<PAGE>

                                                                   EXHIBIT 10.30

                              TRANSITION AGREEMENT

      THIS AGREEMENT (the "Agreement"), made as of the 21st day of June 2004, by
and between Terayon Communications Systems, Inc., a Delaware corporation (the
"Company"), and Dr. Zaki Rakib (the "Executive");

                                WITNESSETH THAT:

      WHEREAS, Executive is a Director of the Company and is currently employed
as the Company's Chief Executive Officer ("CEO");

      WHEREAS, Executive has decided to resign from his position as the
Company's CEO;

      WHEREAS, the Company's Board of Directors (the "Board") desires for
Executive to remain a Director of the Company and further desires to appoint
Executive as Chairman of the Board;

      WHEREAS, the Board desires to provide Executive with certain compensation
and benefits that Executive is not otherwise entitled to under the terms of his
Employment Agreement with the Company dated approximately February, 1993 (the
"Employment Agreement"), his Severance Agreement with the Company dated January
14, 2003 (the "Change in Control Agreement"), or the Company's policies or
procedures;

      WHEREAS, the Board desires to induce the Executive to enter into a
covenant against competition and certain other restrictive covenants intended to
protect the trade secrets and goodwill of the Company;

      NOW, THEREFORE, in consideration of the mutual covenants and promises set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Executive
hereby agree as follows:

      1.    Resignation as CEO. Executive hereby resigns from his current
position as the Company's CEO, which resignation shall become effective without
further action by Executive or the Company on the earlier of (a) the date
Company hires a new CEO, or (b) August 31, 2004 (the earlier of such dates, the
"Transition Date"). Prior to effectiveness of such resignation, Executive shall
continue to perform his current duties, subject to review of all major decisions
and general coordination with and review by the Executive Committee of the Board
that was established on May 26, 2004 (the "Executive Committee"), of which
Executive is a member, and shall perform any other duties that may be assigned
to him by the Board and/or the Executive Committee (including but not limited to
assisting and cooperating with the transition of his duties) until the
Transition Date. The Company shall reimburse Executive for all reasonable and
necessary travel and other expenses that he may incur in connection with his
performance of any duties hereunder, in accordance with the Company's normal
timetable and policies for expense reimbursements. The Company also shall
continue to pay Executive his current base salary ($37,500.00 per month) and
shall continue to provide him with employee benefits generally provided to other
senior executives until August 31, 2004. Thereafter, the Company shall

<PAGE>

provide Executive with the benefits and compensation described in Section 3
below, subject to the terms and conditions set forth herein.

      2.    Appointment as Chairman of the Board of Directors. The Board hereby
appoints Executive to be its Chairman, which shall become effective without
further action by Executive or the Board upon the Transition Date. Executive
shall serve as Chairman of the Board until such time that he resigns, his
successor is appointed, or he is removed from that position, in accordance with
the Company's bylaws and/or applicable law. Following the Employment
Continuation Period (defined in Section 3(b) below) and so long as Executive is
a non-employee Director of the Company, Executive shall be eligible for
compensation and future stock options as a non-employee Director, in accordance
with the terms and conditions of the Company's 1998 Non-Employee Directors'
Plan.

      3.    Compensation and Benefits Following Resignation as CEO. Following
effectiveness of Executive's resignation as CEO, the Company shall provide
Executive with the following compensation and benefits in consideration for and
subject to Executive's having complied with the terms and conditions hereof and
his continued adherence to the covenants set forth in this Agreement, and
subject to Executive having first signed the Release attached hereto as Exhibit
A following the Transition Date and having not revoked his release of ADEA
claims under that Release:

            (a)   Company shall pay Executive a lump sum severance payment (the
"Severance Payment"), the gross amount of which will be equal to One Million
Three Hundred Fifty Thousand Dollars ($1,350,000.00), consisting of (i) two
years' pay at his 2003 base salary ($450,000 per year), plus (ii) an amount
equal to two times Executive's target annual bonus for 2003 ($225,000). The
Severance Payment described in this paragraph shall be subject to required taxes
and withholdings, and shall be paid to Executive in a lump sum within ten (10)
business days after Executive executes the Release attached hereto as Exhibit A,
provided he does not revoke his release of ADEA claims under that Release.

            (b)   Company shall continue to employ Executive as an employee for
a period of one year following the Transition Date (the "Employment Continuation
Period") and during the Employment Continuation Period Executive may not perform
any function or role for and on behalf of the Company unless the extent, scope
and manner to or in which such performance, function or role shall be determined
by and at the discretion of the Board of the Company. During the Employment
Continuation Period, Executive shall receive the following benefits, in addition
to the Severance Payment described in Section 3(a) above (the "Severance
Benefits"): (i) Executive's outstanding stock options shall continue to vest, in
accordance with the terms of the applicable stock option agreement(s) and
plan(s) for each such option, and (ii) Company will continue to provide
Executive with the same employee benefits for which he was enrolled immediately
prior to the Transition Date under the Company's group health, disability, life
insurance and other welfare benefit plans, subject to the terms and conditions
of those plans, and will continue to pay for Executive's participation in those
plans to the same extent as it did immediately prior to the Transition Date;
provided, however, in the event any of the group health and welfare plans in
which Executive is currently enrolled do not permit his continued

