AMATI COMMUNICATIONS CORP, PREM14C, 1998-01-23

AMATI COMMUNICATIONS CORP
PREM14C, 1998-01-23
COMPUTER COMMUNICATIONS EQUIPMENT

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<PAGE> 1
PRELIMINARY COPIES

SCHEDULE 14C
INFORMATION REQUIRED IN INFORMATION STATEMENT

SCHEDULE 14C INFORMATION

INFORMATION STATEMENT PURSUANT TO SECTION 14(c)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Amendment No. )

Check the appropriate box:

/X/ Preliminary Information Statement / / Confidential, for Use of
the Commission Only (as
permitted by Rule
14c-5(d)(2))
/ / Definitive Information Statement

AMATI COMMUNICATIONS CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)

Payment of filing fee (Check the appropriate box):

/ / No Fee required

/X/ Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.

(1) Title of each class of securities to which transaction applies:

COMMON STOCK, PAR VALUE $0.20 PER SHARE
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:

4,478,597 SHARES OF COMMON STOCK
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rules 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):

$20.00 per share of Common Stock
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:

$89,571,940.00
- --------------------------------------------------------------------------------
(5) Total fee paid:

$17,914.39
- --------------------------------------------------------------------------------

/ / Fee paid previously with preliminary materials.

/X/ Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

$99,940.21
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:

SCHEDULE 14D-1
- --------------------------------------------------------------------------------
(3) Filing Party:
Texas Instruments Incorporated
DSL Acquisition Corporation
- --------------------------------------------------------------------------------
(4) Date Filed:

November 25, 1997
- --------------------------------------------------------------------------------
<PAGE> 2

PRELIMINARY COPIES

AMATI COMMUNICATIONS CORPORATION
2043 SAMARITAN DRIVE
SAN JOSE, CALIFORNIA 95124

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 27, 1998

To the Stockholders of
Amati Communications Corporation:

A Special Meeting of Stockholders (the "Special Meeting") of Amati
Communications Corporation, a Delaware corporation (the "Company"), will be
held on February 27, 1998 at 10:00 a.m. (local time) at 100 Crescent Court,
Suite 1300, Dallas, Texas, for the following purposes:

1. To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger, dated as of November 19, 1997 (the "Merger
Agreement"), between the Company, DSL Acquisition Corporation, a Delaware
corporation ("Purchaser"), and Texas Instruments Incorporated, a Delaware
corporation ("Parent"), in connection with the proposed merger (the "Merger") of
Purchaser with and into the Company. As a result of the Merger, the Company
will become a wholly-owned subsidiary of Parent and each issued and outstanding
share of the Company's common stock, par value $0.20 per share (a "Share")
(other than those Shares owned by Parent, Purchaser or any other wholly-owned
subsidiary of Parent, or by stockholders who have validly perfected their
appraisal rights under Delaware law) will be converted into the right to
receive $20.00, in cash, without interest. The Merger and the Merger Agrement
are more fully described in the attached Information Statement which forms a
part of this notice.

2. To transact such other business as may properly come before the
meeting.

WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.

On November 18, 1997 the Board of Directors of the Company determined that
the Merger Agreement and the transactions contemplated thereby, including the
Offer (as defined below) and the Merger, are fair to and in the best interests
of the stockholders of the Company, and approved the Merger Agreement and the
transactions contemplated thereby, including the Offer and the Merger.

The Merger is the second step of a two-step transaction pursuant to
which Parent, as the owner of all of the capital stock of Purchaser, will
acquire the entire equity interest in the Company. The first step was a tender
offer for the outstanding Shares at $20.00 per Share net to the seller in cash
(the "Offer"). Purchaser acquired 15,290,381 Shares upon the consummation of
the Offer on December 24, 1997, representing approximately 77.3% of the issued
and outstanding Shares.

As a result of the consummation of the Offer, Purchaser has the right to
vote a sufficient number of outstanding Shares at the Special Meeting to approve
and adopt the Merger Agreement without the
<PAGE> 3

affirmative vote of any other holder of Shares, thereby assuring such approval
and adoption. Pursuant to the Merger Agreement, Purchaser is obligated to vote
the Shares owned by it in favor of approving and adopting the Merger Agreement.
THE COMPANY CURRENTLY ANTICIPATES THAT THE MERGER WILL BE CONSUMMATED ON
FEBRUARY 27, 1998, OR AS PROMPTLY AS PRACTICABLE THEREAFTER.

Under Delaware law, holders of Shares who do not vote to approve the Merger
Agreement and who otherwise strictly comply with applicable requirements of
Section 262 ("Section 262") of the General Corporation Law of the State of
Delaware may dissent from the Merger and demand payment in cash from the Company
of the fair value of their Shares. This notice constitutes notice of appraisal
rights to holders of Shares pursuant to Section 262. Holders of Shares who wish
to assert appraisal rights, if available, should comply with the procedures set
forth in Section 262 (a copy of which is attached as Annex II to the enclosed
Information Statement). Appraisal rights under Section 262 are also discussed in
the Information Statement under the heading "Appraisal Rights."

By Order of the Board of Directors,

TERESITA MEDEL
Secretary

February 6, 1998
San Jose, California

2
<PAGE> 4

PRELIMINARY COPIES

AMATI COMMUNICATIONS CORPORATION
2043 SAMARITAN DRIVE
SAN JOSE, CALIFORNIA 95124

--------------
INFORMATION STATEMENT

--------------
February 6, 1998
--------------

This Information Statement is being furnished by the Board of
Directors (hereinafter the "Board" or "Board of Directors") of Amati
Communications Corporation, a Delaware corporation (the "Company"), to the
holders of the outstanding shares of common stock, par value $0.20 per share
(the "Shares"), of the Company, in connection with the proposed merger (the
"Merger") of DSL Acquisition Corporation, a Delaware corporation ("Purchaser"),
with and into the Company pursuant to an Agreement and Plan of Merger, dated as
of November 19, 1997 (the "Merger Agreement"), by and among the Company,
Purchaser, and Texas Instruments Incorporated, a Delaware corporation
("Parent"), a copy of which is attached hereto as Annex I. As a result of the
Merger, the Company will become a wholly-owned subsidiary of Parent and each
issued and outstanding Share (other than those Shares owned by Parent,
Purchaser or any other wholly-owned subsidiary of Parent, or by stockholders
who have validly perfected their appraisal rights under Delaware law) will be
converted into the right to receive $20.00, in cash, without interest (the
"Merger Consideration").

This Information Statement accompanies a Notice of a Special Meeting
of Stockholders (the "Special Meeting") of the Company to be held on February
27, 1998, at which time the Company's stockholders will be asked to consider
and vote upon a proposal to approve and adopt the Merger Agreement and such
other business as may properly come before the meeting.

As a result of the consummation of Offer, Purchaser has the right to
vote a sufficient number of outstanding Shares at the Special Meeting to
approve and adopt the Merger Agreement without the affirmative vote of any
other holder of Shares, thereby assuring such approval and adoption. Pursuant
to the Merger Agreement, Purchaser is obligated to vote the Shares owned by it
in favor of approving and adopting the Merger Agreement. THE COMPANY CURRENTLY
ANTICIPATES THAT THE MERGER WILL BE CONSUMMATED ON FEBRUARY 27, 1998, OR AS
PROMPTLY AS PRACTICABLE THEREAFTER.

WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US
A PROXY.

This Information Statement is first being mailed to stockholders on or
about February 6, 1998.

This Information Statement is dated February 6, 1998.
<PAGE> 5

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

GENERAL; SPECIAL MEETING OF STOCKHOLDERS; REQUIRED VOTE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

PAYMENT FOR SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

APPRAISAL RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

THE MERGER AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

FINANCIAL ARRANGEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

CERTAIN PROJECTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

PRINCIPAL STOCKHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1

ANNEX I -- AGREEMENT AND PLAN OF MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1

ANNEX II -- SECTION 262 OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-1

ANNEX III -- OPINION OF DEUTSCHE MORGAN GRENFELL INC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-1
</TABLE>

i
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SUMMARY

The following is a summary of certain information contained elsewhere
in this Information Statement. Reference is made to, and this summary is
qualified in its entirety by, the more detailed information contained, or
incorporated by reference, in this Information Statement and the Annexes
hereto. Unless otherwise defined herein, capitalized terms used in this
summary have the respective meanings ascribed to them elsewhere in this
Information Statement.

STOCKHOLDERS OF THE COMPANY ARE URGED TO READ THIS INFORMATION
STATEMENT AND THE ANNEXES HERETO IN THEIR ENTIRETY. WE ARE NOT ASKING YOU FOR
A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.

THE COMPANIES

The Company. The Company is a leading developer of advanced
transmission equipment utilizing Discrete Multi-tone ("DMT") technology for the
Asymmetrical Digital Subscriber Line ("ADSL") and Very high-speed Digital
Subscriber Line ("VDSL") markets. The Company holds DMT, ADSL and VDSL patents
and has entered into agreements covering its technology with companies like
Alcatel, Analog Devices, Inc., Motorola, NEC, Northern Telecom, Siemens and
Parent. The Company's DMT/ADSL products were recently selected by British
Columbia Telephone, Canada for a proposed roll-out of the first standards based
commercial ADSL services for transmitting high-speed data over existing copper
phone lines, making internet access, interactive services, broadcast quality
video and video-on-demand realizable to subscribers. The Company is also a
provider of network connectivity systems for the internetworking and Original
Equipment Manufacturer markets. The Company's principal executive offices are
located at 2043 Samaritan Drive, San Jose, California, 95124. The telephone
number of the Company at such offices is 408-879-2000.

Purchaser. The Purchaser is a newly incorporated Delaware corporation
and a direct wholly- owned subsidiary of Parent. To date the Purchaser has not
conducted any business other than in connection with the Offer and the Merger.
The principal executive offices of the Purchaser are located at 13500 North
Central Expressway, P. O. Box 655474, Dallas, Texas 75265-5474. The
telephone number of Purchaser at such offices is (972) 995-2551.

Parent. Parent is a global semiconductor company and the world's
leading designer and supplier of digital signal processing solutions, the
engines driving the digitization of electronics. Headquartered in Dallas,
Texas, Parent's businesses also include calculators, productivity products,
controls and sensors, metallurgical materials and digital light processing
technologies. Parent has manufacturing or sales operations in more than 25
countries. The principal executive offices of Parent are located at 13500
North Central Expressway, P. O. Box 655474, Dallas, Texas 75265-5474. The
telephone number of Parent at such offices is (972) 995-2551.

GENERAL

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Parent, Purchaser or any other wholly-owned subsidiary of Parent, or by
stockholders who have validly perfected their appraisal rights under Delaware
law) will be converted into the right to receive the Merger Consideration
(i.e., $20.00 in cash), and the equity interest of all pre-Merger stockholders
in the Company will be terminated.

The Merger is the second step of a two-step transaction pursuant to
which Parent, as the owner of all of the capital stock of Purchaser, will
acquire the entire equity interest in the Company. The first step was the
Offer. Purchaser acquired 15,290,381 Shares upon the consummation of the Offer
on December 24, 1997, representing approximately 77.3% of the issued and
outstanding Shares.

Pursuant to the Merger Agreement, and effective upon the consummation
of the Offer, three of the five members of the Board of Directors of the
Company resigned as directors and three persons designated by Parent were
appointed as members of such Board of Directors.

SPECIAL MEETING OF STOCKHOLDERS; REQUIRED VOTE

A Special Meeting of Stockholders will be held on February 27, 1998,
at 10:00 a.m. (local time) at 100 Crescent Court, Suite 1300, Dallas, Texas
75201. At the Special Meeting, stockholders will be asked to consider and
vote upon a proposal to approve and adopt the Merger Agreement and such other
proposals as may be properly brought before the Special Meeting.

Under Delaware law and the Company's amended and restated certificate
of incorporation, the affirmative vote of a majority of the issued and
outstanding Shares is required to approve and adopt the Merger Agreement at the
Special Meeting. Only holders of record of Shares at the close of business on
February 4, 1998 (the "Record Date") are entitled to notice of and to vote at
the Special Meeting. At such date there were 19,768,978 Shares outstanding,
each of which will be entitled to one vote on each matter to be acted upon or
which may properly come before the Special Meeting.

As a result of the Offer, Purchaser was the holder of record of
15,290,381 Shares on the Record Date, constituting approximately 77.3% of the
19,768,978 Shares issued and outstanding on the Record Date. Pursuant to the
terms of the Merger Agreement, Purchaser is obligated to vote all such Shares
in favor of approving and adopting the Merger Agreement, which under Delaware
law and the Company's amended and restated certificate of incorporation will be
a sufficient number of Shares to approve and adopt the Merger Agreement without
the affirmative vote of any other holder of Shares, thereby assuring such
approval and adoption.

PAYMENT OF SHARES

Upon consummation of the Merger, the Company will make available to
ChaseMellon Shareholder Services, L.L.C., as paying agent (the "Paying Agent")
for the holders of record of Shares, as needed, the aggregate amount of cash to
be paid in respect of the Shares converted into the right to receive the Merger
Consideration pursuant to the Merger. Holders of record should use the Letter
of Transmittal to be provided under separate cover to effect the surrender of
certificates evidencing Shares in exchange for the Merger Consideration. All
certificates so surrendered will be cancelled. Upon consummation of the Merger
and surrender of a certificate evidencing Shares, together with a duly executed
Letter of Transmittal, the holder thereof will receive the Merger Consideration.
Any cash held by the Paying Agent that remains unclaimed by stockholders for one
year after the effective time

2
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of the Merger will be returned to the Company, as the surviving corporation
(the "Surviving Corporation") in the Merger, upon demand and thereafter
stockholders may look, subject to applicable abandoned property, escheat and
other similar laws, only to the Company for payment thereof.

A Letter of Transmittal will be sent to all stockholders of the Company
under separate cover. The Letter of Transmittal will advise such holder of the
terms of the Merger and the procedures for surrendering to the Paying Agent
certificates evidencing Shares in exchange for the Merger Consideration. See
"Payment for Shares."

APPRAISAL RIGHTS

Under Delaware law, holders of Shares who do not vote to approve the
Merger and who otherwise strictly comply with applicable requirements of the
General Corporation Law of the State of Delaware may dissent from the Merger
and demand payment in cash from the Company of the fair value of their Shares.
See "Appraisal Rights."

THE MERGER

Background of the Merger. For a description of the events leading up
to the approval of the Merger Agreement by the Board of Directors of the
Company, see "The Merger -- Background of the Offer and the Merger."

Approval of the Board of Directors. On November 18, 1997, the Board
of Directors of the Company (the "Board of Directors") determined that the
Merger Agreement and the transactions contemplated thereby, including the Offer
and the Merger, are fair to and in the best interests of the stockholders of
the Company, and approved the Merger Agreement and the transactions
contemplated thereby, including the Offer and the Merger. See "The Merger --
Background of the Offer and the Merger."

Interests of Certain Persons in the Merger. Prior to commencement of
the Offer, Parent entered into a retention agreement, dated as of November 19,
1997, with James E. Steenbergen, the Company's Chief Executive Officer,
President and Chief Financial Officer. See "The Merger -- Interests of Certain
Persons in the Merger -- Steenbergen Retention Agreement." In addition, Parent
entered into similar retention agreements on such date with Mr. Ronald Carlini,
the Company's Vice President of Corporate Development, and Mr. James D. Hood,
the Company's Vice President of Engineering. See "The Merger -- Interests of
Certain Persons in the Merger -- Other Retention Agreements."

Opinion of Financial Advisor. Deutsche Morgan Grenfell Inc. ("DMG"),
the Company's financial advisor, has delivered to the Company its written
opinion that, as of November 19, 1997, the cash consideration to be received by
the stockholders of the Company pursuant to the Offer and the Merger is fair
for such stockholders (other than Parent and its affiliates) from a financial
point of view. DMG was not requested to, and has not, updated its opinion.
The complete opinion of DMG which sets forth the assumptions made, matters
considered and limits of its review, is attached to this Information Statement
as Annex III and should be read in its entirety. See "The Merger -- Opinion of
Financial Advisor."

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Purpose of the Merger. The purpose of the Merger is to enable Parent,
through Purchaser, to acquire the remaining equity interest in the Company not
currently owned by Purchaser.

Conditions to the Merger. The Merger is subject to the satisfaction
of certain conditions. See "The Merger Agreement -- Conditions to the Merger."
Assuming the satisfaction of such conditions, it is expected that the Merger
will be consummated on February 27, 1998, or as promptly as practicable
thereafter.

Regulatory Matters. The waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), expired on
December 5, 1997. The Company is not aware of any federal, state or foreign
regulatory requirements that remain to be complied with in order to consummate
the Merger. See "The Merger -- Regulatory Matters."

Federal Income Tax Consequences of the Merger. The receipt of cash
pursuant to the Merger Agreement or the exercise of appraisal rights will be a
taxable transaction for federal income tax purposes. See "The Merger --
Certain Federal Income Tax Consequences of the Merger." Stockholders are urged
to consult their own tax advisors as to the particular tax consequences of the
Merger to them, including the applicability and the effect of federal, state,
local, foreign and other tax laws.

SELECTED FINANCIAL INFORMATION OF THE COMPANY

The selected financial information of the Company set forth below has
been derived from the audited financial statements and other financial
information of the Company. Such information should be read in conjunction
with the audited financial statements and other financial information of the
Company included elsewhere herein.

<TABLE>
<CAPTION>
Fiscal Years Ended Three Months Ended
----------------------------------------------------- -------------------------
July 31, July 30, July 29, July 27, August 2, November 2, November 1,
1993 1994 1995 1996 1997 1996 1997
------- -------- -------- -------- ------------ ----------- -----------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT
DATA:
Net Sales . . . . . . . . . $12,307 $ 8,236 $12,040 $ 12,085 $ 13,200 $ 4,513 $ 4,702
Income (Loss) before Income
Taxes . . . . . . . . . . . (5,963) 530 1,933 (34,035) (12,243) (746) (4,442)
Provision for Income Taxes -- 27 97 43 -- -- --
------- ------- ------- -------- -------- -------- ---------
Net Income (Loss) . . . . . $(5,963) $ 503 $ 1,836 $(34,078) $(12,243) $ (746) $ (4,442)
Net Income (Loss) Per Share (.46) .04 .16 (2.21) (.66) (.04) (.23)

SELECTED BALANCE SHEET
DATA:
Current Assets . . . . . . $11,188 $ 9,463 $ 7,793 $ 5,182 $ 9,282 -- $ 9,611
Current Liabilities . . . . 2,598 2,171 1,591 2,467 5,517 -- 10,206
Working Capital . . . . . . 8,590 7,292 6,202 2,715 3,765 -- (595)
Total Assets . . . . . . . 12,936 11,391 12,111 6,241 15,083 -- 15,579
Long-term Liabilities . . . 1,099 428 294 2,094 4,540 -- 4,587
Stockholders' Equity . . . 9,239 8,792 10,226 1,680 5,026 -- 786

OTHER DATA:
Book Value Per Share . . . -- -- -- -- .26 -- .04
</TABLE>

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<PAGE> 10

MARKET PRICES AND DIVIDENDS

The Shares are listed on The Nasdaq Stock Market ("Nasdaq") under the
symbol "AMTX". The following table sets forth, for the quarters indicated, the
high and low sales price per Share on Nasdaq. All prices set forth below are
as reported in published financial sources:

<TABLE>
<CAPTION>
MARKET PRICE
--------------------
HIGH LOW
-------- -------
<S> <C> <C> <C>
1996
Quarter ended March 31, 1996 . . . . . . . . . . . . . . . . . . . . . . $ 9 .500 $ 5.125
Quarter ended June 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . 36.500 8.375
Quarter ended September 30, 1996 . . . . . . . . . . . . . . . . . . . . 25.375 9.375
Quarter ended December 31, 1996 . . . . . . . . . . . . . . . . . . . . . 25.125 12.625

1997
Quarter ended March 31, 1997 . . . . . . . . . . . . . . . . . . . . . . 16.125 9.375
Quarter ended June 30, 1997 . . . . . . . . . . . . . . . . . . . . . . . 15.500 7.125
Quarter ended September 30, 1997 . . . . . . . . . . . . . . . . . . . . 19.250 10.250
Quarter ended December 31, 1997 . . . . . . . . . . . . . . . . . . . . . 19.813 10.750

1998
Quarter ended March 31, 1998 (through February 5, 1998) . . . . . . . . .
</TABLE>

On November 18, 1997, the last full trading day prior to the public
announcement of the terms of the Merger Agreement, the reported closing sales
price per Share on Nasdaq was $15.188. On November 24, 1997, the last full
trading day prior to the commencement of the Offer, the reported closing sales
price per Share on Nasdaq was $19.75. On February 5, 1998, the last full
trading day prior to the commencement of mailing of this Information Statement,
the reported closing sales price per Share on Nasdaq was $______.

The Company has not paid cash dividends on the Shares. The Merger
Agreement prohibited the Company from declaring or paying any dividends until
such time as the directors designated by Parent have been elected to, and shall
constitute a majority of, the Board of Directors, which occurred on December
24, 1997.

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<PAGE> 11

GENERAL; SPECIAL MEETING OF STOCKHOLDERS; REQUIRED VOTE

This Information Statement is being delivered in connection with the
merger of Purchaser into the Company pursuant to the Merger Agreement. As a
result of the Merger, the Company will become a wholly-owned subsidiary of
Parent, each issued and outstanding Share (other than Shares owned by Parent,
Purchaser or any other wholly-owned subsidiary of Parent, or by stockholders
who have validly perfected their appraisal rights under Delaware law) will be
converted into the right to receive the Merger Consideration (i.e., $20.00 in
cash), and the equity interest of all pre- Merger stockholders in the Company
will be terminated.

The Merger is the second step of a two-step transaction pursuant to
which Parent, as the owner of all of the capital stock of Purchaser, will
acquire the entire equity interest in the Company. The first step was the
Offer. Purchaser acquired 15,290,381 Shares upon the consummation of the Offer
on December 24, 1997, representing approximately 77.3% of the issued and
outstanding Shares.

The Special Meeting will be held on February 27, 1998, at 10:00
a.m. (local time) at 100 Crescent Court, Suite 1300, Dallas, Texas 75201.
At the Special Meeting, stockholders will be asked to consider and vote upon a
proposal to approve and adopt the Merger Agreement and such other proposals as
may be properly brought before the Special Meeting.

Under Delaware law and the Company's amended and restated certificate
of incorporation, the affirmative vote of a majority of the issued and
outstanding Shares is required to approve and adopt the Merger Agreement at the
Special Meeting. Only holders of record of Shares at the close of business on
the Record Date are entitled to notice of and to vote at the Special Meeting.
At such date there were 19,768,978 Shares outstanding, each of which will be
entitled to one vote on each matter to be acted upon or which may properly come
before the Special Meeting.

As a result of the Offer, Purchaser was the holder of record of
15,290,381 Shares on the Record Date, constituting approximately 77.3% of the
19,768,978 Shares outstanding on the Record Date. Pursuant to the terms of
the Merger Agreement, Purchaser is obligated to vote all such Shares in favor
of approving and adopting the Merger Agreement, which under Delaware law and
the Company's amended and restated certificate of incorporation will be a
sufficient number of Shares to approve and adopt the Merger Agreement without
the affirmative vote of any other holder of Shares, thereby assuring such
approval and adoption. THE COMPANY CURRENTLY ANTICIPATES THAT THE MERGER WILL
BE CONSUMMATED ON FEBRUARY 27, 1998, OR AS PROMPTLY AS PRACTICABLE
THEREAFTER.

The Merger will become effective upon the filing of a certificate of
merger with the Secretary of State of the State of Delaware in accordance with
the General Corporation Law of the State of Delaware. As used in this
Information Statement, "Effective Time" means the effective time of the Merger
under the General Corporation Law of the State of Delaware.

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PAYMENT FOR SHARES

General. Upon consummation of the Merger, the Company will make
available to the Paying Agent for the holders of record of Shares, as needed,
the aggregate amount of cash to be paid in respect of the portions of Shares
converted into cash pursuant to the Merger. Holders of record should use a
Letter of Transmittal to effect the surrender of certificates evidencing Shares
in exchange for the Merger Consideration. All certificates so surrendered will
be cancelled. Upon consummation of the Merger and surrender of certificates
evidencing Shares, together with a duly executed Letter of Transmittal, the
holder of record thereof will receive in exchange for each Share surrendered
the Merger Consideration. Any cash held by the Paying Agent that remains
unclaimed by stockholders for one year after the Effective Time will be returned
to the Surviving Corporation upon demand and thereafter stockholders may look,
subject to applicable abandoned property, escheat and other similar laws, only
to the Surviving Corporation for payment thereof.

Letter of Transmittal. A Letter of Transmittal will be sent to all
stockholders of the Company under separate cover. The Letter of Transmittal
will advise such holder of the terms of the Merger and the procedures
for surrendering to the Paying Agent certificates evidencing Shares in exchange
for cash.

Valid Surrender of Shares. For Shares to be validly surrendered
pursuant to the Merger, a Letter of Transmittal (or a manually signed facsimile
thereof), properly completed and duly executed, with any required signature
guarantees, must be received by ChaseMellon Shareholder Services, L.L.C., as
the paying agent (the "Paying Agent"), at one of its addresses set forth in the
Letter of Transmittal and either (i) certificates representing Shares must be
received by the Paying Agent or (ii) such Shares must be delivered by
book-entry transfer.

Book-Entry Transfer. The Paying Agent will establish an account with
respect to the Shares at The Depository Trust Company and the Philadelphia
Depository Trust Company (each, a "Book-Entry Transfer Facility" and,
collectively, the "Book-Entry Transfer Facilities") for purposes of the Merger.
Any financial institution that is a participant in any of the Book-Entry
Transfer Facilities' systems may make book-entry delivery of Shares by causing
a Book-Entry Transfer Facility to transfer such Shares into the Paying Agent's
account at such Book-Entry Transfer Facility in accordance with that Book-Entry
Transfer Facility's procedure for such transfer.

Signature Guarantee. Signatures on Letters of Transmittal must be
guaranteed by a member firm of a registered national securities exchange
(registered under Section 6 of the Exchange Act) or of the National Association
of Securities Dealers, Inc. (the "NASD"), or by a commercial bank or trust
company having an office or correspondent in the United States or by any other
"Eligible Guarantor Institution" (as defined in Rule 17Ad-15 under the Exchange
Act) (each of the foregoing constituting an "Eligible Institution"), unless the
Shares delivered therewith are delivered (i) by a registered holder of Shares
who has not completed either the box entitled "Special Delivery Instructions"
or the box entitled "Special Payment Instructions" on the Letter of Transmittal
or (ii) for the account of an Eligible Institution. If the certificates
representing Shares are registered in the name of a person other than the
signer of the Letter of Transmittal or if payment is to be made to a person
other than the registered holder, then the certificates representing Shares
must be endorsed or accompanied by appropriate stock powers, in each case
signed exactly as the name or names of the registered holder or holders appear
on

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<PAGE> 13

the certificates, with the signatures on the certificates or stock powers
guaranteed as described above and as provided in the Letter of Transmittal.

THE METHOD OF DELIVERY OF CERTIFICATES FOR SHARES, THE LETTER OF
TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE
STOCKHOLDER. IF DELIVERY IS MADE BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, IS RECOMMENDED.

Backup Federal Income Tax Withholding. To prevent backup federal
income tax withholding of 31% of the aggregate Merger Consideration payable to
a stockholder, such stockholder must provide the Paying Agent with his correct
taxpayer identification number and certify that he is not subject to backup
federal income tax withholding by completing the substitute Form W-9 included
in the Letter of Transmittal.

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<PAGE> 14

APPRAISAL RIGHTS

Stockholders of the Company are entitled to appraisal rights under
Section 262 of the General Corporation Law of the State of Delaware ("Section
262") as to Shares owned by them. Set forth below is a summary description of
Section 262. Section 262 is reprinted in its entirety as Annex II to this
Information Statement. All references in Section 262 and in this summary to a
"stockholder" are to the record holder of the Shares as to which appraisal
rights are asserted. A person having a beneficial interest in Shares that are
held of record in the name of another person, such as a broker or nominee, must
act promptly to cause the record holder to follow the steps summarized below
properly and in a timely manner to perfect whatever appraisal rights the
beneficial owner may have.

THE FOLLOWING SUMMARY IS NOT A COMPLETE STATEMENT OF THE LAW RELATING
TO APPRAISAL RIGHTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO ANNEX II.
THIS SUMMARY AND ANNEX II SHOULD BE REVIEWED CAREFULLY BY ANY HOLDER WHO WISHES
TO EXERCISE STATUTORY APPRAISAL RIGHTS OR WHO WISHES TO PRESERVE THE RIGHT TO
DO SO BECAUSE FAILURE TO COMPLY STRICTLY WITH THE PROCEDURES SET FORTH HEREIN
AND THEREIN WILL RESULT IN THE LOSS OF APPRAISAL RIGHTS.

In accordance with Section 262, any stockholder entitled to appraisal
rights may, within 20 days after the date of mailing of this Information
Statement, demand in writing from the Company the appraisal of the fair value
of such stockholder's Shares. Such demand must reasonably inform the Company
of the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of the fair value of such stockholder's Shares. Any
stockholder (other than a record owner who is acting as a nominee holder for
different beneficial owners) seeking to exercise appraisal rights for a
portion, but not all, of such stockholder's Shares should consult with legal
counsel before taking any such action. The Company believes that Delaware law
has not clearly addressed the ability of such a stockholder to exercise
appraisal rights with respect to a portion, but not all, of such stockholder's
Shares. Stockholders should be aware of the risk that should a stockholder
seek to exercise appraisal rights with respect to a portion, but not all, of
such stockholder's Shares, the Company may assert that by doing so such
stockholder has waived such stockholder's appraisal rights and a Delaware court
may find that such stockholder has so waived such stockholder's appraisal
rights. A stockholder who elects to exercise appraisal rights must mail or
deliver such stockholder's written demand to the President of the Company at
2043 Samaritan Drive, San Jose, California 95124.

A demand for appraisal must be executed by or for the stockholder of
record, fully and correctly, as such stockholder's name appears on the
certificate or certificates representing his Shares. If the Shares are owned
of record in a fiduciary capacity, such as by a trustee, guardian, or
custodian, such demand must be executed by the fiduciary. If the Shares are
owned of record by more than one person, as in a joint tenancy or tenancy in
common, such demand must be executed by all joint owners. An authorized agent,
including an agent for two or more joint owners, may execute the demand for
appraisal for a stockholder of record; however, the agent must identify the
record owner and expressly disclose the fact that, in exercising the demand,
such person is acting as agent for the record owner.

A record owner, such as a broker, who holds Shares as a nominee for
others, may exercise appraisal rights with respect to the Shares held for all
or less than all beneficial owners of Shares as to which such person is the
record owner. In such case, the written demand must set forth the number of

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<PAGE> 15

Shares covered by such demand. Where the number of Shares is not expressly
stated, the demand will be presumed to cover all Shares outstanding in the name
of such record owner. Beneficial owners who are not record owners and who
intend to exercise appraisal rights should instruct the record owner to comply
strictly with the statutory requirements with respect to the exercise of
appraisal rights.

Within 120 days after the Effective Time, either the Surviving
Corporation or any stockholder who has complied with the required conditions of
Section 262 may file a petition in the Delaware Court of Chancery (the
"Delaware Chancery Court") demanding a determination of the fair value of the
Shares of the dissenting stockholders. If a petition for an appraisal is
timely filed, after a hearing on such petition, the Delaware Chancery Court
will determine which stockholders are entitled to appraisal rights and will
appraise the Shares formerly owned by such stockholders, determining the fair
value of such Shares, exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with a fair rate of
interest, if any, to be paid upon the amount determined to be the fair value.
In determining such fair value, the Delaware Chancery Court is to take into
account all relevant factors.

Stockholders considering seeking appraisal should note that the "fair
value" of their Shares determined under Section 262 could be more than, the
same as or less than $20.00 per Share, and that opinions of investment banking
firms as to fairness, from a financial point of view, are not opinions as to
fair value under Section 262. The cost of the appraisal proceeding may be
determined by the Delaware Chancery Court and taxed against the parties as the
Delaware Chancery Court deems equitable in the circumstances. Upon application
of a dissenting stockholder, the Delaware Chancery Court may order that all or
a portion of the expenses incurred by any dissenting stockholder in connection
with the appraisal proceeding, including without limitation, reasonable
attorneys' fees and the fees and expenses of experts, be charged pro rata
against the value of all Shares entitled to appraisal.

From and after the Effective Time, no stockholder who has duly
demanded appraisal in compliance with Section 262 will be entitled to vote for
any purpose the Shares subject to such demand or to receive payment of
dividends or other distributions on such Shares, except for dividends or
distributions payable to stockholders of record at a date prior to the
Effective Time.

At any time within 60 days after the Effective Time, any stockholder
shall have the right to withdraw such stockholder's demand for appraisal and to
accept the terms offered in the Merger Agreement; after this period, a
stockholder may withdraw such stockholder's demand for appraisal only with the
consent of the Surviving Corporation. If no petition for appraisal is filed
with the Delaware Chancery Court within 120 days after the Effective Time,
stockholders' rights to appraisal shall cease, and all stockholders who had
previously demanded appraisal shall thereafter be entitled to receive the
Merger Consideration in cash, without interest thereon, upon surrender of the
certificates that formerly represented their Shares. Inasmuch as the Company
has no obligation to file such a petition, and has no present intention to do
so, any stockholder who desires such a petition to be filed is advised to file
it on a timely basis. However, no petition timely filed in the Delaware
Chancery Court demanding appraisal shall be dismissed as to any stockholder
without the approval of the Delaware Chancery Court, and such approval may be
conditioned upon such terms as the Delaware Chancery Court deems just.

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<PAGE> 16

THE MERGER

BACKGROUND OF THE OFFER AND THE MERGER

In October 1996, Parent and the Company entered into a Cooperative
Development and Product Sale Agreement pursuant to which the Company agreed to
develop and sell to Parent certain software to be incorporated into Parent's
digital signal processing products. Pursuant to such agreement, the Company
granted to Parent certain licenses to use, copy, sell and manufacture certain
of the Company's intellectual property included in the software to be developed
by the Company. Such agreement was not related to the subsequent contacts
between Parent and the Company in connection with the Offer and the Merger.

Set forth below is a description of the background of the Offer and
the Merger, including a brief description of the material contacts between
Parent and its affiliates and the Company and its affiliates regarding the
transactions described herein. Until the consummation of the Offer, the Board
of Directors of the Company consisted of the following individuals: Dr. James
Gibbons, Donald L. Lucas, James E. Steenbergen, Dr. John Cioffi and Aamer
Latif.

In May 1997, the Company's Board of Directors began to consider
possible strategic transactions involving the Company, including the
possibility of an acquisition by a larger company. The Board of Directors
determined to retain an independent financial advisor to investigate possible
business combinations and strategic alternatives and to advise the Board of
Directors with respect thereto. The Board authorized a committee composed of
its outside directors to select a financial advisor.

In June 1997, this committee selected Deutsche Morgan Grenfell Inc.
("DMG") to be retained as the Company's financial advisor. Thereafter, DMG
contacted over fifteen companies, including Parent, to determine interest in a
possible business combination or other transaction with the Company. The
companies included a large number of domestic and international semiconductor,
telephone equipment and data communications equipment manufacturers.

Effective as of July 22, 1997, the Company and Parent entered into the
Confidentiality Agreement for the purpose of investigating and further
discussing a possible business combination. The Company also entered into
similar confidentiality agreements with four other parties, including Westell
Technologies, Inc. ("Westell"), for the same purpose. In addition, DMG and the
Company made management presentations to six possible transaction candidates,
including Parent and Westell. Following these presentations and further
discussions, only Parent and Westell indicated interest in a business
combination with the Company. During September 1997, Parent conducted a due
diligence review of the Company, while Westell, but not Parent, had active and
continuous negotiations with the Company regarding an acquisition proposal.
These negotiations culminated in the execution of the Agreement and Plan of
Merger among the Company, Westell and Kappa Acquisition Corp., a wholly-owned
subsidiary of Westell, dated September 30, 1997 (the "Westell Merger
Agreement"), pursuant to which the stockholders of the Company would receive
Class A Common Stock of Westell in exchange for their Shares based on a
conversion ratio of 0.9 shares of Westell Class A Common Stock for each Share
of Company Common Stock (the "Westell Ratio"). One day before those
negotiations were finalized, Parent submitted a preliminary written proposal
regarding an acquisition of the Company. Due to Westell's requirement that the
Westell Merger Agreement be executed prior to

11
<PAGE> 17

October 1, 1997, or its offer would be withdrawn, and the preliminary and
conditional nature of Parent's proposal, the Board of Directors decided to
proceed with the execution of the Westell Merger Agreement. Execution of the
Westell Merger Agreement was publicly announced on October 1, 1997.

On November 4, 1997, the Company received a letter from Parent
proposing a cash tender offer to purchase all of the outstanding Shares for $18
per share. On November 4, and again on November 6, the Board of Directors met
to discuss this proposal. After consultation with DMG and the Company's legal
counsel, the Board of Directors determined that this proposal constituted a
"Superior Proposal" as defined in the provision of the Westell Merger Agreement
relating to the Company's right to negotiate with an alternate bidder, and
determined to enter into negotiations with Parent.

On November 5, 1997, representatives of the Company informed Westell
and its representatives of the proposal made by Parent and initiated
discussions with representatives of Westell to determine whether, in light of
the Parent proposal, Westell was prepared to improve its offer.

On November 7, 1997, the Company and its representatives initiated
negotiations with Parent and its representatives regarding the Parent proposal,
and Parent began to conduct an additional due diligence review of the Company,
by, among other things, holding discussions with certain of the Company's
executives and representatives. As a result of these negotiations, on November
12, 1997, Parent increased its proposal to $20 per share, eliminated or
modified certain conditions and advised the Company that it had completed its
due diligence review. The Board of Directors met to consider the increased
proposal by Parent and to review the terms of the proposed Merger Agreement.

On November 13, 1997, the Company notified Westell that it had
determined to accept the Offer and to terminate the Westell Merger Agreement in
accordance with its terms, which required the Company to provide at least three
business days notice of termination to Westell and pay to Westell a fee of
approximately $14.8 million (the "Termination Fee").

