content: <PAGE>
  
                        SECURITIES EXCHANGE AND COMMISSION
                              Washington, D.C. 20549
  
                                     FORM 8-K
  
                                  CURRENT REPORT
  
                      Pursuant to Section 13 or 15(d) of the
                          Securities Exchange Act of 1934
  
        Date of Report (Date of earliest event reported): October 23, 2000
  
                        Terayon Communication Systems, Inc.
              (Exact name of registrant as specified in its charter)
  
                                     Delaware
                  (State or other jurisdiction of incorporation)
  
  
            000-24647                                      77-0328533
      (Commission File No.)                   (I.R.S. Employer Identification No.)
  
  
  
                               2952 Bunker Hill Lane
                               Santa Clara, CA 95054
               (Address of principal executive offices and zip code)
  
  
        Registrant's telephone number, including area code: (408) 727-4400
  <PAGE>
  
  Item 5
  
  Forms 10(K) and 10(Q)
  
       The Company hereby amends Form 10-K filed on March 30, 2000 and Forms 10-Q
  filed on May 15, 2000 and August 14, 2000 and any amendments filed thereon to
  revise the following sections, as applicable. The sections entitled Business,
  Legal Proceedings and Management's Discussion and Analysis of Financial
  Condition and Results of Operations - Litigation - should be deleted and
  replaced with the following sections.
  
       The section entitled Business should be deleted and replaced with the
  following section:
  
                                     BUSINESS
  
  Overview
  
    We develop, market and sell broadband access systems that enable cable
  operators and other providers of broadband access services to cost effectively
  deploy reliable broadband access services over cable, copper wire utilizing DSL
  and wireless systems.  We have substantial development and marketing resources
  focused on cable operators.  However, through internal development and recent
  acquisitions of complementary technology and businesses, we also are focusing on
  service providers that offer broadband access through existing copper wire
  infrastructures and wireless systems.
  
    Our primary product is the TeraComm system, which is based on our patented
  S-CDMA technology. Our S-CDMA technology enables reliable two-way broadband data
  communications over both pure coaxial and hybrid fiber/coax cable infrastructure
  and is designed to enable cable operators to maximize the capacity and
  reliability of broadband data services over any cable plant. In furtherance of
  our strategy to provide a complete portfolio of broadband products, we have
  recently completed several acquisitions of complementary broadband technologies,
  including digital video management systems, DSL and wireless.
  
    We sell our broadband access products to cable operators and other providers
  of broadband access services through direct sales forces in North America, South
  America Europe and Asia.  We also distribute our products via distributors and
  systems integrators. Companies currently using or distributing our TeraComm
  system include Rogers, Shaw, TCA Cable TV (a subsidiary of Cox Communications,
  Inc.), UPC and Crossbeam, a wholly owned subsidiary of Sumitomo.  Companies
  currently using our DSL products include major ILEC's (Incumbent Local Exchange
  Carriers) in the U.S. including SBC, Bell Atlantic, Bell South, U.S. West and
  GTE and CLEC's (Competitive Local Exchange Carriers) including PAC-West Telecom,
  Incorporated.
  
  Industry Background
  
    Demand for Broadband Access
  
    In recent years, the volume of bandwidth intensive data, voice and video
  traffic across cable infrastructures, the Internet, corporate intranets and
  other public networks has increased dramatically. This demand has been driven by
  the proliferation of residential and commercial users that are accessing
  networks for a variety of applications, including voice, video and data
  communication via the Internet, electronic commerce, telecommuting and
  interactive television. For example, International Data Corporation, estimates
  that the number of worldwide Internet users will increase from approximately 200
  million at the end of 2000 to over one billion by the end of 2005. IDC estimates
  that the number of homes in the United States with broadband access will
  increase from two million at the end of 1999 to 20 million by the end of 2003.
  The rapid evolution of broadband has resulted in cable operators, providers of
  telephone services and other service providers seeking to provide a bundle of
  voice, data and video services to their residential and commercial subscribers
  over existing and new infrastructures.
  
    Despite significant advances in the performance of computer processors and
  data backbone networks, high speed data transmission has been limited by the
  existing local access network infrastructure (also
  <PAGE>
  
  known as the last mile), which is not optimized for distribution of data-
  intensive multimedia content. Users of dial-up analog modems with maximum data
  rates of only 56 Kbps often experience frustration, as they encounter frequent
  and lengthy delays or complete failures in transmission. In response to the
  growing demand for increased bandwidth, service providers are now deploying new
  broadband access technologies, such as DSL, cable modems and wireless devices,
  that can deliver performance that is from 50 to 100 times faster than analog
  modems. According to industry analysts, the market for broadband access
  equipment is expected to increase from approximately $4 billion at the end of
  1999 to approximately $11 billion in 2004.
  
    Emergence of Broadband Technologies
  
    As residential and commercial demand for increased bandwidth and faster access
  continues to grow, particularly for applications such as streaming audio and
  video, IP telephony and interactive two-way video, service providers are
  investing in enabling infrastructure and technologies.  Various technologies
  have emerged to address the need for broadband access across cable, copper wire
  and wireless platforms or networks.
  
    Cable operators market high speed cable modems that use the existing
  television cable plant to provide subscribers access to the Internet, digital
  video, telephony and other broadband services. Similarly, telephone companies
  offer comparable services using DSL technology over the existing copper wire
  infrastructure. Wireless operators also are establishing high speed Internet
  access using both terrestrial and satellite systems to connect subscribers to
  voice, video and data services. The competition between cable operators,
  telephone companies and emerging wireless service providers is expected to
  intensify as the demand for broadband access grows. Cable operators benefit from
  the fact that the cable infrastructure passes over 95% of the homes in the
  United States and a large number of small businesses. In addition, the cable
  infrastructure has the potential to offer a wide range of broadband services,
  such as digital TV, Internet access and IP telephony. Similarly, DSL providers
  benefit from the fact that existing copper lines reach a substantial majority of
  U.S. homes. Wireless, in contrast, does not depend on existing cable or
  telephone line infrastructure and can be quickly deployed in homes and
  businesses that otherwise might not have broadband access, particularly for
  international markets. Although the market for broadband access services is
  becoming increasingly competitive, industry analysts expect each platform to
  experience significant growth over the next five years.
  
    Challenges in Deploying Broadband Access Services
  
    Service providers must overcome numerous challenges in order to successfully
  meet the increasing demand for broadband access services. Among other things,
  these service providers must do the following:
  
    .  provide end-users with a broad range of bundled services;
  
    .  capitalize on available bandwidth to provide a variety of services;
  
    .  rapidly deploy services to their customers; and
  
    .  provide reliable and cost-effective access.
  
  The Terayon Solution
  
    Our products are designed to enable cable operators and other providers of
  broadband access services to cost-effectively deploy reliable broadband services
  over cable, DSL and wireless systems.  Until recently, our development and
  marketing efforts were focused primarily on cable operators.  As a result of
  some recent acquisitions of complementary technology and businesses, we also are
  focusing on providers of broadband services using existing telephone, DSL and
  wireless systems.
  
    Our products offer cable operators and other broadband providers the following
  advantages:
  <PAGE>
  
    Enable enriched set of bundled services. Our broadband access platforms are
  designed to enable service providers to deliver a broad range of voice, video
  and data services over either a cable, DSL or wireless network. Service
  providers are able to reduce their total network costs because they can deliver
  additional services without investing in separate network infrastructures. In
  addition, because our broadband access platforms facilitate the bundling of
  voice, video and data services, service providers are better able to increase
  their revenues and differentiate themselves by offering tailored services and a
  single point of contact to customers.
  
    Maximize bandwidth utilization.  Our broadband access platforms allow cable
  operators, telecommunications carriers and other providers of broadband services
  to optimize utilization of the available bandwidth for data access, digital
  video, and voice services.  For example, through our proprietary S-CDMA
  technology, cable operators can maximize the use of the upstream return path
  using the lowest frequency ranges of the upstream spectrum, where noise is
  typically too severe to operate.  This use of the upstream spectrum is key to
  delivering efficient interactive data services.  Our Cherrypicker digital video
  management systems allow cable operators to flexibly manage bandwidth by
  allowing them to customize digital video programming for their target
  demographics.
  
    Enable rapid time to market of new services. Our broadband access products are
  designed to enable service providers to achieve rapid time to market and offer
  additional voice, video and data services as they become available, by
  leveraging existing plant and infrastructure. The rapid deployment of broadband
  services is a key competitive advantage to our customers.
  
    Provide reliable and cost effective solutions. Our solutions are designed to
  provide a high degree of reliability in a cost-effective manner. Our cable modem
  system allows cable operators to deploy data services over a wide variety of
  plant conditions, thus reducing ongoing maintenance costs and minimizing service
  problems. Due to their reliability, our DSL systems enable service providers to
  deliver mission-critical services, such as toll-quality local and long distance
  voice over DSL to their customers. Wireless systems are the most cost-effective
  means for delivering broadband access services to customers who cannot otherwise
  access existing cable and telephone infrastructure, particularly in rural areas
  and developing countries.
  
  Strategy
  
    Our objective is to be the leading provider of broadband systems to cable
  operators, providers of telephone services and other service providers seeking
  to provide broadband services to residential and commercial end users.  Key
  elements of our strategy are as follows:
  
    Build a complete portfolio of broadband products.  We are building a complete
  portfolio of broadband products to support high-speed delivery of voice, video
  and data services over cable, copper wire and wireless infrastructures through
  internal development efforts and strategic acquisitions.  Until recently our
  internal development efforts have focused on developing our proprietary S-CDMA
  technology for cable modems and extending this technology to a standards-based
  environment.  Our future development efforts will be focused on the development
  of new technologies for the delivery of voice, video and data over any broadband
  medium.  In furtherance of this strategy, during the last year we have made
  several acquisitions of broadband technologies including digital video
  management systems, DSL and wireless.
  
