<PAGE>
Exhibit 4.1
FORM OF SECURITY
GLOBAL NOTE LEGEND:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO TERAYON
COMMUNICATION SYSTEMS, INC. (THE "COMPANY") OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER,
PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFER IN WHOLE, BUT NOT IN
PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE
AND TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE REFERRED TO ON THE REVERSE HEREOF.
<PAGE>
RESTRICTED SECURITIES LEGEND:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS SECURITY,
AGREES FOR THE BENEFIT OF THE COMPANY THAT THIS SECURITY MAY NOT BE RESOLD,
PLEDGED OR OTHERWISE TRANSFERRED (X) PRIOR TO THE EXPIRATION OF THE HOLDING
PERIOD UNDER RULE 144(k) (OR ANY SUCCESSOR THERETO) UNDER THE SECURITIES ACT
WHICH IS APPLICABLE TO THIS SECURITY OR (Y) BY ANY HOLDER THAT WAS AN
"AFFILIATE" (WITHIN THE MEANING OF RULE 144 UNDER THE SECURITIES ACT) OF THE
COMPANY AT ANY TIME DURING THE THREE MONTHS PRECEDING THE DATE OF SUCH TRANSFER,
IN EITHER CASE, OTHER THAN (1) TO THE COMPANY, (2) SO LONG AS THIS SECURITY IS
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE
144A"), TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A, PURCHASING FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS
GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A, (3) IN AN OFFSHORE TRANSACTION (AS DEFINED IN REGULATION S UNDER THE
SECURITIES ACT) IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT, (4)
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY
RULE 144 (IF APPLICABLE) UNDER THE SECURITIES ACT OR (5) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES. THE HOLDER HEREOF, BY PURCHASING THIS SECURITY, REPRESENTS AND AGREES
FOR THE BENEFIT OF THE COMPANY THAT IT IS (1) A QUALIFIED INSTITUTIONAL BUYER OR
(2) NOT A U.S. PERSON AND IS OUTSIDE THE UNITED STATES WITHIN THE MEANING OF (OR
AN ACCOUNT SATISFYING THE REQUIREMENTS OF PARAGRAPH (k)(2) OF RULE 902 UNDER)
REGULATION S UNDER THE SECURITIES ACT. IN ANY CASE THE HOLDER HEREOF WILL NOT,
DIRECTLY OR INDIRECTLY, ENGAGE IN ANY HEDGING TRANSACTION WITH REGARD TO THIS
SECURITY OR ANY COMMON STOCK ISSUABLE UPON CONVERSION OF THIS SECURITY EXCEPT AS
PERMITTED BY THE SECURITIES ACT.
<PAGE>
[FORM OF FACE OF SECURITY]
TERAYON COMMUNICATION SYSTEMS, INC.
Number ______ CUSIP No. 880775AA9
---------
5% Convertible Subordinated Note Due 2007
Terayon Communication Systems, Inc., a Delaware corporation (the
"Company"), promises to pay to Cede & Co. or registered assigns, the principal
sum of _____________ Dollars ($_________) on August 1, 2007 and to pay interest
on the principal amount of this Note beginning the most recent date to which
interest has been paid or, if no interest has been paid, beginning July 26, 2000
at the rate of 5% per annum.
Interest Payment Dates: February 1 and August 1
Record Dates: January 15 and July 15
This Note is convertible at such times and as specified on the other side
of this Note. Additional provisions of this Note are set forth on the other side
of this Note.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this 5% Convertible Subordinated
Note due 2007 to be signed by its duly authorized officers.
Dated:____________ TERAYON COMMUNICATION SYSTEMS, INC.
By: ________________________________
Name: Zaki Rakib
Title: Chief Executive Officer
By: ________________________________
Name: Ray Fritz
Title: Chief Financial Officer
Trustee's Certificate of
Authentication:
Dated:___________________
This is one of the Securities
referred to in the within mentioned
Indenture.
STATE STREET BANK AND TRUST
COMPANY OF CALIFORNIA, N.A., as Trustee
By: _____________________________________
Authorized Signatory
<PAGE>
FORM OF REVERSE SIDE OF SECURITY
Terayon Communication Systems, Inc.
