Exhibit 10.18

TERAYON COMMUNICATION SYSTEMS, INC.
CODE
OF
BUSINESS CONDUCT
 

 

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TABLE OF CONTENTS

              Page  
TERAYON’S CODE OF BUSINESS CONDUCT
    1  
POLICY STATEMENT
    1  
APPROVALS AND WAIVERS
    2  
 
       
CONFLICTS OF INTEREST
    2  
Activities Outside the Terayon
    2  
Indirect Interests and Relationships
    3  
Community Activities
    3  
Service on Boards of Directors or Standing Committees
    4  
Competitor Relationships
    4  
Corporate Opportunities
    4  
 
       
BUSINESS RELATIONSHIPS
    5  
Customer Relationships
    5  
Selecting Suppliers
    5  
Working With Existing Suppliers
    6  
Sales Agents, Representatives, Distributors, and Consultants
    6  
Contracts and Commitments
    6  
 
       
FAIR COMPETITION
    7  
 
       
GIFTS, GRATUITIES, ENTERTAINMENT AND OTHER CONSIDERATIONS
    7  
Gifts
    7  
Loans
    8  
Meals, Entertainment, and Travel
    8  
Bribes and Kickbacks
    8  
 
       
DOING BUSINESS INTERNATIONALLY
    8  
 
       
Import and Export Regulation/Trade Compliance
    8  
Antiboycott Compliance
    9  
 
       
POLITICAL CONTRIBUTIONS AND LOBBYING
    9  
 
       
ACCURACY OF REPORTS, RECORDS AND ACCOUNTS
    10  
 
       
RECORD RETENTION AND STORAGE
    10  
 
       
GOVERNMENT INVESTIGATIONS
    10  
 
       
INSIDER TRADING; COMMUNICATIONS WITH THIRD PARTIES
    11  
 
       
TECHNOLOGY USE AND PRIVACY
    11  

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Authorization
    11  
Prohibition Against Violating Copyright Laws
    11  
Other Prohibited Uses
    11  
 
       
OUR WORK ENVIRONMENT
    12  
 
       
ENVIRONMENTAL
    12  
 
       
COMPLIANCE AND REPORTING
    12  
Compliance
    12  
Reporting Procedures and Other Inquiries
    12  

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TERAYON’S CODE OF BUSINESS CONDUCT
POLICY STATEMENT
     It is the policy of Terayon Communication Systems, Inc. (“Terayon”) to
conduct business in accordance with all applicable laws and regulations of the
countries in which it does business. This Code of Business Conduct (“Code”) is
designed to promote:

  •   honest and ethical conduct, including the ethical handling of actual or
apparent conflicts of interest between personal and professional relationships;

  •   avoidance of conflicts of interest, including disclosure to the
appropriate person of any transaction or relationship that reasonably could be
expected to give rise to such a conflict;

  •   full, fair, accurate, timely and understandable disclosure in the periodic
reports required to be filed by Terayon with the Securities and Exchange
Commission and other public communications made by Terayon;

  •   compliance with all applicable governmental laws, rules and regulations;

  •   the prompt internal reporting to the appropriate person of violations of
this Code; and

  •   accountability for adherence to this Code.

     Terayon has established standards for behavior that govern Terayon’s
actions, and members of the Board of Directors, officers and employees should
pattern their daily performance in compliance with those standards. Terayon
promotes ethical behavior and encourages employees to talk to supervisors,
managers and the Compliance Officer, who is Terayon’s General Counsel, when in
doubt about the best course of action in a particular situation. Additionally,
employees should report violations of laws, rules, regulations or this Code to
their supervisor or manager or the Compliance Officer. Employees reporting such
violations in good faith will not be subject to retaliation. Any employee in or
aware of a situation that he or she believes may violate or lead to a violation
of this Code should follow the guidelines under “Compliance and Reporting”
below.
     This Code covers a wide range of business practices and processes. It does
not cover every issue that may arise, but it sets out basic principles to guide
members of the Board of Directors, officers and employees. Corporate policies
and procedures provide details pertinent to many of the provisions of this Code.
Members of the Board of Directors, officers and employees are expected to be
aware of, and to act in accordance with, both this Code and Terayon’s other
policies and procedures at all times. Although there can be no better course of
action than to apply common sense and sound judgment, members of the Board of
Directors, officers and employees should not hesitate to use the resources
available whenever it is necessary to seek clarification.

