TELTREND INC, 10-K405, 1999-10-22

TELTREND INC
10-K405, 1999-10-22
TELEPHONE & TELEGRAPH APPARATUS

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)

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

FOR THE FISCAL YEAR ENDED JULY 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO ________

COMMISSION FILE NUMBER 0-26114

TELTREND INC.

(Exact Name of Registrant as Specified in Its Charter)

DELAWARE 13-3476859
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)

620 STETSON AVENUE
ST. CHARLES, ILLINOIS 60174
(Address of Principal Executive Offices)(Zip Code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (630) 377-1700

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

COMMON STOCK, $.01 PAR VALUE PER SHARE
PREFERRED SHARE PURCHASE RIGHTS
(Title of Class)

Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|

As of October 6, 1999, there were outstanding 5,779,720 shares of the
registrant's Common Stock, $.01 par value per share ("Common Stock"), and no
shares of the registrant's Class A Common Stock, $.01 par value per share. On
that date, the aggregate market value of voting and non-voting common equity
(based upon the last sale price of the registrant's Common Stock on October 6,
1999) held by non-affiliates of the registrant was $103,792,094 (5,287,422
shares at $19.63 per share).

DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE REGISTRANT'S ANNUAL REPORT TO STOCKHOLDERS FOR THE FISCAL YEAR
ENDED JULY 31, 1999 ARE INCORPORATED BY REFERENCE INTO PART II OF THIS ANNUAL
REPORT ON FORM 10-K. PORTIONS OF THE REGISTRANT'S DEFINITIVE PROXY STATEMENT FOR
THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD DECEMBER 2, 1999 ARE INCORPORATED
BY REFERENCE INTO PART III OF THIS ANNUAL REPORT ON FORM 10-K.

================================================================================

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CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This Annual Report on Form 10-K, including "Management's Discussion and
Analysis of Financial Condition and Results of Operations" incorporated herein
by reference, contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 concerning, among other things:
(i) the Company's (as defined below) prospects, developments and business
strategies for its operations, including the development and sale of certain new
and established products; (ii) the Company's expectations regarding product
pricing and the impact of product pricing on gross profit margins; and (iii) the
Company's expectations regarding the upcoming year 2000. These forward- looking
statements are identified by their use of such terms and phrases as "believes,"
"anticipates," "planned," "will" and "expects," are subject to risks and
uncertainties and represent the Company's present expectations or beliefs
concerning future events. The Company cautions that the forward-looking
statements are qualified by important factors that could cause actual results to
differ materially from those in the forward-looking statements, including,
without limitation: (i) risks of general market conditions, including demand for
the Company's products, product mix, competition and the Company's historical
dependence on relatively few customers; (ii) risks related to the Company's
historical dependence on relatively few product lines (such as the Company's T1
product line, which faces competition from suppliers of alternate methods of
delivering repeatered T1 services); (iii) the extent to which the Company's
principal customers continue to exert pricing pressures on the Company; (iv)
risks inherent in the telecommunications industry, including rapidly changing
technology, evolving industry standards, changes in customer requirements,
frequent product introduction and changing government regulation; and (v) the
timing and occurrence (or non-occurrence) of transactions and events which may
be subject to circumstances beyond the Company's control. A reader of this
Report should understand that it is not possible to predict or identify all such
risk factors. Consequently, the reader should not consider such a list to be a
complete statement of all potential risks or uncertainties. The Company does not
assume the obligation to update any forward-looking statements. Results actually
achieved may differ materially from expected results included in these
statements. See Subparagraph d. of Item 1 -- "Factors That May Affect Future
Results."

PART I
ITEM 1. BUSINESS.

a. GENERAL DEVELOPMENT OF BUSINESS

(i) BACKGROUND

Teltrend designs, manufactures and markets a broad range of
transmission products used by telephone companies ("Telcos") to provide voice
and data service over the telephone network. Historically, substantially all of
Teltrend's products have been sold directly to the Regional Bell Operating
Companies and their local affiliates (collectively, the "RBOCs") for use with
the copper wireline that is generally used to carry voice and data across the
final link between end-users and a Telco office or field equipment. This final
link is referred to as the telephone subscriber loop, or "Local Loop." The
Company's strong reliance on the RBOCs continues, but the Company's purchase of
Teltrend Limited in September 1997 did expand the Company's markets and product
lines. With the addition of Teltrend Limited, the Company has entered the
telecommunication signaling interworking market, providing products that
interpret and translate transmission signals to allow for interoperability
between older-generation and next-generation telecommunications networks.
Teltrend Limited sales are primarily targeted in Europe.

The Company's principal executive offices are located at 620 Stetson
Avenue, St. Charles, Illinois, 60174 and its telephone number at that location
is (630) 377-1700. Unless the context otherwise requires: (i) all references to
the "Company" or "Teltrend" in this Annual Report on Form 10-K (the "Report")
collectively refer to Teltrend Inc. and its wholly owned subsidiaries; and (ii)
all references herein to "Teltrend Limited" refer to Teltrend Limited and its
wholly owned subsidiaries (through the sale of its wholly owned subsidiaries as
described below in "--Teltrend Limited Acquisition"). The Company's fiscal year
ends on the last Saturday of July each year. All references to fiscal years in
this Report refer to fiscal years ending in the calendar year indicated (e.g.,
fiscal 1999 refers to the fiscal year ended July 31, 1999).

(ii) TELTREND LIMITED ACQUISITION

On September 18, 1997, the Company consummated the purchase of all the
outstanding shares of Securicor 3net Limited of Basingstoke, England and its
U.S. affiliate Securicor 3Net Inc. from 3Net Holdings Limited of Surrey,

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England ("3Net Holdings") for a total acquisition cost of approximately $14.5
million. 3Net Holdings is a subsidiary of Securicor Communications Limited of
Surrey, England. Following the acquisition, the name of Securicor 3net Limited
was changed to Teltrend Limited. At the time of purchase, Teltrend Limited had
operations in England, New Zealand and China. On May 28, 1999, the Company sold
substantially all of the assets of Teltrend Limited's "Packet Switched" products
business, which consisted of its operations in New Zealand and China, to
Centrecom Systems Limited of England. The Packet Switched products included
connections for local area networks ("LANs"), remote access solutions for
Integrated Services Digital Network ("ISDN") technologies and secure networking
between private and public networks. For more information concerning the sale of
the Packet Switched products business, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included in Item 7 of this
Report.

(III) TELTREND INC. RIGHTS AGREEMENT

On January 16, 1997, the Board of Directors of the Company declared a
dividend of one preferred share purchase right (a "Right") for each outstanding
share of Common Stock. The dividend was payable on January 27, 1997 to the
holders of record of the Common Stock as of the close of business on that date.
Each Right entitles the registered holder to purchase from the Company, under
certain circumstances involving the acquisition or the announcement of the
intent to acquire 20% or more of the Company's Common Stock, one one-hundredth
of a share of Series A Junior Participating Preferred Stock, par value $.01 per
share, of the Company (the "Preferred Stock") at a price of $160.00 per one
one-hundredth of a share of Preferred Stock, subject to adjustment. The
description and terms of the Rights are set forth in a Rights Agreement dated as
of January 16, 1997, as amended on June 1, 1998 to increase the acquisition
threshold to 20%, and as the same may be further amended from time to time (the
"Rights Agreement"), between the Company and LaSalle National Bank, as Rights
Agent (the "Rights Agent"), a copy of which is included as an exhibit to this
Report.

b. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS AND GEOGRAPHIC AREAS

During each of the last three fiscal years, the Company has operated in
only one industry segment. For information concerning the Company's geographic
areas, see the Company's financial statements included in Item 14 of this
Report.

c. NARRATIVE DESCRIPTION OF BUSINESS

(i) GENERAL

The Company designs, manufactures and markets a broad range of
transmission products that are used by Telcos to provide data and voice services
over the existing telephone network, primarily in the Local Loop. The Company
also manufactures a wide range of products that convert, change and amplify
transmission protocols and are used worldwide in public and private
communications networks. In recent years, the demand for high-speed digital
transmission over the telephone network has increased as a result of the
explosive growth of the Internet and the growing communications requirements of
connections between LANs, wide area networks ("WANs"), on-line data networks
(which typically connect point-of-sale credit card authorization terminals,
automatic teller machines, lottery terminals and reservation stations to a
central computer), other on-line data services and video conferencing. The
Company's products provide transmission of data and voice over the copper-wire
network and permit the Telcos to maximize use of the existing infrastructure of
copper wireline.

(ii) INDUSTRY BACKGROUND

OVERVIEW. Transmission through the telephone network has traditionally
been accomplished by analog transmission. Analog transmission, however, has been
unable to provide the requisite data rates and reliability to support growing
communications requirements. Digital transmission emerged in the 1970s as a
reliable high-speed alternative to analog transmission. As a result, demand for
digital communications service by end-users is growing, and will likely continue
to grow.

