LARSCOM INC, S-1/A, 1996-10-25

LARSCOM INC
S-1/A, 1996-10-25
COMMUNICATIONS EQUIPMENT, NEC

Previous: HEALTHCARE FINANCIAL PARTNERS INC, S-1/A, 1996-10-25

Next: BA MERCHANT SERVICES INC, 8-A12B, 1996-10-25

<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 25, 1996

REGISTRATION NO. 333-14001

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

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 1
TO
FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933
------------------------

LARSCOM INCORPORATED
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 3661 94-2362692
(State or other jurisdiction (Primary standard industrial (I.R.S. Employer
of incorporation or classification code number) Identification
organization) No.)
</TABLE>

4600 PATRICK HENRY DRIVE
SANTA CLARA, CA 95054
(408) 988-6600
(Address, including zip code and telephone number, including area code, of
registrant's principal executive offices)

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

DEBORAH M. SOON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
LARSCOM INCORPORATED
4600 PATRICK HENRY DRIVE
SANTA CLARA, CA 95054
(408) 988-6600
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

COPIES TO:

<TABLE>
<S> <C>
W. LESLIE DUFFY, ESQ. JEFFREY D. SAPER, ESQ.
CAHILL GORDON & REINDEL HOWARD S. ZEPRUN, ESQ.
80 PINE STREET WILSON SONSINI GOODRICH & ROSATI
NEW YORK, NY 10005 PROFESSIONAL CORPORATION
(212) 701-3000 650 PAGE MILL ROAD
PALO ALTO, CA 94304-1050
(415) 493-9300
</TABLE>

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
------------------------

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /

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

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

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. /X/

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

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

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

SUBJECT TO COMPLETION, DATED OCTOBER 25, 1996

7,000,000 SHARES

[LOGO]

CLASS A COMMON STOCK

OF THE 7,000,000 SHARES OF CLASS A COMMON STOCK OFFERED HEREBY, 5,800,000
SHARES ARE BEING SOLD BY LARSCOM INCORPORATED, A DELAWARE CORPORATION ("LARSCOM"
OR THE "COMPANY"), AND 1,200,000 SHARES ARE BEING SOLD BY AXEL JOHNSON INC., A
DELAWARE CORPORATION ("AXEL JOHNSON" OR THE "SELLING STOCKHOLDER"). THE COMPANY
WILL NOT RECEIVE ANY PROCEEDS FROM THE SALE OF SHARES BY THE SELLING
STOCKHOLDER. SEE "PRINCIPAL AND SELLING STOCKHOLDER" AND "RELATIONSHIP BETWEEN
THE COMPANY AND AXEL JOHNSON."

THE COMPANY'S COMMON STOCK CONSISTS OF CLASS A COMMON STOCK AND CLASS B
COMMON STOCK. THE RIGHTS, PREFERENCES AND PRIVILEGES OF EACH CLASS OF COMMON
STOCK ARE IDENTICAL IN ALL RESPECTS EXCEPT FOR VOTING RIGHTS. EACH SHARE OF
CLASS A COMMON STOCK ENTITLES ITS HOLDER TO ONE VOTE AND EACH SHARE OF CLASS B
COMMON STOCK ENTITLES ITS HOLDER TO FOUR VOTES FOR EACH SHARE OF CLASS A COMMON
STOCK INTO WHICH CLASS B COMMON STOCK IS CONVERTIBLE. THE CLASS B COMMON STOCK
IS CONVERTIBLE INTO CLASS A COMMON STOCK ON A SHARE-FOR-SHARE BASIS, SUBJECT TO
ADJUSTMENT FOR STOCK DIVIDENDS, STOCK SPLITS, SUBDIVISIONS OR COMBINATIONS. SEE
"PRINCIPAL AND SELLING STOCKHOLDER" AND "DESCRIPTION OF CAPITAL STOCK."

PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON STOCK
OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE
OF THE CLASS A COMMON STOCK WILL BE BETWEEN $12.00 AND $14.00 PER SHARE. SEE
"UNDERWRITING" FOR A DISCUSSION OF THE FACTORS TO BE CONSIDERED IN DETERMINING
THE INITIAL PUBLIC OFFERING PRICE. THE COMPANY HAS APPLIED TO HAVE THE CLASS A
COMMON STOCK APPROVED FOR QUOTATION ON THE NASDAQ NATIONAL MARKET UNDER THE
SYMBOL "LARS."

PRIOR TO THIS OFFERING, AXEL JOHNSON OWNS 100% OF THE OUTSTANDING SHARES OF
THE COMPANY'S COMMON STOCK, AND UPON COMPLETION OF THIS OFFERING, WILL OWN 100%
OF THE COMPANY'S OUTSTANDING CLASS B COMMON STOCK, REPRESENTING 60.5% OF THE
TOTAL OUTSTANDING COMMON STOCK ON A SHARE-FOR-SHARE BASIS AND 85.9% OF THE TOTAL
VOTING POWER OF THE OUTSTANDING COMMON STOCK. SEE "PRINCIPAL AND SELLING
STOCKHOLDER" AND "RELATIONSHIP BETWEEN THE COMPANY AND AXEL JOHNSON."

SEE "RISK FACTORS" COMMENCING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CLASS A COMMON STOCK
OFFERED HEREBY.
-----------------

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

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT (1) COMPANY (2) STOCKHOLDER
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE................... $ $ $ $
TOTAL (3)................... $ $ $ $
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>

(1) SEE "UNDERWRITING" FOR INFORMATION CONCERNING INDEMNIFICATION OF THE
UNDERWRITERS AND OTHER MATTERS.

(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT $1,500,000.

(3) THE COMPANY AND THE SELLING STOCKHOLDER HAVE GRANTED TO THE UNDERWRITERS A
30-DAY OPTION TO PURCHASE UP TO 350,000 AND 700,000 ADDITIONAL SHARES OF
CLASS A COMMON STOCK, RESPECTIVELY, SOLELY TO COVER OVER-ALLOTMENTS, IF ANY.
IF THE UNDERWRITERS EXERCISE THIS OPTION IN FULL, THE PRICE TO PUBLIC WILL
TOTAL $ , THE UNDERWRITING DISCOUNT WILL TOTAL $ , THE PROCEEDS TO
COMPANY WILL TOTAL $ AND THE PROCEEDS TO SELLING STOCKHOLDER WILL TOTAL
$ . SEE "UNDERWRITING."

THE SHARES OF CLASS A COMMON STOCK ARE OFFERED BY THE SEVERAL UNDERWRITERS
NAMED HEREIN SUBJECT TO RECEIPT AND ACCEPTANCE BY THEM AND SUBJECT TO THEIR
RIGHT TO REJECT ANY ORDER IN WHOLE OR IN PART. IT IS EXPECTED THAT DELIVERY OF
THE CERTIFICATES REPRESENTING SUCH SHARES WILL BE MADE AGAINST PAYMENT THEREFOR
AT THE OFFICE OF MONTGOMERY SECURITIES ON OR ABOUT , 1996.

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

MONTGOMERY SECURITIES
COWEN & COMPANY
PUNK, ZIEGEL & KNOELL
<PAGE>
, 1996
<PAGE>
[CHART]
Set forth here, under the title Global Internetworking Solutions, is a
full-page graphic representation of the networking functions, capabilities, and
interrelationships of Larscom's primary products. The Larscom wordmark appears
above the title at the top of the page. At the upper and lower center of the
diagram are two representations of clouds labeled Digital Network and ATM
Network, respectively. The Digital Network cloud represents public and/or
private wide area networks using circuit-based (i.e., time division
multiplexing, or TDM) digital transmission technologies including full and
fractional T1, E1, T3, and E3. The ATM Network cloud represents public and/or
private wide area networks using cell-based Asynchronous Transfer Mode (ATM)
digital transmission technologies. These are the two broad classes of networks
in which Larscom products are deployed.

Around the two network clouds are triangular and rectangular representations
of Larscom products, labeled Access-T45, Access-T, Orion 4000, Orion 4000/5,
Orion 400 Orion 800, and EtherSpan. On the outside of the product
representations (relative to the central clouds) are various labeled icons
representing network applications served by the Larscom products. Lines
interconnecting the network application icons and the Larscom product
representations indicate the physical connections between user and Larscom
equipment, and are labeled to indicate the type of connection. Lines
interconnecting the Larscom product representations and the network clouds
indicate the access connections between Larscom equipment and the wide area
networks, and are labeled to indicate the type of access facility.

The Larscom products represented at the top left and right of the diagram
are Access-T45 units. These are connected by a line labeled Clear Channel T3,
which passes through the Digital Network cloud. At each Access-T45, a host
computer is connected through channel extension equipment to the Access-T45 via
a HSSI connection and a router is connected to the Access-T45. This portion of
the diagram represents the multiplexing of two applications for end-to-end
telecommunication via a clear channel T3 link.

Below the Access-T45 on the left side of the diagram there are two Larscom
product representations connected directly to the network clouds: an Orion
4000/5, connected to the Digital Network cloud by three parallel lines
representing E1 facilities; and an Orion 4000, connected to the Digital Network
cloud by three parallel lines representing E1 facilities and one line
representing a T3 facility, and to the ATM Network cloud by one line
representing a T3 facility. Host computer, router, and video device icons with
connecting lines to the Orion 4000/5 represent the three applications served by
the Orion 4000/5; these applications telecommunicate with applications connected
to the Orion 4000 immediately below via the Digital Network, employing three E1
links. Applications served by the latter Orion 4000 include a multi-port router,
an ATM switch, a T1 PBX, and an aggregation of low-speed circuits multiplexed to
T1s by an Orion 800, as well as a host computer, a router, and a video device
multiplexed to T1s by an Orion 4000/5. A T3 connection to the ATM network cloud
represents the network link employed by the ATM switch; the other applications
are internetworked via the T3 and E1 connections to the Digital Network cloud.

Below the Access-T45 on the right side of the diagram are three Larscom
product representations connected directly to the network clouds: a Mega-T,
connected to the Digital Network cloud by four parallel lines representing
inverse-multiplexed T1 facilities; an Orion 4000, connected to the Digital
Network cloud by one line representing a T3 facility; and another Orion 4000,
connected to the ATM Network cloud by one line representing a T3 facility, and
connected to the Orion 4000 above by one line representing a private T3
facility. On the non-network side, the Mega-T is connected to an EtherSpan,
which serves a 10Base-T LAN connection represented by a line labeled 10Base-T;
another EtherSpan is shown connecting a labeled icon of a 10Base-T Ethernet
switch to the non-network side of the Orion 4000 below the Mega-T. These two
EtherSpan portions of the diagram represent remote LAN interconnection, with a
four-T1 channel providing the path through the Digital Network cloud between the
Mega-T and the Orion 4000. In addition to the EtherSpan-served remote LAN
connection, applications served by the Orion 4000 include a T1 PBX and an
aggregation of low-speed circuits multiplexed to T1s by an Orion 400, as well as
a PBX, a router, and a video device multiplexed to a T3 by the Orion 4000 in the
lower right corner of the diagram. All of the applications served by the former
Orion 4000 are multiplexed to a single T3 line for connection to the Digital
Network cloud; separation and distribution of the individual applications to
different sites (i.e., different Larscom products in the diagram) are performed
by switches and other devices within the fabric of the Digital Network. The
Orion 4000 in the lower right also supports an ATM switch via a UNI connection
on its non-network side. This ATM switch internetworks with the ATM switch at
the left side of the diagram via T3 connections and the ATM Network cloud.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A COMMON
STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

2
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY SHOULD BE READ IN CONJUNCTION WITH, AND IS QUALIFIED
IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION, INCLUDING "RISK FACTORS" AND
THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO, APPEARING ELSEWHERE IN
THIS PROSPECTUS. AS USED IN THIS PROSPECTUS, THE TERMS "LARSCOM" AND THE
"COMPANY" INCLUDE LARSCOM INCORPORATED AND ITS SUBSIDIARY, UNLESS THE CONTEXT
OTHERWISE INDICATES. THE DISCUSSION IN THIS PROSPECTUS CONTAINS FORWARD-LOOKING
STATEMENTS WHICH INCLUDE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE DISCUSSED IN THIS PROSPECTUS. FACTORS THAT
COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED IN THE
SECTIONS ENTITLED "RISK FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS," AS WELL AS THOSE
DISCUSSED ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, THE
INFORMATION PRESENTED IN THIS PROSPECTUS ASSUMES (I) NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION, (II) THE AMENDMENT AND RESTATEMENT OF THE
COMPANY'S CERTIFICATE OF INCORPORATION PRIOR TO CONSUMMATION OF THIS OFFERING,
PURSUANT TO WHICH EACH OUTSTANDING SHARE OF COMMON STOCK SHALL BE CONVERTED INTO
1,190 SHARES OF CLASS B COMMON STOCK AND AN AGGREGATE OF 100,000,000 SHARES OF
CLASS A COMMON STOCK SHALL BE AUTHORIZED (THE "RECAPITALIZATION") AND (III) THE
CONVERSION BY AXEL JOHNSON OF 1,200,000 SHARES OF CLASS B COMMON STOCK INTO
1,200,000 SHARES OF CLASS A COMMON STOCK TO BE SOLD HEREUNDER. CERTAIN TECHNICAL
TERMS AND ACRONYMS USED IN THIS PROSPECTUS ARE DEFINED IN THE "GLOSSARY OF
TERMS" BEGINNING ON PAGE 57.

Larscom develops, manufactures and markets a broad range of high speed
global internetworking solutions for network service providers ("NSPs") and
corporate users. Larscom's products provide access to fractional T1, E1, T1/E1,
frame relay, fractional T3/E3, channelized T3 services and Clear Channel ATM
("CCA") inverse multiplexing, with clear channel T3, ISDN, IMA and ATM under
development. Larscom's newest families of products, the Orion 200 and Orion
4000, were designed with modular hardware and downloadable software to provide
the Company's customers with the flexibility to increase network capacity and
add services in a rapid and cost-effective manner. In the broadband market, for
example, the Orion 4000 is unique in its ability to accommodate both the
emerging cell-based ATM network connectivity and traditional circuit-based TDM
connectivity within the same architecture and to accommodate bandwidth needs
that range from a single T1 or E1 circuit to 155 Mbps.

The proliferation of personal computers, the increased demand for local area
networks ("LANs") that connect computing resources within an enterprise and the
increased demand for wide area networks ("WANs") that permit interconnection of
computing resources across wide geographic areas have created dramatic growth in
the demand for capacity and high speed access. More recently, this demand has
been further fueled by the growth in Internet usage among both individuals and
businesses, as well as the emergence of more bandwidth-intensive applications
such as video and imaging. As such, NSPs and corporate users require equipment
that supports a broad range of services, operates reliably and consistently in
all major markets across the globe and bridges the technology gap between
current circuit-based TDM technology and the emerging cell-based ATM
environment. Larscom addresses these needs with a broad range of products which
provide affordable network access for multiple speeds and standards.

The Company strives to be a global leader in providing flexible, dependable,
high speed internetworking solutions that allow its customers to connect high
speed applications economically across WANs and that enable NSPs to introduce
new services rapidly and economically. In order to achieve this objective, the
Company intends to expand relationships with major customers, to expand its
customer base by broadening distribution channels and to capitalize on its
innovative technology. The Company's expansion of its relationships with major
customers provides it with advanced insight into the evolving needs of
customers, which allows it to anticipate new technology requirements. The
Company also seeks to extend its market presence domestically through the
development of alternative distribution channels and to expand its international
sales and support organization to complement existing and new distribution
relationships. Furthermore, the Company seeks to build upon its strength in
technology innovation to ensure that its products remain in the forefront of the
broadband and digital access markets.

3
<PAGE>
The Company sells its products in the U.S. primarily through its direct
sales organization and through OEMs, value added resellers ("VARs") and systems
integrators. Internationally, the Company markets its products through
distribution arrangements with VARs and systems integrators. The Company
provides onsite services via arrangements with a number of service partners
worldwide and provides technical applications assistance as well as customer and
distributor product maintenance, installation and training. The Company's
customers principally consist of NSPs, Fortune 500 corporations, systems
integrators, VARs and federal, state and local government agencies. The
Company's largest customers include MCI, IBM/Advantis, UUNET and AT&T.

RELATIONSHIP WITH AXEL JOHNSON

Axel Johnson currently owns 100% of the Company's outstanding Common Stock.
Upon consummation of this Offering, assuming no exercise of the Underwriters'
over-allotment option, Axel Johnson will own 100% of the Company's outstanding
Class B Common Stock, representing 60.5% of the total outstanding Common Stock
on a share-for-share basis and 85.9% of the total voting power of the
outstanding Common Stock. Additionally, Axel Johnson will not own any shares of
Class A Common Stock. See "Principal and Selling Stockholder." As a result of
its ownership interest, Axel Johnson will be able to control the vote on most
matters submitted to stockholders, including the election of directors and the
approval of extraordinary corporate transactions. The Company and Axel Johnson
have entered into a number of agreements for the purpose of defining their
ongoing relationship. While these agreements will continue to provide the
Company with certain services, the Company is only entitled to the ongoing
assistance of Axel Johnson for a limited time and it may not receive such
services beyond the terms of the agreements. See "Risk Factors--Control by and
Relationship with Axel Johnson," "--No Recent Independent Operating History" and
"Relationship Between the Company and Axel Johnson."

4
<PAGE>
THE OFFERING

<TABLE>
<S> <C>
Class A Common Stock offered by the Company.......... 5,800,000 shares

Class A Common Stock offered by the Selling
Stockholder........................................ 1,200,000 shares

Common Stock to be outstanding after this Offering:

Class A Common Stock............................... 7,000,000 shares (1)

Class B Common Stock............................... 10,700,000 shares

Total............................................ 17,700,000 shares (1)

Use of proceeds...................................... For repayment of $25.0 million of
indebtedness to the Selling
Stockholder and general corporate
purposes, including working capital.
The Company will not receive any of
the proceeds from the sale of Common
Stock by the Selling Stockholder.
See "Use of Proceeds."

Voting rights........................................ The Class A Common Stock and Class B
Common Stock vote as a single class
with respect to all matters
submitted to a vote of stockholders,
with each share of Class A Common
Stock entitled to one vote and each
share of Class B Common Stock
entitled to four votes for each
share of Class A Common Stock into
which Class B Common Stock is
convertible. The Class B Common
Stock is convertible into Class A
Common Stock on a share-for-share
basis, subject to adjustment for
stock dividends, stock splits,
subdivisions or combinations.

Proposed Nasdaq National Market symbol............... LARS
</TABLE>

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

(1) Excludes (i) 205,000 shares of Class A Common Stock reserved for issuance
pursuant to the Stock Option Plan for Non-Employee Directors, of which
options to purchase an aggregate of 36,000 shares shall be granted upon
consummation of this Offering and no other options are outstanding, (ii)
2,485,000 shares of Class A Common Stock reserved for issuance pursuant to
the Stock Incentive Plan, of which options to purchase an aggregate of
1,300,000 shares shall be granted upon consummation of this Offering and no
other options are outstanding, and of which 23,555 shares of Class A Common
Stock will be issued upon consummation of this Offering to officers of the
Company in connection with the termination of the Company's participation in
the Selling Stockholder's existing long-term incentive plan and (iii)
310,000 shares of Class A Common Stock reserved for issuance pursuant to the
Stock Purchase Plan, none of which has been issued to date. See
"Management."

5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues................................................. $ 39,035 $ 36,550 $ 48,663 $ 36,654 $ 48,981
Gross profit............................................. 24,046 21,513 27,516 21,142 27,020
Income from operations................................... 4,148 1,425 4,611 3,827 7,156
Net income............................................... 2,295 661 2,529 2,100 4,101
Supplemental net income per share (1).................... $ 0.18 $ 0.30
Shares used to compute supplemental
net income per share (1)............................... 14,013 14,013
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------
AS ADJUSTED
ACTUAL (2)
---------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficit)........................................................... $ (10,822) $ 32,800
Total assets........................................................................ 32,101 75,723
Note payable to Axel Johnson........................................................ 25,000 --
Total stockholders' equity (deficit)................................................ (2,663) 65,959
</TABLE>

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

(1) See Note 1 of Notes to the Consolidated Financial Statements for an
explanation of the determination of shares used to compute supplemental net
income per share.

(2) Adjusted to reflect the receipt of the estimated net proceeds from the sale
of 5,800,000 shares of Class A Common Stock offered by the Company hereby at
an assumed initial public offering price of $13.00 per share and the payment
of the $25.0 million note payable to Axel Johnson. See "Use of Proceeds" and
"Capitalization."

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

The Company was originally incorporated in California on January 16, 1970
and was reincorporated in Delaware on June 13, 1989. The principal executive
offices of the Company are located at 4600 Patrick Henry Drive, Santa Clara,
California 95054, and the Company's telephone number is (408) 988-6600.

6
<PAGE>
RISK FACTORS

THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF THE FEDERAL SECURITIES LAWS. ACTUAL RESULTS AND THE TIMING OF CERTAIN
EVENTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING
STATEMENTS DUE TO A NUMBER OF FACTORS, INCLUDING THOSE SET FORTH BELOW AND
ELSEWHERE IN THIS PROSPECTUS. IN ADDITION TO THE OTHER INFORMATION CONTAINED IN
THIS PROSPECTUS, THE FOLLOWING FACTORS SHOULD BE CAREFULLY CONSIDERED IN
EVALUATING THE COMPANY'S BUSINESS BEFORE PURCHASING SHARES OF CLASS A COMMON
STOCK OFFERED HEREBY.

NO RECENT INDEPENDENT OPERATING HISTORY

The Company has been a wholly-owned subsidiary of Axel Johnson since 1987
and, accordingly, has had no recent independent operating history. Following
this Offering, the Company will be required to further develop financial,
management, administrative and other resources previously provided by Axel
Johnson which are necessary to operate successfully as an independent public
company. Although the Company and Axel Johnson have entered into several
agreements that are intended to ease the Company's transition to an independent
public company, there can be no assurance that the Company will be able to
manage this transition or to develop these independent resources successfully.
Although the Company will have access, subject to certain conditions, to a $15.0
million credit facility provided by Axel Johnson, there can be no assurance that
alternative sources of financing will be available upon the expiration or
termination of such facility or that additional sources of funding will be
available on terms favorable to the Company if the Company's borrowing
requirements exceed the amount of the facility. See "--Control by and
Relationship with Axel Johnson" and "Relationship Between the Company and Axel
Johnson."

FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; ABSENCE OF SIGNIFICANT BACKLOG

The Company's operating results have fluctuated significantly in the past
and may fluctuate in the future on a quarterly and annual basis as a result of a
number of factors, many of which are beyond the Company's control. In 1995, the
Company experienced a shift in the purchasing behavior of its customers which
resulted in higher second and third quarter sales relative to fourth quarter
sales. These purchasing patterns and resulting cyclicality could continue in the
future. Moreover, the Company's sales historically have been concentrated in a
small number of customers. Therefore, sales for a given quarter may depend to a
significant degree upon product shipments to a limited number of customers.
Sales to individual large customers are often related to the customer's specific
equipment deployment projects, the timing of which are subject to change on
limited notice. The Company has experienced both acceleration and slowdown in
orders related to such projects, causing changes in the sales level of a given
quarter relative to both the preceding and subsequent quarters. For example,
since 1994 sales to MCI, IBM/Advantis, AT&T and other current customers have
occasionally varied by $1.0 million or more from quarter to quarter. Since most
of the Company's sales are in the form of large orders with short delivery times
to a limited number of customers, the Company's ability to predict revenues is
limited. In addition, announcements by the Company or its competitors of new
products and technologies could cause customers to defer purchases of the
Company's existing products. In the event that anticipated orders from major
customers fail to materialize, or delivery schedules are deferred or canceled as
a result of the above factors or other unanticipated factors, the Company's
business and operating results could be materially adversely affected. As a
result, the Company believes that period-to-period comparisons of its operating
results are not necessarily meaningful and should not be relied upon as
indicative of future performance.

The Company's backlog at any point in time is typically limited.
Accordingly, sales in any quarter are largely dependent on orders received
during that quarter. Furthermore, the Company's agreements with its customers
typically provide that they may change delivery schedules and cancel orders
within specified timeframes, typically up to 30 days prior to the scheduled
shipment date, without penalty. The Company's customers have in the past built,
and may in the future build, significant inventory in order to facilitate more
rapid deployment of anticipated major projects or for other reasons. Decisions
by such customers to

7
<PAGE>
reduce their inventory levels could lead to reductions in purchases from the
Company. Therefore, customer decisions to delay delivery, cancel orders or
reduce purchases could have a material adverse effect on the Company's business
and operating results.

The Company's gross margin is affected by a number of factors, including
product mix, product pricing, cost of components and manufacturing costs. For
example, a price reduction of a particular product in response to competitive
pressure which is not offset by a reduction in production costs or by sales of
other products with higher gross margins would decrease the Company's overall
gross margin and could have a material adverse effect on the Company's business
and operating results. The Company's anticipated increase in overall spending in
future periods in order to pursue new market opportunities may also affect
operating margins. The Company establishes its expenditure levels for product
development and other operating expenses based on projected sales levels and
margins, however, expenses are relatively fixed in the short term. Accordingly,
if sales are below expectations in any given period, the adverse impact of the
revenue shortfall on the Company's operating results may be greater due to the
Company's inability to adjust spending in the short term to compensate for the
shortfall.

Results in any period could also be affected by changes in market demand,
competitive market conditions, market acceptance of new or existing products,
the cost and availability of components, the mix of the Company's customer base
and sales channels, the mix of products sold, sales promotion activities by the
Company, the Company's ability to expand its sales and marketing organization
effectively, the Company's ability to attract and retain key technical and
managerial employees and general economic conditions. Due to all of the
foregoing factors, the Company's operating results in one or more future periods
may be subject to significant fluctuations. In the event this results in the
Company's financial performance being below the expectations of public market
analysts and investors, the price of the Company's Class A Common Stock could be
materially adversely affected. See "--Customer Concentration," "--Dependence on
Component Availability and Key Suppliers" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

CONTROL BY AND RELATIONSHIP WITH AXEL JOHNSON

As a result of the Recapitalization, the Company's capital stock will
consist of Class A Common Stock and Class B Common Stock. Holders of Class A
Common Stock are entitled to one vote per share and holders of Class B Common
Stock are entitled to four votes per share, subject to adjustment. The Class B
Common Stock is convertible into Class A Common Stock on a share-for-share
basis, subject to adjustment. Upon the consummation of this Offering, Axel
Johnson will own 100% of the outstanding Class B Common Stock and none of the
outstanding Class A Common Stock. As a result, Axel Johnson will have sufficient
voting power to control the direction and policies of the Company, including
mergers, consolidations, the sale of all or substantially all of the assets of
the Company and the election of the Board of Directors of the Company, and to
prevent or cause a change in control of the Company. Such control may have the
effect of discouraging certain types of transactions involving an actual or
potential change of control of the Company, including transactions in which the
holders of Class A Common Stock might otherwise receive a premium for their
shares over the then-current market price. See "Principal and Selling
Stockholder" and "Description of Capital Stock."

Historically, the Company has derived certain benefits from being a
subsidiary of Axel Johnson. Effective upon the consummation of this Offering,
the relationship between the Company and Axel Johnson will be defined pursuant
to several transitional agreements. Because of the complexity of the various
agreements between the Company and Axel Johnson, there can be no assurance that
such agreements, or the transactions provided for therein, will be effected on
terms at least as favorable to the Company as could have been obtained from
unaffiliated third parties. While these agreements will continue to provide the
Company with certain benefits, the Company is only entitled to the ongoing
assistance of Axel Johnson for a limited time and it may not enjoy benefits from
its relationship with Axel Johnson beyond the term of the agreements, including
benefits derived from Axel Johnson's reputation

8
<PAGE>
and credit support. There can be no assurance that the Company, upon termination
of such assistance from Axel Johnson, will be able to develop such services
internally or to obtain arrangements from third parties to replace such services
upon favorable terms, if at all. See "--No Recent Independent Operating History"
and "Relationship Between the Company and Axel Johnson."

