Terayon Settles Suit

SANTA CLARA, Calif. -- Terayon Communication Systems, Inc. (NASDAQ:TERNE) , today announced that it received a notice of acceleration from bondholders of Terayon's 5% Convertible Subordinated Notes due 2007, and on March 21, 2006, paid in full the entire principal amount of the outstanding Notes, including all accrued and unpaid interest thereon and related fees, for a total of $65.6 million.

Separately, Terayon has reached an agreement to settle a shareholder class action lawsuit initially filed in April 2000.

"These two separate business decisions were made in the best interests of Terayon," said Jerry Chase, CEO, Terayon. "On the bond issue, we reviewed several restructuring options, and chose the most cost-effective -- paying off the bonds now. 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. These were the right decisions to make, and we intend to execute on our business plan without the further distraction of these two issues."

Bondholder Repayment

As previously disclosed, on January 12, 2006, Terayon received a letter from holders of more than 25% in aggregate principal amount of Notes outstanding providing written notice to Terayon of default under the Indenture for the Notes based on the company's failure to file its Form 10-Q for the quarterly period ended September 30, 2005. Terayon was unable to cure the default within 60 days of the written notice, March 13, 2006, which triggered an Event of Default under the Indenture. The Event of Default enabled the holders of at least 25% in aggregate principal amount of Notes outstanding to accelerate the maturity of the Notes by written notice and declare the entire principal amount of the Notes, together with all accrued and unpaid interest thereon, to be due and payable immediately.

Shareholder Settlement

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.

In consideration of the payment of the settlement funds described above, the Plaintiff Class has agreed, upon final court approval, to dismiss the class action with prejudice and release all known and unknown claims arising out of or relating to, or in connection with the purchase or acquisition of the Affected Securities during the class period which have been or could have been asserted by any member of the Plaintiff Class.

All parties have agreed to use their best efforts to finalize and execute the Stipulation and such other documentation as may be required or appropriate to obtain court approval of the settlement upon the terms set forth in the MOU.

Terayon Communication Systems Inc.