ACCELERATED NETWORKS INC, S-1/A, 2000-06-01

ACCELERATED NETWORKS INC
S-1/A, 2000-06-01
COMPUTER COMMUNICATIONS EQUIPMENT

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 1, 2000

REGISTRATION NO. 333-31732
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ACCELERATED NETWORKS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------

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<S> <C> <C>
DELAWARE 3576 77-0442752
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION NUMBER) IDENTIFICATION NO.)
</TABLE>

301 SCIENCE DRIVE
MOORPARK, CALIFORNIA 93021
(805) 553-9680
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

SURESH NIHALANI
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ACCELERATED NETWORKS, INC.
301 SCIENCE DRIVE
MOORPARK, CALIFORNIA 93021
(805) 553-9680
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)

COPIES TO:

<TABLE>
<S> <C>
BRUCE R. HALLETT, ESQ. WILLIAM HINMAN, JR., ESQ.
JOSEPH H. CHI, ESQ. SHEARMAN & STERLING
AMY J. HANSEN, ESQ. 555 CALIFORNIA STREET
LISA S. GOON, ESQ. SUITE 2000
BROBECK, PHLEGER & HARRISON LLP SAN FRANCISCO, CALIFORNIA 91404
38 TECHNOLOGY DRIVE (415) 616-1000
IRVINE, CALIFORNIA 92618
(949) 790-6300
</TABLE>

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

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, check the following box. [ ]

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

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

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

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

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT TO OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED BE REGISTERED SHARE(1) PRICE REGISTRATION FEE(2)
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<S> <C> <C> <C> <C>
Common Stock, $0.001 par
value........................ 4,600,000 $11.00 $50,600,000 $13,358
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</TABLE>

(1) Estimated solely for the purpose of computing the amount of registration fee
pursuant to Rule 457(a) under the Securities Act of 1933.

(2) Previously paid by the registrant.

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.
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<PAGE> 2

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL SECURITIES AND IT IS NOT SOLICITING
OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS
NOT PERMITTED.

SUBJECT TO COMPLETION, DATED JUNE 1, 2000

4,000,000 Shares

[ACCELERATED NETWORKS, INC. LOGO]

Common Stock

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

Prior to this offering, there has been no public market for our common
stock. The initial public offering price is expected to be between $9.00 and
$11.00 per share. Our common stock has been approved for listing on The Nasdaq
Stock Market's National Market under the symbol "ACCL."

The underwriters have an option to purchase a maximum of 600,000 additional
shares to cover over-allotments of shares.

INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 4.

<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS ACCELERATED
---------- ------------- -----------
<S> <C> <C> <C>
Per Share............................................ $ $ $
Total................................................ $ $ $
</TABLE>

Delivery of the shares of common stock will be made on or about
, 2000.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

CREDIT SUISSE FIRST BOSTON

UBS WARBURG LLC

U.S. BANCORP PIPER JAFFRAY

The date of this prospectus is , 2000.
<PAGE> 3

[INSIDE FRONT COVER OF THE PROSPECTUS]

The heading for the inside front cover page reads "Accelerated Networks' Product
Family." The page includes photographs, with corresponding product title and
explanatory text, of seven of Accelerated's products:

[ ] AN-3200 MSAP Voice Gateway - Located at the service provider's regional
point of presence, the Accelerator AN-3200 is a voice gateway that receives
streams of voice packets from central offices and converts the packetized
voice traffic into the format expected by public switched telephone network
voice switches. The AN-3200 then delivers the converted voice traffic to
the appropriate voice switch.

[ ] AN-3200 MSAP Concentrator - Located in the service provider's central
office, the Accelerator AN-3200 DSL or T1 Access Concentrator aggregates a
large number of broadband access lines into high-speed uplinks and performs
local switching functionality. Our MSAP concentrators allow service
providers to employ a variety of broadband access technologies, including
DSL, T1, and NxT1 lines.

[ ] AN-20 IAD - Located at the customer premises, the Accelerator AN-20
carrier-class IAD provides data-only broadband access over DSL or T1
facilities and is intended for small business and residential customers.

[ ] AN-24/28 IAD - Located at the customer premises, the Accelerator AN-24
carrier-class IAD supports broadband data access as well as up to 4 analog
voice ports and is targeted at small offices, home offices and
telecommuters. Our Accelerator AN-28 carrier-class IAD supports up to 8
analog voice ports and is designed for small businesses and branch offices.

[ ] AN-30 IAD - Located at the customer premises, the Accelerator AN-30
carrier-class IAD supports broadband data access and up to 12 analog or 24
digital voice ports and is focused on small to medium-sized business
locations.

[ ] AN-3204 IAD - Located at the customer premises, the Accelerator AN-3204 IAD
may be used as a large business carrier-class IAD, facilitating DS3 and
OC-3c wide area network uplinks in addition to DSL, T1 and NxT1.

[ ] Access Pilot(TM) - Access Pilot is a CORBA-compliant element management
system that simplifies the service provisioning and management of our
products. AccessPilot is designed to be easily integrated into existing and
emerging service provider operations support systems infrastructures and
includes a user-friendly graphical user interface which enables service
providers to physically view and configure services from remote management
workstations.

THE TWO-PAGE INSIDE GATEFOLD INCLUDES:

The title centered across the gatefold contains the text, "The Complete
Multiservice Broadband Access Solution." The graphic depicts a diagram of
Accelerated's complete multiservice broadband access solution which illustrates
how Accelerated's multiservice broadband access products, including its MSAP
Voice Gateways, MSAP Concentrators and carrier-class IADs, provide a complete
multiservice broadband access solution from a service provider POP to an ILEC
central office to different types of customer premises (small/home offices,
medium offices or large offices). On the bottom right hand corner of the
gatefold is the Accelerated Networks logo.
<PAGE> 4

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TABLE OF CONTENTS

<TABLE>
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PAGE
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<S> <C>
PROSPECTUS SUMMARY.................... 1
RISK FACTORS.......................... 4
SPECIAL NOTE REGARDING FORWARD-
LOOKING STATEMENTS.................. 21
CONCURRENT PRIVATE PLACEMENT.......... 22
USE OF PROCEEDS....................... 22
DIVIDEND POLICY....................... 22
CAPITALIZATION........................ 23
DILUTION.............................. 24
SELECTED CONSOLIDATED FINANCIAL
DATA................................ 25
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 27
</TABLE>

<TABLE>
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PAGE
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<S> <C>
BUSINESS.............................. 37
MANAGEMENT............................ 54
CERTAIN TRANSACTIONS.................. 65
PRINCIPAL STOCKHOLDERS................ 67
DESCRIPTION OF CAPITAL STOCK.......... 70
SHARES ELIGIBLE FOR FUTURE SALE....... 73
UNDERWRITING.......................... 75
NOTICE TO CANADIAN RESIDENTS.......... 77
LEGAL MATTERS......................... 78
EXPERTS............................... 78
ADDITIONAL INFORMATION................ 78
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS.......................... F-1
</TABLE>

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

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. THIS
DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL TO SELL THESE SECURITIES. THE
INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE ON THE DATE OF THIS DOCUMENT.

DEALER PROSPECTUS DELIVERY OBLIGATION

UNTIL , 2000 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING),
ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN
UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 5

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus.
You should read the entire prospectus carefully, including the section entitled
"Risk Factors," our consolidated financial statements and the related notes
included elsewhere in this prospectus, before making an investment decision.

ACCELERATED NETWORKS, INC.
------------------

Our products enable service providers to offer their customers a broad
range of bundled voice and data services such as high speed Internet access,
local dial tone, long distance voice, frame relay, voice and data virtual
private networks, or VPNs, and other widely-used telecommunications services.
Our products also enable service providers to leverage emerging technologies,
such as voice or frame relay over DSL, over a single broadband access network.

The telecommunications industry has become increasingly competitive over
the last few years as a result of continued deregulation. Service providers that
offer only voice or data services are facing intensifying competition from those
service providers that offer both services. However, most service providers that
offer both voice and data services often have to use parallel access networks to
deliver these services, one for handling voice traffic and the other for
handling data traffic. The high underlying cost of maintaining these parallel
access networks has made it increasingly difficult for these service providers
to compete as well. In order to capture a growing share of this highly
competitive market, we believe service providers must be able to deliver
multiple voice and data services efficiently and cost-effectively to their
customers. Our products enable bundling of multiple voice and data services over
a single broadband access network, which we believe will enable service
providers to compete more effectively.

We offer a comprehensive family of multiservice broadband access products,
including our multi-service access platform, or MSAP, voice gateways, located at
a point-of-presence, or POP, our MSAP concentrators, located at a central
office, and our family of carrier-class integrated access devices, or IADs,
located at a customer premises. In addition, we offer a software-based element
management system designed to simplify the service provisioning and management
of our products. Our products are designed in accordance with relevant industry
standards to facilitate interoperability with different equipment deployed in
service provider networks. We believe this allows for efficient and seamless
installation and provides our customers with greater flexibility in designing
and deploying their networks.

Our objective is to become the leading provider of multiservice broadband
access solutions. Our strategy to achieve this includes the following key
elements:

- enhance our technology leadership;

- expand our domestic customer base;

- capitalize on international opportunities;

- broaden our distribution channels;

- continue to pursue and leverage strategic relationships; and

- facilitate deployment of multiservice broadband access networks.

1
<PAGE> 6

We began generating revenue in April 1999. Service providers that have
ordered in excess of $100,000 of our products in the last twelve months include
Coast-to-Coast Telecommunications, Inc. (through Siemens ICN), Cooperative
Communications, CTC Communications Group, Inc., FirstWorld Communications, Inc.,
MCIWorldCom, Onvoy, Primary Network Communications and UniDial Communications,
Inc.

We were incorporated in California in October 1996 and plan to
reincorporate in Delaware prior to the completion of this offering. Our
principal executive offices are located at 301 Science Drive, Moorpark,
California 93021 and our telephone number is (805) 553-9680. Our Web site is
located at http://www.acceleratednetworks.com. Information contained on our Web
site does not constitute part of this prospectus.

Accelerated Networks(TM), Accelerated Networks & Design(TM),
AccessPilot(TM), AcceleratedStart(TM), and AcceleratedTAC(TM) are our trademarks
and may be subject to pending trademark applications. All other trademarks or
service marks appearing in this prospectus are trademarks or service marks of
the respective companies that use them.

THE OFFERING

Common stock offered................ 4,000,000 shares

Common stock outstanding after this
offering(1)......................... 49,837,094 shares

Use of proceeds..................... We intend to use the net proceeds from
this offering for working capital and
other general corporate purposes.

Proposed Nasdaq National Market
symbol.............................. ACCL
---------------

(1) The number of outstanding shares of our common stock is based on shares
outstanding as of March 31, 2000, approximately 300,000 shares to be sold in
a concurrent private placement, and the other assumptions and exclusions set
forth below and under "Capitalization" on page 23.

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

You should be aware that our fiscal year ends on December 31; thus, a
reference to "fiscal 1999," for example, is to the fiscal year ended December
31, 1999. In addition, except as otherwise indicated, information in this
prospectus is based on the following assumptions:

- that each outstanding share of our redeemable convertible preferred stock
will convert into one share of common stock immediately prior to the
closing of this offering;

- that the underwriters' over-allotment option will not be exercised;

- that we will reincorporate in Delaware prior to the closing of this
offering;

- that we will file our amended and restated certificate of incorporation
upon the closing of this offering; and

- that we will sell approximately 300,000 shares of common stock in a
concurrent private placement to U S WEST Internet Ventures, Inc. at an
assumed price of $10.00 per share.

For a more detailed description of technical terms used in this prospectus,
please see "Business" beginning on page 37.

2
<PAGE> 7

SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following table sets forth summary consolidated financial information
for Accelerated Networks, Inc. This information should be read in conjunction
with the consolidated financial statements and the notes to those consolidated
financial statements appearing elsewhere in this prospectus.

<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------- ------------------
1997 1998 1999 1999 2000
-------- --------- --------- ------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue................................... $ -- $ -- $ 8,466 $ -- $ 7,152
Cost of revenue............................... -- -- 6,312 -- 5,087
------- -------- -------- ------- --------
Gross profit.................................. -- -- 2,154 -- 2,065
Loss from operations.......................... (1,611) (10,163) (22,257) (4,046) (9,227)
Net loss...................................... (1,488) (9,711) (21,227) (3,845) (8,843)
Net loss applicable to common stockholders.... $(1,488) $ (9,711) $(21,227) $(3,845) $(18,725)
Net loss per share applicable to common
stockholders(1)
Basic and diluted........................... $ (0.42) $ (2.00) $ (3.29) $ (0.68) $ (2.44)
Weighted average shares..................... 3,550 4,853 6,447 5,694 7,664
Pro forma net loss per share applicable to
common stockholders(1)
Basic and diluted........................... $ (0.58) $ (0.22)
Weighted average shares..................... 36,789 40,797
</TABLE>

<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED(3)
-------- ------------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 47,798 $47,798 $ 86,420
Working capital........................................ 49,586 49,586 88,208
Total assets........................................... 63,558 63,558 102,180
Capital lease obligations and credit facilities, less
current portion...................................... 1,770 1,770 1,770
Redeemable convertible preferred stock................. 88,282 -- --
Total stockholders' equity (deficit)................... (34,393) 53,889 92,511
</TABLE>

---------------
(1) See notes 2 and 12 to the consolidated financial statements for
determination of shares used in computing basic and diluted net loss per
share and unaudited pro forma net loss per share.

(2) Pro forma to give effect to the conversion of all issued and outstanding
shares of Series A, B, C and D preferred stock into common stock.

(3) As adjusted to reflect (a) the sale of 4,000,000 shares of common stock
offered hereby at the assumed initial public offering price of $10.00 per
share after deducting the underwriting discount and estimated offering
expenses payable by us and (b) the sale of approximately 300,000 shares of
common stock in the concurrent private placement to U S WEST Internet
Ventures at the assumed price of $10.00 per share after deducting the
estimated offering expenses payable by us. See "Use of Proceeds" on page 22
for more information on our intended use of the proceeds from this offering
and "Capitalization" on page 23 for more information on our capital
structure.

Except as otherwise noted, all information in this prospectus:

- reflects the automatic conversion of our outstanding Series A, Series B,
Series C and Series D preferred stock into common stock immediately prior
to the closing of this offering;

- reflects our anticipated reincorporation into Delaware; and

- assumes that the underwriters do not exercise the over-allotment option
granted to them.

3
<PAGE> 8

RISK FACTORS

An investment in our common stock is very risky. You should carefully
consider the risks described below, together with all of the other information
in this prospectus, before making a decision to invest in our common stock.

RISKS THAT MAY CAUSE FINANCIAL FLUCTUATIONS

WE HAVE A LIMITED OPERATING HISTORY, WHICH WILL MAKE IT DIFFICULT OR IMPOSSIBLE
FOR YOU TO PREDICT OUR FUTURE RESULTS OF OPERATIONS.

We have a very limited operating history upon which to base your investment
decision. We were incorporated in October 1996 and did not begin shipping our
products in significant volume until June 1999. Due to our limited operating
history, it is difficult or impossible to predict our future results of
operations. Investors in our common stock must consider our business, industry
and prospects in light of the risks and difficulties typically encountered by
companies in their early stages of development, particularly those in rapidly
evolving and intensely competitive markets such as the market for broadband
access equipment. In particular, you should carefully consider the specific
risks which are discussed in more detail in this section and the disclosure
elsewhere in this prospectus.

WE HAVE A HISTORY OF LOSSES AND MAY NOT BE ABLE TO GENERATE SUFFICIENT NET
REVENUE IN THE FUTURE TO ACHIEVE OR SUSTAIN PROFITABILITY.

We have incurred significant losses since inception and expect that our net
losses and negative cash flow will continue for the foreseeable future as we
grow our business. As of March 31, 2000, we had an accumulated deficit of
approximately $51.2 million. Although our net revenue has grown from zero for
the quarter ended March 31, 1999 to approximately $7.2 million for the quarter
ended March 31, 2000 and approximately $8.5 million for the year ended December
31, 1999, our net revenue may not continue to grow in the future, and we cannot
assure you that we will ever generate sufficient net revenue to achieve or
sustain profitability.

We have large fixed expenses and we expect to continue to incur significant
and increasing expenses for research and development, sales and marketing,
customer support, developing distribution channels and general and
administrative expenses. In particular, given our early stage of development,
our increasing operating expenses, and the rate at which competition in our
industry is intensifying, we may not be able to adequately control our costs and
expenses or achieve or maintain adequate operating margins. As a result, our
ability to achieve and sustain profitability will depend on our ability to
generate and sustain substantially higher revenue while maintaining reasonable
cost and expense levels. We may not be able to achieve or sustain profitability
in the future.

WE DERIVE ALMOST ALL OF OUR REVENUE FROM A SMALL NUMBER OF CUSTOMERS AND OUR
REVENUE COULD DECLINE SIGNIFICANTLY IF WE LOSE A CUSTOMER OR IF A CUSTOMER
CANCELS OR DELAYS AN ORDER.

Since we depend on a small number of customers, our revenue could be
materially and adversely impacted if we lose a customer, or if a customer
cancels or delays an order. Sales to CTC Communications Group, Inc., FirstWorld
Communications and Siemens ICN, accounted for approximately 54%, 20% and 16% of
our total revenue, respectively, for the year ended December 31, 1999 and sales
to Siemens ICN, CTC Communications Group, UniDial Communications, Inc. and
Primary Networks accounted for approximately 39%, 29%, 19% and 10% of our total
revenue, respectively, for the quarter ended March 31, 2000. Accordingly, if we
do not diversify and expand our customer base, our future success would
significantly depend upon the timing and size of future purchase orders, if any,
from our largest existing customers. In addition, if any of our customers is
acquired, we may lose its business. The loss of any one of our customers, or the
delay of a significant order from any of our customers, even if only temporary,
could, among other things, reduce or delay our recognition of revenue, harm our

4
<PAGE> 9

reputation in the industry, and reduce our ability to accurately predict
cash-flow. Any of these events could materially and adversely affect our
business, financial condition and results of operations.

IF WE FAIL TO CAPITALIZE ON OPPORTUNITIES TO WIN CONTRACTS FROM OUR KEY
CUSTOMERS, WE MAY NOT BE ABLE TO SELL PRODUCTS TO THOSE CUSTOMERS FOR AN
EXTENDED PERIOD OF TIME.

We believe that our key customers deploy their networks in large increments
and on a sporadic basis. As a result, if we fail to win a purchase contract from
a key customer, we may not have an opportunity to sell products to that customer
until its next purchase cycle, which may not be for an extended period of time.
In addition, if we fail to win contracts from key customers that are at an early
stage in their design cycle, our ability to sell products to these customers in
the future may be adversely affected because they may prefer to continue
purchasing products from their existing vendor. Since we rely on a small number
of customers for the majority of our sales, our failure to capitalize on limited
opportunities to win contracts with these customers would have a material
adverse effect on our business, results of operations and financial condition.

IF OUR REVENUE AND OPERATING RESULTS FALL BELOW ANALYSTS' AND INVESTORS'
EXPECTATIONS, OUR STOCK PRICE COULD SIGNIFICANTLY DECLINE.

Our quarterly operating results have fluctuated in the past and are likely
to fluctuate significantly in the future due to a variety of factors, many of
which are outside of our control. If our quarterly or annual operating results
do not meet the expectations of investors and securities analysts, the trading
price of our common stock could significantly decline. Some of the factors that
could affect our quarterly or annual operating results include:

- the amount and timing of orders for our products;

- the cancellation or rescheduling of significant orders for our products;

- our ability to develop, manufacture, introduce, ship and support new
products and product enhancements;

- our ability to manage product transitions and adapt to technological
advancements;

- our ability to develop, manufacture, ship and support all of our product
lines, for example, IADs, MSAP as a concentrator and MSAP as a voice
gateway.

- announcements, new product introductions and reductions in the price of
products offered by our competitors;

- our mix of products sold and the mix of distribution channels through
which our products are sold;

- the amount and timing of our research and development expenses;

- our ability to control costs;

- our ability to obtain sufficient supplies of sole or limited source
components for our products;

- changes in the prices of our components;

- our ability to attain and maintain production volumes and quality levels
for our products;

- the length and variability of the sales cycle for our products;

- our ability to realize forecasted sales for a particular period;

- the timing of recognizing revenue and deferral of revenue;

- our ability to receive and fulfill orders evenly, across any given
quarter;

- potential seasonality of our sales;

- costs relating to possible acquisitions and integration of technologies
or businesses; and

- telecommunications market conditions and economic conditions.

5
<PAGE> 10

As a result of any of these factors, it is likely that in the future, our
quarterly or annual operating results will fall below the expectations of public
market analysts and investors. In this event, the price of our common stock
could significantly decline.

OUR CUSTOMERS MAY SPORADICALLY PLACE LARGE ORDERS WITH SHORT LEAD TIMES, WHICH
MAY CAUSE OUR REVENUE AND OPERATING RESULTS TO VARY SIGNIFICANTLY FROM QUARTER
TO QUARTER.

We believe that our customers often deploy their networks in large
increments and on a sporadic basis. Accordingly, we expect to receive purchase
orders for significant dollar amounts on an irregular basis. These orders may
have short lead times. As a result, we may not have sufficient inventory to
fulfill these orders and we may incur significant costs in attempting to
expedite and fulfill these orders. Further, our revenue and operating results
may vary significantly and unexpectedly from quarter to quarter.

THE LONG SALES AND IMPLEMENTATION CYCLES FOR OUR PRODUCTS MAY CAUSE OUR REVENUE
AND OPERATING RESULTS TO VARY SIGNIFICANTLY.

A customer's decision to purchase our products often involves a significant
commitment of its resources and a lengthy evaluation and product qualification
process. As a result, our sales cycles may be lengthy and we may incur
substantial sales and marketing expenses and expend significant management
effort without any guarantee of a sale. The length of our sales cycles will vary
depending on the type of customer to whom we are selling. In particular, we
believe that our sales cycle will typically range from 1 to 3 months for CLECs,
3 to 6 months for IXCs, and 6 to 12 months for RBOCs. Even after making the
decision to purchase our products, our customers often deploy our products
slowly and deliberately. Timing of deployment can vary widely and depends on:

- the skill set of our customers;

- the size of the network deployment;

- the complexity of our customers' network environment;

- the degree of hardware and software configuration necessary to deploy our
products; and

- their ability to finance their purchase of our products as well as their
operations.

As a result, our revenue and operating results may vary significantly from
quarter to quarter.

IF WE FAIL TO MANAGE OUR ORDER BACKLOG, NEW ORDERS AND SHIPMENT SCHEDULES FOR
EACH QUARTER OUR OPERATING RESULTS FOR THAT PERIOD WILL BE ADVERSELY AFFECTED.

We recognize revenue when our products are shipped and the linearity of our
revenue will depend on our ability to receive and fulfill orders evenly across
any given quarter. To date, our order backlog at the beginning of each quarter
has not been significant and we expect this trend to continue for the
foreseeable future. Accordingly, we must obtain additional orders in a quarter
for shipment in that quarter to achieve our revenue objectives. Our sales
agreements may allow purchasers to delay scheduled delivery dates without
penalty. Further, our customer purchase orders allow purchasers to cancel orders
within negotiated time frames without significant penalty. In addition, due in
part to factors such as the timing of product release dates, purchase orders and
product availability, significant volume shipments of our products could occur
at the end of our fiscal quarters. If we fail to ship products by the end of a
quarter our operating results may be materially and adversely affected for that
quarter. In the past, we have experienced cancellation of orders, resulting in
additional costs and expenses.

IF WE FAIL TO INCREASE OUR REVENUE, OR IF WE EXPERIENCE DELAYS IN GENERATING OR
RECOGNIZING REVENUE, WE COULD INCUR SUBSTANTIAL OPERATING LOSSES.

We plan to significantly increase our operating expenses to fund greater
levels of research and development, expand our sales and marketing operations,
broaden our customer support capabilities and develop new distribution channels.
We also plan to expand our general and administrative capabilities to
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<PAGE> 11

address the demands resulting from this offering and the continued growth of our
business. Our operating expenses are largely based on anticipated personnel
requirements and revenue trends, and a high percentage of our expenses are, and
will continue to be, fixed. In addition, we may be required to spend more in
research and development than originally budgeted in order to respond to
industry trends. We may also incur significant new costs related to possible
acquisitions and the integration of new technologies. As a result, if we fail to
increase our revenue, or if we experience delays in generating or recognizing
revenue results we could incur substantial operating losses.

IF WE FAIL TO MANAGE THE GROWTH OF OUR OPERATIONS, OUR BUSINESS WILL BE
ADVERSELY AFFECTED.

We have rapidly and significantly expanded our operations and expect to
continue to do so. This expansion is placing a significant strain on our
managerial, operational and financial resources. During 1999, we increased the
number of our employees from 63 to 174. Most of our existing senior management
personnel joined us within the last 18 months, including a number of key
managerial, technical and operations personnel whom we have not yet fully
integrated. We expect to add additional key personnel in these areas in the near
future. To manage the expected growth of our operations and personnel, we will
be required to:

- improve existing and implement new operational, financial and management
controls, reporting systems and procedures;

- expand access to additional manufacturing capacity;

- hire, train, motivate and manage our personnel; and

- effectively manage multiple relationships with our customers, suppliers
and other parties.

In addition, we will need to coordinate our domestic and international
operations and establish the necessary infrastructure to implement our
international strategy. If we are not able to accomplish the foregoing in an
efficient and timely manner, our business, financial condition and results of
operations will be materially and adversely affected.

IF WE FAIL TO ENHANCE OUR EXISTING PRODUCTS OR DEVELOP AND INTRODUCE NEW
PRODUCTS THAT MEET CHANGING CUSTOMER REQUIREMENTS AND TECHNOLOGICAL ADVANCES,
OUR ABILITY TO SELL OUR PRODUCTS WOULD BE MATERIALLY AND ADVERSELY AFFECTED.

Our markets are characterized by rapid technological advances, evolving
industry standards, changes in end-user requirements, frequent new product
introductions and changes in voice and data service offerings by service
providers. Our future success will significantly depend on our ability to
anticipate or adapt to such changes and to offer, on a timely and cost-effective
basis, products that meet changing customer demands and industry standards. The
timely development of new or enhanced products is a complex and uncertain
process and we may not have sufficient resources to successfully and accurately
anticipate technological and market trends, or to successfully manage long
development cycles. We may also experience design, manufacturing, marketing and
other difficulties that could delay or prevent our development, introduction or
marketing of new products and enhancements. The introduction of new or enhanced
products also requires that we manage the transition from older products to
these new or enhanced products in order to minimize disruption in customer
ordering patterns and ensure that adequate supplies of new products are
available for delivery to meet anticipated customer demand. We may also be
required to collaborate with third parties to develop our products and may not
be able to do so on a timely and cost-effective basis, if at all. If we are not
able to develop new products or enhancements to existing products on a timely
and cost-effective basis, or if our new products or enhancements fail to achieve
market acceptance, our business, financial condition and results of operations
would be materially and adversely affected.

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<PAGE> 12

OUR ABILITY TO OPERATE AND GROW OUR BUSINESS MAY BE HARMED IF WE ARE UNABLE TO
DEVELOP AND MAINTAIN STRATEGIC RELATIONSHIPS WITH THIRD PARTIES.

Our success will substantially depend on our ability to develop and
maintain strategic relationships. For example, it is important that we continue
to leverage our OEM relationship with Siemens to support both our domestic and
planned international distribution and sales operations. Our strategic
relationships are relatively new, and we cannot be certain that any revenue will
be derived from those arrangements. The amount and timing of resources which our
strategic partners devote to our business is not within our control and our
strategic partners may not perform their obligations as expected. In the event
that any strategic partner breaches or terminates its relationship with us, we
may not be able to sustain or grow our business. We may also not be able to
maintain or develop strategic relationships or to replace strategic partners.

IF WE ARE UNABLE TO RETAIN AND HIRE ADDITIONAL QUALIFIED PERSONNEL, WE MAY NOT
BE ABLE TO SUCCESSFULLY ACHIEVE OUR OBJECTIVES.

Our success depends to a significant degree upon the continued
contributions of the principal members of our sales, marketing, engineering and
management personnel, many of whom perform important management functions and
would be difficult to replace. None of our officers or key employees is bound by
an employment agreement for any specific term and, except for Suresh Nihalani,
our President and Chief Executive Officer, we do not have "key person" life
insurance policies covering any of our employees. The loss of the services of
any key personnel, particularly senior management, sales personnel and
engineers, could materially adversely affect our business, financial condition
and results of operations.

In addition, our growth and expansion of operations has placed significant
demands on our management, engineering, sales and marketing staff and
facilities. We will need to hire additional personnel in each of these areas to
continue to grow our business. Recruiting qualified personnel in our industry is
intensely competitive and time-consuming. In particular, we have experienced
difficulty in hiring hardware, software, system and test and customer support
engineers. We believe that we will continue to experience difficulty in
recruiting and retaining qualified personnel in the future. If we are not able
to attract and retain the necessary personnel, we will not be able to operate
and grow our business.

IF WE DO NOT SUBSTANTIALLY EXPAND OUR SALES AND MARKETING OPERATIONS, WE WILL
NOT BE ABLE TO ACHIEVE BRAND AWARENESS FOR OUR PRODUCTS AND GENERATE ADDITIONAL
SALES.

Our products and services are generally of a highly technical nature and
therefore require a sophisticated sales effort targeted at several key people
within each of our prospective customers' organizations. We have recently
expanded our direct sales force and plan to hire additional qualified sales
personnel and system and consulting engineers. We might not be able to hire the
kind and number of sales personnel and system and consulting engineers we need.

Similarly, our marketing efforts must be highly focused on creating brand
awareness. These efforts require significant marketing resources, including
technically-proficient personnel and substantial marketing budgets. We may not
be able to hire and retain the required personnel. Further, many of our
competitors have significantly larger marketing budgets than we have. As a
result, we may not be able to create sufficient brand awareness to generate
additional sales of our products.

IF WE ARE NOT ABLE TO ESTABLISH RELATIONSHIPS WITH A VARIETY OF DISTRIBUTION
PARTNERS, WE MAY NOT BE ABLE TO INCREASE OUR SALES AND GROW OUR BUSINESS.

We believe that our future success is dependent upon establishing
successful relationships with a variety of distribution partners. To date, we
have only entered into OEM agreements with Siemens AG and one of its affiliates.
While Siemens AG and its affiliates will own approximately 18.3% of our
outstanding shares after this offering, Siemens also sells products that compete
with our products and we cannot assure you that it will devote adequate
resources to distributing our products. We also cannot be

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<PAGE> 13

certain that we will be able to reach agreement with additional distribution
partners on a timely basis or at all, or that any of our current or future
distribution partners will devote adequate resources to selling our products. If
we cannot establish these relationships, we may not be able to increase our
sales and grow our business.

IF INSTALLATION OF OUR MSAP CONCENTRATORS AT CENTRAL OFFICES ARE DELAYED, OUR
REPUTATION MAY BE HARMED AND WE MAY LOSE SALES.

Our MSAP concentrators are generally installed at carrier central offices.
In many cases, deployment of our equipment at carrier central offices is
intended to facilitate the provisioning of services which compete with the
carrier's services. Therefore, carriers may have an incentive to withhold or
delay installations of our MSAP concentrators. While we believe that current
regulations and laws require these carriers to cooperate in allowing
installation of our equipment, any delay, whether justified or not, will
adversely affect our customers' ability to deploy our equipment, which in turn
would adversely affect our reputation and result in lost sales. This would
result in a material adverse effect on our business, results of operations and
financial condition.

WE HAVE NO SIGNIFICANT EXPERIENCE OPERATING IN INTERNATIONAL MARKETS AND WE MAY
NOT BE ABLE TO SUCCESSFULLY ESTABLISH AND MANAGE OUR INTERNATIONAL OPERATIONS.

We intend to expand our international operations and enter new markets.
This expansion will require significant management attention and financial
resources. We have only recently launched our international sales operations in
Canada and Europe. As a result, we have limited experience in marketing and
distributing our products internationally and in developing versions of our
products that comply with local standards. Our current international sales
efforts, particularly those in Europe, will likely be impacted by seasonal
purchasing patterns in foreign countries, which is typical of European customers
during the summer months. In addition, our international operations, including
those in Canada and Europe, will be subject to other inherent risks, including:

- difficulties and costs of staffing and managing foreign operations;

- certification requirements;

- longer sales cycles;

- expenses associated with customizing products for foreign countries;

- dependence on local vendors;

- dependence on our ability to establish and maintain strategic
relationships with international distribution partners;

- protectionist laws and business practices that favor local competition;

- reduced protection for intellectual property rights in some countries;

- difficulties associated with enforcing agreements through foreign legal
systems;

- greater difficulty in collecting accounts receivable;

- fluctuations in currency exchange rates;

- unexpected changes in regulatory requirements;

- the impact of recessions in economies outside the United States;

- political and economic instability;

- import or export licensing requirements; and

- potential adverse tax consequences.

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<PAGE> 14

IF OUR PRODUCTS CONTAIN UNDETECTED SOFTWARE OR HARDWARE ERRORS, WE COULD INCUR
SIGNIFICANT UNEXPECTED EXPENSES AND LOST SALES.

Our products are highly technical and are designed to be deployed in very
large and complex networks. Although we have thoroughly tested our products,
because of their nature, they can only be fully tested when deployed in networks
which generate high amounts of voice and/or data traffic. Because of our short
operating history, our products have not yet been broadly deployed.
Consequently, our customers may discover errors or defects in our products after
they have been broadly deployed. In addition, our customers may use our products
in conjunction with products from other vendors. As a result, when problems
occur, it may be difficult to identify the source of the problem. Any defects or
errors in our products discovered in the future, or failures of our customers'
networks, whether caused by our products or another vendor's products, could
result in:

- loss of, or delay in, revenue and loss of market share;

- product returns;

- negative publicity regarding us and our products;

- unexpected expenses to remedy errors;

- diversion of our development resources;

- increased service warranty, costs and repair; and

- increased insurance costs.

Any of the above items could have a material adverse effect on our
business, results of operations and financial condition.

IF OUR PRODUCTS CONTAIN DEFECTS, WE COULD BE EXPOSED TO SIGNIFICANT PRODUCT
LIABILITY CLAIMS AND DAMAGE TO OUR REPUTATION.

Because our products are designed to provide critical communications
services, we may be subject to significant liability claims. Our agreements with
customers typically contain provisions intended to limit our exposure to
liability claims. However, these limitations may not preclude all potential
claims resulting from a defect in one of our products. Although we believe that
we maintain adequate product liability insurance covering certain damages
arising from implementation and use of our products, our insurance may not be
sufficient to cover us against all possible liability. Liability claims could
also require us to spend significant time and money in litigation or to pay
significant damages. As a result, any such claims, whether or not successful,
could seriously damage our reputation and have a material adverse effect on our
business, financial condition and results of operations.

IF WE DO NOT SUBSTANTIALLY EXPAND OUR CUSTOMER SERVICE AND SUPPORT ORGANIZATION,
WE WILL NOT BE ABLE TO PROVIDE THE LEVEL OF SERVICE REQUIRED TO ESTABLISH STRONG
RELATIONSHIPS WITH OUR CUSTOMERS.

The nature of our business requires us to develop strong relationships with
our customers, which will depend on our ability to provide our customers with a
high level of service and support. The complexity of our products requires us to
have highly trained customer service and support personnel. We currently have a
small customer service and support organization, and we will need to increase
these resources to support the expanding needs of our existing customers as well
as new customers. Hiring customer service and support personnel in our industry
is very competitive due to the limited number of people available with the
necessary technical skills and understanding of our technologies. If we are
unable to expand our customer service and support organization, our customers
may become dissatisfied and our reputation could be harmed. These events would
prevent us from increasing sales to existing or new customers.

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<PAGE> 15

BECAUSE WE DEPEND UPON A SMALL NUMBER OF OUTSIDE CONTRACTORS TO MANUFACTURE OUR
PRODUCTS, OUR OPERATIONS COULD BE DELAYED OR INTERRUPTED IF WE ENCOUNTER
PROBLEMS WITH THEM.

We currently rely on Avnet, Inc., A-Plus Manufacturing and Arrow
Electronics to build our products. We do not have internal manufacturing
capabilities. Our reliance on these manufacturers involves a number of risks,
including the absence of adequate capacity, the unavailability of or
interruptions in access to certain process technologies and reduced control over
component availability, delivery schedules, manufacturing yields and costs. If
Avnet, A-Plus or Arrow is unable or unwilling to continue manufacturing our
products in required volumes and at high quality levels, we will have to
identify, qualify and select acceptable alternative manufacturers, which could
take more than six months. It is possible that an alternate source may not be
available to us when needed or be in a position to satisfy our production
requirements at acceptable prices and quality. Any significant interruption in
manufacturing would result in us having to reduce our supply of products to our
customers, which in turn could have a material adverse effect on our customer
relations, business, financial condition and results of operations. Avnet, Arrow
and A-Plus also build products for other companies, and we cannot be certain
that they will always have sufficient quantities of inventory available to fill
orders placed by our customers, or that they will allocate their internal
resources to fill our orders on a timely basis.

We currently do not have a long-term supply contract with Avnet, A-Plus or
Arrow. Qualifying a new contract manufacturer and commencing volume production
is expensive and time consuming. If we are required or choose to change contract
manufacturers, our revenue may decline and our customer relationships may be
damaged.

We may not be able to effectively manage our relationships with our
contract manufacturers and they may not meet our future requirements for timely
delivery. Any interruption in the operations of our contract manufacturers would
adversely affect our ability to meet our scheduled product deliveries to our
customers, which could cause the loss of existing or potential customers and
could materially adversely affect our business, results of operations and
financial condition. In addition, if our contract manufacturers fail to build
products with sufficient quality, our reputation, business, results of
operations and financial condition will be harmed.

IF WE FAIL TO ACCURATELY PREDICT OUR MANUFACTURING REQUIREMENTS, WE COULD INCUR
ADDITIONAL COSTS OR EXPERIENCE MANUFACTURING DELAYS.

