than Parent) relating to a possible Acquisition Transaction.

<PAGE>

The Company shall promptly notify Parent in writing of any material inquiry,
proposal or offer relating to a possible Acquisition Transaction that is
received by the Company or any of its Representatives during the Pre-Closing
Period.

Section 5.  Additional Covenants of the Parties.

     5.1    Filings and Consents. As promptly as practicable after the execution
of this Agreement, each party to this Agreement (a) hall make all filings (if
any) and give all notices (if any) required to be made and given by such party
in connection with the transactions contemplated by this Agreement, and Co) hall
use all commercially reasonable efforts to obtain all Consents (if any) required
to be obtained (pursuant to any applicable Legal Requirement or Contract, or
otherwise) by such party in connection with the transactions contemplated by
this Agreement. Each party to this Agreement shall (upon request) promptly
deliver to the other parties a copy of each such filing made, each such notice
given and each such Consent obtained by such party during the Pre-Closing
Period. Each party shall promptly provide the other parties with copies of all
filings made by the other party with the SEC or any other state, federal or
foreign Governmental Body in connection with this Agreement and the transactions
contemplated hereby.

     5.2    Public Announcements. During the Pre-Closing Period, (a) the Company
and the Sellers shall not (and the Company shall not permit any of its
Representatives to) issue any press release or to-rice any public statement
regarding this Agreement, or regarding any of the transactions contemplated by
this Agreement, without Parent's prior written consent, and (b) Parent shall not
(and the Parent shall not permit any of its Representatives to) issue any press
release or make any public statement regarding this Agreement, or regarding any
of the transactions contemplated by this Agreement, without Company's prior
written consent Notwithstanding the provisions of the preceding sentence, each
party shall be permitted to issue any press release or make any public statement
as such party is advised by counsel is legally required to be issued or made
under ally applicable laws; provided, however, that in such event the party
issuing such press release or making such public statement will provide the
other parties with promptly written notice of such requirement and a copy of the
press release to be issued or public statement to be made, and the parties shall
use reasonable commercial efforts to coordinate the content of such press
release or public statement.

     5.3    Best Efforts. During the Pre-Closing Period, (a) the Company shall
use its best efforts to cause the conditions set forth in Section 6 to be
satisfied on a timely basis, and (b) Parent shall use its best efforts to cause
the conditions set forth in Section 7 to be satisfied on a timely basis.

     5.4    Employment and Noncompetition Agreements. The Company shall use all
commercially reasonable efforts to cause eighty percent (80%) of the individuals
identified on Exhibit B to execute and deliver to the Company and Parent, at the
Closing, an Employment Agreement in the form to be agreed between Parent and the
Sellers' Representative and a Noncompetition Agreement in the form to be agreed
between Parent and the Sellers' Representative. Prior to the Closing, Parent and
the Sellers' Representative shall agree upon a

<PAGE>

list of up to twenty-five (25) current employees of the Company, which shall be
attached hereto as Exhibit B and become part hereof.

     5.5  Termination of Employee Plans. At the Closing and subject to Section 1
9, the Company shall terminate its existing stock option plans, and shall ensure
that no employee or former employee of the Company has any rights under any of
such plans and that any liabilities of the Company under such plans (including
any such liabilities relating to services performed prior to the Closing) are
fully extinguished at no material cost to the Company.

     5.6  Registration of Shares. Parent will, as promptly as practicable,
prepare and file with the SEC a registration statement under the Securities Act
with respect to the registration of the shares of Common Stock issuable to the
Sellers in connection with the transactions contemplated by this Agreement (the
"Registration Statement"). Parent will, and will cause its accountants and
lawyers to, cause the Registration Statement to be declared effective as
promptly as practicable after filing with the SEC, bar in no event later than
the Closing and the Registration Statement shall be kept effective continuously
for a period of two years following the later of (i) Closing or (ii) the date on
which the Registration Statement is declared effective by the SEC. None of the
information supplied or To be supplied by Parent for inclusion or incorporation
by reference in the Registration Statement will, at the time the Registration
Statement is filed with the SEC and at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading. If at any time prior to the date on which the
Registration Statement is declared effective by the SEC any event in respect of
Parent, its officers and directors, or any of its subsidiaries should occur
which is required to be described in an amendment of, or a supplement to, the
Registration Statement, Parent shall promptly so advise the Sellers'
Representative and such event shall be so described, and any such amendment or
supplement to the Registration Statement (which the Sellers' Representative
shall have a reasonable opportunity to review) shall be promptly filed with the
SEC. The Registration Statement will comply as to form in all material respects
with the provisions of the Securities Act and the rules and regulations
thereunder.

     5.7  Lock-up Restrictions. All shares of Common Stock issued to the
employees of the Company identified on Exhibit B hereto (collectively, the "Key
Employees") in connection with the transaction contemplated by this Agreement
shall be subject to restrictions upon resale. Such shares of Common Stock shall
be subject to lock-up restrictions for a one-year period from the Closing Date.
All certificates representing shares of Common Stock issued to the Key Employees
shall bear restrictive legends referencing the lock-up periods set forth in this
Section 5.7.

     5.8  Employees. As soon as practicable after the Closing Date, Parent shall
provide to all employees of the Company such employee benefits plans, programs
and arrangements as are generally made available to Israeli employees of Parent,
provided, with

<PAGE>

respect to each employee, that such employee does not voluntarily terminate his
or her employment with the Company prior to the first anniversary of the Closing
Date.

     5.9    Directors and Officers Insurance. For a period of seven (7) years
after the Closing Date, Parent shall cause to be maintained in effect the
current officers' and directors' liability insurance policies maintained by the
Company with respect to the directors and officers of the Company at the date of
this Agreement coveting acts or omissions occurring prior to the Closing Date,
provided that Parent may substitute therefor policies of at least the same
coverage and amounts containing terms and conditions which are no less
advantageous to such directors and officers than such existing insurance
policies.

     5.10   Tax Liability. Each party, shall be responsible for all its
respective tax obligations deriving from the transactions contemplated in this
Agreement.

Section 6.  Conditions Precedent to Obligations of Parent.

     The obligations of Parent to consummate the transactions contemplated by
this Agreement are subject to the satisfaction, at or prior to the Closing, of
each of the following conditions any or all of which may be waved in writing by
Parent:

     6.1    Accuracy of Representations. Each of the representations and
warranties made by the Company in this Agreement and in each of the other
agreements and instruments delivered to Parent in connection with the
transactions contemplated by this Agreement shall have been accurate in all
material respects as of the date of this Agreement, and shall be accurate in all
material respects as of the Closing Date as if made on the Closing Date.

     6.2    Performance of Covenants. All of the covenants and obligations that
the Company is required to comply with or To perform at or prior to the Closing
shall have been complied with and performed in all material respects.

     6.3    Consents. All Consents required to be obtained in connection with
the transactions contemplated by this Agreement (including the Consents
identified in Part 2.21 of the Disclosure Schedule) shall have been obtained and
shall be in full force and effect.

     6.4    Agreements and Documents. Parent and the Company shall have received
the following agreements and documents, each of which shall be in full force and
effect:

            (a) fully executed Escrow Agreement (the "Escrow Agreement") in the
form and substance reasonably satisfactory to counsel for Parent and counsels
for the Sellers' Representative, which shall contain, without limitation,
provisions regarding the following: (i) the allocation of the Escrow Shares
(including with respect to any payments therefrom) among the Sellers in
accordance with Schedule A, and (ii) the release of the Escrow Shares on the
first anniversary of the Closing Date, (iii) the registration of the Escrow
Shares for trading, without any restrictions, immediately upon release from
escrow, and (iv) such other terms and conditions as are standard and customary
in transactions of this nature;

<PAGE>

          (b)  Employment Agreements in the form to be agreed between Parent and
the Sellers' Representative, executed by eighty percent (80%) of the individuals
identified on Exhibit B;

          (c)  Noncompetition Agreements in the form to be agreed between Parent
and the Sellers' Representative, executed by eighty percent (80%) of the
individuals identified on Exhibit B;

          (d)  confidential invention and assignment agreements, reasonably
satisfactory in form and content to Parent, executed by all employees of the
Company and by all consultants and independent contractors to the Company who
have not already signed such agreements;

          (e)  a legal opinion of Yigal Amon & Co., in form and substance
reasonably satisfactory to counsel for Parent, addressed to the Parent and dated
as of the Closing Date, as to the matters set forth in Sections 2.1 (a), 2.3 and
2.20.

          (f)  a certificate executed by two Officers of the Company (but
without personal liability thereto) certifying that each of the representations
and warranties set forth in Section 2 is accurate in all material respects as of
the Closing Date as if made on the Closing Date and that the conditions set
forth in Sections 6.1, 6.2 and 6.3 have been duly satisfied (the "Company
Closing Certificate"); and

          (g)  Lock-up agreements executed by each Key Employee in the form and
substance reasonably satisfactory to counsel for Parent and counsel for the
Company which shall contain terms and conditions standard and customary in
transactions of this nature, including a twelve-month restriction on the sale of
Common Stock by such Key Employee;

          (h)  written resignations of all directors of the Company, effective
as of the Closing Date;

          (i)  certificates representing the Shares accompanied by share
transfer deeds duly executed for transfer in blank;

          (j)  a fully executed Marketing Agreement in the form of Exhibit C;

          (k)  certificates representing the Debentures; and

          (l)  Option Holder Consent Letter and Counterpart Signature Pages,
executed by all of the Option Holders.

