CARRIER ACCESS CORP, S-1/A, 1998-07-07

CARRIER ACCESS CORP
S-1/A, 1998-07-07
TELEPHONE & TELEGRAPH APPARATUS

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 7, 1998.
REGISTRATION NO. 333-53947
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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AMENDMENT NO. 1

TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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

CARRIER ACCESS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
DELAWARE 3661 84-1208770
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>

5395 PEARL PARKWAY
BOULDER, COLORADO 80301
(303) 442-5455
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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ROGER L. KOENIG
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CARRIER ACCESS CORPORATION
5395 PEARL PARKWAY
BOULDER, COLORADO 80301
(303) 442-5455
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
<TABLE>
<S> <C>
THOMAS A. BEVILACQUA, ESQ. MARK A. BERTELSEN, ESQ.
JEREMY W. MAKARECHIAN, ESQ. JAMES N. STRAWBRIDGE, ESQ.
ARMANDO CASTRO, ESQ. JOSE F. MACIAS, ESQ.
ELIZABETH A.R. YEE, ESQ. RICHARD G. STEELE, ESQ.
BROBECK, PHLEGER & HARRISON LLP MICHAEL S. ELLIS, ESQ.
1125 SEVENTEENTH STREET, SUITE 2525 WILSON SONSINI GOODRICH & ROSATI
DENVER, COLORADO 80202 650 PAGE MILL ROAD
(303) 293-0760 PALO ALTO, CALIFORNIA 94304-1050
(650) 493-9300

</TABLE>

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
---------------
If the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1993, as amended (the "Securities Act"), check the following box. [_]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
NUMBER OF MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SHARES TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE(3)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.001 per share.... 3,450,000 $12.00 $41,400,000 $12,213
</TABLE>
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(1) Includes 450,000 shares of Common Stock that are being registered in
connection with an over-allotment option granted to the Underwriters.

(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) of the Securities Act.

(3) The registration fee of $12,213 has already been paid.

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

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES
AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

SUBJECT TO COMPLETION, DATED JULY 7, 1998

3,000,000 Shares

[LOGO OF CARRIER ACCESS CORPORATION APPEARS HERE]

Common Stock

($.001 par value)

--------

The 3,000,000 shares of Common Stock, $.001 par value (the "Common Stock"), of
Carrier Access Corporation ("CAC" or the "Company") offered hereby (the
"Offering") are being offered by the Company. Prior to the Offering, there has
been no public market for the Common Stock. It is anticipated that the initial
public offering price will be between $10.00 and $12.00 per share. For
information relating to the factors to be considered in determining the initial
public offering price to the public, see "Underwriting." Assuming no exercise
of the Underwriters' over-allotment option, the Company's officers, directors
and affiliates will hold approximately 70% of the outstanding Common Stock
following the Offering. Approximately 13% of the Company's Common Stock is
being offered to the public in the Offering.

Application has been made to list the Common Stock on The Nasdaq Stock Market's
National Market under the symbol "CACS."

FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT IN THE COMMON STOCK, SEE "RISK FACTORS" ON PAGE 6 HEREIN.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS PROCEEDS
PRICE TO AND TO
PUBLIC COMMISSIONS COMPANY(1)
-------- ------------ ----------
<S> <C> <C> <C>
Per Share...................................... $ $ $
Total(2)....................................... $ $ $
</TABLE>

(1) Before deduction of expenses payable by the Company estimated at $900,000.

(2) The Company has granted the Underwriters an option, exercisable for 30 days
from the date of this Prospectus, to purchase a maximum of 450,000
additional shares to cover over-allotments of shares. If the option is
exercised in full, the total Price to Public will be $ , Underwriting
Discounts and Commissions will be $ , and Proceeds to Company will
be $ .

The shares of Common Stock are offered by the several Underwriters when, as
and if issued, delivered to and accepted by the Underwriters and subject to
their right to reject orders in whole or in part. It is expected that the
shares of Common Stock will be ready for delivery on or about , 1998,
against payment in immediately available funds.

CREDIT SUISSE FIRST BOSTON

HAMBRECHT & QUIST

WARBURG DILLON READ LLC

Prospectus dated , 1998.
<PAGE>

[INSIDE FRONT COVER]

[A diagram depicting the Company's Access Bank and Wide Bank product
families.]

Carrier Access Corporation(R), DataSplit(R) and Access Bank(R) are registered
trademarks of the Company. Access Exchange and Wide Bank 28 are trademarks of
the Company. This Prospectus contains other product names, trade names and
trademarks of the Company and of other organizations.

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES OFFERED
HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT
COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."

<PAGE>

GATEFOLD DESCRIPTION:

A diagram depicting the Company's logo surrounded by seven graphical
representations of applications of the Company's products: (i) a CLEC
deploying enhanced local voice services over T1 connections with CAC's Access
Bank I TR-08; (ii) an ISP deploying high bandwidth T1 Internet connections via
T3 access connections with CAC's Wide Bank 28; (iii) a CLEC deploying multi-
line voice and high-speed data services to small businesses with CAC's Access
Bank II and Wide Bank 28; (iv) a long distance carrier (IXC) deploying
integrated local voice and data services to a small business with CAC's Access
Exchange; (v) deployment of high bandwidth digital radio access between
businesses using CAC's Wide Bank 28; deployment of digital voice and high-
speed data services over unbundled copper with CAC's Access Bank II HDSL; and
(vii) expanded high-bandwidth access for ISPs with CAC's Wide Bank 28.

The title to the diagram contains the text, "Carrier Access Corporation
provides innovative multi-service digital access equipment to competitive
communications carriers." Below the diagram is a box with the title, "Benefits
of the Carrier Access Solution," followed by text in bullet point format:
"Enable Multiple Service Offerings," "Facilitate Rapid Deployment," "Reduce
Cost of Ownership," "Programmable Functionality," "Scaleability and
Manageability."
<PAGE>

PROSPECTUS SUMMARY

The following summary should be read in conjunction with, and is qualified in
its entirety by, the more detailed information and Financial Statements and
Notes thereto appearing elsewhere in this Prospectus. Except as set forth in
the financial statements or as otherwise specified herein, all information in
this Prospectus (i) assumes no exercise of the Underwriters' over-allotment
option, (ii) reflects a three-for-two forward split of the outstanding shares
of Common Stock to be effected prior to the effectiveness of the registration
statement related to the Offering made hereby and (iii) reflects the conversion
of all of the Company's outstanding shares of Redeemable Preferred Stock into
Common Stock upon the closing of the Offering made hereby. See "Description of
Capital Stock" and "Underwriting."

THE COMPANY

Carrier Access Corporation ("CAC" or the "Company") is a leading provider of
Multi-service Digital Access ("MDA") equipment to competitive
telecommunications carriers, including competitive local exchange carriers
("CLECs"), Internet service providers ("ISPs"), and other wireless carriers.
The Company's MDA equipment is used for the provisioning of enhanced voice and
high-speed data service by carriers to end users such as small and medium-sized
businesses and government and educational institutions. The Company's MDA
equipment provides a "last mile" solution for the voice and data connectivity
needs of competitive carriers and end users throughout the United States. Mass
deployment of digital last mile connectivity from end user to carrier networks
is enabled through the Company's cost-effective, compact, scaleable and easily
installed customer premises and central office telecommunications equipment.
The Company's products allow competitive carriers to leverage their existing T1
and T3 digital transmission infrastructure, including optical fiber synchronous
optical network ("SONET"), high bit rate digital subscriber line ("HDSL") and
digital radio, to cost-effectively connect end users to their networks. The
Company's MDA products utilize high bandwidth digital deployment targeted at
end users requiring between 6 and 672 telephone line equivalents of bandwidth.
The Company's MDA products enable a broad variety of enhanced carrier service
offerings including high-speed Internet access, virtual private networks,
switched local and long distance voice, Caller ID, distinctive ringing, direct
inward dialing, automatic call routing and other widely-used telecommunications
services.

The Company's MDA products currently include the Access Bank and the Wide
Bank product families. The Access Bank I offers digital connectivity for local
and long distance carrier voice services, and converts a single T1 digital
network access into 24 telephone circuits for voice, facsimile and modem
connections. The Access Bank II expands on the voice functions of the Access
Bank I and adds high-speed data ports for computer connectivity and dual T1
line interfaces for increasing data speeds and connecting digital phone
systems. The Access Exchange, introduced in April 1998, is a customer-located
access switch that enables long distance carriers ("IXCs") to offer local
services from their embedded base switching equipment. The Wide Bank 28 is a
highly-integrated M1-3 standard multiplexer for connecting T1 equipment to
high-bandwidth T3 digital circuits, providing up to 28 T1 connections for
enhanced voice and high-speed data services. The Company's products are used
with optical fiber, HDSL on copper pairs, or digital radio transmission
technologies. The Company differentiates its products on their ability to
enable multiple service offerings, facilitate the rapid deployment of new
services, reduce cost of ownership, provide programmable software-based
functionality, scale cost-effectively at carrier and end user locations, and
satisfy the safety and regulatory requirements of carriers and end users.

The Company's objective is to become the leading supplier of innovative
telecommunications solutions utilized by competitive carriers to enable
enhanced voice and high-speed digital access services. To achieve this
objective, the Company intends to extend its technology leadership, develop and
expand its integrated voice and data solutions, increase penetration of its
existing competitive carrier customer base, gain entry into new markets,
leverage third-party distribution channels and maintain rapid product
fulfillment and manufacturing

3
<PAGE>

efficiency. Based on information from its distributors, the Company believes
that over 100 competitive carriers have purchased the Company's products
through its distributors. Carriers which have purchased the Company's products
include Allegiance Telecom, Inc., ("Allegiance"), Cablevision Systems Corp.
("Cablevision"), Cellular One Group ("Cellular One"), Commonwealth Telephone
Enterprises, Inc. ("Commonwealth"), e.spire Communications, Inc. (formerly
ASCI) ("e.spire"), Frontier Corporation ("Frontier"), GST
Telecommunications, Inc. ("GST"), ICG Communications, Inc. ("ICG"), Intermedia
Communications, Inc. ("Intermedia"), Logix Communications, Inc. ("Logix"), MGC
Communications, Inc. ("MGC"), NEXTLINK Communications, Inc. ("NEXTLINK"),
Pacific Bell, a division of SBC, Inc., PSINet, Inc. ("PSINet"), STAR
Telecommunications, Inc. ("STAR"), Teleport Communications Group, Inc. ("TCG"),
US LEC Corp. ("US LEC"), U S WEST, Inc. ("U S WEST"), WinStar Communications,
Inc. ("WinStar") and Worldcom Inc. ("Worldcom"). The Company's products are
sold through the Company's network of distributors throughout the United
States.

The Company was incorporated in Colorado in September 1992 and was
reincorporated in Delaware on June 26, 1998. The Company's principal executive
offices are located at 5395 Pearl Parkway, Boulder, Colorado 80301, and its
telephone number at that location is (303) 442-5455.

4
<PAGE>

THE OFFERING

Common Stock offered...................... 3,000,000 shares

Common Stock to be outstanding after the
Offering(1)............................... 23,045,492 shares

Use of proceeds........................... For general corporate
purposes, including working
capital, product development and
capital expenditures.
See "Use of Proceeds."

Proposed Nasdaq National Market symbol.... CACS

SUMMARY FINANCIAL DATA

(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE
FOR THE SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------ ---------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net revenue.......................... $ 2,058 $ 5,809 $18,719 $ 6,493 $16,292
Gross profit......................... 771 2,525 9,250 3,262 8,011
Income (loss) from operations........ 135 (100) 2,346 924 2,661
Net income (loss).................... 181 (76) 1,735 637 1,912
Pro forma net income(2).............. 113
Pro forma and historical income
(loss) per share
Basic and diluted.................. $0.01 $(0.03) $0.04 $0.03 $0.04
Weighted average common shares
outstanding(3)
Basic.............................. 13,665 13,881 14,132 14,089 14,379
Diluted............................ 13,665 13,881 14,713 14,518 15,273
</TABLE>

<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
----------------------
ACTUAL AS ADJUSTED(4)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and marketable securities........................... $ 8,796 $38,586
Working capital.......................................... 17,969 47,759
Total assets............................................. 23,015 52,805
Total liabilities........................................ 3,093 3,093
Redeemable preferred stock .............................. 18,674 --
Total stockholders' equity............................... 1,248 49,712
</TABLE>
- --------

(1) Based on the number of shares outstanding as of June 30, 1998. Excludes
1,779,905 shares of Common Stock issuable upon exercise of stock options
outstanding as of June 30, 1998 at a weighted average exercise price of
$3.84 per share, and 1,392,738 shares of Common Stock reserved for grant of
future options as of June 30, 1998 under the 1998 Stock Incentive Plan. In
addition, the Board of Directors adopted, and the stockholders subsequently
approved, the 1998 Employee Stock Purchase Plan pursuant to which 262,500
shares of Common Stock were reserved for issuance. See "Capitalization,"
"Management--Benefit Plans," "Description of Capital Stock" and Note 7 of
Notes to Financial Statements.

(2) The Company was a subchapter S Corporation for income tax purposes prior to
January 1, 1996 and, accordingly, taxable income was reported in the
individual tax returns of the stockholders. Pro forma net income is
presented as if the Company had been a taxable entity during 1995.

(3) Weighted average common shares outstanding does not include the effect of
the conversion of the Redeemable Preferred Stock into 5,593,133 shares of
Common Stock upon completion of the Offering.

(4) Adjusted to reflect the conversion of the Redeemable Preferred Stock to
Common Stock upon completion of the Offering and the sale of 3,000,000
shares of Common Stock offered by the Company hereby at an assumed initial
public offering price of $11.00 per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses. See
"Use of Proceeds" and "Capitalization."

5
<PAGE>

RISK FACTORS

An investment in the shares of Common Stock offered hereby involves a high
degree of risk. The following factors, in addition to the other information
contained in this Prospectus, should be carefully considered in evaluating the
Company and its business before purchasing the Common Stock offered hereby.
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such differences include those discussed below and in "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business,"
as well as those discussed elsewhere in this Prospectus.

LIMITED OPERATING HISTORY; FUTURE RESULTS OF OPERATIONS UNCERTAIN

The Company was incorporated in September 1992 and did not commence
commercial deployment of its distributed digital access equipment until the
summer of 1995. Prior to the summer of 1995 the Company derived substantially
all of its net revenue from providing systems integration services and other
consulting services. Accordingly, the Company has only a limited operating
history on which to base an evaluation of its current business and prospects.
The Company and its prospects must be considered in light of the risks,
uncertainties and difficulties frequently encountered by companies in an early
stage of development, particularly companies in new and rapidly evolving
markets. As a result of the Company's limited operating history, rapid growth
and the emerging nature of the markets in which it competes, the Company's
historical financial data is of limited value in evaluating the future
prospects of the Company. Further, the Company intends to significantly
increase its business development, sales and marketing and research and
development expenses to expand operations and enhance the Company's name
recognition. To the extent that such expenses precede or are not rapidly
followed by increased net revenue, the Company's business, financial condition
and results of operations may be materially adversely affected. There can be
no assurance that the Company will be able to increase or sustain its net
revenues or its rate of net revenue growth in future periods or be able to
sustain profitability on a quarterly or annual basis. See "--Significant
Fluctuations in Results of Operations," "--Dependence on Emerging Competitive
Carriers" and "-- Regulatory Uncertainty of Telecommunications Industry."

SIGNIFICANT FLUCTUATIONS IN RESULTS OF OPERATIONS

The Company's results of operations have fluctuated significantly in the
past and are likely to fluctuate significantly in the future, both on a
quarterly and annual basis, as a result of a variety of factors, many of which
are outside of the Company's control. Among other things, the Company's
results of operations have fluctuated in the past due to (i) the availability
of adequate supplies of key components and assemblies and the adequacy of
third-party manufacturing capabilities; (ii) delays in the introduction of new
products or product enhancements by the Company; (iii) customer order
deferrals in anticipation of product enhancements or new product offerings by
the Company; (iv) the Company's ability to affect and judge the timing and
size of orders from its distributors; and (v) errors in the assembly of
electronic component kits and shipping errors. The Company's results of
operations may also fluctuate in the future due to a number of factors,
including, but not limited to, those listed above as well as (i) the timing
and size of orders which are received and which can be shipped in any
particular period; (ii) the commercial success of the Company's products;
(iii) changes in the financial stability of the Company's distributors,
competitive carrier customers or suppliers; (iv) changes in pricing policies
by the Company or its competitors; (v) seasonality in the placement of orders;
(vi) changes in the level of the Company's operating expenses; (vii) changes
in the Company's distribution channels; (viii) delays or deferrals of any
competitive carrier's or end user's implementation of the Company's products;
(ix) product life cycles; (x) customization or integration problems with end
user systems; (xi) changes in the Company's strategy; (xii) product failures
or errors; or (xiii) the level of international expansion. A significant
portion of the Company's net revenue has been, and the Company believes will
continue to be, derived from a limited number of large orders, and the timing
of such orders and their fulfillment has caused, and are expected to continue
to cause, material fluctuations in the Company's operating results. The
Company's distribution agreements generally allow distributors to cancel
orders without penalty until a relatively short period of time prior to
shipment. The Company has experienced cancellation and delays of orders from
time to time, and expects to continue to

<PAGE>

experience order cancellations and delays from time to time in the future,
which could adversely affect the Company's revenue and results of operations
for a quarter or series of quarters.

To achieve its quarterly net revenue objectives, the Company depends upon
obtaining orders in any given quarter for shipment during that quarter.
Product orders are typically shipped shortly after receipt and, consequently,
order backlog at the beginning of any quarter has in the past represented only
a small portion of that quarter's net revenue. Furthermore, the Company has
from time to time, including the four quarters of 1997 and the first two
quarters of 1998, recognized a substantial portion of its net revenue from
sales booked and shipped during the last two weeks of a quarter. Accordingly,
a delay in shipment near the end of a particular quarter may cause net revenue
in a particular quarter to fall significantly below the Company's expectations
and may materially adversely affect the Company's operating results for such
quarter, particularly since the Company cannot adjust spending quickly enough
to compensate for any net revenue shortfall. Conversely, to the extent that
significant net revenue occurs earlier than expected, operating results for
subsequent quarters may fail to keep pace with, or even decline from, results
of previous quarters. Moreover, any downturn in general economic conditions
could precipitate significant reductions in customer spending for
telecommunications equipment, which could result in delays or cancellations of
orders for the Company's products.

Net revenue is difficult to forecast because the markets for the Company's
products are rapidly evolving, and the sales cycle to the Company's
distributors and related competitive carrier customers, from initial
evaluation to purchase, can be lengthy and varies substantially among
distributors, competitive carrier customers and end users. Because
substantially all of the sales of the Company's products are through indirect
channels of distribution, the Company's ability to affect and judge the timing
and size of individual orders is more limited than for manufacturers selling
directly to the end users of their products. In addition, the Company's net
revenues for a given quarter may depend to a significant degree upon planned
product shipments for a single competitive carrier equipment deployment
project. As a result, the Company's ability to forecast net revenues
accurately (notwithstanding the forecasts of its distributors), may be
hindered, which could have a material adverse effect on the Company's results
of operations. A significant portion of the Company's expenses are relatively
fixed in the short term. Accordingly, if net revenue levels fall below
expectations, operating results are likely to be disproportionately adversely
affected. Due to one or more of these or other factors, the Company's
quarterly and annual revenues, expenses and results of operations are likely
to vary significantly in the future, and period-to-period comparisons should
not be relied upon as indications of future performance. Actual or potential
fluctuations in operating results may result in volatility in the price of the
Common Stock. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

DEPENDENCE ON EMERGING COMPETITIVE CARRIERS

The competitive carrier customers of the Company's products to date have
consisted primarily of CLECs and, to a lesser extent, IXCs, ISPs and wireless
carriers. The market for the services provided by these competitive carriers
has only begun to emerge since the passage of the Telecommunications Act of
1996 (the "1996 Act"), and many competitive carriers are still building their
infrastructure and rolling out their services. These competitive carriers
require substantial capital for the development, construction and expansion of
their networks and the introduction of their services. The ability of these
emerging competitive carriers to fund such expenditures often depends on their
ability to obtain sufficient financing. There can be no assurance that such
financing will be available to emerging competitive carriers on favorable
terms, if at all. The inability of the Company's current or potential emerging
competitive carrier customers to successfully raise needed funds, or any other
trends adversely affecting such carriers' operating results or profitability,
could adversely affect such carriers' capital spending programs. If the
Company's current or potential competitive carrier customers are forced to
defer or curtail their capital spending programs, the Company's sales may be
adversely affected, which would have a material adverse effect on the
Company's business, financial condition and results of operations. In
addition, many of the industries in which the competitive carriers operate
have recently experienced consolidation. In particular, many telecommunication
carriers have recently acquired or merged with ISPs. The loss of one or more
of the Company's competitive carrier customers, through industry consolidation
or otherwise, could have a material adverse effect on the Company's business,
financial condition or results of operations.

7
<PAGE>

REGULATORY UNCERTAINTY OF TELECOMMUNICATIONS INDUSTRY

Competitive carriers have been allowed to compete with incumbent local
exchange carriers ("ILECs") in the provisioning of local exchange services
primarily as a result of the adoption of regulations under the 1996 Act which
impose new duties on ILECs to open local telephone markets to competition.
Although the 1996 Act was designed to expand competition in the
telecommunications industry, the realization of the objectives of the 1996 Act
is subject to many uncertainties, including judicial and administrative
proceedings designed to define rights and obligations pursuant to the 1996
Act, actions or inactions by ILECs or other carriers that affect the pace at
which changes contemplated by the 1996 Act occur, resolution of questions
concerning which parties will finance such changes, and other regulatory,
economic and political factors. Any changes to legal requirements, the
adoption of new regulations by federal or state regulatory authorities under
the 1996 Act or any legal challenges to the 1996 Act could have a material
adverse effect upon the market for the Company's products. The Company is
aware of certain litigation challenging the validity of the 1996 Act and local
telephone competition rules adopted by the Federal Communications Commission
("FCC") for the purpose of implementing the 1996 Act. Such litigation may
serve to delay implementation of the 1996 Act, which could adversely affect
demand for the Company's products. Moreover, the Company's distributors or
competitive carrier customers may require, or the Company may otherwise deem
it necessary or advisable, that the Company modify its products to address
actual or anticipated changes in the regulatory environment. The inability of
the Company to modify its products or address such regulatory changes could
have a material adverse effect on the Company's business, financial condition
or results of operations.

INTENSE COMPETITION

The market for telecommunications equipment is characterized by intense
competition, with a large number of suppliers providing a variety of products
to diverse market segments within the telecommunications industry. The
Company's existing and potential competitors include many large domestic and
international companies, including certain companies that have substantially
greater financial, manufacturing, technological, sales and marketing,
distribution and other resources. The Company's principal competitors for its
Access Bank product family include Advanced Fibre Communications ("AFC"),
Cisco Systems, Inc. ("Cisco"), DSC Communications Corp. ("DSC"), General
Datacom Industries, Inc. ("General Datacom"), Lucent Technologies, Inc.
("Lucent"), NEC Corp. ("NEC"), Newbridge Networks Corp. ("Newbridge"),
Northern Telecom ("Nortel"), Pairgain Technologies, Inc. ("Pairgain"),
Paradyne Corp. ("Paradyne"), Premisys Communications, Inc. ("Premisys"), Pulse
Communications, Inc. ("Pulsecom"), Reltec Corp. ("Reltec"), Telco Systems
("Telco") and other small private companies. The Company's principal
competitors for its Wide Bank product family include Alcatel Alsthom Compagnie
Generale d'Electricite ("Alcatel"), NEC, Nortel and Telco. The Company expects
that many of its competitors who currently offer products competitive with
only one of the Company's product lines will eventually offer products
competitive with all of the Company's product lines. In addition, several
start-up companies have recently begun to manufacture products similar to
those offered by the Company. Due to the rapidly evolving markets in which the
Company competes, additional competitors with significant market presence and
financial resources, including large telecommunications equipment
manufacturers and computer hardware and software companies, may enter those
markets, thereby further intensifying competition. Additionally, one of the
Company's distributors is currently competing with the Company, and there can
be no assurance that additional distributors will not begin to develop or
market products in competition with the Company.

8
<PAGE>

Company's products and services. Some of the Company's competitors currently
offer financing alternatives to their customers, a service that the Company
does not provide at this time. The Company expects its competitors to continue
to improve the performance of their current products and to introduce new
products or technologies that provide added functionality and other features.
Successful new product introductions or enhancements by the Company's
competitors could cause a significant decline in sales or loss of market
acceptance of the Company's products and services, could result in continued
intense price competition or could make the Company's products and services or
technologies obsolete or noncompetitive. To be competitive, the Company will
be required to continue to invest significant resources in research and
development and sales and marketing. There can be no assurance that the
Company will have sufficient resources to make such investments or that the
Company will be able to make the technological advances necessary to be
competitive. In addition, current and potential competitors have established
or may establish cooperative relationships among themselves or with third
parties to increase the ability of their products to address the needs of the
Company's prospective customers. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share. Increased competition is likely to result in price
reductions, reduced gross margins and loss of market share, any of which would
have a material adverse effect on the Company's business, financial condition
and results of operations. There can be no assurance that the Company will be
able to compete successfully against current or future competitors or that
competitive pressures will not have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--
Competition."

DEPENDENCE ON DISTRIBUTION CHANNELS

Substantially all of the sales of the Company's products are made through
distributors. In addition to product sales, the Company from time to time
relies on its distributors to provide installation, training and customer
support to the ultimate end users of the Company's products. As a result, the
Company's success depends on the continued sales and customer support efforts
of its network of distributors. Sales of the Company's products historically
have been made to a limited number of distributors. In 1995, Telco, C&L
Communications ("C&L"), Phillips Communications and Equipment ("Phillips") and
Telsource Corporation ("Telsource") accounted for 26%, 13%, 13% and 12% of net
revenue, respectively. In 1996, Telco, Phillips, Telsource and C&L accounted
for 47%, 18%, 18% and 11% of net revenue, respectively. In 1997, Walker &
Associates ("Walker"), ADC Telecommunications ("ADC") and Phillips accounted
for 36%, 20% and 14% of net revenue, respectively. In the first half of 1998,
Walker, Phillips and Telsource accounted for 47%, 19% and 15% of net revenue,
respectively. The Company expects that the sale of products will continue to
be made to a small number of distributors. Accordingly, the loss of, or
reduction in sales to, any of the Company's key distributors could have a
material adverse effect on the Company's business, financial condition and
results of operations. Moreover, the Company depends on ADC to actively market
and promote the Company's solution for the HDSL market. If ADC does not
actively market or promote the Company's solution to the HDSL market, the
Company would need to seek another OEM for this market, which could take six
months or longer. The Company has limited knowledge of the financial condition
of certain of its distributors; however, it is aware that some of its
distributors have limited financial and other resources which could impair
their ability to pay the Company. Although the financial instability of these
distributors has not limited any distributor's ability to pay the Company for
its products to date, there can be no assurance that any bad debts incurred by
the Company will not exceed the Company's reserves therefor or that the
financial instability of one or more of the Company's distributors will not
materially adversely affect the Company's business, financial condition or
results of operations.

The Company generally provides its distributors with limited stock rotation
and price protection rights. Other than limited stock rotation rights, the
Company does not provide its distributors with general product return rights.
The Company has limited knowledge of the inventory levels of its products
carried by its OEMs and distributors, and the Company's OEMs and distributors
have in the past reduced, and may in the future reduce, planned purchases of
the Company's products due to overstocking. Moreover, distributors who have
overstocked the Company's products have in the past reduced, and may in the
future reduce, their inventories of the Company's products by selling such
products at significantly reduced prices. Any such reduction in planned
purchases or sales at reduced prices by distributors or OEMs in the future
could reduce the demand for the

9
<PAGE>

Company's products, create conflicts with other distributors or materially
adversely affect the Company's business, financial condition and results of
operations. In addition, three times a year, distributors are allowed to
return a maximum of fifteen percent of the Company's unsold products held in
stock by such distributor, which were purchased within the four month period
prior to such return date, for an equal dollar amount of new equipment. While
to date these returns have not had a material impact on the Company's results
of operations, there can be no assurance that the Company will not experience
significant returns in the future or that it will have made adequate
allowances to offset such returns. The Company is generally required to give
its distributors a 60 day notice of price increases. Orders entered by
distributors within the 60 day period are filled at the lower product price.
In addition, the Company grants certain of its distributors "most favored
customer" terms, pursuant to which the Company has agreed to not knowingly
grant another distributor the right to resell the Company's products on terms
more favorable than those granted to the existing distributor, without
offering the more favorable terms to the existing distributor. There can be no
assurance that these price protection and "most favored customer" clauses will
not cause a material decrease in the average selling prices and gross margins
of the Company's products, which could have a material adverse effect on the
Company's business, financial condition and results of operations. See "--
Lengthy Sales Cycle," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business--Sales and Marketing" and Note
7 of Notes to Financial Statements.

CHALLENGES OF MAINTAINING AND EXPANDING DISTRIBUTION CHANNELS; POTENTIAL FOR
CHANNEL CONFLICT

The Company's ability to achieve future net revenue growth will depend in
large part on its success in maintaining its current distributor
relationships, diversifying its distribution channels by selling to new
distributors, establishing relationships with OEMs and maintaining as well as
expanding the Company's current competitive carrier customer base. Most of the
Company's existing distributors currently distribute, or may in the future
distribute, the product lines of the Company's competitors. There can be no
assurance that the Company will be able to attract and retain a sufficient
number of its existing or future distributors or that the Company's
distributors will recommend, or continue to recommend, the Company's products
or that the Company's distributors will devote sufficient resources to market
and provide the necessary customer support for such products. In the event
that any of the Company's current distributors reduce their purchases of the
Company's products, or that the Company fails to obtain future distributors,
the Company's business, financial condition or results of operations could be
materially and adversely affected. In addition, there can be no assurance that
the Company's distributors will give a high priority to the marketing and
customer support of the Company's products as compared to competitive products
or alternative solutions or that the Company's distributors will continue to
offer the Company's products. The Company's distributor relationships are
established through formal agreements that generally do not grant exclusivity,
do not prevent the distributor from carrying competing product lines and do
not require the distributor to purchase any minimum dollar amount of the
Company's products. In addition, the Company's distribution agreements do not
attempt to allocate certain territories for its products among its
distributors. To the extent different distributors target the same end users
of the Company's products, distributors may come into conflict with one
another, which could damage the Company's relationship with, and sales to,
such distributors.

COMPETITIVE CARRIER CUSTOMER CONCENTRATION

10
<PAGE>

such termination, change, reduction or delay in orders could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "--Dependence on Distribution Channels," "--Challenges of
Maintaining and Expanding Distribution Channels; Potential for Channel
Conflict" and "Business--Customers."

POSSIBLE DECLINE IN PRICES

The Company believes that average selling prices and gross margins for its
products will decline as such products mature, as volume price discounts in
contracts take effect and as competition intensifies, among other factors. To
offset declining selling prices, the Company believes that it must
successfully reduce the costs of production of its existing products and
introduce and sell new products and product enhancements on a timely basis at
a lower cost or sell products and product enhancements that incorporate
features that enable them to be sold at higher average selling prices. In
particular, the Company believes that it will need to achieve significant cost
reductions through engineering improvements and economies of scale in
production and purchasing. There can be no assurance that the Company will be
able to achieve the desired cost savings. To the extent that the Company is
unable to reduce costs sufficiently to offset any declining average selling
prices or unable to introduce enhanced products with higher selling prices,
the Company's gross margins will decline, and such decline would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "--Dependence on New Product Introductions and
Product Enhancements; Risks Associated with Transition to New Products" and
"--Risk of Product Defects, Returns and Liability."

DEPENDENCE ON EMERGING MARKET FOR MULTI-SERVICE DIGITAL ACCESS EQUIPMENT;
RISKS ASSOCIATED WITH MARKET ACCEPTANCE OF WIDE BANK PRODUCT FAMILY

The Company currently derives all of its net revenue from sales of its MDA
equipment and accessories and expects that this concentration will continue in
the foreseeable future. In 1997, the Company's Access Bank product family and
the Wide Bank product family accounted for approximately 80% and 16% of the
Company's net revenue, respectively. In the first half of 1998, the Company's
Access Bank product family and Wide Bank product family accounted for
approximately 70% and 25% of the Company's net revenue, respectively. As a
result, any decrease in the overall level of sales of, or the prices for, MDA
equipment due to product enhancements, new product introductions or
announcements by the Company's competitors, a decline in the demand for MDA
equipment, product obsolescence, price competition, technological change or
any other reason could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, the
Company's future financial performance will depend in part on the general
growth of the MDA equipment market, and in particular on the successful
development, introduction and customer acceptance of new and enhanced versions
of its existing Access Bank and Wide Bank product families. The Company began
commercial development of the Wide Bank product family in November 1997 and
anticipates that this product family will account for an increasing share of
its net revenue. There can be no assurance that the market for this product
family will grow or the Company will be successful in introducing the Wide
Bank or any other products, or that any of these products will achieve
widespread customer acceptance. If the market for MDA equipment fails to grow
or grows more slowly than the Company currently anticipates, the Company's
business, financial condition and results of operations would be materially
adversely affected. See "--Dependence on New Product Introductions and Product
Enhancements; Risks Associated with Transition to New Products" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

DEPENDENCE ON SOLE AND SINGLE SOURCE SUPPLIERS

Although the Company generally uses standard parts and components for its
products, many key components are purchased from sole or single source vendors
for which alternative sources are not currently available. The Company
currently purchases 20 key components from vendors for which there is
currently no substitute and purchases an additional 43 key components from
single vendors. In particular, the Company uses several independent
manufacturers to provide certain printed circuit boards ("PCBs"), chassis and
subassemblies. The inability to obtain sufficient quantities of these
components has in the past resulted in, and may in the future result in,
delays or reductions in product shipments which could materially adversely
affect the

11
<PAGE>

Company's business, financial condition and results of operations. In the
event of a reduction or interruption of supply, as much as six months could be
required before the Company would begin receiving adequate supplies from
alternative suppliers, if any. No assurance can be given that any such source
would become available to the Company or that any such source would be in a
position to satisfy the Company's production requirements on a timely basis,
if at all. In such event, the Company's business, financial condition and
results of operations would be materially adversely affected. In addition, the
manufacture of certain of these single or sole source components is extremely
complex, and the Company's reliance on the suppliers of these components
exposes the Company to potential production difficulties and quality
variations, which could negatively impact cost and timely delivery of the
Company's products. Any significant interruption in the supply, or degradation
in the quality, of any such component could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business--Manufacturing."

DEPENDENCE ON COMPONENT AVAILABILITY

The Company's distributors frequently require rapid delivery after placing
an order. Because the Company does not maintain significant component
inventories, a delay in shipment by a supplier could lead to lost sales. Lead
times for materials and components vary significantly and depend on many
factors, some of which are beyond the Company's control, such as specific
supplier performance, contract terms and general market demand for components.
If orders vary from forecasts, the Company may experience inadequate inventory
of certain materials and components to fill orders. While the Company has not
experienced any material shortages of these components to date, any shortages
in the future, including those occasioned by increased sales, could result in
delays in fulfillment of customer orders. Such delays could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "--Dependence on Distribution Channels," "--Challenges of
Maintaining and Expanding Distribution Channels; Potential for Channel
Conflict" and "Business--Manufacturing."

RISKS ASSOCIATED WITH MANUFACTURING

The Company currently uses several independent manufacturers to provide
certain PCBs, chassis and subassemblies. The Company's reliance on independent
manufacturers involves a number of risks, including the absence of adequate
capacity, the unavailability of or interruptions in access to certain process
technologies and reduced control over delivery schedules, manufacturing yields
and costs. Some of the Company's manufacturers and suppliers are
undercapitalized, and there can be no assurance that such manufacturers or
suppliers will be able to continue to provide manufacturing services or
components to the Company. In the event that these manufacturers are unable or
unwilling to continue to manufacture the Company's components in required
volumes, the Company will have to identify and qualify acceptable additional
or alternative manufacturers, which could take in excess of six months. No
assurance can be given that any such source would become available to the
Company or that any such source would be in a position to satisfy the
Company's production requirements on a timely basis, if at all. Any
significant interruption in the supply of these components to the Company
would result in the allocation of products to customers, which in turn could
have a material adverse effect on the Company's business, financial condition
and results of operations. Moreover, since all of the Company's final assembly
and test are performed in one location, any fire or other disaster at the
Company's assembly facility would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Manufacturing."

DEPENDENCE ON KEY PERSONNEL AND AVAILABILITY OF SKILLED WORKFORCE

The Company's success depends to a significant degree upon the continued
contributions of its Chief Executive Officer, Chief Financial Officer and its
key management, sales, engineering, customer support and product development
personnel, many of whom would be difficult to replace. In particular, the loss
of either Roger Koenig, President and Chief Executive Officer, or Nancy
Pierce, Chief Financial Officer, both of whom co-founded the Company, could
materially and adversely affect the Company. In addition, in December 1997 the
Company's then-Vice President of Marketing resigned, in March 1998 the
Company's then-Vice President

12
<PAGE>

of Sales also resigned and certain members of the Company's senior management,
including Randy Shipley, Vice President-Sales and John Stahura, Vice
President-Operations, have only recently joined the Company. The Company is
currently in the process of recruiting a Vice President-Marketing. There can
be no assurance that if hired, the new Vice President-Marketing or other
recently hired employees, will be assimilated into the Company successfully.
The Company believes that its future success will depend in large part upon
its ability to attract and retain highly-skilled managerial, sales, customer
support and product development personnel. Competition for qualified personnel
in the Company's industry and geographic location is intense, and there can be
no assurance that the Company will be successful in attracting and retaining
such personnel. The Company does not have employment contracts with any of its
key personnel. The loss of the services of any such persons, the inability to
attract or retain qualified personnel in the future or delays in hiring
required personnel, particularly engineering personnel and qualified sales
personnel, could have a material adverse effect on the Company's business,
financial condition and results of operations. For example, in the two months
following the resignation of the Company's then-Vice President of Sales in
March 1998, the Company experienced a significant increase in the turnover
rate of its sales department. Although the Company believes that it has
successfully reconstituted its sales force, there can be no assurance that the
Company will not experience similar problems in the future or, if it does,
that it will be able to successfully respond to such problems on a timely
basis. See "Business--Employees," "Management--Executive Officers and
Directors" and "--Executive Compensation."

RISKS ASSOCIATED WITH RAPID GROWTH

The Company has experienced rapid growth in net revenue and expansion of its
operations and anticipates that further significant expansion will be required
to address potential growth in its customer base and market opportunities.
Such growth has placed, and, if sustained, will continue to place, significant
strain on the Company's management, information systems, operations and
resources. For example, the Company has experienced errors in the assembly of
electronic component kits and shipping errors in the past primarily as a
result of its limited resources in the face of a period of rapid growth. The
Company's ability to manage any future growth will continue to depend upon the
successful expansion of its sales, marketing, research and development,
customer support, manufacturing and administrative infrastructure and the
ongoing implementation and improvement of a variety of internal management
systems, procedures and controls. Continued growth will also require the
Company to hire more engineering, sales and marketing and administrative
personnel, expand customer support capabilities, expand management information
systems and improve its inventory management practices. Recruiting qualified
personnel is an intensely competitive and time-consuming process. There can be
no assurance that the Company will be able to attract and retain the necessary
personnel to accomplish its growth strategies or that it will not experience
constraints that will adversely affect its ability to satisfy customer demand
in a timely fashion or to support satisfactorily its customers and operations.
There can be no assurance that the Company will be able to attract, manage and
retain additional personnel to support any future growth, if any, or will not
experience significant problems with respect to any infrastructure expansion
or the attempted implementation of systems, procedures and controls. If the
Company's management is unable to manage growth effectively, the Company's
business, financial condition and results of operations could be materially
adversely affected. The Company believes that it will require up to 50,000
additional square feet of office, manufacturing and research and development
space within the next 24 months. There can be no assurance that suitable
additional space will be available on commercially reasonable terms or at all.
See "--Dependence on Sole and Single Source Suppliers," "--Dependence on
Component Availability," "--Risks Associated with Manufacturing," "--
Dependence on Key Personnel and Availability of Skilled Workforce,"
"Business--Employees" and "Management--Executive Officers and Directors."

DEPENDENCE ON NEW PRODUCT INTRODUCTIONS AND PRODUCT ENHANCEMENTS; RISKS
ASSOCIATED WITH TRANSITION TO NEW PRODUCTS

The Company's success will depend to a substantial degree upon its ability
to enhance its existing products and to develop and introduce, on a timely and
cost-effective basis, new products and features that meet changing end user
requirements and emerging industry standards; however, there can be no
assurance that the Company

13
<PAGE>

will be successful in identifying, developing, manufacturing, and marketing
product enhancements or new products that will respond to technological change
or evolving industry standards. The Company intends to continue to invest
significantly in product and technology development. The Company has in the
recent past experienced delays in the development and commencement of
commercial shipment of new products and enhancements, resulting in distributor
and end user frustration and delay or loss of net revenue. There can be no
assurance that the Company will not experience similar or other difficulties
in the future that could delay or prevent the successful development,
production or shipment of such new products and enhancements, or that its new
products and enhancements will adequately meet the requirements of the
marketplace and achieve market acceptance. Announcements of currently planned
or other new product offerings by the Company or its competitors have in the
past caused, and may in the future cause, distributors or end users to defer
or cancel the purchase of existing Company products. The Company's inability
to develop on a timely basis new products or enhancements to existing
products, or the failure of such new products or enhancements to achieve
market acceptance, could have a material adverse effect on the Company's
business, financial condition and results of operations.

Certain of the Company's competitive carrier customers have purchased the
Company's MDA products with the expectation that the Company would develop an
integrated voice and data solution for commercial use during the fourth
quarter of 1998. While the Company intends to substantially invest in the
research and development of such a solution, there can be no assurance that
the Company will develop such a solution or that such a solution can be
developed in a cost-effective manner. If the Company is unable to develop an
integrated voice and data solution in a timely and cost-effective manner that
achieves market acceptance, the competitive carriers who purchased the
Company's MDA products with the expectation of such a development could
discontinue their use of the Company's MDA products, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.

The development of new, technologically advanced products is a complex and
uncertain process requiring high levels of innovation, as well as the accurate
anticipation of technological and market trends. The introduction of new or
enhanced products will also require the Company to manage the transition from
older products in order to minimize disruption in customer ordering patterns,
avoid excessive levels of older product inventories and ensure that adequate
supplies of new products can be delivered to meet customer demand. During the
first quarter of 1998, the Company reworked certain of its Wide Bank products
previously sold to a certain distributor in order to add new features which
were included in a subsequent release of such product. While these actions did
not cause the Company to record lower than anticipated net revenue for the
first quarter of 1998, the Company's gross margin was adversely affected.
There can be no assurance that the Company will continue to successfully
develop, introduce or manage the transition to new products.

RISK OF PRODUCT DEFECTS, RETURNS AND LIABILITY

The Company's products have in the past contained, and may in the future
contain, undetected or unresolved errors when first introduced or as new
versions are released. There can be no assurance that, despite extensive
testing by the Company, errors, defects or failures will not be found in the
Company's current or future products or enhancements after commencement of
commercial shipments, resulting in delay in or loss of market acceptance and
sales, product returns, diversion of development resources, injury to the
Company's reputation or increased service and warranty costs, any of which
could have a material adverse effect on the Company's business, financial
condition and results of operations. Significant delays in meeting deadlines
for announced product introductions or enhancements or performance problems
with such products could result in an undermining of customer confidence in
the Company's products, which would materially and adversely affect its
customer relationships as well. Although the Company has not experienced any
product liability claims to date, the sale and support of the Company's
products entails the risk of such claims, and there can be no assurance that
the Company will not be subject to such claims in the future. A successful
product liability claim brought against the Company could have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company's agreements with its distributors typically contain
provisions designed to

14
<PAGE>

limit the Company's exposure to potential product liability claims. However,
it is possible that the limitation of liability provisions contained in the
Company's agreements may not be effective under the laws of certain
jurisdictions.

LENGTHY SALES CYCLE

The sale of the Company's MDA products averages approximately four months in
the case of competitive carriers, but can take significantly longer in the
case of ILECs and certain distributors and end users. This process is often
subject to delays over which the Company has little or no control, including a
distributor's or a competitive carrier's budgetary constraints, distributor or
competitive carrier internal acceptance reviews, the success and continued
internal support of competitive carrier's own development efforts, and the
possibility of cancellation or delay of projects by distributors or
competitive carriers. In addition, as competitive carriers have matured and
grown larger, their purchase process has become more institutionalized, and it
has become increasingly difficult, and required more of the Company's time and
effort, to gain the initial acceptance and adoption of its products by these
end users. Although the Company attempts to develop its products with the goal
of facilitating the time to market of its competitive carrier's products, the
timing of the commercialization of a new distributor or competitive carrier's
application or service based on the Company's products is primarily dependent
on the success and timing of a competitive carrier's own internal deployment
program. Delays can also be caused by late deliveries by other vendors,
changes in implementation priorities and slower than anticipated growth in
demand for the Company's products. A delay in, or a cancellation of, the sale
of the Company's products could have a material adverse effect on the
Company's business, financial condition and results of operations and cause
the Company's results of operations to vary significantly from quarter to
quarter. See "Business--Sales and Marketing."

RISKS ASSOCIATED WITH RAPID TECHNOLOGICAL CHANGE

The telecommunications and data communications market is characterized by
rapidly changing technology, evolving industry standards, changes in end user
requirements and frequent new product introductions and enhancements that may
render the Company's existing products obsolete. The Company expects that new
technologies will emerge as competition in the telecommunications and data
communications industry increases and the need for higher volume and more cost
efficient transmission equipment expands. Industry standards for distributed
digital access equipment and technology are still evolving. The introduction
of products embodying new technologies or the emergence of new industry
standards can render existing products obsolete or unmarketable. For example,
if the market were to broadly adopt telecommunications equipment based on
cable modems or cable telephony, sales of the Company's existing or future
products could be significantly diminished. As standards and technologies
evolve, the Company will be required to modify its products or develop and
support new versions of its products. The failure of the Company's products to
comply, or delays in achieving compliance, with the various existing and
evolving industry standards could adversely affect sales of the Company's
current products or delay introduction of the Company's future products.

DEPENDENCE ON CONTINUED GROWTH OF MARKET FOR TELECOMMUNICATIONS SERVICES

The Company's success will also depend on continued growth in the market for
telecommunications and data communications services. The global
telecommunications marketplace is evolving and it is difficult to predict its
potential size or future growth rate. There can be no assurance this market
will continue to grow or that increased regulation will not present barriers
to the sales of existing or future products. If this market fails to grow or
grows more slowly or in a different direction than the Company currently
anticipates, the Company's business, financial condition and results of
operations would be materially and adversely affected. See "--Intense
Competition," "--Dependence on New Product Introductions and Product
Enhancements; Risks Associated with Transition to New Products" and "--Risk of
Product Defects, Returns and Liability."

15
<PAGE>

DEPENDENCE ON PROPRIETARY RIGHTS

The Company relies primarily on a combination of patent, copyright,
trademark and trade secret laws, as well as confidentiality procedures and
contractual restrictions, to establish and protect its proprietary rights. As
of June 30, 1998, a total of three U.S. patents had been awarded to the
Company. The Company has a total of five U.S. patent applications pending. The
Company also has three U.S. registered trademarks and two U.S. trademark
applications pending. The Company has also entered into confidentiality
agreements with all of its employees and consultants and enters into non-
disclosure agreements with its suppliers and distributors in order to limit
access to and disclosure of its proprietary information. There can be no
assurance such measures will be adequate to deter and prevent misappropriation
of the Company's technologies or independent third-party development of
similar technologies. Despite the Company's efforts to protect its proprietary
rights, unauthorized parties may attempt to copy aspects of the Company's
products or to obtain and use trade secrets or other information that the
Company regards as proprietary. Further, the Company may be subject to
additional risks as it enters into transactions in foreign countries where
intellectual property laws do not protect the Company's proprietary rights as
fully as do the laws of the U.S. There can be no assurance that the Company's
competitors will not independently develop similar or superior technologies or
duplicate any technology developed by the Company. Any such events could have
a material adverse effect on the Company's business, financial condition and
results of operations.

The telecommunications industry is characterized by the existence of a large
number of patents and frequent litigation based on allegations of patent
infringement. As the number of entrants in the Company's markets increases and
the functionality of the Company's products is enhanced and overlaps with the
products of other companies, the Company may become subject to claims of
infringement or misappropriation of the intellectual property rights of
others. From time to time, third parties may assert patent, copyright,
trademark and other intellectual property rights to technologies that are
important to the Company. Although the Company has not received communications
from third parties asserting that the Company's products infringe or may
infringe proprietary rights of third parties, the Company has no assurance
that any future claims, if determined adversely to the Company, would not have
a material adverse effect on the Company's business, financial condition or
results of operations. In its distribution agreements, the Company agrees to
indemnify distributors and competitive carrier customers for any expenses or
liabilities resulting from claimed infringements of patents, trademarks or
copyrights of third parties. In certain limited instances, the amount of such
indemnities may be greater than the net revenue the Company may have received
from the distributor. There can be no assurance that third parties will not
assert infringement or misappropriation claims against the Company in the
future with respect to current or future products. In the event litigation is
required to determine the validity of any third-party claims, such litigation,
whether or not determined in favor of the Company, could result in significant
expense to the Company, divert the efforts of the Company's technical and
management personnel, cause product shipment delays or require the Company to
enter into royalty or licensing agreements. Such royalty or licensing
arrangements, if required, may not be available on reasonable commercial terms
acceptable to the Company, if at all. In the event of an adverse ruling in any
litigation, the Company might be required to discontinue the use and sale of
infringing products, expend significant resources to develop non-infringing
technology or obtain licenses from third parties. In the event of a claim or
litigation against or by the Company or the failure of the Company to develop
or license a substitute technology on commercially reasonable terms, the
Company's business, financial condition and results of operations would be
materially adversely affected. See "Business--Intellectual Property."

RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION

To date, the Company has not recorded material sales outside of the U.S. The
Company intends to expand its operations outside the U.S. and enter into
international markets, which will require significant management attention and
financial resources. There can be no assurance that the Company will be
successful in achieving significant sales of its distributed digital access
equipment in international markets. There may not be a demand in foreign
countries with respect to new products, if any, that the Company may offer in
the future. In addition, international sales are subject to a variety of
risks, including difficulties in establishing and managing

16
<PAGE>

international distribution channels, in servicing and supporting products sold
outside the U.S. and in translating products and related materials into
foreign languages. International operations are also subject to difficulties
in collecting accounts receivable, staffing, managing personnel and enforcing
intellectual property rights. The Company also anticipates that product
service and support will be more complicated and expensive with respect to
products sold in international markets. The Company may need to adapt its
products to conform to different technical standards that may exist in foreign
countries. Future customer purchase agreements may be governed by foreign
laws, which may differ significantly from U.S. laws. Other factors that can
adversely affect international operations include fluctuations in the value of
foreign currencies and currency exchange rates, changes in import/export
duties and quotas, introduction of tariff or non-tariff barriers and economic
or political changes in international markets. Any inability to obtain foreign
regulatory approvals on a timely basis could have a material adverse effect on
the Company's business, financial condition and results of operations. If the
Company's international sales increase, its net revenue may also be affected
to a greater extent by seasonal fluctuations resulting from lower levels of
sales which typically occur during the summer months in Europe and other parts
of the world. There can be no assurance that these factors will not have a
material adverse effect on the Company's future international sales and,
consequently, on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business--Strategy."

POTENTIAL NEED FOR ADDITIONAL CAPITAL; RISKS RELATING TO POTENTIAL
ACQUISITIONS

The Company currently anticipates that the proceeds of the Offering,
together with its existing cash balances and available line of credit and cash
flows expected to be generated from future operations, will be sufficient to
meet the Company's liquidity needs for at least the next 12 months. However,
the Company may need to raise additional funds if its estimates of net
revenue, working capital and/or capital expenditure requirements change or
prove inaccurate or in order for the Company to respond to unforeseen
technological or marketing hurdles or to take advantage of unanticipated
opportunities. In addition, the Company expects to review potential
acquisitions that would complement its existing product offerings or enhance
its technical capabilities. While the Company has no present commitments or
agreements with respect to acquisitions, the Company may, from time to time,
pursue the acquisition of other companies, assets, products and technologies.
Acquisitions involve a number of operating risks that could materially
adversely affect the Company's results of operations, including the diversion
of management's attention to assimilate the operations, products and personnel
of the acquired companies, the amortization of acquired intangible assets, and
the potential loss of key employees of the acquired companies. Furthermore,
acquisitions may involve businesses in which the Company lacks experience.
Because management has limited experience in acquisitions and the Company has
no experience in integrating acquired companies or technologies into its
operations, there can be no assurance that the Company will be able to manage
one or more acquisitions successfully, or that the Company will be able to
integrate the operations, products or personnel gained through any such
acquisitions without a material adverse effect on the Company's business,
financial condition and results of operations. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

YEAR 2000 COMPLIANCE

Many existing computer systems and applications, and other control devices,
use only two digits to identify a year in the date code field, and were not
designed to account for the upcoming change in the century. As a result, such
systems and applications could fail or create erroneous results unless
corrected so that they can process data related to the year 2000. The Company
relies on its systems, applications and devices in operating and monitoring
all major aspects of its business, including financial systems (such as
general ledger, accounts payable and accounts receivable modules), inventory
and receivables systems, customer services, infrastructure, embedded computer
chips, networks and telecommunications equipment and end products. The Company
also relies, directly and indirectly, on systems of external business
enterprises such as distributors, suppliers, creditors, financial
organizations, and of governmental entities, for accurate exchange of data.
Even if the internal systems of the Company are not materially affected by the
year 2000 issue, the Company could be affected through disruptions in the
operation of the enterprises with which the Company interacts. Based on the
information

17
<PAGE>

currently available, the Company believes that the costs associated with the
year 2000 issue, and the consequences of incomplete or untimely resolution of
the year 2000 issue, will not have a material adverse effect on its business,
financial condition and results of operations in any given year; however,
there can be no assurance that year 2000 issues will not have a material
adverse effect on the Company's business, financial condition or results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE

Prior to this Offering there has been no public market for the Common Stock,
and there can be no assurance that an active public market for the Common
Stock will develop or be sustained after the Offering. The initial offering
price will be determined by negotiation among the Company and the Underwriters
based upon several factors and may not be indicative of the market price of
the Common Stock after the Offering. See "Underwriting" for a discussion of
the factors to be considered in determining the initial public offering price.
The trading price of the Common Stock could be subject to wide fluctuations in
response to variations in operating results, announcements of technological
innovations or new products by the Company or its competitors, changes in
financial estimates by securities analysts, regulatory developments and other
events or factors. In addition, the stock market in general and the market
prices of equity securities of many high technology companies in particular,
have experienced extreme price fluctuations, which often have been unrelated
to the operating performance of such companies. These broad market
fluctuations may materially adversely affect the market price of the Common
Stock. There can be no assurance that the trading price of the Common Stock
will not decline below its initial offering price to the public. See
"Underwriting."

CONTROL BY EXISTING STOCKHOLDERS

Following the completion of this Offering, members of the Board of Directors
and the executive officers of the Company, together with members of their
families and entities that may be deemed affiliates of or related to such
persons or entities, will beneficially own approximately 70% of the
outstanding shares of Common Stock of the Company. In particular, Mr. Koenig
and Ms. Pierce, the Company's Chief Executive Officer and Chief Financial
Officer, respectively, are married and will beneficially own approximately 60%
of the outstanding shares of Common Stock of the Company. Accordingly, these
stockholders will be able to elect all members of the Company's Board of
Directors and determine the outcome of all corporate actions requiring
stockholder approval, such as mergers and acquisitions. This level of
ownership by such persons and entities may have a significant effect in
delaying, deferring or preventing a change in control of the Company and may
adversely affect the voting and other rights of other holders of Common Stock.

EFFECTS OF CERTAIN ANTI-TAKEOVER PROVISIONS

Upon completion of the Offering, the Company's Board of Directors will have
the authority to issue up to 5,000,000 shares of Preferred Stock and to
determine the price, rights, preferences, privileges and restrictions,
including voting rights, of those shares without any further vote or action by
the stockholders. The rights of the holders of Common stock will be subject
to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. The issuance of Preferred
Stock, while providing flexibility in connection with possible acquisitions
and other corporate purposes, could have the effect of making it more
difficult for a third party to acquire a majority of the outstanding voting
stock of the Company. The Company has no current plans to issue shares of
Preferred Stock. The Company is also subject to certain provisions of Delaware
law which could have the effect of delaying, deterring or preventing a change
in control of the Company, including Section 203 of the Delaware General
Corporation Law, which prohibits a Delaware corporation from engaging in any
business combination with any interested stockholder unless certain conditions
are met. In addition, the Company's certificate of incorporation and bylaws
contain certain provisions that, together with the ownership position of the
officers, directors and their affiliates, could discourage potential takeover
attempts and make more difficult attempts by stockholders to change
management,whichcould adversely affect the market price of the Common Stock.
See "Management--Executive Officersand Directors," "Certain Transactions,"
"Principal Stockholders" and "Description of Capital Stock."