                                       2
<PAGE>

participation as provided herein, the Company will provide him with
substantially comparable benefits through alternative means. Executive will not
accrue any right to other compensation or benefits including salary, vacation,
PTO, sick leave or other paid time off during the Employment Continuation
Period. Executive's employment with the Company shall terminate at the
conclusion of the Employment Continuation Period (the "Termination Date"), and
all benefits and perquisites of employment, including but not limited to any
employee benefits and the vesting of any stock options (except to the extent
otherwise provided in the terms of such options), shall cease as of the
Termination Date and the Company shall have no further obligation to provide
Executive with any compensation or benefits under this Agreement and/or the
Change in Control Agreement, except as otherwise provided in this Section 3.
Following the Termination Date, Executive may exercise any vested stock options
in accordance with the terms and conditions of the applicable stock option
plan(s) and agreement(s) for each such option.(1) Executive acknowledges and
agrees that the Severance Payment and Severance Benefits to be provided to him
under this Section 3 constitute reasonable and adequate consideration for his
covenants and obligations under this Agreement, as well as any tasks or duties
that he may be asked to perform during the Employment Continuation Period.

            (c)   The Company shall not terminate Executive's employment prior
to the Termination Date specified above unless it has "Cause" to do so, which
shall exist only if Executive: (i) commits a crime against the Company, commits
a felony involving fraud or dishonesty, or is convicted of a crime of moral
turpitude, (ii) willfully engages in misconduct that is demonstrably and
materially injurious to the Company and its affiliates taken as a whole, as
determined by the Board, or (iii) revokes any of the Release attached hereto as
Exhibit A or fails to comply in any material respect with the terms and
conditions of this Agreement or the PIIAA (as hereafter defined); provided that
Executive has been provided with written notice of any alleged failure to comply
and been provided a period of thirty days to cure any such non-compliance. If
the Company terminates Executive's employment for "Cause" under this Section
3(c) before the conclusion of the Employment Continuation Period, Executive's
Termination Date shall be the date his employment is terminated for "Cause" and
the Company shall have no further obligations to Executive under this Agreement
thereafter.

      4.    General Release of Claims.

            (a)   In exchange for the consideration described above, Executive
(on behalf of himself and his heirs, successors and assigns) hereby releases,
covenants not to sue, and forever discharges Company, its subsidiaries,
divisions, parent and/or affiliated corporations or entities, and each of their
current and former directors, officers, shareholders, agents, employees,
attorneys, heirs, assigns, predecessors and successors, (the "Released
Parties"), of and from any and all claims, demands, actions and causes of
action, liabilities, losses, costs, attorneys fees or expenses, known or
unknown, suspected or unsuspected, that Executive now has, or may ever have
against the Released Parties, or any of them, that arise out of, or are in any
way related to: (1) Executive's employment by the Company; (2) his resignation
from his position as CEO

------------------
(1) Executive and the Company acknowledge that Executive's continued service on
the Board of Director's as a Non-Employee director constitutes Continuous Status
with the Company as such term is defined in the Terayon Communication Systems,
Inc. 1997 Equity Incentive Plan.

                                       3
<PAGE>

and/or employment with the Company; and (3) any transactions, occurrences, acts
or omissions by the Released Parties, or any of them, occurring prior to his
execution of this Agreement. Without limiting the foregoing, Executive
understands and agrees that the foregoing release provisions waive and release
claims alleging violations of any federal or state employment discrimination
law, including without limitation Title VII of the Civil Rights Act of 1964, the
Americans with Disabilities Act, the Family Medical Leave Act, the California
Fair Employment and Housing Act, as well as claims arising out of or related to
any alleged violations of state and federal wage and hour laws, all common law
and statutory claims, including without limitation, breach of contract, fraud,
violation of public policy, unfair competition and business practices,
defamation, infliction of emotional distress, invasion of privacy, wrongful
termination, or any other state or federal law, rule, or regulation, and any
claims for attorneys' fees and costs.

            (b)   Executive further acknowledges that he is waiving and
releasing any rights he may have under the Age Discrimination in Employment Act
("ADEA") and that this waiver and release is knowing and voluntary. Executive
further acknowledges by this writing that: (a) he is waiving rights or claims
for age discrimination under the ADEA in exchange for the payments described
herein, which are in addition to anything of value to which he otherwise is
entitled; (b) he has been given an opportunity to consider fully the terms of
this Agreement for twenty-one (21) days, although he is not required to wait
twenty-one (21) days before signing this Agreement; (c) he has been advised by
an attorney of his choosing regarding the terms and conditions of this
Agreement; (d) he understands he has seven (7) days in which to revoke his
release of ADEA claims within seven (7) days of signing this Agreement,
provided, however, that his release and waiver of all other claims will become
effective when he executes this Agreement and, provided further, that Executive
shall not be entitled to receive the Severance Payment or Severance Benefits
under Section 3 above if he revokes his release of ADEA claims under this
Section 4(b).

            (c)   Notwithstanding the foregoing, it is agreed and understood
that the above release shall not affect (i) any rights Executive may have to
exercise his vested retirement benefits, (ii) any rights Executive may have to
directors' and officers' and/or other forms of liability insurance, but only to
the extent the Company provides them from time to time to other executive
officers and directors of the Company, or indemnification from the Company in
connection with Executive's position as a director or an executive officer of
the Company to the extent such rights are enforceable, provided however it is
understood that this subclause (ii) shall not provide Executive with any rights
that Executive does not already have on the date hereof, (iii) any rights
Executive has to unemployment compensation, or workers' compensation benefits,
or (iv) any rights to the enforcement of the terms of this Agreement and
Executive's Change of Control Agreement dated as of January 14, 2004 (except to
the extent such agreement is modified pursuant to Section 10 hereof).