On November 18, 1997, the Board of Directors again met to consider and
review the terms of the proposed Merger Agreement. At the meeting DMG made a
presentation to the Board of Directors and delivered its oral opinion,
subsequently confirmed in writing (the "Fairness Opinion"), that as of such
date, the $20 per share cash consideration proposed to be received by the
stockholders of the Company pursuant to the Offer and the Merger was fair to
such stockholders (other than Parent and its affiliates) from a financial point
of view. The full text of the Fairness Opinion is attached as Annex III to
this Information Statement. STOCKHOLDERS ARE URGED TO READ SUCH OPINION IN ITS
ENTIRETY. After discussion (which, among other things, took note of
information the Company's advisors had received that Westell was unlikely to
make any proposal to improve the terms of the Westell Merger Agreement), the
Board of Directors unanimously approved the Merger Agreement and the
transactions contemplated thereby and unanimously recommended that stockholders
of the Company accept the Offer and tender their shares.

On November 19, 1997, subsequent to the expiration of the three
business day notice period required by the Westell Merger Agreement, the
Company arranged to pay to Westell the Breakup Fee and the amounts outstanding
under the Westell loan agreement with the proceeds received from Parent,
effecting the termination of the Westell Merger Agreement. See "Financial
Arrangements--The Commitment and the Loans." Effective November 19, 1997,
the Company, Parent and Purchaser executed and

12
<PAGE> 18

delivered the Merger Agreement. On November 19, 1997, Parent and the Company
issued a press release announcing the execution of the Merger Agreement.

In arriving at its decision regarding its recommendation set forth
above, the Board of Directors considered (among other things) the following:

o The opinion of DMG, dated November 18, 1997, to the effect
that, as of the date of the Fairness Opinion, the $20 per
Share cash consideration to be received by the stockholders of
the Company pursuant to the Offer and the Merger was fair to
such stockholders (other than Parent and its affiliates) from
a financial point of view.

o The determination that the Offer and the Merger were superior
to the transaction contemplated by the Westell Merger
Agreement insofar as the $20 per Share price was payable in
cash, compared with the consideration offered by Westell in
the form of Westell Class A Common Stock, and represented a
premium of approximately 25% over the effective price per
Share being offered under the Westell Merger Agreement (based
on the closing price per share of the Westell Class A Common
Stock on the Nasdaq National Market on November 18, 1997).

o The determination that the Offer and the Merger presented less
risk to the stockholders of the Company than the merger
contemplated by the Westell Merger Agreement insofar as, under
the latter agreement, the Westell Ratio was fixed and not
subject to adjustment in the event of any increase or decrease
in the market price of the Westell Class A Common Stock,
resulting in possible fluctuations in the value of the
consideration to be received by the Company's stockholders
under the Westell Merger Agreement.

o The determination that the $20 per Share cash consideration
offered fair value to the Company's stockholders for their
Common Stock and exceeded the market price that the Company's
stockholders could reasonably expect to realize in the
foreseeable future, taking into account the following factors:
(a) information presented to the Board of Directors relating
to the recent financial condition and results of operations of
the Company and management's evaluation of the Company's
prospects, as well as the Board of Directors' general
familiarity with the Company's business, operations, financial
condition and earnings on both an historical and a prospective
basis; (b) the relationship of the $20 per Share price to the
historical market prices for Company Common Stock, including
that the $20 per Share represented a premium of approximately
31% over the closing price of the Company Common Stock on the
Nasdaq National Market on November 18, the day on which the
Board of Directors approved the Merger Agreement; (c) the
vigorous arms-length nature of the negotiations that resulted
in Parent offering the $20 per Share price in the Offer and
the Merger, and (d) the results of the process undertaken by
DMG to approach and contact potential transaction candidates
and the fact that, despite these contacts, only Westell and
Parent had made written proposals regarding a business
combination prior to the public announcement of the Westell
Merger Agreement and that, since the public announcement of
the Westell Merger Agreement on October 1, 1997, no
unsolicited expressions of interest had been received by the
Company or DMG from any other third party.

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<PAGE> 19

o The fact that, even though the Company encouraged Westell to
improve its proposal for acquiring the Shares in light of the
Offer, Westell declined to do so on November 18, 1997.

o The terms and conditions of the Parent Merger Agreement,
including the amount and form of the consideration being
offered to the Company's stockholders, the conditions to the
Purchaser's obligations to consummate the Offer and the
Merger, which the Board of Directors believes provides
greater, or no less, certainty to the Company's stockholders
than the Westell Merger Agreement, and Parent's agreement to
loan funds to the Company for the Company's payment of the
Westell Termination Fee and repayment of amounts loaned to the
Company by Westell in connection with the execution of the
Westell Merger Agreement.

The foregoing discussion of factors considered by the Board of
Directors is not intended to be exhaustive. It summarizes all material factors
considered. The Board of Directors did not assign any relative or specific
weights to the foregoing factors, nor did it specifically characterize any
factor as positive or negative (except as described above), and individual
directors may have given differing weights to differing factors and may have
viewed certain factors more positively or negatively than others. Throughout
its deliberations, the Board of Directors received the advice of its financial
and legal advisors. The Board of Directors viewed its recommendation as being
based upon the totality of the information presented and considered by them.

On November 25, 1997, Purchaser commenced the Offer. The Offer
expired at 12:00 midnight, New York City time, on December 23, 1997. Following
the expiration of the Offer, Purchaser accepted for payment 15,290,381 Shares
(approximately 77.3% of the issued and outstanding Shares) validly tendered and
not withdrawn pursuant to the Offer, which number gives effect to the failure
of a number of Shares to be delivered in accordance with guaranteed delivery
procedures. On December 24, 1997, the resignations of three of five existing
directors of the Company became effective and three persons designated by
Purchaser were elected to the Board of Directors.

OPINION OF FINANCIAL ADVISOR

The Company retained DMG to act as financial adviser to the Company
for the purpose of evaluating the fairness, from a financial point of view, of
the cash consideration to be received by the Company's stockholders pursuant to
the Offer and the Merger. DMG had previously been retained by the Company to
provide similar financial advisory services in connection with the Westell
Merger Agreement. As compensation for DMG's services as financial adviser, the
Company has agreed to pay DMG a retainer of $50,000 and a transaction fee of
approximately $7.5 million upon consummation of the Merger, against which the
retainer would be credited. In addition, the Company has agreed to reimburse
DMG for its reasonable out-of-pocket expenses (including fees and expenses of
its legal counsel) incurred in connection with its engagement, and to indemnify
DMG and certain related persons against certain liabilities and expenses
arising out of or in conjunction with its rendering of services under its
engagement, including certain liabilities under the federal securities laws.

At the meeting of the Company's Board on November 18, 1997, DMG rendered its
oral

14
<PAGE> 20

opinion, subsequently confirmed in writing on November 19, 1997 (the "DMG
Opinion"), that, as of such date, based upon and subject to the various
considerations set forth in the DMG Opinion, the cash consideration to be
received by the holders of the Company's Common Stock (other than Parent and
its affiliates) in the Offer and the Merger is fair from a financial point of
view to such holders. DMG has consented to the inclusion of the DMG Opinion as
Annex III to this Information Statement.

THE FULL TEXT OF THE DMG OPINION, WHICH SETS FORTH, AMONG OTHER
THINGS, ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED, AND
LIMITATIONS ON THE SCOPE OF THE REVIEW UNDERTAKEN BY DMG IN RENDERING THE DMG
OPINION, IS ATTACHED AS ANNEX III HERETO AND IS INCORPORATED HEREIN BY
REFERENCE. THE COMPANY'S STOCKHOLDERS ARE URGED TO, AND SHOULD, READ THE DMG
OPINION CAREFULLY AND IN ITS ENTIRETY. THE DMG OPINION ADDRESSES ONLY THE
FAIRNESS FROM A FINANCIAL POINT OF VIEW TO THE HOLDERS OF THE COMPANY'S COMMON
STOCK (OTHER THAN PARENT AND ITS AFFILIATES) AS OF THE DATE OF THE DMG OPINION
OF THE CASH CONSIDERATION TO BE RECEIVED BY SUCH HOLDERS IN THE OFFER AND THE
MERGER, AND DOES NOT CONSTITUTE A RECOMMENDATION TO THE STOCKHOLDERS OF THE
COMPANY AS TO WHETHER OR NOT TO TENDER SHARES OF THE COMPANY'S COMMON STOCK
PURSUANT TO THE OFFER OR AS TO HOW SUCH HOLDER SHOULD VOTE WITH RESPECT TO THE
MERGER. THE SUMMARY OF THE DMG OPINION SET FORTH HEREIN IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE DMG OPINION.

In rendering the DMG Opinion, DMG, among other things: (i) analyzed
certain publicly available financial statements and other information of the
Company and Parent, respectively; (ii) analyzed certain internal financial
statements and other financial and operating data concerning the Company
prepared by the management of the Company; (iii) analyzed certain financial
projections relating to the Company prepared by the management of the Company;
(iv) discussed the past and current operations and financial condition and the
prospects of the Company with senior executives of the Company; (v) reviewed
the reported prices and trading activity for the Company's Common Stock; (vi)
compared the financial performance of the Company and the prices and trading
activity of the Company's Common Stock with that of certain other comparable
publicly-traded companies and their securities; (vii) reviewed the financial
terms, to the extent publicly available, of certain comparable merger and
acquisition transactions; (viii) participated in discussions and negotiations
among representatives of the Company and Parent and their respective financial
and legal advisors; (ix) reviewed the Merger Agreement and certain related
agreements; and (x) performed such other analyses and considered such other
factors as DMG deemed appropriate.

In rendering the DMG Opinion, DMG assumed and relied upon, without
independent verification, the accuracy and completeness of the information
reviewed by it for the purposes of the DMG Opinion. DMG assumed that the
financial projections were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the future financial performance
of the Company. DMG has not made any independent valuation or appraisal of the
assets, liabilities or technology of the Company nor has DMG been furnished
with any such appraisals. DMG has assumed that the Offer and the Merger will
each be consummated in accordance with the terms set forth in the Merger
Agreement. The DMG Opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to DMG as of,
the date of the DMG Opinion.

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<PAGE> 21

The following is a summary of the analysis performed by DMG in
preparation of the DMG Opinion.

Comparative Stock Price Performance: As part of its analysis, DMG
reviewed the recent stock price performance of the Company and compared such
performance with that of other companies involved in the data networking and
telecommunications equipment industries. DMG observed that during the period
from January 1, 1997, to November 17, 1997, the market price of the Company's
Common Stock increased 24.8% compared with increases of 7.4% for Aware, Inc.
("Aware"), 89.7% for Orckit Communications, Ltd. ("Orckit") and 25.0% for the
NASDAQ composite and decreases of 16.4% for Westell Technologies, Inc.
("Westell") and 19.7% for Pairgain Technologies, Inc. ("Pairgain"). DMG noted
that over such period, the Company's Common Stock had underperformed relative
to the common stock of Orckit, performed comparably to the NASDAQ composite and
outperformed Pairgain, Westell and Aware. DMG also observed that during the
period from October 1, 1997 (the date of the announcement of the proposed
transaction between Westell and the Company), to November 17, 1997, the market
price of the Company's Common Stock decreased by 14.4%, compared with decreases
of 17.5% for Westell, 22.0% for Aware, 14.1% for Pairgain, 0.7% for Orckit and
4.5% for the NASDAQ composite. DMG noted that over such period the Company's
Common Stock had underperformed relative to the common stock of Orckit and the
NASDAQ composite, performed comparably to the common stock of Pairgain and
outperformed relative to the common stock of Westell and Aware.

Peer Group Comparison: DMG compared certain information relating to the
Company with a group of companies involved in the digital subscriber line
industry including Westell, Orckit and Aware; the data networking industry
including Cisco Systems, Inc., 3Com Corporation, Newbridge Networks Corporation,
Ascend Communications, Inc., Bay Networks, Inc., Cabletron Systems, Inc., Fore
Systems, Inc., Xylan Corporation and Madge Networks, N.V. (together, the "Data
Networking Companies"); the telecom switching industry including Lucent
Technologies, Inc., Ericsson LM, Siemens AG, Northern Telecom, Ltd., Alcatel
Alsthom, SA and Nokia Corporation (together, the "Telecom Switching Companies");
and the telecom equipment industry including Tellabs, Inc., ADC
Telecommunications, Ciena Corporation, DSC Communications Corporation, Advanced
Fibre Communications, Inc., Pairgain and Adtran, Inc. (together, the "Telecom
Equipment Companies"). Such information included, among other things, market
valuation, stock price as a multiple of earnings per share and aggregate market
capitalization as a multiple of revenues. The multiples are based on a
compilation of publicly available information and consensus forecasts by
securities research analysts. In particular, such comparison showed that as of
November 17, 1997, the Company traded at 25.1 times last twelve months' ("LTM")
revenue and 20.2 times projected calendar year 1998 revenue. Westell traded at
11.3 times LTM revenue and 7.3 times projected calendar year 1998 revenue;
Orckit traded at 10.9 times LTM revenue and 8.1 times projected calendar year
1998 revenue; Aware traded at 25.4 times LTM revenue and 20.4 times projected
calendar year 1998 revenue; the Data Networking Companies traded at a median of
3.7 times LTM revenue, 2.5 times projected calendar year 1998 revenue and 41.5
times projected calendar year 1998 earnings; the Telecom Switching Companies
traded at a median of 1.3 times LTM revenue, 1.3 times projected calendar year
1998 revenue and 30.6 times projected calendar year 1998 earnings; and the
Telecom Equipment Companies traded at a median of 5.8 times LTM revenue, 4.6
times projected calendar year 1998 revenue and 38.3 times projected calendar
year 1998 earnings. DMG noted that as a multiple of both LTM and projected
calendar year 1998 revenue, the Company traded at a premium to Westell, Orckit,
the Data Networking Companies, the Telecom Switching Companies and the Telecom
Equipment Companies and traded comparably to Aware.

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<PAGE> 22

Selected Precedent Transactions: DMG reviewed 90 acquisition
transactions involving companies in the data networking industry. DMG observed
for the 55 of such transactions for which such information was publicly
available the median of the range of multiples of aggregate value to LTM
revenue and operating income was 4.0 times and 27.9 times, respectively, and
the median price to earnings multiple was 28.3 times estimated next twelve
months' earnings. DMG also observed that for this group of transactions, the
median of the share price paid in such acquisitions expressed as a premium over
the trading price of the stock of the acquired companies on the day prior to
announcement was 28.2% DMG compared these multiples to the multiples of the
aggregate Offer value to LTM revenue of 33.9 times and to the Company's
estimated next twelve months' revenue of 11.2 times. DMG also compared the
median premium paid in these transactions to the premium implied by the Offer
to the price of the Company's Common Stock on November 18, 1997 of 31.7%.

Terminal Value Analysis: DMG performed an analysis of the present
value per share of the implied future trading prices of the Company's Common
Stock for the Company on a stand alone basis. Such analysis was based on a
range of revenue and earnings estimates for the Company for the fiscal year
ending July 31, 1999 using management and publicly available securities analyst
estimates and for the fiscal year ending July 31, 2000 based on assumed growth
rates of 0%, 25% and 30%. The analysis was also based on an illustrative range
of one-year forward revenue multiples of 2, 3, 4 and 5 times and one-year
forward price earnings multiples of 30, 35, 40, 45 and 50 times. Equivalent
share prices were then computed for the Company one year and two years from the
date of the analysis which were then discounted back to the present at
illustrative discount rates of 20% and 30%. Based on the information described
above, this analysis resulted in a present value per share to holders of the
Company's Common Stock ranging from $3.51 to $13.20, based on the fiscal year
ending July 31, 1999 earnings estimates and $4.50 to $16.50, based on the
fiscal year ending July 31, 2000 earnings estimates, and $4.84 to $21.41, based
on the fiscal year ending July 31, 1999 revenue estimates and $6.14 to $26.71,
based on the fiscal year ending July 31, 2000 revenue estimates.

In connection with the preparation of the DMG Opinion, DMG performed a
variety of financial and comparative analyses. While the foregoing summary
describes all material analyses performed by DMG, it does not purport to be a
complete description of the analyses performed by DMG in arriving at the DMG
Opinion. The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. DMG
believes that its analyses must be considered as a whole and that selecting
portions of its analyses and of the factors considered by it, without
considering all analyses and factors, could create a misleading view of the
processes underlying the DMG Opinion. In performing its analyses, DMG made
numerous assumptions with respect to industry performance, general business and
economic conditions and other matters, many of which are beyond the control of
the Company. Any estimates contained therein are not necessarily indicative of
future results or actual values, which may be significantly more or less
favorable than those suggested by such estimates. Furthermore, the analyses
performed by DMG are not necessarily indicative of actual values or actual
future results, which may be significantly more or less favorable than
suggested by such analyses. In addition, analyses relating to the value of
businesses or assets do not purport to be appraisals or to necessarily reflect
the prices at which businesses or assets may actually be sold. The analyses
performed were prepared solely as part of DMG's analysis of whether the cash
consideration to be received by the holders of the Company's Common Stock
(other than Parent and its affiliates) pursuant to the Offer and the Merger is
fair from a financial point of view to such holders and were provided to the
Board of Directors of the Company in connection with the delivery of the DMG
Opinion.

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DMG is an internationally recognized investment banking and advisory
firm. DMG, as part of its investment banking business, is continuously engaged
in the valuation of businesses and securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. In the ordinary course of its
business, DMG may actively trade the securities and loans of the Company and
Parent for its own account and for the accounts of its customers and,
accordingly, may at any time hold a long or short position in such securities
and loans.

INTERESTS OF CERTAIN PERSONS IN THE MERGER

Information with respect to certain contracts, agreements,
arrangements or understandings between the Parent and certain of the Company's
executive officers, directors or affiliates is set forth below.

Steenbergen Retention Agreement. Prior to the commencement of the
Offer, Parent entered into a retention agreement, dated as of November 19,
1997, with James E. Steenbergen, the Company's Chief Executive Officer,
President and Chief Financial Officer (the "Retention Agreement"). The
following summary of the Retention Agreement is qualified in its entirety by
reference to the Retention Agreement, a copy of which has been filed as an
exhibit to the Company's Schedule 14D-9 filed with the Commission. See
"Available Information." Under the Retention Agreement, Parent agreed that in
the event the Company or Parent terminates without cause Mr. Steenbergen's
full-time employment with the Company or Parent following the Merger, then
Parent will retain Mr. Steenbergen as an employee on an approved leave of
absence until such time as all of his options to purchase common stock of the
Company that were granted prior to the Merger (and which will be converted into
options to purchase stock of Parent) become fully exercisable. In addition,
under the Retention Agreement Mr. Steenbergen has agreed to certain
non-competition and non-solicitation covenants in favor of Parent.

Other Retention Agreements. Parent entered into similar retention
agreements with Mr. Ronald Carlini, the Company's Vice President of Corporate
Development, and Mr. James D. Hood, the Company's Vice President of
Engineering. A copy of those agreements have been filed as an exhibit to
the Company's Schedule 14D-9 filed with the Commission. See "Available
Information."

Consulting Agreement. At the time of the commencement of the Offer,
Parent was in discussions with Dr. John Cioffi, the Company's Chief Technical
Officer, regarding the terms of a proposed consulting agreement. Since such
time, Parent and Dr. Cioffi have mutually determined that, in lieu of entering
into such proposed consulting agreement, Dr. Cioffi's existing employment
arrangements with the Company would be continued.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

The following is a summary of the material federal income tax
consequences of the Merger to stockholders of the Company whose Shares are
converted into the right to receive the Merger Consideration in the Merger (as
well as any cash amounts received by dissenting stockholders pursuant to the
exercise of appraisal rights). The discussion applies only to stockholders of
the Company holding Shares as capital assets, and may not apply to stockholders
who received their Shares

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<PAGE> 24

pursuant to the exercise of employee stock options or otherwise as
compensation, or who are not citizens or residents of the United States.

The federal income tax consequences set forth below are included for
general informational purposes only and are based upon present law. Because
individual circumstances may differ, each stockholder should consult such
stockholder's own tax advisor to determine the applicability of the rules
discussed below to such stockholder and the particular tax effects of the
Merger, including the application and effect of state, local and foreign tax
laws.

Receipt of the Merger Consideration. The receipt by a stockholder of
the Merger Consideration (including any cash amounts received by dissenting
stockholders pursuant to the exercise of appraisal rights) in exchange for
Shares will be a taxable transaction for federal income tax purposes. In
general, for federal income tax purposes, a stockholder will recognize gain or
loss equal to the difference between such stockholder's adjusted tax basis in
the Shares exchanged for cash in the Merger and the amount realized in such
exchange (i.e., generally the amount of cash received therefor). Such gain or
loss will be capital gain or loss. In the case of non-corporate taxpayers, any
such capital gain will be long-term capital gain and subject to a maximum
federal income tax rate of 20% if the stockholder's holding period in the Shares
at the Effective Time of the Merger is greater than eighteen months; if such
holding period is more than one year but not more than eighteen months, then any
such capital gain will be mid-term capital gain and will be subject to a maximum
federal income tax rate of 28%. Dissenting stockholders who do not receive cash
in the taxable year in which the Effective Time of the Merger occurs (i.e., the
year of the sale of Shares) are urged to consult their own tax advisors
regarding the amount of their "amount realized" (and resulting amount of gain
recognized) in such taxable year and the potential application (if at all) of
the "open transaction doctrine" pending the determination of the amount of cash
to which dissenting stockholders are entitled.

Backup Withholding. Payments in connection with the Merger may be
subject to "backup withholding" at a 31% rate. Backup withholding generally
applies if the stockholder (a) fails to furnish his social security number or
other taxpayer identification number ("TIN"), (b) furnishes an incorrect TIN,
(c) fails properly to report interest or dividends, or (d) under certain
circumstances, fails to provide a certified statement, signed under penalties
of perjury, that the TIN provided is his correct number and that he is not
subject to backup withholding. Any amounts withheld from a payment to a
stockholder under the backup withholding rules will be allowed as a credit
against such stockholder's federal income tax liability, provided that the
required information is provided to the Internal Revenue Service. Certain
persons generally are exempt from backup withholding, including corporations
and financial institutions. Certain penalties apply for failure to furnish
correct information and for failure to include the reportable payments in
income. Each stockholder should consult with such stockholder's own tax
advisor as to such stockholder's qualification for exemption from withholding
and the procedure for obtaining such exemption.

REGULATORY MATTERS

The waiting period under the HSR Act expired on December 5, 1997. The
Company is not aware of any federal, state or foreign regulatory requirements
that remain to be complied with in order to consummate the Merger.

The Federal Trade Commission (the "FTC") and the Antitrust Division of
the Department of Justice frequently scrutinize the legality under the U.S.
antitrust laws of transactions such as Purchaser's acquisition of the Company.
At any time, the Antitrust Division or the FTC could take such action under the
antitrust laws as it deems necessary or desirable in the public interest,
including seeking to enjoin the consummation of the Merger or seeking the
divestiture of Shares acquired by Purchaser or

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<PAGE> 25

the divestiture of substantial assets of Parent or its subsidiaries, or the
Company or its subsidiaries. Private parties may also bring legal action under
certain circumstances. There can be no assurance that a challenge to the
Merger on antitrust grounds will not be made or, if such a challenge is made,
of the result thereof.

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<PAGE> 26

THE MERGER AGREEMENT

The following is a summary of the material terms of the Merger
Agreement, a copy of which is attached as Annex I to this Information Statement
and is incorporated herein by reference. Such summary is qualified in its
entirety by reference to the Merger Agreement. Capitalized terms used and not
otherwise defined herein have the meaning ascribed to them in the Merger
Agreement.

DIRECTORS

The Merger Agreement provides that promptly upon Parent's purchase of
and payment for Shares which represent at least a majority of the outstanding
Shares (on a fully diluted basis), Parent shall be entitled to designate a
number of directors, rounded up to the next whole number, on the Company Board,
subject to compliance with Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder, equal to the product of the total number of directors on
the Company Board (giving effect to the directors elected pursuant to this
sentence) multiplied by the percentage that the aggregate number of Shares
beneficially owned by the Purchaser, Parent and any of their affiliates
(including Shares accepted for payment) bears to the total number of Shares then
outstanding. The Company shall, upon request of the Purchaser, on the date of
such request, either increase the size of the Company Board or secure the
resignations of such number of its incumbent directors as is necessary to enable
Parent's designees to be elected to the Company Board, and shall cause Parent's
designees to be so elected. Notwithstanding the foregoing, until the Effective
Time, the Company shall retain as members of the Company Board at least two
directors who were directors of the Company on the date of the Merger Agreement;
provided, that subsequent to the purchase of and payment for Shares pursuant to
the Offer, Parent shall always have its designees represent at least a majority
of the entire Company Board. Pursuant to the Merger Agreement, and effective
upon the consummation of the Offer, three of the five members of the Board of
Directors of the Company resigned as directors and three persons designated by
Parent were appointed as members of such Board of Directors.

The Merger Agreement also provides that from and after the time, if
any, that Parent's designees constitute a majority of the Company Board, any
amendment of the Merger Agreement, any termination of the Merger Agreement by
the Company, any extension of time for performance of any of the obligations of
Parent or the Purchaser under the Merger Agreement, and any waiver of any
condition or any of the Company's rights under the Merger Agreement or other
action by the Company in connection with the rights of the Company under the
Merger Agreement may be effected only by the action of a majority of the
directors of the Company then in office who were directors on the date of the
Merger Agreement, which action shall be deemed to constitute the action of the
full Company Board; provided, that if there are no such directors, such actions
may be effected by unanimous vote of the entire Company Board.

THE MERGER

The Merger Agreement provides that, subject to the terms and
conditions thereof, the Purchaser will be merged with and into the Company,
with the Company continuing as the Surviving Corporation and a direct wholly
owned subsidiary of Parent. At the Effective Time, by virtue of the Merger and
without any action on the part of the holders of any shares, each issued and
outstanding share (other

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<PAGE> 27

than Shares owned by Parent, the Purchaser or any other wholly-owned subsidiary
of Parent, which shall be cancelled, and Shares held by stockholders who have
demanded and perfected dissenters' rights under the General Corporation Law of
the State of Delaware (the "DGCL")) shall be converted into the right to
receive the Merger Consideration (i.e. $20.00), without interest. Each issued
and outstanding share of common stock, par value $0.01 per share, of the
Purchaser shall be converted into and become one fully paid and non-assessable
share of common stock of the Surviving Corporation. The Merger Agreement also
provides that (i) the directors of the Purchaser immediately prior to the
Effective Time will be the initial directors of the Surviving Corporation and
the officers of the Company immediately prior to the Effective Time will be the
initial officers of the Surviving Corporation; (ii) the Certificate of
Incorporation of the Company shall be the Certificate of Incorporation of the
Surviving Corporation; and (iii) the By-laws of the Company (the "By- laws")
will be the initial By-laws of the Surviving Corporation.

TREATMENT OF OPTIONS AND WARRANTS

The Merger Agreement provides that the options to purchase Shares
under the Company's 1981 Stock Option Plan, 1981 Supplemental Stock Option
Plan, 1990 Stock Option Plan, Old Amati 1992 Stock Option Plan, 1990
Non-Employee Directors' Stock Option Plan and 1996 Stock Option Plan (the
"Option Plans") shall, pursuant to the terms of such Option Plans, not
automatically vest as a consequence of the transactions contemplated by the
Merger Agreement and that the Company Board shall not exercise any
discretionary authority to vest such options in connection with the
Transactions contemplated by the Merger Agreement. Notwithstanding the
foregoing, options ("Director Options") granted to non- employee directors
under the 1990 Non-Employee Directors' Stock Option Plan shall vest immediately
prior to the Effective Time pursuant to their terms and Director Options
granted under any of the other Option Plans shall vest immediately prior to the
Effective Time by action of the Company Board. At the Effective Time, each
outstanding Director Option shall be converted into the right to receive cash
in an amount equal to the product of (i) the number of Shares subject to such
Director Option and (ii) the excess of (A) the Merger Consideration over (B)
the per share exercise price of such Director Option.

Holders of outstanding options (other than Director Options) that are
vested at the Effective Time shall be given the opportunity to make an
irrevocable election, on a grant by grant basis to be effective immediately
following the Effective Time, to receive in exchange for the cancellation of
each such vested option either (i) cash in an amount equal to the product of
(a) the number of Shares subject to such option and (b) the excess of (1) the
Merger Consideration over (2) the per share exercise price of such option or
(ii) a substitute option to purchase Parent common stock (a "Substitute
Option") (a) which will be exercisable for a number of shares of Parent's
common stock equal to (1) the number of Shares subject to the option multiplied
by (2) the ratio obtained by dividing the Merger Consideration by the average
closing price per share of Parent's common stock on the New York Stock Exchange
for the five consecutive trading days ending immediately prior to the closing
date of the Merger (the "Option Ratio"), rounded down to the next whole number
of shares, (b) the exercise price for which shall equal the exercise price for
the Shares otherwise purchasable pursuant to the option divided by the Option
Ratio, rounded to the nearest hundredth of a cent, and (c) which shall be
subject to substantially the same terms and conditions as applicable to the
option.

Holders of outstanding options (other than Director Options) that are
not vested as of the Effective Time shall, at the Effective Time, receive in
substitution and cancellation for each such

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<PAGE> 28

nonvested option a Substitute Option, which Substitute Option shall be subject
to the same vesting schedule as applicable to the option.

As of the Effective Time, by virtue of the merger and without any
action on the part of the holders thereof, each unexpired and unexercised
warrant to purchase Shares shall be converted into the right to receive an
amount in cash equal to the product of (i) the number of Shares subject to such
warrant and (ii) the excess of (a) the Merger Consideration over (b) the per
share exercise price of such warrant, upon surrender of the certificate
representing such warrant; provided, that any warrant as to which the per share
exercise price is equal to or greater than the Merger Consideration shall be
cancelled and terminated as of the Effective Time without payment of any
consideration thereof.

STOCKHOLDERS' MEETING

Pursuant to the Merger Agreement, if the Company owns less than 90% of
the Shares following the purchase of Shares by the Purchaser pursuant to the
Offer, the Company shall, in accordance with applicable law, duly call, give
notice of, convene and hold a special meeting of its stockholders as soon as
practicable following the acceptance for payment and purchase of Shares by the
Purchaser pursuant to the Offer for the purpose of considering and taking
action upon the Merger Agreement. In accordance with this provision, the
Company has called the Special Meeting.

The Merger Agreement also provides that the Company shall, in
accordance with applicable law, prepare and file with the Commission a
preliminary proxy or information statement relating to the Merger and the
Merger Agreement, obtain and furnish the information required to be included by
the Commission in the Proxy Statement (as hereinafter defined) and, after
consultation with Parent, respond promptly to any comments made by the
Commission with respect to the preliminary proxy or information statement and
cause a definitive proxy or information statement (the "Proxy Statement") to be
mailed to its stockholders and obtain the necessary adoption of the Merger
Agreement by its stockholders. The Merger Agreement also provides that the
Company shall, subject to the fiduciary obligations of the Company Board under
applicable law as advised by the Company's outside counsel, include in the
Proxy Statement the recommendation of the Company Board that stockholders of
the Company vote in favor of the approval of the adoption of the Merger
Agreement. In the event that the Purchaser shall acquire at least 90% of the
outstanding shares of each class of capital stock of the Company, pursuant to
the Offer or otherwise, the parties shall take all necessary and appropriate
action to cause the Merger to become effective as soon as practicable after
such acquisition, without a meeting of the Company's stockholders in accordance
with Section 253 of the DGCL.

REPRESENTATIONS AND WARRANTIES

The Merger Agreement contains representations and warranties of the
Company with respect to, among other things (i) organization and good standing,
certificate of incorporation, by-laws and minute books, (ii) capitalization
(including the ownership of subsidiaries), (iii) authority of the Company,
validity of the Merger Agreement and Company action, (iv) consents and
approvals and absence of violations, (v) Commission reports and financial
statements, (vi) no undisclosed liabilities, (vii) absence of certain changes
(including material adverse changes), (viii) certain contracts (including
material agreements), (ix) employee benefit plans and ERISA, (x) litigation,
(xi) permits, absence of defaults and compliance with applicable laws, (xii)
taxes, (xiii) certain property, (xiv) intellectual property,

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<PAGE> 29

(xv) environmental matters, (xvi) employee and labor matters, (xvii)
information in tender offer documents, (xviii) brokers and finders, (xix)
insurance and (xx) opinion of financial advisor.

The Merger Agreement contains joint and several representations and
warranties of Parent and the Purchaser with respect to, among other things (i)
organization and good standing, (ii) authority of Parent, validity of the
Merger Agreement and necessary action, (iii) consents and approvals and absence
of violations, (iv) Commission reports and financial statements, (v)
information in the tender offer documents and the proxy statement pertaining to
the Merger, (vi) sufficiency of funds, (vii) Share ownership and (viii) the
Purchaser's operations.

INTERIM OPERATIONS

In the Merger Agreement, the Company has agreed that, among other
things, between the date of the Merger Agreement and prior to the time the
Purchaser's designees have been elected to, and constitute a majority of, the
Company Board, unless Parent otherwise agrees in writing and except as
otherwise contemplated by the Merger Agreement, (i) the business of the Company
and its subsidiaries shall be conducted only in the ordinary course of business
and, to the extent consistent therewith, each of the Company and its
subsidiaries shall use its reasonable best efforts to preserve in all material
respects its business organization intact and maintain its existing relations
with customers, suppliers, employees and business associates; (ii) neither the
Company nor any of its subsidiaries shall, directly or indirectly, amend its
certificate of incorporation or bylaws or similar organizational documents or
split, combine or reclassify its outstanding capital stock; (iii) neither the
Company nor any of its subsidiaries shall (a) declare, set aside or pay any
dividend or other distribution (whether payable in cash, stock or property)
with respect to its capital stock (other than dividends from any subsidiary of
the Company to the Company or any other subsidiary of the Company); (b) issue
or sell any additional shares of, or securities convertible into or
exchangeable for, or options, warrants, calls, commitments or rights of any
kind to acquire, any shares of capital stock of any class of the Company or its
subsidiaries, other than issuances pursuant to the exercise of options and
warrants of the Company outstanding on the date of the Merger Agreement; (c)
sell, lease or dispose of any assets or properties, other than in the ordinary
course of business; (d) incur or modify any material debt, other than in the
ordinary course of business consistent with past practice; (e) license or
sublicense any asset or property of the Company or any of its subsidiaries
except in the ordinary course of business consistent with past practice on a
basis that results in a positive current royalty net of any royalties due by
the Company or any of its subsidiaries on account of sales by the licensee or
sublicensee; or (f) redeem, purchase or otherwise acquire, directly or
indirectly, any of its or its subsidiaries' capital stock; (iv) neither the
Company nor any of its subsidiaries shall enter into, adopt or materially amend
or terminate any employee benefit plans, amend any employment or severance
agreement or increase in any manner the compensation or other benefits of its
officers or directors or increase in any manner the compensation of any other
employees (except for normal increases in the ordinary course of business); (v)
neither the Company nor any of its subsidiaries shall (a) assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the material obligations of any other person
(other than subsidiaries of the Company), except pursuant to contractual
indemnification agreements entered into in the ordinary course of business; (b)
make any loans, advances or capital contributions to, or investments in, any
other person (other than to subsidiaries of the Company and payroll, travel and
similar advances made in the ordinary course of business); or (c) make capital
expenditures other than pursuant to the Company's current capital expenditure
budget; (vi) neither the Company nor any of its subsidiaries shall change any
of the accounting methods used by it unless required by generally

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<PAGE> 30

accepted accounting principles or applicable law, (vii) the Company shall not
settle or compromise any claim (including arbitration) or litigation involving
payments by the Company in excess of $250,000 individually which are not
subject to insurance reimbursement without the prior written consent of Parent,
which consent shall not be unreasonably withheld; (viii) the Company shall not
amend, modify or terminate in any material respect or enter into any new
agreement material to the business of the Company without the prior written
consent of Parent, which consent shall not be unreasonably withheld; or (ix)
neither the Company nor any of its subsidiaries shall authorize or enter into
an agreement to do any of the foregoing.

APPROVALS AND CONSENTS; COOPERATION; NOTIFICATION

Parent, the Purchaser and the Company have agreed to use their
respective reasonable best efforts, and cooperate with each other, to (i)
determine as promptly as practicable all governmental and third party
authorizations, approvals, consent or waivers, including pursuant to the HSR
Act, advisable (in Parent's and Purchaser's discretion) or required in order to
consummate the transactions contemplated by the Merger Agreement, including the
Offer and the Merger, and (ii) obtain such authorizations, approvals, consents
or waivers as promptly as practicable. The Company, Parent and the Purchaser
have agreed to take all actions necessary to file as soon as practicable all
notifications, filings and other documents required to obtain all governmental
authorizations, approvals, consents or waivers, including under the HSR Act,
and to respond as promptly as practicable to any inquiries received from the
Federal Trade Commission, the Antitrust Division of the Department of Justice
and any other governmental entity for additional information or documentation
and to respond as promptly as practicable to all inquiries and requests
received from any governmental entity in connection therewith. The Company is
required to give prompt notice to Parent of (i) the occurrence of any event,
condition or development material to the Company and its subsidiaries, taken as
a whole, and (ii) any notice from any Person claiming its consent is required
in connection with the transactions contemplated by this Agreement. Each of
the Company and Parent have agreed to give prompt notice to the other of the
occurrence or failure to occur of an event that would, or, with the lapse of
time would cause any condition to the consummation of the Offer or the Merger
not to be satisfied.

EMPLOYEE BENEFITS

Parent and the Purchaser have agreed that the Surviving Corporation
and its subsidiaries and successors shall provide those persons who,
immediately prior to the Effective Time, were employees of the Company or its
subsidiaries ("Retained Employees") with employee plans and programs that
provide benefits that are no less favorable in the aggregate than those
provided to such Retained Employees immediately prior to the date of the Merger
Agreement. With respect to such employee programs provided by the Surviving
Corporation and its subsidiaries and successors, service accrued by such
Retained Employees during employment with the Company and its subsidiaries
prior to the Effective Time shall be recognized for all purposes, except to the
extent necessary to prevent duplication of benefits. Parent and the Purchaser
have also agreed to honor, and cause the Surviving Corporation to honor,
without modification, all employment and severance agreements and arrangements,
as amended through the date of the Merger Agreement, with respect to employees
and former employees of the Company disclosed to Parent and the Purchaser
pursuant to the Merger Agreement. Parent and the Company have agreed that
prior to the Effective Time, they shall reasonably cooperate to develop and
adopt an employee retention plan for key employees of the Company, which plan
shall be subject to Parent's approval.

