AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 3, 1997     
                                                     REGISTRATION NO. 333-35791
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
 
                      SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, DC 20549
 
                               ----------------
                                
                             AMENDMENT NO. 4     
                                      TO
                                   FORM S-1
                            REGISTRATION STATEMENT
                                     UNDER
                          THE SECURITIES ACT OF 1933
 
                               ----------------
 
                          EXCEL SWITCHING CORPORATION
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
      MASSACHUSETTS                  3661                    04-2992806
     (STATE OR OTHER     (PRIMARY STANDARD INDUSTRIAL     (I.R.S. EMPLOYER
      JURISDICTION        CLASSIFICATION CODE NUMBER)  IDENTIFICATION NUMBER)
   OF INCORPORATION OR
      ORGANIZATION)
                            255 INDEPENDENCE DRIVE
                               HYANNIS, MA 02601
                                (508) 862-3000
  (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
                   REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
 
                               ----------------
 
                             MR. ROBERT P. MADONNA
   PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD OF DIRECTORS
                          EXCEL SWITCHING CORPORATION
                            255 INDEPENDENCE DRIVE
                               HYANNIS, MA 02601
                                (508) 862-3000
           (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
                  INCLUDING AREA CODE, OF AGENT FOR SERVICE)
 
                               ----------------
 
                                  COPIES TO:
 
   JOHN HESSION, ESQ.        CHRISTOPHER STAVROS,        PETER B. TARR, ESQ.
    TESTA, HURWITZ &                 ESQ.                 HALE AND DORR LLP
     THIBEAULT, LLP             GENERAL COUNSEL            60 STATE STREET
    HIGH STREET TOWER           EXCEL SWITCHING         BOSTON, MASSACHUSETTS
     125 HIGH STREET              CORPORATION                   02109
  BOSTON, MASSACHUSETTS     255 INDEPENDENCE DRIVE         (617) 526-6000
          02110                HYANNIS, MA 02601
     (617) 248-7000             (508) 862-3000
 
                               ----------------
 
  APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
 
  If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
 
  If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
 
  If this form is a post effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
 
  If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
 
  If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
 
                               ----------------
 
                        CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
   

      TITLE OF EACH CLASS OF             PROPOSED MAXIMUM          AMOUNT OF
    SECURITIES TO BE REGISTERED     AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
- --------------------------------------------------------------------------------
                                                          
Common Stock, $.01 par value......        $103,500,000.00        $31,364.00(2)
    
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee.
   
(2) $25,091 of this registration fee was previously paid.     
 
  THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
 
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

 
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A         +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE   +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY  +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT        +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR   +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE      +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE    +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF  +
+ANY SUCH STATE.                                                               +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
   
Issued November 3, 1997     
 
                                4,500,000 Shares
 
                                      LOGO
                                  COMMON STOCK
 
                                  -----------
    
 ALL OF THE SHARES OF COMMON STOCK  BEING OFFERED HEREBY ARE BEING SOLD BY THE
   COMPANY. PRIOR TO THIS OFFERING, THERE  HAS BEEN NO PUBLIC MARKET FOR THE
     COMMON  STOCK OF  THE COMPANY.  IT  IS CURRENTLY  ESTIMATED THAT  THE
       INITIAL PUBLIC  OFFERING PRICE  WILL BE BETWEEN  $18 AND  $20 PER
         SHARE. SEE "UNDERWRITERS" FOR A DISCUSSION OF THE  FACTORS TO
           BE CONSIDERED IN DETERMINING  THE INITIAL PUBLIC  OFFERING
            PRICE.     
 
                                  -----------
 
 THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING ON
                                 PAGE 4 HEREOF.
 
                                  -----------
 
THESE SECURITIES  HAVE NOT BEEN APPROVED  OR DISAPPROVED BY THE  SECURITIES AND
 EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
 AND  EXCHANGE COMMISSION OR ANY  STATE SECURITIES COMMISSION PASSED UPON  THE
  ACCURACY  OR  ADEQUACY  OF  THIS  PROSPECTUS.  ANY  REPRESENTATION  TO  THE
   CONTRARY IS A CRIMINAL OFFENSE.
 
                                  -----------
 
                              PRICE $     A SHARE
 
                                  -----------
 


                                                       UNDERWRITING
                                             PRICE TO DISCOUNTS AND  PROCEEDS TO
                                              PUBLIC  COMMISSIONS(1) COMPANY(2)
                                             -------- -------------- -----------
                                                            
Per Share...................................   $           $             $
Total(3)....................................  $           $             $

- -----
  (1) The Company and the Selling Stockholder have agreed to indemnify the
      Underwriters against certain liabilities, including liabilities under
      the Securities Act of 1933, as amended. See "Underwriters."
  (2) Before deducting expenses payable by the Company estimated at $800,000.
      The Company has agreed to pay the expenses of the Selling Stockholder,
      other than underwriting discounts and commissions.
  (3) The Selling Stockholder has granted to the Underwriters an option,
      exercisable within 30 days of the date hereof, to purchase up to an
      aggregate of 675,000 additional Shares at the price to public less
      underwriting discounts and commissions for the purpose of covering over-
      allotments, if any. If the Underwriters exercise such option in full,
      the total price to public, underwriting discounts and commissions,
      proceeds to Company and proceeds to the Selling Stockholder will be
      $   , $   , $   and $   , respectively. See "Underwriters."
 
                                  -----------
 
  The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Hale and Dorr LLP, counsel for the Underwriters. It is expected that
delivery of the Shares will be made on or about   , 1997 at the office of
Morgan Stanley & Co. Incorporated, New York, New York, against payment therefor
in immediately available funds.
 
                                  -----------
 
MORGAN STANLEY DEAN WITTER
     HAMBRECHT & QUIST
                                        NATIONSBANC MONTGOMERY SECURITIES, INC.
 
   , 1997

 
  NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING
STOCKHOLDER OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE
REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO, OR A SOLICITATION
OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD
BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
 
                               ----------------
 
  UNTIL       , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
 
                               ----------------
 
                               TABLE OF CONTENTS
 


                                                                       PAGE
                                                                       ----
                                                                    
Prospectus Summary...................................................    3
Risk Factors.........................................................    4
The Company..........................................................   13
Use of Proceeds......................................................   13
Dividend Policy......................................................   13
Capitalization.......................................................   14
Dilution.............................................................   15
Selected Consolidated Financial Data.................................   16
Management's Discussion and Analysis of Financial Condition 
 and Results of Operations...........................................   17
Business.............................................................   24



                                                                       PAGE
                                                                       ----
                                                                    
Management............................................................  37
Certain Transactions..................................................  44
Principal Stockholders................................................  45
Description of Capital Stock..........................................  46
Shares Eligible for Future Sale.......................................  49
Underwriters..........................................................  51
Legal Matters.........................................................  52
Experts...............................................................  52
Additional Information................................................  53
Glossary of Terms.....................................................  54
Index to Consolidated Financial Statements............................ F-1

 
                               ----------------
 
  The Company intends to furnish its stockholders with annual reports
containing audited consolidated financial statements and an opinion thereon
expressed by an independent public accounting firm and with quarterly reports
for the first three quarters of each year containing unaudited consolidated
interim financial information.
 
                               ----------------
 
  XLDX, LNX, PCX, PPL, CSN, EXNET and EXS are trademarks of the Company. This
Prospectus also includes trademarks and tradenames of companies other than
Excel Switching Corporation.
 
                               ----------------
 
  Except as set forth in the consolidated financial statements or as otherwise
indicated herein, all information in this Prospectus (i) assumes no exercise
of the Underwriters' over-allotment option; (ii) reflects the filing, on
September 16, 1997, of the Restated Articles of Organization of the Company
increasing the authorized shares of Common Stock, creating a class of
Preferred Stock and providing for the automatic conversion upon the closing of
this offering of the Company's Non-Voting Common Stock into shares of the
Company's Common Stock on a one-for-one basis; and (iii) reflects a two-for-
one split of the Company's capital stock effected on September 16, 1997. See
"Description of Capital Stock," "Underwriters" and Note 5 of Notes to
Consolidated Financial Statements. On December 18, 1996, the Company changed
its fiscal year end from December 31 to the last Saturday in December. All
references to 1996 refer to the year ended December 28, 1996 and all
references to all other years prior to 1996 refer to the year ended December
31. As used in this Prospectus, the "Company" and "Excel" refer to Excel
Switching Corporation and its subsidiaries.
 
                               ----------------
 
  CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
 
                                       2

 
The gatefold graphic is three columns entitled "Excel Switching Corporation: 
Open Switching Platforms for Telecommunications Networks Worldwide". The first 
column is entitled "Technology" and is comprised of two boxes. The first box has
a diagram of an internal bus entitled "Selective Space Switching Technology". 
Underneath the diagram is the text "Selective Space Switching" and lists the 
following phrases in a column "EXNET--2048 x 30,720 by-ddiectional ports; 
Service Resources-2048 bi directional ports; Network Interfaces-2048 bi- 
directional ports." Underneath the list is the text "Excel's patented Selective 
Space Switching technology allows the switching platform's internal bus to 
switch traffic between any input or output port, DSP, packet engine resource or 
EXNET Controller without losing critical port capacity." The second box has a 
diagram that is a simulation of a computer screen depicting the programmable 
protocol language. Underneath the diagram is the text. "The Programmable 
Protocol Language (PPL) is a patented software technology utilizing a graphical 
user interface to make an easy and convenient mechanism for developers and 
operators to implement multi-level programming modifications to Excel switching 
platforms, decreasing both development costs and time-to-market." The second 
column is entitled "Open, Scalable Products" and has one box and cascading 
pictures of four switches. The box contains the following text: "Excel's 
carrier-class, open, programmable switching platforms allow network providers to
offer cost-effective, scalable and flexible enhanced services and wireless and 
wireline communications with a time-to-market advantage over conventional 
switching platforms. Key benefits include: Open Programmability, Rapid Time-to- 
Market, Flexibility, Scalability, Distributed Architecture, Scalability, Cost- 
Efficiency, Redundancy and Reliability." The first picture is of the EXS switch 
with the following text to the left of the product: "The EXS is an open system 
that supports up to 30,720 ports. EXS is comprised of any combination of LNX and
CSN programmable switching platforms distributed across EXNET, the Company's 
fiber optic expansion network." The second picture is of the LNX switch with the
following text to the left of the product: "The LNX is a 2,048 port, non- 
blocking, open, programmable switching platform designed for central office 
environments, providing high-performance and fault tolerance in a compact, 
maintainable chassis." The third picture is of the CSN switch with the following
text to the right of the product: "The CSN is a 1,024 port, non-blocking, open, 
programmable switching platform that provides the same features and scalability 
as the LNX but in a more compact chassis." The fourth picture is of the PCX 
switch with the following text to the right of the product: "The PCX is a PC- 
based 512 port, non-blocking, open, programmable switching platform designed for
the customer premise equipment marketplace, providing a total solution in a 
small chassis." The third column is entitled "Markets" and is comprised of three
boxes. The first box has a list entitled "Enhanced Service Platforms" with the 
following words listed in a column: "Voice Messaging," "One Number Services," 
"Paging," "E-Mail," "Fax Messaging," "Unified Messaging," "Voice Recognition 
Dialing," "Prepaid Debit Cards" and "Conference Bridging." There is also a 
diagram depicting potential uses of LNX that consists of pictures of telephones,
fax machines and answering machines connected through the PSTN or wireless 
network to and LNX server which is connected to five boxes depicting software 
applications entitled "Voicemail," "Personal Number," "FAX," "Paging," and 
"Billing." The second box has a list entitled "Wireless Infrastructure" with the
following words listed in a column: "Cellular Systems," "Personal Communications
Services (PCS)," "Wireless Local Loop," and "Mobile Satellite Systems." There is
also a diagram depicting a wireless network that has host switches labeled 
"Enhanced Services" linked to a host switch labeled "Mobile Switching Center" 
which is linked to a host switch which is then connected to EXS switches labeled
"Distributed Switches" and "Base Station Controller" which are linked to 
pictures of wirelsss radio towers. The third box has a list entitled "Wireless 
Infrastructure" with the following words listed in a column: "Tandem Switching,"
"One-Plus Dialing," "International Callback," and "International Gateway." There
is also a diagram depicting a wireline network.



 
 
                               PROSPECTUS SUMMARY
  The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements and notes thereto appearing
elsewhere in this Prospectus.
 
                                  THE COMPANY
 
  Excel is a leading provider of open switching platforms for
telecommunications networks worldwide. The Company develops, manufactures,
markets and supports a family of open, programmable, carrier-class switches
that addresses the complex enhanced services and wireless and wireline
infrastructure needs of network providers. Excel's products offer network
providers the flexibility to address multiple market applications and the
scalability to deploy a variety of system capacities. The Company's
programmable switching platforms enable network providers to deliver improved
networking functionality at a lower cost than purchasing, upgrading or
reprogramming traditional, closed, central office switches. The Company's
products are currently deployed in telecommunications networks in approximately
50 countries throughout the world.
  Excel offers a family of programmable switching platforms that are designed
with distributed architecture and open software to maximize performance and
provide multiple levels of programmability and redundancy. Excel's open
switching platforms integrate with a wide variety of host computer systems,
operating systems and application development environments. The Company's
product family scales from 512 to 30,720 ports. Using Excel's patented
Programmable Protocol Language ("PPL"), application developers can customize
the switching software to their unique requirements, allowing them to introduce
new services and applications rapidly. As customer requirements evolve, the
Excel platform can be upgraded without requiring extensive and complex
programming changes to the underlying software.
  The Company sells to a variety of customers in the worldwide
telecommunications market, including application developers, original equipment
manufacturers ("OEMs") and systems integrators. These customers include Boston
Technology, Inc., Brite Voice Systems, Inc., Ericsson Messaging Systems Inc.,
Glenayre Technologies, Inc., IEX Corporation, MCI Communications Corporation,
Lucent Technologies Inc. (Octel Messaging Division), Phoenix Wireless Group,
Inc., Priority Call Management, Inc., QUALCOMM Incorporated and WorldCom, Inc.
Excel's customers integrate the Company's open, programmable switching
platforms with their product offerings to address a variety of market
applications for network providers, ranging from enhanced services such as
voice messaging, one number services and prepaid debit cards, to wireless and
wireline infrastructure services such as tandem switching, mobile switching
centers and intelligent base station controllers. Network providers which have
installed Excel's products include AT&T Corp., Ameritech Corporation, Bell
Atlantic Corporation, BellSouth Corporation, British Telecommunications plc,
GTE Corporation, MCI Communications Corporation, Nippon Telegraph and Telephone
Corporation, Pacific Bell, Sprint Corporation, Telstra Corporation Ltd., Time
Warner Inc. and WorldCom, Inc.
 
                                  THE OFFERING
 
Common Stock offered.............    4,500,000 shares
Common Stock to be outstanding       
 after the offering..............    32,589,600 shares(1)
Use of proceeds..................    For general corporate purposes, including
                                     working capital, product development,
                                     capital expenditures and potential
                                     acquisitions. See "Use of Proceeds."
Proposed Nasdaq National Market      
 symbol..........................    XLSW 
 
                      SUMMARY CONSOLIDATED FINANCIAL DATA
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 


                                          YEAR ENDED                  SIX MONTHS ENDED
                          ------------------------------------------- -----------------
                                   DECEMBER 31,
                          ------------------------------ DECEMBER 28, JUNE 30, JUNE 28,
                           1992   1993    1994    1995       1996       1996     1997
                          ------ ------- ------- ------- ------------ -------- --------
                                                          
CONSOLIDATED STATEMENTS                                                  (UNAUDITED)
 OF INCOME DATA:
Revenues................  $5,111 $10,033 $20,723 $36,161   $62,050    $27,890  $39,055
Income from operations..     692   2,892   7,083   8,783    13,570      6,255   12,272
Net income..............     469   1,396   4,190   5,411     7,901      3,687    7,420
Net income per
 share(2)...............  $  .01 $   .04 $   .13 $   .16   $   .23    $   .11  $   .22
Weighted average common
 and common equivalent
 shares outstanding(2)..  31,519  31,954  32,431  32,913    33,787     33,672   34,012

 
   

                                                              JUNE 28, 1997
                                                          ----------------------
                                                          ACTUAL  AS ADJUSTED(3)
                                                          ------- --------------
                                                            
CONSOLIDATED BALANCE SHEET DATA:                               (UNAUDITED)
Working capital.......................................... $21,915    $100,630
Total assets.............................................  44,446     123,161
Long-term obligations, less current maturities...........   3,584       3,584
Total stockholders' equity...............................  27,541     106,256
    
- -------
(1) Based on shares of Common Stock outstanding as of June 28, 1997. Excludes
    (i) 10,808,640 shares of Common Stock issuable upon exercise of options
    outstanding as of June 28, 1997, of which options to purchase 6,515,940
    shares were then exercisable, and (ii) 3,625,000 shares of Common Stock
    reserved for future issuance under the Company's stock plans. See
    "Management--Stock Plans" and Note 5 of Notes to Consolidated Financial
    Statements.
(2) Computed on the basis described in Note 1 of Notes to Consolidated
    Financial Statements.
   
(3) Adjusted to reflect the sale of the 4,500,000 shares of Common Stock
    offered by the Company hereby at an assumed initial public offering price
    of $19.00 per share, after deducting estimated underwriting discounts and
    commissions and offering expenses payable by the Company, and the
    application of the estimated net proceeds therefrom. See "Use of Proceeds"
    and "Capitalization."     
 
                                       3

 
                                 RISK FACTORS
 
  In evaluating the Company's business, prospective investors should carefully
consider the following factors in addition to the other information presented
in this Prospectus before purchasing the shares of Common Stock offered
hereby. This Prospectus contains certain statements of a forward-looking
nature relating to future events or the future financial performance of the
Company. Prospective investors are cautioned that such statements are only
predictions and that actual events or results may differ materially. In
evaluating such statements, prospective investors should specifically consider
the various factors identified in this Prospectus, including but not limited
to the matters set forth below, which could cause actual results to differ
materially from those indicated by such forward-looking statements.
 
  Fluctuations in Results of Operations. The Company's results of operations
have varied significantly in the past and may vary significantly in the
future, on a quarterly and annual basis, as a result of a variety of factors,
many of which are outside the Company's control. These factors include,
without limitation: (i) the timing and size of orders which are received and
can be shipped in any particular period; (ii) the commercial success of the
Company's products; (iii) delays in the introduction of products or product
enhancements by the Company and the Company's ability to introduce new
products and technologies on a timely basis; (iv) the financial stability of
the Company's major customers; (v) the timing of new product introductions or
announcements by the Company or its competitors; (vi) the availability of
adequate supplies of key components and assemblies and the adequacy of third-
party manufacturing capabilities; (vii) the seasonality of the placement of
customer orders; (viii) the timing and nature of selling and marketing
expenses such as tradeshows and advertising campaigns; (ix) the timing of
development expenditures and personnel changes; (x) the publication of
opinions about the Company and its products, or its competitors or their
products, by industry analysts; (xi) customer order deferrals in anticipation
of product enhancements or new product offerings by the Company or its
competitors; and (xii) customer cancellation of orders and the gain or loss of
significant customers, including those due to industry combinations. Moreover,
any downturn in general economic conditions could precipitate significant
reductions in corporate spending for telecommunications infrastructure, which
could result in delays or cancellations of orders for the Company's products.
The Company's expense levels are relatively fixed and are based, in
significant part, on expectations of future revenues. Consequently, if revenue
levels are below expectations, expense levels could be disproportionately high
as a percentage of revenues, and the Company's business, financial condition
and results of operations would be materially adversely affected. The Company
has historically operated with little backlog because its products are
generally shipped within 60 days of acceptance of an order by the Company. As
a result, revenues in any quarter are substantially dependent on orders booked
and shipped in that quarter and on sales by the Company's customers to end
users. See "--Concentration of Customers" and "Business--Customers."
 
  The Company also believes that the purchase of its products generally
involves a significant commitment of a customer's capital resources.
Therefore, any downturn in any customer's business could have a material
adverse effect on the Company's revenues, business, financial condition and
quarterly results of operations. In addition, the Company historically has
recognized a large portion of its revenues from sales booked and shipped in
the last month of a quarter such that the magnitude of quarterly fluctuations
may not become evident until late in, or at the end of, a particular quarter.
Because a number of the Company's individual orders are for significant
amounts, the failure to ship a significant order in a particular quarter could
materially adversely affect revenues and results of operations for such
quarter. To the extent that significant sales occur earlier than expected,
results of operations for subsequent quarters may be materially adversely
affected. Due to these and other factors, the Company's quarterly revenues,
expenses and results of operations could vary significantly in the future, and
period-to-period comparisons should not be relied upon as indications of
future performance. There can be no assurance that the Company will be able to
increase its revenues in future periods or be able to sustain its level of
revenues or its rate of revenue growth on a quarterly or annual basis. See "--
Length of Sales Cycle" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
 
  Due to all of the foregoing factors, it is possible that in some future
quarter, the Company's results of operations will be below the expectations of
public market analysts and investors. In such event, the market price
 
                                       4

 
of the Company's Common Stock would likely be materially adversely affected.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
 
  Dependence on Relationships with Application Developers, OEMs and Systems
Integrators. The Company sells substantially all of its products to, and
maintains strategic relationships with, application developers, original
equipment manufacturers ("OEMs") and systems integrators which incorporate the
Company's products into their service and product offerings. As a result,
sales of the Company's products are dependent upon the continued market
acceptance of the service and product offerings of the Company's customers.
Although the Company maintains contractual relationships with a substantial
number of its customers, such contracts do not provide for minimum purchase
requirements, nor do they contain provisions requiring the exclusive purchase
of the Company's products. The development of an application or service for
the telecommunications market can involve a substantial amount of time and
expense. The delay or failure of a customer's application development program
incorporating the Company's products could delay or prevent expected sales of
the Company's products. The inability or cessation of customers to integrate
the Company's products into their service and product offerings, product
development delays by application developers and other customers, lack of
market acceptance of the service and product offerings of the Company's
customers or a customer's decision to market products manufactured by a
competitor of the Company, or the manufacture of such products themselves,
would have a material adverse effect on the Company's business, financial
condition and results of operations.
 
  Additionally, selling through indirect channels may limit the Company's
information concerning the volume of products sold by the Company's customers
to end users and the Company's contact with its end users. As a result, the
Company's ability to forecast revenues accurately (notwithstanding the
forecasts of its customers), evaluate end-user satisfaction and recognize
emerging end-user requirements may be hindered. See "Business--Sales and
Marketing."
 
  Length of Sales Cycle. The time between the date of initial contact with a
potential customer and large-scale commercialization of a new customer
application or system based on the Company's products is often lengthy,
typically ranging from 12 to 24 months or more, and is subject to delays over
which the Company has little or no control, including customers' budgetary
constraints, customers' internal acceptance reviews, the success and continued
internal support of customers' own development efforts, and the possibility of
cancellation of projects by customers. Although the Company attempts to
develop its products with the goal of shortening the time to market of its
customers' products, the timing of the commercialization of a new customer
application or service based on the Company's products is primarily dependent
on the success and timing of a customer's own internal development program.
Delays can also be caused by late deliveries by other vendors, changes in
implementation priorities and slower than anticipated growth in demand for the
services that the Company's products support. A delay in, or cancellation of,
the sale of the Company's products could have a material adverse effect on the
Company's business, financial condition and results of operations and cause
the Company's results of operations to vary significantly from quarter to
quarter. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
 
  Concentration of Customers. Approximately 33.1%, 40.6%, 36.7% and 34.6% of
the Company's revenues in 1994, 1995, 1996 and in the first six months of
1997, respectively, were derived from sales to Boston Technology, Inc.,
approximately 11.4% of the Company's revenues in 1995 were derived from sales
to Ericsson Messaging Systems Inc. and approximately 10.0% of the Company's
revenues in 1994 were derived from sales to AccessLine Technologies, Inc. In
1994, 1995, 1996 and the first six months of 1997, the Company's five largest
customers accounted for approximately 65.4%, 70.1%, 57.1% and 59.9%,
respectively, of the Company's revenues. Although the Company's largest
customers have varied from period to period, the Company anticipates that its
results of operations in any given period will continue to depend to a
significant extent upon sales to a small number of customers. None of the
Company's customers has entered into a long-term supply agreement requiring
any of them to purchase a minimum amount of product from the Company. There
can be no assurance that the Company's principal customers will continue to
purchase product from the Company at current levels, if at all, or that the
Company will be able to replace such purchases with sales to other customers.
In August 1997, Boston Technology, Inc. announced its intended merger with
Comverse Technologies, Inc. In September 1997,
 
                                       5

 
Octel Communications Corporation, one of the Company's five largest customers
in 1996, was acquired by Lucent Technologies Inc. The Company cannot estimate
the potential impact on its business of these two recently announced
transactions. The loss of one or more major customers could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business--Customers."
 
  Evolving Market For Telecommunications Services. The Company's future
success will depend on continued growth in the market for telecommunications
services. The global telecommunications marketplace is evolving and it is
difficult to predict its potential size or future growth rate. There can be no
assurance that deregulation and continued improvements and expansions of
infrastructure will continue to cause this market to grow or that increased
regulation will not present barriers to the sales of existing or future
products. There can also be no assurance that telecommunications applications
and infrastructure needs will not emerge for which the Company's products are
not designed. If this market fails to grow or grows more slowly or in a
different direction than the Company currently anticipates, the Company's
business, financial condition and results of operations could be materially
adversely affected. See "Business--Industry Background."
 
  Concentrated Product Family. The Company currently derives substantially all
of its revenues from its family of open, programmable switching platforms and
expects that this concentration will continue in the foreseeable future. As a
result, any decrease in the overall level of sales of, or the prices for,
open, programmable switching platforms due to product enhancements,
introductions or announcements by the Company's competitors, a decline in the
demand for open, programmable switches, product obsolescence, price
competition, technological change or any other reason could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
 
  Risk of New Product Introductions. The Company intends to continue to invest
in product and technology development, including increasing port capacity and
performance, the development of additional related software applications and
tools, the improvement of third-party application integration, and the
continued provision of updated product features and enhancements. There can be
no assurance that the Company will not experience difficulties that could
delay or prevent the successful development, introduction or marketing of such
new products and enhancements, or that its new products and enhancements will
adequately meet the requirements of the marketplace and achieve market
acceptance. Announcements of currently planned or other new product offerings
by the Company or its competitors may cause customers to defer or cancel the
purchase of existing Company products. The Company's inability to develop on a
timely basis new products or enhancements to existing products, or the failure
of such new products or enhancements to achieve market acceptance, could have
a material adverse effect on the Company's business, financial condition and
results of operations. See "--Rapid Technological Change," "Business--Products
and Technology" and "Business--Research and Product Development."
 
  The development of new, technologically advanced products is a complex and
uncertain process requiring the accurate anticipation of technological and
market trends. The introduction of new or enhanced products also requires the
Company to manage the transition from older products in order to minimize
disruption in customer ordering patterns, avoid excessive levels of older
product inventories and ensure that adequate supplies of new products can be
delivered to meet anticipated customer demand. There can be no assurance that
the Company will successfully develop, introduce or manage the transition to
new products. Furthermore, products such as those offered by the Company may
contain undetected or unresolved errors when they are first introduced or as
new versions are released. There can be no assurance that despite extensive
testing by the Company, errors will not be found in new products or upgrades
after commencement of commercial shipments, resulting in delays in or loss of
market acceptance and sales, diversion of development resources, injury to the
Company's reputation or increased service and warranty costs, any of which
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Research and Product
Development."
 
 
                                       6

 
  Rapid Technological Change. The telecommunications equipment market is
subject to rapid technological change, evolving industry standards and
frequent new product introductions and enhancements that may render existing
products obsolete. As a result, the Company's position in this market could
erode rapidly due to unforeseen changes in product features and functions of
competing products. The Company's growth and future results of operations will
depend in part on its ability to respond to these changes by enhancing its
existing products and developing and introducing, on a timely and cost-
effective basis, new products and features to meet or exceed technological
advances in the marketplace. The failure of the Company to respond to rapidly
changing technologies could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--
Industry Background" and "Business--Research and Product Development."
 
