Terayon filed an amended 10-K on 4/28/00
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The Registrant hereby amends Item 3 contained in the Registrant's Report on Form 10-K for the year ended December 31, 1999 to include certain information on events subsequent to March 30, 1999.
The Registrant hereby amends Item 8 contained in the Registrant's Report on Form 10-K for the year ended December 31, 1999 to amend certain information contained in Notes 11 and 13 of the Notes to Consolidated Financial Statements. The Registrant hereby amends Item 10, Item 11, Item 12 and Item 13 contained in the Registrant's Report on Form 10-K for the year ended December 31, 1999 to include the information required by these Items. Except for such changes, no other changes are made to the Registrant's Report of Form 10-K for the year ended December 31, 1999.
ITEM 3. LEGAL PROCEEDINGS
In September 1999, Imedia Corporation, now our subsidiary, was named as a defendant in Evergreen Canada Israel Management Ltd. v. Imedia Corporation, a case filed in San Francisco Superior Court alleging that Imedia breached its term sheet agreement with the Plaintiffs by negotiating with us while a no shop provision was in place and refusing to allowing the Plaintiffs to invest in Imedia. The Plaintiffs are seeking damages in excess of $12.0 million. As part of the terms of the Imedia Agreement and Plan of Merger and Reorganization, shares of our common stock to be issued to the former shareholders of Imedia were placed in escrow to indemnify us for any damages that are directly or indirectly suffered as a result of any claim brought by any Person who was a prospective investor in Imedia and was not a securityholder of Imedia on the closing date of the Imedia acquisition. The value of the escrowed shares was approximately $10.0 million based on the market value of our common stock on the closing date. The case is in its initial stages, and no trial date has been established. We have reviewed the allegations made by the Plaintiffs and we do not believe that the outcome will have a negative impact on our financial position, results of operations or cash flows.
On April 13, 2000, a lawsuit against us and certain of our officers and directors, entitled Birnbaum v. Terayon Comm. Systems, Inc., was filed in the United States District Court for the Central District of California. The plaintiff purports to be suing on behalf of a class of shareholders who purchased or committed to purchase our securities during the period from February 2, 2000 to April 11, 2000. The complaint alleges that the defendants violated the federal securities laws by issuing materially false and misleading statements and failing to disclose material information regarding our technology. Several other lawsuits similar to the Birnbaum suit have since been filed. The lawsuits seek an unspecified amount of damages,in addition to other forms of relief. We consider the lawsuits to be without merit and we intend to defend vigorously againstthese allegations....
The following is a summary of additional information with respect to the 1995 Stock Option Plan, the 1997 Equity Incentive Plan, the 1998 Non-Employee Directors' Stock Option Plan, the 1999 Non-Officer Equity Incentive Plan and option grants made outside the plans:
> Options
Outstanding
and Exercisable
-----------------------
Weighted-
Options Number Average
Available of Exercise
for Grant Shares Price
Balance at December 31, 1996........ 121,578 1,886,950 $0.31
Options authorized................ 1,120,000 -- $ --
Options granted................... (1,304,050) 1,304,050 $1.71
Options exercised................. -- (481,648) $0.30
Options canceled.................. 372,168 (372,168) $0.56
----------- -----------
Balance at December 31, 1997........ 309,696 2,337,184 $1.05
Options authorized................ 2,520,000 -- $ --
Options granted................... (1,185,081) 1,185,081 $9.45
Options exercised................. -- (404,039) $0.69
Options canceled.................. 426,992 (426,992) $2.79
----------- -----------
Balance at December 31, 1998........ 2,071,607 2,691,234 $4.54
Options authorized................ 3,000,000 -- --
Options granted................... (3,913,284) 3,913,284 $44.00
Options exercised................. (963,993) $3.46
Options canceled.................. 469,356 (469,356) $11.67
Options Repurchased............... 4,666 $0.50
----------- -----------