            (d)   Notwithstanding the foregoing, the releases set forth in
Sections 4(a) and (b) above shall be null and void in the event the Company
fails to make the Severance Payment set forth in Section 3(a) above.

                                       4
<PAGE>

      5.    Section 1542 Waiver. Executive acknowledges that he is aware of and
familiar with the provisions of Section 1542 of the California Civil Code, which
provides as follows: "A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at the time of executing
the release, which if known by him, must have materially affected his settlement
with the debtor." Executive hereby waives and relinquishes all rights and
benefits that he may have under Section 1542 of the California Civil Code, or
the law of any other state or jurisdiction, or common law principle, to the same
or similar effect.

      6.    Assignment of Executive Inventions; Release.

            (a)   Proprietary Information and Invention Assignment Agreement;
Release. In consideration for Company's continued employment of Executive
following the effective date of this Agreement and until the Termination Date,
Executive has contemporaneously executed the Company's Proprietary Information
and Invention Assignment Agreement (the "PIIAA"), a signed copy of which is
attached hereto as Exhibit B. Executive hereby agrees that he shall sign the
Release attached hereto as Exhibit A following the Transition Date and that if
he does not so sign or shall revoke his release of ADEA or other claims
thereunder at any time he shall not be entitled in any way whatsoever to any of
the compensation or benefits set forth in Section 3(a) and 3(b) above.

            (b)   Assignment of Prior Inventions. In consideration for the
Severance Payment and other benefits to be provided to him under Section 3(a)
and 3(b) above, Executive hereby assigns, and agrees to assign, to the Company
all of Executive's right, title and interest in and to (i) any ideas,
inventions, compositions of matter, original works of authorship, developments,
improvements or trade secrets that Executive solely or jointly conceived or
reduced to practice at any time prior to the effective date of this Agreement
(whether prior to or during Executive's employment with Company), and (ii) any
patents, copyrights, trade secrets or other proprietary rights; provided that
the foregoing assignment shall apply only to those items set forth in
subsections (i) and (ii) above that relate to Company's past, present or
anticipated products, technology or business, and that are not otherwise
assigned to Company pursuant to the PIIAA or any other agreements that may exist
between Company and Executive ("Other Existing Agreements"). Executive
acknowledges and agrees that Executive's obligations under Section 2(d) of the
PIIAA ("Obtaining Letters Patent, Copyright Registrations and Other
Protections") shall apply, without limitation, to any rights assigned (or
required to be assigned) to Company pursuant to this Section 6(b). In the event
of any conflict between this Section 6(b) and either the PIIAA or any Other
Existing Agreement, this Section 6(b) will control.

      7.    Non-competition and Non-solicitation. Executive acknowledges and
agrees that he is a key employee who has unique knowledge and experience
regarding Company's trade secret, confidential, and proprietary information, and
further acknowledges that the restrictions set forth in this Section 7 are
reasonable and necessary to preserve and protect the Company's trade secret,
confidential, and proprietary information and to preserve and protect the
goodwill and continuity of the Company's business. Executive further
acknowledges that his agreement and adherence to the restrictions set forth in
this Section 7 are material conditions of his receipt of the compensation and
benefits described in Section 3 above. Accordingly, so

                                       5
<PAGE>

long as Executive is an employee or Director of the Company (including but not
limited to during the Employment Continuation Period) and for a period of one
(1) year following the later of (y) the date which Executive ceases to be an
employee the Company for any reason, or (z) the date which Executive ceases to
be a Director of the Company for any reason, Executive agrees that he will not,
either directly or indirectly:

            (a)   Engage in any business activity (whether as an employee,
consultant, proprietor, partner, director or otherwise) that is competitive, in
whole or in part, with the Company (or with any "Affiliated Company" (defined to
mean any corporation or other business entity or entities that directly or
indirectly controls, is controlled by, or is under common control with the
Company)), including but not limited to developing, selling, marketing,
manufacturing, licensing, or distributing products or services that are
competitive with the products and services being developed, sold, marketed,
manufactured, licensed, or distributed by the Company;

            (b)   Have any ownership interest in, or participate in the
financing, operation, management, or control of, any person, firm, corporation
or business whose products, activities, or services compete in whole or in part
with those of the Company (or of any Affiliated Company), provided, however,
that nothing contained in this Section 7(b) shall be construed to prohibit
Executive from purchasing and owning (directly or indirectly) up to one percent
(1%) of the capital stock or other securities of any corporation or other entity
whose stock or securities are traded on any national or regional securities
exchange or the national over-the-counter market and such ownership shall not
constitute a violation of this Section 7(b);

            (c)   Divert or attempt to divert from the Company (or any
Affiliated Company) any business of any kind in which it is engaged, including,
without limitation, the solicitation of any past, present, or prospective
customer, client, partner, vendor, supplier, licensee, or party who has been or
will be evaluating or testing the Company's products and/or services, or the
interference with or disruption of the Company's business relations with its
past, present, or prospective customers, clients, partners, vendor, suppliers,
licensees, evaluators or testers of its products and/or services; or

            (d)   Solicit, hire, recruit, employ or retain any person or entity
who is employed by or has a contractual or consulting relationship with the
Company, or induce or encourage any person or entity who is employed by or has a
contractual or consulting relationship with the Company to terminate their
employment, contractual, or consulting relationship with the Company.