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APPROVALS AND WAIVERS
     Certain provisions of this Code require members of the Board of Directors,
officers and employees to act, or refrain from acting, unless approval is
received from the appropriate person. Approvals for members of the Board of
Directors and executive officers may be given by the Board of Directors.
Approvals for employees (including officers) may be given by the Compliance
Officer. Members of the Board of Directors, officers and employees may contact
the Compliance Officer for additional information on obtaining approvals.
     Employees (including officers) requesting any waivers from this Code should
request such waiver in writing from the Compliance Officer. Waivers from this
Code for members of the Board of Directors, Terayon’s executive officers and the
Compliance Officer (if he or she is not an executive officer) must be approved
by the Board of Directors. Changes in this Code may only be made by the Board of
Directors and must be promptly disclosed to stockholders in a Form 8-K.
CONFLICTS OF INTEREST
     Each member of the Board of Directors, officer and employee owes Terayon a
duty of undivided business loyalty. This duty is violated if an employee engages
in activities that cause, or may be reasonably believed to cause, a conflict
with the interests of Terayon. A conflict of interest arises any time an
employee’s personal interests or activities influence his or her ability to act
in the best interests of Terayon. All employees must discharge their
responsibilities solely on the basis of what is in the best interest of Terayon
and independent of personal consideration or relationships. Members of the Board
of Directors and executive officers must disclose any situation that could
reasonably be expected to give rise to, or which others could reasonably
perceive as, a conflict of interest to the Board of Directors. Other officers
and employees must disclose any such potential conflict of interest to the
Compliance Officer, who will advise the disclosing officer or employee as to
whether or not Terayon believes a conflict of interest exists. Member of the
Board of Directors, officers and employees should also disclose any such
potential conflict of interest involving “immediate family members,” which shall
include spouses, siblings, parents, stepparents, in-laws, children,
stepchildren, partners or other members of the disclosing party’s household.
Activities Outside Terayon
     Although Terayon has no interest in preventing members of the Board of
Directors, officers and employees from engaging in activities outside of
Terayon, members of the Board of Directors, officers and employees must make
sure that their outside activities do not conflict or interfere with their
responsibilities to Terayon or reflect poorly on Terayon. For example, without
approval, a member of the Board of Directors, officer and employee generally may
not:

  •   perform paid or unpaid work (including self-employment) on a product,
application or functionality that competes or may compete with Terayon’s
business;

  •   perform paid or unpaid work for, serve as a director of, or provide any
services to a company or entity that is a competitor, supplier or customer of
Terayon;

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  •   use proprietary or confidential Terayon information for any purpose other
than fulfilling his or her duties to Terayon;

  •   use Terayon assets or labor for personal use, except for incidental use
permitted under the Terayon’s policies;

  •   acquire any interest in property or assets of any kind for the purpose of
selling or leasing such property or assets to Terayon;

  •   appear to represent Terayon as the participant in an outside activity
unless Terayon has authorized the employee to represent Terayon; or

  •   serve on the Board of Directors of a company or on the Customer Advisory
Board or Technical Advisory Board of any for-profit enterprise that competes
with Terayon’s business.

