Document:

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                                                                   EXHIBIT 10.26

                               SEVERANCE AGREEMENT

     This Agreement, dated as of January 14, 2003, is entered into between
Terayon Communication Systems, Inc., a corporation organized under the laws of
the State of Delaware (the "Company"), and ________________________ (the
"Executive").

     WHEREAS, the Board of Directors, of the Company (the "Board") recognizes
that the possibility of a Change in Control (as hereinafter defined) exists and
that the threat or the occurrence of a Change in Control can result in
significant distractions to its key management personnel because of the
uncertainties inherent in such a situation;

     WHEREAS, the Board has determined that it is essential and in the best
interest of the Company and its stockholders to retain the services of the
Executive in the event of a threat or occurrence of a Change in Control and to
ensure the Executive's continued dedication and efforts in such event without
undue concern for the Executive's personal, financial and employment security;
and

     WHEREAS, in order to induce the Executive to remain in the employ of the
Company, particularly in the event of a threat or the occurrence of a Change in
Control, the Company desires to enter into this Agreement with the Executive to
provide the Executive with certain benefits in the event that the Executive's
employment is terminated as a result of, or in connection with, a Change in
Control.

     NOW, THEREFORE, in consideration of the respective agreements of the
parties contained herein, it is agreed as follows:

     1.   Term of Agreement. This Agreement shall commence as of January 14,
2004 and shall continue in effect until January 13, 2006; provided, however,
that commencing on January 14, 2006 and on each January 14 thereafter, the term
of this Agreement shall automatically be extended for one (1) year unless the
Company or the Executive shall have given written notice to the other at least
ninety (90) days prior thereto that the term of this Agreement shall not be so
extended; and provided, further, however, that notwithstanding any such notice
by the Company not to extend, the term of this Agreement shall not expire prior
to the expiration of twelve (12) months after the occurrence of a Change in
Control.

     2.   Definitions.

          2.1. Accrued Compensation. For purposes of this Agreement, "Accrued
Compensation" shall mean an amount which shall include all amounts earned or
accrued through the "Termination Date" (as hereinafter defined) but not paid as
of the Termination Date, including (i) base salary, (ii) reimbursement for
reasonable and necessary expenses incurred by the Executive on behalf of the
Company during the period ending on the Termination Date, (iii)

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vacation pay and (iv) bonuses and incentive compensation (other than the "Pro
Rata Bonus" (as hereinafter defined)).

          2.2  Base Amount. For purposes of this Agreement, "Base Amount" shall
mean the greater of the Executive's annual base salary (a) at the rate in effect
on the Termination Date or (b) at the highest rate in effect at any time during
the ninety (90) day period prior to the Change in Control, and shall include all
amounts of base salary that are deferred under the employee benefit plans of the
Company or any other agreement or arrangement.

          2.3  Bonus Amount. For purposes of this Agreement, "Bonus Amount"
shall mean the greatest of: (a) 100% of the annual bonus payable to the
Executive under the Company's cash bonus incentive plan for the fiscal year in
which the Termination Date occurs; (b) the annual bonus paid or payable to the
Executive under the Company's cash bonus incentive plan for the full fiscal year
ended prior to the fiscal year during which the Termination Date occurred; or
(c) the annual bonus paid or payable to the Executive under the Company's cash
bonus incentive plan for the full fiscal year ended prior to the fiscal year
during which a Change in Control occurred.

          2.4. Cause. For purposes of this Agreement, a termination of
employment is for "Cause" if the basis of the termination is fraud,
misappropriation, embezzlement or willful engagement by the Executive in
misconduct which is demonstrably and materially injurious to the Company and its
subsidiaries taken as a whole (no act, or failure to act, on the part of the
Executive shall be considered "willful" unless done, or omitted to be done, by
the Executive not in good faith and without a reasonable belief that the action
or omission was in the best interests of the Company and its subsidiaries);
provided, however, that the Executive shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to the
Executive a Notice of Termination (as hereinafter defined) and copy of a
resolution duly adopted by the affirmative vote of not less than three-quarters
of those members of the Company's Board of Directors who are not then employees
of the Company at a meeting of the Board called and held for the purpose (after
reasonable notice to the Executive and an opportunity for the Executive,
together with the Executive's counsel, to be heard before the Board), finding
that, in the good faith opinion of the Board, the Executive was guilty of the
conduct set forth in the first sentence of this Section 2.4 and specifying the
particulars thereof in detail.