      8.    Assignment; Successors and Assigns. Executive agrees that he will
not assign, sell, transfer, delegate or otherwise dispose of, whether
voluntarily or involuntarily, or by operation of law, any rights or obligations
under this Agreement, nor shall Executive's rights be subject to encumbrance or
the claims of creditors. Any purported assignment, transfer, or delegation shall
be null and void. Nothing in this Agreement shall prevent the consolidation of
the Company with, or its merger into, any other corporation, or the sale by the
Company of all or substantially all of its properties or assets, or the
assignment by the Company of this Agreement and the performance of its
obligations hereunder to any successor in interest or any Affiliated

                                       6
<PAGE>

Company. Subject to the foregoing, this Agreement shall be binding upon and
shall inure to the benefit of the parties and their respective heirs, legal
representatives, successors, and permitted assigns, and shall not benefit any
person or entity other than those enumerated above. Nothing in this Agreement
shall prevent the Company, its Board, and/or its shareholders from exercising
their right and discretion, under the Company's bylaws and/or applicable law, to
remove Executive from the Board and/or appoint his successor as a Director
and/or Chairman.

      9.    Entire Agreement. The terms of this Agreement and the attached
Exhibits are intended by the parties to be the final expression of their
agreement with respect to the subject matter hereof, and may not be contradicted
by evidence of any prior or contemporaneous agreement, except to the extent that
the provisions of any such agreement are expressly referred to in this Agreement
as having continued effect. The parties further intend that this Agreement shall
constitute the complete and exclusive statement of its terms and that no
extrinsic evidence whatsoever may be introduced in any judicial, administrative,
or other legal proceeding involving this Agreement. This Agreement fully
supersedes any prior or contemporaneous agreements representations, or
understandings between Executive and the Company, whether written or oral,
including Executive's Employment Agreement which is hereby terminated by this
Agreement. Notwithstanding the foregoing, Executive's Change of Control
Agreement shall remain in effect as amended herein so long as Executive remains
employed by Company (including during the Employment Continuation Period) and as
so amended the Severance Payment and Severance Benefits to be provided to
Executive under this Agreement shall reduce the amount of any compensation and
severance benefits that Executive may be entitled to receive under the Change of
Control Agreement, as described more fully in Section 10 below.

      10.   Amendment of Change of Control Agreement. Executive and Company
hereby amend Section 3.1(d) of the Change of Control Agreement such that it
reads as follows: "Notwithstanding the provisions of Section 3.2(a) and (b)
below, Executive shall not be required to mitigate the amount of any payment
provided for in this Agreement by seeking other employment or otherwise,
provided, however, that the payments and benefits to be provided to Executive
under Sections 3.1(i)-(v) above shall be offset and mitigated by the Severance
Payment and Severance Benefits that Executive is to receive or has received
under Section 3 of the Transition Agreement between him and the Company dated as
of June 21, 2004."

      11.   Amendments; Waivers. This Agreement may not be modified, amended, or
terminated except by an instrument in writing, signed by the Executive and by a
Director of the Company other than Executive. By an instrument in writing
similarly executed, either party may waive compliance by the other party with
any provision of this Agreement that such other party was or is obligated to
comply with or perform, provided, however, that such waiver shall not operate as
a waiver of, or estoppel with respect to, any other or subsequent failure. No
failure to exercise and no delay in exercising any right, remedy, or power
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy, or power hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, or power provided
herein or by law or in equity.

                                       7
<PAGE>

      12.   Severability. If any provision of this Agreement, or the application
thereof to any person, place, or circumstance, shall be held by a court of
competent jurisdiction to be invalid, unenforceable, or void, the remainder of
this Agreement and such provisions as applied to other persons, places, and
circumstances shall remain in full force and effect. If any court determines
that any of the restrictions set forth in Section 7, or any parts thereof, are
unenforceable because of the duration or geographic scope thereof, the parties
agree that the duration or geographic scope of such restrictions, or any parts
thereof, shall be the maximum duration or geographic scope, as the case may be,
provided by law, of such restrictions, and, in such reduced form, such
restrictions shall then be enforceable. It is the intention of the parties that
the covenants contained in Section 7 shall be enforced to the greatest extent in
time, area, and degree of participation as is permitted by the law of that
jurisdiction whose law is found to be applicable to any acts allegedly in breach
of these covenants.

      13.   Enforcement. Executive acknowledges that the provisions contained in
Section 7 of this Agreement and the PIIAA are reasonable and necessary in order
to protect the legitimate interests of the Company. Executive further
acknowledges that any breach or threatened breach by Executive of those
provisions would result in irreparable harm to the Company, and that the remedy
at law for any breach or threatened breach of those provisions is and will be
inadequate. Therefore, Executive acknowledges and agrees that in the event of a
breach or threatened breach by Executive of Section 7 of this Agreement and/or
the PIIAA, the Company shall be entitled to equitable remedies without the
obligation to post bond or other security in seeking such relief, including, but
not limited to, specific performance or temporary, preliminary or permanent
injunctive relief restraining Executive from violating the provisions of Section
7 of this Agreement or the provisions of the attached PIIAA. Nothing contained
in this Agreement shall be construed as prohibiting Company from pursuing any
other remedies available to it for such breach or threatened breach, including,
without limitation, the recovery of damages from Executive.

