**Exhibit 10.27**
**SEVERANCE AGREEMENT**
     This Agreement, dated as of ______, 2004, is entered into between Terayon CommunicationSystems, Inc., a corporation organized under the laws of the State of Delaware (the “Company”), and______(the “Executive”).
     WHEREAS, the Board of Directors, of the Company (the “Board”) recognizes that the possibilityof a Change in Control (as hereinafter defined) exists and that the threat or the occurrence of aChange in Control can result in significant distractions to its key management personnel because ofthe uncertainties inherent in such a situation;
     WHEREAS, the Board has determined that it is essential and in the best interest of the Companyand its stockholders to retain the services of the Executive in the event of a threat or occurrenceof a Change in Control and to ensure the Executive’s continued dedication and efforts in such eventwithout undue concern for the Executive’s personal, financial and employment security; and
     WHEREAS, in order to induce the Executive to remain in the employ of the Company, particularlyin the event of a threat or the occurrence of a Change in Control, the Company desires to enterinto this Agreement with the Executive to provide the Executive with certain benefits in the eventthat the Executive’s employment is terminated as a result of, or in connection with, a Change inControl.
     NOW, THEREFORE, in consideration of the respective agreements of the parties contained herein,it is agreed as follows:
     1. Term of Agreement. This Agreement shall commence as of ______and shallcontinue in effect until ______; provided, however, that commencing on ______andon each ______thereafter, the term of this Agreement shall automatically be extended for one(1) year unless the Company or the Executive shall have given written notice to the other at leastninety (90) days prior thereto that the term of this Agreement shall not be so extended; andprovided, further, however, that notwithstanding any such notice by the Company not to extend, theterm of this Agreement shall not expire prior to the expiration of twelve (12) months after theoccurrence of a Change in Control.
     2. Definitions.
               2.1. Accrued Compensation. For purposes of this Agreement, “Accrued Compensation”shall mean an amount which shall include all amounts earned or accrued through the “TerminationDate” (as hereinafter defined) but not paid as of the Termination Date, including (i) base salary,(ii) reimbursement for reasonable and necessary expenses incurred by the Executive on behalf of theCompany during the period ending on the Termination Date, (iii)
 

 

vacation pay and (iv) bonuses and incentive compensation (other than the “Pro Rata Bonus” (ashereinafter defined)).
          2.2 Base Amount. For purposes of this Agreement, “Base Amount” shall mean the greaterof the Executive’s annual base salary (a) at the rate in effect on the Termination Date or (b) atthe highest rate in effect at any time during the ninety (90) day period prior to the Change inControl, and shall include all amounts of base salary that are deferred under the employee benefitplans of the Company or any other agreement or arrangement.
          2.3 Bonus Amount. For purposes of this Agreement, “Bonus Amount” shall mean thegreatest of: (a) 100% of the annual bonus payable to the Executive under the Company’s cash bonusincentive plan for the fiscal year in which the Termination Date occurs; (b) the annual bonus paidor payable to the Executive under the Company’s cash bonus incentive plan for the full fiscal yearended prior to the fiscal year during which the Termination Date occurred; or (c) the annual bonuspaid or payable to the Executive under the Company’s cash bonus incentive plan for the full fiscalyear ended prior to the fiscal year during which a Change in Control occurred.
          2.4. Cause. For purposes of this Agreement, a termination of employment is for“Cause” if the basis of the termination is fraud, misappropriation, embezzlement or willfulengagement by the Executive in misconduct which is demonstrably and materially injurious to theCompany and its subsidiaries taken as a whole (no act, or failure to act, on the part of theExecutive shall be considered “willful” unless done, or omitted to be done, by the Executive not ingood faith and without a reasonable belief that the action or omission was in the best interests ofthe Company and its subsidiaries); provided, however, that the Executive shall notbe deemed to have been terminated for Cause unless and until there shall have been delivered to theExecutive a Notice of Termination (as hereinafter defined) and copy of a resolution duly adopted bythe affirmative vote of not less than three-quarters of those members of the Company’s Board ofDirectors who are not then employees of the Company at a meeting of the Board called and held forthe purpose (after reasonable notice to the Executive and an opportunity for the Executive,together with the Executive’s counsel, to be heard before the Board), finding that, in the goodfaith opinion of the Board, the Executive was guilty of the conduct set forth in the first sentenceof this Section 2.4 and specifying the particulars thereof in detail.