          2.5. Change in Control. For purposes of this Agreement, a "Change in
Control" shall mean any of the following events:

          (a)  An acquisition (other than directly from the Company) of any
voting securities of the Company (the "Voting Securities") by any "Person" (as
the term is used for purposes of Section 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended (the 1934 Act")) immediately after which such
Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated
under the 1934 Act) of greater than fifty percent (50%) of the combined voting
power of the Company's then outstanding Voting Securities; provided, however,
that in determining whether a Change in Control has occurred, Voting Securities
which are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall
not constitute an acquisition which

                                      -2-
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would cause a Change in Control. A "Non-Control Acquisition" shall mean an
acquisition by (1) an employee benefit plan (or a trust forming a part thereof)
maintained by (A) the Company or (B) any corporation or other Person of which a
majority of its voting power or its equity securities or equity interest is
owned directly or indirectly by the Company (a "Subsidiary"), (2) the Company or
any Subsidiary, or (3) any Person in connection with a "Non-Control Transaction"
(as hereinafter defined); or

          (b)  Approval by stockholders of the Company of a merger,
consolidation or reorganization involving the Company, unless the stockholders
of the Company immediately before such merger, consolidation or reorganization,
own immediately following such merger, consolidation or reorganization, directly
or indirectly, at least fifty-one percent (51%) of the combined voting power of
the outstanding voting securities of the corporation resulting from such merger
or consolidation or reorganization (the "Surviving Corporation") in
substantially the same proportion as their ownership of the Voting Securities
immediately before such merger, consolidation or reorganization (a "Non-Control
Transaction");

          (c)  A complete liquidation or dissolution of the Company; or

          (d)  An agreement for the sale or other disposition of all or
substantially all of the assets of the Company to any Person (other than a
transfer to a Subsidiary).

Notwithstanding the foregoing, a Change in Control shall not be deemed to occur
solely because any Person (the "Subject Person") acquired Beneficial Ownership
of more than the permitted amount of the outstanding Voting Securities as a
result of the acquisition of Voting Securities by the Company which, by reducing
the number of Voting Securities outstanding, increases the proportional number
of shares Beneficially Owned by the Subject Person, provided, however, that, if
a Change in Control would occur (but for the operation of this sentence) as a
result of the acquisition of Voting Securities by the Company, and after such
share acquisition by the Company the Subject Person becomes the Beneficial Owner
of any additional voting Securities which increases the percentage of the then
outstanding Voting Securities Beneficially Owned by the Subject Person, then a
Change in Control shall occur.

          2.6. Company. For purposes of this Agreement, the "Company" shall mean
Terayon Communication Systems, Inc. and its Subsidiaries and shall include
Terayon's "Successors and Assigns" (as hereinafter defined).

          2.7. Disability. For purposes of this Agreement, "Disability" shall
mean a physical or mental infirmity which impairs the Executive's ability to
substantially perform the Executive's duties with the Company for a period of
one hundred eighty (180) consecutive days and the Executive has not returned to
full time employment prior to the Termination Date as stated in the "Notice of
Termination".

