UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                            ------------------------

                                    FORM 10-K

 Annual report  pursuant to Section 13 or 15(d) of the Securities  Exchange Act
 of 1934 for the fiscal year ended June 25, 1999

 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: 0-25684

                          PREMISYS COMMUNICATIONS, INC.
             (Exact name of registrant as specified in its charter)

                     Delaware                            94-3153847
          (State or other jurisdiction                 (I.R.S. Employer
        of incorporation or organization)            Identification No.)

    48664 Milmont Drive, Fremont, California                94538
    (Address of principal executive offices)              (Zip code)

       Registrant's telephone number, including area code: (510) 353-7600

           Securities registered pursuant to Section 12(b) of the Act:
                                      None

           Securities registered pursuant to Section 12(g) of the Act:
                          Common Stock, $0.01 par value
                                (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 for 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  the  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

      The aggregate market value of the voting stock held by  non-affiliates of
the registrant as of August 31, 1999, was approximately $163,993,000.

      As of August 31, 1999,  Registrant had outstanding  24,191,963 shares of
Common Stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the Company's  definitive proxy statement to be filed with the
Securities and Exchange Commission relative to the Company's 1998 annual meeting
of stockholders are incorporated by reference in Part III of this Form 10-K.


<PAGE>


                          PREMISYS COMMUNICATIONS, INC.
                                ANNUAL REPORT ON
                                    FORM 10-K
                        For the Year Ended June 25, 1999

                                TABLE OF CONTENTS
Form 10-K                          Name of Item
 Item No.                                                                   Page

  PART I

Item 1     Business                                                           3
Item 2     Properties                                                         17
Item 3     Legal Proceedings                                                  17
Item 4     Submission of Matters to a Vote of Security Holders                17

 PART II

Item 5     Market for the  Registrant's  Common Equity and Related
           Stockholder Matters                                                18
Item 6     Selected Financial Data                                            19
Item 7     Management's  Discussion and Analysis of Financial Condition and
           Results of Operations                                              21
Item 7A    Quantitative and Qualitative Disclosures About Market Risk         31
Item 8     Financial Statements and Supplementary Data                        32
Item 9     Changes in and Disagreements with Accountants on Accounting and
           Financial Disclosure                                               32

 PART III
Item 10    Directors and Executive Officers of the Registrant                 49
Item 11    Executive Compensation                                             49
Item 12    Security Ownership of Certain Beneficial Owners and Management     49
Item 13    Certain Relationships and Related Transactions                     49

 PART IV
Item 14    Exhibits, Financial Statement Schedules and Reports on Form 8-K    49
Signatures                                                                    54





                                        -----------

      Premisys(R) is a registered trademark of the Company.  This Form 10-K also
includes trade names and trademarks of other companies.

<PAGE>


                                        PART I

Item 1.  Business

      This Form 10-K contains  forward-looking  statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended,  and Section 27A
of the  Securities  Act of 1933, as amended.  These  forward-looking  statements
involve a number of risks and uncertainties which are described  throughout this
Form 10-K,  including:  demand  from and its  relationships  with its  strategic
partners and major customers,  including ADC  Telecommunications  ("ADC"),  AT&T
Local Services ("ALS") formerly Teleport  Communications Group,  Motorola,  Inc.
("Motorola"),  Paradyne  Corporation  ("Paradyne") and XEL Communications,  Inc.
("XEL");   limited  order  backlog  and  quarterly   fluctuations;   delays  and
cancellations of actual and projected customer orders;  new product  development
and introductions by the Company and its competitors including products based on
the technology  licensed by the Company from Positron Fiber Systems  Corporation
("Positron") and Switched  Network  Technologies  ("SNT");  deregulation of, and
legislation   regarding  the  domestic  and   international   telecommunications
industry;  continued success of competitive local exchange carriers ("CLECs") in
taking market share from incumbent carriers in the U.S. business  communications
services  market;  market  acceptance  of the  SlimLine,  StreamLine  and  Q-155
products;  rapidly changing technologies and the Company's ability to respond to
them;  the growth of demand for  telecommunications  services  such as wireless,
cellular  and the  Internet;  competition;  changes  in the mix of  products  or
customers or in the level of operating  expenses;  and other  factors  described
throughout this Form 10-K,  including  under  "Revenues" and "Other Factors That
May Affect Future  Operating  Results" in Item 7,  "Management's  Discussion and
Analysis of Financial  Condition and Results of Operations",  of this Form 10-K.
The actual  results  that the Company  achieves may differ  materially  from any
forward-looking statements due to such risks and uncertainties.  The Company has
identified,  using asterisks (*) (italics in the non-EDGAR  version of this Form
10-K),   various   sentences   within   this  Form  10-K  which   contain   such
forward-looking  statements,  and  words  such  as  "believes",   "anticipates",
"expects",   "intends"  and  similar   expressions   are  intended  to  identify
forward-looking statements, but these are not the exclusive means of identifying
such statements. In addition, the section labeled "Other Factors That May Affect
Future  Operating  Results" in Item 7 of this Form 10-K,  which does not include
asterisks  (italics  in the  non-EDGAR  version of this Form 10-K) for  improved
readability,  consists  primarily of  forward-looking  statements and associated
risks.  The  Company  undertakes  no  obligation  to revise any  forward-looking
statements in order to reflect events or circumstances  that may arise after the
date of this  report.  Readers are urged to  carefully  review and  consider the
various  disclosures  made by the  Company in this  report and in the  Company's
other reports filed with the Securities and Exchange  Commission that attempt to
advise interested parties of the risks and factors that may affect the Company's
business.

Overview

      Premisys  Communications,  Inc.  (the  "Company" or  "Premisys")  designs,
manufactures  and markets  integrated  access  products  for  telecommunications
service  providers.  The Company  pioneered the integrated access device ("IAD")
equipment  market with the  introduction  of the first of a family of integrated
multiple access communications  systems ("IMACS") products in December 1991. The
IMACS products are designed to enable public  carriers to provide their business
customers   with    flexible,    cost-effective    and   reliable    access   to
telecommunications  services.  The IMACS  products  provide  access to  numerous
services,  including plain old telephone service ("POTS"), Centrex, digital data
networks ("DDN"),  integrated  services digital networks ("ISDN"),  frame relay,
and  asynchronous  transfer mode ("ATM")  services.  The IMACS  platform  allows
carriers to offer a variety of value-added services,  switching technologies and
transmission  technologies to their business  customers  through a single access
device.  The IMACS  products'  modular design and  standards-based  architecture
enable carriers to offer advanced  telecommunications  services more quickly and
cost-effectively  than  single  purpose  access  equipment  and to  enhance  the
manageability of their networks.  In fiscal 1998, the Company introduced two new
integrated  access  products,  the SlimLine and the  StreamLine,  which  address
simpler,  single T1  access  applications,  and,  in fiscal  1999,  the  Company
introduced the Q-155  broadband IAD that combines  Synchronous  Optical  Network
("SONET")/Synchronous  Digital  Hierarchy  ("SDH"),  time division  multiplexing
("TDM") and ATM technologies in a single platform.

      The Company's  products are distributed and serviced  worldwide  primarily
through strategic distribution relationships with significant telecommunications
equipment   vendors.   The  Company  considers  its  relationships   with  these
telecommunications  equipment  suppliers to be strategic in that they enable the
Company to gain access to public carriers worldwide,  to establish the Company's
products as  essential  value added  elements of the public  carriers'  business
communications   solutions  and,  in  some  cases,  to  incorporate  proprietary
technology into the IMACS products. The Company's products are typically sold as
access  components of the suppliers'  communications  equipment  solutions.  The
Company's  strategic  distribution  relationships,  from which the  Company  has
derived most of its revenues to date,  include ADC, ALS,  Motorola and Paradyne.
To a lesser degree the Company also sells its products  directly to carriers and
end user customers and through value-added reseller relationships.

     Premisys Communications,  Inc. was incorporated in California in July 1990,
and Premisys  Communications Pte. Ltd. was incorporated in August 1990 under the
laws of Singapore to be its parent. Premisys  Communications  Holdings, Inc. was
incorporated  in  California  in January 1992 to serve as a holding  company for
both Premisys  Communications Pte. Ltd. and Premisys  Communications,  Inc. This
reorganization  was completed in March 1992.  Premisys  Communications,  Inc., a
Delaware  corporation,  was  incorporated  in  October  1994 to be the  Delaware
successor  corporation to the California  corporations  Premisys  Communications
Holdings, Inc. and Premisys  Communications,  Inc. The Delaware  reincorporation
was  effected  in March  1995.  As a  result  of the  reincorporation,  Premisys
Communications  Holdings, Inc. and Premisys  Communications,  Inc., a California
corporation,  merged with and into  Premisys  Communications,  Inc.,  a Delaware
corporation,  and Premisys  Communications Pte. Ltd. and Premisys Communications
Limited,  a  United  Kingdom  corporation   incorporated  in  May  1994,  became
wholly-owned  subsidiaries of the Delaware  corporation.  The Company also has a
wholly owned Canadian  subsidiary  formed in July 1997. The Company's  principal
executive offices are located at 48664 Milmont Drive, Fremont, California 94538,
and its telephone number is (510) 353-7600.

Background

Industry Trends

The market for  telecommunications  products  and  services is changing  rapidly
because of  deregulation  and resulting  competition,  evolving  requirements of
business  communications,  the drive for higher capacity and more cost-effective
technologies and services,  and the shift from private to public  networks.  The
resulting proliferation of value-added services and technologies has created the
need for  solutions  that  permit  carriers'  business  customers  to access the
variety of telecommunications services provided by these carriers.

Deregulation  and  Resulting  Competition.   Deregulation  and  competition  are
accelerating throughout the worldwide  telecommunications industry. In 1984, the
United States government  deregulated the domestic  telecommunications  industry
and forced AT&T Corporation ("AT&T") to divest its monopoly and create the seven
regional  bell  operating  companies  ("RBOCs").  Since  that  time,  continuing
domestic deregulation,  including the Telecommunications Reform Act of 1996, has
led to fierce  competition  for the  provision  of both long  distance and local
telecommunications  services.  In the long distance market,  MCI WorldCom,  Inc.
("MCI WorldCom"),  U.S. Sprint Communications Company ("Sprint") and others have
emerged as  competitors  to AT&T. In regional and local  markets,  the incumbent
local exchange carriers ("ILECs") are facing stiff and intensifying  competition
from a variety of competitive  access providers and CLECs,  such as MCI WorldCom
and ALS, formerly Teleport Communications Group Inc. ("Teleport"). Over the last
several years, many new CLECs have been formed,  have raised substantial capital
to build new networks and have focused on servicing  commercial  customers.  The
international   market  is  also  opening  up  as  a  result  of   deregulation,
privatization and the presence of new wireline and wireless Alternative Carriers
( the international equivalent of CLECs). The intense competition resulting from
the deregulation of these markets requires carriers to differentiate  themselves
by  offering   enhanced   value-added   services   based  on  new  and  emerging
technologies.

Evolving Requirements of Business  Communications.  In recent years,  businesses
have become increasingly  dependent on the flow of voice, data and video through
various    telecommunications    systems.    This   increased    dependence   on
telecommunications  has resulted from several business trends: the growth of the
Internet, the shift to client/server  computing;  the increase in local area and
wide area  networking;  the demand for new  telecommunications  services such as
video  conferencing;  and the increase in cellular  telephone  and facsimile use
nationally and  internationally.  In addition,  businesses  have expanded beyond
their  traditional  corporate  walls to include remote sales offices,  employees
working at home,  mobile  offices and far-flung  customers and  suppliers.  As a
result,  these  businesses  require  telecommunications  services  that  provide
significantly  higher  bandwidth,  the flexibility to choose among services with
varying bandwidth and the ability to access such services from remote locations.

 Drive for New Technologies and Services. The changing  communications  patterns
of business users and the fierce  competition among carriers have fueled a drive
for technologies that allow carriers to provide additional  value-added services
and to effectively deliver a growing portion of communications services based on
packet-switched networks.  Carriers are under pressure to invest aggressively in
new   technologies   that   can   deliver   services   quickly,   reliably   and
cost-effectively.   Having   invested   in  new   switching   and   transmission
technologies,  many  carriers  have  initiated  aggressive  programs  focused on
expanding   their  access   infrastructure   to  broadly  deliver  new  services
efficiently.  In  addition,  carriers  are  offering a range of services  (e.g.,
Internet access,  ISDN, LAN  interconnection,  video  conferencing) on a bundled
basis to their business  subscribers,  and integrated access devices  facilitate
these offerings.  Bundled services give business  subscribers  turnkey solutions
that free them from the burden of managing their own private networks,  and they
often provide higher margins to carriers than other services.

 The Shift  from  Private  to Public  Networks.  During  the  1980s,  most large
corporations  established and maintained  their own private networks to transmit
voice and data because the data transmission services offered by public carriers
were limited and expensive. To build these private networks, corporations leased
transmission lines from the public carriers at fixed monthly rates and purchased
vendor-specific  networking  equipment.  However,  these  corporations  are  now
increasingly  favoring  public  carrier  services as  traditional  and  emerging
carriers have improved the price,  performance and range of services they offer.
Corporations  are also seeking to shift to the carriers the costs and burdens of
maintaining  the  network  infrastructure  and the  risks  of  investing  in new
technologies in the absence of a single technological standard.

Access to Telecommunications Services

In response to the industry  trends  described  above,  new and emerging  public
carriers are aggressively  investing in switching and transmission  technologies
to  construct  new  and  to  upgrade   existing   telecommunications   networks.
Telecommunications  equipment suppliers are offering more sophisticated  central
office  switching  equipment that enables  carriers to provide new,  value-added
services. In addition, carriers are upgrading to fiber optic networks to provide
additional bandwidth to their customers. Traditionally,  customer access to data
and voice services had been provided by multiple  single purpose access devices.
This  solution  was adequate  until  recently  because only a limited  number of
services  were offered.  However,  with the  proliferation  of new switching and
transmission  technologies and services,  the traditional approach for accessing
carrier services via separate devices resulted in a very complex access solution
that was  expensive,  consumed  valuable  space and was  difficult to manage and
maintain.

      The diagram below illustrates the complexity of having numerous  dedicated
discrete access devices.

         [Diagram of Inegrated Access Solution-OBJECT OMITTED]

      The need has  developed  for a new  generation  of access  equipment  that
enabled   carriers  to  provide  their   business   customers   with   flexible,
cost-effective  and reliable access to the increasing number of available public
carrier services  without  requiring a different access device on the customer's
premises for each  technology or type of service.  Accordingly,  public carriers
are looking for access devices that:

      o Integrate  circuit,  packet and cell switching  technologies and support
wireless,  fiber  optic  cable,  coaxial  cable  and  copper  wire  transmission
technologies;

      o Accommodate  a variety of different  business  communications  equipment
types  (such as PBXs,  LAN  routers,  automatic  call  distribution  devices and
modems) at end-user locations;

      o Operate  within the carrier's  existing  network  management  system for
operations, administration, maintenance and provisioning;

      o Have the  flexibility  and open  architecture  to  accommodate  both the
requirements of existing installed equipment and the technology  developments of
the future; and

      o Are  reliable,  easy to  maintain  and can be  configured  and  serviced
remotely.

Such devices would  facilitate  faster  connections  to new services as they are
offered and reduce the carriers' costs of providing these services.

The Premisys Solution

      Since 1990,  Premisys has been  involved in developing  integrated  access
devices that would enable public  carriers to provide their  business  customers
flexible,   cost-effective   and   reliable   access  to   present   and  future
telecommunications  technologies and services. The diagram below illustrates the
advantages of a single IAD compared to the approach  shown above using  numerous
dedicated discrete access devices.

                     [picture of integrated access solution]

      The  Company's  IADs are  designed to serve as a single  connection  point
between a broad variety of carrier services,  such as ISDN, frame relay and ATM,
as well as various business communications equipment types, such as PBXs and LAN
routers. The Company designs its products with high levels of system redundancy,
ease-of-maintenance  and hardware  safety to conform to established  reliability
and maintenance standards,  practices and processes.  Premisys has four distinct
IADs covering a wide range of needs and  applications.  The  Company's  flagship
product was the IMACS. The architecture of the IMACS product line is designed to
permit  integrated  access  to a  wide  variety  of  voice  and  data  services,
independent  of  the  carriers'  switching  or  transmission  technologies.  The
modular,  software-based  design of the IMACS product allows carriers to upgrade
easily  to new  communications  services  as they  become  available.  The IMACS
product  can be  managed  remotely  and  have  remote  testing,  monitoring  and
diagnostic  features that allow carriers to minimize  expensive  on-site testing
and trouble shooting.  In addition,  the Company's IMACS products provide access
to network  management  information,  such as line performance,  traffic volume,
configuration  and alarm data,  to the  carriers'  existing  network  management
systems.  The IMACS product is based on open industry standards for multi-vendor
interoperability and enables carriers to deliver a comprehensive set of services
without building proprietary overlay networks or management systems.

      In fiscal  1998,  Premisys,  in response to a growing  demand for smaller,
lower-cost  IADs,  introduced  two new IADs with more limited  feature sets, the
StreamLine and the SlimLine.  The StreamLine product is a scaled down version of
the IMACS product.  It is an IAD designed for deployment of multiple services at
small  business  locations.  Using a single T1/E1 access  line,  the  StreamLine
product has expansion slots for up to 4 IMACS  compatible  voice,  data, ISDN or
frame relay cards.  Because of its  compatibility  with the IMACS  product,  the
StreamLine minimizes the cost of carrying spare modules,  reduces training costs
and provides a migration path to the larger IMACS system.

      The SlimLine  product,  the  smallest of  Premisys'  IADs and designed for
low-cost  applications,  accommodates  a single T1 access line and is offered in
two fixed  configurations  for rapid  deployment of voice and data services.  It
comes  in  either  12 or 24  port  voice  and 2 port  data  configurations.  The
SlimLine, a plug-and-play product, has a sleek,  low-profile chassis designed to
minimize space requirements.

      In fiscal 1999,  the Company  shipped its first Q-155  product.  The Q-155
accommodates  72 T1/E1  access  lines and is  designed  to  deliver a variety of
narrowband and broadband services to customers.

      The design and features of the  Company's  IAD products  provide  carriers
with four major benefits:

      o Lower Cost. The  integration  of multiple  switching  technologies  in a
single  IAD  platform  reduces  carriers'  costs of  providing  access  to these
technologies.  These reductions are realized in part by eliminating the need for
numerous dedicated discrete access devices,  thereby decreasing equipment costs.
In addition, the Company's IAD products are able to concentrate multiple sources
of low and high-speed traffic into fewer high-speed channels, thereby increasing
utilization  of carrier  network  capacity.  The  Company's  IAD products  allow
carriers  to  deliver  multiple  communications  products  and  services,  while
minimizing their risks of technology obsolescence or incompatibility.

      o Ability to Offer Services Rapidly. The scaleable,  upgradeable design of
the Company's IAD products enables carriers to add revenue  generating  services
such as ISDN, frame relay and ATM, more quickly,  cost-effectively  and targeted
to only those areas with demand.

      o Remote  Manageability.  The remote management  features of the Company's
IAD products enhance the  manageability of carriers'  networks without requiring
additional network management systems.

      o Reliability. The redundancy, diagnostic, testing and monitoring features
of the Company's IAD products enhance the reliability of carriers' networks.


Company Strategy

     The  Company's  strategic  objective is to establish  itself as the leading
worldwide provider of access equipment to public carriers for business services.
The key elements of the Company's strategy are described below.

Focus on Public Carrier Access Market

      The Company's IAD products were designed in  anticipation  of a shift from
private to public networks.  The Company believes that its IAD products were the
first  standards-based  integrated access devices  specifically  targeted to the
public carriers.  The Company's IAD products are designed to deliver voice, data
and video applications regardless of whether the carrier uses circuit, packet or
cell switching  technologies  and whether the carrier  network uses copper wire,
fiber optic cable,  coaxial  cable or wireless  transmission.  In recent  years,
carriers  have  focused on  upgrading  existing  or  building  new  networks  by
investing in switching and transmission technologies. The remaining links needed
by the carriers in order to offer these new services are access devices, and the
Company believes that a single integrated access device offers carriers the most
cost-effective  access  solution.  Carriers  that  deployed  the  Company's  IAD
products into their networks during fiscal 1999 included:


<PAGE>





    Domestic Wireline Carriers             International Carriers
    --------------------------             ----------------------
    AT&T                                   AT&T Network Services International
    AT&T Local Services                    Comcore (Russia)
    Alltel Mobile Communications           DACOM (Korea)
    Cablevision Systems Corporation        Macomnet (Russia)
    MCI/WorldCom                           Metrocom (Russia)
    MediaOne                               Saudi Telecommunications Company
    Southwestern Bell Telephone Company    Telmex (Mexico)
                                           Telmos (Russia)


    Domestic Wireless Carriers
    AT&T
    Airtouch Communications
    Bell Atlantic Nynex Mobile
    GTE Mobilnet Service Corporation
    Sprint Spectrum



Increase Market Penetration Through Strategic Relationships

      The Company has focused on forming  strategic  relationships  with leading
telecommunications  equipment  suppliers in order to gain market  acceptance and
penetration  of its IAD  products.  This  distribution  strategy has enabled the
Company:

      o  To  take  advantage  of  distribution   capabilities   and  established
relationships between leading  telecommunications  equipment suppliers and their
public carrier  customers and thereby gain access to public carriers  worldwide,
which do not generally purchase important  infrastructure equipment from smaller
companies such as Premisys;

      o To establish the IAD products as essential  value-added  elements of the
public carriers' business communications solutions; and

      o To incorporate  proprietary  next-generation  technology developed by or
with these  strategic  telecommunications  equipment  suppliers into one or more
elements   of  the  IAD   products,   which   are   then   distributed   by  the
telecommunications equipment suppliers.

      The Company believes that the joint development of technology with certain
of these  strategic  telecommunications  equipment  suppliers  demonstrates  the
commitment of these suppliers to the Company's IAD product line and encourages a
longer term relationship with the Company.  Relationships with Paradyne,  Lucent
Technologies  ("Lucent"),  Motorola  and  others  have  allowed  the  Company to
incorporate  advanced  technology  into its IAD products and have  broadened the
Company's markets worldwide.

Market Premisys Access Solutions Directly to CLECs

      The  recent,  rapid  growth of CLECs has  stimulated  demand for IADs.  In
addition to  supporting  the efforts of its strategic  distribution  partners in
servicing their CLEC customers, the Company's sales force also calls directly on
CLECs.  This direct  coverage of CLECs ensures that these  carriers are aware of
the advantages of Premisys'  access solutions and provides input to Premisys for
defining new products and features.  Purchases of Premisys products by CLECs are
made through both  strategic  distribution  partners and direct contact with the
Company.

International Markets

      A major portion of the  telecommunications  equipment market is outside of
the United States.  Although most of the Company's  current  revenues  represent
shipments  to  domestic  telecommunications  equipment  suppliers,  all of these
companies  market and distribute  the Company's  products  worldwide.  *Premisys
intends to increase and diversify its sales in international markets. To achieve
this goal,  Premisys is in the process of ensuring  that its IAD  products  meet
international standards and is pursuing international  strategic  relationships.
Premisys  currently has  international  sales  offices in Singapore,  Hong Kong,
China, Mexico and the United Kingdom.

Customers and Applications

Customers

      A  substantial  majority  of  the  Company's  sales  are to  suppliers  of
telecommunications  equipment with whom the Company has strategic relationships.
These  telecommunications  equipment  suppliers  generally  resell the Company's
products to public  carriers and end users.  The Company also sells  products to
value-added resellers ("VARs"),  distributors and systems integrators, and, to a
much lesser degree, directly to carriers and end users. Certain of the Company's
customers in fiscal 1999 are listed by channel in the table below.

        Strategic Relationships
      ADC                                     Paradyne
      Alcatel U.S.A., Inc. (1)                Pulsecom
      Ericsson Telecom S.A. de C.V.           Tadiran Microwave Networks
      Lucent                                  UTStarcom
      Motorola                                XEL Communications
      Northern Telecom


(1) - Alcatel  U.S.A.,  Inc.  ("Alcatel") is the  combination of Alcatel Network
Systems,  Inc. and DSC Communications  Corp, ("DSC"),  with whom the Company has
had a  strategic  relationship.  Alcatel  completed  the  acquisition  of DSC in
September 1998.

       Value-Added Resellers, Distributors and System Integrators

      Datacraft Asia                          PSI Technologies Corporation
      Harris Corporation/Farinon Division     Schmidt Telecom
      InComA Ltd.                             SRT Associates
      Integrated Telecommunication            Telos Engineering Limited
      Technology Sdn. Bhd.
      Interlink Communication Systems         Telsource Corporation
      Metro-Link Services Co. Ltd.            Trends and Technologies
      MSN Communications                      Walker & Associates
      N.E.T. Federal


        Direct

      AT&T Local Services                     Nexcom S.A.de C.V.
      Cox Communications                      Ovation
      Powertel, Inc.                          Southwestern Bell Telephone
                                              Company
      MediaOne                                MCI/WorldCom
      Motorola Paging


      Paradyne was the  Company's  first  strategic  partner and was its largest
customer in fiscal 1999.  Paradyne  markets the  Company's  products,  under its
label, AccuLink Access Controller (AAC), primarily to Lucent and AT&T. In fiscal
1997,  1998 and 1999,  Paradyne  accounted for 30%, 15% and 29% of the Company's
revenues,  respectively.  The Company's  agreement  with Paradyne gives Paradyne
exclusive  distribution  rights to AT&T entities.  See "-Results of Operations -
Revenues"  and  "Other  Factors  That May  Affect  Future  Operating  Results  -
Relationship  with  Paradyne"  within  "Management's  Discussion and Analysis of
Financial Condition and Results of Operations" in Item 7 of this Form 10-K.

      AT&T Local Services was the Company's  second  largest  customer in fiscal
1999. It accounted for less than 5% of the Company's revenues during fiscal 1997
and 1998,  but accounted for 13% of the Company's  revenues  during fiscal 1999.
Motorola  accounted for 15%, 11% and 12% of the Company's revenues during fiscal
1997, 1998 and 1999, respectively. *The loss of any one or more of the Company's
major customers would have a material  adverse effect on the Company's  business
and operating results. *Any of the  telecommunications  equipment suppliers that
market  and sell the  Company's  products  could  elect to cease  marketing  and
selling  the  Company's  products,  and there  can be no  assurance  that  these
telecommunications  equipment  suppliers  will continue to place orders with the
Company  or  that  the  Company   will  be  able  to  obtain   orders  from  new
telecommunications  equipment  suppliers or end users. See Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations - Other
Factors  That May  Affect  Future  Operating  Results  -  Indirect  Channels  of
Distribution."

The Premisys Product Lines

     Premisys  Communications,  Inc.  offers a full family of integrated  access
devices: the IMACS,  StreamLine,  SlimLine and Q-155 products.  The IMACS is the
Company's  flagship  product and has the  broadest  range of services  among the
Company's IAD product family.  The Company began shipping the IMACS in 1992, and
it has  represented a substantial  majority of the  Company's  revenues  through
fiscal 1999. The StreamLine has a similar modular  architecture as the IMACS and
supports all IMACS user cards in a smaller  chassis with a single T1/E1  design.
Shipments  of the  StreamLine  began in March 1998.  The SlimLine is a single T1
voice and data IAD,  offering a very  small  footprint  and low  price.  It is a
product  that is easy to provision  and is ideal for the small or remote  office
environment.  Shipments  of the  SlimLine  began in June 1998.  In June 1998 the
Company  announced  the Q-155  product,  which is a multiple  T1/E1 product that
manages narrowband access devices,  delivers broadband  services,  and acts as a
gateway  to both time  division  multiplexing  ("TDM")  and  cell-based  carrier
networks.  Shipments of the Q-155 began in March 1999.  The tables below compare
the capabilities and prices of these four product lines.

      NARROWBAND PRODUCTS

              [picture of SlimLine] [picture of StreamLine][picture of IMACS]

                   SlimLine             StreamLine              IMACS
Network                                                       1-8 T1/E1s TDM,
Connections       Single T1             Single T1/E1          Frame Relay, DS3
                                                              ATM
--------------------------------------------------------------------------------
User           o 12 or 24 voice      o User cards:         o Server cards:
Connections      ports                 ISDN, FXS, FXO,       Frame Relay,
               o 2 data ports          FRAD, Data, IP        PRI, ATM, ADPCM
                                                           o User Cards:
                                                             ISDN, FXS, FXO,
                                                             Frame Relay, IP
--------------------------------------------------------------------------------
Management     o Plug & play,        o Remotely via        o Remotely via
                 front panel           EMS & Telnet          EMS & Telnet
                 configuration                             o Full range of
                                                             SNMP MIBs
--------------------------------------------------------------------------------
Other          o TR-08               o TR-08               o Server Cards
Functions                            o Drop & insert         for Advanced
                                     o Voice                 functions
                                       compression         o  0/1
                                     o Modular design         cross-connect
                                                           o  Redundancy
                                                           o  TR-08
                                                           o  Modular design
--------------------------------------------------------------------------------
List Price Range  $3,500 - $5,000       $7,000 - $12,000      $10,000 - $40,000



<PAGE>



BROADBAND PRODUCTS

                         [picture of Q-155]

                               Q-155
Network                   72 T1/E1s  TDM
Connections               DS3/E3, OC3/STM 1
                          SONET/SDH
---------------------------------------------
User                   o     HDSL
Connections            o     T1/E1 & DS3/E3
                       o     OC3C/STM 1
---------------------------------------------
Management             o     Remotely via
                             online
                       o     TL1
---------------------------------------------
Key                    o     3/1/0 Cross
Functions                    Connect
                       o     ATM Switch
                       o     GR-303/V5.2
---------------------------------------------
List Price Range          $50,000 - $100,000
---------------------------------------------


IMACS Products

      The  IMACS  product  is a  modular,  software-based  platform  that can be
configured for delivering a wide variety of communications services. The product
is designed for  mission-critical  applications and supports full redundancy for
CPU,  wide  area  network  ("WAN")   interfaces,   power  supplies  and  ringing
generators. The components of the IMACS system architecture are the WAN modules,
user  modules,  server  modules and common  equipment  modules.  The WAN modules
provide the  connections to the carrier  network.  The user modules connect user
voice,  data  and  video  systems  to the  IMACS.  The  server  modules  process
information flowing between user and WAN modules, performing tasks such as voice
compression,  ATM  adaptation  and inverse  multiplexing.  The common  equipment
modules contain the central processor and provide power and interface functions.
Two versions of the IMACS with three unique chassis  designs are available:  the
3.x Host series,  which does not have server modules and supports an intelligent
channel  bank  application  and the 5.x  Host  series,  which  offers  the  full
functionality  of an IAD. The chassis  designs are the  IMACS/600  and IMACS/900
which are front-access  devices, and the IMACS/800 that can be accessed from the
front and  back.  This  allows  the  IMACS to work in any  carrier  environment.
Environmentally hardened units are also available,  including units designed for
desert installation.

      The Company  also offers  pre-configured  versions of the IMACS to address
specific  applications.  These  pre-configured  products include: the BRX, which
offers carriers a cost-effective  solution for provisioning ISDN BRI services to
remote customers,  and the CellDAX,  which is configured to reduce the amount of
equipment at the  wireless  cell site,  decreasing  bandwidth  requirements  and
reducing operating costs.

StreamLine

      The  StreamLine  product,  like the  IMACS,  has a modular  design  and is
software-based.  It supports all of the User cards  supported by the IMACS,  but
none of the Server  cards,  and  accommodates  one T1/E1  connection  instead of
IMACS'  eight.  It is also  manageable  via the same element  management  system
("EMS") that supports the IMACS.  However, it only has half the footprint of the
IMACS,  thus making it ideal for space  constrained  collocation space and telco
closets,  and its fewer  modules  and lower  selling  price  offers  carriers an
inventory control and cost benefit.

      As with all Premisys products, StreamLine is standards based including the
Bellcore  Standard TR-08 protocol.  The single T1/E1 design positions it for the
small and medium business market that carriers are targeting, without losing the
scalability
offered by the IMACS.


<PAGE>



SlimLine

      The  SlimLine  product is designed  for small or remote  business  offices
seeking plug & play provisioning of integrated T1 service.  It is offered in two
fixed  configurations  - one with 12 voice channels and two V.35 data ports, and
the other with 24 voice  channels  and two V.35 data ports.  Either or both data
ports can support a low cost  router for  Internet  and  Intranet  service.  The
chassis is a  pizza-box  design  with  configuration  done with front  panel dip
switches. Installation is very simple.

      TR-08  support  comes  standard  with  either  the  12  or 24  port  voice
configurations,  supports FXS, loop and ground start,  caller ID and an integral
channel servicing unit ("CSU").

      *A managed version  of the  SlimLine  was  introduced  in June 1999 and is
expected to begin shipping in the December quarter of fiscal 2000.

Q-155 Product Line

      The Q-155 brings the benefits of IADs to broadband networks.  This product
is designed to increase the  utilization  of higher  bandwidth  services such as
SONET or SDH fiber  optic  rings and to accept  legacy  TDM or  advanced  packet
traffic and route it to the appropriate central office or data switch,  again in
any protocol required (SONET, SDH, ATM, TDM).

      The  Q-155  enables  carriers  to  deliver  a  variety  of  broadband  and
narrowband services to their business customers with higher utilization of their
transmission networks and reduced requirements for ports on their central office
cross-connects and switches. The Q-155 has been developed utilizing technologies
licensed from Positron in January 1997, and from technologies  licensed from SNT
in March 1998.  First shipments of the Q-155 occurred in the quarter ended March
31, 1999.

      The Q-155 is designed to  complement  the IMACS,  StreamLine  and SlimLine
products as the Q-155 can integrate these devices into a total network solution.
*With the addition of the Q-155 product line,  Premisys products are expected to
provide a full access product line, offering multiple price points from a single
T1 to SONET/SDH  speeds and are expected to enable  Premisys to offer a complete
solution to network  access.  For a discussion of certain risks related to these
new  products,  see "Other  Factors that May Affect Future  Operating  Results -
Rapidly  Evolving  Technology"  within  Item  7,  "Management's  Discussion  and
Analysis of Financial Condition and Results of Operations."

Network Management

      The IMACS and  StreamLine  products  offer a number of network  management
options  that are based on open  industry  standards  in order to  provide  easy
integration with generic network management systems and interfaces,  such as the
Simplified  Network Management  Protocol  ("SNMP").  They can be managed locally
through an  attached  terminal or remotely  through an integral  modem.  Network
management  messaging is supported  locally through TCP/IP  protocol  standards,
including  support for Serial Line  Interface  Protocol  ("SLIP"),  and remotely
through the virtual terminal TELNET protocol.  Network management  messaging can
be  sent   across  the  network   via  a   carrier's   standards-based   network
infrastructure.  The  Q-155 can be  managed  remotely  either  online or via TL1
(command line interface).

      The  Company has also  developed  application  software  for the IMACS and
StreamLine  products  called EMS and the new OnLine EMS. EMS'  features  include
fault management and statistics,  remote testing and  diagnostics,  surveillance
management, performance monitoring,  software-download,  inventory reporting and
configuration management.  These features reduce the carrier's cost of providing
multiple  services to its business  customers by allowing remote  management and
control.



<PAGE>



Marketing, Sales and Distribution

      The primary market for the Company's products is public telecommunications
carriers,  including major domestic  carriers  providing long distance and local
service,  competitive  access providers,  competitive  local exchange  carriers,
wireless  service  providers,   enhanced  service  providers  and  international
carriers.  The focus of the Company's  sales  strategy is to form and to support
strategic  relationships with  telecommunications  equipment suppliers,  systems
integrators  and  international  distributors  (collectively  "Partners").   The
Company also has relationships with distributors and sells its products directly
to end  users on a limited  basis.  The  Company  currently  has sales  staff in
several  locations  across the United  States and also  maintains  international
sales offices in Singapore, Hong Kong, China, Mexico and the United Kingdom. The
offices in Singapore,  China and Hong Kong serve the  Asia/Pacific  region,  the
office in the United Kingdom  serves Europe,  the Middle East and Africa and the
office in Mexico serves the Latin  American  region.  The Company's  sales staff
supports the sales organizations of the  telecommunications  equipment suppliers
that distribute and market its products. In addition,  the Company's sales staff
provides field system training,  develops new strategic relationships and, where
appropriate, sells directly to carriers and end users.

 Strategic Relationships

      The Company  believes that the combination of  technologies,  services and
support  mechanisms  needed to reach the  world-wide  market  for the  Company's
products  can best be provided  through  strategic  relationships  with  leading
partners. Many of these partners have established  relationships with the public
carriers  and  provide  a broad  range of  services  to these  carriers  through
existing  front-line  service and support  networks.  Premisys  seeks  strategic
relationships  that offer (i) an established  presence in the Company's  primary
markets,  (ii) a product line that the IMACS  product can  complement to provide
value-added  networking  solutions and (iii) a core  technology that enables the
telecommunications  equipment suppliers to develop enhanced products with market
differentiation that can be integrated with the IMACS platform.

      The Company believes that the joint development of technology demonstrates
the  commitment  of these  partners to the IMACS  product line and  encourages a
longer-term  relationship  with the Company.  *The Company has  completed  joint
development  projects  with  Paradyne,  Lucent,  Northern  Telecom,  Alcatel and
Motorola,  which has led to IMACS  products  being sold as  components  of these
companies' specific products.

      The Company's  agreements  with  partners  generally  grant  non-exclusive
licenses to distribute  and, based on volume,  provide for certain  discounts on
the purchase  prices of the  Company's  products.  *Any partner that markets and
sells the  Company's  products  could elect to cease  marketing  and selling the
Company's  products,  and there can be no  assurance  that these  partners  will
continue to place  orders  with the Company or that the Company  will be able to
obtain orders from new  customers or end users.  *The loss of any one or more of
the Company's  strategic  partners  would have a material  adverse effect on the
Company's business and operating results. The Company derived approximately 77%,
80% and 81 % of its revenues  from its  partners in fiscal 1997,  1998 and 1999,
respectively.  See Item 7,  "Management's  Discussion  and Analysis of Financial
Condition  and Results of  Operations - Results of  Operations  Revenues" and "-
Other  Factors  That May  Affect  Future  Operating  Results  Relationship  with
Paradyne."

 Distributors

      The Company  also uses a select  number of VARs,  system  integrators  and
distributors to market and sell its products. These customers generally sell the
Company's  products  to  smaller  carriers  and  corporations  accessing  public
networks  as  well  as  to  service  international  markets  where  the  VAR  or
distributor is located. The Company derived approximately 19%, 11% and 7% of its
revenues from value added  resellers and  non-strategic  distributors  in fiscal
1997, 1998 and 1999, respectively.

 Direct Sales

      Direct  sales  by the  Company  to  carriers  and end  users  to date  has
represented a minor part of the Company's business. Generally, the Company sells
directly  only to carriers that have their own  established  support and service
infrastructures  and to end users within  market  segments  where the  Company's
strategic telecommunications  equipment suppliers,  distributors and VARs cannot
cost-effectively  market and sell the Company's  products.  The Company  derived
approximately  4%, 9% and 12% of its revenues  from direct sales in fiscal 1997,
1998 and 1999,  respectively.  *The Company intends to focus on and increase the
proportion of its revenues that are derived  directly from CLECs and Alternative
Carriers.  *The  Company  believes  that  large   telecommunications   equipment
providers do not  aggressively  target these new and generally  small  carriers.
*Moreover,  the Company  believes that its products are ideally  suited to these
new  carriers  because they offer  bundled  services,  a range of  technologies,
protection  of  legacy  investment  and low cost  implementation.  *The  Company
intends to augment its technical support,  training,  collateral development and
marketing to actively develop its direct sales capabilities. *However, there can
be no assurance that such efforts will be successful.  See Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations - Other
Factors That May Affect Future Operating Results - Competition."


Customer Support

      The partners  that sell the  Company's  products  directly to the end user
provide the first level of customer  support  for the  Company's  products.  The
Company's  personnel provide backup support and training.  When a partner is not
able to provide  solutions to product  problems,  service  personnel contact the
Company's  customer  support  group,  which has hardware  and software  products
configured  to  simulate  networking  problems.  In some  cases,  the  Company's
customer  support  representatives  dial  into the end user  network  to  assist
directly  in   troubleshooting   and   problem   isolation.   Customer   support
representatives  are  available by telephone 24 hours a day, 7 days a week.  The
Company also provides on-site service when requested.

      The  Company's  products have been designed to ensure that problems can be
easily  diagnosed.  All voice and data modules contain  integral  testing suites
that allow isolation of networking problems.  The Company currently warrants its
systems products  against  workmanship or defects for five years and its network
management  software products for 90 days. During the warranty period,  Premisys
repairs or replaces any failed system component at no charge.

      The Company also provides  technical  training  either at the sites of its
strategic partners or at Company facilities. Training courses include the theory
of operation,  equipment diagnostics and the testing and troubleshooting of both
the  equipment  and the network.  Train-the-trainer  courses are also offered to
help the telecommunications equipment suppliers educate their support personnel.

Competition

      The market  for  telecommunications  products  is highly  competitive  and
subject to rapid  technological  change,  regulatory  developments  and emerging
industry standards.  The Company believes that the principal competitive factors
in the  carrier  access  market  are:  support  for  multiple  types of  carrier
services;  conformance to public carrier standards for signaling,  transmission,
network   management,   reliability  and  safety;   the  development  and  rapid
introduction  of new product  features;  price/performance;  quality of customer
support;  and installed base. The Company believes it has competed  favorably to
date with respect to these factors. *However, there can be no assurance that the
Company will compete  successfully  in the future with respect to these or other
factors.