     6.5  Securities Law Requirements. All permits, licenses, consents and
approvals necessary under any laws relating to the sale of securities have been
issued or given, and all restrictions or registration statements filed under any
laws relating to the sale of securities for the issuance of Common Stock
issuable pursuant to this Agreement shall have become effective, and no such
permit, license, consent, approval, registration or registration statement

<PAGE>

shall have been revoked, canceled, terminated, suspended or made the subject of
any stop order or proceeding thereof

     6.6    No Restraints. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the
transactions contemplated by this Agreement shall have been issued by any court
of competent jurisdiction and remain in effect, and there shall not be any Legal
Requirement enacted or deemed applicable to the transactions contemplated by
this Agreement that makes consummation of the transactions contemplated by this
Agreement illegal, which Legal Requirement shall not have been removed within
thirty (30) days of enactment.

     6.7    No Legal Proceedings. Other than in connection with the matter
referred to in the last bullet point of Part 2.19 of the Disclosure Schedule, no
Person shall have commenced or taken substantial steps towards any Legal
Proceeding challenging or seeking the recovery of a material amount of damages
in connection with the transactions contemplated by lids Agreement or seeking to
prohibit or limit the exercise by Parent of any material right pertaining to its
ownership of stock of the Company.

     6.8    Termination of Employee Plans. The Company shall have provided
Parent with evidence, reasonably satisfactory to Parent, as to the termination
of the benefit plans referred to in Section 5.5.

     6.9    ISA Exemption. Parent shall have received from the Israel Securities
Authorization an exemption from the obligation to publish a prospectus in the
manner required pursuant to the laws of the State of Israel in connection with
the issuance of the Common Stock to the Sellers.

Section 7.  Conditions Precedent to Obligations of the Company.

     The obligations of the Sellers and the Company to consummate the
transactions contemplated by this Agreement are subject to the satisfaction, at
or prior to the Closing, of The following conditions any or all of which may be
waived in writing by the Sellers' Representative:

     7.1    Accuracy of Representations. Each of the representations and
warranties made by Parent in Ibis Agreement shall have been accurate in all
material respects as of the date of this Agreement, and shall be accurate in all
material respects as of the Closing Date as if made on the Closing Date.

     7.2    Performance of Covenants. All of the covenants and obligations that
Parent is required to comply with or to perform at or prior to the Closing shall
have been complied with and performed in all respects.

     7.3    Documents. The Sellers and the Company shall have received the
following agreements and document, each of which shall be in full force and
effect:

<PAGE>

          (a) validly executed share certificates covering the Common Stock,
issued in the names of the respective Sellers;

          (b) fully executed Escrow Agreement;

          (c) a legal opinion of Cooley Godward LLP., in form and substance
reasonably satisfactory to counsel for the Sellers, addressed to the Sellers and
dated as of the Closing Date, as to the materials set forth in Sections 3.1,
3.3, and 3,4;

          (d) a certificate executed by the Parent's Chief Executive Officer and
Chief Financial Officer (but without personal liability thereto) certifying that
each of the representations and warranties set forth in Section 3 is accurate in
all material respects as of the Closing Date as if made on the Closing Date and
that the conditions set forth in Sections 7.1, 7.2 and 7.5 have been duly
satisfied (the "Parent Closing Certificate"); and

          (e) fully executed Marketing Agreement in the form of Exhibit C.

     7.4  No Restraints. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the
transactions contemplated by this Agreement shall have been issued by any court
of competent jurisdiction and remain in effect, and there shall not be any Legal
Requirement enacted or deemed applicable to the transactions contemplated by
this Agreement that makes consummation of the transactions contemplated by this
Agreement illegal, which Legal Requirement shall not have been removed within
(30) days of enactment.

     7.5  Consents. All Consents required to be obtained in connection with the
transactions contemplated by this Agreement (including the Consents identified
in Part 2.21 of the Disclosure Schedule) shall have been obtained and shall be
in full force and effect.

     7.6  Effectiveness of Registration Statement. The Registration Statement
shall have been declared effective by the SEC and shall be effective at the
Closing Date, and no stop order suspending effectiveness shall have been issued;
there shall be no holding period or volume or timetable restrictions applicable
to the sale of the Common Stock from and after the Closing and thereafter; no
action, suit, proceeding or investigation by the SEC to suspend the
effectiveness thereof shall have been initiated and be continuing; and all
necessary approvals under state securities laws or the Securities Act or
Exchange Act relating to the issuance or trading of the Common Stock shall have
been received. The Common Stock required to be issued hereunder shall have been
approved for listing on the Nasdaq National Market, subject only to official
notice of issuance. Notwithstanding anything herein to the contrary, if, prior
to the Closing, the Sellers obtain a definitive ruling (after having used their
best efforts to do so) from the Israel Tax Authorities, in the form and
substance satisfactory to counsels for the Sellers and counsel for Parent, which
provides that the Israeli tax event for which any of the Sellers may be liable
in connection with the transactions contemplated hereby shall be deferred until
the effective date of the Registration Statement (the "Deferral Ruling"), the
effectiveness of the Registration Statement shall not be a condition to the
Closing. In the event that Sellers obtain the Deferral Ruling, Parent shall be
obligated to cause the Registration Statement to be declared effective by the
SEC within sixty (60) days of

<PAGE>

the Closing Date. In the event that the Registration Statement is not declared
effective by the SEC within sixty (60) days of the Closing Date (the
"Registration Deadline"), Parent shall be obligated to immediately deposit an
additional fifty thousand (50,000) shares of Common Stock in the Additional
Consideration Escrow Fund. At the end of each thirty (30) day period thereafter
in which the Registration Statement is not declared effective by the SEC, Parent
shall deposit an additional fifty thousand (50,000) shares of Common Stock in
the Additional Consideration Escrow Fund.

     7.7    Securities Law Requirements. All permits, licenses, consents and
approvals necessary under any laws relating to the sale of securities have been
issued or given, and all restrictions or registration statements filed under any
laws relating to the sale of securities for the issuance of Common Stock
issuable pursuant to this Agreement shall have become effective, and no such
permit, license, consent, approval, registration or registration statement shall
have been revoked, canceled, terminated, suspended or made the subject of any
stop order or proceeding thereof.

     7.8    No Legal Proceedings. Other than in connection with the matter
referred to in the last bullet point of Part 2.19 of the Disclosure Schedule, no
Person shall have commenced any Legal Proceeding challenging or seeking the
recovery of a material amount of damages in connection with the transactions
contemplated by this Agreement or seeking to prohibit or limit the exercise by
Parent of any material right pertaining to its ownership of stock of the
Company.

Section 8.  Termination.

     8.1    Termination Events. This Agreement may be terminated prior to the
Closing:

            (a) By either the Company and the Sellers' Representative or by
Parent if a court of competent jurisdiction or Governmental Body shall have
issued an order, decree or ruling or taken any other action (which order, decree
or ruling the parties hereto shall use their best efforts to lift) and such was
not at the request of the party seeking termination of the Agreement, in each
case permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement, and such order, decree, ruling or
other action shall have become final and nonappealable; or

            (b) by Parent if the Closing has not taken place on or before
January 15, 2000 (other than as a result of any failure on the part of Parent to
comply with or perform any covenant or obligation of Parent set forth in this
Agreement);

            (c) by the Seller's Representative and the Company if the Closing
has not taken place on or before January 15, 2000 (other than as a result of the
failure on the part of the Sellers or the Company to comply with or perform any
covenant or obligation set forth in this Agreement or in any other agreement or
instrument delivered to Parent); or

            (d) by the mutual consent of Parent, the Seller's Representative and
the Company.

<PAGE>

     8.2    Termination Procedures. If Parent wishes to terminate this Agreement
pursuant to Section 8.l(a) or Section 8.1(b), Parent shall deliver to the
Seller's Representative and the Company a written notice stating that Parent is
terminating this Agreement and setting forth a brief description of the basis on
which Parent is terminating this Agreement. If the Seller's Representative and
the Company wish to terminate this Agreement pursuant to Section 8.l(a) or
Section 8.1 (c), the Seller's Representative and the Company shall deliver to
Parent a written notice stating that the Seller's Representative and the Company
are terminating this Agreement and setting forth a brief description of the
basis on which the Seller's Representative and the Company are terminating this
Agreement.

     8.3    Effect of Termination. If this Agreement is terminated pursuant to
Section 8.1, all further obligations of the parties under this Agreement shall
terminate; provided, however, that: (a) neither the Company nor Parent shall be
relieved of any obligation or liability arising from any prior breach by such
party of any provision of this Agreement; Co) the parties shall, in all events,
remain bound by and continue to be subject to the provisions set forth in
Section 10; and (c) the parties shall, in all events, remain bound by and
continue to be subject to Section 5.2.