INCREASING DEPLOYMENT OF DIGITAL SERVICE IN THE LOCAL LOOP. While
Telcos generally utilize fiber-optic or other systems to permit high-speed
digital transmission between their communication switching facilities ("Central
Offices") and from their Central Offices to switching equipment deployed in the
field, transmission over copper wireline remains the principal method by which
telecommunication services are provided in the "last mile," the final link
between the Central Office or field switching equipment and the end-user.
Increasing demand for digital transmission by

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end-users has given the Telcos considerable incentive to upgrade service in the
Local Loop. Although replacement of the "last mile" copper wireline in the Local
Loop with fiber-optic, coaxial cable, hybrid fiber-coax, wireless and other
higher-speed and quality transmission media has occurred to a certain extent,
widespread replacement of the copper wireline has not occurred because of the
labor and capital intensive nature of the replacement process. Consequently,
technologies have emerged which enhance the transmission capabilities of the
copper wireline and allow the Telcos to respond to customer demand for digital
service in the Local Loop at affordable rates and at a level of quality
approaching that of fiber.

TECHNOLOGICAL DEVELOPMENTS AND TRENDS. Digital Data System ("DDS")
technology, when introduced in the early 1970s, was one of the first digital
transmission services offered by Telcos in the Local Loop. DDS provides service
between two fixed locations, also known as "dedicated" service, at rates up to
64 Kbit/sec and has typically been deployed for point-of-sale applications and
other on-line data networks. The next digital service to be widely deployed in
the Local Loop was T1, which is a 1.544 Mbit/sec dedicated service that can be
provided over two twisted pair of copper telephone wires. Applications for T1
service include: (1) connections between the Central Office and customer
telecommunications switching equipment (also known as private branch exchanges
or "PBXs"); (2) T1 multiplexers, which combine multiple signals into a single
signal for more efficient transmission; and (3) more recently, cellular
telephone base stations. Traditional T1 service is provided by "conditioning"
the existing copper wireline to meet the standards for T1 service. This
conditioning requires the removal of all bridge taps, the separation of the wire
pairs and the installation of mid-span repeaters to regenerate the signal every
3,000 to 6,000 feet (which is necessary because the T1 signal degrades as it
passes along the copper wireline). Consequently, installation and maintenance of
repeatered T1 lines is labor intensive and can be costly, depending on the
length of the loop and the amount of conditioning required along the copper
wireline. High Density Subscriber Line ("HDSL") technology has emerged as an
accepted alternate method of providing T1 service across the copper network
which does not require conditioning the lines or the installation of line
repeaters for distances of up to 12,000 feet.

Switched digital services are increasingly being deployed in the Local
Loop in response to customer demand for flexible, high-speed transmission
services. Whereas dedicated lines are fixed connections between two points,
switched services permit the flexibility of connecting any similarly equipped
locations. A newer DDS-based service provides switched 56 Kbit/sec digital
transmission. In addition, basic rate ISDN technology allows a Telco to deliver
switched digital transmission over the copper network at rates up to 128
Kbit/sec (plus an additional 16 Kbit/sec for special services). These
technologies can support telecommuting, video conferencing and remote-LAN
access. Although basic rate ISDN technology has been available for over ten
years, it had not been widely deployed by Telcos until recently. Its recent
increase in popularity is largely attributable to the emergence of widespread
Internet usage and to cost effective customer premises equipment ("CPE") which
utilizes ISDN capabilities and features.

Other emerging technologies that provide high-speed digital services
include primary rate ISDN, a switched digital line which operates at T1 speeds,
and Asynchronous Digital Subscriber Line ("ADSL"), which provides sufficient
capacity for delivery of video-on-demand over the copper wireline.

OTHER INDUSTRY TRENDS. Faced with increasing competition for customers,
Telcos are demanding enhanced functionality in the equipment they deploy to
deliver telecommunications services. In response, equipment manufacturers have
developed, and will likely continue to develop, products which can be tested,
adjusted and reconfigured from a remote location ("intelligent" products) to
assist Telcos in achieving labor cost savings and efficiency gains. For
instance, Telcos are now deploying sophisticated T1 transmission gear that
includes inherent performance monitoring ("PM") capabilities. These PM systems
allow the Telcos to constantly monitor the quality of service being delivered to
their T1 customers.

The technologies which have emerged to replace the existing copper
infrastructure (such as fiber-optic, coaxial cable, hybrid fiber-coax and
wireless systems) remain relatively costly to install. While the transition from
copper wireline to telecommunications networks based on newer technology is
generally expected to be gradual, it is anticipated that the markets for and the
pace of deployment of these technologies will grow as their costs decrease.
Accordingly, demand for products applicable to the copper wireline will decrease
and new products and services will need to be developed to address the demands
of these growing markets. See Subparagraph d. (ii) of this Item 1 -- "Factors
That May Affect Future Results -- Rapid Technological Changes and Dependence on
New Products" and Subparagraph d. (i) of this Item 1 -- "Factors That May Affect
Future Results -- Dependence on T1 Products."

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(iii) PRODUCTS

(a) GENERAL

Digital and analog signals from a telecommunications customer are
transmitted to and gathered at a Telco's Central Office. While most of these
lines are connected directly to the Central Office switch, special service lines
are attached to an assembly which establishes the speed and functionality of the
particular circuit. These circuit assemblies, known as channel units, connect
the subscriber line to a channel bank or similar equipment which converts voice
and data transmission signals as required (e.g., from analog to digital),
combines or separates them as necessary (e.g., into or from a single digital
stream for T1 service) and directs the signals through the telephone network.
Channel banks are typically located in the Central Offices. A digital loop
carrier ("DLC") within the Local Loop performs the same function as a channel
bank and typically interfaces fiber-optic or some other medium which has been
deployed between the Central Office and the copper wireline that runs to the
end-user's premises. Along the copper wireline in the Local Loop, electronic
equipment such as repeaters may be required to restore and amplify the signal.
In the case of dedicated lines, a Telco typically installs a termination unit at
the end-user's premises which allows testing and adjustment of the subscriber
line.

The Company manufactures a broad range of products necessary to
provision the Local Loop which are designed for installation either at the
end-user's premises, along the Local Loop or at the Central Offices. The
Company's principal products are as follows: (i) High Capacity products, which
include traditional T1 line and office repeaters and T1 network interface units
and associated mountings, CellPak(TM) units for cellular and wireless base
station sites, and HDSL systems, which help Telcos reduce the number of costly
digital cross connect system ports required for frame relay services; (ii)
Channelized products, which include Digital Loop Carrier and Voice Frequency
products ("DLC/VF") (including a small DLC system, plug-in units for existing
DLC systems and traditional voice frequency products) and ISDN/DDS products
(including ISDN and DDS line repeaters, and ISDN and DDS D4 channel units); and
(iii) Conversion products (network interfacing and protocol conversion
products). During the first nine months of fiscal 1999, Teltrend also offered
Packet Switched products (a line of routers). On May 28, 1999, Teltrend sold
substantially all of the assets of its Packet Switched products business to
Centrecom Systems Limited of England.

Most of the Company's products consist of a single printed circuit
board upon which a microprocessor and other electronic components are mounted.
These units generally plug into a housing at either the customer's location, the
Central Office or an intermediate point along the telephone network. While the
Company offers many of the housings into which these units plug, some of the
units are designed specifically to plug into housings or systems manufactured by
other companies, and virtually all of the units are plug compatible with various
industry-standard systems, such as the Lucent SLC(R)-5 DLC system. To meet
customer requirements, the Company regularly produces customized versions of its
standard products to incorporate customer-specific "firmware" (embedded memory)
or unique hardware (such as a customized electronic assembly) or to mount unique
parts on an otherwise standard printed circuit board. Many of the Company's
products enhance traditional voice and data transmission products, incorporating
onboard microprocessors which allow them to perform many functions automatically
and to be provisioned and tested from a remote location, thereby reducing labor
costs and achieving efficiency gains.

(b) THE COMPANY'S PRODUCTS

HIGH CAPACITY PRODUCTS. The High Capacity product group consists of
traditional, repeatered T1 and HDSL product lines. The Company is a supplier of
intelligent repeatered T1 products for the Local Loop. These products allow
Telcos to quickly deploy high speed (1.544 Mbit/sec) digital service over the
existing infrastructure of copper wireline in the Local Loop. T1 service is
frequently deployed for Internet access, PBXs, and dedicated lines. The Company
was among the first to successfully introduce cost-effective intelligent T1
repeaters, which spurred the sales growth of the Company's T1 products. Sales of
High Capacity products accounted for 51.5%, 51.7% and 56.4% of the Company's net
sales in fiscal 1999, 1998 and 1997, respectively.

Within its T1 product line, the Company currently offers intelligent
network interface units ("NIUs"), intelligent office repeaters, intelligent line
repeaters and T1 mountings. The Company's NIUs are installed by Telcos to
terminate a T1 line at the customer's premises and to allow testing of the
circuit. The Company's T1 repeater products are installed by Telcos to
regenerate a T1 signal that has degraded due to transmission over a long
distance of copper wireline. These repeaters contain addressable loopback
circuits that allow rapid fault isolation from a remote location. This remote
testing capability allows Telcos to offer improved service at a lower cost in
the increasingly competitive telecommunications environment.

The latest generation of NIUs contain extensive PM capabilities for
both directions of T1 transmission (toward

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the customer and toward the network). The PM NIUs provide crucial information to
the network provider regarding the quality and availability of their delivered
T1 services. PM NIUs can be deployed at the network interface, terminating all
forms of T1 transmission facilities -- repeatered T1, HDSL or fiber-based. The
Company believes that its PM NIU sales and the market for PM NIU products will
show moderate growth over the next several years.

