SEC Filing - Ciena Corporation

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 12, 1997

REGISTRATION NO. 333-28325
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------

AMENDMENT NO. 2
TO
FORM S-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------

CIENA CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 3661 23-2725311
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)

920 ELKRIDGE LANDING ROAD
LINTHICUM, MD 21090
(410) 865-8500
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------

G. ERIC GEORGATOS
VICE PRESIDENT, GENERAL COUNSEL
AND SECRETARY
CIENA CORPORATION
920 ELKRIDGE LANDING ROAD
LINTHICUM, MD 21090
(410) 865-8500
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------
Copies to:

MARK G. BORDEN
MICHAEL J. SILVER DAVID SYLVESTER
HOGAN & HARTSON L.L.P. HALE AND DORR LLP
111 SOUTH CALVERT STREET 1455 PENNSYLVANIA AVE., N.W.
BALTIMORE, MARYLAND 21202 WASHINGTON, D.C. 20004
(410) 659-2700 (202) 942-8400

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE HEREOF.

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 the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE

==============================================================================================================================
TITLE OF EACH CLASS PROPOSED MAXIMUM
OF SECURITIES TO BE AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED BE REGISTERED PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE(2)
- ------------------------------------------------------------------------------------------------------------------------------

Common Stock, $.01 par value 11,500,000 shares $43.25 $497,375,000 $150,720
==============================================================================================================================

(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c), based on the average of the high and low sales
prices reported on the Nasdaq National Market on May 27, 1997.

(2) Previously paid.

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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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
================================================================================
2

EXPLANATORY NOTE

This Registration Statement contains two forms of prospectus: one to be
used in connection with a United States offering of shares (the "U.S.
Prospectus") and one to be used in connection with a concurrent international
offering of shares (the "International Prospectus"). The U.S. Prospectus and the
International Prospectus are identical except that they contain different front
and back cover pages and different descriptions of the plan of distribution
(contained under the caption "Underwriting" in each of the U.S. and
International Prospectuses). The form of U.S. Prospectus is included herein and
is followed by those pages to be used in the International Prospectus which
differ from, or are in addition to, those in the U.S. Prospectus. Each of the
pages for the International Prospectus included herein is labeled "Alternate
Page for International Prospectus."
3

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.

SUBJECT TO COMPLETION, DATED JUNE 12, 1997

10,000,000 SHARES
[CIENA LOGO]

COMMON STOCK
(PAR VALUE $.01 PER SHARE)
------------------------

Of the 10,000,000 shares of Common Stock offered, 8,000,000 shares are
being offered hereby in the United States and 2,000,000 shares are being offered
in a concurrent international offering outside the United States. The initial
public offering price and the aggregate underwriting discount per share will be
identical for both offerings. See "Underwriting".

Of the 10,000,000 shares of Common Stock offered, 1,000,000 shares are
being sold by the Company and 9,000,000 shares are being sold by the Selling
Stockholders. See "Principal and Selling Stockholders". The Company will not
receive any proceeds from the sale of the shares being sold by the Selling
Stockholders.

SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.

The last reported sale price of the Common Stock, which is quoted on the
Nasdaq National Market under the symbol "CIEN", on June 11, 1997 was $47.625 per
share. See "Price Range of Common Stock".

------------------------
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.
------------------------

INITIAL PUBLIC UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING
OFFERING PRICE DISCOUNT(1) COMPANY(2) STOCKHOLDERS(2)
-------------- ------------ ------------ -------------------

Per Share.............. $ $ $ $
Total (3).............. $ $ $ $

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

(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.
(2) Before deducting estimated expenses of $800,000 payable by the Company and
$50,000 payable by the Selling Stockholders.
(3) The Company and the Selling Stockholders have granted the U.S. Underwriters
an option for 30 days to purchase up to an additional 1,200,000 shares at
the initial public offering price per share, less the underwriting discount,
solely to cover over-allotments. Additionally, the Company and the Selling
Stockholders have granted the International Underwriters a similar option
with respect to an additional 300,000 shares as part of the concurrent
international offering. If such options are exercised in full, the total
initial public offering price, underwriting discount, proceeds to the
Company and proceeds to Selling Stockholders will be $ , $ ,
$ and $ , respectively. See "Underwriting".
------------------------

The shares offered hereby are offered severally by the U.S. Underwriters,
as specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
certificates for the shares will be ready for delivery in New York, New York,
on or about , 1997, against payment therefor in immediately available
funds.

GOLDMAN, SACHS & CO.
ALEX. BROWN & SONS
INCORPORATED

WESSELS, ARNOLD & HENDERSON

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

The date of this Prospectus is , 1997.
4

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.

[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]

SUBJECT TO COMPLETION, DATED JUNE 12, 1997

10,000,000 SHARES
LOGO

COMMON STOCK
(PAR VALUE $.01 PER SHARE)
------------------------

Of the 10,000,000 shares of Common Stock offered, 2,000,000 shares are
being offered hereby in an
international offering outside the United States and 8,000,000 shares are being
offered in a concurrent United States offering. The initial public offering
price and the aggregate underwriting discount per share will be identical for
both offerings. See "Underwriting".

SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.

The last reported sale price of the Common Stock, which is quoted on the
Nasdaq National Market under the symbol "CIEN", on June 2, 1997 was $47.625 per
share. See "Price Range of Common Stock".

INITIAL PUBLIC UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING
OFFERING PRICE DISCOUNT(1) COMPANY(2) STOCKHOLDERS(2)
-------------- ------------ ------------ -------------------

Per Share.............. $ $ $ $
Total (3).............. $ $ $ $

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

(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.
(2) Before deducting estimated expenses of $800,000 payable by the Company and
$50,000 payable by the Selling Stockholders.
(3) The Company and the Selling Stockholders have granted the International
Underwriters an option for 30 days to purchase up to an additional 300,000
shares at the initial public offering price per share, less the underwriting
discount, solely to cover over-allotments. Additionally, the Company and the
Selling Stockholders have granted the U.S. Underwriters a similar option
with respect to an additional 1,200,000 shares as part of the concurrent
U.S. offering. If such options are exercised in full, the total initial
public offering price, underwriting discount, proceeds to the Company and
proceeds to Selling Stockholders will be $ , $ , $ and $ ,
respectively. See "Underwriting".
------------------------

The shares offered hereby are offered severally by the International
Underwriters, as specified herein, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part. It is expected
that certificates for the shares will be ready for delivery in New York, New
York, on or about , 1997, against payment therefor in immediately
available funds.

GOLDMAN SACHS INTERNATIONAL
ALEX. BROWN & SONS
INTERNATIONAL

WESSELS, ARNOLD & HENDERSON

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

The date of this Prospectus is , 1997.
5

AVAILABLE INFORMATION

CIENA Corporation (the "Company") is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Reports, proxy statements and other information filed by the Company may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's Regional Offices located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, 7th Floor,
New York, New York 10048. Copies of such materials may be obtained from the Web
site that the Commission maintains at http://www.sec.gov.

The Company has filed with the Commission a registration statement on Form
S-1 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended. This
Prospectus 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, reference is hereby made
to the Registration Statement.
------------------------

CIENA(TM), the CIENA logo(TM), MultiWave(TM) and MultiWave Sentry(TM) are
trademarks, and WaveWatcher(R) is a registered trademark, of the Company. All
other brand names or trademarks appearing in this Prospectus are the property of
their respective owners.
------------------------

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE
OFFERING. IN ADDITION, CERTAIN UNDERWRITERS (AND SELLING GROUP MEMBERS, IF ANY)
ALSO MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE
NASDAQ NATIONAL MARKET, IN ACCORDANCE WITH RULE 103 UNDER THE SECURITIES
EXCHANGE ACT OF 1934. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
6

[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]

AVAILABLE INFORMATION

This Prospectus does not constitute an offer to sell or the solicitation of
an offer to buy the shares of Common Stock in any jurisdiction in which such
offer or solicitation is unlawful. There are restrictions on the offer and sale
of the shares of Common Stock in the United Kingdom. All applicable provisions
of the Financial Services Act 1986 and the Public Offers of Securities
Regulations 1995 with respect to anything done by any person in relation to the
shares of Common Stock, in, from or otherwise involving the United Kingdom must
be complied with. See "Underwriting".

In this Prospectus, references to "dollars", "U.S.$" and "$" are to United
States dollars.
------------------------

IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
7

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and consolidated financial
statements and notes thereto appearing elsewhere in this Prospectus. Unless
otherwise indicated, all information in this Prospectus assumes no exercise of
the over-allotment options granted to the Underwriters.

THE COMPANY

CIENA Corporation ("CIENA" or the "Company") designs, manufactures and
sells dense wavelength division multiplexing ("DWDM") systems for fiberoptic
communications networks. CIENA's first DWDM solution, the MultiWave 1600 system,
alleviates capacity, or bandwidth, constraints in high traffic long distance
fiberoptic routes without requiring the installation of new fiber. In addition,
the MultiWave 1600 system enables flexible provisioning of additional bandwidth
without requiring an upgrade of existing network transmission equipment. The
MultiWave 1600 system can increase the carrying capacity of a single optical
fiber 16 fold by allowing simultaneous transmission of up to 16 optical channels
per fiber. This permits fiber currently carrying signals at transmission speeds
of up to 2.5 gigabits per second ("Gb/s") to carry up to 40 Gb/s. CIENA's
MultiWave 1600 system includes optical transmission terminals, optical
amplifiers, optical add/drop multiplexers and network management software.
CIENA's MultiWave 1600 system is designed with an open architecture that allows
the MultiWave 1600 system to interoperate with carriers' existing fiberoptic
transmission systems having a broad range of transmission speeds and signal
formats. CIENA recently announced a next generation version of the MultiWave
1600 system, the MultiWave Sentry, which includes enhancements that
significantly expand the ability of the MultiWave system to interface with data
communications equipment in addition to other types of transmission equipment
and increase the distance which can be spanned between transmission terminals.

The Company believes it is a worldwide market leader in field deployment of
open architecture DWDM systems. For the six months ended April 30, 1997, the
Company recorded $140.6 million in revenue, of which $86.6 million was from
sales to Sprint Corporation ("Sprint") under a three-year non-exclusive supply
agreement which expires in December 1998, and approximately $49.0 million was
from sales to LDDS WorldCom ("WorldCom") under a five-year supply agreement
which, subject to certain conditions, is exclusive through December 1997. The
Company also recently announced a contract to supply MultiWave 1600 systems to
Mercury Communications Group ("Mercury"). The Company is actively seeking
additional customers among long distance, local and interoffice fiberoptic
network operators in the worldwide telecommunications market and has entered
into a test agreement with AT&T Corporation ("AT&T").

The Company was incorporated in Delaware in November 1992. The Company's
principal executive offices are located at 920 Elkridge Landing Road, Linthicum,
Maryland 21090, and its telephone number is (410) 865-8500. All references in
this Prospectus to "CIENA" or the "Company" also include its wholly-owned
subsidiaries.

3
8

THE OFFERINGS

The offering of 8,000,000 shares of Common Stock initially being offered in
the United States (the "U.S. Offering") and the concurrent offering of 2,000,000
shares of Common Stock initially being offered outside the United States (the
"International Offering") are collectively referred to herein as the
"Offerings". The closing of the International Offering is conditioned upon the
closing of the U.S. Offering and vice versa. See "Underwriting".

Common Stock offered by the Company............................... 1,000,000 shares
Common Stock offered by the Selling Stockholders(1)............... 9,000,000 shares
Common Stock to be outstanding after the Offerings(2)............. 97,535,633 shares
Nasdaq National Market Symbol..................................... "CIEN"
Use of Proceeds................................................... General corporate
purposes. See "Use of
Proceeds".

- ---------------
(1) Includes 269,150 shares issuable upon exercise of outstanding options issued
under the Company's Amended and Restated 1994 Stock Option Plan.

(2) Excludes 10,106,910 shares of Common Stock issuable upon exercise of options
and warrants outstanding on June 2, 1997, at a weighted average exercise
price of $2.94 per share. See "Capitalization" and "Management -- Stock
Plans". Includes 269,150 shares, to be issued upon exercise of options, to
be sold by certain Selling Stockholders in the Offerings.

4
9

SUMMARY CONSOLIDATED FINANCIAL INFORMATION(1)
(in thousands, except share and per share data)

FOR THE PERIOD
FROM INCEPTION SIX MONTHS ENDED
(NOVEMBER 2,1992) YEAR ENDED OCTOBER 31, APRIL 30,
THROUGH --------------------------- ------------------
OCTOBER 31, 1993 1994 1995 1996 1996 1997
------------------ ------- ------- ------- ------- --------
(UNAUDITED)

STATEMENT OF OPERATIONS
DATA:
Revenue.................... $ -- $ -- $ -- $54,838 $ -- $140,602
Gross profit............... -- -- -- 32,994 -- 87,762
Operating expenses
Research and
development......... -- 1,287 6,361 8,922 4,219 7,749
Selling and
marketing........... -- 295 481 3,780 1,191 7,083
General and
administrative...... 123 787 896 3,905 1,025 8,401
Income (loss) from
operations............... (123) (2,369) (7,738) 16,387 (6,435) 64,529
Net income (loss).......... $ (123) $(2,407) $(7,629) $14,718 $(6,069) $ 40,685
===== ======= ======= ======= ======= =======
Pro forma net income (loss)
per common and common
equivalent share(2)...... $ 0.15 $ (0.06) $ 0.40
======= ======= =======

APRIL 30, 1997
--------------------------
ACTUAL AS ADJUSTED(3)
-------- --------------
(UNAUDITED)

BALANCE SHEET DATA:
Cash and cash equivalents......................................... $180,791 $225,800
Working capital................................................... 191,949 236,958
Total assets...................................................... 276,737 321,746
Long-term debt, excluding current portion......................... 1,691 1,691
Stockholders' equity.............................................. 208,597 253,606

- ---------------
(1) During the period from November 2, 1992 to October 31, 1995, CIENA was a
development stage company. Planned principal operations commenced during
fiscal year 1996.

(2) The pro forma weighted average common and common equivalent shares
outstanding for the year ended October 31, 1996 and the six months ended
April 30, 1996 and April 30, 1997 was 99,111,000, 99,111,000 and
101,493,000, respectively. Pro forma net income per common and common
equivalent share is computed using the pro forma weighted average number of
common and common equivalent shares outstanding. Pro forma weighted average
common and common equivalent shares outstanding include Common Stock, stock
options and warrants using the treasury stock method and the conversion of
all outstanding shares of Convertible Preferred Stock into Common Stock
which occurred at the time of the Company's initial public offering. See
Note 1 of Notes to Consolidated Financial Statements.

(3) As adjusted to give effect to (i) the sale of 1,000,000 shares of Common
Stock offered by the Company hereby at an assumed public offering price of
$47.625 per share, after deduction of underwriting discounts and commissions
and estimated expenses payable by the Company and (ii) the exercise by
certain of the Selling Stockholders of options to purchase 269,150 shares of
Common Stock to be sold by them in the Offerings.

5
10

RISK FACTORS

In addition to the other information in this Prospectus, prospective
investors should consider carefully the following risk factors in evaluating the
Company and its business before purchasing Common Stock in the Offerings.
Certain statements included in this Prospectus are forward-looking statements
and the factors discussed below could cause actual results to be materially
different from those expressed in or implied by such statements.

CONCENTRATION OF POTENTIAL CUSTOMERS; DEPENDENCE ON MAJOR CUSTOMERS

The Company is currently dependent on two customers and has only a few
potential customers, consisting almost exclusively of long distance and other
telecommunications carriers using fiberoptic networks. There are only a small
number of long distance telecommunications carriers, and that number may
decrease if and as customers merge with or acquire one another. The Company's
business will for the foreseeable future be dependent on a small number of
existing and potential customers. Substantially all of the Company's revenue for
fiscal 1997 continues to be expected to be derived from Sprint and WorldCom.
WorldCom may terminate all or any part of an outstanding purchase order upon the
payment of a termination fee and the Company's agreement with WorldCom does not
require minimum purchase commitments. Although the Company now has five
customers, there can be no assurance that the Company will be able to develop
additional customers or that the Company will not continue to be dependent on
Sprint and WorldCom. The reduction, delay or cancellation of orders, or a delay
in shipment of the Company's products to Sprint or WorldCom, or the inability of
the Company to develop additional customers, could and likely would have a
material adverse affect on the Company's business, financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations".

The Company's dependence on sizable orders from very few customers makes
the relationship between the Company and each customer critically important to
the Company's business. While each customer relationship is typically structured
around a detailed, heavily negotiated contract, as the relationship evolves over
time, adjustments to such items as product specifications, laboratory and field
testing plans, customer forecasts and delivery timetables, and installation and
field support requirements may be required in response to customer demands and
expectations. The inability of the Company to manage its customer relationships
successfully would have a material adverse effect on the Company's business,
financial condition and results of operations.

RECENT PRODUCT INTRODUCTION

The Company first began commercial shipments of its MultiWave 1600 system
in May 1996 and its first operational systems began carrying live traffic in
October 1996. Accordingly, the Company's systems do not have a history of live
traffic operation over an extended period of time. If reliability, quality or
network monitoring problems should develop, a number of material and adverse
effects could result, including manufacturing rework costs, high service and
warranty expense, high levels of product returns, delays in collecting accounts
receivable, reduced orders from existing customers and declining level of
interest from potential customers. The Company is aware of instances in which
installation and activation of certain MultiWave 1600 systems have been delayed
due to faulty components found in certain portions of these systems. Although
the Company maintains accruals for product warranties, there can be no assurance
that actual costs will not exceed these amounts. There is a considerable number
of the Company's systems scheduled to be turned up for live traffic operation by
WorldCom and Sprint over the next three to five months. The Company expects
there will be interruptions or delays from time to time in the activation of the
systems, particularly because the Company does not control all aspects of the
installation and activation activities. If significant interruptions or delays
occur, or if their cause is not promptly identified, diagnosed and resolved,
confidence in the MultiWave system could be undermined. An undermining of
confidence in the MultiWave system would have a material adverse effect on the
Company's customer relationships, business, financial condition and results of
operations.

6
11

MANAGEMENT OF EXPANSION

The Company is experiencing rapid expansion in all areas of its operations,
particularly in manufacturing, and the Company anticipates that this expansion
will continue in the near future. Total personnel grew from 225 at October 31,
1997 to 499 at May 31, 1997. Total facilities' space has increased from 50,500
square feet in one facility as of October 31, 1996, to approximately 210,000
square feet in three facilities by the end of May 1997. This expansion, and the
attendant separation and relocation of various operating functions to different
facilities, has placed strains on the material, financial and personnel
resources of the Company and will continue to do so. The pace of the Company's
expansion, in combination with the complexity of the technology involved in the
manufacture of the Company's systems, demands an unusually high level of
managerial effectiveness in anticipating, planning, coordinating and meeting the
operational needs of the Company and the needs of the Company's customers for
quality, reliability, timely delivery and post-installation field support. The
rapid pace and volume of new hiring, and the accelerated ramp up in
manufacturing capacity, if not effectively managed, could adversely affect the
quality or efficiency of the Company's manufacturing process. The Company
continues to increase its flow of materials, optical assembly, final assembly
and final component module and system test functions in anticipation of a level
of customer orders that has not been historically experienced by the Company and
that may not be achieved. Given the small number of existing and potential
customers for the Company's systems, the adverse effect on the Company resulting
from a lack of effective management in any of these areas will be magnified.
Inability to manage the expansion of the Company's business would have a
material adverse effect on its business, financial condition and results of
operations. The Company is also seeking to achieve ISO 9001 certification for
its manufacturing facilities. The Company's failure to achieve such
certification would have a material adverse effect on its competitive position.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations".

DEPENDENCE ON A SINGLE PRODUCT LINE -- THE MULTIWAVE SYSTEM

The MultiWave 1600 system is the Company's only product that has generated
revenue and is focused exclusively on providing additional bandwidth to long
distance telecommunications carriers. The MultiWave Sentry has only recently
been introduced and has generated no revenue to date. A softening or slowdown in
demand for the Company's product or for additional bandwidth by long distance
telecommunications carriers would materially and adversely affect the Company's
business, financial condition and results of operations. Patent litigation
recently brought against the Company by a competitor could also adversely affect
demand for MultiWave systems. There can be no assurance that the Company will be
successful in developing any other products or taking other steps to reduce the
risk associated with any softening or slowdown in the demand for additional
bandwidth, nor is there any assurance the Company will be able to leverage
successfully its DWDM technology into other network applications. Conversely, if
the demand for additional bandwidth accelerates, there is no assurance that the
Company's MultiWave systems will deliver sufficient capacity as rapidly as
needed, or that competing DWDM products from other vendors offering higher
capacity would not displace or render obsolete the MultiWave system.

FLUCTUATION IN QUARTERLY AND ANNUAL RESULTS

The Company's revenue and operating results are likely to vary
significantly from quarter to quarter and from year to year as a result of a
number of factors, including the size and timing of orders, product mix and
shipments of systems. The timing of order placement, size of orders,
satisfaction of contractual customer acceptance criteria, as well as order
delays or deferrals and shipment delays and deferrals, may cause material
fluctuations in revenue. Delays or deferrals in purchasing decisions may
increase as the Company develops other DWDM products. The Company's dependence
on a small number of existing and potential customers increases the revenue
impact of each customer's actions relative to these factors. The Company's
expense levels in the

7
12

future will be partially based on its expectations of long term future revenue
and as a result net income for any quarterly period in which material orders are
shipped or delayed or are not forthcoming could vary significantly.
Quarter-to-quarter sequential growth rates in the first two or three years of
operations are likely to vary widely and therefore may not be reliable
indicators of annual performance. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations".

LONG AND UNPREDICTABLE SALES CYCLES

The Company expects that the period of time between initial customer
contact and an actual purchase order may span a year or more. In addition, even
when committed to proceed with deployment of equipment, long distance
telecommunications carriers typically undertake extensive and lengthy product
evaluation and factory acceptance and field testing of new equipment before
purchasing and installing any of it in their networks. Additionally, the
purchase of network equipment such as DWDM equipment is typically carried out by
network operators pursuant to multiyear purchasing programs which may increase
or decrease annually as the operators adjust their capital equipment budgets and
purchasing priorities. The Company's customers do not typically share
information on the duration or magnitude of planned purchasing programs, nor do
they consistently provide to the Company advance notice of contemplated changes
in their capital equipment budgets and purchasing priorities. These
uncertainties substantially complicate the Company's manufacturing planning.
Curtailment or termination of customer purchasing programs, decreases in
customer capital budgets or reduction in the purchasing priority assigned to
equipment such as DWDM equipment, particularly if significant and unanticipated
by the Company, could have a material adverse effect on the Company's business,
financial condition and results of operations. Long distance carriers may also
encounter delays in their build out of new routes or in their installation of
new equipment in existing routes, with the result that orders for MultiWave
systems may be delayed or deferred. Any delay or deferral of orders for
MultiWave systems would have a material adverse effect on the Company's
business, financial condition and results of operations.

COMPETITION

The Company believes the rapid pace at which the need for higher and more
cost-effective bandwidth has developed was not widely anticipated in the
telecommunications industry. However, competition in the global
telecommunications industry is intense and historically has been dominated by a
small number of very large companies, each of which have greater financial,
technical and marketing resources, greater manufacturing capacity and more
established customer relationships with network operators than the Company. Each
of Lucent Technologies Inc., formerly part of AT&T ("Lucent"), Alcatel Alsthom
Group ("Alcatel"), Northern Telecom Inc. ("Nortel"), NEC Corporation ("NEC"),
Pirelli SpA ("Pirelli"), Siemens AG ("Siemens") and Telefon AB LM Ericsson
("Ericsson") among others are expected to move aggressively to capture market
share in the DWDM market. The Company expects that such competitive moves may
include early announcement of competing or alternative products, and significant
price discounting. In addition, Lucent, Alcatel, Nortel, NEC and Siemens are
already providers of a full complement of switches, fiberoptic transmission
terminals and fiberoptic signal regenerators and thereby can position themselves
as vertically integrated, "one-stop shopping" solution providers to potential
customers. Further, in certain cases, competitors have offered the Company's
target customers, on an immediate delivery basis, off-the-shelf time division
multiplexing ("TDM") transmission equipment at comparatively lower prices, with
a promise to upgrade to DWDM or other improved equipment in the future. The
substantial system integration resources and manufacturing capability of the TDM
suppliers, in combination with any difference in timeliness of delivery, can be
important to long distance network operators. Finally, as and when these
competitors are able to offer DWDM systems in combination with their own
fiberoptic transmission terminals, they can be expected to press further on the
attractiveness of a "one-stop shopping" solution. While competition in general
is broadly based on varying combinations of price, manufacturing capacity,
timely delivery, system

8
13

reliability, service commitment and installed customer base, as well as on the
comprehensiveness of the system solution in meeting immediate network needs and
foreseeable scaleability requirements, the Company's customers are themselves
under increasing competitive pressure to deliver their services at the lowest
possible cost. This pressure may result in pricing for DWDM systems becoming a
more important factor in customer decisions.

Intellectual property disputes may also be asserted as part of a
competitive effort to reduce the Company's leadership position and limit its
ability to achieve greater market share, even if the merits of specific disputes
are doubtful. See "Business -- Legal Proceedings".

There can be no assurance that the Company will be able to compete
successfully with its competitors or that aggressive competitive moves faced by
the Company will not result in lower prices for the Company's products,
decreased gross profit margins, and otherwise have a material adverse effect on
its business, financial condition and results of operations.

TECHNOLOGICAL CHANGE AND NEW PRODUCTS

The Company expects that new technologies will emerge as competition in the
telecommunications industry increases and the need for higher and more cost
efficient bandwidth expands. The Company's ability to anticipate changes in
technology, industry standards, customer requirements and product offerings and
to develop and introduce new and enhanced products will be significant factors
in the Company's ability to remain a leader in the deployment of open
architecture DWDM systems. The market for telecommunications equipment is
characterized by substantial capital investment and diverse and competing
technologies such as fiberoptic, cable, wireless and satellite technologies. The
accelerating pace of deregulation in the telecommunications industry will likely
intensify the competition for improved technology. Many of the Company's
competitors have substantially greater financial, technical and marketing
resources and manufacturing capacity with which to compete for new technologies
and for market acceptance of their products. The introduction of new products
embodying new technologies or the emergence of new industry standards could
render the Company's existing product uncompetitive from a pricing standpoint,
obsolete or unmarketable. Any of these outcomes would have a material and
adverse effect on the Company's business, financial condition and results of
operations.

PROPRIETARY RIGHTS

The Company relies on patents, contractual rights, trade secrets,
trademarks and copyrights to establish and protect its proprietary rights in its
product. While the Company does not expect that its proprietary rights in its
technology will prevent competitors from developing technologies and products
functionally similar to the Company's, the Company believes many aspects of its
DWDM technologies and know-how are proprietary, and intends to monitor closely
the DWDM products introduced by competitors for any infringement of the
Company's proprietary rights. Additionally, the Company expects that DWDM
technologies and know-how in general will become increasingly valuable
intellectual properties as the competition to achieve higher and more cost
effective bandwidth intensifies. The Company believes this increasing value in
an industry marked by a few very large competing suppliers represents a
competitive environment where intellectual property disputes are likely. On
December 20, 1996, a U.S. affiliate of Pirelli filed a lawsuit against the
Company alleging infringement of certain U.S. patents held by Pirelli (the
"Pirelli Litigation"). Intellectual property disputes may be initiated by
competitors against the Company for tactical purposes to gain competitive
advantage or overcome competitive disadvantage, even if the merits of a specific
dispute are doubtful. In the future, the Company may be required to bring or
defend against other litigation to enforce any patents issued or assigned to the
Company, to protect trademarks, trade secrets and other intellectual property
rights owned by the Company, to defend the Company against claimed infringement
of the rights of others and to determine the scope and validity of the
proprietary rights of others. Any litigation, including the Pirelli Litigation,
could be costly and a diversion of management's attention, which could have a
material adverse effect on the

9
14

Company's business, financial condition and results of operations. Adverse
determinations in litigation, including in the Pirelli Litigation, could result
in the loss of the Company's proprietary rights, subject the Company to
significant liabilities, require the Company to seek licenses from third parties
or prevent the Company from manufacturing or selling its products, any of which
could have a material adverse effect on the Company's business, financial
condition and results of operations.

The Company has received, and may receive in the future, notices from
holders of patents in the optical technology field that raise issues as to
possible infringement by the Company's products. Pirelli sent a notice in
December 1995 identifying eleven patents it possesses in the field of optical
communications. The Company believes the MultiWave system does not infringe any
valid patents cited in the notices received. However, questions of infringement
in the field of DWDM technologies involve highly technical and subjective
analyses. There can be no assurance that any such patent holders or others will
not in the future initiate legal proceedings against the Company or that, if any
such proceedings were initiated, the Company would be successful in defending
against these actions. On December 20, 1996, a U.S. affiliate of Pirelli filed a
lawsuit against the Company alleging infringement of certain U.S. patents. Even
if the Company is successful in defending against the Pirelli Litigation or any
other such actions, these actions could have an adverse effect on existing and
potential customer relationships and therefore could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company's existing customer agreements provide for indemnification of
customers for liability that may be incurred in connection with the infringement
of a third party's intellectual property rights, and the Company expects that it
will be requested to agree to indemnify other customers in the future. There can
be no assurance that such indemnification against alleged liability will not be
required from the Company in the future.

Patent applications in the United States are not publicly disclosed until
the patent issues. The Company anticipates, based on the size and sophistication
of its competitors and the history of rapid technological advances in its
industry, that several competitors may have patent applications in progress in
the United States that, if issued, could relate to the Company's products. If
such patents were to issue, there can be no assurance that the patent holders or
licensees will not assert infringement claims against the Company or that such
claims will not be successful. The Company could incur substantial costs in
defending itself and its customers against any such claims, regardless of the
merits of such claims. Parties making such claims may be able to obtain
injunctive or other equitable relief which could effectively block the Company's
ability to sell its products, and each claim could result in an award of
substantial damages. In the event of a successful claim of infringement, the
Company and its customers may be required to obtain one or more licenses from
third parties. There can be no assurance that the Company or its customers could
obtain necessary licenses from third parties at a reasonable or acceptable cost
or at all.

Substantial inventories of intellectual property are held by a few industry
participants, such as Bell Laboratories (now owned by Lucent) and major
universities and research laboratories. This concentration of intellectual
property in the hands of a few major entities also poses certain risks to the
Company in seeking to hire qualified personnel. The Company has on a few
occasions recruited such personnel from competitors. The Company has in the past
received letters from counsel to Lucent asserting that the hiring of their
personnel compromises Lucent's intellectual property. There can be no assurance
that other companies will not claim the misappropriation or infringement of
their intellectual property, particularly when and if employees of these
companies leave to work for the Company. To date, the Company has not
experienced litigation concerning the assertions by Lucent, and believes there
is no basis for claims against the Company. Nevertheless, there can be no
assurance that the Company will be able to avoid litigation in the future,
particularly if new employees join the Company after having worked for a
competing company. Such litigation could be very expensive to defend, regardless
of the merits of the claims.

The successful resolution of intellectual property disputes may depend, in
part, on the extent of the Company's portfolio of intellectual property rights
which could be available for cross-licensing

10
15

as a means of settling disputes. The Company's current portfolio of patents is
not as broad or extensive as those of its major competitors, and there is no
assurance the Company will be able to add to its patent portfolio.

As the Company seeks to expand internationally, the Company will need to
take steps to protect its proprietary rights under foreign patent and trademark
laws. Many of these laws are not as well developed or do not afford the same
degree of protection as United States laws and no assurance can be given that
the Company will not encounter difficulties in protecting its proprietary rights
outside the United States or will not infringe the rights of others outside the
United States.

LITIGATION

Pirelli Litigation. On December 20, 1996, a U.S. affiliate of Pirelli
filed suit in U.S. District Court in Delaware, alleging willful infringement by
the Company of certain U.S. patents held by Pirelli. The lawsuit seeks treble
damages, attorneys' fees and costs, as well as preliminary and permanent
injunctive relief against the alleged infringement. On February 10, 1997, the
Company filed its answer denying infringement, alleging inequitable conduct on
the part of Pirelli in the prosecution of certain of its patents, and stating a
counterclaim against the relevant Pirelli parties for a declaratory judgment
finding the Pirelli patents invalid and/or not infringed. Following the filing
of the Company's answer, Pirelli dedicated to the public and withdrew from the
lawsuit all infringement claims relating to one of the five patents.

Discovery proceedings are ongoing, and are currently expected to be
completed by January 31, 1998, with trial expected no earlier than February
1998.

The Company has filed a complaint against Pirelli with the International
Trade Commission ("ITC"), based on the Company's belief that a 32 channel DWDM
system announced by Pirelli infringes at least two of the Company's patents. The
Company's complaint seeks a ban on the importation by Pirelli into the U.S. of
any infringing 32 channel system. A formal investigative proceeding was
instituted by the ITC on April 3, 1997. Discovery proceedings are now ongoing,
and a full hearing of the matter is currently scheduled for December 1997.

On March 14, 1997, the Company filed suit against Pirelli in U.S. District
Court in the Eastern District of Virginia, alleging willful infringement by
Pirelli of three U.S. patents held or co-owned by the Company. The lawsuit seeks
treble damages, attorneys' fees and costs, as well as permanent injunctive
relief against the alleged infringement. The patents at issue relate to certain
of Pirelli's cable television equipment, to Pirelli's 4 and 8 channel WDM
systems, and to certain Pirelli fiberoptic communications equipment announced by
Pirelli in January 1997 as being deployed in a field trial in the MCI network.
Pirelli's motion to dismiss or transfer for lack of jurisdiction was denied
April 28, 1997. Discovery proceedings are now ongoing, with trial expected by
late fall 1997.

The Company continues to believe its MultiWave 1600 system does not
infringe any claim of the four remaining Pirelli patents, and believes certain
claims of the Pirelli patents may be invalid. The Company intends to defend
itself vigorously, and is planning on all litigation proceeding through trial.
In light of the complexity and likely time-consuming nature of the litigation,
including the Company's counterclaim, the ITC proceeding, and the Company's
patent infringement lawsuit against Pirelli in the Eastern District of Virginia,
the Company accrued during the first fiscal quarter of 1997 approximately $5.0
million in estimated legal and related costs associated with these proceedings.
While the Company believes its estimate of legal and related costs is adequate
based on its current understanding of the overall facts and circumstances, the
estimate may be increased depending on the course of the legal proceedings.

11
16

manufacture and deliver the MultiWave 1600 system. There can be no assurance
that such efforts by Pirelli and others will not disrupt the Company's existing
and prospective customer relationships.

There can be no assurance that the Company will be successful in the
Pirelli litigation, and an adverse determination in the Delaware court could
result from a finding of infringement of only one claim of a single patent. The
Company may consider settlement due to the costs and uncertainties associated
with litigation in general and patent infringement litigation in particular and
due to the fact that an adverse determination in the litigation could preclude
the Company from producing the MultiWave 1600 system until it were able to
implement a non-infringing alternative design to any portion of the system to
which such a determination applied. There can be no assurance that any
settlement will be reached by the parties. An adverse determination in, or
settlement of, the Pirelli litigation could involve the payment of significant
amounts, or could include terms in addition to such payments, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.

Other Litigation. The Company and certain directors are defendants in
another lawsuit brought in November 1996 by a stockholder of the Company and
entities controlled by him concerning alleged entitlement to additional shares
of Series C Convertible Preferred Stock. No assurance can be given that this
lawsuit will not result in an adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Legal
Proceedings."

DEPENDENCE ON SUPPLIERS

Suppliers in the specialized, high technology sector of the optical
communications industry are generally not as plentiful or, in some cases, as
reliable, as suppliers in more mature industries. The Company is dependent on a
limited number of suppliers for components of the MultiWave system as well as
equipment used to manufacture the MultiWave system. The MultiWave system has
over 600 components, and certain key optical and electronic components are
currently available only from a sole source, where the Company has identified no
other supplier for the component. While alternative suppliers have been
identified for certain other key optical and electronic components, those
alternative sources have not been qualified by the Company. The Company has to
date conducted its business with suppliers through the issuance of conventional
purchase orders against the Company's forecasted requirements. The Company is
seeking to negotiate long term supply agreements with key suppliers, but
currently has only a few such agreements. The Company has from time to time
experienced minor delays in the receipt of key components, and any future
difficulty in obtaining sufficient and timely delivery of them could result in
delays or reductions in product shipments which, in turn, could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, the Company's strategy to have portions of its product
assembled and, in certain cases, tested, by third parties involves certain
risks, including the potential absence of adequate capacity, the unavailability
of or interruptions in access to certain process technologies, and reduced
control over delivery schedules, manufacturing yields, quality and costs. In the
event that any significant supplier or subcontractor were to become unable or
unwilling to continue to manufacture and/or test the Company's systems in
required volumes, the Company would have to identify and qualify acceptable
replacements. This process could also be lengthy and no assurance can be given
that any additional sources would become available to the Company on a timely
basis. A key item of equipment, the E-2000 Diamond connector, which is used to
manufacture a portion of the MultiWave system, is available only from a sole
source -- the Diamond Company. A delay or reduction in component or equipment
shipments, an increase in component or equipment costs or a delay or increase in
costs in the assembly and testing of products by third party subcontractors
could materially and adversely affect the Company's business, financial
condition and results of operations.