      The Company's  principal  competition  to date for its IMACS  products has
been  from  major  telecommunications  equipment  suppliers,  such as  Newbridge
Networks Corporation ("Newbridge"),  Tellabs, Inc. ("Tellabs") and World Access,
Inc.  ("World  Access"),  all of which offer  broad lines of products  including
access  devices for  business  applications.  *The Company  expects  substantial
additional  competition  from existing  competitors as they develop  products to
compete with the  functionality and flexibility of the Company's IMACS products.
Premisys'  SlimLine and StreamLine  products have faced significant  competition
from  Carrier  Access  Corporation  ("CAC"),  and to a lesser  extent  from Vina
Technologies ("Vina"),  Adtran, Inc. ("Adtran") and existing  telecommunications
equipment  manufacturers  selling channel bank and CSU/DSU (data servicing unit)
products. In addition,  the Company faces competition from companies who provide
substitute, as opposed to direct replacement, solutions for the Company's IMACS,
SlimLIne and StreamLine products.  The primary competitors  supplying substitute
products include Advanced Fibre Communications ("AFC"),  Alcatel, Lucent, Nortel
and Reltec  Corporation  ("Reltec").  The Q-155 product  competes with broadband
access  products  offered or announced by a number of vendors  including  Fibex,
which was recently acquired by Cisco,  Accelerated  Networks,  Inc.,  Atmosphere
Networks,  Inc.,  other   telecommunications   equipment  manufacturers  selling
multiplexer  products  and digital  loop  carriers  ("DLCs")  with the  Bellcore
Standard GR-303 protocol and other competitors,  such as Pairgain  Technologies,
Inc. ("Pairgain") and Paradyne, that provide bundled voice and data services and
solutions   for   better    utilization   of   bandwidth.    *Certain   of   the
telecommunications  equipment suppliers that market and distribute the Company's
products  may in the  future  develop  other  products  that  could  be sold for
selected  applications for which the Company's products are currently  provided.
*Successful,  timely  development  and market  acceptance of such products could
reduce the level of demand from these telecommunications equipment suppliers for
the Company's products. *To the extent that current or potential competitors can
expand their  current  offerings to include  access to circuit,  packet and cell
switching in an integrated product, the Company's business and operating results
could be materially adversely affected.  Many of the Company's  competitors have
technical,  financial,   manufacturing  and  marketing  resources  significantly
greater than those of the Company.  In addition,  many of such  competitors have
long-established  relationships with public carriers. *There can be no assurance
that  the  Company  will  have the  financial  resources,  technical  expertise,
manufacturing,  marketing,  distribution  and  support  capabilities  to compete
successfully in the future.



<PAGE>


Manufacturing and Suppliers

      The  Company's  manufacturing  operations  consist  primarily of materials
planning and procurement, module testing and quality control. The Company relies
on  contract  manufacturers,  primarily  in the  United  States.  The  Company's
reliance on third-party  subcontractors  reduces the Company's  flexibility  and
responsiveness to changes. For example,  contract manufacturers are not as quick
as internal  manufacturing  organizations to react to new products or changes in
product designs or product quantities.  Use of contract manufacturers can expose
Premisys  to  supply  interruptions  due to  production,  quality  or  financial
problems of its  contractors.  *This loss of flexibility or supply  interruption
can result in shipment delays, which could have a material adverse effect on the
Company's business and operating results. The Company believes, however, that by
using a limited number of third-party subcontractors, it is in a better position
to reduce  product  costs,  acquire  additional  capacity and reduce its capital
investment. All testing of the Company's products is performed by the Company at
its Fremont, California facility. Products are rigorously tested using automated
test  equipment  prior to  shipment to  customers.  All  printed  circuit  board
assemblies  are tested  individually.  To date,  the Company has  experienced no
significant  adverse affects on flexibility or  responsiveness to changes due to
the Company's use of third-party subcontractors.

      Generally, the Company uses industry standard components for its products.
It uses field programmable gate arrays with erasable  programmable memory rather
than custom  integrated  circuits in order to maximize  its ability to customize
products  quickly for  individual  carriers  and add product  features.  Certain
components  used  in  the  Company's  products,  including  microprocessors  and
communications  chips that are  manufactured  by Motorola,  Siemens AG,  Xilinx,
Lucent  and  National  Semiconductor,  are  currently  available  from  only one
supplier. In the past, the Company has experienced shortages of certain of these
and other  components  because of vendor  production or quality problems and the
inability  of  suppliers  to  increase  delivery  rates  to meet  the  Company's
requirements.  In the past certain  components  have been in short supply within
the  Company's  industry,  and in such cases,  Premisys  must  compete for these
components   with  larger   companies   that  often  have   longer   established
relationships  with  these  vendors.  Component  shortages  and  delays  have on
occasion resulted in delays in the shipment of the Company's  products,  and the
component  shortages have also on occasion  resulted in higher  component costs.
Certain  components used in the Company's products require an order lead time of
up to one year.  *Other  components  that  currently  are readily  available may
become  difficult  to obtain in the  future.  *Failure  of the  Company to order
sufficient  quantities of these  components in advance could prevent the Company
from increasing  production of products in response to customer orders in excess
of amounts projected by the Company,  which could have a material adverse effect
on the Company's  business and operating results.  *Alternatively,  ordering too
much of a component in advance could lead to excess inventory,  which could have
a material adverse effect on the Company's business and operating results.

      *An extended  delay in deliveries  of  components  or of finished  printed
circuit board  assemblies  would have a material adverse effect on the Company's
business  and  operating  results  and  possibly on its  relationships  with its
customers.  *Although  Premisys  typically  maintains some reserve  inventory of
components,  this inventory would not cover a significant  delay in the delivery
of such components.

Research and Development

      During  fiscal  1997,  1998  and  1999,  total  research  and  development
expenditures were $10.5 million, $16.2 million and $19.8 million,  respectively.
All research and development expenditures are expensed as incurred. In addition,
in fiscal 1997 and 1998 the Company  incurred  charges of $4.0  million and $4.4
million,  respectively, for licenses to certain SONET and SDH based technologies
and cell and packet  technologies,  respectively.  See "Results of  Operations -
Acquired In-Process Technology" within "Management's  Discussion and Analysis of
Financial Condition and Results of Operations" in Item 7 of this Form 10-K.

      The  telecommunications  equipment  market  is  characterized  by  rapidly
changing  technologies  and frequent new product  introductions,  which  include
frame  relay,  ATM  and  new  digital  subscriber  line  technologies  ("xDSL").
Standards  for new services such as ATM and xDSL are still  evolving.  *As these
technologies and related standards evolve, the Company may be required to modify
its  products or develop and support new  versions of its  products.  *The rapid
development  of  new  technologies  increases  the  risk  that  current  or  new
competitors could develop products that would reduce the  competitiveness of the
Company's  products.  *The Company's success will depend to a substantial degree
upon its ability to respond to changes in  technology,  industry  standards  and
customer requirements.  *This will require the timely selection, development and
marketing of new products and enhancements on a cost-effective basis. *There can
be no assurance that the Company will be successful in  developing,  introducing
or managing the transition to new or enhanced products or that any such products
will be responsive to technological changes or will gain market acceptance.  See
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Other Factors That May Affect Future Operating Results - Rapidly
Evolving Technology."

       In  fiscal  1997,   1998  and  1999,  the  Company's   research  and
development  activities  focused on the development and release of the SlimLine,
StreamLine and Q-155.  The SlimLine and StreamLine were released in the quarters
ended March 31 and June 30, 1998,  respectively.  The Q-155 was first shipped in
the quarter ended March 31, 1999.  Premisys licensed  SONET/SDH  technology from
Positron  in the  quarter  ended  March 31,  1997 and  licensed  cell and packet
switching technologies from SNT in the quarter ended March 31, 1998. The Company
has  integrated  the  technology  licensed from  Positron,  and is continuing to
integrate the technology licensed from SNT, into the Q-155.

      *Products  as  complex  as  those  offered  by  the  Company  may  contain
undetected  errors or failures  when first  introduced  or as new  versions  are
released.  *Such  errors  have  occurred  in the past year,  and there can be no
assurance  that,  despite  testing by the Company  and by current and  potential
customers,  errors  will not be  found in new  products  after  commencement  of
commercial  shipments.  *The occurrence of such errors have in the past resulted
(including  during fiscal 1997, 1998 and 1999), and could in the future,  result
in the loss or delay in market acceptance of the Company's products, which could
have a material adverse effect on the Company's  quarterly operating results and
its market opportunities.  *As the functionality and complexity of the Company's
products continue to grow, the Company may experience an increased  incidence of
such errors or failures, as well as delays in introducing its products.

      As  of  June  30,  1999,  122  employees  were  engaged  in  research  and
development  programs,  including  hardware and software  development,  test and
engineering  support  personnel.   The  Company  believes  that  recruiting  and
retaining engineering personnel is essential to its success. *To the extent that
the Company is not successful in attracting  and retaining its technical  staff,
its business and  operating  results  would be adversely  affected.  See Item 7,
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations - Other Factors That May Affect Future Operating Results - Dependence
on Key Personnel."

Government Regulation

      *Government  regulatory  policies  are likely to  continue to have a major
impact on the  pricing of existing as well as new public  network  services  and
therefore   are   expected  to  affect   demand  for  such   services   and  the
telecommunications  products that support such  services.  *Regulations  and FCC
rulings  arising  from the  Telecommunications  Reform  Act of 1996 will  impact
service offerings and  competitiveness  in the communications  marketplace,  and
thus could have an effect on the timing and size of the industry's investment in
access equipment.  *Tariff rates, whether determined autonomously by carriers or
in response  to  regulatory  directives,  may affect the cost  effectiveness  of
deploying public network services.  *Tariff policies are under continuous review
and are subject to change. *User uncertainty  regarding future policies may also
affect demand for telecommunications products, including the Company's products.

      Governmental   communications   regulatory  authorities  have  promulgated
regulations that, among other things,  set installation and equipment  standards
for private  telecommunications  systems and  require  that all newly  installed
hardware be registered and meet certain governmental standards.  *The failure of
the  Company's  products  to  comply  with  these  standards,  or any  delays in
compliance, could delay introduction of the Company's products, which could have
a material adverse effect on the Company's business and operating  results.  See
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of  Operations  - Other  Factors  That May  Affect  Future  Operating  Results -
Industry Standards and Regulatory Matters."

Intellectual Property

      The Company relies upon a combination of patent,  trade secret,  copyright
and  trademark  laws and  contractual  restrictions  to  establish  and  protect
proprietary rights in its products. The Company currently holds one U.S. patent.
This patent relates to the manner in which the various modules that are included
within an IMACS  communicate  with one another and expires  December  2012.  The
Company  has  also  entered  into   confidentiality  and  invention   assignment
agreements with its employees,  and enters into  non-disclosure  agreements with
its suppliers,  distributors and appropriate  customers so as to limit access to
and disclosure of its proprietary  information.  *There can be no assurance that
these  statutory and  contractual  arrangements  will prove  sufficient to deter
misappropriation  of  the  Company's  technologies  or  independent  third-party
development of similar  technologies.  *The laws of certain foreign countries in
which the Company's  products are or may be developed,  manufactured or sold may
not protect the Company's  products or intellectual  property rights to the same
extent as do the laws of the  United  States  and thus make the  possibility  of
piracy of the Company's technology and products more likely.

      The  telecommunications  industry is  characterized  by the existence of a
large number of patents and frequent  litigation  based on allegations of patent
infringement.  *From time to time,  third parties may assert  exclusive  patent,
copyright, trademark and other intellectual property rights to technologies that
are important to the Company.  There are no currently  pending  material  claims
that the Company's products, trademarks or other proprietary rights infringe the
proprietary  rights of third parties.  *However,  there can be no assurance that
the Company  will not receive  communications  from third  parties in the future
asserting that the Company's  products  infringe or may infringe the proprietary
rights of third parties. In its distribution  agreements,  the Company agrees to
indemnify its customers for any expenses or  liabilities  resulting from claimed
infringements  of patents,  trademarks or copyrights of third  parties.  *In the
event of litigation to determine the validity of any  third-party  claims,  such
litigation,  whether or not determined in favor of the Company,  could result in
significant  expense to the  Company  and divert  the  efforts of the  Company's
technical and management  personnel from productive  tasks.  *In the event of an
adverse ruling in such litigation,  the Company might be required to discontinue
the use and sale of infringing products, expend significant resources to develop
non-infringing  technology or obtain licenses from third parties.  *There can be
no assurance  that  licenses from third parties would be available on reasonable
commercial  terms,  if at all. *In the event of a successful  claim  against the
Company  and the  failure of the  Company  to  develop  or license a  substitute
technology,  the Company's  business and  operating  results would be materially
adversely affected.

Employees

      At June  30,  1999,  Premisys  employed  332  individuals  on a  full-time
equivalent  basis. Of these, 100 were involved in sales,  marketing and customer
support, 122 in research and development, 79 in manufacturing, and the remaining
31 in  administration  and  finance.  The  Company  also  uses  contractors  and
temporary workers.  The Company considers its relations with its employees to be
good and has not experienced any interruption of operations as a result of labor
disagreements.  *The  Company's  future  success  will  depend on its ability to
attract,  motivate and retain highly skilled employees, the competition for whom
is intense.  See Item 7,  "Management's  Discussion  and  Analysis of  Financial
Condition  and Results of  Operations  - Other  Factors  That May Affect  Future
Operating Results - Dependence on Key Personnel."

Item 2.  Properties

      The Company's  principal  offices are located in two facilities,  totaling
118,281 square feet, leased by the Company in Fremont, California. The leases on
these  facilities,  which are  classified as  non-cancelable  operating  leases,
expire on various  dates  through  December 31, 2005.  In addition,  the Company
leases a facility,  totaling 29,840 square feet, in Fremont,  California that it
subleases  under a three year sublease that commenced in April 1999. The Company
also leases facilities in Florida,  Colorado,  Texas,  Canada,  Singapore,  Hong
Kong, the United Kingdom and China.  The leases on these  facilities,  which are
classified as non-cancelable  operating leases,  expire on various dates through
December 31,  2005.  Approximately  60% of the space in the Fremont,  California
facilities  is used or  reserved  for  manufacturing,  product  development  and
testing;  the balance of the space is used or reserved for sales,  marketing and
other general  administrative  activities.  See Note 9 of Notes to  Consolidated
Financial Statements.  The Company believes that its present facilities are well
maintained and are in good operating condition.

Item 3.  Legal Proceedings

      The Company is not involved in any material legal proceeding.

Item 4.     Submission of Matters to a Vote of Security Holders

      No matters were  submitted to a vote of the  security  holders  during the
fourth quarter of fiscal 1999.


<PAGE>


                                     PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters


Price Range of Common Stock

      The Company's  Common Stock is quoted on the Nasdaq  National Market under
the symbol "PRMS." The Company's  Common Stock  commenced  trading on the Nasdaq
National  Market on April 6, 1995.  The  following  table lists the high and low
closing prices during fiscal 1998 and fiscal 1999.



                                                     High         Low

    Fiscal  1998:
             First Quarter                           $ 25 1/4     $ 15
             Second Quarter                          $ 33 1/4     $ 20 3/8
             Third Quarter                           $ 29 3/4     $ 18 13/16
             Fourth Quarter                          $ 32 1/4     $ 22 1/2


    Fiscal  1999:
             First Quarter                           $ 25 7/8     $  8
             Second Quarter                          $ 15 3/8     $  5 5/8
             Third Quarter                           $ 12 1/8     $  6 1/4
             Fourth Quarter                          $ 10 1/2     $  6 31/32


      There were  approximately  224 holders of record of the  Company's  Common
Stock as of September 3, 1999.

Dividend Policy

      The Company has not paid any cash  dividends on its capital stock to date.
*The Company  currently  anticipates that it will retain all future earnings for
use in its business  and does not  anticipate  paying any cash  dividends in the
foreseeable future.

Issuance of Put Warrants

      On August 31,  1998,  the  Company's  Board of  Directors  authorized  the
repurchase,  at  management's  discretion,  of up to 4.0  million  shares of its
Common Stock at market  prices not to exceed  $14.00 per share and as market and
business conditions warrant.  The primary purpose of this repurchase program was
to increase stockholder value.

      In connection  with this  program,  on September 17, 1998 the Company sold
2.0 million put  warrants  to, and  purchased  1.5 million  call options from an
independent  third party. The Company used the proceeds from the sale of the put
warrants to purchase call options in a transaction not requiring any cash outlay
at the time. The put warrants  entitled the independent  party to sell shares of
the  Company's  common  stock to the  Company  at  specified  strike  prices and
exercise dates. Each of the warrants was exempt from registration  under section
4 (2) of the Securities Act of 1933, as amended.  Each transaction was privately
negotiated and each offeree and purchaser was an accredited investor.  No public
offering  or public  solicitation  was used by the Company in the  placement  of
these warrants.

      On January 26, 1999,  the Company paid $762,000 to dissolve the obligation
for 1.0 million put  warrants  and 0.75 million call options that were to expire
on January 29,  1999.  On September  10, 1999,  the Company paid $3.7 million to
dissolve  the  remaining  1.0 million put warrants and 0.75 million call options
which were to expire on September  15, 1999.  The expenses  associated  with the
dissolution  of these put warrants are  reflected as a component of cash for the
quarter  ended  March 31, 1999 and will be  reflected  in the same manner in the
quarter ended September 30, 1999.

Item 6.  Selected Financial Data

                                           Year Ended June 30, (1)
                              --------------------------------------------------
                                1995      1996      1997      1998       1999
                              ---------  --------  --------  --------  ---------
                                    (in thousands, except per share data)
Consolidated Statements of Operations Data:
Revenues                      $30,888   $73,912   $78,358   $102,298   $ 92,423
Income from operations          4,784    24,577    15,213     18,371      7,635
Net income                    $ 3,967   $16,788   $10,891   $ 13,715   $  7,621
                             =========  ========  ========  ========   =========

Net income per share - Basic  $  0.60   $  0.70   $  0.44   $  0.54    $  0.31
                             =========  ========  ========  =========  =========
Net income per share-Diluted  $  0.18   $  0.64   $  0.41   $  0.50    $  0.30
                             =========  ========  ========= =========  =========
Shares used in computing net income
per share
   Basic                        6,622    23,876    24,722    25,569     24,600
                             =========  ========  ========  ========  =========
   Diluted                     22,246    26,389    26,498    27,495     25,384
                             =========  ========  ========  ========  =========


<PAGE>



                                            As of June 30, (1)
                            --------------------------------------------------
                             1995      1996       1997      1998       1999
                            --------  --------   --------  --------   --------
                                             (in thousands)
Consolidated Balance Sheet Data:
Cash, cash equivalents and
short-term investments      $42,963   $60,861    $73,224   $105,981   $ 84,434
Working capital              45,520    74,853     90,263    112,079    100,593
Total assets                 52,621    87,522    107,101    138,757    126,624
Long-term debt                  109        91          9       ---        ---
Total stockholder's equity  $47,007   $77,580    $96,817   $120,776   $ 99,205

Quarterly Financial Data

      The following table sets forth certain unaudited  quarterly financial data
for each  quarter  of fiscal  1998 and 1999.  In the  opinion  of the  Company's
management,  this unaudited  information  has been prepared on the same basis as
the audited consolidated  financial statements contained herein and includes all
adjustments  (consisting  only of normal  recurring  adjustments)  necessary  to
present fairly the information set forth therein. *The operating results for any
quarter are not  necessarily  indicative of results for any future  period.  See
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations - Quarterly Fluctuations."

<TABLE>
<S>                 <C>     <C>      <C>      <C>      <C>      <C>      <C>      <C>

                                              Quarter Ended
                   ---------------------------------------------------------------------
                           Fiscal 1998 (1)                     Fiscal 1999 (1)
                   ---------------------------------   ---------------------------------
                   Sept 30   Dec 31   Mar 31,  June 30, Sept 30  Dec 31,  Mar 31,  June 30,
                     1997     1997      1998     1998     1998     1998     1999     1999
                   -------  -------  --------  -------  -------  -------  -------  -------
                                   (in thousands, except per share date)

Revenues           $19,285  $24,616  $27,154   $31,243  $25,011  $25,394  $26,734  $15,284
Gross Profit        12,067   16,338   18,045    20,262   16,623   15,156   15,425    8,559
Income (loss)        3,536    5,498    2,000(2)  7,337    5,382    3,106    2,897   (3,750)
from operations

Net income (loss)  $ 2,677  $ 4,012  $ 1,841(2)$ 5,185  $ 4,013  $ 2,544  $ 2,375  $(1,311)
                   =======  =======  ========  ======= ========  =======  =======  =======

Net income per     $ 0.11   $ 0.16    $ 0.07   $ 0.20  $ 0.15   $ 0.10   $ 0.10   $(0.05)
share-Basic
                   =======  =======  ========  ======= =======  =======  =======  =======
Net income per     $ 0.10   $ 0.15    $ 0.07   $ 0.19  $ 0.15   $ 0.10   $ 0.10   $(0.05)
share-Diluted
                   =======  =======  ========  ======= =======  =======  =======  =======

Shares used in
computing net income per share
     Basic         25,308   25,462    25,630   25,874  25,910   24,388   24,030   24,072
     Diluted       27,287   27,578    27,507   27,608  27,025   25,142   24,628   24,738
                   =======  =======  ========  ======= =======  =======  =======  =======
</TABLE>

---------------------------------
   (1)The Company  uses a fiscal  year ending on the Friday  closest to June 30.
      For ease of  presentation,  however,  annual and quarterly  periods during
      fiscal  1997,  1998 and 1999 are  shown in this Form 10-K as ending on the
      last  day  of  the  last   calendar   month  in  such  year  and  quarter,
      respectively.

   (2)Includes  a  $4,431,000  charge  for a  technology  license.  See  Item 7,
      "Management's  Discussion and Analysis of Financial  Condition and Results
      of Operations - Acquired In-Process Technology" of this Form 10-K and Note
      3 of Notes to Consolidated Financial Statements.


<PAGE>


Item 7. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations

      As  indicated  in the first  paragraph  of Item 1,  above,  this Form 10-K
contains certain forward looking statements within the meaning of Section 21E of
the  Securities  Exchange  Act of  1934,  as  amended,  and  Section  27A of the
Securities Act of 1933, as amended.  The Company has identified by asterisks (*)
(or italics in the non-EDGAR version of this Form 10-K) various sentences within
this Form 10-K which contain such forward-looking  statements, and words such as
"believes,"  "anticipates," "expects," "intends," "will" and similar expressions
are also intended to identify forward looking statements,  but these are not the
exclusive means of identifying such statements.  The forward looking  statements
included in this Form 10-K involve  numerous risks and  uncertainties  which are
described  throughout  this Form  10-K,  such as those  referenced  in the first
paragraph of Item 1, above,  and other factors  described  throughout  this Form
10-K,  including  under  "Revenues"  and "Other  Factors That May Affect  Future
Operating  Results"  within  this Item 7. The actual  results  that the  Company
achieves may differ  materially from any forward looking  statements due to such
risks and uncertainties.

Overview

      Premisys was founded in July 1990 and became a publicly owned  corporation
in April 1995. The Company develops,  manufactures,  and markets access products
for use by  telecommunications  carriers for  delivering a wide variety of voice
and data services to its business customers.

      The Company's products enable carriers to deliver multiple services with a
single device. The Company's IMACS product supports a wide range of services and
up to eight T1 or E1 connections.  The Company's  StreamLine product,  which was
derived from the IMACS,  supports  the same voice  services and most of the data
services  offered by the IMACS,  but has a single T1  connection.  The Company's
SlimLine  product  supports a limited  number of voice and data services and has
one T1 connection.  The Company's Q-155 product is a broadband integrated access
device combining TDM, ATM and SONET/SDH on a single platform which  accommodates
a wide range of voice and data services. Although the IMACS accounted for nearly
all of the Company's  revenues in fiscal 1997,  1998 and 1999, the Company's new
products  provide  additional  options in order to offer  carriers more complete
solutions to provide delivery of services to their business customers.

      Most of the  Company's  products are deployed in new  networks,  typically
built by new  carriers,  such as CLECs in the  United  States  and new  wireless
service providers.

      The  Company  sells  its  products  worldwide,   primarily  through  large
telecommunications  equipment  suppliers,  systems integrators and distributors.
The Company  derived 7%, 5% and 3%,  respectively,  of its revenues  from direct
sales to international  customers in fiscal 1997, 1998 and 1999.  (International
sales through domestic suppliers and distributors are reflected in the Company's
domestic  revenues).  *The Company  intends to continue to expand its operations
outside the United  States and  anticipates  that direct sales to  international
customers  will  increase  in the  future,  both in  absolute  dollars  and as a
percentage   of  the  Company's   revenues.   In  order  to  sell  its  products
internationally,  the Company must meet standards  established by  international
telecommunications  committees  and  telecommunications  authorities  in various
countries.  *Conducting  business  outside  of the  United  States is subject to
certain risks, including longer payment cycles, unexpected changes in regulatory
requirements and tariffs,  currency  conversion risks,  difficulties in staffing
and managing  foreign  operations,  greater  difficulty  in accounts  receivable
collection and potentially adverse tax consequences.  See " - Other Factors That
May Affect Future Operating Results - Indirect Channels of Distribution."

Results of Operations

Revenues

      Revenues consist primarily of gross sales of products,  less discounts and
sales  returns  and  allowances.  Revenues  in fiscal  1997,  1998 and 1999 were
$78,358,000,  $102,298,000  and $92,423,000,  respectively.  The majority of the
revenue  increase from fiscal 1997 to fiscal 1998 was primarily  attributable to
unit  growth.  The  Company's  list  prices  for its  products  did  not  change
significantly  from fiscal  1997 to fiscal  1998 and the average  revenue to the
Company per platform  and module was  relatively  unchanged  from fiscal 1997 to
fiscal 1998. In addition,  an important contributor to the Company's unit growth
in fiscal  1998 was its  success  with one  domestic  CLEC in  particular,  MCI,
through  the  Company's  strategic  relationship  with ADC.  From fiscal 1998 to
fiscal 1999,  revenues decreased by $9,875,000 or 10%. A significant  portion of
this  decrease from fiscal 1998 to fiscal 1999 was due to a decrease in revenues
from MCI through ADC. Unit volumes decreased slightly from fiscal 1998 to fiscal
1999 as first-time sales of the Company's SlimLine and StreamLine  products were
offset by lower sales of the Company's IMACS product line.  Average sales prices
of both  platforms  and  modules  decreased  from  fiscal  1998 to  fiscal  1999
primarily due to increased  pricing  competition  in the IAD market.  Pricing is
becoming more important as Telecommunications  carriers compete for local access
to small and  medium  sized  businesses  and,  as a  result,  the  carriers  are
demanding price reductions from access equipment suppliers.  Although during the
first three quarters of fiscal 1999 the Company recorded revenues  comparable to
or higher than the first three quarters of fiscal 1998, the Company  experienced
a large  decrease in revenues for the quarter ended June 30, 1999 as compared to
the quarter ended June 30, 1998.  The decrease in revenues from  $31,243,000  in
the quarter  ended June 30, 1998 to  $15,284,000  in the quarter  ended June 30,
1999 was due  primarily to the  Company's  failure to obtain large orders it had
expected  during the  quarter  from three of its major OEM  partners - Paradyne,
Nortel Networks  Corporation  ("Nortel") and XEL - and the lack of revenues from
MCI through ADC. The lack of anticipated  orders from Paradyne and Nortel in the
quarter  ended June 30, 1999 was due to delays in the  deployment  of  Premisys'
products by their customers.  XEL deferred orders of Premisys product during the
quarter ended June 30,1999 while awaiting the completion of in-process  upgrades
implemented by Premisys.  *The Company  believes that the loss of MCI's business
is due to MCI's merger with WorldCom. See "-Other Factors That May Affect Future
Operating  Results - Mergers of the Company's  Customers."  *The Company expects
that revenues will grow slightly from fiscal 1999 to fiscal 2000. *However,  the
Company's  expectations  regarding future revenue levels are subject to numerous
risks and uncertainties,  including limited order backlog,  the level of capital
expenditures  by  CLECs  and  other  carriers  and its  relationships  with  its
strategic  partners and the  introduction  of new products.  See "-Other Factors
That May Affect Future Operating  Results  -Indirect  Channels of Distribution,"
"-Mergers of the Company's Customers" and "-Rapidly Evolving Technology."

      The following table sets forth,  for the periods  indicated,  the revenues
generated by customers which accounted for 10% or more of the Company's revenues
in either fiscal 1997,  1998 or 1999,  other  domestic  customers as a group and
international  customers as a group, in absolute  dollars and as a percentage of
total revenues.

Source of Revenues
<TABLE>
<S>                      <C>         <C>         <C>         <C>         <C>

                         Fiscal      % Change    Fiscal       % Change   Fiscal 1999
                         1997                    1998
Paradyne                 $23,355,000     (34%)   $15,345,000       72%   $26,351,000
ALS (1)                        ---         (a)          ---        (a)    11,928,000
Motorola                 11,996,000       (9%)   10,946,000         8%    11,809,000
ADC                       9,576,000       214%   30,024,000        ---           (a)
DSC                       7,950,000       ---          (a)        ---           (a)
Other Domestic Customers 19,802,000       107%   41,043,000       (4%)    39,472,000
International Customers   5,679,000      (13%)    4,940,000      (42%)     2,863,000
    Total Revenues      $78,358,000       31%   $102,298,000     (10%)   $92,423,000
 ------------------------==========  ==========  ===========  =========  ============

Percentage of Total Revenues
                         Fiscal                  Fiscal                  Fiscal 1999
                           1997                     1998
Paradyne                       30%                      15%                      29%
ALS (1)                        (a)                      (a)                      13%
Motorola                       15%                      11%                      13%
ADC                            12%                      29%                      (a)
DSC                            10%                      (a)                      (a)
Other Domestic Customers       26%                      40%                      42%
International Customers         7%                       5%                       3%
     Total Revenues           100%                     100%                     100%
------------------------
</TABLE>

(a) - Amounts not  provided as revenues for the period were less than 10% of the
total.  (1) - AT&T  Local  Services  ("ALS")  was  formerly  known  as  Teleport
Communications Group ("Teleport").

      As  illustrated  in the  table  above,  the  Company  sells a  substantial
majority  of its  products to a limited  number of  customers,  which  generally
resell the Company's products to public carriers and end users. *The loss of any
one or more of the  Company's  major  customers  would have a  material  adverse
effect  on  the  Company's   business  and  operating   results.   *Any  of  the
telecommunications  equipment  suppliers  that  market  and sell  the  Company's
products could elect to cease marketing and selling the Company's products,  and
there can be no assurance that these telecommunications equipment suppliers will
continue to place  orders  with the Company or that the Company  will be able to
obtain orders from new telecommunications  equipment suppliers or end users. See
"-Other Factors That May Affect Future Operating  Results - Indirect Channels of
Distribution."


Gross Profit
                   Fiscal      % Change     Fiscal    % Change      Fiscal
                    1997                     1998                    1999
Gross Profit     $51,096,000      31%    $66,712,000     (16%)    $55,763,000
As a percentage
of Revenues          65%                      65%                      60%

      Cost of  revenues  consists of  component  costs,  compensation  costs and
overhead  related  to  the  Company's  manufacturing   operations  and  warranty
expenses.  Gross profit  improved from fiscal 1997 to fiscal 1998 primarily as a
result of increased  unit volumes.  Gross margin was  relatively  unchanged from
fiscal 1997 to fiscal 1998.  Gross profit and gross margin decreased from fiscal
1998 to fiscal 1999  primarily  as a result of lower  average  sales  prices for
platforms  and  modules  and  first-time  sales  of the  Company's  lower-margin
SlimLine and  StreamLine  products.  *The Company  expects its gross margins for
fiscal  2000 to  decline  somewhat  from the 60%  realized  in  fiscal  1999 due
primarily  to changes in product mix.  *However,  achievement  of the  Company's
expectations is subject to a number of  uncertainties,  including  customer mix,
the mix and  volume  of  products  sold and the  Company's  ability  to  realize
expected revenue levels.

Research and Development Expenses

                         Fiscal      % Change    Fiscal     % Change     Fiscal
                          1997                   1998                     1999
Research and
development expenses   $10,519,000      54%    $16,205,000    22%   $19,823,000
As a percentage of          13%                     16%                     21%
revenues

      Research and development  expenses  consist of personnel  costs,  contract
development fees, consulting,  testing,  supplies and depreciation expenses. All
software  development  costs have been expensed in the period in which they were
incurred.  Research and development expenses increased $5,686,000,  or 54%, from
fiscal 1997 to fiscal 1998 and  $3,618,000,  or 22%,  from fiscal 1998 to fiscal
1999.  The  increase  from  fiscal  1997 to  fiscal  1998 was  primarily  due to
additional  personnel for the purpose of expanding  the  Company's  product line
and, to a lesser extent,  increased consulting and supply expenses. The increase
from fiscal 1998 to fiscal 1999 was primarily  due to  additional  personnel for
the purpose of expanding  the  Company's  product line and, to a lesser  extent,
increased  depreciation  expenses.  In fiscal 1999,  the  Company's  development
activities  focused  primarily  on the  development  of the Q-155  and  SlimLine
products. See "-Other Factors That May Affect Future Operating Results - Rapidly
Evolving   Technology."   Research  and  development  expenses  increased  as  a
percentage  of the  Company's  revenues from 13% in fiscal 1997 to 16% in fiscal
1998 and to 21% in fiscal 1999. The increase from fiscal 1997 to fiscal 1998 was
the result of the increased research and development activities discussed above.
The increase in expenses as a percentage  of revenues from fiscal 1998 to fiscal
1999 was primarily due to the fact that while research and development  expenses
grew as planned,  the Company's revenues did not. *The Company  anticipates that
the amount of these  expenses will increase in fiscal 2000,  but as a percentage
of revenues,  will decrease  slightly in fiscal 2000 as compared to fiscal 1999.
*However,  the  expected  decrease in  research  and  development  expenses as a
percentage of revenues is subject to, among other things,  the Company's ability
to achieve revenue expectations.

Acquired In-Process Technology

      In the quarter  ended March 31,  1997,  the Company  executed a technology
license  agreement with  Positron.  The Company  licensed  certain SONET and SDH
based  technologies for use in its future products,  including the Q-155,  which
was first shipped in the quarter ended March 31, 1999.

      The  licensed  technology  includes  the right to modify  and  manufacture
products which are based on Positron's  OSIRIS-155Mb/s  SONET/SDH products.  The
licensed  technology  also  includes the right to use and  manufacture  Positron
proprietary  application-specific  integrated circuits (ASICs), and training and
integration assistance on all design materials.

     The Company  will pay Positron $4 million of license fees over three years.
Positron  will also be paid a royalty on the  Company's  products  utilizing the
licensed  technology  up to a maximum of $4  million.  Thus,  total  payments to
Positron will be between $4 million and $8 million.  The Company expensed the $4
million of license  fees in the quarter  ended March 31,  1997,  resulting  in a
$0.09 per share  earnings  reduction.  Payments  of license  fees to Positron in
fiscal 1997, 1998 and 1999 totaled $2.0 million,  $1.0 million and $1.0 million,
respectively.  *If the Company is  unsuccessful  in marketing  the product or if
customers do not accept the product, this technology has no alternative use. See
"-Other  Factors That May Affect  Future  Operating  Results - Rapidly  Evolving
Technology."

      In the quarter ended March 31, 1998,  the Company  announced the execution
of a technology  license agreement with SNT. SNT's technologies will provide the
Company  with  a  non-blocking  switching  core  expandable  to  11.6  Gbs,  ATM
interfaces to OC-3 and OC-12, 10/100MB  Ethernet/Fast  Ethernet interfaces,  and
related  software.  *The Company  intends to use these  technologies  to develop
broadband ATM and IP multiservice platforms. *However, there can be no assurance
that the Company will be able to integrate successfully this technology into its
products.  *If the Company is  unsuccessful  in  developing  the  product,  this
technology  has no alternative  use. See "-Other  Factors That May Affect Future
Operating Results - Rapidly Evolving Technology."

      The Company paid a total of $4.4 million for  licensing  SNT  technologies
and  related  software.  The  Company  expensed  these  fees  as a  purchase  of
in-process  research  and  development  in the  quarter  ended  March  31,  1998
resulting in a $0.10 per share  earnings  reduction.  The Company also  received
options to license future releases of SNT software for additional  fees. To date
the Company has not purchased any additional software releases from SNT.


Selling, General and Administrative Expenses

                         Fiscal       % Change   Fiscal     % Change   Fiscal
                         1997                    1998                    1999
Selling, general and
administrative expenses $21,364,000      30%   $27,705,000      2%   $28,305,000
As a percentage of          27%                    27%                   31%
revenues

      Selling expenses consist  principally of compensation  costs for sales and
marketing personnel (including sales commissions and bonuses),  travel expenses,
customer support expenses, trade show expenses and advertising expenses. General
and  administrative  expenses  consist  primarily of  compensation  expenses for
administration,  finance and general management personnel,  as well as legal and
accounting  fees.  Selling,   general  and  administrative   expenses  increased
$6,341,000,  or 30%, from fiscal 1997 to fiscal 1998 and  $600,000,  or 2%, from
fiscal 1998 to fiscal  1999.  The  increase  from fiscal 1997 to fiscal 1998 was
primarily the result of increased staffing,  primarily for sales, and associated
expenses,  such as payroll  taxes and sales  commissions  and to a lesser extent
increased occupancy and travel expenses. The increase from fiscal 1998 to fiscal
1999 was primarily the result of increased  staffing,  primarily for sales,  and
associated expenses, such as payroll taxes and sales commissions and to a lesser
extent increased  occupancy  expenses,  partially offset by lower trade show and
travel expenses. Selling, general and administrative expenses as a percentage of
the Company's  revenues was  unchanged at 27% in fiscal 1997 and 1998.  Selling,
general and  administrative  expenses increased as a percentage of the Company's
revenues to 31% in fiscal 1999.  The increase in these  expenses as a percentage
of  revenues  from  fiscal  1998 to fiscal  1999 was due to the fact that  while
selling,  general and  administrative  expenses  grew as planned,  the Company's
revenues did not.  *The Company  anticipates  that the amount of these  expenses
will  decrease  somewhat in fiscal 2000,  and will  decrease as a percentage  of
revenues  in fiscal  2000 as compared to fiscal  1999.  *However,  the  expected
decrease in selling,  general and  administrative  expenses as a  percentage  of
revenues is subject to, among other  things,  the  Company's  ability to achieve
revenue expectations.

Interest and Other Income, Net
                         Fiscal      % Change    Fiscal      % Change   Fiscal
                         1997                    1998                   1999
Interest and other      $2,641,000       29%    $3,399,000       5%   $3,573,000
income, net
As a percentage of          3%                     3%                       4%
revenues

      Interest  and other  income,  net  consists of interest  income,  interest
expense and, to a much lesser extent,  foreign  currency  gains and losses.  The
increase  in  interest  and other  income,  net for all  comparison  periods was
primarily due to increased  interest income from cash balances  invested in high
grade,  marketable  fixed income  securities  versus lower  yielding  bank money
market accounts.

Provision for Income Taxes
                           Fiscal      % Change   Fiscal   % Change    Fiscal
                             1997                   1998                1999
Provision for income taxes $6,963,000     16%   $8,055,000   (55%)    $3,587,000
As a percentage of
income before income taxes    39%                    37%                  32%

      The Company's provision for income taxes represents  estimated federal and
state income taxes. The Company's  effective income tax rate for fiscal 1997 was
39% which was less  than the  combined  federal  and state  statutory  rate as a
result of tax-exempt  interest  income from the Company's  municipal  securities
portfolio and  anticipated  utilization of research and  development tax credits
available in fiscal 1997.  The  Company's  effective  income tax rate for fiscal
1998 was reduced to 37% due to increased  tax exempt  income from the  Company's
municipal  securities  portfolio.  The Company's  effective  income tax rate for
fiscal  1999 was  reduced to 32% as a larger  portion of the  Company's  pre-tax
income  came from tax exempt  income  from the  Company's  municipal  securities
portfolio.  *The Company  anticipates  that its effective income tax rate of 32%
will remain unchanged in fiscal 2000.

Net Income per Share
                         Fiscal       % Change    Fiscal    % Change    Fiscal
                          1997                     1998                  1999
Net income             $10,891,000              $13,715,000           $7,621,000
Net income per share      $0.41         22%        $0.50       (40%)     $0.30
(diluted)
Shares used in
computing diluted net   26,498,000       4%      27,495,000     (8%)  25,384,000
income per share

      Net  income per share in fiscal  1997 was  reduced by $0.09 as a result of
the $4 million of license paid to Positron,  as discussed above. The increase in
net income per share from  fiscal  1997 to fiscal 1998 was due to an increase in
net income,  which was a result of the rate of growth of the Company's  revenues
being greater than the rate of growth in the Company's operating expenses.  This
increase  in net income  per share was  slightly  offset by a greater  number of
weighted  average common shares and common share  equivalents  used to calculate
net income per share.  Net income for fiscal  1998 was  reduced by license  fees
paid to SNT, as discussed  above.  The Company  expensed $4.4 million of license
fees for the SNT agreement in fiscal 1998, which reduced reported net income per
share in fiscal 1998 by $0.10.  The decrease in net income per share from fiscal
1998 to  fiscal  1999 was due to a  decrease  in net  income,  resulting  from a
decrease in revenues in fiscal  1999,  as  discussed  above,  and an increase in
operating expenses in fiscal 1999, also discussed above.