We do not have long-term supply contracts with our contract manufacturers.
Consequently, these manufacturers are not obligated to supply products to us for
any specific period, in any specific quantity or at any certain price, except as
may be provided in a particular purchase order. We currently provide forecasts
of our demand to our contract manufacturers 12 months prior to scheduled
delivery of products to our customers. Lead times for the materials and
components that we order vary significantly and depend on numerous factors,
including the specific supplier, contract terms and demand for a component at a
given time. If we overestimate our component requirements, our contract
manufacturers may purchase excess inventory. For those parts which are unique to
our products, we could be required to pay for these excess parts and recognize
related inventory write-down costs. If we underestimate our requirements, our
contract manufacturers may have an inadequate inventory, which could interrupt
manufacturing of our products and result in delays in shipments and revenue. We
also may experience shortages of certain components from time to time, which
also could delay the manufacturing of our products and recognition of revenue.

WE DEPEND ON SOLE SOURCE AND LIMITED SOURCE SUPPLIERS FOR KEY COMPONENTS, AND IF
WE ARE UNABLE TO BUY THESE COMPONENTS ON A TIMELY BASIS, WE WILL NOT BE ABLE TO
DELIVER OUR PRODUCTS TO OUR CUSTOMERS.

Several of the key components used in our products, including field
programmable gate arrays, DSL transreceivers, microprocessors, digital signal
processors and custom power supplies, are sourced from single or limited sources
of supply. These suppliers range from small vendors to large established
companies. We do not have guaranteed supply arrangements with most of our key
suppliers, and we or our

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<PAGE> 16

contract manufacturers may not be able to obtain necessary supplies in a timely
manner. Financial or other difficulties faced by these suppliers or significant
changes in demand for these components could limit the availability of these
components. In addition, any of our sole-source suppliers could be acquired by,
or enter into exclusive arrangements with, our competitors, stop selling their
products or components to us at commercially reasonable prices, or refuse to
sell their products or components to us altogether. Any interruption or delay in
the supply of any of these components, or the inability to obtain these
components from alternate sources at acceptable prices and within a reasonable
amount of time, would adversely affect our ability to meet scheduled product
deliveries to our customers and would materially adversely affect our business,
results of operations and financial condition. As much as six months could be
required before we would begin receiving adequate supplies from alternative
suppliers, if any. In addition, qualifying additional suppliers is
time-consuming and expensive and exposes us to potential supplier production
difficulties or quality variations.

It is also possible that a source may not be available for us or be in a
position to satisfy our production requirements at acceptable prices and on a
timely basis, if at all, which could have a material adverse effect on our
business, financial condition and results of operations.

WE MAY INVEST A SIGNIFICANT AMOUNT OF OUR RESOURCES TO DEVELOP, MARKET AND SELL
OUR PRODUCTS AND MAY NOT REALIZE ANY RETURN ON THIS INVESTMENT.

We plan to invest a significant amount of our resources to develop, market
and sell our products. Accordingly, our success will depend on our ability to
generate sufficient revenue from sales of these products to offset the expenses
associated with developing, marketing and selling them. There are many risks
that we face in doing so. In particular, the rapidly changing technological
environment in which we operate can require the frequent introduction of new
products, resulting in short product lifecycles. Accordingly, if our products do
not quickly achieve market acceptance, they may become obsolete before we have
generated enough revenue from their sales to realize a sufficient return on our
investment.

As a result, we may incur significant expenses and losses due to lack of
customer demand, unusable purchased components for these products and the
diversion of our engineers from future product development efforts. From time to
time we may also need to write-off excess and obsolete inventory. We recorded
charges totaling $264,000 for the year ended December 31, 1999 to take into
consideration excess inventory levels and obsolete inventory. If we incur
substantial development, sales, marketing and inventory expenses that we are not
able to recover, and we are not able to compensate for such expenses, our
business, financial condition and results of operations could be materially and
adversely affected.

IF THE DEVELOPMENT AND ADOPTION OF RELEVANT INDUSTRY STANDARDS DO NOT OCCUR ON A
TIMELY BASIS, OUR PRODUCTS MAY NOT ACHIEVE MARKET ACCEPTANCE.

Our ability to achieve market acceptance for our products will also depend
on the timing and adoption of industry standards for new technologies in our
markets. Many technological developments occur prior to the adoption of relevant
industry standards. The absence of an industry standard related to a specific
technology may prevent widespread market acceptance of products using that
technology. The existence of multiple competing standards may also retard or
delay the development of a broad market for our products. We may develop
products that use new technologies prior to the adoption of industry standards
related to these technologies. Consequently, our products may not comply with
eventual industry standards, which could hurt our ability to sell these products
and also require us to quickly design and manufacture new products that meet
these standards. Even after industry standards are adopted, the future success
of our products depends upon widespread market acceptance of their underlying
technologies.

OUR INABILITY TO PROTECT OUR INTELLECTUAL PROPERTY COULD ADVERSELY AFFECT OUR
ABILITY TO COMPETE.

Our success and ability to compete substantially depend on our proprietary
technology. Despite our efforts to protect our proprietary rights, existing
copyright, trademark and trade secret laws afford us only limited protection.
Any infringement of our proprietary rights could result in significant
litigation costs, and

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<PAGE> 17

any failure to adequately protect our proprietary rights could result in our
competitors offering similar products, potentially resulting in loss of a
competitive advantage and decreased revenue. We rely on a combination of patent,
copyright, trademark and trade secret laws, as well as confidentiality
agreements and licensing arrangements, to establish and protect our proprietary
rights. We presently have no patents, although we have six patent applications
pending. In addition, the laws of certain foreign countries do not protect our
proprietary rights to the same extent as do the laws of the United States.
Attempts may be made to copy or reverse engineer aspects of our products or to
obtain and use information that we regard as proprietary. Accordingly, we may
not be able to protect our proprietary rights against unauthorized third-party
copying or use. Furthermore, policing the unauthorized use of our products is
difficult. Litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets or to determine the validity and
scope of the proprietary rights of others. Such litigation could result in
substantial costs and diversion of resources and could have a material adverse
effect on our business, financial condition and operating results.

WE COULD BECOME SUBJECT TO LITIGATION REGARDING INTELLECTUAL PROPERTY RIGHTS
WHICH COULD SERIOUSLY HARM OUR BUSINESS.

Our industry is characterized by frequent intellectual property litigation
based on allegations of infringement of intellectual property rights. From time
to time, third parties may assert patent, copyright, trademark and other
intellectual property rights to technologies or rights that are important to our
business. In addition, in our agreements, we may agree to indemnify our
customers for any expenses or liabilities resulting from claimed infringements
of patents, trademarks or copyrights of third parties. Any claims asserting that
our products infringe or may infringe on proprietary rights of third parties,
with or without merit, could be time-consuming, resulting in costly litigation
and diverting the efforts of our technical and management personnel. These
claims could also result in product shipment delays or require us to modify our
products or enter into royalty or licensing agreements. Such royalty or
licensing agreements, if required, may not be available on terms acceptable to
us, if at all.

Although we are not aware of any intellectual property claims against us,
we may be a party to litigation in the future. We also cannot assure you that we
would prevail in any such actions, given their complex technical issues and
inherent uncertainties. Although we carry general liability insurance, our
insurance may not cover potential claims of this type or may not be adequate to
indemnify us for all liability that may be imposed. For more information
concerning our intellectual property rights, please see
"Business -- Intellectual Property" on page 51.

IF WE BECOME SUBJECT TO UNFAIR HIRING CLAIMS WE COULD INCUR SUBSTANTIAL COSTS IN
DEFENDING OURSELVES.

Companies in our industry whose employees accept positions with competitors
frequently claim that their competitors have engaged in unfair hiring practices.
We have received claims of this kind in the past and we cannot assure you that
we will not receive claims of this kind in the future or that those claims will
not result in material litigation. We could incur substantial costs in defending
ourselves against these claims, regardless of their merits, which would have a
material and adverse effect on our business, financial condition and results of
operations.

POTENTIAL ECONOMIC AND POLITICAL INSTABILITY IN INDIA COULD ADVERSELY AFFECT OUR
PRODUCT DEVELOPMENT EFFORTS.

We believe that we currently receive favorable tax and tariff treatment for
our product development activities in India. However, if political instability
in India results in a government adverse to foreign corporate activity, a number
of adverse consequences could occur, including higher tariffs, taxes or export
controls, and increased governmental ownership or regulation, any of which would
increase our costs of product development. In addition, we record expenses for
our subsidiary in India in Indian Rupees. Accordingly, our operating results are
also exposed to changes in exchange rates between the U.S. dollar and Indian
Rupee. While to date, our results have not materially been affected by any
changes in currency

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exchange rates, devaluation of the U.S. dollar against the Indian Rupee would
adversely affect our expenses for our Indian subsidiary.

OUR BUSINESS COULD BE SHUT DOWN OR SEVERELY IMPACTED IF A NATURAL DISASTER
OCCURS.

Our business and operations depend on the extent to which our facility and
products are protected against damage from fire, earthquakes, power loss, and
similar events. Despite precautions taken by us, a natural disaster or other
unanticipated problem could, among other things, hinder our research and
development efforts, delay the shipment of our products and affect our ability
to receive and fulfill orders. For example, since we perform all of our final
assembly and tests in one location, any fire or other disaster at our assembly
facility would have a material adverse effect on our business, results of
operations and financial condition. While we believe that our insurance policy
is comparable to those of similar companies in our industry, it does not cover
all natural disasters, in particular, earthquakes or floods.

IF WE ENCOUNTER SIGNIFICANT YEAR 2000 PROBLEMS WITH OUR PRODUCTS, CUSTOMERS OR
VENDORS, OUR BUSINESS MAY BE ADVERSELY AFFECTED.

Although we are not aware of any Year 2000 issues to date associated with
our products or with our customers or vendors, we cannot assure you that these
issues will not arise in the future. If we experience significant unanticipated
problems and costs associated with Year 2000 compliance, our business, results
of operations and financial condition could be materially and adversely
affected. In addition, we have not developed, and do not plan to develop, any
contingency plan to address any Year 2000 situations that may result.

RISKS ASSOCIATED WITH THE BROADBAND ACCESS INDUSTRY

INTENSE COMPETITION COULD PREVENT US FROM INCREASING OR SUSTAINING OUR REVENUE
AND PREVENT US FROM ACHIEVING OR SUSTAINING PROFITABILITY.

The market for multiservice broadband access products is highly
competitive. We compete directly with numerous companies, including Alcatel SA,
Cisco Systems, Inc., CopperCom, Inc., Copper Mountain Networks, Inc., Jetstream
Communications, Inc., Lucent Technologies, Inc., Nokia, Nortel Networks, Inc.
and Tollbridge Technologies, Inc. Many of our current and potential competitors
have longer operating histories, significantly greater selling and marketing,
technical, manufacturing, financial, customer support, professional services and
other resources, including vendor-sponsored financing programs. As a result,
these competitors are able to devote greater resources to the development,
promotion, sale and support of their products. Moreover, our competitors may
foresee the course of market developments more accurately than we do and could
develop new technologies that compete with our products or even render our
products obsolete. We may not have sufficient resources to continue to make the
investments or achieve the technological advances necessary to compete
successfully with existing or new competitors. In addition, due to the rapidly
evolving markets in which we compete, additional competitors with significant
market presence and financial resources, including other large
telecommunications equipment manufacturers, may enter our markets, thereby
further intensifying competition.

The markets in which we compete are characterized by increasing
consolidation, as exemplified by the recent acquisitions of Promatory
Communications, Inc., by Nortel Networks and FlowPoint Corporation by Efficient
Networks, Inc. and the recently announced acquisitions of PairGain Technologies,
Inc. by ADC Telecommunications, Inc., Newbridge Networks Corp. by Alcatel and
NetScreen Technologies, Inc. by Efficient Networks. We cannot predict how
industry consolidation will affect our competitors and we may not be able to
compete successfully in an increasingly consolidated industry. Additionally,
because we may be dependent on strategic relationships with third parties in our
industry, any consolidation involving these parties could reduce the demand for
our products and otherwise harm our business prospects. Our competitors that
have large market capitalizations or cash reserves are also better positioned
than we are to acquire other companies, including our competitors, thereby
obtaining new technologies or products that

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<PAGE> 19

may displace our product lines. Any of these acquisitions could give our
competitors a strategic advantage that would materially and adversely affect our
business, financial condition and results of operations.

In addition, many of our competitors have much greater name recognition and
have a more extensive customer base, broader customer relationships, significant
financing programs, and broader product offerings than we do. These companies
can adopt aggressive pricing policies and leverage their customer bases and
broader product offerings to gain market share. We have encountered, and expect
to continue to encounter, potential customers that, due to existing
relationships with our competitors, are committed to the product offerings of
these competitors. As a result, these potential customers may not consider
purchasing our products.

We expect that competitive pressures will result in price reductions,
reduced margin and loss of market share, which would materially and adversely
affect our business, financial condition and results of operations. Please see
"Business -- Competition" on page 50 for more information on our competitors.

SALES OF OUR PRODUCTS DEPEND ON THE WIDESPREAD ADOPTION OF MULTISERVICE
BROADBAND ACCESS SERVICES AND IF THE DEMAND FOR MULTISERVICE BROADBAND ACCESS
SERVICES DOES NOT DEVELOP, THEN OUR RESULTS OF OPERATIONS AND FINANCIAL
CONDITION WOULD BE ADVERSELY AFFECTED.

Our business would be harmed, and our results of operations and financial
condition would be adversely and materially affected, if the demand for
multiservice broadband access services does not increase as rapidly as we
anticipate, or if our customers' multiservice broadband access service offerings
are not well received in the marketplace. Certain critical factors will likely
continue to affect the development of the multiservice broadband access services
market. These factors include:

- demand for broadband access;

- the development of a viable business model for multiservice broadband
access services, including the capability to market, sell, install and
maintain these services;

- the extent that service providers are unable to deploy broadband access
using DSL due to delays or other difficulties in gaining access to the
copper-pair infrastructure from ILECs;

- cost constraints, such as installation, space and power requirements at
carrier central offices;

- ability to interoperate with equipment from multiple vendors in service
provider networks;

- evolving industry standards for DSL, T1 and other transmission
technologies;

- varying and uncertain conditions of the copper-pair infrastructure,
including size and length, electrical interference, and crossover
interference with voice and data telecommunications services; and

- domestic and foreign government regulation.

Even if these factors are adequately addressed, the market for multiservice
broadband access services may fail to develop or may develop more slowly than
anticipated. This could happen for a number of reasons. For instance, if our
customers, particularly CLECs, fail to obtain sufficient capital, personnel and
other resources to operate and grow their business or fail to execute their
business plans, our market may fail to develop or may develop more slowly than
anticipated. As a result, our business would be harmed, and our results of
operations and financial condition would be adversely affected.

IF OUR PRODUCTS ARE NOT INTEROPERABLE WITHIN OUR CUSTOMERS' NETWORKS, ORDERS
WILL BE DELAYED OR CANCELLED AND COULD RESULT IN SUBSTANTIAL PRODUCT RETURNS,
WHICH COULD SERIOUSLY HARM OUR BUSINESS.

Many of our customers require that our products be designed to interface
with their existing networks, each of which may have different specifications
and utilize multiple protocol standards. Our customers' networks may contain
multiple generations of products from different vendors that have been added
over time as their networks have grown and evolved. Our products may be required
to interoperate with these

15
<PAGE> 20

products as well as with future products in order to meet our customers'
requirements. In some cases, we may be required to modify our product designs to
achieve a sale, which may result in a longer sales cycle, increased research and
development expense, and reduced operating margins. If our products do not
interoperate with existing equipment in our customers' networks, installations
could be delayed, orders for our products could be cancelled or our products
could be returned. This could have a material adverse effect on our business,
financial condition and results of operations.

IF WE FAIL TO COMPLY WITH REGULATIONS AND EVOLVING INDUSTRY STANDARDS, SALES OF
OUR EXISTING AND FUTURE PRODUCTS COULD BE ADVERSELY AFFECTED.

The markets for our products are characterized by a significant number of
laws, regulations and standards, including those promulgated by the Federal
Communications Commission, or FCC, and standards established by Underwriters
Laboratories, some of which are evolving as new technologies are deployed. While
we believe that our products comply with all current governmental laws,
regulations and standards, we cannot assure you that we will be able to continue
to design our products to comply with all necessary requirements in the future.
In addition, our customers may require our products to comply with various
industry standards, such as those promulgated by Telcordia Technologies, or
proprietary standards promoted by our competitors. Our key competitors may
establish proprietary standards which they do not make available to us. As a
result, we may not be able to achieve interoperability with their products.
Internationally, we may also be required to comply with standards established by
telecommunications authorities in various countries as well as with
recommendations of the International Telecommunication Union.

Our customers may also require, or we may otherwise deem it necessary or
advisable, that we modify our products to address actual or anticipated changes
in the regulatory environment. Failure of our products to comply, or delays in
compliance, with the various existing, anticipated, and evolving industry
regulations and standards could adversely affect sales of our existing and
future products. Moreover, the enactment of new laws or regulations, changes in
the interpretation of existing laws or regulations or a reversal of the trend
toward deregulation in the telecommunications industry, could have a material
adverse effect on our customers, and thereby materially adversely affect our
business, financial condition and results of operations. Please see
"Business -- Governmental Regulation" on page 52 for more information on issues
pertaining to governmental regulation.

OUR CUSTOMERS ARE SUBJECT TO GOVERNMENT REGULATION, AND CHANGES IN CURRENT OR
FUTURE LAWS OR REGULATIONS THAT NEGATIVELY IMPACT OUR CUSTOMERS COULD HARM OUR
BUSINESS.

The jurisdiction of the FCC extends to the entire communications industry,
including our customers. Future FCC regulations affecting the broadband access
industry, our customers, or their service offerings, may harm our business. For
example, FCC regulatory policies that affect the availability of data and
Internet services may impede our customers' penetration into certain markets or
affect the prices that they are able to charge. In addition, international
regulatory bodies are beginning to adopt standards and regulations for the
broadband access industry. These domestic and foreign standards and regulations
address various aspects of Internet use, including issues relating to liability
for information retrieved from or transmitted over the Internet, online context
regulation, user privacy, taxation, consumer protection, security of data,
access by law enforcement, as well as intellectual property ownership, obscenity
and libel. Resulting standards and regulations, or judgments in favor of
plaintiffs in lawsuits against service providers, e-commerce and other Internet
companies, could adversely affect the development of e-commerce and other uses
of the Internet. This, in turn, could directly or indirectly materially
adversely impact the broadband telecommunications and data industry in which our
customers operate. To the extent our customers are adversely affected by laws or
regulations regarding their business, products or service offerings, this could
result in a material and adverse effect on our business, financial condition and
results of operations. Please see "Business -- Governmental Regulation" on page
52 for more information on issues pertaining to governmental regulation.

16
<PAGE> 21

IF NECESSARY LICENSES OF THIRD-PARTY TECHNOLOGY ARE NOT AVAILABLE TO US OR ARE
VERY EXPENSIVE, WE MAY NOT BE ABLE TO DEVELOP NEW PRODUCTS OR PRODUCT
ENHANCEMENTS, WHICH WOULD SERIOUSLY IMPAIR OUR ABILITY TO COMPETE EFFECTIVELY.

From time to time we may be required to license technology from third
parties to develop new products or product enhancements. We cannot assure you
that these third-party licenses will be available to us on commercially
reasonable terms, if at all. Our inability to obtain necessary third-party
licenses may force us to obtain substitute technology of lower quality or
performance standards or at greater cost, any of which could seriously harm the
competitiveness of our products and which would result in a material and adverse
effect on our business, financial condition and results of operations.

IF THIRD-PARTY SUPPLIERS DO NOT CONTINUE TO DEVELOP NEW COMPONENTS THAT WE RELY
ON FOR FUTURE PRODUCTS, WE MAY NOT BE ABLE TO OFFER COMPETITIVE PRODUCTS.

Some of our planned future products will rely on components developed by
third parties, such as higher bandwidth switch fabrics. If these components fail
to be developed by third parties in a timely basis, or at all, or if they are
not otherwise made available to us, we may not be able to offer new products
which are competitive. In this event, our business, financial condition and
results of operations could be materially and adversely affected.

ADDITIONAL RISKS THAT MAY AFFECT OUR STOCK PRICE

OUR STOCK PRICE MAY BE VOLATILE AND YOU MAY NOT BE ABLE TO RESELL OUR SHARES AT
OR ABOVE THE PRICE YOU PAID, OR AT ALL.

There has previously not been a public market for our common stock. We
cannot predict the extent to which investor interest in our stock will lead to
the development of a trading market or how liquid that market might become. The
initial public offering price for the shares will be determined by negotiations
between us and the representatives of the underwriters and may not be indicative
of prices that will prevail in the trading market. The trading price of our
common stock could be subject to wide fluctuations in response to factors such
as:

- actual or anticipated variations in quarterly operating results;

- our loss of a customer;

- changes in financial estimates by securities analysts;

- failure to meet analyst predictions and projections;

- changes in market valuations of broadband access equipment companies;

- changes in market valuations of networking and telecommunications
companies;

- continued growth of the Internet and e-commerce;

- announcements of technological innovations;

- new products or services offered by us or our competitors;

- announcements of significant acquisitions, strategic partnerships, joint
ventures or capital commitments by us or our competitors;

- additions or departures of key personnel;

- our sales of common stock or other securities in the future; and

- other events or factors, many of which are beyond our control.

In addition, the stock market in general, and the Nasdaq National Market
and technology companies in particular, have experienced extreme price and
volume fluctuations that have often been unrelated or disproportionate to the
operating performance of such companies. The trading prices and valuations of
many technology companies' stocks are at or near historical highs, which are
substantially above historical levels. These trading prices and valuations may
not be sustainable. These broad market and industry

17
<PAGE> 22

factors may materially adversely affect the market price of our common stock,
regardless of our actual operating performance.

In addition, in the past, following periods of volatility in the overall
market and market price of a company's securities, securities class action
litigation has often been instituted against these companies. Such litigation,
if instituted, could result in substantial costs and a diversion of our
management's attention and resources, which would materially and adversely
affect our business, financial condition and results of operations.

IF WE ENGAGE IN FUTURE ACQUISITIONS OR STRATEGIC INVESTMENTS, OUR STOCKHOLDERS
COULD BE DILUTED, WE COULD INCUR ADDITIONAL DEBT AND WE COULD ASSUME ADDITIONAL
CONTINGENT LIABILITIES.

We may review acquisition prospects and strategic investments that would
complement our current product offerings, augment our market coverage or enhance
our technical capabilities, or that may otherwise offer growth opportunities.
Any such acquisitions or investments could significantly dilute our investors.
While we have no current agreements or negotiations underway with respect to any
such acquisitions or strategic investments, we may acquire or make investments
in businesses, products or technologies in the future. In this case, we could:

- issue equity securities which would dilute current stockholders'
percentage ownership;

- incur substantial debt;

- assume contingent liabilities;

- incur significant amortization expenses related to goodwill and other
intangible assets; or

- incur significant immediate write-offs.

Such actions by us could materially and adversely affect our business, financial
condition and results of operations and/or the price of our common stock.

IF WE MAKE ANY ACQUISITIONS OR STRATEGIC INVESTMENTS, WE MAY NOT BE ABLE TO
SUCCESSFULLY INTEGRATE OR MANAGE THESE ACQUISITIONS OR INVESTMENTS.

Acquisitions and strategic investments may entail numerous risks,
including:

- difficulties in assimilating acquired operations, technologies or
products;

- unanticipated costs;

- diversion of management's attention from our core business concerns;

- adverse effects on existing business relationships with suppliers and
customers;

- risks of entering markets in which we have no or limited prior
experience; and

- potential loss of key employees, either existing employees or those of
the acquired organizations.

We may not be able to successfully integrate any businesses, products,
technologies or personnel that we might acquire in the future, and our failure
to do so could have a material and adverse effect on our business, financial
condition and results of operations.

IF WE ARE NOT ABLE TO OBTAIN ADDITIONAL CAPITAL TO FUND OUR OPERATIONS WHEN
NEEDED, OUR ABILITY TO EFFECTIVELY OPERATE AND GROW OUR BUSINESS WILL BE
LIMITED.

We expect to use the net proceeds of this offering and the concurrent
private placement primarily to continue investments in product development, to
expand sales and marketing activities and to make capital expenditures. We
believe that such proceeds, together with our existing capital resources, will
be sufficient to meet our capital requirements for at least the next 12 months.
However, our capital requirements depend on several factors, including:

- the rate of market acceptance of our products;

- our ability to expand our client base;

18
<PAGE> 23

- the growth of our research and development and sales and marketing
organizations; and

- other infrastructure requirements.

If capital requirements vary materially from those currently planned, we may
require additional financing sooner than anticipated. Additional financing may
not be available when needed on terms favorable to us or at all. If adequate
funds are not available or are not available on acceptable terms, we may be
unable to develop or enhance our services, take advantage of future
opportunities or respond to competitive pressures, which could materially and
adversely affect our business, financial condition or results of operations.

IF WE ARE REQUIRED TO RAISE ADDITIONAL CAPITAL, OUR EXISTING STOCKHOLDERS MAY BE
ADVERSELY AFFECTED.

We may be required to raise additional capital through the issuance of
stock, debt or a combination of the two. If additional funds are raised through
the issuance of equity securities, the percentage ownership of our stockholders
will be reduced. In addition, these newly issued equity securities may have
rights, preferences or privileges senior to those of the existing holders of our
common stock. If additional funds are raised through the issuance of debt
securities, these securities would have rights, preferences and privileges
senior to those of the existing holders of our common stock and the terms of
such debt could impose restrictions on our operations.

SUBSTANTIAL FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET COULD CAUSE
OUR STOCK PRICE TO FALL.

Additional sales of our common stock in the public market after this
offering, or the perception that such sales could occur, could cause the market
price of our common stock to decline. Upon completion of this offering and the
concurrent private placement, we will have approximately 49,837,094 shares of
common stock outstanding based on the assumed initial offering price of $10.00
per share. See "Capitalization" beginning on page 23 for a detailed discussion
of shares included and excluded from this number. In particular, if the initial
offering price is less than $8.912 per share, the outstanding shares of our
Series D preferred stock will convert into additional shares of common stock,
which will result in more shares being potentially eligible for sale into the
public markets. The 4,000,000 shares sold in this offering will be freely
transferable without restriction or registration under the Securities Act of
1933. Based on shares outstanding as of March 31, 2000, the remaining shares of
common stock outstanding after this offering will be available for sale,
assuming the effectiveness of lock-up agreements with Credit Suisse First Boston
Corporation under which our stockholders have agreed not to sell or otherwise
dispose of their shares of common stock in the public market, as follows:

<TABLE>
<CAPTION>
DATE OF AVAILABILITY FOR SALE NUMBER OF SHARES COMMENT
----------------------------- ---------------- -------
<S> <C> <C>
Date of prospectus 4,000,000 Freely tradeable shares sold in the
offering
180 days after prospectus
(expiration of lock-up) 40,767,195 Shares salable under Rule 144 or 701
</TABLE>

In addition, Credit Suisse First Boston Corporation may, in its sole
discretion, at any time without notice, release all or any portion of the shares
subject to the lock-up agreements, which would result in more shares being
available for sale in the public market at an earlier date. U S WEST Internet
Ventures has also agreed that, for a period of one year after this offering, it
will not sell or transfer the shares of common stock that it purchases in the
concurrent private placement or upon exercise of its warrant, without our
consent. Sales of common stock by existing stockholders in the public market, or
the availability of such shares for sale, could materially and adversely affect
the market price of the common stock.

In addition, as soon as practicable after the date of this prospectus, we
intend to file a registration statement on Form S-8 with the Securities and
Exchange Commission covering the 7,918,669 shares of common stock reserved for
issuance under our 2000 Stock Incentive Plan and our 2000 Employee Stock
Purchase Plan. On the date 180 days after the effective date of this offering,
at least 5,385,116 shares will be subject to immediately exercisable options,
based on options outstanding on March 31, 2000. Sales of a large number of these
shares could have an adverse effect on the market price for our common stock.

19
<PAGE> 24

After this offering and the concurrent private placement, the holders of
42,534,338 shares of common stock, including shares issuable upon exercise of
warrants which will be outstanding immediately after the consummation of this
offering and the concurrent private placement, will have certain rights with
respect to registration of such shares for sale to the public. If such holders,
by exercising their registration rights, cause a large number of securities to
be registered and sold in the public market, such sales could have an adverse
effect on the market price for our common stock. If we were to include in a
company-initiated registration shares held by such holders pursuant to the
exercise of their registration rights, such sales may have an adverse effect on
our ability to raise needed capital. Please see "Shares Eligible for Future
Sale" beginning on page 73 for more information on the number of shares which
may be sold into the public market upon the completion of this offering.

MANAGEMENT AND CURRENT STOCKHOLDERS WILL CONTINUE TO HAVE SUBSTANTIAL CONTROL
OVER OUR COMPANY AFTER THIS OFFERING AND COULD DELAY OR PREVENT A CHANGE IN
CORPORATE CONTROL.

We anticipate that our executive officers, directors and major stockholders
will, in the aggregate, beneficially own approximately 75.3% of our outstanding
common stock following the completion of this offering. These stockholders, if
acting together, would be able to influence significantly all matters requiring
approval by our stockholders, including the election of directors and the
approval of mergers or other business combination transactions. See "Principal
Stockholders" beginning on page 67 for more information on principal
stockholders.

OUR MANAGEMENT MAY APPLY THE PROCEEDS OF THIS OFFERING TO USES THAT MAY NOT
INCREASE OUR PROFITABILITY OR OUR MARKET VALUE.

Our management will have considerable discretion in the application of the
net proceeds from this offering, and you will not have the opportunity, as part
of your investment decision, to assess whether the proceeds are being used
appropriately. The net proceeds may be used for corporate purposes that do not
increase our profitability or our market value. Pending application of the
proceeds, they may be placed in investments that do not produce income or that
lose value. See "Use of Proceeds" on page 22 for more information on our
intended use of the proceeds from this offering.

PURCHASERS IN THIS OFFERING WILL IMMEDIATELY EXPERIENCE SUBSTANTIAL DILUTION IN
NET TANGIBLE BOOK VALUE.

Because we expect that the initial offering price per share will be
substantially greater than our net tangible book value per share, you will
likely experience immediate and substantial dilution. In particular, purchasers
of our common stock in this offering will suffer immediate dilution of $8.14 per
share in pro forma net tangible book value, based on an assumed initial offering
price of $10.00 per share of common stock. If the initial offering price is less
than $8.912 per share, our outstanding shares of Series D preferred stock will
convert into additional shares of common stock, which would result in further
dilution. The exact number of shares of common stock into which each share of
Series D preferred stock will convert will be determined by dividing $8.912 by
our initial public offering price, and will not be subject to a cap on the
maximum number of common shares into which the Series D preferred stock will
convert. The exercise of outstanding options and warrants will also result in
further dilution. See "Dilution" on page 24 for more information on the dilution
you will experience by purchasing shares in this offering.

CERTAIN PROVISIONS IN OUR CORPORATE CHARTER AND BYLAWS MAY DISCOURAGE TAKE-OVER
ATTEMPTS AND THUS DEPRESS THE MARKET PRICE OF OUR STOCK.

Provisions in our certificate of incorporation and bylaws, as amended and
restated upon the closing of this offering, may have the effect of delaying or
preventing a change of control or changes in our management. These provisions
include:

- the right of the board of directors to elect a director to fill a vacancy
created by the expansion of the board of directors;

- the ability of the board of directors to alter our bylaws without getting
stockholder approval;
20
<PAGE> 25

- the ability of the board of directors to issue, without stockholder
approval, up to 5,000,000 shares of preferred stock with terms set by the
board of directors; and

- the requirement that special meetings of stockholders may only be called
by the chairman of the board or by a majority of the board of directors.

Each of these provisions could discourage potential take-over attempts and
could adversely affect the market price of our common stock.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus, including the sections entitled "Prospectus Summary,"
"Risk Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and "Business," contains forward-looking statements.
These statements relate to future events or our future financial performance,
and involve known and unknown risks, uncertainties, and other factors that may
cause our actual results, levels of activity, performance or achievements to be
materially different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements. These
risks and other factors include, among other things, those listed under "Risk
Factors" and elsewhere in this prospectus. In some cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"expects," "intends," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential," "continue," or the negative of these terms or other
comparable terminology. These statements are only predictions. Actual events or
results may differ materially. In evaluating these statements, you should
specifically consider various factors, including the risks outlined under "Risk
Factors." These factors may cause our actual results to differ materially from
any forward-looking statement.

Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. We are under no duty to update any of the
forward-looking statements after the date of this prospectus to conform these
statements to actual results.

21
<PAGE> 26

CONCURRENT PRIVATE PLACEMENT

We have entered into an agreement to sell to U S WEST Internet Ventures,
Inc., an affiliate of U S WEST, Inc., $3.0 million of our common stock in a
concurrent private placement which will close immediately following the closing
of this offering. U S WEST Internet Ventures will purchase these shares at a
price equal to the initial offering price per share paid by purchasers in this
offering. Based on the assumed price of $10.00 per share, this would amount to
300,000 shares. We have also entered into an agreement with an affiliate of U S
WEST to test our products for potential deployment in U S WEST's network. In
connection with this agreement, we agreed to issue U S WEST Internet Ventures a
warrant to purchase $3.0 million of our common stock at a price equal to the
initial offering price per share paid by purchasers in this offering. Based on
the assumed price of $10.00 per share, this would amount to 300,000 shares.
Unless otherwise indicated, information in this prospectus is based on the
assumption that the concurrent private placement and the issuance of the warrant
occur at the same time as the closing of this offering. U S WEST Internet
Ventures has agreed that it will not, for a period of one year after this
offering, sell or transfer any of the shares of common stock purchased by it in
the concurrent private placement, or upon exercise of the warrant, without our
consent.

USE OF PROCEEDS

Our net proceeds from the sale of the 4,000,000 shares of common stock sold
in this offering are estimated to be approximately $35.7 million, or $41.3
million if the underwriters exercise their over-allotment option in full, based
upon an assumed offering price of $10.00 per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses payable
by us.

Our principal purposes for engaging in this offering are to:

- increase our equity capital;

- create a public market for our common stock; and

- facilitate future access by us to public equity markets.

Our net proceeds from the private sale of 300,000 shares of common stock in
the concurrent private placement at an assumed price of $10.00 are estimated to
be approximately $2.9 million, after deducting estimated offering expenses
payable by us.

We expect to use the net proceeds of this offering and the concurrent
private placement primarily for working capital and general corporate purposes,
including expenditures for research and development and sales and marketing
efforts. In addition, we may use a portion of the net proceeds to fund
acquisitions or investments in complementary businesses, technologies, or
products; however, we currently have no commitments or agreements and are not
involved in any negotiations to do so. Pending use of the net proceeds of this
offering and the concurrent private placement, we intend to invest the net
proceeds in interest-bearing, investment-grade securities.

DIVIDEND POLICY

We have never declared or paid any dividends on our capital stock. We
currently intend to retain future earnings, if any, for use in the operation and
expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future. Any future determination to pay dividends will be at the
discretion of our board of directors and will depend on our results of
operations, financial condition, contractual and legal restrictions and other
factors the board deems relevant. We expect that any lease financing or credit
agreements we enter into will prohibit the payment of dividends without the
lender's consent.

22
<PAGE> 27

CAPITALIZATION

The table below sets forth the following information with respect to our
capitalization:
- the actual capitalization as of March 31, 2000;
- the actual capitalization at March 31, 2000 after giving pro forma effect
to the automatic conversion of all outstanding shares of redeemable
convertible preferred stock into shares of common stock immediately prior
to this offering; and

- the pro forma as adjusted capitalization to give effect to (a) the sale
of 4,000,000 shares of common stock at the assumed initial public
offering price of $10.00 per share in this offering, less underwriting
discounts and commissions and the estimated offering expenses payable by
us and (b) the sale of approximately 300,000 shares of common stock in
the concurrent private placement at the assumed price of $10.00 per
share, less estimated offering expenses payable by us.

This information should be read in conjunction with our consolidated
financial statements and the notes to those statements included in this
prospectus.

<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ---------- ------------
(IN THOUSANDS, EXCEPT SHARE AND PER
SHARE DATA)
<S> <C> <C> <C>
Capital lease obligations and credit facilities, net of
current portion........................................... $ 1,770 $ 1,770 $ 1,770
Redeemable convertible preferred stock:
Series A, $.001 par value; actual -- 11,500,000 shares
authorized, 11,220,000 shares issued and outstanding;
pro forma and pro forma as adjusted -- no shares
authorized, issued or outstanding...................... 5,490 -- --
Series B, $.001 par value; actual -- 11,600,000 shares
authorized, 11,584,848 shares issued and outstanding;
pro forma and pro forma as adjusted -- no shares
authorized, issued or outstanding...................... 14,428 -- --
Series C, $.001 par value; actual -- 8,845,648 shares
authorized, 8,845,648 issued and outstanding; pro forma
and pro forma as adjusted -- no shares authorized,
issued or outstanding.................................. 29,939 -- --
Series D, $.001 par value; actual -- 3,600,000 shares
authorized, 3,455,267 issued and outstanding; pro forma
and pro forma as adjusted -- no shares authorized,
issued or outstanding.................................. 38,425 -- --
Stockholders' equity (deficit):
Preferred Stock, $.001 par value; actual -- 454,352
authorized, no shares issued or outstanding; pro forma
and pro forma as adjusted-- 5,000,000 shares
authorized, no shares issued or outstanding............ -- -- --
Common Stock, $.001 par value; actual -- 90,000,000 shares
authorized and 10,431,331 shares issued and
outstanding; pro forma -- 90,000,000 shares authorized
and 45,537,094 shares issued and outstanding; pro forma
as adjusted -- 200,000,000 shares authorized and
49,837,094 shares issued and outstanding............... 1,209 46 50
Additional paid-in capital................................ 28,693 118,138 156,756
Deferred stock compensation............................... (13,110) (13,110) (13,110)
Accumulated deficit....................................... (51,185) (51,185) (51,185)
-------- -------- --------
Total stockholders' equity (deficit)................... (34,393) 53,889 92,511
-------- -------- --------
Total capitalization................................... $ 55,659 $ 55,659 $ 94,281
======== ======== ========
</TABLE>

Except where indicated otherwise, this table and the capitalization
information included elsewhere in this prospectus exclude an aggregate of
approximately 8,247,244 shares, consisting of:

- 5,385,116 shares subject to options outstanding as of March 31, 2000
under our stock option plan;

- approximately 2,533,553 additional shares reserved for future issuance
under our stock option and employee stock purchase plans; and

- approximately 328,575 shares of common stock issuable upon exercise of
warrants which will be outstanding immediately after the closing of this
offering and the concurrent private placement, based on an assumed
offering price of $10.00 per share.