          2.5. Change in Control. For purposes of this Agreement, a “Change in Control” shallmean any of the following events:
          (a) An acquisition (other than directly from the Company) of any voting securities of the Company(the “Voting Securities”) by any “Person” (as the term is used for purposes of Section 13(d) or14(d) of the Securities Exchange Act of 1934, as amended (the 1934 Act”)) immediately after whichsuch Person has “Beneficial Ownership” (within the meaning of Rule 13d-3 promulgated under the 1934Act) of greater than fifty percent (50%) of the combined voting power of the Company’s thenoutstanding Voting Securities; provided, however, that in determining whether aChange in Control has occurred, Voting Securities which are acquired in a “Non-Control Acquisition”(as hereinafter defined) shall not constitute an acquisition which
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would cause a Change in Control. A “Non-Control Acquisition” shall mean an acquisition by (1)an employee benefit plan (or a trust forming a part thereof) maintained by (A) the Company or (B)any corporation or other Person of which a majority of its voting power or its equity securities orequity interest is owned directly or indirectly by the Company (a “Subsidiary”), (2) the Companyor any Subsidiary, or (3) any Person in connection with a “Non-Control Transaction” (as hereinafterdefined); or
               (b) Approval by stockholders of the Company of a merger, consolidation or reorganizationinvolving the Company, unless the stockholders of the Company immediately before such merger,consolidation or reorganization, own immediately following such merger, consolidation orreorganization, directly or indirectly, at least fifty-one percent (51%) of the combined votingpower of the outstanding voting securities of the corporation resulting from such merger orconsolidation or reorganization (the “Surviving Corporation”) in substantially the same proportionas their ownership of the Voting Securities immediately before such merger, consolidation orreorganization (a “Non-Control Transaction”);
               (c) A complete liquidation or dissolution of the Company; or
               (d) An agreement for the sale or other disposition of all or substantially all of the assetsof the Company to any Person (other than a transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because anyPerson (the “Subject Person”) acquired Beneficial Ownership of more than the permitted amount ofthe outstanding Voting Securities as a result of the acquisition of Voting Securities by theCompany which, by reducing the number of Voting Securities outstanding, increases the proportionalnumber of shares Beneficially Owned by the Subject Person, provided, however, that,if a Change in Control would occur (but for the operation of this sentence) as a result of theacquisition of Voting Securities by the Company, and after such share acquisition by the Companythe Subject Person becomes the Beneficial Owner of any additional voting Securities which increasesthe percentage of the then outstanding Voting Securities Beneficially Owned by the Subject Person,then a Change in Control shall occur.
               2.6. Company. For purposes of this Agreement, the “Company” shall mean TerayonCommunication Systems, Inc. and its Subsidiaries and shall include Terayon’s “Successors andAssigns” (as hereinafter defined).
               2.7. Disability. For purposes of this Agreement, “Disability” shall mean a physicalor mental infirmity which impairs the Executive’s ability to substantially perform the Executive’sduties with the Company for a period of one hundred eighty (180) consecutive days and the Executivehas not returned to full time employment prior to the Termination Date as stated in the “Notice ofTermination”.
