TERN Holders or thinkin of buyin.WARNING:VERY LENGTHY POST OF ACTUAL LAWSUIT AS FILED. Regards, Depy
MILBERG WEISS BERSHAD
HYNES & LERACH LLP
WILLIAM S. LERACH (68581)
DARREN J. ROBBINS (168593)
600 West Broadway, Suite 1800
San Diego, CA 92101
Telephone: 619/231-1058
619/231-7423 (fax)
BERNSTEIN LIEBHARD & LIFSHITZ, LLP
SANDY A. LIEBHARD
10 East 40th Street
New York, NY 10016
Telephone: 212/779-1414
212/779-3218 (fax)
Attorneys for Plaintiff
[Additional counsel appear on signature page.]
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
WESTERN DIVISION
SHLOMO BIRNBAUM, On Behalf of
Himself and All Others Similarly Situated,
Plaintiff,
vs.
TERAYON COMMUNICATIONS
SYSTEMS, INC., ZAKI RAKIB, SELIM
"SHLOMO" RAKIB, RAYMOND M.
FRITZ, MARK A. STEVENS and
CHRISTOPHER J. SCHAEPE,
Defendants.
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CLASS ACTION
COMPLAINT FOR VIOLATION
OF THE FEDERAL
SECURITIES LAWS
DEMAND FOR JURY TRIAL
SUMMARY OF THE ACTION
1. This is a securities fraud class action brought on behalf of all persons who purchased or otherwise obligated themselves to purchase the publicly-traded securities of Terayon Communications Systems, Inc. ("Terayon" or the "Company") between February 2, 2000, and April 11, 2000, inclusive (the "Class Period"), against Terayon, its senior officers, directors and Company insiders, seeking to pursue remedies under the Securities Exchange Act of 1934 (the "Exchange Act"). This action involves defendants' dissemination of materially false and misleading statements concerning, among other things, the certification of the Company's proprietary S-CDMA cable modem technology by CableLabs (the industry regulating organization), the Company's financial condition and their effects on the Company's operations.
INTRODUCTION
2. Terayon, like Cisco, Samsung, Sony, Toshiba, Thomson, 3Com, Motorola, Philips, Com21 and Nortel, is in the business of selling modems which allow users to send and receive information over standard cable television cables. While the majority of cable-modem manufactures have adopted a technology called TDMA ("Time Division Multiple Access"), Terayon's proprietary cable modem products are based on a technology called S-CDMA ("Synchronous Code Division Multiple Access"). These two technologies are not compatible, and only TDMA technology has been certified by CableLabs, a cable industry consortium charged with regulating and designating "industry standard" cable modem technologies. Without certification by CableLabs of S-CDMA as an "industry standard," Terayon is left with a proprietary technology that none of its competitors use and that has almost no market value in the United States.
3. Currently, approximately 86% of the cable households in the United States are served by only eight cable companies. Each of these companies has adopted CableLabs certified products and will purchase and deploy only such compatible systems. Thus, if S-CDMA is not adopted as part of the industry standard for cable modem equipment, Terayon's business prospects would be severely limited, placing the Company's financial and operational future in peril. Therefore, a crucial element of Terayon's business involves obtaining CableLabs certification of Terayon's S-CDMA technology as well as convincing the investing public that Terayon's technology is suitable for, and saleable within, the United States.
4. To date, Terayon has not been able to convince CableLabs to adopt its S-CDMA technology or to incorporate it into the original version of DOCSIS or the upgraded versions of DOCSIS 1.1 and/or 1.2.(1) However, rather than admit to investors that CableLabs has no plans to incorporate Terayon's S-CDMA technology into the DOCSIS, defendants have embarked on a fraudulent scheme to convince investors that CableLabs has already certified its S-CDMA technology as an "industry standard" technology, and that S-CDMA technology was already being adopted into the next generation of the DOCSIS standard (i.e., into DOCSIS 1.2.).
5. Defendants' materially false and misleading statements, however, have not escaped the attention of CableLabs. Despite Terayon's false assertions regarding CableLabs certification of S-CDMA into the DOCSIS, privately, CableLabs has notified Terayon and internal defendants that CableLabs emphatically and categorically denies that; (i) S-CDMA has been accepted as any current or future DOCSIS standard; (ii) that any DOCSIS 1.2 standard has been agreed upon; and (iii) that any standard has been set for consideration after DOCSIS 1.1. CableLabs has also admonished Terayon for making false and unsubstantiated claims about its products and technology. In fact, privately, CableLabs has demanded that Terayon cease and desist from continuing to make such materially false claims.