          2.8. Good Reason.

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          (a)  For purposes of this Agreement, "Good Reason" shall mean the
occurrence after a Change in Control of any of the events or conditions
described in subsections (1) through (8) hereof:

          (1)  a change in the Executive's status, title, position or
responsibilities (including reporting responsibilities) which, in the
Executive's reasonable judgment, represents an adverse change from the
Executive's status, title, position or responsibilities as in effect at any time
within ninety (90) days preceding the date of a Change in Control or at any time
thereafter; the assignment to the Executive of any duties or responsibilities
which, in the Executive's reasonable judgment, are inconsistent with the
Executive's status, title, position or responsibilities as in effect at any time
within ninety (90) days preceding the date of a Change in Control or at any time
thereafter; or any removal of the Executive from or failure to reappoint or
reelect the Executive to any of such offices or positions, except in connection
with the termination of the Executive's employment for Disability, Cause, as a
result of the Executive's death or by the Executive other than for Good Reason;

          (2)  A reduction in the Executive's base salary or any failure to pay
the Executive any compensation or benefits to which the Executive is entitled
within five (5) days of the date due;

          (3)  the Company's requiring the Executive to be based at any place
outside a 60-mile radius from Santa Clara, California, except for reasonably
required travel on the Company's business which is not materially greater than
such travel requirements prior to the Change in Control;

          (4)  the failure by the Company to (A) continue in effect (without
reduction in benefit level and/or reward opportunities) any material
compensation or employee benefit plan in which the Executive was participating
at any time within ninety (90) days preceding the date of a Change in Control or
at any time thereafter, unless such plan is replaced with a plan that provides
substantially equivalent compensation or benefits to the Executive, or (B)
provide the Executive with compensation and benefits, in the aggregate, at least
equal (in terms of benefit levels and/or reward opportunities) to those provided
for under each other employee benefit plan, program and practice in which the
Executive was participating at any time within ninety (90) days preceding the
date of a Change in Control or at any time thereafter;

          (5)  the insolvency or the filing (by any party, including the
Company) of a petition for bankruptcy of the Company, which petition is not
dismissed within sixty (60) days;

          (6)  any material breach by the Company of any provision of this
Agreement;

          (7)  any purported termination of the Executive's employment for Cause
by the Company which does not comply with the terms of Section 2.4; or

                                      -4-
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          (8)  the failure of the Company to obtain an agreement, satisfactory
to the Executive, from any Successors and Assigns to assume and agree to perform
this Agreement, as contemplated in Section 6 hereof.

          (b)  The Executive's right to terminate the Executive's employment
pursuant to this Section 2.8 shall not be affected by the Executive's incapacity
due to physical or mental illness.

          2.9. Notice of Termination. For purposes of this Agreement, following
a Change in Control, "Notice of Termination" shall mean a written notice of
termination of the Executive's employment from the Company, which notice
indicates the specific termination provision in this Agreement relied upon and
which sets forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so, indicated.

          2.10. Pro Rata Bonus. For purposes of this Agreement, "Pro Rata Bonus"
shall mean an amount equal to the Bonus Amount multiplied by a fraction the
numerator of which is the number of days in the fiscal year through the
Termination Date and the denominator of which is 365.

          2.11. Successors and Assigns. For purposes of this Agreement,
"Successors and Assigns" shall mean a corporation or other entity acquiring all
or substantially all of the assets and business of the Company (including this
Agreement) whether by operation of law or otherwise.

          2.12. Termination Date. For purposes of this Agreement, "Termination
Date" shall mean in, the case of the Executive's death, the Executive's date of
death, in the case of Good Reason, the last day of the Executive's employment
and, in all other cases, the date specified in the Notice of Termination;
provided, however, that if the Executive's employment is terminated by the
Company for Cause or due to Disability, the date specified in the Notice of
Termination shall be at least 30 days from the date the Notice of Termination is
given to the Executive, provided that, in the case of Disability, the Executive
shall not have returned to the full-time performance of the Executive's duties
during such period of at least 30 days.

     3.   Termination of Employment.

          3.1. If, during the term of this Agreement, the Executive's employment
with the Company shall be terminated within twelve (12) months following a
Change in Control, the Executive shall be entitled to the following compensation
and benefits:

          (a)  If the Executive's employment with the Company shall be
terminated (1) by the Company for Cause or Disability, (2) by reason of the
Executive's death or (3) by the Executive other than for Good Reason, the
Company shall pay to the Executive the Accrued Compensation.