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<PAGE> 31

NO SOLICITATION

Pursuant to the Merger Agreement, the Company has agreed that it and
its subsidiaries shall not (and shall use their best efforts to cause their
respective officers, directors, employees and investment bankers, attorneys or
other agents retained by or acting on behalf of the Company or any of its
subsidiaries not to), (i) initiate, solicit or encourage, directly or
indirectly, any inquiries or the making of any proposal that constitutes or is
reasonably likely to lead to any Acquisition Proposal (as defined below); (ii)
engage in negotiations or discussions (other than to advise as to the existence
of the restrictions described in this paragraph) with, or furnish any
information or data to, any third party relating to an Acquisition Proposal; or
(iii) enter into any agreement with respect to any Acquisition Proposal or
approve any Acquisition Proposal. Notwithstanding the foregoing or anything to
the contrary in the Merger Agreement, the Company and the Company Board may
participate in discussions or negotiations (including, as a part thereof,
making any counterproposal) with or furnish information to any third party
making an unsolicited Acquisition Proposal (a "Potential Acquiror") or approve
an unsolicited Acquisition Proposal if the Company Board is advised by its
financial advisor that such Potential Acquiror has the financial wherewithal to
be reasonably capable of consummating such an Acquisition Proposal, and the
Company Board determines in good faith (i) after receiving advice from its
financial advisor, that such third party has submitted to the Company an
Acquisition Proposal which is a Superior Proposal (as defined below), and (ii)
based upon advice of outside legal counsel, that the failure to participate in
such discussions or negotiations or to furnish such information or approve an
Acquisition Proposal would violate the Company Board's fiduciary duties under
applicable law.

"Acquisition Proposal" means any bona fide proposal, whether in
writing or otherwise, made by a third party to acquire beneficial ownership (as
defined under Rule 13d-3 of the Exchange Act) of all or a material portion of
the assets of, or any material equity interest in, the Company or its material
subsidiaries pursuant to a merger, consolidation or other business combination,
sale of shares of capital stock, sale of assets, tender offer or exchange offer
or similar transaction involving the Company or its material subsidiaries
including any single or multi-step transaction or series of related
transactions which is structured to permit such third party to acquire
beneficial ownership of any material portion of the assets of, or any material
portion of the equity interest in, the Company or its material subsidiaries.
"Superior Proposal" means any bona fide proposal to acquire, directly or
indirectly, for consideration consisting of cash and/or securities, more than a
majority of the Shares then outstanding or all or substantially all the assets
of the Company, and otherwise on terms which the Company Board determines in
good faith to be more favorable to the Company and its stockholders than the
Offer and the Merger (based on advice of the Company's financial advisor that
the value of the consideration provided for in such proposal is superior to the
value of the consideration provided for in the Offer and the Merger), for which
financing, to the extent required, is then committed or which, in the good
faith reasonable judgment of the Company Board, after receiving advice from its
financial advisor, is reasonably capable of being financed by such third party.

The Merger Agreement also provides that the Company shall (i) in the
event the Company shall determine to provide any information as described above
or shall receive any Acquisition Proposal, promptly inform Parent in writing as
to the fact that information is to be provided and shall furnish to Parent the
identity of the recipient of such information and/or the Potential Acquiror and
the terms of such Acquisition Proposal, except, in either case, to the extent
that the Company Board determines in good faith, based upon the advice of
outside legal counsel that any such action would violate the

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Company Board's fiduciary duties under, or otherwise violate, applicable law.
The Company has agreed that any non- public information furnished to a
Potential Acquiror will be pursuant to a confidentiality agreement containing
confidentiality and standstill provisions substantially similar to the
confidentiality and standstill provisions of the Confidentiality Agreement
entered into between the Company and Parent, a copy of which has been filed
with the Commission as an exhibit to the Company's Schedule 14D-1. See
"Available Information."

Pursuant to the Merger Agreement, the Company has agreed that the
Company Board shall not (i) withdraw or modify, or propose to withdraw or
modify, in any manner adverse to Parent, its approval or recommendation of the
Merger Agreement, the Offer or the Merger or (ii) approve or recommend, or
propose to approve or recommend, any Acquisition Proposal unless, in each case,
the Company Board determines in good faith, after receiving advice from its
financial advisor, that such Acquisition Proposal is a Superior Proposal and,
based upon advice of its outside legal counsel, that the failure to take such
action would violate its fiduciary duties under applicable law.

INDEMNIFICATION

The Company shall, and from and after the consummation of the Offer,
Parent and the Surviving Corporation shall jointly and severally, indemnify,
defend and hold harmless the present and former directors and officers of the
Company and its subsidiaries (the "Indemnified Parties") from and against all
losses, expenses, claims, damages or liabilities arising out of the
transactions contemplated by the Merger Agreement to the fullest extent
permitted or required under applicable law. All rights to indemnification
existing in favor of the directors and officers of the Company as provided in
the Company's certificate of incorporation or by-laws, as in effect as of the
date of the Merger Agreement, with respect to matters occurring through the
Effective Time, shall survive the Merger and shall not be amended, repealed or
otherwise modified for a period of six years after the consummation of the
Offer in any manner that would adversely affect the rights of the individuals
who at or prior to the consummation of the Offer were directors or officers of
the Company with respect to occurrences at or prior to the consummation of the
Offer and Parent shall cause the Surviving Corporation to honor all such
rights to indemnification.

SHAREHOLDER LITIGATION

The Merger Agreement provides that in connection with any litigation
which may be brought against the Company or its directors relating to the
transactions contemplated thereby, the Company will keep Parent, and any
counsel which Parent may retain at its own expense, informed of the course of
such litigation, to the extent Parent is not otherwise a party thereto. The
Company has also agreed that it will consult with Parent prior to entering into
any settlement or compromise of any such shareholder litigation and will not
enter into any such settlement or compromise without Parent's prior written
consent, which consent shall not be unreasonably withheld.

FURTHER ASSURANCES

Pursuant to the Merger Agreement, each of the parties has agreed to
use its respective reasonable best efforts to take, or cause to be taken, all
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by the Merger Agreement, including the
Offer and the Merger.

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CONDITIONS TO THE MERGER

The Merger Agreement provides that the respective obligations of each
party to effect the Merger shall be subject to the satisfaction, at or prior to
the Effective Time, of the following conditions: (i) the Merger Agreement
shall have been adopted by the requisite vote of the Company's stockholders if
required by applicable law and the Company's certificate of incorporation; (ii)
any waiting period applicable to the Merger under the HSR Act shall have
expired or been terminated; (iii) no statute, rule, regulation, order, decree
or injunction shall have been enacted, promulgated or issued by any
Governmental Entity or court which prohibits consummation of the Merger; and
(iv) Parent, the Purchaser or their affiliates shall have purchased Shares
pursuant to the Offer.

The Merger Agreement provides that the obligation of the Company to
effect the Merger is further subject to the conditions that the representations
and warranties of Parent and the Purchaser shall be true and accurate and that
each of Parent and the Purchaser shall have performed in all material respects
all of the respective obligations required under the Merger Agreement to be
performed by Parent or the Purchaser, as the case may be, at or prior to the
Effective Time. The Merger Agreement also provides that the obligations of
Parent and the Purchaser to effect the Merger are further subject to the
conditions that the Company's representations and warranties shall be true and
accurate in all material respects as of the Effective Time as if made at and as
of such time, and that the Company shall have performed in all material
respects all of the respective obligations required under the Merger Agreement
to be performed by the Company at or prior to the Effective Time. The
conditions described in the two preceding sentences shall cease to be
conditions if the Purchaser shall have accepted for payment and paid for Shares
validly tendered pursuant to the Offer.

TERMINATION

The Merger Agreement provides that it may be terminated and the Merger
abandoned at any time prior to the Effective Time: (i) by mutual consent of
Parent, the Purchaser and the Company; (ii) by either the Company, on the one
hand, or Parent and the Purchaser, on the other hand, (a) if the Shares shall
not have been purchased pursuant to the Offer on or prior to February 23, 1998,
which date may be extended by Parent, in its sole discretion, for up to an
additional thirty days; provided, however, that a party may not terminate the
Merger Agreement pursuant to this clause (a) if such party's failure to fulfill
any obligation under the Merger Agreement was the cause of, or resulted in, the
failure of Parent or the Purchaser to purchase the Shares on or prior to such
date or (b) if any Governmental Entity shall have issued an order, decree or
ruling or taken any other action permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by the Merger Agreement or
prohibiting Parent to acquire or hold or exercise rights of ownership of the
Shares, and such order, decree, ruling or other action shall have become final
and nonappealable; (iii) by the Company (a) if prior to the purchase of the
Shares pursuant to the Offer, either (1) a third party shall have made an
Acquisition Proposal that the Company Board determines in good faith, after
consultation with its financial advisor, is a Superior Proposal and the Company
shall have concurrently executed a definitive agreement with such third party
in respect of such Superior Proposal, or (2) the Company Board shall have
withdrawn, or modified or changed in any manner adverse to Parent or the
Purchaser its approval or recommendation of the Offer, the Merger Agreement or
the Merger (or the Company Board resolved to do any of the foregoing), (b) if
Parent or the Purchaser shall have terminated the Offer, or the Offer shall
have expired, without Parent or the Purchaser purchasing any Shares pursuant
thereto; provided, that, the Company may not terminate the Merger Agreement
pursuant to the provisions described in this

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<PAGE> 34

clause (b) if the Company is in willful breach of the Merger Agreement, or (c)
if, due to an occurrence that if occurring after the commencement of the Offer
would result in a failure to satisfy any of the conditions to completion of the
Offer, Parent or the Purchaser shall have failed to commence the Offer on or
prior to five business days following the date of the initial public
announcement of the Offer, provided, that, the Company may not terminate the
Merger Agreement pursuant to the provision described in this clause (c) if the
Company is in willful breach of the Merger Agreement; or (iv) by Parent and the
Purchaser (a) if, prior to the purchase of Shares pursuant to the Offer, the
Company Board shall have withdrawn, modified or changed in a manner adverse to
Parent or the Purchaser its approval or recommendation of the Offer, the Merger
Agreement or the Merger or shall have recommended an Acquisition Proposal or
shall have executed an agreement in principle or definitive agreement relating
to an Acquisition Proposal or similar business combination with a person or
entity other than Parent, the Purchaser or their affiliates (or the Company
Board resolves to do any of the foregoing) or (b) if, due to an occurrence that
if occurring after the commencement of the Offer would result in a failure to
satisfy any of the conditions to completion of the Offer, Parent or the
Purchaser shall have failed to commence the Offer on or prior to five business
days following the date of the initial public announcement of the Offer;
provided, that, Parent may not terminate the Merger Agreement pursuant to the
provision described in this clause (b) if Parent or the Purchaser is in willful
breach of the Merger Agreement.

TERMINATION FEE

The Company has agreed to pay to Parent a termination fee of $8
million if the Merger Agreement is terminated by the Company pursuant to the
provisions described in clause (iii)(a) under "Termination" above, or by Parent
and the Purchaser pursuant to the provisions described above in clause (iv)(a)
under "Termination" above.

AMENDMENT

Subject to applicable law, the Merger Agreement may be amended,
modified and supplemented in any and all respects, whether before or after any
vote of the stockholders of the Company, by written agreement of the parties
thereto, by action taken by their Board of Directors at any time prior to the
date of closing with respect to any of the terms contained therein, provided,
however, that after the approval of the Merger Agreement by the stockholders of
the Company, no such amendment, modification or supplement shall reduce or
change the Merger Consideration or adversely affect the rights of the Company's
stockholders under the Merger Agreement without the approval of such
stockholders.

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FINANCIAL ARRANGEMENTS

The following is a summary of the Loan and Security Agreement, dated
as of November 19, 1997, by and between the Company, as Borrower, and Parent,
as Lender (the "Loan Agreement"), and the First Amendment to Loan and Security
Agreement, dated as of January 13, 1998, by and between the Company, as
Borrower, and Parent, as Lender. This summary is qualified in its entirety by
reference to the Loan Agreement, a copy of which has been filed with the
Commission as an exhibit to the Company's Schedule 14D-9 relating to the Offer.
See "Available Information."

THE COMMITMENT AND THE LOANS

Subject to the terms and conditions of the Loan Agreement and in
reliance on the representations and warranties of the Company set forth therein,
Parent has agreed to make (i) a term loan (the "Term Loan") to the Company in
the amount of $14,774,000 and (ii) revolving loans (each individually, a
"Revolving Loan" and collectively, the "Revolving Loans," and together with the
Term Loan, the "Loans") to the Company from time-to-time in an aggregate amount
not to exceed at any time $5,000,000. The Revolving Loan was amended as of
January 13, 1998 to provide for an additional $5,000,000 of availability under
the Revolving Loans. Accordingly, the Revolving Loan amount cannot exceed at
any time $10,000,000. The Term Loan was funded on November 19, 1997 in a single
advance. All proceeds of the Term Loan were used to pay to Westell the
termination fee required to be paid to it pursuant to the Westell Merger
Agreement. A Revolving Loan in the amount of $3,989,000 was funded on November
19, 1997. As required pursuant to the Loan Agreement, $3,557,000 of the
Revolving Loan proceeds were used by the Company to pay in full all amounts
outstanding under the Company's Loan and Security Agreement, dated as of
September 30, 1997, between the Company and Westell. The balance of the
Revolving Loan proceeds were used by the Company to pay in full all amounts
outstanding to Silicon Valley Bank ("SVB") under the Loan and Security
Agreement, dated as of April 25, 1997, between the Company and SVB.
Subsequently, the entire amount of availability under the Revolving Loans was
drawn by the Company and used for working capital purposes. The total amount
outstanding under the Revolving Loans as of January 13, 1998 was $10,000,000
plus accrued and unpaid interest.

INTEREST RATE

The interest rate applicable to the Loans is the Prime Rate (as
hereinafter defined) plus two percent (2%). Interest is payable monthly in
arrears. Upon and during the continuance of an event of default under the Loan
Agreement, the Term Loan and the Revolving Loans shall bear interest at a rate
that is three percent 3% in excess of the rate otherwise applicable at such
time.

PREPAYMENTS; REPAYMENTS

The Company may prepay the loans in whole or in part in increments of
$100,000 at its option. The Company will be required to prepay the Loans as
follows: (i) in full, immediately upon termination of the Merger Agreement for
any of the reasons described in clauses (iii)(a) or (iv) under "Merger
Agreement -- Termination" above, (ii) in full, within 180 days after the
termination of the Merger Agreement for any of the reasons described under
"Merger Agreement -- Termination" above (other than those described in clauses
(iii)(a) or (iv) of such section) and (iii) if at any time the

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Revolving Loans exceed $10,000,000 in an amount equal to the excess. The Loans
shall otherwise be payable in full on September 30, 1999, the termination date
of the Loan Agreement.

FORGIVENESS

Notwithstanding anything to the contrary in the Loan Agreement, Parent
has agreed to forgive the repayment of the Term Loan in the event that the
Merger Agreement is terminated, except if the Merger Agreement is terminated
(i) for any of the reasons described in clauses (iii)(a) or (iv)(a) under
"Merger Agreement -- Termination" above, (ii) for any of the reasons described
in clauses (ii)(a), (iii)(b), (iii)(c) or (iv)(b) under "Merger Agreement --
Termination" above and at the time of such termination the Company is in breach
of any of the conditions described in paragraphs (b), (c) or (e) in Section 14
of the Offer to Purchase, a copy of which has been filed with the Commission as
an exhibit to the Company's Schedule 14D-1, see "Available Information," or
(iii) in accordance with its terms and within six month after such termination,
the Company or its stockholders consummate a transaction or enter into a
definitive agreement with respect to an Acquisition Proposal that was pending
at the time of such termination.

SECURITY

The Revolving Loans are secured by liens on and security interests in
substantially all of the Company's personal property, including, without
limitation, its inventory, equipment, accounts receivable, general intangibles,
patents, trademarks, copyrights, computer hardware and software, and the
proceeds thereof. The Term Loan is an unsecured obligation of the Company.

REPRESENTATIONS AND WARRANTIES

In addition to the Company's representations and warranties in the
Merger Agreement, which are incorporated by reference into the Loan Agreement,
the Company has made representations and warranties with respect to (i) the
location of the collateral securing the Revolving Loans, (ii) the absence of
other liens (other than certain permitted liens), (iii) the possession and
control of its equipment and inventory, (iv) the delivery of instruments and
chattel paper and (v) the absence of defaults or events of default.

COVENANTS

So long as any of Parent's lending commitments under the Loan
Agreement remain in effect and until all of the Company's liabilities under the
Loan Agreement have been irrevocably paid in full, the Company will be
required to perform or comply with certain covenants, including, without
limitation, covenants relating to (i) limitations on indebtedness, (ii)
limitations on liens, (iii) notice and information delivery requirements, (iv)
the payment of taxes and claims, (v) the maintenance of assets and properties,
(vi) the maintenance of insurance policies, (vii) compliance with laws and
(viii) reports to other creditors. In addition, certain covenants set forth in
the Merger Agreement are incorporated by reference into the Loan Agreement.

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EVENTS OF DEFAULT

The Loan Agreement contains customary events of default including,
without limitation, (i) the failure to pay principal or interest on the Loans
when due, (ii) any representation or warranty proving to have been false when
made, (iii) the failure to comply with any other term, covenant or agreement of
the Loan Agreement (subject, in certain instances, to a grace period of ten
days), (iv) defaults with respect to certain other indebtedness, (v) bankruptcy
and insolvency and (vi) the failure of the Loan Agreement or any collateral
documents to remain in full force and effect and to create a valid and
perfected first priority security interest in the collateral securing the
Revolving Loans.

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BUSINESS

Incorporated under the laws of the state of Delaware in 1968 as
Microform Data Systems, Inc., the Company changed its name to ICOT Corporation
in 1980. On November 28, 1995, ICOT Corporation, based in San Jose, California
and Amati Communications Corporation ("Old Amati"), a privately held Mountain
View, California based company completed a merger by which Old Amati became a
wholly- owned subsidiary of the Company. Effective as of the merger, the
Company's name was changed to Amati Communications Corporation, and its common
stock began trading on Nasdaq under the symbol "AMTX". To accommodate its
recent growth and to consolidate facilities of the merged entities, the Company
moved to a new office in September 1996. The Company's principal offices are
now located at 2043 Samaritan Drive, San Jose, California, 95124 and its
telephone number is (408) 879-2000, fax number is (408) 879-2900 and World Wide
Web site is at : http//www.amati.com.

The Company is a leading developer of advanced transmission equipment
utilizing DMT technology for ADSL and VDSL markets. The Company holds DMT,
ADSL and VDSL patents and has entered into agreements covering its technology,
with companies like Alcatel, Analog Devices, Inc., Motorola, NEC, Northern
Telecom, Siemens and Parent. The Company's DMT/ADSL products were recently
selected by British Columbia Telephone ("BC Tel"), Canada for a proposed
roll-out of the first standards based commercial ADSL services for transmitting
high-speed data over existing copper phone lines, making internet access,
interactive services, broadcast quality video and video-on-demand realizable to
subscribers.

The Company is also a provider of network connectivity systems for the
internetworking and Original Equipment Manufacturers ("OEM") markets. These
products are used primarily in two applications:

- International Business Machines Corporation ("IBM") compatible
personal computers ("PCs") to IBM mainframe connectivity
applications in Local Area Networks ("LANs").

- Bridge products for interconnecting Token-Ring LANs,
Token-Ring and Ethernet LANs, and Token-Ring LANs over Wide
Area Networks ("WANs").

PRODUCTS AND MARKETS

The Company is currently developing products to provide high speed
digital video, voice and data transmission over copper phone lines utilizing
DMT modulation technology. See "Technology" referenced below. Beginning in
1987, Dr. John Cioffi, who undertook initial research on DMT technology, and
his graduate students developed the concept of utilizing DMT technology to
transmit large amounts of digital code and multimedia signals over ordinary
telephone lines. This research resulted in three patents, owned by Stanford
University, to which the Company holds an exclusive worldwide royalty-bearing
license.

The Company has developed the DMT technology primarily for ADSL
applications. In 1992, a prototype system was developed with funding from
Northern Telecom to participate in the competition for the American National
Standards Institute ("ANSI") standard for the ADSL transmission specification.
In 1993, Amati's DMT technology was selected by ANSI and, as a result, is
recognized

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as the United States standard for ADSL transmission. In cooperation with ANSI,
the European Telecommunications Standards Institute ("ETSI") has provided an
information annex that makes the appropriate data rate changes for European
ADSL service. The Company believes the award of the ANSI and ETSI standards
will increase the market potential for the Company's products. Because Amati's
DMT technology was selected as the standard for ADSL, it is required to license
such technology on a fair and reasonable basis to third parties who request it.

TECHNOLOGY

The Company's core technology is DMT, a multicarrier modulation
technology. The concept of multicarrier transmission is over 30 years old;
however, research on the Company's DMT technology has been accomplished during
the past 8 years. The Company has exclusive, worldwide royalty-bearing license
rights to the DMT patents owned by Stanford University; since the Company's
inception, it has filed numerous additional patent applications to protect its
intellectual property. The Company considers itself to be the leader in the
development of DMT technology.

The purpose of modulation technology is to transmit a signal over a
given medium as efficiently as possible. This requires minimizing errors in
transmission by avoiding the noise accompanying the chosen medium. In the case
of DMT, the available bandwidth is divided into carriers that reside at
different frequencies. The carriers are measured for their ability to send
data with the bits of information assigned to the carriers based upon their
capacity. Carriers with higher capacity are assigned more bits, while carriers
unable to carry data are turned off. In the case of an ADSL system, the
available bandwidth is 1.1 megahertz (MHz), consisting of 256 carriers of 4
kilohertz (kHz) bandwidth each.

A DMT system has a transceiver at each end of the line. In the case
of ADSL, there is one transceiver in the telephone company's central office
called the ATU-C (ADSL Transmission Unit-Central office) and one in the
subscriber's home called the ATU-R (ADSL Transmission Unit-Remote). When DMT
initializes the ATU-C by transmitting 256 4 kHz carriers downstream to the
ATU-R, the ATU-R measures the quality of each of the carriers and then decides
whether a carrier has sufficient quality to be used for further transmission
and, if so, how much data this carrier should carry relative to the other
carriers that are to be used. This information is then passed back to the
ATU-C via a control channel where the bits are assigned to the carriers. The
system is very adaptive as it will change the bit assignments should the line
characteristics change during transmission. This procedure maximizes
performance by minimizing the probability of bit error in transmission. Bit
errors are typically caused by interference such as AM radio stations,
open-circuited branched telephone lines called bridge taps and crosstalk from
other wires. The system simply assigns fewer or no bits to carriers at
frequencies where the interference occurs.

The initial development of DMT was directed toward transmitting
digital video signals over ordinary copper twisted-pair wires. DMT is also
effective over other media, including coaxial cable and wireless transmission.
The Company believes that in order to design and manufacture commercially
acceptable products, cost and performance improvements beyond what is available
with current technology will be necessary. Accordingly, it has assembled a
microelectronics team that is designing custom integrated semiconductor
circuits utilizing standard Application Specific Integrated Circuit ("ASIC")
design systems and certain technologies beyond ASIC.

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ADSL (ASYMMETRICAL DIGITAL SUBSCRIBER LINE)

In the late 1980's, Bellcore, the research entity jointly created and
funded by seven Regional Bell Operating Companies for the development of new
technologies, developed the parameters for ADSL as a high-quality, low-cost
method for transmitting digital video from the central office of the local
telephone company to a subscriber's home over ordinary copper twisted-pair
wire. The term "asymmetric" refers to the fact that there is a different data
rate in each direction (bi-directional) of the transmission. The ANSI standard
for ADSL sets the data rate at approximately 6 Mbps to the subscriber's home
and approximately 600 Kbps from the subscriber's home to the central office
over 24 and 26 gauge copper twisted-pair wire for a distance of up to two
miles. The practical implementation of ADSL products will allow the
simultaneous transmission of video, data and voice over the type of copper wire
that is currently installed in most homes in the United States and other
developed countries.

ADSL is intended for data dialtone services, such as internet access,
as well as video dialtone services. The potential demand for ADSL is being
driven primarily by the threat to the telephone companies of increased
competition as a result of deregulation, and their desire to provide high speed
data transmission and video services utilizing their existing copper wire plant
without having to invest heavily in more expensive access technologies, such as
fiber-optic systems. Telephone companies are currently performing technical
and market trials of various data, video and multimedia systems. ADSL has the
potential of providing telephone companies with a technology that will enable
them to compete cost-effectively with their main competitors, the interexchange
carriers and cable companies, for high speed internet access and video
services.

There are several access transmission technologies that can deliver
digital services to a subscriber's home. The most effective technology, laying
fiber-optic cable to each home, is not practical as a near-term solution from
both cost and time-to-implement perspectives. Therefore, the telephone
companies are reviewing interim strategies such as ADSL, Hybrid Fiber Coax
("HFC"), fiber-to-the-curb and certain wireless solutions. The Company
believes ADSL is the most effective technology where homes are widely dispersed
or where the "take rates" of the services are low (which is expected as new
data and video services are introduced). ADSL provides the additional
advantages of utilizing the existing copper plant, which avoids trenching
streets and subscriber's properties to lay new coaxial or fiber-optic cables.
In addition, ADSL can be deployed easily on a home-by-home basis. However,
ADSL has the disadvantage relative to fiber-to-the-curb and HFC of offering
fewer simultaneous channels, although telephone office switches may be able to
increase the menu of offerings with ADSL.

The Company's first ADSL product was called Prelude. Prelude was
completed in 1992 and utilized in the various competitions for the ANSI
standard, which was awarded to the Company's DMT technology. This prototype
was developed by engineers with funding by Northern Telecom to prove that a 6
Mbps data rate was possible over copper wire and to participate in the ANSI
standards competition. Prelude was produced using discrete (off-the-shelf)
components. Prelude has been utilized by telephone companies in 15 countries
throughout the world to evaluate the potential of ADSL, primarily in laboratory
trials.

In November 1995, the Company began shipping the Overture series of
transceivers. The Overture 4 is a prototype that does not have a low enough
cost or power consumption for mass deployment and its components are entirely
discrete (off-the-shelf). It can operate at data rates of 1.5,

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2, 3, or 4 Mbps in the downstream (central office to the home) direction and up
to 64 Kbps in the upstream direction, and thus does not meet the ANSI standard
for transmission rates. The Overture 4 is currently participating in field
trials, but is being phased out in favor of the next series called Overture 8.

In March 1996, the Company delivered the Overture 8, a transceiver
characterized by a high bandwidth as defined by the ANSI standards. Currently
installed in a trial of broadcast video in Australia, the Overture 8 is the
first product utilizing custom semiconductors designed by the Company's own
microelectronics group. Overture 8 has two components developed utilizing ASIC
design techniques. The Company believes Overture 8 will be important to the
market because it has the capability to support the requirements delineated in
the ANSI standard, including four downstream channels and three upstream
channels. The downstream data rates using Overture 8 can be as high as 8 Mbps
in various multiples, such as four 2 Mbps channels, and can be channelized in
order to support such services as video conferencing.

In June 1996, a new version of the Overture 8 ADSL/DMT Modem
specifically designed to meet system needs for Internet access was announced.
Key to the new design is the core ADSL/DMT technology that enables Internet
access at data rates as high as 8 Mbps downstream and 640 Kbps upstream, 60
times faster than basic rate ISDN and up to 250 times faster than many dial-up
modems. The new Overture 8 ADSL/DMT Modem for Internet Access adds direct
Ethernet connectivity, using 10BaseT, to both subscriber and central office
units. This is the first 8 Mbps ADSL modem with Ethernet available
commercially. Moreover, as with all standard ADSL/DMT modems, the new Overture
8 provides the high- speed data transmission over standard phone lines while
still permitting voice traffic on the same connection. The Company's ADSL
products continue to participate successfully in labs and field trials in both
international and domestic markets. The international trials include services
being offered by Post Telephone and Telegraph ("PTT")'s in Europe and
Asia-Pacific, with companies such as Italtel, Tadiran and Samsung. Other
trials include broadcast video installed in Australia and data/video
applications in France. In the US, the company has provided equipment in
GTE-Microsoft's Internet access trials and in NEC-MCI's video broadcast system
trials.

In April 1997, the Company shipped its next generation of Overture 8
products, the Model 810, which delivers speeds up to 8 Mbps downstream and 640
Kbps upstream. Its advanced, low power design consumes less than 7W and
adjusts power consumption to line lengths and traffic conditions. This model
is designed to be used as a plug-in for the Allegro Access Concentrator or as a
stand-alone unit for the subscriber.

Another product introduced by the Company is the ADSL View SNMP
Manager, a Graphical User Interface ("GUI") based element manager that permits
central site administration and management of the Company's ADSL network. This
Windows-based view manager can speed service delivery by simplifying
provisioning, reconfiguration and management.

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Before the end of fiscal 1997, the Company was selected to provide
equipment to BC Tel, Canada's second largest telecommunications company, for
its first commercial, standards-based ADSL services. These ADSL/DMT products
will be used in the central switching office and by customers and will enable
BC Tel to initially offer services such as high- speed Internet access and
high-speed corporate LAN access to its customers.

VDSL (VERY HIGH-SPEED DIGITAL SUBSCRIBER LINE)

Telephone companies have been placing fiber-optic cables into
communities and are expected to continue to do so at an increasing rate. It is
currently not economically feasible to take the fiber directly to homes and
telephone companies are not expected to do so in the foreseeable future.
Access technologies such as fiber-to-the-curb and fiber- in-the-loop are
strategies that allow telephone companies to run the fiber to some platform or
node in the community and link homes requiring high bandwidth services directly
over copper wire or coaxial cable. The concept of transmitting at such high
data rates over thousands of feet of copper wire is just now becoming a
reality. VDSL is used in conjunction with a fiber-optic backbone to cover the
"last mile" as efficiently as possible. The VDSL market thus requires DMT
products that have higher data rates (25 Mbps to 52 Mbps) over shorter
distances (typically 500 to 3,000 feet) than ADSL products.

The Company believes that DMT technology is superior to other
available modulation technologies for this application and is designing VDSL
products using its microelectronics capability. As with ADSL, VDSL products
will be asymmetrical and are intended to carry video, voice and data
simultaneously. The Company's next VDSL product, called the Piccolo, is
expected to operate asymmetrically at speeds of up to 25 Mbps. These products
are expected to be introduced in 1998 and to compete for the ANSI standard for
VDSL transmission, which has not yet been awarded.

The Company's digital VDSL chip is being designed for utilization in
cable as well as copper transmissions. Management has been very involved in
cable standards activities in an attempt to obtain the endorsement for DMT
through the Institute of Electrical and Electronic Engineers ("IEEE") 802.14
committee, which has authority over the upstream cable standards. DMT has the
unique capability of optimizing the upstream data rate relative to other
technologies available, although there can be no assurance the Company will win
this endorsement. As the cable market migrates from analog systems to digital
with interactive requirements, a large opportunity for DMT-based systems will
exist. As is true for ADSL products, in order to implement a video service
over VDSL products, other key components, not supplied by the Company,
including video content, a digital switch, a video server, encode/decode
equipment and a set-top box in the subscriber's home, will be required to
co-exist in a cost effective manner.

During fiscal year 1997, the Company reached an agreement with NEC
Corporation to jointly develop the VDSL transceiver offering higher speeds for
shorter subscriber loops. Under this agreement, the Company will provide
DMT/VDSL technology to NEC, which will design and then produce a digital chip
set expected to offer excellent performance including long transmission
distances, robustness against noise, crosstalk environment, and low power
consumption while still offering a cost effective solution. Development
efforts in conjunction with this technology are ongoing.

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<PAGE> 43

IBM PRODUCTS

During the past several years, the Company has undertaken several
projects in which it has designed, developed and manufactured custom
communications products for IBM. Pursuant to its principal agreement with IBM,
the Company furnishes engineering, manufacturing, and assembly services for the
manufacture of LAN bridge products in accordance with IBM specifications and
upon receipt of purchase orders for the products. This manufacturing agreement
with IBM, amended in December 1993, has been extended to December 1998. Under
the terms of a second agreement, the Company provided development and support
services to IBM for a custom product. IBM shipped this product in the United
States and Canada in July 1994 and in a number of European and Asian countries
thereafter. In fiscal years 1996 and 1997, the Company received royalty
payments from IBM on sales of this product to end-customers.

Fiscal 1997 sales to IBM accounted for approximately 51% of the
Company's revenues. Since IBM considers product sales and market data
confidential, the Company has very little ability to anticipate future demands.
The Company is highly dependent on sales to IBM and expects that quarterly and
annual results could be volatile due to its dependence on this dominant
customer. IBM may terminate its agreements with the Company upon 30 days'
notice without a significant penalty. Upon termination of the agreements, the
Company has continuing obligations to provide certain products and technical
support for a period of years, at a price then to be negotiated.

CONNECTIVITY PRODUCTS

The Company's PC to Mainframe Connectivity products consist of 3270
emulation products which are Disk Operating System ("DOS") and Microsoft
Windows based software and microcomputer boards (with extensive firmware) that
reside in an IBM or IBM compatible PC, and enable the PC to communicate, access
and transfer data through Systems Networks Architecture ("SNA") to IBM or IBM
compatible mainframes. The Company sells single user and LAN gateway versions
of all its products. LAN gateways allow multiple PC users, attached directly
to Token-Ring, Ethernet and other LANs, to access SNA networks through one
shared link. The Company markets its PC to Mainframe Connectivity products to
selected niche markets: OEMs, Application Program Interface ("API") and
strategic end-user market segments of the Windows and DOS Connectivity markets.
The Company's connectivity market share and revenues have been declining in
recent years and are expected to continue to decline.

SALES, MARKETING, SERVICE

With its DMT products, the Company's strategy is to sell to telephone
companies worldwide through large telecommunication suppliers who will
integrate the Company's products into larger systems for their customers. This
type of OEM selling does not require a large sales force. In the PC to
Mainframe Connectivity market, the Company sells to end-users, independent
software vendors, OEM's and through a small network of resellers. In the
network connectivity business, the Company offers a 90-day warranty and
post-warranty support programs. Hardware products are typically serviced on a
factory repair basis. Software support is usually handled by phone
consultation or, less often, by an on- site visit by a systems engineer. The
Company employs five persons in sales, six in customer support, and three in
marketing.

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<PAGE> 44

Export sales of connectivity products in fiscal 1995, 1996, and 1997
represent 1-2% of total net sales, for each such year, primarily to Western
Europe and Canada. Shipments of the Overture series of transceivers for use in
field trials, primarily to the countries of Germany, Netherlands, France,
Finland and Canada accounted for 11% of total net revenues in fiscal 1997.
These sales are subject to certain controls and restrictions, but the Company
has not experienced any material difficulties related to these sales.

BACKLOG

As of the end of fiscal 1996 and 1997, the Company's backlog was
approximately $2,961,000 and $2,362,000, respectively. The Company anticipates
that all of its current backlog will be filled within the 1998 fiscal year.

MANUFACTURING

Most of the Company's products are assembled at its San Jose,
California facility, where testing, quality assurance and material control
activities are performed. The Company has the capacity to increase its output
without further expansion of its physical plant and warehousing facilities.
The Overture series of transceivers is currently in production, and assembly
and testing of this product is being outsourced. Product quality and
reliability is maintained at vendors' sites through auditing at subcontractors'
facilities and inspection of incoming components.

Electronic and mechanical components, subassemblies and supplies are
purchased from many independent suppliers. Although the Company purchases most
of a given component, subassembly or supply from a single vendor, management
believes that, with a few exceptions, at least one alternative source of supply
is available at comparable cost for each component in its product lines. A few
components are consigned from IBM and there is no alternative source of supply
for these components.

RESEARCH AND DEVELOPMENT

The Company believes that it has a technological leadership position
in DMT modulation technology. Future success, however, is largely dependent on
its ability to maintain this position through the development of new products
that meet a wide range of customer needs. Accordingly, the Company intends to
continue to make substantial investments in research and development. There
can be no assurance that future development efforts will result in commercially
successful products, or that these products will not be rendered obsolete by
changing technology, new industry standards or new product announcements by
others.

The Company had 48 full-time employees engaged in research and
development activities as of August 2, 1997. Its research and development
efforts are expended on the enhancement of existing products and for the
development of new products in order to meet rapidly changing customer
requirements. These efforts are organized into three main groups: VLSI, ADSL
and VDSL development. Currently, the VLSI group is focused on efforts for the
ADSL and VDSL markets.

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<PAGE> 45

Significant activities include the following:

- Development of system level ADSL and VDSL products.

- Development of OEM ADSL and VDSL modules.

- Reducing the cost, power and size of ADSL and VDSL modules and
products.

Net research and development expenses totaled $1,595,000 (13% of net
sales) in fiscal 1995, $3,837,000 (32% of net sales) in fiscal 1996 and
$8,335,000 (63% of net sales) in fiscal 1997. Increasing research and
development costs in fiscal 1996 and 1997 are primarily due to the hiring of
additional engineers and introduction of the Company's next generation of the
Overture series of ADSL/DMT modems, access system shelf products, the Allegro
access concentrator and the Model 810. All related research and development
expenses are charged to operations as incurred. Engineering expenses are net
of software development costs capitalized in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 86 and of IBM-funded development
costs. There was no capitalization of software development costs in 1995, 1996
and 1997. The amount of funded development costs totaled $637,000, $589,000
and $494,000, respectively, for fiscal 1995, 1996 and 1997. The amortization
of capitalized software development costs charged to cost of sales was $310,000
in fiscal 1995, and $246,000 in fiscal 1996 and 1997.