               2.8. Good Reason.
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          (a) For purposes of this Agreement, “Good Reason” shall mean the occurrence after a Change inControl of any of the events or conditions described in subsections (1) through (8) hereof:
          (1) a change in the Executive’s status, title, position or responsibilities (includingreporting responsibilities) which, in the Executive’s reasonable judgment, represents an adversechange from the Executive’s status, title, position or responsibilities as in effect at any timewithin ninety (90) days preceding the date of a Change in Control or at any time thereafter; theassignment to the Executive of any duties or responsibilities which, in the Executive’s reasonablejudgment, are inconsistent with the Executive’s status, title, position or responsibilities as ineffect at any time within ninety (90) days preceding the date of a Change in Control or at any timethereafter; or any removal of the Executive from or failure to reappoint or reelect the Executiveto any of such offices or positions, except in connection with the termination of the Executive’semployment for Disability, Cause, as a result of the Executive’s death or by the Executive otherthan for Good Reason;
          (2) A reduction in the Executive’s base salary or any failure to pay the Executive anycompensation or benefits to which the Executive is entitled within five (5) days of the date due;
          (3) the Company’s requiring the Executive to be based at any place outside a 60-mile radiusfrom Santa Clara, California, except for reasonably required travel on the Company’s business whichis not materially greater than such travel requirements prior to the Change in Control;
          (4) the failure by the Company to (A) continue in effect (without reduction in benefit leveland/or reward opportunities) any material compensation or employee benefit plan in which theExecutive was participating at any time within ninety (90) days preceding the date of a Change inControl or at any time thereafter, unless such plan is replaced with a plan that providessubstantially equivalent compensation or benefits to the Executive, or (B) provide the Executivewith compensation and benefits, in the aggregate, at least equal (in terms of benefit levels and/orreward opportunities) to those provided for under each other employee benefit plan, program andpractice in which the Executive was participating at any time within ninety (90) days preceding thedate of a Change in Control or at any time thereafter;
          (5) the insolvency or the filing (by any party, including the Company) of a petition forbankruptcy of the Company, which petition is not dismissed within sixty (60) days;
          (6) any material breach by the Company of any provision of thisAgreement;
          (7) any purported termination of the Executive’s employment for Cause by the Company whichdoes not comply with the terms of Section 2.4; or
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          (8) the failure of the Company to obtain an agreement, satisfactory to the Executive, from anySuccessors and Assigns to assume and agree to perform this Agreement, as contemplated in Section 6hereof.
          (b) The Executive’s right to terminate the Executive’s employment pursuant to this Section 2.8shall not be affected by the Executive’s incapacity due to physical or mental illness.
          2.9. Notice of Termination. For purposes of this Agreement, following a Change inControl, “Notice of Termination” shall mean a written notice of termination of the Executive’semployment from the Company, which notice indicates the specific termination provision in thisAgreement relied upon and which sets forth in reasonable detail the facts and circumstances claimedto provide a basis for termination of the Executive’s employment under the provision so, indicated.
          2.10. Pro Rata Bonus. For purposes of this Agreement, “Pro Rata Bonus” shall mean anamount equal to the Bonus Amount multiplied by a fraction the numerator of which is the number ofdays in the fiscal year through the Termination Date and the denominator of which is 365.
          2.11. Successors and Assigns. For purposes of this Agreement, “Successors andAssigns” shall mean a corporation or other entity acquiring all or substantially all of the assetsand business of the Company (including this Agreement) whether by operation of law or otherwise.
          2.12. Termination Date. For purposes of this Agreement, “Termination Date” shall meanin, the case of the Executive’s death, the Executive’s date of death, in the case of Good Reason,the last day of the Executive’s employment and, in all other cases, the date specified in theNotice of Termination; provided, however, that if the Executive’s employment isterminated by the Company for Cause or due to Disability, the date specified in the Notice ofTermination shall be at least 30 days from the date the Notice of Termination is given to theExecutive, provided that, in the case of Disability, the Executive shall not have returned to thefull-time performance of the Executive’s duties during such period of at least 30 days.
     3. Termination of Employment.
          3.1. If, during the term of this Agreement, the Executive’s employment with the Company shallbe terminated within twelve (12) months following a Change in Control, the Executive shall beentitled to the following compensation and benefits:
          (a) If the Executive’s employment with the Company shall be terminated (1) by the Company forCause or Disability, (2) by reason of the Executive’s death or (3) by the Executive other than forGood Reason, the Company shall pay to the Executive the Accrued Compensation.
