ACCELERATED NETWORKS INC, S-1, 2000-03-03

ACCELERATED NETWORKS INC
S-1, 2000-03-03

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 3, 2000

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

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<S> <C> <C>
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PROPOSED MAXIMUM
TITLE OF EACH CLASS AGGREGATE OFFERING AMOUNT OF
OF SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
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Common Stock, $.001 par value............................... $64,400,000 $17,001.60
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</TABLE>

(1) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(o).

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 MARCH 3, 2000

[ACCELERATED NETWORKS, INC. LOGO]

Common Stock

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Prior to this offering, there has been no public market for our common
stock. The initial public offering price is expected to be between $ and
$ per share. We have applied to have our common stock 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
additional shares to cover over-allotments of shares.

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

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<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS ACCELERATED
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<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

DAIN RAUSCHER WESSELS
WARBURG DILLON READ LLC

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

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TABLE OF CONTENTS

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PAGE
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PROSPECTUS SUMMARY.................... 1
RISK FACTORS.......................... 4
SPECIAL NOTE REGARDING FORWARD-
LOOKING STATEMENTS.................. 20
USE OF PROCEEDS....................... 21
DIVIDEND POLICY....................... 21
CAPITALIZATION........................ 22
DILUTION.............................. 23
SELECTED CONSOLIDATED FINANCIAL
DATA................................ 24
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 25
</TABLE>

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PAGE
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BUSINESS.............................. 34
MANAGEMENT............................ 50
CERTAIN TRANSACTIONS.................. 60
PRINCIPAL STOCKHOLDERS................ 63
DESCRIPTION OF CAPITAL STOCK.......... 66
SHARES ELIGIBLE FOR FUTURE SALE....... 69
UNDERWRITING.......................... 71
NOTICE TO CANADIAN RESIDENTS.......... 72
LEGAL MATTERS......................... 73
EXPERTS............................... 74
ADDITIONAL INFORMATION................ 74
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS.......................... F-1
</TABLE>

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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> 4

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 over DSL, or VoDSL, and frame relay over DSL, or FRoDSL, 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> 5

We currently sell our products primarily through our direct sales force and
one original equipment manufacturer, or OEM. Service providers who have ordered
in excess of $100,000 of our products in the last twelve months include ACN
Communications, Inc. (through Siemens ICN), Coast-to-Coast Telecommunications,
Inc. (through Siemens ICN), Cooperative Communications, CTC Communications
Group, Inc., FirstWorld Communications, Inc., MCIWorldCom, Onvoy and Primary
Network Communications.

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................ shares

Common stock outstanding after this
offering............................ shares

Use of proceeds..................... We intend to use the net proceeds from
this offering for working capital, and
other general corporate purposes
including expenditures for research and
development, sales and marketing
efforts, and potential acquisitions or
investments in complementary
businesses, technologies or products.

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

The number of outstanding shares of our common stock as of , 2000
excludes:

shares subject to outstanding options and warrants as of
, 2000;

shares reserved for future issuance under our stock
incentive and stock purchase plans; and

shares which are subject to the underwriters' over-allotment
option.

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

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; and

- that we will file our amended and restated certificate of incorporation.

2
<PAGE> 6

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.

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<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
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1997 1998 1999
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STATEMENT OF OPERATIONS DATA:
Net revenue................................................. $ -- $ -- $ 8,466
Cost of revenue............................................. -- -- 6,312
------- -------- --------
Gross profit................................................ -- -- 2,154
Loss from operations........................................ (1,611) (10,163) (22,257)
Net loss.................................................... $(1,488) $ (9,711) $(21,227)
======= ======== ========
Net loss per share(1)
Basic and diluted......................................... $ (0.42) $ (2.00) $ (3.29)
======= ======== ========
Weighted average shares................................... 3,550 4,853 6,447
======= ======== ========
Pro forma net loss per share(1)
Basic and diluted......................................... $ (0.58)
========
Weighted average shares................................... 36,789
========
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED(3)
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<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 15,207 $53,699 $
Working capital........................................ 18,241 56,733
Total assets........................................... 28,678 67,170
Capital lease obligations and credit facilities, less
current portion...................................... 1,932 1,932
Redeemable convertible preferred stock................. 49,857 --
Total stockholders' equity (deficit)................... (28,565) 59,784
</TABLE>

- ---------------
(1) See notes 2 and 12 of notes to 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, the
estimated charge to equity of $9,882,000 relating to the beneficial
conversion feature on the Series D preferred stock and proceeds of
$38,492,000 received in connection with the issuance of the Series D
preferred stock. For a further description of the Series D preferred stock
transaction, see note 13 to the consolidated financial statements.

(3) As adjusted to reflect sale of shares of common stock offered hereby
at the initial public offering price of $ per share after deducting the
underwriting discount and estimated offering expenses payable by us. See
"Use of Proceeds" on page 21 for more information on our intended use of the
proceeds from this offering and "Capitalization" on page 22 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> 7

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 UPON WHICH TO BASE YOUR INVESTMENT DECISION.

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 for us 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 December 31, 1999, we had an accumulated deficit of
approximately $32.5 million. Although our net revenue has grown from zero for
the quarter ended March 31, 1999 to approximately $4.3 million for the quarter
ended December 31, 1999 and approximately $8.5 million for the year ended
December 31, 1999, we cannot be certain that our net revenue will continue to
grow, or that we will generate sufficient net revenue in the future 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 our most significant customers, 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. 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 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.

4
<PAGE> 8

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.

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. 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.

A NUMBER OF FACTORS COULD CAUSE OUR OPERATING RESULTS TO FLUCTUATE SIGNIFICANTLY
AND CAUSE OUR STOCK PRICE TO BE VOLATILE.

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;

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<PAGE> 9

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

- 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.

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.

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 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. As a result, 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.

Due to the foregoing, we believe that quarterly and annual comparisons of
our operating results should not be used 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.

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
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<PAGE> 10

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.

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.

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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.

In addition, we believe that our future success is dependent upon
establishing successful relationships with a variety of distribution partners.
To date, we have entered into an agreement with one distribution partner,
Siemens ICN. Siemens ICN also sells products that compete with our products. We
cannot be 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.

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 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.

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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. To date, we have limited experience in marketing and distributing our
products internationally and in developing versions of our products that comply
with local standards. In addition, our international operations 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.

IF OUR PRODUCTS CONTAIN UNDETECTED SOFTWARE OR HARDWARE ERRORS, WE COULD INCUR
SIGNIFICANT UNEXPECTED EXPENSES AND LOST SALES AND BE SUBJECT TO PRODUCT
LIABILITY CLAIMS.

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;

- product liability claims and legal actions by our customers;

- negative publicity regarding us and our products;

- unexpected expenses to remedy errors;

- diversion of our development resources;
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- 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. In particular, 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.

WE DEPEND UPON A SMALL NUMBER OF OUTSIDE CONTRACTORS TO MANUFACTURE OUR
PRODUCTS.

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

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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 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.

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In addition, our ability to achieve market acceptance for our products will
also depend on the timing of the adoption of industry standards for new
technologies in our markets. Many technological developments occur prior to the
adoption of the related industry standard. 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 which use new technologies prior to the adoption of
industry standards related to these technologies. Consequently, our products may
not comply with the eventual industry standard, which could hurt our ability to
sell these products and also require us to quickly design and manufacture new
products that meet the eventual standard. Even after industry standards are
adopted, the future success of our products depends upon widespread market
acceptance of their underlying technologies.

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, respectively, 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.

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

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

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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 49.

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 currently have product development activities in India. As a result, our
financial results could be affected by factors such as political instability,
adverse changes in foreign currency exchange rates or weak economic conditions
in India. Our operating results are also exposed to changes in exchange rates
between the U.S. dollar and Indian Rupee. To date, our results have not
materially been affected by any changes in currency exchange rates.

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.

WE MAY BE SUBJECT TO RISKS RELATED TO THE YEAR 2000 ISSUE.

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
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<PAGE> 17

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. and of Newbridge Networks Corp. by Alcatel.
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
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 48 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;

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<PAGE> 18

- 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 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
communications regulations and standards, some of which are evolving as new
technologies are deployed. Our customers may require our products to comply with
various standards, including those promulgated by the Federal Communications
Commission, or FCC, standards established by Underwriters Laboratories and
Telcordia Technologies or proprietary standards promoted by our competitors. In
addition, 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.

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
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are able to charge. In addition, international regulatory bodies are beginning
to adopt standards and regulations for the broadband access industry. If 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.

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.

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
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- 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 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.

WE MAY ENGAGE IN FUTURE ACQUISITIONS OR STRATEGIC INVESTMENTS THAT DILUTE OUR
STOCKHOLDERS, CAUSE US TO INCUR DEBT AND ASSUME 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.

17
<PAGE> 21

WE MAY NOT BE ABLE TO OBTAIN ADDITIONAL CAPITAL TO FUND OUR OPERATIONS WHEN
NEEDED.

We expect to use the net proceeds of this offering 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;

- 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. If additional funds are
raised through the issuance of equity securities, the percentage ownership of
our stockholders will be reduced. In addition, stockholders may experience
further dilution, or these equity securities may have rights, preferences or
privileges senior to those of the 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 holders of common stock and
the term of such debt could impose restrictions on our operations. 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.

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, we will
have shares of common stock outstanding. See "Capitalization"
beginning on page 22 for a discussion of shares included and excluded from this
number. The shares sold in this offering will be freely transferable
without restriction or registration under the Securities Act of 1933. The
remaining shares of common stock outstanding after this offering will be
available for sale, assuming the effectiveness of lock-up agreements 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>
NUMBER OF SHARES DATE OF AVAILABILITY FOR SALE
- ---------------- -----------------------------
<C> <S>
(Date of prospectus)
(180 days after prospectus)
</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. 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 shares of common stock reserved
for issuance under our 2000 Stock Incentive Plan. On the date 180 days after the
effective date of this offering, at least shares will be subject
to immediately exercisable options, based on options outstanding on December 31,
1999. Sales of a large number of these shares could have an adverse effect on
the market price for our common stock.

18
<PAGE> 22

After this offering, the holders of 41,934,338 shares of common stock
including shares issuable upon exercise of outstanding warrants 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" on page 70 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 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" on page 64 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 21 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 our common stock has in the past been sold at prices substantially
less than the initial public offering price that you will pay, you will suffer
immediate dilution of $ per share in pro forma net tangible book value,
based on an assumed initial offering price of $ per share of common stock.
The exercise of outstanding options and warrants may result in further dilution.
See "Dilution" on page 23 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, 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;

- 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 at least 10% of the outstanding shares are needed to
call a special meeting of stockholders.

19
<PAGE> 23

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.

20
<PAGE> 24

USE OF PROCEEDS

Our net proceeds from the sale of the shares of common stock
sold in this offering are estimated to be approximately $ million, or
$ million if the underwriters exercise their over-allotment option in
full, based upon an assumed offering price of $ 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.

We expect to use the net proceeds of this offering 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
business, 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, 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.

21
<PAGE> 25

CAPITALIZATION

The table below sets forth the following information with respect to our
capitalization:

- the actual capitalization as of December 31, 1999;

- the actual capitalization at December 31, 1999 after giving pro forma
effect to (1) the issuance of an aggregate of 3,455,267 shares of Series
D preferred stock for approximately $38.5 million in February and March
2000, including an estimated charge to equity of approximately $9.9
million relating to the beneficial conversion feature on the Series D
issuance, and (2) 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 the sale of
shares of common stock at the assumed initial public
offering price of $ per share in this offering, less underwriting
discounts and commissions and the 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 DECEMBER 31, 1999
-------------------------------------
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........................................... $ 1,932 $ 1,932 $ 1,932
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.................................. -- -- --
Stockholders' equity (deficit):
Common Stock, $.001 par value; actual -- 75,000,000 shares
authorized and 10,166,166 shares issued and
outstanding; pro forma -- 90,000,000 shares authorized
and 45,271,929 shares issued and outstanding; pro forma
as adjusted -- shares authorized and
shares issued and outstanding........... 579 45
Additional paid-in capital................................ 13,481 112,246
Deferred stock compensation............................... (10,165) (10,165)
Accumulated deficit....................................... (32,460) (42,342)
-------- -------- --------
Total stockholders' equity (deficit)................... (28,565) 59,784
-------- -------- --------
Total capitalization................................... $ 23,224 $ 61,716 $
======== ======== ========
</TABLE>

This table excludes the following shares:

- 3,859,000 shares subject to options outstanding as of December 31, 1999
under our stock option plans;

- 617,000 shares reserved for future issuance under our stock option and
employee stock purchase plans; and

- 29,000 shares of common stock issuable upon exercise of outstanding
warrants.

22
<PAGE> 26

DILUTION

The pro forma net tangible book value of our common stock on December 31,
1999, after giving effect to the issuance of an aggregate of 3,455,267 shares of
Series D preferred stock at $11.14 per share in February and March 2000,
including the related estimated beneficial conversion feature charge of
approximately $9.9 million to equity, was $59.8 million, or approximately $1.32
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 December
31, 1999.

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 our
sale of shares of common stock offered by this prospectus at the
assumed initial public offering price of $ per share and after deducting
underwriting discounts and commissions and the estimated offering expenses
payable by us, our pro forma net tangible book value would have been $
million, or approximately $ per share. This represents an immediate increase
in pro forma net tangible book value of $ per share to existing stockholders
and an immediate dilution in net tangible book value of $ per share to new
investors.

<TABLE>
<S> <C> <C>
Public offering price per share............................. $
Pro forma net tangible book value per share as of December
31, 1999............................................... $1.32
Increase per share attributable to new investors
-----
Pro forma net tangible book value per share after the
offering.................................................. $
-----
Dilution in pro forma net tangible book value per share to
new investors
=====
</TABLE>

This table excludes all options and warrants outstanding as of, or issued
subsequent to, December 31, 1999. 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 December 31,
1999, 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 and by the new investors, before deducting
the underwriting discounts and commissions and estimated expenses payable by us,
assuming an initial public offering price of $ per share (in thousands,
except percentages and per share data).

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
------ ---------- ------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders................ 45,217 % $89,120 % $1.97
New Investors........................ % % $
------ --- ------- ---
Total.............................. 100% 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 or
approximately % of the total number of shares of our common stock
outstanding after this offering.

23
<PAGE> 27

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
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)
THROUGH FISCAL YEAR ENDED DECEMBER 31,
DECEMBER 31, -------------------------------
1996 1997 1998 1999
---------------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenue.......................................... $ -- $ -- $ -- $ 8,466
Cost of revenue(1)................................... -- -- -- 6,312
------ ------- -------- --------
Gross profit......................................... -- -- -- 2,154
Operating expenses
Research and product development(2)................ 20 1,126 7,378 12,061
Sales and marketing(3)............................. -- -- 1,979 7,500
General and administrative(4)...................... 13 485 754 1,747
Amortization of deferred stock compensation........ -- -- 52 3,103
------ ------- -------- --------
Total operating expenses......................... 33 1,611 10,163 24,411
------ ------- -------- --------
Loss from operations................................. (33) (1,611) (10,163) (22,257)
Other income (expense)............................... -- 124 453 1,031
Provision for income taxes........................... 1 1 1 1
------ ------- -------- --------
Net loss............................................. $ (34) $(1,488) $ (9,711) $(21,227)
====== ======= ======== ========
Basic and diluted net loss per share................. $(0.09) $ (0.42) $ (2.00) $ (3.29)
====== ======= ======== ========
Weighted average shares.............................. 393 3,550 4,853 6,447
====== ======= ======== ========
Unaudited pro forma basic and diluted net loss per
share.............................................. $ (0.58)
========
Weighted average shares used to compute unaudited pro
forma basic and diluted net loss per share......... 36,789
========
</TABLE>

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

- ---------------
(1) excluding $100,000 amortization of deferred stock compensation for 1999.

(2) excluding $20,000 and $873,000 amortization of deferred stock compensation
for 1998 and 1999, respectively.

(3) excluding $31,000 and $1,498,000 amortization of deferred stock compensation
for 1998 and 1999, respectively.

(4) excluding $1,000 and $632,000 amortization of deferred stock compensation
for 1998 and 1999, respectively.

24
<PAGE> 28

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 DSL, T1, NxT1, or DS3 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. Since inception, we have incurred significant
losses and as of December 31, 1999, we had an accumulated deficit of $32.5
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. 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.

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. 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.

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

25
<PAGE> 29

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 December 31, 1999, we had $219,000 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 dependent upon establishing
successful relationships with a variety of distribution partners. To date, we
have entered into one distribution agreement with 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

26
<PAGE> 30

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 $13.3 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 $3.1 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 connection with the issuance of the Series D preferred stock in February
and March 2000, we expect to incur an estimated non-cash charge to equity of
approximately $9.9 million relating to the beneficial conversion feature on the
Series D preferred stock. This charge is 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 will be adversely impacted for the three months ending March
31, 2000.

RESULTS OF OPERATIONS

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.

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<PAGE> 31

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
development expenditures are essential to our future success and we expect that
these expenses will significantly increase in future periods.

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 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. We expect sales
and marketing expenses to significantly increase in future periods as we
continue to expand our domestic and international sales and marketing
organizations.

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. 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.

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

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<PAGE> 32

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.

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

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<PAGE> 33

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,
1999 1999 1999 1999
--------- -------- ------------- ------------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue........................................ $ -- $ 1,245 $ 2,883 $ 4,338
Cost of revenue.................................... -- 1,167 2,478 2,667
Gross profit....................................... -- 78 405 1,671
Operating expenses:
Research and product development................. 2,467 2,200 3,280 4,114
Sales and marketing.............................. 952 1,648 1,963 2,937
General and administrative....................... 389 420 462 476
Amortization of deferred stock compensation...... 238 408 661 1,796
------- ------- ------- -------
Total operating expenses...................... 4,046 4,676 6,366 9,323
Loss from operations............................... (4,046) (4,598) (5,961) (7,652)
Other income (expense)............................. 201 378 313 139
------- ------- ------- -------
Loss before provision for income taxes............. (3,845) (4,220) (5,648) (7,513)
Provision for income taxes......................... -- -- -- 1
------- ------- ------- -------
Net loss........................................... $(3,845) $(4,220) $(5,648) $(7,514)
======= ======= ======= =======
AS A PERCENTAGE OF NET REVENUE:
Net revenue........................................ NM 100% 100% 100%
Cost of revenue.................................... -- 94 86 61
------- ------- ------- -------
Gross profit....................................... -- 6 14 39
------- ------- ------- -------
Operating expenses:
Research and product development................. -- 177 114 95
Sales and marketing.............................. -- 132 68 68
General and administrative....................... -- 33 16 11
Amortization of deferred stock compensation...... -- 33 23 41
------- ------- ------- -------
Total operating expenses...................... -- 375 221 215
Loss from operations............................... -- 369 (207) (176)
Other income (expense)............................. -- 30 11 3
------- ------- ------- -------
Net loss........................................... NM (339)% (196)% (173)%
======= ======= ======= =======
</TABLE>

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. 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, assemble, introduce, ship and
support new products and product enhancements;

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

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

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

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

- our ability to control costs;

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<PAGE> 34

- 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.

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 $49.9 million of redeemable convertible preferred
securities as well as through a $2.5 million term loan 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 December 31, 1999, we had cash and cash equivalents of approximately
$15.2 million, approximately $41,000 in outstanding capitalized lease
obligations, $2.5 million of outstanding debt under our term loan with Comerica
Bank, and approximately $303,000 of outstanding obligations under our equipment
loan facility with Phoenix Leasing.

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 in
1999, approximately $4.5 million in increased accounts receivable and
approximately $3.8 million in increased inventory in 1999, partially offset by
approximately $3.1 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 $4.1 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

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<PAGE> 35

1998 partially offset by approximately $52,000 in increased non-cash charges and
approximately $1.8 million in increased accounts payable and accrued expenses.

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 $7.9 million of available-for-sale securities,
partially offset by our purchase of approximately $4.5 million of property and
equipment and approximately $2 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 $5.9 million of available-for-sale securities in 1998.

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 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 $2.4
million. The increase in 1998 of approximately $9.5 million is primarily due to
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 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.

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.

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<PAGE> 36

We have no specific contingency plan to address the effect of Year 2000
noncompliance. 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. As a result, our
financial results could be affected by factors such political instability,
changes in foreign currency exchange rates or weak economic conditions in India.
Our operating results are also exposed to changes in exchange rates between the
U.S. dollar and Indian Rupee. To date, our results have not been materially
affected by changes in currency exchange rates.

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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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 DSL, T1, NxT1, or DS3 technologies. Our comprehensive family of
multiservice broadband access products include our POP 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 CLECs, IXCs, RBOCs, 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
63 million Internet users in the U.S. at the end of 1998 and anticipates that
this number will increase to approximately 177 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 $4.6 billion in 1998
to approximately $39.0 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 8100% 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. 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-effective broadband access to their customers. 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.

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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]

[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.

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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 VoDSL and FRoDSL,
over a single broadband access facility.

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<PAGE> 40

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 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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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, standards, which facilitates 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 their networks and service
offerings. We also believe there is a significant opportunity to sell to other
voice

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<PAGE> 42

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 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, 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> 43

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>

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;
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.

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<PAGE> 45

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

Sales to our three largest customers, 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. No other
customer accounted for more than 10% of our total sales for that period.