  Management of Growth and Hiring of Additional Personnel. The Company has
experienced growth in revenues and expansion of its operations which have
placed significant demands on the Company's management, engineering staff and
facilities. The Company has recently hired additional engineering, marketing,
accounting and finance personnel, including its Chief Operating Officer, Vice
President of Marketing and Vice President of Research and Development within
the last 12 months. The Company is also implementing additional financial and
management procedures which the Company believes will address increasing
demands on resources. However, the Company believes that further improvements
in management and operational controls are needed, and will continue to be
needed, to manage any future growth. Continued growth will also require the
Company to hire more engineering, selling and marketing and administrative
personnel, expand customer support capabilities, expand management information
systems and improve its inventory management practices. The Company has at
times experienced, and continues to experience, difficulty in recruiting
qualified personnel. Recruiting qualified personnel is an intensely
competitive and time-consuming process. There can be no assurance that the
Company will be able to attract and retain the necessary personnel to
accomplish its growth strategies or that it will not experience constraints
that will adversely affect its ability to satisfy customer demand in a timely
fashion or to support satisfactorily its customers and operations. If the
Company's management is unable to manage growth effectively, the Company's
business, financial condition and results of operations could be materially
adversely affected. See "Business--Employees" and "Management--Executive
Officers and Directors."
 
  While the Company believes its current and planned facilities are adequate
to meet its needs through the next 12 months, future growth may require the
Company to obtain additional or alternative facilities. Due to the limited
supply of suitable additional or alternative office and manufacturing space in
the Cape Cod, Massachusetts area, there can be no assurance that such space
can be leased or acquired without substantial required renovations. Relocation
of any segment of the Company's operations may disrupt business and have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, the local permitting and variance
procedures for the renovation of buildings or new construction in the Cape Cod
area is more onerous than found in metropolitan areas. Accordingly, there can
be no assurance that the Company will not be required in the future to devote
significant resources to the permitting and renovation of additional
facilities or in relocating some or all of the Company's facilities. See
"Business--Facilities."
 
  Dependence on Key Personnel. The Company's success depends to a significant
degree upon the continued contributions of its President, Chief Executive
Officer and principal stockholder, Robert P. Madonna, and its key management,
engineering, selling and marketing and manufacturing personnel, many of whom
would be difficult to replace. The Company does not have employment contracts
with its key personnel. The loss of the services of any key personnel, the
inability to attract or retain qualified personnel in the future or delays in
hiring required personnel, particularly software engineers, could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Employees" and "Management--Executive
Officers and Directors."
 
  Highly Competitive Market. The market for telecommunications products is
highly competitive and subject to rapid technological change. The Company
competes or may compete directly or indirectly with the following categories
of companies: (i) other manufacturers of programmable switches such as Summa
Four, Inc., Redcom Laboratories, Inc. and Harris Corporation; (ii) large,
well-established switch and telecommunications
 
                                       7

 
equipment manufacturers such as Alcatel Alsthom Compagnie Generale
d'Electricite SA, DSC Communications Corporation, Lucent Technologies Inc.,
Northern Telecom Limited, Siemens AG and Telefonaktiebolaget LM Ericsson; and
(iii) to a lesser degree, systems integrators and application developers whose
switches are based on PC card-level products manufactured by companies such as
Aculab Inc., Dialogic Corporation and Natural MicroSystems Corporation. In
addition, several smaller companies have begun to manufacture programmable
switching platforms. Due to the rapidly evolving markets in which the Company
competes, additional competitors with significant market presence and
financial resources, including large telecommunications equipment
manufacturers and computer hardware and software companies, may enter those
markets, thereby further intensifying competition. Additionally, there can be
no assurance that one or more of the Company's application developers will not
begin to develop or market products in competition with the Company. Increased
competition could result in price reductions and loss of market share which
would materially adversely affect the Company's business, financial condition
and results of operations. Many of the Company's current and potential
competitors have significantly greater financial, selling and marketing,
technical, manufacturing and other resources than the Company. Some of the
Company's competitors currently offer financing alternatives to their
customers, a service that the Company does not provide. Moreover, the
Company's competitors may also foresee the course of market developments more
accurately than the Company. Although the Company believes it has certain
technological and other advantages over its competitors, realizing and
maintaining such advantages will require a continued high level of investment
by the Company in research and product development, marketing and customer
service and support. There can be no assurance that the Company will have
sufficient resources to continue to make such investments or that the Company
will be able to make the technological advances necessary to compete
successfully with its existing competitors or with new competitors. See
"Business--Competition."
 
  Dependence on Single and Sole Source Suppliers. The Company purchases many
key components from single or sole source vendors. The inability to develop
alternative sources for these components or to obtain sufficient quantities of
these components could result in delays or reductions in product shipments
which could materially adversely affect the Company's business, financial
condition and results of operations. In the event of a reduction or
interruption of supply, a significant amount of time, in some cases as much as
three to four months, could be required before the Company would begin
receiving adequate supplies from such alternative suppliers. In such event,
the Company's business, financial condition and results of operations would be
materially adversely affected. In addition, the manufacture of certain of
these single or sole source components is extremely complex, and the Company's
reliance on the suppliers of these components exposes the Company to potential
production difficulties and quality variations, which could negatively impact
cost and timely delivery of the Company's products. In particular, the Company
uses a fiber transmitter, a receiver and a fiber driver manufactured by
Hewlett-Packard Company in its EXS product, four power connectors manufactured
by Positronic Industries, Inc. in its EXS, LNX and CSN products, and a power
module manufactured by Lucent Technologies Inc. in its EXS, LNX and CSN
products. Each of these components is available from only one supplier, for
which there is no substitute at this time. If supply of these components
should cease, the Company would be required to redesign its products. No
assurance can be given that supply problems will not occur or, if such
problems do occur, that satisfactory solutions would be available. The Company
does not have long-term contracts with its suppliers and there can be no
assurance that these suppliers will continue to be able to produce these
components or to meet the Company's requirements. Any significant interruption
in the supply, or degradation in the quality, of any such component could have
a material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Manufacturing."
 
  Although the Company generally requires its customers to submit quarterly
forecasts of their needs, the Company's customers frequently require rapid
delivery after placement of a purchase order. Because the Company does not
maintain significant component inventories, a delay in shipment by a supplier
could lead to lost sales. Lead times for materials and components may vary
significantly and depend on factors such as specific supplier performance,
contract terms and general market demand for components. If orders vary from
forecasts, the Company may experience excess or inadequate inventory of
certain materials and components. While the Company has not experienced
shortages and allocations of these components to date, any shortages in the
future,
 
                                       8

 
including those occasioned by increased sales, could result in delays in
fulfillment of customer orders. Such delays, shortages and allocations could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business--Manufacturing."
 
  Dependence on Third-Party Manufacturers. The Company relies on a limited
number of independent manufacturers, some of which are small, privately-held
companies, to provide certain components and assemblies made to the Company's
specifications. These manufacturers substantially complete production of the
Company's products, which are then shipped to the Company for final assembly
and quality control. In the event that any of the Company's subcontractors
were to experience financial, operational, production or quality assurance
difficulties or a catastrophic event that resulted in a reduction or
interruption in supply to the Company, the Company's business, financial
condition and results of operations would be materially adversely affected
until the Company was able to establish sufficient manufacturing capabilities
from alternative sources. There can be no assurance that alternative
manufacturing sources will be able to meet the Company's future requirements
or that existing or alternative sources will continue to be available to the
Company at favorable prices. See "Business--Manufacturing."
 
  Compliance with Regulations and Evolving Industry Standards. The market for
the Company's products is characterized by the need to meet a significant
number of communications regulations and standards, some of which are evolving
as new technologies are deployed. In the United States, the Company's products
must comply with various regulations including those promulgated by the
Federal Communications Commission and standards established by Underwriters
Laboratories and Bell Communications Research. Furthermore, there are
regulations and standards imposed by various foreign countries where the
Company's products are installed. The failure of the Company's products to
comply, or delays in compliance, with the various existing and evolving
industry regulations and standards could delay the introduction of the
Company's products. Moreover, the enactment by federal, state or foreign
governments of new laws or regulations, changes in the interpretation of
existing laws or regulations or a reversal of the trend toward deregulation in
the telecommunications industry could materially adversely affect the
Company's customers, and thereby materially adversely affect the Company's
business, financial condition and results of operations. See "Business--
Industry Background."
 
  Dependence on Proprietary Rights. The Company's success and its ability to
compete is dependent, in part, upon its proprietary rights. The Company relies
primarily on a combination of patent, copyright, trademark and trade secret
laws, as well as confidentiality procedures and contractual restrictions to
establish and protect its proprietary rights. There can be no assurance that
such measures will be adequate to protect the Company's proprietary rights.
Further, the Company may be subject to additional risks as it enters into
transactions in countries where intellectual property laws are not well
developed or are difficult to enforce. Legal protections of the Company's
proprietary rights may be ineffective in such countries. Litigation to defend
and enforce the Company's intellectual property rights could result in
substantial costs and diversion of resources and could have a material adverse
effect on the Company's business, financial condition and results of
operations, regardless of the final outcome of such litigation. Despite the
Company's efforts to safeguard and maintain its proprietary rights both in the
United States and abroad, there can be no assurance that the Company will be
successful in doing so or that the steps taken by the Company in this regard
will be adequate to deter misappropriation or independent third-party
development of the Company's technology or to prevent an unauthorized third
party from copying or otherwise obtaining and using the Company's products or
technology. There also can be no assurance that others will not independently
develop similar technologies or duplicate any technology developed by the
Company. Any such events could have a material adverse effect on the Company's
business, financial condition and results of operations.
 
  The Company has entered into agreements with a small number of its customers
requiring the Company to deposit its source code and, on occasion,
manufacturing blueprints, tooling diagrams and production specifications, in
escrow with a third party. These escrow agreements typically provide that
these customers have a non-exclusive right to use such code and other
materials in the event that there is a bankruptcy proceeding by or against the
Company, if the Company ceases to conduct business or if the Company defaults
on its support obligations. The use of such agreements may increase the
likelihood of misappropriation by third parties.
 
                                       9

 
  As the number of entrants to the Company's markets increases and the
functionality of the Company's products increases and overlaps with the
products of other companies, the Company may become subject to claims of
infringement or misappropriation of the intellectual property rights of
others. 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 certain limited
instances, the amount of such indemnities may be greater than the revenues the
Company may have received from the customer. There can be no assurance that
third parties will not assert infringement or misappropriation claims against
the Company in the future with respect to current or future products. Any
claims or litigation, with or without merit, could be time-consuming, result
in costly litigation, cause product shipment delays or require the Company to
enter into royalty or licensing arrangements. Such royalty or licensing
arrangements, if required, may not be available on terms acceptable to the
Company, if at all, which could have a material adverse effect on the
Company's business, financial condition and results of operations. In
addition, the Company changed its name from Excel Inc. to Excel Switching
Corporation in September 1997. Searches performed on the term Excel have
revealed several registrations and numerous uses of that term, and terms
substantially similar to it, alone and in combination with other terms and
designs. Accordingly, there can be no assurance that third parties will not
assert trademark infringement claims relating to the name Excel in the future.
See "Business--Intellectual Property."
 
  Risks Associated with International Sales. In 1996 and in the first six
months of 1997, sales to customers located outside of the United States
accounted for less than 4.0% of the Company's revenues in each such period.
However, the Company sells its products to application developers, OEMs and
systems integrators located within the United States which market products and
services based on the Company's products worldwide. The Company intends to
expand its operations outside the United States and enter additional
international markets, which will require significant management attention and
financial resources. International sales are subject to a variety of risks,
including difficulties in establishing and managing international distribution
channels, in servicing and supporting products sold outside the United States
and in translating products and related materials into foreign languages.
International operations are also subject to difficulties in collecting
accounts receivable, staffing and managing personnel and enforcing
intellectual property rights. Other factors that can adversely affect
international operations include fluctuations in the value of foreign
currencies and currency exchange rates, changes in import/export duties and
quotas, introduction of tariff or non-tariff barriers and economic or
political changes in international markets. Any inability to obtain foreign
regulatory approvals on a timely basis could have a material adverse effect on
the Company's business, financial condition and results of operations. If the
Company's international sales increase, its revenues may also be affected to a
greater extent by seasonal fluctuations resulting from lower levels of sales
which typically occur during the summer months in Europe and other parts of
the world. There can be no assurance that these factors will not have a
material adverse effect on the Company's future international sales and,
consequently, on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business--Strategy."
 
  Risks Relating to Potential Acquisitions. The Company may, from time to
time, pursue the acquisition of other companies, assets, products and
technologies although the Company has no present commitments or agreements
with respect to any such acquisitions. Acquisitions involve a number of
operating risks that could materially adversely affect the Company's results
of operations, including the diversion of management's attention to assimilate
the operations, products and personnel of the acquired companies, the
amortization of acquired intangible assets, and the potential loss of key
employees of the acquired companies. Furthermore, acquisitions may involve
businesses in which the Company lacks experience. Because management has
limited experience in acquisitions and the Company has no experience in
integrating acquired companies or technologies into its operations, there can
be no assurance that the Company will be able to manage one or more
acquisitions successfully, or that the Company will be able to integrate the
operations, products or personnel gained through any such acquisitions without
a material adverse effect on the Company's business, financial condition and
results of operations. See "Use of Proceeds."
 
                                      10

 
  Control by Principal Stockholder. Following this offering, Robert P.
Madonna, the Company's President, Chief Executive Officer, Chairman of the
Board and principal stockholder, will beneficially own approximately 85.8% of
the outstanding shares of Common Stock of the Company (83.7% if the
Underwriters' over-allotment option is exercised in full). As a result, Mr.
Madonna will have the ability to elect the Company's directors and to
determine the outcome of corporate actions requiring stockholder approval,
irrespective of how other stockholders of the Company may vote. This
concentration of ownership may have the effect of delaying or preventing a
change in control of the Company which may be favored by a majority of the
remaining stockholders, or cause a change of control not favored by the
Company's other stockholders. See "Management" and "Principal Stockholders."
 
  No Prior Trading Market; Potential Volatility of Stock Price. Prior to this
offering, there has been no public market for the Company's Common Stock, and
there can be no assurance that an active trading market will develop or be
sustained after this offering or that the market price of the Common Stock
will not decline below the initial public offering price. The initial public
offering price will be determined solely by negotiations between the Company
and the Representatives of the Underwriters and therefore may not be
indicative of prices that will prevail in the trading market after this
offering. The market price of the Company's Common Stock could be subject to
wide fluctuations in response to, and may be adversely affected by, variations
in quarterly results of operations, changes in earnings estimates by analysts,
adverse earnings or other financial or business announcements by the Company
and its customers or competitors and market conditions in the industry, as
well as general economic conditions. In addition, the stock market has
experienced extreme price and volume fluctuations that have particularly
affected the market prices for many companies' stock and that often have been
unrelated to the operating performance of such companies. These market
fluctuations may adversely affect the market price of the Company's Common
Stock. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations." See "Underwriters" for a discussion of the factors to
be considered in determining the initial public offering price.
 
  Shares Eligible for Future Sale. Sales of substantial amounts of shares of
the Company's Common Stock in the public market following this offering could
adversely affect the market price of the Common Stock. In addition to the
4,500,000 shares offered hereby (5,175,000 shares if the over-allotment option
is exercised in full), approximately 144,000 additional shares of Common Stock
outstanding as of August 30, 1997, which are not subject to 180-day lock-up
agreements (the "Lock-Up Agreements") with the representatives of the
Underwriters, will be eligible for sale in the public market in accordance
with Rule 144(k) under the Securities Act of 1933, as amended (the "Securities
Act"), on the date of this Prospectus. Upon expiration of the Lock-Up
Agreements, 180 days after the date of this Prospectus, approximately
27,945,600 additional shares of Common Stock will be available for sale in the
public market, subject to the provisions of Rule 144 under the Securities Act.
At August 30, 1997, approximately 6,731,940 shares of Common Stock were issued
or issuable pursuant to vested options under the Company's stock program, of
which approximately 55,800 shares are not subject to Lock-up Agreements with
the Underwriters and will be eligible for sale in the public market in
accordance with Rule 701 under the Securities Act beginning 90 days after the
date of this Prospectus. The Company intends to file one or more registration
statements on Form S-8 under the Securities Act approximately 180 days after
the date of this Prospectus to register up to 10,870,840 shares of Common
Stock subject to outstanding stock options granted pursuant to the Company's
stock option program as of August 30, 1997, including the 6,731,940 shares of
Common Stock subject to options vested as of August 30, 1997, and 3,625,000
shares of Common Stock issuable pursuant to the Company's 1997 stock plans.
Such registration statements are expected to become effective upon filing. At
such time, approximately 7,358,610 shares of Common Stock issuable upon the
exercise of options granted as of August 30, 1997 and covered by these
registration statements will be vested and eligible for sale in the public
market upon the exercise of underlying options to the extent not previously
sold pursuant to Rule 701. See "Shares Eligible for Future Sale" and
"Underwriters."
 
  Immediate and Substantial Dilution. Purchasers of shares of Common Stock
offered hereby will suffer an immediate and substantial dilution in the net
tangible book value per share of the Common Stock from the initial public
offering price. See "Dilution."
 
                                      11

 
  Potential Adverse Effects of Anti-Takeover Provisions; Availability of
Preferred Stock for Issuance. The Company's Restated Articles of Organization
and Restated By-Laws contain provisions that may make it more difficult for a
third party to acquire, or discourage acquisition bids for, the Company.
Moreover, the Company is subject to an anti-takeover provision of the
Massachusetts General Laws which prohibits, subject to certain exceptions, a
holder of 5% or more of the outstanding voting stock of the Company from
engaging in certain activities with the Company, including a merger, stock or
asset sale. Such provisions could limit the price that certain investors might
be willing to pay in the future for shares of the Company's Common Stock. In
addition, shares of the Company's Preferred Stock may be issued in the future
without further stockholder approval and upon such terms and conditions, and
having such rights, privileges and preferences, as the Board of Directors may
determine. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of any holders of Preferred Stock
that may be issued in the future. The issuance of Preferred Stock or of rights
to purchase Preferred Stock, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire, or
discouraging a third party from acquiring, a majority of the outstanding
voting stock of the Company. The Company has no present plans to issue any
shares of Preferred Stock. See "Description of Capital Stock--Massachusetts
Law and Certain Charter and By-Law Provisions; Anti-Takeover Effects" and "--
Preferred Stock."
 
                                      12

 
                                  THE COMPANY
 
  The Company was incorporated in Massachusetts in January 1988 under the name
Excel Inc. and changed its name to Excel Switching Corporation in September
1997. The Company's principal executive offices are located at 255
Independence Drive, Hyannis, Massachusetts, 02601 and its telephone number is
(508) 862-3000. As used in this Prospectus, the "Company" and "Excel" refer to
Excel Switching Corporation and its subsidiaries.
 
                                USE OF PROCEEDS
   
  The net proceeds to the Company from the sale of the 4,500,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$79,515,000, assuming an initial public offering price of $19.00 per share and
after deducting estimated underwriting discounts and commissions and offering
expenses. The Company expects to use the net proceeds for general corporate
purposes, including working capital, product development and capital
expenditures. A portion of the net proceeds may also be used for the
acquisition of other companies, assets, products and technologies that are
complementary to those of the Company, although the Company has no commitments
or agreements with respect to any such acquisitions, and no portion of the net
proceeds has been allocated for any specific acquisition. Pending such uses,
the net proceeds of this offering will be invested in investment grade,
interest-bearing securities.     
 
                                DIVIDEND POLICY
 
  The Company does not expect to pay cash dividends on its Common Stock in the
foreseeable future. The Company currently intends to retain all of its future
earnings, if any, for use in the operation of the business. In addition, the
Company's credit facility restricts the Company's payment of cash dividends.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources."
 
                                      13

 
                                CAPITALIZATION
   
  The following table sets forth the capitalization of the Company at June 28,
1997 (i) on an actual basis and (ii) as adjusted to give effect to the sale of
the 4,500,000 shares of Common Stock offered by the Company hereby, at an
assumed initial public offering price of $19.00 per share, after deducting the
estimated underwriting discounts and commissions and offering expenses payable
by the Company, and the application of the estimated net proceeds therefrom.
    
   

                                                              JUNE 28, 1997
                                                           --------------------
                                                           ACTUAL   AS ADJUSTED
                                                           -------  -----------
                                                             (UNAUDITED, IN
                                                            THOUSANDS, EXCEPT
                                                           SHARE AND PER SHARE
                                                                  DATA)
                                                              
Long-term obligations, less current maturities............ $ 3,584   $  3,584
                                                           -------   --------
Stockholders' equity:(1)
  Preferred stock, $.01 par value; 10,000,000 shares
   authorized, no shares issued and outstanding...........     --         --
  Common stock, $.01 par value; 100,000,000 shares
   authorized, 28,089,600 shares issued and outstanding
   actual; 100,000,000 shares authorized, 32,589,600
   shares issued and outstanding as adjusted(2)...........     281        326
  Additional paid-in capital..............................   1,007     79,677
  Deferred compensation...................................    (517)      (517)
  Retained earnings.......................................  26,770     26,770
                                                           -------   --------
    Total stockholders' equity............................  27,541    106,256
                                                           -------   --------
      Total capitalization................................ $31,125   $109,840
                                                           =======   ========
    
(1) Gives effect to the filing of the Restated Articles of Organization of the
    Company on September 16, 1997.
(2) Excludes (i) 10,808,640 shares of Common Stock issuable upon exercise of
    stock options outstanding as of June 28, 1997, of which options to
    purchase 6,515,940 shares were then exercisable, and (ii) 3,625,000 shares
    of Common Stock reserved for future issuance under the Company's stock
    plans. See "Management--Stock Plans" and Note 5 of Notes to Consolidated
    Financial Statements.
 
                                      14

 
                                   DILUTION
   
  The net tangible book value of the Company as of June 28, 1997 was
approximately $27,541,000 or $.98 per share of Common Stock. Net tangible book
value per share is determined by dividing the net tangible book value of the
Company (total tangible assets less total liabilities) by the total number of
shares of Common Stock outstanding. After giving effect to the sale of the
4,500,000 shares of Common Stock offered by the Company hereby (at an assumed
initial public offering price of $19.00 per share, and after deducting
estimated underwriting discounts and commissions and offering expenses), the
net tangible book value of the Company as of June 28, 1997 would have been
$106,256,000 or $3.26 per share. This represents an immediate increase in the
net tangible book value of $2.28 per share to existing stockholders and an
immediate dilution of $15.74 per share to new investors. The following table
illustrates the per share dilution:     
 
   
                                                                  
   Assumed initial public offering price per share...............       $19.00
     Net tangible book value per share before the offering....... $ .98
     Increase in net tangible book value per share attributable
      to new investors...........................................  2.28
                                                                  -----
   Net tangible book value per share after the offering..........         3.26
                                                                        ------
   Dilution per share to new investors...........................       $15.74
                                                                        ======
    
   
  The following table summarizes, as of June 28, 1997, the difference between
the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price per share paid by the
existing stockholders and by the new investors (at an assumed initial public
offering price of $19.00 per share before deduction of estimated underwriting
discounts and commissions and offering expenses):     
 
   

                                                                    AVERAGE
                                                                     PRICE
                             SHARES PURCHASED  TOTAL CONSIDERATION PER SHARE
                            ------------------ ------------------- ---------
                              NUMBER   PERCENT   AMOUNT    PERCENT
                            ---------- ------- ----------- -------
                                                    
   Existing stockholders... 28,089,600   86.2% $     5,740    0.0%  $  -- (/1/)
   New investors...........  4,500,000   13.8   85,500,000  100.0    19.00
                            ----------  -----  -----------  -----
     Total................. 32,589,600  100.0% $85,505,740  100.0%
                            ==========  =====  ===========  =====
    
- --------
(1) The average price per share paid by existing stockholders is $.0002.
 
  The foregoing table assumes no exercise of the Underwriters' over-allotment
option and no exercise of stock options outstanding at June 28, 1997. As of
June 28, 1997, there were options outstanding to purchase 10,808,640 shares of
Common Stock at a weighted average exercise price of $1.45 per share and
3,625,000 shares reserved for future issuance under the Company's stock plans.
To the extent any of these options are exercised, there will be further
dilution to new investors. See "Management--Stock Plans" and Note 5 of Notes
to Consolidated Financial Statements.
 
                                      15

 
                     SELECTED CONSOLIDATED FINANCIAL DATA
 
  The following selected consolidated financial data should be read in
conjunction with the Company's Consolidated Financial Statements and the Notes
thereto, and with Management's Discussion and Analysis of Financial Condition
and Results of Operations, included elsewhere in this Prospectus. The selected
consolidated statements of income data set forth below for the three years in
the period ended December 28, 1996 and the selected consolidated balance sheet
data at December 31, 1995 and December 28, 1996 are derived from consolidated
financial statements of the Company audited by Arthur Andersen LLP,
independent public accountants, which are included elsewhere in this
Prospectus. The selected consolidated statements of income data for the two
years in the period ended December 31, 1993 and the selected consolidated
balance sheet data at December 31, 1992, 1993 and 1994 are derived from
consolidated financial statements of the Company audited by Arthur Andersen
LLP which are not included in this Prospectus. The selected consolidated
financial data for the six months ended June 30, 1996 and June 28, 1997 are
derived from the Company's unaudited Consolidated Financial Statements
included elsewhere in this Prospectus. The unaudited Consolidated Financial
Statements have been prepared by the Company on a basis consistent with the
Company's audited financial statements and, in the opinion of management,
include all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the financial position and results of
operations for such periods. Results for the six months ended June 28, 1997
are not necessarily indicative of the results that may be expected for the
year ending December 27, 1997 or any other future fiscal year.
 


                                           YEAR ENDED                     SIX MONTHS ENDED,
                          ----------------------------------------------- ------------------
                                   DECEMBER 31,
                          ---------------------------------- DECEMBER 28, JUNE 30,  JUNE 28,
                           1992     1993     1994     1995       1996       1996      1997
                          ----------------- -------  ------- ------------ --------  --------
                                                                             (UNAUDITED)
                                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                               
CONSOLIDATED STATEMENTS 
 OF INCOME DATA:
Revenues................  $ 5,111  $10,033  $20,723  $36,161   $62,050    $27,890   $39,055
Cost of revenues........    1,435    2,945    7,074   12,100    24,312     11,150    12,033
                          -------  -------  -------  -------   -------    -------   -------
  Gross profit..........    3,676    7,088   13,649   24,061    37,738     16,740    27,022
                          -------  -------  -------  -------   -------    -------   -------
Operating expenses:
 Engineering, research
  and development.......    1,360    1,862    3,301    8,117    11,121      4,994     6,017
 Selling and marketing..       99      140      362    2,923     6,621      2,816     4,882
 General and administra-
  tive..................    1,525    2,194    2,903    4,238     6,426      2,675     3,851
                          -------  -------  -------  -------   -------    -------   -------
  Total operating ex-
   penses...............    2,984    4,196    6,566   15,278    24,168     10,485    14,750
                          -------  -------  -------  -------   -------    -------   -------
  Income from opera-
   tions................      692    2,892    7,083    8,783    13,570      6,255    12,272
Other income (expense)..      (29)    (681)      (4)      38      (384)      (101)       94
                          -------  -------  -------  -------   -------    -------   -------
  Income before
   provision for income
   taxes................      663    2,211    7,079    8,821    13,186      6,154    12,366
Provision for income
 taxes..................      194      815    2,889    3,410     5,285      2,467     4,946
                          -------  -------  -------  -------   -------    -------   -------
Net income..............  $   469  $ 1,396  $ 4,190  $ 5,411   $ 7,901    $ 3,687   $ 7,420
                          =======  =======  =======  =======   =======    =======   =======
Net income per
 share(1)...............  $   .01  $   .04  $   .13  $   .16   $   .23    $   .11   $   .22
                          =======  =======  =======  =======   =======    =======   =======
Weighted average common
 and common equivalent
 shares outstanding(1)..   31,519   31,954   32,431   32,913    33,787     33,672    34,012

 


                                 DECEMBER 31,
                         ---------------------------- DECEMBER 28,  JUNE 28,
                          1992   1993   1994   1995       1996        1997
                         ------ ------ ------ ------- ------------ -----------
                                                                   (UNAUDITED)
                                            (IN THOUSANDS)
                                                 
CONSOLIDATED BALANCE
 SHEET DATA:
Working capital......... $  656 $2,323 $5,906 $10,238   $14,960      $21,915
Total assets............  2,277  5,483  9,973  22,683    34,772       44,446
Long-term obligations,
 less current maturi-
 ties...................    --     --     --    3,537     3,837        3,584
Total stockholders' eq-
 uity...................    739  2,255  6,471  12,125    20,086       27,541

- --------
(1) Computed on the basis described in Note 1 of Notes to Consolidated
    Financial Statements.
 