HDSL technology is the primary method of providing T1 service over the
copper wireline in the Local Loop. HDSL is easier to provision than traditional
T1 service because it eliminates the need to condition the wireline and to
install line repeaters for distances of up to 12,000 feet. Despite the use of
HDSL, Telcos continue to deploy traditional repeatered T1 service on established
or long repeatered T1 routes. However, the Company expects that demand for its
T1 products (which provide traditional repeatered T1 service) will decline as
the cost of HDSL systems declines. The Company manufactures a 4-wire HDSL
product line which has been approved and purchased by two Telcos. See
Subparagraph d. (i) of this Item 1 -- "Factors That May Affect Future Results --
Dependence on T1 Products." The HDSL market in the United States is highly
competitive and currently dominated by three companies: PairGain Technologies,
Inc. ("PairGain"); ADC Telecommunications, Inc. ("ADC"); and ADTRAN, Inc.
("ADTRAN"). See " -- Competition."

The Company has recently introduced an intelligent "network integrated"
system platform called Advanced Span Termination System ("ASTS"). This system is
optimized for deployment of 2-wire HDSL ("HDSL2"), along with traditional T1 and
4-wire HDSL. With integrated protection switching, test access and remote
management, ASTS drastically reduces the cost of T1 deployment and maintenance.
The Company believes that this highly differentiated product should provide
increased penetration into the HDSL market.

Recently, the Company began to introduce a full line of HDSL2 products
based on standards compliant Level One HDSL2 Chip Set.

The CellPak(TM) product line provides T1 transport in a completely
self-contained, pre-tested, outdoor package for providing a Telco demarcation to
cellular or personal communications services providers via metallic or
fiber-optic lines. Coordination problems that are often encountered between the
wireless operator and the Telco are greatly reduced by the CellPak(TM), both in
original installation and in maintenance situations. Teltrend's CellPak(TM)
systems are available with HDSL, HDSL2, conventional T1, or fiber-optic feeds.
The latest product addition, CP550, specifically addresses cell sites located on
high-voltage transmission lines to provide the necessary protection of the
transmission line from the voltage.

CHANNELIZED PRODUCTS. Channelized products consist of DLC, VF, ISDN and
DDS product lines. Sales of Channelized products accounted for 32.3%, 34.9% and
43.9% of the Company's net sales in fiscal 1999, 1998 and 1997, respectively.
Within its DLC product line, the Company manufactures an advanced 2-wire foreign
exchange unit ("2FXO") for the Lucent SLC(R)96 and D4 systems. The 2FXO uses
microprocessor control to compensate for network anomalies caused by variations
in PBXs and Central Office switches. It thereby eliminates various operational
and billing problems commonly experienced with foreign exchange lines.

The Company also manufactures a 2-wire dial pulse terminate unit with
gain transfer ("DPT/GT") for D4 channel bank systems. The DPT/GT uses
microprocessor control to provide an automated precision balance. This saves
time and manpower in provisioning service and eliminates operational performance
problems (such as "howling") due to maladjustment from manual trial-and-error
balancing.

Teltrend's DCAC 4570 cross-connects (or tandems) a circuit through a
Central Office digitally. This allows 56Kbps modems to operate over these
circuits while providing full analog test access, which allows the telephone
company to test circuits at each tandem point to quickly isolate faults and
repair circuits, thereby improving performance and service to their customers.
Teltrend's DCAC 4570 makes digital signal integrity and testability available to
smaller Central Offices immediately.

Teltrend's FXS/DPO/GT4555 multifunction D4 unit provides customers with
the multiple benefits of improved circuit performance and reduced manpower
required to install the unit due to its built-in auto balance. Because the unit
is multifunctional, it replaces up to eight traditional models and saves RBOCs
substantial expense by reducing inventory requirements of spare units.

In addition to competing in the DLC market by supplying special service
channel units for the existing infrastructure of Lucent DLC systems (SLC(R)96,
SLC(R)-5), the Company is now providing products to original equipment
manufacturers (OEMs) of channel units by selling channel units to Next Level
Systems, Inc., another DLC

<PAGE> 7

systems company.

The Company is a supplier of intelligent VF products. Within its VF
product line, the Company currently offers data station termination ("DST")
units and VF channel units and mountings, which Telcos use primarily to provide
dedicated analog data lines. The Company's DST and VF channel units are
installed by Telcos at the customer's premises and in a channel bank or DLC
system, respectively, to terminate both ends of an analog data line. These units
contain onboard microprocessors which allow all testing and adjustment to be
performed from a remote location.

The Company believes that the domestic market for its VF products is
decreasing, and will likely continue to decrease, as digital data transmission
services within the Local Loop become less costly and more widely deployed.
However, the Company intends to expand its marketing efforts for its VF products
to independent Telcos and to international markets in an effort to partially
offset the effects of this decline in domestic demand for VF products.

The Company is currently manufacturing, developing and marketing
products based on basic rate ISDN technology. This technology allows Telcos to
provide their customers with two 64 Kbit/sec digital channels for voice or data,
plus an additional data channel for special purposes, over a single twisted pair
of copper wires. While most digital transmission services require a dedicated
line, ISDN is a switched service. This offers the end-user the flexibility of
conventional dial-up service with the speed and quality of digital transmission.
In addition, multiple ISDN lines can be aggregated to provide the bandwidth
required for applications such as video conferencing.

The Company currently manufactures and markets an ISDN channel unit
which plugs into Lucent's SLC(R)-5 DLC system, an ISDN line repeater unit which
is used to extend service beyond 16,000 feet and an ISDN channel unit for use
with Lucent's SLC(R)96 DLC system. The Company also manufactures channel banks
for use at Telco Central Offices. These channel banks are used to interface the
ISDN signal for interoffice transport when the local Central Office switch
cannot support ISDN service.

The Company's DDS products are used by Telcos to deliver digital
service across copper wires in the Local Loop at speeds from 2.4 to 64 Kbit/sec.
The majority of DDS service is provided by means of a dedicated line, but
switched 56 Kbit/sec service is also available. As with the Company's analog VF
data transmission products, DDS service is typically used by customers to
connect geographically dispersed computer terminals to a central computer. In
recent years, DDS has benefited from the trend toward digital service described
above, including frame relay service for Internet access.

CONVERSION PRODUCTS. Teltrend Limited supplies ISDN access solutions
such as protocol conversion, concentration of multiple signals into a single
channel, routing and remote management units. These enable telecommunications
service and equipment providers to facilitate basic rate and primary rate
delivery by providing support for interfaces and services not otherwise
compatible with the providers' technology. The Company previously offered a line
of routers, known as its Packet Switched products line. However, on May 28,
1999, the Company sold the Packet Switched products line. See Subparagraph a.
(ii) of this Item 1 -- "General Development of Business - Teltrend Limited
Acquisition." Sales of Conversion products accounted for 12.3% and 7.8% of the
Company's net sales in fiscal 1999 and 1998, respectively.

(iv) CUSTOMERS

The Company's principal customers are the RBOCs. The Company also sells
its products to certain independent U.S. Telcos and large international
telecommunications equipment providers. Sales to the RBOCs accounted for
approximately 75.5%, 81.7% and 95.8% of the Company's net sales in fiscal 1999,
1998 and 1997, respectively. In fiscal 1999, sales to SBC Communications Inc.
(which merged with Pacific Bell in fiscal 1998), BellSouth Telecommunications
Inc., Bell Atlantic (which merged with NYNEX in fiscal 1998), Ameritech Corp.,
and US WEST Inc. accounted for 23.7%, 19.2%, 14.9%, 10.7%, and 7.1%,
respectively, of the Company's net sales. No other customer accounted for more
than 10% of the Company's net sales in fiscal 1999. See Subparagraph d. (iii) of
this Item 1 -- "Factors That May Affect Future Results -- Reliance on Certain
Customers."

Prior to selling a product to a Telco customer, the Company generally
must first submit that product for qualification by the customer. Accordingly,
the Company is continually submitting successive generations of its current
products as well as new products to its customers for qualification. Although
the qualification process varies somewhat among customers, the Company's
experience is that the process can take anywhere from a few weeks to a year or
more and generally consists of the following three phases:

<PAGE> 8

- Laboratory Evaluation. The product's function and performance
are tested against all relevant industry standards, such as
those set by Telcordia Technologies Inc., formerly known as
Bell Communications Research, Inc. ("Telcordia").

- Field Trial. A number of telephone lines are equipped with the
product for simulated operation in a field trial. The field
trial is used to evaluate performance, assess ease of
installation and establish troubleshooting procedures.

- Product Selection and Deployment. Prior to product selection
and deployment, the customer develops and implements a variety
of methods and procedures relating to ordering, stocking,
installation, maintenance, returns and all other activities
associated with the use of the product.

(v) MARKETING, SALES AND DISTRIBUTION

The Company's sales in the United States are made by its field sales
organization, which is deployed throughout the United States. The marketing,
sales and customer service employees based at the Company's headquarters support
these field salespersons and often become involved in the sales process.
Teltrend Limited's sales and marketing teams consist of 12 people based in the
U.K. All international sales and support operations are orchestrated from
Teltrend Limited's headquarters in the U.K. The Company also sells its products
through distributors. Although the Company has agreements with many of these
distributors, these agreements do not establish minimum purchase commitments and
are generally terminable by either party upon 60 days notice. For each of the
Company's last five fiscal years, no distributor has accounted for more than
1.5% of the Company's net sales. The Company believes that its success has, to a
significant degree, been due to the performance of its sales teams and that its
future success will depend, in part, on its ability to attract and retain
qualified sales and marketing personnel who can successfully increase the
Company's sales revenue in the highly competitive telecommunications equipment
marketplace.

