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SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 
 Form 10-K/A (Amendment No. 1) (Mark one) þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
 OR o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE TRANSITION PERIOD FROM  TO.
 COMMISSION FILE NUMBER: 000-24647 
 TERAYON COMMUNICATION SYSTEMS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 DELAWARE
    
    77-0328533(STATE OR OTHER JURISDICTION OF
    
    (IRS EMPLOYERINCORPORATION OR ORGANIZATION
    
    IDENTIFICATION NO.)
 4988 GREAT AMERICA PARKWAY
SANTA CLARA, CALIFORNIA 95054
(408) 235-5500(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF THE
REGISTRANTS PRINCIPAL EXECUTIVE OFFICES)   SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Title of Each Class:
    
    Name of Each Exchange on Which Registered:None
    
    None
 SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, par value $0.001 per share
(TITLE OF CLASS) Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirement for the past 90 days. Yes þ No o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. o Indicate by check mark whether the registrant is an accelerated filer (as defined in
Rule 12b-2 of the Act). Yes þ No o The aggregate market value of the voting stock held by non-affiliates of the registrant
was approximately $140,449,000 on June 30, 2004. For purposes of this calculation only, the
registrant has excluded stock beneficially owned by directors and officers. By doing so, the
registrant does not admit that such persons are affiliates within the meaning of Rule 405 under the
Securities Act of 1933 or for any other purpose. Indicate the number of shares outstanding of each of the registrants classes of common stock,
as of the latest practicable date: Common Stock, $0.001 par value,
76,869,633 shares outstanding as
of April 15, 2005. This Form 10-K/A Amendment No. 1 is being filed solely for the purpose of filing the
information required by Part III of Annual Report on Form 10-K within 120 days after the fiscal
year end, pursuant to General Instruction G(3). No other changes have been made to the Annual
Report on Form 10-K originally filed with the Securities and Exchange Commission on March 15, 2005.




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INDEX TERAYON COMMUNICATION SYSTEMS, INC. Page No.PART IIIItem 10.
    
    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
    
    
    3Item 11.
    
    EXECUTIVE COMPENSATION
    
    
    7Item 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
    
    
    15Item 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    
    
    17Item 14.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    18PART IVItem 15.
    
    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
    
    
    19SIGNATURES
    
    
    20EXHIBIT 31.1EXHIBIT 31.2
  2




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PART III 
 Item 10.Directors and Executive Officers of the Registrant Certain information regarding our directors and executive officers as of April 15, 2005, is
set forth below. Name
    
    Age
    
    PositionJerry D. Chase
    
    
    45
    
    
    Chief Executive Officer and DirectorMark A. Richman
    
    
    45
    
    
    Chief Financial OfficerZaki Rakib
    
    
    46
    
    
    Chairman of the Board and DirectorAleksander Krstajic
    
    
    41
    
    
    DirectorMatthew Miller (2)
    
    
    57
    
    
    DirectorShlomo Rakib
    
    
    48
    
    
    DirectorMark Slaven (1) (3)
    
    
    48
    
    
    DirectorLewis Solomon (2) (3)
    
    
    71
    
    
    DirectorHoward W. Speaks, Jr. (1) (2)
    
    
    57
    
    
    DirectorDavid Woodrow (1) (3)
    
    
    59
    
    
    Director
   1)
    
    Member of Audit Committee2)
    
    Member of Compensation Committee3)
    
    Member of Nominating and Governance Committee   The Board of Directors (Board) is divided into three classes, each having a three-year
term. Messrs. Krstajic, Solomon and Speaks are Class I directors, whose terms expire in 2005.
Messrs. Shlomo Rakib and Woodrow and Dr. Miller are Class II directors, whose terms expire in 2006.
Messrs. Chase and Slaven and Dr. Zaki Rakib are Class III directors, whose terms expire in 2007. Jerry D. Chasehas served as the Chief Executive Officer and a director of Terayon
Communication Systems, Inc. (Company) since September 2004 and President of the Company since March
2005. He was the Chairman and Chief Executive Officer of Thales Broadcast & Multimedia (TBM), a
telecom and test equipment supplier, from 2001 to August 2004, and was President and Chief
Executive Officer of the U.S. subsidiary of TBM from 1998 to 2001. Mr. Chase is a former United
States Marine Corps Officer. He earned a B.S. degree in Business Administration from East Carolina
University and an M.B.A. from Harvard University. Mark A. Richmanjoined the Company in November 2004 as Senior Vice President Finance and
Administration and Chief Financial Officer. Prior to joining the Company, Mr. Richman served as
Senior Vice President and Chief Financial Officer of Covad Communication Systems, Inc. (Covad), a
broadband communications provider, beginning September 2001 and was made Executive Vice President
and Chief Financial Officer of Covad in May 2002. Prior to joining Covad, Mr. Richman served as
Vice President and Chief Financial Officer of MainStreet Networks from June 2000 to August 2001.
From October 1996 to June 2000 Mr. Richman served as Vice President and Corporate Treasurer of
Adecco S.A. and as Vice President of Finance and Administration for its subsidiary, Adecco U.S.
From February 1994 to October 1996, he was Director of
Finance for Merisel, Inc. Mr. Richman
holds a B.S. degree in Managerial Economics from the University of California, Davis and an M.B.A.
from the University of California, Los Angeles. Zaki Rakibco-founded the Company in 1993 and serves as the Chairman of the Board of Directors
and the Secretary of the Company. From January 1993 to September 2004, Dr. Rakib served as the
Chief Executive Officer of the Company and from January 1993 to July 1998, Dr. Rakib also served as
Chief Financial Officer of the Company. Currently, Dr. Rakib is self-employed. Prior to
co-founding the Company, Dr. Rakib served as Director of Engineering for Cadence Design Systems
(Cadence), 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 is a director 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, a director of the Company. 3




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Aleksander Krstajichas served as a director of the Company since July 1999. Since March
2005, Mr. Krstajic has been President of Bell Mobility, Inc. Prior to that Mr. Krstajic
was the Chief Marketing Officer at Bell Canada, a telecommunications company, from July 2003 to
March 2005. Mr. Krstajic held a variety of senior management positions at Rogers Communications,
Inc., most recently as Senior Vice President, Sales and Marketing, from 1994 through January of
2003. Mr. Krstajic is a director of Ontario Energy Savings Corporation and 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. Matthew Millerhas served as a director of the Company since July 2004. Since February 2004,
Dr. Miller has been the President and Chief Executive Officer of Multispectral Imaging, Inc., a
venture-financed company developing applications for night vision and thermal imaging. Dr. Miller
served as Chief Executive Officer of NxtWave Communications, a leading supplier of semiconductor
chips for emerging digital television markets worldwide, from 1997 until its acquisition in 2002 by
ATI Technologies. Prior to NxtWave, Dr. Miller was Vice President of Technology at General
Instrument Corporation from 1988 to 1994, where he made major contributions to the development of
digital television, optical communications for cable television, and cable modems. Dr. Miller
holds a bachelors degree from Harvard University and a Ph.D. from Princeton University. Shlomo Rakibco-founded the Company in 1993 and currently serves as a director. Mr. Rakib
served as Chairman of the Board of the Company from January 1993 until September 2004 and as Chief
Technical Officer and President from February 1995 until October 2004. Currently, Mr. Rakib is
self-employed. 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 is a director on
a number of privately held companies. Mr. Rakib holds a B.S.E.E. degree from Technion University
in Israel. Mr. Rakib is the brother of Zaki Rakib, the Companys Chairman of the Board and
Secretary. Mark Slavenhas served as a director of the Company since July 2003. Since November 2004, Mr.
Slaven has served as Chief Financial Officer of SpectraSite, Inc., a wireless tower company
operator. From March 2003 through June 2004, Mr. Slaven was the Executive Vice President, Finance,
and Chief Financial Officer of 3Com Corporation (3Com), a provider of networking products,
services and solutions. Mr. Slaven was 3Coms Senior Vice President, Finance, and Chief Financial
Officer from June 2002 to March 2003, and prior to that the Vice President of Treasury, Tax, Trade
and Investor Relations and Vice President and Treasurer since August 2000. Prior to that, Mr.
Slaven was Vice President of Finance for Supply Chain Operations since joining the company through
3Coms acquisition of U.S. Robotics in June 1997, where he was Vice President of Finance for U.S.
Robotics manufacturing division. Before joining U.S. Robotics, Mr. Slaven was Chief Financial
Officer of the personal printer division at Lexmark International Inc. Mr. Slaven holds a B.S.
degree from Tufts University and an M.B.A. from the University of Chicago. Lewis Solomonhas 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. From 1983 to 1988, Mr. Solomon 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 Corporation, most recently as Senior Vice President.
From April 1986 to January 1997, he served as Chairman of the Board of Cybernetic Services, Inc., a
LED systems manufacturer, which commenced a Chapter 7 bankruptcy proceeding in April 1997. From
October 1999 until July 2004, Mr. Solomon was Chief Executive Officer of Broadband Services, Inc.,
which commenced a Chapter 7 bankruptcy proceeding in July 2004. Mr. Solomon serves on the boards of
Anadigics, Inc., a manufacturer of integrated circuits, Harmonic, Inc., a company that designs,
manufacturers and markets digital and fiberoptic 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. Mr. Solomon holds a B.S. degree in Physics from St. Josephs College. Howard W. Speaks, Jr.has served as a director of the Company since May 2004. Mr. Speaks has
been Chief Executive Officer of Rosum Corporation, a maker of global positioning system products,
since August 2003. Previously, Mr. Speaks was President and Chief Executive Officer of Kyocera
Wireless Corporation, a developer and manufacturer of wireless phones and accessories, from August
2001 to August 2003, President and Chief Executive Officer of Triton Network Systems, Inc., a
wireless communications equipment company, from September 1999 to August 2001, Executive Vice
President and General Manager, Network Operators Group of Ericsson, Inc. from 1998 to 1999,
Executive Vice President and General Manager, Wireless Division of Ericsson, Inc. from 1997 to
1998, and Vice President, Western Region of Ericsson, Inc. from 1995 to 1997. Mr. Speaks is a
director of Glenayre Technologies, a supplier of wireless data infrastructure. Mr. Speaks holds a
Bachelor of Science Degree for Civil Engineering from West Virginia Institute of Technology. 4