BENEFIT OF TRANSACTION TO EXISTING STOCKHOLDER

This Offering will provide substantial benefits to the existing stockholder
of the Company, Axel Johnson. Axel Johnson will benefit from the sale of
approximately $15.6 million of Class A Common Stock in this Offering, based upon
an assumed initial public offering price of $13.00 per share. In addition, the
Company will use approximately $25.0 million of its net proceeds from this
Offering to repay indebtedness to Axel Johnson. After consummation of this
Offering, Axel Johnson will also benefit from the creation of a public market
for the Class A Common Stock into which the Class B Common Stock held by it is
convertible. Upon the consummation of this Offering, the shares of Class A
Common Stock into which the Class B Common Stock then held by Axel Johnson would
be convertible, will have an aggregate market value of approximately $139.1
million, based upon an assumed initial public offering price of $13.00 per share
of Class A Common Stock. See "Relationship Between the Company and Axel
Johnson."

CERTAIN ANTI-TAKEOVER EFFECTS

Upon consummation of this Offering, 60.5% of the outstanding Common Stock
owned and 85.9% of the outstanding voting power will be controlled by Axel
Johnson (55.4% and 83.3%, respectively, if the Underwriters' over-allotment
option is exercised in full). Voting control by Axel Johnson may discourage
certain types of transactions involving an actual or potential change of control
of the Company, including transactions in which the holders of the Company's
Class A Common Stock might receive a premium for their shares over the
prevailing market price of the Class A Common Stock. In addition, the authorized
but unissued capital stock of the Company includes 5,000,000 shares of preferred
stock (the "Preferred Stock"). The Board of Directors is authorized to provide
for the issuance of Preferred Stock in one or more series and to fix the
designations, preferences, powers and relative, participating, optional or other
rights and restrictions thereof. Accordingly, the Company may issue a series of
Preferred Stock in the future that will have preference over the Common Stock
with respect to the payment of dividends and upon liquidation, dissolution or
winding up or which could otherwise adversely affect holders of the Common Stock
or discourage or make difficult any attempt to obtain control of the Company.
See "--Control By and Relationship with Axel Johnson," "Description of Capital
Stock--Preferred Stock" and "Principal and Selling Stockholder."

CUSTOMER CONCENTRATION

A small number of customers has accounted for a majority of the Company's
revenues in each of the past several years. In the nine months ended September
30, 1996, MCI and IBM/Advantis accounted for 20.4% and 14.0% of the Company's
revenues, respectively, and the Company's top five customers accounted for 53.3%
of the Company's revenues. In 1995, MCI and IBM/Advantis accounted for 17.9% and
13.7% of the Company's revenues, respectively, and the Company's top five
customers accounted for 48.1% of the Company's revenues. The Company's customers
are not contractually obligated to purchase any quantity of products in any
particular period, and product sales to major customers have varied widely from
quarter to quarter and year to year. There can be no assurance that the
Company's current customers will continue to place orders with the Company, that
orders by existing customers will continue at the levels of previous periods or
that the Company will be able to obtain orders from new customers. Loss of, or a
material reduction in orders by, one or more of the Company's major customers
could have a material adverse effect on the Company's business and operating
results. See "--Fluctuations in Quarterly Operating Results; Absence of
Significant Backlog," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business--Customers" and "--Marketing and
Sales."

9
<PAGE>
DEPENDENCE ON RECENTLY INTRODUCED PRODUCTS AND PRODUCTS UNDER DEVELOPMENT

The Company's future operating results are highly dependent on continuing
market acceptance of the Company's newest products, particularly in the
broadband area. Broadband products represented 27.4% of revenues in the nine
months ended September 30, 1996 and are expected to continue to increase as a
percentage of overall revenues. There can be no assurance that these products or
any future products will continue to achieve widespread market acceptance. In
addition, the Company has in the past experienced delays in the development of
new products and the enhancement of existing products, and such delays may occur
in the future. The Company's potential inability to develop and introduce new
products or versions in a timely manner, due to resource constraints or
technological or other reasons, or to achieve timely and widespread market
acceptance of its new products or releases could have a material adverse effect
on the Company's business and operating results.

COMPETITION

The markets for the Company's products are intensely competitive and the
Company expects competition to increase in the future in both broadband and
digital access markets. In the broadband market, the Company competes primarily
with Digital Link, ADC Kentrox, RAD Data Communications and OnStream Networks
(for which an acquisition by 3Com was recently announced). In the digital access
market, the Company competes against traditional CSU/DSU vendors, such as ADC
Kentrox, Verilink and Digital Link, and relatively newer entrants to the market
such as ADTRAN and TxPort. The Company believes that its ability to compete
successfully depends upon a number of factors, including timely development of
new products and features, product quality and performance, price, announcements
by competitors, experienced sales, marketing and service organizations and
evolving industry standards. The Company believes that it generally competes
favorably in these areas. However, certain competitors have more broadly
developed distribution channels and are further along in certain emerging
technologies, such as ATM and SONET. In addition, the Company's digital access
products could be adversely affected by the integration of WAN functionality
into switches and routers, by the entry of LAN equipment vendors into the
Company's markets, or by the requirement for alternate methods of performance
monitoring for services such as frame relay. There can be no assurance that the
Company will be able to continue to compete successfully with existing or new
competitors. See "Business--Competition."

RISKS ASSOCIATED WITH ENTRY INTO INTERNATIONAL MARKETS

The Company has had minimal sales to international customers to date, and
has had little experience in international markets. The Company is seeking to
expand its presence outside the U.S., which will require significant management
attention and financial resources. The conduct of business outside the U.S. is
subject to certain risks, including unexpected changes in regulatory
requirements and tariffs, difficulties in staffing and managing foreign
operations, longer payment cycles, greater difficulty in accounts receivable
collection, currency fluctuations, expropriation and potentially adverse tax
consequences. In addition, in order to sell its products internationally, the
Company must meet standards established by telecommunications authorities in
various countries, as well as recommendations of the International
Telecommunications Union. A delay in obtaining, or the failure to obtain,
certification of its products in countries outside the U.S. could deny or
preclude the Company's marketing and sales efforts in such countries, which
could have a material adverse effect on the Company's business and operating
results. See "Business-- Marketing and Sales" and "--Strategy."

MANAGEMENT OF EXPANDING OPERATIONS

The growth in the Company's business has placed a significant strain on the
Company's personnel, management and other resources, and is expected to continue
to do so. In order to manage any future expansion effectively, the Company must
attract, train, motivate and manage new employees successfully, integrate new
management and employees into its overall operations and continue to improve its

10
<PAGE>
operational, financial and management systems, particularly as the Company
transitions from services provided to date by Axel Johnson. Availability of
qualified sales and technical personnel is limited, and competition for
experienced sales and technical personnel in the telecommunications equipment
industry is intense. Moreover, the Company expects to increase significantly the
size of its domestic and international sales support staff and expand the scope
of its sales and marketing activities. The Company's failure to manage any
expansion effectively, including the above factors, could have a material
adverse effect on the Company's business and operating results. See "--Control
by and Relationship with Axel Johnson," "--Dependence on Key Personnel" and
"Business--Strategy."

DEPENDENCE ON KEY PERSONNEL

The Company's future success will depend to a large extent on the continued
contributions of its executive officers and key management, sales and technical
personnel. The Company's executive officers and key management, sales and
technical personnel would be difficult to replace. The Company also believes
that its future success will depend in large part on its ability to attract and
retain additional key employees. Competition for such personnel in the
telecommunications equipment industry is intense, and there can be no assurance
that the Company will be successful in attracting and retaining such personnel.
The loss of the services of one or more of the Company's executive officers or
key personnel or the inability to continue to attract qualified personnel could
delay product development cycles or otherwise have a material adverse effect on
the Company's business and operating results. See "Business-- Employees" and
"Management."

DEPENDENCE ON COMPONENT AVAILABILITY AND KEY SUPPLIERS

On-time delivery of the Company's products depends upon the availability of
components and subsystems used in its products. The Company depends upon its
suppliers to manufacture, assemble and deliver components in a timely and
satisfactory manner. The Company obtains several components and licenses certain
embedded software from single sources. The Company generally does not have any
long-term contracts with such suppliers. There can be no assurance that these
suppliers will continue to be able and willing to meet the Company's
requirements. Any significant interruption in the supply or degradation in the
quality of any such item could have a material adverse effect on the Company's
business and operating results.

Purchase orders from the Company's customers frequently require delivery
quickly after placement of the order. The Company maintains a supply of finished
goods inventories at its manufacturing facility, as well as safety stocks of
critical components, in order to respond quickly to customer needs. However,
there can be no assurance that interrupted or delayed supplies of key components
will not occur which could have a material adverse effect on the Company's
business and operating results. The Company uses internal forecasts to determine
its general materials and components requirements. Lead times for materials and
components may vary significantly, and depend on factors such as specific
supplier performance, contract terms and general market demand for components.
If orders vary from forecasts, the Company may experience excess or inadequate
inventory of certain materials and components. From time to time, the Company
has experienced shortages and supplier allocations of certain components,
resulting in delays in fulfillment of customer orders. Such shortages and
allocations could have a material adverse effect on the Company's business and
operating results. See "--Fluctuations in Quarterly Operating Results; Absence
of Significant Backlog," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business--Manufacturing and Quality
Assurance."

RAPID TECHNOLOGICAL CHANGE

The telecommunications equipment industry is characterized by rapidly
changing technologies and frequent new product introductions. The rapid
development of new technologies increases the risk that current or new
competitors could develop products that would reduce the competitiveness of the
Company's products. The Company's success will depend to a substantial degree
upon its ability to respond

11
<PAGE>
to changes in technology and customer requirements. This will require the timely
selection, development and marketing of new products and enhancements on a
cost-effective basis. There can be no assurance that the Company will be
successful in developing, introducing or managing the transition to new or
enhanced products or that any such products will be responsive to technological
changes or will gain market acceptance. If the Company were to be unsuccessful
or to incur significant delays in developing and introducing such new products
or enhancements, the Company's business and operating results could be
materially adversely affected. See "--Dependence on Recently Introduced Products
and Products Under Development" and "Business--Research and Development."

COMPLIANCE WITH REGULATIONS AND EVOLVING INDUSTRY STANDARDS

The market for the Company's products is characterized by the need to meet a
significant number of communications regulations and standards, some of which
are evolving as new technologies are deployed. In the U.S., the Company's
products must comply with various regulations defined by the Federal
Communications Commission and standards established by Underwriters
Laboratories, as well as industry standards established by various
organizations. As standards for new services such as ATM evolve, the Company may
be required to modify its existing products or develop and support new versions
of its products. The failure of the Company's products to comply, or delays in
compliance, with the various existing and evolving industry standards could
delay introduction of the Company's products, which in turn could have a
material adverse effect on the Company's business and operating results.

Government regulatory policies are likely to continue to have a major impact
on the pricing of existing as well as new public network services and therefore
are expected to affect demand for such services and the telecommunications
products that support such services. For example, tariff rates, whether
determined by NSPs or in response to regulatory directives, may affect the cost
effectiveness of deploying communication services. Such policies may also affect
demand for telecommunications equipment, including the Company's products.

RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS

An important element of the Company's strategy is to review acquisition
prospects that would complement its existing product offerings, augment its
market coverage, enhance its technological capabilities or offer growth
opportunities. The Company has no current agreements or negotiations underway
with respect to any such acquisitions. Future acquisitions by the Company could
result in potentially dilutive issuances of equity securities and/or the
incurrence of debt and the assumption of contingent liabilities, any of which
could have a material adverse effect on the Company's business and operating
results and/or the price of the Company's Class A Common Stock. In this regard,
as a result of the ownership interest of Axel Johnson in the Company, the
Company will not be able to use pooling of interests accounting for any future
acquisition. Accordingly, such acquisitions could result in amortization of
goodwill and other charges (including the immediate write-off of purchased
research and development in process) typically associated with purchase
accounting. Acquisitions entail numerous risks, including difficulties in the
assimilation of acquired operations, technologies and products, diversion of
management's attention to other business concerns, risks of entering markets in
which the Company has limited or no prior experience and potential loss of key
employees of acquired organizations. The Company's management has limited prior
experience in assimilating acquired organizations. No assurance can be given as
to the ability of the Company to successfully integrate any businesses,
products, technologies or personnel that might be acquired in the future, and
the failure of the Company to do so could have a material adverse effect on the
Company's business and operating results. See "Use of Proceeds" and
"Business--Strategy."

MANAGEMENT'S DISCRETION AS TO USE OF UNALLOCATED NET PROCEEDS

The Company has designated only limited specific uses, other than general
corporate and working capital purposes, for the net proceeds of this Offering.
After repayment of indebtedness to the Selling

12
<PAGE>
Stockholder, an aggregate of $43.6 million of net proceeds will be available for
general corporate purposes, including working capital and capital expenditures,
as well as potential acquisitions. Consequently, the Board of Directors and
management of the Company will have broad discretion in the use of a significant
portion of the net proceeds of this Offering. See "Use of Proceeds."

RISK OF THIRD-PARTY CLAIMS OF INFRINGEMENT

LIMITED PROTECTION OF INTELLECTUAL PROPERTY; PROPRIETARY INFORMATION

The Company relies upon a combination of trade secrets, contractual
restrictions, copyrights, trademark laws and patents to establish and protect
proprietary rights in its products and technologies. Although the Company has
been issued only one U.S. patent to date, it believes that the success of its
business depends primarily on its proprietary technology, information and
processes and know-how, rather than patents. Much of the Company's proprietary
information and technology is not patented and may not be patentable. There can
be no assurance that the Company will be able to protect its technology or that
competitors will not be able to develop similar technology independently. The
Company has entered into confidentiality and invention assignment agreements
with all of its employees, and enters into non-disclosure agreements with its
suppliers, distributors and appropriate customers so as to limit access to and
disclosure of its proprietary information. There can be no assurance that these
statutory and contractual arrangements will deter misappropriation of the
Company's technologies or discourage independent third-party development of
similar technologies. In the event such arrangements are insufficient, the
Company's business and operating results could be materially adversely affected.
See "Business--Proprietary Rights."

NO PRIOR MARKET; STOCK PRICE VOLATILITY

Prior to this Offering, there has been no public market for the Company's
Common Stock. The initial public offering price will be determined by
negotiations among the Company, the Selling Stockholder and the representatives
of the Underwriters. There can be no assurance that an active public market for
the Class A Common Stock will develop or be sustained after this Offering or
that the market price of the Class A Common Stock will not decline below the
initial public offering price. The trading price of the Company's Class A Common
Stock could be subject to wide fluctuations in response to quarter to quarter
variations in operating results, announcements of technological innovations or
new products by the Company or its competitors, developments with respect to
patents or proprietary rights, general conditions

13
<PAGE>
in the telecommunications industry, changes in earnings estimates by analysts,
or other events or factors. In addition, the stock market has experienced
extreme price and volume fluctuations which have particularly affected the
market prices of many technology companies and which have often been unrelated
to the operating performances of such companies. The Company's revenues or
operating results in future quarters may be below the expectations of public
market securities analysts and investors. In such event, the price of the
Company's Class A Common Stock would likely decline, perhaps substantially.
These Company-specific factors or broad market fluctuations may materially
adversely affect the market price of the Company's Class A Common Stock. See
"--Fluctuations in Quarterly Operating Results; Absence of Significant Backlog"
and "Underwriting."

SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial amounts of Class A Common Stock (including shares
issuable upon conversion of outstanding Class B Common Stock) in the public
market after this Offering may materially adversely affect prevailing market
prices for the Class A Common Stock and could impair the Company's ability to
raise capital in the future through the sale of its equity securities. Upon the
consummation of this Offering, the Company will have 7,023,555 shares of Class A
Common Stock and 10,700,000 shares of Class B Common Stock outstanding. Of these
shares, 7,000,000 shares of Class A Common Stock offered hereby will be freely
tradeable without restriction under the Securities Act of 1933, as amended (the
"Securities Act"). The remaining 23,555 shares of Class A Common Stock and
10,700,000 shares of Class B Common Stock are "restricted shares" within the
meaning of the Securities Act (the "Restricted Shares") and will be eligible for
sale in the public market beginning 180 days and 240 days, respectively, after
the date of this Prospectus, pursuant to Rule 144 ("Rule 144") promulgated under
the Securities Act and the expiration of certain lock-up agreements entered into
between the Underwriters and the holders of such Restricted Shares. Of such
Restricted Shares, 10,700,000 shares of Class B Common Stock will be subject to
certain volume limitations and other resale restrictions pursuant to Rule 144.
In addition, the Company intends to file a Registration Statement on Form S-8
("Form S-8") under the Securities Act after the effective date of this Offering
to register 3,000,000 shares of Class A Common Stock issuable upon the exercise
of stock options or stock purchase rights to be granted under the Company's
stock plans, which includes 23,555 shares of Class A Common Stock issued in
connection with the termination of the Company's participation in the Selling
Stockholder's existing long-term incentive plan. Such shares of Class A Common
Stock issued pursuant to these plans after the effective dates of registration
statements will be available for sale in the public market, subject to
expiration of the lock-up agreements with the Underwriters. Furthermore,
pursuant to the terms of a registration rights agreement, the holders of
10,700,000 shares of Class B Common Stock have demand and/or incidental, or
"piggyback," registration rights, permitting such holders, in the case of demand
registration rights, to request on three occasions (subject to certain
limitations) that such shares be registered for resale under the Securities Act
at the Company's expense, in certain registration statements filed by the
Company. No prediction can be made as to the effect, if any, that sales of
shares of Class A Common Stock (including Class A Common Stock issuable on
conversion of Class B Common Stock) or even the availability of such shares for
sale will have on the market prices prevailing from time to time. See "Shares
Eligible for Future Sale" and "Underwriting."

DILUTION TO PURCHASERS IN OFFERING

Purchasers of the Class A Common Stock will experience immediate and
substantial dilution in net tangible book value per share of the Class A Common
Stock from the initial public offering price per share. See "Dilution."

NO ANTICIPATED DIVIDENDS

The Company does not anticipate paying dividends in the foreseeable future.
See "Dividend Policy."

14
<PAGE>
USE OF PROCEEDS

The net proceeds from the sale of the Class A Common Stock offered hereby,
after deducting estimated offering expenses and the underwriting discount
payable by the Company, are estimated to be approximately $68.6 million.

The Company will use $25.0 million of such proceeds to repay indebtedness
owed to Axel Johnson under a promissory note, which currently bears interest at
7.5% per annum. The balance of the net proceeds will be used for general
corporate purposes, including working capital. A portion of such proceeds may
also be used for acquisitions of complementary technologies or businesses,
although no negotiations for such transactions are currently in process. See
"Risk Factors--Management's Discretion as to Use of Unallocated Net Proceeds"
and "Relationship Between the Company and Axel Johnson."

DIVIDEND POLICY

The Company currently intends to retain its earnings to finance future
growth and therefore does not anticipate paying any cash dividends in the
foreseeable future. The declaration and payment of dividends, if any, will be
subject to the discretion of the Company's Board of Directors and will depend on
the Company's earnings, capital requirements, financial condition, statutory
restrictions and other factors deemed to be relevant by the Board of Directors.
See "Risk Factors--No Anticipated Dividends."

15
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company as of
September 30, 1996 after giving effect to the Recapitalization and on an as
adjusted basis to reflect the sale by the Company of the 5,800,000 shares of
Class A Common Stock offered hereby and the receipt and application by the
Company of the estimated net proceeds therefrom (after deducting the
underwriting discount and estimated offering expenses at an assumed initial
public offering price of $13.00, including the payment of the $25.0 million note
payable to Axel Johnson). The capitalization information set forth in the table
below is qualified by the more detailed Consolidated Financial Statements and
Notes thereto appearing elsewhere in this Prospectus and should be read in
conjunction with such Consolidated Financial Statements and Notes.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-----------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS, EXCEPT
SHARE DATA)

<S> <C> <C>
Note payable to Axel Johnson............................................................... $ 25,000 $ --
---------- -----------
---------- -----------
Stockholders' equity:

Preferred Stock, $0.01 par value; 5,000,000 shares authorized; no shares issued and
outstanding............................................................................ $ -- $ --
Class A Common Stock, $0.01 par value; 100,000,000 shares authorized; no shares issued
and outstanding, actual; and 7,000,000 shares issued and outstanding, as adjusted
(1).................................................................................... -- 70
Class B Common Stock, $0.01 par value; 11,900,000 shares authorized; 11,900,000 shares
issued and outstanding, actual; and 10,700,000 shares issued and outstanding, as
adjusted (2)........................................................................... 119 107
Additional paid-in capital............................................................... 13,171 81,735
Accumulated deficit...................................................................... (15,953) (15,953)
---------- -----------
Total stockholders' equity (deficit)................................................... (2,663) 65,959
---------- -----------
Total capitalization................................................................. $ (2,663) $ 65,959
---------- -----------
---------- -----------
</TABLE>

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

(1) Excludes (i) 205,000 shares of Class A Common Stock reserved for issuance
pursuant to the Stock Option Plan for Non-Employee Directors, of which
options to purchase an aggregate of 36,000 shares shall be granted upon
consummation of this Offering and no other options are outstanding, (ii)
2,485,000 shares of Class A Common Stock reserved for issuance pursuant to
the Stock Incentive Plan, of which options to purchase an aggregate of
1,300,000 shares shall be granted upon consummation of this Offering and no
other options are outstanding, and of which 23,555 shares of Class A Common
Stock will be issued upon consummation of this Offering to officers of the
Company in connection with the termination of the Company's participation in
Axel Johnson's existing long-term incentive plan and (iii) 310,000 shares of
Class A Common Stock reserved for issuance pursuant to the Stock Purchase
Plan, none of which has been issued to date. See "Management."

(2) Reflects the conversion by Axel Johnson of 1,200,000 shares of Class B
Common Stock into 1,200,000 shares of Class A Common Stock immediately prior
to this Offering.

16
<PAGE>
DILUTION

The net tangible book value (deficit) of the Company's Common Stock at
September 30, 1996, was $(2.8) million, or $(0.23) per share. Net tangible book
value (deficit) per share represents the amount of total tangible assets less
total liabilities, divided by the number of shares of Common Stock outstanding.
After giving effect to the sale by the Company of 5,800,000 shares of Class A
Common Stock offered hereby (at an assumed initial public offering price of
$13.00 per share and after deduction of estimated underwriting discounts and
estimated offering expenses payable by the Company), the Company's pro forma net
tangible book value at September 30, 1996 would have been $65.8 million, or
$3.72 per share of Common Stock. This represents an immediate dilution in net
tangible book value of $9.28 per share to new investors purchasing shares in
this Offering. Dilution is determined by subtracting pro forma net tangible book
value per share after this Offering from the amount of cash paid by a new
investor for a share of Class A Common Stock. The following table illustrates
the per share dilution:

<TABLE>
<S> <C> <C>
Initial public offering price per share............................. $ 13.00

Net tangible book value (deficit) per share before Offering......... $ (0.23)
Increase per share attributable to new investors.................... 3.95
---------
Pro forma net tangible book value per share after Offering.......... 3.72
---------
Dilution per share to new investors................................. $ 9.28
---------
---------
</TABLE>

The following table sets forth, on a pro forma basis at September 30, 1996,
the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by Axel Johnson and by
new public investors calculated based on the assumptions set forth in the
preceding paragraph (assuming the sale by the Company of 5,800,000 shares at a
price of $13.00 per share, before deduction of underwriting discount and
offering expenses payable by the Company):

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Axel Johnson....................... 11,900,000(1) 67.2% $ 13,290,000(2) 15.0% $ 1.12
New public investors............... 5,800,000 32.8 75,400,000 85.0 13.00
------------ ----- ------------- -----
Total........................ 17,700,000 100.0 % $ 88,690,000 100.0 %
------------ ----- ------------- -----
------------ ----- ------------- -----
</TABLE>

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

(1) The conversion of 1,200,000 shares of Class B Common Stock into, and the
subsequent sale of, 1,200,000 shares of Class A Common Stock in this
Offering by the Selling Stockholder will reduce the number of shares held by
the Selling Stockholder to 10,700,000 shares of Class B Common Stock or
60.5% of the total number of shares of Common Stock to be outstanding after
this Offering, and will increase the number of shares held by new public
investors to 7,000,000 shares of Class A Common Stock or 39.5% of the total
number of shares of Common Stock to be outstanding after this Offering. See
"Principal and Selling Stockholder."

(2) Does not reflect the $25.0 million dividend declared to the Selling
Stockholder.

17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated statement of operations data for the
years ended December 31, 1993, 1994 and 1995 and the nine months ended September
30, 1996 and the consolidated balance sheet data as of December 31, 1994 and
1995 and September 30, 1996 have been derived from the Company's Consolidated
Financial Statements, included elsewhere in this Prospectus, which have been
audited by Price Waterhouse LLP, independent accountants. The selected
consolidated statement of operations data for the years ended December 31, 1991
and 1992 and the selected consolidated balance sheet data as of December 31,
1991, 1992 and 1993 have been derived from unaudited consolidated financial
statements of the Company. The unaudited consolidated financial statements have
been prepared on a basis consistent with the Company's audited financial
statements and, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly the
Company's consolidated financial position and results of operations for the
periods presented. The historical results are not necessarily indicative of
future operating results. The data set forth below is qualified by reference to,
and should be read in conjunction with, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and the related Notes thereto appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- ----------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues.................................... $ 27,529 $ 33,502 $ 39,035 $ 36,550 $ 48,663 $ 36,654 $ 48,981
Cost of revenues............................ 13,393 13,654 14,989 15,037 21,147 15,512 21,961
--------- --------- --------- --------- --------- --------- -----------
Gross profit............................ 14,136 19,848 24,046 21,513 27,516 21,142 27,020
--------- --------- --------- --------- --------- --------- -----------
Operating expenses:
Research and development.................. 3,508 5,458 6,269 6,703 7,143 5,547 5,732
Selling, general and administrative....... 9,725 11,752 13,629 13,385 15,762 11,768 14,132
--------- --------- --------- --------- --------- --------- -----------
Total operating expenses................ 13,233 17,210 19,898 20,088 22,905 17,315 19,864
--------- --------- --------- --------- --------- --------- -----------
Income from operations...................... 903 2,638 4,148 1,425 4,611 3,827 7,156
Interest expense charged by Axel Johnson.... -- -- -- -- -- -- (195)
Interest income............................. -- 2 -- 9 3 3 --
--------- --------- --------- --------- --------- --------- -----------
Income before income taxes.................. 903 2,640 4,148 1,434 4,614 3,830 6,961
Provision for income taxes.................. 544 1,260 1,853 773 2,085 1,730 2,860
--------- --------- --------- --------- --------- --------- -----------
Net income.................................. $ 359 $ 1,380 $ 2,295 $ 661 $ 2,529 $ 2,100 $ 4,101
--------- --------- --------- --------- --------- --------- -----------
--------- --------- --------- --------- --------- --------- -----------
Supplemental net income per share (1)....... $ 0.18 $ 0.30
Shares used to compute supplemental
net income per share (1).................. 14,013 14,013
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------- SEPTEMBER 30,
1991 1992 1993 1994 1995 1996
--------- --------- --------- --------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficit)......................... $ 5,528 $ 6,426 $ 7,620 $ 7,520 $ 8,605 $ (10,822)
Total assets...................................... 16,889 18,670 19,526 21,772 25,739 32,101
Note payable to Axel Johnson...................... -- -- -- -- -- 25,000
Total stockholders' equity (deficit).............. 11,372 12,757 15,046 15,707 18,236 (2,663)
</TABLE>

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

(1) See Note 1 of Notes to the Consolidated Financial Statements for an
explanation of the determination of shares used to compute supplemental net
income per share.