The Company has or is in the process of negotiating multi-year supply
agreements with virtually all of its major customers, which cover products
representing a majority of the Company's sales. These agreements only govern the
terms and conditions applicable to purchases of the Company's products,
including prices, and generally do not establish any minimum purchase
commitments. Sales of the Company's products under these agreements are made on
a purchase order basis. Because these contracts generally prohibit the Company
from increasing the price of its products sold thereunder for stated periods of
time, any significant increase in the Company's costs during such periods which
the Company is unable to offset with a corresponding increase in prices due to
such prohibitions could have a material adverse effect on the Company. See
Subparagraph d. (iii) of this Item 1 -- "Factors That May Affect Future Results
- -- Reliance on Certain Customers." In addition, the Company has arrangements
with three of its customers which require the Company to maintain a portion of
its finished goods inventory at the various locations of such customers. As of
July 31, 1999, approximately 24% of the Company's finished goods inventory was
maintained at these locations. See Subparagraph d. (vi) of this Item 1 --
"Factors That May Affect Future Results -- Inventory Levels and Need to Make
Advance Purchase Commitments" and Subparagraph d. (ix) of this Item 1 --
"Factors That May Affect Future Results -- Potential Product Recalls and
Warranty Expenses."

(vi) RESEARCH AND PRODUCT DEVELOPMENT

The Company is market driven and works closely with its current and
potential customers in connection with product development. Using feedback
received from such customers, the Company identifies and develops new products
and enhancements to its existing products.

The Company's research and product development is carried out by
engineers and engineering support personnel located in the U.S. and U.K. These
individuals are organized into teams corresponding to the Company's product
lines, with each team being responsible for providing technical support for the
Company's existing products and conceiving new products in cooperation with
others within the Company. Utilizing computer-aided design tools, each product
team also implements the Company's ongoing "value engineering" programs which
are designed to periodically replace all of the Company's major products with
successive generations having additional product features, such as
"intelligence," or new mechanics and/or lower costs.

All product development expenses are charged to operations as incurred.
The Company's expenditures on research and product development were
approximately $15.5 million, $14.3 million, and $9.7 million in fiscal 1999,
1998 and 1997, respectively. The Company believes its future success will depend
in part on its ability, on a cost-effective and timely basis, to continue to
enhance its products, develop and introduce new products for the telephone

<PAGE> 9

network transmission market and other markets, address new industry standards
and changing customer needs and achieve market acceptance for its products.
Accordingly, the Company intends to continue to make significant investments in
research and product development. See Subparagraph d. (ii) of this Item 1 --
"Factors That May Affect Future Results -- Rapid Technological Changes and
Dependence on New Products." See also Item 7 -- "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Fiscal 1999
Compared with Fiscal 1998."

(vii) CUSTOMER SERVICE AND SUPPORT

The majority of service, repair and technical support of the Company's
products is performed at the Company's headquarters in the U.S. and at Teltrend
Limited's headquarters in Basingstoke, England. Under certain circumstances, the
Company also provides comprehensive on-site field support to its customers. The
Company offers telephone technical support to its domestic and international
customers 24 hours a day, seven days a week. It also provides training to its
principal customers with respect to its products. In addition, Teltrend Limited
offers general telecommunications technology and customer training programs.

Most of the Company's products carry a limited warranty of 12 months to
seven years, which generally covers defects in materials or workmanship and
failure to meet published specifications, but excludes damages caused by
improper use. For each of the past five fiscal years, the Company's warranty
expense has been relatively insignificant, representing less than 1.0% of the
Company's annual net sales. See Subparagraph d. (ix) of this Item 1 -- "Factors
That May Affect Future Results -- Potential Product Recalls and Warranty
Expenses."

(viii) MANUFACTURING AND SUPPLIERS

To successfully compete for Telco business, telecommunications
equipment manufacturers must offer products which enable Telcos to meet customer
demand for high-quality, reliable transmission services. The Company is
committed to customer satisfaction in the design and manufacture of its products
and maintains comprehensive quality systems to monitor product and service
quality throughout all of its processes. This commitment has resulted in the
Company's domestic operations achieving CSQP(SM) (Customer Supplier Quality
Process) and ISO 9001 Quality Systems Registration from Telcordia.

The Company's domestic manufacturing process consists of several
distinct phases: material planning and procurement, assembly, burn-in, testing
and quality audit. The Company procures electronic and mechanical components
from outside manufacturers and assembles them using a substantially automated
production process. Incoming components are subject to quality inspection and
testing. In addition, the products manufactured by the Company are tested prior
to shipment to customers.

All of the products offered and sold by Teltrend Limited are either
manufactured or supplied by independent contractors, generally pursuant to
manufacturing agreements entered into with Teltrend Limited. These agreements
generally contain the terms and conditions applicable to orders placed with the
suppliers and contain no minimum commitment with any supplier for any period.
Purchases are made on a purchase order basis. These manufacturers have all
achieved a minimum of ISO 9002 accreditation and, in the majority of cases, are
recognized by the British Approvals Board for Telecommunications ("BABT") as a
Listed Production Facility. Teltrend Limited has accreditation to ISO 9001.

Historically, the Company has used industry standard components for its
products. Some components, however, including application specific integrated
circuits ("ASICs"), are custom made to the Company's specifications. In
addition, the Company uses proprietary design integrated circuits ("PDICs") in
the manufacture of its products. PDICs are the design and property of the
manufacturer from which they are purchased. Certain key components required to
manufacture the Company's products, principally its ASICs and PDICs, are
currently available from only one source. The Company continually evaluates its
sources of supply and will establish additional supply relationships where
available and advisable to increase the reliability of receipt of components.
The Company generally obtains its components on a purchase order basis.
Components that currently are readily available may become difficult to obtain
in the future. See Subparagraph d. (v) of this Item 1 -- "Factors That May
Affect Future Results -- Dependence on Certain Suppliers."

The Company's customers typically require delivery of products shortly
after an order is placed, which requires the Company to maintain relatively high
inventory levels and increases the risk of inventory obsolescence. In addition,
certain of the components used by the Company require an order lead time of up
to six months and the Company must regularly make advance, non-cancelable
commitments to purchase relatively large quantities of such components. The

<PAGE> 10

Company continually monitors and reviews its inventories and purchasing
practices in an effort to minimize inventory related costs and the risk of
obsolescence. See Subparagraph d. (vi) of this Item 1 -- "Factors That May
Affect Future Results -- Inventory Levels and Need to Make Advance Purchase
Commitments." See also Item 7 -- "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

(ix) COMPETITION

The markets for the Company's products are highly competitive and
characterized by rapid technological change, evolving industry standards,
changes in customer requirements, price-competitive bidding and frequent product
introductions and enhancements. With the development of the worldwide
telecommunications market and increasing demand for high-speed digital
transmission over the existing telephone network, many companies have emerged to
offer products for these markets. Moreover, the Company expects competition to
increase both from existing competitors and from other companies which may enter
the Company's existing or future markets. The Company competes for customers on
the basis of price, product features, conformance with industry standards and
specifications, performance and reliability, technical support and the
maintenance of close customer relationships.

The Company's competitors in the United States and elsewhere are
numerous and, in many cases, have significantly greater financial,
technological, manufacturing, marketing and personnel resources than the
Company. In addition, certain of the Company's competitors have long-standing
relationships with certain Telcos which may adversely affect the Company's
ability to successfully compete for business at these Telcos. The Company's
principal competitors with respect to its T1 products are Charles Industries,
Troncom, Inc., Westell Technologies, Inc. and Applied Digital Access, Inc.
(ADA). In addition, because HDSL is easier to provision than traditional T1
service, the Company faces competition with respect to its repeatered T1
products from suppliers of HDSL systems, which is an accepted alternate method
of delivering T1 services in the Local Loop. The HDSL market is dominated by
PairGain, ADC and ADTRAN. The Company's principal competitor with respect to VF
products is Tellabs, Inc. and the domestic market for VF products generally is
experiencing decreasing demand as higher speed digital data transmission
services become less costly and more widely deployed. The Company's principal
competitor with respect to DDS products is ADTRAN. Lucent, Pulse Communications,
Inc. ("Pulsecom"), a subsidiary of Hubbell Incorporated, and XEL Communications,
Inc. are the Company's principal competitors with respect to the Company's DLC
products. With respect to the Company's ISDN products, the Company's principal
competitor is ADTRAN. See Subparagraph d. (i) of this Item 1 -- "Factors That
May Affect Future Results -- Dependence on T1 Products" and Subparagraph d. (iv)
of this Item 1 -- "Factors That May Affect Future Results -- Highly Competitive
Industry." The Company's principal competitors with respect to its Conversion
products are Acculab plc, Telesoft Design Ltd., Datakinetics Ltd., MicroLegend
Telecom Systems Inc. and Cronus Technology, Inc.

(x) REGULATION

The telecommunications industry is subject to regulation in the United
States, the United Kingdom and other countries. Federal and state regulatory
agencies regulate most of the Company's domestic customers. While such
regulation does not typically affect the Company directly, the effects of such
regulation on the Company's customers may adversely impact the Company's sales
and operating results. For example, the sale of the Company's products may be
affected by the imposition upon certain of the Company's customers of common
carrier tariffs, the taxation of telecommunications services, and regulatory
policies affecting the terms upon which common carriers conduct their business.
These policies are under continuous review and are subject to change. See
Subparagraph d. (vii) of this Item 1 -- "Factors That May Affect Future Results
- -- Government Regulation."

