Adrian Mongeli, et al. v. Terayon Communication Systems, Inc., et al. 06-CV-03936-Declaration Of

215 Pages·2007·13.58 MB·English

1 MORGAN, LEWIS & BOCKIUS LLP
John H. Hemann (Bar No. 165823)
2 Michael J. Lawson (Bar No. 66547)
Sheila A. Jambekar (Bar No. 239101)
3 One Market
Spear Street Tower
4 San Francisco, CA 94105
Tel: [phone]
5 Fax: [phone]
6 ERNST & YOUNG LLP
Bruce M. Cormier
7 Joel E. Bonner (Bar No. 105492)
1225 Connecticut Avenue, NW
8 Washington, D.C. 20036
Tel: [phone]
9 Fax: [phone]
10 Attorneys for Defendant
ERNST & YOUNG LLP
11
12 UNITED STATES DISTRICT COURT
13 NORTHERN DISTRICT OF CALIFORNIA
14 SAN FRANCISCO DIVISION
15
ADRIAN MONGELI, Individually, And Case No. 3-06-CV-03936 MJJ
16 On Behalf Of All Others Similarly
Situated, CLASS ACTION
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Plaintiff, DECLARATION OF SHEILA A.
18 JAMBEKAR IN SUPPORT OF
vs. DEFENDANT ERNST & YOUNG LLP’S
19 MOTION TO DISMISS AND REQUEST
TERAYON COMMUNICATIONS FOR JUDICIAL NOTICE
20 SYSTEMS, INC., ZAKI RAKIB, JERRY
D. CHASE, MARK A. RICHMAN, Hearing Date: June 26, 2007
21 EDWARD LOPEZ, RAY FRITZ, CAROL Time: 9:30 a.m.
LUSTENADER, MATTHEW MILLER, Dept.: Courtroom 11
22 SHLOMO RAKIB, DOUG SABELLA, Judge: Hon. Martin J. Jenkins
CHRISTOPHER SCHAEPE, MARK Action Filed: June 23, 2006
23 SLAVEN, LEWIS SOLOMON,
HOWARD W. SPEAKS, ARTHUR T.
24 TAYLOR, DAVID WOODROW, and
ERNST & YOUNG LLP,
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Defendants.
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1-SF/7512727.3 Case Number: 3-06-CV-03936 MJJ
DECLARATION OF
SHEILA A. JAMBEKAR
1 I, Sheila A. Jambekar, declare as follows:
2 1. I am an attorney at law, duly licensed to practice before this Court and the Courts
3 of the State of California. I am an associate with the law firm of Morgan, Lewis & Bockius LLP,
4 attorneys for Defendant Ernst & Young LLP (“Ernst & Young”). The facts set forth herein are
5 known to me personally, and if called upon to testify, I could and would testify competently to
6 those facts.
7 2. This Declaration is made in support of Defendant Ernst & Young’s Request for
8 Judicial Notice in Support of Its Motion to Dismiss.
9 3. On March 7, 2007, I searched LIVEDGAR via the website, www.gsionline.com,
10 for Terayon Communication Systems, Inc.’s (“Terayon’s”)10-K filings for the years ending
11 December 31, 2001, December 31, 2002, December 31, 2003, December 31, 2004 and December
12 31, 2005. LIVEDGAR is a database through which U.S. Securities and Exchange Commission
13 filings can be obtained.
14 4. Attached as Exhibit A is a true and correct copy of the cover page, table of
15 contents, and pages 35 through 73 of Terayon’s 10-K filing for the year ending December 31,
16 2001, that I obtained from searching LIVEDGAR.
17 5. Attached as Exhibit B is a true and correct copy of the cover page, table of
18 contents, and pages 54 through 103 of Terayon’s 10-K filing for the year ending December 31,
19 2002, that I obtained from searching LIVEDGAR.
20 6. Attached as Exhibit C is a true and correct copy of the cover page, index, and
21 pages 53 through 89 of Terayon’s 10-K filing for the year ending December 31, 2003, that I
22 obtained from searching LIVEDGAR.
23 7. Attached as Exhibit D is a true and correct copy of the cover page, index, and
24 pages 56 through 92 of Terayon’s 10-K filing for the year ending December 31, 2004, that I
25 obtained from searching LIVEDGAR.
26 8. Attached as Exhibit E is a true and correct copy of the cover page, index, and
27 pages 48 and 49 of Terayon’s 10-K filing for the year ending December 31, 2005, that I obtained
28 from searching LIVEDGAR.