Many service providers 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 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

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<PAGE> 46

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 are in the process of expanding 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> 47

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. For example, in conjunction with MCI WorldCom, we have jointly submitted
this 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.

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
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<PAGE> 48

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 DS-3, 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 $20.6 million
for the period from inception through December 31, 1999 and $12.1 million for
the year ended December 31, 1999. All of our software development costs have
been expensed as incurred. As of December 31, 1999, we had 92 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 are in the process of expanding 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 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.

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<PAGE> 49

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> 50

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 December 31, 1999, we employed 20 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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<PAGE> 51

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 us, 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 and ADC Telecommunications recently announced that it will
acquire PairGain 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," and "AccessPilot." We also use the trademarks
"AcceleratedStart," and "AcceleratedTAC" and are in the process of filing
applications for these marks.

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<PAGE> 52

EMPLOYEES

As of December 31, 1999, we employed 174 full-time employees, including 28
in sales and marketing, 21 in manufacturing, 92 in engineering, 13 in finance
and administration and 20 in customer support, systems engineering and
professional services. Most of our employees are located in the United States;
however, we have approximately 24 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 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> 53

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information with respect to our
executive officers and directors as of December 31, 1999:

<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Suresh Nihalani........................... 47 Chairman, Chief Executive Officer, President, and
Director
Frederic T. Boyer......................... 55 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............................ 42 Vice President, Marketing
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)....................... 43 Director
Lip-Bu Tan(1)............................. 40 Director
</TABLE>

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

(2) Member of the 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, Digital Insight, ADC Telecommunications,
Cambio Systems and Rapid Text. 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, Inc. 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 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

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<PAGE> 54

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.

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 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. 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., Gadzoox Networks, Inc.,
and several private companies. Mr. Kuhling serves on our board as a
representative of

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<PAGE> 55

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., Virata Corporation 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., MediaRing.com, Inc., Integrated Silicon Solution, Inc. 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 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 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" on page 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.

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<PAGE> 56

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 certain
limitations.

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, directors are reimbursed for all
reasonable expenses incurred by them in attending board and committee meetings.
See "Certain Transactions" beginning on page 61 for a description of any
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,

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<PAGE> 57

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. See "Certain
Transactions" beginning on page 61 for more information regarding options
granted to our named executive officers in January 2000.

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, 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 new 2000 Stock Incentive Plan was adopted
by the board in March 2000 and was approved by the stockholders in ,
2000. The 2000 Stock Incentive Plan 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, 10,650,000 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 3, 2000, options to purchase approximately 1,978,355 million shares
of common stock remained available for grant under the our existing 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

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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;

- 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 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.

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<PAGE> 59

- 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 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 options which are so assumed may vest in whole or in part
on an accelerated basis 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 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
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<PAGE> 60

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 15,000 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 7,500 shares of common stock, provided such individual has
served on the board for at least six months.

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 a series of 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 15,000-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 director
fee 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, 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 , 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 , 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 (1.0%) of the total number of outstanding shares
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<PAGE> 61

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 and will end on the last business day in
, 2002. The next offering period will start on the first business
day in , 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 and
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.

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 and
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 , 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
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<PAGE> 62

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.

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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<PAGE> 63

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, upon their continued service.

ISSUANCE OF PREFERRED STOCK

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

In May 1997, we issued 11,220,000 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;

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 February 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
would be determined by dividing $8.912 by our initial public offering price.

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<PAGE> 64

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 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.

ISSUANCE OF OPTIONS TO EXECUTIVE OFFICERS AND DIRECTORS

Since our inception, we have granted the following options to our executive
officers and directors:

<TABLE>
<CAPTION>
VESTING
COMMENCEMENT NO. OF EXERCISE
NAME GRANT DATE DATE SHARES PRICE VESTING
---- ---------- ------------ ------- -------- -------
<S> <C> <C> <C> <C> <C>
Suresh Nihalani.................... 1/10/2000 1/1/2000 690,200 $7.00 (1)
Frederic T. Boyer.................. 9/30/1998 11/2/1998 300,000 0.15 (1)
Yogi Mistry........................ 9/30/1998 11/2/1998 100,000 0.15
3/17/1999 3/17/1999 100,000 0.60 (1)
Kiran P. Munj...................... 1/10/2000 1/1/2000 159,800 7.00 (1)
Pete S. Patel...................... 3/17/1999 4/12/1999 170,000 0.60 (1)
1/10/2000 1/1/2000 30,000 7.00 (1)
Hitendra Sonny Soni................ 10/23/1997 10/7/1997 400,000 0.05 (1)
1/10/2000 1/1/2000 40,000 7.00 (1)
Charles D. Vogt.................... 11/17/1999 11/22/1999 696,757 3.50 (1)
Kevin T. Walsh..................... 6/18/1998 7/6/1998 400,000 0.15 (1)
1/10/2000 1/1/2000 40,000 7.00 (1)
Brig. Gen. H.R. Johnson, USAF 4/15/1997 3/28/1997 54,400 0.0018 (2)
(Ret.)...........................
7/1/1997 5/30/1997 217,600 0.05 (3)
12/21/1999 12/21/1999 15,000 4.50 (4)
Anthony T. Maher................... 7/20/1999 5/18/1999 60,000 1.75 (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.
- ---------------
(1) 25% of the option shares vest on the first anniversary of the vesting
commencement date and the remaining option shares vest over 36 equal monthly
installments thereafter upon the optionee's continued service.

(2) The option shares vest over 38 equal monthly installments from the vesting
commencement date.

(3) The option shares vest over 36 equal monthly installments from the vesting
commencement date.

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<PAGE> 65

(4) The option shares vest over 12 equal monthly installments from the vesting
commencement date.

(5) The option shares vest over 48 equal monthly installments from the vesting
commencement date.

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 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 February 29, 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 % 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 and our preferred stockholders, 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 69 for more information regarding this agreement.

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<PAGE> 66

PRINCIPAL STOCKHOLDERS

The table on the following page sets forth information regarding the
beneficial ownership of our common stock as of March 2, 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 below 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 45,434,945 shares of common stock outstanding
as of March 2, 2000, and shares of common stock outstanding after the
completion of this offering. In computing the number of shares of common stock
subject to options held by that person that are exercisable within 60 days of
March 2, 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)............................. 6,321,800 13.70% %
Frederic T. Boyer(2)........................... 300,000 *
Kiran P. Munj(3)............................... 1,438,200 3.15
Hitendra Sonny Soni(4)......................... 457,953 1.01
Kevin T. Walsh(5).............................. 450,000 *
Brig. Gen. H. R. Johnson USAF (Ret.)(6)........ 144,953 *
Steven M. Krausz(7)............................ 6,623,473 14.58
Robert F. Kuhling, Jr.(8)...................... 3,297,105 7.26
Anthony T. Maher(9)............................ 9,202,648 20.22
Peter T. Morris(10)............................ 6,613,522 14.56
Lip-Bu Tan(11)................................. 3,297,105 7.26
All directors and executive officers as a group
(14 persons)(12)............................ 39,271,469 83.27
OTHER 5% STOCKHOLDERS
Entities associated with Siemens AG(13)........ 9,142,648 20.11
Hofmannstrasse 51, D-81359
Munich, Germany
Entities associated with New Enterprise
Associates(14).............................. 6,623,522 14.58
2490 Sand Hill Road
Menlo Park, CA 94025
</TABLE>

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<PAGE> 67

- ---------------
* 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, and (d) 8,400 shares held by other members of Mr. Nihalani's
immediate family.

(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.

(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 15,000 shares issuable upon the exercise of immediately
exercisable options.

(7) 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 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
beneficial ownership of the shares held by Siemens AG and the shares
underlying the warrant held by Siemens ICN.

(10) Includes (a) 6,463,522 shares held by New Enterprise Associates VII, L.P.
and (b) 150,000 shares held by NEA Presidents Fund, L.P. Mr. Morris is a
general partner of these entities. Mr. Morris disclaims beneficial
ownership in such shares, except to the extent of his proportionate
partnership interest therein.

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<PAGE> 68

(11) 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 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 954,257 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 New Enterprise Associates VII, L.P.,
(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 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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<PAGE> 69

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 3, 2000, there were 45,434,945 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
shares of common stock in this offering, there will be
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 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.
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.

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
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<PAGE> 70

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.

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
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<PAGE> 71

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 % 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, the holders of approximately 41,934,338
shares of common stock 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 41,934,338 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

We have applied for listing our common stock on the Nasdaq National Market
under the trading symbol "ACCL."

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<PAGE> 72

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 based on shares outstanding at March
3, 2000, we will have outstanding 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 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. 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, 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
shares sold in this offering, and additional shares,
will be immediately available for sale in the public market;

- beginning 90 days after the effective date, additional shares
will be available for sale in the public market; after 180 days following
the date of this prospectus, additional shares will become
eligible for sale under Rule 144 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 shares immediately after this offering; or

- 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

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<PAGE> 73

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, 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 shares of common stock
subject to outstanding options or reserved for future issuance under our stock
plans. As of March 3, 2000, options to purchase a total of shares were
outstanding and shares were reserved for future issuance under our
stock plans. 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 restricted shares and
certain holders of warrants to purchase shares of common stock will be
entitled to certain registration rights. See "Description of Capital
Stock -- Registration 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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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, Dain
Rauscher Incorporated and Warburg Dillon Read LLC 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......................
Dain Rauscher Incorporated..................................
Warburg Dillon Read LLC.....................................
--------
Total.....................................................
========
</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 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
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> 75

The underwriters have reserved for sale, at the initial public offering
price, up to 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.

We have applied to list the shares of common stock on The Nasdaq Stock
Market's National Market subject to official notice of issuance, under the
symbol "ACCL."

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.

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

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<PAGE> 76

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.

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 2, 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.

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<PAGE> 77

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).

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<PAGE> 78

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> 79

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> 80

ACCELERATED NETWORKS, INC.

CONSOLIDATED BALANCE SHEETS
(THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY
-------------------- DECEMBER 31,
1998 1999 1999
-------- -------- -----------------
(UNAUDITED)
(NOTES 10 AND 13)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 3,507 $ 15,207
Short-term investments................................ 5,954 --
Accounts receivable, net of allowance for doubtful
accounts of $110 at 1999........................... -- 3,277
Amounts due from related party........................ -- 1,104
Inventories........................................... -- 3,811
Prepaid and other current assets...................... 502 296
-------- --------
Total current assets.......................... 9,963 23,695
Property and equipment, net............................. 1,328 4,840
Other assets............................................ -- 143
-------- --------
Total assets.................................. $ 11,291 $ 28,678
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses................. $ 1,893 $ 3,567
Accrued payroll....................................... 56 756
Capital lease obligations, current.................... 55 28
Credit facilities, current............................ 162 884
Deferred revenue...................................... -- 219
-------- --------
Total current liabilities..................... 2,166 5,454
Capital lease obligations, net of current portion....... 37 13
Credit facilities, net of current portion............... 175 1,919
-------- --------
Total liabilities............................. 2,378 7,386
-------- --------
Commitments and contingencies (Note 9)
Redeemable convertible preferred stock, $.001 par value;
authorized -- 23,100 shares (1998) and 31,946 shares
(1999); issued and outstanding -- 22,805 shares (1998)
and 31,651 shares (1999); liquidation preference of
$20,091 (1998) and $50,091 (1999)..................... 19,918 49,857
Stockholders' equity (deficit):
Common stock, authorized -- 48,500 shares (1998) and
75,000 shares (1999); issued and outstanding --
9,172 shares (1998) and 10,166 shares (1999); pro
forma -- $.001 par value; 90,000 shares authorized;
45,272 shares issued and outstanding............... 176 579 $ 45
Additional paid-in capital............................ 817 13,481 112,246
Deferred stock compensation........................... (765) (10,165) (10,165)
Accumulated deficit................................... (11,233) (32,460) (42,342)
-------- -------- --------
Total stockholders' equity (deficit).......... (11,005) (28,565) $ 59,784
-------- -------- ========
Total liabilities and stockholders' equity.... $ 11,291 $ 28,678
======== ========
</TABLE>

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

F-3
<PAGE> 81

ACCELERATED NETWORKS, INC.

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

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
Net revenue (includes related party revenue of $1,332)...... $ -- $ -- $ 8,466
Cost of revenue (excluding $100 amortization of deferred
stock compensation for 1999).............................. -- -- 6,312
------- -------- --------
Gross profit................................................ -- -- 2,154
Operating expenses:
Research and product development (excluding $20 and $873
amortization of deferred stock compensation for 1998
and 1999, respectively)................................ 1,126 7,378 12,061
Sales and marketing (excluding $31 and $1,498 amortization
of deferred stock compensation for 1998 and 1999,
respectively).......................................... -- 1,979 7,500
General and administrative (excluding $1 and $632
amortization of deferred stock compensation for 1998
and 1999, respectively)................................ 485 754 1,747
Amortization of deferred stock compensation............... -- 52 3,103
------- -------- --------
Total operating expenses............................... 1,611 10,163 24,411
------- -------- --------
Loss from operations........................................ (1,611) (10,163) (22,257)
Other income (expense):
Interest income........................................... 129 494 1,131
Interest expense.......................................... (5) (41) (100)
------- -------- --------
124 453 1,031
------- -------- --------
Loss before provision for income taxes...................... (1,487) (9,710) (21,226)
Provision for income taxes.................................. 1 1 1
------- -------- --------
Net loss.................................................... $(1,488) $ (9,711) $(21,227)
======= ======== ========
Basic and diluted net loss per share........................ $ (0.42) $ (2.00) $ (3.29)
======= ======== ========
Weighted-average shares outstanding used to compute basic
and diluted net loss per share............................ 3,550 4,853 6,447
======= ======== ========
Pro forma basic and diluted net loss per share
(unaudited)............................................... $ (0.58)
========
Weighted-average shares outstanding used to compute basic
and diluted net loss per share (unaudited)................ 36,789
========
</TABLE>

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

F-4
<PAGE> 82

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)
Beneficial conversion feature on Series D
preferred stock (unaudited)................ -- -- 9,882 -- (9,882) --
Assumed conversion of mandatory redeemable
convertible preferred stock (unaudited).... 35,106 88,349 -- -- -- 88,349
Reincorporation into Delaware (unaudited).... -- (88,883) 88,883 -- -- --
------ -------- -------- -------- -------- --------
Balance at December 31, 1999, pro forma
(unaudited).................................. 45,272 $ 45 $112,246 $(10,165) $(42,342) $ 59,784
====== ======== ======== ======== ======== ========
</TABLE>

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

F-5
<PAGE> 83

ACCELERATED NETWORKS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS)

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

ACCELERATED NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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 February 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.

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.

F-7
<PAGE> 85
ACCELERATED NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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."

F-8
<PAGE> 86
ACCELERATED NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 (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.

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") 96-18.

ADVERTISING

Advertising costs are expensed as incurred and amounted to $48,000 and
$132,000 for the years ended December 31, 1998 and 1999, 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, accrued product warranty costs amounted to $201,000, and
are included in accounts payable and accrued expenses.

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 the first 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.

F-9
<PAGE> 87
ACCELERATED NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 and C
Redeemable Convertible Preferred stock. (See Note 13).

UNAUDITED PRO FORMA NET LOSS PER SHARE

Unaudited pro forma net loss per share for the year ended December 31,
1999, 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 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, 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 operated within one discrete
reportable business segment for the years ended December 31, 1997, 1998 and
1999.

F-10
<PAGE> 88
ACCELERATED NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 at December 31 consist of the following:

<TABLE>
<CAPTION>
1998 1999
---- ------
(THOUSANDS)
<S> <C> <C>
Raw materials............................................... $ -- $1,735
Work-in-process............................................. -- 710
Finished goods.............................................. -- 1,366
---- ------
Total............................................. $ -- $3,811
==== ======
</TABLE>

4. PROPERTY AND EQUIPMENT

Property and equipment at December 31 consist of the following (in
thousands):

<TABLE>
<CAPTION>
1998 1999
------ -------
(THOUSANDS)
<S> <C> <C>
Computer equipment and software, including assets under
capital leases of $141 for 1998 and $127 for 1999......... $ 587 $ 2,087
Machinery and equipment, including assets under capital
leases of $0 for 1998 and $19 for 1999.................... 771 3,339
Furniture and fixtures...................................... 152 355
Leasehold improvements...................................... 146 415
------ -------
1,656 6,196
Less: Accumulated depreciation and amortization, including
amounts related to assets under capital leases of $33 for
1998 and $74 for 1999..................................... (328) (1,356)
------ -------
Total............................................. $1,328 $ 4,840
====== =======
</TABLE>

F-11
<PAGE> 89
ACCELERATED NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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. 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

F-12
<PAGE> 90
ACCELERATED NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. CREDIT FACILITIES (CONTINUED)
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 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

F-13
<PAGE> 91
ACCELERATED NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. CONCENTRATION OF CREDIT RISK, SIGNIFICANT CUSTOMERS AND SEGMENT REPORTING
(CONTINUED)
losses based upon the expected collectibility of accounts receivable. To date,
such losses have been within management's expectations.

For the year ended December 31, 1999, net revenue and accounts receivable
from significant customers were as follows (in thousands, except percentages):

<TABLE>
<CAPTION>
NET % OF NET ACCOUNTS % OF ACCOUNTS
REVENUE REVENUE RECEIVABLE RECEIVABLE
------- -------- ---------- -------------
<S> <C> <C> <C> <C>
Customer A............................... $4,565 54% $2,923 67%
Customer B............................... $1,722 20% -- --
Customer C............................... $1,332 16% $1,104 25%
</TABLE>

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 for the year ended December 31, 1999 are as follows (in
thousands):

<TABLE>
<CAPTION>
UNITED
STATES INDIA TOTAL
------ ----- ------
<S> <C> <C> <C>
Net revenue................................................ $8,466 -- $8,466
Long-lived assets.......................................... $4,378 $462 $4,840
</TABLE>

8. RELATED-PARTY TRANSACTIONS

During 1999, the Company sold product of approximately $1,332,000 to a
significant stockholder (the "Stockholder") of the Company. At December 31,
1999, amounts due from the Stockholder totaled $1,104,000.

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. 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.

F-14
<PAGE> 92
ACCELERATED NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 was approximately $50,000, $184,000 and
$412,000, 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. There were no royalty expenses for the years ended December
31, 1997 and 1998, and $88,000 for the year ended December 31, 1999.

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 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

F-15
<PAGE> 93
ACCELERATED NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. CAPITALIZATION (CONTINUED)
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, 1,124,000 shares of the aforementioned common stock
were subject to repurchase, of which 897,000 shares related to unvested shares
under the Agreements and 227,000 shares related to unvested warrants exercised.

REDEEMABLE CONVERTIBLE PREFERRED STOCK

Redeemable convertible preferred ("Preferred Stock") stock at December 31,
1999 consisted of the following (in thousands, except per share data):

<TABLE>
<CAPTION>
VALUE
SHARES SHARES LIQUIDATION REDEMPTION PER
SERIES AUTHORIZED OUTSTANDING AMOUNT AMOUNT SHARE
------ ---------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
A................................. 11,500 11,220 $ 5,610 $ 5,610 $0.50
B................................. 11,600 11,585 14,481 14,481 1.25
C................................. 8,846 8,846 30,000 30,000 3.39
------ ------ ------- -----------
Total........................... 31,946 31,651 $50,091 $ 50,091
====== ====== ======= ===========
</TABLE>

The holders of Series A, Series B, and Series C 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.

Dividends

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

Voting

Each share of Series A, B, and C 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

F-16
<PAGE> 94
ACCELERATED NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. CAPITALIZATION (CONTINUED)
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
$25,046,000 each.

Liquidation Preference

Upon liquidation, the holders of Series A, Series B and Series C Preferred
Stock would receive $0.50, $1.25 and $3.39 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 Series A, Series B, and Series C
preferred stockholders and common stockholders ratably, based on the number of
shares held by each; with a maximum per share amount of $1.50, $3.75 and $5.09,
respectively to the preferred stockholders.

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 October 1999, options to
purchase 8,000,000 shares of common stock were reserved. As of December 31,
1999, 617,000 options to purchase shares of common stock were available for
future grant.

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 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.

F-17
<PAGE> 95
ACCELERATED NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

<TABLE>
<CAPTION>
1997 1998 1999
------------------ --------------------- ------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ --------- --------- --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year......... -- $ -- 2,613 $0.05 1,989 $0.09
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
Exercised.............................. 272 0.04 2,200 0.07 1,052 0.48
Cancelled.............................. -- -- 145 0.07 91 0.60
----- --------- -----
Outstanding at year-end.................. 2,613 $0.05 1,989 $0.09 3,859 $2.00
===== ========= =====
Options exercisable at year-end.......... 2,613 $0.05 1,989 $0.09 3,859 $2.00
===== ===== ========= ===== ===== =====
</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.

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 1998 and 1999, the Company granted stock options to directors,
consultants, employees and officers at exercise prices below the fair market
value of the Company's common stock at the date of grant. Accordingly, the
Company recorded deferred compensation of $716,000 and $12,503,000,
respectively, to be amortized over the related vesting periods (generally four
years). The Company recognized compensation expense of $52,000 and $3,103,000
relating to these stock option grants during 1998 and 1999, respectively.