18
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS

Sales of a substantial number of shares of Common Stock in the public market
following the Offering could adversely affect the market price for the Common
Stock. The number of shares of Common Stock available for sale in the public
market is limited by restrictions under the Securities Act of 1933, as amended
(the "Securities Act"), and lock-up agreements under which certain
stockholders have agreed not to sell or otherwise dispose of any of their
shares for a period of 180 days after the date of this Prospectus without the
prior written consent of Credit Suisse First Boston Corporation. However,
Credit Suisse First Boston Corporation may, in its sole discretion and at any
time without notice, release all or any portion of the securities subject to
these lock-up agreements. When determining whether or not to release shares
from the lock-up agreements, Credit Suisse First Boston Corporation will
consider, among other factors, the person's reasons for requesting the
release, the number of shares for which the release is being requested and
market conditions at the time. As a result of these restrictions, based on
shares outstanding and options granted as of June 30, 1998, and assuming no
options are exercised between June 30, 1998 and the date of this Prospectus,
the following shares of Common Stock will be eligible for future sale. On the
date of this Prospectus, 3,147,900 shares (including the 3,000,000 shares
offered hereby) will be eligible for sale. An additional 56,421 shares will be
eligible for sale 90 days after the date of this Prospectus pursuant to Rule
701 of the Securities Act, and upon the expiration of the lock-up agreements
an additional 19,841,171 shares will be eligible for sale 180 days after the
date of this Prospectus, subject to certain limitations of Rule 144 of the
Securities Act. In addition, the Company intends to register on a registration
statement on Form S-8 under the Securities Act, within 90 days after the
effective date of the Offering, a total of 3,435,133 shares of Common Stock
subject to outstanding options or reserved for issuance under the 1998 Stock
Incentive Plan and 1998 Employee Stock Purchase Plan. Upon expiration of the
lock-up agreements referred to above, holders of approximately 5,593,126
shares of Common Stock will be entitled to certain registration rights with
respect to such shares. If such holders, by exercising their registration
rights, cause a large number of shares to be registered and sold in the public
market, such sales could have a material adverse effect on the market price
for the Common Stock. See "Description of Capital Stock--Registration Rights"
and "Shares Eligible for Future Sale."

MANAGEMENT'S DISCRETION OVER PROCEEDS OF THE OFFERING

The primary purposes of the Offering are to create a public market for the
Common Stock, to facilitate future access to public markets and to obtain
additional equity capital. As of the date of this Prospectus, the Company has
no specific plans as to the use of the net proceeds from this Offering;
accordingly, the Company's management will have broad discretion as to the
application of such net proceeds. Pending any such uses, the Company plans to
invest the net proceeds in short-term investment grade, interest-bearing
securities. See "Use of Proceeds."

IMMEDIATE AND SUBSTANTIAL DILUTION

Purchasers of shares of Common Stock in the Offering will incur immediate
and substantial dilution in the net tangible book value per share of the
Common Stock from the initial public offering price. To the extent that
outstanding options to purchase the Company's Common Stock are exercised,
there will be further dilution. See "Dilution."

19
<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the sale and issuance of the 3,000,000
shares of Common Stock offered hereby are estimated to be approximately $29.8
million (approximately $34.4 million if the Underwriters' over-allotment
option is exercised in full), at an assumed initial public offering price of
$11.00 per share and after deducting estimated underwriting discounts and
commissions and estimated offering expenses. The Company intends to use the
net proceeds for general corporate purposes, including working capital,
product development and capital expenditures. In particular, the Company
expects to use a portion of the net proceeds to expand its facilities. The
Company believes it will require up to 50,000 additional square feet of
office, manufacturing and research and development space in the next 24
months. A portion of the net proceeds may also be used to acquire or invest in
complementary businesses or products or to obtain the right to use
complementary technologies. The Company has no agreements or commitments with
respect to any such acquisition or investment, and the Company is not
currently engaged in any material negotiations with respect to any such
transaction. Pending such uses, the net proceeds of the Offering will be
invested in short-term, interest-bearing, investment grade securities.

DIVIDEND POLICY

The Company has never declared or paid dividends on its capital stock and
does not anticipate paying cash dividends in the foreseeable future. Payments
of future dividends, if any, will be at the discretion of the Company's Board
of Directors after taking into account various factors, including the
Company's financial condition, operating results, current and anticipated cash
needs and plans for expansion. The Company's line of credit arrangement
prohibits the payment of dividends by the Company without the lender's prior
consent. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."

20
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company as of June
30, 1998, (i) on an actual basis; (ii) on a pro forma basis giving effect to
the conversion of all outstanding shares of Redeemable Preferred Stock into
Common Stock upon the completion of the Offering; and (iii) as adjusted to
reflect the estimated net proceeds from the sale of 3,000,000 shares of Common
Stock offered by the Company hereby at an assumed initial public offering
price of $11.00 and after deducting estimated underwriting discounts and
commissions and estimated offering expenses. This table should be read in
conjunction with the Financial Statements and Notes thereto appearing
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
JUNE 30, 1998
--------------------------
PRO AS
ACTUAL FORMA ADJUSTED
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Redeemable Preferred Stock, $0.10 par value;
5,000,000 shares authorized, actual, 9,000,000
shares authorized, pro forma, and 5,000,000 shares
authorized, as adjusted; 3,728,755 shares issued and
outstanding actual, no shares issued and
outstanding, pro forma and as adjusted.............. $18,674 $ -- $ --
Stockholders' equity:
Common Stock, $0.001 par value; 60,000,000 shares
authorized, actual pro forma, and as adjusted;
14,452,368 shares issued and outstanding actual,
20,045,492 shares issued and outstanding pro forma
and 23,045,492 shares issued and outstanding as
adjusted(1)....................................... 19 25 28
Additional paid-in capital......................... 452 19,120 48,907
Deferred stock option compensation................. (208) (208) (208)
Retained earnings.................................. 985 985 985
------- ------- -------
Total stockholders' equity and capitalization.... $ 1,248 $19,922 $49,712
======= ======= =======
</TABLE>
- --------

(1) Excludes 1,779,905 shares of Common Stock issuable upon exercise of stock
options outstanding as of June 30, 1998 at a weighted average exercise
price of $3.84 per share, and 1,392,728 shares of Common Stock reserved
for grant of future options as of June 30, 1998 under the 1998 Stock
Incentive Plan. In addition, the Board of Directors adopted, and the
stockholders subsequently approved, the 1998 Employee Stock Purchase Plan
pursuant to which 262,500 shares of Common Stock were reserved for
issuance. See "Management--Benefit Plans," "Description of Capital Stock"
and Note 7 of Notes to Financial Statements.

21
<PAGE>

DILUTION

The pro forma net tangible book value of the Company at June 30, 1998, after
giving effect to the conversion of the Redeemable Preferred Stock into Common
Stock upon completion of the Offering, was approximately $19.9 million, or
$0.99 per share. Pro forma net tangible book value per share represents total
tangible assets less total liabilities, divided by the number of shares of
Common Stock outstanding after giving effect to the conversion of all
outstanding Redeemable Preferred Stock. After giving effect to the sale of
3,000,000 shares of Common Stock offered hereby by the Company at the assumed
initial public offering price of $11.00 per share and after deducting
estimated underwriting discounts and commissions and estimated offering
expenses, the Company's pro forma net tangible book value at June 30, 1998,
would have been approximately $49.7 million, or $2.16 per share. This
represents an immediate increase in net tangible book value of $1.17 per share
to existing stockholders and an immediate dilution of $8.84 per share to new
investors purchasing shares of Common Stock in the Offering. The following
table illustrates this dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................. $11.00
Pro forma net tangible book value per share prior to the
Offering...................................................... $ 0.99
Increase per share attributable to the Offering................ 1.17
------
Pro forma net tangible book value per share after the Offering... $ 2.16
------
Net tangible book value dilution per share to new investors in
the Offering.................................................... $ 8.84
======
</TABLE>

The following table summarizes, as of June 30, 1998, on the pro forma basis
described above, the total number of shares and consideration paid to the
Company and the average price per share paid by existing stockholders and by
new investors purchasing shares of Common Stock in this Offering at an assumed
initial public offering price of $11.00 per share (before deducting the
estimated underwriting discount and the estimated offering expenses):

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 20,045,492 87% $16,204,048 33% $ 0.81
New investors.............. 3,000,000 13% 33,000,000 67% 11.00
---------- --- ----------- ---
Totals................... 23,045,492 100% $49,204,048 100% $ 2.14
========== === =========== ===
</TABLE>

The foregoing computations are based on the number of shares of Common Stock
outstanding as of June 30, 1998 and exclude 1,779,905 shares of Common Stock
issuable upon the exercise of stock options outstanding at a weighted average
exercise price of $3.84 per share, 1,392,728 shares of Common Stock reserved
for future issuance under the 1998 Stock Incentive Plan and 262,500 shares of
Common Stock reserved for future issuance under the 1998 Employee Stock
Purchase Plan. To the extent that these options are exercised, there will be
further dilution to new investors. See "Management--Benefit Plans" and Note 7
of Notes to Financial Statements.

22
<PAGE>

SELECTED FINANCIAL DATA

The following selected financial data is qualified by reference to and
should be read in conjunction with the Company's Financial Statements and
Notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this Prospectus. The
statement of operations data for the years ended December 31, 1995, 1996 and
1997, and the balance sheet data at December 31, 1996 and 1997, are derived
from, and are qualified by reference to, the audited financial statements
included elsewhere in this Prospectus. The statement of operations data for
the year ended December 31, 1994 and the balance sheet data at December 31,
1994 and 1995 are derived from audited financial statements not included in
this Prospectus. The statement of operations data for the year ended December
31, 1993 and the balance sheet data at December 31, 1993 are derived from
unaudited financial statements not included in this Prospectus. The statement
of operations data for the six months ended June 30, 1997 and 1998 and the
balance sheet data at June 30, 1998 have been derived from the unaudited
financial statements of the Company included elsewhere in this Prospectus. The
unaudited financial statements have been prepared on the same basis as the
audited financial statements and, in the opinion of the Company's management,
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the information set forth therein. The
historical results are not necessarily indicative of the operating results to
be expected in the future.

<TABLE>
<CAPTION>
FOR THE SIX
FOR THE MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------- ---------------
1993 1994 1995 1996 1997 1997 1998
------ ------ ------ ------ ------- ------ -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Net revenue............. $ 384 $ 741 $2,058 $5,809 $18,719 $6,493 $16,292
Cost of goods sold...... 140 379 1,287 3,284 9,469 3,231 8,281
------ ------ ------ ------ ------- ------ -------
Gross profit............ 244 362 771 2,525 9,250 3,262 8,011
Operating expenses:
Sales and marketing.... 75 170 269 844 2,395 959 1,995
Research and
development........... 77 129 164 874 2,848 773 1,993
General and
administrative........ 50 87 203 907 1,661 606 1,362
------ ------ ------ ------ ------- ------ -------
Total operating
expenses............. 202 386 636 2,625 6,904 2,338 5,350
------ ------ ------ ------ ------- ------ -------
Income (loss) from
operations............. 42 (24) 135 (100) 2,346 924 2,661
Other income, net....... -- 29 46 24 180 4 308
------ ------ ------ ------ ------- ------ -------
Income (loss) before
income taxes........... 42 5 181 (76) 2,526 928 2,969
Income taxes (1)........ -- -- -- -- 791 291 1,057
------ ------ ------ ------ ------- ------ -------
Net income (loss)...... $ 42 $ 5 $ 181 $ (76) $ 1,735 $ 637 $ 1,912
Preferred stock dividend
requirement............ -- -- -- (285) (1,121) (284) (1,316)
------ ------ ------ ------ ------- ------ -------
Net income (loss)
available to common
stockholders........... $ 42 $ 5 $ 181 $ (361) $ 614 $ 353 $ 596
====== ====== ====== ====== ======= ====== =======
Pro forma net income.... $ 26 $ 3 $ 113
====== ====== ======
Pro forma and historical
income (loss) per
share--
Basic and diluted...... $ 0.01 $ 0.00 $ 0.01 $(0.03) $ 0.04 $ 0.03 $ 0.04
====== ====== ====== ====== ======= ====== =======
Weighted average common
shares outstanding(2):
Basic.................. 11,475 11,475 13,665 13,881 14,132 14,089 14,379
====== ====== ====== ====== ======= ====== =======
Diluted (3)............ 11,475 11,475 13,665 13,881 14,713 14,518 15,273
====== ====== ====== ====== ======= ====== =======
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------------- JUNE 30,
1993 1994 1995 1996 1997 1998
---- ---- ------ ------ ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and marketable securities......... $13 $ 24 $ 128 $ 929 $ 8,620 $ 8,796
Working capital........................ 21 14 121 2,941 16,615 17,969
Total assets........................... 149 243 1,045 4,822 21,680 23,015
Total liabilities...................... 112 201 823 1,258 3,762 3,093
Redeemable preferred stock............. -- -- -- 3,722 17,358 18,674
Total stockholders' equity (deficit)... 37 42 222 (158) 560 1,248
</TABLE>
- --------

(1) The Company was a subchapter S Corporation for income tax purposes prior
to January 1, 1996 and, accordingly, taxable income was reported in the
individual tax returns of the stockholders. Pro forma net income is
presented as if the Company had been a taxable entity during 1993, 1994
and 1995.

(2) Weighted average common shares outstanding does not include the effect of
the conversion of the Redeemable Preferred Stock into 5,593,133 shares of
Common Stock upon completion of the Offering.

(3) The diluted net income (loss) per share computation includes potential
shares of Common Stock (Redeemable Preferred Stock and options to purchase
Common Stock), unless their effect would be antidilutive.

23
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

The following discussion and analysis should be read in conjunction with
"Selected Financial Data" and the Company's Financial Statements and Notes
thereto included elsewhere in this Prospectus. This Prospectus contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ materially from the results discussed in such
forward-looking statements. Factors that might cause such a difference
include, but are not limited to, those discussed below and in "Risk Factors"
and "Business," as well as those discussed elsewhere in this Prospectus.

OVERVIEW

The Company is a leading provider of Multi-service Digital Access ("MDA")
equipment to competitive carriers for the provisioning of enhanced voice and
high-speed data services to end users such as small and medium-sized
businesses and government and educational institutions. CAC was incorporated
in September 1992 as a successor company to Koenig Communications, an
equipment systems integration and consulting company which had been in
operation since 1986. From inception through May 1995, the Company's operating
activities related primarily to providing systems integration and other
consulting services, establishing a research and development organization,
developing and testing prototype designs, building a national distribution
base, establishing a marketing and sales organization and developing customer,
vendor and manufacturing relationships.

From 1992 through June 30, 1995, the Company derived substantially all of
its net revenue from its systems integration and consulting business, in which
the Company purchased other vendors' products and configured the products in
combination with the Company's private-label DataSplit product, for each
customer's unique network requirements. In the summer of 1995, the Company
ceased its systems integration and consulting business and commenced its main
product sales with the introduction of the Access Bank I. In the fourth
quarter of 1997, the Company began commercial deployment of its Wide Bank
product. Accordingly, the Company has only a limited operating history on
which to base an evaluation of its business and prospects. The Company and its
prospects must be considered in light of the risks, uncertainties and
difficulties frequently encountered by companies in an early stage of
development, particularly companies in new and rapidly evolving markets. See
"Risk Factors--Limited Operating History; Future Results of Operations
Uncertain."

The Company's net revenue is derived from the sales of MDA equipment and
accessories. The Company recognizes revenue upon shipment of product from the
Company's factory to its distributors' warehouses. In 1997, the Company's
Access Bank product family and the Wide Bank product family accounted for
approximately 80% and 16%, respectively, of the Company's net revenue. In the
six months ended June 30, 1998, the Company's Access Bank product family and
Wide Bank product family accounted for approximately 70% and 25%,
respectively, of the Company's net revenue. See "Risk Factors--Dependence on
Emerging Market for Multi-service Digital Access Equipment; Risks Associated
With Market Acceptance of Wide Bank Product Family" and Note 1 of Notes to
Financial Statements.

Substantially all of the sales of the Company's products are through
distributors. In addition to product sales, the Company from time to time
relies on its distributors to provide installation, training and customer
support to the ultimate end users of the Company's products. As a result, the
Company's success depends on the continued sales and customer support efforts
of its network of distributors. Sales of the Company's products historically
have been made to a limited number of distributors. In 1995, Telco, C&L,
Phillips and Telsource accounted for 26%, 13%, 13% and 12% of net revenue,
respectively. In 1996, Telco, Phillips, Telsource and C&L accounted for 47%,
18%, 18% and 11% of net revenue, respectively. In 1997, Walker, ADC and
Phillips accounted for 36%, 20% and 14% of net revenue, respectively. In the
six months ended June 30, 1998, Walker, Phillips and Telsource accounted for
47%, 19% and 15% of net revenue, respectively. The Company expects that sales
of its products will continue to be made to a small number of key
distributors. Accordingly, the loss of, or reduction in sales to, any of the
Company's key distributors could have a material adverse effect on the

24
<PAGE>

Company's business, financial condition and results of operations. See "Risk
Factors--Dependence on Distribution Channels" and Note 7 of Notes to Financial
Statements.

In addition to being dependent on a small number of distributors for a
majority of its net revenue, the Company believes its products are distributed
to a limited number of competitive carrier customers who are primarily CLECs.
The Company believes that in 1997, 22 competitive carrier customers indirectly
accounted for 75% of its net revenue and that for the six months ended June
30, 1998, approximately 75 competitive carrier customers indirectly accounted
for 90% of its net revenue. In particular, the Company believes (based on
information from its distributors) that TCG, NEXTLINK, WinStar and e.spire
each accounted for a significant portion of the Company's net revenue in 1997
and the six months ended June 30, 1998. None of these competitive carrier
customers has any obligation to purchase additional products or services.
Accordingly, there can be no assurance that present or future competitive
carrier customers will not terminate their purchasing arrangements with the
Company's distributors or significantly reduce or delay the amount of the
Company's products that they order. Any such termination, change, reduction or
delay in orders could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company generally
provides its distributors with limited stock rotation and price protection
rights, and the Company has granted certain of its distributors "most favored
customer" terms. There can be no assurance that these stock rotation rights,
price protection rights or most favored customer provisions will not have a
material adverse effect on the Company's business, operating results or
financial condition. See "Risk Factors--Dependence on Distribution Channels,"
"--Challenges of Maintaining and Expanding Distribution Channels; Potential
for Channel Conflict," "--Competitive Carrier Customer Concentration" and
"Business--Customers."

The Company believes that average selling prices and gross margins for its
products will decline as such products mature, as volume price discounts in
distributor contracts take effect and as competition intensifies, among other
factors. In addition, discounts to distributors vary among product lines and
are based on volume shipments, both of which affect gross margins. The
Company's gross margin for its Access Bank product family is higher than the
gross margin for its Wide Bank product family. The Company believes its gross
margins are likely to fluctuate based on product mix and channel mix. Margins
will also likely be adversely affected from time to time by new product
introductions. See "Risk Factors--Significant Fluctuation in Results of
Operations" and "--Possible Decline in Prices."

RESULTS OF OPERATIONS

The following table sets forth statements of operations data of the Company
expressed as a percentage of net revenue for the periods indicated. The
Company does not believe its historical results of operations are indicative
of future results:

<TABLE>
<CAPTION>
FOR THE
SIX MONTHS
FOR THE YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
------------------------- -------------
1995 1996 1997 1997 1998
------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C>
Net revenue......................... 100% 100% 100% 100% 100%
Cost of goods sold.................. 63 57 51 50 51
------ ------ ------ ----- -----
Gross margin........................ 37 43 49 50 49
Operating expenses:
Sales and marketing............... 13 14 12 15 12
Research and development.......... 8 15 15 12 12
General and administrative........ 9 16 9 9 9
------ ------ ------ ----- -----
Total operating expenses........ 30 45 36 36 33
------ ------ ------ ----- -----
Income (loss) from operations....... 7 (2) 13 14 16
Other income, net................... 2 0 0 0 2
------ ------ ------ ----- -----
Income (loss) before income taxes... 9 (1) 13 14 18
Income taxes........................ 0 0 4 7 6
------ ------ ------ ----- -----
Net income (loss)................... 9% (1)% 9% 7% 12%
====== ====== ====== ===== =====
</TABLE>

25
<PAGE>

SIX MONTHS ENDED JUNE 30, 1997 AND 1998

Net Revenue. Net revenue increased by approximately 151% from $6.5 million
in the six months ended June 30, 1997 to $16.3 million in the six months ended
June 30, 1998. The growth in net revenue was primarily attributable to sales
of products introduced since the first quarter of 1997 and increased sales of
existing products.

Gross Margin. The Company's cost of goods sold consists primarily of costs
associated with parts and components, outsourced manufacturing of certain
printed circuit boards, chassis and subassemblies and in-house labor
associated with assembly, testing, shipping and quality assurance. Gross
profit increased by approximately 142% from $3.3 million in the six months
ended June 30, 1997 to $8.0 million in the six months ended June 30, 1998.
Gross margin was approximately 50% and 49% for the six months ended June 30,
1997 and 1998, respectively. The absolute dollar increase in gross profit was
due to increases in sales, partially offset by increases in component costs,
compensation costs and overhead related to the Company's manufacturing
operations as well as warranty expenses. Gross margin declined in the six
months ended June 30, 1998 as compared to the six months ended June 30, 1997
due primarily to introduction of the Wide Bank product, which carries a lower
gross margin, and, to a lesser extent, to the rework of previously shipped
Wide Bank products to add features included in a subsequent release.

Sales and Marketing. Sales and marketing expenses consist of salaries and
related expenses for personnel engaged in sales and marketing of the Company's
products, as well as trade shows and promotional expenses. Sales and marketing
expenses increased approximately 108% from $959,000 for the six months ended
June 30, 1997 to $2.0 million for the six months ended June 30, 1998. This
increase was primarily due to sales commissions on a higher level of sales,
increased staffing levels, and increased spending on trade shows, travel and
entertainment and other marketing programs. The Company intends to hire
additional sales and marketing personnel and to continue to aggressively
pursue sales and marketing campaigns, and therefore expects these expenses to
increase in absolute dollars in the future.

Research and Development. Research and development expenses consist
principally of salaries and related personnel expenses, consultant fees, and
prototype expenses related to the design, development and testing of the
Company's MDA equipment. Research and development expenses increased
approximately 159% from $773,000 for the six months ended June 30, 1997 to
$2.0 million for the six months ended June 30, 1998. The increase in the level
of research and development expenses was due primarily to increased personnel,
consulting costs and depreciation expense related to new test and laboratory
capabilities. The Company expects the amount of research and development
expenses to continue to increase to fund the development of new products and
enhancements.

General and Administrative. General and administrative expenses consist
primarily of salaries and related expenses for executive, accounting and
administrative personnel, recruiting expenses, professional fees and other
general corporate expenses. General and administrative expenses increased
approximately 125% from $606,000 for the six months ended June 30, 1997 to
$1.4 million for the six months ended June 30, 1998 primarily as a result of
increased personnel. The Company expects general and administrative expenses
to increase in absolute dollars as the Company adds personnel and incurs
additional costs related to the expansion of its business and operation as a
public company.

Other Income, Net. Other income increased from $4,000 in the six months
ended June 30, 1997 to $308,000 in the six months ended June 30, 1998. The
increase was a result of sublease rental income and an increase in interest
income received on cash equivalent investments and other marketable
securities.

Income Taxes. The provision for income taxes was $1.1 million for the six
months ended June 30, 1998 compared to $291,000 for the six months ended June
30, 1998. The effective tax rate of 36% in the six months ended June 30, 1998
approximated the federal statutory rate of 34% plus a provision for state
taxes less research and development tax credits. The Company expects its
effective tax rate to increase in the future due to the expiration of the
research and development tax credit. See Notes 1 and 5 of Notes to Financial
Statements.

26
<PAGE>

YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

Net Revenue. Net revenue increased by approximately 222% from $5.8 million
for 1996 to $18.7 million for 1997 and by approximately 176% from $2.1 million
for 1995 to $5.8 million in 1996. The increase in 1997 was due to new product
introductions and increased distributor sales of the Company's existing
products. The increase in 1996 was a result of a full year of production and
sale of the Company's Access Bank I product, which began shipping in mid-1995.
In 1995, approximately $313,000 of the Company's net revenues were related to
the Company's systems integration and consulting business, which the Company
no longer operates.

Gross Margin. Gross profit in 1995, 1996 and 1997 was approximately
$771,000, $2.5 million, and $9.3 million, respectively. Gross margin was 37%,
43% and 50%, respectively, for these years. Gross profit increased between the
periods primarily as a result of increased production. Gross margin improved
as a result of volume purchase discounts and efficiencies associated with
increased manufacturing volume for new and existing products. The Company
believes that these annual margin improvements are not indicative of future
results.

Sales and Marketing. Sales and marketing expenses increased approximately
214% from $269,000 in 1995 to $844,000 in 1996 and approximately 184% to $2.4
million in 1997. The increase in 1996 stemmed from increased sales commissions
on higher sales and increased spending on personnel, advertising and trade
shows as the Company began marketing the Access Bank II. The increase in 1997
reflected the expansion of the sales force as well as costs associated with
increased marketing activity with respect to the introduction of the Wide Bank
and other products in the second half of 1997, customer support, advertising
and trade shows.

Research and Development. Research and development expenses in 1995, 1996
and 1997 were approximately $164,000, $874,000 and $2.8 million, respectively.
Research and development expenses increased $710,000, or 433%, from 1995 to
1996. This increase was due primarily to an increase in the number of
personnel engaged in the development of new products, including the Access
Bank II. Research and development expenses increased approximately $2.0
million, or 226%, from 1996 to 1997. This increase was principally due to
personnel added to expand the Company's product line, which included the Wide
Bank 28, new modules for the Access Bank I and Access Bank II products, new
software features and line cards for the Access Bank I and Access Bank II
products and new power and other equipment accessories.

General and Administrative. General and administrative expenses in 1995,
1996 and 1997 were approximately $203,000, $907,000 and $1.7 million,
respectively. General and administrative expenses increased $704,000, or 347%,
from 1995 to 1996 and $754,000, or 83%, from 1996 to 1997. The increases in
each year were principally due to increases in personnel and facilities costs
necessary to support the expansion of the Company's business.

Other Income, Net. The Company recognized other income of approximately
$46,000 and $24,000 for 1995 and 1996, respectively. The other income in 1995
and 1996 includes sublease rental income and, in 1995, the sale of the
Company's domain name. The Company had other income of $180,000 for 1997,
consisting of sublease rental and interest income.

Income Taxes. The Company did not provide for income taxes in 1995 because
it was a subchapter S Corporation for income tax purposes and did not record a
tax benefit in 1996 due to the uncertainty relating to the utilization of the
net operating loss carryforward. The effective tax rate of 31% in 1997 was
less than the combined federal and state statutory rate primarily as a result
of the utilization of the research and development tax credit, which was
extended through June 1998, and a change in the valuation allowance for
deferred tax assets. The Company expects its tax rate to increase after June
1998 as a result of the expiration of the research and development tax credit.
See Notes 1 and 5 of Notes to Financial Statements.

QUARTERLY RESULTS OF OPERATIONS

The following table sets forth certain quarterly financial data for the
eight quarters ending with the quarter ended June 30, 1998, including such
amounts expressed as a percentage of total net revenue. This quarterly

27
<PAGE>

information is unaudited, has been prepared on the same basis as the annual
financial statements and, in the opinion of the Company's management, reflects
all normal recurring adjustments necessary for a fair presentation of the
information for the periods presented. Operating results for any quarter are
not necessarily indicative of results for any future period.

<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
-----------------------------------------------------------------------------------
SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1996 1996 1997 1997 1997 1997 1998 1998
--------- -------- --------- -------- --------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net revenue....................... $ 1,369 $ 1,317 $ 2,496 $ 3,996 $ 5,636 $ 6,591 $ 7,243 $ 9,049
Cost of goods sold................ 863 485 1,256 1,975 2,752 3,486 3,768 4,513
-------- -------- -------- -------- -------- -------- -------- -------
Gross profit...................... 506 832 1,240 2,021 2,884 3,105 3,475 4,536
Operating expenses:
Sales and marketing.............. 259 341 432 528 615 820 975 1,020
Research and development......... 257 287 372 400 923 1,153 843 1,150
General and administrative....... 242 254 251 355 496 559 552 810
-------- -------- -------- -------- -------- -------- -------- -------
Total operating expenses........ 758 882 1,055 1,283 2,034 2,532 2,370 2,980
Income (loss) from operations..... (252) (50) 185 738 850 573 1,105 1,556
Other income (expense), net....... 19 48 10 (6) 18 158 168 140
-------- -------- -------- -------- -------- -------- -------- -------
Income (loss) before income taxes. (233) (2) 195 732 868 731 1,273 1,696
Income taxes...................... -- -- 61 229 273 228 450 607
-------- -------- -------- -------- -------- -------- -------- -------
Net income (loss)................. $ (233) $ (2) $ 134 $ 503 $ 595 $ 503 $ 823 $ 1,089
======== ======== ======== ======== ======== ======== ======== =======
AS A PERCENTAGE OF NET REVENUE:
Net revenue....................... 100% 100% 100% 100% 100% 100% 100% 100%
Cost of goods sold................ 63 37 50 49 49 53 52 50
-------- -------- -------- -------- -------- -------- -------- -------
Gross margin...................... 37 63 50 51 51 47 48 50
Operating expenses:
Sales and marketing.............. 19 26 18 14 11 12 13 11
Research and development......... 18 22 15 10 16 17 12 13
General and administrative....... 18 19 10 9 9 8 8 9
-------- -------- -------- -------- -------- -------- -------- -------
Total operating expenses........ 55 67 43 33 36 38 33 33
Income (loss) from operations..... (18) (4) 7 18 15 9 15 17
Other income (expense), net....... 1 4 0 0 0 2 2 2
-------- -------- -------- -------- -------- -------- -------- -------
Income (loss) before income taxes. (17) 0 7 18 15 11 17 19
Income taxes...................... 0 0 2 5 4 3 6 7
-------- -------- -------- -------- -------- -------- -------- -------
Net income (loss)................. (17)% 0% 5% 13% 11% 8% 11% 12%
======== ======== ======== ======== ======== ======== ======== =======
</TABLE>

The Company's net revenue has increased each quarter since the three months
ended December 31, 1996, primarily as result of new product introductions,
product enhancements and increased distributor sales of the Company's existing
products. During the three month periods ended March 31, 1997, June 30, 1997
and September 30, 1997, the Company's net revenues and gross profit were
adversely affected by the resale of certain of the Company's products into the
market at significantly reduced prices by an OEM. This OEM no longer
distributes the Company's products. Gross margin varied significantly for the
three months ended September 30, 1996, December 31, 1996 and March 31, 1997.
In the three months ended December 31, 1996, the Company introduced a new
software feature (embedded in a chip set) that facilitated the upgrade of the
Company's Access Bank I product to include TR-08 functionality. A large
quantity of these chip sets, which carried a higher gross margin than the
Company's other products, was sold in that quarter. Operating expenses during
these time periods also generally increased, principally due to increased
costs related to personnel and facilities necessary to support the expansion
of Company's business. Research and development expenses during the quarter
ended December 31, 1997 increased significantly from the previous quarter
primarily as a result of the Company's purchase of third party software used
to facilitate interoperability with existing industry standards. Consistent
with the Company's accounting policies, these software costs were expensed in
the period

28
<PAGE>

in which they were incurred because the technological feasibility of the
related product had not been determined at the time of the purchase.

The Company's results of operations have fluctuated significantly in the
past and are likely to fluctuate significantly in the future, both on a
quarterly and annual basis, as a result of a variety of factors, many of which
are outside of the Company's control. Among other things, the Company's
results of operations have fluctuated in the past due to (i) the availability
of adequate supplies of key components and assemblies and the adequacy of
third-party manufacturing capabilities; (ii) delays in the introduction of new
products or product enhancements by the Company; (iii) customer order
deferrals in anticipation of product enhancements or new product offerings by
the Company; (iv) the Company's ability to affect and judge the timing and
size of orders from its distributors; and (v) errors in the assembly of
electronic component kits and shipping errors. The Company's results of
operations may also fluctuate in the future due to a number of factors,
including, but not limited to, those listed above as well as (i) the timing
and size of orders which are received and which can be shipped in any
particular period; (ii) the commercial success of the Company's products;
(iii) changes in the financial stability of the Company's distributors,
competitive carrier customers or suppliers; (iv) changes in pricing policies
by the Company or its competitors; (v) seasonality in the placement of orders;
(vi) changes in the level of the Company's operating expenses; (vii) changes
in the Company's distribution channels; (viii) delays or deferrals of any
competitive carrier's or end user's implementation of the Company's products;
(ix) product life cycles; (x) customization or integration problems with end
user systems; (xi) changes in the Company's strategy; (xii) product failure or
error; or (xiii) the level of international expansion. A significant portion
of the Company's net revenue has been, and the Company believes will continue
to be, derived from a limited number of large orders, and the timing of such
orders and their fulfillment has caused, and are expected to continue to
cause, material fluctuations in the Company's operating results. The Company's
distribution agreements generally allow distributors to cancel orders without
penalty until a relatively short period of time prior to shipment. The Company
has experienced cancellation and delays of orders from time to time, and
expects to continue to experience order cancellations and delays from time to
time in the future, which could adversely affect the Company's revenue and
results of operations for a quarter or series of quarters. Fluctuations in
operating results may result in volatility in the price of the Company's
Common Stock. Due to all of the foregoing factors, it is possible that in some
future quarter, the Company's results of operations will be below the
expectations of market analysts and investors. In such event, the market price
of the Company's Common Stock would likely be materially adversely affected.
See "Risk Factors--Significant Fluctuations in Results of Operations."

LIQUIDITY AND CAPITAL RESOURCES

The Company has funded its operations to date primarily through cash
generated from operations, private sales of preferred stock totaling
approximately $15.6 million (net of issuance costs) and periodic borrowings
under its credit facilities.

Net cash used by operating activities for 1995, 1996 and 1997 totaled
approximately $224,000, $1.7 million and $3.5 million, respectively. Net cash
provided by operating activities for the six months ended June 30, 1998
totaled $959,000. In all periods except during the first six months of 1998,
cash used by operating activities was primarily due to increases in inventory
and accounts receivable, partially offset by increases in accounts payable and
other liabilities, and, in each period except 1996, by net income. Cash
provided by operating activities for the six months ended June 30, 1998 was
due to net income, partially offset by an increase in accounts receivable, and
a decrease in accounts payable.

Cash used by investing activities was approximately $93,000, $639,000 and
$3.6 million in 1995, 1996 and 1997, respectively. In each year, cash used in
investing activities was primarily attributable to purchases of equipment,
and, in 1997, by purchases of securities available for sale. Cash used by
investing activities for the six months ended June 30, 1998 of approximately
$1.6 million was primarily attributable to purchases of securities and
purchases of equipment.

Cash provided by financing activities was approximately $422,000, $3.1
million, $12.3 million and $50,000 for 1995, 1996, 1997 and the six months
ended June 30, 1998, respectively. Cash provided by financing activities

29
<PAGE>

was primarily from short term borrowings in 1995, proceeds from the issuance
of preferred stock and short term borrowings in 1996 and 1997, and proceeds
from the issuance of common stock in the six months ended June 30, 1998. Cash
provided by financing activities in 1997 was somewhat offset by repayment of
short term borrowings.

At June 30, 1998, the Company's principal sources of liquidity included cash
and marketable securities available for sale of approximately $8.8 million and
a bank credit facility of $5.0 million, which bears interest at the bank's
prime rate. This working capital line of credit is limited to a borrowing base
determined by the balance of the Company's eligible receivables and inventory.
At June 30, 1998 there were no outstanding borrowings under the working
capital line. See Note 4 of Notes to Financial Statements.

The Company's inventory levels increased in 1995, 1996 and 1997 and
decreased at June 30, 1998 due to an inventory reserve of $210,000. The
increase in the Company's inventory levels during 1995, 1996 and 1997 was
largely due to the Company's attempt to address the risks of component
availability, the Company's attempt to avail itself of volume purchase
discounts and the Company's need to procure an increasing number of components
to manufacture an increasing number of product offerings. Prior to 1998, the
Company procured 100% of all the components used in manufacturing its
products. In 1998, the Company began to partially use turnkey manufacturing
for certain of its components and subassemblies. The Company believes that as
it continues to use turnkey manufacturers, its inventory levels will decrease
in the future. See "Risk Factors--Dependence on Component Availability" and
"Business--Marketing."

At December 31, 1997, the Company's working capital was approximately $16.6
million and had increased to $18.0 million at June 30, 1998. The Company has
no significant capital spending or purchase commitments other than normal
inventory purchase commitments and commitments under facilities leases.
However, the Company believes that it will require up to 50,000 additional
square feet of office, manufacturing and research and development space in the
next 24 months, which will materially increase the amount of its operating
lease commitments. There can be no assurance that suitable space will be
available on commercially reasonable terms or at all. See Note 9 of Notes to
Financial Statements.

The Company believes that the proceeds from the Offering, together with
available funds, anticipated cash flows from operations and its line of
credit, will satisfy the Company's projected working capital and capital
expenditure requirements for at least the next 12 months. Although operating
activities may provide cash in certain periods, to the extent the Company
experiences growth in the future, the Company anticipates that its operating
and investing activities may use cash. Consequently, any such growth could
require the Company to obtain additional financing. See "Risk Factors--
Potential Need for Additional Capital; Risks Relating to Potential
Acquisitions."

30
<PAGE>

BUSINESS

OVERVIEW

Carrier Access Corporation ("CAC" or the "Company") is a leading provider of
Multi-service Digital Access ("MDA") equipment to competitive
telecommunications carriers, including competitive local exchange carriers
("CLECs"), Internet service providers ("ISPs"), wireless and other carriers,
based on the number of access lines provided to competitive carriers. The
Company's MDA equipment is used for the provisioning of enhanced voice and
high-speed data services by carriers to end users such as small and medium-
sized businesses and government and educational institutions. The Company's
MDA equipment provides a "last mile" solution for the voice and data
connectivity needs of competitive carriers and end users throughout the United
States. Mass deployment of digital last mile connectivity from end user to
carrier networks is enabled through the Company's cost-effective, compact,
scaleable and easily installed customer premises and central office
telecommunications equipment. The Company's products allow competitive
carriers to leverage their existing digital infrastructure to cost-effectively
connect end users to their networks. The Company's MDA products utilize high
bandwidth digital deployment targeted at end users requiring between 6 and 672
telephone line equivalents of bandwidth. The Company's MDA products enable a
broad variety of enhanced carrier service offerings including high-speed
Internet access, virtual private networks, switched local and long distance
voice, Caller ID, distinctive ringing, direct inward dialing, automated call
routing and other widely-used telecommunications services. Based on
information from its distributors, the Company believes that over 100
competitive carriers have purchased the Company's products through its
distributors. Carriers which have purchased the Company's products include
Allegiance Telecom, Inc., Cablevision Systems Corp., Cellular One Group,
Commonwealth Telephone Enterprises, Inc., e.spire Communications, Inc.,
Frontier Corporation, GST Telecommunications, Inc., ICG Communications, Inc.,
Intermedia Communications, Inc., Logix Communications, Inc., MGC
Communications, Inc., NEXTLINK Communications, Inc., Pacific Bell, a division
of SBC, Inc., PSINet, Inc., STAR Telecommunications, Inc., Teleport
Communications Group, Inc., US LEC Corp., U S WEST, Inc., WinStar
Communications, Inc. and Worldcom Inc.

INDUSTRY BACKGROUND

Increasing demand for enhanced voice and high-speed data communications,
together with technological advances, has created a significant market for the
provisioning of communications services to businesses and government and
educational institutions. In addition, as a result of recent deregulation, a
variety of telecommunications service providers (commonly called "carriers")
have emerged in this market to offer local telecommunications services in
competition with the incumbent local exchange carriers (the "ILECs"). These
new competitive carriers are seeking to differentiate themselves and to
capitalize on the growing demand for enhanced voice and high-speed data
communications by deploying advanced technologies and continuing to build
alternative networks. In order to reduce the cost of providing these services,
competitive carriers are attempting to leverage their existing network
infrastructure, in which they have made a substantial investment. As a result,
competitive carriers are focused on deploying new equipment that enables them
to quickly and cost-effectively provide reliable enhanced voice and high-speed
data services.

Emergence of Competitive Carriers. Historically, the telecommunications
industry in the United States was highly regulated, with both local and long
distance service providers operating as monopolies. As a result of the passage
of the Telecommunications Act of 1996, competitive carriers have emerged to
compete with the ILECs in the provisioning of local exchange services. The
market for local exchange services consists of two types of carriers: ILECs
who own the existing local telephone wire, and carriers such as CLECs and
other competitive carriers who do not, but are capitalizing on recent
regulatory changes to lease existing lines and offer local services.
Currently, over 100 CLECs in the United States have entered the market for
local telephone services and are building their own networks. In addition,
many CLECs, through the acquisition of ISPs, have sought to expand their
service offerings to include data. Competitive carriers are offering customers
competitively priced, highly reliable telecommunications services by deploying
local access networks which are more flexible and cost-effective than
traditional copper-based local networks operated by the ILECs. To do so,

31
<PAGE>

competitive carriers have invested substantial resources over the past several
years to build an infrastructure which enables them to link their customers to
existing local telephone lines, and as a result, continually seek ways to
increase revenue and market share while reducing initial and ongoing costs.
One method utilized by carriers has been the delivery of multiple, rather than
individual, voice and data circuits which can be aggregated on single high-
speed digital connections. In addition, many carriers have invested in
switching and transmission technologies to increase capacity and efficiency in
the backbones of their telecommunications networks. According to New Paradigm
Resources Group, Inc., a CLEC research organization, competitive carriers
installed approximately 1.8 million access lines in 1997, a number which is
expected to double in 1998. Additionally, CLECs have invested over $5 billion
in equipment to build their local access networks in 1997.

Increasing Demand for Enhanced Voice and High-Speed Data Connectivity. The
volume of data traffic transmitted over telecommunications networks has grown
dramatically in recent years. Growing demand for new services, such as high-
speed Internet access, as well as the increasing use of the Internet and
corporate intranets as vehicles to communicate and disseminate information,
has driven demand for digital telecommunications equipment which integrate
enhanced voice and high-speed data. Due to the mission critical nature of
their enhanced voice and high-speed data traffic, businesses and government
and educational institutions are driving demand for additional bandwidth and
higher transmission rates.

Competitive Carriers Targeting Underserved Business Markets. According to
the Small Business Administration, there were approximately 6.2 million
businesses in the United States in 1996, 90% of which had less than 20
employees and 99% of which had less than 500 employees. According to
International Data Corporation ("IDC"), the number of telephone lines a
business uses is related to the number of people it employs; however, there is
generally not a one-to-one correlation. For example, businesses with fewer
than 100 employees typically use fewer than 20 lines. Small and medium-sized
businesses typically access the Internet via dial-up modems, and generally do
not have access to or have not implemented high-speed digital connections.
According to IDC, dial-up access represented approximately 90% of all
corporate access connections for Internet usage in 1997. However, small and
medium-sized businesses are increasingly demanding the enhanced service
offerings that are available to large businesses, including high-speed
Internet access, virtual private networks and direct inward dialing services.
To cost-effectively meet this demand and capture an increasing share of the
market to provide such services, competitive carriers are bundling enhanced
voice and high-speed data services. Bundled services also enable competitive
carriers to offer a single point of contact and consolidated billing. However,
equipment capable of providing such bundled services has typically been
provided by large telecommunications equipment vendors that designed their
products for high-line density installations. As a result, legacy
telecommunications equipment providers have been unable to effectively serve
installations requiring lower line densities.

Adoption of Digital Access Equipment in the "Last Mile." The access portion
of the local exchange network, which is known as the "last mile" and connects
end users to the carrier network, was originally constructed with copper
twisted-pair wiring designed to support low bandwidth voice traffic. Due to
the increased level of enhanced voice and high-speed data traffic that now
must pass over these analog lines, carriers have begun to install higher speed
digital transmission technologies in the last mile. Digital transmission has
distinct advantages over analog transmission, including increased speed, lower
cost, higher reliability and quality, and better manageability. The
transmission components of today's high-speed digital telecommunications
access networks in the United States are T1 connections, which transmit at
1.544 Mbps (the equivalent of 24 voice circuits), and T3 connections, which
transmit at 45 Mbps (and can aggregate up to 28 T1 connections or the
equivalent of 672 voice circuits). By offering T1 and T3 connectivity,
carriers enable increased usage of enhanced voice and high-speed data which,
in turn, can expand their revenue base. New digital technologies have been
introduced in recent years to increase the speed and quality of digital
transmission over copper wires in the last mile and provide alternative means
of accessing the wireline network backbone. While the costs of deploying these
solutions varies between carriers, technological developments such as Digital
Loop Carriers ("DLC") and HDSL have made digital services more accessible in
recent years. However, traditional equipment for the provisioning of digital
service is expensive, takes up a considerable amount of space at the carrier's
location or the customer's premises, and is difficult and time consuming to
install and maintain.

32
<PAGE>

Need for New Digital Access Equipment. Competitive carriers, facing growing
pressure to increase service revenues by delivering enhanced voice and high-
speed data services quickly, reliably and cost-effectively, are investing
heavily in new digital access technologies and equipment. More specifically,
these carriers are seeking multi-service digital access equipment that
addresses the following needs:

Enhanced Services. Digital access equipment must allow competitive carriers
to provide enhanced voice and high-speed data services, such as high-speed
Internet access, virtual private networks, switched local and long distance
voice, Caller ID, distinctive ringing, direct inward dialing, automated call
routing and other widely used telecommunications services increasingly being
demanded by their end user customers.

Rapid Deployment. To allow competitive carriers to rapidly deploy new
service offerings to their customers, digital access equipment must be easy to
install and test and must integrate with customer premises and central office
equipment.

Lowest Cost. Compared to current offerings, digital access equipment must
be cost-effective throughout its lifetime, and reduce installation and ongoing
capital expenditures with regard to operations, service management and
maintenance.

High Quality. To enable competitive carriers to compete effectively,
digital access equipment must provide enhanced voice and high-speed data
services with quality and reliability which equals or exceeds comparable ILEC
offerings.

Scaleability. To serve the rapidly growing enhanced voice and high-speed
data requirements of competitive carriers and end users such as small and
medium-sized businesses, digital access equipment must be scaleable.

Safety and Regulatory Requirements. Because the equipment resides at both
the carrier's facility and the customer's premises, digital access equipment
must enable competitive carriers to satisfy all applicable regulatory
requirements and remain compliant with industry safety standards.

THE CARRIER ACCESS SOLUTION

The Company is a leading provider of Multi-service Digital Access ("MDA")
equipment to competitive telecommunications carriers. The Company's MDA
equipment is used for the provisioning of enhanced voice and high-speed data
services by carriers to end users such as small and medium-sized businesses
and government and educational institutions. The Company's MDA products enable
a broad variety of enhanced carrier service offerings and provide a "last
mile" solution for the voice and data connectivity needs of its competitive
carriers and end users throughout the United States. Mass deployment of
digital last mile connectivity from end user to carrier networks is enabled
through the Company's cost-effective, compact, scaleable and easily installed
customer premises and central office telecommunications equipment. The
Company's products allow competitive carriers to leverage their existing T1
and T3 digital transmission infrastructure, including optical fiber SONET,
HDSL and digital radio, and to cost-effectively connect end users to their
networks. The Company's MDA products utilize high bandwidth digital deployment
targeted at end users requiring between 6 and 672 telephone line equivalents
of bandwidth. Based on information from its distributors, the Company believes
that over 100 competitive carriers have purchased the Company's products
through its distributors. The Company believes that its MDA products offer the
following features and benefits:

Enable Multiple Service Offerings. The Company's MDA products allow
competitive carriers to provide enhanced voice and high-speed data services to
their end users. Competitive carriers are using the Company's solutions to
cost-effectively offer bundled voice and data services such as high-speed
Internet access, virtual private networks, switched local and long distance
voice, Caller ID, distinctive ringing, direct inward dialing, automated call
routing and other widely used telecommunications services. The Company's MDA
products are currently used in a wide variety of competitive carrier
applications, including local exchange services, long

33
<PAGE>

distance bypass, high bandwidth Internet connections, cellular/PCS service
connections, high bandwidth digital radio and computer telephony interfaces.

Facilitate Rapid Deployment of New Services. The Company's MDA products are
designed to allow competitive carriers to increase revenues and market share
by offering their customers new services more quickly than traditional access
products. The Company's products are easy to install, and work with existing
central office equipment and customer premises phone systems and data
equipment, facilitating the rapid deployment of new services. Technicians can
install and service the Company's products without specialized equipment or
training, enabling installation in less than one hour, which the Company
believes is significantly less installation time than that required for
traditional equipment. Self-testing and telephone line tests are also
incorporated into the products to accelerate installation time and reduce or
eliminate the need for test equipment.

Reduce Cost of Ownership. Due to reduced labor, space and power requirements
and increased reliability, the Company believes that its MDA products offer a
lower cost of ownership to competitive carriers than traditional access
products. The compact size of the Company's MDA equipment allows it to be wall
or rack-mounted in minimal space, such as telephone wiring closets located at
customer premises or in carrier co-location spaces, reducing the need to lease
costly additional equipment space. The Company's MDA products are designed
with a high level of integration, which lowers manufacturing costs, decreases
power consumption, decreases the need for the customer to invest in new
circuits, and extends product life. Safety and protection requirements are
achieved without the use of fuses, substantially increasing reliability and
reducing long-term service costs. Such built-in product reliability features,
as well as self-test facilities, heat dissipation improvements and battery
backup reduce costly service calls. Additionally, the Company's MDA equipment
can be monitored and managed remotely, decreasing service costs. Remote
configuration also allows customer upgrades with reduced on-site technical
support.

Provide Programmable Software-Based Functionality. The Company's products
incorporate an advanced software-based architecture which enables a broad
range of functions with a minimum of components. Valuable service functions
such as integrated line testing are provided without increasing product costs.
In addition, several of the Company's MDA products are based on digital signal
processing ("DSP") software, which allows the Company to add advanced features
with little or no hardware redesign, thereby facilitating the customer's
ability to rapidly deploy new services and meet regulatory requirements.

Scale Through Ease of Reconfiguration and Upgradeability. The Company's MDA
products are modular and flexible, providing a migration path for carriers
which allows them to leverage their existing infrastructure as end user
requirements and industry standards evolve. The Company's Access Bank products
are designed to enable carriers to reduce the cost of connecting an end user
with less than 12 lines to a T1 connection, then scale to meet the needs of
carriers as their customers add additional lines. All of the Company's line
cards within a product family are based on a common design, enabling Access
Banks to be easily upgraded to provide additional lines and interfaces, as
well as support enhanced voice and high-speed data features. Similarly, the
Company's Wide Bank family of products allows for cost-effective scaleability
from four to 28 T1 connections to a single aggregated T3 connection.

Satisfy Carrier and End User Safety and Regulatory Requirements. The
Company's products are designed to meet all of the safety requirements for
carrier and customer premises installations, thereby reducing carriers'
exposure to liability related to their customers' on-site equipment. The
Company's product lines are fully certified to comply with National Electrical
Code requirements (U.L. 1459) on all line interfaces. U.L. 1459 listing has
become an important requirement for carriers installing equipment within
customer buildings, and is designed to prevent the product and the telephone
wiring from creating building fires. Additionally, a member of the Company's
Wide Bank product family has been certified as compliant with Bellcore's
Network Equipment Building System ("NEBS") standards, which facilitates
deployment in carrier central office locations.

34
<PAGE>

STRATEGY

The Company's objective is to become the leading supplier of innovative
telecommunications solutions utilized by competitive carriers to provide
enhanced voice and high-speed digital access services. Key elements of the
Company's strategy include the following:

Extend Technology Leadership. Based on competing products available in the
market, the Company believes that its MDA products were among the first to be
designed to meet rigorous carrier requirements, yet still be well-suited for
installation on customer premises. The software-intensive and modular design
of the Company's products allows the Company to meet the changing needs of
competitive carriers by adding new features and functionality without costly
research and development. The compact design of the Company's MDA products
also facilitates rapid product deployment, which the Company regards as a key
advantage over competitors' equipment. The Company intends to maintain and
extend its technological leadership by improving its MDA products, while
maintaining the lowest overall cost to its customers.

Provide Integrated Voice and Data Solutions. The Company believes that, due
to the increasing product and integration complexity of telecommunications
equipment, carriers and end users are increasingly seeking fully integrated
voice and data systems solutions from the carrier point of presence to the
customer premises. Accordingly, the Company has developed its MDA products in
close cooperation with its competitive carrier customers to ensure that its
solutions incorporate the specific technologies, features and functionalities
necessary to maintain a competitive advantage in the Company's selected
markets. The Company intends to develop and expand its integrated MDA
solutions to meet the evolving voice and data needs of its customers.

Increase Penetration of Existing Competitive Carrier Customer Base. The
Company is a leading provider of digital access equipment solutions to CLECs
in the United States. Based on information from its distributors, the Company
believes that over 100 competitive carriers have purchased its products
through its distributors including many of the largest CLECs. The Company
believes that a significant opportunity exists to increase sales to its
existing CLEC customers as they grow. To do so, the Company intends to
maintain a high level of customer support, extend the MDA product families
sold to existing customers, and leverage the sales success achieved in key
geographic locations. The Company also intends to introduce new products which
will enable CLECs to more cost-effectively provide combined voice and high-
speed data services to end users. Additionally, the Company intends to expand
its sales and marketing efforts in order to increase sales to other carriers
such as IXCs, ISPs and wireless carriers. Based on customer comments and
subsequent product purchase decisions by its end-users, the Company believes
that, similar to CLECs, customers in these markets make purchase decisions
based on product reliability, flexibility, cost-effectiveness and ease of use.

Gain Entry into New Markets. The Company believes that, due to the
price/performance advantages of its MDA products, several of its current
solutions are applicable within any telecommunications network, regardless of
size. Consequently, the Company intends to expand the marketing of its
products to ILECs, primarily through strategic relationships and joint sales
strategies. Certain of the Company's products have already met the safety and
certification requirements necessary for installation in ILEC central offices.
In addition, although the international competitive carrier markets are still
in the early stages of development, the Company intends to work with overseas
distributors and strategic partners to provide access solutions to targeted
international carriers.

Leverage Third Party Distribution Channels. The Company intends to increase
the penetration of its products in new and existing markets by strengthening
and expanding its network of third party distributors. Third party
distributors and OEMs, as well as VARs and systems integrators who do not
currently purchase the Company's products, are an integral part of the
Company's distribution strategy because, in conjunction with the Company, they
are responsible for identifying potential end users, selling the Company's
products as part of a complete solution, and customizing and integrating the
Company's products at the end user premises. The Company intends to direct its
marketing activities toward enhancing relationships with its current
distributors, as well the recruitment of additional distributors in key
markets.

35
<PAGE>

Maintain Rapid Product Fulfillment and Manufacturing Efficiency. The Company
has historically fulfilled a majority of its equipment orders within 30 days,
which it views as a key competitive advantage in an industry where competitive
carriers are under continuous pressure to rapidly deploy new services. The
Company intends to continue to design and manufacture its products to
facilitate rapid order fulfillment and network deployment. In addition, the
Company operates in a competitive, high-growth industry where minimizing costs
through manufacturing efficiencies is critical. To increase yield, quality and
reliability, while reducing cost, the Company currently performs in-house
final assembly and test processes, such as automated software-based printed
circuit board testing. Additionally, the Company has developed third-party
manufacturing relationships designed to decrease production costs, realize
rapid order fulfillment and accelerate time-to-market. The Company intends to
continue improving the flexibility and efficiency of its operations.

PRODUCTS

The Company's MDA products currently include the Access Bank and the Wide
Bank product families. The Access Bank I offers digital connectivity for local
and long distance carrier voice services, and converts a single T1 digital
network access into 24 telephone circuits for voice, facsimile and modem
connections. The Access Bank II expands on the voice functions of the Access
Bank I and adds high-speed data ports for computer connectivity and dual T1
line interfaces for increasing data speeds and connecting digital phone
systems. The Access Exchange is a customer-located access switch that enables
long distance carriers to offer local services from their embedded base
switching equipment. The Wide Bank 28 is a highly-integrated M1-3 standard
multiplexer for connecting T1 equipment to high-bandwidth T3 digital circuits,
providing up to 28 T1 connections for enhanced voice and high-speed data
services. The Company's products are used with optical fiber, HDSL on copper
pairs or digital radio. The Company differentiates its products on their
ability to enable multiple service offerings, facilitate the rapid deployment
of new services, reduce cost of ownership, provide programmable software-based
functionality, scale cost-effectively at carrier and end user locations, and
satisfy the safety and regulatory requirements of carriers and end users. The
retail list prices of the Company's Access Bank family of products range from
$3,495 to $7,000, depending upon configuration, and the retail list prices of
the Company's Wide Bank family of products range from $3,000 to $10,000,
depending upon configuration.