    Supply leading broadband service providers worldwide. We target the largest
  broadband service providers in each major geographic area worldwide. Three of
  the largest North American cable operators, Rogers, Shaw and TCA Cable TV (a
  subsidiary of Cox Communications, Inc.) are deploying our TeraComm cable modem
  system. In Japan, through our partner Sumitomo, we have established ourselves as
  a market leader. In Europe, Our TeraComm system is being deployed by UPC, one of
  Europe's largest broadband communications companies. We market our DSL products
  to leading providers of telephony services throughout the world. The acquisition
  of ANE provides us with a strong customer presence in the U.S. communications
  market. Our customers include the major U.S. ILECs (Incumbent Local Exchange
  Carriers), including SBC, Bell Atlantic, Bell South, U.S. West and GTE.
  <PAGE>
  
    Increase presence in existing and new markets. We intend to increase our
  presence in new and existing markets throughout North America, Europe, Asia and
  South America. We currently sell our products in over 20 countries worldwide. As
  part of our effort to increase our market penetration and to capitalize on new
  opportunities, we plan to continue to expand our sales, marketing and customer
  support capabilities through both our direct sales and marketing staff as well
  as our relationships with distributors. We believe that a physical presence in
  key customer locations provides an important advantage in developing and
  maintaining our new and existing customer relationships.
  
    Extend technology leadership and advance industry standards. A significant
  element of our strategy is to advance industry standards and to extend our
  technology leadership through the development of innovative new technologies. We
  intend to leverage our engineering capabilities to expand the features and
  functionality of broadband products. We will strive to use our technology
  leadership to achieve a significant time-to-market advantage over competing
  broadband access suppliers by offering advanced features, such as IP telephony
  and videoconferencing. In addition, we intend to apply S-CDMA to additional
  applications such as wireless communications and Local Multipoint Distribution
  Systems. We will continue to participate in industry standards organizations and
  activities for DOCSIS, DVB, MPEG and PacketCable.
  
    Provide superior customer service and support. We believe that our ability to
  provide consistent high quality service and support is a key factor in
  attracting and retaining customers. We provide our customers with technical
  support and training through customer support representatives and
  representatives of distributors. We offer service and support to our customers
  24 hours a day, seven days a week.
  
  Products
  
    Our current portfolio of products complements our strategy to be the leading
  provider of broadband systems to cable television operators, providers of
  telephone services and other service providers seeking to provide broadband
  access services to residential and commercial users.
  
       Product Family                   Product
       -------------------              ------------------------------------------
       Cable Systems                    Terayon S-CDMA Products
  
                                        TeraLink 1000 S-CDMA Master Controller
                                        TeraLink S-CDMA Gateway
                                        TeraPro S-CDMA Cable Modem
                                        TeraView Network Management Software
  
                                        Terayon DOCSIS Products
  
                                        TeraLink 2000 DOCSIS CMTS
                                        TeraJet DOCSIS Cable Modem
  
                                        Terayon DVB Cable Products
  
                                        UCMT-2000 Interactive Network Adaptor
                                        UCM-220 Cable Modem
                                        HAS-2000 High Availability Server
  
                                        Multigate Telephony System
  
       Video Systems                    CherryPicker 500
                                        CherryPicker 7000
                                        CherryPicker 1000
                                        CherryPicker AdSplicer
  <PAGE>
  
       DSL Systems               Miniplex DSL Systems
                                 IPTL Converged Voice and Data Services
                                 System Highlink
                                 Mainsail IMAP (Integrated Multi Service Platform)
  
       Wireless Products         SatStream--Satellite modem
                                 NetStream--Broadband Satellite IP Gateway
                                 WebStream--Broadband Satellite IP Gateway
                                 HAS-2000--High Availability Server
  
  Cable Systems
  
    Our TeraComm system enables cable operators to cost-effectively deploy
  reliable two-way broadband access services.  The TeraComm system is comprised of
  the TeraPro cable modem, the TeraLink 1000 Master Controller, the TeraLink
  Gateway and the TeraView Element Management and Provisioning Software.  The
  price of a TeraComm system is dependent on a number of variables, including a
  customer's basic cable system architecture, the type of routing equipment a
  customer intends to use, the level and quality of service that a cable operator
  desires to provide and the volume of products purchased by a customer.
  
    TeraPro Cable Modem. The TeraPro cable modem is a data communications device
  installed in a subscriber's home or business. The TeraPro cable modem connects
  to the subscriber's PC via a standard 10BaseT Ethernet connector and to the
  cable network via a standard coaxial cable connector. The TeraPro cable modem
  automatically configures itself without user intervention, thus minimizing modem
  installation time. In addition, the configuration software for the TeraPro cable
  modem is downloaded remotely, allowing centralized software upgrades directly
  from the headend management system.
  
    The TeraPro cable modem delivers full two-way communication over the cable
  network, with data rates of up to 14 Mbps per 5 MHz channel in both the upstream
  and the downstream direction. The TeraPro cable modem operates at full capacity
  at an SNR as low as 13dB, and gradually adjusts throughput to provide
  transmission at an SNR as low as -13dB. This feature will permit the TeraPro
  cable modem to operate across any portion of the 5 to 42 MHz upstream RF
  spectrum.
  
    TeraLink 1000 Master Controller. The TeraLink 1000 Master Controller is a data
  channel controller and multiplexer located at the cable headend system or
  distribution hub. The TeraLink 1000 Master Controller provides control,
  management and data transport functions for TeraPro cable modems connected to
  the cable network. It offers dynamic bandwidth management, high speed traffic
  concentration, access control to data networking resources and data service
  quality and integrity.
  
    The TeraLink 1000 Master Controller is a single channel, rack-mountable
  controller that supports up to 2,000 cable modems per channel. Additional
  TeraLink 1000 Master Controllers can be added to scale service as performance
  and subscriber needs grow. The TeraLink 1000 Master Controller, with the
  TeraLink Gateway, provides a 100 BaseT interface for direct connectivity to a
  private backbone or any vendor's router or switch. Alternatively, the TeraLink
  1000 Master Controller, with its built-in ATM OC-3 interface, can be connected
  via an ATM switch, or directly to Cisco's 7500 series routers.
  
    TeraLink Gateway. The TeraLink Gateway is a rack-mountable edge concentrator
  providing end-user clients with broadband access to a remote IP backbone (e.g.,
  Internet) as well as efficient communication between modems. The TeraLink
  Gateway includes an ATM OC-3 interface for connectivity to up to two TeraLink
  1000 Master Controllers or an ATM switch. It also provides a 10/100 BaseT
  Ethernet/Fast Ethernet auto-sense interface to a headend backbone or any IP
  router including the Cisco Universal Broadband Router. The TeraLink Gateway also
  includes a separate 10 BaseT interface, which may be connected to a separate
  management network or the headend network. The TeraLink Gateway supports up to
  2,000 cable modems per RF channel when connected to a TeraLink 1000 Master
  Controller. When used with the TeraLink Gateway, the TeraPro cable modems behave
  as an extension of the TeraLink Gateway, providing maximum bandwidth and
  privacy.
  <PAGE>
  
    TeraView Element Management and Provisioning Software. The TeraView Element
  Management and Provisioning Software is a Windows 95 and Windows NT
  standards-based software application installed at the headend system or the
  network operations center. The TeraView software allows cable operators to
  configure, control, monitor and maintain multiple channels of the TeraComm
  system.
  
    Multigate Telephony and Data Access Systems.  We produce telephony and data
  access systems for deployment of efficient carrier-class voice services over
  cable.  Our systems also provide in-home networking capability for telephony and
  data, based on the Digital Enhanced Cordless Telephony ("DECT") standard.  Our
  systems support voice, high-speed data, and Integrated Service Digital Network
  ("ISDN") services for the business telecommuting market and the SOHO market.
  
  Video Systems
  
    CherryPicker Digital Video Management Systems. CherryPicker Digital Video
  Management Systems are scalable, open platforms that enable cable, satellite and
  terrestrial operators to deliver customized digital programming. Patented
  statistical re-multiplexing technology gives operators ultimate control over
  programming and allows them to create customized video of programming by
  selecting feeds (grooming) from a vast array of sources. The CherryPicker helps
  operators maximize their available bandwidth while enabling them to provide
  program offerings that target specific local demographics.
  
  DSL Systems
  
    Digital Subscriber Line Systems (xDSL).  We produce communications access
  systems based on high-speed IP routing, integrated with telephony.  Our
  innovative systems include both central office DSLAMs (Digital Subscriber Line
  Access Multiplexers) and customer premise equipment for SOHO business broadband
  services.  These systems deliver high-capacity, symmetric voice and data
  services to the business market, with high density port aggregation at the
  central office site for maximum cost efficiency.
  
  Wireless Products
  
    Our wireless products provide high-speed Internet connectivity to the
  subscriber's PC via a standard digital television services antenna. Our
  SatStream Satellite modem offers residential and commercial subscribers with
  connectivity to the Internet via satellite digital television services.
  
  Customers
  
    We market our products to providers of broadband access services that seek to
  provide broadband access services to both residential and commercial end users.
  Our target market is the largest broadband service providers in each major
  geographic area worldwide.
  
   Our principal customers for cable, DSL and wireless systems include the
  following:
  
            Cable                                         DSL
            -----                                         ---
  
            Rogers                                        SBC
            Shaw                                          Bell Atlantic
            TCA Cable TV (a subsidiary of Cox             Bell South
            Communications)                               U.S. West
            Crossbeam (a subsidiary of Sumitomo)          GTE
            UPC                                           PAC-West
  
            Digital Video Systems                         Wireless Systems
            ---------------------                         ----------------
            Cox Communications                            Shiron
  
  <PAGE>
  
            Time Warner                                   Teleo
            Adelphia                                      Gilat Sat
                                                          KBI e-Sat
                                                          Adaptive
  
    Three customers (two of which are related party customers) accounted for
  approximately 51% of our revenues for the six months ended June 30, 2000.  We
  believe that a substantial majority of our revenues will continue to be derived
  from sales to a relatively small number of customers for the foreseeable future.
  In addition, we believe that sales to these customers will be focused on a small
  number of projects.
  
  Research and Development
  
    We believe that our future success will depend on our ability to enhance our
  existing products and to develop and introduce new products that meet a wide
  range of evolving broadband access service providers and end user needs.  In
  addition, to address competitive and pricing pressures, we expect that we will
  have to reduce the unit cost of manufacturing our products through design and
  engineering changes.
  
    We currently are designing and developing a DOCSIS system that includes S-CDMA
  advanced PHY capabilities, which will include a cable modem and an accompanying
  headend controller.  These products are in the early stages of development and
  we do not anticipate commercial availability of these products until late 2000
  or early 2001.  We also are developing a common multimedia platform for current
  and advanced transmission of data, voice and video over existing broadband
  infrastructures, including cable, DSL and wireless.  These products are in the
  early stages of development, and we do not anticipate commercial availability of
  these products until late 2001.
  