6. At no time, however, did defendants disclose the fact that CableLabs told Terayon that its technology would not be included in the DOCSIS or that CableLabs had sent a cease and desist letter to Terayon. The existence of the cease and desist letter was not made known to investors until an investigative journalist at Fortune magazine wrote an article which was published and disseminated to investors on or about March 20, 2000, the final day of the Class Period. The disclosure of the existence of the CableLabs cease and desist letter and the additional allegations raised in the Fortune article were in shocking contrast to the materially false and misleading statements made by defendants throughout the Class Period. The revelation of these facts has had a substantial adverse impact on the price of Terayon stock, leading to a precipitous decline in Terayon stock which has caused plaintiff and other Terayon investors to suffer substantial and material damages.
7. Defendants' scheme: (i) deceived the investing public regarding Terayon's business, new product capabilities and acceptability as an industry standard technology, foreseeable product demand, growth, operations and the intrinsic value of Terayon common stock; (ii) allowed defendants to register and/or sell over $439 million worth of Terayon shares at artificially inflated prices via share-for-share acquisitions of other companies, which acquisitions also allowed defendants to appropriate valuable proprietary technologies previously owned by other companies; (iii) allowed Company insiders, several of whom are named as defendants herein, to sell over 71,000 shares of their privately held Terayon common stock, during the Class Period, while in possession of materially adverse, undisclosed information, allowing them to reap illicit proceeds of at least $15.9 million and to profit from the artificial inflation in the price of Terayon stock which their scheme had created; and (iv) caused plaintiff and other members of the Class to purchase Terayon common stock at artificially inflated prices.
JURISDICTION AND VENUE
8. The claims asserted herein arise under and pursuant to õõ10(b) and 20(a) of the Exchange Act [15 U.S.C. õõ78j(b) and 78t(a)] and Rule 10b-5 promulgated thereunder by the Securities and Exchange Commission ("SEC") [17 C.F.R. õ240.10b-5].
9. This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C. õõ1331 and 1337 and õ27 of the Exchange Act [15 U.S.C. õ78aa].
10. Venue is proper in this District pursuant to õ27 of the Exchange Act, and 28 U.S.C. õ1391(b). Many of the acts alleged herein, including the preparation and dissemination of materially false and misleading information, occurred in substantial part in this District. Specifically, the materially false and misleading press releases reproduced herein were disseminated in this District, as well as defendants' false Registration Statements and amendments thereto. In addition, media interviews with defendants which broadcast defendants' false statements were made in this District, as well as defendants' false Internet advertisements which were also made accessible here.
11. In connection with the acts alleged in this complaint, defendants, directly or indirectly, used the means and instrumentalities of interstate commerce, including, but not limited to, the mails, interstate telephone communications and the facilities of the national securities markets.
PARTIES
12. Plaintiff Shlomo Birnbaum purchased the Terayon securities at artificially inflated prices during the Class Period, as detailed in the attached certification, and was damaged thereby.
13. Defendant Terayon is a Delaware corporation with its principal executive offices located at 2952 Bunker Hill Lane, Santa Clara, California 95054. According to the Company's press releases, Terayon purports to provide innovative broadband networking solutions for advanced broadband voice, data and video services. The Company claims that its cable data access systems, digital video systems and broadband telephony systems are deployed by leading cable operators worldwide. Terayon common stock is traded on the Nasdaq Stock Exchange ("NASDAQ") under the symbol TERN.
14. The individual defendants identified below (the "Individual Defendants"), at all times material to the claims set forth herein, served as senior officers and/or directors of Terayon in the positions set forth below:
(a) Defendant Zaki Rakib ("Z. Rakib") served at all times relevant to the allegations raised herein as Chief Executive Officer and a member of the Board of Directors of the Company.
(b) Defendant Selim "Shlomo" Rakib ("S. Rakib") served at all times relevant to the allegations raised herein as President of Terayon and Chairman of the Board of Directors. S. Rakib is also the brother of Z. Rakib;
(c) Defendant Raymond M. Fritz ("Fritz") served at all times relevant to the allegations raised herein as Chief Financial Officer of the Company;
(d) Defendant Christopher J. Schaepe ("Schaepe") was, at all relevant times, a director of WPC Enterprises, a venture capital firm which received over 1.2 million shares of Terayon stock in exchange for their initial investment in the Company; and
(e) Defendant Mark A. Stevens ("Stevens") was, at all relevant times, a director of Sequoia Capital VI, a venture capital firm which received over 1.2 million shares of Terayon stock in exchange for their initial investment in the Company.
