CARRIER ACCESS CORP, 10-K, 2000-03-30

CARRIER ACCESS CORP
10-K, 2000-03-30
TELEPHONE & TELEGRAPH APPARATUS

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For fiscal year ended December 31, 1999
OR

[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________ to __________________

Commission file number: 000-24597
---------

CARRIER ACCESS CORPORATION
(Exact name of registrant as specified in its charter)

DELAWARE 84-1208770
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

5395 PEARL PARKWAY, BOULDER, CO 80301
(Address of principal executive offices) (Zip Code)

(303) 442-5455
(Registrant's telephone number, including area code)

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

Securities registered pursuant to 12(b) of the Act: NONE

Securities registered pursuant to Section 12(g) of the Act:

COMMON STOCK, PAR VALUE $0.001 PER SHARE
(Title of Class)

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ] Any delinquent filings.

As of March 1, 2000, there were 24,269,923 shares of the Registrant's
common stock outstanding, and the aggregate market value of such shares held by
non-affiliates of the Registrant (based upon the closing sale price of such
shares on the Nasdaq National Market on March 1, 2000) was approximately
$555,371,290. Shares of the Registrant's common stock held by each executive
officer and director and by each entity that owns 10% or more of the
Registrant's outstanding common stock have been excluded in that such persons or
entities may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.

DOCUMENTS INCORPORATED BY REFERENCE

Certain sections of the Registrant's definitive Proxy Statement for the
2000 Annual Meeting of Stockholders are incorporated by reference in Part III of
this Form 10-K to the extent stated herein.
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CARRIER ACCESS CORPORATION(R)

INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

Page No.
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PART I

Item 1. Business.......................................................... 4

Item 2. Properties........................................................ 20

Item 3. Legal Proceedings................................................. 20

Item 4. Submission of Matters to a Vote of Security Holders............... 21

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters........................................................... 21

Item 6. Selected Financial Data........................................... 22

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. 23

Item 7A. Quantitative and Qualitative Disclosures About Market Risk........ 28

Item 8. Consolidated Financial Statements and Supplementary Data.......... 28

Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.............................................. 41

PART III

Item 10. Executive Officers of the Registrant.............................. 42

Item 11. Executive Compensation............................................ 42

Item 12. Security Ownership of Certain Beneficial Owners and Management.... 42

Item 13. Certain Relationships and Related Transactions.................... 42

PART IV

Item 14. Exhibits, Consolidated Financial Statement Schedules, and Reports
on Form 8-K....................................................... 43

Page 2 of 47
<PAGE>

The information contained in this report contains certain forward-looking
statements. When used in this report, the words "anticipates," "believes,"
"expects," "intends," "will," "forecasts," "plans," "future," "strategy," or
similar expressions may identify forward-looking statements. These statements
are based on current expectations and projections about our industry and
assumptions made by the management and are not guarantees of future performance.
Our actual results, performance or achievements may differ materially from those
anticipated or implied by forward-looking statements. Factors that could cause
or contribute to material differences include the disclosure in the "Risk
Factors" section in this report, as well as our other periodic reports on Form
10-Q filed with the Securities and Exchange Commission. We undertake no
obligation to update any forward looking statements in this Report on Form 10-K.

Unless otherwise indicated, references in this report to specific years
and quarters are to our fiscal year and fiscal quarters.

We were incorporated in Colorado in September 1992 and reincorporated in
Delaware in June 1998. Our principal executive offices are located at 5395 Pearl
Parkway, Boulder, Colorado 80301; our telephone number is (303) 442-5455 and our
web site is http://www.carrieraccess.com. The information on our web site is not
incorporated in this report.

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PART I.

ITEM 1. BUSINESS

GENERAL

We are a leading provider of broadband digital equipment solutions to
communications service providers. These service providers include competitive
local exchange carriers , incumbent local exchange carriers, independent
operating companies, interexchange carriers, Internet service providers, and
wireless mobility carriers. Our products are used by our customers to provide
services including local and long distance voice, high-speed data and Internet
services to businesses, government and enterprise end users. Our Access Bank(R),
Wide Bank(R), Access Navigator(TM), In-Loop(TM) and CACTUS(TM) family products
are connected to T1, digital subscriber line, digital radio, T3 and optical
access networks.

Our digital equipment provides a "last mile" solution for the distribution
and management of high bandwidth services from service providers. Reaching large
numbers of consumers using voice and high speed Internet access requires
connectivity from service provider networks to end user locations. Installation
of our central office communications and customer-located voice and data
communications equipment enables this connectivity. Our products allow service
providers to cost-effectively connect end users to their network products,
decrease ongoing transmission equipment and maintenance expenses, while enabling
new service delivery, such as integrated voice and high speed Internet access.
Our products enable high bandwidth digital deployments targeted at end users
requiring between four and 2800 telephone and data line equivalents of
bandwidth. We believe that over 300 service providers and 500 other end users
have purchased our products directly or through our distributors.

PRODUCTS.

Our products currently include the Access Bank, Wide Bank, Access
Navigator, and CACTUS product families. The Access Bank I offers digital
connectivity for local and long distance voice service, and converts a single T1
digital network access line into 24 telephone circuits for voice, facsimile and
modem connections. The Access Bank II expands on the voice functions of the
Access Bank I by adding high-speed data ports for computer connectivity and dual
T1 line interfaces for increasing data speeds and connecting end user phone
systems. The Access Exchange is a customer-located access switch that enables
long distance service providers to offer local services from their embedded base
switching equipment. The Wide Bank 28 is a highly-integrated M1-3 standard
multiplexer designed to connect T1 equipment to high-bandwidth T3 and STS1
digital circuits, providing up to 28 T1 connections for enhanced voice and high-
speed data services. The Access Navigator/DCS Service Manager provides a
complete solution for managing four to 32 access connections in a highly
integrated package. With the functions of a 1/0 digital cross connect system,
plus demarcation testing, service providers are able to decrease maintenance
costs and labor while increasing service availability. The Access Navigator/GR-
303 offers a highly integrated solution for combining multi-line local voice and
data services on customer T1 access lines. In addition to the concentration and
management of CLASS(R) voice services the Access Navigator/GR-303 grooms and
optimally concentrates fractional T1 data connections from customer locations.
The In-Loop-RT offers a full 24 channels of telephone service to customers, over
Carrier Service Area loop ranges using only the power provided by two high-bit-
rate digital subscriber line network pairs. Local service providers can
economically re-use copper pairs to achieve 12 times the number of telephone
lines on copper feeder circuits, without the construction and installation costs
of conventional digital loop carrier systems. The CACTUS.lite integrates high-
speed data and business-class voice services, including POTS, DID, Tie Line and
CLASS, in a compact 2RU, modular and cost-effective platform suitable for wall
or rack mounting. An integrated 1/0 digital cross connect enables data and voice
traffic to be groomed across up to 16 T1-E1 interfaces. In addition to business-
voice and data service interfaces, CACTUS.lite is also designed to support,
asynchronous transfer mode, Internet Protocol routing, Frame Relay, Office
Channel Unit Data Port, sub-rate data multiplexing and Integrated Services
Digital Network Basic Rate services. We differentiate our 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 service provider and end user
locations, and satisfy the safety and regulatory requirements of service
providers and end users. The retail list prices of our products range from $995
to $20,000, depending upon product configuration.

THE ACCESS BANK FAMILY OF PRODUCTS

The Access Bank family of products was our first product designed to
deliver carrier-class voice and data services in a one rack-unit (1.75") sized
unit. Coupled with a price that enables economical T1 service delivery for
communications service providers and patented technologies to deliver business
quality voice and data services and typical installation times of one-third that
of traditional solutions, we believe the Access Bank product family has helped
fuel the growth of competitive local exchange carriers. The Access Bank product
family provides a solution for major services, including voice only, voice and
data over T1, voice and data over high-bit-rate digital subscriber line, and
data over symmetrical digital subscriber line. While proving their ability in
the competitive local exchange carriers and enterprise markets, the Access Bank
products are equally

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adept at delivering quality services for regional bell operating company,
independent local exchange carriers, interexchange carriers, and Internet
service providers.

ACCESS BANK I-RELEASED: JUNE 1995

Our Access Bank I provides an economical, compact, and reliable solution
for converting T1 digital access services from communications service providers
including independent local exchange carriers and competitive local exchange
carriers to 12 or 24 individual analog telephone circuits at end user locations.
The unit consists of a controller, called the line interface unit and one or two
telephone line interface cards. The Access Bank I incorporates an integrated T1
Channel Service Unit, which allows customers to plug in a T1 line without having
to connect other external devices to perform service termination. Six different
types of 12-channel telephone line interface circuit cards provide most popular
voice service options while also delivering enhanced local services such as
Caller ID and distinctive ringing. The Access Bank I supports data services such
as fax and high-speed modem traffic by automatically adjusting to line
conditions in order to provide a clean, high-quality transmission path. The
Access Bank I is principally used by service providers for economical local
service delivery, long distance service delivery using T1 access, digital
service interconnection to PBXs and key systems, Internet modem pool connections
to T1, branch office connectivity to T1, and rapid deployment of temporary
telephone services. Systems integrators use the 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 Internet Protocol voice
telephone system connectivity, and computer telephony interfaces.

ACCESS BANK I TR-08-RELEASED: NOVEMBER 1996

The Access Bank I TR-08 provides a Bellcore Standard TR-08 digital loop
carrier software protocol in addition to the basic features of the Access Bank
I. TR-08 signaling delivers T1 connections directly to the line side T1 ports of
local switches and is widely deployed in local exchange carrier, competitive
local exchange carrier, and independent local exchange carrier networks. Service
providers use the Access Bank I TR-08 for economical local service delivery and
expansion 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 service providers using
Lucent, Nortel, Siemens and other local exchange switches. Access Bank I TR-08
enables inexpensive provisioning of physically separate single shelf groups for
12 or 24 managed telephone lines from a T1.

ACCESS BANK II-RELEASED: NOVEMBER 1996

Our Access Bank II delivers twice the T1 capacity of the Access Bank I in
the same size package, enabling service providers to integrate high-speed
Internet service with multi-line voice service in a single unit. The Access Bank
II includes two T1 interfaces with fully integrated channel service unit and
data service unit functionality and uses the same 12-channel telephone line
interface circuit cards as the Access Bank I. Each of the two T1 interfaces can
accommodate current and future bandwidth requirements for a combination of
facsimile, modem, high-speed Internet, voice, and PBX user services. The T1s can
also be configured to provide redundant protection for end users' mission
critical voice and Internet applications. The integral V.35 data interface and
T1 interfaces offer connectivity for Internet access routers, enterprise
routers, frame relay devices, video and other high-speed data applications.
Service providers rely on the flexibility of the Access Bank II to deliver
multi-line voice plus high-speed Internet connections to enterprise branch
offices, small business customers, and medium-sized business locations. By
combining digital data with voice over one or two T1 lines, bandwidth can be
utilized more efficiently, saving on communication access costs. The Access Bank
II also includes sophisticated management capabilities such as an optional
Ethernet simple network management protocol local area network management
connection for configuration and monitoring.

ACCESS BANK II/HDSL-RELEASED: MAY 1998

Service providers use the Access Bank II/HDSL (sold by ADC
Telecommunications as the EZT1/DI/HDSL) to provide multi-line voice and
high-speed Internet access over existing copper infrastructure. Access Bank
II/HDSL represents the integration of ADC's high-bit-rate digital subscriber
line technology into the Access Bank II, creating an end-to-end digital
deployment solution for service providers from the wiring center to the end-user
customer site. This solution enables service providers to decrease their monthly
access costs while providing T1 quality digital service delivery over low-cost
unbundled copper access loops.

ACCESS EXCHANGE-RELEASED: APRIL 1998.

The Access Exchange performs the functions of the Access Bank II and
integrates software and digital signal processing capability to provide
automatic call routing and number translation on a call-by-call basis. This
product allows long distance service providers to combine local voice services
with long distance and high-speed Internet access on their existing switch
infrastructure while routing calls to the Local Exchange Carrier for local
calling, directory, 911, and other lifeline services.

Page 5 of 47
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ACCESS BANK II/SDSL-RELEASED: MAY 1999.

The Access Bank II/SDSL provides an innovative method for deploying data
services from the Access Bank II. Using a symmetrical digital subscriber line
interface in place of one of the T1s on the Access Bank II, the Access Bank
II/SDSL allows service providers to deploy high speed data services over
symmetrical digital subscriber line. Ordinary unshielded copper wiring can be
used to transport data from the Access Bank II/SDSL to a variety of symmetrical
digital subscriber line Internet access routers or modems located up to 12,000
feet from the unit. Service providers can easily deploy service in buildings
using symmetrical digital subscriber line without rewiring a building for
traditional Ethernet-based data services.

INLOOP-RT

Our InLoop-RT allows communications service providers to significantly
reduce held orders for phone service and maximize the revenue potential of their
most valuable asset - the existing copper plant. InLoop-RT supports up to 12
times the number of voice lines without the need for new construction or the
installation cost of conventional digital loop carrier systems. InLoop-RT
enables provisioning of up to 24 business-quality voice lines with full
line-side CLASS(R) service using TR-57 and GR-303 digital switch and host
terminal connections, over high-bit-rate digital subscriber line. Fully powered
over the high-bit-rate digital subscriber line network pairs, InLoop-RT provides
full-power ringing and line voltages, and supports V.90 modem throughput.
Enclosed in an integral compact Outside Plant certified enclosure, InLoop-RT can
mount easily on telephone poles, wiring pedestals, or buildings.

WIDE BANK FAMILY OF PRODUCTS

We designed the Wide Bank family of DS3 and STS-1 access products to
replace a rack full of bulky, old-generation equipment in a dramatically reduced
single rack-unit (1.75") sized unit. In addition, the Wide Bank product family
utilizes new levels of software integration over older equipment to provide a
feature-rich and cost-effective platform supporting full high and low-speed
redundancy, hitless DS3 and STS-1 network protection, built-in Network Interface
Units and Bit Error Rate Test capabilities. The Wide Bank product family also
conforms to the most popular management schemes including simple network
management protocol via Ethernet, local or remote Command Line Interface and
Transaction Language 1 (TL1). Certification to Network Equipment Building
Systems enables installation in a wide-array of service provider environments
including central offices and co-location facilities while the modular design
permits a platform cost and configuration to be matched exactly to the service
provider needs.

WIDE BANK 28/DS3 MULTIPLEXER-RELEASED: NOVEMBER 1997

Our Wide Bank 28/DS3 Multiplexer connects a high bandwidth digital T3
network access line to 28 T1 or 21 E1 service connections. The Wide Bank 28
allows communications service providers (wireline and wireless), Internet
Service Providers, Enterprise, and Government customers to consolidate multiple
T1s or E1s into T3 services to reduce monthly access costs. The Wide Bank 28
also provides redundant T3 service distribution from digital radio connections
T1 service expansion from fiber multiplexers and connects T3 incumbent local
exchange carrier services to Internet service providers remote access servers.
The Wide Bank 28 is used by wireless service providers to provide T3 to 28 T1
conversion, T1 circuit grooming, network protection, and remote management using
the C-Bit T3 overhead 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 or up to seven tri-port E1 interface cards support up to 21 E1
connections. Cards can therefore be quickly and easily added to meet bandwidth
requirements. An identical spare quad T1 or tri-port E1 provides
software-controlled low-speed redundancy for Automatic Protection Switching
(APS) that is compliant with the FCC guidelines for service availability as
outlined in Telcordia Technologies GR-499-CORE. The Wide Bank 28 also
incorporates T1 Network Interface Unit functionality to eliminate additional
equipment and installation labor costs for service providers. 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,
tri-port E1 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. A Maintenance Service Option
(MSO) is available for providing testing and maintenance capabilities without
disruption of services by field technicians. Also, a Fan Face Plate Option will
be available for high-density, high-capacity rack applications in Central
Offices in order to increase overall rack capacity.