    On March 18, 1999, we entered into a one-year Product Development Assistance
  Agreement ("Development Agreement") with Rogers.  Under the terms of the
  Development Agreement, Rogers is obligated to provide assistance with the
  characterization and testing of our subscriber-end and head-end voice-over-cable
  equipment.  In addition, Rogers is obligated to provide technology to assist us
  in connection with our efforts to develop high quality, field proven technology
  solutions that are DOCSIS-compliant and PacketCable-compliant.
  
  Sales and Marketing
  
    We have direct sales forces in North America, South America, Europe and Asia.
  We also distribute our products via distributors and systems integrators.  We
  have signed a distribution agreement with Sumitomo under which Crossbeam is
  distributing the TeraComm system to several of Japan's leading cable operators.
  In January 2000, we signed a distribution agreement with BARCO Communication
  Systems, for the sale of our CherryPicker systems to cable television operators
  worldwide.  In June 2000, we signed a distribution agreement with NEC, for the
  sale of our IPTL DSL access system throughout Asia and Central and South
  America.
  
    We market our products directly to providers of broadband access services
  through our sales force, key distribution and technology partners, as well as
  other marketing vehicles such as industry press, trade shows and the Web.
  Through our marketing efforts, we strive to educate providers on the
  technological and business benefits of our system solution, as well as our
  ability to provide quality support and service to the customer.  We participate
  in the major trade shows and industry events for the broadband access industry
  in the United States and we are expanding our presence in other markets through
  joint participation at local events with our international sales and marketing
  partners.  Industry referrals and reference accounts are significant marketing
  tools we develop and utilize.
  
  Customer Service and Technical Support
  
    We believe that our ability to provide consistently high quality service and
  support will be a key factor in attracting and retaining customers.  Our TSS
  (Technical Services and Support) organization,
  <PAGE>
  
  located in North America, Europe, South America and Asia, offers support 24
  hours a day, seven days per week. Prior to deployment of our systems, each
  customer's needs are assessed and proactive solutions are implemented, including
  various levels of training, periodic management and coordination meetings, and
  problem escalation procedures. We place a strong emphasis on technical training
  for our customers. Initial training is offered at no cost, both at our
  headquarters in Santa Clara and on our customers' premises.
  
    In addition to our TSS organization, we have developed sophisticated tools for
  remote diagnosis and monitoring of the TeraComm systems deployed by cable
  operators.  These tools allow us to monitor cable operators' installations of
  the TeraLink 1000 Master Controller to suggest solutions proactively before
  problems become noticeable to end users.  We are developing a Web-based
  knowledge system to provide cable operators with access to the latest technical
  support information.
  
  Manufacturing
  
    We outsource the majority of the materials procurement, printed circuit board
  assembly, and product assembly and testing to turnkey contract manufacturers.
  Currently, we contract with Solectron, located in Milpitas, California, and
  CalComp Electronics, located in Thailand, for the manufacture of the majority of
  our products.  In addition, we also manufacture our products at subcontractors
  located in the U.S. and Israel.  We have a limited in-house manufacturing
  capability at our Santa Clara headquarters.  This facility currently is used for
  the assembly and final testing of TeraLink 1000 Master Controllers and TeraLink
  Gateways.  We also use this facility for pilot production of new product
  designs, sample testing of products received from volume manufacturers,
  developing the manufacturing process and documentation for new products in
  preparation for outsourcing.  We also perform repair operations for some of our
  products returned from customers with our in-house manufacturing resources.
  
    Our future success will depend in significant part on our ability to obtain
  high volume manufacturing at low costs.  As volume increases, we plan to engage
  additional contract manufacturers, to procure additional manufacturing
  facilities and equipment, to modify existing inventory procedures, to
  substantially increase our personnel and to revise our quality assurance and
  testing practices.
  
    Subcontractors supply our contract manufacturers with both standard components
  and subassemblies manufactured to our specifications.  We depend upon certain
  key suppliers for a number of the components for our products.  For example, we
  currently rely on Philips Semiconductor, Inc. (formerly VLSI Technology, Inc.)
  for our S-CDMA ASIC, which is used in our headend and cable modem products.  In
  addition, all of our products contain one or more components that currently only
  are available from a single source.
  
  Competition
  
    The market for broadband access systems is extremely competitive and is
  characterized by rapid technological change.  Our direct competitors in the
  cable modem arena include Cisco, Com21, Matsushita, Motorola, Nortel, Vyyo, RCA,
  Samsung, Scientific-Atlanta, Sony, 3Com, Toshiba and Zenith, and there are many
  other potential market entrants.  We also sell products that compete with
  existing data access and transmission systems utilizing the telecommunications
  networks, such as those of 3Com.  Additionally, our controller and headend
  system products face intense competition from well-established companies such as
  Cisco, Nortel and 3Com.  Our direct competitors in the DSL arena include ECI
  Telecom, Charles Industries, ADC, Copper Mountain, Accelerated Networks,
  Integral Access and VINA Technologies.  Our direct competitors in the video
  arena are Cisco and Harmonic, while our direct competitors in the voice arena
  are Nortel, TelLabs, ADC and Alcatel.  Our direct competitors in wireless are
  Hughes, Marconi, NEC and Scientific-Atlanta.
  
    The principal competitive factors in the broadband access market include
  product performance, features and reliability, price, size and stability of
  operations, breadth of product line, sales and distribution capability,
  technical support and service, relationships with providers of broadband access
  services, standards compliance, and general industry and economic conditions.
  Some of these factors are outside of our control.  The existing conditions in
  the broadband access market could change rapidly and significantly
  <PAGE>
  
  as a result of technological changes, and the development and market acceptance
  of alternative technologies could decrease the demand for our products or render
  them obsolete. In addition, these companies and other competitors could
  introduce broadband access products that will be less costly or provide superior
  performance or achieve greater market acceptance than our products.
  
    Many of our current and potential competitors have significantly greater
  financial, technical, marketing, distribution, customer support and other
  resources, as well as greater name recognition and access to customers.
  
    The market for our products may be impacted by the development of other
  technologies that enable the provisioning of broadband access services and the
  deployment of services over other media. Widespread acceptance of other
  technologies or deployment of services over media not supported by our products
  could materially limit acceptance of our broadband access systems. Broadband
  access services supported by our products and technology may fail to gain
  widespread commercial acceptance by providers of broadband access services and
  end users.
  
  Intellectual Property
  
    We rely on a combination of patent, trade secret, copyright and trademark laws
  and contractual restrictions to establish and protect proprietary rights in our
  products.  Our pending patent applications may not be granted.  Even if they are
  granted, the claims covered by the patents may be reduced from those included in
  our applications.  Any patent might be subject to challenge in court and,
  whether or not challenged, might not be broad enough to prevent third parties
  from developing equivalent technologies or products without taking a license
  from us.  We have entered into confidentiality and invention assignment
  agreements with our employees, and we enter into non-disclosure agreements with
  some of our suppliers, distributors and appropriate customers so as to limit
  access to and disclosure of our proprietary information.  These statutory and
  contractual arrangements may not prove sufficient to prevent misappropriation of
  our technology or to deter independent third-party development of similar
  technologies.  In addition, the laws of some foreign countries might not protect
  our products or intellectual property rights to the same extent as do the laws
  of the United States.  Protection of our intellectual property might not be
  available in every country in which our products might be manufactured, marketed
  or sold.
  
    In November 1998, CableLabs selected us to co-author DOCSIS 1.2, an enhanced
  version of the DOCSIS cable modem specification based in part on our S-CDMA
  technology.  In September 1999, CableLabs indicated that it intended to proceed
  with the advanced PHY work on two parallel tracks: one for the development of a
  prototype based on our S-CDMA technology and one for the inclusion of Advanced
  TDMA technology, as proposed by other companies.  In February 2000, CableLabs
  further clarified the status of the advanced PHY project regarding a separate
  release that will include TDMA technologies.  In addition, CableLabs reiterated
  that it is continuing to work with us on the development of a DOCSIS
  specification that could include our S-CDMA technology.  To that end, we have
  indicated to CableLabs that we would contribute some aspects of our S-CDMA
  technology to the DOCSIS intellectual property pool if and when a DOCSIS
  specification is approved that includes our S-CDMA technology.  We would
  contribute our technology pursuant to a license agreement with CableLabs that we
  would execute at that time, and which contains the terms that CableLabs has
  established for the inclusion of any intellectual property from any source in
  the DOCSIS specifications.  Under the terms of the proposed license agreement,
  we would grant to CableLabs a royalty-free license for those aspects of our S-
  CDMA technology that are essential for compliance with the DOCSIS cable modem
  standard.  So-called "implementation know how" is not covered by this license-
  only those aspects of the technology that are essential to implementing a
  compliant product.  CableLabs would have the right to extend royalty-free
  sublicenses to companies that wish to build DOCSIS-compatible products.  These
  sublicenses would allow participating companies to utilize and incorporate the
  essential portions of the S-CDMA technology on a royalty-free basis for the
  limited use of making and selling products or systems that comply with the
  DOCSIS cable modem specification Terayon has already joined the DOCSIS
  intellectual property pool and, as a result, we have a royalty-free sublicense
  that allows us to ship DOCSIS-compatible products which contain intellectual
  property submitted by other companies.  The scope of this license would not
  extend to the use of the S-CDMA technology in other areas; only for products
  that comply with the
  <PAGE>
  
  DOCSIS specifications. As a result, any of our competitors who join or have
  joined the DOCSIS intellectual property pool will have access to some aspects of
  our technology without being required to pay us any royalties or other
  compensation. If and when we submit S-CDMA to the DOCSIS Intellectual Property
  pool, we are in no way restricted from entering into royalty-bearing license
  agreements with companies that wish to use the S-CDMA technology for purposes
  other than implementing DOCSIS compatible products, or that do not wish to enter
  into the DOCSIS intellectual property pool. Further, some of our competitors
  have been successful in reverse engineering the technology of other companies,
  and the inclusion of S-CDMA in a future DOCSIS specification would expose some
  aspects of our technology to those competitors. DOCSIS specifications are
  available on an open basis once they are approved, not only to companies that
  are members of the DOCSIS IP Pool. If a competitor is able to duplicate the
  functionality and capabilities of our technology, we could lose all or some of
  the time-to-market advantage we might otherwise have. Under the terms of the
  proposed license agreement, if we sue certain parties to the proposed license
  agreement on claims of infringement of any copyright or patent right or
  misappropriation of any trade secret, those parties may terminate our license to
  the patents or copyrights they contributed to the DOCSIS intellectual property
  pool. If a termination like this were to occur, we would continue to have access
  to some aspects of the DOCSIS intellectual property pool, but we would not be
  able to develop products that fully comply with the DOCSIS cable modem
  specification. Also, even if we were to be removed from the IP pool, we would
  not be prevented from developing and selling products that fully comply with the
  DOCSIS specifications, but we would not be able to do this with the benefit of a
  royalty-free license, which would increase the cost of our products, assuming we
  were able to obtain a license agreement for the required technology. Because of
  these terms, we may find it difficult to enforce our intellectual property
  rights against certain companies, even in areas that are not directly related to
  DOCSIS specifications and products.
  