15. Because of the Individual Defendants' positions with the Company, they had access to the adverse undisclosed information about its business, operations, products, operational trends, financial statements, markets and present and future business prospects via access to internal corporate documents (including the Company's operating plans, budgets and forecasts and reports of actual operations compared thereto), conversations and connections with other corporate officers and employees, attendance at management and/or Board of Directors meetings and committees thereof and via reports and other information provided to them in connection therewith.
16. It is appropriate to treat the Individual Defendants as a group for pleading purposes and to presume that the false, misleading and incomplete information conveyed in the Company's public filings, press releases and other publications, as alleged herein, are the collective actions of the narrowly defined group of defendants identified above. Each of the above officers and/or directors of Terayon, by virtue of their high-level positions with the Company, directly participated in the management of the Company, was directly involved in the day-to-day operations of the Company at the highest levels and was privy to confidential proprietary information concerning the Company and its business, operations, products, growth, financial statements, and financial condition, as alleged herein. Said defendants were involved in drafting, producing, reviewing and/or disseminating the false and misleading statements and information alleged herein, were aware or deliberately disregarded that the false and misleading statements were being issued regarding the Company, and approved or ratified these statements, in violation of the federal securities laws.
17. As officers and/or directors and controlling persons of a publicly held company whose common stock was, and is, registered with the SEC pursuant to the Exchange Act, traded on the NASDAQ, and governed by the provisions of the federal securities laws, the Individual Defendants each had a duty to disseminate promptly, accurate and truthful information with respect to the Company's financial condition and performance, growth, operations, financial statements, business, products, markets, management, earnings and present and future business prospects, and to correct any previously issued statements that had become materially misleading or untrue, so that the market price of the Company's common stock would be based upon truthful and accurate information. The Individual Defendants' misrepresentations and omissions during the Class Period violated these specific requirements and obligations.
18. The Individual Defendants participated in the drafting, preparation and/or approval of the various public, shareholder and investor reports and other communications complained of herein, and were aware of, or deliberately disregarded, the misstatements contained therein and omissions therefrom, and were aware of their materially false and misleading nature. Because of their Board membership and/or executive and managerial positions with Terayon, each of the Individual Defendants had access to the adverse, undisclosed information about Terayon's business prospects, the status of CableLab's acceptance of its new cable modem technology as an acknowledged industry standard (or lack thereof), and the financial condition and performance of the Company as particularized herein and knew (or deliberately disregarded) that these adverse facts rendered the positive representations made by or about Terayon and its business issued or adopted by the Company materially false and misleading.
19. The Individual Defendants, because of their positions of control and authority as officers and/or directors of the Company, were able to and did control the content of the various SEC filings, press releases and other public statements pertaining to the Company during the Class Period. Each Individual Defendant was provided with copies of the documents alleged herein to be misleading prior to or shortly after their issuance and/or had the ability and/or opportunity to prevent their issuance or cause them to be corrected. Accordingly, each of the Individual Defendants is responsible for the accuracy of the public reports and releases detailed herein and is therefore primarily liable for the representations contained therein.
20. Each of the defendants is liable as a participant in a wrongful scheme and course of business that operated as a fraud or deceit on those who purchased or otherwise acquired Terayon common stock by disseminating materially false and misleading statements and/or concealing material adverse facts. The scheme: (i) deceived the investing public regarding Terayon's business, new product capabilities and acceptability as an industry standard technology, foreseeable product demand, growth, operations and the intrinsic value of Terayon common stock; (ii) allowed Company insiders, several of whom are named as defendants herein, to sell over 71,000 shares of their privately held Terayon common stock, both during and immediately proceeding the inception of the Class Period, while in possession of materially adverse, undisclosed information, allowing them to reap illicit proceeds of at least $15.9 million and to profit from the artificial inflation in the price of Terayon stock which their scheme had created; (iii) allowed the Company to register to sell and/or sell millions of shares of Terayon stock with an approximate artificially inflated value of $439 million, which was then used to appropriate valuable proprietary technologies previously owned by other companies by using the artificially inflated Company stock to purchase these companies; and (iv) caused plaintiff and other members of the Class to purchase Terayon common stock at artificially inflated prices.