Balance at December 31, 1999........ 1,632,345 5,171,169 $33.56
=========== ===========
In addition, the following table summarizes information about stock options that were outstanding and exercisable at December 31, 1999:
Options Outstanding and Exercisable
-----------------------------------
Weighted-
Average
Weighted- Remaining
Number Average Contractual
of Exercise Life
Range of Exercise Prices Shares Price (in Years)
------------------------------------- ----------- ----------- -----------
$ 0.10 -- $ 0.50........... 311,076 $0.39 6.25
$ 0.51 -- $ 1.25........... 199,941 $1.25 7.35
$ 1.26 -- $ 3.00........... 62,962 $2.49 7.72
$ 3.01 -- $6.83........... 474,255 $6.31 8.35
$6.84 -- $13.00........... 461,739 $10.70 9.04
$13.01 -- $32.75........... 721,693 $29.04 9.32
$32.76 -- $66.88........... 2,939,503 $49.37 9.82
-----------
Total.................... 5,171,169
===========
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Original 10-K, 3/3/2000, for comparison:
The following is a summary of additional information with respect to the 1995 Stock Option Plan, the 1997 Equity Incentive Plan, the 1998 Non-Employee Directors' Stock Option Plan, the 1999 Non-Officer Equity Incentive Plan and option grants made outside the plans:
Options
Outstanding
and Exercisable
-----------------------
Weighted-
Options Number Average
Available of Exercise
for Grant Shares Price
----------- ----------- -----------
Balance at December 31, 1996........ 121,578 1,886,950 $0.31
Options authorized................ 1,120,000 -- $ --
Options granted................... (1,304,050) 1,304,050 $1.71
Options exercised................. -- (481,648) $0.30
Options canceled.................. 372,168 (372,168) $0.56
----------- -----------
Balance at December 31, 1997........ 309,696 2,337,184 $1.05
Options authorized................ 2,520,000 -- $ --
Options granted................... (1,185,081) 1,185,081 $9.45
Options exercised................. -- (404,039) $0.69
Options canceled.................. 426,992 (426,992) $2.79
----------- -----------
Balance at December 31, 1998........ 2,071,607 2,691,234 $4.54
Options authorized................ 3,000,000 -- --
Options granted................... (3,184,384) 3,184,384 $39.97
Options exercised................. (963,993) $3.46
Options canceled.................. 469,356 (469,356) $11.67
Options Repurchased............... 4,666 $0.50
----------- -----------
Balance at December 31, 1999........ 2,361,245 4,442,269 $28.68
=========== ===========
In addition, the following table summarizes information about stock options that were outstanding and exercisable at December 31, 1999:
Options Outstanding and Exercisable
-----------------------------------
Weighted-
Average
Weighted- Remaining
Number Average Contractual
of Exercise Life
Range of Exercise Prices Shares Price (in Years)
- ------------------------------------- ----------- ----------- -----------
$ 0.10 -- $ 0.50........... 311,076
$0.39 6.25
$ 0.51 -- $ 1.25........... 199,941
$1.25 7.35
$ 1.26 -- $ 3.00........... 62,962
$2.49 7.72
$ 3.01 -- $6.83........... 474,255
$6.31 8.35
$6.84 -- $13.00........... 461,739
$10.70 9.04
$13.01 -- $32.75........... 721,693
$29.04 9.32
$32.76 -- $66.88........... 2,210,603 $44.83 9.68
-----------
Total.................... 4,442,269
===========
>>>>>>>
The following items were omitted in the 3/3/00 10-K, and had to be added to the amended 10-K:
ITEM 10. Directors and Officers of the Registrant
Our directors and executive officers and their ages as of March 10, 2000 are as follows:
Name Age Position
Dr. Zaki Rakib(2)............. 41 Chief Executive Officer
Shlomo Rakib.................. 43 Chairman of the Board Chief Technical Officer
Dennis J. Picker.............. 52 Chief Operating Officer
Ray M. Fritz.................. 54 Chief Financial Officer
Michael D'Avella............. 41 Director
Alek Krstajic................ 36 Director
Christopher Schaepe..(1)(2).. 36 Director
Lewis Solomon..(1)........... 66 Director
Mark Stevens..(2)............ 40 Director
(1) Member of Audit Committee
(2) Member of Compensation Committee
The Board of Directors is divided into three classes, each having a three-year term. Mr. Krstjic, Mr. Solomon and Mr. Stevens are Class I directors, whose terms expire in 2002. Mr. D'Avella and Mr. Shlomo Rakib are Class II directors, whose terms expire in 2000. Mr. Schaepe and Dr. Zaki Rakib are Class III directors, whose terms expire in 2001.