(xi) PROPRIETARY RIGHTS

The name "Teltrend" is a registered trademark of the Company in the
U.S. and Mexico. The Company has also registered seven of its product names and
has applied for trademark registration for nine additional product identifiers
or names in the U.S. The Company has also registered two additional names or
phrases in Mexico. The Company has pursued and intends to continue to pursue
patent protection of inventions that it considers important to the Company's
business and for which such protection is available. The Company presently holds
patents on eighteen inventions relating to its products and has ten patent
applications pending in the U.S. In Mexico, the Company has three patent
applications pending. The Company also has one software copyright registration.
Also, the Company is a party to various agreements (which generally continue for
the life of the underlying patent) whereby the Company licenses certain
telecommunications technology, including digital channel banks and signal
decoding systems, in connection with the manufacture of its products. The
Company has a registered copyright in the U.S. with respect to a certain
software program used in a number of its products. In addition, as part of its
confidentiality procedures, the Company generally enters into nondisclosure
agreements with its key employees and certain suppliers, and limits access to
and distribution

<PAGE> 11

of its proprietary information. Despite these precautions, it may be possible
for a third party to copy or otherwise obtain and use the Company's technology
without authorization. Accordingly, there can be no assurance that the Company
will be successful in protecting its proprietary rights or that the Company's
proprietary rights will preclude competitors from developing products or
technology equivalent or superior to the products and technology of the Company.
Moreover, the laws of some foreign countries do not protect the Company's
proprietary rights in its products to the same extent as do the laws of the
United States.

(xii) EMPLOYEES

As of July 31, 1999, the Company had 490 full-time employees. The
Company's future success will depend largely upon its ability to attract and
retain highly qualified personnel. The Company's employees are not represented
by any collective bargaining agreements, and the Company has never experienced a
work stoppage. The Company believes that its employee relations are good.

(xiii) BACKLOG

At July 31, 1999, the Company's backlog of orders believed to be firm
was approximately $2.5 million, compared to approximately $3.7 million at July
25, 1998. At July 31, 1999, Teltrend Limited's backlog of orders believed to be
firm was approximately $470,000 compared to approximately $2.9 million at July
25, 1998. The Company believes that backlog is not a meaningful indicator of net
sales that can be expected for any future period.

d. FACTORS THAT MAY AFFECT FUTURE RESULTS

(i) DEPENDENCE ON T1 PRODUCTS

The Company's High Capacity products, which include T1 line and office
repeaters and Tl network units, accounted for 51.5%, 51.7% and 56.4% of the
Company's net sales in fiscal 1999, 1998 and 1997, respectively. The Company
expects to derive a large percentage of its net sales for the foreseeable future
from the sale of these products. Consequently, the Company's inability to
maintain or increase net sales of its High Capacity products in the future, or
to offset any shortfall in sales of such products with sales of other existing
or future products, could have a material adverse effect on the Company.

The Company is facing, and expects to continue to face, increasing
competition with respect to its repeatered T1 products from suppliers of systems
based on HDSL technology as an alternate method of delivering repeatered T1
services in the Local Loop. Because HDSL is easier to provide than traditional
T1 service, the Company expects that HDSL products will continue to adversely
affect the demand for its repeatered T1 products as the cost of HDSL systems
declines. If increasing competition or other factors cause the Company to reduce
selling prices for its repeatered T1 products (as has recently occurred due to
pricing pressure from certain of the Company's customers), there can be no
assurance that the Company will be able to increase unit sales volumes of such
products or reduce its costs of sales of such products so as to offset in full
or in part the reduced revenue and gross profit margin effects of such selling
price reductions. See "-- Reliance on Certain Customers" and Item 7 --
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

(ii) RAPID TECHNOLOGICAL CHANGES AND DEPENDENCE ON NEW PRODUCTS

The market for the Company's products is characterized by rapidly
changing technology, evolving industry standards, changes in customer
requirements, price-competitive bidding and frequent product introductions and
enhancements. The introduction of telephone network voice and data transmission
products involving new technologies, the emergence of new industry standards or
changes in customer requirements or service offerings could adversely affect the
Company's ability to sell its existing products and products currently under
development. Most of the Company's

<PAGE> 12

existing products are designed to facilitate and enhance the delivery of
communications over the existing copper wireline in the Local Loop and the
Company expects that Telcos will increasingly replace the installation of copper
wireline with the installation of fiber-optic, coaxial cable, wireless and other
technologies (each of which uses a significantly different method of delivery).
The Company believes that the continued installation of new technologies in the
Local Loop will adversely affect demand for certain of its existing products and
that its future success will largely depend upon its ability, on a
cost-effective and timely basis, to continue to enhance its existing products
and develop and achieve commercial acceptance of new products. See "--
Dependence on T1 Products." There can be no assurance that developments by
others will not render the Company's products or technologies obsolete or
unmarketable or that the Company will be able to successfully anticipate or
adapt to changing technology, industry standards or customer requirements on a
timely basis. Any failure by the Company to anticipate and respond to
technological developments or changes in industry standards or customer
requirements could have a material adverse effect on the Company.

(iii) RELIANCE ON CERTAIN CUSTOMERS

The Company has historically depended on the RBOCs for substantially
all of its net sales and, although the Company's customer base has become less
concentrated in the RBOCs as a result of the Teltrend Limited acquisition,
dependence on the RBOCs for the preponderance of the Company's net sales is
likely to continue for the foreseeable future. The Company has no supply
agreements with any of the RBOCs which establish minimum purchase commitments
and there can be no assurance that sales of the Company's products to the RBOCs
or to other customers will continue or that the Company's customer base will
become materially less concentrated. The RBOCs and most of the Company's other
customers are significantly larger than, and are able to exert a high degree of
influence over, the Company. For example, recent negotiations with the RBOCs
have resulted in the Company offering reduced prices for selected products. The
loss of one or more of the RBOCs as a customer, a further reduction in the
number of RBOCs as a result of mergers or consolidations, or a failure or delay
in the deployment of the Company's products by the RBOCs could materially and
adversely affect the Company.

(iv) HIGHLY COMPETITIVE INDUSTRY

The markets for the Company's products are highly competitive,
especially with respect to price, product features, quality and conformance to
industry standards. The Company's competitors in the United States and elsewhere
are numerous and the Company expects its competition to increase in the future
both from existing and new competitors. Increased competition could lead to
reduced gross profit margins and may necessitate increased spending by the
Company on product development and sales and marketing in order to remain
competitive, or may otherwise adversely affect the Company. The Company has
generally been required to reduce the selling prices of its products over time
and will likely be required to do so in the future. See "-- Reliance on Certain
Customers." The Company's ability to maintain or increase net sales will depend
largely upon its ability to increase unit sales volumes of its products to
counter declines in the average sales prices of its products. Declining average
sales prices would also adversely affect gross margins on the Company's products
if not offset by corresponding reductions in product costs. See Item 7 --
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Fiscal 1999 Compared to Fiscal 1998 -- Gross Profit." Many of the
Company's competitors have significantly greater financial, technological,
manufacturing, marketing and personnel resources than the Company. In addition,
certain of the Company's competitors have long-standing relationships with
certain Telcos which may adversely affect the Company's ability to successfully
compete for business at these Telcos.

(v) DEPENDENCE ON CERTAIN SUPPLIERS

Certain key components which are required to manufacture the Company's
products are available from only one source. Such components include the
Company's ASICs, which are built to Company specifications, and its PDICs, which
are the design and property of the manufacturer from which they are purchased.
The Company generally obtains its components on a purchase order basis.
Accordingly, there can be no assurance that the Company will be able to continue
to obtain sufficient quantities of key components as required or that such
components, if obtained, will be available to the Company on commercially
favorable terms. Further, certain components require an order lead time of up to
six months. Failure by the Company to order sufficient quantities of components
in advance could prevent the Company from meeting customer demand for its
products.

The Company has been able to adjust its order lead times and/or
promised delivery dates to avoid material delivery delays of its products.
However, there can be no assurance that the Company will be able to do so in the
future. Under certain of the Company's supply contracts, a delay in the delivery
of products would permit the customer to cancel the purchase order or, in
limited circumstances, assess a late delivery charge. In addition, late
deliveries could adversely affect the Company's ability to obtain additional
sales from a particular customer. The Company's inability

<PAGE> 13

to obtain sufficient quantities of key components or products, or to develop
alternative sources of such components or alternative contract manufacturing
relationships (in the case of Teltrend Limited) on commercially favorable terms
if and as required in the future, could result in delays or reductions in
product shipments or could otherwise have a material adverse effect on the
Company's customer relationships and, consequently, on its business, results of
operations and financial condition. See "-- Reliance on Certain Customers."

(vi) INVENTORY LEVELS AND NEED TO MAKE ADVANCE PURCHASE COMMITMENTS

The Company maintains inventory levels consistent with anticipated
customer demand. In addition, at the request of several of its customers, the
Company has entered into arrangements to maintain certain of its finished goods
inventory at various locations of such customers. Although the Company believes
these arrangements facilitate sales to its customers, they result in higher
levels of inventory than are necessary in the absence of such arrangements.
Accordingly, there is a risk that the Company's profitability and results of
operations may from time to time be materially and adversely affected by
inventory obsolescence. To procure adequate supplies of certain components, the
Company must regularly make advance commitments to purchase relatively large
quantities of such components. The inability of the Company to incorporate such
components in its products could have a material adverse effect on the Company.

