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Case Status:    SETTLED
On or around 09/23/2008 (Date of order of final judgment)

Filing Date: June 23, 2006

Terayon Communication Systems, Inc. ("Terayon" or the Company) provides digital video networking applications to cable, satellite and telecommunication service providers.

The original Complaint alleges that throughout the Class Period, Defendants' representations concerning the Company's financial condition, impressive income growth, and various other statements in the Company's quarterly and annual financial results and SEC filings were materially false and misleading because Defendants knew or recklessly disregarded that the Company's reported financial results and growth were attributable to improper accounting practices, including improper revenue recognition practices, which resulted in an overstatement of the Company's revenues. Unbeknownst to investors, the Company's internal controls and procedures and, as a result, the Company's projections and reported financial results were seriously flawed. Furthermore, the Company's earnings were not increasing in the amounts that had been represented by Defendants, and the Company's reported earnings statements for the interim periods were in violation of Generally Accepted Accounting Principles ("GAAP").

The Complaint alleges that on November 7, 2005, after the market closed, Terayon announced that the Company "is reviewing the recognition of revenue for certain transactions during prior periods." More specifically, an internal review was initiated after the Company determined "that certain revenues recognized in the second half of fiscal year 2004 from a customer may have been recorded in incorrect periods."

The Complaint further alleges that on March 1, 2006, Terayon issued a press release announcing that the Company's "consolidated financial statements for the year ended December 31, 2004 and for the four quarters of 2004 and the first two quarters of 2005 should no longer be relied upon and will be restated." In response to these revelations, the next day, March 2, 2006, Terayon's stock price fell $0.37 per share-a more than 13% decline in the stock's value - on extremely heavy trading volume of more than four million shares.

On November 8, 2006, a lead Plaintiff was appointed in the case, replacing I.B.L. Investments Ltd. On January 8, 2007, the lead Plaintiff filed an amended Complaint, purportedly on behalf of all persons who purchased the Company’s common stock between June 28, 2001 and March 1, 2006. The amended Complaint adds several individual Defendants, and also names Ernst & Young as a Defendant. The amended complaint incorporates the prior allegations and includes new allegations. On March 9, 2007, Terayon and the individual Defendants filed a motion to dismiss the amended Complaint. On October 17, 2007 the judge issued an order removing Terayon's and the individual Defendants' motions to dismiss the case, citing that parties have reached "an agreement in principle" to settle. On November 13, 2007, Defendant Ernst & Young LLP filed a notice of settlement. On February 28, 2008, a joint motion for preliminary approval of class action settlement was filed by the Defendants. Under the Proposed Settlement, Defendants agreed to pay $2,730,000. On April 14, 2008, U.S. District Judge Claudia Wilken filed an Order preliminarily approving the settlement. A Fairness Hearing was set for September 18, 2008.

On September 18, 2008, the Settlement Hearing was held before Judge Claudia Wilken who approved the settlement. On September 23, 2008, the Court entered the Order awarding attorneys’ fees in the amount of 25 percent of the settlement fund and expenses totaling $44,821.88. That day, the Court also entered the Final Judgment and Order of Dismissal with Prejudice approving the settlement and dismissing the action.

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