Zaki Rakib co-founded Terayon in 1993 and has served as Chief Executive Officer since January 1993 and as a director since February 1995. From January 1993 to July 1998, Dr. Rakib also served as Chief Financial Officer of the Company. Prior to co-founding the Company, Dr. Rakib served as Director of Engineering for Cadence Design Systems, an electronic design automation software company, from 1990 to 1994. Prior to joining Cadence, Dr. Rakib was Vice President of Engineering at Helios Software, which was acquired by Cadence in 1990. Dr. Rakib serves on the board of a privately held company. Dr. Rakib holds B.S., M.S. and Ph.D. degrees in engineering from Ben-Gurion University in Israel. Dr. Rakib is the brother of Shlomo Rakib, the Company's Chairman of the Board, President and Chief Technical Officer and a director of the Company.
Shlomo Rakib co-founded Terayon in 1993 and has served as Chairman of the Board and President since January 1993 and as Chief Technical Officer since February 1995. Prior to co-founding the Company, Mr. Rakib served as Chief Engineer at PhaseCom, Inc., a communications products company, from 1981 to 1993, where he pioneered the development of data and telephony applications over cable. Mr. Rakib is the inventor of several patented technologies in the area of data and telephony applications over cable. Mr. Rakib holds a B.S.E.E. degree from Technion University in Israel. Mr. Rakib is the brother of Zaki Rakib, the Chief Executive Officer and a director ofthe Company.
Dennis J. Picker has served as Chief Operating Officer since February 1998 and served as Vice President from October 1997 to February 1998 and Vice President, Engineering from May 1996 to October 1997. From 1994 to April 1996, Mr. Picker was Director of the Cable Data Products Business Unit of Motorola, Inc., an electronics company. Mr. Picker holds a B.S. degree in electrical engineering from the University of Pennsylvania and a M.S. degree in electrical engineering from Northwestern University.
Ray M. Fritz has served as the Company's Chief Financial Officer since July 1999. Prior to joining the Company, Mr. Fritz was Vice President of Finance and Operations and Chief Financial Officer of GigaLabs Inc., a provider of high performance input/output switching solutions, from December 1997 to July 1999. From August 1994 until August 1997, Mr. Fritz was with Clarify, Inc., a provider of front office automation systems, as its Vice President, Finance and Operations and Chief Financial Officer. From May 1990 to August 1994, he served as Director, Finance of Synopsys, Inc., an electronic design automation company, and from April 1986 to May 1990, Mr. Fritz served as Vice President and Controller of LSI Logic Corporation, a semiconductor company. Prior to that, he held a variety of finance positions with Xerox Corporation, The Singer Company and Shell Oil Company. Mr. Fritz holds a B.S. degree in finance/business administration from Benedictine College, a M.B.A. degree from Atlanta University and a M.S. degree in tax from Golden Gate University.
Michael D'Avella has served as a director of the Company since April 1998. Mr. D'Avella is the Senior Vice President, Planning for Shaw Communications Inc., a diversified communications company and a leading cable operator in Canada. Mr. D'Avella has held a variety of senior management positions at Shaw since 1991. Prior to that, he held positions with the Canadian Cable Television Association and Telesat Canada. He is a director of Canadian Satellite Communications Inc., a distributor of satellite based broadcast signals and provider of satellite communications for businesses, and GT Group Telecom Inc., a broadband services company, and several privately held companies. Mr. D'Avella holds a B.A. degree in economics and planning from the University of Toronto in Canada.
Alek Krstajic has served as a director of the Company since July 1999. Mr. Krstajic is the Senior Vice President Interactive Services, Sales and Product Development for Rogers Cable Inc., and has held a variety of senior management positions at Rogers since 1994. Mr. Krstajic is a director of several privately held companies. Mr. Krstajic holds a B.A. degree in economics from the University of Toronto in Canada and attended the executive educational program at Wharton School of Business at the University of Pennsylvania.