<TABLE>
<CAPTION>
PRODUCT FEATURES/FUNCTIONALITY CUSTOMER APPLICATIONS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ACCESS BANK I
. Converts a T1 digital line to . Economical local service delivery by CLECs
Released 12 or 24 analog telephone lines . Long distance service delivery using T1
June 1995 . Programmable signaling and 5 access
circuit types support popular . Digital voice networking equipment
voice services connectivity such as voice over IP and
. Removable 12-channel voice frame relay
cards . ISP modem pool connections to T1
. Integration of T1 network . Branch office/remote site connectivity to
interface, signaling software, T1
test functions, and ringing . Rapid deployment of temporary telephone
power services
. Enhanced voice service quality . Computer telephony line interfaces
and high-speed modem connections
. Local CLASS service delivery
such as Caller ID and
distinctive ringing
. Compact one-rack unit size for
wall or rack mounting
. Low power consumption with
compact eight-hour battery
backup option
. Solid state protection (no
fuses) for increased reliability
. Three-mile high-quality loop
range
- -------------------------------------------------------------------------------

ACCESS BANK I TR-08
All Access Bank I functions plus:
Released . Direct connection to local . Economical local service delivery by CLECs
November 1996 switch line-side T1 ports . Expansion of line capacity for local
. Supports Bellcore standard TR- switches
08 signaling modes
. Complete 12 or 24 line digital
loop carrier remote terminal
</TABLE>

36
<PAGE>

PRODUCT FEATURES/FUNCTIONALITY CUSTOMER APPLICATIONS
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
ACCESS BANK II
All Access Bank I functions plus:
Released . Bandwidth expansion to two T1s . Multi-line voice plus high-
November 1996 (3.0 Mbps) speed data services to
. Second T1 for PBX connection, businesses
network protection or bandwidth . Branch office voice and data
expansion connectivity
. Supports fractional T1 data . Protection of mission critical
services voice and data
. Built-in standards-based data . Integration of fax, modem, and
management and diagnostics high-speed data on digital PBX
. Digital cross-connect system T1s
functionality
. Built-in remote management
. Optional Ethernet SNMP LAN
management connection
- ----------------------------------------------------------------------------------------------

ACCESS BANK II HDSL
(SOLD BY ADC AS All Access Bank II features plus: . Provides multi-line voice and
EZT1/D1/HDSL) . One T1 port replaced by ADC 4- high-speed data services over
wire HDSL network interface existing copper infrastructure
Released . Remotely managed from ADC
May 1998 SONEPLEX HDSL central office
transmission platform
. Provides CLECs with T1 quality
performance
monitoring and maintenance
functions comparable to leased
Type II T1 services
- ----------------------------------------------------------------------------------------------

ACCESS EXCHANGE
All Access Bank II features plus: . Allows long distance carriers
Released . Automatic call routing to provide local service from
April 1998 . Programmable digit translation existing switches
. Combines T1 access with . Provides automatic call routing
existing phone lines functions and T1 connectivity
. Connects branch offices to for existing phone systems
virtual private voice and . Integrates high-speed
enterprise data networks fractional T1 data connectivity
- ----------------------------------------------------------------------------------------------

ACCESS BANK LINE
CARDS AND . FXS and FXO Loop Start and . Telephone, fax and modem
ACCESSORIES Ground Start Signaling connections
. DPO and DPT Reverse Battery . Business phone system
Released Signaling connections
June 1995- . E&M and TO 4-Wire Tie Lines . Business tie line connections
February 1997 . Programmable signaling . Analog leased line modem
conversion connections
. Optional battery back-up and . Direct inward dialing services
charger . Private line automatic ringdown
connections
. Central office line connections
to T1s
. International dial-back
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------

WIDE BANK 28
. Converts M1-3 standards-based . Consolidates multiple T1s into
Released protected T3 circuit to four to T3 services to reduce monthly
November 1997 28 T1 circuits access costs for ISPs, CLECs,
. Modular design provides for T1 wireless carriers and end users
circuit growth and redundancy . Provides redundant T3 service
. T3 electronic and circuit distribution from digital radio
protection connections
. Built-in circuit and network . T1 service expansion from fiber
testing multiplexers
. Built-in T1 network interface . Connection of T3 LEC services
units (NIUs) reduce equipment, to ISP remote access servers
labor and space requirements
. Fuseless circuit protection
increases reliability
. Ethernet SNMP management
enables centralized management
. One-rack unit size minimizes
collocation costs
- ----------------------------------------------------------------------------------------------

WIDE BANK 28 NEBS
All features of the Wide Bank 28 . Co-location of T3 service
Released plus: connections in carrier central
May 1998 . Compliance with Network offices
Building System (NEBS) criteria
for installation in central
office locations
. Hardened for strenuous
environmental conditions
- ----------------------------------------------------------------------------------------------
</TABLE>

37
<PAGE>

THE ACCESS BANK FAMILY OF PRODUCTS

Access Bank I

The Company's Access Bank I provides an economical, compact, and reliable
solution for converting T1 digital access services from ILECs and CLECs to 12
or 24 individual analog telephone circuits at end user locations. The T1
Channel Service Unit ("CSU"), ringing generator, power converters, ringback
tone generator, and channel bank controller are all integrated into a Line
Interface Unit ("LIU"). The design of the Access Bank I incorporates an
integrated CSU, which allows customers to plug in a T1 line without having to
connect other peripheral devices or customized circuit cards to address
specific network requirements. Five different types of 12-channel telephone
line interface circuit cards provide popular voice service delivery options.
Interface circuit cards allow for the delivery of enhanced local services such
as Caller ID and distinctive ringing. The Access Bank I operates with a
variety of high-speed modems, and automatically adjusts matching
characteristics to different modems and line conditions in order to provide a
clean, high-quality transmission path. The Access Bank I is principally used
by competitive carriers for economical local service delivery, long distance
service delivery using T1 access, digital voice networking equipment
connectivity, ISP modem pool connections to T1, branch office connectivity to
T1, and rapid deployment of temporary telephone services. Systems integrators
use Access Bank I to convert T1 connections to a variety of analog service
connections for applications such as remote access router interfaces, frame
relay and IP voice telephone system connectivity, and computer telephony
interfaces.

Access Bank I TR-08

The Access Bank I TR-08 provides a Bellcore Standard TR-08 digital loop
carrier software protocol for T1 connections directly to the line side T1
ports of local switches. Local exchange carriers use the Access Bank I TR-08
for economical local service delivery and expansion by competitive carriers of
line capacity for local switches. The Access Bank I TR-08 provides low-cost,
compact, wiring closet deployment of carrier-class enhanced voice features
such as Caller ID and distinctive ringing to competitive carriers utilizing
Nortel, Lucent, Siemens and other local exchange switches. Access Bank I TR-08
enables inexpensive carrier provisioning of physically separate single shelf
groups for 12 or 24 managed telephone lines from a T1.

Access Bank II

The Access Bank II enables carriers to provide multi-line voice and data
over one or two T1 access lines. Carriers use the Access Bank II for multi-
line voice plus high-speed data services, branch office voice and data
connectivity, the protection of mission critical voice and data, and the
integration of fax, modem, and high-speed data on digital PBX T1s. The Access
Bank II includes two T1 network interfaces with fully integrated CSU and Data
Service Units ("DSU"), offering up to 3.0 Mbps of total throughput. Dual T1
interfaces can accommodate future bandwidth requirements and integration of
fax, modem and high-speed data on digital PBX T1s, and can provide protection
for end users' mission critical voice and data applications. The two built-in
data interfaces offer connectivity for high-speed Internet routers, frame
relay devices, video and other high-speed data applications. By combining
digital data with voice over one or two T1 lines, bandwidth can be utilized
more efficiently, saving on communications access costs. The Access Bank II
also includes sophisticated management capabilities such as an optional
Ethernet SNMP LAN management connection for configuration and monitoring.

Access Bank II HDSL

The Access Bank II HDSL (sold by ADC as EZT1/D1/HDSL) is used by competitive
carriers to provide multi-line voice and high-speed data services over
carriers' existing copper infrastructure. Access Bank II HDSL represents the
integration of ADC's HDSL technology into the Access Bank II, creating an end-
to-end digital deployment solution for competitive carriers from wiring
centers to customer locations. This solution enables competitive carriers to
decrease their monthly access costs while providing T1 quality digital service
delivery over low-cost unbundled copper access loops.

38
<PAGE>

Access Exchange

The Access Exchange, released in April 1998, performs the functions of the
Access Bank II and includes software for automatic call routing and number
translation on a call-by-call basis. This product allows long distance
carriers to combine local voice services with long distance and high-speed
data services on their existing switch infrastructure.

WIDE BANK FAMILY OF PRODUCTS

Wide Bank 28

The Wide Bank 28 connects a high bandwidth digital T3 access line to four to
28 T1 service connections. The Wide Bank 28 allows competitive carriers to
consolidate multiple T1s into T3 services to reduce monthly access costs for
ISPs, CLECs, wireless carriers and end users; provide redundant T3 service
distribution from digital radio connections; provide T1 service expansion from
fiber multiplexers; and connect T3 LEC services to ISP remote access servers.
The Company's Wide Bank 28 is used by wireless carriers to provide T3 to 28 T1
conversion, T1 circuit grooming, network protection, and remote management of
their high-bandwidth digital wireline and digital radio connections. These
connections typically provide the backbone links between mobile radio
(cellular or PCS) transmission sites. Up to seven quad Digital Signal Cross-
Connect Level 1 (T1) interface cards support up to 28 T1 connections. Cards
can therefore be quickly and easily added to meet bandwidth requirements. An
identical spare quad T1 provides software-controlled redundancy. The Wide Bank
28 also incorporates T1 Network Interface Unit ("NIU") functionality to
eliminate additional equipment and installation labor costs for carriers.
Redundancy options on the Wide Bank 28 include programmable T1 and T3
software-based functionality and electronics protection through the use of an
additional quad T1 card or T3 controller card respectively. The unit
incorporates solid-state fuseless protection, hot-swappable cards, multiple T1
and T3 line tests for fault isolation and built-in bit error rate testing. The
Wide Bank 28 is housed in a compact, single rack-unit case. Twenty-one Wide
Bank 28 multiplexers can be mounted in a standard rack for high channel
density, or wall-mounted for lower density applications.

Wide Bank 28 NEBS

The Wide Bank 28 NEBS offers the features and performance of the standard
version of the Wide Bank 28 in compliance with NEBS criteria. Wide Bank 28
NEBS allows carriers to install the Wide Bank 28 in central office locations
where the product is designed to operate under electrical and physical
environmental stresses such as electromagnetic interference, high and low
temperatures and earthquake and vibration conditions.

TECHNOLOGY AND SYSTEM ARCHITECTURE

The Company's Access Bank system architecture is designed to offer
advantages in cost, performance, reliability, size and power consumption as
compared to competitive products. The Company employs a unique proprietary
architecture based on its subscriber line interface circuit ("SLIC")
technology and power conversion. The Company's SLIC technology is based on a
dual current source technique which provides: (i) the ability to use
unconditioned power sources for the telephone line current, (ii) fuseless
overvoltage protection against accidental power crosses and lightening
strikes, (iii) high efficiency ringing generation, (iv) signaling using solid
state components and (v) the ability to automatically adapt to different
telephone line conditions. SLICs are a fundamental component of any telephone
service delivery system because they are the interfaces between the telephone
network and the physical copper lines, and are found in digital loop carrier
systems, central office switching systems and PBX systems.

The Company has also developed its products around a software-intensive
architecture to allow for maximum design and upgrade flexibility. For its
Access Bank II product family, DSP-software based control structures allow the
products to perform a variety of advanced voice, data and management functions
with a minimal amount of electronics. These include, for example, software-
based automatic route selection, data testing capabilities and digital cross-
connect and network protection. DSP often allows the Company to expand the

<PAGE>

features of its products through software upgrades rather than hardware
redesign. DSP has enabled the integration of high bandwidth data connections
with voice and the ability to perform digital loop carrier software protocols
and signaling conversions.

The following diagram depicts the key technology features of the Access Bank
II, which incorporates all of the features of the Access Bank product family.

[A diagram of the Access Bank II Technology, depicting the Technology
Advantages, DSP Control Features and SLIC Features incorporated into
the Access Bank II product.]

The Company's unique Wide Bank 28 architecture has incorporated the
functionality that traditionally would require separate devices into a single
compact architecture. For example, the Wide Bank 28 enables hitless T3 network
integration, integrated T1 NIUs and bit error rate testing capabilities. This
has been accomplished through the use of high-level integration of hardware
components, software-based functionality and innovations in high density
circuit packages.

40
<PAGE>

The following diagram depicts the key technology features of the Wide Bank
28.

[A diagram of the Wide Bank 28 Technology, depicting the Technology Advantages,
T1 Quad Card Features and T3 Features incorporated into the
Wide Bank 28 product.]

CUSTOMERS

The Company primarily sells its products through third-party distributors to
competitive carriers such as CLECs, ISPs and wireless carriers who provide
enhanced voice and high-speed data services to end users such as small and
medium-sized businesses. Set forth below is a list of the Company's third-party
distributors, as well as a partial list of competitive carriers and end users
who the Company believes have each purchased the Company's products based on
information from its distributors and product sales. The Company believes that
all of these competitive carrier customers and end users are currently using
the Company's products and are representative of the Company's overall
competitive carrier customers and end users.

41
<PAGE>

DISTRIBUTORS COMPETITIVE CARRIER CUSTOMERS AND END USERS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
ADC Telecommunications, ACC Long Distance Intermedia
Inc. (OEM) Allegiance Telecom, Communications, Inc.
Advantage Telcom Inc. Logix Communications,
ALLTEL Supply, Inc. ALLTEL Supply, Inc. Inc.
C&L Communications BTI Telecommunications MGC Communications,
Graybar Electric Services Inc.
Company, Inc. Cellular One Group National
Microage Inc. Cablevision Systems Telecommunications
Phillips Communications Corp. NEXTLINK
& Equipment Co. Cisco Systems, Inc. Communications, Inc.
Solunet, Inc. Commonwealth Telephone Nextel Communications,
Sprint North Supply Enterprises, Inc. Inc.
Telsource Corporation CTSI Pacific Bell,
Walker & Associates e.spire Communications, a division of SBC, Inc.
Williams Inc. (formerly ACSI) Prodigy, Inc.
Telecommunications Extreme Technologies, PSINet, Inc.
Systems, Inc. Inc. STAR
Frontier Corporation Telecommunications, Inc.
Graybar Electric Teleport Communications
Company, Inc. Group, Inc.
GST Telecommunications, Tharaldson Property
Inc. Management, Inc.
ICG Communications, US LEC Corp.
Inc. U S WEST, Inc.
WinStar Communications, Inc.
Worldcom Inc.

</TABLE>

The Company's customer base is highly concentrated and a small number of
distributors have historically accounted for a majority of the Company's net
revenue. For the year ended December 31, 1997, Walker, ADC and Phillips
accounted for approximately 36%, 20%, and 14% of the Company's net revenue,
respectively. In the six months ended June 30, 1998, Walker, Phillips and
Telsource accounted for 47%, 19% and 15%, respectively, of net revenue. In
addition to being dependent on a small number of distributors for a majority of
its net revenue, the Company believes its products are distributed to a limited
number of competitive carrier customers who are primarily CLECs. The Company
believes that in 1997, 22 competitive carrier customers accounted for
approximately 75% of its net revenue and that for the first half of 1998, 75
competitive carrier customers accounted for approximately 90% of net revenue.
See "Risk Factors--Dependence on Distribution Channels" and Note 8 of Notes to
Financial Statements.

The following customer case studies illustrate how certain of the Company's
competitive carrier customers have deployed its products:

CLEC. As TCG, a leading CLEC, began rolling out switches for local voice
services, it needed to deploy telephone lines quickly to businesses and high
density residential customers. T1 access lines (called "Type II T1"), leased
from the ILECs, would allow TCG to cost-effectively connect its metropolitan
wiring centers to end users. TCG could use the TR-08 ports of its local
switches to provide enhanced voice services such as Caller ID, distinctive
ringing and calling party disconnect, and minimize its switching equipment
costs. However, traditional T1 digital loop carrier equipment that supported
TR-08 protocols and offered these enhanced service offerings were too expensive
and too large to install at small and medium-sized business locations. TCG's
solution was CAC's Access Bank I TR-08. The Access Bank I TR-08 allowed TCG to
economically offer its customers up to 24 enhanced voice lines over Type II T1
connections to end users. Access Bank I TR-08 decreased installation time and
per-line costs, mounted in end user wiring closets with a minimum of space,
provided a small battery backup option, offered high speed modem connectivity
to end user lines, and reliably satisfied telephone wiring safety requirements
at end user sites.

42
<PAGE>

The following diagram depicts a CLEC such as TCG deploying enhanced local
voice services over T1 connections with CAC's Access Bank I TR-08.

[A diagram which depicts a CLEC such as TCG deploying enhanced local voice
services over T1 connections with CAC's Access Bank I TR-08.]

ISP. PSINet, a leading ISP, faced growing demand from its business customers
for high bandwidth TI Internet connections. By consolidating up to 28 T1
access circuits into T3 connections to its point of presence, PSINet
believed that it could decrease its access costs by a factor of three or more,
while providing service growth for its customers. Traditional M1-3 T1 to T3
muliplexers that were necessary for deployment could not monitor T1 and T3
service delivery, required long installation times and required large amounts
of space in valuable co-located ILEC racks at end user sites. PSINet chose
CAC's Wide Bank 28 to consolidate T1 service connections into T3 circuits as
elements of its network. By deploying the Wide Bank 28, PSINet utilizes SNMP
network management to monitor and test T1 and T3 customer services remotely.
Its compact one rack unit size and plug-in installation capabilities provided
substantial savings, inexpensive installation space and labor, and enabled
PSINet to cost-effectively satisfy end user demand for T1 Internet service
connections, while meeting end user service availability expectations.

The following diagram depicts an ISP such as PSINet deploying high bandwidth
T1 Internet connections via T3 access connections with CAC's Wide Bank 28.

[A diagram which depicts an ISP such as PSINet deploying high bandwidth T1
Internet connections via T3 access connections with CAC's Wide Bank 28.]

CLEC. Logix, an emerging CLEC, desired to offer a wide variety of digital
services, including local telephone, long distance, Internet access and
enterprise data services. Logix planned to target business customers with 8 to
24 lines that required reliable and cost-effective equipment at end user
sites. In addition, Logix required easy installation with a minimum of
maintenance or training. To decrease monthly customer access costs, both
enhanced voice and high speed data services were to be combined on T1 access
lines from ILEC co-location wiring centers at end user sites. Logix also
required a managed solution which would allow it to consolidate a large number
of T1 access lines to single high speed T3 connections at its wiring centers
in order to reduce transmission costs and simplify its network maintenance.
Logix's solution was deploying CAC's Access Bank II at end user sites and the
Wide Bank 28 in ILEC wiring centers. CAC's Wide Bank 28 allowed Logix to
consolidate up to 28 remote business sites into each protected T3 connection,
providing up to 672 circuits. The deployment of Access Bank II equipment
permitted the combination of up to 24 enhanced voice lines with managed high
speed Internet or enterprise connection data services on T1 access lines. With
CAC's equipment deployed, Logix's customers are able to combine voice services
with new high speed data services at very cost-effective rates.

43
<PAGE>

The following diagram depicts a CLEC such as Logix deploying multi-line
voice and high-speed data services to small businesses with CAC's Access Bank
II and Wide Bank 28.

[A diagram which depicts a CLEC such as Logix deploying multi-line
voice and high-speed data services to small businesses with
CAC's Access Bank II and Wide Bank 28.]

SALES, MARKETING AND CUSTOMER SUPPORT

Sales. The Company employs a leveraged sales model currently consisting of
11 third-party distributors and an internal sales engineering support group,
which supports its distributors and provides pre- and post-sales support to
its competitive carrier customers and end users. Sales from third party
distributors accounted for substantially all of the Company's revenues for the
year ended December 31, 1997 and the six months ended June 30, 1998. See "Risk
Factors--Dependence on Distribution Channels," and "--Challenges of
Maintaining and Expanding Distribution Channels; Potential for Channel
Conflict."

Third Party Distributors. The Company's distributors are responsible for
identifying potential competitive carrier customers, selling the Company's
products as part of a complete solution and, in some cases, customizing and
integrating the Company's products at end users' sites. The Company
establishes relationships with distributors through written agreements which
provide prices, discounts and other material terms and conditions under which
the distributor is eligible to purchase the Company's products for resale.
Such agreements generally do not grant exclusivity to the distributors, do not
prevent the distributors from carrying competing product lines, and do not
require the distributors to sell any particular dollar amount of the Company's
products, although the contracts may be terminated at the election of the
Company if specified sales targets and end user satisfaction goals are not
attained. The Company generally provides its distributors with limited stock
rotation and price protection rights. Other than limited stock rotation
rights, the Company does not provide its distributors with general product
return rights. The Company has limited knowledge of the financial condition of
certain of its distributors; however, it is aware that some of its
distributors have limited financial and other resources which could impair
their ability to pay the Company. Although the financial instability of these
distributors has not limited any distributor's ability to pay the Company for
its products to date, there can be no assurance that any bad debt incurred by
the Company will not exceed the Company's reserves therefor or that the
financial instability of one or more of the Company's distributors will not
materially adversely affect the Company's business, financial condition or
results of operations. The Company has limited knowledge of the inventory
levels of its products carried by its OEMs and distributors, and the Company's
OEMs and distributors have in the past reduced, and may in the future reduce,
planned purchases of the Company's products due to overstocking. Moreover,
distributors who have overstocked the Company's products have in the past
reduced, and may in the future reduce, their inventories of the Company's
products by selling such products at significantly reduced prices. Any such
reduction in planned purchases or sales at reduced prices by distributors or
OEMs in the future could reduce the demand for the Company's products, create
conflicts with other distributors or materially adversely affect the Company's
business, financial condition and results of operations. In addition, three
times a year, distributors are allowed to return a maximum of fifteen percent
of the Company's unsold products held in stock by such distributor, which were
purchased within the four month period prior to such return date, for an equal
dollar amount of new equipment. While to date these returns have not had a
material impact on the Company's results of operations, there can be no
assurance that the Company will not experience significant returns in the
future or that it will have made adequate allowances to offset such returns.
The Company is generally required to give its distributors a 60 day notice of
price increases. Orders entered by distributors within the 60 day period are
filled at the lower product price. In addition, the Company grants certain of
its distributors

44
<PAGE>

"most favored customer" terms, pursuant to which the Company has agreed to not
knowingly grant another distributor the right to resell the Company's products
on terms more favorable than those granted to the existing distributor,
without offering the more favorable terms to the existing distributor. There
can be no assurance that these price protection and "most favored customer"
clauses will not cause a material decrease in the average selling prices and
gross margins of the Company's products, which could have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Risk Factors--Dependence on Distribution Channels" and "--
Challenges of Maintaining and Expanding Distribution Channels; Potential for
Channel Conflict."

Sales Engineering Support. The Company's sales engineering support group is
responsible for platform configuration, price quotations and telephone sales
activities. The Company's sales support and sales engineering strategy focuses
on assisting carriers and end users in rapidly integrating the Company's
products into their networks. The sales engineering support group identifies
carrier and end user leads and, based on initial presentations, provides
evaluation units for trial in carrier and end user networks. After successful
trial and approval, the carrier or end user is provided with product
installation and maintenance training. The sale of the Company's products
averages approximately four months in the case of competitive carriers, but
can take significantly longer in the case of ILECs and certain distributors
and end users. Initially, the Company's sales engineering support group is
involved in educating carriers and end users on the functionality and benefits
which may be derived from using the Company's products. Subsequently, members
of both the Company's sales engineering and research and development
organizations are involved in providing the carrier or end user with the
required training and technical support to integrate the Company's products
into a new application or service.

Marketing. The Company's marketing organization develops strategies for
product lines and, along with the Company's sales force, develops key account
strategies and defines product and service functions and features. Marketing
is responsible for sales support, RFPs and RFQs, in-depth product
presentations, interfacing with operations, setting price levels to achieve
targeted margins, developing new services/business opportunities and writing
proposals in response to customer requests for information or quotations. In
order to create awareness, market demand and sales opportunities, the Company
engages in a number of marketing activities which include exhibiting products
and customer applications at industry trade shows, advertising in selected
publications aimed at targeted markets, public relations activities with trade
and business press, publication of technical articles and the distribution of
sales literature, technical specifications and documentation.

Customer Service and Support. Based on customer support calls, the Company
believes that ongoing customer support is critical to maintaining and
enhancing relationships with carriers, end users and distributors. The carrier
and end user support group has five functions: (i) new product development,
which provides for product ideas and enhancements based on customer
requirements through the pre- and post-sales support effort, (ii) inbound
technical support, which focuses on pre- and post-sales calls made to the
Company from its customers, (iii) outbound application support and response to
RFPs and RFQs, (iv) training, including installation and application
development training for customers, sales engineers and employees and (v)
reporting and analysis based on the automated trouble ticket and returned
material systems.

COMPETITION

The market for telecommunications equipment is characterized by intense
competition, with a large number of suppliers providing a variety of products
to diverse market segments within the telecommunications industry. Management
believes that the principal competitive factors in the Company's markets
include: performance and reliability; flexibility, scaleability and ease-of-
use; breadth of features and benefits; and, initial and lifetime cost. The
Company believes that it competes favorably with respect to each of these
factors.

The Company's existing and potential competitors include many large domestic
and international companies, including certain companies that have
substantially greater financial, manufacturing, technological, sales and
marketing, distribution and other resources. The Company's principal
competitors for its Access Bank product family include AFC, Cisco, DSC,
General Datacom, Lucent, NEC, Newbridge, Nortel, Pairgain,

45
<PAGE>

Paradyne, Premisys, Pulsecom, Reltec, Telco and other small private companies.
The Company's principal competitors for its Wide Bank product family include
Alcatel, NEC, Nortel and Telco. The Company expects that many of its
competitors who currently offer products competitive with only one of the
Company's product lines will eventually offer products competitive with all of
the Company's product lines. In addition, several start-up companies have
recently begun to manufacture products similar to those offered by the
Company. Due to the rapidly evolving markets in which the Company competes,
additional competitors with significant market presence and financial
resources, including large telecommunications equipment manufacturers and
computer hardware and software companies, may enter those markets, thereby
further intensifying competition. Additionally, one of the Company's
distributors is currently competing with the Company, and there can be no
assurance that additional distributors will not begin to develop or market
products in competition with the Company.

Many of the Company's current and potential competitors are substantially
larger than the Company and have significantly greater financial, sales and
marketing, technical, manufacturing and other resources and more established
channels of distribution. As a result, such competitors may be able to respond
more rapidly to new or emerging technologies and changes in customer
requirements, or to devote greater resources to the development, promotion and
sale of their products than the Company. Such competitors may enter the
Company's existing or future markets with solutions which may be less costly,
provide higher performance or additional features or be introduced earlier
than the Company's solutions. Many telecommunications companies have large
internal development organizations which develop software solutions and
provide services similar to the Company's products and services. Some of the
Company's competitors currently offer financing alternatives to their
customers, a service that the Company does not provide at this time. The
Company expects its competitors to continue to improve the performance of
their current products and to introduce new products or technologies that
provide added functionality and other features. Successful new product
introductions or enhancements by the Company's competitors could cause a
significant decline in sales or loss of market acceptance of the Company's
products and services, could result in continued intense price competition or
could make the Company's products and services or technologies obsolete or
noncompetitive. To be competitive, the Company will be required to continue to
invest significant resources in research and development and sales and
marketing. There can be no assurance that the Company will have sufficient
resources to make such investments or that the Company will be able to make
the technological advances necessary to be competitive. In addition, current
and potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability
of their products to address the needs of the Company's prospective customers.
Accordingly, it is possible that new competitors or alliances among
competitors may emerge and rapidly acquire significant market share. Increased
competition is likely to result in price reductions, reduced gross margins and
loss of market share, any of which would have a material adverse effect on the
Company's business, financial condition and results of operations. There can
be no assurance that the Company will be able to compete successfully against
current or future competitors or that competitive pressures will not have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Risk Factors--Intense Competition."

MANUFACTURING

The Company's manufacturing operations consist of materials planning and
procurement, final assembly, product assurance testing, quality control, and
packaging and shipping. The Company procures components for PCBs for assembly.
The Company currently uses several independent manufacturers to provide
certain PCBs, chassis and subassemblies. The Company has developed a
manufacturing process that enables it to configure its products to be adapted
to different customer hardware and software applications at the final assembly
stage. This flexibility is designed to reduce both the Company's manufacturing
cycle time and the Company's need to maintain a large inventory of finished
goods. The Company believes that the efficiency of its manufacturing process
to date is largely due to the Company's product architecture and the Company's
commitment to manufacturing process design.

46
<PAGE>

The Company spends significant engineering resources producing customized
software and hardware to assure consistently high product quality. The Company
tests its products both during and after the assembly process using
internally-developed product assurance testing procedures. These procedures
consist of automated board and automated system testing as well as
environmental testing. Through June 30, 1998, the Company had experienced a
return rate for defective products of less than 2%. Although the Company
generally uses standard parts and components for its products, many key
components are purchased from sole or single source vendors for which
alternative sources are not currently available. There can be no assurance
that the Company will not experience supply problems in the future from any of
its manufacturers. Any such difficulties could have a material adverse effect
on the Company's business, financial condition, and results of operations. See
"Risk Factors--Dependence on Sole and Single Source Suppliers" and "--Risks
Associated with Manufacturing."

RESEARCH AND PRODUCT DEVELOPMENT

The Company focuses its development efforts on providing enhanced
functionality to its existing products, including total network solutions and
performance and the development of additional software-based features and
functionality. Extensive product development input is obtained from customers
and the Company's monitoring of end user needs and changes in the marketplace.
The Company's current product development focus has been on developing MDA
access products and completing new products such as the recently introduced
Access Exchange, and the Company's end-to-end voice and data solution which is
still under development.

Management believes that the Company's success will depend, in part, on its
ability to develop and introduce in a timely fashion new products and
enhancements to its existing products. The Company has in the past made, and
intends to continue to make, significant investments in product and
technological development. The Company's engineering, research and development
expenditures totaled approximately $164,000, $874,000, $2.8 million and $2.0
million in 1995, 1996, 1997 and the first six months of 1998, respectively.
The Company performs its research and product development activities at its
principal offices in Boulder, Colorado. As of June 30, 1998, the Company had
40 employees in its design engineering department. The Company's inability to
develop on a timely basis new products or enhancements to existing products,
or the failure of such new products or enhancements to achieve market
acceptance, could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Risk Factors--Dependence
on New Product Introductions and Product Enhancements; Risks Associated with
Transition to New Products," "--Risk of Product Defects, Returns and
Liability," "--Risks Associated with Rapid Technological Change" and "--
Dependence on Continued Growth of Market for Telecommunications Services."

INTELLECTUAL PROPERTY

The Company relies upon a combination of patent, copyright and trademark and
trade secret laws as well as confidentiality procedures and contractual
restrictions to establish and protect its proprietary rights. The Company has
also entered into confidentiality agreements with its employees and
consultants and enters into non-disclosure agreements with its suppliers and
distributors so as to limit access to and disclosure of its proprietary
information. There can be no assurance such measures will be adequate to deter
and prevent misappropriation of the Company's technologies or independent
third-party development of similar technologies. The laws of certain foreign
countries in which the Company's products are or may be developed,
manufactured or sold may not protect the Company's products or intellectual
property rights to the same extent as do the laws of the United States and
thus make the possibility of piracy of the Company's technology and products
more likely.

As of June 30, 1998, a total of three U.S. patents have been awarded to the
Company. The Company has a total of five U.S. patent applications pending. The
issued patents cover various aspects of: (i) voice and data circuits, (ii)
switching technologies and (iii) redundancy. The U.S. patents begin to expire
commencing in the year 2015. The Company also has two U.S. trademark
applications pending and three trademarks registered. The telecommunications
industry is characterized by the existence of a large number of patents and
frequent litigation based on allegations of patent infringement. From time to
time, third parties may assert patent, copyright,

47
<PAGE>

trademark and other intellectual property rights to technologies that are
important to the Company. Although the Company not received communications
from third parties asserting that the Company's products infringe or may
infringe proprietary rights of third parties, the Company has no assurance any
future claims, if determined adversely to the Company, would not have a
material adverse effect on the Company's business, financial condition or
results of operations. See "Risk Factors--Dependence on Proprietary Rights."

EMPLOYEES

At June 30, 1998, the Company employed 125 full-time employees in eight
states. Of these employees, 40 were involved in design engineering, 40 in
manufacturing engineering and operations, 28 in sales, marketing and technical
support and training and 17 in general administration and finance.
Additionally, the Company employs a limited number of engineering employees on
a part-time basis. No employees are covered by any collective bargaining
agreements. The Company believes that its relationships with its employees are
good. The loss of any of the key management or technical personnel could have
a material adverse effect on the Company. See "Risk Factors--Dependence on Key
Personnel and Availability of Skilled Workforce" and "--Risks Associated with
Rapid Growth."

FACILITIES

The Company's principal administrative, sales and marketing, research and
development and support facilities consist of approximately 38,000 square feet
of office space in Boulder, Colorado. The Company occupies these premises
under a lease expiring December 31, 2005. As of June 30, 1998, the annual base
rent for this facility was approximately $400,000. The Company has planned an
expansion of approximately 22,000 square feet of office space at this location
scheduled for completion in late 1998 or early 1999.

In addition to its principal office space in Boulder, Colorado, the Company
leases approximately 9,550 square feet of additional office space in Boulder,
which is currently subleased. The Company also leases facilities and offices
in Butler, NJ, Dallas, TX and Greensboro, NC, for its field sales and support
organization. The Company believes that its current facilities and planned
expansions are adequate to meet its needs through the next 12 months. However,
the Company believes that it will require up to 50,000 additional square feet
of office, manufacturing and research and development space in the next 24
months. Although the Company believes that suitable additional space will be
available, there can be no assurance that suitable additional space will be
available on commercially reasonable terms or at all. See "Risk Factors--Risks
Associated with Rapid Growth" and "Management's Discussion and Analysis of
Financial Conditions and Results of Operations--Liquidity and Capital
Resources."

LEGAL PROCEEDINGS

The Company is not a party to any material legal proceedings.

48
<PAGE>

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information regarding the executive
officers and directors of the Company as of June 30, 1998:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Roger L. Koenig...................... 44 President, Chief Executive Officer and
Chairman of the Board of Directors
Nancy G. Pierce...................... 40 Vice President-Finance and
Administration, Chief Financial
Officer, Treasurer and Secretary and
Director
Shrichand B. Dodani.................. 40 Vice President, Engineering
J. Randy Shipley..................... 43 Vice President, Sales
John W. Stahura...................... 43 Vice President, Operations
Douglas Carlisle .................... 41 Director
Joseph Graziano (1)(2)............... 54 Director
Ryal Poppa (1)(2).................... 64 Director
</TABLE>
- --------
(1) Member of Audit Committee
(2) Member of Compensation Committee

ROGER L. KOENIG. Mr. Koenig has served as President, Chief Executive Officer
and Chairman of the Board of Directors of the Company since its inception in
September 1992. Prior to co-founding the Company, Mr. Koenig served as the
President and Chief Executive Officer of Koenig Communications, an equipment
systems integration and consulting firm. Prior to founding Koenig
Communications, Mr. Koenig held a number of positions with IBM/ROLM Europe, a
telecommunications equipment manufacturer, including Engineering Section
Manager for Europe. Mr. Koenig received a B.S. in Electrical Engineering from
Michigan State University and an M.S. in Engineering Management from Stanford
University.

NANCY G. PIERCE. Ms. Pierce has served as Vice President-Finance and
Administration, Chief Financial Officer, Treasurer, Secretary and Director of
the Company since its inception in September 1992. Prior to co-founding the
Company, Ms. Pierce served as the Controller of Koenig Communications, an
equipment systems integration and consulting firm. Prior to joining Koenig
Communications, Ms. Pierce was a systems analyst at IBM Corporation and an
internal auditor at ROLM Corporation. Ms. Pierce received a B.S. in
Communication Disorders from Colorado State University and an M.B.A. from
California State University, Chico.

SHRICHAND B. DODANI. Mr. Dodani has served as Vice President, Engineering
since April 1998, after having served as Vice President, Manufacturing and
Engineering from August 1997 through April 1998. Mr. Dodani served as Vice
President, Engineering and Sales of Aztek Engineering from March 1996 through
August 1997. From August 1993 through March 1996, Mr. Dodani served as a Vice
President for Nortel Asia Pacific and as director for Nortel European
Transmission System, both of which are subsidiaries of Nortel. From August
1988 through August 1993, Mr. Dodani served as Segment Manager (Director of
Product Management) in Europe and the U.S. for Alcatel Network Systems. Mr.
Dodani received a B.S. in Physics and Math from Gujarat University, India and
an M.B.A. and an M.S. in Computer Science from the University of Texas.

J. RANDY SHIPLEY. Mr. Shipley has served as Vice President, Sales of the
Company since April 1998. From April 1997 to April 1998, Mr. Shipley served as
Senior Vice President, National Distribution for e.spire, a CLEC. From
September 1986 to April 1997, Mr. Shipley served in several capacities, the
final position being Vice President, Data Network Systems Integration, for
Williams Telecommunications Systems, Inc., a diversified telecommunications
company.

49
<PAGE>

JOHN W. STAHURA. Mr. Stahura has served as Vice President, Operations of the
Company since April 1998. From July 1996 to April 1998, Mr. Stahura served as
President of Vaner, Inc., an electronics power conversion company. From May
1990 to May 1996, Mr. Stahura served as Vice President, Operations for
Solidstate Controls, Inc., a power conversion company. From January 1984 to
May 1990, Mr. Stahura served as Director of Operations for Keltec Florida
Manufacturing, an electronics manufacturing company. Mr. Stahura received a
B.S. in Mathematics from the U.S. Naval Academy.

DOUGLAS CARLISLE. Mr. Carlisle has served as a Director of the Company since
September 1997. Mr. Carlisle has been a General Partner of Menlo Ventures
since September 1984. Mr. Carlisle has served as a director of numerous public
and private companies over the past 15 years. Mr. Carlisle received a B.S.E.E.
in Electrical Engineering from the University of California, Berkeley and a
J.D. and an M.B.A. from Stanford University.

JOSEPH GRAZIANO. Mr. Graziano has served as a Director of the Company since
July 1996. Mr. Graziano served as Executive Vice President, Chief Financial
Officer of Apple Computer, Inc. during the period from June 1989 through
December 1995. Mr. Graziano also served as a Director at Apple Computer from
June 1993 through October 1995. Mr. Graziano also serves as a Director of
IntelliCorp., Inc., an enterprise software company, Pixar Animation Studios
and CIDCO, a developer of advanced telephony products, and several private
companies in the software and telecommunications industries. Mr. Graziano
received a B.S.B.A. in Business Administration from Merrimack College. Mr.
Graziano is also a Certified Public Accountant.

RYAL POPPA. Mr. Poppa has served as a Director of the Company since May
1996. Mr. Poppa has been a private investor since June 1996. Mr. Poppa was the
Chairman of the Board of Directors, President and Chief Executive Officer of
Storage Technology Corporation, a data storage company, from January 1985 to
May 1996. Mr. Poppa also currently serves as a Director of Metrocall, a paging
company, and Redcape Policy Software, Inc., an enterprise software company.
Mr. Poppa received a B.A. in Business Administration from Claremont McKenna
College.

There are no family relationships between any of the executive officers and
directors, other than that between Mr. Koenig and Ms. Pierce. See "Certain
Transactions."

BOARD COMMITTEES

The Company currently has authorized seven directors. Each director holds
office until the next annual meeting of stockholders or until his or her
successor is duly elected and qualified. The officers serve at the discretion
of the Board.

The Audit Committee reviews and supervises the Company's financial controls,
including selecting the Company's auditors, reviewing the books and accounts
of the Company, meeting with the officers of the Company regarding the
Company's financial controls, acting upon recommendations of auditors and
taking such further action as the Audit Committee deems necessary to complete
an audit of the books and accounts of the Company, as well as other matters
which may come before it or as directed by the Board of Directors. The Audit
Committee currently consists of two directors, Mr. Graziano and Mr. Poppa.

The Compensation Committee reviews and approves the compensation and
benefits for the Company's executive officers, administers the Company's stock
plans and performs such other duties as may from time to time be determined by
the Board of Directors. The Compensation Committee currently consists of two
directors, Mr. Graziano and Mr. Poppa.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The members of the Compensation Committee of the Company's Board of
Directors are Mr. Graziano and Mr. Poppa. No executive officer of the Company
serves on the board of directors or compensation committee of

50
<PAGE>

any entity which has one or more executive officers serving as a member of the
Company's Board of Directors or Compensation Committee.

DIRECTOR COMPENSATION

The Company currently does not compensate any member of the Company's Board
of Directors and does not intend to pay cash compensation to non-employee
directors. However, members of the Board of Directors are eligible to receive
discretionary option grants and stock issuances under the Company's 1998 Stock
Incentive Plan (the "1998 Plan"). In addition, following the completion of the
Offering, non-employee directors will each receive an initial 15,000-share
automatic option grant upon becoming a director. Each initial 15,000-share
option grant will vest in four successive equal annual installments upon the
individual's completion of each year of service on the Board of Directors over
the four year period measured from the option grant date. Each director will
also receive a 3,500-share option grant on the date of each annual meeting of
stockholders pursuant to the 1998 Plan. The 3,500-share option grant will vest
upon the individual's completion of one year of Board Service measured from
the option grant date. All such option grants will be granted at the fair
market value on the date of grant. The 1998 Plan also permits the plan
administrator to activate a director fee option grant program. Should this
program be activated in the future, each non-employee Board member will have
the opportunity to apply all or a portion of any annual retainer fee otherwise
payable in cash to the acquisition of a below-market option grant. See "--
Benefit Plans."

Mr. Graziano and Mr. Poppa were each granted an option to purchase 75,000
shares of Common Stock in connection with their respective appointments to the
Board of Directors on July 1, 1996 and May 21, 1996. Each option is
immediately exercisable and vests in four equal annual installments upon the
completion of each year of service measured from the date of grant. Each
option has an exercise price of $0.33 per share. These options were exercised
by Mr. Graziano and Mr. Poppa on September 15, 1997.

LIMITATION OF LIABILITY AND INDEMNIFICATION

The Company's Certificate of Incorporation eliminates, subject to certain
exceptions, directors' personal liability to the Company or its stockholders
for monetary damages for breaches of fiduciary duties. The Certificate of
Incorporation does not, however, eliminate or limit the personal liability of
a director for (i) any breach of the director's duty of loyalty to the Company
or its stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) unlawful payments
of dividends or unlawful stock repurchases or redemptions as provided in
Section 174 of the Delaware General Corporation Law or (iv) any transaction
from which the director derived an improper personal benefit.

The Company's Bylaws provide that the Company shall indemnify its directors
and executive officers to the fullest extent permitted under the Delaware
General Corporation Law and may indemnify its other officers, employees and
other agents as set forth in the Delaware General Corporation Law. In
addition, the Company has entered into indemnification agreements with its
directors and officers. The indemnification agreements contain provisions that
require the Company, among other things, to indemnify its directors and
executive officers against certain liabilities (other than liabilities arising
from intentional or knowing and culpable violations of law) that may arise by
reason of their status or service as directors or executive officers of the
Company or other entities to which they provide service at the request of the
Company and to advance expenses they may incur as a result of any proceeding
against them as to which they could be indemnified. The Company believes that
these Bylaw provisions and indemnification agreements are necessary to attract
and retain qualified directors and officers. The Company has obtained an
insurance policy covering directors and officers for claims that such
directors and officers may otherwise be required to pay or for which the
Company is required to indemnify them, subject to certain exclusions.

At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened
litigation or proceeding which may result in a claim for such indemnification.

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<PAGE>

EXECUTIVE COMPENSATION

The following table sets forth certain information with respect to the
compensation of the Company's Chief Executive Officer and the other four most
highly compensated executive officers of the Company (collectively, the "Named
Executive Officers") for the fiscal year ended December 31, 1997 (the "Last
Fiscal Year") and whose salary and bonus exceeded $100,000.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------- ------------
NUMBER OF
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(1) COMPENSATION($)(2)
- --------------------------- ---- ---------- --------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
Roger L. Koenig
President, Chief
Executive Officer and
Chairman of the Board
of Directors........... 1997 143,269 -- -- --
Nancy G. Pierce
Vice President-Finance
and Administration,
Chief Financial
Officer, Treasurer and
Secretary(3)........... 1997 94,615 -- -- --
Shrichand B. Dodani(4)
Vice President
Engineering............ 1997 43,538 -- 187,500 --
Arthur L. Schultz(5)
Vice President, Sales.. 1997 118,269 76,375 37,500 --
Kevin C. Leibl(6)
Vice President,
Marketing.............. 1997 111,732 65,983 112,500 10,008
</TABLE>
- --------

(1) The options listed in the table were granted under the Company's 1995
Stock Option Plan. See "--Option Grants During Last Fiscal Year" for a
description of the terms of these options. The options outstanding under
the 1995 Stock Option Plan have been incorporated into the 1998 Stock
Incentive Plan but continue to be governed by their existing terms. See
"--Benefit Plans--1998 Stock Incentive Plan."

(2) All Other Compensation represents $10,008 paid to Mr. Leibl for relocation
expenses.

(3) Ms. Pierce is expected to earn over $100,000 in fiscal year 1998.

(4) Mr. Dodani commenced employment with the Company in August 1997. His
annualized salary for the Last Fiscal Year was $125,000.

(5) Mr. Schultz resigned from the Company on March 23, 1998.
(6) Mr. Leibl resigned from the Company on December 1, 1997, effective May 15,
1998.

52
<PAGE>

OPTION GRANTS DURING LAST FISCAL YEAR

The following table sets forth information concerning the stock option
grants made to each of the Named Executive Officers in the Last Fiscal Year.
No stock appreciation rights were granted during the Last Fiscal Year.

OPTION GRANTS DURING LAST FISCAL YEAR

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
ASSUMED ANNUAL VALUE OF
RATES OF OPTIONS
STOCK PRICE BASED
APPRECIATION FOR ON OFFERING
INDIVIDUAL GRANTS OPTION TERM($)(4) PRICE($)(5)
------------------------------------------------------ --------------------- -------------
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE
OPTIONS TO EMPLOYEES IN PRICE PER DATE OF
NAME GRANTED(#)(1) FISCAL YEAR(%)(2) SHARE($)(3) EXPIRATION 5% 10%
---- ------------- ----------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Roger L. Koenig......... -- -- -- -- -- -- --
Nancy G. Pierce......... -- -- -- -- -- -- --
Shrichand B. Dodani..... 37,500 4.04 0.33 8/29/02 3,419 7,555 400,125
150,000 16.17 0.33 8/29/02 13,676 30,220 1,600,500
Arthur L. Schultz....... 37,500 4.04 0.83 10/1/02 8,599 19,002 381,375
Kevin C. Leibl.......... 112,500 12.13 0.33 1/15/02 10,257 22,655 1,200,375
</TABLE>
- --------

(1) All options were granted under the 1995 Stock Option Plan. Each option is
immediately exercisable for all the option shares, but any unvested shares
purchased upon exercise of the option are subject to repurchase by the
Company, at the option exercise price paid per share, should the optionee's
service with the Company cease prior to vesting of such shares. With the
exception of Mr. Dodani's 37,500-share option grant, which vested completely
upon the date of grant, all options granted to the Named Executive Officers
in the Last Fiscal Year vest as follows: Twenty-five percent (25%) of the
option shares will vest upon the optionee's continuation in service through
one year following the grant date and the balance of the shares vest in
twelve (12) successive equal quarterly installments upon optionee's
continued service at the completion of each of the next twelve (12) quarters
thereafter. The date of Mr. Dodani's 37,500-share option grant and his
150,000-share option grant was August 30, 1997. The date of Mr. Schultz's
37,500-share option grant was October 2, 1997. The date of Mr. Leibl's
112,500-share option grant was January 16, 1997.
(2) Based on an aggregate of 927,675 options granted in the Last Fiscal Year.
(3) The exercise price per share of options granted represents fair market value
of the Common Stock on the dates the respective options were granted as
determined by the Board of Directors. No public market existed for the
Common Stock on the respective dates of grant.
(4) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. The 5% and
10% rates of stock price appreciation are mandated by the rules of the
Securities and Exchange Commission, and there can be no assurance provided
to any executive officer or any other holder of the Company's securities
that the actual stock price appreciation over the five-year option term
will be at the assumed 5% and 10% levels or at any other defined level.
Unless the market price appreciates over the option term, no value will be
realized from the option grant.
(5) Based on an assumed initial public offering price of $11.00 per share.

53
<PAGE>

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES

The following table sets forth information concerning option exercises and
option holdings for the Last Fiscal Year, with respect to each of the Named
Executive Officers. No stock options or stock appreciation rights were
exercised during the Last Fiscal Year by the Named Executive Officers and no
stock appreciation rights were outstanding at the end of the Last Fiscal Year.

<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SECURITIES OPTIONS
UNDERLYING VALUE OF UNEXERCISED BASED ON
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT OFFERING PRICE
AT FISCAL YEAR END(#) FISCAL YEAR END($)(2) ($)(3)
---------------------------- ---------------------------- ------------------
NAME EXERCISABLE(1) UNEXERCISABLE EXERCISABLE(1) UNEXERCISABLE
---- -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Roger L. Koenig......... -- -- -- -- --
Nancy G. Pierce......... -- -- -- -- --
Shrichand B. Dodani..... 187,500 -- 262,500 -- 2,000,625
Arthur L. Schultz....... 112,500 -- 138,750 -- 1,181,625
Kevin C. Leibl.......... 112,500 -- 157,500 -- 1,200,375
</TABLE>
- --------
(1) The options are immediately exercisable for all the option shares, but any
shares purchased under the options will be subject to repurchase by the
Company at the original exercise price per share upon the optionee's
cessation of service prior to vesting in such shares. As of December 31,
1997, the Company's repurchase right had lapsed as to 37,500 shares for
Mr. Dodani, 28,125 shares for Mr. Schultz and no shares for Mr. Leibl.

(2) Based on $1.73 per share, the fair market value of the Common Stock at the
end of the Last Fiscal Year, as determined by the Board of Directors, less
the option exercise price payable for such shares.

(3) Based on an assumed initial public offering price of $11.00 per share.

BENEFIT PLANS

1998 Stock Incentive Plan. The Company's 1998 Stock Incentive Plan (the
"1998 Plan") is intended to serve as the successor equity incentive program to
the Company's existing 1995 Stock Option Plan (the "Predecessor Plan"). The
1998 Plan was adopted by the Board in May 1998 and is expected to be approved
by the stockholders in June 1998. The Discretionary Option Grant and Stock
Issuance Programs under the 1998 Plan became effective immediately upon the
Board's adoption of the Plan (the "Plan Effective Date"). The Automatic Option
Grant Program will become effective on the date the Underwriting Agreement for
the Offering is executed (the "Underwriting Date").

A total of 3,750,000 shares of Common Stock has been authorized for issuance
under the 1998 Plan. Such share reserve consists of the number of shares
available for issuance under the Predecessor Plan on the Plan Effective Date,
including the shares subject to outstanding options. To the extent any shares
of Common Stock issued under the Predecessor Plan are repurchased by the
Company after the Underwriting Date, at the exercise price paid per share, in
connection with the holder's termination of service, those repurchased shares
will be added to the reserve of Common Stock available for issuance under the
1998 Plan. In addition, the number of shares of Common Stock reserved for
issuance under the 1998 Plan will automatically be increased on the first
trading day of each calendar year, beginning in calendar year 1999, by an
amount equal to two and one-half percent (2.5%) of the total number of shares
of Common Stock outstanding on the last trading day of the preceding calendar
year, but no such annual increase shall exceed 562,500 shares.

On the Underwriting Date, outstanding options and unvested shares issued
under the Predecessor Plan will be incorporated into the 1998 Plan, and no
further option grants will be made under the Predecessor Plan. The
incorporated options will continue to be governed by their existing terms,
unless the Compensation Committee, as Plan Administrator, elects to extend one
or more features of the 1998 Plan to those options. Except as otherwise noted
below, the incorporated options have substantially the same terms as will be
in effect for grants made under the Discretionary Option Grant Program of the
1998 Plan.

54
<PAGE>

The 1998 Plan is divided into five separate components: (i) the
Discretionary Option Grant Program under which eligible individuals in the
Company's employ or service (including officers, non-employee Board members
and consultants) may, at the discretion of the Plan Administrator, be granted
options to purchase shares of Common Stock at an exercise price determined by
the Plan Administrator on the grant date, (ii) the Stock Issuance Program
under which such individuals may, in the Plan Administrator's discretion, be
issued shares of Common Stock directly through the purchase of such shares at
a price not less than their fair market value at the time of issuance or as a
bonus tied to the performance of services, (iii) the Salary Investment Option
Grant Program which may, in the Plan Administrator's sole discretion, be
activated for one or more calendar years and, if so activated, will allow
executive officers and other highly compensated employees the opportunity to
apply a portion of their base salary to the acquisition of special below-
market stock option grants, (iv) the Automatic Option Grant Program under
which option grants will automatically be made at periodic intervals to
eligible non-employee Board members to purchase shares of Common Stock at an
exercise price equal to their fair market value on the grant date and (v) the
Director Fee Option Grant Program which may, in the Plan Administrator's sole
discretion, be activated for one or more calendar years and, if so activated,
will allow non-employee Board members the opportunity to apply a portion of
the annual retainer fee otherwise payable to them in cash each year to the
acquisition of special below-market option grants. In no event may any one
participant in the 1998 Plan receive option grants, separately exercisable
stock appreciation rights or direct stock issuances for more than 500,000
shares of Common Stock in the aggregate per calendar year.

The Discretionary Option Grant Program and the Stock Issuance Program will
be administered by the Compensation Committee. The Compensation Committee as
Plan Administrator will have the discretion to determine which eligible
individuals are to receive option grants or stock issuances under those
programs, the time or times when such option grants or stock issuances are to
be made, the number of shares subject to each such grant or issuance, the
status of any granted option as either an incentive stock option or a non-
statutory stock option under the federal tax laws, the vesting schedule to be
in effect for the option grant or stock issuance and the maximum term for
which any granted option is to remain outstanding. The Compensation Committee
will also have the authority to select the executive officers and other highly
compensated employees who may participate in the Salary Investment Option
Grant Program in the event that program is activated for one or more calendar
years, but neither the Compensation Committee nor the Board will exercise any
administrative discretion with respect to option grants made under the Salary
Investment Option Grant Program or under the Automatic Option Grant or
Director Fee Option Grant Program for the non-employee Board members. All
grants under those three latter programs will be made in strict compliance
with the express provisions of each such program.

In the event that the Company is acquired by merger or sale of all or
substantially all of its assets or securities possessing more than fifty
percent (50%) of the total combined voting power of the Company's outstanding
securities, each outstanding option under the Discretionary Option Grant
Program which is not to be assumed by the successor corporation or otherwise
continued in effect will automatically accelerate in full, and all unvested
shares under the Discretionary Option Grant and Stock Issuance Programs will
immediately vest, except to the extent the Company's repurchase rights with
respect to those shares are assigned to the successor corporation or otherwise
continued in effect. The Plan Administrator will have complete discretion to
grant options under the Discretionary Option Grant Program which will become
exercisable on an accelerated basis for all of the option shares upon (i) an
acquisition or other change in control of the Company, whether or not those
options are assumed or continued in effect, or (ii) the termination of the
optionee's service within a designated period (not to exceed 18 months)
following an acquisition or other change in control in which those options are
assumed or continued in effect. The vesting of outstanding shares under the
Stock Issuance Program may be accelerated upon similar terms and conditions.
The Plan Administrator is also authorized under the Discretionary Option Grant
and Stock Issuance Programs to grant options and to structure repurchase
rights so that the shares subject to those options or repurchase rights will
immediately vest in connection with a change in the majority of the Board by
reason of one or more contested elections for Board membership, with such
vesting to occur either at the time of such change in control or upon the
subsequent termination of the individual's service within a designated period
following such change in control. The Board has the discretion to cause the

55
<PAGE>

options incorporated from the Predecessor Plan to vest on an accelerated basis
upon an acquisition of the Company by merger or asset sale. The Plan
Administrator will have discretion to extend one or more of the other
acceleration provisions of the 1998 Plan to those options.

In the event the Plan Administrator elects to activate the Salary Investment
Option Grant Program for one or more calendar years, each executive officer
and other highly compensated employee of the Company selected for
participation may elect, prior to the start of the calendar year, to reduce
his or her base salary for that calendar year by a specified dollar amount not
less than $10,000 nor more than $50,000. If such election is approved by the
Plan Administrator, the individual will automatically be granted, on the first
trading day in January of the calendar year for which that salary reduction is
to be in effect, a non-statutory option to purchase that number of shares of
Common Stock determined by dividing the salary reduction amount by two-thirds
of the fair market value per share of Common Stock on the grant date. The
option will be exercisable at a price per share equal to one-third of the fair
market value of the option shares on the grant date. As a result, the total
spread on the option shares at the time of grant (the fair market value of the
option shares on the grant date less the aggregate exercise price payable for
those shares) will be equal to the amount of salary invested in that option.
The option will become exercisable for the option shares in a series of 12
equal monthly installments over the calendar year for which the salary
reduction is to be in effect and will be subject to full and immediate vesting
upon certain changes in the ownership or control of the Company.

Under the Automatic Option Grant Program, each individual who first becomes
a non-employee Board member at any time after the Underwriting Date will
automatically receive an option grant for 15,000 shares of Common Stock on the
date such individual joins the Board, provided such individual has not been in
the prior employ of the Company. In addition, on the date of each annual
meeting of stockholders held after the Underwriting Date, each non-employee
Board member who is to continue to serve as a non-employee Board member will
automatically be granted an option to purchase 3,500 shares of Common Stock,
provided such individual has served on the Board for at least six months.