PLAINTIFF'S CLASS ACTION ALLEGATIONS
21. Plaintiff brings this action as a class action pursuant to Federal Rule of Civil Procedure 23(a) and (b)(3) on behalf of a Class, consisting of all persons who purchased or otherwise obligated themselves to purchase Terayon securities during the Class Period and who were damaged thereby. Excluded from the Class are defendants, the officers and directors of the Company, members of their immediate families and their legal representatives, heirs, successors or assigns and any entity in which defendants have or had a controlling interest.
22. The members of the Class are so numerous that joinder of all members is impracticable. Throughout the Class Period, Terayon common shares were actively traded on the NASDAQ. As of November 8, 1999, there were approximately 21.8 million shares of Terayon common stock issued and outstanding. While the exact number of Class members is unknown to plaintiff at this time and can only be ascertained through appropriate discovery, plaintiff believes that there are hundreds or thousands of members in the proposed Class. Record owners and other members of the Class may be identified from records maintained by Terayon or its transfer agent and may be notified of the pendency of this action by mail, using a form of notice similar to that customarily used in securities class actions.
23. Plaintiff's claims are typical of the claims of the members of the Class as all members of the Class are similarly affected by defendants' wrongful conduct in violation of federal law that is complained of herein.
24. Plaintiff will fairly and adequately protect the interests of the members of the Class and has retained counsel competent and experienced in class and securities litigation.
25. Common questions of law and fact exist as to all members of the Class and predominate over any questions solely affecting individual members of the Class. Among the questions of law and fact common to the Class are:
(a) whether the federal securities laws were violated by defendants' acts as alleged herein;
(b) whether statements made by defendants to the investing public during the Class Period misrepresented material facts about the business, operations and the financial condition of Terayon; and
(c) to what extent the members of the Class have sustained damages and the proper measure of damages.
26. A class action is superior to all other available methods for the fair and efficient adjudication of this controversy since joinder of all members is impracticable. Furthermore, as the damages suffered by individual Class members may be relatively small, the expense and burden of individual litigation make it impossible for members of the Class to individually redress the wrongs done to them. There will be no difficulty in the management of this action as a class action.
BACKGROUND
The Company
27. Terayon purports to manufacture and market cable modem and headend systems that enable cable operators to offer Internet connection services to cable subscribers. Many other companies, including Cisco, Samsung, Sony, Toshiba, Thomson, 3Com, Motorola, Philips, Com21 and Nortel offer competitive equipment. While the majority of the cable modems sold in the United States are based on TDMA technology, Terayon's proprietary cable modem products are based on S-CDMA technology. These two technologies are not compatible. Broadcom, however, who manufactures over 80% of the chips that are built into cable modems, utilizes TDMA technology exclusively in its chipsets.
28. In calendar 1999, Terayon reported sales of $97 million, of which $17 million, or 18%, were generated in the United States and $80 million, or 82%, were generated through foreign sales, principally in Canada. Analysts estimate that Terayon held a 2% market share in the United States cable modem market at the end of 1999. Of the $80 million foreign revenue, $56 million, or 70%, were generated through sales to three related-party customers/investors - Shaw Communications ("Shaw"), Rogers Communications ("Rogers"), and Sumitomo. These three customers/ investors cumulatively hold a position in Terayon stock valued at approximately $1.7 billion.(2) Shaw and Rogers both have designees on the Terayon Board of Directors.
29. In order to set standards for the cable industry and to help assure industry growth and compatibility among diverse and competing products, cable companies in the United States have formed an industry consortium called CableLabs. CableLabs is responsible for developing and enforcing an "industry standard" for cable modems and for cable headends. The purpose of setting cable modem industry standards is to create a common technology platform to which all manufacturers will abide. CableLabs' standard is called DOCSIS. United States cable operators have wholeheartedly endorsed the use of DOCSIS in cable headends and modems. Thus, in order to sell any significant quantity of cable hardware in the United States a manufacturer must, as a practical matter, develop a DOCSIS-compliant product. Currently, the only DOCSIS standard accepted by CableLabs is based on TDMA technology. This DOCSIS standard, commonly referred to as DOCSIS 1.0, has been written and products have been tested and certified according to the specifications set by CableLabs. In addition to the current version of DOCSIS 1.0, CableLabs has also written the specifications for an enhanced cable modem called DOCSIS 1.1 and CableLabs plans to begin testing different product submissions in the summer of 2000 for the DOCSIS 1.1 certification process. According to CableLabs, both DOCSIS 1.0 and 1.1 have adopted TDMA technology only.