      In June 1998, the Financial Accounting Standards Board issued Statement of
Financial  Accounting  Standards No. 133 "Accounting for Derivative  Instruments
and Hedging  Activities"  ("SFAS  133").  SFAS 133  establishes  accounting  and
reporting standards for derivative instruments and for hedging activities and is
effective for all fiscal years  beginning  after June 15, 2000. The Company does
not expect the adoption of SFAS 133 to have a material  impact on its results of
operations.


<PAGE>



Liquidity and Capital Resources
                            Fiscal    % Change     Fiscal   % Change   Fiscal
                             1997                   1998                1999
                           ---------- -------- ----------- --------- -----------
Net  cash   provided  by
operating activities       $9,233,000    189%    $26,675,000   189%   $1,246,000
Year  end   cash,   cash
equivalents and short-term$73,224,000     45%   $105,981,000    45%  $84,434,000
investments
Year end working capital  $90,254,000     24%   $112,079,000    24% $100,593,000

     In  fiscal  1999,  net  cash of $1.2  million  was  provided  by  operating
activities  primarily  due to net income and a decrease in accounts  receivable,
offset by an increase in  inventories  and a decrease in accounts  payable.  The
increase in inventories during fiscal 1999 was the result of lower than expected
product  sales during the fiscal year,  primarily  during the quarter ended June
30, 1999, as discussed above.

      The Company  purchased  $4.2 million of property  and  equipment in fiscal
1999,  primarily  for  computers and  peripherals  and machinery and  equipment.
Financing activities used $18.6 million of cash in fiscal 1999, primarily due to
the  repurchase of Common Stock.  Cash used in the Common Stock  repurchase  was
partially  offset by cash provided by the issuance of Common Stock in connection
with the Company's employee benefits plan.

      At June 30, 1999, the Company's  principal  sources of liquidity  included
$84  million of cash,  cash  equivalents  and  short-term  investments,  and the
Company had working capital of approximately  $100.6 million. The Company has no
significant capital spending or purchase  commitments other than normal purchase
commitments and commitments  under  facilities and capital leases.  *The Company
believes that available  funds and  anticipated  cash flows from operations will
satisfy  the  Company's   projected  working  capital  and  capital  expenditure
requirements through at least the next 18 months.

     On August  31,  1998,  the  Company's  Board of  Directors  authorized  the
repurchase,  at  management's  discretion,  of up to 4.0  million  shares of the
Company's  Common Stock at market  prices not to exceed  $14.00 per share and as
market and business  conditions  warrant.  As of June 30, 1999,  the Company had
repurchased  for cash 2.4 million  shares at market prices ranging from $6.69 to
$10.94 per share.  As of September 17, 1998,  pursuant to the  authorized  stock
repurchase program,  the Company sold 2.0 million put warrants and purchased 1.5
million call options. On January 26, 1999, the Company paid $762,000 to dissolve
the  obligation  for 1.0 million put warrants and 0.75 million call options that
were to expire on January 29, 1999. On September 10, 1999, the Company paid $3.7
million to dissolve the remaining 1.0 million put warrants and 0.75 million call
options which were to expire on September 15, 1999. The expenses associated with
the  dissolution  of these put warrants are reflected as a component of cash for
the quarter ended March 31, 1999 and will be reflected in the same manner in the
quarter ended September 30, 1999.

Recent accounting pronouncements

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial  Accounting  Standards No. 133 "Accounting for Derivative  Instruments
and Hedging  Activities"  ("SFAS  133").  SFAS 133  establishes  accounting  and
reporting standards for derivative instruments and for hedging activities and is
effective for all fiscal years  beginning  after June 15, 2000. The Company does
not expect the adoption of SFAS 133 to have a material  impact on its results of
operations.

Other Factors That May Affect Future Operating Results

      As referenced in the first paragraph of this Item 2, this section consists
primarily of forward looking  statements and associated  risks but, for improved
readability,  does not include asterisks (or italics in the non-EDGAR version of
this Form 10-K).

      COMPETITION.   The  market  for  telecommunications   products  is  highly
competitive and subject to rapid  technological  change. The Company's principal
competition  for the market segment served by the Company's IMACS products comes
from major telecommunications  equipment suppliers,  such as Newbridge,  Tellabs
and World Access,  which offer a broad line of products including access devices
for business  applications.  The Company's principal  competition for the market
segment served by the Company's  SlimLine and StreamLine  products includes CAC,
Adtran, Vina and existing  telecommunications  equipment  manufacturers  selling
channel bank and CSU/DSU  products.  In addition,  the Company faces competition
from  companies  who  provide  substitute,  as  opposed  to direct  replacement,
solutions for the Company's IMACS, SlimLine and StreamLine products. The primary
competitors for such substitute  products include AFC, Alcatel,  Lucent,  Nortel
and Reltec.  The  Company has  experienced  and expects  substantial  additional
competition  from existing  competitors as they continue to develop  products to
compete with the  functionality  and flexibility of the Company's  products.  As
shipments of the Company's SlimLine and StreamLine products increase, it expects
to face additional  competition from channel bank and CSU/DSU vendors as well as
from new startups  focusing on the access  equipment  market.  The Q-155 product
competes  with  broadband  access  products  offered or announced by a number of
vendors  including  Fibex,  which was  recently  acquired by Cisco,  Accelerated
Networks, Inc., Atmosphere Networks,  Inc., other  telecommunications  equipment
manufacturers  selling  multiplexer  products and digital loop carriers with the
Bellcore  Standard GR-303 protocol and other  competitors,  such as Pairgain and
Paradyne,  that provide bundled voice and data services and solutions for better
utilization of bandwidth.  Certain of the telecommunications equipment suppliers
which market the Company's  products have recently  either acquired or expressed
an interest in acquiring  companies  which have  products or  technologies  that
either do or may compete with the Company's products.  Other  telecommunications
equipment suppliers that market and distribute the Company's products may in the
future develop or acquire products that could be sold for selected  applications
for which the Company's products are currently provided.  Successful development
or  acquisition  of such  products  could  reduce the level of demand from these
telecommunications  equipment suppliers for the Company's products. In addition,
the Company  believes  that there will be an increase in the  intensity of price
competition in the markets served by the Company's  products.  Thus,  while unit
volumes are expected to increase, the Company believes that the rate of increase
of revenues will be lower than the rate of increase in units.  While the Company
has recently begun selling is StreamLine and SlimLine  products,  which are more
price competitive than its IMACS platform,  these new products must compete with
an increasing number of low priced integrated access devices.  As a result,  the
Company may find it more  difficult to achieve  expected  levels of revenues and
profitability.

      LIMITED ORDER BACKLOG.  The Company typically  operates with limited order
backlog,  and a majority  of its  revenues  in each  quarter  result from orders
booked in that quarter.  Also,  the Company has from  time-to-time  recognized a
majority of its  revenues  from sales  booked and shipped in the last month of a
quarter,  including the quarters ended September 30, 1998, December 31, 1998 and
March 31, 1999. Due to the delivery  requirements of its customers,  the Company
expects  to  continue  to  experience  limited  order  backlog.   The  Company's
manufacturing  procedures  are  designed  to assure  rapid  response to customer
demand,  but may, in some  circumstances,  create  risk of excess or  inadequate
inventory,  which may have an  adverse  effect  on the  Company's  business  and
operating results.  The Company's  agreements with its customers typically allow
customers to cancel orders or delay scheduled  shipments without penalty until a
relatively  short  period of time  before  planned  shipment.  The  Company  has
experienced  cancellation  of orders  from time to time,  and expects to receive
order  cancellations  from time to time in the  future,  which  could  adversely
affect the  Company's  revenues for a quarter or series of  quarters.  Because a
substantial  portion of customer  orders are filled within the fiscal quarter of
receipt,  and because of the ability of customers to revise or cancel orders and
change delivery schedules without significant penalty, the Company believes that
its  backlog  as of any  given  date is not  necessarily  indicative  of  actual
revenues for any succeeding period.

      DEPENDENCE  ON KEY  PERSONNEL.  The  Company's  success  to date  has been
significantly  dependent on the  contributions  of its senior officers and other
key  employees.  The loss of the  services  of any one of the  Company's  senior
officers or key employees could have a material  adverse effect on the Company's
business  and  operating  results.  The  Company's  success  also  depends  to a
significant   extent  on  its   ability   to  attract   and  retain   additional
highly-skilled  technical,  managerial  and sales and marketing  personnel,  the
competition for whom is intense.

      INDIRECT  CHANNELS OF DISTRIBUTION.  Substantial  portions of the sales of
the Company's products are through indirect channels of distribution.  Thus, the
Company's  ability to affect and judge the  timing and size of  individual  user
orders is more limited than for manufacturers  selling directly to the end users
of their  products.  Any of thc  strategic  partners  that  market  and sell the
Company's  products  could elect to cease  marketing  and selling the  Company's
products,  and there can be no  assurance  that these  strategic  partners  will
continue to place  orders  with the Company or that the Company  will be able to
obtain orders from new strategic partners or end users. See "-Relationship  with
Paradyne."  Strategic  partners  could  develop  products that could be sold for
selected  applications for which the Company's products are currently  provided,
which could reduce the level of demand from these  telecommunications  equipment
suppliers for the Company's  products.  See "-  Competition."  In addition,  the
Company's  revenues for a given quarter may depend to a significant  degree upon
planned product shipments for a single carrier's  equipment  deployment project.
For example, in the quarters ended September 30 and December 31, 1997, March 31,
1998  and  June  30,  1998,   shipments  of  the   Company's   products  to  MCI
Communications  Corporation ("MCI"), through ADC, one of the Company's strategic
distribution partners, represented more than 10% of the Company's total revenues
for such quarters.  Revenues derived from particular  carrier projects have been
and continue to be  difficult  to forecast due to a relatively  long sales cycle
and delays in the timing of such projects.  For example, the Company's financial
results  for the first  quarter  of fiscal  1999 were  adversely  affected  when
product shipments for MCI were lower than expected.  In addition,  the Company's
financial  results  for the  quarter  ended  June 30,  1999 were also  adversely
affected  primarily as a result of the Company's  failure to obtain large orders
it had  expected  during  the  quarter  from  three of its major OEM  partners -
Paradyne,  Nortel and XEL. Similar delays may occur in the future and would have
a significant impact if they did occur.  Delays can be caused by late deliveries
by other vendors, changes in implementation priorities,  slower than anticipated
growth in demand for the services that the equipment  supports or in the capital
expenditures of the end user customer,  consolidation  among carriers and delays
in  obtaining  regulatory  approvals  for  new  tariffs.  See  "-Mergers  of the
Company's  Customers."  Revenues  can also be  affected  by  delays  in  initial
shipments of new products  and new software  releases  developed by the Company.
See  "-Rapidly  Evolving  Technology."  In  developing  countries,   delays  and
reductions  in the planned  deployment  of the  Company's  products  can also be
caused by sudden  declines in the local economy or capital  availability  and by
new import  controls.  Suppliers of the Company's  products have in the past and
may in the future build significant  inventory in order to facilitate more rapid
deployment of anticipated major projects or for other reasons. Decisions by such
suppliers to sell from their  inventory  could lead to  reductions  in purchases
from the Company.  These  reductions,  in turn, could cause  fluctuations in the
Company's operating results and have an adverse effect on the Company's business
and  operating  results in the periods in which the  inventory is  utilized.  In
addition, the Company has in the past experienced delays as a result of the need
to modify its products to comply with unique customer specifications.  There can
be no assurance that any future delays would not have an adverse effect.

      QUARTERLY FLUCTUATIONS. The Company's operating results may fluctuate on a
quarterly  and  annual  basis due to factors  such as the timing of new  product
announcements  and  introductions  by the Company,  its major  customers and its
competitors, delays in equipment deployment,  availability and market acceptance
of new or enhanced versions of the Company's products, changes in the product or
customer  mix  of  revenues,   changes  in  the  level  of  operating  expenses,
competitive  product  and  pricing  pressures,  the gain or loss of  significant
customers,  increased  research  and  development  expense  associated  with new
product   introductions,   component  shortages  (see  "-Dependence  on  Certain
Suppliers"),  and general  economic  conditions.  The Company's  planned product
shipments  for  a  single  carrier's  equipment  deployment  project  can  be  a
significant portion of a quarter's revenues,  and delays in the timing of such a
project (which have occurred in the past, including the quarters ended March 31,
1997 and June 30, 1999) or reductions in expected  shipments to a single carrier
(which  occurred in the quarter  ended  September 30, 1998) could and have had a
material adverse effect on the Company's business and operating results.  All of
the above factors are difficult for the Company to forecast,  and these or other
factors can  materially  adversely  affect the Company's  business and operating
results for one quarter or a series of quarters.  The Company's  expense  levels
are based in part on its expectations regarding future revenues and in the short
term are fixed to a large extent. Therefore, the Company may be unable to adjust
spending in a timely  manner to compensate  for any  unexpected  future  revenue
shortfall.  The Company has on several  occasions,  including the quarters ended
September  30,  1998,  December 31, 1998 and June 30, 1999  experienced  such an
unforecasted  revenue  shortfall and was not able to  compensate  for it through
expense reductions.  Any significant decline in demand relative to the Company's
expectations  or any  material  delay of customer  orders  would have a material
adverse effect on the Company's  business and operating  results.  The Company's
operating  results  may also be affected  by  seasonal  trends.  Such trends may
include lower  revenues in the summer  months during the Company's  first fiscal
quarter when many businesses  experience lower sales, and in the Company's third
fiscal quarter,  as compared to its second fiscal quarter, as a result of strong
calendar year end  purchasing  patterns from certain of the Company's  strategic
customers.

     MERGERS OF THE COMPANY'S CUSTOMERS. A number of the largest CLECs which use
the  Company's  products  have either  merged or  announced  plans to merge with
larger  carriers over the next several  quarters.  MCI has merged with WorldCom,
Inc.  ("WorldCom"),  Teleport has merged with AT&T Corporation ("AT&T"), and GTE
Network  Services ("GTE") has announced an intention to merge with Bell Atlantic
Corporation ("Bell Atlantic"). The Company believes that part of the impetus for
each of these mergers is to increase the combined  carrier's  ability to compete
for local  access  markets.  In the long term,  the Company  believes  that this
should cause  capital  spending on local  access,  in which the type of products
provided by the  Company  serve a vital  function,  to grow.  However,  as these
mergers  are  implemented,  it is  likely  that  capital  expenditures  will  be
temporarily  deferred as the newly combined  companies  evaluate  inventories of
undeployed equipment, potential overlaps in network deployment plans, strategies
for  future  product   deployments,   and  assignment  of  responsibilities  for
deployments in targeted local markets.  This risk of a deferral in  expenditures
on local access,  including expenditures for the Company's products, has already
materialized in the case of MCI. The Company  anticipates that it also may see a
deferral  of  expenditures  for  its  products  by GTE in  connection  with  its
anticipated  merger. In addition,  the Company  anticipates that the slowdown in
expenditures  may persist for  multiple  quarters  following  the  mergers.  The
increased  buying power wielded by these merged carriers and by merged equipment
suppliers,  such as Alcatel and DSC Communications Corp. ("DSC"), is also likely
to place added  competitive  price pressure on equipment  manufacturers  such as
Premisys.

      RAPIDLY EVOLVING TECHNOLOGY.  The  telecommunications  equipment market is
characterized  by  rapidly  changing   technologies  and  frequent  new  product
introductions,  which  include  cell and  packet  technologies  and new  digital
subscriber line  technologies  ("xDSL").  The Company's success will depend to a
substantial  degree  upon its  ability to respond to changes in  technology  and
customer requirements.  This will require the timely selection,  development and
marketing of new and cost effective  products and enhancements.  The Company has
licensed  certain  technology from Positron for inclusion in the Company's Q-155
products,  which were announced in June 1997. The Company began field trials for
this product in the quarter ending December 31, 1998 and shipped its first Q-155
product in the quarter  ended March 31, 1999.  Also,  in the quarter ended March
31,  1998,  the Company  licensed  cell and packet  technologies  from SNT.  The
Company  intends to ship  products  based upon the SNT  technology  in the first
quarter of calendar  2000.  However,  there can be no assurance that the Company
will be  able to  successfully  develop  new  products  or new  enhancements  to
existing  products on a timely and  cost-effective  basis.  The Company may also
experience delays in connection with its product development efforts,  which can
impact expected  operating results.  For example,  the Company's shipment of its
new SlimLine  product had been delayed for several  quarters due to hardware and
software  revisions  necessary  to  make  the  product  more  acceptable  in the
marketplace.  In addition,  failure to achieve market acceptance of new products
could have a material  adverse effect on the Company's  operating  results.  The
introduction of new and enhanced  products also requires that the Company manage
transitions  from older  products in order to minimize  disruptions  in customer
orders, avoid excess inventory of old products and ensure that adequate supplies
of new products can be delivered to meet customer orders.  In the past,  certain
of the Company's newly introduced products have contained  undetected errors and
incompatibilities  with  installed  products,  which has  resulted in losses and
delays  in  market  acceptance  of  such  products.  As  the  functionality  and
complexity  of  the  Company's  products  continue  to  grow,  the  Company  has
experienced  and may in the future  experience  an  increased  incidence of such
errors or failures as well as delays in introducing its products.

      RELATIONSHIP WITH PARADYNE.  The Company has a strategic relationship with
Paradyne,  formerly a wholly-owned  subsidiary of AT&T,  that involves the joint
development,  marketing and sale of the Company's IMACS product by Paradyne. The
Company's  agreement  with Paradyne  provides  Paradyne  exclusive  distribution
rights with respect to the products  covered by the agreement to AT&T  entities,
as defined under the  agreement.  At the time that the Company  entered into its
OEM agreement  with Paradyne,  Paradyne was a 100%-owned  subsidiary of AT&T. In
1996, AT&T separated into three  publicly-held  stand-alone  businesses,  one of
which - Lucent would focus on the communications equipment market. In June 1996,
Lucent  concluded  a stock  purchase  agreement  for the sale of Paradyne to the
Texas Pacific Group. In the quarter ended March 31, 1997, Paradyne announced new
products which are extensions of its existing line of CSU/DSU products. Premisys
believes  that the  higher  capacity  models of  Paradyne's  916x  series  offer
features  that are  similar  to  those of the  Company's  IMACS  and  StreamLine
products.  See "-Competition" and "-Rapidly Evolving Technology." In the quarter
ended December 31, 1997,  the Company  entered into an OEM agreement with Lucent
for the purchase of the SlimLine and StreamLine products directly from Premisys.
Shipments to Paradyne have  represented  a significant  portion of the Company's
revenues,  including  in fiscal 1999,  and  continue to represent a  significant
portion of the Company's revenues in fiscal 2000. Neither Paradyne nor Lucent is
subject to any minimum purchase requirements, and there can be no assurance that
they will continue to place orders with the Company.  Significant  reductions in
shipments  to Paradyne  could have a material  adverse  effect on the  Company's
business and operating results.

      LIMITED  PROTECTION OF  INTELLECTUAL  PROPERTY.  The Company relies upon a
combination  of  patent,   trade  secret,   copyright  and  trademark  laws  and
contractual  restrictions  to establish  and protect  proprietary  rights in its
products.  There  can be no  assurance  that  these  statutory  and  contractual
arrangements  will prove sufficient to deter  misappropriation  of the Company's
technologies or independent third-party development of similar technologies. The
telecommunications  industry is characterized by the existence of a large number
of patents and frequent litigation based on allegations of patent  infringement.
In the event of litigation to determine the validity of any  third-party  claims
asserting that the Company's  products  infringe or may infringe the proprietary
rights of such third  parties,  such  litigation,  whether or not  determined in
favor of the  Company,  could result in  significant  expense to the Company and
divert the efforts of the Company's  technical  and  management  personnel  from
productive  tasks.  In the event of an adverse  ruling in such  litigation,  the
Company  might  be  required  to  discontinue  the  use and  sale of  infringing
products,  expend significant resources to develop non-infringing  technology or
obtain licenses from third parties.

      INDUSTRY  STANDARDS AND REGULATORY  MATTERS.  The market for the Company's
products is also characterized by the need to meet a significant number of voice
and data  communications  regulations and standards,  including those defined by
the  Federal  Communications   Commission,   Underwriters   Laboratories,   Bell
Communications Research ("Bellcore") and, internationally, various countries and
international   standards   committees.   Regulations  can  be  changed  by  new
legislation, as occurred with the enactment of the Telecommunications Reform Act
of 1996; these changes can impact service offerings and  competitiveness  in the
communications marketplace, and thus could have an effect on the timing and size
of the industry's investment in access equipment.  New standards are evolving as
new  technologies,  such as ATM and xDSL,  are  deployed.  As  existing  and new
standards evolve, the Company will be required to modify its products or develop
and  support  new  versions  of its  products.  It is also  important  that  the
Company's  products  be easily  integrated  with  carriers'  network  management
systems.  The  failure  of the  Company's  products  to  comply,  or  delays  in
compliance,  with the various  existing and evolving  industry  standards  could
delay  introduction  of the  Company's  products,  which  could  have a material
adverse  effect on the Company's  business and operating  results.  In addition,
government  regulatory policies are likely to continue to have a major impact on
the pricing of existing as well as new public network services and therefore are
expected to affect demand for such services and the telecommunications  products
that support such services.

      DEPENDENCE ON CERTA1N SUPPLIERS.  Certain components used in the Company's
products are  currently  available  from only one  supplier.  In  addition,  the
Company relies on contract  manufacturers  to produce its printed  circuit board
assemblies.  Use  of  contract  manufacturers  can  expose  Premisys  to  supply
interruptions  due  to  production,   quality  or  financial   problems  of  its
contractors.  Shortages or delays in the delivery of the components  used in the
Company's  products  (which have  occurred  in the past) or  extended  delays in
deliveries  of printed  circuit board  assemblies  could result in delays in the
shipment of the Company's products and/or increase  component costs.  Failure of
the Company to order sufficient  quantities of any required component in advance
could prevent the Company from increasing  production of products in response to
customer  orders in excess of amounts  projected  by the  Company.  Although the
Company  typically  maintains  some reserve  inventory of components and printed
circuit board assemblies,  this inventory would not cover a significant delay in
the delivery of such items.

      YEAR 2000 RISKS. The Company has a formal Year 2000 Conformance Project in
place that focuses on four key  readiness  areas:  (1)  internal  infrastructure
readiness,   addressing   internal   information   systems  and  non-information
technology systems;  (2) supplier readiness,  addressing the preparedness of our
supplier  base;  (3)  product   readiness,   addressing  the  Company's  product
functionality,  which  includes  customer  support of the installed  base of the
Company's products;  and (4) customer readiness,  addressing the preparedness of
our customer  base.  For each  readiness  area,  a task force is  systematically
performing a Company-wide risk assessment,  conducting  testing and remediation,
and  communicating  with employees,  suppliers,  customers and other third party
business  partners to raise  awareness of the Year 2000  problem.  Following are
overviews of each readiness  area and the Company's  progress for becoming ready
for the Year 2000.

      Internal  infrastructure  readiness:  An assessment  of internal  computer
software and hardware has been  completed  with the assistance of a third party.
The  Company  has  migrated  to  an  upgraded  version  of  its  enterprise-wide
accounting and  manufacturing  system,  which is Year 2000 compliant.  For other
systems,  the Company has identified all  non-compliant  systems,  established a
project for prioritized  system  compliance,  and is in the process of executing
under such  compliance  project.  Other systems are scheduled to be compliant no
later than November 1999. In addition to applications and information technology
hardware,  the  Company  is  testing  remediation  plans for  embedded  systems,
facilities and other operations.

      Supplier  readiness:  This  program  is  focused  on  minimizing  the risk
associated with suppliers in two areas: (1) a supplier's  business capability to
continue  providing  products and services,  and (2)  compliance of a supplier's
products with Year 2000.  Suppliers have been  identified and contacted based on
their criticality to the Company. The Company has received responses from all of
its  preferred  suppliers.  Most  of  the  respondents  are in  the  process  of
developing  remediation  plans.  Based on interactions  with and assurances from
suppliers, the Company believes that supplier issues that potentially affect the
Company's products have been resolved.

      Product readiness: The Company has completed a comprehensive program which
focused on identifying  and resolving Year 2000 issues existing in the Company's
products.  The program  encompassed a number of key efforts  including  testing,
evaluation,  engineering  and  manufacturing  implementation.  In addition,  the
program  focused  on  customer   support  of  the  installed   base,   including
coordination  of retrofit  activity  and testing  existing  customer  electronic
transaction  capability.  Based on these efforts,  the Company believes that its
products, both past and present, are Year 2000 compliant.

      Customer readiness: The Company sells a substantial portion of its product
to large,  publicly  traded  companies who themselves  are addressing  Year 2000
compliance issues. Premisys has been working directly with these customers,  who
are also our strategic  distribution partners or major distributors,  to resolve
any issues  between them and the Company.  The Company has also  reviewed  their
readiness  statements  as filed in  public  documents  with the  Securities  and
Exchange Commission. Based on these efforts, the Company believes that Year 2000
issues will not  materially  affect  shipment  of  products to these  customers.
However,  there can be no assurances that  unforeseen  problems or problems with
customers  of  Premisys'  partners  or  distributors  will not  occur and have a
material impact on the Company's  revenues in the future.  In the event that any
of the Company's  significant  customers do not  successfully and timely achieve
Year  2000  compliance  of  their  own  products,  the  Company's  business  and
operations  could  be  adversely  affected.  Use of the  Company's  products  in
connection with customer  products which are not Year 2000 compliant,  including
non-compliant hardware and software, may result in inaccurate exchange of dates,
performance  problems or system  failure.  If the  businesses  of the  Company's
significant customers are materially and adversely affected by Year 2000 issues,
the Company's  business will also be  materially  and adversely  affected to the
extent that such  customers  delay,  postpone or cancel orders for the Company's
products  as they  divert  resources  to fixing  their own Year 2000  compliance
problems. In addition, the Company believes that the businesses of the Company's
strategic  partners may be  adversely  affected to the extent that the Year 2000
compliance  concerns  of their  own end user  customers  affect  the  purchasing
patterns of such customers in the short-term.  Such end user customers may defer
purchases  of  telecommunications  equipment  generally  until early in the next
millennium to avoid Year 2000  problems.  Any such  deferral of purchases  could
reduce demand for the Company's  products by the Company's  strategic  partners,
which could have a material adverse effect on the Company's business,  operating
results and financial condition.

      General Risk Factors:  The Company's Year 2000 project is currently in the
remediation phase. The Company believes that, in spite of their assurances,  its
greatest  potential risks are associated with its suppliers.  In many cases, the
Company  is  relying  on  assurances   from  suppliers  that  new  and  upgraded
information systems and other products will be Year 2000 compliant.  The Company
plans to test such third-party products,  but cannot be sure that its tests will
be adequate or that, if problems are  identified,  they will be addressed by the
supplier in a timely and  satisfactory  way.  The Company is at the  remediation
phase for its  operations  and  infrastructure,  and,  while the Company  cannot
foresee any  significant  problems or issues,  it cannot predict  whether or not
significant problems or issues will be identified in the future. The Company has
determined  the extent of  contingency  planning  that may be  required,  but it
cannot be sure  that  additional  actions  will not be  necessary.  Based on the
status of the  assessments  made and  remediation  plans  developed to date, the
Company is not in a position to state the total cost of  remediation of all Year
2000 issues;  however, the Company believes such costs will not exceed $500,000.
However,  the  Company has not yet  developed  remediation  for all  problems or
completely implemented or tested some of its remediation plans. As the Year 2000
project continues,  the Company may discover additional Year 2000 problems,  may
not be able to develop,  implement,  or test remediation plans, or may find that
the costs of these activities exceed current  expectations.  Because the Company
uses a variety of information systems and has additional systems embedded in its
operations  and  infrastructure,  it cannot be sure that all of its systems will
work together in a Year 2000-compliant fashion.  Furthermore, the Company cannot
be sure that it will not suffer  business  interruptions,  either because of its
own Year 2000  problems or those of its  customers or suppliers  whose Year 2000
problems  may  make  it  difficult  or  impossible  for  them to  fulfill  their
commitments to the Company. If the Company fails to satisfactorily  resolve Year
2000 issues related to its products in a timely  manner,  it could be exposed to
liability to third parties.

      RISKS FROM  CONVERSION TO SINGLE  EUROPEAN  CURRENCY.  On January 1, 1999,
certain member states of the European Economic  Community fixed their respective
currencies to a new currency, commonly known as the Euro. During the three years
beginning on January 1, 1999, business in these countries will be conducted both
in the  existing  national  currency,  such as the French  Franc or the Deutsche
Mark,  as well as the Euro.  Companies  operating in or  conducting  business in
these  countries  will need to ensure that their  financial  and other  software
systems  are  capable of  processing  transactions  and  properly  handling  the
existing  currencies  and  the  Euro.  Based  on the  current  level  of  direct
international  business  being  conducted by the  Company,  the Company does not
expect  that  introduction  and  use of the  Euro  will  materially  affect  the
Company's business.  However, if the Company encounters unexpected opportunities
and/or  difficulties,  the  Company's  business  could  be  adversely  affected,
including the inability to bill customers and to pay suppliers for  transactions
denominated  in the Euro  and the  inability  to  properly  record  transactions
denominated in the Euro in the Company's financial statements.

      STOCK PRICE  FLUCTUATIONS.  All of the above factors are difficult for the
Company to  forecast,  and these or other  factors,  such as changes in earnings
estimates by securities  analysts,  can  materially  affect the Company's  stock
price for one quarter or a series of  quarters.  Further,  the stock  market has
experienced  extreme  price  and  volume  fluctuations  that  have  particularly
affected the market  prices of  securities  of many high  technology  companies.
These  fluctuations,   as  well  as  general  economic,   political  and  market
conditions,  may materially  adversely  affect the market price of the Company's
Common Stock.  There can be no assurance that the trading price of the Company's
Common Stock will remain at or near its current level.


Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

      The Company,  in the normal  course of  business,  is subject to the risks
associated  with foreign  currency  exchange  rates,  fluctuations in the market
value of its fixed income securities available-for-sale, and changes in interest
rates.

      To date, the Company's exposure to foreign currency  fluctuations has been
minimized  through the denomination of its foreign sales, and hence its accounts
receivable,  in US  dollars  as  well  as the  use of  letters  of  credit  when
warranted.  The Company funds its  international  operations from US dollar bank
accounts  on an as needed  basis  and,  accordingly,  does not keep  significant
amounts of funds in foreign  currencies.  Presently,  the Company does not hedge
foreign currency exposures for its non-dollar  denominated operating expenses in
Europe, Asia, Canada and Latin America as such amounts have not been material in
relation to the Company's  domestic operating  expenses.  Until fiscal 1997, the
Company purchased a substantial amount of its modules from one foreign supplier.
Today,  substantially  all of these  modules are  sourced in the United  States.
There  has been no  significant  change in the  Company's  exposure  to  foreign
currency fluctuations during fiscal 1999, as compared to fiscal 1998.

      The Company  also  maintains  a  portfolio  of  marketable,  fixed  income
securities,  available  for sale,  of  various  issuers,  types and  maturities.
Substantially all of the portfolio consists of municipal securities. The Company
limits its  exposure to interest  and credit risk by  establishing  and strictly
monitoring  clear policies and guidelines  for its fixed income  portfolio.  The
maximum  allowable  maturity for any one  investment  is 3 years and the maximum
allowable duration of the portfolio is limited to 1.5 years. The guidelines also
establish credit quality  standards and limits on exposure to one issue,  issuer
and type of  instrument.  The fair market  value of the  Company's  fixed income
securities  portfolio at June 30, 1999 was $81 million,  with the  corresponding
unrealized  gain included as a component of  shareholders'  equity.  The average
weighted duration of the portfolio increased from 0.99 years at June 30, 1998 to
1.20 years at June 30, 1999.

      The following table presents the hypothetical change in the aggregate fair
market value of the Company's fixed income securities portfolio at June 30, 1999
which would result if the Federal  Funds Rate changed as shown.  Market  changes
reflect  immediate  hypothetical  parallel  shifts in the yield curve of plus or
minus 50 basis points ("BPS"), 100 BPS and 150 BPS.

                         Decrease in Federal Funds    Increase in Federal Funds
                                   Rate                         Rate
                       ---------------------------------------------------------
Change in Federal Funds (150 BPS) (100 BPS) (50 BPS)  50 BPS   100 BPS   150 BPS
Rate (BPS)
--------------------------------------------------------------------------------
Change in Securities     $1,479     $976      $474    ($488)    ($969)  ($1,443)
Valuation ($000's)

      The Company  also has a potential  obligation  at June 30, 1999 related to
put warrants.  The potential obligation was dissolved on September 10, 1999. See
Note 6, "Put Warrants," of Notes to Condensed  Consolidated Financial Statements
in this Form 10-K.


Item 8.  Financial Statements and Supplementary Data

      Quarterly  supplementary  data is  included  as part of Item 6,  "Selected
Financial Data." The Company's  consolidated  financial  statements  required by
this item are set forth below.


<PAGE>


                          PREMISYS COMMUNICATIONS, INC.
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                            Page
Report of Independent Accountants                                             33
Consolidated Balance Sheet as of June 30, 1998 and 1999                       34
Consolidated Income Statement for the years ended June 30,
1997, 1998 and 1999                                                           35
Consolidated Statement of Stockholders' Equity for the years ended June 30,
1997, 1998 and 1999                                                           36
Consolidated Statement of Cash Flows for the years ended June 30, 1997, 1998
and 1999                                                                      37
Notes to Consolidated Financial Statements                                    38


<PAGE>





                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
 Stockholders of Premisys Communications, Inc.

In our opinion,  the  accompanying  consolidated  balance  sheet and the related
consolidated  statements of income,  of  stockholders'  equity and of cash flows
present fairly,  in all material  respects,  the financial  position of Premisys
Communications,  Inc. and its  subsidiaries  at June 30, 1998 and 1999,  and the
results of their  operations and their cash flows for each of the three years in
the period ended June 30, 1999, in conformity with generally accepted accounting
principles.  These financial  statements are the responsibility of the Company's
management;  our  responsibility  is to express  an  opinion on these  financial
statements  based on our audits.  We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements,  assessing the accounting  principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion  expressed
above.



 PRICEWATERHOUSECOOPERS LLP
 San Jose, California
 July 22, 1999 except for Note 6, which is as of September 10, 1999.




<PAGE>


                          PREMISYS COMMUNICATIONS, INC.
                           CONSOLIDATED BALANCE SHEET
                      (in thousands, except per share data)

                                     ASSETS

                                                              June 30,
                                                     ---------------------------
                                                           1998          1999
                                                        ------------  ----------
Current assets:
   Cash and cash equivalents                                $31,006      $ 3,982
   Short-term investments                                    74,975       80,452
       Accounts receivable, net                              12,208        8,459
   Inventories                                                3,859       15,231
   Deferred tax assets                                        7,355        7,895
   Prepaid expenses and other assets                            657        1,368
                                                        ------------  ----------

     Total current assets                                   130,060      117,387

Property and equipment, net                                   8,392        9,053
Other assets                                                    305          184
                                                        ------------  ----------

                                                           $138,757     $126,624
                                                        ============  ==========


                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Accounts payable                                         $ 6,969      $ 5,759
   Accrued liabilities                                       10,277       10,020
   Income taxes payable                                         735        1,015
                                                         -----------  ----------

     Total current liabilities                               17,981       16,794
                                                         -----------  ----------

Commitments (Note 9)

Put Warrant obligations                                         ---       10,625
                                                         -----------  ----------

Stockholders' equity:
   Preferred Stock, $0.01 par value, 2,000 shares
   authorized; no
     shares issued or outstanding                               ---          ---
   Common stock, $0.01 par value, 100,000 shares
   authorized;
     25,974 and 26,478 shares issued and outstanding            260          265
   Additional paid-in capital                                85,230       78,336
   Treasury Stock                                               ---     (22,303)
   Retained earnings                                         35,286       42,907
                                                         -----------  ----------

     Total stockholders' equity                             120,776       99,205
                                                         -----------  ----------

                                                           $138,757     $126,624
                                                         ===========  ==========



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


<PAGE>


                          PREMISYS COMMUNICATIONS, INC.
                          CONSOLIDATED INCOME STATEMENT
                      (in thousands, except per share data)

                                              Year Ended June 30,
                                         -------------------------------
                                           1997         1998        1999
                                         ----------   ---------   ---------
Revenues                                 $  78,358  $  102,298   $  92,423
Cost of revenues                            27,262      35,586      36,660
                                         ---------- -----------  ----------

     Gross profit                           51,096      66,712      55,763
                                         ---------- -----------  ----------
Operating expenses:
   Research and development                 10,519      16,205      19,823
   Acquired in-process technology            4,000       4,431         ---
   Selling, general and administrative      21,364      27,705      28,305
                                           --------   ---------    --------

     Total operating expenses               35,883      48,341      48,128
                                         ---------- -----------  ----------

Income from operations                      15,213      18,371       7,635
Interest and other income, net               2,641       3,399       3,573
                                         -----------  ---------- ----------

Income before income taxes                  17,854      21,770      11,208
Provision for income taxes                   6,963       8,055       3,587
                                         ---------- -----------  ----------

Net income                               $  10,891  $   13,715   $   7,621
                                         ========== ===========  ==========

Net income per share
   Basic                                 $    0.44  $     0.54   $    0.31
                                         ========== ===========  ==========
   Diluted                               $    0.41  $     0.50   $    0.30
                                         ========== ===========  ==========

Shares used in computing net income
per share
   Basic                                    24,722      25,569      24,600
                                         ========== ===========  ==========
   Diluted                                  26,498      27,495      25,384
                                         ========== ===========  ==========




















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


<PAGE>


                          PREMISYS COMMUNICATIONS, INC.
                      CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                 (in thousands)

<TABLE>
<S>                             <C>       <C>       <C>         <C>         <C>

                                                    Additional
                                  Common Stock       Paid-In    Treasury     Retained
                                Shares     Amount    Capital      Stock      Earnings
 Balance, June 30, 1996          24,399    $ 244      $ 6,656         ---     $ 10,680

 Shares issued under Employee
 Stock Purchase Plan                 46        ---      1,109         ---          ---
 Exercise of options                746          8      2,776         ---          ---
 Tax benefit of exercised
 stock options                      ---        ---      4,453         ---          ---
 Net income for fiscal 1997         ---        ---        ---         ---       10,891

 ----------------------------  ---------  ---------  ----------  ----------- --------
 Balance, June 30, 1997          25,191        252     74,994         ---       21,571

 Shares issued under Exployee
 Stock Purchase Plan                 52        ---        919         ---          ---
 Exercise of options                731          8      3,213         ---          ---
 Tax benefit of exercised
 stock options                      ---        ---      6,104         ---          ---
 Net income for fiscal 1998         ---        ---        ---         ---       13,715

 ----------------------------  ---------  --------- ----------  ----------  -----------
 Balance, June 30, 1998          25,974        260     85,230         ---       35,286

 Shares issued under Employee
 Stock Purchase Plan                 94          1      1,052         ---          ---
 Exercise of options                410          4      2,318         ---          ---
 Tax benefit of exercised
 stock options                      ---        ---      1,123         ---          ---
 Put warrant obligations            ---        ---   (10,625)         ---          ---
 Cost  to  dissolve  part of
 put warrant obligations            ---        ---      (762)         ---          ---
 Repurchase of common stock         ---        ---        ---    (22,303)          ---
 Net income for fiscal 1999         ---        ---        ---         ---        7,621

 ----------------------------  ---------  --------- ----------  ----------  -----------
  Balance, June 30, 1999          26,478      $ 265   $ 78,336   $(22,303)     $ 42,907
                               =========  ========= ==========  ==========  ===========
</TABLE>


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




<PAGE>


                          PREMISYS COMMUNICATIONS, INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (in thousands)
<TABLE>
<S>                                                 <C>           <C>           <C>

                                                              Year Ended June 30,
                                                       1997           1998          1999
-------------------------------------------------   ------------  -------------  ------------

Cash flows from operating activities:
  Net income                                          $  10,891      $  13,715     $   7,621
  Adjustments to reconcile net income to net
cash provided by
  (used in) operating activities:
     Depreciation                                         1,347          2,194         3,565
     Deferred tax assets                                (4,292)          (148)         (540)
     Changes in assets and liabilities:
       Accounts receivable                                8,609        (4,550)         3,749
       Inventories                                      (4,554)          4,916      (11,372)
       Prepaid expenses and other assets                (3,235)          2,831         (590)
       Accounts payable                                   1,506          2,213       (1,210)
       Accrued liabilities                                (459)          4,769         (257)
       Income taxes payable                               (580)            735           280
                                                    ------------  -------------  ------------

Net cash provided by operating activities                 9,233         26,675         1,246
                                                    ------------  -------------  ------------

Cash flows from investing activities:
  Purchase of property and equipment                    (5,091)        (4,142)       (4,226)
  Purchase of short-term investments                    (5,498)       (30,674)       (5,477)
                                                    ------------  -------------  ------------

Net cash used in investing activities                  (10,589)       (34,816)       (9,703)
                                                    ------------  -------------  ------------

Cash flows from financing activities:
  Proceeds from issuance of Common Stock, net             3,893          4,140         3,375
  Tax benefit of exercised stock options                  4,453          6,104         1,123
  Cost to dissolve part of Put warrant obligations          ---            ---         (762)
  Repurchase of Common Stock                                ---            ---      (22,303)
  Proceeds (repayment) of long-term debt                  (125)           (20)           ---
                                                    ------------  -------------  ------------

Net cash provided by financing activities                 8,221         10,224      (18,567)
                                                    ------------  -------------  ------------

Net increase in cash                                      6,865          2,083      (27,024)
Cash and cash equivalents at beginning of year           22,058         28,923        31,006
                                                    ------------  -------------  ------------

Cash and cash equivalents at end of year              $  28,923      $  31,006     $   3,982
                                                    ============  =============  ============

Supplemental disclosures:
  Cash paid for income taxes                          $  10,644        $    63     $   1,918
</TABLE>


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



<PAGE>



                          PREMISYS COMMUNICATIONS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


The Company

      Premisys  Communications,  Inc.  and  its  subsidiaries,   (together,  the
"Company"),  design,  manufacture and market integrated  digital access products
for telecommunications service providers. The Company's products assist domestic
and  international  public  carriers in building,  expanding and managing  their
worldwide telecommunications networks for their business customers.