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NEW PRODUCT DEVELOPMENT DELAYS

The Company's ability to anticipate changes in technology, industry
standards, customer requirements and product offerings and to develop and
introduce new and enhanced products will be significant factors in the Company's
ability to remain a market leader in the deployment of DWDM systems. The
complexity of the technology involved in product development efforts in the DWDM
field can result in unanticipated delays. The failure in the future to deliver
new and improved products in a timely fashion relative to customer expectations
could have a material adverse effect on the Company's competitive position.

COMPETITORS AS SUPPLIERS

Certain of the Company's component suppliers are both primary sources for
such components and major competitors in the market for system equipment. For
example, the Company buys certain key components from Lucent, Alcatel, Nortel,
NEC and Siemens, each of which offers optical communications systems and
equipment which are competitive with the Company's DWDM systems. Lucent is the
sole source of two integrated circuits and is one of two suppliers of Erbium-
doped fiber. Alcatel and Nortel are suppliers of lasers used in the MultiWave
system. NEC is a supplier of certain testing equipment. The Company's business,
financial condition and results of operations could be materially and adversely
affected if these supply relationships were to decline in reliability or
otherwise change in any manner adverse to the Company. Although the Company has
not experienced to date any decline in reliability among these vendors, this
risk factor increases in importance given the Company's expansion efforts and
the increasingly competitive environment in which the Company operates.

LIMITED OPERATING HISTORY; HISTORY OF LOSSES

The Company was founded in November 1992 and introduced its MultiWave 1600
system in field trials in May 1996. Accordingly, the Company has only a limited
operating history upon which an evaluation of the Company, its product and
prospects can be based. The Company's prospects must be considered in light of
the risks, expenses and difficulties frequently encountered by companies in
their early stage of development, particularly companies in new and rapidly
evolving markets and companies experiencing rapid expansion in their operations.
To address these risks, the Company must, among other things, respond to
competitive developments, continue to attract, retain and motivate qualified
management and other employees, continue to upgrade its technologies and
commercialize products and services which incorporate such technologies and
achieve market acceptance for its MultiWave system. There can be no assurance
that the Company will be successful in addressing such risks. The Company
incurred net losses in each quarter from inception through the second quarter of
fiscal 1996. While the Company reported net income for fiscal 1996 and the first
two fiscal quarters of 1997, there can be no assurance that the Company will
sustain profitability. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations".

DEPENDENCE ON KEY PERSONNEL

The Company's success will depend in large part upon its ability to attract
and retain highly-skilled technical, managerial, sales and marketing personnel,
particularly those skilled and experienced with optical communications
equipment. Competition for such personnel is intense and there can be no
assurance that the Company will be successful in retaining its existing key
personnel and in attracting and retaining the personnel it requires. Failure to
attract and retain key personnel will have a material adverse effect on the
Company's business, financial condition and results of operations.

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SHARES ELIGIBLE FOR SALE ON AND AFTER AUGUST 7, 1997

Approximately 64,000,000 shares of the Company's Common Stock are subject
to lock-up agreements entered into at the time of the Company's initial public
offering (the "IPO Lock-up Agreements") which expire on August 7, 1997, and
approximately shares are subject to lock-up agreements which expire on
a date which is ninety days from the date of this Prospectus. Substantially all
shares held by stockholders that are parties to the IPO Lock-Up Agreements other
than the Selling Stockholders, will be freed from lock-up restrictions on August
7, 1997 and will be freely tradeable without restriction or registration under
the Securities Act, except for any shares held by "affiliates" of the Company as
that term is defined under Rule 144 under the Securities Act and except as
described in "Underwriting". Substantially all shares held by Selling
Stockholders not sold in the Offerings will similarly be freely tradeable ninety
days from the date of this Prospectus except for shares held by affiliates. In
addition, approximately vested shares and shares issuable upon
the exercise of vested options may be sold under the Company's Registration
Statement on Form S-8 beginning August 7, 1997.

The owners of all locked up shares have experienced substantial
appreciation in the value of their shares relative to the price paid for them.
In the event all or a significant portion of these stockholders elect to sell
their shares, the price of the Company's stock could materially decline,
irrespective of the Company's operating performance. All or a portion of the
locked up shares may be released by the Underwriters prior to expiration. There
is no assurance that this will occur, or if it occurs, that such release will
materially reduce the number of previously locked-up shares which will first
become available for sale on August 7, 1997 or a date which is ninety days from
the date of this Prospectus, or otherwise alleviate the selling pressure that
may apply to the Company's publicly traded stock.

STOCK PRICE VOLATILITY

The Company's Common Stock price has experienced substantial price
volatility, and is likely to continue to do so. Such volatility can arise as a
result of any divergence between the Company's actual or anticipated financial
results and published expectations of analysts and as a result of announcements
by the Company and its competitors. Such divergence is likely to occur from time
to time, particularly in light of the Company's dependence on a small number of
existing and potential customers, long and unpredictable sales cycles and
customer purchasing programs, fluctuating quarterly results, and the absence of
unconditional minimum purchase commitments from any customer. In addition, the
market prices of the common stock of many technology companies have experienced
extreme price and volume fluctuations, and the Company's stock price may be
similarly impacted, irrespective of the Company's operating performance. The
possible sale of a significant number of shares of the Company's Common Stock by
the holders thereof also may affect the price of the Company's Common Stock.

CONTROL BY EXISTING STOCKHOLDERS

As of May 1, 1997, the Company's officers, directors and their affiliates
beneficially owned, in the aggregate, approximately 47.8% of the Company's
outstanding shares. As a result, these stockholders, if acting together, would
be able effectively to control substantially all matters requiring approval by
the stockholders of the Company, including the election of directors. This
ability may have the effect of delaying or preventing a change in control of the
Company, or causing a change in control of the Company which may not be favored
by the Company's other stockholders.

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EFFECT OF CERTAIN CHARTER, BYLAW AND OTHER PROVISIONS

Certain provisions of the Company's Third Amended and Restated Certificate
of Incorporation, as amended (the "Certificate of Incorporation"), and bylaws
and certain other contractual provisions could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
attempting to acquire, control of the Company. 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. Certain of these provisions allow the Company to
issue preferred stock with rights senior to those of the Common Stock without
any further vote or action by the stockholders, provide for a classified board
of directors, eliminate the right of the stockholders to call a special meeting
of stockholders, eliminate the right of stockholders to act by written consent,
and impose various procedural and other requirements which could make it
difficult for stockholders to effect certain corporate actions.

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20

USE OF PROCEEDS

The estimated proceeds to the Company from the sale of the 1,000,000 shares
of Common Stock offered by it and the exercise of options by certain Selling
Stockholders, net of underwriting discounts and estimated expenses, are
approximately $45.0 million ($51.9 million if the Underwriters' over-allotment
options are exercised in full) based on an assumed public offering price of
$47.625 per share. The Company will use the net proceeds for general corporate
purposes. A portion of the proceeds may also be used to acquire or invest in
complementary businesses or products or to obtain the right to use complementary
technologies. From time to time, in the ordinary course of business, the Company
evaluates potential acquisitions of such businesses, products or technologies.
However, the Company has no present understandings, commitments or agreements
with respect to any material acquisition of other businesses, products or
technologies. Pending use of the net proceeds for any purposes, the Company
intends to invest such funds in short-term, interest-bearing, investment grade
obligations. Except as stated above, the Company will not realize any proceeds
from the sale of Common Stock by the Selling Stockholders.

PRICE RANGE OF COMMON STOCK

The Common Stock has been quoted on the Nasdaq National Market under the
symbol CIEN since February 7, 1997 following the initial public offering of the
Company's Common Stock. The following table sets forth the high and low prices,
as reported by Nasdaq, for the periods indicated:

HIGH LOW
------ ------

1997:
Second Quarter (from February 7).............................. $43.25 $22.25
Third Quarter (through June 11)............................... $54.00 $28.50

On June 11, 1997, the last reported sale price of the Company's Common
Stock as reported by the Nasdaq National Market was $47.625 and there were
approximately 391 holders of record of the Company's Common Stock as of that
date.

DIVIDEND POLICY

The Company has never paid or declared any cash dividends on its capital
stock. It is the present policy of the Company to retain earnings to finance the
growth and development of the business and, therefore, the Company does not
anticipate declaring or paying cash dividends on its Common Stock in the
foreseeable future. In addition, the Company's credit agreement with
Mercantile-Safe Deposit & Trust Company prohibits the Company from paying cash
dividends on its capital stock.

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CAPITALIZATION

The following table sets forth the capitalization of the Company as of
April 30, 1997 on an actual basis and as adjusted to reflect the sale of
1,000,000 shares of Common Stock offered by the Company hereby, the exercise of
options to purchase 269,150 shares of Common Stock by certain Selling
Stockholders and the application of the estimated net proceeds therefrom (at an
assumed offering price of $47.625 per share). This table should be read in
conjunction with the Company's consolidated financial statements and notes
thereto appearing elsewhere in this Prospectus.

APRIL 30, 1997
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
(UNAUDITED)

Long-term debt, excluding current portion............................ $ 1,691 $ 1,691
Stockholders' equity:
Preferred Stock, $.01 par value, 20,000,000 shares authorized;
no shares issued and outstanding (actual); no shares issued and
outstanding (as adjusted)...................................... -- --
Common Stock, $.01 par value, 180,000,000 shares authorized;
96,241,858 shares issued and outstanding (actual); 97,241,858
shares issued and outstanding (as adjusted)(1)................. 962 975
Additional paid-in capital...................................... 162,502 207,491
Notes receivable from stockholders.............................. (111) (104)
Retained earnings............................................... 45,244 45,244
-------- -----------
Total stockholders' equity........................................... 208,597 253,606
-------- -----------
Total capitalization................................................. $210,288 $ 255,297
========= ==========

- ---------------
(1) Excludes 17,538,855 shares of Common Stock reserved for issuance under the
Company's Amended and Restated 1994 Stock Option Plan, under which options
to purchase 9,981,535 shares at a weighted average exercise price of $2.94
were outstanding as of April 30, 1997, and 750,000 shares reserved for
issuance under the Company's 1996 Outside Directors Stock Option Plan, under
which options to purchase 75,000 shares at a weighted average exercise price
of $2.30 were outstanding as of April 30, 1997. Also excludes 75,000 shares
of Common Stock reserved for issuance pursuant to the exercise of warrants
outstanding as of April 30, 1997. See "Management -- Stock Plans" and Note 9
of Notes to Consolidated Financial Statements. As adjusted to give effect to
the issuance of 269,150 shares of Common Stock upon exercise of options by
certain Selling Stockholders.

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SELECTED CONSOLIDATED FINANCIAL DATA

The following selected financial data as of October 31, 1995 and 1996 and
for the years ended October 31, 1994, 1995 and 1996 have been derived from the
audited financial statements of the Company included elsewhere in this
Prospectus. The selected financial data as of October 31, 1993 and 1994 and for
the period from inception (November 2, 1992) through October 31, 1993 have been
derived from the Company's accounting records. The selected financial data as of
April 30, 1997 and for the six month periods ended April 30, 1996 and 1997 are
unaudited and include all adjustments, consisting only of normal, recurring
adjustments, that the Company considers necessary for a fair presentation of the
consolidated financial position and results of operations for those periods.
Operating results for the six month period ended April 30, 1997 are not
necessarily indicative of the results that may be expected for the entire year
ending October 31, 1997.

The data set forth below are qualified by reference to, and should be read
in conjunction with, the consolidated financial statements and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" thereof included elsewhere in this Prospectus.

FOR THE PERIOD
FROM INCEPTION
(NOVEMBER 2, 1992) YEAR ENDED OCTOBER 31,(1) SIX MONTHS SIX MONTHS
THROUGH -------------------------------- ENDED ENDED
OCTOBER 31, 1993(1) 1994 1995 1996 APRIL 30, 1996 APRIL 30, 1997
------------------- ------- ------- ---------- -------------- --------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)

STATEMENT OF OPERATIONS DATA:
Revenue........................... $ -- $ -- $ -- $ 54,838 $ -- $140,602
Cost of goods sold................ -- -- -- 21,844 -- 52,840
----- ------- ------- ---------- -------- --------
Gross profit.................. -- -- -- 32,994 -- 87,762
Operating expenses:
Research and development...... -- 1,287 6,361 8,922 4,219 7,749
Selling and marketing......... -- 295 481 3,780 1,191 7,083
General and administrative.... 123 787 896 3,905 1,025 8,401
----- ------- ------- ---------- -------- --------
Total operating expenses.......... 123 2,369 7,738 16,607 6,435 23,233
----- ------- ------- ---------- -------- --------
Income (loss) from operations..... (123) (2,369) (7,738) 16,387 (6,435) 64,529
Other income (expense), net....... -- (38) 109 581 366 2,167
----- ------- ------- ---------- -------- --------
Income (loss) before income
taxes........................... (123) (2,407) (7,629) 16,968 (6,069) 66,696
Provision for income taxes........ -- -- -- 2,250 -- 26,011
----- ------- ------- ---------- -------- --------
Net income (loss)................. $(123) $(2,407) $(7,629) $ 14,718 $ (6,069) $ 40,685
===== ======= ======= ========== ======== ========
Pro forma net income (loss) per
common and common equivalent
share(2)........................ $ 0.15 $ (0.06) $ 0.40
========== ======== ========

OCTOBER 31,(1)
------------------------------------- APRIL 30,
1993 1994 1995 1996 1997
---- ------- ------- ------- -----------
(IN THOUSANDS) (UNAUDITED)

BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 10 $ 1,908 $ 5,032 $22,557 $ 180,791
Working capital........................................... (35) 932 3,069 35,856 191,949
Total assets.............................................. 13 2,497 7,383 67,301 276,737
Long-term debt, excluding current portion................. -- 392 856 2,673 1,691
Mandatorily redeemable preferred stock.................... -- 3,492 14,454 40,404 --
Stockholders' equity (deficit)............................ (35) (2,388) (9,930) 4,970 208,597

- ---------------
(1) The Company has a 52 or 53 week fiscal year which ends on the Saturday
nearest to the last day of October in each year. For purposes of financial
statement presentation, each fiscal year is described as having ended on
October 31. Fiscal 1994 and 1995 comprised 52 weeks and fiscal 1996
comprised 53 weeks.

(2) The pro forma weighted average common and common equivalent shares
outstanding for the six months ended April 30, 1996 and for the year ended
October 31, 1996 was 99,111,000 and for the six months ended April 30, 1997
was 101,493,000. Pro forma net income per common and common equivalent share
is computed using the pro forma weighted average number of common and common
equivalent shares outstanding. Pro forma weighted average common and common
equivalent shares outstanding include Common Stock, stock options and
warrants using the treasury stock method and the assumed conversion of all
outstanding shares of Convertible Preferred Stock into Common Stock. See
Note 1 of Notes to Consolidated Financial Statements.

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23

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

The following discussion and analysis should be read in conjunction with
"Selected Financial Data" and the Company's consolidated financial statements
and notes thereto included elsewhere in this Prospectus. The information in this
Prospectus contains certain forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors", "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" as well as those discussed elsewhere in
this Prospectus.

OVERVIEW

CIENA Corporation is a leading supplier of dense wavelength division
multiplexing ("DWDM") systems to long distance fiberoptic telecommunications
carriers. CIENA's DWDM systems alleviate capacity constraints and enable
flexible provisioning of additional bandwidth on high-traffic routes in
carriers' networks.

The Company completed its initial public offering of 5,750,000 shares,
inclusive of 750,000 shares from the exercise of the Underwriters'
over-allotment options, at a price of $23 per share on February 7, 1997. Net
proceeds from the offering were approximately $121.8 million with an additional
$0.6 million received from the exercise of certain outstanding warrants. The
Company has added the net proceeds from the offering and from the exercise of
the warrants to working capital. Pending use of the net proceeds, the Company
has invested such funds in short-term, interest bearing investment grade
obligations.

The Company recognizes product revenue in accordance with the shipping
terms specified. For transactions where the Company has yet to obtain customer
acceptance or has agreements pertaining to installation services, revenue is
deferred until no significant obligations remain. Revenue for installation
services is recognized as the services are performed. Amounts received in excess
of revenue recognized are recorded as deferred revenue. For distributor sales
where risks of ownership have not transferred, the Company recognizes revenue
when the product is shipped through to the end user. The Company's initial
recognition of revenue from Sprint occurred in the quarter ended July 31, 1996,
after notification by Sprint of satisfactory completion of field testing.

All of the Company's revenue of $54.8 million through October 31, 1996 was
derived from MultiWave 1600 system sales to Sprint. Revenue for the six months
ended April 30, 1997 was $140.6 million and consisted of MultiWave 1600 systems
sales of $86.6 million to Sprint, $49.0 million to WorldCom and $5.0 million to
Teleway Japan Corporation ("Teleway") through the Company's Japanese
distributor.

The Company is engaged in continuing efforts to expand its manufacturing
capabilities. In April 1997 the Company moved its non-manufacturing operating
functions to an approximately 96,000 square foot facility near the
Baltimore/Washington International Airport in Linthicum, Maryland. The vacated
areas of the 50,500 square foot facility in Savage, Maryland are currently being
renovated for manufacturing capabilities. Approximately two-thirds of the
improvements are completed, with the balance expected to be completed in the
third quarter of fiscal 1997. In March 1997 the Company signed a lease for an
additional facility of approximately 57,000 square feet located in Linthicum.
This space is expected to be used for additional manufacturing requirements and
expanded customer service operations.

As of April 30, 1997 the Company employed 443 persons, which was an
increase of 218 persons over the number employed on October 31, 1996.

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24

RESULTS OF OPERATIONS

FISCAL YEARS ENDED 1994, 1995 AND 1996

For the fiscal years ended October 31, 1994 and 1995, the Company was in
the development stage, generated no revenue and had losses from operations of
$2.4 million and $7.7 million, respectively. By the end of fiscal year 1995, the
Company had begun to devote substantial resources to the development of
manufacturing capabilities and the expansion of its selling and marketing
efforts and general and administrative support infrastructure. The level of
expenditures increased toward the end of fiscal 1996, as increased demand for
the Company's MultiWave 1600 system required rapid expansion of manufacturing
capabilities and of technical and field support staff.

For the fiscal year ended October 31, 1996, the Company generated revenue
of $54.8 million, all of which was derived in the third and fourth quarters, had
gross profit of $33.0 million and incurred operating expenses of $16.6 million.

QUARTERLY RESULTS OF OPERATIONS

The tables below set forth the operating results and percentage of revenue
represented by certain items in the Company's statements of operations for each
of the four quarters in the fiscal year ended October 31, 1996 and the quarters
ended January 31 and April 30, 1997. This information is unaudited, but in the
opinion of the Company reflects all adjustments (consisting only of normal
recurring adjustments) that the Company considers necessary for a fair
presentation of such information in accordance with generally accepted
accounting principles. The results for any quarter are not necessarily
indicative of results for any future period. Operating results as a percentage
of revenue for the quarters ended January 31 and April 30, 1996 are excluded due
to the absence of revenue for those periods:

FISCAL QUARTER ENDED
--------------------------------------------------------------------
JAN. 31, APR. 30, JUL. 31, OCT. 31, JAN. 31, APR. 30,
1996 1996 1996 1996 1997 1997
-------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Revenue................................................... $ -- $ -- $ 16,923 $ 37,915 $ 53,933 $ 86,669
Cost of goods sold........................................ -- -- 7,346 14,498 20,832 32,008
-------- -------- -------- -------- -------- --------
Gross profit.......................................... -- -- 9,577 23,417 33,101 54,661
Operating expenses:
Research and development.............................. 2,473 1,746 1,964 2,739 3,050 4,699
Selling and marketing................................. 491 700 1,130 1,459 2,598 4,485
General and administrative............................ 499 526 1,064 1,816 6,295 2,106
-------- -------- -------- -------- -------- --------
Total operating expenses.......................... 3,463 2,972 4,158 6,014 11,943 11,290
-------- -------- -------- -------- -------- --------
Income (loss) from operations............................. (3,463) (2,972) 5,419 17,403 21,158 43,371
Other income (expense), net............................... 129 237 75 140 290 1,877
-------- -------- -------- -------- -------- --------
Income (loss) before income taxes......................... (3,334) (2,735) 5,494 17,543 21,448 45,248
Provision (benefit) for income taxes...................... -- -- (4,600) 6,850 8,365 17,646
-------- -------- -------- -------- -------- --------
Net income (loss)......................................... $ (3,334) $ (2,735) $ 10,094 $ 10,693 $ 13,083 $ 27,602
======== ======== ======== ======== ======== ========
Pro forma net income (loss) per common and common
equivalent share........................................ $ (.03) $ (.03) $ .10 $ .11 $ .13 $ .26
======== ======== ======== ======== ======== ========
Pro forma weighted average common and common equivalent
shares outstanding...................................... 99,111 99,111 99,111 99,111 99,425 104,457
======== ======== ======== ======== ======== ========

Revenue................................................... -- -- 100.0% 100.0% 100.0% 100.0%
Cost of goods sold........................................ -- -- 43.4 38.2 38.6 36.9
-------- -------- -------- -------- -------- --------
Gross profit.......................................... -- -- 56.6 61.8 61.4 63.1
Operating expenses:
Research and development.............................. -- -- 11.6 7.2 5.7 5.5
Selling and marketing................................. -- -- 6.7 3.8 4.8 5.2
General and administrative............................ -- -- 6.3 4.8 11.7 2.4
-------- -------- -------- -------- -------- --------
Total operating expenses.......................... -- -- 24.6 15.8 22.2 13.1
-------- -------- -------- -------- -------- --------
Income (loss) from operations............................. -- -- 32.0 46.0 39.2 50.0
Other income (expense), net............................... -- -- 0.4 0.3 .6 2.2
-------- -------- -------- -------- -------- --------
Income (loss) before income taxes......................... -- -- 32.4 46.3 39.8 52.2
Provision (benefit) for income taxes...................... -- -- (27.2) 18.1 15.5 20.3
-------- -------- -------- -------- -------- --------
Net income (loss)......................................... -- -- 59.6% 28.2% 24.3% 31.9%
======== ======== ======== ======== ======== ========

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25

SIX MONTHS ENDED APRIL 30, 1996 COMPARED TO SIX MONTHS ENDED APRIL 30, 1997

REVENUE. The Company recognized $140.6 million in MultiWave 1600 system
revenue for the six months ended April 30, 1997. The Company had no revenue for
the comparable six months ended April 30, 1996. The Company began shipping the
MultiWave 1600 system for field testing in May 1996 with customer acceptance by
Sprint occurring in July 1996. The MultiWave 1600 system began carrying live
traffic in the Sprint network in October 1996, and the field trials in the
WorldCom and Teleway networks were successfully completed in December 1996 and
March 1997, respectively. Revenues for the six months ended April 30, 1997 were
the result of MultiWave 1600 systems sales to Sprint as well as the initial
product acceptance and revenue recognition of MultiWave 1600 systems shipped to
WorldCom and, to a significantly lesser degree, Teleway.

GROSS PROFIT. Gross profit was $87.8 million for the six months ended
April 30, 1997 with no comparable gross profit for the six months ended April
30, 1996. Gross margin was 62.4% for the six months ended April 30, 1997. The
Company's gross margins in the future may be under pressure by a number of
factors, including competitive market pricing, manufacturing volumes and
efficiencies and fluctuations in component costs. See "Risk Factors". The
Company's future gross margins may also be affected by the mix of product
features and configurations sold in a period as well as the extent of services
provided.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses were
$7.7 million and $4.2 million for the six months ended April 30, 1997 and April
30, 1996, respectively. The approximate $3.5 million or 83% increase in research
and development expenses was related to increased staffing levels, purchases of
materials used in development of new or enhanced product prototypes, and outside
consulting services in support of certain developments and design efforts.
During the six months ended April 30, 1997, research and development expenses
were 5.5% of revenue. The Company expects that its research and development
expenditures will continue to increase in absolute dollars and perhaps as a
percentage of revenue during the remainder of fiscal year 1997 to support the
continued development of the MultiWave system, the exploration of new or
complementary technologies, and the pursuit of various cost reduction
strategies. The Company has expensed research and development costs as incurred.

SELLING AND MARKETING EXPENSES. Selling and marketing expenses were $7.1
million and $1.2 million for the six months ended April 30, 1997 and April 30,
1996, respectively. The approximate $5.9 million or 495% increase was primarily
the result of increased staffing levels in the areas of sales, technical
assistance and field support, and increases in commissions earned, trade show
participation and promotional costs. During the six months ended April 30, 1997,
selling and marketing expenses were 5.0% of revenue. The Company anticipates
that its selling and marketing expenses will increase in absolute dollars and
perhaps as a percentage of revenue during the remainder of fiscal year 1997 as
additional personnel are hired and offices opened to allow the Company to pursue
new market opportunities. The Company also expects the portion of selling and
marketing expenses attributable to technical assistance and field support will
increase as the Company's installed base of operational MultiWave systems
increases.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
were $8.4 million and $1.0 million for the six months ended April 30, 1997 and
April 30, 1996, respectively. The approximate $7.4 million increase was
primarily the result of a $5.0 million charge to accrue estimated legal and
related costs associated with pending litigation. See "Business -- Legal
Proceedings". The remaining increase was primarily the result of increased
staffing levels and outside consulting services. During the six months ended
April 30, 1997, general and administrative expenses were 6.0% of revenue. The
Company believes that its general and administrative expenses for the remainder
of fiscal 1997 will increase from the $3.4 million level ($8.4 million less the
$5.0 million estimated legal and related costs accrual) incurred in the six
months ended April 30, 1997 due to the expansion of the Company's administrative
staff required to support its expanding operations and an increase in expenses
associated with operating as a public company.

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26

OPERATING PROFIT. The Company's operating profit for the six months ended
April 30, 1997 was $64.5 million or 45.9% of revenue and would have been $69.5
million or 49.4% of revenue exclusive of the $5.0 million accrual for estimated
legal and related costs. The Company expects that its operating profit,
exclusive of the $5.0 million accrual for estimated legal and related costs,
will decrease as a percentage of revenue as it continues to hire additional
personnel and increase operating expenses to support its business.

INTEREST AND OTHER INCOME. Interest income and other income increased to
$2.2 million for the six months ended April 30, 1997 from $0.4 million for the
same period in 1996. The net increase was attributable to higher invested cash
and cash equivalents balances.

PROVISION FOR INCOME TAXES. The Company's provision for income taxes was
39% of pre-tax earnings, or $26.0 million for the six months ended April 30,
1997. Through April 30, 1996, a valuation allowance had been recorded to offset
the Company's deferred tax assets, including the possible future benefit from
the realization of tax operating loss carry forwards.

LIQUIDITY AND CAPITAL RESOURCES

At April 30, 1997, the Company's principal source of liquidity was its cash
and cash equivalents of $180.8 million, which increased by $158.2 million from
October 31, 1996. In November 1996, the Company established an unsecured $15.0
million bank revolving line of credit. Borrowings under this line bear interest
at the bank's prime rate. As of April 30, 1997, there were no borrowings
outstanding under the line of credit.

Cash generated from operations was $46.7 million for the six months ended
April 30, 1997. This amount was principally attributable to net income adjusted
for the non-cash charges of depreciation, amortization, provisions for inventory
obsolescence and warranty, increases in accounts payable, accrued expenses and
income tax payable; offset by increases in accounts receivable and inventories
due to increased revenue and to the general increase in business activity.

Investment activities during the six months ended April 30, 1997 resulted
in a cash use of $27.5 million. Capital equipment expenditures in the first six
months of 1997 totaled $17.5 million and were primarily for test, manufacturing
and computer equipment. In addition, during the first six months of 1997, the
Company used $10.0 million for the construction of leasehold improvements
associated with its manufacturing and non-manufacturing facilities in Savage and
Linthicum, Maryland. In March 1997 the Company signed a lease for an additional
facility of approximately 57,000 square feet. This space is expected to be used
for additional manufacturing requirements and expanded customer service
operations. The Company intends to spend up to an additional $6.0 million to
$7.0 million in improving its facilities later in fiscal 1997.

Cash generated from financing activities during the six months ended April
30, 1997 was $139.0 million. This amount was primarily the result of the net
proceeds from the Company's February 7, 1997 initial public offering of
approximately $121.8 million and a $17.6 million tax benefit related to the
exercise of stock warrants.

The Company believes that the net proceeds from the Offerings combined with
its existing cash balance, its line of credit and cash flows expected from
future operations, will be sufficient to meet the Company's capital requirements
for at least the next 18 to 24 months.

22
27

NEWLY ISSUED ACCOUNTING STANDARD

In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No.
128"). SFAS No. 128 simplifies the earnings per share (EPS) computation and
replaces the presentation of primary EPS with a presentation of basic EPS. This
statement also requires dual presentation of basic and diluted EPS on the face
of the income statement for entities with a complex capital structure and
requires a reconciliation of the numerator and denominator used for the basic
and diluted EPS computations. The Company will implement SFAS No. 128 in fiscal
1998, as required. Accordingly, all prior period EPS data will be restated. To
illustrate the effect of adoption, the Company has elected to disclose pro forma
basic and diluted EPS amounts computed using SFAS No. 128, as permitted by the
standard. On a pro forma basis, the weighted average shares outstanding for
basic EPS and the resulting EPS would be 12,840,000 and $1.15 for the fiscal
year ended October 31, 1996, 51,962,000 and $.78 for the six months ended April
30, 1997, and 12,331,000 and $(.49) for the six months ended April 30, 1996.

The weighted average shares outstanding for basic EPS and resulting EPS for
the following fiscal quarters are set forth below:

Basic earnings per share........ $ (.28) $ (.21) $ .77 $ .81 $ .99 $ .31
Weighted average shares
outstanding (in thousands).... 12,110 12,862 13,055 13,179 13,245 89,287

Diluted EPS under SFAS No. 128 would have been the same as currently
presented.

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BUSINESS

OVERVIEW

CIENA designs, manufactures and sells DWDM systems for fiberoptic
communications networks. CIENA's first DWDM solution, the MultiWave 1600 system,
alleviates capacity, or bandwidth, constraints in high traffic fiberoptic routes
without requiring the installation of new fiber. In addition, the MultiWave 1600
system enables flexible provisioning of additional bandwidth without requiring
an upgrade of existing network transmission equipment. The MultiWave 1600 system
can increase the carrying capacity of a single optical fiber 16 fold by allowing
simultaneous transmission of up to 16 optical channels per fiber. This permits
fiber currently carrying signals at transmission speeds of up to 2.5 Gb/s to
carry up to 40 Gb/s. CIENA's MultiWave 1600 system includes optical transmission
terminals, optical amplifiers, optical add/drop multiplexers and network
management software. CIENA's MultiWave 1600 system is designed with an open
architecture that allows the MultiWave 1600 system to interoperate with
carriers' existing fiberoptic transmission systems having a broad range of
transmission speeds and signal formats. CIENA's MultiWave Sentry includes
enhancements that significantly expand the ability of the MultiWave system to
interface with data communications equipment in addition to other types of
transmission equipment and increase the distance which can be spanned between
transmission terminals.

The Company believes it is a worldwide market leader in field deployment of
open architecture DWDM systems. For the six months ended April 30, 1997, the
Company recorded $140.6 million in revenue of which $86.6 million was from sales
to Sprint under a three-year non-exclusive supply agreement which expires in
December 1998, and approximately $49.0 million was from sales to WorldCom under
a five-year supply agreement which, subject to certain conditions, is exclusive
through December 1997. The Company also recently announced a contract to supply
MultiWave 1600 systems to Mercury. The Company is actively seeking additional
customers among long distance, local and interoffice fiberoptic network
operators in the worldwide telecommunications market and has entered into a test
agreement with AT&T.

INDUSTRY BACKGROUND

The four largest long distance carriers in the United States, AT&T, MCI
Communications Inc. ("MCI"), Sprint and WorldCom, as well as many international
telecommunications carriers, have widely deployed fiberoptic cable forming the
backbone of their long distance networks. Growth in utilization of long distance
networks has increased both the type of traffic -- from voice alone to voice,
data and video -- and the volume of traffic carried over these fiberoptic
networks. This growth in utilization has been caused by factors such as:

- increased use of office automation, distributed computing, electronic
mail, facsimile transmission, electronic transaction processing, video
conferencing, remote access telecommuting, local and wide area
networking and especially by the growing use of the Internet;

- widespread deregulation of the United States telecommunications
industry and the consequent increase in competition among, and
lowering of prices by, service providers in the long distance market;
and

- development of high-bandwidth network access technologies, such as
cable modems, hybrid fiber coaxial architectures and digital
subscriber lines, that permit users to transmit and receive high
volumes of information.

Increased utilization creates transmission bottlenecks on heavily used
routes that were originally designed for significantly less traffic. Although
exact statistics are not available, the Company believes that this increase in
type and volume of utilization has caused some long distance telecommunications
carriers to handle traffic over certain long distance routes at or near the

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29

maximum capacity of the existing installed fiber and electronic-based
transmission systems currently in use.

The growth in demand for, and the resulting strains on, capacity of the
fiberoptic telecommunications networks have been coupled with an increasing need
for network reliability to support mission critical data communications. As
end-users become more dependent on around-the-clock network availability, they
become less tolerant of service interruptions which can be caused by factors
such as equipment failure, fiber cuts or high traffic volume.

This demand for greater reliability has led long distance carriers to adopt
"ring architecture" in which long distance routes are linked in a ring
configuration so that in the event of a fiberoptic cable cut or other equipment
failure between two points of the ring, the signal can be immediately redirected
through the reverse "protection path" of the ring. The service break associated
with a fiber cut or other equipment failure in a network using ring architecture
can be restored in approximately 50 milliseconds, which is essentially
unnoticeable by the consumer. However, many ring architectures now being
deployed demand twice as much fiber capacity (due to the need to maintain a
redundant alternative path to serve as a protection path for each fiber in use)
as non-ring based architectures. AT&T, Sprint and WorldCom have all announced an
intention to implement ring architecture for their networks, which will place
greater bandwidth demand on their existing fiberoptic networks.

The Company believes the factors driving growth in utilization of capacity
and the increased demand for reliability have converged with greatest impact in
the long distance "backbone" routes of fiberoptic networks. The Company believes
the same convergence is occurring and may have a similar impact in other
portions of the networks. For example, the increasingly heavy flow of data
communications is not limited to long distance routes, but affects local and
interoffice routes as well. The local and interoffice traffic has historically
been handled predominantly by the regional Bell operating companies ("RBOCs"),
whose fiberoptic networks were designed primarily for voice communication with a
localized, or shorter reach orientation. The Company believes transmission
bottlenecks are beginning to be experienced by the RBOCs and competitive local
exchange carriers, or "CLECs", in these shorter routes.

The shortage of bandwidth available in existing fiberoptic networks can be
addressed in several ways. One solution is to install additional fiberoptic
cable along existing routes or in new fiberoptic routes. However, the
installation of additional fiber, and particularly the creation of new
fiberoptic routes, is a costly and time-consuming process, involving extensive
negotiation and acquisition of necessary rights of way, as well as the actual
construction effort. The Company believes that the average cost of creating new
underground fiberoptic routes is approximately $43,400 per kilometer ($70,000
per mile). Another solution is to increase the transmission speed of the
installed systems. However, this approach is also costly. Existing long distance
telecommunications routes generally use TDM fiberoptic transmission terminals at
either end of the route to send and receive signals. Opto-electronic signal
regenerators ("regenerators") are then placed between terminals along the
fiberoptic cables, spaced at regular intervals of 35-50 kilometers
(approximately 22 to 31 miles). These regenerators process, amplify and re-time
the signal through a process that involves conversion of the optical signal to
electronic form and back to optical form. However, terminals and regenerators
are "bit-rate specific," meaning upgrade of a route segment to handle higher
transmission speeds requires replacement of all terminals and regenerators. A
large number of regenerators are needed on a route of significant length, and
any upgrade of a route segment using TDM technology would require a significant
investment in new equipment as well as significant installation costs.

Certain types of existing fiber have been shown to display incompatibility
problems with very high speed TDM equipment. "Non-dispersion shifted" fiber
constitutes the majority of fiber installed in North America and Europe, while
"dispersion shifted" fiber has been popular in Japan. "Reduced dispersion" fiber
is a recent development that is beginning to see applications in some new fiber

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30

installations. At lower transmission rates, such as 2.5 Gb/s, TDM-based
equipment is technically viable for use with these fiber types and widely
available commercially. As an upgrade to existing telecommunications links with
transmission rates below 2.5 Gb/s, TDM at 2.5 Gb/s can represent an alternative
incremental approach to the enhancement of transmission capacity. However, at
the 10 Gb/s transmission rate, transmission over non-dispersion shifted fiber
can result in significant impairments to and distortion of the signal.

CIENA and others have observed that the potential for an alternative
technological solution to laying new fiber or upgrading capacity to higher
electronic transmission rates exists because the bandwidth intrinsic to existing
fiber is vastly underutilized. For example, transmission systems which use TDM
and transmit at 2.5 Gb/s use substantially less than one percent of the inherent
bandwidth of the fiber currently deployed in United States fiberoptic networks.
An optical multiplexing technology called wavelength division multiplexing
("WDM") has long been recognized for its potential to better utilize fiber
bandwidth by enabling the simultaneous transmission of multiple optical signals
on discrete channels on a single fiber. Until recently, however, technological
barriers have limited exploitation of the potential of WDM as a commercially
viable solution. DWDM is an extension of WDM technology and refers to the
simultaneous transmission of more than four channels on a single fiber.