23
<PAGE> 28

DILUTION

The pro forma net tangible book value of our common stock on March 31,
2000, was $53.9 million, or approximately $1.18 per share. Pro forma net
tangible book value per share represents the amount of our total tangible assets
less total liabilities, divided by the number of shares of common stock
outstanding after giving pro forma effect to the conversion of all outstanding
shares of redeemable convertible preferred stock into 35,105,763 shares of
common stock, each as if they had occurred at March 31, 2000.

Dilution in pro forma net tangible book value per share represents the
difference between the amount per share paid by purchasers of shares of our
common stock in this offering and the pro forma net tangible book value per
share of our common stock immediately afterwards. After giving effect to (a) our
sale of 4,000,000 shares of common stock offered by this prospectus at the
assumed initial public offering price of $10.00 per share, after deducting
underwriting discounts and commissions and the estimated offering expenses
payable by us, and (b) the sale of approximately 300,000 shares in the
concurrent private placement at an assumed price of $10.00 per share, after
deducting estimated offering expenses payable by us, our pro forma net tangible
book value would have been $92.5 million, or approximately $1.86 per share. This
represents an immediate increase in pro forma net tangible book value of $0.68
per share to existing stockholders and an immediate dilution in net tangible
book value of $8.14 per share to new investors.

<TABLE>
<S> <C> <C>
Public offering price per share............................. $10.00
Pro forma net tangible book value per share as of March
31, 2000............................................... $1.18
Increase per share attributable to new investors in this
offering............................................... 0.63
Increase per share attributable to U S WEST Internet
Ventures............................................... 0.05
-----
Pro forma net tangible book value per share after the
offering and the concurrent private placement............. 1.86
------
Dilution in pro forma net tangible book value per share to
new investors............................................. $ 8.14
======
</TABLE>

This table excludes all options and warrants outstanding as of, or issued
subsequent to, March 31, 2000. The exercise of outstanding options and warrants
having an exercise price less than the offering price would increase the
dilutive effect to new investors.

The following table summarizes, on a pro forma basis, as of March 31, 2000,
the differences between the number of shares of common stock (after the
conversion of Series A, B, C and D redeemable convertible preferred stock into
common stock) purchased from us, the total consideration and average price per
share paid by existing stockholders, by the new investors and by U S WEST
Internet Ventures, before deducting the underwriting discounts and commissions
and estimated expenses payable by us, assuming an initial public offering price
of $10.00 per share.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- ------------------------- AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
---------- ---------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders................ 45,537,000 91.4% $ 89,768,000 67.6% $ 1.97
New Investors........................ 4,000,000 8.0 40,000,000 30.1 10.00
U S WEST Internet Ventures........... 300,000 0.6 3,000,000 2.3 10.00
---------- ---- ------------ ----
Total.............................. 49,837,000 100% $132,768,000 100%
========== ==== ============ ====
</TABLE>

If the underwriters' over-allotment option is exercised in full, the number
of shares held by new public investors will be increased to 4,600,000 or
approximately 9.1% of the total number of shares of our common stock outstanding
after this offering and the concurrent private placement.

24
<PAGE> 29

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," appearing elsewhere in this prospectus. The consolidated statement
of operations data for the three years in the period ended December 31, 1999 and
consolidated balance sheet data as of December 31, 1998 and 1999 set forth below
are derived from our audited consolidated financial statements which are
included elsewhere in this prospectus. The consolidated statement of operation
data from October 28, 1996 (inception) through December 31, 1996 and the
consolidated balance sheet data as of December 31, 1996 and 1997 are derived
from audited financial statements of the Company not included herein. The
consolidated statement of operations for each of the three-month periods ended
March 31, 1999 and 2000, and the consolidated balance sheet data at March 31,
2000, are derived from our unaudited interim consolidated financial statements
included elsewhere in this prospectus. In management's opinion, these unaudited
statements have been prepared on substantially the same basis as the audited
consolidated financial statements and include all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
consolidated financial information for the periods presented. The historical
results are not necessarily indicative of results to be expected for any future
period.

Notes 2 and 12 of notes to the consolidated financial statements provide an
explanation of the determination of the weighted average shares used to compute
basic and diluted net loss per share and unaudited pro forma basic and diluted
net loss per share.

<TABLE>
<CAPTION>
OCTOBER 28, 1996
(INCEPTION) THREE MONTHS
THROUGH FISCAL YEAR ENDED DECEMBER 31, ENDED MARCH 31,
DECEMBER 31, -------------------------------- ------------------
1996 1997 1998 1999 1999 2000
---------------- -------- --------- --------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Net revenue.............................. $ -- $ -- $ -- $ 8,466 $ -- $ 7,152
Cost of revenue(1)....................... -- -- -- 6,312 -- 5,087
------ ------- -------- -------- ------- --------
Gross profit............................. -- -- -- 2,154 -- 2,065
Operating expenses
Research and product development(2).... 20 1,126 7,378 12,061 2,467 4,150
Sales and marketing(3)................. -- -- 1,979 7,500 952 3,963
General and administrative(4).......... 13 485 754 1,747 389 794
Amortization of deferred stock
compensation......................... -- -- 52 3,103 238 2,385
------ ------- -------- -------- ------- --------
Total operating expenses............. 33 1,611 10,163 24,411 4,046 11,292
------ ------- -------- -------- ------- --------
Loss from operations..................... (33) (1,611) (10,163) (22,257) (4,046) (9,227)
Other income (expense)................... -- 124 453 1,031 201 385
Provision for income taxes............... 1 1 1 1 -- 1
------ ------- -------- -------- ------- --------
Net loss................................. (34) (1,488) (9,711) (21,227) (3,845) (8,843)
------ ------- -------- -------- ------- --------
Beneficial conversion feature............ -- -- -- -- -- (9,882)
------ ------- -------- -------- ------- --------
Net loss applicable to common
stockholders........................... $ (34) $(1,488) $ (9,711) $(21,227) $(3,845) $(18,725)
====== ======= ======== ======== ======= ========
Basic and diluted net loss per share
applicable to common stockholders...... $(0.09) $ (0.42) $ (2.00) $ (3.29) $ (0.68) $ (2.44)
====== ======= ======== ======== ======= ========
Weighted average shares.................. 393 3,550 4,853 6,447 5,694 7,664
====== ======= ======== ======== ======= ========
Unaudited pro forma basic and diluted net
loss per share......................... $ (0.58) $ (0.22)
======== ========
Weighted average shares used to compute
unaudited pro forma basic and diluted
net loss per share applicable to common
stockholders........................... 36,789 40,797
======== ========
</TABLE>

25
<PAGE> 30

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------ AS OF MARCH 31,
1996 1997 1998 1999 1999
---- ------- -------- -------- ---------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 17 $ 3,704 $ 3,507 $ 15,207 $ 47,798
Working capital....................................... 18 3,579 7,797 18,241 49,586
Total assets.......................................... 20 4,180 11,291 28,678 63,558
Redeemable convertible preferred stock................ -- 5,490 19,918 49,857 88,282
Total stockholders' deficit........................... (26) (1,498) (11,005) (28,565) (34,393)
</TABLE>

---------------
(1) excluding $0, $0, $100, $12 and $268 amortization of deferred stock
compensation for the years ended December 31, 1997, 1998, 1999 and for the
three months ended March 31, 1999 and 2000, respectively.

(2) excluding $0, $20, $873, $95 and $1,278 amortization of deferred stock
compensation for the years ended December 31, 1997, 1998, 1999 and for the
three months ended March 31, 1999 and 2000, respectively.

(3) excluding $0, $31, $1,498, $74 and $681 amortization of deferred stock
compensation for the years ended December 31, 1997, 1998, 1999 and for the
three months ended March 31, 1999 and 2000, respectively.

(4) excluding $0, $1, $632, $57 and $158 amortization of deferred stock
compensation for the years ended December 31, 1997, 1998, 1999 and for the
three months ended March 31, 1999 and 2000, respectively.

26
<PAGE> 31

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

The following commentary should be read in conjunction with "Selected
Consolidated Financial Data" and our consolidated financial statements and the
related notes contained elsewhere in this prospectus. The discussion contains
forward-looking statements that involve risks and uncertainties. Our actual
results may differ materially from those anticipated in these forward-looking
statements as a result of many factors, including but not limited to those set
forth under "Risk Factors" and elsewhere in this prospectus.

OVERVIEW

We design and market telecommunications products that enable the bundling
of voice and data services. Our multiservice broadband access products are
designed to allow our customers to efficiently and cost-effectively deliver and
manage multiple voice and data services over a single broadband access facility
using various broadband access technologies. Our target customers are CLECs,
IXCs, RBOCs, ILECs, and foreign telephone companies.

We were incorporated in October 1996. From inception through March 1999,
our operating activities consisted primarily of developing a research and
development organization, testing prototype designs, staffing of our marketing,
sales, field service and customer support organizations, building a management
team, and establishing relationships with potential customers. We commenced
shipments of our MSAP voice gateways, MSAP concentrators and carrier-class IADs
in the second calendar quarter of 1999. Sales of our MSAP and carrier-class IAD
products constituted approximately 58% and 42%, respectively, of our revenue for
the year ended December 31, 1999 and 48% and 52%, respectively, of our revenue
for the three months ended March 31, 2000. Since inception, we have incurred
significant losses and as of March 31, 2000, we had an accumulated deficit of
$51.2 million. We have not achieved profitability on a quarterly or annual
basis. We expect to incur significant research and development, sales and
marketing, and general and administrative expenses in the future and, as a
result, we will need to generate significantly higher revenue to achieve and
maintain profitability.

To date, we have generated substantially all of our revenue from sales of
our MSAP and carrier-class IAD products and we believe that sales of these
products will continue to account for substantially all of our revenue for the
foreseeable future. We have not generated any significant amount of revenue from
sales of our AccessPilot element management system software or sales of our
extended warranty and customer support services, and we do not expect that sales
of these products and services will comprise a significant portion of our
revenue in the foreseeable future. A majority of all our sales of products are
through our direct sales force and we expect this trend to continue for the
foreseeable future. In addition, we sell a significant amount of our products in
the United States through our OEM relationship with Siemens ICN, an affiliate of
Siemens AG. For the year ended December 31, 1999, direct sales and sales through
Siemens ICN accounted for 84% and 16%, respectively. To date, we have not
generated any revenue from international sales, although we recently initiated
sales and marketing efforts internationally. As part of these efforts, we
recently expanded our relationship with Siemens by entering into an OEM
relationship with Siemens AG.

For the year ended December 31, 1999, sales to our three largest customers
accounted for approximately 90% of our revenue, of which sales to CTC
Communications, FirstWorld Communications and Siemens ICN accounted for
approximately 54%, 20% and 16% of our revenue, respectively. For the three
months ended March 31, 2000, sales to our four largest customers accounted for
approximately 97% of our revenue, of which sales to Siemens ICN, CTC
Communications Group, UniDial Communications, Inc. and Primary Networks
accounted for approximately 39%, 29%, 19% and 10% of our revenue, respectively.
While we anticipate that sales to any specific customer will vary from period to
period, we expect that we will continue to have significant customer
concentration for the foreseeable future. To date, we have derived a significant
portion of our revenue from a small number of orders and all of our sales have
been made on the basis of individual purchase orders, rather than long-term
commitments.

27
<PAGE> 32

We recognize revenue at the time products are shipped to our customers,
provided that a purchase order has been received or a contract has been
executed, there are no uncertainties regarding customer acceptance, the fee is
fixed and determinable and collectibility is deemed probable. If uncertainties
regarding customer acceptance exist, revenue is recognized when such
uncertainties are resolved. Revenue associated with multiple-element
arrangements (products, upgrades, enhancements and post-contract support) are
allocated to each element based on vendor specific objective evidence. Extended
warranty and other service revenues are recognized ratably over the respective
service periods. Such services have not been significant to date. Amounts billed
in excess of revenue recognized are deferred and included as deferred revenue on
the consolidated balance sheet. As of March 31, 2000, we had approximately
$539,000 of deferred revenue. Although we have not generated any support,
installation or training revenue to date, we plan to recognize support revenue
ratably over the support period and installation and training revenue as
services are performed. We generally warrant our products for one year after
sale and provide for estimated future warranty costs at the time we recognize
revenue.

Our cost of revenue consists primarily of amounts paid to third-party
contract manufacturers, personnel and other costs such as royalties on product
shipments, warranty expense and assembly costs. We outsource most of our product
and printed circuit board assembly to contract manufacturers. Avnet procures the
majority of our component kits for its sub-contractor, A-Plus, which assembles,
manufactures and tests our products at its facility in San Jose, California.
Arrow performs the same services as Avnet for a limited number of our products
and also sub-contracts with A-Plus for assembly, manufacturing and testing.

Our MSAP products typically have higher gross margin than our carrier-class
IADs. Our actual mix of products sold will depend significantly on the amount of
orders from new and existing customers, and the stage of their network
deployment. As a result, our gross margin may fluctuate significantly from
period to period. In general, our gross margin will primarily be affected by the
following factors:

- demand for our products and services;

- new product introductions both by us and by our competitors;

- changes in our pricing policies and those of our competitors;

- the mix of our products and services sold;

- the mix of sales channels through which our products and services are
sold; and

- the volume manufacturing pricing we are able to attain from our contract
manufacturers for outsourced manufacturing.

Research and development expenses consist primarily of salaries and related
personnel costs, consulting costs, costs associated with licensed technology,
prototype costs and other costs related to the design, development, testing, and
enhancements of our products. We also incur significant expenses in connection
with the purchase of equipment used to test our products as well as the use of
our products for internal design and learning purposes. We expense our research
and development costs as they are incurred. Several components of our research
and development efforts require significant expenditures, the timing of which
can cause significant quarterly variability in our expenses. We believe that
continued investment in research and development is critical to attain our
strategic product development objectives and to meet changing customer
requirements and technological advances. As a result, we expect our research and
development expenses to increase in the future.

Sales and marketing expenses consist primarily of salaries, commissions and
related expenses for personnel engaged in marketing, sales and customer
engineering support functions, as well as costs associated with promotional and
other marketing expenses. We intend to expand our direct and indirect sales
operations substantially, both domestically and internationally, in order to
increase market penetration of our products. We expect that sales and marketing
expenses will increase substantially over the next year as we hire additional
sales and marketing personnel, initiate additional marketing programs and
establish sales offices in additional domestic and international locations. In
addition, we believe our future success is
28
<PAGE> 33

dependent upon establishing successful relationships with a variety of
distribution partners. To date, we have only entered into OEM relationship with
Siemens AG and one of its affiliates, Siemens ICN. To be successful, we must
reach agreements with additional distribution partners, both domestically and
internationally. Similarly, the complexity of our products require highly
trained customer service, professional services and support personnel. We expect
to significantly expand our customer service, professional services and support
organization to meet these requirements. We believe that continued investment in
sales and marketing is critical to our success and expect these expenses to
increase in the future.

General and administrative expenses consist primarily of salaries and
related expenses for executive, finance, human resources, information
technology, and administrative personnel, as well as recruiting, professional
fees, insurance and other general corporate expenses. We expect general and
administrative expenses to increase in the future as we add personnel and incur
additional costs related to the growth of our business and operation as a public
company.

Currently, competition in our market is intense. We continue to add
features to our products based on the needs of our customers. This has resulted
in increased research and development expenses and may result in reduced
operating margins. We expect competition to increase in the future. This
competition may also result in price reductions and loss of market share. We
expect that product life cycles will remain relatively short and that the
average selling price and gross margin for our products will decline as each
product matures. To offset such declines, we must introduce new, higher
performance products on a timely basis. Further, we must reduce our
manufacturing costs on a per unit basis and sell sufficient volumes in order to
maintain our gross margin. If we fail to reduce our manufacturing costs on a per
unit basis or achieve volume shipment requirements, our gross margin will
decline. Any of the above events could have a material and adverse effect on our
business, results of operations and financial condition.

In 1998 and 1999, we recorded total deferred stock compensation of
approximately $13.2 million, representing the difference between the deemed
value of our common stock for accounting purposes and the exercise price of the
options at their date of grant. Options granted are typically subject to a four
year vesting period. Stock issuances are generally subject to our right to
repurchase the stock, which lapses over a four year period. We are amortizing
the deferred stock compensation over the vesting periods of the applicable
options, or repurchase periods for the exercised options, generally over four
years. After taking into account the approximately $3.2 million of amortization
charges we recognized in 1998 and 1999, the outstanding annual amortization for
total amount of deferred stock compensation recognized as of December 31, 1999
will be approximately $5.4 million, $2.8 million, $1.5 million and $0.5 million
for the years ending December 31, 2000, 2001, 2002 and 2003, respectively. In
addition, we recorded approximately $5.3 million of deferred stock compensation
for the three months ended March 31, 2000. This amount will be amortized over
the vesting period of the underlying options.

In connection with the issuance of the Series D preferred stock in February
and March 2000, we incurred a non-cash charge to equity of approximately $9.9
million relating to the beneficial conversion feature on the Series D preferred
stock. This charge was calculated using the deemed fair value of our common
stock on the date of issuance, subtracting the conversion price and then
multiplying the resulting amount by the number of shares of common stock into
which the shares of Series D preferred stock are convertible. As a result of
this non-cash equity charge, our net loss per share attributable to common
shareholders was adversely impacted for the three months ending March 31, 2000.

In connection with an agreement with an affiliate of U S West, Inc. to test
certain of our products for potential deployment in U S West's network, we
agreed to issue a two-year warrant to U S WEST Internet Ventures to purchase
$3.0 million of our common stock at a price per share equal to the initial
public offering price per share. We expect to record sales and marketing
expenses of approximately $1.4 million for the fair value of the warrant upon
its issuance.

29
<PAGE> 34

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2000 AND 1999

Net revenue

We did not generate any revenue in the quarter ended March 31, 1999, as we
did not sell any of our products until April 1999. We recognized net revenue of
approximately $7.2 million for the three months ended March 31, 2000. Net
revenue for the three months ended March 31, 2000 was primarily derived from
sales of our MSAP voice gateways and concentrators, which amounted to
approximately $3.5 million, and from sales of our carrier-class IADs, which
amounted to approximately $3.7 million. Net revenue from sales to our four
largest customers accounted for approximately 97% of our net revenue for the
three months ended March 31, 2000.

Cost of revenue

Cost of revenue for the three months ended March 31, 2000 was approximately
$5.1 million, or approximately 71% of net revenue. Cost of revenue in the three
months ended March 31, 2000 consisted primarily of amounts paid to third-party
contract manufacturers, personnel and other costs such as royalties on product
shipments, warranty expense, inventory reserves and assembly costs. We did not
have any cost of revenue for the three months ended March 31, 1999 because we
did not begin production or sales of our products until April 1999. We expect
that our cost of revenue will increase in absolute dollars in future periods but
will vary as a percentage of net revenue depending on the mix and average
selling prices of products sold.

Research and product development expenses

Research and product development expenses for the three months ended March
31, 2000 were approximately $4.2 million, which represented an increase of
approximately $1.7 million, or approximately 68%, from approximately $2.5
million for the three months ended March 31, 1999. This increase was primarily a
result of additional personnel costs, higher design and prototype expenses and
higher costs of using our products for internal design and testing purposes. As
a percentage of net revenue, research and product development expenses for the
three months ended March 31, 2000 were approximately 58%. Research and
development expenditures are essential to our future success and we expect that
these expenses will significantly increase in future periods.

Sales and marketing expenses

Sales and marketing expenses for the three months ended March 31, 2000 were
approximately $4.0 million, which represented an increase of approximately $3.0
million, or approximately 300%, from approximately $1.0 million for the three
months ended March 31, 1999. The increase was primarily attributable to our
expanded efforts to sell and market our MSAP and carrier-class IAD products,
including increased costs related to the hiring of additional sales and systems
engineers, customer support, product marketing, and key management personnel, as
well as increased advertising, trade shows and public relations costs,
commission expenses, and demonstration equipment costs. We expect sales and
marketing expenses to significantly increase in future periods as we continue to
expand our domestic and international sales and marketing efforts.

General and administrative expenses

General and administrative expenses for the three months ended March 31,
2000 were approximately $794,000, which represented an increase of approximately
$405,000, or approximately 104%, from approximately $389,000 for the three
months ended March 31, 1999. This increase was primarily due to the hiring of
additional general and administrative personnel necessary to support and scale
our operations and increased legal and accounting expenses. We expect our
general and administrative expenses to increase in future periods as we hire
additional personnel required to support the expansion of our operations.

30
<PAGE> 35

Amortization of deferred stock compensation

We recorded approximately $2.4 million in deferred stock compensation in
connection with employee and consultant stock option grants for the three months
ended March 31, 2000. We recorded approximately $238,000 in deferred stock
compensation for the three months ended March 31, 1999.

Other income (expense)

Our other income (expense) consists primarily of interest earned on our
cash balances and cash equivalents partially offset by interest expenses paid on
capital leases and credit facilities. Other income (expense) for the three
months ended March 31, 2000 was approximately $385,000, which represented an
increase of approximately $184,000, or approximately 92% from approximately
$201,000 for the three months ended March 31, 1999. This increase was primarily
attributable to interest earned on higher average cash balances throughout the
relevant period, and higher weighted-average rates of interest.

FISCAL YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999

Net revenue

We began generating net revenue in the second quarter of 1999. We
recognized net revenue of approximately $8.5 million in 1999. Net revenue was
primarily derived from sales of our MSAP voice gateways and concentrators, which
amounted to approximately $4.9 million, and from sales of our carrier-class
IADs, which amounted to approximately $3.6 million. Prior to 1999, we did not
generate any net revenue. Net revenue from sales to our three largest customers
accounted for approximately 90% of our net revenue in 1999.

Cost of revenue

Cost of revenue for the year ended December 31, 1999 was approximately $6.3
million, or approximately 75% of net revenue. Cost of revenue as a percentage of
net revenue in 1999 was high due to the large costs associated with the initial
start-up of manufacturing operations. These costs included adding manufacturing
personnel, expanding our facilities, establishing final product testing
capabilities, and establishing operations with outside contract manufacturers,
as well as higher per-unit costs due to low initial volumes of our products. We
did not have any cost of revenue in either 1997 or 1998 because we did not begin
production or sales of our products until 1999.

Research and product development expenses

Research and product development expenses for the year ended December 31,
1999 were approximately $12.1 million, which represented an increase of
approximately $4.7 million, or approximately 64%, from approximately $7.4
million for the year ended December 31, 1998. This increase was primarily a
result of additional personnel costs, increased costs associated with
third-party certification of our products, higher design and prototype expenses
and higher costs of using our products for internal design and testing purposes.
As a percentage of net revenue, research and product development expenses for
the year ended December 31, 1999 were approximately 142%.

Research and product development expenses for the year ended December 31,
1998 were approximately $7.4 million, which represented an increase of
approximately $6.3 million, or approximately 573%, from approximately $1.1
million for the year ended December 31, 1997. These increases resulted primarily
from additional personnel costs, increased costs associated with third-party
certification of our products, higher design and prototype expenses and higher
costs of using our products for internal design and testing purposes.

Sales and marketing expenses

Sales and marketing expenses for the year ended December 31, 1999 were
approximately $7.5 million, which represented an increase of approximately $5.5
million, or approximately 275%, from approximately $2.0 million for the year
ended December 31, 1998. The increase was primarily attributable to our
aggressive efforts to launch our MSAP and carrier-class IAD products, including
increased costs related to

31
<PAGE> 36

the hiring of additional sales and systems engineers, customer support, product
marketing, and key management personnel, as well as increased advertising, trade
shows and public relations costs.

Our sales and marketing expenses increased from zero for the year ended
December 31, 1997 to approximately $2.0 million for the year ended December 31,
1998. This increase was primarily due to the hiring of sales and systems
engineers, and product marketing personnel, as well as advertising, trade shows
and public relations costs.

General and administrative expenses

General and administrative expenses for the year ended December 31, 1999
were approximately $1.7 million, which represented an increase of approximately
$946,000, or approximately 125%, from approximately $754,000 for the year ended
December 31, 1998. This increase was primarily due to the hiring of additional
general and administrative personnel and increased legal expenses necessary to
support and scale our operations.

General and administrative expenses for the year ended December 31, 1998
were approximately $754,000, which represented an increase of approximately
$269,000, or approximately 55%, from approximately $485,000 for the year ended
December 31, 1997. This increase was primarily due to the hiring of additional
general and administrative personnel necessary to support and scale our
operations.

Amortization of deferred stock compensation

We recorded approximately $12.5 million in deferred stock compensation in
connection with employee and consultant stock option grants in 1999. We recorded
approximately $716,000 in deferred stock compensation in 1998. We recognized
amortization of stock compensation of approximately $3.1 million for the year
ended December 31, 1999 and approximately $52,000 for the year ended December
31, 1998.

Other income (expense)

Our other income (expense) consists primarily of interest earned on our
cash balances and cash equivalents partially offset by interest expenses paid on
capital leases and credit facilities. Other income (expense) for the year ended
December 31, 1999 was approximately $1.0 million, which represented an increase
of approximately $547,000, or approximately 121% from approximately $453,000 for
the year ended December 31, 1998. This increase was primarily attributable to
interest earned on the net proceeds of our Series C preferred stock financing in
February 1999.

Other income (expense) for the year ended December 31, 1998 was
approximately $453,000, which represented an increase of approximately $329,000,
or approximately 265% from approximately $124,000 for the year ended December
31, 1997. This increase was primarily attributable to interest earned on the net
proceeds of our Series B preferred stock financing in May 1998, partially offset
by miscellaneous non-operating expenses and interest expense on a bank loan.

Income taxes

From inception through December 31, 1999, we incurred net losses for
federal and state tax purposes and have not recognized any tax provision or
benefit. As of December 31, 1999, we had federal and state net operating loss
carryforwards of approximately $27.2 million and $27.2 million, respectively, to
offset future taxable income which will begin to expire in varying amounts
beginning in 2012 and 2005, respectively. Given our limited operating history,
losses incurred to date and the difficulty in accurately forecasting our future
results, there are substantial risks that we may not achieve the necessary
profitability required to realize the tax benefits of such loss carryforwards.
Accordingly, we have recorded a 100% valuation allowance. In addition, our
ability to utilize net operating losses and tax credits in the future may be
limited if there is a significant change in our ownership. The annual limitation
may result in the expiration of net operating losses and tax credits before
utilization. See note 5 of the notes to our consolidated financial statements.

32
<PAGE> 37

QUARTERLY RESULTS OF OPERATIONS

The following table sets forth, for the periods presented, certain data
from our consolidated statement of operations, both in absolute dollar figures
and as a percentage of net revenue. The consolidated statement of operations
data have been derived from our unaudited consolidated financial statements. In
management's opinion, these statements have been prepared on substantially the
same basis as the audited consolidated financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the consolidated financial information for the periods
presented. This information should be read in conjunction with our consolidated
financial statements and the notes thereto included elsewhere in this
prospectus. The operating results in any quarter are not necessarily indicative
of the results that may be expected for any future period. We have incurred net
losses in each quarter since inception, and we expect to continue to incur
losses for the foreseeable future.

<TABLE>
<CAPTION>
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1999(1) 1999(1) 1999(1) 1999 2000
--------- -------- ------------- ------------ ---------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue............................... $ -- $ 1,245 $ 2,883 $ 4,338 $ 7,152
Cost of revenue........................... -- 1,167 2,478 2,667 5,087
------- ------- ------- ------- -------
Gross profit.............................. -- 78 405 1,671 2,065
Operating expenses:
Research and product development........ 2,467 2,200 3,280 4,114 4,150
Sales and marketing..................... 952 1,648 1,963 2,937 3,963
General and administrative.............. 389 420 462 476 794
Amortization of deferred stock
compensation......................... 238 408 661 1,796 2,385
------- ------- ------- ------- -------
Total operating expenses............. 4,046 4,676 6,366 9,323 11,292
------- ------- ------- ------- -------
Loss from operations...................... (4,046) (4,598) (5,961) (7,652) (9,227)
Other income (expense).................... 201 378 313 139 385
------- ------- ------- ------- -------
Loss before provision for income taxes.... (3,845) (4,220) (5,648) (7,513) (8,842)
Provision for income taxes................ -- -- -- 1 1
------- ------- ------- ------- -------
Net loss.................................. $(3,845) $(4,220) $(5,648) $(7,514) $(8,843)
------- ------- ------- ------- -------
Beneficial conversion feature............. -- -- -- -- (9,882)
------- ------- ------- ------- -------
Net loss applicable to common
stockholders............................ $(3,845) $(4,220) $(5,648) $(7,514) $(18,725)
======= ======= ======= ======= =======
AS A PERCENTAGE OF NET REVENUE:
Net revenue............................... NM 100% 100% 100% 100%
Cost of revenue........................... -- 94 86 61 71
------- ------- ------- ------- -------
Gross profit.............................. -- 6 14 39 29
------- ------- ------- ------- -------
Operating expenses:
Research and product development........ -- 177 114 95 58
Sales and marketing..................... -- 132 68 68 56
General and administrative.............. -- 33 16 11 11
Amortization of deferred stock
compensation......................... -- 33 23 41 33
------- ------- ------- ------- -------
Total operating expenses............. -- 375 221 215 158
Loss from operations...................... -- (369) (207) (176) (129)
Other income (expense).................... -- 30 11 3 5
------- ------- ------- ------- -------
Net loss.................................. NM (339)% (196)% (173)% (124)%
------- ------- ------- ------- -------
Beneficial conversion feature............. -- -- -- -- (138)
------- ------- ------- ------- -------
Net loss applicable to common
stockholders............................ NM (339)% (196)% (173)% (262)%
</TABLE>

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

(1) Accelerated Networks reports its quarterly results based on a thirteen week
accounting calendar. Accordingly, the actual quarter end for these periods
was April 2, 1999, July 2, 1999 and October 1,

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<PAGE> 38

1999. However, for financial presentation purposes, we report our quarterly
results as of the last calendar day of the last full month within the
period.

Our quarterly operating results are likely to vary significantly in the
future due to a variety of factors, many of which are outside of our control. If
our quarterly or annual operating results do not meet the expectations of
investors and securities analysts, the trading price of our common stock could
decline significantly. Please see "Risk Factors -- If our revenue and operating
results fall below analysts' and investors' expectations, our stock price could
significantly decline" on page 5 for some of the factors that could affect our
quarterly or annual operating results.

We plan to increase our operating expenses significantly to fund greater
levels of research and development, expand our sales and marketing operations,
broaden our customer support capabilities and develop new distribution channels.
We also plan to expand our general and administrative capabilities to address
the increased reporting and other administrative demands that will result from
this offering and the expected growth of our business. Our operating expenses
are based largely on anticipated organizational growth and revenue trends and a
significant amount of our expenses are, and will continue to be, fixed. In
addition, we may be required to spend more in research and development than
originally budgeted in order to respond to industry trends. As a result of the
above, any delay in generating or recognizing revenue could cause significant
variations in our operating results from quarter to quarter and could result in
substantial operating losses.

Because of the above, we believe that quarter-to-quarter comparisons of our
operating results are not a good indication of our future performance. You
should not rely on our results or growth for any quarterly or annual period as
an indication of our future performance. It is likely that in the future, our
quarterly or annual operating results may be below the expectations of public
market analysts and investors. In this event, the price of our common stock
could significantly decline.

LIQUIDITY AND CAPITAL RESOURCES

Since inception, we have financed our operations primarily through private
sales of approximately $88.6 million of redeemable convertible preferred
securities as well as through a $2.5 million line of credit with Comerica Bank
and a $1.5 million equipment loan facility with Phoenix Leasing Incorporated. We
also have a $4.0 million revolving loan facility with Comerica Bank. We have not
drawn down on our revolving loan facility with Comerica Bank.

At March 31, 2000, we had cash and cash equivalents of approximately $47.8
million, approximately $39,000 in outstanding capitalized lease obligations,
$2.4 million of outstanding debt under our line of credit with Comerica Bank,
and approximately $282,000 of outstanding obligations under our equipment loan
facility with Phoenix Leasing. Amounts outstanding under our line of credit with
Comerica Bank bear interest at Comerica's base rate, plus 0.5% per annum.
Amounts outstanding under our equipment loan facility with Phoenix Leasing bear
interest at approximately 15% per annum. Any amounts which become outstanding
under our revolving loan facility with Comerica Bank will bear interest at
Comerica's base rate. As of March 31, 2000, Comerica's base rate was 9.0%.

We used approximately $4.7 million in cash for operating activities for the
three months ended March 31, 2000, an increase of approximately $0.8 million
from the approximately $3.9 million used for operating activities for the three
months ended March 31, 1999. The increase was primarily due to an increase in
our net loss from approximately $3.8 million for the three months ended March
31, 1999 to approximately $8.8 million for the three months ended March 31,
2000, and an increase in accounts receivable of approximately $1.3 million for
the three months ended March 31, 2000 partially offset by increased non-cash
charges of approximately $3.0 million and increased accounts payable and accrued
expenses of approximately $2.3 million for the three months ended March 31,
2000.

We used approximately $22.5 million in cash for operating activities in
1999, an increase of approximately $14.5 million from the approximately $8.0
million used in 1998. The increase was primarily due to an increase in our net
loss from approximately $9.7 million in 1998 to approximately $21.2 million

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<PAGE> 39

in 1999, approximately $4.5 million in increased accounts receivable and
approximately $3.8 million in increased inventory in 1999, partially offset by
approximately $4.4 million in increased non-cash charges and approximately $1.7
million in increased accounts payable and accrued expenses.

We used approximately $8.0 million in cash for operating activities in
1998, an increase of approximately $6.7 million from approximately $1.3 million
used in 1997. The increase was primarily due to an increase in our net loss from
approximately $1.5 million in 1997 to approximately $9.7 million in 1998
partially offset by approximately $335,000 in increased non-cash charges and
approximately $1.8 million in increased accounts payable and accrued expenses.

We used approximately $1.6 million for our investing activities in the
three months ended March 31, 2000, a difference of approximately $7.2 million
from the approximately $5.6 million generated from investing activities for the
three months ended March 31, 1999. The difference was due primarily to the
proceeds of approximately $8.0 million generated from the sale of investments,
partially offset by the purchase of investments of approximately $2.0 million in
the three months ended March 31, 1999.

We generated approximately $1.4 million in cash from our investing
activities in 1999, an increase in cash of approximately $8.4 million from the
approximately $7.0 million used in 1998. The increase in cash was due to the
maturity of approximately $8.0 million of available-for-sale securities,
partially offset by our purchase of approximately $4.5 million of property and
equipment and approximately $2.0 million of available-for-sale securities. We
used approximately $7.0 million in cash for investing activities in 1998, an
increase of approximately $6.6 million from the approximately $440,000 used in
1997. The increase was primarily due to an increase in our capital expenditures
from approximately $440,000 in 1997 to approximately $1.1 million in 1998 plus
the purchase of approximately $6.0 million of available-for-sale securities in
1998.

Cash provided by financing activities for the three months ended March 31,
2000 was approximately $38.9 million, up from approximately $30.0 million for
the three months ended March 31, 1999. Cash provided by financing activities in
1999 was approximately $32.7 million, up from approximately $14.9 million in
1998 and approximately $5.4 million in 1997. Cash provided by financing
activities primarily consists of funds received from issuances of redeemable
convertible preferred stock and interest on outstanding credit balances, our
term loan facility, our equipment loan facility and stock option exercises. Cash
provided by financing activities is partially offset by principal and interest
payments on our term loan facility, equipment loan facility and capitalized
lease obligations. The increase in the three months ended March 31, 2000 of
approximately $8.9 million was primarily due to increased proceeds from the
issuance of redeemable convertible preferred stock. The increase in 1999 of
approximately $17.8 million from 1998 is primarily due to increased proceeds
from redeemable convertible preferred stock of approximately $15.5 million and
from proceeds from our credit facilities of approximately $2.5 million. The
increase in 1998 of approximately $9.5 million is primarily due to increased
proceeds from redeemable convertible preferred stock of approximately $8.9
million.

We currently have no significant commitments for capital expenditures or
obligations outstanding under capital lease commitments. We anticipate that we
will increase our capital expenditures and capital lease commitments consistent
with our anticipated growth in operations, infrastructure, including facilities
and systems, and personnel.

We expect to experience significant growth in our operating expenses for
the foreseeable future. As a result, we anticipate that operating expenses, as
well as planned capital expenditures, will constitute a material use of our cash
resources. In addition, we may use cash resources to fund acquisitions or
investments in complementary businesses, technologies or product. We believe
that our cash on hand, available borrowings under our credit facilities and the
net proceeds from the sale of the common stock in this offering and the
concurrent private placement will be sufficient to meet our working capital and
capital expenditure requirements for at least the next 12 months. In the event
additional financing is required, we may not be able to raise it on acceptable
terms, or at all.

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<PAGE> 40

YEAR 2000 ISSUE

Prior to December 31, 1999 many computer systems, software products and
other control devices were unable to accept four digit entries to distinguish
21st century dates from 20th century dates. As a result, these computer systems,
software products and control devices needed to be upgraded or replaced in order
to operate properly in the Year 2000 and beyond.

We have designed our products to be Year 2000 compliant. However, there can
be no assurance that our current products do not contain undetected errors or
defects associated with Year 2000 date functions. If such errors or defects do
exist, we may incur material costs to resolve them.

Our products utilize internally-developed, third-party provided hardware
and licensed software. We have completed an internal systems and processes
review for Year 2000 compliance. We have contacted our third-party providers to
gauge the Year 2000 compliance at their products. Based on these vendors'
representations, we believe that the third-party products we use are Year 2000
compliant. There can be no assurance, however, that we will not experience
unanticipated negative consequences, including material costs, caused by
undetected errors or defects in the technology used in our products.

We have no specific contingency plan to address the effect of Year 2000
noncompliance. While we have not experienced any Year 2000 problems to date, if
in the future it comes to our attention that certain of our products need
modification, or certain of our third-party products are not Year 2000
compliant, then we will seek to make modifications. In such cases, we expect
such modifications to be made on a timely basis and we do not believe that the
cost of such modifications will have a material effect on our operating results.
There can be no assurance, however, that we will be able to modify our products,
services and systems in a timely and successful manner to comply with Year 2000
requirements, which could have a material adverse effect on our business.