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David Woodrowhas served as a director of the Company since June 2002. From September 2000
until March 2002, Mr. Woodrow served as the Chief Executive Officer and President of Qwest Digital
Media LLC, a production and digital media management company. From 1982 until September 2000, Mr.
Woodrow held a number of senior management positions, most recently the Executive Vice President,
Broadband Services, with Cox Communications, Inc., a major cable operator in the United States.
Mr. Woodrow is a director of several privately held companies. Mr. Woodrow holds B.S. and M.S.
degrees in mechanical engineering from Purdue University and an M.B.A. from the University of
Connecticut. Board Committees and Meetings During fiscal 2004 the Board held twenty-onemeetings and acted by unanimous written
consent two times. The Board has an Audit Committee, Compensation Committee, and Nominating and
Governance Committee. During fiscal 2004, all directors attended at least 75% of the aggregate of the meetings of
the Board. Audit Committee, Compensation Committee, and Nominating and Governance Committee
members attended at least 75% of the aggregate of their respective meetings. Commencing in 2004,
it is the policy of the Board to encourage members of the Board to attend the annual stockholders
meetings, although attendance is not required. Director attendance at each annual stockholders
meeting, commencing with the 2004 stockholders meeting, will be posted on the Companys web site at
www.terayon.com. Commencing in 2003, the independent directors of the Board meet separately with
no members of management present in executive sessions. It is further the policy of the Board that
independent directors of the Board would meet in executive session at least once per quarter. Audit Committee The Audit Committee of the Board oversees our financial reporting process. For this purpose,
the Audit Committee reviews our auditing, accounting, financial reporting and internal control
functions and selects and engages the Companys independent auditors. In discharging its duties,
the Audit Committee reviews and approves the scope of the annual audit, and non-audit services to
be performed by the independent auditors and the independent auditors audit and non-audit fees;
recommends to the Board that the audited financial statements be included in the Annual Report on
Form 10-K for filing with the Securities and Exchange Commission; meets independently with the
Companys independent auditors and senior management; and reviews the general scope of the
Companys accounting, financial reporting, annual audit and matters relating to internal control
systems, as well as the results of the annual audit and interim financial statements, auditor
independence issues, and the adequacy of the Audit Committee charter. The Audit Committee monitors
the Companys compliance with laws and regulations and standards of business conduct. The Audit
Committee has also established procedures for (a) the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal accounting controls or auditing
matters, and (b) the confidential, anonymous submission by the Companys employees of concerns
regarding questionable accounting or auditing matters. The Audit Committee operates under a written charter adopted by the Board. The Audit
Committee Charter sets forth the duties and powers of the Audit Committee. The current members of the Audit Committee are Messrs. Slaven, Speaks and Woodrow with Mr.
Slaven serving as Chairman of the Audit Committee. The Audit Committee met seven times during
2004 and acted by unanimous written consent two times. After considering transactions and
relationships between each member of the Audit Committee or his immediate family and the Company
and its subsidiaries and reviewing the qualifications of the members of the Audit Committee, the
Board determined that all current members of the Audit Committee are, (1) independent as that
term is defined in Section 10A of the Securities Exchange Act of 1934, as amended (Exchange Act);
(2) independent as that term is defined in Rule 4200 of the listing standards of the National
Association of Securities Dealers; and (3) financially literate and have the requisite financial
sophistication as required by the NASDAQ rules applicable to issuers listed on the NASDAQ National
Market. Audit Committee Financial Expert The Board has determined that the Audit Committee Chairman, Mr. Slaven, is an audit committee
financial expert as defined in Item 401(h) of Regulation S-K. The Board determined that Mr.
Slaven and in that capacity acquired the relevant experience and expertise and the attributes set
forth in the applicable rules in order to constitute him as an audit committee financial expert in
part, through his current position as the Chief Financial Officer of SpectraSite, Inc. and his
previous position as Chief Financial Officer at 3Com Corporation. 5




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Compensation Committee The Compensation Committee makes recommendations concerning salaries and incentive
compensation, awards stock options to employees and consultants under the Companys stock option
plans and performs other functions regarding compensation as the Board may delegate. The current members of the Compensation Committee are Messrs. Solomon and Speaks and Dr.
Miller with Mr. Solomon serving as Chairman of the Compensation Committee. The Board has
determined that all current members of the Compensation Committee are independent as that term is
defined in Rule 4200 of the listing standards of the National Association of Securities Dealers.
The Compensation Committee met five times in 2004 and acted by unanimous written consent three
times. The Compensation Committee operates under a written charter adopted by the Board, which sets
forth the duties and powers of the Compensation Committee. Nominating and Governance Committee The Nominating Committee was established in February 2003 and was reconstituted as the
Nominating and Governance Committee in May 2004. The committee recommends director nominees to
stand for election at the Companys annual meeting of stockholders, monitors the board composition
and handles corporate governance issues. The Nominating and Governance Committee has the authority
under its charter to hire and approve the fee paid to consultants or search firms to assist in the
process of identifying and evaluating candidates. The current members of the Nominating and Governance Committee are Messrs. Slaven, Solomon and
Woodrow with Mr. Woodrow serving as Chairman of the Nominating and Governance Committee. The Board
has determined that all current members of the Nominating and Governance Committee are
independent as that term is defined in Rule 4200 of the listing standards of the National
Association of Securities Dealers. The Nominating and Governance Committee met two times during
2004 and acted by unanimous written consent two times. The Nominating and Governance Committee operates under a written charter adopted by the Board,
which sets forth the duties and powers of the Nominating and Governance Committee. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Exchange Act requires the Companys directors and executive
officers, as well as persons who own more than ten 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 ten 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 us and written representations that no other reports were required, during the
year ended December 31, 2004, all Section 16(a) filing requirements applicable to our directors,
officers and greater than ten percent beneficial owners were complied with and filed on a timely
basis except as set forth below: Messrs. Krstajic, Slaven, Solomon,
Speaks, Woodrow and Richman, and Dr. Miller did not file a Form 4
reporting option grants each received on December 16, 2004 and filed
the Form 5 reporting this transaction late in 2005. 6




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Code of Ethics The Company adopted a Code of Business Conduct, which is applicable to all employees,
including the controller, executive officers, including the chief executive officer, and the chief
financial officer, and members of the Board of Directors. The Code of Business Conductis
available on the Companys Investor Relations website (www.terayon.com/investor). The Code of
Business Conductsatisfies the requirements under the Sarbanes-Oxley Act of 2002, as well as Nasdaq
rules applicable to issuers listed on the Nasdaq National Market. The Code of Business Conduct,
among other things, addresses issues relating to conflicts of interests, including internal
reporting of violations and disclosures, and compliance with applicable laws, rules and
regulations. The purpose of the code is to deter wrongdoing and to promote, among other things,
honest and ethical conduct and to ensure to the greatest possible extent that our business is
conducted in a legal and ethical manner. The Company intends to post amendments to or waivers from
the Code of Business Conduct(to the extent applicable to the Companys executive officers and
members of the Board of Directors) at this location on its website. 
 Item 11.Executive Compensation Summary of Compensation The following table shows for the fiscal years ended December 31, 2004, 2003 and 2002,
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, 2004 (Named Executive Officers).
There were no other Named Executive Officers of the Company during 2004. Summary Compensation Table Long-Term CompensationAnnual Compensation
    
    
    AwardsOther
    
    
    Restricted
    
    
    SecuritiesAnnual
    
    
    Stock
    
    
    Underlying
    
    
    PayoutsName and Principal
    
    
    
    
    
