Filing Pursuant to Rule 424(b)(3)
Registration Statement No. 333-48536
PROSPECTUS SUPPLEMENT NO. 2 DATED FEBRUARY 16, 2001
TO PROSPECTUS DATED JANUARY 22, 2001
TERAYON COMMUNICATION SYSTEMS, INC.
$500,000.00
of 5% Convertible Subordinated Notes Due 2007 and 5,951,673 Shares of
Common Stock Issuable Upon Conversion of the Notes
Please read this prospectus supplement in conjunction with the prospectus dated
January 22, 2001 (the "Prospectus"). The table on pages 21 through 24 of the
Prospectus setting forth information concerning the selling holders and the
Prospectus supplement dated February 9, 2001 are superseded by the following
table:
SELLING HOLDERS
We originally issued the Notes and the Notes were sold by the initial purchasers
in a transaction exempt from the registration requirements of the Securities Act
to persons reasonably believed by the initial purchasers to be qualified
institutional buyers or other institutional accredited investors. Selling
holders, including their transferees, pledgees or donees or their successors,
may from time to time offer and sell pursuant to this prospectus any or all of
the Notes and common stock into which the Notes are convertible. We agreed to
use reasonable efforts to keep the registration statement effective until July
26, 2002. Our registration of the Notes and the shares of common stock into
which the Notes are convertible does not necessarily mean that the selling
holders will sell any or all of the Notes or the shares of the common stock into
which the Notes are convertible.
The following table sets forth information, as of February 16, 2001, with
respect to the selling holders and the principal amounts of Notes beneficially
owned by each selling holder that may be offered under this prospectus. The
information is based on information provided by or on behalf of the selling
holders. The selling holders may offer all, some or none of the Notes or common
stock into which the Notes are convertible. Because the selling holders may
offer all or some portion of the Notes or the common stock, no estimate can be
given as to the amount of the Notes or the common stock that will be held by the
selling holders upon termination of any sales. In addition, the selling holders
identified below may have sold, transferred or otherwise disposed of all or a
portion of their Notes since the date on which they provided the information
regarding their Notes in transactions exempt from the registration requirements
of the Securities Act.
Principal Amount Common Stock
of Notes Issuable
Beneficially Owned upon Conversation Common Stock
Selling Holder and Offered of the Notes (1) Offered
--------------------------------------- -------------------- ------------------- --------------
AAM/Zazove Institutional Income 1,200,000 14,284 14,284
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Principal Amount Common Stock
of Notes Issuable
Beneficially Owned upon Conversation Common Stock
Selling Holder and Offered of the Notes (1) Offered
--------------------------------------- -------------------- ------------------- --------------
Fund, L.P.
AIG Soundshore Opportunity Holding 2,488,000 29,615 29,615
Fund Ltd. (2)
AIG Soundshore Strategic Holding 2,185,000 26,008 26,008
Fund Ltd. (2)
Alexandria Global Investment Fund I LTD. 3,000,000 35,710 35,710
Arbitex Master Fund, L.P. 4,500,000 53,565 53,565
Argent Classic Convertible Arbitrage 15,000,000 178,550 178,550
Fund (Bermuda) L.P.
Argent Convertible Arbitrage Fund Ltd. 1,000,000 11,903 11,903
Aspen Global Technology Fund 674,000 8,023 8,023
Associated Electric & Gas Insurance 850,000 10,117 10,117
Services Limited
AST Janus Small Cap Growth Portfolio 8,185,000 97,429 97,429
Aventis Pension Master Trust 440,000 5,237 5,237
Bank Austria Cayman Islands, Ltd. 5,500,000 65,468 65,468
Bank of America Securities, LLC 5,000,000 59,516 59,516
BankAmerica Pension Plan 2,000,000 23,807 23,807
Black Diamond Offshore, Ltd. 665,000 7,916 7,916
Boilermaker - Blacksmith Pension Trust 2,700,000 32,139 32,139
BS Debt Income Fund - Class A 15,000 178 178
CALAMOS(R) Convertible Portfolio - 150,000 1,785 1,785
CALAMOS(R) Advisors Trust
CALAMOS(R) Convertible Technology Fund 390,000 4,642 4,642
- CALAMOS(R) Investment Trust
CALAMOS(R)High Yield Fund - 390,000 4,642 4,642