Christopher J. Schaepe has served as a director of the Company since March 1995. Mr. Schaepe is a Managing Director of Weiss, Peck & Greer, L.L.C., a technology-focused venture capital firm, which he joined in 1991. Previously, Mr. Schaepe served in corporate finance and capital markets roles for three years at Goldman, Sachs & Company after his employment as a software engineer at IBM Corporation. He is a director of Galileo Technology Ltd., a communications semiconductor company, Quantum Effect Devices, Inc., a communications microprocessor supplier, and several privately held companies. Mr. Schaepe holds B.S. and M.S. degrees in computer science from the Massachusetts Institute of Technology and an M.B.A. degree from Stanford Business School.
Lewis Solomon has served as a director of the Company since March 1995. Mr. Solomon has been a principal of G&L Investments, a consulting firm, since 1989 and currently serves as the Co-Chairman of the Board of Broadband Services, Inc. From 1983 to 1988, he served as Executive Vice President at Alan Patricof Associates, a venture capital firm focused on high technology, biotechnology and communications industries. Prior to that, Mr. Solomon served in various capacities with General Instrument Corp., most recently as Senior Vice President. From April 1986 to January 1997, he served as Chairman of the Board of Cybernetic Services, Inc., an LED systems manufacturer, which commenced a Chapter 7 bankruptcy proceeding in April 1997. Mr. Solomon serves on the boards of Anadigics, Inc., a manufacturer of integrated circuits; Anacomp, Inc., a manufacturer of data storage systems; and Artesyn
Technologies, Inc., a power supply and power converter supply company. Mr. Solomon also serves on the boards of several privately held companies.
Mark A. Stevens has served as a director of the Company since March 1995. Mr. Stevens has been a General Partner of Sequoia Capital, a venture capital investment fund, since March 1993. Mr. Stevens currently serves on the Board of Directors of NVidia Corporation, a graphics software and processor company, Medicalogic, Inc., an on-line health enterprise company, MP3.com, Inc., an on-line music services provider and retail company and several privately held companies. Prior to joining Sequoia in 1989, he held technical sales and marketing positions at Intel Corporation. Mr. Stevens holds a B.S.E.E. degree, a B.A. degree in economics and an M.S. degree in computer engineering from the University of Southern California and an M.B.A. degree from Harvard Business School.
Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934, as amended ("Section 16(a)"), requires the Company's directors and executive officers, and persons who own more than 10 percent of a registered class of the Company's equity securities, to file with the SEC initial reports of ownership and report of changes in ownership of common stock and other equity securities of the Company. Officers, directors and greater than 10 percent stockholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. To the Company's knowledge, based solely on review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the fiscal year ended December 31, 1999, all Section 16(a) filing requirements applicable to its directors, officers and greater than 10 percent beneficial owners were complied with except that Mr. Schaepe and Mr. Krstajic each filed late one report covering one transaction.
ITEM 11. Executive Compensation
Compensation of Directors
Mr. Solomon receives $2,000 per month for his service as a member of the Board of Directors and Mr. D'Avella receives $3,000 per month for his services as a member of the Board of Directors. No other director of the Company receives cash for services provided as a director. Certain directors have been granted options to purchase Common Stock in the past. In the fiscal year ended December 31, 1998, the total compensation paid to non-employee directors was $48,000. The members of the Board of Directors are also eligible for reimbursement for their expenses incurred in connection with attendance at Board of Directors and Committee meetings in accordance with Company policy.
Each non-employee director of the Company also receives non- discretionary automatic stock option grants under the Directors' Plan. Only non-employee directors of the Company who are not employees of or consultants to the Company or of any affiliate of the Company (a "Non- Employee Director") are eligible to receive options under the Directors' Plan. Options granted under the Directors' Plan are intended by the Company not to qualify as incentive stock options under the Code. The Directors' Plan is administered by the Board, unless the Board delegates administration to a Committee comprised of members of the Board.