    We anticipate that developers of cable modems increasingly will be subject to
  infringement claims as the number of products and competitors in our industry
  segment grows.  We have received letters from two individuals claiming that our
  technology infringes patents held by these individuals.  We have reviewed the
  allegations made by these individuals and, after consulting with our patent
  counsel, we do not believe that our technology infringes any valid claim of
  these individuals' patents.  If the issues are submitted to a court, the court
  could find that our products infringe these patents.  In addition, these
  individuals may continue to assert infringement.  If we are found to have
  infringed these individuals' patents, we could be subject to substantial damages
  and/or an injunction preventing us from conducting our business.  In addition,
  other third parties may assert infringement claims against us in the future.  An
  infringement claim, whether meritorious or not, could be time-consuming, result
  in costly litigation, cause product shipment delays or require us to enter into
  royalty or licensing agreements.  These royalty or licensing agreements may not
  be available on terms acceptable to us or at all.  Litigation also may be
  necessary to enforce our intellectual property rights.
  
    We pursue the registration of our trademarks in the United States and have
  applications pending to register several of our trademarks. However, the laws of
  certain foreign countries might not protect our products or intellectual
  property rights to the same extent as the laws of the United States. This means
  that effective trademark, copyright, trade secret and patent protection might
  not be available in every country in which our products might be manufactured,
  marketed or sold.
  
  Employees
  
    As of October 2,2000, we had 813 employees, of which 416 were in the research
  and development group, 218 were in marketing, sales and customer support, 81
  were in operations and 98 were in general and administrative functions. None of
  our employees is represented by a union. We believe that our relations with our
  employee are good.
  
  Properties.
  
    Our headquarters are located in an approximately 60,000 square foot leased
  facility located in Santa Clara, California.  The current lease for the Santa
  Clara facility expires in March 2002.  We have sales offices in Atlanta,
  Georgia; Sao Paulo, Brazil; and Brussels, Belgium.  In addition, we lease
  approximately
  <PAGE>
  
  82,000 square feet in Tel Aviv pursuant to an agreement that expires in 2005. It
  is our intention to consolidate the operations of our Israeli operations in this
  space. We believe that our existing facilities are adequate to meet our needs
  for the immediate future and that our future growth can be accommodated by
  leasing additional or alternative space near our current facilities.
  
  Legal Proceedings
  
    In September 1999, Imedia, now our subsidiary, was named as a defendant in a
  case alleging that Imedia breached its term sheet agreement with the plaintiffs
  by negotiating with us while a no-shop provision was in place and refusing to
  allowing the plaintiffs to invest in Imedia. The plaintiffs are seeking damages
  in excess of $12.0 million. As part of the terms of the Imedia Agreement and
  Plan of Merger and Reorganization, shares of our common stock to be issued to
  the former shareholders of Imedia were placed in escrow to indemnify us for any
  damages that are directly or indirectly suffered as a result any claim brought
  by any person who was a prospective investor in Imedia and was not a security
  holder of Imedia on the closing date of the Imedia acquisition. The value of the
  escrowed shares was approximately $10.0 million based on the market value of our
  common stock on the closing date. The case is in its initial stages, and no
  trial date has been established. We have reviewed the allegations made by the
  plaintiffs and we do not believe that the outcome will have a negative impact on
  our financial position, results of operations or cash flows.
  
    On or about September 5, 2000, we received a draft amended complaint
  ("Complaint") in a matter captioned Evergreen Canada Israel Management, Ltd. v.
  Imedia Corporation, case no. 306185, pending in the Superior Court of the State
  of California for the City and County of San Francisco.  The Complaint alleges
  "Intentional Interference with Prospective Economic Advantage" against us,
  claiming that we "formed and operated a conspiracy to deprive plaintiffs of the
  opportunity to invest in Imedia", a company that we acquired in 1999.
  Plaintiffs argue that, prior to our purchase of the Imedia shares, we knew of an
  alleged, pre-existing financing agreement between plaintiffs and Imedia that
  contained a "no shop" clause, prohibiting Imedia from seeking or obtaining
  financing from any other sources, including (apparently, in plaintiffs' view) a
  prohibition against Imedia selling it own stock.
  
    The Company has been served with the Complaint, and a responsive pleading is
  due on or before October 30, 2000.  The matter is currently in its preliminary
  stages.  We intend to vigorously defend the lawsuit.
  
    In April 2000, a lawsuit against us and certain of our officers and directors,
  entitled Birnbaum v. Terayon Communication Systems, Inc., was filed in the
  United States District Court for the Central District of California.  The venue
  for the lawsuit has been moved to the Northern District of California.  The
  plaintiff purports to be suing on behalf of a class of stockholders who
  purchased or obligated themselves to purchase our securities during the period
  from February 2, 2000 to April 11, 2000.  The complaint alleges that the
  defendants violated the federal securities laws by issuing materially false and
  misleading statements and failing to disclose material information regarding our
  technology.  Several other lawsuits similar to the Birnbaum suit have since been
  filed.  On August 24, 2000, the lawsuits against us and other named individual
  defendants were consolidated in the U.S. District Court of the Northern District
  of California and lead plaintiffs and lead plaintiffs' counsel was appointed
  pursuant to the Private Securities Litigation Reform Act.  On September 21,
  2000, plaintiffs filed a Consolidated Class Action Complaint for violation of
  federal securities laws.  The consolidated complaint contains allegations nearly
  identical to the Birnbaum suit.  The lawsuits seek an unspecified amount of
  damages, in addition to other forms of relief.  We consider the lawsuits to be
  without merit and we intend to defend vigorously against these allegations.
  However, the litigation could prove to be costly and time consuming to defend,
  and there can be no assurances about the eventual outcome.
  
       The section entitled Legal Proceedings and Management's Discussion and
  Analysis of Financial Condition and Results of Operations - Litigation - should
  be deleted and replaced with the following section:
  
    In September 1999, Imedia, now our subsidiary, was named as a defendant in a
  case alleging that Imedia breached its term sheet agreement with the plaintiffs
  by negotiating with us while a no-shop
  <PAGE>
  
  provision was in place and refusing to allowing the plaintiffs to invest in
  Imedia. The plaintiffs are seeking damages in excess of $12.0 million. As part
  of the terms of the Imedia Agreement and Plan of Merger and Reorganization,
  shares of our common stock to be issued to the former shareholders of Imedia
  were placed in escrow to indemnify us for any damages that are directly or
  indirectly suffered as a result any claim brought by any person who was a
  prospective investor in Imedia and was not a security holder of Imedia on the
  closing date of the Imedia acquisition. The value of the escrowed shares was
  approximately $10.0 million based on the market value of our common stock on the
  closing date. The case is in its initial stages, and no trial date has been
  established. We have reviewed the allegations made by the plaintiffs and we do
  not believe that the outcome will have a negative impact on our financial
  position, results of operations or cash flows.
  
    On or about September 5, 2000, we received a draft amended complaint
  ("Complaint") in a matter captioned Evergreen Canada Israel Management, Ltd. v.
  Imedia Corporation, case no. 306185, pending in the Superior Court of the State
  of California for the City and County of San Francisco.  The Complaint alleges
  "Intentional Interference with Prospective Economic Advantage" against us,
  claiming that we "formed and operated a conspiracy to deprive plaintiffs of the
  opportunity to invest in Imedia", a company that we acquired in 1999.
  Plaintiffs argue that, prior to our purchase of the Imedia shares, we knew of an
  alleged, pre-existing financing agreement between plaintiffs and Imedia that
  contained a "no shop" clause, prohibiting Imedia from seeking or obtaining
  financing from any other sources, including (apparently, in plaintiffs' view) a
  prohibition against Imedia selling it own stock.
  
    The Company has been served with the Complaint, and a responsive pleading is
  due on or before October 30, 2000. The matter is currently in its preliminary
  stages. We intend to vigorously defend the lawsuit.
  
    In April 2000, a lawsuit against us and certain of our officers and directors,
  entitled Birnbaum v. Terayon Communication Systems, Inc., was filed in the
  United States District Court for the Central District of California. The venue
  for the lawsuit has been moved to the Northern District of California. The
  plaintiff purports to be suing on behalf of a class of stockholders who
  purchased or obligated themselves to purchase our securities during the period
  from February 2, 2000 to April 11, 2000. The complaint alleges that the
  defendants violated the federal securities laws by issuing materially false and
  misleading statements and failing to disclose material information regarding our
  technology. Several other lawsuits similar to the Birnbaum suit have since been
  filed. On August 24, 2000, the lawsuits against us and other named individual
  defendants were consolidated in the U.S. District Court of the Northern District
  of California and lead plaintiffs and lead plaintiffs' counsel was appointed
  pursuant to the Private Securities Litigation Reform Act. On September 21, 2000,
  plaintiffs filed a Consolidated Class Action Complaint for violation of federal
  securities laws. The consolidated complaint contains allegations nearly
  identical to the Birnbaum suit. The lawsuits seek an unspecified amount of
  damages, in addition to other forms of relief. We consider the lawsuits to be
  without merit and we intend to defend vigorously against these allegations.
  However, the litigation could prove to be costly and time consuming to defend,
  and there can be no assurances about the eventual outcome.
  <PAGE>
  
                                     Signature
  
  Pursuant to the requirements of the Securities Exchange Act of 1934, the
  registrant has duly caused this report to be signed on its behalf by the
  undersigned, thereunto duly authorized.
  