1-SF/7512727.3 1 Case Number: 3-06-CV-03936 MJJ
DECLARATION OF
SHEILA A. JAMBEKAR
1 9. On March 20, 2007, I went to the Yahoo! Finance website at
2 http://finance.yahoo.com/, typed the ticker symbol for Terayon (TERN.PK) into a text box in the
3 upper left corner of the page, and clicked on the link entitled “Get Quotes.” On the next page that
4 opened, I then chose the link entitled “Historical Prices.” Then, on the next page that opened
5 after that, I set the date range for June 1, 2001 until March 31, 2006 and clicked the link “Get
6 Prices.” This opened a new page with a table containing daily stock price information for
7 Terayon between June 1, 2001 until March 31, 2006. I then clicked on the link “Download to
8 Spreadsheet,” which opened a new window containing the same stock price data in an Excel
9 spreadsheet. Attached as Exhibit F is a true and correct copy of the printout of that Excel
10 spreadsheet containing information regarding Terayon’s daily stock prices for the period of June
11 1, 2001 until March 31, 2006.
12 I declare under penalty of perjury under the laws of the United States and the State of
13 California that the foregoing is true and correct. Executed on this 23rd day of March 2007, in San
14 Francisco, California.
15 /
S/
Sheila A. Jambekar
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1-SF/7512727.3 2 Case Number: 3-06-CV-03936 MJJ
DECLARATION OF
SHEILA A. JAMBEKAR
Exhibit A
Table of Contents
SECURITIES AND EXCHANGE COMMISSION
Washington , D .C . 2 054 9
Form 10-K
(Mark one)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 193 4
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 Employ-
incorporation or organization Identification No )
2952 Bunker Hill Lane
Santa Clara, California 95054
(408)727-440 0
(Address, including zip code, and telephone number, including area code, of the registrant's principal executive offices)
Secu ri ties registered pursuant to Section 12(b) of the Act :
Name of each exchange
Title of Each Class : on Which Registered :
None None
Secu rities 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
requirements for the past 90 days . Yes 0 No ❑
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 the 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 .
The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing sale price of the Common Stock on
March 28, 2002 as reported on the Nasdaq National Market, was approximately $471,647,933 . Shares of Common Stock held by each officer and director
and by each person known to the Company who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be
deemed to be affiliates . This determination of affiliate status is not necessarily a conclusive determination for other purposes .
As of March 28, 2002, registrant had outstanding 72,701,056 shares of Common Stoc k
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement to be filed with the Securities and Exchange Commission in May 2002, pursuant to Section 14 of the
Securities Exchange Act of 1934, in connection with the 2001 Annual Meeting of Stockholders of Terayon Communication Systems, incorporated : Part III .
TABLE OF CONTENTS
PARTI
Item 1 . Business
Item 2 . Propertie s
Item ; . Leal Proceedines
Item 4 . Submission of Matters to a Vote of Security Holders
PART l I
Item 5 . Market for the Re iistrant's Common Equity and Related Stockholder Matters
Item 6 . Selected Financial Data
Item 7 . Manaeement's Discussion and Analysis of Financial Condition and Results of Operations
Item 7a. Market Risk Disclosure Informatio n
Item 8 . Financial Statements and Sunolementa1y Dat a
Item 9 . Changes in and Disaereements with Accountants on Accounting and Financial Disclosures
PART II I
Item 10 . Directors and Officers of the Remst rant
Item 11 . Executive Compensation
Item 12 . Security Ownership of Certain Beneficial Owners and Management
Item 13 . Certain Relationship and Related Transaction s
PART I V
Item 14 . Exhibits. Financial Statement Schedules, and Reports on Form 8 K
SIGNATURE S
EXHIBIT INDEX
EXHIBIT 10 .3
EXHIBIT 10 .14
EXHIBIT 10 .15
EXHIBIT 10 .16
EXHIBIT 10 .17
EXHIBIT 10 .18
EXHBIIT 21 .1
EXHIBIT 23 .1
Table of Content s
Item 8. Financial Statements and Supplementary Data
TERAYON COMMUNICATION SYSTEMS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Pag e
Report of Ernst & Young LLP, Independent Auditors 36
Consolidated Balance Sheets 37
Consolidated Statements of Operations 38
Consolidated Statements of Stockholders' Equity 39-40
Consolidated Statements of Cash Flows 41
Notes to Consolidated Financial Statements 42-7 3
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Table of Contents
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholder s
Terayon Communication Systems, In c
We have audited the accompanying consolidated balance sheets of Terayon Communication Systems, Inc . as of December 31, 2001 and 2000, and the
related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2001 . Our
audits also included the financial statement schedule listed in the index at Item 14(a) . These financial statements and schedule are the responsibility of the
Company's management . Our responsibility is to express an opinion on these financial statements and schedule based on our audits .
We conducted our audits in accordance with auditing standards generally accepted in the United States . Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement . An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements . An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation . We believe that our audits provide a
reasonable basis for our opinion .
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of
Terayon Communication Systems, Inc . at December 31, 2001 and 2000, and the consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States . Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects,
the information set forth therein .