Direct and Indirect Interests and Relationships
     A potential conflict of interest can arise because of the business
activities of a member of the Board of Directors, officer or employee, or the
activities of their close relations. A member of the Board of Directors, officer
or employee has a potential conflict of interest wherever he or she, or his or
her close relative has a significant relationship with, or has a significant
financial interest in, any supplier, customer or competitor of Terayon. A member
of the Board of Directors, officer or employee, or their close relative
(including “immediate family members”) has a significant financial interest if:

  •   the member of the Board of Directors, officer or employee, or their
relative owns more than 1% of the outstanding capital of a business; or

  •   the investment represents more than 5% of the total assets of the member
of the Board of Directors, officer or employee, or their close relative.

     A member of the Board of Directors, officer or employee should not make or
influence any decision that could directly or indirectly benefit himself or
herself, or his or her close relative. In order to protect a member of the Board
of Directors, officer or employee and Terayon from the appearance of a conflict
of interest, he or she should make appropriate disclosure of the interest to the
Board of Directors, in the case of members of the Board and executive officers,
and the Compliance Officer, in the case of other officers and employees.
     For the purpose of this Code, a member of the Board of Directors, officer
or employee’s close relative includes the spouse or life-partner, brothers,
sisters, parents, in-laws and children whether such relationships are by blood
or adoption.
Community Activities
     Terayon encourages all members of the Board of Directors, officers and
employees to be actively involved in their communities through volunteer service
to charitable, civic and public service organizations, and through participation
in the political process and trade associations.

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     Members of the Board of Directors, officers and employees must make sure,
however, that their service does not pose a conflict of interest with their
duties to Terayon. This is particularly important before accepting any
leadership position (such as membership on the board of a charitable or civic
organization), before seeking or accepting political office and before
advocating a charitable contribution.
Service on Boards of Directors or Standing Committees
     Serving as a member of a board of directors of another company or as a
member of a standing committee of an organization may create a conflict of
interest. Board members and executive officers must obtain approval from the
Board of Directors, and other officers and employees must obtain approval from
the Compliance Officer, prior to serving on a board or committee whose interests
may be adverse to Terayon’s or that may require a significant amount of time.
Competitor, Customer and Supplier Relationships
     Members of the Board of Directors, officers and employees must avoid even
the appearance of a conflict of interest in their relationships with Terayon’s
competitors, customer and suppliers. Without approval, members of the Board of
Directors, officers and employees may not:

  •   maintain a financial investment of more than 1% of outstanding publicly
traded stock in the business of a competitor, customer or supplier;

  •   provide compensated or uncompensated services to a competitor, customer or
supplier, except for services rendered under a valid Terayon contract with the
competitor, customer or supplier;

  •   disclose any Terayon proprietary information to a competitor, unless the
competitor is also an actual or potential supplier or customer of Terayon and
(a) the disclosure has been approved by appropriate Terayon management or the
Board of Directors, as appropriate, and (b) a nondisclosure agreement is in
place; or

  •   utilize for any unauthorized purposes or disclose to a competitor or other
third-party any proprietary data that has been entrusted to Terayon by a
customer or supplier.

Corporate Opportunities & Resources
     Without approval, Board members, officers and employees are prohibited from
taking for themselves corporate opportunities that may otherwise accrue to the
benefit of Terayon. Without approval, no Board member, officer or employee may
use Terayon property, information or position for improper personal gain and may
not compete with Terayon directly or indirectly except as permitted by Terayon
policies.
     All Board members, officer and employees should protect Terayon’s assets
and ensure their efficient use. Theft, carelessness and waste have a direct
impact on Terayon’s profitability. All Terayon assets should be used for
legitimate business purposes.