DISCLOSURES ABOUT MARKET RISK

We do not hold financial instruments for trading or speculative purposes.
Our financial instruments have short maturities and therefore are not subject to
significant interest rate risk. We generally place our marketable security
investments in high credit quality instruments, primarily corporate obligations
with contractual maturities of less than one year. Our financial liabilities
that are subject to interest rate risk are our credit facilities, which have
stated interest rates based on the bank's prime rate. We do not expect any
material loss from our marketable security investments and therefore believe
that our potential interest rate exposure is not material. We do not use any
derivatives or similar instruments to manage our interest rate risk.

We currently have product development activities in India. We record
expenses for our subsidiary in India in Indian Rupees. Accordingly, our
operating results are also exposed to changes in exchange rates between the U.S.
dollar and Indian Rupee. While to date, our results have not materially been
affected by any changes in currency exchange rates, devaluation of the U.S.
dollar against the Indian Rupee would adversely affect our expenses for our
Indian subsidiary.

RECENT ACCOUNTING PRONOUNCEMENTS

In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") No. 98-1, "Accounting for the
Cost of Computer Software Developed or Obtained for Internal Use." SOP 98-1 is
effective for consolidated financial statements for years beginning after
December 15, 1998. SOP 98-1 provides guidance over accounting for computer
software developed or obtained for internal use including the requirement to
capitalize specified costs and amortization of such costs. We have adopted the
provisions of SOP 98-1 for our year ended December 31, 1999. The implementation
of SOP 98-1 did not have a material effect on our consolidated financial
statements.

In April 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs of
Start-Up Activities." SOP 98-5 requires that all start-up costs related to new
operations must be expensed as incurred. In addition, start-up costs that were
capitalized in the past must be written off when SOP 98-5 is adopted. We adopted
the SOP 98-5 effective January 1, 1999. The implementation of SOP 98-5 effective
January 1, 1999. The implementation of SOP 98-5 did not have a material effect
on our consolidated financial statements.

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<PAGE> 41

BUSINESS

OVERVIEW

We develop and market telecommunications products that enable the bundling
of voice and data services over a single broadband access network. Our
multiservice broadband access products are designed to allow our customers to
efficiently and cost-effectively deliver and manage multiple voice and data
services using various broadband access technologies, including digital
subscriber line, or DSL, copper-line technologies such as T1 and NxT1, and
higher bandwidth technologies such as DS3. Our comprehensive family of
multiservice broadband access products include our POP-located MSAP voice
gateways, central office MSAP concentrators, customer located carrier-class IADs
and software-based element management systems. Our multiservice broadband access
products are designed to facilitate interoperability with different types of
equipment deployed in service provider networks and comply with relevant
industry standards. We believe this allows for efficient and seamless
installation and provides our customers with greater flexibility in designing
and deploying their networks. Our target customers are competitive local
exchange carriers, or CLECs, interexchange carriers, or IXCs, regional bell
operating companies, or RBOCs, incumbent local exchange carriers, or ILECs and
foreign telephone companies.

INDUSTRY BACKGROUND

The growing need for high-speed broadband communications

In the last few years, the volume of data traffic over the Internet and
private communications networks has grown significantly, fueled by increasing
numbers of users and continued proliferation of Internet-based applications such
as e-commerce. International Data Corporation, or IDC, estimates that there were
69 million Internet users in the U.S. at the end of 1998 and anticipates that
this number will increase to approximately 197 million by the end of 2003. IDC
also estimates that the total value of products and services sold over the
Internet to U.S. consumers will increase from approximately $13.5 billion in
1998 to approximately $119 billion by 2003. In addition to e-commerce, business
usage of the Internet for applications such as supply chain management, Web
hosting, remote access for telecommuters and other services has generated a
significant amount of traffic for the existing communications infrastructure.
According to RHK, a market research and consulting firm, Internet traffic will
increase 4,600% between 1999 and 2003.

In an effort to meet this expected growth in data traffic, many service
providers have made significant investments in fiber optic core network
infrastructure to improve bandwidth and speed in the Internet backbone.
Similarly, many businesses have made significant investments to increase the
capacity of their premises' data network infrastructure. However, an access
bottleneck still exists between the ends of the fiber optic networks at
telephone companies' central offices and the customer premises. This segment of
the network, generally connected through the existing copper-pair
infrastructure, is commonly known as the "last mile."

Evolution of broadband access technologies

Historically, the telecommunications industry in the United States and
internationally was highly regulated, with both local and long distance service
providers operating as monopolies. In the U.S., ILECs had a monopoly on the last
mile and primarily offered T1 and Integrated Services Digital Network, or ISDN,
services to address their customers' needs for high speed connectivity. A T1
line is a phone connection supporting voice or data traffic at high speeds, and
ISDN is a communication standard for sending voice, video and data on digital or
normal telephone lines. Although T1 technology helped to fill the need for
broadband access for large businesses, which used leased T1 lines as a means to
create intra-enterprise private communications networks, it was not widely
adopted by small and medium size businesses, telecommuters and residential
users, largely because of its high cost. Analog dial-up modems and ISDN terminal
adapters are also limiting because of their lower access-speeds. To address
these issues, service providers are continuing to take advantage of new
technologies such as DSL to offer cost-

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<PAGE> 42

effective broadband access to their customers. DSL technologies use
sophisticated schemes to pack data onto copper wires, and are sometimes referred
to as last-mile technologies because they are used only for connections from a
telephone switching station to a home or office. In addition, declining costs
have now made T1 services a viable means for service providers to deliver
broadband access to medium-size business customers as well.

The competitive telecommunications environment

Two broad trends in the telecommunications industry are converging,
resulting in a new type of service provider: the integrated communications
provider, or ICP. The first trend began long before the 1996 Telecommunications
Reform Act and resulted in competitive access providers, which are now referred
to as "first generation" CLECs. Historically, CLECs have primarily focused on
delivering voice services to large and medium-size business customers and,
consequently, generally have designed their access networks to deliver a single
service, such as voice, over a single access facility, such as a T1 line. As a
result, CLECs often had to use parallel access networks, one for delivering
voice traffic and the other for data traffic, in order to provide their
customers with both voice and data services. While these CLECs could offer
competitive pricing relative to ILECs, heightened competition and increased
price pressure, coupled with the high underlying cost of maintaining parallel
access networks, has made it increasingly difficult for CLECs to compete.

The second trend began subsequent to the 1996 Telecommunications Reform Act
and resulted in a new type of CLEC commonly called a "data CLEC" or a "second
generation" CLEC. Data CLECs primarily constructed DSL-based access networks
initially intended for the delivery of a single service -- high speed Internet
access -- to residential and business customers. Data CLECs typically lease the
copper-pair infrastructure from ILECs, add DSL functionality, and sell broadband
access on a wholesale basis to Internet service providers, or ISPs, which then
market this access to end customers. Data CLECs are also finding it difficult to
compete in this market only having a single service to offer their customers.

The following diagram illustrates how service providers currently deliver
either single services over single access networks or multiple services over
parallel access networks:

[CURRENT SERVICE DELIVERY MODEL]

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<PAGE> 43

[Graphic depicting a diagram entitled "Current service delivery model,"
which illustrates the current method of delivering single or multiple services
such as Internet, data or voice over separate access networks including digital
subscriber lines, T1 and traditional telephone lines. Graphic also lays out the
different equipment necessary to transmit voice data traffic from a service
provider the end-user.]

Many first generation CLECs need to consolidate their voice and data access
networks, currently used to deliver multiple services, in order to reduce costs
and compete more effectively. Data CLECs in turn need to provide additional
services over their existing access networks in order to increase their revenue
and compete more effectively. We believe the competitive dynamics discussed
above are driving first generation CLECs and data CLECs towards becoming
integrated communications providers.

The need for multiservice broadband access solutions

We believe that service providers must be able to cost-effectively bundle
multiple voice and data services over a single broadband access network in order
to compete more effectively. More specifically, we believe that these service
providers require multiservice broadband access solutions that:

- allow for the delivery of a rich set of bundled voice and data services
over a single broadband access facility;

- enable rapid deployment of additional services;

- provide a high degree of reliability and scalability;

- support multiple broadband access technologies;

- provide for ease of management; and

- interoperate with other network elements.

THE ACCELERATED NETWORKS SOLUTION

We develop and market multiservice broadband access solutions that enable
service providers to deliver and manage a wide range of voice and data services
efficiently and cost-effectively over a single broadband access network. We
offer a wide range of products, including our MSAP voice gateways, MSAP
concentrators, a family of carrier-class IADs and software-based element
management systems, which enable service providers to offer their end users
fully integrated, high-quality voice and data services. Using our products,
service providers can leverage emerging technologies, such as delivering voice
over digital subscriber line, or VoDSL, and enabling frame relay over digital
subscriber line, or FRoDSL, over a single broadband access facility.

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<PAGE> 44

The following diagram illustrates how service providers can deploy our
multiservice broadband access products in their networks to deliver multiple
voice and data services over a single broadband access facility:

[ARTWORK]
[Graphic depicting a diagram entitled "Multiservice delivery model," which
illustrates how our multiservice broadband access products, including our MSAP
voice gateway, MSAP Concentrator and carrier-class IAD, deliver multiple
services, including voice, data and Internet traffic over a single DSL, TI or
NxT1 broadband network]

Enable rich set of bundled services

Our multiservice broadband access products are designed to enable service
providers to efficiently and cost-effectively provide their end-users with a
broad range of voice and data services, including high speed Internet access,
local dial tone, long distance voice, frame relay access, voice and data virtual
private networks, or VPNs. Our multiservice broadband access products enable
service providers to deliver these services over a single broadband access
facility, using either DSL, T1, NxT1 or DS3 technologies, instead of having to
use parallel networks for their voice and data traffic. As a result, service
providers are able to reduce their total network costs. In addition, because our
multiservice broadband access products facilitate the bundling of multiple voice
and data services, service providers are better able to differentiate themselves
by offering tailored services and a single point of contact to their customers,
ultimately helping to increase their revenue and reduce their customer churn.

Facilitate rapid deployment of additional services

Our multiservice broadband access products enable service providers to
deploy services to their customers more quickly than is currently possible using
traditional access products. Our multiservice broadband access products enable
service providers to meet their customers' initial voice and/or data needs and
allow for efficient and cost-effective provisioning of additional voice and data
services as their customers' demands change. In addition, AccessPilot, our
software-based element management system, allows service providers to remotely
"turn on" new services to their customers from a central location.

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<PAGE> 45

Broaden service provider target market

Our multiservice broadband access products are designed to enable service
providers to cost-effectively address the needs of multiple target markets.
These target markets include large, medium and small businesses, branch offices,
remote offices, small office/home office and telecommuters. In particular, we
offer service providers a broad range of carrier-class IADs, each with varying
features and functionality, which enable them to better address the bandwidth,
service and other requirements of their customers. In addition, because our
carrier-class IADs support the delivery of bundled voice and data services over
DSL, T1, NxT1 and DS3 access technologies, our products enable service providers
to effectively extend their service reach.

Enhance reliability and scalability

Our MSAP voice gateways and MSAP concentrators have been certified to be
compliant with Telcordia Technologies Network Equipment Building System, or
NEBS, an industry standard for equipment deployed in central office locations,
which is a requirement for their deployment in carrier central office locations.
In addition, because our customers are delivering mission-critical services such
as toll-quality local and long distance voice to their customers, we have
designed our products to comply with rigorous industry standards for
reliability. Our multiservice broadband access products are also highly modular
and flexible, providing a migration path for service providers to scale their
networks as their customers' requirements evolve.

Enhance network flexibility by interoperating with other network elements

Our multiservice broadband access products are designed to interoperate
with different types of equipment deployed in service provider networks, such as
Class 5 voice switches, DSL access multiplexers, or DSLAMs, asynchronous
transfer mode, or ATM, switches and customer premises equipment, or CPE. Toward
this end, we have successfully conducted joint interoperability testing with
Lucent, Nortel and Siemens AG for their Class 5 voice switches, Lucent and
Nortel for their DSLAMs, and Efficient Networks for their CPE, to enhance the
continued end-to-end functionality of our solutions. In addition, we have
performed in-house interoperability testing of our products with a number of
DSLAM and ATM switch products from Alcatel, Cisco, Marconi Communications, Nokia
and PairGain. We believe that our products comply with relevant industry
standards, allowing for efficient and seamless installation and providing our
customers with greater flexibility in designing and deploying their networks.

THE ACCELERATED NETWORKS STRATEGY

Our objective is to become the leading provider of multiservice broadband
access solutions. Our strategy to achieve this objective includes the following
key elements:

Enhance our technology leadership. We believe we are the only
telecommunications equipment vendor offering an architecturally homogeneous
multiservice broadband access solution comprised of our POP MSAP voice gateways,
central office MSAP concentrators and customer-located carrier-class IADs. We
utilize a common hardware and software architecture across all three product
families. We believe this enhances our ability to rapidly implement new features
and functionality across our entire product line. We intend to exploit this
advantage by continuing to conduct research and development on all three product
families comprising our complete multiservice broadband access solution.

We further believe that the individual network elements most critical to
deploying multiple broadband access services are those at either "edge" of the
broadband access network: POP voice gateways and customer-located IADs. As a
result, we intend to expand our technological leadership in these two product
areas. We believe this will help us create significant barriers to entry for
emerging competitors as well as established telecommunications equipment
vendors.

Expand our domestic customer base. To date, we have primarily focused our
efforts on selling to CLECs and IXCs. We intend to increase our sales to our
existing customers as they continue to expand

41
<PAGE> 46

their networks and service offerings. We also believe there is a significant
opportunity to sell to other voice and data CLECs and IXCs, as well as to ILECs
and RBOCs, as they continue to migrate toward a multiservice broadband access
strategy. We intend to increase our sales to these customers by leveraging our
relationships with current customers and by further developing our distribution
channels. We also plan to continue to work closely with current and potential
customers to implement enhancements to our current products, as well as to
design future products that specifically meet their evolving needs.

Capitalize on international opportunities. Many telecommunications service
providers outside the U.S. are beginning to deploy multiservice broadband access
networks. We believe these international markets present substantial
opportunities, and we plan to expand our sales and marketing efforts
accordingly. We will initially pursue international markets by developing
country-specific distribution relationships, leveraging existing and entering
into new OEM relationships, and establishing an international direct sales
force. We are currently focusing those efforts in Canada and Europe. We have
invested and will continue to invest in research and development to design
products that meet international standards requirements. We will also continue
to develop relationships with service providers and equipment manufacturers to
facilitate rapid product development and deployment in these markets.

Broaden our distribution channels. We plan to extend our distribution
channels to meet the growing demand for multiservice broadband access equipment.
In addition to increasing our direct sales force, we intend to pursue additional
OEMs, distributors, resellers and network integrators to increase the
penetration of our products in new and existing markets, both domestically and
internationally. OEMs, distributors, resellers and network integrators are an
integral part of our worldwide distribution strategy because we believe that, in
conjunction with our direct sales force, they will help identify new sales
prospects, sell our products as part of a complete solution, and customize and
integrate our products into service provider networks.

Continue to pursue and leverage strategic relationships. We believe that
establishing strategic relationships with companies whose business models and
competencies complement our own will enable us to more effectively penetrate
various market segments and offer our customers additional high-quality and
value-added solutions. For example, we intend to leverage our relationship with
Siemens to facilitate our penetration into international markets. We will also
continue to actively work with our customers and other equipment vendors to
ensure interoperability with equipment installed in their networks, as well as
equipment that is currently being developed. We also plan to work with our
customers and equipment manufacturers to develop and promote new standards so
that our products will continue to be interoperable with future network
equipment.

Facilitate deployment of multiservice broadband access networks. We believe
that helping our customers design and provide competitive multiservice voice and
data offerings will facilitate rapid adoption of products required to deliver
such services. We will continue to collaborate with our customers to assist them
in the design, engineering, and deployment of their multiservice broadband
access networks. We also plan to assist our customers in marketing bundled voice
and data services to their customers. Toward this end, we intend to develop
professional services specifically designed to help our customers, especially
CLECs, to successfully and rapidly deploy multiservice broadband access
networks.

PRODUCTS

We offer a comprehensive family of multiservice broadband access products
that enable efficient and cost-effective delivery of voice and data services
over a single broadband access network. Our products address service provider
requirements at three related areas within the broadband access network: the
POP, the central office, and the customer premises. In addition, we complement
our multiservice broadband access products with a software-based element
management system.

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<PAGE> 47

MSAP Voice Gateways
[Photograph of one of our MSAP voice gateways.]

Our MSAP voice gateways are located at
service provider POPs or switching centers.
Our MSAP voice gateways receive streams of
voice packets from central offices and
convert the packetized voice traffic into
the format expected by public switch
telephone network, or PSTN, voice switches.
Our MSAP voice gateways then deliver the
converted voice traffic to the appropriate
PSTN voice switch. These PSTN voice switches
may be Class 5 local exchange switches,
Class 3 or 4 long distance switches, or
emerging packetized soft switches. For Class
5 switches, we use GR-303 signaling, which
allows switch ports to be cost-effectively
over-subscribed. For Class 3 and 4 voice
switches, we use T1 channel associated
signaling.

Our MSAP voice gateways are fully
NEBS-compliant, redundant, chassis-based
systems that provide high-density voice
switch connectivity. We currently support
144 channelized T1 interfaces in a single
chassis and 576 channelized T1 interfaces in
a standard seven foot rack. Our MSAP voice
gateways also provide circuit emulation
capabilities as well as voice compression,
silence suppression, comfort noise insertion, and built-in, high performance
echo cancellation. Our MSAP voice gateways support a wide range of network
interfaces, including T1, NxT1, DS3 and OC-3c, and may also be populated with
DSL line cards, allowing them to additionally act as DSL concentrators. Our MSAP
voice gateways are available in two configurations: the 4 slot AN-3204 and the
20 slot AN-3220.

MSAP Concentrators [Photograph of one
of our MSAP concentrators.]
Our MSAP concentrators are located at carrier central offices. Our MSAP
concentrators aggregate a large number of
broadband access lines into high-speed
uplinks and perform local switching
functionality. Our MSAP concentrators allow
service providers to employ a variety of
broadband access technologies, including
DSL, T1, and NxT1 lines. In addition, our
MSAP concentrators are built on a robust ATM
switching fabric that, when coupled with
advanced policing, shaping and traffic
management capabilities, allows service
providers to maintain high quality voice
connections while dynamically allocating
unused bandwidth to data services.

Our MSAP concentrators are fully
NEBS-compliant, redundant, chassis-based
systems that provide high-density DSL and T1
access concentration. A single chassis is
capable of supporting up to 216 symmetrical
DSL or T1 connections. Four chassis can be
configured to provide up to 864 symmetric DSL or T1 lines within a standard
seven foot rack. Our MSAP concentrators also support T1 time division
multiplexing, or TDM, interfaces, which enables them to provide concentration
and voice and data backhaul services for legacy TDM devices, including digital
loop carriers and customer premises channel banks. Our MSAP concentrators may
also be populated with voice interface line cards, allowing them to additionally
act as voice gateways. This is important for those ILECs which have Class 5
voice switches installed in the same central office as their concentration
equipment. Our MSAP concentrators are available in two configurations: the 4
slot AN-3204, which is primarily targeted for multi-tenant unit, or MTU,
applications, and the 20 slot AN-3220.
[GRAPHIC]
[GRAPHIC]

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Carrier-class IADs [Photograph of one of our carrier-class IADs.]

Our carrier-class IADs are
located at the customer premises and
integrate multiple voice and data
services over a single broadband
access facility, allowing service
providers to cost-effectively deliver
bundled voice and data services to
business and residential subscribers.
Our carrier-class IADs provide robust
Quality of Service, or QoS.
Additionally, our carrier-class IADs
facilitate complete network management
and service provisioning from service
provider network operations centers,
or NOCs.

[GRAPHIC]

<TABLE>
<CAPTION>
---------------------------------------------------------
PRODUCT DATE FIRST TARGET APPLICATION
SHIPPED
---------------------------------------------------------
<S> <C> <C> <C>
AN-20 Q2 1999 Residential business data
only
---------------------------------------------------------
AN-24 Q4 1999 Small office/home office and
telecommuter
---------------------------------------------------------
AN-28 Q4 1999 Small office, remote office
---------------------------------------------------------
AN-30 Q2 1999 Small to medium-size office
---------------------------------------------------------
AN-3204 Q2 1999 Large office
---------------------------------------------------------
AN-31 In development Medium-size office
---------------------------------------------------------
AN-32 In development Medium-size to large office
---------------------------------------------------------
</TABLE>

We provide a full range of carrier-class IADs. Our AN-20 product provides
data-only broadband access over DSL or T1 facilities and is intended for small
business and residential customers. Our AN-24 IAD supports broadband data
access as well as up to 4 analog voice ports and is targeted at small offices,
home offices and telecommuters. Our AN-28 IAD supports broadband data access
and up to 8 analog voice ports and is designed for small businesses and branch
offices. Our AN-30 IAD supports broadband data access and up to 12 analog or 24
digital voice ports and is focused on small to medium-size business locations.
Our AN-3204 may be used as a large business IAD, facilitating DS3 and OC-3c
wide area network uplinks in addition to DSL, T1 and NxT1.

All of our carrier-class IADs support internal layer two bridging and layer
three Internet protocol, or IP, routing, including such capabilities as network
address translation, dynamic host configuration protocol, packet filtering and
dynamic service selection. Additionally, our carrier-class IADs can connect
directly to customer frame relay equipment, including routers, using standard
frame relay-to-ATM internetworking functions. Our carrier-class IADs also
provide support for constant bit rate, or CBR, and real-time variable bit-rate,
or rt-VBR, voice-over-ATM, built-in voice compression, silence suppression,
comfort noise insertion, voice compression and echo cancellation. Finally, our
carrier-class IADs are fully manageable from remote NOCs using widely adopted
Internet protocols.

AccessPilot

Our software-based element management system, AccessPilot, is a Common
Object Request Broker Architecture, or CORBA, compliant solution that simplifies
the service provisioning and management of our products. AccessPilot is designed
to be easily integrated into existing and emerging service provider operations
support systems, or OSS, infrastructure using standard CORBA interfaces.
AccessPilot includes a user-friendly graphical user interface, or GUI, enabling
service providers to physically view and configure services from remote
management workstations. AccessPilot allows service providers to turn on new
services remotely through our multiservice broadband access products, thereby
eliminating the need for segment-by-segment manual service activation. In
particular, AccessPilot provides the following management capabilities:

- configuration management;

- fault management;

- performance management;

- accounting management;

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<PAGE> 49

- security management;

- Java-based GUI*;

- IAD web management*; and

- bulk configuration*
---------------
* denotes capabilities currently under development

Products in development

We currently have under development a number of products, features and
functions which we believe will further enhance our overall multiservice
broadband access solution. We are generally focusing our development activities
on the following areas:

- augmenting voice signaling capabilities of our MSAP voice gateways;

- increasing port densities for our MSAP concentrators;

- adding DSL variants to our carrier-class IADs and MSAP concentrators; and

- broadening our carrier-class IAD product line with new IAD platforms.

CUSTOMERS

Historically, sales of our products have primarily been to CLECs and IXCs.
Our CLEC customers have generally had little legacy equipment installed in their
networks and, therefore, have typically deployed our MSAP voice gateways, MSAP
concentrators and carrier-class IADs as a complete end-to-end solution. Some of
our CLEC customers that have already purchased and deployed a DSLAM from another
equipment supplier have purchased our MSAP voice gateways and carrier-class IADs
to complete their end-to-end solutions. Our IXC customers have generally had
larger, more established network infrastructures and therefore have typically
purchased individual products from us for inclusion in their networks.

The following service providers have ordered a minimum of $100,000 of our
products over the last 12 months:

<TABLE>
<S> <C>
Coast-to-Coast (through Siemens ICN) MCIWorldCom
Cooperative Communications Onvoy
CTC Communications Primary Network Communications
FirstWorld Communications UniDial Communications
</TABLE>

Sales to CTC Communications, FirstWorld Communications and Siemens ICN,
constituted approximately 54%, 20% and 16% of our total sales, respectively, for
the year ended December 31, 1999. Sales to Siemens ICN, CTC Communications
Group, UniDial Communications and Primary Networks accounted for approximately
39%, 29%, 19% and 10% of our total revenue, respectively, for the quarter ended
March 31, 2000. No other customer accounted for more than 10% of our total
revenue for those periods.

Many service providers, including most of our current customers, are
building networks that are in their initial stages of deployment. In general,
these service providers make relatively small initial purchases. As these
service providers continue to build out their networks, we believe they will
need to purchase a significantly greater amount of equipment. Accordingly, we
intend to leverage our existing customer base to continue to provide them with
our products as they expand their networks.

The following customer case studies illustrate the breadth of our product
functionality:

CTC Communications

CTC Communications is an ICP serving large and medium-size business
customers in the northeastern United States. CTC was building a core Cisco-based
IP+ATM network to transport

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<PAGE> 50

packetized voice and data traffic, and was seeking a multiservice broadband
access solution to deliver long-distance voice, data, video and Internet traffic
from its IP+ATM core network to its customers. CTC chose our MSAP voice gateways
and our carrier-class IADs, the AN-30 and AN-3204. Our MSAP voice gateways allow
CTC to directly connect into multiple long distance service providers network.
Our carrier-class IADs enabled CTC to provide voice channels, a high speed frame
relay port, and a high speed Internet port over a single T1 access facility. As
a result, CTC has been able to successfully provide voice and data VPNs, long
distance voice and high speed Internet access with full QoS, as one bundled
service to its customers.

Onvoy

Onvoy, an emerging ICP located in Minnesota, desired to provide voice and
data services to small and medium-size businesses throughout the midwestern
states. Onvoy planned to target business customers with 4 to 8 lines that
required local dial tone, long distance voice and high speed Internet access
services. In addition, Onvoy was planning to build its access infrastructure
using co-locations and DSL access technology. Onvoy was looking for a
single-vendor end-to-end solution to ensure interoperability, ease of deployment
and ease of management. Onvoy chose to purchase our end-to-end multiservice
broadband access solution, consisting of our MSAP voice gateway, MSAP
concentrator and carrier-class IADs, the AN-24 and AN-28. Because our MSAP voice
gateway incorporates fully interoperable GR-303 functionality, an interface that
allows for oversubscription of Class 5 ports, Onvoy was able to maximize its
investment in its Class 5 voice switches. Our carrier-class IADs allowed Onvoy
to cost-effectively deliver bundled high-speed Internet access and voice
services over a single DSL access facility.

MCIWorldCom

MCIWorldCom recently announced that it will be rolling out a new converged
voice and data service to business customers nationwide using both T1 and DSL
access technologies. MCIWorldCom currently offers voice and data services using
parallel access networks, a packet/cell switched network for delivering data
traffic and a circuit-switched network for delivering voice traffic. As part of
its new converged service, MCIWorldCom desires to use switched virtual circuits,
or SVCs to provide increased control and flexibility over the delivery of its
voice and data services. Because our products offer SVCs and switched VoDSL
technology, MCIWorldCom has evaluated our MSAP voice gateways and our family of
carrier-class IADs for inclusion in its new converged voice and data network.
Consistent with its product qualification process, MCIWorldCom is currently in
the final stages of testing these products. The use of SVCs will allow
MCIWorldCom to terminate local calls on a Class 5 voice switch, place "on net"
calls between our carrier-class IADs without leaving MCIWorldCom's access
network, and terminate long distance calls directly on MCIWorldCom's long
distance switches. As a result, we believe MCIWorldCom will be able to realize
savings on both "on net" and long distance calls because the ILEC's Class 5
voice switch is bypassed. This will enable MCIWorldCom to avoid paying access
charges that it would otherwise have to pay for use of the ILEC's Class 5 voice
switch. In addition, because our products support both T1 and DSL, we believe
MCIWorldCom will also be able to cost-effectively expand its service offerings
to reach more business customers.

STRATEGIC RELATIONSHIPS

We believe that establishing strategic relationships with companies whose
business models and competencies complement our own will enable us to more
effectively penetrate various market segments and offer our customers additional
high-quality and value-added solutions. Toward this end, we have established
strategic relationships in a number of areas of our business, including:

OEM. We have established an OEM relationship with Siemens ICN in the United
States and have recently expanded this relationship worldwide through its
parent, Siemens AG. We are also currently pursuing additional strategic
relationships with other OEMs to increase market penetration of our products. We
believe that OEM relationships will be particularly important as we implement
our international sales operations.

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<PAGE> 51

Interoperability. We have successfully conducted joint interoperability
testing with Lucent, Nortel and Siemens AG for their Class 5 voice switches,
Lucent and Nortel for their DSLAMs, and Efficient Networks for their CPE to
ensure the continued end-to-end functionality of our solutions.

Technology and standards development. We have established technology
development relationships with IPCell for call agents and with OpenCon for
GR-303 interfaces. In addition, we work with our key customers to drive our
development efforts and to establish standards for areas where none currently
exist, including submissions of new applications of DSL technologies to the DSL
Forum, an association of DSL equipment vendors and service providers whose
primary function is to promote standards and the use of DSL technology in the
DSL industry. For example, in conjunction with MCIWorldCom, we have jointly
submitted an application of SVCs, called "switched VoDSL," to the DSL Forum for
standards consideration.

TECHNOLOGY

We design and manufacture MSAP voice gateways, MSAP concentrators, and
carrier-class IADs. These products combine a number of hardware and software
technologies. Our primary areas of expertise include:

Carrier-class hardware design

POP and central office environments are demanding. Accordingly, our
hardware design incorporates multiple levels of redundancy, including power,
cooling and system logic. Our carrier-class IAD hardware designs use processors
and memory components derived from the same component family. This allows us to
design our carrier-class IADs to support customer-specific applications using
common software. All models of our carrier-class IAD hardware are designed to
work with the same software, simplifying deployment for service providers. Our
hardware designs use market-leading component technology, especially for DSL
applications, which today are based on de facto standards for interoperability.
We endeavor to use widely-used chipsets to ensure interoperability with a wide
range of other DSL equipment. We also use field programmable gate arrays for
specific applications, which makes our hardware designs more flexible, allowing
for rapid enhancements or changes without the need to add new chips.

Packet-based voice expertise

We have extensive expertise in packetized voice technology. We utilize
digital signal processing algorithms to implement voice compression, echo
cancellation, silence suppression, and comfort noise insertion, which are key
elements in optimizing bandwidth use while delivering toll-quality voice
service. In addition, we have extensive experience in all aspects of analog and
digital telephony required to implement a wide range of call routing and
termination options. Our voice-over-ATM knowledge includes the use of rt-VBR,
which optimizes use of bandwidth and allows for compressed voice. A key area of
our research and development focuses on using ATM, or SVCs, to dynamically
connect telephone subscribers with local or long distance voice switches, as
well as emerging soft switches and to directly connect to other business
locations.

Software and protocol technologies

We have extensive experience with protocols such as IP, ATM and frame
relay. Our protocol software is designed to be reusable across our products and
to support compatibility with new and existing hardware. IP technologies such as
network address translation and dynamic host configuration protocol help
conserve IP addresses, which is critical in today's rapidly growing Internet
environment. Furthermore, we have considerable experience with basic bridging
and routing functions, as well as interworking functions required to map IP to
frame relay, IP to ATM and frame relay to ATM. We also possess knowledge on the
policing, shaping and traffic management techniques required to preserve service
quality across converged voice/data access networks.

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<PAGE> 52

Transmission technologies

Our in-depth knowledge of copper-pair transmission technologies used in the
last mile includes various types of DSL, such as asymmetric DSL, symmetric DSL
and G.Lite, T1/E1, DS3, and inverse multiplexing over ATM. In addition, we have
extensive expertise in coaxial and fiber-optic based technologies used for
transmission between POPs and central offices, including DS3, E3, OC-3c and
STM-1. The physical layer of all our products has been abstracted from the
service layers, enabling new transmission technologies to be added very quickly.

Element management and provisioning

We have focused heavily on technology required to deploy and manage
large-scale service provider infrastructure that incorporates customer-located
IADs. Our AccessPilot system combines simple network management protocol, or
SNMP, with CORBA interfaces to tie in with a service provider's existing OSS. In
addition, we have developed flow-through and self-provisioning features that we
believe dramatically reduce network operation costs. We incorporate
self-provisioning functionality in our carrier-class IADs, enabling
configuration from a centrally located directory.

RESEARCH AND DEVELOPMENT

We have made, and will continue to make, substantial investments in
research and development. Research and development expenses were approximately
$24.7 million for the period from inception through March 31, 2000 and were
approximately $4.2 million for the quarter ended March 31, 2000. All of our
software development costs have been expensed as incurred. As of March 31, 2000,
we had 105 employees responsible for product development, quality assurance and
documentation.

We conduct the majority of our research and development at our Moorpark,
California headquarters. We also have an office in Richardson, Texas which
focuses on next-generation voice signaling technologies and an office in
Bangalore, India which focuses on software development. We plan to focus our
research and development efforts on the following areas:

- continued enhancement of our core product family;

- next-generation voice signaling technologies; and

- development of interfaces and protocols for international markets.

SALES AND MARKETING

We currently focus our sales and marketing efforts in three areas:

- Direct. Direct sales have constituted, and we believe will continue to
constitute, the majority of our sales. We believe that only through
direct interaction with service providers can we understand the business
models and technical requirements of our customers. Further, we believe
that the competitive nature of the telecommunications equipment industry
requires us to reduce costs that would otherwise be passed on to our
consumers. In many cases this is accomplished by avoiding intermediate
steps in the distribution chain.

- OEM. To date, OEM sales through Siemens ICN have been an important
distribution channel for us in the U.S. Siemens ICN primarily sells its
products to ILECs, RBOCs, CLECs and smaller independent operating
companies. We believe that our relationship with Siemens will enhance our
ability to reach this customer base. We intend to continue to work
aggressively with Siemens ICN and recently expanded our relationship
worldwide through its parent, Siemens AG. We also intend to pursue
additional OEMs to further expand our market reach.

- Integrator. We believe that many smaller CLECs prefer purchasing products
through systems integrators that provide other services as well, such as
integration, test, staging, installation and equipment procurement. While
systems integrators have not traditionally focused on generating

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<PAGE> 53

demand for our products, we believe that they are well-positioned to help
increase market penetration of our products. As a result, we intend to
work closely with integrators to provide training and engage in
cooperative sales and marketing programs.

We are focusing our marketing efforts on driving demand for products used
in multiservice broadband access networks. Toward this end, we work directly
with service providers to help them develop business models, service product
packages, promotional programs and pricing strategies, all designed to promote
the delivery of multiple voice and data services over a single broadband access
facility. In addition, we are actively working with a number of trade
publications and industry analysts to educate service providers on how to
deploy, and the benefits of, multiservice broadband access networks.

We emphasize the use of Web-based technology for both internal and external
sales and marketing applications. For internal applications, virtually all our
information, documentation, policies, procedures, directories, competitive data
and market research are contained in Web-accessible databases. This allows for
rapid internal dissemination of information to our sales and marketing
personnel. For external applications, we make our company, product, and
technology information available to existing and potential customers.

MANUFACTURING

We outsource most of our product and printed circuit board assembly to
contract manufacturers. Avnet performs the majority of our component procurement
and materials management and prepares component kits for its sub-contractor,
A-Plus, which assembles, manufactures and tests our products at its facility in
San Jose, California. Arrow performs the same services as Avnet for a limited
number of our products and also sub-contracts with A-Plus for assembly,
manufacturing and testing. Avnet, Arrow and A-Plus are registered as meeting the
requirements of the International Standards Organization, or ISO, for
manufacturing and design processes. For ease in manufacturing and inventory
management, we use standard parts and components whenever possible.

We conduct final product assembly and perform reliability, stress and final
testing for most of our products. A-Plus performs the majority of these
activities for our AN-24 and AN-28 carrier-class IADs. We have complete
capabilities for configuration, packaging, and shipping of our products. We
perform comprehensive inspection tests and use statistical process controls to
assure the reliability and quality of our products. Our manufacturing engineers
develop all test procedures and design and build all equipment and stations
required to test our products. We integrate these manufacturing tests with our
contract manufacturers' build processes. Our manufacturing personnel work
closely with our design engineers to design for manufacturability, and to ensure
that our test environment remains current as broadband access technologies
evolve.

We use a rolling 12-month forecast based on anticipated product orders to
determine our product requirements. In turn, we provide these forecasts to our
contract manufacturers, and they procure all material according to lead times.
We may, in the future, seek additional contract manufacturers or secure offshore
manufacturing capabilities to meet our anticipated manufacturing requirements
and to continue driving down the cost of our products.

SERVICE AND SUPPORT

We provide a variety of technical support services under our AcceleratedTAC
program to help our customers deploy their multiservice broadband access
networks. AcceleratedTAC is administered by our technical assistance center and
is available with a wide variety of support options that can be tailored to
customer requirements, 24 hours a day, seven days a week.

In addition to direct technical support, we are in the process of
implementing AcceleratedStart, our comprehensive services program designed to
assist service providers in a wide variety of functional areas. Under
AcceleratedStart, our professional services teams will work with our customers
to manage the design and deployment of their networks and provide project
management, installation services, and on-site

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<PAGE> 54

support. Initially, we may utilize third parties to deliver many aspects of this
program. We plan to offer the following services through AcceleratedStart:

- planning, network design, and engineering;

- element and network management design;

- project management;

- network operations center design and implementation;

- "rack and stack" central office installation services;

- customer premises installation services;

- on-site network operations support; and

- customer training.

As of March 31, 2000, we employed 23 people in our customer support,
systems engineering and professional services organizations with the majority
located in Moorpark, California. We intend to significantly increase our service
and support operations in order to accommodate our growth and the needs of our
existing and future customers.

COMPETITION

The market for multiservice broadband access products is extremely
competitive and we believe that competition will increase substantially as the
introduction of new technologies, deployment of broadband access networks, and
potential regulatory changes create new opportunities for established and
emerging companies. Furthermore, DSL and T1 as technologies for deploying
broadband connections are competing with alternative technologies including
broadband wireless and cable solutions. Currently, we face competition in two
areas: equipment manufacturers providing point solutions and network integrators
offering end-to-end solutions.

With regard to point solutions, we compete in the following three product
categories:

Voice Gateways. We compete with other voice gateway providers, including
CopperCom, Jetstream and Tollbridge.