Section 9.  Indemnification, Etc.

     9.1    Survival of Representations, Etc.

            (a) The representations and warranties made by the Company
(including the representations and warranties set forth in Section 2 and the
representations and warranties set forth in the Company Closing Certificate)
shall survive the Closing and shall expire on the 12-month anniversary of the
Closing Date; provided, however, that if, at any time prior to the 12-month
anniversary of the Closing Date, any Indemnitee (acting in good faith) delivers
to the Sellers' Representative a written notice alleging the existence of an
inaccuracy in or a breach of any of the representations and warranties made by
the Company (and setting forth in reasonable detail the basis for such
Indemnitee's belief that such an inaccuracy or breach may exist) and asserting a
claim for recovery under Section 9.2 based on such alleged inaccuracy or breach,
then the claim asserted in such notice shall survive the   12-month anniversary
of the Closing until such time as such claim is fully and finally resolved; and
provided, further, that the representations and warranties related to the second
bullet point in Part 2.3 of the Disclosure Schedule shall, for purposes of such
claims by Parent, survive the first anniversary of the Closing until the fourth
anniversary of the Closing.

            (b) The representations, warranties, covenants and obligations of
the Company, and the rights and remedies that may be exercised by the
Indemnitees, shall not be limited or otherwise affected by or as a result of any
information furnished to, or any investigation made by or knowledge of, any of
the Indemnitees or any of their Representatives.

            (c) For purposes of this Agreement, each statement or other item of
information set forth in the Disclosure Schedule or in any update to the
Disclosure Schedule

<PAGE>

shall be deemed to be a representation and warranty made by the Company in this
Agreement.

          (d) The representations and warranties made by Parent (including the
representations and warranties set forth in Section 3 and the representations
and warranties set forth in the Parent Closing Certificate) shall survive the
Closing and shall expire on the 12-month anniversary of the Closing Date;
provided, however, that if, at any time prior to the 12-month anniversary of the
Closing Date, the ECI Sellers' Representative (as defined below) or the Other
Sellers' Representative (as defined below) (acting in good faith) delivers to
the Parent a written notice alleging the existence of an inaccuracy in or a
breach of any of the representations and warranties made by Parent (and setting
forth in reasonable detail the basis for the Sellers' Representative's belief
that such an inaccuracy or breach may exist) and asserting a claim for recovery
under Section 9.2 based on such alleged inaccuracy or breach, then the claim
asserted in such notice shall survive the 12-month anniversary of the Closing
until such time as such claim is fully and finally resolved.

          (e) The representations, warranties, covenants and obligations of the
Parent, and the rights and remedies that may be exercised by the Sellers, shall
not be limited or otherwise affected by or as a result of any information
furnished to, or any investigation made by or knowledge of, any of the Sellers
or any of their Representatives.

     9.2  Indemnification.

          (a) From and after the Closing Date (but subject to Section 9.1(a)),
the Indemnitees may seek indemnification solely from the Escrow Fund for any
Damages that are directly or indirectly suffered or incurred by any of the
Indemnitees or to which any of the Indemnitees may otherwise become subject
(regardless of whether or not such Damages relate to any third-party claim) and
which arise from or as a result of, or are directly or indirectly connected
with: (i) any inaccuracy in or breach of any representation or warranty set
forth in Section 2 or in the Company Closing Certificate; (ii) any inaccuracy in
or breach of any representation or warranty set forth in Section 2 as if such
representation and warranty had been made on and as of the Closing Date; (iii)
any breach of any covenant or obligation of the Company (including the covenants
set forth in Sections 4 and 5), (iv) any claim brought in connection with the
second bullet point of Part 2.3 of the Disclosure Schedule, or (v) any Legal
Proceeding relating to any inaccuracy or breach of the type referred to in
clause "(i)" or "(ii)" above (including any Legal Proceeding commenced by any
Indemnitee for the purpose of enforcing any of its rights under this Section 9);
provided, however, that with respect to any Damages that are directly or
indirectly suffered or incurred by any of the Indemnitees or to which any of the
Indemnitees may otherwise become subject (regardless of whether or not such
Damages relate to any third-party claim) and which arise from or as a result of,
or are directly or indirectly connected with the matter described in the second
bullet point of Part 2.3 of the Disclosure Schedule, in addition to seeking
indemnification from the Escrow Fund, but only after exhausting the full Escrow
Fund, the Indemnitees shall also be entitled to seek indemnification directly
from the Sellers in an aggregate amount not to exceed two million US dollars
($2,000,000); provided, however, that each Seller shall only be
<PAGE>

liable for its pro rata share of such Damages, as calculated in accordance with
the allocation set forth in Schedule A.

          (b) The Sellers and the Company acknowledges and agree that, if the
Company suffers, incurs or otherwise become subject to any Damages as a result
of or in connection with any inaccuracy in or breach of any representation,
warranty, covenant or obligation, then (without limiting any of its fights as an
Indemnitee) Parent shall also be deemed, by virtue of its ownership of the stock
of the Company, to have incurred Damages as a result of and in connection with
such inaccuracy or breach.

          (c) From and after the Closing Date (but subject to Section 9.1(d)),
any Seller may seek indemnification from Parent for any Damages that arc
directly or indirectly suffered or incurred by such Seller or to which such
Seller may otherwise become subject (regardless of whether or not such Damages
relate to any third-party claim) and which arise from or as a result of, or are
directly or indirectly connected with: (i) any inaccuracy in or breach of any
representation or warranty set forth in Section 3 or in the Parent Closing
Certificate; (ii) any inaccuracy in or breach of any representation or warranty
set forth in Section 3 as if such representation and warranty had been made on
and as of the Closing Date; or (iii) any Legal Proceeding relating to any
inaccuracy or breach of the type referred to in clause "(i)" or "(ii)" above
(including any Legal Proceeding commenced by any Seller for the purpose of
enforcing any of its rights under this Section 9); provided, however, that the
amount of indemnification sought by the Sellers shall not exceed ten million US
dollars ($10,000,000) in the aggregate.

     9.3  Defense of Third Party Claims. In the event of the assertion or
commencement by any Person of any claim or Legal Proceeding (whether against the
Company, against Parent or against any other Person) with respect to which any
of the Indemnitees shall have the right to seek indemnification pursuant to this
Section 9, Parent shall have the right, at its election, to proceed with the
defense of such claim or Legal Proceeding on its own. If Parent so proceeds with
the defense of any such claim or Legal Proceeding:

          (a) all reasonable expenses relating to the defense of such claim or
Legal Proceeding shall be borne and paid exclusively out of the Escrow Fund;

          (b) Parent shall have the right to settle, adjust or compromise such
claim or Legal Proceeding with the consent of the Sellers' Representative;
provided, however, that such consent shall not be unreasonably withheld.

Parent shall give the Sellers' Representative prompt notice of the commencement
of any such Legal Proceeding against Parent or the Company; provided, however,
that any failure on the part of Parent to so notify the Seller' Representative
shall not limit any of the fights of the Indemnitees under this Section 9
(except to the extent such failure materially prejudices the defense of such
Legal Proceeding).

     9.4  Exercise of Remedies by Indemnitees Other Than Parent. No Indemnitee
(other than Parent or any successor thereto or assign thereof) shall be
permitted to assert any
<PAGE>

indemnification claim or exercise any other remedy under this Agreement unless
Parent (or any successor thereto or assign thereof) shall have consented to The
assertion of such indemnification claim or the exercise of such other remedy.

     9.5    Limitations on Indemnification.

            (a) Except as specifically set forth herein, the maximum amount of
indemnifiable Damages that may be recovered from the Sellers arising out of or
resulting from Section 9.2(a) shall be the amount equal to the Escrow Fund, and
solely from the Escrow Fund and with respect to each Seller, the amount, that
may be recovered will be limited to the amount equal to the number of shares of
Common Stock set forth opposite such Sellers' name in the column in Schedule A
captioned "Escrow Shares."

            (b) Notwithstanding anything to the contrary contained in this
Agreement, no Indemnitee shall be entitled to seek indemnification from the
Sellers under this Agreement with respect to any Damages arising out of or
resulting from Section 9.2(a), until the aggregate amount of such Damages
exceeds one hundred thousand US dollars ($100,000), and where such damages
exceed one hundred thousand US dollars ($100,000), the Indemnitees shall be
entitled to indemnification in full (with no deduction of the one hundred
thousand US dollars ($100,000)), subject to the provisions of Section 9.5(a).

            (c) Notwithstanding anything to the contrary contained in this
Agreement, the maximum amount of indemnifiable Damages that may be recovered
from Parent arising out of or resulting from Section 9.2(c) shall be the amount
equal to ten million US dollars ($10,000,000).

            (d) Notwithstanding anything to the contrary contained in this
Agreement, the Sellers shall not be entitled to seek indemnification from Parent
under this Agreement with respect to any Damages arising out of or resulting
from Section 9.2(c), until the aggregate amount of such Damages exceeds one
hundred thousand US dollars ($100,000), and where such damages exceed one
hundred thousand US dollars ($100,000), the Sellers shall be entitled to
indemnification in full (with no deduction of the one hundred thousand US
dollars ($100,000)), subject to the provisions of Section 9.5(c).