      14.   Governing Law. This Agreement is to be construed in accordance with
and governed by the internal laws of the State of California without regard to
principles of conflicts of laws. Any legal action or other legal proceeding
relating to this Agreement or the enforcement of any provision of this Agreement
may be brought or otherwise commenced in any state or federal court located in
the County of Santa Clara, California. Each party to this Agreement (a)
expressly and irrevocably consents and submits to the jurisdiction of the state
and federal courts located in County of Santa Clara, California in connection
with any such legal proceeding, (b) agrees that each state and federal court
located in the County of Santa Clara County, California shall be deemed to be a
convenient forum; and (c) agrees not to assert, by way of motion, as a defense
or otherwise, in any such legal proceeding commenced in any state or federal
court located in the County of Santa Clara, California, any claim that such
party is not subject personally to the jurisdiction of such court, that such
legal proceeding has been brought in an inconvenient forum, that the venue of
such proceeding is improper, or that this Agreement or the subject matter of
this Agreement may not be enforced in or by such court.

                                       8
<PAGE>

      15.   Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original and all of which together
will constitute one and same document.

      16.   Acknowledgment of Legal Representation. Executive and the Company
each acknowledges, consents and agrees (a) that Executive has consulted with
Ropes & Gray, independent counsel of his own choice, concerning this Agreement
and matters related hereto and has been advised to do so by the Company, (b)
that Executive has read and understands the Agreement, is fully aware of its
legal effect, and has entered into it freely based on his own judgment, (c) that
Morrison & Foerster LLP's representation of the Company and the Board of
Directors from time to time includes representation of Executive as a member of
the Board of Directors or when he is a defendant in litigation against the Board
and the Company, and (d) that Morrison & Foerster LLP has advised solely the
Company and the Board of Directors of the Company (of which Executive is a
member) in connection with this Agreement and matters related hereto and has not
represented Executive, nor rendered any legal, tax or other advice to Executive
in connection with this Agreement or matters related hereto.

      IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

EXECUTIVE:                                           TERAYON COMMUNICATION
                                                     SYSTEMS, INC.:

By: /s/ Zaki Rakib                                    By: /s/ Mark Slaven
    ------------------------                              ----------------------
        Zaki Rakib                                           Mark Slaven

                                       9
<PAGE>

                                    EXHIBIT A

                          RELEASE AND WAIVER OF CLAIMS

      In exchange for providing me with the severance benefits described in
Section 3 of my Transition Agreement with Terayon Communications Systems, Inc.
(the "Company"), to which this form is attached, I, Zaki Rakib, hereby furnish
the Company with the following release and waiver ("Release"):

      I (on behalf of myself and my heirs, successors and assigns) hereby
release, covenant not to sue, and forever discharge the Company, its
subsidiaries, divisions, parent and/or affiliated corporations or entities, and
each of their current and former directors, officers, shareholders, agents,
employees, attorneys, heirs, assigns, predecessors and successors, (the
"Released Parties"), of and from any and all claims, demands, actions and causes
of action, liabilities, losses, costs, attorneys fees or expenses, known or
unknown, suspected or unsuspected, that I now have, or may ever have against the
Released Parties, or any of them, that arise out of, or are in any way related
to: (1) my employment by the Company; (2) my resignation from my position as CEO
and/or employment with the Company; and (3) any transactions, occurrences, acts
or omissions by the Released Parties, or any of them, occurring prior to my
execution of this Release. Without limiting the foregoing, I understand and
agree that the foregoing release provisions waive and release claims alleging
violations of any federal or state employment discrimination law, including
without limitation Title VII of the Civil Rights Act of 1964, the Americans with
Disabilities Act, the Family Medical Leave Act, the California Fair Employment
and Housing Act, as well as claims arising out of or related to any alleged
violations of state and federal wage and hour laws, all common law and statutory
claims, including without limitation, breach of contract, fraud, violation of
public policy, unfair competition and business practices, defamation, infliction
of emotional distress, invasion of privacy, wrongful termination, or any other
state or federal law, rule, or regulation, and any claims for attorneys' fees
and costs.

      I understand and agree this Release specifically covers known and unknown
claims, and hereby waive my rights under Section 1542 of the California Civil
Code or under any other comparable law of another jurisdiction that limits a
general release to claims that are known to exist at the date of this agreement.
Section 1542 of the California Civil Code states as follows: "A general release
does not extend to claims which the creditor does not know or suspect to exist
in his favor at the time of executing the release, which if known by him must
have materially affected his settlement with the debtor."

      I acknowledge that I am also waiving and releasing any rights I may have
under the Age Discrimination in Employment Act (the "ADEA"), that this waiver
and release is knowing and voluntary. I also acknowledge by this writing that:
(a) I am waiving rights or claims for age discrimination under the ADEA in
exchange for the payments described herein, which are in addition to anything of
value to which I otherwise am entitled; (b) I have been given an opportunity to
consider fully the terms of this Release for twenty-one (21) days, although I am
not required to wait twenty-one (21) days before signing this Release; (c) I
have been advised to consult with an attorney of my choosing before signing this
Release; (d) I understand I have

<PAGE>

seven (7) days in which to revoke my release of ADEA claims within seven (7)
days of signing this Release, provided, however, that my release and waiver of
all other claims will become effective when I execute this Release, and provided
further, that I shall not be entitled to receive the Severance Payment or
Severance Benefits under Section 3 of the Transition Agreement if I revoke my
release of ADEA claims under this Release.