                                   Terayon Communication Systems, Inc.
  
  
  Dated:  October 23, 2000              By: /s/ Zaki Rakib
                                           ---------------
                                        Chief Executive Officer and Secretary
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text: SECURITIES EXCHANGE AND COMMISSION
                              Washington, D.C. 20549
  
                                     FORM 8-K
  
                                  CURRENT REPORT
  
                      Pursuant to Section 13 or 15(d) of the
                          Securities Exchange Act of 1934
  
        Date of Report (Date of earliest event reported): October 23, 2000
  
                        Terayon Communication Systems, Inc.
              (Exact name of registrant as specified in its charter)
  
                                     Delaware
                  (State or other jurisdiction of incorporation)
  
            000-24647                                      77-0328533
      (Commission File No.)                   (I.R.S. Employer Identification No.)
  
                               2952 Bunker Hill Lane
                               Santa Clara, CA 95054
               (Address of principal executive offices and zip code)
  
        Registrant's telephone number, including area code: (408) 727-4400
  Item 5
  
  Forms 10(K) and 10(Q)
  
       The Company hereby amends Form 10-K filed on March 30, 2000 and Forms 10-Q
  filed on May 15, 2000 and August 14, 2000 and any amendments filed thereon to
  revise the following sections, as applicable. The sections entitled Business,
  Legal Proceedings and Management's Discussion and Analysis of Financial
  Condition and Results of Operations - Litigation - should be deleted and
  replaced with the following sections.
  
       The section entitled Business should be deleted and replaced with the
  following section:
  
                                     BUSINESS
  
  Overview
  
    We develop, market and sell broadband access systems that enable cable
  operators and other providers of broadband access services to cost effectively
  deploy reliable broadband access services over cable, copper wire utilizing DSL
  and wireless systems.  We have substantial development and marketing resources
  focused on cable operators.  However, through internal development and recent
  acquisitions of complementary technology and businesses, we also are focusing on
  service providers that offer broadband access through existing copper wire
  infrastructures and wireless systems.
  
    Our primary product is the TeraComm system, which is based on our patented
  S-CDMA technology. Our S-CDMA technology enables reliable two-way broadband data
  communications over both pure coaxial and hybrid fiber/coax cable infrastructure
  and is designed to enable cable operators to maximize the capacity and
  reliability of broadband data services over any cable plant. In furtherance of
  our strategy to provide a complete portfolio of broadband products, we have
  recently completed several acquisitions of complementary broadband technologies,
  including digital video management systems, DSL and wireless.
  
    We sell our broadband access products to cable operators and other providers
  of broadband access services through direct sales forces in North America, South
  America Europe and Asia.  We also distribute our products via distributors and
  systems integrators. Companies currently using or distributing our TeraComm
  system include Rogers, Shaw, TCA Cable TV (a subsidiary of Cox Communications,
  Inc.), UPC and Crossbeam, a wholly owned subsidiary of Sumitomo.  Companies
  currently using our DSL products include major ILEC's (Incumbent Local Exchange
  Carriers) in the U.S. including SBC, Bell Atlantic, Bell South, U.S. West and
  GTE and CLEC's (Competitive Local Exchange Carriers) including PAC-West Telecom,
  Incorporated.
  
  Industry Background
  
    Demand for Broadband Access
  
    In recent years, the volume of bandwidth intensive data, voice and video
  traffic across cable infrastructures, the Internet, corporate intranets and
  other public networks has increased dramatically. This demand has been driven by
  the proliferation of residential and commercial users that are accessing
  networks for a variety of applications, including voice, video and data
  communication via the Internet, electronic commerce, telecommuting and
  interactive television. For example, International Data Corporation, estimates
  that the number of worldwide Internet users will increase from approximately 200
  million at the end of 2000 to over one billion by the end of 2005. IDC estimates
  that the number of homes in the United States with broadband access will
  increase from two million at the end of 1999 to 20 million by the end of 2003.
  The rapid evolution of broadband has resulted in cable operators, providers of
  telephone services and other service providers seeking to provide a bundle of
  voice, data and video services to their residential and commercial subscribers
  over existing and new infrastructures.
  
    Despite significant advances in the performance of computer processors and
  data backbone networks, high speed data transmission has been limited by the
  existing local access network infrastructure (also
  known as the last mile), which is not optimized for distribution of data-
  intensive multimedia content. Users of dial-up analog modems with maximum data
  rates of only 56 Kbps often experience frustration, as they encounter frequent
  and lengthy delays or complete failures in transmission. In response to the
  growing demand for increased bandwidth, service providers are now deploying new
  broadband access technologies, such as DSL, cable modems and wireless devices,
  that can deliver performance that is from 50 to 100 times faster than analog
  modems. According to industry analysts, the market for broadband access
  equipment is expected to increase from approximately $4 billion at the end of
  1999 to approximately $11 billion in 2004.
  
    Emergence of Broadband Technologies
  
    As residential and commercial demand for increased bandwidth and faster access
  continues to grow, particularly for applications such as streaming audio and
  video, IP telephony and interactive two-way video, service providers are
  investing in enabling infrastructure and technologies.  Various technologies
  have emerged to address the need for broadband access across cable, copper wire
  and wireless platforms or networks.
  
    Cable operators market high speed cable modems that use the existing
  television cable plant to provide subscribers access to the Internet, digital
  video, telephony and other broadband services. Similarly, telephone companies
  offer comparable services using DSL technology over the existing copper wire
  infrastructure. Wireless operators also are establishing high speed Internet
  access using both terrestrial and satellite systems to connect subscribers to
  voice, video and data services. The competition between cable operators,
  telephone companies and emerging wireless service providers is expected to
  intensify as the demand for broadband access grows. Cable operators benefit from
  the fact that the cable infrastructure passes over 95% of the homes in the
  United States and a large number of small businesses. In addition, the cable
  infrastructure has the potential to offer a wide range of broadband services,
  such as digital TV, Internet access and IP telephony. Similarly, DSL providers
  benefit from the fact that existing copper lines reach a substantial majority of
  U.S. homes. Wireless, in contrast, does not depend on existing cable or
  telephone line infrastructure and can be quickly deployed in homes and
  businesses that otherwise might not have broadband access, particularly for
  international markets. Although the market for broadband access services is
  becoming increasingly competitive, industry analysts expect each platform to
  experience significant growth over the next five years.
  
    Challenges in Deploying Broadband Access Services
  
    Service providers must overcome numerous challenges in order to successfully
  meet the increasing demand for broadband access services. Among other things,
  these service providers must do the following:
  
    .  provide end-users with a broad range of bundled services;
  
    .  capitalize on available bandwidth to provide a variety of services;
  
    .  rapidly deploy services to their customers; and
  
    .  provide reliable and cost-effective access.
  
  The Terayon Solution
  
    Our products are designed to enable cable operators and other providers of
  broadband access services to cost-effectively deploy reliable broadband services
  over cable, DSL and wireless systems.  Until recently, our development and
  marketing efforts were focused primarily on cable operators.  As a result of
  some recent acquisitions of complementary technology and businesses, we also are
  focusing on providers of broadband services using existing telephone, DSL and
  wireless systems.
  
    Our products offer cable operators and other broadband providers the following
  advantages:
  Enable enriched set of bundled services. Our broadband access platforms are
  designed to enable service providers to deliver a broad range of voice, video
  and data services over either a cable, DSL or wireless network. Service
  providers are able to reduce their total network costs because they can deliver
  additional services without investing in separate network infrastructures. In
  addition, because our broadband access platforms facilitate the bundling of
  voice, video and data services, service providers are better able to increase
  their revenues and differentiate themselves by offering tailored services and a
  single point of contact to customers.
  
    Maximize bandwidth utilization.  Our broadband access platforms allow cable
  operators, telecommunications carriers and other providers of broadband services
  to optimize utilization of the available bandwidth for data access, digital
  video, and voice services.  For example, through our proprietary S-CDMA
  technology, cable operators can maximize the use of the upstream return path
  using the lowest frequency ranges of the upstream spectrum, where noise is
  typically too severe to operate.  This use of the upstream spectrum is key to
  delivering efficient interactive data services.  Our Cherrypicker digital video
  management systems allow cable operators to flexibly manage bandwidth by
  allowing them to customize digital video programming for their target
  demographics.
  
    Enable rapid time to market of new services. Our broadband access products are
  designed to enable service providers to achieve rapid time to market and offer
  additional voice, video and data services as they become available, by
  leveraging existing plant and infrastructure. The rapid deployment of broadband
  services is a key competitive advantage to our customers.
  
    Provide reliable and cost effective solutions. Our solutions are designed to
  provide a high degree of reliability in a cost-effective manner. Our cable modem
  system allows cable operators to deploy data services over a wide variety of
  plant conditions, thus reducing ongoing maintenance costs and minimizing service
  problems. Due to their reliability, our DSL systems enable service providers to
  deliver mission-critical services, such as toll-quality local and long distance
  voice over DSL to their customers. Wireless systems are the most cost-effective
  means for delivering broadband access services to customers who cannot otherwise
  access existing cable and telephone infrastructure, particularly in rural areas
  and developing countries.
  
  Strategy
  
    Our objective is to be the leading provider of broadband systems to cable
  operators, providers of telephone services and other service providers seeking
  to provide broadband services to residential and commercial end users.  Key
  elements of our strategy are as follows:
  
    Build a complete portfolio of broadband products.  We are building a complete
  portfolio of broadband products to support high-speed delivery of voice, video
  and data services over cable, copper wire and wireless infrastructures through
  internal development efforts and strategic acquisitions.  Until recently our
  internal development efforts have focused on developing our proprietary S-CDMA
  technology for cable modems and extending this technology to a standards-based
  environment.  Our future development efforts will be focused on the development
  of new technologies for the delivery of voice, video and data over any broadband
  medium.  In furtherance of this strategy, during the last year we have made
  several acquisitions of broadband technologies including digital video
  management systems, DSL and wireless.
  