                                      -5-
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          (b)  If the Executive's employment with the Company shall be
terminated for any reason other than as specified in Section 3.1(a), the
Executive shall be entitled to the following:

               (i)  the Company shall pay the Executive all Accrued
               Compensation;

               (ii) the Company shall pay the Executive as severance pay and in
               lieu of any further compensation for periods subsequent to the
               Termination Date, in a single payment, an amount in cash equal to
               the sum of (A) the Base Amount and (B) the Bonus Amount;

               (iii) for a number of months equal to twelve (12) (the
               "Continuation Period"), the Company shall, at its expense,
               continue on behalf of the Executive and the Executive's
               dependents and beneficiaries the life insurance, disability,
               medical, dental, and hospitalization benefits provided (A) to the
               Executive at any time during the 90-day period prior to the
               Change in Control or at any time thereafter or (B) to other
               similarly situated executives who continue in the employ of the
               Company during the Continuation Period. The coverage and benefits
               (including deductibles and costs) provided in this Section 3. 1
               (b)(iii) during the Continuation Period shall be no less
               favorable to the Executive and the Executive's dependents and
               beneficiaries, than the most favorable of such coverages and
               benefits during any of the periods referred to in clauses (A) and
               (B) above. The Company's obligation hereunder with respect to the
               foregoing benefits shall be limited to the extent that the
               Executive obtains any such benefits pursuant to a subsequent
               employer's benefit plans, in which case the Company may reduce
               the coverage of any benefits it is required to provide the
               Executive hereunder as long as the aggregate coverages and
               benefits of the combined benefit plans are no less favorable to
               the Executive than the coverages and benefits required to be
               provided hereunder. This subsection (iii) shall not be
               interpreted so as to limit any benefits to which the Executive or
               the Executive's dependents or beneficiaries may be entitled under
               any of the Company's employee benefit plans, programs or
               practices following the Executive's termination of employment,
               including without limitation, retiree medical and life insurance
               benefits;

               (iv) the restrictions on any outstanding equity incentive awards,
               including stock options and restricted stock, granted to the
               Executive under the Company's stock option plans or any other
               incentive plan or arrangement shall lapse and such incentive
               award shall become one hundred percent (100%) vested and, in the
               case of stock options, immediately exercisable;

                                      -6-
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               (v)  for the duration of the Continuation Period, the Company
               shall, at its expense, provide the Executive with outplacement
               and career counseling services of the Executive's choice,
               provided, however, that the Company's obligation to pay for such
               services shall in no event exceed an aggregate amount equal to
               25% of the Base Amount.

          (c)  The amounts provided for in Sections 3.1 (a) and 3.1 (b)(i) and
(ii) shall be paid in a single lump sum cash payment within forty five (45) days
after the Executive's Termination Date (or earlier, if required by applicable
law).

          (d)  The Executive shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or otherwise,
and no such payment shall be offset or reduced by the amount of any compensation
or benefits provided to the Executive in any subsequent employment except as
provided in Section 3.1 (b)(iii).

          3.2. (a) The severance pay and benefits provided for in this Section 3
shall be in lieu of any other severance or termination pay to which the
Executive may be entitled under any Company severance or termination plan,
program, practice, agreement or arrangement.

          (b)  The Executive's entitlement to any other compensation or benefits
shall be determined in accordance with the Company's employee benefit plans and
other applicable programs, policies and practices then in effect,

          4.   Notice of Termination. Following a Change in Control, any
purported termination of the Executive's employment shall be communicated by
Notice of Termination to the Executive. For purposes of this Agreement, no such
purported termination shall be effective without such Notice of Termination.