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     Terayon resources may be used for incidental personal uses so long as such
use is reasonable, does not interfere with a Board member’s, officer’s or
employee’s duties, is not done for pecuniary gain, does not conflict with
Terayon’s business and does not violate any Terayon policy.
BUSINESS RELATIONSHIPS
It is Terayon’s policy to sell its products to customers on the merits of the
products and Terayon’s support of those products. Terayon’s competitive
advantage is gained through its performance, not unethical or illegal business
practices. Each member of the Board of Directors, officer and employee should
endeavor to deal fairly with Terayon’s customers, suppliers, competitors and
employees. No employee should take unfair advantage of anyone through
manipulation, concealment, abuse of privileged information, misrepresentation of
material facts or any unfair-dealing practice.
Customer Relationships
     Terayon’s customers are Terayon’s first priority. Terayon employees should
always treat customers and potential customers with respect and the highest
standards of business conduct.
     It is Terayon’s policy to always sell its products and services on their
merits and to avoid making untrue comments about the products and services of
competitors.
     Members of the Board of Directors, officers and employees should follow the
following guidelines in selling Terayon products and services:

  •   sell on the strength of Terayon and its products and services;

  •   do not make claims about Terayon’s products or services unless the claims
are both factual and complete and can be fully substantiated;

  •   do not make untrue claims about a competitor’s products or services; and

  •   to maintain Terayon’s reputation, compliance with its quality processes
and safety requirements is essential. Terayon’s products and services must be
designed and manufactured to meet its obligations to customers. All inspection
and testing documents must be handled in accordance with all applicable
regulations.

Selecting Suppliers
     Terayon’s suppliers, which are the companies and individuals that sell
products and services to Terayon, are important to Terayon’s business. Members
of the Board of Directors, officers and employees should always treat suppliers
and potential suppliers with respect and the highest standards of business
conduct.
     Suppliers should be selected on the basis of objective criteria, such as
value (quality for price), price, technical excellence, service reputation and
production/service capacity. All purchasing should be done in accordance with
Terayon’s policies. Purchases from a supplier

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should never be contingent on the supplier’s purchases from Terayon. All Terayon
suppliers should be in full compliance with applicable labor, environmental and
other laws.
Working With Existing Suppliers
     Members of the Board of Directors, officers and employees should follow the
following rules when working with suppliers:

  •   never interfere with a supplier’s contracts or business relations with a
competitor of Terayon;

  •   never reveal confidential information about one supplier to another
supplier or to anyone outside of Terayon;

  •   adhere to Terayon’s guidelines concerning gifts, gratuities, entertainment
and other considerations of value. See “Gifts, Gratuities, Entertainment and
Other Considerations” in this Code;

  •   avoid any interest that conflicts with the employee’s responsibility to
Terayon. See “Conflicts of Interest” in this Code; and

  •   reject any agreement with a supplier that restrains, or may appear to
restrain, competition. Such agreements violate Terayon’s policies and may
violate the law. Individuals with procurement responsibility should review the
sections of this Code concerning antitrust and should be familiar with
applicable laws. If you are unsure whether a proposed agreement violates this
guideline, contact the Compliance Officer or such officer’s designee.

Sales Agents, Representatives, Distributors, and Consultants
     Agreements with sales representatives, agents, marketing consultants,
distributors and other parties, require adherence to Terayon policy and
applicable U.S. and foreign laws and regulations. Terayon requires either a
contracts administration or legal review of all such agreements, as well as
management approval prior to entering into any such agreements.
Contracts and Commitments
     No employee may agree to, or sign, any agreement binding Terayon without
express authorization. Terayon has instituted contract and signature approval
policies, which identify those individuals who have the authority to approve and
sign certain contracts binding Terayon and its subsidiaries. If there are any
questions about which individuals have signature authority for a given contract,
contact the Compliance Officer or such officer’s designee.
     Members of the Board of Directors, officers and employees involved in
proposals, bid preparations or contract regulations must be certain that all
statements, communications, and representations to prospective customers are
truthful and accurate.