     9.6    Exclusive Remedies. Parent acknowledges and agrees that its sole and
exclusive remedy (except in the case of fraud, in which case Parent reserves all
fights available to it under the law with respect to the party committing such
fraud) with respect to any and all claims relating to the subject matter of this
Agreement and the other agreements, documents and certificates specifically
contemplated by this Agreement shall be pursuant to the indemnification
provisions set forth in this Section 9 and specific performance as contemplated
by Section 10.11 below.

     9.7    Prospectus Indemnification. Notwithstanding anything to the contrary
in this Agreement, in the event any shares of Common Stock are included in a
registration statement of the Company:

            (a) To the extent permitted by law, Parent will indemnify and hold
<PAGE>

harmless each Seller, the partners, officers, directors and legal counsel of
each Seller, any underwriter (as defined in the Securities Act) for such Seller
and each person, if any, who controls such Seller or underwriter within the
meaning of the Securities Act or the Exchange Act, against any losses, claims,
damages, or liabilities (joint or several) to which they may become subject
under the Securities Act, the Exchange Act or other federal or state law,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation") by Parent: (i) any untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission to state therein a material
fact required to be stated therein, or necessary to make the statements therein
not misleading, or (iii) any violation or alleged violation by Parent of the
Securities Act, the Exchange Act, any state securities law or any rule or
regulation promulgated under the Securities Act, the Exchange Act or any state
securities law in connection with the offering covered by such registration
statement; and Parent will reimburse each such Seller, partner, officer or
director, underwriter or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided however, that the
indemnity agreement contained in this Section 9.7(a) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of Parent, which consent shall nor be
unreasonably withheld, nor shall Parent be liable in any such case for any such
loss, claim, damage, liability or action to the extent that it arises out of or
is based upon a Violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by such Seller, partner, officer, director, underwriter or
controlling person of such Seller.

          (b) To the extent permitted by law, each Seller will, if Common Stock
held by such Seller are included in the securities as to which such registration
qualifications or compliance is being effected, indemnify and hold harmless
Parent, each of its directors, its officers, and legal counsel and each person,
if any, who controls Parent within the meaning of the Securities Act, any
underwriter and any other Seller selling securities under such registration
statement or any of such other Seller's partners, directors or officers or any
person who controls such Seller, against any losses, claims, damages or
liabilities (joint or several) to which Parent or any such director, officer,
controlling person, underwriter or other such Seller, or partner, director,
officer or controlling person of such other Seller may become subject under the
Securities Act, the Exchange Act or other federal or state law, insofar as such
losses, claims, damages or liabilities (or actions in respect thereto) arise out
of or are based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such Seller specifically for use in connection
with such registration; and each such Seller will reimburse any legal or other
expenses reasonably incurred by Parent or any such director, officer,
controlling person, underwriter or other Seller, or partner, officer, director
or controlling person of such other Seller in connection with investigating or
defending any such loss, claim, damage, liability or action if it is judicially
determined that there was such a Violation; provided, however, that the
indemnity agreement contained in this Section 9.7(b) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or
<PAGE>

action if such settlement is effected without the consent of the Seller, which
consent shall not be unreasonably withheld.

          (c) Promptly after receipt by an indemnified party under this Section
9.7 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 9.7, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses To be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying puny within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 9.7, but the omission so to deliver
written notice to the indemnifying party will nor relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 9.7.

          (d) If the indemnification provided for in this Section 9.7 is held by
a court of competent jurisdiction to be unavailable to an indemnified party with
respect to any losses, clams, damages or liabilities referred to herein, the
indemnifying party, in lieu of indemnifying such indemnified party thereunder,
shall to the extent permitted by applicable law contribute to the amount paid or
payable by such indemnified party as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the Violation(s) that resulted in such loss, claim, damage or
liability, as well as any other relevant equitable considerations. The relative
fault of the indemnifying party and of the indemnified party shall be determined
by a court of law by reference to, among other things, whether the untrue
statement of a material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
<PAGE>

            (e) The obligations of Parent and Sellers under this Section 9.7
shall survive completion of any offering of Common Stock in a registration
statement and the termination of this Agreement. No indemnifying party, in the
defense of any such claim or litigation, shall, except with the consent of each
indemnified party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release from all liability
in respect to such claim or litigation.

Section 10. Miscellaneous Provisions.

     10.1   Sellers' Representative. Israel Frieder, Shmuel Gitlin or such other
persons identified by ECI Telecom Ltd. ("ECI") in writing to the other parities
hereto are hereby designated as the representatives of ECI for purposes of this
Agreement and the Escrow Agreement and as agents and attorneys-in-fact of ECI
with respect hereto and thereto (the "ECI Sellers' Representative"), and Zvika
Schechter is hereby designated as the representative of the Sellers (other than
ECI) for purposes of this Agreement and the Escrow Agreement and as agent and
attorney-in-fact of she Sellers with respect hereto and thereto (the "Other
Sellers' Representative") (Any reference in this Agreement to the "Sellers'
Representative" shall be deemed to refer to both the ECI Sellers' Representative
on behalf of ECI, and the Other Sellers' Representative on behalf of the Sellers
(other than ECI)). Each Sellers' Representative shall have the authority to take
such actions and exercise such discretion on behalf of its respective principals
as are required of the Sellers' Representative pursuant to the terms of this
Agreement and the Escrow Agreement (and any such actions shall be binding on
each of the Sellers represented by such Sellers' Representative), including
without limitation the following:

            (i)   to receive, hold and deliver to Parent the share certificates
representing the Shares, the certificates representing the Warrants, the
certificates representing the Debentures, and any other documents relating
thereto;

            (ii)  to execute, acknowledge, deliver, record and file all
ancillary agreements, waivers, consents, certificates and documents which the
Sellers' Representative deems necessary or appropriate in connection with the
consummation of the transactions contemplated by the terms and provisions of
this Agreement;

            (iii) to receive and make any payments provided for under this
Agreement and acknowledge receipt and payment thereof;

            (iv)  to waive any breach or default under the Agreement, or to
waive any condition precedent to the Closing under Section 7 hereof;

            (v)   to amend or terminate this Agreement;

            (vi)  to receive service of process in connection with any claims
under this Agreement or the Escrow Agreement; and
<PAGE>

          (vii)  to perform the obligations and exercise the rights under the
Escrow Agreement, including the settlement of any claims and disputes with
Parent arising thereunder; provided, however, that the Sellers' Representative
shall not be authorized to take any actions that would (x) increase the
obligations or liabilities of any of the Sellers or (y) decrease the
consideration to be received by any of the Sellers, other than in accordance
with the assumptions set forth in Schedule A. The Sellers' Representative will
at all times act in good faith toward the Sellers and will take no action which
would disproportionately impact one Seller in relation to the other Sellers
taken as a whole.

     The designation and appointment of the Sellers' Representative is
irrevocable and shall not be affected by the subsequent death, incapacity,
insolvency or dissolution of any Seller. Parent shall have the right to rely
upon all actions taken or omitted by the Seller's Representative pursuant to
this Agreement, all of which actions and omissions shall be binding on each of
the Sellers represented by such Sellers' Representative. If the Other Sellers'
Representative shall die, become disabled or otherwise be unable to fulfill his
responsibilities as agent of the Sellers (other than ECI), then the Sellers
(other than ECI) holding a majority in interest of the capital stock of the
Company (assuming the exercise of all Warrants and the Conversion of all
Debentures and not including any securities of the Company held by ECI) shall,
within ten days after such death or disability, appoint a successor agent and,
promptly thereafter, shall notify Parent of the identity of such successor. Any
such successor shall become the "Other Sellers' Representative" for purposes of
this Agreement. The Sellers hereby authorize their respective Sellers'
Representative to pay all reasonable and documented legal fees and expenses
incurred by the Company and the Sellers (as further described in Section 10.3
below) from the Purchase Consideration prior to the distribution of the Purchase
Consideration to the Sellers, except for fees and expenses paid by the Company
or included as a Current Liability in the calculation of Net Cash. The Sellers
hereby agree to transfer to the Sellers' Representative such additional cash
amounts as shall be determined by the Sellers' Representative are necessary to
pay all legal fees and expenses incurred by the Company and the Sellers (as
further described in Section 10.3 below), except for fees and expenses paid by
the Company or included as a Current Liability in the calculation of Net Cash.

     10.2  Further Assurances. Each party hereto shall execute and cause to be
delivered to each other party hereto such instruments and other documents, and
shall take such other actions, as such other party may reasonably request (prior
to, at or after the Closing) for the purpose of carrying out or evidencing any
of the transactions contemplated by this Agreement.