COMPETITION

Telephone company trials have demonstrated the feasibility of ADSL
products. Two basic ADSL technologies have participated in these trials: the
Company's DMT multicarrier technology and the single Carrier-less
Amplitude/Phase modulation ("CAP") technology developed by AT&T
Microelectronics Division and sold to Globespan. DMT and CAP have been rival
technologies since the ANSI standards competition in 1993, which was won by the
Company's DMT technology. The Company believes that its DMT technology is less
complex and more cost effective than a single carrier technology, such as CAP.
The trials to date have been run at data rates of 1.5 Mbps and 2 Mbps, the
speeds of Globespan's CAP products. The Company believes that as products
capable of data rates of 6 Mbps and 8 Mbps become increasingly available,
trials will be conducted at those speeds. As the performance differences
between DMT and CAP become greater at higher data rates, the Company believes
that most of the competition at the higher speeds will come from other
competitors using DMT technology.

The Company has entered into agreements with Motorola Corporation and
Parent to develop a standards compliant chip solution for the ADSL market. The
Company has also licensed its technology to Alcatel and Analog Devices, Inc.
who have developed or are developing integrated circuits. The Company has the
right to buy the Motorola chip and the Parent chipset at most favored customer
prices. The Company expects customers of these companies to become competitors
with system level DMT products. Other entities with development efforts
underway with DMT technology for the ADSL marketplace include ORCKIT, Pairgain,
ECI, Ericsson and Aware.

To date, the Company is not aware of any ADSL products introduced in
the marketplace that have a cost, power and size structure satisfactory for a
mass deployment to customers. In order to design and manufacture commercially
viable product in this market, a substantial investment in custom

40
<PAGE> 46

integrated semiconductors must be made. Those suppliers not making such
investments will not be able to compete effectively.

The PC to Mainframe Connectivity market is highly competitive and is
characterized by rapid advances in technology which result in the frequent
introduction of new products with improved performance characteristics, thereby
subjecting the Company's products to the risk of technological obsolescence.
The Company's ability to compete is dependent on several factors, including:
reliability, product performance, quality, features, distribution channels,
name awareness, customer support, product development capabilities and the
ability to meet delivery schedules. The Company competes, directly or
indirectly, with a broad range of companies, many of whom have significantly
greater financial and other resources. In addition, the Company is competing
for a limited and declining segment of the PC- Connectivity market, which
market is itself declining.

Many companies compete in the PC to Mainframe Connectivity market,
including IBM, Attachmate Corporation, Eicon Group, Inc., Network Software
Associates, Wall Data Incorporated, and Novell Inc. Products and policies of
these companies can adversely affect the Company's competitive position. A
large number of the Company's products interact with IBM equipment and support
IBM protocols. Thus, the development of new products, equipment or
communications systems by IBM could adversely affect its PC to Mainframe
Connectivity competitiveness.

PATENTS, TRADEMARKS

The Company has a policy of seeking patents when appropriate on
inventions concerning new products and improvements as part of its on-going
research and development activities. The Company has a total of 27 patents
issued or filed.

The Company principally relies on its technological and engineering
resources to develop its business in an industry where technology changes very
fast. It does, however, consider the use of trademarks, copyrights, license
agreements and non-disclosure agreements as a means to protect its proprietary
technology and, therefore, it intends to seek and maintain protection where
appropriate.

The Company also has several registered trademarks, including "ICOT"
and "OmniPATH" and has copyrights in its software and related documentation,
and is a licensee under three OEM software source code licenses that are used
in connection with the development, maintenance, enhancement, and support of
various PC to Mainframe connectivity products. These licenses pertain to
peripheral products which the Company re-markets to complement or add features
to its core product line.

EMPLOYEES

As of August 2, 1997, the Company had 101 full-time employees, of whom
22 were engaged in manufacturing, 48 in research and development, 14 in
marketing and sales and 17 in general and administrative positions.

Thirteen members of the Company's engineering staff hold doctoral
degrees. The Company also employs a number of consultants who are primarily
used in engineering. Competition for technical personnel in this technology is
intense. In May 1995, the Company entered into an employment agreement with
Dr. John Cioffi, its founder and Chief Technical Officer. The agreement
provides for

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<PAGE> 47

Dr. Cioffi to be employed by the Company until October 1998, while continuing
his obligations as a full-time tenured faculty member at Stanford University.
Stanford University limits the amount of time its faculty can spend on outside
activities.

All employees of the Company are based in the United States. None of
its employees are subject to a collective bargaining agreement, and there have
been no work stoppages due to labor difficulties. The Company believes that
its employee relations are good.

PROPERTIES

The Company's corporate headquarters and manufacturing facility is
located in San Jose, California. In 1996, the Company moved its corporate,
engineering and manufacturing operations to an approximately 48,700 square foot
facility to consolidate its operations and accommodate its recent growth. The
lease for this facility commenced on July 15, 1996 and expires on July 31,
2001.

The Company's lease for its prior facility in North San Jose expires
on July 23, 1999, and has been subleased for the remaining term of the lease.
Related rent and operating cost obligations are covered in full by sublease
income.

The Company's wholly owned subsidiary, ICOT International Limited, now
dormant, leases an approximately 6,400 square foot building located in
Wokingham, England. ICOT International Limited ceased its operations in the
United Kingdom in fiscal 1993 as part of the Company's restructuring of its
connectivity business. The lease on the Wokingham facility expires on
September 29, 2010. The Company has subleased this facility through December
1998, but income from this sublease is less than its rental obligations. The
Company has recorded a liability of $454,000, net of anticipated future
sublease income, to cover partial rental obligations related to this facility.
The Company believes that its current facilities are adequate to conduct
operations, and that its facilities are adequate for the future growth of the
Company.

LEGAL PROCEEDINGS

In November 1993, an action was brought against the Company for
damages related to the use of one of the Company's products. The plaintiff
filed a suit claiming repetitive stress injuries resulting from the use of the
Company's products in the course of employment with American Airlines during
the period from May 1981 through July 1991. The plaintiff alleges damages in
the amount of $1 million and has requested punitive damages of $10 million.
The Company believes that the claim is without merit and has tendered defense
of this action to its insurance carriers. In the opinion of management, the
outcome of this litigation will not have a material adverse effect on the
Company's financial position or its results of operations.

Following public announcement of the execution of the Westell Merger
Agreement, the first of three substantially similar actions was filed in the
Court of Chancery of the State of Delaware in and for New Castle County against
the Company, Westell and the directors of the Company. Styled Chopp v.
Gibbons, et. al., C.A. No. 15971-NC, Kinney v. Gibbons, et. al., C.A. No.
15977-NC; and Mendel v. Gibbons, C.A. No. 15973-NC, the actions, pleaded as
putative class actions on behalf of a purported class of Company stockholders,
allege, among other things, that the directors of the Company breached their
fiduciary duties in connection with approving the Westell Merger Agreement.
The actions seek,

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<PAGE> 48

among other things, to enjoin the transactions contemplated by the Merger
Agreement and damages. A Memorandum of Understanding settling this matter was
entered into on December 12, 1997.

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<PAGE> 49

SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
Fiscal Years Ended Three Months Ended
---------------------------------------------------- -------------------------
July 31, July 30, July 29, July 27, August 2, November 2, November 1,
1993 1994 1995 1996 1997 1996 1997
-------- -------- -------- -------- --------- ----------- -----------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT
DATA:
Net Sales . . . . . . . . . $ 12,307 $ 8,236 $ 12,040 $ 12,085 $ 13,200 $ 4,513 $ 4,702
Income (Loss) before Income
Taxes . . . . . . . . . . . (5,963) 530 1,933 (34,035) (12,243) (746) (4,442)
Provision for Income Taxes -- 27 97 43 -- -- --
-------- -------- -------- -------- --------- ----------- ----------
Net Income (Loss) . . . . . $ (5,963) $ 503 $ 1,836 $(34,078) $ (12,243) $ (746) $ (4,442)
Net Income (Loss) Per Share (.46) .04 .16 (2.21) (.66) (.04) (.23)

SELECTED BALANCE SHEET
DATA:
Current Assets . . . . . . $ 11,188 $ 9,463 $ 7,793 $ 5,182 $ 9,282 -- $ 9,611
Current Liabilities . . . . 2,598 2,171 1,591 2,467 5,517 -- 10,206
Working Capital . . . . . . 8,590 7,292 6,202 2,715 3,765 -- (595)
Total Assets . . . . . . . 12,936 11,391 12,111 6,241 15,083 -- 15,579
Long-term Liabilities . . . 1,099 428 294 2,094 4,540 -- 4,587
Stockholders' Equity . . . 9,239 8,792 10,226 1,680 5,026 -- 786

OTHER DATA:
Book Value Per Share . . . -- -- -- -- .26 -- .04
</TABLE>

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<PAGE> 50

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

INTRODUCTION

To the extent that the information presented in this Information
Statement discusses financial projections, information or expectations about
the Company's products or markets, or otherwise makes statements about future
events, such statements are forward-looking and are subject to a number of
risks and uncertainties that could cause actual results to differ materially
from the statements made. These include, among others, successful and timely
development and acceptance of new products, the availability of sufficient
funding to complete development of new products and other factors described
below. In addition, such risks and uncertainties also include the matters
identified under the heading "Risk Factors" below.

OVERVIEW

On November 28, 1995, ICOT Corporation, based in San Jose, California,
and Amati Communications Corporation ("Old Amati"), a privately held Mountain
View, California based company, completed a merger by which Old Amati became a
wholly-owned subsidiary of ICOT Corporation. Effective as of the merger, the
name of the surviving company was changed to Amati Communications Corporation
and its common stock began trading on Nasdaq on November 29, 1995. In September
1996, the combined company moved to a new 48,700 square foot building in San
Jose, California to accommodate its growth and consolidate engineering and
manufacturing in a single facility.

HIGHLIGHTS OF FISCAL YEAR 1997

- Announced a joint development agreement with NEC Corporation
to provide DMT/VDSL technology in the design and production of
a digital chip set for high-speed over fiber networks.

- Participated in the France Telecom trial to deliver the first
broadcast video service and internet mid- band services with
the new Overture 8 ADSL/DMT Modem Design.

- Announced an alliance with Parent to jointly develop and
market DMT technology for ADSL modems based on TI's TMS 320
Digital Signal Processors ("DSP").

- Introduced the Allegro, the first in the line of products
developed by the Company and the world's first ADSL Access
Concentrator designed to enable the installation of multiple
modems and control via a single mechanical configuration,
saving space, consolidating power and providing easy
maintenance.

- Announced a program to integrate Sourcecom's BANC 6000 with
the Company's Allegro to provide an integrated DSLAM and
networking platform for high speed access networks using
standard DMT-based ADSL technology.

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<PAGE> 51

- Licensed Euristix RACEMAN EMSY Element Management System
technology to provide visibility, status monitoring, basic
alarm management, and basic performance for the Allegro--all
in a Windows based graphical user interface (GUI).

- Announced a strategic development partnership with Siemens AG,
a leader in Asynchronous Transfer Mode (ATM) technology aimed
at high speed connection of ATM to ADSL transmission lines.

- Provided modems at GTE--Microsoft, high speed Internet access
and NEC America-MCI broadcast video trials utilizing DMT/ADSL
technology.

- Supplied ADSL equipment to BC TEL, Canada's second largest
telecommunication company, the Company's first commercial
service using DMT products.

RESULTS OF OPERATIONS

First Fiscal Quarter 1998 vs. First Fiscal Quarter 1997

Total net sales in the first quarter of 1998 increased 4% to
$4,702,000 from sales of $4,513,000 in the first quarter of the prior fiscal
year. Revenues recognized during both fiscal quarters include revenues
recorded under the Company's previously announced joint development agreement
with NEC Japan. VDSL development efforts in conjunction with NEC Japan are
ongoing. Sales to IBM accounted for 32% of the Company's revenue in the first
quarter of fiscal 1998 compared with 44% for the comparable period of fiscal
1997. In February 1997, the Company signed an extended contract with IBM for
the development and manufacture of its next generation internetworking
products. The Company expects that IBM will continue to account for a
substantial portion of the Company's revenues until development and
commercialization of its ADSL products are completed.

In June 1997, the Company was selected to provide equipment to BC Tel,
Canada's second largest telecommunications company, for its first commercial,
standards-based ADSL services. These ADSL/DMT products will be used in the
central switching office and by customers and will enable BC Tel to initially
offer services such as high- speed Internet access and high-speed corporate LAN
access to its customers. Sales of the ADSL/DMT products in the first quarter
of 1998 were $1,722,000 compared with $240,000 for the first quarter of the
prior fiscal year.

PC to Mainframe Connectivity sales of $120,000 for the first quarter of
fiscal 1998 represents a decrease of 60% when compared with the same period of
the prior fiscal year due to a general decline in the Company's connectivity
market share. The PC to Mainframe Connectivity market is highly competitive and
is characterized by rapid advances in technology, thereby subjecting the
Company's products to risk of technological obsolescence. The Company competes
directly or indirectly with a broad range of companies, many of whom have
significantly greater resources. In addition, the Company is competing for a
limited segment of a declining market.

Gross margin as a percent of sales was less than 1% for the first
quarter of fiscal 1998 compared with 54% for the same period of fiscal 1997.
Margins were lower as a result of product volume mix represented by shipments
of ADSL products in its early stage of development comprising

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<PAGE> 52

37% of sales in the current fiscal quarter compared to 6% of sales in the first
quarter of the prior fiscal year.

Net research and development expenses increased 33% to $2,323,000 in
the first quarter of fiscal 1998 when compared to the same period of fiscal
1997 largely because of the addition of engineers and the introduction of the
Company's new ADSL/DMT modems, access system shelf products and access
concentrators, and outside design work to support the VDSL standards.

Marketing and sales expenses increased by $486,000 or 87% in the first
quarter of fiscal 1998 when compared with the same period of the prior fiscal
year. This is primarily due to an increase in staffing and overseas travel in
conjunction with the Overture series representation in field trials
internationally and outside service and consultants expenses. Sales, market
and customer support operations of the Company's ADSL products, which cover
both domestic and international markets, are handled by fourteen individuals.
The Company's strategy is to sell to telephone companies worldwide through
large telecommunication suppliers who will integrate the Company's products
into larger systems for their customers.

General and administrative expenses increased by $185,000 or 26% in
the first quarter of fiscal 1998 when compared with the same period of the
prior fiscal year. This is primarily due to patent and legal expenses and
higher depreciation and amortization expenses related to equipment and
leasehold expenditures with the move to a larger facility.

Interest income increased to $15,000 in the three-month period of
fiscal 1998 compared to $1,000 in the same period of fiscal 1997 due to higher
cash balances for investment purposes.

There were no provisions for income taxes for the first quarter of
both fiscal years.

Fiscal Year 1997 vs. Fiscal Year 1996

Total net sales in fiscal 1997 increased 9% to $13,200,000 from sales
of $12,085,000 in the previous fiscal year. Revenues recognized during the
current fiscal quarter include revenues recorded under the Company's previously
announced joint development agreement with NEC Japan. Sales to IBM accounted
for 51% of the Company's revenue in fiscal 1997 compared with 69% in fiscal
1996. In February 1997, the Company signed an extended contract with IBM for
the development and manufacture of its next generation internetworking
products. The Company expects that IBM will continue to account for a
substantial portion of the Company's revenues until development and
commercialization of its ADSL and VDSL products are completed.

In the third quarter of fiscal 1996, the Company first delivered the
Overture 8, which is characterized by a high bandwidth as defined by the ANSI
standards. The Company's ADSL products continue to participate successfully in
labs and field trials in both international and domestic markets. The
international trials include services being offered by Post Telephone and
Telegraph ("PTT")'s in Europe and Asia-Pacific, with companies such as Philips,
Italtel, Tadiran and Samsung. Other trials include broadcast video installed
in Australia and data/video applications in France. In the US, the Company has
provided equipment in GTE's Internet access and remote office connectivity
trials in Washington and Texas. Sales of the Overture series were $1,892,000
and $1,818,000 in fiscal 1997

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<PAGE> 53

and 1996, respectively. In addition, contract revenues of $3,710,000 in fiscal
1997 and $148,000 in fiscal 1996 were also realized from customization of
products.

In January 1997, the first in a line of products developed by the
Company called the Allegro Access Concentrator, a platform for high density
installation of the Overture 8 DMT modem technology, was shipped to France.
This shelf version uses the Overture 8 modem and offers high-speed
concentration of packet based information or video data streams and
multiplexing of multiple data channels per ADSL modem connection. During the
third quarter of fiscal 1997, the Company introduced its next generation of
Overture 8 products, the Model 810, which delivers speeds up to 8 Mbps
downstream and 640 Kbps upstream. Its advanced, low power design consumes less
than 7W and adjusts power consumption to line lengths and traffic conditions.
This model is designed to be used as a plug-in for the Allegro Access
Concentrator or as a stand-alone unit for the subscriber.

PC to Mainframe Connectivity sales of $864,000 in fiscal 1997
represent a decline of 53% when compared with the prior fiscal year due to a
general decline in the Company's connectivity market share. The PC to
Mainframe Connectivity market is highly competitive and is characterized by
rapid advances in technology which frequently result in the introduction of new
products with improved performance characteristics, thereby subjecting the
Company's products to risk of technological obsolescence. The Company competes
directly or indirectly with a broad range of companies, many of whom have
significantly greater resources. In addition, the Company is competing for a
limited segment of a declining market.

Gross margin as a percent of sales was 28% for fiscal 1997 compared
with 39% for fiscal 1996. The decrease in margin was primarily attributable to
product mix. Amortization of capitalized software costs charged to cost of
sales was $246,000 in fiscal 1997 and 1996.

Net research and development expenses increased 117% to $8,335,000 in
fiscal 1997 when compared to fiscal 1996 largely because of the addition of
engineers and other new employees and the introduction of the Company's new
family of Overture 8 ADSL/DMT modems, access system shelf products and access
concentrators. Maintaining the Company's technology position is largely
dependent on the Company's ability to develop new products that meet a wide
range of customer needs. Research and development efforts for the DMT
technology are grouped into three areas: VLSI, ADSL and VDSL development. All
research and development expenses related to the DMT technology are charged to
operations as incurred. Total engineering expenses are net of funded
development costs from IBM. Funded development costs were $494,000 and
$589,000 for fiscal 1997 and 1996, respectively. The Company considers
research and development a key element in its ability to compete and will
continue to make investments in product development to provide high-speed
solutions for the future.

Marketing and sales expenses increased by $1,915,000 or 201% in fiscal
1997 when compared with the prior fiscal year. This is primarily due to an
increase in staffing and overseas travel in

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<PAGE> 54

conjunction with the Overture series representation in field trials
internationally and participation in domestic trade shows and product
promotion. Sales, marketing and customer support operations of the Company's
ADSL products, which cover both domestic and international markets, is handled
by fourteen individuals. The Company's strategy is to sell to telephone
companies worldwide through large telecommunication suppliers who will
integrate the Company's products into larger systems for their customers. This
type of OEM selling does not require a large sales force.

General and administrative expenses increased by $1,960,000 or 78% in
fiscal 1997 when compared with the prior fiscal year. This is primarily due to
occupancy costs related to the move to a larger facility, patent and legal
expenses, and additional corporate staffing.

Interest income decreased to $116,000 in fiscal 1997 compared to
$168,000 in fiscal 1996 due to lower cash balances for investment purposes.

There were no provisions for income taxes for fiscal 1997 compared to
$43,000 for fiscal 1996. Tax provisions for fiscal 1996 were required for
Federal alternative minimum tax and California state taxes due to limitations
on the use of California's loss carryforwards. The Company has provided a
valuation allowance against the deferred tax asset attributable to the net
operating losses due to uncertainties regarding the realization of these
assets.

Fiscal Year 1996 vs. Fiscal Year 1995

Total net sales in fiscal 1996 rose slightly to $12,085,000 from sales
in the previous fiscal year of $12,040,000. Sales to IBM accounted for 69% of
the Company's revenue in fiscal 1996 compared with 83% in fiscal 1995. Royalty
revenues during fiscal year 1996 of $875,000 continue to be derived from a
product developed by the Company for IBM in fiscal 1994. Although dependence
on one dominant customer has been reduced since the merger, the Company expects
that IBM will continue to account for a substantial portion of the Company's
revenues until the Company completes development and commercialization of its
ADSL products. IBM is not obligated to purchase any specified amounts of
products or to provide binding forecasts of product purchases for any period.
Since IBM considers product sales and market data confidential, the Company has
very little ability to forecast future demand. Furthermore, since IBM has the
exclusive responsibility for marketing and selling the products that the
Company develops, results of operations can be significantly affected by IBM's
success in the marketplace.

In November 1995, the Company began shipping its Overture series of
transceivers. The Overture 4 is a prototype that does not have a low enough
cost or power consumption for mass deployment and its components are entirely
discrete (off the shelf). This product is to be phased out in favor of the
next series of transceiver, called Overture 8. In the third quarter of fiscal
1996, the Company delivered the Overture 8, which is characterized by a high
bandwidth as defined by the ANSI standards. This product is currently
installed in its first field trial of broadcast video in Australia. Sales in
fiscal 1996 of Overture 4 and Overture 8 series field trials were $999,000 and
$819,000, respectively. In addition, contract revenues of $148,000 from
customization of products were also realized in fiscal 1996.

PC to Mainframe Connectivity sales of $1,822,000 in fiscal 1996
represents a decline of 14% when compared with the same period of the prior
fiscal year due to a general decline in the Company's

49
<PAGE> 55

connectivity market share. The PC to Mainframe Connectivity market is highly
competitive and is characterized by rapid advances in technology which
frequently result in the introduction of new products with improved performance
characteristics, thereby subjecting the Company's products to risk of
technological obsolescence. The Company competes directly or indirectly with a
broad range of companies, many of whom have significantly greater resources.
In addition, the Company is competing for a limited and declining segment of
the market.

Gross margins as a percent of sales were 39% in fiscal 1996 compared
with 44% for the same period of fiscal 1995. The decline in margin was
primarily attributable to product mix resulting from shipment of new products
to IBM and costs to complete test trials of the Overture series of
transceivers. Amortization of capitalized software costs charged to cost of
sales were $246,000 in fiscal 1996 and $310,000 in fiscal 1995.

Net research and development expenses increased 141% to $3,837,000 in
fiscal 1996 when compared to the same period of fiscal 1995 largely because of
the addition of fifteen Old Amati engineers and the hiring of 20 new employees.
Higher costs in fiscal 1996 are primarily due to the introduction of the
Company's new family of Overture 8 ADSL/DMT modems and Overture 8 Access System
shelf products. From the technology acquired in the merger, the Company
believes it has a technological leadership position in DMT modulation.
Maintaining this position is largely dependent on the Company's ability to
develop new products that meet a wide range of customer needs. Research and
development efforts for the DMT technology are grouped into three areas: the
microelectronics group which is primarily focused on ADSL and VDSL markets; the
software group, which is primarily focused on the development of firmware for
the Overture series; and the hardware group, which is primarily focused on
analog and digital design activities. All research and development expenses
related to this technology are charged to operations as incurred. Expenses are
net of funded development costs from IBM. Funded development costs for fiscal
1996 were $589,000 compared to $637,000 in fiscal 1995. The Company considers
research and development a key element in its ability to compete and will
continue to make investments in product development and support for IBM.

Marketing and sales expenses rose to $953,000 in fiscal 1996 compared
to $861,000 in fiscal 1995 due to an increase in overseas travel in conjunction
with Overture series participation in field trials internationally. Sales,
marketing and customer support operations of the acquired business, which cover
both domestic and international markets, is handled by five individuals. The
Company's strategy is to sell to telephone companies worldwide through large
telecommunication suppliers who will integrate the Company's products into
larger systems for their customers. This type of OEM selling does not require
a large sales force.

General and administrative expenses increased to $2,519,000 in fiscal
1996 as compared to $1,229,000 in fiscal 1995. This is primarily due to patent
expenses, additional corporate staffing, and occupancy costs associated with
the merger.

Interest income decreased to $168,000 in fiscal 1996 compared to
$301,000 in the same period of fiscal 1995 due to maturities of
held-to-maturity investments.

The provision for income taxes in fiscal 1996 was $43,000 compared to
$97,000 in fiscal 1995. Tax provisions were required for Federal alternative
minimum tax and California state taxes due to limitations on the use of
California's loss carryforwards. The Company has provided a valuation

50
<PAGE> 56

allowance against the deferred tax asset attributable to the net operating
losses due to uncertainties regarding the realization of these assets.

LIQUIDITY AND CAPITAL RESOURCES

The Company had cash and short-term investments of $2,553,000 as of
November 1, 1997, compared to $1,500,000 as of August 2, 1997. During the
fiscal quarter ended November 1, 1997, cash used for operating activities of
$4,094,000 related primarily to the net loss incurred during the period. Cash
used for investment activities of $408,000 was primarily for leasehold
improvements and capital equipment purchases associated with the move to a
larger facility. Cash provided by financing activities of $5,555,000 resulted
primarily from the completion of an equity financing transaction with an
investors group, discussed below, and proceeds from the Westell loan.

The Company had cash and short term investments of $1,500,000 as of
August 2, 1997 compared to $886,000 as of July 27, 1996. During the fiscal
year ended August 2, 1997, cash used for operating activities of $9,927,000
related primarily to the net loss incurred during the period. Cash used for
investing activities of $3,178,000 was primarily for leasehold improvements
associated with the move to a larger facility to consolidate the Company's
operations, and the purchase of short-term investments as offset by the
proceeds from sale of held-to-maturity investments. Cash provided by financing
activities of $13,010,000 resulted primarily from the completion of an equity
financing transaction with an investor group, discussed below, and proceeds
from the exercise of stock options and warrants.

In October 1996, the Company entered into an Investment Agreement (the
"Investment Agreement") with Quantum Industrial Partners LDC, S-C Phoenix
Holdings, L.L.C., Winston Partners, L.P., Winston Partners II LDC and Winston
Partners II L.L.C. (collectively, the "Investors") which provided to the
Company up to $15 million in equity financing in exchange for the issuance of
Company Common Stock and warrants (the "Warrants") to purchase up to 600,000
shares of Company Common Stock. The Warrants were issued on October 3, 1996
and are exercisable at any time between December 17, 1996 and December 17,
2001. Warrants to purchase up to 300,000 shares of Common Stock are
exercisable at $17.45 per share; Warrants to purchase the other 300,000 shares
are exercisable at $25 per share.

As of August 2, 1997, the Company has received $12,500,000 pursuant to
this Investment Agreement and recorded a Stock Subscription Receivable of
$2,500,000. On August 7, 1997, the Company received the final $2,500,000 in
equity financing. In exchange for the $15,000,000 investment in the Company,
the Investors received an aggregate of 1,242,915 shares of the Company's Common
Stock.

On September 30, 1997, the Company and Westell entered into the Westell
Merger Agreement. Subsequent to the end of the first fiscal quarter 1998, the
Company terminated the Westell Merger Agreement with Westell, paying a $14.8
million termination fee. On November 19, 1997, the Company, in connection with
such termination, entered into the Merger Agreement with Parent providing for
the Offer and the Merger.

51
<PAGE> 57

On November 19, 1997 and in connection with the execution of the Merger
Agreement, the Company entered into the Loan Agreement with Parent. Under the
provisions of the Loan Agreement, Parent agreed to grant a term loan in the
amount of $14,774,000 and a Revolving Loan in the amount of $5,000,000 to the
Company evidenced by promissory notes due September 30, 1999 with interest at
the rate of prime plus 2%. Proceeds from these borrowings were used to repay in
full all amounts owing to Westell under the Loan and Security Agreement dated
September 30, 1997, all amounts owing to the Silicon Valley Bank under its
revolving line of credit agreement, and to pay the above referenced termination
fee to Westell and working capital requirements. Subsequent to the end of the
first fiscal quarter 1998, Parent and the Company amended the Loan Agreement to
provide for an additional $5,000,000 of availability under the Revolving Loans
to fund additional working capital requirements. The total amount outstanding
as of January 13, 1998 was $24,774,000 plus accrued and unpaid interest.

52
<PAGE> 58

CERTAIN PROJECTIONS

During the course of the discussions between Parent and the Company
that led to the execution of the Merger Agreement, the Company provided Parent
with certain information about the Company and its financial performance which
is not publicly available. The information provided included projected
financial information for fiscal years ending August 1998 and August 1999 (the
"Projections"). The Projections were prepared by the Company's management for
internal planning and budgeting purposes only and not with a view to
publication. The Projections included estimates of (i) net sales of $40.6
million and $113.2 million for the Company's fiscal years ended August 1998 and
August 1999, respectively, and (ii) a net loss of $8.7 million and net income
of $10.5 million for the company's fiscal years ended August 1998 and August
1999, respectively. None of the assumptions underlying the Projections give
effect to the Offer, the Merger or the potential combined operations of the
Company and Parent after the consummation of such transactions.

THE PROJECTIONS WERE NOT PREPARED WITH A VIEW TO PUBLIC DISCLOSURE OR
COMPLIANCE WITH PUBLISHED GUIDELINES OF THE COMMISSION REGARDING PROJECTIONS OR
THE GUIDELINES ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC
ACCOUNTANTS AND ARE INCLUDED IN THIS INFORMATION STATEMENT ONLY BECAUSE SUCH
INFORMATION WAS PROVIDED TO PARENT. NONE OF PARENT, THE PURCHASER, THE COMPANY
OR ANY PARTY TO WHOM THE PROJECTIONS WERE PROVIDED ASSUMES ANY RESPONSIBILITY
FOR THE VALIDITY, REASONABLENESS, ACCURACY OR COMPLETENESS OF SUCH INFORMATION.
WHILE PRESENTED WITH NUMERICAL SPECIFICITY, THESE PROJECTIONS ARE BASED UPON
NUMEROUS ASSUMPTIONS RELATING TO COMMERCIAL ACCEPTANCE OF THE COMPANY'S
PRODUCTS AND TECHNOLOGY, INDUSTRY PERFORMANCE, GENERAL BUSINESS AND ECONOMIC
CONDITIONS, THE BUSINESS OF THE COMPANY AND OTHER MATTERS, ALL OF WHICH MAY NOT
BE REALIZED AND ARE SUBJECT TO SIGNIFICANT UNCERTAINTIES AND CONTINGENCIES,
MANY OF WHICH ARE BEYOND THE CONTROL OF THE COMPANY. THERE CAN BE NO ASSURANCE
THAT THE PROJECTIONS WILL BE REALIZED, AND ACTUAL RESULTS MAY VARY MATERIALLY
FROM THOSE SHOWN. THE PROJECTIONS HAVE NOT BEEN EXAMINED OR COMPILED BY THE
COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS. FOR THESE REASONS, AS WELL AS THE
BASES ON WHICH SUCH PROJECTIONS WERE COMPILED, THERE CAN BE NO ASSURANCE THAT
SUCH PROJECTIONS WILL BE REALIZED, OR THAT ACTUAL RESULTS WILL NOT BE
MATERIALLY HIGHER OR LOWER THAN THOSE ESTIMATED. THE INCLUSION OF SUCH
PROJECTIONS HEREIN SHOULD NOT BE REGARDED AS AN INDICATION THAT PARENT, THE
PURCHASER, THE COMPANY OR ANY OTHER PARTY WHO RECEIVED SUCH INFORMATION
CONSIDERS IT AN ACCURATE PREDICTION OF FUTURE EVENTS. PARENT DID AN
INDEPENDENT ASSESSMENT OF THE COMPANY'S VALUE AND DID NOT RELY TO ANY MATERIAL
DEGREE UPON THE PROJECTIONS. NONE OF THE COMPANY, PARENT, THE PURCHASER OR ANY
OTHER PARTY INTENDS PUBLICLY TO UPDATE OR OTHERWISE PUBLICLY REVISE THE
PROJECTIONS SET FORTH ABOVE EVEN IF EXPERIENCE OR FUTURE CHANGES MAKE IT CLEAR
THAT THE PROJECTIONS WILL NOT BE REALIZED.

53
<PAGE> 59

PRINCIPAL STOCKHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT

The following table sets forth the number of shares of the Company's
Common Stock beneficially owned as of February 4, 1998, by (i) each
stockholder known to the Company to be a beneficial owner of more than 5% of
the Shares, (ii) each director of the Company prior to the consummation of the
Offer, (iii) the Chief Executive Officer of the Company and the other four
most highly compensated executive officers of the Company as of February 4, 1998
whose total annual compensation for the year ended August 2, 1997 exceeded
$100,000, and (iv) all executive officers and directors as a group. Except as
otherwise indicated, each of the listed persons or entities has sole voting and
investment power with respect to the shares listed as beneficially owned by
them, subject to community property laws, where applicable.

<TABLE>
<CAPTION>
PERCENT
NAME AND AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP(1) OF CLASS
- ----------------------------------------------------- --------
<S> <C> <C>
DSL Acquisition Corporation . . . . . . . . 15,290,381(2) 77.3
13500 North Central Expressway
P.O. Box 655474
Dallas, Texas 75265-5474
Dr. John Cioffi . . . . . . . . . . . . . . 677,383(3) 3.3
Dr. James Gibbons . . . . . . . . . . . . . 243,492(4) 1.2
Donald L. Lucas . . . . . . . . . . . . . . 97,216(5) *
Aamer Latif . . . . . . . . . . . . . . . . 95,000(6) *
James Steenbergen . . . . . . . . . . . . . 237,500(7) 1.2
Christopher Barnes . . . . . . . . . . . . 40,000(8) *
Benjamin Berry. . . . . . . . . . . . . . . 90,000(9) *
David Bivolcic . . . . . . . . . . . . . . 40,000(10) *
James Hood . . . . . . . . . . . . . . . . 80,000(11) *
George Barber(12) . . . . . . . . . . . . . --- ---
Marvin S. Self(12) . . . . . . . . . . . . --- ---
Gregory L. Waters(12) . . . . . . . . . . . --- ---
All directors and executive
officers, as a group (12 persons). . . 1,875,431(13) 9.3
</TABLE>

- -------------------------------------
* Less than 1%.

(1) Based upon information supplied or confirmed by officers, directors
and the principal stockholders. The percentage of class assumes the
exercise of all options and warrants held by the named individual that
are exercisable on February 4, 1998, or within sixty days
thereafter, but not the exercise of any other options or warrants that
are outstanding.

(2) DSL Acquisition Corporation, which is referred to throughout this
Information Statement as "Purchaser," is a wholly-owned subsidiary of
Parent. See "Summary -- The Companies." Accordingly, Parent is
deemed to beneficially own the Shares owned by Purchaser.

54
<PAGE> 60

(3) Includes 677,383 shares that are deemed beneficially owned by Dr.
Cioffi by virtue of options held by him that are exercisable within 60
days of February 4, 1998.

(4) Includes 243,492 shares that are deemed beneficially owned by Dr.
Gibbons by virtue of options held by him that are exercisable within
60 days of February 4, 1998.

(5) Includes 72,500 shares that are deemed beneficially owned by Mr. Lucas
by virtue of options held by him that are exercisable within 60 days
of February 4, 1998. Also includes 24,716 shares that are held in a
living trust for Mr. Lucas and his wife. As trustee of the joint
trusts, Mr. Lucas holds voting and investment power with respect to
such shares.

(6) Includes 95,000 shares that are deemed beneficially owned by Mr. Latif
by virtue of options held by him that are exercisable within 60 days
of February 4, 1998.

(7) Includes 237,500 shares that are deemed beneficially owned by Mr.
Steenbergen by virtue of options held by him that are exercisable
within 60 days of February 4, 1998.

(8) Includes 40,000 shares that are beneficially owned by Mr. Barnes that
are exercisable within 60 days of February 4, 1998.

(9) Includes 90,000 shares that are deemed beneficially owned by Mr. Berry
by virtue of options held by him that are exercisable within 60 days
of February 4, 1998.

(10) Includes 40,000 shares that are deemed beneficially owned by Mr.
Bivolcic by virtue of options held by him that are exercisable within
60 days of February 4, 1998.

(11) Includes 80,000 shares that are deemed beneficially owned by Mr. Hood
by virtue of options held by him that are exercisable within 60 days
of February 4, 1998.

(12) Until consummation of the Offer, the Board of Directors of the Company
consisted of the following five individuals: Dr. James Gibbons,
Donald L. Lucas, James E. Steenbergen, Dr. John Cioffi and Aamer
Latif. Pursuant to the Merger Agreement and upon consummation of the
Offer, (i) Dr. Gibbons, James Steenbergen and Dr. Cioffi tendered
their resignations as directors of the Company and (ii) Parent
designated George Barber, Marvin S. Self and Gregory L. Waters to be
appointed as directors of the Company. Accordingly, upon the
consummation of the Offer, the three designees of Parent became
directors of the Company.

(13) In addition to the shares identified in footnotes (3) through (11)
above, also includes 171,122 shares that are deemed beneficially owned
by virtue of options that are exercisable within 60 days of February
4, 1998.

55
<PAGE> 61

AVAILABLE INFORMATION

The Company is subject to the information filing requirements of the
Exchange Act and in accordance therewith files reports, proxy and information
statements and other information with the Securities and Exchange Commission
(the "Commission"). The Tender Offer Statement on Schedule 14D-1 filed by
Purchaser and the Solicitation/Recommendation Statement on Schedule 14D-9 filed
by the Company, each in connection with the Offer, and the respective exhibits
thereto, as well as such reports, proxy and information statements and other
information filed by the Company with the Commission may be inspected and
copied at the public reference facilities maintained by the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Commission's regional offices at Seven World Trade Center, 13th Floor, New
York, New York 10007 and at the Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2551. Copies of such material can
also be obtained from the principal office of the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The
Commission also maintains an internet website at http://www.sec.gov that
contains reports, proxy statements and other information.

Statements contained in this Information Statement or in any document
incorporated in this Information Statement by reference as to the contents of
any contract or other document referred to herein or therein are not
necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an annex to this Information Statement
or such other document, each such statement being qualified in all respects by
such reference. All information relating to Purchaser in this Information
Statement has been provided to the Company by Purchaser.