          5.   Excise Tax Limitation.

               (a)  Notwithstanding anything contained in this Agreement, in the
event that any payment or benefit (within the meaning of Section 28OG(b)(2) of
the Internal Revenue Code of 1986, as amended (the "Code")), to the Executive or
for the Executive's benefit paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise in connection with, or
arising out of, the Executive's employment with the Company or a Change in
Control (a "Payment" or "Payments") would be subject to the excise tax imposed
by Section 4999 of the Code (the "Excise Tax"), the Payments shall be reduced
(but not below zero) if and to the extent necessary so that no Payment to be
made or benefit to be provided to the Executive shall be subject to the Excise
Tax (such reduced Payments being hereinafter referred to as the "Limited Payment
Amount"). Unless the Executive shall have given prior written notice specifying
a different order to the Company to effectuate the Limited Payment Amount, the
Company shall reduce or eliminate the Payments by first reducing or eliminating
cash payments and then by reducing those payments or benefits which are not
payable in cash, in each case in reverse order beginning with payments or
benefits which are to be paid the farthest in time from the Determination (as
hereinafter defined). Any notice given by the Executive pursuant to the

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preceding sentence shall take precedence over the provisions of any other plan,
arrangement or agreement governing the Executive's rights and entitlements to
any benefits or compensation,

               (b)  An initial determination as to whether the Payments shall be
reduced to the Limited Payment Amount and the amount of such Limited Payment
Amount shall be made, at the Company's expense, by the accounting firm that is
the Company's independent accounting firm as of the date of the Change in
Control (the "Accounting Firm"). The Accounting Firm shall provide its
determination (the "Determination,), together with detailed supporting
calculations and documentation, to the Company and the Executive within twenty
(20) days of the Termination Date if applicable, or such other time as requested
by the Company or by the Executive (provided the Executive reasonably believes
that any of the Payments may be subject to the Excise Tax), and if the
Accounting Firm determines that there is substantial authority (within the
meaning of Section 6662 of the Code) that no Excise Tax is payable by the
Executive with respect to a Payment or Payments, it shall furnish the Executive
with an opinion reasonably acceptable to the Executive that no Excise Tax will
be imposed with respect to any such Payment or Payments. Within ten (10) days of
the delivery of the Determination to the Executive, the Executive shall have the
right to dispute the Determination (the "Dispute"). If there is no Dispute, the
Determination shall be binding, final and conclusive upon the Company and the
Executive subject to the application of Section 5(c) below.

               (c)  As a result of the uncertainty in the application of
Sections 4999 and 28OG of the Code, it is possible that the Payments to be made
to, or provided for the benefit of, the Executive either will be greater (an
"Excess Payment") or less (an "Underpayment") than the amounts provided for by
the limitations contained in Section 5(a). If it is established pursuant to a
final determination of a court or an Internal Revenue Service (the "IRS")
proceeding which has been finally and conclusively resolved that an Excess
Payment has been made, such Excess Payment shall be deemed for all purposes to
be a loan to the Executive made on the date the Executive received the Excess
Payment and the Executive shall repay the Excess Payment to the Company on
demand (but not less than ten (10) days after written notice is received by the
Executive) together with interest on the Excess Payment at the "Applicable
Federal Rate" (as defined in Section 1274(d) of the Code) from the date of the
Executive's receipt of such Excess Payment until the date of such repayment. In
the event that it is determined by (i) the Accounting Firm, the Company (which
shall include the position taken by the Company, or together with its
consolidated group, on its federal income tax return) or the IRS, (ii) pursuant
to a determination by a court, or (iii) upon the resolution to the Executive's
satisfaction of the Dispute that an Underpayment has occurred, the Company shall
pay an amount equal to the Underpayment to the Executive within ten (10) days of
such determination or resolution, together with interest on such amount at the
Applicable Federal Rate from the date such amount would have been paid to the
Executive until the date of payment.

          6.   Successors: Binding Agreement.

               (a)  This Agreement shall be binding upon and shall inure to the
benefit of the Company, its Successors and Assigns and the Company shall require
any Successors and Assigns to expressly assume and agree to perform this
Agreement in the same manner and to the same

                                      -8-

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extent that the Company would be required to perform it if no such succession or
assignment had taken place.

               (b)  Neither this Agreement nor any right or interest hereunder
shall be assignable or transferable by the Executive or the Executive's
beneficiaries or legal representatives, except by will or by the laws of descent
and distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal personal representative.