                                      16

 
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
  The following discussion and analysis should be read in conjunction with the
Company's Consolidated Financial Statements and the Notes thereto included
elsewhere in this Prospectus. The following discussion contains certain trend
analysis and other statements of a forward-looking nature relating to future
events or the future financial performance of the Company. Prospective
investors are cautioned that such statements are only predictions and that
actual results or events may differ materially. In evaluating such statements,
prospective investors should specifically consider the risk factors set forth
below and identified elsewhere in this Prospectus, particularly the matters
set forth under the caption "Risk Factors," which could cause actual results
to differ materially from those indicated by such forward-looking statements.
 
OVERVIEW
 
  The Company has been profitable since it was founded in 1988 and has
financed its operations principally through cash generated from operations.
The Company has experienced significant revenue growth resulting, in part,
from the increasing acceptance of programmable switching as a means of
addressing the enhanced services and wireless and wireline infrastructure
needs of network providers. The Company designed and shipped its first
programmable switching product, the XLDX, during the fourth quarter of 1988,
to Boston Technology, Inc. ("BTI"). The Company subsequently expanded its
product offering to include a family of open, programmable switching
platforms. The LNX and PCX switching platforms were introduced in 1991 and
have been subsequently enhanced. The Company introduced the EXS switching
system in 1995 and the CSN switching platform in 1996. Through June 28, 1997,
the Company's revenues have been derived from sales to application developers,
OEMs and systems integrators.
 
  During the early years of the Company's operations, revenues from BTI
represented substantially all of the Company's annual revenues. The Company
has continued to establish customer relationships with other application
developers, OEMs and systems integrators, penetrate new markets, and improve
the capacity, functionality and features of its family of products. Currently,
the Company sells its products to over 100 customers in a variety of segments
of the global telecommunications industry. During 1996 and the first six
months of 1997, BTI represented approximately 36.7% and 34.6%, respectively,
of the Company's revenues.
 
  The Company's products are sold through its direct sales force primarily to
application developers, OEMs and systems integrators which incorporate the
Company's products into their service and product offerings. The Company sells
each of its switching platforms with a varying combination of network
interface line cards and service resource cards that are specified by customer
and application requirements. The Company's switching platforms range in list
price from approximately $21,000 to $275,000 depending upon the platform type,
number and type of network interface line and service resource cards. The
Company's EXS switching systems range in list price from approximately
$500,000 to $4,500,000. The Company also sells additional network interface
line cards and service resource cards that allow customers to expand capacity
and functionality and provide for redundancy of their installed systems.
 
  Revenues from product sales are recognized upon shipment, at which time the
Company provides an estimate of anticipated post sale support, warranty costs
and sales returns. The increase in the reserve for sales returns can be
attributed to the volume increase in sales, the timing and significance of new
product introductions and the increased complexity of the uses of the
Company's equipment. In addition, the Company estimates reserves to adjust for
the realizability of accounts receivable and inventory. While the Company
believes its estimates for post sale support, warranty costs, sales returns
and the realizability of accounts receivable and inventory are adequate,
actual results could differ from those estimates.
 
  Revenues from sales of software development tools and services such as
technical support, training and product maintenance have not been significant
to date. The Company has not capitalized any software development costs and
all research and development costs have been expensed as incurred.
 
  The Company's profitability is influenced by a number of factors, including
pricing, cost of materials, product and technological advancements from
research and development efforts and the expansion of its operations. The
Company anticipates the addition of personnel and related infrastructure as it
seeks to increase revenues, and to meet other strategic goals such as
developing new products and technologies, broadening
 
                                      17

 
strategic partnerships with, and incorporating new applications for, its
customers, entering new markets and expanding internationally. The Company
anticipates that engineering, research and development expenses will increase
in absolute dollars, and may increase as a percentage of revenues, as the
Company pursues engineering efforts to provide enhanced functionality to its
products, increase port capacity and develop additional software features.
 
RESULTS OF OPERATIONS
 
  The following table sets forth, for the periods indicated, the percentage of
revenues represented by certain items reflected in the Company's Consolidated
Statements of Income:
 


                                         YEAR ENDED           SIX MONTHS ENDED
                                 ---------------------------- -----------------
                                 DECEMBER 31,
                                 --------------  DECEMBER 28, JUNE 30, JUNE 28,
                                  1994    1995       1996       1996     1997
                                 ------  ------  ------------ -------- --------
                                                        
Revenues........................  100.0%  100.0%    100.0%     100.0%   100.0%
Cost of revenues................   34.1    33.5      39.2       40.0     30.8
                                 ------  ------     -----      -----    -----
  Gross profit..................   65.9    66.5      60.8       60.0     69.2
Operating expenses:
 Engineering, research and de-
  velopment.....................   15.9    22.4      17.9       17.9     15.4
 Selling and marketing..........    1.8     8.1      10.7       10.1     12.5
 General and administrative.....   14.0    11.7      10.3        9.6      9.9
                                 ------  ------     -----      -----    -----
  Total operating expenses......   31.7    42.2      38.9       37.6     37.8
                                 ------  ------     -----      -----    -----
  Income from operations........   34.2    24.3      21.9       22.4     31.4
Other income (expense)..........    --       .1       (.6)       (.3)      .2
                                 ------  ------     -----      -----    -----
  Income before provision for
   income taxes.................   34.2    24.4      21.3       22.1     31.6
Provision for income taxes......   14.0     9.4       8.5        8.9     12.6
                                 ------  ------     -----      -----    -----
Net income......................   20.2%   15.0%     12.8%      13.2%    19.0%
                                 ======  ======     =====      =====    =====

 
SIX MONTHS ENDED JUNE 30, 1996 AND JUNE 28, 1997
 
  Revenues. The Company's revenues consist of sales, primarily in the United
States, of its open, programmable switching platforms and related network
interface line cards and service resource cards. Revenues increased 40.0% from
$27.9 million in the first six months of 1996 to $39.1 million for the
comparable period in 1997. This increase resulted from the introduction of new
or expanded offerings by existing customers incorporating the Company's
products, the expansion of customers' existing markets and the introduction of
new applications by new and existing customers. In addition, revenues
increased due to increased market penetration resulting from the efforts of
the Company's expanded selling and marketing organizations.
 
  Revenues from the Company's five largest customers represented approximately
53.8% and 59.9% of the Company's revenues for the first six months of 1996 and
1997, respectively. BTI represented approximately 37.6% and 34.6% of the
Company's revenues for these same periods, respectively. Although the
Company's largest customers have varied from period to period, the Company
believes that revenues derived from current and potential large customers will
continue to represent a significant proportion of revenues, and that its
results of operations in any given period will continue to depend to a
significant extent upon sales to a limited number of customers. There can be
no assurance that the Company's principal customers will continue to purchase
product at current levels, if at all.
 
  Gross Profit. Cost of revenues consists primarily of the cost of purchased
components and subassemblies, contract manufacturing costs, labor and overhead
relating to material procurement, final assembly, testing and quality control,
and warranty and post sale support costs. Cost of revenues increased 7.9% from
$11.2 million in the first six months of 1996 to $12.0 million for the
comparable period in 1997. Gross margin increased from 60.0% in the first six
months of 1996 to 69.2% in the first six months of 1997. The increase in gross
margin was primarily attributable to lower component prices, changes in
product mix and increased manufacturing efficiencies as the Company increased
its production volume, all of which the Company estimates represents
 
                                      18

 
approximately half of the gross margin increase from 1996 to 1997. In
addition, gross margins for the first six months of 1996 were impacted by the
introduction of the EXS switching system and related technology which resulted
in valuation adjustments of certain existing inventory components, which the
Company estimates represents the other half of the gross margin increase from
1996 to 1997.
 
  Warranty and post sales support costs were approximately $516,000 and $1.1
million for the six months ended June 30, 1996 and June 28, 1997,
respectively. The increase in these costs is primarily attributable to the
Company's growing customer base and increasing sales volume.
 
  Engineering, Research and Development. Engineering, research and development
costs consist primarily of compensation and related costs of engineering and
development personnel, materials and supplies consumed in prototype
development, related facility costs and depreciation of engineering and test
equipment. All research and development costs, including software development
costs, have been expensed as incurred. Engineering, research and development
costs increased 20.5% from $5.0 million in the first six months of 1996 to
$6.0 million for the comparable period in 1997. As a percentage of revenues,
these costs were 17.9% and 15.4%, respectively, in such periods. The increase
in engineering, research and development costs in absolute dollars was
primarily attributable to an increase in engineering and research personnel
partially offset by significant decreases in the consumption of prototype
supplies and materials. Engineering and research personnel increased from 47
employees at the end of the second quarter of 1996 to 95 employees at the end
of the same period in 1997.
 
  Selling and Marketing. Selling and marketing costs consist primarily of
compensation and related costs for sales, marketing and customer support
personnel, travel and advertising, trade show and other promotional
activities. Selling and marketing costs increased 73.4% from $2.8 million in
the first six months of 1996 to $4.9 million for the comparable period in
1997. As a percentage of revenues, these costs were 10.1% and 12.5%,
respectively, in such periods. The increase in selling and marketing costs in
absolute dollars was primarily attributable to an increase in sales, marketing
and customer support personnel from 43 employees at the end of the second
quarter of 1996 to 54 employees at the end of the same period in 1997. In
addition, trade show and promotional activities in the first six months of
1997 contributed to this increase.
 
  General and Administrative. General and administrative costs include
compensation and related costs of management and administrative personnel,
professional services, costs to implement and maintain manufacturing and
management information systems and other general corporate expenses. General
and administrative costs increased 44.0% from $2.7 million in the first six
months of 1996 to $3.9 million for the comparable period in 1997. As a
percentage of revenues, these costs were 9.6% and 9.9%, respectively, in such
periods. The increase in general and administrative costs was primarily
attributable to an increase in general and administrative personnel from 30
employees at the end of the second quarter of 1996 to 38 employees at the end
of the same period in 1997. In addition, expenditures for professional
services contributed to the increase in general and administrative costs.
 
  Other Income (Expense). Other income (expense), which primarily includes
interest income and interest expense, was ($101,000) and $94,000 for the first
six months of 1996 and 1997, respectively.
 
  Provision for Income Taxes. The Company's effective rate for Federal and
state income taxes was 40.1% and 40.0% for the first six months of 1996 and
1997, respectively.
 
YEARS 1994, 1995 AND 1996
 
  Revenues. Revenues increased 74.5% from $20.7 million in 1994 to $36.2
million in 1995 and increased 71.6% to $62.1 million in 1996. The increases
resulted, in part, from the Company's continuing efforts to enhance the
scalability, performance, capacity and functionality of its products through
the modification and introduction of features and products, including the
introduction of the EXS switching system in 1995 and the CSN switching
platform in 1996. The increase in revenues in each of the years also resulted
from the introduction of new or expanded offerings by existing customers
incorporating the Company's products, the introduction of new applications by
new and existing customers and the expansion of the Company's selling and
marketing efforts.

  Revenues from the Company's five largest customers represented approximately
65.4%, 70.1% and 57.1% of the Company's revenues for 1994, 1995 and 1996,
respectively. During 1994, 1995 and 1996, BTI represented
 
                                      19

 
approximately 33.1%, 40.6% and 36.7%, respectively, of the Company's revenues.
Additionally, 11.4% of the Company's revenues in 1995 were derived from sales
to Ericsson Messaging Systems Inc. and 10.0% of the Company's revenues in 1994
were derived from sales to AccessLine Technologies, Inc.
 
  Gross Profit. Cost of revenues increased from $7.1 million in 1994 to $12.1
million in 1995 and to $24.3 million in 1996. The gross margin increased from
65.9% in 1994 to 66.5% in 1995 and decreased to 60.8% in 1996. The increase in
gross margin in 1995 was attributable primarily to greater manufacturing
efficiencies achieved in producing larger volumes in the same manufacturing
facility. The decrease in gross margin in 1996 resulted primarily from the
introduction of the EXS switching system and related technology, which
resulted in valuation adjustments of certain existing inventory components.
Increased warranty and related support costs also contributed to the decline
in gross margin. In addition, gross margin was negatively impacted by the
Company's relocation of its manufacturing operations in November 1995, the
subsequent expansion of this facility in 1996 and increased compensation and
related costs associated with the Company's efforts to strengthen its
manufacturing infrastructure.
 
  Warranty and post sales support costs were approximately $90,000, $155,000
and $1.3 million for the years ended December 31, 1994, December 31, 1995 and
December 28, 1996, respectively. The increase in these costs in 1996 is
primarily related to the increase in support costs associated with the
Company's growing customer base and increasing sales volume and an increase in
warranty costs related to introductions of new products and technologies.
 
  Engineering, Research and Development. Engineering, research and development
costs increased from $3.3 million in 1994 to $8.1 million in 1995 and to $11.1
million in 1996. As a percentage of revenues, engineering, research and
development expenses were 15.9%, 22.4% and 17.9% for 1994, 1995 and 1996,
respectively. The increases in engineering, research and development costs in
absolute dollars were primarily attributable to continuing efforts to expand
the Company's research and development infrastructure. Engineering, research
and development personnel increased from 28 employees at the end of 1994 to 38
employees at the end of 1995 and to 68 employees at the end of 1996. Increases
also resulted from the timing and amount of the consumption of materials used
for prototypes in the development process. The Company's relocation in 1995 to
a larger facility and capital investments made in 1995 and 1996 in engineering
and test equipment resulted in increased occupancy costs and depreciation
expenses for both years.
 
  Selling and Marketing. Selling and marketing costs increased from $362,000
in 1994 to $2.9 million in 1995 and to $6.6 million in 1996. As a percentage
of revenues, these costs were 1.8%, 8.1% and 10.7% for 1994, 1995 and 1996,
respectively. The increase in selling and marketing costs reflects the
expansion of the Company's sales, marketing and customer support personnel
from seven employees at the end of 1994 to 28 employees at the end of 1995 and
to 51 employees at the end of 1996. During 1995 and 1996, the Company's
expanded efforts to market and promote its products through trade shows,
advertising, public relations and other promotional activities also resulted
in increased selling and marketing costs. The Company's relocation in 1995 and
the opening of four sales offices in 1996 resulted in increased occupancy
costs in 1995 and 1996.
 
  General and Administrative. General and administrative costs increased from
$2.9 million in 1994 to $4.2 million in 1995 and to $6.4 million in 1996. As a
percentage of revenues, these costs were 14.0%, 11.7% and 10.3% for 1994, 1995
and 1996, respectively. The increase in general and administrative costs in
absolute dollars resulted primarily from an increase in general and
administrative personnel from six employees at the end of 1994 to 21 employees
at the end of 1995 and to 35 employees at the end of 1996. The Company's
efforts to expand and strengthen the administrative infrastructure included
the additions of a Chief Financial Officer, Chief Operating Officer and other
personnel in the areas of finance, human resources and purchasing. Beginning
in 1995 and continuing in 1996, the Company made significant investments in
its manufacturing and management information systems, including the
implementation of its enterprise resource planning system. The Company's
relocation to larger facilities in 1995 resulted in increased occupancy and
depreciation costs in 1995 and 1996.
 
  Other Income (Expense). Other income (expense) was ($4,000), $38,000 and
($384,000) for 1994, 1995 and 1996, respectively.
 
  Provision for Income Taxes. The Company's effective rate for Federal and
state income taxes was 40.8%, 38.7% and 40.1% for 1994, 1995 and 1996,
respectively.
 
                                      20

 
QUARTERLY RESULTS OF OPERATIONS
 
  The following tables set forth certain unaudited quarterly financial
information for the six quarters in the period ended June 28, 1997 in dollars
and as a percentage of revenues. This information is derived from unaudited
consolidated financial statements and has been prepared on the same basis as
the Company's Consolidated Financial Statements which appear elsewhere in this
Prospectus. In the opinion of the Company's management, this information
reflects all adjustments, (consisting only of normal recurring adjustments),
necessary for a fair presentation of the information when read in conjunction
with the Company's Consolidated Financial Statements and the Notes thereto.
The results for any quarter are not necessarily indicative of future quarterly
results of operations, and the Company believes that period-to-period
comparisons should not be relied upon as an indication of future performance.
 


                                               QUARTER ENDED
                          ----------------------------------------------------------
                          MARCH 31, JUNE 30,  SEPT. 30, DEC. 28,  MARCH 29, JUNE 28,
                            1996      1996      1996      1996      1997      1997
                          --------- --------  --------- --------  --------- --------
                                               (IN THOUSANDS)
                                                          
Revenues................   $12,222  $15,668    $16,439  $17,721    $18,518  $20,537
Cost of revenues........     4,751    6,399      6,406    6,756      5,860    6,173
                           -------  -------    -------  -------    -------  -------
 Gross profit...........     7,471    9,269     10,033   10,965     12,658   14,364
                           -------  -------    -------  -------    -------  -------
Operating expenses:
 Engineering, research
  and development.......     2,702    2,292      2,772    3,355      2,942    3,075
 Selling and marketing..     1,064    1,752      1,677    2,128      2,297    2,585
 General and
  administrative........     1,164    1,511      1,898    1,853      1,959    1,892
                           -------  -------    -------  -------    -------  -------
 Total operating
  expenses..............     4,930    5,555      6,347    7,336      7,198    7,552
                           -------  -------    -------  -------    -------  -------
 Income from
  operations............     2,541    3,714      3,686    3,629      5,460    6,812
Other income (expense)..       (15)     (86)      (136)    (147)        44       50
                           -------  -------    -------  -------    -------  -------
 Income before provision
  for income taxes......     2,526    3,628      3,550    3,482      5,504    6,862
Provision for income
 taxes..................     1,013    1,454      1,424    1,394      2,201    2,745
                           -------  -------    -------  -------    -------  -------
Net income..............   $ 1,513  $ 2,174    $ 2,126  $ 2,088    $ 3,303  $ 4,117
                           =======  =======    =======  =======    =======  =======

                                        AS A PERCENTAGE OF REVENUES
                          ----------------------------------------------------------
                          MARCH 31, JUNE 30,  SEPT. 30, DEC. 28,  MARCH 29, JUNE 28,
                            1996      1996      1996      1996      1997      1997
                          --------- --------  --------- --------  --------- --------
                                                          
Revenues................     100.0%   100.0%     100.0%   100.0%     100.0%   100.0%
Cost of revenues........      38.9     40.8       39.0     38.1       31.7     30.1
                           -------  -------    -------  -------    -------  -------
 Gross profit...........      61.1     59.2       61.0     61.9       68.3     69.9
                           -------  -------    -------  -------    -------  -------
Operating expenses:
 Engineering, research
  and development.......      22.1     14.6       16.9     18.9       15.9     15.0
 Selling and marketing..       8.7     11.2       10.2     12.0       12.4     12.5
 General and
  administrative........       9.5      9.6       11.5     10.5       10.5      9.2
                           -------  -------    -------  -------    -------  -------
 Total operating
  expenses..............      40.3     35.4       38.6     41.4       38.8     36.7
                           -------  -------    -------  -------    -------  -------
 Income from
  operations............      20.8     23.8       22.4     20.5       29.5     33.2
Other income (expense)..       (.1)     (.6)       (.8)     (.8)        .2       .2
                           -------  -------    -------  -------    -------  -------
 Income before provision
  for income taxes......      20.7     23.2       21.6     19.7       29.7     33.4
Provision for income
 taxes..................       8.3      9.3        8.7      7.9       11.9     13.4
                           -------  -------    -------  -------    -------  -------
Net income..............      12.4%    13.9%      12.9%    11.8%      17.8%    20.0%
                           =======  =======    =======  =======    =======  =======

 
  The Company has experienced significant fluctuations in revenues, expenses
and results of operations from quarter to quarter, and such fluctuations are
likely to continue. The Company typically receives more product orders and
generates greater revenues in the fourth quarter. During the last several
years, revenues in the first quarter have typically been lower than those
recorded in the preceding fourth quarter. The Company believes that this
concentration of order placements in specific quarterly periods is due to
customers' buying patterns and budgeting cycles. A significant portion of the
Company's revenues have been generated from a limited number of customers and
it is difficult to predict the timing of future orders and shipments to these
and other customers.
 
                                      21

 
The Company anticipates that its results of operations in any given period
will continue to depend to a significant extent upon sales to a small number
of customers.
 
  The Company has also experienced significant variations in its quarterly
gross margins, particularly during 1996. This fluctuation was caused by
several factors. During 1996, the introduction of the EXS switching system and
related technology resulted in valuation adjustments of certain inventory
components. The relocation and subsequent expansion of the Company's
manufacturing facility and the development of manufacturing infrastructure
also resulted in quarterly increases in occupancy and overhead costs.
 
  The Company's expenditures for engineering, research and development have
varied from quarter to quarter primarily as a result of the timing and number
of additions of personnel and related compensation costs, and the amount,
timing and significance of prototype supplies and materials consumed in
product prototype development and testing. The Company's selling and marketing
and general and administrative expenses have generally increased on a
quarterly basis primarily as a result of the timing and number of additions in
personnel and compensation and related costs and the timing, number and
significance of specific marketing and sales activities such as trade shows
and other promotional activities. The relocation of the Company's facilities
resulted in increased occupancy costs in 1996 and 1997.
 
  Overall, operating expenses vary with the number, timing and significance of
additional product and product enhancement introductions by the Company and
its competitors, increased competition, the gain of significant customers or
the reduction in orders from customers, the hiring of personnel and general
economic conditions. All of the above factors are difficult for the Company to
forecast and these or other factors may have a material adverse effect on the
Company's business, financial condition and results of operations for one
quarter or a series of quarters. Customers can cancel or reschedule shipments,
and development or production difficulties could delay shipments. Only a small
portion of the Company's operating expenses vary with revenues in the short
term and there would likely be a material adverse effect on the Company's
business, financial condition and results of operations if revenues are lower
than expected.
 
  Based on all of the foregoing, the Company believes that quarterly revenues
and results of operations are likely to vary significantly in the future and
that period-to-period comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as indications of future
performance. See "Risk Factors--Fluctuations in Results of Operations."
 
RECENT RESULTS OF OPERATIONS
 
  The following table shows certain unaudited consolidated financial data for
the quarters and nine months ended September 30, 1996 and September 27, 1997.
The Company believes that this information reflects all adjustments
(consisting of only normal recurring adjustments) necessary for a fair
presentation of the information for the periods presented. The operating
results for any period are not necessarily indicative of results for any
future period.
 


                                                                  NINE MONTHS
                                                 QUARTER ENDED       ENDED
                                                --------------- ---------------
                                                 SEPT.   SEPT.   SEPT.   SEPT.
                                                  30,     27,     30,     27,
                                                 1996    1997    1996    1997
                                                ------- ------- ------- -------
                                                (IN THOUSANDS, EXCEPT PER SHARE
                                                             DATA)
                                                            
Revenues....................................... $16,439 $23,570 $44,329 $62,625
Income from operations.........................   3,686   8,298   9,941  20,570
Net income.....................................   2,126   5,151   5,813  12,571
Net income per share........................... $   .06 $   .15 $   .17 $   .37
Weighted average common and common equivalent
 shares outstanding............................  33,827  34,028  33,779  34,025

 
                                      22

 
  The consolidated financial data for the quarter ended September 27, 1997 set
forth above is generally consistent with the trends discussed in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
 
LIQUIDITY AND CAPITAL RESOURCES
 
  Since inception, the Company has funded its operations primarily through
cash provided by operations.
 
  During 1994, 1995 and 1996, cash provided by operating activities totaled
$2.2 million, $1.2 million and $7.3 million, respectively. The decrease in
1995 was primarily the result of increases in accounts receivable and
inventory levels partially offset by increases in net income, accounts payable
and accrued expenses. The increase in 1996 was primarily attributable to
increases in net income, accrued expenses and accrued income taxes, partially
offset by an increase in deferred income taxes and a decrease in accounts
payable. Cash provided by operating activities for the first six months of
1996 and 1997 was $212,000 and $9.7 million, respectively. The increase in the
1997 period was primarily attributable to an increase in net income and a
decrease in inventories.
 
  The Company's investing activities consumed $940,000, $4.1 million and $4.1
million in 1994, 1995 and 1996, respectively. During the first six months of
1996 and 1997, investing activities consumed $2.5 million and $2.3 million,
respectively. The majority of these expenditures reflect the acquisition,
renovation and expansion of the Company's facilities and the purchase of
capital equipment.
 
  During 1995, the Company purchased and renovated two buildings and related
land for approximately $3.2 million. These acquisitions and renovations were
financed, in part, by the proceeds from a $2.6 million secured loan from a
bank. This loan requires monthly principal and interest payments of
approximately $26,000 through April 2010. Interest accrues at the bank's prime
rate plus .75%. This loan is secured by the two buildings and related land
having a carrying value of approximately $3.1 million at June 28, 1997.
 
  In 1995, the Company entered into a building lease which requires monthly
payments ranging from approximately $12,000 to $14,000 through July 2000. The
lease can be extended through July 2005 and includes a purchase option
exercisable, beginning in August 1998, for $875,000. The Company intends to
exercise this option as early as possible, and accordingly, has reflected this
lease as a capital transaction.
 
  On June 30, 1997, the Company purchased property to be used for the
construction of an additional building. The purchase price of $575,000 and the
estimated construction costs of $3.6 million will be financed, in part, by a
$2.1 million Real Estate Promissory Note with a bank, of which $460,000 has
been advanced to the Company to date. Borrowings under this note shall bear
interest at prime (8.5% at June 28, 1997) plus .25% and are secured by the
property and certain other assets. Monthly payments of interest are required
beginning in July 1997. Beginning in July 1998, monthly payments of principal
and interest will be made over a period of fifteen years.
 
  The Company's unsecured line of credit arrangement with a bank provides up
to $10.0 million in credit availability. Borrowings under this agreement are
limited to 75% of eligible accounts receivable plus 50% of certain
inventories. Borrowings under this agreement bear interest, at the Company's
discretion, at either the bank's base rate (8.5% at June 28, 1997) or the
Eurodollar rate (5.7% at June 28, 1997) plus 2.5%. The agreement requires the
Company to comply with certain financial covenants, including a debt-to-
tangible net worth ratio and a minimum profitability covenant. The agreement
also restricts the Company's ability to pay cash dividends. The Company was in
compliance with these covenants as of June 28, 1997. During the first six
months of 1996, the Company borrowed $2.3 million against this line of credit.
There were no amounts outstanding under this line of credit at December 28,
1996 or June 28, 1997.
 
  At June 28, 1997, the Company's principal sources of liquidity consisted of
cash, cash equivalents and short-term investments of approximately $12.2
million, working capital of approximately $21.9 million and $10.0 million of
funds available under the bank line of credit. The Company believes that the
net proceeds of this offering, together with available funds and cash
generated from operations, will be sufficient to meet the Company's working
capital requirements for at least the foreseeable future. The Company plans to
finance its long-term capital needs with the net proceeds of this offering,
together with available borrowings and cash flow from operations. To the
extent that such funds are insufficient to finance the Company's activities,
the Company may have to raise working capital through the issuance of
additional equity or debt securities. There can be no assurance that
additional financing will be available on acceptable terms.
 
                                      23

 
                                   BUSINESS
 
  Excel is a leading provider of open switching platforms for
telecommunications networks worldwide. The Company develops, manufactures,
markets and supports a family of open, programmable, carrier-class switches
that addresses the complex enhanced services and wireless and wireline
infrastructure needs of network providers. Excel's products offer network
providers the flexibility to address multiple market applications and the
scalability to deploy a variety of system capacities. The Company's
programmable switching platforms enable network providers to deliver improved
networking functionality at a lower cost than purchasing, upgrading or
reprogramming traditional, closed, central office switches. The Company's
products are currently deployed in telecommunications networks in
approximately 50 countries throughout the world.
 
  Excel offers a family of programmable switching platforms that are designed
with distributed architecture and open software to maximize performance and
provide multiple levels of programmability and redundancy. Excel's open
switching platforms integrate with a wide variety of host computer systems,
operating systems and application development environments. The Company's
product family scales from 512 to 30,720 ports. Using Excel's patented
Programmable Protocol Language ("PPL"), application developers can customize
the switching software to their unique requirements, allowing them to
introduce new services and applications rapidly. As customer requirements
evolve, the Excel platform can be upgraded without requiring extensive and
complex programming changes to the underlying software.
 