F-18
<PAGE> 96
ACCELERATED NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. CAPITALIZATION (CONTINUED)
The Company calculated the minimum fair value of each option grant 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..................................... 6.0% 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 and basic and diluted net
loss per share 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.................................................... $(21,227) $(21,404)
======== ========
Basic and diluted net loss per share........................ $ (3.29) $ (3.32)
======== ========
For the year ended December 31, 1998:
Net loss.................................................... $ (9,711) $ (9,727)
======== ========
Basic and diluted net loss per share........................ $ (2.00) $ (2.00)
======== ========
For the year ended December 31, 1997:
Net loss.................................................... $ (1,488) $ (1,495)
======== ========
Basic and diluted net loss per share........................ $ (0.42) $ (0.42)
======== ========
</TABLE>

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

11. EMPLOYEE BENEFIT PLAN

During March 1999, the Company established a 401(k) Profit Sharing Plan
(the "Plan") available to all employees who meet the Plan's eligibility
requirements. Under the 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 Plan as of December 31, 1999.

F-19
<PAGE> 97
ACCELERATED NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. NET LOSS PER SHARE

The following table sets forth the computation of basic, diluted and pro
forma net loss per share for the years ended December 31 (thousands, except per
share data):

<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
HISTORICAL PRESENTATION
Numerator:
Net loss available to common stockholders................. $(1,488) $(9,711) $(21,227)
======= ======= ========
Denominator:
Weighted average common shares outstanding................ 6,108 8,266 9,816
Adjustment for common shares issued subject to
repurchase............................................. (2,558) (3,414) (3,369)
------- ------- --------
Denominator for basic and diluted calculations............ 3,550 4,853 6,447
======= ======= ========
Basic and diluted net loss per share........................ $ (0.42) $ (2.00) $ (3.29)
======= ======= ========
PRO FORMA PRESENTATION (unaudited)
Denominator:
Shares used above......................................... 6,447
Weighted average effect of pro forma conversion of
securities (unaudited):
Series A redeemable convertible preferred stock........ 11,220
Series B redeemable convertible preferred stock........ 11,585
Series C redeemable convertible preferred stock........ 7,537
Series D redeemable convertible preferred stock........ --
--------
Denominator for pro forma basic and diluted calculation
(unaudited)............................................... 36,789
========
Pro forma basic and diluted net loss per share
(unaudited)............................................... $ (0.58)
========
</TABLE>

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>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Weighted average common stock equivalents:
Series A preferred stock.................................. 6,609 11,220 11,220
Series B preferred stock.................................. -- 7,300 11,585
Series C preferred stock.................................. -- -- 7,537
Unvested shares of common stock subject to repurchase..... 2,558 3,414 3,369
Stock options............................................. 980 1,129.. 2,353
------ ------ ------
10,147.. 23,063 36,064
====== ====== ======
</TABLE>

13. SUBSEQUENT EVENTS -- UNAUDITED

In March 2000, the Company sold approximately 3,455,000 shares of
redeemable convertible Series D preferred stock for approximately $38,492,000,
or $11.14 per share. In connection with the issuance of the Series D preferred
stock, the Company expects to incur an estimated noncash charge to equity of
$9,882,000 relating to the beneficial conversion feature on the Series D
preferred stock. This charge is 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 shares of common stock into

F-20
<PAGE> 98
ACCELERATED NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13. SUBSEQUENT EVENTS -- UNAUDITED (CONTINUED)
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
attributable to common stockholders will be adversely impacted for the three
months ending March 31, 2000.

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, and the Series D Preferred Stock issued in 2000 will
automatically convert into shares of common stock. The conversion of the
Preferred Stock has been reflected in the accompanying unaudited pro forma
consolidated balance sheet at December 31, 1999.

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
stockholder's equity.

From January 1, 2000 to March 1, 2000, the Company granted 1,456,000
options to purchase common shares at exercise prices ranging from $7.00 to
$10.50 per share. In connection with these grants, the Company has recorded an
estimated deferred compensation amount of approximately $6,252, which will be
amortized over the respective four year vesting period.

F-21
<PAGE> 99

[ACCELERATED NETWORKS, INC. LOGO]
<PAGE> 100

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.

<TABLE>
<CAPTION>
ITEM
----
<S> <C>
Registration fee............................................
NASD filing fee.............................................
Nasdaq National Market listing fee..........................
Blue sky fees and expenses..................................
Printing and engraving expenses.............................
Legal fees and expenses.....................................
Accounting fees and expenses................................
Transfer Agent and Registrar fees...........................
Miscellaneous...............................................
Total.....................................................
</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 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

II-1
<PAGE> 101

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 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 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 11,220,000 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.

(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 February 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) From October 1996 (inception) to December 31, 1999, we granted
options to purchase an aggregate of 7,147,851 shares of common stock to our
directors, executive officers, employees and consultants at a weighted
exercise price of $1.10. As of December 31, 1999, options to purchase
57,120 shares at an exercise price of $.00182 per share, options to
purchase 2,890,724 shares at an exercise price of $0.05 per share, options
to purchase 1,474,750 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 328,000 shares at an exercise price of $1.00 per share,
options to purchase 355,500 shares at an exercise price of $1.75 per share,
options to purchase 95,000 shares at an exercise price of $2.50 per share,
options to purchase 1,076,757 shares at an exercise price of $3.50 and
options to purchase 523,500 shares at an exercise price of $4.50 had been
granted. In addition, we issued 5,000 shares to a consultant at price of
$3.50 per share.

II-2
<PAGE> 102

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.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) EXHIBITS

The following Exhibits are attached hereto and incorporated herein by
reference:

II-3
<PAGE> 103

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
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.
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.
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.
27.1 Financial Data Schedule.
</TABLE>

- ---------------
* To be filed by amendment.

+ Confidential treatment will 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 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

II-4
<PAGE> 104

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-5
<PAGE> 105

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, we have duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Moorpark, State of
California, on the 3rd day of March, 2000.

ACCELERATED NETWORKS, INC.

By: /s/ SURESH NIHALANI
------------------------------------
Suresh Nihalani
President and Chief Executive
Officer

KNOW ALL MEN BY THESE PRESENTS, the undersigned hereby constitute and
appoint Suresh Nihalani and Frederic T. Boyer and each of them, his true and
lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, or any related registration statement filed
pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same,
with exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that each of said attorneys-in-fact and agents, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.

Pursuant to the requirements of the Securities Act of 1933, this
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 March 3, 2000
- -------------------------------------------------------- Officer and Director
Suresh Nihalani (Principal Executive Officer)

/s/ FREDERIC T. BOYER Vice President, Finance and March 3, 2000
- -------------------------------------------------------- Administration and Chief
Frederic T. Boyer Financial Officer (Principal
Financial and Accounting
Officer)

/s/ H.R. JOHNSON Director March 3, 2000
- --------------------------------------------------------
Brig. Gen. H.R. Johnson, USAF (Ret.)

/s/ STEVEN M. KRAUSZ Director March 3, 2000
- --------------------------------------------------------
Steven M. Krausz

/s/ PETER T. MORRIS Director March 3, 2000
- --------------------------------------------------------
Peter T. Morris

/s/ ROBERT F. KUHLING, JR. Director March 3, 2000
- --------------------------------------------------------
Robert F. Kuhling, Jr.

/s/ LIP-BU TAN Director March 3, 2000
- --------------------------------------------------------
Lip-Bu Tan

/s/ ANTHONY MAHER Director March 3, 2000
- --------------------------------------------------------
Anthony Maher
</TABLE>

II-6
<PAGE> 106

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. for the rights of certain holders of registration
rights.
4.2* Specimen common stock certificates.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1* Form of Director Indemnification Agreement.
10.2* Form of Founder/Employee/Shareholder Agreement between the
Registrant and the founders, and amendments thereto.
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* Amended and 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.
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.
</TABLE>
<PAGE> 107

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.24* Letter Agreement regarding licenses dated as of December 30,
1999 by and between the Registrant and WindRiver Systems,
Inc.
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.
27.1 Financial Data Schedule.
</TABLE>

- ---------------
* To be filed by amendment.

<PAGE> 1

EXHIBIT 10.3

ACCELERATED NETWORKS, INC.
SERIES A PREFERRED STOCK PURCHASE AGREEMENT

MAY 30, 1997

<PAGE> 2

SERIES A PREFERRED STOCK PURCHASE AGREEMENT

This Series A Preferred Stock Purchase Agreement ("Agreement") is made this 30th
day of May 1997, by and between (i) Accelerated Networks, Inc., a California
corporation (the "Company"), (ii) New Enterprise Associates VII, L.P., NEA
Presidents Fund, L.P., NEA Ventures 1997, Limited Partnership, U.S. Venture
Partners V, L.P., USVP V International, L.P., 2180 Associates Fund V, L.P. and
USVP V Entrepreneur Partners, L.P. (collectively, the "Primary Investors"),
(iii) WinWard Capital (the "Secondary Investor"), and (iv) each of the other
parties listed on Exhibit A hereto (each of the foregoing parties is hereinafter
referred to individually as an "Investor" and collectively as the "Investors").

In consideration of the mutual promises, covenants and conditions hereinafter
set forth, the parties hereto agree as follows:

1. AUTHORIZATION AND SALE OF SHARES

1.1. Authorization. As of the First Closing (as defined below), the Company
will have authorized the issuance, pursuant to the terms and conditions of this
Agreement, of 11,500,000 shares of the Company's Series A Preferred Stock, $.001
par value, having the rights, preferences, privileges and restrictions set forth
in the Amended and Restated Articles of Incorporation of the Company attached to
this Agreement as Exhibit B (the "Restated Articles").

1.2. Agreement to Purchase and Sell.

(a) First Closing. Subject to the terms and conditions hereof, at the
First Closing, the Company will issue and sell to each Investor listed on
Exhibit A other than the Secondary Investor, and each such Investor agrees to
purchase from the Company, that number of shares of Series A Preferred Stock set
forth opposite such Investor's name on Exhibit A at a price of $0.50 per share.

(b) Second Closing. Subject to the terms and conditions hereof, at the
Second Closing (as defined below), the Secondary Investor will have the option
to purchase from the Company that number of shares of Series A Preferred Stock
set forth opposite such Investor's name on Exhibit A hereto at a price of $0.50
per share; provided that if the Secondary Investor does not purchase from the
Company all of the shares of Series A Preferred Stock set forth opposite such
Investor's name on Exhibit A, then the Primary Investors shall purchase from the
Company on a pro rata basis the number of shares of Series A Preferred Stock not
elected to be purchased by the Secondary Investor at a price of $0.50 per share.
The Company will issue and sell to such Investors that number of shares of
Series A Preferred Stock set forth opposite the Secondary Investor's name on
Exhibit A.

(c) Payment of Purchase Price for Shares. All shares of Series A
Preferred Stock to be sold to the Investors pursuant to this Agreement are
hereinafter referred to collectively as the "Shares." The purchase price for the
Shares shall be paid by each Investor by

1
<PAGE> 3

way of check or by delivery of a wire transfer of funds made to the order of the
Company in the amount of such Investor's portion of the aggregate purchase price
for the Shares.

2. CLOSING DATE; DELIVERY

2.1. The Closings. The purchase and sale of the Shares pursuant to
Paragraph 1.2(a) shall be held at the offices of Brobeck, Phleger & Harrison LLP
in Newport Beach, California, on May 30, 1997, or at such other time and place
as the Company and the Primary Investors may mutually agree upon (the "First
Closing" or the "Closing"). The Company may, but shall not be obligated to,
accept delivery of funds from Investors (other than Primary Investors) for up to
ten (10) days following the Closing, and such shares shall be deemed to be sold
at the Closing. The purchase and sale of the Shares pursuant to Paragraph 1.2(b)
shall be held at the offices of Brobeck, Phleger & Harrison LLP in Newport
Beach, California, no later than September 30, 1997, or at such other time and
place as the Company and a majority of the Investors purchasing Shares on such
date may mutually agree upon (the "Second Closing").

2.2. Delivery. The Company will deliver to each Investor a certificate
representing the shares to be purchased by such Investor hereunder against
payment of such Investor's portion of the aggregate purchase price for the
Shares by cashier's check or by wire transfer.

3. COMPANY REPRESENTATIONS AND WARRANTIES

The Company hereby represents and warrants to each Investor that, except as
set forth in the Schedule of Exceptions ("Schedule of Exceptions") attached to
this Agreement as Exhibit C (which Schedule of Exceptions shall be deemed to be
representations and warranties to each Investor), the statements in the
following paragraphs of this Section 3 are all true and correct:

3.1. Organization and Standing. The Company is a corporation duly organized
and validly existing under, and by virtue of, the laws of the State of
California and is in good standing under such laws. The Company has all
corporate power and authority to own, lease and operate its properties and to
conduct its business as currently conducted and as proposed to be conducted. The
Company is qualified to do business as a foreign corporation in each
jurisdiction in which the conduct of its business requires such qualification
except where failure to be so qualified would have a material adverse effect on
its financial condition, business or operations. The Company has furnished the
Investors with true, correct and complete copies of its Articles of
Incorporation and Bylaws.

3.2. Capitalization. Immediately prior to the First Closing (and after the
filing of the Restated Articles with the California Secretary of State), the
authorized capital stock of the Company will consist of (i) Forty-eight Million
Five Hundred Thousand (48,500,000) shares of Common Stock, of which Six Million
Eight Hundred Thousand (6,800,000) shares are issued and outstanding, and (ii)
Eleven Million Five Hundred Thousand (11,500,000) shares of Preferred Stock, all
of which shares have been designated Series A Preferred Stock, up to Eleven
Million Two Hundred Thousand (11,200,000) of which shares will be sold to the
Investors pursuant to this Agreement. The Company has reserved Eleven Million
Two Hundred Thousand (11,200,000) shares of its Common Stock for possible
issuance upon the conversion of the Shares (the "Conversion Shares"). After the
filing of the Restated Articles with the California

2
<PAGE> 4

Secretary of State, except for (i) the conversion privileges of the Shares, (ii)
the rights provided in Sections 2.4, 2.5 and 2.6 of the Investors' Rights
Agreement in the form attached hereto as Exhibit D (the "Investors' Rights
Agreement"), and (iii) the 2,000,000 shares of Common Stock reserved for
issuance under the Company's 1997 Stock Option/Stock Issuance Plan (the "Plan"),
57,120 shares of which have been issued pursuant to stock option agreements,
there are no options, warrants, conversion privileges or other rights, or
agreements with respect to the issuance thereof, presently outstanding to
purchase any of the capital stock of the Company. All shares are duly
authorized, validly issued, fully paid and nonassessable and have been issued by
the Company in compliance with the registration requirements of securities laws.
Apart from the exceptions noted in this Paragraph 3.2, no shares of the
Company's outstanding capital stock, or stock issuable upon exercise or exchange
of any outstanding options or other stock issuable by the Company, are subject
to any rights of first refusal or other rights to purchase such stock (whether
in favor of the Company or any other person), pursuant to any agreement or
commitment of the Company. Attached to this Agreement as Exhibit E is a complete
list of all outstanding shareholders, option holders and other security holders
of the Company as of immediately prior to the First Closing (and after the
filing of the Restated Articles with the California Secretary of State). No
shareholder has granted a third party an option or other right to purchase the
shares held by such shareholder.

3.3. Subsidiaries. The Company has no subsidiaries and does not presently
own or control, directly or indirectly, any interest in any other corporation,
partnership, trust, joint venture, association, or other entity.

3.4. Due Authorization. All corporate action on the part of the Company,
its officers, directors and shareholders, necessary for the sale and issuance of
the Shares and the Conversion Shares and the performance of the Company's
obligations under this Agreement, the Investor Rights' Agreement and the Voting
Agreement (as defined herein) has been taken or will be taken prior to the First
Closing. This Agreement and the Investor Rights' Agreement are valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms, subject, as to enforcement of remedies, to applicable bankruptcy,
insolvency, moratorium, reorganization and similar laws affecting creditors'
rights generally and to general equitable principles. The Shares are not subject
to any preemptive rights or rights of first refusal pursuant to any agreement or
commitment of the Company. To the Company's knowledge, the execution, delivery
and performance by the Company of this Agreement and compliance herewith and the
sale and issuance of the Shares and Common Stock issuable upon conversion of the
Shares will not result in any violation of and will not conflict with, or result
in a breach of any of the terms of, or constitute a default under, any provision
of state or federal law to which the Company is subject, the Company's Articles
of Incorporation or Bylaws, each as amended, or any provision of any mortgage,
indenture, agreement, instrument, judgment, decree, order, rule or regulation or
other restriction to which the Company is a party or by which it is bound, the
breach of or default under which would have a material adverse effect upon the
business or operations of the Company, or result in the creation of any
mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of the Company pursuant to any such term; provided, however, that the
Shares (and the Common Stock issuable upon conversion thereof) may be subject to
restrictions on transfer under state and/or federal securities laws. The shares
of Common Stock issuable upon conversion of the Shares have been duly and
validly reserved and are not subject

3
<PAGE> 5

to any preemptive rights or rights of first refusal and, upon issuance, will be
validly issued, fully paid and nonassessable.

3.5. Valid Issuance of Stock. The outstanding capital stock of the Company
and the Shares, when issued, sold and delivered in accordance with the terms of
this Agreement for the consideration provided for herein, will be duly and
validly issued, fully paid and nonassessable and will be free of any liens or
encumbrances created by the Company. The Conversion Shares have been duly and
validly reserved for issuance and are not subject to any preemptive rights or
rights of first refusals, upon issuance in accordance with the terms of the
Restated Articles, will be duly and validly issued, fully paid and
nonassessable.

3.6. Liabilities. The Company has no indebtedness for borrowed money that
the Company has directly or indirectly created, incurred, assumed, or
guaranteed, or with respect to which the Company has otherwise become directly
or indirectly liable. The Company has no obligations or liabilities of any kind
whatsoever.

3.7. Title to Properties and Assets. The Company has good and marketable
title to its properties and assets held in each case subject to no mortgage,
pledge, lien, encumbrance, security interest or charge of any kind, except such
mortgage, pledge, lien, encumbrance, security interest or charge that arises in
the ordinary course of business and does not materially impair the Company's
ownership or use of such property. With respect to the property and assets it
leases, the Company is in compliance with such leases and, to the Company's
knowledge, the Company holds valid leasehold interests in such assets free of
any liens, encumbrances, security interests or claims of any party other than
the lessors of such property and assets.

3.8. Intellectual Property. To the Company's knowledge (but without having
conducted any special investigation or patent search), the Company has
sufficient title, license and/or ownership of all patents, trademarks, service
marks, trade names, copyrights, trade secrets, information, proprietary rights
and processes necessary for its business as now conducted without any conflict
with or infringement of the rights of others. Except for the agreements with its
own employees or consultants referenced in paragraph 3.9 and licensing
agreements entered into by the Company in the ordinary course of its business,
there are no outstanding options, licenses, or agreements of the Company
relating to the foregoing, and the Company is not a party or bound by any
options, licenses or agreements with respect to the patents, trademarks, service
marks, trade names, copyrights, trade secrets, licenses, information,
proprietary rights and processes of any other person or entity. Neither the
Company nor any of its employees has received any communications alleging that
the Company has violated or, by conducting its business as proposed, would
violate any of the patents, trademarks, service marks, trade names, copyrights
or trade secrets or other proprietary rights of any other person or entity. The
Company warrants that to its actual knowledge no employee of the Company is
obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would conflict with his obligation to
use his best efforts to promote the interests of the Company or that would
conflict with the Company's business. Reasonable security measures have been
taken to protect the secrecy, confidentiality and value of the proprietary
information referred to in this Section 3.8.

4
<PAGE> 6

3.9. Material Contracts and Obligations. The Company has made available to
counsel for the Investors all agreements, contracts, leases, licenses,
instruments, commitments, indebtedness, liabilities and other obligations
written or oral, absolute or contingent, to which the Company is a party or by
which it is bound that are (i) material to the conduct and operations of its
business and properties; (ii) involve any of the officers, consultants,
directors, employees or shareholders of the Company; or (iii) obligate the
Company to share, license or develop any product or technology (except licensing
agreements entered into by the Company in the ordinary course of its business).
All employees of the Company have executed or will execute prior to the First
Closing a "Proprietary Information and Inventions Agreement" concerning
nondisclosure of confidential information and assignment of inventions to the
Company in a form previously delivered to counsel for the Investors. For
purposes of this Paragraph 3.9, "material" shall mean any agreement, contract,
indebtedness, liability or other obligation having an aggregate value, cost or
amount in excess of $10,000.

3.10. Litigation. There are no actions, proceedings or investigations
pending or, to the Company's knowledge, threatened, against or affecting the
Company or its property, that, either in any case or in the aggregate, might
result in any material adverse change in the business, prospects, condition,
affairs or operations of the Company or in any of its properties or assets, in
any material impairment of the right or ability of the Company to carry on its
business as now conducted and as proposed to be conducted, or in any change in
the current equity ownership of the Company, and none that questions the
validity of this Agreement or any action taken or to be taken in connection
herewith.