    Supply leading broadband service providers worldwide. We target the largest
  broadband service providers in each major geographic area worldwide. Three of
  the largest North American cable operators, Rogers, Shaw and TCA Cable TV (a
  subsidiary of Cox Communications, Inc.) are deploying our TeraComm cable modem
  system. In Japan, through our partner Sumitomo, we have established ourselves as
  a market leader. In Europe, Our TeraComm system is being deployed by UPC, one of
  Europe's largest broadband communications companies. We market our DSL products
  to leading providers of telephony services throughout the world. The acquisition
  of ANE provides us with a strong customer presence in the U.S. communications
  market. Our customers include the major U.S. ILECs (Incumbent Local Exchange
  Carriers), including SBC, Bell Atlantic, Bell South, U.S. West and GTE.
  Increase presence in existing and new markets. We intend to increase our
  presence in new and existing markets throughout North America, Europe, Asia and
  South America. We currently sell our products in over 20 countries worldwide. As
  part of our effort to increase our market penetration and to capitalize on new
  opportunities, we plan to continue to expand our sales, marketing and customer
  support capabilities through both our direct sales and marketing staff as well
  as our relationships with distributors. We believe that a physical presence in
  key customer locations provides an important advantage in developing and
  maintaining our new and existing customer relationships.
  
    Extend technology leadership and advance industry standards. A significant
  element of our strategy is to advance industry standards and to extend our
  technology leadership through the development of innovative new technologies. We
  intend to leverage our engineering capabilities to expand the features and
  functionality of broadband products. We will strive to use our technology
  leadership to achieve a significant time-to-market advantage over competing
  broadband access suppliers by offering advanced features, such as IP telephony
  and videoconferencing. In addition, we intend to apply S-CDMA to additional
  applications such as wireless communications and Local Multipoint Distribution
  Systems. We will continue to participate in industry standards organizations and
  activities for DOCSIS, DVB, MPEG and PacketCable.
  
    Provide superior customer service and support. We believe that our ability to
  provide consistent high quality service and support is a key factor in
  attracting and retaining customers. We provide our customers with technical
  support and training through customer support representatives and
  representatives of distributors. We offer service and support to our customers
  24 hours a day, seven days a week.
  
  Products
  
    Our current portfolio of products complements our strategy to be the leading
  provider of broadband systems to cable television operators, providers of
  telephone services and other service providers seeking to provide broadband
  access services to residential and commercial users.
  
       Product Family                   Product
       -------------------              ------------------------------------------
       Cable Systems                    Terayon S-CDMA Products
  
                                        TeraLink 1000 S-CDMA Master Controller
                                        TeraLink S-CDMA Gateway
                                        TeraPro S-CDMA Cable Modem
                                        TeraView Network Management Software
  
                                        Terayon DOCSIS Products
  
                                        TeraLink 2000 DOCSIS CMTS
                                        TeraJet DOCSIS Cable Modem
  
                                        Terayon DVB Cable Products
  
                                        UCMT-2000 Interactive Network Adaptor
                                        UCM-220 Cable Modem
                                        HAS-2000 High Availability Server
  
                                        Multigate Telephony System
  
       Video Systems                    CherryPicker 500
                                        CherryPicker 7000
                                        CherryPicker 1000
                                        CherryPicker AdSplicer
  DSL Systems               Miniplex DSL Systems
                                 IPTL Converged Voice and Data Services
                                 System Highlink
                                 Mainsail IMAP (Integrated Multi Service Platform)
  
       Wireless Products         SatStream--Satellite modem
                                 NetStream--Broadband Satellite IP Gateway
                                 WebStream--Broadband Satellite IP Gateway
                                 HAS-2000--High Availability Server
  
  Cable Systems
  
    Our TeraComm system enables cable operators to cost-effectively deploy
  reliable two-way broadband access services.  The TeraComm system is comprised of
  the TeraPro cable modem, the TeraLink 1000 Master Controller, the TeraLink
  Gateway and the TeraView Element Management and Provisioning Software.  The
  price of a TeraComm system is dependent on a number of variables, including a
  customer's basic cable system architecture, the type of routing equipment a
  customer intends to use, the level and quality of service that a cable operator
  desires to provide and the volume of products purchased by a customer.
  
    TeraPro Cable Modem. The TeraPro cable modem is a data communications device
  installed in a subscriber's home or business. The TeraPro cable modem connects
  to the subscriber's PC via a standard 10BaseT Ethernet connector and to the
  cable network via a standard coaxial cable connector. The TeraPro cable modem
  automatically configures itself without user intervention, thus minimizing modem
  installation time. In addition, the configuration software for the TeraPro cable
  modem is downloaded remotely, allowing centralized software upgrades directly
  from the headend management system.
  
    The TeraPro cable modem delivers full two-way communication over the cable
  network, with data rates of up to 14 Mbps per 5 MHz channel in both the upstream
  and the downstream direction. The TeraPro cable modem operates at full capacity
  at an SNR as low as 13dB, and gradually adjusts throughput to provide
  transmission at an SNR as low as -13dB. This feature will permit the TeraPro
  cable modem to operate across any portion of the 5 to 42 MHz upstream RF
  spectrum.
  
    TeraLink 1000 Master Controller. The TeraLink 1000 Master Controller is a data
  channel controller and multiplexer located at the cable headend system or
  distribution hub. The TeraLink 1000 Master Controller provides control,
  management and data transport functions for TeraPro cable modems connected to
  the cable network. It offers dynamic bandwidth management, high speed traffic
  concentration, access control to data networking resources and data service
  quality and integrity.
  
    The TeraLink 1000 Master Controller is a single channel, rack-mountable
  controller that supports up to 2,000 cable modems per channel. Additional
  TeraLink 1000 Master Controllers can be added to scale service as performance
  and subscriber needs grow. The TeraLink 1000 Master Controller, with the
  TeraLink Gateway, provides a 100 BaseT interface for direct connectivity to a
  private backbone or any vendor's router or switch. Alternatively, the TeraLink
  1000 Master Controller, with its built-in ATM OC-3 interface, can be connected
  via an ATM switch, or directly to Cisco's 7500 series routers.
  
    TeraLink Gateway. The TeraLink Gateway is a rack-mountable edge concentrator
  providing end-user clients with broadband access to a remote IP backbone (e.g.,
  Internet) as well as efficient communication between modems. The TeraLink
  Gateway includes an ATM OC-3 interface for connectivity to up to two TeraLink
  1000 Master Controllers or an ATM switch. It also provides a 10/100 BaseT
  Ethernet/Fast Ethernet auto-sense interface to a headend backbone or any IP
  router including the Cisco Universal Broadband Router. The TeraLink Gateway also
  includes a separate 10 BaseT interface, which may be connected to a separate
  management network or the headend network. The TeraLink Gateway supports up to
  2,000 cable modems per RF channel when connected to a TeraLink 1000 Master
  Controller. When used with the TeraLink Gateway, the TeraPro cable modems behave
  as an extension of the TeraLink Gateway, providing maximum bandwidth and
  privacy.
  TeraView Element Management and Provisioning Software. The TeraView Element
  Management and Provisioning Software is a Windows 95 and Windows NT
  standards-based software application installed at the headend system or the
  network operations center. The TeraView software allows cable operators to
  configure, control, monitor and maintain multiple channels of the TeraComm
  system.
  
    Multigate Telephony and Data Access Systems.  We produce telephony and data
  access systems for deployment of efficient carrier-class voice services over
  cable.  Our systems also provide in-home networking capability for telephony and
  data, based on the Digital Enhanced Cordless Telephony ("DECT") standard.  Our
  systems support voice, high-speed data, and Integrated Service Digital Network
  ("ISDN") services for the business telecommuting market and the SOHO market.
  
  Video Systems
  
    CherryPicker Digital Video Management Systems. CherryPicker Digital Video
  Management Systems are scalable, open platforms that enable cable, satellite and
  terrestrial operators to deliver customized digital programming. Patented
  statistical re-multiplexing technology gives operators ultimate control over
  programming and allows them to create customized video of programming by
  selecting feeds (grooming) from a vast array of sources. The CherryPicker helps
  operators maximize their available bandwidth while enabling them to provide
  program offerings that target specific local demographics.
  
  DSL Systems
  
    Digital Subscriber Line Systems (xDSL).  We produce communications access
  systems based on high-speed IP routing, integrated with telephony.  Our
  innovative systems include both central office DSLAMs (Digital Subscriber Line
  Access Multiplexers) and customer premise equipment for SOHO business broadband
  services.  These systems deliver high-capacity, symmetric voice and data
  services to the business market, with high density port aggregation at the
  central office site for maximum cost efficiency.
  
  Wireless Products
  
    Our wireless products provide high-speed Internet connectivity to the
  subscriber's PC via a standard digital television services antenna. Our
  SatStream Satellite modem offers residential and commercial subscribers with
  connectivity to the Internet via satellite digital television services.
  
  Customers
  
    We market our products to providers of broadband access services that seek to
  provide broadband access services to both residential and commercial end users.
  Our target market is the largest broadband service providers in each major
  geographic area worldwide.
  
   Our principal customers for cable, DSL and wireless systems include the
  following:
  
            Cable                                         DSL
            -----                                         ---
  
            Rogers                                        SBC
            Shaw                                          Bell Atlantic
            TCA Cable TV (a subsidiary of Cox             Bell South
            Communications)                               U.S. West
            Crossbeam (a subsidiary of Sumitomo)          GTE
            UPC                                           PAC-West
  
            Digital Video Systems                         Wireless Systems
            ---------------------                         ----------------
            Cox Communications                            Shiron
  Time Warner                                   Teleo
            Adelphia                                      Gilat Sat
                                                          KBI e-Sat
                                                          Adaptive
  
    Three customers (two of which are related party customers) accounted for
  approximately 51% of our revenues for the six months ended June 30, 2000.  We
  believe that a substantial majority of our revenues will continue to be derived
  from sales to a relatively small number of customers for the foreseeable future.
  In addition, we believe that sales to these customers will be focused on a small
  number of projects.
  
  Research and Development
  
    We believe that our future success will depend on our ability to enhance our
  existing products and to develop and introduce new products that meet a wide
  range of evolving broadband access service providers and end user needs.  In
  addition, to address competitive and pricing pressures, we expect that we will
  have to reduce the unit cost of manufacturing our products through design and
  engineering changes.
  
    We currently are designing and developing a DOCSIS system that includes S-CDMA
  advanced PHY capabilities, which will include a cable modem and an accompanying
  headend controller.  These products are in the early stages of development and
  we do not anticipate commercial availability of these products until late 2000
  or early 2001.  We also are developing a common multimedia platform for current
  and advanced transmission of data, voice and video over existing broadband
  infrastructures, including cable, DSL and wireless.  These products are in the
  early stages of development, and we do not anticipate commercial availability of
  these products until late 2001.
  