  The Company sells to a variety of customers in the worldwide
telecommunications market, including application developers, original
equipment manufacturers ("OEMs") and systems integrators. These customers
include Boston Technology, Inc., Brite Voice Systems, Inc., Ericsson Messaging
Systems Inc., Glenayre Technologies Inc., IEX Corporation, MCI Communications
Corporation, Lucent Technologies Inc. (Octel Messaging Division), Phoenix
Wireless Group, Inc., Priority Call Management, Inc., QUALCOMM Incorporated
and WorldCom, Inc. Excel's customers integrate the Company's open,
programmable switching platforms with their product offerings to address a
variety of market applications for network providers, ranging from enhanced
services such as voice messaging, one number services and prepaid debit cards,
to wireless and wireline infrastructure services such as tandem switching,
mobile switching centers and intelligent base station controllers. Network
providers which have installed Excel's products include AT&T Corp., Ameritech
Corporation, Bell Atlantic Corporation, BellSouth Corporation, British
Telecommunications plc, GTE Corporation, MCI Communications Corporation,
Nippon Telegraph and Telephone Corporation, Pacific Bell, Sprint Corporation,
Telstra Corporation Ltd., Time Warner Inc. and WorldCom, Inc.
 
INDUSTRY BACKGROUND
 
  Global deregulation and technological advances have led to significant
change in the worldwide telecommunications market. Increased
telecommunications service demand coupled with the advent of new carriers are
creating an intensely competitive environment for network providers. In the
United States, competition exists among the Regional Bell Operating Companies
("RBOCs"), Interexchange Carriers ("IXCs"), Local Exchange Carriers ("LECs"),
Competitive Local Exchange Carriers ("CLECs"), wireless carriers and cable
television broadcasters. Internationally, established network providers
("PTTs") are facing competition from emerging alternative wireless and
wireline carriers. Increasing competitive pressures in the United States and
internationally are forcing network providers to lower infrastructure costs,
increase network flexibility and offer new and enhanced services. These
challenges require network providers to deploy new services rapidly and cost-
effectively, while protecting their existing infrastructure investment.
 
  Functionality of the core telecommunications switching infrastructure has
not developed as quickly as network providers demand. Traditional
telecommunications switches are designed for specific uses, and as a result,
are time-consuming and expensive to modify for new applications. These
traditional, closed switches do not provide the scalability, flexibility or
cost-effectiveness to address the requirements of enhanced services or
wireless and wireline infrastructure. In addition, traditional switches are
not compatible among vendors nor are they easily adaptable to different
international network signaling requirements.
 
                                      24

 
 Enhanced Services
 
  The evolving telecommunications environment is increasingly forcing network
providers to differentiate their offerings. As network providers strive to
capture or maintain market share and stimulate usage, they must offer as
standard features many enhanced services that were once offered as premium
applications. Enhanced services include such diverse telephony applications as
voice messaging, one number services, paging, e-mail, fax messaging, unified
messaging, voice recognition dialing, prepaid debit cards and conference
bridging. Once deployed, enhanced services enable network providers to
increase revenues through subscription fees and greater network utilization.
 
  Open, programmable switches address an emerging market for enhanced services
as application developers, OEMs and systems integrators increasingly are able
to develop applications that were once controlled by closed switch vendors.
Systems designed by traditional switch vendors are not easily modified for
enhanced services. Using open, programmable switching platforms, network
providers are able to implement applications cost-effectively today that can
scale as customer demand increases over time, while protecting their existing
investment in legacy switches.
 
 Wireless Infrastructure
 
  Deregulation, increased consumer demand, increased competition for
subscribers and price/performance improvements in service have led to rapid
growth in the wireless infrastructure market. The wireless infrastructure
market includes traditional cellular systems, emerging personal communication
services ("PCS"), wireless local loop and mobile satellite systems. Wireless
infrastructure equipment for these markets needs to address both high and low
mobility wireless networks and accommodate analog and emerging digital
standards such as CDMA, GSM and PCS-1900. Network providers are seeking
solutions that will allow them to meet today's market demands cost-effectively
while scaling to meet future requirements. According to an industry source,
the worldwide cellular and PCS subscriber base is expected to grow
approximately 20% per year to reach 300 million users by the year 2000.
Network providers also are seeking an alternative to the expensive and
traditional infrastructure of the telephone network to address the local loop.
As widespread replacement or installation of copper wireline remains
prohibitively expensive, the market for wireless systems to provide basic
telephone service has emerged.
 
  Open, programmable switches provide the speed, scalability and cost-
effectiveness that wireless network providers are seeking. Programmable
switches enable wireless network providers to prototype, test and deploy new
wireless services in a rapid timeframe. Open, programmable switches can scale
incrementally as the wireless subscriber base expands or demands more
services, allowing wireless network providers to make cost-effective initial
infrastructure investments. In addition, open, programmable switches enable
wireless network providers to add enhanced services to their networks using
the same infrastructure platform.
 
 Wireline Infrastructure
 
  Traditional switching technology has not kept pace with the new applications
and service requirements generated by the rapid growth and competitive changes
within the global telecommunications markets. New entrants, such as CLECs,
long distance resellers and emerging international network providers, do not
wish to invest in or incur the high operating costs of traditional,
inflexible, single-purpose switching equipment. Many of these new network
providers must initially compete with incumbent RBOCs, LECs, IXCs and PTTs for
subscribers based upon lower prices and improved services. In addition, many
existing network providers are expanding into new markets, such as the RBOCs
entering the long distance market and the IXCs entering the local exchange
market. To compete in these new markets, incumbent providers must add cost-
effective switches to their current networking infrastructure.
 
  Using open, programmable switching platforms, network providers can build
flexible, cost-effective wireline infrastructures which can be adapted to
their specific service requirements. With open, programmable switching
platforms, network providers can scale their networks as they add subscribers
and implement new and enhanced services using the same infrastructure. Open,
programmable switches have recently been implemented in tandem switching, one-
plus dialing, international call-back services and international gateway.
 
                                      25

 
 Initial Programmable Switching Products
 
  Several companies market switching products aimed at addressing the
limitations of traditional, closed switches. However, the initial switching
products designed to address this opportunity have not satisfied the
requirements of network providers. Initial products positioned as open,
programmable switches have been configurable, but have lacked the
programmability, openness, flexibility and scalability needed to address a
wide range of enhanced services and wireless and wireline infrastructure
requirements. The Company believes that network providers are demanding
telecommunications switches that are truly open and programmable, thereby
enabling them rapidly and cost-effectively to meet their enhanced services and
infrastructure requirements.
 
THE EXCEL SOLUTION
 
  Excel has developed open, programmable switching platforms that allow
network providers to offer cost-effective, scalable and flexible enhanced
services and wireless and wireline communications with a time-to-market
advantage over conventional switching platforms. The Company's integrated
hardware and software solutions are designed to offer the following benefits:
 
  Open Programmability. The Company's product architecture is designed to be
  open at multiple software programming levels, including the protocol, call
  control, digital signal processing, resource provisioning and application
  levels. Using these programmability features, network providers can rapidly
  integrate applications with non-standard and international protocol
  variations and offer customized services to their end-users. Excel's
  switching platforms offer complete programmability, rather than
  configurability, from the host computer. They are designed to be truly
  open, allowing customers to control their own applications, and to have the
  capability to modify any function of the software within the platform at
  any level, time or geographic location.
 
  Rapid Time-to-Market. The Company's products are designed to allow
  application developers to offer network providers new services more quickly
  than with conventional switching platforms. Excel's open programmability
  facilitates rapid deployment of these services in domestic and
  international markets by integrating rapidly with various signaling
  protocols and global network standards.
 
  Flexibility. The Company's switching platforms can be programmed by a
  customer to be used for a wide-range of enhanced services and wireless and
  wireline infrastructure applications.
 
  Scalability. The distributed and modular nature of Excel's switching
  platforms allows network providers to expand their networks easily as the
  subscriber base increases. Excel's switching platforms can scale from 512
  to 2,048 ports within the individual chassis and total system capacity can
  be expanded to 30,720 ports through the use of Excel's patented fiber optic
  expansion network, EXNET. In addition, network providers can migrate across
  the Company's product family without undertaking expensive and time
  consuming modifications to the host platform.
 
  Distributed Architecture. The Company's products are designed with
  distributed architecture utilizing its patented Selective Space Switching
  technology and a fiber optic expansion network. These designs increase
  reliability and allow linear growth in performance as resources are added.
 
  Cost-Effective. Excel's products offer increased capacity, performance and
  functionality for a lower initial investment and reduced operational costs
  than traditional, closed switches.
 
  Redundancy and Reliability. The Company's carrier-class products are
  designed to meet the high redundancy and reliability requirements demanded
  by network providers. The redundant features of the Company's products
  ensure that critical applications remain operational.
 
                                      26

 
STRATEGY
 
  Excel's objective is to be a leader in open, programmable switching
platforms for telecommunications networks worldwide. The key elements of the
Company's strategy are to:
 
  Focus on Open Telecommunications Technology. Since its inception, the
  Company has focused on developing, manufacturing and selling truly open,
  software-based programmable switching platforms. Openness is the ability to
  modify easily and rapidly any function of the software within the switching
  platform at any level, time or geographic location. All of the Company's
  products have been originally designed, rather than reengineered, to be
  open. To date, the Company has focused on enhancing its open architecture
  within the switching platforms. The Company is now focusing its research
  and development efforts to extend to applications the same level of
  openness established in its switching platforms. Excel believes this effort
  will allow application developers to accelerate the introduction of their
  products and services.
 
  Maintain and Strengthen Relationships with Application Developers, OEMs and
  Systems Integrators. Excel has built a market leadership position through
  its relationships with application developers, OEMs and systems
  integrators. The Company has worked with over 100 application developers,
  OEMs and systems integrators which market a wide variety of products and
  services based on the Company's technology. The Company believes that these
  relationships improve its understanding of the requirements of network
  providers and generate demand for a variety of market applications. The
  Company intends to strengthen its current relationships and develop new
  relationships with application developers, OEMs and systems integrators to
  increase the number and scope of applications which incorporate the
  Company's products.
 
  Provide Superior Customer Service and Support. The Company believes that
  providing a high level of service and support is a competitive advantage in
  developing key customer relationships. Excel focuses its customer support
  services on helping customers to integrate Excel's products into their
  applications rapidly. The Company's open, programmable software allows it
  to help its customers make detailed, on site platform modifications,
  without significant involvement of research and development resources.
 
  Expand Existing Markets and Enter Emerging Markets. Excel seeks to increase
  its market share through further collaboration with existing customers and
  increased penetration of existing applications markets. In addition, the
  Company is focusing on emerging geographic and product markets by
  developing new application developer, OEM and systems integrator
  relationships and expanding its sales and marketing efforts to
  international markets.
 
  Establish Open, Programmable Switching as an Industry Standard. The Company
  intends to leverage its market leadership position to establish open,
  programmable switching platforms as a standard in the telecommunications
  industry. The Company is working directly with network providers to
  accelerate the adoption of open, programmable switching into the core
  telecommunications infrastructure.
 
PRODUCTS AND TECHNOLOGY
 
 PRODUCTS
 
  The Company offers a family of open, programmable switching products for
application developers, OEMs and systems integrators. The Company's product
family consists of four switching products: the LNX, a 2,048 port switching
platform; the CSN, a 1,024 port switching platform; the PCX, a 512 port
switching platform; and the EXS, a 30,720 port switching system. All of the
Company's products can be used in a wide range of enhanced services and
wireless and wireline infrastructure applications.
 
  All of Excel's products share a common software architecture, allowing any
specific application to run on any platform, and are designed with multiple
levels of redundancy. The LNX and CSN switching platforms share a set of
common card components which include network interface line cards such as T1,
E1 and J1 interfaces, and service resource cards such as multi-function
Digital Signal Processors, Primary Rate ISDN, SS7 and DASS2. Excel's network
interface line cards provide direct connectivity to, and ease of integration
with, a variety of international signaling protocols. The service resource
cards provide customers with a range of common
 
                                      27

 
channel signaling and switching applications, offering network providers the
ability to control their applications and the flexibility to expand to other
services or signaling protocols as needed. Multiple cards can be installed on
a single chassis to manage various signaling and call control capabilities or
to provide fault tolerant configurations. In addition, the Company offers
network interface line cards and service resource cards separately to allow
customers to upgrade previously deployed switching platforms.
 
                             EXCEL PRODUCT FAMILY
 
 


             CURRENT                                          CURRENT    YEAR
             MAXIMUM                                         LIST PRICE  FIRST
  PRODUCT PORT CAPACITY             DESCRIPTION                RANGE    SHIPPED
- -------------------------------------------------------------------------------
                                                            
  LNX         2,048     --High capacity, 20-card switch in               1991
                          small chassis                        $68,000
                        --Redundant options for all
                          modules                                 to
                        --Full compliance for central
                          office environment                   $275,000
 
- -------------------------------------------------------------------------------
  CSN         1,024     --Midrange capacity, 8-card switch               1996
                          in compact chassis                   $47,000
                        --Same redundant options and cards
                          as LNX                                  to
                        --Full compliance for central
                          office environment                   $95,000
 
- -------------------------------------------------------------------------------
  PCX          512      --Stand-alone solution for                       1991
                          customer premises equipment          $21,000
                          environment                             to
                        --Integrates with standard voice
                          processing resources                 $49,000
 
- -------------------------------------------------------------------------------
  EXS        30,720     --Designed to use LNX and CSN         $500,000   1995
                          nodes as building blocks                to
                        --EXNET 1.2 Gbps fiber optic
                          expansion network                   $4,500,000

 
- -------------------------------------------------------------------------------
 
 LNX
 
  The LNX is a 2,048 port, non-blocking, open, programmable switching platform
which provides high performance and fault tolerance in a small chassis. With
all modules supporting redundant configurations, the LNX is designed for
central office environments requiring a high level of reliability and ease of
maintainability. The LNX can operate as a stand-alone switch or as a node in
Excel's patented EXS switching system, currently supporting scalability up to
30,720 non-blocking ports. The LNX consists of the 2,048 port matrix card
residing in a 20-slot chassis, a host interface and a fully configurable
combination of network interface line and service resource cards. All LNX
cards can be replaced while the system is operating ("hot-swappable"),
providing ease of maintenance and upgrading without interruption of service.
 
  The predecessor to the LNX, the XLDX, is a 1,536 port programmable platform
first installed in a central office environment in 1988. XLDX systems are
still supported by the Company for customers with an XLDX installed base.
 
 CSN
 
  The CSN is a 1,024 port, non-blocking, open, programmable switching platform
that provides the same features and scalability as the LNX but in a more
compact chassis. The CSN utilizes the same common elements of network line
interfaces, service resources, common channel signaling packet engines and
host interfaces as the LNX, with the same reliability features such as hot-
swappability and full redundancy. The CSN is well suited for wireless
applications where space constraints dictate the need for carrier-class
switching within a compact chassis.
 
                                      28

 
 PCX
 
  The PCX is a PC-based, 512 port, non-blocking, open, programmable switching
platform that supports the same programmable features and shares the same
hardware and software architecture as the LNX and CSN platforms. The PCX is
designed for the customer premises equipment marketplace to provide a total
solution in a small chassis, addressing the needs of midrange switching
applications. With its PC-based platform, the PCX can support an internal host
processor as well as internal voice processing resources. The PCX enables
application developers to combine Excel's programmable switching features with
industry-standard voice processing technology for a single, stand-alone
solution.
 
 EXS
 
  The EXS is an open, non-blocking system comprised of LNX and CSN
programmable switching platforms distributed across EXNET, the Company's fiber
optic expansion network. The current EXNET network can support up to 30,720
ports, encompassing any combination of LNXs and CSNs. The patented EXS
architecture is designed to allow further expansion beyond the current 30,720
ports. Parallel EXNET fiber networks can also be used to create fully
redundant systems to ensure maximum availability and fault tolerance.
 
  Because each EXS node is a self-contained LNX or CSN switching platform,
processing power can scale linearly as the system is expanded. Individual LNX
or CSN nodes can be isolated and serviced without the entire system being
brought out-of-service, providing ease of maintenance. Since each node can
operate and process calls independently, total system reliability and
availability is increased.
 
 TECHNOLOGY
 
 Selective Space Switching Technology
 
  A unique aspect of Excel's distributed architecture is its patented
Selective Space Switching technology which allows the platform's internal bus
to switch traffic between any input or output port, DSP, packet engine
resource or EXNET Controller without losing critical port capacity. Unlike
traditional switches, with Selective Space Switching technology, available
port capacity is not compromised as additional modules are added. When
resource modules are added, the platform's switching capacity increases, and
its full non-blocking switch port capacity is retained.
 
 Open Software Technology
 
  Unlike traditional, proprietary switches, Excel's programmable platforms
share a common, open, software architecture designed to be programmable by
third parties. The open programmability of Excel's switching platforms is
based on its Application Programming Interface ("API") and its patented
Programmable Protocol Language ("PPL").
 
  The API is a message-based protocol designed for communication between the
programmable switching platform and the application software located on a host
computer. Excel's open API allows the application software to access call
processing control, configuration, maintenance and alarm reporting functions
within the switch at a level that is not currently available in competitive
products. Excel's API is compatible across the Company's product family.
 
  Excel's PPL is a patented technology that provides an easy and convenient
mechanism for developers and operators to implement modifications at multiple
programming levels without having to write complex software code. Protocols
are developed and modified using a graphical user interface development
environment, requiring the user to have only limited software programming
experience. With PPL, support personnel can easily effect detailed changes to
the switching software on site without using expensive equipment or requiring
additional technical personnel. These benefits provide increased software
maintainability while reducing development costs and eliminating customized
work for Excel and its customers. Using its PPL technology, Excel is
continually working with its customers to provide additional domestic and
international network interfaces.
 
                                      29

 
CUSTOMERS
 
  The Company has sold its products to over 100 customers in a variety of
segments of the telecommunications industry. The Company's customers include
application developers, OEMs and systems integrators. Approximately 33.1%,
40.6% and 36.7% of the Company's revenues in 1994, 1995 and 1996,
respectively, were derived from sales to Boston Technology, Inc.,
approximately 11.4% of the Company's revenues in 1995 were derived from sales
to Ericsson Messaging Systems Inc. and approximately 10.0% of the Company's
revenues in 1994 were derived from sales to AccessLine Technologies, Inc. The
twenty largest revenue-producing customers in 1996 or in the first six months
of 1997 were:
 
    AccessLine Technologies, Inc.             Magellan Network Systems, Inc.
    AETHOS Communications Systems, Inc.       MCI Communications Corporation
    Boston Communications Group, Inc.         Open Development Corporation
    Boston Technology, Inc.                   Phoenix Wireless Group, Inc.
    Brite Voice Systems, Inc.                 Priority Call Management, Inc.
    Ericsson Messaging Systems Inc.           QUALCOMM Incorporated
    EX-EL Enterprises, Ltd.                   Technology Control Systems Inc.
    Glenayre Technologies, Inc.               Telegroup Inc.
    IEX Corporation                           Telos Engineering Limited
    Innovative Telecom Corporation            Transaction Network Services,
    InterExchange Inc.                        Inc.
    Lucent Technologies Inc.(Octel            XNT Systems, Inc.
     Messaging Division)                      USA Global Link
                                              WorldCom, Inc.
 
  The primary end-users of the Company's products are public network
providers, including RBOCs, IXCs, LECs, CLECs, wireless carriers and PTTs. The
Company's products also are used by a number of large corporations to satisfy
specific telecommunications requirements. Representative network providers
which have installed the Company's products include:
 
                           UNITED STATES AND CANADA
                           ------------------------
ALLTEL Corporation         Contel Corporation         Sprint Corporation
AT&T Corp.                 Cox Communications, Inc.   Telegroup Inc.
Ameritech Corporation      Frontier of Rochester      Teleport Communications
Bell Atlantic              Link USA International,    Group  Inc.
Corporation                Inc.                       Time Warner Inc.
Bell Canada                MCI Communications         USFI, Inc.
BellSouth Corporation      Corporation                WorldCom, Inc.
Citizens Utilities Co.     Pacific Bell
                           SBC Communications Inc.
 
AUSTRALIA AND ASIA         SOUTH AND CENTRAL AMERICA   EUROPE AND MIDDLE EAST
- ------------------         -------------------------   ----------------------
                                                      
DDI Corp. (Japan)          BellSouth Cellular S.A.    BelgaCom
Hong Kong Telecom CSL      (Chile)                    British
Limited                    Companhia Telefonica       Telecommunications plc
Hutchinson                 Brasil  Central            E-Plus Mobilfunk GmbH
Telecommunications  Ltd.   TelCel, S.A. (Venezuela)   PTT Telecom Netherlands
(China)                    Telecommunications of      Mercury One-2-One
Malaysian Resources        Jamaica  Limited            (United Kingdom)
Corporation  Bhd           Telefonos de Mexico,       Telia AB
New World Telephone Ltd.   S.A. de C.V.               General Directorate of
 (China)                   PTT  (Turkey)
Nippon Telegraph and
Telephone  Corporation
PakTel Ltd
TelecomAsia (Thailand)
Telekom Malaysia
Telstra Corporation Ltd.
 
                                      30

 
  The following case studies describe the manner in which the Company's three
largest revenue-producing customers in 1996 use the Company's products in
their applications and services:
 
  Boston Technology, Inc. ("BTI"), a customer since 1988, uses Excel's
products to deliver a variety of enhanced services software and systems to the
telecommunications industry. Excel's products provide the base switching
platform for BTI's enhanced services applications such as call answering,
voice and unified messaging and pre-paid calling card. The Company's switching
products, when integrated with BTI's applications, act as an intelligent front
end that efficiently distributes advanced messaging traffic. The open
programmability and distributed architecture of Excel's products allow BTI to
customize and enhance its applications rapidly while providing it with the
ability to scale capacity from entry level systems to large cluster
configurations required by major network providers. The ease of use of PPL has
allowed BTI to design cost-effectively and implement enhanced services
applications for both wireless and wireline network providers in more than 13
countries worldwide. The Company's open platform architecture assists BTI in
working with other Excel customers to increase BTI's application offerings for
network providers. In August 1997, BTI announced its intended merger with
Comverse Technologies, Inc.
 
  QUALCOMM Incorporated ("QUALCOMM") provides advanced communications systems
and products based upon its proprietary CDMA (code division multiple access)
digital wireless technology. QUALCOMM uses the Company's switching platforms
in its Intelligent Base Station Controller ("IBSC") products, which manage
numerous base station transceiver subsystems and connect wireless subscribers
to the public wireline network. The IBSCs have become the intelligent nodes of
a distributed wireless network. Excel's open products, with their distributed
architecture and programmable software, provide QUALCOMM with a cost-effective
and flexible switching solution. QUALCOMM uses the Company's products to
provide a CDMA infrastructure solution for digital cellular, PCS and wireless
local loop networks.
 
  Priority Call Management, Inc. ("PCM") is a developer of network-based
platforms that enable wireless and wireline network service providers as well
as Fortune 1000 companies to create and offer one number prepaid calling and
enhanced messaging solutions. PCM utilizes the Company's full range of
products to deliver pre-paid calling card, pre-paid cellular, international
call-back and voice messaging services, among other enhanced services. The
Company's engineers have worked closely with PCM in the pre- and post-sales
engineering phases to provide the proper training and technical support
required to integrate the Company's switching platforms with PCM's
applications.
 
CUSTOMER SERVICE, SUPPORT AND TRAINING
 
  The Company believes that the responsiveness and expertise of its customer
service personnel is essential to developing and maintaining long-term
relationships with its customers which require uninterrupted operation of the
Company's products.
 
  The Company provides pre- and post-sales engineering services and has a
technical assistance center which provides support and service by telephone.
The Company offers a variety of engineering services such as customer
application design review, protocol development, product training, performance
testing and field support. The Company has a fully-equipped training facility
and provides a wide range of training courses to its customers, both on and
off site. The Company also has a fully-equipped applications lab with call
traffic load capabilities where customers can test and verify new applications
or enhancements to existing applications. The Company's technical assistance
center provides telephone support and service on a 24-hour, seven-day-a-week
basis. To ensure that the Company is providing quality support services, the
Company has instituted a formal customer satisfaction program which involves
senior management review and regularly scheduled customer support surveys. In
addition, Company personnel meet regularly with customers to discuss product
quality and customer satisfaction.
 
  The Company provides a product warranty on its hardware products which
generally covers a period of 14 months from shipment. This warranty coverage
includes technical assistance, as well as product repair or product
replacement, depending upon the circumstances of the warranty claim. Although
the Company charges fees for certain support and services, to date, revenues
from such fees have been immaterial.
 
 
                                      31

 
SALES AND MARKETING
 
  The Company sells its products primarily to application developers, OEMs and
systems integrators which incorporate the Company's products into their
service and product offerings. The Company's principal marketing activities
are to identify customers which could benefit from the Company's products,
identify new markets for the Company's products and increase sales to existing
customers.
 
  The sale of the Company's products is a multi-step and interdisciplinary
process which can typically range from 12 to 24 months or more from initial
customer contact to large-scale commercialization of a customer's application
or service based on the Company's products. The initial evaluation stage,
typically three to six months, is primarily the role of the Company's sales
and marketing personnel, and members of the Company's senior management, and
involves educating potential customers on the functionality and benefits
derived from using the Company's products. The next stage, which can involve
members of both the Company's customer support and research and development
organizations, involves providing the customer with the required training and
technical support to integrate the Company's products into a new application
or service. This stage of the sales process is generally the longest and is
dependent upon an application or service provider's own internal application
or service development program.
   
  The Company sells to its customers through its own sales force, from its
headquarters, as well as from sales offices in California, Georgia, New York,
Ohio and Texas. The Company currently has no offices outside the United
States, but is exploring the establishment of foreign sales offices within the
next 12 months in Europe and the Far East, including in Hong Kong. To date,
the Company has no firm commitments to establish such international sales
offices and there can be no assurance that the Company will actually open any
foreign offices. In addition, the Company maintains an inside sales group,
located at its headquarters, which is responsible for platform configuration
and price quotations, order administration and telephone sales activities. In
order to create awareness, market demand and sales opportunities, the Company
engages in a number of marketing activities which include exhibiting products
and customer applications at industry trade shows, advertising in selected
publications aimed at targeted markets, public relations activities with trade
and business press, publication of technical articles and the distribution of
sales literature, technical specifications and documentation.     
 
RESEARCH AND PRODUCT DEVELOPMENT
 
  Management believes that the Company's success will depend on its ability to
develop and introduce in a timely fashion new products and enhancements to its
existing products. The Company has in the past made, and intends to continue
to make, significant investments in product and technological development.
Extensive product development input is obtained through customers and the
Company's monitoring of end-user needs and changes in the marketplace.
 
  The Company is focusing its development efforts on providing enhanced
functionality to its products including increased port capacity and
performance, the development of additional related software applications and
tools and the improvement of third-party application integration. The software
applications under development are being designed to enable customers to
shorten their application development cycle thereby improving time-to-market
and reducing initial investment in research and development.
 
  There can be no assurance that the Company will not experience difficulties
that could delay or prevent the successful development, introduction or
marketing of such new products and enhancements, or that its new products and
enhancements will adequately meet the requirements of the marketplace and
achieve market acceptance. Announcements of currently planned or other new
product offerings by the Company or its competitors may cause customers to
defer or cancel the purchase of existing Company products. The Company's
inability to develop on a timely basis new products or enhancements to
existing products, or the failure of such new products or enhancements to
achieve market acceptance, could have a material adverse effect on the
Company's business, financial condition and results of operations.
 
                                      32

 
  The development of new, technologically advanced products is a complex and
uncertain process requiring the accurate anticipation of technological and
market trends. The introduction of new or enhanced products also requires the
Company to manage the transition from older products in order to minimize
disruption in customer ordering patterns, avoid excessive levels of older
product inventories and ensure that adequate supplies of new products can be
delivered to meet anticipated customer demand. There can be no assurance that
the Company will successfully develop, introduce or manage the transition to
new products. Furthermore, products such as those offered by the Company may
contain undetected or unresolved errors when they are first introduced or as
new versions are released. There can be no assurance that despite extensive
testing by the Company, errors will not be found in new products or upgrades
after commencement of commercial shipments, resulting in delays in or loss of
market acceptance and sales, diversion of development resources, injury to the
Company's reputation or increased service and warranty costs, any of which
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Risk Factors--Risk of New Product
Introductions" and "Risk Factors--Rapid Technological Change."
 
  The Company's engineering, research and development expenditures totaled
approximately $3.3 million, $8.1 million, $11.1 million and $6.0 million in
1994, 1995, 1996 and the first six months of 1997, respectively. The Company
performs its research and product development activities at its principal
offices in Hyannis, Massachusetts.
 