30. Terayon's S-CDMA cable modem products are based on an entirely different and incompatible technology than the TDMA specification. Thus, it was critical to the economic future of the Company that CableLabs accept S-CDMA as an "industry standard" modem. In fact, defendants knew that unless Terayon could convince CableLabs to revise its already adopted TDMA standard and/or to re-standardize the S-CDMA platform, there would be little or no demand for its products. Thus, at all times relevant to the allegations raised herein, defendants were well aware of this issue and the impact that CableLabs' refusal to adopt and certify the S-CDMA technology would have on the operations of Terayon and the value of its stock. In fact, as defendant Z. Rakib stated in a January 18, 2000 conference call for investors, made to announce Terayon's 4th quarter and year end 1999 financial results: "Penetration in the U.S. is a function of how fast [Terayon is] capable of supporting the DOCSIS effort. That means once we have the 1.1 version that includes advanced PHY [an advanced 'Physical Layer' of DOCSIS which includes S-CDMA technology], we have a chance at accelerated penetration [in the United States]."
DEFENDANTS' SCHEME AND WRONGFUL COURSE OF CONDUCT
31. Without certification by CableLabs of S-CDMA as an "industry standard" cable modem, Terayon is left with a proprietary technology that none of its competitors use and that has almost no market value in the United States. Since 86% of the cable households in the United States are served by only eight cable companies, and since each of these companies has adopted DOCSIS and will purchase and deploy only DOCSIS and DOCSIS compatible systems, if S-CDMA is not adopted as part of the industry standard for cable modem equipment, Terayon's business prospects would be severely limited and the Company's financial and operational future questionable. Thus, a crucial element of Terayon's business involves convincing CableLabs that it should adopt Terayon's S-CDMA technology as well as convincing the investing public that Terayon's technology is suitable for, and saleable within, the United States.
32. To date, Terayon has not been able to convince CableLabs to adopt its S-CDMA technology or to incorporate it into the upgraded versions of DOCSIS 1.1 and/or 1.2. However, rather than admit to investors that CableLabs has no plans to incorporate Terayon's S-CDMA technology into the DOCSIS, defendants have embarked on a fraudulent scheme to convince investors that CableLabs has already certified its S-CDMA technology as an "industry standard" technology, and that S-CDMA technology was already being adopted into the next generation of the DOCSIS standard (i.e., into DOCSIS 1.2.).
33. Defendants' materially false and misleading statements did not escape the attention of CableLabs, and despite Terayon's materially false and misleading assertions regarding CableLabs certification of S-CDMA into the DOCSIS, privately, CableLabs has notified Terayon that CableLabs emphatically and categorically denies that (i) S-CDMA has been accepted as any current or future DOCSIS standard; (ii) any DOCSIS 1.2 standard has been agreed upon; and (iii) any standard has been set for consideration after DOCSIS 1.1. In fact, CableLabs has sent to Terayon at least one cease and desist letter in which CableLabs has admonished Terayon for making false and unsubstantiated claims about its products and technology and demanded that Terayon cease and desist from continuing to make such materially false claims.
34. CableLabs' cease and desist letter to Terayon dated February 2, 2000, demanded that Terayon stop making reference to DOCSIS 1.2 and to stop claiming that S-CDMA has been selected as the standard for DOCSIS 1.2 or beyond. In addition to the February 2 cease and desist letter, CableLabs first notified Terayon of its position in November 1999, at which time CableLabs informed Terayon that updated versions of DOCSIS would not include Terayon's S-CDMA technology. At no time, however, has Terayon disclosed CableLabs' position regarding S-CDMA technology, the existence of the cease and desist letter or defendants' conversations with CableLabs, and the existence of such letter and conversations was not made known to investors until an investigative journalist at Fortune magazine wrote an article which was published and disseminated to investors on or about March 20, 2000, the final day of the Class Period. The disclosure of the existence of the CableLabs cease and desist letter and the additional allegations raised in the Fortune article were in shocking contrast to the materially false and misleading statements issued by defendants both prior to and throughout the Class Period, and their revelation had a substantial adverse impact on the price of Terayon stock, leading to a rapid and precipitous decline in Terayon stock which caused investors to suffer substantial and material damages due to their significant losses.
