Have I, more or less, pieced this together right?
To a Tee! Throw in cooperating analysts and you have a "receit for deceit" that even TSEliot would have struggled to envision. I agree the cycle could continue ad infintum, but only as long as the public believes in their technology. I'm guessing as soon as shareholders get wind of the fact TERN isn't going to have a DOCSIS product of their own (at least in the promised time-frame), doubt will set in and the cycle will reverse. As Shaw (and Rogers) realize their warrants are losing value, they'll most likely cover and move on --- nothing lost, and maybe even something to be gained by returning unused inventory.
As for the IB court jesters, they'll most likely continue the game by managing further acquisitions. However, as TERN's price goes down, their currency will decrease.
Incidentally, for anyone interested in TERN's current acquisitions, you might want to pull the covers off Telegate. I'm told they needed to re-work an ASIC and were not given the go-ahead. I don't know if engineers are walking out the door, but I'd certainly want to find out.
I don't know who Shaw's "executive chair" is, but it's a fair assumption he's smiling.
Again, I still believe TERN might be able to keep the S-CDMA hope alive while making enough acquisitions to re-invent themselves before shareholders figure out what's going on. With Gilder's help --- and don't forget he was an early investor --- they've had a pretty smooth ride so far.
Today's SEC search had one goal: to find the Rogers agreement where their return policy was spelled out. I found a lot of other information along the way and will add at the end. First, the product agreement:
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On March 18, 1999, the Company entered into a one-year Product Development Assistance Agreement (Development Agreement) with Rogers Communications Inc. (Rogers Communications). Under the terms of the Development Agreement, Rogers Communications will provide the Company assistance with the characterization and testing of the Company'ssubscriber-end and head-end voice-over-cable equipment. In addition, Rogers Communications will provide the Company with technology to assist the Company in connection with its efforts to develop high quality, field proven technology solutions that are DOCSIS -compliant and packet cable-compliant.In consideration of Rogers Communications entering into the Development Agreement, the Company issued Rogers Communications two fully vested and non-forfeitable warrants, each to purchase 1,000,000 shares of common stock.One warrant provides for an exercise price of $1.00 per share and onewarrant provides for an exercise price of $37.00 per share. The warrants may be exercised at any time in full or in part through March 31, 2000. The fair value of the two warrants is estimated to be approximately $45,000,000 and will result in a noncash charge included in operations over the one-year term of the Development Agreement. For the three and nine months ended September 30, 1999, the Company incurred approximately $11,200,000 and $24,000,000, respectively, of product development expense related to theDevelopment Agreement.In addition, on March 18, 1999, the Company entered into a SupplyAgreement with Rogers Cablevision Limited (Rogers Cablevision), a subsidiary of Rogers Communications. Under the Supply Agreement, theCompany agreed to make available to Rogers Cablevision its current TeraLinkGateway and TeraLink 1000 Master Controller, and TeraPro Cable Modems and specified software. The Company also committed to certain product pricing and specifications. Under the terms of the Supply Agreement, Rogers retains the right to return to the Company all product purchased until certain conditions are met by the Company. Accordingly, the Company does not recognize revenue on shipments to Rogers until the milestones have been achieved or Rogers has waived the right to return the product. For the three and nine months ended September 30, 1999, Rogers waived their right to return certain product purchased and the Company recognized approximately $5.0 million in revenues from sales to Rogers. The Supply Agreement and the Development Agreement do not constitute a commitment by either Rogers Cablevision or Rogers Communications to purchase or deploy any particular volume or quantity of the Company's product. No such commitment will be made unless Rogers Cablevision or RogersCommunications issues a purchase order to the Company.