Concentrators. We compete with other concentrator providers, including:

- Alcatel, Lucent, Nortel, Nokia, and PairGain (pending acquisition by
ADC Telecommunications) -- central office DSLAM;

- Advanced Switching Communications, Alcatel, Cisco, and Lucent -- ATM
access concentrators; and

- Copper Mountain -- MTU concentrators.

IADs. We compete with other IAD providers, including:

- Cisco, Mariposa and VINA -- T1/E1 IADs; and

- Polycom, Efficient Networks, and CopperCom -- DSL IADs.

However, in many cases, especially with CLECs, service providers building
multiservice broadband access network infrastructure require more than point
solutions and therefore prefer to purchase integrated solutions from a single
source. As a result, since we provide a complete multiservice broadband access
solution, we frequently compete with network integrators such as Lucent, Nortel
and Cisco, which utilize various point products from vendors listed above in
conjunction with their own products to offer a complete solution.

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The principal competitive factors for products utilized in our markets
include:

- features;

- reliability and scalability;

- performance;

- interoperability with other products;

- price;

- ease of installation and use;

- technical support and customer service; and

- brand recognition.

While we believe we are successfully addressing each of these competitive
factors, we expect to face increasing competitive pressures from both current
and future competitors in the markets we serve.

A number of our competitors and potential competitors also have
significantly greater financial and other resources than we have, which may
enable them to more aptly meet new competitive opportunities, including offering
lease and other financing programs. In addition, the rapid technological
developments in our industry can result in frequent changes to our group of
competitors. Consolidation in our industry may also affect our ability to
compete. For instance, Efficient Networks acquired FlowPoint Corporation, Nortel
acquired Promatory Communications, Alcatel recently announced that it will
acquire Newbridge Networks, ADC Telecommunications recently announced that it
will acquire PairGain Technologies and Efficient Networks recently announced
that it will acquire NetScreen Technologies. Acquisitions such as these may
strengthen our competitors' financial, technical and marketing resources and
provide greater access to customers. As a result, these competitors may be able
to devote greater resources to the development, promotion, sale and support of
their products than we can. There can be no assurance that we will be able to
compete successfully with our existing or new competitors, or that competitive
pressures will not materially and adversely affect our business, financial
condition and results of operations.

INTELLECTUAL PROPERTY

We rely on a combination of copyright, patent, trademark, trade secret and
other intellectual property laws, nondisclosure agreements and other protective
measures to protect our proprietary rights. We also utilize unpatented
proprietary know-how and trade secrets and employ various methods to protect our
trade secrets and know-how. Although we do not have any issued patents to date,
we currently have six U.S. patent applications pending.

Although we employ a variety of intellectual property in the development
and manufacturing of our products, we believe that none of our intellectual
property is individually critical to our current operations. However, taken as a
whole, we believe our intellectual property rights are significant and that the
loss of all or a substantial portion of such rights could have a material
adverse effect on our results of operations. We cannot assure you that our
intellectual property protection measures will be sufficient to prevent
misappropriation of our technology. In addition, the laws of many foreign
countries do not protect our intellectual properties to the same extent as the
laws of the United States. From time to time, we may desire or be required to
renew or to obtain licenses from others in order to further develop and market
commercially viable products effectively. We cannot assure you that any
necessary licenses will be available on reasonable terms, if at all.

We have filed trademark applications for "Accelerated Networks,"
"Accelerated Networks & Design," "AccessPilot," "AcceleratedStart" and
"AcceleratedTAC."

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GOVERNMENTAL REGULATION

The markets for our products are characterized by a significant number of
laws, regulations and standards, both domestic and international, some of which
are evolving as new technologies are deployed. Our products are required to
comply with these laws, regulations and standards, including those promulgated
by the Federal Communications Commission, or FCC. In some cases, we are required
to obtain certifications or authorizations before our products can be
introduced, marketed, or sold. While we believe that our products comply with
all current governmental laws, regulations and standards, we cannot assure you
that we will be able to continue to design our products to comply with all
necessary requirements in the future. Accordingly, any of these laws,
regulations and standards may directly affect our ability to market or sell our
products.

In addition, FCC regulatory policies that affect the availability of
broadband access for data and Internet services may impede our customers'
penetration into their markets, affect the prices that our customers are able to
charge, or otherwise affect their ability to market their products and grow
their business. For example, FCC regulations addressing interconnection of
competing networks, collocation, unbundling of network elements, and line
sharing impact our customer base. The FCC and the courts are also continuing to
review the access charges of incumbent local exchange carriers, or ILECs, that
are paid by long distance carriers. Any changes in the regulation of such access
charges may affect other telecommunications providers, including the viability
of CLECs, and thus affect our customer base. In addition, the FCC has not
clearly defined how or whether some broadband services, such as voice over 1P,
should be regulated. If the FCC decides to regulate these emerging services, our
customer base could be impacted. To the extent that our customers are adversely
affected by these changes in the regulatory environment, our business, operating
results, and financial condition may be harmed.

State regulation of telecommunications networks and service providers may
also affect the regulatory environment of our marketplace. State regulators, for
example, typically settle disputes for competitive access to some ILEC network
elements or collocation in ILEC offices, which competitive carriers use to offer
various services. State regulators may also regulate and arbitrate disputes
concerning interconnection of networks of ILECs and competitive carriers. To the
extent that our customers are adversely affected by these changes in the
regulatory environment, our business, operating results, and financial condition
may be harmed.

In addition to federal and state telecommunications regulations, an
increasing number of other domestic laws and regulations are being adopted to
specifically address such broadband and telecommunications issues as liability
for information retrieved from or transmitted over the Internet, online content
regulation, user privacy, taxation, consumer protection, security of date,
access by law enforcement, as well as intellectual property ownership,
obscenity, and libel. The adoption of restrictive legislation could increase the
costs of communicating over the Internet or decrease the acceptance of the
Internet as a commercial and advertising medium, thus dampening the growth of
the Internet. Because our customers use our products to facilitate both
commercial and personal uses of the Internet, our business could be harmed if
the growth of the Internet were adversely affected by such regulations or
standards.

Countries in the European Union, or EU, have also adopted laws relating to
the provision of Internet services, the use of the Internet, and
Internet-related applications. For example, in the United Kingdom, an ISP may be
liable for defamatory material posted on its sites. In Germany, an ISP may be
liable for failing to block access to content that is illegal in the country. In
addition, the EU has adopted a data protection directive to address privacy
issues, impacting the use and transfer of personal data within and outside the
EU. The application of this directive within the EU and with respect to U.S.
companies that may handle personal data from the EU is unsettled. Similarly,
countries in Europe restrict the use of encryption technology to varying
degrees, making the provision of such technology unclear. Other laws relating to
Internet usage are also being considered in the EU.

The applicability of laws, regulations and standards affecting the
broadband telecommunications and data industry in which we and our customers
operate is continuing to develop, both domestically and internationally. We
cannot predict the exact impact that current and future laws, regulations and
standards may have on us or our customers. These laws, regulations and standards
may directly impact our products

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and result in a material and adverse effect on our business, financial condition
and results of operations. In addition, should our customers be adversely
impacted by such regulation, our business, financial condition and results of
operations would likely be adversely affected as well.

EMPLOYEES

As of March 31, 2000, we employed 196 full-time employees, including 33 in
sales and marketing, 22 in manufacturing, 105 in engineering, 13 in finance and
administration and 23 in customer support, systems engineering and professional
services. Most of our employees are located in the United States; however, we
have approximately 26 engineering employees located in Bangalore, India. None of
our employees is represented by collective bargaining agreements, and our
management considers its relations with our employees to be good.

PROPERTIES

We lease an approximately 23,000 square foot facility in Moorpark,
California, for executive offices and for administrative, sales and marketing,
and research and development purposes. The lease for this facility expires in
August 2001. We lease an approximately 4,100 square foot facility in Richardson,
Texas, primarily for research and development, and sales and marketing purposes.
This lease expires in August 2002. We lease an approximately 5,500 square foot
facility in Bangalore, India, which is used primarily for research and
development. This lease expires in January 2001. We lease an approximately
15,300 square foot facility in Simi Valley, California, which is used primarily
for manufacturing purposes. This lease expires in August 2001. We recently
entered into another lease for approximately 6,500 square feet of additional
space in the same building which we intend to use primarily for sales and
marketing purposes. This lease expires in February 2003. We also have other
offices in the U.S. and one office in Canada which are used primarily for sales
and support purposes.

LEGAL PROCEEDINGS

We are not a party to any material legal proceedings.

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<PAGE> 58

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information with respect to our
executive officers and directors as of May 31, 2000:

<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Suresh Nihalani(3)........................ 47 Chairman, Chief Executive Officer, President, and
Director
Frederic T. Boyer......................... 56 Vice President, Finance and Administration, Chief
Financial Officer and Secretary
Yogi Mistry............................... 46 Vice President, Software Engineering
Kiran P. Munj............................. 48 Vice President, Hardware Engineering
Pete S. Patel............................. 47 Vice President, Operations
Hitendra Sonny Soni....................... 40 Vice President, Business Development
Charles D. Vogt........................... 36 Vice President, Worldwide Sales
Kevin T. Walsh............................ 43 Vice President, Marketing
Edward E. Thurman......................... 50 Chief Technology Officer
Brig. Gen. H. R. Johnson, USAF (Ret.)..... 76 Director
Steven M. Krausz(1)....................... 45 Director
Robert F. Kuhling, Jr.(1)(2).............. 51 Director
Anthony T. Maher.......................... 54 Director
Peter T. Morris (2)....................... 44 Director
Lip-Bu Tan(1)............................. 40 Director
</TABLE>

---------------
(1) Member of the audit committee

(2) Member of the compensation committee

(3) Sole member of the secondary compensation committee

Suresh Nihalani is a co-founder of our company and has served as our
Chairman, Chief Executive Officer, President and as a director since our
inception. From October 1987 to October 1996, Mr. Nihalani held various senior
executive management positions at ACT Networks, a telecommunications equipment
vendor, including Vice President of Business Development from May 1995 to
October 1996. Mr. Nihalani holds an M.B.A and an M.S. in Electrical Engineering
from the Florida Institute of Technology and a Bachelors of Technology in
Electrical Engineering from the Indian Institute of Technology.

Frederic T. Boyer has been our Vice President, Finance and Administration
and our Chief Financial Officer since November 1998. Mr. Boyer has also served
as our Secretary since May 1999. Prior to joining us, Mr. Boyer was the Chief
Financial Officer of Software Dynamics, Inc. from May 1997 to October 1998. From
January 1996 to May 1997, Mr. Boyer was a consultant to several technology
companies including Software Dynamics, a financial services software company,
Digital Insight, an online home banking company, ADC Telecommunications, Inc., a
telecommunications equipment company, Cambio Systems, a network management
software company, and Rapid Text, a medical and legal transcription outsourcing
company. From March 1990 to January 1996, Mr. Boyer was the Chief Financial
Officer of Fibermux, Corp., a telecommunications equipment company later
acquired by ADC Telecommunications. Mr. Boyer holds an M.B.A. from Loyola
University, a B.S. in Accounting from California State University, Los Angeles,
and a B.S. in Economics from California State Polytechnic University, Pomona.

Yogi Mistry has been our Vice President, Software Engineering since April
1999. Since November 1998, he has also been the General Manager of our Software
Resource Center in India. Prior to joining us, Mr. Mistry held various
management positions at Harris Corp., a telecommunications equipment
manufacturer, including the Vice President, Engineering from July 1995 to
October 1998 and Director of Engineering from September 1993 to June 1995. Mr.
Mistry holds an Executive M.B.A. from Pepperdine

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<PAGE> 59

University, an M.S. in Computer Science from California State University,
Northridge and a Bachelors of Engineering in Electronics Engineering from the
University in India.

Kiran P. Munj is a co-founder of our company and has been our Vice
President, Hardware Engineering since April 1999. Mr. Munj was our Vice
President of Engineering and Operations from October 1996 to April 1999. From
September 1993 to October 1996, Mr. Munj was the Senior Engineering Manager at
Telematics International, Inc., a data communications company,. Mr. Munj holds
an M.S. in Management/Operations Research from the University of Texas, an M.S.
in Electrical Engineering from Northwestern University and a Bachelors of
Technology in Electrical Engineering from the Indian Institute of Technology.

Pete S. Patel has been our Vice President, Operations since April 1999.
Prior to joining us, Mr. Patel held various senior management positions at
Advanced Fibre Communications, a telecommunications company, including Vice
President of Operations from May 1998 to April 1999, Director of Operations from
June 1997 to May 1998, Director of Design Verification and Test Engineering from
May 1996 to June 1997, and Senior Test Engineering Manager from August 1995 to
May 1996. From February 1988 to August 1995, Mr. Patel held various management
positions at DSC Communications Corporation, a telecommunications company. Mr.
Patel holds a F.Y.B.Sc. in Science from Gujarat University, India and a B.V.Sc.
and A.H. from Gujarat Agricultural University, India.

Hitendra Sonny Soni has been our Vice President, Business Development since
November 1999. Previously, Mr. Soni was our Vice President, Sales and Business
Development from October 1997 to November 1999. From October 1994 through
October 1997, Mr. Soni was the director of Business Development and Channels at
Xylan Corporation, a network communications company. From February 1988 to
September 1994, Mr. Soni was the Director of Business Development and Sales at
Allen Crawford Associates, a network integration company in Canada.

Charles D. Vogt has been our Vice President, Worldwide Sales since November
1999. Prior to joining us, Mr. Vogt was the Senior Vice President of Sales at
Lucent Technologies, a telecommunications company, from June 1999 to November
1999. From January 1996 to June 1999, he was the Assistant Vice President of
Sales at Ascend Communications, a data communications company which was acquired
by Lucent in June 1999. From May 1992 to January 1996, Mr. Vogt was the Director
of Sales at Adtran, a high speed digital communications provider. Mr. Vogt holds
a B.S. in Economics and Computer Science from St. Louis University.

Kevin T. Walsh has been our Vice President, Marketing since July 1998. From
May 1995 to June 1998, Mr. Walsh was the Director of Product Marketing and Vice
President, Marketing at Xylan Corporation. From July 1990 to May 1995, Mr. Walsh
was the Director of Vertical Marketing and Director of North America Marketing
at Ascom Timeplex, Inc., a telecommunications and service automation company.
Mr. Walsh holds an M.B.A. from Pepperdine University and a B.S. in Computer
Science from the University of California, Irvine.

Edward E. Thurman has been our Chief Technology Officer since May 2000.
Prior to joining us, Mr. Thurman was the Director of Advanced Technology
Development at Sprint Corporation, a telecommunications company, from July 1997
to May 2000. From October 1995 to July 1997, Mr. Thurman was the Director of
Strategic Concepts, Plans, and Programs at Sprint. From June 1972 through
October 1995, Mr. Thurman held various command, staff and analysis positions
with the United States Army including most recently the Director of Concepts and
Doctrine from June 1993 to October 1995. Mr. Thurman holds an M.S. in Operations
Research Systems Analysis from the Naval Postgraduate School, an M.M.A.S. from
the U.S. Army Command and General Staff College, and a B.A. in Mathematics from
the University of Washington.

Brig. Gen. H.R. Johnson, USAF (Ret.) has served as a director of our
company since March 1997. His current board memberships include Teuza Venture
Fund, an Israeli venture fund, and several private companies. Since March of
1999, General Johnson has been the President of H.R. Johnson and Associates,
where he provides technology strategy and consulting services for various
technology

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<PAGE> 60

corporations. Previously, General Johnson was the Senior Vice President of
Business Development of Fairchild Corporation, an aerospace and technology
company. General Johnson has an M.B.A. from George Washington University and a
B.S. in Military Science from the University of Maryland.

Steven M. Krausz has served as a director of our company since May 1997.
Mr. Krausz has been a general partner of several venture capital funds
affiliated with U.S. Venture Partners, a venture capital firm, since August
1985. He also serves as a director of Verity, Inc., a provider of knowledge
retrieval software products, and several private companies. Mr. Krausz serves on
our board as a representative of U.S. Venture Partners. Mr. Krausz holds an
M.B.A. and a B.S. in Electrical Engineering from Stanford University.

Robert F. Kuhling, Jr. has served as a director of our company since May
1998. Mr. Kuhling has been a managing director and general partner of several
venture capital funds managed by ONSET Ventures, a venture capital firm, since
1987. He also serves as a director of Euphonix, Inc., a developer of
professional audio equipment, Gadzoox Networks, Inc., a storage area networking
company, and several private companies. Mr. Kuhling serves on our board as a
representative of ONSET Ventures. Mr. Kuhling holds an M.B.A. from Harvard
University and an A.B. in economics from Hamilton College.

Anthony T. Maher has served as a director of our company since February
1999. Since May 1978, Mr. Maher has held various executive positions within the
Siemens Public Communication Networks Group of Siemens AG, a network equipment
provider, including as a member of the board of directors from October 1997 to
September 1998, Executive Director for Access Networks from October 1995 to
September 1997, and Executive Director of Worldwide Product Planning from
January 1993 to September 1995. Mr. Maher is currently a member of the board of
Siemens ICN, Efficient Networks, Inc. and several private companies. Mr. Maher
serves on our board as a representative of Siemens AG. Mr. Maher holds an M.S.
in Electrical Engineering and Solid State Physics and a B.S. in Electrical
Engineering from the University of Illinois.

Peter T. Morris has served as a director of our company since May 1997. Mr.
Morris is a general partner at New Enterprise Associates, a venture capital
firm, where he has been employed since 1992. He also serves as a director of
Gadzoox Networks, Packeteer, Inc., a bandwidth management software company,
Virata Corporation, a DSL chip provider, and several private companies. Mr.
Morris serves on our board as a representative of New Enterprise Associates. Mr.
Morris holds an M.B.A. and a B.S. in Electrical Engineering from Stanford
University.

Lip-Bu Tan has served as a director of our company since October 1999. Mr.
Tan is a general partner of the Walden Group and Chairman of Walden
International Investment Group. He also serves as a director of Creative
Technology Ltd., a multimedia product and peripheral company, MediaRing.com,
Inc., a provider of Web-based voice communication services, Integrated Silicon
Solution, Inc., a designer of high-performance memory devices, and several
private companies. Mr. Tan serves on our board as a representative of The Walden
International Investment Group. Mr. Tan holds an M.B.A. from the University of
San Francisco, an M.S. in Nuclear Engineering from Massachusetts Institute of
Technology and a B.S. in Physics from Nanyang University, Singapore.

BOARD COMPOSITION

Our board of directors is currently composed of seven members. Steven M.
Krausz, Robert F. Kuhling, Jr., Brig. Gen. H. R. Johnson, Anthony T. Maher,
Peter T. Morris, Suresh Nihalani and Lip-Bu Tan were appointed to our board of
directors pursuant to a voting agreement among us, our founders and holders of
preferred stock. The voting agreement will continue in effect after our planned
reincorporation to a Delaware corporation, but will terminate upon the closing
of this offering.

Upon completion of this offering, our certificate of incorporation will
provide for a classified board of directors consisting of three classes of
directors, each serving staggered three-year terms. As a result, a portion of
our board of directors will be elected each year. To implement the classified
structure, prior to the consummation of the offering, two of our directors will
be elected to one-year terms, two will be

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<PAGE> 61

elected to two-year terms and three will be elected to three-year terms.
Thereafter, directors will be elected for three-year terms. General Johnson and
Mr. Kuhling have been designated Class I directors whose term expires at the
2001 annual meeting of stockholders. Messrs. Krausz and Maher have been
designated Class II directors whose term expires at the 2002 annual meeting of
stockholders. Messrs. Morris, Nihalani, and Tan have been designated Class III
directors whose term expires at the 2003 annual meeting of stockholders. The
classification of the board of directors may delay or prevent a change in
control of our company or in our management. See "Description of Capital
Stock -- Anti-Takeover Effects of Provisions of Delaware Law and Our Certificate
of Incorporation and Bylaws" on page 71 for a more detailed discussion of our
classified board.

Executive officers are appointed by the board of directors on an annual
basis and serve until their successors have been duly elected and qualified.
There are no family relationships among any of our directors, officers or key
employees.

BOARD COMMITTEES

We have established an audit committee, a compensation committee and a
secondary compensation committee.

Our audit committee consists of Messrs. Krausz, Kuhling and Tan. The audit
committee reviews our internal accounting procedures and consults with and
reviews the services provided by our independent accountants.

Our compensation committee consists of Messrs. Kuhling and Morris. The
compensation committee reviews and recommends to the board of directors the
compensation and benefits of our employees, including our directors and
officers. The compensation committee also administers our stock-based employee
benefit plans. Our secondary compensation committee consists of Suresh Nihalani
and has the authority to grant options under our stock-based employee benefit
plans to non-executive officer employees and consultants, subject to guidelines
established by our compensation committee.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Prior to establishing the compensation committee, the board of directors as
a whole performed the functions delegated to the compensation committee. No
member of the board of directors or the compensation committee serves as a
member of the board of directors or compensation committee of any entity that
has one or more executive officers serving as a member of our board of directors
or compensation committee.

DIRECTOR COMPENSATION

We do not currently compensate directors in cash for their service as
members of our board of directors. However, outside directors are reimbursed for
all reasonable expenses incurred by them in attending board and committee
meetings and have received the following stock option grants:

<TABLE>
<CAPTION>
VESTING
COMMENCEMENT NO. OF EXERCISE
NAME GRANT DATE DATE SHARES PRICE VESTING
---- ---------- ------------ ------- -------- -------
<S> <C> <C> <C> <C> <C>
Brig. Gen. H.R. Johnson, USAF 4/15/1997 3/28/1997 54,400 0.0018 (1)
(Ret.)...........................
7/1/1997 5/30/1997 217,600 0.05 (2)
12/21/1999 12/21/1999 15,000 4.50 (3)
4/28/2000 4/28/2000 20,000 11.70 (5)
Steven M. Krausz................... 4/28/2000 4/28/2000 30,000 11.70 (5)
Robert Kuhling, Jr................. 4/28/2000 4/28/2000 30,000 11.70 (5)
Anthony T. Maher................... 7/20/1999 5/18/1999 60,000 1.75 (4)
Peter T. Morris.................... 4/28/2000 4/28/2000 30,000 11.70 (5)
Lip-Bu Tan......................... 4/28/2000 4/28/2000 30,000 11.70 (5)
</TABLE>

All of the above options are immediately exercisable and subject to a repurchase
right in favor of Accelerated Networks which lapses as the options vest.

57
<PAGE> 62

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

(1) The option shares vest over 38 equal monthly installments from the vesting
commencement date subject to the optionee's continued service.

(2) The option shares vest over 36 equal monthly installments from the vesting
commencement date subject to the optionee's continued service.

(3) The option shares vest over 12 equal monthly installments from the vesting
commencement date subject to the optionee's continued service.

(4) The option shares vest over 48 equal monthly installments from the vesting
commencement date subject to the optionee's continued service.

(5) The option shares vest over 24 equal monthly installments from the vesting
commencement date; provided that, the unvested shares shall automatically
become vested (a) in the event of a change in control or (b) if the optionee
is not reelected to the board and at the time has not vested in all such
shares.

See "Certain Transactions" beginning on page 65 for additional information
on transactions between a director and us.

Directors who are also employees are eligible to receive options and be
issued shares of common stock directly under our 2000 Stock Incentive Plan.
Non-employee directors will also receive automatic option grants under our 2000
Stock Incentive Plan.

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The table below sets forth the compensation earned for services rendered to
Accelerated Networks in all capacities for the fiscal years ended December 31,
1999 by our Chief Executive Officer and our next four most highly compensated
executive officers who earned more than $100,000 during fiscal 1999. These
executives are referred to as the "named executive officers" elsewhere in this
prospectus. There were no long-term compensation awards or other compensation
awarded to our named executive officers during fiscal 1999.

<TABLE>
<CAPTION>
SALARY BONUS
-------- -------
<S> <C> <C>
Suresh Nihalani............................................. $218,400 --
President and Chief Executive Officer
Hitendra Sonny Soni......................................... $102,159 $76,881
V.P., Business Development
Kevin T. Walsh.............................................. $155,999 $12,500
V.P., Marketing
Kiran P. Munj............................................... $156,250 --
V.P., Hardware Engineering
Frederic T. Boyer........................................... $151,750 --
V.P., Finance and Administration and Chief Financial
Officer
</TABLE>

OPTION GRANTS DURING LAST FISCAL YEAR

No options were granted to our named executive officers during the fiscal
year ended December 31, 1999. On January 10, 2000, we granted Suresh Nihalani an
option to purchase 690,200 shares, Hitendra Sonny Soni an option to purchase
40,000 shares, Kevin T. Walsh an option to purchase 40,000 shares and Kiran P.
Munj an option to purchase 159,800 shares. Each of these options had an exercise
price of $7.00 per share, an exercise price which the board of directors
believed to be equal to the fair value of our common stock on the date of grant.
All of these options have a term of ten years and vest over four years, with 25%
of the option shares vesting one year after the option grant date and the
remaining option shares vesting in a series of equal monthly installments over
the succeeding 36 months.

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<PAGE> 63

AGGREGATE OPTION EXERCISES DURING THE LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES

The table below sets forth information with respect to the ownership and
value of unexercised options held by our named executive officers as of December
31, 1999. No options were exercised by these individuals during the fiscal year
ended December 31, 1999. All options were granted at an exercise price which our
board of directors believed to be the fair value of our common stock at the date
of grant.

FISCAL YEAR END OPTION HOLDINGS

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Suresh Nihalani................................. -- -- -- --
Frederic T. Boyer............................... 300,000 -- $3,015,000 --
Kiran P. Munj................................... -- -- -- --
Hitendra Sonny Soni............................. -- -- -- --
Kevin T. Walsh.................................. -- -- -- --
</TABLE>

-------------------------
(1) Based upon the deemed fair value of our common stock as of December 31,
1999, as subsequently determined for accounting purposes to be approximately
$10.20 per share, less the exercise price at the date of grant of $0.15 per
share, multiplied by the number of shares underlying the options.

All of the options in the above table are immediately exercisable, but are
subject to our right of repurchase which lapses periodically over time.

BENEFIT PLANS

2000 STOCK INCENTIVE PLAN

The 2000 Stock Incentive Plan is the successor program to our existing
stock option/stock issuance plan. The 2000 Stock Incentive Plan was adopted by
the board in March 2000, was approved by the stockholders in May 2000 and will
become effective on the date the underwriting agreement for this offering is
signed. At that time, all outstanding options under our existing stock
option/stock issuance plan will be transferred to the 2000 Stock Incentive Plan,
and no further option grants will be made under that plan. The transferred
options will continue to be governed by their existing terms, unless our
compensation committee decides to extend one or more features of the 2000 Stock
Incentive Plan to those options. Except as otherwise noted below, the
transferred options have substantially the same terms as will be in effect for
grants made under the discretionary option grant program of our 2000 Stock
Incentive Plan.

SHARE RESERVE. Under the 2000 Stock Incentive Plan, 11,050,000 shares of
our common stock have been authorized for issuance. This share reserve consists
of the shares that will be carried over from our existing stock option/stock
issuance plan, including the shares subject to outstanding options thereunder.
As of March 31, 2000, options to purchase approximately 1,633,553 shares of
common stock remained available for grant under our existing stock option/stock
issuance plan. In May 2000, the board and our stockholders authorized an
increase of 400,000 shares to the share reserve under this stock option/stock
issuance plan. The share reserve under our 2000 Stock Incentive Plan will
automatically increase on the first trading day in January of each year,
beginning with calendar year 2001, by an amount equal to 5% of the total number
of shares of our common stock outstanding on the last trading day in December in
the prior year, but in no event will any such annual increase exceed 6,875,000
million shares. In addition, no participant in the 2000 Stock Incentive Plan may
be granted stock options or direct stock issuances for more than one million
shares of common stock in total in any calendar year.

PROGRAMS. Our 2000 Stock Incentive Plan has four separate programs:

- the discretionary option grant program, under which eligible individuals
in our employ may be granted options to purchase shares of our common
stock at an exercise price not less than the fair market value of those
shares on the grant date;

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<PAGE> 64

- the stock issuance program, under which eligible individuals may be
issued shares of common stock directly, either through the purchase of
such shares at a price not less than their fair market value at the time
of issuance, or as a bonus tied to the attainment of performance
milestones or the completion of a specified period of service;

- the salary investment option grant program, under which our executive
officers and other highly compensated employees may be given the
opportunity to apply a portion of their base salary each year to the
acquisition of special below market stock option grants; and

- the automatic option grant program, under which option grants will
automatically be made at periodic intervals to eligible non-employee
board members to purchase shares of common stock at an exercise price
equal to the fair market value of those shares on the grant date.

ELIGIBILITY. The individuals eligible to participate in our 2000 Stock
Incentive Plan include our officers and other employees, our board members and
any consultants we hire.

ADMINISTRATION. The discretionary option grant and stock issuance programs
will be administered by our compensation committee. This committee will
determine which eligible individuals are to receive option grants or stock
issuances under these programs, the time or times when the grants or issuances
are to be made, the number of shares subject to each grant or issuance, the
status of any granted option as either an incentive stock option or a
nonstatutory stock option under the federal tax laws, the vesting schedule to be
in effect for the option grant or stock issuance and the maximum term for which
any granted option is to remain outstanding. The compensation committee will
also have the authority to select the executive officers and other highly
compensated employees who may participate in the salary investment option grant
program in the event that program is put into effect for one or more calendar
years.

PLAN FEATURES. Our 2000 Stock Incentive Plan will include the following
features:

- The exercise price for any options granted pursuant to the plan may be
paid in cash or in shares of our common stock valued at fair market value
on the exercise date. The option may also be exercised through a same-day
sale program without any cash outlay by the option holder. In addition,
the compensation committee may provide financial assistance to one or
more option holders in the exercise of their outstanding options by
allowing such individuals to deliver a full-recourse, interest-bearing
promissory note in payment of the exercise price and any associated
withholding taxes incurred in connection with such exercise. The issue
price of shares issued under the stock issuance program may also be paid
in cash or shares of our common stock or, with the approval of the
compensation committee, through a full-recourse promissory note.

- The compensation committee will have the authority to cancel outstanding
options under the discretionary option grant program, including any
transferred options from our existing stock option/ stock issuance plan,
in return for the grant of new options for the same or a different number
of option shares with an exercise price per share based upon the fair
market value of our common stock on the new grant date.

- Stock appreciation rights may be issued under the discretionary option
grant program. These rights will provide the holders with the election to
surrender their outstanding options for a payment from us equal to the
fair market value of the shares subject to the surrendered options less
the exercise price payable for those shares. We may make the payment in
cash or in shares of our common stock. None of the outstanding options
under our existing stock option/stock issuance plan have any stock
appreciation rights.

CHANGE IN CONTROL. The 2000 Stock Incentive Plan will include the following
change in control provisions which may result in the accelerated vesting of
outstanding option grants and stock issuances:

- In the event that we are acquired by merger or asset sale, each
outstanding option under the discretionary option grant program which is
not to be assumed by the successor corporation will immediately become
exercisable for all the option shares, and all outstanding unvested
shares will
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<PAGE> 65

immediately vest, except to the extent our repurchase rights with respect
to those shares are to be assigned to the successor corporation.

- The compensation committee will have complete discretion to grant one or
more options which will become exercisable for all the option shares in
the event those options are assumed in the acquisition but the optionee's
service with us or the acquiring entity is subsequently terminated. The
vesting of any outstanding shares under the stock issuance program may be
accelerated upon similar terms and conditions.

The compensation committee will also have the authority to grant options
which will immediately vest in the event we are acquired, whether or not
those options are assumed by the successor corporation.

- The compensation committee may grant options and structure repurchase
rights so that the shares subject to those options or repurchase rights
will vest in connection with a successful tender offer for more than 50%
of our outstanding voting stock or a change in the majority of our board
through one or more contested elections. Such accelerated vesting may
occur either at the time of such transaction or upon the subsequent
termination of the individual's service.

- The options currently outstanding under our existing stock option/stock
issuance plan will immediately vest in the event we are acquired by
merger or asset sale, unless those options are assumed by the acquiring
entity or our repurchase rights with respect to any unvested shares
subject to those options are assigned to such entity. In addition, any of
those options which are so assumed will be subject to partial
acceleration upon an involuntary termination of the optionee's employment
within 12 months after the acquisition. In general, an employee with such
an acceleration provision will, after taking that partial acceleration
into account, be vested at the time of his or her involuntary termination
in the greater of:

(i) the number of shares in which he or she would have been vested at
that time had his or her service been twice as long as the actual period
of service rendered prior to such involuntary termination or

(ii) the number of shares in which he or she would have been vested in
had he or she completed one year of service prior to such termination.

SALARY INVESTMENT OPTION GRANT PROGRAM. In the event the compensation
committee decides to put this program into effect for one or more calendar
years, each of our executive officers and other highly compensated employees may
elect to reduce his or her base salary for the calendar year by an amount not
less than $10,000 nor more than $50,000. Each selected individual who makes such
an election will automatically be granted, on the first trading day in January
of the calendar year for which his or her salary reduction is to be in effect,
an option to purchase that number of shares of common stock determined by
dividing the salary reduction amount by two-thirds of the fair market value per
share of our common stock on the grant date. The option will have an exercise
price per share equal to one-third of the fair market value of the option shares
on the grant date. As a result, the option will be structured so that the fair
market value of the option shares on the grant date less the exercise price
payable for those shares will be equal to the amount by which the optionee's
salary is to be reduced under the program. The option will become exercisable in
a series of twelve equal monthly installments over the calendar year for which
the salary reduction is to be in effect.

AUTOMATIC OPTION GRANT PROGRAM. Each individual who first becomes a
non-employee board member at any time after the effective date of this offering
will receive an option grant for 30,000 shares of common stock on the date such
individual joins the board. In addition, on the date of each annual stockholders
meeting held after the effective date of this offering, each non-employee board
member who is to continue to serve as a non-employee board member, including
each of our current non-employee board members, will automatically be granted an
option to purchase 10,000 shares of common stock, provided such individual has
served on the board for at least six months.

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<PAGE> 66

Each automatic grant will have an exercise price per share equal to the
fair market value per share of our common stock on the grant date and will have
a term of 10 years, subject to earlier termination following the optionee's
cessation of board service. The option will be immediately exercisable for all
of the option shares; however, we may repurchase, at the exercise price paid per
share, any shares purchased under the option which are not vested at the time of
the optionee's cessation of board service. The shares subject to each annual
automatic grant will vest in two successive semi-annual installments upon the
optionee's completion of each six month period of board service over the twelve
month period measured from the grant date. The shares subject to each initial
30,000-share automatic option grant will vest in a series of eight successive
quarterly installments upon the optionee's completion of each three-month period
of board service over the 24-month period measured from the grant date. However,
the shares subject to each outstanding automatic option grant will immediately
vest in full upon certain changes in control or ownership or upon the optionee's
death or disability while a board member.

ADDITIONAL PROGRAM FEATURES. Our 2000 Stock Incentive Plan will also have
the following features:

- Outstanding options under the salary investment option grant and
automatic option grant programs will immediately vest if we are acquired
by a merger or asset sale or if there is a successful tender offer for
more than 50% of our outstanding voting stock or a change in the majority
of our board through one or more contested elections.

- Limited stock appreciation rights will automatically be included as part
of each grant made under the salary investment option grant or automatic
option grant program, and these rights may also be granted to one or more
officers as part of their option grants under the discretionary option
grant program. Options with this feature may be surrendered to us upon
the successful completion of a hostile tender offer for more than 50% of
our outstanding voting stock. In return for the surrendered option, the
optionee will be entitled to a cash distribution from us in an amount per
surrendered option share based upon the highest price per share of our
common stock paid in that tender offer.

- The board may amend or modify the 2000 Stock Incentive Plan at any time,
subject to any required stockholder approval. The 2000 Stock Incentive
Plan will terminate no later than March 31, 2010.

2000 EMPLOYEE STOCK PURCHASE PLAN

Our 2000 Employee Stock Purchase Plan was adopted by the board in March,
2000 and approved by the stockholders in May 2000. The plan will become
effective immediately upon the signing of the underwriting agreement for this
offering. The plan is designed to allow our eligible employees and the eligible
employees of our participating subsidiaries to purchase shares of common stock,
at semi-annual intervals, with their accumulated payroll deductions.

SHARE RESERVE. 500,000 shares of our common stock will initially be
reserved for issuance under the plan. The reserve will automatically increase on
the first trading day in January each year, beginning in calendar year 2001, by
an amount equal to one percent of the total number of outstanding shares of our
common stock on the last trading day in December in the prior year, but in no
event will any such annual increase exceed 1,375,000 shares.

OFFERING PERIODS. The plan will have a series of successive offering
periods, each with a maximum duration of 24 months. The initial offering period
will start on the date the underwriting agreement for this offering is signed
and will end on the last business day in April, 2002. The next offering period
will start on the first business day in May, 2002, and subsequent offering
periods will be set by our compensation committee.

ELIGIBLE EMPLOYEES. Individuals scheduled to work more than 20 hours per
week for more than 5 calendar months per year may join an offering period on the
start date or any semi-annual entry date within that period. Semi-annual entry
dates will occur on the first business day of May and November each year.
Individuals who become eligible employees after the start date of an offering
period may join the plan on any subsequent semi-annual entry date within that
offering period.

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PAYROLL DEDUCTIONS. A participant may contribute up to 15% of his or her
cash earnings through payroll deductions, and the accumulated deductions will be
applied to the purchase of shares on each semi-annual purchase date. The
purchase price per share will be equal to 85% of the fair market value per share
on the participant's entry date into the offering period or, if lower, 85% of
the fair market value per share on the semi-annual purchase date. Semi-annual
purchase dates will occur on the last business day of April and October each
year. In no event, however, may any participant purchase more than 1,000 shares
on any purchase date, and not more than 150,000 shares may be purchased in total
by all participants on any purchase date. Our compensation committee may
increase or decrease these limits prior to the start of any new offering period
under the plan.

RESET FEATURE. If the fair market value per share of our common stock on
any purchase date is less than the fair market value per share on the start date
of the two-year offering period, then that offering period will automatically
terminate, and a new two-year offering period will begin on the next business
day. All participants in the terminated offering will be transferred to the new
offering period.

CHANGE IN CONTROL. Should we be acquired by merger or sale of substantially
all of our assets or more than fifty percent of our voting securities, then all
outstanding purchase rights will automatically be exercised immediately prior to
the effective date of the acquisition. The purchase price will be equal to 85%
of the market value per share on the participant's entry date into the offering
period in which an acquisition occurs or, if lower, 85% of the fair market value
per share immediately prior to the acquisition.