Each automatic grant for the non-employee Board members will have a term of
ten years, subject to earlier termination following the optionee's cessation
of Board service. Each automatic option will be immediately exercisable for
all of the option shares; however, any unvested shares purchased under the
option will be subject to repurchase by the Company, at the exercise price
paid per share, should the optionee's Board service cease prior to vesting in
those shares. The shares subject to each initial 15,000-share automatic option
grant will vest in series of four successive equal annual installments upon
the individual's completion of each year of Board service over the four-year
period measured from the option grant date. The shares subject to each annual
3,500-share automatic grant will vest upon the individual's completion of one
year of Board service measured from the option grant date. However, the shares
subject to each automatic grant will immediately vest in full upon certain
changes in control or ownership of the Company or upon the optionee's death or
disability while serving as a Board member.

Should the Director Fee Option Grant Program be activated in the future,
each non-employee Board member will have the opportunity to apply all or a
portion of any annual retainer fee otherwise payable in cash to the
acquisition of a below-market option grant. The option grant will
automatically be made on the first trading day in January in the year for
which the retainer fee would otherwise be payable in cash. The option will
have an exercise price per share equal to one-third of the fair market value
of the option shares on the grant date, and the number of shares subject to
the option will be determined by dividing the amount of the retainer fee
applied to the program by two-thirds of the fair market value per share of
Common Stock on the grant date. As a result, the total spread on the option
shares at the time of grant (the fair market value of the option shares on the
grant date less the aggregate exercise price payable for those shares) will be
equal to the portion of the retainer fee invested in that option. The option
will become exercisable for the option shares in a series of 12 equal monthly
installments over the calendar year for which the election is to be in effect.
However, the option will become immediately exercisable for all the option
shares upon (i) certain changes in the ownership or control of the Company or
(ii) the death or disability of the optionee while serving as a Board member.

56
<PAGE>

The 1998 Plan and the Predecessor Plan also include non-competition
provisions which give the Plan Administrator discretion to cancel options,
reacquire options and recover profits on the sale of shares from service
providers and former service providers who compete with the Company while
still providing services or within one year after termination of services.

The shares subject to each option under the Salary Investment Option Grant,
Automatic Option Grant and Director Fee Option Grant Programs will immediately
vest upon (i) an acquisition of the Company by merger or asset sale, (ii) the
successful completion of a tender offer for more than 50% of the Company's
outstanding voting stock or (iii) a change in the majority of the Board
effected through one or more contested elections for Board membership.

The Board may amend or modify the 1998 Plan at any time, subject to any
required stockholder approval. The 1998 Plan will terminate on the earlier of
(i) May 2008, (ii) the date on which all shares available for issuance under
the 1998 Plan have been issued as fully-vested shares and (iii) the
termination of all outstanding options in connection with certain changes in
control or ownership of the Company.

1998 Employee Stock Purchase Plan. The Company's 1998 Employee Stock
Purchase Plan (the "Purchase Plan") was adopted by the Board in May 1998 and
is expected to be approved by the stockholders in June 1998 and will become
effective when activated by the Board. The Purchase Plan is designed to allow
eligible employees of the Company to purchase shares of Common Stock, at semi-
annual intervals, through their periodic payroll deductions under the Purchase
Plan. A reserve of 262,500 shares of Common Stock has been established for
this purpose. This reserve will be increased on the first trading day in each
calendar year, beginning in calendar year 1999, by an amount equal to one-half
of one percent (0.5%) of the total number of shares outstanding on the last
trading day of the preceding calendar year, but no such annual increase shall
exceed 112,500 shares.

The Purchase Plan will be implemented in a series of successive offering
periods, each with a maximum duration of 24 months. However, the initial
offering period will begin on the Underwriting Date and will end on the last
business day in July 2000. The next offering period will commence on the first
business day in August 2000, and subsequent offering periods will commence as
designated by the Plan Administrator.

Individuals who are eligible employees (scheduled to work more than 20 hours
per week for more than 5 calendar months per year) on the start date of any
offering period may enter the Purchase Plan on that start date or on any
subsequent semi-annual entry date (the first business day of February or
August each year). Individuals who become eligible employees after the start
date of the offering period may join the Purchase Plan on any subsequent semi-
annual entry date within that offering period.

Payroll deductions may not exceed 10% of base salary, and the accumulated
payroll deductions of each participant will be applied to the purchase of
shares on his or her behalf on each semi-annual purchase date (the last
business day in January and July each year) at a purchase price per share
equal to 85% of the lower of (i) the fair market value of the Common Stock on
the participant's entry date into the offering period or (ii) the fair market
value on the semi-annual purchase date.

Should the fair market value per share of Common Stock on any purchase date
be less than the fair market value per share on the start date of the two-year
offering period, then that offering period will automatically terminate, and a
new two-year offering period will begin on the next business day, with all
participants in the terminated offering to be automatically transferred to the
new offering period.

In the event the Company is acquired by merger or asset sale, all
outstanding purchase rights will automatically be exercised immediately prior
to the effective date of such acquisition. The purchase price will be equal to
85% of the lower of (i) the fair market value per share of Common Stock on the
participant's entry date into the offering period in which such acquisition
occurs or (ii) the fair market value per share of Common Stock immediately
prior to such acquisition.

57
<PAGE>

The Purchase Plan will terminate on the earlier of (i) the last business day
of July 2008, (ii) the date on which all shares available for issuance under
the Purchase Plan shall have been sold pursuant to purchase rights exercised
thereunder or (iii) the date on which all purchase rights are exercised in
connection with an acquisition of the Company by merger or asset sale.

The Board may at any time alter, suspend or discontinue the Purchase Plan.
However, certain amendments to the Purchase Plan may require stockholder
approval.

EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AGREEMENTS AND CHANGE OF
CONTROL ARRANGEMENTS

The Company does not currently have any employment contracts in with any of
its executive officers.

In connection with an acquisition of the Company by merger or asset sale,
each outstanding option held by an executive officer originally granted under
the Predecessor Plan may, in the sole discretion of the Board of Directors or
a Committee, be terminated as of a certain date or become immediately vested
in full. Each outstanding option held by an executive officer under the 1998
Plan will automatically accelerate in full and all unvested shares of Common
Stock issued to such individuals pursuant to the exercise of options granted
or direct stock issuances made under such plans will immediately vest in full,
except to the extent such options are to be assumed by, and the Company's
repurchase rights with respect to those shares are to be assigned to, the
successor corporation. In the event an optionee engages in competitive
activities while providing services to the Company or within one year after
terminating his or her employment or consulting arrangement with the Company,
the Board may in its sole discretion terminate any option granted to such
optionee, and may also repurchase any shares which have been acquired by such
optionee pursuant to an option exercise at a price equal to the exercise
price. In addition, the Compensation Committee as Plan Administrator of the
1998 Plan will have the authority to provide for the accelerated vesting of
the shares of Common Stock subject to outstanding options held by the Chief
Executive Officer or any other executive officer or the shares of Common Stock
purchased pursuant to the exercise of options or subject to direct issuances
held by such individual, in connection with the termination of the officer's
employment following: (i) a merger or asset sale in which those options are
assumed or the Company's repurchase rights with respect to unvested shares are
assigned or (ii) certain hostile changes in control of the Company. See "--
Benefit Plans--1998 Stock Incentive Plan."

Management Incentive Compensation Plan. In May 1998, the Board of Directors
approved a Management Incentive Compensation Plan, under which selected key
employees, including executive officers, are eligible to receive bonus
payments. At the beginning of each year, financial, strategic and individual
performance objectives, which vary from year to year and may be based on
measures of profitability, cash flow and other measures for the Company, are
established and approved by Mr. Koenig and the Compensation Committee of the
Board of Directors for each participant in the program. A minimum performance
level must be achieved by the Company before any bonus may be earned by a
participant. Thereafter, an established progression rewards higher levels of
achievement with greater bonus payments. Aggregate bonuses payable under the
Management Incentive Compensation Plan in any one year will be capped at a
pre-determined percentage of each participant's salary.

58
<PAGE>

CERTAIN TRANSACTIONS

Since June 1996, the Company has raised capital primarily through the sale
of its Redeemable Preferred Stock. In June 1996, the Company sold 1,210,861
shares of Series A Preferred Stock at a price of $2.86 per share. In September
1997, the Company sold 2,517,894 shares of Series B Preferred Stock at a price
of $4.99 per share. The following table summarizes the shares of Preferred
Stock purchased by executive officers, directors and 5% percent stockholders
of the Company and persons associated with them since June 1995.

<TABLE>
<CAPTION>
SERIES A SERIES B
PREFERRED PREFERRED TOTAL SHARES ON AN
INVESTOR PREFERRED STOCK PREFERRED STOCK AS-CONVERTED BASIS(1)
-------- --------------- --------------- ---------------------
<S> <C> <C> <C>
Entities affiliated with
Needham & Company,
Inc.(2)................. 559,440 320,642 1,320,123
Entities affiliated with
Menlo Ventures(3)....... -- 1,047,094 1,570,641
Entities affiliated with
New Enterprise
Associates(4)........... -- 1,013,026 1,519,539
Roger L. Koenig(5)....... 67,839 -- 101,758
Nancy G. Pierce(6)....... 67,839 -- 101,758
Shrichand B. Dodani(7)... 17,483 -- 26,224
Joseph Graziano(8)....... 61,189 16,171 116,040
Ryal Poppa............... 104,895 27,721 198,924
</TABLE>
- --------

(1) Reflects a three-for-two stock split which will be automatically effected
upon the conversion of the Series A and Series B Preferred Stock to Common
Stock upon the closing of the Offering.
(2) Represents shares originally purchased by Needham Capital Partners L.P.,
Needham Omni Fund, L.P., Needham Emerging Growth Partners, L.P. and
Needham Capital SBIC, L.P (collectively, the "Needham Partnerships").
Subsequent to the June 1996 closing of the Company's Series A Preferred
Stock financing, the Needham Omni Fund, L.P. (the holder of 34,965 shares
of Series A Preferred Stock) was renamed the Galleon Omni Fund, Ltd. and
its affiliation with the other Needham Partnerships was severed.
(3) Represents shares purchased by Menlo Ventures VII, L.P. and by Menlo
Entrepreneurs Fund VII, L.P. (the "Menlo Partnerships"). Mr. Carlisle, a
Director of the Company, is a managing member of MV Management VII, LLC,
the General Partner of each of the Menlo Partnerships.
(4) Represents shares held by New Enterprise Associates VII, L.P., NEA
Presidents Fund, L.P. and NEA Ventures 1997, L.P.
(5) Represents shares acquired by Mr. Koenig in exchange for cancellation of
indebtedness owed to Mr. Koenig by the Company. See "--Other Relationships
and Transactions." Mr. Koenig subsequently sold 5,000 shares of Series A
Preferred Stock to an unaffiliated third party.
(6) Represents shares acquired by Ms. Pierce in exchange for cancellation of
indebtedness owed to Ms. Pierce by the Company. See "--Other Relationships
and Transactions."
(7) Represents shares purchased by Mr. Dodani from a third party stockholder
in February 1997 at a price of $2.86 per share.
(8) Series A Preferred Stock was purchased by the Joseph A. and Mari Ann J.
Graziano Trust dated March 13, 1984, of which Mr. Graziano, a Director of
the Company, is Trustee.

The Series A and Series B Preferred Stock have the following rights,
preferences and privileges: (i) liquidation preferences pursuant to which
Series A and Series B Preferred holders are entitled to receive $2.86 and
$4.99, respectively, for each share of Series A and Series B Preferred Stock
in the case of a liquidation event; (ii) the right to participate in certain
distributions to common stockholders receiving their respective liquidation
preferences; (iii) redemption rights which guarantee each holder a 15.0%
annual rate of return on their investment if the Company has not completed a
public offering (a) in the case of Series A Preferred Stock, prior to June 24,
2000 and (b) in the case of Series B Preferred Stock, the earlier of (1) the
redemption date of the Series A Preferred Stock or (2) September 15, 2001;
(iii) special voting rights pursuant to which they can prevent any measures
taken by the Company that could dilute or otherwise harm their investment in
the

59
<PAGE>

Company, including (a) changes to the articles of incorporation or bylaws, (b)
any dissolution or liquidation of the Company; (c) any merger, consolidation,
sale, recapitalization, or liquidation of substantially all of the Company's
assets; (d) any other material transaction; or (e) issuance of new classes of
stock; (iv) antidilution protection; (v) registration rights such that (a) if
the Company proposes to register any of its securities under the Securities
Act, such holders are entitled to notice of such registration and are entitled
to include their registrable securities therein; (b) if at any time beginning
six months after the date of this Prospectus, the Company receives a request
from holders of at least 50% of the registrable securities then outstanding
(the "Investor Shares"), the Company is obligated to cause such shares to be
registered under the Securities Act (holders of the Investor Shares have the
right to cause two such demand registrations); (c) holders of Investor Shares
may require the Company to register all or a portion of their registrable
securities on Form S-3 under the Securities Act, provided that the offering
size would exceed $500,000, when such form becomes available for use by the
Company. All the rights of such holders are subject to certain conditions,
including the right of the underwriters of any such offering to limit the
number of shares included in any such registration; and (vi) rights of co-sale
with respect to transfer of shares by the founders of the Company. See
"Description of Capital Stock--Registration Rights."

OTHER RELATIONSHIPS AND TRANSACTIONS

Roger L. Koenig, the Company's President and Chief Executive Officer, and
Nancy Pierce, the Company's Vice President--Finance and Administration, Chief
Financial Officer, Treasurer and Secretary, are married to each other.

In the past, the Company has granted options to certain of its executive
officers and directors and the Company intends to continue to grant options to
its executive officers and directors in the future. See "Management--Director
Compensation," "--Option Grants in Last Fiscal Year" and "Principal
Stockholders."

Beginning in 1993, and from time to time thereafter, Mr. Koenig and Ms.
Pierce jointly extended loans to the Company in order to provide working
capital to the Company. Such loans were evidenced by promissory notes bearing
interest at 9.5% per annum. As of June 19, 1996, the principal amount and
accrued interest on these loans was $388,039. In connection with the Company's
Series A Preferred Stock financing in June 1996, these loans were converted
into an aggregate of 135,678 shares of Series A Preferred Stock at a price of
$2.86 per share. Of such shares, 67,839 were issued to Mr. Koenig and 67,839
shares were issued to Ms. Pierce. See Notes 3 and 5 of Notes to Financial
Statements.

In connection with the Company's September 1997 Series B Preferred Stock
financing, the Company and the purchasers of its Series A and Series B
Preferred Stock, including Mr. Koenig, Ms. Pierce, Mr. Dodani, Mr. Graziano
and Mr. Poppa, entered into an Amended and Restated Shareholder Agreement (the
"Shareholder Agreement"). Pursuant to the Shareholder Agreement, the parties
agreed to vote their shares of Preferred Stock (and, in the case of Mr. Koenig
and Ms. Pierce, shares of Common Stock) for the election of the following
persons as directors of the Company: (i) two representatives designated by Mr.
Koenig and Ms. Pierce; (ii) one representative designated by the holders of a
majority of the outstanding Series A Preferred Stock; (iii) one representative
designated by the holders of a majority of the outstanding Series B Preferred
Stock; and (iv) two "outside directors" nominated by the Board of Directors.
The Shareholder Agreement will terminate upon the closing of this Offering.

The Company has entered into an Indemnification Agreement with each of its
executive officers and directors containing provisions that may require the
Company, among other things, to indemnify its officers and directors against
certain liabilities that may arise by reason of their status or service as
officers or directors (other than liabilities arising from willful misconduct
of a culpable nature) and to advance their expenses incurred as a result of
any proceeding against them as to which they could be indemnified. See
"Management--Limitation on Liability and Indemnification."

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<PAGE>

The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been otherwise
obtained from unaffiliated third parties. All future transactions, including
loans, if any, between the Company and its officers, directors and principal
stockholders and their affiliates will be approved by a majority of the Board
of Directors, including a majority of the independent and disinterested
outside directors of the Board of Directors and will be on terms no less
favorable to the Company than could be obtained from unaffiliated third
parties.

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<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of June 30, 1998 by (i) all persons who are
beneficial owners of 5% or more of the Common Stock, (ii) each of the
Company's Directors, (iii) each of the Named Executive Officers and (iv) all
current Directors and executive officers of the Company as a group.

<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES
BENEFICIALLY
OWNED(2)
NUMBER OF -----------------
SHARES AFTER
BENEFICIALLY PRIOR TO THE
NAME AND ADDRESS OF BENEFICIAL OWNER (1) OWNED (2) OFFERING OFFERING
- ---------------------------------------- ------------ -------- --------
<S> <C> <C> <C>
Entities affiliated with Menlo Ventures (3)..... 1,570,641 7.8% 6.8%
3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, CA 94025
Entities affiliated with New Enterprise
Associates (4)................................. 1,519,539 7.6 6.6
2490 Sand Hill Road
Menlo Park, CA 94025
Entities affiliated with Needham & Company, Inc.
(5)............................................ 1,267,675 6.3 5.5
445 Park Avenue
New York, NY 10012
Roger L. Koenig (6)............................. 13,923,116 69.5 60.4
Nancy G. Pierce (7)............................. 13,923,116 69.5 60.4
Shrichand B. Dodani (8)......................... 251,224 1.2 1.1
J. Randy Shipley (9)............................ 150,000 * *
John W. Stahura (10)............................ 112,500 * *
Douglas Carlisle (3)............................ 1,570,641 7.8 6.8
Joseph Graziano (11)............................ 191,040 * *
Ryal Poppa (12)................................. 273,924 1.4 1.2
Arthur L. Schultz (13).......................... -- * *
Kevin C. Leibl (14)............................. 23,968 * *
All Directors and executive officers as a group
(eight persons)(15)............................ 16,472,445 80.2% 70.0%
</TABLE>
- --------
* Less than 1%.
(1) Except as otherwise noted, the address of each person listed on the table
is c/o Carrier Access Corporation, 5395 Pearl Parkway, Boulder, Colorado
80301.

(2) Number and percentage of shares beneficially owned is based on 20,045,492
shares outstanding as of June 30, 1998 and assumes no exercise of the
underwriters' overallotment option. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission and
generally includes voting or investment power with respect to securities.
Shares of Common Stock subject to options currently exercisable or
exercisable within 60 days of June 30, 1998 are deemed to be outstanding
and to be beneficially owned by the person holding such options for the
purpose of computing the number of shares beneficially owned and the
percentage of such person or entity holding such securities but are not
outstanding for the purpose of computing the percentage of any other
person or entity. Except as indicated by footnotes to the table, and
subject to the applicable community property laws, based on information
provided by the persons shown in the table, such persons have sole voting
and investment power with respect to all shares of Common Stock shown as
beneficially owned by them.
(3) Represents 1,503,006 shares held of record by Menlo Ventures VII, L.P.
and 67,635 shares held of record by Menlo Entrepreneurs Fund VII, L.P.
(collectively, the "Menlo Partnerships"). Mr. Carlisle, a director of the
Company, is a managing member of MV Management VII, LLC, the General
Partner of each of the Menlo Partnerships, and has shared voting and
investment power with respect to the shares held by the

62
<PAGE>

Menlo Partnerships. However, Mr. Carlisle disclaims beneficial ownership of
all such shares, except to the extent of his pecuniary interest therein as
a result of his indirect general partnership interest in each of the Menlo
Partnerships.
(4) Represents 1,503,006 shares held of record by New Enterprise Associates
VII, L.P., 15,030 shares held of record by NEA Presidents Fund, L.P. and
1,503 shares held of record by NEA Ventures 1997, L.P.

(5) Represents 292,929 shares held of record by Needham Capital Partners L.P.,
607,614 shares held of record by Needham Emerging Growth Partners, L.P.
and 367,132 shares held of record by Needham Capital SBIC, L.P.
(6) Represents 1,711,558 shares held by Mr. Koenig, 1,711,558 shares held by
Ms. Pierce and 10,500,000 shares held by KELD, LLC. Mr. Koenig is a
managing member of KELD, LLC and has shared voting and investment power
over the shares held by KELD, LLC.
(7) Represents 1,711,558 shares held by Ms. Pierce, 1,711,558 shares held by
Mr. Koenig and 10,500,000 shares held by KELD, LLC. Ms. Pierce is a
managing member of KELD, LLC and has shared voting and investment power
over the shares held by KELD, LLC.

(8) Includes 225,000 shares of Common Stock issuable upon exercise of
immediately exercisable options, 150,000 of which are subject to the
Company's right of repurchase.
(9) Includes 150,000 shares of Common Stock issuable upon exercise of
immediately exercisable options, all of which are subject to the Company's
right of repurchase.
(10) Includes 112,500 shares of Common Stock issuable upon exercise of
immediately exercisable options, all of which are subject to the Company's
right of repurchase.

(11) Includes 75,000 shares of Common Stock issued upon exercise of immediately
exercisable options, 37,500 of which are subject to the Company's right of
repurchase. See "Management--Director Compensation."
(12) Includes 75,000 shares of Common Stock issued upon exercise of immediately
exercisable options, 37,500 of which are subject to the Company's right of
repurchase. See "Management--Director Compensation."

(13) Mr. Schultz resigned from the Company on April 10, 1998.

(14) Mr. Leibl resigned from the Company on December 1, 1997, effective May 15,
1998.

(15) Includes 487,500 shares of Common Stock issuable upon exercise of
immediately exercisable options, 450,000 of which are subject to the
Company's right of repurchase. Also includes 75,000 shares issued pursuant
to early option exercises which are subject to the Company's right of
repurchase.

63
<PAGE>

DESCRIPTION OF CAPITAL STOCK

Immediately following the closing of the Offering, the authorized capital
stock of the Company will consist of 60,000,000 shares of Common Stock, $0.001
par value, and 5,000,000 shares of Preferred Stock, $0.001 par value, after
giving effect to the amendment of the Company's Certificate of Incorporation
to delete references to the Convertible Preferred Stock following conversion
of such stock. The following description of capital stock gives effect to the
Restated Certificate of Incorporation to be filed upon closing of the
Offering. Immediately following the completion of the Offering, and assuming
no exercise of the Underwriters' over-allotment option, an aggregate of
23,045,492 shares of Common Stock will be issued and outstanding, and no
shares of Preferred Stock will be issued or outstanding.

The following description of the Company's capital stock does not purport to
be complete and is subject to and qualified in its entirety by the Company's
Restated Certificate of Incorporation and Bylaws and by the provisions of
applicable Delaware law.

COMMON STOCK

The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may
be applicable to any outstanding Preferred Stock that may come into existence,
the holders of Common Stock are entitled to receive ratably such dividends, if
any, as may be declared from time to time by the Board of Directors out of
funds legally available therefor. See "Dividend Policy." In the event of
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior distribution rights of Preferred Stock, if any,
then outstanding. The Common Stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are
fully paid and nonassessable, and the shares of Common Stock to be outstanding
upon completion of this Offering will be fully paid and nonassessable.

PREFERRED STOCK

The Company's Board of Directors is authorized to issue from time to time,
without stockholder authorization, in one or more designated series, any or
all of the authorized but unissued shares of Preferred Stock with such
dividend, redemption, conversion and exchange provisions as may be provided in
the particular series. Any series of Preferred Stock may possess voting,
dividend, liquidation and redemption rights superior to that of the Common
Stock. The rights of the holders of Common Stock will be subject to, and may
be adversely affected by, the rights of the holders of any Preferred Stock
that may be issued in the future. Issuance of a new series of Preferred Stock,
while providing desirable flexibility in connection with possible acquisition
and other corporate purposes, could have the effect of entrenching the
Company's Board of Directors and make it more difficult for a third party to
acquire, or discourage a third party from acquiring, a majority of the
outstanding voting stock of the Company. The Company has no present plans to
issue any shares or designate any series of Preferred Stock.

REGISTRATION RIGHTS

Pursuant to the Amended and Restated Investor Rights Agreement dated as of
September 16, 1997 among the Company and the holders of Series A and Series B
Preferred Stock (the "Rights Agreement"), the holders of approximately
5,593,126 shares of Common Stock (the "Registrable Securities") after this
Offering will be entitled to certain rights with respect to the registration
of the Registrable Securities under the Securities Act. Under the Rights
Agreement, if the Company proposes to register any of its securities under the
Securities Act, either for its own account or the account of other
stockholders, the holders of Registrable Securities are entitled to notice of
such registration and are entitled to include their Registrable Securities
therein. In addition, if at any time beginning six months after the date of
this Prospectus the Company receives a request from holders of at least 50% of
the Registrable Securities then outstanding (the "Investors' Shares"), the
Company is obligated to

64
<PAGE>

cause such shares to be registered under the Securities Act. Holders of
Investors' Shares have the right to cause two such demand registrations.
Further, holders of Registrable Securities may require the Company to register
all or a portion of their Registrable Securities on Form S-3 under the
Securities Act (provided that the offering size would exceed $500,000), when
such form becomes available for use by the Company, and subject to certain
other conditions and limitations. The holders' rights with respect to all such
registrations are subject to certain conditions, including the right of the
underwriters of any such offering to limit the number of shares included in
any such registration. The Company has agreed to pay all expenses related to
registrations made pursuant to the Rights Agreement, except for underwriting
discounts and commissions or other compensations to effect the sale of the
Registrable Securities.

ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION,
BYLAWS AND DELAWARE LAW

Certificate of Incorporation and Bylaws

The Company's Restated Certificate of Incorporation authorizes the Board to
establish one or more series of undesignated Preferred Stock, the terms of
which can be determined by the Board at the time of issuance. See "--Preferred
Stock." The Restated Certificate of Incorporation also provides that all
stockholder action must be effected at a duly called meeting of stockholders
and not by a consent in writing. In addition, the Bylaws permit stockholders
of the Company to call a special meeting of stockholders only by a consent
signed by holders of at least 50% of the outstanding Common Stock. Otherwise,
only the Company's President, or a majority of the Board may call a special
meeting of stockholders. The Bylaws also require that stockholders give
advance notice to the Company's Secretary of any nominations for director or
other business to be brought by stockholders at any stockholders' meeting and
require a supermajority vote of members of the Board and/or stockholders to
amend certain Bylaw provisions. These provisions of the Restated Certificate
of Incorporation and Bylaws could discourage potential acquisition proposals
and could delay or prevent a change in control of the Company. Such provisions
also may have the effect of preventing changes in the management of the
Company. See "Risk Factors--Control by Existing Stockholders" and "-- Effects
of Certain Anti-Takeover Provisions."

Delaware Takeover Statute

The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"), which, subject to certain exceptions, prohibits a
Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three (3) years following the date that
such stockholder became an interested stockholder, unless: (i) prior to such
date, the board of directors of the corporation approved either the business
combination or the transaction that resulted in the stockholder becoming an
interested stockholder; (ii) upon consummation of the transaction that
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned (x) by persons
who are directors and also officers and (y) by employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or (iii) on or subsequent to such date, the business
combination is approved by the board of directors and authorized at an annual
or special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting stock that is
not owned by the interested stockholder.

Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii)
any sale, transfer, pledge or other disposition of 10% or more of the assets
of the corporation involving the interested stockholder; (iii) subject to
certain exceptions, any transaction that results in the issuance or transfer
by the corporation of any stock of the corporation to the interested
stockholder; (iv) any transaction involving the corporation that has the
effect of increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested stockholder; or
(v) the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation. In general, Section 203 defines an

65
<PAGE>

interested stockholder as any entity or person beneficially owning 15% or more
of the outstanding voting stock of the corporation and any entity or person
affiliated with or controlling or controlled by such entity or person.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is American Securities
Transfer and Trust Incorporated.

66
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this Offering, there has not been any public market for the Common
Stock of the Company. Future sales of substantial amounts of Common Stock in
the public market could adversely affect prevailing market prices from time to
time. Furthermore, since only a limited number of shares will be available for
sale shortly after this Offering because of certain contractual and legal
restrictions on resale (as described below), sales of substantial amounts of
Common Stock in the public market after the restrictions lapse could adversely
affect the prevailing market price and the ability of the company to raise
equity capital in the future.

Upon completion of this Offering, the Company will have 23,045,492 shares of
Common Stock outstanding, assuming no exercise of options and no repurchase of
option shares by the Company after June 30, 1998. Of these shares, the
3,000,000 shares sold in this Offering will be freely tradeable without
restriction or further registration under the Securities Act, except that any
shares purchased by "affiliates" of the Company, as that term is defined in
Rule 144 under the Securities Act ("Affiliates"), may generally only be sold
pursuant to an effective registration statement under the Securities Act or in
compliance with the limitations of Rule 144 as described below.

SALES OF RESTRICTED SHARES

The remaining 20,045,492 shares of Common Stock held by existing
stockholders are "restricted securities" as that term is defined in Rule 144
("Restricted Shares"). Restricted Shares generally may be sold in the public
market only if registered or if they qualify for an exemption from
registration under Rules 144, 144(k) or 701 promulgated under the Securities
Act, which rules are summarized below. As a result of the contractual
restrictions described below and the provisions of Rules 144, 144(k) and 701,
additional shares will be available for sale in the public market as follows:
(i) 147,900 shares will be eligible for immediate sale on the date of this
Prospectus, (ii) 56,421 shares will be eligible for sale 90 days after the
date of this Prospectus, and (iii) 19,841,171 shares will be eligible for sale
upon expiration of lock-up agreements 180 days after the date of this
Prospectus.

All of the officers and directors and certain stockholders and optionholders
of the Company have entered into lock-up agreements generally providing that
they will not offer, pledge, sell, offer to sell, contract to sell, sell any
option or contract to purchase, purchase any option to sell, grant any option,
right or warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any of the shares of Common Stock or any securities convertible
into, or exercisable or exchangeable for, Common Stock owned by them, or enter
into any swap or other arrangement that transfers to another, in whole or in
part, any of the economic consequences of ownership of the Common Stock, for a
period of 180 days after the date of this Prospectus, without the prior
written consent of Credit Suisse First Boston Corporation, subject to certain
limited exceptions. Credit Suisse First Boston Corporation may, in its sole
discretion and at any time without notice, release all or any portion of the
shares subject to lock-up agreements. Credit Suisse First Boston Corporation
currently has no plans to release any portion of the shares subject to lock-up
agreements. When determining whether or not to release shares from the lock-up
agreements, Credit Suisse First Boston Corporation will consider, among other
factors, the stockholder's reasons for requesting the release, the number of
shares for which the release is being requested and market conditions at the
time.

In general, under Rule 144 as currently in effect, beginning 90 days after
this Offering, a person (or persons whose shares are aggregated) who has
beneficially owned Restricted Shares for at least one year (including the
holding period of any prior owner other than a person who may be deemed an
Affiliate), would be entitled to sell within any three-month period a number
of shares of Common Stock that does not exceed the greater of 1% of the then-
outstanding shares of Common Stock of the Company (approximately 230,455
shares after giving effect to this Offering) and the average weekly trading
volume of the Common Stock on The Nasdaq National Market during the four
calendar weeks preceding the filing of a Form 144 notice with respect to such
sale. Sales under Rule 144 of the Securities Act are also subject to certain
restrictions relating to manner of sale, notice and the availability of
current public information about the Company. Under Rule 144(k), a person who
is not

67
<PAGE>

deemed to have been an Affiliate of the Company at any time during the 90 days
preceding a sale, and who has beneficially owned the shares proposed to be
sold for at least two years (including the holding period of any prior owner
other than an Affiliate), would be entitled to sell such shares immediately
following this Offering without regard to the volume limitation, manner of
sale, public information or notice provisions of Rule 144 of the Securities
Act. However, the transfer agent may require an opinion of counsel that a
proposed sale of shares comes within the terms of Rule 144 prior to effecting
a transfer of such shares.

OPTIONS

Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from the Company by its
employees, directors, officers, consultants or advisors prior to the date the
Company became subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), pursuant to written
compensatory benefit plans or written contracts relating to the compensation
of such persons. In addition, the Securities and Exchange Commission has
indicated that Rule 701 will apply to typical stock options granted by an
issuer before it becomes subject to the reporting requirements of the Exchange
Act, along with the shares acquired upon exercise of such options (including
exercises after the date of this Offering). Securities issued in reliance on
Rule 701 are Restricted Shares and, subject to the contractual restrictions
described above, beginning 90 days after the date of this Prospectus, may be
sold (i) by persons other than Affiliates, subject only to the manner of sale
provisions of Rule 144 and (ii) by Affiliates, under Rule 144 without
compliance with its one-year minimum holding period requirements.

As of June 30, 1998, options to purchase a total of 1,779,905 shares of
Common Stock were outstanding and exercisable under the Predecessor Plan. An
additional 1,392,728 shares of Common Stock were available as of June 30, 1998
for future option grants under the Predecessor Plan. See "Management--Benefit
Plans," and Note 7 of Notes to Consolidated Financial Statements. The Company
intends to file, within 90 days of the effective date of this Offering, a
registration statement on Form S-8 under the Securities Act to register all
shares of Common Stock subject to outstanding stock options and Common Stock
issued or issuable pursuant to the Predecessor Plan, the 1998 Plan and the
Purchase Plan. Such registration statement is expected to become effective
upon filing. Shares covered by these registration statements will thereupon be
eligible for sale in the public markets, subject to the lock-up agreements, if
applicable.

REGISTRATION RIGHTS

Upon completion of this Offering, the holders of approximately 5,593,126
shares of Common Stock will be entitled to certain rights with respect to
registration of such shares under the Securities Act. Registration of such
shares under the Securities Act would result in such shares becoming freely
tradeable without restriction under the Securities Act (except for shares
purchased by an Affiliate) immediately upon the effectiveness of such
registration. See "Description of Capital Stock--Registration Rights."

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<PAGE>

UNDERWRITING

Under the terms and subject to the conditions contained in the Underwriting
Agreement dated , 1998 (the "Underwriting Agreement"), the underwriters
named below (the "Underwriters"), for whom Credit Suisse First Boston
Corporation, Hambrecht & Quist LLC and Warburg Dillon Read LLC are acting as
representatives (the "Representatives"), have severally but not jointly agreed
to purchase from the Company the following respective numbers of shares of
Common Stock:

<TABLE>
<CAPTION>
NUMBER
OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation.............................
Hambrecht & Quist LLC..............................................
Warburg Dillon Read LLC............................................
---------
Total............................................................ 3,000,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will be
obligated to purchase all of the shares of Common Stock offered hereby (other
than those shares covered by the over-allotment option described below) if any
are purchased. The Underwriting Agreement provides that, in the event of a
default by an Underwriter, in certain circumstances the purchase commitments
of non-defaulting Underwriters may be increased or the Underwriting Agreement
may be terminated.

The Company has granted the Underwriters an option, expiring at the close of
business on the 30th day after the date of this Prospectus, to purchase up to
450,000 additional shares at the initial public offering price, less the
underwriting discounts and commissions, all as set forth on the cover page of
this Prospectus. Such option may be exercised only to cover over-allotments in
the sale of the shares of Common Stock offered hereby. To the extent such
option is exercised, each Underwriter will become obligated, subject to
certain conditions, to purchase approximately the same percentage of such
additional shares of Common Stock as it was obligated to purchase pursuant to
the Underwriting Agreement.

The Company has been advised by the Representatives that the Underwriters
propose to offer shares of Common Stock to the public initially at the public
offering price set forth on the cover page of this Prospectus and, through the
Representatives, to certain dealers at such price less a concession of $
per share, and the Underwriters and such dealers may allow a discount of $
per share on sales to certain other dealers. After the initial public
offering, the public offering price and concession and discount to dealers may
be changed by the Representatives.

The Representatives have informed the Company that they do not expect
discretionary sales by the Underwriters to exceed 5% of the shares of Common
Stock being offered hereby.

The Company, its officers, directors and substantially all other current
stockholders of the Company have agreed not to offer, pledge, sell, offer to
sell, contract to sell, sell any option or contract to purchase, purchase any
option to sell, grant any option right or warrant to purchase, or otherwise
transfer or dispose of, directly or indirectly, or, in the case of the
Company, file with the Commission a registration statement relating to, any
shares of Common Stock or securities or other rights convertible into or
exchangeable or exercisable for any shares of Common Stock or publicly
disclose the intention to do any of the foregoing without the prior written

69
<PAGE>

consent of Credit Suisse First Boston Corporation, for a period of 180 days
after the date of this Prospectus, except under certain circumstances.

The Underwriters have reserved for sale, at the initial public offering
price, up to 150,000 shares of the Common Stock for employees, directors and
certain other persons associated with the Company who have expressed an
interest in purchasing such shares of Common Stock in the Offering. The number
of shares available for sale to the general public in the Offering will be
reduced to the extent such persons purchase such reserved shares. Any reserved
shares not so purchased will be offered by the Underwriters to the general
public on the same terms as the other shares offered hereby.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or
contribute to payments which the Underwriters may be required to make in
respect thereof.

Application has been made to list the shares of Common Stock on the Nasdaq
Stock Market's National Market under the symbol "CACS."

Prior to the Offering, there has been no public market for the Common Stock.
Accordingly, the initial public offering price for the shares will be
determined by negotiation between the Company and the Representatives. In
determining such price, consideration will be given to various factors,
including the information set forth in this Prospectus and otherwise available
to the Representatives, the history and prospects for the Company's business,
the ability of the Company's management, the prospects for future earnings of
the Company, the present state of the Company's development and its current
financial condition, market conditions for initial public offerings, the
market for securities of companies in businesses similar to those of the
Company, the general condition of the securities markets and other relevant
factors. There can be no assurance, however, that the initial public offering
price will correspond to the price at which the Common Stock will trade in the
public market subsequent to the Offering or that an active trading market for
the Common Stock will develop and continue after the Offering.

The Representatives, on behalf of the Underwriters, may engage in over-
allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Exchange Act. Over-
allotment involves syndicate sales in excess of the offering size, which
creates a syndicate short position. Stabilizing transactions permit bids to
purchase the Common Stock so long as the stabilizing bids do not exceed a
specified maximum. Syndicate covering transactions involve purchases of the
Common Stock in the open market after the distribution has been completed in
order to cover syndicate short positions. Penalty bids permit the Underwriters
to reclaim a selling concession from a syndicate member when the Common Stock
originally sold by such syndicate member is purchased in a stabilizing
transaction or syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the Common Stock to be higher than it
would otherwise be in the absence of such transactions. These transactions may
be effected on the Nasdaq National Market or otherwise and, if commenced, may
be discontinued at any time.

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<PAGE>

NOTICE TO CANADIAN RESIDENTS

RESALE RESTRICTIONS

The distribution of the Common Stock in Canada is being made only on a
private placement basis exempt from the requirement that the Company prepare
and file a prospectus with the securities regulatory authorities in each
province where trades of Common Stock are effected. Accordingly, any resale of
the Common Stock in Canada must be made in accordance with applicable
securities laws which will vary depending on the relevant jurisdiction, and
which may require resales to be made in accordance with available statutory
exemptions or pursuant to a discretionary exemption granted by the applicable
Canadian securities regulatory authority. Purchasers are advised to seek legal
advice prior to any resale of the Common Stock.

REPRESENTATIONS OF PURCHASERS

Each purchaser of Common Stock in Canada who receives a purchase
confirmation will be deemed to represent to the Company and the dealer from
whom such purchase confirmation is received that (i) such purchaser is
entitled under applicable provincial securities laws to purchase such Common
Stock without the benefit of a prospectus qualified under such securities
laws, (ii) where required by law, that such purchaser is purchasing as
principal and not as agent, and (iii) such purchaser has reviewed the text
above under "Resale Restrictions."

RIGHTS OF ACTION (ONTARIO PURCHASERS)

The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available,
including common law rights of action for damages or rescission or rights of
action under the civil liability provisions of the U.S. federal securities
laws.

ENFORCEMENT OF LEGAL RIGHTS

All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or such persons. All or a substantial portion of the assets of
the issuer and such persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or such
persons in Canada or to enforce a judgment obtained in Canadian courts against
such issuer or persons outside of Canada.

NOTICE TO BRITISH COLUMBIA RESIDENTS

A purchaser of Common Stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
Common Stock acquired by such purchaser pursuant to this Offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from the Company. Only one
such report must be filed in respect of Common Stock acquired on the same date
and under the same prospectus exemption.

TAXATION AND ELIGIBILITY FOR INVESTMENT

Canadian purchasers of Common Stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the Common
Stock in their particular circumstances and with respect to the eligibility of
the Common Stock for investment by the purchaser under relevant Canadian
Legislation.

71
<PAGE>

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Brobeck, Phleger & Harrison LLP, Denver, Colorado. Certain legal
matters in connection with the Offering will be passed upon for the
Underwriters by Wilson Sonsini Goodrich & Rosati, Professional Corporation,
Palo Alto, California.

EXPERTS

The financial statements and schedule of the Company as of December 31, 1996
and 1997 and for each of the years in the three year period ended December 31,
1997 have been included herein and in the Registration Statement in reliance
upon the reports of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm
as experts in accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission, a
Registration Statement on Form S-1 under the Securities Act with respect to
the Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules to the Registration Statement. For further information with respect
to the Company and the Common Stock offered hereby, reference is made to the
Registration Statement and the exhibits and schedules filed as a part of the
Registration Statement. Statements contained in this Prospectus concerning the
contents of any contract or any other document referred to are not necessarily
complete; reference is made in each instance to the copy of such contract or
document filed as an exhibit to the Registration Statement. Each such
statement is qualified in all respects by such reference to such exhibit. The
Registration Statement, including exhibits and schedules thereto, may be
inspected without charge at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission located at Seven World Trade Center, 13th
Floor, New York, NY 10048, and the Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or any part
thereof may be obtained from the Commission upon payment of certain fees
prescribed by the Commission. Such reports and other information may also be
inspected without charge at a World Wide Web site maintained by the
Commission. The address of such site is http://www.sec.gov.

72
<PAGE>

GLOSSARY OF TECHNICAL TERMS

CLASS....... Custom Local Area Signaling Services. CLASS are Bellcore
standard enhanced telephone services for local customer line
connections. CLASS uses channel interoffice signaling to provide
enhanced switching services such as caller ID, call forwarding,
call waiting, distinctive ringing, automatic callback, automatic
recall, and selective call rejection.

CLEC........ Competitive Local Exchange Carrier. A telecommunications carrier
that provides its customers with local transport of private
lines, data access lines, and switched access telecommunications
services within local calling areas, in competition with the
regulated Incumbent Local Exchange Carriers. CLECs typically do
not own the physical copper wiring and right-of-ways that
provide connections to customer sites.

CSU......... Channel Service Unit. A device used to connect a digital phone
line, such as a T1, coming from a carrier to network access
equipment located on the customer premises. A CSU may also be
built into the network interface of access equipment.

DI.......... Drop and Insert (also called D&I). A process in which one or
more channels in a transmission are groomed (dropped) at an
intermediate point and different channels are inserted in their
place.

DID......... Direct Inward Dialing. A voice switching service that allows an
outside caller to reach an internal business extension of a PBX
without having to pass through an operator or attendant. DID
requires that the Central Office (CO) pass the dialed digits
down the line to the customer phone system, which then completes
the call to the extension. Unique types of telephone line
interface equipment are required to connect to DID services.

DLC......... Digital Loop Carrier. A digital transmission system designed for
providing local loops to subscribers or access networks. Digital
Loop Carrier systems carry multiple channels of 64 Kbps
digitized voice or data.

DPO......... Dial Pulse Origination. Equipment that sends dialed digits
consisting of tones or pulses. May be used at the Central Office
end of a DID service connection.

DPT......... Dial Pulse Termination. Equipment that receives and processes
dialed digits consisting of tones or pulses. May be used at the
customer end of a DID service connection.

DS1......... Digital Service Level 1 (also called T1). DS1 describes a
digital signal interface standard for the transmission of 1.544
Mbps data on two copper wire pairs. It is typically formatted as
twenty-four 64 Kbps voice or data channels multiplexed into a
193-bit frame, along with overhead data. A variation of DS1 is
called DSX-1, which is intended for short connection distances,
and has somewhat different electrical specifications.

DSP......... Digital Signal Processor. A specialized digital microprocessor
that performs rapid calculations on digitized waveforms such as
voice signals. DSPs are able to perform mathematical and data
manipulations on digital telecommunications signals in real time
in order to add desired functionality through software, rather
than added hardware.

DSU......... Data Service Unit. A communications device that connects a
customer data interface to network circuit. The DSU transmits
and receives signals and provides buffering, flow control, and
data communications testing.

73
<PAGE>

E&M......... In telephony, an arrangement of four to eight wires that
provides two-way signaling and communications from switch-to-
switch or switch-to-network. The term E&M originates from Ear
and Mouth, used to label the signaling and voice wires. The M
lead transmits ground or battery to the distant end of the
circuit, while incoming signals are received as either a
grounded or open condition on the E lead. Digital E&M signaling
formats are commonly used on T1 service connections, even though
they may never be converted to physical E&M signaling wires.

FXO......... Foreign Exchange Office. A type of telephone line interface that
sinks battery current and detects ringing voltage provided by a
connected Central Office (CO) line or PBX extension. FXO
circuits provide a method to transport dial tone lines, and may
be designed to extend support of PBX or CO line features to
remote locations.

FXS......... Foreign Exchange Station. A type of telephone line interface
that delivers loop-start or ground-start dial tone line
connections to telephones, off-premises extensions, facsimile
machines, modems, PBXs and other conventional analog telephony
devices. FXS interfaces can be designed to support the delivery
of Calling Party Disconnect (CPD) and CLASS features such as
caller ID and distinctive ringing.

HDSL........ High bit-rate Digital Subscriber Line. A technology that enables
digital network services to be carried over existing twisted-
pair copper wire pairs between the central office (CO) and the
customer site. HDSL differs from other DSL technologies (such as
ADSL) in that it allows data to flow at equal rates in both
directions at 1.544 Mbps. HDSL is commonly used by ILECs to
deploy T1 services to customers.

ILEC........ Incumbent Local Exchange Carrier. A regulated common
telecommunications carrier that provides its customers with
local transport of private lines, data access lines, and
switched access telecommunications services within local calling
areas. ILECs typically own physical copper wiring and right-of-
ways that provide connections to customer sites.

ISP......... Internet Service Provider. A company that provides access to the
Internet for corporate customers and consumers by providing
Internet Protocol (IP) service connections to the Internet
backbone.

IXC......... Inter-Exchange Carrier. A company providing long distance
switched services between many Local Exchange Carriers (LECs)
and Local Access and Transport Areas (LATAs).

KBPS........ Kilobits per second. A transmission rate for digital data
expressed in thousands of bits per second.

LAN......... Local Area Network. A short distance network providing data
communications typically between computers and peripheral
devices such as printers.

LATA........ Local Access and Transport Area. One of 196 local geographical
areas in the US within which a local telephone company may offer
telecommunications services.

LIU......... Line Interface Unit.

M1-3........ Multiplexer, DS1 to DS3 (or T1 to T3). A device that converts or
"multiplexes" 28 digital T1 signals at 1.544 Mbps to and from
one T3 signal at 44.736 Mbps.

MBPS........ Megabits per second. A transmission rate for digital data
expressed in millions of bits per second.

74
<PAGE>

NEBS........ Network Equipment Building Standards. A Bell Company Research
(Bellcore) standard defining a rigid and extensive set of
performance, quality, environmental, and safety requirements for
telecommunications equipment installed inside switching offices.

NIU......... Network Interface Unit. A protection and test device installed
between a Local Exchange Carrier (LEC) network and the customer
premise. The NIU typically includes protection for high-voltage
surges and electronics so the LEC can test the integrity of the
local digital connection.

PBX......... Private Branch Exchange. A privately-owned telephone switching
system located within the customer premises. PBXs are commonly
used in office buildings and campuses to connect calls between
internal extension users and to telephone company lines.

PCB......... Printed Circuit Board. A fiberglass laminated board with etched
copper traces for mounting electronic circuits. PCB often refers
to the complete assembly with parts.

POTS........ Plain Old Telephone Service. Basic "dial-tone" telephone service
making voice calls. POTS does not include enhanced services such
as caller ID, centrex, and direct inward dialing.

PSTN........ Public Switched Telephone Network. PSTN refers to the collection
of local exchange and long distance carrier facilities that
interconnect to provide a common telephone service within a
country. It is the domestic telecommunications network commonly
accessed by ordinary telephones, modems, and PBXs. The PSTN also
connects the mobile telephone switching office with the local
exchange carrier (LEC) to facilitate incoming and outgoing calls
over the wireline network to and from wireless subscribers.

SLIC........ Subscriber Line Interface Circuit. An electronic circuit found
in large numbers in most digital telephone service delivery
systems, such as digital loop carrier systems, central office
switching systems, and PBXs. SLICs provide the interface
electronics between the digital network and the physical copper
telephone lines. Desired functions are battery current feeding,
overvoltage protection, ringing application, signaling of call
states, hybrid transmission conversion, and testing access to
lines.

SNMP........ Simple Network Management Protocol. A standard network
management software protocol based on TCP/IP. SNMP allows
monitoring, test, and configuration information to be routed
from central management locations to many remote and local
elements in a network, as needed to manage the network.

SONET....... Synchronous Optical Network. The electronics and network
architecture that enables the transmission of digitized voice or
data on fiber optic channels at speeds up to 10 billion bits per
second.

T1.......... T1, also called DS1, describes a digital signal interface
standard for the transmission of 1.544 Mbps data on two copper
wire pairs. It is typically formatted as twenty-four 64 Kbps
voice or data channels multiplexed into a 193-bit frame, along
with overhead data. Electrical T1 signals can travel up to 6,000
feet on twisted copper wire pairs, under ideal conditions. T1 is
commonly converted to fiber optic and digital radio transmission
media for long telecommunications distances. T1 has become a
ubiquitous telecommunications interface standard in North
America.

T3.......... A digital transmission interface (also called DS3) with a
capacity of 44.736 Mbps. One T3 line can carry 28 T1 lines, the
equivalent 672 voice circuits. T3 connections are commonly

75
<PAGE>

established with two coaxial cables for distances up to a few
hundred feet. Network connections are transported over fiber-
optic cable or high-bandwidth digital radio links.

TO.......... Transmission Only. A private line telephone line interface for
"transmit only" devices such as leased-line modems and radio
equipment.

TR-08....... A Bellcore standard defining the transmission and management
requirements for digital loop carrier equipment providing up to
96 calls over a group of four T1 lines. The standard was
developed from AT&T SLC-96 digital loop carrier protocols
carried on T1 lines.

VIRTUAL
PRIVATE A public data network that transports private data reliably,
NETWORK .... securely and seamlessly to the end user.

76
<PAGE>

CARRIER ACCESS CORPORATION

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.............................................. F-2
Balance Sheets as of December 31, 1996 and 1997 and June 30, 1998
(unaudited).............................................................. F-3
Statements of Operations for the years ended December 31, 1995, 1996 and
1997 and the six months ended June 30, 1997 and 1998 (unaudited)......... F-4
Statements of Stockholders' Equity (Deficit) for the years ended December
31, 1995, 1996 and 1997 and the six months ended June 30, 1998
(unaudited).............................................................. F-5
Statements of Cash Flows for the years ended December 31, 1995, 1996 and
1997 and the six months ended June 30, 1997 and 1998 (unaudited)......... F-6
Notes to Financial Statements............................................. F-7
</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

THE BOARD OF DIRECTORS
CARRIER ACCESS CORPORATION:

We have audited the accompanying balance sheets of Carrier Access
Corporation as of December 31, 1996 and 1997, and the related statements of
operations, stockholders' equity (deficit) and cash flows for each of the
years in the three-year period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Carrier Access Corporation
as of December 31, 1996 and 1997, and the results of its operations and its
cash flows for each of the years in the three-year period ended December 31,
1997, in conformity with generally accepted accounting principles.

Boulder, Colorado
February 6, 1998,
except for note 1 (k)
which is as of
May 28, 1998

F-2
<PAGE>

CARRIER ACCESS CORPORATION
BALANCE SHEETS

DECEMBER 31, 1996 AND 1997 AND JUNE 30, 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31,
--------------
JUNE 30, PRO FORMA
1996 1997 1998 JUNE 30, 1998 (1)
------ ------- ----------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........ $ 929 $ 6,104 $ 5,549
Marketable securities available
for sale........................ -- 2,516 3,247
Accounts receivable, less
allowance for doubtful accounts
and returns of $20, $398 and
$706 in 1996, 1997 and at June
30, 1998, respectively.......... 1,027 4,645 5,015
Inventory, net (note 2).......... 2,211 6,784 6,658
Deferred income taxes (note 5)... -- 237 463
Prepaid expenses and other....... 32 91 130
------ ------- -------
Total current assets........... 4,199 20,377 21,062
------ ------- -------
Property and equipment, net of
accumulated depreciation and
amortization (note 3)............ 388 1,267 1,905
Software development costs, net of
accumulated amortization......... 235 -- --
Other assets...................... -- 36 48
------ ------- -------
Total assets................... $4,822 $21,680 $23,015
====== ======= =======
LIABILITIES AND STOCKHOLDERS' EQ-
UITY (DEFICIT)
Current liabilities:
Accounts payable................. $ 601 $ 2,685 $ 1,144
Accrued warranty costs........... 56 286 444
Accrued payroll costs............ 179 381 570
Cooperative advertising.......... -- 159 297
Note payable to bank (note 4).... 249 -- --
Deferred rent concessions (note
10)............................. 139 217 241
Income taxes payable............. -- -- 379
Other liabilities................ 34 34 18
------ ------- -------
Total current liabilities...... 1,258 3,762 3,093
------ ------- -------
Redeemable preferred stock (note
6):
Series A convertible, $0.10 par
value; 1,210,861 shares
authorized, issued and
outstanding; liquidation value
of $4,629 at June 30,1998....... 3,722 4,291 4,617
Series B convertible, $0.10 par
value; 2,725,998 shares
authorized; 2,517,894 shares
issued and outstanding;
liquidation value of $14,097 at
June 30, 1998................... -- 13,067 14,057
Stockholders' equity (deficit)
(note 7):
Common stock, $.001 par value;
60,000,000 shares authorized;
14,025,000, 14,299,689 and
14,452,367 shares issued and
outstanding in 1996, 1997 and
1998, respectively (20,045,492
shares pro forma)............... 19 19 19 $ 25
Additional paid-in capital....... -- 402 452 19,120
Deferred stock option
compensation.................... -- (250) (208) (208)
Retained earnings (deficit)...... (177) 389 985 985
------ ------- ------- -------
Total stockholders' equity
(deficit)..................... (158) 560 1,248 $19,922
=======
Commitments (note 9)..............
------ ------- -------
Total liabilities and
stockholders' equity
(deficit)..................... $4,822 $21,680 $23,015
====== ======= =======
</TABLE>
- --------

(1) Reflects the conversion of all redeemable preferred stock into common
stock, on the basis described in note 6, only upon completion of the
offering described in the prospectus.

See accompanying notes to financial statements.

F-3
<PAGE>

CARRIER ACCESS CORPORATION

STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 AND

SIX MONTHS ENDED JUNE 30, 1997 AND 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------- -----------------
1995 1996 1997 1997 1998
------- ------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenue...................... $ 2,058 $ 5,809 $ 18,719 $ 6,493 $ 16,292
Cost of sales.................... 1,287 3,284 9,469 3,231 8,281
------- ------- -------- ------- --------
Gross profit................. 771 2,525 9,250 3,262 8,011
Operating expenses:
Sales and marketing............ 269 844 2,395 959 1,995
Research and development....... 164 874 2,848 773 1,993
General and administrative..... 203 907 1,661 606 1,362
------- ------- -------- ------- --------
Total operating expenses..... 636 2,625 6,904 2,338 5,350
------- ------- -------- ------- --------
Income (loss) from
operations.................. 135 (100) 2,346 924 2,661
Other income, net................ 46 24 180 4 308
------- ------- -------- ------- --------
Income (loss) before income
taxes....................... 181 (76) 2,526 928 2,969
Income tax expense (note 5)...... -- -- 791 291 1,057
------- ------- -------- ------- --------
Net income (loss)............ 181 (76) 1,735 637 1,912
Preferred stock dividend
requirement (note 6)............ -- (285) (1,121) (284) (1,316)
------- ------- -------- ------- --------
Net income (loss) available
to common stockholders...... $ 181 $ (361) $ 614 $ 353 $ 596
======= ======= ======== ======= ========
<CAPTION>
Pro forma information (note 1):
<S> <C> <C> <C> <C> <C>
Historical net income.......... $ 181
Pro forma adjustment to income
tax expense................... (68)
-------
Pro forma net income......... $ 113
=======
Pro forma and historical income
(loss) per share:
Basic and diluted.............. $ 0.01 $ (0.03) $ 0.04 $ 0.03 $ 0.04
======= ======= ======== ======= ========
Weighted average common shares
outstanding:
Basic.......................... 13,665 13,881 14,132 14,089 14,379
======= ======= ======== ======= ========
Diluted........................ 13,665 13,881 14,713 14,518 15,273
======= ======= ======== ======= ========
</TABLE>

See accompanying notes to financial statements.