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Update on sales from same report:
In the three months ended September 30,1999, sales to Shaw represented approximately 25% of our revenues, sales to Rogers represented approximately 21% of our revenues, sales to UPC represented approximately 16% of our revenues and sales to Sumitomo represented approximately 13% of our revenues. This is compared to approximately 28% of revenues from sales to Cablevision, approximately 24% of our revenues from sales to Shaw and approximately 14% of revenues from sales to Sumitomo in the three months ended September 30, 1998. In the nine months ended September 30, 1999, sales to Shaw represented approximately 28% of our revenues, sales to Sumitomo represented approximately 15% of our revenues and sales to UPC represented approximately 11% of our revenues.This compares to 32% of revenues from sales to Shaw, 19% of revenues from sales to Cablevision and 14% of revenues from sales to Sumitomo in the nine months ended September 30, 1998.
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That's it for now. A couple questions come to mind that may not have answers: If Shaw and Rogers have been compensated through warrants, how are/were the foreign companies like Telegate, Sumitomo, and NetBrazil compensated? What are the chances they took no compensation when Rogers and Shaw were/are so richly rewarded?
Pat
Miscellaneous findings, including directors compensation:
Terayon's, original S-1:
[Based on Shaw's announced intentions to sell modems through their retail channel, I'm wondering if the following risk factor is becoming real:]
Need to Develop Additional Distribution Channels.
The Company presently markets its products to cable operators and systems integrators. The Company believes that much of the North American cable modem market may shift to a retail distribution model. Accordingly, the Company anticipates that it may need to redirect its marketing efforts in the future to sell its modems directly to retail distributors and end users, which would require the establishment of new distribution channels for its products. There can be no assurance that the Company will be able to establish such additional distribution channels or that, if the Company does establish additional channels, it will have the capital required or the ability to hire the additional personnel necessary to foster and enhance such distribution channels. In addition, if the cable modem market shifts to a retaildistribution model, there can be no assurance that the Company will successfully establish a retail distribution presence. Failure by the Company to establish such distribution channels could have a material adverse affect on the Company's business, operating results or financial condition. To theextent that large consumer electronics companies enter the cable modem market, their well
established retail distribution capabilities would provide them with a significant competitive advantage.
[Anyone know the status of the following litigation suit?]
The Company expects that developers of cable modems will increasingly be subject to infringement claims as the number of products and competitors in the Company's industry segment grows. The Company has received a letter from an individual claiming that the Company's technology infringes a patent heldby such individual. The Company has reviewed the allegations made by such individual and, after consulting with its patent counsel, does not believe that the Company's technology infringes any valid claim of such individual's patent. There can be no assurance that, if the issue were to be submitted to a court, such a court would not find that the Company's products infringe the patent, nor that the individual will not continue to assert infringement. Ifthe Company is found to have infringed such individual's patent, the Company could be subject to substantial damages and/or an injunction preventing itfrom conducting its proposed business.
[Intellectual property:]
The Company relies on a combination of patent, trade secret, copyright and trademark laws and contractual restrictions to establish and protect proprietary rights in its products. The Company has two issued patents and five patent applications pending in the United States. The Company has seven patent applications pending internationally. There can be no assurance that the Company's patent applications will be granted or, if granted, that the claims covered by the patents will not be reduced from those included in the Company's applications. Any patent might be subject to challenge in court and, whether or not challenged, might not be sufficiently broad to prevent third parties from developing equivalent technologies or products. The Company has entered into confidentiality and invention assignment agreements with its employees, and enters into non-disclosure agreements with certain of its suppliers,distributors and appropriate customers so as to limit access to and disclosureof its proprietary information. There can be no assurance that these statutory and contractual arrangements will prove sufficient to prevent misappropriation of the Company's technology or to deter independent third-party development of similar technologies.
[Two patents:]
164.195.100.11
164.195.100.11
[Compared to CMTO's 5:]
164.195.100.11
[The following references to directors is worth noting when compared to TERN's largest customers:]
Board of Directors and compensation:
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 the effective date of the initial public offering of the Company's Common Stock, 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-EmployeeDirector by the Board or stockholders of the Company, be granted an option topurchase 30,000 shares of Common Stock. In addition, on the day following eachAnnual 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, anoption
to purchase 3,000 shares of Common Stock of the Company, which amountshall be prorated for any Non-Employee Director who has not continuously servedas 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 beequal 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 expirationof 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 firstanniversary of the date of grant and 1/36th of the shares monthly thereafter. Options granted under theDirectors' Plan generally are non-transferable. However, an optionee maydesignate a beneficiary who may exercise the option following the optionee'sdeath. An optionee whose service relationship with the Company or any affiliate(whether as a Non-Employee Director of the Company or subsequently as anemployee, director or consultant of either the Company or an affiliate) ceasesfor any reason may exercise vested options for the term provided in the optionagreement (3 months generally, 12 months in the event of disability, and 18months 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 byany surviving entity. If the surviving entity determines not to assume or substitute for such awards, the vesting and time during which such options maybe 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.