THE CIENA SOLUTION

CIENA has deployed DWDM systems that enhance the transmission capacity of a
single optical fiber 16 fold, without requiring significant modification or
upgrade to transmission equipment. The MultiWave 1600 system includes terminals,
optical amplifiers and network management software that enable simultaneous
transmission of up to 16 optical channels on a single fiber at rates of up to
2.5 Gb/s per channel. The MultiWave 1600 system permits the transmission of
optical signals over routes of up to 600 kilometers (372 miles) without
opto-electronic regeneration. CIENA's MultiWave 1600 system incorporates the
following features:

- OPEN ARCHITECTURE SYSTEM. CIENA's system is designed with an open
architecture that allows the MultiWave 1600 system to interoperate with
carriers' existing fiberoptic transmission systems having a broad range
of transmission speeds and signal formats. This approach is distinguished
from a closed architecture system design pursued by companies that
manufacture other telecommunications equipment and may seek to preserve
the market for their network equipment.

- MODULAR DESIGN. The MultiWave 1600 system design is modular and allows
capacity-specific configurations and the ability to add additional
capacity through a modular upgrade. This enables a customer to select the
number of channels to use in a particular fiber and preserves the
customer's ability to respond quickly to increased demand for capacity
without significant additional equipment purchases.

- TACTICAL IMPLEMENTATION. CIENA's MultiWave 1600 system can be tactically
implemented on a route-by-route basis, providing relief on capacity
constrained routes without mandating a network-wide architectural or
transmission equipment change. In the context of new network
construction, the Company believes that its ability to permit 40 Gb/s
capacity per fiber, together with the elimination of multiple
regenerators, make the MultiWave 1600 system cost-efficient.

- SCALEABLE AMPLIFIERS. The Company's optical amplifiers, when installed
to accommodate 16 channels, do not need to be changed as channels are
added or as transmission speeds are increased to up to 2.5 Gb/s. Unlike a
TDM upgrade solution which involves replacement of all transmission
equipment along a fiber route, a channel upgrade of a CIENA MultiWave
1600 system involves no replacement of existing transmission equipment
until all 16 channels are in service. Similarly, increases in
transmission rates up to a maximum of 2.5 Gb/s do not require replacement
of or modification to the optical amplifiers.

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- ADD-DROP CAPABILITY. The CIENA optical add-drop multiplexer ("OADM")
enables carriers selectively to direct portions of a route's traffic to
various sites along the route without requiring extensive termination
equipment or electronic add/drop multiplexers. A network operator may
optically remove (drop) and/or insert (add) up to four channels from the
composite 16 channel signal at a point along a fiber route where the OADM
is installed. An OADM at a different point along that route enables the
network operator to reuse those channels. The Company believes the
resulting traffic routing flexibility at the all-optical layer of the
fiberoptic network is potentially attractive and cost effective to
network planners.

- MANAGEMENT SOFTWARE. CIENA's MultiWave 1600 system includes network
management software enabling customers to receive early warnings of
network problems and to manage and monitor network performance. The
Company's commitment to providing standards compliant network management
interfaces at all levels, from individual network elements to the element
management system, affords rapid integration into existing
telecommunication management operations. The Company provides standards
compliant network management systems based upon Simple Network Management
Protocol (SNMP), Transmission Control Protocol/Internet Protocol (TCP/IP)
and the International Telecommunications Union (ITU) Telecommunications
Management Network (TMN) standards.

- FIBER COMPATIBILITY. The CIENA MultiWave 1600 system is compatible with
dispersion shifted, reduced dispersion and non-dispersion shifted fiber.
Non-dispersion shifted fiber constitutes the majority of fiber installed
in North America and Europe.

CIENA's recently announced MultiWave Sentry, the next generation version of
the MultiWave 1600 system, retains all of the listed features and includes
enhancements which significantly expand the ability of the MultiWave system to
interface with data communications equipment in addition to other types of
transmission equipment and increase the distance which can be spanned between
transmission terminals. The fully configured MultiWave Sentry is expected to be
commercially available for volume shipments in the fall of 1997.

CIENA's MultiWave 1600 and the MultiWave Sentry systems are based upon the
use of three core enabling technologies that assist in overcoming many of the
constraints that limited commercial introduction of WDM technology: Erbium-doped
fiber amplifiers enabling the direct amplification of optical signals without
the use of electronic regenerators; in-fiber Bragg gratings enabling precise
filtering of multiple optical signals in a single fiber; and network management
software developed by the Company permitting a customer to manage effectively
the status and functions of the CIENA MultiWave systems in conjunction with the
network operator's management of other parts of its network.

CIENA'S STRATEGY

The Company's strategy is to maintain and build upon its market leadership
in the deployment of DWDM systems. Important elements of the Company's strategy
include:

- MAINTAIN LEADERSHIP IN DEPLOYMENT OF DWDM IN LONG DISTANCE NETWORKS. The
Company believes that the technological, operational and cost benefits of
the Company's DWDM systems create competitive advantages for long
distance telecommunications carriers worldwide. The Company also believes
that achieving early widespread operational deployment of its systems in
a particular carrier's network will provide CIENA significant competitive
advantages with respect to additional DWDM deployments and channel
upgrades within that network and will enhance its marketing to other
carriers as a field proven supplier. The Company therefore intends to
continue aggressively pursuing DWDM deployment opportunities among long
distance carriers in the domestic and foreign long distance markets. The
Company will focus its MultiWave product development efforts on expanding
the current 16 channel capacity of the MultiWave system while adding
operational features designed to

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make MultiWave products as attractive and flexible as possible to long distance
telecommunications carriers.

- CONTINUE TO EMPHASIZE TECHNICAL SUPPORT AND CUSTOMER SERVICE. The
Company markets a technically advanced system to sophisticated customers.
The nature of the Company's system and market require a high level of
technical support and customer service. The Company is developing a
substantial customer service organization, including full-time customer
support offices in Kansas City, Kansas (to support Sprint), Tulsa,
Oklahoma (to support WorldCom) and other selected locations where it
develops significant customer relationships, to provide on-going support
to its customers. Internationally, the Company is working to develop
relationships with companies that can team with the Company to provide
similar service and support outside the United States. The Company
recently announced a contract with BICC Cables, plc, to assist the
Company in the delivery of service and support to Mercury in the U.K.

- CONTINUE TO DEVELOP WORLD CLASS MANUFACTURING CAPABILITY. The Company's
MultiWave system serves a mission critical role in its customers'
networks. Quality assurance and manufacturing excellence are necessary
for the Company to achieve success. CIENA believes it has developed and
will continue to enhance a world class manufacturing capability. The
Company invested $5.9 million in capital improvements in fiscal 1996 and
hired 125 employees in that year to increase manufacturing capacity and
efficiency and improve manufacturing quality. An additional $16.2 million
in capital improvements were made, and 139 employees were hired in the
first six months of fiscal 1997 in support of this element of CIENA's
strategy. The Company is working actively to achieve ISO 9001
certification. ISO 9001 is an internationally recognized documented
standard prescribing quality assurance management. The Company believes
that ISO 9001 certification will not only serve as a guide for quality
management but may enhance the Company's competitive position, especially
among potential customers who view such certification as an independent
validation of quality assurance.

- EXPAND SALES AND MARKETING EFFORTS. The nature of the target customer
base for MultiWave 1600 and MultiWave Sentry systems requires a focused
sales effort on a customer-by-customer basis. The Company will continue
to increase its sales and marketing efforts by focusing on the worldwide
market of long distance carriers. In fiscal 1996, the Company increased
its sales and marketing force by 12 persons, and increased it by another
18 persons in the first six months of fiscal 1997. The Company will
continue to strengthen its marketing programs and increase its
international presence through both direct sales and international
distributors.

- EXTEND NETWORK APPLICATIONS OF DWDM TECHNOLOGIES. The Company believes
the overall growth in utilization of fiberoptic telecommunications
networks will lead to transmission bottlenecks in other segments of the
networks where the application of DWDM technologies may provide
solutions. The Company expects to leverage the core competencies it has
developed in the design, development and manufacturing of the MultiWave
1600 and the MultiWave Sentry systems by pursuing new product development
efforts, or possibly strategic alliances or acquisitions, to address
expected opportunities in these segments.

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NETWORK ARCHITECTURE

A CIENA MultiWave system is a combination of equipment and software that is
installed on a particular long distance route segment. A MultiWave 1600 system
consists of one MultiWave terminal on each end of the route segment, one or more
MultiWave optical amplifiers along the route (depending on route length) and
CIENA's WaveWatcher network management software. The diagram below depicts an
operating configuration of a deployed MultiWave 1600 system in a four-fiber ring
architecture network configuration:

[CHART DEPICTING FIBER RING]

The MultiWave terminal at one end of the route multiplexes the customer's
optical signals into as many as 16 discrete optical channels and transmits those
channels simultaneously on the outbound fiber of the fiber pair. A MultiWave
terminal at the other end of the route demultiplexes the inbound multichannel
signal into 16 individual signals that are directed to the customer's receivers.
Optical amplifiers placed along the route provide optical amplification of the
composite multichannel signal over long route lengths. The Company's WaveWatcher
software provides continuous network management capability by monitoring system
functions.

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The diagram below compares (i) traditional transmission equipment
configuration for a high traffic (16 signal) long distance route of 600
kilometers (372 miles), using TDM transmission terminals and regenerators with
(ii) the same high traffic (16 signal) long distance route configured with a
MultiWave 1600 system.

[CHART DEPICTING TDM ROUTE CONFIGURATION BEFORE AND AFTER
INSTALLATION OF A MULTIWAVE 1600 SYSTEM]

In the TDM configuration above, 16 fiber pairs, and a total of 272
regenerators, are needed to transport 16 channels over the route. Each
regenerator converts the channels from optical to electrical and back to optical
format at 35-50 kilometer (22 to 31 mile) intervals. In order to upgrade the
transmission capacity of the typical TDM network route, as shown forth above,
using traditional TDM technology, all the fiberoptic transmission terminals and
all 272 regenerators would need to be replaced. This process entails significant
equipment costs, requires rerouting of transmissions and

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can be time-consuming and, potentially, an operational bottleneck. While the TDM
configuration above is typical, the actual number of regenerators may be less
than depicted above.

By contrast, as shown above, the same high traffic (16 signal)
long-distance route can be configured with a MultiWave 1600 system. The 272
regenerators are replaced with four MultiWave optical amplifiers and only one
fiber pair is required for transmission of 16 signals. As a result, 15 of the 16
fiber pairs that were previously used are freed for future use. The maintenance
costs associated with the 272 regenerators are eliminated and replaced by the
lower maintenance costs of four optical amplifiers. Because each regenerator
must be housed in a weather-protected, environmentally controlled shelter,
elimination of regenerator sites may also significantly lower operational costs.
Increasing the availability of a number of fiber pairs is especially significant
to carriers that have implemented or are planning to implement ring
architectures and those providing leased transmission capacity to other
operators. Using a MultiWave Sentry system, this long distance route can be
expanded to a distance of up to 4,800 kilometers without the need for
conventional regenerators.

MULTIWAVE SYSTEMS

MultiWave systems are installed along routes defined at each end by the
presence of the customer's data or telephone transmission equipment. MultiWave
systems feature open architectures which interoperate with a broad range of
models of fiberoptic transmission terminals and data communications equipment.
MultiWave systems can be flexibly configured based on the customer's capacity
needs with up to 16 channels, and the initial channel configuration, if less
than 16 channels, can be supplemented whenever additional capacity is needed.
The modular design of MultiWave systems allows the network operator to add
capacity without interrupting existing MultiWave traffic.

MULTIWAVE 1600 TERMINAL. The CIENA MultiWave 1600 terminal is a modular
DWDM terminal which can multiplex and amplify signals from long-reach
transmitters in fiberoptic transmission terminals into 16 discrete optical
channels for transmission over a pair of fibers to the other MultiWave 1600
terminal and demultiplex the received multichannel signal into 16 individual
signals that feed the long-reach receivers in fiberoptic transmission terminals.
The MultiWave 1600 terminal functions in the same manner over a broad range of
transmission speeds, up to approximately 2.5 Gb/s per channel, and operates
without material modifications to existing fiberoptic transmission systems. Each
MultiWave 1600 terminal consists of up to two channel shelves (up to eight
channels per shelf) and a common equipment shelf. The MultiWave terminal can
transport over total route lengths of up to 600 kilometers (372 miles) at up to
2.5 Gb/s per channel without regeneration or impairment of the signal. For
longer distance systems a conventional fiberoptic regenerator is used to
reconstruct the signals between MultiWave 1600 systems.

MULTIWAVE SENTRY TERMINAL. The CIENA MultiWave Sentry terminal is also a
modular DWDM terminal with open interfaces. The MultiWave Sentry incorporates
DWDM optimized long-reach receivers within the MultiWave system and uses
standard low-cost short-reach interfaces at both input and output to connect to
a customer's equipment. MultiWave Sentry terminals incorporate built-in
performance monitoring capabilities for measuring channel characteristics and
determining channel identification. Up to eight MultiWave Sentry systems can be
concatenated together allowing transport of up to 40 Gb/s over total route
lengths of up to 4,800 kilometers (2,900 miles) without the need for
conventional regenerators. The combination of short-reach interfaces, embedded
receivers, the elimination of external regeneration requirements and built-in
performance monitoring capabilities enables high capacity datacommunications
networks based on equipment such as fast IP routers, ATM switches, or frame
relay switches to be constructed using MultiWave Sentry systems as their core
transmission equipment without the need for conventional long-reach fiberoptic
transmission terminals or multiplexers. The fully configured MultiWave Sentry is
expected to be commercially available for volume shipments in the fall of 1997.

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MULTIWAVE OPTICAL AMPLIFIER. The CIENA MultiWave optical amplifier is a
modular Erbium-doped fiber amplifier that provides direct composite optical
amplification of the 16 optical channels carried by the MultiWave 1600 system. A
single MultiWave optical amplifier shelf is capable of amplifying the system's
entire 40 Gb/s capacity (16 channels times approximately 2.5 Gb/s per channel).
Within a single MultiWave system, CIENA's MultiWave optical amplifiers take the
place of the customer's existing regenerators on routes of up to 600 kilometers
(372 miles), and can be spaced as much as 120 kilometers (74 miles) apart. The
MultiWave Optical Amplifier is used in both MultiWave 1600 systems and MultiWave
Sentry systems.

WAVEWATCHER NETWORK MANAGEMENT SYSTEM. WaveWatcher is the MultiWave 1600
system's integrated network management software package. The network element
manager uses a separate out-of-band optical service channel to communicate
network management information and provides a single view of multiple CIENA
systems through graphical user interfaces and supported operating system
interfaces. WaveWatcher has been designed to adhere to evolving open system
standards such as TMN for network management software and operates on a UNIX
platform. WaveWatcher provides fault, performance, security and configuration
management of optical networking systems. When used with MultiWave Sentry
systems, WaveWatcher provides additional monitoring capabilities for channel
identification and transmission quality throughout a customer's MultiWave
network.

MULTIWAVE OPTICAL ADD/DROP MULTIPLEXER. The CIENA optical add/drop
multiplexer enables carriers selectively to direct portions of a route's traffic
to various sites along the route without requiring extensive termination
equipment or electronic add/drop multiplexers. A network operator may optically
remove (drop) and/or insert (add) up to four channels from or to the composite
16 channel signal at a point along a fiber route where the optical add/drop
multiplexer is installed. The installation of an additional optical add/drop
multiplexer at a different point along that route enables the network operator
to reuse those channels. The optical add/drop multiplexer also provides optical
amplification for up to 16 channels and when used in the MultiWave Sentry
systems provides standard short-reach interfaces to either data communications
equipment or conventional fiberoptic transmission terminals.

A typical MultiWave system ranges in price from $500,000 to $2,000,000,
depending on such factors as customer needs for number of channels, route length
(which affects the number of optical amplifiers required), network management
software configuration and other negotiated terms and conditions. As required,
systems initially configured for less than 16 channels can be upgraded to carry
up to 16 channels at additional cost.

PRODUCT DEVELOPMENT

The Company expects to continue efforts to enhance and refine its MultiWave
systems, including efforts to expand the current 16 channel capacity to 40
channels, while adding operational features designed to make the Company's
products attractive to a wide range of network operators.

The Company believes the overall growth in utilization of fiberoptic
telecommunications networks will lead to transmission bottlenecks in other
segments of the networks where the application of DWDM technologies may provide
solutions. The Company intends to focus its product development efforts or
possibly pursue strategic alliances or acquisitions to address expected
opportunities in these segments.

As of April 30, 1997, there were 68 persons working in the Company's
research and development area. The Company's research and development
expenditures were $1.3 million, $6.4 million and $8.9 million for fiscal 1994,
1995 and 1996, respectively, and $7.7 million for the first six months of fiscal
1997.

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CUSTOMERS

SPRINT RELATIONSHIP

In December 1995, the Company entered into a three-year supply agreement
with Sprint, with the option for Sprint to extend the term of the agreement for
an additional year. Prices for all equipment purchased by Sprint under the terms
of the supply agreement are fixed for the initial three-year term but the prices
charged to Sprint for any deliverable under the supply agreement will not at any
time be higher than the Company's final net price to any "similarly situated
customer". The supply agreement does not obligate Sprint to make any minimum
purchases from the Company. The agreement requires that the Company set up and
maintain, at the Company's expense, certain test facilities for a period of 10
years.

The Company must maintain two years of backwards compatibility for any
enhancements or upgrades to the software. The Company also warrants each
deliverable provided by the Company for 60 months from the date of delivery,
with Sprint having the right until December 2005 to purchase an unlimited number
of one-year extensions of any or all warranties. Upgrades are provided at no
cost to Sprint during the warranty or extended warranty periods. The supply
agreement contains penalties for failure to respond to various types of system
failures in a timely manner. The supply agreement with Sprint also provides
Sprint with a perpetual, non-exclusive license to certain software and a license
to use, modify and enhance the Company's source code under certain conditions.

The supply agreement was amended in December 1996 to provide for a more
definitive purchase and delivery schedule during 1997 in combination with a
reduction in the Company's prices relating thereto. As a result of the
amendment, the Company anticipates that Sprint's purchases during 1997 will
approximate $130 million, and has expanded its production capacity accordingly.
There can be no assurance that these purchases will occur, and any failure to
deliver in a timely manner may result in a reduction of Sprint's actual
purchases in 1997.

WORLDCOM RELATIONSHIP

In September 1996, the Company entered into a five-year supply agreement
with WorldCom. Pursuant to the terms of the supply agreement, the Company will
be, subject to certain conditions, the exclusive supplier of DWDM systems for
WorldCom through December 1997. The agreement does not require a minimum
purchase commitment; if WorldCom, however, does not purchase a certain minimum
amount of equipment, all prices for equipment purchased under the agreement
increase. As of May 31, 1997, the minimum threshold had been exceeded, and
pursuant to another contract provision, the Company has implemented an
approximate 5% price reduction on future purchases. WorldCom may terminate all
or any part of an outstanding purchase order upon the payment of a termination
fee.

The Company has granted to WorldCom, pursuant to the supply agreement, a
license to use certain software. The Company has also granted WorldCom the
option to purchase the source code for certain software at any time during the
term of the agreement for a one-time payment. If WorldCom exercises this option,
the Company has no further obligation to provide support or maintenance services
or to provide upgrades or enhancements with respect to this software.

Under product and pricing attachments currently in effect, the Company
provides WorldCom with software upgrades at no charge for a period of 10 years
from installation and provides a five-year warranty for products.

TELEWAY RELATIONSHIP

The Company has entered into a two-year agreement with NISSHO Electronics
Corporation ("NISSHO") to act as a distributor of the Company's MultiWave 1600
system in Japan. Through NISSHO, the Company has shipped a MultiWave 1600 system
to Teleway.

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DIGITAL TELEPORT, INC. RELATIONSHIP

In April 1997, the Company signed a supply agreement with Digital Teleport,
Inc. and has received an order for a MultiWave 1600 system for installation in a
250 mile route from St. Louis to Kansas City, Missouri. This installation will
represent the Company's first deployment of the MultiWave 1600 as part of a
newly built long distance fiberoptic route.

MERCURY COMMUNICATIONS RELATIONSHIP

In June 1997, the Company signed an agreement to supply MultiWave 1600
systems to Mercury Communications Limited, a U.K. based subsidiary of Cable and
Wireless Communications Group. The agreement calls for delivery and installation
over several months beginning in August 1997. The Company also entered into an
agreement with BICC Cables, plc, to assist the Company in the delivery of
service and support to Mercury in connection with this installation and
operation.

OTHER POTENTIAL CUSTOMER RELATIONSHIPS

The Company is actively working to develop customer relationships with long
distance and other carriers worldwide. The Company has contacted other long
distance carriers and is responding to requests for proposals as well as
engaging in direct and indirect sales efforts. On June 2, 1997, the Company
signed a trial evaluation agreement with AT&T. The trial agreement calls for
CIENA to supply six 16-channel MultiWave Sentry systems for laboratory
interoperability testing. The trial evaluation agreement is being undertaken
with a view toward negotiating and implementing a long term DWDM supply
agreement with deployment in 1998; however, there is no assurance the trial will
be successful or that such an agreement will be reached. CIENA is not presently
able to predict the volume, timing, or duration of any purchases which might
ensue from AT&T.

Under the Telecommunications Act of 1996, RBOCs are newly eligible to enter
the long distance market once they have met certain requirements for opening
their local markets to competition. The Company anticipates that one or more of
the RBOCs will move into the long distance market, although the timing of that
move is uncertain, and the question of how such a move will be implemented is
unclear -- e.g., through the establishment of owned network facilities, through
the purchase of long distance capacity from other long distance carriers, or
through some combination of the two. In the deregulated market, utility
companies are also known to be exploring the use of their existing rights of way
to develop fiberoptic-based telecommunications networks, although it is not
possible to predict the pace or scope of their efforts.

Internationally, the market for DWDM systems is still developing. The
deregulation and competition which have characterized the United States long
distance market are much less pronounced in most international markets, and the
data communications applications which fuel the demand for high bandwidth
transmission systems in the United States are not as widely used in most
international markets. The Company intends to concentrate its international
sales and marketing efforts in countries or regions where there is competition
among two or more long distance carriers, where there are significant bandwidth
constraints and where there is significant potential for near term growth in
telecommunications services.

SALES AND MARKETING

The Company has organized its resources for the separate but coordinated
approach to United States customers and international customers. In the United
States market, a sales team, comprised of an account manager, systems engineers
and technical support and training personnel, is assigned responsibility for
each customer account, and for the coordination and pursuit of sales contacts.
In the international market, the Company currently pursues prospective customers
through direct sales efforts, as well as through distributors, independent
marketing representatives and independent sales consultants. The Company has
established CIENA Limited as a wholly-owned subsidiary in the U.K. to facilitate
U.K. and European sales. The Company has distributor or

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marketing representative arrangements covering Austria, Germany, Italy and
Switzerland in Europe, and the Republic of Korea and Japan in Asia. The Company
has established a direct sales presence in Belgium and intends to establish a
similar presence in Asia over the next 12 to 18 months. The Company has
representative support in Brazil.

The Company's systems require a relatively large investment, and the
Company's target customers in the long distance telecommunications
market -- where network capacity and reliability are critical -- are highly
demanding and technically sophisticated. There are only a small number of such
customers in any country or geographic market. Also, every network operator has
unique configuration requirements which impact the integration of DWDM systems
with existing transmission equipment. The convergence of these factors leads to
a very long sales cycle for the MultiWave systems, often more than a year
between initial introduction to the Company and commitment to purchase, and has
further led CIENA to pursue sales efforts on a focused, customer-by-customer
basis.

In support of its worldwide selling efforts, the Company conducts marketing
programs intended to position and promote its products within the
telecommunications industry. Marketing personnel coordinate the Company's
participation in trade shows and conduct media relations activities with trade
and general business publications.

CUSTOMER SERVICE AND SUPPORT

The Company is developing a customer service and support organization to
provide its customers with a high level of technical support and customer
service. The Company believes that as deployment of MultiWave systems broadens
within customer networks, installation services or assistance from the Company
will increasingly be requested by customers. Additionally, as the installed base
of MultilWave systems has increased, customer needs for prompt technical support
and service as well as on site assistance, have materially increased. The
Company is developing a separate customer service and support organization to be
responsive to these needs. The Company has full-time customer support offices in
Kansas City, Kansas (to support Sprint) and Tulsa, Oklahoma (to support
WorldCom) and the Company intends to establish customer support offices in other
selected locations where it develops significant customer relationships, to
provide on-going support to its customers. Internationally, the Company is
working to develop relationships with companies which can team with the Company
to provide similar service and support outside the U.S. The Company recently
announced a contract with BICC Cables, plc, to assist the Company in the
delivery of service and support to Mercury.

MANUFACTURING

The Company manufactures the in-fiber Bragg gratings and Erbium-doped fiber
amplifiers used in the MultiWave 1600 and MultiWave Sentry systems, and conducts
all optical assembly, final assembly and final component, module and system test
functions, at its manufacturing facilities in Maryland. The Company has invested
significantly in automated production capabilities and manufacturing process
improvements and expects to further enhance its manufacturing process with
additional production process control systems. However, certain critical
functions, including aspects of fiber splicing, require a highly skilled manual
work force, and the Company puts significant efforts into training and
maintaining the quality of its manufacturing work force. The Company is also
currently working towards obtaining an ISO 9001 certification, which it believes
will be a further competitive strength. To the extent that the Company does not
achieve ISO 9001 certification and its competitors do, the Company's competitive
position may be materially and adversely affected.

Electronic board assemblies are currently produced both at the Company and
by third party subcontractors. The Company has not experienced any significant
delays or material unanticipated costs resulting from the use of subcontractors;
however, such a strategy involves certain risks, including the potential absence
of adequate capacity, the unavailability of or interruptions in access

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to certain process technologies, and reduced control over delivery schedules,
manufacturing yields, quality and costs. In the event that any significant
subcontractor were to become unable or unwilling to continue to manufacture
and/or test the Company's assemblies in required volumes, the Company would have
to identify and qualify acceptable replacements. This qualification process
could also be lengthy and no assurance can be given that any additional sources
would become available to the Company on a timely basis. A delay or reduction in
component shipments, or a delay or increase in costs in the assembly and testing
of products by third party subcontractors, could materially and adversely affect
the Company's business, financial condition and results of operations. The
Company has recently installed additional electronic board assembly equipment in
its facility in Savage, Maryland, and intends to significantly reduce the
subcontracted portion of this work.

The Company's MultiWave systems utilize in excess of 600 parts, many of
which are customized for the Company. Component suppliers in the specialized,
high technology end of the optical communications industry are generally not as
plentiful or, in some cases, as reliable, as component suppliers in more mature
industries. Certain key optical and electronic components used in the Company's
MultiWave 1600 and MultiWave Sentry systems are currently available only from
sole sources. The Company has from time to time experienced minor delays in the
receipt of these components, and any future difficulty in obtaining sufficient
and timely delivery of them could result in delays or reductions in product
shipments which, in turn, could have a material adverse effect on the Company's
business, financial condition and results of operations. While alternative
suppliers have been identified for certain other key optical and electronic
components, those alternative sources have not been qualified. The time and
expense involved in qualifying each additional source are significant.
Accordingly, the Company will for the near term continue to be dependent on sole
and single source suppliers of certain key components. See "Risk
Factors -- Dependence on Suppliers" and "-- Competitors as Suppliers".

COMPETITION

The market for increased bandwidth is highly competitive, and the Company
expects the level of competition to increase in the future. In addition,
competition in the telecommunications equipment industry generally is intense,
particularly in that portion of the industry devoted to delivering higher and
more cost effective bandwidth throughout the telecommunications network.
However, the Company believes that its position as a leading supplier of open
architecture DWDM systems and the field-tested design and technology of its
product give it a current competitive advantage.

The competition faced by the Company is dominated by a small number of very
large, usually multinational, vertically integrated companies, each of which has
substantially greater financial, technical and marketing resources, and greater
manufacturing capacity as well as more established customer relationships with
long distance carriers than the Company. Included among the Company's
competitors are Lucent, Nortel, Alcatel, NEC, Pirelli and Ericsson. Each of the
Company's major competitors is believed to be in various stages of development,
introduction or deployment of DWDM products directly competitive with the
Company's MultiWave systems. Pirelli, in particular, is known to have deployed
open architecture WDM equipment and has announced the introduction of a
32-channel DWDM system. A U.S. affiliate of Pirelli is currently pursuing patent
infringement litigation against the Company. See "Business -- Legal
Proceedings". Lucent has an especially prominent role in the market because of
its historical affiliation with AT&T. Lucent has announced it is supplying
closed architecture DWDM system equipment to AT&T, and has announced an
intention to introduce in the near future an open architecture DWDM system.
Although Lucent's prior affiliation with AT&T may have inhibited its
relationships as a supplier to other carriers, the spin-off of Lucent into a
separate company may make it more attractive to potential customers as a
supplier.

In addition to DWDM suppliers, traditional TDM-based transmission equipment
suppliers compete with the Company in the market for transmission capacity.
Lucent, Alcatel, Nortel, Fujitsu and NEC are already providers of a full
complement of such equipment. These and other

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competitors have introduced or are expected to introduce equipment which will
offer 10 Gb/s transmission capability, and MCI has recently announced limited
deployment of such equipment. The Company believes the viability of widescale
deployment of 10 Gb/s TDM based equipment has yet to be demonstrated. Because of
the transmission rate employed, the 10 Gb/s TDM equipment requires digital
multiplexing circuits operating at microwave frequencies, which can lead to
instability. This can complicate reproducibility, which may in turn result in
delays in introduction and higher manufacturing costs. More significantly, at
the 10 Gb/s transmission rate, dispersion distortion effects in the fiber can
result in significant impairments and limitations, particularly in transmission
over non-dispersion shifted fiber, which comprises most of the installed fiber
in current long distance networks in the United States. However, at lower rates,
such as 2.5 Gb/s, TDM-based equipment is technically viable and widely available
commercially, and, as an upgrade to existing lower transmission rate
telecommunications links, can represent an alternative incremental approach to
the enhancement of transmission capacity.

Additionally, while the Company believes the open architecture of its
MultiWave systems is attractive to some customers, certain of the Company's
competitors are able to offer more extensive TDM-based product lines under
closed architectures which may provide perceived network-wide cost and operating
efficiencies not available from the Company. For example, Lucent, Alcatel,
Nortel, NEC, Pirelli, Siemens, Ericsson and others are expected to move
aggressively to capture market share in the DWDM market. The Company expects
aggressive competitive moves to include early announcement of competing or
alternative products, significant price discounting and intellectual property
disputes. While competition in general is broadly based on varying combinations
of price, manufacturing capacity, timely delivery, system reliability, service
commitment and installed customer base, as well as on the comprehensiveness of
the system solution in meeting immediate network needs and foreseeable
scaleability requirements, the Company's customers are themselves under
increasing competitive pressure to deliver their services at the lowest possible
cost. This pressure may result in pricing for DWDM systems becoming a more
important factor in customer decisions, thereby detracting from the advantages
the Company may otherwise possess by reason of its market leadership position.

PATENTS AND OTHER INTELLECTUAL PROPERTY RIGHTS

The Company has licensed certain key enabling technologies with respect to
the production of in-fiber Bragg gratings, utilized publicly available
technology associated with Erbium-doped fiber amplifiers, and applied its
design, engineering and manufacturing skills to develop its MultiWave 1600 and
MultiWave Sentry systems. These licenses expire when the last of the licensed
patents expires or is abandoned. The Company also licenses from third parties
certain software components for its network management software. These software
licenses are perpetual but will generally terminate after an uncured breach of
the agreement by the Company. The Company has applied for trademark registration
for CIENA, MultiWave, and MultiWave Sentry and has a registered trademark for
WaveWatcher. The Company also relies on contractual rights, trade secrets and
copyrights to establish and protect its proprietary rights in its products.

The Company intends to enforce vigorously its intellectual property rights
if infringement or misappropriation occurs. However, the Company does not expect
its proprietary rights in its technology will prevent competitors from
developing technologies and equipment functionally similar to the Company's.

The Company's practice is to require its employees and consultants to
execute non-disclosure and proprietary rights agreements upon commencement of
employment or consulting arrangements with the Company. These agreements
acknowledge the Company's exclusive ownership of all intellectual property
developed by the individual during the course of his work with the Company and
require that all proprietary information disclosed to the individual will remain
confidential.

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42

As of April 30, 1997, the Company had received eight United States patents,
had received notice of allowance of four more, and had 15 pending patent
applications. The issued patents relate to (i) an optical monitoring channel for
WDM systems capable of surviving failure of an optical amplifier, (ii) an
in-fiber Bragg grating system for optical cable television systems that allows
the network operator to remove and insert different optical frequencies and
switch video signals on demand, (iii) a WDM optical communication system with
remodulators to carry multiple optical signals of different wavelengths
simultaneously, (iv) a WDM system that can be expanded with additional optical
signals, (v) an optical system which uses optical amplifiers with flattened gain
curves, (vi) a method for removing and inserting optical carriers in a WDM
system, (vii) an optical system with tunable in-fiber gratings and (viii) an
optical amplifier with add/drop capability. Allowed patent applications relate
to other aspects of in-fiber Bragg gratings technology and other aspects of WDM
system design. Patents afford the holder the right to exclusive use for 17
years. Of the eight United States patents that have been issued, one will expire
in 2012, five will expire in 2013, and the remaining two will expire in 2014.
Pursuant to an agreement between the Company and General Instrument Corporation
dated March 10, 1997, the Company is a co-owner with General Instrument
Corporation of a portfolio of 27 United States and foreign patents relating to
optical communications, primarily for video-on-demand applications. See "Risk
Factors -- Proprietary Rights".

EMPLOYEES

As of April 30, 1997, the Company employed 443 persons, of whom 68 were
primarily engaged in research and development activities, 274 in manufacturing,
48 in sales, marketing, customer support and related activities and 53 in
administration. None of the Company's employees are currently represented by a
labor union. The Company considers its relations with its employees to be good.

FACILITIES

The Company's principal executive offices, sales, marketing and product
development functions are located in Linthicum, Maryland in a 96,000 square foot
facility. Base rent is approximately $102,000 per month, with annual rate
increases each of the ten years of the initial lease term, with a final year
rate of approximately $126,000 per month. The Company's manufacturing facilities
are located in Savage, Maryland and consist of approximately 50,500 square feet
under a lease that will expire in December 2001, absent exercise of a renewal
option for an additional five years. The base rent averages approximately
$35,775 per month for the first six years. The Company has leased additional
facilities of approximately 57,000 square feet near the Linthicum headquarters
and intends in the third quarter to transfer certain systems integration and
test, pilot production and customer service and support functions to these
facilities.

LEGAL PROCEEDINGS

Pirelli Litigation. On December 20, 1996, a U.S. affiliate of Pirelli
filed suit in U.S. District Court in Delaware, alleging willful infringement by
the Company of five U.S. patents held by Pirelli. The lawsuit seeks treble
damages, attorneys' fees and costs, as well as preliminary and permanent
injunctive relief against the alleged infringement. On February 10, 1997, the
Company filed its answer denying infringement, alleging inequitable conduct on
the part of Pirelli in the prosecution of certain of its patents, and stating a
counterclaim against the relevant Pirelli parties for a declaratory judgment
finding the Pirelli patents invalid and/or not infringed. Following the filing
of the Company's answer, Pirelli dedicated to the public and withdrew from the
lawsuit all infringement claims relating to one of the five patents.

Discovery proceedings are ongoing, and are currently expected to be
completed by January 31, 1998, with trial expected no earlier than February
1998.

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43

The Company has filed a complaint against Pirelli with the ITC, based on
the Company's belief that a 32 channel DWDM system announced by Pirelli
infringes at least two of the Company's patents. The Company's complaint seeks a
ban on the importation by Pirelli into the U.S. of any infringing 32 channel
system. A formal investigative proceeding was instituted by the ITC on April 3,
1997. Discovery proceedings are now ongoing, and a full hearing of the matter is
currently scheduled for December 1997.

The Company expects that the Pirelli proceedings will not only be costly
but will also involve a substantial diversion of the time and attention of some
members of management. Further, the Company believes Pirelli and other
competitors have used the existence of the Delaware litigation to raise
questions in customers' and potential customers' minds as to the Company's
ability to manufacture and deliver the MultiWave 1600 system. There can be no
assurance that such efforts by Pirelli and others will not disrupt the Company's
existing and prospective customer relationships.

There can be no assurance that the Company will be successful in the
Pirelli litigation, and an adverse determination in the Delaware court could
result from a finding of infringement of only one claim of a single patent. The
Company may consider settlement due to the costs and uncertainties associated
with litigation in general and patent infringement litigation in particular and
due to the fact that an adverse determination in the litigation could preclude
the Company from producing the MultiWave 1600 system until it was able to
implement a non-infringing alternative design to any portion of the system to
which such a determination applied. There can be no assurance that any
settlement will be reached by the parties. An adverse determination in, or
settlement of, the Pirelli litigation could involve the payment of significant
amounts, or could include terms in addition to such payments, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.