56
<PAGE> 62
INDEX TO FINANCIAL STATEMENTS

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

Consolidated Balance Sheets as of July 27, 1996 and August 2, 1997 ...................................... F-3

Consolidated Statements of Operations for the years ended July 29, 1995,
July 27, 1996 and August 2, 1997 ................................................................ F-5

Consolidated Statements of Stockholders' Equity (Deficit) for the years
ended July 30, 1994, July 29, 1995, July 27, 1996 and August 2, 1997 ............................ F-6

Consolidated Statements of Cash Flows for the years ended July 29, 1995,
July 27, 1996 and August 2, 1997 ................................................................ F-7

Notes to Consolidated Financial Statements .............................................................. F-8

Consolidated Condensed Balance Sheets as of November 1, 1997 and
August 2, 1997 (unaudited) ...................................................................... F-20

Consolidated Condensed Statements of Operations for the three months ended
November 1, 1997 and November 2, 1996 (unaudited) ............................................... F-21

Consolidated Condensed Statements of Cash Flows for the three months ended
November 1, 1997 and November 2, 1996 (unaudited) ............................................... F-22

Notes to Consolidated Condensed Financial Statements (unaudited) ........................................ F-23
</TABLE>

F-1

<PAGE> 63
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of Amati Communications Corporation:

We have audited the accompanying consolidated balance sheets of Amati
Communications Corporation (a Delaware corporation) and subsidiaries as of
August 2, 1997 and July 27, 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years
ended August 2, 1997, July 27, 1996, and July 29, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Amati Communications
Corporation and subsidiaries as of August 2, 1997 and July 27, 1996, and the
results of their operations and their cash flows for each of the three years
ended August 2, 1997, July 27, 1996, and July 29, 1995 in conformity with
generally accepted accounting principles.

ARTHUR ANDERSEN LLP

San Jose, California
September 30, 1997

F-2
<PAGE> 64

AMATI COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
JULY 27, AUGUST 2,
(Dollars in thousands) 1996 1997
- -----------------------------------------------------------------------------------------------------
ASSETS

<S> <C> <C>
Current assets:
Cash and cash equivalents ................................. $ 886 $ 791
Short-term investments .................................... -- 709
Accounts receivable, less allowance of $30 in
1996 and 1997.......................................... 1,524 1,369
Stock subscriptions receivable ............................ -- 2,500
Inventories:
Finished goods ........................................ 1 448
Work in process ....................................... 890 1,783
Purchased parts ....................................... 725 824
---------------------------
1,616 3,055
Other current assets ...................................... 1,156 858
---------------------------
Total current assets .................................. 5,182 9,282
---------------------------
Equipment and leasehold improvements, at cost:
Machinery and equipment 3,436 7,366
Furniture and fixtures 187 161
Leasehold improvements 532 1,862
---------------------------
4,155 9,389
Less: Accumulated depreciation and amortization ............. (3,096) (3,588)
---------------------------
Equipment and leasehold improvements, net 1,059 5,801
---------------------------
TOTAL ASSETS .......................................... $ 6,241 $ 15,083
===========================
</TABLE>

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

F-3
<PAGE> 65

AMATI COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)

<TABLE>
<CAPTION>
JULY 27, AUGUST 2,
(Dollars in thousands) 1996 1997
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY

<S> <C> <C>
Current liabilities:
Current maturities of capitalized lease obligations ...................... $ -- $ 728
Trade accounts payable ................................................... 486 2,499
Accrued expenses ......................................................... 1,429 1,714
Deferred revenue ......................................................... 157 148
Notes payable - bank ..................................................... -- 428
Notes payable - other .................................................... 395 --
---------------------------
Total current liabilities ............................................ 2 ,467 5,517
---------------------------

Long-term liabilities:
Long term portion of deferred revenue .................................... 1,800 2,000
Capitalized lease obligations, less current maturities ................... -- 2,086
Obligations under lease commitments ...................................... 294 454
---------------------------
Total long-term liabilities .......................................... 2,094 4,540
---------------------------

Commitments (Note 9)

Stockholders' equity:
Preferred stock - par value $100 per share
Authorized - 5,000 shares
Outstanding - none ................................................... -- --
Common stock - par value $.20 per share
Authorized - 45,000,000 shares
Outstanding - 17,692,802 shares in 1996 and 19,692,895 shares in 1997 3,539 3,939
Additional paid-in capital ............................................... 57,631 72,820
Accumulated deficit ...................................................... (59,490) (71,733)
---------------------------
Total Stockholders' equity ........................................... 1,680 5,026
---------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........................... $ 6,241 $ 15,083
===========================
</TABLE>

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

F-4
<PAGE> 66

AMATI COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
--------------------------------------------------
JULY 29, JULY 27, AUGUST 2,
(In thousands, except per share amounts) 1995 1996 1997
- ----------------------------------------------------------------------------------------------------------

<S> <C> <C> <C>
Net sales ..................................... $ 12,040 $ 12,085 $ 13,200
Cost of sales ................................. 6,716 7,404 9,554
----------------------------------------------
Gross margin ................................ 5,324 4,681 3,646
----------------------------------------------
Operating expenses:
Research and development .................... 1,595 3,837 8,335
Marketing and sales ......................... 861 953 2,868
General and administrative .................. 1,229 2,519 4,479
Write off of acquired in-process
research and development ................. -- 31,554 --
----------------------------------------------
Total operating expenses ................. 3,685 38,863 15,682
----------------------------------------------
Income (loss) from operations ............... 1,639 (34,182) (12,036)
----------------------------------------------
Other income (expense):
Interest income ............................. 301 168 116
Interest expense ............................ (7) (21) (323)
----------------------------------------------
Total other income (expense) ............. 294 147 (207)
----------------------------------------------
Income (loss) before provision for income taxes 1,933 (34,035) (12,243)
Provision for income taxes .................. 97 43 --
----------------------------------------------
NET INCOME (LOSS) ............................. $ 1,836 $(34,078) $(12,243)
==============================================

NET INCOME (LOSS) PER SHARE ................... $ .16 $ (2.21) $ (.66)
==============================================

WEIGHTED AVERAGE NUMBER OF COMMON SHARES
AND COMMON SHARE EQUIVALENTS ................ 11,491 15,448 18,641
==============================================
</TABLE>

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

F-5
<PAGE> 67

AMATI COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK
For the Years Ended August 2, 1997 ------------ PAID-IN ACCUMULATED
(In thousands) SHARES AMOUNT CAPITAL DEFICIT TOTAL
- ---------------------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C>
Balance, July 30, 1994 ........................... 11,956 $ 2,391 $ 33,649 $(27,248) $ 8,792
Exercise of employee stock options ............. 150 30 132 -- 162
Stock repurchase ............................... (537) (107) (457) -- (564)
Net income ..................................... -- -- -- 1,836 1,836
------------------------------------------------------------------
Balance, July 29, 1995 ........................... 11,569 $ 2,314 $ 33,324 $(25,412) $ 10,226
Exercise of employee stock options ............. 1,238 248 1,327 -- 1,575
Exercise of warrants from merger ............... 231 46 (46) -- --
Issuance of shares from merger ................. 4,655 931 23,026 -- 23,957
Net loss ....................................... -- -- -- (34,078) (34,078)
------------------------------------------------------------------
Balance, July 27, 1996 ........................... 17,693 $ 3,539 $ 57,631 $(59,490) $ 1,680
Exercise of employee stock options ............. 596 119 725 -- 844
Exercise of warrants from merger ............... 161 32 (7) -- 25
Equity financing, net of offering costs of $280 1,243 249 14,471 -- 14,720
Net loss ...................................... -- -- -- (12,243) (12,243)
------------------------------------------------------------------
BALANCE, AUGUST 2, 1997 .......................... 19,693 $ 3,939 $ 72,820 $(71,733) $ 5,026
==================================================================
</TABLE>

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

F-6
<PAGE> 68

AMATI COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
-----------------------------------------
JULY 29, JULY 27, AUGUST 2,
(In thousands) 1995 1996 1997
- ---------------------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) ............................................................. $ 1,836 $(34,078) $(12,243)
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization ........................................... 678 846 1,422
Provision for bad debts ................................................. -- 20 --
Loss on retirement of capital equipment ................................. 41 153 63
Write off of in-process research and development ........................ -- 31,554 --
Changes in assets and liabilities:
Decrease (increase) in accounts receivable .............................. (528) 1,340 155
Increase in inventories ................................................. (33) (189) (1,439)
Decrease (increase) in other assets .................................... (316) (194) 62
Increase (decrease) in accounts payable & accrued expenses .............. (315) (599) 2,288
Decrease in other liabilities ........................................... (124) -- (235)
-------------------------------------
Total adjustments .................................................... (597) 32,931 2,316
-------------------------------------
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES .......................... 1,239 (1,147) (9,927)
-------------------------------------

Cash Flows from Investing Activities:
Advances to Old Amati and acquisition costs ................................. (3,240) (2,266) --
Capital expenditures ........................................................ (61) (757) (2,469)
Purchase of short-term investments .......................................... (5,862) -- (3,893)
Proceeds from sale of investments ........................................... 8,829 2,425 3,184
-------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES ........................................ (334) (598) (3,178)
-------------------------------------

Cash Flows from Financing Activities:
Equity financing, net of offering costs of $280 ............................. -- -- 12,220
Proceeds from the exercise of stock options ................................. 162 1,575 844
Proceeds from the exercise of treasury warrants ............................. -- -- 25
Borrowings - bank line of credit ............................................ -- -- 428
Payments on capital lease obligation ........................................ (82) (10) (507)
Stock repurchase ............................................................ (564) -- --
-------------------------------------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES .......................... (484) 1,565 13,010
-------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .......................... 421 (180) (95)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .............................. 645 1,066 886
-------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .................................... $ 1,066 $ 886 $ 791
=====================================
</TABLE>

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

F-7
<PAGE> 69

AMATI COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 2, 1997

NOTE 1 OPERATIONS, LIQUIDITY AND PROPOSED MERGER OF THE COMPANY

Operations

Amati Communications Corporation ("Amati" or the "Company") is a
leading developer of advanced transmission equipment utilizing Discrete
Multi-tone ("DMT") technology for the Asymmetrical Digital Subscriber Line
("ADSL"), Very high-speed Digital Subscriber Line ("VDSL") and cable modem
markets. The Company is the holder of the ADSL/DMT patents and has licensed
the technology to companies such as Motorola, NEC, Nortel and Analog Devices,
Inc. The Company is also a provider of network connectivity systems for the
internetworking and OEM marketplaces, which include local area network
gateways, client-based workstation software and network data communications
interfaces. The Company is subject to a number of risks, including dependence
on key employees for technology development and support, dependence on a few
significant customers, potential competition from larger more established
companies, and its ability to obtain adequate financing to support its growth.

On November 28, 1995, the Company and Amati Communications Corporation
("Old Amati"), a privately held Mountain View, California based company
completed a merger (the "Merger") by which Old Amati became a wholly-owned
subsidiary of the Company. Effective as of the Merger, the Company's name was
changed to Amati Communications Corporation and its common stock began trading
on the Nasdaq National Market under the symbol "AMTX".

Liquidity

In October 1996, the Company entered into an Investment Agreement (the
"Investment Agreement") with Quantum Industrial Partners LDC, S-C Phoenix
Holdings, L.L.C., Winston Partners, L.P., Winston Partners II LDC and Winston
Partners II L.L.C. (collectively, the "Investors") which provided to the
Company $15 million in equity financing in exchange for the issuance of
Company's Common Stock and warrants (the "Warrants") to purchase up to 600,000
shares of Company's Common Stock. The Warrants were issued on October 3, 1996
and are exercisable at any time between December 17, 1996 and December 17,
2001. Warrants to purchase up to 300,000 shares are exercisable at $17.45 per
share; Warrants to purchase the other 300,000 shares are exercisable at $25 per
share.

As of August 2, 1997, the Company has received $12,500,000 pursuant to
this Investment Agreement and recorded a Stock Subscription Receivable of
$2,500,000. In exchange for the $15,000,000 investment in the Company, the
Investors received an aggregate of 1,242,915 shares of the Company's Common
Stock. The Warrants and Common Stock issued in connection with the Investment
Agreement were exempt from the registration requirements of the Securities Act
of 1933, as amended (the "Securities Act"), pursuant to the exemption under
Section 4(2) of the Securities Act. The resale of the shares of Common Stock
issued to the Investors, and the 600,000 shares of Common Stock issuable on
exercise of the Warrants, has been registered by the Company on behalf of the
Investors. On August 7, 1997, the Company received the final $2,500,000 take
down in equity financing.

The Company's ability to meet its future capital requirements will
depend on many factors, including sales levels, progress in research and
development programs, the establishment of collaborative agreements, and costs
of manufacturing facilities and commercialization activities. While the
Company anticipates that the funding available under the line of credit,
capital lease line and a loan agreement entered into with Westell Technologies,
Inc. (further discussed) will be sufficient to meet its capital requirements
through the fiscal year, the Company may require funding in addition to that
available under these agreements, and may seek additional funding through
collaborative agreements or through public or private sale of securities prior
to the commercialization of its ADSL products.

F-8
<PAGE> 70

AMATI COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AUGUST 2, 1997

NOTE 1 OPERATIONS, LIQUIDITY AND PROPOSED MERGER OF THE COMPANY (CONTINUED)

Proposed Merger

On September 30, 1997, the Company and Westell Technologies, Inc.
entered into an Agreement and Plan of Merger whereby Amati will become a wholly
owned subsidiary of Westell Technologies, Inc.. Westell Technologies, Inc.,
headquartered in Aurora, Illinois, is a holding company for Westell, Inc., a
world-wide manufacturer of XDSL systems, Conference Plus, Inc., a multi-point
telecommunications service bureau specializing in conferencing, and Westell
World Wide Services, Inc., a service provider of engineering, installation and
network management. Pursuant to the Agreement and Plan of Merger, and subject
to the approval of the transaction by the respective stockholders of both
companies, holders of outstanding Amati Common Stock will receive in exchange
for each share of Amati Common Stock, 0.9 shares of Westell Class A Common
Stock.

Pursuant to the Agreement and Plan of Merger with Westell
Technologies, Inc. dated September 30, 1997 and under the provisions of a Loan
and Security Agreement, Westell Technologies, Inc. can extend financing to the
Company of up to $5,000,000 secured by a promissory note due on or before
September 30, 1999 with interest payable at the following rates: prime plus 2%
for the first $1 million and prime plus 2 1/2% for all borrowings in excess of
$1 million.

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation

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

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or
market, and include materials, labor and manufacturing overhead. Inventory is
valued at currently adjusted standards which approximate actual costs on a
first-in, first-out basis.

Depreciation and Amortization

Depreciation and amortization are provided using the straight-line
method over the estimated useful lives of the related assets. Machinery and
equipment and furniture and fixtures generally have lives ranging from 3 to 5
years. Leasehold improvements are depreciated over the shorter of the lease
term or the useful life.

Software Development Costs

The Company capitalizes software development costs in accordance with
Statement of Financial Accounting Standards No. 86 ("SFAS 86"). The
capitalization of these costs begins when technological feasibility of the
related product has been achieved, which has been defined as the point in time
that the Company has developed a beta version of the software product.
Capitalization ends when the product is available for general release to
customers. Amortization is computed on an individual product basis and is the
greater of (a) the ratio of current gross revenues for a product to the total
current and anticipated future gross revenues for that product or (b) the
straight-line method over the estimated economic life of the product. Currently
the Company is using an estimated economic life of three years for all
capitalized software costs.

F-9
<PAGE> 71

AMATI COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AUGUST 2, 1997

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

In fiscal 1995, 1996 and 1997, there was no capitalization of software
development costs as the criteria for capitalization had not been met.
Amortization of capitalized software development costs charged to cost of sales
was $310,000 in fiscal 1995 and $246,000 in fiscal 1996 and 1997.

Accrued Expenses

<TABLE>
<CAPTION>
Accrued expenses include the following:
JULY 27, AUGUST 2,
1996 1997
--------- ---------
<S> <C> <C>
Accrued employee compensation........................... $ 793 $ 1,035
636 679
Other.................................................... --------- ----------
$ 1,429 $ 1,714
</TABLE>

Revenue Recognition

The Company generally recognizes revenue from product sales upon
shipment to the customer. Revenues from software and engineering development
services are recognized as the Company performs the services in accordance with
contract terms. Revenues from maintenance and extended warranty agreements are
recognized ratably over the term of the agreement. The Company also licenses
products to OEMs and recognizes royalties as specified in the license agreement
when shipment of the licensed product by the OEM is reported to the Company.
Service maintenance, warranty and support revenues accounted for less than 1%
of the Company's total revenues.

Supplemental Disclosures of Cash Flow Information

For purposes of the Statements of Cash Flows, cash and cash
equivalents are defined as cash in banks and highly liquid investments with
original maturity dates of three months or less.

Capital lease obligations of $3,307,000 were incurred in fiscal 1997
when the Company entered into equipment and furniture capital leases. Cash
paid for interest was $7,000, $56,000 and $317,000 for the fiscal years 1995,
1996 and 1997, respectively. Cash paid for income taxes were $20,000, $73,000
and $46,000 for fiscal years 1995, 1996 and 1997, respectively.

Short Term Investments

In accordance with SFAS No. 115, the Company has classified all of its
marketable debt securities as held-to- maturity, and has accounted for these
investments at amortized cost. Accordingly, no adjustment for unrealized
holding gains or losses has been reflected in the Company's financial
statements. At August 2, 1997, the Company's held-to- maturity securities of
$709,000 consisted of certificates of deposits with contractual maturities of
less than twelve months and the carrying amount of these investments
approximated market value. These funds, in the form of standby letters of
credit, are restricted as a compensating balance for capital lease not under
the lease line.

Funded Development Agreements

The Company has entered into certain funded development arrangements
with IBM. These arrangement typically provide funding to the Company to
develop on a best efforts basis certain products or product enhancements which
IBM is interested in reselling to its customers. Under these arrangements, the
Company retains the rights to manufacture the developed products and IBM
purchases the manufactured products from the Company for distribution to IBM's
customers. The arrangements typically include a minimum purchase commitment by
IBM if the

F-10
<PAGE> 72

AMATI COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AUGUST 2, 1997

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

development is successful. Costs under these agreements are deferred until the
related development revenues are recognized. Revenues under these agreements
are generally recognized when certain contractual milestones are met. Total
revenues recognized under these agreements were $276,000, $419,000 and $341,000
in fiscal 1995, 1996 and 1997, respectively.

Use of Estimates in the Preparation of Financial Statements

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

Long-Lived Assets

Effective July 28, 1996, the Company adopted Statement of financial
Accounting Standards No. 121 ("SFAS No. 121"), Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The adoption
of SFAS No. 121 did not have a material impact on the results of operations or
the financial position of the Company.

Stock Compensation

Effective July 28, 1996, the Company adopted the disclosure provisions
of Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"),
Accounting for Stock-Based Compensation. In accordance with the provisions of
SFAS No. 123, the Company applies APB Opinion 25 and related interpretations in
accounting for its stock option plans. Note 6 of these Consolidated Financial
Statements contains a summary of the pro forma effects on reported net income
and earnings per share for fiscal 1997 and 1996 based on the fair value of the
options granted at grant date as prescribed by SFAS No. 123.

Recent Accounting Pronouncements

In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"), Reporting
Comprehensive Income, which becomes effective for fiscal years beginning after
December 15, 1997. The adoption of SFAS No. 130 is not expected to have a
material impact on the results of operations or the financial position of the
Company.

Also in June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131 ("SFAS No. 131"), Disclosures About Segments of an Enterprise
and Related Information, which becomes effective for fiscal years beginning
after December 15, 1997. The Company has yet to determine the impact, if any,
of adoption of this new pronouncement.

Reclassification

Prior years' amounts in the Consolidated Financial Statements have
been reclassified where necessary to conform to the fiscal 1997 presentation.

F-11
<PAGE> 73

AMATI COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AUGUST 2, 1997

NOTE 3 CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS

Financial instruments which may potentially subject the Company to a
concentration of credit risk principally consist of accounts receivable. The
Company generally does not require collateral on accounts receivable as the
majority of the Company's customers are large, well established companies.

Sales of the Overture 4 and Overture 8 series of ADSL transceivers
were $999,000 and $819,000, respectively, in fiscal 1996 and $12,000 and
$1,880,000, respectively, in fiscal 1997. In the Company's VDSL technology,
revenues recognized during the current fiscal year of $3,500,000 related
primarily to contract revenues under a joint development agreement with NEC
Japan.

The Company also designs, manufactures and markets data communications
equipment and provides technical support and maintenance services related
thereto. Sales to IBM as a percent of net sales were 83%, 69% and 51% in
fiscal 1995, 1996 and 1997, respectively. The Company has a concentration of
accounts receivable with IBM of $600,000 as of August 2, 1997. In February
1997, the Company signed an extended contract with IBM for the development and
manufacture of its next generation internetworking products. The Company
expects that IBM will continue to account for a substantial portion of its
revenues until development and commercialization of its ADSL products are
completed.

Export sales of connectivity products, primarily to Western Europe and
Canada in fiscal 1995, 1996 and 1997, represented 1-2% of total net sales.
Shipments of the Overture series of transceivers primarily to the countries of
Germany, Netherlands, France, Finland and Canada accounted for 11% of total
revenues in fiscal 1997.

NOTE 4 LICENSE AGREEMENTS

The Company has certain license agreements (the "Original Agreements")
with Stanford University and University Ventures II, a California limited
investment partnership, whereby it was granted exclusive worldwide rights to
core technology and was required to further develop commercial applications and
licensed products in the field of use to maintain these agreements. In
exchange for the Original Agreements, the Company agreed to issue 125,000
shares of Series A convertible preferred stock to each licensor and pay certain
royalties on revenue generated from the licensed technology. Both Original
Agreements contained anti-dilution provisions in the event the Company raised
capital from the sale of stock. The term of the Original Agreements extends to
the last expiration date of the licensed patents. The Company accounted for
the license agreements as a transfer of non-monetary assets from its founders
and recorded the license at the transferor's historical cost basis of zero. On
May 1, 1994, the Original Agreement with Stanford University was revised to
include a one-time fee of $250,000 and an annual license maintenance fee of
$25,000. The revised Original Agreements provide for Stanford University to
receive higher royalties on the Company's revenues. Stanford University may
terminate the agreement if the Company fails to remedy any conditions causing
default, breach or incorrect reporting under the terms and conditions of the
license agreement within thirty days.

NOTE 5 NOTES PAYABLE

The Company had notes payable in the amount of $395,000 at July 27,
1996. All outstanding notes of $395,000 plus interest of $103,000 were paid on
January 31, 1997.

The Company has a revolving line of credit agreement with a bank which
expires on April 25, 1998. The agreement provides for borrowings up to
$2,000,000 at the bank's prime rate plus .75% (9.25 % at August 2, 1997). The
line of credit is collateralized by the accounts receivable of the Company. As
of August 2, 1997, borrowings under this agreement were $428,000. Borrowings
under this agreement are subject to certain debt covenants. At August 2, 1997,
the Company was out of compliance with certain of these covenants relating to
quick ratios and debt

F-12
<PAGE> 74
AMATI COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AUGUST 2, 1997

NOTE 5 NOTES PAYABLE (CONTINUED)

to net worth ratios. Acknowledging however, that with the $2,500,000 of cash
received on August 7, 1997 from stock subscriptions receivable shown on the
balance sheet as of fiscal 1997 year-end the Company will be in compliance, the
bank waived all financial covenants in default. In addition, the Company has a
capital lease line of $1,700,000 which was fully utilized as of August 2, 1997.

NOTE 6 STOCK OPTION PLANS

The Company has four employees' and one non-employee Directors' stock
option plans. The exercise price of options granted under any plan may not be
less than 100% of the fair market value of the stock on the date of grant.

An Incentive Stock Option Plan and a Supplemental Stock Option Plan
were adopted by the Company in 1981. Total shares authorized for issuance
pursuant to the Incentive Stock Option Plan and the Supplemental Stock Option
Plan were 875,000 shares and 1,025,000 shares, respectively. As of August 2,
1997, options to purchase up to 30,000 shares have been granted pursuant to
these plans and remain exercisable, and there are no options available for
future grant under these plans. Employee stock options issued under this plan
become exercisable at the rate of 25% after six months from the date of grant
and 25% per year thereafter, unless determined otherwise by the Board of
Directors at the time of grant. Both plans expired in October 1991. The
options that have been granted under these plans expire ten years after grant.

The Board of Directors adopted the 1990 Stock Option Plan on September
14, 1990, and it was approved by the Company's stockholders on December 14,
1990. The Company is authorized to issue options to purchase up to 900,000
shares of Company Common Stock pursuant to the 1990 Stock Option Plan. At a
special meeting of the Company's stockholders held on November 10, 1995, the
stockholders approved an amendment to the Company's 1990 Stock Option Plan to
increase the number of shares available for issuance pursuant to this plan in
conjunction with the Agreement of Merger dated August 3, 1995. The Company may
now issue options to purchase an aggregate of up to 3,500,000 shares pursuant
to the amended 1990 Stock Option Plan. As of August 2, 1997, options to
purchase up to 2,946,686 shares have been granted pursuant to this plan, of
which options to purchase up to 1,011,057 shares were exercisable on such date
and 3,664 shares were available for future grant under this plan. Employee
stock options issued pursuant to this plan become exercisable at the rate of
25% one year from the date of the Merger and 25% per year thereafter. The
maximum term of options granted under this plan is ten years.

The Old Amati 1992 Stock Option Plan and all outstanding and
unexercised options issued pursuant thereto were assumed by the Company upon
consummation of the merger, as approved by the stockholders of the Company on
November 20, 1995. The Company is authorized to grant options of 1,591,234
shares of Company Common Stock pursuant to this plan. As of August 2, 1997,
options to purchase up to 743,051 shares of Company Common Stock have been
granted, pursuant to this plan, including options to purchase up to 317,405
shares which were exercisable as of such date. There are no shares available
for future grants under this plan. Employee stock options under this plan
become exercisable at the rate of 25% one year from the date of grant and with
respect to 1/48 of the number of shares subject to such option each month
thereafter.

On July 12, 1996, the Company adopted the 1996 Stock Option Plan, and
authorized 1,000,000 shares of Company Common Stock. As of August 2, 1997,
options to purchase up to 950,000 shares have been granted, of which options to
purchase up to 314,125 shares were exercisable as of such date and 50,000
shares were available for future grants under this plan.

The Company adopted a 1990 Non-Employee Directors' Stock Option Plan
on September 14, 1990, which was approved by the Company's stockholders on
December 14, 1990. The Company is authorized to issue options to purchase up
to an aggregate of 395,000 shares of the Company's Common Stock pursuant to
this plan. On the date the

F-13
<PAGE> 75
AMATI COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AUGUST 2, 1997

NOTE 6 STOCK OPTION PLANS (CONTINUED)

plan was adopted, each non-employee Director then in office was granted an
option to purchase up to 25,000 shares of Common Stock of the Company. Each
person who is elected for the first time to be a non-employee Director will
automatically be granted an option to purchase 25,000 shares of the Company's
Common Stock pursuant to this plan, which options will be immediately
exercisable. On December 2, 1993, the plan was amended to reduce by 150,000
shares the number of shares available for issuance pursuant to the plan,
leaving 245,000 shares available for grant under this plan. As of August 2,
1997, options to purchase up to 102,500 shares have been granted pursuant to
this plan, of which options to purchase up to 80,000 shares were exercisable as
of such date and 25,000 shares were available for future grants under this
plan. On September 1 of each year commencing September 1, 1991, an option to
purchase 10,000 shares of the Company's common stock are automatically granted
to each non-employee Director then in office. Beginning with grants made to
each continuing non-employee Director in office on September 1, 1996, each
person shall receive an option to purchase up to 20,000 shares of the Company's
Common Stock. Grants are automatically made annually under this plan. These
options become exercisable at the rate of 25% after six months from the date of
grant and 25% per year thereafter. These options expire ten years after grant.

In accordance with the disclosure requirements of SFAS No. 123, if the
Company had elected to recognize compensation cost based on the fair value of
the options granted at grant date as prescribed, income and earnings per share
would have been reduced to the pro forma amounts indicated in the table below.
The pro forma effect on net income for fiscal 1996 and 1997 is not
representative of the pro forma effect on net income in future years because it
does not take into consideration pro forma compensation expense related to
grants made prior to fiscal 1996.

<TABLE>
<CAPTION>
(In thousands, except per share amounts) 1996 1997
------------------------------------------------------------------
<S> <C> <C>
Net loss - as reported $34,078 $12,243
Net loss - pro forma $37,116 $18,336
Loss per share - as reported $ 2.21 $ .66
Loss per share - pro forma $ 2.40 $ .98
</TABLE>

The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions:

<TABLE>
<S> <C>
Expected dividend yield 0.0%
Expected stock volatility 112.28%
Risk-free interest rate 5.62 - 6.52%
Expected life of options from grant date 4 years
</TABLE>

The weighted average fair value of options granted during 1996 and
1997 were $5.39 and $11.55 per share, respectively.

Stock option activity under these plans was as follows:

F-14
<PAGE> 76

AMATI COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AUGUST 2, 1997

NOTE 6 STOCK OPTION PLANS (CONTINUED)

<TABLE>
<CAPTION>
OPTIONS OPTION PRICE
OUTSTANDING PER SHARE
----------- -------------
<S> <C> <C>
Balance, July 30, 1994 ......................................... 1,095,275
Granted........................................................ 160,000 $1.19 - $2.03
Exercised....................................................... (150,250) $0.75 - $1.53
Canceled........................................................ (66,100) $0.75 - $1.88
------------
</TABLE>

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE PRICE
--------------
<S> <C> <C>
Balance, July 29, 1995 .................................. 1,038,925 $ 1.09
Granted.................................................. 4,876,145 $ 6.61
Exercised................................................ (1,238,077) $ 6.64
Canceled................................................. (28,444) $ 1.09
--------------
Balance, July 27, 1996 .................................. 4,648,549 $ 5.67
Granted.................................................. 765,250 $ 15.06
Exercised................................................ (594,836) $ 5.36
Canceled................................................. (46,726) $ 6.57
---------------
Balance, August 2, 1997 ................................. 4,772,237 $ 6.40
===============

</TABLE>

The following table summarizes information about fixed stock options
outstanding at August 2, 1997:

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------- ----------------------------
Weighted
Average
Remaining Weighted Weighted
Range of Number Contractual Average Number Average
Exercise Prices Outstanding Life Exercise Price Exercisable Exercise Price

On August 2, 1997, there were 4,772,237 shares of Company Common Stock
reserved for issuance upon the exercise of outstanding options and 78,664
shares of Common Stock reserved for future grants under all stock option plans.

NOTE 7 INCOME TAXES

As of August 2, 1997, the Company's tax net operating loss
carryforwards for federal tax purposes were approximately $45,066,000. The
United States Tax Reform Act of 1986 contains provisions which limit the amount
of net operating loss carryforwards which may be utilized in any given fiscal
year when a significant change in

F-15
<PAGE> 77
AMATI COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AUGUST 2, 1997

NOTE 7 INCOME TAX (CONTINUED)

ownership interest occurs. These carryforwards expire in various amounts
through fiscal 2012. The Company also has certain tax credit carryforwards of
$1,650,000 which expire in various amounts through the year 2012. The United
States Tax Reform Act of 1986 contains provisions that may limit the net
operating loss carryforwards and research and development credits available to
be used in any given year should certain events occur.

The Company has an additional $2,234,000 of net operating loss
carryforwards which were acquired in connection with a fiscal 1988 acquisition.
The change in ownership of the acquired company will affect the availability
and timing of the amount of prior losses to be used to offset taxable income in
future years. These carryforwards expire in various amounts through the year
2005.

As of August 2, 1997, the Company also has net operating loss
carryforwards of approximately $10,000,000 available to offset future
California state taxable income. These carryforwards expire in various amounts
through the year 2002. The Company also has certain California tax credit
carryforwards of $330,000.

The provision for income taxes is as follows (in thousands):

<TABLE>
<CAPTION>
JULY 29, JULY 27, AUGUST 2,
1995 1996 1997
-----------------------------------
<S> <C> <C> <C>
Provision for income taxes:
Current federal ........................ $ 39 $ 17 $ --
Current state ........................ 58 26 --
-----------------------------------
Total provision for income taxes........ $ 97 $ 43 $ --
===================================
</TABLE>

The difference between the Company's effective income tax rate and the
Federal statutory rate is as follows:

<TABLE>
<CAPTION>
JULY 29, JULY 27, AUGUST 2,
1995 1996 1997
-------------------------------------
<S> <C> <C> <C>
Statutory federal income tax rate............... 34% (34)% (34)%
State income tax rate, net of federal benefit... 7 7 (6)
Change in valuation allowance................... (36) 32 40
-------------------------------------
Income tax rate................................. 5% 5% --
=====================================
</TABLE>

The major components of the net deferred tax asset are as follows (in
thousands):

<TABLE>
<CAPTION>
JULY 27, AUGUST 2,
1996 1997

<S> <C> <C>
Deferred tax assets:
Cumulative temporary differences................ $ 1,468 $ 3,056
Tax credits..................................... 1,395 1,839
Net operating loss carryforwards................ 9,496 16,693
Other accruals.................................. 118 ---
--------------------
Total assets............................ 12,477 21,588
Valuation allowance............................. (12,392) (21,427)
--------------------
Net deferred income tax asset................... 85 161
</TABLE>

F-16

<PAGE> 78
AMATI COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
AUGUST 2, 1997

NOTE 7 INCOME TAX(Continued)

<TABLE>
<CAPTION>
<S> <C> <C>
Less deferred tax liabilities:
Capitalized software expenditures............. 85 161
----------------------
Total liabilities..................... 85 161
======================
Total net deferred tax assets..................$ 0 $ 0
======================

</TABLE>

NOTE 8 NET INCOME (LOSS) PER SHARE

Net income (loss) per share is based on the weighted average number
of shares outstanding of common stock and common stock equivalents (when
dilutive) using the treasury stock method. No common stock equivalents have
been included in 1996 and 1997 because the effect would be to decrease the loss
per share.

In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128 ("SFAS No. 128"), "Earnings Per Share", which simplifies the
standards for computing earnings per share previously found in Accounting
Principles Board Opinion No. 15 ("APB No. 15"). SFAS No. 128 replaces the
presentation of primary earnings per share with a presentation of basic
earnings per share, which excludes dilution. SFAS No. 128 also requires dual
presentation of basic and diluted earnings per share on the face of the income
statement for all entities with complex capital structures and requires a
reconciliation. Diluted earnings per share is computed similarly to fully
diluted earnings per share pursuant to APB No. 15. SFAS No. 128 must be
adopted for financial statements issued for periods ending after December 15,
1997, including interim periods; earlier application is not permitted. SFAS
No. 128 requires restatement of all prior period earnings per share presented.
The Company does not anticipate that SFAS No. 128 will have a material impact
on its earnings per share calculation.

NOTE 9 LEASE COMMITMENTS

Future minimum lease payments under capital leases, together with the
present value of those payments and the aggregate annual rental commitments
under non-cancelable operating leases as of August 2, 1997, are shown as
follows:

<TABLE>
<CAPTION>
FISCAL YEAR OPERATING LEASES
----------------
RENTALS
RECEIVABLE
CAPITAL RENTAL UNDER
LEASES PAYMENTS SUBLEASES
------ -------- ---------
<S> <C> <C> <C>
1998.............................................. $1,019 $ 1,027 $ 258
1999.............................................. 1,019 1,033 252
2000.............................................. 866 862 ---
2001.............................................. 433 886 ---
2002.............................................. 88 97 ---
Thereafter........................................ --- 621 ---
------ -----------------
Total minimum lease payments..................... $3,425 $4,526 $ 510
Less amount representing interest................ (611) =================
------
Present value of future minimum lease payments... $2,814
======

</TABLE>

Total rent expense for all operating leases amounted to approximately
$1,038,000, $971,000 and $1,623,000 in fiscal 1995, 1996 and 1997,
respectively. Rent expense in fiscal 1995, 1996 and 1997 is before sublease
income of $297,000, $137,000 and $333,000.

F-17
<PAGE> 79
AMATI COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AUGUST 2, 1997

NOTE 10 LITIGATION

In November 1993, an action was brought against the Company for
damages related to the use of the Company's products. The plaintiff filed a
suit claiming repetitive stress injuries resulting from the use of the
Company's product in the course of employment with American Airlines from the
period May 1981 through July 1991. The plaintiff alleges damages in the amount
of $1 million and seeks punitive damages of $10 million. The Company believes
that the claim is without merit and has tendered defense of this action to its
insurance carriers. In the opinion of management, the outcome of this
litigation will not have a material adverse effect on the Company's financial
position or its results of operations.

NOTE 11 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

Quarterly information is for the years ended July 27, 1996 and
August 2, 1997.

<TABLE>
<CAPTION>
FISCAL 1996
QUARTER ENDED OCTOBER 28, JANUARY 27, APRIL 27, JULY 27,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1995 1996 1996 1996
- ----------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C>
Net Sales............................... $ 3,354 $ 2,524 $ 3,756 $ 2,451
Gross Profit............................ $ 1,514 $ 978 $ 1,576 $ 613
Net Income (Loss)....................... $ 816 $ (32,199) $ (498) $ (2,197)
Net Income (Loss) Per Share............. $ 0.07 $ (2.12) $ (0.03) $ (0.13)
</TABLE>

<TABLE>
<CAPTION>
FISCAL 1997
QUARTER ENDED NOVEMBER 2, FEBRUARY 1, MAY 3, AUGUST 2,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 1997 1997 1997
- ----------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C>
Net Sales............................... $ 4,513 $ 3,012 $ 3,663 $ 2,012
Gross Profit............................ $ 2,426 $ 899 $ 1,621 $ (1,300)
Net Loss................................ $ (746) $ (2,786) $ (2,293) $ (6,418)
Net Loss Per Share...................... $ (0.04) $ (0.15) $ (0.12) $ ( 0.33)
</TABLE>

NOTE 12 ACQUISITION OF OLD AMATI

On November 28, 1995, the Company acquired all of the outstanding
shares of Amati Communications Corporation ("Old Amati") for approximately
$29.5 million. The purchase price consisted of the issuance of 2.6 million
shares of the Company's Common Stock in exchange for all shares of Old Amati
common stock, 1.5 million shares of the Company's Common Stock in exchange for
all shares of Old Amati Series A preferred stock, Warrants for the purchase of
up to 1.1 million shares of the Company's Common Stock in exchange for all Old
Amati warrants, and options to purchase up to 1.6 million shares of the
Company's Common Stock in exchange for all options to purchase Old Amati common
stock. The purchase price also includes registration and other acquisition
costs of $0.8 million, total cash advances to Old Amati prior to the merger of
$5.6 million and is net of the estimated proceeds from the assumed exercise of
Old Amati options and warrants of $3.3 million.