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          (b) If the Executive’s employment with the Company shall be terminated for any reason otherthan as specified in Section 3.1(a), the Executive shall be entitled to the following:
(i) the Company shall pay the Executive all Accrued Compensation;
(ii) the Company shall pay the Executive as severance pay and in lieu of anyfurther compensation for periods subsequent to the Termination Date, in asingle payment, an amount in cash equal to the sum of (A) the Base Amountand (B) the Bonus Amount;
(iii) for a number of months equal to twelve (12) (the “ContinuationPeriod”), the Company shall, at its expense, continue on behalf of theExecutive and the Executive’s dependents and beneficiaries the lifeinsurance, disability, medical, dental, and hospitalization benefitsprovided (A) to the Executive at any time during the 90-day period prior tothe Change in Control or at any time thereafter or (B) to other similarlysituated executives who continue in the employ of the Company during theContinuation Period. The coverage and benefits (including deductibles andcosts) provided in this Section 3. 1 (b)(iii) during the Continuation Periodshall be no less favorable to the Executive and the Executive’s dependentsand beneficiaries, than the most favorable of such coverages and benefitsduring any of the periods referred to in clauses (A) and (B) above. TheCompany’s obligation hereunder with respect to the foregoing benefits shallbe limited to the extent that the Executive obtains any such benefitspursuant to a subsequent employer’s benefit plans, in which case the Companymay reduce the coverage of any benefits it is required to provide theExecutive hereunder as long as the aggregate coverages and benefits of thecombined benefit plans are no less favorable to the Executive than thecoverages and benefits required to be provided hereunder. This subsection(iii) shall not be interpreted so as to limit any benefits to which theExecutive or the Executive’s dependents or beneficiaries may be entitledunder any of the Company’s employee benefit plans, programs or practicesfollowing the Executive’s termination of employment, including withoutlimitation, retiree medical and life insurance benefits;
(iv) the restrictions on any outstanding equity incentive awards, includingstock options and restricted stock, granted to the Executive under theCompany’s stock option plans or any other incentive plan or arrangementshall lapse and such incentive award shall become one hundred percent (100%)vested and, in the case of stock options, immediately exercisable;
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(v) for the duration of the Continuation Period, the Company shall, at itsexpense, provide the Executive with outplacement and career counselingservices of the Executive’s choice, provided, however, thatthe Company’s obligation to pay for such services shall in no event exceedan aggregate amount equal to 25% of the Base Amount.
          (c) The amounts provided for in Sections 3.1 (a) and 3.1 (b)(i) and (ii) shall be paid in asingle lump sum cash payment within forty five (45) days after the Executive’s Termination Date (orearlier, if required by applicable law).
          (d) The Executive shall not be required to mitigate the amount of any payment provided for inthis Agreement by seeking other employment or otherwise, and no such payment shall be offset orreduced by the amount of any compensation or benefits provided to the Executive in any subsequentemployment except as provided in Section 3.1 (b)(iii).
          3.2. (a) The severance pay and benefits provided for in this Section 3 shall be in lieu ofany other severance or termination pay to which the Executive may be entitled under any Companyseverance or termination plan, program, practice, agreement or arrangement.
          (b) The Executive’s entitlement to any other compensation or benefits shall be determined inaccordance with the Company’s employee benefit plans and other applicable programs, policies andpractices then in effect,
     4. Notice of Termination. Following a Change in Control, any purported termination ofthe Executive’s employment shall be communicated by Notice of Termination to the Executive. Forpurposes of this Agreement, no such purported termination shall be effective without such Notice ofTermination.