Kimberlin Litigation. Kevin Kimberlin and parties controlled by him (the
"Kimberlin Parties") are owners of Common Stock of the Company, the substantial
majority of which has been derived from the conversion at the time of the
Company's initial public offering of Series A, Series B and Series C Preferred
Stock then owned by them. On November 20, 1996, the Kimberlin Parties filed suit
in U.S. District Court for the Southern District of New York against the
Company, and certain directors of the Company, alleging that the Kimberlin
Parties were entitled to purchase additional shares of Series C Preferred Stock
at the time of the closing of the Series C Preferred Stock financing, but were
denied that opportunity by the defendants. The lawsuit alleges that certain
rights of first refusal existing under the Series B Preferred Stock Purchase
Agreement entitled the

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44

Kimberlin Parties to purchase more shares of Series C Preferred Stock than were
in fact purchased by them at the time of the closing of the Series C Preferred
Stock financing in December 1995. The lawsuit claims breach of contract, breach
of fiduciary duty and violation of Securities and Exchange Commission Rule 10b-5
by the defendants. On January 6, 1997, the Company filed its answer to the
Kimberlin Parties complaint, and filed a counterclaim for rescission of the sale
of the shares of Series C Preferred Stock purchased by the Kimberlin Parties in
the Series C Preferred Stock financing.

The Kimberlin Parties amended their complaint in May 1997, alleging that
the same facts and conduct with respect to the private placement of Series C
Preferred Stock represent a violation of federal insider trading laws.

The number of shares to be purchased by each party to the Series C
Preferred Stock financing was communicated in writing to the Kimberlin Parties
in December 1995 prior to the Series C closing. Further, as permitted under the
Series B Preferred Stock Purchase Agreement, the Series C Preferred Stock
Purchase Agreement expressly stated that all rights of first refusal referred to
in the lawsuit were waived. The required number of Series B investors, including
the Kimberlin Parties, signed the Series C Preferred Stock Purchase Agreement
containing that waiver. In July 1996, the Kimberlin Parties reaffirmed to the
Company in writing that their beneficial ownership of shares did not include any
shares which they have subsequently claimed in the lawsuit they were entitled to
purchase.

The Company believes that the Kimberlin Parties' claims, brought as the
Company's initial public offering was being prepared, and the amended claims,
are without merit and intends to defend itself vigorously. Discovery proceedings
are now ongoing and are expected to be completed by July 15, 1997.

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45

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The table below sets forth certain information concerning each of the
directors and executive officers of the Company:

NAME AGE POSITION
- ----------------------------------- --- --------------------------------------------------

Patrick H. Nettles, Ph.D. ......... 53 President, Chief Executive Officer and Director
Steve W. Chaddick.................. 45 Senior Vice President, Products and Technologies
Lawrence P. Huang.................. 45 Senior Vice President, Sales and Marketing
Stephen B. Alexander............... 37 Vice President, Transport Products
Joseph R. Chinnici................. 42 Vice President, Finance and Chief Financial
Officer
Mark Cummings...................... 45 Vice President, Operations
W. Michael Fagen................... 41 Vice President, Business Development
G. Eric Georgatos.................. 42 Vice President, General Counsel and Secretary
Jesus Leon......................... 52 Vice President, Access Products
Daniel P. McCurdy.................. 40 Vice President, Corporate Development
Rebecca K. Seidman................. 50 Vice President, Human Resources Development
Guy R. Van Buskirk................. 42 Vice President, Customer Service
Stephen R. Whitt................... 37 Vice President, Intellectual Property
Jon W. Bayless, Ph.D.(1)(2)........ 56 Chairman of the Board of Directors
Harvey B. Cash..................... 58 Director
Clifford W. Higgerson(2)........... 57 Director
Billy B. Oliver(1)................. 72 Director
Michael J. Zak(1)(2)............... 44 Director

- ---------------
(1) Member of the Compensation Committee

(2) Member of the Audit Committee

PATRICK H. NETTLES, PH.D., has served as Chief Executive Officer of the
Company since February 1994, as President and Chief Executive Officer since
April 1994 and as Director since February 1994. From 1992 until 1994, Dr.
Nettles served as Executive Vice President and Chief Operating Officer of Blyth
Holdings Inc., a publicly-held supplier of client/server software. From late
1990 through 1992, Dr. Nettles was President and Chief Executive Officer of
Protocol Engines Inc., a development stage enterprise, formed as an outgrowth of
Silicon Graphics Inc., and targeted toward very large scale integration based
solutions for high-performance computer networking. From 1989 to 1990, Dr.
Nettles was Chief Financial Officer of Optilink, a venture start-up which was
acquired by DSC Communications. Dr. Nettles received his B.S. degree from the
Georgia Institute of Technology and his Ph.D. from the California Institute of
Technology.

STEVE W. CHADDICK has served as Senior Vice President, Products and
Technologies since September 1996, and was previously Vice President of Product
Development for the Company since joining it in 1994. Prior to joining the
Company, Mr. Chaddick was Vice President of Engineering at AT&T Tridom, a
company he co-founded in 1983 and which was acquired by AT&T in 1988. AT&T
Tridom focused on the development of very small aperture satellite terminal
systems. Mr. Chaddick was responsible for all product development at AT&T
Tridom, including hardware, embedded systems software and network management
software. Mr. Chaddick received both his B.S. and M.S. degrees in electrical
engineering from the Georgia Institute of Technology.

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46

LAWRENCE P. HUANG has served as Senior Vice President, Sales and Marketing
of the Company since November 1996 and served as Vice President, Sales and
Marketing of the Company since joining it in April 1994. Prior to joining CIENA,
Mr. Huang was Vice President/General Manager and Vice President of Sales and
Marketing of AT&T Tridom, which he co-founded with Mr. Chaddick in 1983. Mr.
Huang holds a B.S. in industrial management from the Georgia Institute of
Technology and an M.B.A. from Georgia State University.

STEPHEN B. ALEXANDER has served as Vice President, Transport Products since
September 1996, and was previously Director of Lightwave Systems at the Company
since joining it in 1994. From 1982 until joining the Company, he was employed
at MIT Lincoln Laboratory, where he last held the position of Assistant Leader
of the Optical Communications Technology Group. Mr. Alexander is an Associate
Editor for the Journal of Lightwave Technology and a General Chair of the
conference on Optical Fiber Communication (OFC) for 1997. He is author of the
tutorial text Optical Communication Receiver Design. Mr. Alexander received both
his B.S. and M.S. degrees in electrical engineering from the Georgia Institute
of Technology.

JOSEPH R. CHINNICI joined the Company in September 1994 as Controller, and
became Vice President, Finance and Chief Financial Officer in May 1995. From
1993 through 1994, Mr. Chinnici served as a financial consultant for Halston
Borghese Inc. From 1977 to 1993, Mr. Chinnici held a variety of accounting and
finance assignments for Playtex Apparel Inc. (now a division of Sara Lee
Corporation), ending this period as Director of Operations Accounting and
Financial Analysis. Mr. Chinnici holds a B.S. in accounting from Villanova
University and an M.B.A. from Southern Illinois University.

MARK CUMMINGS joined the Company in May 1996 as Vice President,
Manufacturing and was promoted to Vice President, Operations in September 1996.
From 1985 to 1996, Mr. Cummings was Vice President, Operations for Cray
Communications, Inc., an international manufacturer of communications equipment.
From 1975 to 1985, Mr. Cummings was Manager of Manufacturing Engineering at
Taylor Instruments, and from 1973 to 1975, an Industrial Engineer at Siemens
Stromberg Carlson Inc. Mr. Cummings holds a B.S. in electronic technology from
the State University of New York at Buffalo, and is currently in the Masters
program in advanced manufacturing systems at the University of Maryland.

W. MICHAEL FAGEN has served as Vice President, Business Development of the
Company since joining it in October 1995. From 1991 through 1995, Mr. Fagen
pursued advanced degree studies in international relations at George Washington
University, Washington, D.C. and Universidad Para la Paz, San Jose, Costa Rica.
Prior to 1991, Mr. Fagen served as Director of Sales for Telebit Corporation;
Director of Marketing and Strategic Account Development for Vitalink
Communications Corporation; National Account Manager for AT&T/Southern Bell; and
Marketing Representative for Major Accounts at IBM Corp. Mr. Fagen holds a B.A.
from The University of the South, an M.A. in international relations from La
Universidad Para la Paz and a Ph.D. in political science (pending) from the
George Washington University.

G. ERIC GEORGATOS has served as the Company's Vice President, General
Counsel and Secretary since February 1996. From 1980 to 1995, Mr. Georgatos was
an attorney and member of Gray Cary Ware & Friedenrich, a Professional
Corporation, a law firm based in California, where he served as outside general
corporate counsel for a variety of emerging companies. Mr. Georgatos holds a
B.S. degree in business administration from the University of Southern
California and a J.D. from the University of California Los Angeles.

JESUS LEON joined the Company in November 1996 as Vice President, Access
Products. From December 1995 to October 1996, Mr. Leon served as Vice President,
Engineering, for the Access Systems Division of Alcatel Standard Electrica, S.A.
("Alcatel Electrica"), a division of Alcatel Alsthom Group. Alcatel Electrica is
a leading global supplier of telecommunications equipment. Mr. Leon led Alcatel
Electrica's product development for all access products with responsibility for
over 1,200 engineers in Europe, Australia and South Africa. Mr. Leon served in
various positions

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with Alcatel Electrica from 1990-1991. Mr. Leon holds a B.S.E.E. and M.E. from
the University of Florida, an A.B.D. (all but doctoral dissertation) from the
Georgia Institute of Technology and an M.B.A. from Georgia State University.

DANIEL P. MCCURDY joined the Company in June 1997 as Vice President,
Corporate Development. From January 1983 to June 1997, Mr. McCurdy served in
various positions with IBM Corporation, most recently as Director of Business
Development & Market Strategy for IBM Research. Mr. McCurdy was part of a 14
member executive team guiding IBM's Research Division, and responsible for the
structuring, negotiation and management of a variety of divestitures and
business combinations while there. Mr. McCurdy holds a B.A. from the University
of North Carolina at Chapel Hill.

REBECCA K. SEIDMAN joined the Company in April 1996 as Director of Human
Resources Development, and was promoted to Vice President, Human Resources
Development in June 1996. From 1984 until joining the Company, Ms. Seidman
served consecutively as Director of Marketing, Vice President, Administration,
and Principal of Walpert, Smullian & Blumenthal, P.A., a regional accounting and
consulting firm. Ms. Seidman is a Phi Beta Kappa graduate of Goucher College and
co-author of Total Quality Distribution, a book discussing practical
applications of Total Quality in the wholesale distribution industry.

GUY R. VAN BUSKIRK joined the Company in January 1997 as Vice President,
Customer Service. From January 1994 to January 1997, Mr. Van Buskirk worked for
3Com Corporation, where he last served as Director, Customer Services for the
Americas. Mr. Van Buskirk designed, launched and managed a customer support
organization of over 250 contributors while at 3Com. From February 1993 to
January 1994, Mr. Van Buskirk was Vice President, Customer Services at Blyth
Software, Inc., and from November 1991 until January 1993 was Director,
Marketing and Support for Protocol Engines, Inc.

STEPHEN R. WHITT joined the Company in December 1996 as Senior Intellectual
Property Counsel and was promoted to Vice President, Intellectual Property in
May 1997. From 1993 to 1996, Mr. Whitt was Managing Attorney of Samsung
Electronics Legal Affairs Office. From 1988 to 1992, Mr. Whitt was an attorney
and member of the law firm of Finnegan Henderson Farabow Garret & Dunner. Mr.
Whitt served as a law clerk for the Honorable Alvin A. Schall, Circuit Court
Judge, United States Court of Appeals for the Federal Circuit from 1992-1993.
Mr. Whitt holds a B.S. degree in electrical engineering from Brigham Young
University, a M.S. degree in electrical engineering from George Washington
University and a J.D. from the George Mason University School of Law.

JON W. BAYLESS, PH.D. has been a Director of the Company since April 1994
and has served as Chairman of the Board of Directors since November 1996. Dr.
Bayless is a general partner of various venture capital funds associated with
Sevin Rosen Funds where, since 1981, he has focused on developing business
opportunities in the fields of telecommunications and computers. Mr. Bayless is
also the controlling stockholder and sole director of Jon W. Bayless, Inc., the
general partner of Atlantic Partners L.P., which is the general partner of Citi
Growth Fund L.P., a venture capital investment firm. Dr. Bayless currently
serves as a director of 3DX Technologies Inc. and of several private companies.
Dr. Bayless is also Chairman of the Board of Directors of Shared Resource
Exchange, Inc. Shared Resource Exchange, Inc. filed for reorganization under
Chapter 11 of the Federal Bankruptcy Code in August 1996. A plan under Chapter
11 has been approved. Dr. Bayless has held faculty positions at Southern
Methodist University, Virginia Polytechnic Institute, and the Catholic
University of America. He holds patents in the field of digital
telecommunications, and is a senior member of the Institute of Electronic
Engineers. Dr. Bayless earned his B.S. degree in electrical engineering at the
University of Oklahoma. He earned his M.S. degree in electrical engineering at
the University of Alabama, and his Ph.D. in electrical engineering at Arizona
State University.

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HARVEY B. CASH has been a Director of the Company since April 1994. Mr.
Cash is a general partner of InterWest Partners, a venture capital firm in Menlo
Park, California which he joined in 1985. Mr. Cash is Chairman of the Board of
Cyrix Corporation and serves on the board of directors of ProNet, Inc.,
Benchmarq, Microelectronics, Heritage Media Corporation, AMX Corporation, i2
Technologies Inc. and Aurora Electronics, Inc. He is also an advisor to Austin
Ventures. Mr. Cash received a B.S. in electrical engineering from Texas A&M
University and an M.B.A. from Western Michigan University.

CLIFFORD W. HIGGERSON has been a Director of the Company since April 1994.
Mr. Higgerson has since 1991 been a general partner of Vanguard Venture
Partners, a venture capital firm specializing in high technology start-ups,
located in Palo Alto, California. Prior to joining Vanguard in July 1991, Mr.
Higgerson was the managing partner of Communications Ventures, Inc. and prior to
that was a Managing Partner of Hambrecht & Quist. Mr. Higgerson is also a
director of Advanced Fibre Communications and Digital Microwave Corp. Mr.
Higgerson earned his B.S. in electrical engineering from the University of
Illinois and an M.B.A. in finance from the University of California at Berkeley.

BILLY B. OLIVER has been a Director of the Company since June 1996. Since
his retirement in 1985 after nearly 40 years of services at AT&T, Mr. Oliver has
worked as a self-employed communications consultant. During his last 15 years
with AT&T, he held the position of Vice President, Engineering Planning and
Design, where he was directly involved in and had significant responsibility for
the evolution of AT&T's long distance network during that period. He was a
co-recipient of the Alexander Graham Bell Medal for the conception and
implementation of Nonhierarchical Routing in AT&T's network. Mr. Oliver is also
a director of Digital Microwave Corp., Communications Network Enhancement Inc.
and Enterprise Network Services Inc. Mr. Oliver earned his B.S.E.E. degree from
North Carolina State University.

MICHAEL J. ZAK has been a Director of the Company since December 1994. He
has been employed by Charles River Ventures of Boston, Massachusetts since 1991
and has been a general partner of the general partner of Charles River
Partnership VII and its related entities since 1993. From 1986 through 1991, he
was a founder and corporate officer of Concord Communications, Inc., a
manufacturer of data communications systems. He is a director of ON Technology
Corporation as well as five other private companies. Mr. Zak has a B.S. degree
in engineering from Cornell University and an M.B.A. from Harvard Business
School.

BOARD OF DIRECTORS

The Board of Directors is divided into three classes. Each class of
Directors consists of two or more Directors. At each annual meeting of
stockholders, one class of Directors is elected to a three-year term to succeed
the Directors of the same class whose terms are then expiring. The Class I
Directors, whose terms will expire at the next annual meeting of stockholders,
are Dr. Nettles and Mr. Bayless, the Class II Directors, whose terms will expire
at the 1998 annual meeting of stockholders, are Messrs. Zak and Cash, and the
Class III Directors, whose terms will expire at the 1999 annual meeting of
stockholders, are Messrs. Oliver and Higgerson. See "Description of Capital
Stock -- Delaware Law and Certain Provisions of the Third Amended and Restated
Certificate of Incorporation".

Officers are elected by and serve at the discretion of the Board of
Directors. There are no family relationships among the Directors or officers of
the Company.

COMMITTEES OF THE BOARD OF DIRECTORS

The Company has established an Audit Committee of non-employee Directors to
make recommendations concerning the engagement of independent public
accountants, review the plans and results of the audit engagement with the
independent public accountants, review the independence of the independent
public accountants, consider the range of audit and non-audit fees and

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review the adequacy of the Company's internal accounting controls. Dr. Bayless
and Messrs. Zak and Higgerson are the members of the Audit Committee. The
Company has established a Compensation Committee of non-employee Directors to
determine compensation for the Company's executive officers and to administer
the Company's Amended and Restated 1994 Stock Option Plan and the Management
Incentive Compensation Plan. Dr. Bayless and Messrs. Oliver and Zak are the
members of the Compensation Committee.

COMPENSATION OF BOARD OF DIRECTORS

Non-employee members of the Board of Directors receive $2,500 for
participation in each meeting of the full Board of Directors and $1,250 for each
committee meeting and are reimbursed for out-of-pocket expenses incurred in
connection with attendance at meetings. The Company has adopted the 1996 Outside
Directors Stock Option Plan and, under such plan, non-employee Directors are
eligible to receive stock options in consideration for their services. See
"-- Stock Plans" and "-- 1996 Outside Directors Stock Option Plan".

EXECUTIVE COMPENSATION

The following summary compensation table sets forth the compensation paid
by the Company during the fiscal year ended October 31, 1996 to the Company's
chief executive officer and each of the Company's four other executive officers
whose total compensation for services in all capacities to the Company exceeded
$100,000 during such year (the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
---------------------------- UNDERLYING
YEAR SALARY BONUS OPTIONS
---- -------- -------- ------------

Patrick H. Nettles, Ph.D. ........................ 1996 $174,000 $154,000 875,000
President and Chief Executive Officer
David R. Huber, Ph.D.(1).......................... 1996 153,000 98,000 --
Senior Vice President and Chief Scientist
Steve W. Chaddick................................. 1996 132,000 87,000 312,500
Senior Vice President, Products and Technologies
Lawrence P. Huang................................. 1996 132,000 87,000 312,500
Senior Vice President, Sales and Marketing
Joseph R. Chinnici................................ 1996 115,000 79,000 72,500
Vice President, Finance and Chief Financial
Officer

- ---------------
(1) Dr. Huber resigned from his positions with the Company on April 30, 1997.

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OPTION GRANTS

The following table provides information concerning grants of options to
purchase the Company's Common Stock made during the fiscal year ended October
31, 1996 to each of the Named Executive Officers:

OPTION GRANTS IN LAST FISCAL YEAR
------------------------------------------------------------------------------
PERCENT
OF POTENTIAL REALIZABLE
TOTAL VALUE AT ASSUMED ANNUAL
NUMBER OF OPTIONS RATES OF STOCK PRICE
SECURITIES GRANTED APPRECIATION FOR OPTION
UNDERLYING EMPLOYEES EXERCISE TERM(3)
OPTIONS IN FISCAL PRICE PER EXPIRATION ------------------------
GRANTED(1) 1996 SHARE(2) DATE 5% 10%
---------- --------- --------- ---------- ---------- ----------

Patrick H. Nettles,
Ph.D. ................. 875,000 15.1% $2.30 6/21/06 $1,266,000 $3,207,000
David R. Huber,
Ph.D.(4)............... -- -- -- -- -- --
Steve W. Chaddick........ 312,500 5.4 2.30 6/21/06 452,000 1,146,000
Lawrence P. Huang........ 312,500 5.4 2.30 6/21/06 452,000 1,146,000
Joseph R. Chinnici....... 72,500 1.3 2.30 6/21/06 105,000 266,000

(2) All options were granted at an exercise price equal to the fair market value
of the Company's Common Stock as determined by the Board of Directors of the
Company on the date of grant. The Company's Common Stock was not publicly
traded at the time of the option grants.

(3) Potential realizable values are net of exercise price, but before taxes
associated with exercise. Amounts represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. The assumed 5% and 10% rates of stock price appreciation are provided
in accordance with rules of the United States Securities and Exchange
Commission and do not represent the Company's estimate or projection of the
future Common Stock price. Actual gains, if any, on stock option exercises
are dependent on the future performance of the Common Stock, overall market
conditions and the option holders' continued employment through the vesting
period. This table does not take into account any appreciation in the price
of the Common Stock from the date of grant to date. Assuming the fair market
value of the Common Stock at the date of grant was the initial public
offering price of $23.00 (which is significantly less than the last sale
price on June 2, 1997), the potential realizable value of these options (a)
at a 5% assumed annual rate of stock price appreciation would be $30,769,000
for Dr. Nettles, $10,989,000 for Mr. Chaddick, $10,989,000 for Mr. Huang and
$2,549,000 for Mr. Chinnici and (b) at a 10% assumed annual rate of stock
price appreciation would be $50,187,000 for Dr. Nettles, $17,924,000 for Mr.
Chaddick, $17,924,000 for Mr. Huang and $4,158,000 for Mr. Chinnici.

(4) Dr. Huber resigned from his positions with the Company on April 30, 1997.

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AGGREGATED OPTION EXERCISES IN LAST FISCAL AND FISCAL YEAR-END OPTION VALUES

The following table provides the specified information concerning
unexercised options held as of October 31, 1996 by the Named Executive Officers:

NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS AT MONEY OPTIONS AT
OCTOBER 31, 1996(1) OCTOBER 31, 1996(2)
-------------------------- ----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------- ------------- ----------- -------------

Patrick H. Nettles, Ph.D. .............. 875,000 -- $11,935,000 --
David R. Huber, Ph.D.(3) ............... -- -- -- --
Steve W. Chaddick....................... 1,312,500 -- 20,180,000 --
Lawrence P. Huang....................... 1,312,500 -- 20,180,000 --
Joseph R. Chinnici...................... 322,500 -- 4,968,000 --

- ---------------
(1) All options are immediately exercisable at the date of grant, but shares
purchased upon exercise of options are subject to repurchase by the Company
based upon a scheduled vesting period. None of the shares underlying options
held by Dr. Nettles are vested and 562,500, 578,125 and 113,540 of the
shares underlying options held by Messrs. Chaddick, Huang and Chinnici,
respectively, are vested.

(2) Calculated on the basis of the fair market value of the underlying
securities as of October 31, 1996 of $15.94 per share, as determined by the
Company's Board of Directors, less the aggregate exercise price. The value
of vested in-the-money options held by Dr. Nettles is zero and the value of
vested in-the-money options for Messrs. Chaddick, Huang and Chinnici is
$8,954,000, $9,203,000 and $1,807,000, respectively.

(3) Dr. Huber resigned from his positions with the Company on April 30, 1997.

No options to purchase the Company's Common Stock were exercised during the
fiscal year ended October 31, 1996 by the Named Executive Officers.

No compensation intended to serve as incentive for performance to occur
over a period longer than one fiscal year was paid pursuant to a long-term
incentive plan during the last fiscal year to any of the Named Executive
Officers.

EMPLOYMENT AGREEMENT

In April 1994, the Company entered into an employment agreement with Dr.
Nettles. The employment agreement specifies that Dr. Nettles is an employee at
will. In the event that he is terminated for cause, as defined in the employment
agreement, he will receive a severance payment equal to his monthly base salary
until the earlier of the expiration of six months or the commencement of
employment with a person or entity other than the Company.

MANAGEMENT INCENTIVE COMPENSATION PLAN

The Company has established a management incentive compensation plan (the
"Incentive Plan") pursuant to which management and non-management employees are
eligible to earn up to certain percentages of their base salary as additional
compensation, based upon the achievement of quarterly and annual objectives.
Under the Incentive Plan, the Chief Executive Officer of the Company may earn up
to 50% of his base salary, and Vice Presidents generally may earn up to 35% of
their base salaries, as additional compensation upon the achievement of certain
Company-wide objectives. Department directors and key managers are eligible to
earn up to 15% of their base salaries in additional compensation based on the
achievement of objectives which are specific to their functional department.
Managers and all other salaried employees are eligible to earn up to 7.5% of
their base salaries in additional compensation based on the achievement of
objectives which are specific to their functional department. The quarterly
objectives are determined on a quarter by

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quarter basis by the Board of Directors in consultation with management, and
address a wide variety of activities with all functional areas of the Company
based on the evolving needs of the Company. Bonuses are payable quarterly and at
year-end under the Incentive Plan. In addition to amounts paid under the
Incentive Plan during fiscal year 1996, the Company paid additional bonuses to
all employees in that year.

STOCK PLANS

AMENDED AND RESTATED 1994 STOCK OPTION PLAN

A total of 20,050,000 shares of Common Stock are reserved for issuance
under the Company's Amended and Restated 1994 Stock Option Plan (the "Option
Plan"). At April 30, 1997, 257,451 shares of Common Stock subject to repurchase
by the Company had been issued upon exercise of options, 2,253,694 shares of
Common Stock not subject to repurchase had been issued upon exercise of options
and 9,981,535 shares were subject to outstanding options at a weighted average
exercise price of $2.94. Options may be granted to employees (including
officers), consultants, advisors and directors, although only employees and
directors and officers who are also employees may receive "incentive stock
options" intended to qualify for certain tax treatment. The exercise price of
nonqualified stock options must equal at least 85% of the fair market value of
the Common Stock as determined by the Board of Directors, and in the case of
incentive stock options must be no less than the fair market value of the Common
Stock as determined by the Board of Directors. These options are immediately
exercisable at the date of grant, but shares purchased upon exercise of options
are subject to repurchase by the Company based upon a scheduled vesting period.
Generally, shares underlying options vest over four years and options must be
exercised within ten years. The Option Plan provides for accelerated vesting in
the event of a change of control of the Company, provided the subject options
have been outstanding for at least 335 days. Furthermore, in the event of a
change in control, the surviving or acquiring company shall either assume the
Company's rights and obligations under outstanding stock option agreements or
substitute options for the acquiring corporation's stock for the outstanding
options.

1996 OUTSIDE DIRECTORS STOCK OPTION PLAN

A total of 750,000 shares of Common Stock have been reserved for issuance
under the 1996 Outside Directors Stock Option Plan (the "Directors Plan"). As of
April 30, 1997, options to purchase 75,000 shares have been granted under the
Directors Plan. The Directors Plan provides for the automatic granting of
nonqualified stock options to Directors of the Company who are not employees of
the Company (the "Outside Directors"). Under the Directors Plan, each current
Outside Director will automatically be granted an option to purchase 10,000
shares of Common Stock on the date of each annual meeting of stockholders after
the close of the Offerings, provided that the Outside Director continues to
serve in such capacity. Additionally, each new Outside Director will
automatically be granted an option to purchase 30,000 shares of Common Stock
upon assuming the office of Director. The exercise price of the options in all
cases will be equal to the fair market value of the Common Stock on the date of
grant. Initial grants vest over a period of three years and annual grants vest
in full on the first anniversary of the date of grant. Options generally must be
exercised within ten years.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Dr. Bayless, Mr. Cash and Mr. Zak served during the fiscal year ended
October 31, 1996 as members of the Compensation Committee of the Board of
Directors. Dr. Bayless is an affiliate of Sevin Rosen Bayless Management Co.,
Sevin Rosen Fund IV L.P. and Sevin Rosen Fund V L.P. (collectively, the "Sevin
Rosen Entities"), Mr. Cash is a general partner of InterWest Management Partners
V, the general partner of InterWest Partners V, L.P., and of InterWest Investors
V, L.P. (collectively, "InterWest"), and Mr. Zak is a general partner of the
general partner of Charles River Partnership VII ("Charles River"). Although
each of Sevin Rosen, InterWest and Charles River is a

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53

stockholder of the Company none of Mr. Cash, Mr. Zak or Dr. Bayless were at any
time during the fiscal year ended October 31, 1996, or at any other time, an
officer or employee of the Company. No member of the Compensation Committee of
the Company serves as a member of the board of directors or compensation
committee of any entity that has one or more executive officers serving as a
member of the Company's Board of Directors or Compensation Committee. Mr. Cash
is not a current member of the Compensation Committee. See "Certain
Transactions".

LIMITATION OF LIABILITY AND INDEMNIFICATION

The Company's Certificate of Incorporation provides that a Director of the
Company shall not be personally liable for monetary damages to the Company or
its stockholders for a breach of fiduciary duty as a Director, except for
liability as a result of (i) a breach of the Director's duty of loyalty to the
Company or its stockholders, (ii) acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) an act
related to the unlawful stock repurchase or payment of a dividend under Section
174 of Delaware General Corporation Law and (iv) transactions from which the
Director derived an improper personal benefit. Such limitation of liability does
not affect the availability of equitable remedies such as injunctive relief or
rescission.

The Company's Certificate of Incorporation also authorizes the Company to
indemnify its officers, Directors and other agents, to the full extent permitted
under the Delaware General Corporation Law. The Company has entered into
separate indemnification agreements with its directors and certain officers
which may, in some cases, provide broader indemnification protection than the
specific indemnification provisions contained in the Delaware General
Corporation Law. The indemnification agreements require the Company, among other
things, to indemnify such officers and Directors against certain liabilities
that may arise by reason of their status or service as officers or Directors
(other than liabilities arising from willful misconduct of a culpable nature),
and to advance their expenses incurred as a result of any proceeding against
them as to which they could be indemnified. In addition, these agreements extend
similar indemnification arrangements under similar circumstances to stockholders
whose representatives serve as directors of the Company.

At present, except for the Kimberlin litigation referred to above under
"Business -- Legal Proceedings," there is no pending litigation or proceeding
involving a Director, officer, employee or agent of the Company where
indemnification will be required or permitted. The Company is not aware of any
threatened litigation or proceeding which may result in a claim for such
indemnification. The Company expects to provide indemnification to its Directors
named in the Kimberlin litigation.

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54

CERTAIN TRANSACTIONS

STOCK SALES

In April 1994, the Company issued and sold shares of Series A Preferred
Stock at a purchase price of $1.00 per share, in December 1994, the Company
issued and sold shares of Series B Preferred Stock at a purchase price of $1.50
per share and in December 1995, the Company issued and sold shares of Series C
Preferred Stock at a purchase price of $7.00 per share. The shares of Series A,
B and C Preferred Stock were initially convertible into one share of Common
Stock, subject to adjustment. The Company effected a five-for-one stock split on
December 9, 1996, and each share of Series A, B and C Preferred Stock converted
automatically into five shares of Common Stock upon the closing of the Company's
initial public offering in February 1997. In connection with these transactions,
the Company also issued warrants to purchase Common Stock at an exercise price
of $.02 per share. These warrants have been exercised and the shares of Common
Stock issued upon exercise of the warrants are reflected in the table below.

The purchasers of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Common Stock included, among others, the following
directors, executive officers and holders of more than 5% of the Common Stock:

NUMBER OF NUMBER OF NUMBER OF
SHARES OF SHARES OF SHARES OF
SERIES A SERIES B SERIES C
PREFERRED PREFERRED PREFERRED
STOCK STOCK STOCK
NUMBER OF --------- --------- ---------
SHARES OF
COMMON
STOCK
---------
(ADJUSTED
FOR FIVE-
FOR-ONE
SPLIT)

Bessemer Venture Partners III L.P. ("BVP")(1)..................... -- -- 626,668 425,997
Charles River Partnership VII(2).................................. -- -- 1,500,000 250,000
InterWest(3)...................................................... 205,415 1,154,848 744,950 250,000
Japan Associated Finance Co., Ltd., JAFCO G-5 Investment
Enterprise Partnership, JAFCO R-1(A) Investment Enterprise
Partnership, JAFCO R-1(B) Investment Enterprise Partnership and
U.S. Information Technology (collectively the "JAFCO
Entities")(4)................................................... -- -- 1,000,000 171,429
Sevin Rosen Entities(5)........................................... 205,235 1,153,789 744,291 428,571
SVE Star Ventures Enterprises No. II Limited Partnership, SVE Star
Ventures Enterprises No. III Limited Partnership, SVE Star
Ventures Enterprises No. IIIA Limited Partnership, SVE Star
Ventures Managementgesellschaft mbH Nr. 3 & Co. Beteiligungs KG
and SVE Star Ventures Managementgesellschaft mbH Nr. 3
(collectively the "Star Venture Entities")(6)................... -- -- 1,000,000 322,143
Vanguard IV, L.P.(7).............................................. 136,220 750,000 493,999 142,850
Kevin Kimberlin(8)................................................ 76,560 421,520 426,733 72,533

- ---------------
(1) Includes (i) 24,000 shares of Series B Preferred Stock held by persons
associated with Bessemer Securities Corporation ("BSC"), the parent of the
limited partner of BVP, as to which BVP has the power to vote and as to
which BVP disclaims beneficial ownership, and 22,222 shares of Series B
Preferred Stock held by BVP III Special Situations L.P. ("BVP SS"), as to
which Deer III & Co. ("Deer III"), the general partner of BVP, as the
general partner of BVP SS, has voting and investment control and as to which
BVP disclaims beneficial ownership and Deer III disclaims beneficial
ownership except to the extent of its partnership interest in BVP SS, and
(ii) 6,150 shares of Series C Preferred Stock held by persons associated
with BSC, the parent of the limited partner of BVP, as to which BVP has the
power to vote and as to which BVP disclaims beneficial ownership, and 9,523
shares of Series C Preferred Stock held by BVP SS, as to which Deer III, as
the general partner of BVP SS, has voting and investment control and as to
which BVP disclaims beneficial ownership and Deer III disclaims beneficial
ownership except to the extent of its partnership interest in BVP SS. Does
not include (i) 73,332 shares of Series B Preferred Stock held by partners
of Deer III & Co. and persons associated with such partners or Deer III &
Co., and (ii) 6,858 shares of Series C Preferred Stock held by partners of
Deer III & Co. and person associated with such partners of Deer III & Co.

(2) Michael J. Zak, an affiliate of Charles River Partnership VII, is a Director
of the Company.

(3) Includes (i) 204,325 shares of Common Stock held by InterWest Partners V
L.P. and 1,090 shares of Common Stock held by InterWest Investors V L.P.,
(ii) 1,148,848 shares of Series A Preferred Stock held by InterWest

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Partners V L.P. and 6,000 shares of Series A Preferred Stock held by
InterWest Investors V L.P., (iii) 740,998 shares of Series B Preferred Stock
held by InterWest Partners V L.P. and 3,952 shares of Series B Preferred
Stock held by InterWest Investors V L.P. and (iv) 248,438 shares of Series C
Preferred Stock held by InterWest Partners V L.P. and 1,562 shares of Series
C Preferred Stock held by InterWest Investors V L.P. Harvey B. Cash, an
affiliate of InterWest Partners V L.P., is a Director of the Company.

(4) Includes (i) 40,000 shares of Series B Preferred Stock held by Japan
Associated Finance Co., Ltd. ("JAFCO"); 82,712 shares of Series B Preferred
Stock held by JAFCO G-5 Investment Enterprise Partnership ("JAFCO G-5");
38,644 shares of Series B Preferred Stock held by JAFCO R-1(A) Investment
Enterprise Partnership ("JAFCO R-1(A)"); 38,644 shares of Series B Preferred
Stock held by JAFCO R-1(B) Investment Enterprise Partnership ("JAFCO
R-1(B)") and 800,000 shares of Series B Preferred Stock held by U.S.
Information Technology Investment Enterprise Partnership ("USIT"), and (ii)
6,857 shares of Series C Preferred Stock held by JAFCO; 14,179 shares of
Series C Preferred Stock held by JAFCO G-5; 6,625 shares of Series C
Preferred Stock held by JAFCO R-1(A); 6,625 shares of Series C Preferred
Stock held by JAFCO R-1(B) and 137,143 shares of Series C Preferred Stock
held by USIT.

(5) Includes (i) 204,325 shares of Common Stock held by Sevin Rosen Fund IV L.P.
and 910 shares of Common Stock held by Sevin Rosen Bayless Management Co.,
(ii) 1,148,789 shares of Series A Preferred Stock held by Sevin Rosen Fund
IV L.P. and 5,000 shares of Series A Preferred Stock held by Sevin Rosen
Bayless Management Co., (iii) 740,998 shares of Series B Preferred Stock
held by Sevin Rosen Fund IV L.P. and 3,293 shares of Series B Preferred
Stock held by Sevin Rosen Bayless Management Co. and (iv) 285,714 shares of
Series C Preferred Stock held by Sevin Rosen Fund IV L.P. and 142,857 shares
of Series C Preferred Stock held by Sevin Rosen Fund V L.P. Jon W. Bayless,
an affiliate of the Sevin Rosen Entities, is a Director of the Company. Mr.
Bayless disclaims beneficial ownership of the shares owned by each of the
foregoing entities except to the extent of his proportional interest, if
any.

(6) Includes (i) 256,000 shares of Series B Preferred Stock held by SVE Star
Ventures Enterprises No. II Limited Partnership ("Star Enterprises II");
687,100 shares of Series B Preferred Stock held by SVE Star Ventures
Enterprises No. III Limited Partnership ("Star Enterprises III") and 56,900
shares of Series B Preferred Stock held by SVE Star Ventures Enterprises No.
IIIA Limited Partnership ("Star Enterprises IIIA"); and (ii) 33,548 shares
of Series C Preferred Stock held by Star Enterprises II; 90,026 shares of
Series C Preferred Stock held by Star Enterprises III; 7,528 shares of
Series C Preferred Stock held by Star Enterprises IIIA; 107,143 shares of
Series C Preferred Stock held by SVE Star Ventures Managementgesellschaft
mbH Nr. 3 & Co. Beteiligungs KG and 83,898 shares of Series C Preferred
Stock held by SVE Star Ventures Managementgesellschaft mbH Nr. 3.