5% Convertible Subordinated Note Due 2007
1. Interest.
--------
Terayon Communication Systems, Inc., a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Note at the
rate per annum shown above. The Company shall pay interest semi-annually on
February 1 and August 1 of each year, commencing February 1, 2001. Interest on
the Notes will accrue from the most recent date to which interest has been paid
or, if no interest has been paid, from July 26, 2000. Interest will be computed
on the basis of a 360-day year of twelve 30-day months.
The Holder of this Note is entitled to the benefits of the Registration
Rights Agreement, dated July 26, 2000, among the Company, Deutsche Bank
Securities Inc. and Lehman Brothers, Inc.
2. Method of Payment.
-----------------
The Company will pay interest on this Note (except defaulted interest) to
the person who is the registered Holder of this Note at the close of business on
the January 15 and July 15 next preceding the interest payment date. The Holder
must surrender this Note to the Paying Agent to collect payment of principal.
The Company will pay principal and interest in money of the United States that
at the time of payment is legal tender for payment of public and private debts.
The Company, however, may pay principal and interest by its check payable in
such money. It may mail an interest check to the Holder's registered address.
3. Paying Agent, Registrar and Conversion Agent.
--------------------------------------------
Initially, State Street Bank and Trust Company of California, N.A. (the
"Trustee") will act as Paying Agent, Registrar and Conversion Agent. The Company
may change any Paying Agent, Registrar or Conversion Agent without notice to the
holder. The Company or any of its Subsidiaries may act as Paying Agent,
Registrar or Conversion Agent.
4. Indenture; Limitations.
----------------------
This Note is one of a duly authorized issue of Notes of the Company
designated as its 5% Convertible Subordinated Notes Due 2007 (the "Notes"),
issued under an Indenture dated as of July 26, 2000 (the "Indenture"), between
the Company and the Trustee. The terms of this Note include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-77bbbb), as amended by the Trust
Indenture Reform Act of 1990, as in effect on the date hereof or, from and after
the date that the Indenture shall be qualified thereunder, as in effect on such
date. This Note is subject to all such terms, and the holder of this Note is
referred to the Indenture and said Act for a statement of them.
<PAGE>
The Notes are subordinated unsecured obligations of the Company limited to
up to $500,000,000 aggregate principal amount plus an additional principal
amount not exceeding $75,000,000 in the aggregate as may be issued upon the
exercise by the Initial Purchasers, in whole or in part, of the Purchase Option.
5. Provisional and Optional Redemption.
-----------------------------------
The Notes may be redeemed at the Company's option, in whole or in part, at
any time and from time to time on or after 90 days following the last day of
original issuance and prior to August 7, 2003 (a "Provisional Redemption"), at a
redemption price of $1,000 per $1,000 principal amount of Notes, plus accrued
and unpaid interest, if any, to the date of redemption (the "Provisional
Redemption Date") if (i) the trading price of the Company's Common Stock for 20
Trading Days (as defined in the Indenture) in a period of 30 consecutive Trading
Days ending on the Trading Day prior to the date of mailing of the provisional
notice of redemption exceeds 150% of the Conversion Price (as defined below) of
the Notes and (ii) a shelf registration statement covering resales of the Notes
and the Common Stock issuable upon conversion of the Notes is effective and
available for use and is expected to remain effective for the 30 days following
the provisional redemption date, unless registration is no longer required.
Upon any such Provisional Redemption, the Company shall make an additional
payment in cash (the "Make Whole Payment") to holders of the Notes called for
redemption, including those Notes converted into Common Stock between the date
of mailing of the provisional notice of redemption and the Provisional
Redemption Date, in an amount equal to $193.55 per $1,000 principal amount of
the Notes, less the amount of any interest actually paid on the Notes before the
date of redemption.