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[Shaw warrants]
WARRANTS In April 1998, the Company issued to Shaw a warrant (Product Purchase Warrant) to purchase 3,000,000 shares of Common Stock at an exercise price of$6.50 per share. The Product Purchase Warrant is exercisable between April 6,2003 and December 31, 2003, or earlier depending on the volume of cable modempurchases by Shaw in 1998, 1999 and 2000. In addition, the Company issued toShaw a warrant ("Anti-Dilution Warrant") to purchase an indeterminate number of shares of Common Stock for an aggregate price of $1.00. The Anti-DilutionWarrant is exercisable from time to time when the Company issues certain newequity securities until the date upon which Shaw ceases to own at least384,615 shares of Common Stock.
ADVISORY BOARD In early 1997, the Company established an Advisory Board, which consists of representatives from the United States and international cable industries. The Advisory Board currently consists of nine members: Steven Craddock, the VicePresident of New Media for Comcast Corporation; Michael D'Avella, the SeniorVice President of Planning for Shaw and a member of the Company's Board ofDirectors; David Fellows, the former Vice President of Technology for MediaOne; George Harte, the Director of Telecom Technology for Rogers Communications Inc.; Wilt Hildebrand, the Vice President of Technology for Cablevision Systems Corporation; Isao Momota, the President of Crossbeam Networks; Richard Rexroat, the Vice President, Engineering of TCI International; J.C. Sparkman, a former Executive Vice President of TCI; and Arthur Steiner, the Director of Business Development for NET Brasil.
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In December 1997, the Company entered into a strategic partnership and distributorship agreement with Sumitomo, a greater than five percentstockholder of the Company, whereby Sumitomo and the Company formed a strategic partner relationship for the purpose of promoting Terayon's products in Japan.Pursuant to this agreement, the Company appointed Sumitomo as its exclusive distributor for Terayon's products in Japan and as a non-exclusive distributorfor Terayon's products in the rest of the world. Sales to Sumitomo in the first quarter of 1998 were approximately $325,000, which represented approximately13% of the Company's revenues for that quarter. In the quarter ended March 31, 1998, the Company sold products to Shaw for an aggregate of approximately $900,000. In addition, in April 1998, the Company issued Shaw a warrant to purchase 3,000,000 shares of Common Stock at an exercise price of $6.50 per share. Michael D'Avella, a director of the Company, is the Senior Vice President of Planning for Shaw. The Company has granted options to certain of its directors and executive officers. The Company believes that the terms of the transactions described above were no
less favorable to the Company than would have been obtained from an unaffiliated third party. Any future transactions between the Company and any of its officers, directors or principal stockholders will be on terms no less favorable to the Company than could be obtained from unaffiliated third parties and will be approved by a majority of the independent and disinterested members of the Board of Directors.
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Sales at time of IPO. Compare company names with members of Advisory Board :
10. SIGNIFICANT CUSTOMER AND GEOGRAPHIC INFORMATION The Company's European subsidiary accounted for approximately $407,000 of theCompany's revenues for the three months ended March 31, 1998 (none for the yearended December 31, 1997). The net loss of the Company's European subsidiary wasapproximately $107,000 after eliminations of approximately $407,000 for thethree months ended March 31, 1998. Identifiable assets of the Company'sEuropean subsidiary were approximately $50,000 at March 31, 1998 aftereliminations of approximately $407,000. Three of the Company's customers, Telegate Ltd., Sumitomo Corporation, and Net Brasil S.A. accounted for 30%, 29%, and 14% of revenues, respectively, for the year ended December 31, 1997. In addition, Shaw Communications, Inc., Sumitomo Corporation, and Telegate Ltd. accounted for 37%, 13%, and 12% ofrevenues for the three months ended March 31, 1998. No other customer accountedfor more than 10% of revenues during these periods. Total net export revenues to regions outside of the United States wereapproximately $1,855,000 and $2,195,000 for the year ended December 31, 1997and the three months ended March 31, 1998, respectively.