     7.   Fees and Expenses. The Company shall pay all legal fees and related
expenses (including the costs of experts, evidence and counsel) incurred by the
Executive as they become due as a result of (a) the Executive's termination of
employment (including all such fees and expenses, if any, incurred in contesting
or disputing any such termination of employment), (b) the Executive seeking to
obtain or enforce any right or benefit provided by this Agreement (including,
but. not limited to, any such fees and expenses incurred in connection with the
Dispute whether as a result of any applicable government taxing authority
proceeding, audit or otherwise) or by any other plan or arrangement maintained
by the Company under which the Executive is or may be entitled to receive
benefits, and (c) the Executive's hearing before the Board as contemplated in
Section 2.4 of this Agreement; provided, however, that the circumstances set
forth in clauses (a) and (b) occurred on or after a Change in Control.

     8.   Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement (including the Notice of
Termination) shall be in writing and shall be deemed to have been duly given
when personally delivered or sent by certified mail, return receipt requested,
postage prepaid, addressed to the respective addresses last given by each party
to the other, provided that all notices to the Company shall be directed to the
attention of the Board with a copy to the Secretary of the Company. All notices
and communications shall be denied to have been received on the date of delivery
thereof or on the third business day after the mailing thereof, except that
notice of change of address shall be effective only upon receipt.

     9.   Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any benefit, bonus,
incentive or other plan or program provided by the Company (except for any
severance or termination policies, plans, programs or practices) and for which
the Executive may qualify, nor shall anything herein limit or reduce such rights
as the Executive may have under any other agreements with the Company (except
for any severance or termination agreement). Amounts which are vested benefits
or which the Executive is otherwise entitled to receive under any plan or
program of the Company shall be payable in accordance with such plan or program,
except as explicitly modified by this Agreement.

     10.  Settlement of Claims. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right which
the Company may have against an Executive or others.

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     11.  Miscellaneous. No provision of this Agreement may be modified, waived
or discharged, unless such waiver, modification or discharge is agreed to in
writing and signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto, or compliance with,
any condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreement or representation,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not expressly set forth in this
Agreement.

     12.  Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of California without giving
effect to the conflict of laws principles thereof. Any action brought by any
party to this Agreement shall be brought and maintained in a court of competent
jurisdiction in Santa Clara County in the State of California.

     13.  Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.

     14.  Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto and supersedes all prior agreements, if any,
understandings and arrangements, oral or written, between the parties hereto
with respect to the subject matter hereof

     IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
its duly authorized officer and the Executive has executed this Agreement as of
the day and year first above written.

TERAYON COMMUNICATION                      EXECUTIVE
    SYSTEMS, INC.

By:
   ------------------------------          ------------------------------------

Its:
    -----------------------------

                                      -10-<PAGE>
================================================================================

                                                                   EXHIBIT 10.27

                       TERAYON COMMUNICATION SYSTEMS, INC.

                                      CODE

                                       OF

                                BUSINESS CONDUCT

================================================================================

<PAGE>
                                TABLE OF CONTENTS

<Table>
<Caption>

                                                                                                                PAGE
                                                                                                                ----

<S>                                                                                                             <C>
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..........................................................3
   Competitor Relationships.......................................................................................4
   Corporate Opportunities........................................................................................4

BUSINESS RELATIONSHIPS............................................................................................4
   Customer Relationships.........................................................................................5
   Selecting Suppliers............................................................................................5
   Working With Existing Suppliers................................................................................6
   Sales Agents, Representatives, Distributors, and Consultants...................................................6
   Contracts and Commitments......................................................................................6

FAIR COMPETITION..................................................................................................6

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
</Table>

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<Table>

<S>                                                                                                             <C>
TECHNOLOGY USE AND PRIVACY.......................................................................................11
   Authorization.................................................................................................11
   Prohibition Against Violating Copyright Laws..................................................................11
   Other Prohibited Uses.........................................................................................11

OUR WORK ENVIRONMENT.............................................................................................11

ENVIRONMENTAL....................................................................................................12

COMPLIANCE AND REPORTING.........................................................................................12
   Compliance....................................................................................................12
   Reporting Procedures and Other Inquiries......................................................................12
</Table>

                                       ii

<PAGE>
                       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:

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

       o      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;

       o      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;

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

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

       o      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.