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FAIR COMPETITION
     Fair competition laws, including the U.S. antitrust rules, limit what
Terayon can do with another company and what Terayon can do on its own.
Generally, the laws are designed to prohibit agreements or actions that reduce
competition and harm consumers. Members of the Board of Directors, officers and
employees may not enter into agreements or discussions with competitors that
have the effect of fixing or controlling prices, setting the terms of sale
(discounts, prices, credit terms, etc.), dividing and allocating markets or
territories or boycotting suppliers or customers. Collaboration or discussions
with competitors on these topics may be illegal and employees should discontinue
any conversation with competitors that broach such topics. Additionally,
agreeing to or attempting to have a customer set its resale prices is a
violation of the fair competition laws. U.S. and foreign antitrust laws also
apply to imports and exports.
GIFTS, GRATUITIES, ENTERTAINMENT AND OTHER CONSIDERATIONS
     Use of Terayon funds or property for illegal, unethical or otherwise
improper purposes is prohibited. The purpose of business entertainment and gifts
in a commercial setting is to create goodwill and a sound working relationship,
not to gain advantage with customers or suppliers.
Gifts
     Except as set out below and in Terayon’s policies, or with the approval of
the Board of Directors, in the case of Board members and executive officers, or
of the Compliance Officer, in the case of other officers and employees, members
of the Board of Directors, officers and employees should refrain from giving and
receiving business-related gifts.

  •   No member of the Board of Directors, officer or employee or agent of
Terayon may solicit or accept a business-related gift (including any payment,
compensation, loan or other financial favor) having a value of more than $1,000
from a person or organization seeking to have or having a business relationship
with Terayon or which has interests that could be substantially affected by
actions of Terayon. Any benefits received from accepting a business-related gift
should not influence, or appear to influence, selection and purchasing
decisions.

  •   It is never appropriate or permissible to accept or give cash or a cash
equivalent from or to a vendor, supplier or customer. Cash equivalents include,
among other things, checks, money orders and vouchers.

  •   No member of the Board of Directors, officer or employee or agent of
Terayon may give a business-related gift having a value greater than $1,000 to
any person or organization on behalf of Terayon. Rules relating to U.S. and
foreign government personnel are more stringent.

  •   No member of the Board of Directors, officer or employee may accept a
customer, vendor or supplier discount for themselves unless it is approved and
available to all Terayon employees.

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     Invitations to participate in so-called “directed shares,” “friends and
family,” and similar stock purchase programs of customers, vendors or suppliers
of Terayon are considered to be gifts. Members of the Board of Directors,
officers and employees must decline to participate in such programs unless the
member of the Board of Directors, officer or employee has sought and received
approval from the Compliance Officer or the Board of Directors (if the person is
a member of the Board of Directors or an executive officer) to participate in
such program.
Loans
     Members of the Board of Directors, officer and employees may not accept
loans from any person or entities having or seeking business with Terayon.
Members of the Board of Directors and executive officers may not receive loans
from Terayon, nor may Terayon arrange for any loan. A loan from a financial
institution in ordinary course at normal interest rates prevailing at the time
of borrowing is permissible.
Meals, Entertainment, and Travel
     Members of the Board of Directors, officers and employees may provide or
accept business meals and entertainment, including attendance at sporting or
cultural events, as long as it is provided as a normal part of business. The
value of the activity must be reasonable and permissible under Terayon’s expense
account procedures, regardless of whether or not Terayon is paying for the
activity. Each member of the Board of Directors, officer or employee should
express care to insure that their value and frequency are not excessive under
all the applicable circumstances.
Bribes and Kickbacks
     The use Terayon funds, facilities or property for any illegal or unethical
purpose is strictly prohibited.

  •   No member of the Board of Directors, officer or employee or agent of
Terayon is permitted to offer, give or cause others to give, any payments for
the purpose of influencing the recipient’s business judgment or conduct; for
instance, to buy a Terayon product or service. Such payments include money,
favors, entertainment or gifts.

  •   Members of the Board of Directors, officers and employees may not solicit
or accept a kickback or bribe, in any form, for any reason.

DOING BUSINESS INTERNATIONALLY
Import and Export Regulation/Trade Compliance
     Because of the international nature of its business, Terayon is subject to
the import and export laws and regulations of the United States and certain
foreign governments. These laws and regulations govern the international
transfer of all products and services of Terayon, as well as technology,
information and ideas belonging to Terayon.