Our Wide Bank 28 is Network Equipment Building Systems Level 3 certified
and offers the features and performance in compliance with Network Equipment
Building Systems Level 3 criteria as outlined by Telcordia Technologies for
Central Office equipment. The Network Equipment Building Systems certification
allows service providers 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
temperature range and earthquake and vibration conditions. Finally, the Wide
Bank 28 offers TL-1 Management Control, a Java-based Graphical User Interface
for ease of operations and management on the service providers' network, as well
as a simple network management protocol systems enterprise MIB providing ease of
integration with existing Network Management Systems.

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WIDE BANK 28/STS-1 MULTIPLEXER-RELEASED JUNE 1999

The Wide Bank 28/STS-1 Multiplexer cost-effectively delivers T1 service
connections from SONET STS-1 electrical interfaces. This addition to our widely
accepted and deployed Wide Bank 28 product family offers new capabilities for
high-bandwidth network access technology, building on the advanced features,
proven technology and deployment of the Wide Bank 28 DS3 multiplexer as a
"Carrier-Class" product.

The Wide Bank 28/STS-1 Multiplexer reduces the overall cost of deploying
T1 services at service provider Local Digital Switch (LDS), collocation,
Point-of-Presence (POP), Service Access Point (SAP) and on-network building
locations. Communications service providers deploying OC-3 and OC-12 SONET fiber
collector rings or high-capacity OC-48 and OC-192 SONET metropolitan rings
indicate that its not cost-effective to fill high-capacity SONET Add/Drop
Multiplexers (ADMs) with low-speed T1 interfaces because it wastes precious
bandwidth. Our Wide Bank 28/STS-1 Multiplexer is designed to eliminate the
additional expense of transmultiplexing DS3 signals over SONET for fiber
transport and reduce the amount of stranded bandwidth within the SONET shelf,
while greatly decreasing the cost per T1 connection provided to service provider
customers. High-capacity SONET add/drop multiplexers and digital radios can be
more economically deployed to provide high-capacity T1 services.

Using only one rack unit of space, the Wide Bank 28/STS-1 Multiplexer
optimizes valuable space in central offices, co-location, or digital loop
carrier cabinets. Services can be added in scalable quad T1 increments, suiting
applications from small outside cabinets to large switching centers.

The Wide Bank 28/STS-1 Multiplexer offers simple network management
protocol, Telnet, and TL-1 management options as well as alarm reporting and
performance monitoring to the Virtual Tributary 1.5 (VT1.5) tributary-based
DSX-1 services, enabling service providers to gain the cost and management
advantages of STS-1 interconnections in a very compact, scalable network
product.

ACCESS NAVIGATOR FAMILY OF PRODUCTS

The Access Navigator Product Family contains three members: the Access
Navigator/ DCS Service Manager, providing a cost effective 1/0 cross-connect
solution; the Access Navigator/ GR-303 + Data Host, providing an easy to manage
and install GR-303 host solution; and the most recent addition to the family,
the Navigator Pilot Graphical User Interface configuration tool.

With both Network Equipment Building Systems and customer premises
certifications, we designed the Access Navigator Product Family to be located in
service provider racks or on end user customer walls. The Navigator Product
Family combines the power of a 32 port digital cross connect system with
remotely managed demarcation and occupies only one and one half rack units of
space. Integrated testing and optional common equipment redundancy ensure
carrier-class service availability. The Access Navigator Product family was
designed to significantly reduce space, power and installation labor as compared
to old generation digital cross connect and channel service unit or NIU shelves.
Additional quad T1 Cards can be installed while the Access Navigator is in
service to provide from four to 32 T1/channel service unit connection ports.

Access Navigator products provide management access via Ethernet simple
network management protocol, Telnet CLI, RS-232 CLI, Navigator Pilot Graphical
User Interface, and GR-303 EOC (for the GR-303 + Data Host version).
Flow-through provisioning and testing control over ESF T1 connections, from the
Access Navigator to our Access Bank II and CACTUS.lite units, are designed to
reduce service provider truck rolls and improve voice and Internet service
availability at customer premise locations.

ACCESS NAVIGATOR/DCS SERVICE MANAGER-RELEASED: JANUARY 1999

The Access Navigator/DCS Service Manager provides a complete solution for
managing four to 32 T1 access connections in a highly integrated package. With
the functions of a 1/0 digital cross connect system, plus demarcation testing,
service providers are able to decrease maintenance costs and labor, while
increasing service availability.

ACCESS NAVIGATOR/GR-303 + DATA HOST -RELEASED: JANUARY 1999

The Access Navigator/GR-303 offers a highly integrated solution for
combining multi-line local voice and data services on customer T1 access lines.
In addition to the concentration and management of CLASS voice services, the
Access Navigator/GR-303 grooms fractional T1 data connections, including
Internet traffic, from customer locations. Fractional voice and data services
from multiple customers and applications are concentrated by the Access
Navigator to save recurring transmission costs, and capital costs on switch or
router ports.

NAVIGATOR PILOT: - RELEASED: JANUARY 2000

A new addition to the Access Navigator family, the Navigator Pilot,
provides a Graphical User Interface that eases the configuration of system
parameters and cross connection mappings. The Navigator Pilot can be used in a
standalone configuration or in conjunction with a customer's upper level Network
Management System.

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CACTUS FAMILY OF PRODUCTS

CACTUS is an innovative family of Broadband Digital Access devices
designed to enable carriers to offer existing and new broadband services at a
low-cost per network and service port. The CACTUS family will use TDM,
asynchronous transfer mode and Internet Protocol technologies and span a
wide-range of platforms scaling from single T1 or digital subscriber line-fed
devices to broadband.

CACTUS.LITE-RELEASED DECEMBER 1999

CACTUS.lite builds on Access Bank concepts, doubling voice circuit
density, and is designed to add digital subscriber line transport, ISDN BRI,
LAN/WAN router, OCU DataPort, Subrate Data Multiplexer DCE interfaces, and
expandable V.35 port capacity. Data and voice traffic can be groomed directly
across 16 T1/E1s (up to 512 DS0s) with the integrated 1/0 digital cross connect
at a fraction of the cost and size of previous solutions.

A unique feature of CACTUS.lite is its ability to support TDM, designed
with a migration path for asynchronous transfer mode, or inverse multiplexing
over asynchronous transfer mode network connections. Selection of a network
connection technology is simply a matter of choosing the appropriate controller
card and software options. No changes to the chassis or service cards are
required. Bandwidth can grow seamlessly as end-user customer service needs
increase. The product architecture is designed for scalability for
communications service providers, allowing them to deliver additional services
to end users and grow their access solution set as their business grows, without
costly replacement of customer located equipment.

CUSTOMERS

To date, a large portion of our sales are made through third-party
distributors to communications service providers, such as competitive local
exchange carriers, Internet service providers, independent operating carriers,
independent local exchange carriers, utilities and wireless service providers
who provide enhanced voice and high-speed data and Internet services to end user
businesses. In addition, we are selling a significant portion of our products
through direct sales. Listed below are our third-party distributors and a
partial list of communications service providers who we believe have purchased
our products based on information from our distributors and direct product
sales. We believe that all of these service provider customers are currently
using our products and are representative of our overall Customer base.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTORS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
ADC Telecommunications, Inc. (OEM) Power & Telephone Supply Co.
Advantage Telcom Solunet, Inc.
ALLTEL Supply, Inc. Somera Communications, Inc.
C&L Communications Sprint North Supply
Graybar Electric Company, Inc. Telsource Corporation
Phillips Communications and Equipment Co. Walker & Associates

<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
SERVICE PROVIDER CUSTOMERS
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ACC Long Distance Corporation Electric Lightwave, Inc. PSI Net, Inc.
Adelphia Communications Corporation Facilicom International, Inc. QWEST Communications International, Inc.
Airtouch Cellular Florida Digital Network RCN Corporation
Allegiance Telecom, Inc. Frontier Communications, Inc. Rochester Telephone
Alltel Affiliates Gabriel Communications, Inc. Southwestern Bell
AT&T Corp. Graybar Electric Company, Inc. Sprint Corporation
Avista Communications GTE Services Corporation TDS Metrocom
Broadview Networks Holdings, Inc. Harris Corporation Tech Data Corporation
Bell Atlantic Corporation ICG Communications Teligent, Inc.
BellSouth Corporation Integra Telecom Tharaldson Communications, Inc.
Birch Telecom, Inc. Intermedia Communications, Inc. Thrifty Call, Inc.
CenturyTel, Inc. Logix Communications Enterprises, Inc. Transaction Network Services, Inc.
Choice One Communications MCI Worldcom, Inc. US LEC Corp
Conectiv Communications MGC Communications, Inc. US Unwired LLC
Covad Communications Co. Nextlink Communications, Inc. US WEST, Inc.
Cox Communications, Inc. Optel Communications Corporation Vitts Networks
Dynetrix Corporation Pacific Bell Network Integration Winstar Wireless, Inc.
e.spire Communications, Inc. Project Interface Connections, Inc. Ziplink, Inc.
East Ascension Telephone Company Pontio Communications Company, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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Our customer base is distributed over 800 end users, however sales are
concentrated among a small number of distributors that have historically
accounted for a majority of our net revenue. For year ended December 31, 1999,
Walker & Associates and ADC Telecommunications accounted for 27% and 14%,
respectively, of net revenue. In 1998, Walker & Associates, Phillips
Communications and Equipment and Telsource Corporation accounted for 40%, 17%
and 15%, respectively, of net revenue. In addition to being dependent on a small
number of distributors for a majority of our net revenue, we believe our
products are distributed to a limited number of service provider customers who
are primarily competitive local service providers. We believe that in 1998,
thirty-five (35) service provider customers were the end users representing
approximately 83% of our net revenue and that in 1999, seventy-five (75) service
provider customers were the end users representing approximately 85% of our net
revenue.

SALES, MARKETING AND CUSTOMER SUPPORT

Sales. We currently employ a leveraged sales model consisting of a direct
sales force and a regional sales engineering support group, which works with
strategic accounts and with our 12 third-party distributors to identify
potential customers and provide pre- and post-sales support to our service
provider customers and other end users. Sales from third-party distributors
accounted for the majority of our revenues for the years ended December 31, 1998
and December 31, 1999.

Third-Party Distributors. Our distributors are responsible for fulfilling
product orders and warehousing product as well as identifying potential
customers. We establish relationships with distributors through written
agreements that provide prices, discounts and other material terms and
conditions under which the distributor is eligible to purchase our 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 our
products, although the contracts may be terminated at our discretion if
specified sales targets and end user satisfaction goals are not attained. We
generally provide our distributors with limited stock rotation and price
protection rights. Other than limited stock rotation rights, we do not provide
our distributors with general product return rights. We have limited knowledge
of the financial condition of certain of our distributors however, we are aware
that some of our distributors have limited financial and other resources which
could impair their ability to pay us. Although the financial instability of
these certain distributors has not limited any distributor's ability to pay us
for our products to date, we cannot assure you that any bad debt we incur will
not exceed our bad debt reserves or that the financial instability of one or
more of our distributors will not harm our business, financial condition or
results of operations. We have limited knowledge of the inventory levels of our
products carried by our original equipment manufacturers and distributors, and
our original equipment manufacturers and distributors have in the past reduced,
and may in the future reduce, planned purchases of our products due to
overstocking. Moreover, distributors who have overstocked our products have in
the past reduced, and may in the future reduce, their inventories of our
products by selling such products at significantly reduced prices. Any such
reduction in planned purchases or sales at reduced prices by distributors or
original equipment manufacturers in the future could reduce the demand for our
products, create conflicts with other distributors or harm our business. In
addition, three times a year, some of our distributors are allowed to return a
maximum of fifteen percent of our 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 our results
of operations, these returns through stock rotation could harm our future
operations. We believe we have made adequate allowances to provide for these
returns. We are generally required to give our distributors a 60-day notice of
price increases or decreases. In addition, we grant certain of our distributors
"most favored customer" terms, pursuant to which we have agreed to not knowingly
grant another distributor the right to resell our products on terms more
favorable than those granted to the existing distributor, without offering
equally favorable terms to the existing distributor. These price protection and
"most favored customer" clauses could cause a material decrease in the average
selling prices and gross margins of our products. Although, we believe that
price protection will not harm our business we cannot assure you that price
protection will not harm our business in the future.

Direct Sales. Currently, a significant portion of the sales of our
products are being made through direct sales efforts. As a result, our continued
success depends on building and maintaining good relations with our direct
customers. We have limited knowledge of the financial condition of certain of
our direct customers; however, we are aware that some of our direct customers
have limited financial and other resources which could impair their ability to
pay us, although the financial instability of these direct customers has not
limited any direct customer's ability to pay us for our products to date. We
cannot assure you that any bad debts that we incur will not exceed our reserves
or that the financial instability of one or more of our direct customers will
not harm our business, financial condition or results of operations. Any
reduction in planned purchases by direct customers in the future could harm our
business. In addition, we grant certain of our direct customers "most favored
customer" terms, pursuant to which we have agreed to not knowingly provide
another direct customer with similar terms and conditions a better price than
those provided to the existing direct customer, without offering the more
favorable prices to the existing direct customer. It is possible that these
price protection and "most favored customer" clauses could cause a material
decrease in the average selling prices and gross margins of our products, which
could harm our business, financial condition or results of operations.
Currently, our direct customers do not have any obligation to purchase
additional products. Accordingly,

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we cannot assure you that present or future direct customers will not terminate
their purchasing arrangements with us, or that they will not significantly
reduce or delay the amount of our products that they order. Any such
termination, change, reduction or delay in orders could harm our business.

Sales Engineering Support. Our sales engineering support group is
responsible for product configuration, evaluation, installation and telephone
sales support activities. Our sales support and sales engineering strategy
focuses on assisting service providers and end users in rapidly integrating our
products into their networks. The sales engineering support group identifies
service provider and end user leads and, based on initial presentations,
provides evaluation units for trial in communication service provider and end
user networks. After successful trial and approval, the service provider or end
user is provided with product installation and maintenance training. The sale of
our products averages between four and twelve months in the case of certain
service providers (including competitive local exchange carriers and service
providers), but can take significantly longer in the case of independent local
exchange carriers and certain distributors and other end users. Initially, our
sales engineering support group is involved in educating service providers and
end users on the functionality and benefits that may be derived from using our
products. Subsequently, members of both our sales engineering and research and
development organizations are involved in providing the service provider or end
user with the required training and technical support to integrate our products
into a new application or service.

Marketing. Our marketing organization develops strategies for product
families and, along with the sales force, develops key account strategies and
defines product and service functions and features. Marketing is responsible for
sales support, request for information, request for quotes and request for
proposals, 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. We engage in a number of marketing activities that
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, in order to create awareness, market demand and sales
opportunities for our products.

Customer Service and Support. Based on customer support calls, we believe
that ongoing customer support is critical to maintaining and enhancing
relationships with service providers, end users and distributors. The service
provider and end user support group has five functions: new product development,
that provides for product ideas and enhancements based on customer requirements
through the pre- and post-sales support effort; inbound technical support, that
focuses on pre- and post-sales calls made to us from our customers; outbound
application support and response to request for proposals and request for
quotations; training, including installation and application development
training for customers, sales engineers and employees; and reporting and
analysis based on the automated trouble ticket and returned material systems.

COMPETITION

There is intense competition in the telecommunications equipment market
with a large number of suppliers providing a variety of products to diverse
market segments. We believe that the principal competitive factors in our
markets include: performance and reliability; flexibility, scalability and
ease-of-use; breadth of features and benefits; end-to-end management systems,
and a lower initial and lifetime cost. We believe our product solutions compete
favorably with respect to each of these factors.