Summary of Significant Accounting Policies

Management estimates and assumptions

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

Principles of consolidation

      The  consolidated  financial  statements  include the accounts of Premisys
Communications,   Inc.  and  its  wholly-owned  subsidiaries.   All  significant
intercompany accounts and transactions have been eliminated.  The U.S. dollar is
the functional  currency of Premisys Asia,  Premisys Canada and Premisys Europe.
Exchange gains and losses resulting from transactions  denominated in currencies
other than U.S. dollars are included in net income. To date, the resulting gains
and losses have not been material.

Cash, cash equivalents and short-term investments

      Cash and cash  equivalents  include  cash,  money market funds and certain
municipal securities with a maturity of three months or less when purchased. All
of the Company's  short-term  investments,  consisting  principally of municipal
securities,   have   been   classified   as   available-for-sale.   Under   this
classification the investments are reported at fair value, with unrealized gains
and losses  excluded  from  earnings  and  reported as a separate  component  of
stockholders'  equity.  At June 30,  1998 and 1999,  such  unrealized  gains and
losses were not significant.

Inventories

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

Property and equipment

      Property and equipment are stated at cost,  and  depreciation  is computed
using the  straight-line  method over their estimated useful lives,  which range
from two years for computer  equipment and purchased  software to five years for
machinery and equipment and furniture and fixtures.  Leasehold  improvements are
amortized using the straight-line method based upon the shorter of the estimated
useful  lives (all of which are  currently  five years) or the  remaining  lease
term.

Revenue recognition

      The Company  recognizes  revenue  upon  shipment  of product to  customers
provided no  significant  obligations  remain and  collectibility  is  probable.
Certain  distributors  have sales  agreements  allowing limited rights to return
product without  penalties.  In such cases the Company  recognizes  revenue upon
sales of the product by the distributor to its customers.

Software development costs

      Software   development  costs  incurred  prior  to  the  establishment  of
technological  feasibility are expensed as incurred.  Software development costs
incurred  subsequent to the  establishment of technological  feasibility will be
capitalized,  if material.  To date,  all software  development  costs  incurred
subsequent  to  the   establishment  of  technological   feasibility  have  been
immaterial, and therefore no software development costs have been capitalized.

Warranty expense

      Upon product  shipment,  the Company  provides for the estimated cost that
may be incurred under its various product warranties.

Net income per share

     Basic net income per share is computed by dividing net income  available to
common  stockholders by the weighted average number of common shares outstanding
during the period.  Diluted net income per share  gives  effect to all  dilutive
potential common shares  outstanding  during a period.  In computing diluted net
income per share,  the average stock price for the period is used in determining
the number of shares  assumed to be purchased  under the  treasury  stock method
from exercise of stock options.

Fiscal year

      The  Company  uses a 52/53  week  accounting  year that ends on the Friday
closest to June 30. For  purposes  of  financial  statement  presentation,  each
fiscal year is considered to have ended on June 30.

Comprehensive income

      Comprehensive  income is  defined  as the  change in equity of a company
during a period from transactions and other events and  circumstances  excluding
transactions resulting from investment by owners and distribution to owners. For
the years ended June 30,  1997,  1998 and 1999, the  comprehensive income of the
Company did not differ significantly from the net income.

Derivative instruments and hedging activities

      In June 1998, the Financial Accounting Standards Board issued Statement of
Financial  Accounting  Standards No. 133 "Accounting for Derivative  Instruments
and Hedging  Activities"  ("SFAS  133").  SFAS 133  establishes  accounting  and
reporting standards for derivative instruments and for hedging activities and is
effective for all fiscal years  beginning  after June 15, 2000. The Company does
not expect the adoption of SFAS 133 to have a material  impact on its results of
operations.


NOTE 2 - BALANCE SHEET COMPONENTS

                                                               June 30,
                                                          --------------------
                                                            1998       1999
                                                          ---------  ----------
                                                             (in thousands)
Accounts receivable:
  Trade accounts receivable                               $ 12,408     $ 8,621
  Less:  allowance for doubtful accounts                     (200)       (162)
                                                          ---------  ----------

                                                          $ 12,208     $ 8,459
                                                          =========  ==========
Inventories:
  Raw materials                                              $ 582     $ 1,376
  Work-in-process                                              676       1,476
  Finished goods                                             2,601      12,379
                                                          ---------  ----------

                                                           $ 3,859     $15,231
                                                          =========  ==========
Property and equipment:
  Machinery and equipment                                  $ 4,355     $ 5,691
  Computers and purchased software                           4,931       7,263
  Furniture and fixtures                                     2,074       2,406
  Leasehold improvements                                     2,402       2,628
                                                          ---------  ----------

                                                            13,762      17,988
  Less: accumulated depreciation                           (5,370)     (8,935)
                                                          ---------  ----------
                                                            $8,392      $9,053
                                                          =========  ==========
Accrued liabilities:
  Employee compensation                                    $ 3,960     $ 2,792
  Warranty                                                   3,842       4,475
  Other                                                      2,475       2,753
                                                          ---------  ----------

                                                          $ 10,277    $ 10,020
                                                          =========  ==========



NOTE 3 - ACQUIRED RESEARCH AND DEVELOPMENT IN-PROCESS

      In the quarter  ended March 31,  1997,  the Company  executed a technology
license  agreement with  Positron.  The Company  licensed  certain SONET and SDH
based  technologies for use in its future products,  including the Q-155,  which
was  announced  in June 1997 and began  shipping in the quarter  ended March 31,
1999.  The  licensed  technology  includes  the right to modify and  manufacture
products which are based on Positron's  OSIRIS-155Mb/s  SONET/SDH products.  The
licensed  technology  also  includes the right to use and  manufacture  Positron
proprietary  application-specific  integrated circuits (ASICs), and training and
integration assistance on all design materials.

      The Company  paid  Positron $4 million of license  fees over three  years.
Also,  Positron is to be paid a royalty on the Company's  products utilizing the
licensed  technology  up to a maximum of $4 million. The Company expensed the $4
million of license fees as acquired  research and  development in process in the
quarter  ended March 31,  1997.  Payments of license  fees to Positron in fiscal
1997,  1998 and 1999  totaled  $2.0  million,  $1.0  million  and $1.0  million,
respectively.

      In the quarter ended March 31, 1998,  the Company  announced the execution
of a technology  license agreement with SNT. SNT's technologies will provide the
Company  with  a  non-blocking  switching  core  expandable  to  11.6  Gbs,  ATM
interfaces to OC-3 and OC-12, 10/100MB  Ethernet/Fast  Ethernet interfaces,  and
related  software.  The  Company  intends to use these  technologies  to develop
broadband ATM and IP multiservice platforms.

     The Company paid a total of $4.4 million for licensing SNT technologies and
related  software.  The Company  expensed  these fees as acquired  research  and
development  in-process in the March 31, 1998 quarter. The Company also received
options to license future releases of SNT software for additional  fees. To date
the Company has not purchased any additional software releases from SNT.



NOTE 4 - INCOME TAXES

      The provision for income taxes consists of the following:


                                              Year Ended June 30,
                                     --------------------------------------

                                        1997          1998         1999
                                     -----------   -----------   ----------
     Current:                                    (in thousands)
       Federal                       $  9,058      $  6,230      $ 3,000
       State                            2,138         1,891        1,043
       Foreign                             59            82           84
                                     -----------   ----------   -----------
                                       11,255         8,203        4,127
                                     -----------   -----------   ----------

     Deferred:
       Federal                        (3,467)         (216)        (442)
       State                            (825)            68         (98)
                                     -----------   ----------    -----------
                                      (4,292)         (148)        (540)
                                     -----------   -----------   ----------

                                     $  6,963      $  8,055      $ 3,587
                                     ===========   ===========   ==========


      Deferred  income taxes  reflect the tax effects of  temporary  differences
between carrying  amounts of assets and liabilities for financial  reporting and
income tax purposes. Significant components of the Company's deferred tax assets
are as follows:

                                                            June 30,
                                                    ------------------------

                                                       1998          1999
                                                    -----------    ---------
                                                        (in thousands)
     Financial accruals not yet deductible           $ 5,265       $ 6,683
     Capitalized purchased technology                  2,076         1,212
     Capitalized research and development expenses        14             0
                                                    -----------    ---------
                                                     $ 7,355       $ 7,895
                                                    ===========    =========



<PAGE>




      A  reconciliation  of the income  tax  provisions  computed  at the United
States federal statutory rate to the effective tax rate is as follows:

                                                 Year Ended June 30,
                                   ---------------------------------------------
                                        1997            1998             1999
                                   ---------------  --------------   -----------

Federal statutory rate                     35.0%           35.0%           35.0%
State taxes, net of federal benefit         6.1             6.1              5.8
Tax exempt interest income                (4.8)           (5.0)           (10.3)
Other                                       2.7             0.9              1.5
                                   ---------------  --------------   -----------

Effective  tax  rate                      39.0%           37.0%            32.0%
                                   ===============  ==============   ===========

NOTE 5 - NET INCOME PER SHARE

     Following is a presentation of the Basic and Diluted EPS  computations  for
the periods presented below:
<TABLE>
<S>                                           <C>             <C>            <C>

                                                Income                       Per Share
                                              (in thousands)   Shares          Amount
Year ended June 30, 1997
Earnings per share of common stock - basic       $  10,891         24,722     $   0.44
Effect of dilutive securities:
    Stock options                                      ---          1,776
                                               ------------   ------------
Earnings per share of common stock - diluted     $  10,891         26,498     $   0.41
                                               ------------   ------------   ----------

Year ended June 30, 1998
Earnings per share of common stock - basic       $  13,715         25,569     $   0.54
Effect of dilutive securities:
    Stock options                                      ---          1,926
                                               ------------   ------------
Earnings per share of common stock - diluted     $  13,715         27,495     $   0.50
                                               ------------   ------------   ----------

Year ended June 30, 1999
Earnings per share of common stock - basic       $   7,621         24,600     $   0.31
Effect of dilutive securities:
    Stock options                                      ---            784
                                               ------------   ------------
Earnings per share of common stock - diluted     $   7,621         25,384     $   0.30
                                               ------------   ------------   ----------
</TABLE>

NOTE 6 - PUT WARRANTS

            As of September 17, 1998,  pursuant to the  authorized  stock
repurchase program,  the Company sold 2.0 million put warrants and purchased 1.5
million call options. On January 26, 1999, the Company paid $762,000 to dissolve
the  obligation  for 1.0 million put warrants and 0.75 million call options that
were to expire on January 29, 1999. On September 10, 1999, the Company paid $3.7
million to dissolve the remaining 1.0 million put warrants and 0.75 million call
options which were to expire on September 15, 1999.


NOTE 7 - STOCKHOLDERS EQUITY AND BENEFIT PLANS

Repurchase of stock

         On August 31, 1998, the Company's Board of Directors  authorized the
repurchase,  at  management's  discretion,  of up to 4.0  million  shares of the
Company's  Common Stock at market  prices not to exceed  $14.00 per share and as
market and business  conditions  warrant.  As of June 30, 1999,  the Company had
repurchased  for cash 2.4 million  shares at market prices ranging from $6.69 to
$10.94 per share.

Stockholder rights plan

      On September 17, 1998, the Company's Board of Directors  ("Board") adopted
a Stockholder Rights Plan ("Plan")  designated to protect the long-term value of
the  Company  for its  stockholders  during any future  unsolicited  acquisition
attempt.  Pursuant to the Plan,  the Board  declared a dividend of one preferred
share right ("Right") for each share of the Company's  Common Stock  outstanding
on October 5, 1998. Each Right becomes exercisable to purchase one one-hundredth
(1/100)  of a share  of  Series  A Junior  Participating  Preferred  Stock at an
exercise  price of $80.00.  The Rights will expire on September  18,  2008.  The
Company may redeem the Rights at a price of $0.001 per Right.

Stock option plans

      In March 1992,  the Company  adopted a Stock Option Plan (the "1992 Option
Plan").  The 1992 Option Plan  provides  for the  granting  of  incentive  stock
options and nonqualified  stock options to employees at prices not less than the
fair  market  value  and not  less  than  85% of the  fair  market  value of the
Company's  Common Stock,  respectively,  on the date of grant.  While previously
issued options remain outstanding under the 1992 Option Plan, the Company can no
longer issue new options out of the 1992 Option Plan.

      On November 16, 1994, the Company's  Board of Directors  approved the 1994
Stock Option Plan (the "1994 Option  Plan").  Under the terms of the 1994 Option
Plan,  6,460,000  shares of the Company's Common Stock are reserved for issuance
at exercise prices not less than the fair value of the Company's Common Stock at
the date of grant.  The incentive and  nonqualified  stock options have ten-year
terms, and vest over a period  determined by the Board of Directors,  but not to
exceed five years. Options granted to date have vesting terms of four years. The
1994 Option Plan will terminate ten years after its adoption  unless  terminated
earlier by the Board of Directors.

      In February  1995,  the  Company's  Board of  Directors  adopted,  and the
Company's   stockholders   approved,   the  1995  Directors  Stock  Option  Plan
("Directors  Plan"),  which  provides  for the  automatic  grant of  options  to
purchase  shares  of  Common  Stock to  non-employee  directors  of the  Company
("Eligible Directors"). The maximum number of shares of Common Stock that may be
issued pursuant to options granted under the Directors Plan is 240,000. Pursuant
to the terms of the Directors Plan, each Eligible  Director who becomes a member
of the Board and who has not otherwise  received  options in connection with his
Board service will  automatically be granted an option to purchase 24,000 shares
of Common Stock on the date the Eligible  Director  first joins the board.  Each
Eligible  Director will  automatically be granted an additional option for 6,000
shares of Common  Stock  annually.  Each Grant will vest as to 25% of the shares
per year thereafter,  so long as the  non-employee  director remains a member of
the Board.  Options  granted under the Directors  Plan expire ten years from the
date of grant.  The exercise  price of options under the Directors  Plan must be
equal to the fair  market  value of the  Company's  Common  Stock on the date of
grant.  The  Directors  Plan will  terminate  in February  2005,  unless  sooner
terminated by the Board.

      On March 19, 1997 the  Compensation  Committee  of the Board of  Directors
approved offering employees the right to amend outstanding stock options granted
under the  Company's  1994 Stock Option Plan.  The amended stock options have an
exercise price equal to the closing price of the Company's Common Stock on April
23, 1997 and a new vesting  schedule  beginning on the same date with a duration
equal to that of the original option. Corporate officers were excluded from this
option repricing  offer.  Employees  elected to amend options for  approximately
1,051,000  shares;  the new exercise price was $8.1875 per share. In the summary
table below, these options are included in shares granted and shares canceled in
fiscal 1997.




<PAGE>



A summary of  transactions  relating to all of the Company's  option plans is as
follows:

<TABLE>
<S>                                  <C>               <C>              <C>

                                         Options             Options Outstanding
                                                       --------------------------------
                                        Available                          Weighted
                                        for Grant          Shares          Average
                                                                        Exercise Price
                                     ----------------  ---------------  ---------------

Balance at June 30, 1996                   2,797,761        2,909,458           $10.61
Options granted                          (3,401,647)        3,401,647           $16.35
Options canceled                           1,457,105      (1,457,105)           $27.33
Options exercised                                ---        (746,089)            $3.80
                                     ----------------  ---------------  ---------------

Balance at June 30, 1997                     853,219        4,107,911           $10.67
Additional shares authorized,              1,200,000              ---              ---
December 1997
Options granted                          (1,761,550)        1,761,550           $24.07
Options canceled                             484,970        (484,970)           $12.03
Options exercised                                ---        (731,276)            $4.41
                                     ----------------  ---------------  ---------------

Balance at June 30, 1998                     776,639        4,653,215           $16.58
Additional shares authorized,              1,260,000              ---              ---
December 1998
Options granted                          (3,011,894)        3,011,894           $10.20
Options canceled                           2,065,529      (2,065,529)           $20.84
Options exercised                                ---        (409,708)            $5.67
                                     ----------------  ---------------  ---------------

Balance at June 30, 1999                   1,090,274        5,189,872           $12.10
                                     ================  ===============  ===============
</TABLE>


    The  following  table  summarizes  information  concerning  outstanding  and
exercisable options as of June 30, 1999:

                            Options Outstanding              Options Exercisable
                     -----------------------------------  ----------------------
                                  Weighted      Weighted                Weighted
                                  Remaining      Average                 Average
      Range of         Number  Contractual Life Exercise     Number     Exercise
  Exercise Prices    Outstanding  (in years)      Price    Exerciseable    Price

$0.10 - $7.13         1,091,662      7.90        $ 5.46      475,354       $3.40
$7.19 - $8.56           985,692      7.76        $ 8.14      418,368       $8.10
$8.69 - $9.19         1,147,813      9.06        $ 9.00      257,921       $9.00
$9.25 -  $17.25         824,688      9.24       $ 12.71       92,391      $12.08
$17.88 - $51.00       1,140,017      8.50       $ 24.55      472,294      $25.29
                     ===========                          ============
$0.10 - $51.00        5,189,872      8.48       $ 12.10    1,716,328      $11.88
                     ===========                          ============


Stock Purchase Plan

      In February  1995,  the  Company's  Board of  Directors  approved the 1995
Employee Stock Purchase Plan (the "Stock Purchase Plan"). Under the terms of the
Stock  Purchase  Plan,  all  employees  of the Company may  contribute,  through
payroll  deductions,  up to 10% of their annual compensation toward the purchase
of the  Company's  Common  Stock.  The Company has reserved  400,000  shares for
issuance  under the Stock  Purchase Plan. The purchase price per share is 85% of
the lesser of (a) the fair market  value of the Common Stock on the first day of
the  offering  period,  as defined,  or (b) the fair market  value of the Common
Stock on the last day of the offering  period,  as defined.  The Stock  Purchase
Plan will terminate ten years after its adoption  unless  terminated  earlier by
the Board of Directors.



<PAGE>



Pro forma net income and earnings per share

      Pro forma  information  regarding  net  income and  earnings  per share is
required by SFAS 123.  This  information  is required to be determined as if the
Company had accounted for its employee  stock options,  including  shares issued
under the Stock Purchase Plan (collectively the "options") granted subsequent to
June 30, 1995, under the fair value method of that statement.  The fair value of
options granted in fiscal 1997, 1998 and 1999 reported below have been estimated
at  the  date  of  grant  using  a  Black-Scholes   option  pricing  model.  The
Black-Scholes  option  valuation  model was developed for use in estimating  the
fair value of publicly traded options that have no vesting  restrictions and are
fully transferable.

      Had stock-based compensation cost for the options been determined based on
the fair value at the grant dates using the Black-Scholes model as prescribed by
SFAS 123, the Company's Results of Operations for the years ended June 30, 1997,
1998 and 1999 would have been as follows:

                                                Year Ended June 30,
                                    --------------------------------------------
                                            1997             1998           1999
                                            (in thousands except per share data)
         Net income/(loss):
            As reported                  $10,891          $13,715         $7,621
            Pro forma                     $2,371           $3,474         $(107)
         Earnings per share -- basic:
            As reported                    $0.44            $0.54          $0.31
            Pro forma                      $0.10            $0.14          $0.00
         Earnings per share -- diluted
            As reported                    $0.41            $0.50          $0.30
            Pro forma                      $0.09            $0.13          $0.00

      The pro forma effect on net income and earnings per share for fiscal 1997,
1998 and fiscal 1999 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.

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


<PAGE>



                                          Year Ended June 30,
                             --------------------------------------------
                                     1997             1998           1999
                                     ----             ----           ----
  Stock option plans:
     Expected dividend yield         0.0%             0.0%           0.0%
     Expected   stock  price        65.0%            65.0%          65.0%
     volatility
     Risk free interest rate         6.4%             5.6%           5.7%
     Expected     life    of         3.09             3.57           3.04
     options (years)

  Stock purchase plan:
     Expected dividend yield         0.0%             0.0%           0.0%
     Expected   stock  price        65.0%            65.0%          65.0%
     volatility
     Risk free interest rate         5.4%             5.3%           4.9%
     Expected     life    of         0.50             0.50           0.50
     options (years)

      The weighted  average  estimated grant date fair value, as defined by SFAS
123, for options  granted under stock option plans during fiscal 1997,  1998 and
1999 was $7.51, $11.18 and $10.20 per share, respectively.  The weighted average
estimated  grant date fair value,  as defined by SFAS 123, for  purchase  rights
granted  under the Stock  Purchase  Plan during  fiscal 1997,  1998 and 1999 was
$7.46, $5.75 and $5.29 per share, respectively.

401(k) Plan

      The Company  adopted a 401(k)  plan for its  employees  whereby  currently
eligible  employees  may  contribute up to 15% of their  earnings,  on a pre-tax
basis,  subject to the maximum  amount  permitted by the Internal  Revenue Code.
Under the 401(k) plan, the Company may make  contributions  at the discretion of
the Board of Directors.  During fiscal  1997,1998 and 1999, the Company  matched
employee contributions up to $800 per contributor per plan year.


NOTE 7 - SEGMENT INFORMATION AND INTERNATIONAL OPERATIONS

      The Company operates in one business segment, providing telecommunications
access equipment.

      The following is a summary of the Company's operations:

                                                 Year Ended June 30,
                                         1997           1998            1999
                                    -------------  --------------  -------------
                                                   (in thousands)
Revenues from third party customers:
  United States                        $   72,679      $   97,358    $    89,554
  Asia                                      3,452           2,996            873
  Europe                                      355             954            717
  Latin America                             1,872             990          1,279
                                    -------------  --------------  -------------
                                       $   78,358     $   102,298    $    92,423
                                    =============  ==============  =============

Income (loss) from operations:
  United States                        $   15,114      $   18,060     $    9,949
  Asia                                      1,025           1,216          (829)
  Europe                                  (1,706)           (796)        (1,586)
  Latin America                               780           (109)            101
                                    -------------  --------------  -------------
                                       $   15,213      $   18,371     $    7,635
                                    =============  ==============  =============

                                                              June 30,
                                                   -----------------------------
                                                       1998            1999
                                                   -------------   -------------
                                                           (in thousands)
Identifiable assets:
  United States                                      $   137,104     $   123,950
  Asia                                                       307             385
  Canada                                                     646           1,533
  Europe                                                     683             453
  Latin America                                               17             303
                                                    ============   =============
                                                     $   138,757     $   126,624
                                                    ============   =============

      The Company  derived 7%, 5% and 3% of its  revenues  from direct  sales to
international customers in fiscal 1997, 1998 and 1999, respectively.


NOTE 8 - CONCENTRATION OF SALES AND CREDIT RISK

      The following table summarizes the percentage of revenues accounted for by
the Company's significant customers:

                                                  Year Ended June 30,
                                       -----------------------------------------
                                            1997           1998         1999
                                            ----           ----         ----
Paradyne                                     30%           15%          29%
ALS(1)                                       (a)           (a)          13%
Motorola                                     15%           11%          13%
ADC Telecommunications                       12%           29%          (a)
DSC                                          10%           (a)          (a)

(a) - Amounts not  provided as revenues for the period were less than 10% of the
total.  (1) - AT&T  Local  Services  ("ALS")  was  formerly  known  as  Teleport
Communications Group ("Teleport").

      Financial  instruments that potentially subject the Company to significant
concentrations of credit risk consist  principally of cash and cash equivalents,
short-term investments,  municipal securities and trade accounts receivable. The
Company's  investment  policy  limits the amount of credit  exposure  to any one
financial  institution or commercial issuer. The Company has not experienced any
material losses on its investments.

      The Company generally extends 30-day credit terms to its customers,  which
is consistent with industry  business  practices.  The Company  performs ongoing
credit  evaluations  of  its  customers'  financial  condition  and,  generally,
requires no collateral  from its customers.  The Company  maintains an allowance
for doubtful accounts  receivable based upon the expected  collectibility of all
accounts receivable.  The Company has not experienced any material write-offs of
uncollectible accounts receivable.

NOTE 9 - COMMITMENTS

     The Company's  principal  offices are located in two  facilities,  totaling
118,281 square feet, leased by the Company in Fremont, California. The leases on
these  facilities,  which are  classified as  non-cancelable  operating  leases,
expire on various  dates  through  December 31, 2005.  In addition,  the Company
leases a facility,  totaling 29,840 square feet, in Fremont,  California that it
subleases to a third party under a three year sublease  that  commenced in April
1999.  The  lease on this  facility,  which is  classified  as a  non-cancelable
operating lease,  expires in December 2005.The Company also leases facilities in
other  locations.  The  leases  on these  facilities,  which are  classified  as
non-cancelable  operating  leases,  expire on various dates through December 31,
2005.

      Future minimum lease payments under all noncancelable operating leases are
as follows:

Year Ending June 30,
                                                      (In thousands)
2000                                                     $   2,192
2001                                                         2,157
2002                                                         2,144
2003                                                         2,167
2004                                                         2,104
Thereafter                                                   1,184
                                                       ------------
Total minimum payments                                   $  11,948
                                                       ============

Rent expense under facility leases totaled $941,000, $1,365,000 and $2,350,000
during fiscal 1997, 1998 and 1999, respectively.

      In addition,  the Company leases certain  equipment  under long-term lease
agreements that are classified as capital leases. These capital leases expire at
various  dates  through  2001.  Property and equipment at June 30, 1998 and 1999
include assets acquired under capitalized leases of $351,000 and $172,000,  with
related accumulated amortization of $272,000 and $70,000,  respectively.  Future
minimum payments under capitalized leases are not material.

NOTE 10 - SUBSEQUENT EVENTS

Effective  July 2, 1999,  Peter Hauser  resigned.  Mr.  Hauser was the Company's
Senior Vice-President of International Sales.

Effective  August  16,  1999,  Carol H.  Sharer  was  appointed  to serve on the
Company's Board of Directors.

Effective July, 1999, Lip-Bu Tan and Marino Polestra resigned from the Company's
Board of Directors.



<PAGE>




                                    PART III

Item 9.   Changes in and  Disagreements  with  Accountants  on  Accounting  and
          Financial Disclosure

      Not applicable.

Item 10.  Directors and Executive Officers of the Registrant.

      Information  required by this Item is  incorporated  by reference from the
section  titled  "Directors/Nominees"  under  "Proposal  No.  1  -  Election  of
Directors,"   "Executive  Officers"  and  "Section  16(a)  Beneficial  Ownership
Reporting and Compliance"  from the definitive  proxy statement to be filed with
the Securities and Exchange  Commission relative to the Company's annual meeting
of stockholders to be held in December 1998 (the "Definitive Proxy Statement").

Item 11.  Executive Compensation.

      Information  required by this Item is  incorporated  by reference from the
sections  titled  "Director  Compensation"  under  "Proposal No. 1 - Election of
Directors" and "Executive  Compensation"  and "Employment  Agreements"  from the
Definitive Proxy Statement.

Item 12.  Security Ownership of Certain Beneficial Owners and Management.

      Information  required  by this  Item is  incorporated  by  reference  from
"Security  Ownership  of  Certain  Beneficial  Owners and  Management"  from the
Definitive Proxy Statement.

Item 13.  Certain Relationships and Related Transactions.

      Information  required  by this  Item is  incorporated  by  reference  from
"Certain  Relationships  and Related  Transactions"  from the  Definitive  Proxy
Statement.

                                     PART IV

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(a)(1)      The  following  financial  statements  and  schedules are filed as
            part of this report:

      Financial Statements See index included in Part II, Item 8.

(a)(2) and (d)    Financial Statement Schedules
      All schedules are omitted because they are not applicable, or the required
      information is included in the financial statements or notes thereto.

(a)(3)  and (c).  The  following  exhibits  are  filed  herewith  or
                  incorporated  by reference:

Exhibit
Number     Exhibit Title

2.01       Premisys  California   Acquisition   Agreement  between  Premisys
           Communications  Holdings,  Inc. and Premisys  Communications Pte.
           Ltd., dated as of March 12, 1992, and exhibits thereto.(1)
2.02       Exchange   Agreement   by  and  among   Premisys   Communications
           Holdings,   Inc.  and  the  shareholders,   warrant  holders  and
           noteholders of Premisys  Communications  Pte.  Ltd.,  dated as of
           March 12, 1992, and material exhibits thereto.***(1)
2.03       Form  of   Agreement   and  Plan  of  Merger  by  and  among  the
           Registrant,  Premisys Communications  Holdings, Inc. and Premisys
           Communications, Inc.(1)
3.01       Registrant's  Amended and Restated  Certificate of  Incorporation  as
           filed with the Delaware Secretary of State on April 12, 1995.(2)
3.02       Certificate  of Amendment of Amended and Restated  Certificate of
           Incorporation of Premisys Communications, Inc.(4)
3.03       Certificate of Designations Specifying the Terms of the Series A
           Junior Participating Preferred Stock of Premisys Communications,
           Inc. (15)
3.04       Registrant's Bylaws, as amended.(1)
4.02       Investors' Rights  Agreement,  dated as of March 12, 1992, as amended
           June 15, 1992, October 22, 1993, December 14, 1993, February 18, 1994
           and May 9, 1994 among Registrant and various investors.(1)
4.03       Waiver Relating to and Amendment of Investors' Rights Agreement dated
           as of July 24, 1995 among Registrant and various investors.(3)
4.04       Rights Agreement dated September 18, 1998 between  Registrant and
           ChaseMellon Shareholder Services LLC, as Rights Agent. (15)
+10.01     Registrant's   1992  Stock  Option  Plan  and  related  documents.(1)
+10.02     Registrant's  1994  Stock  Option  Plan  and  related  documents.(10)
+10.03     Registrant's 1995 Directors Stock Option Plan and related
           documents.(1)
+10.04     Registrant's  1995  Employee  Stock  Purchase  Plan  and  related
           documents.(1)
+10.06     Founders  Agreement  by and  among  Registrant,  Raymond  Lin,  Boris
           Auerbuch and Marcus Auerbuch, dated as of March 12, 1992.**(1)
10.08      Form of Indemnity  Agreement entered into by Registrant with each
           of its directors and executive officers.(1)
10.09      Warranty  and  Indemnification  Agreement  by and among  Raymond Lin,
           Boris Auerbuch and Registrant dated as of August 2, 1990.(1)
10.10      Agreement  for  Purchase  and  Sale  of  Assets  by  and  between
           Premisys  Communications,  Inc.,  a California  corporation,  and
           Premisys  Communications  Pte. Ltd., dated as of January 1, 1992,
           including Bill of Sale.(1)
10.11      Technology  Cost  and  Risk  Sharing  Agreement  by  and  between
           Premisys  Communications,  Inc.,  a California  corporation,  and
           Premisys  Communications  Pte.  Ltd.,  dated  as  of  January  1,
           1992.(1)
10.12      Agreement    Regarding    Payment   by   and   between   Premisys
           Communications,  Inc.,  a  California  corporation,  and Premisys
           Communications Pte. Ltd., dated as of September 30, 1992.(1)
10.13      Technology Cost and Risk Sharing  Agreement  Amendment by and between
           Premisys Communications, Inc., a California corporation, and Premisys
           Communications Pte. Ltd., dated as of July 1, 1995.
           (6)
10.15      Option  Agreement  by and between  Registrant  and AT&T  Paradyne
           Corporation, dated as of December 4, 1992.(1)
10.16      Series C Preferred Stock Purchase Agreement by and between Registrant
           and AT&T  Paradyne  Corporation,  dated as of  December  14, 1993 and
           material exhibits thereto.***(1)
10.18      Lease  Agreement by and between  Registrant  and Aetna Life Insurance
           Company, dated October 4, 1993, as amended to date.(1)
10.19      OEM Agreement by and among Premisys  Communications  Holdings,  Inc.,
           Premisys  Communications,  Inc., a California  corporation,  and AT&T
           Paradyne  Corporation,  dated as of December 4, 1992, as amended July
           8, 1993, March 17, 1994 and May 24, 1994.**(1)
10.20      Extension Agreements by and among Premisys  Communications  Holdings,
           Inc., Premisys  Communications,  Inc., a California corporation,  and
           AT&T  Paradyne  Corporation,  dated as of June 30,  1993 and July 12,
           1993 and September 30, 1993.**(1)
10.21      Co-Development   Agreement  between   Registrant  and  AT&T  Paradyne
           Corporation,  dated as of September 30, 1993, as amended  November 9,
           1993 and May 25, 1994.**(1)
10.22      Private Label Purchase/Resale Agreement by and between Registrant and
           DSC Technologies Corporation, effective as of March 31, 1994.**(1)
10.23      Purchase/Resale  Agreement  by and  between  Registrant  and  ADC
           Telecommunications, Inc., effective as of January 1, 1994.**(1)
10.24      Manufacturing   Agreement  by  and  between   Registrant  and  Eltech
           Electronics  Technology  (M)  SDN  BHD  (Malaysia)  as  of  July  22,
           1996.**(6)
10.26      Original  Equipment  Manufacturer (OEM) Volume Purchase Agreement
           between   Registrant  and  Motorola,   Inc.  dated  December  21,
           1994.**(1)
+10.27     Employment  Agreement  by  and  between  Premisys  Communications
           Holdings,  Inc.  and Riley R.  Willcox  dated as of February  10,
           1994.(1)
10.28      Amendment  No.  4  to  OEM   Agreement  by  and  among   Premisys
           Communications Holdings,  Inc., Premisys Communications,  Inc., a
           California  corporation,  and AT&T Paradyne  Corporation dated as
           of March 6, 1995.**(1)
+10.29     Registrant's  Management Salary and Incentive Plan for the Fiscal
           Year Ended June 30, 1996.(3)
10.30      Lease Agreement by and between Premisys and Berg & Berg  Enterprises,
           Inc.,  dated  October 24,  1995,  for the  premises  located at 48700
           Milmont Drive, Fremont, California.(16)***
10.31      Amendments  Number 5 and 6 to OEM  Agreement by and between  Premisys
           Communications,  Inc.,  a  Delaware  Corporation  and  AT&T  Paradyne
           Corporation, dated as of April 1, 1995. (5)**
+10.32     Registrant's  Management Incentive Plan for the fiscal year ended
           June 30, 1997.(6)
10.33      Amendment  Number 7 and 8 to OEM  Agreement  by and between  Premisys
           Communications,   Inc.,   a  Delaware   Corporation,   and   Paradyne
           Corporation, dated as of December 2, 1996.**(9)
10.34      First   Amendment  to  Lease   Agreement  by  and  between   Premisys
           Communications,  Inc.  and  Berg  &  Berg  Enterprises,  Inc.,  dated
           September 17, 1996, for the premises  located at 48800 Milmont Drive,
           Fremont,   California   (formerly   48700  Milmont  Drive,   Fremont,
           California). (8)
10.35      Second  Amendment  to Lease  Agreement  by and  between  Premisys
           Communications,  Inc.  and Aetna Life  Insurance  Company,  dated
           August 9, 1996. (7)


<PAGE>


10.36      Manufacturing  Agreement by and between Premisys  Communications,
           Inc. and CMC Mississippi, Inc. as of January 9, 1997. (11)**
10.37      Amendment   Number  9  OEM   Agreement   by  and   between   Premisys
           Communications,  Inc.,  a  Delaware  Corporation  and  AT&T  Paradyne
           Corporation, dated as of May 13, 1997. (11)**
10.38      Employment Agreement by and between Premisys  Communications Inc.
           and Nicholas Williams dated as of March 31, 1997. (11)
+10.39     Registrant's  Management Incentive Plan for the fiscal year ended
           June 30, 1998. (11)
10.40      License  Agreement  dated  December  27,  1996  between  Premisys
           Communications,  Inc. and Positron Fiber Systems Corporation.  **
           (11)
+10.41     Employment  Status  Change  Agreement  by  and  between  Premisys
           Communications,  Inc.  and  William J. Smith  dated as of October
           31, 1997. (12)
+10.42     Employment  Agreement  by and  between  Premisys  Communications,
           Inc. and Peter Hauser dated as of January 5, 1998. (13)
10.43      Third  Amendment  to  Lease  Agreement  by and  between  Premisys
           Communications,  Inc.  and Aetna Life  Insurance  Company,  dated
           January 8, 1998. (14)
+10.44     Employment  Status  Change  Agreement  by  and  between  Premisys
           Communications,  Inc. and Riley R.  Willcox  dated as of July 16,
           1998.(16)
+10.45     Employment  Agreement  by and  between  Premisys  Communications,
           Inc. and John J. Hagedorn dated as of June 1, 1998.(16)
+10.46     Amendment  to  Employment   Agreement  by  and  between  Premisys
           Communications,  Inc. and John J.  Hagedorn  dated as of July 14,
           1998.(16)
+10.47     Registrant's  Management Incentive Plan for the fiscal year ended
           June 30, 1999.(16)
10.48      Lease  Agreement by and between  Registrant  and Aetna Life Insurance
           Company, dated June 4, 1998 for the premises located at 48634 Milmont
           Drive, Fremont, California.(16)
10.49      First  Amendment  to  Lease  Agreement  by and  between  Premisys
           Communications,  Inc. and Aetna Life Insurance Company dated July
           20,  1998  for the  premises  located  at  48634  Milmont  Drive,
           Fremont, California.(16)
10.50      OTC  Issuer  Stock  Option  Master  Agreement  with  amendment  dated
           September 9, 1998.(17)
+10.51     Registrant's Management Incentive Plan for the fiscal year ended June
           30, 2000.
10.52      Master Purchase Agreement between Premisys Communications,  Inc.,
           a Delaware corporation,  and Teleport  Communications Group Inc.,
           dated as of October 15, 1997.*
21.01      List of Registrant's subsidiaries.
23.01      Consent of PricewaterhouseCoopers LLP, Independent Accountants.
24.01      Power of Attorney (See page 53 of this Form 10-K).
27.01      Financial Data Schedule.
-----------

  (1) Incorporated herein by reference to the exhibit bearing the same number in
      the Registrant's  Registration  Statement on Form 8-A (No.  0-25684) filed
      with the Securities and Exchange Commission on September 22, 1998.

  (2) Incorporated  by reference to Exhibit 3.01 to the  Registrant's  Form 10-Q
      (File No.  0-25684)  for the  quarter  ended  March 31, 1995 filed May 22,
      1995.

  (3) Incorporated  by  reference  to the  exhibit  bearing  the same  number in
      Registrant's  Form S-1  Registration  Statement filed August 1, 1995 (File
      No.
      33-95266).

  (4) Incorporated by reference to Exhibit 3.05 in Registrant's  Form 10-Q (File
      No.  0-25684) for the quarter ended  December 29, 1995 filed  February 12,
      1996.

  (5) Incorporated  by  reference  to the  exhibit  bearing  the same  number in
      Registrant's  Form 10-Q (File No. 0-25684) for the quarter ended March 29,
      1996 filed May 3, 1996.

  (6) Incorporated  by  reference  to the  exhibit  bearing  the same  number in
      Registrant's  Form 10-K (File No.  0-25684) for the fiscal year ended June
      28, 1996 initially filed September 26, 1996.

  (7) Incorporated  by  reference  to the exhibit  bearing  the number  10.33 in
      Registrant's  Form 10-Q (File No. 0-25684) for the quarter ended September
      27, 1996 filed November 10, 1996.

  (8) Incorporated  by  reference  to the  exhibit  bearing  the same  number in
      Registrant's  Form 10-Q (File No. 0-25684) for the quarter ended September
      27, 1996 filed November 10, 1996.

   (9)  Incorporated  by  reference  to the  exhibit  bearing the same number in
Registrant's  Form 10-Q (File No.  0-25684) for the quarter  ended  December 27,
1996 filed February 9, 1997.

 (10) Incorporated  by  reference  to  Exhibit  4.04 in  Registrant's  Form  S-8
      Registration Statement filed January 15, 1999 (File No. 333-70739).

 (11) Incorporated  by  reference  to the  exhibit  bearing  the same  number in
      Registrant's  Form 10-K (File No.  0-25684) for the fiscal year ended June
      27, 1997 initially filed September 25, 1997.

 (12) Incorporated  by  reference  to the  exhibit  bearing  the same  number in
      Registrant's  Form 10-Q (File No. 0-25684) for the quarter ended September
      26, 1997 filed November 10, 1997.

 (13) Incorporated  by  reference  to the  exhibit  bearing  the same  number in
      Registrant's  Form 10-Q (File No.  0-25684) for the quarter ended December
      26, 1997 filed February 2, 1998.

 (14) Incorporated  by  reference  to the  exhibit  bearing  the same  number in
      Registrant's  Form 10-Q (File No. 0-25684) for the quarter ended March 27,
      1998 filed May 1, 1998.

 (15) Incorporated  by  reference  to the  exhibit  bearing  the same  number in
      Registrant's Form 8-A (File No. 0-25684) filed September 22, 1998.

 (16) Incorporated  by  reference  to the  exhibit  bearing  the same  number in
      Registrant's  Form 10-K (File No.  0-25684) for the fiscal year ended June
      26, 1998 filed September 24, 1998.