     10.3  Fees and Expenses. Each party to this Agreement shall bear and pay
all fees, costs and expenses (including legal fees and accounting fees) that
have been incurred or that are incurred by such party in connection with the
transactions contemplated by this Agreement, including all fees, costs and
expenses incurred by such party in connection with or by virtue of (a) the
investigation and review conducted by Parent and its Representatives with
respect to the Company's business (and the furnishing of information to Parent
and its Representatives in connection with such investigation and review), (b)
the negotiation, preparation and review of this Agreement (including the
Disclosure Schedule) and all
<PAGE>

agreements, certificates, opinions and other instruments and documents delivered
or to be delivered in connection with the transactions contemplated by this
Agreement, and (c) the preparation and submission of any filing or notice
required to be made or given in connection with any of the transactions
contemplated by this Agreement, and the obtaining of any Consent required to be
obtained in connection with any of such transactions.

     10.4  Attorneys' Fees. If any action or proceeding relating to this
Agreement or the enforcement of any provision of this Agreement is brought
against any party hereto, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and disbursements (in addition to any other
relief to which the prevailing party may be entitled).

     10.5  Notices. Any notice or other communication required or permitted to
be delivered to any party under this Agreement shall be in writing and shall be
deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth beneath the name of such party
below (or to such other address or facsimile telephone number as such party
shall have specified in a written notice given to the other parties hereto):

          If to Parent:

               Terayon Communication Systems, Inc.
               2952 Bunker Hill Lane
               Santa Clara, CA 95054
               Fax: (408) 727-6205
               Attention: Chief Executive Officer

               with a copy to:

               Cooley Godward LLP
               One Maritime Plaza, 20/th/ Floor
               San Francisco, CA 94111
               Fax: (415) 951-3699
               Attention: Karyn R. Smith, Esq.

               and

               Naschitz, Brandes & Co.
               5 Tuval Street
               Tel-Aviv, Israel
               Fax: 972 3 623 5021
               Attention: Sharon A. Amir, Adv.

          if to the Company:

               Telegate Ltd.
               7 Haplada Street
<PAGE>

               Or Yehuda, Israel
               Fax: (972-3) 533-5877
               Attention: Chief Executive Officer

               with a copy to:

               Yigal Amon & Co.
               3 Daniel Frisch Street
               Tel Aviv 6473l, Israel
               Fax: (972-3) 608-7714
               Attention:  David H. Schapiro, Esq. and
                           Micah Avni, Esq. and
                           Eric Wachstock, Esq.

          if to the Other Sellers' Representative:

               Zvika Schechter
               ABS GE Capital Giza Fund, L.P,
               Ramat Aviv Tower, 12/th/ Floor
               40 Einstein Street
               POB 17672
               Tel Aviv 61172
               Fax: (972-3) 640-2319

          if to ECI Telecom Ltd. or the ECI Sellers' Representative:

               30 Hasivim Street
               Petach-Tikva, Israel
               Fax: (972-3) 926-6870
               Attention: Israel Frieder

               with a copy to:

               Goldfarb, Levy, Eran & Co.
               2 Ibn Gvirol Street
               Tel Aviv 64077, Israel
               Arm: Nechama Brin, Esq.
               Fax: (972-3) 608-9909

     10.6   Time of the Essence. Time is of the essence of this Agreement.

     10.7   Headings. The boldface headings contained in this Agreement are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
<PAGE>

     10.8   Counterparts. This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one agreement.

     10.9   Governing Law. This Agreement shall be construed in accordance with,
and governed in all respects by, the internal laws of the State of Israel
(without giving effect to principles of conflicts of laws). Each party to this
Agreement consents to the exclusive jurisdiction and venue of the courts of
District of Tel Aviv-Jaffa in the State of Israel.

     10.10  Successors and Assigns. This Agreement shall be binding upon: the
Company and its successors and assigns (if any); Parent and its successors and
assigns (if any). This Agreement shall inure to the benefit of: the Company; the
Sellers; the other Indemnitees (subject to Section 9.5); and The respective
successors and assigns (if any) of the foregoing. Neither party may assign any
of its rights under this Agreement to any other Person without obtaining the
consent or approval of the other parties hereto.

     10.11  Specific Performance. The parties to this Agreement agree that, in
the event of any breach or threatened breach by any party to this Agreement of
any covenant, obligation or other provision set forth in this Agreement for the
benefit of any other party to this Agreement, such other party shall be entitled
to (a) a decree or order of specific performance or mandamus to enforce the
observance and performance of such covenant, obligation or other provision, and
(b) an injunction restraining such breach or threatened breach.

     10.12  Waiver.

            (a)  No failure on the part of any Person to exercise any power,
right, privilege or remedy under this Agreement, and no delay on the part of any
Person in exercising any power, right, privilege or remedy under this Agreement,
shall operate as a waver of such power, right, privilege or remedy; and no
single or partial exercise of any such power, right, privilege or remedy shall
preclude any other or further exercise thereof or of any other power, right,
privilege or remedy.

            (b)  No Person shall be deemed to have waived any claim arising out
of this Agreement, or any power, right, privilege or remedy under this
Agreement, unless the waiver of such claim, power, right, privilege or remedy is
expressly set forth in a written instrument duly executed and delivered on
behalf of such Person, and any such waiver shall not be applicable or have any
effect except in the specific instance in which it is given.

     10.13  Amendments. This Agreement may not be amended, modified, altered or
supplemented other than by means of a written instrument duly executed and
delivered on behalf of all of the parties hereto.

     10.14  Severability. In the event that any provision of this Agreement, or
the application of any such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement. and the application of such provision
to Persons or circumstances other than those as to which
<PAGE>

it is determined to be invalid, unlawful, void or unenforceable, shall not be
impaired or otherwise affected and shall continue to be valid and enforceable to
the fullest extent permitted by law.

     10.15  Parties in Interest. Except for the provisions of Section 9, none of
the provisions of this Agreement are intended to provide any fights or remedies
to any Person other than the parties hereto and their respective successors and
assigns (if any).

     10.16  Entire Agreement. This Agreement and the other agreements referred
to herein set forth the entire understanding of the parties hereto relating to
the subject matter hereof and thereof and supersede all prior agreements and
understandings among or between any of the parties relating to the subject
matter hereof and thereof; provided however, that the Mutual Non-Disclosure
Agreement executed on behalf of Parent and the Company shall not be superseded
by this Agreement and shall remain in effect in accordance with its terms until
the earlier of (a) the Closing Date, or (b) the date on which such Mutual Non-
Disclosure Agreement is terminated in accordance with its terms.

     10.17  Construction.

            (a)  For purposes of this Agreement, whenever the context requires:
the singular number shall include the plural, and vice versa; the masculine
gender shall include the feminine and neuter genders; the feminine gender shall
include the masculine and neuter genders; and the neuter gender shall include
the masculine and feminine genders.

            (b)  The parties hereto agree that any role of construction to the
effect that ambiguities are to be resolved against the drafting party shall not
be applied in the construction or interpretation of this Agreement.

            (c)  As used in this Agreement, the words "include" and "including,"
and variations thereof, shall not be deemed to be terms of limitation, but
rather shall be deemed to be followed by the words "without limitation."

            (d)  Except as otherwise indicated, all references in this Agreement
to "Sections," "Schedules" and "Exhibits" are intended to refer to Sections of
this Agreement and Schedules and Exhibits to this Agreement.

     10.18  Founder Bring-Along. In the event that the Founder has not executed
this Agreement concurrently with the execution hereof by each of the other
Sellers, this Agreement shall nonetheless be in full force and effect and the
Company and Parent shall seek to secure, as promptly as practicable, the
Founder's jointer herein by execution of this Agreement in the space provided
for that purpose below, following which the Founder shall be bound hereunder as
a Seller. In the event that the Founder fails to execute and deliver this
Agreement prior to the Closing Date, Parent, the Company and the Sellers
nonetheless agree to consummate the transaction contemplated hereunder including
the purchase and sale of the Sellers' Securities other than those held by the
Founder. Following the consummation thereof, Parent may, but shall not be
obligated to, take such action as necessary or desirable to acquire the
Securities held by the Founder pursuant to Section 236 of the Companies
<PAGE>

Ordinance and/or Section 8 of the Amended and Restated Stockholders Agreement,
among the Company, the Founder and certain of the Sellers, and the transactions
contemplated hereby shall, but shall not be required to, be considered a "plan
or contract" within the meaning of Section 236 of the Companies Ordinance. All
of the provisions of this Agreement shall be interpreted to take into account
the fact friar the Founder may not participate in the transaction contemplated
hereunder.


             [The Remainder of this Page Intentionally Left Blank]
<PAGE>

     The parties hereto have caused this Share Purchase Agreement to be executed
and delivered as of the date first above written.

                                  Terayon Communication Systems, Inc.,
                                    a Delaware corporation


                                  By:_______________________________________

                                  Name:_____________________________________

                                  Title:____________________________________

                                  Ehud Iloni


                                  __________________________________________



                                  Telegate Ltd.,
                                    a company organized under the laws of
                                    Israel


                                  By:_______________________________________

                                  Name:_____________________________________

                                  Title:____________________________________

                                  ECI Telecom Ltd.

                                  By:_______________________________________

                                  Name:_____________________________________

                                  Title:____________________________________

                                  ABS GE Capital Giza Fund, L.P.