(7) Clifford W. Higgerson, an affiliate of Vanguard IV, L.P., is a Director of
the Company.

(8) The shares beneficially owned by Kevin Kimberlin include shares of Kevin
Kimberlin Partners L.P. and Spencer Trask Holdings.

In April 1994, the Company sold 3,500,000 shares of Common Stock to Dr.
Nettles at a purchase price of $.02 per share pursuant to a Stock Purchase and
Stock Restriction Agreement dated April 9, 1994. In connection therewith, Dr.
Nettles issued a note to the Company in the amount of $63,000. The note was paid
in full in March 1995. Under the agreement, one quarter of the shares vested on
the first anniversary date of the agreement and the remaining shares vested
monthly at a rate of 1/48th per month. Until the shares are fully vested, they
are subject to certain restrictions including forfeiture in the event employment
is terminated, restrictions on transferability and right of first refusal. As of
October 31, 1996, 2,183,335 of the shares were vested under the agreement.

The Company believes that all transactions with affiliates described above
were made on terms no less favorable to the Company than could have been
obtained from unaffiliated third parties. All future transactions, including any
loans, between the Company and its officers, directors, principal stockholders
and their affiliates will be approved by a majority of the Board of Directors,
including a majority of the independent and disinterested Outside Directors, and
will continue to be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties.

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56

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of May 1, 1997 (before a 10% release
of shares from the IPO Lock-Up Agreements), as adjusted to reflect the sale of
the shares offered hereby (i) by each person who is known by the Company to own
beneficially more than 5% of the Company's Common Stock, (ii) by each Director
and Named Executive Officer, (iii) by all officers and Directors as a group and
(iv) by Selling Stockholders and certain other holders. Contemporaneously with
the filing of the Registration Statement of which this Prospectus is a part, the
Company notified holders of Common Stock who have registration rights described
under "Description of Capital Stock -- Registration Rights". The information in
the column "Shares to be Sold" is being compiled as registration rights holders
respond with their interests in participation. The responses are due within a
prescribed notification period (which expires on June 23, 1997). The table below
will be revised following the notification period by an amendment to the
Registration Statement to reflect the identity of all Selling Stockholders, any
adjustments to the aggregate number of shares to be sold by Selling Stockholders
and the allocation of that number among the Selling Stockholders as well as the
beneficial ownership of Selling Stockholders before and after the Offerings.
Included among the group of potential Selling Stockholders are affiliates of
members of the Company's Board of Directors including several holders of more
than 5% of the outstanding Common Stock and some or all of such affiliates may
sell a substantial portion of their holdings.

SHARES OF COMMON STOCK SHARES OF COMMON STOCK TO
BENEFICIALLY OWNED BEFORE BE BENEFICIALLY OWNED AFTER
SALE UNDER THIS SALE UNDER THIS
PROSPECTUS(1) PROSPECTUS(1)(2)
DIRECTORS, OFFICERS, PRINCIPAL AND ---------------------------- SHARES TO BE ---------------------------
SELLING STOCKHOLDERS NUMBER PERCENTAGE SOLD(2) NUMBER PERCENTAGE
- ------------------------------------------------ ---------- ---------- ------------ --------- ----------

Sevin Rosen Entities(3)......................... 11,838,490 12.7%
Two Galleria Tower
13455 Noel Road, Suite 1670
Dallas, Texas 75240
InterWest(4).................................... 10,954,405 11.8%
3000 Sand Hill Road
Building 3, Suite 255
Menlo Park, CA 94025
Charles River Partnership VII(5)................ 8,750,000 9.4%
c/o Charles River Ventures, Inc.
1000 Winter Street, Suite 3300
Waltham, MA 02154
Star Venture Entities........................... 6,610,715 7.1%
Possartstrasse 9
D-81679 Munich, Germany
JAFCO Entities.................................. 5,857,145 6.3%
c/o Japan Associated Finance Co., Ltd.
Toshiba Bldg., 10F
1-1-1, Shibaura, Minato-Ku
Tokyo, Japan 105
BVP(6).......................................... 5,263,335 5.8%
1025 Old Country Road
Suite 205 Westbury, NY 11530
Vanguard IV, L.P.(7)............................ 7,070,465 7.6%
525 University Avenue
Suite 600
Palo Alto, CA 94301
David R. Huber(8)............................... 6,187,950 6.7%
Patrick H. Nettles(9)........................... 4,352,135 4.5% 250,000 4,098,135 4.2%
Steve W. Chaddick(10)........................... 1,312,500 1.4% 131,250 1,181,250 1.2%
Lawrence P. Huang(11)........................... 1,312,500 1.4% 131,250 1,181,250 1.2%
Stephen B. Alexander............................ 457,500 * 45,750 411,750 *
Joseph R. Chinnici(12).......................... 322,500 * 32,150 290,350 *
Mark Cummings................................... 250,000 * 25,000 225,000 *
Michael Fagen................................... 300,000 * 30,000 270,000 *
G. Eric Georgatos............................... 200,000 * 20,000 180,000 *
Rebecca K. Seidman.............................. 150,000 * 15,000 135,000 *
Jon W. Bayless(13).............................. 11,838,490 12.7%
Harvey B. Cash(14).............................. 10,954,405 11.8%
Clifford W. Higgerson(15)....................... 7,070,465 7.6%
Billy B. Oliver(16)............................. 75,000 *
Michael J. Zak(17).............................. 8,750,000 9.4%
All officers and directors as a group (18
persons)(18)................................... 47,565,495 47.8%
Dr. Meir Barel(19).............................. 6,610,715 7.5%
Kevin Kimberlin................................. 4,680,490 5.0%
Weiss, Peck & Greer Venture Capital Funds(20)... 3,625,000 3.9%
[Other Selling Stockholders]....................

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

* Represents less than 1%.

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57

(1) The persons named in this table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them,
subject to community property laws where applicable and except as indicated
in the other footnotes to this table. Beneficial ownership is determined in
accordance with the rules of the United States Securities and Exchange
Commission. In computing the number of shares beneficially owned by a
person and the percentage ownership of that person, shares of Common Stock
subject to options or warrants held by that person that are currently
exercisable or exercisable within 60 days after April 30, 1997 are deemed
outstanding. Such shares, however, are not deemed outstanding for the
purpose of computing the percentage ownership of any other person.

(2) Assumes that the Underwriters' over-allotment options are not exercised.

(3) Represents 11,081,830 shares of Common Stock beneficially owned by Sevin
Rosen Fund IV L.P., 714,285 shares of Common Stock beneficially owned by
Sevin Rosen Fund V L.P., and 42,375 shares beneficially owned by Sevin
Rosen Bayless Management Company. Jon W. Bayless, a director of the
Company, is a general partner of both SRB Associates IV L.P. the general
partner of Sevin Rosen Fund IV L.P., and SRB Associates V L.P., the general
partner of Sevin Rosen Fund V L.P., and is a principal of Sevin Rosen
Bayless Management Company. Dr. Bayless disclaims beneficial ownership of
the shares held by such entities except to the extent of his proportionate
partnership interest therein.

(4) Represents 10,895,745 shares of Common Stock beneficially owned by
InterWest Partners V L.P., and 58,660 shares of Common Stock beneficially
owned by InterWest Investors V L.P. Harvey B. Cash, a director of the
Company, is a special limited partner of InterWest Management Partners V
L.P., which is a general partner of InterWest Partners V L.P. Mr. Cash is
also the general partner of InterWest Investors V L.P. Mr. Cash disclaims
beneficial ownership of the shares held by such entities except to the
extent of his proportionate partnership interest therein.

(5) Michael J. Zak, a Director of the Company, is a general partner of the
general partner of Charles River Partnership VII. Mr. Zak disclaims
beneficial ownership of the shares held by such entity except to the extent
of his proportionate partnership interest therein.

(6) Includes (i) 120,000 shares of Common Stock held by persons associated with
Bessemer Securities Corporation ("BSC"), the parent of the limited partner
of BVP, as to which BVP has the power to vote and as to which BVP disclaims
beneficial ownership, and 111,110 shares of Common Stock held by BVP III
Special Situations L.P. ("BVP SS"), as to which Deer III & Co. ("Deer
III"), the general partner of BVP, as the general partner of BVP SS, has
voting and investment control and as to which BVP disclaims beneficial
ownership and Deer III disclaims beneficial ownership except to the extent
of its partnership interest in BVP SS, and (ii) 30,750 shares of Common
Stock held by persons associated with BSC, the parent of the limited
partner of BVP, as to which BVP has the power to vote and as to which BVP
disclaims beneficial ownership, and 47,615 shares of Common Stock held by
BVP SS, as to which Deer III, as the general partner of BVP SS, has voting
and investment control and as to which BVP disclaims beneficial ownership
and Deer III disclaims beneficial ownership except to the extent of its
partnership interest in BVP SS. Does not include (i) 366,660 shares of
Common Stock held by partners of Deer III & Co. and persons associated with
such partners or Deer III & Co., and (ii) 34,290 shares of Common Stock
held by partners of Deer III & Co. and person associated with such partners
of Deer III & Co.

(7) Clifford W. Higgerson, a Director of the Company, is a general partner of
Vanguard IV, L.P. Mr. Higgerson disclaims beneficial ownership of the
shares held by such entity except to the extent of his proportionate
partnership interest therein.

(8) Includes 1,200,000 shares of Common Stock held in trust by Dr. Huber's wife
and 151,320 shares of Common Stock held by Mrs. Huber as custodian on
behalf of their minor children.

(9) Includes 875,000 shares of Common Stock issuable upon exercise of options,
all of which are subject to a right of repurchase by the Company. Also
includes 2,620,833 shares of Common Stock, before the Offerings, and
2,370,833 shares of Common Stock after the Offerings, which are not subject
to a right of repurchase by the Company.

(10) Before the Offerings, includes 1,312,500 shares issuable upon exercise of
stock options, of which 687,500 shares are not subject to a right of
repurchase by the Company. After the Offerings, includes 881,250 shares
issuable upon exercise of stock options, of which 556,250 shares are not
subject to a right of repurchase by the Company.

(11) Before the Offerings, includes 1,312,500 shares issuable upon exercise of
stock options, of which 703,125 shares are not subject to a right of
repurchase by the Company. After the Offerings, includes 581,250 shares
issuable upon exercise of stock options, of which 571,875 are not subject
to a right of repurchase by the Company.

(12) Before the Offerings, includes 322,500 shares issuable upon exercise of
stock options, of which 144,791 shares are not subject to a right of
repurchase by the Company. After the Offerings, includes 290,250 shares
issuable upon exercise of stock options, of which 112,541 are not subject
to a right of repurchase by the Company.

(13) Represents 11,081,830 shares of Common Stock beneficially owned by Sevin
Rosen Fund IV L.P., 714,285 shares of Common Stock beneficially owned by
Sevin Rosen Fund V L.P., and 42,375 shares of Common Stock beneficially
owned by Sevin Rosen Bayless Management Co., which Dr. Bayless may be

53
58

deemed to beneficially own by virtue of his status as a general partner of
both SRB Associates IV L.P., the general partner of Sevin Rosen Fund IV
L.P., and SRB Associates V L.P., the general partner of Sevin Rosen Fund V
L.P., and as a principal of Sevin Rosen Bayless Management Co. Dr. Bayless
disclaims beneficial ownership of the shares held by such entities except
to the extent of his proportionate partnership interest therein.

(14) Represents 10,895,745 shares of Common Stock beneficially owned by
InterWest Partners V L.P., and 58,660 shares of Common Stock beneficially
owned by InterWest Investors V L.P. Harvey B. Cash, a director of the
Company, is a special limited partner of InterWest Management Partners V
L.P., which is a general partner of InterWest Partners V L.P. Mr. Cash is
also the general partner of InterWest Investors V L.P. Mr. Cash disclaims
beneficial ownership of the shares held by such entities except to the
extent of his proportionate partnership interest therein.

(15) Represents 7,070,465 shares of Common Stock beneficially owned by Vanguard
IV, L.P., which Mr. Higgerson may be deemed to beneficially own by virtue
of his status as a general partner of Vanguard IV, L.P. Mr. Higgerson
disclaims beneficial ownership of the shares held by such entities except
to the extent of his proportionate partnership interest therein.

(16) Includes 75,000 shares of Common Stock issuable upon exercise of stock
options granted pursuant to the 1996 Outside Directors Plan.

(17) Represents 8,750,000 shares of Common Stock beneficially owned by Charles
River Partnership VII, which Mr. Zak may be deemed to beneficially own by
virtue of his status as a general partner of Charles River Partnership VII.
Mr. Zak disclaims beneficial ownership of the shares held by such entity
except to the extent of his proportionate partnership interest therein.

(18) Before the Offerings, includes 3,359,200 shares issuable upon exercise of
stock options. Before the Offerings, approximately 4,212,502 shares and
shares issuable upon exercise of options are subject to a right of
repurchase by the Company.

(19) Represents shares beneficially owned by Star Venture Entities of which Dr.
Barel is affiliated. Dr. Barel disclaims beneficial ownership of such
shares except to the extent of his proportional beneficial interest
therein.

(20) Represents 1,979,250 shares held of record by WPG Enterprise Fund II, L.P.
and 1,645,750 shares held of record by Weiss, Peck & Greer Venture
Associates III, L.P. The address of the funds is 555 California Street,
Suite 3130, San Francisco, California 94104, Attention: Christopher J.
Schaepe.

54
59

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 180,000,000 shares
of Common Stock and 20,000,000 shares of preferred stock, par value $.01 per
share. The following summary of the Company's capital stock does not purport to
be complete and is subject to, and qualified in its entirety by, the Certificate
of Incorporation and bylaws of the Company that are included as exhibits to the
Registration Statement of which this Prospectus forms a part and by the
provisions of applicable law.

COMMON STOCK

As of April 30, 1997, there were 96,241,858 shares of Common Stock
outstanding and held of record by 274 stockholders. The holders of Common Stock
are entitled to one vote for each share held of record on all matters submitted
to a vote of the holders of Common Stock. Subject to preferences applicable to
any outstanding preferred stock, holders of Common Stock are entitled to receive
ratably such dividends as may be declared by the Board of Directors out of funds
legally available therefor. In the event of a liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities and the liquidation
preference of any preferred stock. Holders of Common Stock have no preemptive or
subscription rights, and there are no redemption or conversion rights with
respect to such shares. All outstanding shares of Common Stock are fully paid
and non-assessable, and the shares of Common Stock to be issued upon completion
of the Offerings will be fully paid and non-assessable.

As of April 30, 1997, there were warrants to purchase 75,000 shares of
Common Stock outstanding.

UNDESIGNATED PREFERRED STOCK

The Board of Directors has the authority, without action by the
stockholders, to designate and issue preferred stock in one or more series and
to designate the dividend rate, voting rights and other rights, preferences and
restrictions of each series any or all of which may be greater than the rights
of the Common Stock. It is not possible to state the actual effect of the
issuance of any shares of preferred stock upon the rights of holders of the
Common Stock until the Board of Directors determines the specific rights of the
holders of such preferred stock. However, the effects might include, among other
things, restricting dividends on the Common Stock, diluting the voting power of
the Common Stock, impairing the liquidation rights of the Common Stock and
delaying or preventing a change in control of the Company without further action
by the stockholders. The Company has no present plans to issue any shares of
preferred stock.

REGISTRATION RIGHTS

The holders of approximately 74,815,740 shares of Common Stock held by or
issuable to certain holders of warrants and certain their transferees have
certain holder's rights to register those shares under the Securities Act. The
shares offered by Selling Stockholders in the Offerings are being sold pursuant
to exercise of these registration rights. These rights are provided under the
terms of certain agreements among the Company and the holders of such shares.
Subject to certain limitations in such agreements, the holders of at least 25%
of such shares may require, on two occasions, that the Company use its best
efforts to register such shares for public resale, subject to certain
limitations. If the Company registers any of its Common Stock either for its own
account or for the account of other security holders, the holders of such shares
are entitled to include their shares of Common Stock in the registration,
subject to the ability of the underwriters to limit the number of shares
included in the Offerings. The holders of such shares may also require the
Company on no more than one occasion every 12 months to register all or a
portion of their registrable securities on Form S-3 when use of such form
becomes available to the Company,

55
60

provided, among other limitations, that the proposed aggregate selling price is
at least $500,000, and that the total number of permitted demand registrations
on Form S-3 is limited to six. All fees, costs and expenses of registrations
pursuant to Form S-1 (other than underwriting discounts and commissions) will be
borne by the Company. All expenses of demand registrations pursuant to Form S-3
shall be borne by the holders.

DELAWARE LAW AND CERTAIN PROVISIONS OF THE THIRD AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION

The Company is a Delaware corporation and subject to Section 203 of the
Delaware General Corporation Law ("DGCL"). In general, Section 203 of the DGCL
prevents an "interested stockholder" (defined generally as a person owning 15%
or more of a Delaware corporation's outstanding voting stock) from engaging in a
"business combination" (as defined) with a Delaware corporation for three years
following the date such person became an interested stockholder, subject to
certain exceptions such as the approval of the board of directors and of the
holders of at least two thirds of the outstanding shares of voting stock not
owned by the interested stockholder. The existence of this provision of law can
be expected to have the effect of discouraging hostile takeover attempts,
including attempts that might result in a premium over the market price for the
shares of Common Stock held by stockholders.

The Board of Directors is divided into three classes of directors with each
class serving a staggered three-year term. The classification system of electing
directors may tend to discourage a third party from making a tender offer or
otherwise attempting to obtain control of the Company and may maintain the
incumbency of the Board of Directors, as it generally makes it more difficult
for stockholders to replace a majority of the directors. The Company's
Certificate of Incorporation also eliminates the right of stockholders to act
without a meeting and does not provide for cumulative voting in the election of
directors. These and other provisions may have the effect of deterring hostile
takeovers or delaying changes in control or management of the Company. The
amendment of any of these provisions would require approval by holders of
66 2/3% or more of the outstanding Common Stock.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is The First National
Bank of Boston.

CERTAIN U.S. TAX CONSIDERATIONS APPLICABLE TO
NON-U.S. HOLDERS OF THE COMMON STOCK

The following is a general discussion of certain U.S. federal income and
estate tax consequences of the ownership and disposition of Common Stock by a
person that, for U.S. federal income tax purposes, is a non-resident alien
individual, a foreign corporation, a foreign partnership or a foreign estate or
trust as defined in the U.S. Internal Revenue Code of 1986, as amended (the
"Code") (a "non-U.S. holder"). This discussion does not consider specific facts
and circumstances that may be relevant to a particular non-U.S. holder's tax
position and does not deal with all aspects of United States federal income and
estate taxation that may be relevant to non-U.S. holders, or with U.S. state and
local or non-U.S. tax consequences. Furthermore, the following discussion is
based on provisions of the Code, existing and proposed regulations promulgated
thereunder, and administrative and judicial interpretations thereof as of the
date hereof, all of which are subject to change, possibly with retroactive
effect. Each prospective non-U.S. holder is urged to consult a tax adviser with
respect to the U.S. federal tax consequences of holding and disposing of Common
Stock, as well as any tax consequences that may arise under the laws of any U.S.
state, municipality or other taxing jurisdiction.

An individual may, among other ways, be deemed to be a resident alien (as
opposed to a non-resident alien) with respect to any calendar year by virtue of
being present in the United States on at

56
61

least 31 days in such calendar year and for an aggregate of at least 183 days
during the current calendar year and the two preceding calendar years (counting
for such purposes all of the days present in the current year, one-third of the
days present in the immediately preceding year, and one-sixth of the days
present in the second preceding year). Resident aliens are subject to U.S.
federal tax as if they were U.S. citizens.

DIVIDENDS

As described above, the Company does not expect to pay dividends. In the
event the Company does pay dividends, dividends paid to a non-U.S. holder of
Common Stock will be subject to withholding of U.S. federal income tax at a rate
of 30% of the gross amount of the dividend or such lower rate as may be
specified by an applicable income tax treaty, unless the dividends are
effectively connected with the conduct of a trade or business by the non-U.S.
holder within the United States. Dividends that are effectively connected with
such holder's conduct of a trade or business in the United States are subject to
U.S. federal income tax on a net income basis at applicable graduated individual
or corporate rates, and are not generally subject to withholding, if the holder
complies with certain certification and disclosure requirements. Any such
effectively connected dividends received by a foreign corporation may also,
under certain circumstances, be subject to an additional "branch profits tax" at
a 30% rate or such lower rate as may be specified by an applicable income tax
treaty.

Dividends paid to an address outside the United States are presumed to be
paid to a resident of the country of address (unless the payer has knowledge to
the contrary) for purposes of the withholdings discussed above and for purposes
of determining the applicability of a tax treaty rate. Under proposed U.S.
Treasury regulations that are proposed to be effective for distributions after
1997 (the "Proposed Regulations") however, a non-U.S. holder of Common Stock who
wishes to claim the benefit of an applicable treaty rate would be required to
satisfy applicable certification requirements. The Proposed Regulations include
special rules that apply to dividends paid to foreign partnerships. It is not
certain whether, or in what form, the Proposed Regulations will be adopted as
final regulations.

A non-U.S. holder of Common Stock that is eligible for a reduced rate of
U.S. withholding tax pursuant to an income tax treaty may obtain a refund of any
excess amounts withheld by filing an appropriate claim for refund with the U.S.
Internal Revenue Service.

GAIN ON DISPOSITION OF COMMON STOCK

A non-U.S. holder generally will not be subject to U.S. federal income tax
in respect of gain recognized on a disposition of Common Stock unless (i) the
gain is effectively connected with a trade or business of the non-U.S. holder in
the United States or, if a tax treaty applies, is attributable to a permanent
establishment maintained by the non-U.S. holder in the United States, (ii) in
the case of a non-U.S. holder who is an individual and holds the Common Stock as
a capital asset, such holder is present in the United States for 183 or more
days in the taxable year of the sale and certain other conditions are met, or
(iii) the Company is or has been a "U.S. real property holding corporation" for
federal income tax purposes at any time during the five-year period ending on
the date of the disposition and the non-U.S. holder owned more than 5% of the
Company's Common Stock at any time during such period. The Company believes that
it has not been and it is not a "U.S. real property holding corporation" for
U.S. federal income tax purposes and does not currently anticipate becoming a
"U.S. real property holding corporation." If an individual non-U.S. holder falls
under clause (i) above, he or she will be taxed on his or her net gain derived
from the sale at regular graduated U.S. federal income tax rates. If an
individual non-U.S. holder falls under clause (ii) above, he or she will be
subject to a flat 30% tax on the net gain derived from the sale which gain may
be offset by U.S. capital losses. If a non-U.S. holder that is a foreign
corporation falls under clause (i) above, it will be taxed on its gain at
regular graduated U.S. federal income tax rates and, in addition, may be subject
to the branch profits tax equal to 30% of its

57
62

"effectively connected earnings and profits" within the meaning of the Code for
the taxable year, as adjusted for certain items, or at such lower rate as may be
specified by an applicable income tax treaty.

FEDERAL ESTATE TAXES

Common Stock owned or treated as owned by a non-U.S. holder at the time of
death, or Common Stock of which the non-U.S. holder made certain in lifetime
transfers, will be included in such holder's gross estate for U.S. federal
estate tax purposes, unless an applicable estate tax treaty provides otherwise.

U.S. INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX

The Company must report annually to the U.S. Internal Revenue Service and
to each non-U.S. holder the amount of dividends paid to such holder and the tax
withheld with respect to such dividends, regardless of whether withholding was
required. Copies of the information returns reporting such dividends and
withholding may also be made available to the tax authorities in the country in
which the non-U.S. holder resides under the provisions of an applicable income
tax treaty.

Under current law, backup withholding (which generally is a withholding tax
imposed at the rate of 31% on certain payments to persons that fail to furnish
certain information under the U.S. information reporting requirements) will
generally not apply to dividends paid to a non-U.S. holder at an address outside
the United States unless such non-U.S. holder is engaged in a trade or business
in the United States or unless the payer has knowledge that the payee is a U.S.
person. Under the Proposed Regulations, however, dividend payments generally
will be subject to backup withholding unless applicable certification
requirements are satisfied.

In general, backup withholding and information reporting will not apply to
a payment of the proceeds of a sale of Common Stock to or through a foreign
office of a broker. If, however, such broker is, for U.S. federal income tax
purposes, a U.S. person, a controlled foreign corporation, or a foreign person
that derives 50% of more of its gross income for certain periods from the
conduct of a trade or business in the United States, such payments will not be
subject to backup withholding but will be subject to information reporting,
unless (1) such broker has documentary evidence in its records that the
beneficial owner is a non-U.S. holder and certain other conditions are met, or
(2) the beneficial owner otherwise establishes an exemption.

Payment to or through a U.S. office of a broker of the proceeds of a sale
of Common Stock is generally subject to both backup withholding and information
reporting unless the beneficial owner certifies under penalties of perjury that
it is a non-U.S. holder, or otherwise establishes an exemption.

Any amounts withheld under the backup withholding rules may be allowed as a
refund or a credit against such holder's U.S. federal income tax liability
provided the required information is furnished to the U.S. Internal Revenue
Service.

LEGAL MATTERS

Certain legal matters with respect to the shares of Common Stock offered
hereby will be passed upon for the Company and certain Selling Stockholders by
Hogan & Hartson L.L.P., Baltimore, Maryland, and for the Underwriters by Hale
and Dorr LLP, Washington, D.C.

EXPERTS

The financial statements as of October 31, 1996 and 1995 and for each of
the three fiscal years in the period ended October 31, 1996 included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.

58
63

CIENA CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Accountants...................................................... F-2
Consolidated Balance Sheets............................................................ F-3
Consolidated Statements of Operations.................................................. F-4
Consolidated Statements of Changes in Stockholders' Equity (Deficit)................... F-5
Consolidated Statements of Cash Flows.................................................. F-6
Notes to Consolidated Financial Statements............................................. F-7

F-1
64

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Stockholders of CIENA Corporation

In our opinion, the accompanying balance sheets and the related statements of
operations, of cash flows and of changes in stockholders' equity (deficit)
present fairly, in all material respects, the financial position of CIENA
Corporation at October 31, 1996 and 1995, and the results of its operations and
its cash flows for each of the three years in the period ended October 31, 1996,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.

PRICE WATERHOUSE LLP

Falls Church, VA
November 27, 1996, except as to Note 14,
which is as of December 10, 1996

F-2
65

CIENA CORPORATION

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

OCTOBER 31,
------------------ APRIL 30,
1995 1996 1997
-------- ------- -----------
(UNAUDITED)

ASSETS
Current assets:
Cash and cash equivalents............................................................ $ 5,032 $22,557 $ 180,791
Accounts receivable (net of allowance of $--, $-- and $200).......................... 8 16,759 31,187
Inventories, net..................................................................... -- 13,228 22,859
Deferred income taxes................................................................ -- 1,834 4,308
Prepaid expenses and other........................................................... 22 634 1,108
-------- ------- ---------
Total current assets........................................................ 5,062 55,012 240,253
Equipment, furniture and fixtures, net................................................... 2,239 11,863 36,092
Other assets............................................................................. 82 426 392
-------- ------- ---------
Total assets.................................................................... $ 7,383 $67,301 $ 276,737
======== ======= =========
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current installments of capital lease obligations.................................... $ 368 $ 960 $ 988
Current maturities of notes payable.................................................. -- 69 --
Accounts payable..................................................................... 541 6,278 15,150
Accrued liabilities.................................................................. 1,084 5,242 21,268
Income taxes payable................................................................. -- 3,342 10,246
Deferred revenue..................................................................... -- 3,265 652
-------- ------- ---------
Total current liabilities................................................... 1,993 19,156 48,304
Capital lease obligations, less current installments..................................... 856 2,186 1,691
Notes payable, less current maturities................................................... -- 487 --
Deferred income taxes.................................................................... -- -- 17,560
Deferred rent............................................................................ 10 98 585
-------- ------- ---------
Total liabilities........................................................... 2,859 21,927 68,140
Commitments and contingencies............................................................ -- -- --
Mandatorily redeemable preferred stock -- par value $.01, 16,250,000 shares authorized:
Series A -- 4,500,000 shares authorized; 3,542,520, 3,590,157 and zero shares issued
and outstanding..................................................................... 3,492 3,492 --
Series B -- 8,000,000 shares authorized; 7,354,092, 7,354,092 and zero shares issued
and outstanding..................................................................... 10,962 10,962 --
Series C -- 3,750,000 shares authorized; zero, 3,718,899 and zero shares issued and
outstanding......................................................................... -- 25,950 --
Stockholders' equity (deficit):
Preferred stock -- par value $.01; 20,000,000 shares authorized; zero shares issued
and outstanding..................................................................... -- -- --
Common stock -- par value $.01; 180,000,000 shares authorized; 11,935,415, 13,191,585
and 96,241,858 shares issued and outstanding........................................ 119 132 962
Additional paid-in capital........................................................... 110 339 162,502
Notes receivable from stockholders................................................... -- (60) (111)
Retained earnings (deficit).......................................................... (10,159) 4,559 45,244
-------- ------- ---------
Total stockholder's equity (deficit)........................................ (9,930) 4,970 208,597
-------- ------- ---------
Total liabilities, mandatorily redeemable preferred stock and stockholders'
equity (deficit)............................................................. $ 7,383 $67,301 $ 276,737
======== ======= =========

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

F-3
66

CIENA CORPORATION

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

SIX MONTHS ENDED
YEAR ENDED OCTOBER 31, APRIL 30,
--------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- ------- ------- --------
(UNAUDITED)

Revenue................................... $ -- $ -- $54,838 $ -- $140,602
Cost of goods sold........................ -- -- 21,844 -- 52,840
------- ------- ------- ------- --------
Gross profit......................... -- -- 32,994 -- 87,762
------- ------- ------- ------- --------
Operating expenses:
Research and development............. 1,287 6,361 8,922 4,219 7,749
Selling and marketing................ 295 481 3,780 1,191 7,083
General and administrative........... 787 896 3,905 1,025 8,401
------- ------- ------- ------- --------
Total operating expenses........ 2,369 7,738 16,607 6,435 23,233
------- ------- ------- ------- --------
Income (loss) from operations............. (2,369) (7,738) 16,387 (6,435) 64,529
Interest and other income (expense),
net..................................... (36) 195 877 459 2,360
Interest expense.......................... (2) (86) (296) (93) (193)
------- ------- ------- ------- --------
Income (loss) before income taxes......... (2,407) (7,629) 16,968 (6,069) 66,696
Provision for income taxes................ -- -- 2,250 -- 26,011
------- ------- ------- ------- --------
Net income (loss)......................... $(2,407) $(7,629) $14,718 $(6,069) $ 40,685
======= ======= ======= ======= ========
Pro forma net income (loss) per common and
common equivalent share................. $ 0.15 $ (0.06) $ 0.40
======= ======= ========
Pro forma weighted average common and
common equivalent shares outstanding.... 99,111 99,111 101,493
======= ======= ========

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

F-4
67

CIENA CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)

NOTES TOTAL
COMMON STOCK RECEIVABLE RETAINED STOCKHOLDERS'
--------------------- ADDITIONAL FROM EARNINGS EQUITY
SHARES AMOUNT PAID-IN-CAPITAL STOCKHOLDERS (DEFICIT) (DEFICIT)
----------- ------ --------------- ------------ -------- -------------

BALANCE AT OCTOBER 31,
1993.................... 7,066,665 $ 71 $ 17 $ -- $ (123) $ (35)
Issuance of common stock.. 3,750,000 37 39 (65) -- 11
Payment of expenses by
stockholder............. -- -- 43 -- -- 43
Net loss.................. -- -- -- -- (2,407) (2,407)
--------- ---- ---- ---- -------- -------
BALANCE AT OCTOBER 31,
1994.................... 10,816,665 108 99 (65) (2,530) (2,388)
Exercise of warrants...... 1,075,000 11 11 -- -- 22
Exercise of stock
options................. 43,750 -- -- -- -- --
Repayment of receivables
from stockholders....... -- -- -- 65 -- 65
Net loss.................. -- -- -- -- (7,629) (7,629)
--------- ---- ---- ---- -------- -------
BALANCE AT OCTOBER 31,
1995.................... 11,935,415 119 110 -- (10,159) (9,930)
Exercise of warrants...... 676,425 7 -- -- -- 7
Exercise of stock
options................. 579,745 6 71 (60) -- 17
Compensation cost of stock
options................. -- -- 2 -- -- 2
Issuance of warrants for
settlement of certain
equity rights........... -- -- 156 -- -- 156
Net income................ -- -- -- -- 14,718 14,718
--------- ---- ---- ---- -------- -------
BALANCE AT OCTOBER 31,
1996.................... 13,191,585 132 339 (60) 4,559 4,970
Issuance of common
stock................... 5,750,000 57 121,792 -- -- 121,849
Conversion of Convertible
Preferred Stock......... 74,815,740 748 40,256 -- -- 41,004
Exercise of warrants...... 596,883 6 -- -- -- 6
Exercise of stock
options................. 1,887,650 19 95 (51) -- 63
Compensation cost of stock
options................. -- -- 20 -- -- 20
Net income................ -- -- -- -- 40,685 40,685
--------- ---- ---- ---- -------- -------
BALANCE AT APRIL 30, 1997
(UNAUDITED)............. 96,241,858 $962 $ 162,502 $ (111) $ 45,244 $ 208,597
========= ==== ==== ==== ======== =======

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

F-5
68

CIENA CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

SIX MONTHS ENDED
YEAR ENDED OCTOBER 31, APRIL 30,
------------------------------ --------------------
1994 1995 1996 1996 1997
------- ------- -------- -------- --------
(UNAUDITED)

Cash flows from operating activities:
Net income (loss)........................................ $(2,407) $(7,629) $ 14,718 $ (6,069) $ 40,685
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Non-cash charges from equity transactions.............. 75 -- 158 -- 20
Write down of leasehold improvements................... -- -- 883 -- 571
Depreciation and amortization.......................... 25 355 1,007 431 3,157
Provision for doubtful accounts........................ -- -- -- -- 200
Provision for inventory excess and obsolescence........ -- -- 1,937 588 2,098
Accrued interest on notes receivable from
stockholders......................................... (2) -- (2) -- --
Provision for warranty and other contractual
obligations.......................................... -- -- 1,584 -- 5,872
Changes in assets and liabilities:
(Increase) decrease in accounts receivable........... 4 (8) (16,751) 4 (14,628)
Increase in prepaid expenses and other............... (2) (16) (612) (1) (474)
Increase in inventories.............................. -- -- (15,165) (8,249) (11,729)
Increase in deferred income taxes.................... -- -- (1,834) -- (2,474)
(Increase) decrease in other assets.................. (26) (56) (343) 8 (396)
Increase in accounts payable and accruals............ 820 757 8,311 2,100 19,026
Increase in income taxes payable..................... -- -- 3,342 -- 6,904
Increase (decrease) in deferred revenue and deferred
rent.............................................. 21 (11) 3,353 77 (2,125)
------- ------- -------- -------- --------
Net cash (used in) provided by operating activities.... (1,492) (6,608) 586 (11,111) 46,707
------- ------- -------- -------- --------
Cash flows from investing activities:
Additions to equipment, furniture and fixtures........... (585) (2,036) (11,514) (3,631) (27,526)
------- ------- -------- -------- --------
Net cash used in investing activities.................. (585) (2,036) (11,514) (3,631) (27,526)
------- ------- -------- -------- --------
Cash flows from financing activities:
Proceeds from (repayment of) notes payable............... -- -- 556 -- (556)
Proceeds from bridge loan................................ 200 -- -- -- --
Repayment of bridge loan................................. (200) -- -- -- --
Net proceeds from issuance of or subscription to
mandatorily redeemable preferred stock................. 3,460 10,962 25,950 25,950 --
Proceeds from issuance of common stock and warrants...... 11 22 24 11 122,517
Tax benefit related to exercise of stock warrants........ -- -- -- -- 17,560
Repayment of notes receivable from stockholders.......... -- 65 -- -- --
Proceeds from lease financing activities................. 504 944 2,564 1,077 --
Principal payments on capital lease obligations.......... -- (225) (641) (233) (468)
------- ------- -------- -------- --------
Net cash provided by financing activities.............. 3,975 11,768 28,453 26,805 139,053
------- ------- -------- -------- --------
Net increase in cash and cash equivalents.............. 1,898 3,124 17,525 12,063 158,234
Cash and cash equivalents at beginning of period........... 10 1,908 5,032 5,032 22,557
------- ------- -------- -------- --------
Cash and cash equivalents at end of period................. $ 1,908 $ 5,032 $ 22,557 $ 17,095 $180,791
======= ======= ======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest................................................. $ 2 $ 86 $ 296 $ 92 $ 196
======= ======= ======== ======== ========
Income taxes............................................. $ -- $ -- $ 742 $ -- $ 1,176
======= ======= ======== ======== ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Issuance of common stock for notes receivable from
stockholders............................................. $ 65 $ -- $ 60 $ -- $ 51
======= ======= ======== ======== ========

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

F-6
69

CIENA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES

Description of Business

CIENA Corporation (the "Company" or "CIENA"), a Delaware corporation, was
incorporated on November 2, 1992 as HydraLite Incorporated. Subsequently, the
Company changed its name to Cedrus Corporation and then to CIENA Corporation.
The Company designs, manufactures and sells dense wavelength division
multiplexing systems for long distance fiberoptic telecommunications networks.
During the period from November 2, 1992 to October 31, 1995, CIENA was a
development stage company as defined in Statement of Financial Accounting
Standards No. 7, "Development Stage Enterprises". Planned principal operations
commenced during fiscal 1996 and, accordingly, CIENA is no longer considered a
development stage company.