    Salary
    
    
    Bonus
    
    
    Compensation
    
    
    Awards
    
    
    Options/
    
    
    LTIP
    
    
    All OtherPosition in Fiscal 2004
    
    Year
    
    
    ($)
    
    
    ($) (10)
    
    
    ($)
    
    
    ($)
    
    
    SARs (#)
    
    
    Payouts ($)
    
    
    Compensation ($)Mr. Jerry D. Chase (1)
    
    
    2004
    
    
    
    125,897
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    800,000
    
    
    
    
    
    
    
    52,694
    (2)Chief Executive OfficerMr. Mark Richman (3)
    
    
    2004
    
    
    
    26,154
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    500,000
    
    
    
    
    
    
    
    38
    (2)Senior Vice President
and Chief Financial
OfficerDr. Zaki Rakib (11)
    
    
    2004
    
    
    
    308,654
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,395,875
    (2)(4)(5)(6)Chairman of the Board,
former Secretary, and former Chief Executive
Officer
    
    
    2003
    
    
    
    450,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    500,000
    
    
    
    
    
    
    
    99,484
    (6)(7)2002
    
    
    
    450,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,500
    (6)(8)Mr. Shlomo Rakib (12)
    
    
    2004
    
    
    
    339,231
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,388,412
    (2)(4)(5)Chairman of the Board,
former President and former Chief
Technology Officer
    
    
    2003
    
    
    
    450,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    500,000
    
    
    
    
    
    
    
    450
    (7)2002
    
    
    
    450,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    450
    (8)Mr. Edward Lopez (9)
    
    
    2004
    
    
    
    230,000
    
    
    
    110,688
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    300
    (2)Former Senior Vice
President, General Counsel and Human
Resources
    
    
    2003
    
    
    
    230,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250,000
    
    
    
    
    
    
    
    300

    (7)2002
    
    
    
    230,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    300
    (8)
   7




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(1)
    Mr. Chase joined the Company as Chief Executive Officer on September 8, 2004. On an
annualized basis, Mr. Chases salary is $400,000. Includes $52,544 of other compensation for
relocation expenses paid by the Company on behalf of Mr. Chase in 2004.(2)
    Includes $150, $38, $300, $337 and $300 contributed by the Company for premiums under a
group term life insurance policy on behalf of Mr. Chase, Mr. Richman, Dr. Rakib, Mr. Rakib
and Mr. Lopez, respectively, in 2004.(3)
    Mr. Richman joined the Company as Chief Financial Officer on November 30, 2004. On an
annualized basis, Mr. Richmans salary is $300,000.(4)
    Includes $1,350,000 and $1,350,000 of other compensation as part of the severance package
to Dr. Rakib and Mr. Rakib, respectively, in 2004.(5)
    Includes $38,075 and $38,075 of other compensation for accrued vacation paid to Dr. Rakib
and Mr. Rakib, respectively, in 2004.(6)
    Includes $7,500, $30,000 and $25,200 of compensation paid by the Company on behalf of Dr.
Rakib for an apartment in Israel in 2004, 2003 and 2002, respectively. In 2003, Dr. Rakib
incurred $69,034 of incremental cost of personal usage of a corporate aircraft calculated in
accordance with Internal Revenue Service guidelines. This amount is included in All Other
Compensation in 2003. In 2002, Dr. Rakib paid $35,000 to reimburse the Company for his cost
related to personal usage of a corporate aircraft calculated in accordance with Internal
Revenue Service guidelines. This amount was not included in All Other Compensation in
2002, and may not be sufficient to cover all of the costs associated with his personal usage
of the corporate aircraft in 2002.(7)
    Includes $450, $450 and $300 contributed by the Company for premiums under a group term
life insurance policy on behalf of Dr. Rakib, Mr. Rakib and Mr. Lopez, respectively, in 2003.(8)
    Includes $300, $450, and $300 contributed by the Company for premiums under a group term
life insurance policy on behalf of Dr. Rakib, Mr. Rakib, and Mr. Lopez, respectively, in
2002.(9)
    Mr. Lopez became a Named Executive Officer of the Company on July 15, 2003. On an
annualized basis, Mr. Lopezs salary was $230,000. Mr. Lopez was the acting Chief Financial
Officer from July 31 2004 to November 30, 2004. Mr. Lopez resigned as Senior Vice President,
General Counsel and Human Resources effective on December 31, 2004. In February 2005, Mr.
Lopez resigned from the Company and he received the severance benefits pursuant to his
employment agreement described below.(10)
    In 2003, Dr. Rakib and Mr. Rakib each accrued $216,563 of bonus related the Companys
Executive Compensation Plan, which would have been paid in 2004. Dr. Rakib and Mr. Rakib
voluntarily waived their right to receive their bonuses and consequently did not receive any
payout under the Companys Executive Compensation Plan. In 2003, Mr. Lopez accrued $110,688
of bonuses related the Companys Executive Compensation Plan, which was earned in 2003 and
paid in 2004.(11)
    Dr. Rakib resigned as the Chief Executive Officer of the Company on September 7, 2004.(12)
    Mr. Rakib resigned as the President and Chief Technical Officer of the Company effective on
October 1, 2004. The Company grants options to its United States employees, including its executive officers,
under its 1997 Equity Incentive Plan, as amended, (1997 Plan) and options to its non-United States
based employees under its 1999 Non-Officer Equity Incentive Plan (1999 Plan). In May 2003, the
Board reduced the 1999 Plan by 13,762,174 shares and the 1997 Plan by 6,237,826 of shares. As of
December 31, 2004, options to purchase a total 9,039,335 shares and 6,927,312 shares were
outstanding under the 1997 Plan and the 1999 Plan, respectively, and 6,136,688 shares and
5,212,115 shares remained available for grant under the 1997 Plan and the 1999 Plan, respectively. The following tables show for the fiscal year ended December 31, 2004, certain information
regarding options granted to, exercised by, and held at year-end by, the Named Executive Officers.
In accordance with the rules of the Securities and Exchange Commission, also shown in the below
table is the potential realizable value over the term of the option (the period from the grant date
to the expiration date) based on assumed rates of stock appreciation of 5% and 10%, compounded
annually. These amounts are based on certain assumed rates of appreciation and do not represent
our estimate of future stock price. Actual gains, if any, on stock option exercises will be
dependent on the future performance of our common stock. 8




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##### Table of Contents



Option/SAR Grants in Last Fiscal Year Individual GrantsNumber of
    
    
    % of Total
    
    
    
    
    
    
    
    
    Potential RealizableSecurities
    
    
    Options/
    
    
    
    
    
    
    
    
    Value at AssumedUnderlying
    
    
    SARs
    
    
    Exercise
    
    
    
    
    
    Annual Rates of StockOptions/
    
    
    Granted to
    
    
    Or Base
    
    
    
    
    
    Price Appreciation forSARs
    
    
    Employees in
    
    
    Price
    
    
    Expiration
    
    
    Option TermName
    
    Granted (#)
    
    
    Fiscal Year
    
    
    ($/Sh)
    
    
    Date
    
    
    5% ($)
    
    
    10% ($)Mr. Chase
    
    
    800,000
    
    
    
    17
    %
    
    $
    1.67
    
    
    
    09/7/2014
    
    
    
    840,203
    
    
    
    2,129,240Mr. Richman
    
    
    500,000
    
    
    
    11
    %
    
    $
    1.99
    
    
    

    11/29/2014
    
    
    
    625,750
    
    
    
    1,585,774Dr. Rakib
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Mr. Rakib
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Mr. Lopez
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
   (1)
    
    Option granted pursuant to the 1997 Plan. The option vests over a
four year period, twenty-five percent of which will vest on September 8, 2005 and
the remainder will vest on a monthly basis thereafter.(2)
    
    Option granted pursuant to the 1997 Plan. The option vests over a
four year period, twenty-five percent of which will vest on November 30, 2005 and
the remainder will vest on a monthly basis thereafter. Aggregated Option/SAR Exercises in Last Fiscal Year, and FY-End Option/SAR Values Number ofSecuritiesUnderlying
    
    
    Value of UnexercisedUnexercised
    
    
    In-the-MoneyOptions/SARs at
    
    
    Options/SARs atFY-End (#)
    
    
    FY-End ($)Shares Acquired
    
    
    Value
    
    
    Exercisable/
    
    
    Exercisable/Name
    
    on Exercise (#)
    
    
    Realized ($)
    
    
    Unexercisable
    
    
    Unexercisable (1)Mr. Chase
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    800,000
    
    
    
    
    
    
    
    
    
    
    $
    832,000Mr. Richman
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    500,000
    
    
    
    
    
    
    
    
    
    
    $
    360,000Dr. Rakib
    
    
    
    
    
    
    
    
    
    
    1,050,000
    
    
    
    /
    
    
    
    250,000
    
    
    $
    65,000
    
    
    
    /
    
    
    $
    65,000Mr. Rakib
    
    
    
    
    
    
    
    
    
    
    1,050,000
    
    
    
    /
    
    
    
    250,000
    
    
    $
    65,000
    
    
    