/s/ ERNST & YOUNG LL P
San Jose , Californi a
January 28, 2002
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Table of Contents
TERAYON COMMUNICATION SYSTEMS, INC .
CONSOLIDATED BALANCE SHEETS
December 31 ,
2001 2000
(In thousands,
except share data)
ASSETS
Current assets :
Cash and cash equivalents $ 100,274 $ 347,01 5
Short-term investments 233,614 215,442
Accounts receivable, less allowance for doubtful accounts o f
$7,207 in 2001 and $6,542 in 2000 48,386 42,772
Accounts receivable from related parties 4,006 17,454
Other current receivables 7,476 32,02 7
Inventory 16,658 87,76 7
Other current assets 13,462 7,02 1
Total current assets 423,876 749,49 8
Property and equipment, net 25,279 33,53 3
Intangibles and other assets, net 17,491 643,69 6
Total assets $ 466,646 $1,426,72 7
LIABILITIES AND STOCKHOLDERS'EQUITY
Current liabilities :
Accounts payable $ 42,821 S 123,994
Accrued payroll and related expenses 9,441 13,10 5
Deferred revenues 4,169 4,99 8
Warranty reserves 8,368 5,92 5
Accrued purchase price payable - 14,13 8
Accrued restructuring charges 8,197 -
Accrued vendor cancellation charges 17,291 19,00 0
Other accrued liabilities 14,015 6,71 9
Current portion of long-term debt 3,273 10,85 3
Short-term debt - 2,69 7
Current portion of capital lease obligations 126 13 1
Total current liabilities 107,701 201,56 0
Long-term debt 2,467 11 9
Long-term portion of capital lease obligations ° 233 35 8
Other long ,term obligations 1,800 3,444
Convertible subordinated notes 174,141 500,00 0
Deferred tax liability - 18,56 5
Commitments and contingencie s
Stockholders' equity :
Preferred stock, $0 .001 par value :
Authorized shares - 5,000,00 0
Issued and outstanding shares - none in 2001 and 2000 - -
Common stock, $0 .001 par value :
Authorized shares - 200,000,000
Issued - 72,201,322 in 2001 and 67,431,261 in 200 0
Outstanding - 72,073,483 in 2001 and 67,396,539 in 2000 73 6 8
Additional paid in capital 1,074,203 1,037,964
Accumulated deficit (892,994) (329,148 )
Deferred compensation (458) (6,788 )
Stockholders' notes receivable - (3 )
Treasury Stock, at cost ; 127,839 shares in 2001 and 34,722
shares in 2000 (768) (73 )
Accumulated other comprehensive income 248 66 1
Total stockholders' equity 180,304 702,68 1
Total liabilities and stockholders' equity $ 466,646 $1,426,727
See accompanying notes .
37
Table of Contents
TERAYON COMMUNICATION SYSTEMS, INC .
CONSOLIDATED STATEMENTS OF OPERATION S
Years Ended December 31,
2001 2000 1999
(In thousands , except per share data)
Revenues:
Product revenues $ 227,036 $ 220,22 8 $ 57,345
<7 AA< 110 Z21
Related party product revenue s 39,664
Total revenues 279,481 339,549 97,009
Cost of goods sold :
Cost of product revenue s 196,430 205,787 46,215
Cost of related party product revenues 33,181 64,744 25,82 9
Special charge s 33,506 19,000
Total cost of goods sold 263,117 289,53 1 72,044
Gross profit 16,364 50,01 8 24,965
Operating expenses :
Research and development 79,927 68,27 0 17,579
Cost of product development assistance agreement - 9,563 35,147
In-process research and developmen t - 30,53 5 14,600
Sales and marketing 55,701 45,26 1 15,727
General and administrative 31,309 24,809 7,476
Goodwill amortization 25,410 59,05 7 3,52 4
Restructuring costs and asset write-offs 587,149 -
Total operating expenses 779,496 237,49 5 94,053
Loss from operations (763,132) (187,477 ) (69,088 )
Interest income 18,132 19,79 4 5,101
Interest expense (15,224) (11,265 ) (93 )
Other expens e (2,864) ( 1,819 )
Loss before extraordinary gain and tax benefit (763,088) (180,767 ) (64,080)
Income tax benefit (13,915) -
Loss before extraordinary gain (749,173) (180,767 ) (64,080 )
12 l,)7 -
Extraordinary gain on early retirement of debt
Net loss $ (563,846) $(180,767) $ (64,080)
Basic and diluted net loss per share before extraordinary gain $ (10 .96)
$ (2 .95) $ (1 .55)
Extraordinary gain on early retirement of deb t 2 .71
Basic and diluted net loss per shar e $ (8.25 ) $ (2.95 ) $ (1 .55 )
Shares used in computing historical basic and diluted net loss per
share applicable to common stockholders 68,331 61,349 41,26 0
See accompanying notes .
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