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S-1, April 1999, for secondary offering:
sec.gov
WE ARE DEPENDENT ON A SMALL NUMBER OF CUSTOMERS. Three customers accounted for approximately 73% of our revenues in 1997 and three customers accounted for approximately 65% of our revenues in the firs nine months of 1998. Of our total revenues in 1997, Telegate Ltd. accounted for approximately 30%, Sumitomo Corporation accounted for approximately 29% and NETBrasil S.A. accounted for approximately 14%. Of our total revenues for the nine months ended September 30, 1998, Shaw Communications Inc. accounted for approximately 32%, Cablevision Systems, Inc. accounted for approximately 19% and Sumitomo Corporation accounted for approximately 14%. We believe that a substantial majority of our revenues will continue to be derived from sales to a relatively small number of customers for the foreseeable future. In addition, we believe that sales to these customers will be focused on a small number ofprojects. The cable industry is undergoing significant consolidation in the United States and internationally, and a limited number of cable operators controls an increasing number of cable systems. As a result, our sales will be largely dependent upon product acceptance by the leading cable operators. Ten cable operators in the United States owned and operated facilities passing approximately 74% of total homes passed in 1997. The timing and size of each customer's order is critical to our operating results. Our major customers are likely to have significant negotiating leverage and may attempt to change the terms, including pricing, upon which we do business with them. These customersalso may require longer payment terms than we anticipate, which could requireus to raise additional capital to meet our working capital requirements. Oursuccess will depend on our cable modems being widely deployed and our abilitto sell to new customers.
DOCSIS:
WE NEED TO DEVELOP NEW PRODUCTS. Our future success will depend in part on our ability to develop, introduceand market new products in a timely manner. We must also respond to competitivepressures, evolving industry standards and technological advances. Our currentproducts are not DOCSIS-compliant, and we do not expect to sell our DOCSIS 1.2-compliant products until 2000. As 2000 approaches, existing or potential customers may delay purchases of our currentcable modem system in order to purchase systems that comply with the DOCSIS 1.2standard. In addition, potential new customers could decide to purchase DOCSIS1.2-compliant products from one or more of our competitors rather than from us.As a result, in the second half of 1999 and early 2000, our product sales maybe lower than we anticipate. As 2000 approaches, we may be required to reducethe price of our current products for sales to existing customers. This wouldhave an adverse effect on our operating results and gross margin. It is expected that the DOCSIS 1.2 specifications will be based upon both S-CDMA and advanced TDMA technology. In that event, we will have to incorporateadvanced TDMA technology into our DOCSIS 1.2-compliant products. If we areunable to do this effectively or in a timely manner, we will lose some or allof the time-to-market advantage we might otherwise have had.
MANAGEMENT WILL HAVE BROAD DISCRETION OVER THE PROCEEDS OF THE OFFERING. We currently have no specific plans for a significant portion of our net proceeds from this offering. Consequently, our management will have the discretion to allocate the net proceeds to uses that stockholders may not deem desirable. We may not be able to yield a significant return on any investment of the proceeds. Substantially all of our proceeds from the offering will beinvested in short-term, interest-bearing, investment grade securitiesimmediately following the offering.