    /
    
    
    $
    65,000Mr. Lopez
    
    
    
    
    
    
    
    
    
    
    440,000
    
    
    
    /
    
    
    
    125,000
    
    
    $
    32,000
    
    
    
    /
    
    
    $
    32,500
   (1)
    
    Calculated on the basis of the closing price of our common stock as reported on
the NASDAQ National Market on December 31, 2004, minus the exercise price. Employment Contracts, Termination of Employmentand Change of Control Agreements In August 2004, Mr. Lopez entered into a new employment agreement with the Company which
superseded his prior employment agreement entered into in October 1999. Pursuant to the terms of
his employment agreement, Mr. Lopezs annual base salary was $230,000 and he was entitled to
receive specified severance payments and benefits, as discussed below, in the event after October
1, 2004, his employment was terminated by the Company without cause or Mr. Lopez terminated his
employment with the Company for any reason. Mr. Lopez resigned from his position at the Company
effective December 31, 2004. In accordance with the terms of his employment agreement, he received
the following severance payments and benefits: (a) a severance payment of $345,000; (b) subject to
certain limitations, continuation of his employee benefits, at the Companys expense, until
December 31, 2005; (c) a lump sum payment of $57,500 in lieu of outplacement and career counseling
services; and (d) continued vesting of his
outstanding unvested stock options until December 31, 2005. In connection with the receipt of
severance benefits, Mr. Lopez reaffirmed his continuing obligations after termination under the
proprietary information and invention assignment agreement that he 9




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##### Table of Contents



signed upon his employment, and
entered into a release of claims with the Company. Dr. Rakib resigned as the Chief Executive Officer of the Company effective on September 7,
2004. Following his resignation, Dr. Rakib was appointed as Chairman of the Board. In connection
with this transition, Dr. Rakib entered into a transition agreement with the Company pursuant to
which he would remain with the Company as an employee until September 7, 2005. Pursuant to the
agreement, Dr. Rakib also received a lump sum payment of $1,350,000, less taxes and withholdings.
While Dr. Rakib remains an employee of the Company, his outstanding options will continue to vest
in accordance with their terms, and he continues to receive benefits under group health,
disability, life insurance and other welfare benefit plans. Prior to September 7, 2005, the
Company cannot terminate Dr. Rakibs employment except for cause, which is generally defined as
certain types of criminal acts generally involving dishonesty, willful material misconduct as
determined by the Board or failure to comply in any material respect with the terms of the
transition agreement. In connection with his receipt of the lump sum payment, Dr. Rakib entered
into a release of claims. Dr. Rakib also entered into a proprietary information and invention
assignment agreement and is subject to covenants not to compete and not to solicit customers and
employees while he is an employee or director of the Company and for one year afterwards. The
transition agreement superseded Dr. Rakibs prior employment agreement except that Dr. Rakibs
change of control severance agreement, as discussed below, remains in effect as amended by the
transition agreement while he is an employee. The severance payments and benefits received by Dr.
Rakib pursuant to the transition agreement would reduce any compensation and severance benefits
that he otherwise may be entitled to receive under his change of control severance agreement. Mr. Rakib resigned as Chairman of the Board effective on September 8, 2004. Additionally, on
October 1, 2004, Mr. Rakib resigned as President and Chief Technology Officer of the Company. Mr.
Rakib remains as a director of the Company. In connection with this transition, Mr. Rakib entered
into an agreement with the Company pursuant to which he would remain with the Company as an
employee until October 1, 2005. Pursuant to the agreement, Mr. Rakib also received a lump sum
payment of $1,350,000, less taxes and withholdings. While Mr. Rakib remains an employee of the
Company, his outstanding options will continue to vest in accordance with their terms, and he
continues to receive benefits under group health, disability, life insurance and other welfare
benefit plans. Prior to October 1, 2005, the Company cannot terminate Mr. Rakibs employment
except for cause (which is defined similarly to Dr. Rakibs transition agreement). In connection
with his receipt of the lump sum payment, Mr. Rakib entered into a release of claims. Mr. Rakib
also entered into a proprietary information and invention assignment agreement and is subject to
covenants not to compete and not to solicit customers and employees while he is an employee or
director of the Company and for one year afterwards. The transition agreement superseded Mr.
Rakibs prior employment agreement except that Mr. Rakibs existing change of control severance
agreement, as discussed below, remains in effect as amended by the transition agreement while he is
an employee. The severance payments and benefits received by Mr. Rakib pursuant to the transition
agreement would reduce any compensation and severance benefits that he otherwise may be entitled to
receive under his change of control severance agreement. In January 2004, the Company entered into change of control severance agreements with Dr.
Rakib and Messrs. Lopez and Rakib. These agreements provide for the payment of severance and
acceleration of stock options upon termination of employment other than for cause or with good
reason within twelve months of a change of control. Under the change of control severance
agreements, 100% of unvested options would vest upon such termination. The change of control
severance agreements also provide for a severance payment equal to 100% of base and target
incentive compensation in the case of Mr. Lopez, and 150% of base and target incentive compensation
in the case of Dr. Rakib and Mr. Rakib. Any payment that Dr. Rakib and Mr. Rakib would otherwise
be entitled to receive pursuant to their change of control severance agreements would be reduced by
the severance payments and benefits that each of Dr. Rakib, and Mr. Rakib received pursuant to
their transition agreement and employment agreement, as discussed above. In addition, the change
of control severance agreements of Dr. Rakib and Mr. Rakib will no longer be in effect after the
expiration of their one-year transitional employment period as further discussed above. The
termination of Mr. Lopezs employment voided his change of control severance agreement. On July 22, 2004, Mr. Chase entered into a letter agreement with the Company providing for his
appointment as the new Chief Executive Officer of the Company effective as of September 8, 2004.
Pursuant to the letter agreement, Mr. Chase is entitled to receive an annual salary of $400,000 and
eligible to receive an annual bonus of up to seventy-five percent of his base salary, the payment
of which is based on the achievement of certain goals defined by the Companys Board of Directors.
In the event Mr. Chases employment is terminated by the Company without cause or Mr. Chase
terminates his employment with the Company for good reason at any time on or before September 8,
2007, Mr. Chase is entitled to the following severance benefits: (a) a severance payment equal to
twelve months of his then base salary; (b) subject to certain limitations, continuation of his
employee benefits, at the Companys expense, for the duration of such twelve month period; and (c)
outplacement and career counseling services, at the Companys expense, provided, that the expense
shall not exceed twenty-five percent of his then base salary. Mr. Chase also was
granted an option to purchase 800,000 shares of common stock of the Company under the 1997
Plan, at an exercise price per share of $1.67, which represented the closing selling price per
share of the Companys common stock on the NASDAQ National Market on 10




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September 8, 2004. The option
vests over a four year period, twenty-five percent of which will vest on September 8, 2005 and the
remainder will vest on a monthly basis thereafter. Mr. Chase further entered into a change of control severance agreement with the Company, dated
as of July 22, 2004. The agreement provides, among other things, that, during the term of the
agreement, in the event Mr. Chases employment with the Company is terminated within twelve months
of a change of control of the Company, without cause or Mr. Chase terminates his employment with
the Company for good reason, Mr. Chase would be entitled to the following severance benefits: (i) a
severance payment equal to one hundred percent of his then base salary and target bonus; (ii)
subject to certain limitations, continuation of his employee benefits, at the Companys expense,
for the duration of such twelve month period; and (iii) full vesting of all of his unvested stock
options upon termination of his employment. Any severance benefits provided to Mr. Chase under the
severance agreement in connection with a change of control of the Company are offset and reduced by
the value of any severance benefits that Mr. Chase may be entitled to receive under his letter
agreement discussed above. The severance agreement is in effect until September 8, 2007. On November 10, 2004, Mr. Richman entered into a letter agreement with the Company providing
for his appointment as the new Chief Financial Officer of the Company effective as of November 30,
2004. Pursuant to the letter agreement, Mr. Richman is entitled to receive an annual salary of
$300,000 and eligible to receive an annual bonus of up to seventy-five percent of his base salary,
the payment of which is based on the achievement of certain goals defined by the Companys Board of
Directors. In the event Mr. Richmans employment is terminated by the Company without cause or Mr.
Richman terminates his employment with the Company for good reason at any time on or before
September 8, 2005, Mr. Richman is entitled to the following severance benefits: (a) a severance
payment equal to twelve months of his then base salary; (b) subject to certain limitations,
continuation of his employee benefits, at the Companys expense, for the duration of such twelve
month period; and (c) outplacement and career counseling services, at the Companys expense,
provided, that the expense shall not exceed twenty-five percent of his then base salary. Mr.
Richman also was granted an option to purchase 500,000 shares of common stock of the Company under
the 1997 Plan, at an exercise price per share of $1.99, which represented the closing selling price
per share of the Companys common stock on the NASDAQ National Market on November 30, 2004. The
option will vest over a four year period, twenty-five percent of which will vest on November 30,
2005 and the remainder vests on a monthly basis thereafter. Mr. Richman further entered into a change of control severance agreement with the Company,
dated as of March 24, 2005. The agreement provides, among other things, that, during the term of
the agreement, in the event Mr. Richmans employment with the Company is terminated within twelve
months of a change of control of the Company, without cause or Mr. Richman terminates his
employment with the Company for good reason, Mr. Richman would be entitled to the following
severance benefits: (i) a severance payment equal to one hundred percent of his then base salary
and target bonus; (ii) subject to certain limitations, continuation of his employee benefits, at
the Companys expense, for the duration of such twelve month period; and (iii) full vesting of all
of his unvested stock options upon termination of his employment. Any severance benefits provided
to Mr. Richman under the severance agreement in connection with a change of control of the Company
are offset and reduced by the value of any severance benefits that Mr. Richman may be entitled to
receive under his letter agreement discussed above. The severance agreement is in effect until
November 30, 2005 and then renews for one (1) year periods unless terminated. The definitions of change of control, cause and good reason under the change of control
severance agreements applicable to Dr. Rakib and Messrs. Chase, Rakib and Richman are as follows:
Change of control is defined as an acquisition of more than 50% of the Companys outstanding
voting securities, a stockholder approved merger, consolidation or reorganization of more than 51%
of the Companys outstanding voting securities, a stockholder approved liquidation or dissolution
of the Company or the agreement for the sale or dissolution of all or substantially all of the
assets of the Company to a third party. Cause is defined as fraud, misappropriation, embezzlement
or willful engagement in misconduct that is demonstrably and materially injurious to the Company
and its subsidiaries taken as a whole. Good reason is defined as a change in job duties, status,
position, responsibilities or salary, a failure to pay compensation, material change in a benefit
plan, breach of the change of control severance agreement, insolvency, relocation that is more than
60 miles from Santa Clara, California or the Companys termination attempts that do not comply with
the severance agreement. Additionally, the Company has entered into change of control severance agreements with several
employees who are not Named Executive Officers of the Company. 11