During fiscal 1996, all of the Company's revenue was attributable to a
single product and to a single customer. Additionally, the Company's access to
certain raw materials is dependent upon single and sole source suppliers.

Fiscal Year

The Company has a 52 or 53 week fiscal year which ends on the Saturday
nearest to the last day of October in each year (November 2, 1996; October 28,
1995; and October 29, 1994). For purposes of financial statement presentation,
each fiscal year is described as having ended on October 31. Fiscal 1994 and
1995 comprised 52 weeks and fiscal 1996 comprised 53 weeks.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates, judgments
and assumptions that affect the reported amounts of assets, liabilities, revenue
and expenses, together with amounts disclosed in the related notes to the
financial statements. Particularly sensitive estimates include reserves for
warranty and other contractual obligations and for excess and obsolete
inventories. Actual results could differ from the recorded estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents. The Company's entire
cash and cash equivalents balance at October 31, 1996 was on deposit with one
financial institution, which represents a concentration of credit risk as
defined under Statement of Financial Accounting Standards No. 105, "Disclosure
of Information about Financial Instruments with Off-Balance-Sheet Risk and
Financial Instruments with Concentrations of Credit Risk". The majority of the
Company's cash equivalents are invested in overnight repurchase agreements,
which are secured by the U.S. Government.

Inventories

Inventories are stated at the lower of cost or market, with cost determined
on the first-in, first-out basis. The Company records a provision for excess and
obsolete inventory whenever such an impairment has been identified.

F-7
70

CIENA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(1) THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

Equipment, Furniture and Fixtures

Equipment, furniture and fixtures are recorded at cost. Depreciation and
amortization are computed using the straight-line method over useful lives of
2-5 years for equipment, furniture and fixtures and of 6-10 years for leasehold
improvements.

Revenue Recognition

The Company recognizes product revenue in accordance with the shipping
terms specified. For transactions where the Company has yet to obtain customer
acceptance or has agreements pertaining to installation services, revenue is
deferred until no significant obligations remain. Revenue for installation
services is recognized as the services are performed. Amounts received in excess
of revenue recognized are included as deferred revenue in the accompanying
balance sheets. For distributor sales where risks of ownership have not
transferred, the Company recognizes revenue when the product is shipped through
to the end user.

During fiscal 1996, all of the Company's revenue and related trade accounts
receivable were derived from one customer, which is headquartered within the
United States.

Revenue-Related Accruals

The Company provides for the estimated costs to fulfill customer warranty
and other contractual obligations upon the recognition of the related revenue.
Such reserves are determined based upon actual warranty cost experience,
estimates of component failure rates, and management's industry experience. The
Company's contractual sales arrangements generally do not permit the right of
return of product by the customer.

Research and Development

The Company charges all research and development costs to expense as
incurred.

Income Taxes

The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income
Taxes". SFAS No. 109 is an asset and liability approach that requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences attributable to differences between the carrying amounts of assets
and liabilities for financial reporting purposes and their respective tax bases,
and for operating loss and tax credit carryforwards. In estimating future tax
consequences, SFAS No. 109 generally considers all expected future events other
than the enactment of changes in tax laws or rates. A valuation allowance is
recorded if it is "more likely than not" that some portion or all of a deferred
tax asset will not be realized.

Computation of Pro Forma Net Income per Share

Pro forma net income per common and common equivalent share is computed
using the pro forma weighted average number of common and common equivalent
shares outstanding. Pro forma weighted average common and common equivalent
shares include Common Stock, stock options and warrants using the treasury stock
method and the assumed conversion of all outstanding shares of Convertible
Preferred Stock into Common Stock. Since the conversion of the Convertible

F-8
71

CIENA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(1) THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

Preferred Stock has a significant effect on the earnings per share calculation,
historical loss per share has not been calculated on the basis that it is
irrelevant.

Pursuant to the requirements of the Securities and Exchange Commission,
Common Stock, stock options, warrants and Convertible Preferred Stock issued by
the Company during the twelve months immediately preceding the filing of the
initial registration statement and through the effective date of such
registration statement have been included in the calculation of the pro forma
weighted average shares outstanding using the treasury stock method based on the
initial public offering price.

Software Development Costs

Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed", requires
the capitalization of certain software development costs incurred subsequent to
the date technological feasibility is established and prior to the date the
product is generally available for sale. The capitalized cost is then amortized
over the estimated product life. The Company defines technological feasibility
as being attained at the time a working model is completed. To date, the period
between achieving technological feasibility and the general availability of such
software has been short and software development costs qualifying for
capitalization have been insignificant. Accordingly, the Company has not
capitalized any software development costs.

Accounting for Stock Options

In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for
Stock-Based Compensation". The Company's adoption of SFAS No. 123 in fiscal 1997
will not have any effect on the Company's financial condition or results of
operations, as the Company intends to continue to measure compensation cost of
stock options granted to employees using the intrinsic value method provided by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees".

Interim Financial Statements (unaudited)

The interim consolidated financial data have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of management, the interim consolidated
financial statements reflect all normal recurring adjustments which the Company
considers necessary for the fair presentation of the results of operations for
the interim periods covered and of the financial position of the Company at the
date of the interim consolidated balance sheet. The operating results for
interim periods are not necessarily indicative of the operating results for the
entire year.

Principles of Consolidation (unaudited)

During the period ended April 30, 1997, the Company formed three wholly
owned subsidiaries for the purpose of segregating aspects of the Company's
business. The accompanying consolidated financial statements include the
accounts of the Company and all of its wholly owned subsidiaries. All material
intercompany accounts and transactions have been eliminated in consolidation.

F-9
72

CIENA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(1) THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

Newly Issued Accounting Standard (unaudited)

In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS No. 128).
SFAS No. 128 simplifies the earnings per share (EPS) computation and replaces
the presentation of primary EPS with a presentation of basic EPS. This statement
also requires dual presentation of basic and diluted EPS on the face of the
income statement for entities with a complex capital structure and requires a
reconciliation of the numerator and denominator used for the basic and diluted
EPS computations. The Company will implement SFAS No. 128 in fiscal 1998, as
required. Accordingly, all prior period EPS data will be restated. To illustrate
the effect of adoption, the Company has elected to disclose pro forma basic and
diluted EPS amounts computed using SFAS No. 128, as permitted by the standard.
On a pro forma basis, the weighted average shares outstanding for basic EPS and
the resulting EPS would be 12,840,000 and $1.15 for the fiscal year ended
October 31, 1996, 51,962,000 and $.78 for the six months ended April 30, 1997,
and 12,331,000 and $(.49) for the six months ended April 30, 1996. Diluted EPS
under SFAS No. 128 will be the same as currently presented.

(2) INVENTORIES

Inventories are comprised of the following (in thousands):

OCTOBER 31, APRIL 30,
1996 1997
----------- -----------
(UNAUDITED)

Raw materials........................................ $ 8,585 $15,124
Work-in-process...................................... 3,629 5,864
Finished goods....................................... 2,951 5,352
------- -------
15,165 26,340
Less reserve for excess and obsolescence............. (1,937) (3,481)
------- -------
$13,228 $22,859
======= =======

(3) EQUIPMENT, FURNITURE AND FIXTURES

Equipment, furniture and fixtures are comprised of the following (in
thousands):

OCTOBER 31,
---------------- APRIL 30,
1995 1996 1997
------ ------- -----------
(UNAUDITED)

Equipment, furniture and fixtures.............. $2,077 $11,647 $29,115
Leasehold improvements......................... 133 1,141 9,019
------ ------- -------
2,210 12,788 38,134
Accumulated depreciation and amortization...... (381) (1,388) (4,114)
Construction-in-progress....................... 410 463 2,072
------ ------- -------
$2,239 $11,863 $36,092
====== ======= =======

In September 1994 and October 1995, the Company entered into separate
master lease agreements to lease certain furniture and equipment. The Company
may lease up to a maximum total of $4.5 million of furniture and equipment under
these agreements, of which $4.1 million had been utilized as of October 31,
1996. Lease terms range from 36 to 48 months. In accordance with

F-10
73

CIENA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(3) EQUIPMENT, FURNITURE AND FIXTURES -- (CONTINUED)

Statement of Financial Accounting Standards No. 13, "Accounting for Leases", the
related leases have been recorded as capital lease transactions.

Furniture and equipment with a cost of $1,541,000 and $4,105,000 and
accumulated depreciation of $311,000 and $1,080,000 have been accounted for as
capital lease assets at October 31, 1995 and 1996, respectively. The Company has
the option to purchase the assets at the end of the lease term.

(4) ACCRUED LIABILITIES

Accrued liabilities are comprised of the following (in thousands):

OCTOBER 31,
--------------- APRIL 30,
1995 1996 1997
------ ------ -----------
(UNAUDITED)

Warranty and other contractual obligations...... $ -- $1,584 $ 6,635
Accrued compensation............................ 434 2,314 3,348
Unbilled construction-in-progress and leasehold
improvements.................................. 411 50 2,883
Legal and related costs......................... -- -- 4,817
Other........................................... 239 1,294 3,585
------ ------ -------
$1,084 $5,242 $21,268
====== ====== =======

(5) CAPITAL LEASE OBLIGATIONS

Capital lease obligations are summarized as follows (in thousands):

OCTOBER 31,
1996
-----------

Capital lease obligations, secured by related assets,
payable in monthly installments including interest at
rates ranging from 8.72% to 13.15% through June 2000... $ 3,146
Less current installments........................... (960)
------
Long-term capital lease obligations................. $ 2,186
======

Future minimum capital lease payments at October 31, 1996 are as follows
(in thousands):

Fiscal year ending October 31,
1997...................................................... $1,288
1998...................................................... 1,202
1999...................................................... 942
2000...................................................... 377
------
3,809
Less amounts representing interest.................................. (663)
------
$3,146
======

F-11
74

CIENA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(6) LINE OF CREDIT

In November 1996, the Company entered into an unsecured line of credit
agreement with a bank, which provides for borrowings of up to $15,000,000.
Interest on borrowings is set at the bank's prime rate (at November 20, 1996 the
rate was 8.25%). Among other provisions, the Company is required to maintain
certain financial covenants, principally certain minimum working capital levels
and monthly profitability levels. The line of credit agreement also prohibits
the Company from paying cash dividends on its capital stock, and expires in
November 1997.

(7) NOTES PAYABLE

In June 1996, the Company borrowed $556,000 from the Maryland Economic
Development Corporation for construction of leasehold improvements and executed
promissory notes of $500,000 and $56,000 with annual interest rates of 6.63% and
3.00%, respectively. Initial interest payments on the notes are due three and
six months following the date of disbursement with quarterly principal payments
commencing on March 31, 1997. The Company provided $56,000 on deposit in escrow
as collateral towards the notes and has recorded such amount as a component of
other assets in the accompanying balance sheet.

The notes payable are due as follows (in thousands):

Fiscal Year Ending October 31,
1997................................................................. $ 69
1998................................................................. 153
1999................................................................. 104
2000................................................................. 111
2001................................................................. 119
-----
$ 556
=====

(8) MANDATORILY REDEEMABLE PREFERRED STOCK

Each holder of Convertible Preferred Stock is entitled to vote on all
matters on an as if converted basis. Dividends, if declared by the Board of
Directors, are $.06, $.1275 and $.56 per share for the Series A, Series B and
Series C Preferred Stock, respectively. No dividends have been declared through
fiscal 1996. Subsequent to December 1, 2001, Series A dividends accrue on a
quarterly basis and become cumulative. Upon liquidation, holders of the Series
A, Series B and Series C Preferred Stock are entitled to receive $1.00, $1.50
and $7.00 per share, respectively, as adjusted for certain defined
recapitalization events, plus accrued dividends, if any.

Holders of Convertible Preferred Stock may convert each of their shares
into five shares of common stock at any time. Each outstanding share of
Convertible Preferred Stock will be automatically converted into five shares of
Common Stock upon (1) the consummation of the Offerings contemplated by the
Company in its anticipated initial registration statement, or (2) the
affirmative vote of the holders of record of (a) 67% of the outstanding shares
of all series of Convertible Preferred Stock, voting together as one class to
that effect, and (b) 85% of the outstanding shares of Series C Preferred Stock,
voting separately as a class. Each outstanding share of Convertible Preferred
Stock is mandatorily redeemable by the Company at the greater of purchase price
or fair value upon the affirmative vote of holders of 72% of the outstanding
shares for each individual series. A total of 50% of any such redemption is to
be paid seven years from original issuance and 50% eight years from original
issuance. The accompanying financial statements do not

F-12
75

CIENA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(8) MANDATORILY REDEEMABLE PREFERRED STOCK -- (CONTINUED)

reflect any accretion to redemption value, because of the contemplated Offerings
and the related expected conversion of all Convertible Preferred Stock to Common
Stock.

During February 1994, the Company received a two month $200,000 bridge loan
from two investors that subsequently purchased Series A Preferred Stock shares
in April 1994. These two investors received warrants to purchase 50,000 shares
of Series A Preferred Stock at either an exercise price of $1.00 per share or at
a reduced share quantity for a cashless exercise price. The fair value of these
warrants was determined to be immaterial on the date of grant and therefore no
charge was recorded. In September 1996, warrants to purchase 50,000 of these
shares were exercised and exchanged in a cashless exercise for 47,637 shares.

The following is a summary of the Company's Convertible Preferred Stock
activity (dollars in thousands):

SERIES A SERIES B SERIES C
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
------------------ ------------------- -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------ --------- ------- --------- -------

Balance at October 31, 1993............... -- $ -- -- $ -- -- $ --
Issued.................................... 3,542,520 3,543 -- -- -- --
Costs associated with issuance............ -- (51) -- -- -- --
--------- ------ --------- ------- --------- -------
Balance at October 31, 1994............... 3,542,520 3,492 -- -- -- --
Issued.................................... -- -- 7,354,092 11,031 -- --
Costs associated with issuance............ -- -- -- (69) -- --
--------- ------ --------- ------- --------- -------
Balance at October 31, 1995............... 3,542,520 3,492 7,354,092 10,962 -- --
Issued.................................... 47,637 -- -- -- 3,718,899 26,032
Costs associated with issuance............ -- -- -- -- -- (82)
--------- ------ --------- ------- --------- -------
Balance at October 31, 1996............... 3,590,157 $3,492 7,354,092 $10,962 3,718,899 $25,950
========= ====== ========= ======= ========= =======

(9) STOCK OPTIONS AND WARRANTS

Stock Warrants

In January 1993, the Company issued a fully paid option to acquire up to
five percent of the Company's outstanding shares of Common Stock after exercise.
This option was issued in connection with the license of certain technologies
described in Note 11. This option was redeemed for 643,090 shares in early
January 1996. As the fair value of these warrants was determined to be
immaterial at the date of issuance, no charge to research and development
expense was recorded.

In connection with the master lease agreement discussed in Note 5, the
Company issued in September 1994, for $600, a warrant to the lessor to acquire
600,000 shares of the Company's Common Stock at an exercise price of $0.20 per
share. As the fair value of these warrants was determined to be immaterial at
the date of issuance, no charge was recorded by the Company.

In connection with the 1994 equity offerings, the Company issued warrants
to investment bankers to purchase 1,075,000 shares of Common Stock at an
exercise price of $0.02 and 150,000 shares of Series A Preferred Stock at an
exercise price of $1.00 per share. No charge was recorded relative to these
warrants as their fair value was determined to be immaterial. The warrants for
the purchase of 1,075,000 shares of Common Stock were exercised in December 1994
for a $21,500 purchase price. During 1995, the warrants to purchase 150,000
shares of Series A Preferred Stock at $1.00 per share were canceled in exchange
for the Company granting options to purchase 300,000 shares of Series B
Preferred Stock at $2.00 per share.

During August 1996, in connection with the settlement of litigation
involving a dispute over certain rights awarded from the April 1994 equity
offerings of Series A Preferred Stock, the

F-13
76

CIENA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(9) STOCK OPTIONS AND WARRANTS -- (CONTINUED)

Company issued, for $150, a warrant to an investor to acquire 75,000 shares of
the Company's Common Stock at an exercise price of $4.00 per share. The Company
recorded approximately $156,000 in expense for the fair value of the warrant
when granted.

Stock Incentive Plans

The Company has an Amended and Restated 1994 Stock Option Plan (the "1994
Plan"). Under the 1994 Plan, 20,050,000 shares of the Company's authorized but
unissued Common Stock are reserved for options issuable to employees. These
options are immediately exercisable upon grant, and both the options and the
shares issuable upon exercise of the options generally vest to the employee over
a four year period. The Company has the right to repurchase any exercised and
non-vested shares at the original purchase price from the employees upon
termination of employment. In June 1996 the Company approved the 1996 Outside
Directors Stock Option Plan (the "1996 Plan"). Under the 1996 Plan, 750,000
shares of the Company's authorized but unissued Common Stock are reserved for
options issuable to outside members of the Company's Board of Directors. These
options vest to the director over periods from one to three years, depending on
the type of option granted, and are exercisable once vested. Under the 1994 Plan
and the 1996 Plan, options may be incentive stock options or non-statutory
options, and the exercise price for each option shall be established by the
Board of Directors provided, however, that the exercise price per share shall
not be not less than the fair market value for incentive stock options and not
less than 85% of fair market value for non-statutory stock options. Following is
a summary of the Company's stock option and warrant activity:

NUMBER OF SHARES (IN THOUSANDS)
----------------------------------------
PREFERRED PREFERRED
COMMON STOCK STOCK STOCK EXERCISE
------------------ SERIES A SERIES B PRICE
OPTIONS WARRANTS WARRANTS WARRANTS PER SHARE
------- -------- -------- -------- ----------

Balance at October 31, 1993.................. -- 386 -- -- $.00- .10
Granted................................. 3,560 1,916 200 -- .00- 1.00
------ ------ ----- ---- ---------
Balance at October 31, 1994.................. 3,560 2,302 200 -- .00- 1.00
Granted................................. 3,856 49 -- 300 .00- 2.00
Exercised............................... (44) (1,075) -- -- .02
Canceled................................ (431) -- (150) -- .02- 1.00
------ ------ ----- ---- ---------
Balance at October 31, 1995.................. 6,941 1,276 50 300 .00- 2.00
Granted................................. 5,901 75 -- -- .06-15.94
Exercised............................... (579) (676) (48) -- .00- 1.52
Canceled................................ (1,180) -- (2) -- .03- 3.69
------ ------ ----- ---- ---------
Balance at October 31, 1996.................. 11,083 675 -- 300 $.02-15.94
====== ====== ===== ==== =========

All of the outstanding warrants above are currently exercisable, except the
Common Stock warrant for 75,000 shares granted to an investor in August 1996.
This warrant becomes exercisable in August 1997. Approximately 3.3 million of
the total outstanding options and warrants were vested at October 31, 1996.

F-14
77

CIENA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(10) INCOME TAXES

In fiscal 1996, the provision for income taxes consists of the following
(in thousands):

Current:
Federal...................................................... $ 3,452
State........................................................ 632
------
4,084
------
Deferred:
Federal...................................................... (1,690)
State........................................................ (144)
------
(1,834)
------
$ 2,250
======

In fiscal 1994 and 1995, the tax provision was comprised primarily of a tax
benefit of approximately $960,000 and $3.1 million, respectively, which was
offset by valuation allowance of the same amount.

In fiscal 1994 and 1995, the tax provision differed from the expected tax
benefit, computed by applying the U.S. federal statutory rate of 35% to the loss
before income taxes, principally due to the effect of increases in the valuation
allowance. In fiscal 1996, the tax provision reconciles to the amount computed
by multiplying income before income taxes by the U.S. federal statutory rate of
35% as follows:

Provision at statutory rate......................................... 35.0%
Reversal of valuation allowance..................................... (24.3)
State taxes, net of federal benefit................................. 2.9
Current tax credits................................................. (1.1)
Other............................................................... 0.8
-----
13.3%
=====

The components of deferred tax assets were as follows (in thousands):

OCTOBER 31,
----------------
1995 1996
------- ------

Reserve for excess and obsolete inventories............... $ -- $ 736
Accrued warranty and other contractual obligations........ -- 602
Start-up costs deferred for tax purposes.................. 496 379
Other accrued expenses not deducted for tax............... -- 114
Accrual to cash basis adjustments......................... 689 --
Net operating loss carryforward........................... 2,814 --
Other..................................................... 51 3
------- ------
Gross deferred tax assets............................ 4,050 1,834
Valuation allowance.................................. (4,050) --
------- ------
Net deferred tax asset.......................... $ -- $1,834
======= ======

The increase in the valuation allowance during fiscal 1995 was primarily
attributable to the increase in net operating losses. The reversal of the
valuation allowance during the third quarter of

F-15
78

CIENA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(10) INCOME TAXES -- (CONTINUED)

fiscal 1996 was attributable to the receipt of product acceptance by the Company
from its initial customer and the start of profitable operations during that
period. In assessing the realizability of deferred tax assets, management
considers whether it is "more likely than not" (as defined under SFAS No. 109)
that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences
become deductible. Management considers projected future taxable income and tax
planning strategies in making this assessment. Based upon their evaluation of
the evidence relating to net deferred tax assets at October 31, 1995, management
determined that realization was not "more likely than not" and, accordingly,
established a valuation allowance of $4.1 million.

(11) LICENSE AGREEMENT

The Company has an exclusive agreement to license certain technologies
which requires a 7.5% royalty on sales of products using the licensed
technologies or certain minimum annual requirements. To date, the Company has
incurred only the minimum annual royalty fees of $50,000 and $100,000 for the
years ended October 31, 1995 and 1996, respectively. The Company may terminate
the agreement upon notice to the licensor and would be liable for any payments
accrued or owed prior to such termination.

(12) EMPLOYEE BENEFIT PLANS

In January 1995, the Company adopted a 401(k) defined contribution profit
sharing plan. The plan covers all full-time employees who are at least 21 years
of age, have completed three months of service and are not covered by a
collective bargaining agreement where retirement benefits are subject to good
faith bargaining. Participants may contribute up to 15% of pre-tax compensation,
subject to certain limitations. The Company may make discretionary annual profit
sharing contributions of up to the lesser of $30,000 or 25% of each
participant's compensation. The Company has made no profit sharing contributions
to date.

(13) COMMITMENTS AND CONTINGENCIES

Operating Lease Commitments

The Company has certain minimum obligations under noncancelable operating
leases expiring on various dates through 2006 for equipment and facilities.
Future annual minimum rental commitments under noncancelable operating leases at
October 31, 1996 are as follows (in thousands):

Fiscal Year Ending
------------------------------------------------------------------
1997.............................................................. $ 1,487
1998.............................................................. 1,816
1999.............................................................. 1,807
2000.............................................................. 1,796
2001.............................................................. 1,796
Thereafter........................................................ 7,245
--------
$ 15,947
========

Rental expense for fiscal 1994, 1995 and 1996 was approximately $42,000,
$111,000 and $602,000, respectively.

F-16
79

CIENA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(13) COMMITMENTS AND CONTINGENCIES -- (CONTINUED)

Litigation

In November 1996, a stockholder and entities controlled by that stockholder
(the "plaintiffs") who provided initial equity capital during the formation of
the Company and participated in the Series C Preferred Stock financing, filed
suit against the Company and certain directors of the Company (the
"defendants"). This suit alleges that the plaintiffs were entitled by the terms
of an agreement with the Company to purchase approximately 230,000 shares of
additional Series C Preferred Stock, at $7.00 per share, at the time of the
closing of the Series C Preferred Stock financing, but were denied that
opportunity by the defendants. The plaintiffs seek to recover unspecified actual
and punitive damages. The Company believes that the plaintiffs' claims are
without merit and intends to defend itself vigorously. However, due to the very
early stage of this matter, it is not possible to determine what impact, if any,
the outcome of this litigation might have on the financial condition, results of
operations or cash flows of the Company.

The Company has agreed to indemnify its customer for liability incurred in
connection with the infringement of a third-party's intellectual property
rights. Although the Company has not received notice from its customer advising
the Company of any alleged infringement of a third-party's intellectual property
rights, there can be no assurance that such indemnification of alleged liability
will not be required from the Company in the future.

Substantial inventories of intellectual property are held by a few industry
participants and major universities and research laboratories. The Company has
on a few occasions hired personnel from such parties. The Company has in the
past received letters from legal counsel to one such party, asserting that the
hiring of their personnel involves a compromise of that party's intellectual
properties. The Company disagrees with such assertions and, if any formal claim
were to be filed, the Company would vigorously defend itself. Such litigation
could be very expensive to defend, regardless of the merits of any possible
claim.

(14) RECAPITALIZATION

On November 22, 1996, the Company's Board of Directors approved the
following effective on December 9, 1996: (i) a five-for-one stock split of the
Company's Common Stock; (ii) an increase in the number of shares of Common Stock
authorized from 112,500,000 to 180,000,000; (iii) an increase in the number of
shares of Common Stock issuable upon conversion of the Convertible Preferred
Stock from one-for-one to five-for-one, and (iv) the authorization of 20,000,000
shares of undesignated Preferred Stock. All references to the number of shares
authorized, issued and outstanding, the Preferred Stock to Common Stock
conversion factor and per share information for all periods presented have been
adjusted to give effect to the aforementioned stock split and share
authorizations.

(15) EVENTS (UNAUDITED) SUBSEQUENT TO DATE OF ACCOUNTANTS' REPORT

Litigation

On December 20, 1996, one of the Company's competitors, a U.S. affiliate of
Pirelli, filed suit in U.S. District Court in Delaware, alleging willful
infringement by the Company of five U.S. patents held by Pirelli. The lawsuit
seeks treble damages, attorneys' fees and costs, as well as preliminary and
permanent injunctive relief against the alleged infringement. On February 10,
1997, the Company filed its answer denying infringement, alleging inequitable
conduct on the part of Pirelli in the prosecution of certain of its patents, and
stating a counterclaim against the relevant Pirelli parties for a declaratory
judgment finding the Pirelli patents invalid and/or not infringed. Following the
filing of

F-17
80

CIENA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(15) EVENTS (UNAUDITED) SUBSEQUENT TO DATE OF ACCOUNTANTS'
REPORT -- (CONTINUED)
the Company's answer, Pirelli dedicated to the public and withdrew from the
lawsuit all infringement claims relating to one of the five patents.

Discovery proceedings are ongoing, and are currently expected to be
completed by September 30, 1997, with trial expected no earlier than February
1998.

On March 14, 1997, the Company filed suit against Pirelli in U.S. District
Court in the Eastern District of Virginia, alleging willful infringement by
Pirelli of three U.S. patents held or co-owned by the Company. The lawsuit seeks
treble damages, attorneys' fees and costs, as well as permanent injunctive
relief against the alleged infringement. The patents at issue relate to certain
of Pirelli's cable television equipment, to Pirelli's 4 and 8 channel WDM
systems, and to certain Pirelli fiberoptic communications equipment announced by
Pirelli in January 1997 as being deployed in a field trial. Pirelli's motion to
dismiss or transfer for lack of jurisdiction was denied April 28, 1997.
Discovery proceedings are now ongoing, with trial expected by January 1998.

The Company continues to believe its MultiWave(TM) 1600 system does not
infringe any claim of the four remaining Pirelli patents, and believes certain
claims of the Pirelli patents may be invalid. The Company intends to defend
itself vigorously, and is planning on all litigation proceeding through trial.
In light of the complexity and likely time-consuming nature of the litigation,
including the Company's counterclaim, the ITC proceeding, and the Company's
patent infringement lawsuit against Pirelli in the Eastern District of Virginia,
the Company accrued during the first fiscal quarter of 1997 approximately $5.0
million in estimated legal and related costs associated with these proceedings.
While the Company believes its estimate of legal and related costs is adequate
based on its current understanding of the overall facts and circumstances, the
estimate may be increased later in the fiscal year depending on the course of
the legal proceedings.

The Company expects that the Pirelli proceedings will not only be costly
but will also involve a substantial diversion of the time and attention of some
members of management. Further, the Company believes Pirelli and other
competitors have used the existence of the Delaware litigation to raise
questions in customers' and potential customers' minds as to the Company's
ability to manufacture and deliver the MultiWave(TM) 1600 system. There can be
no assurance that such efforts by Pirelli and others will not disrupt the
Company's existing and prospective customer relationships.

There can be no assurance that the Company will be successful in the
Pirelli litigation, and an adverse determination in the Delaware court could
result from a finding of infringement of only one claim of a single patent. The
Company may consider settlement due to the costs and uncertainties associated
with litigation in general and patent infringement litigation in particular and
due to the fact that an adverse determination in the litigation could preclude
the Company from producing the MultiWave(TM) 1600 system until it were able to
implement a non-infringing alternative design to any portion of the system to
which such a determination applied. There can be no assurance that any
settlement will be reached by the parties. An adverse determination in, or
settlement of, the Pirelli litigation could involve the payment of significant
amounts, or could include terms in addition to such

F-18
81

CIENA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(15) EVENTS (UNAUDITED) SUBSEQUENT TO DATE OF ACCOUNTANTS'
REPORT -- (CONTINUED)

payments, which could have a material adverse effect on the Company's business,
financial condition and results of operations.

With respect to the suit filed in November 1996 by a stockholder and
entities controlled by that stockholder disclosed in Note 13, on January 6,
1997, the Company filed its answer to the plaintiffs' complaint, and filed a
counterclaim for rescission of the sale of the shares of Series C Preferred
Stock purchased by the plaintiffs in the Series C financing. The plaintiffs
amended their complaint in May 1997, alleging that the same facts and conduct
with respect to the private placement of Series C Preferred Stock represent a
violation of federal insider trading laws.

The number of shares to be purchased by each party to the Series C
Preferred Stock financing was communicated in writing to the plaintiffs in
December 1995 prior to the Series C closing. Further, as permitted under the
Series B Preferred Stock Purchase Agreement, the Series C Preferred Stock
Purchase Agreement expressly stated that all rights of first refusal referred to
in the lawsuit were waived. The required number of Series B investors, including
the plaintiffs, signed the Series C Preferred Stock Purchase Agreement
containing that waiver. In July 1996, the plaintiffs reaffirmed to the Company
in writing that their beneficial ownership of shares did not include any shares
which they have subsequently claimed in the lawsuit they were entitled to
purchase. Discovery proceedings are ongoing.

License Agreement

On March 10, 1997, the Company entered into an agreement with the licensor
discussed in Note 11 pursuant to which the Company is a co-owner with the
licensor of a portfolio of 27 United States and foreign patents relating to
optical communications, primarily for video-on-demand applications.

Notes Payable

In April 1997, the Company repaid in full the notes described in Note 7.

Operating Lease Commitments

In March 1997, the Company entered to an agreement to lease an additional
facility of approximately 57,000 square feet in Linthicum, Maryland. The lease
term is five years with a minimum lease obligation of approximately $663,000 per
year.

Legal and Related Costs

Included in general and administrative expenses for the six months ended
April 30, 1997, is an accrual of approximately $5.0 million representing
management's estimate of certain legal and related costs associated with the
Company's defense of pending litigation, of which an accrued liability of
approximately $4.6 million remains as of April 30, 1997.

Stockholders' Equity

The Company completed its initial public offering of 5,750,000 shares,
inclusive of 750,000 shares from the exercise of the underwriters'
over-allotment option, at a price of $23 per share on February 7, 1997. As a
result of the initial public offering, all shares of Convertible Preferred Stock
converted into 73,315,740 shares of Common Stock and warrants to purchase
300,000 shares of Convertible Preferred Stock were exercised and converted into
1,500,000 shares of Common Stock. Net proceeds from the offering were
approximately $121.8 million with an

F-19
82

CIENA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(15) EVENTS (UNAUDITED) SUBSEQUENT TO DATE OF ACCOUNTANTS'
REPORT -- (CONTINUED)

additional $0.6 million received from the exercise of certain outstanding
warrants. As of April 30, 1997, the Company's income taxes currently payable for
both federal and state purposes have been reduced by a tax benefit of
approximately $17.6 million resulting from exercises of certain stock warrants,
which amount has been credited directly to long-term deferred income taxes.

F-20
83

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Stockholders have agreed to sell to each of the U.S.
Underwriters named below, and each of such U.S. Underwriters, for whom Goldman,
Sachs & Co., Alex. Brown & Sons Incorporated and Wessels, Arnold & Henderson,
L.L.C. are acting as representatives, has severally agreed to purchase from the
Company and the Selling Stockholders, the respective number of shares of Common
Stock set forth opposite its name below:

NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
-------------------------------------------------------------- ------------

Goldman, Sachs & Co. .........................................
Alex. Brown & Sons Incorporated...............................
Wessels, Arnold & Henderson, L.L.C. ..........................
------------
Total...............................................
============

Under the terms and conditions of the Underwriting Agreement, the U.S.
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.

The U.S. Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at such
price less a concession of $ per share. The U.S. Underwriters may
allow, and such dealers may reallow, a concession not in excess of $
per share to certain brokers and dealers. After the shares of Common Stock are
released for sale to the public, the offering price and other selling terms may
from time to time be varied by the representatives.

The Company and the Selling Stockholders have entered into an underwriting
agreement (the "International Underwriting Agreement") with the underwriters of
the international offering (the "International Underwriters") providing for the
concurrent offer and sale of shares of Common Stock in an
international offering outside the United States. The offering price and
aggregate underwriting discounts and commissions per share for the two offerings
are identical. The closing of the offering made hereby is a condition to the
closing of the international offering, and vice versa. The International
Underwriters are Goldman Sachs International, Alex. Brown & Sons Incorporated
and Wessels, Arnold & Henderson, L.L.C.

Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the two offerings, each of the
U.S. Underwriters named herein has agreed that, as a part of the distribution of
the shares offered hereby and subject to certain exceptions, it will offer, sell
or deliver the shares of Common Stock, directly or indirectly, only in the
United States of America (including the States and the District of Columbia),
its territories, its possessions and other areas subject to its jurisdiction
(the "United States") and to U.S. persons, which term shall mean, for purposes
of this paragraph: (a) any individual who is a resident of the United States or
(b) any corporation, partnership or other entity organized in or under the laws
of the United States or any political subdivision thereof and whose office most
directly involved with the purchase is located in the United States. Each of the
International Underwriters has agreed pursuant to the Agreement Between that, as
part of the distribution of the shares offered as a part of the international
offering, and subject to certain exceptions, it will (i) not, directly or
indirectly, offer, sell or deliver shares of Common Stock (a) in the United
States or to any U.S. persons or (b) to any person whom it believes intends to
reoffer, resell or deliver the shares in the United States or to any U.S.
persons, and (ii) cause any dealer to whom it may sell such shares at any
concession to agree to observe a similar restriction.

Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
Common Stock as may be mutually

U-1
84

agreed. The price of any shares so sold shall be the initial public offering
price, less an amount not greater than the selling concession.

The Company and the Selling Stockholders have granted the U.S. Underwriters
an option exercisable for 30 days after the date of this Prospectus to purchase
up to an aggregate of additional shares of Common Stock solely to
cover over-allotments, if any. If the U.S. Underwriters exercise their
over-allotment option, the U.S. Underwriters have severally agreed, subject to
certain conditions, to purchase approximately the same percentage thereof that
the number of shares to be purchased by each of them, as shown in the foregoing
table, bears to the shares of Common Stock offered. The Company and
the Selling Stockholders have granted the International Underwriters a similar
option to purchase up to an aggregate of additional shares of Common
Stock.

The Company and the Selling Stockholders have agreed that, during the
period beginning from the date of this Prospectus and continuing to and
including the date days after the date of the Prospectus, they will not
offer, sell, contract to sell or otherwise dispose of any securities of the
Company (other than pursuant to employee stock option plans existing, or on the
conversion or exchange of convertible or exchangeable securities outstanding, on
the date of this Prospectus) which are substantially similar to the shares of
the Common Stock or which are convertible into or exchangeable for securities
which are substantially similar to the shares of Common Stock without the prior
written consent of the Representatives, except for the shares of Common Stock
offered in connection with the concurrent U.S. and international offerings.
Stockholders owning approximately shares are subject to lock-up agreements
which expire on August 7, 1997.

In addition, approximately 211,000 shares of Common Stock held by NISSHO
Electronics Corporation ("NISSHO") and certain of its affiliates (together with
NISSHO, the "NISSHO Entities") are subject to a lock-up agreement whereby NISSHO
has agreed not to sell 105,500 shares until after August 7, 1997 and the
remaining 105,500 shares until after August 7, 1998. NISSHO is a distributor for
the Company in Japan.