 (17) Incorporated  by  reference  to the  exhibit  bearing  the same  number in
      Registrant's  Form 10-Q (File No. 0-25684) for the quarter ended September
      25, 1998 filed November 25, 1998.

   + Management contract or compensatory plan or arrangement.

  * Confidential  treatment has been requested with respect to certain  portions
of this  agreement.  Such  portions  have been omitted from this filing and have
been filed separately with the Securities and Exchange Commission.

 ** Confidential treatment was received with respect to certain portions of this
agreement.  Such portions have been omitted from this filing and have been filed
separately with the Securities and Exchange Commission.

*** Certain  exhibits to the exhibit  will be  furnished  supplementally  to the
Securities and Exchange Commission upon its request.

(b) Reports on Form 8-K.

      No reports on Form 8-K were filed during the quarter ended June 30, 1999.


<PAGE>


      SIGNATURES

      Pursuant  to the  requirements  of Section  13 or 15(d) of the  Securities
Exchange Act of 1934, as amended,  the Registrant has duly caused this report to
be signed on its behalf by the undersigned,  thereunto duly  authorized,  in the
City of Fremont, State of California, on the 24th day of September, 1998.

                                                   PREMISYS COMMUNICATIONS, INC.

                                                   By: /s/Nicholas J. Williams
                                                  ------------------------------
                                                       Nicholas J. Williams
                                                       Chief  Executive Officer


      Each  person  whose  signature  appears  below  constitutes  and  appoints
Nicholas J. Williams and John J. Hagedorn,  jointly and severally,  his true and
lawful  attorneys-in-fact,  each with the power of substitution,  for him in any
and all capacities,  to sign amendments to this Report on Form 10-K, and to file
the same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming all
that said attorneys-in-fact,  or his substitute or substitutes,  may do or cause
to be done by virtue thereof.

      Pursuant to the  requirements  of the Securities  Exchange Act of 1934, as
amended,  this report has been signed by the following persons in the capacities
and on the dates indicated.

Name                             Title                          Date
Principal Executive Officer:


/s/Nicholas J. Williams          Chief Executive Officer,     September 23, 1999
-----------------------------    President, Chief Operating
Nicholas J. Williams             Officer and a Director

Principal Financial Officer:


/s/John J. Hagedorn              Senior Vice President,       September 23, 1999
-----------------------------    Finance and Administration
John J. Hagedorn                 Chief Financial Officer
                                 and Secretary


Principal Accounting Officer:


/s/Robert W. Dilfer            Vice President and Controller  September 23, 1999
-----------------------------
Robert W. Dilfer


Additional Directors:


/s/Raymond C. Lin                Chairman of the Board of     September 23, 1999
-----------------------------    Directors
Raymond C. Lin


/s/Boris J. Auerbuch             Director                     September 23, 1999
---------------------------------
Boris J. Auerbuch


/s/Carol H. Sharer               Director                     September 23, 1999
---------------------------------
Carol H. Sharer


/s/Edward A. Keible              Director                     September 23, 1999
---------------------------------
Edward A. Keible





<PAGE>









      SECURITIES AND EXCHANGE COMMISSION

      Washington, D.C. 20549

      -----------

      EXHIBITS
      to
      Form 10-K
      Under
      THE SECURITIES ACT OF 1933
      -----------

      PREMISYS COMMUNICATIONS, INC.









<PAGE>


Exhibit Index
Exhibit
Number     Exhibit Title

2.01       Premisys  California   Acquisition   Agreement  between  Premisys
           Communications  Holdings,  Inc. and Premisys  Communications Pte.
           Ltd., dated as of March 12, 1992, and exhibits thereto.(1)
2.02       Exchange   Agreement   by  and  among   Premisys   Communications
           Holdings,   Inc.  and  the  shareholders,   warrant  holders  and
           noteholders of Premisys  Communications  Pte.  Ltd.,  dated as of
           March 12, 1992, and material exhibits thereto.***(1)
2.03       Form  of   Agreement   and  Plan  of  Merger  by  and  among  the
           Registrant,  Premisys Communications  Holdings, Inc. and Premisys
           Communications, Inc.(1)
3.01       Registrant's  Amended and Restated  Certificate of  Incorporation  as
           filed with the Delaware Secretary of State on April 12, 1995.(2)
3.02       Certificate  of Amendment of Amended and Restated  Certificate of
           Incorporation of Premisys Communications, Inc.(4)
3.03       Certificate of Designations Specifying the Terms of the Series A
           Junior Participating Preferred Stock of Premisys Communications,
           Inc. (15)
3.04       Registrant's Bylaws, as amended.(1)
4.02       Investors' Rights  Agreement,  dated as of March 12, 1992, as amended
           June 15, 1992, October 22, 1993, December 14, 1993, February 18, 1994
           and May 9, 1994 among Registrant and various investors.(1)
4.03       Waiver Relating to and Amendment of Investors' Rights Agreement dated
           as of July 24, 1995 among Registrant and various investors.(3)
4.04       Rights Agreement dated September 18, 1998 between  Registrant and
           ChaseMellon Shareholder Services LLC, as Rights Agent. (15)
+10.01     Registrant's   1992  Stock  Option  Plan  and  related  documents.(1)
+10.02     Registrant's  1994  Stock  Option  Plan  and  related  documents.(10)
+10.03     Registrant's 1995 Directors Stock Option Plan and related
           documents.(1)
+10.04     Registrant's  1995  Employee  Stock  Purchase  Plan  and  related
           documents.(1)
+10.06     Founders  Agreement  by and  among  Registrant,  Raymond  Lin,  Boris
           Auerbuch and Marcus Auerbuch, dated as of March 12, 1992.**(1)
10.08      Form of Indemnity  Agreement entered into by Registrant with each
           of its directors and executive officers.(1)
10.09      Warranty  and  Indemnification  Agreement  by and among  Raymond Lin,
           Boris Auerbuch and Registrant dated as of August 2, 1990.(1)
10.10      Agreement  for  Purchase  and  Sale  of  Assets  by  and  between
           Premisys  Communications,  Inc.,  a California  corporation,  and
           Premisys  Communications  Pte. Ltd., dated as of January 1, 1992,
           including Bill of Sale.(1)
10.11      Technology  Cost  and  Risk  Sharing  Agreement  by  and  between
           Premisys  Communications,  Inc.,  a California  corporation,  and
           Premisys  Communications  Pte.  Ltd.,  dated  as  of  January  1,
           1992.(1)
10.12      Agreement    Regarding    Payment   by   and   between   Premisys
           Communications,  Inc.,  a  California  corporation,  and Premisys
           Communications Pte. Ltd., dated as of September 30, 1992.(1)
10.13      Technology Cost and Risk Sharing  Agreement  Amendment by and between
           Premisys Communications, Inc., a California corporation, and Premisys
           Communications Pte. Ltd., dated as of July 1, 1995.
           (6)
10.15      Option  Agreement  by and between  Registrant  and AT&T  Paradyne
           Corporation, dated as of December 4, 1992.(1)
10.16      Series C Preferred Stock Purchase Agreement by and between Registrant
           and AT&T  Paradyne  Corporation,  dated as of  December  14, 1993 and
           material exhibits thereto.***(1)
10.18      Lease  Agreement by and between  Registrant  and Aetna Life Insurance
           Company, dated October 4, 1993, as amended to date.(1)
10.19      OEM Agreement by and among Premisys  Communications  Holdings,  Inc.,
           Premisys  Communications,  Inc., a California  corporation,  and AT&T
           Paradyne  Corporation,  dated as of December 4, 1992, as amended July
           8, 1993, March 17, 1994 and May 24, 1994.**(1)
10.20      Extension Agreements by and among Premisys  Communications  Holdings,
           Inc., Premisys  Communications,  Inc., a California corporation,  and
           AT&T  Paradyne  Corporation,  dated as of June 30,  1993 and July 12,
           1993 and September 30, 1993.**(1)
10.21      Co-Development   Agreement  between   Registrant  and  AT&T  Paradyne
           Corporation,  dated as of September 30, 1993, as amended  November 9,
           1993 and May 25, 1994.**(1)
10.22      Private Label Purchase/Resale Agreement by and between Registrant and
           DSC Technologies Corporation, effective as of March 31, 1994.**(1)
10.23      Purchase/Resale  Agreement  by and  between  Registrant  and  ADC
           Telecommunications, Inc., effective as of January 1, 1994.**(1)
10.24      Manufacturing   Agreement  by  and  between   Registrant  and  Eltech
           Electronics  Technology  (M)  SDN  BHD  (Malaysia)  as  of  July  22,
           1996.**(6)
10.26      Original  Equipment  Manufacturer (OEM) Volume Purchase Agreement
           between   Registrant  and  Motorola,   Inc.  dated  December  21,
           1994.**(1)
+10.27     Employment  Agreement  by  and  between  Premisys  Communications
           Holdings,  Inc.  and Riley R.  Willcox  dated as of February  10,
           1994.(1)
10.28      Amendment  No.  4  to  OEM   Agreement  by  and  among   Premisys
           Communications Holdings,  Inc., Premisys Communications,  Inc., a
           California  corporation,  and AT&T Paradyne  Corporation dated as
           of March 6, 1995.**(1)
+10.29     Registrant's  Management Salary and Incentive Plan for the Fiscal
           Year Ended June 30, 1996.(3)
10.30      Lease Agreement by and between Premisys and Berg & Berg  Enterprises,
           Inc.,  dated  October 24,  1995,  for the  premises  located at 48700
           Milmont Drive, Fremont, California.(16)***
10.31      Amendments  Number 5 and 6 to OEM  Agreement by and between  Premisys
           Communications,  Inc.,  a  Delaware  Corporation  and  AT&T  Paradyne
           Corporation, dated as of April 1, 1995. (5)**
+10.32     Registrant's  Management Incentive Plan for the fiscal year ended
           June 30, 1997.(6)
10.33      Amendment  Number 7 and 8 to OEM  Agreement  by and between  Premisys
           Communications,   Inc.,   a  Delaware   Corporation,   and   Paradyne
           Corporation, dated as of December 2, 1996.**(9)
10.34      First   Amendment  to  Lease   Agreement  by  and  between   Premisys
           Communications,  Inc.  and  Berg  &  Berg  Enterprises,  Inc.,  dated
           September 17, 1996, for the premises  located at 48800 Milmont Drive,
           Fremont,   California   (formerly   48700  Milmont  Drive,   Fremont,
           California). (8)
10.35      Second  Amendment  to Lease  Agreement  by and  between  Premisys
           Communications,  Inc.  and Aetna Life  Insurance  Company,  dated
           August 9, 1996. (7)


<PAGE>


10.36      Manufacturing  Agreement by and between Premisys  Communications,
           Inc. and CMC Mississippi, Inc. as of January 9, 1997. (11)**
10.37      Amendment   Number  9  OEM   Agreement   by  and   between   Premisys
           Communications,  Inc.,  a  Delaware  Corporation  and  AT&T  Paradyne
           Corporation, dated as of May 13, 1997. (11)**
10.38      Employment Agreement by and between Premisys  Communications Inc.
           and Nicholas Williams dated as of March 31, 1997. (11)
+10.39     Registrant's  Management Incentive Plan for the fiscal year ended
           June 30, 1998. (11)
10.40      License  Agreement  dated  December  27,  1996  between  Premisys
           Communications,  Inc. and Positron Fiber Systems Corporation.  **
           (11)
+10.41     Employment  Status  Change  Agreement  by  and  between  Premisys
           Communications,  Inc.  and  William J. Smith  dated as of October
           31, 1997. (12)
+10.42     Employment  Agreement  by and  between  Premisys  Communications,
           Inc. and Peter Hauser dated as of January 5, 1998. (13)
10.43      Third  Amendment  to  Lease  Agreement  by and  between  Premisys
           Communications,  Inc.  and Aetna Life  Insurance  Company,  dated
           January 8, 1998. (14)
+10.44     Employment  Status  Change  Agreement  by  and  between  Premisys
           Communications,  Inc. and Riley R.  Willcox  dated as of July 16,
           1998.(16)
+10.45     Employment  Agreement  by and  between  Premisys  Communications,
           Inc. and John J. Hagedorn dated as of June 1, 1998.(16)
+10.46     Amendment  to  Employment   Agreement  by  and  between  Premisys
           Communications,  Inc. and John J.  Hagedorn  dated as of July 14,
           1998.(16)
+10.47     Registrant's  Management Incentive Plan for the fiscal year ended
           June 30, 1999.(16)
10.48      Lease  Agreement by and between  Registrant  and Aetna Life Insurance
           Company, dated June 4, 1998 for the premises located at 48634 Milmont
           Drive, Fremont, California.(16)
10.49      First  Amendment  to  Lease  Agreement  by and  between  Premisys
           Communications,  Inc. and Aetna Life Insurance Company dated July
           20,  1998  for the  premises  located  at  48634  Milmont  Drive,
           Fremont, California.(16)
10.50      OTC  Issuer  Stock  Option  Master  Agreement  with  amendment  dated
           September 9, 1998.(17)
+10.51     Registrant's Management Incentive Plan for the fiscal year ended June
           30, 2000.
10.52      Master Purchase Agreement between Premisys Communications,  Inc.,
           a Delaware corporation,  and Teleport  Communications Group Inc.,
           dated as of October 15, 1997.*
21.01      List of Registrant's subsidiaries.
23.01      Consent of PricewaterhouseCoopers LLP, Independent Accountants.
24.01      Power of Attorney (See page 53 of this Form 10-K).
27.01      Financial Data Schedule.
-----------

  (1) Incorporated herein by reference to the exhibit bearing the same number in
      the Registrant's  Registration  Statement on Form 8-A (No.  0-25684) filed
      with the Securities and Exchange Commission on September 22, 1998.

  (2) Incorporated  by reference to Exhibit 3.01 to the  Registrant's  Form 10-Q
      (File No.  0-25684)  for the  quarter  ended  March 31, 1995 filed May 22,
      1995.

  (3) Incorporated  by  reference  to the  exhibit  bearing  the same  number in
      Registrant's  Form S-1  Registration  Statement filed August 1, 1995 (File
      No.
      33-95266).

  (4) Incorporated by reference to Exhibit 3.05 in Registrant's  Form 10-Q (File
      No.  0-25684) for the quarter ended  December 29, 1995 filed  February 12,
      1996.

  (5) Incorporated  by  reference  to the  exhibit  bearing  the same  number in
      Registrant's  Form 10-Q (File No. 0-25684) for the quarter ended March 29,
      1996 filed May 3, 1996.

  (6) Incorporated  by  reference  to the  exhibit  bearing  the same  number in
      Registrant's  Form 10-K (File No.  0-25684) for the fiscal year ended June
      28, 1996 initially filed September 26, 1996.

  (7) Incorporated  by  reference  to the exhibit  bearing  the number  10.33 in
      Registrant's  Form 10-Q (File No. 0-25684) for the quarter ended September
      27, 1996 filed November 10, 1996.

  (8) Incorporated  by  reference  to the  exhibit  bearing  the same  number in
      Registrant's  Form 10-Q (File No. 0-25684) for the quarter ended September
      27, 1996 filed November 10, 1996.

   (9)  Incorporated  by  reference  to the  exhibit  bearing the same number in
Registrant's  Form 10-Q (File No.  0-25684) for the quarter  ended  December 27,
1996 filed February 9, 1997.

 (10) Incorporated  by  reference  to  Exhibit  4.04 in  Registrant's  Form  S-8
      Registration Statement filed January 15, 1999 (File No. 333-70739).

 (11) Incorporated  by  reference  to the  exhibit  bearing  the same  number in
      Registrant's  Form 10-K (File No.  0-25684) for the fiscal year ended June
      27, 1997 initially filed September 25, 1997.

 (12) Incorporated  by  reference  to the  exhibit  bearing  the same  number in
      Registrant's  Form 10-Q (File No. 0-25684) for the quarter ended September
      26, 1997 filed November 10, 1997.

 (13) Incorporated  by  reference  to the  exhibit  bearing  the same  number in
      Registrant's  Form 10-Q (File No.  0-25684) for the quarter ended December
      26, 1997 filed February 2, 1998.

 (14) Incorporated  by  reference  to the  exhibit  bearing  the same  number in
      Registrant's  Form 10-Q (File No. 0-25684) for the quarter ended March 27,
      1998 filed May 1, 1998.

 (15) Incorporated  by  reference  to the  exhibit  bearing  the same  number in
      Registrant's Form 8-A (File No. 0-25684) filed September 22, 1998.

 (16) Incorporated  by  reference  to the  exhibit  bearing  the same  number in
      Registrant's  Form 10-K (File No.  0-25684) for the fiscal year ended June
      26, 1998 filed September 24, 1998.

 (17) Incorporated  by  reference  to the  exhibit  bearing  the same  number in
      Registrant's  Form 10-Q (File No. 0-25684) for the quarter ended September
      25, 1998 filed November 25, 1998.

   + Management contract or compensatory plan or arrangement.

  * Confidential  treatment has been requested with respect to certain  portions
of this  agreement.  Such  portions  have been omitted from this filing and have
been filed separately with the Securities and Exchange Commission.

 ** Confidential treatment was received with respect to certain portions of this
agreement.  Such portions have been omitted from this filing and have been filed
separately with the Securities and Exchange Commission.

*** Certain  exhibits to the exhibit  will be  furnished  supplementally  to the
Securities and Exchange Commission upon its request.



<PAGE>


                                                                  Exhibit 10.51
                         Management Incentive Plan for FY2000
                            Premisys Communications, Inc.
                     Compensation Committee of Board of Directors
                                    July 22, 1999

I. Participation
   A. Participants  ("Participants")  are  executives  and managers that have an
      impact of the overall success of the Company.
   B. Participants  must be full-time,  regular  employees as of the last day of
      each bonus period to earn a bonus.
   C. Participants  of the  Management  Incentive  Plan can not participate in
      profit sharing plan.
II.   Bonus Formula
   A. The target  individual  bonuses are set as a percentage of annual salaries
      and reflect  bonuses paid to individuals in comparable  positions at other
      companies and their responsibilities at Premisys.
B.    Operating Profit in all calculations for  non-Engineering  participants is
      the consolidated operating profit before accruals for Management Bonus and
      the Profit Sharing Plans ("Pre-bonus Operating Profit").
C.    Operating Profit in all  calculations for Engineering  participants is the
      consolidated product line gross profit less Engineering expense and before
      accruals for  Management  Bonus and the Profit  Sharing Plans  ("Pre-bonus
      Operating Profit").
D. The basis of earning bonuses varies with the responsibilities of the manager:
      1. CEO and CFO - Company  performance;  measured as actual  Pre-bonus
         Operating Profit versus plan
      2. Senior VP Sales - product revenue (through his sales commission  plan),
         individual goal  accomplishments  and actual Pre-bonus Operating Profit
         versus plan
      3. All other  participants  - combination  of actual  Pre-bonus  Operating
         Profit versus plan and achievement of individual  goals,  with specific
         portions of their bonuses tied to the accomplishment of each goal.
   E. The  Company  performance  bonuses  that  are  tied  to  actual  Pre-bonus
      Operating Profit versus plan will be calculated as follows:  1. The earned
      bonus is the product of individual bonus percentage of planned
         Pre-bonus Operating Profit times the actual Pre-bonus Operating Profit.
      2. If actual Pre-bonus Operating Profit versus plan is120% or more of Plan
         for the  complete  fiscal  year,  the  earned  bonus is the  product of
         individual bonus percentage of planned Pre-bonus Operating Profit times
         the ratio of the  actual/planned  Pre-bonus  Operating Profit times the
         actual Pre-bonus Operating Profit.
      3. Individual Bonuses are capped at two times target dollar bonuses.
   F. Bonuses based upon the accomplishmentof individualgoals will be determined
      by the CEO in conjunction with the individual's direct manager. The target
      levels represent  bonuses to be paid upon achievement of goals on a timely
      basis;  to the  degree  goals  are  accomplished  later  or  earlier  than
      expected,  and to the degree  the goal  completion  represented  lesser or
      greater effort than  expected,  actual bonuses can be from zero to 150% of
      the target levels.
G.    No bonus  payments  to  executive  officers  are made if actual  Pre-bonus
      Operating Profit is less than 75% of Plan.
H.    For all  non-executive  officer  participants,  no bonus payments based on
      Pre-bonus  Operating Profit are made if actual Pre-bonus  Operating Profit
      is less than 75% of Plan, and no bonus payments based on individual  goals
      are made if actual Pre-bonus Operating Profit is less than 50% of Plan
   I. Management  bonuses will be  calculated  for the first half and the second
      half of each  fiscal year and be paid within 30 days after the end of each
      six-month period.
III.  Authorization
   A. The Plan and  participation  must be  approved  at the  beginning  of each
      fiscal year by the Compensation Committee of the Board of Directors.
   B. The Compensation  Committee of the Board of Directors has the authority to
      adjust  amounts paid out based upon corporate  performance  based upon its
      assessment of the overall accomplishments of the management team.


<PAGE>


                                                                   Exhibit 10.52
                              ** Confidential  treatment has been requested with
                              respect to the  information  contained  within the
                              "[**]"  markings.  Such marked  portions have been
                              omitted  from  this  filing  and have  been  filed
                              separately   with  the   Securities  and  Exchange
                              Commission.

                              MASTER PURCHASE AGREEMENT


This Agreement is between Premisys Communications,  Inc., a Delaware corporation
(hereinafter  called  "Vendor"),  having  its  office  at 48664  Milmont  Drive,
Fremont,  California 94536 and Teleport  Communications Group Inc.  (hereinafter
called  "Customer") having a place of business at One Teleport Drive, Suite 301,
Staten Island, New York 10311.

                                     WITNESSETH:

     WHEREAS, Teleport Communications Group Inc. (TCG) is currently engaged in
establishing metropolitan area networks ("MANS") to provide local communications
services in various cities throughout the United States, and

     WHEREAS, the entities which will establish such MANS (individually, a "MANS
Entity") may either be wholly or partly owned by TCG, and

      WHEREAS,  Vendor and TCG wish to set forth a standard set of general terms
and conditions  which will  facilitate the ability to obtain the Products and/or
Services  (listed in Exhibit  A) which may be  purchased  from time to time from
Vendor by any MANS Entity, and

     WHEREAS,  as used  herein the term TCG or  Customer  shall  include,  where
applicable,  Teleport  Communications  Group,  Inc. and such other MANS Entities
which are wholly or partly owned by TCG;

      NOW THEREFORE, it is mutually agreed as follows:

1.   ORDERS

     1.1 All orders are subject to acceptance  and  acknowledgment  at PREMISYS'
California office.  PREMISYS will use its best efforts to acknowledge CUSTOMER's
order using PREMISYS' Sales Order  Acknowledgment  form within  twenty-four (24)
hours.  This  Agreement  supersedes  the terms of CUSTOMER's  Purchase Order and
preprinted terms on Premisys' Order Acknowledgment.

     Orders shall:

            (a) be in writing on paper with CUSTOMER's form (can be received via
facsimile  transmission);  electronic  transmission  of orders are acceptable if
they meet all of the conditions in this Section 1;

            (b) include  CUSTOMER's  purchase order number and/or a signature of
an authorized employee of CUSTOMER (to be provided by CUSTOMER);

            (c)  adhere to the terms and conditions as in Section 3 of this
Agreement;

            (d) have correct equipment and options  description  (including item
numbers and part numbers if shown for that item in the price list);

            (e) have correct purchase price in accordance with Exhibits A and of
this Agreement or any amendments hereto;

            (f)  provide  tax  status  for each  "ship  to"  location  including
exemption  certificate  number if tax  exempt,  either on the order or  separate
notice prior to shipment;

            (g) have firm shipment  schedules,  with shipment date, extended not
more than ninety (90) days from date of order; and

            (h) specify exact "ship to" and "invoice to" place of business.


     1.2  All orders shall be sent to:

           PREMISYS Communications, Inc.
           ATTN: Customer Service
           48664 Milmont Drive
           Fremont, CA 94538
           Phone:  (510) 353-7600     Fax:  (510) 353-7601

     1.3  Delivery - Within two (2)  business  days  after  acceptance  of order
providing such orders are  approximately  as forecasted.  PREMISYS will endeavor
and use best  commercial  efforts to ship such orders  within  twenty-four  (24)
hours of  acceptance  and other  short-term  orders  requested  by CUSTOMER  for
products and quantities as shown in Exhibits E and F.

     1.4   Shipment of Orders

     1.4.1 All shipments  shall be accompanied by a detailed  packing list which
will  reference  the PREMISYS  part number for the Product,  the purchase  order
number the shipment is against,  the customer  item number,  and the quantity in
each shipment covered by the packing list.

     1.4.2 All  shipment  containers  shall be marked  and  identified  with the
necessary shipping information,  including name and address of CUSTOMER or other
designated consignee, and consignor.

     1.4.3  CUSTOMER  may  specify  carrier and mode of  transportation  on each
individual  purchase  order.  All shipments  shall be made freight  collect.  If
CUSTOMER  fails to indicate  the carrier  and mode of  transportation,  CUSTOMER
grants PREMISYS authority to select carrier and mode of transportation  required
to meet CUSTOMER's delivery requirements.

     1.4.4 Vendor will pack the Products  purchased  hereunder  for transport in
accordance  with its  commercial  standards  and will  deliver the Products to a
carrier of the mode of transportation selected by Vendor unless otherwise agreed
upon by the parties.

     1.4.5 Products will be shipped to Customer's  specified  delivery point FOB
shipping point, freight prepaid and billed. Such prepaid  transportation charges
will be so  identified  as a separate  line item on Vendor's  invoice or will be
separately  billed to Customer on NET 30 DAY terms if applicable  due to special
handling requested by Customer.


2.    PRICES

      (a)  Products

           The price of the Products  during the term of this Agreement shall be
           as listed in Exhibit A.

      (b)  Services

           (1)   Prices for Training and  Installation  shall be those contained
                 in Exhibit A.

           (2)   Prices  for  Services  not  listed in  Exhibit A shall be those
                 contained in Vendor proposals issued from time to time.

      (c)   Volume Discounts; forecasts

           (1) There shall be no minimum purchase requirement.

           (2) Customer will be invoiced  only for Products  ordered by Customer
               via  Purchase  Orders.  Customer  has no  liability  for  Product
               purchases beyond issued Purchase Orders.

           (3) Customer  shall  submit to  Vendor a six month (6) month  rolling
               forecast of Product purchases which will be updated quarterly and
               is non-binding.

      PREMISYS  shall sell the  Products  to  CUSTOMER  without  right of return
      except as expressly provided in Exhibit "B" attached hereto.


3.    PAYMENT

      Payment  for  Products  shall be due NET THIRTY (30) DAYS from the date of
      invoice by Customer. Such invoice shall be sent to Customer at the time of
      shipment of the Products. Payment for Services ordered by the Customer and
      performed  by Vendor  shall be due net  thirty  30 days from the  Vendor's
      invoice  date by Customer.  Vendor shall give  Customer a two percent (2%)
      discount  on all  Products  and  Services  if payment is made by  Customer
      within ten (10) days from the invoice date.  No penalties  will be imposed
      for orders for which payment has been made within sixty (60) days.


4.          TRANSFER OF TITLE AND RISK OF LOSS; SOFTWARE LICENSE

      (a)  Title to the Products, except for software, shall pass from Vendor to
           Customer upon delivery by the Vendor to the carrier.  In the event of
           loss or damage during shipment, the Vendor will take the action to
           resolve such issues with the carrier, including any and all insurance
           claims.  If lost Products cannot be recovered within twenty-four (24)
           hours,Vendor will replacesuchlost products and any damaged productsat
           no additionalcost to Customer.Customer willassist Vendor in asserting
           any claim against the involved carrier.  Any damaged or recovered
           Products or paid claims will be returned to Vendor.

      (b)  Title  to  software  shall  remain  with  Vendor.   Unless  otherwise
           stipulated  by  Vendor,  Vendor  grants to  Customer a fully paid up,
           non-exclusive,  nontransferable license to use the software solely in
           conjunction with Vendor-provided  Products.  The software and license
           to use such software is considered  Vendor  proprietary  information.
           The  foregoing  license  does not  include  any right of  Customer to
           sublicense or assign the software  without the prior written approval
           of Vendor.

      Customer may only make copies sufficient for backup operational logistics.

5.    LABOR HARMONY; ACCESS TO CUSTOMER PREMISES

      Customer shall familiarize Vendor with the labor/management  relationships
      at Customer working sites, and Vendor shall conduct its activities in such
      a manner as to avoid:  (i) any  interruption  of work and  services at the
      Customer sites; and (ii) any  interference  with the work or activities of
      other  parties.  Whenever  Vendor has knowledge of any actual or potential
      labor dispute,  it shall  immediately  give the MANS Entity notice thereof
      and all relevant  information it has with respect thereto.  Vendor assumes
      the risk for any  disruption  of the  work due to a labor  dispute  caused
      directly by an act or omission of Vendor,  and such labor dispute,  or the
      settlement  thereof,  shall not be grounds  for any change in the terms of
      this  Agreement.  In the event of an actual or  potential  labor  dispute,
      Vendor  agrees to cooperate  with the Customer to minimize the effect such
      disruption  may have at such site.  Vendor  shall be  responsible  for its
      costs in resolving or averting any such labor dispute.

6.          TAXES

      (a)   Prices for Products and, if applicable,  software do not include any
            state,  federal,  county or local sales, or use taxes  applicable to
            the  sale,  delivery,  or use of said  Products,  and  the  Customer
            expressly  agrees  to pay  to  vendor  (in  addition  to the  Prices
            specified),  the amount of any such  taxes that may be imposed  upon
            and  therefore  payable  by  Vendor  as shall be  determined  by the
            shipping destination specified in the Customers Purchase Order.

            All sales and use taxes, will be itemized  separately on the invoice
            and billed to the  Customer by Vendor  unless  Customer has supplied
            valid  tax  exemption   certificates  or  equivalent   legal  waiver
            documents.

      (b)   All  other  taxes  of  every  nature  and  kind,  including  without
            limitation franchise, net or gross income, license,  occupation,  or
            property taxes on Vendor-owned  property shall be the responsibility
            of Vendor and Customer shall have no obligation to Vendor therefor.

      (c)   Customer  shall have the right to pay tax under protest for the levy
            of any such  sales or use taxes and,  in-such  event,  Vendor  shall
            provide such  assistance  and  information as may be required by any
            taxing authority in connection with such protest and appeals.


7.    DOCUMENTATION

      (a)   At no  additional  charge,  Vendor will  furnish one manual for each
            enclosure  ordered.  The instruction books shall contain sections on
            theory, operation, installation, and maintenance of the equipment.

      (b)   In the event that  Vendor is  contracted  by  Customer  to  engineer
            and/or  install   equipment,   Vendor   documentation  will  include
            engineering  drawings covering physical  installation,  wiring,  and
            connectivity, and, if applicable, as-built drawings.

9.    WARRANTIES

      (a)   Hardware Warranty

      1.    All Product is warranted to perform,  when given normal,  proper and
            intended  usage,  substantially  in  accordance  with the  published
            release  specifications  for each Product  and,  except for Licensed
            Software, against defects in materials and workmanship.

      2.    PREMISYS warrants to Customer only that to the extent that any
            Product delivered under this Agreement is hardware, such Product
            shall be free from defects in workmanship and materials under
            normal use and service for a period of five (5) years from date
            of PREMISYS shipment of the Product to CUSTOMER.  PREMISYS makes
            no warranty to anyone other than Customer including no warranty
            to any customer of Customer except as set forth in PREMISYS'
            limited warranty accompanying delivery of Product, if any.
            CUSTOMER may assign its warranty to its customers subject to the
            terms of this section.

      If    during  the  stated   warranty   period  any  defect  in   material,
            workmanship  or design is discovered  in any Product  covered by the
            above warranty PREMISYS shall, at PREMISYS' sole option,  (1) repair
            or replace any such  Products  which are returned by Customer or (2)
            refund (or credit at Customer's  option) the purchase price provided
            that: (a) PREMISYS is promptly notified in writing upon discovery of
            such defect, which notice shall contain a reasonable  explanation of
            any alleged  deficiency  and be delivered  to PREMISYS  prior to the
            expiration of the applicable  warranty  period;  (b) such Product is
            promptly  returned to PREMISYS after  issuance of a return  material
            authorization  (RMA)  by  PREMISYS,  freight  prepaid  to  PREMISYS'
            Warranty  Repair  Department;  and (c)  PREMISYS is  satisfied  upon
            examination  that claimed  deficiencies  actually exist and were not
            caused  by   accident,   misuse,   neglect,   alteration,   improper
            installation,  improper repair, improper testing,  lightning,  fire,
            flood,  or  earthquake.  No troubles found (NTF) will be billed at a
            charge of $100 per  occurrence.  PREMISYS  shall  have  twenty  (20)
            business  days to make  repairs to or replace  Products  found to be
            defective.  Unauthorized  modifications  or  alterations  of Product
            shall  invalidate this warranty.  PREMISYS shall return all Products
            repaired or replaced under warranty freight prepaid to Customer.



      (3)   Limitations of Warranty

            CORRECTION OF DEFECTS BYREPAIR, REPLACEMENT,SERVICE OR REFUNDWILL BE
            AT VENDOR'S OPTION AND CONSTITUTE FULFILLMENT OF ALL OBLIGATIONS TO
            CUSTOMER FOR BREACH OF WARRANTY.

            Vendor assumes no warranty  liability with respect to defects in the
            product caused by:

            (i)   Other manufacturer's  equipment purchased by Vendor and resold
                  to Customer will be limited to that  manufacturer's  warranty.
                  Vendor shall assign the  manufacturer's  warranty to Customer.
                  Vendor assumes no warranty liability for other  manufacturer's
                  equipment furnished by Customer.

            (ii)  No agent,  Customer,  or  representative is authorized to make
                  any warranties on behalf of Vendor or to assume for Vendor any
                  other  liability  in  connection  with any  Vendor  Product or
                  Service.


       (b)  Software Program License And Warranty

      1.    License

      1.1   Subject to the following  terms and  conditions  PREMISYS  grants to
            CUSTOMER and CUSTOMER accepts a perpetual,  non-exclusive license to
            use the object code  software  provided by  PREMISYS  (the  Licensed
            Program) only with PREMISYS equipment with all copyright, patent and
            intellectual   property  rights   remaining  the  sole  property  of
            PREMISYS.

      1.2   CUSTOMER  shall  receive  software  support  and  upgrades  for  the
            Licensed  Program in  accordance  with the  applicable  then current
            PREMISYS  software  support policy in effect and upon payment of any
            applicable fees.

      2.    Protection and Security of Licensed Programs

      2.1   CUSTOMER  acknowledges and agrees that the Licensed Program contains
            proprietary  and  confidential  information  of PREMISYS  and/or its
            third party supplier.  CUSTOMER  agrees to protect the  confidential
            and  proprietary  nature of the Licensed  Program in the same manner
            that it protects  its own  confidential  information  of like value,
            provided  that  CUSTOMER  will in all cases use  reasonable  care to
            protect the Licensed Program.

      2.2   CUSTOMER  shall  not use,  print,  copy,  translate,  adapt,  create
            derivative works from, record, transmit, display, disclose, publish,
            encumber  by  way  of  security  interest  or  otherwise  pledge  or
            transfer, modify, assign,  distribute,  rent, loan or make available
            to any third party the Licensed Program in whole or in part,  except
            as expressly provided in this Agreement.

      2.3   CUSTOMER   shall  refrain  from  and  shall   prevent   others  from
            decompiling  or applying  any  procedure  to the  Licensed  Program,
            including  reverse  engineering or any similar process,  in order to
            derive  and/or  appropriate  for  use,  the  source  code or  source
            listings for the Licensed Program.

      3.    Term

      3.1   This Agreement shall become effective for each Licensed Program upon
            delivery of the Licensed Program to CUSTOMER.

      3.2   PREMISYS  may  terminate  said  license  upon  notice to CUSTOMER if
            CUSTOMER  breaches any provision of this Agreement and fails to cure
            such  breach  within  thirty  (30)  days of  notice  thereof,  or if
            CUSTOMER  becomes  bankrupt,  makes an assignment for the benefit of
            creditors or a trustee is appointed for  CUSTOMER,  or if the assets
            of CUSTOMER vest in or become  subject to the rights of any trustee,
            receiver,  board,  tribunal,  commission  or any body,  corporate or
            person,  other than CUSTOMER,  or if bankruptcy,  reorganization  or
            insolvency  proceedings are instituted  against CUSTOMER and are not
            dismissed within 30 days.

      4.    Limited Warranties

      4.1   PREMISYS  warrants that when the Licensed  Program is delivered that
            it will function  substantially  in accordance  with the  functional
            description set out in the applicable  portion of the version of the
            user  manual   supplied  with  the  License  Program  when  used  in
            accordance with such user manual. This warranty will be conclusively
            deemed to be satisfied  unless CUSTOMER gives PREMISYS notice within
            90  days  of the  date  PREMISYS  ships  the  original  copy of such
            Licensed  Program  that the warranty has not been met, in which case
            PREMISYS shall have the opportunity to make repeated  efforts within
            a reasonable  time to satisfy its  obligations  under this warranty.
            If, after repeated  efforts,  CUSTOMER  notifies  PREMISYS that this
            warranty  has not been met,  PREMISYS  will  take back the  Licensed
            Program  and  refund  to  CUSTOMER  all  amounts  paid  by  CUSTOMER
            hereunder with respect to such Licensed Program.

      4.2   THE  WARRANTY  SET OUT IN  SECTION  4.1  SHALL  CONSTITUTE  THE SOLE
            LIABILITY  OF  PREMISYS  AND THE SOLE  REMEDY  OF  CUSTOMER  FOR ANY
            FAILURE OF ANY PROGRAM TO FUNCTION AS WARRANTED.

      4.3   EXCEPT  AS  EXPRESSLY  PROVIDED  HEREIN  THERE  ARE  NO  WARRANTIES,
            CONDITIONS OR REPRESENTATIONS  EXPRESS OR IMPLIED BY STATUTE, USAGE,
            CUSTOM  OF THE  TRADE OR  OTHERWISE  WITH  RESPECT  TO THE  LICENSED
            PROGRAMS PROVIDED BY PREMISYS  HEREUNDER,  INCLUDING BUT NOT LIMITED
            TO, WARRANTIES OR REPRESENTATIONS  OF WORKMANSHIP,  MERCHANTABILITY,
            SUITABILITY  OR FITNESS  FOR A  PARTICULAR  PURPOSE  OR  DURABILITY,
            WITHOUT LIMITING THE GENERALITY OF THE FOREGOING,  PREMISYS DOES NOT
            WARRANT THAT THE LICENSED  PROGRAM WILL MEET ALL OF CUSTOMER'S NEEDS
            OR THAT OPERATION OF THE LICENSED PROGRAM WILL BE ERROR FREE.

      5.    LIMITATION OF LIABILITY

      5.1   EXCEPT FOR THIRD PARTY CLAIMS IN NO EVENT WHATSOEVER,  REGARDLESS OF
            THE FORM OR CAUSE OF ACTION  WHETHER IN CONTRACT OR TORT  (INCLUDING
            NEGLIGENCE) OR THE NUMBER OF CLAIMS  ASSERTED,  SHALL PREMISYS,  ITS
            EMPLOYEES, DIRECTORS, OFFICERS AND AGENTS TOTAL COLLECTIVE LIABILITY
            TO  CUSTOMER  FOR ALL  CLAIMS  EXCEED  THE  AMOUNT  PAID  UNDER THIS
            AGREEMENT FOR THE LICENSED  PROGRAM THAT IS THE SUBJECT MATTER OF OR
            THAT IS  DIRECTLY  RELATED TO CAUSE OF ACTION,  PROVIDED  THAT IN NO
            EVENT  SHALL  THE  TOTAL  COLLECTIVE  LIABILITY  OF  PREMISYS,   ITS
            EMPLOYEES,  OFFICERS, AGENTS AND DIRECTORS EXCEED THE AMOUNT PAID TO
            PREMISYS PURSUANT TO THIS AGREEMENT.

      5.2   PREMISYS, ITS EMPLOYEES, AGENTS, OFFICERS AND DIRECTORS SHALL NOT BE
            LIABLE  IN ANY WAY  WHATSOEVER,  WHETHER  AS A RESULT  OF A CLAIM OR
            ACTION IN CONTRACT OR TORT,  INCLUDING  NEGLIGENCE  OR OTHERWISE FOR
            ANY INDIRECT,  SPECIAL OR CONSEQUENTIAL  DAMAGES,  INCLUDING BUT NOT
            LIMITED TO, LOST PROFITS OR LOST BUSINESS  REVENUE,  LOST  BUSINESS,
            FAILURE TO REALIZE EXPECTED SAVINGS, OR OTHER COMMERCIAL OR ECONOMIC
            LOSS OF ANY KIND WHATSOEVER, OR FOR ANY DAMAGES, DIRECT OR INDIRECT,
            SPECIAL OR  CONSEQUENTIAL  ARISING OUT OF ANY CLAIM AGAINST CUSTOMER
            BY ANY  PERSON  WHETHER  OR NOT SUCH  DAMAGES  ARE  FORESEEABLE  AND
            WHETHER  OR  NOT  PREMISYS,  ITS  EMPLOYEES,   AGENTS,  OFFICERS  OR
            DIRECTORS HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES WHICH
            ARE IN ANY WAY RELATED TO THIS AGREEMENT OR THE LICENSED PROGRAM.