18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Over the past several years, Larscom has transitioned its business from
supplying single purpose T1 and fractional T1 ("FT1") wide area network customer
premises equipment ("CPE") to Fortune 500 corporations, to providing high speed
network access platform solutions predominantly to network service providers
("NSPs"). From 1986 through 1991, Larscom engaged primarily in the development,
marketing and support of T1 CSU/DSUs and T1 diagnostic equipment. In October
1991, the Company acquired T3 Technologies Inc. ("T3T"), a broadband products
company. The first broadband products developed by Larscom after the acquisition
of T3T were the Access-T45, one of the first T3 DSUs, and the Mega-T, the first
multiple T1 inverse multiplexer. Since then, the Company has invested
significant resources in developing a suite of broadband capabilities for the
Orion 4000 platform. Sales related to the Company's broadband
products--Access-T45, EtherSpan, Mega-T and Orion 4000--represented 11.8% and
27.4% of total revenues in 1995 and the nine months ended September 30, 1996,
respectively. The Company believes that sales of broadband products, including
recently developed modules, will represent an increasing percentage of future
sales. See "Risk Factors--Dependence on Recently Introduced Products and
Products Under Development."

A small number of customers, consisting of NSPs and resellers, have
accounted for a majority of the Company's revenues in each of the past several
years. Sales to the Company's top five customers accounted for 41.0%, 48.1%, and
53.3% of revenues in 1994, 1995 and the nine months ended September 30, 1996,
respectively. Sales to NSPs and resellers are often difficult to forecast due to
a relatively long sales cycle and acceleration or delays in the timing of
specific projects for which the NSP or reseller is acquiring equipment. The
Company has experienced fluctuations in both annual and quarterly revenues due
to the timing of receipt of customer orders as well as decisions from time to
time by major customers to cease marketing, purchasing and reselling the
Company's products. For example, from 1993 to 1994, the Company experienced
revenue shortfall when three of the Company's larger customers significantly
reduced their order rates of T1 CSUs and DSUs. The decrease in revenues from
1993 to 1994 was also due to the sale of one of the Company's product lines.
Since the Company continues to have significant sales to a small number of
customers, similar sales fluctuations may occur in the future. In addition,
starting in 1994, the Company experienced and may continue to experience price
pressures in its digital access product line, which resulted and may continue to
result in decreasing gross margins. See "Risk Factors-- Customer Concentration"
and "--Fluctuations in Quarterly Operating Results; Absence of Significant
Backlog".

The Company sells its products primarily through a direct sales force and to
a lesser extent through a variety of resellers, including OEMs, VARs, systems
integrators and distributors. Sales outside the U.S. have not been significant
to date.

19
<PAGE>
RESULTS OF OPERATIONS

The following table sets forth the percentage of revenues represented by
certain items in the Company's consolidated statement of operations for the
periods indicated:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31,
SEPTEMBER 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues............................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues....................................................... 38.4 41.1 43.5 42.3 44.8
--------- --------- --------- --------- ---------
Gross margin......................................................... 61.6 58.9 56.5 57.7 55.2
--------- --------- --------- --------- ---------
Operating expenses:
Research and development............................................. 16.1 18.4 14.6 15.2 11.7
Selling, general and administrative.................................. 34.9 36.6 32.4 32.1 28.9
--------- --------- --------- --------- ---------
Total operating expenses......................................... 51.0 55.0 47.0 47.3 40.6
--------- --------- --------- --------- ---------
Income from operations................................................. 10.6 3.9 9.5 10.4 14.6
Interest expense charged by Axel Johnson............................... -- -- -- -- (0.4)
Interest income........................................................ -- -- -- -- --
--------- --------- --------- --------- ---------
Income before income taxes............................................. 10.6 3.9 9.5 10.4 14.2
Provision for income taxes............................................. 4.7 2.1 4.3 4.7 5.8
--------- --------- --------- --------- ---------
Net income............................................................. 5.9% 1.8% 5.2% 5.7% 8.4%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1995

REVENUES. Revenues increased 33.6% to $49.0 million in the nine months
ended September 30, 1996 from $36.7 million in the nine months ended September
30, 1995. The increase in revenues reflected increased sales across the
Company's product lines, particularly sales of broadband products such as the
Access-T45 and Orion 4000 to NSPs. Sales to NSPs increased to 60.7% of revenues
in the nine months ended September 30, 1996 from 48.4% of revenues in the nine
months ended September 30, 1995. Sales to the top five customers represented
53.3% and 48.7% of revenues for the periods ended September 30, 1996 and 1995,
respectively.

GROSS PROFIT. As a percentage of revenues, gross profit declined to 55.2%
in the nine months ended September 30, 1996 from 57.7% in the nine months ended
September 30, 1995. This decrease was primarily the result of lower average unit
selling prices of digital access products, partially offset by increased sales
of higher margin broadband products. The Company is continuing to seek to
increase broadband product sales and to reduce costs of its broadband products
as well as of its digital access products. There can be no assurance that such
efforts will be sufficient to offset the expected continued decline in the
average selling prices of digital access products.

RESEARCH AND DEVELOPMENT. Research and development expenses increased 3.3%
to $5.7 million in the nine months ended September 30, 1996 from the $5.5
million in the nine months ended September 30, 1995. As a percentage of
revenues, research and development expenses declined to 11.7% in the nine months
ended September 30, 1996 from 15.2% in the nine months ended September 30, 1995
due to increased revenues. The Company believes that a continued commitment to
research and development, in particular to broadband products and emerging
technologies in response to customer demands, will be required to remain
competitive. Accordingly, the Company is increasing its engineering staff and
anticipates that its research and development expenses will increase in future
periods in absolute dollars.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased 20.1% to $14.1 million in the nine months ended September 30,
1996 from $11.8 million in the nine months ended

20
<PAGE>

September 30, 1995. As a percentage of revenues, selling, general and
administrative expenses declined to 28.9% in the nine months ended September 30,
1996 from 32.1% in the nine months ended September 30, 1995. The increase in
absolute dollars was due to additional personnel costs associated with expansion
of the Company's sales and marketing resources, as well as higher selling
expenses associated with higher revenues. Selling, general and administrative
expenses included the amortization of goodwill of approximately $356,000 and
$741,000 for the nine months ended September 30, 1996 and 1995, respectively,
related to the acquisition of Larscom by Axel Johnson in 1987 and the
acquisition of T3T by Larscom in 1991. Goodwill relating to these acquisitions
has been fully amortized as of September 30, 1996. Selling, general and
administrative expenses also include a charge from Axel Johnson for legal,
accounting, tax, treasury and administrative services. Axel Johnson will
continue to provide these services subsequent to this Offering for a
transitional period. For the nine months ended September 30, 1996 and 1995,
these charges were approximately $395,000 and $412,000, respectively. See
"Relationship Between the Company and Axel Johnson." The Company anticipates
that selling, general and administrative expenses will increase in absolute
dollars in the future as a result of the Company's continued investments in the
expansion of its sales, service and support organizations and development of its
distribution channels, particularly outside the United States, as well as the
legal, accounting, human resources and administrative expenses associated with
being a public company.

INTEREST EXPENSE. Interest expense for the nine months ended September 30,
1996 represents interest charged on the $25.0 million note payable to Axel
Johnson, which bears interest at 7.5% per annum. The Company expects to pay such
note from the proceeds of this Offering.

PROVISION FOR INCOME TAXES. The effective tax rates of 41.1% and 45.2% for
the nine months ended September 30, 1996 and for the nine months ended September
30, 1995, respectively, differed from the federal statutory rates as a result of
non-deductible goodwill amortization and state taxes, offset in part by research
and development tax credits in 1995. The effective tax rate decreased in the
nine months ended September 30, 1996 as the non-deductible items constituted a
relatively lower percentage of pre-tax income during that period.

YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE YEAR ENDED DECEMBER 31, 1994

REVENUES. Revenues increased 33.1% to $48.7 million in 1995 from $36.6
million in 1994. This increase was primarily due to an increase in digital
access product unit sales. Broadband product unit sales increased to a lesser
extent. Sales to NSPs increased to 47.5% of revenues in 1995 from 40.5% of
revenues in 1994. Sales to the top five customers represented 48.1% and 41.0% of
revenues in 1995 and 1994, respectively.

GROSS PROFIT. As a percentage of revenues, gross profit declined to 56.5%
in 1995 from 58.9% in 1994. This decrease was due primarily to price pressures
in the digital access market, partially offset by the increase in sales of
higher gross profit broadband products.

RESEARCH AND DEVELOPMENT. Research and development expenses increased to
$7.1 million in 1995 from $6.7 million in 1994. The increase was primarily due
to higher costs associated with continued development in 1995 of the broadband
product line and related technologies. As a percentage of revenues, research and
development expenses decreased to 14.6% in 1995 from 18.4% in 1994 due to
increased revenues.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased 17.8% to $15.8 million in 1995 from $13.4 million in 1994. As
a percentage of revenues, selling, general and administrative expenses declined
to 32.4% in 1995 from 36.6% in 1994. The increase in absolute dollars was due to
the additional personnel and increased incentive compensation costs required to
generate and support an increased sales force. Selling, general and
administrative expenses each year include the

21
<PAGE>
amortization of goodwill of approximately $1.0 million. Selling, general and
administrative expenses also included charges by Axel Johnson of $549,000 and
$526,000 in 1995 and 1994, respectively.

PROVISION FOR INCOME TAXES. The effective tax rates of 45.2% in 1995 and
53.9% in 1994 differed from the federal statutory rates as a result of
non-deductible goodwill amortization and state taxes, offset in part by research
and development tax credits. The effective tax rate decreased in 1995 as the
non-deductible items constituted a relatively lower percentage of pre-tax income
during that period.

YEAR ENDED DECEMBER 31, 1994 COMPARED TO THE YEAR ENDED DECEMBER 31, 1993

REVENUES. The Company's revenues declined 6.4% to $36.6 million in 1994
from $39.0 million in 1993. This decrease was primarily the result of a decline
in sales of digital access products as well as the sale of the Company's analog
alarm product line in 1993. The decline in digital access product sales was
primarily the result of a reduction in orders from certain major customers, one
of which reduced unit purchases due to completion of its internal network and
the others of which commenced production of their own digital access products.
This decline was partially offset by an increase in broadband product sales.
Sales to the Company's top five customers in 1994 and 1993 were 41.0% and 38.3%
of revenues, respectively.

GROSS PROFIT. As a percentage of revenues, gross profit declined to 58.9%
in 1994 from 61.6% in 1993, primarily due to lower average selling prices of
digital access products.

RESEARCH AND DEVELOPMENT. Research and development expenses increased to
$6.7 million in 1994 from $6.3 million in 1993 due to increased costs associated
with the development of the broadband product line. As a percentage of revenues,
research and development expenses increased to 18.4%, from 16.1% in 1993, as a
result of the decline in revenues.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses remained relatively flat in 1994, decreasing $244,000 to $13.4 million.
As a percentage of revenues, selling, general and administrative expenses
increased to 36.6% in 1994 from 34.9% in 1993. The decrease in absolute dollars
was due to lower incentive compensation associated with lower revenues, offset
by the additional costs associated with high turnover as well as with the
increased salaries required to attract qualified personnel into the sales
organization. Selling, general and administrative expenses for each year include
the amortization of goodwill of approximately $1.0 million. Selling, general and
administrative expenses also included charges by Axel Johnson of $526,000 and
$491,000 in 1994 and 1993, respectively.

PROVISION FOR INCOME TAXES. The effective tax rates of 53.9% in 1994 and
44.7% in 1993 differed from the federal statutory rates as a result of
non-deductible goodwill amortization and state taxes, offset in part by research
and development tax credits. The effective tax rate increased in 1994 as the
non-deductible items constituted a relatively higher percentage of pre-tax
income during that period.

22
<PAGE>
QUARTERLY RESULTS OF OPERATIONS

The following tables present the Company's consolidated results of
operations for each of the last seven quarters and the percentage relationship
of certain items to revenues for the respective periods. The information for
each of these quarters is prepared on the same basis as the audited Consolidated
Financial Statements of the Company appearing elsewhere in this Prospectus. In
the opinion of management, all necessary adjustments (consisting only of normal
recurring adjustments) have been included to present fairly the unaudited
consolidated quarterly results when read in conjunction with the audited
Consolidated Financial Statements of the Company and the Notes thereto appearing
elsewhere in this Prospectus. These quarterly results of operations are not
necessarily indicative of the results for future quarters.

<TABLE>
<CAPTION>
QUARTERS ENDED
----------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1995 1995 1995 1995 1996 1996 1996
--------- --------- --------- --------- --------- --------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............................ $ 10,458 $ 12,740 $ 13,456 $ 12,009 $ 11,848 $ 18,776 $ 18,357
Cost of revenues.................... 4,208 5,443 5,861 5,635 5,426 8,334 8,201
--------- --------- --------- --------- --------- --------- ----------
Gross profit...................... 6,250 7,297 7,595 6,374 6,422 10,442 10,156
--------- --------- --------- --------- --------- --------- ----------
Operating expenses:
Research and development.......... 1,876 1,880 1,791 1,596 1,756 1,875 2,101
Selling, general and
administrative.................. 3,658 3,986 4,124 3,994 4,060 4,849 5,223
--------- --------- --------- --------- --------- --------- ----------
Total operating expenses...... 5,534 5,866 5,915 5,590 5,816 6,724 7,324
--------- --------- --------- --------- --------- --------- ----------
Income from operations.............. 716 1,431 1,680 784 606 3,718 2,832
Interest expense charged by Axel
Johnson............................ -- -- -- -- -- -- (195)
Interest income..................... 3 -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ----------
Income before income taxes.......... 719 1,431 1,680 784 606 3,718 2,637
Provision for income taxes.......... 325 646 759 355 249 1,528 1,083
--------- --------- --------- --------- --------- --------- ----------
Net income.......................... $ 394 $ 785 $ 921 $ 429 $ 357 $ 2,190 $ 1,554
--------- --------- --------- --------- --------- --------- ----------
--------- --------- --------- --------- --------- --------- ----------
</TABLE>

<TABLE>
<CAPTION>
QUARTERS ENDED
----------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1995 1995 1995 1995 1996 1996 1996
--------- --------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues.................... 40.2 42.7 43.6 46.9 45.8 44.4 44.7
--------- --------- --------- --------- --------- --------- ----------
Gross margin...................... 59.8 57.3 56.4 53.1 54.2 55.6 55.3
--------- --------- --------- --------- --------- --------- ----------
Operating expenses:
Research and development.......... 17.9 14.7 13.3 13.3 14.8 10.0 11.4
Selling, general and
administrative.................. 35.0 31.3 30.6 33.3 34.3 25.8 28.4
--------- --------- --------- --------- --------- --------- ----------
Total operating expenses...... 52.9 46.0 43.9 46.6 49.1 35.8 39.8
--------- --------- --------- --------- --------- --------- ----------
Income from operations.............. 6.9 11.3 12.5 6.5 5.1 19.8 15.5
Interest expense charged by Axel
Johnson............................ -- -- -- -- -- -- (1.1)
Interest income..................... -- -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ----------
Income before income taxes.......... 6.9 11.3 12.5 6.5 5.1 19.8 14.4
Provision for income taxes.......... 3.1 5.1 5.7 2.9 2.1 8.2 5.9
--------- --------- --------- --------- --------- --------- ----------
Net income.......................... 3.8% 6.2% 6.8% 3.6% 3.0% 11.6% 8.5%
--------- --------- --------- --------- --------- --------- ----------
--------- --------- --------- --------- --------- --------- ----------
</TABLE>

23
<PAGE>
The Company's operating results have fluctuated significantly in the past
and may fluctuate in the future on a quarterly and annual basis as a result of a
number of factors, many of which are beyond the Company's control.

In 1995, the Company experienced a shift in the purchasing behavior of its
customers which resulted in higher second and third quarter sales relative to
fourth quarter sales. These purchasing patterns and resulting cyclicality could
continue in the future. Moreover, the Company's sales historically have been
concentrated in a small number of customers. Therefore, sales for a given
quarter may depend to a significant degree upon product shipments to a limited
number of customers. Sales to individual large customers are often related to
the customer's specific equipment deployment projects, the timing of which is
subject to change on limited notice. The Company has experienced both
acceleration and slowdown in orders related to such projects, causing changes in
the sales level of a given quarter relative to both the preceding and subsequent
quarters. For example, since 1994 sales to MCI, IBM/Advantis, AT&T and other
current customers have occasionally varied by $1.0 million or more from quarter
to quarter. Since most of the Company's sales are in the form of large orders
with short delivery times to a limited number of customers, the Company's
ability to predict revenues is limited. In addition, announcements by the
Company or its competitors of new products and technologies could cause
customers to defer purchases of the Company's existing products. In the event
that anticipated orders from major customers fail to materialize, or delivery
schedules are deferred or canceled as a result of the above factors or other
unanticipated factors, the Company's business and operating results could be
materially adversely affected.

The Company's backlog at the beginning of each quarter typically is limited.
Accordingly, sales in any quarter are largely dependent on orders received in
that quarter. Customer decisions to delay delivery, cancel or reduce its
purchases could cause fluctuations in the Company's operating results and could
have a material adverse effect on the Company's business and operating results
in the period.

The Company's revenues increased sequentially in the first three quarters of
1995 and decreased in the fourth quarter of 1995 and first quarter of 1996, for
the reasons outlined above. Revenues increased significantly in the second
quarter of 1996 primarily as a result of increased sales to the Company's
largest NSP customers. Revenues in the third quarter of 1996 declined slightly
compared to revenues in the second quarter, as the rate of growth in the second
quarter was unusually high.

Gross margins declined throughout 1995 due to pricing pressures in the
digital access market. On a quarterly basis, from the fourth quarter of 1995
through the second quarter of 1996, gross margins increased due to higher margin
broadband sales. The pricing pressure in the digital access market has continued
on a quarterly basis in 1996 and is expected to continue. The Company is
continuing to seek to increase broadband product sales and to reduce costs of
its broadband products as well as of its digital access products. There can be
no assurance that such efforts will be sufficient to offset the decreases in the
average unit selling prices of the digital access products.

Research and development expenses remained relatively flat from the first
quarter of 1995 to the third quarter of 1995 and decreased in the fourth quarter
due primarily to lower material costs related to the development of certain
modules of the Orion 4000. The increase in research and development expenses in
the first three quarters of 1996 was due primarily to certification costs as
well as an increase in personnel. The Company expects that its research and
development expenses will continue to increase in absolute dollars. Selling,
general and administrative expenses have fluctuated from quarter to quarter as a
result of incentive compensation associated with the fluctuation in quarterly
revenues and increased personnel to generate and support the higher level of
revenues. Selling, general and administrative expenses are expected to increase
in absolute dollars in the future for the reasons outlined above.

Due to all of the foregoing factors, the Company's operating results in one
or more future periods may be subject to significant fluctuations. In the event
this results in the Company's financial performance being below the expectations
of public market analysts and investors, the price of the Company's Class A
Common Stock could be materially adversely affected. The Company believes that
period-to-period

24
<PAGE>
comparisons of its operating results are not neccessarily meaningful and should
not be relied upon as indicative of future performance.

LIQUIDITY AND CAPITAL RESOURCES

Since its acquisition by Axel Johnson in 1987, the Company has met its
operating and capital requirements primarily from cash flow from operations and
advances from Axel Johnson.

The Company's operating activities generated $4.0 million in cash in 1995,
primarily as a result of net income, offset by increases in accounts receivable
and inventories. Operating activities generated $332,000 in cash in the nine
months ended September 30, 1996, primarily as a result of net income, non-cash
charges and an increase in accrued expenses and accounts payable partially
offset by increases in accounts receivable and inventories.

At September 30, 1996, the Company had $(10.8) million in working capital
(deficit). Upon consummation of this Offering, the Company will have an
aggregate of $43.7 million in cash, based on balances at September 30, 1996 and
the expected application of the net proceeds of this Offering. In addition, the
Company has a revolving line of credit for up to $15.0 million from Axel
Johnson. See "Relationship Between the Company and Axel Johnson--Credit
Agreement."

The Company's working capital (deficit) was $7.5 million at December 31,
1994, $8.6 million at December 31, 1995 and $(10.8) million at September 30,
1996. The decrease of working capital from December 31, 1995 to September 30,
1996 was primarily due to the $25.0 million note payable to Axel Johnson and
increases in accounts receivable and inventories resulting from higher revenues,
partially offset by increases in accounts payable and accrued expenses. The
increase in working capital from 1994 to 1995 principally reflects the higher
levels of receivables and inventories resulting from the higher revenues,
partially offset by higher payables and accrued expenses. Capital expenditures
in 1995 and in the nine months ended September 30, 1996 were $2.1 million for
each period. These expenditures were principally for the acquisitions of
computers, software and test equipment. The Company expects capital expenditures
to increase over the next several years as it expands its operations.

The Company believes that the net proceeds from this Offering, together with
the Company's line of credit and funds generated from operations, will provide
adequate liquidity to meet the Company's operating and capital requirements at
least through 1997. However, there can be no assurance that future events, such
as the potential use of cash to fund acquisitions, will not require the Company
to seek additional capital at an earlier date or, if so required, that adequate
capital will be available on terms acceptable to the Company, or at all.

25
<PAGE>
BUSINESS

Larscom develops, manufactures and markets a broad range of high speed
global internetworking solutions for NSPs and corporate users. Larscom's
products provide access to fractional T1, E1, T1/E1, frame relay, fractional
T3/E3, channelized T3 services and CCA inverse multiplexing, with clear channel
T3, ISDN, IMA and ATM under development. Larscom's newest families of products,
the Orion 200 and Orion 4000, were designed with modular hardware and
downloadable software to provide the Company's customers with the flexibility to
increase network capacity and add services in a rapid and cost-effective manner.

INDUSTRY OVERVIEW

The proliferation of personal computers and the continuing need of users to
disseminate and share information, oftentimes across an enterprise and from
remote locations, have created increased demand for both LANs which connect
computing resources within an enterprise and WANs which permit interconnection
across wide geographic areas. As networks extend beyond the enterprise and reach
around the world, demand for WAN capacity and higher speed WAN access has grown
dramatically. More recently, this demand has been further fueled by the growth
in Internet usage among both individuals ("consumer use") and businesses, as
well as the emergence of more bandwidth-intensive applications such as video and
imaging.

The increased demand for WAN speed and capacity has been accompanied by
increased complexity in available network services. In addition to dedicated
56/64 kbps and T1/FT1 services, both private and public frame relay, ISDN basic
rate and primary rate and ATM are available. This large variety of services has
also been coupled with an esclation in the variety and complexity of LAN
technology (10 Mbps Ethernet, 100 Mbps Ethernet, FDDI, switched Ethernet and
Gigabit Ethernet). ATM, in particular, adds complexity to network demands. As an
alternative to current circuit-based (or TDM) services, ATM is a new cell-based
service which allows corporate users and NSPs to combine all types of
traffic--data, voice, video and image--across the same network. ATM is expected
to become more widely available as standards evolve. Since it utilizes
cell-based technology rather than traditional circuit-based TDM technology, ATM
poses significant network hardware and software challenges. To date, ATM has
been deployed in local area and campus network environments, as some
corporations have elected to base their next generation network architecture on
ATM. Although NSPs have yet to use the technology widely to transport ATM
traffic, they have used ATM as a backbone technology to offer other services
such as frame relay.

As a result of both the increased demand for WAN capacity and the complexity
and continuing evolution of service offerings, businesses have been
transitioning from the use of private WANs dedicated to individual businesses to
greater use of public WANs maintained by NSPs. As this transition occurs, NSPs
are being asked to provide an increasing variety of transmission services and
network management services. In addition, corporate users in many cases are
requiring NSPs to assume full responsibility for operation and monitoring of the
network and to guarantee certain levels of service.

NSPs and corporate users require equipment that supports higher bandwidth
than provided by common T1 and E1 services. In addition, NSPs and corporate
users increasingly are seeking a solution that bridges the technology gap by
providing connectivity to both the currently ubiquitous TDM network environment
and the emerging ATM environment without requiring that one technology be
dropped in favor of the other. Moreover, many businesses need to operate on a
global basis with networks that cross international boundaries. Furthermore,
NSPs and corporate users require the ability to add more services

26
<PAGE>
and high speed applications in a rapid and affordable manner. Accordingly, NSPs
and corporate users require telecommunications equipment that supports a broad
range of services and that will operate reliably, flexibly and consistently in
all the required countries. The complexity and variety of services and products
have prompted both NSPs and corporate users alike to consolidate their
purchasing activity by using fewer vendors who offer reliable and affordable
equipment throughout the world.

WAN services are expected to continue to exhibit rapid growth, which in
turn, should result in increased demand for broadband and digital access
products. According to industry analysts, T1 and T3 service connections are
projected to grow at compounded annual growth rates ("CAGR") of approximately
11% and 27%, respectively, between 1995 and 1999. During the same period, the
number of business Internet users is projected to grow at a CAGR of
approximately 19%. Also, during the same period, frame relay service is expected
to grow at a CAGR of approximately 73% and ATM services are expected to grow at
a CAGR of 99%, but from a much smaller base.

THE LARSCOM SOLUTION

The Company's broad range of product offerings provides access to both ATM
and TDM services across a variety of international standards at speeds ranging
from 56 kbps to 155 Mbps. The Company's products have modular architectures that
simplify the provisioning of new services by NSPs and lower the cost for large
corporate users of obtaining additional bandwidth.

BRIDGING THE TECHNOLOGY GAP. To address the gap between emerging and
existing technologies, in particular between ATM and TDM, the Company has
developed a broad range of network communications products that provide its
corporate customers with reliable and flexible network access. The Company
offers its NSP customers easily deployable, well managed solutions to provision
new network services quickly. In the broadband market, for example, the Orion
4000 is unique in its ability to accommodate both ATM and TDM network
connectivity within the same multiplexing architecture. The Orion 4000 can also
accommodate bandwidth needs that range from a single T1 or E1 circuit to 155
Mbps.

BRIDGING THE BANDWIDTH GAP. Through its Mega-T and Orion 4000 products,
Larscom pioneered the use of multiple T1 and E1 inverse multiplexing, which
enables users to achieve higher bandwidth capacity than offered by a single T1
line, thereby bridging the bandwidth gap between T1 and T3. Fractional T3
service, provided in this manner, allows the NSP to leverage the existing
T1-based infrastructure and provides the corporate user with ready access to
affordable and ubiquitous high speed bandwidth.

SCALEABILITY AND MODULARITY. The Company has incorporated flexibility and
modularity into its products as network complexity and bandwidth increase, as
industry standards evolve and as NSPs and corporate users seek to meet multiple
needs. The Company's upgradeable software and plug-in modules enable NSPs to add
services rapidly and cost-effectively as demand changes and industry standards
evolve.

RELIABILITY AND QUALITY. The Company has earned a strong reputation for the
quality of its products, as well as its responsive service. The Company's
products are manufactured to meet the highest standards of reliability and
quality, including intensive system level testing in development and
manufacturing. Larscom has responded to its customers' needs by providing
telecommunications equipment that operates reliably and consistently across the
globe. Orion 200 and Orion 4000 platforms are designed, tested and certified for
use in major international markets. The Company was the first in its industry
segment to become ISO 9001 certified and was among the first companies in
California to receive this certification.

CUSTOMER SERVICE AND SUPPORT. The Company offers real-time service and
support through various stages of the customer relationship. The Company's
service and support function begins by working closely with customers at the
product definition and design stage. To meet its customers' unpredictable
purchasing patterns, the Company's sales and operations departments are
organized to respond quickly to short lead-time orders. Finally, Larscom
provides post-sale service and support of its products through technical
consulting, installation assistance and maintenance.