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##### Table of Contents



Report of the Compensation Committee
on Executive Compensation The Compensation Committee has furnished the following report on executive compensation for
fiscal year 2004. ROLE OF THE COMPENSATION COMMITTEE The Compensation Committee Charter gives the Compensation Committee the direct responsibility
to:  o
    review and approve corporate goals and objectives relevant to the
compensation of the Companys Chief Executive Officer;o
    evaluate the performance of the Chief Executive Officer and, either as a
committee or together with the other independent members of the Board, determine and
approve the compensation level for the Chief Executive Officer; ando
    make recommendations to the Board regarding the compensation of the
Companys officers and certain compensation plans. The Committees specific responsibilities include:  
    periodic review of the Companys general compensation policies and
strategies, including executive compensation;
    review and approve corporate goals and objectives relevant to executive
officers and evaluation of their performance in light of those goals and
objectives;
    approve salaries, bonuses and all equity-based compensation of the
Companys officers;
    review the Companys benefit programs and review and approval of all
incentive performance-based and equity based plans, plus review and approve
other plans submitted to the Compensation Committee by management; and
    review and approve the terms of employment contracts of the Companys
officers. COMPENSATION PHILOSOPHY The goals of the Company, the Board and the Compensation Committee are to align compensation
with business objectives and performance and to enable the Company to attract, retain and reward
officers and other key employees who contribute to the long-term success of the Company and to
motivate them to enhance long-term stockholder value. Key elements of this philosophy are:  
    The Company pays competitively compared to leading technology companies with which the
Company competes for talent. To ensure that pay is competitive, the Company regularly
compares its pay practices with these companies and establishes its pay parameters based on
this review.
    The Company considers individual and corporate performance and an individuals level of
responsibility, prior experience, breadth of knowledge and skill set in establishing an
individuals level of compensation.
    The Company maintains annual incentive opportunities sufficient to provide motivation to
achieve specific operating goals and to generate rewards that bring total compensation to
competitive levels.
    The Company provides significant equity-based incentives for executives and other key
employees to ensure that they are motivated over the long term to respond to the Companys
business challenges and opportunities as owners and not just as employees. Philosophy RegardingSection 162(m)of the Code.Section 162(m) of the Internal Revenue Code ,
as amended (Code),limits the Company to a deduction for federal income tax purposes of no more than
$1 million of compensation paid to certain named executive officers in a taxable year. Compensation
above $1 million may be deducted if it is performance-based compensation within the meaning of
the Code. While the Compensation Committee considers and attempts to preserve deductibility in
executive compensation, it believes that stockholder interests are best preserved in not
restricting the Compensation Committees discretion and flexibility in crafting and adopting
compensation programs, even if such programs may result in certain non-deductible compensation
expenses. Accordingly, the Compensation Committee may in the future approve compensation
arrangements for certain officers that are not fully deductible. Further, because of ambiguities
and uncertainties as to the application and interpretation of Section 162(m) and the regulations
issued thereunder, no assurance can be given, notwithstanding the Companys efforts, that
compensation intended by the Company to satisfy the requirements for deductibility under Section
162(m) does in fact do so. 12




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The Compensation Committee has determined that stock options granted under the Companys 1997
Plan with an exercise price at least equal to the fair market value of the Companys common stock
on the date of grant shall be treated as performance-based compensation. Long-Term Incentives.The Company believes in providing its employees, including its executive
officers, with equity incentive through the form of stock option to provide employees with a
personal incentive in the Company and as a retention mechanism. The Company believes that
providing employees with such equity incentives builds long-term stockholder value and aligns the
interests of the employees and the stockholders. The Companys long-term equity incentive program
consists of the 1997 Plan and the 1999 Plan. The equity incentive programs utilize vesting periods
(generally four or five years for new hire stock option grants and shorter periods for stock option
refresh grants) to encourage key employees to continue in the employ of the Company. Grants are
made at 100% of the fair market value on the date of grant. Executives receive value from these
grants only if the value of the Companys common stock appreciates over the long-term. The Company
determines the size of option grants based on competitive practices of comparable and leading
companies in the technology industry and the Companys philosophy of significantly linking
executive compensation with stockholder interests. CHIEF EXECUTIVE OFFICER COMPENSATION Mr. Chase joined the Company as Chief Executive Officer and a director in September 2004, and
became President of the Company in March 2005. Mr. Chases annualized base salary was $400,000.
Mr. Chase is also eligible to receive an annual bonus of up to seventy-five percent of his base
salary based upon certain goals defined by the Companys Board of Directors. Additionally, Mr.
Chase was granted an option to purchase 800,000 shares of common stock of the Company under the
1997 Plan, at an exercise price per share of $1.67. The option vests over a four year period,
twenty-five percent of which will vest on September 8, 2005 and the remainder will vest on a
monthly basis thereafter. The Compensation Committee, approved Mr. Chases initial compensation
arrangement, and will review annually Mr. Chases compensation arrangement. In determining Mr.
Chases compensation, the Compensation Committee took into account (i) the fact that Mr. Chase was
the Chief Executive Officer of a technology company that designs, develops and sells broadband
equipment and video technology, (ii) the scope of Mr. Chases responsibility and (iii) Mr. Chases
ability to lead the Companys continued development. Dr. Rakib resigned as the Chief Executive Officer of the Company effective September 7, 2004.
Dr. Rakibs annualized base salary in 2004 was $450,000, and Dr. Rakib was eligible to receive a
2003 bonus of up to $216,563 under the Companys 2003 Executive Incentive Compensation Plan
(Compensation Plan), which would have been paid in 2004 Dr. Rakib voluntarily waived his right to
receive his bonus and consequently did not receive any payout under the Compensation Plan, which is
described below. The Compensation Committee, and in the past  the Board, reviewed Dr. Rakibs
compensation arrangement annually. In determining Dr. Rakibs compensation the Compensation
Committee took into account (i) the fact that Dr. Rakib was the Chief Executive Officer of a
technology company that designs, develops and sells broadband equipment, (ii) the scope of Dr.
Rakibs responsibility and (iii) Dr. Rakibs ability to lead the Companys continued development. In 2003, the Board, upon the recommendation of the Compensation Committee, implemented the
Compensation Plan for certain of the Companys officers, including the Chief Executive Officer and
each of the executive officers. The Compensation Plan was a bonus plan in which the Companys
officers would be eligible to receive a bonus based on (i) the Companys performance and (ii)
qualitative performance by the officer. The Chief Executive Officer would make a recommendation
to the Compensation Committee on the qualitative performance of each of the officers and the
Compensation Committee would evaluate the Chief Executive Officers performance. Any payment from
the Compensation Plan would be based on a percentage of the officers base pay. The Compensation
Plan expired on December 31, 2003. In
2004, the Compensation Committee issued stock options to all
employees other than the Named Executive Officers. In determining the size of the stock option
grant to the employees, the Compensation Committee considered the Companys policy of providing
employees with equity incentives to retain employees, stock option grants being provided by other
companies that design, develop and sell broadband equipment and the size and value of outstanding
stock option grants. OTHER EXECUTIVE OFFICERS COMPENSATION In 2004, the other Named Executive Officers of the Company were Messrs. Lopez and Rakib, as
well as Mr. Richman who was appointed the Chief Financial Officer of the Company in November 2004.
In reviewing and approving the compensation, including base salary and incentive compensation (in
both the form of equity in stock options and target compensation in the form of a bonus pursuant to
a compensation plan) of the other Named Executive Officers, the Compensation Committee and the
Board 13