In connection with the offering, the Underwriters may purchase and sell the
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions, "passive" market making (see below) and purchases
to cover syndicate short positions created in connection with the offering.
Stabilizing transactions consist of certain bids or purchases for the purpose of
preventing or retarding a decline in the market price of the Common Stock; and
syndicate short positions involve the sale by the Underwriters of a greater
number of shares of Common Stock than they are required to purchase from the
Company in the offering. The Underwriters also may impose a penalty bid, whereby
selling concessions allowed to syndicate members or other broker-dealers in
respect of the securities sold in the offering for their account may be
reclaimed by the syndicate if such shares of Common Stock are repurchased by the
syndicate in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Common Stock,
which may be higher than the price that might otherwise prevail in the open
market; and these activities, if commenced, may be discontinued at any time.
These transactions may be effected on the Nasdaq National Market in the
over-the-counter market or otherwise.

As permitted by Rule 103 under the Exchange Act, certain Underwriters (and
selling group members, if any) that are market makers ("passive market makers")
in the Common Stock may make bids for or purchases of the Common Stock in the
Nasdaq National Market until such time, if any, when a stabilizing bid for such
securities has been made. Rule 103 generally provides that (1) a passive market
maker's net daily purchases of the Common Stock may not exceed 30% of its
average daily trading volume in such securities for the two full consecutive
calendar months (or any 60 consecutive days ending within the 10 days)
immediately preceding the filing date of the registration statement of which
this Prospectus forms a part, (2) a passive market maker may not effect
transactions or display bids for the Common Stock at a price that exceeds the
highest

U-2
85

independent bid for the Common Stock by persons who are not passive market
makers and (3) bids made by passive market makers must be identified as such.

The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.

U-3
86

[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Stockholders have agreed to sell to each of the
International Underwriters named below, and each of such International
Underwriters has severally agreed to purchase from the Company and the Selling
Stockholders the respective number of shares of Common Stock set forth opposite
its name below:

NUMBER OF
SHARES OF
UNDERWRITERS COMMON STOCK
- ------------------------------------------------------------------------------ ------------

Goldman Sachs International...................................................
Alex. Brown & Sons Incorporated...............................................
Wessels, Arnold & Henderson, L.L.C. ..........................................
---------
Total...............................................................
=========

Under the terms and conditions of the Underwriting Agreement, the
International Underwriters are committed to take and pay for all of the shares
offered hereby, if any are taken.

The International Underwriters propose to offer the shares of Common Stock
in part directly to the public at the initial public offering price set forth on
the cover page of this Prospectus and in part to certain securities dealers at
such price less a concession of $ per share. The International
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $ per share to certain brokers and dealers. After the shares of
Common Stock are released for sale to the public, the offering price and other
selling terms may from time to time be varied by the representatives.

The Company and the Selling Stockholders have entered into an underwriting
agreement (the "U.S. Underwriting Agreement") with the underwriters of the U.S.
offering (the "U.S. Underwriters") providing for the concurrent offer and sale
of shares of Common Stock in a U.S. offering in the United States. The
offering price and aggregate underwriting discounts and commissions per share
for the two offerings are identical. The closing of the offering made hereby is
a condition to the closing of the U.S. offering, and vice versa. The
representatives of the U.S. Underwriters are Goldman, Sachs & Co., Alex. Brown &
Sons Incorporated and Wessels, Arnold & Henderson, L.L.C.

Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the two offerings, each of the
U.S. Underwriters named herein has agreed that, as a part of the distribution of
the shares offered hereby and subject to certain exceptions, it will offer, sell
or deliver the shares of Common Stock, directly or indirectly, only in the
United States of America (including the States and the District of Columbia),
its territories, its possessions and other areas subject to its jurisdiction
(the "United States") and to U.S. persons, which term shall mean, for purposes
of this paragraph: (a) any individual who is a resident of the United States or
(b) any corporation, partnership or other entity organized in or under the laws
of the United States or any political subdivision thereof and whose office most
directly involved with the purchase is located in the United States. Each of the
International Underwriters named herein has agreed pursuant to the Agreement
Between that, as apart of the distribution of the shares offered as a part of
the international offering, and subject to certain exceptions, it will (i) not,
directly or indirectly, offer, sell or deliver shares of Common Stock (a) in the
United States or to any United States persons or (b) to any person who it
believes intends to reoffer, resell or deliver the shares in the U.S. or to any
U.S. persons, and (ii) cause any dealer to whom it may sell such shares at any
concession to agree to observe a similar restriction.

U-1
87

[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]

Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
Common Stock as may be mutually agreed. The price of any shares so sold shall be
the initial public offering price, less an amount not greater than the selling
concession.

The Company and the Selling Stockholders have granted the International
Underwriters an option exercisable for 30 days after the date of this Prospectus
to purchase up to an aggregate of additional shares of Common Stock
solely to cover over-allotments, if any. If the International Underwriters
exercise their over-allotment option, the International Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them, as shown in the foregoing table, bears to the 1,000,000 shares of Common
Stock offered hereby. The Company and the Selling Stockholders have granted the
U.S. Underwriters a similar option to purchase up to an aggregate of
additional shares of Common Stock.

The Company and the Selling Stockholders have agreed that, during the
period beginning from the date of this Prospectus and continuing to and
including the date 90 days after the date of the Prospectus, they will not
offer, sell, contract to sell or otherwise dispose of any securities of the
Company (other than pursuant to employee stock option plans existing, or on the
conversion or exchange of convertible or exchangeable securities outstanding, on
the date of this Prospectus) which are substantially similar to the shares of
the Common Stock or which are convertible into or exchangeable for securities
which are substantially similar to the shares of Common Stock without the prior
written consent of the Representatives, except for the shares of Common Stock
offered in connection with the concurrent U.S. and international offerings.
Stockholders owning approximately shares are subject to lock-up
agreements which expire on August 7, 1997.

Each International Underwriter has also agreed that (a) it has not offered
or sold and prior to the date six months after the date of issue of the shares
of Common Stock will not offer or sell any shares of Common Stock to persons in
the United Kingdom except to those persons whose ordinary activities involve
them in acquiring, holding, managing or disposing of investments (as principal
or agent) for the purposes of their businesses or otherwise in circumstances
which have not resulted and will not result in an offer to the public in the
United Kingdom within the meaning of the Public Offers of Securities Regulations
1995, (b) it has complied, and will comply, with all applicable provisions of
the Financial Services Act of 1986 of Great Britain with respect to anything
done by it in relation to the shares of Common Stock in, from or otherwise
involving the United Kingdom, and (c) it has only issued or passed on and will
only issue or pass on in the United Kingdom any document received by it in
connection with the issuance of the shares of Common Stock to a person who is of
a kind described in Article 11(3) of the Financial Services Act of 1986
(Investment Advertisements) (Exemptions) Order 1996 of Great Britain or is a
person to whom the document may otherwise lawfully be issued or passed on.

Buyers of shares of Common Stock offered hereby may be required to pay
stamp taxes and other charges in accordance with the laws and practices of the
country of purchase in addition to the initial public offering price.

U-2
88

[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]

connection with the offering. Stabilizing transactions consist of certain bids
or purchases for the purpose of preventing or retarding a decline in the market
price of the Common Stock; and syndicate short positions involve the sale by the
Underwriters of a greater number of shares of Common Stock than they are
required to purchase from the Company in the offering. The Underwriters also may
impose a penalty bid, whereby selling concessions allowed to syndicate members
or other broker-dealers in respect of the securities sold in the offering for
their account may be reclaimed by the syndicate if such shares of Common Stock
are repurchased by the syndicate in stabilizing or covering transactions. These
activities may stabilize, maintain or otherwise affect the market price of the
Common Stock, which may be higher than the price that might otherwise prevail in
the open market; and these activities, if commenced, may be discontinued at any
time. These transactions may be effected on the Nasdaq National Market in the
over-the-counter market or otherwise.

The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.

U-3
89

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

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS 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. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS 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 ITS DATE.

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

TABLE OF CONTENTS

PAGE
----

Prospectus Summary....................... 3
Risk Factors............................. 6
Use of Proceeds.......................... 16
Price Range of Common Stock.............. 16
Dividend Policy.......................... 16
Capitalization........................... 17
Selected Consolidated Financial Data..... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 19
Business................................. 24
Management............................... 41
Certain Transactions..................... 50
Principal and Selling Stockholders....... 52
Description of Capital Stock............. 55
Certain U.S. Tax Considerations
Applicable to Non-U.S. Holders of the
Common Stock........................... 56
Legal Matters............................ 58
Experts.................................. 58
Index to Financial Statements............ F-1
Underwriting............................. U-1

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

10,000,000 SHARES

CIENA CORPORATION

COMMON STOCK
(PAR VALUE $.01 PER SHARE)

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

[CIENA LOGO]

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

GOLDMAN, SACHS & CO.

ALEX. BROWN & SONS
INCORPORATED

WESSELS, ARNOLD & HENDERSON

REPRESENTATIVES OF THE UNDERWRITERS
================================================================================
90

[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]

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

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

TABLE OF CONTENTS

PAGE
----

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

10,000,000 SHARES

CIENA CORPORATION

COMMON STOCK
(PAR VALUE $.01 PER SHARE)

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

LOGO

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

GOLDMAN SACHS INTERNATIONAL

ALEX. BROWN & SONS
INTERNATIONAL

WESSELS, ARNOLD & HENDERSON

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

- ----------------------------------------------------------
91

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth all fees and expenses, other than the
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of the Common Stock being registered. All amounts shown are
estimates except for the SEC registration fee and the NASD filing fee.

SEC registration fee............................................. $150,720
NASD filing fee.................................................. 35,000
Nasdaq National Market listing fee............................... 10,000
Blue sky qualification fees and expenses......................... 1,000
Printing and engraving expenses.................................. 175,000
Legal fees and expenses.......................................... 200,000
Accounting fees and expenses..................................... 150,000
Transfer agent and registrar fees................................ 50,000
Miscellaneous.................................................... 78,280
----------
Total....................................................... $850,000
==========

ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS

Section 145 of the Delaware General Corporation Law permits indemnification
of officers, directors and other corporate agents under certain circumstances
and subject to certain limitations. The Registrant's Third Amended and Restated
Certificate of Incorporation and bylaws provide that the Registrant shall
indemnify its directors, officers, employees and agents to the full extent
permitted by Delaware General Corporation Law, including in circumstances in
which indemnification is otherwise discretionary under Delaware law. In
addition, the Registrant has entered into separate indemnification agreements
with its directors, officers and certain employees which require the Registrant,
among other things, to indemnify them against certain liabilities which may
arise by reason of their status or service (other than liabilities arising from
willful misconduct of a culpable nature) and to maintain directors' and
officers' liability insurance, if available on reasonable terms. The Registrant
intends to obtain directors' and officers' liability insurance with up to $10
million coverage per occurrence.

These indemnification provisions and the indemnification agreement to be
entered into between the Registrant and its officers and directors may be
sufficiently broad to permit indemnification of the Registrant's officers and
directors for liabilities (including reimbursement of expenses incurred) arising
under the Securities Act.

The Underwriting Agreements filed as Exhibits 1.1 and 1.2 to this
Registration Statement provide for indemnification by the Underwriters of the
Registrant and its officers and directors for certain liabilities arising under
the Securities Act, or otherwise.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Since December 1993, the Registrant has sold and issued the following
unregistered securities (stated after giving effect to a 1,333.33-for-1 stock
split in April 1994 and a five-for-one stock split effective on December 9,
1996).

(1) In April 1994, the Registrant sold 3,332,520 shares of Series A Preferred
Stock for an aggregate price of $3,332,520.

II-1
92

(2) In April 1994, the Registrant sold 3,500,000 shares of Common Stock for an
aggregate price of $70,000.

(3) In August 1994, the Registrant sold 210,000 shares of Series A Preferred
Stock for an aggregate price of $210,000.

(4) In October 1994, the Registrant sold 250,000 shares of Common Stock for an
aggregate price of $5,000.

(5) In December 1994, the Registrant sold 1,075,000 shares of Common Stock upon
exercise of a warrant for an aggregate price of $21,500.

(6) In December 1994, the Registrant sold 7,354,092 shares of Series B
Preferred Stock for an aggregate price of $11,031,138.

(7) In December 1995, the Registrant sold 3,718,899 shares of Series C
Preferred Stock for an aggregate price of $26,032,293.

(8) In December 1995, the Registrant sold 33,335 shares of Common Stock upon
exercise of a warrant for an aggregate price of $3,300.

(9) In January 1996, the Registrant sold 643,090 shares of Common Stock upon
exercise of a warrant granted in consideration for the license of certain
technologies.

(10) In September 1996, the Registrant sold 23,789 shares of Series A Preferred
Stock upon a cashless exercise of a warrant.

(11) In September 1996, the Registrant sold 23,848 shares of Series A Preferred
Stock upon a cashless exercise of a warrant.

(12) From December 1, 1993 through October 31, 1996, the Registrant sold an
aggregate of 623,495 shares for an aggregate consideration of $82,268 upon
exercise of stock options granted pursuant to the Registrant's Amended and
Restated 1994 Stock Option Plan.

(13) From November 1, 1996 through April 30, 1997, the Registrant sold an
aggregate of 1,887,650 shares for an aggregate of $116,665.50 upon exercise
of stock options granted pursuant to the Registrant's Amended and Restated
1994 Stock Option Plan. On February 12, 1997, the Company issued 73,315,740
shares of the Company's Common Stock upon conversion of outstanding
Convertible Preferred Stock and issued shares upon exercise of certain
outstanding warrants. On February 22, 1997, the Company issued 596,883
shares upon the cashless exercise of an outstanding warrant. The Registrant
relied upon the exemptions from registration contained in Section 3(a)(9)
and 4(2) of the Securities Act.

(14) The issuances described above were deemed to be exempt from registration
under the Securities Act in reliance on Section 4(2) of the Securities Act
as transactions by an issuer not involving a public offering. In addition,
certain issuances described in Paragraph 13 were deemed exempt from
registration under the Securities Act in reliance on Rule 701 promulgated
thereunder as transactions pursuant to compensatory benefit plans and
contracts relating to compensation. The recipients of securities in each
such transaction represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates and other instruments issued in such transactions. All
recipients either received adequate information about the Registrant or had
access, through employment or other relationships, to such information.

II-2
93

ITEM 16. EXHIBITS

(a) Exhibits.

EXHIBIT
NUMBER DESCRIPTION
- -------- ----------------------------------------------------------------------------------

1.1 Form of U.S. Underwriting Agreement
1.2 Form of International Underwriting Agreement
1.3* Letter Agreement between Goldman Sachs & Co. and the Company
3.1* Certificate of Amendment to Third Restated Certificate of Incorporation
3.2* Third Restated Certificate of Incorporation
3.3* Amended and Restated Bylaws
4.1* Specimen Stock Certificate
5.1** Opinion of Hogan & Hartson L.L.P.
10.1* Form of Indemnification Agreement for Directors and Officers
10.2* Amended and Restated 1994 Stock Option Plan
10.3* Form of Employee Stock Option Agreements
10.4* 1996 Outside Directors Stock Option Plan
10.5* Forms of 1996 Outside Directors Stock Option Agreement
10.6* Series C Preferred Stock Purchase Agreement dated December 20, 1995
10.7* Lease Agreement dated October 5, 1995 between the Company and CS Corridor-32
Limited Partnership
10.8+* Purchase Agreement Between Sprint/United Management Company and the Company dated
December 14, 1995
10.9+* Basic Purchase Agreement between WorldCom Network Services, Inc. and the Company
dated September 19, 1996
10.10* Settlement Agreement and Mutual Release, between the Company and William K.
Woodruff & Company, dated August 26, 1996
10.11* Warrant, dated August 21, 1996, granted by the Company to William K. Woodruff &
Company
10.13* Employment Agreement dated April 9, 1994 between the Company and Patrick Nettles
10.14* Lease Agreement dated November 1, 1996 by and between the Company and Aetna Life
Insurance Company
10.15* Revolving Note and Business Loan Agreement dated November 25, 1996 between the
Company and Mercantile-Safe Deposit & Trust Company
10.16+* First Addendum to Procurement Agreement between the Registrant and Sprint/United
Management Company dated December 19, 1996
11.1*** Statement of Computation of Per Share Earnings
21** Subsidiaries of registrant
23.1** Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1)
23.2 Consent of Independent Accountants
24*** Power of Attorney

- ---------------
* Incorporated by reference from the Company's Registration Statement on Form
S-1 (333-17729).

** To be filed by amendment.

*** Previously filed.

+ Confidential treatment has been granted by the Commission with respect to
certain portions of these exhibits. The confidential portions have been
filed separately with the Securities and Exchange Commission.

(b) Financial Statement Schedules.

Schedules have been omitted because the information required to be set
forth therein is not applicable or is shown in the financial statements or notes
thereto.

II-3
94

ITEM 17. UNDERTAKINGS

The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreements certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement 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 hereunder, 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 that:

(1) 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

(2) 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 the time shall be
deemed to be the initial bona fide offering thereof.

II-4
95

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 the City of Linthicum, County of Anne
Arundel, State of Maryland, on the 12th day of June 1997.

CIENA CORPORATION

By: /s/ Patrick H. Nettles
-----------------------------------
Patrick H. Nettles
President, Chief Executive Officer
and Director

Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
date indicated.

SIGNATURES TITLE DATE
- ---------------------------------------- ----------------------------------- --------------

/s/ Patrick H. Nettles President, Chief Executive Officer June 12, 1997
- ---------------------------------------- and Director
Patrick H. Nettles (Principal Executive Officer)

* Vice President, Finance and June 12, 1997
- ---------------------------------------- Chief Financial Officer
Joseph R. Chinnici (Principal Financial Officer)

* Controller and Treasurer June 12, 1997
- ---------------------------------------- (Principal Accounting Officer)
Andrew C. Petrik

* Director June 12, 1997
- ----------------------------------------
Jon W. Bayless

* Director June 12, 1997
- ----------------------------------------
Harvey B. Cash

* Director June 12, 1997
- ----------------------------------------
Clifford W. Higgerson

* Director June 12, 1997
- ----------------------------------------
Billy B. Oliver

* Director June 12, 1997
- ----------------------------------------
Michael J. Zak

*By: /s/ G. ERIC GEORGATOS
----------------------------
G. Eric Georgatos
Attorney-in-fact

II-5
96

EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION
- -------- ---------------------------------------------------------------------------------

- ---------------
* Incorporated by reference from the Company's Registration Statement on Form
S-1 (333-17729).

** To be filed by amendment.

*** Previously filed.

   1
                                                                     Exhibit 1.1

                                                                         FORM OF


                                CIENA CORPORATION

                     COMMON STOCK, PAR VALUE $.01 PER SHARE

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

                             UNDERWRITING AGREEMENT
                                 (U.S. VERSION)




                                                         _________________, 1997

Goldman, Sachs & Co.,
Alex. Brown & Sons Incorporated,
Wessels, Arnold & Henderson, L.L.C.,
  As representatives of the several
   Underwriters named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004.

Ladies and Gentlemen:

        CIENA Corporation, a Delaware corporation (the "Company"), proposes,
subject to the terms and conditions stated herein, to issue and sell to the
Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of
800,000 shares and, at the election of the Underwriters, up to 120,000
additional shares of Common Stock, par value $.01 per share ("Stock") of the
Company and the stockholders of the Company named in Schedule II hereto (the
"Selling Stockholders") propose, subject to the terms and conditions stated
herein, to sell to the Underwriters an aggregate of 7,200,000 shares and, at the
election to the Underwriters, up to 1,080,000 additional shares of Stock. The
aggregate of 8,000,000 shares to be sold by the Company and the Selling
Stockholders is herein called the "Firm Shares" and the aggregate of 1,200,000
additional shares to be sold by the Company and the Selling Stockholders is
herein called the "Optional Shares". The Firm Shares and the Optional Shares
that the Underwriters elect to purchase pursuant to Section 2 hereof are herein
collectively called the "Shares".

        It is understood and agreed to by all parties that the Company and the
Selling Stockholders are concurrently entering into an agreement (the
"International Underwriting Agreement") providing for the sale by the Company
and the Selling Stockholders of up to a


                                       -1-
   2
total of _________________ shares of Stock (the "International Shares"),
including the overallotment option thereunder, through arrangements with certain
underwriters outside the United States (the "International Underwriters"), for
whom Goldman Sachs International, Alex. Brown & Sons Incorporated and Wessels,
Arnold & Henderson, L.L.C. are acting as lead managers. Anything herein or
therein to the contrary notwithstanding, the respective closings under this
Agreement and the International Underwriting Agreement are hereby expressly made
conditional on one another. The Underwriters hereunder and the International
Underwriters are simultaneously entering into an Agreement between U.S. and
International Underwriting Syndicates (the "Agreement between Syndicates") which
provides, among other things, for the transfer of shares of Stock between the
two syndicates. Two forms of prospectus are to be used in connection with the
offering and sale of shares of Stock contemplated by the foregoing, one relating
to the Shares hereunder and the other relating to the International Shares. The
latter form of prospectus will be identical to the former except for certain
substitute pages. Except as used in Sections 2, 3, 4, 9 and 11 herein, and
except as the context may otherwise require, references hereinafter to the
Shares shall include all the shares of Stock which may be sold pursuant to
either this Agreement or the International Underwriting Agreement, and
references herein to any prospectus whether in preliminary or final form, and
whether as amended or supplemented, shall include both the U.S. and the
international versions thereof.

        1. (a)The Company and each Selling Stockholder listed in Annex III
        attached hereto jointly and severally represent and warrant to, and
        agree with, each of the Underwriters that:

                        (i) A registration statement on Form S-1 (File No.
                333-_________) (the "Initial Registration Statement") in respect
                of the Shares has been filed with the Securities and Exchange
                Commission (the "Commission"); the Initial Registration
                Statement and any post-effective amendment thereto, each in the
                form heretofore delivered to you, and, excluding exhibits
                thereto, to you for each of the other Underwriters, have been
                declared effective by the Commission in such form; other than a
                registration statement, if any, increasing the size of the
                offering (a "Rule 462(b) Registration Statement"), filed
                pursuant to Rule 462(b) under the Securities Act of 1933, as
                amended (the "Act"), which will become effective upon filing, no
                other document with respect to the Initial Registration
                Statement has heretofore been filed with the Commission; and no
                stop order suspending the effectiveness of the Initial
                Registration Statement, any post-effective amendment thereto or
                the Rule 462(b) Registration Statement, if any, has been issued
                and no proceeding for that purpose has been initiated or
                threatened by the Commission (any preliminary prospectus
                included in the Initial Registration Statement or filed with the
                Commission pursuant to Rule 424(a) of the rules and regulations
                of the Commission under the Act, is hereinafter called a
                "Preliminary Prospectus"; the various parts of the Initial
                Registration Statement and the Rule 462(b) Registration
                Statement, if any, including all exhibits thereto and including
                the information contained in the form of final prospectus filed
                with the Commission pursuant to Rule 424(b) under the Act in
                accordance with Section 5(a) hereof and deemed by virtue of Rule
                430A under the Act to be part of the Initial Registration
                Statement at the


                                       -2-
   3
                time it was declared effective, each as amended at the time such
                part of the registration statement became effective or such part
                of the Rule 462(b) Registration Statement, if any, became or
                hereafter becomes effective, are hereinafter collectively called
                the "Registration Statement"; and such final prospectus, in the
                form first filed pursuant to Rule 424(b) under the Act, is
                hereinafter called the "Prospectus.")

                        (ii) No order preventing or suspending the use of any
                Preliminary Prospectus has been issued by the Commission, and
                each Preliminary Prospectus, at the time of filing thereof,
                conformed in all material respects to the requirements of the
                Act and the rules and regulations of the Commission thereunder,
                and did not contain an untrue statement of a material fact or
                omit to state a material fact required to be stated therein or
                necessary to make the statements therein, in the light of the
                circumstances under which they were made, not misleading;
                provided, however, that this representation and warranty shall
                not apply to any statements or omissions made in reliance upon
                and in conformity with information furnished in writing to the
                Company by an Underwriter through Goldman, Sachs & Co. expressly
                for use therein or by a Selling Stockholder expressly for use in
                the preparation of the answers therein to Items 7 and 11(l) of
                Form S-1;

                        (iii) The Registration Statement conforms, and the
                Prospectus and any further amendments or supplements to the
                Registration Statement or the Prospectus will conform, in all
                material respects to the requirements of the Act and the rules
                and regulations of the Commission thereunder and do not and will
                not, as of the applicable effective date as to the Registration
                Statement and any amendment thereto and as of the applicable
                filing date as to the Prospectus and any amendment or supplement
                thereto, contain an untrue statement of a material fact or omit
                to state a material fact required to be stated therein or
                necessary to make the statements therein not misleading;
                provided, however, that this representation and warranty shall
                not apply to any statements or omissions made in reliance upon
                and in conformity with information furnished in writing to the
                Company by an Underwriter through Goldman, Sachs & Co. expressly
                for use therein or by a Selling Stockholder expressly for use in
                the preparation of the answers therein to Items 7 and 11(l) of
                Form S-1;

                        (iv) Neither the Company nor any of its subsidiaries has
                sustained since the date of the latest audited financial
                statements included in the Prospectus any material loss or
                interference with its business from fire, explosion, flood or
                other calamity, whether or not covered by insurance, or from any
                labor dispute or court or governmental action, order or decree,
                otherwise than as set forth or contemplated in the Prospectus;
                and, since the respective dates as of which information is given
                in the Registration Statement and the Prospectus, there has not
                been any change in the capital stock or long-term debt of the
                Company or any of its subsidiaries or any material adverse
                change, or any development reasonably likely to result in a
                prospective material adverse change, in or affecting the general
                affairs, management, financial position,


                                       -3-
   4
                stockholders' equity or results of operations of the Company and
                its subsidiaries, otherwise than as set forth or contemplated in
                the Prospectus;

                        (v) The Company and its subsidiaries have good and
                marketable title in fee simple to all real property and good and
                marketable title to all personal property owned by them, in each
                case free and clear of all liens, encumbrances and defects
                except such as are described in the Prospectus or such as do not
                materially affect the value of such property and do not
                interfere with the use made and proposed to be made of such
                property by the Company and its subsidiaries; and any real
                property and buildings held under lease by the Company and its
                subsidiaries are held by them under valid leases with such
                exceptions as are not material and do not interfere with the use
                made and proposed to be made of such property and buildings by
                the Company and its subsidiaries;

                        (vi) The Company has been duly incorporated and is
                validly existing as a corporation in good standing under the
                laws of the State of Delaware, with power and authority
                (corporate and other) to own its properties and conduct its
                business as described in the Prospectus, and has been duly
                qualified as a foreign corporation for the transaction of
                business and is in good standing under the laws of each other
                jurisdiction in which it owns or leases properties or conducts
                any business so as to require such qualification, or is subject
                to no material liability or disability by reason of the failure
                to be so qualified in any such jurisdiction; and each subsidiary
                of the Company has been duly incorporated and is validly
                existing as a corporation in good standing under the laws of its
                jurisdiction of incorporation;

                        (vii) The Company has an authorized capitalization as
                set forth in the Prospectus, and all of the issued shares of
                capital stock of the Company have been duly and validly
                authorized and issued, are fully paid and non-assessable and
                conform to the description of the Stock contained in the
                Prospectus; and all of the issued shares of capital stock of
                each subsidiary of the Company have been duly and validly
                authorized and issued, are fully paid and non-assessable and
                conform to the description of the Stock contained in the
                Prospectus;

                        (viii) The Shares to be issued and sold by the Company
                to the Underwriters hereunder and under the International
                Underwriting Agreement have been duly and validly authorized
                and, when issued and delivered against payment therefor as
                provided herein, will be duly and validly issued and fully paid
                and non-assessable and will conform to the description of the
                Stock contained in the Prospectus;

                        (ix) The issue and sale of the Shares to be sold by the
                Company hereunder and under the International Underwriting
                Agreement and the compliance by the Company with all of the
                provisions of this Agreement and the International Underwriting
                Agreement and the consummation of the transactions herein and
                therein contemplated will not conflict with or result in a
                breach or


                                       -4-
   5
                violation of any of the terms or provisions of, or constitute a
                default under, any indenture, mortgage, deed of trust, loan
                agreement or other agreement or instrument to which the Company
                or any of its subsidiaries is a party or by which the Company or
                any of its subsidiaries is bound or to which any of the property
                or assets of the Company or any of its subsidiaries is subject,
                nor will such action result in any violation of the provisions
                of the Certificate of Incorporation or By-laws of the Company or
                any of its subsidiaries or any statute or any order, rule or
                regulation of any court or governmental agency or body having
                jurisdiction over the Company or any of its subsidiaries or any
                of their properties; and no consent, approval, authorization,
                order, registration or qualification of or with any such court
                or governmental agency or body is required for the issue and
                sale of the Shares or the consummation by the Company of the
                transactions contemplated by this Agreement and the
                International Underwriting Agreement, except the registration
                under the Act of the Shares and such consents, approvals,
                authorizations, registrations or qualifications as may be
                required under state or foreign securities or Blue Sky laws in
                connection with the purchase and distribution of the Shares by
                the Underwriters and the International Underwriters;

                        (x) Neither the Company nor any of its subsidiaries is
                in violation of its Certificate of Incorporation or By-laws or
                in default in the performance or observance of any material
                obligation, agreement, covenant or condition contained in any
                indenture, mortgage, deed of trust, loan agreement lease or
                other agreement or instrument to which it is a party or by which
                it or any of its properties may be bound;

                        (xi) The statements set forth in the Prospectus under
                the caption "Description of Capital Stock", insofar as they
                purport to constitute a summary of the terms of the Stock, are
                accurate and complete in all material respects;

                        (xii) Other than as set forth or contemplated in the
                Prospectus, there are no legal or governmental proceedings
                pending to which the Company or any of its subsidiaries is a
                party or of which any property of the Company or any of its
                subsidiaries is the subject which, if determined adversely to
                the Company or any of its subsidiaries, would individually or in
                the aggregate have a material adverse effect on the current or
                future consolidated financial position, stockholders' equity or
                results of operations of the Company and its subsidiaries; and,
                other than as set forth or contemplated in the Prospectus, to
                the best of the Company's knowledge, no such proceedings are
                threatened or contemplated by governmental authorities or
                threatened by others;

                        (xiii) The Company is not and, after giving effect to
                the offering and sale of the Shares, will not be an "investment
                company" or an entity "controlled" by an "investment company",
                as such terms are defined in the Investment Company Act of 1940,
                as amended (the "Investment Company Act");

                        (xiv) Price Waterhouse LLP, who have certified certain
                financial


                                             -5-
   6
                statements of the Company, are independent public accountants as
                required by the Act and the rules and regulations of the
                Commission thereunder;

                        (xv) Other than as set forth or contemplated in the
                Prospectus, the Company and its subsidiaries have sufficient
                interests or rights in all patents, patent licenses, trademarks,
                servicemarks, trade names, copyrights, trade secrets,
                information proprietary rights and processes ("Intellectual
                Property") necessary for their business as now conducted and, to
                the Company's knowledge, necessary in connection with the
                products and services under development and described in the
                Prospectus, without any conflict with or infringement of the
                interests or rights of others; except as disclosed in the
                Prospectus, the Company is not aware of material outstanding
                options, licenses or agreements of any kind relating to the
                Intellectual Property, and, except as disclosed in the
                Prospectus, neither the Company nor any of its subsidiaries is a
                party to or bound by any options, licenses or agreements with
                respect to the Intellectual Property of any other person or
                entity; none of the technology employed by the Company or any of
                its subsidiaries has been obtained or is being used by the
                Company or its subsidiaries in violation of any contractual
                fiduciary obligation binding on the Company of any of its
                subsidiaries of any of its executive officers or, to the
                Company's knowledge, any of its employees or otherwise in
                violation of the rights of any person; except as disclosed in
                the Prospectus, neither of the Company or any of its
                subsidiaries nor any of its employees have received any written
                or, to the Company's knowledge, oral communications alleging
                that the Company or any of its subsidiaries has violated,
                infringed or conflicted with (and knows of no such violation,
                infringement or conflict) or, by conducting its business as
                proposed, would violate, infringe or conflict with (and knows of
                no such violation, infringement or conflict) any of the
                Intellectual Property of any other person or entity; neither the
                execution nor delivery of this Agreement, nor the operation of
                the Company's business by the employees of the Company, nor the
                operation of the business of any of its subsidiaries, nor the
                conduct of the Company's business as proposed or the business of
                any of its subsidiaries as proposed, will result in a breach or
                violation of the terms, conditions or provisions of, or
                constitute a default under, any material contract, covenant or
                instrument known to the Company under which any of such
                employees is now obligated; and the Company and its subsidiaries
                have taken and will maintain reasonable measures to prevent the
                unauthorized dissemination or publication of their confidential
                information and, to the extent contractually required to do so,
                the confidential information of third parties in their
                possession;

                        (xvi) The Company maintains insurance of the types and
                in the amounts generally deemed adequate for its business,
                including, but not limited to, insurance covering real and
                personal property owned or leased by the Company against theft,
                damage, destruction, acts of vandalism and all other risks
                customarily insured against, all of which insurance is in full
                force and effect;


                                       -6-
   7
                        (xvii) There are no contracts, other documents or other
                agreements required to be described in the Registration
                Statement or to be filed as exhibits to the Registration
                Statement by the Act or by the rules and regulations thereunder
                which have not been described or filed as required; the
                contracts so described in the Prospectus are in full force and
                effect on the date hereof; and neither the Company nor, to the
                best of the Company's knowledge, any other party is in breach of
                or default in any material respect under any of such contracts;
                and

                        (xviii)The Company has not been advised, and has no
                reason to believe, that it is not conducting business in
                compliance with all applicable laws, rules and regulations of
                the jurisdictions in which it is conducting business, including,
                without limitation, all applicable local, state and federal
                environmental laws and regulations; except where failure to be
                so in compliance would not materially adversely affect the
                condition (financial or otherwise), business, results of
                operations or prospects of the Company.