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     Under U.S. law, no technology may be exported without the proper government
export licenses and documentation. Exports of technology include not only
technology shipped via freight, but also technology that is hand-carried
(employees traveling overseas), sent via courier services or U.S. mail,
electronically transmitted and/or disclosed to foreign nationals in the United
States or abroad. “Technology” is defined as hardware, software, technical
documentation, product specifications, technical data, etc.
     It is the responsibility of employees to ensure that proper documentation
accompanies each export or disclosure. Failure to export or re-export without
the proper export license or documentation can jeopardize Terayon’s compliance
with U.S. export laws, as well as those laws of foreign countries.
Non-compliance can result in denial of export privileges, criminal penalties,
seizure of commodities, and fines to Terayon and its employees.
     It is Terayon’s policy to comply fully with all applicable U.S. and foreign
laws controlling the export and re-export of commercial products, technology
(including software) and services. Employees must exercise the necessary
diligence to ensure that Terayon and its employees, contractors, joint ventures
and distributors/resellers involved in the export or re-export of U.S. origin
goods, technology and services comply with all applicable U.S. and foreign
government regulations regarding exports.
Anti-boycott Compliance
     The United States has enacted antiboycott regulations which make unlawful
certain actions, including but not limited to furnishing information about
business relationships with boycotted countries, or information about race,
religion, sex or national origin.
     Antiboycott compliance issues arise most frequently in connection with the
Arab boycott of Israel. In the event that a Terayon employee or agent is asked
for any prohibited information or to take any action in furtherance of a
boycott, the employee or agent should respond only with the following statement:
“Terayon policy and U.S. law do not permit me to respond to the question or
request.”
POLITICAL CONTRIBUTIONS AND LOBBYING
     No political contributions are to be made using Terayon funds or assets, or
the funds or assets of any Terayon subsidiary, to any political party, political
campaign, political candidate or public official in the United States or any
foreign country, unless the contribution is lawful and expressly authorized in
writing. In addition, no member of the Board of Directors, officer or employee
may make a political contribution on behalf of Terayon or its subsidiaries, or
with the appearance that such contribution is being made on behalf of Terayon or
its subsidiaries, unless expressly authorized in writing by the Board of
Directors. A “contribution” is any direct or indirect payment, distribution,
loan, advance, deposit, or gift of money, services or anything of value in
connection with an election or to an organization or group formed to support or
defend a referendum or ballet issue.
     Nothing in this Code is intended to discourage employees from making
contributions of their own time or funds to political parties or candidates of
their choice. However, members of the

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Board of Directors, officers and employees will not be compensated or reimbursed
by Terayon for any personal contributions.
     Members of the Board of Directors, officers and employees must obtain prior
approval by the Board of Directors to hire outside counsel or a public affairs
firm to contact government officials regarding legislation, regulatory policy,
or rule making. This includes grassroots lobbying contacts.
ACCURACY OF REPORTS, RECORDS AND ACCOUNTS
     All employees are responsible for the accuracy of their respective records,
time sheets and reports. Accurate information is essential to Terayon’s ability
to meet legal and regulatory obligations and to compete effectively. The records
and books of account of Terayon shall meet the highest standards and accurately
reflect the true nature of the transactions they record.
     Members of the Board of Directors, officers and employees must not create
false or misleading documents or accounting, financial or electronic records for
any purpose, and no one may direct an employee to do so. For example, expense
reports must accurately document expenses actually incurred in accordance with
Terayon policies. Members of the Board of Directors, officers and employees must
not obtain or create “false” invoices or other misleading documentation or
invent or use fictitious entities, sales, purchases, services, loans or other
financial arrangements for any purpose. Employees are also responsible for
accurately reporting time worked.
     No undisclosed or unrecorded account or fund shall be established for any
purpose. No false or misleading entries shall be made in Terayon’s books or
records for any reason. No disbursement of corporate funds or other corporate
property shall be made without adequate supporting documentation or for any
purpose other than as described in the documents. Members of the Board of
Directors, officers and employees shall comply with generally accepted
accounting principles and Terayon’s internal controls at all times.
RECORD RETENTION AND STORAGE
     Members of the Board of Directors, officers and employees should save
business records, including electronic data, as specified in Terayon’s Records
Retention Policy.
GOVERNMENT INVESTIGATIONS
     It is Terayon’s policy to cooperate with all government investigations.
Members of the Board of Directors, officers and employees must promptly notify
the Compliance Officer of any government investigation.
     Members of the Board of Directors, officers and employees must not obstruct
the collection of information, data or records. Terayon provides information to
the government that it is entitled to during an inspection, investigation or
request for information. Members of the Board of Directors, officers and
employees must not lie to investigators or making misleading statements. Members
of the Board of Directors, officers and employees must not attempt to