Our 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. Our principal competitors for our Access Bank,
InLoop and CACTUS.lite product family include Adtran, Inc. ("Adtran"), Advanced
Fibre Communications, Inc. ("AFC"), Cisco Systems, Inc. ("Cisco"), General
DataCom Industries, Inc. ("General DataCom"), Lucent Technologies, Inc.
("Lucent"), NEC USA, Inc. ("NEC"), Newbridge Networks Corporation ("Newbridge"),
Northern Telecom Limited ("Nortel"), PairGain Technologies, Inc. ("Pairgain"),
Paradyne Corporation ("Paradyne"), and other small private companies. Our
principal competitors for our Wide Bank product family include Adtran, Alcatel
Alsthom Compagnie Generale d'Electricite ("Alcatel"), NEC, Nortel, and other
small private companies. Our principal competitors for our Access Navigator
product family include Advanced Fibre Communications, Inc. ("AFC"), Alcatel
Alsthom Compagnie Generale d'Electricite ("Alcatel"), Cisco Systems, Lucent
Technologies, Inc. ("Lucent"), Newbridge Networks Corporation ("Newbridge"),
Northern Telecom Limited ("Nortel"), Telect, Inc. ("Telect"), Tellabs, Inc.
("Tellabs") and other small private companies. We expect that many of our
competitors who currently offer products competitive with only one of our
product lines will eventually offer products competitive with all of our product
lines. In addition, many start-up companies have recently begun to manufacture
products similar to those offered by us. Due to the rapidly evolving markets in
which we compete, 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 our distributors is
currently competing with us, and there can be no assurance that additional
distributors will not begin to develop or market products in competition with
us.

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Many of our current and potential competitors are substantially larger
than us and have significantly greater financial, sales and marketing,
technical, manufacturing and other resources and more established channels of
distribution. As a result, these 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 we can. These competitors may enter our existing or future markets
with solutions that may be less costly, provide higher performance or additional
features or be introduced earlier than our solutions. Many communications
companies have large internal development organizations that develop software
solutions and provide services similar to our products and services. These
communications companies also make a regular practice of acquiring smaller
technology companies to gain entrance into our markets, further accelerating
their product development efforts. Some of our competitors currently offer more
lucrative financing alternatives to their customers than we provide at this
time. Although we are currently offering third party financing alternatives to
our service provider customers, there can be no assurance that we will be able
to secure financing for all of our service provider customers. We expect our
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 our
competitors could cause a significant decline in sales or loss of market
acceptance of our products and services, which could result in continued intense
price competition or could make our products and services or technologies
obsolete or noncompetitive. To be competitive, we will be required to continue
investing significant resources in research and development and sales and
marketing. There can be no assurance that we will have sufficient resources to
make such investments or that we 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
our 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 our business. We cannot assure you that we will be able to
compete successfully against current or future competitors or that competitive
pressures will not have a material adverse effect on our business.

MANUFACTURING

Our manufacturing operations consist of materials planning and
procurement, final assembly, product assurance testing, quality control, and
packaging and shipping. We currently use several independent manufacturers to
provide certain printed circuit boards, chassis and subassemblies. We have
developed a manufacturing process that enables us to configure our products to
be adapted to different customer hardware and software applications at the final
assembly stage. This flexibility is designed to reduce both our manufacturing
cycle time and our need to maintain a large inventory of finished goods. We
believe that the efficiency of our manufacturing process to date is largely due
to our product architecture and our commitment to manufacturing process design.

We spend significant engineering resources producing customized software
and hardware to assure consistently high product quality. We test every product
both during and after the assembly process using internally developed automated
product assurance testing procedures. These procedures consist of automated
board and automated system testing as well as environmental testing. Through
December 31, 1999, we had experienced a return rate for defective products of
less than one percent. Although we generally use standard parts and components
for our products, many key components are purchased from sole or single source
vendors for that alternative sources are not currently available. We cannot
assure you that we will not experience supply problems in the future from any of
our manufacturers or vendors. Any such difficulties could harm our business.

RESEARCH AND PRODUCT DEVELOPMENT

We focus our development efforts on providing enhanced functionality to
our 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 our monitoring of end
user needs and changes in the marketplace. Our current product development focus
has been on developing digital broadband access solutions and completing new
products such as the recently introduced CACTUS.lite and Access Navigator
product families. We believe that our success will depend, in part, on our
ability to develop and introduce in a timely fashion new products and
enhancements to our existing products. We have in the past made, and intend to
continue to make, significant investments in product and technological
development. Our engineering, research and development expenditures totaled
approximately $2.8 million, $5.6 million and $13.6 million in 1997, 1998 and
1999, respectively. We perform our research and product development activities
at our principal offices in Boulder, Colorado and we recently added an
additional research and product development center in Tulsa, Oklahoma. Our
inability to develop on a timely basis new products or enhancements to existing
products, or the failure of these new products or enhancements to achieve market
acceptance, could have a material adverse effect on our business.

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PATENTS, LICENSES AND PROPRIETARY INFORMATION

We rely upon a combination of patent, copyright and trademark and trade
secret laws as well as confidentiality procedures and contractual restrictions
to establish and protect our proprietary rights. We have also entered into
confidentiality agreements with our employees and consultants and we enter into
non-disclosure agreements with our suppliers and distributors so as to limit
access to and disclosure of our proprietary information. We cannot assure you
that such measures will be adequate to deter and prevent misappropriation of our
technologies or independent third-party development of similar technologies. The
laws of certain foreign countries in which our products are or may be developed,
manufactured or sold may not protect our 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 our technology and products more likely.

As of March 1, 2000, we had been issued a total of six U.S. patents and we
had a total of nine U.S. patent applications pending. The issued patents cover
various aspects of: voice and data circuits; switching technologies and
redundancy. The U.S. patents begin to expire commencing in the year 2015. We
also have eight U.S. trademark applications pending, five international
trademark applications pending, and four trademarks registered. A large number
of patents and frequent litigation based on allegations of patent infringement
exist within the telecommunications industry. From time to time, third parties
may assert patent, copyright, trademark and other intellectual property rights
to technologies that are important to us. Although we have not received
communications from third parties asserting that our products infringe or may
infringe proprietary rights of third parties, we have no assurance that any
future claims, if determined adversely to us, would not have a material adverse
effect on our business, financial condition or results of operations.

EMPLOYEES

At March 31, 2000, we employed 349 full-time employees in twenty states.
Additionally, we employ a number of engineering and other employees on a
part-time basis. No employees are covered by any collective bargaining
agreements. We believe that our relationships with our employees are good. The
loss of any of our key management or technical personnel could harm us.

Many of our employees are highly skilled, and our continued success
depends in part upon our ability to attract and retain such employees. In an
effort to attract and retain such employees, we continue to offer employee
benefit programs that we believe are at least equivalent to those offered by our
competitors. Despite these programs, we along with most of our competitors, have
experienced difficulties at times in hiring and retaining certain skilled
personnel. In critical areas, we have utilized consultants and contract
personnel to fill these needs until full-time employees could be recruited. We
have never experienced a work stoppage, none of our domestic employees are
represented by a labor organization, and we believe our employee relations to be
good.

There are no family relationships between any of our executive officers,
other than that between Mr. Koenig and Ms. Pierce.

RISK FACTORS

Investors should carefully consider the risks described below before
making an investment decision. The risks described below are not the only ones
facing our company. Additional risks not presently known to us or that we
currently believe are immaterial may also impair our business operations. Our
business could be harmed by any of these risks. The trading price of our common
stock could decline due to any of these risks and investors may lose all or part
of their investment. In assessing these risks, investors should also refer to
the other information contained or incorporated by reference in this Form 10-K
Report, including our consolidated financial statements and related notes.

WE HAVE A LIMITED OPERATING HISTORY.

We have a limited operating history. We did not begin commercial
deployment of our broadband digital access equipment until the summer of 1995.
Prior to 1997, we recorded only nominal product revenue, and we have been
profitable on an annual basis for only three years. Accordingly, an investor in
our common stock must evaluate the risks, uncertainties and difficulties
frequently encountered by early stage companies in rapidly evolving markets such
as the communications equipment industry. Some of these risks, in addition to
those risks disclosed elsewhere in this "Risk Factors" section, include:

o significant fluctuations in quarterly operating results;

o the intensely competitive market for communications equipment;

o the expenses and challenges encountered in expanding our sales,
marketing and research and development infrastructure;

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o the risks related to our timely introduction of new packet based
products and product enhancements; and

o the risks associated with increased business development and
expansion of our operations.

Due to our limited operating history and experience with respect to these
issues, we may not successfully implement any of our strategies or successfully
address these risks and uncertainties.

OUR QUARTERLY RESULTS FLUCTUATE SIGNIFICANTLY, AND WE MAY NOT BE ABLE TO
MAINTAIN OUR EXISTING GROWTH RATES.

Although our revenues have grown significantly in recent quarters, these
growth rates may not be sustainable, as is evidenced by our Access Bank revenue,
and you should not use these past results to predict future revenue or operating
results. Our quarterly and annual operating results have fluctuated in the past
and may vary significantly in the future. Our future operating results will
depend on many factors, many of which are outside of our control, including the
following:

o the size of the orders for our products, and the timing of such
orders;

o the commercial success of our products, and our ability to ship
enough products to meet customer demand;

o changes in the financial stability of our distributors, customers or
suppliers;

o changes in our pricing policies or the pricing policies of our
competitors;

o fluctuations in ordering due to increased direct sales to customers;
o potential bad debt due to increased direct sales;

o inability to obtain third party financing for our service provider
customers;

o seasonal fluctuations in the placement of orders;

o changes in our distribution channels;

o potential delays or deferrals in our product implementation at
customer sites;

o technical problems in customizing or integrating our products with
end users' systems, and potential product failures or errors;

o certain government regulations; and

o general economic conditions as well as those specific to the
communications equipment industry.

A significant portion of our net revenue has been derived from a limited
number of large orders, and we believe that this trend will continue in the
future, especially if the percentage of direct sales to end users increases as
we anticipate. The timing of these orders and our ability to fulfill them can
cause material fluctuations in our operating results, and we anticipate that
such fluctuations will occur. Also, our distribution and purchase agreements
generally allow our distributors and direct customers to postpone or cancel
orders without penalty until a relatively short period of time prior to
shipment. In the past, we have occasionally experienced cancellations and delays
of orders, and we expect to continue to experience order cancellations and
delays from time to time in the future. Any shortfall in orders would harm our
operating income for a quarter or series of quarters, especially since operating
expenses in a quarter are relatively fixed, and these fluctuations could affect
the market price of our common stock.

Because most all of our sales have historically been through indirect
distribution channels, our ability to judge the timing and size of individual
orders is more limited than for manufacturers who have been selling directly to
the end users of their products for longer periods of time. Moreover, any
downturn in general economic conditions could lead to significant reductions in
customer spending for telecommunications equipment, which could result in delays
or cancellations of orders for our products. Our operating expenses are based on
our expectations of future revenues and are relatively fixed in the short term.
Due to these and other factors, if our quarterly or annual revenues fall below
the expectations of securities analysts and investors, the trading price our
common stock could significantly decline.

WE DEPEND ON EMERGING SERVICE PROVIDERS FOR SUBSTANTIALLY ALL OF OUR BUSINESS.

Up until now, our customers have consisted primarily of competitive local
exchange carriers and, to a lesser extent, long distance service providers,
Internet service providers, independent operating carriers and wireless service
providers. The market for the services provided by the majority of these service
providers has only begun to emerge since the passage of the Telecommunications
Act of 1996 (the "1996 Act"), and many new and existing service providers are
continuing to build their networks and infrastructure and rolling out their
services in new geographical areas. These new service providers require
substantial capital for the development, construction and expansion of their
networks and the introduction of their services.

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The ability of these emerging service providers to fund such expenditures often
depends on their ability to obtain sufficient financing. This financing may not
be available to many of these emerging service providers on favorable terms, if
at all. If our current or potential emerging service provider customers cannot
successfully raise the needed funds, or if they experience any other trends
adversely affecting their operating results or profitability, these service
providers' capital spending programs may be adversely impacted. If our current
or potential service provider customers are forced to defer or curtail their
capital spending programs, our sales and operating results will likely be
harmed.

In addition, many of the industries in which the service providers operate
have recently experienced consolidation. In particular, many telecommunication
service providers have recently acquired, been acquired or merged with Internet
service providers or other service providers. The loss of one or more of our
service provider customers, through industry consolidation or otherwise, could
have a material adverse effect on our sales and operating results.

OUR CUSTOMERS ARE SUBJECT TO HEAVY GOVERNMENT REGULATION IN THE
TELECOMMUNICATIONS INDUSTRY, AND REGULATORY UNCERTAINTY MAY HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS.

Competitive local exchange carriers are allowed to compete with
independent local exchange carriers in the provisioning of local exchange
services primarily as a result of the adoption of regulations under the 1996 Act
that impose new duties on independent local exchange carriers to open their
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. Such uncertainties
include judicial and administrative proceedings designed to define rights and
obligations pursuant to the 1996 Act, actions or inaction by independent local
exchange carriers or other service providers 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 the 1996 Act or the regulations adopted
thereunder, 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 impact upon the market for our products.

We are 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. Furthermore,
Congress has indicated that it may hold hearings to gauge the competitive impact
of the 1996 Act, and we cannot assure you that Congress will not propose changes
to the Act. This litigation and potential regulatory changes may delay further
implementation of the 1996 Act, which could hurt demand for our products.
Moreover, our distributors or service provider customers may require that we
modify our products to address actual or anticipated changes in the regulatory
environment. Further, we may decide to modify our products to meet these
anticipated changes. Our inability to modify our products in a timely manner or
address such regulatory changes could harm our business.

OUR MARKETS ARE HIGHLY COMPETITIVE AND HAVE MANY MORE ESTABLISHED COMPETITORS.

The market for our products is intensely competitive, with a large number
of equipment suppliers providing a variety of products to diverse market
segments within the telecommunications industry. Our 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. Our
principal competitors for our Access Bank product family include Adtran, General
Datacom, Lucent, Newbridge, Nortel, Pairgain, Paradyne and other small private
companies. Our principal competitors for our Wide Bank product family include
Adtran, Alcatel, Fujitsu, NEC other small private companies. Our principal
competitors for our Access Navigator product family include AFC, Alcatel, Cisco,
DSC, Lucent, Nortel, Telect, Tellabs and other small private companies. We
expect that many of our competitors who currently offer products competitive
with only one of our product lines will eventually offer products competitive
with all of our product lines. In addition, many start-up companies have
recently begun to manufacture products similar to ours. Due to the rapidly
evolving markets in which we compete, additional competitors with significant
market presence and financial resources, including large telecommunications
equipment manufacturers and computer hardware and software companies, may enter
these markets through acquisition, thereby further intensifying competition.
Additionally, one of our distributors is currently competing with us, and
additional distributors may begin to develop or market products that compete
with our products.

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could cause a significant decline in sales or loss of market acceptance of our
products. Competitive products may also cause continued intense price
competition or render our products or technologies obsolete or noncompetitive.

To be competitive, we will have to continue to invest significant
resources in research and development and sales and marketing. We cannot assure
you that we will have sufficient resources to make such investments or that we
will be able to make the technological advances necessary to be competitive. In
addition, our 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 our 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 harm our business.

WE ARE SUBSTANTIALLY DEPENDENT ON OUR DISTRIBUTION CHANNELS.

To date, a large portion of the sales of our products has been made
through distributors. Our distributors are responsible for warehousing product
and fulfilling product orders as well as servicing potential competitive service
provider customers and, in some cases, customizing and integrating our products
at end users' sites. As a result, our success depends on maintaining good
relations with our distributors. Sales of our products historically have been
made to a limited number of distributors and other direct customers, as follows:

o In 1998, Walker, Phillips and Telsource accounted for 40%, 17% and
15% of net revenue, respectively.

o In 1999, Walker and ADC accounted for 27% and 14% of net revenue,
respectively.

We expect that a significant portion of sales of our products will
continue to be made to a small number of distributors. Accordingly, if we lose
any of our key distributors, or experience reduced sales to such distributors,
our business would likely be harmed.