PLAN PROVISIONS. The plan will terminate no later than the last business
day of April, 2010. The board may at any time amend, suspend or discontinue the
plan. However, certain amendments may require stockholder approval.

401(k) PLAN

In 1999, we adopted a Retirement Savings and Investment Plan, or 401(k)
plan, covering our eligible full-time employees located in the United States.
The 401(k) plan is intended to qualify under Section 401(k) of the Internal
Revenue Code of 1986, as amended so that contributions to the 401(k) plan by
employees are not taxable to employees until withdrawn from the 401(k) plan.
Pursuant to the 401(k) plan, participating employees may elect to reduce their
current compensation by up to the lesser of 15% of their annual compensation or
the statutorily prescribed annual limit, and to have the amount of the reduction
contributed to the 401(k) plan. The 401(k) plan permits discretionary company
matching and profit sharing contributions. To date, we have not made any
contributions to the 401(k) plan on behalf of any of our employees.

LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS

The certificate of incorporation that we will adopt immediately prior to
the closing of this offering provides that, except to the extent prohibited by
the Delaware General Corporation Law, our directors will not be personally
liable to us or our stockholders for monetary damages for any breach of
fiduciary duty as directors. Under the Delaware General Corporation Law, the
directors have a fiduciary duty to Accelerated Networks which is not eliminated
by this provision of the certificate of incorporation and, in appropriate
circumstances, equitable remedies such as injunctive or other forms of
nonmonetary relief will remain available. In addition, each director will
continue to be subject to liability under the Delaware law for breach of the
director's duty of loyalty, for acts or omissions which are found by a court of
competent jurisdiction to be not in good faith or which involve intentional
misconduct, or knowing violations of law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are prohibited by Delaware law. This
provision also does not affect the director's responsibilities under any other
laws, such as the federal securities laws or state or federal environmental
laws. We intend to obtain liability insurance for our officers and directors.

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Section 145 of the Delaware law empowers a corporation to indemnify its
directors and officers and to purchase insurance with respect to liability
arising out of their capacity or status as directors and officers, provided that
this provision shall not eliminate or limit the liability of a director:

- for any breach of the director's duty of loyalty to the corporation or
its stockholders;

- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;

- arising under Section 174 of the Delaware law; or

- for any transaction from which the director derived an improper personal
benefit.

The indemnification permitted under Delaware law is not exclusive of any
other rights to which the directors and officers may be entitled under the
corporation's bylaws, any agreement, a vote of stockholders or otherwise. Our
certificate of incorporation will provide that we shall, to the fullest extent
permitted by the Delaware law, indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding (whether civil, criminal, administrative or investigative) by
reason of the fact that such person is or was a director or officer, or is or
was serving at our request as a director or officer of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
against expenses, including attorneys' fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding.

We have entered into indemnification agreements with our directors. These
agreements contain provisions that may require us, among other things, to
indemnify these directors against certain liabilities that may arise because of
their status or service as directors, except for liabilities arising from
willful misconduct of a culpable nature, advance their expenses incurred as a
result of any proceeding against them as to which they could be indemnified, and
obtain directors' and officers' liability insurance if it is maintained for
other directors or officers.

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

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CERTAIN TRANSACTIONS

The following is a description of transactions during our last three fiscal
years to which we have been a party, in which the amount involved in the
transaction exceeded $60,000 and in which any director, executive officer or
holder of more than 5% of our capital stock had or will have a direct or
indirect material interest, other than compensation arrangements that are
otherwise required to be described under "Management."

ISSUANCES OF STOCK, NOTES AND WARRANTS TO EXECUTIVE OFFICERS

In March 1997, we issued Suresh Nihalani 4,216,000 shares of our common
stock and Kiran Munj 1,224,000 shares of our common stock for a purchase price
of $0.0018 per share. The shares issued to Mr. Munj were subject to a repurchase
right in favor of Accelerated Networks. The repurchase right lapsed with respect
to 24% of the shares on October 31, 1997, subject to Mr. Munj's continued
service, and with respect to the remaining 76% of the shares over 36 equal
monthly installments thereafter. This vesting schedule was subsequently amended
in connection with our Series A financing in May 1997, as further described
below.

In March 1997, we entered into separate Loan and Warrant Purchase
Agreements with each of Messrs. Nihalani and Munj, pursuant to which Mr.
Nihalani loaned us an aggregate of $240,000 and Mr. Munj loaned us $10,000.
These loans bore interest at a rate of five percent per annum. In connection
with their loans, we issued Mr. Nihalani warrants to purchase 1,305,600 shares
of common stock at $0.0018 per share and Mr. Munj warrants to purchase 54,400
shares of common stock at $0.0018 per share. Each of Messrs. Nihalani and Munj
exercised their warrants in full in April 1997. In connection with the closing
of our Series A preferred stock financing in May 1997, we repaid the loans from
Messrs. Nihalani and Munj. At that time, Messrs. Nihalani and Munj also granted
us a repurchase right with respect to half of the stock that they held at that
time. The repurchase right lapses over a period of 48 equal monthly installments
beginning on April 30, 1997, subject to their continued service.

ISSUANCE OF PREFERRED STOCK

Since our inception, we have issued redeemable convertible preferred stock
as follows:

In May 1997, we issued 11,170,000 shares of Series A preferred stock in a
private placement at a purchase price of $0.50 per share to several affiliates
of New Enterprise Associates, several affiliates of U.S. Venture Partners, and
several other investors and an additional 50,000 shares of Series A preferred
stock to a third party in exchange for $25,000 of services performed in
connection with the private placement;

In May 1998, we issued 11,584,848 shares of Series B preferred stock in a
private placement at a purchase price of $1.25 per share to Onset Enterprise
Associates, affiliates of the Walden International Investment Group, several of
our Series A investors, and several other investors;

In March 1999, we issued 8,845,648 shares of Series C preferred stock in a
private placement at a purchase price of $3.39 per share to Siemens AG; and;

In February and March 2000, we issued an aggregate of 3,455,267 shares of
Series D preferred stock in a private placement at a purchase price of $11.14
per share to MCIWorldCom Ventures, Williams Communications Group, several of our
Series A, Series B and Series C investors and several other investors.

Immediately prior to the closing of this offering and assuming an initial
public offering price in excess of $5.50 per share, all outstanding shares of
our Series A, Series B, Series C and Series D preferred stock will convert
automatically into shares of common stock. If our initial public offering price
is less than $8.912 per share, each share of our Series D preferred stock will
convert into more than one share of common stock. The exact number of shares of
common stock into which each share of Series D preferred stock will convert will
be determined by dividing $8.912 by our initial public offering price, and will
not be

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subject to a cap on the maximum number of common shares into which the Series D
preferred stock will convert.

Our officers, directors and 5% stockholders participated in the foregoing
transactions as follows:

<TABLE>
<CAPTION>
EXECUTIVE OFFICERS, PREFERRED STOCK
DIRECTORS AND 5% --------------------------------------------
STOCKHOLDERS SERIES A SERIES B SERIES C SERIES D
------------------- --------- --------- --------- --------
<S> <C> <C> <C> <C>
Pete S. Patel........................................ 17,953
Hitendra Sonny Soni.................................. 17,953
Kevin T. Walsh....................................... 10,000
Brig. Gen. H.R. Johnson, USAF (Ret.)(1).............. 17,953
Siemens AG........................................... 8,845,648 268,425
Entities affiliated with New Enterprise
Associates(2)...................................... 4,160,000 2,268,448 195,074
Entities affiliated with U.S. Venture Partners(3).... 4,000,000 2,428,000 195,073
Onset Enterprise Associates III, L.P................. 3,200,000 97,105
Entities affiliated with The Walden International
Investment Group(4)................................ 3,200,000 97,105
</TABLE>

---------------
(1) Represents shares held by Gen. Johnson and Steven C. Johnson, as tenants in
common.

(2) Composed of New Enterprise Associates VII, L.P., NEA Presidents Fund, L.P.
and NEA Ventures 1997, L.P.

(3) Composed of U.S. Venture Partners V, L.P., USVP V International, L.P., 2180
Associates Fund V, L.P., USVP V Entrepreneur Partners, L.P. and U.S. Venture
Partners VII, L.P.

(4) Composed of Walden-SBIC, L.P., Walden Technology Ventures II, L.P., Walden
Media and Information Technology Fund, L.P., Walden EDB Partners, L.P.,
Walden EDB Partners II, L.P., Walden Japan Partners, L.P., Pacven Walden
Ventures III, L.P., and Walden-Nikko Mauritius Co.

AGREEMENTS AND TRANSACTIONS WITH SIEMENS AG AND ITS AFFILIATE

In connection with the issuance of our Series C preferred stock to Siemens
AG in February 1999, we entered into an OEM agreement with Siemens ICN, a
wholly-owned subsidiary of Siemens AG, pursuant to which we agreed to sell our
products to Siemens ICN for use in their own products for resale to third
parties. We also entered into a separate service level agreement with Siemens
ICN which sets forth our obligations to service the products we sell to Siemens
ICN under the OEM agreement. As of December 31, 1999, Siemens ICN had purchased
approximately $1.3 million of our products pursuant to the OEM agreement. In May
2000, we expanded our relationship with Siemens by entering into a similar OEM
relationship with Siemens AG.

In December 1999, we entered into a two year warrant issuance agreement
with Siemens ICN pursuant to which we agreed to issue Siemens ICN warrants to
purchase up to 150,000 shares of our common stock, based upon the amount and
timing of Siemens' purchases of our products. As of March 31, 2000, we had
issued warrants to purchase a total of 28,575 shares of our common stock at a
purchase price of $7.00 per share pursuant to this agreement. Siemens ICN is
affiliated with Siemens AG, which will beneficially own approximately 18.3% of
our common stock after this offering.

INVESTORS RIGHTS AGREEMENT

We have entered into a Second Restated Investors Rights Agreement with
Suresh Nihalani, Kiran P. Munj, our preferred stockholders and U S WEST Internet
Ventures, which provides those stockholders rights to require us to register
their shares of Accelerated Networks stock. Please see "Description of Capital
Stock -- Registration Rights" beginning on page 72 for more information
regarding this agreement.

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PRINCIPAL STOCKHOLDERS

The table below sets forth information regarding the beneficial ownership
of our common stock as of March 31, 2000, by:

- each person or entity who is known by us to own beneficially more than 5%
of our outstanding stock;

- each of our directors and a director nominee;

- each of the named executive officers; and

- all directors and executive officers as a group.

The information set forth in the table gives effect to the conversion of
all issued and outstanding preferred stock. Unless otherwise indicated, the
address of each beneficial owner listed below is c/o Accelerated Networks, Inc.,
301 Science Drive, Moorpark, California 93021.

Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Except as indicated by the footnotes below, we
believe, based on information furnished to us, that the persons and entities
named in the table below have sole voting and investment power with respect to
all shares of common stock shown as beneficially owned by them. Percentage of
beneficial ownership is based on 45,537,094 shares of common stock outstanding
as of March 31, 2000, and 49,837,094 shares of common stock outstanding after
the completion of this offering and the concurrent private placement at an
assumed price of $10.00 per share. In computing the number of shares of common
stock subject to options held by that person that are exercisable within 60 days
of March 31, 2000, these shares are deemed outstanding for the purpose of
determining the percentage ownership of the optionee. These shares, however, are
not deemed outstanding for the purpose of computing the percentage ownership of
any other stockholder.

<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF SHARES
SHARES BENEFICIALLY OWNED
BENEFICIALLY ---------------------------------------
NAME OF BENEFICIAL OWNER OWNED PRIOR TO OFFERING AFTER THE OFFERING
------------------------ ------------ ----------------- ------------------
<S> <C> <C> <C>
NAMED EXECUTIVE OFFICERS & DIRECTORS
Suresh Nihalani(1)............................. 6,264,658 13.5% 12.4%
Frederic T. Boyer(2)........................... 300,000 * *
Kiran P. Munj(3)............................... 1,495,342 3.3 3.0
Hitendra Sonny Soni(4)......................... 457,953 1.0 *
Kevin T. Walsh(5).............................. 450,000 * *
Brig. Gen. H. R. Johnson USAF (Ret.)(6)........ 204,953 * *
Steven M. Krausz(7)............................ 6,653,473 14.6 13.3
Robert F. Kuhling, Jr.(8)...................... 3,327,105 7.3 6.7
Anthony T. Maher(9)............................ 9,202,648 20.2 18.4
Peter T. Morris(10)............................ 6,493,522 14.3 13.0
Lip-Bu Tan(11)................................. 3,327,105 7.3 6.7
All directors and executive officers as a group
(15 persons)(12)............................ 39,581,469 82.0 75.3
OTHER 5% STOCKHOLDERS
Entities associated with Siemens AG(13)........ 9,142,648 20.1 18.3
Hofmannstrasse 51, D-81359
Munich, Germany
Entities associated with New Enterprise
Associates(14).............................. 6,623,522 14.5 13.3
2490 Sand Hill Road
Menlo Park, CA 94025
</TABLE>

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<PAGE> 72

---------------
* Represents less than 1% of the total shares.

(1) Includes (a) 690,200 shares issuable upon the exercise of immediately
exercisable options granted to Mr. Nihalani, (b) 95,800 shares held by Mr.
Nihalani's wife, Varsha Nihalani, our controller, (c) 10,000 shares
issuable upon exercise of immediately exercisable options granted to Ms.
Nihalani, (d) 8,400 shares held by other members of Mr. Nihalani's
immediate family, and (e) 314,286 shares held by Mr. Nihalani as trustee of
a grantor retained annuity trust.

(2) Includes 300,000 shares issuable upon the exercise of immediately
exercisable options.

(3) Includes 159,800 shares issuable upon the exercise of immediately
exercisable options and 57,142 shares held as trustee of two irrevocable
trusts.

(4) Includes 40,000 shares issuable upon the exercise of immediately
exercisable options.

(5) Includes 40,000 shares issuable upon the exercise of immediately
exercisable options.

(6) Includes 40,000 shares held by Candace Maria Johnson, and 20,000 shares
issuable upon the exercise of immediately exercisable options. Gen. Johnson
holds a power of attorney with respect to the voting and disposition of
these shares, but disclaims beneficial ownership of such shares.

(7) Includes 30,000 shares issuable upon the exercise of immediately
exercisable options. Also includes (a) 5,785,560 shares owned by U.S.
Venture Partners V, L.P. ("USVP V"), (b) 321,420 shares owned by USVP V
International, L.P. ("V Int'l"), (c) 179,995 shares owned by 2180
Associates Fund V, L.P. ("2180V"), (d) 141,425 shares owned by USVP V
Entrepreneur Partners, L.P. ("EP V") and (e) 195,073 shares owned by U.S.
Venture Partners VII, L.P. ("USVP VII"). Mr. Krausz is a managing member of
Presidio Management Group V, L.L.C. ("PMG V") and Presidio Management Group
VII, L.L.C. ("PMG VII"). PMG V is the general partner of each of USVP V, V
Int'l, 2180 V and EP V. PMG VII is the general partner of USVP VII. PMG V
or PMG VII may be deemed to share voting and dispositive power over the
shares held by each of USVP V, V INT'L, 2180 V, EP V and USVP VII, as the
case may be. Accordingly, as the managing member of PMG V and PMG VII, Mr.
Krausz may be deemed to share voting and dispositive power over these
shares as well. Mr. Krausz disclaims beneficial ownership of such shares
except to the extent of his proportionate membership interest therein.

(8) Includes 30,000 shares issuable upon the exercise of immediately
exercisable options. Also includes 3,297,105 shares held by ONSET
Enterprise Associates III, L.P. ("Onset"). Mr. Kuhling is the managing
director of OEA III Management, LLC, the general partner of Onset and, as
such, may be deemed to exercise voting and dispositive power over the
shares held by Onset. Mr. Kuhling disclaims beneficial ownership of such
shares except as to his proportionate interest therein.

(9) Includes 60,000 shares issuable upon the exercise of immediately
exercisable options. Also includes 9,114,073 shares held by Siemens AG and
28,575 shares issuable upon exercise of a warrant held by Siemens ICN. Mr.
Maher is a member of the board of Siemens ICN. Mr. Maher disclaims

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<PAGE> 73

beneficial ownership of the shares held by Siemens AG and the shares
underlying the warrant held by Siemens ICN.

(10) Includes 30,000 shares issuable upon the exercise of immediately
exercisable options. Also includes 6,463,522 shares held by New Enterprise
Associates VII, L.P. ("NEA VII"). Mr. Morris is a general partner of NEA
VII. Mr. Morris disclaims beneficial ownership in such shares, except to
the extent of his proportionate partnership interest therein.

(11) Includes 30,000 shares issuable upon the exercise of immediately
exercisable options. Also includes (a) 544,000 shares owned by Walden-SBIC,
L.P., (b) 136,000 shares owned by Walden Technology Ventures II, L.P., (c)
600,000 shares owned by Walden Media and Information Technology Fund, L.P.,
(d) 280,000 shares owned by Walden EDB Partners, L.P., (e) 16,579 shares
owned by Walden EDB Partners II, L.P., (f) 280,000 shares owned by Walden
Japan Partners, L.P., (g) 847,368 shares owned by Pacven Walden Ventures
III, L.P. and (h) 593,158 shares owned by Walden-Nikko Mauritius Co. Mr.
Tan is a general partner of each of the above entities, with the exceptions
of (1) Pacven Walden Ventures III, L.P., of which he is a director of
Pacven Walden Management Co, Ltd., which is a general partner of Pacven
Walden Management L.P., which is a general partner of Pacven Walden
Ventures III, L.P. and (2) Walden-Nikko Mauritius, of which he is a
director. Mr. Tan disclaims beneficial ownership in such shares, except to
the extent of his pecuniary interest therein, arising as a result of his
partnership interests in the above shares.

(12) Includes all information set forth in footnotes 1 through 11 above. In
addition, includes (a) 100,000 shares held by Yogi Mistry, (b) 60,453
shares held by Pete S. Patel and (c) 1,244,257 other shares issuable upon
the exercise of immediately exercisable options.

(13) Includes (a) 9,114,073 shares held by Siemens AG and (b) 28,575 shares
issuable upon exercise of a warrant held by Siemens ICN. Siemens AG is the
parent company of Siemens ICN and, as such, may be deemed to exercise
voting and dispositive power over the shares held by Siemens ICN.

(14) Includes (a) 6,463,522 shares held by NEA VII, (b) 150,000 shares held by
NEA Presidents Fund, L.P. and (c) 10,000 shares held by NEA Ventures 1997,
L.P.

(15) Includes (a) 5,785,560 shares owned by USVP V, (b) 321,420 shares owned by
V Int'l, (c) 179,995 shares owned by 2180V, (d) 141,425 shares owned by EP
V, and (e) 195,073 shares owned by USVP VII.

(16) Includes (a) 544,000 shares owned by Walden-SBIC, L.P., (b) 136,000 shares
owned by Walden Technology Ventures II, L.P., (c) 600,000 shares owned by
Walden Media and Information Technology Fund, L.P., (d) 280,000 shares
owned by Walden EDB Partners, L.P., (e) 16,579 shares owned by Walden EDB
Partners II, L.P., (f) 280,000 shares owned by Walden Japan Partners, L.P.,
(g) 847,368 shares owned by Pacven Walden Ventures III, L.P. and (h)
593,158 shares owned by Walden-Nikko Mauritius Co.

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DESCRIPTION OF CAPITAL STOCK

GENERAL

We are authorized to issue 200,000,000 shares of common stock, par value
$0.001, and 5,000,000 shares of undesignated preferred stock, par value $0.001.
The following description of our securities and the provisions of our
certificate of incorporation and bylaws are summaries. Statements contained in
this prospectus relating to these provisions are not necessarily complete.
Copies of our certificate of incorporation and bylaws have been filed with the
Commission as exhibits to our registration statement, of which this prospectus
forms a part. The descriptions of common stock and preferred stock reflect
changes to our capital structure that will occur upon the closing of this
offering in accordance with the terms of the certificate that will be adopted by
us immediately prior to the closing of this offering.

COMMON STOCK

As of March 31, 2000, there were 45,537,094 shares of common stock
outstanding and held of record by approximately 140 stockholders, assuming
conversion of all shares of preferred stock into common stock. Based on this
number of outstanding shares, and giving effect to the issuance of the 4,000,000
shares of common stock in this offering and approximately 300,000 shares in the
concurrent private placement, there will be 49,837,094 shares of common stock
outstanding, assuming no exercise of the underwriters' over-allotment option,
upon the closing of the offering.

Holders of the common stock are entitled to one vote for each share held on
all matters submitted to a vote of the stockholders. Our certificate of
incorporation does not provide for cumulative voting for the election of
directors. This means that the holders of a majority of the shares voted can
elect all of the directors then standing for election. Holders of common stock
are entitled to receive ratably any dividends that may be declared by the board
of directors out of legally available funds, subject to any preferential
dividend rights of any outstanding preferred stock. Upon our liquidation,
dissolution or winding up, the holders of common stock are entitled to receive
ratably our net assets available after the payment of all debts and other
liabilities and subject to the prior rights of any outstanding preferred stock.

Holders of common stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of common stock are, and the shares
offered by us in this offering will be, upon receipt of payment for such shares,
fully paid and nonassessable. The rights, preferences and privileges of holders
of common stock are subject to, and may be adversely affected by, the rights of
holders of shares of any series of preferred stock which we may designate and
issue in the future without further stockholder approval. Upon the closing of
the offering, there will be no shares of preferred stock outstanding.

PREFERRED STOCK

Immediately prior to the closing of this offering, and assuming an initial
public offering price equal to or greater than $5.50 per share, all outstanding
shares of our Series A, Series B, Series C and Series D preferred stock will
convert automatically into shares of common stock. If our initial public
offering price is less than $8.912 per share, each share of our Series D
preferred stock will convert into more than one share of common stock. The exact
number of shares of common stock into which each share of Series D preferred
stock will convert will be determined by dividing $8.912 by our initial public
offering price, and will not be subject to a cap on the maximum number of common
shares into which the Series D preferred stock will convert. Following our
initial public offering, the board of directors will be authorized without
further stockholder approval to issue from time to time up to an aggregate of
5,000,000 shares of preferred stock in one or more series and to fix or alter
the designations, preferences, rights, qualifications, limitations or
restrictions of the shares of each series, including the dividend rights,
dividend rates, conversion rights, voting rights, term of redemption including
sinking fund provisions, redemption price or prices, liquidation preferences and
the number of shares constituting any series or designations of such series
without further vote or action by the stockholders.

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<PAGE> 75

The issuance of preferred stock may have the effect of delaying, deferring
or preventing a change in control of our management without further action by
the stockholders and may adversely affect the voting and other rights of the
holders of common stock. The issuance of preferred stock with voting and
conversion rights may adversely affect the voting power of the holders of common
stock, including the loss of voting control to others. We have no present plans
to issue any shares of preferred stock.

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

Certain provisions of our certificate of incorporation and bylaws, which
will become effective upon the closing of this offering, may make it more
difficult to acquire control of Accelerated Networks by various means. These
provisions could deprive the stockholders of opportunities to realize a premium
on the shares of common stock owned by them. In addition, these provisions may
adversely affect the prevailing market price of the stock. These provisions are
intended to:

- enhance the likelihood of continuity and stability in the composition of
the board and in the policies formulated by the board;

- discourage certain types of transactions which may involve an actual or
threatened change in control of Accelerated Networks;

- discourage certain tactics that may be used in proxy fights;

- encourage persons seeking to acquire control of Accelerated Networks to
consult first with the board of directors to negotiate the terms of any
proposed business combination or offer; and

- reduce our vulnerability to an unsolicited proposal for a takeover that
does not contemplate the acquisition of all outstanding shares of
Accelerated or that is otherwise unfair to our stockholders.

The certificate and bylaws provide that upon the closing of this offering
the board shall be divided into three classes of directors serving staggered,
three-year terms. The classification of the board has the effect of requiring at
least two annual stockholder meetings, instead of one, to replace a majority of
members of the board. Subject to the rights of the holders of any outstanding
series of preferred stock, the certificate authorizes only the board to fill
vacancies, including newly created directorships. Accordingly, this provision
could prevent a stockholder from obtaining majority representation on the board
by enlarging the board of directors and filling the new directorships with its
own nominees. The certificate also provides that directors may be removed by
stockholders only for cause and only by the affirmative vote of holders of
two-thirds of the outstanding shares of voting stock.

The certificate provides that stockholders may not take action by written
consent, but may only take action at duly called annual or special meetings of
stockholders. The certificate further provides that special meetings of our
stockholders may be called only by the chairman of the board of directors or a
majority of the board of directors. This limitation on the right of stockholders
to call a special meeting could make it more difficult for stockholders to
initiate actions that are opposed by the board of directors. These actions could
include the removal of an incumbent director or the election of a stockholder
nominee as a director. They could also include the implementation of a rule
requiring stockholder ratification of specific defensive strategies that have
been adopted by the board of directors with respect to unsolicited takeover
bids. In addition, the limited ability of the stockholders to call a special
meeting of stockholders may make it more difficult to change the existing board
and management.

The bylaws provide that stockholders seeking to bring business before an
annual meeting of stockholders, or to nominate candidates for election as
directors at an annual meeting of stockholders, must provide timely notice
thereof in writing. To be timely, a stockholder's notice must be delivered to or
mailed and received at our principal executive offices not less than 120 days
prior to the date of our annual meeting. The bylaws also specify certain
requirements as to the form and content of a stockholder's notice. These
provisions may preclude stockholders from bringing matters before an annual
meeting of stockholders or from making nominations for directors at an annual
meeting of stockholders.

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<PAGE> 76

The authorized but unissued shares of common stock and preferred stock are
available for future issuance without stockholder approval. These additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital, corporate acquisitions and
employee benefit plans. The existence of authorized but unissued shares of
common stock and preferred stock could render more difficult or discourage an
attempt to obtain control of us by means of a proxy contest, tender offer,
merger or otherwise.

The Delaware General Corporation Law provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or bylaws, unless
a corporation's certificate of incorporation or bylaws, as the case may be,
requires a greater percentage. Our amended and restated certificate of
incorporation imposes supermajority vote requirements in connection with
business combination transactions and the amendment of certain provisions of our
certificate of incorporation and bylaws, including those provisions relating to
the classified board of directors, action by written consent, the ability of
stockholders to call special meetings and the ability of stockholders to bring
business before an annual meeting or to nominate directors. Following the
completion of this offering, our present directors and executive officers and
their respective affiliates will beneficially own approximately 75.3% of our
common stock. This gives them veto power with respect to any stockholder action
or approval requiring either a two-thirds vote or a simple majority.

We are subject to the provisions of Section 203 of the Delaware General
Corporation Law, as amended from time to time. Section 203 generally prohibits a
publicly-held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years from the date of
the transaction in which the person became an interested stockholder, unless the
interested stockholder attained such status with the approval of the board of
directors or unless the business combination is approved in a prescribed manner.
A "business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. Generally, an
"interested stockholder" is a person who, together with his or its affiliates
and associates, owns, or within three years did own, 15% or more of the
corporation's voting stock. This statute could prohibit or delay the
accomplishment of mergers or other takeover or change in control attempts with
respect to us and, accordingly, may discourage attempts to acquire us.

REGISTRATION RIGHTS

Upon consummation of this offering and the concurrent private placement,
the holders of approximately 42,534,338 shares of common stock, including shares
issuable upon the exercise of outstanding warrants, will be entitled to
registration rights with respect to the registration of such shares under the
Securities Act. Beginning six months after this offering, if we propose to
register any of our securities under the Securities Act, either for our own
account or the account of other security holders, holders of registration rights
are entitled to notice of such registration and are entitled to include their
shares in such registration. The holders' rights with respect to all these
registrations are subject to additional conditions, including the right of the
underwriters of any of these offerings to limit the number of shares included in
any of these registrations, and we may, in certain circumstances defer such
registrations. Accelerated Networks is generally required to bear the expense,
other than underwriting discounts and sales commissions, of these registrations.
In addition, these holders may require us to register their shares on Form S-3
subject to certain conditions and limitations. Of these approximately 42,534,338
shares, approximately 6,800,000 shares are entitled only to the "piggy back"
registration rights, and not S-3 rights. Upon registration, these shares will be
freely tradable in the public market without restriction.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the common stock is U.S. Stock
Transfer Corporation.

NASDAQ NATIONAL MARKET LISTING

Our common stock has been approved for listing on the Nasdaq National
Market under the trading symbol "ACCL."

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<PAGE> 77

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for our common
stock, and there can be no assurance that a significant public market for the
common stock will develop or be sustained after this offering. Future sales of
substantial amounts of common stock, including shares issued upon exercise of
outstanding options and warrants, in the public market following this offering
could adversely affect market prices prevailing from time to time and could
impair our ability to raise capital through the sale of our equity securities.
Sales of substantial amounts of our common stock in the public market after the
restrictions lapse could adversely affect the prevailing market price and our
ability to raise equity capital in the future.

Upon completion of this offering and the concurrent private placement and
based on shares outstanding at March 31, 2000, we will have outstanding
49,837,094 shares of common stock. Of these shares, all the shares sold in this
offering, plus any shares issued upon exercise of the underwriters' over-
allotment option, will be freely tradable without restriction under the
Securities Act, unless purchased by our "affiliates" as that term is defined in
Rule 144 under the Securities Act.

The remaining 45,837,094 shares of common stock outstanding are "restricted
securities" within the meaning of Rule 144 under the Securities Act. Restricted
securities may be sold in the public market only if registered or if they
qualify for an exemption from registration under Rules 144, 144(k) or 701
promulgated under the Securities Act, which are summarized below.

Our directors, officers and stockholders have entered into lock-up
agreements with the underwriters of this offering generally providing that they
will not offer, sell, contract to sell or grant any option to purchase or
otherwise dispose of our shares of common stock or any securities exercisable
for or convertible into our common stock owned by them prior to this offering
for a period of 180 days after the effective date of the registration statement
filed pursuant to this offering without the prior written consent of Credit
Suisse First Boston Corporation. As a result of these contractual restrictions,
notwithstanding possible earlier eligibility for sale under the provisions of
Rules 144, 144(k) and 701, shares subject to lock-up agreements may not be sold
until such agreements expire or are waived by Credit Suisse First Boston
Corporation. In addition, U S WEST Internet Ventures has agreed that it will
not, for a period of one year after this offering, sell or transfer any of the
shares of common stock purchased by it in the concurrent private placement, or
upon exercise of its warrant, without our consent. Based on shares outstanding
as of March 31, 2000, taking into account the lock-up agreements, and assuming
Credit Suisse First Boston Corporation does not release stockholders from these
agreements prior to the expiration of the 180 day lock-up period and that we do
not release U S WEST Internet Ventures from its agreement prior to the
expiration of the one-year lock-up period, the following shares will be eligible
for sale in the public market at the following times:

- beginning on the effective date of the registration statement, the
4,000,000 shares sold in this offering will be immediately available for
sale in the public market;

- beginning 180 days after the date of this prospectus, approximately
40,767,195 additional shares will become eligible for sale under Rule 144
or 701, subject to volume restrictions as described below; and

- the remainder of the restricted securities will be eligible for sale from
time to time thereafter, subject in some cases to compliance with Rule
144.

In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned restricted
shares for at least one year, including the holding period of any prior owner
except an affiliate, would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of:

- 1% of the number of shares of common stock then outstanding, which will
equal approximately 498,371 shares immediately after this offering and
the concurrent private placement; or

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<PAGE> 78

- the average weekly trading volume of our common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such
sale.

Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about Accelerated Networks. Under Rule 144(k), a person who is not deemed to
have been an affiliate of Accelerated Networks at any time during the three
months preceding a sale, and who has beneficially owned the shares proposed to
be sold for at least two years, including the holding period of any prior owner
except an affiliate, is entitled to sell such shares without complying with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144.

Rule 701, as currently in effect, permits resales of shares in reliance
upon Rule 144 but without compliance with certain restrictions, including the
holding period requirement, of Rule 144. Any of our employees, officers,
directors, or consultant who purchased shares under a written compensatory plan
or contract may be entitled to rely on the resale provisions of Rule 701. Rule
701 permits affiliates to sell their Rule 701 shares under Rule 144 without
complying with the holding period requirements of Rule 144. Rule 701 further
provides that non-affiliates may sell such shares in reliance on Rule 144
without having to comply with the holding period, public information, volume
limitation or notice provisions of Rule 144. All holders of Rule 701 shares are
required to wait until 90 days after the date of this prospectus before selling
such shares. However, all Rule 701 shares are subject to lock-up agreements and
will only become eligible for sale at the earlier of the expiration of the
180-day lock-up agreements or no sooner than 90 days after the offering upon
obtaining the prior written consent of Credit Suisse First Boston Corporation.

Within 90 days following the effectiveness of this offering, we will file a
registration statement on Form S-8 registering approximately 7,918,669 shares of
common stock subject to outstanding options or reserved for future issuance
under our 2000 Stock Incentive Plan and or 2000 Employee Stock Purchase Plan. As
of March 31, 2000, options to purchase a total of 5,385,116 shares were
outstanding and 1,633,533 additional shares were reserved for future issuance
under our stock plan. In May 2000, the board and our stockholders approved an
increase of 400,000 shares to the share reserve under the stock plan. Upon the
filing of the registration statement on Form S-8, common stock issued upon
exercise of outstanding vested options or issued under our purchase plan, other
than common stock issued to our affiliates, will be available for immediate
resale in the open market. Also beginning six months after the date of this
offering, holders of approximately 42,205,763 restricted shares and the holders
of warrants to purchase approximately 328,575 shares of common stock, based on
an assumed offering price of $10.00 per share, will be entitled to certain
registration rights. See "Description of Capital Stock -- Registration Rights"
on page 72 for more information on these rights. Registration of such shares
under the Securities Act would result in such shares becoming freely tradable
without restriction under the Securities Act, except for shares purchased by
affiliates, immediately upon the effectiveness of such registration.

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<PAGE> 79

UNDERWRITING

Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, we have agreed to sell to the
underwriters named below, for whom Credit Suisse First Boston Corporation, UBS
Warburg LLC and U.S. Bancorp Piper Jaffray Inc. are acting as representatives,
the following respective numbers of shares of common stock:

<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
Credit Suisse First Boston Corporation......................
UBS Warburg LLC.............................................
U.S. Bancorp Piper Jaffray Inc. ............................
---------
Total..................................................... 4,000,000
=========
</TABLE>

The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that, if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.

We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to 600,000 additional shares at the initial public offering price
less the underwriting discounts and commissions. The option may be exercised
only to cover any over-allotments of common stock.

The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to dealers may be changed by the
representatives.

The following table summarizes the compensation and estimated expenses we
will pay:

<TABLE>
<CAPTION>
PER SHARE TOTAL
-------------------------------- --------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting Discounts and
Commissions paid by us................ $ $ $ $
Expenses payable by us................ $ $ $ $
</TABLE>

The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.

We have agreed that we will not offer, sell, contract to sell, announce our
intention to sell, pledge or otherwise dispose of, directly or indirectly, or
file with the Securities and Exchange Commission a registration statement under
the Securities Act relating to, any shares of our common stock or securities
convertible into or exchangeable or exercisable for any of our common stock
without the prior written consent of Credit Suisse First Boston Corporation for
a period of 180 days after the date of this prospectus, except in the case of
issuances by Accelerated Networks pursuant to the exercise of employee stock
options outstanding on the date hereof.

Our officers and directors and other stockholders holding an aggregate of
approximately 45,837,094 shares have agreed that they will not offer, sell,
contract to sell, announce our intention to sell, pledge or otherwise dispose
of, directly or indirectly, or file with the Securities and Exchange Commission
a registration statement under the Securities Act relating to, any shares of our
common stock or securities convertible into or exchangeable or exercisable for
any of our common stock without the prior written consent of Credit Suisse First
Boston Corporation for a period of 180 days after the date of this prospectus.

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<PAGE> 80

The underwriters have reserved for sale, at the initial public offering
price, up to 320,000 shares of the common stock for some of our vendors,
customers and other people and entities with whom we maintain business
relationships who have expressed an interest in purchasing common stock in the
offering. The number of shares available for sale to the general public in the
offering will be reduced to the extent these persons purchase the reserved
shares. Any reserved shares not purchased will be offered by the underwriters to
the general public on the same terms as the other shares.

We have agreed to indemnify the underwriters against liabilities under the
Securities Act or contribute to payments which the underwriters may be required
to make in that respect.

Our common stock has been approved for listing on The Nasdaq Stock Market's
National Market, subject to official notice of issuance, under the symbol
"ACCL."

In February 2000, we issued 2,244 shares of our Series D Preferred Stock at
$11.14 per share to Paul Ferris, a person associated with Credit Suisse First
Boston Corporation. We received approximately $25,000 in net proceeds from this
financing. The shares that were issued to Mr. Ferris have been deemed
underwriting compensation by the National Association of Securities Dealers,
Inc. and will be restricted from sale, transfer, assignment or hypothecation for
a period of one year from the date of this offering, except as otherwise
permitted by the National Association of Securities Dealers, Inc. Conduct Rule
2710(c)(7)(A).

Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiation
between us and the representatives. The principal factors to be considered in
determining the public offering price will include:

- the information set forth in this prospectus and otherwise available to
the underwriters;

- the history and the prospects for the industry in which we will compete;

- the ability of our management; the prospects for our future earnings;

- the present state of our development and our current financial condition;

- the general condition of the securities markets at the time of this
offering; and

- the recent market prices of, and the demand for, publicly-traded common
stock of generally comparable companies.

The underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act of 1934.

- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.

- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.

- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.

- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by such
syndicate member is purchased in a syndicate covering transaction to
cover syndicate short positions.

These stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of the common stock to be higher than it would otherwise be
in the absence of these transactions. These transactions may be effected on the
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.

A prospectus in electronic format may be made available on the web sites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of shares to underwriters for
sale to their online brokerage account holders. Internet distributions will be
allocated by the underwriters that will make internet distributions on the same
basis as other allocations.