    On March 18, 1999, we entered into a one-year Product Development Assistance
  Agreement ("Development Agreement") with Rogers.  Under the terms of the
  Development Agreement, Rogers is obligated to provide assistance with the
  characterization and testing of our subscriber-end and head-end voice-over-cable
  equipment.  In addition, Rogers is obligated to provide technology to assist us
  in connection with our efforts to develop high quality, field proven technology
  solutions that are DOCSIS-compliant and PacketCable-compliant.
  
  Sales and Marketing
  
    We have direct sales forces in North America, South America, Europe and Asia.
  We also distribute our products via distributors and systems integrators.  We
  have signed a distribution agreement with Sumitomo under which Crossbeam is
  distributing the TeraComm system to several of Japan's leading cable operators.
  In January 2000, we signed a distribution agreement with BARCO Communication
  Systems, for the sale of our CherryPicker systems to cable television operators
  worldwide.  In June 2000, we signed a distribution agreement with NEC, for the
  sale of our IPTL DSL access system throughout Asia and Central and South
  America.
  
    We market our products directly to providers of broadband access services
  through our sales force, key distribution and technology partners, as well as
  other marketing vehicles such as industry press, trade shows and the Web.
  Through our marketing efforts, we strive to educate providers on the
  technological and business benefits of our system solution, as well as our
  ability to provide quality support and service to the customer.  We participate
  in the major trade shows and industry events for the broadband access industry
  in the United States and we are expanding our presence in other markets through
  joint participation at local events with our international sales and marketing
  partners.  Industry referrals and reference accounts are significant marketing
  tools we develop and utilize.
  
  Customer Service and Technical Support
  
    We believe that our ability to provide consistently high quality service and
  support will be a key factor in attracting and retaining customers.  Our TSS
  (Technical Services and Support) organization,
  located in North America, Europe, South America and Asia, offers support 24
  hours a day, seven days per week. Prior to deployment of our systems, each
  customer's needs are assessed and proactive solutions are implemented, including
  various levels of training, periodic management and coordination meetings, and
  problem escalation procedures. We place a strong emphasis on technical training
  for our customers. Initial training is offered at no cost, both at our
  headquarters in Santa Clara and on our customers' premises.
  
    In addition to our TSS organization, we have developed sophisticated tools for
  remote diagnosis and monitoring of the TeraComm systems deployed by cable
  operators.  These tools allow us to monitor cable operators' installations of
  the TeraLink 1000 Master Controller to suggest solutions proactively before
  problems become noticeable to end users.  We are developing a Web-based
  knowledge system to provide cable operators with access to the latest technical
  support information.
  
  Manufacturing
  
    We outsource the majority of the materials procurement, printed circuit board
  assembly, and product assembly and testing to turnkey contract manufacturers.
  Currently, we contract with Solectron, located in Milpitas, California, and
  CalComp Electronics, located in Thailand, for the manufacture of the majority of
  our products.  In addition, we also manufacture our products at subcontractors
  located in the U.S. and Israel.  We have a limited in-house manufacturing
  capability at our Santa Clara headquarters.  This facility currently is used for
  the assembly and final testing of TeraLink 1000 Master Controllers and TeraLink
  Gateways.  We also use this facility for pilot production of new product
  designs, sample testing of products received from volume manufacturers,
  developing the manufacturing process and documentation for new products in
  preparation for outsourcing.  We also perform repair operations for some of our
  products returned from customers with our in-house manufacturing resources.
  
    Our future success will depend in significant part on our ability to obtain
  high volume manufacturing at low costs.  As volume increases, we plan to engage
  additional contract manufacturers, to procure additional manufacturing
  facilities and equipment, to modify existing inventory procedures, to
  substantially increase our personnel and to revise our quality assurance and
  testing practices.
  
    Subcontractors supply our contract manufacturers with both standard components
  and subassemblies manufactured to our specifications.  We depend upon certain
  key suppliers for a number of the components for our products.  For example, we
  currently rely on Philips Semiconductor, Inc. (formerly VLSI Technology, Inc.)
  for our S-CDMA ASIC, which is used in our headend and cable modem products.  In
  addition, all of our products contain one or more components that currently only
  are available from a single source.
  
  Competition
  
    The market for broadband access systems is extremely competitive and is
  characterized by rapid technological change.  Our direct competitors in the
  cable modem arena include Cisco, Com21, Matsushita, Motorola, Nortel, Vyyo, RCA,
  Samsung, Scientific-Atlanta, Sony, 3Com, Toshiba and Zenith, and there are many
  other potential market entrants.  We also sell products that compete with
  existing data access and transmission systems utilizing the telecommunications
  networks, such as those of 3Com.  Additionally, our controller and headend
  system products face intense competition from well-established companies such as
  Cisco, Nortel and 3Com.  Our direct competitors in the DSL arena include ECI
  Telecom, Charles Industries, ADC, Copper Mountain, Accelerated Networks,
  Integral Access and VINA Technologies.  Our direct competitors in the video
  arena are Cisco and Harmonic, while our direct competitors in the voice arena
  are Nortel, TelLabs, ADC and Alcatel.  Our direct competitors in wireless are
  Hughes, Marconi, NEC and Scientific-Atlanta.
  
    The principal competitive factors in the broadband access market include
  product performance, features and reliability, price, size and stability of
  operations, breadth of product line, sales and distribution capability,
  technical support and service, relationships with providers of broadband access
  services, standards compliance, and general industry and economic conditions.
  Some of these factors are outside of our control.  The existing conditions in
  the broadband access market could change rapidly and significantly
  as a result of technological changes, and the development and market acceptance
  of alternative technologies could decrease the demand for our products or render
  them obsolete. In addition, these companies and other competitors could
  introduce broadband access products that will be less costly or provide superior
  performance or achieve greater market acceptance than our products.
  
    Many of our current and potential competitors have significantly greater
  financial, technical, marketing, distribution, customer support and other
  resources, as well as greater name recognition and access to customers.
  
    The market for our products may be impacted by the development of other
  technologies that enable the provisioning of broadband access services and the
  deployment of services over other media. Widespread acceptance of other
  technologies or deployment of services over media not supported by our products
  could materially limit acceptance of our broadband access systems. Broadband
  access services supported by our products and technology may fail to gain
  widespread commercial acceptance by providers of broadband access services and
  end users.
  
  Intellectual Property
  
    We rely on a combination of patent, trade secret, copyright and trademark laws
  and contractual restrictions to establish and protect proprietary rights in our
  products.  Our pending patent applications may not be granted.  Even if they are
  granted, the claims covered by the patents may be reduced from those included in
  our applications.  Any patent might be subject to challenge in court and,
  whether or not challenged, might not be broad enough to prevent third parties
  from developing equivalent technologies or products without taking a license
  from us.  We have entered into confidentiality and invention assignment
  agreements with our employees, and we enter into non-disclosure agreements with
  some of our suppliers, distributors and appropriate customers so as to limit
  access to and disclosure of our proprietary information.  These statutory and
  contractual arrangements may not prove sufficient to prevent misappropriation of
  our technology or to deter independent third-party development of similar
  technologies.  In addition, the laws of some foreign countries might not protect
  our products or intellectual property rights to the same extent as do the laws
  of the United States.  Protection of our intellectual property might not be
  available in every country in which our products might be manufactured, marketed
  or sold.
  
    In November 1998, CableLabs selected us to co-author DOCSIS 1.2, an enhanced
  version of the DOCSIS cable modem specification based in part on our S-CDMA
  technology.  In September 1999, CableLabs indicated that it intended to proceed
  with the advanced PHY work on two parallel tracks: one for the development of a
  prototype based on our S-CDMA technology and one for the inclusion of Advanced
  TDMA technology, as proposed by other companies.  In February 2000, CableLabs
  further clarified the status of the advanced PHY project regarding a separate
  release that will include TDMA technologies.  In addition, CableLabs reiterated
  that it is continuing to work with us on the development of a DOCSIS
  specification that could include our S-CDMA technology.  To that end, we have
  indicated to CableLabs that we would contribute some aspects of our S-CDMA
  technology to the DOCSIS intellectual property pool if and when a DOCSIS
  specification is approved that includes our S-CDMA technology.  We would
  contribute our technology pursuant to a license agreement with CableLabs that we
  would execute at that time, and which contains the terms that CableLabs has
  established for the inclusion of any intellectual property from any source in
  the DOCSIS specifications.  Under the terms of the proposed license agreement,
  we would grant to CableLabs a royalty-free license for those aspects of our S-
  CDMA technology that are essential for compliance with the DOCSIS cable modem
  standard.  So-called "implementation know how" is not covered by this license-
  only those aspects of the technology that are essential to implementing a
  compliant product.  CableLabs would have the right to extend royalty-free
  sublicenses to companies that wish to build DOCSIS-compatible products.  These
  sublicenses would allow participating companies to utilize and incorporate the
  essential portions of the S-CDMA technology on a royalty-free basis for the
  limited use of making and selling products or systems that comply with the
  DOCSIS cable modem specification Terayon has already joined the DOCSIS
  intellectual property pool and, as a result, we have a royalty-free sublicense
  that allows us to ship DOCSIS-compatible products which contain intellectual
  property submitted by other companies.  The scope of this license would not
  extend to the use of the S-CDMA technology in other areas; only for products
  that comply with the
  DOCSIS specifications. As a result, any of our competitors who join or have
  joined the DOCSIS intellectual property pool will have access to some aspects of
  our technology without being required to pay us any royalties or other
  compensation. If and when we submit S-CDMA to the DOCSIS Intellectual Property
  pool, we are in no way restricted from entering into royalty-bearing license
  agreements with companies that wish to use the S-CDMA technology for purposes
  other than implementing DOCSIS compatible products, or that do not wish to enter
  into the DOCSIS intellectual property pool. Further, some of our competitors
  have been successful in reverse engineering the technology of other companies,
  and the inclusion of S-CDMA in a future DOCSIS specification would expose some
  aspects of our technology to those competitors. DOCSIS specifications are
  available on an open basis once they are approved, not only to companies that
  are members of the DOCSIS IP Pool. If a competitor is able to duplicate the
  functionality and capabilities of our technology, we could lose all or some of
  the time-to-market advantage we might otherwise have. Under the terms of the
  proposed license agreement, if we sue certain parties to the proposed license
  agreement on claims of infringement of any copyright or patent right or
  misappropriation of any trade secret, those parties may terminate our license to
  the patents or copyrights they contributed to the DOCSIS intellectual property
  pool. If a termination like this were to occur, we would continue to have access
  to some aspects of the DOCSIS intellectual property pool, but we would not be
  able to develop products that fully comply with the DOCSIS cable modem
  specification. Also, even if we were to be removed from the IP pool, we would
  not be prevented from developing and selling products that fully comply with the
  DOCSIS specifications, but we would not be able to do this with the benefit of a
  royalty-free license, which would increase the cost of our products, assuming we
  were able to obtain a license agreement for the required technology. Because of
  these terms, we may find it difficult to enforce our intellectual property
  rights against certain companies, even in areas that are not directly related to
  DOCSIS specifications and products.
  