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cause a member of the Board of Directors, officer or employee to fail to provide
accurate information.
     Members of the Board of Directors, officers and employees have the right to
consult their own legal counsel, at his or her own expense.
INSIDER TRADING; COMMUNICATIONS WITH THIRD PARTIES
     Members of the Board of Directors, officers and employees who have access
to confidential information are not permitted to use or share that information
for stock trading purposes or for any other purpose except the conduct of our
business. For a more detailed discussion about Terayon’s policy with respect to
insider trading, pre-clearance and communication with media and the financial
community, please see Terayon’s Insider Trading Policy, Regulation FD Policy and
Section 16 Policy.
TECHNOLOGY USE AND PRIVACY
     Terayon provides various technology resources (including computers,
telephones, software, copying machines, Internet access, and voice mail) to
employees to assist them in performing their job duties for Terayon. Each
employee has the responsibility to use Terayon’s technology resources in a
manner that complies with applicable laws and Terayon policies, increases
productivity, enhances Terayon’s public image and is respectful of other
employees.
Authorization
     Access to Terayon’s technology resources is within the sole discretion of
Terayon and subject to Terayon policies. Generally, employees are given access
to Terayon’s various technologies consistent with their job functions. Terayon
reserves the right to limit such access by any means available to it, including
revoking access altogether.
Prohibition Against Violating Copyright Laws
     Employees may not use Terayon’s technology resources to copy, retrieve,
forward or send copyrighted materials unless the employee has the author’s
permission or is accessing a single copy only for the employee’s reference.
     Violation of copyright laws is a potential financial and legal liability
for both Terayon and the offending employee.
Other Prohibited Uses
     Employees may not use any of Terayon’s technology resources for any illegal
purpose, in violation of any Terayon policy, in a manner contrary to the best
interests of Terayon, in any way that discloses confidential or proprietary
information of Terayon or third parties or for personal or pecuniary gain
without approval.