      Notwithstanding the foregoing, it is agreed and understood that the above
release shall not affect (i) any rights I may have to vested retirement
benefits, (ii) any rights I may have to directors' and officers' and/or other
forms of liability insurance, but only to the extent the Company provides them
from time to time to other executive officers and directors of the Company, or
indemnification from the Company in connection with my position as a director or
an executive officer of the Company to the extent such rights are enforceable,
provided however it is understood that this subclause (ii) shall not provide me
with any rights that I do not already have on the date hereof, (iii) any rights
I have to unemployment compensation, or workers' compensation benefits, or (iv)
any rights to the enforcement of the terms of the Transition Agreement and my
Change of Control Agreement dated as of January 14, 2004 (except to the extent
such agreement is modified pursuant to Section 10 of the Transition Agreement).

      I understand and agree that I shall continue to be bound by my obligations
under my Proprietary Information and Inventions Agreement with the Company and
Section 7 of my Transition Agreement, and that my receipt of the severance
benefits under Section 3 of my Transition Agreement is contingent upon my
fulfillment of and continued adherence to those obligations.

      Finally, I acknowledge that (a) I have read this Release or have been
afforded every opportunity to do so, (b) I am fully aware of the its contents
and legal effect, and (c) I have chosen to enter into it freely, without
coercion and based upon my own judgment and not in reliance upon any promises
made by the Company other than those contained therein.

Date:  June 21, 2004                                      /s/ Zaki Rakib
                                                          ----------------------
                                                              Zaki Rakib

<PAGE>

                                    EXHIBIT B

          [PROPRIETARY INFORMATION AND INVENTION ASSIGNMENT AGREEMENT]

<PAGE>

                       Terayon Communication Systems, Inc.

                PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT

      As an employee of Terayon Communication Systems, Inc., a Delaware
corporation, and/or any of its subsidiaries or affiliates (together, the
"Company"), and as a condition of my employment by the Company and in
consideration of the compensation now and hereafter paid to me, I agree to the
following:

1.    Maintaining Confidential Information.

      (a)   Company Information. I agree at all times during the term of my
            employment and thereafter to hold in strictest confidence, and not
            to use, except for the benefit of the Company, or to disclose to any
            person, firm or corporation, without the written authorization of
            the Board of Directors of the Company, any trade secrets,
            confidential knowledge or data, proprietary materials, or other
            proprietary information of the Company. By way of illustration and
            not limitation, such proprietary materials and information shall
            include proprietary and/or confidential materials and information
            relating to software, test data, protocols, assay components,
            procedures and formulations, products, processes, know-how, designs,
            formulas, methods, developmental or experimental work, improvements,
            discoveries, plans for research, new products, marketing and
            selling, business plans, budgets and unpublished financial
            statements, licenses, prices and costs, suppliers and customers, and
            information regarding the skills and compensation of other employees
            of the Company.

      (b)   Former Employer Information. I agree that I will not, during my
            employment with the Company, improperly use or disclose any
            proprietary information or trade secrets of my former or concurrent
            employers or companies, if any, and that I will not bring onto the
            premises of the Company any unpublished documents or property
            belonging to my former or concurrent employers or companies unless
            consented to in writing by said employers or companies.

      (c)   Third Party Information. I recognize that the Company has received
            and in the future will receive from third parties their confidential
            or proprietary information subject to a duty on the Company's part
            to maintain the confidentiality of such information and, in some
            cases, to use in only for certain limited purposes. I agree that I
            owe the Company and such third parties, both during the term of my
            employment and thereafter, a duty to hold all such confidential or
            proprietary information in the strictest confidence and not to
            disclose it to any person, firm or corporation (except in a manner
            that is consistent with the Company's agreement with the third
            party) or use it for the benefit of anyone other than the Company or
            such third party (consistent with the Company's agreement with the
            third party.)

2.    Assignment of Inventions and Original Works.

      (a)   Inventions and Original Works Retained by Me. I have attached hereto
            as Exhibit A a complete list of all inventions, original works or
            authorship, developments, improvements, and trade secrets, relating
            in any way to the Company's present or anticipated business, that I
            have, alone or jointly with others, conceived, developed or reduced
            to practice prior to the commencement of my employment with the
            Company, that I consider to be my property or the property of third
            parties and that I wish to have excluded from the scope of the
            Agreement. If disclosure of an item in Exhibit A would cause me to
            violate any prior confidentiality agreement, I understand that I am
            not to list such in Exhibit A but am to inform the Company that all
            items have not been listed for that reason. A space is provided on
            Exhibit A for such purposes. If no list is attached, I represent
            that there are no such items.