We have limited knowledge of the financial condition of certain of our
distributors, however, we are aware that some of our distributors have limited
financial and other resources which could impair their ability to pay us,
although the financial instability of these certain distributors has not limited
any distributor's ability to pay us for our products to date. We cannot assure
you that any bad debts that we incur will not exceed our reserves or that the
financial instability of one or more of our distributors will not harm our
business, financial condition or results of operations.

We generally provide our distributors with limited stock rotation and
price protection rights. Other than limited stock rotation rights, we do not
provide our distributors with general product return rights. We have limited
knowledge of the inventory levels of our products carried by our original
equipment manufacturers and distributors, and our original equipment
manufacturers and distributors have in the past reduced planned purchases of our
products due to overstocking. Such reductions in purchases due to overstocking
may occur again in the future. Moreover, distributors who have overstocked our
products have in the past reduced their inventories of our products by selling
such products at significantly reduced prices, and this may occur again in the
future. Any reduction in planned purchases or sales at reduced prices by
distributors or original equipment manufacturers in the future, could reduce the
demand for our products, create conflicts with other distributors or otherwise
harm our business. In addition, three times a year certain distributors are
allowed to return a maximum of fifteen percent of our unsold products for an
equal dollar amount of new equipment. The products must have been held in stock
by such distributor and have been purchased within the four month period prior
to the return date. While to date these returns have not had a material impact
on our results of operations, we cannot assure you that we will not experience
significant returns in the future or that we will make adequate allowances to
offset these returns. We believe it has made adequate allowances for these
returns to date.

We are generally required to give our 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 the event of a price decrease, we are
sometimes required to credit distributors the difference in price for any stock
they have in their inventory. In addition, we grant certain of our distributors
"most favored customer" terms, pursuant to which we have agreed to, not
knowingly, grant another distributor the right to resell our products on terms
more favorable than those granted to the existing distributor, without offering
the more favorable terms to the existing distributor. It is possible that these
price protection and "most favored customer" clauses could cause a material
decrease in the average selling prices and gross margins of our products, which
could in turn have a material adverse effect on distributor inventories, our
business, financial condition or results of operations.

In addition to being dependent on a small number of distributors for a
majority of our net revenue, we believe our products are distributed to a
limited number of service provider customers who are primarily competitive local
exchange carriers. None of these service provider customers has any obligation
to purchase additional products. Accordingly, we cannot assure you that present
or future customers will not terminate their purchasing arrangements with either
us or our distributors, or that they will not significantly reduce or delay the
amount of our products that they order. Any such termination, change, reduction
or delay in orders could harm our business.

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WE ARE SUBSTANTIALLY DEPENDANT ON OUR DIRECT SALES AND DIRECT CUSTOMERS.

Currently, a significant portion of the sales of our products are being
made through direct sales. As a result, our continued success depends on
building and maintaining good relations with our direct customers.

We have limited knowledge of the financial condition of certain of our
direct customers, however, we are aware that some of our direct customers have
limited financial and other resources which could impair their ability to pay
us, although the financial instability of these direct customers has not limited
any direct customer's ability to pay us for our products to date. We cannot
assure you that any bad debts that we incur will not exceed our reserves or that
the financial instability of one or more of our direct customers will not harm
our business, financial condition or results of operations.

Any reduction in planned purchases by direct customers in the future could
harm our business. In addition, we grant certain of our direct customers "most
favored customer" terms, pursuant to which we have agreed to not knowingly
provide another direct customer with similar terms and conditions a better price
than those provided to the existing direct customer, without offering the more
favorable prices to the existing direct customer. It is possible that these
price protection and "most favored customer" clauses could cause a material
decrease in the average selling prices and gross margins of our products, which
could, in turn, harm our business.

Currently, our direct customers do not have any obligation to purchase
additional products. Accordingly, we cannot assure you that present or future
direct customers will not terminate their purchasing arrangements with us, or
that they will not significantly reduce or delay the amount of our products that
they order. Any such termination, change, reduction or delay in orders could
harm our business.

OUR GROWTH IS DEPENDENT UPON SUCCESSFULLY MAINTAINING AND EXPANDING OUR
DISTRIBUTION CHANNELS AND DIRECT SALES.

Our future net revenue growth will depend in large part on the following
factors:

o our success in maintaining our current distributor and direct
relationships; and

o diversifying our distribution channels by selling to new
distributors and to new direct customers.

MAINTAINING AND EXPANDING OUR CURRENT SERVICE PROVIDER CUSTOMER BASE

Most of our existing distributors currently distribute and use the product
lines of our competitors. Some of our existing distributors may in the future
distribute or use other competitive product lines. We cannot assure you that we
will be able to attract and retain a sufficient number of our existing or future
distributors and direct customers or that they will recommend, or continue to
use, our products or that our distributors will devote sufficient resources to
market and provide the necessary customer support for such products. In the
event that any of our current distributors or direct customers reduce their
purchases of our products, or that we fail to obtain future distributors or
direct customers, our business could be harmed.

In addition, it is possible that our distributors will give a higher
priority to the marketing and customer support of competitive products or
alternative solutions than to our products. Further, we cannot assure you that
our distributors will continue to offer our products. Our distributor
relationships are established through formal agreements that generally (1) do
not grant exclusivity, (2) do not prevent the distributor from carrying
competing product lines and (3) do not require the distributor to purchase any
minimum dollar amount of our products. Additionally, our distribution agreements
do not attempt to allocate certain territories for our products among our
distributors. To the extent that different distributors target the same end
users of our products, distributors may come into conflict with one another,
which could damage our relationship with, and sales to, such distributors.

OUR OPERATING RESULTS ARE SUBSTANTIALLY DEPENDENT ON SOLE AND SINGLE SOURCE
SUPPLIERS.

Although we generally use standard parts and components for our products,
many key parts and components are purchased from sole source vendors that
alternative sources are not currently available. We currently purchase over 25
key components from vendors that there is currently no substitute, and we
purchase over 150 key components from single vendors. In addition, we rely on
several independent manufacturers to provide certain printed circuit boards,
chassis and subassemblies for our products. Our 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 harm
our business, financial condition or results of operations. In the event of a
reduction or interruption of supply, we may need as much as six months before we
would begin receiving adequate supplies from alternative suppliers, if any. We
cannot assure you that any such source would become available to us or that any
such source would be in a position to satisfy our production requirements on a
timely basis, if at all. In such event, our business would be materially harmed.

In addition, manufacturing certain of these single or sole source
components is extremely complex, and our reliance on the suppliers of these
components, especially for newly designed components, exposes us to potential
production difficulties and quality variations that they experience, which has
negatively impacted cost and timely delivery of our products. Any

Page 16 of 47
<PAGE>

significant interruption in the supply, or degradation in the quality, of any
such component could have a material adverse effect on our business, financial
condition or results of operations.

OUR ABILITY TO MEET CUSTOMER DEMAND DEPENDS ON THE AVAILABILITY OF OUR
COMPONENTS.

Our distributors and direct customers frequently require rapid delivery
after placing an order. Because we do not maintain significant component
inventories, delays in shipment by one of our suppliers have lead to lost sales
and sales opportunities. Lead times for materials and components vary
significantly and depend on many factors, some of which are beyond our control,
such as specific supplier performance, contract terms and general market demand
for components. If distributor orders vary significantly from forecasts, we may
not have enough inventory of certain materials and components to fill orders.
Any shortages in the future, including those occasioned by increased sales,
could result in delays in fulfillment of customer orders. Such delays could harm
our business.

OUR DEPENDENCE ON INDEPENDENT MANUFACTURERS COULD RESULT IN PRODUCT DELIVERY
DELAYS.

We currently use several independent manufacturers to provide certain
components, printed circuit boards, chassis and subassemblies. Our reliance on
independent manufacturers involves a number of risks, including the potential
for inadequate capacity, the unavailability of, or interruptions in access to
certain process technologies, and reduced control over delivery schedules,
manufacturing yields and costs. Some of our manufacturers and suppliers are
undercapitalized, and such manufacturers or suppliers may be unable in the
future to continue to provide manufacturing services or components to us. If
these manufacturers are unable to manufacture our components in required
volumes, we will have to identify and qualify acceptable additional or
alternative manufacturers, which could take in excess of nine months. We cannot
assure you that any such source would become available to us or that any such
source would be in a position to satisfy our production requirements on a timely
basis, if available. Any significant interruption in our supply of these
components would result in delays or in the allocation of products to customers,
which in turn could have a material adverse effect on our business, financial
condition or results of operations. Moreover, since all of our final assembly
and test operations are performed in one location, any fire or other disaster at
our assembly facility would harm our business.

OUR EXECUTIVE OFFICERS AND CERTAIN KEY PERSONNEL ARE CRITICAL TO OUR BUSINESS,
AND THESE OFFICERS AND KEY PERSONNEL MAY NOT REMAIN WITH US IN THE FUTURE.

Our success depends to a significant degree upon the continued
contributions of our Chief Executive Officer, Chief Financial Officer and our
key management, sales, engineering, customer support and product development
personnel, many of whom would be difficult to replace. In particular, the loss
of Roger Koenig, President and Chief Executive Officer, who co-founded us, could
harm us. We believe that our future success will depend in large part upon our
ability to attract and retain highly skilled managerial, sales, customer support
and product development personnel. Competition for qualified personnel in our
industry and geographic location is intense, and we cannot assure you that we
will be successful in attracting and retaining such personnel. We do not have
employment contracts with any of our 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 harm our business.

OUR ABILITY TO MANAGE OUR GROWTH WILL AFFECT OUR BUSINESS.

We have experienced rapid growth in net revenue and expansion of our
operations, and we anticipate that further significant expansion will be
required to address potential growth in our customer base and market
opportunities. Such growth continues to place significant strain on our
management, information systems, operations and resources. For example, in the
past we have experienced minor shipping errors primarily as a result of training
new personnel in the face of a period of rapid growth. Our ability to manage any
future growth will continue to depend upon the successful expansion of our
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 us to hire more engineering, sales and marketing and
administrative personnel, expand customer support capabilities, expand
management information systems and improve our inventory management practices.

Recruiting qualified personnel is an intensely competitive and
time-consuming process. We cannot assure you that we will be able to attract and
retain the necessary personnel to accomplish our growth strategies or that we
will not experience constraints that will harm our ability to satisfy customer
demand in a timely fashion or to satisfactorily support our customers and
operations. We cannot assure you that we will not experience significant
problems with respect to any infrastructure expansion or the attempted
implementation of systems, procedures and controls. If our management is unable
to manage growth effectively, our business could be harmed.

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<PAGE>

OUR GROWTH IS DEPENDENT ON OUR INTRODUCTION OF NEW PRODUCTS AND ENHANCEMENTS
TO EXISTING PRODUCTS, AND ANY DELAY IN CUSTOMERS' TRANSITION TO OUR NEW
PRODUCTS COULD ADVERSELY AFFECT OUR BUSINESS.

Our success depends on our ability to enhance our existing products and to
timely and cost-effectively develop new products including features that meet
changing end user requirements and emerging industry standards. However, we
cannot assure you that we will be successful in identifying, developing,
manufacturing, and marketing product enhancements or new products that will
respond to technological change or evolving industry standards. We intend to
continue to invest significantly in product and technology development. We have
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. It is possible that
we will experience similar or other difficulties in the future that could delay
or prevent the successful development, production or shipment of such new
products or enhancements, or that our new products and enhancements will not
adequately meet the requirements of the marketplace and achieve market
acceptance. Announcements of currently planned or other new product offerings by
us or our competitors have in the past caused, and may in the future cause,
distributors or end users to defer or cancel the purchase of our existing
products. Our 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 harm our business.

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. Our introduction of new or
enhanced products will also require us 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. We have historically
reworked certain of our products, previously sold, in order to add new features
which were included in subsequent release of such product. We can give no
assurance that these historical practices will not occur in the future and cause
us to record lower revenue or negatively affect our gross margins.

We believe that average selling prices and gross margins for our products
will decline as such products mature and as competition intensifies. To offset
declining selling prices, we believe that we must successfully reduce the costs
of production of our 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. We may not be able to achieve the desired cost
savings. To the extent that we are unable to reduce costs sufficiently to offset
any declining average selling prices or we are unable to introduce enhanced
products with higher selling prices, our gross margins will decline, and such
decline would harm our business.

OUR PRODUCTS MAY SUFFER FROM DEFECTS OR ERRORS THAT MAY SUBJECT US TO PRODUCT
RETURNS AND PRODUCT LIABILITY CLAIMS.

Our 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. Despite our extensive testing, errors, defects or failures are
possible in our current or future products or enhancements. If such defects
occur after commencement of commercial shipments, the following may happen:

o delay in or loss of market acceptance and sales;

o product returns;

o diversion of development resources resulting in new product
development delay;

o injury to our reputation; or

o increased service and warranty costs.

Any of these results could have a material adverse effect on our business.
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 our products, which would harm our
customer relationships as well.

Although we have not experienced any product liability claims to date, the
sale and support of our products entails the risk of such claims, and it is
possible that we will be subject to such claims in the future. A successful
product liability claim brought against us could harm our business. Our
agreements with our distributors and direct customers typically contain
provisions designed to limit our exposure to potential product liability claims.
However, it is possible that the limitation of liability provisions contained in
our agreements may not be effective or adequate under the laws of certain
jurisdictions.

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<PAGE>

A LONGER THAN EXPECTED SALES CYCLE MAY AFFECT OUR REVENUES AND OPERATING
RESULTS.

The sale of our broadband digital access products averages approximately
four to nine months in the case of service providers, but can take significantly
longer in the case of incumbent local exchange carriers and other end users.
This process is often subject to delays over which we have little or no control,
including (1) a distributor's or a service provider's budgetary constraints, (2)
distributor or service provider internal acceptance reviews, (3) the success and
continued internal support of service provider's own development efforts, and
(4) the possibility of cancellation or delay of projects by distributors or
service providers. In addition, as service providers have matured and grown
larger, their purchase process may become more institutionalized, and it will
become increasingly difficult, and requires more of our time and effort, to gain
the initial acceptance and final adoption of our products by these end users.
Although we attempt to develop our products with the goal of facilitating the
time to market of our service provider's products, the timing of the
commercialization of a new distributor or service provider applications or
services based on our products is primarily dependent on the success and timing
of a service provider's own internal deployment program. Delays in purchases of
our products can also be caused by late deliveries by other vendors, changes in
implementation priorities and slower than anticipated growth in demand for our
products. A delay in, or a cancellation of, the sale of our products could harm
our business and cause our results of operations to vary significantly from
quarter to quarter.

WE MUST KEEP PACE WITH RAPID TECHNOLOGICAL CHANGE TO REMAIN COMPETITIVE.

The communications marketplace is characterized by (1) rapidly changing
technology, (2) evolving industry standards, (3) changes in end user
requirements and (4) frequent new product introductions and enhancements that
may render our existing products obsolete. We expect that new packet based
technologies will emerge as competition in the communications industry increases
and the need for higher volume and more cost efficient transmission equipment
expands. Industry standards for MDA 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 business market were to broadly adopt telecommunications
equipment based on cable modems or cable telephony, sales of our existing or
future products could be significantly diminished. As standards and technologies
evolve, we will be required to modify our products or develop and support new
versions of our products. The failure of our products to comply, or delays in
achieving compliance, with the various existing and evolving industry standards
could harm sales of our current products or delay introduction of our future
products.

FAILURE TO MEET FUTURE CAPITAL NEEDS MAY ADVERSELY AFFECT OUR BUSINESS.

We require substantial working capital to fund our business. As of
December 31, 1999, we had approximately $65.3 million in cash and short-term
investments. We believe that such cash and cash equivalents, together with cash
generated by operations, if any, will be sufficient to meet our capital
requirements for at least the next twelve months. However, our capital
requirements depend on several factors, including the rate of market acceptance
of our products, the ability to expand our client base, the growth of sales and
marketing and other factors. If capital requirements vary materially from those
currently planned, we may require additional financing sooner than anticipated.
If additional funds are raised through the issuance of equity securities, the
percentage ownership of our stockholders will be reduced, stockholders may
experience additional dilution, or such equity securities may have rights,
preferences or privileges senior to those of the holders of our common stock.
Additional financing may not be available when needed on terms favorable to us
or at all. If adequate funds are not available or are not available on
acceptable terms, we may be unable to develop or enhance our services, take
advantage of future opportunities or respond to competitive pressures, which
could harm our business.