The aggregate number of shares of Common Stock that may be issued pursuant to options granted under the Directors' Plan is 200,000 shares. Pursuant to the terms of the Directors' Plan, after August 1998, each person who is elected or appointed for the first time to be a Non-Employee Director automatically shall, upon the date of his or her initial election or appointment to be a Non-Employee Director by the Board or stockholders of the Company, be granted an option to purchase 30,000 shares of Common Stock. In addition, on the day following each Annual Meeting of Stockholders of the Company ("Annual Meeting"), commencing with the Annual Meeting in 1999, each person who is then serving as a Non-Employee Director automatically shall be granted an option to purchase 12,500 shares of Common Stock, which amount shall be prorated for any Non-Employee Director who has not continuously served as a Non-Employee Director for the 12-month period prior to the date of such Annual Meeting. In addition, on the day following each Annual Meeting, commencing with the Annual Meeting in 1999, each Non-Employee Director who is then serving as a member of a committee of the Board of Directors automatically shall be granted, for each such committee, an option to purchase 3,000 shares of Common Stock of the Company, which amount shall be prorated for any Non-Employee Director who has not continuously served as a member of such committee for the 12-month period prior to the date of such Annual Meeting.
The exercise price of the options granted under the Directors' Plan will be equal to the fair market value of the Common Stock on the date of grant. No option granted under the Directors' Plan may be exercised after the expiration of 10 years from the date it was granted. Options granted under the Directors' Plan vest and become exercisable as to 33% of the shares on the first anniversary of the date of grant and 1/36th of the shares monthly thereafter. Options granted under the Directors' Plan generally are non-transferable. However, an optionee may designate a beneficiary who may exercise the option following the optionee's death. An optionee whose service relationship with the Company or any affiliate (whether as a Non- Employee Director of the Company or subsequently as an employee, director, or consultant of either the Company or an affiliate) ceases for any reason may exercise vested options for the term provided in the option agreement (3 months generally, 12 months in the event of disability and 18 months in the event of death).
In the event of certain changes in control of the Company, all outstanding awards under the Directors' Plan either will be assumed or substituted for by any surviving entity. If the surviving entity determines not to assume or substitute for such awards, the vesting and time during which such options may be exercised shall be accelerated prior to such event and the options will terminate if not exercised after such acceleration and at or prior to such event. Unless terminated sooner by the Board of Directors, the Directors' Plan will terminate in June 2008.
During the last fiscal year, the Company granted options covering 46,500, 25,000 and 30,000 shares to non-employee directors of the Company at exercise prices per share of $45.25, $42.52 and $48.50, respectively. The exercise prices were also the respective fair market values of such Common Stock on the date of grant (based on the closing sale price reported on the Nasdaq National Market for the date of grant). As of March 10, 2000, no options had been exercised under the Directors' Plan.
Directors who are employees of the Company do not receive separate compensation for their services as directors.
Compensation of Executive Officers
Summary of Compensation
The following table shows for the fiscal years ended December 31, 1999, 1998 and 1997, compensation awarded or paid to, or earned by, the Company's Chief Executive Officer and its other four most highly compensated executive officers at December 31, 1999 (the "Named Executive Officers"):
Annual Compensation Long-term Compensation Awards
-------------------------------------------------------
Other Securities
Name and Annual Underlying LTIP All Other
Principal Salary Bonus Compensa- Options/ PayoutCompensa-
Position Year ($) ($) tion($) SARs (#) ($) tion ($)
------------------------------------------------------------------------
Dr. Zaki Rakib 1999 232,500 66,000 -- -- -- --
Chief Executive 1998 172,500 -- -- -- -- --
Officer 1997 150,000 12,500 -- -- -- --
Shlomo Rakib 1999 232,500 45,000 -- -- -- --
President and 1998 172,500 -- -- -- -- --
Chief Technical 1997 150,000 12,500 -- -- -- --
Officer
Dennis Picker 1999 181,250 40,000 -- 10,000 -- --
Chief Operating 1998 153,000 -- -- 40,000 -- --
Officer 1997 129,000 31,800 75,166(1) -- -- --
Ray M. Fritz 1999 175,416 43,333 -- 20,000 -- --
Chief Financial 1998 74,079 -- -- 180,000 -- --
Officer 1997 -- -- -- -- -- --
Brian Bentley 1999 99,192 -- 84,574(2) -- -- --
Vice President 1998 125,650 -- 93,974(2) 10,000 -- --
Worldwide Sales(31997 -- -- -- -- -- --
(1) Consists of reimbursement to Mr. Picker for travel costs of which $35,140 was attributable to tax gross-up payments made by theCompany.