F-4
<PAGE>

CARRIER ACCESS CORPORATION

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 AND SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
(IN THOUSANDS)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL DEFERRED TOTAL
-------------- PAID-IN STOCK OPTION RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION EARNINGS EQUITY
------ ------- ---------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 1,
1995................... 11,475 $ 16 $ (3) -- $ 29 $ 42
Issuance of common stock
for cash............... 2,400 3 29 -- -- 32
Distribution to
stockholders........... -- -- -- -- (32) (32)
Net income.............. -- -- -- -- 181 181
------ ------- -------- ----- --------- -----------
BALANCES AT DECEMBER 31,
1995................... 13,875 19 26 -- 178 223
Conversion from
subchapter S to C
corporation (note 5) .. -- -- 178 -- (178) --
Issuance of preferred
stock for cash, net of
offering costs......... -- -- -- -- -- --
Conversion of debt into
preferred stock, net of
costs (note 4)......... -- -- -- -- -- --
Exercise of stock
options................ 150 -- 5 -- -- 5
Preferred stock dividend
requirement (note 6)... -- -- (209) -- (76) (285)
Distribution to
stockholders........... -- -- -- -- (25) (25)
Net loss................ -- -- -- -- (76) (76)
------ ------- -------- ----- --------- -----------
BALANCES AT DECEMBER 31,
1996................... 14,025 19 -- -- (177) (158)
Issuance of preferred
stock for cash, net of
offering costs......... -- -- -- -- -- --
Exercise of stock
options................ 275 -- 69 -- -- 69
Deferred stock
compensation related to
stock options issued at
less than fair value
(note 7)............... -- -- 333 (333) -- --
Amortization of deferred
stock compensation
(note 7)............... 83 83
Preferred stock dividend
requirement (note 6)... -- -- -- -- (1,121) (1,121)
Distribution to
stockholders........... -- -- -- -- (48) (48)
Net income.............. -- -- -- -- 1,735 1,735
------ ------- -------- ----- --------- -----------
BALANCES AT DECEMBER 31,
1997................... 14,300 19 402 (250) 389 560
Exercise of stock op-
tions.................. 152 -- 50 -- -- 50
Amortization of deferred
stock compensation
(note 7)............... -- -- -- 42 -- 42
Preferred stock dividend
requirement (note 6)... -- -- -- -- (1,316) (1,316)
Net income.............. -- -- -- -- 1,912 1,912
------ ------- -------- ----- --------- -----------
BALANCES AT JUNE 30,
1998 (UNAUDITED)....... 14,452 $ 19 $ 452 $(208) $ 985 $ 1,248
====== ======= ======== ===== ========= ===========
</TABLE>

See accompanying notes to financial statements.

F-5
<PAGE>

CARRIER ACCESS CORPORATION

STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 AND

SIX MONTHS ENDED JUNE 30, 1997 AND 1998 (UNAUDITED)
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
----------------------- ----------------
1995 1996 1997 1997 1998
----- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss).................. $ 181 $ (76) $ 1,735 $ 637 $ 1,912
Adjustments to reconcile net
income (loss) to net cash used by
operating activities:
Depreciation and amortization
expense......................... 19 120 421 47 183
Provision for doubtful accounts
and returns..................... -- 20 382 91 308
Provision for inventory
obsolesence..................... -- -- -- -- 210
Compensation expense related to
stock options issued at less
than fair value................. -- -- 83 -- 42
Accrued interest payable
converted to preferred stock.... -- 18 -- --
Deferred income tax benefit...... -- -- (237) (90) (226)
Changes in operating assets and
liabilities:
Accounts receivable............. (84) (912) (4,000) (2,132) (678)
Inventory....................... (535) (1,544) (4,573) (440) (84)
Prepaid expenses and other...... (4) (20) (59) (40) (39)
Accounts payable................ 142 364 2,083 869 (1,541)
Accrued warranty costs.......... -- 45 230 111 158
Accrued payroll costs........... 48 148 203 59 189
Cooperative advertising......... -- -- 159 -- 138
Deferred rent concessions....... -- 139 78 54 24
Income taxes payable............ -- -- -- 382 379
Other liabilities............... 9 3 -- (28) (16)
----- ------- ------- ------- -------
Net cash provided (used by)
operating activities.......... (224) (1,695) (3,495) (480) 959
----- ------- ------- ------- -------
Cash flows from investing
activities:
Purchase of equipment.............. (93) (401) (1,065) (237) (821)
Sales (purchases) of securities
available for sale................ -- -- (2,514) -- (731)
Software development costs......... -- (238) -- -- --
Other.............................. -- -- (38) (21) (12)
----- ------- ------- ------- -------
Net cash used by investing
activities.................... (93) (639) (3,617) (258) (1,564)
----- ------- ------- ------- -------
Cash flows from financing
activities:
Cash overdraft..................... 170 (170) -- -- --
Proceeds from issuance of
preferred stock, net.............. -- 3,049 12,514 -- --
Proceeds from issuance of common
stock............................. 32 -- -- -- --
Proceeds from exercise of stock
options........................... -- 5 69 5 50
Distributions to stockholders...... (32) (25) (48) (48) --
Proceeds from short-term
borrowings........................ 252 276 1,900 -- --
Payments on short-term borrowings.. -- -- (2,148) (5) --
----- ------- ------- ------- -------
Net cash provided by financing
activities.................... 422 3,135 12,287 (48) 50
----- ------- ------- ------- -------
Net increase in cash and cash
equivalents................... 105 801 5,175 (786) (555)
Cash and cash equivalents at
beginning of period................ 23 128 929 929 6,104
----- ------- ------- ------- -------
Cash and cash equivalents at end of
period............................. $ 128 $ 929 $ 6,104 $ 143 $ 5,549
===== ======= ======= ======= =======
Supplemental disclosure of cash flow
and financing activities
information:
Cash paid for interest............. $ -- $ 2 $ 22 $ $ --
===== ======= ======= ======= =======
Cash paid for income taxes......... $ -- $ -- $ 948 $ $ 886
===== ======= ======= ======= =======
Conversion of debt and accrued
interest payable into preferred
stock............................. $ -- $ 388 $ -- $ -- $ --
===== ======= ======= ======= =======
</TABLE>

See accompanying notes to financial statements.

F-6
<PAGE>

CARRIER ACCESS CORPORATION

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1996 AND 1997 AND JUNE 30, 1998

(INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX

MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Business and Basis of Presentation--Carrier Access Corporation ("CAC" or
the "Company") is a leading provider of Multi-service Digital Access ("MDA")
equipment to competitive telecommunications carriers, including competitive
local exchange carriers, Internet service providers and wireless carriers. The
Company's MDA equipment is used for the provisioning of enhanced voice and
high-speed data services by carriers to end users such as small and medium-
sized businesses and government and educational institutions. The Company
sells its products through distributors.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.

The financial statements, and related notes, as of June 30, 1998 and for the
six months ended June 30, 1997 and 1998 are unaudited but, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, which are necessary for a fair presentation of the financial
condition, results of operations and cash flows of the Company. The operating
results for the six months ended June 30, 1998 are not necessarily indicative
of the results that may be expected for the year ending December 31, 1998.

b. Cash and Cash Equivalents and Marketable Securities Available for Sale--
Cash and cash equivalents include investments in highly liquid debt securities
with maturities or interest reset dates of three months or less at the time of
purchase.

Marketable securities available for sale represent U.S. Government Agency
and Corporate bonds with maturities of greater than three months and are
recorded at the lower of amortized cost or market value. At December 31, 1997
and June 30, 1998, amortized cost approximates market value.

c. Inventory--Inventory is recorded at the lower of cost or market, using
standard costs, which approximate average cost. Costs includes freight,
certain warehousing costs and other allocable overhead.

d. Property and equipment--Property, equipment and leasehold improvements
are recorded at cost and are depreciated and amortized using the straight-line
method over useful lives ranging from three to thirty years or the lease term.
Depreciation and amortization expense for the years ended December 31, 1995,
1996 and 1997 and the six months ended June 30, 1997 and 1998 totaled $19,502,
$114,687, $185,701, $46,736 and $182,795, respectively.

e. Revenue Recognition--Revenue from sales of products is recognized upon
shipment. Reserves for estimated sales returns are recorded when sales are
made to customers with the right of return and are based on management's
estimate of expected returns and historical experience.

The Company provides limited price protection to its distributors, whereby
increases in prices are subject to a 60 day notice period before becoming
effective. In addition, the distributor is also entitled to receive a credit
for subsequent price decreases to the extent of unsold distributor inventory
at the time of the price decrease. The Company also provides its distributors
with limited stock rotation rights, whereby products may be returned for an
equal dollar amount of new or different equipment. Customers are limited to
three returns per year and an amount equal to 15% of purchases in the
preceding four month period. Neither of these rights affect the total sales
price or payment obligations of the customer. In addition, the customers'
obligation to the Company is not

F-7
<PAGE>

CARRIER ACCESS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

contingent upon the ultimate resale of the products. The Company provides for
the estimated impact of price protection and stock rotation rights in its
allowance for estimated returns based on historical experience and
management's forecasts of price protection credits and returns.

f. Software Development Costs--During 1996, the Company capitalized various
costs related to the development of incidental software included in products
intended for future sale in the amount of $237,761. Due to technological
feasibility (establishment of a detail program or working model) generally
occurring when the product is available for general release, the Company
anticipates that it will no longer capitalize software development costs. As a
result, no such costs were capitalized in 1997 or in the six months ended June
30, 1998.

Software development costs were recorded at the lower of cost or net
realizable value and were amortized based on the greater of the amount
computed using the ratio of the current year gross revenue to the total of the
current and anticipated future gross revenue for the product or the straight-
line method over a seven-year period. Amortization expense for the year ended
December 31, 1996 and 1997 totaled $2,831 and $234,930, respectively. During
1997, forecasted revenue for the product which utilized the software
underlying the capitalized development costs was significantly decreased.
Accordingly, all related capitalized costs were amortized to operations in
1997.

g. Advertising Costs--In addition to its own advertising activities, the
Company accrues a specified percentage of the previous month's sales over
certain contractual minimums to reimburse distributors for a portion of their
advertising costs. Any unused allowance expires if not used during the
following six months. Cooperative advertising expense for the year ended
December 31, 1997 and the six months ended June 30, 1998 totaled $217,687 and
$149,571, respectively, and is included in sales and marketing expenses. The
Company had no cooperative advertising expense during the years ended December
31, 1995 and 1996 and the six months ended June 30, 1997.

h. Research and Development Costs--Research and development costs are
charged to operations as incurred.

i. Long-Lived Assets--The Company accounts for long-lived assets under the
provisions of Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of (SFAS 121), which requires that long-lived assets and certain
identifiable intangibles held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying value
of an asset may not be recoverable. An impairment loss is generally recognized
when estimated undiscounted future cash flows expected to be generated by the
asset is less than its carrying value. Measurement of impairment loss is based
on the fair value of the asset, which is generally determined using valuation
techniques such as the discounted present value of expected future cash flows.

j. Income Taxes and Pro Forma Net Income--The Company accounts for income
taxes under the provisions of Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes (SFAS 109). Under the asset and liability
method of SFAS 109, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under
SFAS 109, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
A valuation allowance is required to the extent any deferred tax assets may
not be realizable.

Prior to January 1, 1996, the Company elected to be treated as a S
Corporation for income tax purposes. Accordingly, no provision for federal and
state income taxes has been included in the accompanying financial

F-8
<PAGE>

CARRIER ACCESS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

statements for 1995 as all income and losses were reported in the individual
tax returns of the Company's stockholders. On January 1, 1996, the Company
elected C Corporation status under the Internal Revenue Code. Distributions to
stockholders, including distributions in 1997, represent the distribution of
taxable income generated while the Company was an S Corporation for income tax
purposes.

The Company has presented pro forma net income for the year ended December
31, 1995 as if the Company had been a taxable entity and its taxable income
had been subject to income taxes at the applicable federal and state tax
rates.

k. Income (Loss) Per Share, Common Stock Split and Re-Incorporation--Income
(Loss) per share is presented in accordance with Statement of Financial
Accounting Standards (SFAS) No. 128, Earnings Per Share (SFAS 128). SFAS 128
requires the presentation of basic and diluted EPS. Under SFAS 128, basic EPS
excludes dilution for potential common shares and is computed by dividing
income or loss available to common shareholders by the weighted average number
of common shares outstanding during the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted, which resulted in the issuance of
common stock. In 1997 and the six months ended June 30, 1998, diluted income
per share includes the impact of common stock options and excludes the impact
of redeemable preferred stock, as the effect of the assumed conversion of the
preferred stock and the elimination of the related dividend requirement would
be antidilutive. Due to the loss in 1996, potential common stock instruments
were antidilutive. There were no dilutive instruments in 1995.

On May 28, 1998 the Company's Board of Directors approved a three-for-two
forward split of the Company's Common Stock. In addition, the Board also
approved re-incorporation as a Delaware corporation, which included an
increase to 60 million authorized common shares and a change to a par value of
$.001 per share. All share and per share information included in the
accompanying financial statements and notes thereto have been restated for the
stock split.

l. Stock-Based Compensation--The Company accounts for its stock-based
employee compensation plan using the intrinsic value based method prescribed
by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB 25), and related interpretations. As such, compensation expense
is recorded on the date of grant only if the current market price of the
underlying stock exceeds the exercise price. The Company has provided pro
forma disclosures of net income (loss) and income (loss) per share, as if the
fair value based method of accounting for the plan, as prescribed by Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS 123), had been applied. Pro forma disclosures include the
effects of employee stock options granted during the years ended December 31,
1995, 1996 and 1997.

Stock options issued to consultants and others for services, which have not
been significant through June 30, 1998, are recorded at fair value as
prescribed by SFAS 123.

m. Warranty Costs--The Company provides limited warranty protection to
customers for a period of up to five years from the date of sale for parts and
labor. The Company has accrued for its warranty obligations based on
historical experience and management's estimate of future warranty costs to be
incurred.

n. Reclassifications--Certain reclassifications have been made to conform
prior year financial statements to the 1997 presentation.

F-9
<PAGE>

CARRIER ACCESS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

2. INVENTORY

The components of inventory as of December 31, 1996 and 1997 and June 30,
1998 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
1996 1997 1998
------ ------ ----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials......................................... $ 978 $3,320 $2,083
Work-in-process....................................... 43 351 730
Finished goods........................................ 1,190 3,113 4,055
Reserve for obsolesence............................... -- -- (210)
------ ------ ------
$2,211 $6,784 $6,658
====== ====== ======
</TABLE>

3. PROPERTY AND EQUIPMENT

Property and equipment as of December 31, 1996 and 1997 and June 30, 1998
consisted of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER
31,
------------ JUNE 30,
1996 1997 1998
---- ------ -----------
<S> <C> <C> <C>
(UNAUDITED)
Machinery and software............................... $448 $1,349 $ 1,803
Real property........................................ -- -- 266
Furniture, fixtures and other........................ 117 160 228
Leasehold improvements............................... 13 134 167
---- ------ -----------
578 1,643 2,464
Less accumulated depreciation........................ (190) (376) (559)
---- ------ -----------
$388 $1,267 $ 1,905
==== ====== ===========
</TABLE>

4. DEBT AND RELATED PARTY TRANSACTIONS

In June 1996, the Company converted total notes payable to stockholders,
bearing interest at 9.5%, of $370,612, and $17,427 of related accrued interest
payable, into 135,678 shares of Series A preferred stock at a price of $2.86
per share, in connection with the private placement of preferred shares
discussed in Note 6.

In April 1996, the Company entered into two credit agreements with a bank
that provided for a $500,000 revolving line of credit and a $300,000 equipment
loan. In May 1997, the $500,000 revolving line of credit was converted into a
note bearing interest at the bank prime plus 1%, (9.5% at December 31, 1997).
The note matured in 1998, and was secured by substantially all of the assets
of the Company. The equipment loan also bore interest at prime plus 1%,
matured in 2001, and was also secured by substantially all of the assets of
the Company. Outstanding borrowings at December 31, 1996 totaled $248,750.
There were no borrowings outstanding at December 31, 1997. These agreements
had been terminated as of June 30, 1998.

The Company has a credit agreement with a bank which provides for a $5.0
million revolving line of credit. The revolving line of credit bears interest
at prime (8.5% at December 31, 1997), matures in 1999, and is secured by
substantially all of the assets of the Company. No borrowings were outstanding
under the revolving line of credit at December 31, 1997.

The Company's credit agreements contain certain restrictive covenants,
including the maintenance of various financial ratios.

F-10
<PAGE>

CARRIER ACCESS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

5. INCOME TAXES

Income tax expense (benefit) consists of the following for the year ended
December 31, 1997 and the six months ended June 30, 1997 and 1998 (in
thousands):

<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE
YEAR ENDED 30,
DECEMBER 31, ------------
1997 1997 1998
------------ ---- ------
(UNAUDITED)
<S> <C> <C> <C>
Current.............................................. $1,028 $381 $1,283
Deferred............................................. (237) (90) (226)
------ ---- ------
Income tax expense................................. $ 791 $291 $1,057
====== ==== ======
</TABLE>

A reconciliation of expected income tax expense (benefit) computed using the
statutory Federal tax rate of 34% to actual income tax expense for the years
ended December 31, 1996 and 1997 and the six months ended June 30, 1997 and
1998, is as follows (in thousands):

<TABLE>
<CAPTION>
YEARS
ENDED SIX MONTHS
DECEMBER ENDED JUNE
31, 30,
----------- ------------
1996 1997 1997 1998
----- ---- ---- ------
(UNAUDITED)
<S> <C> <C> <C> <C>
Expected income tax expense (benefit)............... $ (26) $859 $315 $1,009
Change in valuation allowance for deferred tax
assets............................................. 26 (67) -- --
Research and development tax credit................. -- (112) (56) (94)
State income taxes, net of federal tax benefit...... (2) 64 25 121
Other............................................... 2 47 7 21
----- ---- ---- ------
Actual income tax expense......................... $ -- $791 $291 $1,057
===== ==== ==== ======
</TABLE>

No tax benefit was recorded for the year ended December 31, 1996 due to the
Company's net loss and the uncertainty relating to the ultimate utilization of
the Company's net operating loss carryforward.

F-11
<PAGE>

CARRIER ACCESS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

The tax effects of significant temporary differences that result in deferred
tax assets and liabilities at December 31, 1996 and 1997 and June 30, 1998 are
as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER
31,
------------ JUNE 30,
1996 1997 1998
----- ----- --------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Accounts receivable, primarily due to
differences in accounting for doubtful
accounts...................................... $ 8 $ 151 $268
Reserve for inventory obsolescence............. -- -- 80
Accrued expenses, due to differences in the
period of recognition for financial statement
and income tax purposes....................... 37 143 213
Net operating loss carryforward................ 77 -- --
Research and development tax credit
carryforward.................................. 33 -- --
Valuation allowance............................ (67) -- --
----- ----- ----
Net deferred tax asset....................... $ 88 $ 294 $561
Deferred tax liabilities:
Software development costs, capitalized for
financial statement purposes.................. (88) -- --
Equipment, primarily due to differences in
depreciation.................................. -- (43) (84)
Other.......................................... -- (14) (14)
----- ----- ----
Total deferred tax liabilities............... (88) (57) (98)
----- ----- ----
Net deferred tax asset....................... $ -- $ 237 $463
===== ===== ====
</TABLE>

6. REDEEMABLE PREFERRED STOCK

During 1995, the Company authorized a new class of preferred stock,
consisting of 5,000,000 convertible Series A preferred shares with a par value
of $0.10 per share. The preferred shares may be converted, at the option of
the holder, into shares of common stock which are subject to the three-for-two
forward split. Accordingly, upon conversion the holders of preferred stock
would receive three shares of common stock for every two shares of preferred
stock. The preferred shares have the same voting rights as the Company's
common stock and will be automatically converted into common stock upon the
closing of a public offering of the Company's common stock meeting certain
thresholds. The preferred shares may be redeemed at the option of a majority
of the preferred shareholders, any time after four years from the date of
issuance, provided that the Company has not achieved certain financial results
or completed a public offering of common stock, both as defined.

On June 21, 1996, the Company completed a private placement of 1,210,861
shares of Series A preferred stock at a price of $2.86 per share, for net
proceeds of $3,049,406. The private placement included 135,678 preferred
shares issued to noteholders, as discussed in Note 3. In the event of the
Company's liquidation, or redemption of the preferred shares, the Series A
preferred stockholders are entitled to $2.86 per share plus unpaid dividends
equal to 15% of the liquidation value per annum.

During 1997, the Company amended its articles of incorporation to authorize
a new class of preferred stock, consisting of 2,725,998 convertible Series B
preferred shares with a par value of $0.10 per share. The preferred shares may
be converted, at the option of the holder, into the same number of shares of
common stock. The preferred shares have the same voting rights as the
Company's common stock and will be automatically converted into common stock
upon the closing of a public offering of the Company's common stock meeting
certain thresholds. On September 16, 1997, the Company completed a private
placement of 2,517,894 shares of Series B preferred stock at a price of $4.99
per share, for net proceeds of $12,514,291. In the event of the Company's
liquidation, or redemption of the preferred shares, the Series B stockholders
are entitled to $4.99 per share plus unpaid dividends equal to 15% of the
liquidation value per annum.

F-12
<PAGE>

CARRIER ACCESS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

At December 31, 1997 and June 30, 1998, the Company has 5,000,000 authorized
shares of preferred stock; however, as a result of the amendment of its
articles of incorporation in connection with the issuance of the Series B
preferred stock, the authorized number of Series A preferred stock was reduced
from 5,000,000 to 1,210,861 shares. The remaining 1,063,141 authorized but
unissued shares are undesignated and may be issued as either Series A or
Series B preferred shares in the future.

7. STOCKHOLDERS' EQUITY

Common Stock

Common stock issued at inception was recorded at the historical cost basis
of assets contributed by the Company's founders, which amount was less than
the par value of the shares issued.

Stock Options

Pursuant to the Company's 1995 stock option plan (the "Plan") a committee
appointed by the Company's Board of Directors may grant incentive and
nonqualified options to employees, consultants and directors. The Plan, as
amended in 1998, authorizes the grant of options to purchase up to 3,750,000
shares of authorized but unissued common stock. Incentive stock options have a
ten-year term and non-qualified stock options have a five-year term. All stock
options vest 25% on the first anniversary date of the grant and 6.25% each
calendar quarter thereafter. Of the 2,437,500 options granted as of December
31, 1997, 1,323,750 were nonqualified.

The following summarizes stock option activity under the Plan:

<TABLE>
<CAPTION>
WEIGHTED
SHARES AVERAGE
UNDER EXERCISE
OPTION PRICE
--------- --------
<S> <C> <C>
Options outstanding at January 1, 1995...................... -- --
Granted................................................... 540,000 $ 0.14
---------
Options outstanding at December 31, 1995.................... 540,000 0.14
Granted................................................... 970,500 0.33
Exercised................................................. (150,000) 0.03
Canceled.................................................. (596,250) 0.33
---------
Options outstanding at December 31, 1996.................... 764,250 0.25
Granted................................................... 927,000 0.50
Exercised................................................. (274,689) 0.25
Canceled.................................................. (72,609) 0.33
---------
Options outstanding at December 31, 1997.................... 1,343,952 0.42
Granted................................................... 1,075,135 6.29
Exercised................................................. (152,678) .31
Canceled.................................................. (486,504) 1.07
---------
Options outstanding at June 30, 1998 (unaudited)............ 1,779,905 3.84
=========
Options available for grant at June 30, 1998 (unaudited).... 1,392,728
=========
</TABLE>

F-13
<PAGE>

CARRIER ACCESS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

The following summarizes information about outstanding options at June 30,
1998:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER REMAINING
OUTSTANDING AT CONTRACTUAL NUMBER
EXERCISE JUNE 30, LIFE VESTED AND
PRICE 1998 (YEARS) EXERCISABLE
-------- -------------- ----------- -----------
<S> <C> <C> <C>
$0.03 112,500 7.4 77,343
0.33 493,993 8.2 113,503
0.83 172,312 9.3 3,750
1.73 38,250 4.5 --
3.33 143,400 4.7 --
4.00 301,500 4.8 --
4.67 59,250 4.8 --
5.67 74,700 4.9 --
10.00 151,500 5.0 --
10.67 232,500 5.0 --
</TABLE>

As discussed in Note 1, the Company applies APB 25 and related
interpretations in accounting for stock options issued to employees and
directors. As a result, for options issued with exercise prices below the
estimated fair market value on the date of grant, the Company will recognize
compensation expense totaling approximately $333,000, of which $83,250 and
$41,625 were recognized for the year ended December 31, 1997 and the six
months ended June 30, 1998, respectively.

The weighted average fair values of options granted during 1995, 1996 and
1997 were $0.02 and $0.05 and $0.30 per share, respectively, using the Black-
Scholes option-pricing model with the following assumptions: no expected
dividends, no volatility, expected life of the options of three years and a
risk-free interest rate of 6%. Had compensation cost for the Company's stock-
based compensation plan been determined based upon the fair value of options
on the grant dates, consistent with the provisions of SFAS 123, the Company's
1995, 1996 and 1997 pro forma net income (loss) would have been as follows (in
thousands, except per share data):

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1995 1996 1997
----- ------ -----
<S> <C> <C> <C>
Net income (loss) available to common stockholders:
As reported.............................................. $ 113 $ (361) $ 614
Pro forma................................................ 111 (366) 577
Income (loss) per common share:
As reported and pro forma:
Basic.................................................. $0.01 $(0.03) $0.04
Diluted................................................ 0.01 (0.03) 0.04
</TABLE>

Employee Stock Purchase Plan

In June 1998, the Company adopted, and the shareholders approved the 1998
Employee Stock Purchase Plan pursuant to which 262,500 shares of common stock
have been reserved for issuance.

F-14

<PAGE>

CARRIER ACCESS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

8. SIGNIFICANT CUSTOMERS AND CONCENTRATION OR CREDIT RISK

The Company's customers are distributors and an OEM, who resell the
Company's products to end users. The Company recognized revenue from the
following significant customers for the years ended December 31, 1995, 1996
and 1997 and the six months ended June 30, 1998 (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED SIX
DECEMBER 31, MONTHS
------------------ ENDED JUNE
1995 1996 1997 30, 1998
---- ------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Walker & Associates.............................. $-- $ -- $6,840 $7,655
ADC Telecommunications........................... -- -- 3,802 --
Phillips Communications and Equipment............ 275 1,027 2,698 3,090
Telco Systems.................................... 530 2,756 1,161 --
Telsource Corporation............................ 248 1,017 1,253 2,364
C&L Communications............................... 277 631 650 415
</TABLE>

The Company is exposed to potential concentrations of credit risk from its
accounts receivable with its various customers. The Company's receivables are
concentrated in customers in the telecommunications industry. To reduce this
risk, the Company has a policy of assessing the creditworthiness of its
customers and monitors the aging of its accounts receivable.

9. EMPLOYEE BENEFIT PLAN

In May 1996, the Company adopted a defined contribution employee benefit
plan (the Plan) under Section 401(k) of the Internal Revenue Code which is
available to all employees who meet the Plan's eligibility requirements.
Employees may contribute up to the maximum limits allowed by the Internal
Revenue Code. The Company may make discretionary employer matching
contributions to the Plan. No contributions were made to the Plan by the
Company in 1995, 1996, 1997 or the six months ended June 30, 1998.

10. COMMITMENTS

The Company leases office space under various noncancelable operating leases
which expire through 2005. Future obligations under these leases are as
follows (in thousands):

<TABLE>
<S> <C>
Year ending December 31:
1998................................................ $ 504
1999................................................ 525
2000................................................ 493
2001................................................ 458
2002................................................ 481
Thereafter.......................................... 1,591
------
$4,052
======
</TABLE>

The Company records rent expense under noncancelable operating leases using
the straight-line method after consideration of increases in rental payments
over the lease term, and records the difference between actual payments and
rent expense as deferred rent concessions.

Rent expense for the years ended December 31, 1995, 1996 and 1997 totaled
$89,928, $549,105 and $547,130, respectively. Rent expense for each of the six
months ended June 30, 1997 and 1998 was $273,563.

F-15
<PAGE>

CARRIER ACCESS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

The Company also subleases office space under various noncancelable
operating leases which expire through 2000. Future rental income under these
subleases are as follows (in thousands):

<TABLE>
<S> <C>
Year ending December 31:
1998.................................................. $131
1999.................................................. 142
2000.................................................. 75
----
$348
====
</TABLE>

F-16
<PAGE>

LOGO APPEARS HERE
<PAGE>

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

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE
IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 20
Dividend Policy........................................................... 20
Capitalization............................................................ 21
Dilution.................................................................. 22
Selected Financial Data................................................... 23
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 24
Business.................................................................. 31
Management................................................................ 49
Certain Transactions...................................................... 59
Principal Stockholders.................................................... 62
Description of Capital Stock.............................................. 64
Shares Eligible for Future Sale........................................... 67
Underwriting.............................................................. 69
Notice to Canadian Residents.............................................. 71
Legal Matters............................................................. 72
Experts................................................................... 72
Additional Information.................................................... 72
Glossary of Technical Terms............................................... 73
Index to Financial Statements............................................. F-1
</TABLE>

UNTIL , 1998 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL DEAL-
ERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PAR-
TICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACT-
ING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

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

[LOGO OF CARRIER ACCESS CORPORATION APPEARS HERE]

3,000,000 Shares
Common Stock

($.001 par value)

PROSPECTUS

CREDIT SUISSE FIRST BOSTON

HAMBRECHT & QUIST

WARBURG DILLON READ LLC

- -------------------------------------------------------------------------------
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates
except the SEC registration fee and the NASD filing fees.

<TABLE>
<S> <C>
SEC Registration Fee............................................... $ 12,213
NASD Filing Fee.................................................... 4,640
Nasdaq National Market Listing Fee................................. 120,000
Printing and Engraving Expenses.................................... 160,000
Legal Fees and Expenses of the Company............................. 375,000
Accounting Fees and Expenses....................................... 100,000
Blue Sky Fees and Expenses......................................... 10,000
Transfer Agent Fees................................................ 6,000
Miscellaneous...................................................... 124,147
--------
Total............................................................ $900,000
========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's Board of Directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Article V of the Company's Bylaws provides
for mandatory indemnification of its directors and officers and permissible
indemnification of employees and other agents to the maximum extent permitted
by the Delaware General Corporation Law. The Company's Certificate of
Incorporation provides that, subject to Delaware law, its directors shall not
be personally liable for monetary damages for breach of the directors'
fiduciary duty as directors to the Company and its stockholders. This
provision in the Certificate of Incorporation does not eliminate the
directors' fiduciary duty, and in appropriate circumstances equitable remedies
such as injunctive or other forms of non-monetary relief will remain available
under Delaware law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to the Company or its
stockholders for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are unlawful under Delaware law. The
provision also does not affect a director's responsibilities under any other
law, such as the federal securities laws or state or federal environmental
laws. The Company has entered into indemnification agreements with its
officers and directors, a form of which was previously filed with the
Securities and Exchange Commission as an Exhibit to the Registrant's
Registration Statement on Form S-1 (No. 333-53947) (the "Indemnification
Agreements"). The Indemnification Agreements provide the Company's officers
and directors with further indemnification to the maximum extent permitted by
the Delaware General Corporation Law. Reference is also made to Section of
the Underwriting Agreement contained in Exhibit 1.1 hereto, indemnifying
officers and directors of the Company against certain liabilities, and Section
3.12 of the Amended and Restated Registration Rights Agreement contained in
Exhibit 4.3 hereto, indemnifying certain of the Company's stockholders,
including controlling stockholders, against certain liabilities.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

(a) Since June 1995, the Company has issued and sold the following
securities:

(1) The Company issued and sold 391,080 shares of its Common Stock to
employees and consultants for an aggregate purchase price of $124,009
pursuant to direct issuances and the exercise of options under its 1995
Stock Option Plan (Exhibit 10.6).

II-1
<PAGE>

(2) On July 11, 1996, the Company issued 1,210,861 shares of its Series A
Preferred Stock at a per share price of $2.86, for an aggregate of
$3,463,062.46 to several investors.

(3) On September 16, 1997, the Company issued and sold an aggregate of
2,517,894 shares of its Series B Preferred Stock at a per share price of
$4.99 for an aggregate of $12,564,291.06 to several investors.

(b) The issuances described in Item 15(a)(1) were deemed exempt from
registration under the Securities Act in reliance upon Rule 701 promulgated
under the Securities Act. The issuances of the securities described in items
15(a)(2) through 15(a)(3) were deemed to be exempt from registration under the
Securities Act in reliance on Section 4(2) of the Securities Act as
transactions by an issuer not involving any public offering. In addition, the
recipients of securities in each such transaction represented their intentions
to acquire the securities for investment only and not with a view to or for
sale in connection with any distribution thereof and appropriate legends were
affixed to the share certificates issued in such transactions. All recipients
had adequate access, through their relationships with the Company, to
information about the Company.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1+ Form of Registrant's Amended and Restated Certificate of Incorporation
to become effective upon the closing of the offering.
3.2+ Form of Registrant's Bylaws.
4.1* Form of Registrant's Specimen Common Stock Certificate.
4.2+ Amended and Restated Investor Rights Agreement, among the Registrant
and the investors and founders named therein, dated September 16,
1997.
4.3+ Reference is made to Exhibits 3.1 and 3.2.
5.1 Opinion of Brobeck, Phleger & Harrison LLP, counsel for the
Registrant, with respect to the Common Stock being registered.
10.1 Amended Form of Diamond Level Distributor Agreement.
10.2 Amended Form of Platinum Level OEM Agreement.
10.3 Line of Credit Agreement with Bank One for $5,000,000 dated July 2,
1998.
10.4+ Lease Agreement between Carrier Access Corporation and Cottonwood Land
and Farms Ltd. for facilities at 5395 Pearl Parkway, Boulder,
Colorado, dated June 1, 1995.
10.5+ Amendment to Lease Agreement between Carrier Access Corporation and
Cottonwood Land and Farms Ltd. dated September 20, 1995.
10.6+ Registrant's 1995 Stock Option Plan.
10.7* Registrant's 1998 Stock Incentive Plan.
10.8* Registrant's 1998 Employee Stock Purchase Plan.
</TABLE>

II-2
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
10.9+ Form of Directors' and Officers' Indemnification Agreement.
10.10* Management Incentive Compensation Plan.
23.1 Consent of KPMG Peat Marwick LLP, Independent Public Accountants.
23.2 Consent of Brobeck, Phleger & Harrison LLP (contained in their opinion
filed as Exhibit 5.1).
24.1+ Power of Attorney. Reference is made to Page II-4.
27.1 Financial Data Schedule. (In EDGAR format only)
</TABLE>
- --------
* To be filed by amendment.

+ Previously filed.

(b)Financial Statement Schedules

(1) Report of Independent Auditors on Financial Statement Schedule

(2) Schedule II--Valuation and Qualifying Accounts

ITEM 17. UNDERTAKINGS

The Company hereby undertakes to provide to the Underwriters at the closing
specified in the Underwriting Agreement, certificates in such denominations
and registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the Delaware General Corporation Law, the Certificate of
Incorporation or the Bylaws of the Company, Indemnification Agreements entered
into between the Company and its officers and directors, the Underwriting
Agreement, or otherwise, the Company has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Company of expenses incurred or paid by a director,
officer, or controlling person of the Company in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered
hereunder, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.

The undersigned registrant hereby undertakes:

(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Company pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective; and

(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of Prospectus
shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-3
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT
TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN
THE CITY OF BOULDER, STATE OF COLORADO, ON THIS 7TH DAY OF JULY, 1998.

Carrier Access Corporation

By: /S/ NANCY G. PIERCE
__________________________________
NANCY G. PIERCE
VICE PRESIDENT-FINANCE AND
ADMINISTRATION, CHIEF FINANCIAL
OFFICER, TREASURER AND SECRETARY

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE PERSONS WHOSE SIGNATURES APPEAR
BELOW, WHICH PERSONS HAVE SIGNED SUCH REGISTRATION STATEMENT IN THE CAPACITIES
AND ON THE DATES INDICATED:

Signature Title Date
<S> <C> <C>

* President, Chief Executive
- ---------------------------------- Officer (Principal Executive July 7, 1998
(Roger L. Koenig) Officer) and Chairman
of the Board of Directors

Vice President-
/s/ Nancy G. Pierce Finance and Administration, July 7, 1998
- --------------------------------- Chief Financial Officer,
(Nancy G. Pierce) Treasurer (Principal
Financial and Accounting
Officer), Secretary
and Director

* Director July 7, 1998
- ----------------------------------
(Douglas Carlisle)

* Director July 7, 1998
- ----------------------------------
(Joseph Graziano)

* Director July 7, 1998
- ----------------------------------
(Ryal Poppa)

July 7, 1998
* By: /S/ NANCY G. PIERCE
---------------------------
(Nancy G. Pierce)
Attorney-in-Fact

</TABLE>
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Carrier Access Corporation

Under date of February 6, 1998, except for note 1(k) which is as of May 28,
1998, we reported on the balance sheets of Carrier Access Corporation as of
December 31, 1996 and 1997, and the related statements of operations,
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1997, which are included in the prospectus. In
connection with our audits of the aforementioned financial statements, we also
audited the related financial statement Schedule II, Valuation and Qualifying
Accounts, included in the registration statement. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule based on our
audits.

In our opinion, such financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.

KPMG PEAT MARWICK LLP

Boulder, Colorado
February 6, 1998

S-1
<PAGE>

SCHEDULE II

CARRIER ACCESS CORPORATION

VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)

<TABLE>
<CAPTION>
BALANCE AT ADDITIONS BALANCE AT
BEGINNING CHARGED TO END
OF PERIOD OPERATIONS WRITE-OFFS OF PERIOD
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Allowance for Doubtful Ac-
counts
Year Ended:
December 31, 1995............ $ -- $ -- $ -- $ --
========== ============ ========== ============
December 31, 1996............ $ -- $ 20 $ -- $ 20
========== ============ ========== ============
December 31, 1997............ $ 20 $ 382 $ (4) $ 398
========== ============ ========== ============
</TABLE>

See accompanying independent auditors report.

S-2
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1+ Form of Registrant's Amended and Restated Certificate of Incorporation
to become effective upon the closing of the offering.
3.2+ Form of Registrant's Bylaws.
4.1* Form of Registrant's Specimen Common Stock Certificate.
4.2+ Amended and Restated Investor Rights Agreement, among the Registrant
and the investors and founders named therein, dated September 16,
1997.
4.3+ Reference is made to Exhibits 3.1 and 3.2.
5.1 Opinion of Brobeck, Phleger & Harrison LLP, counsel for the
Registrant, with respect to the Common Stock being registered.
10.1 Form of Diamond Level Distributor Agreement.
10.2 Form of Platinum Level OEM Agreement.
10.3 Line of Credit Agreement with Bank One for $5,000,000 dated July 2,
1998.
10.4+ Lease Agreement between Carrier Access Corporation and Cottonwood Land
and Farms Ltd. for facilities at 5395 Pearl Parkway, Boulder,
Colorado, dated June 1, 1995.
10.5+ Amendment to Lease Agreement between Carrier Access Corporation and
Cottonwood Land and Farms Ltd. dated September 20, 1995.
10.6+ Registrant's 1995 Stock Option Plan.
10.7* Registrant's 1998 Stock Incentive Plan.
10.8* Registrant's 1998 Employee Stock Purchase Plan.
10.9+ Form of Directors' and Officers' Indemnification Agreement.
10.10* Management Incentive Compensation Plan.
23.1 Consent of KPMG Peat Marwick LLP, Independent Public Accountants.
23.2 Consent of Brobeck, Phleger & Harrison LLP (contained in their opinion
filed as Exhibit 5.1).
24.1+ Power of Attorney. Reference is made to Page II-4.
27.1 Financial Data Schedule. (In EDGAR format only)
</TABLE>
- --------
* To be filed by amendment.

+ Previously filed.

<PAGE>

EXHIBIT 5.1

July 7, 1998

Carrier Access Corporation
5395 Pearl Parkway
Boulder, CO 80301

Re: Registration Statement on Form S-1
File No. 333-53947

Ladies and Gentlemen:

We have examined the Registration Statement on Form S-1 originally filed
by Carrier Access Corporation (the "Company") with the Securities and Exchange
Commission (the "Commission") on May 29, 1998, as thereafter amended or
supplemented (the "Registration Statement"), in connection with the registration
under the Securities Act of 1933, as amended, of 3,000,000 shares of the
Company's Common Stock (the "Shares"). The Shares include an over-allotment
option granted to the Underwriters to purchase 450,000 additional Shares and are
to be sold to the Underwriters as described in such Registration Statement for
resale to the public. As your counsel in connection with this transaction, we
have examined the proceedings taken and are familiar with the proceedings
proposed to be taken by you in connection with the sale and issuance of the
Shares.

It is our opinion that, upon conclusion of the proceedings being taken
or contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares, the Shares, when issued and sold in the manner described in the
Registration Statement, will be validly issued, fully paid and nonassessable.

We consent to the use of this Opinion as an exhibit to said Registration
Statement, and further consent to the use of our name wherever appearing in said
Registration Statement, including the prospectus constituting a part thereof,
and in any amendment thereto.

Very truly yours,

/s/ Brobeck, Phleger & Harrison LLP

Brobeck, Phleger & Harrison LLP

<PAGE>

EXHIBIT 10.1

[LOGO OF CARRIER ACCESS CORPORATION APPEARS HERE]

DIAMOND LEVEL DISTRIBUTOR AGREEMENT
<PAGE>

TABLE OF CONTENTS

DEFINITIONS 3

ARTICLE 1 - AUTHORIZATION 4

ARTICLE 2 - TERM 4

ARTICLE 3 - TERMINATION AND ASSIGNMENT 5

ARTICLE 4 - RESPONSIBILITIES OF CAC 5

ARTICLE 5 - RESPONSIBILITIES OF DISTRIBUTOR 6

ARTICLE 6 - MINIMUM ORDER SIZE 8

ARTICLE 7 - QUOTAS AND DISCOUNTS 8

ARTICLE 8 - ACCEPTANCE OF ORDERS 8

ARTICLE 9 - ORDER CANCELLATION 9

ARTICLE 10 - PRODUCT IDENTIFICATION 9

ARTICLE 11 - PACKAGING 9

ARTICLE 12 - INSPECTIONS, AND RECORDS 9

ARTICLE 13 - SHIPPING AND DELIVERY 10

ARTICLE 14 - PRICE 10

ARTICLE 15 - DISTRIBUTOR RESALE PRICE 10

ARTICLE 16 - PAYMENT 10

ARTICLE 17 - RETURNS AND REJECTIONS 11

ARTICLE 18 - TERRITORY 11

ARTICLE 19 - WARRANTY AND REMEDIES 11

ARTICLE 20 - WARRANTY PASS THROUGH 11

ARTICLE 21 - EXERCISE OF RIGHTS 11

ARTICLE 22 - NEW PRODUCTS 11

ARTICLE 23 - DISCONTINUED PRODUCTS 12

ARTICLE 24 - DOCUMENTATION 12

ARTICLE 25 - TRADEMARKS 12

ARTICLE 26 - NOTICES 13

ARTICLE 27 - SURVIVAL OF OBLIGATIONS 13

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Confidential 03/05/98

2
<PAGE>

ARTICLE 28 - TAXES 13

ARTICLE 29 - TECHNICAL DATA AND LICENSING 13

ARTICLE 30 - PATENT INFRINGEMENT - IDEMNIFICATION 14

ARTICLE 31 - LIMITATION OF LIABILITY 14

ARTICLE 32 - GENERAL PROVISIONS 15

ARTICLE 33 - STOCK ROTATION 15

APPENDIX

APPENDIX A - PRODUCT PRICE LIST 17
APPENDIX B - PRODUCT RETURNS 18
APPENDIX C - WARRANTIES AND LIMITATION OF REMEDIES 20
APPENDIX D - SOFTWARE LICENSE AGREEMENT 21
APPENDIX E - TERRITORY 24
APPENDIX F - NEW PRODUCTS 25
APPENDIX G - COOPERATIVE MARKET DEVELOPMENT 26

- -------------------------------------------------------------------------------
Confidential 03/05/98

3
<PAGE>

Confidential Information DATE:____________

CAC Diamond Level
Distributor Agreement

THIS Agreement, Number CAC/27374 by and between Carrier Access Corporation, a
Colorado Corporation, having its principle business at 5395 Pearl Parkway,
Boulder, Colorado, 80301 (hereinafter called "CAC"), and
______________________________________________________, (hereinafter called
"Distributor") sets forth the terms and conditions for the sale of Products by
CAC and the purchase of same by Distributor.

DEFINITIONS

The term "Agreement" means all of the terms and conditions of this Diamond
Distributor Agreement.

The term "Net Purchases" means the total invoiced Products shipped to
Distributor, less any issued credits

The term " New Products" means all equipment, firmware and software supplied by
CAC listed in Appendix G.

The term "Product" means all equipment, firmware and software supplied by CAC
listed in Appendix A.

The term "Unit" means a single working system of the Product designated in
Appendix A.

THIS Agreement contains all of the representation and agreements between the
parties hereto. No modification of this Agreement or waiver of the terms and
conditions hereof will be binding upon either party unless approved in writing
by authorized representatives of both parties, nor will it be affected by the
acknowledgment or acceptance of purchase order forms or releases containing
other or different terms and conditions, whether or not signed by an authorized
representative of such party.

By execution of this Agreement, the parties do hereby agree the provisions of
this Agreement shall supersede all prior oral and written communications,
agreements and understandings of the parties with respect to the subject of the
Agreement.

RECITALS
--------

Whereas, CAC develops, manufactures and distributes certain telecommunications
Products, including the Products set forth on Appendix A and, when applicable,
on Appendix G hereto, and,

CAC and Distributor desire that Distributor act as a non-exclusive Distributor
for the Products under the terms and conditions set forth below,

Now, therefore CAC and Distributor agree as follows:

- -------------------------------------------------------------------------------
Confidential 03/05/98

4
<PAGE>

ARTICLE 1 - AUTHORIZATION

Appointment

Subject to the terms of this Agreement, CAC appoints Distributor, and
Distributor accepts such appointment, as a non-exclusive Distributor for the
Products, and when applicable for New Products, in and limited to the territory
set forth in Appendix F - Territory.

Format

Distributor may use or resell the Products as either stand-alone Products, or in
combination with other products of Distributor's choice to meet Distributor's
customer requirements. CAC makes no representation that the Products will be
appropriate for combination with any other product(s).

Nature of Agreement

To the extent that any Product contains or consists of software, Distributor's
appointment only grants to Distributor a license to distribute such software
Product, and does not transfer any right, title or interest to any such software
Product to Distributor or Distributor's customers. CAC will transfer title to
Products to Distributor only to the extent that such Products consist of non-
software items on the terms specified herein. To the extent that such Products
contain software, such software (including firmware) will be licensed to
Distributor and its customers on a right to use basis with all copyright,
priority, or intellectual rights remaining the property of CAC. Use of the
terms "sell", "license", "purchase", "license fees" and "price" will be
interpreted in accordance with this Article. CAC's Software License Agreement
is attached herein as Appendix E.

Other Distribution Channels

CAC reserves the right to sell its Products directly, through other
Distributors, and through other third party intermediaries, including without
limitation to OEMs, Dealers and Value Added Partners who will normally add value
to the Product in the form of features, services, and/or brand recognition, and
who will sell the resulting derivitive product through their own channels of
distribution.

Independent Contractor

The relationship established by this Agreement is that of an independent
contractor. Distributor has no expressed or implied authorization to incur any
obligation or commitment on behalf of CAC, unless specifically approved in
writing by an authorized CAC officer. Distributor shall employ its own personnel
and shall be responsible for them and their acts. CAC shall in no way be liable
for Distributor, its employees, or third parties, for any losses, injuries,
damages, or the like occasioned by Distributor's activities in connection with
this Agreement, except as expressly provided for herein.

ARTICLE 2 - TERM

THIS Agreement will commence on ________________ and continue for a ___________
month period (hereinafter called "Term") through __________________ unless
terminated in accordance with the conditions of this Agreement. It may be
renewed for one additional _______________ period unless terminated by either
party in accordance with the conditions of this agreement.

- -------------------------------------------------------------------------------
Confidential 03/05/98

5
<PAGE>

ARTICLE 3 - TERMINATION AND ASSIGNMENT

Either party may terminate this agreement:

i. With or without cause upon ninety (90) days prior written notice to the
other party.

ii. Immediately if the other party:

(a) assigns this Agreement or any of its rights hereunder without the
prior written consent of the other party ("assigns" to include,
without limiting the generality thereof, a sale or transfer of a
majority ownership interest);

(b) makes an assignment for the benefit of creditors, or a receiver,
trustee in bankruptcy or similar officer is appointed to take
charge of all or part of its property;

(d) fails to perform any material obligations under this Agreement and
such failure is not remedied within ten (10) days after written
notice thereof has been given to the other party;

(e) any termination of this Agreement pursuant to this Article will be
in addition to and will not be exclusive of or prejudicial to any
other rights or remedies at law or in equity available to the
other party.

iii. Upon termination, other than for cause or pursuant to (ii.) above, CAC
will continue to provide spare parts for one (1) year so that Distributor
can properly support its existing customer base. Spares will be provided
at the then current CAC Distributor pricing and terms and conditions of
sale for such spares.

iv. Upon termination without cause by CAC, CAC, at the option of Distributor,
will repurchase any remaining unsold Distributor inventory at the price
paid to CAC by Distributor for such equipment. Such repurchased equipment
must be unused and in original containers, identified by serial numbers
or some other agreed to identifier.

ARTICLE 4 - RESPONSIBILITIES OF CAC

CAC agrees to:

Provide Sales Materials

CAC will provide Distributor at no charge with an initial supply of one hundred
(100) copies of current sales literature to promote and sell CAC Products.
These materials may include, but are not limited to, brochures, application
notes, technical white papers, sales presentations in slide, overhead or
magnetic form, and any other appropriate material necessary to aid in the
selling process. Distributor may be charged for unreasonable amounts of
marketing collateral materials at CAC cost or a mutually agreed upon price. Such
cost will be furnished to Distributor prior to delivery of materials. This
material may be provided in original art work form

- -------------------------------------------------------------------------------
Confidential 03/05/98

6
<PAGE>

to Distributor to enable Distributor to develop material for its own internal
programs. All Distributor material developed as a result of this program must be
approved by CAC in writing prior to release.

Provide Sales Leads

To periodically provide Distributor, at CAC's discretion, with pre-screened and
qualified sales leads applicable to Distributor's markets from CAC's
promotional programs; provided however, that Distributor pursues and further
qualifies such leads and provides monthly reports as to their status or
disposition.

Offer Sales Training

To provide sales training on CAC Products and applications at Distributor's
expense for Distributor's sales personnel at CAC's corporate headquarters or
Distributor's locations as agreed upon.

Provide Technical Support

i. Provide a technical support telephone number to Distributor's personnel for
Product installation, trouble shooting, and Product applications advice.
After normal business hours (8:00 AM - 5:30 PM-Mountain Standard/Daylight
Time, Monday through Friday) this telephone number will provide the option
of paging an appropriate CAC customer service representative for emergency
situations.

ii. Provide technical updates and product bulletins via facsimile and CAC's
Internet web page.

Provide Marketing Support

Provide Distributor with timely reports detailing marketing or technical
information on products, competitive comparisons, special sales suggestions,
competitive announcements, pre-announcement product releases, and to respond
promptly to all inquiries and requests for sales assistance by Distributor.

Offer Co-Op Market Development Assistance

CAC will reserve _____________ of the previous quarter's Net Purchases received
from Distributor to be used as matching funds for advertisements, and other
mutually agreed upon marketing programs. To qualify for these funds Distributor
must have achieved their minimum quarterly purchase obligation as outlined in
Article 7 -Quotas and Discounts during such previous quarter. This program is
described in Appendix H - Cooperative Market Development.

CAC Advisory Council

Distributor will be eligible to participate in the CAC advisory council. This
council will provide direct input to CAC management on new product requirements,
existing product and service concerns and distribution channel issues.
Notification of meeting dates and time will be supplied to Distributor.

ARTICLE 5 - RESPONSIBILITIES OF DISTRIBUTOR

Distributor Agrees to:

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Confidential 03/05/98

7
<PAGE>

Comply with Law

Distributor will comply with all applicable international, national, state,
regional and local laws and regulations in connection with its activities under
of this Agreement.

Comply with U.S. Export Laws

Distributor acknowledges that the Products, including related documentation and
other technical data (collectively, "Technical Data"), are subject to export
--------------
controls imposed by the U.S. Export Administration Act of 1979, as amended (the
"Act"), and the regulations promulgated thereunder ("BXA Regulations").
--- ---------------
Distributor will not export or re-export (directly or indirectly) the Technical
Data without complying with the Act and the BXA Regulations. Distributor
certifies that: (a) neither the Technical Data nor its direct Product is
intended to be used for any purposes prohibited by the BXA regulations,
including, but not limited to, nuclear proliferation; and (b) unless Distributor
first obtains written permission to do so from the appropriate U.S. governmental
agencies, no Technical Data will be exported to any country to which the U.S.
has prohibited shipment.

Perform No Engineering Modifications

Distributor shall not reverse assemble, reverse compile or reverse engineer the
Product hardware or software supplied by CAC in any way.

Provide Contact Personnel

Distributor shall appoint an individual to be the primary CAC support contact
for its customers. Furthermore, Distributor will agree that this individual
attends at least one CAC training session annually.

Provide Sales and Service Coverage

Provide trained/authorized sales and technical service coverage to Distributor's
customers for CAC Products. Such coverage includes but not limited to responding
to initial technical support inquiries, following up on sales leads, and
performing all activities required to execute a sale.

Meet Purchase Commitments

To meet or exceed purchase commitments as set forth Article 7 - Quotas and
Discounts and any minimum annual purchase quotas for New Products which may be
agreed upon by both CAC and Distributor.

Provide Forecasts

Provide CAC with written monthly 90 day rolling sales forecasts which must
include the number of sales expected on each Product, Unit type, expected
delivery dates, and any special sales that require special equipment or of an
extremely large volume.

Special Services and Materials

To pay CAC agreed upon and reasonable charges for mutually agreed upon special
support services and/or materials which are provided at Distributor's request,
which are not normally covered in accordance with the warranty or CAC practices.

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Provide Warranty Registration and Service

To properly register the warranty for each and every Unit including Unit's
serial number by providing a CAC Warranty card with every unit sold, and to
maintain a log of service activity on all CAC Products, so that CAC can properly
track, investigate and resolve Product service issues.

Furnish Reports

To furnish CAC with monthly written reports on the disposition of CAC provided
sales leads, technical issues and any other marketing information that may
enhance the sale of CAC products

Point of Sale Reports

Distributor will provide to CAC within ten (10) days of the end of each month,
an electronic report showing Distributor's shipments of Product by date,
customer, city, state and zip code shipped, part number, number of units, and
unit cost within Product type.

ARTICLE 6 - MINIMUM ORDER SIZE

The minimum order lot size per Distributor order is ____________ AB-I, AB-II or
DataSplit Unit within a product group listed in Appendix A.

ARTICLE 7 - QUOTAS AND DISCOUNTS

Minimum Contract Quota/Commitment

Distributor is required to make Net Purchases for a minimum commitment of
____________ of Net Purchases per calendar quarter. Should Distributor fail to
reach or maintain the Net Purchases stated herein, Distributor shall not be
entitled to any amounts under the ____________ Co-op Market Development program
described in Article 4 and Distributor's Discount shall revert to ___________
until Net Purchases exceed ___________ in a quarter. If Net Purchases per
calendar quarter fall below _____________ Distributor discount shall revert to
___________ until Net Purchases exceed ___________ per calendar quarter. CAC, as
its sole remedy for such failure, may terminate this Agreement in accordance
with Article 3 (i) (d) - Termination and Assignment. Quarterly performance
reviews will be conducted to monitor Distributor's performance against plan.

Discounts

Distributor discounts are based upon meeting the minimum quarterly Net Purchase
commitments. All discounts represent a percentage off the List Price of Product
described in Appendix B.

Minimum Quarterly Quota Discount

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ARTICLE 8 - ACCEPTANCE OF ORDERS

Distributor shall purchase Products by issuing a written purchase order
indicating specific Products, quantity, price, total purchase price, shipping
instructions, requested delivery dates, and any other special instructions.
Distributor must place orders in writing and submit them via mail, express
delivery and/or by facsimile.

All purchase orders issued under this agreement shall reference Distributor's
contract number assigned to this agreement. The terms and conditions of this
agreement prevail regardless of any conflicting terms on the purchase order or
other documents of either CAC or Distributor.

All orders are subject to written acceptance or rejection by CAC, in its sole
discretion, which CAC shall do within five working days, otherwise orders shall
be deemed accepted.

CAC shall fulfill all orders with new and latest revision of Product, unless
otherwise agreed.

Distributor will submit all purchase orders to:

Carrier Access Corporation
Attn.: Customer Service
5395 Pearl Parkway
Boulder, CO 80301
Telephone: 800-495-5455 or 303-442-5455
Facsimile: 303-443-5908 (Facsimile orders are acceptable.)

CAC may reject a Distributor's order by reason of (but not limited to) current
availability of Product.

ARTICLE 9 - ORDER CANCELLATION

Orders canceled or rescheduled by Distributor within fifteen (15) days of
scheduled shipment date are subject to a _______________ re-stocking fee.

ARTICLE 10 - PRODUCT IDENTIFICATION

All Products supplied to Distributor pursuant to this agreement shall be marked,
as applicable and in accordance with standard practices of CAC, as appropriate,
with: (1) CAC's name and/or logo; (2) model number or part number; (3) serial
number; (4) shipping date; (5) copyright notice; (6) country of origin; and (7)
such other markings as may be required for warranty period identification or by
applicable law.