CONTINUED EXPANSION OF THE MARKET FOR COMMUNICATIONS SERVICES IS NECESSARY FOR
OUR FUTURE GROWTH.

Our success will also depend on continued growth in the market for
communications services. The global communications marketplace is evolving, and
it is difficult to predict our potential size or future growth rate. We cannot
assure you that this market will continue to grow. Moreover, increased
regulation may 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
we currently anticipate, our business would be harmed.

OUR FAILURE TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS MAY ADVERSELY
AFFECT US.

We rely primarily on a combination of patent, copyright, trademark and
trade secret laws, as well as confidentiality procedures and contractual
restrictions, to establish and protect our proprietary rights. As of March 1
2000, we have been issued a total of six U.S. patents, we have nine additional
patent that are pending issuance, of which one is allowable. We also have four
U.S. registered trademarks, eight U.S. trademark application pending and five
international trademark applications pending. We have also entered into
confidentiality agreements with all of our employees and consultants and entered
into non-disclosure agreements with our suppliers, customers and distributors in
order to limit access to and disclosure of our proprietary information. However,
such measures may not be adequate to deter and prevent misappropriation of our
technologies or independent third-party development of similar technologies.

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<PAGE>

Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy aspects of our products or to obtain and use trade
secrets or other information that we regard as proprietary. Further, we may be
subject to additional risks as we enter into transactions in foreign countries
where intellectual property laws do not protect our proprietary rights as fully
as do the laws of the U.S. We cannot assure you that our competitors will not
independently develop similar or superior technologies or duplicate any
technology that we have. Any such events could harm our business.

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 our markets increases and the
functionality of our products is enhanced and overlaps with the products of
other companies, we 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 us. We have
no assurance that any future claims, if determined adversely to us, would not
harm our business. In our distribution agreements, we agree to indemnify
distributors and service provider 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 we may have received from the distributor.

In the event litigation is required to determine the validity of any
third-party claims, such litigation, whether or not determined in our favor,
could result in significant expense to us, divert the efforts of our technical
and management personnel or cause product shipment delays. In the event of an
adverse ruling in any litigation, we 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 us or our failure to develop or license a
substitute technology on commercially reasonable terms, our business could be
harmed.

OUR STOCK PRICE HAS BEEN HIGHLY VOLATILE.

The market price of our common stock has been and is likely to continue to
be subject to fluctuations in response to variations in operating results,
announcements of technological innovations or new products by us or our
competitors, changes in financial estimates or recommendations 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 harm the market price of our common stock.

WE ARE CONTROLLED BY A SMALL NUMBER OF STOCKHOLDERS.

Our members of the Board of Directors and executive officers, together
with members of their families and entities that may be deemed affiliates of or
related to such persons or entities, beneficially own approximately 59.2% of our
outstanding shares of common stock. In particular, Mr. Koenig and Ms. Pierce,
our Chief Executive Officer and Chief Financial Officer, respectively, are
married and together beneficially own approximately 57.0 % of our outstanding
shares of common stock. Accordingly, these stockholders are able to elect all
members of our 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 delay, defer or prevent a
change in control and may harm the voting and other rights of other holders of
our common stock.

ITEM 2. PROPERTIES

Our principal administrative, sales and marketing, research and
development and support facilities consist of approximately 60,000 square feet
of office space in Boulder, Colorado. We occupy these premises under a lease
expiring December 31, 2009. As of December 31, 1999, the annual base rent for
this facility was approximately $476,112. We also have a research and
development facility consisting of approximately 12,000 square feet of office
space in Tulsa, Oklahoma.

Our principal manufacturing facility consists of approximately 39,000
square feet of space in Boulder, Colorado. We occupy these premises under a
lease expiring November 13, 2005. As of December 31, 1999, the annual base rent
for this facility was approximately $310,512.

In addition to our principal office space in Boulder, Colorado, we lease
approximately 9,550 square feet of additional office space in Boulder, which is
currently subleased. We also lease facilities and offices in Tulsa, OK and
Greensboro, NC, Miami, FL and Leawood, KS for our field sales and support
organization. We believe that our current facilities and planned expansions are
adequate to meet our needs through the next 12 months. See "Business-Risk
Factors" "Our Quarterly Results Fluctuate Significantly and We May Not be Able
to Maintain Our Existing Growth Rates" and "Management's Discussion and Analysis
of Financial Conditions and Results of Operations" --"Liquidity and Capital
Resources."

ITEM 3. LEGAL PROCEEDINGS

We are not a party to any material legal proceedings.

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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth
quarter of 1999.

EXECUTIVE OFFICERS OF THE REGISTRANT

The names, ages and positions of all our executive officers as of March 1, 2000
are listed below, followed by a brief account of their business experience
during the past five years. Executive officers are normally appointed annually
by the Board of Directors at a meeting of the directors immediately following
the Annual Meeting of the Stockholders. There are no family relationships among
these officers, other than between Mr. Koenig and Ms. Pierce, who are married,
nor any arrangements or understandings between any officer and any other person
pursuant to which an officer was selected.

Name Age Position
- ---------------------- ----- -------------------------------------------------
Roger L. Koenig....... 44 President and Chief Executive Officer
Nancy Pierce.......... 42 Chief Financial Officer, Treasurer and Secretary
Barry Kantner......... 39 Vice President, Marketing
Tim Anderson.......... 40 Vice President, Finance and Administration

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

Roger L. Koenig. Mr. Koenig has served as President, Chief Executive
Officer and Chairman of the Board of Directors of the Company since our
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 Pierce. Ms. Pierce has served as our Vice President-Finance and
Administration, Chief Financial Officer, Treasurer, Secretary and Director since
our 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. from Colorado State University and an
M.B.A. from California State University, Chico.

Barry Kantner. Mr. Kantner joined us in September 1999, as Vice President,
Marketing. Prior to joining us, Mr. Kantner served as the Director Marketing and
Engineering for the Access Products Division of ADC Telecommunications from
August 1998 to September 1999; Director of Marketing for the Access Products
Division of ADC Telecommunications from November 1997 to August 1998, Program
Market Manager for the Access Products Division of ADC Telecommunications from
November 1996 to November 1997; Group Market Manager of High Performance
Networks for Digital Equipment Corporation from July 1996 to November 1996; and
previous to July 1996 was the Director of System and Channel Marketing for Ascom
Nexion.

Tim Anderson. Mr. Anderson joined us in February, 1996 as the corporate
controller and became the Vice President, Finance in July, 1999. Prior to
joining us, Mr. Anderson served as the controller of RIK Medical LLC from
September, 1994 to February, 1996.

PART II.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

(a) Market Price of and Dividends on the Registrant's Common Equity.

We made our initial public offering on July 30, 1998 at a price of $12.00
per share. Our common stock is listed on the Nasdaq National Market under the
symbol "CACS." The table below sets forth the high and the low closing sales
prices per share as reported on the Nasdaq National Market for the periods
indicated.

YEAR ENDED DECEMBER 31, 1999 HIGH LOW
---------------------------- ---- ---
First quarter ended March 31, 1999................ $80.375 $31.375
Second quarter ended June 30, 1999................ $76.750 $29.250
Third quarter ended September 30, 1999............ $57.125 $30.000
Fourth quarter ended December 31, 1999............ $71.500 $41.250

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On March 1, 2000, the last reported sale price of the Registrant's common
stock was $55.75 per share. As of March 1, 2000, there were approximately 2,000
record holders of our common stock. Because many of our shares of common stock
are held by brokers and other institutions on behalf of stockholders, we are
unable to accurately estimate the total number of stockholders represented by
these record holders. We have never declared cash dividends on our common stock.
We currently intend to retain any earnings for use in our business and do not
anticipate paying any cash dividends in the foreseeable future.

(b) Recent Sales of Securities

In reliance on Rule 701 promulgated under the Securities Act of 1933,
during the year ended December 31, 1999, we issued an aggregate of 9,237
shares of common stock pursuant to the exercise of stock option grants under our
1995 Stock Option Plan.

ITEM 6. SELECTED FINANCIAL DATA

The selected financial data for the years ended December 31, 1995, 1996,
1997, 1998 and 1999 have been derived from our audited consolidated financial
statements. The information set forth below should be read in connection with
our audited consolidated financial statements and the notes thereto and
"Management's Discussion and Analysis of the Financial Condition and Results of
Operations" included elsewhere in this Annual Report.

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
As of or for the Years Ended
December 31
-----------------------------------------------------
(in thousands, except per share data)
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenue, net ....................... $ 2,058 $ 5,809 $ 18,719 $ 48,133 $108,815
Gross profit ....................... 771 2,525 9,250 25,066 $ 63,316
Operating income (loss) ............ 135 (100) 2,346 9,437 $ 33,106
Net income (loss) (1) .............. $ 181 $ (76) $ 1,735 $ 6,949 $ 23,565
Net income (loss) available
to common stockholders ......... $ 181 $ (361) $ 614 $ 5,363 $ 23,565
Income (loss) per share:
Basic .......................... $ 0.01 $ (0.03) $ 0.04 $ 0.29 $ 0.98

Diluted ........................ $ 0.01 $ (0.03) $ 0.04 $ 0.28 $ 0.93

Working capital .................... $ 121 $ 2,941 $ 16,615 $ 60,571 $ 90,153
Total assets ....................... $ 1,045 $ 4,822 $ 21,680 $ 72,313 $108,345
Redeemable preferred stock ......... $ -- $ 3,722 $ 17,358 $ -- $ --
Stockholders' equity ............... $ 222 (158) 560 63,358 $ 97,234
</TABLE>

(1) We were a Subchapter S Corporation for income tax purposes prior to
January 1, 1996 and accordingly, taxable income was reported in the
individual returns of the stockholders. Pro forma net income,
calculated as if we had been a taxable entity during 1995 would have
been $113,000.

(2) No cash dividends were paid for any of the years presented. We paid
distributions to shareholders while a Subchapter S Corporation
totaling $25,000 and $48,000 in 1995 and 1996, respectively.

Page 22 of 47
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS NOTICE CONCERNING FORWARD-LOOKING STATEMENTS

NOTICE CONCERNING FORWARD-LOOKING STATEMENTS

This Management's Discussion and Analysis contains forward-looking
statements that have been made pursuant to the provisions of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements are
based on current expectations, estimates and projections about our industry,
management's beliefs, and assumptions made by management. Words such as
"anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates,"
variations of these words and similar expressions are intended to identify such
forward-looking statements. These statements are not guarantees of future
performance and are subject to certain risks, uncertainties and assumptions that
are difficult to predict; therefore, actual results and outcomes may differ
materially from what is expressed or forecasted in any such forward-looking
statements. Such risks and uncertainties include those set forth herein under
Item 1 - "Business-Risk Factors." Particular attention should be paid to the
cautionary language in Item 1 - "Business-Risk Factors" under the headings "Our
Quarterly Results Fluctuate Significantly, and We May Not Be Able to Maintain
Our Existing Growth Rates," "We Depend on Emerging Telecommunications Service
Providers for Substantially All of Our Business," "Our Markets are Highly
Competitive and Have Many More Established Competitors," "We are Substantially
Dependent on Our Distribution Channels," and "Our Dependence on Independent
Manufacturers Could Result in Product Delivery Delays". Unless required by law,
we undertake no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise.

OVERVIEW

We are a leading provider of broadband digital access equipment solutions
to communications service providers, including competitive local exchange
carriers , incumbent local exchange carriers, independent operating companies,
Internet service providers, interexchange carriers and wireless mobility service
providers. Carrier Access products are used for the provisioning of enhanced
voice and high-speed data and Internet services by service providers to
businesses, government and enterprise end users. Carrier Access Corporation's
Access Bank, Wide Bank, Access Navigator and CACTUS family products are
connected to T1, high-bit-rate digital subscriber line, digital radio, T3 and
optical access and transport networks.

Our digital equipment provides a "last mile" solution for the distribution
and management of high bandwidth services from carriers throughout the United
States. Reaching large numbers of consumers using voice and high speed Internet
access requires connectivity from service providers to end users. Installation
of our central office communications and customer-located voice and data
communications equipment enables this connectivity. Our products allow service
providers to cost-effectively connect end users to their network products,
decrease ongoing transmission equipment and maintenance expenses, while enabling
new service delivery, such as integrated voice and high speed Internet access.
Our products enable high bandwidth digital deployments targeted at end users
requiring between four and 2800 telephone and data line equivalents of
bandwidth. We believe that over 300 service providers and 500 other end users
have purchased our products directly or through our distributors.

We were 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. In the summer of 1995, we ceased our systems
integration and consulting business and commenced our main product sales with
the introduction of the Access Bank Product Family. In the fourth quarter of
1997, we began commercial deployment of our Wide Bank Product Family and in
January of 1999, we began commercial deployment of our Access Navigator product
family. In December 1999 we began deployment of the CACTUS family of products.
Accordingly, we have only a limited operating history on which to base an
evaluation of our business and prospects. Our 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.

Our net revenue is derived from the sales of broadband digital access
equipment and accessories. We recognize revenue upon shipment of product from
our factory to our distributors' warehouses and direct customers. See Note 1 of
Notes to Consolidated Financial Statements. In 1997, our Access Bank product
family and the Wide Bank product family accounted for approximately 68% and 27%,
respectively, of our net revenue. In 1999, our Access Bank product family, Wide
Bank product family and Access Navigator product family accounted for
approximately 41%, 46% and 9%, respectively, of our net revenue.

Most of the sales of our products have historically been through
distributors. Our distributors are responsible for warehousing product and
fulfilling product orders as well as identifying potential service provider
customers and, in some cases, customizing and integrating our products at end
users' sites. As a result, our success depends on maintaining good relations
with our distributors. Sales of our products historically have been made to a
limited number of distributors. In 1997, Walker, ADC and Phillips accounted for
37%, 20% and 14% of net revenue, respectively. In 1998, Walker, Phillips and
Telsource accounted for 43%, 15% and 13% of net revenue, respectively. In 1999,
Walker and ADC accounted for 27% and 14% of net revenue, respectively. We expect
that sales of our products will continue to be made to a small number of key

Page 23 of 47
<PAGE>

distributors. Accordingly, the loss of, or reduction in sales to, any of our key
distributors could have a material adverse effect on our business. See Note 8 of
Notes to Consolidated Financial Statements.

In addition, significant portions of the sales of our products are
currently being made through direct sales. As a result, our continued success
depends on building and maintaining good relations with our direct customers.

We have limited knowledge of the financial condition of certain of our
customers. However, we are aware that some of our customers have limited
financial and other resources which could impair their ability to pay us,
although the financial instability of these customers has not limited any
customer's ability to pay us for our products to date. While we believe we have
adequately provided for uncollectable accounts, we cannot assure you that any
bad debts that we incur will not exceed our reserves or that the financial
instability of one or more of our customers will not harm our business,
financial condition or results of operations.

Any reduction in planned purchases by our customers in the future could
harm our business. In addition, we grant certain of our customers "most favored
customer" terms, pursuant to which we have agreed to not knowingly provide
another customer with similar terms and conditions or a better price than those
provided to the existing customer, without offering the more favorable prices to
the existing customer. It is possible that these price protection and "most
favored customer" clauses could cause a material decrease in the average selling
prices and gross margins of our products, which could in turn have a material
adverse effect on our business, financial condition or results of operations.

Currently, our customers do not have any obligation to purchase additional
products. Accordingly, we cannot assure you that present or future direct
customers will not terminate their purchasing arrangements with us, or that they
will not significantly reduce or delay the amount of our products that they
order. Any such termination, change, reduction or delay in orders could have a
material adverse effect on our business.