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considered the recommendation of the Chief Executive Officer,; to the extent available, the
typical salary ranges for persons in comparable positions at comparable companies; and the persons
experience. The fiscal 2004 salaries of the Chief Executive Officers and Messrs. Lopez, Rakib, and
Richman are shown in the Summary Compensation Table. THE COMPENSATION
COMMITTEE OF THE BOARD OF DIRECTORS  FISCAL 2004Lewis Solomon  Chairman of
the Compensation Committee   Howard W. Speaks, Jr.
 Compensation Committee Interlocks and Insider Participation In the fiscal year ended December 31, 2004, the Compensation Committee consisted of Messrs.
Solomon and Woodrow, with Mr. Solomon as Chairman. The Board members, Messrs. Krstajic, Slaven,
Solomon, Speaks and Woodrow, and Dr. Miller are not, and were not in 2004, officers or employees of
the Company. Each of the Companys directors holds securities of the Company. No executive
officer of the Company served on the board of directors or Compensation Committee of any entity,
which has one or more executive officers serving as a member of the Companys Board or Compensation
Committee. COMPENSATION OF DIRECTORS In October 2002, the Company adopted a compensation plan for non-employee board members
whereby each non-employee director receives a monthly retainer of $2,000 and $1,000 per board or
committee meeting attended. Committee chairs receive an additional $500 per committee meeting
attended. In fiscal 2004, Mr. Krstajic received a total of $37,000, Dr. Miller a total of $11,500,
Mr. Slaven a total of $48,000, Mr. Solomon a total of $45,000, Mr. Speaks a total of $23,000 and
Mr. Woodrow a total of $47,000 for their board service. Additionally, two employee directors, Mr.
Rakib and Dr. Rakib received a total of $6,000 and $10,500, respectively, of compensation for their
board service in fiscal 2004. Mr. Speaks and Dr. Miller joined our Board in July and May of 2004,
respectively. Mr. Chase joined our Board in September 2004 in connection with his appointment as
the new Chief Executive Officer of the Company. The members of the board are eligible for
reimbursement for their expenses incurred in connection with attendance at board and committee
meetings in accordance with Company policy. Mr. Krstajic also received compensation of $30,000 in
March of 2004 for consulting services that he provided to the Company in 2003. Each non-employee director of the Company also receives stock option grants under the 1998
Non-Employee Directors Stock Option Plan (Directors Plan). Only non-employee directors, which are
currently Messrs. Krstajic, Slaven, Solomon, Speaks, Woodrow and Dr. Miller, are eligible to
receive non-qualified stock options under the Directors Plan. The Directors Plan is administered
by the board, unless the board delegates the administration of the Directors Plan to a committee
comprised of board members. The aggregate number of shares of common stock of the Company that may be issued pursuant to
options granted under the Directors Plan is 800,000 shares. Option grants under the Directors
Plan are non-discretionary. Pursuant to the Directors Plan, non-employee directors automatically
receive (i) an option to purchase 60,000 shares of common stock on the date of his or her initial
election or appointment to be a non-employee director and (ii) an option to purchase 25,000 shares
of common stock on the date of each annual meeting of stockholders, which amount shall be prorated
for the 12-month period prior to the annual meeting of stockholders if the non-employee director
has not continuously served as an non-employee director during such period. In addition, each
non-employee director who is then serving as a member of a committee automatically receives an
option to purchase 6,000 shares of common stock for each such committee on the date of each annual
meeting of stockholders, which amount shall be prorated for the 12 month period prior to the annual
meeting of stockholders if the non-employee director has not continuously served as an committee
member during such 12-month period. No other options may be granted at any time under the
Directors Plan. 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. 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. An optionee whose service relationship
with the Company or any affiliate (whether as a non-employee director 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 (three months generally, 12
months in the event of disability and 18 months in the event of death). 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. 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 the 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 14




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##### Table of Contents



and at or prior to such event. The term of options granted under the Directors Plan is 10
years. Unless terminated sooner by the board, the Directors Plan will terminate in June 2008. During fiscal 2004, the Company granted 296,000 shares of common stock pursuant to stock
options from the Directors Plan to non-employee directors of the Company. On December 16, 2004,
each of Messrs. Slaven, Woodrow, Krstajic, Solomon, Miller and Speaks received an option grant for
40,000, 40,000, 28,000, 37,000, 10,417 and 20,583 shares, respectively, of the Companys common
stock. The exercise price per share in effect under each such option was $2.74. On July 23, 2004,
Mr. Miller received an option grant for 60,000 shares of the Companys common stock with an
exercise price of $1.80 per share. On May 26, 2004, Mr. Speaks received an option grant for 60,000
shares of the Companys common stock with an exercise price of $3.07 per share. All exercise prices
reflect the fair market value per share of the Companys common stock on the grant date. As of
December 31, 2004, 24,591 shares of common stock pursuant to 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. 
 Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters The following table sets forth certain information regarding the ownership of the Companys
common stock as of April 15, 2005 by: (i) each director; (ii) each Named Executive Officers; (iii)
each former Named Executive Officers; (iv) all Named Executive Officers, former Named Executive
Officers, and directors of the Company as a group; and (v) all those known by the Company to be
beneficial owners of more than five percent of its common stock. All shares of the Companys common
stock subject to options currently exercisable or exercisable within 60 days of April 15, 2005, are
deemed to be outstanding for the purpose of computing the percentage of ownership of the person
holding such options, but are not deemed to be outstanding for computing the percentage of
ownership of any other person. This table is based upon information supplied by officers, directors
and principal stockholders and Schedules 13D and 13G filed with the SEC. Unless otherwise
indicated in the footnotes to this table and subject to community property laws where applicable,
the Company believes that each of the stockholders named in this table has sole voting and
investment power with respect to the shares indicated as beneficially owned. Applicable
percentages are based on 76,869,633 shares outstanding on April 15, 2005, adjusted as required by
rules promulgated by the SEC. Unless otherwise indicated in the table, the address of each party
listed in the table is 4988 Great America Parkway, Santa Clara, California 95054. Beneficial OwnershipNumber of
    
    
    PercentageBeneficial Owner
    
    Shares
    
    
    OwnershipFMR Corporation
    
    
    9,836,203
    
    
    
    12.80
    %82
Devonshire Street
Boston, Massachusetts 02109 (1)Kern Capital Management
    
    
    9,734,200
    
    
    
    12.66
    %114 West
47th
Street, Suite 1926
New York, New York 10036 (2)Zaki Rakib (3)
    
    
    4,302,040
    
    
    
    5.50
    %Shlomo Rakib (4)
    
    
    4,302,040
    
    
    
    5.50
    %Edward Lopez (5)
    
    
    505,647
    
    
    
    *Lewis Solomon (6)
    
    
    316,721
    
    
    
    *Aleksander Krstajic (7)
    
    
    239,218
    
    
    
    *David M. Woodrow (8)
    
    
    89,269
    
    
    
    *Mark Slaven (9)
    
    
    39,900
    
    
    
    *Jerry Chase (10)
    
    
    
    
    
    
    *Mark Richman (11)
    
    
    
    
    
    
    *Matthew Miller (12)
    
    
    19,800
    
    
    
    *Howard W. Speaks, Jr. (13)
    
    
    23,150
    
    
    
    *All executive officers, former executive
officers, and directors as a group (11
persons) (14)
    
    
    
    
    