3.11. Governmental Consents. Except for filings (if any) required under
federal and state securities laws (including the filing pursuant to Section
25102(f) of the California Corporate Securities Law of 1968, as amended), and
the rules and regulations thereunder, all consents, approvals, orders,
authorizations or registrations, qualifications, designations, declarations or
filings with any federal or state governmental authority on the part of the
Company required in connection with the consummation of the transactions
contemplated herein shall have been obtained prior to and be effective as of the
Closing. Based in part on the representations of the Investors set forth in
Paragraph 4 below, the offer, sale and issuance of the Shares in conformity with
the terms of this Agreement are exempt from the registration and prospectus
delivery requirements of the Securities Act of 1933, as amended (the "Securities
Act") and exempt from qualifications under applicable blue sky laws.

3.12. Third Party Consents. Except as set forth above in Section 3.11, all
third party consents, approvals, orders or authorizations required to be
obtained by the Company in connection with the consummation of the transactions
contemplated herein have been obtained.

3.13. Compliance with Other Instruments. The Company is not in violation,
breach or default of any term of its Articles of Incorporation or Bylaws or, in
any material respect, of any term or provision of any mortgage, indenture,
contract, agreement or instrument to which the Company is a party or by which it
may be bound, or of any provision of any foreign or domestic state or federal
judgment, decree, order, statute, rule or regulation applicable and material to
the Company. The execution, delivery and performance of, and compliance with,
this Agreement and the consummation of the transactions contemplated hereby will
not result in any such violation or default, or be in conflict with or
constitute, with or without the passage of time or the

5
<PAGE> 7

giving of notice or both, (i) a default under the Company's Articles of
Incorporation or Bylaws, or under any agreement or contract of the Company, (ii)
to the Company's knowledge, a violation of any statutes, laws, regulations or
orders, or (iii) an event which results in the creation of any lien, charge or
encumbrance upon any asset of the Company.

3.14. Disclosure. No representation or warranty by the Company in this
Agreement or in any written statement or certificate signed by the President of
the Company furnished pursuant to this Agreement contains or will contain any
untrue statement of a material fact which would cause the statements made herein
or therein in the light of the circumstances to be materially misleading. The
Company believes in good faith that the assumptions made by the Company in
preparing the business plan and any financial projections previously provided to
the Investors were reasonable when made.

3.15. Registration Rights. Except as provided in the Investors' Rights
Agreement, the Company has not granted or agreed to grant any person or entity
any rights (including piggy-back registration rights) to have any securities of
the Company registered with the United States Securities and Exchange Commission
("SEC") or any other governmental authority.

3.16. Tax Matters. To the Company's knowledge, the Company has no unpaid
federal, state, county or local taxes. There have been no examinations or audits
of any tax returns or reports of the Company by any applicable federal, state or
local governmental agency. The Company has duly filed all federal, state, county
and local tax returns required to have been filed by it and paid all taxes shown
to be due on such returns. There are in effect no waivers of applicable statutes
of limitations with respect to taxes for any year.

3.17. Tax Elections. The Company has not elected pursuant to the Internal
Revenue Code of 1986, as amended (the "Code"), to be treated as a Subchapter S
corporation or collapsible corporation pursuant to Section 1362(a) or Section
341(f) of the Code, nor has it made any other elections pursuant to the Code
(other than elections which relate solely to matters of accounting, depreciation
or amortization) which would have a material affect on the Company, its
financial condition, its business as presently conducted or presently proposed
to be conducted or any of its properties or material assets.

3.18. Shareholders, Directors and Officers. To the Company's knowledge,
none of the officers or directors or significant employees or consultants of the
Company, has, individually or collectively, a material interest in any entity
which is a competitor, customer or supplier of (or has any existing contractual
relationship with) the Company, other than holdings of less than 1% of
publicly-held entities.

3.19. Title of Properties, Liens and Encumbrances. To the Company's
knowledge, the Company has good and marketable title to its properties and
assets and has good title to all its leasehold interests, in each case subject
to no mortgage, pledge, lien, security interest, conditional sale agreement,
encumbrance or charge, except (i) tax, materialmen's or like liens for
obligations not yet due or payable or being contested in good faith by
appropriate proceedings, or (ii) possible minor liens or encumbrances which do
not in any case materially detract from the value of the property subject
thereto or materially impair the operations of the Company and which have not
arisen otherwise then in the ordinary course of business.

6
<PAGE> 8

3.20. Employees. To the Company's knowledge, no employee of the Company is
in violation of any term of any employment contract, patent disclosure
agreement, non-competition agreement, or any restrictive covenant to a former
employer relating to the right of any such employee to be employed by the
Company because of the nature of the business conducted or presently proposed to
be conducted by the Company or to the use of trade secrets or proprietary
information of others. There is neither pending nor, to the Company's knowledge,
threatened any actions, suits, proceedings or claims, or to its knowledge any
basis therefor or threat thereof with respect to any contract, agreement,
covenant or obligations referred to in the preceding sentence. The Company does
not have any collective bargaining agreement covering any of its employees. No
employee of the Company has an employment agreement or a severance arrangement
with the Company and such employees are employed on an "at will" basis.

4. REPRESENTATIONS AND WARRANTIES OF INVESTOR

Each Investor represents and warrants to the Company as follows:

4.1. Due Authorization. All corporate action on the part of the Investor,
and its officers, directors, partners and shareholders, necessary for the
purchase of the Shares and the performance of the Investor's obligations under
this Agreement, the Investors' Rights Agreement and the Voting Agreement (as
defined herein) has been taken or will be taken prior to the Closing. This
Agreement and the Investors' Rights Agreement are valid and binding obligations
of the Investor enforceable in accordance with their terms, subject, as to
enforcement of remedies, to applicable bankruptcy, insolvency, moratorium,
reorganization and similar laws affecting creditors' rights generally and to
general equitable principles.

4.2. Investigation. The Investor acknowledges that it has had an
opportunity to discuss the business, affairs and current prospects of the
Company with the Company's officers. The Investor further acknowledges having
had access to information about the Company that it has requested or considers
necessary for purposes of purchasing the Shares.

4.3. Purchase for Own Account. The Shares that the Investor will purchase
hereunder and the Conversion Shares issuable upon conversion of such Shares will
be acquired for such Investor's own account, not as a nominee or agent, and not
with a view to or in connection with the sale or distribution of any part
thereof, and such Investor has no present intention of selling, granting any
participation in, or otherwise distributing the same. If such Investor is one of
the Primary Investors or the Secondary Investor, such Investor is an "accredited
investor" within the meaning of Regulation D of the Securities Act.

4.4. Exempt from Registration. The Investors understand that the Shares and
the Conversion Shares (collectively, the "Securities") will not be registered
under the Securities Act, on the ground that the sale provided for in this
Agreement is exempt from registration under the Securities Act, and that the
reliance of the Company on such exemption is predicated in part on the
Investors' representations set forth in this Agreement.

4.5. Economic Risk. The Investor acknowledges that it is experienced in
evaluating and investing in securities of companies in the development stage and
acknowledges that it is

7
<PAGE> 9

able to fend for itself in the transactions contemplated by this Agreement and
has the ability to bear the economic risks of its investment pursuant to this
Agreement.

4.6. Restricted Securities. The Investor understands that the Securities
may not be sold, transferred, or otherwise disposed of without registration
under the Securities Act or an exemption therefrom, and that, in the absence of
an effective registration statement covering the Securities or an available
exemption from registration under the Securities Act, the Securities must be
held indefinitely. In particular, the Investor is aware that the Securities may
not be sold pursuant to Rule 144 promulgated under the Securities Act unless (i)
a public trading market then exists for the Securities, (ii) adequate
information concerning the Company is then available to the public, (iii) such
Investor has held the Securities for the applicable holding period specified in
Rule 144, and (iv) all other terms and conditions of Rule 144 are satisfied.

4.7. Restrictive Legends. It is understood that each certificate
representing (i) the Shares, (ii) the Conversion Shares, and (iii) any other
securities issued in respect of the Shares upon any stock split, stock dividend,
recapitalization, merger or similar event (unless no longer required in the
opinion of counsel for the Company) shall be stamped or otherwise imprinted with
legends substantially in the following forms (in addition to any legend that may
now or hereafter be required by applicable state law):

"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY
MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED
IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO SUCH
SECURITIES, OR DELIVERY OF AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER
OF SUCH SECURITIES THAT SUCH OFFER, SALE, TRANSFER, PLEDGE OR HYPOTHECATION
IS IN FULL COMPLIANCE WITH THE SECURITIES ACT OF 1933, AS AMENDED."

"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS SET FORTH IN THAT CERTAIN INVESTORS' RIGHTS AGREEMENT DATED AS
OF MAY 30, 1997 AND THAT CERTAIN VOTING AGREEMENT DATED AS OF MAY 30, 1997,
COPIES OF WHICH MAY BE OBTAINED BY ANY SHAREHOLDER, UPON REQUEST AND
WITHOUT CHARGE, AT THE PRINCIPAL OFFICES OF THE CORPORATION."

4.8. Further Limitations on Disposition. Without in any way limiting the
representations set forth above, the Investor further agrees not to make any
disposition of all or any portion of the Shares or Conversion Shares unless and
until the transferee has agreed in writing for the benefit of the Company to be
bound by this Section 4 and the Investors' Rights Agreement; provided, and to
the extent, this Section and such agreement are then applicable, and:

8
<PAGE> 10

(a) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement; or

(b) (i) Such Investor shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and (ii) if reasonably
requested by the Company, such Investor shall have furnished the Company with an
opinion of counsel, reasonably satisfactory to the Company that such disposition
will not require registration of such shares under the Securities Act. It is
agreed that the Company will not require opinions of counsel from an Investor
for transactions made pursuant to Rule 144 under the Securities Act except in
unusual circumstances.

4.9. Governmental Consents. All consents, approvals, orders, authorizations
or registrations, qualifications, designations, declarations or filings with any
U.S., federal or state governmental authority on the part of the Investor
required in connection with the consummation of the transactions contemplated
herein shall have been obtained prior to and be effective as of the Closing.

4.10. Third Party Consents. All third party consents, approvals, orders or
authorizations required to be obtained by the Investor in connection with the
consummation of the transactions contemplated herein have been obtained.

5. CONDITIONS TO INVESTORS' OBLIGATIONS AT THE CLOSING

The obligation of the Investors to purchase the Shares at the Closing is
subject to the fulfillment to the satisfaction of the Investors on or prior to
the Closing of the following conditions:

5.1. Representations and Warranties Correct; Performance of Obligations.
The representations and warranties made by the Company in Section 3 hereof shall
be true and correct when made, and shall be true and correct as of the Closing
with the same force and effect as if they had been made on and as of said date,
subject to changes contemplated by this Agreement.

5.2. Performance. The Company shall have performed and complied with all
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing and
shall have obtained all approvals, consents and qualifications necessary to
complete the purchase and sale described herein.

5.3. Securities Laws. The offer and sale of the Shares to the Investors
pursuant to this Agreement shall be exempt from the registration requirements of
the Securities Act and the registration and/or qualification requirements of all
applicable state securities laws.

5.4. Amendment to Articles. The Restated Articles shall have been duly
adopted by the Company by all necessary corporate action of its Board of
Directors and shareholders and shall have been duly filed with and accepted by
the California Secretary of State.

9
<PAGE> 11

5.5. Opinion of Company's Counsel. The Investors shall have received from
counsel to the Company, an opinion, in the form attached hereto as Exhibit F,
addressed to the Investors, dated the date of Closing.

5.6. Compliance Certificate. At the Closing there shall have been delivered
to the Investors a certificate, dated as of such date of Closing, signed by the
Company's President certifying that the conditions specified in Paragraphs 5.1
and 5.2 of this Agreement have been fulfilled.

5.7. Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated at the Closing hereby and all
documents and instruments incident to such transactions shall be satisfactory in
substance and form to the Investors, and the Investors shall have received all
such counterpart originals or certified or other copies of such documents as the
Investors may reasonably request.

5.8. Investors' Rights Agreement. The required parties shall have executed
the Investors' Rights Agreement and such agreement shall be in full force and
effect.

5.9. Voting Agreement. The required parties shall have executed the Voting
Agreement in the form attached hereto as Exhibit G (the "Voting Agreement") and
such agreement shall be in full force and effect.

5.10. Amendment to Founders' Agreements. The Founder/Employee Shareholder
Agreements for Suresh Nihalani and Kiran Munj shall have been amended in the
form attached hereto as Exhibit H and Exhibit I, respectively.

5.11. Authorizations. All authorizations, approvals or permits, if any, of
any governmental authority or regulatory body that are required in connection
with the lawful issuance and sales of the Shares pursuant to this Agreement
shall have been duly obtained and shall be effective on and as of the Closing.

5.12. Board of Directors. At the Closing, the Company's Board shall be set
at five (5) members. Members of the Board shall be Suresh Nihalani, Brig. Gen.
H.R. Johnson, USAF (Ret.), Peter Morris, Steve Krausz and one vacancy.

6. CONDITIONS TO COMPANY'S OBLIGATIONS AT THE CLOSING

The obligations of the Company under this Agreement are subject to the
fulfillment at or before the Closing of the following conditions:

6.1. Representations and Warranties. The representations and warranties of
each Investor contained in Section 4 hereof shall be true as of the Closing with
the same force and effect as if they had been made on and as of said date,
subject to changes contemplated by this Agreement.

6.2. Payment of Purchase Price. The Investors shall have delivered to the
Company the aggregate purchase price for the Shares as set forth in Section 1.2
hereof.

10
<PAGE> 12

6.3. Restated Articles Effective. The Restated Articles shall have been
duly adopted by the Company by all necessary corporate action of its Board of
Directors and shareholders, and shall have been duly filed with and accepted by
the California Secretary of State.

6.4. Securities Exemptions. The offer and sale of the Shares to the
Investors pursuant to this Agreement shall be exempt from the registration
requirements of the Securities Act, and the registration and/or qualification
requirements of all applicable state securities laws.

6.5. Investors' Rights Agreement. The required parties shall have executed
the Investors' Rights Agreement and such agreement shall be in full force and
effect.

6.6. Voting Agreement. The required parties shall have executed the Voting
Agreement and such agreement shall be in full force and effect.

7. MISCELLANEOUS

7.1. Governing Law. This Agreement shall be governed in all respects by the
laws of the State of California as applied to agreements among California
residents entered into and to be performed entirely within California, without
regard to the conflict of law provisions thereof. The parties hereto agree to
submit to the jurisdiction of the federal and state courts of the State of
California with respect to the breach or interpretation of this Agreement or the
enforcement of any and all rights, duties, liabilities, obligations, powers, and
other relations between the parties arising under this Agreement.

7.2. Survival. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by any party hereto and the
closing of the transactions contemplated hereby for a period of two (2) years
from the First Closing.

7.3. Successors and Assigns. Except as otherwise expressly provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
respective successors and assigns of the parties hereto. Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.

7.4. Entire Agreement. This Agreement and the other documents and
agreements delivered pursuant hereto constitute the entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.

7.5. Notices. Except as otherwise provided, all notices and other
communications required or permitted hereunder shall be in writing, shall be
effective when given, and shall in any event be deemed to be given upon receipt
or, if earlier, (i) five (5) days after deposit with the U.S. postal service or
other applicable postal service, if delivered by first class mail, postage
prepaid, (ii) upon delivery, if delivered by hand, (iii) one (1) business day
after the day of deposit with Federal Express or similar overnight courier,
freight prepaid, if delivered by overnight courier or (iv) one (1) business day
after the day of facsimile transmission, if delivered by facsimile transmission
with copy by first class mail, postage prepaid, and shall be addressed, (a) if
to an Investor, at such Investor's address set forth below its signature, or at
such other address

11
<PAGE> 13

as such Investor shall have furnished the Company in writing, or (b) if to the
Company, at its address as set forth below, or at such other address as the
Company shall have furnished to each Investor in writing.

7.6. Amendments and Waivers. This Agreement and any term hereof may be
amended, waived, discharged or terminated by a written instrument signed by the
Company and holders of sixty-six and sixty-six hundredths percent (66.66%) or
more of the shares of common stock issued or issuable upon conversion of the
Series A Preferred Stock issued under this Agreement. In no event shall the
obligation of any Investor to purchase shares hereunder be increased, except
upon the written consent of such Investor.

7.7. Delays or Omissions. No delay or omission to exercise any right, power
or remedy accruing to the Company or to the Investors upon a breach or default
of any party hereto under this Agreement shall impair any such right, power or
remedy of the Company or the Investors, nor shall it be construed to be a waiver
of any such breach or default, or an acquiescence therein, or of any similar
breach or default thereafter occurring. Any waiver, permit, consent or approval
of any kind or character on the part of the Company or the Investors of a breach
or default under this Agreement, or any waiver on the part of the Company or the
Investors of any provisions or conditions of this Agreement, must be in writing
and shall be effective only to the extent specifically set forth in such
writing. All remedies, either under this Agreement or by law or otherwise
afforded to the Company or the Investors, shall be cumulative and not
alternative.

7.8. Each Party to Bear Own Costs. Except as otherwise provided in Section
7.10, each of the parties shall pay all costs and expenses incurred or to be
incurred by it in negotiating and preparing this Agreement and in closing and
carrying out the transactions contemplated by this Agreement. Notwithstanding
the foregoing, promptly after the First Closing (and only if the First Closing
is consummated), the Company shall reimburse the Investors purchasing shares at
the First Closing up to $15,000 for the reasonable fees and expenses of one
special counsel to the Investors.

7.9. Third Parties. Nothing in this Agreement, whether express or implied,
is intended to confer any rights or remedies under or by reason of this
Agreement on any persons other than the parties to it and their respective
successors and assigns, nor is anything in this Agreement intended to relieve or
discharge the obligation or liability of any third person to any party to this
Agreement, nor shall any provision give any third persons any right of
subrogation or action against any party to this Agreement.

7.10. Finder's Fees.

(a) The Company hereby agrees to indemnify and to hold the Investors
harmless of and from any liability for commission or compensation in the nature
of a finder's fee of any broker or other person or firm (and the costs and
expenses of defending against such liability or asserted liability) for which
the Company, or any of its employees or representatives, is responsible.

12
<PAGE> 14

(b) Each Investor hereby agrees to indemnify and to hold the Company
harmless of and from any liability for any commission or compensation in the
nature of a finder's fee to any broker or other person or firm (and the costs
and expenses of defending against such liability or asserted liability) for
which such Investor, or any of its employees or representatives, is responsible.

7.11. Titles and Subtitles. The titles of the paragraphs and subparagraphs
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.

7.12. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.

7.13. Severability. Should any provision of this Agreement be determined to
be illegal or unenforceable, such determination shall not affect the remaining
provisions of this Agreement.

7.14. Confidentiality. The parties hereto agree that, except with the prior
written permission of the other party, it shall at all times keep confidential
and not divulge, furnish, or make accessible to anyone any confidential
information, knowledge, or data concerning or relating to the business or
financial affairs of the other parties to which said party has been or shall
become privy by reason of this Agreement, discussions or negotiations relating
to this Agreement, or the performance of its obligations hereunder.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year hereinabove first written.

THE COMPANY:

ACCELERATED NETWORKS, INC.

By: /s/ Suresh Nihalani
-----------------------------------
Suresh Nihalani, President

Address: 5743 Corsa Avenue, Suite 221
Westlake Village, CA 91362

13
<PAGE> 15

THE INVESTORS:
-------------

NEW ENTERPRISE ASSOCIATES VII,
Limited Partnership

By: NEA Partners VII, Limited Partnership
Its: General Partner

By: /s/ Peter Morris
--------------------------------------
Name & Title:

Address: 2490 Sand Hill Road
Menlo Park, CA 94025

NEA PRESIDENTS FUND, L.P.

By: NEA General Partners, L.P.
Its: General Partner

By: /s/ Thomas C. McConnell
--------------------------------------
Name & Title:

Address: 2490 Sand Hill Road
Menlo Park, CA 94025

14
<PAGE> 16

NEA VENTURES 1997, LIMITED PARTNERSHIP

By: /s/ Lyn S. Walker
------------------------------------
Name & Title:

Address: 2490 Sand Hill Road
Menlo Park, CA 94025

U.S. VENTURE PARTNERS V, L.P.
USVP V INTERNATIONAL, L.P.
2180 ASSOCIATES FUND V, L.P.
USVP V ENTREPRENEUR PARTNERS, L.P.

By: Presidio Management Group V, L.L.C.

By: /s/ Mike Heal
-------------------------------------
Name & Title:

Address: 2180 Sand Hill Road, Suite 300
Menlo Park, CA 94025

WINWARD CAPITAL

By: /s/ James Cole
-------------------------------------
Jim Cole

Address:

DEFTA PARTNERS

By: /s/ George Hara
-------------------------------------
George Hara, Partner

Address: 111 Pine Street
San Francisco, CA 94111

15
<PAGE> 17

CHANDI NIHALANI & ISHWARI NIHALANI

/s/ Chandi Nihalani & Ishwari Nihalani
----------------------------------------------
Chandi Nihalani & Ishwari Nihalani

Address: Neuhausweg-36
47167 Duisburg-Neumuehl
Germany

STANFORD UNIVERSITY

By: /s/ Carol Gilmer
-----------------------------------
Name & Title:

Address: Attn: Carol Gilmer
2770 Sand Hill Road
Menlo Park, 94025

MIKE D'AMOUR

/s/ Mike D'Amour
-----------------------------------------------
Mike D'Amour

Address: D'Amour & Associates
11839 Hilltop Drive
Los Altos Hills, CA 94024

DEEPAK SAMTANI

/s/ Deepak Samtani
-----------------------------------------------
Deepak Samtani

Address: P.O. Box 50553
Dubai (UAE)

16
<PAGE> 18

UNITED MISSOURI BANK OF KANSAS CITY
SUCCESSOR TRUSTEE FOR
BROBECK, PHLEGER & HARRISON LLP
RETIREMENT SAVINGS TRUST, F.B.O.
FREDERIC A. RANDALL, JR.