<PAGE>

      (b)   Inventions and Original Works Assigned to the Company. I agree that
            I will make prompt written disclosure to the Company, will hold in
            trust for the sole right and benefit of the Company, and will assign
            to the Company all my right, title and interest in and to any ideas,
            inventions, compositions of matter, original works of authorship,
            developments, improvements or trade secrets which I solely or
            jointly conceive or reduced to practice, during the period of my
            employment with the Company. I recognize that the Agreement does not
            require assignment of any invention which qualifies fully for
            protection under Section 2870 of the California Labor Code
            (hereinafter "Section 2870"), which provides as follows:

                  (1)   Any provision in an employment agreement which provides
                        that an employee shall assign, or offer to assign, any
                        of his or her rights in an invention to his or her
                        employer shall not apply to an invention that the
                        employee developed entirely on his or her own time
                        without using the employer's equipment, supplies,
                        facilities, or trade secret information except for those
                        inventions that either:

                              (a)   Relate at the time of conception or
                                    reduction to practice of the invention to
                                    the employer's business, or actual or
                                    demonstrably anticipated research or
                                    development of the employer;

                              (b)   Result from any work performed by the
                                    employee for the employer.

                  (2)   To the extent a provision in an employment agreement
                        proports to require an employee to assign an invention
                        otherwise excluded from being required to be assigned
                        under subdivision (a), the provision is against the
                        public policy of this state and is unenforceable.

      I acknowledge that all original works of authorship which are made by me
(solely or jointly with others) within the scope of my employment and which are
protectable by copyright are "works made for hire," as that term is defined by
the United States Copyright Act (17 U.S.C., Section 101).

      (a)   Inventions and Original Works Assigned to the United States. I agree
            to assign to the United States government all my right, title and
            interest in and to any and all inventions, original works of
            authorship, developments, improvements or trade secrets whenever
            full title to same is required to be in the Untied States by a
            contract between the Company and the United States or any of its
            agencies.

      (d)   Obtaining Letters Patent, Copyright Registrations and Other
            Protections. I will assist the Company in every proper way to obtain
            and enforce the United States and foreign proprietary rights
            relating to any and all inventions, original works or authorship,
            developments, improvements, or trade secrets of the Company in any
            and all countries. To that end I will execute, verify and deliver
            such documents and perform such other acts (including appearing as a
            witness) the Company may reasonably request for use in applying for,
            obtaining, perfecting, evidencing, sustaining and enforcing such
            proprietary rights and the assignment thereof. In addition, I will
            execute, verify and deliver assignments of such proprietary rights
            to the Company or its designee. My obligation to assist the company
            with respect to proprietary rights in any and all countries shall
            continue beyond the termination of my employment, but the Company
            shall compensate at a reasonable rate after my termination for the
            time actually spent by me at the Company's request on such
            assistance.

            In the event the Company is unable for any reason, after reasonable
      effort, to secure my signature on any document needed in connection with
      the actions specified in the preceding paragraph, I hereby irrevocably
      designate and appoint the Company and its duly authorized

<PAGE>

      officers and agents as my agent and attorney in fact, to act for and in my
      behalf to execute, verify and file any such documents and to do all other
      lawfully permitted acts to further the purposes of the preceding paragraph
      with the same legal force and effect as if executed by me. I hereby waive
      and quitclaim to the Company and all claims of any nature whatsoever which
      I now or may hereafter have for infringement of any and all proprietary
      rights assigned to the Company.

            (e) Obligation to Keep the Company Informed. In addition to my
            obligations under paragraph 2(b) above, during the period of my
            employment and for one year after termination of my employment for
            any reason, I will promptly disclose to the Company fully and in
            writing all patent applications filed by me on my behalf. At the
            time of each such disclosure, I will advise the Company in writing
            of any inventions that I believe fully qualify for protection under
            Section 2870; and I will at that time provide the Company in writing
            all evidence necessary to substantiate that belief. I understand
            that the Company will keep in confidence and will not disclose to
            third parties without my consent any proprietary information
            disclosed in writing to the Company pursuant to the Agreement
            relating to inventions that qualify for protection under Section
            2870; will preserve the confidentiality of any invention that does
            not qualify for protection under Section 2870. I agree to keep and
            maintain adequate and current records (in the form of notes,
            sketches, drawings and in any other form that may be required by the
            Company) of all proprietary information developed by me and all
            inventions made by me during the period of my employment at the
            Company, which records shall be available to and remain the sole
            property of the Company at all times.

3.    No Conflicting Employment: No Inducement of Other Employees.

            I agree that during the period of my employment by the Company I
      will not, without the Company's express written consent, engage in any
      other employment or business activity directly related to the business in
      which the Company is now involved or becomes involved, nor will I engage
      in any other activities which conflict with my obligations to the Company.
      For the period of my employment by the Company and for one (1) year after
      the date of termination of my employment by the Company, I will not induce
      any employee of the company to leave the employment of the company.

4.    No Conflicting Obligations.

            I represent that my performance of all terms of this Agreement and
      as an employee of the Company does not and will not breach any agreement
      to keep in confidence information acquired by me in confidence or in trust
      prior to my employment by the company. I have not entered into, and I
      agree I will not enter into, any agreement either written or oral in
      conflict herewith.

5.    Return of Company Documents and Materials.

            When I leave the employ of the Company, I will deliver to the
      Company (and will not keep in my possession, recreate or deliver to anyone
      else) any and all devices, records, data, notes, reports, proposals,
      lists, correspondence, specifications, drawings, blueprints, sketches,
      materials, equipment, software, test data, protocols, assay components, or
      other property, together with all copies, thereof (in whatever medium
      recorded belonging to the Company, its successors or assigns. I further
      agree that any property situated on the Company's premises and owned by
      the Company, including disks and other storage media, filing cabinets or
      other work areas, is subject to inspection by Company personnel at any
      time with or without notice. Prior to leaving, I will cooperate with the
      Company in completing and signing the Company's termination statement for
      technical and management personnel.