                                       1
<PAGE>

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 potential conflicts of
interest to the Board of Directors. Other officers and employees must disclose
any potential conflicts 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 potential conflicts of interest involving
spouses, siblings, parents, in-laws, children, 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:

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

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

                                       2
<PAGE>

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

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

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

       o      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.

INDIRECT INTERESTS AND RELATIONSHIPS

       A conflict of interest can arise because of the business activities of a
member of the Board of Directors, officer or employee's close relations. A
member of the Board of Directors, officer or employee has a potential conflict
of interest wherever a close relative has a significant relationship with, or
has a significant financial interest in, any supplier, customer or competitor of
Terayon's. A relative has a significant financial interest if:

       o      the relative owns more than 1% of the outstanding capital of a
              business; or

       o      the investment represents more than 5% of the total assets of the
              employee or relative.

       A member of the Board of Directors, officer or employee should not make
or influence any decision that could directly or indirectly benefit 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.

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.

       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

                                       3
<PAGE>

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 RELATIONSHIPS

       Members of the Board of Directors, officers and employees must avoid even
the appearance of a conflict of interest in their relationships with
competitors. Without approval, members of the Board of Directors, officers and
employees may not:

       o      maintain a financial investment of more than 1% of outstanding
              publicly traded stock in the business of a competitor;

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

       o      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

       o      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.

       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,

                                       4
<PAGE>

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 disparaging 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:

       o      sell on the strength of Terayon and its products and services, not
              on the weaknesses of our competitors;

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

       o      do not make claims about a competitor's products or services
              unless the claims are based on the competitor's current published
              materials or other factual data approved for selling purposes by
              Terayon;

       o      if a potential customer has a contract with a competitor, or has
              placed a firm order with a competitor, do not try to convince the
              customer to breach that contract or order; and

       o      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 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.

                                       5
<PAGE>

WORKING WITH EXISTING SUPPLIERS

       Members of the Board of Directors, officers and employees should follow
the following rules when working with suppliers:

       o      never interfere with a supplier's contracts or business relations
              with a competitor of Terayon;

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

       o      adhere to Terayon's guidelines concerning gifts, gratuities,
              entertainment and other considerations of value. See "GIFTS,
              GRATUITIES, ENTERTAINMENT AND OTHER CONSIDERATIONS" in this Code;

       o      avoid any interest that conflicts with the employee's
              responsibility to Terayon. See "CONFLICTS OF INTEREST" in this
              Code; and

       o      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.

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

                                       6
<PAGE>

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.

       o      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.

       o      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.

       o      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.

       o      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.

       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

                                       7
<PAGE>

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.

       o      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.

       o      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.

       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

                                       8
<PAGE>

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 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

                                       9
<PAGE>

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 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.

                                       10
<PAGE>

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.

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

                                       11
<PAGE>

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

       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. Willful disregard of criminal statutes underlying this
Code may require Terayon to refer such violation for criminal prosecution or
civil action.

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. 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 is obligated to promptly report the matter to the Board, in the
case of a Board member or an executive officer, or the Compliance Officer, in
the case of an officer or employee.

Employees with information relating to questionable accounting or auditing
matters may also confidentially, and anonymously if they desire, submit the
information in writing to Terayon's Audit Committee of the Board of Directors:

                    Mark Slaven
                    3com Corporation
                    350 Campus Drive
                    Marlborough, MA 01752-3064

       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.

                                       12
<PAGE>

       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.

                                       13
<PAGE>
                               ACKNOWLEDGEMENT(1)

       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 ___________[specify].

Employee Name:
              ------------------------------------------------------------------
                                     (please print)

--------------------------------------------------------------------------------
                Signature                                           Date

Title:                                                Dept.:
      -------------------------------------------           --------------------

Please return this completed form to_______________________________ within one
week from the date of your review of these documents. Thank you!

-----------------

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