By: /s/ Dale McAllister, Asst. V.P.
------------------------------------
Name & Title:

Address: Attention: Melissa Whited
United Missouri Bank
P.O. Box 419692
1010 Grand Avenue
Kansas City, MO 64141

ROB CONEYBEER

/s/ Rob Coneybeer
-------------------------------------------------
Rob Coneybeer

Address: 2490 Sand Hill Road
Menlo Park, CA 94025

LEE J. LESLIE

/s/ Lee J. Leslie
-------------------------------------------------
Lee J. Leslie

Address: 2116 Loma Drive
Hermosa Beach, CA 90254

BROBECK INVESTMENT COMPANY V, L.P.

By: /s/ Thomas W. Kellerman
------------------------------------
Thomas W. Kellerman,
General Partner

Address: Attn: Thomas W. Kellerman
Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 92303

17
<PAGE> 19

SUSAN N. CAYLEY

/s/ Susan N. Cayley
------------------------------------------------
Susan N. Cayley

Address: 26679 West Agoura Road
Calabassas, CA 91302

RICHARD A. FINK

/s/ Richard A. Fink
------------------------------------------------
Richard A. Fink

Address: 38 Technology Drive
Irvine, CA 92618

18
<PAGE> 20

TABLE OF CONTENTS
<TABLE>
<CAPTION>

Page
----
<S> <C>
1. AUTHORIZATION AND SALE OF SHARES.........................................................................1
1.1. Authorization...................................................................................1
1.2. Agreement to Purchase and Sell..................................................................1

2. CLOSING DATE; DELIVERY...................................................................................2
2.1. The Closings....................................................................................2
2.2. Delivery........................................................................................2

3. COMPANY REPRESENTATIONS AND WARRANTIES...................................................................2
3.1. Organization and Standing.......................................................................2
3.2. Capitalization..................................................................................2
3.3. Subsidiaries....................................................................................3
3.4. Due Authorization...............................................................................3
3.5. Valid Issuance of Stock.........................................................................4
3.6. Liabilities.....................................................................................4
3.7. Title to Properties and Assets..................................................................4
3.8. Intellectual Property...........................................................................4
3.9. Material Contracts and Obligations..............................................................5
3.10. Litigation......................................................................................5
3.11. Governmental Consents...........................................................................5
3.12. Third Party Consents............................................................................5
3.13. Compliance with Other Instruments...............................................................5
3.14. Disclosure......................................................................................6
3.15. Registration Rights.............................................................................6
3.16. Tax Matters.....................................................................................6
3.17. Tax Elections...................................................................................6
3.18. Shareholders, Directors and Officers............................................................6
3.19. Title of Properties, Liens and Encumbrances.....................................................6
3.20. Employees.......................................................................................7

4. REPRESENTATIONS AND WARRANTIES OF INVESTOR...............................................................7
4.1. Due Authorization...............................................................................7
4.2. Investigation...................................................................................7
4.3. Purchase for Own Account........................................................................7
4.4. Exempt from Registration........................................................................7
4.5. Economic Risk...................................................................................7
4.6. Restricted Securities...........................................................................8
4.7. Restrictive Legends.............................................................................8
4.8. Further Limitations on Disposition..............................................................8
4.9. Governmental Consents...........................................................................9
4.10. Third Party Consents............................................................................9
</TABLE>

i
<PAGE> 21

Page
----
<S> <C>

5. CONDITIONS TO INVESTORS' OBLIGATIONS AT THE CLOSING......................................................9
5.1. Representations and Warranties Correct; Performance of Obligations..............................9
5.2. Performance.....................................................................................9
5.3. Securities Laws.................................................................................9
5.4. Amendment to Articles...........................................................................9
5.5. Opinion of Company's Counsel...................................................................10
5.6. Compliance Certificate.........................................................................10
5.7. Proceedings and Documents......................................................................10
5.8. Investors' Rights Agreement....................................................................10
5.9. Voting Agreement...............................................................................10
5.10. Amendment to Founders' Agreements..............................................................10
5.11. Authorizations.................................................................................10
5.12. Board of Directors.............................................................................10

6. CONDITIONS TO COMPANY'S OBLIGATIONS AT THE CLOSING......................................................10
6.1. Representations and Warranties.................................................................10
6.2. Payment of Purchase Price......................................................................10
6.3. Restated Articles Effective....................................................................11
6.4. Securities Exemptions..........................................................................11
6.5. Investors' Rights Agreement....................................................................11
6.6. Voting Agreement...............................................................................11

7. MISCELLANEOUS...........................................................................................11
7.1. Governing Law..................................................................................11
7.2. Survival.......................................................................................11
7.3. Successors and Assigns.........................................................................11
7.4. Entire Agreement...............................................................................11
7.5. Notices........................................................................................11
7.6. Amendments and Waivers.........................................................................12
7.7. Delays or Omissions............................................................................12
7.8. Each Party to Bear Own Costs...................................................................12
7.9. Third Parties..................................................................................12
7.10. Finder's Fees..................................................................................12
7.11. Titles and Subtitles...........................................................................13
7.12. Counterparts...................................................................................13
7.13. Severability...................................................................................13
7.14. Confidentiality................................................................................13
</TABLE>

ii
<PAGE> 22

EXHIBITS
- --------

Exhibit A - List of Investors/Shares to Be Purchased
Exhibit B - Amended and Restated Articles of Incorporation
Exhibit C - Schedule of Exceptions
Exhibit D - Investors' Rights Agreement
Exhibit E - List of Security Holders
Exhibit F - Form of Opinion of Company Counsel
Exhibit G - Voting Agreement
Exhibit H - First Amendment to Nihalani Agreement
Exhibit I - First Amendment to Munj Agreement

iii

<PAGE> 1
EXHIBIT 10.4

ACCELERATED NETWORKS, INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT

<PAGE> 2

TABLE OF CONTENTS
<TABLE>
<CAPTION>

Page

<S> <C> <C>
I. AUTHORIZATION AND SALE OF SHARES.....................................................1
1.1 Authorization.................................................................1
1.2 Agreement to Purchase and Sell................................................1

II. CLOSING DATE; DELIVERY...............................................................1
2.1 The Closing...................................................................1
2.2 Delivery......................................................................1

III. COMPANY REPRESENTATIONS AND WARRANTIES...............................................2
3.1 Organization and Standing.....................................................2
3.2 Capitalization................................................................2
3.3 Subsidiaries..................................................................3
3.4 Due Authorization.............................................................3
3.5 Valid Issuance of Stock.......................................................3
3.6 Financial Statements; Absence of Changes......................................3
3.7 Title to Properties and Assets................................................4
3.8 Intellectual Property.........................................................4
3.9 Material Contracts and Obligations............................................5
3.10 Litigation....................................................................5
3.11 Governmental Consents.........................................................5
3.12 Third Party Consents..........................................................5
3.13 Compliance with Other Instruments.............................................5
3.14 Disclosure....................................................................6
3.15 Registration Rights...........................................................6
3.16 Tax Matters...................................................................6
3.17 Tax Elections.................................................................6
3.18 Shareholders, Directors and Officers..........................................6
3.19 Employees.....................................................................7

IV. REPRESENTATIONS AND WARRANTIES OF INVESTOR...........................................7

4.1 Due Authorization.............................................................7
4.2 Investigation.................................................................7
4.3 Purchase for Own Account......................................................7
4.4 Exempt from Registration......................................................7
4.5 Economic Risk.................................................................7
4.6 Restricted Securities.........................................................8
4.7 Restrictive Legends...........................................................8
4.8 Further Limitations on Disposition............................................8
4.9 Governmental Consents.........................................................9
4.10 Third Party Consents..........................................................9

V. CONDITIONS TO INVESTORS' OBLIGATIONS AT THE CLOSING..................................9

5.1 Representations and Warranties Correct; Performance of Obligations............9
</TABLE>

<PAGE> 3

<S> <C> <C> <C>
5.2 Performance...................................................................9
5.3 Securities Laws...............................................................9
5.4 Amendment to Articles.........................................................9
5.5 Opinion of Company's Counsel..................................................9
5.6 Compliance Certificate.......................................................10
5.7 Proceedings and Documents....................................................10
5.8 Investors' Rights Agreement..................................................10
5.9 Voting Agreement.............................................................10
5.10 Authorizations...............................................................10
5.11 Board of Directors...........................................................10

VI. CONDITIONS TO COMPANY'S OBLIGATIONS AT THE CLOSING..................................10
6.1 Representations and Warranties...............................................10
6.2 Payment of Purchase Price....................................................10
6.3 Restated Articles Effective..................................................10
6.4 Securities Exemptions........................................................11
6.5 Investors' Rights Agreement..................................................11
6.6 Voting Agreement.............................................................11

VII. MISCELLANEOUS.......................................................................11
7.1 Governing Law................................................................11
7.2 Survival.....................................................................11
7.3 Successors and Assigns.......................................................11
7.4 Entire Agreement.............................................................11
7.5 Notices......................................................................11
7.6 Amendments and Waivers.......................................................12
7.7 Delays or Omissions..........................................................12
7.8 Each Party to Bear Own Costs.................................................12
7.9 Third Parties................................................................12
7.10 Finder's Fees................................................................12
7.11 Titles and Subtitles.........................................................13
7.12 Counterparts.................................................................13
7.13 Severability.................................................................13
7.14 Confidentiality..............................................................13
</TABLE>

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<PAGE> 4

SERIES B PREFERRED STOCK PURCHASE AGREEMENT

This Series B Preferred Stock Purchase Agreement ("Agreement") is
made this 15th day of May 1998, by and between (i) Accelerated Networks, Inc., a
California corporation (the "Company"), and each of the investors listed on the
Schedule of Investors attached as Exhibit A hereto (hereinafter referred to
individually as an "Investor" and collectively as the "Investors").

In consideration of the mutual promises, covenants and conditions hereinafter
set forth, the parties hereto agree as follows:

I. AUTHORIZATION AND SALE OF SHARES

1.1 Authorization. As of the Closing (as defined below), the Company will
have authorized the issuance, pursuant to the terms and conditions of this
Agreement, of up to 11,600,000 shares of the Company's Series B Preferred Stock,
$.001 par value, having the rights, preferences, privileges and restrictions set
forth in the Amended and Restated Articles of Incorporation of the Company
attached to this Agreement as Exhibit B (the "Restated Articles").

1.2 Agreement to Purchase and Sell.

(a) The Closing. Subject to the terms and conditions hereof,
at the Closing, the Company will issue and sell to each Investor, and each such
Investor will purchase from the Company, that number of shares of Series B
Preferred Stock set forth opposite such Investor's name on Exhibit A at a price
of $1.25 per share.

(b) Payment of Purchase Price for Shares. All shares of Series
B Preferred Stock to be sold to the Investors pursuant to this Agreement are
hereinafter referred to collectively as the "Shares." The purchase price for the
Shares shall be paid by each Investor by way of check or by delivery of a wire
transfer of funds made to the order of the Company in the amount of such
Investor's portion of the aggregate purchase price for the Shares.

II. CLOSING DATE; DELIVERY

2.1 The Closing. The purchase and sale of the Shares pursuant to Section
1.2(a) shall be held at the offices of Brobeck, Phleger & Harrison LLP in
Irvine, California, on May 22, 1998, or at such other time and place as the
Company and the Investors acquiring in excess of 5,800,000 Shares may mutually
agree upon (the "Closing"). The Company may, but shall not be obligated to,
accept delivery of funds from Investors (or additional persons who shall be
added to the signature page and shall be deemed to be Investors hereunder) for
up to thirty (30) days following the Closing, or such longer period as may be
approved by the Investors acquiring in excess of 5,800,000 Shares.

2.2 Delivery. The Company will deliver to each Investor a certificate
representing the shares to be purchased by such Investor hereunder against
payment of such Investor's portion of the aggregate purchase price for the
Shares by cashier's check or by wire transfer.

<PAGE> 5

III. COMPANY REPRESENTATIONS AND WARRANTIES

The Company hereby represents and warrants to each Investor that,
except as set forth in the Schedule of Exceptions ("Schedule of Exceptions")
attached to this Agreement as Exhibit C (which Schedule of Exceptions shall be
deemed to be representations and warranties to each Investor), the statements in
the following paragraphs of this Section 3 are all true and correct:

3.1 Organization and Standing. The Company is a corporation duly
organized and validly existing under, and by virtue of, the laws of the State of
California and is in good standing under such laws. The Company has all
corporate power and authority to own, lease and operate its properties and to
conduct its business as currently conducted and as proposed to be conducted. The
Company is qualified to do business as a foreign corporation in each
jurisdiction in which the conduct of its business requires such qualification
except where failure to be so qualified would have a material adverse effect on
its financial condition, business or operations. The Company has made available
to the Investors true, correct and complete copies of its Articles of
Incorporation and Bylaws.

3.2 Capitalization. Immediately prior to the Closing (and after the
filing of the Restated Articles with the California Secretary of State), the
authorized capital stock of the Company will consist of (i) Forty-Eight Million
Five Hundred Thousand (48,500,000) shares of Common Stock, of which Eight
Million Two Hundred Fifty-Two Thousand (8,252,000) shares are issued and
outstanding, and (ii) Twenty-Three Million One Hundred Thousand (23,100,000)
shares of Preferred Stock, of which (a) Eleven Million Five Hundred Thousand
(11,500,000) shares have been designated Series A Preferred Stock, Eleven
Million Two Hundred Twenty Thousand (11,220,000) of which shares are issued and
outstanding, and (b) Eleven Million Six Hundred Thousand (11,600,000) shares
have been designated Series B Preferred Stock, all of which may be sold to the
Investors pursuant to this Agreement. The Company has reserved up to Eleven
Million Six Hundred Thousand (11,600,000) shares of its Common Stock for
possible issuance upon the conversion of the Shares (the "Conversion Shares").
After the filing of the Restated Articles with the California Secretary of
State, except for (i) the conversion privileges of the Shares and the Company's
Series A Preferred Stock, (ii) the rights provided in the Restated Investors'
Rights Agreement in the form attached hereto as Exhibit D (the "Investors'
Rights Agreement"), and (iii) the 4,500,000 shares of Common Stock authorized
for issuance under the Company's 1997 Stock Option/Stock Issuance Plan (the
"Plan"), of which 1,452,000 shares have been issued pursuant to the exercise of
options and 1,800,720 shares are issuable upon exercise of outstanding options,
there are no options, warrants, conversion privileges or other rights, or
agreements with respect to the issuance thereof, presently outstanding to
purchase any of the capital stock of the Company. All shares are duly
authorized, validly issued, fully paid and nonassessable and have been issued by
the Company in compliance with the registration requirements of securities laws.
Apart from the exceptions noted in this Section 3.2, no shares of the Company's
outstanding capital stock, or stock issuable upon exercise or exchange of any
outstanding options or other stock issuable by the Company, are subject to any
rights of first refusal or other rights to purchase such stock (whether in favor
of the Company or any other person), pursuant to any agreement or commitment of
the Company. Attached to this Agreement as Exhibit E is a complete list of all
outstanding shareholders, option holders and other security holders of the
Company as of immediately prior to the Closing (and after the filing

2
<PAGE> 6

of the Restated Articles with the California Secretary of State, other than
option exercises which may occur between the date hereof and the Closing).

3.3 Subsidiaries. The Company has no subsidiaries and does not presently
own or control, directly or indirectly, any interest in any other corporation,
partnership, trust, joint venture, association, or other entity.

3.4 Due Authorization. All corporate action on the part of the Company,
its officers, directors and shareholders, necessary for the sale and issuance of
the Shares and the Conversion Shares and the performance of the Company's
obligations under this Agreement, the Investor Rights' Agreement and the Voting
Agreement (as defined herein) has been taken or will be taken prior to the
Closing. This Agreement and the Investor Rights' Agreement are valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms, subject, as to enforcement of remedies, to applicable bankruptcy,
insolvency, moratorium, reorganization and similar laws affecting creditors'
rights generally and to general equitable principles. The Shares are not subject
to any preemptive rights or rights of first refusal pursuant to any agreement or
commitment of the Company. To the Company's knowledge, the execution, delivery
and performance by the Company of this Agreement and compliance herewith and the
sale and issuance of the Shares and Common Stock issuable upon conversion of the
Shares will not result in any violation of and will not conflict with, or result
in a breach of any of the terms of, or constitute a default under, any provision
of state or federal law to which the Company is subject, the Company's Articles
of Incorporation or Bylaws, each as amended, or any provision of any mortgage,
indenture, agreement, instrument, judgment, decree, order, Rule or regulation or
other restriction to which the Company is a party or by which it is bound, the
breach of or default under which would have a material adverse effect upon the
business or operations of the Company, or result in the creation of any
mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of the Company pursuant to any such term; provided, however, that the
Shares (and the Common Stock issuable upon conversion thereof) may be subject to
restrictions on transfer under state and/or federal securities laws. The shares
of Common Stock issuable upon conversion of the Shares have been duly and
validly reserved and are not subject to any preemptive rights or rights of first
refusal and, upon issuance, will be validly issued, fully paid and
nonassessable.

3.5 Valid Issuance of Stock. The outstanding capital stock of the Company
and the Shares, when issued, sold and delivered in accordance with the terms of
this Agreement for the consideration provided for herein, will be duly and
validly issued, fully paid and nonassessable and will be free of any liens or
encumbrances created by the Company. The Conversion Shares have been duly and
validly reserved for issuance, and not subject to any preemptive rights or
rights of first refusals and upon issuance in accordance with the terms of the
Restated Articles, will be duly and validly issued, fully paid and
nonassessable.

3.6 Financial Statements; Absence of Changes. The Company has made
available to each Investor its unaudited financial statements at December 31,
1997 and for the fiscal year then ended and its unaudited financial statements
at March 31, 1998 (the "Financial Statements"). Except that the Financial
Statements do not contain footnotes and are subject to normal year end
adjustments, the Financial Statements (i) are complete and correct in all
material respects and (ii) accurately set out and describe in all material
respects the financial condition and operating

3
<PAGE> 7

results of the Company as of the dates, and for the periods, indicated
therein. Except as set forth in the Financial Statements, the Company has no
liabilities, contingent or otherwise, other than (i) liabilities incurred in the
ordinary course of business subsequent to March 31, 1998 and (ii) obligations
under contracts and commitments incurred in the ordinary course of business,
which in both cases, are not material to the financial condition or operating
results of the Company. The audited financial statements, which will be
available following the Closing, will not be different in any material respect
from the Financial Statements as of December 31, 1997 and the fiscal year then
ended. Since March 31, 1998, there has not been (i) any sale, assignment or
transfer of any patents, trademarks, copyrights, trade secrets or other
intangible assets owned by the Company; (ii) any resignation or termination of
employment of any key officer of the Company; (iii) any mortgage, pledge,
transfer of a security interest in, or lien, created by the Company, with
respect to any of its material properties or assets, except liens for taxes not
yet due or payable; (iv) any loans or guarantees made by the Company to or for
the benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business; (v) any declaration, setting aside or payment
or other distribution in respect of any of the Company's capital stock, or any
direct or indirect redemption, purchase or other acquisition of any of such
stock by the Company; or (vi) any other event or condition of any character
which is reasonably likely to materially and adversely affect the assets,
financial condition, properties, operating results or business of the Company.

3.7 Title to Properties and Assets. The Company has good and marketable
title to its properties and assets held in each case subject to no mortgage,
pledge, lien, encumbrance, security interest or charge of any kind, except such
mortgage, pledge, lien, encumbrance, security interest or charge that arises in
the ordinary course of business and does not materially impair the Company's
ownership or use of such property. With respect to the property and assets it
leases, the Company is in compliance with such leases and, to the Company's
knowledge, the Company holds valid leasehold interests in such assets free of
any liens, encumbrances, security interests or claims of any party other than
the lessors of such property and assets.

3.8 Intellectual Property. To the Company's knowledge (but without having
conducted any special investigation or patent search), the Company has
sufficient title, license and/or ownership of all patents, trademarks, service
marks, trade names, copyrights, trade secrets, information, proprietary rights
and processes necessary for its business as now conducted without any conflict
with or infringement of the rights of others. Except for the agreements with its
own employees or consultants referenced in Section 3.9 and licensing agreements
entered into by the Company in the ordinary course of its business, there are no
outstanding options, licenses, or agreements of the Company relating to the
foregoing, and the Company is not a party or bound by any options, licenses or
agreements with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information, proprietary rights and
processes of any other person or entity. Neither the Company, nor to its
knowledge any of its employees, has received any communications alleging that
the Company has violated or, by conducting its business as proposed, would
violate any of the patents, trademarks, service marks, trade names, copyrights
or trade secrets or other proprietary rights of any other person or entity. The
Company warrants that to the actual knowledge of its executive officers, no
employee of the Company is obligated under any contract (including licenses,
covenants or commitments of any

4
<PAGE> 8

nature) or other agreement, or subject to any judgment, decree or order of any
court or administrative agency, that would conflict with his obligation to use
his best efforts to promote the interests of the Company or that would conflict
with the Company's business. Reasonable security measures have been taken to
protect the secrecy, confidentiality and value of the proprietary information
referred to in this Section 3.8.