The Notes may be redeemed at the Company's option, in whole or in part, at
any time and from time to time on and after August 7, 2003. The redemption price
for the Notes, expressed as a percentage of the principal amount, is 102.857% if
the Notes are redeemed in the period beginning August 7, 2003 and ending July
31, 2004, and is as follows for the 12-month periods beginning August 1 as
follows:
------------------------------------------------------
Year Percentage
------------------------------------------------
2004 ................................ 102.143 %
2005 ................................ 101.429 %
2006 ................................ 100.714 %
-------------------------------------------------------
and 100% of the principal amount on and after August 1, 2007, together in the
case of any such redemption with accrued and unpaid interest to the date of
redemption, but any interest payment that is due and payable on or prior to such
date of redemption will be payable to the Holders of such Notes, or one or more
predecessor Notes, of record at the close of business on the relevant record
dates referred to on the face hereof, all as provided in the Indenture.
<PAGE>
6. Notice of Redemption.
--------------------
Notice of redemption will be mailed by first class mail at least 30 days
prior to the redemption date in the case of a Provisional Redemption, and at
least 20 days but not more than 60 days before the redemption date in the case
of an Optional Redemption, to each Holder of Notes to be redeemed at his
registered address. Notes in denominations larger than $1,000 may be redeemed in
part, but only in whole multiples of $1,000. On and after the redemption date,
subject to the deposit with the Paying Agent of funds sufficient to pay the
redemption price, interest ceases to accrue on Notes or portions of them called
for redemption.
7. Repurchase of Notes at Option of Holder upon a Change in Control.
----------------------------------------------------------------
If at any time that Notes remain outstanding there shall have occurred a
Change in Control (as defined in the Indenture), at the option of the Holder and
subject to the terms and conditions of the Indenture, the Company shall become
obligated to repurchase all or any part specified by the Holder (so long as the
principal amount of such part is $1,000 or an integral multiple thereof) of the
Notes held by such Holder on the Repurchase Date. The Holder shall have the
right to withdraw any Repurchase Notice by delivering a written notice of
withdrawal to the Paying Agent in accordance with the terms of the Indenture.
The Repurchase Price is payable in cash.
8. Conversion.
----------
At any time after 90 days following the latest date of original issuance of
the Notes and prior to the close of business on the business day immediately
preceding August 1, 2007, a Holder of a Note may convert such Note into shares
of Common Stock of the Company; provided, however, that if the Note is called
for redemption, the conversion right will terminate at the close of business on
the Business Day before the redemption date of such Note (unless the Company
shall default in making the redemption payment when due, in which case the
conversion right shall terminate at the close of business on the date such
default is cured and such Note is redeemed). The initial conversion price is
$84.01 per share, subject to adjustment under certain circumstances as described
in the Indenture (the "Conversion Price"). The number of shares issuable upon
conversion of a Note is determined by dividing the principal amount converted by
the Conversion Price in effect on the conversion date. Upon conversion, no
adjustment for interest or dividends will be made. No fractional shares will be
issued upon conversion; in lieu thereof, an amount will be paid in cash based
upon the current market price (as defined in the Indenture) of the Common Stock
on the last trading day prior to the date of conversion.
To convert a Note, a Holder must (a) complete and sign the conversion
notice set forth below and deliver such notice to the Conversion Agent, (b)
surrender the Note to the Conversion Agent, (c) furnish appropriate endorsements
and transfer documents if required by the Registrar or the Conversion Agent, (d)
pay any transfer or similar tax, if required and (e) if the Note is held in
book-entry form, complete and deliver to the Depositary appropriate instructions
pursuant to the Depositary's book-entry conversion programs. If a Holder
surrenders a Note for conversion between the record date for the payment of an
installment of interest and the next interest payment date, the Note must be
accompanied by payment of an amount equal to the interest payable on such
interest payment date on the principal amount of the Note or portion thereof
then converted; provided,
<PAGE>
however, that no such payment shall be required if such Note has been called for
redemption on a redemption date within the period between and including such
record date and such interest payment date, or if such Note is surrendered for
conversion on the interest payment date. A Holder may convert a portion of a
Note equal to $1,000 or any integral multiple thereof.
A Note in respect of which a Holder had delivered a Repurchase Notice
exercising the option of such Holder to require the Company to repurchase such
Note may be converted only if the notice of exercise is withdrawn as provided
above and in accordance with the terms of the Indenture.