(vii) GOVERNMENT REGULATION

The telecommunications industry is subject to regulation in the United
States, the United Kingdom and other countries. Federal and state regulatory
agencies regulate most of the Company's domestic customers. While such
regulation does not typically affect the Company directly, the effects of such
regulation on the Company's customers may adversely impact the Company's sales
and operating results. For example, the sale of the Company's products may be
affected by the imposition upon certain of the Company's customers of common
carrier tariffs, the taxation of telecommunications services and regulatory
policies affecting terms on which common carriers conduct their business. In
addition, certain countries may have or may develop rules and regulations that
will adversely affect the Company's ability to effectively compete in some
markets. Thus, there is no assurance that markets that are now open to the
Company's products will not be limited by government regulation in the future.

(viii) PROPRIETARY RIGHTS AND RISKS OF THIRD-PARTY CLAIMS OF
INFRINGEMENT

The telecommunications industry is characterized by an increasing
number of patents and frequent litigation based on allegations of patent
infringement. From time to time, third parties may assert exclusive patent,
copyright and other intellectual property rights to technologies which are
important to the Company. While the Company does not believe that its present
products and technology infringe the intellectual property rights of others,
there can be no assurance that third parties will not assert infringement claims
against the Company or that any such assertions will not result in costly
litigation. There can be no assurance that the Company would prevail against any
such claims or that licenses of any third-party intellectual property would be
available to the Company on commercially reasonable terms. In addition, a
substantial number of the Company's products are intended to plug into telephone
network equipment designed and manufactured by third parties, some of which are
competitors of the Company. The design or modification of such equipment so that
it is incompatible with the Company's products could adversely affect the
Company's ability to maintain its current level of, or achieve additional, net
sales. The inability of the Company to develop products for such equipment which
do not infringe the intellectual property rights associated with such equipment,
or to obtain the right to use such intellectual property on commercially
reasonable terms, could have a material adverse effect on the Company. In
addition, any infringement claims or litigation against the Company could have a
material adverse effect on the Company.

(ix) POTENTIAL PRODUCT RECALLS AND WARRANTY EXPENSES

The Company's products are required to meet rigorous standards imposed
by its customers, including written technical requirements and various
mechanical, electrical performance, environmental operating and storage
conditions, and to interface in a complex and changing environment with
telecommunication network equipment produced by numerous other suppliers. In the
event there are material deficiencies or defects in the design or manufacture of
the Company's products or if such products become incompatible with existing
third-party network equipment, the affected products could be subject to a
recall. Although the Company has not experienced any complete recall of a
product from the field in the past, the Company has from time to time agreed to
upgrade certain of its products in response to product design issues raised by
certain of its customers. There can be no assurance that the Company will not
experience a material product recall in the future. Any product recall and
associated negative publicity could have a material adverse effect on the
Company.

<PAGE> 14

(x) POSSIBLE VOLATILITY OF STOCK PRICE

The Company believes factors such as announcements of new products or
technological innovations by the Company or third parties, as well as variations
in the Company's results of operations, gain or loss of significant customers,
legislative or regulatory changes, changes in analysts' estimates, stock market
volatility and other events or factors may cause the market price of the
Company's Common Stock to fluctuate significantly.

ITEM 2. PROPERTIES.

The Company's headquarters and principal administrative, engineering
and manufacturing facilities are located in a facility containing approximately
105,000 square feet located on approximately seven acres of land in St. Charles,
Illinois. The Company leases this building under an operating lease arrangement
which expires on September 30, 2000. The Company has negotiated an extension of
the lease for an additional two years. In March 1997, the Company purchased
22.65 acres of land located in Geneva, Illinois for expansion, but does not yet
have any definitive plan regarding the development of the land in the near
future. In addition, in March 1998, the Company purchased another building in
St. Charles, Illinois which provides 19,800 additional square feet of office and
lab space for marketing and engineering personnel.

Teltrend Limited's principal sales, marketing, administrative and
engineering offices are located in a 16,000 square foot facility in an office
complex in Basingstoke, England under two leases which expire in December 2005.

The Company believes that substantially all of its plants and equipment
are, in general, well maintained and in good operating condition. They are
considered adequate for present needs and are expected to remain adequate for
the foreseeable future.

ITEM 3. LEGAL PROCEEDINGS.

The Company is from time to time involved in various legal proceedings
arising in the ordinary course of its business. In addition, the Company has
from time to time been notified by others who assert exclusive rights to certain
technology. The Company evaluates these claims on a case-by-case basis and
enters into licensing arrangements when it appears necessary or desirable to do
so. The Company believes the resolution of any pending matters will not
materially affect the Company's financial position or results of operations. See
Subparagraph d. (viii) of Item 1 -- "Factors That May Affect Future Results --
Proprietary Rights and Risks of Third-Party Claims of Infringement."

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

No matter was submitted in the fourth quarter of fiscal 1999 to a vote
of security holders, through solicitation of proxies or otherwise.

Pursuant to General Instruction G(3) of Form 10-K and Instruction 3 to Item
401(b) of Regulation S-K, the following information is included as an unnumbered
item in Part I of this Report in lieu of being included in the Definitive Proxy
Statement for the Company's Annual Meeting of Stockholders to be held on
December 2, 1999.

EXECUTIVE OFFICERS OF THE REGISTRANT

HOWARD L. KIRBY, JR., PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHAIRMAN
OF THE BOARD OF DIRECTORS--Mr. Kirby has served as the President, the Chief
Executive Officer and a director of the Company since January 1990. Mr. Kirby
was named Chairman of the Board of Directors in February 1997. Mr. Kirby began
his career in the telecommunications industry in 1962 with Collins Radio Company
(which subsequently became a part of Rockwell International Corporation
("Rockwell") and then part of Alcatel Network Systems, Inc. ("Alcatel")), where
he spent 20 years in various management positions in engineering, marketing and
sales. From 1982 to 1984, Mr. Kirby was the Director of Planning and Business
Development for U.S. Telephone, now part of Sprint Corporation. In 1984, Mr.
Kirby became the Vice President and General Manager at Pulse Communications,
Inc. ("Pulsecom"), a subsidiary of Hubbell Incorporated, and held that position
until he joined the Company in 1990. Mr. Kirby is 63 years old.

STEVEN R. SNOW, SENIOR VICE PRESIDENT, SALES AND STRATEGIC
MARKETING--Mr. Snow joined the Company in June 1999. He has 26 years of
experience in the telecommunications industry, beginning in 1973 when he joined
Collins Radio, which subsequently became part of Rockwell and then part of
Alcatel, as an engineer/scientist. Over his career, Mr. Snow has held management
positions in product definition, marketing, customer service, and sales. For the
past

<PAGE> 15

seven years, he held the position of Regional Vice President of Sales and
Customer Service for several Regional Bell Operating Accounts at Alcatel. Mr.
Snow is 52 years old.

DOUGLAS P. HOFFMEYER, SENIOR VICE PRESIDENT, FINANCE, CHIEF FINANCIAL
OFFICER, SECRETARY AND TREASURER--Mr. Hoffmeyer joined the Company in 1986 and
has served as the Company's Vice President, Finance, Secretary and Treasurer
since 1988. In October 1998, Mr. Hoffmeyer was appointed Senior Vice President,
Finance, Chief Financial Officer, Secretary and Treasurer. Mr. Hoffmeyer began
his career in 1969 with the public accounting firm of Arthur Andersen & Co.,
where he remained for five years before joining a Chicago-area accounting firm
as a partner. Mr. Hoffmeyer is 52 years old.

JACK C. PARKER, SENIOR VICE PRESIDENT, ENGINEERING & MARKETING--Mr.
Parker joined the Company in September 1996 as the Company's Vice
President/General Manager, VF/DLC Products. In May 1997, Mr. Parker was also
made Vice President/General Manager, T1/Wireless Products, in addition to the VF
and DLC Products. In June 1998, Mr. Parker was appointed Vice President/General
Manager of T1/HDSL Products. In October 1998, Mr. Parker was appointed Senior
Vice President/General Manager of High Capacity Communications Products. In July
1999, Mr. Parker was appointed Senior Vice President, Engineering & Marketing.
Mr. Parker began his career with Harris Corporation's Aerospace Group in 1969.
From 1972 to 1980, Mr. Parker was employed by General Electric's
Telecommunications Division (which was later acquired by Wescom Telephone
Products ("Wescom"), which was, in turn, later acquired by Rockwell), where he
served as an electronic design engineer and supervisor. In 1980, Mr. Parker
joined Tellabs Inc. as the Manager of Digital Processing. In 1985, Mr. Parker
joined Pulsecom as a Vice President of Engineering, before returning to Harris
Corporation as the Vice President of the Loop Systems Business Unit of the
Dracon division and later as the Vice President of Engineering. Most recently,
Mr. Parker was the Vice President of Engineering and Marketing at Canoga
Perkins, a division of Inductotherm Inc. Mr. Parker is 53 years old.