3.9 Material Contracts and Obligations. The Company has made available to
counsel for the Investors all agreements, contracts, leases, licenses,
instruments, commitments, indebtedness, liabilities and other obligations,
written or to the knowledge of the Company, oral, absolute or contingent, to
which the Company is a party or by which it is bound that are (i) material to
the conduct and operations of its business and properties; (ii) involve any of
the officers, consultants, directors, employees or shareholders of the Company;
or (iii) obligate the Company to share, license or develop any product or
technology (except licensing agreements entered into by the Company in the
ordinary course of its business). All employees of the Company have executed a
"Proprietary Information and Inventions Agreement" concerning nondisclosure of
confidential information and assignment of inventions to the Company in a form
previously delivered to counsel for the Investors. For purposes of this Section
3.9, "material" shall mean any agreement, contract, indebtedness, liability or
other obligation committing either party in an amount in excess of $50,000.

3.10 Litigation. There are no actions, proceedings or investigations
pending or, to the Company's knowledge, threatened, against or affecting the
Company or its property, that, either in any case or in the aggregate, might
result in any material adverse change in the business, prospects, condition,
affairs or operations of the Company or in any of its properties or assets, in
any material impairment of the right or ability of the Company to carry on its
business as now conducted and as proposed to be conducted, or in any change in
the current equity ownership of the Company, and none that questions the
validity of this Agreement or any action taken or to be taken in connection
herewith.

3.11 Governmental Consents. Except for filings (if any) required under
federal and state securities laws (including the filing pursuant to Section
25102(f) of the California Corporate Securities Law of 1968, as amended), and
the rules and regulations thereunder, all consents, approvals, orders,
authorizations or registrations, qualifications, designations, declarations or
filings with any federal or state governmental authority on the part of the
Company required in connection with the consummation of the transactions
contemplated herein shall have been obtained prior to and be effective as of the
Closing. Based in part on the representations of the Investors set forth in
Section 4 below, the offer, sale and issuance of the Shares in conformity with
the terms of this Agreement are exempt from the registration and prospectus
delivery requirements of the Securities Act of 1933, as amended (the "Securities
Act") and exempt from qualifications under applicable blue sky laws.

3.12 Third Party Consents. Except as set forth above in Section 3.11,
all third party consents, approvals, orders or authorizations required to be
obtained by the Company in connection with the consummation of the transactions
contemplated herein have been obtained.

3.13 Compliance with Other Instruments. The Company is not in violation,
breach or default of any term of its Articles of Incorporation or Bylaws or, in
any material respect, of any

5
<PAGE> 9

term or provision of any mortgage, indenture, contract, agreement or instrument
to which the Company is a party or by which it may be bound, or of any provision
of any foreign or domestic state or federal judgment, decree, order, statute,
Rule or regulation applicable and material to the Company. The execution,
delivery and performance of, and compliance with, this Agreement and the
consummation of the transactions contemplated hereby will not result in any such
violation or default, or be in conflict with or constitute, with or without the
passage of time or the giving of notice or both, (i) a default under the
Company's Articles of Incorporation or Bylaws, or under any agreement or
contract of the Company, (ii) to the Company's knowledge, a violation of any
statutes, laws, regulations or orders, or (iii) an event which results in the
creation of any lien, charge or encumbrance upon any asset of the Company.

3.15 Registration Rights. Except as provided in the Investors' Rights
Agreement, the Company has not granted or agreed to grant any person or entity
any rights (including piggyback registration rights) to have any securities of
the Company registered with the United States Securities and Exchange Commission
("SEC") or any other governmental authority.

3.16 Tax Matters. To the Company's knowledge, the Company has no unpaid
federal, state, county or local taxes. There have been no examinations or audits
of any tax returns or reports of the Company by any applicable federal, state or
local governmental agency. The Company has duly filed all federal, state, county
and local tax returns required to have been filed by it and paid all taxes shown
to be due on such returns. There are in effect no waivers of applicable statutes
of limitations with respect to taxes for any year.

3.17 Tax Elections. The Company has not elected pursuant to the Internal
Revenue Code of 1986, as amended (the "Code"), to be treated as a Subchapter S
corporation or collapsible corporation pursuant to Section 1362(a) or Section
341(f) of the Code, nor has it made any other elections pursuant to the Code
(other than elections which relate solely to matters of accounting, depreciation
or amortization) which would have a material adverse affect on the Company, its
financial condition, its business as presently conducted or presently proposed
to be conducted or any of its properties or material assets.

3.18 Shareholders, Directors and Officers. To the actual knowledge of the
Company's executive officers and without any inquiry of any of the following
individuals, none of the officers or directors or significant employees or
consultants of the Company, has, individually or collectively, a material
interest in any entity which is a competitor, customer or supplier of (or has
any existing contractual relationship with) the Company, other than holdings of
less than 1% of publicly-held entities.

6
<PAGE> 10

3.19 Employees. To the Company's knowledge, no employee of the Company is
in violation of any term of any employment contract, patent disclosure
agreement, non-competition agreement, or any restrictive covenant to a former
employer relating to the right of any such employee to be employed by the
Company because of the nature of the business conducted or presently proposed to
be conducted by the Company or to the use of trade secrets or proprietary
information of others. There is neither pending nor, to the Company's knowledge,
threatened any actions, suits, proceedings or claims, or to its knowledge any
basis therefor or threat thereof, with respect to any contract, agreement,
covenant or obligation referred to in the preceding sentence. The Company does
not have any collective bargaining agreement covering any of its employees. No
employee of the Company has an employment agreement or a severance arrangement
with the Company and such employees are employed on an "at will" basis.

IV. REPRESENTATIONS AND WARRANTIES OF INVESTOR

Each Investor represents and warrants to the Company as follows:

4.1 Due Authorization. All corporate action on the part of the Investor,
and its officers, directors, partners and shareholders, necessary for the
purchase of the Shares and the performance of the Investor's obligations under
this Agreement, the Investors' Rights Agreement and the Voting Agreement (as
defined herein) has been taken or will be taken prior to the Closing. This
Agreement and the Investors' Rights Agreement are valid and binding obligations
of the Investor enforceable in accordance with their terms, subject, as to
enforcement of remedies, to applicable bankruptcy, insolvency, moratorium,
reorganization and similar laws affecting creditors' rights generally and to
general equitable principles.

4.2 Investigation. The Investor acknowledges that it has had an
opportunity to discuss the business, affairs and current prospects of the,
Company with the Company's officers. The Investor further acknowledges having
had access to information about the Company that it has requested or considers
necessary for purposes of purchasing the Shares.

4.3 Purchase for Own Account. The Shares that the Investor will purchase
hereunder and the Conversion Shares issuable upon conversion of such Shares will
be acquired for such Investor's own account, not as a nominee or agent, and not
with a view to or in connection with the sale or distribution of any part
thereof, and such Investor has no present intention of selling, granting any
participation in, or otherwise distributing the same. The Investor is an
"accredited investor" within the meaning of Regulation D of the Securities Act.

4.4 Exempt from Registration. The Investor understands that the Shares
and the Conversion Shares (collectively, the "Securities") will not be
registered under the Securities Act, on the ground that the sale provided for in
this Agreement is exempt from registration under the Securities Act, and that
the reliance of the Company on such exemption is predicated in part on the
Investors' representations set forth in this Agreement.

4.5 Economic Risk. The Investor acknowledges that it is experienced in
evaluating and investing in securities of companies in the development stage and
acknowledges that it is able to fend for itself in the transactions contemplated
by this Agreement and has the ability to bear the economic risks of its
investment pursuant to this Agreement.

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<PAGE> 11

4.6 Restricted Securities. The Investor understands that the Securities
may not be sold, transferred, or otherwise disposed of without registration
under the Securities Act or an exemption therefrom, and that, in the absence of
an effective registration statement covering the Securities or an available
exemption from registration under the Securities Act, the Securities must be
held indefinitely. In particular, the Investor is aware that the Securities may
not be sold pursuant to Rule 144 promulgated under the Securities Act unless (i)
a public trading market then exists for the Securities, (ii) adequate
information concerning the Company is then available to the public, (iii) such
Investor has held the Securities for the applicable holding period specified in
Rule 144, and (iv) all other terms and conditions of Rule 144 are satisfied.

4.7 Restrictive Legends. It is understood that each certificate
representing (i) the Shares, (ii) the Conversion Shares, and (iii) any other
securities issued in respect of the Shares upon any stock split, stock dividend,
recapitalization, merger or similar event (unless no longer required in the
opinion of counsel for the Company) shall be stamped or otherwise imprinted with
legends substantially in the following forms (in addition to any legend that may
now or hereafter be required by applicable state law):

"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS. THEY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED
OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT
WITH RESPECT TO SUCH SECURITIES, OR DELIVERY OF AN OPINION OF COUNSEL
SATISFACTORY TO THE ISSUER OF SUCH SECURITIES THAT SUCH OFFER, SALE,
TRANSFER, PLEDGE OR HYPOTHECATION IS IN FULL COMPLIANCE WITH THE
SECURITIES ACT OF 1933, AS AMENDED."

"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS SET FORTH IN THAT CERTAIN RESTATED INVESTORS' RIGHTS
AGREEMENT DATED AS OF JUNE 1, 1998 AND THAT CERTAIN VOTING AGREEMENT
DATED AS OF JUNE 1, 1998 COPIES OF WHICH MAY BE OBTAINED BY THE HOLDER,
UPON REQUEST AND WITHOUT CHARGE, AT THE PRINCIPAL OFFICES OF THE
CORPORATION."

4.8 Further Limitations on Disposition. Without in any way limiting the
representations set forth above, the Investor further agrees not to make any
disposition of all or any portion of the Shares or Conversion Shares unless and
until the transferee has agreed in writing for the benefit of the Company to be
bound by this Section 4, the Investors' Rights Agreement and, potentially, the
Voting Agreement; provided, and to the extent, this Section and such agreement
are then applicable, and:

(a) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement; or

8
<PAGE> 12

(b) (i) Such Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii) if
reasonably requested by the Company, such Investor shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company that
such disposition will not require registration of such shares under the
Securities Act. It is agreed that the Company will not require opinions of
counsel from an Investor for transactions made pursuant to Rule 144 under the
Securities Act except in unusual circumstances.

4.9 Governmental Consents. All consents, approvals, orders,
authorizations or registrations, qualifications, designations, declarations or
filings with any U.S., federal or state governmental authority on the part of
the Investor required in connection with the consummation of the transactions
contemplated herein shall have been obtained prior to and be effective as of the
Closing.

4.10 Third Party Consents. All third party consents, approvals, orders or
authorizations required to be obtained by the Investor in connection with the
consummation of the transactions contemplated herein have been obtained.

V. CONDITIONS TO INVESTORS' OBLIGATIONS AT THE CLOSING

The obligation of the Investors to purchase the Shares at the
Closing is subject to the fulfillment to the satisfaction of the Investors on or
prior to the Closing of the following conditions:

5.1 Representations and Warranties Correct; Performance of Obligations.
The representations and warranties made by the Company in Section 3 hereof shall
be true and correct when made, and shall be true and correct as of the Closing
with the same force and effect as if they had been made on and as of said date,
subject to changes contemplated by this Agreement.

5.2 Performance. The Company shall have performed and complied with all
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing and
shall have obtained all approvals, consents and qualifications necessary to
complete the purchase and sale described herein.

5.3 Securities Laws. The offer and sale of the Shares to the Investors
pursuant to this Agreement shall be exempt from the registration requirements of
the Securities Act and the registration and/or qualification requirements of all
applicable state securities laws.

5.4 Amendment to Articles. The Restated Articles shall have been duly
adopted by the Company by all necessary corporate action of its Board of
Directors and shareholders and shall have been duly filed with and accepted by
the California Secretary of State.

5.5 Opinion of Company's Counsel. The Investors shall have received from
counsel to the Company, an opinion, in substantially the form attached hereto as
Exhibit F addressed to the Investors, dated the date of Closing.

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<PAGE> 13

5.6 Compliance Certificate. At the Closing there shall have been
delivered to the Investors a certificate, dated as of such date of Closing,
signed by the Company's President certifying that the conditions specified in
Sections 5.1 and 5.2 of this Agreement have been fulfilled.

5.7 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated at the Closing hereby and all
documents and instruments incident to such transactions shall be satisfactory in
substance and form to the Investors, and the Investors shall have received all
such counterpart originals or certified or other copies of such documents as the
Investors may reasonably request.

5.8 Investors' Rights Agreement. The required parties shall have executed
the Investors' Rights Agreement and such agreement shall be in full force and
effect.

5.9 Voting Agreement. The required parties shall have executed the Voting
Agreement in the form attached hereto as Exhibit G (the "Voting Agreement") and
such agreement shall be in full force and effect.

5.10 Authorizations. All authorizations, approvals or permits, if any, of
any governmental or regulatory body that are required in connection with the
lawful issuance and sales of the Shares pursuant to this Agreement shall have
been duly obtained and shall be effective on and as of the Closing.

5.11 Board of Directors. At the Closing, the Company's Board of Directors
shall be set at seven (7) members. Members of the Board shall be Suresh
Nihalani, Brig. Gen. H.R. Johnson, USAF (Ret.), Peter Morris, Steve Krausz,
Robert Kuhling, Rakinder Grover and one vacancy.

VI. CONDITIONS TO COMPANY'S OBLIGATIONS AT THE CLOSING

The obligations of the Company under this Agreement are subject
to the fulfillment at or before the Closing of the following conditions:

6.1 Representations and Warranties. The representations and warranties of
each Investor contained in Section 4 hereof shall be true as of the Closing with
the same force and effect as if they had been made on and as of said date,
subject to changes contemplated by this Agreement.

6.2 Payment of Purchase Price. The Investors shall have delivered to the
Company the aggregate purchase price for the Shares as set forth in Section 1.2
hereof, unless the period for delivery of the Purchase Price is extended by the
Company pursuant to Section 2.1 hereof, in which case the Company may effect
multiple closings.

6.3 Restated Articles Effective. The Restated Articles shall have been
duly adopted by the Company by all necessary corporate action of its Board of
Directors and shareholders, and shall have been duly filed with and accepted by
the California Secretary of State.

10
<PAGE> 14

6.4 Securities Exemptions. The offer and sale of the Shares to the
Investors pursuant to this Agreement shall be exempt from the registration
requirements of the Securities Act, and the registration and/or qualification
requirements of all applicable state securities laws.

6.5 Investors' Rights Agreement. The required parties shall have executed
the Investors' Rights Agreement and such agreement shall be in full force and
effect.

6.6 Voting Agreement. The required parties shall have executed the Voting
Agreement and such agreement shall be in full force and effect.

VII. MISCELLANEOUS

7.2 Survival. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by any party hereto and the
closing of the transactions contemplated hereby for a period of two (2) years
from the Closing.

7.3 Successors and Assigns. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the respective successors and assigns of the parties hereto.
Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties hereto or their respective successors and assigns
any rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.

7.4 Entire Agreement. This Agreement and the other documents and
agreements delivered pursuant hereto constitute the entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.

7.5 Notices. Except as otherwise provided, all notices and other
communications required or permitted hereunder shall be in writing, shall be
effective when given, and shall in any event be deemed to be given upon receipt
or, if earlier, (i) five (5) days after deposit with the U.S. postal service or
other applicable postal service, if delivered by first class mail, postage
prepaid, (ii) upon delivery, if delivered by hand, (iii) one (1) business day
after the day of deposit with Federal Express or similar overnight courier,
freight prepaid, if delivered by overnight courier or (iv) one (1) business day
after the day of facsimile transmission, if delivered by facsimile transmission
with copy by first class mail, postage prepaid, and shall be addressed, (a) if
to an Investor, at such Investor's address set forth below its signature, or at
such other address as such Investor shall have furnished the Company in writing,
or (b) if to the Company, at its address as set forth below, or at such other
address as the Company shall have furnished to each Investor in writing.

11
<PAGE> 15

7.6 Amendments and Waivers. This Agreement and any term hereof may be
amended, waived, discharged or terminated by a written instrument signed by the
Company and holders of sixty-six and sixty-six hundredths percent (66.66%) or
more of the shares of Common Stock issued or issuable upon conversion of the
Series B Preferred Stock issued under this Agreement. In no event shall the
obligation of any Investor to purchase shares hereunder be increased, except
upon the written consent of such Investor.

7.7 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to the Company or to the Investors upon a breach or
default of any party hereto under this Agreement shall impair any such right,
power or remedy of the Company or the Investors, nor shall it be construed to be
a waiver of any such breach or default, or an acquiescence therein, or of any
similar breach or default thereafter occurring. Any waiver, permit, consent or
approval of any kind or character on the part of the Company or the Investors of
a breach or default under this Agreement, or any waiver on the part of the
Company or the Investors of any provisions or conditions of this Agreement, must
be in writing and shall be effective only to the extent specifically set forth
in such writing. All remedies, either under this Agreement or by law or
otherwise afforded to the Company or the Investors, shall be cumulative and not
alternative.

7.8 Each Party to Bear Own Costs. Except as otherwise provided in Section
7.10, each of the parties shall pay all costs and expenses incurred or to be
incurred by it in negotiating and preparing this Agreement and in closing and
carrying out the transactions contemplated by this Agreement. Notwithstanding
the foregoing, promptly after the Closing (and only if the Closing is
consummated), the Company shall reimburse the Investors purchasing shares at the
Closing up to $15,000 for the reasonable fees and expenses of one special
counsel to the Investors.

7.9 Third Parties. Nothing in this Agreement, whether express or implied,
is intended to confer any rights or remedies under or by reason of this
Agreement on any persons other than the parties to it and their respective
successors and assigns, nor is anything in this Agreement intended to relieve or
discharge the obligation or liability of any third person to any party to this
Agreement, nor shall any provision give any third persons any right of
subrogation or action against any party to this Agreement.

7.10 Finder's Fees.

(a) The Company hereby agrees to indemnify and to hold the
Investors harmless of and from any liability for commission or compensation in
the nature of a finder's fee of any broker or other person or firm (and the
costs and expenses of defending against such liability or asserted liability)
for which the Company, or any of its employees or representatives, is
responsible.

(b) Each Investor hereby agrees to indemnify and to hold the
Company harmless of and from any liability for any commission or compensation in
the nature of a finder's fee to any broker or other person or firm (and the
costs and expenses of defending against such liability or asserted liability)
for which such Investor, or any of its employees or representatives, is
responsible.

12
<PAGE> 16

7.11 Titles and Subtitles. The titles of the sections and subsections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.

7.12 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.

7.13 Severability. Should any provision of this Agreement be determined
to be illegal or unenforceable, such determination shall not affect the
remaining provisions of this Agreement.

7.14 Confidentiality. The parties hereto agree that, except with the
prior written permission of the other party, it shall at all times keep
confidential and not divulge, furnish, or make accessible to anyone any
confidential information, knowledge, or data concerning or relating to the
business or financial affairs of the other parties to which said party has been
or shall become privy by reason of this Agreement, discussions or negotiations
relating to this Agreement, or the performance of its obligations hereunder.

13
<PAGE> 17

IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year hereinabove first written.

THE COMPANY
ACCELERATED NETWORKS, INC.

/s/ SURESH NIHALANI
-----------------------------------------------
Suresh Nihalani
President

Address: 5743 Corsa Avenue, Suite 221
Westlake Village, CA 91362

THE INVESTORS

ONSET VENTURES

By: /s/ ROB KUHLING
-------------------------------------------
Name:
Title:

Address: 2490 Sand Hill Road
Menlo Park, CA 94025

BROBECK PHLEGER & HARRISON LLP

By: /s/ THOMAS ALLEN
-------------------------------------------

Address: Spear Street Tower
One Market
San Francisco, California 94105

14
<PAGE> 18

NEW ENTERPRISE ASSOCIATES VII, Limited Partnership

By: NEA Partners VII, Limited Partnership
Its: General Partner
By: /s/ PETER MORRIS
-------------------------------------------
Name:
Title:
Address: 2490 Sand Hill Road
Menlo Park, CA 94025

15
<PAGE> 19

U.S. VENTURE PARTNERS V, L.P.
USVP V INTERNATIONAL, L.P.
2180 ASSOCIATES FUND V, L.P.
USVP V ENTREPRENEUR PARTNERS, L.P.

By: Presidio Management Group V, L.L.C.

By: /s/ MICHAEL P. MOVER
-------------------------------------------
Name:
Title:

Address: 2180 Sand Hill Road, Suite 300
Menlo Park, CA 94025

WINDWARD VENTURES, L.P.

By: Windward Ventures Management, L.P.
Its: General Partner

By: /s/ DAVID TITUS
-------------------------------------------
Name: David Titus
Title: General Partner

Address: 12680 High Bluff Drive, Suite 200
San Diego, CA 92130

BROBECK, PHLEGER & HARRISON LLP

By: /s/ THOMAS W. ALLEN
-------------------------------------------
Name: Thomas W. Allen

Address: One Market, Spear Tower
San Francisco, CA 94105

16
<PAGE> 20
FREDERIC A. RANDALL, JR.