27
<PAGE>
STRATEGY

Larscom's objective is to be a global leader in providing flexible,
dependable high speed internetworking solutions that allow its customers to
connect high speed applications economically across WANs and to enable NSPs to
introduce new service offerings rapidly and economically. The key elements of
the Company's strategy are as follows:

EXPAND RELATIONSHIPS WITH MAJOR CUSTOMERS. The Company seeks to capitalize
on the strong relationships it has with NSPs and other telecommunication
leaders, including major companies such as AT&T, MCI, IBM/Advantis, MFS
Communications and UUNET. These relationships provide the Company with advanced
insight into the evolving needs of customers and allow the Company to anticipate
new technology requirements. The Orion 200 and Orion 4000 product families were
designed specifically to meet the demands of its major customers. Both product
families provide solutions that accommodate legacy services and equipment, as
well as emerging ATM and other high speed customer networking applications.
Additionally, the Company's major customers prefer to purchase the majority of
their network access solutions from a single vendor. The Company seeks to
capitalize on these purchasing patterns by continuing to broaden and enhance its
current product lines, as well as to develop next generation broadband and
digital access products.

EXPAND CUSTOMER BASE BY BROADENING DISTRIBUTION CHANNELS. The Company seeks
to continue the expansion of its customer base through both direct and alternate
distribution channels. Developments in broadband and digital access platforms
will continue to be handled by a direct sales organization experienced in
systems-level sales. Additionally, the Company seeks to extend its market reach
to the Fortune 2000 corporations in the U.S. through the development of
alternate distribution channels and supporting services. In international
markets, the Company is seeking to develop partnerships with international NSPs
and to develop its own sales and support organization to complement existing
distributor relationships.

CAPITALIZE ON INNOVATIVE TECHNOLOGY. The Company seeks to build upon its
strength in technology innovation, complemented by its intimate knowledge of its
customers, to ensure that Larscom's products remain in the forefront of the
broadband and digital access markets. In the broadband market, the Company has
pioneered both fractional T3 and, with the Orion 4000, integrated ATM and TDM
technologies. In the digital access market, the Company has introduced the Orion
200 family of products to address the need to serve U.S. T1 lines and
international E1 lines and to accommodate T1/E1 conversion. The early
participation of the Company's engineering team with its customers in product
definition and the Company's ability to leverage its knowledge of digital access
technology are key factors in market acceptance and in bringing new products to
market in a timely fashion.

GROW THROUGH ACQUISITIONS. The Company seeks to broaden its product
offerings, address emerging markets and expand its distribution channels in part
through strategic acquisitions of complementary businesses and technologies. The
Company has no current agreements or negotiations underway with respect to any
such acquisitions.

CONTINUE COMMITMENT TO PRODUCT QUALITY AND CUSTOMER SERVICE. The Company
seeks to differentiate itself from competitors through the quality of its
products and customer service. The Company offers distinctive service products
that can be tailored for specific customers. In addition, the Company works
closely with customers to provide technical consulting, trouble-shooting,
maintenance, installation assistance, and training. The Company seeks to
continue to reduce production cycle times and product costs through its
commitments to product quality and customer service.

PRODUCTS

The Company's principal products consist of broadband access solutions such
as the Orion 4000 family of products and digital access solutions such as the
Orion 200 and Access-T families of products.

28
<PAGE>
Broadband products address transmission speeds greater than 2 Mbps and digital
access products address speeds less than 2 Mbps. The Company's principal product
platforms feature modular software and hardware which can be adapted to changing
industry standards and customer needs. The products can be upgraded in the
field, for new features or standards, by downloading new software. In addition,
several of the products are designed to permit ready addition of modules to
provide new functions or interfaces. This provides an NSP or corporate user with
the components necessary to architect an entire system to interconnect multiple
locations in a cost-effective and manageable network. The following diagram
illustrates the breadth of the Company's products:

LARSCOM'S PRODUCT MIX

[CHART]
Set forth here, under the heading Larscom's Balanced Product Mix, is a large
horizontally-oriented rectangle divided into four equal-sized quadrants, on
which Larscom products are arranged to indicate product interrelationships in
terms of bandwidth/network types and cost/features. To the left of the rectangle
are a pair of labels: T3/FT3, E3/FE3, and above, which applies to the top pair
of quadrants; and T1, E1, and below, which applies to the bottom pair of
quadrants. Below the rectangle are another pair of labels: Lower Price, which
applies to the left pair of quadrants; and Greater Features, which applies to
the right pair of quadrants. A diagonal broken line divides the large rectangle
from top left to bottom right into two basic product classes, with labels above
the rectangle designating the left portion as Digital Access and the right
portion as Broadband. Within the rectangle are various-sized ovals labeled with
Larscom product names or product types. In the lower left quadrant, to the left
of the broken line (indicating T1/E1, and below; Lower Price; and Digital Access
product class), are five ovals, arranged from lower left to upper right and
labeled, in order, as follows: T1 CSUs, T1/E1 CSU/DSUs, Split-T, Access-T, Orion
200. At the upper right portion of the upper left quadrant, to the right of the
broken line (indicating T3/FT3, E3/FE3, and above; Lower Price; and Broadband
product class), is one oval labeled Access-T45. An oval labeled Mega-T is
positioned spanning the border in the lower portion of the top quadrants, to the
right of the broken line (indicating T3/FT3, E3/FE3, and above; a middle
position between Lower Cost and Greater Features; and Broadband product class).
Over the right three-quarters of the upper right quadrant is the largest oval,
labeled Orion 4000; its position indicates T3/FT3, E3/FE3, and above; Greater
Features, and Broadband product class. The last oval is labeled Etherspan and
spans the border between the upper and lower right quadrants, indicating
bandwidths from T1/E1 to FT3/FE3; Greater Features; and Broadband product class.

BROADBAND PRODUCTS

Larscom entered the broadband market in 1991 with the acquisition of T3
Technologies, Inc. Larscom's broadband product line consists of a range of
products that include the Orion 4000 broadband access multiplexer, a family of
inverse multiplexers and a single function T3 DSU.

ORION 4000. The Orion 4000 is a highly versatile broadband access
multiplexer with a unique WAN access architecture that handles both ATM and TDM
traffic on a dual, redundant, 155 Mbps bus structure. The Orion 4000
accommodates data applications operating at speeds from 1.54 Mbps up to 50 Mbps,
as well as network connections that range from T1 or E1 to 155 Mbps. The Orion
4000 is designed to enable different functionality to be added in a modular and
cost effective fashion. It is available in both 5-slot and 12-slot shelf
configurations, both of which have met the requirements of CE (European Union
certification) for international markets. The Orion 4000 is distinctive in the
role that it can play in hybrid networks (TDM networks with ATM applications)
and in providing an economic migration path from TDM to ATM, thereby ensuring
legacy equipment investment protection.

In a TDM environment, the Orion 4000 is able to support full and fractional
T3 networks. Its T1 and E1 inverse multiplexing modules, introduced in 1994 and
1995, respectively, provide transparent channels

29
<PAGE>
for applications such as LAN interconnection or video transmission. The T3mux
and Tmux modules, introduced in 1995, provide greater flexibility in
transporting T1 circuits across the network. They can be used to consolidate
several fractional T3 applications onto a single T3 circuit and combine T1
traffic from a digital PBX or a T1 multiplexer with inverse multiplexed data.
The following diagram illustrates inverse multiplexing through the Orion 4000
and the Mega-T (as described below) in a hub and spoke configuration that allows
centralized network nodes to serve units at dispersed sites:

INVERSE MULTIPLEXING
Orion 4000 and Mega-T in a hub and spoke configuration
use inverse multiplexing to carry data over conventional
T1 circuits and channelized, redundant T3 facilities.

[CHART]

Set forth here, under the heading Inverse Multiplexing, is a network diagram
illustrating how inverse multiplexing is employed by Larscom Mega-T and Orion
4000 products in a hub-and-spoke internetwork architecture. A central cloud,
labeled Carrier Network, represents a generic digital network based on a T1/T3
fabric. At the far left are four boxes label DTE and representing a user's Data
Terminal Equipment. At the far right are four identical labeled boxes. Each DTE
on the left communicates with the corresponding DTE on the right as indicated by
the connections illustrated in the diagram. The upper-left DTE is connected to
the point of a triangle labeled Mega-T by a line labeled 6 Mbps; four lines from
the base of the triangle, labeled T1s, connect to a circle with a cross in it,
located within the Carrier Network cloud and representing a network switch. This
portion of the diagram indicates an application using 6 Mbps of bandwidth being
connected to the carrier network via a Larscom Mega-T and 4 inverse-multiplexed
T1 access lines. The second DTE on the left is connected to the carrier network
in the same manner as the first. The third and fourth are connected similarly,
but with a 12 Mbps connection to an Orion 4000/5 and eight inverse-multiplexed
T1s providing access to switches in the Carrier Network.

On the right side, all four DTE boxes are connected by single lines to an
Orion 4000. The connecting lines, the top two labeled 6 Mbps and the bottom two
labeled 12 Mbps, connect to a box within the Orion 4000 box which is labeled T1
IMUXES and which represents T1 IMUX modules which are part of the Orion 4000. A
total of 24 lines labeled T1s (grouped 4-4-8-8 in correspondence with the DTE
speeds of 6-6-12-12 mbps) connect the box labeled T1 IMUXES to another box
within the Orion 4000, the latter labeled T3 MUXES and representing a pair of
redundant T3 MUX modules which are part of the Orion 4000. Two parallel lines,
labeled T3 (primary and redundant backup), connect the T3 MUXES box to a
circle-and-cross icon within the Carrier Network cloud. This part of the diagram
shows how multi-megabit applications are inverse-multiplexed onto T1s by Orion
4000 T1 IMUX modules, then multiplexed into channelized T3 circuits by Orion
4000 T3 MUX modules for connection to a switch within the Carrier Network. The
placement of the switch icons within the Carrier Network cloud indicates that
switch interconnections are purely a function of the fabric of the carrier
network.

A caption beneath the heading (Inverse Multiplexing) at the top of the
diagram states: Orion 4000 in a hub-and-spoke configuration uses inverse
multiplexing to carry data over conventional T1 circuits and channelized,
redundant T3 facilities.

ORION 4000 MODULES UNDER DEVELOPMENT. The next step in the evolution of the
Orion 4000's TDM capability is the development of a clear channel T3 module,
which will increase the bandwidth available for applications to 44 Mbps. This
will be a single-slot module that, in addition to a clear channel T3 interface,
will offer four DTE ports supporting HSD and HSSI connections and a combination
of eight T1 ports and four multiplexer channels.

The Company's CCA inverse multiplexer is expected to commence commercial
volume shipments in early 1997. The first in a series of modules will provide a
45 Mbps UNI (User-to-Network Interface) connection to up to eight T1 circuits.
CCA will allow NSPs and corporate users to pass ATM traffic between local and
campus environments using inverse multiplexing of regular T1 or E1 circuits. The
CCA modules will provide buffering and rate adaptation to match application
speeds to network facilities. The Company is developing ATM modules (network and
data interfaces) for the Orion 4000, which will be able to connect LAN data
traffic to public or private ATM networks. The following diagram illustrates
CCA:

30
<PAGE>
CLEAR CHANNEL ATM
Orion 4000 connects industry standard
DS3 UNI across conventional TDM networks.

[CHART]

Set forth here, under the heading Clear Channel ATM, is a network diagram
illustrating the way Larscom's Orion 4000 product is used to implement Clear
Channel ATM WAN connections over standard TDM circuits. A central cloud, labeled
TDM Network, represents a generic digital network based on a T1/T3 fabric.
Around the network cloud are boxes labeled Orion 4000 and representing Larscom
Orion 4000 Broadband Access Multiplexers. At the far left of the diagram are two
boxes, labeled ATM Switch and ATM-Equipped Server respectively, each of which is
connected via a broad line labeled ATM DS3 UNI to a separate box within the
Orion 4000 box which is labeled Clear Channel ATM MUX. This represents two
different types of ATM devices connected to a pair of ATM IMUX modules within
the Orion 4000 which multiplexes the NxT1 channels produced by the IMUX modules
onto a single T3. A line between the Orion 4000 box and the TDM Network cloud is
labeled FT3 and represents fractional T3 access to the TDM network.

On the right side of the diagram are two boxes labeled Orion 4000. Each
contains one box labeled Clear Channel ATM IMUX. A box labeled ATM Router is
connected via a broad line labeled ATM DS3 UNI to the ATM IMUX box within the
top right Orion 4000. A box labeled ATM Switch is connected via a broad line
labeled ATM DS3 UNI to the ATM IMUX box within the bottom right Orion 4000. Each
of these Orion 4000 boxes connected by a pair of parallel lines labeled NxT1;
three dots lined up vertically between each pair of lines indicate an indefinite
number of T1 circuits connecting each Orion 4000 to the TDM Network cloud. The
connection of the three Orion 4000 sites to the TDM Network cloud indicates that
the three sites are internetworked via TDM circuits.

A caption beneath the heading (Clear Channel ATM) at the top of the diagram
states: Orion 4000 connects industry standard DS3 UNI across conventional TDM
Networks.

OTHER BROADBAND PRODUCTS. The Mega-T, introduced in 1993, is the first
inverse multiplexer to bridge the bandwidth gap between T1 and T3. It provides
affordable access to greater-than-T1 bandwidth for high speed applications,
deriving a data channel of up to 6 Mbps from four T1 circuits. Larscom's
patented inverse multiplexing algorithm, used for both the Mega-T and Orion
4000, handles alignment of the individual T1s and allows for differential delay
between individual T1s. This algorithm also allows the data transmission rate to
be lowered should individual T1 circuits fail and to be raised when the circuits
are restored. The Mega-T shares with the Orion 4000 the unique ability to
identify individual T1 circuits, thereby simplifying trouble-shooting. The
Mega-T is primarily used for high speed LAN internetworking, as well as frame
relay network access above T1 speed and broadcast quality digital video.

The Access-T45, introduced in 1992, is a dual-port, 45 Mbps DSU that
provides a clear channel T3 network interface. It is used for very high speed
LAN internetworking, for Internet access and backbones and for channel
extension. The Access-T45 allocates bandwidth in increments of 3 Mbps, a
functionality which has been used by some Internet service providers ("ISPs") to
control bandwidth assignment for their customers. In addition, it is capable of
scrambling LAN data in a manner which ensures the successful receipt of
transmitted data. The following diagram illustrates how the Access-T45 and the
Orion 4000 are used by ISPs:

31
<PAGE>
LARSCOM ACCESS-T45 CONNECTS THE INTERNET
ISPs rely on Larscom's broadband products
to provision services and relieve bandwidth congestion.

[CHART]

Set forth here, under the heading Larscom Access-T45 and Orion 4000 Connect
the Internet, is a network diagram illustrating the way Larscom's Access-T45 and
Orion 4000 products are used in an Internet service backbone spanning the United
States. A caption beneath the heading states: ISPs rely on Larscom's broadband
products to provision services and relieve bandwidth congestion.

An outline map of the United States is used as the background for the
diagram. Boxes labeled Access-T45 overlay the map at locations corresponding to
the following cities, with labels identifying the cities: Seattle, Santa Clara,
Chicago, Boston, New York City, Newark. Boxes labeled Orion 4000 overlay the map
at locations corresponding to the following cities, with labels identifying the
cities: San Diego, Houston, Atlanta, Miami. Boxes labeled Access-T45 and Orion
4000 overlay the map at locations corresponding to the following cities, with
labels identifying the cities: Los Angeles, Dallas/Fort Worth, Washington, D.C.

Three different types of lines interconnect the boxes, corresponding to the
actual bandwidth employed between an individual pair of sites: T3 (45 Mbps), 9
Mbps, or 6 Mbps. Thick lines representing T3s connect boxes as follows: Seattle
to Santa Clara, Seattle to Chicago, Santa Clara to Washington D.C., Chicago to
Dallas/Fort Worth, Chicago to New York, New York to Boston, New York to Newark,
Boston to Washington D.C., Newark to Washington D.C. Thin lines with thick
dashes representing 9 Mbps links connect boxes as follows: Los Angeles to
Dallas/Fort Worth, Dallas/Fort Worth to Houston, Dallas/Fort Worth to Atlanta,
Atlanta to Washington D.C. Thin lines representing 6 Mbps links connect boxes as
follows: Los Angeles to San Diego, San Diego to Houston, Houston to Miami. A
legend at the bottom of the diagram indicates the network speed corresponding to
each of the three line styles.

EtherSpan, introduced in 1996, is an advanced Ethernet bridge that can
handle a sustained data rate of 10 Mbps. It offers cost-effective, high speed
WAN connectivity for Ethernet LANs, with one 10Base-T Ethernet LAN port and a
single WAN port that utilizes either HSD or HSSI standards.

DIGITAL ACCESS PRODUCTS

Larscom entered the digital access market in 1986 with emphasis on
performance monitoring of T1 lines. Larscom's pioneering efforts to deliver an
advanced network diagnostic system within a CSU resulted in its TNDS (T1 Network
Diagnostic System) product line. The advanced performance monitoring
capabilities, which were featured in the first TNDS and enhanced and
complemented in subsequent CSU and CSU/DSU products, continue to be a hallmark
of Larscom throughout its product lines.

ORION 200 FAMILY. The Orion 200 family, introduced in 1994, is an advanced
T1 and E1 access multiplexer that can accommodate from two to eight data ports
and two network ports. Its primary application is for LAN interconnection, often
coupled with digital PBX traffic, as well as video conferencing. The Orion 200
family can operate in both T1 and E1 networks, and can also perform conversion

32
<PAGE>
between T1 and E1 standards. The Orion 200 family is a platform with replaceable
network interface modules which can provide other capabilities in the future
including ISDN network interface modules.

33
<PAGE>
OTHER DIGITAL ACCESS PRODUCTS. The Access-T family, introduced in 1991, is
a series of T1/FT1 CSU/ DSUs. The primary use of the Access-T family is for LAN
interconnection, often coupled with the multiplexing of digital PBX traffic onto
a single T1/FT1 circuit. The Access-T 1500, a shelf-based version introduced in
1992, utilizes a hub and spoke architecture that allows centralized network
nodes to serve units at dispersed sites and to concentrate traffic in a single
location where network hubs are constrained for space. In 1996, the
Access-T100S, a low cost, smaller version of a single-port Access-T, was
introduced, allowing the Company to respond to downward price pressure in the
digital access market.

The Split-T, introduced in 1990, is a stand-alone T1/FT1 CSU/DSU. It has a
front panel that incorporates an LCD user interface for local configuration and
is primarily used for LAN interconnection and digital PBX traffic.

In addition, Larscom offers a family of T1 CSU products, introduced in 1986,
centered on the TNDS family of fully featured T1 CSUs. These products offer a T1
network interface with advanced performance monitoring and diagnostic
capabilities.

CUSTOMERS

The Company's customers principally consist of NSPs, including ISPs, Fortune
500 corporations, systems integrators, VARs and federal, state and local
government agencies. The following table sets forth certain Larscom customers:

REPRESENTATIVE LARSCOM CUSTOMERS
<TABLE>
<CAPTION>
NSPS
- ---------------------------------
<S>
AT&T
Bell Atlantic
British Telecom
Cable & Wireless
GST InterNet
IBM/Advantis
Korea Telecom
MCI
MFS Communications
Unisource
UUNET

OEMS
- ---------------------------------
<S>
N.E.T.
Racal-Datacom
<CAPTION>

CORPORATE USERS
- ---------------------------------
<S>
Chase Manhattan Bank
Federal Express
Hewlett Packard
Pacific Gas & Electric
Bank of America
Burlington Northern
Lockheed Martin
Kaiser Permanente
<CAPTION>

SYSTEMS INTEGRATORS/VARS
- ---------------------------------
<S>
Computer Sciences Corp.
Data Comm Systems
Inter Net
Progressive Telecom
</TABLE>

In 1993, 1994, 1995 and the nine months ended September 30, 1996, NSPs
represented 38.9%, 40.5%, 47.5% and 60.7%, respectively, of total revenues. The
Company's customers constituting more than 10%

33
<PAGE>

of the Company's revenues and the percentage of total revenues represented by
sales to such customers for 1993, 1994, 1995 and the nine months ended September
30, 1996 are set forth below:

<TABLE>
<CAPTION>
% OF TOTAL REVENUES
------------------------------------------------------------
YEARS ENDED
DECEMBER 31, NINE MONTHS
------------------------------------- ENDED
CUSTOMER 1993 1994 1995 SEPTEMBER 30, 1996
- ------------------------------------------------------- ----------- ----------- ----------- ---------------------

<S> <C> <C> <C> <C>
MCI.................................................... 13.0% 15.3% 17.9% 20.4%
IBM/Advantis........................................... * * 13.7% 14.0%
</TABLE>

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

* Less than 10%

The future success of the Company will continue to depend on future purchase
orders from the NSPs in general, and from MCI and IBM/Advantis, in particular.

MARKETING AND SALES

The Company sells its products in the U.S. primarily through its direct
sales organization, with products also being sold through OEMs, VARs and systems
integrators. The Company markets its products internationally through
non-exclusive distribution agreements with VARs and systems integrators. The
Company's field sales organization and distributors receive support from various
internal groups. Such support includes periodic intensive product and technology
training, network applications design and regular communications about
competitive offerings and announcements. In addition, the engineering
organization may participate in key sales calls to discuss product and network
architecture considerations for future network needs or to host in-depth
technical product demonstrations. In the U.S. and Europe, customers and
distributors also receive in-country post-sale support from the Company's
service partners who include Racal-Datacom, Netcom Solutions and ND Networks.

NSPs require that products undergo extensive lab testing and field trials
prior to their deployment in the network. Accordingly, the Company is
continually submitting successive generations of its current products as well as
new products to its customers for evaluation and approval. Additionally,
international NSPs require products to meet country-specific certification
standards for safety, emissions and network connectivity. The length of the
various approval processes is affected by a number of factors, including the
complexity of the product involved, the priorities of the customer, budgets and
regulatory issues.

CUSTOMER SERVICE AND SUPPORT

The Company's products are required to meet rigorous standards imposed by
both customers and established internal product quality assurance testing
procedures. The Company has service contracts with most of its major customers,
and provides on-site service via arrangements with a number of service partners
worldwide such as Racal-Datacom and Netcom Solutions in the U.S. and ND Networks
in Europe. These contracts typically establish response time and level of
service commitments, with penalties for non-performance. Larscom maintains a
24-hours, 7-days-a-week technical assistance support center, and provides
on-site support with contracted response times, plus a wide range of repair
programs. The Company also provides technical applications assistance, as well
as customer and distributor product maintenance and installation training.

34
<PAGE>
The Company seeks to resolve the majority of field problems through remote
diagnostics before any field personnel are dispatched. Customer calls that
cannot be handled by first-level support technicians, either over the telephone
or via remote diagnostic trouble-shooting, are routed to contracted service
partners and/or Company support personnel for a field dispatch to the customer
site.

All of the Company's products carry a two-year warranty, which generally
covers defects in materials and workmanship. For the past five years, the
Company's warranty expenses have been relatively insignificant. See
"--Manufacturing and Quality Assurance."

RESEARCH AND DEVELOPMENT

Larscom believes that its future success depends on its ability to maintain
technological leadership through timely enhancements of existing products and
development of new products that meet customer needs. During 1993, 1994, 1995
and the nine months ended September 30, 1996, total research and development
expenses were $6.3 million, $6.7 million, $7.1 million and $5.7 million,
respectively.

The Company's research and development programs are focused on its modular
platforms (the Orion 4000 family, the Orion 200 family and the Access-T family),
which allow new technologies to be incorporated and new services supported
through incremental modules. In the short term, the Company will develop new
modules for the Orion 4000 that integrate ATM with inverse multiplexing and for
the Orion 200 family that incorporate ISDN. In the future, the Company intends
to extend the international capabilities of its products and to address
additional broadband technology such as SONET/SDH.

The rapid development of new technologies increases the risk that current or
new competitors could develop products that would reduce the competitiveness of
the Company's products. The Company's success will depend to a substantial
degree upon its ability to respond to changes in technology and customer
requirements. This will require the timely selection, development and marketing
of new products and enhancements on a cost-effective basis. The development of
new, technologically advanced products is a complex and uncertain process,
requiring high levels of innovation. For the network access market, expertise is
required in the general areas of telephony, data networking, network management,
as well as specific technologies such as ISDN, ATM and SONET. Further, the
telecommunications industry is characterized by the need to design products
which meet industry standards for safety, immunity, emissions and network
connection. Such industry standards are often changing or incomplete as new and
emerging technologies and service offerings are introduced by NSPs. As a result,
there is a potential for product development delay due to the need for
compliance with new or modified standards. The introduction of new and enhanced
products also requires that the Company manages transitions from older products
in order to minimize disruptions in customer orders, avoid excess inventory of
old products and ensure that adequate supplies of new products can be delivered
to meet customer orders. There can be no assurance that the Company will be
successful in developing, introducing or managing the transition to new or
enhanced products or that any such products will be responsive to technological
changes or will gain acceptance in the market. The Company's business and
operating results could be materially adversely affected if the Company were to
be unsuccessful, or to incur significant delays, in developing and introducing
such new products or enhancements.

MANUFACTURING AND QUALITY ASSURANCE

The Company's manufacturing operations consist of materials procurement,
assembly of final product based on printed circuit boards manufactured by a
third party contract manufacturer, product testing and inspection and system
configuration for shipment. The Company has maintained a long-term relationship
with its contract manufacturer, which has allowed the Company to implement total
quality control in the entire manufacturing process, including
statistically-monitored process control programs. The Company uses automated
functional product testing to remain flexible to customers' needs while
maintaining control of the quality of the manufacturing process. During 1996,
the Company has increased its emphasis on

35
<PAGE>
aggressively monitoring software quality in its products by implementing
automated system test programs that verify product performance concurrent with
product development and prior to product release. The Company was the first in
its industry segment to become ISO 9001 certified and was among the first
companies in California to receive this certification.

On-time delivery of the Company's products is dependent upon the
availability of quality components used in its products. The Company purchases
parts and components for assembly from a variety of pre-approved suppliers
through a worldwide procurement sourcing program. The Company attempts to manage
risks through developing alternate sources and by maintaining quality
relationships with its suppliers. To date, the Company has been able to obtain
adequate supplies of required components in a timely manner from existing
sources or, when necessary, from alternate sources. The Company does acquire
certain components from sole sources, either to achieve economies of scale or
because of proprietary technical features designed into the Company's products.
Sole sourced components come from suppliers such as Xilinx, VLSI, Brooktree and
Vicor. A substantial portion of the Company's shipments in any fiscal period
relates to orders for certain products received in that period. To meet this
demand, the Company maintains a supply of finished goods inventories at its
manufacturing facility, including safety stocks of critical components. In
addition, a significant percentage of the Company's orders are shipped within
three business days. However, there can be no assurance that interrupted or
delayed supplies of key components will not occur which could have a material
adverse effect on the Company's business and operating results.

The Company maintains a comprehensive quality control program. However,
complex products such as those offered by the Company may contain undetected
errors or failures when first introduced or as new versions are released.
Despite testing by the Company and its customers, there can be no assurance that
existing or future products based upon the Orion 4000 architecture or other
technologies will not contain undetected errors or failures when first
introduced or as new versions are released. The Company's standard limited
warranty for the Orion 4000 products is two years. Since the Company's Orion
4000 products are new, with limited time in service, the Company cannot predict
the level of warranty claims that it will experience for these products. Such
errors or failures could result in warranty returns in excess of those
historically experienced by the Company and have a material adverse effect on
the Company's business and operating results.