MICHAEL S. GRZESKOWIAK, VICE PRESIDENT, OPERATIONS--Mr. Grzeskowiak has
served as the Company's Vice President, Operations since February 1990. He began
his career as an engineer at Western Electric Company (now Lucent) in 1967,
supporting the factory and field installations for switching systems. In 1975,
he joined Wescom where he held various positions, including Director of
Manufacturing, Director of Production Operations and Director of Manufacturing
Planning, until he joined the Company in 1990. Mr. Grzeskowiak is 54 years old.

GILBERT H. HOSIE, VICE PRESIDENT, SALES--Mr. Hosie served as Vice
President, RBOC Sales from March 1997 to June 1999. In June 1999, he was
appointed Vice President, Sales. Mr. Hosie began his career as a technician for
New York Telephone Company in 1964. In 1969, he became District Sales Manager
for General Electric Company and held that position for six years. In 1975, Mr.
Hosie joined the Wescom division of Rockwell as its Midwest Regional Manager and
remained at Wescom until 1985. Mr. Hosie joined the Company in 1985 and served
in various sales and marketing positions until he was elected to serve as the
Company's Vice President, Sales in August 1994. Mr. Hosie is 58 years old.

LAURENCE L. SHEETS, VICE PRESIDENT, BUSINESS DEVELOPMENT AND CHIEF
TECHNICAL OFFICER--Mr. Sheets served as the Company's Vice President and Chief
Technical Officer from March 1997 to July 1999. In July 1999, he was appointed
Vice President, Business Development and Chief Technical Officer. Mr. Sheets
joined Bell Telephone Laboratories ("Bell Labs") as a member of its technical
staff in 1966 and left in 1984 as a Distinguished Member of Technical Staff. At
that time, Mr. Sheets joined Rockwell (Wescom) where he held various progressive
positions, including Manager and later Director of Advanced Technology as well
as Director of Engineering. From January 1991 to July 1996, Mr. Sheets was the
Vice President, Engineering for the Company. Mr. Sheets is 56 years old.

JANICE LOLLINI, ASSISTANT VICE PRESIDENT, HUMAN RESOURCES--Ms. Lollini
joined Teltrend in 1995 as Director of Human Resources. In October 1998, Ms.
Lollini was appointed Assistant Vice President, Human Resources. She has fifteen
years experience in management in the field of human resources, working for both
sales and manufacturing organizations, most recently with World Book Educational
Products. Ms. Lollini's career began in education, where she taught and worked
as a counselor at the college level. Ms. Lollini is 55 years old.

THEODOR A. MAXEINER, CHIEF ACCOUNTING OFFICER, ASSISTANT VICE
PRESIDENT, FINANCE, CONTROLLER, ASSISTANT SECRETARY, AND ASSISTANT
TREASURER--Mr. Maxeiner joined the Company as its Accounting Manager in 1985 and
has served as the Company's Controller, Assistant Secretary and Assistant
Treasurer since 1988. In May 1997, Mr. Maxeiner became the Chief Accounting
Officer. Mr. Maxeiner is 54 years old.

MICHAEL A. SAMOCKI, ASSISTANT VICE PRESIDENT, QUALITY--Mr. Samocki
joined Teltrend in 1988 as Senior Quality Engineer. From September 1995 to
November 1997 he was the Company's In-Process Quality Manager. He has served as
the Company's Assistant Vice President, Quality since November 1997. Mr. Samocki
began his career

<PAGE> 16

as a quality professional in 1980 at Shure Electronics, and has subsequently
held quality staff positions at Mylstar Inc. and Williams Electronics,
manufacturers of electronic amusement arcade games. Mr. Samocki has been in the
telecommunications industry since 1985 after being employed by Reliable Electric
Utility Products (now RELTEC Corporation) at which he held quality management
and quality engineering positions. Mr. Samocki is 47 years old.

MICHAEL BURGESS, MANAGING DIRECTOR OF TELTREND LIMITED--Mr. Burgess
has served as Managing Director of Teltrend Limited (formally Securicor 3net
Limited) since November 1996 (and was made an officer of Teltrend Inc. in
October 1998), having joined the company as Operations Director in July 1994.
Mr. Burgess began his career as a telecommunications technician in 1961 with
A.E.I. Ltd. In 1967, he commenced his data communications career after joining
R.C.A. as a field service engineer. After joining SCICON in 1973 as a field
service engineer and having installed the company's data communications network,
he became associated with MICOM and was employed in a variety of roles. In 1988,
he was appointed Managing Director of Micom-Borer until it was acquired by
Tricom in 1989, at which time he was appointed Operations Director. In 1992, he
joined Black Box as the International Product Marketing Director, and
subsequently joined Securicor 3net. Mr Burgess is 54 years old.

PART II

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

The Market for Company's Securities and Related Matters contained on
page 55 of the Company's Annual Report to Stockholders for the fiscal year ended
July 31, 1999 is incorporated herein by reference.

ITEM 6. SELECTED FINANCIAL DATA.

The five-year Selected Historical Financial Data and accompanying notes
contained on pages 24-25 of the Company's Annual Report to Stockholders for the
fiscal year ended July 31, 1999 are incorporated herein by reference.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

Management's Discussion and Analysis of Financial Condition and Results
of Operations contained on pages 26 through 36, inclusive, of the Company's
Annual Report to Stockholders for the fiscal year ended July 31, 1999 is
incorporated herein by reference.

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

Quantitative and Qualitative Disclosures About Market Risk contained on
page 36 of the Company's Annual Report to Stockholders for the fiscal year ended
July 31, 1999 is incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

a. The table presenting unaudited quarterly financial data for the
Company for the fiscal years ended July 31, 1999 and July 25, 1998 contained on
page 53 of the Company's Annual Report to Stockholders for the fiscal year ended
July 31, 1999 is incorporated herein by reference.

b. The report of independent auditors, financial statements and notes
to financial statements of the Company contained on pages 37 through 54,
inclusive, of the Company's Annual Report to Stockholders for the fiscal year
ended July 31, 1999 are herein incorporated by reference.

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

There were no disagreements on any matters of accounting principles or
financial statement disclosure with the Company's independent accountants in
fiscal 1999 or 1998.

<PAGE> 17

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The section entitled "Election of Directors" contained in the Company's
Definitive Proxy Statement for the Annual Meeting of Stockholders to be held on
December 2, 1999 is incorporated herein by reference. The section entitled
"Executive Officers of the Registrant" appearing immediately after Part I of
this Report is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION.

The section entitled "Executive Compensation" contained in the Company's
Definitive Proxy Statement for the Annual Meeting of Stockholders to be held on
December 2, 1999 is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The section entitled "Security Ownership of Certain Beneficial Owners and
Management" contained in the Company's Definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on December 2, 1999 is incorporated herein by
reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

None.

PART IV

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

a. (1) Financial Statements

The following financial statements of the Company, included in the
Company's Annual Report to Stockholders for the fiscal year ended July 31, 1999,
are incorporated by reference in Part II, Item 8 of this Report.

Consolidated Balance Sheets as of July 31, 1999 and July 25, 1998

Consolidated Statements of Income for the years ended July 31, 1999, July 25,
1998 and July 26, 1997

Consolidated Statements of Stockholders' Equity for the years ended July 31,
1999, July 25, 1998 and July 26, 1997

Consolidated Statements of Cash Flows for the years ended July 31, 1999, July
25, 1998 and July 26, 1997

Notes to Financial Statements

(2) Financial Statement Schedules

Schedules are omitted because of the absence of the conditions under
which they are required or because the information called for is included in the
consolidated financial statements or notes thereto.

(3) Exhibits

<PAGE> 18

EXHIBIT INDEX

Exhibit
Number Description
- ------ -----------
2 None.

3.1 Restated Certificate of Incorporation of Registrant, as
amended.(11)

3.2 Amended and Restated Bylaws of the Registrant.(2)

3.3 Certificate of Designation of Series A Junior Participating
Preferred Stock, filed January 23, 1997.(11)

4.1 Specimen form of Common Stock certificate.(2)

4.2 Articles Fourth, Seventh, Eighth, Tenth and Twelfth of the
Restated Certificate of Incorporation of the Registrant, as
amended (incorporated by reference to the Restated Certificate of
Incorporation included in Exhibit 3.1 herewith).

4.3 Articles I, II (Sections 1 and 3), IV (Sections 1 through 6), V
(Section 3) and VI of the Amended and Restated Bylaws of the
Registrant (incorporated by reference to the Amended and Restated
Bylaws included in Exhibit 3.2 herewith).

4.4 Credit Agreement between the Registrant and LaSalle National Bank,
dated June 14, 1995.(1)

4.5 Rights Agreement between the Registrant and LaSalle National Bank,
as Rights Agent, dated January 16, 1997.(6)

4.6 Form of Rights Certificate (incorporated by reference to Exhibit B
to the Rights Agreement included in Exhibit 4.5 herewith).