76
<PAGE> 81

NOTICE TO CANADIAN RESIDENTS

RESALE RESTRICTIONS

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

REPRESENTATIONS OF PURCHASERS

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

RIGHTS OF ACTION (ONTARIO PURCHASERS)

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

ENFORCEMENT OF LEGAL RIGHTS

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

NOTICE TO BRITISH COLUMBIA RESIDENTS

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

TAXATION AND ELIGIBILITY FOR INVESTMENT

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

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<PAGE> 82

LEGAL MATTERS

The validity of the common stock offered hereby will be passed upon for us
by Brobeck, Phleger & Harrison LLP, Irvine, California. As of March 31, 2000,
Brobeck, Phleger & Harrison LLP and certain entities and individuals affiliated
with Brobeck, Phleger & Harrison LLP beneficially owned a total of 65,000 shares
of our Series A preferred stock, 40,000 shares of our Series B preferred stock
and 14,465 shares of our Series D preferred stock, all of which will convert to
common stock immediately prior to the closing of this offering. Certain legal
matters relating to the sale of common stock in this offering will be passed
upon for the underwriters by Shearman & Sterling, San Francisco, California.

EXPERTS

The consolidated financial statements of Accelerated Networks, Inc. as of
December 31, 1998 and 1999 and for each of the three years in the period ended
December 31, 1999 included in this prospectus have been so included in reliance
on the report of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of said firm as experts in accounting and auditing.

ADDITIONAL INFORMATION

We have filed with the Securities and Exchange Commission a registration
statement on Form S-1, including exhibits and schedules, under the Securities
Act with respect to the shares to be sold in the offering. This prospectus does
not contain all the information set forth in the registration statement. For
further information with respect to us and the shares to be sold in the
offering, reference is made to the registration statement and the exhibits and
schedules attached to the registration statement. Statements contained in this
prospectus as to the contents of any contract, agreement or other document
referred to are materially complete. In addition, we intend to file annual,
quarterly and current reports, proxy statements and other information with the
Commission.

You may read and copy all or any portion of the registration statement or
any reports, statements or other information that we file at the Commission's
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can
request copies of these documents, upon payment of a duplicating fee, by writing
to the Commission. Please call the Commission at 1-800-SEC-0330 for further
information on the operation of the Public Reference Room. Our Commission
filings, including the registration statement, are also available to you on the
Commission's Web-site (http://www.sec.gov).

78
<PAGE> 83

ACCELERATED NETWORKS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>

F-1
<PAGE> 84

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Accelerated Networks, Inc.

In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows present fairly, in all material respects, the financial position
of Accelerated Networks, Inc. and its subsidiaries (the "Company") at December
31, 1998 and 1999, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States. 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
auditing standards generally accepted in the United States, 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.

/s/ PricewaterhouseCoopers LLP

Woodland Hills, California
February 28, 2000

F-2
<PAGE> 85

ACCELERATED NETWORKS, INC.

CONSOLIDATED BALANCE SHEETS
(THOUSANDS, EXCEPT PER SHARE DATA)
(ALL INTERIM INFORMATION RELATING TO MARCH 31, 2000 IS UNAUDITED)

<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY
------------------- MARCH 31, MARCH 31,
1998 1999 2000 2000
-------- -------- --------- -------------
(UNAUDITED)
(NOTE 13)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,507 $ 15,207 $ 47,798
Short-term investments.................................... 5,954 -- --
Accounts receivable, net of allowance for doubtful
accounts of $0, $110 and $194, respectively............ -- 3,277 3,454
Amounts due from related party............................ -- 1,104 2,128
Inventories............................................... -- 3,811 3,398
Prepaid and other current assets.......................... 502 296 707
-------- -------- --------
Total current assets.............................. 9,963 23,695 57,485
Property and equipment, net................................. 1,328 4,840 5,916
Other assets................................................ -- 143 157
-------- -------- --------
Total assets...................................... $ 11,291 $ 28,678 $ 63,558
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses..................... $ 1,893 $ 3,567 $ 5,819
Accrued payroll........................................... 56 756 629
Capital lease obligations, current........................ 55 28 28
Credit facilities, current................................ 162 884 884
Deferred revenue.......................................... -- 219 539
-------- -------- --------
Total current liabilities......................... 2,166 5,454 7,899
Capital lease obligations, net of current portion........... 37 13 11
Credit facilities, net of current portion................... 175 1,919 1,759
-------- -------- --------
Total liabilities................................. 2,378 7,386 9,669
-------- -------- --------
Commitments and contingencies (Note 9)
Redeemable convertible preferred stock, $.001 par value;
authorized -- 23,100, 31,946 and 35,546 shares at December
31, 1998 and 1999, and March 31, 2000, respectively;
issued and outstanding -- 22,805, 31,651, and 35,106
shares at December 31, 1998 and 1999, and March 31, 2000,
and on pro forma basis, respectively; liquidation
preference of $20,091, $50,091, and $88,583 at December
31, 1998 and 1999, and March 31, 2000, respectively....... 19,918 49,857 88,282
Stockholders' equity (deficit):
Preferred stock, $.001 par value; authorized, issued and
outstanding -- 0, 0, 454 and 454 shares at December 31,
1998 and 1999, at March 31, 2000 and on a pro forma
basis, respectively....................................
Common stock, authorized -- 48,500, 75,000, and 90,000
shares at December 31, 1998 and 1999, and March 31,
2000, respectively; issued and outstanding -- 9,172,
10,166, and 10,431 shares at December 31, 1998 and
1999, and March 31, 2000, respectively; pro
forma -- $.001 par value; 90,000 shares authorized;
45,537 shares issued and outstanding................... 176 579 1,209 $ 46
Additional paid-in capital................................ 817 13,481 28,693 118,138
Deferred stock compensation............................... (765) (10,165) (13,110) (13,110)
Accumulated deficit....................................... (11,233) (32,460) (51,185) (51,185)
-------- -------- -------- --------
Total stockholders' equity (deficit).............. (11,005) (28,565) (34,393) $ 53,889
-------- -------- -------- ========
Total liabilities and stockholders' equity
(deficit)....................................... $ 11,291 $ 28,678 $ 63,558
======== ======== ========
</TABLE>

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

F-3
<PAGE> 86

ACCELERATED NETWORKS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS, EXCEPT PER SHARE DATA)
(ALL INTERIM INFORMATION RELATING TO THE PERIODS
ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)

<TABLE>
<CAPTION>
FOR THE THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------- ---------------------
1997 1998 1999 1999 2000
------- -------- -------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenue (includes related party revenue of $1,332
and $2,796 at December 31, 1999 and March 31, 2000,
respectively)....................................... $ -- $ -- $ 8,466 $ -- $ 7,152
Cost of revenue (excluding $0, $0, $100, $12 and $268
amortization of deferred stock compensation for the
years ended December 31, 1997, 1998, and 1999 and
for the three months ended March 31, 1999 and 2000,
respectively)....................................... -- -- 6,312 -- 5,087
------- -------- -------- ------- --------
Gross profit.......................................... -- -- 2,154 -- 2,065
Operating expenses:
Research and product development (excluding $0, $20,
$873, $95, and $1,278 amortization of deferred
stock compensation for the years ended December
31, 1997, 1998, and 1999 and for the three months
ended March 31, 1999 and 2000, respectively)...... 1,126 7,378 12,061 2,467 4,150
Sales and marketing (excluding $0, $31, $1,498, $74
and $681 amortization of deferred stock
compensation for the years ended December 31,
1997, 1998, and 1999 and for the three months
ended March 31, 1999 and 2000, respectively)...... -- 1,979 7,500 952 3,963
General and administrative (excluding $0, $1, $632,
$57 and $158 amortization of deferred stock
compensation for the years ended December 31,
1997, 1998, and 1999 and for the three months
ended March 31, 1999 and 2000, respectively)...... 485 754 1,747 389 794
Amortization of deferred stock compensation......... -- 52 3,103 238 2,385
------- -------- -------- ------- --------
Total operating expenses.......................... 1,611 10,163 24,411 4,046 11,292
------- -------- -------- ------- --------
Loss from operations.................................. (1,611) (10,163) (22,257) (4,046) (9,227)
Other income (expense):
Interest income..................................... 129 494 1,131 212 442
Interest expense.................................... (5) (41) (100) (11) (57)
------- -------- -------- ------- --------
124 453 1,031 201 385
------- -------- -------- ------- --------
Loss before provision for income taxes................ (1,487) (9,710) (21,226) (3,845) (8,842)
Provision for income taxes............................ 1 1 1 -- 1
------- -------- -------- ------- --------
Net loss.............................................. (1,488) (9,711) (21,227) (3,845) (8,843)
Beneficial conversion feature......................... -- -- -- -- (9,882)
------- -------- -------- ------- --------
Net loss applicable to common stockholders............ $(1,488) $ (9,711) $(21,227) $(3,845) $(18,725)
======= ======== ======== ======= ========

Basic and diluted net loss per share applicable to
common stockholders................................. $ (0.42) $ (2.00) $ (3.29) $ (0.68) $ (2.44)
======= ======== ======== ======= ========
Weighted-average shares outstanding used to compute
basic and diluted net loss per share applicable to
common stockholders................................. 3,550 4,853 6,447 5,694 7,664
======= ======== ======== ======= ========
Pro forma basic and diluted net loss per share
applicable to common stockholders (unaudited)....... $ (0.58) $ (0.22)
======== ========
Weighted-average shares outstanding used to compute
pro forma basic and diluted net loss per share
applicable to common stockholders (unaudited)....... 36,789 40,797
======== ========
</TABLE>

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

F-4
<PAGE> 87

ACCELERATED NETWORKS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(THOUSANDS)

<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL DEFERRED STOCKHOLDERS'
------------------ PAID-IN STOCK ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL COMPENSATION DEFICIT (DEFICIT)
------ -------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996................... 4,216 $ 8 $ -- $ -- $ (34) $ (26)
Issuance of common stock..................... 1,224 2 -- -- -- 2
Exercise of warrants......................... 1,360 3 -- -- -- 3
Exercise of stock options.................... 272 11 -- -- -- 11
Deferred stock compensation.................. -- -- 101 (101) -- --
Net loss..................................... -- -- -- -- (1,488) (1,488)
------ -------- -------- -------- -------- --------
Balance at December 31, 1997................... 7,072 24 101 (101) (1,522) (1,498)
Exercise of stock options.................... 2,200 157 -- -- -- 157
Repurchase of unvested common stock.......... (100) (5) -- -- -- (5)
Deferred stock compensation.................. -- 716 (716) -- --
Amortization of deferred stock
compensation............................... -- -- -- 52 -- 52
Net loss..................................... -- -- -- -- (9,711) (9,711)
------ -------- -------- -------- -------- --------
Balance at December 31, 1998................... 9,172 176 817 (765) (11,233) (11,005)
Exercise of stock options.................... 1,052 409 -- -- -- 409
Repurchase of unvested common stock.......... (58) (6) -- -- -- (6)
Issuance of warrants......................... -- -- 161 -- -- 161
Deferred stock compensation.................. -- -- 12,503 (12,503) -- --
Amortization of deferred stock
compensation............................... -- -- -- 3,103 -- 3,103
Net loss ..... . -- . (21,227) (21,227)
------ -------- -------- -------- -------- --------
Balance at December 31, 1999................... 10,166 579 13,481 (10,165) (32,460) (28,565)
Exercise of stock options (unaudited)........ 277 631 -- -- -- 631
Repurchase of unvested common stock
(unaudited)................................ (12) (1) -- -- -- (1)
Beneficial conversion feature on Series D
(unaudited)................................ -- -- 9,882 -- (9,882) --
Deferred stock compensation (unaudited)...... -- -- 5,330 (5,330) -- --
Amortization of deferred stock compensation
(unaudited)................................ -- -- -- 2,385 -- 2,385
Net loss (unaudited) ..... . -- . (8,843) (8,843)
------ -------- -------- -------- -------- --------
Balance at March 31, 2000 (unaudited).......... 10,431 1,209 28,693 (13,110) (51,185) (34,393)
Assumed conversion of redeemable convertible
preferred stock (unaudited)................ 35,106 88,282 -- -- -- 88,282
Reincorporation into Delaware (unaudited).... -- (89,445) 89,445 -- -- --
------ -------- -------- -------- -------- --------
Balance at March 31, 2000 pro forma
(unaudited).................................. 45,537 $ 46 $118,138 $(13,110) $(51,185) $ 53,889
====== ======== ======== ======== ======== ========
</TABLE>

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

F-5
<PAGE> 88

ACCELERATED NETWORKS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS)

<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------- -----------------
1997 1998 1999 1999 2000
------- ------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss................................................ $(1,488) $(9,711) $(21,227) $(3,845) $(8,843)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization......................... 45 283 1,028 145 508
Provision for bad debts............................... -- -- 110 -- 84
Issuance of warrant in connection with purchase
order............................................... -- -- 161 -- --
Issuance of options for services...................... -- -- 17 -- --
Amortization of deferred stock compensation........... -- 52 3,103 238 2,385
Issuance of Series A redeemable convertible preferred
stock for services.................................. 25 -- -- -- --
Changes in current assets and liabilities:
Accounts receivable................................. -- -- (4,491) -- (1,285)
Inventories......................................... -- -- (3,811) -- 413
Prepaid and other current assets.................... (36) (464) 63 (211) (425)
Accounts payable and accrued expenses............... 122 1,771 1,674 (401) 2,252
Accrued payroll..................................... 29 27 700 216 (127)
Deferred revenue.................................... -- -- 219 -- 320
------- ------- -------- ------- -------
Net cash used in operating activities............ (1,303) (8,042) (22,454) (3,858) (4,718)
------- ------- -------- ------- -------
INVESTING ACTIVITIES:
Purchase of available-for-sale securities............... -- (5,954) (2,000) (2,000) --
Maturity of available-for-sale securities............... -- -- 7,954 7,954 --
Purchase of property and equipment...................... (444) (1,071) (4,535) (355) (1,584)
------- ------- -------- ------- -------
Net cash provided by (used in) investing
activities..................................... (444) (7,025) 1,419 5,599 (1,584)
------- ------- -------- ------- -------
FINANCING ACTIVITIES:
Proceeds from issuance of common stock.................. 5 -- -- -- --
Repurchase of common stock.............................. -- (5) (5) (3) (1)
Proceeds from issuance of redeemable convertible
preferred stock....................................... 5,585 14,481 30,000 30,000 38,492
Offering costs.......................................... (120) (53) (61) (55) (67)
Proceeds from exercise of stock options................. 11 158 391 83 631
Proceeds from issuance of notes payable................. 205 -- -- -- --
Repayment of notes payable.............................. (250) -- -- -- --
Payments under capital lease obligations................ (2) (48) (57) (14) (2)
Proceeds from credit facilities......................... -- 458 2,828 -- --
Repayments on credit facilities......................... -- (121) (361) (40) (160)
------- ------- -------- ------- -------
Net cash provided by financing activities........ 5,434 14,870 32,735 29,971 38,893
------- ------- -------- ------- -------
Net increase (decrease) in cash and cash
equivalents.................................... 3,687 (197) 11,700 31,712 32,591
Cash and cash equivalents at beginning of year............ 17 3,704 3,507 3,507 15,207
------- ------- -------- ------- -------
Cash and cash equivalents at end of year.................. $ 3,704 $ 3,507 $ 15,207 $35,219 $47,798
======= ======= ======== ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest.............................................. $ -- $ 36 $ 100 $ 11 $ 38
Income taxes.......................................... $ 2 $ 1 $ 1 $ -- $ 1
Supplemental disclosure of noncash transactions:
Purchase of equipment under capital leases.............. $ 38 $ 103 $ 19 $ -- $ --
Return of equipment under capital lease................. $ -- $ -- $ 14 $ -- $ --
</TABLE>

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

F-6
<PAGE> 89

ACCELERATED NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL INTERIM INFORMATION RELATING TO THE PERIODS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)

1. BUSINESS AND BASIS OF PRESENTATION

Accelerated Networks, Inc. (the "Company") was incorporated in October 1996
as a California corporation. In January and May of 1999, the Company established
two wholly-owned subsidiaries, Accelerated Networks (India) Private Limited, in
Bangalore, India, and Accelerated Networks International Limited, in Mauritius,
respectively. All significant intercompany accounts and transactions are
eliminated in consolidation. Certain items shown in the December 31, 1997 and
1998 financial statements have been reclassified to conform with current period
presentation. Effective January 1, 1999, the Company began to operate under a
thirteen-week calendar quarter. For financial statement purposes, however, the
reporting periods are referred to as ended on the last day of related reporting
period. Prior to 1999, the Company operated under a calendar quarter. For the
year ended dated December 31, 1999, there was no difference between the
Company's reporting year end and the calendar year end.

The Company develops, manufactures, and markets telecommunications products
that enable the bundling of voice and data services over a single broadband
access network. The Company's target customers are providers of voice and/or
data services including competitive local exchange carriers, or CLECs,
interexchange carriers, or IXCs, regional bell operating companies, or RBOCs,
incumbent local exchange carriers, or ILECs, and foreign telephone companies.
The market for the Company's products is extremely competitive and is
characterized by rapid technological change, new product development and product
obsolescence, and a competitive business environment for the attraction and
retention of knowledge workers.

Through December 31, 1998, the Company was considered to be in the
development stage and was principally engaged in research and development,
raising capital and building its management team. During 1999, the Company
ceased to be in the development stage.

The accompanying consolidated financial statements have been prepared on
the basis that the Company will continue as a going concern. The Company has
incurred significant operating losses and negative operating cash flows since
its inception. The Company has funded operations primarily through the sale of
equity securities and debt borrowings. Management believes that the proceeds
received through the sale of equity securities, available borrowings under its
credit facility and revenue generated from operations will be adequate to
support the Company's operations through March of 2001.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

In the normal course of preparing financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Cash and cash
equivalents are carried at cost, which approximates fair value.

F-7
<PAGE> 90
ACCELERATED NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INTERIM INFORMATION RELATING TO THE PERIODS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SHORT-TERM INVESTMENTS

The Company generally classifies its short-term investments, if any, as
available-for-sale and, accordingly, carries such securities at their aggregate
fair value. Unrealized gains and losses, if any, are reported as a separate
component of stockholders' equity (deficit). At December 31, 1998, the Company's
short-term investments consisted of high-grade corporate bonds, which had
maturities of less than one year. The aggregate fair value of the Company's
short-term investments approximated their amortized cost basis. At December 31,
1998, unrealized gains and losses, computed using the specific-identification
method, were not significant. The Company held no short-term investments at
December 31, 1999.

FOREIGN CURRENCY TRANSLATION

During 1999, the Company established two foreign subsidiaries. Translation
of foreign currencies are accounted for using the US Dollar as the functional
currency of the Company's foreign subsidiaries, however books of record are
maintained in the local currencies. Foreign currency translations occur during
remeasurement of the books of record into the functional currency. The lower of
cost or market value is applied to remeasure inventory not recorded in the
functional currency, however there were no such inventories at December 31,
1999. All other assets and liabilities are remeasured using the historical
exchange rates, while revenue and expenses are translated using the average
rates in effect for the period translated. The resulting gains and losses are
included as a separate component of stockholders' equity (deficit) and were not
significant for the year ended December 31, 1999.

INVENTORIES

Inventories are stated at lower of cost (first in, first out) or market.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable and amounts due under capital leases and
credit facilities are carried at cost, which approximates their fair value
because of the short-term maturity of these instruments and the relatively
stable interest rate environment.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization is computed using the straight-line
method based upon the estimated useful lives of the assets of, generally, two to
five years. Leasehold improvements and equipment under capital leases are
depreciated over the shorter of the estimated useful life or the life of the
lease. Useful lives are evaluated regularly by management in order to determine
recoverability in light of current technological conditions. Maintenance and
repairs are charged to expense as incurred while renewals and improvements are
capitalized. Upon the sale or retirement of property and equipment, the accounts
are relieved of the cost and the related accumulated depreciation, with any
resulting gain or loss included in the Consolidated Statement of Operations.

LONG-LIVED ASSETS

The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate the carrying amount of such assets may not be
recoverable. Recoverability of these
F-8
<PAGE> 91
ACCELERATED NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INTERIM INFORMATION RELATING TO THE PERIODS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
assets is determined by comparing the forecasted undiscounted cash flows
attributable to such assets to their carrying value. If the carrying value of
the assets exceeds the forecasted undiscounted cash flows, then the assets are
written down to their fair value. Fair value is determined based on undiscounted
cash flows or appraised values, depending upon the nature of the assets. To
date, there have been no such impairments.

REVENUE RECOGNITION

The Company applies the provisions of American Institute of Certified
Public Accountants ("AICPA") Statement of Position ("SOP") No. 97-2 "Software
Revenue Recognition."

Accordingly, revenue from product sales is recognized upon shipment, provided
that a purchase order has been received or a contract has been executed, there
are no uncertainties regarding customer acceptance, the fee is fixed and
determinable and collectibility is deemed probable. If uncertainties regarding
customer acceptance exist, revenue is recognized when such uncertainties are
resolved. Revenue associated with multiple-element arrangements (customer orders
that include two or more different Company products) are allocated to each
element based on vendor specific objective evidence. To date, the Company's
arrangements have primarily consisted of the Company's IAD and MSAP products.
Extended warranty and other service revenues are recognized ratably over the
respective service periods. Such services have not been significant to date.
Amounts billed in excess of revenue recognized are deferred and included as
deferred revenue on the Consolidated Balance Sheet.

STOCK COMPENSATION

The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board ("APB") No. 25,
"Accounting for Stock Issued to Employees," and complies with the disclosure
requirements of Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation." Under APB No. 25, compensation cost,
if any, is recognized over the respective vesting period based on the
difference, on the date of grant, between the fair value of the Company's common
stock and the grant price. The Company accounts for stock issued to
non-employees in accordance with the provisions of SFAS No. 123 and Emerging
Issues Task Force ("EITF") No. 96-18.

ADVERTISING

Advertising costs are expensed as incurred and amounted to $48,000,
$132,000, $43,000 and $56,000 for the years ended December 31, 1998 and 1999 and
for the three months ended March 31, 1999 and 2000, respectively. No advertising
costs were incurred for the year ended December 31, 1997.

PRODUCT WARRANTY COSTS

The Company generally warrants its products for one year after sale and
provides for estimated future warranty costs at the time revenue is recognized.
At December 31, 1999 and March 31, 2000, accrued product warranty costs amounted
to $201,000 and $371,000, respectively, and are included in accounts payable and
accrued expenses.

F-9
<PAGE> 92
ACCELERATED NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INTERIM INFORMATION RELATING TO THE PERIODS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SOFTWARE DEVELOPMENT COSTS

Software development costs not qualifying for capitalization are included
in research and development and are expensed as incurred. After technological
feasibility is established, software costs are capitalized. The capitalized cost
is then amortized on a straight-line basis over the estimated product life or on
the ratio of current revenues to total projected product revenues, if greater.
The Company defines technological feasibility as the establishment of a working
model, which typically occurs upon completion of a beta version. To date, the
period between achieving technological feasibility, and the general availability
of the related products has been short and software development costs qualifying
for capitalization have been insignificant. Accordingly, to date the Company has
not capitalized any software development costs.

RESEARCH AND PRODUCT DEVELOPMENT

Costs incurred in the research and development of products are expensed as
incurred.

INCOME TAXES

The Company utilizes the liability method of accounting for income taxes.
Under this method, deferred tax liabilities and assets are determined based on
the difference between the financial statement and the tax bases of assets and
liabilities using enacted tax rates in effect for the period in which the
differences are expected to reverse. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be realized.

NET LOSS PER COMMON SHARE

The Company computes net loss per share in accordance with SFAS No. 128,
"Earnings per Share" and SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under
the provisions of SFAS No. 128 and SAB 98, basic net loss per share is computed
by dividing the net loss available to Common Stockholders for the period by the
weighted average number of shares of Common Stock outstanding during the period.
The calculation of diluted net loss per share gives effect to Common Stock
equivalents; however, potential Common Shares are excluded if their effect is
antidilutive. Potential Common Shares are composed of Common Stock subject to
repurchase rights and incremental shares of Common Stock issuable upon the
exercise of stock options and warrants and upon conversion of Series A, B, C and
D Redeemable Convertible Preferred stock.

UNAUDITED PRO FORMA NET LOSS PER SHARE

Unaudited pro forma net loss per share for the year ended December 31, 1999
and for the three months ended March 31, 2000, is computed by dividing the net
loss for the period by the weighted average number of common stock outstanding,
including the pro forma effects of the automatic conversion of the Company's
Redeemable Convertible Preferred stock into shares of the Company's common stock
effective at the time of the Company's initial public offering as if such
conversion occurred on January 1, 1999, respectively, or at the date of original
issuance, if later.

COMPREHENSIVE INCOME

In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income." Comprehensive income generally represents all changes in stockholders'
equity (deficit) during the period except those resulting from investments by,
or distributions to, stockholders. For the years ended December 31, 1997,
F-10
<PAGE> 93
ACCELERATED NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INTERIM INFORMATION RELATING TO THE PERIODS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
1998 and 1999, there were no such significant changes in stockholders' equity
(deficit) other than net loss amounts.

SEGMENTS

In 1998, the Company adopted the provisions of SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." SFAS No. 131
establishes standards for the way companies report information about operating
segments in interim and annual financial statements. It also establishes
standards for related disclosures about products and services, geographic areas
and major customers. The Company determined that it has operated within one
discrete reportable business segment since inception.

UNAUDITED INTERIM FINANCIAL INFORMATION

The interim consolidated financial statements of the Company for the three
months ended March 31, 1999 and 2000, included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations relating to interim financial statements. In the opinion of
management, the accompanying unaudited interim consolidated financial statements
reflect all adjustments, consisting of normal recurring adjustments, necessary
to present fairly the financial position of the Company at March 31, 2000 and
the results of its operations and its cash flows for the three months ended
March 31, 1999 and 2000.

RECENT ACCOUNTING PRONOUNCEMENTS

In March 1998, the AICPA issued SOP No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which provides
guidance on accounting for the cost of computer software developed or obtained
for internal use. The Company adopted the SOP 98-1 effective January 1, 1999.
The implementation of SOP 98-1 did not have a material effect on the
consolidated financial statements.

In April 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs of
Start-Up Activities." SOP No. 98-5 requires that all start-up costs related to
new operations must be expensed as incurred. In addition, start-up costs that
were capitalized in the past must be written off when SOP No. 98-5 is adopted.
The Company adopted the SOP 98-5 effective January 1, 1999. The implementation
of SOP 98-5 did not have a material effect on the consolidated financial
statements.

3. INVENTORIES

Inventories consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------- MARCH 31,
1998 1999 2000
---- ------ ---------
(THOUSANDS)
<S> <C> <C> <C>
Raw materials.................................... $ -- $1,735 $1,469
Work-in-process.................................. -- 710 742
Finished goods................................... -- 1,366 1,187
---- ------ ------
Total.................................. $ -- $3,811 $3,398
==== ====== ======
</TABLE>

F-11
<PAGE> 94
ACCELERATED NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INTERIM INFORMATION RELATING TO THE PERIODS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)

4. PROPERTY AND EQUIPMENT

Property and equipment consist of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
---------------- MARCH 31,
1998 1999 2000
------ ------- ---------
<S> <C> <C> <C>
Computer equipment and software, including assets under
capital leases of $141, $127, and $127 for December 31,
1998, 1999, and March 31, 2000, respectively............. $ 587 $ 2,087 $2,362
Machinery and equipment, including assets under capital
leases of $0, $19, and $19 for December 31, 1998, 1999,
and March 31, 2000, respectively......................... 771 3,339 4,468
Furniture and fixtures..................................... 152 355 535
Leasehold improvements..................................... 146 415 415
------ ------- ------
1,656 6,196 7,780
Less: Accumulated depreciation and amortization, including
amounts related to assets under capital leases of $33,
$62, and $71 for December 31, 1998, 1999, and March 31,
2000, respectively....................................... (328) (1,356) (1,864)
------ ------- ------
Total............................................ $1,328 $ 4,840 $5,916
====== ======= ======
</TABLE>

5. INCOME TAXES

The primary components of temporary differences which gave rise to deferred
taxes at December 31 are:

<TABLE>
<CAPTION>
1998 1999
------- --------
(THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 4,401 $ 11,666
Accrued compensation and related expenses................. -- 1,877
Allowances and reserves................................... -- 347
Depreciation and amortization............................. -- 12
Other..................................................... 56 217
------- --------
Gross deferred tax assets.............................. 4,457 14,119
Less: Valuation allowance................................... (4,422) (13,129)
------- --------
Net deferred tax assets................................ 35 990
------- --------
Deferred tax liabilities:
Depreciation and amortization............................. (35) --
State taxes............................................... -- (990)
------- --------
Gross deferred tax liabilities......................... (35) (990)
------- --------
Net.................................................... $ -- $ --
======= ========
</TABLE>

The difference between the income tax benefit at the statutory rate of 34%
and the Company's effective tax rate is due primarily to the valuation allowance
established to offset the net deferred tax asset.

F-12
<PAGE> 95
ACCELERATED NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INTERIM INFORMATION RELATING TO THE PERIODS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)

5. INCOME TAXES (CONTINUED)
The provision from income taxes is different than the amount computed using the
applicable statutory federal income tax rate with the difference for each year
summarized below:

<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Federal tax benefit at statutory rate....................... (34)% (34)% (34)%
State taxes, net of federal benefit......................... (6) (6) (6)
Adjustment due to increase in valuation allowance........... 41 39 40
---- ---- ---
Other....................................................... (1) 1 --
---- ---- ---
-- -- --
==== ==== ===
</TABLE>

As a result of the Company's loss history, management believes a valuation
allowance for the entire net deferred tax assets, after considering deferred tax
liabilities, is required. The change in the valuation allowance was an increase
of approximately $8,707,000 in 1999. As of December 31, 1999, the Company had
federal and state net operating loss carryforwards of approximately $27,233,000
and $27,230,000 for which expiration begins in 2012 and 2005, respectively. Due
to changes in ownership, the Company may be limited in the annual utilization of
its net operating loss carryforwards.

6. CREDIT FACILITIES

In August 1997, the Company executed a revolving line of credit in the
amount of $750,000. Pursuant to the line of credit agreement, the Company could
utilize the line of credit to purchase equipment through February 1998, at which
time the unpaid balance became due in 36 equal monthly installments of principal
of approximately $13,000, plus interest. Additionally, the Company could utilize
up to $35,000 through February 1999 for general business expenses. The line of
credit bears interest at the prime rate plus 2.5% per annum and was
collateralized by substantially all of the Company's assets. Amounts outstanding
under the line of credit totalled approximately $337,000 as of December 31,
1998. During 1999, amounts outstanding under the line of credit were refinanced
and paid in full.

In May 1999, the Company executed a Senior Loan and Security Agreement (the
"Agreement") with a lender under which the Company can refinance up to
$1,500,000 of qualified equipment purchases through the end of May 2000. During
August 1999, the Company utilized the Agreement to execute one individual note
with the lender for approximately $328,000. The note bears interest at
approximately 15% per annum, matures in February 2003 if not renewed, is
collateralized by the purchased equipment and is payable in 41 monthly
installments of principal and interest. At the maturity date of the note, the
Company has the option to either extend the note for an additional 12 months or
make one final lump sum payment. At December 31, 1999, the outstanding principal
was approximately $303,000, of which approximately $51,000 was current.

In June 1999, the Company executed a $6,500,000 credit facility (the
"Facility") with a bank. The Facility consists of an eighteen-month, $4,000,000
revolving line of credit (the "Revolver") for general business purposes and a
twelve-month, $2,500,000 line of credit (the "Equipment Line") to finance
specified equipment purchases, respectively. The Facility is collateralized by
substantially all of the Company's assets, expires in June 2003 and requires the
Company to comply with various restrictive covenants, including a quick ratio of
not less than 2.5 to 1.0, a minimum tangible effective net worth of $17,000,000
and other financial thresholds. The Revolver bears interest at the bank's base
rate (8.5% per annum at December 31, 1999) with all outstanding principal and
accrued but unpaid interest due and payable in full in November 2000. The
Revolver, which also provides for a maximum of $500,000 in

F-13
<PAGE> 96
ACCELERATED NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INTERIM INFORMATION RELATING TO THE PERIODS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)

6. CREDIT FACILITIES (CONTINUED)
letters of credit, was unused at December 31, 1999. The Equipment Line bears
interest at the bank's base rate plus 0.5% per annum and was fully utilized by
December 1999, at which time, the Equipment Line became due and payable in 36
equal monthly installments of principal of approximately $69,000, plus accrued
interest, beginning in January 2000. At December 31, 1999, amounts outstanding
under the Equipment Line totalled $2,500,000, of which approximately $833,000
was current.

The aggregate amount of required payments under the Company's credit
facilities at December 31, 1999 is as follows (in thousands):

<TABLE>
<S> <C>
2000........................................................ $1,114
2001........................................................ 1,069
2002........................................................ 994
2003........................................................ 58
------
Total payments.............................................. 3,235
Less: Amount representing interest.......................... (432)
------
2,803
Less: Current portion....................................... (884)
------
Long-term portion........................................... $1,919
======
</TABLE>

7. CONCENTRATION OF CREDIT RISK, SIGNIFICANT CUSTOMERS AND SEGMENT REPORTING

Financial instruments which subject the Company to concentrations of credit
risk consist primarily of cash and cash equivalents and trade accounts
receivable. The Company maintains its cash and cash equivalents with major
financial institutions; at times, such balances with any one financial
institution may exceed FDIC insurance limits. The Company's accounts receivable
are derived from revenue earned from customers located primarily in the United
States. The Company extends differing levels of credit to customers and
generally does not require collateral. The Company maintains reserves for
potential credit losses based upon the expected collectibility of accounts
receivable. To date, such losses have been within management's expectations.

Net revenue and accounts receivable from significant customers were as
follows (in thousands, except percentages):

<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE THREE MONTHS
DECEMBER 31, 1999 ENDED MARCH 31, 2000
----------------------------------------------- -----------------------------------------------
NET % OF NET ACCOUNTS % OF ACCOUNTS NET % OF NET ACCOUNTS % OF ACCOUNTS
REVENUE REVENUE RECEIVABLE RECEIVABLE REVENUE REVENUE RECEIVABLE RECEIVABLE
------- -------- ---------- ------------- ------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Customer A.................. $4,565 54% $2,923 67% $2,044 29% $1,967 35%
Customer B.................. $1,722 20% -- -- -- -- -- --
Customer C.................. $1,332 16% $1,104 25% 2,796 39% 2,128 38%
Customer D.................. $ 264 3% $ 264 6% 723 10% 739 13%
Customer E.................. -- -- -- -- 1,332 19% 693 12%
</TABLE>

F-14
<PAGE> 97
ACCELERATED NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INTERIM INFORMATION RELATING TO THE PERIODS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)

7. CONCENTRATION OF CREDIT RISK, SIGNIFICANT CUSTOMERS AND SEGMENT REPORTING
(CONTINUED)
The Company operates in one industry segment providing multiservice
broadband access products. The Company's business operations are principally
based in the United States, and there were no foreign operations during the year
ended December 31, 1997 and 1998. Net revenue and long-lived assets by
geographical location were as follows (in thousands):

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1999
-------------------------
UNITED
STATES INDIA TOTAL
------ ----- ------
<S> <C> <C> <C>
Net revenue................................................ $8,466 -- $8,466
Long-lived assets.......................................... $4,378 $462 $4,840
</TABLE>

<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31, 2000
-------------------------
UNITED
STATES INDIA TOTAL
------ ----- ------
<S> <C> <C> <C>
Net revenue................................................ $7,152 -- $7,152
Long-lived assets.......................................... $5,382 534 $5,916
</TABLE>

8. RELATED-PARTY TRANSACTIONS

For the year ended December 31, 1999 and the three months ended March 31,
2000, the Company sold product of approximately $1,332,000 and $2,796,000,
respectively, to a significant stockholder (the "Stockholder") of the Company.
At December 31, 1999 and March 31, 2000, amounts due from the Stockholder
totaled $1,104,000 and $2,128,000, respectively.

In December 1999, the Company entered into a Warrant Issuance Agreement
(the "Agreement") with the Stockholder whereby the Company will issue a warrant
to purchase common stock of the Company if the Stockholder submits a minimum
quarterly purchase order to, or takes quarterly shipments of a minimum amount of
product from, the Company. If the specified thresholds are met, the Company will
issue a warrant to the Stockholder for each fiscal quarter end through December
2000. The maximum number of shares that may be issued under the Agreement is
150,000. The warrants will be issued at the fair value of the underlying common
stock (or at a 20% discount if publicly traded) as of the date of grant, are
exercisable through December 2001, and are immediately vested and noncancellable
at the date of grant. During the quarter ended December 31, 1999, the Company
received a $4,000,000 purchase order from the Stockholder. Pursuant to the
Agreement, the Company issued a noncancellable, fully vested warrant to purchase
29,000 shares of common stock at $7.00 per share. The fair value of the warrant
was determined to be $161,000 as of the date of grant using the Black-Scholes
pricing model and assuming a risk-free interest rate of approximately 6.0%, an
expected life of 2 years, a 0% dividend yield and forfeiture rate and a
volatility rate of 80%. Accordingly, the Company recognized $161,000 as an
additional sales discount and offset to net revenues on the Consolidated
Statement of Operations for the year ended December 31, 1999. No warrants were
issued for the three months ended March 31, 2000.

F-15
<PAGE> 98
ACCELERATED NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INTERIM INFORMATION RELATING TO THE PERIODS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)

9. COMMITMENTS AND CONTINGENCIES

LEASES

The Company leases its facilities and certain assets under noncancellable
leases through 2002, excluding various renewal options. The following are the
minimum lease payments under these leases (in thousands):

<TABLE>
<CAPTION>
YEAR ENDING CAPITAL OPERATING
DECEMBER 31, LEASES LEASES
------------ ------- ---------
<S> <C> <C>
2000........................................................ $34 $ 585
2001........................................................ 7 383
2002........................................................ 7 67
--- ------
Minimum lease payments...................................... 48 $1,035
======
Less: Amount representing interest.......................... 7
---
Present value of minimum lease payments..................... 41
Less: Current portion....................................... 28
---
Long-term portion........................................... $13
===
</TABLE>

Total rental expense pertaining to operating leases for the years ended
December 31, 1997, 1998 and 1999 and for the three months ended March 31, 1999
and 2000 was approximately $50,000, $184,000, $412,000, $65,000 and $158,000,
respectively.

