Document:

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                                                                   EXHIBIT 10.33

                              [Terayon Letterhead]

July 22, 2004

Jerry Chase

Dear Jerry:

      On behalf of the Board of Directors of Terayon Communication Systems, Inc.
(hereafter referred to as "Terayon" or the "Company"), I am pleased to offer you
the position of Chief Executive Officer ("CEO") of the Company, pursuant to the
following terms.

      1. Title. As the Company's CEO, you report to the Company's Board of
Directors (the "Board") and your principal place of work will be at the
Company's headquarters, currently at 4988 Great America Parkway in Santa Clara,
California. You also will appointed to serve as a Director on the Company's
Board and shall serve as a Director, subject to the Company's bylaws.

      2. Salary and Benefits. Your annual base salary will be $400,000.00, less
payroll deductions and all required withholdings. This salary will be paid to
you semi-monthly, in accordance with the Company's normal payroll cycle. You
will be eligible to participate in the Company's standard employee benefit
programs (e.g., health insurance, 401(k) plan, life insurance, short and
long-term disability insurance, flexible spending accounts), subject to the
terms and conditions of those benefit plans. Details about these benefit plans
will be sent to you under separate cover. You also will be eligible for
Company-paid holidays, vacation and sick time, subject to Company policy.

      3. Annual Bonus. You will be eligible for an annual bonus of up to 75% of
your base salary (which shall be pro-rated for fiscal year 2004), the payment of
which will be based on the achievement of certain goals to be defined by the
Board.

      4. Relocation Assistance. The Company will assist you with the costs
associated with your relocation to California, and will reimburse you for
certain costs that you and your family will incur as a result of your
relocation, in accordance with the Company's standard policy and/or practices
for similarly-situated executives.

      5. Stock Options. Pursuant to Terayon's stock option plan and subject to
the approval of Terayon's Compensation Committee, you will be granted an option
to purchase 800,000 shares of the Company's Common Stock under the Company's
1997 Equity Incentive Plan (the "Plan"). The exercise price per share of the
stock granted subject to this option will be equal to the fair market value of
Terayon's Common Stock on the date of grant, as determined by the Compensation
Committee. The option grant will be subject to the terms and conditions of the
Plan and standard stock option agreement, and the option will vest over a four
(4) year period, with 1/4th or 25% of the total option shares vesting on the
first anniversary of your employment start date with the Company and 1/48th of
the total option shares vesting monthly thereafter.

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      6. At Will Employment. Your employment with Terayon will be at-will,
subject to paragraphs 7 and 8 below. This means that either you or the Company
may terminate your employment at any time for any reason, with or without notice
and with or without cause.

      7. Severance Protection. Notwithstanding the at-will employment
relationship between you and the Company, the Company agrees that, in the event
your employment is terminated by the Company without "Cause" or by you for "Good
Reason" (as those terms are defined in the Severance Agreement attached as
Exhibit B) at any time on or before the third anniversary of your employment
start date, you will be entitled to the following Severance Benefits: (a) a
severance payment equal to twelve (12) months of your then current base salary,
which will be payable in a lump sum or via salary continuation payments, in the
Company's sole discretion, and (b) continuation of your employee benefits, at
the Company's expense, for the duration of such twelve (12) month period, to the
extent such continuation is permissible under the Company's employee benefit
plans and subject to the terms and conditions of those benefit plans. If the
continuation of any employee benefit following your termination is not
permissible under the Company's employee welfare benefit plans, the Company
shall have no obligation to continue those benefits; however, you may continue
your health insurance coverage under COBRA and the Company will pay for your
COBRA premiums for a period of up to 12 months following your termination. Your
receipt of these Severance Benefits will be contingent upon you signing the
general release of claims attached hereto as Exhibit A, and these Severance
Benefits shall reduce the amount of any compensation or severance benefits that
you may be entitled to receive under the Severance Agreement described in
paragraph 8 below (which is also attached hereto as Exhibit B). For purposes of
this offer letter, a termination due to death or Disability (as defined in the
Severance Agreement attached as Exhibit B) shall not constitute a termination
without Cause or for Good Reason, and a termination for either of those reasons
shall be treated in a manner consistent with the Severance Agreement attached
hereto as Exhibit B.