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OUR WORK ENVIRONMENT
     The diversity of Terayon’s employees is a tremendous asset. Terayon is
firmly committed to providing equal opportunity in all aspects of employment and
will not tolerate any illegal discrimination or harassment of any kind. In
addition, Terayon strives to provide each employee with a safe and healthy work
environment. Each employee has responsibility for maintaining a safe and healthy
workplace for all employees by following health and safety rules and practices
and reporting accidents, injuries and unsafe equipment, practices or conditions.
Terayon’s Employee Handbook contains additional guidelines.
ENVIRONMENTAL
     Terayon must fully comply with all state and federal laws relating to the
protection of the environment in the conduct of its business. Employees must
use, store and dispose all hazardous materials properly and in accordance with
applicable. Employees must report, in accordance with Terayon policies, all
circumstances under which hazardous materials or wastes come in contact with the
environment, are improperly handled or disposed of, or where a potential
violation of law may exist.
COMPLIANCE AND REPORTING
Compliance
     Obeying the law, both in letter and in spirit, is the foundation of this
Code. We expect employees to understand the legal and regulatory requirements
applicable to their business unit and area of responsibility. Where needed,
Terayon may make legal resources available to employees to assist them in
understanding our legal obligations.
     Disregard of the law will not be tolerated. Violation of domestic or
foreign laws, rules and regulations may subject you, as well as Terayon, to
civil and/or criminal penalties. Conduct and records, including e-mails, are
subject to internal and external audits, and to discovery by third parties in
the event of a government investigation or civil litigation.
     Additionally, any member of the Board of Directors, officer or employee who
violates the provisions of this Code will be subject to disciplinary action, up
to and including termination.
Reporting Procedures and Other Inquiries
     Questions regarding the policies in this Code may be directed to the
Compliance Officer. Managers and supervisors provide timely advice and guidance
to employees on ethics and compliance concerns. Managers and supervisors are
expected to take a leadership role in promoting ethical business conduct. If any
member of the Board of Directors, officer or employee having knowledge of, or
questions or concerns about, an actual or possible violation of the provisions
of this Code by a Board member or an executive officer, that person should
promptly report the matter to the Board. If a Board member, officer or employee
having knowledge of, or questions or concerns about, an actual or possible
violation of the provisions of this Code by an officer or an employee, then that
person should promptly report the matter to the

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Compliance Officer. The Board and/or the Compliance Officer will determine the
type of investigation, if any, to be utilized to address such reports.
     All conversations, calls and reports made in good faith will be taken
seriously. When reporting a violation, employees will be asked to provide the
time, location, names of the people involved, and other details so that Terayon
can investigate. Terayon prohibits retaliation or retribution against any person
who in good faith reports an ethical concern. However, anyone who uses this Code
or any compliance program to spread falsehoods, threaten others, or damage
another person’s reputation will be subject to disciplinary action up to and
including termination.
     This document is not an employment contract between Terayon and its
employees, nor does it modify their employment relationship with Terayon.
     This Code is intended to clarify each member of the Board of Directors,
officer and employee’s existing obligation for proper conduct. The standards and
the supporting policies and procedures may change from time to time in Terayon’s
discretion. Each member of the Board of Directors, officer and employee is
responsible for knowing and complying with the current laws, regulations,
standards, policies and procedures that apply to Terayon’s work.

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ACKNOWLEDGEMENT1
     I acknowledge that I have received and read a copy of Terayon Communication
Systems, Inc.’s (“Terayon”) Code of Business Conduct and Ethics (the “Code”). I
understand that I am responsible for knowing and complying with the policies set
forth in the Code during my employment with Terayon.
     I also acknowledge my responsibility to report any violation of this Code
or any of Terayon’s other policies and practices to my Chief Compliance Officer.
     I further understand that the policies contained in the Code are not
intended to create any contractual rights or obligations, express or implied. I
also understand that, consistent with applicable law, Terayon has the right to
amend, interpret, modify or withdraw any of the provisions of the Code at any
time in its sole discretion, with or without notice.
     I understand and agree that my relationship with Terayon is “at-will,”
which means that my employment is for no definite period and may be terminated
by me or by Terayon at any time and for any reason, with or without cause or
advance notice. I also understand that Terayon may demote or discipline me, or
otherwise alter the terms of my employment, at any time with or without cause or
advance notice.
     Finally, I understand and agree that the terms of this Acknowledgement, and
my at-will relationship with Terayon, may not be modified or superseded except
by a written agreement signed by the Chief Executive Officer; that no other
employee or representative of the Company has the authority to enter into any
such agreement; and that any agreement inconsistent with this Acknowledgement or
agreeing to employ me for a specified term will be unenforceable unless in
writing and signed by the Chief Executive Officer.

     
Employee Name:
   
 
   
 
       (please print)

        Signature   Date

             
Title:
      Dept.:    
 
           

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