Non-Employee Director Equity Compensation Policy

Exhibit 10.32

TERAYON COMMUNICATION SYSTEMS, INC.

Non-Employee Director Equity Compensation Policy

Adopted by the Board of Directors May 3, 2006

      1.  General . This Non-Employee Director Equity Compensation Policy (the “ Policy ”) is hereby adopted by the Board of Directors (the “ Board ”) of Terayon Communication Systems, Inc., a Delaware corporation (the “ Company ”), in accordance with Section 8 of the Company’s 1997 Equity Incentive Plan (the “ 1997 Plan ”). Capitalized but undefined terms used herein shall have the meanings ascribed to them in the 1997 Plan.

      2.  Board Authority . Pursuant to Section 8 of the 1997 Plan, the Board hereby establishes a policy for the grant of Stock Awards under the 1997 Plan to Non-Employee Directors pursuant to a written, non-discretionary formula, and which policy shall provide the types of Stock Awards to be granted to Non-Employee Directors, the number of shares of the Company’s Common Stock (the “ Common Stock ”) subject to such Stock Awards, and also specify, with respect to any Stock Awards, the conditions on which the Stock Awards shall be granted, become exercisable and/or payable, and expire, and such other terms and conditions as the Board determines in its discretion. Stock Awards granted under the authority of the 1997 Plan pursuant to the provisions of this Policy, including the Options granted pursuant to the provisions of Sections 3 and 4 hereof, are hereinafter referred to in this Policy as “ Director Awards .”

      3.  Non-Discretionary Stock Option Grants . During the term of the 1997 Plan, the following Options shall be granted automatically to Non-Employee Directors:

          (a) Each person who is first elected or appointed to the Board as a Non-Employee Director automatically shall be granted, on the date of such initial election or appointment, a Nonstatutory Stock Option to purchase sixty thousand (60,000) shares of Common Stock on the terms and conditions set forth herein (an “ Initial Option ”).

          (b) Each Non-Employee Director who is serving as a Non-Employee Director immediately following each annual meeting of shareholders of the Company, commencing with the annual meeting of shareholders occurring in calendar year 2006, automatically shall be granted on such date a Nonstatutory Stock Option to purchase twenty-five thousand (25,000) shares of Common Stock, which number shall be pro-rated for any Non-Employee Director who has not continuously served as a Non-Employee Director for the twelve (12)-month period prior to the date of such annual meeting of shareholders, on the terms and conditions set forth herein (an “ Annual Option ”).

          (c) Each Non-Employee Director who is serving as a member of a committee of the Board immediately following each annual meeting of shareholders of the Company, commencing with the annual meeting of shareholders occurring in calendar year 2006, automatically shall be granted, for each such committee, a Nonstatutory Stock Option to purchase six thousand (6,000) shares of Common Stock, which number shall be pro-rated for

any Non-Employee Director who has not continuously served as a Non-Employee Director for the twelve (12)-month period prior to the date of such annual meeting of shareholders, on the terms and conditions set forth herein.

      4.  Non-Discretionary Stock Option Grant Provisions.

     Each Option granted pursuant to Section 3 hereof shall be subject to the following terms and conditions:

          (a) The term of each Option shall