By: /s/ FREDERICK A. RANDALL, JR.
---------------------------------

Address: 38 Technology Drive
One Market
Irvine, California 92618-2301
<PAGE> 21
ASHOK SAMTANI

By: /s/ ASHOK SAMTANI
-----------------------------------

Address: C-1/6 Raksha Lekha
Co-Op Housing Society
South Main Road, Koregaon Park
Pune 411011, India

<PAGE> 22

SUSAN N. CAYLEY

By: /s/ SUSAN M. CAYLEY
--------------------------------------
Susan M. Cayley

Address: 26679 West Agoura Road
Calabassas, CA 91302
<PAGE> 23

RAJESH NIHAL

By: /s/ RAJESH NIHAL
--------------------------------------
Rajesh Nihal

Address: 405 Meriwood Drive
Edison, NJ 08817

BHARAT SAMTANI

By: /s/ RHARAT SAMTANI
--------------------------------------
Rharat Samtani

Address: C-1/6 Raksha Lekha
Co-Op Housing Society
South Main Road, Koregaon Park
Pune 411011, India

ROB CONEYBEER

By: /s/ ROB CONEYBEER
--------------------------------------
Rob Coneybeer

Address: 2490 Sand Hill Road
Menlo Park, CA 94025

<PAGE> 24

RAJESH NIHAL

By:
--------------------------------------
Rajesh Nihal

Address: 405 Mierwood Drive
Edison, NJ 08817

BHARAT SAMTANI

By: /s/ RHARAT SAMTANI
--------------------------------------
Rharat Samtani

Address: C-1/6 Raksha Lekha
Co-Op Housing Society
South Main Road, Koregaon Park
Pune 411011, India

ROB CONEYBEER

By:
--------------------------------------
Rob Coneybeer

Address: 2490 Sand Hill Road
Menlo Park, CA 94025
<PAGE> 25
RAJESH NIHAL

By: /S/ RAJESH NIHAL
--------------------------------------
Rajesh Nihal

Address: 405 Merrywood Drive
Edison, NJ 08817

BHARAT SAMTANI

By: /s/ RHARAT SAMTANI
--------------------------------------
Rharat Samtani

Address: C-1/6 Raksha Lekha
Co-Op Housing Society
South Main Road, Koregaon Park
Pune 411011, India

ROB CONEYBEER

By:
--------------------------------------
Rob Coneybeer

Address: 2490 Sand Hill Road
Menlo Park, CA 94025

<PAGE> 26

STANFORD UNIVERSITY

By: /s/ H. A. TURNER
--------------------------------------
H. A. Turner

Address: 2770 Sand Hill Road
Menlo Park, CA 94025

<PAGE> 1
EXHIBIT 10.5

ACCELERATED NETWORKS, INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT

FEBRUARY 24, 1999

<PAGE> 2

ACCELERATED NETWORKS, INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT

FEBRUARY 24, 1999

<PAGE> 3

TABLE OF CONTENTS
<TABLE>
<CAPTION>

PAGE
<S> <C> <C>
1. AUTHORIZATION AND SALE OF SHARES...................................................1
1.1 Authorization...............................................................1
1.2 Agreement to Purchase and Sell..............................................1

2. CLOSING DATE; DELIVERY.............................................................1
2.1 The Closing.................................................................1
2.2 Delivery....................................................................1

3. COMPANY REPRESENTATIONS AND WARRANTIES.............................................2
3.1 Organization and Standing...................................................2
3.2 Capitalization..............................................................2
3.3 Subsidiaries................................................................3
3.4 Due Authorization...........................................................3
3.5 Valid Issuance of Stock.....................................................3
3.6 Financial Statements; Absence of Changes....................................4
3.7 Title to Properties and Assets..............................................4
3.8 Intellectual Property.......................................................4
3.9 Material Contracts and Obligations..........................................5
3.10 Litigation..................................................................5
3.11 Governmental Consents.......................................................5
3.12 Third Party Consents........................................................6
3.13 Compliance with Other Instruments...........................................6
3.14 Disclosure..................................................................6
3.15 Registration Rights.........................................................6
3.16 Tax Matters.................................................................6
3.17 Tax Elections...............................................................6
3.18 Shareholders, Directors and Officers........................................7
3.19 Employees...................................................................7
3.20 Permits.....................................................................7
3.21 Employee Benefit Plans......................................................7
3.22 Year 2000 Compliance........................................................

4. REPRESENTATIONS AND WARRANTIES OF INVESTOR.........................................8
4.1 Due Authorization...........................................................8
4.2 Investigation...............................................................8
4.3 Purchase for Own Account....................................................8
4.4 Exempt from Registration....................................................8
4.5 Economic Risk...............................................................9
4.6 Restricted Securities.......................................................9
4.7 Restrictive Legends.........................................................9
4.8 Further Limitations on Disposition..........................................9
4.9 Governmental Consents......................................................10
4.10 Third Party Consents.......................................................10
</TABLE>

<PAGE> 4

TABLE OF CONTENTS (continued)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
5. CONDITIONS TO INVESTOR'S OBLIGATIONS AT THE CLOSING...............................10
5.1 Representations and Warranties Correct; Performance of Obligations.........10
5.2 Performance................................................................10
5.3 Amendment to Articles and Bylaws...........................................10
5.4 Opinion of Company's Counsel...............................................11
5.5 Compliance Certificate.....................................................11
5.6 Proceedings and Documents..................................................11
5.7 Investors' Rights Agreement................................................11
5.8 Voting Agreement...........................................................11
5.9 Authorizations.............................................................11
5.10 Approval of the Managing Board of Siemens..................................11
5.11 No Material and Adverse Matters Discovered.................................11

6. CONDITIONS TO COMPANY'S OBLIGATIONS AT THE CLOSING................................11
6.1 Representations and Warranties.............................................12
6.2 Payment of Purchase Price..................................................12
6.3 Restated Articles Effective................................................12
6.4 Investors' Rights Agreement................................................12
6.5 Voting Agreement...........................................................12
6.6 Board of Directors Approval................................................12

7. MISCELLANEOUS.....................................................................12
7.1 Governing Law..............................................................12
7.2 Survival...................................................................12
7.3 Successors and Assigns.....................................................12
7.4 Entire Agreement...........................................................13
7.5 Notices....................................................................13
7.6 Amendments and Waivers.....................................................13
7.7 Delays or Omissions........................................................13
7.8 Each Party to Bear Own Costs...............................................13
7.9 Third Parties..............................................................14
7.10 Finder's Fees..............................................................14
7.11 Titles and Subtitles.......................................................14
7.12 Counterparts...............................................................14
7.13 Severability...............................................................14
7.14 Confidentiality............................................................14
</TABLE>

ii
<PAGE> 5

TABLE OF CONTENTS (CONTINUED)

<TABLE>
<CAPTION>
Exhibits
<S> <C>
A - Restated Articles of Incorporation
B - Investors' Rights Amendment
C - Schedule of Exceptions
D - Amended and Restated Voting Agreement
E - List of Security Holders
F - Form of Opinion
</TABLE>

iii

<PAGE> 6

SERIES C PREFERRED STOCK PURCHASE AGREEMENT

This Series C Preferred Stock Purchase Agreement ("Agreement") is made this 24th
day of February 1999, by and between Accelerated Networks, Inc., a California
corporation (the "Company"), and Siemens AG, a corporation organized under the
laws of Germany (the "Investor").

In consideration of the mutual promises, covenants and conditions hereinafter
set forth, the parties hereto agree as follows:

1. AUTHORIZATION AND SALE OF SHARES

1.1 Authorization. As of the Closing (as defined below), the Company
will have authorized the issuance, pursuant to the terms and conditions of this
Agreement, Eight Million Eight Hundred Forty-Five Thousand Six Hundred
Forty-Eight (8,845,648) shares of the Company's Series C Preferred Stock, $.001
par value, having the rights, preferences, privileges and restrictions set forth
in the Amended and Restated Articles of Incorporation of the Company attached to
this Agreement as Exhibit A (the "Restated Articles").

1.2 Agreement to Purchase and Sell.

(a) The Closing. Subject to the terms and conditions hereof, at the
Closing, the Company will issue and sell to Investor, and Investor will purchase
from the Company, 8,845,648 shares of Series C Preferred Stock at a price of
$3.3915 per share.

(b) Payment of Purchase Price for Shares. All shares of Series C
Preferred Stock to be sold to Investor pursuant to this Agreement are
hereinafter referred to collectively as the "Shares." The aggregate purchase
price for the Shares shall be Thirty Million dollars ($30,000,000). The parties
acknowledge that Investor has previously paid to the Company the sum of Two
Million dollars ($2,000,000) (the "Deposit") pursuant to that certain Memorandum
of Terms for a Strategic Investment in Accelerated Networks, Inc. (the
"Memorandum of Terms") dated February 5, 1999 between the Company and Investor.
The Deposit shall be applied to the aggregate purchase price, and Investor shall
pay Twenty-Eight Million dollars ($28,000,000) to the Company by way of wire
transfer of immediately available funds.

2. CLOSING DATE; DELIVERY

2.1 The Closing. The purchase and sale of the Shares pursuant to
Paragraph 1.2(a) shall be held at the offices of Brobeck, Phleger & Harrison LLP
in Irvine, California, on March 7, 1999, or at such other time and place prior
to March 7, 1999 as the Company and Investor may mutually agree upon in writing
(the "Closing").

2.2 Delivery. The Company will deliver to Investor a certificate
representing the shares to be purchased by Investor against payment of the
amount required by Section 1.2(b).

<PAGE> 7

3. COMPANY REPRESENTATIONS AND WARRANTIES

The Company hereby represents and warrants to Investor that, except as
set forth in the Schedule of Exceptions ("Schedule of Exceptions") attached to
this Agreement as Exhibit C (which Schedule of Exceptions shall be deemed to be
representations and warranties to Investor), the statements in the following
paragraphs of this Section 3 are all true and correct:

3.1 Organization and Standing. The Company is a corporation duly
organized and validly existing under, and by virtue of, the laws of the State of
California, and is in good standing under such laws. The Company has all
corporate power and authority to own, lease and operate its properties and to
conduct its business as currently conducted and as proposed to be conducted. The
Company is qualified to do business as a foreign corporation in each
jurisdiction in which the conduct of its business requires such qualification
except where failure to be so qualified would have a material adverse effect on
its financial condition, business or operations. The Company has made available
to Investor true, correct and complete copies of its Articles of Incorporation
and Bylaws.

3.2 Capitalization. Immediately prior to the Closing (and after the
filing of the Restated Articles with the California Secretary of State), the
authorized capital stock of the Company will consist of (i) Seventy-Five Million
(75,000,000) shares of Common Stock, of which Nine Million Three Hundred
Twenty-Five Thousand (9,325,000 ) shares are issued and outstanding, and (ii)
Thirty-One Million Nine Hundred Forty-Five Thousand Six Hundred Forty-Eight
(31,945,648) shares of Preferred Stock, of which (A) Eleven Million Five Hundred
Thousand (11,500,000) shares have been designated Series A Preferred Stock,
Eleven Million Two Hundred Twenty Thousand (11,220,000) of which shares are
issued and outstanding, (B) Eleven Million Six Hundred Thousand (11,600,000)
shares have been designated Series B Preferred Stock, Eleven Million Five
Hundred Eighty-Four Thousand Eight Hundred Forty-Eight (11,584,848) of which
shares are issued and outstanding and (C) Eight Million Eight Hundred Forty-Five
Thousand Six Hundred Forty-Eight (8,845,648) shares have been designated Series
C Preferred Stock, all of which may be sold to Investor pursuant to this
Agreement. The Company has reserved Eight Million Eight Hundred Forty-Five
Thousand Six Hundred Forty-Eight (8,845,648) additional shares of its Common
Stock for possible issuance upon the conversion of the Shares (the "Conversion
Shares"). After the filing of the Restated Articles with the California
Secretary of State, except for (i) the conversion privileges of the Shares, the
Company's Series A Preferred Stock and the Company's Series B Preferred Stock,
(ii) the rights provided in the Restated Investors' Rights Agreement dated as of
May 15, 1998, among the Company and certain of its shareholders, as amended by
an amendment (the "Investors' Rights Amendment") in the form attached hereto as
Exhibit B (as so amended, the "Investors' Rights Agreement"), and (iii) the Six
Million (6,000,000) shares of Common Stock authorized for issuance under the
Company's 1997 Stock Option/Stock Issuance Plan (the "Plan"), of which Two
Million Four Hundred Twenty-Five Thousand (2,425,000) shares have been issued
and are outstanding pursuant to the exercise of options and Two Million Six
Thousand Seven Hundred Twenty (2,006,720) shares are issuable upon exercise of
outstanding options, there are no options, warrants, conversion privileges or
other rights, or agreements with respect to the issuance thereof, presently
outstanding to purchase any of the capital stock of the Company. All shares are
duly authorized, validly issued, fully paid and nonassessable and have been
issued by the Company in compliance with the registration requirements of
securities laws. Apart from the

2
<PAGE> 8

exceptions noted in this Paragraph 3.2, no shares of the Company's outstanding
capital stock, or stock issuable upon exercise or exchange of any outstanding
options or other stock issuable by the Company, are subject to any rights of
first refusal or other rights to purchase such stock (whether in favor of the
Company or any other person), pursuant to any agreement or commitment of the
Company. Attached to this Agreement as Exhibit E is a complete list of all
outstanding shareholders, option holders and other security holders of the
Company as of the time immediately prior to the Closing (and after the filing of
the Restated Articles with the California Secretary of State, other than option
exercises which may occur between the date hereof and the Closing).

3.4 Due Authorization. All corporate action on the part of the Company,
its officers, directors and shareholders, necessary for the sale and issuance of
the Shares and the Conversion Shares and the performance of the Company's
obligations under this Agreement, the Investors' Rights Agreement and the Voting
Agreement (as defined herein) has been taken or will be taken prior to the
Closing. This Agreement and the Investors' Rights Agreement are valid and
binding obligations of the Company enforceable against the Company in accordance
with their terms, subject, as to enforcement of remedies, to applicable
bankruptcy, insolvency, moratorium, reorganization and similar laws affecting
creditors' rights generally and to general equitable principles. The Shares are
not subject to any preemptive rights or rights of first refusal pursuant to any
agreement or commitment of the Company. The execution, delivery and performance
by the Company of this Agreement and compliance herewith and the sale and
issuance of the Shares and Common Stock issuable upon conversion of the Shares
will not result in any violation of and will not conflict with, or result in a
breach of any of the terms of, or constitute a default under, any provision of
state or federal law to which the Company is subject, the Company's Articles of
Incorporation or Bylaws, each as amended, or any provision of any mortgage,
indenture, agreement, instrument, judgment, decree, order, rule or regulation or
other restriction to which the Company is a party or by which it is bound, the
breach of or default under which would have a material adverse effect upon the
business or operations of the Company, or result in the creation of any
mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of the Company pursuant to any such term; provided, however, that the
Shares (and the Common Stock issuable upon conversion thereof) may be subject to
restrictions on transfer under state and/or federal securities laws. The shares
of Common Stock issuable upon conversion of the Shares have been duly and
validly reserved and are not subject to any preemptive rights or rights of first
refusal and, upon issuance, will be validly issued, fully paid and
nonassessable.

3.5 Valid Issuance of Stock. The outstanding capital stock of the
Company are, and the Shares, when issued, sold and delivered in accordance with
the terms of this Agreement for the consideration provided for herein, will be,
duly and validly issued, fully paid and nonassessable and are and will be free
of any liens or encumbrances created by the Company. The Conversion Shares have
been duly and validly reserved for issuance, are not subject to any preemptive
rights or rights of first refusals and upon issuance in accordance with the
terms of the Restated Articles, will be duly and validly issued, fully paid and
nonassessable.

3
<PAGE> 9

3.6 Financial Statements; Absence of Changes. The Company has made
available to Investor its audited financial statements at December 31, 1997 and
for the fiscal year then ended, its unaudited financial statements at December
31, 1998 and for the fiscal year then ended (each dated February 22, 1999) and
its unaudited interim financial statements at January 29, 1999 and for the one
month period then ended (each dated February 22, 1999) (collectively, the
"Financial Statements"). Except that the unaudited interim Financial Statements
do not contain footnotes and are subject to normal year end adjustments, the
Financial Statements (i) are complete and correct in all material respects and
(ii) accurately set out and describe in all material respects the financial
condition and operating results of the Company as of the dates, and for the
periods, indicated therein. Except as set forth in the Financial Statements, the
Company has no liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to January 29, 1999 and
(ii) obligations under contracts and commitments incurred in the ordinary course
of business, which, in both cases, are not individually or in the aggregate in
excess of $300,000 or otherwise material to the financial condition or operating
results of the Company. The audited financial statements, which will be
available following the Closing, will not be different in any material respect
from the unaudited Financial Statements at December 31, 1998 and for the fiscal
year then ended. Since January 29, 1999, there has not been (i) any sale,
assignment or transfer of any patents, trademarks, copyrights, trade secrets or
other intangible assets owned by the Company; (ii) any resignation or
termination of employment of any key officer of the Company; (iii) any mortgage,
pledge, transfer of a security interest in, or lien, created by the Company,
with respect to any of its material properties or assets, except liens for taxes
not yet due or payable; (iv) any loans or guarantees made by the Company to or
for the benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business; (v) any declaration, setting aside or payment
or other distribution in respect of any of the Company's capital stock, or any
direct or indirect redemption, purchase or other acquisition of any of such
stock by the Company; or (vi) any other event or condition of any character
which is reasonably likely to materially and adversely affect the assets,
financial condition, properties, operating results or business of the Company.

4
<PAGE> 10

or bound by any options, licenses or agreements with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information, proprietary rights and processes of any other person or entity.
Neither the Company; nor to its knowledge any of its employees, has received any
communications alleging that the Company has violated or, by conducting its
business as proposed, would violate any of the patents, trademarks, service
marks, trade names, copyrights or trade secrets or other proprietary rights of
any other person or entity. The Company warrants that to the actual knowledge of
its executive officers, no employee of the Company is obligated under any
contract (including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would conflict with his obligation to use his best
efforts to promote the interests of the Company or that would conflict with the
Company's business. Reasonable security measures have been taken to protect the
secrecy, confidentiality and value of the proprietary information referred to in
this Section 3.8.

3.9 Material Contracts and Obligations. The Company has made available
to counsel for Investor accurate copies of all agreements, contracts, leases,
licenses, instruments, commitments, indebtedness, liabilities and other
obligations, written or to the knowledge of the Company, oral, absolute or
contingent, to which the Company is a party or by which it is bound that are (i)
material to the conduct and operations of its business and properties; (ii)
involve any of the officers, consultants, directors, employees or shareholders
of the Company; or (iii) obligate the Company to share, license or develop any
product or technology (except licensing agreements entered into by the Company
in the ordinary course of its business). All employees of the Company have
executed a "Proprietary Information and Inventions Agreement" concerning
non-disclosure of confidential information and assignment of inventions to the
Company in a form previously delivered to counsel for Investor. For purposes of
this Paragraph 3.9, "material" shall mean any agreement, contract, indebtedness,
liability or other obligation committing either party in an amount in excess of
$50,000.

3.11 Governmental Consents. Except for filings of (i) the Restated
Articles of Incorporation of the Company with the Secretary of the State of
California and (ii) notices required or permitted to be filed with certain
federal and state securities commissions (which the Company agrees to timely
file), no consents, approvals, orders, authorizations or registrations,
qualifications, designations, declarations or filings with any federal or state
governmental authority on the part of the Company is required in connection with
the valid execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated herein. Based in part on the
representations of Investor set forth in Paragraph 4 below, the offer, sale and
issuance of the Shares in conformity with the terms of this Agreement are exempt
from the registration and prospectus delivery requirements of the Securities Act
of 1933, as amended

5
<PAGE> 11

(the "Securities Act"), and have been qualified or are exempt from
qualifications under all applicable state securities qualification requirements.

3.13 Compliance with Other Instruments. The Company is not in violation,
breach or default of any term of its Articles of Incorporation or Bylaws or, in
any material respect, of any term or provision of any mortgage, indenture,
contract, agreement or instrument to which the Company is a party or by which it
may be bound, or of any provision of any foreign or domestic state or federal
judgment, decree, order, statute, rule or regulation applicable and material to
the Company. The execution, delivery and performance of, and compliance with,
this Agreement and the consummation of the transactions contemplated hereby will
not result in any such. violation or default, or be in conflict with or
constitute, with or without the passage of time or the giving of notice or both,
(i) a default under the Company's Articles of Incorporation or Bylaws, or under
any agreement or contract of the Company, (ii) to the Company's knowledge, a
violation of any statutes, laws, regulations or orders, or (iii) an event which
results in the creation of any lien, charge or encumbrance upon any asset of the
Company.