    
    12.20
    %
 15




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##### Table of Contents



(1)
    FMR Corporation filed with the SEC an amendment to Schedule 13G, dated as of February 14,
2005, reporting beneficial ownership of 9,835,203 shares.(2)
    Kern Capital Management filed with the SEC a Schedule 13G, dated as of February 28, 2005,
reporting beneficial ownership of 9,734,200 shares.(3)
    Shares beneficially owned by Dr. Zaki Rakib include 240,000 shares of common stock held by
the Shlomo Rakib Childrens Trust of which Dr. and Mrs. Rakib are trustees and 1,300,000
shares of common stock underlying stock options, which are exercisable within 60 days of April
15, 2005. In addition, Mr. Rakibs family members hold 3,580 shares of common stock
underlying stock options. Dr. Rakib disclaims beneficial ownership of these shares and stock
options.(4)
    Shares beneficially owned by Shlomo Rakib include 240,000 shares of common stock held by the
Zaki Rakib Childrens Trust of which Mr. and Mrs. Rakib are trustees and 800,000 shares of
common stock underlying stock options which are exercisable within 60 days of April 15, 2005.
In addition, Mr. Rakibs family members hold 3,580 shares of common stock underlying stock
options. Mr. Rakib disclaims beneficial ownership of these shares and stock options.(5)
    Shares beneficially owned include 505,000 shares of common stock underlying stock options,
which are exercisable within 60 days of April 15, 2005.(6)
    Shares beneficially owned include 254,667 shares of common stock underlying stock options,
which are exercisable within 60 days of April 15, 2005.(7)
    Shares beneficially owned include
237,497 shares of common stock underlying stock options, which are exercisable within 60 days
of April 15, 2005.(8)
    Shares beneficially owned include 85,343 shares of common stock
underlying stock options that are exercisable within 60 days of April 15, 2005.(9)
    Shares beneficially owned include 36,550 shares of common stock underlying stock options that
are exercisable within 60 days of April 15, 2005.(10)
    Mr. Chase joined the Company as Chief Executive Officer in September 2004.(11)
    Mark Richman joined the Company as Senior Vice President Finance and Administration and Chief
Financial Officer in November 2004.(12)
    Shares beneficially owned include 19,800 shares of
common stock underlying stock options that are exercisable within 60 days of April 15, 2005.
Dr. Miller joined the Company as a director in July 2004.(13)
    Shares beneficially owned include 23,150 shares of common stock underlying stock options that
are exercisable within 60 days of April 15, 2005. Mr. Speaks joined the Company as a director
in May 2004.(14)
    Shares beneficially owned by the Companys current directors and officers as a group includes
9,837,785 shares of common stock underlying stock options that are exercisable within 60 days
of April 15, 2005. (GRAPH) Data Points (1)
    
    12/31/99
    
    
    12/31/00
    
    
    12/31/01
    
    
    12/31/02
    
    
    12/31/03
    
    
    12/31/04Terayon
    
    $
    62.81
    
    
    $
    4.06
    
    
    $
    8.27
    
    
    $
    2.05
    
    
    $
    4.50
    
    
    $
    2.71S&P500
    
    $
    1,469.25
    
    
    $
    1,320.28
    
    
    $
    1,148.08
    
    
    $
    879.82
    
    
    $
    1,111.92
    
    
    $
    1,211.92NASDAQ Telecom
    
    $
    1,015.40
    
    
    $
    463.44
    
    
    $
    236.63
    
    
    $
    108.79
    
    
    $
    183.57
    
    
    $
    198.25
 Conversion to Index Point (2)
    
    12/31/1999
    
    
    12/31/2000
    
    
    12/31/2001
    
    
    12/31/2002
    
    
    12/31/2003
    
    
    12/31/2004Terayon
    
    
    170
    
    
    
    11
    
    
    
    22
    
    
    
    6
    
    
    
    12
    
    
    
    7S&P500
    
    
    120
    
    
    
    107
    
    
    
    93
    
    
    
    72
    
    
    
    90
    
    
    
    99NASDAQ Telecom
    
    
    203
    
    
    
    93
    
    
    
    47
    
    
    
    22
    
    
    
    37
    
    
    
    40
   (1)
    
    Stock closing price 16




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##### Table of Contents



Item 13.Certain Relationships and Related Transactions The Company has entered into indemnity agreements with certain officers and directors which
provide, among other things, that the Company will indemnify such officer or director, under the
circumstances and to the extent provided for therein, for expenses, damages, judgments, fines and
settlements he or she may be required to pay in actions or proceedings which he or she is or may be
made a party by reason of his or her position as a director, officer or other agent of the Company,
and otherwise to the fullest extent permitted under Delawarelaw and the Companys Bylaws. During the fiscal year ended December 31, 2004, Harmonic, Inc. purchased equipment and
services from the Company, which accounted for approximately $9.9 million worth of the Companys
revenues. Mr. Solomon, a director of the Company and member of the Companys Compensation and
Nominating and Governance Committees also serves as a member of the Board of Directors of Harmonic,
Inc. During fiscal 2004, the Company employed Suzan Fishel, a sister of Dr. Rakib and Mr. Rakib.
She was paid an aggregate salary of $99,500.08 for her services during the year. In January 2004, YAS Corporation (YAS), an entity affiliated with Rouzbeh Yassini-Fard, the
Companys Interim Head of Data Business from June to October 2004, entered into a consulting
agreement with the Company. Pursuant to the consulting agreement, YAS agreed to provide the
Company with consulting and market development services primarily in connection with the Companys
cable modem termination system (CMTS) products until December 31, 2006, unless earlier terminated.
The scope of YASs consulting relationship is subject to specific tasks set forth in a statement of
work agreed upon by YAS and the Company. Five specified consultants associated with YAS, including
Dr. Yassini-Fard, agreed to provide consulting services to the Company on a non-exclusive basis.
In consideration for its services, the Company agreed to pay YASs approved expenses and the
following fees: (i) $140,000 per month for 2004, (ii) $50,000 per month for 2005 and (iii) $40,000
per month for 2006. Additionally, YAS would be paid a commission based on the number of sales of
the Companys CMTS products during the term of the agreement to the top fifteen North American
Multiple System Operators, provided the aggregate commission to be paid to YAS would not exceed
$4,920,000. The consulting agreement also sets forth the rights of the parties with respect to
ownership of intellectual property created during the term of the agreement, with intellectual
property created by YAS and its consultants belonging to YAS and intellectual property created by
the Company and its employees belonging to the Company. The Company also agreed to indemnify YAS
and its consultants in connection with YASs provision of services to the Company. In addition to
the consulting relationship entered into with the Company in January 2004, Dr. Yassini-Fard and
entities affiliated with him have acted as consultants to the Company in the past pursuant to prior
consulting arrangements with the Company which have since expired. In fiscal year 2004, the
Company paid YAS an aggregate of $1,880,000 for consulting services. In June 2004 in connection with Dr. Yassini-Fards appointment as Interim Head of Data
Business of the Company, the consulting agreement with YAS was orally amended. The modified
arrangement with YAS provided, among other things, that Dr. Yassini-Fard would serve on a full-time
basis as Interim Head of Data Business until August 31, 2004. In that capacity, Dr. Yassini-Fard
had full authority to operate the Data Business but was required to report to the Executive
Committee of the Board on a regular basis. The Executive Committee of the Board was dissolved upon
the appointment of Mr. Chase, and Mr. Yassini-Fard reported directly to the Companys Board of
Directors. YAS also added six additional consultants to work with the Company. In connection 17




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##### Table of Contents



with Dr. Yassini-Fards modified role on an interim basis and the addition of six consultants,
the monthly fee payable to YAS increased from $140,000 to $180,000. The other terms of the
existing consulting agreement with YAS remained unaffected. Dr. Yassini-Fards position as the
Companys Interim Head of Data Business was extended to December 2004. Dr. Yassini-Fard is no
longer the Companys Interim Head of Data Business but the Company continues to engage YAS as a
consultant to the Company pursuant to the terms and conditions of the original consulting agreement
with YAS discussed above. Consequently, Dr. Yassini-Fards monthly fee payable to YAS was reduced
to $140,000 for the remainder of 2004. 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. 
 Item 14.Principal Accountant Fees and Services Ernst & Young LLP performed services for us in fiscal 2004 and 2003 related to financial
statement audit work, quarterly reviews, tax services, special projects and other ongoing
consulting projects. Fees paid to Ernst & Young in fiscal 2004 and 2003 were as follows: 2004
    
    
    2003Audit Fees (1)
    
    $
    1,067,569
    
    
    $
    606,922Tax Fees (2)
    
    $
    55,150
    
    
    $
    84,912All Other Fees (3)
    
    $
    
    
    
    $
    12,444
   (1)
    
    Audit fees represent aggregate fees billed for the audit of consolidated
financial statements for the fiscal years ended December 31, 2004 and 2003 and the
review of financial statements included in our quarterly reports on Form 10-Q.(2)
    
    Tax fees represent fees for professional services provided in connection with
the preparation of our federal and state tax returns and advisory services for other
tax compliance matters.(3)
    
    All other fees consist of fees for products and services other than the services reported
above. Under
the Sarbanes-Oxley Act of 2002 and the Charter of the Audit Committee, all audit and non-audit services performed by Ernst &
Young must be approved in advance by our audit committee to assure that such services do not impair
the auditors independence from the company. Our audit committee specifically approved all audit
and non-audit services prior to them being performed by Ernst & Young in fiscal 2004. 18




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##### Table of Contents



PART IV 
 Item 15.Exhibits, Financial Statement Schedules (a) The following documents are filed as part of this report on Form 10-K/A:  (1)
    ExhibitsThe exhibits in the accompanying Index to
Exhibits are filed or incorporated by reference as
part of this Annual Report on Form 10-K/A. 19




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##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto due
authorized, in County of Santa Clara, State of California, on the 2nd
day of May, 2005. TERAYON COMMUNICATION SYSTEMS, INC./s/ Jerry D. ChaseJerry D. ChaseChief Executive Officer Pursuant to the requirements of the Securities Act of 1934, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and on the dates
indicated. Signature
    
    Title
    
    Date/s/ Jerry D. Chase

Jerry D. Chase
    
    Chief Executive Officer and
Director (Principal Executive Officer)
    
    May 2, 2005/s/ Mark A. Richman

Mark A. Richman
    
    Chief Financial Officer (Principal
Financial and Accounting Officer)
    
    May 2, 2005*
Dr. Zaki Rakib
    
    Chairman of the Board of Directors
    
    May 2, 2005*
Shlomo Rakib
    
    Director
    
    May 2, 2005*
Lewis Solomon
    
    Director
    
    May 2, 2005*
Aleksander Krstajic
    
    Director
    
    May 2, 2005*
David Woodrow
    
    Director
    
    May 2, 2005*
Mark Slaven
    
    Director
    
    May 2, 2005*
Dr. Matthew Miller
    
    Director
    
    May 2, 2005*
Howard W. Speaks, Jr.
    