CALAMOS(R) Investment Trust
Canyon Capital Arbitrage Master Fund 1,000,000 11,903 11,903
Canyon Value Realization (Cayman) Ltd. 11,000,000 130,937 130,937
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Principal Amount Common Stock
of Notes Issuable Common
Beneficially Owned upon Conversation Stock
Selling Holder and Offered of the Notes (1) Offered
-------------------------------------------------------------------------------------------------------------------------
CFFX, LLC 1,000,000 11,903 11,903
CIBC World Markets 5,500,000 65,468 65,468
City of Albany Pension Fund 245,000 2,916 2,916
City of Knoxville Pension System 640,000 7,618 7,618
Clinton Riverside Convertible Portfolio Limited 2,100,000 24,997 24,997
Cova Bond Debenture Fund 500,000 5,952 5,952
Credit Research & Trading LLC 14,840,000 176,645 176,645
Daiwa Securities America Inc. (2) 17,500,000 208,308 208,308
Deeprock + Co. 2,000,000 23,807 23,807
Delphi Financial Group, Inc. 500,000 5,952 5,952
Delta Airlines Master Trust 4,900,000 58,326 58,326
Delta Pilots Disability Survivorship Trust 200,000 2,380 2,380
Department of Fire & Police Pensions Systems 7,075,000 84,216 84,216
Deutsche Bank Securities Inc. 56,134,000 668,182 668,182
Double Black Diamond Offshore, LDC 2,708,000 32,234 32,234
Duckbill + Co. 630,000 7,499 7,499
ECT Investments, Inc. 1,000,000 11,903 11,903
Elf Aquitaine 150,000 1,786 1,786
Florida Street Bond Fund 1,000,000 11,903 11,903
Fuji U.S. Income Open 500,000 5,952 5,952
General Motors Employees Global 6,175,000 73,503 73,503
General Motors Welfare Benefit Trust (St. Veba) 2,000,000 23,807 23,807
Greek Catholic Union II 45,000 535 535
Greenlight Capital, L.P. 4,437,000 52,815 52,815
Greenlight Capital Offshore, Ltd. 9,429,000 112,236 112,236
Greenlight Capital Qualified, L.P. 9,994,000 118,962 118,962
IBM Retirement Plan - High Income 920,000 10,951 10,951
Ilanot Batucha Investment House LTD 300,000 3,571 3,571
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Principal Amount Common Stock
of Notes Issuable Common
Beneficially Owned upon Conversation Stock
Selling Holder and Offered of the Notes (1) Offered
-------------------------------------------------------------------------------------------------------------------------------
Israel Brokerage & Investments IBI LTD 100,000 1,190 1,190
J.P. Morgan Securities, Inc. 23,597,000 280,883 280,883
Janus Global Technology Fund 16,665,000 198,369 198,369
Janus Venture Fund 19,025,000 226,461 226,461
Jefferies & Co. 875,000 10,415 10,415
Jersey (IMA) Ltd. 250,000 2,976 2,976
JMG Capital Partners, L.P. 13,000,000 154,743 154,743
JMG Triton Offshore Fund, Ltd. 31,500,000 374,955 374,955
Julius Baer Securities, Inc. 250,000 2,975 2,975
JWF Global Technology Fund 1,154,000 13,736 13,736
JWF US Ventre Fund 1,990,000 23,688 23,688
KBC Financial Products USA Inc. 4,500,000 53,565 53,565
Kettering Medical Center Funded Depreciation Acccount 160,000 1,904 1,904
Knoxville Utilities Board Retirement System 400,000 4,761 4,761
Lehman Brothers Inc. 18,500,000 220,211 220,211
Leonardo, L.P, 12,000,000 142,840 142,840
LibertyView Funds L.P. 750,000 8,928 8,928
Lonestar Partners, L.P. 4,500,000 53,565 53,565
Lord Abbett Bond Debenture Fund 5,850,000 69,635 69,635
Louisiana Workers' Compensation Corporation 360,000 4,285 4,285
Lumber Industries, Inc. 750,000 8,927 8,927
Lydian Overseas Partners Master Fund 15,000,000 178,550 178,550
Magten Asset Management Corp. Pension Plan & Trust 485,000 5,773 5,773
Magten Group Trust 300,000 3,571 3,571
McMahan Securities Co. L.P. 1,000,000 11,903 11,903
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Principal Amount Common Stock
of Notes Issuable
Beneficially Owned upon Conversation Common Stock
Selling Holder and Offered of the Notes (1) Offered
--------------------------------------------------- ------------------- ----------------- ------------
Merrill, Lynch, Pierce, Fenner and Smith, Inc. 16,000 190 190
Morgan Stanley & Co. 2,500,000 29,758 29,758
Nomura Securities International, Inc. 1,000,000 11,903 11,903
Nomura/Janus Global Technology 1,507,000 17,938 17,938
Oxford Lord Abbett + Co. 1,000,000 11,903 11,903
Pacific Life Insurance Company 1,000,000 11,903 11,903
Peoples Benefit Life Insurance Company 4,220,000 50,232 50,232
Peoples Benefit Life Insurance Company (Teamsters 6,250,000 74,395 74,395