SHAW Warrants:
Series F Convertible Preferred Stock Dividend. The Company recorded adividend of $23.9 million in the nine months ended September 30, 1998,representing the fair value of the warrant to purchase 3,000,000 shares of theCompany's common stock (Shaw Warrant) under EITF No. 96-13, "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock." The Company's accounting conclusion with respect to the Shaw Warrant issued in connection with the sale of $5.0 million of convertible preferred stock to Shaw (Shaw Financing) is based on management's conclusion that the sale of preferred stock was, in substance, a financing transaction and not the issuance of equity instruments in exchange for goods or services. When the Company issued $5.0 million of convertible preferred stock and the Shaw Warrant on April 6, 1998, its singular objective was to obtain sufficient liquidity to continue as a going concern. At the time of the Shaw Financing, the Company's ability to continue as a going concern was inserious doubt. At March 31, 1998, the Company had only $109,000 in cash, but was using cash of approximately $1.0 million, net, per month in operations;further, the Company had a deficit in working capital of $8.8 million.
[Update on directors compensation plan:]
DIRECTOR COMPENSATION Lewis Solomon receives $2,000 per month for his service as a member of theBoard. No other director of the Company receives cash for services provided as a director. Certain directors have been granted options to purchase CommonStock in the past, and options may be granted to directors of the Company inthe future. Mr. Stevens, Mr. D'Avella and entities affiliated with Weiss, Peckand Greer L.L.C., of which Mr. Schaepe is a partner, have each received options to purchase 30,000 shares of Common Stock at exercise prices of $1.25, $6.50and $1.25 per share, respectively. In June 1998, the Board adopted the 1998 Non-Employee Directors' Stock OptionPlan (the Directors' Plan) to provide for the automatic grant of options to purchase shares of Common Stock to non-employee directors of the Company whoare not employees of or consultants to the Company or of any affiliate of theCompany (a Non-Employee Director). The Directors' Plan is administered by the Board, unless the Board delegates administration to a Committee comprised of members of the Board. . . .
In the nine months ended September 30, 1998, the Company sold products to Shaw for an aggregate of approximately $6.0 million. In addition, in April 1998, the Company issued Shaw a warrant (Common Stock Warrant) to purchase 3,000,000 shares of Common Stock at an exercise price of $6.50 per share in connection with the issuance of 384,615 shares of Series F convertible preferred stock. The exercise price of the Common Stock Warrant is equal to the fair market value of the Company's Common Stock at the time the Common Stock Warrant was granted, as determined by the Company's Board of Directors. TheCommon Stock Warrant is exercisable by Shaw at any time prior to December 31,2003. In addition, the Company issued to Shaw a warrant (Anti-DilutionWarrant) to purchase an indeterminate number of shares of Common Stock for an aggregate price of $1.00. The Anti-Dilution Warrant is exercisable from time to time when the Company issues certain new equity securities until the date upon which Shaw ceases to own shares of the Company's Common Stock. As of December31, 1998, Shaw had the right to receive 19,191 shares pursuant to the Anti-Dilution Warrant. Michael D'Avella, a director of the Company, is the Senior Vice President of Planning for Shaw.
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10-Q, November 1999:
Shaw Warrant Exercise On March 11, 1999, Shaw Communications, Inc. (Shaw) purchased 1,500,000 unregistered shares of the Company's
common stock at $6.50 per share, resulting in net proceeds to the Company of approximately $9,750,000. The shares were purchased pursuant to the exercise of a warrant to purchase 3,000,000 shares of the Company's common stock issued to Shaw in 1998.During 1998, the Company also issued a warrant (the Anti-DilutionWarrant) to Shaw to purchase an indeterminate number of shares of the Company's common stock. The Anti-Dilution Warrant is exercisable at the option of Shaw during the period that Shaw owns equity securities of theCompany (purchased in April 1998) and in the event the Company issues new equity securities at below the current market price as defined in the Anti-Dilution Warrant. The aggregate exercise price is $1.00. Should the Company be required to issue to Shaw certain additional shares of its common stock under the Anti-Dilution Warrant, future material charges may arise that would adversely affect the Company's results of operations. The Company recorded cost of goods sold of approximately $140,000 and $440,000 for the three and nine months ended September 30, 1999, respectively, relating to shares issuable pursuant to the Anti-Dilution Warrant (none during the three and nine month period ended September 30, 1998).
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