MANUFACTURING
 
  The Company's manufacturing operations consist primarily of materials
planning and procurement, final assembly, testing and quality control. The
Company uses several independent manufacturers to provide certain printed
circuit boards, chassis and subassemblies. The Company's manufacturing process
enables it to configure its products to meet a wide variety of individual
customer requirements. The Company has been recommended for International
Standard Organization (ISO) 9001 registration and has achieved the 9002
registration for quality assurance in production, installation and service.
The Company plans to strengthen manufacturing capability both in its existing
facilities and through expansion of activities with independent manufacturers.
Future growth of the Company will require extension of existing internal and
external manufacturing resources, hiring of additional technical personnel,
improved coordination of supplier relationships with the Company's inventory
ordering and management practices, and expansion of information systems to
accommodate planned growth across these areas. See "Risk Factors--Management
of Growth and Hiring of Additional Personnel."
 
  Although the Company generally uses standard parts and components for its
products, many key components are purchased from sole or single source vendors
for which alternative sources are not currently available. In particular, the
Company uses a fiber transmitter, a receiver and a fiber driver manufactured
by Hewlett-Packard Company in its EXS product, four power connectors
manufactured by Positronic Industries, Inc. in its EXS, LNX and CSN products,
and a power module manufactured by Lucent Technologies Inc. in its EXS, LNX
and CSN products. If supply of these components should cease, the Company
would be required to redesign its products. Each of these components is
available from only one supplier, for which there is no substitute at this
time. While working closely with some well-established vendors, the Company
has no supply commitments from its vendors and generally purchases components
on a purchase order basis as opposed to entering into long term procurement
agreements with vendors. To date, the Company has generally been able to
obtain adequate supplies in a timely matter from vendors or, when necessary,
to meet production needs from alternative vendors. The Company believes that,
in most cases, alternate vendors can be identified if current vendors are
unable to fulfill needs. However, delays or failure to identify an alternate
vendor, if required, or a reduction or interruption in supply, or a
significant increase in the price of components would materially and adversely
affect the Company's business, financial condition and results of operations
and could impact customer relationships. See "Risk Factors--Dependence on
Single and Sole Source Suppliers."
 
COMPETITION
 
  The markets in which the Company competes are characterized by intense
competition, with a large number of suppliers providing different types of
products to different segments of the markets. The Company currently
 
                                      33

 
competes principally on the basis of: (i) the breadth of its products'
features and benefits; (ii) the flexibility, scalability, quality, ease of
use, reliability and cost effectiveness of its products; and (iii) the
Company's reputation and the depth of its expertise, customer service and
support. While the Company believes that it currently competes favorably
overall with respect to these factors, there can be no assurance that the
Company will be able to continue to do so.
 
  The Company competes or may compete directly or indirectly with the
following categories of companies: (i) other manufacturers of programmable
switches such as Summa Four, Inc., Redcom Laboratories, Inc. and Harris
Corporation; (ii) large, well-established switch and telecommunications
equipment manufacturers such as Alcatel Alsthom Compagnie Generale
d'Electricite SA, DSC Communications Corporation, Lucent Technologies Inc.,
Northern Telecom Limited, Siemens AG and Telefonaktiebolaget LM Ericsson; and
(iii) to a lesser degree, systems integrators and application developers whose
switches are based on PC card-level products manufactured by companies such as
Aculab Inc., Dialogic Corporation and Natural MicroSystems Corporation. In
addition, several smaller companies have begun recently to manufacture
programmable switching platforms. Due to the rapidly evolving markets in which
the Company competes, additional competitors with significant market presence
and financial resources, including large telecommunications equipment
manufacturers and computer hardware and software companies, may enter those
markets, thereby further intensifying competition. Additionally, there can be
no assurance that one or more of the Company's application developers will not
begin to develop or market products in competition with the Company.
 
  Many of the Company's current and potential competitors have significantly
greater financial, selling and marketing, technical, manufacturing and other
resources than the Company. As a result, these competitors may be able to
devote greater resources to the development, promotion, sale and support of
their products than the Company. The Company, however, does not believe any of
its competitors are currently dominant in its industry segment. Some of the
Company's competitors currently offer financing alternatives to their
customers, a service that the Company does not provide at this time. The
Company has no current intention to offer such financing alternatives to its
customers in the foreseeable future. Moreover, these companies may introduce
additional products that are competitive with those of the Company or enter
into strategic relationships to offer complete solutions which the Company
does not currently offer. There can be no assurance that the Company's
products would compete effectively with such products.
 
  The Company believes that its open, programmable switching platform, with
the Company's patented Selective Space Switching technology and Programmable
Protocol Language, offers its customers a competitive advantage for flexible,
scaleable and cost-effective switching capabilities. Although the Company
believes these technological features represent advantages over its
competitors, maintaining these advantages will require continued investment by
the Company in research and development, selling and marketing and customer
service and support. In addition, as the Company enters new markets,
distribution channels, technical requirements and levels and bases of
competition may be different than those in the Company's current markets.
There can be no assurance that the Company will be able to compete
successfully against either current or potential competitors in the future.
See "Risk Factors--Highly Competitive Market."
 
INTELLECTUAL PROPERTY
 
  The Company relies upon a combination of patent, copyright and trademark and
trade secret laws as well as confidentiality procedures and contractual
restrictions to establish and protect its proprietary rights. The Company has
also entered into confidentiality and invention assignment agreements with its
employees and consultants and enters into non-disclosure agreements with its
suppliers, distributors and customers so as to limit access to and disclosure
of its proprietary information. There can be no assurance such measures will
be adequate to deter and prevent 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.
 
 
                                      34

 
  As of August 30, 1997, a total of nine U.S. patents have been issued to the
Company. The Company has a total of 11 U.S. patent applications and 58
international and foreign national patent applications pending. The issued
patents cover various aspects of: (i) the architecture and division of call
processing responsibility in the Company's PCX product; (ii) the design and
internal construction of a rack-mountable chassis used with the Company's PCX
product; (iii) the architecture of certain communications resource and I/O
cards which may be used in conjunction with any of the Company's family of
programmable switching platforms relating to the Company's Selective Space
Switching technology; (iv) the PPL software which may be used, in conjunction
with any of the Company's family of programmable switching platforms, to
create or modify applications or communications protocols; (v) a line card
redundancy arrangement for use in conjunction with the Company's LNX and CSN
products; and (vi) the architecture of the Company's fiber optic expansion
network, EXNET. The U.S. patents will expire at various times between the
years 2008 and 2014. The Company also has seven U.S. trademark applications
pending.
 
  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 patent, copyright,
trademark and other intellectual property rights to technologies that are
important to the Company. Although the Company has from time to time received
communications from third parties asserting that the Company's products
infringe or may infringe proprietary rights of third parties, the Company
believes that none of such claims, if determined adversely to the Company,
would have a material adverse effect on the Company's business, financial
condition or results of operations. 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 certain limited instances, the amount of such indemnities
may be greater than the revenues the Company may have received from the
customer. 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. 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, financial
condition and results of operations would be materially adversely affected.
The Company changed its name from Excel Inc. to Excel Switching Corporation in
September 1997. Searches performed on the term Excel have revealed several
registrations and numerous uses of that term, and terms substantially similar
to it, alone and in combination with other terms and designs. Accordingly,
there can be no assurance that third parties will not assert trademark
infringement claims relating to the name Excel Switching Corporation in the
future. See "Risk Factors--Dependence on Proprietary Rights."
 
EMPLOYEES
 
  As of August 30, 1997, the Company employed 252 persons, including 97 in
engineering, research and development, 24 in customer service and support, 35
in selling and marketing, 52 in manufacturing and 44 in finance and
administration. None of the Company's employees is represented by a collective
bargaining arrangement, and the Company believes that its relations with its
employees are good. The Company expects to hire additional engineering, sales
and marketing personnel over the next 12 to 18 months to accommodate planned
domestic and international expansion. The hiring of additional personnel will
place additional demands on management's ability to assimilate, direct and
supervise a growing work force. There can be no assurance that the Company
will be successful in assimilating this growth in personnel. See "Risk
Factors--Management of Growth and Hiring of Additional Personnel."
 
  The Company's success depends to a significant degree upon the continuing
contributions of its key management, sales, engineering, customer support and
product development personnel. The loss of any of the key management or
technical personnel could have a material adverse effect on the Company. The
Company believes that its future success will depend in large part upon its
ability to attract and retain highly-skilled
 
                                      35

 
managerial, sales, customer support and product development personnel. The
Company has at times experienced and continues to experience difficulty in
recruiting qualified personnel. Competition for qualified personnel in the
Company's industry is intense, and there can be no assurance that the Company
will be successful in attracting and retaining such personnel. Failure to
attract and retain key personnel could have a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk
Factors--Dependence on Key Personnel" and "Risk Factors--Management of Growth
and Hiring of Additional Personnel."
 
FACILITIES
 
  The Company's headquarters total approximately 98,250 square feet and are
located in four buildings in Hyannis, Massachusetts. Two of the buildings,
totaling approximately 55,500 square feet, are owned by the Company and house
the engineering, sales, marketing and administrative functions of the Company.
These buildings are subject to a mortgage of approximately $2.4 million as of
June 28, 1997. The third building, approximately 25,750 square feet, is leased
by the Company and houses the manufacturing and manufacturing support
functions of the Company. The lease expires in July 2000, but contains an
option for an additional five-year term. An option to purchase this building
may be exercised at any time after August 1998. The Company intends to
exercise this option and, accordingly, has recorded this lease as a capital
transaction. The fourth building, approximately 17,000 square feet, is leased
by the Company until March 31, 1998 as temporary office space for research and
development activities. The Company also leases sales offices in San Jose and
San Diego, California; Atlanta, Georgia; White Plains, New York; Cleveland,
Ohio; and Grapevine, Texas. The Company intends to expand the capabilities and
size of these offices and open additional offices, both domestically and
internationally, as needs arise.
 
  The Company significantly increased manufacturing capacity in the fourth
quarter of 1995 through the relocation of the facility to its current location
and the expansion of its manufacturing facility in 1996. Although the Company
anticipates that it will not require additional manufacturing space for at
least the next 12 months, the Company's business, financial condition and
results of operations could be materially adversely affected if it does not
expand manufacturing capacity as required.
 
  The Company has also recently completed the purchase of additional property
to be used in the construction of a building, expected to be completed in
1998, adding approximately 46,000 square feet of space for engineering
activities. The Company believes that its current facilities and planned
expansions are adequate to meet its needs through the next 12 months. However,
due to the limited supply of suitable additional or alternative office and
manufacturing space in the Hyannis, Massachusetts area, there can be no
assurance that the Company will not be required, in the future, to invest
heavily in the renovation of space in the Hyannis vicinity or in relocating
the Company's headquarters. See "Risk Factors--Management of Growth and Hiring
of Additional Personnel" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
 
LEGAL PROCEEDINGS
 
  The Company is not a party to any material legal proceedings.
 
                                      36

 
                                  MANAGEMENT
 
EXECUTIVE OFFICERS AND DIRECTORS
 
  The executive officers and directors of the Company are as follows:
 


          NAME           AGE                                POSITION
          ----           ---                                --------
                       
Robert P. Madonna.......  37 President, Chief Executive Officer and Chairman of the Board
David C. Brajczewski....  38 Vice President, Research and Development
Robert J. Buttel........  49 Vice President, Advanced Technology
James W. Carroll........  37 Vice President, Engineering
Stephen S. Galliker.....  50 Vice President, Finance and Administration, and Chief Financial Officer
Russell M. Levesque.....  37 Director of Product Management
Robert C. Panoff........  50 Vice President, Marketing
Robert W. Ross..........  48 Vice President, Sales
Christopher Stavros.....  44 Vice President, General Counsel, Director and Clerk
Gadi Tamari.............  52 Chief Operating Officer

 
  Robert P. Madonna founded the Company in January 1988 and has served as its
Chief Executive Officer, President and a Director since that time. Mr. Madonna
was elected Chairman of the Board of Directors in September 1997. Mr. Madonna
also served as the Company's Treasurer until June 1996 and Clerk until May
1997. From August 1984 to October 1987, Mr. Madonna was Director of Hardware
Engineering for Lan-Tel, Inc., a developer and manufacturer of PBX voice and
data switches. From January 1983 to July 1984, Mr. Madonna was a principal
engineer at American Science and Engineering, Inc., a manufacturer of CAT scan
imaging technology.
 
  David C. Brajczewski joined the Company in April 1997 as Vice President,
Research and Development. From September 1988 to April 1997, Mr. Brajczewski
was employed by the Otis Elevator Company, a supplier of elevator systems and
a division of United Technologies Corporation, as part of its engineering
management team. From September 1987 to September 1988, Mr. Brajczewski was a
Project Engineer at Microtechnologies, Inc., a designer of microprocessor and
PC-based test and control systems. From May 1986 to September 1987, Mr.
Brajczewski was an Electrical Engineer at Lan-Tel, Inc.
 
  Robert J. Buttel joined the Company in May 1989 as a design engineer. Prior
to his current position as Vice President, Advanced Technology, a position Mr.
Buttel has held since April 1997, Mr. Buttel held several positions at Excel
including Vice President, Research and Development, Vice President of
Engineering, Director of Hardware Development, Director of Software
Development and Manager of Manufacturing. From December 1985 to March 1989,
Mr. Buttel was employed by GTECH Holdings Corporation, a supplier of
computerized, on-line lottery products and services. While at GTECH, Mr.
Buttel held several positions including Design Engineer, Manager of Firmware
and Research and Development Engineer. From July 1984 to December 1985, Mr.
Buttel was a design engineer at Lan-Tel, Inc.
 
  James W. Carroll joined the Company in August 1995 as Director of Corporate
Quality. Since November 1996, Mr. Carroll has served as Vice President,
Engineering. From December 1993 to August 1995 and from November 1990 to May
1992, Mr. Carroll was employed by Boston Technology, Inc., a designer and
manufacturer of central office enhanced services. From December 1993 to August
1995, Mr. Carroll was Manager of Operations and Customer Service Quality
Assurance and from November 1990 to May 1992, he was Senior Supplier, Quality
Assurance. From May 1992 to December 1993, Mr. Carroll was employed by Brite
Voice Systems, Inc., a manufacturer of voice processing systems. At Brite
Voice, Mr. Carroll was Director of Quality until March 1993 and Director of
Research and Development until December 1993.
 
  Stephen S. Galliker joined the Company in July 1996 as Chief Financial
Officer and was elected Vice President, Finance and Administration in
September 1997. From September 1992 to June 1996, Mr. Galliker was employed by
Ultracision, Inc., a developer and manufacturer of ultrasonically powered
surgical instruments. At
 
                                      37

 
Ultracision, Inc., Mr. Galliker was Chief Financial Officer and Vice President
of Finance until November 1995 and Chief Operating Officer from December 1995
to June 1996. From June 1989 to September 1992, Mr. Galliker was Senior Vice
President, Operations/Finance and Chief Financial Officer at Tylink
Corporation, a manufacturer of high speed telecommunications equipment. Mr.
Galliker is a Certified Public Accountant.
 
  Russell M. Levesque joined the Company in May 1992 as Director of Software.
Since June 1995, Mr. Levesque has served as the Company's Director of Product
Management. From July 1986 to April 1992, Mr. Levesque served as Software
Engineering Manager at Imaging Technologies, Inc., a manufacturer of image
processing hardware and software products for the image inspection and image
analysis markets.
 
  Robert C. Panoff joined the Company in January 1997 as Vice President,
Marketing. From February 1986 to December 1996, Mr. Panoff was employed by
Natural MicroSystems Corporation, a designer and manufacturer of PC-based call
processing hardware and software components where he held several positions
including Vice President and General Manager of the European group from 1994
through 1996, Vice President of New Business Development from 1990 to 1994,
Vice President, Sales and Marketing from 1987 to 1990 and Vice President,
Marketing from 1986 to 1987.
 
  Robert W. Ross joined the Company in February 1995 as Director of Sales and
became Vice President, Sales in August 1996. From June 1994 to January 1995,
Mr. Ross was a Director of Telecommunications Sales for Switchcraft, a
division of Raytheon Company and a supplier of components for the audio/video,
telecommunications, computer, medical, military, appliance, transportation and
instrumentation industries. From January 1994 to June 1994, Mr. Ross was
Regional Vice President of Sales for a division of Augat, Inc., a manufacturer
of telecommunications equipment. From September 1982 to October 1993, Mr. Ross
was employed by ADC Telecommunications, Inc., a manufacturer and designer of
transmission, networking and connectivity products. During his tenure at ADC,
Mr. Ross held several different positions, including National Sales Manager
and Regional Sales Manager for the NYNEX region.
 
  Christopher Stavros joined the Company in August 1995 as General Counsel and
was elected a director in December 1995 and Vice President in September 1997.
From January 1992 to August 1995, Mr. Stavros was a member of the law firm of
DeVito, Pransky and Stavros, P.A. Prior to 1992, Mr. Stavros maintained his
own private practice concentrating in small business and general corporate law
in Boston, Massachusetts.
 
  Gadi Tamari joined the Company in November 1996 as Chief Operating Officer.
From February 1990 until joining Excel, Mr. Tamari was a consultant to various
telecommunications companies based in both Israel and the United States. In
addition to his work as a consultant, from February 1996 to October 1996, Mr.
Tamari was President of ALNO Networks USA, an importer and distributor of
household goods. From February 1988 to January 1990, Mr. Tamari served as
Director of East Coast Operations at Credence Systems Corporation, a designer
and manufacturer of automatic test equipment for digital and mixed signal
semiconductors. From September 1986 to January 1988, Mr. Tamari was Vice
President, Operations at Lan-Tel, Inc.
 
  The Company has received commitments from three individuals, Edward L.
Breslow, William J. Cadogan and John Loughlin, to serve as members of the
Board of Directors of the Company, with terms to commence upon the date of
this Prospectus. Each of these individuals would be considered an "independent
director" having no employment or other business relationship with the
Company. It is anticipated that two or more of these individuals will serve,
at least initially, on each of the Audit and Compensation Committees of the
Board of Directors of the Company. The following is summarized biographical
information about these individuals:
 
  Edward L. Breslow, age 50, has been Vice President, Corporate Business
Development of EMC Corporation since December 1988. EMC Corporation is a
supplier of enterprise-wide intelligent information storage and retrieval
solutions. Prior to joining EMC Corporation, Mr. Breslow held various
financial management positions at Bose Corporation, a consumer electronics
company, and Texas Instruments, Inc., a diversified technology company.
 
                                      38

 
  William J. Cadogan, age 49, is currently Chairman of the Board, President
and Chief Executive Officer of ADC Telecommunications, Inc., a
telecommunications company. Mr. Cadogan was elected Chairman in February 1994
and President and Chief Executive Officer in July 1991. From 1987 until 1991,
Mr. Cadogan was Vice President -- Private Network Marketing, Vice President --
 Product Development and Senior Vice President of the Telecom Group at ADC.
Prior to joining ADC, Mr. Cadogan was General Manager of Business Development
at the International Telecommunications Satellite Organization. Mr. Cadogan is
also a director of Pentair Corporation and Banta Corporation.
 
  John Loughlin, age 46, has been a human resources consultant providing
staffing and human resource services to technology and financial services
clients, including the Company, since 1986. From 1981 to 1986, Mr. Loughlin
served as Director of Human Resources at American Science & Engineering, Inc.
 
  The Company's By-laws provide for the Company's Board of Directors to be
comprised of as many directors as are designated from time to time by the
Board of Directors or by the stockholders of the Company but, in any event,
not less than three at any time the Company has more than two stockholders.
The Board is currently comprised of two members. Each director holds office
until his successor is duly elected and qualified, or until his earlier death,
resignation or removal.
 
  Executive officers of the Company are appointed by, and serve at the
discretion of, the Board of Directors, and serve until their successors have
been duly elected and qualified. There are no family relationships among any
of the executive officers or directors of the Company.
 
COMMITTEES OF THE BOARD OF DIRECTORS
 
  In September 1997 the Board of Directors established a Compensation
Committee and an Audit Committee. The Compensation Committee will make
recommendations concerning the salaries and incentive compensation of
management and key employees of the Company and administers the Company's
stock plans. The Audit Committee will be responsible for reviewing the results
and scope of audits and other services provided by the Company's independent
public accountants and reviewing the Company's internal controls. Upon
completion of this offering, the members of the Audit Committee will be
Messrs. Breslow, Cadogan and Loughlin, each an independent and disinterested
director of the Company.
 
DIRECTOR COMPENSATION
 
  Following the consummation of this offering, non-employee directors will be
reimbursed for their reasonable out-of-pocket expenses incurred in attending
meetings of the Board of Directors. No director who is an employee of the
Company will receive separate compensation for services rendered as a
director. Mr. Loughlin received nominal consideration for service as a
consultant to the Company in 1997. Non-employee directors are also eligible
for participation in the Company's 1997 Non-Employee Director Stock Option
Plan. See "Management--Stock Plans."
 
                                      39

 
EXECUTIVE COMPENSATION
 
  The following Summary Compensation Table sets forth certain information with
respect to the compensation paid to or accrued by the Company for services
rendered during the fiscal year ended December 28, 1996 by the Company's Chief
Executive Officer and each of the four other most highly compensated executive
officers whose annual salary and bonus for the fiscal year ended December 28,
1996 exceeded $100,000 (collectively, the "Named Executive Officers"):
 
                          SUMMARY COMPENSATION TABLE
 


                                                                        LONG-TERM
                                  ANNUAL COMPENSATION(1)             COMPENSATION(2)
                             --------------------------------------- ---------------
                                                                       SECURITIES
                                                      OTHER ANNUAL     UNDERLYING
NAME AND PRINCIPAL POSITION   SALARY      BONUS      COMPENSATION(3)   OPTIONS (#)
- ---------------------------  --------    --------    --------------- ---------------
                                                         
Robert P. Madonna
 President, Chief Execu-
 tive Officer and
 Chairman of the Board of
 Directors...............    $240,773    $ 69,000        $9,300              --
Robert J. Buttel
 Vice President, Advanced
  Technology.............      95,446      20,000         8,140              --
Stephen S. Galliker(4)
 Vice President, Finance
 and Administration, and
 Chief Financial Offi-
 cer.....................      67,993(5)   10,000         4,836          300,000
Russell M. Levesque
 Director of Product Man-
  agement................      97,928      25,000         8,779              --
Robert W. Ross
 Vice President, Sales...      83,296     123,924(6)      9,300           60,000
Christopher Stavros
 Vice President, General
 Counsel and Clerk.......     128,077      16,800         9,298              --
Gadi Tamari(7)
 Chief Operating Offi-
  cer....................      39,135(8)    2,200           --           600,000

- --------
(1) The compensation described in this table does not include medical, group
    life insurance or other benefits received by the Named Executive Officers
    which are available generally to all salaried employees of the Company and
    certain perquisites and other personal benefits, securities or property
    received by the Named Executive Officers which do not exceed the lesser of
    $50,000 or 10% of any such officer's salary and bonus disclosed in this
    table.
(2) Represents stock options granted during the fiscal year ended December 28,
    1996. The Company did not grant any restricted stock awards or stock
    appreciation rights or make any long-term incentive plan payouts during
    1996.
(3) Represents contributions made by the Company to the Named Executive
    Officer under the Company's 401(k) plan.
(4) Mr. Galliker joined the Company in July 1996.
(5) Mr. Galliker would have earned a total annual salary of $140,000 had he
    been employed as an executive officer of the Company for the entire fiscal
    year ended December 28, 1996.
(6) Includes commissions earned during the fiscal year ended December 28, 1996.
(7) Mr. Tamari joined the Company in November 1996.
(8) Mr. Tamari would have earned a total annual salary of $175,000 had he been
    employed as an executive officer of the Company for the entire fiscal year
    ended December 28, 1996.
 
 
                                      40

 
OPTION GRANTS
 
  The following table sets forth certain information concerning grants of
stock options made during the fiscal year ended December 28, 1996 to the Named
Executive Officers. The Company did not grant any stock appreciation rights
("SARs") during the fiscal year ended December 28, 1996.
 
                       OPTION GRANTS IN LAST FISCAL YEAR


                                                                               POTENTIAL
                                                                            REALIZABLE VALUE
                                                                           AT ASSUMED ANNUAL
                                                                             RATES OF STOCK
                                                                           PRICE APPRECIATION
                                       INDIVIDUAL GRANTS                   FOR OPTION TERM(2)
                         ------------------------------------------------ --------------------
                         NUMBER OF      PERCENT OF
                         SECURITIES   TOTAL OPTIONS
                         UNDERLYING     GRANTED TO   EXERCISE
                          OPTIONS      EMPLOYEES IN  PRICE PER EXPIRATION
NAME                      GRANTED     FISCAL YEAR(1)   SHARE      DATE       5%        10%
- ----                     ----------   -------------- --------- ---------- --------- ----------
                                                                  
Robert P. Madonna.......      --            --           --          --         --         --
Robert J. Buttel........      --            --           --          --         --         --
Stephen S. Galliker.....  300,000(3)       15.0%       $2.33    07/16/06  $ 440,258 $1,115,699
Russell M. Levesque.....      --            --           --          --         --         --
Robert W. Ross..........   60,000(4)        3.0         4.50    09/27/06    169,802    430,310
Christopher Stavros.....      --            --           --          --         --         --
Gadi Tamari.............  600,000(3)       30.0         5.00    11/20/06  1,886,684  4,781,227

- --------
(1) Based on an aggregate of 1,997,500 shares subject to options granted to
    employees of the Company in 1996.
(2) Amounts represent hypothetical gains that could be achieved for the
    respective options if exercised at the end of the option term. These gains
    are based on assumed rates of stock price appreciation of 5% and 10%
    compounded annually from the date the respective options were granted to
    their expiration date, and are not intended to forecast possible future
    appreciation, if any, in the price of the Common Stock. The gains shown
    are net of the option exercise price, but do not include deductions for
    federal or state income taxes or other expenses associated with the
    exercise of the options or the sale of the underlying shares. The actual
    gains, if any, on the stock option exercises will depend on the future
    performance of the Common Stock, the optionholder's continued employment
    through the option period and the date on which the options are exercised.
(3) Options granted will vest and become exercisable over five years in the
    following installments: 20% of the total options granted will vest each
    year on the anniversary of the respective dates of grant in 1997, 1998,
    1999, 2000 and 2001.
(4) Options granted will vest and become exercisable over five years in the
    following installments: 10% of the total options granted will vest on the
    anniversary of the date of grant in each of 1997 and 1998, 20% of the
    total options granted will vest on the anniversary of the date of grant in
    each of 1999 and 2000 and the remaining 40% of the total options granted
    will vest on the anniversary of the date of grant in 2001.
 
                                      41

 
YEAR-END OPTION TABLE
 
  The following table sets forth certain information concerning the number and
value of unexercised stock options held by each of the Named Executive
Officers as of December 28, 1996. No SARs or stock options were exercised
during the fiscal year ended December 28, 1996 by any Named Executive Officer.
 
                   AGGREGATED FISCAL YEAR-END OPTION VALUES
 
   

                               NUMBER OF SECURITIES
                                    UNDERLYING           VALUE OF UNEXERCISED
                                UNEXERCISED OPTIONS      IN-THE-MONEY OPTIONS
                                AT FISCAL YEAR-END       AT FISCAL YEAR-END(1)
                             ------------------------- -------------------------
NAME                         EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----                         ----------- ------------- ----------- -------------
                                                       
Robert P. Madonna...........        --          --             --          --
Robert J. Buttel............  1,397,280         --     $26,545,945         --
Stephen S. Galliker.........        --      300,000            --   $4,999,980
Russell M. Levesque.........    546,000     204,000     10,337,330   3,836,890
Robert W. Ross..............     21,600      98,400        403,199   1,586,797
Christopher Stavros.........    300,000     150,000      5,599,980   2,799,990
Gadi Tamari.................        --      600,000            --    8,400,000
    
- --------
   
(1) There was no public trading market for the Common Stock as of December 28,
    1996. Accordingly, as permitted by the rules of the Securities and
    Exchange Commission, these values have been calculated on the basis of an
    assumed initial public offering price of $19.00 per share, less the
    applicable exercise price.     
 
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
 
  Prior to September 1997, the Company had no separate compensation committee
or other board committee performing equivalent functions, and these functions
were performed by the Company's Board of Directors which consisted of Robert
P. Madonna, the Company's President, Chief Executive Officer, Chairman of the
Board and principal stockholder, and Christopher Stavros, Vice President and
General Counsel of the Company.
 