In addition to being dependent on a small number of distributors and
direct customers for a majority of our net revenue, we believe our products are
distributed to a limited number of competitive service provider customers who
are primarily competitive local exchange carriers. We believe that in 1998,
thirty-five (35) service provider customers, indirectly, accounted for 83% of
our net revenue and that in 1999, approximately seventy-five (75) service
provider customers, indirectly, accounted for 85% of our net revenue. In
particular, we believe that two of these service provider customers each
accounted for more than 10% of our net revenue in 1999. None of these customers
has any obligation to purchase additional products or services. Accordingly,
there can be no assurance that present or future customers will not terminate
their purchasing arrangements with us or our distributors or significantly
reduce or delay the amount of our products that they order. Any such
termination, change, reduction or delay in orders could have a material adverse
effect on our business. We generally provide our distributors with limited stock
rotation and price protection rights, and we have granted certain of our
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 our business, operating
results or financial condition.

We believe that average selling prices and gross margins for our products
will decline as such products mature, as volume price discounts in distributor
contracts take effect and as competition intensifies, among other factors. In
1999, we reduced the price of our Access Bank products, and we expect to make
further price reductions in 2000 with respect to certain Access Bank and Wide
Bank products. In addition, discounts to distributors and direct customers vary
among product lines and are based on volume shipments, both of which affect
gross margins. We believe our gross margins are likely to fluctuate based on
product and channel mix. Margins will also likely be reduced from time to time
by new product introductions.

RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
(In thousands, except percentages and per share amounts) 1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net revenue ............................................ $ 18,719 $ 48,133 $108,815
Gross Margin as a percentage of revenue ................ 49% 52% 58%
Net income available to common stockholders ........... 614 5,363 23,565
Income per share (diluted) ............................. $ 0.04 $ 0.28 $ 0.93
</TABLE>

For 1999, our net revenue increased to $108.8 million compared to $48.1
million and $18.7 million for the years ended December 31, 1998 and 1997
respectively. For 1999, our net income available to common stockholders
increased to $23.6 million from $5.3 million and $614,000 for the years ended
December 31, 1998 and 1997 respectively. These increases in net revenue and net
income available to common stockholders were due to a significant increase in
the sale of all products, including the Access Navigator product family,
enhancements to existing products and increased acceptance of the Wide Bank
product family. Our gross margin was 58%, 52%, and 49% for the years ended
December 31, 1999, 1998, and 1997 respectively. Contributing to higher net
income for 1999 was a substantial increase in revenue, gross margin and other
income (primarily interest income), partially offset by increased operating
expenses.

Page 24 of 47
<PAGE>

NET REVENUE AND COST OF GOODS SOLD

Year Ended December 31,
------------------------------
(Dollars in thousands) 1997 1998 1999
-------- -------- --------
Net revenue ....................... $ 18,719 $ 48,133 $108,815
Cost of goods sold ................ 9,469 23,067 45,499

Net revenue for 1999 was $108.8 million. This represented an increase of
$60.7 million or 126% from the $48.1 million of net revenue in 1998. The
increase was due to the introduction of new products, primarily the Access
Navigator in January 1999, along with increases in the sale of existing products
to distributors and other direct customers. Net revenue increased to $48.1 in
1998 from $18.7 million in 1997, representing an increase of $29.4 million or
157%. These increases were attributable to the increased sales of existing
products and enhancements in the Access Bank and Wide Bank product families. We
anticipate that sales for the Wide Bank and Access Navigator product families
will increase at a greater rate than the Access Bank product family. The CACTUS
product family was introduced in December 1999 and we believe trial and
evaluations of this product will convert into customer sales in 2000. The timing
and quantities of orders for our products may vary from quarter to quarter in
the future. This is due to factors such as demand for the products and ordering
patterns of distributors and other direct customers. We believe that this trend
will continue in the future, especially if the percentage of direct sales to end
users increases. The timing of customer orders and our ability to fulfill them
can cause material fluctuations in our operating results; we anticipate that
such fluctuations will occur.

During 1999, the majority of sales of our products were made through
distributors. Our success depends in part on the continued sales and customer
support efforts of our network of distributors and increasing our sales to our
direct customers. In 1999, Walker and ADC accounted for 27% and 14%
respectively, of net revenue. We expect that the sale of our products will
continue to be made to a small number of distributors and other direct
customers. Accordingly, the loss of, or a reduction in sales to, any of our key
distributors or key direct customers could have a material adverse effect on our
business, financial condition or results of operations. In addition to being
dependent on a small number of distributors for a majority of our net revenue,
we believe that our products are distributed to a limited number of service
provider customers who are primarily competitive local exchange carriers. In
1999, we believe, based on information provided to us by our distributors, that
two of these end user customers' purchases were in excess of 10% of our revenue.

Costs of goods sold increased to $45.4 million for 1999 compared to $23.1
million for 1998 and $9.5 million in 1997. In each year, the increase was
primarily attributable to increased product shipments, partially offset by cost
reductions in existing product platforms.

Year Ended December 31,
-----------------------------
(Dollars in thousands) 1997 1998 1999
------- ------- -------
Gross profit ..................... $ 9,250 $25,066 $63,316
Gross margin ..................... 49% 52% 58%

Our gross profit for 1999 was $63.3 million. This represents an increase
of $38.3 million or 153% from the 1998 gross profit of $25.1 million. Gross
margin increased to 58% in 1999 from 52% in 1998. The increase in gross profit
was driven primarily by increased product shipments and cost reductions and
manufacturing efficiencies. The increase in gross margin percentage were
principally due to material cost reductions for the existing product lines in
addition to increases in manufacturing efficiencies generated by greater
production volumes. Gross profit was approximately $25.1 million in 1998, an
increase from $9.3 million in 1997. This 171% increase was caused by the
increased shipments of our products partially offset by cost reductions. Gross
margins for 1998 and 1997 were 52% and 49%, respectively. We believe that gross
margins will decline if pricing declines occur in our product families at a
greater rate than anticipated cost reductions. New product introductions could
also harm gross margins until production volumes increase. We believe that
average selling prices and gross margins for our products will decline as such
products mature, as volume price discounts in distributor contracts and direct
sales relationships 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. Our gross margins
vary between product families. As a result, we believe that our gross margins
are likely to fluctuate in the future based on product mix and channel mix.
Margins will likely be reduced from time to time by new product introductions by
us and our competitors.

Page 25 of 47
<PAGE>

RESEARCH AND DEVELOPMENT EXPENSES

Year Ended December 31,
---------------------------------
(Dollars in thousands) 1997 1998 1999
--------- --------- ---------
Research and development expenses .... $ 2,848 $ 5,588 $ 13,601
As a percentage of net revenue ....... 15.2% 11.6% 12.5%

Research and development expenses increased to $13.6 million for 1999 from
$5.6 million for 1998. This increase of $8.0 million or 143% was primarily due
to an increase in the number of personnel engaged in the development of new
products, specifically the InLoop-RT and the CACTUS programs, the addition of a
research and development facility in Tulsa, Oklahoma and personnel added for
enhancing our existing products. Research and development expenses increased
from $2.8 million in 1997 to $5.6 million for 1998. This increase of $2.8
million or 100% was primarily attributable to an increase in the number of
personnel engaged in the development of new products, primarily the Access
Navigator as well as enhancements developed for the existing product families.
Expenditures for prototyping and regulatory compliance also contributed to the
increase, although to a much lesser extent. We expect the amount of research and
development will increase in 2000, especially the first half of 2000, to fund
the development of new products and enhancements for existing product platforms
and the possible additional new research and development facilities.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
(Dollars in thousands) 1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Sales and marketing expenses.................................. $ 2,395 $ 6,083 $ 11,154
General and administrative expenses........................... 1,578 3,270 4,637
--------- --------- ---------
Total selling, general and administrative expenses............ 3,973 9,353 15,791
As a percentage of net revenue................................ 21.2% 19.4% 14.5%
</TABLE>

Selling, general and administrative expenses increased to $15.8 million in
1999. For 1998 we had selling, general and administrative expenses totaling $9.4
million. This represented an increase of $6.4 million or 69%. Marketing expense
increases reflected increased hiring and marketing activity with respect to the
introduction of the Access Navigator, InLoop-RT and CACTUS product families,
customer support, advertising and trade shows. The increase in sales and
marketing expenses was the result of our expanded sales and marketing activities
and an increase in the size of the sales force and a corresponding increase in
sales salaries, bonuses and commissions.

We have hired and intend to continue to hire additional sales and
marketing personnel and to continue to aggressively pursue sales and marketing
campaigns. We expect these expenses to increase in absolute dollars in the
future. We also expect general and administrative expenses to increase in
absolute dollars as we continue to add personnel and incur additional costs
related to the expansion of our business and incur increased costs in connection
with the administration of multiple facilities.

STOCK-BASED COMPENSATION

As discussed in Note 1 to the Consolidated Financial Statements, we
account for our stock-based compensation plans in accordance with Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations. Since inception, we have generally granted stock
options with exercise prices equal to the fair value of the underlying Common
Stock, as determined by our Board of Directors and based on our other equity
transactions. During 1997 and the six months ended June 30, 1998, we granted
options to employees with exercise prices less than the fair value per share
based upon our previous preferred stock offerings and the estimated price per
share in the initial public offering. Accordingly, we have recorded deferred
compensation expense totaling approximately $3.1 million. Such compensation
expense will be recognized pro rata over the 48 month vesting period of the
options. This deferred compensation expense totaled approximately $83,000,
$688,000 and $818,000 for 1997, 1998 and 1999. Related compensation expense will
total approximately $818,000 for each of the years ended December 31, 2000 and
2001. It is our intention to generally grant future stock options with exercise
prices equal to the fair value of the underlying Common Stock on the date of
grant and account for such grants in accordance with generally accepted
accounting principles.

INTEREST AND OTHER INCOME

Interest and other income increased to $2.3 million in 1999 from $1.2
million in 1998. This increase of $1.1 million was due to interest income earned
on higher cash and cash equivalent balances. Interest and other income increased
to $1.2 million in 1998 from $180,000 in 1997. The increase was primarily due
interest earned on the proceeds of the 1998 initial public offering and cash
reserves generated by operations.

Page 26 of 47
<PAGE>

INCOME TAXES

For 1999, our effective combined federal and state income tax rate was
33.5%, compared to 34.8% for 1998. In both 1999 and 1998 we realized a benefit
from research and development tax credits and non-taxable interest income. We
had a combined income tax rate in 1997 of 31.3 %. We expect our effective tax
rate to remain in the 32% to 34% range in the future if tax laws and rates do
not materially change. See Note 5 of Notes to Consolidated Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

We have funded our operations to date primarily through cash generated
from operations, sales of common and preferred stock and periodic borrowings
under our credit facilities.

as of December 31,
----------------------
(In thousands) 1998 1999
--------- ---------
Working capital................................... $ 60,571 $ 90,153
Cash, cash equivalents and securities............. 53,978 65,321
Total assets...................................... 72,313 108,345

Years Ended December 31,
---------------------------------
(In thousands) 1997 1998 1999
--------- --------- ---------
Net cash provided (used) by:
Operating activities.............. $ (3,495) $ 9,553 $ 14,176
Investing activities.............. (3,617) (22,063) (22,387)
Financing activities.............. 12,287 37,607 2,470

CASH FLOWS

Net cash provided by operating activities for 1999 totaled approximately
$14.2 million, while operating activities in 1998 generated approximately $9.6
million of net cash. Cash provided by operating activities in 1999 was mainly
due to net income, the tax benefit relating to the exercise of stock options and
an increase in accounts payable, partially offset by increases in accounts
receivable, inventory and prepaid expenses. We anticipate that increased sales
to direct customers could increase Days Sales Outstanding and therefore accounts
receivable balances could increase in the future. Cash provided by operating
activities in 1998 was mainly due to net income and increases in accrued
liabilities, and was partially offset by increases in accounts receivable. Cash
used by operating activities in 1997 was primarily due to increases in inventory
and accounts receivable, partially offset by net income and increases in
accounts payable.

Our inventory levels increased to approximately $9.4 million at December
31, 1999 from approximately $5.1 million at December 31, 1998. The increase was
due primarily to a decision to maintain higher inventory balances for finished
goods in order to fulfill potential customer requirements.

Cash used by investing activities was approximately $22.4 million for
year ended December 31, 1999 and approximately $22.1 million for 1998. Cash used
by investing activities in both years was primarily the result of purchasing
U.S. Government Agency and corporate bonds with maturities greater than three
months. Our capital expenditures for 1999 were $5.3 million for additions to
facilities and equipment to support our research, development and manufacturing
activities, compared to $1.8 million for 1998. We anticipate that we will need
to expand our facilities in our current and other locations to accommodate
hiring additional personnel throughout the year 2000 to support ongoing
operations. Cash used by investing activities was approximately $3.6 million for
1997, related primarily to purchases of U.S. Government Agency and Corporate
bonds with maturities greater than three months and capital expenditures for
additions to facilities and equipment to support our research, development and
manufacturing activities. We intend to continue to significantly increase our
capital expenditures in 2000 and thereafter for additions to facilities and
equipment to support our research, development and manufacturing activities.

Cash provided by financing activities was approximately $2.5 million for
1999 and $37.6 million for 1998. Cash provided by financing activities in 1999
was primarily due to the exercise of stock options. Cash provided by financing
activities in 1998 was primarily due to net proceeds from the issuance of Common
Stock in our initial public offering. Net proceeds from the issuance of
preferred stock resulted in the cash provided from financing activities in 1997.

LIQUIDITY

At December 31, 1999, our principal sources of liquidity included cash and
marketable securities available for sale of approximately $65.3 million and an
unsecured bank credit facility of $5.0 million, which bears interest either the
prime rate or at the libor rate plus 200 basis points. This working capital line
of credit is limited to a borrowing base determined by the balance of our
eligible receivables and inventory. At December 31, 1999, there was $1.0 million
outstanding under the working capital line. See Note 4 of Notes to Consolidated
Financial Statements.

Page 27 of 47
<PAGE>

At December 31, 1998, our working capital was approximately $60.6 million
and had increased to $90.2 million at December 31, 1999. We have no significant
capital spending or purchase commitments other than normal inventory purchase
commitments under facilities leases. See Note 10 of Notes to Consolidated
Financial Statements.

We believe that our existing cash, investment balances, and our line of
credit are adequate to fund our 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 we experience
growth in the future, we anticipate that our investing activities may use cash.
Should the need arise, we believe we would be able to borrow additional funds or
otherwise raise additional capital; however, there can be no assurance that
additional funds or capital will be available in adequate amounts and on terms
reasonably acceptable to us. We may consider using our capital to make strategic
investments or to acquire or license technology or products. We may also enter
into strategic alliances with third parties that could provide access to
additional capital. Any such activities could require us to obtain additional
financing. See "Business-Risk Factors-Potential Need for Additional Capital;
Risks Relating to Potential Acquisitions."

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Market risk represents the risk of loss that may impact the financial
position, results of operations or cash flows of we due to adverse changes in
financial and commodity market prices and rates. Historically, and as of
December 31, 1999, we have had little or no exposure to market risk.
Historically, and as of December 31, 1999, we have not used derivative
instruments or engaged in hedging activities.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

Page(s)
-------
CONSOLIDATED FINANCIAL STATEMENTS:
Independent Auditors' Report.............................................. 29
Consolidated Balance Sheets
December 31, 1998 and December 31, 1999................................... 31
Consolidated Statements of Operations
Years ended December 31, 1997, 1998 and 1999.............................. 32
Consolidated Statements of Stockholders' Equity (Deficit)
Years ended December 31, 1997, 1998 and 1999............................. 33
Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1998 and 1999.............................. 34
Notes to Consolidated Financial Statements................................ 35

FINANCIAL STATEMENT SCHEDULE:

Independent Auditor's Report............................................. 44

SCHEDULE II - - VALUATION AND QUALIFYING ACCOUNTS............................ 45

Page 28 of 47
<PAGE>

INDEPENDENT AUDITORS' REPORT

THE BOARD OF DIRECTORS
CARRIER ACCESS CORPORATION:

We have audited the accompanying consolidated balance sheets of Carrier
Access Corporation and subsidiaries as of December 31, 1998 and 1999, and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for each of the years in the three-year period ended December 31,
1999. These consolidated financial statements are the responsibility of Carrier
Access Corporation's management. Our responsibility is to express an opinion on
these consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Carrier
Access Corporation and subsidiaries as of December 31, 1998 and 1999, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally accepted
accounting principles.