The transaction was accounted for using the purchase method of
accounting. The Company allocated the purchase price to the net assets based
upon their estimated fair values. The fair values of tangible assets acquired
and liabilities assumed were $1.2 million and $3.2 million, respectively. The
balance of the purchase price, $31.6 million, was charged to earnings to
write-off in-process research and development that had not reached
technological feasibility and had no alternative future uses.

F-18
<PAGE> 80
AMATI COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AUGUST 2, 1997

NOTE 12 ACQUISITION OF OLD AMATI (CONTINUED)

The following table reflects unaudited pro forma combined results of
operations of the Company and Old Amati on the basis that the acquisition had
taken place and the related charge, noted above, was recorded at the beginning
of the fiscal year of the period presented:

<TABLE>
<CAPTION>
Twelve Months Ended
------------------------------------
July 29, 1995 July 27, 1996
(In thousands except per share data)
<S> <C> <C>
Revenues....................................... $ 13,092 $ 13,512
Net Loss....................................... $(35,666) $(36,527)
Net Loss per Share............................. $ (2.21) $ (2.15)
Number of shares used in computation .......... 16,146 17,008
</TABLE>

In management's opinion, the unaudited pro-forma combined results of
operations are not necessarily indicative of the actual results that would have
occurred had the acquisition been consummated at the beginning of 1996 or of
future operations of the combined companies under the ownership and management
of the Company.

F-19
<PAGE> 81
AMATI COMMUNICATIONS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)

<TABLE>
<CAPTION>
November 1, August 2,
1997 1997
---------- ----------
<S> <C> <C>
ASSETS

Current assets:
Cash and cash equivalents $ 1,844 $ 791
Short term investments 709 709
Accounts receivable, less allowance of
$30 in 1998 and 1997 3,166 1,369
Stock subscriptions receivable -- 2,500
Inventories 2,810 3,055
Other current assets 1,082 858
---------- ----------
Total current assets 9,611 9,282

Equipment and leasehold improvements - net 5,968 5,801
---------- ----------

TOTAL ASSETS $ 15,579 $ 15,083
========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Notes payable - bank $ 428 $ 428
Accounts payable and accrued expenses 4,838 3,326
Accrued employee compensation 1,121 1,035
Bridge loan payable 3,050 --
Current maturities of capitalized lease obligations 769 728
---------- ----------
Total current liabilities 10,206 5,517
---------- ----------

Long-term liabilities:
Long term portion of deferred revenue 2,100 2,000
Capitalized lease obligations, net of current maturities 2,033 2,086
Obligations under lease commitments 454 454
---------- ----------
Total long-term liabilities 4,587 4,540
---------- ----------

Stockholders' equity 786 5,026
---------- ----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 15,579 $ 15,083
========== ==========
</TABLE>

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

F-20
<PAGE> 82

AMATI COMMUNICATIONS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

<TABLE>
<CAPTION>
Three Months Ended
-------------------------
November 1, November 2,
1997 1996
---------- ----------
<S> <C> <C>
Net sales $ 4,702 $ 4,513
Cost of sales 4,678 2,087
---------- ----------
Gross margin 24 2,426
---------- ----------

Operating expenses:
Research and development 2,323 1,751
Marketing and sales 1,043 557
General and administrative 905 720
Other 105 128
---------- ----------
Total operating expenses 4,376 3,156
---------- ----------

Loss from operations (4,352) (730)
---------- ----------

Other income (expense):
Interest income 15 1
Interest expense (105) (17)
---------- ----------
Total other income (expense) (90) (16)
---------- ----------

NET LOSS $ (4,442) $ (746)
========== ==========

NET LOSS PER SHARE $ (0.23) $ (0.04)
========== ==========

Weighted Average Number of
Common Shares and Common
Share Equivalents 19,727 17,719
========== ==========
</TABLE>

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

F-21
<PAGE> 83

AMATI COMMUNICATIONS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)

<TABLE>
<CAPTION>
Three Months Ended
-------------------------
November 1, November 2,
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
NET LOSS $ (4,442) $ (746)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization 425 164
Loss on retirement of capital equipment -- 51
Increase in accounts receivable (1,797) (2,683)
Decrease (increase) in inventories 245 (233)
Increase in other assets (224) (52)
Increase in accounts payable, accrued
expenses and employee compensation 1,699 2,063
---------- ----------
NET CASH USED FOR OPERATING ACTIVITIES (4,094) (1,436)
---------- ----------

Cash flows from investing activities:
Purchase of equipment and leasehold improvements (408) (1,415)
---------- ----------
NET CASH USED FOR INVESTING ACTIVITIES (408) (1,415)
---------- ----------

Cash flows from financing activities:
Payments on capital lease obligations (197) --
Proceeds from bridge loan 3,050 --
Proceeds from equity financing, net of issuance costs 2,464 5,000
Proceeds from exercise of stock options/warrants 238 72
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 5,555 5,072
---------- ----------

NET INCREASE IN CASH AND CASH EQUIVALENTS 1,053 2,221
BEGINNING BALANCE - CASH AND CASH EQUIVALENTS 791 886
---------- ----------
ENDING BALANCE - CASH AND CASH EQUIVALENTS $ 1,844 $ 3,107
========== ==========

Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 94 $ 55
========== ==========
</TABLE>

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

F-22

<PAGE> 84

AMATI COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOVEMBER 1, 1997

Note A - Basis of Presentation

The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission and do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring entries) considered necessary for a fair presentation have been
included. For further information, refer to the financial statements and
footnotes included in the Company's Annual Report on Form 10-K for the year
ended August 2, 1997. The results for the period are not necessarily indicative
of results for the full fiscal year.

Note B - Net Loss Per Share

Net loss per share is based on the weighted average number of shares outstanding
of common stock. No common stock equivalents have been included in fiscal years
1998 and 1997 because the effect would decrease the loss per share.

In February 1997, the FASB issued SFAS No. 128, Earnings Per Share, which
simplifies the standards for computing earnings per share previously found in
Accounting Principles Board Opinion ("APB") No. 15. SFAS No. 128 replaces the
presentation of primary earnings per share with a presentation of basic earnings
per share, which excludes dilution. SFAS No. 128 also requires dual presentation
of basic and diluted earnings per share on the face of the income statement for
all entities with complex capital structures and requires reconciliation.
Diluted earnings per share are computed similarly to fully diluted earnings per
share pursuant to APBO No. 15. SFAS No. 128 must be adopted for financial
statements issued for periods ending after December 15, 1997, including interim
periods, earlier application is not permitted. SFAS No. 128 requires restatement
of all prior period earnings per share presented. The Company does not
anticipate that SFAS No. 128 will have a material impact on its earnings per
share calculation.

Note C - Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market and
are comprised of the following:

<TABLE>
<CAPTION>
November 1, 1997 August 2, 1997
--------------- ---------------
<S> <C> <C>
Finished goods $ 137 $ 448
Work in process 1,710 1,783
Purchased and service parts 963 824
--------------- ---------------
$ 2,810 $ 3,055
=============== ===============
</TABLE>

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

F-23

<PAGE> 85

AMATI COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOVEMBER 1, 1997

Note D - Proposed Merger

On September 30, 1997, the Company and Westell Technologies, Inc. entered into a
proposed merger wherein Amati would have become a wholly owned subsidiary of
Westell Technologies, Inc.

Holders of outstanding Amati Common Stock were to receive in exchange for each
share, 0.9 shares of Westell Class A Common Stock. Under the provisions of a
Loan and Security Agreement dated September 30, 1997, Westell Technologies, Inc.
could extend financing to the Company of up to $5,000,000 secured by a
promissory note due on or before September 30, 1999 with interest payable at the
following rates: prime plus 2% for the first $1 million and prime plus 2 1/2%
for all borrowings in excess of $1 million. As of November 1, 1997, $3,050,000
was outstanding under the Westell Loan, subsequently increased to $3,550,000.

Following the end of the current fiscal quarter, the Company terminated the
agreement with Westell Technologies, Inc. paying a $14.8 million fee in
connection with such termination. On November 19, 1997 the Company entered into
an Agreement and Plan of Merger with Texas Instruments, Incorporated ("TI")
providing for an all-cash tender offer for all outstanding shares of the
Company's Common Stock at $20 per share to commence on November 25, 1997 and end
on December 23, 1997, unless extended. Following completion of the tender offer,
and upon consummation of a merger with a wholly owned subsidiary of TI, the
Company will become a wholly owned subsidiary of TI.

Under the provisions of a Loan and Security Agreement dated November 19, 1997,
Texas Instruments agreed to grant a term loan in the amount of $14,774,000 and a
revolving loan in the amount of $5,000,000 to the Company secured by a
promissory note due September 30, 1999 with interest at the rate of prime plus
2%. As of December 5, 1997, $18,763,000 was outstanding under the TI loan.
Proceeds from these borrowings were used to repay in full all amounts owing to
Westell under the Loan and Security Agreement dated September 30, 1997, all
amounts owing to the Silicon Valley Bank under its revolving line of credit
agreement, and to pay the fee to Westell Technologies, Inc.

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

F-24
<PAGE> 86

ANNEX I

AGREEMENT AND PLAN OF MERGER

<PAGE> 87

AGREEMENT AND PLAN OF MERGER

by and among

TEXAS INSTRUMENTS INCORPORATED

DSL ACQUISITION CORPORATION

and

AMATI COMMUNICATIONS CORPORATION

November 19, 1997

I-1
<PAGE> 88

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I

THE OFFER AND MERGER
Section 1.1 The Offer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-5
Section 1.2 Company Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-7
Section 1.3 Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-8
Section 1.4 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-9
Section 1.5 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-9
Section 1.6 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-9
Section 1.7 Directors and Officers of the Surviving Corporation . . . . . . . . . . . . . . . . . . . . I-10
Section 1.8 Stockholders' Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-10
Section 1.9 Merger Without Meeting of Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . I-10

ARTICLE II

CONVERSION OF SECURITIES
Section 2.1 Conversion of Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-11
Section 2.2 Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-11
Section 2.3 Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-13
Section 2.4 Company Option Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-13
Section 2.5 Company Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-15

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.1 Organization; Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-15
Section 3.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-16
Section 3.3 Authorization; Validity of Agreement; Company Action . . . . . . . . . . . . . . . . . . . I-17
Section 3.4 Consents and Approvals; No Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . I-18
Section 3.5 SEC Reports and Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . I-18
Section 3.6 No Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-19
Section 3.7 Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-19
Section 3.8 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-20
Section 3.9 Employee Benefit Plans; ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-21
Section 3.10 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-22
Section 3.11 Permits; No Default; Compliance with Applicable Laws . . . . . . . . . . . . . . . . . . . I-23
Section 3.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-23
Section 3.13 Certain Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-25
Section 3.14 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-25
</TABLE>

I-2
<PAGE> 89

<TABLE>
<S> <C> <C>
Section 3.15 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-27
Section 3.16 Employee and Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-27
Section 3.17 Information in Offer Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-27
Section 3.18 Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-28
Section 3.19 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-28
Section 3.20 Opinion of Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-28

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF PARENT
AND THE PURCHASER
Section 4.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-28
Section 4.2 Authorization; Validity of Agreement; Necessary Action . . . . . . . . . . . . . . . . . . I-29
Section 4.3 Consents and Approvals; No Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . I-29
Section 4.4 SEC Reports and Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . I-29
Section 4.5 Information in Offer Documents; Proxy Statement . . . . . . . . . . . . . . . . . . . . . . I-30
Section 4.6 Sufficient Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-30
Section 4.7 Share Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-31
Section 4.8 Purchaser's Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-31

ARTICLE V

COVENANTS
Section 5.1 Interim Operations of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-31
Section 5.2 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-32
Section 5.3 Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-33
Section 5.4 No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-33
Section 5.5 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-35
Section 5.6 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-35
Section 5.7 Approvals and Consents; Cooperation; Notification . . . . . . . . . . . . . . . . . . . . . I-35
Section 5.8 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-36
Section 5.9 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-36
Section 5.10 Shareholder Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-36
Section 5.11 Loan and Security Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-36

ARTICLE VI

CONDITIONS
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger . . . . . . . . . . . . . . . . I-37
Section 6.2 Conditions to the Obligations of the Company to Effect the Merger . . . . . . . . . . . . . I-37
Section 6.3 Conditions to the Obligations of Parent and the Purchaser to Effect the Merger . . . . . . I-37
</TABLE>

I-3
<PAGE> 90

<TABLE>
<S> <C> <C>
Section 6.4 Exception . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-38

ARTICLE VII

TERMINATION
Section 7.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-38
Section 7.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-40

ARTICLE VIII

MISCELLANEOUS
Section 8.1 Amendment and Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-40
Section 8.2 Nonsurvival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . I-40
Section 8.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-41
Section 8.4 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-42
Section 8.5 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-42
Section 8.6 Entire Agreement; Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . I-43
Section 8.7 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-43
Section 8.8 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-43
Section 8.9 Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-43
Section 8.10 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-43
Section 8.11 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-43
Section 8.12 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-43
Section 8.13 Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-43
Section 8.14 Disclosure Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-44

ANNEX A

CONDITIONS TO THE OFFER
</TABLE>

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AGREEMENT AND PLAN OF MERGER

AGREEMENT AND PLAN OF MERGER, dated as of November 19, 1997 (this
"Agreement"), by and among TEXAS INSTRUMENTS INCORPORATED, a Delaware
corporation ("Parent"), DSL ACQUISITION CORPORATION, a Delaware corporation and
a wholly-owned subsidiary of Parent (the "Purchaser"), and AMATI COMMUNICATIONS
CORPORATION, a Delaware corporation (the "Company").

WHEREAS, the Boards of Directors of Parent, the Purchaser and the
Company have approved, and deem it advisable and in the best interests of their
respective stockholders to consummate, the acquisition of the Company by Parent
and the Purchaser upon the terms and subject to the conditions set forth
herein;

NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements set forth herein, and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:

ARTICLE I

THE OFFER AND MERGER

Section 1.1 The Offer. (a) As promptly as practicable (but in
no event later than five business days from the public announcement of the
execution hereof), the Purchaser shall commence (within the meaning of Rule
14d-2 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), an offer (the "Offer") to purchase for cash any and all of the issued
and outstanding shares of Common Stock, par value $0.20 per share (referred to
herein as either the "Shares" or "Company Common Stock"), of the Company at a
price of $20.00 per Share, net to the seller in cash (such price, or such
higher price per Share as may be paid in the Offer, being referred to herein as
the "Offer Price"). The Purchaser shall, on the terms and subject to the prior
satisfaction or waiver of the conditions of the Offer, accept for payment and
pay for Shares tendered as soon as it is legally permitted to do so under
applicable law; provided that, if the number of Shares that have been
physically tendered and not withdrawn are more than 80% but less than 90% of
the outstanding Shares determined on a fully diluted basis, the Purchaser may
extend the Offer for up to five business days and thereafter on a day-to-day
basis for up to an additional five business days from the date that all
conditions to the Offer shall first have been satisfied or waived. The
obligations of the Purchaser to accept for payment and to pay for any and all
Shares validly tendered on or prior to the expiration of the Offer and not
withdrawn shall be subject only to there being validly tendered and not
withdrawn prior to the expiration of the Offer, that number of Shares which,
together with any Shares beneficially owned by Parent or the Purchaser,
represent at least a

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majority of the Shares outstanding on a fully diluted basis (the "Minimum
Condition") and the other conditions set forth in Annex A hereto. The Offer
shall be made by means of an offer to purchase (the "Offer to Purchase")
containing the terms set forth in this Agreement, the Minimum Condition and the
other conditions set forth in Annex A hereto. The Purchaser shall not amend or
waive the Minimum Condition and shall not decrease the Offer Price or decrease
the number of Shares sought, or amend any other term or condition of the Offer
in any manner adverse to the holders of the Shares or extend the expiration
date of the Offer without the prior written consent of the Company (such
consent to be authorized by the Board of Directors of the Company or a duly
authorized committee thereof). Notwithstanding the foregoing, the Purchaser
shall, and Parent agrees to cause the Purchaser to, extend the Offer from time
to time until February 23, 1998 if, and to the extent that, at the initial
expiration date of the Offer, or any extension thereof, all conditions to the
Offer have not been satisfied or waived. In addition, the Offer Price may be
increased and the Offer may be extended to the extent required by law in
connection with such increase, in each case without the consent of the Company.

(b) As soon as practicable on the date the Offer is
commenced, Parent and the Purchaser shall file with the United States
Securities and Exchange Commission (the "SEC") a Tender Offer Statement on
Schedule 14D-1 with respect to the Offer (together with all amendments and
supplements thereto and including the exhibits thereto, the "Schedule 14D-1").
The Schedule 14D-1 will include, as exhibits, the Offer to Purchase and a form
of letter of transmittal and summary advertisement (collectively, together with
any amendments and supplements thereto, the "Offer Documents"). The Offer
Documents will comply in all material respects with the provisions of
applicable federal securities laws and, on the date filed with the SEC and on
the date first published, sent or given to the Company's stockholders, shall
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except that no representation is made by Parent or the
Purchaser with respect to information supplied by the Company in writing for
inclusion in the Offer Documents. Each of Parent and the Purchaser further
agrees to take all steps necessary to cause the Offer Documents to be filed
with the SEC and to be disseminated to holders of Shares, in each case as and
to the extent required by applicable federal securities laws. Each of Parent
and the Purchaser, on the one hand, and the Company, on the other hand, agrees
promptly to correct any information provided by it for use in the Offer
Documents if and to the extent that it shall have become false and misleading
in any material respect and the Purchaser further agrees to take all steps
necessary to cause the Offer Documents as so corrected to be filed with the SEC
and to be disseminated to holders of Shares, in each case as and to the extent
required by applicable federal securities laws. The Company and its counsel
shall be given a reasonable opportunity to review the initial Schedule 14D-1
before it is filed with the SEC. In addition, Parent and the Purchaser agree
to provide the Company and its counsel in writing with any comments or other
communications that Parent, the Purchaser or their counsel may receive from
time to time from the SEC or its staff

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with respect to the Offer Documents promptly after the receipt of such comments
or other communications.

Section 1.2 Company Actions.

(a) The Company hereby approves of and consents to the
Offer and represents that the Board of Directors, at a meeting duly called and
held, has (i) approved this Agreement and the transactions contemplated hereby,
including the Offer and the Merger (as defined in Section 1.4), which approvals
constitute approval of this Agreement, the Offer and the Merger for purposes of
Section 203 of the General Corporation Law of the State of Delaware (the
"DGCL"), and (ii) resolved to recommend that the stockholders of the Company
accept the Offer, tender their Shares thereunder to the Purchaser and approve
and adopt this Agreement and the Merger, which recommendation shall not be
withdrawn, modified or amended except as permitted by Section 5.4(b) hereof.

(b) The Company shall file with the SEC a
Solicitation/Recommendation Statement on Schedule 14D-9 (together with all
amendments and supplements thereto and including the exhibits thereto, the
"Schedule 14D-9") which shall, subject to the fiduciary duties of the Company's
directors under applicable law and to the provisions of this Agreement, contain
the recommendation referred to in clause (ii) of Section 1.2(a) hereof. The
Company will use its reasonable best efforts to cause the Schedule 14D-9 to be
filed on the same date that the Schedule 14D-1 is filed; provided, however,
that in any event the Schedule 14D-9 will be filed no later than ten business
days following the commencement of the Offer. The Schedule 14D-9 will comply
in all material respects with the provisions of applicable federal securities
laws and, on the date filed with the SEC and on the date first published, sent
or given to the Company's shareholders, shall not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that no
representation is made by the Company with respect to information supplied by
Parent or the Purchaser in writing for inclusion in the Offer Documents. The
Company further agrees to take all steps necessary to cause the Schedule 14D-9
to be filed with the SEC and to be disseminated to holders of Shares, in each
case as and to the extent required by applicable federal securities laws. Each
of the Company, on the one hand, and Parent and the Purchaser, on the other
hand, agrees promptly to correct any information provided by it for use in the
Schedule 14D-9 if and to the extent that it shall have become false and
misleading in any material respect and the Company further agrees to take all
steps necessary to cause the Schedule 14D-9 as so corrected to be filed with
the SEC and to be disseminated to holders of the Shares, in each case as and to
the extent required by applicable federal securities laws. Parent and its
counsel shall be given a reasonable opportunity to review the initial Schedule
14D-9 before it is filed with the SEC. In addition, the Company agrees to
provide Parent, the Purchaser and their counsel in writing with any comments or
other communications that the Company or its counsel may receive from time to
time from the SEC or its staff with respect to the Schedule 14D-9 promptly
after the receipt of such comments or other communications.

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(c) In connection with the Offer, the Company will
promptly furnish or cause to be furnished to the Purchaser mailing labels,
security position listings and any available listing or computer file
containing the names and addresses of the record holders of the Shares as of a
recent date (which shall in no event be more than ten days prior to the date
hereof), and shall furnish the Purchaser with such additional information
(including updated lists of holders of Shares and their addresses, mailing
labels and lists of security positions) and such other assistance as the
Purchaser or its agents may reasonably request in communicating the Offer to
the record and beneficial shareholders of the Company. Except for such steps
as are necessary to disseminate the Offer Documents, Parent and the Purchaser
shall hold in confidence the information contained in any of such labels and
lists and the additional information referred to in the preceding sentence,
will use such information only in connection with the Offer, and, if this
Agreement is terminated, will upon request of the Company deliver or cause to
be delivered to the Company all copies of such information then in its
possession or the possession of its agents or representatives.

Section 1.3 Directors.

(a) Promptly upon the purchase of and payment for Shares
by Parent or any of its subsidiaries which represent at least a majority of the
outstanding shares of Company Common Stock (on a fully diluted basis), Parent
shall be entitled to designate such number of directors, rounded up to the next
whole number, on the Board of Directors of the Company as is equal to the
product of the total number of directors on such Board (giving effect to the
directors designated by Parent pursuant to this sentence) multiplied by the
percentage that the aggregate number of Shares beneficially owned by the
Purchaser, Parent and any of their affiliates (including Shares accepted for
payment) bears to the total number of shares of Company Common Stock then
outstanding. The Company shall, upon request of the Purchaser, on the date of
such request, either increase the size of its Board of Directors or secure the
resignations of such number of its incumbent directors as is necessary to
enable Parent's designees to be so elected to the Company's Board, and shall
cause Parent's designees to be so elected as either may be necessary to comply
with the preceding sentence. Notwithstanding the foregoing, until the
Effective Time (as defined in Section 1.5 hereof), the Company shall retain as
members of its Board of Directors at least two directors who are directors of
the Company on the date hereof; provided, that subsequent to the purchase of
and payment for Shares pursuant to the Offer, Parent shall always have its
designees represent at least a majority of the entire Board of Directors. The
Company's obligations under this Section 1.3(a) shall be subject to Section
14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder. The Company
shall promptly take all actions required pursuant to such Section 14(f) and
Rule 14f-1 in order to fulfill its obligations under this Section 1.3(a),
including mailing to stockholders the information required by such Section
14(f) and Rule 14f-1 as is necessary to enable Parent's designees to be elected
to the Company's Board of Directors. Parent or the Purchaser will supply the
Company any information with respect to either of them and their nominees,
officers, directors and affiliates required by such Section 14(f) and Rule
14f-1.

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(b) From and after the time, if any, that Parent's
designees constitute a majority of the Company's Board of Directors, any
amendment of this Agreement, any termination of this Agreement by the Company,
any extension of time for performance of any of the obligations of Parent or
the Purchaser hereunder, any waiver of any condition or any of the Company's
rights hereunder or other action by the Company in connection with the rights
of the Company hereunder may be effected only by the action of a majority of
the directors of the Company then in office who were directors of the Company
on the date hereof, which action shall be deemed to constitute the action of
the full Board of Directors; provided, that if there shall be no such
directors, such actions may be effected by unanimous vote of the entire Board
of Directors of the Company.

Section 1.4 The Merger. Subject to the terms and conditions of
this Agreement, at the Effective Time (as defined in Section 1.5 hereof), the
Company and the Purchaser shall consummate a merger (the "Merger") pursuant to
which (a) the Purchaser shall be merged with and into the Company and the
separate corporate existence of the Purchaser shall thereupon cease, (b) the
Company shall be the successor or surviving corporation in the Merger (the
"Surviving Corporation") and shall continue to be organized under the laws of
the State of Delaware, and (c) the separate corporate existence of the Company
with all its rights, privileges, immunities, powers and franchises shall
continue unaffected by the Merger. Pursuant to the Merger, (x) the Certificate
of Incorporation of the Company, as in effect immediately prior to the
Effective Time, shall be the Certificate of Incorporation of the Surviving
Corporation until thereafter amended as provided by law and such Certificate of
Incorporation, and (y) the By-laws of the Company, as in effect immediately
prior to the Effective Time, shall be the By-laws of the Surviving Corporation
until thereafter amended as provided by law, the Certificate of Incorporation
and such Bylaws. The Merger shall have the effects set forth in the DGCL.

Section 1.5 Effective Time. On the date of the Closing (as
defined in Section 1.6 hereof) (or on such other date as the parties may
agree), the parties shall file a certificate of merger or other appropriate
document (in any such case, the "Certificate of Merger") executed in accordance
with the relevant provisions of the DGCL, and shall make all other filings,
recordings and publications required by the DGCL with respect to the Merger.
The Merger shall become effective on the date specified in the Certificate of
Merger (the time the Merger becomes effective is hereinafter referred to as the
"Effective Time").

Section 1.6 Closing. The closing of the Merger (the "Closing")
will take place at 11:00 a.m. on a date to be specified by the parties, which
shall be no later than the second business day after satisfaction or waiver of
all of the conditions set forth in Article VI hereof (the "Closing Date"), at
the offices of Weil, Gotshal & Manges LLP, 100 Crescent Court, Suite 1300,
Dallas, Texas 75201, unless another date or place is agreed to in writing by
the parties hereto.

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Section 1.7 Directors and Officers of the Surviving Corporation.
The directors of the Purchaser immediately prior to the Effective Time shall,
from and after the Effective Time, be the directors of the Surviving
Corporation until their successors shall have been duly elected or appointed or
qualified or until their earlier death, resignation or removal in accordance
with the Surviving Corporation's Certificate of Incorporation and By-laws. The
officers of the Company immediately prior to the Effective Time shall, from and
after the Effective Time, be the officers of the Surviving Corporation until
their successors shall have been duly elected or appointed or qualified or
until their earlier death, resignation or removal in accordance with the
Surviving Corporation's Certificate of Incorporation and By-laws.

Section 1.8 Stockholders' Meeting.

(a) If the Purchaser owns less than 90% of the Shares
following the purchase of Shares by the Purchaser pursuant to the Offer, the
Company, acting through its Board of Directors, shall, in accordance with
applicable law:

(i) duly call, give notice of, convene and hold a
special meeting of its stockholders (the "Special Meeting") as
soon as practicable following the acceptance for payment and
purchase of Shares by the Purchaser pursuant to the Offer for
the purpose of considering and taking action upon this
Agreement;

(ii) prepare and file with the SEC a preliminary
proxy or information statement relating to the Merger and this
Agreement, obtain and furnish the information required to be
included by the SEC in the Proxy Statement (as hereinafter
defined) and, after consultation with Parent, respond promptly
to any comments made by the SEC with respect to the
preliminary proxy or information statement and cause a
definitive proxy or information statement (the "Proxy
Statement") to be mailed to its stockholders and use its best
efforts to obtain the necessary adoption of this Agreement by
its stockholders; and

(iii) subject to the fiduciary obligations of the
Board under applicable law as advised by the Company's outside
counsel, include in the Proxy Statement the recommendation of
the Board that stockholders of the Company vote in favor of
the adoption of this Agreement.

(b) Parent agrees that it will provide the Company with
the information concerning Parent and the Purchaser required to be included in
the Proxy Statement and will vote, or cause to be voted, all of the Shares then
owned by Parent, the Purchaser or any of its other subsidiaries and affiliates
in favor of the approval of the Merger and the adoption of this Agreement.

Section 1.9 Merger Without Meeting of Stockholders.
Notwithstanding Section 1.8 hereof, in the event that the Purchaser shall
acquire at least 90% of the outstanding shares of

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each class of capital stock of the Company, pursuant to the Offer or otherwise,
the parties hereto agree to take all necessary and appropriate action to cause
the Merger to become effective as soon as practicable after such acquisition,
without a meeting of stockholders of the Company.

ARTICLE II

CONVERSION OF SECURITIES

Section 2.1 Conversion of Capital Stock. As of the Effective
Time, by virtue of the Merger and without any action on the part of the holders
of any shares of Company Common Stock or common stock of the Purchaser (the
"Purchaser Common Stock"):

(a) Each issued and outstanding share of the Purchaser
Common Stock shall be converted into and become one fully paid and
nonassessable share of common stock of the Surviving Corporation.

(b) Any shares of Company Common Stock owned by Parent,
the Purchaser or any other wholly owned Subsidiary (as defined in Section 3.1
hereof) of Parent shall be cancelled and retired and shall cease to exist and
no consideration shall be delivered in exchange therefor.

(c) Each issued and outstanding share of Company Common
Stock (other than Shares to be cancelled in accordance with Section 2.1(b)
hereof and any Dissenting Shares (if applicable and as defined in Section 2.3
hereof)), shall be converted into the right to receive the Offer Price, payable
to the holder thereof, without interest (the "Merger Consideration"), upon
surrender of the certificate formerly representing such share of Company Common
Stock in the manner provided in Section 2.2 hereof. All such shares of Company
Common Stock, when so converted, shall no longer be outstanding and shall
automatically be cancelled and retired and shall cease to exist, and each
holder of a certificate representing any such shares shall cease to have any
rights with respect thereto, except the right to receive the Merger
Consideration therefor upon the surrender of such certificate in accordance
with Section 2.2 hereof, without interest, or to perfect any rights of
appraisal as a holder of Dissenting Shares (as hereinafter defined) that such
holder may have pursuant to Section 262 of the DGCL.

Section 2.2 Exchange of Certificates.

(a) Parent shall designate a bank or trust company, or an
affiliate thereof, of nationally recognized standing to act as agent for the
holders of shares of Company Common Stock in connection with the Merger (the
"Paying Agent") to receive the funds to which holders of shares of Company
Common Stock shall become entitled pursuant to Section 2.1(c) hereof. Prior to
the Effective Time, Parent shall take all steps necessary to deposit or cause
to

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be deposited with the Paying Agent such funds for timely payment hereunder.
Such funds shall be invested by the Paying Agent as directed by Parent or the
Surviving Corporation.

(b) As soon as reasonably practicable after the Effective
Time but in no event more than three business days thereafter, the Paying Agent
shall mail to each holder of record of a certificate or certificates, which
immediately prior to the Effective Time represented outstanding shares of
Company Common Stock (the "Certificates"), whose shares were converted pursuant
to Section 2.1 hereto into the right to receive the Merger Consideration (i) a
letter of transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon delivery of
the Certificates to the Paying Agent and shall be in such form and have such
other provisions as Parent and the Company may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for payment of the Merger Consideration. Upon surrender of a Certificate for
cancellation to the Paying Agent or to such other agent or agents as may be
appointed by Parent, together with such letter of transmittal, duly executed,
the holder of such Certificate shall be entitled to receive in exchange
therefor the Merger Consideration for each share of Company Common Stock
formerly represented by such Certificate and the Certificate so surrendered
shall forthwith be cancelled. If payment of the Merger Consideration is to be
made to a person other than the person in whose name the surrendered
Certificate is registered, it shall be a condition of payment that the
Certificate so surrendered shall be properly endorsed or shall be otherwise in
proper form for transfer and that the person requesting such payment shall have
paid any transfer and other taxes required by reason of the payment of the
Merger Consideration to a person other than the registered holder of the
Certificate surrendered or shall have established to the satisfaction of the
Surviving Corporation that such tax either has been paid or is not applicable.
Until surrendered as contemplated by this Section 2.2, each Certificate shall
be deemed at any time after the Effective Time to represent only the right to
receive the Merger Consideration in cash as contemplated by this Section 2.2.

(c) At the Effective Time, the stock transfer books of
the Company shall be closed and thereafter there shall be no further
registration of transfers of shares of Company Common Stock on the records of
the Company. From and after the Effective Time, the holders of Certificates
evidencing ownership of shares of Company Common Stock outstanding immediately
prior to the Effective Time shall cease to have any rights with respect to such
Shares, except as otherwise provided for herein or by applicable law. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be cancelled and exchanged as provided
in this Article II.

(d) At any time following one year after the Effective
Time, the Surviving Corporation shall be entitled to require the Paying Agent
to deliver to it any funds (including any interest received with respect
thereto) which had been made available to the Paying Agent and which have not
been disbursed to holders of Certificates, and thereafter such holders shall be
entitled to look to the Surviving Corporation (subject to abandoned property,
escheat or other similar laws) only as general creditors thereof with respect
to the Merger Consideration

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payable upon due surrender of their Certificates, without any interest thereon.
Notwithstanding the foregoing, neither the Surviving Corporation nor the Paying
Agent shall be liable to any holder of a Certificate for Merger Consideration
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.

Section 2.3 Dissenting Shares. Notwithstanding anything in this
Agreement to the contrary, Shares outstanding immediately prior to the
Effective Time and held by a holder who has not voted in favor of the Merger or
consented thereto in writing and who has demanded appraisal for such Shares in
accordance with the DGCL ("Dissenting Shares") shall not be converted into a
right to receive the Merger Consideration, unless and until such holder fails
to perfect or withdraws or otherwise loses his or her right to appraisal. A
holder of Dissenting Shares shall be entitled to receive payment of the
appraised value of such Shares held by him or her in accordance with the
provisions of Section 262 of the DGCL, unless, after the Effective Time, such
holder fails to perfect or withdraws or loses his or her right to appraisal, in
which case such Shares shall be treated as if they had been converted as of the
Effective Time into a right to receive the Merger Consideration, without
interest thereon.

Section 2.4 Company Option Plans.

(a) The options (the "Options") to purchase shares of
Company Common Stock outstanding under the Company's 1981 Stock Option Plan,
1981 Supplemental Stock Option Plan, 1990 Stock Option Plan, Old Amati 1992
Stock Option Plan, 1990 Non-Employee Directors' Stock Option Plan and 1996
Stock Option Plan (the "Option Plans") shall, pursuant to the terms of such
Option Plans, not automatically vest as a consequence of the transactions
contemplated hereby nor shall the Board of Directors of the Company exercise
any discretionary authority to vest such Options in connection with the
transactions contemplated hereby; provided, that notwithstanding the foregoing,
Options (the "Director Options") granted to non-employee directors of the
Company pursuant to any of the Option Plans shall be treated in the manner
contemplated by Section 2.4(d).

(b) The holders of outstanding Options (other than
Director Options) that are vested as of the Effective Time shall be given the
opportunity to make an irrevocable election, on a grant by grant basis to be
effective immediately following the Effective Time, to receive in exchange for
the cancellation of each such vested Option either:

(i) cash in the amount equal to the product of (A) the
number of shares of Company Common Stock subject to
such Option and (B) the excess of (1) the Merger
Consideration over (2) the per share exercise price
of such Option; or

(ii) a substitute option to purchase Parent common stock
(a "Substitute Option") on the following terms:

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(A) the Substitute Option will be exercisable for
a number of shares of Parent common stock
equal to (1) the number of shares of Company
Common Stock subject to the Option multiplied
by (2) the Option Ratio (as defined below),
rounded down to the next whole number of
shares;

(B) the exercise price for the Substitute Option
shall equal the exercise price for the shares
of Company Common Stock otherwise purchasable
pursuant to such Option divided by the Option
Ratio, rounded to the nearest hundredth of a
cent; and

For purposes of this Section 2.4, "Option Ratio"
shall mean the Offer Price divided by the average
closing price per share of Parent common stock on the
New York Stock Exchange for the five consecutive
trading days ending immediately prior to the Closing
Date.

(c) The holders of outstanding Options (other than
Director Options) that are not vested as of the Effective Time shall, at the
Effective Time, receive in substitution and cancellation for each such
nonvested Option a Substitute Option, which Substitute Option shall be subject
to the same vesting schedule as applicable to the Option.

(d) Each of the outstanding Director Options granted
pursuant to (i) the 1990 Non-Employee Directors Stock Option Plan shall, in
accordance with the terms thereof, be vested immediately prior to the Effective
Time and (ii) any other Option Plan shall, in accordance with the discretionary
authority granted to the Board of Directors of the Company under the applicable
Option Plan, be vested immediately prior to the Effective Time by action of the
Board of Directors of the Company. Each outstanding Director Option shall, at
the Effective Time, be converted into the right to receive in cash an amount
equal to the product of (i) the number of shares of Company Common Stock
subject to such Director Option and (ii) the excess of (A) the Merger
Consideration over (B) the per share exercise price of such Director Option.

(e) As soon as practicable after the Effective Time and
in no event more than three (3) business days thereafter, to the extent
necessary to provide for registration of shares of Parent common stock subject
to such Substitute Options, Parent shall file a registration statement on Form
S-8 (or any successor form) with respect to such shares of Parent common stock
and shall use its reasonable best efforts to maintain such registration
statement, including the current status of any related prospectus or
prospectuses, for so long as the Substitute Options remain outstanding.

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Section 2.5 Company Warrants. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holders thereof,
each unexpired and unexercised warrant ("Warrant") to purchase shares of
Company Common Stock shall be converted into the right to receive an amount in
cash equal to the product of (a) the number of shares of Company Common Stock
subject to such Warrant and (b) the excess of the (i) Merger Consideration over
(ii) the per share exercise price of such Warrant, upon surrender of the
certificate formerly representing such Warrant; provided, that any Warrant as
to which the per share exercise price is equal to or greater than the Merger
Consideration shall be cancelled and terminated as of the Effective Time
without payment of any consideration therefor.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Except as otherwise disclosed to Parent and Purchaser in a letter
delivered to it at or prior to the execution hereof (the "Company Disclosure
Letter"), the Company represents and warrants to Parent and Purchaser as
follows:

Section 3.1 Organization; Subsidiaries. (a) Each of the Company
and its Subsidiaries (as hereinafter defined) is a corporation or other entity
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization and has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as it is now being conducted, except where failure to be
in good standing would not have a Company Material Adverse Effect (as
hereinafter defined). Each of the Company and its Subsidiaries is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction in which the nature of the business conducted by it makes
such qualification necessary, except where the failure to be so duly qualified
and in good standing would not have a Company Material Adverse Effect. As used
in this Agreement, the word "Subsidiary" means, with respect to any party, any
corporation, partnership or other entity or organization, whether incorporated
or unincorporated, of which (i) such party or any other Subsidiary of such
party is a general partner (excluding such partnerships where such party or any
Subsidiary of such party do not have a majority of the voting interest in such
partnership) or (ii) at least a majority of the securities or other interests
having by their terms ordinary voting power to elect a majority of the Board of
Directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly owned or controlled
by such party or by any one or more of its Subsidiaries, or by such party and
one or more of its Subsidiaries. As used in this Agreement, "Company Material
Adverse Effect" means any change in or effect on the business of the Company
and its Subsidiaries that is materially adverse to the business, financial
condition, assets or results of operations of the Company and its Subsidiaries
taken as a whole except for any events, changes or effects substantially
resulting from (i) any material and adverse change in the financial markets;
(ii) any political, economic or financial conditions affecting the

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industry or business generally; or (iii) the announcement of the transactions
contemplated by this Agreement. Section 3.1 of the Company Disclosure Letter
sets forth a complete and correct list of all of the Company's Subsidiaries and
their respective jurisdictions of incorporation or organization. Except as set
forth in Section 3.1 of the Company Disclosure Letter, neither the Company nor
any Company Subsidiary holds any interest in a partnership or joint venture of
any kind.