COMPETITION

The markets for the Company's products are intensely competitive and the
Company expects competition to increase in the future. In the broadband market,
the Company competes primarily with Digital Link, ADC Kentrox, RAD Data
Communications and OnStream Networks (for which an acquisition by 3Com was
recently announced). In the digital access market, the Company competes against
traditional CSU/DSU vendors, such as ADC Kentrox, Verilink and Digital Link, and
relatively newer entrants to the market such as ADTRAN and TxPort. The Company
competes to a lesser extent with other telecommunications equipment companies.

The key competitive factors in the Company's market include timely
development of new products and features, product quality and performance,
price, announcements by competitors, experienced sales, marketing and service
organizations and evolving industry standards.

In the broadband market, the Company believes that it competes favorably due
to the wide functionality of its products and its superior customer service and
support. In particular, the Orion 4000 platform has a unique WAN access
architecture that accommodates both ATM and TDM technology, providing
flexibility for hybrid networks. Also, the Orion 4000, in conjunction with the
Mega-T and Access-T45, provides cost-effective and competitively distinctive hub
and spoke concentration. However, sales of the Company's broadband products
could be adversely affected by a significant increase in availability of public
ATM services since some competitors could be better positioned at this time to
support public ATM

36
<PAGE>
service. Some of the Company's competitors have developed partnerships with
third parties for joint marketing or development efforts that could place the
Company at a relative disadvantage.

In the digital access market, the Company believes that it competes
favorably due to its commitment to reliability, service and support. Since price
is increasingly important, the Company will provide competitively priced
products such as the recently announced Access-T100S. However, some of the
Company's competitors are more advanced in developing indirect sales channels
and this may be a disadvantage to the Company's sales of digital access
products. The Company's digital access products could also be materially
adversely affected by the integration of CSU/DSU functionality into switches and
routers, by the entry of LAN equipment vendors into the Company's markets, or by
the requirement for alternative methods of performance monitoring for services
such as frame relay. There is also a risk to the digital access market generally
from new technologies that could displace some parts of the T1/E1 CSU/ DSU
product line. For example, ADSL and HDSL are subscriber loop technologies that
can enable service providers to deploy T1/FT1 services. Since ISDN has made some
headway in providing economic sub-rate and back-up connectivity options, the
Company has already taken steps to incorporate ISDN into its Orion 200 family.
These new technologies may ultimately enlarge the total addressable market for
digital access products and services.

The Company believes that it generally competes favorably in the factors
discussed above. However, there can be no assurance that the Company will be
able to continue to compete successfully with its existing or new competitors.

PROPRIETARY RIGHTS

The telecommunications equipment industry is characterized by the existence
of a large number of patents and frequent litigation based on allegations of
patent infringement. From time to time, third parties may assert exclusive
patent, copyright, trademark and other intellectual property rights to
technologies that are important to the Company. The Company has not conducted a
formal patent search relating to the technology used in its products, due in
part to the high cost and limited benefits of a formal search. In addition,
since patent applications in the U.S. are not publicly disclosed until the
patent is issued, applications may have been filed by competitors of the Company
which could relate to the Company's products. Software comprises a substantial
portion of the technology in the Company's products. The scope of protection
accorded to patents covering software-related inventions is evolving and is
subject to a degree of uncertainty which may increase the risk and cost to the
Company if the Company discovers third party patents related to its software
products or if such patents are asserted against the Company in the future. The
Company may receive communications from third parties in the future asserting
that the Company's products infringe or may infringe on the proprietary rights
of such third parties. In its distribution agreements, the Company typically
agrees to indemnify its customers for any expenses or liabilities, resulting
from claimed infringements of patents, trademarks or copyrights of third
parties. In the event of litigation to determine the validity of any third-party
claims, such litigation, whether or not determined in favor of the Company,
could result in significant expense to the Company and divert the efforts of the
Company's technical and management personnel. In the event of an adverse ruling
in such litigation, the Company might be required to discontinue the use and
sale of infringing products, expend significant resources to develop
non-infringing technology or obtain licenses from third parties. There can be no
assurance that licenses from third parties would be available on acceptable
terms, if at all. A successful claim against the Company and the failure of the
Company to develop or license a substitute technology could have a material
adverse effect on the Company's business and operating results. In addition, the
laws of certain foreign countries in which the Company's products are or may be
developed, manufactured or sold may not protect the Company's products or
intellectual property rights to the same extent as do the laws of the U.S. and
thus make the possibility of misappropriation of the Company's technology and
products more likely.

37
<PAGE>
EMPLOYEES

As of September 30, 1996, the Company had 236 full-time employees of whom 64
were primarily engaged in research and development, 56 in manufacturing and
quality control, 61 in marketing and sales, 25 in customer service and 30 in
administration and finance. The Company also employed a total of 16 temporary
and contract personnel. None of the Company's employees is represented by a
collective bargaining unit nor has the Company ever experienced any work
stoppage. The Company believes its relationship with its employees is good.

PROPERTIES

The Company leases approximately 66,000 square feet of office, development
and manufacturing space in facilities in Santa Clara, California (approximately
50,000 square feet) and Research Triangle Park, North Carolina (approximately
16,000 square feet). The Company has a 33.3% ownership interest in the Santa
Clara facility. The current lease for the Santa Clara facility expires in
January 1998. The current lease for the Research Triangle Park facility expires
in June 2001 and the Company has an option to extend the lease for an additional
three years. The Company believes that its existing facilities are adequate to
meet its needs for the immediate future and that future growth can be
accommodated by leasing additional or alternate space near its current
facilities.

LEGAL PROCEEDINGS

America Online, Inc. ("AOL") has opposed Larscom's application for federal
trademark registration of its logo, alleging that Larscom's design mark is
similar to an AOL mark and that Larscom is attempting to register its mark for
goods and services related to certain AOL goods and services. The Company does
not believe the resolution of this opposition will have a material adverse
effect on the Company's business and operating results. The Company is not
involved in any other proceeding the outcome of which could have a material
adverse effect on its business and operating results.

38
<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------- --- -------------------------------------------------------
<S> <C> <C>
Deborah M. Soon.......................... 44 President, Chief Executive Officer and Director
Bruce D. Horn............................ 45 Vice President, Finance and Chief Financial Officer
Jeffrey W. Reedy......................... 38 Vice President, Engineering
Paul A. Strudwick........................ 44 Vice President, Marketing
George M. Donohoe........................ 59 Vice President, Sales
William H. Cory.......................... 43 Vice President, Operations
Signe S. Gates........................... 46 Secretary and Director
Paul E. Graf............................. 52 Chairman of the Board (2)
Harvey L. Poppel......................... 58 Director (1)(2)
Joseph F. Smorada........................ 49 Director
</TABLE>

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

(1) Member of Audit Committee.

(2) Member of Compensation Committee.

DEBORAH M. SOON has served as President and Chief Executive Officer of the
Company since July 1994. Previously, she served as Vice President of Marketing
and Sales from June 1993 to June 1994, as Vice President of Marketing from
January 1991 to May 1993, and as Director of Marketing from May 1990 to December
1990. Prior to joining the Company, Ms. Soon held management positions in
engineering, marketing and sales with AT&T, Prime Computers, BBN Communications
Corporation and Data Architects Systems Inc. Ms. Soon earned a B.A. in
Mathematics from the University of California, San Diego and an M.B.A. from the
Harvard Graduate School of Business. She has also completed special
undergraduate studies at Cambridge University in England.

BRUCE D. HORN has served as Vice President of Finance and Chief Financial
Officer of the Company since January 1993. Previously, he served as Director of
Finance and Chief Financial Officer from March 1991 to December 1992. Prior to
joining the Company, Mr. Horn was Director of Finance at Insystems, Inc. and
Corporate Controller at Anicon, Inc. Mr. Horn earned an M.B.A. in Finance from
California State University, Hayward and a B.A. in Accounting from the
University of Northern Iowa.

JEFFREY W. REEDY has served as Vice President of Engineering of the Company
since August 1994. Previously, he served as Vice President/Division Manager from
January 1993 to August 1994, and Director of Engineering from November 1991 to
January 1993. Prior to November 1991, Mr. Reedy was the Co-founder and Vice
President of Engineering at T3 Technologies, Inc. (which was acquired by the
Company in 1991). Mr. Reedy earned a B.S.E. in Electrical Engineering and
Computer Science from Duke University and an M.S.E.E. from Stanford University.

PAUL A. STRUDWICK has served as Vice President of Marketing of the Company
since August 1994. Previously, he served as Director of Product Management from
March 1992 to August 1994. Prior to joining the Company, he was Product
Management/Marketing Consultant for PolyCom, Inc. from October 1991 to February
1992. Prior to October 1991, he was Director of Product Line Management with
Northern Telecom, Inc. and held a number of positions with Bell-Northern
Research in Canada. Mr. Strudwick earned a B.Sc. from the University of Sussex
in England.

GEORGE M. DONOHOE has served as Vice President of Sales of the Company since
August 1994. Previously, he served as Director of Telco Sales from April 1994 to
August 1994 and Western Region Sales Manager from November 1993 to March 1994.
Prior to joining the Company, Mr. Donohoe was Director of LAN Product Sales at
Teleglobe from February 1993 to October 1993, and Vice President of Sales at

39
<PAGE>
Halley Systems from December 1989 to January 1993. Other professional
affiliations include Luxcom, Infinet, Honeywell Information Systems and IBM. Mr.
Donohoe earned a B.S. in Industrial Engineering and Management Sciences from the
University of South Dakota.

WILLIAM H. CORY has served as Vice President of Operations of the Company
since February 1990. Prior to joining the Company, Mr. Cory was Director of
Quality Assurance for Verilink, Vice President for Wyken Technology, Director of
Quality Assurance for Compression Labs., Inc. and Manager of Quality Assurance
for Drivetec Inc. Mr. Cory earned a B.S. in Industrial Engineering and
Management Science from Northwestern University.

SIGNE S. GATES has served as the Secretary of the Company since April 1996.
Ms. Gates has served as Vice President, General Counsel and Corporate Secretary
of Axel Johnson since April 1996. Prior to joining Axel Johnson, Ms. Gates
served as Assistant General Counsel of General Signal Corporation from 1991 to
March 1996. Previously, she held the position of Senior Attorney at General
Signal Corporation. Ms. Gates earned a B.A. in English from Susquehanna
University and a J.D. from The University of Michigan Law School.

PAUL E. GRAF has served as Chairman of the Board of Directors of the Company
since June 1990.
Mr. Graf has served as President and Chief Executive Officer for Axel Johnson
since 1989. Prior to joining Axel Johnson, Mr. Graf held various senior
executive positions with Schroders, a venture capital company, Conrac
Corporation and Texas Instruments. Mr. Graf earned a B.S. in Electrical
Engineering from Rensselear Polytechnic Institute and an M.B.A. from Boston
University.

HARVEY L. POPPEL has served as Managing Director at Broadview Associates
L.L.C. since January 1985, and President of Poptech, Inc. since 1984.
Previously, he was Senior Vice President, Board Member and Managing Officer of
the Information Industry Practice at Booz, Allen & Hamilton and managed
communications software development at both Western Union and Westinghouse
Electric. Mr. Poppel holds an M.S. and a B.S. from Rensselear Polytechnic
Institute.

JOSEPH F. SMORADA has served as a Director of the Company since June 1992.
Mr. Smorada has served as Senior Vice President and Chief Financial Officer of
Axel Johnson since April 1992. Prior to joining Axel Johnson, Mr. Smorada was
Senior Vice President and Chief Financial Officer for Lone Star Industries from
September 1988 to April 1992. Prior to 1988, Mr. Smorada also held senior
executive positions with Conrac Corporation and Continental Group, Inc. Mr.
Smorada earned a B.A. in Economics from California University of Pennsylvania.

All directors hold office until the next annual meeting of stockholders and
until their successors have been elected and qualified or upon their earlier
resignation or removal. Officers are appointed to serve at the discretion of the
Board of Directors.

DIRECTOR COMPENSATION

Directors currently receive no cash compensation for their services, but are
reimbursed for all reasonable expenses incurred in attending Board and Committee
meetings. Beginning January 1, 1997, each director who is not an employee of the
Company or Axel Johnson will receive fees of $6,000 per year plus $1,000 for
attendance at each set of meetings of the Board of Directors and any of its
Committees combined. In addition, upon consummation of this Offering, each
director who is not an employee of the Company or Axel Johnson will receive
under the Stock Option Plan for Non-Employee Directors (i) a grant of options to
purchase an aggregate of 18,000 shares of Class A Common Stock of the Company at
the initial public offering price, which options will vest in three equal
installments on the date of each of the three annual meetings of stockholders
next following such grant and (ii) an annual grant of options, commencing in
1997, following each annual meeting of stockholders, to purchase 6,000 shares of
Class A Common Stock of the Company at the fair market value, as determined on
the date of grant, which options

40
<PAGE>
will vest on the date of the third anniversary of the annual meeting of
stockholders next following such grant. See "--Stock Plans."

BOARD COMMITTEES

The Board of Directors has a Compensation Committee and an Audit Committee.
The Compensation Committee reviews and determines the salaries and bonuses of
the Company's executive officers and administers the Stock Purchase Plan. The
Compensation Committee also administers the Stock Incentive Plan unless the
Board elects to be the administrator of that plan. The Compensation Committee
currently consists of Messrs. Graf and Poppel. The Audit Committee recommends
the appointment of auditors and oversees the accounting and audit functions of
the Company. The Audit Committee currently consists of Mr. Poppel.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Mr. Graf is the Chief Executive Officer of Axel Johnson, the controlling
stockholder and owner of 100% of the Class B Common Stock of the Company. See
"Relationship Between the Company and Axel Johnson." No other interlocking
relationship exists between the Company's Board of Directors or Compensation
Committee and the board of directors or compensation committee of any other
company.

41
<PAGE>
EXECUTIVE COMPENSATION

The following table sets forth information concerning the annual cash
compensation for services in all capacities to the Company for the year ended
December 31, 1995, of the Company's chief executive officer and the other
executive officers of the Company (collectively, the "named executive
officers"):

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
------------------------------ INCENTIVE ALL OTHER
SALARY BONUS(1) PLAN(2) COMPENSATION(3)(4)
-------------- -------------- ---------- ------------------
<S> <C> <C> <C> <C>
Deborah M. Soon
President and Chief Executive Officer $ 154,824 $ 120,000 $ 27,875 $ 8,876
Bruce D. Horn
Vice President, Finance and Chief
Financial Officer 102,838 39,664 -- 3,702
Jeffrey W. Reedy
Vice President, Engineering 100,884 76,308(5) -- 3,358
Paul A. Strudwick
Vice President, Marketing 101,509 39,664 -- 3,654
George M. Donohoe
Vice President, Sales 166,822(6) 39,670 -- 7,330
William H. Cory
Vice President, Operations 109,142 55,105 22,300 3,929
</TABLE>

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

(1) Represents the bonus earned in 1995 and paid out in 1996.

(2) Represents cash amounts received under the Axel Johnson Inc. Long-Term
Incentive Plan for the 1993 through 1995 period which was paid out in 1996.
See "--Axel Johnson Inc. Long-Term Incentive Plan."

(3) Represents the value of the Company match in the Axel Johnson Inc. Thrift
Plan and, with respect to Ms. Soon and Mr. Donohoe, an automobile allowance
of $5,546 and $4,004, respectively.

(4) The Company did not issue restricted stock or grant stock options or SARs in
1995.

(5) Includes an amount of $21,202 representing a bonus (related to the
acquisition of T3T) based on a percentage of sales of certain products.

(6) Includes sales commissions of $84,026.

STOCK PLANS

STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS. The Stock Option Plan for
Non-Employee Directors (the "Directors Option Plan") is intended to provide a
means to attract and retain qualified non-employee directors for the Company.
The Directors Option Plan is administered by either the Board of Directors or
the Compensation Committee of the Company which consists of two or more
directors appointed from time to time by the Board (in either case, the
"Administrator"). The Administrator has the full and final authority to make all
administrative determinations required by the Directors Option Plan.

An aggregate of 205,000 shares of Class A Common Stock has been reserved for
issuance under the Directors Option Plan, subject to adjustment in the event of
certain capital changes. Each non-employee director of the Company (which
director shall not include employees of either Larscom or Axel Johnson) is
entitled to receive, upon first becoming a director, an option to purchase an
aggregate of 18,000 shares of Class A Common Stock. The options expire one year
after termination of Board service or 10 years after the date of grant and have
an exercise price equal to the fair market value of the Class A Common Stock

42
<PAGE>

on the date of grant. The initial grants under the Directors Option Plan will be
made upon the consummation of this Offering and at the offering price. One-third
of the options become exercisable each year on the date of the annual meeting of
stockholders. The first third of the options becomes fully exercisable on the
date of the first annual meeting of stockholders following the date of grant. In
addition, under the Directors Option Plan, every year each non-employee director
will receive an annual option grant to purchase 6,000 shares of Class A Common
Stock at the fair market value on the date of grant, with each grant being made
on the date of the annual meeting of stockholders. Such options vest on the date
of the third annual meeting of stockholders following the date of grant. The
exercisability of the options will be accelerated in the event of a change in
control of the Company.

STOCK INCENTIVE PLAN. The Stock Incentive Plan is primarily intended to
provide competitive incentives that will attract, retain, motivate and reward
employees of the Company. The Stock Incentive Plan allows for grants of
incentive stock options, non-qualified stock options, SARs and stock bonus
awards, which may, but need not, be performance unit awards or restricted stock
awards. The Stock Incentive Plan is administered by either the Board of
Directors or the Compensation Committee of the Company (in either case, the
"Administrator"). The Administrator has the full and final authority to select
employees and consultants to whom awards under the Stock Incentive Plan ("Stock
Incentives") may be granted and to administer the Stock Incentive Plan. The
Board may provide for the Stock Incentive Plan to be administered by the Board
with respect to some employees and consultants and by a committee of the Board
with respect to other employees and consultants. The exercisability, vesting and
payment of awards will be accelerated in the event of a change in control of the
Company.

An aggregate of 2,485,000 shares of Class A Common Stock has been reserved
for issuance under the Stock Incentive Plan, subject to adjustment in the event
of certain capital changes, which includes 23,555 shares of Class A Common Stock
to be granted to officers of the Company pursuant to the termination of the
Company's participation in the Axel Johnson long-term incentive plan. Shares
subject to Stock Incentives which are forfeited, canceled, exchanged or
surrendered or which are settled in cash or otherwise terminated without a
distribution of shares of Class A Common Stock will be available for further
Stock Incentives.

Under the Stock Incentive Plan, all employees, including directors of the
Company who are employees, and consultants are eligible to participate; however,
Incentive Stock Options (as defined in the Stock Incentive Plan) may only be
granted to employees. Subject to adjustment as provided in the Stock Incentive
Plan, grants of options or SARs to eligible employees or consultants are limited
to a certain number during a calendar year.

Upon consummation of this Offering, the Administrator will grant stock
options to purchase an aggregate of 1,300,000 shares of Class A Common Stock to
approximately 236 employees and consultants of the Company. The options will
have an exercise price equal to the offering price of Class A Common Stock
pursuant to this Offering. The Company intends that each of the foregoing
options, subject to acceleration under certain circumstances, will become
exercisable in five annual installments over a five-year period after this
Offering.

STOCK PURCHASE PLAN. The Stock Purchase Plan, which is administered by the
Compensation Committee of the Board of Directors of the Company, provides
eligible employees (substantially all full-time) of the Company and its
subsidiaries with the opportunity to buy a total of 310,000 shares of Class A
Common Stock from the Company at a discount and on a tax-favored basis. The
Stock Purchase Plan will initially consist of six-month offering periods,
provided that the initial offering period will commence on the date of this
Offering and end on July 31, 1997. The Compensation Committee has the full and
final authority to determine when each offering period will begin, as well as
the duration of each offering period, which may not exceed 27 months. Unless the
Compensation Committee establishes a higher price, the purchase price per share
will be the lesser of 85% of the fair market value of Class A Common Stock at
the beginning or the ending of the offering period. The Stock Purchase Plan
terminates on the earlier of its termination by the Board or when the shares
authorized under the Stock Purchase Plan have been issued.

43
<PAGE>
An aggregate of 310,000 shares of Class A Common Stock has been reserved for
issuance under the Stock Purchase Plan, subject to adjustment in the event of
certain capital changes. The maximum amount which any employee may contribute to
the Stock Purchase Plan in any offering period is 10% of such employee's total
compensation for such offering period. The maximum number of shares which each
eligible employee may purchase in any offering period under the Stock Purchase
Plan is equal to the maximum employee contribution in such offering period
divided by 85% of the fair market value of a share
of Class A Common Stock on the first day or last day of such offering period,
whichever is lower. However, no participant may acquire rights to purchase more
than 1,000 shares of Class A Common Stock per offering period, unless the
Compensation Committee establishes a higher or lower amount for the offering
period.

ANNUAL BONUS PLAN

Employees of the Company above a specified salary grade participate in an
Annual Bonus Plan (the "Annual Bonus Plan"). Participants are eligible to
receive incentive cash bonus awards based on a combination of individual and
Company performance standards. The goals of the Annual Bonus Plan are to reward
and encourage individual accomplishment and focus senior management on
objectives that improve the intrinsic value of the Company. The "target" payment
under the Annual Bonus Plan is based upon performance and varies by salary
grade. Payments can range from 0% to 300% of the "target" level depending on the
Company's performance against an established goal. The Compensation Committee of
the Company establishes the performance targets and associated formulas for
awards under the Annual Bonus Plan.

AXEL JOHNSON INC. LONG-TERM INCENTIVE PLAN

Eligible executives of the Company have historically participated in the
Axel Johnson Inc. Long-Term Incentive Plan (the "Long-Term Incentive Plan").
This Long-Term Incentive Plan will be eliminated for Larscom employees upon
consummation of this Offering. The goal of the Long-Term Incentive Plan has been
to focus executives on producing superior long-term returns for the Company over
a period longer than one year. The Compensation Committee of Axel Johnson's
Board of Directors selected the participants and established the performance
targets and associated formulas for awards under the Long-Term Incentive Plan.
The length of performance cycles under the Long-Term Incentive Plan has varied
from three to five years and performance awards have historically been paid in
cash at the end of each performance cycle. Certain executives of the Company are
also participants in an alternative long-term incentive plan for the 1994 to
1996 performance cycle based on higher performance levels which, if met, would
provide stock awards in lieu of both the regular Long-Term Incentive Plan
payment and the 1996 Annual Bonus Plan. Upon the discontinuation of the
Long-Term Incentive Plan upon consummation of this Offering, participating
executives will receive a pro rata payment for all open cycles in the form of
either cash or stock. The estimated values of the cash or stock to be paid in
settlement upon consummation of this Offering are as follows:

ESTIMATED LONG-TERM INCENTIVE PLAN PAYOUTS

<TABLE>
<CAPTION>
TO BE PAID
IN CASH TO BE PAID IN STOCK
-------------- ------------------------------
NAME 1994-1996 PLAN 1995-1999 PLAN 1996-2000 PLAN
- ------------------------------------------------------- -------------- -------------- --------------
<S> <C> <C> <C>
Deborah M. Soon........................................ $ 33,000 $ 74,800 $ 47,685
Bruce D. Horn.......................................... -- 14,025 10,597
Jeffrey W. Reedy....................................... 16,500 32,725 18,544
Paul A. Strudwick...................................... -- 23,375 15,895
George M. Donohoe...................................... -- 18,700 13,246
William H. Cory........................................ 22,000 23,375 13,246
</TABLE>

44
<PAGE>
AXEL JOHNSON INC. THRIFT PLAN

The Company's full-time employees or part-time employees who work more than
1,000 hours in a calendar year are eligible to participate in the Axel Johnson
Inc. Thrift Plan (the "Thrift Plan"). The Thrift Plan is intended to qualify
under Section 401(k) of the Internal Revenue Code of 1986, as amended (the
"Code"). Employees may elect to defer their eligible current compensation up to
the statutorily and Thrift Plan prescribed limits and have the amount of such
deferral contributed to the Thrift Plan. Employees may also elect to make
contributions on an after-tax basis to the Thrift Plan up to the statutorily and
Thrift Plan prescribed limits. A Company match of employee contributions up to
the Thrift Plan prescribed limit also is contributed to the Thrift Plan and
becomes the employee's upon vesting. The trustee under the Thrift Plan, at the
direction of participants with regard to their particular contributions and
Company match, invests the assets of the Thrift Plan in any of nine investment
options.

AXEL JOHNSON INC. RETIREMENT PLAN AND RETIREMENT RESTORATION PLAN

The Company's full-time employees over age 21 or part-time employees over
age 21 who work more than 1,000 hours in a calendar year are eligible to
participate in the Axel Johnson Inc. Retirement Plan (the "Retirement Plan").
The Retirement Plan is intended to qualify under the Code and is non-
contributory. Employees who retire or terminate as vested participants are
entitled to receive retirement benefits, usually beginning at the normal
retirement age of 65, computed under a final average pay formula and may select
either a single life annuity or one of several equivalent forms of the benefit
at retirement. The Retirement Plan also provides benefits for employees electing
early retirement from ages 55 to 64. If such an election is made, the benefits
may be reduced to reflect the longer interval over which benefits will be paid.
To the extent benefits cannot be provided under the Retirement Plan due to the
limitations imposed by Sections 415 and 401(a)(17) of the Code, they will be
provided by the Axel Johnson Inc. Retirement Restoration Plan (the "Restoration
Plan"), a supplemental unfunded benefit plan which is not qualified under the
Code.

The following table shows estimated annual pension benefits payable under
the single life annuity form to officers and other key employees of the Company
assuming retirement on December 31, 1995, at age 65 under the provisions of the
Retirement Plan and the Restoration Plan currently in effect:

<TABLE>
<CAPTION>
BENEFITS BASED ON SERVICE OF
PENSIONABLE -------------------------------------------------------------------------------
COMPENSATION 5 YEARS 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
- -------------------------------- --------- --------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$100,000........................ $ 7,000 $ 14,000 $ 21,000 $ 28,000 $ 35,000 $ 42,000 $ 49,000
150,000........................ 11,000 21,000 32,000 43,000 54,000 64,000 75,000
200,000........................ 14,000 29,000 43,000 58,000 72,000 87,000 101,000
250,000........................ 18,000 36,000 55,000 73,000 91,000 109,000 128,000
300,000........................ 22,000 44,000 66,000 88,000 110,000 132,000 154,000
350,000........................ 26,000 51,000 77,000 103,000 129,000 154,000 180,000
400,000........................ 29,000 59,000 88,000 118,000 147,000 177,000 206,000
</TABLE>

Pensionable compensation represents one-fifth of the highest consecutive 60
months of the total of base salary plus bonus plus commissions. As of December
31, 1995, the full years of service credited under both retirement plans for the
following individuals were: Ms. Soon, 5; Mr. Horn, 4; Mr. Reedy, 7; Mr.
Strudwick, 3; Mr. Donohoe, 2; and Mr. Cory, 5.

45
<PAGE>
RELATIONSHIP BETWEEN THE COMPANY AND AXEL JOHNSON

Prior to this Offering, the Company has been a wholly-owned subsidiary of
Axel Johnson. As the sole stockholder, Axel Johnson was responsible for
providing the Company with financial, management, administrative and other
resources. Furthermore, Axel Johnson had maintained substantial control over the
day-to-day operations of the Company. Accordingly, the Company has had no recent
history of operating as an independent entity.

Prior to this Offering, Axel Johnson provided the Company with significant
management functions and services, including treasury, accounting, tax, internal
audit, legal, human resources and other support services. The Company was
charged and/or allocated expenses of $491,000, $526,000 and $549,000 for the
years ended December 31, 1993, 1994 and 1995, respectively, and $412,000 and
$395,000 for the nine months ended September 30, 1995 and 1996, respectively.
The costs of these services have been directly charged and/or allocated using
methods that the Company's management believes are reasonable. Such charges and
allocations are not necessarily indicative of the costs the Company would have
incurred to obtain these services had it been a separate entity. Neither Axel
Johnson nor the Company has conducted any study or obtained any estimates from
third parties to determine what the cost of obtaining such services from third
parties may have been. See Note 3 to the Consolidated Financial Statements.