      8. Severance Agreement. In addition to the severance protection described
in paragraph 7 above, you also will be given a change in control/severance
agreement (entitled "Severance Agreement," the form of which is attached hereto
as Exhibit B), which shall provide for, among other things, a severance payment
equal to 100% of your base salary and target bonus (defined as "Base Amount" and
"Bonus Amount" in the attached Severance Agreement) and 100% vesting of unvested
stock options upon a termination other than for "Cause" or with "Good Reason"
within 12 months after a "Change in Control" (as those terms are defined in the
Severance Agreement). However, the severance benefits to be provided to you
under the attached Severance Agreement shall be offset and reduced by the value
of the Severance Benefits that you may be entitled to receive under paragraph 7
above.

      9. Proprietary Information and Invention Assignment Agreement. As a
Terayon employee, you will be exepcted to abide by Company rules and
regulations, and will be required to sign and comply with a Proprietary
Information and Inventions Agreement (the "PIIAA"), a copy of which is attached
hereto as Exhibit C, that prohibits the unauthorized use or disclosure of
proprietary information of Terayon.

      10. Integration. The employment terms in this offer letter and the
attached Exhibits supersede any other agreements or promises made to you by
anyone, whether written or oral. No modification or amendment to this letter,
nor any waiver of any rights under this letter, will be

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effective unless in writing signed by a Director of Terayon (other than you).
This offer letter and the attached Exhibits are 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.

As required by law, this offer is subject to satisfactory proof of your right to
work in the United States. Please sign and date this letter, and return it to me
by July 22, 2004, if you wish to accept this offer of employment. We would you
like to start as soon as possible. We look forward to your favorable reply and
to a productive and enjoyable work relationship.

Sincerely,

/s/ Zaki Rakib

Zaki Rakib

Accepted by: /s/ Jerry Chase                     Date: July 22, 2004
             ------------------
                 Jerry Chase

Start Date: September 2004

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                                    EXHIBIT A

                          RELEASE AND WAIVER OF CLAIMS

      In exchange for providing me with the Severance Benefits described in
Section 7 of my offer letter from Terayon Communications Systems, Inc. (the
"Company"), to which this form is attached, I, Jerry Chase, 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) the termination of my employment with
the Company for any reason; 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

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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 the Severance Benefits under paragraph
7 of my offer letter if I revoke my release of ADEA claims under this Release.

      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
that my receipt of the Severance Benefits under paragraph 7 of my offer letter
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: July 22, 2004                                       /s/ Jerry Chase
                                                          ----------------------
                                                          Jerry Chase

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                                    EXHIBIT B

                              [SEVERANCE AGREEMENT]

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                                    EXHIBIT C

          [PROPRIETARY INFORMATION AND INVENTION ASSIGNMENT AGREEMENT]<PAGE>

                                                                   EXHIBIT 10.34

                                    EXHIBIT B

                               SEVERANCE AGREEMENT

      This Agreement, dated as of July 22, 2004, is entered into between Terayon
Communication Systems, Inc., a corporation organized under the laws of the State
of Delaware (the "Company"), and Jerry Chase (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 September 8,
2004 and shall continue in effect until _____________; provided, however, that
commencing on _________________ and on each ___________ 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

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the Executive on behalf of the Company during the period ending on the
Termination Date, (iii) 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-
<PAGE>

            (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-
<PAGE>

            (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-
<PAGE>

                  (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

                                      -7-
<PAGE>

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-
<PAGE>

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.

                                      -9-
<PAGE>

      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:/s/ Zaki Rakib                             /s/ Jerry Chase
   -------------------------------------      ----------------------------------
                                              Jerry Chase
Its:
    ____________________________________

                                      -10-

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