     5. Excise Tax Limitation.
          (a) Notwithstanding anything contained in this Agreement, in the event that any payment orbenefit (within the meaning of Section 28OG(b)(2) of the Internal Revenue Code of 1986, as amended(the “Code”)), to the Executive or for the Executive’s benefit paid or payable or distributed ordistributable pursuant to the terms of this Agreement or otherwise in connection with, or arisingout of, the Executive’s employment with the Company or a Change in Control (a “Payment” or“Payments”) would be subject to the excise tax imposed by Section 4999 of the Code (the “ExciseTax”), the Payments shall be reduced (but not below zero) if and to the extent necessary so that noPayment to be made or benefit to be provided to the Executive shall be subject to the Excise Tax(such reduced Payments being hereinafter referred to as the “Limited Payment Amount”). Unless theExecutive shall have given prior written notice specifying a different order to the Company toeffectuate the Limited Payment Amount, the Company shall reduce or eliminate the Payments by firstreducing or eliminating cash payments and then by reducing those payments or benefits which are notpayable in cash, in each case in reverse order beginning with payments or benefits which are to bepaid the farthest in time from the Determination (as hereinafter defined). Any notice given by theExecutive pursuant to the
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preceding sentence shall take precedence over the provisions of any other plan, arrangement oragreement governing the Executive’s rights and entitlements to any benefits or compensation,
          (b) An initial determination as to whether the Payments shall be reduced to the LimitedPayment Amount and the amount of such Limited Payment Amount shall be made, at the Company’sexpense, by the accounting firm that is the Company’s independent accountingfirm as of the date of the Change in Control (the “Accounting Firm”). The Accounting Firm shallprovide its determination (the “Determination,), together with detailed supporting calculations anddocumentation, to the Company and the Executive within twenty (20) days of the Termination Date ifapplicable, or such other time as requested by the Company or by the Executive (provided theExecutive reasonably believes that any of the Payments may be subject to the Excise Tax), and ifthe Accounting Firm determines that there is substantial authority (within the meaning of Section6662 of the Code) that no Excise Tax is payable by the Executive with respect to a Payment orPayments, it shall furnish the Executive with an opinion reasonably acceptable to the Executivethat no Excise Tax will be imposed with respect to any such Payment or Payments. Within ten (10)days of the delivery of the Determination to the Executive, the Executive shall have the right todispute the Determination (the “Dispute”). If there is no Dispute, the Determination shall bebinding, final and conclusive upon the Company and the Executive subject to the application ofSection 5(c) below.
          (c) As a result of the uncertainty in the application of Sections 4999 and 28OG of the Code,it is possible that the Payments to be made to, or provided for the benefit of, the Executiveeither will be greater (an “Excess Payment”) or less (an “Underpayment”) than the amounts providedfor by the limitations contained in Section 5(a). If it is established pursuant to a finaldetermination of a court or an Internal Revenue Service (the “IRS”) proceeding which has beenfinally and conclusively resolved that an Excess Payment has been made, such Excess Payment shallbe deemed for all purposes to be a loan to the Executive made on the date the Executive receivedthe Excess Payment and the Executive shall repay the Excess Payment to the Company on demand (butnot less than ten (10) days after written notice is received by the Executive) together withinterest on the Excess Payment at the “Applicable Federal Rate” (as defined in Section 1274(d) ofthe Code) from the date of the Executive’s receipt of such Excess Payment until the date of suchrepayment. In the event that it is determined by (i) the Accounting Firm, the Company (which shallinclude the position taken by the Company, or together with its consolidated group, on its federalincome tax return) or the IRS, (ii) pursuant to a determination by a court, or (iii) upon theresolution to the Executive’s satisfaction of the Dispute that an Underpayment has occurred, theCompany shall pay an amount equal to the Underpayment to the Executive within ten (10) days of suchdetermination or resolution, together with interest on such amount at the Applicable Federal Ratefrom the date such amount would have been paid to the Executive until the date of payment.
     6. Successors: Binding Agreement.
          (a) This Agreement shall be binding upon and shall inure to the benefit of the Company, itsSuccessors and Assigns and the Company shall require any Successors and Assigns to expressly assumeand agree to perform this Agreement in the same manner and to the same
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extent that the Company would be required to perform it if no such succession or assignmenthad taken place.