STOCK PLANS
   
  Stock Option Program. Prior to this offering, the Company had an informal
stock option program under which selected employees were granted non-qualified
options to purchase shares of Non-Voting Common Stock. The primary purpose of
this program had been to provide long-term incentives to the Company's
selected employees and to further align their interests with those of the
Company. The selection of the participants, the determination of the number of
shares of Common Stock offered to each participant, the terms of the
repurchase rights for each participant and other terms of sale had been made
by the Company's President, Chief Executive Officer and principal stockholder,
Robert P. Madonna, and Christopher Stavros, Vice President and General
Counsel. Options granted under this informal plan are generally exercisable
within ten years of the original grant date and generally vest over a period
of five years from the date of grant. As of August 30, 1997, options to
purchase 11,240,840 shares of Common Stock, at a weighted average exercise
price of $1.49 per share, have been granted under this program, of which
options to purchase 144,000 shares of Common Stock have been exercised and
options to purchase 226,000 shares of Common Stock have been cancelled. The
Board of Directors voted in September 1997 to terminate this program effective
as of the date of this Prospectus.     
 
  1997 Stock Option Plan. The Company's 1997 Stock Option Plan (the "1997
Plan") was adopted by the Board of Directors and approved by the Company's
sole voting stockholder in September 1997. Under the terms of the 1997 Plan,
the Company is authorized to grant incentive ("ISO") and non-qualified stock
options (collectively, "Stock Options") to officers and other employees of and
consultants to the Company. The aggregate number of shares of Common Stock
which may be issued pursuant to the Plan is 3,000,000.
 
 
                                      42

 
  The 1997 Plan will be administered by the Compensation Committee of the
Board of Directors, which is expected to consist of two disinterested
directors. Subject to the provisions of the 1997 Plan, the Compensation
Committee has the authority to select the optionees and determine the terms of
the stock options granted under the 1997 Plan, including: (i) the time or
times at which stock options may be granted; (ii) whether the stock option
granted will be an ISO or a non-qualified stock option; (iii) the number of
shares subject to each stock option; (iv) when the stock option becomes
exercisable; (v) the exercise price of the stock option, which in the case of
an ISO cannot be less than the fair market value of the Common Stock as of the
date of grant, or not less than 110% of the fair market value in the case of
ISO's granted to an employee or officer holding 10% or more of the voting
stock of the Company; (vi) the duration of the stock option; and (vii) the
time, manner and form of payment upon exercise of a Stock Option. A Stock
Option is not transferable by the recipient except by will or by the laws of
descent and distribution, or in the case of non-qualified stock options, only
to the extent set forth in the agreement relating to such option or pursuant
to a valid domestic relations order. Generally, no ISO may be exercised more
than 90 days following termination of employment and no stock options may be
exercised following termination of employment for cause. However, in the event
that termination is due to death or disability, the stock option is
exercisable for a maximum of 180 days after such termination. The term of the
1997 Plan is ten years, unless sooner terminated by vote of the Board of
Directors. To date, no stock options have been granted pursuant to the 1997
Plan.
 
  1997 Non-Employee Director Stock Option Plan. The Company's 1997 Non-
Employee Director Stock Option Plan (the "Director Option Plan") was adopted
by the Board of Directors and approved by the Company's sole voting
stockholder in September 1997. The Director Option Plan provides for the grant
of options to purchase a maximum of 225,000 shares of Common Stock of the
Company to non-employee directors of the Company.
 
  The Director Option Plan is administered by the Compensation Committee of
the Board of Directors. Under the Director Option Plan, each non-employee
director who (i) is a member of the Board of Directors on September 16, 1997
(the "Approval Date") shall be automatically granted on the Approval Date, or
(ii) first becomes a member of the Board of Directors shall be granted on the
date such person first becomes a non-employee director, an option to purchase
30,000 shares of Common Stock. In addition, each non-employee director will be
automatically granted an option to purchase 15,000 shares of Common Stock for
each of the two years following the date such person first became a non-
employee director, through December 1999. Options granted upon election to the
Board under the Director Option Plan will vest as to one third of the total
shares underlying the option immediately upon grant and one third of the total
shares underlying the option on the anniversary of the date of grant for each
of the following two years, provided that the optionee has continuously served
as a director through such vesting dates. All other options granted under the
Director Option Plan will vest at a rate of one third of the total shares
underlying the option per year over a period of three years provided that the
optionee has continuously served as a director through such vesting dates. The
optionee may forfeit a portion of his or her exercise rights with respect to
options vesting in any fiscal year unless the optionee attends at least 75% of
the Board meetings held in that year. All options granted under the Director
Option Plan will have an exercise price equal to the fair market value of the
Common Stock on the date of grant and a term of ten years from the date of
grant. Options may not be transferred except by will or by the laws of descent
and distribution or pursuant to a domestic relations order. If the optionee
ceases to be a member of the Board for any reason other than death or
disability, any unvested options immediately terminate and become void and any
unexercised portion of an option which is then vested may be exercised at any
time prior to the scheduled expiration date of the option. However, if an
optionee ceases to serve as a director of the Company due to death or
disability, all unvested options become fully vested and are exercisable for a
period of one year thereafter and any options that are vested and exercisable
when the optionee ceases to serve as a director are exercisable at any time
until the scheduled expiration date of the option. The term of the Director
Option Plan is ten years, unless sooner terminated by vote of the Board of
Directors. Upon joining the Board, each of Messrs. Breslow, Cadogan and
Loughlin will be granted options for the purchase of 30,000 shares of Common
Stock at an exercise price equal to the initial public offering price.
 
                                      43

 
  1997 Employee Stock Purchase Plan. The 1997 Employee Stock Purchase Plan
(the "1997 Purchase Plan") was adopted by the Board of Directors and approved
by the Company's sole voting stockholder in September 1997. The 1997 Purchase
Plan provides for the issuance of a maximum of 400,000 shares of Common Stock
pursuant to the exercise of nontransferable options granted to participating
employees.
 
  The 1997 Purchase Plan is administered by the Compensation Committee of the
Board of Directors. All employees of the Company whose customary employment is
more than 20 hours per week and for more than five months in any calendar year
are eligible to participate in the 1997 Purchase Plan. Employees who would own
5% or more of the total combined voting power or value of the Company's stock
immediately after the grant and non-employee directors may not participate in
the 1997 Purchase Plan. To participate in the 1997 Purchase Plan, an employee
must authorize the Company to deduct an amount (not less than one percent nor
more than ten percent of a participant's total cash compensation) from his or
her pay during six-month payment periods (the "Payment Period"). The first
Payment Period will commence upon the initial offering of the Company's Common
Stock to the public and will end on June 30, 1998. Thereafter, the Payment
Periods will commence on January 1 and July 1 of each year, but in no case
shall an employee be entitled to purchase more than 500 shares in any one
Payment Period. The exercise price for the option granted in each Payment
Period is 85% of the lesser of the market price of the Common Stock on the
first or last business day of the Payment Period. If an employee is not a
participant on the last day of the Payment Period, such employee is not
entitled to exercise his or her option, and the amount of his or her
accumulated payroll deductions will be refunded. Options granted under the
1997 Purchase Plan may not be transferred or assigned. An employee's rights
under the 1997 Purchase Plan terminate upon his or her voluntary withdrawal
from the plan at any time or upon termination of employment. No options have
been granted to date under the 1997 Purchase Plan.
 
401(K) PLAN
 
  The Company has a Section 401(k) Retirement Savings Plan (the "401(k)
Plan"). The 401(k) Plan is a tax-qualified plan covering Company employees who
are over 21 years of age. Under the 401(k) Plan, participants may elect to
defer a portion of their compensation, subject to certain limitations. In
addition, at the discretion of the Board of Directors, the Company may make
profit sharing contributions into the 401(k) Plan for all eligible employees.
During 1996, the Company contributed $534,000 to the 401(k) Plan.
 
                             CERTAIN TRANSACTIONS
 
  During December 1991, Mr. Madonna, the Company's President, Chief Executive
Officer, Chairman of the Board and principal stockholder, loaned $300,000 to
the Company under a demand note bearing interest at a rate of 10% per annum.
In December 1993, Mr. Madonna loaned an additional $300,000 to the Company
under a demand note bearing interest at a rate of 6% per annum. At December
31, 1994, the Company had paid in full the principal amount of such loans plus
interest to Mr. Madonna.
 
  The Company has adopted a policy that all transactions between the Company
and its officers, directors, principal stockholders and affiliates will be
approved by a majority of the Board of Directors, including a majority of the
independent and disinterested outside directors on the Board of Directors, and
will be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
 
                                      44

 
                            PRINCIPAL STOCKHOLDERS
 
  The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of August 30, 1997 and as adjusted
to reflect the sale of the shares offered hereby by (i) each person who is
known by the Company to own beneficially more than 5% of the outstanding
shares of Common Stock, (ii) each director and Named Executive Officer of the
Company, and (iii) all directors and executive officers of the Company as a
group. Unless otherwise indicated below, to the knowledge of the Company, all
persons listed below have sole voting and investment power with respect to
their shares of Common Stock, except to the extent authority is shared by
spouses under applicable law. The address of each person listed below is c/o
Excel Switching Corporation, 255 Independence Drive, Hyannis, Massachusetts
02601.
 


                                    SHARES BENEFICIALLY    SHARES BENEFICIALLY
                                     OWNED PRIOR TO THE      OWNED AFTER THE
                                        OFFERING(1)           OFFERING(1)(9)
                                    ----------------------------------------------
NAME                                  NUMBER     PERCENT     NUMBER     PERCENT
- ----                                ------------ ---------------------- ----------
                                                            
Robert P. Madonna(2)...............   27,945,600    99.5%    27,945,600    85.8%
Robert J. Buttel(3)................    1,397,280     4.7      1,397,280     4.1
Russell M. Levesque(4).............      606,000     2.1        606,000     1.8
Christopher Stavros(5).............      450,000     1.6        450,000     1.4
Robert W. Ross(6)..................       37,200     *           37,200     *
Stephen S. Galliker(7).............       60,000     *           60,000     *
Gadi Tamari........................            0     *                0     *
All executive officers and
 directors as a group
 (10 persons)(8)...................   30,514,080    99.5%    30,514,080    86.8%

- --------
  *Less than 1% of the outstanding Common Stock.
(1) The number of shares of Common Stock deemed outstanding prior to this
    offering includes: (i) 28,089,600 shares of Common Stock outstanding as of
    August 30, 1997; and (ii) shares issuable pursuant to options held by the
    respective person which may be exercised within 60 days after August 30,
    1997, as set forth below. The number of shares of Common Stock deemed
    outstanding after this offering includes an additional 4,500,000 shares of
    Common Stock being offered for sale by the Company in this offering.
    Beneficial ownership is determined in accordance with the rules of the
    Securities and Exchange Commission, and includes voting and investment
    power with respect to the shares.
   
(2) Includes 4,191,840 shares of Common Stock held by the Madonna Family
    Limited Partnership of which Mr. Madonna is a general partner and a trust
    called the Madonna Family GRAT is the limited partner.     
(3) Consists of 1,397,280 shares of Common Stock issuable upon the exercise of
    stock options, which options are exercisable within 60 days of August 30,
    1997.
(4) Consists of 606,000 shares of Common Stock issuable upon the exercise of
    stock options, which options are exercisable within 60 days of August 30,
    1997.
(5) Consists of 450,000 shares of Common Stock issuable upon the exercise of
    stock options, which options are exercisable within 60 days of August 30,
    1997.
(6) Consists of 37,200 shares of Common Stock issuable upon the exercise of
    stock options, which options are exercisable within 60 days of August 30,
    1997.
(7) Consists of 60,000 shares of Common Stock issuable upon the exercise of
    stock options, which options are exercisable within 60 days of August
    30,1997.
(8) Includes 2,568,480 shares of Common Stock issuable upon the exercise of
    stock options, which options are exercisable within 60 days of August 30,
    1997.
(9) The above table assumes no exercise of the over-allotment option to
    purchase up to an aggregate of 675,000 shares of Common Stock from the
    Selling Stockholder, Robert Madonna. If the Underwriters exercise their
    over-allotment option in full, the number of shares sold, the number of
    shares beneficially owned and the percentage of ownership after the
    offering for Mr. Madonna, the sole Selling Stockholder, would be: 675,000,
    27,270,600 and 83.7%, respectively.
 
                                      45

 
                         DESCRIPTION OF CAPITAL STOCK
 
  Effective upon the closing of this offering, the authorized capital stock of
the Company will consist of 100,000,000 shares of Common Stock, $.01 par value
per share, and 10,000,000 shares of Preferred Stock, $.01 par value per share.
 
  The following summary description of the Company's capital stock is not
intended to be complete and is qualified in its entirety by reference to the
provisions of applicable law and to the Company's Restated Articles of
Organization (the "Charter") and Restated By-laws (the "By-laws"), filed as
exhibits to the Registration Statement of which this Prospectus is a part.
 
COMMON STOCK
 
  As of August 30, 1997, there were 28,089,600 shares of Common Stock
outstanding held by two stockholders of record. Based upon the number of
shares outstanding as of that date and giving effect to the issuance of the
4,500,000 shares of Common Stock offered by the Company hereby, there will be
32,589,600 shares of Common Stock outstanding upon the closing of this
offering. In addition, as of August 30, 1997, there were outstanding stock
options for the purchase of a total of 10,870,840 shares of Common Stock.
 
  Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Directors are elected by a plurality of the votes of the shares
present in person or by proxy at the meeting and entitled to vote in such
election. Holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared by the Board of Directors out of funds
legally available therefor, subject to any preferential dividend rights of
outstanding Preferred Stock. Upon the liquidation, dissolution or winding up
of the Company, the holders of Common Stock are entitled to receive ratably
the net assets of the Company available after the payment of all debts and
other liabilities of the Company, subject to the prior rights of any
outstanding Preferred Stock. Holders of the Common Stock have no preemptive,
subscription, redemption or conversion rights, nor are they entitled to the
benefit of any sinking fund. The outstanding shares of Common Stock are, and
the shares offered by the Company in this offering will be, when issued and
paid for, validly issued, fully paid and nonassessable. The rights, powers,
preferences and privileges of holders of Common Stock are subject to, and may
be adversely affected by, the rights of the holders of shares of any series of
Preferred Stock which the Company may designate and issue in the future.
 
PREFERRED STOCK
 
  The Board of Directors will be authorized, subject to any limitations
prescribed by law, without further stockholder approval, to issue from time to
time up to an aggregate of up to 10,000,000 shares of Preferred Stock, in one
or more series. Each such series of Preferred Stock shall have such number of
shares, designations, preferences, voting powers, qualifications and special
or relative rights or privileges as shall be determined by the Board of
Directors, which may include, among others, dividend rights, voting rights,
redemption and sinking fund provisions, liquidation preferences, conversion
rights and preemptive rights. There are no shares of Preferred Stock currently
outstanding.
 
  The stockholders of the Company have granted the Board of Directors
authority to issue the Preferred Stock and to determine its rights and
preferences in order to eliminate delays associated with a stockholder vote on
specific issuances. The rights of the holders of Common Stock will be subject
to the rights of holders of any Preferred Stock issued in the future. The
issuance of Preferred Stock, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could
adversely affect the voting power or other rights of the holders of Common
Stock, and could make it more difficult for a third party to acquire, or
discourage a third party from attempting to acquire, a majority of the
outstanding voting stock of the Company. The Company has no present plans to
issue any shares of Preferred Stock.
 
 
                                      46

 
MASSACHUSETTS LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS; ANTI-TAKEOVER
EFFECTS
 
  Because the Company will have more than 200 stockholders of record after the
offering, it will be subject to Chapter 110F of the Massachusetts General
Laws, an anti-takeover law. In general, this statute prohibits a publicly held
Massachusetts corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person becomes an interested stockholder, unless (i)
the interested stockholder obtains the approval of the Board of Directors
prior to becoming an interested stockholder, (ii) the interested stockholder
acquires 90% of the outstanding voting stock of the corporation (excluding
shares held by certain affiliates of the corporation) at the time it becomes
an interested stockholder, or (iii) the business combination is approved by
both the Board of Directors and the holders of two-thirds of the outstanding
voting stock of the corporation (excluding shares held by the interested
stockholder). An "interested stockholder" is a person who, together with
affiliates and associates, owns (or at any time within the prior three years
did own) 5% or more of the outstanding voting stock of the corporation. A
"business combination" includes a merger, a stock or asset sale, and certain
other transactions resulting in a financial benefit to the interested
stockholders. By a vote of a majority of its stockholders, the Company has
elected not to be governed by Chapter 110F, but such amendment will not be
effective for twelve months and will not apply to a business combination with
any person who became an interested stockholder prior to the adoption of the
amendment. Prior to the adoption of the amendment, no person became an
interested stockholder with respect to the Company.
 
  The By-laws include a provision excluding the Company from the applicability
of Massachusetts General Laws Chapter 110D, entitled "Regulation of Control
Share Acquisitions." Under Chapter 110D, any stockholder of a corporation
subject to this statute who acquires 20% or more of the outstanding voting
stock of a corporation may not vote such stock unless the stockholders holding
a majority of the outstanding voting stock (excluding the interested shares)
of the corporation so authorize. The Board of Directors may amend the By-laws
at any time to subject the Company to this statute prospectively.
 
  The By-laws also require that a stockholder seeking to have any business
conducted at a meeting of stockholders give notice to the Company not less
than 90 and not more than 120 days prior to the scheduled meeting, provided in
certain circumstances that a ten-day notice rule applies. The notice from the
stockholders must describe the proposed business to be brought before the
meeting and include information about the stockholder making the proposal, any
beneficial owner on whose behalf the proposal is made and any other
stockholder known to be supporting the proposal. The By-laws require the
Company to call a special stockholders meeting at the request of stockholders
holding at least 40% of the voting power of the Company.
 
  The Charter provides that shares of the Company's Preferred Stock may be
issued in the future without stockholder approval and upon such terms and
conditions, and having such rights, privileges and preferences, as the Board
of Directors may determine. See "Description of Capital Stock--Preferred
Stock."
 
  Chapter 156B of the Massachusetts General Laws, Section 50A, generally
requires that publicly held Massachusetts corporations have a classified board
of directors consisting of three classes as nearly equal in size as possible,
unless those corporations elect to opt out of the statutes coverage. By vote
of the Board of Directors, the Company has elected to opt out of the
requirements of the classified board provisions of Section 50A.
 
  The foregoing provisions could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party from acquiring,
control of the Company.
 
LIMITATION OF LIABILITY AND INDEMNIFICATION
 
  The By-laws provide that the directors and officers of the Company shall be
indemnified by the Company to the fullest extent authorized by Massachusetts
law, as it now exists or may in the future be amended, against all expenses
and liabilities reasonably incurred in connection with the service for or on
behalf of the Company. In addition, the Charter provides that the directors of
the Company will not be personally liable for monetary
 
                                      47

 
damages to the Company for breaches of their fiduciary duty as directors,
unless they violated their duty of loyalty to the Company or its stockholders,
acted in bad faith, knowingly or intentionally violated the law, authorized
illegal dividends or redemptions or derived an improper personal benefit from
their action as directors.
 
TRANSFER AGENT AND REGISTRAR
 
  The transfer agent and registrar for the Common Stock is BankBoston, N.A.
 
                                      48

 
                        SHARES ELIGIBLE FOR FUTURE SALE
 
  Upon completion of this offering, the Company will have 32,589,600 shares of
Common Stock outstanding (assuming no exercise of outstanding options). Of
these shares, the 4,500,000 shares (5,175,000 shares if the over-allotment
option is exercised in full) to be sold in this offering will be freely
tradable without restriction or further registration under the Securities Act
of 1933, as amended (the "Securities Act"), except that any shares purchased
by affiliates of the Company, as that term is defined in Rule 144 ("Rule 144")
under the Securities Act ("Affiliates"), may generally only be sold in
compliance with the limitations of Rule 144 described below.
 
SALES OF RESTRICTED SHARES
 
  The remaining 28,089,600 shares of Common Stock outstanding upon completion
of this offering are deemed "Restricted Shares" under Rule 144 or Rule 701
under the Securities Act. Subject to the lock-up agreements described below
(the "Lock-up Agreements"), approximately 144,000 of such Restricted Shares
will be eligible for sale in the public market pursuant to Rule 144(k) on the
date of this Prospectus. Upon expiration of the Lock-up Agreements, 180 days
after the date of this Prospectus, an additional 27,945,600 shares of Common
Stock will be eligible for sale in the public market pursuant to Rule 144
under the Securities Act.
 
  In general, under Rule 144, a person (or persons whose shares are
aggregated), including an Affiliate, who has beneficially owned Restricted
Shares for at least one year is entitled to sell, within any three-month
period, a number of such shares that does not exceed the greater of (i) one
percent of the then outstanding shares of Common Stock (approximately 325,896
shares immediately after this offering) or (ii) the average weekly trading
volume in the Common Stock in the over-the-counter market during the four
calendar weeks preceding the date on which notice of such sale is filed,
provided certain requirements concerning availability of public information,
manner of sale and notice of sale are satisfied. In addition, Affiliates must
comply with the restrictions and requirements of Rule 144, other than the one-
year holding period requirement, in order to sell shares of Common Stock which
are not restricted securities. Under Rule 144(k), a person who is not an
Affiliate and has not been an Affiliate for at least three months prior to the
sale and who has beneficially owned Restricted Shares for at least two years
may resell such shares without compliance with the foregoing requirements. In
meeting the one and two year holding periods described above, a holder of
Restricted Shares can include the holding periods of a prior owner who was not
an Affiliate. The one and two year holding periods described above do not
begin to run until the full purchase price or other consideration is paid by
the person acquiring the Restricted Shares from the issuer or an Affiliate.
Rule 701 provides that currently outstanding shares of Common Stock acquired
under the Company's employee compensation plans may be resold by persons,
other than Affiliates, beginning 90 days after the date of this Prospectus,
subject only to the manner of sale provisions of Rule 144, and by Affiliates
under Rule 144 without compliance with its one-year minimum holding period,
subject to certain limitations.
 
OPTIONS
 
  Rule 701 also provides that the shares of Common Stock acquired upon the
exercise of currently outstanding options issued under the Company's stock
plans may be resold by persons, other than Affiliates, beginning 90 days after
the date of this Prospectus, subject only to the manner of sale provisions of
Rule 144, and by Affiliates under Rule 144, without compliance with its one-
year minimum holding period, subject to certain limitations. At August 30,
1997, approximately 6,731,940 shares of Common Stock were issued or issuable
pursuant to vested options under the Company's stock program, of which
approximately 55,800 shares are not subject to Lock-up Agreements with the
Underwriters and will be eligible for sale in the public market in accordance
with Rule 701 under the Securities Act beginning 90 days after the date of
this Prospectus.
 
  The Company intends to file one or more registration statements on Form S-8
under the Securities Act, approximately 180 days after the date of this
Prospectus, to register up to 10,870,840 shares of Common Stock subject to
outstanding stock options granted pursuant to the Company's stock option
program as of August 30, 1997, including the 6,731,940 shares of Common Stock
subject to options vested as of August 30, 1997, and 3,625,000 shares of
Common Stock issuable pursuant to the Company's 1997 stock plans. Such
registration statements are expected to become effective upon filing. At such
time, approximately 7,358,610 shares of Common Stock issuable upon the
exercise of options granted as of August 30, 1997 and covered by these
registration statements will be vested and eligible for sale in the public
market upon the exercise of underlying options to the extent not previously
sold pursuant to Rule 701.
 
 
                                      49

 
LOCK-UP AGREEMENTS
 
  Subject to certain limited exceptions, the Company, the executive officers
and directors, the Selling Stockholder and certain other securityholders have
agreed not to sell or otherwise dispose of, directly or indirectly, any shares
of Common Stock (or any security convertible into or exchangeable or
exercisable for Common Stock) without the prior written consent of Morgan
Stanley & Co. Incorporated for a period of 180 days from the date of this
Prospectus. In addition, for a period of 180 days from the date of this
Prospectus, except as required by law, the Company has agreed that its Board
of Directors will not consent to any offer for sale, sale or other
disposition, or any transaction which is designed or could be expected, to
result in, the disposition by any person, directly or indirectly, of any
shares of Common Stock without the prior written consent of Morgan Stanley &
Co. Incorporated. See "Underwriters."
 
REGISTRATION RIGHTS
 
  No securityholders of the Company are entitled to require the Company to
register any securities of the Company under the Securities Act.
 
  Prior to this offering, there has been no public market for the Common Stock
of the Company, and no predictions can be made as to the effect, if any, that
market sales of shares of Common Stock prevailing from time to time, or the
availability of shares for future sale, may have on the market price for the
Common Stock. Sales of substantial amounts of Common Stock, or the perception
that such sales could occur, could adversely effect prevailing market prices
for the Common Stock and could impair the Company's future ability to obtain
capital through an offering of equity securities.
 
                                      50

 
                                 UNDERWRITERS
 
  Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date of this Prospectus, the Underwriters named below, for
whom Morgan Stanley & Co. Incorporated, Hambrecht & Quist LLC and NationsBanc
Montgomery Securities, Inc. are acting as Representatives (the
"Underwriters"), have severally agreed to purchase, and the Company has agreed
to sell to them, the respective number of shares of Common Stock set forth
opposite their respective names below:
 


                                                                        NUMBER
   NAME                                                                OF SHARES
   ----                                                                ---------
                                                                    
   Morgan Stanley & Co. Incorporated..................................
   Hambrecht & Quist LLC..............................................
   NationsBanc Montgomery Securities, Inc. ...........................
                                                                       ---------
         Total........................................................ 4,500,000
                                                                       =========

 
  The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are committed to
take and pay for all the shares of Common Stock offered hereby (other than
those covered by the over-allotment option described below) if any such shares
are taken.
 
  The Underwriters initially propose to offer part of the Common Stock
directly to the public at the public offering price set forth on the cover
page hereof and part to certain dealers at a price which represents a
concession not in excess of $   per share under the public offering price. Any
Underwriter may allow, and such dealers may reallow, a concession not in
excess of $   per share to other Underwriters or to certain dealers. After the
initial offering of the shares of Common Stock, this offering price and other
selling terms may from time to time be varied by the Underwriters.
 
  Mr. Madonna, the Selling Stockholder, has granted the Underwriters an
option, exercisable for 30 days from the date of the Prospectus, to purchase
up to an additional 675,000 shares of Common Stock at the public offering
price set forth on the cover page hereof, less underwriting discounts and
commissions. The Underwriters may exercise such option to purchase solely for
the purpose of covering over-allotments, if any, made in connection with this
offering. To the extent such option is exercised, each Underwriter will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number set forth next to such
Underwriter's name in the preceding table bears to the total number of shares
of Common Stock offered by the Underwriters hereby.
 
  The Underwriters have reserved up to 225,000 shares of the Common Stock
offered hereby for sale at the public offering price to certain employees,
consultants and other persons associated with the Company. The number of
shares of Common Stock available for sale to the general public will be
reduced to the extent such persons purchase such reserved shares. Any reserved
shares not so purchased will be offered by the Underwriters to the general
public on the same basis as the other shares offered hereby.
 
  Subject to certain limited exceptions, the Company and the executive
officers and directors of the Company, the Selling Stockholder and certain
other securityholders have agreed that, without the prior written consent of
Morgan Stanley & Co. Incorporated, they will not (a) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock (whether such shares or any such securities are then owned by
such person or are thereafter acquired), or (b) enter into any swap or other
arrangement that transfers
 
                                      51

 
to another, in whole or in part, any of the economic consequences of ownership
of the Common Stock, whether any such transactions described in clause (a) or
(b) of this paragraph is to be settled by delivery of such Common Stock or
such other securities, in cash or otherwise for a period of 180 days after the
date of this Prospectus.
 
  In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may over-allot in
connection with the offering, creating a short position in the Common Stock
for their own account. In addition, to cover over-allotments or to stabilize
the price of the Common Stock, the Underwriters may bid for, and purchase,
shares of Common Stock in the open market. Finally, the underwriting syndicate
may reclaim selling concessions allowed to an underwriter or a dealer for
distributing the Common Stock in the offering, if the syndicate repurchases
previously distributed Common Stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the Common Stock above
independent market levels. The Underwriters are not required to engage in
these activities, and may end any of these activities at any time.
 
  The Representatives of the Underwriters have informed the Company that the
Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
 
  The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.
 
PRICING OF THE OFFERING
 
  Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock will be
determined by negotiation between the Company and the Representatives of the
Underwriters. Among the factors to be considered in determining the initial
public offering price are the future prospects of the Company and its industry
in general, net revenues, earnings and certain other financial and operating
information of the Company in recent periods, and the price-earnings ratios,
certain other ratios, and market prices of securities and certain financial
operating information of companies engaged in activities similar to those of
the Company.
 