    We anticipate that developers of cable modems increasingly will be subject to
  infringement claims as the number of products and competitors in our industry
  segment grows.  We have received letters from two individuals claiming that our
  technology infringes patents held by these individuals.  We have reviewed the
  allegations made by these individuals and, after consulting with our patent
  counsel, we do not believe that our technology infringes any valid claim of
  these individuals' patents.  If the issues are submitted to a court, the court
  could find that our products infringe these patents.  In addition, these
  individuals may continue to assert infringement.  If we are found to have
  infringed these individuals' patents, we could be subject to substantial damages
  and/or an injunction preventing us from conducting our business.  In addition,
  other third parties may assert infringement claims against us in the future.  An
  infringement claim, whether meritorious or not, could be time-consuming, result
  in costly litigation, cause product shipment delays or require us to enter into
  royalty or licensing agreements.  These royalty or licensing agreements may not
  be available on terms acceptable to us or at all.  Litigation also may be
  necessary to enforce our intellectual property rights.
  
    We pursue the registration of our trademarks in the United States and have
  applications pending to register several of our trademarks. However, the laws of
  certain foreign countries might not protect our products or intellectual
  property rights to the same extent as the laws of the United States. This means
  that effective trademark, copyright, trade secret and patent protection might
  not be available in every country in which our products might be manufactured,
  marketed or sold.
  
  Employees
  
    As of October 2,2000, we had 813 employees, of which 416 were in the research
  and development group, 218 were in marketing, sales and customer support, 81
  were in operations and 98 were in general and administrative functions. None of
  our employees is represented by a union. We believe that our relations with our
  employee are good.
  
  Properties.
  
    Our headquarters are located in an approximately 60,000 square foot leased
  facility located in Santa Clara, California.  The current lease for the Santa
  Clara facility expires in March 2002.  We have sales offices in Atlanta,
  Georgia; Sao Paulo, Brazil; and Brussels, Belgium.  In addition, we lease
  approximately
  82,000 square feet in Tel Aviv pursuant to an agreement that expires in 2005. It
  is our intention to consolidate the operations of our Israeli operations in this
  space. We believe that our existing facilities are adequate to meet our needs
  for the immediate future and that our future growth can be accommodated by
  leasing additional or alternative space near our current facilities.
  
  Legal Proceedings
  
    In September 1999, Imedia, now our subsidiary, was named as a defendant in a
  case alleging that Imedia breached its term sheet agreement with the plaintiffs
  by negotiating with us while a no-shop provision was in place and refusing to
  allowing the plaintiffs to invest in Imedia. The plaintiffs are seeking damages
  in excess of $12.0 million. As part of the terms of the Imedia Agreement and
  Plan of Merger and Reorganization, shares of our common stock to be issued to
  the former shareholders of Imedia were placed in escrow to indemnify us for any
  damages that are directly or indirectly suffered as a result any claim brought
  by any person who was a prospective investor in Imedia and was not a security
  holder of Imedia on the closing date of the Imedia acquisition. The value of the
  escrowed shares was approximately $10.0 million based on the market value of our
  common stock on the closing date. The case is in its initial stages, and no
  trial date has been established. We have reviewed the allegations made by the
  plaintiffs and we do not believe that the outcome will have a negative impact on
  our financial position, results of operations or cash flows.
  
    On or about September 5, 2000, we received a draft amended complaint
  ("Complaint") in a matter captioned Evergreen Canada Israel Management, Ltd. v.
  Imedia Corporation, case no. 306185, pending in the Superior Court of the State
  of California for the City and County of San Francisco.  The Complaint alleges
  "Intentional Interference with Prospective Economic Advantage" against us,
  claiming that we "formed and operated a conspiracy to deprive plaintiffs of the
  opportunity to invest in Imedia", a company that we acquired in 1999.
  Plaintiffs argue that, prior to our purchase of the Imedia shares, we knew of an
  alleged, pre-existing financing agreement between plaintiffs and Imedia that
  contained a "no shop" clause, prohibiting Imedia from seeking or obtaining
  financing from any other sources, including (apparently, in plaintiffs' view) a
  prohibition against Imedia selling it own stock.
  
    The Company has been served with the Complaint, and a responsive pleading is
  due on or before October 30, 2000.  The matter is currently in its preliminary
  stages.  We intend to vigorously defend the lawsuit.
  
    In April 2000, a lawsuit against us and certain of our officers and directors,
  entitled Birnbaum v. Terayon Communication Systems, Inc., was filed in the
  United States District Court for the Central District of California.  The venue
  for the lawsuit has been moved to the Northern District of California.  The
  plaintiff purports to be suing on behalf of a class of stockholders who
  purchased or obligated themselves to purchase our securities during the period
  from February 2, 2000 to April 11, 2000.  The complaint alleges that the
  defendants violated the federal securities laws by issuing materially false and
  misleading statements and failing to disclose material information regarding our
  technology.  Several other lawsuits similar to the Birnbaum suit have since been
  filed.  On August 24, 2000, the lawsuits against us and other named individual
  defendants were consolidated in the U.S. District Court of the Northern District
  of California and lead plaintiffs and lead plaintiffs' counsel was appointed
  pursuant to the Private Securities Litigation Reform Act.  On September 21,
  2000, plaintiffs filed a Consolidated Class Action Complaint for violation of
  federal securities laws.  The consolidated complaint contains allegations nearly
  identical to the Birnbaum suit.  The lawsuits seek an unspecified amount of
  damages, in addition to other forms of relief.  We consider the lawsuits to be
  without merit and we intend to defend vigorously against these allegations.
  However, the litigation could prove to be costly and time consuming to defend,
  and there can be no assurances about the eventual outcome.
  
       The section entitled Legal Proceedings and Management's Discussion and
  Analysis of Financial Condition and Results of Operations - Litigation - should
  be deleted and replaced with the following section:
  
    In September 1999, Imedia, now our subsidiary, was named as a defendant in a
  case alleging that Imedia breached its term sheet agreement with the plaintiffs
  by negotiating with us while a no-shop
  provision was in place and refusing to allowing the plaintiffs to invest in
  Imedia. The plaintiffs are seeking damages in excess of $12.0 million. As part
  of the terms of the Imedia Agreement and Plan of Merger and Reorganization,
  shares of our common stock to be issued to the former shareholders of Imedia
  were placed in escrow to indemnify us for any damages that are directly or
  indirectly suffered as a result any claim brought by any person who was a
  prospective investor in Imedia and was not a security holder of Imedia on the
  closing date of the Imedia acquisition. The value of the escrowed shares was
  approximately $10.0 million based on the market value of our common stock on the
  closing date. The case is in its initial stages, and no trial date has been
  established. We have reviewed the allegations made by the plaintiffs and we do
  not believe that the outcome will have a negative impact on our financial
  position, results of operations or cash flows.
  
    On or about September 5, 2000, we received a draft amended complaint
  ("Complaint") in a matter captioned Evergreen Canada Israel Management, Ltd. v.
  Imedia Corporation, case no. 306185, pending in the Superior Court of the State
  of California for the City and County of San Francisco.  The Complaint alleges
  "Intentional Interference with Prospective Economic Advantage" against us,
  claiming that we "formed and operated a conspiracy to deprive plaintiffs of the
  opportunity to invest in Imedia", a company that we acquired in 1999.
  Plaintiffs argue that, prior to our purchase of the Imedia shares, we knew of an
  alleged, pre-existing financing agreement between plaintiffs and Imedia that
  contained a "no shop" clause, prohibiting Imedia from seeking or obtaining
  financing from any other sources, including (apparently, in plaintiffs' view) a
  prohibition against Imedia selling it own stock.
  
    The Company has been served with the Complaint, and a responsive pleading is
  due on or before October 30, 2000. The matter is currently in its preliminary
  stages. We intend to vigorously defend the lawsuit.
  
    In April 2000, a lawsuit against us and certain of our officers and directors,
  entitled Birnbaum v. Terayon Communication Systems, Inc., was filed in the
  United States District Court for the Central District of California. The venue
  for the lawsuit has been moved to the Northern District of California. The
  plaintiff purports to be suing on behalf of a class of stockholders who
  purchased or obligated themselves to purchase our securities during the period
  from February 2, 2000 to April 11, 2000. The complaint alleges that the
  defendants violated the federal securities laws by issuing materially false and
  misleading statements and failing to disclose material information regarding our
  technology. Several other lawsuits similar to the Birnbaum suit have since been
  filed. On August 24, 2000, the lawsuits against us and other named individual
  defendants were consolidated in the U.S. District Court of the Northern District
  of California and lead plaintiffs and lead plaintiffs' counsel was appointed
  pursuant to the Private Securities Litigation Reform Act. On September 21, 2000,
  plaintiffs filed a Consolidated Class Action Complaint for violation of federal
  securities laws. The consolidated complaint contains allegations nearly
  identical to the Birnbaum suit. The lawsuits seek an unspecified amount of
  damages, in addition to other forms of relief. We consider the lawsuits to be
  without merit and we intend to defend vigorously against these allegations.
  However, the litigation could prove to be costly and time consuming to defend,
  and there can be no assurances about the eventual outcome.
  Signature
  
  Pursuant to the requirements of the Securities Exchange Act of 1934, the
  registrant has duly caused this report to be signed on its behalf by the
  undersigned, thereunto duly authorized.
  
                                   Terayon Communication Systems, Inc.
  
  Dated:  October 23, 2000              By: /s/ Zaki Rakib
                                           ---------------
                                        Chief Executive Officer and Secretary