      6.    Patent, Copyright, Trade Name and Trade Secret Infringement

      6.1   PREMISYS  shall  defend any suit  alleging the  infringement  of any
            patent,  copyright or trade secret which is brought against CUSTOMER
            on  account  of its use of the  Licensed  Program  and shall pay all
            reasonable  legal  costs  and  expenses   incurred  by  CUSTOMER  in
            conjunction therewith and satisfy all monetary judgments and decrees
            against  CUSTOMER,  provided that CUSTOMER  notifies PREMISYS within
            ten (10)  business  days of the date any such claim becomes known to
            CUSTOMER,  that  PREMISYS  shall have sole control of the defense or
            settlement  of  such  actions,   and  that  CUSTOMER  provides  such
            assistance and cooperation to PREMISYS as is reasonably requested.

      6.2   In the event CUSTOMER is enjoined from its use of PREMISYS' Licensed
            Program due to proceeding based upon any infringement of any patent,
            copyright or trade secret, PREMISYS shall either:

            i) promptly renderthe Licensed Program non-infringing and capable of
               providing services as intended, or

            ii)   procure for CUSTOMER the right to continue using the Licensed
               Program, or

            iii)  replace the Licensed Program with a non-infringing version, or

            iv)remove the Licensed  Program and refund the purchase price,  less
               a monthly usage fee equal to one sixtieth of the license for each
               month that CUSTOMER has had use of the Licensed Program.

            6.3   The foregoing  constitutes the entire liability of PREMISYS to
                  CUSTOMER with respect to infringement of patents,  copyrights,
                  and trade  secrets  for  Products  purchased  pursuant to this
                  Agreement and PREMISYS hereby  disclaims any implied  warranty
                  of non-infringement.

            7.    Miscellaneous

            7.1   Notwithstanding anything else in this Exhibit,  PREMISYS shall
                  not, in any way whatsoever,  be held liable or responsible for
                  any failure by it to meet its obligations or  responsibilities
                  under this  Exhibit  where such  failure  results  from causes
                  beyond PREMISYS' reasonable control.

            7.2   This  Exhibit  constitutes  the entire  understanding  between
                  PREMISYS  and CUSTOMER  with  respect to the  licensing of the
                  Licensed  Programs to CUSTOMER by PREMISYS and  supersedes all
                  prior  oral and  written  communications  with  respect to the
                  Licensed  Programs  licensed under this Exhibit.  This Exhibit
                  may  be  amended  or  modified  only  by  means  of a  written
                  Agreement signed by both PREMISYS and CUSTOMER.

            7.3   If any  provision of this Exhibit shall be held to be invalid,
                  illegal  or  unenforceable,  such  provision  shall be severed
                  therefrom and the validity,  legality or enforceability of the
                  remaining  provisions  shall  not in any  way be  affected  or
                  impaired thereby.

            7.4   CUSTOMER shall comply with all export  regulations  pertaining
                  to the  Licensed  Program  in  effect  from  time to time.  In
                  particular,  without limiting the generality of the foregoing,
                  CUSTOMER   hereby  warrants  that  it  will  not  directly  or
                  indirectly export, re-export or transship the Licensed Program
                  or such other  information,  media or products in violation of
                  or otherwise in  contravention  of the export laws,  rules and
                  regulations.


      (c)   Disclaimer of Warranty and Limitation of Remedies

      1.    Customer understands and agrees as follows:

            THE ABOVE  WARRANTIES  REPLACES ALL OTHER  WARRANTIES,  EXPRESSED OR
            IMPLIED,  AND  ALL  OTHER  OBLIGATIONS  OR  LIABILITIES  OF  VENDOR,
            INCLUDING  ANY  WARRANTIES  OF  MERCHANTABILITY  AND  FITNESS  FOR A
            PARTICULAR PURPOSE. ALL OTHER WARRANTIES ARE DISCLAIMED AND EXCLUDED
            BY VENDOR.

            THE FOREGOING  WILL BE THE SOLE AND  EXCLUSIVE  REMEDY FOR BREACH OF
            WARRANTY IN CONTRACT,  OR OTHERWISE.  THIS LIMITATION APPLIES TO ALL
            SERVICES AND PRODUCTS  DURING AND AFTER THE WARRANTY  PERIOD.  IN NO
            EVENT  WILL  VENDOR  BE  LIABLE  FOR  ANY  SPECIAL,   INCIDENTAL  OR
            CONSEQUENTIAL  DAMAGES OR COMMERCIAL  LOSSES EVEN IF VENDOR HAS BEEN
            ADVISED THEREOF.


10.   SUPPORT SERVICES

      Vendor shall provide the following services:

                              ** Confidential  treatment has been requested with
                              respect to the  information  contained  within the
                              "[**]"  markings.  Such marked  portions have been
                              omitted  from  this  filing  and have  been  filed
                              separately   with  the   Securities  and  Exchange
                              Commission.

10.1  NO CHARGE SERVICES

            (a)   Vendor's   Service   Engineers  to  resolve,   via  telephone,
                  technical  questions/issues  on a [ ** ]  basis,  and to  ship
                  emergency parts within [ ** ] of request.

            (b)   Distribution  of  service  bulletins  that  describe  Products
                  changes.  Distribution shall take place to Customer within two
                  (2) workdays of bulletin preparation.

            (c)   Order Administration for parts and warranty issues.

            (d)   Training for up to eight (8) qualified technicians at Vendor's
                  Facilities in the operational theory, technical parameters,
                  installation and/or maintenance,and testmethods foreachtype of
                  Product acquired by Customer and by Related Companies.  Such
                  training shall be provided,mutually agreed,forthe firstof such
                  acquisitions by Customer,and shallbe providedto Customer's and
                  the Related Company's employeesor their contractors'employees.
                  If training class is canceledor rescheduled within one(1) week
                  of the commencement date, Customer will pay Seller's
                  non-recoverable costs incurred in connection therewith.  In
                  addition, Seller will offer to provide at Seller's training
                  facility such training for three(3) employees of Customer,each
                  Related Company, or their contractors for each type of Product
                  acquired by Customer as to such training, Customer or Related
                  Company, as applicable, shall pay such employees, travel and
                  living expenses.

      10.2  BILLABLE SERVICES

            (a)   Except  as  provided  above,   training  courses  at  vendor's
                  facility or Customer's  facility shall be provided in Vendor's
                  Price  List  (section  4.03)  for such  services.  The cost to
                  Customer for training at Customer's  facility shall not exceed
                  the reasonable  expenses associated with the trainer's travel,
                  lodging and meals.

            (b)   Repair of  customer-returned  units at the then current vendor
                  price list in effect for such  services  when the products are
                  returned out of warranty.

            (c)  Provision  of  loaner  modules  for  restoring  service  during
outages.

            (d)   Emergency on-site engineering  support,  with Customer's costs
                  limited to Vendor's standard rates and the reasonable expenses
                  associated with travel, lodging and meals.

            (e) Cost of emergency parts and shipping as described in Exhibit B.

11.   SPARES


                              ** Confidential  treatment has been requested with
                              respect to the  information  contained  within the
                              "[**]"  markings.  Such marked  portions have been
                              omitted  from  this  filing  and have  been  filed
                              separately   with  the   Securities  and  Exchange
                              Commission.

      (a)   Vendor  agrees  to offer  for  sale  and  provide  to  Customer,  at
            reasonable  rates and  deliveries  then in effect,  replacement  and
            spare parts for a [ ** ] period  commencing on the delivery date for
            the last item of Products under this Agreement.

            In the event that Vendor is unable to commit within thirty (30) days
            to  supply  to  Customer  a  specified   spare  part  or  equivalent
            replacement  within  180 days  from the date a  Customer's  order is
            received, Customer may require Vendor to supply all plans, drawings,
            technical  specifications,   parts  list,  and  other  documents  as
            Customer may require in order to obtain or  manufacture a substitute
            or equivalent part.  Vendor shall use best efforts to meet a shorter
            delivery date for spares.

12.   INVENTORY

      Vendor shall  maintain an inventory of sets of Products at its facility as
      described in Exhibit E. Customer  shall have access to this  inventory for
      emergency  service purposes on a [ ** ] basis, and Vendor shall deliver to
      a shipping carrier inventory for such purposes within [ ** ] of Customer's
      written  authorized  request.  Vendor will invoice  Customer upon shipment
      under the terms of this agreement.

13.  FUTURE ENHANCEMENTS

      Any future enhancements  developed for the Product(s) purchased under this
      Agreement  will be  available  and  offered  for sale to  Customer  at the
      then-current catalog price, less any applicable discounts.



<PAGE>


14.   EXCUSABLE DELAY

      Vendor  will not be liable  for  delays  in  performance  or a failure  to
      perform  hereunder  due to unforeseen  circumstances  or causes beyond its
      control including, but not limited to, inability to obtain material, labor
      or manufacturing  facilities,  acts of God, acts of any government,  wars,
      riots, fires, floods, accidents, strikes, embargoes, or delays on the part
      of Vendor's  suppliers for said  reasons.  In the event of such delays the
      Purchase Order schedules  shall be extended for such additional  period of
      time as is determined to be equitable by the parties.

      If  such  a  delay  in   performance  or  failure  to  perform  forces  an
      interruption of more than fifteen (15) days,  Customer may elect to cancel
      the  Purchase  Order(s)  without  penalty  to  Customer  and  without  any
      financial obligation other than to pay for Products actually delivered.

15.   CONFIDENTIALITY OF INFORMATION

      (a)  Should private information ofeither theCustomer orVendor be required
           by the other in performanceof this Agreement,the party receiving such
           private information (Recipient hereafter) agrees to maintain same in
           confidence andto take precautions reasonably necessaryto protect same
           from third parties and any purpose inconsistent with the Agreement.
           Precautions taken shallbe deemed reasonable if at least equivalent to
           Recipient's precautions with respect to its own private information.
           Private information shallmean technical orbusiness informationor data
           conveyed in written, graphic, or other permanent tangible form.

           The foregoing confidentiality restrictions, however, shall not extend
           to any part of the private information which:

            (1)   was already  known to the  recipient at the time of disclosure
                  hereunder and as can be confirmed by written documentation;

            (2)   was knownor was generally available tothe public atthe time of
                  disclosure hereunder;

            (3)   becomes known or generally available to the public (other than
                  by act of Recipient subsequent to its disclosure hereunder);

            (4)   is  disclosed  or made  available in writing to Recipient by a
                  third party having a bona fide right to do so;

            (5)   is independently developed by Recipient without the use of the
                  private   information   as  can  be   established  by  written
                  documentation; or,

            (6)   is required by law to be released.

      (b)   The   provisions  of  this  Section  16  shall  survive  beyond  the
            termination of this Agreement.

16.   ASSIGNMENT

      (a)   Vendor  shall not  assign  this  Agreement  or any of its  rights or
            obligations hereunder without the prior written consent of Customer,
            which consent shall not be unreasonably  withheld.  However,  Vendor
            may make such  assignment  without  Customer's  approval  in case of
            merger or acquisition.

      (b)   Customer  may  assign  this  Agreement  or  any  of  its  rights  or
            obligations  except  for  obligations  of  payments  due to a parent
            company, affiliate or subsidiary.

      (c)   The terms and conditions of this Agreement shall pass to the benefit
            of and be binding upon the successors and assigns of the parties.

17.   PATENT INDEMNITY

      Vendor  agrees that it will  defend,  at its own  expense,  all claims and
      suits against Customer for  infringement (or alleged  infringement) of any
      United  States  patent,  or  patents   covering,   or  alleged  to  cover,
      Vendor-supplied Product(s). Vendor agrees that it will pay all sums which,
      by settlement,  final judgment or decree in any such claims or suits,  may
      be assessed  against  Customer on account of such  infringement,  provided
      that Vendor shall be given (i) immediate  written  notice of any claims of
      any such  infringement  and of any suits  brought  or  threatened  against
      Customer and (ii) authority to assume the sole defense thereof through its
      own counsel (and at its expense) and to  compromise or settle any suits so
      far as this may be  without  prejudice  to the  right of the  Customer  to
      continue the use, as  contemplated,  of the Product(s)  furnished or to be
      furnished.  If in any such  suit so  defended  the  Product(s)  is held to
      constitute an infringement and its use is enjoined,  or if in the light of
      any claim of  infringement  Vendor deems it advisable to do so, Vendor may
      procure the right to  continue  the use of the same for the  Customer,  or
      replace the same with a  non-infringing  Product(s) , modify same so as to
      be non-infringing, or accept the return of Product(s) and refund the price
      therefor to Customer.

18.   COPYRIGHT INDEMNITY

      Vendor  agrees that it will  defend,  at its own  expense,  all claims and
      suits against Customer for  infringement (or alleged  infringement) of any
      United  States  Copyrights  covering or alleged to cover,  Vendor-supplied
      Product(s).  Vendor agrees that it will pay all sums which, by settlement,
      final  judgment  or decree in any such  claims or suits,  may be  assessed
      against  Customer on account of such  infringement,  provided  that Vendor
      shall be given (i)  immediate  written  notice  of any  claims of any such
      infringement  and of any suits brought or threatened  against Customer and
      (ii) authority to assume the sole defense  thereof through its own counsel
      (and at its expense) and to  compromise or settle any suits so far as this
      may be without prejudice to the right of the Customer to continue the use,
      as contemplated, of the Product(s) furnished or to be furnished. If in any
      such suit so defended the Product(s) is held to constitute an infringement
      and its use is enjoined,  or if in the light of any claim of  infringement
      Vendor  deems it  advisable  to do so,  Vendor  may  procure  the right to
      continue the use of the same for the Customer,  or replace the same with a
      non-infringing  Product(s),  modify  same so as to be  non-infringing,  or
      accept the return of Product(s) and refund the price therefor to Customer,
      and refund the  purchase  price,  less a charge for equal to one  sixtieth
      (1/60) of the purchase  price of the Product for each month that  Customer
      enjoyed beneficial use, and accept the return of such equipment.

19.   NOTICES


(a)         All  notices or  communications  of any kind made or  required to be
            given pursuant to this  Agreement  shall be in writing and delivered
            by  personal  service to an  officer  of the other  party or sent by
            telegraph or by certified mail,  returned  acknowledgement  required
            postage prepaid. Notices shall be addressed as follows unless either
            party gives notice to the other party of a change of address:

            To PREMISYS:                              To CUSTOMER:

      PREMISYS Communications, Inc.       Teleport Communications Group, Inc.
      48664 Milmont Drive                       One Teleport Drive , Suite 301
      Fremont, CA 94538                         Staten Island, NY 10311
      ATTN:  CONTROLLER             ATTENTION:  GENERAL COUNSEL


      (b)   Either  party may change such address or change the  designation  or
            title of the  individuals  by written notice issued and delivered as
            above.

20.   INSURANCE

      (a)   Vendor,  at its sole  cost and  expense,  shall  secure  and keep in
            force,  at all times while this  Agreement is in place the following
            insurance coverage and their respective minimum limits:

            (1)   Workmen's Compensation Employer's Liability Insurance

                  (a)   Worker's  Compensation - Statutory Limits, unless Seller
                        maintains  a  qualified   self-insured   status  and  so
                        certifies to Customer.

                  (b)  Employer's Liability - $100,000 per occurrence.

            (2)   Comprehensive General Liability Insurance

                  (a)   Combined  Bodily Injury  Liability  and Property  Damage
                        Liability  - Limits  of not  less  than  $1,000,000  per
                        occurrence.

            (b)   This  policy  must  include   coverage   extensions   for  (i)
                  Contractual Liability (to cover the indemnification  provision
                  at  Section 21 of this  Agreement),  (ii)  Products  Liability
                  (which  shall  be  maintained  for  not  less  than  one  year
                  following   completion  of  the  services   pursuant  to  this
                  contract),  (iii) Independent Contractor's Liability, and (iv)
                  Broad Form Property Damage Liability.

            (3)   Automobile Liability Insurance

                  (a)   Bodily Injury  Liability and Property  Damage  Liability
                        limits of $1,000,000 per occurrence.

                  (b)   This policy shall cover all owned,  non-owned  and hired
                        vehicles  that  are or may be  used  by  Vendor  and its
                        employees in the performance of this Agreement.

                              ** Confidential  treatment has been requested with
                              respect to the  information  contained  within the
                              "[**]"  markings.  Such marked  portions have been
                              omitted  from  this  filing  and have  been  filed
                              separately   with  the   Securities  and  Exchange
                              Commission.

   (4)      Excess Liability Insurance

                  Excess or  umbrella  liability  policy(ies)  with limits of at
                  least $1,000,000 per occurrence should be maintained, covering
                  losses  in excess of the above  listed  coverage  (other  than
                  Workers' Compensation) and limits.

                  The above limits of liability may be provided by a combination
                  of primary and excess policies, at vendor's election.

      (b)   [        **              ]

            (1)   [        **              ]

            (2)   [        **              ]

      (c)   All  insurance  required  by this  clause  shall be  issued  only by
            insurance  companies  licensed in the state or states where the work
            or services covered by this Agreement is to be performed.

      (d)   Vendor shall provide  Customer with  certificates of insurance prior
            to  commencement  of the work covered by this  contract and for each
            policy renewal during the course of this contract.

      (e)   The  insolvency,  bankruptcy,  or failure of any  insurance  company
            carrying  insurance  for  Vendor or  failure  of any such  insurance
            company  to pay  claims  due shall not  relieve  Vendor of any of it
            obligations   in  respect  of  the   provision   of   insurance   or
            indemnification.

21.   INDEMNIFICATION

      Vendor shall take all necessary and reasonable  precautions to prevent the
      occurrence of any injury (including death) to any person, or damage to any
      property,  arising out of any  negligent  acts or  omissions  of Vendor or
      Vendor's  employees,   agents,   representatives,   or  subcontractors  in
      connection  with the furnishing of the Products or any Services  purchased
      by Customer  hereunder  and to the extent that any injury or damage is due
      to such  acts or  omissions,  Vendor  shall  indemnify  and hold  harmless
      Customer against any loss, claim,  damage,  liability,  expense (including
      reasonable  attorneys,  fees),  or cause of action arising out of any such
      act or omission.

22.   TERM

      This Agreement will be in effect for a period of two (2) years  commencing
      on the effective date of the Agreement unless  terminated sooner by either
      party.  This  Agreement  may be extended  beyond the  initial  term of the
      Agreement by written agreement of the parties.  This Agreement shall apply
      to all  Products  and  Service  for  which  orders  have been  placed  and
      acknowledged  for  delivery  prior to the  expiration  of the term of this
      Agreement whether or not delivered as of that date.

23.   TERMINATION

      (a)   Termination by Customer - Customer shall have the right to terminate
            this  Agreement,  upon 30 days  written  notice to  Vendor,  for any
            reason.  Upon  termination  under this  section,  Customer  shall be
            obligated  to pay  for  Products  already  ordered  and/or  Services
            already  performed.  Customer shall have no other  obligations under
            this section.

      (b)   Termination  by Vendor - Vendor  shall have the right to  terminate,
            upon written  notice to Customer,  the  unperformed  portion of this
            Agreement in the event of one or more of the following conditions:

            (1)   Customer is in default  under any  material  provision of this
                  Agreement  and such default  continues  unremedied  for thirty
                  (30)  days  after  written  notice  of the  existence  of such
                  default shall have been received by Customer for Vendor, or

            (2)   A decree or order for relief of Customer is entered by a court
                  of competent  jurisdiction in any  involuntary  case involving
                  Customer under any bankruptcy,  insolvency, or similar law now
                  or hereafter in effect, or a receiver,  liquidator,  assignee,
                  custodian,  trustee,  sequestrator,  or other similar agent is
                  appointed  for  Customer  or  for  any  substantial   part  of
                  Customer's  affairs is  ordered,  or a petition  is filed with
                  respect to Customer in any involuntary case, which petition is
                  not  dismissed for a period of sixty (60) days or is dismissed
                  or suspended pursuant to Section 305 of the Federal Bankruptcy
                  Code (or any  corresponding  provision  of any  future  United
                  States Bankruptcy law), or

            (3)   Customer  commences  a  voluntary  case under any  bankruptcy,
                  insolvency or other similar law now or hereafter in effect, or
                  Customer  consents  to the entry of an order for relief in any
                  involuntary  case under any such law or to the  appointment of
                  or taking  possession  by a  receiver,  liquidator,  assignee,
                  trustee,  custodian,  sequestrator  or other similar agent for
                  Customer or for any substantial  part of Customer's  assets or
                  property,  or Customer  makes any general  assignment  for the
                  benefit of creditors, or Customer takes any action preparatory
                  to or otherwise in  furtherance  of any of the  foregoing,  or
                  Customer fails generally to pay Customer's debts as such debts
                  become due.

24.   SOURCE CODES

      In the event that Vendor is placed in or files for bankruptcy or ceases to
      carry on business on a regular  basis and such event is not cured in sixty
      (60) days, Vendor agrees, where applicable, (1) to furnish to Customer all
      source programs and associated documentation ("Software Source Materials")
      required  for  maintenance,   modification  or  correction  of  Customer's
      installed  base of the most current  version of the  Software  provided to
      Customer, (2) to grant Customer a non-exclusive,  royalty-free,  perpetual
      license  to use  such  Software  Source  Materials  solely  with  Products
      furnished hereunder;  and (3) should Customer's use of the Software Source
      Materials involve the practice of any invention covered by a United States
      patent of Vendor, Vendor agrees not to assert such patent against Customer
      in  connection  with the  maintenance,  modification  or correction of the
      Software.  Customer  will not resell or  otherwise  transfer  the Software
      Source Materials to another party.

25.   COMPLIANCE WITH LAWS

      (a)   The Vendor shall giveall requisite notices tothe proper authorities,
            obtain all permits and licenses made necessary by the Products and
            Services supplied underthis Agreementand shall comply with all laws,
            rules and regulations pertaining to such Products and Services,
            including without limitationthe FederalOccupational Safetyand Health
            Act and all rules and regulations issued pursuant to such act.  If
            requested the Vendorshall provide Customer withany required approval
            certificates.

      (b)   Without limiting the foregoing,Vendor warrants thatthe Products sold
            under the terms of this Agreement are safe in normal use or
            transportation,are non-toxic,and present no hazard to persons or the
            environment,and may be disposed of without special precaution.Vendor
            agrees to provide notification of any new Product that isor contains
            toxicor hazardous substances or present's ahazard in transportation,
            and further shall provide Customer with product data sheets setting
            forth procedures for use, transportation, and disposal of such
            Product(s).  All hazardous materials containers shall be properly
            labeled.Vendor agreesto indemnify and hold Customer harmless for any
            expense incurredor judgment obtained against Customerby reason ofthe
            use,transportation,or disposal ofthe products furnishedby Vendor and
            further agreesto indemnifyand hold Customer harmless fromany claims,
            demands,judgments,costs and expenses which Customershall incur under
            theComprehensive Environment Response,Compensation and Liability Act
            of 1980;The Consumer Product Safety Act of 1972; the Toxic Substance
            Control Act;the Occupational Health and Safety Act and the Radiation
            Control Act;andany amendments theretoby reason ofCustomer's purchase
            and resale of the Product(s) furnished by Vendor pursuant to this
            Agreement.

(c)  When  Product(s)  furnished  under this Agreement are subject to Part 68 of
     the Federal  Communications  Commission's Rules and Regulations,  as may be
     amended from time to time, Vendor warrants that such material is registered
     under and complies with Part 68 of the Federal Communications  Commission's
     Rules and  Regulations,  including,  but not limited to, all  labeling  and
     customer  instruction  requirements.  Vendor  agrees to indemnify  and hold
     Customer  harmless from any liability,  claims,  or demands  (including the
     costs, expenses and reasonable attorney's fees on account thereof) that may
     be made  because  of  Vendor's  noncompliance  with Part 68 of the  Federal
     Communications Commission's Rules and Regulations.

(d)  Product(s) shall comply, to the extent applicable, with the requirements of
     Subpart J of Part 15 of the FCC Rules and Regulations,  as may from time to
     time be amended,  including,  but not limited to, those sections concerning
     the labeling of such  Product(s) and the suppression of radio frequency and
     electromagnetic  radiation  to  specified  levels.  Should the  Product(s),
     despite  meeting  standards  set forth in the FCC  Rules  and  Regulations,
     generate harmful interference to radio communications, Vendor shall provide
     to  Customer   information   relating  to  methods  of   suppressing   such
     interference.   In  the  event  such  interference   cannot  reasonably  be
     suppressed,  Vendor shall, at the option of Customer,  accept return of the
     Product(s)  and  refund to  Customer  the price  paid for such  Product(s).
     Nothing in this  section  shall be deemed to  diminish or  otherwise  limit
     Vendor's obligations under the section entitled "Warranties".

(e)  Product(s)  shall comply to the extent  applicable with the requirements of
     the National  Electrical Code which requires  listing under UL 1459 and the
     associated  regulations  which may be  amended  from  time to time.  Vendor
     warrants that Product(s)  provided hereunder shall comply, and in the event
     of  noncompliance,  Customer  shall have the option to return  products and
     Vendor  shall refund  Customer  the prices paid without  penalty or restock
     charge  and shall  indemnify  from any  damages  which may be  incurred  or
     assessed due to the Product(s) not complying with these requirements.

26.   COURSE OF DEALING

      Except as  otherwise  provided  herein,  no trade  usage,  prior course of
      dealing or course of performance  shall be part of or shall be used in the
      interpretation or construction of this Agreement.

27.   NO SPECIAL DAMAGES

      Neither  Customer  nor  Vendor  will be liable  to the other for  special,
      indirect and/or consequential damages (including lost revenues or profits)
      as a result of its performance or failure to perform under this Agreement.

28.   TITLES

      The clause  titles used herein are for  convenience  only and shall not be
      construed as part of this Agreement or used in  interpreting or construing
      this Agreement.



<PAGE>


29.   COUNTERPARTS

      This document may be executed in one or more  counterparts,  each of which
      shall be deemed to be an original.

30.   MOST FAVORED CUSTOMER

      If Vendor, during the term of this agreement, provides products to another
      party under more favorable  pricing,  Vendor agrees to make such favorable
      pricing  available  to  Customer,  under  like  terms,  commitments,   and
      conditions for similar quantities of product type.

31.   ENTIRETY OF AGREEMENT

      This Agreement  consists only of this document including Exhibits A, B, C,
      D, E and F upon which the parties have affixed their  signatures and those
      documents specifically incorporated herein by reference. This Agreement as
      so constituted is the entire Agreement between the parties with respect to
      the subject matter hereof and  supersedes  all other  previous  statement,
      communications  or agreements,  whether oral or written,  including  press
      releases, advertising and sales literature. No modification, alteration or
      waiver of any  provision  hereof shall be binding upon the parties  unless
      evidenced in writing and signed by both parties.

32.   WAIVER

      Failure of  Customer  to seek  redress for breach of or to insist upon the
      strict  performance  of any  provision  of this  Agreement  on one or more
      occasions  shall not prevent a subsequent act, which would have originally
      constituted  a breach,  from  having all the force and effect of a breach.
      The receipt and  acceptance  of payment by Customer  shall not be deemed a
      waiver of such  breach.  Failure of Customer to enforce any  provision  of
      this  Agreement  shall not be deemed a waiver  of any such  provision.  No
      provision  of this  Agreement  shall be  deemed  to have  been  waived  by
      Customer  unless  such  waiver is in writing  signed by a duly  authorized
      Representative of Customer.

33.   SURVIVAL OF OBLIGATIONS

      The terms and  provisions  contained in this Agreement that by their sense
      and context are intended to survive the performance thereof by the parties
      hereto shall survive the completion of performance and termination of this
      Agreement,   including,  but  not  limited  to,  patent  infringement  and
      indemnity.

34.   SEVERABILITY

      A determination by a court of competent jurisdiction that any provision of
      this  Agreement or any part hereof is illegal or  unenforceable  shall not
      cancel or invalidate the remainder of such  provision or other  provisions
      of this Agreement which shall remain in full force and effect.



<PAGE>


35.   GOVERNING LAW

      The terms and conditions  hereof,  in their  formation,  construction  and
      interpretation, shall be governed by the laws of the State of Delaware. In
      the event any of these  provisions  hereof  become  subject to revision or
      nullification  by  ruling of an  appropriate  Court of  jurisdiction,  the
      remaining  terms and  conditions  contained  herein shall continue in full
      force and effect.

36.   NEUTRAL DRAFTING

      No rules of  construction  requiring  interpretation  against  the drafter
      shall apply in the interpretation of this Agreement.



Premisys Communications, Inc.                Teleport Communications Group Inc.

By           \s\  R. Alan Fyffe              By    \s\ John Hunt

Title    VP North American Sales             Title  VP - Engineering
      ------------------------------------   -----------------------------------

Date              10-15-97                   Date       10-9-97


                                             APPROVED BY TCG
                                             CORPORATE PURCHASING
                                             DATE  10/8/97   BY   \s\ GF

                                             APPROVED AS TO FORM
                                             LEGAL DEPARTMENT
                                             DATE  10/9/97   BY   \s\ MLG



<PAGE>


                              ** Confidential  treatment has been requested with
                              respect to the  information  contained  within the
                              "[**]"  markings.  Such marked  portions have been
                              omitted  from  this  filing  and have  been  filed
                              separately   with  the   Securities  and  Exchange
                              Commission.

                                      EXHIBIT A

                         UNIT PRICE LIST AND DISCOUNT TERMS


     1. CUSTOMER agrees to provide PREMISYS with a monthly rolling six (6) month
forecast  within  twenty-one  (21)  calendar  days  after  the start of each new
calendar month.

     2.  Discount  shall be [ ** ] from  PREMISYS'  unit list price as attached.
Such discounts are not applicable to any Cable Products,  Accessories,  Services
or Special Pricing Packages as indicated in the price list.

     3. PREMISYS  reserves the right to renegotiate  the discounts at the end of
each term for any renewals or extensions of this Agreement.

**  Confidential  treatment has been requested  with respect to the  information
contained  within the "[**]"  markings.  Such marked  portions have been omitted
from this filing and have been filed separately with the Securities and Exchange
Commission.

                               Company Confidential                     Page 1
September `99
                          Teleport Transfer Price List
<TABLE>
<S>                                                                    <C>     <C>     <C>


                                                                        US      Xfr.   Disc.
                                                                        List
----------------------------------------------------------------------------------------------
Section 1: IMACS
01 - Common Equipment
8901     AC Power Supply, 120/240VAC, CE Marked $700 [**] [**] Main power supply
         for AC-powered  IMACS units.  120/240VAC,  50 - 60Hz input provides +5V
         and +12V. Can be used with 8903 Power  Converter to provide -48VDC from
         120VAC only. Can be used with 8905 Universal Power Converter to provide
         -48VDC from either 120VA GA
8902     DC Power Supply, -48VDC, CE Marked                             $1,000  [**]    [**]
         Main power supply for use with external -48VDC sources.
         Provides +5V and +12V.
         A second 8902 may be installed for load sharing redundancy. CE Marked.
         GA
890220   DC Power Supply, -48VDC, CE Marked                             $1,000  [**]    [**]
         Main power supply for use with external -48VDC sources.
         Provides +5V and +12V.
         A second 8902 may be installed for load sharing redundancy. CE Marked.
         GA
8903     Power Converter, 120VAC to -48VDC                                $500  [**]    [**]
         Used with 8901 for 120VAC, 50 - 60Hz input to supply -48VDC
         voltage.
         Optional redundancy of the 8903 is supported in the IMACS
         800 and 900 chassis only.
         Cannot be used with 240VAC input voltage.
         GA
8905     Power Converter, 120/240VAC to -48VDC, 100W, CE Marked           $700  [**]    [**]
         Used with 8901 with either 120VAC/240VAC, 50 - 60Hz input
         to supply -48VDC system voltage. Optional redundancy of the
         8905 is supported in the IMACS 800 and 900 chassis only.
         CE Marked.
         Used only in 6-digit chassis.  Consult  Technical Support if using with
         negative ground.
         GA
8906     Ring Generator, -48VDC                                           $400  [**]    [**]
         Used to supply ringing current for all FXS cards and for FXO cards in
         Manual Ring Down applications.
         Multiple 8906s are supported in the IMACS 800 and 900 chassis only. One
         must be set to master and the others to slave.
         Requires -48DC power (8901 & 8903, or 8901 & 8905, or 8902, or external).
         GA
8907     Power Supply, +24VDC, CE Marked                                $1,000  [**]    [**]
         DC main power supply for use with external +24VDC sources.
         Provides +5V and +12V.
         A second 8907 may be installed for load sharing redundancy.
         CE Marked.
         Consult Technical Support if using with negative ground.
         Use of any plastic cards or 4-digit chassis in a 24VDC
         environment is not supported.
         GA
8908     Power Converter, 120/240VAC to -48DC, 350W                     $1,200  [**]    [**]
         Used only in the power-enhanced 891930 IMACS 900 chassis.  Used
         with 8901 with either 120VAC/240VAC, 50 - 60Hz
         Input to supply -48VDC system voltage.
         Optional redundancy of the 8908 is also supported.
         NPI - Contact Product Marketing for availability
8916     IMACS 600 Chassis with Installation Kit, Aluminum Chassis,     $1,100  [**]    [**]
         Front Loading, Plastic Card Guides, CE Marked
         Aluminum chassis, front loading, plastic card guides; with
         installation kit.  Provides 2 CPU slots, 8 universal slots
         and 1 Interface slot.  Universal slots can support up to 3
         Server cards and up to 4 WAN cards.  All universal slots
         that are not allocated to Servers or WANs can be used for
         User Cards.  Accommodates 1 main power and 1 redundant main
         OR 1 main CE Marked.
         GA
891620   IMACS 600 Chassis with Installation Kit, Steel Chassis,        $1,100  [**]    [**]
         Front Loading, Steel Card Guides, CE Marked
         Steel chassis, front loading, steel card guides; with
         installation kit.  Provides 2 CPU slots, 8 universal slots
         and 1 Interface slot.  Universal slots can be support up to
         3 Server cards and up to 4 WAN cards.  All universal slots
         that are not allocated to AC/DC converter and 1 ringing
         generator.  AC and dual DC inputs.
         CE Marked and NEBS compliant (see Marketing Note MN002_02).
         GA
891822   IMACS 800 Chassis with Installation Kit, Steel Chassis,        $1,500  [**]    [**]
         Front & Rear Loading, Steel Card Guides, CE Marked
         Steel Chassis, front and read loading, steel card guides;
         with installation kit.  Provides 2 CPU slots, 3 Server
         slots, 4 WAN slots, 1 Interface slot, 8 User slots.  AC and
         dual DC inputs.  Two slots for main power supplies, 5
         separate slots for -48V converters or ringing generators.
         CPU, WAN, Server cards and power supplies load from front.
         User, Interface cards, ringing gerneratros and voltage
         converters load from rear.
         CE Marked and NEBS compliant (see Marketing Note MN002_02).
         GA


<PAGE>



891823   IMACS 800 Chassis with Installation Kit, Steel Chassis,        $1,500  [**]    [**]
         Front & Rear Loading, Plastic Card Guides, CE Marked
         Steel Chassis, front and read loading, steel card guides;
         with installation kit.  Provides 2 CPU slots, 3 Server
         slots, 4 WAN slots, 1 Interface slot, 8 User slots.  AC and
         dual DC inputs.  Two slots for main power supplies, 5
         separate slots for -48V converters or ringing generators.
         CPU, WAN, Server cards and power supplies load from front.
         User, Interface cards, ringing gerneratros and voltage
         converters load from rear.
         CE Marked
         GA
891920   IMACS 900 Chassis with Installation Kit, Steel Chassis, Top    $2,000  [**]    [**]
         & Bottom Loading, Steel Card Guides, Steel Faceplate
         Steel chassis, top & bottom front loading, steel card
         guides, steel faceplate with ejectro; with installation
         kit.  Provides 2 CPU slots, 3 Server slots, 4 WAN slots, 1
         Interface slot, 8 User slots.  Two slots on top for main
         power supplies, 5 separate slots on bottom for -48V
         GA
891630   IMACS 600 Chassis with Installation Kit, Steel Chassis, Front          [**]    [**]
         Loading, Steel Card Guides, Steel Card Guides, CE Marked          $1,100
         Steel chassis, front loading, new steel card guides; with
         installation kit.  Provides 2 CPU slots, 8 universal slots
         and 1 Interface slot.  Universal slots can be support up to
         3 Server cards and up to 4 WAN cards.  All universal slots
         that are not allocated.
         GA
891830   IMACS 800 Chassis with Installation Kit, Steel Chassis,        $1,500  [**]    [**]
         Front & Rear Loading, Steel Card Guides, CE Marked
         Steel chassis, front and rear loading, new steel card
         guides; with installation kit . Provides 2 CPU slots, 3
         Server slots, 4 WAN slots, 1 Interface slot, 8 User slots.
         AC and dual DC inputs.  Two slots for main power supplies,
         5 separate slots for -
         GA
891930   IMACS 900 Chassis with Installation Kit, Power-Enhanced, Steel         [**]    [**]
         Chassis, Top & Bottom Front Loading,  Steel Card Guides           $2,000
         Steel chassis, top & bottom front loading, new steel card
         guides; with installation kit.  Provides 2 CPU slots, 3
         Server slots, 4 WAN slots, 1 Interface slot, 8 User slots.
         Two slots on top for main power supplies, 2 slots on bottom
         for -48V converte
         GA
8920     Interface Card, 8 T1/E1 Ports, No Modem, 32K NVRAM, Aluminum           [**]    [**]
         Faceplate                                                         $1,600
         Physical interfaces for up to 8 T1/E1 lines on single 50
         pin AMP connector, integral V.22bis modem and port (RJ11),
         VT100 control port (RJ45), DB9 computer port for connectin
         to network management system and nodal port (RJ48) provides
         1 alarm output to external reporting device.
         Stainless steel faceplate with ejectro.
         Can be used with all system releases up to and including
         3.x.y.
         GA
         Part Number Change
892060   Interface Card, 8 T1/E1 Ports, 2400bps Modem, 32K NVRAM,       $1,800  [**]    [**]
         Stainless Steel Faceplate
         Physical interfaces for up to 8 T1/E1 lines on single 50
         pin AMP connector, integral V.22bis modem and port (RJ11),
         VT100 control port (RJ45), DB9 computer port for connection
         to network management system and nodal port (RJ48) provides
         1 alarm output to e
         GA
8921     Interface Card, 8 T1/E1 Ports, No Modem, 32K NVRAM, Stainless          [**]    [**]
         Steel Faceplate, CE Marked                                        $1,600
         Physical Interfaces for up to 8 T1/E1 lines on a single 50
         pin AMP connector, VT100 control port (RJ45), DB9 computer
         port for connection to network management system and nodal
         port (RJ48) provides 1 alarm output to external reporting
         device.
         Can be used with all systm release up to an dincluding
         3.x.y.
         GA
         Part Number Change
892160   Interface Card, 8 T1/E1 Ports, No Modem, 32K NVRAM,            $1,600  [**]    [**]
         Stainless Steel Faceplate, CE Marked
         Physical Interfaces for up to 8 T1/E1 lines on a single 50
         pin AMP connector, VT100 control port (RJ45), DB9 computer
         port for connection to network management system and nodal
         port (RJ48) provides 1 alarm output to external reporting
         device.
         Stainless steel.
         GA
892221   Interface Card, 8 T1/E1 Ports, No Modem, External Sync                 [**]    [**]
         (unframed E1), 128K NVRAM, Steel Faceplate, CE Marked             $3,000
         Physical Interfaces for up to 8 T1/E1 lines on a single 50
         pin AMP connector, VT100 control por t(RJ45), DB9 computer
         port (COM 1) for connection to network management system
         and FJ48 computer port (COM 2), RJ45 for external sync
         connection and nodal port (RJ48) provides 1 alarm output to
         exteranl reporting device.
         Supports external sync for unframed E1 clock source (may
         use external sync panel - part number 150000).
         CE Marked.
         Requires 880222 or 880221 CPU and Host V4.0.2 or higher CPU
         firmware.
         GA
         Availability Change
892260   Interface Card, 8 T1/E1 Ports, No Modem, External Sync (framed         [**]    [**]
         T1), 128K NVRAM, Stainless Steel Faceplate, CE Marked             $3,000
         Physical Interfaces for up to 8 T1/E1 lines on a single 50
         pin AMP connector, VT100 control port (RJ45), DB9 computer
         port (COM 1) for connection to network management system
         and RJ48 computer port (COM 2), RJ45 for external sync
         connection and nodal port
         GA
892261   Interface Card, 8 T1/E1 Ports, No Modem, External Sync         $3,000  [**]    [**]
         (unframed E1), 128K NVRAM, Steel Faceplate, CE Marked
         Physical Interfaces for up to 8 T1/E1 lines on a single 50
         pin AMP connector, VT100 control port (RJ45), DB9 computer
         port (COM 1) for connection to network management system
         and RJ48 computer port (COM 2), RJ45 for external sync
         connection and nodal port
         GA


<PAGE>



8923     Interface Card, 8 T1/E1 ports, 2400 bps Modem, 128K NVRAM,             [**]    [**]
         Aluminum Faceplate                                                $2,200
         Physical Interfaces for up to 8 T1/E1 lines on a single 50
         pin AMP connector, V.22bis modem and port (RJ11), VT100
         control port (RJ45), DB9 computer port for connection to
         network management system and nodal port (RJ48) provides 1
         alarm output to external reporting device.
         Requires 880221 or 880222 CPU and v4.x.y CPU firmware.
         GA
892360   Interface Card, 8 T1/E1 ports, 2400bps Modem, 128K NVRAM,      $2,200  [**]    [**]
         Stainless Steel Faceplate
         Physical Interfaces for up to 8 T1/E1 lines on a single 50
         pin AMP connector, V.22bis modem and port (RJ11), VT100
         control port (RJ45), DB9 computer port for connection to
         network management system and nodal port (RJ48) provides 1
         alarm output to external
         GA
892460   Interface Card, 8 T1/E1 ports, No Modem, 128K NVRAM,           $2,000  [**]    [**]
         Stainless Steel Faceplate
         Physical Interfaces for up to 8 T1/E1 lines on a single 50
         pin AMP connector, no modem, VT100 control port (RJ45), DB9
         computer port for connection to network management system
         and nodal port (RJ48) provides 1 alarm output to external
         reporting device.
         Stainless Steel
         GA
8925     Interface Card, 2 T1/E1 Ports, No Modem, 32K NVRAM, Aluminum           [**]    [**]
         Faceplate                                                         $1,200
         Two FJ48 and Bantam Jack connectors for T1 or balanced
         120-Ohm E1 lines.  VT100 control port (RJ45).  No DB9
         computer port.
         Can be used with system releases up to and including 3.x.y.
         GA
892560   Interface Card, 2 T1 Ports, No Modem, 32K NVRAM, Stainless     $1,200  [**]    [**]
         Steel Faceplate
         Two RJ48 and Bantam Jack connectors for T1 or balanced
         120-Ohm E1 lines.  VT100 control port (RJ45).  No DB9
         computer port.
         Stainless steel faceplate with ejector.
         GA
8926     Interface Card, 2 T1/E1 Ports, 2400bps Modem, 32K NVRAM,               [**]    [**]
         Aluminum Faceplate                                                $1,400
         Two RJ48 and Bantam Jack connectors for T1 or balanced
         120-Ohm E1 lines.  VT100 control port (RJ45), V.22bis modem
         (RJ11), DB9 computer port for network management
         connections and nodal port (RJ48) provides 1 alarm output
         to external reporting device.
         Can be used with system releases up to and including 3.x.y.
         GA
892660   Interface Card, 2 T1 Ports, 2400bps Modem, 32K NVRAM,          $1,400  [**]    [**]
         Stainless Steel Faceplate
         Two RJ48 and Bantam Jack connectors for T1 or balanced
         120-Ohm E1 lines.  VT100 control port (RJ45), V.22bis modem
         (RJ11) , DB9 computer port for network management
         connections and nodal port (RJ48) provides 1 alarm output
         to external reporting device.
         St
         GA
8927     Interface Card, 2 E1 Ports, No Modem, 32K NVRAM, Aluminum              [**]    [**]
         Faceplate                                                         $1,400
         Two pair BNC connectors for 75-Ohm unbalanced E1 lines.
         VT100 control port (RJ45), DB9 computer port for network
         management connections and nodal port (RJ48) provides 1
         alarm output to external reporting device.
         Can be used with system releases up to and including 3.x.y.
         GA
892760   Interface Card, 2 E1 Ports, No Modem, 32K NVRAM, Stainless     $1,400  [**]    [**]
         Steel Faceplate
         Two pair BNC connectors for 75-Ohm unbalanced E1 lines.
         VT100 control port (RJ45), DB9 computer port for network
         management connections and nodal port (RJ48) provides 1
         alarm output to external reporting device.
         Stainless steel faceplate with ejector.