ROYALTIES

The Company licenses certain technology for incorporation into its product.
Under the terms of these agreements, upon the commencement of production,
royalty payments will be made based on per-unit sales of certain of the
Company's products. Royalty expenses incurred for the year ended December 31,
1999 and the three months ended March 31, 2000 were $88,000 and $115,000,
respectively. There were no royalty expenses for the years ended December 31,
1997 and 1998.

LITIGATION

From time to time, the Company has been party to various litigation and
administrative proceedings relating to claims arising in the normal course of
business. The Company believes that the resolution of these matters will not
have a material adverse effect on the Company's consolidated financial position,
results of operations or cash flows.

10. CAPITALIZATION

COMMON STOCK

In March 1997, the Company executed Stockholders' Agreements (the
"Agreements") with its two founders to purchase 4,216,000 and 1,224,000 shares
of common stock at $0.0018 per share, respectively. The 1,224,000 shares were
subject to a repurchase right in favor of the Company. As of October 1997, 24%
of these shares were vested, with the remaining 76% of the shares vested ratably
over the next 36 months, subject to the continued service of that founder. The
vesting schedule was subsequently amended in connection with the Series A
financing in May 1997.

In March 1997, the Company entered into separate Loan and Warrant Purchase
Agreements with its two founders, whereby, in exchange for the loans to the
Company totaling $250,000, the Company issued

F-16
<PAGE> 99
ACCELERATED NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INTERIM INFORMATION RELATING TO THE PERIODS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)

10. CAPITALIZATION (CONTINUED)
to the founders notes payable and warrants to purchase 1,360,000 shares of
common stock with an exercise price of $0.0018 per share, a vesting term of 48
months and an expiration of ten years. The warrants were exercised in full in
April 1997. In May 1997, the Company repaid the loans in connection with the
closing of its Series A financing, at which time, the two founders granted the
Company repurchase rights with respect to half of the founders' shares issued in
March 1997. The repurchase rights lapse ratably over 48 months beginning in
April 1997. The Company recorded deferred stock compensation of $101,000 for the
shares covered under the restricted stock agreements, which will be recognized
as compensation expense over the vesting period.

At December 31, 1999 and March 31, 2000, 1,124,000 and 911,000 shares,
respectively, of the aforementioned common stock were subject to repurchase, of
which 897,000 and 727,000 shares, respectively, related to unvested shares under
the Agreements and 227,000 and 184,000 shares, respectively, related to unvested
warrants exercised.

PREFERRED STOCK

Redeemable convertible preferred ("Preferred Stock") and undesignated
preferred stock at March 31, 2000 consisted of the following (in thousands,
except per share data):

<TABLE>
<CAPTION>
VALUE
SHARES SHARES LIQUIDATION REDEMPTION PER
TYPE AUTHORIZED OUTSTANDING AMOUNT AMOUNT SHARE
---- ---------- ----------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C>
Series A Redeemable Convertible..... 11,500 11,220 $ 5,610 $ 5,610 $ 0.50
Series B Redeemable Convertible..... 11,600 11,585 14,481 14,481 1.25
Series C Redeemable Convertible..... 8,846 8,846 30,000 30,000 3.39
Series D Redeemable Convertible..... 3,600 3,455 38,492 38,492 11.14
Undesignated........................ 454 -- -- -- --
------ ------ ------- -------
Total............................. 36,000 35,106 $88,583 $88,583
====== ====== ======= =======
</TABLE>

The holders of Series A, Series B, Series C, and Series D Preferred Stock
have various rights and preferences as follows:

Conversion

Each share of Preferred Stock shall be convertible, at the option of the
holder, into fully paid and nonassessable shares of Common Stock at the
conversion rate. The conversion rate is determined by dividing the original
issue price by the conversion price, as defined in the Company's Articles of
Incorporation, in effect on the date the certificate is surrendered for
conversion.

Each share of Preferred Stock will automatically convert into shares of
Common Stock, at the conversion price, as defined in the Articles of
Incorporation, in effect at the time of the earlier of (i) a firm commitment
underwritten public offering, as defined in the Company's Articles of
Incorporation, not less than $15,000,000, or (ii) the date specified by written
consent or agreement of the holders of 60% percent of the outstanding shares of
such series.

In connection with the issuance of the Series D preferred stock, the
Company recorded an estimated noncash charge to equity of $9,882,000 relating to
the beneficial conversion feature on the Series D preferred stock. This charge
was calculated using the deemed fair value of common stock on the date of
issuance, subtracting the conversion price and then multiplying the resulting
amount by the number of

F-17
<PAGE> 100
ACCELERATED NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INTERIM INFORMATION RELATING TO THE PERIODS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)

10. CAPITALIZATION (CONTINUED)
shares of common stock into which the shares of Series D preferred stock are
convertible (3,455,000 shares). As a result of this noncash equity charge, the
Company's net loss per share applicable to common stockholders was adversely
impacted for the three months ended March 31, 2000.

Immediately prior to the closing of an initial public offering and assuming
an initial public offering price in excess of $5.50 per share, all outstanding
shares of our Series A, Series B, Series C, and Series D preferred stock will
convert automatically into shares of common stock. If our initial public
offering price is less than $8.912 per share, each share of our Series D
preferred stock will convert into more than one share of common stock. The exact
number of shares of common stock into which each share of Series D preferred
stock will convert would be determined by dividing $8.912 by our initial public
offering price.

Dividends

Each share of Series A, Series B, Series C, and Series D provides for
discretionary noncumulative dividends of $0.03, $0.075, $0.203, and $0.67 per
share per annum, respectively.

Voting

Each share of Series A, B, C, and D is entitled to the number of votes
equal to the number of shares of Common Stock that could be converted on the
date of the vote.

Redemption

Upon receipt by the Company of a written request, as defined in the
Articles of Incorporation, from the holders of at least two-thirds of the
then-outstanding preferred stock, the Company shall redeem each share of the
then-outstanding preferred stock at the original issuance price, plus accrued
dividends, if any, in two installments, as defined in the Articles of
Incorporation, on April 30, 2003 and April 30, 2004. As of December 31, 1999,
these two installments, if written request for repayment were made, totaled
$44,291,500 each.

Liquidation Preference

Upon liquidation, the holders of Series A, Series B, Series C, and Series D
Preferred Stock would receive $0.50, $1.25, $3.39 and $11.14 per share,
respectively and any declared but unpaid dividends. If at the time of
liquidation the assets and funds to be distributed are insufficient to permit
the above disbursement, then the entire available assets and funds shall be
distributed ratably among the preferred stockholders. Upon the completion of the
above distribution, any remaining assets would be distributed among the common
stockholders ratably, based on the number of shares held by each.

STOCK OPTIONS

In April 1997, the Company adopted the 1997 Stock Option/Stock Issuance
Plan ("Plan") which is divided into two separate equity programs, the Option
Grant Program and the Stock Issuance Program.

Under the terms of the Plan, as amended in March 2000, options to purchase
10,650,000 shares of common stock were reserved. As of December 31, 1999 and
March 31, 2000, approximately 775,000 and 1,626,000 options to purchase shares
of common stock were available for future grant, respectively.

The Option Grant Program provides for the issuance of non-qualified or
incentive stock options to employees, non-employee members of the board and
consultants. The exercise price per share is not to be
F-18
<PAGE> 101
ACCELERATED NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INTERIM INFORMATION RELATING TO THE PERIODS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)

10. CAPITALIZATION (CONTINUED)
less than 85% of the fair market value per share of the Company's common stock
on the date of grant. Incentive stock options may be granted at no less than
100% of the fair market value of the Company's common stock on the date of grant
(110% if granted to an employee who owns 10% or more of the common stock). The
Board of Directors has the discretion to determine the vesting schedule. Options
may be either immediately exercisable or in installments, but generally vest
over a four-year period from the date of grant. In the event the holder ceases
to be employed by the Company, all unvested options terminate and all vested
installment options may be exercised within an installment period following
termination. Any unvested shares acquired related to the immediately exercisable
options are subject to repurchase by the Company at the original exercise price.
The Company had 1,627,000 unvested shares of common stock issued and outstanding
under the Plan at December 31, 1999 which were subject to repurchase by the
Company at the related exercise prices. In general, options expire ten years
from the date of grant.

The Stock Issuance Program provides for shares of common stock to be issued
directly through either the immediate purchase of shares or as a bonus for
services rendered. The purchase price per share is not to be less than 85% of
the fair market value per share of the Company's common stock on the date of
grant. The purchase price, if granted to an employee who owns 10% or more of the
common stock, must be granted at no less than 110% of the fair market value of
the Company's common stock on the date of grant. Vesting terms are at the
discretion of the Plan Administrators and determined at the date of issuance. In
the event the holder ceases to be employed by the Company, any unvested shares
are subject to repurchase by the Company at the original purchase price.

A summary of the status of the Company's stock options, as of December 31,
1997, 1998, 1999 and March 31, 2000, and the changes during the periods ended on
those dates, is presented below (shares in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------ MARCH 31,
1997 1998 1999 2000
------------------ ------------------ ------------------ ------------------
WEIGHTED- WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
------ --------- ------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period...... -- $ -- 2,613 $0.05 1,989 $0.09 3,859 $2.00
Granted -- price equals fair value.... 2,885 0.05 328 0.05 -- -- -- --
Granted -- price less than fair
value............................... -- -- 1,393 0.15 3,013 2.64 1,818 8.36
Exercised............................. 272 0.04 2,200 0.07 1,052 0.48 277 2.28
Cancelled............................. -- -- 145 0.07 91 0.60 15 0.12
----- ----- ----- -----
Outstanding at period-end............... 2,613 $0.05 1,989 $0.09 3,859 $2.00 5,385 $4.14
===== ===== ===== =====
Options exercisable at period-end....... 2,613 $0.05 1,989 $0.09 3,859 $2.00 5,385 $4.14
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>

The weighted-average fair value of options granted to employees for the
years ended December 31, 1997, 1998 and 1999 were $0.05, $0.64 and $6.76 per
share, respectively. The weighted-average fair value of options granted to
employees for the three months ended March 31, 2000 was $11.28 per share.

F-19
<PAGE> 102
ACCELERATED NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INTERIM INFORMATION RELATING TO THE PERIODS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)

10. CAPITALIZATION (CONTINUED)
Additional information with respect to the outstanding options as of
December 31, 1999 is as follows (shares in thousands):

<TABLE>
<CAPTION>
OPTIONS EXERCISED SUBJECT TO
OPTIONS OUTSTANDING AND EXERCISABLE REPURCHASE
----------------------------------------------- ----------------------------
NUMBER
OUTSTANDING WEIGHTED-
AND AVERAGE RANGE AND
EXERCISABLE AT REMAINING WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
DECEMBER 31, CONTRACTUAL EXERCISE OF REPURCHASE
1999 LIFE PRICE SHARES PRICE
-------------- ----------- ---------------- --------- ----------------
<S> <C> <C> <C> <C>
813 7.55 $0.05 761 $0.05
438 8.73 0.15 666 0.15
340 9.21 0.60 6 0.60
220 9.38 1.00 102 1.00
248 9.56 1.75 87 1.75
111 9.76 2.50 -- 2.50
1,140 9.92 3.50 5 3.50
549 9.97 4.50 -- 4.50
----- -----
3,859 9.17 $2.00 1,627 $0.24
===== =====
</TABLE>

During 1997, 1998, 1999 and the three months ended March 31, 2000, the
Company granted stock options to directors, employees, officers, and
consultants, at exercise prices below the fair market value of the Company's
common stock at the date of grant. Accordingly, the Company recorded deferred
stock compensation of $0, $716,000, $12,503,000 and $5,330,000, respectively, to
be amortized over the related vesting periods (generally four years). The
Company recognized compensation expense of $0, $52,000, $3,103,000, $238,000 and
$2,385,000 relating to these stock option grants for the years ended December
31, 1997, 1998 and 1999, and the three months ended March 31, 1999 and 2000,
respectively.

The Company calculated the minimum fair value of each option granted to
directors, employees and officers of the Company on the date of the grant using
the minimum value option pricing model as prescribed by SFAS No. 123 using the
following assumptions:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
----------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rate..................................... 6.5% 5.5% 6.0%
Expected lives (in years)................................... 4.0 4.0 4.0
Dividend yield.............................................. 0.0% 0.0% 0.0%
Expected volatility......................................... 0.0% 0.0% 0.0%
</TABLE>

Had compensation costs been determined based upon the methodology
prescribed under SFAS No. 123, the Company's net loss applicable to common
stockholders and basic and diluted net loss per

F-20
<PAGE> 103
ACCELERATED NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INTERIM INFORMATION RELATING TO THE PERIODS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)

10. CAPITALIZATION (CONTINUED)
share applicable to common stockholders would approximate the following pro
forma amounts (thousands, except per share data):

<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
----------- ---------
<S> <C> <C>
For the year ended December 31, 1999:
Net loss applicable to common stockholders.................. $(21,227) $(21,404)
======== ========
Basic and diluted net loss per share applicable to common
stockholders.............................................. $ (3.29) $ (3.32)
======== ========
For the year ended December 31, 1998:
Net loss applicable to common stockholders.................. $ (9,711) $ (9,727)
======== ========
Basic and diluted net loss per share applicable to common
stockholders.............................................. $ (2.00) $ (2.00)
======== ========
For the year ended December 31, 1997:
Net loss applicable to common stockholders.................. $ (1,488) $ (1,495)
======== ========
Basic and diluted net loss per share applicable to common
stockholders.............................................. $ (0.42) $ (0.42)
======== ========
</TABLE>

The effects of applying SFAS No. 123 in the above pro forma disclosure are
not indicative of future amounts, and additional awards in future years are
anticipated.

During 1998 and 1999, the Company utilized the Black-Scholes pricing model,
assuming a risk-free interest rate of approximately 6%, an expected life of 4
years, a 0% dividend yield and forfeiture rate, and an expected volatility rate
of approximately 80%, to calculate the fair values of stock options granted to
consultants. The stock options are valued at the grant date, and each subsequent
reporting period until the options are fully vested, exercisable and
noncancelable.

11. EMPLOYEE BENEFIT PLAN

During March 1999, the Company established a 401(k) Profit Sharing Plan
(the "401 Plan") available to all employees who meet the Plan's eligibility
requirements. Under the 401 Plan, participating employees may defer a percentage
(not to exceed 15%) of their eligible pretax earnings up to the Internal Revenue
Service's annual contribution limit. Company matching and profit sharing
contributions are discretionary. To date, the Company has not made any
contributions to the 401 Plan as of December 31, 1999.

F-21
<PAGE> 104
ACCELERATED NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INTERIM INFORMATION RELATING TO THE PERIODS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)

12. NET LOSS PER SHARE

The following table sets forth the computation of basic, diluted and pro
forma net loss per share (thousands, except per share data):

<TABLE>
<CAPTION>
FOR THE YEAR FOR THE THREE MONTHS
ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------- --------------------
1997 1998 1999 1999 2000
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
HISTORICAL PRESENTATION
Numerator:
Net loss applicable to common stockholders... $(1,488) $(9,711) $(21,227) $(3,845) $(18,725)
======= ======= ======== ======= ========
Denominator:
Weighted-average common shares outstanding... 6,108 8,266 9,816 9,388 10,309
Adjustment for common shares issued subject
to repurchase............................. (2,558) (3,413) (3,369) (3,694) (2,645)
------- ------- -------- ------- --------
Denominator for basic and diluted
calculations.............................. 3,550 4,853 6,447 5,694 7,664
======= ======= ======== ======= ========
Basic and diluted net loss per share applicable
to common stockholders....................... $ (0.42) $ (2.00) $ (3.29) $ (0.68) $ (2.44)
======= ======= ======== ======= ========
PRO FORMA PRESENTATION (unaudited)
Numerator:
Net loss applicable to common stockholders... $(21,227) $(18,725)
Beneficial conversion feature................ -- 9,882
-------- --------
Net loss..................................... $(21,227) $ (8,843)
======== ========
Denominator:
Shares used above............................ 6,447 7,664
Weighted-average effect of pro forma
conversion of securities:
Series A redeemable convertible preferred
stock................................... 11,220 11,220
Series B redeemable convertible preferred
stock................................... 11,585 11,585
Series C redeemable convertible preferred
stock................................... 7,537 8,846
Series D redeemable convertible preferred
stock................................... -- 1,482
-------- --------
Denominator for pro forma basic and diluted
calculation.................................. 36,789 40,797
======== ========
Pro forma basic and diluted net loss per
share........................................ $ (0.58) $ (0.22)
======== ========
</TABLE>

F-22
<PAGE> 105
ACCELERATED NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INTERIM INFORMATION RELATING TO THE PERIODS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)

The following table sets forth common stock equivalents (potential common
stock) that are not included in the diluted net loss per share calculation above
because their effect would be antidilutive for the periods indicated (shares in
thousands):

<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
-------------------------- ---------------------
1997 1998 1999 1999 2000
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Weighted-average common stock equivalents:
Series A preferred stock................... 6,609 11,220 11,220 11,220 11,220
Series B preferred stock................... -- 7,300 11,585 11,585 11,585
Series C preferred stock................... -- -- 7,537 873 8,846
Series D preferred stock................... -- -- -- -- 1,482
Unvested shares of common stock subject to
repurchase.............................. 2,558 3,413 3,369 3,694 2,645
Warrants................................... -- -- -- -- 29
Stock options.............................. 871 2,301.. 2,924 2,457 4,626
------ ------ ------ ------ ------
10,038.. 24,234 36,635 29,829 40,433
====== ====== ====== ====== ======
</TABLE>

13. SUBSEQUENT EVENTS -- UNAUDITED

In March 2000, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission ("SEC") that
would permit the Company to sell shares of the Company's common stock in
connection with a proposed initial public offering ("IPO"). The Preferred Stock,
as described in Note 10, will automatically convert into shares of common stock
as discussed in Note 10. The conversion of the Preferred Stock has been
reflected in the accompanying unaudited pro forma consolidated balance sheet at
March 31, 2000.

In March 2000, the Board of Directors approved the reincorporation of the
Company in the state of Delaware, which will be effected prior to the closing of
the IPO. The effect of this reincorporation is presented in pro forma unaudited
stockholders' equity.

In March 2000, the Board of Directors adopted the 2000 Stock Incentive Plan
and the 2000 Employee Stock Purchase Plan, both of which will become effective
upon the pricing of the IPO. In May 2000, the Board of Directors approved a
400,000 increase in the number of shares available for future issuance under the
Company's current Plan. When it becomes effective, the 2000 Stock Incentive Plan
will succeed and replace the Company's current Plan. 500,000 shares of common
stock are initially reserved for issuance under the 2000 Employee Stock Purchase
Plan.

In May 2000, the Company entered into an agreement to sell to U S WEST
Internet Ventures, Inc. ("U S WEST"), an affiliate of U S West, Inc. ("U S
West"), $3.0 million of the Company's common stock in a concurrent private
placement which will close immediately following the closing of the initial
public offering. U S WEST will purchase the shares at a price per share equal to
the initial public offering price per share. The Company has also entered into
an agreement with an affiliate of U S West to test certain of the Company's
products for potential deployment in U S West's network. In connection with this
agreement, the Company agreed to issue a two-year warrant to U S WEST to
purchase $3.0 million of the Company's common stock at a price per share equal
to the initial public offering price per share. If the Company's products are
positively evaluated, the U S West affiliate has the right, but not the
obligation to enter into negotiations of a definitive supplier or distribution
agreement with the Company. The Company expects to record sales and marketing
expenses of approximately $1.4 million for the fair value of the warrant upon
its issuance. U S WEST has agreed that for the one-year period following the
closing of the offering, it will not sell or transfer any of the shares of
common stock it purchased in the concurrent private placement, or upon exercise
of the warrant, without the prior consent of the Company.

F-23
<PAGE> 106

[INSIDE BACK COVER PAGE]

Product photographs of Accelerated's family of products with the title "Family
of Products"

[BACK COVER PAGE]

<PAGE> 107

[ACCELERATED NETWORKS, INC. LOGO]
<PAGE> 108

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale and
distribution of the securities being registered. All amounts are estimated
except the Securities and Exchange Commission, NASD and Nasdaq National Market
fees. All of the expenses below will be paid by Accelerated Networks.

<TABLE>
<CAPTION>
ITEM AMOUNT
---- ----------
<S> <C>
Registration fee............................................ $ 18,216
NASD filing fee............................................. 7,400
Nasdaq National Market listing fee.......................... 95,000
Blue sky fees and expenses.................................. 5,000
Printing and engraving expenses............................. 250,000
Legal fees and expenses..................................... 525,000
Accounting fees and expenses................................ 475,000
Transfer Agent and Registrar fees........................... 2,500
Miscellaneous............................................... 100,000
----------
Total..................................................... $1,478,116
==========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Company's Certificate of Incorporation (the "Certificate") provides
that, except to the extent prohibited by the Delaware General Corporation Law
(the "DGCL"), the Company's directors shall not be personally liable to the
Company or its stockholders for monetary damages for any breach of fiduciary
duty as directors of the Company. Under the DGCL, the directors have a fiduciary
duty to the Company which is not eliminated by this provision of the Certificate
and, in appropriate circumstances, equitable remedies such as injunctive or
other forms of nonmonetary relief will remain available. In addition, each
director will continue to be subject to liability under the DGCL for breach of
the director's duty of loyalty to the Company, for acts or omissions which are
found by a court of competent jurisdiction to be not in good faith or involving
intentional misconduct, for knowing violations of law, for actions leading to
improper personal benefit to the director, and for payment of dividends or
approval of stock repurchases or redemptions that are prohibited by DGCL. This
provision also does not affect the directors' responsibilities under any other
laws, such as the federal securities laws or state or federal environmental
laws. The Company has obtained liability insurance for its officers and
directors.

Section 145 of the DGCL empowers a corporation to indemnify its directors
and officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers, provided that this provision
shall not eliminate or limit the liability of a director: (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) arising under Section 174 of the DGCL, or (iv)
for any transaction from which the director derived an improper personal
benefit. The DGCL provides further that the indemnification permitted thereunder
shall not be deemed exclusive of any other rights to which the directors and
officers may be entitled under the corporation's bylaws, any agreement, a vote
of stockholders or otherwise. The Certificate eliminates the personal liability
of directors to the fullest extent permitted by Section 102(b)(7) of the DGCL
and provides that the Company shall fully indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding (whether civil, criminal, administrative or
investigative) by reason of the fact that such person is or was a director or
officer of the Company, or is or was serving at

II-1
<PAGE> 109

the request of the Company as a director or officer of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding.

The Company, with the approval of the Board of Directors, intends to obtain
directors' and officers' liability insurance prior to the effectiveness of this
offering. In addition, the Company intends to enter into indemnification
agreements with each of its directors and executive officers, a form of which is
filed as Exhibit 10.25 hereto.

There is no pending litigation or proceeding involving any director,
officer, employee or agent of the Company in which indemnification will be
required or permitted. Moreover, the Company is not aware of any threatened
litigation or proceeding that might result in a claim for such indemnification.
The Company believes that the foregoing indemnification provisions and
agreements are necessary to attract and retain qualified persons as directors
and executive officers.

The Underwriting Agreement (the form of which is filed as Exhibit 1.1
hereto) provides for indemnification by the underwriters of Accelerated and its
officers and directors, and by Accelerated of the underwriters, for certain
liabilities arising under the Securities Act or otherwise.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

The following is a summary of transactions by the Company since the
Company's inception in October 1996 involving sales of the Company's securities
that were not registered under the Securities Act. Prior to the Company's
reincorporation in Delaware in May 2000, it had been operating as a corporation
organized under the laws of California.

(a) In March 1997, we issued an aggregate of 6,800,000 shares of
common stock for an aggregate purchase price of approximately $12,000 to
the founders of the Company.

(b) In May 1997, we issued an aggregate of 11,170,000 shares of Series
A preferred stock for an aggregate purchase price of approximately
$5,600,000 to several outside investors in connection with our initial
Series A financing and an additional 50,000 shares of Series A preferred
stock in exchange for $25,000 of services performed in connection with the
Series A financing.

(c) In May 1998, we issued an aggregate of 11,584,848 shares of Series
B preferred stock for an aggregate purchase price of approximately
$14,481,000 to several outside investors in connection with our Series B
financing.

(d) In March 1999, we issued an aggregate of 8,845,648 shares of
Series C preferred stock for an aggregate purchase price of approximately
$30,000,000 to Siemens AG in connection with our Series C financing.

(e) In January 2000, in connection with a warrant purchase agreement,
we issued a warrant to Siemens ICN to purchase 28,575 shares of common
stock at $7.00 per share.

(f) In February and March 2000, we issued an aggregate of 3,455,267
shares of Series D preferred stock for an aggregate purchase price of
approximately $38,492,000 to several outside investors and several of our
officers in connection with our Series D financing.

(g) In May 2000, we agreed to issue U S WEST Internet Ventures $3.0
million of our common stock at the same price per share as shares of our
common stock sold in our initial public offering. We also agreed to issue a
warrant to purchase $3.0 million of our common stock at an exercise price
per share equal to the price per share as shares of our common stock sold
in our initial public offering.

(h) From October 1996 (inception) to May 31, 2000, we granted options
to purchase an aggregate of 10,267,614 shares of common stock to our
directors, executive officers, employees and consultants at a weighted
exercise price of $3.45 per share. As of May 31, 2000, options to purchase

II-2
<PAGE> 110

56,610 shares at an exercise price of $.00182 per share, options to
purchase 2,891,536 shares at an exercise price of $0.05 per share, options
to purchase 1,409,211 shares at an exercise price of $0.15 per share,
options to purchase 346,500 shares at an exercise price of $0.60 per share,
options to purchase 317,500 shares at an exercise price of $1.00 per share,
options to purchase 345,500 shares at an exercise price of $1.75 per share,
options to purchase 111,000 shares at an exercise price of $2.50 per share,
options to purchase 1,144,757 shares at an exercise price of $3.50 per
share, options to purchase 532,500 shares at an exercise price of $4.50 per
share, options to purchase 1,174,000 shares at an exercise price of $7.00
per share, options to purchase 1,299,500 shares at an exercise price of
$9.00 per share, options to purchase 131,500 shares at an exercise price of
$10.50 per share, and options to purchase 507,500 shares at an exercise
price of $11.70 per share had been granted. In addition, we issued 5,000
shares to a consultant at price of $3.50 per share.

None of the foregoing transactions involved any public offering, and the
Company believes that each transaction was exempt from the registration
requirements of the Securities Act by virtue of Section 4(2) thereof, Regulation
D promulgated thereunder or Rule 701 pursuant to compensatory benefit plans and
contracts relating to compensation as provided under such Rule 701. The
recipients in each such transaction represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof, and appropriate legends were affixed to the share
certificates and instruments issued in such transactions. All recipients had
adequate access, through their relationships with the Company, to information
about the Company.

II-3
<PAGE> 111

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) EXHIBITS

The following Exhibits are attached hereto and incorporated herein by
reference:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant.
3.2** Bylaws of the Registrant.
4.1** See Exhibit 3.1 and 3.2 for provisions of the Registrant's
Certificate of Incorporation and Bylaws defining the rights
of holders of the Registrant's common stock. See Exhibit
10.8 for the rights of certain holders of registration
rights.
4.2 Specimen common stock certificate.
5.1** Opinion of Brobeck, Phleger & Harrison LLP.
10.1** Founder/Employee/Shareholder Agreement between the
Registrant and Suresh Nihalani, as amended.
10.2** Founder/Employee/Shareholder Agreement between the
Registrant and Kiran Munj, as amended.
10.3** Series A Preferred Stock Purchase Agreement dated as of May
30, 1997, among the Registrant and certain investors
thereto.
10.4** Series B Preferred Stock Purchase Agreement dated as of May
15, 1998, among the Registrant and certain investors
thereto.
10.5** Series C Preferred Stock Purchase Agreement dated as of
February 24, 1999, among the Registrant and Siemens AG.
10.6** Warrant Purchase Agreement dated as of December 16, 1999, by
and between the Registrant and Siemens Information and
Communication Networks, Inc.
10.7** Form of Series D Preferred Stock Purchase Agreement.
10.8 Second Restated Investors' Rights Agreement dated as of
February 18, 2000, as amended, among the Registrant and
certain of its stockholders.
10.9** 1997 Stock Option/Stock Issuance Plan.
10.10 2000 Stock Incentive Plan.
10.11 Employee Stock Purchase Plan.
10.12+** Product Procurement Agreement dated as of April 21, 1999, by
and between the Registrant and CTC Communications Group,
Inc.
10.13+** Product Purchase and Sale Agreement dated as of August 1,
1999, by and between the Registrant and FirstWorld
Communications.
10.14+** Materials and Manufacturing Agreement Board Assembly
Agreement dated as of March 15, 1999, by and between the
Registrant and the Semiconductor Group of Arrow Electronics,
Inc.
10.15+** Standard Agreement dated as of June 1, 1999, by and between
the Registrant and Power-One, Inc.
10.16+** Value-Added Product Sale Agreement dated as of March 12,
1999, by and between the Registrant and AVNET Electronics
Marketing, a Group of Avnet, Inc.
10.17** Agreement for Purchase of Products dated as of January 21,
1999, by and between the Registrant and Siemens Information
and Communication Networks, Inc.
10.18** Service Level Agreement dated as of March 25, 1999, by and
between the Registrant and Siemens Information and
Communication Networks, Inc.
10.19** Standard Industrial/Commercial Multi-Tenant Lease dated as
of May 6, 1999, between the Registrant and Tyler Pacific
III, L.L.C.
10.20** Memorandum of Understanding dated as of January 13, 1999 by
and between Mr. Viren T. Ranjan and Accelerated Networks
(India) Private Limited.
10.21** Standard Industrial/Commercial Single-Tenant Lease-Gross
dated as of May 28, 1998, by and between the Registrant and
Robert B. Reingold, Trustee for Reingold Trust #21328.
</TABLE>

II-4
<PAGE> 112

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.22+** Licensing Agreement dated as of July 15, 1998, as amended,
by and between the Registrant and Ditech Communications
Corporation.
10.23+** OEM Orbix Development and Runtime Agreement dated December
17, 1999, by and between the Registrant and IONA.
10.24+** Letter Agreement regarding licenses dated as of December 30,
1999 by and between the Registrant and WindRiver Systems,
Inc.
10.25** Form of Director Indemnification Agreement.
10.26** Revolving Credit Loan and Security Agreement (Accounts and
Equipment Loans) dated as of June 1, 1999, by and between
the Registrant and Comerica Bank -- California.
10.27** Senior Loan and Security Agreement No. L6244 dated as of May
28, 1999, by and between the Registrant and Phoenix Leasing
Incorporated.
10.28+** Product Purchase and Sale Agreement dated as of February 23,
2000, by and between the Registrant and UniDial
Communications Inc.
10.29 Standard Industrial/Commercial Multi-Tenant Lease dated as
of February 29, 2000, by and between the Registrant and
Tyler Pacific III, LLC.
10.30 Memorandum of Understanding dated as of May 10, 2000, by and
between the Registrant and U S WEST !nterprise America, Inc.
10.31 Common Stock Subscription Agreement dated as of May 15,
2000, by and between the Registrant and U S WEST Internet
Ventures, Inc.
10.32 Agreement for Purchase of Products dated as of May 15, 2000,
by and between the Registrant and Siemens AG.
21.1** List of Subsidiaries.
23.1** Consent of Brobeck, Phleger & Harrison LLP (Included in
Exhibit 5.1 hereto).
23.2 Consent of PricewaterhouseCoopers LLP, independent
accountants.
23.3** Consent of RHK Telecommunications Industry Analysis.
23.4** Consent of International Data Corporation.
27.1** Financial Data Schedule.
</TABLE>

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

** Previously filed by the Registrant.

+ Confidential treatment has been requested for certain confidential portions
of this exhibit pursuant to Rule 406 under the Securities Act. In accordance
with Rule 406, these confidential portions have been omitted from this
exhibit and filed separately with the Commission.

(b) FINANCIAL STATEMENT SCHEDULES

All such Schedules 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 to provide to the underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit, or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the

II-5
<PAGE> 113

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.

The undersigned Company hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus as filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by us 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.

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

II-6
<PAGE> 114

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, we have duly
caused this Amendment No. 3 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Moorpark,
State of California, on the 1st day of June, 2000.

ACCELERATED NETWORKS, INC.

By: /s/ SURESH NIHALANI
------------------------------------
Suresh Nihalani
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement on Form S-1 has been signed by the following
persons in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ SURESH NIHALANI President, Chief Executive June 1, 2000
-------------------------------------------------------- Officer and Director
Suresh Nihalani (Principal Executive Officer)

/s/ FREDERIC T. BOYER Vice President, Finance and June 1, 2000
-------------------------------------------------------- Administration and Chief
Frederic T. Boyer Financial Officer (Principal
Financial and Accounting
Officer)

H.R. JOHNSON* Director June 1, 2000
--------------------------------------------------------
Brig. Gen. H.R. Johnson, USAF (Ret.)

STEVEN M. KRAUSZ* Director June 1, 2000
--------------------------------------------------------
Steven M. Krausz

PETER T. MORRIS* Director June 1, 2000
--------------------------------------------------------
Peter T. Morris

ROBERT F. KUHLING, JR.* Director June 1, 2000
--------------------------------------------------------
Robert F. Kuhling, Jr.

LIP-BU TAN* Director June 1, 2000
--------------------------------------------------------
Lip-Bu Tan

ANTHONY MAHER* Director June 1, 2000
--------------------------------------------------------
Anthony Maher
</TABLE>

* Power of attorney

By: /s/ FREDERIC T. BOYER
--------------------------------------
Frederic T. Boyer
Attorney-in-Fact

II-7
<PAGE> 115

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant.
3.2** Bylaws of the Registrant.
4.1** See Exhibit 3.1 and 3.2 for provisions of the Registrant's
Certificate of Incorporation and Bylaws defining the rights
of holders of the Registrant's common stock. See Exhibit
10.8 for the rights of certain holders of registration
rights.
4.2 Specimen common stock certificate.
5.1** Opinion of Brobeck, Phleger & Harrison LLP.
10.1** Founder/Employee/Shareholder Agreement between the
Registrant and Suresh Nihalani, as amended.
10.2** Founder/Employee/Shareholder Agreement between the
Registrant and Kiran Munj, as amended.
10.3** Series A Preferred Stock Purchase Agreement dated as of May
30, 1997, among the Registrant and certain investors
thereto.
10.4** Series B Preferred Stock Purchase Agreement dated as of May
15, 1998, among the Registrant and certain investors
thereto.
10.5** Series C Preferred Stock Purchase Agreement dated as of
February 24, 1999, among the Registrant and Siemens AG.
10.6** Warrant Purchase Agreement dated as of December 16, 1999, by
and between the Registrant and Siemens Information and
Communication Networks, Inc.
10.7** Form of Series D Preferred Stock Purchase Agreement.
10.8 Second Restated Investors' Rights Agreement dated as of
February 18, 2000, as amended, among the Registrant and
certain of its stockholders.
10.9** 1997 Stock Option/Stock Issuance Plan.
10.10 2000 Stock Incentive Plan.
10.11 Employee Stock Purchase Plan.
10.12+** Product Procurement Agreement dated as of April 21, 1999, by
and between the Registrant and CTC Communications Group,
Inc.
10.13+** Product Purchase and Sale Agreement dated as of August 1,
1999, by and between the Registrant and FirstWorld
Communications.
10.14+** Materials and Manufacturing Agreement Board Assembly
Agreement dated as of March 15, 1999, by and between the
Registrant and the Semiconductor Group of Arrow Electronics,
Inc.
10.15+** Standard Agreement dated as of June 1, 1999, by and between
the Registrant and Power-One, Inc.
10.16+** Value-Added Product Sale Agreement dated as of March 12,
1999, by and between the Registrant and AVNET Electronics
Marketing, a Group of Avnet, Inc.
10.17** Agreement for Purchase of Products dated as of January 21,
1999, by and between the Registrant and Siemens Information
and Communication Networks, Inc.
10.18** Service Level Agreement dated as of March 25, 1999, by and
between the Registrant and Siemens Information and
Communication Networks, Inc.
10.19** Standard Industrial/Commercial Multi-Tenant Lease dated as
of May 6, 1999, between the Registrant and Tyler Pacific
III, L.L.C.
10.20** Memorandum of Understanding dated as of January 13, 1999 by
and between Mr. Viren T. Ranjan and Accelerated Networks
(India) Private Limited.
10.21** Standard Industrial/Commercial Single-Tenant Lease-Gross
dated as of May 28, 1998, by and between the Registrant and
Robert B. Reingold, Trustee for Reingold Trust #21328.
</TABLE>

<PAGE> 116

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
<C> <S>
10.22+** Licensing Agreement dated as of July 15, 1998, as amended,
by and between the Registrant and Ditech Communications
Corporation.
10.23+** OEM Orbix Development and Runtime Agreement dated December
17, 1999, by and between the Registrant and IONA.
10.24+** Letter Agreement regarding licenses dated as of December 30,
1999 by and between the Registrant and WindRiver Systems,
Inc.
10.25** Form of Director Indemnification Agreement.
10.26** Revolving Credit Loan and Security Agreement (Accounts and
Equipment Loans) dated as of June 1, 1999, by and between
the Registrant and Comerica Bank -- California.
10.27** Senior Loan and Security Agreement No. L6244 dated as of May
28, 1999, by and between the Registrant and Phoenix Leasing
Incorporated.
10.28+** Product Purchase and Sale Agreement dated as of February 23,
2000, by and between the Registrant and UniDial
Communications Inc.
10.29 Standard Industrial/Commercial Multi-Tenant Lease dated as
of February 29, 2000, by and between the Registrant and
Tyler Pacific III, LLC.
10.30 Memorandum of Understanding dated as of May 10, 2000, by and
between the Registrant and U S WEST !nterprise America, Inc.
10.31 Common Stock Subscription Agreement dated as of May 15,
2000, by and between the Registrant and U S WEST Internet
Ventures, Inc.
10.32 Agreement for Purchase of Products dated as of May 15, 2000,
by and between the Registrant and Siemens AG.
21.1** List of Subsidiaries.
23.1** Consent of Brobeck, Phleger & Harrison LLP (Included in
Exhibit 5.1 hereto).
23.2 Consent of PricewaterhouseCoopers LLP, independent
accountants.
23.3** Consent of RHK Telecommunications Industry Analysis.
23.4** Consent of International Data Corporation.
27.1** Financial Data Schedule.
</TABLE>

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** Previously filed by the Registrant.