Separate Account)
Port Authority of Allegheny County 2,825,000 33,626 33,626
Retirement and Disability Allowance
Plan for the Employees Represented byLocal 85
of the Amalgamated Transit Union
Quattro Crestline Special Situations 500,000 5,951 5,951
Quattro Fund 1,000,000 11,903 11,903
Ramus Capital Group Holdings, Ltd. 1,300,000 15,474 15,474
RCG Latitude Master Fund, Ltd. 200,000 2,380 2,380
Research Capital Corporation 9,650,000 114,867 114,867
Retail Clerks Pension Trust 2,000,000 23,807 23,807
Retail Clerks Pension Trust #2 1,000,000 11,903 11,903
Sage Capital 3,000,000 35,710 35,710
San Diego County Employee's 3,930,000 46,780 46,780
Retirement Association
SPT 1,100,000 13,093 13,093
St. Albans Partners Ltd. 4,000,000 47,613 47,613
Standard Mortage Holding Corp. 500,000 5,951 5,951
The Bakal Company Limited Partnership 150,000 1,785 1,785
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Principal Amount Common Stock
of Notes Issuable
Beneficially Owned upon Conversation Common Stock
Selling Holder and Offered of the Notes (1) Offered
--------------------------------------- -------------------- ------------------- --------------
The Dow Chemical Company Employees' 5,325,000 63,385 63,385
Retirement Plan
The Fondren Foundation 165,000 1,964 1,964
TQA Master Fund, LTD 1,000,000 11,903 11,903
TQA Master Plus Fund, Ltd. 435,000 5,177 5,177
UBS AG, London Branch 20,000,000 238,066 238,066
UBS Warburg AG 2,000,000 23,806 23,806
Unifi, Inc. Profit Sharing Plan and 255,000 3,035 3,035
Trust
United Food and Commercial Workers 1,260,000 14,998 14,998
Local 1262 and Employees Pension
Fund
United Mizrahi Bank LTD 50,000 595 595
Valentis Investors LLC 2,000,000 23,806 23,806
Value Realization Fund B, LP 500,000 5,952 5,952
Value Realization Fund, L.P. 8,000,000 95,227 95,227
Van Waters & Rogers, Inc. 770,000 9,165 9,165
Retirement Plan
Wasserstein Perella Securities Inc. 7,600,000 90,465 90,465
Worldwide Transactions, Ltd. 127,000 1,512 1,512
Zurich HFR Master Hedge Fund Index Ltd. 300,000 3,571 3,571
Any other holders of Notes or future 7,850,000 93,532 93,532
holders
Total $500,000,000 5,951,672 5,951,672
(1) Assumes a conversion rate of 11.9033 shares of common stock per $1,000
principal amount of Notes and a cash payment in lieu of any fractional
interest.
(2) AIG Soundshare Strategic Holding Fund Ltd. and AIG Soundshare Opportunity
Holding Fund Ltd. each hold 75 shares of our common stock, Daiwa Securities
America Inc. holds 35,166 shares of our common stock and Lumber Industries,
Inc. holds 4,000 shares of our common stock in addition to any shares they
would acquire upon conversion of the Notes.
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(3) Assumes that any other holders of Notes or any future transferee from any
holder do not or will not beneficially own any common stock other than
common stock into which the Notes are convertible at the conversion rate of
11.9033 shares of common stock per $1,000 principal amount of Notes.
None of the selling holders nor any of their affiliates, officers, directors or
principal equity holders has held any position or office or has had any material
relationship with us within the past three years with the exception of Deutsche
Bank Securities Inc. and Lehman Brothers Inc. In the past three years, Deutsche
Bank and Lehman Brothers have acted as underwriters of the Company's initial
public offering and follow-on public offering and were initial purchasers in the
offering of the Notes. The selling holders purchased all of the Notes in a
private transaction. All of the Notes and the shares of common stock into which
the Notes are convertible are "restricted securities" under the Securities Act.
Information concerning the selling holders may change from time to time and any
changed information will be set forth in supplements to this prospectus if and
when necessary. In addition, the conversion price, and therefore, the number of
shares of common stock issuable upon conversion of the Notes, is subject to
adjustment under certain circumstances. Accordingly, the aggregate principal
amount of Notes and the number of shares of common stock into which the Notes
are convertible may increase or decrease.
The date of this Prospectus Supplement is February 9, 2001.
S-7