(2) Represents sales commissions earned in 1998 and 1999.
(3) Mr. Bentley is no longer an employee of the Company.
Stock Option Grants And Exercises
The Company grants options to its executive officers under its 1995 Stock Option Plan (the "1995 Plan") and its 1997 Equity Incentive Plan (the "1997 Plan," together with the 1995 Plan, the "Plans"). As of March 10, 2000, options to purchase a total of 386,182 shares and 2,902,502 shares were outstanding under the 1995 Plan and the 1997 Plan, respectively, and options to purchase 181,186 shares and 880,990 shares remained available for grant under the 1995 Plan and the 1997 Plan, respectively.
The following tables show for the fiscal year ended December 31, 1999, certain information regarding options granted to, exercised by, and held at year-end by, the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants Potential
--------------------------------------Realizable Value
Number of % of Total at Assumed Annual
Securities Options Rates of Stock Price
UnderlyingGranted toExercise Appreciation
Options Employees or Base Expira- for Option Term (4)
Granted in Fiscal Price tion ---------------------
Name (#) (1) Year (2) ($/Sh)(3) Date 5% ($) 10% ($)
---------------------------------------------------------------------
Dr.Zaki Rakib -- -- -- -- --
Shlomo Rakib -- -- -- -- --
Dennis Picker 10,000 0.25% 37.375 04/04/09 235,049 470,099
Ray M. Fritz 20,000 0.50% 37.375 04/04/09 595,661 1,171,777
Brian Bentley -- -- -- -- -- --
(1) Options vest at a rate 50% on the first anniversary of the vesting commencement date and 1/24th each month thereafter. The term of each option granted is generally the earlier of (i) 10 years or (ii) 90 days after termination of the optionee's services to theCompany.
(2) Based on an aggregate of 3,876,448 options granted to employees, consultants and directors of the Company, including the Named Executive Officers, during the fiscal year ended December 31, 1999.
(3) The exercise price per share of each option was equal to the fair market value of the Common Stock on the date of grant as determined by the Board of Directors after consideration of a number of factors, including, but not limited to, the development life cycle of the Company's products, the Company's financial performance, market conditions, the preferred rights and privileges of shares of
equity securities sold to or purchased by outside investors, and third-party appraisals.
(4) The potential realizable value is calculated based on the terms of the option at its time of grant (10 years). It is calculated assuming that the fair market value of the Company's Common Stock on the date of grant appreciates at the indicated annual rate compounded annually for the entire term of the option is exercised and sold on the last day of its term for the appreciated stockprice.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEARAND FISCAL YEAR-END OPTION VALUES
Number of Value of Securities Unexercised Underlying In-the-Money Unexercised Options/SARS Options/SARS at FY_End ($) Shares at FY-End Exercisable/
Name Acquired on Value Exercisable/ Unexerciable Exercise(#)Realized($)Unexerciable (1)
------------------------------------------------------------
Dr.Zaki Rakib -- -- -- --
Shlomo Rakib -- -- -- --
Dennis Picker 181,699 7,388,851 73,034 (2) 3,971,983
Ray M. Fritz 10,000 664,063 153,001 (3) 7,532,665
Brian Bentley 59,786 2,416,173 -- --
(1) Value is based upon the closing price of $62.8125 of the Company's on December 31, 1999 on the Nasdaq National Market.
(2) As of December 31, 1999, 133,001 shares of common stock are currently exercisable upon the early exercise of options vesting through May 2003 and 20,000 shares are not currently exercisable under options vesting through April 2001.
(3) As of December 31, 1999, 28,001 shares are currently exercisable upon the early exercise of options vesting through May 2001, 35,033 shares of currently exercisable upon the early exercise of options vesting through May 2003 and 10,000 are not currently exercisable under options vesting through April 2001.
Employment Agreements
In February 1993, the Company entered into an employment agreement with Shlomo Rakib to serve as President and Chairman of the Board of Directors. The employment agreement is f |