                                  By:_______________________________________

                                  Name:_____________________________________
<PAGE>

                                  Title:____________________________________

     The parties hereto have caused this Share Purchase Agreement to be executed
and delivered as of the date first above written.

                                  BTIP Israel LLC

                                  By:_______________________________________

                                  Name:_____________________________________

                                  Title:____________________________________

                                  The Giza Equity Fund, Limited Partnership

                                  By:_______________________________________

                                  Name:_____________________________________

                                  Title:____________________________________

                                  ABS Giza Alpinvest Fund, L.P.

                                  By:_______________________________________

                                  Name:_____________________________________

                                  Title:____________________________________

                                  THE Challenge Fund-Etgar L.P.

                                  By:_______________________________________

                                  Name:_____________________________________

                                  Title:____________________________________

                                  Yozma II (B.V.I) L.P.

                                  By:_______________________________________

                                  Name:_____________________________________

                                  Title:____________________________________
<PAGE>

     The parties hereto have caused this Share Purchase Agreement to be executed
and delivered as of the date first above written.

                                  Yozma II (Israel) Limited Partnership

                                  By:_______________________________________

                                  Name:_____________________________________

                                  Title:____________________________________

                                  Vertex Yozma L.P.

                                  By:_______________________________________

                                  Name:_____________________________________

                                  Title:____________________________________

                                  Yozma Venture Capital Ltd.

                                  By:_______________________________________

                                  Name:_____________________________________

                                  Title:____________________________________

                                  P.C.M. Venture Capital L.P.


                                  By:_______________________________________

                                  Name:_____________________________________

                                  Title:____________________________________


                                  Vertex Investment (III) LTD.


                                  By:_______________________________________

                                  Name:_____________________________________

                                  Title:____________________________________
<PAGE>

     The parties hereto have caused this Share Purchase Agreement to be executed
and delivered as of the date first above written.

                                  Vertex Discount L.P.

                                  By:_______________________________________

                                  Name:_____________________________________

                                  Title:____________________________________

                                  Vertex Technology Fund II Ltd.

                                  By:_______________________________________

                                  Name:_____________________________________

                                  Title:____________________________________

                                  General Instrument Corporation

                                  By:_______________________________________

                                  Name:_____________________________________

                                  Title:____________________________________

                                  Aryt Industries Ltd.

                                  By:_______________________________________

                                  Name:_____________________________________

                                  Title:____________________________________

                                  Aryt Holdings (1997) Ltd.

                                  By:_______________________________________

                                  Name:_____________________________________

                                  Title:____________________________________
<PAGE>

     The parties hereto have caused this Share Purchase Agreement to be executed
and delivered as of the date first above written.

                                  Chanon International Holdings N.V.

                                  By:_______________________________________

                                  Name:_____________________________________

                                  Title:____________________________________

                                  Coin Street Holdings (II) Limited

                                  By:_______________________________________

                                  Name:_____________________________________

                                  Title:____________________________________

                                  Hapoalim Nechasim (Menayot) Ltd.

                                  By:_______________________________________

                                  Name:_____________________________________

                                  Title:____________________________________
<PAGE>

                                   Exhibit A

                              CERTAIN DEFINITIONS

     For purposes of the Agreement (including this Exhibit A):

     Acquisition Transaction. "Acquisition Transaction" shall mean any
transaction involving:

          (a)    the sale, license, disposition or acquisition of all or a
material portion of the Company's business or assets;

          (b)    the issuance, disposition or acquisition of (i) any capital
stuck or other equity security of the Company (other than Ordinary Shares issued
to employees of the Company, upon exercise of Options or Warrants, the
conversion of the Debentures or otherwise, in routine transactions in accordance
with the Company's past practices), (ii) any option, call, warrant or right
(whether or not immediately exercisable) to acquire any capital stock or other
equity security of the Company (other than stock options granted to employees of
the Company in routine transactions in accordance with the Company's past
practices), or (iii) any security, instrument or obligation that is or may
become convertible into or exchangeable for any capital stock or other equity
security of the Company; or

          (c)    any merger, consolidation, business combination, reorganization
or similar transaction involving The Company.

     Agreement.  "Agreement" shall mean the Agreement to which this Exhibit A
is attached (including the Disclosure Schedule), as it may be amended from time
to time.

     Consent.  "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).

     Contract. "Contract" shall mean any written, oral or other agreement,
contract, subcontract, lease, understanding, instrument, note, warranty,
insurance policy, benefit plan or legally binding commitment or undertaking of
any nature.

     Damages.  "Damages" shall include any loss, damage, injury, liability,
claim, demand, settlement, judgment, award, fine, penalty, Tax, fee (including
reasonable attorneys' fees), charge, cost (including costs of investigation) or
expense of any nature.

     Debentures. "Debentures" shall mean the convertible debentures, numbered
1 through 15, that have been previously issued pursuant to the Loan Agreement,
dated July 8, 1999, among the Company, the Founder and certain of the Sellers.

     Disclosure Schedule. "Disclosure Schedule" shall mean the schedule (dated
as of the date of the Agreement) delivered to Parent on behalf of the Sellers.
<PAGE>

     Encumbrance.  "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, claim, infringement,
interference, option, right of first refusal, preemptive right, community
property interest or restriction of any nature (including any restriction on the
voting of any security, any restriction on the transfer of any security or other
asset, any restriction on the receipt of any income derived from any asset, any
restriction on the use of any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset).

     Entity.  "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization or entity.

     Exchange Act. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.

     Escrow Fund.  "Escrow Fund" shall have the meaning ascribed to it in the
Escrow Agreement.

     Governmental Authorization.  "Governmental Authorization" shall mean any:
(a) permit, license, certificate, franchise, permission, clearance,
registration, qualification or authorization issued, granted, given or otherwise
made available by or under the authority of any Governmental Body or pursuant to
any Legal Requirement; or (b) right under any Contract with any Governmental
Body.

     Governmental Body.  "Governmental Body" shall mean any: (a) nation, state,
commonwealth, province, territory, county, municipality, district or other
jurisdiction of any nature; (b) federal, state, local, municipal, foreign or
other government; or (c) governmental or quasi-governmental authority of any
nature (including any governmental division, department, agency, commission,
instrumentality, official, organization, unit, body or Entity and any court or
other tribunal).

     Indemnitees.  "Indemnitees" shall mean the following Persons: (a) Parent;
(b) Parent's current and future affiliates (including the Company); (c) the
respective Representatives of the Persons referred to in clauses "(a)" and "(b)"
above; and (d) the respective successors and assigns of the Persons referred to
in clauses "(a)", "(b)" and "(c)" above; provided, however, that the Sellers
shall not be deemed to be "Indemnitees."

     Liens. "Liens" shall mean all mortgages, pledges, liens, security
interests, conditional and installment sale agreements, encumbrances, charges or
other claims of third parties of any kind.

     Legal Proceeding. "Legal Proceeding" shall mean any action, suit,
litigation, arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry, audit,
examination or investigation commenced, brought, conducted or heard by or
before, or otherwise involving, any court or other Governmental Body or any
arbitrator or arbitration panel.
<PAGE>

     Legal Requirement. "Legal Requirement" shall mean any federal, state,
local, municipal, foreign or other law, statute, constitution, principle of
common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling
or requirement issued, enacted, adopted, promulgated, implemented or otherwise
put into effect by or under the authority of any Governmental Body.

     Material Adverse Effect.   A violation or other matter will be deemed to
have a "Material Adverse Effect" on the Company if such violation or other
matter (considered together with all other matters that would constitute
exceptions to the representations and warranties set forth in the Agreement or
in the Company Closing Certificate but for the presence of "Material Adverse
Effect" or other materiality qualifications, or any similar qualifications, in
such representations and warranties) would have a material adverse effect on the
Company's business, condition, assets, liabilities, operations or financial
performance or prospects.

     Net Cash.  "Net Cash" shall mean the Company's Current Assets minus its
Current Liabilities, as determined by Ernst & Young (Kost, Forer and Gabbay) in
accordance with Israeli general accepted accounting principles. For purposes
hereof, Current Liabilities shall be deemed to include any unaccrued expenses
associated with the acquisition transaction contemplated herein.

     Options.   "Options" shall mean options to purchase Ordinary Shares under
the Plan for Issuance of Options to Directors, Executives and Senior Employees
of Telegate.

     Person.  "Person" shall mean any individual, Entity or Governmental Body.

     Representatives.  "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives.

     SEC.  "SEC" shall mean the United States Securities and Exchange
Commission.

     Securities Act.  "Securities Act" shall mean the Securities Act of 1933, as
amended.

     Tax.  "Tax" shall mean any tax (including any income tax, franchise tax,
capital gains tax, gross receipts tax, value-added tax, surtax, excise tax, ad
valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax, business
tax, withholding tax or payroll tax), levy, assessment, tariff, duty (including
any customs duty), deficiency or fee, and any related charge or amount
(including any fine, penalty or interest), imposed, assessed or collected by or
under the authority of any Governmental Body.

     Tax Returns.  "Tax Returns" shall mean returns, reports and information
statements with respect to Tax required to be filed by or on behalf of the
Company with the Israel Income Tax Commission, the Israel Value Added Tax
Authority and any other taxing authority domestic or foreign.