<PAGE>

I have been informed and acknowledge that the unauthorized taking of Company's
trade secrets

      (I)   could result in civil liability under California Civil Code Section
            3426, and that, if willful, could result in an award for triple the
            amount of the Company's damages and attorney's fees; and

      (II)  is a crime under California Penal Code Section 444(c), punishable by
            imprisonment for a time not exceeding a year, or by a fine not
            exceeding five thousand dollars ($5,000), or by both.

6.    Notification of New Employer.

            In the event that I leave the employ of the Company, I hereby
      consent to the notification of my new employer of my rights and
      obligations under this Agreement.

7.    Legal and Equitable Remedies.

            Because my services are personal and unique and because I may have
      access to and become acquainted with the proprietary information of the
      Company, the Company shall have the right to enforce this Agreement and
      any of its provisions by injunction, specific performance or other
      equitable relief, without bond, without prejudice to any other rights and
      remedies that the Company may have for a breach of Agreement.

8.    General Provisions.

            (a) Not an Employment Contract. I agree and understand that nothing
            in this Agreement shall confer any right with respect to
            continuation of employment by the Company, nor shall it interfere in
            any way with my right or the company's right to terminate my
            employment at any time, with or without cause.

            (b) Governing Law; Consent to Personal Jurisdiction. This Agreement
            will be governed by and constructed according to the laws of the
            State of California. I hereby expressly consent to the personal
            jurisdiction of the state and federal courts located in Santa Clara
            County, California for any lawsuit filed there against me by the
            Company arising from or relating to this Agreement.

            (c) Entire Agreement. This Agreement sets forth the final, complete
            and exclusive agreement and understanding between the Company and me
            relating to the subject matter hereof and merges all prior
            discussions between us. No modification of or amendment to this
            Agreement, nor any waiver of any rights under this Agreement, will
            be effective unless in writing and signed by both the Company and
            me. Any subsequent change or changes in my duties, salary or
            compensation will not affect the validity or scope of this
            Agreement.

            (d) Severability. If one or more of the provisions in the Agreement
            are deemed unenforceable by law, such provisions shall be deemed
            severed from the Agreement and the remaining provisions will
            continue in full force and effect.

            (e) Successors and Assigns. This Agreement will be binding upon
            heirs, executors, administrators and other legal representatives and
            will not be for the benefit of the Company, its successors and its
            assigns.

            (f) Survival. The provisions of this Agreement shall survive the
            termination or my employment and the assignment of this Agreement by
            the company to any successor in interest or other assignee.

<PAGE>

            (g) Waiver. No waiver by the company of any breach of this Agreement
            shall be a waiver of any proceeding or succeeding breach. No waiver
            by the Company of any right under this Agreement shall be construed
            as a waiver of any other right. The company shall not be required to
            give notice to enforce strict adherence to all terms of this
            Agreement.

This Agreement shall be effective as of the first day of my employment with the
Company, which is

________________, _____.

I UNDERSTAND THAT THIS AGREEMENT AFFECTS MY RIGHTS TO INVENTIONS I MAKE DURING
MY EMPLOYMENT, AND RESTRICTS MY RIGHT TO DISCLOSE OR USE THE COMPANY'S
PROPRIETARY INFORMATION DURING OR SUBSEQUENT TO MY EMPLOYMENT.

I HAVE READ THIS AGREEMENT CAREFULLY AND UNDERSTAND ITS TERMS. I HAVE COMPLETELY
FILLED OUT EXHIBIT A TO THIS AGREEMENT.

Dated:  June 21, 2004.                               /s/ Zaki Rakib
                                                     ---------------------------
                                                     Signature

ACCEPTED AND AGREED TO:                              /s/ Zaki Rakib
                                                     ---------------------------
                                                     Name of Employee

TERAYON COMMUNICATION SYSTEMS, INC.
                                                     ___________________________
By:  /s/ Mark Slaven                                 Address
------------------------

<PAGE>

                                    EXHIBIT A

Terayon Communication Systems, Inc.
4988 Great America Parkway
Santa Clara, CA 95054

Gentlemen:

      1.    The following is a complete list of all inventions, original works
            of authorship, developments, improvements, and trade secrets,
            relating in any way to the present or anticipated business of
            Terayon Communication Systems, Inc. (the "Company") that have been
            made or conceived or first reduced to practice by me alone or
            jointly with others prior to my engagement by the Company:

      -     No inventions or improvements.

      -     See below.

      -     Due to confidentiality agreements with prior employer, I cannot
            disclose certain inventions that would otherwise be included on the
            above-described list.

      -     Additional sheets attached.

      2.    I propose to bring to my employment the following devices, materials
            and documents of a former employer or other person to whom I have an
            obligation of confidentiality that are not generally available to
            the public, which materials and documents may be used in my
            employment pursuant to the express written authorization of my
            former employer or such other person (a copy of which is attached
            hereto):

      -     No inventions or improvements.

      -     See below.

      -     Additional sheets attached.

      Date:  _______________, _____.                 Very truly yours,

                                                     ___________________________
                                                     Employee