KPMG LLP

Boulder, Colorado
January 21, 2000

Page 29 of 47
<PAGE>

CARRIER ACCESS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)

December 31,
--------------------
1998 1999
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 31,201 $ 25,460
Marketable securities available for sale 22,777 39,861
Accounts receivable, net of allowances for doubtful
accounts and returns of $643 and $1,099 in
1998 and 1999, respectively 8,493 22,454
Inventory, net (note 2) 5,053 9,444
Deferred income taxes (note 5) 1,198 2,182
Prepaid expenses and other 804 1,863
--------- ---------
Total current assets 69,526 101,264
--------- ---------
Property and equipment, net of accumulated depreciation
and amortization (note 3) 2,599 6,890
Deferred income taxes (note 5) 118 60
Other assets 70 131
--------- ---------
Total assets $ 72,313 $ 108,345
========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:

Accounts payable $ 3,630 $ 4,140
Accrued compensation payable 1,838 2,339
Accrued warranty costs payable 594 981
Line-of-credit (note 4) -- 1,000
Cooperative advertising 467 271
Deferred rent concessions (note 10) 274 412
Income taxes payable 2,000 1,399
Other liabilities 152 569
--------- ---------
Total current liabilities 8,955 11,111
--------- ---------

Stockholders' equity (note 7):
Common stock $0.001 par value, 60,000,000 authorized
and 23,630,355 and 24,179,111 shares issued and
outstanding for December 31, 1998 and 1999,
respectively 28 29
Additional paid-in-capital 59,955 69,447
Deferred compensation (2,377) (1,559)
Retained earnings 5,752 29,317
--------- ---------
Total stockholders' equity 63,358 97,234
--------- ---------
Commitments (note 10)
Total liabilities and stockholders' equity $ 72,313 $ 108,345
========= =========

See accompanying notes to consolidated financial statements.

Page 31 of 47
<PAGE>

CARRIER ACCESS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)

<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Net revenue $ 18,719 $ 48,133 $ 108,815
Cost of sales 9,469 23,067 45,499
--------- --------- ---------
Gross profit 9,250 25,066 63,316
--------- --------- ---------
Operating expenses:
Sales and marketing 2,395 6,083 11,154
Research and development 2,848 5,588 13,601
General and administrative 1,578 3,270 4,637
Amortization of deferred stock compensation (note 7) 83 688 818
--------- --------- ---------
Total operating expenses 6,904 15,629 30,210
--------- --------- ---------
Income from operations 2,346 9,437 33,106
Interest income 174 1,213 2,354
Other income (expense), net 6 11 (24)
--------- --------- ---------
Income before income taxes 2,526 10,661 35,436
Income tax expense (note 5) 791 3,712 11,871
--------- --------- ---------
Net income 1,735 6,949 23,565
Preferred stock dividend requirement (note 6) (1,121) (1,586) --
--------- --------- ---------
Net income available to common stockholders $ 614 $ 5,363 $ 23,565
========= ========= =========
Income per share:
Basic $ 0.04 $ 0.29 $ 0.98
Diluted $ 0.04 $ 0.28 $ 0.93
Weighted average common shares outstanding:
Basic 14,132 18,253 23,939
Diluted 14,713 19,387 25,223
</TABLE>

See accompanying notes to consolidated financial statements.

Page 32 of 47
<PAGE>

CARRIER ACCESS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(In Thousands)

<TABLE>
<CAPTION>
Common Stock Additional Deferred Total
-------------------- Paid-in Stock Option Retained Stockholders'
Shares Amount Capital Compensation Earnings Equity (Deficit)
-------- -------- -------- ------------ -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 1997 ................. 14,025 $ 19 $ -- $ -- $ (177) $ (158)
Exercise of stock options .......................... 275 -- 69 -- -- 69
Deferred stock compensation related to stock options
issued at less than fair value (note 7) .......... -- -- 1,227 (1,227) -- --
Amortization of deferred stock compensation ........ -- -- -- 83 -- 83
(note 7)
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 1,296 (1,144) 389 560
Exercise of stock options .......................... 299 -- 64 -- -- 64
Deferred stock compensation related to stock options
issued at less than fair value (note 7) .......... -- -- 1,921 (1,921) -- --
Amortization of deferred stock compensation
(note 7) ......................................... -- -- -- 688 -- 688
Preferred stock dividend requirement (note 6) ...... -- -- -- -- (1,586) (1,586)
Issuance of common stock in initial public offering,
net of offering costs (note 6) ................... 3,450 3 37,599 -- -- 37,602
Conversion of preferred stock to common stock
(note 6) ......................................... 5,593 6 18,939 -- -- 18,945
Purchase and retirement of common stock ............ (12) -- (59) -- -- (59)
Tax benefit from exercise of stock options (note 5) -- -- 195 -- -- 195
Net income ......................................... -- -- -- -- 6,949 6,949
-------- -------- -------- -------- -------- --------
BALANCES AT DECEMBER 31, 1998 ............... 23,630 28 59,955 (2,377) 5,752 63,358
Exercise of stock options .......................... 549 1 1,469 -- -- 1,470
Amortization of deferred stock compensation
(note 7) ......................................... -- -- -- 818 -- 818
Tax benefit from exercise of stock options (note 5) -- -- 8,023 -- -- 8,023
Net income ......................................... -- -- -- -- 23,565 23,565
-------- -------- -------- -------- -------- --------
BALANCES AT DECEMBER 31, 1999 ............... $ 24,179 $ 29 $ 69,447 $ (1,559) $ 29,317 $ 97,234
======== ======== ======== ======== ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

Page 33 of 47
<PAGE>

CARRIER ACCESS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)

<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ..................................................................... $ 1,735 $ 6,949 $ 23,565
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization expense .......................................... 421 470 1,012
Provision for doubtful accounts and returns .................................... 382 246 456
Provision for inventory obsolescence ........................................... -- 576 41
Compensation expense related to stock options issued at less than fair value.... 83 688 818
Deferred income tax benefit .................................................... (237) (1,079) (926)
Tax benefit relating to exercise of stock options .............................. -- 195 8,023
Changes in operating assets and liabilities:
Accounts receivable .......................................................... (4,000) (4,093) (14,417)
Inventory .................................................................... (4,573) 1,155 (4,432)
Prepaid expenses and other ................................................... (59) (747) (1,120)
Accounts payable ............................................................. 2,083 945 510
Accrued warranty costs payable ............................................... 230 308 387
Accrued compensation payable ................................................. 203 1,457 501
Cooperative advertising ...................................................... 159 308 (196)
Deferred rent concessions .................................................... 78 57 138
Income taxes payable ......................................................... -- 2,000 (601)
Other liabilities ............................................................ -- 118 417
-------- -------- --------
Net cash provided (used by) operating activities ............................. (3,495) 9,553 14,176
-------- -------- --------
Cash flows from investing activities:
Purchase of equipment .......................................................... (1,065) (1,802) (5,303)
Sales (purchases) of securities available for sale, net ........................ (2,514) (20,261) (17,084)
Other .......................................................................... (38) -- --
-------- -------- --------
Net cash used by investing activities ........................................ (3,617) (22,063) (22,387)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of preferred stock, net ................................. 12,514 -- --
Proceeds from issuance of common stock, net .................................... -- 37,602 --
Proceeds from exercise of stock options ........................................ 69 64 1,470
Purchase and retirement of common stock ........................................ -- (59) --
Distributions to stockholders .................................................. (48) -- --
Proceeds from short-term borrowings ............................................ 1,900 -- 1,000
Payments on short-term borrowings .............................................. (2,148) -- --
-------- -------- --------
Net cash provided by financing activities .................................... 12,287 37,607 2,470
-------- -------- --------
Net increase(decrease) in cash and cash equivalents .......................... 5,175 25,097 (5,741)
Cash and cash equivalents at beginning of year ..................................... 929 6,104 31,201
======== ======== ========
Cash and cash equivalents at end of year ........................................... $ 6,104 $ 31,201 $ 25,460
======== ======== ========
Supplemental disclosure of cash flow and financing activities information:
Cash paid for income taxes ..................................................... $ 948 $ 2,616 $ 5,330
======== ======== ========
Conversion of debt and accrued interest payable into preferred stock ........... $ -- $ -- $ --
======== ======== ========
Conversion of preferred stock to common stock .................................. $ -- $ 18,945 $ --
======== ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

Page 34 of 47
<PAGE>

CARRIER ACCESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1998 and 1999

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Business and Basis of Presentation. Carrier Access Corporation ("CAC" or
the "Company") is a leading provider of broadband digital access equipment to
communications service providers, including competitive local exchange carriers
, Internet service providers, IOCs, IXEs and wireless service providers, which
is used for the provisioning of enhanced voice and high-speed Internet services
by service providers to end users such as small and medium-sized businesses and
government and educational institutions. The Company sells its products through
distributors and directly to end user customers. The Company operates in one
business segment and substantially all of its sales and operations are domestic.

The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.

The preparation of consolidated 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 consolidated financial statements and disclosures of contingent
assets and liabilities and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.

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, 1998
and 1999, amortized cost approximates market value. Securities available for
sale consisted of the following as of December 31 (in thousands):

Amortized Cost and Market Value 1999 Interest Rates
------------------------------- -------------------

1998 1999
-------- --------
Medium Term Notes $ 1,677 $ 8,500 4.43% to 4.70%
Corporate Notes 5,943 4,622 5.99%
Municipal Bonds 12,257 18,339 3.59% to 4.73%
Other 2,900 8,400 3.75%
-------- --------
$ 22,777 $ 39,861
Total ======== ========

c. Inventory. Inventory is recorded at the lower of cost or market using
standard costs that approximate average costs. Costs include 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, 1997,
1998 and 1999 totaled $186,000, $470,000 and $1,012,000, respectively.

e. Revenue Recognition. Revenue from sales of products is recognized upon
shipment. Reserves for estimated sales returns through stock rotation 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
exchanges 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 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.

Page 35 of 47
<PAGE>

f. Advertising Costs. In addition to its own advertising activities, the
Company accrues a specified percentage of the previous quarter'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 years ended December 31,
1997, 1998 and 1999 totaled $217,687, $342,442 and $269,224, respectively, and
is included in sales and marketing expenses.

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

h. 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.

i. Income Taxes. 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 consolidated 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.

j. Income Per Share, Common Stock Split and Re-Incorporation. Income per
share (EPS) 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 and resulted in the issuance of common stock. 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.

k. 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. The Company has provided pro
forma disclosures of net income and income 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.

Stock options issued to consultants and others for services are recorded
at fair value as prescribed by SFAS 123. Charges to operations associated with
these option grants were not significant during the years ended December 31,
1997, 1998 and 1999.

l. 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.

Page 36 of 47
<PAGE>

2. INVENTORY

The components of inventory as of December 31, are summarized as follows
(in thousands):

1998 1999
------ ------
Raw materials............................... $3,327 $5,109
Work-in-process............................. 93 25
Finished goods.............................. 2,209 4,927
Reserve for obsolescence.................... (576) (617)
------ ------
$5,053 $9,444
====== ======

3. PROPERTY AND EQUIPMENT

Property and equipment as of December 31, consisted of the following (in
thousands):

1998 1999
------ ------

Machinery and software...................... $2,706 $6,831

Real property............................... 270 270

Furniture, fixtures and other............... 295 478

Leasehold improvements...................... 174 1,165
------ ------

3,445 8,744

Less accumulated depreciation............... (846) (1,854)
------ ------

$2,599 $6,890
====== ======

4. DEBT

In 1999, the Company entered into a credit agreement with a bank that
provides for a $5.0 million revolving line of credit. The revolving line of
credit has two interest options, either prime rate or the libor rate plus 200
basis points, matures in 2000, and is secured by certain assets of the Company.
Borrowings of $1.0 million were outstanding under the revolving line of credit
at December 31, 1999.

The above credit agreement contains certain restrictive covenants,
including the maintenance of various financial ratios and does not permit the
payment of any dividends without the prior written consent of the lender.

5. INCOME TAXES

Income tax expense consists of the following for the years ended December
31, (in thousands):

1997 1998 1999
------- ------- -------
Current $ 1,028 $ 4,791 $12,797
Deferred.................................... (237) (1,079) (926)
------- ------- -------
Income tax expense..................... $ 791 $ 3,712 $11,871
======= ======= =======

A reconciliation of expected income tax expense calculated by applying
the statutory Federal tax rate to actual income tax expense for the years ended
December 31, is as follows (in thousands):

1997 1998 1999
------- ------- -------
Expected income tax expense........................ $ 859 $ 3,631 $12,403
State income taxes, net of federal tax benefit..... 64 386 1,160
Change in valuation allowance ..................... (67) -- --
Research and development tax credit................ (112) (286) (1,232)
Other, net......................................... 47 (19) (460)
------- ------- -------
Actual income tax expense........................ $ 791 $ 3,712 $11,871
======= ======= =======

Page 37 of 47
<PAGE>

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

1998 1999
-------- --------
Deferred tax assets:
Allowance for doubtful accounts ................... $ 241 $ 519
Inventory reserves ................................ 321 237
Accrued warranty and co-operative advertising...... 398 386
Other accrued expenses ............................ 111 --
Compensation accruals ............................. 361 907
Research & experimentation credit.................. -- 432
Other, net ........................................ 55 166
-------- --------
Total deferred tax asset ..................... $ 1,487 $ 2,647
-------- --------
Deferred tax liabilities:
Property and equipment ............................ (149) (349)
Other, net ........................................ (22) (56)
-------- --------
Total deferred tax liabilities ............... (171) (405)
-------- --------
Net deferred tax asset ....................... $ 1,316 $ 2,242
======== ========

For the years ended December 31, 1998 and 1999, the Company recognized $195,000
and $8,023,000 as a direct increase to paid-in capital for the income tax
benefit resulting from the exercise of non-qualified stock options by employees.

6. REDEEMABLE PREFERRED STOCK AND INITIAL PUBLIC OFFERING

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 were convertible, at the option of the
holder, into shares of common stock which was subject to the three-for-two
forward split. The preferred shares were redeemable at the option of a majority
of the preferred stockholders, any time after four years from the date of
issuance, provided that the Company had 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. In the event of the Company's liquidation, or redemption
of the preferred shares, the Series A preferred stockholders were 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. 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 were entitled to $4.99 per share plus unpaid
dividends equal to 15% of the liquidation value per annum.

In August 1998, the Company completed its initial public offering of
3,450,000 shares of common stock at $12.00 per share, for net proceeds of
approximately $37.6 million. Aggregate offering costs were approximately $3.8
million.

In connection with the initial public offering, 1,210,861 shares of Series
A preferred stock and 2,517,894 shares of Series B preferred stock with a
liquidation value of $2.86 and $4.99 per share, respectively, were converted
into common stock, resulting in the issuance of 5,593,133 shares of common stock
to the preferred stockholders.

7. 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 currently
authorizes the grant of options up to 4,875,000 shares of authorized common
stock. Incentive stock options have a ten-year term and non-qualified stock
options have a five-year term. A majority of the stock options vest 25% on the
first anniversary date of the grant and 6.25% each quarter thereafter, with the
remaining stock options vesting 100% five years from the grant date. As of
December 31, 1999, an aggregate of 4,942,700 options had been granted under the
Plan of which 1,211,250 were incentive stock options and 3,731,450 were
non-qualified stock options.