The Company is obligated to utilize a portion of the proceeds of this
Offering to repay $25.0 million of indebtedness to Axel Johnson under a note
issued in August 1996 in connection with the declaration of a dividend to Axel
Johnson. Such note bears interest at a rate of 7.5% per annum. See "Use of
Proceeds."

The Company and Axel Johnson have entered into a number of agreements for
the purpose of defining the ongoing relationship between them. These agreements
were negotiated in the context of a parent-subsidiary relationship and therefore
are not the result of negotiations between independent parties. It is the
intention of the Company and Axel Johnson that such agreements and the
transactions provided for therein, taken as a whole, should accommodate the
parties' interests in a manner that is fair to both parties, while continuing
certain mutually beneficial joint arrangements. However, because of the
complexity of the various relationships between the Company and Axel Johnson,
there can be no assurance that each of such agreements, or the transactions
provided for therein, will be effected on terms at least as favorable to the
Company as could have been obtained from unaffiliated third parties. The
agreements summarized in this section have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part, and the following
summaries are qualified in their entirety by reference to the agreements as
filed. While these agreements will provide the Company with certain benefits,
the Company is only entitled to the ongoing assistance of Axel Johnson for a
limited time and it may not enjoy benefits from its relationship with Axel
Johnson beyond the term of the agreements. There can be no assurance that the
Company upon termination of such assistance from Axel Johnson will be able to
provide adequately such services internally or obtain favorable arrangements
from third parties to replace such services. See "Risk Factors--No Recent
Independent Operating History" and "--Control by and Relationship with Axel
Johnson."

Additional or modified arrangements and transactions may be entered into by
the Company and Axel Johnson upon consummation of this Offering. Any such future
arrangements and transactions will be determined through negotiation between the
Company and Axel Johnson. The Company has adopted a policy that all future
agreements between the Company and Axel Johnson will be on terms that the
Company believes are no less favorable to the Company than the terms the Company
believes would be available from unaffiliated parties. In that regard, the
Company intends to follow the procedures provided by the Delaware General
Corporation Law (the "DGCL") which include a vote to affirm any such future
agreements by a majority of the Company's directors who are not employees of
Axel Johnson (even though such directors may be less than a quorum). There can
be no assurance that any such arrangements or transactions will be the same as
that which would be negotiated between independent parties.

46
<PAGE>
The following is a summary of certain prospective arrangements between the
Company and Axel Johnson that will become effective upon consummation of this
Offering.

ADMINISTRATIVE SERVICES AGREEMENT

The Company and Axel Johnson will enter into an administrative services
agreement (the "Services Agreement") upon consummation of this Offering,
pursuant to which Axel Johnson will continue to provide limited services to the
Company, including treasury, accounting, tax, internal audit, legal and human
resource functions.

Each service under the Services Agreement is provided for a period of two
years. However, to the extent legally permissible, the Company may terminate any
individual service or all services that it receives under the Services Agreement
at any time upon 45 days prior written notice. Otherwise, the Services Agreement
shall terminate upon the earlier of, among other things, (i) two years after the
consummation of this Offering or (ii) the date which Axel Johnson owns less than
50% of the voting control of the Company; provided, however, that if such
reduction in voting control results from a sale or transfer of Class B Common
Stock by Axel Johnson, the services shall continue to be provided for a period
of 90 days thereafter. Prior to the second anniversary of the consummation of
this Offering, the Company may unilaterally extend the period during which Axel
Johnson provides any service for an additional twelve months by providing Axel
Johnson at least 45 prior days written notice. The Company is obligated to take
all steps necessary to obtain its own administrative and support services prior
to the termination of the Services Agreement.

The Company will be obligated to pay fees established in the Services
Agreement based upon the type and amount of services rendered. It is estimated
that Axel Johnson will charge an initial annual fee of approximately $622,000
for all of the services that it will initially provide under the Services
Agreement. In addition, the Company will reimburse Axel Johnson for any
out-of-pocket expenses it incurs in connection with providing the services.

TAX SHARING AGREEMENT

The Company and Axel Johnson will enter into a tax sharing agreement (the
"Tax Sharing Agreement") upon the consummation of this Offering, pursuant to
which the Company will make a payment to Axel Johnson, or Axel Johnson will make
a payment to the Company, as appropriate, of an amount in respect of taxes shown
as due attributable to the operations of the Company on the consolidated federal
income tax return filed along with Axel Johnson for the short period commencing
on January 1, 1996 and ending on the date on which the Company ceases to be a
member of the Axel Johnson consolidated group. For the post-Offering period, the
Company may file combined state income tax returns with Axel Johnson or its
subsidiaries, pursuant to which appropriate payments will be made by or to the
Company. Axel Johnson will indemnify the Company from liability for certain
matters, including, net of corresponding tax benefits, any federal, state or
local income or other taxes attributable to any affiliated or combined group of
which the Company is a member for any period ending after this Offering. The
Company will indemnify Axel Johnson and its subsidiaries from liability for
certain matters, including any federal, state or local income or other taxes
attributable to the operations of the Company upon consummation of this
Offering. After the consummation of this Offering, the Company will make its own
tax filings.

CREDIT AGREEMENT

The Company and Axel Johnson will enter into a credit agreement (the "Credit
Agreement") upon the consummation of this Offering, pursuant to which Axel
Johnson has agreed to provide a revolving credit/working capital facility (the
"Credit Facility") to the Company in an aggregate amount of up to $15.0 million.
The Credit Facility has a term of 24 months, and any loans thereunder will bear
interest during each calendar quarter at a rate per annum equal to the sum of
the three-month London Interbank Offered

47
<PAGE>
Rate (LIBOR), as quoted in the Wall Street Journal, plus two percent (2.0%),
initially on the date when the initial loan is made, and adjusted thereafter on
the first business day of each calendar quarter. Larscom shall pay a commitment
fee equal to one-half of one percent (0.5%) per annum on the average daily
unused portion of the aggregate amount of the loan to Axel Johnson, on each
August 31, November 30, February 28 and May 31 during the term of the Credit
Agreement and upon termination of the Credit Agreement. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

The Credit Agreement contains various representations, covenants and events
of default typical for financing of a similar size and nature. The Credit
Agreement also permits Axel Johnson to require, upon 90 days written notice, a
mandatory prepayment of all, or a portion of all outstanding loans and to
terminate the Credit Agreement in the event that Axel Johnson (i) owns less than
the majority of the outstanding voting stock of Larscom or (ii) nominates less
than a majority of the persons to be elected to the Board of Directors of
Larscom. See "Risk Factors--No Recent Independent Operating History" and
"--Control by and Relationship with Axel Johnson."

48
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDER

Axel Johnson currently owns all of the outstanding shares of Common Stock of
the Company. Upon consummation of this Offering, Axel Johnson will own 100% of
the Class B Common Stock representing 60.5% of the total outstanding Common
Stock on a share-for-share basis and will control 85.9% of the total voting
power of the outstanding Common Stock. Axel Johnson will not own any shares of
Class A Common Stock. As a result of its ownership interest, Axel Johnson will
be able to control the vote on most matters submitted to stockholders, including
the election of directors and the approval of extraordinary corporate
transactions. See "Risk Factors--Control by and Relationship with Axel Johnson."

The following table sets forth certain information as of September 30, 1996
regarding beneficial ownership of the Company's Common Stock at the date hereof
and adjusted to reflect the consummation of this Offering by (i) Axel Johnson,
(ii) the Company's named executive officers, (iii) each of the Company's
directors and (iv) all executive officers and directors as a group. The
executive officers of the Company are expected to have sole voting and
investment power with respect to all shares of Class A Common Stock beneficially
owned by them.

The following table gives effect to (i) the Recapitalization, pursuant to
which each share of the Common Stock of the Company then outstanding was
exchanged for 1,190 shares of Class B Common Stock and (ii) the conversion by
Axel Johnson of 1,200,000 shares of Class B Common Stock into 1,200,000 shares
of Class A Common Stock:

<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING SHARES OF AFTER OFFERING (1)
----------------------------------------- CLASS A -----------------------------------------
NUMBER OF NUMBER OF PERCENT OF COMMON NUMBER OF NUMBER OF PERCENT OF
NAME AND CLASS A CLASS B TOTAL VOTING STOCK CLASS A CLASS B TOTAL VOTING
ADDRESS(2) SHARES SHARES POWER OFFERED(1) SHARES SHARES POWER
- -------------------------- ----------- ----------- --------------- ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Axel Johnson Inc.......... 1,200,000 10,700,000 100% 1,200,000 -- 10,700,000 85.9%
300 Atlantic Street
Stamford, Connecticut
06901-3530
Deborah M. Soon........... -- -- -- -- 9,422 -- *
Bruce D. Horn............. -- -- -- -- 1,894 -- *
Jeffrey W. Reedy.......... -- -- -- -- 3,944 -- *
Paul A. Strudwick......... -- -- -- -- 3,021 -- *
George M. Donohoe......... -- -- -- -- 2,457 -- *
William H. Cory........... -- -- -- -- 2,817 -- *
Signe S. Gates............ -- -- -- -- -- -- *
Paul E. Graf.............. -- -- -- -- -- -- *
Harvey L. Poppel.......... -- -- -- -- -- -- *
Joseph F. Smorada......... -- -- -- -- -- -- *
All executive officers and
directors as a group
(10 persons)............. -- -- -- -- 23,555 -- *
</TABLE>

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

* Less than 1%

(1) Assumes no exercise of the Underwriters' over-allotment option to purchase
up to 350,000 shares and 700,000 shares from the Company and the Selling
Stockholder, respectively.

(2) The address of all executive officers and directors is Larscom Incorporated,
4600 Patrick Henry Drive, Santa Clara, California 95054.

49
<PAGE>
DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 100,000,000 shares
of Class A Common Stock, 11,900,000 shares of Class B Common Stock and 5,000,000
million shares of Preferred Stock, each with a par value of $0.01. After the
consummation of this Offering, 7,023,555 shares of Class A Common Stock and
10,700,000 shares of Class B Common Stock will be issued and outstanding.

The following description of the capital stock of the Company and certain
provisions of the Company's Amended and Restated Certificate of Incorporation
and Amended By-laws is a summary and is qualified in its entirety by the
provisions of the Amended and Restated Certificate of Incorporation and Amended
By-laws, which have been filed as exhibits to the Company's Registration
Statement, of which this Prospectus is a part.

COMMON STOCK

DIVIDENDS. Holders of record of shares of Common Stock are entitled to
receive such dividends when, if and as may be declared by the Board of Directors
out of funds legally available for such purposes. No dividends (other than a
dividend payable solely in shares of Class A Common Stock) may be declared or
paid on any share of Class A Common Stock, unless such dividend, is
simultaneously declared or paid on each share of Class B Common Stock equal to
the amount which would have been payable with respect to such shares of Class B
Common Stock had such shares been converted into Class A Common Stock
immediately prior to the record date of such dividend. No dividends (other than
a dividend payable solely in shares of Class B Common Stock) may be declared or
paid on any share of Class B Common Stock, unless a similar dividend is
simultaneously declared or paid on each share of Class A Common Stock. Stock
dividends and distributions paid in shares of Class A Common Stock may only be
declared and paid to the holders of Class A Common Stock.

VOTING RIGHTS. Upon consummation of this Offering, holders of Class A
Common Stock are entitled to one vote per share and holders of Class B Common
Stock are entitled to four votes per share, subject to adjustment to preserve
the initial voting ratio. Holders of shares of Common Stock will vote as a
single class on all matters submitted to a vote of stockholders, except as
otherwise required by law.

CONVERTIBILITY. Each share of Class B Common Stock is convertible, at the
option of its holder, into one share of Class A Common Stock at any time,
subject to adjustment for stock dividends, stock splits, subdivisions or
combinations with respect to the shares of Class A Common Stock. The shares of
Class A Common Stock are not convertible into shares of Class B Common Stock.

LIQUIDATION RIGHTS. Upon liquidation, dissolution or winding up of the
Company, the holders of Class A Common Stock are entitled to share ratably with
the holders of Class B Common Stock in all assets available for distributions
after payment in full to creditors, subject to adjustment for stock dividends,
stock splits, subdivisions or combinations with respect to Class A Common Stock.

OTHER PROVISIONS. The holders of Common Stock are not entitled to
preemptive or subscription rights. In any merger, consolidation or business
combination, the consideration to be received per share by holders of Class A
Common Stock must be identical to that received by holders of Class B Common
Stock on an as converted basis.

PREFERRED STOCK

The Board of Directors has the authority to issue up to 5,000,000 shares of
Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preferences, sinking
fund terms and the number of shares constituting any series or the designation
of such series, without any further vote or action by stockholders. The issuance
of Preferred Stock could adversely affect the voting power of holders of Common
Stock and the likelihood that such holders will receive dividend payments and
payments upon

50
<PAGE>
liquidation and could have the effect of delaying, deferring or preventing a
change in control of the Company. The Company has no present plan to issue any
shares of Preferred Stock.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

The Company's Amended and Restated Certificate of Incorporation contains
provisions (i) eliminating the personal liability of its directors, officers,
employees and other agents for monetary damages resulting from breaches of their
fiduciary duty to the fullest extent permitted by the law and (ii) indemnifying
its directors and officers to the fullest extent permitted by the DGCL. These
provisions in the Amended and Restated Certificate of Incorporation do not
eliminate the duty of care and, in appropriate circumstances, equitable remedies
such as an injunction or other forms of non-monetary relief would remain
available under Delaware law. Each director will continue to be subject to
liability for breach of a director's duty of loyalty to the Company or its
stockholders, for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for any transaction from which the
director derived an improper personal benefit and for improper distributions to
stockholders. These provisions also do not affect a director's responsibilities
under any other laws, such as the federal securities laws or state or federal
environmental laws.

The Company's Amended and Restated Certificate of Incorporation and Amended
By-laws also permit the Company to secure insurance on behalf of any person it
is required or permitted to indemnify for any liability arising out of his or
her actions in such capacity, regardless of whether Delaware law would permit
indemnification. The Company maintains liability insurance for its directors and
officers.

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

ANTITAKEOVER EFFECTS OF PROVISIONS OF AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION,
AMENDED BY-LAWS AND DELAWARE LAW

The Company's Amended and Restated Certificate of Incorporation or Amended
By-laws, as applicable, among other things, (i) require stockholders to follow
an advance notification procedure for stockholder nominations of candidates to
the Board of Directors and for new business to be conducted at stockholder
meetings, and (ii) provide that the Board of Directors, without action by the
stockholders, may issue and fix the rights and preferences of shares of
Preferred Stock. These provisions may have the effect of delaying, deferring or
preventing a change of control of the Company without further action by the
stockholders, may discourage bids for the Class A Common Stock at a premium over
the market price of the Class A Common Stock, may adversely affect the market
price of, and the voting and other rights of the holders of, the Class A Common
Stock and could have the effect of discouraging certain attempts to acquire the
Company or remove incumbent management or members of the Company's Board of
Directors even if some or a majority of the Company's stockholders deemed such
an attempt to be in their best interests. Furthermore, after this Offering, Axel
Johnson will have 85.9% of the voting control of the Company. Voting control by
Axel Johnson may discourage certain types of transactions involving an actual or
potential change of control of the Company, including transactions in which the
holders of the Company's Class A Common Stock might receive a premium for their
shares over the prevailing market price of the Class A Common Stock.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Class A Common Stock is The Bank of
New York.

LISTING

The Company has applied to have the Class A Common Stock approved for
quotation on the Nasdaq National Market under the symbol "LARS."

51
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

Upon the consummation of this Offering, the Company will have outstanding an
aggregate of 7,023,555 shares of Class A Common Stock (8,073,555 if the
Underwriters' over-allotment option is exercised in full) and 10,700,000 shares
of Class B Common Stock. Of the total outstanding shares of Common Stock,
7,000,000 shares of Class A Common Stock sold in this Offering will be freely
tradable without restriction or further registration under the Securities Act,
unless purchased by "affiliates" of the Company, as that term is defined in Rule
144 under the Securities Act (which sales would be subject to certain volume
limitations and other restrictions described below).

The remaining 23,555 shares of Class A Common Stock and 10,700,000 shares of
Class B Common Stock held by existing stockholders upon consummation of this
Offering will be "restricted securities" as that term is defined in Rule 144
under the Securities Act. In general, under Rule 144 as currently in effect, a
person (or persons whose shares are aggregated), including an affiliate, who has
beneficially owned shares for at least two years (including, if the shares are
transferred, the holding period of any prior owner except an affiliate) is
entitled to sell in "broker's transactions" or to market makers, within any
three-month period commencing 90 days after the date of this Prospectus, a
number of shares that does not exceed the greater of (i) 1% of the then
outstanding shares of such class of the Common Stock (approximately 70,236
shares immediately after this Offering) or (ii) generally, the average weekly
trading volume in such class of the Common Stock during the four calendar weeks
preceding the filing of Form 144 with respect to such sale, and subject to
certain other limitations and restrictions. In addition, a person who is not
deemed to have been an affiliate of the Company at any time during the three
months preceding a sale, and who has beneficially owned the shares proposed to
be sold for at least three years, would be entitled to sell such shares under
Rule 144(k) without regard to the volume and other requirements described above.
Shares of Common Stock that would otherwise be deemed "restricted securities"
could be sold at any time through an effective registration statement relating
to such shares of Common Stock.

Approximately 23,555 and 10,700,000 Restricted Shares will be eligible for
sale in the public market beginning 180 days and 240 days, respectively, after
the effective date of this Offering, pursuant to Rule 144 and the expiration of
certain lock-up agreements entered into between the Underwriters and the holders
of such Restricted Shares. Of such Restricted Shares, approximately 10,700,000
shares will be subject to certain volume limitations and other resale
restrictions pursuant to Rule 144. In addition, the Company intends to file a
Registration Statement on Form S-8 after the effective date of this Offering to
register 3,000,000 shares of Class A Common Stock issuable upon the exercise of
stock options or stock purchase rights to be granted under the Company's stock
plans, which includes 23,555 shares of Class A Common Stock issued in connection
with the termination of the Company's participation in the Selling Stockholder's
existing long-term incentive plan. Such shares of Class A Common Stock issued
pursuant to these plans after the effective dates of registration statements
will be available for sale in the public market, subject to expiration of the
lock-up agreements with the Underwriters. See "Management--Stock Plans."

The Company and its directors and executive officers have agreed, subject to
certain exceptions, not to offer, sell, contract to sell or otherwise dispose of
any Common Stock for a period of 180 days after the date of this Prospectus
without the prior written consent of Montgomery Securities. The Selling
Stockholder has agreed, subject to certain exceptions, not to offer, sell,
consent to sell or otherwise dispose of any Common Stock for a period of 240
days after the date of this Prospectus without the prior written consent of
Montgomery Securities.

REGISTRATION RIGHTS

Pursuant to registration rights agreement (the "Registration Rights
Agreement"), between Axel Johnson and the Company, to be entered into upon the
consummation of this Offering, Axel Johnson and its affiliates (the "Holder")
will be entitled to certain rights with respect to the registration under the

52
<PAGE>

Securities Act of 10,700,000 shares of Class B Common Stock they hold. Subject
to certain limitations (including a minimum registration of at least 10% of its
shares), the Holder has the right to require the Company to register under the
Securities Act the sale of all or part of the shares it holds (a "Demand
Registration"). The Holder will be entitled to request an aggregate of three
Demand Registrations, one per twelve-month period during each of the three
twelve-month periods immediately following 240 days from the consummation of
this Offering. The Holder is also entitled to include the shares of Class B
Common Stock it holds in a registered offering of securities by the Company for
its own account, subject to certain conditions and restrictions. The Company
will pay all expenses associated with a registration of shares of Class A Common
Stock converted from Class B Common Stock by the Holder other than underwriting
discounts and commissions, Holder's out-of-pocket expenses and underwriters'
counsel fees and disbursements, if any, relating to such shares. In addition,
the Registration Rights Agreement contains certain indemnification provisions
(i) by the Company for the benefit of the Holder as well as any potential
underwriter and (ii) by the Holder for the benefit of the Company and related
persons. The Holder may transfer its registration rights under the Registration
Rights Agreement, provided that such assignee or transferee agrees to be bound
by the terms of the Registration Rights Agreement. The Registration Rights
Agreement also provides that while Axel Johnson owns 50% or more of the voting
power of the Company's Common Stock, the Company may not grant new registration
rights to any other person without Axel Johnson's prior consent. Axel Johnson
has no current intention to exercise its registration rights under the
Registration Rights Agreement.

Prior to this Offering, there has not been any public market for either
class of the Common Stock. No prediction can be made as to the effect, if any,
that market sales of shares or the availability of shares for sale will have on
the market price prevailing from time to time. Sales of substantial additional
amounts of Class A Common Stock in the public market, or the perception that
such sales may occur, could materially adversely affect the prevailing market
price of the Class A Common Stock.

53
<PAGE>
UNDERWRITING

The underwriters named below (the "Underwriters"), represented by Montgomery
Securities, Cowen & Company and Punk, Ziegel & Knoell, L.P. (the
"Representatives"), have severally agreed, subject to the terms and conditions
set forth in the Underwriting Agreement, to purchase from the Company and the
Selling Stockholder the number of shares of Class A Common Stock indicated below
opposite their respective names at the initial public offering price less the
underwriting discount set forth on the cover page of this Prospectus. The
Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions precedent and that the Underwriters are committed
to purchase all of such shares, if any are purchased.

<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
CLASS A COMMON
UNDERWRITER STOCK
- ------------------------------------------------------------------------------ --------------
<S> <C>
Montgomery Securities.........................................................
Cowen & Company...............................................................
Punk, Ziegel & Knoell, L.P....................................................

--------------
Total....................................................................... 7,000,000
--------------
--------------
</TABLE>

The Representatives have advised the Company and the Selling Stockholder
that the Underwriters initially propose to offer the Class A Common Stock to the
public on the terms set forth on the cover page of this Prospectus. The
Underwriters may allow to selected dealers a concession of not more than $
per share; and the Underwriters may allow, and such dealers may allow, a
concession of not more than per share to certain other dealers. After the
initial public offering, the offering price and other selling terms may be
changed by the Representatives. The Class A Common Stock is offered subject to
receipt and acceptance by the Underwriters, and to certain other conditions,
including the right to reject orders in whole or in part.

The Company and the Selling Stockholder have granted to the Underwriters an
option, exercisable for 30 calendar days after the date of this Prospectus, to
purchase up to an aggregate of 350,000 and 700,000 additional shares of Class A
Common Stock, respectively, solely to cover over-allotments, if any. If the
Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them, as shown in the foregoing table, bears to the 7,000,000 shares of Class A
Common Stock offered hereby. The Underwriters may exercise such option only to
cover over-allotments in connection with the sale of the 7,000,000 shares of
Class A Common Stock.

The Company and its executive officers and directors have agreed not to
offer, sell, contract to sell or dispose of any shares of Common Stock or
securities convertible into or exchangeable for any shares of Common Stock, for
a period of 180 days after the date of this Prospectus without the prior written
consent of Montgomery Securities, except for securities issued pursuant to its
stock plans. The Selling Stockholder has agreed, subject to certain exceptions,
not to offer, sell, contract to sell or dispose of any shares of Common Stock or
securities convertible into or exchangeable for any shares of Common Stock, for
a period of 240 days after the date of this Prospectus without the prior written
consent of Montgomery Securities. Montgomery Securities may, in its sole
discretion and at any time without notice, release all or any portion of the
securities subject to these lock-up agreements.

54
<PAGE>

The Representatives have informed the Company that they do not intend to
confirm sales to discretionary accounts by the Underwriters in excess of 5% of
the total number of shares of Class A Common Stock offered by them.

Prior to this Offering, there has been no public market for the Class A
Common Stock. The initial public offering price will be negotiated among the
Company and the Representatives. Among the factors to be considered in
determining the initial public offering price of the Class A Common Stock, in
addition to prevailing market conditions, are the Company's historical
performance, estimates of the business potential and earnings prospects of the
Company, an assessment of the Company's management and the consideration of the
above factors in relation to market valuation of companies in related
businesses.

The Underwriting Agreement provides that the Company and Selling Stockholder
have agreed to indemnify the several Underwriters and their controlling persons
against certain liabilities, including liabilities under the Securities Act.

55
<PAGE>
LEGAL MATTERS

The validity of the shares of Class A Common Stock offered hereby will be
passed upon for the Company and the Selling Stockholder by Cahill Gordon &
Reindel (a partnership including a professional corporation), New York, New
York. Certain legal matters in connection with this Offering will be passed upon
for the Underwriters by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California.

EXPERTS

The consolidated financial statements of the Company as of December 31, 1994
and 1995 and September 30, 1996 and for each of the three years in the period
ended December 31, 1995 and the nine months ended September 30, 1996 and
included in this Prospectus have been so included in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Registration Statement on Form S-1 under the Securities Act of
1933 with respect to the Class A Common Stock offered hereby. This Prospectus
does not contain all of the information set forth in the Registration Statement
and the exhibits and schedules thereto. For further information with respect to
the Company and such Class A Common Stock, reference is made to the Registration
Statement and the exhibits and schedules filed as a part thereof. Statements
contained in this Prospectus as to the contents of any contract or any other
document referred to are not necessarily complete, and, in each instance, if
such contract or document is filed as an exhibit, reference is made to the copy
of such contract or document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference to such
exhibit. The Registration Statement, including exhibits and schedules thereto,
may be inspected without charge at the public reference facilities maintained by
the Commission at Room 1024, Judicuary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices at Northwestern
Atrium Center, 500 West Madison Street, Room 1400, Chicago, IL 60661, and 7
World Trade Center, Suite 1300, New York, NY 10048. Copies of such material can
also be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a World Wide Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The address of the site is http://www.sec.gov.

56
<PAGE>
GLOSSARY OF TERMS

ACCESS-T -- A Larscom T1/FT1 CSU/DSU product line that provides from one to four
ports for multiplexing serial data from customer equipment and transports it
across a T1 WAN facility. Also includes a shelf-based version allowing Larscom
to offer hub and spoke solutions.

ACCESS-T45 -- A Larscom product that connects one or two high-speed serial
applications to a clear-channel T3 facility.

ADSL (ASYMMETRIC DIGITAL SUBSCRIBER LINE) -- A transmission facility using
existing copper wire (as in a telephone subscriber's local loop) to transmit
downstream at 1.5 to 6 Mbps and upstream at lower rates (e.g., 384 kbps).

ATM (ASYNCHRONOUS TRANSFER MODE) -- A cell-based, fast-packet technology that
provides a protocol for transmitting voice and data over high-speed networks.
Standards for ATM are developed and codified by an industry group, the ATM
FORUM.

BACKBONE -- The top (highest-bandwidth) level in a hierarchical network, to
which subnetworks and LANs are connected and over which they intercommunicate.

BANDWIDTH -- The maximum amount of data that can flow across a network segment.
Bandwidth is generally measured in kilobits (thousands of bits), Megabits
(million of bits), or Gigabits (billions of bits) per second, which are
abbreviated kbps, Mbps, and Gbps, respectively.

BRIDGE -- A device that connects two or more physical LANs and forwards packets
between them.

BROADBAND -- Transmission at greater than 2 Mbps, i.e., greater than the T1 or
E1 rate.

BUFFERING -- The process of storing a large amount of data within a
communication device to allow variations in receive and transmit speeds.

BUS -- A shared electronic pathway used for communication between devices or
parts of a device, such as multiplexer modules.

CCA -- See CLEAR CHANNEL ATM.

CE CERTIFICATION MARK -- An indication that a product has been tested and
approved for sale within 15 European countries. These countries currently
include Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland,
Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden and the United Kingdom.

