On July 6, 2006, a Stipulation of Settlement was filed, and the settlement was preliminarily approved by the Order entered on July 25, 2006. The final approval of the settlement is currently pending.

According to a press release dated March 22, 2006, Terayon Communication Systems, Inc., on March 17, 2006, Terayon entered into a Memorandum of Understanding (MOU) providing for the settlement of the securities class action entitled In re Terayon Communication Systems, Inc. Securities Litigation, Case No. C-00- 1967-MHP, pending in the United States District Court, Northern District of California. As previously disclosed, the amended complaint alleged that Terayon and certain of its officers and directors (collectively, the "Defendants") violated the federal securities laws by issuing materially false and misleading statements and failing to disclose material information regarding Terayon's technology. The class action included claims for damages on behalf of those who purchased or otherwise acquired Terayon's securities (the "Affected Securities") during the class period of November 15, 1999 to April 11, 2000 (the "Plaintiff Class"). In accordance with the settlement outlined in the MOU, the Defendants shall pay or cause to be paid to the Plaintiff Class an amount of fifteen million dollars ($15,000,000). Payment will be paid within 45 days of the execution of the MOU or 15 days after court approval of the Settlement, whichever is later, but in no event earlier than May 10, 2006. Terayon expects to pay approximately $2.3 million of this amount, and its insurance carriers have agreed to pay the remaining settlement amount. The settlement is subject to final approval by the court.

As summarized by the latest docket, on September 25, 2000, the Court entered the Order by Chief Judge Marilyn H. Patel granting plaintiff's motion to be appointed as lead plaintiff and for approval of lead plaintiff choice of counsel. On September 21, 2000, the plaintiff filed a Consolidated Class Action Complaint, and on October 30, 2000, the defendants responded by filing a motion to dismiss the consolidated complaint. On March 15, 2001, the Court entered the Order granting in part the defendants' motion to dismiss and dismissed the consolidated complaint without prejudice with leave to amend. On April 13, 2001, the plaintiff filed a First Amended Consolidated Class Action Complaint, and on June 15, 2001, the defendants responded by filing a motion to dismiss first amended consolidated complaint. On March 29, 2002, the Court entered the Order granting in part and denying in part defendants' motion to dismiss the consolidated complaint. On February 24, 2003, the Court entered the Order granting plaintiff's motion to certify a class. On July 11, 2003, the defendant filed a motion for summary judgment. That same day the plaintiff filed a motion for partial summary judgment on the falsity of statements made by defendants during the class period. On March 16, 2006, the Court entered an Order, a ninety-day conditional dismissal.

On May 30, 2000, the Court entered the Stipulation and Order by U.S. District Judge J. S. Letts transferring the case from the U.S. District Court for the Central District of California to the Northern District of California.

The original complaint charges that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10-b(5). The action arises from damages incurred by the class as a result of a scheme and common course of conduct by defendants which operated as a fraud and deceit on the class during the class period. According to the complaint, defendants' scheme included rendering false and misleading statements and/or omissions concerning the present and future financial condition and business prospects of the company, as well as the financial benefits that would enure to Terayon and its shareholders, including, among other things, the certification of the company's proprietary S-CDMA cable modem technology by CableLabs (the industry regulating organization).