02 - CPU Cards
8800     CPU Card, BCON Bus-Connect, Host 3.x.y, Non-Redundant, 2 T1/E1,        [**]    [**]
         Plastic Faceplate                                                 $1,500
         The 8800 is the base model CPU card.  Supports 1 WAN card
         for a total of up to 2 E1 or T1 WAN ports (on separate WAN
         card).  Does not support cross connect module or redundant
         CPU operation.  WAN card must be installed in slot W1.  Can
         operate in termination or drop and insert mode.  Consult
         IMACS manual for more details on drop and insert WAN
         timeslot connection options.
         CPU card also houses voice signaling firmware (included)
         and optional TCP/IP management firmware (must be ordered
         separately).
         CPU Host firmware must be ordered separately.
         Can be used with system release up to and including 3.x.y.
         GA
880060   CPU Card, BCON Bus-Connect, Host 3.x.y, Non-Redundant, 2       $1,500  [**]    [**]
         T1/E1, Stainless Steel Faceplate, CE Marked
         The 880060 is the base model CPU card, with stainless steel
         faceplate with ejector.  Supports 1 WAN card for a total of
         up to 2 E1 or T1 WAN ports (on separate WAN card).  Does
         not support cross connect module or redundant CPU
         operation.  WAN card must be


<PAGE>



8801     CPU  Card, XCON Cross-Connect, Host 3.x.y, Redundant                   [**]    [**]
         Capability, Up to 8 T1/E1, Plastic Faceplate                      $4,000
         The 8801 supports complex applications requiring more than
         2 WAN ports and the ability to cross-connect DCOs between
         WAN.  Supports up to 4 WAN cards for a total of 8 T1 or E1
         WAN ports and has a built-in cross connect module.  Two
         model 8801xx CPUs can be installed for CPU redundancy.  1:N
         WAN redundancy is also supported (with relevant WAN card
         options).
         CPU card also houses voice signaling firmware (included)
         and optional TCP/IP management firmware (must be ordered
         separately).
         CPU Host firmware must be ordered separately.
         Can be used with system releases up to and including 3.x.y.
         GA
880160   CPU Card, XCON Cross-Connect, Host 3.x.y, Redundant Capability,        [**]    [**]
         Up to 8 T1/E1, Stainless Steel Faceplate, CE Marked               $4,000
         The 880160, with stainless steel faceplate with ejector,
         supports complex applications requiring more than 2 WAN
         ports and the ability to cross-connect DS0s between WANs.
         Supports up to 4 WAN cards for a total of 8 T1 or E1 WAN
         ports and has a built-in cross-connect module.  Two model
         8801xx CPUs can be installed for CPU redundancy.  1:N WAN
         redundancy is also supported (with relevant WAN card
         options).
         CPU card also houses voice signaling firmware (included)
         and optional TCP/IP management firmware (must be ordered
         separately).
         CE Marked.
         CPU Host firmware must be ordered separately.
         Can be used with system releases up to and including 3.x.y.
         GA
         Part Number Change
880222   CPU Card, XCON Cross-Connect, Host 4.x.y, Redundant Capability,        [**]    [**]
         Up to 8 T1/E1, Plastic Faceplate, CE Marked                       $4,300
         The 880160, with stainless steel faceplate with ejector,
         supports complex applications requiring more than 2 WAN
         ports and the ability to cross-connect DS0s between WANs.
         Supports up to 4 WAN cards for a total of 8 T1 or E1 WAN
         ports and has a built-in cross-connect module.  Two model
         8801xx CPUs can be installed for CPU redundancy.  1:N WAN
         redundancy is also supported (with relevant WAN card
         options).
         CPU card also houses voice signaling firmware (included)
         and optional TCP/IP management firmware (must be ordered
         separately).
         CE Marked.
         CPU Host firmware must be ordered separately.
         Can be used with system releases up to and including 3.x.y.
         GA
         Part Number Change
880260   CPU Card, XCON Cross-Connect, Host 4.x.y, Redundant Capability,        [**]    [**]
         Up to 8 T1/E1, Stainless Steel Faceplate, CE Marked               $4,300
         The 880260, with stainless steel faceplate with ejector,
         supports complex applications requiring more than 2 WAN
         ports and the ability to cross-connect DS0s between WANs.
         Supports up to 4 WAN cards for a total of 8 T1 or E1 WAN
         ports and has a built-in cross-connect module.  Two model
         8802xx CPUs can be installed for CPU redundancy.  1:N WAN
         redundancy is also supported (with relevant WAN card
         options)
         CPU card also houses voice signaling firmware (included)
         and option TCP/IP management firmware (must be ordered
         seperately).
         CE Marked.
         Required v4.x or higher CPU firmware (must e ordered
         separately).
         Rrequires Interface Card with 128K NVRAM:  892220, 892221,
         8923 or 892320 Interface Card.
         GA
         Part Number Change
880360   CPU Card, XCON Cross-Connect, Host 5.x.y, Redundant            $4,300  [**]    [**]
         Capability, Up to 8 T1/E1, Stainless Steel Faceplate
         The 880360, with stainless steel faceplate, supports
         complex applications requiring more than 2 WAN ports and
         the ability to cross-connect DS0s between WANs.  Supports
         up to 4 WAN cards for a total of 8 T1 or E1 WAN ports and
         has a built-in cross-connect module.  Two model 8803xx CPUs
         can be installed for CPU redundancy.  1:N WAN redundancy is
         also supported (with relevant WAN card options).
         CPU card also houses voice signaling and TCP/IP management
         firmware (included) and optiona TR-08 firmware (must be
         ordered separately).
         Requires v5.x.y or higher CPU firmware (must be ordered
         separately).
         Requires Interface Card with 128K NVRAM: 892220, 892221,
         8923, 892320 or 892420.
         NPI - Contact Product Marketing for availability.
         New
8804     CPU Card, RCON Bus-Connect, Host 3.x.y, Redundant              $2,200  [**]    [**]
         Capability, Up to 4 T1/E1, Plastic Faceplate
         The 8804, CPU support 2 T1 or E1 WAN links in clot W1 with
         a redundant card (similarly configured) in slot W2, WAN
         ports in slot W1 may operate in drop an dinsert or
         terminate mode.  The 8804 supports another 2 T1 or E1 WAN
         links in slot W3 with a redundant card (similarly
         configured) in slot W4.  WAN ports in slot W3 can only
         operate in `terminate' mode and can only be used to support
         8202xx, 8213xx, 8215xx HSU ports and 8247xx OCU-DP ports.
         CPU Host firmware must be ordered separately.
         Can be used with system releases up to an dincluding 3.x.y.
         GA
880460   CPU Card, RCON Bus-Connect, Host 3.x.y, Redundant              $2,200  [**]    [**]
         Capability, Up to 4 T1/E1, Stainless Steel Faceplate
         The 880460 CPU, with stainless steel faceplate, supports 2
         T1 or E1 WAN links in slot W1 with a redundant card
         (similarly configured) in slot W2.  WAN ports in slot W1
         may operate in drop and insert or terminate mode.  The
         880420 supports another 2 T1 or

03 - CPU Firmware
60101    CPU Firmware, TCP/IP/SNMP                                        $400  [**]    [**]
         This host code option must be ordered, in addition to CPU
         host version firmware, if SNMP and Telnet support is
         required for the management of local and remote IMACS units.
         GA


<PAGE>



60102    CPU Firmware, TR-08                                              $900  [**]    [**]
         This host code option must be ordered, in addition to CPU
         host version firmware, if required to provide SLC96 TR-08
         based signaling for Centrex or similar services.
         GA
60344    CPU Firmware, Host Version 3.4.4                                 $500  [**]    [**]
         Release of 3.4.4 host firmware.
         GA
60345    CPU Firmware, Host Version 3.4.5                                 $500  [**]    [**]
         Release of 3.4.5 host firmware.
         GA
60346    CPU Firmware, Host Version 3.4.6                                 $500  [**]    [**]
         Release of 3.4.6 host firmware.
         GA
60360    CPU Firmware, Host Version 3.6.0                                 $750  [**]    [**]
         Release of 3.6 host firmware.  Supports NVRAM Backup and
         Restore, HDSL, BRI NTU diagrram, inaddition to basic
         functionality.  Also supports 8231 FRAD.  Does not support
         any Server except 887120 ADPCM.  See Product Relese Bulletiv
         for more details.
         GA
60361    CPU Firmware, Host Version 3.6.1                                 $500  [**]    [**]
         Release of 3.6.1 host firmware.  Supports NVRAM Backup and
         Restore, HDSL, BRI NTU, in addition to basic
         functionality.  Also supports 8231 FRAD.  Does not support
         any Server except 887120 ADPCM.  See Product Release
         Bulletin for more details.
         GA
60412    CPU Firmware, Host Version 4.1.2                                 $750  [**]    [**]
         Latest release of generic 4.x CPU host firmware.
         Introduces frame relay, coin card support and Euro ISDN
         support.  Provides base platform for subsequent 4.x
         releases.  See Product Release Abstract for features and
         limitations.
         GA
60420    CPU Firmware, Host Version 4.2.0                                 $750  [**]    [**]
         Release 4.2.0 host firmware that introduces HDSL and NTU
         management support.  May not include all previous 4.x
         features - see Product Release Abstract for features and
         limitations.
         GA
60431    CPU Firmware, Host Version 4.3.1                                 $750  [**]    [**]
         Release 4.3.1 host firmware that introduces ATM support.
         May not  include  all  previous  4.x  features  - see  Product  Release
         Abstract for features and limitations.
         GA
60440    CPU Firmware, Host Version 4.4.0                                 $750  [**]    [**]
         Release 4.4.0 host firmware that introduces BRI/PRI
         support.  May not include all previous 4.x features - see
         Product Release Abstract for features and limitations.
         GA
60450    CPU Firmware, Host Version 4.5.0                                 $750  [**]    [**]
         Release 4.3.1 host firmware that introduces A-CELP voice
         compression support.  May not include all previous 4.x
         features - see Product Release Abstract for features and
         limitations.
         GA
60421    CPU Firmware, Host Version 4.2.1                                 $750  [**]    [**]
         Release 4.5.0 host firmware that introduces HDSL and NTU
         management support.  May not include all previous 4.x
         features - see Product Release Abstract for features and
         limitations.
         GA
60500    CPU Firmware, Host Version 5.0.0                                 $750  [**]    [**]
         Release of 5.x CPU host version firmware.  Integrates all
         advanced features of releases 4.x.  Provides support for
         ATM, FRS, LBRV with FAX forwarding, PRI, BRI/PRI
         interworking, IMUX, and HDSL WAN.  Includes TCP/IP/SNMP at
         no extra charge.
         GA

04 - WAN Cards
8000     WAN Card, Single T1/E1, Plastic Faceplate                      $1,000  [**]    [**]
         Provides a single T1 or E1 line interface.  Connects to
         both user peripherals and network aggregates.  Single port
         for DSX/CEPT or CSU oeopration (characterized by separate
         Line Interface Module).  May operate in CAS or CCS mode.
         T1 interfaces equipped with CSU or DSX modules may act as
         the "near en" termination point for Subscriber Loop
         Carrier (SLC96) facilities as outlines in Bellcore
         TR-TSY-000008, Issue 2, August 1987.
         GA
800060   WAN Card, Single T1/E1, Stainless Steel Faceplate, CE Marked   $1,000  [**]    [**]
         Stainless steel faceplate with ejector.  Provides a single
         T1 or E1 line interface.  Connects to both user peripherals
         and network aggregates.  Single port for DSX/CEPT or CSU
         operation (characterized by separate Line Interface
         Module).  May operate in CA


<PAGE>



8010     WAN Card, Dual T1/E1, Plastic Faceplate                        $1,700  [**]    [**]
         Supports up to 2 T1 or E1 line interfaces.  Can
         simultaneously suport 1 T1 and 1 E1.  Will work with only 1
         Line Interface Module as long as other WAN port remains in
         standby state.  May operate in CAS or CCS mode.  T1
         interfaces equipped with CSO or DSX modules may act as the
         "near end" termination point for Subscriber Loop Carrier
         (SLC96) facilities as outlined in Bellcore TR0TSY-000008,
         Issue 2, August 1987.
         GA
801060   WAN Card, Dual T1/E1, Stainless Steel Faceplate, CE Marked     $1,700  [**]    [**]
         Stainless steel faceplate with ejector.  Supports up to 2
         T1 or E1 line interfaces.  Can simultaneously support 1 T1
         and 1 E1.  Will work with only 1 Line Interface Module as
         long as other WAN port remains in standby state.  May
         operate in CAS or CCS mode.  T1 interfaces equipped with
         Csu or DSX modules may act as the "near end" termination
         point for Subscriber Loop Carrier (SLC96) facilities as
         outined in Bellcore TR0TSY-000008, Issue 2, August 1987.
         GA
801160   WAN Card, Dual HDSL E1, Stainless Steel Faceplate, CE Marked   $2,000  [**]    [**]
         The 801160 HDSL Dual WAN card is designed to support HDSL
         applications in both LTU and NTU mode.  It accepts two
         82030 plug-in HDSL WAN Modules for 2 x E1 lines driving
         across 2 twisted pairs each.  (Note that it does not
         support 811xx or 812xx plug-in modules).
         Stainless steel faceplate with ejectors.
         GA
8014     WAN Card, Dual T1/E1 WAN Card with Relays, Plastic Faceplate   $1,950  [**]    [**]
         Use with 8801xx or 8802 Cross-Connect cPUs only.  Provide
         1:N (N) redundancy for dual WAN cards when plugged into
               -
         slot W4; acts as redundant mate for Dual WAN cards, 8010xx
         located in slots W1, W2 or W3.  Plug in modules on t
         GA
801460   WAN Card, Dual T1/E1 WAN Card with Relays, Stainless Steel     $1,950  [**]    [**]
         Faceplate, CE Marked
         Stainless steel faceplate with ejector.  Used with 8801xx,
         8802xx, or 8803xx Cross-Connect CPUs only.  Provides 1:N
         (N) redundancy for dual WAN cards when plugged into slot
         W4; acts as redundant mate for Dual WAN cards, 8010xx,
         located in slots W1, W2 o
         GA
811      WAN Module, Line Interface Module for DSX/CEPT Termination,      $500  [**]    [**]
         CE Marked
         Used with 8000, 8010 and 8814 WAN cards to provide DSX or
         E1 line interface.
         One 811 is required for each DSX (external CSU required) or
         E1 port.  Maximum 2 modules per dual WAN card.  For E1
         operation, module is manually jumpered to select either 75
         Ohm
         GA
81120    WAN Module, Line Interface Module for DSX/CEPT Termination,      $500  [**]    [**]
         CE Marked
         Used with 8000xx, 8010xx WAN cards to provide DSX or E1
         line interface.
         One 811xx is requried for each DSX (external CSU required)
         or E1 port.  Maximum 2 modules per WAN card.  For E1
         operation, mo
         GA
81130    WAN Module, Line Interface Module for DSX/CEPT Termination,      $500  [**]    [**]
         GR-1089
         Used with 8000xx, 8010xx and 8814xx WAN cards to provide
         DSX or E1 line interface.
         One 811xx is required for each DSX  (external CSU required) or E1 port.
         Maximum 2 modules per WAN card.  For E1  operation,  module is manually
         jumpered to select either 75 GA
812      WAN Module, Line Interface Module for CSU Termination          $1,000  [**]    [**]
         Used with 8000, 8010 and 8814 WAN cards to provide CSU line
         interface.  Provides complete CSU functionality for T1
         lines.
         One 812 is required for each CSU port (maximum 2 per dual
         WAN card).
         GA
81220    WAN Module, Line Interface Module for CSU Termination          $1,000  [**]    [**]
         Used with 8000, 8010 and 8814 WAN cards to provide CSU line
         interface.  Provides complete CSU functionality for T1
         lines.
         One 812xx is required for each CSU port (maximum 2 per dual
         WAN card).
         GA
81230    WAN Module, Line Interface Module for CSU Termination,         $1,000  [**]    [**]
         GR-1089
         Used with 8000xx, 8010xx and 8814xx WAN cards to provide
         CSU line interface.  Provides complete CSU functionality
         for T1 lines.
         One 812xx is required for each CSU port (maximum 2 per WAN card).  NEBS
         compliant (see Marketing Note MN002_02) and GR-1089 comp
         GA
82030    WAN Module, 2 x 1168Kbps HDSL                                  $1,300  [**]    [**]
         The 82030 WAN plug-in module is used with the 801160 WAN
         card to provide 2 x E1 HDSL line interfaces (= 1 E1 at
         2.048 Mb/s).  One 82030 is required for each E1 HDSL port
         (maximum 2 ports per WAN card).  This module is based on
         the Adtran 2B1Q interface mo

05 - Voice Cards
8108     E&M/TO Card, 8-Port, 2-Wire, Aluminum Faceplate                $1,200  [**]    [**]
         Supports E&M types, I, II, IV and V.  Normal E&M,
         Transmission Only and E&MR2 modes are supported.  May be
         used with 8871xx ADPCM and 8300xx LBRV compression cards.
         GA
810860   E&M/TO Card, 8-Port, 2-Wire, Stainless Steel Faceplate         $1,200  [**]    [**]
         Stainless steel faceplate with ejector.  Supports E&M types
         I, II, IV and V.  Normal E&M, Transmission Only and E&MR2
         modes are supported.  May be used with 8871xx ADPCM and
         8300xx LBRV compression cards.
         GA
8119     E&M/TO Card, 8-Port, 4-Wire, Extended Range, Aluminum          $1,500  [**]    [**]
         Faceplate, CE Marked
         Supports E&M types I, II, IV and V.  Normal E&M,
         Transmission Only and E&MR2 modes are supported.  May be
         used with8871xx ADPCM and 8300xx LBRV compression cards.
         Extrended TX TLP range is added to support dedicated 4-wire
         modem applications - especially important for data
         transmission speeds of 19.2Kb/s or higher.
         CE Marked for TO mode only.
         GA
811960   E&M/TO Card, 8-Port, 4-Wire, Extended Range, Stainless Steel   $1,500  [**]    [**]
         Faceplate, CE Marked
         Stainless steel faceplate with ejector.  Supports E&M types
         I, II, IV and V.  Normal E&M, Transmission Only and E&MR2
         modes are supported.  May be used with 8871xx  ADPCM and
         8300xx LBRV compression cards.
         Extended TX TLP range is added to support dedicat
         GA
8125     FXS Card, 4-Port, 2-Wire, 600 Ohm, Aluminum Faceplate            $845  [**]    [**]
         Two wire interface, supporting signaling modes Foreign
         Exchange Station (connects to 2-way PBX trunk or key
         system), Foreign Exchange Software Defined Network
         (emulates E & M for connectio to class 4 switches), PLAR
         (point-to-point unswitched), DPO (1-way
         GA
8129     FXS Card, 8-Port, 2-Wire, 600 Ohm, Aluminum Faceplate          $1,300  [**]    [**]
         Two wire interface, supporting signaling modes Foreign
         Exchange Station (connects to 2-way PBX trunk or key
         system), Foreign Exchange Software Defined Network (new
         access services, with wink option), PLAR (point-to-point
         unswitched), DPO (1-way trunks fro
         GA
812960   FXS Card, 8-Port, 2-Wire, 600 Ohm, Stainless Steel Faceplate   $1,300  [**]    [**]
         Two wire interface, supporting signaling modes Foreign
         Exchange Station (connects to 2-way PBX trunk or key
         system), Foreign Exchange Software Defined Network
         (emulates E & M for connection to class 4 switches), PLAR
         (point-to-point unswitched), DPO (1-wa
         NPI - Contact Product Marketing for availability
         New
8139     FXO Card, 8-Port, 2-Wire, 600 Ohm, Aluminum Faceplate          $1,600  [**]    [**]
         Two wire interface, supporting signaling modes Foreign
         Exchange Station (connects to 2-way PBX trunk or key
         system), Foreign Exchange Software Defined Network (new
         access services, with wink option), DPT (1-Way incoming
         trunks from PBS, Key system or telephone) and MRD
         (point-to-point unswitched).  Signal settings include
         variety of loop start and ground start options plus R2.
         Use with 600-Ohm termination facilities.
         GA
813960   FXO Card, 8-Port, 2-Wire, 600 Ohm, Stainless Steel Faceplate   $1,600  [**]    [**]
         Two wire interface, supporting signaling modes Foreign
         Exchange Office (connects to 2-way PBX trunk or key
         system), Foreign Exchange Software Defined Network
         (emulates E & M connection to class 4 switches), DPT (1-way
         incoming trunks from PBX, Key system
         GA
814960   FXS Card, 6-Port, 2-Wire, 600 Ohm, Stainless Steel Faceplate   $2,205  [**]    [**]
         This CBIS (Coin Box Interface Station) card is a 6-port,
         2-wire card with 600Ohm impedance.  A-Law or U-Law codec
         operation is soft selectable.  Metering pulse types of
         reverse battery or HF Sine Wave are soft selectable.  The
         sine wave frequency can be set to 12 or 16 KHx.  Supports
         signaling modes Foreign Exchange Station (connects to 2-way
         PBX trunk or key system)
         GA
815960   FXO Card, 8-Port, 2-Wire, 600 Ohm, Stainless Steel Faceplate   $3,120  [**]    [**]
         This CBIS (Coin Box Interface Station) card is a 6-port,
         2-wire card with 600Ohm impedance.  A-Law or U-Law codec
         operation is soft selectable.  Metering pulse types of
         reverse battery or HF Sine Wave are soft selectable.  The
         sine wave frequency can be set to 12 or 16 KHx.  Supports
         signaling modes Foreign Exchange Station (connects to 2-way
         PBX trunk or key system)
         GA

06 - Data Cards
8202     HSU Card, 2-Port, RS-530/V.35 Interface, Aluminum Faceplate    $1,450  [**]    [**]
         Two port High Speed Unit (HSU) for 56K, 64K and Nx56/64K
         data applications.  Supports 2 RS530/RS449 or V.35 data
         ports.  Can also support V.325 and RS232 data through the
         use of the appropriate personality modules.  DB25
         connectors.
         GA
820260   HSU Card, 2-Port, RS-530/V.35 Interface, Stainless Steel       $1,450  [**]    [**]
         Faceplate, CE Marked
         Two port High Speed Unit (HSU) for 56K, 64K and Nx56/64K
         data applications.  Supports 2 RS530/RS449 or V.35 data
         ports.  Can also support RS232 data through the use of the
         appropriate personality modules.  DB25F connectors.
         Stainless steel faceplate with
         GA
820360   HSU Card, 2-Port, V.11 Interface, Stainless Steel Faceplate    $2,500  [**]    [**]
         Can be used to provide IMACS external main clock from a
         Nx56/64K port.  V.11/RS530 interfaces on DB25F connectors.
         Also  supports  Nx56/64K  extreme  clock  to  IMACS.   Stainless  steel
         faceplate with ejector.
         GA


<PAGE>



8212     HSU Card, 2-Port, V.35 Interface, Aluminum Faceplate           $1,450  [**]    [**]
         Two port High Speed Unit (HSU) for 56K, 64K and Nx56/64K
         data applications.  True V.35 interface on DB25F connectors.
         GA
821260   HSU Card, 2-Port, V.35 Interface, Stainless Steel Faceplate    $1,450  [**]    [**]
         Two port High Speed Unit (HSU) for 56K, 64K and Nx56/64K
         data applications.  True V.35 interface on DB25F connectors.
         Stainless steel faceplate with ejector.
         GA
821360   HSU Card, 2-Port with RS-530/V.35, 2 Dial Ports with           $1,950  [**]    [**]
         RS-366/V.25bis, Stainless Steel Faceplate
         High Speed Unit (HSU) for 56K, 64K and Nx56/64K data
         applications.  Supports 2 RS530 or V.35 data ports;
         selection is made on a port-by-port basis using on-board
         switches.  Supports V.25bis and/or RS-366 dialing for
         switched data applications when used wi
821460   HSU Card,  2-Port,  V.35 Interface,  Stainless Steel Faceplate,  $2,500
         [**] [**] CE Marked Provides true V.35 interfaces on DB26F  connectors.
         Ports may be configured for either trunk or user peripheral connection.
         Also  supports  Nx56/64K  extreme  clock  to  IMACS.   Stainless  steel
         faceplate with ejector. CE Marked.
821560   HSU Card, 4-Port,  RS-530/V.35  Interface,  Stainless Steel $2,500 [**]
         [**]  Faceplate,  CE Marked  High Speed Unit  (HSU) for 56K,  64K,  and
         Nx56/64K data applications. The selection of RS530 or V.35 is made on a
         port-by-port basis using on-board switches. Can also support RS232 data
         at 56Kb/s through the use of the 1253xx Personality Module and 1240
822060   SRU Card, 10-Port,  RS-232C/V.24 Sync/Async Operation, $2,400 [**] [**]
         Stainless  Steel  Faceplate,  CE  Marked  Supports  synchronous  and/or
         asynchronous  data  ports  from 300 bps to  38.4Kbps.  Supports  DS0-A,
         DS0-B, V.14 and X.50 Division 3 subrate multiplexing  formats. See Data
         Section in manual for  aggregate  input  speed  restrictions.  SRU card
         ports can also be mu
8228     BnR Concentrator Card, SLIP-Based Management Concentration, $3,600 [**]
         [**]  Aluminum   Faceplate   Provides   concentration  for  time  slots
         containing  diagnostics  from remote IMACS units.  Multiplexes  up to 8
         Bit-7-Redundant  (B7R)  or B4R  formatted  data  channels  from up to 8
         different DS0s onto a single,  asynchronous  channel at up to 38.4Kbps.
         Data on the a
823160   FRAD Card, 10-Port, RS-232 Interface,  HDLC and Async, $3,200 [**] [**]
         Stainless Steel Faceplate, CE Marked Frame Relay Assembler/Disassembler
         provides  encapsulation  for  HDLC/SDLC  or Async ports up to 38.4Kbps.
         Transparent/Sync  up  to  38.4Kbps.  This  card  concentrates  up  to 8
         non-frame inputs into 2 frame data streams at 56 or 64Kbps. Total of 10
         ports may be
824160   OCU-DP Card, 5-Port,  Stainless Steel Faceplate $3,500 [**] [**] Allows
         provisioning of DDS services or  consolidation  of DSU traffic as DS0-A
         or DS0-B.  Interfaces  directly  to DSU at  speeds up to and  including
         64Kbps. Does not support BCH error correction,  performance  monitoring
         or operation in CSU mode (used only for b
824660   OCU-DP Card, 10-Port, Stainless Steel Faceplate $6,500 [**] [**] Allows
         provisioning of DDS services or  consolidation  of DSU traffic as DS0-A
         or DS0-B.  Interfaces  directly  to DSU at  speeds up to and  including
         64Kbps. Does not support BCH error correction,  performance  monitoring
         or operation in CSU mode (used only for b
8249     OCU-DP Card, 2-Port,  with Error Correction,  Aluminum $1,850 [**] [**]
         Faceplate  Provides  interface  for  provisioning  of DDS  services  or
         consolidation  of DSU traffic.  Supports DS0-A or DS0-B sub-rate,  56K,
         64K and Switched  56K DDS.  Support BCH error  correction,  performance
         monitoring or operation in CSU mode. Secondary channel opera
825460   DSO-DP Card, 4-Port Co/Contra-Directional  Selectable, $2,450 [**] [**]
         Stainless Steel Faceplate  Provides 4 ports of DSO-DP or G.703 64K. For
         G.703, clock can be selected to be co- or contra-directional. Stainless
         steel faceplate with ejector.
826060   BRI OUO Card, 8-Port, 2-Wire, Stainless Steel Faceplate, CE $4,500 [**]
         [**]  Marked  Provides 8 ports of 2-wire  2B1Q  interface  via a single
         RJ27X(F)  (50 pin amp)  connector.  Adheres  to 2B+D  format.  Supports
         external  timing (in Host Release 3.6). Can be used to support NTUs for
         dedicated operation or for connection to BRI OUO interface d
826070   BRI OUO Card, 8-Port, 2-Wire, Stainless Steel Faceplate, CE $4,500 [**]
         [**]  Marked  Provides 8 ports of 2-wire  2B1Q  interface  via a single
         RJ27X(F)  (50 pin amp)  connector.  Adheres  to 2B+D  format.  Supports
         external  timing (in Host Release 3.6). Can be used to support NTUs for
         dedicated operation or for connection to BRI OUO interface d
826160   BRI OUO Card, 8-Port,  2-Wire,  with Sealing Current,  $4,850 [**] [**]
         Stainless  Steel  Faceplate,  CE Marked Provides 8 ports of 2-wire 2B1Q
         interface via a single RJ27X(F) (50 pin amp) connector. Adheres to 2B+D
         format.  Supports  external  timing.  Can be used to  support  NTUs for
         dedicated  operation or for  connection to BRI OUO  interface  devices.
         Commonly used
826170   BRI OUO Card, 8-Port,  2-Wire,  with Sealing Current,  $4,850 [**] [**]
         Stainless  Steel  Faceplate,  CE Marked Provides 8 ports of 2-wire 2B1Q
         interface via a single RJ27X(F) (50 pin amp) connector. Adheres to 2B+D
         format.  Supports  external  timing.  Can be used to  support  NTUs for
         dedicated  operation or for  connection to BRI OUO  interface  devices.
         Commonly used
826260   BRI OS/TO Card, 8-Port, 4-Wire, Stainless Steel Faceplate,  $4,500 [**]
         [**] CE Marked  Provides 8 ports with 4-wire ISDN BRI S/T interface via
         a single  RJ27X(F)  (50 pin amp)  connector.  Adheres  to 2B+D  format.
         Provides TE, NT1 and NT2  emulation.  Commonly  used to provide  remote
         extension of four-wire BRI CPE devices from an ISDN PBX. Requ


<PAGE>



826270   BRI S/T Card, 8-Port, 4-Wire, External Timing Support, $4,500 [**] [**]
         Stainless Steel Faceplate,  CE Marked Provides 8 ports with 4-wire ISDN
         BRI  S/T  interface  via a  single  RJ27X(F)  (50 pin  amp)  connector.
         Supports external timing. Adheres to 2B+D format.  Provides TE, NT1 and
         NT2 emulation.  Commonly used to provide remote  extension of four-wire
         BRI CPE dev

07 - Communications Server Cards
830060   DSP Server Card,  8-Port,  Stainless Steel  Faceplate  $6,000 [**] [**]
         Consists of 68360 central processor. First application for the DSP card
         is A-CELP (G.729) voice compression.  The DSP Card occupies a User card
         slot and takes voice  traffic from either the WAN or User Bus. DSP card
         output = 3 composite HDLC links at 64,
8840A    ISDN PRI Server Card, 1 PRI Channel,  Plastic Faceplate, CE $2,500 [**]
         [**]  Marked  ISDN PRI Server  Card for use with HSU  cards,  providing
         switched  data  applications  across a network  facing  WAN  interface.
         Supports 1 PRI D channel  only.  Signaling may be selected from Fujitsu
         Fetex, ATT 4ESS, ATT 5ESS, DMS-100, DMS-250, National ISDN II,
8840B    ISDN PRI Server Card, 2 PRI Channels, Plastic Faceplate, CE $4,500 [**]
         [**] Marked ISDN PRI Server Card for use with both HSU and E1/T1 (WAN )
         User interfaces,  providing switched data applications across a network
         facing WAN interface. Simultaneously supports 2 PRI D channels - may be
         configured for User or Network facing. Signaling m
8840C    ISDN PRI Server Card, 8 PRI Channels, Plastic Faceplate, CE $6,500 [**]
         [**] Marked ISDN PRI Server Card for use with both HSU and E1/T1 (WAN )
         User interfaces,  providing switched data applications across a network
         facing WAN interface. Simultaneously supports 8 PRI D channels - may be
         configured for User or Network facing. Signaling m
887160   ADPCM Server Card,  Supports 40, 32 or 24Kb/s  ADPCM,  $6,300 [**] [**]
         Stainless Steel  Faceplate,  CE Marked The 887120 has 32 pairs of voice
         compression  engines that will accept input  directly from voice,  SRU,
         BRI or WAN cards.  The sum of  compression  rates for each  engine must
         equal  64Kb/s.  Selectable  compression  rates include 40, 32 or 24Kb/s
         with the latter
8880     Inverse Mux Server Card,  4 Channels,  Plastic  Faceplate,  with $4,500
         [**] [**] BONDING modes 0 and 1 Works in conjunction with 1 of the ISDN
         PRI Server  cards  (8840 A, B or C) to provide  Nx56K,  Nx64K or Nx384K
         (H0) Inverse Multiplexed calls.  Supports BONDING modes 0 or 1. Up to 4
         simultaneous IMUX connections per card are supported.

08 - ACS Cards
881160   ACS Card, Base,  Advanced  Communication  Server, 68 Ports, $4,500 [**]
         [**] Stainless  Steel  Faceplate,  CE Marked Base platform for advanced
         server  applications.  ACS variants are availabe  with or without child
         module  options.  The base  platform  supports 4 high speed ports (each
         port max speed = 2Mb/s, max aggregate bandwidth = 4Mb/s) & 64 low speed
         ports (each port
881360   ACS Card, Advanced Communication Server, 132 Ports,            $5,000  [**]    [**]
         Stainless Steel Faceplate, CE Marked
         The 881360 is comprised of the 881160 with additional expansion child card (not
         available separately).
         Card is characterized through addition of 63xxx Server Firmware (must be ordered
         separately).
         Stainless steel faceplate with ejector.
882060   ACS Card, DS3,  Advanced  Communication  Server,  Stainless $5,000 [**]
         [**]  Steel  Faceplate  The 882060  ACS Card is  comprised  of the base
         881160 ACS platform  with  additional  ATM child module (not  available
         separately).   The  ATM  child  card  includes  ATM   Segmentation  and
         Reassembly  (SAR)  processor and a DS3 interface (BNC  connectors).  In
         addition a

09 - Server Firmware
62160    FR Firmware,  Frame Relay Server Firmware for ACS Card $2,000 [**] [**]
         Provides   encapsulation   FRAD   function  for   SDLC/HDLC   data  and
         concentration  of  frame  relay  circuits,   with  improved  congestion
         management.  All  inputs  to Frame  Relay  Server  must be at 56, 64 or
         Nx56/64K data rates. Input ports may be V.35, EIA-530, DDS 56/6
63100    MCC Firmware,  Management Communications  Concentrator $4,000 [**] [**]
         Firmware  for ACS Card  Allows up to 128 IP  management  channels to be
         concentrated onto a single ethernet link, providing the means to manage
         a large  network  of IMACS  products  from a single  location  using IP
         techniques. Provides IP connectivity to up to 131 remote IMACS units.
63110    MCC Firmware,  Management Communications  Concentrator $4,000 [**] [**]
         Firmware  for ACS Card  Allows up to 128 IP  management  channels to be
         concentrated onto a single ethernet link, providing the means to manage
         a large  network  of IMACS  products  from a single  location  using IP
         techniques. Provides IP connectivity to up to 131 remote IMACS units.
64110    ATM Firmware,  Asynchronous Transfer Mode Concentrator $3,500 [**] [**]
         Firmware for ACS Card The ATM Concentrator is an application running on
         the Advanced  Communication  Server,  providing a DS3 or OC-3/STM-1 ATM
         port.  It  supports  both  constant  bit  rate  and  variable  bit rate
         applications and offers  connectivity from WAN, HSU, analog voice, FRAD
         an
65100    BRI/PRI  Firmware,  ISDN BRI to PRI Server Firmware for ACS $5,000 [**]
         [**] Card  Provides  inter-working  between NET3 based BRI and and NET5
         based PRI. Fixed timeslot  mapping only in this release.  Uses standard
         8260xx or 8261xx  based BRI card for BRI  interface.  PRI  software  is
         provided by 65100; an 8840xx based PRI Server Card is no
66600    A-CELP Firmware, LBRV Voice Compression Firmware for DSP Card $500 [**]
         [**] Required for each DSP card used as LBRV compression card. Each DSP
         card with 66600  firmware  will  perform  voice  compression  to 8 Kb/s
         (G.729) for up to 8 channels of PCM voice  originating on WAN card time
         slots or analog voice cards. Supports fax recognit
67100    IP Firmware,  Internet  Protocol Firmware for ACS Card $2,000 [**] [**]
         Provides routing of ethernet IP traffic using Frame Relay encapsulation
         (RFC 1490) over a maximum of 128 Frame Relay PVCs (3  physical  ports).
         ARP,  RIP, and Inverse ARP are used as routing  protocols.  Frame Relay
         output may be V.35, EIA-530, fractional T1

10 - Other Hardware
840160   External  Alarms  Card,  4-Port,  4 Inputs & 4 Outputs,  $500 [**] [**]
         Stainless Steel  Faceplate,  CE Marked Supports four outbound  switches
         and four  inbound  sensors.  The  outbound  switches are used to report
         internal  alarms to  external  devices  by  triggering  form-C  contact
         closures (on Major or Minor  alarms).  Triggering  may be on opening or
         closure of the conta
840260   External  Alarms Card,  3-Port,  Power Fail Alarm,  Stainless $500 [**]
         [**] Steel  Faceplate,  CE Marked  Supports  3  outbound  and 3 inbound
         sensors. Card performance is identical to the 8401 External Alarm Card,
         except that the fourth  alarm port on the 840220 can only be used as an
         outbound  alarm to show if the  system  power  fails.  Stainless  steel
         faceplate w
840360   External Alarms Card, 28-Port, 28 Inputs & 14 Outputs, $1,850 [**] [**]
         Stainless Steel Faceplate,  CE Marked Supports 28 external alarm inputs
         and 14 external alarm outputs.  Inputs are individually  selectable for
         active or  passive  mode.  Input  sensors  may  sense  open or close of
         contact.  Sensed  alarms may be handled  internally  as Major or Minor.
         Input alarms m

Section 2: StreamLine
01 - Packages
         Each StreamLine  series package  contains the basic common equipment to
         connect 1 T1 to the  network.  It  consists  of an 8 1/4" wide,  7-slot
         steel  chassis  designed  to take a  special  CPU card,  WAN card,  and
         combination  power  supply  card to connect 1 T1 to the  network,  with
         drop-and-insert  DSX  capability.  StreamLine  accepts any of the IMACS
         User cards with metal faceplate in 4 user slots to fill the 24 channels
         available.  The combination  power supply card has 120/240VAC,  50-60Hz
         input that provides +-5V, +-12V,  -48VDC and ringing voltage to operate
         the system.  Redundancy is not provided.  Optional  voice or data cards
         may be added to a  StreamLine  system  (must  be  ordered  separately.)
         Available as complete packages only.