CELL-BASED TRAFFIC -- Communication between network sites based on
individually-addressed packets or cells of data, which are independently routed
through the network. As opposed to CIRCUIT-BASED TRAFFIC.

CHANNELIZED VS. CLEAR CHANNEL TRANSMISSION -- A transmission link which is
divided into multiple "channels" capable of transporting separate lower-rate
traffic streams is referred to as CHANNELIZED. A transmission link which
transports only a single traffic stream is referred to as a CLEAR CHANNEL.

CLEAR CHANNEL ATM (CCA) -- Clear Channel ATM is Larscom's term for bit-based
inverse multiplexing of ATM traffic. CCA provides an immediately-available
alternative to the cell-based inverse multiplexing under development by the ATM
Forum (see IMA).

CIRCUIT-BASED TRAFFIC -- Communication between two network sites based on a
temporary or permanent circuit being established between the two sites. As
opposed to CELL-BASED TRAFFIC.

57
<PAGE>
CPE (CUSTOMER PREMISE EQUIPMENT) -- Network equipment--such as modems,
multiplexers, CSUs and routers--located at the customer's site.

CSU (CHANNEL SERVICE UNIT) -- A device necessary to connect customer T1 (or E1)
equipment to a carrier's T1 (or E1) service.

DIFFERENTIAL DELAY -- The difference in transit time between data taking
separate transmission paths--for example, inverse-multiplexed T1s employing
different routes through T1 networks.

DOWNLOADABLE SOFTWARE -- Operating software which can be upgraded over telephone
and/or Internet connections.

DTE (DATA TERMINAL EQUIPMENT) -- Devices, such as multiplexers, PBXs, front-end
processors, computers, terminals and LAN routers, which function as the source
of a transmitted digital signal and the destination of a received digital
signal.

DS1, DS3 -- See T1, T3.

DSU (DIGITAL SERVICE UNIT) -- A device that interfaces RS232, V.35, or other
terminal interface protocols to T1, T3 or other digital telephone signals.

EL, E3 -- The primary digital transmission systems defined by the CCITT and used
today in Europe, parts of the Pacific Rim and Latin America. Roughly analogous
to the North American T1 and T3 transmission systems, E1 and E3 operate at 2.048
Mbps and 34.368 Mbps, respectively.

ETHERNET -- The most commonly-used LAN protocol, typically operating at 10 Mbps
over twisted-pair wiring referred to as 10Base-T. Newer iterations of Ethernet
use speeds of 100 Mbps and approximately 1 Gigabit as well as switching between
LAN segments.

ETHERSPAN -- Larscom's Ethernet bridge, which in combination with a Larscom DSU
connects a 10 Mbps Ethernet LAN to a WAN service at up to the full speed of the
LAN. Used for remote LAN connections at or near the LAN speed.

FDDI (FIBER DISTRIBUTED DATA INTERFACE) -- A networking technology employing
fiber optic cables, a token ring topology and transmission rates up to 100 Mbps.

FE1, FE3, FT1, FT3 -- See FRACTIONAL SERVICES.

FRACTIONAL SERVICES -- Communications channels which are subrates of standard
digital service offerings such as T1, E1, T3 and E3 (designated FT1, FE1, FT3
and FE3, respectively).

FRAME RELAY -- A multiplexing data service based on fast transport of formatted
information frames, without flow control or error correction. Currently, the
most popular way of providing variable-bandwidth WAN services.

HDSL (HIGH-SPEED DIGITAL SUBSCRIBER LINE) -- A transmission facility using
existing copper wire (as in the LOCAL LOOP) to transmit at 1.5 Mbps over two
pairs or 768 kbps over one pair.

HSD (HIGH-SPEED DATA) -- A type of data interface, normally employing
industry-standard V.35 or EIA530 electrical connections and typically used for
speeds up to 6 Mbps.

HSSI (HIGH-SPEED SERIAL INTERFACE) -- A type of data interface capable of speeds
up to 40 Mbps or more.

HUB AND SPOKE -- An architecture in which central high-capacity devices (hubs)
serve multiple, geographically disperse lower-capacity devices (spokes).

58
<PAGE>
IMA (INVERSE MULTIPLEXING FOR ATM) -- The cell-based inverse multiplexing
standard currently under development by the ATM Forum.

INVERSE MULTIPLEXING -- Combining the bandwidth of two or more communications
circuits into a single communication channel.

INVERSE-MULTIPLEXED ATM (IMA) -- The cell-by-cell inverse multiplexing standard
currently being defined by the ATM FORUM.

ISDN (INTEGRATED SERVICES DIGITAL NETWORK) -- An evolving set of standards for a
digital network carrying both voice and data communications. PRI (PRIMARY RATE
INTERFACE) is the lowest-speed ISDN interface (144 kbps), intended for use on
the local (subscriber) loop. PRI operates at T1 or E1 rates (or subrates). BISDN
(BROADBAND ISDN) refers to ISDN at speeds higher than the PRI rate. ATM is a
BISDN service.

ISP (INTERNET SERVICE PROVIDER) -- A commercial entity which leases connections
to the Internet.

ITU (INTERNATIONAL TELECOMMUNICATIONS UNION) -- An organization that recommends
telecommunications and data communications interconnection standards.

LEGACY -- A term denoting "holdover" equipment, applications, structures, etc.,
from an earlier network or other implementation.

LOW-SPEED SERVICES -- Data services operating at 56 or 64 kbps, or at subrates
thereof.

MAN (METROPOLITAN AREA NETWORK) -- A technology evolved from local-area network
designs that is optimized for network distances over 50 km, speeds more than 100
Mbps and diverse forms of information (voice, data, image, video).

MEGA-T -- Larscom's multiple T1 inverse multiplexer provides a multi-megabit
communication channel equivalent to fractional T3 (FT3) channel.

MULTIPLEXER (MUX) -- A device that combines (multiplexes) input from two or more
terminals, computer ports, or other multiplexers, and transmits the combined
data stream over one high-speed channel. At the receiving end, the high-speed
channel is de-multiplexed by another multiplexer.

NSP (NETWORK SERVICE PROVIDER) -- A commercial entity providing
telecommunication services to end-users (e.g., Interexchange Carriers, Local
Exchange Carriers, Regional Bell Operating Companies, Internet Service Providers
and Alternate Carriers)

NXT1, NXE1 -- A multi-megabit transmission link created by inverse-multiplexing
separate T1 or E1 links.

ORION 200/400/800 FAMILY -- Larscom's global access multiplexer family for full
and fractional T1 and E1 networks.

ORION 4000 -- Larscom's flagship product, a modular broadband access multiplexer
platform with a unique WAN access architecture that handles both cell-based
(ATM) and circuit-based (TDM) traffic.

PBX (PRIVATE BRANCH EXCHANGE) -- A telephone exchange serving an individual
organization and having connections to a public telephone exchange.

PUBLIC VS. PRIVATE NETWORKS/CIRCUITS -- A public network or circuit is owned by
an NSP and leased to private users. A private network or circuit is owned by the
user.

REDUNDANT -- A relationship of dual network devices or facilities in which one
device or facility functions as a backup for the other.

59
<PAGE>
ROUTER -- A combination of hardware and software that allows the connection of
two or more subnetworks.

SDH (SYNCHRONOUS DIGITAL HIERARCHY) -- The international structure of optical
transmission standards, corresponding to the U.S. SONET standards. SDH starts at
the 155 Mbps level and increases in 155-Mbps multiples.

SHELF-LEVEL PRODUCT -- A type of product employing a chassis or shelf in which
multiple modules may be installed. A shelf-level product typically allows
greater capacity and flexibility in a smaller physical space.

SONET (SYNCHRONOUS OPTICAL NETWORK) -- A standard for the multiplexing and
transmission of broadband information in optical form, so that low-speed
components of the optical channel can be easily extracted. Operates from 51.84
Mbps (OC-1) and 155 Mbps (OC-3), to 622 Mbps (OC-12) and beyond.

SPLIT-T -- Larscom's pioneering fractional T1 DSU, allowing users to channelize
serial applications in specific DS0s within a T1.

SWITCHING -- The establishment of communication paths through a network
dynamically set up and taken down on request. As opposed to dedicated
facilities, permanent end-to-end connections which cannot be dynamically
changed.

T1, T3 -- Digital transmission systems with data capacities of 1.544 and 44.736
Mbps, respectively; also known as Digital Signal Levels 1 and 3 (DS1 and DS3).
T1 and T3 are part of the digital telephone network hierarchy used in North
America. A T1 incorporates 24 standard voice channels (DS0s). A T3 incorporates
28 T1s.

T1/E1 CONVERSION -- The process of converting voice-frequency encoding signals
and analog-to-digital encoding schemes between T1 and E1 networks.

TDM (TIME-DIVISION MULTIPLEXING) -- The technique used in the currently-dominant
circuit-based networks to channelize transmission links by dedicating time slots
within the data stream to the individual channels. For example, the 24 DS0s that
make up a T1 (DS1) are created by dividing the data stream into 8-bit time slots
and dedicating specific time slots to specific DS0s.

TNDS (T1 NETWORK DIAGNOSTIC SYSTEM) -- Larscom's multi-line T1 CSU system, which
brought a new level of centralized CSU-based network performance management to
T1 network users.

UNI (USER-TO-NETWORK INTERFACE) -- Any of a class of interfaces applicable to
user equipment connecting to ATM networks.

60
<PAGE>
LARSCOM INCORPORATED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Accountants.......................................................................... F-2

Consolidated Financial Statements:

Balance Sheets as of December 31, 1994 and 1995 and September 30, 1996................................... F-3

Statements of Operations for the Years Ended December 31, 1993, 1994 and 1995 and for the Nine Months
Ended September 30, 1995 (unaudited) and 1996.......................................................... F-4

Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995
and for the Nine Months Ended September 30, 1995 (unaudited) and 1996.................................. F-5

Statements of Stockholder's Equity for the Years Ended December 31, 1993, 1994 and 1995 and for the Nine
Months Ended September 30, 1996........................................................................ F-6

Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholder of

Larscom Incorporated

The recapitalization and stock split in connection therewith described in
Note 1 to the consolidated financial statements have not been consummated at
October 23, 1996. When they have been consummated, we will be in a position to
furnish the following report:

"In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of operations, of cash flows and of
stockholder's equity (deficit) present fairly, in all material respects,
the financial position of Larscom Incorporated (a wholly-owned
subsidiary of Axel Johnson Inc.) and its subsidiary at December 31, 1994
and 1995 and September 30, 1996, and the results of their operations and
their cash flows for each of the three years in the period ended
December 31, 1995 and for the nine months ended September 30, 1996, in
conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards
which 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,
assessing the accounting principles used and significant estimates made
by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
the opinion expressed above."

PRICE WATERHOUSE LLP

San Jose, California
October 23, 1996

F-2
<PAGE>
LARSCOM INCORPORATED

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1994 1995 1996
--------- --------- -------------

<S> <C> <C> <C>
Current assets:
Cash....................................................................... $ 94 $ 30 $ 31
Accounts receivable, net................................................... 4,975 6,424 9,887
Inventories................................................................ 6,187 7,250 11,258
Deferred income taxes...................................................... 1,273 1,415 1,837
Prepaid expenses and other current assets.................................. 489 412 367
--------- --------- -------------
Total current assets................................................. 13,018 15,531 23,380

Property and equipment, net.................................................. 3,806 4,358 5,035
Due from Axel Johnson........................................................ 3,175 5,186 3,436
Intangible assets, net....................................................... 1,635 526 112
Other assets................................................................. 138 138 138
--------- --------- -------------
Total assets......................................................... $ 21,772 $ 25,739 $ 32,101
--------- --------- -------------
--------- --------- -------------

LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)

Current liabilities:
Accounts payable........................................................... $ 2,183 $ 2,416 $ 3,110
Accrued expenses and other current liabilities............................. 3,315 4,510 6,092
Note payable to Axel Johnson............................................... -- -- 25,000
--------- --------- -------------
Total current liabilities............................................ 5,498 6,926 34,202
--------- --------- -------------
Deferred income taxes........................................................ 567 577 562

Commitments and contingencies (Notes 7 and 8)

Stockholder's equity (deficit):
Preferred Stock, $0.01 par value, 5,000,000 shares authorized, no shares
issued or outstanding.................................................... -- -- --
Class A Common Stock, $0.01 par value, 100,000,000 shares authorized, no
shares issued and outstanding............................................ -- -- --
Class B Common Stock, $0.01 par value, 11,900,000 shares authorized, issued
and outstanding.......................................................... 119 119 119
Additional paid-in-capital................................................. 13,171 13,171 13,171
Retained earnings (accumulated deficit).................................... 2,417 4,946 (15,953)
--------- --------- -------------
Total stockholder's equity (deficit)................................. 15,707 18,236 (2,663)
--------- --------- -------------
Total liabilities and stockholder's equity (deficit)................. $ 21,772 $ 25,739 $ 32,101
--------- --------- -------------
--------- --------- -------------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-3
<PAGE>
LARSCOM INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues................................................... $ 39,035 $ 36,550 $ 48,663 $ 36,654 $ 48,981
Cost of revenues........................................... 14,989 15,037 21,147 15,512 21,961
--------- --------- --------- --------- ---------
Gross profit............................................. 24,046 21,513 27,516 21,142 27,020
--------- --------- --------- --------- ---------
Operating expenses:
Research and development................................. 6,269 6,703 7,143 5,547 5,732
Selling, general and administrative...................... 13,629 13,385 15,762 11,768 14,132
--------- --------- --------- --------- ---------
Total operating expenses............................. 19,898 20,088 22,905 17,315 19,864
--------- --------- --------- --------- ---------
Income from operations..................................... 4,148 1,425 4,611 3,827 7,156
Interest expense charged by Axel Johnson................... -- -- -- -- (195)
Interest income............................................ -- 9 3 3 --
--------- --------- --------- --------- ---------
Income before income taxes................................. 4,148 1,434 4,614 3,830 6,961
Provision for income taxes................................. 1,853 773 2,085 1,730 2,860
--------- --------- --------- --------- ---------
Net income................................................. $ 2,295 $ 661 $ 2,529 $ 2,100 $ 4,101
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Supplemental net income per share (unaudited).............. $ 0.18 $ 0.30
Shares used to compute supplemental net income per share
(unaudited).............................................. 14,013 14,013
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-4
<PAGE>
LARSCOM INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

Cash flows from investing activities used for the
purchase of property and equipment.................... (1,926) (1,407) (2,087) (1,333) (2,081)
--------- --------- --------- --------- ---------

Cash flows from financing activities related to advances
from (repayments to) Axel Johnson..................... (1,585) (1,721) (2,011) (228) 1,750
--------- --------- --------- --------- ---------

Increase (decrease) in cash............................. 20 (189) (64) (18) 1
Cash at beginning of period............................. 263 283 94 94 30
--------- --------- --------- --------- ---------
Cash at end of period................................... $ 283 $ 94 $ 30 $ 76 $ 31
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------

SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITY:

Dividend declared....................................... $ -- $ -- $ -- $ -- $ 25,000
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-5
<PAGE>
LARSCOM INCORPORATED

CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
(IN THOUSANDS)

<TABLE>
<CAPTION>
CLASS B TOTAL
COMMON STOCK ADDITIONAL RETAINED EARNINGS STOCKHOLDER'S
---------------------- PAID-IN (ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL DEFICIT) (DEFICIT)
--------- ----------- ----------- -------------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1992.................. 11,900 $ 119 $ 13,171 $ (539) $ 12,751

Net income.................................... -- -- -- 2,295 2,295
--------- ----- ----------- -------- ------------
Balance at December 31, 1993.................. 11,900 119 13,171 1,756 15,046

Net income.................................... -- -- -- 661 661
--------- ----- ----------- -------- ------------
Balance at December 31, 1994.................. 11,900 119 13,171 2,417 15,707

Net income.................................... -- -- -- 2,529 2,529
--------- ----- ----------- -------- ------------
Balance at December 31, 1995.................. 11,900 119 13,171 4,946 18,236

Dividend declared............................. -- -- -- (25,000) (25,000)

Net income.................................... -- -- -- 4,101 4,101
--------- ----- ----------- -------- ------------
Balance at September 30, 1996................. 11,900 $ 119 $ 13,171 $ (15,953) $ (2,663)
--------- ----- ----------- -------- ------------
--------- ----- ----------- -------- ------------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-6
<PAGE>
LARSCOM INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--THE COMPANY AND A SUMMARY OF ITS SIGNIFICANT ACCOUNTING POLICIES:

Larscom Incorporated (the "Company") is a wholly-owned subsidiary of Axel
Johnson Inc. ("Axel Johnson"). The Company was acquired by Axel Johnson in
December 1987 in a business combination accounted for as a purchase. On the date
of acquisition, the financial position of the Company was adjusted to the fair
value of assets acquired and liabilities assumed by Axel Johnson. All
adjustments to the Company's financial position by Axel Johnson at the date of
acquisition have been pushed down to the Company's financial statements.

The Company develops, manufactures and markets a broad range of high speed,
global internetworking solutions for network service providers and corporate
users. The Company operates in one industry segment.

THE RECAPITALIZATION

In October 1996, the Company's Board of Directors approved a plan to
recapitalize the Company to be effected prior to a proposed initial public
offering (the "Offering") by authorizing (i) Class A Common Stock consisting of
100,000,000 shares, (ii) Class B Common Stock consisting of 11,900,000 shares
and (iii) 5,000,000 shares of undesignated Preferred Stock. Additionally, the
Company's existing Common Stock will be reclassified as Class B Common Stock and
a 1,190-to-one stock split of the Class B Common Stock will be effected. The
accompanying consolidated financial statements have been restated to reflect the
recapitalization and the stock split in all periods presented.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary. All material intercompany transactions and
balances have been eliminated in consolidation. The Company's investment in a
less than 50% owned entity is accounted for using the equity method.

MANAGEMENT ESTIMATES AND ASSUMPTIONS

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

CASH

The Company participates in Axel Johnson's centralized cash management
system. In general, the cash funding requirements of the Company have been met
by, and substantially all cash generated by the Company has been transferred to,
Axel Johnson. Subsequent to the Offering, the Company will continue to
participate in Axel Johnson's centralized cash management system on a
transitional basis until it establishes its own separate centralized cash
management system. Average daily net balances owed to Axel Johnson will incur
interest at the same rate as set forth in the Line of Credit Agreement. (See
Note 9.) Average daily net balances due from Axel Johnson will earn interest at
the average rate earned by Axel Johnson on its investments. Proceeds of the
Offering will be deposited in a separate account of the Company.

F-7
<PAGE>
LARSCOM INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1--THE COMPANY AND A SUMMARY OF ITS SIGNIFICANT ACCOUNTING POLICIES:
(CONTINUED)
REVENUE RECOGNITION

Revenue from product sales is recognized upon shipment of the product. The
Company, in general, does not grant a right of return to its customers.

The following table summarizes the percentage of total sales for customers
accounting for more than 10% of the Company's sales:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------- NINE MONTHS ENDED
1993 1994 1995 SEPTEMBER 30, 1996
--------- --------- --------- ---------------------
<S> <C> <C> <C> <C>
MCI..................................... 13.0% 15.3% 17.9% 20.4%
IBM/Advantis............................ 13.7% 14.0%
</TABLE>

INVENTORIES

Inventories are stated at the lower of cost, determined using the first-in
first-out method, or market.

INTANGIBLE ASSETS

Purchased identifiable intangible assets are amortized using the
straight-line method over their estimated useful lives of five to ten years.
Goodwill, representing the excess of purchase price over the fair value of net
assets acquired is amortized over periods ranging from five to eight years on a
straight-line basis. At each balance sheet date, a review is performed by
management to ascertain whether intangibles have been impaired based on several
criteria, including, but not limited to, revenue trends, undiscounted operating
cash flows and other operating factors.

On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed Of." This statement established accounting
standards for the impairment of long lived assets, certain identifiable
intangibles and goodwill. The adoption of this statement had no effect on the
Company's financial position or results of operations.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. Depreciation and amortization
are computed using the straight-line method based upon the estimated useful
lives of the assets, which range from three to five years. Leasehold
improvements are amortized using the straight-line method based upon the shorter
of the estimated useful lives, or the lease term of the respective assets, if
applicable.

CONCENTRATIONS OF CREDIT RISK

Financial instruments which subject the Company to concentrations of credit
risk consist primarily of accounts receivable. The Company's accounts receivable
is derived from sales to customers primarily in the United States. The Company
performs ongoing credit evaluations of its customers, and generally requires no
collateral from its customers. The Company maintains reserves for potential
credit losses, and to date has not experienced any material losses. At December
31, 1994 and 1995, receivables from two customers represented 20.6% and 10.2%,
and 22.9% and 11.5%, respectively, of gross accounts receivable. At

F-8
<PAGE>
LARSCOM INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1--THE COMPANY AND A SUMMARY OF ITS SIGNIFICANT ACCOUNTING POLICIES:
(CONTINUED)

September 30, 1996, receivables from three customers represented 16.6%, 15.1%
and 12.2% of gross accounts receivable.

RESEARCH AND DEVELOPMENT

All research and development costs, including the software development costs
discussed below, are charged to expense as incurred.

SOFTWARE DEVELOPMENT COSTS

Software development costs incurred prior to establishment of technological
feasibility are expensed as research and development costs. Costs incurred
subsequent to the establishment of technological feasibility, and prior to the
general release of the product to the public, were not significant for all
periods presented and accordingly have been expensed.

WARRANTY

The Company generally provides a two-year warranty for its products. A
provision for the estimated cost of warranty is recorded at the time revenue is
recognized.

INCOME TAXES

Deferred tax assets and liabilities are recognized for the expected tax
consequences of temporary differences between the tax bases of assets and
liabilities and their financial statement reported amounts. Current tax expense
has been determined as if the Company was a separate taxpayer. Income taxes
currently payable are deemed to have been remitted by the Company to Axel
Johnson in the period that the liability arose. Income taxes currently
receivable are deemed to have been received by the Company from Axel Johnson in
the period that a refund could have been recognized by the Company had the
Company been a separate taxpayer. The Company has entered into an income tax
sharing agreement with Axel Johnson effective upon the consummation of the
Offering, pursuant to which either the Company or Axel Johnson, as appropriate,
will make a payment to the other, an amount in respect of income taxes
attributable to the Company for the period from January 1, 1996 to the date on
which the Company ceases to be a member of the Axel Johnson consolidated group.
After the consummation of the Offering, the Company will make its own tax
filings.

PENSIONS

Axel Johnson has a noncontributory funded defined benefit pension plan and
an unfunded retirement restoration plan covering substantially all the Company's
employees. The cost of these plans has been allocated to the Company based on
the compensation of the Company's employees. Amounts so allocated are not
necessarily indicative of the pension cost that would have been incurred if the
Company maintained its own benefit plans.

Pension cost allocated to the Company is recorded in the "Due from Axel
Johnson" balance. The Company's exposure to retirement benefits is limited to
the cost so allocated.

F-9
<PAGE>
LARSCOM INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1--THE COMPANY AND A SUMMARY OF ITS SIGNIFICANT ACCOUNTING POLICIES:
(CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS

For all financial instruments, including accounts receivable, accounts
payable, accrued expenses and other liabilities, the carrying value is
considered to approximate fair value due to the relatively short maturities of
the respective instruments.

SUPPLEMENTAL NET INCOME PER SHARE

Supplemental net income per share is computed using the weighted average
number of shares of common stock outstanding during the period. The weighted
average number of shares of common stock also includes a number of common
shares, calculated using the assumed net proceeds per share of common stock in
the proposed Offering, which would be required to pay the $25.0 million dividend
to Axel Johnson. Net income for the nine months ended Septmeber 30, 1996 has
been increased by interest expense, net of income taxes, of approximately
$115,000 on the note payable to Axel Johnson. Net income per share for periods
prior to 1995 has not been presented as such presentation is not meaningful.

F-10
<PAGE>
LARSCOM INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--BALANCE SHEET COMPONENTS:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1994 1995 1996
--------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Accounts receivable:
Gross accounts receivable........................................ $ 5,035 $ 6,514 $ 10,022
Less: Allowance for doubtful accounts............................ (60) (90) (135)
--------- --------- -------------
$ 4,975 $ 6,424 $ 9,887
--------- --------- -------------
--------- --------- -------------
Inventories:
Raw materials.................................................... $ 1,714 $ 1,338 $ 2,566
Work-in-process.................................................. 2,823 3,834 3,173
Finished goods................................................... 1,650 2,078 5,519
--------- --------- -------------
$ 6,187 $ 7,250 $ 11,258
--------- --------- -------------
--------- --------- -------------
Property and equipment:
Machinery and equipment.......................................... $ 4,621 $ 5,848 $ 7,051
Computers and software........................................... 2,708 3,486 4,319
Leasehold improvements........................................... 922 979 989
Furniture and fixtures........................................... 622 647 682
--------- --------- -------------
8,873 10,960 13,041
Less: Accumulated depreciation................................... (5,067) (6,602) (8,006)
--------- --------- -------------
$ 3,806 $ 4,358 $ 5,035
--------- --------- -------------
--------- --------- -------------
Intangible assets:
Goodwill......................................................... $ 6,481 $ 6,481 $ 6,481
Other intangible assets.......................................... 1,013 1,013 1,013
--------- --------- -------------
7,494 7,494 7,494
Less: Accumulated amortization................................... (5,859) (6,968) (7,382)
--------- --------- -------------
$ 1,635 $ 526 $ 112
--------- --------- -------------
--------- --------- -------------
Accrued expenses and other current liabilities:
Accrued compensation............................................. $ 1,517 $ 2,687 $ 3,423
Accrual for contractual matters (See Note 8)..................... 663 757 800
Other current liabilities........................................ 1,135 1,066 1,869
--------- --------- -------------
$ 3,315 $ 4,510 $ 6,092
--------- --------- -------------
--------- --------- -------------
</TABLE>

F-11
<PAGE>
LARSCOM INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3--RELATED PARTY TRANSACTIONS:

TRANSACTIONS WITH AXEL JOHNSON

Related party transactions with Axel Johnson not disclosed elsewhere in the
consolidated financial statements are as follows:

DUE FROM AXEL JOHNSON

Amounts due from Axel Johnson consist of cash remittances made by the
Company to Axel Johnson from its operating bank accounts offset by cash advances
to the Company from Axel Johnson for purchases of property and equipment,
acquisitions, current income tax liabilities and fluctuating working capital
needs. Neither Axel Johnson nor the Company has charged interest on the balances
due.

NOTE PAYABLE TO AXEL JOHNSON

In August 1996, the Company declared a dividend of $25.0 million, evidenced
by a note payable to Axel Johnson, bearing interest at 7.5% per annum, payable
semi-annually. The principal amount is repayable on the earlier of August 22,
1999 or the occurrence of any of the following events: (i) the Company's total
stockholders' equity equals or exceeds $40.0 million or (ii) the Company sells
all or substantially all of its assets or (iii) Axel Johnson nominates less than
a majority of the persons to be elected to the Board of Directors. The Company
recorded interest expense of $195,000 related to this note for the nine months
ended September 30, 1996.

EMPLOYEE BENEFIT PROGRAMS

The Company participates in various employee benefit programs which are
sponsored by Axel Johnson. These programs include medical, dental and life
insurance and workers' compensation. The Company reimburses Axel Johnson for its
proportionate cost of these programs based on historical experience and relative
headcount. The costs reimbursed to Axel Johnson include costs for reported
claims, as well as incurred but not reported claims. The Company recorded
expense related to the reimbursement of these costs of approximately $532,000,
$652,000, $534,000 and $364,000 in 1993, 1994, 1995 and the nine months ended
September 30, 1996, respectively. The costs are charged to cost of revenues,
research and development expenses and selling, general and administrative
expenses based on the relative aggregate compensation of the employees in each
of these categories. The Company believes the allocation by Axel Johnson of the
proportionate cost is reasonable but is not necessarily indicative of the costs
that would have been incurred had the Company maintained its own benefit plans.