ARTICLE 11 - PACKAGING

Products will be packed or packaged for U.S. shipment in accordance with
standard commercial practices. Distributor and CAC will agree to a price for
packaging if Distributor requests packaging outside of standard commercial
practices.

ARTICLE 12 - INSPECTIONS, AND RECORDS

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Notification

Distributor will: (i) notify CAC in writing of any claim or proceeding
involving the Products within ten (10) working days after Distributor learns of
such claim or proceeding; (ii) report promptly to CAC all claimed or suspected
Product defects.

Records

Distributor will maintain, for at least one (1) year after termination of this
Agreement, its records, contracts, and accounts relating to distribution of the
Products, and will permit examination thereof by authorized CAC representatives
with reasonable notice to Distributor.

CAC will inspect Products prior to shipment in accordance with its normal
practices, which shall be no less than standard industry practices. CAC
reserves the right to charge for other inspections or tests requested by
Distributor.

ARTICLE 13 - SHIPPING AND DELIVERY

Shipping dates will be established by CAC upon receipt of purchase orders from
Distributor. Shipping dates will be assigned as close as practical to
Distributor's requested date. CAC will use best efforts to notify Distributor
of the actual scheduled shipping date within five (5) working days after receipt
of order (ARO).

Distributor has the right to defer Product shipment for no more than thirty (30)
days from the scheduled shipping date, provided written notice is received by
CAC at least fifteen (15) days before originally scheduled shipping date.
Deferrals for greater than thirty (30) days will be deemed canceled. Deferrals
or cancellations within thirty (30) days are subject to charges and terms
outlined in Article 9 - Order Cancellation.

Distributor shall be responsible for all freight handling and insurance charges.
CAC shall select the carrier, acquire in-transit insurance and invoice
Distributor for freight handling and insurance charges, unless specifically
declined in writing by Distributor. In no event shall CAC have any liability in
connection with shipment, nor shall the carrier be deemed to be an agent of CAC.

Title, risk of loss, and insurance responsibilities pass to Distributor upon
delivery of Products by CAC to the shipping agent or carrier at the FOB point.
Delivery shall be deemed made upon transfer of possession to the carrier. All
orders are shipped FOB Boulder, Colorado. Drop Shipment orders may be subject
to a ___________ surcharge.

ARTICLE 14 - PRICE

List prices for Products shall be those specified in Appendix B, as updated from
time to time by CAC. Distributor's price is the CAC List Price less the
applicable discounts specified in Article 7 - Quotas and Discounts. Such prices
are subject to change at any time and Appendix B shall be deemed amended.
Changes shall be preceded by sixty (60) days written notice and will become
effective on all Distributor shipments after that period. In the event of
list price decreases by CAC, CAC will offer to credit Distributor with the
currently effective discounted price differential for Distributor owned stock
on-hand at the effective date of the price

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decrease. CAC reserves the right to audit Distributor stock on-hand at the
effective date.

ARTICLE 15 - DISTRIBUTOR RESALE PRICE

Although CAC may publish suggested wholesale or retail prices, these are
suggestions only and Distributor will be entirely free to determine the actual
prices and license fees at which the Products will be sold or licensed to its
customers.

ARTICLE 16 - PAYMENT

Subject to prior credit approval, the terms of payment are 30 days from date of
invoice. Where credit approval has not been granted or Distributor is at their
credit limit as determined by CAC, the terms are wire transfer of funds prior to
shipment. Invoices for Products will be rendered as shipments are made. Late
charges of 1.5% (or the maximum amount permitted by law if less), per month, on
outstanding balances will be charged.

ARTICLE 17 - RETURNS AND REJECTIONS

Returns and rejections are covered in Appendix C - Product Returns.

ARTICLE 18 - TERRITORY

This Agreement and appointment only applies to the territories listed in
Appendix F - Territory

ARTICLE 19 - WARRANTY AND REMEDIES

Limited Warranty

CAC MAKES NO WARRANTIES OR REPRESENTATIONS AS TO PERFORMANCE OF PRODUCTS OR AS
TO SERVICE TO DISTRIBUTOR OR TO ANY OTHER PERSON, EXCEPT AS SET FORTH IN CAC's
LIMITED WARRANTY ATTACHED HERETO AS APPENDIX D. CAC RESERVES THE RIGHT TO
CHANGE THE WARRANTY AND SERVICE POLICY SET FORTH IN SUCH LIMITED WARRANTY, OR
OTHERWISE, AT ANY TIME, WITH NINETY (90) DAYS WRITTEN NOTICE AS IT APPLIES TO
EQUIPMENT PURCHASES AFTER THE 90 DAY PERIOD, AND WITHOUT LIABILITY TO
DISTRIBUTOR OR TO ANY OTHER PERSON. SUCH CHANGES WILL NOT APPLY TO ANY PRODUCT
SHIPPED PRIOR TO THE END OF THE NINETY (90) DAY NOTICE PERIOD.

Distributor's Warranty

Distributor will make no warranty, guarantee or representation on CAC's behalf.
In the event that Distributor makes unauthorized representations or guarantees
beyond those contained in Appendix D - Warranties and Limitation of Remedies,
Distributor shall hold harmless and indemnify CAC for any expenses, claims,
damages or liability of any nature whatsoever arising from or related to such
unauthorized representations or guarantees, including without limitation,
reasonable attorney's fees.

ARTICLE 20 - WARRANTY PASS THROUGH

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Upon the resale of Products purchased hereunder, Distributor is required to pass
through to its customer(s) a document with terms and conditions equivalent to
Appendix D - Warranties and Limitation of Remedies. This pass through applies
to those Products purchased from CAC and resold by Distributor without
alteration, modification, assembly with other manufacturer's equipment or re-
labeling by Distributor.

ARTICLE 21 - EXERCISE OF RIGHTS

A failure by one of the parties to this Agreement to assert its rights for or
upon any breach of this Agreement will not be deemed a waiver of such rights,
nor will any such waiver be implied from acceptance of any payment. No waiver
written by one of the parties herein with respect to any right under this
Agreement will extend to or affect any subsequent breach of any kind.

ARTICLE 22 - NEW PRODUCTS

During the term of this agreement CAC may introduce New Products that
Distributor wishes to include in this agreement. New Products may have minimum
purchase commitments and special discounts associated with them that CAC and
Distributor will mutually agree to. CAC will have no obligation to offer New
Products to Distributor or to offer any particular terms and conditions
concerning such New Products. Any New Products added to this Agreement and
their commitments and discounts may be added to Appendix G - New Products when
appropriate.

ARTICLE 23 - DISCONTINUED PRODUCTS

CAC will give Distributor 180 days written notice of any manufacturer
discontinued (MD) products.

ARTICLE 24 - DOCUMENTATION

Standard Documentation

CAC shall provide installation manuals and available user guides with each
Product.

Documentation Reproduction and Modification

With CAC prior approval, Distributor shall have the right to reproduce in whole
or in part, the documentation relating to Product, for use in conjunction with
Products and training and any updates, modifications and revisions thereto.

ARTICLE 25 -TRADEMARKS

Right To Use

Distributor will not incorporate under or otherwise make use of the name of CAC,
or any of its trademarks or trade names except to use the name, logo and other
marks of CAC ("Marks") for all proper purposes in the sale of CAC Products and
the performance of Distributor's duties hereunder only so long as this agreement
is in effect. Distributor will not alter or remove any trademark or trade name
applied by CAC to the Products except

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upon prior written authorization by CAC. Distributor's rights to use any
trademarks or trade names under this Article 26 immediately terminate upon
written notice from CAC or upon termination of this Agreement.

Proprietary Rights

Distributor acknowledges that CAC owns and retains all Marks and other
proprietary rights in or associated with CAC Products, and agrees that it will
not at any time during or after this Agreement assert or claim any interest in
or do anything that may adversely affect the validity of any Mark or copyright
belonging to or licensed to CAC (including, without limitation any act which may
infringe or lead to the infringement of any of CAC's proprietary rights).

No Continuing Rights

Upon expiration or termination of this Agreement, Distributor will immediately
cease use of all CAC Marks and will not thereafter use, advertise or display any
mark which is similar to or confusing with any mark associated with any CAC
Product.

Obligation to Protect

Distributor agrees to use reasonable efforts to protect CAC's proprietary rights
and to cooperate in CAC's efforts to protect its proprietary rights.
Distributor agrees to promptly notify CAC of any known or suspected breach of
CAC'S proprietary rights that comes to Distributor's attention.

ARTICLE 26 - NOTICES

Any notice, approval, request, authorization, direction or other communication
under this agreement shall be given in writing and shall be deemed to have been
delivered and given for all purposes (i) on the delivery date if delivered
personally to the party to whom the same is directed; (ii) one business day
after deposit with a commercial overnight carrier, with written verification
receipt, (iii) by facsimile with written confirmation of receipt, or (iv) five
days after the mailing date, whether or not actually received, if sent by U.S.
Postal Service, return receipt requested, postage and charges pre-paid, or any
other means of rapid mail delivery for which a receipt is available to the
address of the party to whom same is directed as set forth as follows.

For CAC: Carrier Access Corporation
Attention: Contracts
5395 Pearl Parkway
Boulder, CO 80301

For Distributor: ____________________
Attention: ____________________
____________________
____________________

The above addresses may be changed at any time by giving prior written notice as
provided herein.

ARTICLE 27 - SURVIVAL OF OBLIGATIONS

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Each party's obligations under this Agreement which by their nature would
continue beyond termination, cancellation or expiration of this Agreement,
including by way of illustration only and not limitation, those in the Warranty
& Limitation of Remedies, and technical data will survive the termination or
cancellation of this agreement for a period of two years from such termination
or cancellation. Articles 3, 16, 17, 19, 21, 24, 25, 26 and 28 shall survive the
cancellation or termination of this Agreement for any reason.

ARTICLE 28 - TAXES

In addition to the purchase price, Distributor will pay CAC the amount of all
taxes, excises, export duties, or governmental charges that CAC may be required
to pay with respect to the sale or transportation of any Products delivered
hereunder, except taxes on or measured by CAC's net income. If Distributor
claims exemption from any taxes by purchase of Products under this Agreement,
Distributor will provide CAC with documentation required by the taxing authority
to support the exemption.

ARTICLE 29- TECHNICAL DATA AND LICENSING

All drawings, data, designs, tooling, equipment, procedures, engineering
changes, inventions, computer software and all parts thereof, and all other
information, technical or otherwise which was developed, made or supplied by CAC
in the Production of any Product or the performance of any Service sold,
rendered or licensed hereunder will be and remain the sole property of CAC.

Distributor agrees that CAC software and firmware Products, or any software or
firmware in CAC Products is hereby licensed (not sold) subject to the terms set
forth in this Article and contains information and trade secrets proprietary to
or licensed to CAC. No change, modification, defacement, alteration, reverse
engineering, disassembly, de-compilation or reproduction of such Product or
disclosure of programming content to other parties is allowed without the
express written consent of CAC. Software and firmware are unpublished, and any
copyright notices placed thereon will not be deemed to constitute publication.
Distributor agrees to pass on all terms of CAC's software and firmware licenses
to the ultimate user. See Appendix E - Software License Agreement.

ARTICLE 30 - PATENT INFRINGEMENT - IDEMNIFICATION

Each Party (the "Indemnitor") hereby indemnifies and holds the other Party (the
"indemnitee"), its directors, officers, agents and employees harmless against
any and all claims, actions and damages, liabilities or expenses including
attorneys fees and other legal costs for injury to or death to any person, and
for loss of or damage to any and all property arising out of the negligent acts
or omissions of the Indemnitor under this Agreement.

CAC will defend, at its own expense, any action brought against Distributor to
the extent that it is based on a claim that any CAC supplied designs, material,
processes, or documentation hereunder constitutes a direct infringement of any
duly issued United States patent or infringement of any copyright, in the United
States. CAC will pay all damages and costs finally awarded against Distributor
in such action which are attributable to such action, provided that CAC is
promptly informed in writing and furnished a copy of each communication, notice,
or other action relating to the alleged infringement and is given authority,
information, and assistance necessary to defend or settle such claim. Should
equipment likely to become the subject of a claim of infringement of any United
States patent or any copyright, trade

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secret, or other proprietary rights in the United States, then CAC may, at its
option: (i) procure for Distributor the right to use such equipment free of any
liability for infringement; (ii) replace such equipment with non-infringing
substitutes otherwise complying substantially with all the requirements of the
contract; or (iii) refund the purchase price, less a charge for equal to one
sixtieth (1/60) of the purchase price of the Product for each month that
Distributor enjoyed beneficial use, and accept the return of such equipment.

THE FOREGOING STATES THE SOLE AND EXCLUSIVE LIABILITY OF THE PARTIES TO THIS
AGREEMENT FOR PATENT AND COPYRIGHT INFRINGEMENT AND IS IN LIEU OF ALL CONDITIONS
OR WARRANTIES, EXPRESS, IMPLIED, OR STATUTORY, IN REGARD THERETO.

ARTICLE 31 - LIMITATION OF LIABILITY

CAC shall not be liable for delays in delivery or failure to manufacture or
deliver Product or to otherwise perform any obligation due to Distributor under
this Agreement due to any cause beyond CAC's reasonable control, such as acts
of God, acts of civil or military authority, labor disputes, fire, riots,
sabotage, war, embargo, blockage, floods, earthquake, epidemics, power
shortages, or when due to government restrictions. The rights of Distributor
under this Agreement, including the right to continue the Agreement shall not be
affected by Distributor's failure to perform any obligation contained herein
where such failure is due to any cause beyond its control, such as acts of God,
acts of civil or military authority, labor disputes, fire, riots, sabotage, or
when due to government restrictions.

Since Distributor will have the exclusive control over the use and disposition
of the Product purchased under this agreement, Distributor shall be responsible
for the proper use, protection, supervision, and ultimate disposition of that
Product in accordance with Distributor's own rules and regulations. Distributor
indemnifies and agrees to hold CAC harmless with respect to any cost, damage, or
expense (including reasonable attorney fees) arising from breach by Distributor
of its obligations under this Agreement or from claims made by Distributor's
customers concerning the selling, renting, leasing, operation, service, of the
Product or from damage, injury or loss to third parties caused by Distributor's
fault or negligence.

In no event shall CAC's liability under this agreement, regardless of the form
of action, include any special, indirect, incidental or consequential damages or
claims for loss of business or loss of profits, even if CAC shall have been
advised of the possibility of such potential loss or damage. The liability of
CAC arising out of the supplying of any Product or its use, whether based upon
warranty, contract, negligence or otherwise, shall not in any case exceed the
original cost to Distributor of such Product.

ARTICLE 32 - GENERAL PROVISIONS

The laws of the State of Colorado, USA will apply and govern in the construction
and application of this Agreement and to all transactions hereunder. Any
action hereunder will be brought in the courts of the Twentieth Judicial
District, County of Boulder, State of Colorado, USA and will be governed by and
interpreted and constituted in accordance with the laws of the State of
Colorado. Any claim, except for nonpayment, will be brought within one year of
the Product shipment. Distributor will be liable for all collection costs and
attorney fees. CAC may only subcontract any obligations contained in this
Agreement with prior written notice.

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If any provision of this Agreement is deemed invalid, illegal or unenforceable,
the validity, legality and enforceability of the remaining provisions will not
be affected or impaired thereby.

No waiver will be valid unless in writing and no waiver granted will release
Distributor or CAC from subsequent strict compliance herewith.

ARTICLE 33- STOCK ROTATION

Three times a year, at a maximum of ___________ of Stock, distributor may
exchange, upon thirty (30) day advance notice, unsold inventory purchased within
the prior four (4) month period, at distributor options, for a like dollar
amount of new equipment. Such exchanged equipment must be unused and in original
containers, identified by serial numbers or some other agreed to identifier and
remain on the current Carrier Access Corporation price list.

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IN WITNESS WHEREOF, the parties hereto executed this Agreement as of the data
written below.

CARRIER ACCESS CORPORATION DISTRIBUTOR

______________________________ __________________________________
SIGNATURE SIGNATURE

______________________________ __________________________________
NAME (PRINT/TYPE) NAME (PRINT/TYPE)

______________________________ __________________________________
TITLE TITLE

______________________________ __________________________________
DATE DATE

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APPENDIX A - PRODUCT PRICE LIST

See attached CAC Product List Prices , Updated 5/12/97, Release 1.8.

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APPENDIX B - PRODUCT RETURNS

RETURN MATERIAL AUTHORIZATION

A Return Material Authorization (RMA) number and corresponding tracking sheet
must accompany all Products returned to CAC. An RMA number must be obtained
from CAC's technical product support department prior to returning any Product.
Warranty registration cards should be returned to CAC after product installation
to help expedite RMA process. Upon issuance of an RMA number, CAC's technical
support group will fax a product tracking sheet to product owner that must be
completed and included with the return shipment. It is product owner's
responsibility to properly insure and pack all returned materials. All Products
must be returned freight pre-paid in the original packaging materials with the
RMA number clearly displayed on the outside of the box. If original shipping
materials are not available, CAC will ship replacement materials to the
requester at a rate of $15.00/container plus freight charges.

Any Product returned without a valid RMA number will be rejected and returned to
sender freight collect. Product found damaged, improperly used, or modified so
that it does not meet specification will be returned to sender freight collect.

When returning parts under this procedure Distributor shall do the following
with respect to each shipment:

Prepare RMA parts lists and indicate:
- Part Number and serial number of returned part*
- Quantity of each item
- Description of failure or reason for return
- Completed CAC Tracking Sheet

Product must be identified and RMA number referenced on shipping materials.
Distributor is responsible for insurance and shipping charges.

COLLECT ON DELIVERY (COD) SHIPMENTS CANNOT BE ACCEPTED

*An equipment description must accompany the shipment. "Channel Bank" will not
be accepted. The correct description would be: AB-I/FXS/FXS --Serial Number
________.

RETURNED UNITS THAT ARE TESTED WITH NO TROUBLE FOUND WILL BE RETURNED TO SENDER
FOR NO TROUBLE FOUND AND RETURN SHIPPING CHARGES. TO SAVE NO TROUBLE FOUND
CHARGES, ONLY RETURN COMPONENTS THAT HAVE BEEN VERIFIED AS FAILURES. FOR
EXAMPLE, RETURN A SINGLE FXS CARD THAT HAS BEEN IDENTIFIED WITH A FAILED CHANNEL
9, RATHER THAN AN ENTIRE ACCESS BANK.

SHIPPING

CAC assumes no liability for damage, loss, or shortage incurred during shipment
of the Product to Distributor. Products found to be defective as the result of
shipment or mishandling will be either returned to Distributor or repaired on a
time and materials fee basis. These charges will also include a time/labor
charge for testing the Product to insure it conforms to specification.

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Upon receipt of Product, Distributor should inspect the shipment before
accepting delivery. Damage, breakage, or shortages should be noted on the
carrier's freight bill with supporting documentation for Distributor's claim
against the freight carrier. Shortages or variances from a Distributor's order
should be forwarded to CAC within fifteen (15) days of shipment. All shipments
should be shipped freight pre-paid and insured to cover any losses.

ADVANCE REPLACEMENT

Distributor should maintain adequate stock to provide advance replacement units
for out of box failures if it is their policy to offer this service. If an
advance replacement is sent to Distributors customer by CAC, Distributor must
provide a purchase order for the equipment advance replaced to Distributors
customer. Distributor must provide CAC with an open purchase order for advance
replacement units if CAC is to provide advance replacement units after
Distributors normal working hours. In the event that a RMA is issued by CAC for
an out of box failure, it will be replaced immediately upon receipt of product
and verification of defect at CAC.

If a product owner needs expedited delivery/overnight service for failed product
under warranty, they must contact their authorized Distributor. The Distributor
may then offer expedited delivery and process the product owner's RMA through
the proper channels with CAC.

SUMMARY OF SERVICE FEES

PRODUCTS UNDER WARRANTY

1. Warranty Repair (Parts & Time) $ 0
2. No Trouble Found Test Fee of List Price plus
Return Shipping Charges

PRODUCTS OUT OF WARRANTY

1. Time (Labor) /Hour
2. Materials Current Price of Replacement Part

REFURBISHMENT OF DEMO EQUIPMENT

1. Labor flat fee
2. Material CAC cost

SPARE PARTS

Parts displaced from out of warranty equipment may be returned to CAC for repair
but must follow the above RMA procedure and have a repair/replacement purchase
order accompanying the shipment. CAC reserves the right to use refurbished or
used parts for repair.

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APPENDIX C - WARRANTIES AND LIMITATION OF REMEDIES

Carrier Access Corporation warrants to Distributor that Products are free from
substantial defect in material and workmanship under normal use given proper
installation and maintenance for period of five (5) years from the date of
shipment by CAC.

Distributor will promptly notify CAC of any defect in the Product. CAC or its
agent will have the right to inspect the Product or workmanship on Distributor's
premises or Distributor's customer's premises. CAC has the option to: (a)
repair, replace or service at its factory or on the premises the Product or
workmanship found to be defective, or (b) credit BUYER for the PRODUCT in
accordance with CAC's depreciation policy. Refurbished material may be used to
repair or replace the Product. Products returned to CAC for repair,
replacement, or service will be shipped pre-paid by Distributor.

LIMITATION OF WARRANTY & LIMITATION OF REMEDIES

Correction of defects by repair, replacement, or service will be at CAC's option
and constitute fulfillment of all obligations to Distributor for breach of
warranty.

CAC assumes no warranty liability with respect to defects in the Product caused
by:

i. modification, repair, installation, operation or maintenance of the
Product by anyone other than CAC or its agent, except as described in
CAC's documentation; or

ii. the negligent or other improper use of the Product; or

iii. handling or transportation after title of the Product passes to
Distributor.

Other manufacturer's equipment purchased by CAC and resold to Distributor will
be limited to that manufacturer's warranty. CAC assumes no warranty liability
for other manufacturer's equipment furnished by Distributor.

Distributor understands and agrees as follows: the warranties in this agreement
replace all other warranties, expressed or implied, and all other obligations or
liabilities of CAC, including any warranties of merchantability and fitness for
a particular purpose. All other warranties are disclaimed and excluded by CAC.

The remedies contained in this agreement will be the sole and exclusive remedies
whether in contract, tort or otherwise, and CAC will not be liable for injuries
or damages to persons or property resulting from any cause whatsoever, with the
exception of injuries or damages caused by the gross negligence of CAC. This
limitation applies to all services, software and products during and after the
warranty period. In no event will CAC be liable for any special, incidental or
consequential damages or commercial losses even if CAC has been advised thereof.

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No agent, Distributor, or representative is authorized to make any warranties on
behalf of CAC or to assume for CAC any other liability in connection with any of
CAC's Products, software or services.

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APPENDIX D - SOFTWARE LICENSE AGREEMENT

License

Subject to the following terms and conditions Carrier Access Corporation (CAC)
grants to the original purchaser (Purchaser) of CAC hardware and software
products (Products) and Purchaser accepts a perpetual, non-exclusive license to
use the object code software and firmware provided by CAC (the Licensed Program)
only with CAC Products with all copyright, patent and intellectual property
rights remaining the sole property of CAC.

Purchaser shall receive software support and upgrades for the Licensed Program
in accordance with the applicable then current CAC software support policy in
effect and upon payment of any applicable fees.

PROTECTION AND SECURITY OF LICENSED PROGRAMS

Purchaser acknowledges and agrees that the Licensed Program contains proprietary
and confidential information of CAC and/or its third party supplier. Purchaser
agrees to protect the confidential and proprietary nature of the Licensed
Program as confidential information and a trade secret of CAC.

Purchaser shall not use, print, copy, translate, adapt, create derivative works
from, record, transmit, display, disclose, publish, encumber by way of security
interest or otherwise pledge or transfer, modify, assign, distribute, rent, loan
or make available to any third party the Licensed Program in whole or in part,
except as expressly provided in this Agreement.

Purchaser shall refrain from and shall prevent others from de-compiling or
applying any procedure to the Licensed Program, including reverse engineering or
any similar process, in order to derive and/or appropriate for use, the source
code or source listings for the Licensed Program.

TERM

This Agreement shall become effective for each Licensed Program upon delivery of
the Licensed Program to Purchaser.

CAC may terminate this Agreement and the license upon notice to Purchaser if any
amount payable by Purchaser in respect of any of the Products is not paid within
thirty (30) days of the date such payment is due, or if Purchaser otherwise
breaches any provision of this Agreement and fails to cure such breach within
thirty (30) days of notice thereof, or if Purchaser becomes bankrupt, makes an
assignment for the benefit of creditors or a trustee is appointed for Purchaser,
or if the assets of Purchaser vest in or become subject to the rights of any
trustee, receiver, board, tribunal, commission or any body, corporation or
person, other than Purchaser, or if bankruptcy, reorganization or insolvency
proceedings are instituted by or against Purchaser and are not dismissed within
30 days.

LIMITED WARRANTIES

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<PAGE>

to be satisfied unless Purchaser gives CAC notice within 90 days of the date CAC
ships the original copy of such Licensed Program that the warranty has not been
met, in which case CAC shall have the opportunity to make repeated efforts
within a reasonable time to satisfy its obligations under this warranty. If,
after repeated efforts, Purchaser notifies CAC that this warranty has not been
met, CAC will take back the Licensed Program and refund to Purchaser all amounts
paid by Purchaser hereunder with respect to such Licensed Program.

THE WARRANTY SET OUT ABOVE SHALL CONSTITUTE THE SOLE LIABILITY OF CAC AND THE
SOLE REMEDY OF PURCHASER FOR ANY FAILURE OF ANY PROGRAM TO FUNCTION AS
WARRANTED.

EXCEPT AS EXPRESSLY PROVIDED HEREIN THERE ARE NO WARRANTIES, CONDITIONS OR
REPRESENTATIONS EXPRESS OR IMPLIED BY STATUTE, USAGE, CUSTOM OF THE TRADE OR
OTHERWISE WITH RESPECT TO THE LICENSED PROGRAMS PROVIDED BY CAC HEREUNDER,
INCLUDING BUT NOT LIMITED TO, WARRANTIES OR REPRESENTATIONS OF WORKMANSHIP,
MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR DURABILITY,
WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, CAC DOES NOT WARRANT THAT THE
LICENSED PROGRAM WILL MEET ALL OF PURCHASER'S NEEDS OR THAT OPERATION OF THE
LICENSED PROGRAM WILL BE ERROR FREE.

LIMITATION OF LIABILITY

IN NO EVENT WHATSOEVER, REGARDLESS OF THE FORM OR CAUSE OF ACTION WHETHER IN
CONTRACT OR TORT (INCLUDING NEGLIGENCE) OR THE NUMBER OF CLAIMS ASSERTED, SHALL
CAC's, ITS EMPLOYEES', DIRECTORS', OFFICERS' AND AGENTS' TOTAL COLLECTIVE
LIABILITY TO PURCHASER FOR ALL CLAIMS EXCEED THE AMOUNT PAID UNDER THIS
AGREEMENT FOR THE LICENSED PROGRAM THAT IS THE SUBJECT MATTER OF OR THAT IS
DIRECTLY RELATED TO CAUSE OF ACTION, PROVIDED THAT IN NO EVENT SHALL THE TOTAL
COLLECTIVE LIABILITY OF CAC, ITS EMPLOYEES, OFFICERS, AGENTS AND DIRECTORS
EXCEED THE AMOUNT PAID TO CAC PURSUANT TO THIS AGREEMENT.

CAC, ITS EMPLOYEES, AGENTS, OFFICERS AND DIRECTORS SHALL NOT BE LIABLE IN ANY
WAY WHATSOEVER, WHETHER AS A RESULT OF A CLAIM OR ACTION IN CONTRACT OR TORT,
INCLUDING NEGLIGENCE OR OTHERWISE FOR ANY INDIRECT, SPECIAL OR CONSEQUENTIAL
DAMAGES, INCLUDING BUT NOT LIMITED TO, LOST PROFITS OR LOST BUSINESS REVENUE,
LOST BUSINESS, FAILURE TO REALIZE EXPECTED SAVINGS, OR OTHER COMMERCIAL OR
ECONOMIC LOSS OF ANY KIND WHATSOEVER, OR FOR ANY DAMAGES, DIRECT OR INDIRECT,
SPECIAL OR CONSEQUENTIAL ARISING OUT OF ANY CLAIM AGAINST PURCHASER BY ANY
PERSON WHETHER OR NOT SUCH DAMAGES ARE FORESEEABLE AND WHETHER OR NOT CAC, ITS
EMPLOYEES, AGENTS, OFFICERS OR DIRECTORS HAVE BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES WHICH ARE IN ANY WAY RELATED TO THIS AGREEMENT OR THE LICENSED
PROGRAM.

THE FOREGOING PROVISIONS LIMITING THE LIABILITY OF CAC EMPLOYEES, AGENTS,
OFFICERS AND DIRECTORS SHALL BE DEEMED TO BE FOR THE BENEFIT OF SUCH EMPLOYEES,
OFFICERS, DIRECTORS AND AGENTS AND SHALL BE ENFORCEABLE BY SUCH AS THIRD PARTY
BENEFICIARIES.

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<PAGE>

PATENT, COPYRIGHT, TRADE NAME AND TRADE SECRET INFRINGEMENT

CAC shall defend any suit alleging the infringement of any patent, copyright or
trade secret which is brought against Purchaser on account of its use of the
Licensed Program and shall pay all reasonable legal costs and expenses incurred
by Purchaser in conjunction therewith and satisfy all monetary judgments and
decrees against Purchaser, provided that Purchaser notifies CAC within ten (10)
business days of the date any such claim becomes known to Purchaser, that CAC
shall have sole control of the defense or settlement of such actions, and that
Purchaser provides such assistance and cooperation to CAC as is reasonably
requested.

In the event Purchaser is enjoined from its use of CAC Licensed Program due to
proceeding based upon any infringement of any patent, copyright or trade secret,
CAC shall either:

i) promptly render the Licensed Program non-infringing and capable of
providing services as intended; or

ii) procure for Purchaser the right to continue using the Licensed
Program; or

iii) replace the Licensed Program with a non-infringing version; or

iv) remove the Licensed Program and refund the purchase price, less a
monthly usage fee equal to one sixtieth of the license for each month
that Purchaser has had use of the Licensed Program.

The foregoing constitutes the entire liability of CAC to Purchaser with respect
to infringement of patents, copyrights, and trade secrets for Products purchased
pursuant to this Agreement and CAC hereby disclaims any implied warranty of non-
infringement.

MISCELLANEOUS

Notwithstanding anything else in this Appendix, CAC shall not, in any way
whatsoever, be held liable or responsible for any failure by it to meet its
obligations or responsibilities under this Appendix where such failure results
from causes beyond CAC's reasonable control.

This Appendix constitutes the entire understanding between CAC and Purchaser
with respect to the licensing of the Licensed Programs to Purchaser by CAC and
supersedes all prior oral and written communications with respect to the
Licensed Programs licensed under this Appendix. This Appendix may be amended or
modified only by means of a written Agreement signed by both CAC and Purchaser.

If any provision of this Appendix shall be held to be invalid, illegal or
unenforceable, such provision shall be severed therefrom and the validity,
legality or enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.

Purchaser shall comply with all export regulations pertaining to the Licensed
Program in effect from time to time. In particular, without limiting the
generality of the foregoing, Purchaser hereby warrants that it will not directly
or indirectly export, re-export or transship the Licensed Program or such other
information, media or products in violation of or otherwise in contravention of
the export laws, rules and regulations of the United States.

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<PAGE>

APPENDIX E - TERRITORY

Distributor will have the non-exclusive rights to market the Product within the
fifty (50) U.S. states, Canada, unless otherwise authorized in writing and
subject to the terms and conditions set forth in this Agreement.

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<PAGE>

APPENDIX F - NEW PRODUCTS

THIS PAGE LEFT INTENTIONALLY BLANK

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<PAGE>

APPENDIX G - COOPERATIVE MARKET DEVELOPMENT

REQUIREMENTS FOR CLAIM SUBMITTAL

NEWSPAPER
. Tear sheet of the full page on which the ad appeared.
. Photostatic copies are not acceptable
. Copy of the paid invoice.

DIRECT MAIL
. Copy of mailer and mailing list
. Metered mail invoice from mail service substantiating quantity mailed.
Postage for mailing "invoice stuffers" is not reimbursable.
. Actual mailer invoices
. Other paid invoices

MAGAZINE OR TRADE JOURNAL
. Tear sheet of full page of ad (photostatic copies not acceptable).
. Ad tear sheet must show date of publication or an affidavit of insertion is
required from publisher.
. Paid Invoices

TRADE SHOW - PRE-APPROVED PROPOSAL ACCEPTED BY VP OF SALES IN WRITING
. Photograph of display
. Paid invoice for show space rental
. Labor costs, receptions, hospitality, food, lodging and entertainment are not
reimbursable.

CAC LITERATURE AND MARKETING AIDS
. Paid Carrier Access Invoice

SEMINARS
. Printed materials regarding CAC products
. Paid invoice for materials.

HOW TO RECEIVE YOUR CO-OP FUNDS
. Submit completed Co-op Cooperative Market Development Refund Request Form
with all paid invoices and proof of performance, i.e. tear sheets,
photographs, etc.
. Upon verification of the claim, your Carrier Access account will be credited
for 50% of the costs and your co-op fund will be debited for the same up to
the limit of the accrued funds.
. Claims that are correctly submitted with all necessary supporting data, and
for which sufficient funds are available will be processed within 30 days.
. Proof of credit will be forwarded within 30 days of claim processing
. Claims which exceed funds available will be held for 60 days or until
sufficient funds accrue, whichever comes first.

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<PAGE>

Items that are not covered include but are not limited to:
. Shipping and freight charges
. Office supply items such as envelopes, company letterhead or forms using the
Carrier Access logos or product trademarks, etc.
. State, City or use taxes
. Giveaway items
. Sponsorship donations
. Political and/or religious publications
. Association Dues
. Hotel accommodations for shows or meetings
. Travel expenses
. Incentive travel programs
. Labor charges for exhibits and displays
. Food items

No freight charges, service charges or other miscellaneous charges will be used
in calculating cooperative market development funds.. Any returned product will
have its corresponding cooperative market development funds deducted from the
accrual account.

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<PAGE>

[LOGO OF CARRIER ACCESS CORPORATION]

DISTRIBUTOR COOPERATIVE MARKET DEVELOPMENT REGISTRATION FORM
------------------------------------------------------------

Company Name:__________________________________________________________

Contact Name:__________________________________________________________

Addresss:______________________________________________________________

City:___________________________ State:_______________ Zip:____________

Phone #:_____________________________Fax #:____________________________

I have read and understand the Distributor Cooperative Market Development
------------------------------
Policies and Procedures

Customer Signature:____________________________________________________

Date:__________________________________________________________________

Submit to:
Carrier Access Corporation
Attn: Marketing
5395 Pearl Parkway
Boulder, CO 80301

This form must be completed and returned by all new distributors in order to
initiate the accrual of Cooperative Market Development funds.
------------------------------

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<PAGE>

[LOGO OF CARRIER ACCESS CORPORATION APPEARS HERE]

COOPERATIVE MARKET DEVELOPMENT REFUND REQUEST
---------------------------------------------

Use this form for all claims for cooperative market development reimbursement

Company Name:__________________________________________________________

Contact Name:__________________________________________________________

Addresss:______________________________________________________________

City:___________________________ State:_______________ Zip:____________

Phone #:_____________________________Fax #:____________________________

The following is a recap of our cooperative market development expenditures for
which we request reimbursement under the terms of the CAC cooperative market
development Program.

Please list one item per line.

<TABLE>
<CAPTION>
____________________________________________________________________
NAME OF PUBLICATION, JOURNAL, REFUND
TRADE SHOW, OR MEDIA USED DATE TOTAL COST EXPECTED
____________________________________________________________________
<S> <C> <C> <C>
____________________________________________________________________

____________________________________________________________________

____________________________________________________________________
TOTAL
____________________________________________________________________
</TABLE>

Attached are supporting materials as required in the cooperative market
development procedures section showing that we have met the requirements to be
reimbursed. We understand this material is subject to review and approval by
CAC Marketing..

____________________________________________________________________
Customer Signature Date

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<PAGE>

Submit to: Carrier Access Corporation
Attn: CAC Marketing
5395 Pearl Parkway
Boulder, CO 80301

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<PAGE>

[LOGO OF CARRIER ACCESS CORPORATION APPEARS HERE]

COOPERATIVE MARKET DEVELOPMENT SPECIAL REQUEST
----------------------------------------------

Use this form for all special requests for cooperative market development
approval, including trade shows, distributor made ads, etc. at least 30 days
prior to the event/project date.

Company Name:__________________________________________________________

Requested by:__________________________________________________________

Addresss:______________________________________________________________

City:___________________________ State:_______________ Zip:____________

Phone #:_____________________________Fax #:____________________________

Event/Project:_________________________________________________________

Date of Event/Project:_________________________________________________

Estimated Cost:________________________________________________________

How much do you expect to use from your CAC cooperative market
development Account? __________________________________________________

Explanation:___________________________________________________________

_______________________________________________________________________

We understand this request is subject to review by CAC Marketing.

_______________________________________________________________________
Customer Signature Date

_______________________________________________________________________
CAC Marketing Approval Date

_______________________________________________________________________
CAC Co-op Advertising Department Approval Date

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<PAGE>

Submit to:
Carrier Access Corporation
Attn: CAC Marketing
5395 Pearl Parkway
Boulder, CO 80301

<PAGE>

EXHIBIT 10.2

Sample - Non-Executable

[LOGO OF CARRIER ACCESS(TM)
CORPORATION APPEARS HERE)

OEM AGREEMENT
<PAGE>

Sample - Non-Executable

TABLE OF CONTENTS

DEFINITIONS................................................................ 3
ARTICLE 1 - AUTHORIZATION................................................. 4
ARTICLE 2 - TERM.......................................................... 4
ARTICLE 3 - TERMINATION AND ASSIGNMENT.................................... 5
ARTICLE 4 - RESPONSIBILITIES OF CAC....................................... 5
ARTICLE 5 - RESPONSIBILITIES OF OEM....................................... 6
ARTICLE 6 - MINIMUM ORDER SIZE............................................ 7
ARTICLE 7 - QUOTAS AND DISCOUNTS.......................................... 7
ARTICLE 8 - ACCEPTANCE OF ORDERS.......................................... 8
ARTICLE 9 - ORDER CANCELLATION............................................ 8
ARTICLE 10 - PRODUCT IDENTIFICATION........................................ 8
ARTICLE 11 - PACKAGING..................................................... 8
ARTICLE 12 - INSPECTIONS AND RECORDS....................................... 9
ARTICLE 13 - SHIPPING AND DELIVERY......................................... 9
ARTICLE 14 - PRICE......................................................... 9
ARTICLE 15 - OEM RESALE PRICE.............................................. 10
ARTICLE 16 - PAYMENT....................................................... 10
ARTICLE 17 - RETURNS AND REJECTIONS........................................ 10
ARTICLE 18 - TERRITORY..................................................... 10
ARTICLE 19 - WARRANTY AND REMEDIES......................................... 10
ARTICLE 20 - WARRANTY PASS THROUGH......................................... 10
ARTICLE 21 - EXERCISE OF RIGHTS............................................ 11
ARTICLE 22 - NEW PRODUCTS.................................................. 11
ARTICLE 23 - DOCUMENTATION................................................. 11
ARTICLE 24 - TRADEMARKS.................................................... 11
ARTICLE 25 - NOTICES....................................................... 12
ARTICLE 26 - SURVIVAL OF OBLIGATIONS....................................... 12

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ARTICLE 27 - TAXES......................................................... 12
ARTICLE 28 - TECHNICAL DATA AND LICENSING.................................. 12
ARTICLE 29 - PATENT INFRINGEMENT - IDEMNIFICATION.......................... 13
ARTICLE 30 - LIMITATION OF LIABILITY....................................... 13
ARTICLE 31 - GENERAL PROVISIONS............................................ 14

APPENDIX

APPENDIX A - PRODUCTS...................................................... 16
APPENDIX B - LIST PRICE.................................................... 17
APPENDIX C - PRODUCT RETURNS............................................... 18
APPENDIX D - WARRANTIES AND LIMITATION OF REMEDIES......................... 20
APPENDIX E - SOFTWARE LICENSE AGREEMENT.................................... 22
APPENDIX F - TERRITORY..................................................... 25
APPENDIX G - NEW PRODUCTS.................................................. 26

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<PAGE>

Sample - Non-Executable

Confidential Information DATE:____________

CAC Platinum Level
OEM Agreement

THIS Agreement, Number CAC/ ________ by and between Carrier Access Corporation,
a Colorado Corporation, having its principle business at 5395 Pearl Parkway,
Boulder, Colorado, 80301 (hereinafter called "CAC"), and _____________________
_________________, with headquarters at,______________________________________,
(hereinafter called "OEM") sets forth the terms and conditions for the sale of
Products by CAC and the purchase of same by OEM.

DEFINITIONS

The term "Agreement" means all of the terms and conditions of this OEM
Agreement.

The term "Net Purchases" means the total invoiced Products shipped to OEM, less
any issued credits

The term " New Products" means all equipment, firmware and software supplied by
CAC listed in Appendix G.

The term "Product" means all equipment, firmware and software supplied by CAC
listed in Appendix A.

The term "Unit" means a single working system of the Product designated in
Appendix A.

RECITALS
--------

Whereas, CAC develops, manufactures and distributes certain telecommunications
Products, including the Products set forth on Appendix A and, when applicable,
on Appendix G hereto, and,

CAC and OEM desire that OEM act as a non-exclusive OEM for the Products under
the terms and conditions set forth below,

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<PAGE>

Sample - Non-Executable

Now, therefore CAC and OEM agree as follows:

ARTICLE 1 - AUTHORIZATION

Appointment

Subject to the terms of this Agreement, CAC appoints OEM, and OEM accepts such
appointment, as a non-exclusive OEM for the Products, and when applicable for
New Products, in and limited to the territory set forth in Appendix F -
Territory.

Format

OEM may use or resell the Products as either stand-alone Products, or in
combination with other products of OEM's choice to meet OEM's customer
requirements. CAC makes no representation that the Products will be appropriate
for combination with any other product(s).

Nature of Agreement

To the extent that any Product contains or consists of software, OEM's
appointment only grants to OEM a license to distribute such software Product,
and does not transfer any right, title or interest to any such software Product
to OEM or OEM's customers. CAC will transfer title to Products to OEM only to
the extent that such Products consist of non-software items on the terms
specified herein. To the extent that such Products contain software, such
software (including firmware) will be licensed to OEM and its customers on a
right to use basis with all copyright, priority, or intellectual rights
remaining the property of CAC. Use of the terms "sell", "license", "purchase",
"license fees" and "price" will be interpreted in accordance with this Article.
CAC's Software License Agreement is attached herein as Appendix E.

Other Distribution Channels

CAC reserves the right to sell its Products directly, through other OEMs, and
through other third party intermediaries, including without limitation to
Distributors, Dealers and Value Added Partners who will normally add value to
the Product in the form of features, services, and/or brand recognition, and who
will sell the resulting derivitive product through their own channels of
distribution.

Independent Contractor

The relationship established by this Agreement is that of an independent
contractor. OEM has no expressed or implied authorization to incur any
obligation or commitment on behalf of CAC, unless specifically approved in
writing by an authorized CAC officer. OEM shall employ its own personnel and
shall be responsible for them and their acts. CAC shall in no way be liable for
OEM, its employees, or third parties, for any losses, injuries, damages, or the
like occasioned by OEM's activities in connection with this Agreement, except as
expressly provided for herein.

ARTICLE 2 - TERM

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<PAGE>

Sample - Non-Executable

THIS Agreement will commence on __________________ and continue for a twelve
(12) month period (hereinafter called "Term") through _________________ unless
terminated in accordance with the conditions of this Agreement. It may be
renewed for one additional 12 month period unless terminated by either party in
accordance with the conditions of this agreement.

ARTICLE 3 - TERMINATION AND ASSIGNMENT

Either party may terminate this agreement:

i. With or without cause upon ninety (90) days prior written notice to the
other party.

ii. Immediately if the other party:

(A) assigns this Agreement or any of its rights hereunder without the
prior written consent of the other party ("assigns" to include,
without limiting the generality thereof, a sale or transfer of a
majority ownership interest);

(B) makes an assignment for the benefit of creditors, or a receiver,
trustee in bankruptcy or similar officer is appointed to take charge
of all or part of its property;

(A) fails to perform any material obligations under this Agreement and
such failure is not remedied within ten (10) days after written notice
thereof has been given to the other party;

(B) any termination of this Agreement pursuant to this Article will be in
addition to and will not be exclusive of or prejudicial to any other
rights or remedies at law or in equity available to the other party.

iii. Upon termination, other than for cause or pursuant to (ii.) above, CAC
will continue to provide spare parts for one (1) year so that OEM can
properly support its existing customer base. Spares will be provided at
the then current CAC OEM pricing and terms and conditions of sale for such
spares.

ARTICLE 4 - RESPONSIBILITIES OF CAC

CAC agrees to:

Offer Sales Training

To provide sales training on CAC Products and applications at OEM's expense for
OEM's sales personnel at CAC's corporate headquarters or OEM's locations as
agreed upon.

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<PAGE>

Sample - Non-Executable

Offer Technical Training

To provide at no charge, one (1) one technical training class annually at a OEM
location to enable OEM's sales and technical support personnel to properly
represent and offer technical support to their customers.

Provide Technical Support

I. Provide a technical support telephone number to OEM's personnel for Product
installation, trouble shooting, and Product applications advice. After
normal business hours (8:00 AM - 5:30 PM-Mountain Standard/Daylight Time,
Monday through Friday) this telephone number will provide the option of
paging an appropriate CAC customer service representative for emergency
situations.

II. Provide technical updates and product bulletins via facsimile and CAC's
Internet web page.

Provide Marketing Support

Provide OEM with timely reports detailing marketing or technical information on
products, competitive comparisons, special sales suggestions, competitive
announcements, pre-announcement product releases, and to respond promptly to all
inquiries and requests for sales assistance by OEM.

ARTICLE 5 - RESPONSIBILITIES OF OEM

OEM Agrees to:

Comply with Law

OEM will comply with all applicable international, national, state, regional and
local laws and regulations in connection with its activities under of this
Agreement.

Comply with U.S. Export Laws

OEM acknowledges that the Products, including related documentation and other
technical data (collectively, "Technical Data"), are subject to export controls
--------------
imposed by the U.S. Export Administration Act of 1979, as amended (the "Act"),
---
and the regulations promulgated thereunder ("BXA Regulations"). OEM will not
---------------
export or re-export (directly or indirectly) the Technical Data without
complying with the Act and the BXA Regulations. OEM certifies that: (a)
neither the Technical Data nor its direct Product is intended to be used for any
purposes prohibited by the BXA regulations, including, but not limited to,
nuclear proliferation; and (b) unless OEM first obtains written permission to do
so from the appropriate U.S. governmental agencies, no Technical Data will be
exported to any

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<PAGE>

Sample - Non-Executable

country to which the U.S. has prohibited shipment.

Perform No Engineering Modifications

OEM shall not reverse assemble, reverse compile or reverse engineer the Product
hardware or software supplied by CAC in any way.

Provide Contact Personnel

OEM shall appoint an individual to be the primary CAC support contact for its
customers. Furthermore, OEM will agree that this individual attends at least
one CAC training session annually.

Provide Sales and Service Coverage

Provide trained/authorized sales and technical service coverage to OEM's
customers for CAC Products. Such coverage includes but not limited to responding
to initial technical support inquiries, following up on sales leads, and
performing all activities required to execute a sale.

Meet Purchase Commitments

To meet or exceed purchase commitments as set forth Article 7 - Quotas and
Discounts and any minimum annual purchase quotas for New Products which may be
agreed upon by both CAC and OEM.

Provide Forecasts

Special Services and Materials

To pay CAC agreed upon and reasonable charges for special support services
and/or materials which are provided at OEM's request, which are not normally
covered in accordance with the warranty or CAC practices.

Provide Warranty Registration and Service

To properly register the warranty for each and every Unit including Unit's
serial number and to maintain a log of service activity on all CAC Products, so
that CAC can properly track, investigate and resolve Product service issues.

Receive Technician Training

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<PAGE>

Sample - Non-Executable

To have at a minimum of two technicians who have completed CAC technical
training.

Stock Spare Parts

To maintain a minimum supply of spare parts to provide immediate service to
OEM's customers.

ARTICLE 6 - MINIMUM ORDER SIZE

The minimum order lot size per OEM order is one (1) Units within a product
group.

ARTICLE 7 - QUOTAS AND DISCOUNTS

To be determined.

ARTICLE 8 - ACCEPTANCE OF ORDERS

OEM shall purchase Products by issuing a written purchase order indicating
specific Products, quantity, price, total purchase price, shipping instructions,
requested delivery dates, and any other special instructions. OEM must place
orders in writing and submit them via mail, express delivery and/or by
facsimile.

All purchase orders issued under this agreement shall reference OEM's contract
number assigned to this agreement. The terms and conditions of this agreement
prevail regardless of any conflicting terms on the purchase order or other
documents of either CAC or OEM.

All orders are subject to written acceptance or rejection by CAC, in its sole
discretion, which CAC shall do within five working days, otherwise orders shall
be deemed accepted.

CAC shall fulfill all orders with new and latest revision of Product, unless
otherwise agreed.

OEM will submit all purchase orders to:

Carrier Access Corporation
Attn.: Customer Service
5395 Pearl Parkway
Boulder, CO 80301
Telephone: 800-495-5455 or 303-442-5455
Facsimile: 303-443-5908 (Facsimile orders are acceptable.)

CAC may reject a OEM's order by reason of (but not limited to) current
availability of Product.

ARTICLE 9 - ORDER CANCELLATION

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<PAGE>

Sample - Non-Executable

Orders canceled or rescheduled by OEM within fifteen (15) days of scheduled
shipment date are subject to a fifteen (15) % re-stocking fee. Orders cannot be
canceled or rescheduled less than fifteen (15) days prior to shipment.

ARTICLE 10 - PRODUCT IDENTIFICATION

All Products supplied to OEM pursuant to this agreement shall be marked, as
applicable and in accordance with standard practices of CAC, as appropriate,
with: (1) OEM's name and/or logo; (2) model number or part number; (3) serial
number; (4) shipping date; (5) copyright notice; (6) country of origin; and (7)
such other markings as may be required for warranty period identification or by
applicable law.

ARTICLE 11 - PACKAGING

Products will be packed or packaged for U.S. shipment in accordance with
standard commercial practices. OEM and CAC will agree to a price for packaging
if OEM requests packaging outside of standard commercial practices.

ARTICLE 12 - INSPECTIONS AND RECORDS

Notification

OEM will: (i) notify CAC in writing of any claim or proceeding involving the
Products within ten (10) working days after OEM learns of such claim or
proceeding; (ii) report promptly to CAC all claimed or suspected Product
defects.

Records

OEM will maintain, for at least one (1) year after termination of this
Agreement, its records, contracts, and accounts relating to distribution of the
Products, and will permit examination thereof by authorized CAC representatives
with reasonable notice to OEM.

ARTICLE 13 - SHIPPING AND DELIVERY

Shipping dates will be established by CAC upon receipt of purchase orders from
OEM. Shipping dates will be assigned as close as practical to OEM's requested
date. CAC will use best efforts to notify OEM of the actual scheduled shipping
date within five (5) working days after receipt of order (ARO).

OEM has the right to defer Product shipment for no more than thirty (30) days
from the scheduled shipping

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<PAGE>

Sample - Non-Executable

date, provided written notice is received by CAC at least fifteen (15) days
before originally scheduled shipping date. Deferrals for greater than thirty
(30) days will be deemed canceled. Deferrals or cancellations within thirty (30)
days are subject to charges and terms outlined in Article 9 - Order
Cancellation.

OEM shall be responsible for all freight handling and insurance charges. CAC
shall select the carrier, acquire in-transit insurance and invoice OEM for
freight handling and insurance charges, unless specifically declined in writing
by OEM. In no event shall CAC have any liability in connection with shipment,
nor shall the carrier be deemed to be an agent of CAC.

Title, risk of loss, and insurance responsibilities pass to OEM upon delivery of
Products by CAC to the shipping agent or carrier at the FOB point. Delivery
shall be deemed made upon transfer of possession to the carrier. All orders are
shipped FOB Boulder, Colorado. Orders less than minimum order size and for
expedited delivery are subject to a fifteen (15%) surcharge.

ARTICLE 14 - PRICE

To be determined.

ARTICLE 15 - OEM RESALE PRICE

Although CAC may publish suggested wholesale or retail prices, these are
suggestions only and OEM will be entirely free to determine the actual prices
and license fees at which the Products will be sold or licensed to its
customers.

ARTICLE 16 - PAYMENT

Subject to prior credit approval, the terms of payment are 30 days from date of
invoice. Where credit approval has not been granted or OEM is at their credit
limit as determined by CAC, the terms are wire transfer of funds prior to
shipment. Invoices for Products will be rendered as shipments are made. Late
charges of 1.5% (or the maximum amount permitted by law if less), per month, on
outstanding balances will be charged.

ARTICLE 17 - RETURNS AND REJECTIONS

Returns and rejections are covered in Appendix C - Product Returns.

ARTICLE 18 - TERRITORY

This Agreement and appointment only applies to the territories listed in
Appendix F - Territory

ARTICLE 19 - WARRANTY AND REMEDIES

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<PAGE>

Sample - Non-Executable

Limited Warranty

CAC MAKES NO WARRANTIES OR REPRESENTATIONS AS TO PERFORMANCE OF PRODUCTS OR AS
TO SERVICE TO OEM OR TO ANY OTHER PERSON, EXCEPT AS SET FORTH IN CAC's LIMITED
WARRANTY ATTACHED HERETO AS APPENDIX D. CAC RESERVES THE RIGHT TO CHANGE THE
WARRANTY AND SERVICE POLICY SET FORTH IN SUCH LIMITED WARRANTY, OR OTHERWISE, AT
ANY TIME, WITH NINETY (90) DAYS WRITTEN NOTICE AS IT APPLIES TO EQUIPMENT
PURCHASES AFTER THE 90 DAY PERIOD, AND WITHOUT LIABILITY TO OEM OR TO ANY OTHER
PERSON. SUCH CHANGES WILL NOT APPLY TO ANY PRODUCT SHIPPED PRIOR TO THE END OF
THE NINETY (90) DAY NOTICE PERIOD.

OEM's Warranty

OEM will make no warranty, guarantee or representation on CAC's behalf. In the
event that OEM makes unauthorized representations or guarantees beyond those
contained in Appendix D - Warranties and Limitation of Remedies, OEM shall hold
harmless and indemnify CAC for any expenses, claims, damages or liability of any
nature whatsoever arising from or related to such unauthorized representations
or guarantees, including without limitation, reasonable attorney's fees.

ARTICLE 20 - WARRANTY PASS THROUGH

Upon the resale of Products purchased hereunder, OEM is required to pass through
to its customer(s) a document with terms and conditions equivalent to Appendix D
- - Warranties and Limitation of Remedies. This pass through applies to those
Products purchased from CAC and resold by OEM without alteration, modification,
assembly with other manufacturer's equipment or re-labeling by OEM.

ARTICLE 21 - EXERCISE OF RIGHTS

ARTICLE 22 - NEW PRODUCTS

During the term of this agreement CAC may introduce New Products that OEM wishes
to include in this agreement. New Products may have minimum purchase
commitments and special discounts associated with them that CAC and OEM will
mutually agree to. CAC will have no obligation to offer New Products to OEM or
to offer any particular terms and conditions concerning such New Products. Any
New Products added to this Agreement and their commitments and discounts may be
added to Appendix G - New Products when appropriate.

ARTICLE 23 - DOCUMENTATION

Standard Documentation

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CAC shall provide a soft copy (disc) of Product manual(s) when available.
Production of these manuals will be the responsibility of OEM. CAC will provide
updates to these manuals as they become available.

Documentation Reproduction and Modification

With CAC prior approval, OEM shall have the right to reproduce in whole or in
part, the documentation relating to Product, for use in conjunction with
Products and training and any updates, modifications and revisions thereto. CAC
is not responsible for errors and omissions in OEM manuals.

ARTICLE 24 -TRADEMARKS

Right To Use

Use of OEM's Trademarks.

The Products provided to OEM pursuant to this Agreement will be distributed and
marketed by OEM under OEM's own trademarks and trade names, except as stipulated
in Article 10 Product Identification. OEM's trademarks, trade names, insignia,
symbols, and/or decorative designs and part numbers may, at OEM's request, be
affixed or applied by CAC to the Equipment purchased by OEM hereunder. OEM
shall provide such items as are to be affixed (or the artwork necessary to
create the images to be applied) and shall reimburse CAC for its actual
incremental expenses for materials consumed in such process.

OEM will include on each CAC Product that it distributes, and on all containers
and storage media therefor, all trademark, copyright and other notices of
proprietary rights included by CAC on such CAC Product. OEM agrees not to
alter, erase, deface or overprint any such notice on anything provided by CAC.
OEM also will include the appropriate trademark notices when referring to any
CAC Product in advertising and promotional materials.

ARTICLE 25 - NOTICES

For CAC: Carrier Access Corporation
Attention: Contracts
5395 Pearl Parkway
Boulder, CO 80301

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For OEM: ____________________
Attention: ____________________
____________________
____________________

The above addresses may be changed at any time by giving prior written notice as
provided herein.