(b) The Company has heretofore delivered to Parent a
complete and correct copy of each of its Certificate of Incorporation and
By-Laws, as currently in effect, and has heretofore made available to Parent a
complete and correct copy of the charter and by-laws of each of its
Subsidiaries, as currently in effect. In all material respects, the minute
books of the Company and the Company Subsidiaries through November 1, 1997
contain accurate records of all meetings and accurately reflect all other
actions taken by the stockholders, the Boards of Directors and all committees
of the Boards of Directors of the Company and the Company Subsidiaries since
July 30, 1995. Complete and accurate copies of all such minute books (except
for the portions relating to deliberations regarding the Merger or the proposed
acquisition of the Company by Westell Technologies, Inc. ("Westell"), which
were redacted, or otherwise redacted on the basis of statutory or common law
privilege), and of the stock register of the Company and each Company
Subsidiary have been made available by the Company to Parent.

Section 3.2 Capitalization. (a) As of the date hereof, the
authorized capital stock of the Company consists of 45,000,000 shares of
Company Common Stock and 5,000 shares of preferred stock, par value $100.00 per
share (the "Company Preferred Stock"). As of October 31, 1997, (i) 19,768,978
shares of Company Common Stock were issued and outstanding, (ii) 4,885,599
shares of Company Common Stock were reserved for issuance upon exercise of
Options granted pursuant to the Option Plans, (iii) 630,476 shares of the
Company Common Stock were reserved for issuance upon exercise of the Warrants,
(iv) no shares of Company Common Stock were issued and held in the treasury of
the Company and (v) there were no shares of Company Preferred Stock issued and
outstanding. All the outstanding shares of the Company's capital stock are
duly authorized, validly issued, fully paid, non-assessable and free of
preemptive rights. Since October 31, 1997, no additional shares of capital
stock or securities convertible into or exchangeable for such capital stock,
have been issued other than any shares of Company Common Stock issued upon
exercise of the Warrants or Options granted under the Option Plans, and no
shares of Company Preferred Stock have been issued. Section 3.2 of the Company
Disclosure Letter identifies (i) the holders of each of the Options, (ii) the
number of Options vested for each holder, (iii) the Option Plan under which
each Option was issued, and (iv) the exercise price of each of the Options.
All shares of Company Common Stock subject to issuance as aforesaid, upon
issuance prior to the Effective Time on the terms and conditions specified in
the instruments pursuant to which they are issuable, will be duly authorized,
validly issued, fully paid, nonassessable and free of preemptive rights.
Except as provided in Section 2.4(d), no vesting of the Options or the Warrants
shall accelerate by virtue of the transactions contemplated by this Agreement
and the Board of Directors of the

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Company has not accelerated any of the Options or Warrants. None of the
Options are "incentive stock options" within the meaning of Section 422 of the
Code. Except for shares of Company Common Stock issuable upon exercise of the
Options or the Warrants described in Section 3.2 of the Company Disclosure
Letter or as otherwise set forth in Section 3.2 of the Company Disclosure
Letter, there are no (i) options, warrants, calls, subscriptions or other
rights, convertible securities, agreements or commitments of any character
obligating the Company or any Company Subsidiary to issue, transfer or sell any
shares of capital stock or other equity interest in, the Company or any Company
Subsidiary or securities convertible into or exchangeable for such shares or
equity interests, (ii) outstanding contractual obligations or commitments of
any character of the Company or any Company Subsidiary to repurchase, redeem or
otherwise acquire any capital stock of the Company or any Company Subsidiary,
(iii) outstanding contractual obligations or commitments of any character
restricting the transfer of, or requiring the registration for sale of, any
capital stock of the Company or any Company Subsidiary, (iv) outstanding
contractual obligations or commitments of any character granting any preemptive
or antidilutive right with respect to, any capital stock of the Company or any
Company Subsidiary or (v) voting trusts or similar agreements to which the
Company or any Company Subsidiary is a party with respect to the voting of the
capital stock of the Company or any Company Subsidiary. Except as set forth in
Section 3.3 of the Company Disclosure Letter, there are no outstanding
contractual obligations of the Company or any Company Subsidiary to provide
funds to, or make any investment (in the form of a loan, capital contribution
or otherwise) in, any Company Subsidiary or any other person, other than
guarantees by the Company of any indebtedness of any Company Subsidiary.

(b) Each outstanding share of capital stock of each
Company Subsidiary is duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights. Except as disclosed in Section
3.2(b) of the Company Disclosure Letter, all of the outstanding shares of
capital stock of each of Company Subsidiary are owned of record and
beneficially, directly or indirectly, by the Company, free and clear of all
security interests, liens, claims, pledges, options, rights of first refusal,
agreements, limitations on the Company's or such other Company Subsidiary's
voting rights, charges and other encumbrances of any nature whatsoever, except
where failure to own such shares free and clear would not, individually or in
the aggregate, have a Company Material Adverse Effect.

Section 3.3 Authorization; Validity of Agreement; Company Action.
The Company has full corporate power and authority to execute and deliver this
Agreement and, subject to obtaining the necessary approval of its stockholders,
to consummate the transactions contemplated hereby. The execution, delivery
and performance by the Company of this Agreement, and the consummation by it of
the transactions contemplated hereby, have been duly authorized by its Board of
Directors and, except for those actions contemplated by Section 1.2(a) hereof
and obtaining the approval of its stockholders as contemplated by Section 1.8
hereof, no other corporate action on the part of the Company is necessary to
authorize the execution and delivery by the Company of this Agreement and the
consummation by it of the transactions contemplated hereby. This Agreement has
been duly executed and delivered by

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the Company and, subject to approval and adoption of this Agreement by the
Company's stockholders (and assuming due and valid authorization, execution and
delivery hereof by Parent and the Purchaser) is a valid and binding obligation
of the Company enforceable against the Company in accordance with its terms,
except that (i) such enforcement may be subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws, now or hereafter
in effect, affecting creditors' rights generally, and (ii) the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.

Section 3.4 Consents and Approvals; No Violations. Except as
disclosed in Section 3.4 of the Company Disclosure Letter and except for (a)
filings pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), (b) applicable requirements under the Exchange Act,
(c) the filing of the Certificate of Merger, (d) applicable requirements under
"takeover" or "blue sky" laws of various states, or (e) matters specifically
described in this Agreement, neither the execution, delivery or performance of
this Agreement by the Company nor the consummation by the Company of the
transactions contemplated hereby will (i) violate any provision of the
Certificate of Incorporation or By-Laws of the Company or the charter or
by-laws of any of its Subsidiaries, (ii) result in a violation or breach of, or
result in any loss of benefit or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation, acceleration or modification) under, any of the terms, conditions
or provisions of any material note, bond, mortgage, indenture, lease, license,
contract, agreement or other instrument or obligation to which the Company or
any of its Subsidiaries is a party or by which any of them or any of their
properties or assets may be bound (the "Material Agreements"), (iii) violate
any order, writ, judgment, injunction or decree applicable to the Company, any
of its Subsidiaries or any of their properties or assets, (iv) violate any law,
statute, rule or regulation applicable to the Company, any of its Subsidiaries
or any of their properties or assets, or (v) require on the part of the Company
or any of its Subsidiaries any filing or registration with, notification to, or
authorization, consent or approval of, any court, legislative, executive or
regulatory authority or agency (a "Governmental Entity"); except in the case of
clauses (ii), (iv) or (v) for such violations, breaches or defaults which, or
filings, registrations, notifications, authorizations, consents or approvals
the failure of which to obtain, would not have a Company Material Adverse
Effect or would not materially adversely affect the ability of the Company to
consummate the transactions contemplated by this Agreement.

Section 3.5 SEC Reports and Financial Statements. The Company
has filed all reports required to be filed by it with the SEC pursuant to the
Exchange Act and the Securities Act of 1933, as amended (the "Securities Act"),
since July 30, 1995 (as such documents have been amended since the date of
their filing, collectively, the "Company SEC Documents"). The Company SEC
Documents (a) were prepared in accordance with the requirements of the
Securities Act or the Exchange Act, as the case may be, and (b) as of their
respective filing dates, or if amended, as of the date of the last such
amendment, did not contain any untrue

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statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. Each of the
historical consolidated balance sheets (including the related notes) included
in the Company SEC Documents fairly presents in all material respects the
financial position of the Company and its consolidated Subsidiaries as of the
date thereof, and the other related historical statements (including the
related notes) included in the Company SEC Documents fairly present in all
material respects the results of operations and cash flows of the Company and
its consolidated Subsidiaries for the respective periods or as of the
respective dates set forth therein. Each of the historical consolidated
balance sheets and historical statements of operations and cash flow (including
the related notes) included in the Company SEC Documents has been prepared in
all material respects in accordance with United States generally accepted
accounting principles ("GAAP") applied on a consistent basis during the periods
involved, except as otherwise noted therein and, in the case of unaudited
interim financial statements, subject to normal year-end adjustments and except
as permitted by Form 10-Q of the SEC. The books and records of the Company and
its Subsidiaries have been, and are being, maintained in accordance with GAAP
and any other applicable legal and accounting requirements.

Section 3.6 No Undisclosed Liabilities. Except (a) for
liabilities and obligations incurred in the ordinary course of business
consistent with past practices since August 2, 1997, (b) for liabilities and
obligations disclosed in the Company SEC Documents filed prior to the date
hereof, (c) for liabilities and obligations incurred in connection with the
Offer and the Merger or otherwise as contemplated by this Agreement and (d) as
disclosed in Section 3.6 of the Company Disclosure Letter, since August 2,
1997, neither the Company nor any of its Subsidiaries has incurred any material
liabilities or obligations that would be required to be reflected or reserved
against in a consolidated balance sheet of the Company and its consolidated
Subsidiaries prepared in accordance with GAAP as applied in preparing the
consolidated balance sheet of the Company and its consolidated Subsidiaries as
of August 2, 1997.

Section 3.7 Absence of Certain Changes. Except as (a) disclosed
in the Company SEC Documents filed prior to the date hereof, (b) disclosed in
Section 3.7 of the Company Disclosure Letter, (c) contemplated by this
Agreement or (d) occurring pursuant to the express terms of that certain
Agreement and Plan of Merger dated as of September 30, 1997, among Westell,
Kappa Acquisition Corp., a Delaware corporation, and the Company, since August
2, 1997, the Company has conducted its business in the ordinary and usual
course and there has not been:

(i) any transaction, commitment, dispute or other event
or condition (financial or otherwise) of any character (whether or not
in the ordinary course of business) which, alone or in the aggregate,
has had or would have a Company Material Adverse Effect;

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(ii) any declaration, setting aside or payment of any
dividend or other distribution with respect to any shares of capital
stock of the Company or any repurchase, redemption or other
acquisition by the Company or any of its Subsidiaries of any
outstanding shares of capital stock or other securities of, or other
ownership interests in, the Company or such Subsidiary;

(iii) any amendment of any material term of any outstanding
security of the Company or any of its Subsidiaries;

(iv) any acquisition, sale or transfer of any material
assets of the Company or any of its Subsidiaries;

(v) any material contract entered into by the Company or
any of its Subsidiaries or any material amendment or termination of,
or default under, any Material Agreement;

(vi) any making of any loan, advance or capital
contributions to or investment in any Person other than loans,
advances or capital contributions to or investments in wholly-owned
Subsidiaries of the Company made in the ordinary course of business
and payroll, travel and similar advances made in the ordinary course
of business;

(vii) any change in any method of accounting or accounting
practice by the Company or any of its Subsidiaries, except as required
by GAAP; or

(viii) any entering into of any severance, termination pay,
employment, deferred compensation or other similar agreement (or any
amendment to any such existing agreement) with any director, officer
or employee of the Company or any of its Subsidiaries, increase in
benefits payable under any existing severance or termination pay
policies or employment agreements or increase in compensation, bonus
or other benefits payable to directors, officers or employees of the
Company or any of its Subsidiaries, other than in the ordinary course
of business.

Section 3.8 Contracts. Except as disclosed in or attached as
exhibits to the Company SEC Documents or as disclosed in Section 3.8 of the
Company Disclosure Letter, neither the Company nor any of the Company
Subsidiaries is a party to or bound by any contract, arrangement, commitment or
understanding (whether written or oral) (i) as of the date hereof, which
requires expenditures in excess of $1,000,000 or which requires annual
expenditures in excess of $500,000 and is not cancelable within one year by the
Company, that has not been filed or incorporated by reference in the Company
SEC Documents, (ii) which contains any material non-compete provisions with
respect to any line of business or geographic area in which business is
conducted with respect to the Company or any of the Company

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Subsidiaries or which restricts the conduct of any line of business by the
Company or any of the Company Subsidiaries or any geographic area in which the
Company or any of the Company Subsidiaries may conduct business, in each case
in any material respect, (iii) which are terminable by the other party thereto
which if so terminated would result in a Company Material Adverse Effect, or
(iv) which would prohibit or materially delay the consummation of the
transactions contemplated by this Agreement. The Company has previously made
available to Parent true and correct copies of all such agreements and of all
employment and deferred compensation agreements with directors, officers and
employees, and material agreements with consultants, which are in writing and
to which the Company or any of the Company Subsidiaries is a party. Each
Material Agreement is valid and binding on the Company or any of the Company
Subsidiaries, as applicable, and in full force and effect, and the Company and
each of the Company Subsidiaries have in all material respects performed all
obligations required to be performed by them to date under each Material
Agreement, except where such noncompliance, individually or in the aggregate,
would not have a Company Material Adverse Effect. Neither the Company nor any
Company Subsidiary knows of, or has received notice of, any violation or
default under (nor does there exist any condition which with the passage of
time or the giving of notice would cause such a violation of or default under)
any Material Agreement or any other loan or credit agreement, note, bond,
mortgage, indenture or lease, or any other contract, agreement, arrangement or
understanding to which it is a party or by which it or any of its properties or
assets is bound, except for violations or defaults that would not, individually
or in the aggregate, result in a Company Material Adverse Effect. Set forth in
Section 3.8 of the Company Disclosure Letter is a description, including
amounts as of the date hereof, of all indebtedness of the Company and the
Company Subsidiaries other than trade payables and accruals. Section 3.8 of
the Company Disclosure Letter sets forth a list of each contract, agreement or
other instrument or obligation between the Company or any of its affiliates, on
the one hand, and Westell or any of its affiliates, on the other hand. Section
3.8 of the Company Disclosure Letter also sets forth a summary of all DMT
licenses in which the Company is a licensee identifying (i) the parties, (ii)
the royalties and basis thereof receivable by the Company as a licensor, (iii)
the royalties and basis thereof payable by the Company to third parties in
respect of any sales by the licensee, (iv) whether for each license, on a
current basis, the amounts receivable by the Company under (ii) above exceed
the amounts payable by the Company under subsection (iii) above and (v) amounts
which would be owing to licensors with respect to a sale by the Company of
products incorporating licensed products purchased from sublicensees.

Section 3.9 Employee Benefit Plans; ERISA.

(a) Section 3.9(a) of the Company Disclosure Letter lists
(i) all "employee benefit plans", as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and all stock
option, stock award, stock purchase or other equity-based compensation, bonus
or other incentive compensation, severance, tuition assistance, salary
continuation, and vacation plans, policies or agreements, written or unwritten,
under which the Company or any of its Subsidiaries has any obligation or
liability (collectively, "Benefit Plans") and (ii) all employment and
consulting agreements with current

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or former officers, employers, consultants, advisors or directors of the
Company or any of its Subsidiaries (collectively, "Benefit Arrangements").

(b) With respect to each Benefit Plan and Benefit
Arrangement, a complete and correct copy of each of the following documents (if
applicable) has been made available to Purchaser: (i) the most recent plan and
related trust documents, and all amendments thereto; (ii) the most recent
summary plan description, and all related summaries of material modifications;
(iii) the most recent Form 5500 (including schedules); (iv) the most recent IRS
determination letter; and (v) the most recent actuarial reports (including for
purposes of Financial Accounting Standards Board report nos. 87, 106 and 112).

(c) Except as set forth in Section 3.9(c) of the Company
Disclosure Letter, with respect to each Benefit Plan: (i) if intended to
qualify under section 401(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), and the rules and regulations promulgated thereunder, such plan
has received a determination letter from the Internal Revenue Service stating
that it so qualifies and that its trust is exempt from taxation under section
501(a) of the Code and nothing has occurred to the knowledge of the Company
since the date of such determination that could adversely affect such
qualification or exempt status; (ii) such plan has been administered in
accordance with its terms and applicable law, except for such non-compliance
which would not have, individually or in the aggregate, a Company Material
Adverse Effect; (iii) no disputes are pending, or, to the knowledge of the
Company, threatened that, individually or in the aggregate, would have a
Company Material Adverse Effect; and (iv) all contributions required to be made
to such plan as of the date hereof (taking into account any extensions for the
making of such contributions) have been made in full.

(d) No Benefit Plan is subject to Title IV of ERISA or
section 412 of the Code. None of the Benefit Plans is a plan described in
Section 3(37), 4063 or 4064 of ERISA.

(e) Except as set forth in Section 3.9(e) of the Company
Disclosure Letter, no liability relating to any Benefit Plan has been or is
expected to be incurred by the Company or any Subsidiary of the Company (either
directly or indirectly, including as a result of an indemnification obligation)
under or pursuant to Part 4 of Title I of ERISA or Title IV of ERISA or the
penalty or the excise tax provisions of the Code, which would have a Company
Material Adverse Effect.

(f) Except as set forth in Section 3.9(f) of the Company
Disclosure Letter, no employee or former employee of the Company or any of its
Subsidiaries will become entitled to any bonus, retirement, severance, job
security or similar or enhanced benefit (including acceleration of vesting,
time of payment, or exercise of a stock option or an incentive award) as a
result of the transactions contemplated hereby.

Section 3.10 Litigation. Except as disclosed in Section 3.10 of
the Company Disclosure Letter or as disclosed in the Company SEC Documents
filed prior to the date

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hereof, there is no action, suit, proceeding, audit or investigation pending
or, to the best knowledge of the Company, action, suit, proceeding, audit or
investigation threatened, involving the Company or any of its Subsidiaries, by
or before any court, governmental or regulatory authority or by any third party
that could prevent, enjoin, or materially alter or delay any of the
transactions contemplated by this Agreement or that, if adversely determined,
would have a Company Material Adverse Effect. Except as disclosed in Section
3.10 of the Company Disclosure Letter or as disclosed in the Company SEC
Documents filed prior to the date hereof, neither the Company nor any of its
Subsidiaries is subject to any outstanding order, writ, injunction or decree
which has had or, insofar as can be reasonably foreseen, individually or in the
aggregate, would have a Company Material Adverse Effect.

Section 3.11 Permits; No Default; Compliance with Applicable Laws.
Each of the Company and the Company Subsidiaries is in possession of all
franchises, grants, authorizations, licenses, permits, easements, variances,
exceptions, consents, certificates, approvals, clearances and orders of any
Governmental Entity necessary for the Company or any Company Subsidiary to own,
lease and operate its properties or to carry on their respective businesses
substantially in the manner described in the Company SEC Documents and as it is
now being conducted (the "Company Permit"), and all such Company Permits are
valid, and in full force and effect, except where the failure to have, or the
suspension or cancellation of, any of the Company Permits would neither,
individually or in the aggregate, (a) have a Company Material Adverse Effect
nor (b) materially adversely affect the ability of the Company to consummate
the transactions contemplated by this Agreement, and no suspension or
cancellation of any of the Company Permits is pending or, to the knowledge of
the Company, threatened, except where the failure to have, or the suspension or
cancellation of, any of the Company Permits would neither, individually or in
the aggregate, (x) have a Company Material Adverse Effect nor (y) materially
adversely affect the ability of the Company to consummate the transactions
contemplated by this Agreement. The business of the Company and each of its
Subsidiaries is not in default or violation of any term, condition or provision
of (i) its respective certificate of incorporation or by-laws, (ii) any
Material Agreement or (iii) any statute, law, rule, regulation, judgment,
decree, order, permit, license or other governmental authorization or approval
(including any Company Permit) applicable to the Company or any of its
Subsidiaries or by which any property, asset or operation of the Company or any
of its Subsidiaries is bound or affected, including, laws, rules and
regulations relating to the environment, occupational health and safety,
employee benefits, wages, workplace safety, equal employment opportunity and
race, religious or sex discrimination, excluding from clauses (ii) and (iii)
defaults or violations which would not have a Company Material Adverse Effect.

Section 3.12 Taxes. Except as disclosed in Section 3.12 of the
Company Disclosure Letter:

(a) All material Tax Returns required to be filed by or
with respect to the Company and each of its Subsidiaries have been filed. The
Company and each of its

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Subsidiaries has paid (or there has been paid on its behalf) all material Taxes
that are due, except for Taxes being contested in good faith by appropriate
proceedings and for which adequate reserves have been established in the
Company's financial statements (as of the date thereof).

(b) There are no outstanding agreements or waivers
extending the statutory period of limitation applicable to the collection or
assessment of material Taxes due from the Company or any of its Subsidiaries
for any taxable period. No audit or other proceeding by any court,
governmental or regulatory authority, or similar person is pending or, to the
knowledge of the Company, threatened in regard to any material Taxes due from
or with respect to the Company or any of the Subsidiaries. Neither the Company
nor any Subsidiary of the Company has received written notice that any
assessment of material Taxes is proposed against the Company or any of its
Subsidiaries.

(c) There is no contract, agreement, plan or arrangement
covering any person that, individually or collectively, could give rise to the
payment of any amount that would not be deductible by the Company or any of its
Subsidiaries by reason of Section 280G of the Code in connection with the
transactions contemplated by this Agreement.

(d) There are no Tax liens upon any property or assets of
the Company or any of the Company Subsidiaries except liens for current Taxes
not yet due and except for liens which have not had and are not reasonably
likely to have a Company Material Adverse Effect.

(e) Neither the Company nor any of its Subsidiaries has
been required to include in income any adjustment pursuant to Section 481 of
the Code by reason of a voluntary change in accounting method initiated by the
Company or any of its Subsidiaries, and the IRS has not initiated or proposed
any such adjustment or change in accounting method, in either case which
adjustment or change has had or is reasonably likely to have a Company Material
Adverse Effect.

(f) Except as set forth in the financial statements
described in Section 3.5, neither the Company nor any of its Subsidiaries has
entered into a transaction which is being accounted for under the installment
method of Section 453 of the Code, which would be reasonably likely to have a
Company Material Adverse Effect. No compensation paid or payable by the
Company is subject to Section 162(m) of the Code.

(g) The term "Taxes" shall mean all taxes, charges, fees,
levies, or other similar assessments or liabilities imposed by the United
States of America, or by any state, local, or foreign government, or any
subdivision, agency, or other similar person of the United States or any such
government, including without limitation (i) income, gross receipts, ad
valorem, premium, excise, real property, personal property, sales, use,
transfer, withholding, employment, payroll, and franchise taxes; and (ii) any
interest, penalties or additions to taxes resulting from, attributable to, or
incurred in connection with any Tax or any contest, dispute,

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or refund thereof. The term "Tax Returns" shall mean any report, return, or
statement required to be supplied to a taxing authority in connection with
Taxes.

Section 3.13 Certain Property. The Company and its Subsidiaries,
as the case may be, have good and marketable title in fee simple to all of
their respective real property and good title to all of their respective
leasehold interests and other properties, as reflected in the most recent
balance sheet included in the Company SEC Documents, except for properties and
assets that have been disposed of in the ordinary course of business since the
date of such balance sheet, free and clear of all mortgages, liens, pledges,
charges or encumbrances of any nature whatsoever, except (i) the lien for
current taxes, payments of which are not yet delinquent, (ii) such
imperfections in title and easements and encumbrances, if any, as are not
substantial in character, amount or extent and do not materially detract from
the value, or interfere with the present use of the property subject thereto or
affected thereby, or otherwise materially impair the Company's business
operations (in the manner presently carried on by the Company) or (iii) as
disclosed in the Company SEC Documents, and except for such matters, which
individually or in the aggregate, could not reasonably be expected to have a
Company Material Adverse Effect. All leases under which the Company leases any
real or personal property are in good standing, valid and effective in
accordance with their respective terms, and there is not, under any of such
leases, any existing default or event which with notice or lapse of time or
both would become a default which could reasonably be expected to have a
Company Material Adverse Effect. Section 3.13 of the Company Disclosure Letter
sets forth all liens and security interests granted by the Company or any of
the Company Subsidiaries to third parties.

Section 3.14 Intellectual Property.

(a) The Company has previously given to Parent detailed
information (including, where applicable, federal registration numbers and
dates of registrations or applications for registration) concerning the
following: (i) all of the Company's and the Company Subsidiaries' trademarks,
trademark rights, service marks, trade names, and other trade rights,
indicating which are registered and which are not, including all pending
applications for any registrations thereof, and all patents, patent rights and
copyrights used or proposed to be used by the Company in its business and all
pending applications therefore; (ii) all computer software presently used by
the Company which has been purchased or licensed from outside parties with a
purchase price or license fee in excess of $5,000; and (iii) all other trade
secrets, mailing lists, know-how, designs, plans, specifications and other
intellectual property rights of the Company (whether or not registered or
registrable) (collectively, "Intellectual Property"). Section 3.14 of the
Company Disclosure Letter identifies (i) each patent or registration which has
been issued (and which has not expired or lapsed) to the Company or any of the
Company

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Subsidiaries with respect to any Intellectual Property, (ii) each pending
patent application or application for registration which the Company or any of
the Company Subsidiaries has made with respect to any Intellectual Property,
and (iii) any Intellectual Property that any third party owns and that the
Company or any of the Company Subsidiaries use or propose to use in its
business (including any marketing rights granted to the Company or any of the
Company Subsidiaries under patents owned or licensed by third parties). Except
as set forth in Section 3.14 of the Company Disclosure Letter, (i) the Company
or one of the Company Subsidiaries solely owns or is in sole and exclusive
possession of adequate licenses or other legal rights to use all Intellectual
Property now used or held for use in connection with the business as currently
conducted or as contemplated to be conducted and (ii) neither the Company nor
any of the Company Subsidiaries has disclosed any of the Intellectual Property
other than in a manner reasonably necessary for the operation of their
business. None of the Company or any of the Company Subsidiaries have granted
any licenses of or other rights to use any of the Intellectual Property to any
third party. The Intellectual Property comprises all of the intellectual
property rights that are in the aggregate necessary in any material respect for
the operation of its business as it is presently conducted.

(b) To the Company's knowledge, there is no unauthorized
use, disclosure, infringement or misappropriation of any Intellectual Property
rights of the Company or any of its Subsidiaries, or any Intellectual Property
right of any third party to the extent licensed by or through the Company or
any of its Subsidiaries, by any third party, including any employee or former
employee of the Company or any of its Subsidiaries. Neither the Company nor
any of its Subsidiaries has entered into any agreement to indemnify any other
person against any charge of infringement of any Intellectual Property.

(c) The Company is not, nor will it be as a result of the
execution and delivery of this Agreement or the performance of its obligations
under this Agreement, in breach of any license, sublicense or other agreement
relating to the Intellectual Property.

(d) All patents, registered trademarks, service marks and
copyrights held by the Company are valid and subsisting. The Company (i) has
not been sued in any suit, action or proceeding which involves a claim of
infringement of any patents, trademarks, service marks, copyrights or violation
of any trade secret or other proprietary right of any third party; (ii) has no
knowledge that the manufacturing, marketing, licensing or sale of its products
infringes any patent, trademark, service mark, copyright, trade secret or other
proprietary right of any third party; and (iii) has not brought any action,
suit or proceeding for infringement of Intellectual Property or breach of any
license or agreement involving Intellectual Property against any third party.

(e) The Company has secured valid written assignments
from all consultants and employees who contributed to the creation or
development of Intellectual Property of the rights to such contributions that
the Company does not already own by operation of law.

(f) The Company has taken all necessary and appropriate
steps to protect and preserve the confidentiality of all Intellectual Property
not otherwise protected by patents, patent applications or copyright
("Confidential Information"). All use, disclosure or appropriation of
Confidential Information owned by the Company by or to a third party has

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been pursuant to the terms of a written agreement between the Company and such
third party. All use, disclosure or appropriation of Confidential Information
not owned by the Company has been pursuant to the terms of a written agreement
between the Company and the owner of such Confidential Information, or is
otherwise lawful.

Section 3.15 Environmental Matters. Except as disclosed in
Section 3.15 of the Company Disclosure Letter or as disclosed in the Company
SEC Documents:

(a) no notice, request for information, order, complaint
or penalty has been received relating to, and there are no judicial,
administrative or other actions, suits or proceedings pending or, to the
knowledge of the Company, threatened which allege a violation of, any law,
regulation, rule or governmental restriction relating to the environment or to
pollutants, contaminants or wastes, in each case relating to the current or
prior business of the Company or any of its Subsidiaries which, individually or
in the aggregate, would have a Company Material Adverse Effect; and

(b) there has been no environmental assessment,
investigation or audit conducted of which the Company has knowledge in relation
to the current or prior business of the Company or any of its Subsidiaries or
any property or facility now or previously owned, leased or operated by the
Company or any of its Subsidiaries which has not been made available to the
Parent.

Section 3.16 Employee and Labor Matters. Except as set forth in
Section 3.16 of the Company Disclosure Letter and except to the extent that the
failure of any of the following representations to be accurate would not have a
Company Material Adverse Effect: (i) since January 1, 1996 there has been no
labor strike or work stoppage against, or lockout by, the Company or any of its
Subsidiaries, (ii) there is no unfair labor practice charge or complaint
against the Company or any of its Subsidiaries pending before, or, to the
knowledge of the Company or any of its Subsidiaries, threatened by, the
National Labor Relations Board, and (iii) there is no pending or, to the
knowledge of the Company or any of its Subsidiaries, threatened union grievance
against the Company or any of its Subsidiaries.

Section 3.17 Information in Offer Documents. None of the
information supplied or to be supplied by the Company or any of its or agents
for inclusion or incorporation by reference in the Offer Documents or the
Schedule 14D-9, including any amendments or supplements thereto, will at the
respective times the Offer Documents and the Schedule 14D-9 are filed with the
SEC or first published, sent or given to the Company's shareholders, contain
any statement which, at such time and in light of the circumstances under which
it is made, is false or misleading with respect to any material fact, or omit
to state any material fact necessary in order to make the statements therein
not false or misleading. Notwithstanding the foregoing, the Company does not
make any representation or warranty with respect to the information that has
been or will be supplied by Parent or the Purchaser or their officers,
directors, employees, representatives Subsidiaries, or any of their officers,
directors, employees, representatives

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or agents for inclusion or incorporation by reference in any of the foregoing
documents. The Schedule 14D-9 and any amendments or supplements thereto will
comply in all material respects with the applicable provisions of the Exchange
Act and the rules and regulations thereunder.

Section 3.18 Brokers or Finders. The Company represents, as to
itself, its Subsidiaries and its affiliates, that no agent, broker, investment
banker, financial advisor or other firm or person is or will be entitled to any
brokers' or finder's fee or any other commission or similar fee in connection
with any of the transactions contemplated by this Agreement, except Deutsche
Morgan Grenfell ("DMG"), the fees and expenses of which will be paid by the
Company in accordance with the Company's agreement with such firm, a true and
complete copy of which has heretofore been furnished to Parent. The Company
has no obligations or commitments to any investment banker or financial advisor
in connection with any future transactions that may be considered or entered
into by the Company after the Effective Time.

Section 3.19 Insurance. The Company maintains insurance coverage
with reputable insurers in such amounts and covering such risks as are in
accordance with normal industry practice for companies engaged in businesses
similar to that of the Company (taking into account the cost and availability
of such insurance).

Section 3.20 Opinion of Financial Advisor. The Company has
received the opinion of DMG to the effect that, as of the date hereof, the
consideration to be received by the stockholders of the Company in the Offer
and the Merger is fair from a financial point of view.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF PARENT
AND THE PURCHASER

Parent and the Purchaser jointly and severally represent and warrant
to the Company as follows:

Section 4.1 Organization. Each of Parent and the Purchaser is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has all requisite corporate
power and authority to own, lease and operate its properties and to carry on
its business as now being conducted. Parent and each of its Subsidiaries is
duly qualified to do business and in good standing in each jurisdiction in
which the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification necessary, except where the
failure to be so duly qualified and in good standing would not have a material
adverse effect on the consummation of the transactions contemplated hereby.

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Section 4.2 Authorization; Validity of Agreement; Necessary
Action. Each of Parent and the Purchaser has full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance by
Parent and the Purchaser of this Agreement, and the consummation of the
transactions contemplated hereby, have been duly authorized by their Boards of
Directors and no other corporate action on the part of Parent and the Purchaser
is necessary to authorize the execution and delivery by Parent and the
Purchaser of this Agreement and the consummation by them of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Parent and the Purchaser, as the case may be and (assuming due and valid
authorization, execution and delivery hereof by the Company) is a valid and
binding obligation of each of Parent and the Purchaser, as the case may be,
enforceable against them in accordance with its terms, except that (i) such
enforcement may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws, now or hereafter in effect,
affecting creditors' rights generally, and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject
to equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.

Section 4.3 Consents and Approvals; No Violations. Except for
(a) filings pursuant to the HSR Act, (b) applicable requirements under the
Exchange Act, (c) the filing of the Certificate of Merger, (d) applicable
requirements under "takeover" or "blue sky" laws of various states, or (e) as
described in this Agreement, neither the execution, delivery or performance of
this Agreement by Parent and the Purchaser nor the consummation by Parent and
the Purchaser of the transactions contemplated hereby will (i) violate any
provision of the charter or by-laws or other comparable constituent documents
of Parent or the Purchaser, (ii) result in a violation or breach of, or result
in any loss of benefit or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination,
cancellation, acceleration or modification) under, any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, lease, license, contract,
agreement or other instrument or obligation to which Parent or any of its
Subsidiaries is a party or by which any of them or any of their properties or
assets may be bound, (iii) violate any order, writ, judgment, injunction or
decree applicable to Parent, any of its Subsidiaries or any of their properties
or assets, (iv) violate any law, statute, rule or regulation applicable to
Parent, any of its Subsidiaries or any of their properties or assets, or (v)
require on the part of Parent or the Purchaser any filing or registration with,
notification to, or authorization, consent or approval of, any Governmental
Entity, except in the case of clauses (ii), (iv) or (v) for such violations,
breaches or defaults which, or filings, registrations, notifications,
authorizations, consents or approvals the failure of which to obtain, would not
materially adversely affect the ability of Parent and the Purchaser to
consummate the transactions contemplated by this Agreement.

Section 4.4 SEC Reports and Financial Statements. Parent has
filed all reports required to be filed by it with the SEC pursuant to the
Exchange Act and the Securities Act since July 30, 1995 (as such documents have
been amended since the date of their filing, collectively, the "Parent SEC
Documents"). The Parent SEC Documents (a) were prepared in

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accordance with the requirements of the Securities Act or the Exchange Act, as
the case may be, and (b) as of their respective filing dates, or if amended, as
of the date of the last such amendment, did not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Each of the
historical consolidated balance sheets (including the related notes) included
in the Parent SEC Documents fairly presents in all material respects the
financial position of the Parent and its consolidated Subsidiaries as of the
date thereof, and the other related historical statements (including the
related notes) included in the Parent SEC Documents fairly present in all
material respects the results of operations and cash flows of Parent and its
consolidated Subsidiaries for the respective periods or as of the respective
dates set forth therein. Each of the historical consolidated balance sheets
and historical statements of operations and cash flow (including the related
notes) included in the Parent SEC Documents has been prepared in all material
respects in accordance with GAAP applied on a consistent basis during the
periods involved, except as otherwise noted therein and, in the case of
unaudited interim financial statements, subject to normal year-end adjustments
and except as permitted by Form 10-Q of the SEC. The books and records of
Parent and its Subsidiaries have been, and are being, maintained in accordance
with GAAP and any other applicable legal and accounting requirements.

Section 4.5 Information in Offer Documents; Proxy Statement.
None of the information supplied or to be supplied by Parent or the Purchaser,
or any of their officers, directors, employees, representatives or agents for
inclusion or incorporation by reference in the Offer Documents, the Schedule
14D-9 or the Proxy Statement, including any amendments or supplements thereto,
will, in the case of the Offer Documents and the Schedule 14D-9, at the
respective times the Offer Documents and the Schedule 14D-9 are filed with the
SEC or first published, sent or given to the Company's stockholders, or, in the
case of the Proxy Statement, at the date the Proxy Statement is first mailed to
the Company's stockholders or at the time of the Special Meeting, contain any
statement which, at such time and in light of the circumstances under which it
is made, is false or misleading with respect to any material fact, or omit to
state any material fact necessary in order to make the statements therein not
false or misleading. Notwithstanding the foregoing, Parent and the Purchaser
do not make any representation or warranty with respect to the information that
has been supplied by the Company or any of its Subsidiaries or their officers,
directors, employees, representatives or agents for inclusion or incorporation
by reference in any of the foregoing documents. The Offer Documents and the
Proxy Statement and any amendments or supplements thereto will comply in all
material respects with the applicable provisions of the Exchange Act and the
rules and regulations thereunder.