3.14 Disclosure. No representation or warranty by the Company in this
Agreement or in any written statement or certificate signed by the President of
the Company furnished pursuant to this Agreement contains or will contain any
untrue statement of a material fact, or omits to state a material fact, in each
case which would cause the statements made herein or therein in the light of the
circumstances under which they were made to be materially misleading. The minute
books of the Company provided to the Investor contain complete and accurate
records of all meetings and other corporate actions of its shareholders and its
Board of Directors and committees thereof. The stock ledger of the Company is
complete and accurate and reflects all issuances, transfers, repurchases and
cancellations of shares of capital stock of the Company. The Company believes in
good faith that the assumptions made by the Company in preparing the 1999
Business Plan and any financial projections previously provided to Investor were
reasonable when made.

3.15 Registration Rights. Except as provided in the Investors' Rights
Agreement, the Company has not granted or agreed to grant any person or entity
any rights (including piggy-back registration rights) to have any securities of
the Company registered with the United States Securities and Exchange Commission
("SEC") or any other governmental authority.

3.17 Tax Elections. The Company has not elected pursuant to the Internal
Revenue Code of 1986, as amended (the "Code"), to be treated as a Subchapter S
corporation or

6
<PAGE> 12

collapsible corporation pursuant to Section 1362(a) or Section 341(f) of the
Code, nor has it made any other elections pursuant to the Code (other than
elections which relate solely to matters of accounting, depreciation or
amortization) which would have a material adverse affect on the Company, its
financial condition, its business as presently conducted or presently proposed
to be conducted or any of its properties or material assets.

3.18 Shareholders, Directors and Officers. To the actual knowledge of
the Company's executive officers and without any inquiry of any of the following
individuals, none of the officers or directors or significant employees or
consultants of the Company, has, individually or collectively, a material
interest in any entity which is a competitor, customer or supplier of (or has
any existing contractual relationship with) the Company, other than holdings of
less than 1% of publicly-held entities.

3.19 Employees. To the Company's knowledge, no employee of the Company
is in violation of any term of any employment contract, patent disclosure
agreement, non-competition agreement, or any restrictive covenant to a former
employer relating to the right of any such employee to be employed by the
Company because of the nature of the business conducted or presently proposed to
be conducted by the Company or to the use of trade secrets or proprietary
information of others. There is neither pending nor, to the Company's knowledge,
threatened any actions, suits, proceedings or claims, or to its knowledge any
basis therefor or threat thereof, with respect to any contract, agreement,
covenant or obligation referred to in the preceding sentence. The Company does
not have any collective bargaining agreement covering any of its employees. No
employee of the Company has an employment agreement or a severance arrangement
with the Company and such employees are employed on an "at will" basis.

3.20 Permits. To the Company's knowledge, the Company has such material
permits, licenses, franchises, authorizations and clearances of governmental or
regulatory authorities ("Permits") as are necessary to own its properties and to
conduct its business as presently conducted. The Company has fulfilled and
performed all its material obligations with respect to its Permits, and no event
has occurred that allows or would allow revocation or termination thereof or
results or would result in any other material impairment of the rights of the
Company.

3.21 Employee Benefit Plans. To the Company's knowledge, the Company is
and has been in compliance with all applicable laws, rules and regulations
relating to employment and employment practices, terms and conditions of
employment, wages and hours and the provisions of all laws or rules or
regulations applicable to any employee benefit compensation, stock option or
other similar plan, maintained or contributed to by it for the benefit of its
employees, the failure of which would have a material adverse effect on the
Company and its financial position. There are no claims (other than routine
claims for benefits) pending or threatened with respect to any of such plans or
arrangements.

3.22 Year 2000 Compliance.

To the Company's knowledge, (a) all Calendar-Related processing by its
products of Date Data or of any System Date will not cause its products to cease
to operate substantially in accordance with their specifications, (b) all data
fields for the Date Data contained in its products are four-digit fields capable
of indicating century and millennium, and (c) no change in the

7
<PAGE> 13

System Date (including the change from the year 1999 to the year 2000) will
cause its products to cease to operate substantially in accordance with their
specifications. Notwithstanding any provision to the contrary set forth in this
Agreement, the Company makes no representation or warranty with respect to its
products operating in conjunction with any computer software, computer firmware,
computer hardware, or any combination of the foregoing supplied by third
parties. As used in this Section 3.22, the following terms shall have the
meanings set forth below:

"Calendar-Related" refers to date values based on the Gregorian calendar
as defined in Encyclopedia Britannica, 15th edition, 1982, page 602, and
to all uses of those date values described in the Company's product
specifications.

"Date Data" means any Calendar-Related data in the inclusive range
January 1, 1900 through December 31, 2050 that the Company's products
use in any manner.

"System Date" means any Calendar-Related date value in the inclusive
range from January 1, 1985 through December 31, 2035 (including the
transition between such values) that the Company's products will be able
to use as their current date while operating.

4. REPRESENTATIONS AND WARRANTIES OF INVESTOR

Investor represents and warrants to the Company as follows:

4.1 Due Authorization. All corporate action on the part of Investor, and
its officers, directors, partners and shareholders, necessary for the purchase
of the Shares and the performance of Investor's obligations under this
Agreement, the Investors' Rights Agreement and the Voting Agreement (as defined
herein) has been taken or will be taken prior to the Closing. This Agreement and
the Investors' Rights Agreement are valid and binding obligations of Investor
enforceable in accordance with their terms, subject, as to enforcement of
remedies, to applicable bankruptcy, insolvency, moratorium, reorganization and
similar laws affecting creditors' rights generally and to general equitable
principles.

4.2 Investigation. Investor acknowledges that it has had an opportunity
to discuss the business, affairs and current prospects of the Company with the
Company's officers. Investor further acknowledges having had access to
information about the Company that it has requested or considers necessary for
purposes of purchasing the Shares.

4.3 Purchase for Own Account. The Shares that Investor will purchase
hereunder and the Conversion Shares issuable upon conversion of such Shares will
be acquired by such Investor, not as a nominee or agent, and not with a view to
or in connection with the distribution of any part thereof within the meaning of
the Securities Act. Investor is an "accredited investor" within the meaning of
Regulation D of the Securities Act.

4.4 Exempt from Registration. Investor understands that the Shares and
the Conversion Shares (collectively, the "Securities") will not be registered
under the Securities Act, on the ground that the sale provided for in this
Agreement is exempt from registration under the

8
<PAGE> 14

Securities Act, and that the reliance of the Company on such exemption is
predicated in part on Investor's representations set forth in this Agreement.

4.5 Economic Risk. Investor acknowledges that it is experienced in
evaluating and investing in securities of companies in the development stage and
acknowledges that it is able to fend for itself in the transactions contemplated
by this Agreement and has the ability to bear the economic risks of its
investment pursuant to this Agreement.

4.6 Restricted Securities. Investor understands that the Securities may
not be sold, transferred, or otherwise disposed of without registration under
the Securities Act or an exemption therefrom, and that, in the absence of an
effective registration statement covering the Securities or an available
exemption from registration under the Securities Act, the Securities must be
held indefinitely. In particular, Investor is aware that the Securities may not
be sold pursuant to Rule 144 promulgated under the Securities Act unless (i)
adequate information concerning the Company is then available to the public,
(ii) such Investor has held the Securities for the applicable holding period
specified in Rule 144 and (iii) all other terms and conditions of Rule 144 are
satisfied.

"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS. THEY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH
RESPECT TO SUCH SECURITIES, THE AVAILABILITY OF CERTAIN EXEMPTIONS FROM
SUCH REGISTRATION REQUIREMENTS, OR DELIVERY OF AN OPINION OF COUNSEL
SATISFACTORY TO THE ISSUER OF SUCH SECURITIES THAT SUCH OFFER, SALE,
TRANSFER, PLEDGE OR HYPOTHECATION IS IN FULL COMPLIANCE WITH THE
SECURITIES ACT OF 1933, AS AMENDED."

"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS SET FORTH IN THAT CERTAIN RESTATED INVESTORS' RIGHTS
AGREEMENT, AS AMENDED, AND THAT CERTAIN AMENDED AND RESTATED VOTING
AGREEMENT, AS AMENDED, COPIES OF WHICH MAY BE OBTAINED BY THE HOLDER,
UPON REQUEST AND WITHOUT CHARGE, AT THE PRINCIPAL OFFICE OF THE
CORPORATION."

4.8 Further Limitations on Disposition. Without in any way limiting the
representations set forth above, Investor further agrees not to make any
disposition of all or any

9
<PAGE> 15

portion of the Shares or Conversion Shares unless and until the transferee has
agreed in writing for the benefit of the Company to be bound by this Section 4,
the Investors' Rights Agreement and the Voting Agreement; provided, and to the
extent, this Section and such agreements are then applicable, and:

(a) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement; or

(b) (i) Investor shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and (ii) if reasonably
requested by the Company, Investor shall have furnished the Company with an
opinion of counsel, reasonably satisfactory to the Company that such disposition
will not require registration of such shares under the Securities Act. It is
agreed that the Company will not require opinions of counsel from Investor for
transactions made pursuant to Rule 144 under the Securities Act except in
unusual circumstances and will not require opinions of counsel in transactions
involving the transfer or distribution of the Shares by Investor to any direct
or indirect subsidiary, parent or affiliate of Investor.

4.9 Governmental Consents. All consents, approvals, orders,
authorizations or registrations, qualifications, designations, declarations or
filings with any U.S., federal or state governmental authority on the part of
Investor required in connection with the consummation of the transactions
contemplated herein shall have been obtained prior to and be effective as of the
Closing.

4.10 Third Party Consents. All third party consents, approvals, orders
or authorizations required to be obtained by Investor in connection with the
consummation of the transactions contemplated herein have been obtained.

5. CONDITIONS TO INVESTOR'S OBLIGATIONS AT THE CLOSING

The obligation of Investor to purchase the Shares at the Closing is
subject to the fulfillment to the satisfaction of Investor on or prior to the
Closing of the following conditions:

5.3 Amendment to Articles and Bylaws. The Restated Articles shall have
been duly adopted by the Company by all necessary corporate action of its Board
of Directors and shareholders and shall have been duly filed with and accepted
by the California Secretary of

10
<PAGE> 16

State. The Company's bylaws shall have been amended to provide that the
Company's Board of Directors shall be comprised of not less than 5 nor more than
8 directors.

5.4 Opinion of Company's Counsel. Investor shall have received from
counsel to the Company, an opinion, in substantially the form attached hereto as
Exhibit F addressed to Investor, dated the date of Closing.

5.5 Compliance Certificate. At the Closing there shall have been
delivered to Investor a certificate, dated as of such date of Closing, signed by
the Company's President certifying that the conditions specified in Paragraphs
5.1 and 5.2 of this Agreement have been fulfilled.

5.6 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated at the Closing hereby and all
documents and instruments incident to such transactions shall be satisfactory in
substance and form to Investor, and Investor shall have received all such
counterpart originals or certified or other copies of such documents as Investor
may reasonably request.

5.7 Investors' Rights Agreement. The required parties shall have
executed the Investors' Rights Amendment, and the Investors' Rights Agreement
shall be in full force and effect.

5.8 Voting Agreement. The required parties shall have executed an
Amended and Restated Voting Agreement dated as of February 24, 1999 among the
Company and certain of its shareholders (the "Voting Agreement") in
substantially the form attached hereto as Exhibit D, and the Voting Agreement
shall be in full force and effect.

5.9 Authorizations. All authorizations, approvals or permits, if any, of
any governmental authority or regulatory body (including, without limitation,
federal and state securities commissions) that are required in connection with
the lawful issuance and sales of the Shares pursuant to this Agreement shall
have been duly obtained and shall be effective on and as of the Closing.

5.10 Approval of the Managing Board of Siemens. The purchase of the
Company's Series C Preferred Stock pursuant to this Agreement shall have been
approved by the Managing Board of Directors of Siemens AG, and Investor shall
have obtained all other necessary board approvals.

5.11 No Material and Adverse Matters Discovered. There shall have been
no material adverse change in the business, prospects, condition, affairs or
operations of the Company or in any of its properties or assets, or in any
material impairment of the right or ability of the Company to carry on its
business as now conducted and as proposed to be conducted.

6. CONDITIONS TO COMPANY'S OBLIGATIONS AT THE CLOSING

The obligations of the Company under this Agreement are subject to the
fulfillment at or before the Closing of the following conditions:

11
<PAGE> 17

6.1 Representations and Warranties. The representations and warranties
of Investor contained in Section 4 hereof shall be true as of the Closing with
the same force and effect as if they had been made on and as of said date,
subject to changes contemplated by this Agreement.

6.2 Payment of Purchase Price. Investor shall have delivered to the
Company the remaining purchase price for the Shares as set forth in Section 1.2
(b) hereof.

6.4 Investors' Rights Agreement. The required parties shall have
executed the Investors' Rights Amendment, and the Investors' Rights Agreement
shall be in full force and effect.

6.5 Voting Agreement. The required parties shall have executed the
Voting Agreement, and the Voting Agreement shall be in full force and effect.

6.6 Board of Directors Approval. The Company's Board of Directors and
shareholders shall have approved the sale of the Company's Series C Preferred
Stock pursuant to this Agreement.

7. MISCELLANEOUS

7.1 Governing Law. This Agreement shall be governed in all respects by
the laws of the State of California as applied to agreements among California
residents entered into and to be performed entirely within California, without
regard to the conflict of law provisions thereof. All unresolved disputes
arising under this Agreement shall be submitted to, and resolved exclusively by,
arbitration to be held in Los Angeles County, California. The arbitration shall
be conducted under the then-prevailing rules of the American Arbitration
Association. The award of the arbitrator shall be binding and may be entered as
a judgment in any court of competent jurisdiction. Each party shall bear the
cost of preparing and presenting its case. The costs of the arbitration,
including the fees and expenses of the arbitrator, will be paid by the
non-prevailing party, as determined by the arbitrator. This provision shall not
be construed to prohibit either party from seeking preliminary or permanent
injunctive relief in any court of competent jurisdiction

7.3 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the respective successors and assigns of the parties hereto. Investor may
assign its rights and obligations under this Agreement to any affiliate or
subsidiary of Investor. Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.

12
<PAGE> 18

7.4 Entire Agreement. Except for the Memorandum of Terms and all
obligations thereunder, which shall be unaffected by this Agreement and which
shall remain in full force and effect until the Closing of this Agreement, this
Agreement and the other documents and agreements referred to herein, constitute
the entire understanding and agreement between the parties with regard to the
subject matter hereof.

7.5 Notices. Except as otherwise provided, all notices and other
communications required or permitted hereunder shall be in writing, shall be
effective when given, and shall in any event be deemed to be given upon receipt
or, if earlier, (i) five (5) days after deposit with the U.S. postal service or
other applicable postal service, if delivered by first class mail, postage
prepaid, (ii) upon delivery, if delivered by hand, (iii) one (1) business day
after the day of deposit with Federal Express or similar overnight courier,
freight prepaid, if delivered by overnight courier or (iv) one (1) business day
after the day of facsimile transmission, if delivered by facsimile transmission
with copy by first class mail, postage prepaid, and shall be addressed, (a) if
to Investor, at Investor's address set forth below its signature, or at such
other address as such Investor shall have furnished the Company in writing, or
(b) if to the Company, at its address as set forth below, or at such other
address as the Company shall have furnished to Investor in writing.

7.6 Amendments and Waivers. This Agreement and any term hereof may be
amended, waived, discharged or terminated by a written instrument signed by the
Company and holders of sixty-six and sixty-six hundredths percent (66.66 %) or
more of the shares of Common Stock issued or issuable upon conversion of the
Series C Preferred Stock issued under this Agreement. In no event shall the
obligation of any Investor to purchase shares hereunder be increased, except
upon the written consent of such Investor.

7.7 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to the Company or to Investor upon a breach or default
of any party hereto under this Agreement shall impair any such right, power or
remedy of the Company or Investor, nor shall it be construed to be a waiver of
any such breach or default, or an acquiescence therein, or of any similar breach
or default thereafter occurring. Any waiver, permit, consent or approval of any
kind or character on the part of the Company or Investor of a breach or default
under this Agreement, or any waiver on the part of the Company or Investor of
any provisions or conditions of this Agreement, must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to the
Company or Investor, shall be cumulative and not alternative.

7.8 Each Party to Bear Own Costs. Except as otherwise provided in
Section 7.10, each of the parties shall pay all costs and expenses incurred or
to be incurred by it in negotiating and preparing this Agreement and in closing
and carrying out the transactions contemplated by this Agreement.
Notwithstanding the foregoing, promptly after the Closing (and only if (i) this
Agreement is executed on or prior to February 24, 1999, (ii) the Investor is
prepared to consummate the Closing on or before March 1, 1999, and (iii) the
Closing actually is consummated), the Company shall reimburse the Investor up to
$15,000 for the reasonable fees and expenses of one special counsel to the
Investor.

13
<PAGE> 19

7.9 Third Parties. Nothing in this Agreement, whether express or
implied, is intended to confer any rights or remedies under or by reason of this
Agreement on any persons other than the parties to it and their respective
successors and assigns, nor is anything in this Agreement intended to relieve or
discharge the obligation or liability of any third person to any party to this
Agreement, nor shall any provision give any third persons any right of
subrogation or action against any party to this Agreement.

7.10 Finder's Fees.

(a) The Company hereby agrees to indemnify and to hold Investor harmless
of and from any liability for commission or compensation in the nature of a
finder's fee of any broker or other person or firm (and the costs and expenses
of defending against such liability or asserted liability) for which the
Company, or any of its employees or representatives, is responsible.

(b) Investor hereby agrees to indemnify and to hold the Company harmless
of and from any liability for any commission or compensation in the nature of a
finder's fee to any broker or other person or firm (and the costs and expenses
of defending against such liability or asserted liability) for which such
Investor, or any of its employees or representatives, is responsible.

7.11 Titles and Subtitles. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.

7.12 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.

7.13 Severability. Should any provision of this Agreement be determined
to be illegal or unenforceable, such determination shall not affect the
remaining provisions of this Agreement.

7.14 Confidentiality. Each of the parties hereto agree that, except with
the prior written permission of the other party, it shall at all times keep
confidential and not divulge, furnish, or make accessible to anyone any
confidential information, knowledge, or data concerning or relating to the
business or financial affairs of the other party to which said party has been or
shall become privy by reason of this Agreement, the Voting Agreement,
discussions or negotiations relating to this Agreement, or the performance of
its obligations hereunder; provided, the foregoing restrictions shall not apply
to any information, knowledge or data which (a) is already in the public domain
at the time of disclosure or becomes publicly available through no breach of
this provision by said party; (b) was lawfully in said party's possession prior
to receipt from the other party without obligation of confidentiality; (c) is
received independently from a third party free to lawfully disclose such
information to said party; (d) is subsequently independently developed by said
party; or (e) is required to be disclosed by court order or applicable law.

14
<PAGE> 20

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year hereinabove first written.

THE COMPANY:

ACCELERATED NETWORKS, INC.

By: /s/ SURESH NIHALANI
------------------------------------------
Suresh Nihalani, President

Address: 301 Science Drive
Moorpark, CA 93021

INVESTOR:

SIEMENS AG

By: /s/ THOMAS RAMBOLD
------------------------------------------
Name & Title: Thomas Rambold, President

By: /s/ KARL-JAUCHIM VEIGEL
------------------------------------------
Name & Title: Karl-Jauchim Veigel, CFO

Address: Hofmannstrasse 51, D-81359
Munich, Germany
Attention: Helmut Hoffman

<PAGE> 1

EXHIBIT 21.1

SUBSIDIARIES OF THE REGISTRANT

Accelerated Network (India) Private Limited - incorporated under the laws of
India

Accelerated Networks International Limited - incorporated under the laws of the
Republic of Mauritius

<PAGE> 1

EXHIBIT 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in this Registration Statement on Form S-1 of
our reports dated February 28, 2000 relating to the consolidated financial
statements of Accelerated Networks, Inc. which appear in such Registration
Statement. We also consent to the references to us under the headings "Experts"
in such Registration Statement.

PricewaterhouseCoopers LLP

Woodland Hills, CA
March 2, 2000

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACCELERATED
NETWORK'S CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998 AND 1999 AND
FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED DECEMBER 31, 1998 AND 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS

<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 DEC-31-1999
<EXCHANGE-RATE> 1 1
<CASH> 3,507 15,207
<SECURITIES> 0 0
<RECEIVABLES> 0 4,491
<ALLOWANCES> 0 (110)
<INVENTORY> 0 3,811
<CURRENT-ASSETS> 9,963 23,695
<PP&E> 1,656 6,196
<DEPRECIATION> (328) (1,356)
<TOTAL-ASSETS> 11,291 28,678
<CURRENT-LIABILITIES> 2,166 5,454
<BONDS> 0 0
19,918 49,857
0 0
<COMMON> 176 579
<OTHER-SE> (11,181) (29,144)
<TOTAL-LIABILITY-AND-EQUITY> 11,291 28,678
<SALES> 0 8,466
<TOTAL-REVENUES> 0 8,466
<CGS> 0 6,312
<TOTAL-COSTS> 0 6,312
<OTHER-EXPENSES> 10,163 24,411
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 41 100
<INCOME-PRETAX> (9,710) (21,226)
<INCOME-TAX> 1 1
<INCOME-CONTINUING> (9,711) (21,227)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (9,711) (21,227)
<EPS-BASIC> (2.00) (3.29)
<EPS-DILUTED> (2.00) (3.29)

</TABLE>