9. Subordination.
-------------
The indebtedness evidenced by the Notes is, to the extent and in the manner
provided in the Indenture, subordinate and junior in right of payment to the
prior payment in full of all Senior Indebtedness of the Company, as defined in
the Indenture. Any Holder by accepting this Note agrees to and shall be bound by
such subordination provisions and authorizes the Trustee to give them effect.
In addition to all other rights of Senior Indebtedness described in the
Indenture, the Senior Indebtedness shall continue to be Senior Indebtedness and
entitled to the benefits of the subordination provisions irrespective of any
amendment, modification or waiver of any terms of any instrument relating to the
Senior Indebtedness or any extension or renewal of the Senior Indebtedness.
10. Denominations, Transfer, Exchange.
---------------------------------
The Notes are in registered form without coupons in denominations of $1,000
and integral multiples thereof. A Holder may register the transfer of or
exchange Notes in accordance with the Indenture. The Registrar may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents and to pay any taxes or other governmental charges that may be imposed
by law or permitted by the Indenture.
Global Note Insert:
The aggregate principal amount of the Note in global form represented
hereby may from time to time be reduced to reflect conversions or
redemptions of a part of this Note in global form or cancellations of a
part of this Note in global form, in each case, and in any such case, by
means of notations on the Global Note Transfer Schedule on the last page
hereof. Notwithstanding any provision of this Note to the contrary,
conversions or redemptions of a part of this Note in global form and
cancellations of a part of this Note in global form, may be effected
without the surrendering of this Note in global form, provided that
appropriate notations on the Schedule of Exchanges, Conversions,
Redemptions, Cancellations and Transfers are made by the Trustee, or the
Custodian at the direction of the Trustee, to reflect the appropriate
reduction or increase, as the case may be, in the aggregate principal
amount of this Note in a global form resulting therefrom or as a
consequence thereof.
<PAGE>
11. Persons Deemed Owners.
---------------------
The registered holder of a Note may be treated as the owner of it for all
purposes.
12. Unclaimed Money.
---------------
If money for the payment of principal, premium, if any, or interest remains
unclaimed for two years, the Trustee or Paying Agent will pay, subject to
applicable escheatment laws, the money back to the Company at its request. After
that, Holders entitled to money must look to the Company for payment unless an
abandoned property law designates another person.
13. Amendment, Supplement, Waiver.
-----------------------------
Subject to certain exceptions, the Indenture or the Notes may be amended or
supplemented with the consent of the Holders of a majority in aggregate
principal amount of the Notes then outstanding and any past default or
compliance with any provision may be waived in a particular instance with the
consent of the Holders of a majority in aggregate principal amount of the Notes
then outstanding. Without the consent of or notice to any Holder, the Company
and the Trustee may amend or supplement the Indenture or the Notes to, among
other things, cure any ambiguity, omission, defect or inconsistency or make any
other change that does not adversely affect the rights of any Holder.
14. Successor Corporation.
---------------------
When a successor corporation assumes all the obligations of its predecessor
under the Notes and the Indenture, the predecessor corporation will be released
from those obligations.
15. Defaults and Remedies.
---------------------
An Event of Default is: default for 30 days in payment of interest on the
Notes; default in payment of principal on the Notes when due; failure by the
Company for 60 days after appropriate notice to it to comply with any of its
other agreements contained in the Indenture or the Notes; default by the Company
or any Subsidiary with respect to its obligation to pay principal of or interest
on indebtedness for borrowed money aggregating more than $20.0 million or the
acceleration of such indebtedness if not withdrawn within 15 days from the date
of such acceleration; and certain events of bankruptcy, insolvency or
reorganization of the Company or any of its Significant Subsidiaries. If an
Event of Default (other than as a result of certain events of bankruptcy,
insolvency or reorganization) occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the Notes then outstanding may
declare all unpaid principal of and accrued interest to the date of acceleration
on the Notes then outstanding to be due and payable immediately, all as and to
the extent provided in the Indenture. If an Event of Default occurs as a result
of certain events of bankruptcy, insolvency or reorganization, all unpaid
principal of and accrued interest on the Notes then outstanding shall become due
and payable immediately without any declaration or other act on the part of the
Trustee or any Holder, all as and to the extent provided in the Indenture.