4.7 Amendment No. 1 to Rights Agreement, dated June 1, 1998, between
the Registrant and LaSalle National Bank, as rights agent.(10)

4.8 First Amendment to Credit Agreement, dated June 30, 1998, between
the Registrant and LaSalle National Bank.(12)

9 None.

*10.1 Indemnification Agreement, dated June 8, 1995, between the
Registrant and Howard L. Kirby, Jr.(1)

*10.2 Schedule of each of the directors and executive officers of the
Registrant with whom the Registrant has entered into an
Indemnification Agreement.(7)

*10.3 Teltrend Inc. 1995 Stock Option Plan.(2)

*10.4 Form of Nonqualified Stock Option Agreement under the Teltrend
Inc. 1995 Stock Option Plan.(1)

*10.5 Schedule of Nonqualified Stock Option Agreements which have been
entered into by directors or executive officers of the
Registrant.(7)

*10.6 TI Investors Inc. Stock Option Plan.(2)

*10.7 Forms of Nonqualified Stock Option Agreement under the TI
Investors Inc. Stock Option Plan, dated August 1, 1994, between
Donald G. Bozeman, together with Amended and Restated Nonqualified
Stock

<PAGE> 19

Option Agreement under the TI Investors Inc. Stock Option Plan,
dated May 13, 1994, between the Registrant and Donald G.
Bozeman.(1)

*10.8 Teltrend Inc. 1997 Non-Employee Director Stock Option Plan.(5)

*10.9 Amended and Restated Stock Option Agreements, dated May 13, 1994,
between the Registrant and Gilbert H. Hosie.(1)

10.10 Registration Rights and Lock-Up Agreement between the Registrant,
The Prudential Insurance Company of America, Pruco Life Insurance
Company, AEA Investors Inc. and Stockholders of the Registrant
prior to consummation of the Registrant's initial public
offering.(1)

10.11 Lease, dated April 22, 1983, between CMD Corporation and the
Registrant, together with First Amendment to Lease, dated August
9, 1985, between Morgan Guaranty Trust Company of New York and the
Registrant and Memorandum of Lease, First Amendment to Lease and
Ratification of First Amendment to Lease, dated August 29,
1988.(2)

10.12 Second Amendment to Lease, dated September, 1995, between Morgan
Guaranty Trust Company of New York and the Registrant.(4)

10.13 Real Estate Sale Agreement, dated August 20, 1996, between the
Registrant and Itasca Bank & Trust Co., as Trustee under Trust
Agreement dated June 29, 1992 and known as Trust No. 11038 and The
Kautz Road Business Park Joint Venture.(7)

*10.14 Teltrend 1996 Stock Option Plan.(9)

10.15 Share Purchase Agreement among Security Services PLC, Securicor
Communications Limited, 3 Net Holdings Limited, Securicor 3 Net
Limited and Teltrend Inc.(3)

10.16 Third Amendment to Lease between Morgan Guaranty Trust Company of
New York and the Registrant.(12)

10.17 Fourth Amendment to Lease, dated July 2, 1998, between Morgan
Guaranty Trust Company of New York and the Registrant.(12)

11 None.

12 None.

13 1999 Annual Report to Stockholders.

16 None.

18 None.

21 Subsidiaries of Teltrend Inc.

23 Consent of Ernst & Young LLP.

24 None.

27 Financial Data Schedule.

99 None.

<PAGE> 20

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

(1) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarterly period ended April 29, 1995 (Commission File No.
0-26114).

(2) Incorporated by reference to the Registrant's Registration Statement on
Form S-1, as amended (Registration No. 33-91104), originally filed with the
Securities and Exchange Commission April 11, 1995.

(3) Incorporated by reference to the Registrant's Current Report on Form 8-K
dated September 18, 1997 (Commission File No. 0-26114).

(4) Incorporated by reference to Registrant's Report on Form 10-K for the
fiscal year ended July 29, 1995 (Commission File No. 0-26114).

(5) Incorporated by reference to the Registrant's Definitive Proxy Statement
for the Annual Meeting of Stockholders held on December 11, 1997 (Commission
File No. 0-26114).

(6) Incorporated by reference to the Registrant's Current Report on Form 8-K
dated January 16, 1997 (Commission File No. 0-26114).

(7) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended July 27, 1996 (Commission File No. 0-26114).

(8) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarterly period ended January 27, 1996 (Commission File No.
0-26114).

(9) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarterly period ended April 26, 1997 (Commission File No.
0-26114).

(10) Incorporated by reference to the Registrant's Current Report on Form 8-K
dated June 1, 1998 (Commission File No. 0-26114).

(11) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended July 26, 1997 (Commission File No. 0-26114).

(12) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended July 25, 1998 (Commission File No. 0-26114).

* Indicates a management contract or compensatory plan or arrangement required
to be filed as an exhibit to this Report pursuant to Item 14(c).

TELTREND INC. WILL FURNISH ANY OF THE ABOVE EXHIBITS TO ITS
STOCKHOLDERS UPON WRITTEN REQUEST ADDRESSED TO THE SECRETARY AT THE ADDRESS
GIVEN ON THE COVER PAGE OF THIS FORM 10-K. THE CHARGE FOR FURNISHING COPIES OF
THE EXHIBITS IS $.25 PER PAGE, PLUS POSTAGE.

b. Report on Form 8-K

None.

This report contains the following trademarks of the Company, some of
which are registered: Teltrend and CellPak. Any other product or brand names are
trademarks, registered trademarks or service marks of their respective
companies.

<PAGE> 21

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, on October 22, 1999.

TELTREND INC.

By /s/ Howard L. Kirby, Jr.
-----------------------------------
Howard L. Kirby, Jr.
President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons on behalf of the Registrant
in the capacities indicated on October 22, 1999.

<TABLE>
<CAPTION>
SIGNATURE CAPACITY
<S> <C>
/s/ Howard L. Kirby, Jr. President and Chief Executive Officer and Chairman of
- ---------------------------------- the Board of Directors
Howard L. Kirby, Jr. (Principal Executive Officer)

/s/ Douglas P. Hoffmeyer Sr. Vice President, Finance, Chief Financial Officer,
- ---------------------------------- Secretary and Treasurer (Principal Financial Officer)
Douglas P. Hoffmeyer

/s/ Theodor A. Maxeiner Chief Accounting Officer, Assistant Vice President,
- ---------------------------------- Finance, Controller, Assistant Secretary and Assistant
Theodor A. Maxeiner Treasurer (Principal Accounting Officer)

/s/ Frank T. Cary
- ----------------------------------
Frank T. Cary Director

/s/ Harry Crutcher, III
- ----------------------------------
Harry Crutcher, III Director

/s/ William R. Delk
- ----------------------------------
William R. Delk Director

- ----------------------------------
Donald R. Hollis Director

- ----------------------------------
Susan B. Major Director

- ----------------------------------
Bernard F. Sergesketter Director
</TABLE>

<PAGE> 22

EXHIBIT INDEX

Exhibit
Number Description
- ------ -----------
2 None.

3.1 Restated Certificate of Incorporation of Registrant, as
amended.(11)

3.2 Amended and Restated Bylaws of the Registrant.(2)

3.3 Certificate of Designation of Series A Junior Participating
Preferred Stock, filed January 23, 1997.(11)

4.1 Specimen form of Common Stock certificate.(2)

4.4 Credit Agreement between the Registrant and LaSalle National Bank,
dated June 14, 1995.(1)

4.5 Rights Agreement between the Registrant and LaSalle National Bank,
as Rights Agent, dated January 16, 1997.(6)

4.6 Form of Rights Certificate (incorporated by reference to Exhibit B
to the Rights Agreement included in Exhibit 4.5 herewith).

4.7 Amendment No. 1 to Rights Agreement, dated June 1, 1998, between
the Registrant and LaSalle National Bank, as rights agent.(10)

4.8 First Amendment to Credit Agreement, dated June 30, 1998, between
the Registrant and LaSalle National Bank.(12)

9 None.

*10.1 Indemnification Agreement, dated June 8, 1995, between the
Registrant and Howard L. Kirby, Jr.(1)

*10.2 Schedule of each of the directors and executive officers of the
Registrant with whom the Registrant has entered into an
Indemnification Agreement.(7)

*10.3 Teltrend Inc. 1995 Stock Option Plan.(2)

*10.4 Form of Nonqualified Stock Option Agreement under the Teltrend
Inc. 1995 Stock Option Plan.(1)

*10.5 Schedule of Nonqualified Stock Option Agreements which have been
entered into by directors or executive officers of the
Registrant.(7)

*10.6 TI Investors Inc. Stock Option Plan.(2)

<PAGE> 23

Option Agreement under the TI Investors Inc. Stock Option Plan,
dated May 13, 1994, between the Registrant and Donald G.
Bozeman.(1)

*10.8 Teltrend Inc. 1997 Non-Employee Director Stock Option Plan.(5)

*10.9 Amended and Restated Stock Option Agreements, dated May 13, 1994,
between the Registrant and Gilbert H. Hosie.(1)

10.12 Second Amendment to Lease, dated September, 1995, between Morgan
Guaranty Trust Company of New York and the Registrant.(4)

*10.14 Teltrend 1996 Stock Option Plan.(9)

10.15 Share Purchase Agreement among Security Services PLC, Securicor
Communications Limited, 3 Net Holdings Limited, Securicor 3 Net
Limited and Teltrend Inc.(3)

10.16 Third Amendment to Lease between Morgan Guaranty Trust Company of
New York and the Registrant.(12)

10.17 Fourth Amendment to Lease, dated July 2, 1998, between Morgan
Guaranty Trust Company of New York and the Registrant.(12)

11 None.

12 None.

13 1999 Annual Report to Stockholders.

16 None.

18 None.

21 Subsidiaries of Teltrend Inc.

23 Consent of Ernst & Young LLP.

24 None.

27 Financial Data Schedule.

99 None.

<PAGE> 24