ADMINISTRATIVE SERVICES

Axel Johnson provides limited services to the Company, including certain
treasury, accounting, tax, internal audit, legal and human resources functions.
The costs of these functions have been allocated to the Company based on
estimates of actual costs incurred. Management believes that such allocations
are reasonable. Such charges and allocations are not necessarily indicative of
the costs that would have been incurred if the Company had been a separate
entity. The allocated costs of these services amounting to $491,000, $526,000,
$549,000 and $395,000 in 1993, 1994, 1995 and the nine months ended September
30, 1996, respectively, have been included in selling, general and
administrative expenses in the consolidated statements of operations. The
Company will enter into a transitional administrative services agreement

F-12
<PAGE>
LARSCOM INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3--RELATED PARTY TRANSACTIONS: (CONTINUED)
with Axel Johnson effective upon consummation of the Offering, pursuant to which
Axel Johnson will continue to provide the services outlined above for an initial
annual fee of $622,000.

LARVAN LEASE

The Company leases its principal facilities from Larvan Properties
("Larvan"), a general partnership in which the Company owns a one-third
interest. The Company paid $275,000, $278,000, $278,000 and $209,000 in rent
expense to Larvan and earned partnership income of $27,000, $46,000, $36,000 and
$27,000 in 1993, 1994, 1995 and the nine months ended September 30, 1996,
respectively.

NOTE 4--CAPITAL STOCK:

The authorized capital stock of the Company consists of 100,000,000 shares
of Class A Common Stock, 11,900,000 shares of Class B Common Stock and 5,000,000
shares of Preferred Stock, each with a par value of $0.01 per share.

COMMON STOCK

DIVIDENDS

Holders of Common Stock are entitled to receive such dividends when, if and
as may be declared by the Board of Directors out of funds legally available for
such purposes. No dividends may be declared or paid on any share of any class of
Common Stock, unless such dividends, at the same rate per share on an as
converted basis, are simultaneously declared or paid on each share of the other
class of Common Stock.

VOTING RIGHTS

Holders of Class A Common Stock are entitled to one vote per share and
holders of Class B Common Stock are entitled to four votes for each share of
Class A Common Stock into which the Class B Common Stock is convertible. Holders
of shares of Common Stock will vote as a single class on all matters submitted
to a vote of stockholders, except as otherwise required by law.

CONVERTIBILITY

Each share of Class B Common Stock is convertible, at the option of its
holder, into one share of Class A Common Stock at any time, subject to
adjustment for stock dividends, stock splits, subdivisions or combinations with
respect to the Class A Common Stock. The shares of Class A Common Stock are not
convertible into shares of Class B Common Stock.

LIQUIDATION RIGHTS

Upon liquidation, dissolution or winding up of the Company, the holders of
Class A Common Stock are entitled to share ratably on an as converted basis with
the holders of Class B Common Stock in all assets available for distributions
after payment in full to creditors.

OTHER PROVISIONS

The holders of Common Stock are not entitled to preemptive or subscription
rights. In any merger, consolidation or business combination, the consideration
to be received per share by holders of Class A

F-13
<PAGE>
LARSCOM INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 4--CAPITAL STOCK: (CONTINUED)
Common Stock must be identical to that received by holders of Class B Common
Stock on an as converted basis.

PREFERRED STOCK

The Board of Directors has the authority to issue up to 5,000,000
undesignated shares of Preferred Stock in one or more series and to fix the
rights, preferences, privileges and restrictions thereof, including dividend
rights, conversion rights, voting rights, terms of redemption, liquidation
preferences, sinking fund terms and the number of shares constituting any series
or the designation of such series, without any further vote or action by
stockholders.

NOTE 5--INCOME TAXES:

The provision for income taxes consists of the following:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, NINE MONTHS ENDED
------------------------------- SEPTEMBER 30,
1993 1994 1995 1996
--------- --------- --------- -------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current:
Federal................................... $ 1,586 $ 764 $ 1,782 $ 2,663
State..................................... 410 135 435 634
--------- --------- --------- ------
1,996 899 2,217 3,297
--------- --------- --------- ------
Deferred:
Federal................................... (117) (149) (63) (350)
State..................................... (26) 23 (69) (87)
--------- --------- --------- ------
(143) (126) (132) (437)
--------- --------- --------- ------
Provision for income taxes.................. $ 1,853 $ 773 $ 2,085 $ 2,860
--------- --------- --------- ------
--------- --------- --------- ------
</TABLE>

The following is a reconciliation of the U.S. federal income tax rate to the
Company's effective income tax rate:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, NINE MONTHS ENDED
------------------------------------- SEPTEMBER 30,
1993 1994 1995 1996
----------- ----------- ----------- ---------------------
<S> <C> <C> <C> <C>
Provision at statutory rate............... 34.0% 34.0% 34.0% 34.0%
State income taxes, net of federal tax
benefits................................. 6.1 7.3 5.2 5.2
Research and development credits.......... (3.4) (11.6) (1.9) --
Non-deductible goodwill amortization...... 7.7 22.2 6.9 1.2
Other..................................... 0.3 2.0 1.0 0.7
----- ----- ----- ---
Effective rate............................ 44.7% 53.9% 45.2% 41.1%
----- ----- ----- ---
----- ----- ----- ---
</TABLE>

F-14
<PAGE>
LARSCOM INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 5--INCOME TAXES: (CONTINUED)

Deferred tax assets (liabilities) are comprised of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1994 1995 1996
--------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets:
Accrued expenses......................................... $ 471 $ 579 $ 703
Reserves................................................. 628 641 876
Other.................................................... 174 195 258
--------- --------- ------
$ 1,273 $ 1,415 $ 1,837
--------- --------- ------
--------- --------- ------
Deferred tax liabilities:
Depreciation and amortization............................ (554) (513) (498)
Other.................................................... (13) (64) (64)
--------- --------- ------
$ (567) $ (577) $ (562)
--------- --------- ------
--------- --------- ------
</TABLE>

NOTE 6--EMPLOYEE BENEFIT PLANS:

THRIFT PLAN

The Company participates in the Axel Johnson Inc. Thrift Plan (the "Thrift
Plan") qualified under Section 401(k) of the Internal Revenue Code. The Thrift
Plan allows employees to defer up to 16% of their compensation not to exceed the
amount allowed by the applicable Internal Revenue Service guidelines. The
Company matches 60% of employee contributions made on a pre-tax basis and 30% of
employee contributions made on a post-tax basis, subject to a maximum of 6% of
total eligible employee compensation. Company contributions vest ratably over
five years of service or two years of plan participation, whichever occurs
first. Contributions by the Company under the Thrift Plan amounted to $247,000,
$297,000, $345,000 and $282,000 in 1993, 1994, 1995 and the nine months ended
September 30, 1996, respectively.

PENSION PLAN

The Company's employees participate in a noncontributory defined benefit
pension plan sponsored by Axel Johnson. Benefits under the plan are based on
years of service and employees' compensation. The plan's assets are invested
principally in equity and fixed-income securities. It is Axel Johnson's policy
to satisfy the minimum funding requirements of the Employee Retirement Income
Security Act of 1974 (ERISA).

Net periodic pension cost was determined by measuring the Projected Benefit
Obligation ("PBO") for the Company's employees using a discount rate of 7.4%,
8.3%, 8.5% and 7.3%, and an assumed long-term rate of compensation of 5.0%,
4.0%, 5.3% and 4.5% in 1993, 1994, 1995 and the nine months ended September 30,
1996, respectively. The PBO for such employees was determined using a discount
rate of 8.5% and 7.3% at December 31, 1994 and 1995, respectively. The PBO so
measured was $2,504,000 and $3,566,000 at December 31, 1994 and 1995,
respectively.

Certain elements of pension cost, including expected return on assets (which
was 9% in 1993, 1994 and 1995 and 9.5% for the nine months ended September 30,
1996), and net amortization, were allocated

F-15
<PAGE>
LARSCOM INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 6--EMPLOYEE BENEFIT PLANS: (CONTINUED)

based on the relationship of the PBO for the Company to the total PBO of the
defined benefit pension plan. The elements of pension cost allocated to the
Company using this method were:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, NINE MONTHS ENDED
------------------------------- SEPTEMBER 30,
1993 1994 1995 1996
--------- --------- --------- -------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Service cost................................... $ 433 $ 504 $ 496 $ 417
Interest cost.................................. 160 192 245 204
Net amortization............................... (6) (3) (7) (1)
Expected return on assets...................... (133) (173) (213) (196)
--------- --------- --------- -----
Net periodic pension cost.................. $ 454 $ 520 $ 521 $ 424
--------- --------- --------- -----
--------- --------- --------- -----
</TABLE>

The Company's employees also are eligible to participate in the Axel Johnson
retirement restoration plan. This plan is for employees whose benefits under the
defined benefit pension plans are reduced due to limitation under federal tax
laws. The Company's pension expense for this plan, using the same methodology as
described above, was $0, $33,000, $32,000 and $62,000 in 1993, 1994, 1995 and
the nine months ended September 30, 1996, respectively. The projected benefit
obligation at December 31, 1994, 1995 and September 30, 1996 was $118,000,
$150,000 and $365,000, respectively.

NOTE 7--LEASES:

The Company leases its primary facilities from a related party under a lease
which expires in January 1998. (See Note 3.) Total rent expense in 1993, 1994,
1995 and the nine months ended September 30, 1996 was $557,000, $585,000,
$515,000, and $381,000, respectively. Future annual minimum lease payments under
all noncancelable operating leases as of September 30, 1996 are as follows:

<TABLE>
<CAPTION>
AMOUNT
-------------
(IN
THOUSANDS)
<S> <C>
October to December 31, 1996................................................... $ 109
Years ending December 31,
1997......................................................................... 448
1998......................................................................... 171
1999......................................................................... 142
2000 and thereafter.......................................................... 210
------
$ 1,080
------
------
</TABLE>

NOTE 8--COMMITMENTS AND CONTINGENCIES:

The Company is one of the guarantors of a $150.0 million revolving line of
credit and a $50.0 million term loan obtained by Axel Johnson. Axel Johnson
expects to obtain the release of such guarantees on behalf of the Company prior
to the consummation of the Offering.

The Company has a potential unasserted claim relating to its pricing under
certain product supply contracts. Management has made an assessment of this
matter which involves numerous complex issues. Although a possibility exists
that the ultimate resolution could reach $1.3 million or more, management
believes, after consultation with its outside advisors, that the Company's
likely exposure for this matter is $800,000, which includes estimated fees and
associated costs, and the Company has established a reserve

F-16
<PAGE>
LARSCOM INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 8--COMMITMENTS AND CONTINGENCIES: (CONTINUED)

for this amount. In management's opinion, the ultimate resolution of this matter
will not have a material adverse effect on the Company's financial position or
results of operations. The Company recorded expenses of $238,000, $100,000,
$94,000 and $43,000 in 1993, 1994, 1995 and the nine months ended September 30,
1996, respectively, and had accruals related to the potential unasserted claim
of $663,000, $757,000 and $800,000 at December 31, 1994, December 31, 1995 and
September 30, 1996, respectively.

In its distribution agreements, the Company typically agrees to indemnify
its customers for any expenses or liabilities resulting from claimed
infringements of patents, trademarks or copyrights of third parties.

NOTE 9--SUBSEQUENT EVENTS:

PROPOSED INITIAL PUBLIC OFFERING (UNAUDITED)

In October 1996, the Company filed a Registration Statement related to the
sale of 7,000,000 shares of Class A Common Stock to underwriters for sale to the
public of which 5,800,000 shares are being sold by the Company and 1,200,000
shares are being sold by Axel Johnson. Following completion of such Offering,
Axel Johnson will continue to own approximately 60.5% of the Company's total
outstanding Common Stock. It is expected that the Offering will trigger payment
of the promissory note to Axel Johnson, as discussed in Note 3.

EMPLOYEE STOCK PURCHASE PLAN

Effective October 1996, the Company's Board of Directors adopted an Employee
Stock Purchase Plan (the "Purchase Plan"), for which 310,000 shares of Class A
Common Stock have been reserved for issuance. Eligible employees can have up to
10% of their total compensation withheld to be used to purchase shares of the
Class A Common Stock on specified dates determined by the Board of Directors.
The price of Class A Common Stock purchased under the Purchase Plan will be
equal to 85% of the lower of the fair market value of the Class A Common Stock
on the first or last date of each offering period or a higher price if specified
by the Board of Directors. The Purchase Plan will become effective upon the
closing of the Offering.

STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS

In October 1996, the Company adopted a Stock Option Plan for Non-Employee
Directors (the "Directors' Plan") and reserved a total of 205,000 shares of the
Company's Class A Common Stock for issuance thereunder. The Directors' Plan
provides for the grant of stock options pursuant to an automatic grant mechanism
to members of the Board of Directors who are not employees of the Company or of
Axel Johnson. Each non-employee director will receive an initial grant, upon
first becoming a director (or, in the case of current non-employee directors,
upon consummation of the Offering), to purchase a total of 18,000 shares of
Class A Common Stock, and each year thereafter will receive an option to
purchase a total of 6,000 shares of Class A Common Stock. Each option is granted
at an exercise price equal to fair market value on date of grant. Each initial
grant vests in three equal annual occurrences, and each annual grant vests in
full on the three years following the date of grant. Options expire one year
after termination of Board Service or ten years after the date of grant and vest
over approximately a three year period. The Directors Plan will become effective
upon the closing of the Offering.

F-17
<PAGE>
LARSCOM INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9--SUBSEQUENT EVENTS: (CONTINUED)
STOCK INCENTIVE PLAN

In October 1996, the Company's Board of Directors approved a Stock Incentive
Plan (the "Incentive Plan") for which 2,485,000 shares of Class A Common Stock
have been reserved for issuance thereunder. The Incentive Plan which will become
effective upon the closing of the Offering, provides for the grant of incentive
stock options, non-qualified stock options, stock appreciation rights and stock
bonus awards to employees or eligible consultants. The Incentive Plan is
administered by the Compensation Committee of the Board of Directors (the
"Administrator"). With respect to any participant who owns stock possessing more
than ten percent of the voting power of all classes of the Company's outstanding
capital stock (a 10% stockholder), the exercise price of any incentive stock
option granted must equal 110% of the fair market value on the grant date. The
exercise price of incentive stock options for all other employees shall be no
less than 100% of the fair market value per share on the date of the grant. The
maximum term of an option granted under the Incentive Plan may not exceed ten
years from the date of grant (five years in the case of an incentive stock
option granted to a 10% stockholder).

LINE OF CREDIT AGREEMENT (UNAUDITED)

The Company and Axel Johnson will enter into a credit agreement upon the
consummation of the Offering, pursuant to which Axel Johnson has agreed to
provide a revolving credit/working capital facility (the "Credit Agreement") to
the Company in an aggregate amount of up to $15.0 million. The Credit Agreement
has a term of 24 months, and any loans thereunder bear interest during each
calendar quarter at a rate per annum equal to the sum of the three month London
Interbank Offered Rate (LIBOR), plus 2.0% initially on the date when the loan is
made and adjusted thereafter on the first business day of each calendar quarter.
Additionally, the Company will be required to pay a commitment fee of 0.5% per
annum on the unused portion of the Credit Agreement. The Company will be
required to maintain compliance with certain covenants under the Credit
Agreement.

F-18
<PAGE>
[CHART]

Set forth here, under the title Customer Applications, are two separate
diagrams illustrating applications of Larscom products. Each diagram is in a
separate outline box. The Larscom wordmark appears above the title at the top of
the page.

The upper diagram is labeled Digital Network Microwave--Broadband WAN at the
bottom within the outline box. A map of the states of INDIANA, KENTUCKY, OHIO,
W. VIRGINIA, and VIRGINIA (so labeled) serves as the background for the diagram.
Arranged across the map are six boxes labeled Orion 4000 and also containing one
of the following place indications (clockwise from top right): Canton OH;
Roanoke, VA; Charleston, WV; Columbus, OH; Fort Wayne, IN; Cook Nuclear Plant.
There are also seven boxes labeled ATM Switch. Six of these are associated with
the individual Orion 4000 boxes, and each is connected to its associated Orion
4000 box by a single line. The seventh ATM Switch box is located between the
Orion 4000 boxes labeled Charleston, WV and Columbus, OH, and is labeled
Ashland, KY below the box; it is connected by one line each to the ATM switch
boxes associated with the three Orion 4000 boxes labeled Canton, OH, Charleston,
WV, and Columbus, OH. An additional line connects the two Orion 4000 boxes
labeled Canton, OH and Charleston, WV.

The following lines are labeled 4 T1s via Digital Microwave: ATM Switch to
associated Orion 4000 box labeled Cook Nuclear Plant; Orion 4000 box labeled
Cook Nuclear Plant to Orion 4000 box labeled Canton, OH: Orion 4000 box labeled
Canton, OH to Orion 4000 box labeled Roanoke, VA; Orion 4000 box labeled Canton,
OH to Orion 4000 box labeled Charleston, WV; Orion 4000 box labeled Columbus, OH
to Orion 4000 box labeled Fort Wayne, IN. The following lines are labeled Leased
T3: ATM Switch labeled Ashland, KY to ATM Switch associated with Orion 4000 box
labeled Cook Nuclear Plant; ATM Switch associated with Orion 4000 box labeled
Roanoke, VA to ATM Switch associated wtih Orion 4000 box labeled Charleston, WV.
The following lines are labeled Leased T3: ATM Switch labeled Ashland, KY to ATM
Switch associated with Orion 4000 box labeled Columbus, OH; ATM Switch labeled
Ashland, KY to ATM Switch associated with Orion 4000 box labeled Charleston, WV.

The lower diagram is labeled European University Network -- NORDUNet at the
bottom within the outline box. A map of Scandinavia serves as the background for
the diagram, at the center of which is a representation of a cloud labeled
Network. At each of the four corners of the diagram is a box labeled Orion
4000/5 outside, each associated with a small small box labeled Router to which
it is connected by a single short line. Each Orion 4000/5 and router combination
is labeled with a city name: Helsinki in the upper right, Stockholm in the lower
right, Copenhagen in the lower left, and Oslo in the upper left. The Orion
4000/5 labeled Oslo is connected to the Network cloud by four parallel lines
labeled E1s. The Orion 40000/5 boxes labeled Helsinki and Copenhagen are
connected to the Network cloud in exactly the same manner. The Orion 4000/5
labeled Stockholm is connected to an associated unlabeled box by three sets of
four parallel lines labeled E1s; the unlabeled box is in turn connected to the
Network cloud by two parallel lines labeled E3s (redundant). The diagram
represents an internetwork in which each of the Oslo, Helsinki, and Copenhagen
sites is linked to the Stockholm site by a 4xE1 channel.
<PAGE>
- ----------------------------------------------
----------------------------------------------
- ----------------------------------------------
----------------------------------------------

NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDER OR ANY OF THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, ANY SECURITIES OTHER THAN THE SHARES OF CLASS A COMMON STOCK TO
WHICH IT RELATES OR AN OFFER TO, OR A SOLICITATION OF, ANY PERSON IN ANY
JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATES ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.

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

TABLE OF CONTENTS
----------------------

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY........................................................ 3
RISK FACTORS.............................................................. 7
USE OF PROCEEDS........................................................... 15
DIVIDEND POLICY........................................................... 15
CAPITALIZATION............................................................ 16
DILUTION.................................................................. 17
SELECTED CONSOLIDATED FINANCIAL DATA...................................... 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.............................................................. 19
BUSINESS.................................................................. 26
MANAGEMENT................................................................ 39
RELATIONSHIP BETWEEN THE COMPANY AND AXEL JOHNSON......................... 46
PRINCIPAL AND SELLING STOCKHOLDER......................................... 49
DESCRIPTION OF CAPITAL STOCK.............................................. 50
SHARES ELIGIBLE FOR FUTURE SALE........................................... 52
UNDERWRITING.............................................................. 54
LEGAL MATTERS............................................................. 56
EXPERTS................................................................... 56
ADDITIONAL INFORMATION.................................................... 56
GLOSSARY OF TERMS......................................................... 57
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS................................ F-1
</TABLE>

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

UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK OFFERED HEREBY,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.

7,000,000 SHARES

[LOGO]

CLASS A COMMON STOCK

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

PROSPECTUS
-----------------

MONTGOMERY SECURITIES

COWEN & COMPANY

PUNK, ZIEGEL & KNOELL

, 1996

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

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

<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee............................................ $ 34,152
NASD Filing Fee................................................. 11,770
Nasdaq NMS Fees................................................. 50,000
Printing Expenses............................................... 200,000
Legal Fees and Expenses......................................... 400,000
Accounting Fees and Expenses.................................... 350,000
D&O Liability Insurance......................................... 250,000
Blue Sky Fees and Expenses...................................... 7,500
Transfer Agent, Custodial and Registrar Fees.................... 7,500
Miscellaneous................................................... 189,078
----------
Total......................................................... $1,500,000
----------
----------
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the DGCL authorizes a court to award, or a corporation's
Board of Directors to grant, indemnity to directors and officers in terms
sufficiently broad to permit such indemnification under certain circumstances
for liabilities (including reimbursement for expenses incurred) arising under
the Securities Act of 1933, as amended (the "Securities Act"). Article Ninth of
the Registrant's Amended and Restated Articles of Incorporation (Exhibit 3.2
hereto) and Article VI of the Registrant's Amended By-laws (Exhibit 3.4 hereto)
will provide for indemnification of its directors, officers, employees, and
other agents to the maximum extent permitted by the DGCL. Reference is also made
to Section 11 of the Underwriting Agreement contained in Exhibit 1.1 hereto,
which provides for the indemnification of officers, directors, and controlling
persons of the Registrant against certain liabilities.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Not applicable.

II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement
3.1+ Certificate of Incorporation of the Registrant
3.2+ Form of Amended and Restated Certificate of Incorporation of the
Registrant
3.3+ By-laws of the Registrant
3.4+ Form of Amended By-laws of the Registrant
5.1* Opinion of Cahill Gordon & Reindel (a partnership including a
professional corporation)
10.1+ Form of Larscom Incorporated Stock Option Plan For Non-Employee
Directors
10.2+ Form of Larscom Incorporated Stock Incentive Plan
10.3+ Form of Larscom Incorporated Stock Purchase Plan
10.4+ Lease Agreement between Larvan Properties and the Company
10.5+ Partnership Agreement among Vanderson Construction, Donn H. Byrne,
John D. Brady, Thomas J. Cunningham, Jr. and the Company
10.6+ Form of Services Agreement between Axel Johnson and the Company
10.7+ Form of Credit Agreement between Axel Johnson and the Company
10.8+ Form of Tax Sharing Agreement between Axel Johnson and the Company
10.9+ Note between Axel Johnson and the Company dated August 23, 1996
10.10+ Form of Registration Rights Agreement between Axel Johnson and the
Company
11.1 Statement re computation of per share earnings
21.1+ Subsidiaries of the Registrant
23.1+ Consent of Price Waterhouse LLP
23.2* Consent of Cahill Gordon & Reindel (included in Exhibit 5.1)
24.1+ Power of Attorney
27.1+ Financial Data Schedule
</TABLE>

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

* To be filed by amendment.

+ Previously filed.

(b) Financial Statement Schedules

Report of Independent Auditors on Financial Statement Schedule.

Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.

ITEM 17. UNDERTAKINGS

The undersigned registrant hereby undertakes:

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

II-2
<PAGE>
(2) That for purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

(3) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to each
purchaser.

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

II-3
<PAGE>
SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED AMENDMENT NO. 1 TO THIS REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF PALO
ALTO, STATE OF CALIFORNIA, ON THE 25TH DAY OF OCTOBER, 1996.

LARSCOM INCORPORATED

By: /s/ DEBORAH M. SOON

----------------------------------
Deborah M. Soon
PRESIDENT AND CHIEF EXECUTIVE
OFFICER

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AMENDMENT NO. 1
TO THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:

NAME TITLE DATE
- ------------------------------ -------------------------- -------------------

President, Chief Executive
* Officer, and Director
- ------------------------------ (Chief Executive October 25, 1996
Deborah M. Soon Officer)

Vice President, Finance
* and Chief Financial
- ------------------------------ Officer (Chief Financial October 25, 1996
Bruce D. Horn Officer and Principal
Accounting Officer)

*
- ------------------------------ Director October 25, 1996
Signe S. Gates

*
- ------------------------------ Director October 25, 1996
Paul E. Graf

*
- ------------------------------ Director October 25, 1996
Harvey L. Poppel

*
- ------------------------------ Director October 25, 1996
Joseph F. Smorada

*Pursuant to Power of Attorney
filed with the Commission as
Exhibit 24.1

/s/ DEBORAH M. SOON
- ------------------------------ Attorney-in-Fact October 25, 1996
Deborah M. Soon

II-4
<PAGE>
EXHIBIT INDEX

<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement

3.1+ Certificate of Incorporation of the Registrant

3.2+ Form of Amended and Restated Certificate of Incorporation of the Registrant

3.3+ By-laws of the Registrant

3.4+ Form of Amended By-laws of the Registrant

5.1* Opinion of Cahill Gordon & Reindel (a partnership including a professional
corporation)

10.1+ Form of Larscom Incorporated Stock Option Plan For Non-Employee Directors

10.2+ Form of Larscom Incorporated Stock Incentive Plan

10.3+ Form of Larscom Incorporated Stock Purchase Plan

10.4+ Lease Agreement between Larvan Properties and the Company

10.5+ Partnership Agreement among Vanderson Construction, Donn H. Byrne, John D. Brady,
Thomas J. Cunningham, Jr. and the Company

10.6+ Form of Services Agreement between Axel Johnson and the Company

10.7+ Form of Credit Agreement between Axel Johnson and the Company

10.8+ Form of Tax Sharing Agreement between Axel Johnson and the Company

10.9+ Note between Axel Johnson and the Company dated August 23, 1996

10.10+ Form of Registration Rights Agreement between Axel Johnson and the Company

11.1 Statement re computation of per share earnings

21.1+ Subsidiaries of the Registrant

23.1+ Consent of Price Waterhouse LLP

23.2* Consent of Cahill Gordon & Reindel (included in Exhibit 5.1)

24.1+ Power of Attorney

27.1+ Financial Data Schedule
</TABLE>

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

* To be filed by amendment.

+ Previously filed.

<PAGE>
EXHIBIT 11.1

LARSCOM INCORPORATED
STATEMENT REGARDING COMPUTATION OF SUPPLEMENTAL NET INCOME PER SHARE (1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1996 1995
-------------- --------------
<S> <C> <C>
Net income........................................ $ 4,101 $ 2,529
Add: Interest paid net of income taxes............ 115 --
------- -------
As adjusted....................................... $ 4,216 $ 2,529
------- -------
------- -------
Weighted average shares outstanding:
Class A Common Stock............................ 11,900 11,900
Additional shares that would be used to pay
the $25.0 million dividend to Axel Johnson
(2)........................................... 2,113 2,113
------- -------
Shares used to compute supplemental net income per
share........................................... 14,013 14,013
------- -------
------- -------
Supplemental net income per share (unaudited)..... $ 0.30 $ 0.18
</TABLE>

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

(1) This Exhibit should be read in conjunction with Note 1 of Notes to
Consolidated Financial Statements.

(2) Calculated using the assumed net proceeds of $11.83 per share of common
stock in this Offering.

<PAGE>
EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated October 23, 1996,
relating to the financial statements of Larscom Incorporated, which appears in
such Prospectus. We also consent to the references to us under the headings
"Experts" and "Selected Consolidated Financial Data" in such Prospectus.
However, it should be noted that Price Waterhouse LLP has not prepared or
certified such "Selected Consolidated Financial Data."

PRICE WATERHOUSE LLP

San Jose, California
October 25, 1996