Terayon buys back all outstanding 5% convertibles, reaches $15 million shareholder settlement

By Angela McDaniels

Seattle, March 22 - Terayon Communication Systems Inc. said it received a notice of acceleration from holders of its 5% convertible subordinated notes due 2007 and, on Tuesday, paid in full the entire principal amount of the outstanding notes, including accrued interest and related fees, for a total of $65.6 million.

Separately, Terayon agreed to settle a shareholder class action lawsuit initially filed in April 2000.

"On the bond issue, we reviewed several restructuring options and chose the most cost-effective: paying off the bonds now," chief executive officer Jerry Chase said in a company news release.

"We have also reached agreement to settle our six-year-old shareholder suit after determining that it, too, was more cost-effective to settle rather than continue to litigate."

Bondholder repayment

Terayon received a letter from holders of more than 25% of the convertible notes outstanding on Jan. 12 providing notice to Terayon of default under the indenture for the notes based on the company's failure to file its 10-Q report for the quarter ended Sept. 30, according to the release.

Terayon was unable to cure the default within 60 days of the written notice, March 13, which triggered an event of default under the indenture and enabled the bondholders to accelerate the maturity of the notes.

Shareholder settlement

On March 17, Terayon entered into a memorandum of understanding that settled the securities class action suit against the company pending in the U.S. District Court for the Northern District of California.

The amended complaint alleged that Terayon and some of its officers and directors violated the federal securities laws by issuing materially false and misleading statements and failing to disclose material information about Terayon's technology, according to the release.

The class action included claims for damages for those who purchased Terayon's securities between Nov. 15, 1999 and April 11, 2000.

Under the settlement, the company will pay the plaintiffs $15 million within 45 days of the execution of the memorandum of understanding or 15 days after court approval of the settlement, whichever is later, but in no case earlier than May 10.

Terayon said it expects to pay about $2.3 million of this amount and its insurance carriers have agreed to pay the remaining amount.

The settlement is subject to final approval by the court.

Terayon Communication Systems is a broadband systems company based in Santa Clara, Calif.

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