                                 LEGAL MATTERS
 
  The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Testa, Hurwitz & Thibeault, LLP, Boston,
Massachusetts. Certain legal matters in connection with this offering will be
passed upon for the Underwriters by Hale and Dorr LLP, Boston, Massachusetts.
 
                                    EXPERTS
 
  The Consolidated Financial Statements and Financial Statement Schedule of
the Company as of December 31, 1995 and December 28, 1996 and for the three
years in the period ended December 28, 1996 included in this Prospectus and
elsewhere included in the Registration Statement have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports
with respect thereto, and are included herein in reliance upon the authority
of said firm as experts in giving said reports.
 
  The statements in this Prospectus relating to patent matters under the
caption "Risk Factors--Dependence on Proprietary Rights" and "Business--
Intellectual Property" have been reviewed and approved by the Company's patent
counsel, Cesari and McKenna, LLP. The statements are included herein in
reliance upon the review and approval by such firm as experts in patent law.
 
                                      52

 
                            ADDITIONAL INFORMATION
 
  The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Registration Statement on Form S-1 (together with all
amendments, exhibits and schedules thereto, the "Registration Statement")
under the Securities Act with respect to the Common Stock offered hereby. This
Prospectus, which constitutes part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement. Statements contained in this Prospectus as to the
contents of any contract or other document filed as an exhibit to the
Registration Statement are not necessarily complete, and in each instance
reference is made to the copy of such document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. The Registration Statement may be inspected without charge at
the principal office of the Commission in Washington, D.C. and copies of all
or any part of which may be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Judiciary
Plaza, Room 1024, Washington, D.C. 20549, and at the Commission's regional
offices located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511 and 7 World Trade Center, Suite 1300, New York,
New York 10048. Copies of such material can also be obtained at prescribed
rates by mail from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549. In addition, the Commission maintains a
Web site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants that file
electronically with the Commission.
 
                                      53

 
                               GLOSSARY OF TERMS

CDMA (Code Division Multiple 
 Access)............................ A new form of digital cellular telephone
                                     service. CDMA works by spreading signals
                                     across a broad frequency spectrum and
                                     assigning a unique code to each signal.

Central Office or Central Office  
 Switch............................. A term commonly used to describe the
                                     location of the switching equipment that
                                     is used to re-direct telephone calls.

CLEC (Competitive Local Exchange
 Carrier)........................... A company that provides customers with an
                                     alternative to the local telephone
                                     company for a wide range of services,
                                     including private line, special access,
                                     switched access, local dial tone and
                                     enhanced services. CLECs are also
                                     referred to in the industry as
                                     Competitive Access Providers.
 
Conference Bridging................. A telecommunications service which
                                     permits calls from several diverse
                                     locations to be connected together for a
                                     conference call.
 
DASS2............................... A message-based signaling system to
                                     provide multi-line interconnection.
 
DSP (Digital Signal Processor)...... A microprocessor that acts upon digital
                                     signals in a more powerful and efficient
                                     manner than that provided by conventional
                                     microprocessors.
DSS (Distributed Switching 
 System)............................ A switching regime that processes
                                     incoming calls from widely dispersed
                                     locations and routes them to different,
                                     widely dispersed locations.
 
E-1................................  The European equivalent of the North
                                     American T-1 telecommunication signal
                                     which allows for the transmission of
                                     simultaneous voice conversations.
 
GSM (Groupe Speciale Mobile).......  A new digital European cellular phone
                                     system that will allow European travelers
                                     to use a single cellular phone in many
                                     European countries.
 
International Call Back............  A process whereby a call that originates
                                     in a foreign country is not completed,
                                     and effectively re-dialed from the United
                                     States at significantly lower rates than
                                     those prevailing in the foreign country.
 
ISDN (Integrated Services Digital
Network)...........................  A means of transmitting both voice and
                                     data simultaneously over the same line.
                                     Primary rate ISDN consists of 24 channels
                                     operating at 64 Kbps, thereby producing a
                                     transmission capability of 1.5 Mbps.
 
ISO (International Standards
 Organization)...................... ISO is the International Standards
                                     Organization responsible for outlining
                                     requirements for the quality system of an
                                     organization.
 
IXC (InterExchange Carrier)........  A long distance telephone company, as
                                     contrasted to the LEC--the Local Exchange
                                     Carrier. AT&T, MCI, Sprint and all long
                                     distance carriers are commonly called
                                     IXCs.
 
                                      54

 
J-1................................  Excel term for the Japanese equivalent of
                                     the E-1 telecommunication interface.
 
LEC (Local Exchange Carrier).......  A company providing local telephone
                                     services, also referred to in the
                                     industry as a "local exchange telephone
                                     company." These include the RBOCs, GTE
                                     and more than 1,000 other independent
                                     carriers.
 
Line Cards.........................  A plug-in component that operates certain
                                     features associated with telephone
                                     equipment.

PCS (Personal Communications 
 Services).......................... Digital wireless communications services
                                     which use a microcell technology and
                                     operate at a higher speed and frequency
                                     than cellular systems.
 
Port...............................  An entrance to or exit from a switch or a
                                     network. The interface between a process
                                     or program and a communications or
                                     transmission facility. A point in the
                                     computer or telephone system where data
                                     may be accessed.
 
Prepaid Debit Card.................  A debit (calling) card which allows the
                                     purchaser to purchase, in advance, a
                                     given amount of long distance minutes.
                                     Upon completion of the call, the card is
                                     debited the number of minutes actually
                                     used. Also called a "prepaid calling
                                     card."
 
PTT (Postal Telephone and
 Telegraph)......................... Companies, usually controlled by
                                     government agencies, which provide
                                     telephone and telecommunication services
                                     in foreign countries.

RBOC (Regional Bell Operating  
 Company)........................... Any of the regional companies created by
                                     the AT&T divestiture to take over
                                     ownership of the Bell operating companies
                                     within their region. They are Ameritech,
                                     Bell Atlantic, BellSouth, Pacific
                                     Telesis, SBC Communications and US West.
 
SS7 (Signaling System 7)...........  All telephone systems require signaling,
                                     which is the transmission of electrical
                                     signals to and from the user's premises
                                     and to the telephone company central
                                     office. Signals serve the three basic
                                     functions of supervising, alerting and
                                     addressing. Supervising consists of
                                     monitoring the status of a line or
                                     circuit to see if it is busy, idle or
                                     requesting service. Alerting consists of
                                     indicating the arrival of an incoming
                                     call. Addressing consists of transmitting
                                     routing and destination signals over the
                                     network.
 
Switch.............................  A switch connects all originating call
                                     locations with the final destination of
                                     the call or with other intermediate
                                     switches. Switches consist of a hardware
                                     platform having ports connecting to
                                     incoming and outgoing lines. Switches can
                                     be tandem and/or digital. Tandem switches
                                     connect trunks to each other and pass the
                                     calls to desired destinations. Digital
                                     switches employ a sequence of binary
                                     encoded pulses along the connection.
 
                                      55

 
T-1................................  A North American standard
                                     telecommunications industry signal formal
                                     which allows for the transmission of 24
                                     simultaneous voice conversations.
 
Unified Messaging..................  An integrated messaging service providing
                                     voice, fax, electronic mail, image and
                                     video via a local area network.
 
                                       56

 
                          EXCEL SWITCHING CORPORATION
 
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 

                                                                          
Report of Independent Public Accountants.................................... F-2
Consolidated Balance Sheets................................................. F-3
Consolidated Statements of Income........................................... F-4
Consolidated Statements of Stockholders' Equity............................. F-5
Consolidated Statements of Cash Flows....................................... F-6
Notes to Consolidated Financial Statements.................................. F-7

 
                                      F-1

 
                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To Excel Switching Corporation:
 
  We have audited the accompanying consolidated balance sheets of Excel
Switching Corporation (a Massachusetts corporation formerly known as Excel
Inc.) and subsidiaries as of December 31, 1995 and December 28, 1996, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 28, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
  In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Excel
Switching Corporation and subsidiaries as of December 31, 1995 and December
28, 1996, and the results of their operations and their cash flows for each of
the three years in the period ended December 28, 1996, in conformity with
generally accepted accounting principles.
 
                                          Arthur Andersen LLP
 
Boston, Massachusetts
March 3, 1997
 
                                      F-2

 
                          EXCEL SWITCHING CORPORATION
 
                          CONSOLIDATED BALANCE SHEETS
 
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
 


                                           DECEMBER 31, DECEMBER 28,  JUNE 28,
                                               1995         1996        1997
                                           ------------ ------------ -----------
                                                                     (UNAUDITED)
                                                            
                                    ASSETS
Current Assets:
  Cash and cash equivalents..............    $   770      $ 4,069      $ 9,225
  Marketable securities..................        --           --         3,001
  Accounts receivable, net of reserves of
   $653, $979 and $1,150 in 1995, 1996
   and 1997, respectively................      8,308       10,329       12,339
  Inventories............................      6,949        7,358        5,714
  Prepaid taxes..........................        401          --           --
  Deferred tax asset.....................        507        3,761        4,819
  Prepaid expenses.......................        161          292          138
                                             -------      -------      -------
      Total current assets...............     17,096       25,809       35,236
                                             -------      -------      -------
Property and equipment:
  Buildings..............................      3,735        3,925        4,014
  Test equipment.........................        962        3,400        4,052
  Office equipment, furniture and fix-
   tures.................................        649        1,836        2,339
  Land...................................        576          576          576
  Building improvements..................        255          493          504
  Assets under capital lease.............        --           489          489
                                             -------      -------      -------
                                               6,177       10,719       11,974
  Less--Accumulated depreciation and am-
   ortization............................        590        1,756        2,764
                                             -------      -------      -------
                                               5,587        8,963        9,210
                                             -------      -------      -------
                                             $22,683      $34,772      $44,446
                                             =======      =======      =======
                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Current maturities of long-term obliga-
   tions.................................    $   261      $   499      $   508
  Accounts payable.......................      4,369        1,896        3,137
  Accrued expenses.......................      1,931        5,807        8,366
  Accrued income taxes...................        297        2,647        1,310
                                             -------      -------      -------
      Total current liabilities..........      6,858       10,849       13,321
                                             -------      -------      -------
Deferred income taxes....................        163          --           --
                                             -------      -------      -------
Long-term obligations, less current matu-
 rities..................................      3,537        3,837        3,584
                                             -------      -------      -------
Commitments (Note 6)
Stockholders' Equity:
  Preferred stock, $.01 par value--
    Authorized--10,000,000 shares; no
     shares issued and outstanding.......        --           --           --
  Common stock, $.01 par value (Note
   5(a))--
    Authorized--100,000,000 shares
    Issued and outstanding--28,089,600
     shares..............................        281          281          281
  Additional paid-in capital.............        667          647        1,007
  Deferred compensation..................       (272)        (192)        (517)
  Retained earnings......................     11,449       19,350       26,770
                                             -------      -------      -------
      Total stockholders' equity.........     12,125       20,086       27,541
                                             -------      -------      -------
                                             $22,683      $34,772      $44,446
                                             =======      =======      =======

 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                      F-3

 
                          EXCEL SWITCHING CORPORATION
 
                       CONSOLIDATED STATEMENTS OF INCOME
 
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 


                                      YEAR ENDED             SIX MONTHS ENDED
                             ------------------------------ -------------------
                              DECEMBER 31,
                             ----------------  DECEMBER 28, JUNE 30,  JUNE 28,
                              1994     1995        1996       1996      1997
                             -------  -------  ------------ --------  ---------
                                                               (UNAUDITED)
                                                       
Revenues...................  $20,723  $36,161    $62,050    $27,890    $39,055
Cost of revenues...........    7,074   12,100     24,312     11,150     12,033
                             -------  -------    -------    -------    -------
    Gross profit...........   13,649   24,061     37,738     16,740     27,022
                             -------  -------    -------    -------    -------
Operating expenses:
  Engineering, research and
   development.............    3,301    8,117     11,121      4,994      6,017
  Selling and marketing....      362    2,923      6,621      2,816      4,882
  General and administra-
   tive....................    2,903    4,238      6,426      2,675      3,851
                             -------  -------    -------    -------    -------
    Total operating ex-
     penses................    6,566   15,278     24,168     10,485     14,750
                             -------  -------    -------    -------    -------
    Income from opera-
     tions.................    7,083    8,783     13,570      6,255     12,272
                             -------  -------    -------    -------    -------
Other income (expense):
  Interest income and other
   expense, net............       43      110        111         55        286
  Interest expense.........      (47)     (72)      (495)      (156)      (192)
                             -------  -------    -------    -------    -------
    Total other income (ex-
     pense)................       (4)      38       (384)      (101)        94
                             -------  -------    -------    -------    -------
    Income before provision
     for income taxes......    7,079    8,821     13,186      6,154     12,366
Provision for income tax-
 es........................    2,889    3,410      5,285      2,467      4,946
                             -------  -------    -------    -------    -------
Net income.................  $ 4,190  $ 5,411    $ 7,901    $ 3,687    $ 7,420
                             =======  =======    =======    =======    =======
Net income per share.......  $   .13  $   .16    $   .23    $   .11    $   .22
                             =======  =======    =======    =======    =======
Weighted average common and
 common equivalent shares
 outstanding...............   32,431   32,913     33,787     33,672     34,012

 
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                      F-4

 
                          EXCEL SWITCHING CORPORATION
 
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
 
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
 


                            COMMON STOCK
                         ------------------- ADDITIONAL
                         NUMBER OF  $.01 PAR  PAID-IN     DEFERRED   RETAINED
                           SHARES    VALUE    CAPITAL   COMPENSATION EARNINGS   TOTAL
                         ---------- -------- ---------- ------------ --------  -------
                                                             
Balance, December 31,
 1993................... 27,945,600   $280     $  251      $(126)    $ 1,849   $ 2,254
  Compensation
   associated with the
   grant of stock
   options..............        --     --         --          27         --         27
  Net income............        --     --         --         --        4,190     4,190
                         ----------   ----     ------      -----     -------   -------
Balance, December 31,
 1994................... 27,945,600    280        251        (99)      6,039     6,471
  Compensation
   associated with the
   grant of stock
   options..............        --     --         432       (189)        --        243
  Forfeiture of stock
   options with deferred
   compensation.........        --     --         (16)        16         --        --
  Exercise of stock op-
   tions................    144,000      1        --         --           (1)      --
  Net income............        --     --         --         --        5,411     5,411
                         ----------   ----     ------      -----     -------   -------
Balance, December 31,
 1995................... 28,089,600    281        667       (272)     11,449    12,125
  Compensation
   associated with the
   grant of stock
   options..............        --     --         --          73         --         73
  Forfeiture of stock
   options with deferred
   compensation.........        --     --         (20)         7         --        (13)
  Net income............        --     --         --         --        7,901     7,901
                         ----------   ----     ------      -----     -------   -------
Balance, December 28,
 1996................... 28,089,600    281        647       (192)     19,350    20,086
  Compensation
   associated with the
   grant of stock
   options..............        --     --         360       (325)        --         35
  Net income............        --     --         --         --        7,420     7,420
                         ----------   ----     ------      -----     -------   -------
Balance, June 28, 1997
 (unaudited)............ 28,089,600   $281     $1,007      $(517)    $26,770   $27,541
                         ==========   ====     ======      =====     =======   =======

 
 
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                      F-5

 
                          EXCEL SWITCHING CORPORATION
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
                                 (IN THOUSANDS)
 


                                       YEAR ENDED             SIX MONTHS ENDED
                              ------------------------------ -------------------
                               DECEMBER 31,
                              ----------------  DECEMBER 28, JUNE 30,  JUNE 28,
                               1994     1995        1996       1996      1997
                              -------  -------  ------------ --------  ---------
                                                                (UNAUDITED)
                                                        
Cash Flows From Operating
 Activities:
  Net income................  $ 4,190  $ 5,411    $ 7,901    $ 3,687    $ 7,420
  Adjustments to reconcile
   net income to net cash
   provided by operating
   activities--
    Depreciation and amorti-
     zation.................      443      560      1,166        335      1,008
    Loss on disposal of
     property and equip-
     ment...................      --        95        --         --         --
    Deferred income taxes...     (304)    (487)    (3,417)      (120)    (1,058)
    Compensation expense
     associated with the
     grant of stock options,
     net of forfeitures.....       27      243         60         36         35
    Changes in assets and
     liabilities--
      Accounts receivable...   (2,847)  (3,928)    (2,020)    (1,165)    (2,010)
      Inventories...........     (327)  (3,760)      (409)    (6,446)     1,644
      Prepaid taxes.........      --      (401)       401       (180)       --
      Prepaid expenses......        2     (123)      (132)        16        154
      Accounts payable......    1,297    2,419     (2,473)     2,544      1,241
      Accrued expenses......     (158)   1,198      3,877      1,802      2,558
      Accrued income taxes..     (130)     (55)     2,350       (297)    (1,337)
                              -------  -------    -------    -------    -------
        Net cash provided by
         operating
         activities.........    2,193    1,172      7,304        212      9,655
                              -------  -------    -------    -------    -------
Cash Flows From Investing
 Activities:
  Purchases of property and
   equipment, net...........     (940)  (4,096)    (4,601)    (2,541)    (1,255)
  Purchases of marketable
   securities, net..........      --       --         --         --      (3,001)
  Proceeds from sale of
   property and equipment...      --       --         548        --         --
                              -------  -------    -------    -------    -------
        Net cash used in
         investing
         activities.........     (940)  (4,096)    (4,053)    (2,541)    (4,256)
                              -------  -------    -------    -------    -------
Cash Flows From Financing
 Activities:
  Proceeds from issuance of
   long-term obligations....      --     2,740        649        160        --
  Proceeds from line of
   credit, net..............      --       --         --       2,300        --
  Payments on long-term ob-
   ligations................      --       (53)      (601)      (143)      (243)
  Payments on notes payable
   to stockholder...........     (600)     --         --         --         --
                              -------  -------    -------    -------    -------
        Net cash provided by
         (used in) financing
         activities.........     (600)   2,687         48      2,317       (243)
                              -------  -------    -------    -------    -------
Net increase (decrease) in
 cash and cash equivalents..      653     (237)     3,299        (12)     5,156
Cash and cash equivalents,
 beginning of period........      354    1,007        770        770      4,069
                              -------  -------    -------    -------    -------
Cash and cash equivalents,
 end of period..............  $ 1,007  $   770    $ 4,069    $   758    $ 9,225
                              =======  =======    =======    =======    =======
Supplemental disclosure of
 cash flow information:
Cash paid during the year
 for:
  Interest..................  $    48  $   119    $   490    $   104    $   187
  Taxes.....................  $ 3,429  $ 4,353    $ 5,951    $ 3,122    $ 7,286
Supplemental disclosure of
 noncash investing and
 financing activities:
  Acquisition of property
   and equipment under
   capital lease
   obligations..............  $   --   $ 1,112    $   489    $   --     $   --

 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                      F-6

 
                          EXCEL SWITCHING CORPORATION
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                               DECEMBER 28, 1996
 
               (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
 
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
 
  Excel Switching Corporation (the Company), formerly known as Excel Inc., was
incorporated in Massachusetts in January 1988 and is a provider of open
switching platforms for telecommunications networks worldwide. The Company
develops, manufactures, markets and supports a family of open, programmable,
carrier-class switches that addresses the complex enhanced services and
wireless and wireline infrastructure needs of network providers. The Company
sells to a variety of customers in the worldwide telecommunications market,
including application developers, original equipment manufacturers (OEMs) and
systems integrators.
 
  Certain components used in the manufacture of the Company's products are
currently available only from single or sole source suppliers. In addition,
the Company relies on a limited number of third parties to manufacture certain
other components and subassemblies. Shortages resulting from a change in
arrangements with these suppliers and manufacturers could cause delays in
manufacturing and product shipments and possible deferral or cancellation of
customer orders.
 
  The accompanying consolidated financial statements reflect the application
of certain accounting policies as described below and elsewhere in these notes
to consolidated financial statements.
 
 (a) Principles of Consolidation
 
  These financial statements include the accounts of the Company and its
wholly owned subsidiaries. All significant intercompany transactions have been
eliminated.
 
 (b) Interim Financial Statements
 
  The accompanying consolidated financial statements as of June 28, 1997 and
for the six-month periods ended June 30, 1996 and June 28, 1997 are unaudited,
but in the opinion of management, include all adjustments consisting of normal
recurring adjustments necessary for a fair presentation of results for the
interim periods. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted, although the Company
believes that the disclosures included are adequate to make the information
presented not misleading. Results for the six months ended June 28, 1997 are
not necessarily indicative of the results that may be expected for the year
ending December 27, 1997.
 
 (c) Change in Fiscal Year-End
 
  During 1996, the Company elected to change its fiscal year-end from December
31 to the last Saturday in December. In the accompanying financial statements
"1994" refers to the year ended December 31, 1994; "1995" refers to the year
ended December 31, 1995; and "1996" refers to the year ended December 28,
1996.
 
 (d) Management Estimates
 
  The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes.
 
  The market for telecommunications equipment in which the Company operates
can be characterized as rapidly changing due to several factors including:
technological advancements, the introduction of new products
 
                                      F-7

 
                          EXCEL SWITCHING CORPORATION
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                               DECEMBER 28, 1996
 
               (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
 
and services by the Company and its competitors and the increasing demands
placed on equipment in worldwide telecommunications networks. Significant
assets and liabilities with reported amounts based on estimates include:
accounts receivable, inventory and accrued expenses for post sale support
costs, warranty costs and sales returns. While the Company believes its
estimates are adequate, actual results could differ from those estimates.
 
 (e) Revenue Recognition
 
  Revenue from product sales is recognized at the time of shipment to the
customer at which time transfer of ownership occurs. The Company provides for
anticipated product returns, post sale support and warranty costs at the time
of product shipment.
 
 (f) Cash, Cash Equivalents and Marketable Securities
 
  The Company accounts for investments in accordance with Statement of
Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities. Under SFAS No. 115, investments for
which the Company has the positive intent and ability to hold to maturity,
consisting of cash equivalents and marketable securities, are reported at
amortized cost, which approximates fair market value. Cash equivalents are
highly liquid investments with original maturities of three months or less.
Marketable securities are investment-grade securities with original maturities
of greater than three months but less than one year. To date, the Company has
not recorded any realized gains or losses. Cash, cash equivalents and
marketable securities consist of the following (in thousands):
 


                                                                        JUNE 28,
                                                            1995  1996    1997
                                                            ---- ------ --------
                                                               
      Cash and cash equivalents--
        Cash............................................... $770 $4,016  $  485
        Time deposits......................................  --      53   7,051
        Money markets......................................  --     --    1,689
                                                            ---- ------  ------
          Total cash and cash equivalents.................. $770 $4,069  $9,225
                                                            ==== ======  ======
      Marketable securities--
        Time deposits with banks........................... $--  $  --   $2,001
        U.S. Government and Agency securities..............  --     --    1,000
                                                            ---- ------  ------
          Total marketable securities...................... $--  $  --   $3,001
                                                            ==== ======  ======

 
 (g) Inventories
 
  Inventories are valued at the lower of cost (first-in, first-out) or market.
Work-in-process and finished goods consist of materials, labor and
manufacturing overhead. Inventories at December 31, 1995, December 28, 1996
and June 28, 1997, consist of the following (in thousands):
 


                                                                        JUNE 28,
                                                           1995   1996    1997
                                                          ------ ------ --------
                                                               
      Raw materials...................................... $2,769 $3,585  $1,543
      Work-in-process....................................  3,726  2,988   3,635
      Finished goods.....................................    454    785     536
                                                          ------ ------  ------
                                                          $6,949 $7,358  $5,714
                                                          ====== ======  ======

 
                                      F-8

 
                          EXCEL SWITCHING CORPORATION
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                               DECEMBER 28, 1996
 
               (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
 
 
 (h) Depreciation and Amortization
 
  The Company provides for depreciation and amortization using both straight-
line and accelerated methods by charges to operations in amounts that allocate
the cost of the assets over their estimated useful lives as follows:
 


                                                  ESTIMATED
           DESCRIPTION                           USEFUL LIVES
           -----------                          -------------
                                             
           Buildings...........................    40 years
           Test equipment......................   2-5 years
           Office equipment and fixtures.......   2-7 years
           Building improvements...............  7-40 years
           Assets under capital lease..........     3 years

 
 (i) Research and Development and Software Development Costs
 
  Research and development costs have been charged to operations as incurred.
Capitalization of computer software costs begin upon the establishment of
technological feasibility. Because the Company believes its current process
for developing software is essentially completed concurrently with the
establishment of technological feasibility, no costs have been capitalized to
date.
 
 (j) Concentrations of Credit Risk
 
  Financial instruments that subject the Company to significant concentrations
of credit risk consist primarily of cash, cash equivalents, marketable
securities and trade accounts receivable. The Company's investments are in
financial instruments with high credit ratings. Concentration of credit risk
with respect to accounts receivable is limited to customers to whom the
Company makes significant sales. One customer accounted for approximately 33%,
34% and 25% of accounts receivable at December 31, 1995, December 28, 1996 and
June 28, 1997, respectively (see Note 8). To control credit risk, the Company
performs regular credit evaluations of its customers' financial condition and
maintains allowances for potential credit losses.
 
 (k) Fair Value of Financial Instruments
 
  The carrying amounts of the Company's cash, cash equivalents and accounts
receivable and accounts payable approximate fair value due to the short-term
nature of these instruments. The carrying amounts of debt issued pursuant to
agreements with banks approximate fair value as the interest rates on these
instruments fluctuate with market interest rates.
 
 (l) Net Income per Share
 
  Net income per share was determined by dividing net income by the weighted
average common and common equivalent shares outstanding during the period.
Common equivalent shares consist of common stock options and have been
included in the calculation to the extent their effect is dilutive, except
that pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83 (SAB 83), common equivalent shares issued during the twelve months
preceding the proposed date of the Registration Statement relating to an
initial public offering have been included in the net income per share
computations using the Treasury Stock method as if they were outstanding for
all periods.
 
                                      F-9

 
                          EXCEL SWITCHING CORPORATION
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                               DECEMBER 28, 1996
 
               (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
 
 
  In March 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 128, Earnings per Share. SFAS No. 128 establishes standards for computing
and presenting earnings per share and applies to entities with publicly traded
common stock or potential common stock. This statement is effective for fiscal
years ending after December 15, 1997, and early adoption is not permitted.
When adopted, the statement will require restatement of prior years' earnings
per share. The Company will adopt this statement for its fiscal year ending
December 27, 1997.
 
  Pro forma calculations of basic and diluted earnings per share, as required
by SFAS No. 128, are as follows (in thousands, except per share data):
 


                                                              SIX MONTHS ENDED
                                                              -----------------
                                                              JUNE 30, JUNE 28,
                                       1994    1995    1996     1996     1997
                                      ------- ------- ------- -------- --------
                                                        
Net income..........................  $ 4,190 $ 5,411 $ 7,901 $ 3,687  $ 7,420
                                      ======= ======= ======= =======  =======
Weighted average common shares out-
 standing...........................   27,946  27,962  28,090  28,090   28,090
Common equivalent shares in
 accordance with
 SAB 83.............................    1,090   1,090   1,090   1,090    1,090
                                      ------- ------- ------- -------  -------
Basic weighted average shares out-
 standing...........................   29,036  29,052  29,180  29,180   29,180
Weighted average common equivalent
 shares.............................    3,395   3,861   4,607   4,492    4,832
                                      ------- ------- ------- -------  -------
Diluted weighted average shares out-
 standing...........................   32,431  32,913  33,787  33,672   34,012
                                      ======= ======= ======= =======  =======
Basic earnings per share............  $   .14 $   .19 $   .27 $   .13  $   .25
Diluted earnings per share..........  $   .13 $   .16 $   .23 $   .11  $   .22

 
 (m) Reclassifications
 
  Certain reclassifications have been made to prior-year financial statements
to conform with the current-year presentation.
 
 (n) New Accounting Standards
 
  In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income.
SFAS No. 130 requires disclosure of all components of comprehensive income on
an annual and interim basis. Comprehensive income is defined as the change in
equity of a business enterprise during a period from transactions and other
events and circumstances from nonowner sources. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997.
 
  In July 1997, the FASB issued SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information. SFAS No. 131 requires certain financial
and supplementary information to be disclosed on an annual and interim basis
for each reportable segment of an enterprise. SFAS No. 131 is effective for
fiscal years beginning after December 15, 1997. Unless impracticable,
companies would be required to restate prior period information upon adoption.
 