     Vested Options.  "Vested Options" shall mean options to purchase Ordinary
Shares that vest prior to or at the Closing.
<PAGE>

     Warrants.  "Warrants" shall mean the Series A Warrants, numbered 1 though
14, the Series B Warrants, numbered 1 through 14, the Series C Warrant, numbered
1, and the Series D Warrant, numbered 1, all of which have been previously
issued pursuant to the Loan Agreement, dated July 8, 1999, among the Company,
the Founder and certain of the Sellers; and the warrant issued to Hapoalim
Nechasim (Menayot) Ltd.
<PAGE>

                             Schedules and Exhibits

Schedules

Schedule A   -      Sellers Disclosure Schedule

Schedule 3.5 -      Parent Consented and Approvals

Schedule 3.7 -      Parent Legal Proceedings


Exhibits

Exhibit A    -      Certain definitions

Exhibit D    -      Persons to sign Employment and Noncompetition Agreements

Exhibit E    -      Form of Employment Agreement

Exhibit F    -      Form of Noncompetition Agreement

Exhibit G    -      Marketing Agreement
<PAGE>

     The parties hereto have caused this Share Purchase Agreement to be executed
and delivered as of the date first above written.

                            Terayon Communication Systems, Inc.,
                              a Delaware corporation

                            By: /s/ Zaki Rakib
                               ---------------------------------------

                            Name:   Zaki Rakib
                                 -------------------------------------

                            Title:  CEO
                                  ------------------------------------

                            Ehud Iloni


                            __________________________________________


                            Telegate Ltd.,
                              a company organized under the laws of
                              Israel

                            By:_______________________________________

                            Name:_____________________________________

                            Title:____________________________________

                            ECI Telecom Ltd.


                            By:_______________________________________

                            Name:_____________________________________

                            Title:____________________________________


                            ABS GE Capital Giza Fund, L.P.

                            By:_______________________________________

                            Name:_____________________________________

                            Title:____________________________________
<PAGE>

     The parties hereto have caused this Share Purchase Agreement to be executed
and delivered as of the date first above written.

                            Terayon Communication Systems, Inc.,
                              a Delaware corporation

                            By:_______________________________________

                            Name:_____________________________________

                            Title:____________________________________


                            Ehud Iloni


                            __________________________________________


                            Telegate Ltd.,
                              a company organized under the laws of
                              Israel

                            By:
                               ---------------------------------------

                            Name:
                                 -------------------------------------

                            Title:____________________________________

                            ECI Telecom Ltd.

                            By:_______________________________________

                            Name:_____________________________________

                            Title:____________________________________


                            ABS GE Capital Giza Fund, L.P.

                            By:     /s/ Zeev Holtzman
                               ---------------------------------------

                            Name:   Zeev Holtzman
                                 -------------------------------------

                            Title:____________________________________
<PAGE>

     The parties hereto have caused this Share Purchase Agreement to be executed
and delivered as of the date first above written.

                            Terayon Communication Systems, Inc.,
                              a Delaware corporation

                            By:_______________________________________

                            Name:_____________________________________

                            Title:____________________________________


                            Ehud Iloni


                            __________________________________________


                            Telegate Ltd.,
                              a company organized under the laws of
                              Israel

                            By:  /s/ [ILLEGIBLE]^^
                               ---------------------------------------

                            Name:_____________________________________

                            Title:____________________________________

                            ECI Telecom Ltd.

                            By: /s/ [ILLEGIBLE]^^
                                    ----------------------------------

                            Name:_____________________________________

                            Title:____________________________________

                            ABS GE Capital Giza Fund, L.P.

                            By:_______________________________________

                            Name:_____________________________________

                            Title:____________________________________
<PAGE>

     The parties hereto have caused this Share Purchase Agreement to be executed
and delivered as of the date first above written.

                            BTIP Israel LLC

                            By: /s/ Brian Talbot
                               ---------------------------------------

                            Name:   Brian Talbot
                                 -------------------------------------

                            Title:  Managing Director
                                  ------------------------------------


                            The Giza Equity Fund, Limited Partnership

                            By:_______________________________________

                            Name:_____________________________________

                            Title:____________________________________

                            ABS Giza Alpinvest Fund, L.P.

                            By:_______________________________________

                            Name:_____________________________________

                            Title:____________________________________

                            The Challenge Fund-Etgar L.P.

                            By:_______________________________________

                            Name:_____________________________________

                            Title:____________________________________

                            Yozma II (B.V.I.) L.P.

                            By:_______________________________________

                            Name:_____________________________________

                            Title:____________________________________
<PAGE>

     The parties hereto have caused this Share Purchase Agreement to be executed
and delivered as of the date first above written.

                            BTIP Israel LLC

                            By:_______________________________________

                            Name:_____________________________________

                            Title:____________________________________


                            THE Giza Equity Fund, Limited Partnership

                            By: /s/ Zeev Holtzman
                               ---------------------------------------

                            Name:   Zeev Holtzman
                                 -------------------------------------

                            Title:   President
                                  ------------------------------------

                            ABS Giza Alpinvest Fund, L.P.

                            By: /s/ Zeev Holtzman
                               ---------------------------------------

                            Name:   Zeev Holtzman
                                 -------------------------------------

                            Title:  President
                                  ------------------------------------

                            THE Challenge Fund-Etgar L.P.

                            By:_______________________________________

                            Name:_____________________________________

                            Title:____________________________________

                            Yozma II (B.V.I.) L.P.

                            By:_______________________________________

                            Name:_____________________________________

                            Title:____________________________________
<PAGE>

     The parties hereto have caused this Share Purchase Agreement to be executed
and delivered as of the date first above written.

                            BTIP Israel LLC
                            ---------------

                            By:
                            ------------------------------------------
                            Name:
                            ------------------------------------------
                            Title:
                            ------------------------------------------


                            THE Giza Equity Fund, Limited Partnership
                            -----------------------------------------

                            By:
                            ------------------------------------------
                            Name:
                            ------------------------------------------
                            Title:
                            ------------------------------------------

                            ABS Giza Alpinvest Fund, L.P.
                            ----------------------------

                            By:
                            ------------------------------------------
                            Name:
                            ------------------------------------------
                            Title:
                            ------------------------------------------

                            THE Challenge Fund-Etgar L.P.
                            ----------------------------

                            By: /s/ J. Ciechanover
                            ------------------------------------------

                            Name:   J. CIECHANOVER
                            ------------------------------------------

                            Title:  President
                            ------------------------------------------

                            Yozma II (B.V.I.) L.P.
                            ---------------------

                            By:
                            ------------------------------------------
                            Name:
                            ------------------------------------------
                            Title:
                            ------------------------------------------

<PAGE>

     The parties hereto have caused this Share Purchase Agreement to be executed
and delivered as of the date first above written.

                            BTIP Israel LLC
                            ---------------

                            By:
                            ------------------------------------------
                            Name:
                            ------------------------------------------
                            Title:
                            ------------------------------------------

                            THE Giza Equity Fund, Limited Partnership
                            -----------------------------------------

                            By:
                            ------------------------------------------
                            Name:
                            ------------------------------------------
                            Title:
                            ------------------------------------------

                            ABS Giza Alpinvest Fund, L.P.
                            ----------------------------

                            By:
                            ------------------------------------------
                            Name:
                            ------------------------------------------
                            Title:
                            ------------------------------------------

                            THE Challenge Fund-Etgar L.P.
                            ----------------------------

                            By:
                            ------------------------------------------
                            Name:
                            ------------------------------------------
                            Title:
                            ------------------------------------------

                            Yozma II (B.V.I.) L.P.
                            ---------------------

                            By:  /s/ Yied Erlich/Boat Goldschmidt
                            ------------------------------------------

                            Name: Yied Erilch and Boat Goldschmidt
                            ------------------------------------------

                            Title:
                            ------------------------------------------
<PAGE>

     The parties hereto have caused this Share Purchase Agreement to be executed
and delivered as of the date first above written.

                            Yozma II (Israel) Limited Partnership
                            -----------------------------------------

                            By:  /s/ Yied Erlich/Boat Goldschmidt
                            -----------------------------------------

                            Name:    Yied Erilch and Boat Goldschmidt
                            -----------------------------------------

                            Title:
                            -----------------------------------------

                            Vertex Yozma L.P.
                            -----------------

                            By:
                            -----------------------------------------
                            Name:
                            -----------------------------------------
                            Title:
                            -----------------------------------------

                            Yozma Venture Capital LTD
                            -------------------------

                            By:  /s/ Yied Erlich/Boat Goldschmidt
                            -----------------------------------------

                            Name:    Yied Erlich and Boat Goldschmidt
                            -----------------------------------------

                            Title:
                            -----------------------------------------

                            P.C.M. Venture Capital L.P.
                            --------------------------

                            By:  /s/ Yied Erlich/Boat Goldschmidt
                            -----------------------------------------

                            Name:    Yied Erlich and Boat Goldschmidt
                            -----------------------------------------

                            Title:
                            ------------------------------------------

                            Vertex Investment (III) Ltd.
                            ---------------------------

                            By:
                            ------------------------------------------
                            Name:
                            ------------------------------------------
                            Title:
                            ------------------------------------------
<PAGE>

     The parties hereto have caused this Share Purchase Agreement to be executed
and delivered as of the date first above written.