Background to the Class Period
35. Unbeknownst to investors, defendants' statements regarding the inclusion of Terayon's S-CDMA technology into the DOCSIS were so materially false and misleading that, as early as November 1999, CableLabs told defendants in no uncertain terms that CableLabs had NOT decided to incorporate S-CDMA technologies into any updated or revised version of the DOCSIS standard and that, as such, Terayon was prohibited from making any statement which indicated either that CableLabs was likely to include S-CDMA technology into the DOCSIS or that CableLabs had already decided to include S-CDMA technology into the DOCSIS. While this notification, and a subsequent letter which reiterated CableLabs' position, confirmed the falsity of defendants' statements and placed defendants on notice of these facts, CableLabs' notification did nothing to dissuade defendants from continuing their fraudulent course of conduct. Rather than retract and/or correct their prior false and misleading statements regarding the fate of Terayon's S-CDMA technology, defendants continued to issue a series of materially false and misleading statements which defendants knew, or deliberately disregarded, had the effect of misleading investors and artificially inflating the price of Terayon securities.
36. On May 13, 1999, defendants filed with the SEC, Terayon's report on Form 10-Q for the first quarter of 1999. The First Quarter Form 10-Q was signed by defendant Fritz and stated, in part, the following:
In November 1998, CableLabs selected us to co-author a technical specification for DOCSIS 1.2, an enhanced version of the DOCSIS cable modem standard based in part on our S-CDMA technology. Our agreement to co-author the DOCSIS 1.2 specification will require us to contribute some aspects of our S-CDMA technology to a royalty-free intellectual property pool.
* * *
We believe the adoption of DOCSIS 1.2 will result in increased competition in the North American cable modem market. This competition could come from existing competitors or from new competitors who enter the market as a result of the adoption of DOCSIS 1.2.... The inclusion of our S-CDMA technology in DOCSIS 1.2 could result in increased competition for the services of our existing employees who have experience with S-CDMA. The loss of these employees to one or more competitors could harm our business.
(Emphasis added.)
37. On October 12, 1999, in an effort to condition the market to believe that Terayon's S-CDMA technology was being incorporated into the DOCSIS 1.2 platform, defendant Z. Rakib stated:
"Terayon continues to make progress in the DOCSIS standards area, with certification last month by CableLabs for our TeraJet DOCSIS modem. Specifications for the advanced PHY (Physical Layer) standard (DOCSIS 1.2) incorporating our S-CDMA technology, have been completed by the IEEE 802.14 committee. We are now implementing the prototype system based on those specifications, as requested by CableLabs."
(Emphasis added.)
38. On November 2, 1999, based upon defendants' representations regarding Terayon's S-CDMA technology and its incorporation into the DOCSIS, Lehman Brothers, Inc. ("Lehman Bros.") issued an analyst report on Terayon which rated Terayon stock a "Buy," and encouraged its customers to purchase Terayon stock. The report stated, in part, the following:
DOCSIS UPDATE
During the third quarter, Terayon's TeraJet modem was certified under DOCSIS 1.0 standards. The company did not sell any of these modems in the third quarter and we do not expect Terayon to recognize DOCSIS revenues until at least the first quarter of 2000. The important DOCSIS 1.2 standard, based on Terayon's proprietary S-CDMA technology, is a major focus of both Terayon and CableLabs, and Terayon is now working on the DOCSIS 1.2 modem prototype for CableLabs. We believe CableLabs plans to start DOCSIS 1.2 certification only after it completes DOCSIS 1.1 certification, which is targeted to begin in the first quarter of 2000 and Terayon proves the validity of its technology via the prototype.
(Emphasis added.)
39. On November 15, 1999, defendants filed Terayon's report on Form 10-Q for the third quarter of 1999, signed by defendant Fritz. Regarding Terayon's S-CDMA modems, defendants stated, in part, the following:
In November 1998, we were selected by CableLabs to co-author DOCSIS 1.2, an enhanced version of the DOSCIS[sic] cable modem specification based in part on our S-CDMA technology. Since then CableLabs has reaffirmed its intention to add advanced upstream physical layer ("PHY") capabilities to the DOCSIS specifications as enhancements; however, CableLabs has modified its plans for how the specifications will be created. In September 1999, CableLabs indicated that it wants to proceed with the advanced PHY work on two parallel tracks; one for the inclusion of Terayon S-CDMA technology, as proposed by Terayon, and one for the inclusion of Advanced TDMA technology, as proposed by other companies. CableLabs wants work to proceed in parallel on these two complementary technologies, but the intention remains to include both as operating modes in a future version of the DOCSIS specification, consistent with the original plans for DOCSIS 1.2. As part of the new plan to add advanced physical layer capabilities to DOCSIS, CableLabs has dropped reference to DOCSIS 1.2 |