ARTICLE 26 - SURVIVAL OF OBLIGATIONS

Each party's obligations under this Agreement which by their nature would
continue beyond termination, cancellation or expiration of this Agreement,
including by way of illustration only and not limitation, those in the Warranty
& Limitation of Remedies, and technical data will survive the termination or
cancellation of this agreement for a period of two years from such termination
or cancellation. Articles 3, 16, 17, 20, 23, 26, 27, 28, 30, 34, and 35 shall
survive the cancellation or termination of this Agreement for any reason.

ARTICLE 27 - TAXES

In addition to the purchase price, OEM will pay CAC the amount of all taxes,
excises, export duties, or governmental charges that CAC may be required to pay
with respect to the sale or transportation of any Products delivered hereunder,
except taxes on or measured by CAC's net income. If OEM claims exemption from
any taxes by purchase of Products under this Agreement, OEM will provide CAC
with documentation required by the taxing authority to support the exemption.

ARTICLE 28 - TECHNICAL DATA AND LICENSING

OEM agrees that CAC software and firmware Products, or any software or firmware
in CAC Products is hereby licensed (not sold) subject to the terms set forth in
this Article and contains information and trade secrets proprietary to or
licensed to CAC. No change, modification, defacement, alteration, reverse
engineering, disassembly, de-compilation or reproduction of such Product or
disclosure of programming content to other parties is allowed without the
express written consent of CAC. Software and firmware are unpublished, and any
copyright notices placed thereon will not be deemed to constitute publication.
OEM agrees to pass on all terms of CAC's software and firmware licenses to the
ultimate user. See Appendix E - Software License Agreement.

ARTICLE 29 - PATENT INFRINGEMENT - IDEMNIFICATION

Each Party (the "Indemnitor") hereby indemnifies and holds the other Party (the
"indemnitee"), its directors, officers, agents and employees harmless against
any and all claims, actions and damages,

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liabilities or expenses including attorneys fees and other legal costs for
injury to or death to any person, and for loss of or damage to any and all
property arising out of the negligent acts or omissions of the Indemnitor under
this Agreement.

CAC will defend, at its own expense, any action brought against OEM to the
extent that it is based on a claim that any CAC supplied designs, material,
processes, or documentation hereunder constitutes a direct infringement of any
duly issued United States patent or infringement of any copyright, in the United
States. CAC will pay all damages and costs finally awarded against OEM in such
action which are attributable to such action, provided that CAC is promptly
informed in writing and furnished a copy of each communication, notice, or other
action relating to the alleged infringement and is given authority, information,
and assistance necessary to defend or settle such claim. Should equipment
likely to become the subject of a claim of infringement of any United States
patent or any copyright, trade secret, or other proprietary rights in the United
States, then CAC may, at its option: (i) procure for OEM the right to use such
equipment free of any liability for infringement; (ii) replace such equipment
with non-infringing substitutes otherwise complying substantially with all the
requirements of the contract; or (iii) refund the purchase price, less a charge
for equal to one sixtieth (1/60) of the purchase price of the Product for each
month that OEM enjoyed beneficial use, and accept the return of such equipment.

ARTICLE 30 - LIMITATION OF LIABILITY

CAC shall not be liable for delays in delivery or failure to manufacture or
deliver Product or to otherwise perform any obligation due to OEM under this
Agreement due to any cause beyond CAC's reasonable control, such as acts of
God, acts of civil or military authority, labor disputes, fire, riots, sabotage,
war, embargo, blockage, floods, earthquake, epidemics, power shortages, or when
due to government restrictions. The rights of OEM under this Agreement,
including the right to continue the Agreement shall not be affected by OEM's
failure to perform any obligation contained herein where such failure is due to
any cause beyond its control, such as acts of God, acts of civil or military
authority, labor disputes, fire, riots, sabotage, or when due to government
restrictions. Since OEM will have the exclusive control over the use and
disposition of the Product purchased under this agreement, OEM shall be
responsible for the proper use, protection, supervision, and ultimate
disposition of that Product in accordance with OEM's own rules and regulations.
OEM indemnifies and agrees to hold CAC harmless with respect to any cost,
damage, or expense (including reasonable attorney fees) arising from breach by
OEM of its obligations under this Agreement or from claims made by OEM's
customers concerning the selling, renting, leasing, operation, service, of the
Product or from damage, injury or loss to third parties caused by OEM's fault or
negligence.

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have been advised of the possibility of such potential loss or damage. The
liability of CAC arising out of the supplying of any Product or its use, whether
based upon warranty, contract, negligence or otherwise, shall not in any case
exceed the original cost to OEM of such Product.

ARTICLE 31 - GENERAL PROVISIONS

The laws of the State of Colorado, USA will apply and govern in the construction
and application of this Agreement and to all transactions hereunder. Any
action hereunder will be brought in the courts of the Twentieth Judicial
District, County of Boulder, State of Colorado, USA and will be governed by and
interpreted and constituted in accordance with the laws of the State of
Colorado. Any claim, except for nonpayment, will be brought within one year of
the Product shipment. OEM will be liable for all collection costs and attorney
fees. CAC may only subcontract any obligations contained in this Agreement with
prior written notice.

If any provision of this Agreement is deemed invalid, illegal or unenforceable,
the validity, legality and enforceability of the remaining provisions will not
be affected or impaired thereby.

No waiver will be valid unless in writing and no waiver granted will release OEM
or CAC from subsequent strict compliance herewith.

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IN WITNESS WHEREOF, the parties hereto executed this Agreement as of the data
written below.

CARRIER ACCESS CORPORATION OEM

__________________________ __________________________
SIGNATURE SIGNATURE

__________________________ __________________________
NAME (PRINT/TYPE) NAME (PRINT/TYPE)

__________________________ __________________________
TITLE TITLE

__________________________ __________________________
DATE DATE

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APPENDIX A - PRODUCTS

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APPENDIX B - LIST PRICE

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APPENDIX C - PRODUCT RETURNS

RETURN MATERIAL AUTHORIZATION

A Return Material Authorization (RMA) number and corresponding tracking sheet
must accompany all Products returned to CAC. An RMA number must be obtained from
CAC's technical product support department prior to returning any Product.
Warranty registration cards should be returned to CAC to help expedite RMA
process. Upon issuance of an RMA number, CAC's technical support group will fax
a product tracking sheet to OEM that must be completed and included with the
return shipment. It is OEM's responsibility to properly insure and pack all
returned materials. All Products must be returned freight pre-paid in the
original packaging materials with the RMA number clearly displayed on the
outside of the box. If original shipping materials are not available, CAC will
ship replacement materials to OEM at a rate of $25.00/container plus freight
charges.

Any Product returned without a valid RMA number will be rejected and returned to
OEM freight collect. Product found damaged, improperly used, or modified so that
it does not meet specification will be returned to OEM freight collect.

When returning parts under this procedure OEM shall do the following with
respect to each shipment:

Prepare RMA parts lists and indicate:
- Part Number and serial number of returned part*
- Quantity of each item
- Description of failure or reason for return
- Completed CAC Tracking Sheet

Product must be identified and RMA number referenced on shipping materials. OEM
is responsible for insurance and shipping charges.

COLLECT ON DELIVERY (COD) SHIPMENTS CANNOT BE ACCEPTED

* An equipment description must accompany the shipment. "Channel Bank" will not
be accepted. The correct description would be: AB-I/FXS/FXS --Serial Number
________.

Returned units that are tested with no trouble found will be returned to OEM's
COD for no trouble found and return shipping charges. To save on no trouble
found charges, only return components that have been verified as failures. For
example, return a single FXS card that has been identified with a failed channel
9, rather than an entire Access Bank.

SHIPPING

CAC assumes no liability for damage, loss, or shortage incurred during shipment
of the Product to OEM.

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Products found to be defective as the result of shipment or mishandling will be
either returned to OEM or repaired on a time and materials fee basis. These
charges will also include a time/labor charge for testing the Product to insure
it conforms to specification.

Upon receipt of Product, OEM should inspect the shipment before accepting
delivery. Damage, breakage, or shortages should be noted on the carrier's
freight bill with supporting documentation for OEM's claim against the freight
carrier. Shortages or variances from a OEM's order should be forwarded to CAC
within fifteen (15) days of shipment. All shipments should be shipped freight
pre-paid and insured to cover any losses.

ADVANCE REPLACEMENT

OEM should maintain adequate stock to provide advance replacement units if it is
their policy to offer this service. CAC will not drop ship to OEM's customer.
In the event that a RMA is issued by CAC for an out of box failure, it will be
replaced immediately upon receipt of product and verification of defect at CAC.

SUMMARY OF SERVICE FEES

PRODUCTS UNDER WARRANTY

1. Warranty Repair (Parts & Time) $ 0
2. No Trouble Found Test Fee of List Price
Return Shipping Charges

PRODUCTS OUT OF WARRANTY

1. Time (Labor) /Hour
2. Materials Current Price of Replacement Part

REFURBISHMENT OF DEMO EQUIPMENT

1. Labor flat fee
2. Material CAC cost

SPARE PARTS

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APPENDIX D - WARRANTIES AND LIMITATION OF REMEDIES

Carrier Access Corporation warrants to OEM that Products are free from
substantial defect in material and workmanship under normal use given proper
installation and maintenance for period of five (5) years from the date of
shipment by CAC.

OEM will promptly notify CAC of any defect in the Product. CAC or its agent
will have the right to inspect the Product or workmanship on OEM's premises or
OEM's customer's premises. CAC has the option to: (a) repair, replace or
service at its factory or on the premises the Product or workmanship found to be
defective, or (b) credit BUYER for the PRODUCT in accordance with CAC's
depreciation policy. Refurbished material may be used to repair or replace the
Product. Products returned to CAC for repair, replacement, or service will be
shipped pre-paid by OEM.

LIMITATION OF WARRANTY & LIMITATION OF REMEDIES

Correction of defects by repair, replacement, or service will be at CAC's option
and constitute fulfillment of all obligations to OEM for breach of warranty.

CAC assumes no warranty liability with respect to defects in the Product caused
by:

i. modification, repair, installation, operation or maintenance of the Product
by anyone other than CAC or its agent, except as described in CAC's
documentation; or

ii. the negligent or other improper use of the Product; or

iii. handling or transportation after title of the Product passes to OEM.

Other manufacturer's equipment purchased by CAC and resold to OEM will be
limited to that manufacturer's warranty. CAC assumes no warranty liability for
other manufacturer's equipment furnished by OEM.

OEM understands and agrees as follows: the warranties in this agreement replace
all other warranties, expressed or implied, and all other obligations or
liabilities of CAC, including any warranties of merchantability and fitness for
a particular purpose. All other warranties are disclaimed and excluded bY CAC.

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whatsoever, with the exception of injuries or damages caused by the gross
negligence of CAC. This limitation applies to all services, software and
Products during and after the warranty period. In no event will CAC be liable
for any special, incidental or consequential damages or commercial losses even
if CAC has been advised thereof.

No agent, OEM, or representative is authorized to make any warranties on behalf
of CAC or to assume for CAC any other liability in connection with any of CAC's
Products, software or services.

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APPENDIX E - SOFTWARE LICENSE AGREEMENT

LICENSE

PROTECTION AND SECURITY OF LICENSED PROGRAMS

Purchaser shall refrain from and shall prevent others from decompiling or
applying any procedure to the Licensed Program, including reverse engineering or
any similar process, in order to derive and/or appropriate for use, the source
code or source listings for the Licensed Program.

TERM

This Agreement shall become effective for each Licensed Program upon delivery of
the Licensed Program to Purchaser.

LIMITED WARRANTIES

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CAC warrants that when the Licensed Program is delivered that it will function
substantially in accordance with the functional description set out in the
applicable portion of the version of the user manual supplied with the Licensed
Program when used in accordance with such user manual. This warranty will be
conclusively deemed to be satisfied unless Purchaser gives CAC notice within 90
days of the date CAC ships the original copy of such Licensed Program that the
warranty has not been met, in which case CAC shall have the opportunity to make
repeated efforts within a reasonable time to satisfy its obligations under this
warranty. If, after repeated efforts, Purchaser notifies CAC that this warranty
has not been met, CAC will take back the Licensed Program and refund to
Purchaser all amounts paid by Purchaser hereunder with respect to such Licensed
Program.

THE WARRANTY SET OUT ABOVE SHALL CONSTITUTE THE SOLE LIABILITY OF CAC AND THE
SOLE REMEDY OF PURCHASER FOR ANY FAILURE OF ANY PROGRAM TO FUNCTION AS
WARRANTED.

LIMITATION OF LIABILITY

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POSSIBILITY OF SUCH DAMAGES WHICH ARE IN ANY WAY RELATED TO THIS AGREEMENT OR
THE LICENSED PROGRAM.

PATENT, COPYRIGHT, TRADE NAME AND TRADE SECRET INFRINGEMENT

In the event Purchaser is enjoined from its use of CAC Licensed Program due to
proceeding based upon any infringement of any patent, copyright or trade secret,
CAC shall either:

i) promptly render the Licensed Program non-infringing and capable of
providing services as intended; or

ii) procure for Purchaser the right to continue using the Licensed
Program; or

iii) replace the Licensed Program with a non-infringing version; or

iv) remove the Licensed Program and refund the purchase price, less a
monthly usage fee equal to one sixtieth of the license for each month
that Purchaser has had use of the Licensed Program.

MISCELLANEOUS

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only by means of a written Agreement signed by both CAC and Purchaser.

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APPENDIX F - TERRITORY

OEM will have the non-exclusive rights to market the Product within the fifty
(50) U.S. states and Canada unless otherwise authorized in writing and subject
to the terms and conditions set forth in this Agreement.

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APPENDIX G - NEW PRODUCTS
THIS PAGE LEFT INTENTIONALLY BLANK

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Exhibit 10.3

[LOGO OF BANK ONE APPEARS HERE]

LOAN AGREEMENT

- -----------------------------------------------------------------------------
Principal Loan Date Maturity Loan No. Call
$5,000,000.00 07-02-1998 07-02-1999 078105
- -----------------------------------------------------------------------------
Collateral Account Officer Initials
328 1518454676 00410
- -----------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
- -----------------------------------------------------------------------------

Borrower: CARRIER ACCESS CORPORATION, A DELAWARE CORPORATION
5395 PEARL PARKWAY
BOULDER,CO 80301

Lender: Bank One, Colorado, NA
Corporate Lending - Boulder
1125 17th Street
Denver, Co 80217

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

THIS LOAN AGREEMENT between CARRIER ACCESS CORPORATION, A DELAWARE CORPORATION
("Borrower") and Bank One, Colorado, NA ("Lender") is made and executed as of
July 2, 1998. This Agreement governs all loans, credit facilities and/or other
financial accommodations described herein and, unless otherwise agreed to in
writing by Lender and Borrower, all other present and future loans, credit
facilities and other financial accommodations provided by Lender to Borrower.
All such loans, credit facilities and other financial accommodations, together
with all renewals, extensions and modifications thereof, are referred to in this
Agreement individually as the "Loan" and collectively as the "Loans." Borrower
understands and agrees that: (a) in granting, renewing, or extending any Loan,
Lender is relying upon Borrower's representations, warranties, and agreements,
as set forth in this Agreement; and (b) all such Loans shall be and shall remain
subject to the following terms and conditions of this agreement.

TERM. This Agreement shall be effective as of July 2, 1998, and shall continue
thereafter until all Loans and other obligations owing by Borrower to Lender
hereunder have been paid in full and Lender has no commitments or obligations to
make further Advances under the Loans to Borrower.

DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code as adopted in
the State of Colorado. All references to dollar amounts shall mean amounts in
lawful money of the United States of America.

Agreement. The word "Agreement" means this Loan Agreement, as may be
amended or modified from time to time, together with all exhibits and
schedules attached hereto from time to time.

Account. The word "Account" means a trade account receivable of Borrower
for goods sold or leased or for services rendered by Borrower in the
ordinary course of its business.

Account Debtor. The words "Account Debtor" mean the person or entity
obligated upon an Account.

Advance. The word "Advance" means any advance or other disbursement of Loan
proceeds under this Agreement.

Borrower. The word "Borrower" means CARRIER ACCESS CORPORATION, A DELAWARE
CORPORATION.

Borrowing Base. The words "Borrowing Base" mean The Borrowing Base will be,
as determined by Lender from time to time, the lesser of (a) $5,000,000.00;
or (b) the sum of (i) 75.00% of the aggregate amount of Eligible Accounts,
plus (ii) 50.00% of the aggregate amount of Eligible Inventory backed by
eligible purchase orders not exceeding $500,000.00 or the Accounts
Receivable Borrowing Base, whichever is less.

Collateral. The word "Collateral" means and includes without limitation all
property and assets granted as collateral for any Loan, whether real or
personal property, whether granted directly or indirectly, whether granted
now or in the future, and whether granted in the form of a security
interest, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien, charge, lien or title retention contract, lease or
consignment intended as a security device, or any other security or lien
interest whatsoever, whether created by law, contract, or otherwise.

Committed Sum. The words "Committed Sum" mean an amount equal to
$5,000,000.00.

Eligible Accounts. The words "Eligible Accounts" mean, at any time, all of
Borrower's Accounts which contain terms and conditions acceptable to Lender
and in which Lender has a first lien security interest, less the amount of
all returns, discounts, credits, and offsets of any nature; provided,
however, unless otherwise agreed to by Lender in writing, Eligible Accounts
do not include;

(a) Accounts with respect to which the Account Debtor is an officer,
an employee or agent of Borrower and to which the Account Debtor is a
subsidiary of, or affiliated with or related to Borrower or its
shareholders, officers, or directors.

(b) All Accounts with respect to which Borrower has furnished a
payment and/or performance bond and that portion of any Accounts for
or representing retainage, if any, until all prerequisites to the
immediate payment of such retainage have been satisfied.

(c) Accounts with respect to which goods are placed on consignment or
subject to a guaranteed sale or other terms by reason of which the
payment by the Account Debtor may be conditional.

(d) Accounts with respect to which the Account Debtor is not a
resident of, or whose principal place of business is located outside
of, the United States or its territories, except to the extent such
Accounts are supported by insurance, bonds or other assurances
satisfactory to Lender in its sole and absolute discretion.

(e) Accounts with respect to which Borrower is or may become liable
to the Account Debtor for goods sold or services rendered by the
Account Debtor to Borrower.

(f) Accounts which are subject to dispute, counterclaim, of setoff.

(g) Accounts with respect to which all goods have not been shipped or
delivered, or all services have not been rendered, to the Account
Debtor.

(h) Accounts with respect to which Lender, in its sole discretion,
deems the creditworthiness or financial condition of the Account
Debtor to be unsatisfactory.

(i) Accounts of any Account Debtor who has filed or has had filed
against it a petition in bankruptcy or an application for relief
under any provision of any state or federal bankruptcy, insolvency,
or debtor-in-relief acts; or who has had appointed a trustee,
custodian, or receiver for the assets of such Account Debtor; or who
has made an assignment for the benefit of creditors or has become
insolvent or fails generally to pay its debts (including its
payrolls) as such debts become due.

(j) Accounts which have not been paid or are not due and payable in
full within 90 days from the original invoice date.

Eligible Inventory. The words "Eligible Inventory" mean, at any time, the
aggregate value of all of Borrower's Inventory as defined below except:

(a) Inventory which is not owned by Borrower free and clear of all
security interests, liens, encumbrances, and claims of third parties,
except Lender's security interest.

(b) Inventory which Lender, in its sole and absolute discretion,
deems to be obsolete, unsalable, damaged, defective, or unfit for
further processing.

(d) Inventory which is held by others on consignment, sale on
approval or otherwise not in Borrower's physical possession, except
upon the written consent of Lender.

(e) Inventory located outside the United States.

For purposes of this Agreement, Eligible Inventory shall be valued at the
lower of cost or market value.

ERISA. The word "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.

Grantor. The word "Grantor" means and includes each and all of the persons
or entities granting a Security Interest in any Collateral for any of the
Loans.

Guarantor. The word "Guarantor" means and includes without limitation, each
and all of the guarantors, sureties, and accommodation parties for any of
the Loans.

<PAGE>

07-02-1998 LOAN AGREEMENT Page 2
Loan No. (Continued)
================================================================================
thereon, owing by Borrower, or any one or more of them, to Lender of any
kind or character, now existing or hereafter arising, as well as all
present and future claims by Lender against Borrower, or any one or more of
them, and all renewals, extensions, modifications, substitutions and
rearrangements of any of the foregoing; whether such Indebtedness arises by
note, draft, acceptance, guaranty, endorsement, letter of credit,
assignment, overdraft, indemnity agreement or otherwise; whether such
Indebtedness is voluntary or involuntary, due or not due, direct or
indirect, absolute or contingent, liquidated or unliquidated; whether
Borrower may be liable individually or jointly with others; whether
Borrower may be liable primarily or secondarily or as debtor, maker,
comaker, drawer, endorser, guarantor, surety, accommodation party or
otherwise.

Inventory. The word "Inventory" means all raw materials and all tangible
personal property, goods, merchandise and other personal property now owned
or hereafter acquired by Borrower which is held for sale or lease in the
ordinary course of Borrower's business, excluding all work in progress,
spare parts, packaging materials, supplies and any advertising costs
capitalized into inventory.

Lender. The word "Lender" means Bank One, Colorado, NA, its successors and
assigns.

Line of Credit. The words "Line of Credit" mean the credit facility
described in the Section titled "LINE OF CREDIT" below.

Note. The word "Note" means any and all promissory note or notes which
evidence Borrower's Loans in favor of Lender, as well as any amendment,
modification, renewal or replacement thereof.

Permitted Liens. The words "Permitted Liens" mean: (a) liens and security
interests securing Indebtedness owed by Borrower to Lender; (b) liens for
taxes, assessments, or similar charges either (i) not yet due, or (ii)
being contested in good faith by appropriate proceedings and for which
Borrower has established adequate reserves; (c) purchase money liens or
purchase money security interests upon or in any property acquired or held
by Borrower in the ordinary course of business to secure any indebtedness
permitted under this Agreement; and (d) liens and security interests which,
as of the date of this Agreement, have been disclosed to and approved by
the Lender in writing.

Related Documents. The words "Related Documents" mean and include without
limitation the Note and all credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Note.

Security Agreement. The words "Security Agreement" mean and include without
limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security
Interest.

Security Interest. The words "Security Interest" mean and include without
limitation any type of security interest, whether in the form of a lien,
charge, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien or title retention contract, lease or consignment intended as
a security device, or any other security or lien interest whatsoever,
whether created by law, contract, or otherwise.

Line of Credit. Subject to the other terms and conditions herein, Lender hereby
establishes a Line of Credit for Borrower through which Lender agrees to make
advances to Borrower from time to time from the effective date of this Agreement
until the maturity date of the Note evidencing the Line of Credit, provided the
aggregate amount of such advances outstanding at any time does not exceed the
lesser of the amount equal to the Borrowing Base or an amount equal to the
Committed Sum. Within the foregoing limits, Borrower may borrow, partially or
wholly prepay, and reborrow under this Agreement.

Borrowing Base Compliance. If at any time the aggregate principal amount
outstanding under the Line of Credit shall exceed the applicable Borrowing
Base, Borrower shall pay to Lender an amount equal to the difference
between the outstanding principal balance under the Line of Credit and the
Borrowing Base.

Representations and Warranties Concerning Accounts. With respect to the
Accounts, Borrower represents and warrants to Lender: (a) Each Account
represented by Borrower to be an Eligible Account for purposes of this
Agreement conforms to the requirements of the definition of an Eligible
Account; and (b) All Account information listed on reports and schedules
delivered to Lender will be true and correct, subject to immaterial
variance.

Representations and Warranties Concerning Inventory. With respect to the
Inventory, Borrower represents and warrants to Lender: (a) All Inventory
represented by Borrower to be Eligible Inventory for purposes of this
Agreement conforms to the requirements of the definition of Eligible
Inventory; (b) All Inventory values listed on schedules delivered to Lender
will be true and correct, subject to immaterial variance; (c) The value of
the Inventory will be determined on a consistent accounting basis; (d)
Except as reflected in the Inventory schedules delivered to Lender, all
Eligible Inventory is now and at all times hereafter will be of good and
merchantable quality, free from defects; and (e) Lender, its assigns, or
agents shall have the right at any time and at Borrower's expense to
inspect and examine the Inventory and to check and test the same as to
quality, quantity, value, and condition.

Representations and Warranties. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each request for an Advance, as
of the date of any renewal, extension or modification of any Loan, and at all
times any Loans or Lender's commitment to make Loans hereunder is outstanding:

Organization. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of Delaware and
is duly qualified and in good standing in all other states in which
Borrower is doing business. Borrower has the full power and authority to
own its properties and to transact the businesses in which it is presently
engaged or presently proposes to engage.

Authorization. The execution, delivery, and performance of this Agreement
and all Related Documents to which Borrower is a party have been duly
authorized by all necessary action by Borrower; do not require the consent
or approval of any other person, regulatory authority or governmental body;
and do not conflict with, result in a violation of, or constitute a default
under (a) any provision of its certificate of incorporation, or bylaws, or
any agreement or other instrument binding upon Borrower or (b) any law,
governmental regulation, court decree, or order applicable to Borrower.
Borrower has all requisite power and authority to execute and deliver this
Agreement and all other Related Documents to which Borrower is a party.

Financial Information. Each financial statement of Borrower supplied to
Lender truly and completely discloses Borrower's financial condition as of
the date of the statement, and there has been no material adverse change in
Borrower's financial condition subsequent to the date of the most recent
financial statement supplied to Lender. Borrower has no material contingent
obligations except as disclosed in such financial statements.

Legal Effect. This Agreement and all other Related Documents to which
Borrower is a party constitute legal, valid and binding obligations of
Borrower enforceable against Borrower in accordance with their respective
terms, except as limited by bankruptcy, insolvency or similar laws of
general application relating to the enforcement of creditors' rights and
except to the extent specific remedies may generally be limited by
equitable principles.

Properties. Except for Permitted Liens, Borrower is the sole owner of, and
has good title to, all of Borrower's properties free and clear of all
Security Interests, and has not executed any security documents or
financing statements relating to such properties. All of Borrower's
properties are titled in Borrower's legal name, and Borrower has not used,
or filed a financing statement under, any other name for at least the last
six (6) years.

Compliance. Except as disclosed in writing to Lender (a) Borrower is
conducting Borrower's businesses in material compliance with all applicable
federal, state and local laws, statutes, ordinances, rules, regulations,
orders, determinations and court decisions, including without limitation,
those pertaining to health or environmental matters, and (b) Borrower
otherwise does not have any known material contingent liability in
connection with the release into the environment, disposal or the improper
storage of any toxic or hazardous substance or solid waste.

Litigation and Claims. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which
may in any one case or in the aggregate materially adversely affect
Borrower's financial condition or properties, other than litigation,
claims, or other events, if any, that have been disclosed to and
acknowledged by Lender in writing.

Taxes. All tax returns and reports of Borrower that are or were required to
be filed, have been filed, and all taxes, assessments and other
governmental charges have been paid in full, except those that have been
disclosed in writing to Lender which are presently being or to be contested
by Borrower in good faith in the ordinary course of business and for which
adequate reserves have been provided.

Lien Priority. Unless otherwise previously disclosed to and approved by
Lender in writing, Borrower has not entered into any Security Agreements,
granted a Security Interest or permitted the filing or attachment of any
Security Interests on or affecting any of the Collateral, except in favor
of Lender.

Licenses, Trademarks and Patents. Borrower possesses and will continue to
possess all permits, licenses, trademarks, patents and rights thereto which
are needed to conduct Borrower's business and Borrower's business does not
conflict with or violate any valid rights of others with respect to the
foregoing.

Commercial Purposes. Borrower intends to use the Loan proceeds soley for
business or commercial related purposes approved by Lender.
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07-02-1998 LOAN AGREEMENT Page 3
Loan No (Continued)

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

and such proceeds will not be used for the purchasing or carrying of "margin
stock" as defined in Regulation U issued by the Board of Governors of the
Federal Reserve System.

Employee Benefit Plans. Each employee benefit plan as to which Borrower may have
any liability complies in all material respects with all applicable requirements
of law and regulations, and (i) no Reportable Event nor Prohibited Transaction
(as defined in ERISA) has occurred with respect to any such plan, (ii) Borrower
has not withdrawn from any such plan or initiated steps to do so, (iii) no steps
have been taken to terminate any such plan, and (iv) there are no unfunded
liabilities other than those previously disclosed to Lender in writing.

Location of Borrower's Offices and Records. Borrower's place of business, or
Borrower's chief executive office if Borrower has more than one place of
business, is located at 5395 PEARL PARKWAY, BOULDER, CO 80301. Unless Borrower
has designated otherwise in writing this location is also the office or offices
where Borrower keeps its records concerning the Collateral.

Information. All information heretofore or contemporaneously herewith furnished
by Borrower to Lender for the purposes of or in connection with this Agreement
or any transaction contemplated hereby is, and all information hereafter
furnished by or on behalf of Borrower to Lender will be, true and accurate in
every material respect on the date as of which such information is dated or
certified; and none of such information is or will be incomplete by omitting to
state any material fact necessary to make such information not misleading.

Survival of Representations and Warranties. Borrower understands and agrees that
Lender, without independent investigation, is relying upon the above
representations and warranties in extending the Loans to Borrower. Borrower
further agrees that the foregoing representations and warranties shall be
continuing in nature and shall remain in full force and effect during the term
of this Agreement.

Affirmative Covenants. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:

Depository Relationship. Establish and maintain its primary operating accounts
with Lender.

Litigation. Promptly inform Lender in writing of (a) all material adverse
changes in Borrower's financial condition, (b) all existing and all threatened
litigation, claims, investigations, administrative proceedings or similar
actions affecting Borrower or any Guarantor which could materially affect the
financial condition of Borrower or the financial condition of any Guarantor, and
(c) the creation, occurrence or assumption by Borrower of any actual or
contingent liabilities not permitted under this Agreement.

Financial Records. Maintain its books and records in accordance with generally
accepted accounting principles, applied on a consistent basis, and permit Lender
to examine, audit and make and take away copies or reproductions of Borrower's
books and records at all reasonable times. If Borrower now or at any time
hereafter maintains any records (including without limitation computer generated
records and computer software programs for the generation of such records) in
the possession of a third party, Borrower, upon request of Lender, shall notify
such party to permit Lender free access to such records at all reasonable times
and to provide Lender with copies of any records it may request, all at
Borrower's expense.

Financial Statements. Furnish Lender with, as soon as available, but in no event
later than one hundred twenty (120) days after the end of each fiscal year,
Borrower's balance sheet, income statement, and statement of changes in
financial position for the year ended, audited by a certified public accountant
satisfactory to Lender, and, as soon as available, but in no event later than
thirty five (35) days after the end of each fiscal quarter, Borrower's balance
sheet, income statement, and statement of changes in financial position for the
period ended, prepared and certified, subject to year-end review adjustments, as
correct to the best knowledge and belief by Borrower's chief financial officer
or other officer or person acceptable to Lender. All financial reports required
to be provided under this Agreement shall be prepared in accordance with
generally accepted accounting principles, applied on a consistent basis, and
certified by Borrower as being true and correct.

Additional Information. Furnish such additional information and statements,
lists of assets and liabilities, agings of receivables and payables, inventory
schedules, budgets, forecasts, tax returns, and other reports with respect to
Borrower's financial condition and business operations as Lender may request
from time to time.

Financial Covenants and Ratios. Comply at all times with the following covenants
and ratios:

Debt to Tangible Net Worth Ratio. Maintain, at all times, a ratio of total
liabilities to Tangible Net Worth of less than 1.25 TO 1.00.

Current Ratio. Maintain, at all times, a ratio of Liquid Assets plus
inventory, to current liabilities in excess of 1.50 TO 1.00.

For purposes of this Agreement and to the extent the following terms are
utilized in this Agreement, the term "Tangible Net Worth" shall mean borrower's
total assets excluding all intangible assets (including, without limitation,
goodwill, trademarks, patents, copyrights, organization expenses, and similar
intangible items) less total liabilities excluding Subordinated Debt. The term
"Subordinated Debt" shall mean all indebtedness owing by Borrower which has been
subordinated by written agreement to all indebtedness now or hereafter owing by
Borrower to Lender, such agreement to be in form and substance acceptable to
Lender. The term "Working Capital" shall mean Borrower's Liquid Assets plus
inventory, less current liabilities. The term "Liquid Assets" shall mean
borrower's unencumbered cash, marketable securities and accounts receivable net
of reserves. The term "Cash Flow" shall mean net income after taxes, and
exclusive of extraordinary items, plus depreciation and amortization. Except as
provided above, all computations made to determine compliance with the
requirements contained in this paragraph shall be made in accordance with
generally accepted accounting principles, applied on a consistent basis, and
certified by Borrower as being true and correct.

Insurance. Maintain fire and other risk insurance, public liability insurance,
and such other insurance as Lender may require with respect to Borrower's
properties and operations, in form, amounts, coverages and with insurance
companies reasonably acceptable to Lender. Borrower, upon request of Lender,
will deliver to Lender from time to time the policies or certificates of
insurance in form satisfactory to Lender, including stipulations that coverages
will not be cancelled or diminished without at least thirty (30) days' prior
written notice to Lender. In connection with all policies covering assets in
which Lender holds or is offered a Security Interest for the Loans, Borrower
will provide Lender with such loss payable or other endorsements as Lender may
require.

Insurance Reports. Furnish to Lender, upon request of Lender, reports on each
existing insurance policy showing such information as Lender may reasonably
request, including without limitation the following: (a) the name of the
insurer; (b) the risks insured; (c) the amount of the policy; (d) the properties
insured; (e) the then current property values on the basis of which insurance
has been obtained, and the manner of determining those values; and (f) the
expiration date of the policy.

Other Agreements. Comply with all terms and conditions of all other agreements,
whether now or hereafter existing, between Borrower and any other party and
notify Lender immediately in writing of any default in connection with any other
such agreements.

Loan Fees and Charges. In addition to all other agreed upon fees and charges,
pay the following: UNUSED BALANCE FEE OF .25%.

Loan Proceeds. Use all Loan proceeds solely for Borrower's business operations,
unless specifically consented to the contrary by Lender in writing.

Taxes, Charges and Liens. Pay and discharge when due all of its indebtedness and
obligations, including without limitation all assessments, taxes, governmental
charges, levies and liens, of every kind and nature, imposed upon Borrower or
its properties, income, or profits, prior to the date on which penalties would
attach, and all lawful claims that, if unpaid, might become a lien or charge
upon any of Borrower's properties, income, or profits; provided however,
Borrower will not be required to pay and discharge any such assessment, tax,
charge, levy, lien or claim so long as (a) the legality of the same shall be
contested in good faith by appropriate proceedings, and (b) Borrower shall have
established on its books adequate reserves with respect to such contested
assessment, tax, charge, levy, lien, or claim in accordance with generally
accepted accounting principles. Borrower, upon demand of Lender, will furnish to
Lender evidence of payment of the assessments, taxes, charges, levies, liens and
claims and will authorize the appropriate governmental official to deliver to
Lender at any time a written statement of any assessments, taxes, charges,
levies, liens and claims against Borrower's properties, income, or profits.

Performance. Perform and comply with all terms, conditions, and provisions set
forth in this Agreement and in the Related Documents in a timely manner, and
promptly notify Lender if Borrower learns of the occurrence of any event which
constitutes an Event of Default under this Agreement or under any of the Related
Documents.

Operations. Conduct its business affairs in a reasonable and prudent manner and
in compliance with all applicable federal, state and municipal laws, ordinances,
rules and regulations respecting its properties, charters, businesses and
operations, including without limitation, compliance with the Americans With
Disabilities Act, all applicable environmental statutes, rules, regulations and
ordinances and with all minimum funding standards and other requirements of
ERISA and other laws applicable to Borrower's employee benefit plans.

Compliance Certificate. Unless waived in writing by Lender, provide Lender 35
days after each calendar quarter with a certificate executed by Borrower's chief
financial officer, or other officer or person acceptable to Lender, (a)
certifying that the representations and warranties set forth in this Agreement
are true and correct as of the date of the certificate and that, as of the date
of the certificate, no Event of Default exists under this Agreement, and (b)
demonstrating compliance with all financial covenants set forth in this
Agreement.

Environmental Compliance and Reports. Borrower shall comply in all respects with
all federal, state and local environment laws, statutes, regulations and
ordinances; not cause or permit to exist, as a result of an intentional or
unintentional action or omission on its part or on the part of any third party,
on property owned and/or occupied by Borrower, any environmental activity where
damage may result to the
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07-02-1998 LOAN AGREEMENT Page 4
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environment, unless such environmental activity is pursuant to and in
compliance with the conditions of a permit issued by the appropriate
federal, state or local governmental authorities; and furnish to Lender
promptly and in any event within thirty (30) days after receipt thereof a
copy of any notice, summons, lien, citation, directive, letter or other
communication from any governmental agency or instrumentality concerning
any intentional or unintentional action or omission on Borrower's part in
connection with any environmental activity whether or not there is damage
to the environment and/or other natural resources.

Borrowing Base Certificate. Within 35 days after each month when line is
in use, Borrower shall deliver to Lender a borrowing base certificate, in
form and detail satisfactory to Lender, along with such supporting
documentation as Lender may request, including without limitation, an
accounts receivable aging report and/or a list or schedule of Borrower's
accounts receivable, inventory and/or equipment.

Additional Assurances. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing
statements, instruments, documents and other agreements as Lender or its
attorneys may reasonably request to evidence and secure the Loans and to
perfect all Security Interests.

NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:

Maintain Basic Business. Engage in any business activities substantially
different than those in which Borrower is presently engaged.

Continuity of Operations. Cease operations, liquidate, dissolve or merge
or consolidate with or into any other entity.

Indebtedness. Create, incur or assume additional indebtedness for borrowed
money, including capital leases, or guarantee any indebtedness owing by
others, other than (a) current unsecured trade debt incurred in the
ordinary course of business, (b) indebtedness owing to Lender, (c)
borrowings outstanding as of the date hereof and disclosed to Lender in
writing, and (d) any borrowings otherwise approved by Lender in writing.

Liens. Mortgage, assign, pledge, grant a security interest in or otherwise
encumber Borrower's assets, except as allowed as a Permitted Lien.

Transfer of Assets. Transfer, sell or otherwise dispose of any of
Borrower's assets other than in the ordinary course of business.

Change in Management. Permit a change in the senior executive or
management personnel of Borrower.

Transfer of Ownership. Permit the sale, pledge or other transfer of any
ownership interest in Borrower.

Investments. Invest in, or purchase, create, form or acquire any interest
in, any other enterprise or entity.

Loans. Make any loans to any person or entity.

Dividends. Pay any dividends on Borrower's capital stock or purchase,
redeem, retire or otherwise acquire any of Borrower's capital stock or
alter or amend Borrower's capital structure.

Affiliates. Enter into any transaction, including, without limitation, the
purchase, sale, or exchange of property or the rendering of any service,
with any Affiliate of Borrower, except in the ordinary course of and
pursuant to the reasonable requirements of Borrower's business and upon
fair and reasonable terms no less favorable than would be obtained in a
comparable arm's length transaction with a person or entity not an
Affiliate of Borrower. As used herein, the term "Affiliate" means any
individual or entity directly or indirectly controlling, controlled by or
under common control with, another entity or individual.

CONDITIONS PRECEDENT TO ADVANCES. Lender's obligation to make any Advances or to
provide any other financial accommodations to or for the benefit of Borrower
hereunder shall be subject to the conditions precedent that as of the date of
such advance or disbursement and after giving effect thereto (a) all
representations and warranties made to Lender in this Agreement and the Related
Documents shall be true and correct as of and as if made on such date, (b) no
material adverse change in the financial condition of Borrower or any Guarantor
since the effective date of the most recent financial statements furnished to
Lender, or in the value of any Collateral, shall have occurred and be
continuing, (c) no event has occurred and is continuing, or would result from
the requested advance or disbursement, which with notice or lapse of time, or
both, would constitute an Event of Default, (d) no Guarantor has sought, claimed
or otherwise attempted to limit, modify or revoke such Guarantor's guaranty of
any Loan, and (e) Lender has received all Related Documents appropriately
executed by Borrower and all other proper parties.

ADDITIONAL AFFIRMATIVE COVENANT - TANGIBLE NET WORTH. Borrower covenants and
agrees with Lender that, while this Agreement is in effect, Borrower will comply
at all times with the following covenant and ratio. Borrower will maintain a
minimum Tangible Net Worth of $16,000,000.00 plus 75% of the net proceeds from
any public and/or private equity offering.

LINE OF CREDIT CLEARANCE. Borrower shall, at least once during "the term of the
Line of Credit" reduce and maintain the outstanding principal balance of the
Line of Credit to ZERO for a period of at least thirty (30) consecutive calendar
days.

ADDITIONAL AFFIRMATIVE COVENANT - ACCOUNTS RECEIVABLE AGINGS. Borrower shall
furnish to Lender a listing and aging of all accounts receivable within thirty-
five (35) days of each quarter end.

ADDITIONAL PROVISION. Notwithstanding anything to the contrary contained in this
Agreement, if Borrower's net shareholder's equity is in excess of
$45,000,000.00, then Borrower may, without the prior written consent of Lender,
invest in, or purchase, create, form or acquire an interest in any other
enterprise or entity.

RIGHT OF SETOFF. Unless a lien would be prohibited by law or would render a
nontaxable account taxable, Borrower grants to Lender a contractual possessory
security interest in, and hereby assigns, conveys, delivers, pledges, and
transfers to Lender all Borrower's right, title and interest in and to,
Borrower's accounts with Lender (whether checking, savings, or any other
account), including without limitation all accounts held jointly with someone
else and all accounts Borrower may open in the future. Borrower authorizes
Lender, to the extent permitted by applicable law, to charge or setoff all sums
owing on the Indebtedness against any and all such accounts.

EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:

Default on Indebtedness. Failure of Borrower to make any payment when due
on any of the Indebtedness.

Other Defaults. Failure of Borrower, any Guarantor or any Grantor to
comply with or to perform when due any other term, obligation, covenant or
condition contained in this Agreement, the Note or in any of the other
Related Documents, or failure of Borrower to comply with or to perform any
other term, obligation, covenant or condition contained in any other
agreement now existing or hereafter arising between Lender and Borrower.

False Statements. Any warranty, representation or statement made or
furnished to Lender under this Agreement or the Related Documents is false
or misleading in any material respect.

Default to Third Party. The occurrence of any event which permits the
acceleration of the maturity of any indebtedness owing by Borrower,
Grantor or any Guarantor to any third party under any agreement or
undertaking.

Bankruptcy or Insolvency. If the Borrower, Grantor or any Guarantor: (i)
becomes insolvent, or makes a transfer in fraud of creditors, or makes an
assignment for the benefit of creditors, or admits in writing its
inability to pay its debts as they become due; (ii) generally is not
paying its debts as such debts become due; (iii) has a receiver, trustee
or custodian appointed for, or take possession of, all or substantially
all of the assets of such party or any of the Collateral, either in a
proceeding brought by such party or in a proceeding brought against such
party and such appointment is not discharged or such possession is not
terminated within sixty (60) days after the effective date thereof or such
party consents to or acquiesces in such appointment or possession; (iv)
files a petition for relief under the United States Bankruptcy Code or any
other present or future federal or state insolvency, bankruptcy or similar
laws (all of the foregoing hereinafter collectively called "Applicable
Bankruptcy Law") or an involuntary petition for relief is filed against
such party under any Applicable Bankruptcy Law and such involuntary
petition is not dismissed within sixty (60) days after the filing thereof,
or an order for relief naming such party is entered under any Applicable
Bankruptcy Law, or any composition, rearrangement, extension,
reorganization or other relief of debtors now or hereafter existing is
requested or consented to by such party; (v) fails to have discharged
within a period of sixty (60) days any attachment, sequestration or
similar writ levied upon any property of such party; or (vi) fails to pay
within thirty (30) days any final money judgment against such party.

Liquidation, Death and Related Events. If Borrower, Grantor or any
Guarantor is an entity, the liquidation, dissolution, merger or
consolidation of any such entity or, if any of such parties is an
individual, the death or legal incapacity of any such individual.

Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any
creditor of any Grantor against any collateral securing the indebtedness,
or by any governmental agency.

EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, Lender may,
at its option, without further notice or demand, (a) terminate all commitments
and obligations of Lender to make Loans to Borrower, if any, (b) declare all
Loans and any other indebtedness

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07-02-1998 LOAN AGREEMENT Page 5
Loan No (Continued)
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immediately due and payable, (c) refuse to advance any additional amounts under
the Note or to provide any other financial accommodations under this Agreement,
or (d) exercise all the rights and remedies provided in the Note or in any of
the Related Documents or available at law, in equity, or otherwise; provided,
however, if any Event of Default of the type described in the "Bankruptcy or
Insolvency" subsection above shall occur, all Loans and any other Indebtedness
shall automatically become due and payable, without any notice, demand or action
by Lender. Except as may be prohibited by applicable law, all of Lender's rights
and remedies shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude pursuit
of any other remedy, and an election to make expenditures or to take action to
perform an obligation of Borrower or of any Grantor shall not affect Lender's
right to declare a default and to exercise its rights and remedies.

MISCELLANEOUS PROVISIONS.

Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.

APPLICABLE LAW. This Agreement has been delivered to Lender and accepted by
Lender in the State of Colorado. Subject to the provisions on arbitration,
this Agreement shall be governed by and construed in accordance with the
laws of the State of Colorado without regard to any conflict of laws or
provisions thereof.

JURY WAIVER. THE UNDERSIGNED AND LENDER (BY ITS ACCEPTANCE HEREOF) HEREBY
VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO
HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON
CONTRACT, TORT OR OTHERWISE) BETWEEN OR AMONG THE UNDERSIGNED AND LENDER
ARISING OUT OF OR IN ANY WAY RELATED TO THIS DOCUMENT OR ANY OTHER RELATED
DOCUMENT. THIS PROVISION IS A MATERIAL INDUCEMENT TO LENDER TO PROVIDE THE
FINANCING DESCRIBED HEREIN OR IN THE OTHER RELATED DOCUMENTS.

ARBITRATION. Lender and Borrower agree that upon the written demand of
either party, whether made before or after the institution of any legal
proceedings, but prior to the rendering of any judgment in that proceeding,
all disputes, claims and controversies between them, whether individual,
joint, or class in nature, arising from this Agreement, any Related
Document or otherwise, including without limitation contract disputes and
tort claims, shall be arbitrated pursuant to the Commercial Rules of the
American Arbitration Association. Any arbitration proceeding held pursuant
to this arbitration provision shall be conducted in the city nearest the
Borrower's address having an AAA regional office, or at any other place
selected by mutual agreement of the parties. No act to take or dispose of
any Collateral shall constitute a waiver of this arbitration agreement or
be prohibited by this arbitration agreement. This arbitration provision
shall not limit the right of either party during any dispute, claim or
controversy to seek, use, and employ ancillary, provisional or preliminary
rights and/or remedies, judicial or otherwise, for the purposes of
realizing upon, preserving, protecting, foreclosing upon or proceeding
under forcible entry and detainer for possession of, any real or personal
property, and any such action shall not be deemed an election of remedies.
This includes, without limitation, obtaining injunctive relief or a
temporary restraining order, invoking a power of sale under any deed of
trust or mortgage, obtaining a writ of attachment or imposition of a
receivership, or exercising any rights relating to personal property,
including taking or disposing of such property with or without judicial
process pursuant to Article 9 of the Uniform Commercial Code. Any disputes,
claims, or controversies concerning the lawfulness or reasonableness of any
act, or exercise of any right or remedy, concerning any Collateral,
including any claim to rescind, reform, or otherwise modify any agreement
relating to the Collateral, shall also be arbitrated; provided however that
no arbitrator shall have the right or the power to enjoin or restrain any
act of either party. Judgment upon any award rendered by any arbitrator may
be entered in any court having jurisdiction. Nothing in this arbitration
provision shall preclude either party from seeking equitable relief from a
court of competent jurisdiction. The statute of limitations, estoppel,
waiver, laches and similar doctrines which would otherwise be applicable in
an action brought by a party shall be applicable in any arbitration
proceeding, and the commencement of an arbitration proceeding shall be
deemed the commencement of any action for this purpose. The Federal
Arbitration Act (Title 9 of the United States Code) shall apply to the
construction, interpretation, and enforcement of this arbitration
provision.

Caption Headings. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.

Consent to Loan Participation. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, of one or more participation
interests in the Loans to one or more purchasers, whether related or
unrelated to Lender. Lender may provide, without any limitation whatsoever,
to any one or more purchasers, or potential purchasers, any information or
knowledge Lender may have about Borrower or about any other matter relating
to the Loan, and Borrower hereby waives any rights to privacy it may have
with respect to such matters. Borrower additionally waives any and all
notices of sale of participation interests, as well as all notices of any
repurchase of such participation interests.

Costs and Expenses. Borrower agrees to pay upon demand all of Lender's
expenses, including attorneys' fees, incurred in connection with the
preparation, execution, enforcement, modification and collection of this
Agreement or in connection with the Loans made pursuant to this Agreement.
Lender may hire one or more attorneys to help collect the Indebtedness if
Borrower does not pay, and Borrower will pay Lender's reasonable attorneys'
fees.

Notices. All notices required to be given under this Agreement shall be
given in writing, and shall be effective when actually delivered or when
deposited with a nationally recognized overnight courier or deposited in
the United States mail, first class, postage prepaid, addressed to the
party to whom the notice is to be given at the address shown above. Any
party may change its address for notices under this Agreement by giving
formal written notice to the other parties, specifying that the purpose of
the notice is to change the party's address. To the extent permitted by
applicable law, it there is more than one Borrower, notice to any Borrower
will constitute notice to all Borrowers. For notice purposes, Borrower will
keep Lender informed at all times of Borrower's current address(es).

Severability. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.

Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original and all of which together shall
constitute the same document. Signature pages may be detached from the
counterparts to a single copy of this Agreement to physically form one
document.

Successors and Assigns. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall inure to
the benefit of Lender, its successors and assigns. Borrower shall not,
however, have the right to assign its rights under this Agreement or any
interest therein, without the prior written consent of Lender.

Survival. All warranties, representations, and covenants made by Borrower
in this Agreement or in any certificate or other instrument delivered by
Borrower to Lender under this Agreement shall be considered to have been
relied upon by Lender and will survive the making of the Loan and delivery
to Lender of the Related Documents, regardless of any investigation made by
Lender or on Lender's behalf.

Time Is of the Essence. Time is of the essence in the performance of this
Agreement.

WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No delay
or omission on the part of Lender in exercising any right shall operate as a
waiver of such right or any other right. A waiver by Lender of a provision of
this Agreement shall not prejudice or constitute a waiver of Lender's right
otherwise to demand strict compliance with that provision or any other provision
of this Agreement. No prior waiver by Lender, nor any course of dealing between
Lender and Borrower, or between Lender and any Grantor or Guarantor, shall
constitute a waiver of any of Lender's rights or of any obligations of Borrower
or of any Grantor as to any future transactions. Whenever the consent of Lender
is required under this Agreement, the granting of such consent by Lender in any
instance shall not constitute continuing consent in subsequent instances where
such consent is required, and in all cases such consents may be granted or
withheld in the sole discretion of Lender
<PAGE>

07-02-1998 LOAN AGREEMENT Page 6
Loan No (Continued)

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

BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS LOAN AGREEMENT, AND
BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS EXECUTED AS OF THE DATE SET
FORTH ABOVE.

BORROWER:

CARRIER ACCESS CORPORATION, A DELAWARE CORPORATION

By: /s/ Nancy Pierce
-----------------------------------------------
NANCY PIERCE, CFO TREAS/SECRETARY

LENDER:

Bank One, Colorado, NA

By:
-----------------------------------------------
Authorized Officer
<PAGE>

CORPORATE RESOLUTION TO BORROW

- --------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No. Call Collateral
$5,000,000.00 07-02-1998 07-02-1999 078105 328

Account Officer Initials
1518454676 00410
- --------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
- --------------------------------------------------------------------------------

Borrower: CARRIER ACCESS CORPORATION, Lender: Bank One, Colorado, NA
A DELAWARE CORPORATION Corporate Lending - Boulder
5395 PEARL PARKWAY 1125 17TH STREET
BOULDER,CO 80301 DENVER, CO 80217

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

1, the undersigned officer of CARRIER ACCESS CORPORATION, A DELAWARE CORPORATION
(the "Corporation"), HEREBY CERTIFY that the Corporation is organized and
existing under and by virtue of the laws of the State of Delaware as a
corporation for profit, with its principal office at 5395 PEARL PARKWAY,
BOULDER, CO 80301, and is duly authorized to transact business in the State of
Colorado.

I FURTHER CERTIFY that at a meeting of the Directors of the Corporation, duly
called and held and at which a quorum was present and voting, or by other duly
authorized corporate action in lieu of a meeting, the following resolutions were
adopted:

BE IT RESOLVED, that any one (1) of the following named officers, employees, or
agents of this Corporation, whose actual signatures are shown below:

NAMES POSITIONS ACTUAL SIGNATURES
----- --------- -----------------

ROGER L. KOENIG PRESIDENT AND CEO /s/ Roger L. Koenig

NANCY PIERCE CFO TREAS/SECRETARY /s/ Nancy Pierce

acting for and on behalf of the Corporation and as its act and deed be, and they
hereby are, authorized and empowered:

Borrow Money. To negotiate and borrow money from Bank One, Colorado, NA
("Lender"), including letters of credit, and guarantee borrowings of others,
on such terms as may be agreed upon between the Corporation's officers,
employees or agents named above and Lender, and in such amount or amounts as
in their judgment should be borrowed and/or guaranteed, without limitation.

Execute Evidences of Debt. To execute and deliver to Lender promissory notes,
checks, drafts, acceptances, agreements (including without limitation loan
agreements), and guarantees of the Corporation at such rates of interest and
on such terms as may be agreed upon between the Corporation's officers,
employees or agents named above, and Lender, evidencing sums of money borrowed
or guaranteed, or any indebtedness or obligation of the Corporation to Lender,
and also to execute and deliver to Lender one or more renewals, extensions,
modifications, refinancings, consolidations or substitutions for any one or
more of, or any portion of, the foregoing.

Grant Security. To mortgage, pledge, transfer, endorse, hypothecate, or
otherwise encumber and deliver to Lender, as security for the payment of any
loans so obtained or guaranteed, any promissory notes so executed or any other
or further indebtedness of the Corporation or of others to Lender at any time
owing, however the same may be evidenced, any property now or hereafter
belonging to the Corporation or in which the Corporation now or hereafter may
have an interest, including without limitation all real property and all
personal property (tangible or intangible) of the Corporation. Such property
may be mortgaged, pledged, transferred, endorsed, hypothecated, or encumbered
at the time such loans are obtained or such indebtedness is incurred, or at
any other time or times, and may be either in addition to or in lieu of any
property theretofore mortgaged, pledged, transferred, endorsed, hypothecated,
or encumbered.

Execute Security Documents. To execute and deliver to Lender the forms of
mortgage, deed of trust, pledge agreement, hypothecation agreement, and other
security agreements and financing statements which may be submitted by Lender,
and which shall evidence the terms and conditions under and pursuant to which
such liens and encumbrances, or any of them, are given; and also to execute
and deliver to Lender any other written instruments, any chattel paper, or any
other collateral, of any kind or nature, which they may in their discretion
deem reasonably necessary or proper in connection with or pertaining to the
giving of the liens and encumbrances.

Negotiate Items. To draw, endorse, and discount with Lender all drafts, trade
acceptances, promissory notes, or other evidences of indebtedness payable to
or belonging to the Corporation in which the Corporation may have an interest,
and either to receive cash for the same or to cause such proceeds to be
credited to the account of the Corporation with Lender, or to cause such other
disposition of the proceeds derived therefrom as they may deem advisable.

Further Acts. In the case of lines of credit, to designate additional or
alternate individuals as being authorized to request advances thereunder, and
in all cases, to do and perform such other acts and things, to pay any and all
fees and costs, and to execute and deliver such other documents and
agreements, including agreements waiving the right to a trial by jury, as they
may in their discretion deem reasonably necessary or proper in order to carry
into effect the provisions of these Resolutions.

BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
Resolutions and performed prior to the passage of these Resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Lender may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Lender. Any such notice
shall not affect any of the Corporation's agreements or commitments in effect at
the time notice is delivered and received by Lender.

I FURTHER CERTIFY that the officers, employees, and agents named above are duly
elected, appointed, or employed by or for the Corporation, as the case may be,
and occupy the positions set opposite their respective names; that the foregoing
Resolutions now stand of record on the books of the Corporation; and that the
Resolutions are in full force and effect and have not been modified or revoked
in any manner whatsoever.

IN TESTIMONY WHEREOF, I have hereunto set my hand on July 2, 1998 and attest
that the signatures set opposite the names listed above are their genuine
signatures.

CERTIFIED TO AND ATTESTED BY:

X /s/ Nancy Pierce
---------------------------------------------
(Signature)

Nancy Pierce
---------------------------------------------
(Printed Name)

SEC/Treasurer/CFO
---------------------------------------------
(Title)
<PAGE>

BANK1ONE(R)

COMMERCIAL SECURITY AGREEMENT

- --------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No. Call Collateral
$5,000,000.00 07-02-1998 07-02-1999 078105 328

Account Officer Initials
1518454676 00410
- --------------------------------------------------------------------------------

References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.