Section 4.6 Sufficient Funds. Either Parent or the Purchaser has
sufficient funds available to purchase all of the Shares outstanding on a fully
diluted basis and to pay all fees and expenses related to the transactions
contemplated by this Agreement.

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Section 4.7 Share Ownership. None of Parent, the Purchaser or
any of their respective affiliates beneficially owns any Shares.

Section 4.8 Purchaser's Operations. The Purchaser was formed
solely for the purpose of engaging in the transactions contemplated hereby and
has not engaged in any business activities or conducted any operations other
than in connection with the transactions contemplated hereby.

ARTICLE V

COVENANTS

Section 5.1 Interim Operations of the Company. The Company
covenants and agrees that, except (i) as contemplated by this Agreement, (ii)
as disclosed in Section 5.1 of the Company Disclosure Letter or (iii) as agreed
in writing by Parent, after the date hereof, and prior to the time the
directors of the Purchaser have been elected to, and shall constitute a
majority of, the Board of Directors of the Company pursuant to Section 1.3:

(a) the business of the Company and its Subsidiaries
shall be conducted only in the ordinary course of business and, to the extent
consistent therewith, each of the Company and its Subsidiaries shall use its
reasonable best efforts to preserve in all material respects its business
organization intact and maintain its existing relations with customers,
suppliers, employees and business associates;

(b) each of the Company and its Subsidiaries will not,
directly or indirectly, (i) amend its Certificate of Incorporation or By-laws
or similar organizational documents or (ii) split, combine or reclassify its
outstanding capital stock;

(c) neither the Company nor any of its Subsidiaries
shall: (i) declare, set aside or pay any dividend or other distribution
(whether payable in cash, stock or property) with respect to its capital stock
(other than dividends from any Subsidiary of the Company to the Company or any
other Subsidiary of the Company); (ii) issue or sell any additional shares of,
or securities convertible into or exchangeable for, or options, warrants,
calls, commitments or rights of any kind to acquire, any shares of capital
stock of any class of the Company or its Subsidiaries, other than issuances
pursuant to the exercise of Options outstanding on the date hereof; (iii) sell,
lease, license or dispose of any assets or properties, other than in the
ordinary course of business; (iv) incur or modify any material debt, other than
in the ordinary course of business consistent with past practice; (v) license
or sublicense any asset or property of the Company or any Company Subsidiary
except in the ordinary course of business consistent with past practice on a
basis that results in a positive current royalty net of any royalties due by
the Company or any Company Subsidiary on account of sales by the licensee or
sublicensee; or

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(vi) redeem, purchase or otherwise acquire, directly or indirectly, any of its
or its Subsidiaries' capital stock;

(d) neither the Company nor any of its Subsidiaries
shall, except as may be required or contemplated by this Agreement or by
applicable law, (i) enter into, adopt, materially amend or terminate any
employee benefit plans, (ii) amend any employment or severance agreement, (iii)
increase in any manner the compensation or other benefits of its officers or
directors or (iv) increase in any manner the compensation of any other
employees (except, in the case of this clause (iv), for normal increases in the
ordinary course of business);

(e) neither the Company nor any of its Subsidiaries
shall: (i) assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the material obligations of
any other person (other than Subsidiaries of the Company), except pursuant to
contractual indemnification agreements entered into in the ordinary course of
business; (ii) make any loans, advances or capital contributions to, or
investments in, any other person (other than to Subsidiaries of the Company and
payroll, travel and similar advances made in the ordinary course of business);
or (iii) make capital expenditures other than pursuant to the Company's current
capital expenditure budget, a copy of which has been provided to Parent;

(f) neither the Company nor any of its Subsidiaries shall
change any of the accounting methods used by it unless required by GAAP or
applicable law;

(g) the Company will not settle or compromise any claim
(including arbitration) or litigation involving payments by the Company in
excess of $250,000 individually which are not subject to insurance
reimbursement without the prior written consent of Parent, which consent will
not be unreasonably withheld;

(h) the Company will not amend, modify or terminate in
any material respect any Material Agreement or enter into any new agreement
material to the business of the Company without the prior written consent of
Parent, which consent shall not be unreasonably withheld; and

(i) neither the Company nor any of its Subsidiaries will
authorize or enter into an agreement to do any of the foregoing.

Section 5.2 Access to Information. Upon reasonable notice, the
Company shall (and shall cause each of its Subsidiaries to) afford to the
officers, employees, accountants, counsel, financing sources and other
representatives of Parent, access, during normal business hours during the
period prior to the Closing Date, to all its properties, books, contracts,
commitments and records and, during such period, the Company shall (and shall
cause each of its Subsidiaries to) furnish promptly to Parent (a) a copy of
each report, schedule, registration statement and other document filed or
received by it during such period pursuant to the

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requirements of federal securities laws or regulatory boards or agencies and
(b) all other information concerning its business, properties and personnel as
Parent may reasonably request. Unless otherwise required by law and until the
Closing Date, Parent will hold any such information which is nonpublic in
confidence in accordance with the provisions of the Confidentiality Agreement
between the Company and Parent, dated as of July 22, 1997 (the "Confidentiality
Agreement").

Section 5.3 Employee Benefits.

(a) Parent and the Purchaser agree that the Surviving
Corporation and its Subsidiaries and successors shall provide those persons
who, immediately prior to the Effective Time, were employees of the Company or
its Subsidiaries ("Retained Employees") with employee plans and programs that
provide benefits that are no less favorable in the aggregate to those provided
to such Retained Employees immediately prior to the date hereof. With respect
to such employee plans and programs provided by the Surviving Corporation and
its Subsidiaries and successors, service accrued by such Retained Employees
during employment with the Company and its Subsidiaries prior to the Effective
Time shall be recognized for all purposes, except to the extent necessary to
prevent duplication of benefits.

(b) Parent and the Purchaser agree to honor, and cause
the Surviving Corporation to honor, without modification, all employment and
severance agreements and arrangements, as amended through the date hereof, with
respect to employees and former employees of the Company that are listed in
Section 3.8 of the Company Disclosure Letter (collectively, the "Severance
Agreements").

(c) After the date hereof and prior to the Effective
Time, Parent and the Company shall reasonably cooperate to develop and adopt an
employee retention plan for key employees of the Company, which shall be
subject to Parent approval.

Section 5.4 No Solicitation. (a) The Company and its
Subsidiaries will not, and will use their best efforts to cause their
respective officers, directors, employees and investment bankers, attorneys or
other agents retained by or acting on behalf of the Company or any of its
Subsidiaries not to, (i) initiate, solicit or encourage, directly or
indirectly, any inquiries or the making of any proposal that constitutes or is
reasonably likely to lead to any Acquisition Proposal (as defined in Section
5.4(c) hereof), (ii) engage in negotiations or discussions (other than to
advise as to the existence of the restrictions set forth in this Section 5.4)
with, or furnish any information or data to, any third party relating to an
Acquisition Proposal, or (iii) enter into any agreement with respect to any
Acquisition Proposal or approve any Acquisition Proposal. Notwithstanding
anything to the contrary contained in this Section 5.4 or in any other
provision of this Agreement, the Company and its Board of Directors (i) may
participate in discussions or negotiations (including, as a part thereof,
making any counterproposal) with or furnish information to any third party
making an unsolicited Acquisition Proposal (a "Potential Acquiror") or approve
an unsolicited Acquisition Proposal if the Company's Board

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of Directors is advised by its financial advisor that such Potential Acquiror
has the financial wherewithal to be reasonably capable of consummating such an
Acquisition Proposal, and the Board determines in good faith (A) after
receiving advice from its financial advisor, that such third party has
submitted to the Company an Acquisition Proposal which is a Superior Proposal
(as defined in Section 5.4(d) hereof), and (B) based upon advice of outside
legal counsel, that the failure to participate in such discussions or
negotiations or to furnish such information or approve an Acquisition Proposal
would violate the Board's fiduciary duties under applicable law. The Company
agrees that any non-public information furnished to a Potential Acquiror will
be pursuant to a confidentiality agreement containing confidentiality and
standstill provisions substantially similar to the confidentiality and
standstill provisions of the Confidentiality Agreement. In the event that the
Company shall determine to provide any information as described above, or shall
receive any Acquisition Proposal, it shall promptly inform Parent in writing as
to the fact that information is to be provided and shall furnish to Parent the
identity of the recipient of such information and/or the Potential Acquiror and
the terms of such Acquisition Proposal, except to the extent that the Board
determines in good faith, based upon advice of its outside legal counsel, that
any such action described in this sentence would violate such Board's fiduciary
duties under, or otherwise violate, applicable law. The Company will inform
Parent of any material amendment to the essential terms of any such Acquisition
Proposal except to the extent that the Board determines in good faith, based
upon advice of outside legal counsel, that any such action would violate such
Board's fiduciary duties under, or otherwise violate, applicable law.

(b) The Board of Directors of the Company shall not (i)
withdraw or modify or propose to withdraw or modify, in any manner adverse to
Parent, the approval or recommendation of such Board of Directors of this
Agreement, the Offer or the Merger or (ii) approve or recommend, or propose to
approve or recommend, any Acquisition Proposal unless, in each case, the Board
determines in good faith (A) after receiving advice from its financial advisor,
that such Acquisition Proposal is a Superior Proposal and (B) based upon advice
of outside legal counsel, that the failure to take such action would violate
the Board's fiduciary duties under applicable law.

(c) For purposes of this Agreement, "Acquisition
Proposal" shall mean any bona fide proposal, whether in writing or otherwise,
made by a third party to acquire beneficial ownership (as defined under Rule
13d-3 of the Exchange Act) of all or a material portion of the assets of, or
any material equity interest in, the Company or its material Subsidiaries
pursuant to a merger, consolidation or other business combination, sale of
shares of capital stock, sale of assets, tender offer or exchange offer or
similar transaction involving the Company or its material Subsidiaries
including any single or multi-step transaction or series of related
transactions which is structured to permit such third party to acquire
beneficial ownership of any material portion of the assets of, or any material
portion of the equity interest in, the Company or its material Subsidiaries
(other than the transactions contemplated by this Agreement).

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(d) The term "Superior Proposal" means any bona fide
proposal to acquire, directly or indirectly, for consideration consisting of
cash and/or securities, more than a majority of the Shares then outstanding or
all or substantially all the assets of the Company, and otherwise on terms
which the Board of Directors of the Company determines in good faith to be more
favorable to the Company and its stockholders than the Offer and the Merger
(based on advice of the Company's financial advisor that the value of the
consideration provided for in such proposal is superior to the value of the
consideration provided for in the Offer and the Merger), for which financing,
to the extent required, is then committed or which, in the good faith
reasonable judgment of the Board of Directors, after receiving advice from its
financial advisor, is reasonably capable of being financed by such third party.

Section 5.5 Publicity. The initial press releases with respect
to the execution of this Agreement shall be acceptable to Parent and the
Company and shall be in the form of Annex B hereto. Thereafter, so long as
this Agreement is in effect, neither the Company, Parent nor any of their
respective affiliates shall issue or cause the publication of any press release
with respect to the Merger, this Agreement or the other transactions
contemplated hereby without prior consultation with the other party, except as
may be required by law or by any listing agreement with a national securities
exchange or national securities quotation system.

Section 5.6 Indemnification. The Company shall, and from and
after the consummation of the Offer, Parent and the Surviving Corporation shall
jointly and severally, indemnify, defend and hold harmless the present and
former directors and officers of the Company and its Subsidiaries (the
"Indemnified Parties") from and against all losses, expenses, claims, damages
or liabilities arising out of the transactions contemplated by this Agreement
to the fullest extent permitted or required under applicable law. All rights
to indemnification existing in favor of the directors and officers of the
Company as provided in the Company's Certificate of Incorporation or By-laws,
as in effect as of the date hereof, with respect to matters occurring through
the Effective Time, shall survive the Merger and shall not be amended, repealed
or otherwise modified for a period of six years after the consummation of the
Offer in any manner that would adversely affect the rights of the individuals
who at or prior to the consummation of the Offer were directors or officers of
the Company with respect to occurrences at or prior to the consummation of the
Offer and Parent shall cause the Surviving Corporation to honor all such rights
to indemnification.

Section 5.7 Approvals and Consents; Cooperation; Notification.
(a) The parties hereto shall use their respective reasonable best efforts, and
cooperate with each other, to (i) determine as promptly as practicable all
governmental and third party authorizations, approvals, consents or waivers,
including, pursuant to the HSR Act, advisable (in Parent's and Purchaser's
discretion) or required in order to consummate the transactions contemplated by
this Agreement, including, the Offer and the Merger and (ii) obtain such
authorizations, approvals, consents or waivers as promptly as practicable.

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(b) The Company, Parent and the Purchaser shall take all
actions necessary to file as soon as practicable all notifications, filings and
other documents required to obtain all governmental authorizations, approvals,
consents or waivers, including, under the HSR Act, and to respond as promptly
as practicable to any inquiries received from the Federal Trade Commission, the
Antitrust Division of the Department of Justice and any other Governmental
Entity for additional information or documentation and to respond as promptly
as practicable to all inquiries and requests received from any Governmental
Entity in connection therewith.

(c) The Company shall give prompt notice to Parent of (i)
the occurrence of any event, condition or development material to the Company
and its Subsidiaries, taken as a whole, and (ii) any notice from any Person
claiming its consent is required in connection with the transactions
contemplated by this Agreement. Each of the Company and Parent shall give
prompt notice to the other of the occurrence or failure to occur of an event
that would, or, with the lapse of time would cause any condition to the
consummation of the Offer or the Merger not to be satisfied.

Section 5.8 Further Assurances. Each of the parties hereto
agrees to use its respective reasonable best efforts to take, or cause to be
taken, all action, and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement, including, the Offer
and the Merger.

Section 5.9 Taxes. With respect to any Taxes, the Company shall
not (i) make any material tax election or (ii) settle or compromise any
material income tax liability (whether with respect to amount or timing), in
each case without the prior written consent of Parent which consent shall not
be unreasonably withheld.

Section 5.10 Shareholder Litigation. The Company and Parent agree
that in connection with any litigation which may be brought against the Company
or its directors relating to the transactions contemplated hereby, the Company
will keep Parent, and any counsel which Parent may retain at its own expense,
informed of the course of such litigation, to the extent Parent is not
otherwise a party thereto, and the Company agrees that it will consult with
Parent prior to entering into any settlement or compromise of any such
shareholder litigation; provided, that, no such settlement or compromise will
be entered into without Parent's prior written consent, which consent shall not
be unreasonably withheld.

Section 5.11 Loan and Security Agreement. Concurrently with the
execution and delivery of this Agreement, the Company and Parent shall execute
and deliver the Loan and Security Agreement in the form of Annex C attached
hereto.

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ARTICLE VI

CONDITIONS

Section 6.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligation of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:

(a) this Agreement shall have been adopted by the
requisite vote of the holders of Company Common Stock, if required by
applicable law and the Certificate of Incorporation (provided that Parent shall
comply with its obligations in respect of the voting of Shares set forth in
Section 1.8(b));

(b) any waiting period applicable to the Merger under the
HSR Act shall have expired or been terminated;

(c) no statute, rule, regulation, order, decree or
injunction shall have been enacted, promulgated or issued by any Governmental
Entity or court which prohibits the consummation of the Merger; and

(d) Parent, the Purchaser or their affiliates shall have
purchased shares of Company Common Stock pursuant to the Offer.

Section 6.2 Conditions to the Obligations of the Company to
Effect the Merger. The obligation of the Company to effect the Merger shall be
further subject to the satisfaction at or prior to the Effective Time of the
following conditions:

(a) the representations and warranties of Parent and the
Purchaser shall be true and accurate in all material respects as of the
Effective Time as if made at and as of such time (except for those
representations and warranties that address matters only as of a particular
date or only with respect to a specific period of time which need only be true
and accurate as of such date or with respect to such period); and

(b) each of Parent and the Purchaser shall have performed
in all material respects all of the respective obligations hereunder required
to be performed by Parent or the Purchaser, as the case may be, at or prior to
the Effective Time.

Section 6.3 Conditions to the Obligations of Parent and the
Purchaser to Effect the Merger. The obligations of Parent and the Purchaser to
effect the Merger shall be further subject to the satisfaction at or prior to
the Effective Time of the following conditions:

(a) the representations and warranties of the Company
shall be true and accurate in all material respects as of the Effective Time as
if made at and as of such time

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(except for those representations and warranties that address matters only as
of a particular date or only with respect to a specific period of time which
need only be true and accurate as of such date or with respect to such period);
and

(b) the Company shall have performed in all material
respects all of the respective obligations hereunder required to be performed
by the Company, at or prior to the Effective Time.

Section 6.4 Exception. The conditions set forth in Section 6.2
and 6.3 hereof shall cease to be conditions to the obligations of the parties
if the Purchaser shall have accepted for payment and paid for Shares validly
tendered pursuant to the Offer.

ARTICLE VII

TERMINATION

Section 7.1 Termination. This Agreement may be terminated and
the Merger contemplated herein may be abandoned at any time prior to the
Effective Time, whether before or after stockholder approval thereof:

(a) By the mutual consent of Parent, the Purchaser and
the Company.

(b) By either of the Company, on the one hand, or Parent
and the Purchaser, on the other hand:

(i) if shares of Company Common Stock shall not
have been purchased pursuant to the Offer on or prior to
February 23, 1998, which date may be extended by Parent, in
its sole discretion, for up to an additional 30 days; provided
further, however, that the right to terminate this Agreement
under this Section 7.1(b)(i) shall not be available to any
party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure
of Parent or the Purchaser, as the case may be, to purchase
shares of Company Common Stock pursuant to the Offer on or
prior to such date; or

(ii) if any Governmental Entity shall have issued
an order, decree or ruling or taken any other action (which
order, decree, ruling or other action the parties hereto shall
use their respective reasonable best efforts to lift), in each
case permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by this Agreement or
prohibiting Parent to acquire or hold or exercise rights of
ownership of the Shares, and such order, decree, ruling or
other action shall have become final and non-appealable.

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(i) if, prior to the purchase of shares of
Company Common Stock pursuant to the Offer, either (A) a third
party shall have made an Acquisition Proposal that the Board
of Directors of the Company determines in good faith, after
consultation with its financial advisor, is a Superior
Proposal and the Company shall have concurrently executed a
definitive agreement with such third party in respect of such
Superior Proposal, or (B) the Board of Directors of the
Company shall have withdrawn, or modified or changed in any
manner adverse to Parent or the Purchaser its approval or
recommendation of the Offer, this Agreement or the Merger (or
the Board of Directors of the Company resolves to do any of
the foregoing); or

(ii) if Parent or the Purchaser shall have
terminated the Offer, or the Offer shall have expired, without
Parent or the Purchaser, as the case may be, purchasing any
shares of Company Common Stock pursuant thereto; provided that
the Company may not terminate this Agreement pursuant to this
Section 7.1(c)(ii) if the Company is in willful breach of this
Agreement; or

(iii) if, due to an occurrence that if occurring
after the commencement of the Offer would result in a failure
to satisfy any of the conditions set forth in Annex A hereto,
Parent or the Purchaser shall have failed to commence the
Offer on or prior to five business days following the date of
the initial public announcement of the Offer; provided, that
the Company may not terminate this Agreement pursuant to this
Section 7.1(c)(iii) if the Company is in willful breach of
this Agreement.

(d) By Parent and the Purchaser:

(i) if, prior to the purchase of shares of
Company Common Stock pursuant to the Offer, the Board of
Directors of the Company shall have withdrawn, modified or
changed in a manner adverse to Parent or the Purchaser its
approval or recommendation of the Offer, this Agreement or the
Merger or shall have recommended an Acquisition Proposal or
shall have executed an agreement in principle or definitive
agreement relating to an Acquisition Proposal or similar
business combination with a person or entity other than
Parent, the Purchaser or their affiliates (or the Board of
Directors of the Company resolves to do any of the foregoing);
or

(ii) if, due to an occurrence that if occurring
after the commencement of the Offer would result in a failure
to satisfy any of the conditions set forth in Annex A hereto,
Parent or the Purchaser shall have failed to commence the
Offer on or prior to five business days following the date of
the initial public

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announcement of the Offer; provided that Parent may not
terminate this Agreement pursuant to this Section 7.1(d)(ii)
if Parent or the Purchaser is in willful breach of this
Agreement.

Section 7.2 Effect of Termination.

(a) In the event of the termination of this Agreement as
provided in Section 7.1, written notice thereof shall forthwith be given to the
other party or parties specifying the provision hereof pursuant to which such
termination is made, and this Agreement shall forthwith become null and void,
and there shall be no liability on the part of Parent, the Purchaser or the
Company or their respective directors, officers, employees, shareholders,
representatives, agents or advisors other than, with respect to Parent, the
Purchaser and the Company, the obligations pursuant to this Section 7.2,
Sections 8.1, 8.2, 8.3, 8.4, 8.5, 8.6, 8.7, 8.8, 8.10, 8.11, 8.12, 8.13 and the
last sentence of Section 5.2. Nothing contained in this Section 7.2 shall
relieve Parent, the Purchaser or the Company from liability for willful breach
of this Agreement.

(b) In the event that this Agreement is terminated by the
Company pursuant to Section 7.1(c)(i) hereof or by Parent and the Purchaser
pursuant to Section 7.1(d)(i) hereof, the Company shall pay to Parent by
certified check or wire transfer to an account designated by Parent immediately
following receipt of a request therefor, an amount equal to $8 million (the
"Termination Fee").

ARTICLE VIII

MISCELLANEOUS

Section 8.1 Amendment and Modification. Subject to applicable
law, this Agreement may be amended, modified and supplemented in any and all
respects, whether before or after any vote of the stockholders of the Company
contemplated hereby, by written agreement of the parties hereto, by action
taken by their respective Boards of Directors (which in the case of the Company
shall include approvals as contemplated in Section 1.3(b)), at any time prior
to the Closing Date with respect to any of the terms contained herein;
provided, however, that after the approval of this Agreement by the
stockholders of the Company, no such amendment, modification or supplement
shall reduce or change the Merger Consideration or adversely affect the rights
of the Company's stockholders hereunder without the approval of such
stockholders.

Section 8.2 Nonsurvival of Representations and Warranties. None
of the representations and warranties in this Agreement or in any schedule,
instrument or other document delivered pursuant to this Agreement shall survive
the Effective Time. This Section

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8.2 shall not limit any covenant or agreement contained in this Agreement which
by its terms contemplates performance after the Effective Time.

Section 8.3 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered
personally, telecopied (which is confirmed) or sent by an overnight courier
service, such as Federal Express, with delivery by such service confirmed, to
the parties at the following addresses (or at such other address for a party as
shall be specified by like notice):

(a) if to Parent or the Purchaser, to:

Texas Instruments Incorporated
7839 Churchill Way
P.O. Box 650311, M/S 3995
Dallas, Texas 75265
Telephone: (972) 917-3810
Telecopy: (972) 917-3804
Attention: Charles D. Tobin

with copies to:

Texas Instruments Incorporated
P.O. Box 655474, M/S 241
Dallas, Texas 75265
Telephone: (972) 995-2551
Telecopy: (972) 995-9133
Attention: Richard J. Aqnich, Esq.

and

Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201-6950
Telephone: (214) 746-7738
Telecopy: (214) 746-7777
Attention: R. Scott Cohen, Esq.

(b) if to the Company, to:

Amati Communications Corporation
2043 Samaritan Drive
San Jose, California 95124
Telephone: (408) 879-2000

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Telecopy: (408) 879-2900
Attention: James Steenbergen

with a copy to:

Heller Ehrman White & McAuliffe
525 University Avenue
Palo Alto, California 94301-1900
Telephone: (650) 324-7025
Telecopy: (650) 324-0638
Attention: Richard A. Peers, Esq.

Any notice which is not sent to the party's counsel in the manner and at the
address or telecopy number set forth above within 24 hours following the time
such notice is given to such party shall be deemed not to be validly delivered
to such party.

Section 8.4 Interpretation. The words "hereof", "herein" and
"herewith" and words of similar import shall, unless otherwise stated, be
construed to refer to this Agreement as a whole and not to any particular
provision of this Agreement, and article, section, paragraph, exhibit and
schedule references are to the articles, sections, paragraphs, exhibits and
schedules of this Agreement unless otherwise specified. Whenever the words
"include", "includes" or "including" are used in this Agreement they shall be
deemed to be followed by the words "without limitation". The words describing
the singular number shall include the plural and vice versa, and words denoting
any gender shall include all genders and words denoting natural persons shall
include corporations and partnerships and vice versa. The phrase "to the best
knowledge of" or any similar phrase shall mean such facts and other information
which as of the date of determination are actually known to any vice president,
chief financial officer, general counsel, chief compliance officer, controller,
and any officer superior to any of the foregoing, of the referenced party after
the conduct of a reasonable investigation under the circumstances by such
officer. The phrases "the date of this Agreement", "the date hereof" and terms
of similar import, unless the context otherwise requires, shall be deemed to
refer to November 19, 1997. As used in this Agreement, the term "affiliate(s)"
shall have the meaning set forth in Rule 12b-2 of the Exchange Act. The
parties have participated jointly in the negotiation and drafting of this
Agreement. In the event an ambiguity or question of intent or interpretation
arises, this Agreement shall be construed as if drafted jointly by the parties
and no presumption or burden of proof shall arise favoring or disfavoring any
party by virtue of the authorship of any provisions of this Agreement.

Section 8.5 Counterparts. This Agreement may be executed in two
or more counterparts, all of which shall be considered one and the same
agreement and shall become effective when two or more counterparts have been
signed by each of the parties and delivered to the other parties, it being
understood that all parties need not sign the same counterpart.

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Section 8.6 Entire Agreement; Third Party Beneficiaries. This
Agreement and the Confidentiality Agreement (including the documents and the
instruments referred to herein and therein) (a) constitutes the entire
agreement and supersedes all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter hereof, and (b)
except as provided in Sections 5.3 and 5.6, are not intended to confer upon any
person other than the parties hereto any rights or remedies hereunder.

Section 8.7 Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions of
this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.

Section 8.8 Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of Delaware without giving
effect to the principles of conflicts of law thereof or of any other
jurisdiction.

Section 8.9 Specific Performance. Each of the parties hereto
acknowledges and agrees that in the event of any breach of this Agreement, each
non-breaching party would be irreparably and immediately harmed and could not
be made whole by monetary damages. It is accordingly agreed that the parties
hereto (a) will waive, in any action for specific performance, the defense of
adequacy of a remedy at law and (b) shall be entitled, in addition to any other
remedy to which they may be entitled at law or in equity, to compel specific
performance of this Agreement in any action instituted in a court of competent
jurisdiction.

Section 8.10 Assignment. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective permitted successors and assigns.

Section 8.11 Expenses. Except as set forth in Section 7.2 hereof,
all costs and expenses incurred in connection with the Offer, the Merger, this
Agreement and the consummation of the transactions contemplated hereby shall be
paid by the party incurring such costs and expenses, whether or not the Offer
or the Merger is consummated.

Section 8.12 Headings. Headings of the Articles and Sections of
this Agreement are for convenience of the parties only, and shall be given no
substantive or interpretative effect whatsoever.

Section 8.13 Waivers. Except as otherwise provided in this
Agreement, any failure of any of the parties to comply with any obligation,
covenant, agreement or condition herein may be waived by the party or parties
entitled to the benefits thereof only by a written instrument

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signed by the party granting such waiver, but such waiver or failure to insist
upon strict compliance with such obligation, covenant, agreement or condition
shall not operate as a waiver of, or estoppel with respect to, any subsequent
or other failure.

Section 8.14 Disclosure Letter. The Company Disclosure Letter
shall be construed with and as an integral part of this Agreement to the same
extent as if the same had been set forth verbatim herein. Any matter disclosed
pursuant to the Company Disclosure Letter shall be deemed to be disclosed for
all purposes under this Agreement but such disclosure shall not be deemed to be
an admission or representation as to the materiality of the item so disclosed.

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IN WITNESS WHEREOF, Parent, the Purchaser and the Company have caused
this Agreement to be signed by their respective officers thereunto duly
authorized as of the date first written above.

TEXAS INSTRUMENTS INCORPORATED

By: /s/ RICHARD K. TEMPLETON
-------------------------------------
Name: Richard K. Templeton
Title: President, Semiconductor Group

DSL ACQUISITION CORPORATION

By: /s/ GEORGE BARBER
-------------------------------------
Name: George Barber
Title: President

AMATI COMMUNICATIONS CORPORATION

By: /s/ JAMES STEENBERGEN
-------------------------------------
Name: James Steenbergen
Title: President and Chief Executive
Officer

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<PAGE> 132

ANNEX A

CONDITIONS TO THE OFFER

Notwithstanding any other provision of the Offer, subject to the
provisions of the Merger Agreement, the Purchaser shall not be required to
accept for payment or, subject to any applicable rules and regulations of the
SEC, including Rule 14e-1(c) under the Exchange Act (relating to the
Purchaser's obligation to pay for or return tendered Shares promptly after
termination or withdrawal of the Offer), pay for, and may delay the acceptance
for payment of or, subject to the restriction referred to above, the payment
for, any tendered Shares, and may terminate the Offer and not accept for
payment any tendered Shares if (i) any applicable waiting period under the HSR
Act has not expired or been terminated prior to the expiration of the Offer,
(ii) the Minimum Condition has not been satisfied, or (iii) at any time on or
after November 19, 1997, and before the time of acceptance of Shares for
payment pursuant to the Offer, any of the following events shall occur:

(a) there shall have been any statute, rule, regulation,
judgment, order or injunction promulgated, entered, enforced, enacted or issued
applicable to the Offer or the Merger by any federal or state governmental
regulatory or administrative agency or authority or court or legislative body
or commission which (1) prohibits the consummation of the Offer or the Merger,
(2) prohibits, or imposes any material limitations on, Parent's or the
Purchaser's ownership or operation of all or a material portion of the
Company's businesses or assets or the Shares, except for such prohibitions or
limitations which would not have a Company Material Adverse Effect, (3)
prohibits, or makes illegal the acceptance for payment, payment for or purchase
of Shares or the consummation of the Offer, or (4) renders the Purchaser unable
to accept for payment, pay for or purchase a material portion or all of the
Shares; provided, that the parties shall have used their reasonable best
efforts to cause any such statute, rule, regulation, judgment, order or
injunction to be vacated or lifted;

(b) the representations and warranties of the Company set
forth in the Merger Agreement shall not be true and accurate as of the date of
consummation of the Offer as though made on or as of such date (except for
those representations and warranties that address matters only as of a
particular date or only with respect to a specific period of time which need
only be true and accurate as of such date or with respect to such period),
except where the failure of such representations and warranties to be true and
accurate (without giving effect to any limitation as to "materiality" or
"material adverse effect" set forth therein), do not, individually or in the
aggregate, have a Company Material Adverse Effect;

(c) the Company shall have breached or failed to perform
or comply with, in all material respects, any material obligation, agreement or
covenant required by the Merger Agreement to be performed or complied with by
it as of the date of consummation of the Offer

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(d) the Merger Agreement shall have been terminated in
accordance with its terms;

(e) the Board of Directors of the Company shall have
withdrawn, modified or changed in a manner adverse to Parent or the Purchaser
its approval or recommendation of the Offer, the Merger Agreement or the Merger
or shall have recommended an Acquisition Proposal or shall have executed an
agreement in principle or definitive agreement relating to an Acquisition
Proposal or similar business combination with a person or entity other than
Parent, the Purchaser or their affiliates or the Board of Directors of the
Company shall have adopted a resolution to do any of the foregoing;

(f) Thirty percent (30%) or more of the key personnel of
the Company and its Subsidiaries identified on Schedule A(h) of the Company
Disclosure Letter shall no longer be employed by the Company or its
Subsidiaries or shall have submitted their resignations.

The foregoing conditions are for the sole benefit of the Purchaser and
Parent and, subject to the Merger Agreement, may be asserted by either of them
or may be waived by Parent or the Purchaser, in whole or in part at any time
and from time to time in the sole discretion of Parent or the Purchaser. The
failure by Parent or the Purchaser at any time to exercise any such rights
shall not be deemed a waiver of any right and each right shall be deemed an
ongoing right which may be asserted at any time and from time to time.

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ANNEX II

SECTION 262 OF THE GENERAL CORPORATION
LAW OF THE STATE OF DELAWARE

<PAGE> 135
SECTION 262 -- APPRAISAL RIGHTS

(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to sec. 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.

(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251 (other than a merger effected pursuant to sec.
251(g) of this title), sec. 252, sec. 254, sec. 257, sec. 258, sec. 263 or sec.
264 of this title:

(1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of sec. 251 of this title.

(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to sec.sec. 251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:

a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;

b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock (or depository receipts in respect
thereof) or depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities exchange or
designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc.
or held of record by more than 2,000 holders;

c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or

d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.

(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.

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(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.

(d) Appraisal rights shall be perfected as follows:

(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsections (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of his
shares shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to demand
the appraisal of his shares. A proxy or vote against the merger or consolidation
shall not constitute such a demand. A stockholder electing to take such action
must do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation who
has compiled with this subsection and has not voted in favor of or consented to
the merger or consolidation of the date that the merger or consolidation has
become effective; or

(2) If the merger or consolidation was approved pursuant to sec. 228 or
sec. 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days thereafter,
shall notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the approval of
the merger or consolidation and that appraisal rights are available for any or
all shares of such class or series of stock of such constituent corporation, and
shall include in such notice a copy of this section; provided that, if the
notice is given on or after the effective date of the merger or consolidation,
such notice shall be given by the surviving or resulting corporation to all such
holders of any class or series of stock of a constituent corporation that are
entitled to appraisal rights. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
such holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the merger
or consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such holders on or within 10
days after such effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first notice, such second
notice need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice that
such notice has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent corporation may
fix, in advance, a record date that shall be not more than 10 days prior to the
date the notice is given, provided, that if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the date next
preceding the day on which the notice is given.

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<PAGE> 137

(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
compiled with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period of
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.

(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.

(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.

(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.

(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
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<PAGE> 138

other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.

(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.

(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, of if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.

(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation. (Last amended by Ch.
299, L. '96, eff. 2-1-96 and Ch. 349, L. '96, eff. 7-1-96).

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<PAGE> 139

ANNEX III

OPINION OF DEUTSCHE MORGAN GRENFELL INC.

<PAGE> 140
[DEUTSCHE MORGAN GRENFELL
TECHNOLOGY GROUP LOGO]

Deutsche Morgan Grenfell Inc.
Technology Group
1550 El Camino Real
Suite 100
Menlo Park, California 94026

Telephone: (415) 614-5000
Fax: (415) 614-5030

November 19, 1997

Board of Directors
Amati Communications Corporation
2043 Samaritan Drive
San Jose, CA 95124

Members of the Board:

We understand that Amati Communications Corporation ("Amati"), Texas
Instruments, Inc. ("TI") and DSL Acquisition Corp. ("Acquisition Sub"), a
wholly-owned subsidiary of TI, have entered into an Agreement and Plan of
Merger, dated as of the date hereof (the "Merger Agreement"), pursuant to which
TI, through Acquisition Sub, will make a tender offer for all of the outstanding
shares of common stock, par value $.20 per share, of Amati (the "Amati Common
Stock") for $20.00 per share net to the seller in cash (the "Offer") and,
following consummation of the Offer, TI will cause Acquisition Sub to be merged
with and into Amati (the "Merger"). Pursuant to the Merger, Amati will become
a wholly-owned subsidiary of TI and each outstanding share of Amati Common
Stock, other than shares held in treasury or held by TI or any affiliate of TI
or as to which dissenters' rights have been perfected, will be converted into
the right to receive $20.00 per share in cash. The terms and conditions of the
Offer and the Merger are more fully set forth in the Merger Agreement.

You have asked for our opinion as to whether the cash consideration to be
received by the holders of Amati Common Stock (other than TI and its
affiliates) in the Offer and the Merger is fair from a financial point of view
to such holders.

For purposes of the opinion set forth herein, we have:

i. analyzed certain publicly available financial statements and other
information of Amati and TI, respectively;

ii. analyzed certain internal financial statements and other financial
and operating data concerning Amati prepared by the management of
Amati;

iii. analyzed certain financial projections relating to Amati prepared by
the management of Amati;

iv. discussed the past and current operations and financial condition and
the prospects of Amati with senior executives of Amati;

v. reviewed the reported prices and trading activity for the Amati
Common Stock;

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Amati Communications Corporation
November 19, 1997 [DEUTSCHE MORGAN GRENFELL
Page 2 TECHNOLOGY GROUP LOGO]

vi. compared the financial performance of Amati and the prices and
trading activity of the Amati Common Stock with that of certain
other comparable publicly-traded companies and their securities;

vii. reviewed the financial terms, to the extent publicly available, of
certain comparable merger and acquisition transactions;

viii. participated in discussions and negotiations among representatives
of Amati and TI and their respective financial and legal advisors;

ix. reviewed the Merger Agreement and certain related agreements; and

x. performed such other analyses and considered such other factors as
we have deemed appropriate.

We have assumed and relied upon, without independent verification, the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections, we have assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of Amati.
We have not made any independent valuation or appraisal of the assets,
liabilities or technology of Amati nor have we been furnished with any such
appraisals. We have assumed that the Offer and the Merger will each be
consummated in accordance with the terms set forth in the Merger Agreement. Our
opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to us as of, the date hereof.

We have acted as financial advisor to the Board of Directors of Amati in
connection with this transaction and will receive a fee for our services. In
addition, in the ordinary course of our business, we may actively trade the
securities and loans of Amati and TI for our own account and for the accounts of
our customers and, accordingly, may at any time hold a long or short position in
such securities and loans.

It is understood that this letter is for the information of the Board of
Directors of Amati and may not be used for any other purpose without our prior
written consent. In addition, we express no recommendation to the stockholders
of Amati as to whether or not to tender shares of Amati Common Stock pursuant
to the Offer.

Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the cash consideration to be received by the holders of Amati
Common Stock (other than TI and its affiliates) in the Offer and Merger is fair
from a financial point of view to such holders.

Very truly yours,

DEUTSCHE MORGAN GRENFELL INC.

By: /s/ GEORGE F. BOUTROS
----------------------
George F. Boutros
Managing Director

By: /s/ DAVID A. POPOWITZ
----------------------
David A. Popowitz
Vice President

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