          (b) Neither this Agreement nor any right or interest hereunder shall be assignable ortransferable by the Executive or the Executive’s beneficiaries or legal representatives, except bywill or by the laws of descent and distribution. This Agreement shall inure to the benefit of andbe enforceable by the Executive’s legal personal representative.
     7. Fees and Expenses. The Company shall pay all legal fees and related expenses(including the costs of experts, evidence and counsel) incurred by the Executive as they become dueas a result of (a) the Executive’s termination of employment (including all such fees and expenses,if any, incurred in contesting or disputing any such termination of employment), (b) the Executiveseeking to obtain or enforce any right or benefit provided by this Agreement (including, but. notlimited to, any such fees and expenses incurred in connection with the Dispute whether as a resultof any applicable government taxing authority proceeding, audit or otherwise) or by any other planor arrangement maintained by the Company under which the Executive is or may be entitled to receivebenefits, and (c) the Executive’s hearing before the Board as contemplated in Section 2.4 of thisAgreement; provided, however, that the circumstances set forth in clauses (a) and(b) occurred on or after a Change in Control.
     8. Notice. For the purposes of this Agreement, notices and all other communicationsprovided for in the Agreement (including the Notice of Termination) shall be in writing and shallbe deemed to have been duly given when personally delivered or sent by certified mail, returnreceipt requested, postage prepaid, addressed to the respective addresses last given by each partyto the other, provided that all notices to the Company shall be directed to the attention of theBoard with a copy to the Secretary of the Company. All notices and communications shall be deniedto have been received on the date of delivery thereof or on the third business day after themailing thereof, except that notice of change of address shall be effective only upon receipt.
     9. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit theExecutive’s continuing or future participation in any benefit, bonus, incentive or other plan orprogram provided by the Company (except for any severance or termination policies, plans, programsor practices) and for which the Executive may qualify, nor shall anything herein limit or reducesuch rights as the Executive may have under any other agreements with the Company (except for anyseverance or termination agreement). Amounts which are vested benefits or which the Executive isotherwise entitled to receive under any plan or program of the Company shall be payable inaccordance with such plan or program, except as explicitly modified by this Agreement.
     10. Settlement of Claims. The Company’s obligation to make the payments provided forin this Agreement and otherwise to perform its obligations hereunder shall not be affected by anycircumstances, including, without limitation, any set-off, counterclaim, recoupment, defense orother right which the Company may have against an Executive or others.
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     11. Miscellaneous. No provision of this Agreement may be modified, waived ordischarged, unless such waiver, modification or discharge is agreed to in writing and signed by theExecutive and the Company. No waiver by either party hereto at any time of any breach by the otherparty hereto, or compliance with, any condition or provision of this Agreement to be performed bysuch other party shall be deemed a waiver of similar or dissimilar provisions or conditions at thesame or at any prior or subsequent time. No agreement or representation, oral or otherwise,express or implied, with respect to the subject matter hereof have been made by either party whichare not expressly set forth in this Agreement.
     12. Governing Law. This Agreement shall be governed by and construed and enforced inaccordance with the laws of the State of California without giving effect to the conflict of lawsprinciples thereof. Any action brought by any party to this Agreement shall be brought andmaintained in a court of competent jurisdiction in Santa Clara County in the State of California.
     13. Severability. The provisions of this Agreement shall be deemed severable and theinvalidity or unenforceability of any provision shall not affect the validity or enforceability ofthe other provisions hereof.
     14. Entire Agreement. This Agreement constitutes the entire agreement between theparties hereto and supersedes all prior agreements, if any, understandings and arrangements, oralor written, between the parties hereto with respect to the subject matter hereof
     IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its dulyauthorized officer and the Executive has executed this Agreement as of the day and year first abovewritten.   TERAYONCOMMUNICATION