    Director
    
    May 2, 2005
 * By  /s/ Jerry D. ChaseJerry D. ChaseAttorney-in- fact 20




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##### Table of Contents



INDEX TO EXHIBITS ExhibitNumber
    
    Exhibit Description3.1
    
    Amended and Restated Certificate of Incorporation of Terayon Communication Systems, Inc.(14)3.2
    
    Bylaws of Terayon Communication Systems, Inc.(14)3.3
    
    Certificate of Amendment to Amended and Restated Certificate of Incorporation of Terayon Communication
Systems, Inc.(14)3.4
    
    Certificate of Designation of Series A Junior Participating Preferred Stock.(6)4.1
    
    Specimen Common Stock Certificate.(2)4.2
    
    Amended and Restated Information and Registration Rights Agreement dated April 6, 1998.(1)4.3
    
    Form of Security for Terayon Communication Systems, Inc.s 5% Convertible Subordinated Notes due August 1,
2007.(5)4.4
    
    Registration Rights Agreement by and among Terayon Communication Systems, Inc. and Deutsche Bank Securities,
Inc. and Lehman Brothers, Inc.(5)4.5
    
    Indenture between Terayon Communication Systems, Inc. and State Street Bank and Trust Company of California,
N.A. dated July 26, 2000.(5)4.6
    
    Rights Agreement between Terayon Communication Systems, Inc. and Fleet National Bank dated February 6,
2001.(6)10.1
    
    Form of Indemnity Agreement between Terayon Communication Systems, Inc. and each of its directors and
officers.(19)10.2
    
    1995 Stock Option Plan, as amended.(1)10.3
    
    1997 Equity Incentive Plan, as amended.(9)10.4
    
    1998 Employee Stock Purchase Plan, as amended.(12)10.5
    
    1998 Non-Employee Directors Stock Option Plan as amended.(1)10.6
    
    1998 Employee Stock Purchase Plan Offering for Foreign Employees.(7)10.7
    
    1999 Non-Officer Equity Incentive Plan, as amended.(13)10.8
    
    Azrieli Center Offices Lease Agreement, dated January 23, 2002, between Canit HaShalom Investments Ltd. and
Terayon Communication Systems, Inc.(9)10.9
    
    Azrieli Center Agreement to Transfer Lease Rights dated 23rd day of January, 2000.(11)10.10
    
    Data Over Cable Service Interface Specifications License Agreement, dated December 21, 2001, between Terayon
Communication Systems, Inc. and Cable Television Laboratories, Inc.(9)10.11
    
    Amendment to DOCSIS IPR Agreement to cover DOCSIS 2.0, dated December 21, 2001, between Terayon
Communication Systems, Inc. and Cable Television Laboratories, Inc.(9)10.12
    
    Data Over Cable Service Interface Specifications License Agreement, dated December 21, 2001, between Imedia
Semiconductor Corporation and Cable Television Laboratories, Inc.(9)10.13
    
    Amendment to DOCSIS IPR Agreement to cover DOCSIS 2.0, dated December 21, 2001, between Imedia Semiconductor
Corporation and Cable Television Laboratories, Inc.(9)10.14
    
    Lease Agreement, dated September 18, 1996, between Sobrato Interests III and VeriFone.(10)10.15
    
    Sublease, dated April 1, 2002, by and between Terayon Communication Systems, Inc. and Hewlett-Packard
Company.(10)10.16
    
    Aircraft Lease Agreement, dated February 8, 2002, between Terayon Communication Systems, Inc. and General
Electric Capital Corporation.(11)10.17
    
    Letter of Credit Agreement, dated February 8, 2002, between Terayon Communication Systems, Inc. and General
Electric Capital Corporation.(11)10.18
    
    Agreement dated January 23, 2004, between Terayon Communication Systems, Inc. and YAS Corporation.(15)




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##### Table of Contents



ExhibitNumber
    
    Exhibit Description10.19
    
    First Amendment to Aircraft Lease Agreement, dated December 31, 2003, between Terayon Communication Systems,
Inc. and General Electric Capital Corporation.(17)10.20
    
    Code of Business Conduct.(17)10.21
    
    Notification Letter of Intent to Terminate or Sublease the Aircraft Lease Agreement dated March 12, 2004.(17)10.22
    
    Employment Agreement dated July 22, 2004 between Terayon Communication Systems, Inc. and Jerry D. Chase.(16)10.23
    
    Severance Agreement dated July 22, 2004, between Terayon Communication Systems, Inc. and Jerry D. Chase.(16)10.24
    
    Proprietary Information and Inventions Agreement dated July 22, 2004 between Terayon Communication Systems,
Inc. and Jerry D. Chase.(16)10.25
    
    Aircraft Sublease Agreement dated August 24, 2004 between Terayon Communication Systems, Inc. and United
Furniture Equipment Rental, Inc.(16)10.26
    
    Employment Agreement dated November 8, 2004 between Terayon Communication Systems, Inc. and Mark A.
Richman.(19)10.27
    
    Form of Severance Agreement between Terayon Communication Systems, Inc. and Mark A. Richman.(19)10.28
    
    Proprietary Information and Inventions Agreement dated November 10, 2004 between Terayon Communication
Systems, Inc. and Mark A. Richman.(19)10.29
    
    Separation Agreement dated August 2, 2004 between Terayon Communication Systems, Inc. and Edward Lopez.(16)10.30
    
    Form of Option Agreement for the Terayon Communication Systems, Inc. 1997 Equity Incentive Plan.(18)10.31
    
    Transition Agreement dated June 21, 2004, between Terayon Communication Systems, Inc. and Zaki Rakib.(15)10.32
    
    Employment Agreement dated June 21, 2004, between Terayon Communication Systems, Inc. and Selim (Shlomo)
Rakib.(15)10.33
    
    Form of Option Agreement for the Terayon Communication Systems, Inc. 1998 Non-Employee Directors Stock
Option Plan.(19)21.1
    
    List of Subsidiaries.(19)23.1
    
    Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.(19)24.1
    
    Power of Attorney.(19)31.1
    
    Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(19)32.2
    
    Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(19)
   (1)
    
    Incorporated by reference to exhibits to our Registration Statement on Form S-1 filed on June
16, 1998 (File No. 333-56911).(2)
    
    Incorporated by reference to exhibits to our Registration Statement on Form S-1/A filed on
July 31, 1998 (File No. 333-69699).(3)
    
    Incorporated by reference to our Report on Form 10-Q filed on November 15, 1999.(4)
    
    Incorporated by reference to our Registration Statement on Form S-8 filed on December 29,
1999.(5)
    
    Incorporated by reference to our Registration Statement on Form S-3 filed on October 24, 2000
(File No. 333-48536).(6)
    
    Incorporated by reference to our Report on Form 8-K filed on February 9, 2001.(7)
    
    Incorporated by reference to our Report on Form 10-K filed on April 2, 2001.(8)
    
    Incorporated by reference to our Report on Form 10-Q filed on May 15, 2001.(9)
    
    Incorporated by reference to our Report on Form 10-K filed on April 1, 2002.(10)
    
    Incorporated by reference to our Report on Form 10-Q filed on May 15, 2002.(11)
    
    Incorporated by reference to our Report on Form 10-K filed on March 27, 2003.(12)
    
    Incorporated by reference to our Report on Registration Statement on Form S-8 filed on August
30, 2002.(13)
    
    Incorporated by reference to our Report on Form 10-Q filed on August 14, 2003.(14)
    
    Incorporated by reference to our Report on Form 8-K filed on November 21, 2003.(15)
    
    Incorporated by reference to our Report on Form 10-Q filed on July 27, 2004.




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##### Table of Contents



(16)
    
    Incorporated by reference to our Report on Form 10-Q filed on November 9, 2004.(17)
    
    Incorporated by reference to our Report on Form 10-K filed on March 15, 2004.(18)
    
    Incorporated by reference to our Report on Form 8-K filed on September 14, 2004.(19)
    
    Incorporated by reference to our Report on Form 10-K filed on March 15, 2005.