Page 37 of 46
<PAGE>

The following summarizes stock option activity under the Plan:

<TABLE>
<CAPTION>
Shares Weighted Average
Under Option Exercise Price
------------ --------------
<S> <C> <C>
Options outstanding at January 1, 1997...................... 764,250 $0.25
Granted................................................ 927,675 0.50
Exercised.............................................. (274,689) 0.25
Canceled............................................... (73,284) 0.33
----------
Options outstanding at December 31, 1997.................... 1,343,952 0.42
Granted................................................ 1,413,150 8.82
Exercised.............................................. (298,856) 0.22
Canceled............................................... (658,906) 3.33
----------
Options outstanding at December 31, 1998.................... 1,799,340 5.99
Granted................................................ 1,084,050 40.19
Exercised.............................................. (548,847) 2.68
Canceled............................................... (414,427) 20.86
----------
Options outstanding at December 31, 1999 ................... 1,920,116 22.99
----------
Options available for grant at December 31, 1999 ........... 1,683,909
----------
</TABLE>

The following summarizes information about outstanding options at December
31, 1999:

<TABLE>
<CAPTION>
Weighted-
average
Range of Exercise Number remaining Number vested and Weighted-average
Prices outstanding contractual life exercisable exercise price
- -------------------------- --------------- ------------------ -------------------- -----------------
<S> <C> <C> <C> <C>
$ 0.00 - $ 6.00 594,602 3.1 591,977 $ 2.70
$ 6.00 - $12.00 247,264 3.5 225,606 $10.90
$12.00 - $18.00 59,625 3.4 5,963 $14.25
$18.00 - $24.00 39,325 3.8 7,375 $24.00
$24.00 - $30.00 30,000 4.0 7,500 $28.75
$30.00 - $36.00 307,750 4.2 31,750 $31.51
$36.00 - $42.00 518,000 4.1 -- $--
$42.00 - $54.00 53,550 4.9 -- $--
$54.00 - $60.00 70,000 4.2 -- $--
</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 recorded deferred
compensation expense totaling approximately $1,227,000 for options granted
during the year ended December 31, 1997, and $1,921,000 for options granted
during the year ended December 31, 1998. Such deferred compensation expense will
be amortized to operations pro rata over the forty-eight month option vesting
period. Such amortization expense totaled approximately $83,000, $688,000 and
$818,000 for the years ended December 31, 1997, 1998 and 1999, respectively.

Page 39 of 47
<PAGE>

The weighted average fair values of options granted during 1997, 1998 and
1999 were $0.30, $6.28 and $30.61 per share, respectively, using the
Black-Scholes option-pricing model with the following assumptions: no expected
dividends, no volatility in 1997, 89.5% volatility in 1998 and 99.4% volatility
in 1999, expected life of the options of three years in 1997, five years in 1998
and 1999 and a risk-free interest rate of 6.0% for all years. 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 1997, 1998 and 1999 pro forma net income would have been
as follows (in thousands, except per share data):

Year Ended December 31,
---------------------------
1997 1998 1999
------- ------- -------
Net income available to common stockholders:
As reported ............................. $ 614 $ 5,363 $23,565
Pro forma ............................... 577 5,039 14,779
Income per common share:
As reported:
Basic .............................. $ 0.04 $ 0.29 $ .98
Diluted ............................ 0.04 0.28 .93
Pro forma:
Basic .............................. $ 0.04 $ 0.28 $ .62
Diluted ............................ 0.04 0.26 .59

8. SIGNIFICANT CUSTOMERS, SUPPLIERS AND CONCENTRATION OR CREDIT RISK

Our customers are primarily distributors and an original equipment
manufacturer, who resell the Company's products to end users. The Company
recognized revenue from the following significant customers for the years ended
December 31:

Company 1997 1998 1999
------- ------- ------- -------
A..................................... $ 6,840 $20,749 $29,877
B..................................... 2,698 7,369 9,858
C..................................... 1,253 6,360 3,660
D..................................... 3,802 2,337 15,195

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 may not currently be available. The identification
and utilization of new suppliers for such items could adversely effect the
Company's future operating results.

The Company is exposed to potential concentrations of credit risk from its
accounts receivable with its various customers and 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 for potential uncollectable
accounts.

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. The Company made no contributions to the Plan in 1997, 1998 or
1999.

Page 40 of 47
<PAGE>

10. COMMITMENTS

The Company leases office space under various noncancelable operating
leases that expire through 2009. Future obligations under these leases are as
follows (in thousands):

Year Ending December 31:
1999............................ $ 896
2000............................ 1,076
2001............................ 1,064
2002............................ 1,110
2003............................ 1,159
Thereafter...................... 5,526
--------
$ 10,831
========

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, 1997, 1998 and 1999 totaled
$547,130, $555,483 and $977,889, respectively.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

Page 41 of 47
<PAGE>

PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item concerning our directors and
executive officers is incorporated by reference to the information set forth in
the sections entitled "Proposal One--Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" in our Proxy Statement for the 2000
Annual Meeting of Stockholders to be filed with the Commission within 120 days
after the end of our fiscal year ended December 31, 2000 (the "2000 Proxy
Statement"), except that certain information required by this item concerning
our executive officers is incorporated by reference to the information set forth
in the section entitled "Executive Officers of the Company" at the end of Part I
of this Annual Report on Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item regarding executive compensation is
incorporated by reference to the information set forth in the sections entitled
"Proposal One--Election of Directors--Director Compensation" and "Executive
Officer Compensation" in our 2000 Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item regarding security ownership of
certain beneficial owners and management is incorporated by reference to the
information set forth in the section entitled "Share Ownership of Principal
Stockholders and Management" in our 2000 Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item regarding certain relationships and
related transactions is incorporated by reference to the information set forth
in the section entitled "Transactions with Management" in our 2000 Proxy
Statement.

Page 42 of 47
<PAGE>

PART IV.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this Form 10-K:

1. Consolidated Financial Statements. The following
consolidated financial statements of the Company and the
Independent Auditors' Report therein are filed as part of
this Form 10-K:

Page
----

Independent Auditors' Report................................................. 29

Consolidated Balance Sheets as of December 31, 1998 and 1999................. 31

Consolidated Statements of Operations for the years ended December 31,
1997, 1998 and 1999........................................................ 32

Consolidated Statements of Stockholders' Equity (Deficit) for the years
ended December 31, 1997, 1998 and 1999..................................... 33

Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999........................................... 34

Notes to Consolidated Financial Statements................................... 35

2. Consolidated Financial Statement Schedule. The following
consolidated financial statement schedule of the Company
for the years ended December 31, 1997, 1998 and 1999 filed
as part of this Form 10-K should be read in conjunction
with the Consolidated Financial Statements, and related
notes thereto, of the Company.

Schedule II - Valuation and Qualifying Accounts for the
years ended December 31, 1997, 1998 and 1999.

Schedules other than those listed above have been omitted
since they are either not required, not applicable, or the
information is otherwise included.

3. Exhibits. The exhibits listed on the accompanying index to
exhibits immediately following the consolidated financial
statement schedule are filed as part of, or incorporated
by reference into, this Form 10-K.

(b) Reports on Form 8-K. No Reports on Form 8-K were filed during
the fourth quarter ended December 31, 1999.

Page 43 of 47
<PAGE>

INDEPENDENT AUDITORS' REPORT

THE BOARD OF DIRECTORS
CARRIER ACCESS CORPORATION:

Under date of January 21, 2000, we reported on the consolidated balance
sheets of Carrier Access Corporation and subsidiaries as of December 31, 1998
and 1999, and the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for each of the years in the three-year period
ended December 31, 1999, as contained in the Company's Annual Report on Form
10-K for 1999. In connection with our audits of the aforementioned consolidated
financial statements, we also audited the related consolidated financial
statement Schedule II-Valuation and Qualifying Accounts. This consolidated
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this consolidated financial
statement schedule based on our audits.

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

KPMG LLP

Boulder, Colorado
January 21, 2000

Page 44 of 47
<PAGE>

SCHEDULE II
CARRIER ACCESS CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)

<TABLE>
<CAPTION>
Balance At Additions Bad Debts Balance At
Beginning Charged to Write-offs, and End
Allowance for doubtful accounts and returns: of Period Operations (1) Returns (1) of Period
---------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Year Ended:
December 31, 1997 .......................... $ 20 $ 817 $ (439) $ 398
================ =============== ============== ==============
December 31, 1998 .......................... $ 398 $ 2,305 $ (2,060) $ 643
================ =============== ============== ==============
December 31, 1999 .......................... $ 643 $ 1,077 $ (621) $ 1,099
================ =============== ============== ==============

Inventory Obsolescence Reserve:
Year Ended:
December 31, 1997 .......................... $ -- $ -- $ -- $ --
================ =============== ============== ==============
December 31, 1998 .......................... $ -- $ 805 $ (229) $ 576
================ =============== ============== ==============
December 31, 1999 .......................... $ 576 $ 794 $ (753) $ 617
================ =============== ============== ==============
</TABLE>

(1) Includes provisions for stock rotations and other sales returns, and
actual returns which were charged against revenue. (See note 1(e) to the
Company's Consolidated Financial Statements included in Part II of this
Annual Report).

See accompanying independent auditors report.

Page 45 of 47
<PAGE>

EXHIBIT INDEX

Exhibit
Number Description of Document
------ -----------------------

3.1 Registrant's Amended and Restated Certificate of Incorporation
as filed with the Secretary of State of Delaware on August 5,
1998 (which is incorporated herein by reference to Exhibit 3.1
to the Registrant's Registration Statement on Form S-1, Reg.
No. 333-53947 ("Registrant's 1998 S-1")).

3.2 Registrant's Bylaws (which is incorporated herein by reference
to Exhibit 3.2 to the Registrant's 1998 S-1).

4.1 Form of Registrant's Specimen Common Stock Certificate (which
is incorporated herein by reference to Exhibit 4.1 to the
Registrant's 1998 S-1).

4.2 Amended and Restated Investor Rights Agreement, among the
Registrant and the investors and founders named therein, dated
September 16, 1997 (which is incorporated herein by reference
to Exhibit 4.2 to the Registrant's 1998 S-1).

10.1 ?Form of Diamond Level Distributor Agreement (which is
incorporated herein by reference to Exhibit 10.1 to the
Registrant's 1998 S-1).

10.2 Form of Platinum Level OEM Agreement (which is incorporated
herein by reference to Exhibit 10.2 to the Registrant's 1998
S-1).

10.3 Line of Credit Agreement with Bank One for $5,000,000 dated
July 2, 1998 (which is incorporated herein by reference to
Exhibit 10.3 to the Registrant's 1998 S-1).

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 (which is
incorporated herein by reference to Exhibit 10.4 to the
Registrant's 1998 S-1).

10.5 Amendment to Lease Agreement between Carrier Access Corporation
and Cottonwood Land and Farms Ltd. Dated September 20, 1995
(which is incorporated herein by reference to Exhibit 10.5 to
the Registrant's 1998 S-1).

10.6 Registrant's 1995 Stock Option Plan (which is incorporated
herein by reference to Exhibit 10.6 to the Registrant's 1998
S-1).

10.7 Registrant's 1998 Stock Option Plan (which is incorporated
herein by reference to Exhibit 10.7 to the Registrant's 1998
S-1).

10.8 Amendment to Lease Agreement between Carrier Access Corporation
and Cottonwood Land and Farms Ltd. Dated October 25, 1998.

10.9 Form of Directors' and Officers' Indemnification Agreement
(which is incorporated herein by reference to Exhibit 10.9 to
the Registrant's 1998 S-1).

10.10 Lease Agreement between Carrier Access Corporation and TC
Boulder Warehouse, LP, a Delaware limited partnership for
facilities at 6837 Winchester Circle, Boulder, Colorado, dated
November 13, 1998.

10.11* Line of Credit Agreement with Bank One for $5,000,000 dated
July 2, 1999

23.1* Consent of KPMG LLP, Independent Certified Public Accountants.

24.1* Power of Attorney. Reference is made to the following Signature
Page.

27.1* Financial Data Schedule. (In EDGAR format only)

- ------------------
* Filed herewith.

Page 46 of 47
<PAGE>

SIGNATURE

Pursuant to the requirements of section 13 or 15(d) of the Securities Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Boulder, State of
Colorado, on this 30th day of March 1999.

CARRIER ACCESS CORPORATION
(Registrant)

By: /s/ Nancy Pierce
------------------------------------------
Nancy Pierce
Vice President-Finance and Administration,
and Chief Financial Officer, Treasurer
(Principal Financial and Accounting
Officer), Secretary and Director

POWER OF ATTORNEY

Know all men by these presents, that each person whose signature appears
below constitutes and appoints Nancy Pierce, his or her attorney-in-fact, with
power of substitution in any and all capacities, to sign any amendments to this
Annual Report on Form 10-K, and to file the same with exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that the attorney-in-fact or his
or her substitute or substitutes may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1934, this report
has been signed by the persons whose signatures appear below, which persons have
signed such report on March 30, 1999 in the capacities indicated:

Signature Title
--------- -----

/s/ Roger L. Koenig
- ----------------------------------
(Roger L. Koenig) President, Chief Executive Officer
(Principal Executive Officer) and Chairman
of the Board of Directors

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

/s/ Douglas Carlisle
- ----------------------------------
(Douglas Carlisle) Director

/s/ Joseph Graziano
- ----------------------------------
(Joseph Graziano) Director

/s/ Ryal Poppa
- ----------------------------------
(Ryal Poppa) Director

/s/ John W. Barnett, Jr.
- ----------------------------------
(John W. Barnett, Jr.) Director

Page 47 of 47

<PAGE>

Exhibit 10.11

[LOGO OF BANK ONE APPEARS HERE]

LOAN AGREEMENT

- -----------------------------------------------------------------------------
Principal Loan Date Maturity Loan No. Call
$5,000,000.00 07-02-1999 07-02-2000 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>

07-02-1999 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.
<PAGE>

07-02-1999 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
<PAGE>

07-02-1999 LOAN AGREEMENT Page 4
Loan No (Continued)
================================================================================
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

<PAGE>

07-02-1999 LOAN AGREEMENT Page 5
Loan No (Continued)
================================================================================
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>

07-02-1999 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 07-02-1999 07-02-2000 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 07-02-1999 07-02-2000 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
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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.
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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

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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 07-02-1999 07-02-2000 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, 1999

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, 1999 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, 2000. 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.

07-02-1999 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 DELAWARE 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 07-02-1999 07-02-2000 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 incorporation by reference in the registration statement (No. 333-
71209) on Form S-8 of Carrier Access Corporation of our reports dated January
21, 2000, relating to the consolidated balance sheets of Carrier Access
Corporation and subsidiaries as of December 31, 1998 and 1999, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for each of the years in the three-year period ended December 31, 1999,
and the related financial statement schedule, which reports appear in the
December 31, 1999, annual report on form 10-K of Carrier Access Corporation.

KPMG LLP

Denver, Colorado
March 27, 2000

<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 25,517
<SECURITIES> 39,861
<RECEIVABLES> 23,553
<ALLOWANCES> 1,099
<INVENTORY> 9,444
<CURRENT-ASSETS> 101,320
<PP&E> 8,743
<DEPRECIATION> 1,854
<TOTAL-ASSETS> 108,401
<CURRENT-LIABILITIES> 11,193
<BONDS> 0
0
0
<COMMON> 29
<OTHER-SE> 97,179
<TOTAL-LIABILITY-AND-EQUITY> 108,401
<SALES> 108,815
<TOTAL-REVENUES> 108,815
<CGS> 45,499
<TOTAL-COSTS> 30,210
<OTHER-EXPENSES> (2,330)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 35,436
<INCOME-TAX> 11,871
<INCOME-CONTINUING> 23,564
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,564
<EPS-BASIC> 0.98
<EPS-DILUTED> 0.93

</TABLE>