400      Streamline, Basic Component Package, T1, AC Power Supply       $3,095  [**]    [**]
         Includes:
         1- 491530 (Chassis with installation kit)
         1-480060 (CPU  control card)
         1-401060 (WAN card)
         1-490100 (Power Supply, AC)
         NPI - Contact Product Marketing for availability

401      StreamLine, DV Package, T1, AC Power Suply                     $3,495  [**]    [**]
         Includes:
         1- 491530 (Chassis with installation kit)
         1-480060 (CPU  control card)
         1-401060 (WAN card)
         1-490100 (Power Supply, AC)
         1-820260 (HSU card, 2-port w/ RS-530/V.35 interface,
         stainless steel faceplate)
         Optional Voice Card(s) must be ordered separately. See Section 1, IMACS
         Voice Cards for product description NPI - Contact Product Marketing for
         availability

402      StreamLine, BRI Package, T1, AC Power Suply                    $5,995  [**]    [**]
         Includes:
         1- 491530 (Chassis with installation kit)
         1-480060 (CPU  control card)
         1-401060 (WAN card)
         1-490100 (Power Supply, AC)
         1-826060 (BRI "U" card,  8-port,  2-wire,  stainless  steel  faceplate)
         Optional Voice Card(s) must be ordered separately. See Section 1, IMACS
         Voice Cards for product description NPI - Contact Product Marketing for
         availability

02 - Common Equipment
401060   StreamLine WAN Card, T1,  Stainless  Steel  Faceplate  $2,200 [**] [**]
         StreamLine  WAN has  built-in  interface  to  support 1 T1 for  network
         connection and a DS1 for local  connection.  Has RJ48 T1 port (CSU) and
         RJ48  DSX  port  for  local  drop  and  insert.  Can  connect  to  both
         simultaneously for up to 24 channels. WAN redundancy is
480060   StreamLine CPU Card, 1 T1,  Stainless Steel Faceplate  $1,900 [**] [**]
         StreamLine  CPU supports 2 T1 line  interfaces.  Has  node/alarm  port,
         VT100 termination port, and computer port (PPP/SLIP/Printer).  Operates
         in termination and/or  drop-and-insert  mode. Has built-in  TCP/IP/SNMP
         feature. Redundant CPU operation is not supported.
490160   StreamLine Combination AC Power Supply,  Converter and Ring $1,000 [**]
         [**] Generator, 120/240VAC Combination Power Supply Card for StreamLine
         uses  120V/240VAC,  50-60Hz input to provide +5V,  +12V,  45W output to
         operate all system card; -48V, 50W for the talk battery of voice cards,
         and a ringing voltage. Redundancy is not supported.
491530   StreamLine Chassis with Installation Kit, Steel Chassis, $700 [**] [**]
         Front Loading,  Steel Card Guides Steel chassis,  front loading, 8 1/4"
         wide,  new "V" steel card  guides;  with  installation  kit. Can sit on
         desktop,  or  mount  on wall or in rack.  Provides  one  slot  each for
         special CPU, WAN, and Power Supply  Cards,  plus 4 User slots for voice
         and data applications


<PAGE>





Section 3: EMS
01 - EMS Software
70100-1  EMS, v4.1.1, User License Package                              $5,000  [**]    [**]
         Package of 5 user licenses required for 5 simultaneous users
         of EMS v4.1.1.
70105-04 EMS Complete, v4.1.1, for SUN Solaris 2.x for x86 and SPARC            [**]    [**]
                                                                        $20,000
         Package of EMS Complete software with 5 user licenses.

Section 4: Miscellaneous Products and Services
01 - Cables and Accessories
1106     Adapter,  RJ48(F)  to 2 BNC(F)  $171  [**]  [**] The  1106  adapter  is
         typically  used to connect a balanced E1 circuit to an Interface  Card.
         Limited to 1 pair of BNC connectors, it may be better to order the 1183
         or 1184 Interface Panel for higher density connectivity.
1114CX   Cable,  5-ft RJ48(M) to DB25(F)  Cross-Over $57 [**] [**] This cable is
         used to connect an external clocking source to the 8220xx SRU Card.
1114F    Cable,  5-ft RJ48(M) to DB25(F)  Straight-Thru $49 [**] [**] This cable
         is used to connect RS232 DTE to the 8220xx SRU Card.
1114M    Cable,  5-ft RJ48(M) to DB25(M)  Straight-Thru $49 [**] [**] This cable
         is used to connect RS232 DTE to the 8220xx SRU Card.
1114X    Cable,  5-ft RJ48(M) to DB25(M)  Cross-Over $49 [**] [**] This cable is
         used to connect RS232 DCE to the 8220xx SRU Card.
1118     Cable, 25-ft RJ48(M) to RJ48(M) Silver-Satin                      $97  [**]    [**]
         This cable is used to connect DDS DSU/CSU to 8247xx, 8249xx
         OCU-DP cards.
1121     Connector Block,  50-Pin Amphenol (F) to 2 x RJ48 (F) Adapter $171 [**]
         [**] (with Test Jacks) The 1121 adapter is used to connect  T1/E1 links
         to the  8920xx,  8921xx,  8922xx,  8923xx  Interface  Card.  For higher
         density  connectivity,  select the 1181. Consult the Premisys Cable and
         Equipment Guide for more details.
1181     Connector Block, T1 Distribution  Panel,  50-Pin Amphenol (F) $257 [**]
         [**] to 8 x RJ48 (F)  Adapter  (with  Test  Jacks)  The 1181 is used to
         connect up to 8 T1s to the 8920xx,  8921xx,  8922xx,  8923xx  Interface
         Card. Consult the Premisys Cable and Equipment Guide for more details.
1183     Connector Block (With Premisys  Logo),  E1 Distribution  $750 [**] [**]
         Panel,  50-Pin  Amphenol (F) to 16 x BNC (F) Adapter (with Test Jacks),
         CE Marked Contains Premisys logo. Provides 8 pairs of BNC(F) connectors
         for connecting up to 8 E1 trunks to an 8920xx,  8921xx,  8922xx, 8923xx
         Interface  Card.  Includes  50-pin (M) to (M) Amp cable and is suitable
         for 8916 IMACS 600 chassis only. Mounts in place of
118301   Connector Block (Without Premisys Logo), E1 Distribution $750 [**] [**]
         Panel,  50-Pin  Amphenol (F) to 16 x BNC (F) Adapter (with Test Jacks),
         CE Marked Does not contain  Premisys  logo.  Provides 8 pairs of BNC(F)
         connectors  for  connecting  up to 8 E1  trunks to an  8920xx,  8921xx,
         8922xx, 8923xx Interface Card. Includes 50-pin (M) to (M) Amp cable and
         is suitable for 8916 IMACS 600 chassis only. Mounts in
118320   Connector Block (Without Premisys Logo), E1 Distribution $750 [**] [**]
         Panel,  50-Pin  Amphenol (F) to 16 x BNC (F) Adapter (with Test Jacks),
         CE Marked Does not contain  Premisys  logo.  Provides 8 pairs of BNC(F)
         connectors  for  connecting  up to 8 E1  trunks to an  8920xx,  8921xx,
         8922xx, 8923xx Interface Card. Includes 50-pin (M) to (M) Amp cable and
         is suitable for 891620 IMACS 600 chassis only. Mounts i
1184     Connector Block, E1 Distribution  Panel,  50-Pin Amphenol (F) $750 [**]
         [**] to 16 x BNC (F)  Adapter  (with Test  Jacks),  CE Marked  Does not
         contains  Premisys  logo.  Provides  8 pairs of BNC(F)  connectors  for
         connecting  up to 8 E1  trunks to an  8920xx,  8921xx,  8922xx,  8923xx
         Interface  Card.  Includes  50-pin (M) to (M) Amp cable and is suitable
         for 8918xx IMACS 800 chassis only. Mounts
1201F    Cable, 15-ft DB9(M) to DB25(F) Straight-Thru $51 [**] [**] For use with
         IF cards  prior to REV C0. The 1201F  cable is used to connect the DB9F
         DCE computer port on the Interface Card to a DB25F DTE port on Premisys
         EMS or other external system.
1201M    Cable, 15-ft DB9(M) to DB25(M) Straight-Thru $51 [**] [**] For use with
         IF  cards  prior  to REV C0.  The  1201M  cable  connects  the DB9F DCE
         computer port on the Interface card to a DB25F DTE port on Premisys EMS
         or other external system.
1202F    Cable, 15-ft DB9(F) to DB25(F) Cross-Over $51 [**] [**] For use with IF
         cards at REV C0 or higher.  The 1202F cable  connects DB9M DTE computer
         port on the  Interface  Card to the DB25M DTE port on  Premisys  EMS or
         other external system.
1202M    Cable, 15-ft DB9(F) to DB25(M) Cross-Over $51 [**] [**] For use with IF
         cards at REV C0 or higher.  The 1202F cable  connects DB9M DTE computer
         port on the  Interface  Card to the DB25F DTE port on  Premisys  EMS or
         other external system.
1203F    Cable,  5-ft  DB25(M) to M34(F)  Straight-Thru  V.35 $100 [**] [**] The
         1203F cable is used to connect V.35 DTE to HSU cards.
1203X    Cable,  5-ft DB25(M) to M34(M) Cross-Over V.35 $100 [**] [**] The 1203X
         cable is used to connect V.35 DCE to HSU cards.
1204F    Cable,  5-ft DB25(M) to DB25(F) RS530  Straight-Thru  $63 [**] [**] The
         1204F cable is used to connect  RS530 (or RS232 using 1252  module) DTE
         to the 8202xx (2 port) HSU card.
1204M    Cable,  5-ft DB25(M) to DB25(M) RS530  Straight-Thru  $63 [**] [**] The
         1204M cable is used to connect  RS530 (or RS232 using 1252  module) DTE
         to the 8202xx (2 port) HSU card.
1204X    Cable, 5-ft DB25(M) to DB25(M) RS530 Cross-Over $63 [**] [**] The 1204X
         cable is used to connect  RS530 (or RS232 using 1252 module) DCE to the
         8202xx (2 port) HSU card.
1206F    Cable,  5-ft DB15(M) to DB25(F) RS366  Straight-Thru  $71 [**] [**] The
         1206F cable is used to connect RS366 Automatic Calling Equipment to HSU
         ports.
1207     Cable, 6-ft 3 Amphenol (M) to 4 Amphenol (M)                     $200  [**]    [**]
         The 1207 cable is used to connect 3 E&M cards to 2 or 4 M66 blocks
         or other terminal wiring.
1208     Cable, 6-ft 3 Amphenol(M) to 1 Amphenol(M)                       $126  [**]    [**]
         The 1208 cable is used to connect 3 FXS or FXO cards to one M66
         block or other terminal wiring.
1209     Cable, 6-ft 3 Amphenol(M) to 2 Amphenol(M)                       $200  [**]    [**]
         The 1209 cable is used to connect 3 E&M cards in TO mode only to M66 block
         or other terminal wiring.
1210     Cable,  5-ft 1 Amphenol (M) to 1 Amphenol (M)  Extension  $86 [**] [**]
         The 1210 cable is used to connect user cards with  amphenol  connectors
         to M66 blocks or other terminal wiring.
1212F    Cable,  5-ft DB25(M) to DB37(F)  Straight-Thru  RS449 $86 [**] [**] The
         1212F  cable is used to  connect  RS449 DTE to the  8202xx (2 port) HSU
         card.
1212X    Cable, 5-ft DB25(M) to DB37(M) Cross-Over RS449                   $97  [**]    [**]
         The 1212X cable is used to connect RS449 DCE to the 8202 (2
         port) HSU Card.
1213     Cable,  5-ft 50-Pin(M)  Amphenol to 2 x RJ-48(F) $100 [**] [**] Used to
         connect 2 incoming T1 links from OSmart  JacksO to the 8920xx,  8921xx,
         8922xx, 8923xx 8T1/E1 (Amphenol connector based) Interface Card.
1215F    Cable, 5-ft RJ48(M) to DB15(F) Straight-Thru                      $49  [**]    [**]
         The 1215F cable is used to connect CSU equipment to the
         Inteface Card.
1215X    Cable, 5-ft RJ48(M) to DB15(F) Cross-Over                         $49  [**]    [**]
         The 1215X cable is used to connect PBX equipment to the
         Inteface Card.
1216F    Cable,  15-ft RJ48(M) to DB25(F)  Straight-Thru $51 [**] [**] The 1216F
         cable is used to connect a VT-100 terminal to the Interface Card.
1216M    Cable,  15-ft RJ48(M) to DB25(M)  Straight-Thru $51 [**] [**] The 1216M
         cable is used to connect a VT-100 terminal to the Interface Card.
1217     Cable, 25-ft RJ11(M) to RJ11(M)                                    $9  [**]    [**]
         The 1217 cable is used to connect the modem port on the Interface
         Card to an RJ11 telephone jack.
1219F    Cable,  5-ft  RJ48(M) to DB9(F)  Straight-Thru  $49 [**] [**] The 1219F
         cable is used to connect a VT-100 terminal to the Interface Card.
1220     Cable,  25-ft 1 Amphenol (M) to 1 Amphenol (F) Cable $137 [**] [**] The
         1220 cable is used as an  extension  of the 1210  cable  when  terminal
         wiring is located further than five feet from the IMACS chassis.
1221     Cable,  25-ft DB25(M) to DB25(F) RS232 Extension $71 [**] [**] The 1221
         cable  is  used as an  extension  of the  1114(F,  M or X)  cable  when
         RS232DTE is located further than five feet from the 8220xx SRU card.
1222     Cable, 25-ft DB25(M) to DB25(F) RS530 Extension $117 [**] [**] The 1222
         cable is used as an  extension  of  other  cables  when DTE is  located
         further than five feet from the 8202xx HSU card.
1224     Cable,  25-ft DB25(M) to DB25(F) V.35  Extension $97 [**] [**] The 1224
         cable is used as an  extension  of the 1203  (F,  M or X)  cables  when
         V.35DTE is located further than five feet from the HSU card.
1230     Cable, 1-ft RJ48(M) to RJ48(M) Shielded                           $26  [**]    [**]
         The 1230 cable is used to connect terminal interface devices
         to the Interface Card.
1231     Cable, 25-ft RJ48(M) to RJ48(M) Shielded                          $57  [**]    [**]
         The 1231 cable is used to connect terminal interface devices
         to the Interface Card.
1232     Cable, 50-ft RJ48(M) to RJ48(M) Shielded                         $100  [**]    [**]
         The 1232 cable is used to connect terminal interface devices
         to the Interface Card.
1233     Cable, 100-ft RJ48(M) to RJ48(M) Shielded                        $157  [**]    [**]
         The 1233 cable is used to connect terminal interface devices
         to the Interface Card.
1239     Cable,  RJ48(M) to 2 x RJ48(M),  Y Adapter  with two 1230 $57 [**] [**]
         cables  attached  Used to support WAN card  redundancy.  RJ48(M) to 2 x
         RJ48(M). Y Adapter with two 1230 cables attached.
1240     Cable, 5-inch DB26(M) to DB25(F) RS530                            $63  [**]    [**]
         Connects RS530 or RS232 DTE to the 8215 based HSU Card.
1251     Converter, RS-530 to V.35 Personality Module                      $74  [**]    [**]
         Used to allow V.35 signals to be transmitted through HSU ports
         designed for RS530 signals.
1253     Converter, RS-530 to RS-232 Personality Module                    $80  [**]    [**]
         Used to allow RS232 signals to be transmitted through HSU ports
         designed for RS530 signals.
1255     Gender Changer, RS-232/RS-530 DB25(F) to DB25(F) $43 [**] [**] The 1255
         gender  changer is used to change  the gender of RS232 or RS530  cables
         from male to female.
1257     Gender  Changer,  V.35  M34(F) to M34(F) $120 [**] [**] The 1257 gender
         changer  is used to  change  the  gender  of V.35  cables  from male to
         female.
1258     Gender Changer,  RS449 DB37(F) to DB37(F) $57 [**] [**] The 1258 gender
         changer  is used to  change  the  gender of RS449  cables  from male to
         female.
1260F    Cable,  5-ft  DB25(M) to M34(F)  Straight-Thru  V.35 $100 [**] [**] The
         1260F cable is used to connect 821420 HSU DTE to V.35 trunk interfaces.
1261F    Cable, 5-ft DB25(M) to M34(F) Straight-Thru V.35                 $100  [**]    [**]
         The 1261F cable is used to connect V.35 DTE to the 8202 HSU card
         when operating in V.35 mode.
1263F    Cable, 5-ft DB26(M) to M34(F) Straight-Thru                      $114  [**]    [**]
         Used to connect V.35 DTE to the 8215 based HSU Card.
1263M    Cable, 5-ft DB26(M) to M34(M) Straight-Thru                      $114  [**]    [**]
         Used to connect V.35 DTE to the 8215 based HSU Card.
1263X    Cable, 5-ft DB26(M) to M34(M) Cross-Over                         $114  [**]    [**]
         Used to connect V.35 DCE to the 8215 based HSU Card.
1264F    Cable, 5-ft DB26(M) to DB25(F) Straight-Thru RS530                $77  [**]    [**]
         Used to connect RS530 or RS232 DTE to the 8215 HSU Card.
1264X    Cable,  5-ft DB26(M) to DB25(M)  Cross-Over RS530 $77 [**] [**] Used to
         connect  RS530  DCE to the 8215 HSU Card.  Cannot  be used to  transmit
         RS232 signals.
1265F    Cable, 5-ft DB26(M) to DB37(F) Straight-Thru RS449               $114  [**]    [**]
         Used to connect RS449 DTE to the 8215 based HSU Card.
1265X    Cable, 5-ft DB26(M) to DB37(M)  Cross-Over RS449 $114 [**] [**] Used to
         connect  RS449 DCE to the 8215  based HSU Card.  Consult  the  Premisys
         Cable and Equipment Guide for more details.
1266F    Cable, 5-ft DB15(M) to DB25(F) Straight-Thru                     $114  [**]    [**]
         This 1266F cable is used to connect X.21 DCE to the 8203xx
         HSU Card.
1268     Cable, 25-ft DB26(M) to DB26(F) V.35 Extension                   $114  [**]    [**]
         Used to extend the range of 1263 cables.  Consult the Premisys Cable and
         Equipment Guide for more details.
1269     Cable, 25-ft DB26(M) to DB26(F) RS530/RS449 Extension            $129  [**]    [**]
         Used to extend the range of 1264 or 1265 cables.


<PAGE>



150000   Panel,  External Sync $850 [**] [**] Steel panel,  replaces  ringer bay
         cover on 8918xx chassis,  providing wire-wrap  termination for external
         clock  sources  (used for 8922xx  base  Interface  Card  external  sync
         sources).  Provides  both primary and secondary  external  clock source
         terminations. RJ4
1504     M66 Terminal Block, 2 Female 50-Pin Amp/Champ Connectors          $83  [**]    [**]
         Allows the user to connect facilities with amphenol
         connectors.
200100   Panel, Plastic Blank Card Filler Plate                            $30  [**]    [**]
         Fills single open card slot in the front of 8918xx IMACS
         chassis.  Plastic faceplate.
200103   Panel,  Stainless  Steel  Blank Card  Filler  Plate $30 [**] [**] Fills
         single  open card slot in the front of 8916xx,  8918xx or 8919xx  IMACS
         chassis. Stainless steel faceplate.

02 - Reference Manuals
         * Preface all Manual Part Numbers with 000- when ordering.
1903     Manual, Cable and Equipment Guide                                 $50  [**]    [**]
         Provides detailed pin connections for all Premisys Cables
         and Connectors.
1904     Manual, TCP/IP Reference Guide                                    $30  [**]    [**]
         Detailed guide to IP addressing and management traffic
         connectivity within the IMACS.
1918     Manual,  IMACS  Reference  Guide,  Version  3.4 $100 [**]  [**]  Manual
         provides  system  and card  configuration  guidelines  for  IMACS  Host
         Release 3.4.x.
1924     Manual,  IMACS  Reference  Guide,  Version  4.1.2 $100 [**] [**] Manual
         provides  system  and card  configuration  guidelines  for  IMACS  Host
         Release 4.1.2.
1930     Manual,  IMACS  Reference  Guide,  Version  4.2 $100 [**]  [**]  Manual
         provides  system  and card  configuration  guidelines  for  IMACS  Host
         Release 4.2.0 or 4.2.1.
1931     Manual,   IMACS  Product  Guide  $25  [**]  [**]  Provides  information
         regarding the IMACS productOs  specification,  technology,  application
         and  marketing.  Consists  primarily of hardcopy of documents  that are
         also available on the Partners Conference folder in FirstClass.
1949     Manual,  IMACS  Reference  Guide,  Version  3.6 $100 [**]  [**]  Manual
         provides  system  and card  configuration  guidelines  for  IMACS  Host
         Release 3.6.x.

03 - Training
Price is per student.  Class size:-  maximum 12, minimum 6.  Cancellations  less
than 2 weeks (10 work days) before scheduled course will be billed for a minimum
of 3  students  plus  any  non-refundable  instructor  travel  expenses.  TRN001
Training, IMACS Installation and Maintenance $900 [**] [**]
         Length: 3 Days
         Contents: Product Overview, Installation & Cabling, Test Features,
         Troubleshooting
TRN002   Training, IMACS Product Overview                                 $300  [**]    [**]
         Length: 1 Day
         Contents: Premisys Product Line, System Features, Applications,
         Components
TRN003   Training, EMS                                                    $600  [**]    [**]
         Length: 2 Days
         Contents: Hardware & Software Requirements, System Configuraation, System
         Operation
</TABLE>








<PAGE>


                                       EXHIBIT B

                          ADVANCE REPLACEMENT SERVICE OPTION


1.0   If during the warranty  period,  any defect is  discovered  in any product
      covered by the warranty,  PREMISYS  shall, at the request of the CUSTOMER,
      immediately ship an advance replacement of such products providing that:

      1.1.  CUSTOMER has submitted  Premisys Advance  Replacement  Authorization
            Agreement Form (Exhibit B-1) purchase order for this service.

      1.2.  CUSTOMER requests advance replacement service (via fax or e-mail) in
            memo that provides:  name of requester,  name of CUSTOMER,  shipping
            address,  description of apparent defect,  model number and quantity
            of products to be replaced and returned,  serial numbers of products
            to be returned, and blanket purchase order number.

      1.3.  PREMISYS  responds  to  request  (via fax or e-mail)  providing  RMA
            number,  shipping  instructions  for products to be returned,  and a
            sales order acknowledgment for the advance replacements.

      1.4.  Such  product is  returned to PREMISYS no more than thirty (30) days
            after issuance of a return material authorization (RMA) by PREMISYS.
            If the product  with the defect is not returned  within  thirty (30)
            days,  PREMISYS will invoice the CUSTOMER for the purchase  price of
            product  and the  CUSTOMER  will pay the  invoice  according  to the
            contractual payment terms.

1.5. PREMISYS is satisfied upon examination that claimed  deficiencies  actually
     exist  and  were not  caused  by  accident,  misuse,  neglect,  alteration,
     improper installation,  improper repair, improper testing, lightning, power
     surges,   fire,  flood,  or  earthquake.   (Unauthorized   modification  or
     unauthorized  or improper  alteration  of  products  shall  invalidate  the
     warranty.) If this examination  reveals that the claimed  deficiencies were
     not covered by the  warranty,  PREMISYS  will  invoice the CUSTOMER for the
     purchase  price of product and the CUSTOMER will pay the invoice  according
     to the contractual payment terms.

      1.6.  CUSTOMER pays a fee of $275 per advance  replacement  product.  This
            fee will not be charged if the product being replaced was shipped to
            the CUSTOMER within sixty (60) days of the reported discovery.

      1.7.  CUSTOMER pays the freight expense on the returned product;  PREMISYS
            pays the freight expense for the advance replacement.




<PAGE>


                                     EXHIBIT B-1
                                   [Premisys Logo]
                        ADVANCE REPLACEMENT AUTHORIZATION FORM

This Agreement is made this     day of             19         , between Premisys
                           -----      -------------  ---------
Communications, Inc. (Premisys) and                                            ,
                                  ----------------------------------------------
(CUSTOMER).

         VENDOR                                CUSTOMER

TO:  Premisys Communications, Inc.FROM:
     48664 Milmont Drive
     Fremont, CA 94538
Telephone 510/353-7600            Telephone
    FAX  510/353-7601                 FAX


CUSTOMER  requests an advance  replacement,  under the  conditions  of Premisys'
hardware warranty, for:

--------------------------------------------------------------------------------
     Product           Serial Number           Reason for Return           Price
--------------  ---------------------  ---------------------------   -----------
--------------  ---------------------  ---------------------------   -----------

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

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

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

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

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

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

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

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

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

CUSTOMER agrees to either return the products listed above within 30 days or pay
for the products shipped to him under this Agreement in accordance with Premisys
standard  sales terms and conditions  which are FOB Fremont,  CA and net 30 days
from invoice date.

Unless the failed product was shipped to CUSTOMER by Premisys  within sixty (60)
days of the date of this Agreement,  there is a $275.00 charge per unit for this
advance replacement  service.  CUSTOMER agrees to pay this charge in addition to
any charges that CUSTOMER may be obligated to pay per this Agreement.

Customer Purchase Order Number:
Customer authorized signature:

Print Name                                                   Signature

Title

                                      EXHIBIT C

                               EQUIPMENT UPGRADE POLICY

1.    This policy  describes the  responsibilities  of PREMISYS and the Customer
      with  respect to  hardware  and  software  upgrades  that are  required to
      resolve  demonstrated  problems  with the  equipment.  These  are known as
      "problem fix upgrades". Hardware and software upgrades whose purpose is to
      enhance the functionality of the equipment ("feature upgrades") are quoted
      by PREMISYS on a case-by-case basis and are not covered by this policy.

2.   For software  problems that are reported by the Customer,  verified  and/or
     recreated  by  PREMISYS  and which are fixed on a  subsequent  revision  of
     software,  PREMISYS  shall provide to the Customer two (2) master copies of
     the software  revision  that  incorporates  the fix.  The software  will be
     accompanied by a completed  "Engineering  Change Request  (Software)"  form
     which, among other information,  states the severity of the problem ("Class
     of  Change")  and a  non-binding  recommendation  to  the  Customer  on the
     handling  of the  change in the field  ("Field  Effectivity  Status").  The
     decision  on the  deployment,  if any, of the  software  fix to one or more
     end-users in the field is the  responsibility of the Customer and all costs
     associated  with that  deployment  will be borne  entirely by the Customer.
     This paragraph describes the totality of PREMISYS'  responsibilities  which
     are limited to the  provision of the two master sets of software and of the
     accompanying Engineering Change Request (ECR) notification.

3.    For hardware  problems that are reported by the Customer,  verified and/or
      recreated  by PREMISYS and which are fixed by a hardware  modification  to
      the card,  module or subsystem,  PREMISYS  shall provide to the Customer a
      completed  "Engineering Change Request (Hardware)" form which, among other
      information,  states the severity of the problem ("Class of Change").  The
      Class of Change  defines  PREMISYS'  responsibilities  with  regard to the
      performance of the hardware upgrade to units that are already installed in
      the field.

            a.   If the  assigned  Class of Change is "A",  then  PREMISYS  will
                 perform the required  hardware  upgrade to affected units at no
                 charge.
            b.   If the assigned Class of Change is "AC" or "AR",  then PREMISYS
                 will perform the required hardware upgrade to effected units at
                 no charge if the Customer so requests in writing  within thirty
                 (30) days of receipt of the associated ECR.
            c.   If the assigned  Class of Change is "B" or "D",  then  PREMISYS
                 will not  upgrade  any  installed  units at no  charge.  At the
                 Customer's  request,  PREMISYS  will quote such  upgrades  on a
                 case-by-case basis.

      In all instances where the Class of Change  obligates  PREMISYS to perform
      no-charge  hardware  upgrades,  the Customer  shall  request and receive a
      Return  Authorization  and shall promptly  return all parts  requiring the
      upgrade, freight prepaid to PREMISYS' Warranty Repair Department. PREMISYS
      shall have twenty (20) business days to perform the upgrade and return the
      part, freight prepaid, to the Customer.

4.    For  enhancements  or new  feature  upgrades,  the  Customer  may send the
      Product to be  upgraded  freight  prepaid  to  PREMISYS'  Warranty  Repair
      Department.  The Customer must issue a purchase order for the upgrade cost
      as  specified  in  PREMISYS'  then  current  upgrade  price list. A Return
      Authorization  must be included  with the Product  sent to  PREMISYS.  The
      upgraded  Product  will be returned  to the  Customer  within  twenty (20)
      business days.

5.    Advance  Replacement  Service.  If necessary,  the Customer may request an
      advance  replacement  exchange for the unit to be upgraded for those cases
      in which  the  Customer  can not  wait the  standard  return  period.  The
      Customer may arrange for this service as follows:

            o    Secure a Return Authorization for the Product to be exchanged.

            o    Issue a purchase  order for the Product  required at  PREMISYS'
                 then current list price plus the cost of the upgrade and a $275
                 exchange service fee.

            o    Upon receipt of the proper purchase  order,  PREMISYS will ship
                 to the Customer an upgraded Product for exchange.  Upon receipt
                 of the  Product  the  Customer  should  immediately  return the
                 exchanged Product in the same container.

            o    Upon  receipt of the  returned  Product  PREMISYS  will issue a
                 credit against the Customers  purchase order for the list price
                 of the returned Product.

If the  exchanged  Product is not returned  within thirty (30) days the Customer
will be invoiced for the Product  shipped at the list price and Customer  agrees
to pay said invoice due upon receipt.


<PAGE>


                               CLASS CHANGE DEFINITIONS


Class A Changes

A. Changes which are (1) needed to correct (a) conditions which result in safety
hazards,   or  (b)  conditions  which  result  in  noncompliance   with  federal
registration or radiation  requirements or other federal,  state or local safety
regulations or UL requirements; and (2) judged by Customer severe enough to have
to be made to all hardware in process, in stock or installed.


Class AC Changes
     Changes  which are (1)  needed to correct  (a)  inoperative  electrical  or
     mechanical   conditions,   or   unsatisfactory   maintenance  or  operating
     conditions,  or (b) conditions  which result in safety  hazards,  where the
     conditions  in (a) or (b) are  caused by  circuit  combinations  or options
     which exist only on certain hardware; (2) needed to compensate for marginal
     (worse  circuit) cases where the inoperative or  unsatisfactory  conditions
     exist on certain  hardware and cannot be associated  with specific  circuit
     combinations or options.  Such changes shall be made on Products in process
     and if  requested  by  Customer  on  Products  in stock or  returned  to an
     authorized repair center.

Class AR Changes
     Changes which are needed to correct unsatisfactory  electrical,  mechanical
     or  operating  conditions,  which may be  allowed  to exist on a  temporary
     basis.  Such changes  shall be made to Products in process,  except that in
     some cases, if Customer gives written consent,  Products may be shipped for
     a period of time specified by Customer without  incorporating the change at
     that time to Products in process. If Customer requests that such changes be
     made to Products in stock or already  installed,  supplier  shall make such
     changes.

Class B - Enhancements

B. Changes  which are  sufficiently  important to require their  application  to
Products being  manufactured  (as soon as reasonably  possible) and/or which may
also be recommended for application to existing stock and  installations  in the
field. Examples of this class of changes may include, but are not limited to:

      a) Providing new features that directly affect Product operability.

      b) Providing   design   improvements   which  result  in  better   service
         capabilities, longer life or improved operability margins.

      c) Providing  changes in design which result in important  cost savings to
         Customer.

Class BU Changes
      For  conditions of a mandatory  nature,  for example,  the  fulfillment of
      future federal  registration  or future  compatibility  requirement or for
      conditions  of   sufficient   importance  to  be  intended  for  universal
      application. Such changes would only be required of Products in process.

Class D Changes - Non-Customer Affecting

D. Other changes not sufficiently  important to justify  application to Products
being  manufactured  within  any  specified  time  frame  and  not  sufficiently
important to recommend for  application to existing stock and  installations  in
the field.


<PAGE>



                                      EXHIBIT D

                             DIAGNOSTIC SUPPORT SERVICES


I.    PREMISYS' RESPONSIBILITIES

      PREMISYS will provide at no charge the following  support services only to
      CUSTOMER during the term of this Agreement.

      A.   Dial-in Diagnostics:

           PREMISYS shall provide, during its principal period of service (PPS),
           a dial-in  diagnostic  service  which will allow  PREMISYS  technical
           support  engineers remote dial-in access to an End User node in order
           to perform  on-line  diagnostics and problem  determination.  Problem
           determination  and resolution will be performed with CUSTOMER not the
           End User.  PREMISYS will make every  reasonable  effort to respond to
           service requests within 30 minutes.

      B.     Network Emergency Assistance:

           1. A  "Network  Emergency"  shall  be  defined  as the  failure  of a
              previously  operating  PREMISYS  Product which renders the Network
              inoperable.
           2. PREMISYS  will  provide  access  to  PREMISYS   technical  support
              engineers  via a  telephone  "Hot  Line" to assist  CUSTOMER  with
              Network Emergencies twenty-four (24) hours a day, seven (7) days a
              week.
           3. PREMISYS  reserves  the right to invoice  CUSTOMER at the time and
              material rates then in effect,  for support services  requested by
              CUSTOMER  outside the PPS which is determined  not to be a Network
              Emergency.

      C.  "Principal Period of Support" ("PPS") means the period of 8 a.m. to 10
           p.m. Eastern Standard Time, Monday through Friday, excluding PREMISYS
           observed holidays.

      D.   Problem Resolution

           For each network  emergency,  PREMISYS will assign a systems engineer
           to follow  through and report  status to CUSTOMER  until such time as
           the problem is resolved.

II.   RESPONSIBILITIES OF CUSTOMER

      A.   CUSTOMER Support Staff:

           1. CUSTOMER shall maintain a technically competent staff sufficiently
              trained to provide direct support of PREMISYS  Products to the End
              User. At least one CUSTOMER technical support  representative must
              attend PREMISYS' training program prior to the date of any support
              services request.

           2. CUSTOMER shall designate in writing (by name,  title,  address and
              phone   number)   to   PREMISYS   a  primary   technical   support
              representative.

              (i) the  CUSTOMER  support  representative  shall  be the  primary
                  contact  with  PREMISYS  for  all  support  services  provided
                  hereunder.

              (ii)CUSTOMER  may  designate  in writing to PREMISYS up to two (2)
                  alternate  technical  support   representatives  who  will  be
                  authorized to place support calls with PREMISYS.

              (iii) CUSTOMER agrees that only the primary or alternate technical
                  support representatives will request support services provided
                  hereunder and that such  representatives will be knowledgeable
                  in the support of the Products.

              (iv)CUSTOMER may change  primary and alternate  technical  support
                  representative(s) by issuing written notice to PREMISYS.

      B.   When use of the PREMISYS dial-in diagnostics  capability is requested
           by CUSTOMER and/or determined by PREMISYS to be necessary:

           1. CUSTOMER  shall  insure that a telephone  line is  available to be
              attached to the integral modem on the End User node.

           2. CUSTOMER shall obtain from the End User and be responsible for all
              necessary  authorizations for remote access by PREMISYS to the End
              User node.

           3. CUSTOMER  agrees that during any such remote access PREMISYS shall
              at all times be acting as an agent for CUSTOMER.

      C.   CUSTOMER shall use system support provided  hereunder only in support
           of its End Users and any internal Products used by CUSTOMER.

III.  GENERAL PROVISIONS

      All PREMISYS test and diagnostic  software and  documentation,  whether on
      CUSTOMER's  site,  accessible by remote inquiry or  incorporated  into the
      Products, shall be and remain the confidential and proprietary property of
      PREMISYS.


<PAGE>




                                      EXHIBIT E

                                 EMERGENCY INVENTORY


I. TCG ITEM# 15453 Redundant AC System (AC/RG and CPU)
    Quantity - 5 Kits

--------------------------------------------------------------
 Qty.     Part #    Description
--------------------------------------------------------------
--------------------------------------------------------------
  1       891823    Universal 18-slot Enclosure (Imacs800)
--------------------------------------------------------------
--------------------------------------------------------------
  2        8901     AC Power Supply
--------------------------------------------------------------
--------------------------------------------------------------
  2        8903      -48V DC Converter
--------------------------------------------------------------
--------------------------------------------------------------
  2        8906      -48v Ring Generator
--------------------------------------------------------------
--------------------------------------------------------------
  1        8926     Dual T1 Interface card w/modem
--------------------------------------------------------------
--------------------------------------------------------------
  2        8804     IMACS CPU 4T1/E1 (RCON bus-connect)
--------------------------------------------------------------
--------------------------------------------------------------
          60343     CPU firmware, Host version 3.4.3
--------------------------------------------------------------
--------------------------------------------------------------
          60101     TCP/IP, SNMP Software Option
--------------------------------------------------------------
--------------------------------------------------------------
          60102     TR08 Software Option
--------------------------------------------------------------
--------------------------------------------------------------
  1        8010     Dual WAN T1/E1 Card
--------------------------------------------------------------
--------------------------------------------------------------
  2        812      Single WAN T1/E1 CSU
--------------------------------------------------------------



II. TCG ITEM# 15454 Redundant DC System (DC/RG and CPU)
      Quantity - 15 Kits

--------------------------------------------------------------
 Qty.     Part #    Description
--------------------------------------------------------------
--------------------------------------------------------------
  1       891823    Universal 18-slot Enclosure (Imacs800)
--------------------------------------------------------------
--------------------------------------------------------------
  2       8902A     DC Power Supply
--------------------------------------------------------------
--------------------------------------------------------------
  2        8906      -48v Ring Generator
--------------------------------------------------------------
--------------------------------------------------------------
  1        8926     Dual T1 Interface card w/modem
--------------------------------------------------------------
--------------------------------------------------------------
  2        8804     IMACS CPU 4T1/E1 (RCON bus-connect)
--------------------------------------------------------------
--------------------------------------------------------------
          60343     CPU firmware, Host version 3.4.3
--------------------------------------------------------------
--------------------------------------------------------------
          60101     TCP/IP, SNMP Software Option
--------------------------------------------------------------
--------------------------------------------------------------
          60102     TR08 Software Option
--------------------------------------------------------------
--------------------------------------------------------------
  1        8010     Dual WAN T1/E1 Card
--------------------------------------------------------------
--------------------------------------------------------------
  2        812      Single WAN T1/E1 CSU
--------------------------------------------------------------



<PAGE>


                                      EXHIBIT F

                               QUICK DELIVERY INVENTORY

Quantity of 15 units each is to be  maintained as quick  delivery  inventory for
unforecasted orders.

  Premisys
Part Number                   Description

    8108      8 port, 2 wire E&M/TO card
    8119      8 port, 4 wire extended range E&M/TO card
    8128      8 port, 2 wire, 900 Ohm FXS card
    8129      8 port, 2 wire, 600 Ohm FXS card
    8139      8 port, 2 wire, 600 Ohm FXO card
    8000      Single T1/E1 WAN card
    8010      Dual T1/E1 WAN card
    8014      Dual T1/E1 WAN card (1x3 Redundancy)
     811      DSX plug in module
     812      CSU plug in module (T1)
    8215      4 port, RS530/V.35 HSU card
    8202      2 port, RS530/V.35 HSU card
    8212      2 port, V.35 HSU card
    8220      10 port, RS232C/V.24 subrate card/(supports async/sync & DS0a/DS0b
              configurations)
    8228  BnR  Concentrator  card/(supports  both  B7r & B4r  formats)  8228 BnR
    Concentrator  8231 10 port,  RS232,  HDLC  Sync/Async FRAD card 8247 5 port,
    OCU-DP card/(Expandable to 10 ports with 845 module)
     845      OCU-DP 5 port expansion module
    8249      2 port, OCU-DP card with error correction
    8254      4 port, OCU-DP/G.703 card
    8260      8 port, 2 wire ISDN BRI "U" interface card
    8800      2 T1/E1, BCON Bus-connect Non-Redundant CPU card
    8801      8 T1/E1, XCON Cross-connect Redundant CPU card
    8804      4 T1/E1, RCON Bus-connect Redundant CPU card
    8920      8 T1/E1, Interface card w/2400bps modem
    8925      2 T1/E1, Interface card w/o modem
    8926      2 T1/E1, Interface card w/2400bps modem
    8901      AC Power Supply, 120/240vac
    8902A     DC Power Supply
    8903      Power Converter, 120vac to -48vdc
    8906      Ring Generator, -48vdc
    8916      Imacs 600 Enclosure w/install kit/(Front loading chassis, wall
              mountable)
   891823     Imacs 800 Enclosure w/install kit/(Front and rear loading chassis,
              rack mount unit)
    8871      ADPCM Server card



<PAGE>


                                                                   EXHIBIT 21.01

                        LIST OF REGISTRANT'S SUBSIDIARIES


                                   Country of
                Name                     Organization        Percentage Owned by
                                                                   Registrant
-------------------------------------  -----------------  ----------------------
Premisys Communications Pte Ltd        Singapore                      100%
Premisys Communications Limited        United Kingdom                 100%
Premisys Communications (Canada)       Canada                         100%
Inc.



<PAGE>


                                                                   EXHIBIT 23.01

       CONSENT OF INDEPENDENT ACCOUNTANTS

     We hereby  consent to the  incorporation  by reference in the  Registration
Statements  on Form  S-8  (File  No.  333-90938,  File  No.  333-4060,  File No.
333-49991 and File No. 333-70739) of Premisys Communications, Inc. of our report
dated  July  22,  1999,  except  for Note 6 which is as of  September  10,  1999
appearing on page 33 of this Annual Report on Form 10-K.

PRICEWATERHOUSECOOPERS LLP
San Jose, California
September 21, 1999






<PAGE>


EXHIBIT 27.01