Holders may not enforce the Indenture or the Notes except as provided in the
Indenture. The Trustee may require indemnity satisfactory to it before it
enforces the Indenture or the Notes. Subject to certain limitations, Holders of
a majority in principal amount of the Notes then outstanding may
<PAGE>
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders notice of any continuing default (except a default in
payment of principal or interest) if it determines that withholding notice is in
their interests. The Company is required to file periodic reports with the
Trustee as to the absence of default.
16. Trustee Dealings with the Company.
---------------------------------
State Street Bank and Trust Company of California, N.A., the Trustee under
the Indenture, in its individual or any other capacity, may make loans to,
accept deposits from, and perform services for the Company or an Affiliate of
the Company, and may otherwise deal with the Company or an Affiliate of the
Company, as if it were not the Trustee.
17. No Recourse Against Others.
--------------------------
A director, officer, employee or stockholder, as such, of the Company shall
not have any liability for any obligations of the Company under the Notes or the
Indenture or for any claim based on, in respect or by reason of, such
obligations or their creation. The Holder of this Note by accepting this Note
waives and releases all such liability. The waiver and release are part of the
consideration for the issue of this Note.
18. Discharge Prior to Maturity.
---------------------------
If the Company deposits with the Trustee or the Paying Agent money or U.S.
Government Obligations sufficient to pay the principal of and interest on the
Notes to maturity as provided in the Indenture, the Company will be discharged
from the Indenture except for certain Sections thereof.
19. Authentication.
--------------
This Note shall not be valid until the Trustee or an authenticating agent
signs the certificate of authentication on the other side of this Note.
20. Abbreviations and Definitions.
-----------------------------
Customary abbreviations may be used in the name of a Holder or an assignee,
such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties),
JT TEN (= joint tenants with right of survivorship and not as tenants in
common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors Act).
All capitalized terms used in this Note and not specifically defined herein
are defined in the Indenture and are used herein as so defined.
21. Indenture to Control.
--------------------
In the case of any conflict between the provisions of this Note and the
Indenture, the provisions of the Indenture shall control.
<PAGE>
The Company will furnish to any Holder, upon written request and without
charge, a copy of the Indenture. Requests may be made to: Terayon Communication
Systems, Inc., 2952 Bunker Hill Lane, Santa Clara, California 95054, Attention:
General Counsel.
<PAGE>
TRANSFER NOTICE
This Transfer Notice relates to $__________ principal amount of the 5 %
Convertible Subordinated Notes Due 2007 of Terayon Communication Systems, Inc.,
a Delaware corporation, held by ______________________________ (the
"Transferor").
(I) or (we) assign and transfer this Convertible Note to
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
________________________________________________________________________________
________________________________________________________________________________
(Insert assignee's social security or tax I.D. no.)
and irrevocably appoint _______________________________ agent to transfer this
Note on the books of the Company. The agent may substitute another to act for
him.
Your Signature:_________________________________________________________________
(Sign exactly as your name appears on the other side of this
Convertible Note)
Date:_________________________________________________________________________
Signature Guarantee/1/________________________________________________________
In connection with any transfer of any of the Notes evidenced by this
certificate occurring prior to the date that is three years after the later of
the date of original issuance of such Notes and the last date, if any, on which
such Notes were owned by the Company or any Affiliate of the Company, the
undersigned confirms that such Notes are being transferred:
CHECK ONE BOX BELOW
(1) [_] to Terayon Communication Systems, Inc.; or
(2) [_] pursuant to and in compliance with Rule 144A under the
Securities Act of 1933, as amended; or
(3) [_] pursuant to and in compliance with Regulation S under the
Securities Act of 1933, as amended; or
(4) [_] pursuant to another available exemption from the registration
requirements of the Securities Act of 1933; or
____________________________
/1/ Signature must be guaranteed by a commercial bank, trust company or member
firm of the New York Stock Exchange.
<PAGE>
(5) [_] pursuant to an effective registration statement under the
Securities Act of 1933.