Borrower: CARRIER ACCESS CORPORATION, Lender: BANK ONE, COLORADO, NA
A DELAWARE CORPORATION Corporate Lending - Boulder
5395 PEARL PARKWAY 1125 17TH STREET
BOULDER,CO 80301 DENVER, CO 80217

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

THIS COMMERCIAL SECURITY AGREEMENT is entered into by CARRIER ACCESS
CORPORATION, A DELAWARE CORPORATION (referred to below as "Grantor") for the
benefit of Bank One, Colorado, NA (referred to below as "Lender"). For valuable
consideration, Grantor grants to Lender a security interest in the Collateral to
secure the Indebtedness and agrees that Lender shall have the rights stated in
this Agreement with respect to the Collateral, in addition to all other rights
which Lender may have by law.

DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code as adopted in
the State of Colorado ("Code"). All references to dollar amounts shall mean
amounts in lawful money of the United States of America.

Agreement. The word "Agreement" means this Commercial Security Agreement,
as this Commercial Security Agreement may be amended or modified from time
to time, together with all exhibits and schedules attached to this
Commercial Security Agreement from time to time.

Collateral. The word "Collateral" means the following described property of
Grantor, whether now owned or hereafter acquired, whether now existing or
hereafter arising, and wherever located:

All inventory, chattel paper, accounts, equipment, general intangibles,
excluding patents

In addition, the word "Collateral" includes all the following, whether now
owned or hereafter acquired, whether now existing or hereafter arising, and
wherever located:

(a) All attachments, accessions, accessories, tools, parts, supplies,
increases, and additions to and all replacements of and substitutions
for any property described above.

(b) All products and produce of any of the property described in this
Collateral section.

(c) All proceeds (including, without limitation, insurance proceeds)
from the sale, lease, destruction, loss, or other disposition of any of
the property described in this Collateral section.

(d) All records and data relating to any of the property described in
this Collateral section, whether in the form of a writing, photograph,
microfilm, microfiche, or electronic media, together with all of
Grantor's right, title, and interest in and to all computer software
required to utilize, create, maintain, and process any such records or
data on electronic media.

Event of Default. The words "Event of Default" mean and include any of the
Events of Default set forth below in the section titled "Events of
Default."

Grantor. The word "Grantor" means CARRIER ACCESS CORPORATION, A DELAWARE
CORPORATION, its successors and assigns (which is a debtor under the Code).

Guarantor. The word "Guarantor" means and includes without limitation, each
and all of the guarantors, sureties, and accommodation parties in
connection with the Indebtedness.

Indebtedness. The word "Indebtedness" means the indebtedness evidenced by
the Note, including all principal and accrued interest thereon, together
with all other liabilities, costs and expenses for which Grantor is
responsible under this Agreement or under any of the Related Documents. In
addition, the word "Indebtedness" includes all other obligations, debts and
liabilities, plus any accrued interest thereon, owing by Grantor, or any
one or more of them, to Lender of any kind or character, now existing or
hereafter arising, as well as all present and future claims by Lender
against Grantor, or any one or more of them, and all renewals, extensions,
modifications, substitutions and rearrangements of any of the foregoing;
whether such Indebtedness arises by note, draft, acceptance, guaranty,
endorsement, letter of credit, assignment, overdraft, indemnity agreement
or otherwise; whether such Indebtedness is voluntary or involuntary, due or
not due, direct or indirect, absolute or contingent, liquidated or
unliquidated; whether Grantor may be liable individually or jointly with
others; whether Grantor may be liable primarily or secondarily or as
debtor, maker, comaker, drawer, endorser, guarantor, surety, accommodation
party or otherwise.

Lender. The word "Lender" means Bank One, Colorado, NA, its successors and
assigns (which is a secured party under the Code).

Note. The word "Note" means the promissory note dated July 2, 1998, in the
principal amount of $5,000,000.00 from CARRIER ACCESS CORPORATION, A
DELAWARE CORPORATION to Lender, together with all renewals of, extensions
of, modifications of, refinancings of, consolidations of and substitutions
for such promissory note.

OBLIGATIONS OF GRANTOR. Grantor represents, warrants and covenants to Lender as
follows:

Perfection of Security Interest. Grantor agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's security interest in the Collateral. Upon
request of Lender, Grantor will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Grantor will note
Lender's interest upon any and all chattel paper if not delivered to Lender
for possession by Lender. Grantor hereby irrevocably appoints Lender as its
attorney-in-fact for the purpose of executing any documents necessary to
perfect or to continue the security interest granted in this Agreement.
Lender may at any time, and without further authorization from Grantor,
file a carbon, photographic or other reproduction of any financing
statement or of this Agreement for use as a financing statement. Grantor
will reimburse Lender for all expenses for the perfection and the
continuation of the perfection of Lender's security interest in the
Collateral. Grantor has disclosed to Lender all tradenames and assumed
names currently used by Grantor, all tradenames and assumed names used by
Grantor within the previous six (6) years and all of Grantor's current
business locations. Grantor will notify Lender in writing at least thirty
(30) days prior to the occurrence of any of the following: (i) any changes
in Grantor's name, tradename(s) or assumed name(s), or (ii) any change in
Grantor's business location(s) or the location of any of the Collateral.

No Violation. The execution and delivery of this Agreement will not violate
any law or agreement governing Grantor or to which Grantor is a party, and
its certificate or articles of incorporation and bylaws do not prohibit any
term or condition of this Agreement.

Enforceability of Collateral. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and complies with
applicable laws concerning form, content and manner of preparation and
execution, and all persons appearing to be obligated on the Collateral have
authority and capacity to contract and are in fact obligated as they appear
to be on the Collateral.

Location of the Collateral. Grantor, upon request of Lender, will deliver
to Lender in form satisfactory to Lender a schedule of real properties and
Collateral locations relating to Grantor's operations, including without
limitation the following: (a) all real property owned or being purchased by
Grantor; (b) all real property being rented or leased by Grantor; (c) all
storage facilities owned, rented, leased, or being used by Grantor; and (d)
all other properties where Collateral is or may be located. Except in the
ordinary course of its business, Grantor shall not remove the Collateral
from its existing locations without the prior written consent of Lender.

Removal of Collateral. Grantor shall keep the Collateral (or to the extent
the Collateral consists of intangible property such as accounts, the
records concerning the Collateral) at Grantor's address shown above, or at
such other locations as are acceptable to Lender. Except in the ordinary
course of its business, including the sales of inventory, Grantor shall not
remove the Collateral from its existing locations without the prior written
consent of Lender. To the extent that the Collateral consists or vehicles,
or other titled property, Grantor shall not take or permit any action which
would require application for certificates of title for the vehicles
outside the State of Colorado, without the prior written consent of Lender.

Transactions Involving Collateral. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business. Grantor
<PAGE>

07-02-1998 COMMERCIAL SECURITY AGREEMENT Page 2
Loan No (Continued)
================================================================================

shall not sell, offer to sell, or otherwise transfer or dispose of the
Collateral. While Grantor is not in default under this Agreement, Grantor may
sell inventory, but only in the ordinary course of its business and only to
buyers who qualify as a buyer in the ordinary course of business. A sale in the
ordinary course of Grantor's business does not include a transfer in partial or
total satisfaction of a debt or any bulk sale. Grantor shall not pledge,
mortgage, encumber or otherwise permit the Collateral to be subject to any lien,
security interest, encumbrance, or charge, other than the security interest
provided for in this Agreement, without the prior written consent of Lender.
This includes security interests even if junior in right to the security
interests granted under this Agreement. Unless waived by Lender, all proceeds
from any disposition of the Collateral (for whatever reason) shall be held in
trust for Lender and shall not be commingled with any other funds; provided
however, this requirement shall not constitute consent by Lender to any sale or
other disposition. Upon receipt, Grantor shall immediately deliver any such
proceeds to Lender.

Title. Grantor represents and warrants to Lender that it is the owner of the
Collateral and holds good and marketable title to the Collateral, free and clear
of all liens and encumbrances except for the lien of this Agreement. No
financing statement--covering any of the Collateral is on file in any public
office other than those which reflect the security interest created by this
Agreement or to which Lender has specifically consented. Grantor shall defend
Lender's rights in the Collateral against the claims and demands of all other
persons.

Collateral Schedules and Locations. Insofar as the Collateral consists of
inventory, Grantor shall deliver to Lender, as often as Lender shall require,
such lists, descriptions, and designations of such Collateral as Lender may
require to identify the nature, extent, and location of such Collateral. Such
information shall be submitted for Grantor and each of its subsidiaries or
related companies.

Maintenance and Inspection of Collateral. Grantor shall maintain all tangible
Collateral in good condition and repair. Grantor will not commit or permit
damage to or destruction of the Collateral or any part of the Collateral. Lender
and its designated representatives and agents shall have the right at all
reasonable times to examine, inspect, and audit the Collateral wherever located.
Grantor shall immediately notify Lender of all cases involving the return,
rejection, repossession, loss or damage of or to any Collateral; of any request
for credit or adjustment or of any other dispute arising with respect to the
Collateral; and generally of all happenings and events affecting the Collateral
or the value or the amount of the Collateral.

Taxes, Assessments and Liens. Grantor will pay when due all taxes, assessments
and governmental charges or levies upon the Collateral and provide Lender
evidence of such payment upon its request. Grantor may withhold any such payment
or may elect to contest any lien if Grantor is in good faith conducting an
appropriate proceeding to contest the obligation to pay and so long as Lender's
interest in the Collateral is not jeopardized in Lender's sole opinion. If the
Collateral is subjected to a lien which is not discharged within fifteen (15)
days, Grantor shall deposit with Lender cash, a sufficient corporate surety bond
or other security satisfactory to Lender in an amount adequate to provide for
the discharge of the lien plus any interest, costs, attorneys' fees or other
charges that could accrue as a result of foreclosure or sale of the Collateral.
In any contest Grantor shall defend itself and Lender and shall satisfy any
final adverse judgment before enforcement against the Collateral. Grantor shall
name Lender as an additional obligee under any surety bond furnished in the
contest proceedings.

Compliance with Governmental Requirements. Grantor is conducting and will
continue to conduct Grantor's businesses in material compliance with all
federal, state and local laws, statutes, ordinances, rules, regulations, orders,
determinations and court decisions applicable to Grantor's businesses and to the
production, disposition or use of the Collateral, including without limitation,
those pertaining to health and environmental matters such as the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended by
the Superfund Amendments and Reauthorization Act of 1986 (collectively, together
with any subsequent amendments, hereinafter called "CERCLA"), the Resource
Conservation and Recovery Act of 1976, as amended by the Used Oil Recycling Act
of 1980, the Solid Waste Disposal Act Amendments of 1980, and the Hazardous
Substance Waste Amendments of 1984 (collectively, together with any subsequent
amendments, hereinafter called "RCRA"). Grantor represents and warrants that (i)
none of the operations of Grantor is the subject of a federal, state or local
investigation evaluating whether any material remedial action is needed to
respond to a release or disposal of any toxic or hazardous substance or solid
waste into the environment; (ii) Grantor has not filed any notice under any
federal, state or local law indicating that Grantor is responsible for the
release into the environment, the disposal on any premises in which Grantor is
conducting its businesses or the improper storage, of any material amount of any
toxic or hazardous substance or solid waste or that any such toxic or hazardous
substance or solid waste has been released, disposed of or is improperly stored,
upon any premises on which Grantor is conducting its businesses; and (iii)
Grantor otherwise does not have any known material contingent liability in
connection with the release into the environment, disposal or the improper
storage, of any such toxic or hazardous substance or solid waste. The terms
"hazardous substance" and "release", as used herein, shall have the meanings
specified in CERCLA, and the terms "solid waste" and "disposal", as used herein,
shall have the meanings specified in RCRA; provided, however, that to the extent
that the laws of the State of Colorado establish meanings for such terms which
are broader than that specified in either CERCLA or RCRA, such broader meanings
shall apply. The representations and warranties contained herein are based on
Grantor's due diligence in investigating the Collateral for hazardous wastes and
substances. Grantor hereby (a) releases and waives any future claims against
Lender for indemnity or contribution in the event Grantor becomes liable for
cleanup or other costs under any such laws, and (b) agrees to indemnify and hold
harmless Lender against any and all claims and losses resulting from a breach of
this provision of this Agreement. This obligation to indemnify shall survive the
payment of the Indebtedness and the termination of this Agreement.

Maintenance of Casualty Insurance. Grantor shall procure and maintain all risk
insurance, including without limitation fire, theft and liability coverage
together with such other insurance as Lender may require with respect to the
Collateral, in form, amounts, coverages and basis reasonably acceptable to
Lender and issued by a company or companies reasonably acceptable to Lender.
Grantor, upon request of Lender, will deliver to Lender from time to time the
policies or certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished without at least
thirty (30) days' prior written notice to Lender and not including any
disclaimer of the insurer's liability for failure to give such a notice. Each
insurance policy also shall include an endorsement providing that coverage in
favor of Lender will not be impaired in any way by any act, omission or default
of Grantor or any other person. In connection with all policies covering assets
in which Lender holds or is offered a security interest, Grantor will provide
Lender with such loss payable or other endorsements as Lender may require. If
Grantor at any time fails to obtain or maintain any insurance as required under
this Agreement, Lender may (but shall not be obligated to) obtain such insurance
as Lender deems appropriate, including if it so chooses "single interest
insurance," which will cover only Lender's interest in the Collateral.

Application of Insurance Proceeds. Grantor shall promptly notify Lender of any
loss or damage to the Collateral, Lender may make proof of loss if Grantor fails
to do so within fifteen (15) days of the casualty. All proceeds of any insurance
on the Collateral, including accrued proceeds thereon, shall be held by Lender
as part of the Collateral. If Lender consents to repair or replacement of the
damaged or destroyed Collateral, Lender shall, upon satisfactory proof of
expenditure, pay or reimburse Grantor from the proceeds for the reasonable cost
of repair or restoration. If Lender does not consent to repair or replacement of
the Collateral, Lender shall retain a sufficient amount of the proceeds to pay
all of the Indebtedness, and shall pay the balance to Grantor. Any proceeds
which have not been disbursed within six (6) months after their receipt and
which Grantor has not committed to the repair or restoration of the Collateral
shall be used to prepay the Indebtedness. Application of insurance proceeds to
the payment of the Indebtedness will not extend, postpone or waive any payments
otherwise due, or change the amount of such payments to be made and proceeds may
be applied in such order and such amounts as Lender may elect.

Solvency of Grantor. As of the date hereof, and after giving effect to this
Agreement and the completion of all other transactions contemplated by Grantor
at the time of the execution of this Agreement, (i) Grantor is and will be
solvent, (ii) the fair salable value of Grantor's assets exceeds and will
continue to exceed Grantor's liabilities (both fixed and contingent), (iii)
Grantor is paying and will continue to be able to pay its debts as they mature,
and (iv) if Grantor is not an individual. Grantor has and will have sufficient
capital to carry on Grantor's businesses and all businesses in which Grantor is
about to engage.

Lien Not Released. The lien, security interest and other security rights of
Lender hereunder shall not be impaired by any indulgence, moratorium or release
granted by Lender, including but not limited to, the following; (a) any renewal,
extension, increase or modification of any of the Indebtedness; (b) any
surrender, compromise, release, renewal, extension, exchange or substitution
granted in respect of any of the Collateral; (c) any release or indulgence
granted to any endorser, guarantor or surety of any of the Indebtedness; (d) any
release of any other collateral for any of the Indebtedness; (e) any acquisition
of any additional collateral for any of the Indebtedness; and (f) any waiver or
failure to exercise any right, power or remedy granted herein, by law or in any
of the Related Documents.

Request for Environment Inspections. Upon Lender's reasonable request from time
to time, Grantor will obtain at Grantor's expense an inspection or audit
report(s) addressed to Lender of Grantor's operations from an engineering or
consulting firm approved by Lender, indicating the presence or absence of toxic
and hazardous substances, underground storage tanks and solid waste on any
premises in which Grantor is conducting a business; provided, however, Grantor
will be obligated to pay for the cost of any such inspection or audit no more
than one time in any twelve (12) month period unless Lender has reason to
believe that toxic or hazardous substance or solid wastes have been dumped or
released on any such premises. If Grantor fails to order or obtain an inspection
or audit within ten (10) days after Lender's request, Lender may at its option
order such inspection or audit, and Grantor grants to Lender and its agents,
employees, contractors and consultants access to the premises in which it is
conducting its business and a license (which is coupled with an interest and is
irrevocable) to obtain inspections and audits. Grantor agrees to promptly
provide Lender with a copy of the results of any such inspection or audit
received by Grantor. The cost of such inspections and audits by Lender shall be
a part of the indebtedness, secured by the Collateral and payable by Grantor on
demand.
<PAGE>

07-02-1998 COMMERCIAL SECURITY AGREEMENT Page 3
Loan No (Continued)

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

Landlord's Waivers. Grantor agrees that upon the request of Lender, Grantor
shall cause each landlord of real property leased by Grantor at which any
of the Collateral is located from time to time to execute and deliver
agreements satisfactory in form and substance to Lender by which such
landlord waives or subordinates any rights it may have in the Collateral.

GRANTOR'S RIGHT TO POSSESSION. Until default, Grantor may have possession of the
tangible personal property and beneficial use of all the Collateral and may use
it in any lawful manner not inconsistent with this Agreement or the Related
Documents, provided that Grantor's right to possession and beneficial use shall
not apply to any Collateral where possession of the Collateral by Lender is
required by law to perfect Lender's security interest in such Collateral. If
Lender at any time has possession of any Collateral, whether before or after an
Event of Default, Lender shall be deemed to have exercised reasonable care in
the custody and preservation of the Collateral if Lender takes such action for
that purpose as Grantor shall request or as Lender, in Lender's sole discretion,
shall deem appropriate under the circumstances, but failure to honor any request
by Grantor shall not of itself be deemed to be a failure to exercise reasonable
care. Lender shall not be required to take any steps necessary to preserve any
rights in the Collateral against prior parties, nor to protect, preserve or
maintain any security interest given to secure the Indebtedness.

EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and other claims, at any
time levied or placed on the Collateral. Lender also may (but shall not be
obligated to) pay all costs for insuring, maintaining and preserving the
Collateral. All such expenditures incurred or paid by Lender for such purposes
will then bear interest at the rate charged under the Note from the date
incurred or paid by Lender to the date of repayment by Grantor. All such
expenses shall become a part of the Indebtedness and be payable on demand by
Lender. Such right shall be in addition to all other rights and remedies to
which Lender may be entitled upon the occurrence of an Event of Default.

EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:

Default on Indebtedness. Failure of Grantor to make any payment when due on
the Indebtedness.

Other Defaults. Failure of Grantor to comply with or to perform any other
term, obligation, covenant or condition contained in this Agreement, the
Note, any of the other Related Documents or in any other agreement now
existing or hereafter arising between Lender and Grantor.

False Statements. Any warranty, representation or statement made or
furnished to Lender under this Agreement, the Note or any of the other
Related Documents is false or misleading in any material respect.

Default to Third Party. The occurrence of any event which permits the
acceleration of the maturity of any indebtedness owing by Grantor or any
Guarantor to any third party under any agreement or undertaking.

Bankruptcy or Insolvency. If the Grantor or any Guarantor: (i) becomes
insolvent, or makes a transfer in fraud of creditors, or makes an
assignment for the benefit of creditors, or admits in writing its inability
to pay its debts as they become due; (ii) generally is not paying its debts
as such debts become due; (iii) has a receiver, trustee or custodian
appointed for, or take possession of, all or substantially all of the
assets of such party or any of the Collateral, either in a proceeding
brought by such party or in a proceeding brought against such party and
such appointment is not discharged or such possession is not terminated
within sixty (60) days after the effective date thereof or such party
consents to or acquiesces in such appointment or possession; (iv) files a
petition for relief under the United States Bankruptcy Code or any other
present or future federal or state insolvency, bankruptcy or similar laws
(all of the foregoing hereinafter collectively called "Applicable
Bankruptcy Law") or an involuntary petition for relief is filed against
such party under any Applicable Bankruptcy Law and such involuntary
petition is not dismissed within sixty (60) days after the filing thereof,
or an order for relief naming such party is entered under any Applicable
Bankruptcy Law, or any composition, rearrangement, extension,
reorganization or other relief of debtors now or hereafter existing is
requested or consented to by such party; (v) fails to have discharged
within a period of sixty (60) days any attachment, sequestration or similar
writ levied upon any property of such party; or (vi) fails to pay within
thirty (30) days any final money judgment against such party.

Liquidation, Death and Related Events. If Grantor or any Guarantor is an
entity, the liquidation, dissolution, merger or consolidation of any such
entity or, if any of such parties is an individual, the death or legal
incapacity of any such individual.

Creditor or Forfeiture Proceedings, Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral securing
the Indebtedness.

RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the Code. In addition and without limitation, Lender may exercise
any one or more of the following rights and remedies:

Accelerate Indebtedness. Lender may declare the entire Indebtedness,
including any prepayment penalty which Grantor would be required to pay,
immediately due and payable, without notice.

Assemble Collateral. Lender may require Grantor to deliver to Lender all or
any portion of the Collateral and any and all certificates of title and
other documents relating to the Collateral. Lender may require Grantor to
assemble the Collateral and make it available to Lender at a place to be
designated by Lender. Lender also shall have full power to enter upon the
property of Grantor to take possession of and remove the Collateral. If the
Collateral contains other goods not covered by this Agreement at the time
of repossession, Grantor agrees Lender may take such other goods, provided
that Lender makes reasonable efforts to return them to Grantor after
repossession.

Sell the Collateral. Lender shall have full power to sell, lease, transfer,
or otherwise dispose of the Collateral or the proceeds thereof in its own
name or that of Grantor. Lender may sell the Collateral (as a unit or in
parcels) at public auction or private sale. Lender may buy the Collateral,
or any portion thereof, (i) at any public sale, and (ii) at any private
sale if the Collateral is of a type customarily sold in a recognized market
or is of a type which is the subject of widely distributed standard price
quotations. Lender shall not be obligated to make any sale of Collateral
regardless of a notice of sale having been given. Lender may adjourn any
public or private sale from time to time by announcement at the time and
place fixed therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned. Unless the Collateral is
perishable or threatens to decline speedily in value or is of a type
customarily sold on a recognized market, Lender will give Grantor
reasonable notice of the time and place of any public sale thereof or of
the time after which any private sale or any other intended disposition of
the Collateral is to be made. The requirements of reasonable notice shall
be met if such notice is given at least ten (10) days prior to the date any
public sale, or after which a private sale, of any of such Collateral is to
be held. All expenses relating to the disposition of the Collateral,
including without limitation the expenses of retaking, holding, insuring,
preparing for sale and selling the Collateral, shall become a part of the
Indebtedness secured by this Agreement and shall be payable on demand, with
interest at the Note rate from date of expenditure until repaid. Any sale
of Collateral through the public trustee shall be deemed a commercially
reasonable sale.

Appoint Receiver. To the extent permitted by applicable law, Lender shall
have the following rights and remedies regarding the appointment of a
receiver: (a) Lender may have a receiver appointed as a matter of right,
(b) the receiver may be an employee of Lender and may serve without bond,
and (c) all fees of the receiver and his or her attorney shall become part
of the Indebtedness secured by this Agreement and shall be payable on
demand, with interest at the Note rate from date of expenditure until
repaid. The receiver may be appointed by a court of competent jurisdiction
upon ex parte application and without notice, notice being expressly
waived.

Collect Revenues, Apply Accounts. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from the
Collateral. Lender may transfer any Collateral into its own name or that of
its nominee and receive the payments, rents, income, and revenues therefrom
and hold the same as security for the indebtedness or apply it to payment
of the indebtedness in such order of preference as Lender may determine.
Insofar as the Collateral consists of accounts, general intangibles,
insurance policies, instruments, chattel paper, choses in action, or
similar property, Lender may demand, collect, receipt for, settle,
compromise, adjust, sue for, foreclose, or realize on the Collateral as
Lender may determine. For these purposes, Lender may, on behalf of and in
the name of Grantor, receive, open and dispose of mail addressed to
Grantor; change any address to which mail and payments are to be sent; and
endorse notes, checks, drafts, money orders, documents of title,
instruments and items pertaining to payment, shipment, or storage of any
Collateral. To facilitate collection, Lender may notify account debtors and
obligors on any Collateral to make payments directly to Lender.

Obtain Deficiency. If Lender chooses to sell any or all of the Collateral,
Lender may obtain a judgment against Grantor for any deficiency remaining
on the Indebtedness due to Lender after application of all amounts received
from the exercise of the rights provided in this Agreement. Grantor shall
be liable for a deficiency even if the transaction described in this
subsection is a sale of accounts or chattel paper.

Other Rights and Remedies. Lender shall have all the rights and remedies of
a secured creditor under the provisions of the Code, as may be amended from
time to time. In addition, Lender shall have and may exercise any or all
other rights and remedies it may have available at law, in equity, or
otherwise. Grantor waives any right to require Lender to proceed against
any third party, exhaust any other security for the indebtedness or
pursue any other right or remedy available to Lender.

Cumulative Remedies. All of Lender's rights and remedies, whether evidenced
by this Agreement or the Related Documents or by any

<PAGE>

07-02-1998 COMMERCIAL SECURITY AGREEMENT Page 4
Loan No (Continued)

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

other writing, shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude
pursuit of any other remedy, and an election to make expenditures or to
take action to perform an obligation of Grantor under this Agreement, after
Grantor's failure to perform, shall not affect Lender's right to declare a
default and to exercise its remedies.

Miscellaneous Provisions.

Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement and supercedes all prior written and
oral agreements and understandings, if any, regarding same. No alteration
of or amendment to this Agreement shall be effective unless given in
writing and signed by the party or parties sought to be charged or bound by
the alteration or amendment.

Applicable Law. This Agreement has been delivered to Lender and accepted by
Lender in the State of Colorado. Subject to the provisions on arbitration
in any Related Document, this Agreement shall be governed by and construed
in accordance with the laws of the State of Colorado without regard to any
conflict of laws or provisions thereof.

Attorneys' Fees; Expenses. Grantor will upon demand pay to Lender the amount
of any and all costs and expenses (including without limitation, reasonable
attorneys' fees and expenses) which Lender may incur in connection with (i)
the perfection and preservation of the collateral assignment and security
interests created under this Agreement, (ii) the custody, preservation, use
or operation of, or the sale of, collection from, or other realization upon,
the Collateral, (iii) the exercise or enforcement of any of the rights of
Lender under this Agreement, or (iv) the failure by Grantor to perform or
observe any of the provisions hereof.

Termination. Upon (i) the satisfaction in full of the Indebtedness and all
obligations hereunder, (ii) the termination or expiration of any commitment
of Lender to extend credit that would become Indebtedness hereunder, and
(iii) Lender's receipt of a written request from Grantor for the termination
hereof, this Agreement and the security interests created hereby shall
terminate. Upon termination of this Agreement and Grantor's written request,
Lender will, at Grantor's sole cost and expense, return to Grantor such of
the Collateral as shall not have been sold or otherwise disposed of or
applied pursuant to the terms hereof and execute and deliver to Grantor such
documents as Grantor shall reasonably request to evidence such termination.

Indemnity. Grantor hereby agrees to indemnify, defend and hold harmless
Lender, and its officers, directors, shareholders, employees, agents and
representatives (each an "INDEMNIFIED PERSON") from and against any and all
liabilities, obligations, claims, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
(collectively, the "Claims") which may be imposed on, incurred by or
asserted against, any Indemnified Person (whether or not caused by any
Indemnified Person's sole, concurrent or contributory negligence) arising in
connection with the Related Documents, the Indebtedness or the Collateral
(including, without limitation, the enforcement of the Related Documents and
the defense of any Indemnified Person's action and/or inactions in
connection with the Related Documents), except to the limited extent that
the Claims against the Indemnified Person are approximately caused by such
Indemnified Person's willful misconduct. The indemnification provided for in
this Section shall survive the termination of this Agreement and shall
extend and continue to benefit each individual or entity who is or has at
any time been an Indemnified Person hereunder.

Caption Headings. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.

Notices. All notices required to be given under this Agreement shall be
given in writing, and shall be effective when actually delivered or when
deposited with a nationally recognized overnight courier or deposited in the
United States mail, first class, postage prepaid, addressed to the party to
whom the notice is to be given at the address shown above. Any party may
change its address for notices under this Agreement by giving formal written
notice to the other parties, specifying that the purpose of the notice is to
change the party's address. To the extent permitted by applicable law, if
there is more than one Grantor, notice to any Grantor will constitute notice
to all Grantors. For notice purposes, Grantor will keep Lender informed at
all times of Grantor's current address(es).

Power of Attorney. Grantor hereby irrevocably appoints Lender as its true
and lawful attorney-in-fact, such power of attorney being coupled with an
interest, with full power of substitution to do the following in the place
and stead of Grantor and in the name of Grantor: (a) to demand, collect,
receive, receipt for, sue and recover all sums of money or other property
which may now or hereafter become due, owing or payable from the Collateral;
(b) to execute, sign and endorse any and all claims, instruments, receipts,
checks, drafts or warrants issued in payment for the Collateral; (c) to
settle or compromise any and all claims arising under the Collateral, and,
in the place and stead of Grantor, to execute and deliver its release and
settlement for the claim; and (d) to file any claim or claims or to take any
action or institute or take part in any proceedings, either in its own name
or in the name of Grantor, or otherwise, which in the discretion of Lender
may seem to be necessary or advisable. This power is given as security for
the Indebtedness, and the authority hereby conferred is and shall be
irrevocable and shall remain in full force and effect until renounced by
Lender.

Severability. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of this
Agreement in all other respects shall remain valid and enforceable.

Successor Interests. Subject to the limitations set forth above on transfer
of the Collateral, this Agreement shall be binding upon and inure to the
benefit of the parties, their successors and assigns; provided, however,
Grantor's rights and obligations hereunder may not be assigned or otherwise
transferred without the prior written consent of Lender.

Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right to thereafter demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Grantor, shall constitute a waiver of
any of Lender's rights or of any of Grantor's obligations as to any future
transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.

GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED JULY 2,
1998.

GRANTOR:

CARRIER ACCESS CORPORATION, A DELAWARE CORPORATION

By: /s/ Nancy Pierce
-----------------------------------------------
NANCY PIERCE, CFO TREAS/SECRETARY
<PAGE>

[LOGO OF BANK ONE APPEARS HERE]

PROMISSORY NOTE
- -------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No. Call
$5,000,000.00 07-02-1998 07-02-1999 078105
- -------------------------------------------------------------------------------
Collateral Account Officer Initials
328 1518454676 00410
- -------------------------------------------------------------------------------

References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
- --------------------------------------------------------------------------------

Borrower: CARRIER ACCESS CORPORATION, Lender: Bank One, Colorado, NA
A DELAWARE CORPORATION Corporate Lending - Boulder
5395 PEARL PARKWAY 1125 17th Street
BOULDER,CO 80301 Denver, CO 80217

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

Principal Amount: $5,000,000.00 Date of Note: July 2, 1998

PROMISE TO PAY. For value received, CARRIER ACCESS CORPORATION, A DELAWARE
CORPORATION ("Borrower") promises to pay to Bank One, Colorado, NA ("Lender"),
or order, in lawful money of the United States of America, the principal amount
of Five Million & 00/100 Dollars ($5,000,000.00) ("Total Principal Amount") or
so much as may be outstanding, together with interest on the unpaid outstanding
principal balance from the date advanced until paid in full.

PAYMENT. This Note shall be payable as follows: Interest shall be due and
payable monthly as it accrues, commencing on August 2, 1998 and continuing on
the same day of each month thereafter during the term of this Note, and the
outstanding principal balance of this Note, together with all accrued but unpaid
interest, shall be due and payable on July 2, 1999. The annual interest rate for
this Note is computed on a 365/360 basis; that is, by applying the ratio of the
annual interest rate over a year of 360 days, multiplied by the outstanding
principal balance, multiplied by the actual number of days the principal balance
is outstanding. Borrower will pay Lender at the address designated by Lender
from time to time in writing. If any payment of principal of or interest on this
Note shall become due on a day which is not a Business Day, such payment shall
be made on the next succeeding Business Day. As used herein, the term "Business
Day" shall mean any day other than a Saturday, Sunday or any other day on which
national banking associations are authorized to be closed. Unless otherwise
agreed to, in writing, or otherwise required by applicable law, payments will be
applied first to accrued, unpaid interest, then to principal, and any remaining
amount to any unpaid collection costs, late charges and other charges, provided,
however, upon delinquency or other default, Lender reserves the right to apply
payments among principal, interest, late charges, collection costs and other
charges at its discretion. The books and records of Lender shall be prima facie
evidence of all outstanding principal of and accrued but unpaid interest on this
Note. This Note may be executed in connection with a loan agreement. Any such
loan agreement may contain additional rights, obligations and terms.

VARIABLE INTEREST RATE. The interest rate on this Note is subject to fluctuation
based upon the Prime Rate of interest in effect from time to time (the "Index")
(which rate may not be the lowest, best or most favorable rate of interest which
Lender may charge on loans to its customers). "Prime Rate" shall mean the rate
announced from time to time by Lender as its prime rate. Each change in the rate
to be charged on this Note will become effective without notice on the same day
as the Index changes. Except as otherwise provided herein, the unpaid principal
balance of this Note will accrue interest at a rate per annum which will from
time to time be equal to the sum of the Index, plus 0.000%. NOTICE: Under no
circumstances will the interest rate on this Note be more than the maximum rate
allowed by applicable law.

PREPAYMENT. Borrower may pay without fee all or a portion of the principal
amount owed hereunder earlier than it is due. All prepayments shall be applied
to the indebtedness owing hereunder in such order and manner as Lender may from
time to time determine in its sole discretion.

LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
5.000% of the regularly scheduled payment or $25.00, whichever is greater, up to
the maximum amount of $250.00 per late charge.

DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment of principal or interest when due under this
Note or any other indebtedness owing now or hereafter by Borrower to Lender; (b)
failure of Borrower or any other party to comply with or perform any term,
obligation, covenant or condition contained in this Note or in any other
promissory note, credit agreement, loan agreement, guaranty, security agreement,
mortgage, deed of trust or any other instrument, agreement or document, whether
now or hereafter existing, executed in connection with this Note (the Note and
all such other instruments, agreements, and documents shall be collectively
known herein as the "RELATED DOCUMENTS"); (c) Any representation or statement
made or furnished to Lender herein, in any of the Related Documents or in
connection with any of the foregoing is false or misleading in any material
respect; (d) Borrower or any other party liable for the payment of this Note,
whether as maker, endorser, guarantor, surety or otherwise, becomes insolvent or
bankrupt, has a receiver or trustee appointed for any part of its property,
makes an assignment for the benefit of its creditors, or any proceeding is
commenced either by any such party or against it under any bankruptcy or
insolvency laws; (e) the occurrence of any event of default specified in any of
the other Related Documents or in any other agreement now or hereafter arising
between Borrower and Lender; (f) the occurrence of any event which permits the
acceleration of the maturity of any indebtedness owing now or hereafter by
Borrower to any third party; or (g) the liquidation, termination, dissolution,
death or legal incapacity of Borrower or any other party liable for the payment
of this Note, whether as maker, endorser, guarantor, surety, or otherwise.

LENDER'S RIGHTS. Upon default, Lender may at its option, without further notice
or demand (i) declare the entire unpaid principal balance on this Note, all
accrued unpaid interest and all other costs and expenses for which Borrower is
responsible for under this Note and any other Related Document immediately due,
(ii) refuse to advance any additional amounts under this Note, (iii) foreclose
all liens securing payment hereof, (iv) pursue any other rights, remedies and
recourses available to the Lender, including without limitation, any such
rights, remedies or recourses under the Related Documents, at law or in equity,
or (v) pursue any combination of the foregoing. Upon default, including failure
to pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, do one or both of the following: (a) increase the variable
interest rate on this Note to 3.000 percentage points over the Index, and (b)
add any unpaid accrued interest to principal and such sum will bear interest
therefrom until paid at the rate provided in this Note (including any increased
rate). The interest rate will not exceed the maximum rate permitted by
applicable law. Lender may hire an attorney to help collect this Note if
Borrower does not pay and Borrower will pay Lender's reasonable attorneys' fees
and all other costs of collection, unless prohibited by applicable law. This
Note has been delivered to Lender and accepted by Lender in the State of
Colorado. Subject to the provisions on arbitration, this Note shall be governed
by and construed in accordance with the laws of the State of Colorado without
regard to any conflict of laws or provisions thereof.

PURPOSE. Borrower agrees that no advances under this Note shall be used for
personal, family, or household purposes and that all advances hereunder shall be
used solely for business, commercial, agricultural or other similar purposes.

JURY WAIVER. THE BORROWER AND LENDER (BY ITS ACCEPTANCE HEREOF) HEREBY
VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE
A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT, TORT
OR OTHERWISE) BETWEEN BORROWER AND LENDER ARISING OUT OF OR IN ANY WAY RELATED
TO THIS NOTE OR THE OTHER RELATED DOCUMENTS. THIS PROVISION IS A MATERIAL
INDUCEMENT TO LENDER TO PROVIDE THE FINANCING EVIDENCED BY THIS NOTE.

DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $20.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.

RIGHT OF SETOFF. Unless a lien would be prohibited by law or would render a
nontaxable account taxable, Borrower grants to Lender a contractual possessory
security interest in, and hereby assigns, conveys, delivers, pledges, and
transfers to Lender all Borrower's right, title and interest in and to,
Borrower's accounts with Lender (whether checking, savings, or any other
account), including without limitation all accounts held jointly with someone
else and all accounts Borrower may open in the future. Borrower authorizes
Lender, to the extent permitted by applicable law, to charge or setoff all sums
owning on this Note against any and all such accounts.

LINE OF CREDIT. This Note evidences a revolving line of credit. Borrower may
request advances and make payments hereunder from time to time, provided that it
is understood and agreed that the aggregate principal amount outstanding from
time to time hereunder shall not at any time exceed the Total Principal Amount.
The unpaid principal balance of this Note shall increase and decrease with each
new advance or payment hereunder, as the case may be. Subject to the terms
hereof, Borrower may borrow, repay and reborrow hereunder. Advances under this
Note, as well as directions for payment from Borrower's accounts, may be
requested orally or in writing by Borrower or by an authorized person. Lender
may, but need not, require that all oral requests be confirmed in writing.
Borrower agrees to be liable for all sums either: (a) advanced in accordance
with the instructions of an authorized person or (b) credited to any of
Borrower's accounts with Lender.

07-02-1998 PROMISSORY NOTE Page 2
Loan No (Continued)
================================================================================
of realizing upon, preserving, protecting, foreclosing upon or proceeding under
forcible entry and detainer for possession of, any real or personal property,
and any such action shall not be deemed an election of remedies. This includes,
without limitation, obtaining injunctive relief or a temporary restraining
order, invoking a power of sale under any deed of trust or mortgage, obtaining a
writ of attachment or imposition of a receivership, or exercising any rights
relating to personal property, including taking or disposing of such property
with or without judicial process pursuant to Article 9 of the Uniform Commercial
Code. Any disputes, claims, or controversies concerning the lawfulness or
reasonableness of any act, or exercise of any right or remedy, concerning any
collateral, including any claim to rescind, reform, or otherwise modify any
agreement relating to the collateral, shall also be arbitrated; provided however
that no arbitrator shall have the right or the power to enjoin or restrain any
act of either party. Judgment upon any award rendered by any arbitrator may be
entered in any court having jurisdiction. Nothing in this arbitration provision
shall preclude either party from seeking equitable relief from a court of
competent jurisdiction. The statute of limitations, estoppel, waiver, laches and
similar doctrines which would otherwise be applicable in an action brought by a
party shall be applicable in any arbitration proceeding, and the commencement of
an arbitration proceeding shall be deemed the commencement of any action for
these purpose. The Federal Arbitration Act (Title 9 of the United States Code)
shall apply to the construction, interpretation, and enforcement of this
arbitration provision.

ADDITIONAL PROVISION - RIGHT TO CURE. Notwithstanding anything to the contrary
contained in this Note or in any Related Document, no condition, event or
failure shall be a default under this Note or an "Event of Default" as defined
in any Related Document, provided that (A) such condition, event or failure is
other than (i) a failure to pay any sum due under the provisions of this Note or
(ii) the commencement of a bankruptcy or insolvency proceeding by or against
Borrower or any Guarantor, or by or against any party that has granted
collateral to secure this Note, and (B) if, after Lender sends Borrower written
notice demanding cure of any such condition, event or failure, Borrower cures or
causes to be cured such event, condition or failure within ten (10) days after
such notice. Any notice delivered hereunder to Borrower shall be effective when
deposited with a nationally recognized overnight courier or when deposited in
the United States mail, first class postage prepaid, addressed to Borrower at
Borrower's last known mailing address.

ADDENDUM. An exhibit, titled "ADDENDUM," is attached to this Note and by this
reference is made a part of this Note just as it all the provisions, terms and
conditions of the Exhibit had been fully set forth in this Note.

GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any change
in the terms of this Note, and unless otherwise expressly stated in writing, no
party who signs this Note, whether as maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that Lender
may renew or extend (repeatedly and for any length of time) this Note, or
release any party or guarantor or collateral; or unjustifiably impair, fail to
realize upon or perfect Lender's security interest in the collateral; and take
any other action deemed necessary by Lender without the consent of or notice to
anyone. All such parties also agree that Lender may modify this Note without the
consent of or notice to anyone other than the party with whom the modification
is made.

PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.

BORROWER:

CARRIER ACCESS CORPORATION, A DELAWARE CORPORATION

By: /s/ Nancy Pierce
-----------------------------------------------
NANCY PIERCE, CFO TREAS/SECRETARY

================================================================================
<PAGE>

ADDENDUM

THIS ADDENDUM is executed with respect to the Promissory Note in the original
principal amount of $5,000,000.00 dated July 2, 1998 [and maturing on July 2,
1999 (the "Note") , made by Carrier Access Corporation, A Colorado Corporation
(referred to in this Addendum as "Borrower") payable to the order of Bank One,
Colorado, N.A. ("Lender"), and is hereby incorporated into and made a part of
the Note. Terms used in this Addendum with their initial letters capitalized are
used as defined in the Note, unless they are otherwise expressly defined herein.

1. The paragraph in the Note having the caption "VARIABLE INTEREST RATE" is
hereby deleted in its entirety and the following is hereby substituted in lieu
thereof:

VARIABLE INTEREST RATE. Subject to designation of a different interest rate
index by Borrower as provided below, the interest rate on this Note is
subject to fluctuation based upon the Prime Rate of interest in effect from
time to time (the "Index") (which rate may not be the lowest, best or most
favorable rate of interest which Lender may charge on loans to its
customers). "Prime Rate" shall mean the rate announced from time to time
by Lender as its prime rate. Each change in the variable interest rate to
be charged on this Note will become effective without notice on the same
day as the Index changes. Except as otherwise provided herein, the unpaid
principal balance of this Note will accrue interest at a rate per annum
which will from time to time be equal to the sum of the Index, plus 0.00%.

INTEREST RATE OPTIONS. The following interest rate options are available
under this Note:

(a) Default Option. The interest rate margin and index described in the
"VARIABLE INTEREST RATE" paragraph above (the "Default Option").

(b) ONE MONTH LONDON INTERBANK OFFERED RATE. A margin of 2.50 percentage
points over the one month LONDON INTERBANK OFFERED RATE ("LIBOR"). For
purposes of this Note, the one month LIBOR rate shall mean the one month
offered rate for U.S. Dollar deposits of not less than $1,000,000.00 as of
11:00 A.M. City of London, England time two London Business Days prior to
the first date of each one month Interest Period (as defined below) of this
Note as shown on the display designated as "British Bankers Assoc. Interest
Settlement Rates" on the Dow Jones Telerate Service ("Telerate"), Page
3750 (or such other page as may replace that page on that service for the
purpose of displaying such rate). Provided, however, that if such LIBOR
rate is not available on Telerate then such offered rate shall be otherwise
independently determined by Lender from an alternate, substantially similar
independent source or service available to Lender or shall be calculated by
Lender by a substantially similar methodology as that theretofore used to
determine such offered rate in Telerate.

(c) THREE MONTH LONDON INTERBANK OFFERED RATE. A margin of 2.50 percentage
points over the three month LONDON INTERBANK OFFERED RATE ("LIBOR"). For
purposes of this Note, the three month LIBOR rate shall mean the three
month offered rate for U.S. Dollar deposits of not less than $1,000,000.00
as of 11:00 A.M. City of London, England time two London Business Days
prior to the first date of each three month Interest Period (as defined
below) of this Note as shown on the display designated as "British Bankers
Assoc. Interest Settlement Rates" on the Dow Jones Telerate Service
("Telerate"), Page 3750 (or such other page as may replace that page on
that service for the purpose of displaying such rate). Provided, however,
that if such LIBOR rate is not available on Telerate then such offered rate
shall be otherwise independently determined by Lender from an alternate,
substantially similar independent source or service available

<PAGE>

to Lender or shall be calculated by Lender by a substantially similar
methodology as that theretofore used to determine such offered rate in
Telerate.

NOTICE: Under no circumstances will the interest rate on this Note be more
than the maximum rate allowed by applicable law.

If used in this Note, "London Business Day" means any day other than a
Saturday, Sunday or a day on which banking institutions are generally
authorized or obligated by law or executive order to close in the City of
London, England.

When the interest rate is based on a LIBOR rate, a Treasury Securities Rate
or a Fixed Rate (an "Option Rate"), the rate shall be in effect for a
period of the number of months as indicated in the rate option description
(the "Interest Period") , in any case extended to the next succeeding
business day when necessary, beginning on a borrowing date, conversion date
or expiration date of the then current Interest Period. Adjustments in the
interest rate due to changes in the maximum nonusurious interest rate
allowed (the "Highest Lawful Rate") shall be made on the effective day of
any change in the Highest Lawful Rate.

Provided Borrower is not in default under this Note, Borrower may designate
in advance which of the above interest rate indexes shall be applicable to
any loan advance under this Note. In the absence of any such designation
the interest rate option shall be the Default Option. Thereafter unpaid
principal balances under this Note may be converted (at the end of an
Interest Period if the index used to determine the interest rate therefore
is an option Rate) to another of the above interest rate options, or
continued for an additional interest period, when applicable, as designated
by Borrower in advance; and in the absence of sufficient advance
designation as determined by the Lender as to conversion to or continuation
of an Option Rate index, the rate shall be converted to the Default Option.
Notwithstanding the foregoing, an Option Rate index may not be elected for
a loan or advance under this Note, nor any conversion to or continuation of
an Option Rate index be elected, if the Interest Period thereof would
extend beyond the maturity of this Note.

Each loan or advance under this Note at conversion into or continuation of
an Option Rate shall be in a minimum amount of $500,000.00 with no more
than two tranches outstanding at any time. Unless otherwise provided
herein, accrued interest on amounts for which the interest rate is based on
a LIBOR rate or a Treasury Securities Rate shall be due and payable at the
end of the respective Interest Period therefor.

Borrower shall pay to Lender from time to time such amounts as Lender may
determine to be necessary to compensate Lender for any costs incurred by
Lender which Lender determines are attributable to its making or
maintaining any LIBOR rates hereunder or its obligation to make any such
LIBOR rates hereunder, or any reduction in any amount receivable by Lender
under this Note in respect of any such rates or such obligation (such
increases in costs and reductions in amounts receivable being herein called
"Additional Costs"), resulting from any change after the date of this Note
in U.S. federal, state, municipal, or foreign laws or regulations
(including Regulation D), or the adoption or making after such date of any
interpretations, directives, or requirements applying to a class of banks
including Lender of or under any U.S. federal, state, municipal, or any
foreign laws or regulations (whether or not having the force of law) by any
court or governmental or monetary authority charged with the interpretation
or administration thereof ("Regulatory Change"), which: (1) changes the
basis of taxation of any amounts payable to Lender under this Note in
respect of any such LIBOR rates (other than taxes imposed on the overall
net income of the Lender); or (2) imposes or modifies any reserve, special
deposit, compulsory loan, or similar requirements relating to any
extensions of credit or other assets of, or
<PAGE>

any deposits with or other liabilities of Lender (including any of such
LIBOR rates or any deposits referred to in the definition of any LIBOR
rate); or (3) imposes any other condition affecting this Note (or any of
such extensions of credit or liabilities) . Lender will notify the Borrower
of any event occurring after the date of this Note which will entitle
Lender to compensation pursuant to this paragraph as promptly as
practicable after it obtains knowledge thereof and determines to request
such compensation. Determinations by Lender for purposes of this paragraph
of the effect of any Regulatory change in its costs of making or
maintaining LIBOR rates or on amounts receivable by it in respect of LIBOR
rates, and of the additional amounts required to compensate Lender in
respect of any Additional Costs, shall be presumed prima facie correct.
----- -----

In respect of any LIBOR Loans, in the event that Lender shall have
determined that dollar deposits of the relevant amount for the relevant
Interest Period for such LIBOR Loans are not available or that, by reason
of circumstances affecting such market, adequate and reasonable means do
not exist for ascertaining the LIBOR rate applicable to such Interest
Period, as the case may be, Lender shall promptly give notice of such
determination to the Borrower and (i) any notice of new LIBOR Loans (or
conversion of existing loans to LIBOR Loans) previously given by the
Borrower and not yet borrowed (or converted, as the case may be) shall be
deemed a notice to make loans bearing interest at the Default Option, and
(ii) the Borrower shall be obligated either to prepay or to convert any
outstanding LIBOR Loans on the last day of the then current Interest Period
or Periods with respect thereto, as Borrower shall elect.

Without prejudice to any other provisions of this Note, the Borrower agrees
to indemnify Lender against any loss or expense which Lender may sustain or
incur as a consequence of any default by the Borrower in payment when due
of any amount due hereunder in respect of any LIBOR Loan, including, but
not limited to, any loss of profit, premium or penalty incurred by Lender
in respect of funds borrowed by it for the purpose of making or maintaining
such LIBOR Loan, as determined by Lender in the exercise of its sole but
reasonable discretion. A certificate as to any such loss or expense shall
be promptly submitted by Lender to the Borrower and shall, in the absence
of manifest error, be conclusive and binding as to the amount thereof.

If at any time any new law, treaty or regulation enacted after the date
hereof, or any change after the date hereof in any existing law, treaty or
regulation, or any interpretation thereof after the date hereof by any
governmental or other regulatory authority charged with the administration
thereof, shall make it unlawful for Lender to fund any LIBOR Loans which it
is committed to make hereunder with moneys obtained in the Eurodollar
market, the commitment of Lender to fund LIBOR Loans shall, upon the
happening of such event forthwith be suspended for the duration of such
illegality, and Lender shall by written notice to the Borrower declare that
the commitment with respect to such loans has been so suspended and, if and
when such illegality ceases to exist, such suspension shall cease and
Lender shall similarly notify the Borrower. If any such change shall make
it unlawful for Lender to continue in effect the funding in the applicable
Eurodollar market of any LIBOR Loan previously made by it hereunder, Lender
shall, upon the happening of such event, notify the Borrower in writing
stating the reasons therefor, and the Borrower shall, on the earlier of (i)
the last day of the then current Interest Period or (ii) if required by
such law, regulation or interpretation, on such date as shall be specified
in such notice, either convert all LIBOR Loans to loans bearing interest at
the Default Option or prepay all LIBOR Loans to Lender in full, as Borrower
shall elect.

Lender may, but shall not be required to, make LIBOR Loans hereunder with
funds obtained outside the United States.
<PAGE>

2. Except as expressly modified by this Addendum, all of the terms and
conditions of the Note continue unchanged and in full force and effect.

Dated with effect as of the date of the Note.

CARRIER ACCESS CORPORATION,
A COLORADO CORPORATION

By: /s/ Nancy Pierce
----------------------------------------
Nancy Pierce, CFO Treasurer/Secretary
<PAGE>

AGREEMENT TO PROVIDE INSURANCE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$5,000,000.00 07-02-1998 07-02-1999 078105 328 1518454676 00410
- --------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
- --------------------------------------------------------------------------------

Borrower: CARRIER ACCESS CORPORATION, Lender: Bank One, Colorado, NA
A DELAWARE CORPORATION Corporate Lending - Boulder
5395 PEARL PARKWAY 1125 17th Street
BOULDER,CO 80301 Denver, CO 80217

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

INSURANCE REQUIREMENTS. CARRIER ACCESS CORPORATION, A DELAWARE CORPORATION
("Grantor") understands that insurance coverage is required in connection with
the extending of a loan or the providing of other financial accommodations to
Grantor by Lender. These requirements are set forth in the security documents.
The following minimum insurance coverages must be provided on the following
described collateral (the "Collateral"):

Collateral: All inventory, chattel paper, accounts, equipment, general
intangibles, excluding patents.

Type. All risks, including fire, theft and liability.

Amount. Full insurable value.

Basis. Replacement value.

Endorsements. Lender's loss payable clause with stipulation that
coverage will not be cancelled or diminished without a minimum of
thirty (30) days' prior written notice to Lender.

INSURANCE COMPANY. Grantor may obtain insurance from any insurance company
Grantor may choose that is reasonably acceptable to Lender. Grantor understands
that credit may not be denied solely because insurance was not purchased through
Lender.

INSURANCE MAILING ADDRESS. All documents and other materials relating to
insurance for this loan should be mailed, delivered or directed to the following
address:

Banc One Comml Loan Servicing
P O Box 63124 AZ1-2570
Phoenix, AZ 85082-3124

FAILURE TO PROVIDE INSURANCE. Grantor agrees to deliver to Lender, no later than
on or before closing, evidence of the required insurance as provided above, with
an effective date of July 2, 1998, or earlier. Grantor acknowledges and agrees
that if Grantor fails to provide any required insurance or fails to continue
such insurance in force, Lender may do so at Grantor's expense as provided in
the applicable security document. The cost of any such insurance, at the option
of Lender, shall be payable on demand or shall be added to the indebtedness as
provided in the security document. GRANTOR ACKNOWLEDGES THAT IF LENDER SO
PURCHASES ANY SUCH INSURANCE, THE INSURANCE WILL PROVIDE LIMITED PROTECTION
AGAINST PHYSICAL DAMAGE TO THE COLLATERAL, UP TO THE BALANCE OF THE LOAN;
HOWEVER, GRANTOR'S EQUITY IN THE COLLATERAL MAY NOT BE INSURED. IN ADDITION, THE
INSURANCE MAY NOT PROVIDE ANY PUBLIC LIABILITY OR PROPERTY DAMAGE
INDEMNIFICATION AND MAY NOT MEET THE REQUIREMENTS OF ANY FINANCIAL
RESPONSIBILITY LAWS.

AUTHORIZATION. For purposes of insurance coverage on the Collateral, Grantor
authorizes Lender to provide to any person (including any insurance agent or
company) all information Lender deems appropriate, whether regarding the
Collateral, the loan or other financial accommodations, or both.

GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT TO PROVIDE
INSURANCE AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED JULY 2, 1998.

GRANTOR:

CARRIER ACCESS CORPORATION, A DELAWARE CORPORATION

By: /s/ Nancy Pierce
-----------------------------------------------
NANCY PIERCE, CFO TREAS/SECRETARY

- --------------------------------------------------------------------------------
FOR LENDER USE ONLY
INSURANCE VERIFICATION

DATE: PHONE:
--------------- --------------

AGENT'S NAME:
-------------------------------------------------------------------

INSURANCE COMPANY:
--------------------------------------------------------------

POLICY NUMBER:
------------------------------------------------------------------

EFFECTIVE DATES:
----------------------------------------------------------------

COMMENTS:
-----------------------------------------------------------------------
- --------------------------------------------------------------------------------

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

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors
Carrier Access Corporation:

We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the Prospectus.

/s/ KPMG Peat Marwick LLP

KPMG Peat Marwick LLP

Boulder, Colorado

July 6, 1998

<PAGE>
<ARTICLE> 5

<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 JUN-30-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 MAR-31-1998
<CASH> 6,104,000 5,549,000
<SECURITIES> 2,516,000 3,247,000
<RECEIVABLES> 5,043,000 5,721,000
<ALLOWANCES> 398,000 706,000
<INVENTORY> 6,784,000 6,658,000
<CURRENT-ASSETS> 20,377,000 21,062,000
<PP&E> 1,643,000 2,464,000
<DEPRECIATION> 376,000 559,000
<TOTAL-ASSETS> 21,680,000 23,015,000
<CURRENT-LIABILITIES> 3,762,000 3,093,000
<BONDS> 0 0
17,358,000 18,674,000
0 0
<COMMON> 19,000 19,000
<OTHER-SE> 541,000 1,229,000
<TOTAL-LIABILITY-AND-EQUITY> 21,680,000 23,015,000
<SALES> 18,719,000 16,292,000
<TOTAL-REVENUES> 18,719,000 16,292,000
<CGS> 9,469,000 8,281,000
<TOTAL-COSTS> 2,346,000 2,661,000
<OTHER-EXPENSES> (180,000) (308,000)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 2,526,000 2,969,000
<INCOME-TAX> 791,000 1,057,000
<INCOME-CONTINUING> 1,735,000 1,912,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,735,000 1,735,000
<EPS-PRIMARY> 0.04 0.04
<EPS-DILUTED> 0.04 0.04

</TABLE>