                            Yozma II (Israel) Limited Partnership

                            By:_______________________________________

                            Name:_____________________________________

                            Title:____________________________________


                            Vertex Yozma L.P.

                            By: /s/ Vertex Management (III) Ltd.
                               ---------------------------------------

                            Name:_____________________________________

                            Title:____________________________________

                            Yozma Venture Capital Ltd

                            By:_______________________________________

                            Name:_____________________________________

                            Title:____________________________________


                            P.C.M. Venture Capital L.P.

                            By:_______________________________________

                            Name:_____________________________________

                            Title:____________________________________


                            Vertex Investment (III) Ltd.

                            By: /s/ Vertex Management (III) Ltd.
                               ---------------------------------------

                            Name:_____________________________________

                            Title:____________________________________
<PAGE>

     The parties hereto have caused this Share Purchase Agreement to be executed
and delivered as of the date first above written.

                            Vertex Discount L.P.

                            By: /s/ Vertex Management (III) Ltd.
                               ---------------------------------------

                            Name:_____________________________________

                            Title:____________________________________

                            Vertex Technology Fund II Ltd.

                            By:_______________________________________

                            Name:_____________________________________

                            Title:____________________________________

                            General Instrument Corporation

                            By:_______________________________________

                            Name:_____________________________________

                            Title:____________________________________

                            Aryt Industries Ltd.

                            By:_______________________________________

                            Name:_____________________________________

                            Title:____________________________________

                            Aryt Holdings (1997) Ltd.

                            By:_______________________________________

                            Name:_____________________________________

                            Title:____________________________________
<PAGE>

          The parties hereto have caused this Share Purchase Agreement to be
executed and delivered as of the date first above written.


                                      Vertex Discount L.P.

                                      By: /s/ Vertex Management (III) Ltd.
                                         ---------------------------------

                                      Name:_______________________________

                                      Title:______________________________


                                      Vertex Technology Fund II Ltd.

                                      By: /s/ [ILLEGIBLE]
                                         ---------------------------------

                                      Name:_______________________________

                                      Title:______________________________


                                      General Instrument Corporation

                                      By:_________________________________

                                      Name:_______________________________

                                      Title:______________________________


                                      ARYT Industries Ltd.

                                      By:__________________________________

                                      Name:________________________________

                                      Title:_______________________________


                                      ARYT Holdings (1997) Ltd.

                                      By:__________________________________

                                      Name:________________________________

                                      Title:_______________________________

<PAGE>

          The parties hereto have caused this Share Purchase Agreement to be
executed and delivered as of the date first above written.

                                       Vertex Discount L.P.

                                       By:_____________________________

                                       Name:___________________________

                                       Title:__________________________

                                       Vertex Technology Fund II LTD.

                                       By:_____________________________

                                       Name:___________________________

                                       Title:__________________________


                                       General Instrument Corporation

                                       By: /s/ Richard C. Smith
                                          -----------------------------

                                       Name:   Richard C. Smith
                                            ---------------------------

                                       Title:  Exec Vice President
                                             --------------------------

                                       Aryt Industries Ltd.

                                       By:_____________________________

                                       Name:___________________________

                                       Title:__________________________

                                       Aryt Holdings (1997) Ltd.

                                       By:_____________________________

                                       Name:___________________________

                                       Title:__________________________

<PAGE>

          The parties hereto have caused this Share Purchase Agreement to be
executed and delivered as of the date first above written.

                                       Vertex Discount L.P.

                                       By:_____________________________

                                       Name:___________________________

                                       Title:__________________________

                                       Vertex Technology Fund II Ltd.

                                       By:_____________________________

                                       Name:___________________________

                                       Title:__________________________

                                       General Instrument Corporation

                                       By:_____________________________

                                       Name:___________________________

                                       Title:__________________________


                                       Aryt Industries Ltd.*

                                       By:   /s/ S. Bachaz
                                           ------------------------------

                                       Name:     S. Bachaz
                                             ----------------------------

                                       Title:    C.E.O
                                              ---------------------------

                                       Aryt Holdings (1997) Ltd.*

                                       By:   /s/ S. Bachaz
                                          ------------------------------

                                       Name:     S. Bachaz
                                             ---------------------------

                                       Title:    C.E.O
                                             ---------------------------

  * SUBJECT TO THE APPROVAL OF THE DEBENTURE HOLDERS OF ARYT INDUSTRIES LTD.

<PAGE>

     The parties hereto have caused this Share Purchase Agreement to be executed
and delivered as of the date first above written.

                                        Chanon International Holdings N.V.

                                        By:______________________________

                                        Name:____________________________

                                        Title:___________________________

                                        Coin Street Holdings (II) Limited

                                        By: /s/ D K Yamazoe
                                           ------------------------------

                                        Name: D K Yamazoe
                                             ----------------------------

                                        Title: Director
                                              ---------------------------

                                        Hapoalim Nechasim (Menayot) Ltd.

                                        By:______________________________

                                        Name:____________________________

                                        Title:___________________________
<PAGE>

     In WITNESS WHEREOF, this Agreement has been executed delivered as of the
date first above written.

Yozma Venture Capital Ltd.                 Terayon Communication Systems, Inc.

By:  /s/ Yied Erlich/Boat Goldschmidt      By:____________________________
   ------------------------------------

Name:  Yied Erlich and Boat Goldschmidt  Name:__________________________
      ---------------------------------

Title:_________________________________    Title:__________________________


ECI Telecom Ltd.                           General Instrument Corporation

By:____________________________________    By:_____________________________

Name:__________________________________    Name:___________________________

Title:_________________________________    Title:__________________________


ARYT Industries Ltd.                       ARYT Holdings (1997) Ltd.

By:____________________________________    By:_____________________________

Name:__________________________________    Name:___________________________

Title:_________________________________    Title:__________________________
<PAGE>

     In WITNESS WHEREOF, this Agreement has been executed delivered as of the
 date first above written.

Yozma Venture Capital Ltd.              Terayon Communication Systems, Inc.

By:______________________________       By:______________________________

Name:____________________________       Name:____________________________

Title:___________________________       Title:___________________________


ECI Telecom Ltd.                        General Instrument Corporation

By:   /s/ [ILLEGIBLE]^^                 By:______________________________
      ---------------------------

Name:____________________________       Name:____________________________

Title:___________________________       Title:___________________________


Aryt Industries Ltd.                    Aryt Holdings (1997) Ltd.

By:______________________________       By:______________________________

Name:____________________________       Name:____________________________

Title:___________________________       Title:___________________________
<PAGE>

     In WITNESS WHEREOF, this Agreement has been executed delivered as of the
 date first above written.

Yozma Venture Capital Ltd.            Terayon Communication Systems, Inc.

By:______________________________     By:_______________________________

Name:____________________________     Name:_____________________________

Title:___________________________     Title:____________________________


ECI Telecom Ltd.                      General Instrument Corporation

By:______________________________     By: /s/ Richard C. Smith
                                         -------------------------------

Name:____________________________     Name:   Richard C. Smith
                                           -----------------------------

Title:__________________________      Title:  Exec. Vice President
                                            ----------------------------


Aryt Industries Ltd                   Aryt Holdings (1997) Ltd.

By:______________________________     By:______________________________

Name:____________________________     Name:____________________________

Title:___________________________     Title:___________________________
<PAGE>

          The parties hereto have caused this Share Purchase Agreement to be
executed and delivered as of the date first above written.


                                       Chanon International Holdings N.V.

                                       By:_______________________________

                                       Name:______________________________

                                       Title:_____________________________

                                       Coin Street HoldingS (II) Limited

                                       By:________________________________

                                       Name:______________________________

                                       Title:_____________________________

                                       Hapoalim Nechasim (Menayot) Ltd.

                                       By: /s/ Y. Elinav O. Levy
                                          --------------------------------

                                       Name: Y. Elinav O. Levy
                                            ------------------------------

                                       Title:_____________________________
<PAGE>

     In WITNESS WHEREOF, this Agreement has been executed delivered as of the
 date first above written.

Yozma Venture Capital Ltd.             Terayon Communication Systems, Inc.

By:____________________________        By:__________________________________

Name:__________________________        Name:________________________________

Title:_________________________        Title:_______________________________


ECI Telecom Ltd.                       General Instrument Corporation

By:____________________________        By:__________________________________

Name:__________________________        Name:________________________________

Title:_________________________        Title:_______________________________


Aryt Industries Ltd.                   Aryt Holdings (1997) Ltd.

By: /s/ S. Bachaz                      By: /s/ S. Bachaz
   ----------------------------           ----------------------------------

Name:  S. Bachaz                       Name:  S. Bachaz
     --------------------------             --------------------------------

Title: C.E.O.                          Title: C.E.O.
      -------------------------              -------------------------------



© 2022 IncJournal is not affiliated with or endorsed by the U.S. Securities and Exchange Commission