                                     F-10

 
                          EXCEL SWITCHING CORPORATION
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                               DECEMBER 28, 1996
 
               (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
 
 
(2) LONG-TERM OBLIGATIONS
 
  Long-term obligations consist of the following at December 31, 1995 and
December 28, 1996 (in thousands):
 


                                                                    1995   1996
                                                                   ------ ------
                                                                    
      Mortgage and Security Agreement............................. $2,424 $2,485
      Capital lease obligation--building..........................  1,083    997
      Promissory note payable to a bank...........................    291    435
      Capital lease obligation--equipment.........................    --     419
                                                                   ------ ------
                                                                    3,798  4,336
      Less--Current maturities....................................    261    499
                                                                   ------ ------
                                                                   $3,537 $3,837
                                                                   ====== ======

 
  On April 21, 1995, the Company entered into a $2,600,000 Mortgage and
Security Agreement with a bank to finance the purchase of two buildings and
related land. The agreement requires monthly principal and interest payments
of approximately $26,000 through April 2010. Interest accrues at prime (8.5%
at June 28, 1997) plus .75%. The mortgage is collateralized by the two
buildings and related land, which have a carrying value of approximately
$3,100,000 at June 28, 1997. The Company is subject to certain restrictive
covenants under this agreement.
 
  In 1995, the Company entered into a building lease that requires monthly
payments ranging from approximately $12,000 to $14,000 through July 2000. In
addition, the lease includes a bargain purchase option exercisable in August
1998 for $875,000. The Company intends to exercise this option and,
accordingly, has recorded this lease as a capital lease obligation. The
present value of the remaining lease payments and the purchase price have been
recognized as the capital lease obligation using an effective rate of 8.3%.
 
  During 1996, the Company entered into an agreement with a leasing company,
which provided for the sale and leaseback of certain equipment that had a net
book value of approximately $474,000. Proceeds to the Company in connection
with this sale were approximately $548,000. The resulting gain has been
deferred and will be recognized ratably over the lease term. Under the terms
of the agreement, the Company is required to make thirty-six monthly
installments of approximately $16,000. The present value of the lease payments
has been recognized as a capital lease obligation using an effective rate of
9%.
 
  On June 30, 1997, the Company purchased property to be used for the
construction of an additional building. The purchase price of $575,000 and the
estimated construction costs of $3,600,000 will be financed, in part, by a
$2,100,000 Real Estate Promissory Note with a bank. In connection with the
purchase, the bank advanced $460,000 under this note. The remaining funds will
be advanced as construction milestones are attained. Borrowings under this
note shall bear interest at prime (8.5% at June 28, 1997) plus .25% and are
secured by the property and certain other assets. Twelve monthly payments of
interest only are required beginning in July 1997. Thereafter, monthly
payments of principal and interest will be made over a period of fifteen
years.
 
  On August 1, 1996, the Company entered into a promissory note with a bank
for $489,000, the proceeds of which were used to fund leasehold improvements
and to retire a 1995 promissory note with the same bank in the original amount
of $300,000. Borrowings under this new note require monthly principal payments
of approximately $14,000 plus interest at prime (8.5% at June 28, 1997) plus
1% through August 1999.
 
                                     F-11

 
                          EXCEL SWITCHING CORPORATION
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                               DECEMBER 28, 1996
 
               (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
 
 
  Future maturities of long-term obligations as of December 28, 1996 are as
follows (in thousands):
 


                                                        BANK     CAPITAL
                                                     OBLIGATIONS LEASES  TOTAL
                                                     ----------- ------- ------
                                                                
      1997..........................................   $  266    $  341  $  607
      1998..........................................      276     1,154   1,430
      1999..........................................      232        96     328
      2000..........................................      133       --      133
      2001..........................................      146       --      146
      Thereafter....................................    1,867       --    1,867
                                                       ------    ------  ------
                                                        2,920     1,591   4,511
      Less--Amount representing interest............      --        175     175
                                                       ------    ------  ------
      Total long-term obligations...................   $2,920    $1,416  $4,336
                                                       ======    ======  ======

 
(3) LINE-OF-CREDIT ARRANGEMENT
 
  The Company has an unsecured line-of-credit arrangement with a bank, which
provides up to $10,000,000 in financing. Borrowings under this line are
limited to 75% of eligible accounts receivable and 50% of certain inventories,
as defined, and bear interest at either the bank's base rate (8.5% at June 28,
1997) or the Eurodollar rate (5.7% at June 28, 1997) plus 2.5%. The Company is
required to comply with certain restrictive covenants under this agreement.
There were no borrowings outstanding under this agreement at December 31,
1995, December 28, 1996 or June 28, 1997.
 
(4) INCOME TAXES
 
  The Company provides for income taxes under SFAS No. 109, Accounting for
Income Taxes. Under SFAS No. 109, a deferred tax asset or liability is
determined based on the difference between the financial statement and tax
bases of assets and liabilities, as measured by the enacted tax rates expected
to be in effect when the differences reverse.
 
  The components of the provision for income taxes are as follows (in
thousands):
 


                                                         1994    1995    1996
                                                        ------  ------  -------
                                                               
      Current--
        Federal........................................ $2,462  $3,054  $ 6,731
        State..........................................    731     843    1,971
                                                        ------  ------  -------
                                                         3,193   3,897    8,702
                                                        ------  ------  -------
      Deferred (prepaid)--
        Federal........................................   (226)   (363)  (2,904)
        State..........................................    (78)   (124)    (513)
                                                        ------  ------  -------
                                                          (304)   (487)  (3,417)
                                                        ------  ------  -------
          Total provision.............................. $2,889  $3,410  $ 5,285
                                                        ======  ======  =======

 
                                     F-12

 
                          EXCEL SWITCHING CORPORATION
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                               DECEMBER 28, 1996
 
               (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
 
 
  A reconciliation of the federal statutory rate to the Company's effective
tax rate is as follows:
 


                                                                  1994  1995  1996
                                                                  ----  ----  ----
                                                                     
      Income tax provision at federal statutory rate.............  34%   34%   34%
      Increase (decrease) in tax resulting from--
        State tax provision, net of federal benefit..............   6     6     6
        Research and development tax credit......................  (2)   (1)   --
        Other....................................................   3    --    --
                                                                  ---   ---   ---
          Effective tax rate.....................................  41%   39%   40%
                                                                  ===   ===   ===

 
  The approximate income tax effect of each type of temporary difference
composing the net deferred tax asset at December 31, 1995 and December 28,
1996 is as follows (in thousands):
 


                                                                 1995    1996
                                                                 -----  ------
                                                                  
      Difference in inventory accounting method................. $(468) $ (275)
      Nondeductible reserves....................................   302   1,427
      Nondeductible accruals....................................   341   2,674
      Property and equipment....................................    85     137
      Other temporary differences...............................    84    (202)
                                                                 -----  ------
        Net deferred tax asset.................................. $ 344  $3,761
                                                                 =====  ======

 
(5) STOCKHOLDERS' EQUITY
 
 (a) Authorized and Outstanding Common Stock
 
  As of December 31, 1995, December 28, 1996 and June 28, 1997, the Company
has 27,945,600 shares of voting and 144,000 shares of nonvoting common stock
outstanding.
 
  On September 19, 1996, the Company increased its authorized shares of no par
value common stock from 10,000,000 shares to 30,000,000 shares with 15,000,000
shares being designated as voting and 15,000,000 shares as nonvoting.
 
  On September 16, 1997, the Company restated its Articles of Organization to
provide for authorized common stock of 100,000,000 shares, with a $.01 par
value, 85,000,000 of which are designated as voting shares and 15,000,000 of
which are designated as nonvoting shares. The accompanying consolidated
financial statements have been retroactively restated for this change. Upon
the effective date of the Registration Statement relating to the Company's
initial public offering of common stock described in this prospectus, all
authorized and outstanding shares of nonvoting common stock will be
automatically converted, on a one-for-one basis, into shares of voting common
stock.
 
 (b) Preferred Stock
 
  In September 1997, the Board of Directors and sole voting stockholder
authorized 10,000,000 shares of $.01 par value preferred stock. The Board of
Directors will have the authority to issue such shares in one or more series
and to fix the relative rights and preferences without further vote or action
by the stockholders. Currently, the Board has no plans to issue any shares of
preferred stock.
 
                                     F-13

 
                          EXCEL SWITCHING CORPORATION
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                               DECEMBER 28, 1996
 
               (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
 
 
 (c) Stock Split
 
  On September 19, 1996, the Company declared a three-for-one split of the
shares of common stock. On September 16, 1997, the Company declared a two-for-
one split of the shares of common stock. All share and per share amounts for
all periods presented have been adjusted to reflect these splits.
 
 (d) Stock Options
 
  The Company has granted nonqualified stock options to purchase shares of its
nonvoting common stock at exercise prices generally determined to be at fair
market value by the Company's Board of Directors on the date of grant. Options
are generally exercisable within 10 years of the original date of grant and
vest over a period of up to five years from the date of grant. In some
instances, options have been granted at exercise prices below the fair market
value on the date of grant. The difference, if any, between the fair market
value of shares of the Company's nonvoting common stock, as determined by the
Company's Board of Directors, and the exercise price of the option is
recognized as compensation expense over the vesting term. During 1994, 1995
and 1996, the Company recognized net compensation expense of $27,000, $243,000
and $60,000, respectively.
 
  Effective with the automatic conversion of the Company's nonvoting shares
into shares of voting common stock, shares issuable upon exercise of these
options will be voting common stock. Stock option activity for the three years
in the period ended December 28, 1996 and for the six-month period ended June
28, 1997 is as follows:
 


                                                                       WEIGHTED
                                                                        AVERAGE
                                                           NUMBER OF    EXERCISE
                                                             SHARES      PRICE
                                                           ----------  ---------
                                                                 
      Outstanding, December 31, 1993......................  5,709,840   $0.002
        Granted...........................................    930,000    0.167
                                                           ----------   ------
      Outstanding, December 31, 1994......................  6,639,840    0.025
        Granted...........................................  1,491,000    0.333
        Exercised.........................................   (144,000)   0.002
        Forfeited.........................................    (96,000)   0.002
                                                           ----------   ------
      Outstanding, December 31, 1995......................  7,890,840    0.084
        Granted...........................................  1,997,500    4.250
        Forfeited.........................................    (30,000)   0.333
                                                           ----------   ------
      Outstanding, December 28, 1996......................  9,858,340    0.927
        Granted...........................................  1,050,300    6.551
        Forfeited.........................................   (100,000)   3.850
                                                           ----------   ------
      Outstanding, June 28, 1997.......................... 10,808,640   $1.447
                                                           ==========   ======

   
  Subsequent to June 28, 1997, the Company issued options to purchase a total
of 433,800 shares of common stock at exercise prices ranging from $6.00 to
$18.00.     
 
                                     F-14

 
                          EXCEL SWITCHING CORPORATION
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                               DECEMBER 28, 1996
 
               (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
 
 
  The following tables summarize information about stock options outstanding
at June 28, 1997:
 


                                                   OPTIONS OUTSTANDING
                                           -----------------------------------
                                                          WEIGHTED
                                              NUMBER       AVERAGE   WEIGHTED
                                            OUTSTANDING   REMAINING   AVERAGE
                                            AT JUNE 28,  CONTRACTUAL  EXERCISE
      RANGE OF EXERCISE PRICES                 1997         LIFE       PRICE
      ------------------------             ------------ ------------ ---------
                                                            
      $     0.002.........................   5,469,840      6.4       $ 0.002
            0.167.........................     930,000      7.4         0.167
            0.333.........................   1,461,000      8.2         0.333
       1.00-2.333.........................     324,000      9.0         2.235
       4.50- 5.00.........................   1,573,500      9.3         4.691
       6.00- 7.00.........................     952,800      9.6         6.307
       7.50- 8.50.........................      61,100      9.8         8.196
       9.50-11.50.........................      36,400      9.9        10.199
                                            ----------                -------
                                            10,808,640                $ 1.447
                                            ==========                =======

 


                                                        OPTIONS EXERCISABLE
                                                    ----------------------------
                                                                    WEIGHTED
                                                       NUMBER        AVERAGE
      EXERCISE PRICES                                EXERCISABLE  EXERCISE PRICE
      ---------------                               ------------ ---------------
                                                           
        $0.002.....................................  5,355,840       $ 0.002
         0.167.....................................    566,400         0.167
         0.333.....................................    591,300         0.333
         1.000.....................................      2,400         1.000
                                                     ---------       -------
      Exercisable, June 28, 1997...................  6,515,940       $ 0.047
                                                     =========       =======
      Exercisable, December 28, 1996...............  6,356,940       $ 0.046
                                                     =========       =======
      Exercisable, December 31, 1995...............  5,840,040       $ 0.029
                                                     =========       =======
      Exercisable, December 31, 1994...............  5,433,840       $ 0.012
                                                     =========       =======

 
 (e) Fair Value of Stock Options
 
  In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation. SFAS No. 123 requires the measurement of the fair value of stock
options to be included in the statement of income or disclosed in the notes to
financial statements. The Company has determined that it will continue to
account for stock-based compensation for employees under Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees, and elect the
disclosure-only alternative under SFAS No. 123.
 
                                     F-15

 
                          EXCEL SWITCHING CORPORATION
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                               DECEMBER 28, 1996
 
               (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
 
 
  Had compensation cost for the Company's option plans been determined based
on the fair value at the grant dates, as prescribed in SFAS No. 123, the
Company's net income and net income per share would have been as follows:
 


                                                1995   1996
                                               ------ ------
                                                
           Net income (in thousands)--
             As reported...................... $5,411 $7,901
             Pro forma........................ $5,317 $7,456
           Net income per share--
             As reported...................... $  .16 $  .23
             Pro forma........................ $  .16 $  .22

 
  The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions used for
grants during the applicable period: dividend yield of 0.0% for all periods;
volatility of 56.6% for all periods; risk-free interest rates of 6.0% to 6.5%
for options granted during 1995 and 5.9% to 6.8% for options granted during
1996; and a weighted average expected option term of 7.5 years for all
periods. The weighted average fair value per share of options granted during
1995 and 1996 was $0.97 and $5.64, respectively.
 
 (f) Stock Option Plans
 
  In September 1997, the Company's Board of Directors and sole voting
stockholder adopted the 1997 Stock Option Plan (1997 Plan). Under the terms of
the 1997 Plan, incentive and nonqualified stock options may be granted to
employees and consultants to purchase an aggregate of 3,000,000 shares of
common stock. No options have been granted under the 1997 Plan.
 
  The Company's Non-Employee Director Stock Option Plan (Director Option Plan)
was adopted by the Board of Directors and sole voting stockholder in
(September 1997). The Director Option Plan provides for the grant of options
to purchase an aggregate 225,000 shares of common stock to non-employee
directors of the Company. Each such director will be granted an option to
purchase 30,000 shares upon election. In addition, each such director will be
automatically granted an option to purchase 15,000 shares in each of the two
years following the date such person becomes a director. These options will
vest 1/3 on grant date, 1/3 one year from grant date, and 1/3 two years from
grant date. Upon the closing of the public offering three directors will be
elected and receive the options as described above. The exercise price of the
options will be the fair market value on the date of grant.
 
 (g) Employee Stock Purchase Plan
 
  In September 1997, the Company's Board of Directors and sole voting
stockholder approved the 1997 Employee Stock Purchase Plan pursuant to which a
maximum of 400,000 shares of common stock may be issued to participating
employees in semiannual grants at a price equal to 85% of fair market value,
as defined.
 
                                     F-16

 
                          EXCEL SWITCHING CORPORATION
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                               DECEMBER 28, 1996
 
               (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
 
 
(6) COMMITMENTS
 
  The Company leases certain equipment and office facilities under
noncancelable operating leases, which expire at various dates through
September 2001. Future minimum lease payments required under these leases at
December 28, 1996 are approximately as follows (in thousands):
 


           FISCAL YEAR                                 AMOUNT
           -----------                                 ------
                                                    
           1997....................................... $  958
           1998.......................................    318
           1999.......................................    113
           2000.......................................     96
           2001.......................................     45
                                                       ------
                                                       $1,530
                                                       ======

 
  Total rent expense under these agreements for 1994, 1995 and 1996 was
approximately $134,000, $193,000 and $1,062,000, respectively.
 
(7) EMPLOYEE BENEFIT PLAN
 
  The Company has a qualified 401(k) retirement savings plan covering all
employees. Under this plan, participants may elect to defer a portion of their
compensation, subject to certain limitations. In addition, the Company, at the
discretion of the Board of Directors, may make profit sharing contributions
into the plan. During 1994, 1995 and 1996, the Company made contributions of
approximately $160,000, $209,000 and $534,000, respectively.
 
(8) SIGNIFICANT CUSTOMERS
 
  Sales to significant customers as a percentage of the Company's total
revenues were as follows:
 


                                                                  SIX-MONTHS ENDED
                                                                  -----------------
                                                                  JUNE 30, JUNE 28,
                                                1994  1995  1996    1996     1997
                                                ----  ----  ----  -------- --------
                                                            
      Customer A...............................  33%   41%   37%     38%      35%
      Customer B...............................  --    11%   --      --       --
      Customer C...............................  10%   --    --      --       --

 
(9) ACCRUED EXPENSES
 
  Accrued expenses at December 31, 1995, December 28, 1996, and June 28, 1997
consist of the following (in thousands):
 


                                                                        JUNE 28,
                                                           1995   1996    1997
                                                          ------ ------ --------
                                                               
      Accrued payroll and benefits....................... $  666 $1,322  $2,438
      Accrued sales returns..............................    578  1,243   2,381
      Accrued post sales support and warranty............    235  1,225   1,550
      Accrued other......................................    362  1,041     781
      Accrued professional fees..........................     90    624     633
      Accrued marketing..................................    --     352     583
                                                          ------ ------  ------
                                                          $1,931 $5,807  $8,366
                                                          ====== ======  ======

 
                                     F-17

 
 
 
 
                                      LOGO
 
 
 

 
                                    PART II
 
                    INFORMATION NOT REQUIRED IN PROSPECTUS
 
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
 
  Estimated expenses (other than underwriting discounts and commissions)
payable in connection with the sale of the Common Stock offered hereby are as
follows:
 
   
                                                                     
   SEC Registration fee................................................   31,364
   NASD filing fee.....................................................   10,850
   Nasdaq National Market listing fee..................................   50,000
   Printing and engraving expenses.....................................  125,000
   Legal fees and expenses.............................................  300,000
   Accounting fees and expenses........................................  200,000
   Blue Sky fees and expenses (including legal fees)...................   10,000
   Transfer agent and registrar fees and expenses......................   10,000
   Miscellaneous.......................................................   62,786
                                                                        --------
     Total............................................................. $800,000
                                                                        ========
    
 
  The Company will bear all expenses shown above.
 
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
 
  The Company is required by its Restated By-laws and the Restated Articles of
Organization generally to indemnify any director, officer or employee against
all expenses and liabilities reasonably incurred by or imposed upon such
person in connection with any legal action in which such person is involved by
reason of such person's position with the Company unless such person shall
have been finally adjudicated in any action, suit or proceeding not to have
acted in good faith in the reasonable belief that such person's action was in
the best interests of the Company. The Company may pay expenses incurred by
any such person in defending a civil or criminal action or proceeding in
advance of the final disposition of such action upon the Company's receipt of
the undertaking of such person to repay such amount if such person shall be
adjudicated not to be entitled to indemnification.
 
  The Company's Restated Articles of Incorporation include a provision
limiting the personal liability of a director of the Company to its
stockholders for monetary damages for breaches of their fiduciary duty except
(i) for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under section
sixty-one or sixty-two of Chapter 156B of the Massachusetts General Laws, or
(iv) for any transaction from which the director derived an improper personal
benefit.
 
  The Underwriting Agreement provides that the Underwriters are obligated,
under certain circumstances, to indemnify directors, officers and controlling
persons of the Company against certain liabilities, including liabilities
under the Securities Act. Reference is made to the form of Underwriting
Agreement filed as Exhibit 1.1 hereto.
 
  The Company maintains directors and officers liability insurance for the
benefit of its directors and certain of its officers.
 
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
 
  The Registrant has sold and issued the following securities during the past
three years:
 
    (1) As of August 30, 1997, the Company has issued options to purchase an
  aggregate of 5,531,000 shares of Common Stock to employees at a weighted
  average exercise price of $3.03 per share of which 144,000 shares have been
  issued upon the exercise of such options.
 
                                     II-1

 
    (2) On September 19, 1996, the Company's Board of Directors authorized a
  three-for-one stock split in the form of a stock dividend on the Common
  Stock. On September 16, 1997, the Company's Board of Directors authorized a
  subsequent two-for-one stock split in the form of a stock dividend on the
  Common Stock. All of the share information in this Registration Statement
  reflects such stock splits.
 
  No underwriters were involved in the foregoing sales of securities. Such
sales were made in reliance upon an exemption from the registration provisions
of the Securities Act of 1993, as amended (the "Securities Act"), set forth in
Sections 2(3), 4(2) or Rule 701 thereof relative to sales by an issuer not
involving any public offering or the rules and regulations thereunder. All of
the foregoing securities are deemed restricted securities for the purposes of
the Securities Act.
 
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
 
  (a) Exhibits:
 
   

 EXHIBIT NO.                            DESCRIPTION
 -----------                            -----------
          
  1.1        --Form of Underwriting Agreement.
  3.1        --Restated Articles of Organization of the Company.
  3.2        --Restated By-laws of the Company.
  4.1        --Specimen certificate representing the Common Stock.
  5.1        --Opinion of Testa, Hurwitz & Thibeault, LLP.
 10.1        --1997 Stock Option Plan.
 10.2        --1997 Non-Employee Director Stock Option Plan.
 10.3        --1997 Employee Stock Purchase Plan.
 10.4        --Form of Stock Option Agreement of the Company used under Stock
               Option Program.
 10.5        --Lease dated as of July 27, 1995 between the Company and
               Independence Park, Inc., as amended.
 10.6        --Purchase and Resale Agreement dated as of May 27, 1994 between
               the Company and Boston Technology, Inc.
 10.7        --Credit Agreement and Promissory Note dated as of December 21,
               1995 between the Company and The First National Bank of Boston,
               as amended.
 10.8        --Mortgage and Security Agreement and Real Estate Promissory Note
               dated as of April 21, 1995 between the Company and Cape Cod Bank
               and Trust Company.
 10.9        --Loan Agreement, Real Estate Promissory Note and Security
               Agreement dated as of June 30, 1997 between the Company and Cape
               Cod Bank and Trust Company.
 11.1        --Statement re: computation of earnings per share.
 23.1+       --Consent of Arthur Andersen LLP.
             --Consent of Testa, Hurwitz & Thibeault, LLP (included in Exhibit
 23.2          5.1).
 23.3        --Consent of Cesari and McKenna, LLP.
 24.1        --Power of Attorney (see page II-4).
 27.1        --Financial Statement Schedule.
 99.1        --Consent of Edward L. Breslow, to be named a director.
 99.2        --Consent of William J. Cadogan, to be named a director.
 99.3        --Consent of John Loughlin, to be named a director.
    
- --------
   
+Filed herewith. All other Exhibits and Financial Statements have been filed
 previously.     
 
                                     II-2

 
  (b) Financial Statement Schedule:
 
    Report of Independent Public Accountants
 
    Schedule II--Valuation and Qualifying Accounts
 
  All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.
 
ITEM 17. UNDERTAKINGS.
 
  Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
 
  The undersigned registrant hereby undertakes (i) to provide to the
underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser; (ii) that for
purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective; and (iii) that for the
purpose of determining any liability under the Securities Act, each post-
effective amendment that contains a form of prospectus shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
 
                                     II-3

 
                                  SIGNATURES
   
  Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Hyannis, Massachusetts on November
3, 1997.     
 
                                          Excel Switching Corporation
 
                                                   /s/ Robert P. Madonna
                                          By: _________________________________
                                             ROBERT P. MADONNA CHIEF EXECUTIVE
                                            OFFICER, PRESIDENT AND CHAIRMAN OF
                                                  THE BOARD OF DIRECTORS
 
                       POWER OF ATTORNEY AND SIGNATURES
 
  PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
 
              SIGNATURE                      TITLE(S)                DATE
 
                  *                    Chief Executive              
- -------------------------------------   Officer, President       November 3,
          ROBERT P. MADONNA             (Principal                1997     
                                        Executive Officer)
                                        and Chairman of the
                                        Board of Directors
 
                  *                    Chief Financial              
- -------------------------------------   Officer (Principal       November 3,
         STEPHEN S. GALLIKER            Financial Officer         1997     
                                        and Principal
                                        Accounting Officer)
 
                  *                    Director, Vice               
- -------------------------------------   President and            November 3,
         CHRISTOPHER STAVROS            General Counsel           1997     
 
         /s/ Robert P. Madonna                                      
*By: ________________________________                            November 3,
  ROBERT P. MADONNA, AS ATTORNEY-IN-                              1997     
                 FACT
 
                                     II-4

 
                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To Excel Switching Corporation:
 
  We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of Excel Switching Corporation and
subsidiaries included in this Form S-1 and have issued our report thereon
dated March 3, 1997. Our audit was made for the purpose of forming an opinion
on the basic consolidated financial statements taken as a whole. The schedule
listed in Item 16(b) is the responsibility of the Company's management and is
presented for the purpose of complying with Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures
applied in the audit of the basic consolidated financial statements and, in
our opinion, fairly states in all material respects, the financial data
required to be set forth therein, in relation to the basic consolidated
financial statements taken as a whole.
 
                                          ARTHUR ANDERSEN LLP
 
Boston, Massachusetts
March 3, 1997
 
                                      S-1

 
                                                                     SCHEDULE II
 
                          EXCEL SWITCHING CORPORATION
 
                       VALUATION AND QUALIFYING ACCOUNTS
 


ALLOWANCE FOR
  DOUBTFUL                            BALANCE  CHARGED TO              BALANCE
  ACCOUNTS                           BEGINNING    COST    DEDUCTIONS   END OF
- -------------                        OF PERIOD OR EXPENSE (WRITEOFFS)  PERIOD
                                     --------- ---------- ----------- ---------
                                                          
1994................................  220,000   155,000    (109,000)    266,000
1995................................  266,000   387,000           0     653,000
1996................................  653,000   497,000    (171,000)    979,000
June 28, 1997 (unaudited)...........  979,000   184,000     (13,000)  1,150,000

 
                                      S-2

 
                                 EXHIBIT INDEX
 
  (a) Exhibits:
 
   

 EXHIBIT NO.                            DESCRIPTION
 -----------                            -----------
          
  1.1        --Form of Underwriting Agreement.
  3.1        --Restated Articles of Organization of the Company.
  3.2        --Restated By-laws of the Company.
  4.1        --Specimen certificate representing the Common Stock.
  5.1        --Opinion of Testa, Hurwitz & Thibeault, LLP.
 10.1        --1997 Stock Option Plan.
 10.2        --1997 Non-Employee Director Stock Option Plan.
 10.3        --1997 Employee Stock Purchase Plan.
 10.4        --Form of Stock Option Agreement of the Company used under Stock
               Option Program.
 10.5        --Lease dated as of July 27, 1995 between the Company and
               Independence Park, Inc., as amended.
 10.6        --Purchase and Resale Agreement dated as of May 27, 1994 between
               the Company and Boston Technology, Inc.
 10.7        --Credit Agreement and Promissory Note dated as of December 21,
               1995 between the Company and The First National Bank of Boston,
               as amended.
 10.8        --Mortgage and Security Agreement and Real Estate Promissory Note
               dated April 21, 1995 between the Company and Cape Cod Bank and
               Trust Company.
 10.9        --Loan Agreement, Real Estate Promissory Note and Security
               Agreement dated as of June 30, 1997 between the Company and Cape
               Cod Bank and Trust Company.
 11.1        --Statement re: computation of earnings per share.
 23.1+       --Consent of Arthur Andersen LLP.
 23.2        --Consent of Testa, Hurwitz & Thibeault, LLP (included in Exhibit
               5.1).
 23.3        --Consent of Cesari and McKenna, LLP.
 24.1        --Power of Attorney (see page II-4).
 27.1        --Financial Statement Schedule.
 99.1        --Consent of Edward L. Breslow, to be named a director.
 99.2        --Consent of William J. Cadogan, to be named a director.
 99.3        --Consent of John Loughlin, to be named a director.
    
- --------
   
+ Filed herewith. All other Exhibits and Financial Statements have been filed
  previously.