Unless one of the boxes is checked, the Trustee will refuse to
register any of the Notes evidenced by this certificate in the name of
any person other than the registered holder thereof; provided,
however, that if box (2), (3) or (4) is checked, the Trustee may
require, prior to registering any such transfer of the Notes such
legal opinions, certifications and other information as the Company
has reasonably requested to confirm that such transfer is being made
pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act of 1933, such as the
exemption provided by Rule 144 under such Act.
Unless the box below is checked, the undersigned confirms that such
Note is not being transferred to an "affiliate" of the Company as
defined in Rule 144 under the Securities Act of 1933, as amended (an
"Affiliate"):
(6) [_] The transferee is an Affiliate of the Company.
_________________________________
Signature
_________________________________
Date
_________________________________
Signature Guarantee /1/
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED.
________________________
/1/ Signature must be guaranteed by a commercial bank, trust company or
member firm of the New York Stock Exchange.
<PAGE>
The undersigned represents and warrants that it is purchasing this Note for
its own account or an account with respect to which it exercises sole investment
discretion and that it and any such account is a "qualified institutional buyer"
within the meaning of Rule 144A under the Securities Act of 1933, and is aware
that the sale to it is being made in reliance on Rule 144A and acknowledges that
it has received such information regarding the Company as the undersigned has
requested pursuant to Rule 144A or has determined not to request such
information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Dated:_________________________ _____________________________________________
[Signature of executive officeer of purchaser]
Name:________________________________________
Title:_______________________________________
<PAGE>
CONVERSION NOTICE
To Terayon Communication Systems, Inc.:
The undersigned owner of this Note hereby irrevocably exercises the option
to convert this Note, or the portion below designated, into Common Stock of
Terayon Communication Systems, Inc. in accordance with the terms of the
Indenture referred to in this Note, and directs that the shares issuable and
deliverable upon conversion, together with any check in payment for fractional
shares, be issued in the name of and delivered to the undersigned, unless a
different name has been indicated in the assignment below. If shares are to be
issued in the name of a person other than the undersigned, the undersigned will
pay all transfer taxes payable with respect thereto.
Any holder of Notes, upon exercise of its conversion rights in accordance
with the terms of the Indenture and the Security, agrees to be bound by the
terms of the Registration Rights Agreement relating to the Common Stock issuable
upon conversion of the Notes.
[_] Convert whole [_] Convert in part
Amount of Note to be converted
($1,000 or integral multiples
thereof):
$____________________
_____________________________________
Signature (sign exactly as name appears
on the other side of this Note)
_____________________________________
Signature Guarantee:/1/
____________________________
/1/ Signature must be guaranteed by a commercial bank, trust company or
member firm of the New York Stock Exchange.
<PAGE>
If you want the stock certificate made out in another person's name,
complete the following for such person:
___________________________________
Name
___________________________________
Social Security or Taxpayer Identification Number
___________________________________
Street Address
___________________________________
City, State and Zip Code
<PAGE>
OPTION OF HOLDER TO ELECT REPURCHASE
If you want to elect to have this Note repurchased by the Company pursuant
to Section 3.9 of the Indenture, check the box:
[_]
If you want to elect to have only part of this Note repurchased by the
Company pursuant to Section 3.9 of the Indenture, state the principal amount
(which shall be $1,000 or a multiple thereof) to be repurchased:
$__________________
Dated:_______________________________ ________________________________________
Signature (sign exactly as name appears
on the other side of this Note)
_____________________________________
Signature Guarantee:/1/
___________________________
/1/ Signature must be guaranteed by a commercial bank, trust company or member
firm of the New York Stock Exchange.
<PAGE>
Global Note Transfer Schedule
Changes to Principal Amount of Global Security
<TABLE>
<CAPTION>
=====================================================================================================================
Principal Amount of Securities by Remaining Principal Amount of this Authorized Signature
which this Global Security Is to Be Global Security of officer of Trustee or
Date Reduced and Reason for Reduction (following decrease) Note Custodian
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
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====================================================================================================================
</TABLE>
Schedule to be maintained by Depositary in cooperation with Trustee.