                (b) Each of the Selling Stockholders severally represents and
        warrants to, and agrees with, each of the Underwriters and the Company
        that:

                        (i) All consents, approvals, authorizations and orders
                necessary for the execution and delivery by such Selling
                Stockholder of this Agreement, the International Underwriting
                Agreement, the Power of Attorney and the Custody Agreement
                hereinafter referred to, and for the sale and delivery of the
                Shares to be sold by such Selling Stockholder hereunder and
                under the International Underwriting Agreement, have been
                obtained; and such Selling Stockholder has full right, power and
                authority to enter into this Agreement, the International
                Underwriting Agreement, the Power of Attorney and the Custody
                Agreement and to sell, assign, transfer and deliver the Shares
                to be sold by such Selling Stockholder hereunder and under the
                International Underwriting Agreement;

                        (ii) The sale of the Shares to be sold by such Selling
                Stockholder hereunder and under the International Underwriting
                Agreement and the compliance by such Selling Stockholder with
                all of the provisions of this Agreement, the International
                Underwriting Agreement, the Power of Attorney and the Custody
                Agreement and the consummation of the transactions herein and
                therein contemplated will not conflict with or result in a
                breach or violation of any of the terms or provisions of, or
                constitute a default under, any statute, indenture, mortgage,
                deed of trust, loan agreement or other agreement or instrument
                to which such Selling Stockholder is a party or by which such
                Selling Stockholder is bound, or to which any of the property or
                assets of such Selling Stockholder is subject, nor will such
                action result in any violation of the provisions of the
                Certificate of Incorporation or By-laws of such Selling
                Stockholder, if such Selling Stockholder is a corporation, or
                the Partnership Agreement of such Selling Stockholder, if such
                Selling Stockholder is a partnership, or any statute or any
                order, rule or regulation of any court or governmental agency or
                body having jurisdiction over such Selling Stockholder


                                       -7-
   8
                or the property of such Selling Stockholder;

                        (iii) Such Selling Stockholder has, and immediately
                prior to each Time of Delivery (as defined in Section 4 hereof)
                such Selling Stockholder will have, good and valid title to the
                Shares to be sold by such Selling Stockholder hereunder and
                under the International Underwriting Agreement, free and clear
                of all liens, encumbrances, equities or claims; and, upon
                delivery of such Shares and payment therefor pursuant hereto and
                thereto, good and valid title to such Shares, free and clear of
                all liens, encumbrances, equities or claims, will pass to the
                several Underwriters or the International Underwriters, as the
                case may be;

                        (iv) During the period beginning from the date hereof
                and continuing to and including the date 90 days after the date
                of the Prospectus, such Selling Stockholder shall not offer,
                sell, contract to sell or otherwise dispose of, except as
                provided hereunder or under the International Underwriting
                Agreement, any securities of the Company that are substantially
                similar to the Shares, including but not limited to any
                securities that are convertible into or exchangeable for, or
                that represent the right to receive, Stock or any such
                substantially similar securities (other than (A) pursuant to
                employee stock option plans existing on, or upon the conversion
                or exchange of convertible or exchangeable securities
                outstanding as of, the date of this Agreement, or (B) Stock the
                sale of which was consented to by you by letter dated May 22,
                1997), without the prior written consent of the Company and you;

                        (v) Such Selling Stockholder has not taken and will not
                take, directly or indirectly, any action which is designed to or
                which has constituted or which might reasonably be expected to
                cause or result in stabilization or manipulation of the price of
                any security of the Company to facilitate the sale or resale of
                the Shares;

                        (vi) To the extent that any statements or omissions made
                in the Registration Statement, any Preliminary Prospectus, the
                Prospectus or any amendment or supplement thereto are made in
                reliance upon and in conformity with written information
                furnished to the Company by such Selling Stockholder expressly
                for use therein, such Preliminary Prospectus and the
                Registration Statement did, and the Prospectus and any further
                amendments or supplements to the Registration Statement and the
                Prospectus, when they become effective or are filed with the
                Commission, as the case may be, will conform in all material
                respects to the requirements of the Act and the rules and
                regulations of the Commission thereunder and will not contain
                any untrue statement of a material fact or omit to state any
                material fact required to be stated therein or necessary to make
                the statements therein not misleading;

                        (vii) In order to document the Underwriters' compliance
                with the reporting and withholding provisions of the Tax Equity
                and Fiscal Responsibility Act of 1982 with respect to the
                transactions herein contemplated, such Selling

                                       -8-
   9
                Stockholder will deliver to you prior to or at the First Time of
                Delivery (as hereinafter defined) a properly completed and
                executed United States Treasury Department Form W-9 (or other
                applicable form or statement specified by Treasury Department
                regulations in lieu thereof);

                        (viii) Certificates in negotiable form representing all
                of the Shares to be sold by such Selling Stockholder hereunder
                and under the International Underwriting Agreement have been
                placed in custody under a Custody Agreement, in the form
                heretofore furnished to you (the "Custody Agreement"), duly
                executed and delivered by such Selling Stockholder to
                ___________________, as custodian (the "Custodian"), and such
                Selling Stockholder has duly executed and delivered a Power of
                Attorney, in the form heretofore furnished to you (the "Power of
                Attorney"), appointing the persons indicated in Schedule II
                hereto, and each of them, as such Selling Stockholder's
                attorneys-in-fact (the "Attorneys-in-Fact") with authority to
                execute and deliver this Agreement and the International
                Underwriting Agreement on behalf of such Selling Stockholder, to
                determine the purchase price to be paid by the Underwriters and
                the International Underwriters to the Selling Stockholders as
                provided in Section 2 hereof, to authorize the delivery of the
                Shares to be sold by such Selling Stockholder hereunder and
                otherwise to act on behalf of such Selling Stockholder in
                connection with the transactions contemplated by this Agreement,
                the International Underwriting Agreement and the Custody
                Agreement; and

                        (ix) The Shares represented by the certificates held in
                custody for such Selling Stockholder under the Custody Agreement
                are subject to the interests of the Underwriters hereunder and
                the International Underwriters under the International
                Underwriting Agreement; the arrangements made by such Selling
                Stockholder for such custody, and the appointment by such
                Selling Stockholder of the Attorneys-in-Fact by the Power of
                Attorney, are to that extent irrevocable; the obligations of the
                Selling Stockholders hereunder shall not be terminated by
                operation of law, whether by the death or incapacity of any
                individual Selling Stockholder or, in the case of an estate or
                trust, by the death or incapacity of any executor or trustee or
                the termination of such estate or trust, or in the case of a
                partnership or corporation, by the dissolution of such
                partnership or corporation, or by the occurrence of any other
                event; if any individual Selling Stockholder or any such
                executor or trustee should die or become incapacitated, or if
                any such estate or trust should be terminated, or if any such
                partnership or corporation should be dissolved, or if any other
                such event should occur, before the delivery of the Shares
                hereunder, certificates representing the Shares shall be
                delivered by or on behalf of the Selling Stockholders in
                accordance with the terms and conditions of this Agreement, of
                the International Underwriting Agreement and of the Custody
                Agreements; and actions taken by the Attorneys-in-Fact pursuant
                to the Powers of Attorney shall be as valid as if such death,
                incapacity, termination, dissolution or other event had not
                occurred, regardless of whether or not the Custodian, the
                Attorneys-in-Fact, or any of them, shall have received notice of
                such death,


                                       -9-
   10
                incapacity, termination, dissolution or other event.

                2. Subject to the terms and conditions herein set forth, the
Company and each of the Selling Stockholders agree, severally and not jointly,
to sell to each of the Underwriters, and each of the Underwriters agrees,
severally and not jointly, to purchase from the Company and each of the Selling
Stockholders, at a purchase price per share of $_________________, the number of
Firm Shares (to be adjusted by you so as to eliminate fractional shares)
determined by multiplying the aggregate number of Firm Shares to be sold by the
Company and each of the Selling Stockholders as set forth opposite their
respective names in Schedule II hereto by a fraction, the numerator of which is
the aggregate number of Firm Shares to be purchased by such Underwriter as set
forth opposite the name of such Underwriter in Schedule I hereto and the
denominator of which is the aggregate number of Firm Shares to be purchased by
all of the Underwriters from the Company and all of the Selling Stockholders
hereunder and (b) in the event and to the extent that the Underwriters shall
exercise the election to purchase Optional Shares as provided below, the Company
and each of the Selling Stockholders agree, severally and not jointly, to sell
to each of the Underwriters, and each of the Underwriters agrees, severally and
not jointly, to purchase from the Company and the Selling Stockholders, at the
purchase price per share set forth in clause (a) of this Section 2, that portion
of the number of Optional Shares as to which such election shall have been
exercised (to be adjusted by you so as to eliminate fractional shares)
determined by multiplying such number of Optional Shares by a fraction the
numerator of which is the maximum number of Optional Shares which such
Underwriter is entitled to purchase as set forth opposite the name of such
Underwriter in Schedule I hereto and the denominator of which is the maximum
number of Optional Shares that all of the Underwriters are entitled to purchase
hereunder.

                The Company and the Selling Stockholders, as and to the extent
indicated in Schedule II hereto, hereby grant, severally and not jointly, to the
Underwriters the right to purchase at their election up to ___________ Optional
Shares, at the purchase price per share set forth in the paragraph above, for
the sole purpose of covering overallotments in the sale of the Firm Shares. Any
such election to purchase Optional Shares shall be made in proportion to the
maximum number of Optional Shares to be sold by the Company and each Selling
Stockholder as set forth in Schedule II hereto. Any such election to purchase
Optional Shares may be exercised only by written notice from you to the Company
and the Attorneys-in-fact, given within a period of 30 calendar days after the
date of this Agreement and setting forth the aggregate number of Optional Shares
to be purchased and the date on which such Optional Shares are to be delivered,
as determined by you but in no event earlier than the First Time of Delivery (as
defined in Section 4 hereof) or, unless you and the Company and the
Attorneys-in-fact otherwise agree in writing, earlier than two or later than ten
business days after the date of such notice.

                3. Upon the authorization by you of the release of the Firm
Shares, the several Underwriters propose to offer the Firm Shares for sale upon
the terms and conditions set forth in the Prospectus.

                4. (a) The Shares to be purchased by each Underwriter hereunder,
        in definitive form, and in such authorized denominations and registered
        in such names as

                                      -10-
   11
        Goldman, Sachs & Co., through the facilities of Depository Trust Company
        ("DTC") may request upon at least forty-eight hours' prior notice to the
        Company and the Selling Stockholders shall be delivered by or on behalf
        of the Company and the Selling Stockholders to Goldman, Sachs & Co., for
        the account of such Underwriter, against payment by or on behalf of such
        Underwriter of the purchase price therefor by certified or official bank
        check or checks, payable to the order of the Company and the Custodian,
        as their interests may appear, in Federal (same day) funds. The Company
        will cause the certificates representing the Shares to be made available
        for checking and packaging at least twenty-four hours prior to the Time
        of Delivery (as defined below) with respect thereto at the office of DTC
        or its designated custodian (the "Designated Office"). The time and date
        of such delivery and payment shall be, with respect to the Firm Shares,
        9:30 a.m., New York City time, on ________________, 1997 or such other
        time and date as Goldman, Sachs & Co., the Company and the Selling
        Stockholders may agree upon in writing, and, with respect to the
        Optional Shares, 9:30 a.m., New York City time, on the date specified by
        Goldman, Sachs & Co. in the written notice given by Goldman, Sachs & Co.
        of the Underwriters' election to purchase such Optional Shares, or such
        other time and date as Goldman, Sachs & Co., the Company and the Selling
        Stockholders may agree upon in writing. Such time and date for delivery
        of the Firm Shares is herein called the "First Time of Delivery", such
        time and date for delivery of the Firm Optional Shares, if not the First
        Time of Delivery, is herein called the "Second Time of Delivery", and
        each such time and date for delivery is herein called a "Time of
        Delivery".

                (b) The documents to be delivered at each Time of Delivery by or
        on behalf of the parties hereto pursuant to Section 7 hereof, including
        the cross-receipt for the Shares and any additional documents requested
        by the Underwriters pursuant to Section 7(m) hereof, will be delivered
        at the offices of Hale and Dorr LLP, 1455 Pennsylvania Avenue, N.W.,
        Washington, D.C. 20004 (the "Closing Location"), and the Shares will be
        delivered at the Designated Office, all at each Time of Delivery. A
        meeting will be held at the Closing Location at 4:00 p.m., New York City
        time, on the New York Business Day next preceding each Time of Delivery,
        at which meeting the final drafts of the documents to be delivered
        pursuant to the preceding sentence will be available for review by the
        parties hereto. For the purposes of this Section 4, "New York Business
        Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday
        which is not a day on which banking institutions in New York are
        generally authorized or obligated by law or executive order to close.

        5. The Company agrees with each of the Underwriters:

                (a) To prepare the Prospectus in a form approved by you and to
        file such Prospectus pursuant to Rule 424(b) under the Act not later
        than the Commission's close of business on the second business day
        following the execution and delivery of this Agreement, or, if
        applicable, such earlier time as may be required by Rule 430A(a)(3)
        under the Act; to make no further amendment or any supplement to the
        Registration Statement or Prospectus which shall be disapproved by you
        promptly after reasonable notice thereof; to advise you, promptly after
        it receives notice thereof, of the time when any amendment to the
        Registration Statement has been filed or


                                      -11-
   12
        becomes effective or any supplement to the Prospectus or any amended
        Prospectus has been filed and to furnish you copies thereof; to advise
        you, promptly after it receives notice thereof, of the issuance by the
        Commission of any stop order or of any order preventing or suspending
        the use of any Preliminary Prospectus or prospectus, of the suspension
        of the qualification of the Shares for offering or sale in any
        jurisdiction, of the initiation or threatening of any proceeding for any
        such purpose, or of any request by the Commission for the amending or
        supplementing of the Registration Statement or Prospectus or for
        additional information; and, in the event of the issuance of any stop
        order or of any order preventing or suspending the use of any
        Preliminary Prospectus or prospectus or suspending any such
        qualification, promptly to use its best efforts to obtain the withdrawal
        of such order;

               (b) Promptly from time to time to take such action as you may
        reasonably request to qualify the Shares for offering and sale under the
        securities laws of such jurisdictions as you may request and to comply
        with such laws so as to permit the continuance of sales and dealings
        therein in such jurisdictions for as long as may be necessary to
        complete the distribution of the Shares, provided that in connection
        therewith the Company shall not be required to qualify as a foreign
        corporation or to file a general consent to service of process in any
        jurisdiction;

               (c) Prior to 10:00 a.m., New York time, on the New York Business
        Day next succeeding the date of this Agreement and from time to time, to
        furnish the Underwriters with copies of the Prospectus in New York City
        in such quantities as you may reasonably request, and, if the delivery
        of a prospectus is required at any time prior to the expiration of nine
        months after the time of issue of the Prospectus in connection with the
        offering or sale of the Shares and if at such time any events shall have
        occurred as a result of which the Prospectus as then amended or
        supplemented would include an untrue statement of a material fact or
        omit to state any material fact necessary in order to make the
        statements therein, in the light of the circumstances under which they
        were made when such Prospectus is delivered, not misleading, or, if for
        any other reason it shall be necessary during such period to amend or
        supplement the Prospectus in order to comply with the Act, to notify you
        and upon your request to prepare and furnish without charge to each
        Underwriter and to any dealer in securities as many copies as you may
        from time to time reasonably request of an amended Prospectus or a
        supplement to the Prospectus which will correct such statement or
        omission or effect such compliance, and in case any Underwriter is
        required to deliver a prospectus in connection with sales of any of the
        Shares at any time nine months or more after the time of issue of the
        Prospectus, upon your request but at the expense of such Underwriter, to
        prepare and deliver to such Underwriter as many copies as you may
        request of an amended or supplemented Prospectus complying with Section
        10(a)(3) of the Act;

                (d) If the Company elects to rely upon Rule 462(b), the Company
        shall file a Rule 462(b) Registration Statement with the Commission in
        compliance with Rule 462(b) by 10:00 a.m., Washington D.C. time, on the
        date of this Agreement, and the Company shall at the time of filing of
        either pay to the Commission the filing fee for the Rule 462(b)
        Registration Statement or give irrevocable instructions for the payment
        of


                                      -12-
   13
        such fee pursuant to Rule 111(b) under the Act;

                (e) To make generally available to its securityholders as soon
        as practicable, but in any event not later than eighteen months after
        the effective date of the Registration Statement (as defined in Rule
        158(c) under the Act), an earnings statement of the Company and its
        subsidiaries (which need not be audited) complying with Section 11(a) of
        the Act and the rules and regulations of the Commission thereunder
        (including, at the option of the Company, Rule 158);

                (f) During the period beginning from the date hereof and
        continuing to and including the date 90 days after the date of the
        Prospectus, not to offer, sell, contract to sell or otherwise dispose
        of, except as provided hereunder and under the International
        Underwriting Agreement, any securities of the Company that are
        substantially similar to the Shares, including but not limited to any
        securities that are convertible into or exchangeable for, or that
        represent the right to receive, Stock or any such substantially similar
        securities (other than pursuant to employee or director stock option
        plans existing on, or upon the conversion, exercise or exchange of
        convertible, exercisable or exchangeable securities outstanding as of,
        the date of this Agreement), without your prior written consent;

                (g) To furnish to its stockholders as soon as practicable after
        the end of each fiscal year an annual report (including a balance sheet
        and statements of income, stockholders' equity and cash flows of the
        Company and its consolidated subsidiaries certified by independent
        public accountants) and, as soon as practicable after the end of each of
        the first three quarters of each fiscal year (beginning with the fiscal
        quarter ending after the effective date of the Registration Statement),
        consolidated summary financial information of the Company and its
        subsidiaries for such quarter in reasonable detail;

                (h) During a period of five years from the effective date of the
        Registration Statement, to furnish to you copies of all reports or other
        communications (financial or other) furnished to stockholders, and to
        deliver to you (i) as soon as they are available, copies of any reports
        and financial statements furnished to or filed with the Commission or
        any national securities exchange on which any class of securities of the
        Company is listed; and (ii) such additional information concerning the
        business and financial condition of the Company as you may from time to
        time reasonably request (such financial statements to be on a
        consolidated basis to the extent the accounts of the Company and its
        subsidiaries are consolidated in reports furnished to its stockholders
        generally or to the Commission);

                (i) To use the net proceeds received by it from the sale of the
        Shares pursuant to this Agreement and the International Underwriting
        Agreement in the manner specified in the Prospectus under the caption
        "Use of Proceeds"; and

                (j) To use its best efforts to list for quotation the Shares on
        the Nasdaq National Market System ("NASDAQ").


                                      -13-
   14
        6. The Company and each of the Selling Stockholders, jointly and
severally, covenant and agree with one another and with the several Underwriters
that (a) the Company will pay or cause to be paid the following: (i) the fees,
disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of printing or producing
any Agreement among Underwriters, this Agreement, the International
Underwriting Agreement, the Agreement between Syndicates, the Selling
Agreements, closing documents (including any compilations thereof) and any other
documents in connection with the offering, purchase, sale and delivery of the
Shares; (iii) all expenses in connection with the qualification of the Shares
for offering and sale under state securities laws as provided in Section 5(b)
hereof, including the fees and disbursements of Hale and Dorr LLP, as counsel
for the Underwriters in connection with such qualification and in connection
with the Blue Sky surveys; (iv) all fees and expenses in connection with listing
the Shares on NASDAQ; (v) the filing fees incident to, and the fees and
disbursements of counsel for the Underwriters in connection with, securing any
required review by the National Association of Securities Dealers, Inc. of the
terms of the sale of the Shares; (vi) the cost of preparing stock certificates;
(vii) the cost and charges of any transfer agent or registrar; (viii) all other
costs and expenses incident to the performance of its obligations hereunder
which are not otherwise specifically provided for in this Section; (ix) fees and
expenses of one counsel to the Selling Stockholders, not to exceed $10,000; and
(x) each Selling Stockholder's pro rata shares of the fees and expenses of the
Attorneys-in-Fact and the Custodian; and (b) such Selling Stockholder will pay
or cause to be paid all costs and expenses incident to the performance of such
Selling Stockholder's obligations hereunder which are not otherwise specifically
provided for in this Section, including (i) any fees and expenses of counsel for
such Selling Stockholder not provided for above in this Section, (ii) and all
expenses and taxes incident to the sale and delivery of the Shares to be sold by
such Selling Stockholder to the Underwriters hereunder. In connection with
Clause (b) (ii) of the preceding sentence, Goldman, Sachs & Co. agrees to pay
New York State stock transfer tax, and the Selling Stockholder agrees to
reimburse Goldman, Sachs & Co. for associated carrying costs if such tax payment
is not rebated on the day of payment and for any portion of such tax payment not
rebated. It is understood, however, that the Company shall bear, and the Selling
Stockholders shall not be required to pay or to reimburse the Company for, the
cost of any other matters not directly relating to the sale and purchase of the
Shares pursuant to this Agreement, and that, except as provided in this Section,
and Sections 8 and 11 hereof, the Underwriters will pay all of their own costs
and expenses, including the fees of their counsel, stock transfer taxes on
resale of any of the Shares by them, and any advertising expenses connected with
any offers they may make.

        7. The obligations of the Underwriters hereunder, as to the Shares to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company and of the Selling Stockholders herein are, at and as of such Time
of Delivery, true and correct, the condition that the Company and the Selling
Stockholders shall have performed all of its and their obligations hereunder
theretofore to be performed, and the following additional conditions:


                                      -14-
   15
                (a) The Prospectus shall have been filed with the Commission
        pursuant to Rule 424(b) within the applicable time period prescribed for
        such filing by the rules and regulations under the Act and in accordance
        with Section 5(a) hereof; no stop order suspending the effectiveness of
        the Registration Statement or any part thereof shall have been issued
        and no proceeding for that purpose shall have been initiated or
        threatened by the Commission; and all requests for additional
        information on the part of the Commission shall have been complied with
        to your reasonable satisfaction; if the Company has elected to rely upon
        Rule 462(b), the Rule 462(b) Registration Statement shall have become
        effective by 10:00 p.m., Washington, D.C. time, on the date of this
        Agreement;

                (b) Hale and Dorr LLP, counsel for the Underwriters, shall have
        furnished to you such opinion or opinions (a draft of such opinion is
        attached as Annex II(a) hereto), dated such Time of Delivery, with
        respect to the matters covered in paragraphs (i), (ii), (vi), (ix) and
        (xiii) of subsection (c) below as well as such other related matters as
        you may reasonably request, and such counsel shall have received such
        papers and information as they may reasonably request to enable them to
        pass upon such matters;

                (c) Hogan & Hartson L.L.P., counsel for the Company, shall have
        furnished to you their written opinion (a draft of such opinion is
        attached as Annex II(b) hereto), dated such Time of Delivery, in form
        and substance satisfactory to you, to the effect that:

                        (i) The Company was incorporated and is validly existing
                as a corporation in good standing under the laws of the State of
                Delaware as of the date specified in such opinion, with
                corporate power and corporate authority to own its properties
                and conduct its business as described in the Prospectus;

                        (ii) The Company has authorized capital stock as set
                forth in the Prospectus, and all of the issued shares of capital
                stock of the Company (including the Shares being delivered at
                such Time of Delivery) have been duly and validly authorized and
                issued and are fully paid and non-assessable; and the Shares in
                all material respects conform to the description of the Stock
                contained in the Prospectus;

                        (iii) The Company has been duly qualified as a foreign
                corporation for the transaction of business and is in good
                standing under the laws of the State of Maryland;

                        (iv) Each subsidiary of the Company has been duly
                incorporated and is validly existing as a corporation in good
                standing under the laws of its jurisdiction of incorporation;
                and all of the issued shares of capital stock of each such
                subsidiary have been duly and validly authorized and issued, are
                fully paid and non-assessable, and are owned directly or
                indirectly by the Company, free and clear of all liens,
                encumbrances, equities or claims (such counsel being entitled to
                rely in respect of the opinion in this clause upon opinions of
                local


                                      -15-
   16
                counsel and in respect of matters of fact upon certificates of
                officers of the Company or its subsidiaries, provided that such
                counsel shall state that they believe that both you and they are
                justified in relying upon such opinions and certificates);

                        (v) Nothing has come to the attention of such counsel
                that causes it to believe real property and buildings held under
                lease by the Company and its subsidiaries are not held by them
                under valid leases with such exceptions as are not material and
                do not interfere with the use made and proposed to be made of
                such property and buildings by the Company and its subsidiaries
                and each such lease identified in such opinion is enforceable
                against the Company (subject to normal exceptions);

                        (vi) This Agreement and the International Underwriting
                Agreement have been duly authorized, executed and delivered by
                the Company;

                        (vii) The issue and sale of the Shares being delivered
                at such Time of Delivery to be sold by the Company and the
                compliance by the Company with all of the provisions of this
                Agreement and the International Underwriting Agreement as of
                such Time of Delivery and the consummation of the transactions
                herein and therein contemplated do not conflict with or result
                in a breach or violation of any of the terms or provisions of,
                or constitute a default under, any agreement or instrument filed
                as an exhibit to the Registration Statement, nor will such
                action result in any violation of the provisions of the
                Certificate of Incorporation or By-laws of the Company or any of
                its subsidiaries or any statute, order, rule or regulation known
                to such counsel of any court or governmental agency or body
                having jurisdiction over the Company or any of its subsidiaries
                or any of their properties;

                        (viii) No consent, approval, authorization, order,
                registration or qualification of or with any such court or
                governmental agency or body having jurisdiction over the Company
                or any of its subsidiaries or any of their properties is
                required for the issue and sale of the Shares or the
                consummation by the Company of the transactions contemplated by
                this Agreement and the International Underwriting Agreement as
                of the Time of Delivery, except the registration under the Act
                of the Shares, and such consents, approvals, authorizations,
                registrations or qualifications as may be required under state
                or foreign securities or Blue Sky laws in connection with the
                purchase and distribution of the Shares by the Underwriters and
                the International Underwriters;

                        (ix) The statements set forth in the Prospectus under
                the caption "Description of Capital Stock", insofar as they
                purport to constitute a summary of the terms of the Stock, and
                under the caption "Certain U.S. Tax Considerations Applicable to
                Non-U.S. Holders of Common Stock", insofar as they purport to
                describe the provisions of the laws and documents referred to
                therein, are accurate in all material respects;


                                      -16-
   17
                        (x) The Company is not an "investment company" as such
                term is defined in the Investment Company Act;

                        (xi) To the best of such counsel's knowledge, the
                Company has not issued any outstanding securities convertible
                into or exchangeable for, or outstanding options, warrants or
                other rights to purchase or to subscribe for any shares or other
                securities of the Company, except as described in the
                Prospectus;

                        (xii) No holder of outstanding shares of capital stock
                of the Company has (i) any statutory preemptive right under
                Delaware General Corporation Law or, (ii) to such counsel's
                knowledge and except as has been waived, any contractual right
                to subscribe for any shares of capital stock of the Company
                (including the Shares being delivered at such Time of
                Delivery)(except that no opinion need be expressed with respect
                to the specific mattes that are the subject of the legal
                proceedings disclosed in the Prospectus under the caption
                "Business--Legal Proceedings") or to have any common stock or
                other securities of the Company included in the Registration
                Statement or the right, as a result of the filing of the
                Registration Statement, to require registration of any shares of
                Common Stock or other securities of the Company; and

                        (xiii) The Registration Statement and the Prospectus and
                any further amendments and supplements thereto made by the
                Company prior to such Time of Delivery (other than the financial
                statements and related schedules therein, as to which such
                counsel need express no opinion) comply as to form in all
                material respects with the requirements of the Act and the rules
                and regulations thereunder.

                In addition to the matters set forth above, such letter shall
also contain statement of such counsel to the effect that (i) to such counsel's
knowledge and other than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of its subsidiaries
is a party or of which any property of the Company or any of its subsidiaries is
the subject of which, if determined adversely to the Company could reasonably be
expected individually or in the aggregate to have a material adverse effect on
the financial condition or results of operations of the Company and its
subsidiaries, and, to such counsel's knowledge, no such proceedings are
threatened by governmental authorities or threatened by others; (ii) while such
counsel are not passing upon and do not assume responsibility for, the accuracy,
completeness or fairness of the Registration Statement or the Prospectus, except
for those statements referred to in the opinion in subsection (ix) of this
Section 7(c), or any further amendment or supplement thereto, based upon the
procedures referred to in such letter no facts have come to the attention of
such counsel which lead them to believe that, as of its effective date, the
Registration Statement or any further amendment thereto made by the Company
prior to such Time of Delivery (other than the financial statements and notes
thereto, financial schedules and other financial data included therein, as to
which such counsel need express no opinion) contained an untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein not misleading or that, as of its date and as of such Time of
Delivery, the Prospectus or any


                                      -17-
   18
further amendment or supplement thereto made by the Company (other than the
financial statements and notes thereto, schedules and other financial data
included therein, as to which such counsel need express no opinion) contained or
contains an untrue statement of a material fact or omitted or omits to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and (iii) they do not
know of any amendment to the Registration Statement required to be filed or of
any contracts or other documents of a character required to be filed as an
exhibit to the Registration Statement or required to be described in the
Registration Statement or the Prospectus, which are not filed or described as
required.

                In rendering such opinion, such counsel may state that they
express no opinion as to the laws of any jurisdiction other than the Federal
laws of the United States, the laws of the State of Maryland, the contract law
of the State of New York and the General Corporation Law of the State of
Delaware.

                (d) Fish & Neave, special patent counsel for the Company, shall
        have furnished its written opinion (a draft of such opinion is attached
        as Annex II(c) hereto), dated such Time of Delivery, with respect to
        certain patent law matters.

                (e) The Vice President and General Counsel of the Company shall
        have furnished to you his written opinion (a draft of such opinion is
        attached as Annex II(d) hereto), dated such Time of Delivery, in form
        and substance satisfactory to you, to the effect that:

                        (i) Neither the Company nor any of its subsidiaries is
                in violation of its Certificate of Incorporation or, in any
                material respect, its By-Laws; and

                        (ii) To such counsel's knowledge and other than as
                described in the Prospectus, there are no legal or governmental
                proceedings pending to which the Company or any of its
                subsidiaries is the subject; and, to such counsel's knowledge,
                no such proceedings are threatened by governmental authorities
                or by others.

                (f) The respective counsel for each of the Selling Stockholders,
        as indicated in Schedule II hereto, each shall have furnished to you
        their written opinion (a draft of such opinion is attached as Annex
        II(e) hereto) with respect to each of the Selling Stockholders for whom
        they are acting as counsel, dated such Time of Delivery, in form and
        substance satisfactory to you, to the effect that:

                        (i) A Power of Attorney and a Custody Agreement have
                been duly executed and delivered by such Selling Stockholder and
                constitute valid and binding agreements of such Selling
                Stockholder in accordance with their terms;

                        (ii) This Agreement and the International Underwriting
                Agreement have been duly executed and delivered by or on behalf
                of such Selling Stockholder; and the sale of the Shares to be
                sold by such Selling Stockholder hereunder and thereunder and
                the compliance by such Selling Stockholder with


                                      -18-
   19
                all of the provisions of this Agreement and the International
                Underwriting Agreement, the Power of Attorney and the Custody
                Agreement and the consummation of the transactions herein and
                therein contemplated will not conflict with or result in a
                breach or violation of any terms or provisions of, or constitute
                a default under, any statute, indenture, mortgage, deed of
                trust, loan agreement or other agreement or instrument known to
                such counsel to which such Selling Stockholder is a party or by
                which such Selling Stockholder is bound, or to which any of the
                property or assets of such Selling Stockholder is subject, nor
                will such action result in any violation of the Certificate of
                Incorporation or By-laws of such Selling Stockholder, if such
                Selling Stockholder is a corporation, or the Partnership
                Agreement of such Selling Stockholder, if such Selling
                Stockholder is a partnership, or the provisions of any order,
                rule or regulation known to such counsel of any court or
                governmental agency or body having jurisdiction over such
                Selling Stockholder or the property of such Selling Stockholder;

                        (iii) No consent, approval, authorization or order of
                any court or governmental agency or body is required for the
                consummation of the transactions contemplated by this Agreement
                and the International Underwriting Agreement in connection with
                the Shares to be sold by such Selling Stockholder hereunder or
                thereunder, except such as have been obtained under the Act and
                such as may be required under state or foreign securities or
                Blue Sky laws in connection with the purchase and distribution
                of such Shares by the Underwriters or the International
                Underwriters;

                        (iv) Immediately prior to such Time of Delivery such
                Selling Stockholder had good and valid title to the Shares to be
                sold at such Time of Delivery by such Selling Stockholder under
                this Agreement and the International Underwriting Agreement,
                free and clear of all liens, encumbrances, equities or claims,
                and full right, power and authority to sell, assign, transfer
                and deliver the Shares to be sold by such Selling Stockholder
                hereunder and thereunder; and

                        (v) Good and valid title to such Shares, free and clear
                of all liens, encumbrances, equities or claims, has been
                transferred to each of the several Underwriters or International
                Underwriters, as the case may be, who have purchased such Shares
                in good faith and without notice of any such lien, encumbrance,
                equity or claim or any other adverse claim within the meaning of
                the Uniform Commercial Code.

                In rendering such opinion, such counsel may state that they
express no opinion as to the laws of any jurisdiction outside the United States
and in rendering the opinion in subparagraph (iv) such counsel may rely upon a
certificate of such Selling Stockholder in respect of matters of fact as to
ownership of, and liens, encumbrances, equities or claims on the Shares sold by
such Selling Stockholder, provided that such counsel shall state that they
believe that both you and they are justified in relying upon such certificate;


                                      -19-
   20
                (g) On the date of the Prospectus at a time prior to the
        execution of this Agreement, at 9:30 a.m., New York City time, on the
        effective date of any post-effective amendment to the Registration
        Statement filed subsequent to the date of this Agreement and also at
        each Time of Delivery, Price Waterhouse LLP shall have furnished to you
        a letter or letters, dated the respective dates of delivery thereof, in
        form and substance satisfactory to you, to the effect set forth in Annex
        I hereto (the executed copy of the letter delivered prior to the
        execution of this Agreement is attached as Annex I(a) hereto and a draft
        of the form of letter to be delivered on the effective date of any
        post-effective amendment to the Registration Statement and as of each
        Time of Delivery is attached as Annex I(b) hereto;

                (h) Neither the Company nor any of its subsidiaries shall have
        sustained since the date of the latest audited financial statements
        included in the Prospectus any loss or interference with its business
        from fire, explosion, flood or other calamity, whether or not covered by
        insurance, or from any labor dispute or court or governmental action,
        order or decree, otherwise than as set forth or contemplated in the
        Prospectus, and (ii) since the respective dates as of which information
        is given in the Prospectus there shall not have been any change in the
        capital stock or long-term debt of the Company or any of its
        subsidiaries or any change, or any development reasonably likely to
        result in a prospective change, in or affecting the general affairs,
        management, financial position, stockholders' equity or results of
        operations of the Company, otherwise than as set forth or contemplated
        in the Prospectus, the effect of which, in any such case described in
        Clause (i) or (ii), is in the judgment of the Representatives so
        material and adverse as to make it impracticable or inadvisable to
        proceed with the public offering or the delivery of the Shares being
        delivered at such Time of Delivery on the terms and in the manner
        contemplated in the Prospectus;

                (i) On or after the date hereof there shall not have occurred
        any of the following: (i) a suspension or material limitation in trading
        in securities generally on the New York Stock Exchange or on NASDAQ;
        (ii) a suspension or material limitation in trading in the Company's
        securities on NASDAQ; (iii) a general moratorium on commercial banking
        activities declared by either Federal, New York State or District of
        Columbia authorities; or (iv) the outbreak or escalation of hostilities
        involving the United States or the declaration by the United States of a
        national emergency or war, if the effect of any such event specified in
        this Clause (iv) in the judgment of the Representatives makes it
        impracticable or inadvisable to proceed with the public offering or the
        delivery of the Shares being delivered at such Time of Delivery on the
        terms and in the manner contemplated in the Prospectus;

                (j) The Shares to be sold by the Company and the Selling
        Stockholders at such Time of Delivery shall have been duly approved for
        quotation on NASDAQ;

                (k) The Company has obtained and delivered to the Underwriters
        executed copies of an agreement from each Selling Stockholder to the
        effect set forth in Subsection 1(b)(iv) hereof in form and substance
        satisfactory to you;

                (l) The Company shall have complied with the provisions of
        Section 5(c) hereof


                                      -20-
   21
        with respect to furnishing of Prospectuses on the New York Business Day
        next succeeding the date of this Agreement; and

                (m) The Company and the Selling Stockholders shall have
        furnished or caused to be furnished to you at such Time of Delivery
        certificates of officers of the Company and of the Selling Stockholders,
        respectively, satisfactory to you as to the accuracy of the
        representations and warranties of the Company and the Selling
        Stockholders, respectively, herein at and as of such Time of Delivery,
        as to the performance by the Company and the Selling Stockholders of all
        of their respective obligations hereunder to be performed at or prior to
        such Time of Delivery, and as to such other matters as you may
        reasonably request, and the Company shall have furnished or caused to be
        furnished certificates as to the matters set forth in subsections (a)
        and (h) of this Section, and as to such other matters as you may
        reasonably request.

        8. (a) The Company and each of the Selling Stockholders listed on Annex
        III, jointly and severally, will indemnify and hold harmless each
        Underwriter against any losses, claims, damages or liabilities, joint or
        several, to which such Underwriter may become subject, under the Act or
        otherwise, insofar as such losses, claims, damages or liabilities (or
        actions in respect thereof) arise out of or are based upon an untrue
        statement or alleged untrue statement of a material fact contained in
        any Preliminary Prospectus, the Registration Statement or the
        Prospectus, or any amendment or supplement thereto, or arise out of or
        are based upon the omission or alleged omission to state therein a
        material fact required to be stated therein or necessary to make the
        statements therein not misleading, and will reimburse each Underwriter
        for any legal or other expenses reasonably incurred by such Underwriter
        in connection with investigating or defending any such action or claim
        as such expenses are incurred; provided, however, that the Company and
        such Selling Stockholders shall not be liable in any such case to the
        extent that any such loss, claim, damage or liability arises out of or
        is based upon an untrue statement or alleged untrue statement or
        omission or alleged omission made in any Preliminary Prospectus, the
        Registration Statement or the Prospectus or any such amendment or
        supplement in reliance upon and in conformity with written information
        furnished to the Company by any Underwriter through Goldman, Sachs & Co.
        expressly for use therein; provided, further, that the liability of a
        Selling Stockholder pursuant to this subsection 8(a) and subsection 8(b)
        shall not exceed the product of the number of shares sold by such
        Selling Stockholder and the initial public offering price of the Shares
        as set forth in the Prospectus.

                (b) Each of the Selling Stockholders will indemnify and hold
        harmless each Underwriter against any losses, claims, damages or
        liabilities, joint or several, to which such Underwriter may become
        subject, under the Act or otherwise, insofar as such losses, claims,
        damages or liabilities (or actions in respect thereof) arise out of or
        are based upon an untrue statement or alleged untrue statement of a
        material fact contained in any Preliminary Prospectus, the Registration
        Statement or the Prospectus, or any amendment or supplement thereto, or
        arise out of or are based upon the omission or alleged omission to state
        therein a material fact required to be stated therein or necessary to
        make the statements therein not misleading, in each case to


                                      -21-
   22
        the extent, but only to the extent, that such untrue statement or
        alleged untrue statement or omission or alleged omission was made in any
        Preliminary Prospectus, the Registration Statement or the Prospectus or
        any such amendment or supplement in reliance upon and in conformity with
        written information furnished to the Company by such Selling Stockholder
        expressly for use therein; and will reimburse each Underwriter for any
        legal or other expenses reasonably incurred by such Underwriter in
        connection with investigating or defending any such action or claim as
        such expenses are incurred; provided, however, that such Selling
        Stockholder shall not be liable in any such case to the extent that any
        such loss, claim, damage or liability arises out of or is based upon an
        untrue statement or alleged untrue statement or omission or alleged
        omission made in any Preliminary Prospectus, the Registration Statement
        or the Prospectus of any such amendment or supplement in reliance upon
        and in conformity with written information furnished to the Company by
        any Underwriter through Goldman, Sachs & Co. expressly for use therein;
        provided, further, that the liability of a Selling Stockholder pursuant
        to subsection 8(a) and this subsection 8(b) shall not exceed the product
        of the number of shares sold by such Selling Stockholder and the initial
        public offering price of the Shares as set forth in the Prospectus.

                (c) Each Underwriter will indemnify and hold harmless the
        Company and each Selling Stockholder against any losses, claims, damages
        or liabilities to which the Company or such Selling Stockholder may
        become subject, under the Act or otherwise, insofar as such losses,
        claims, damages or liabilities (or actions in respect thereof) arise out
        of or are based upon an untrue statement or alleged untrue statement of
        a material fact contained in any Preliminary Prospectus, the
        Registration Statement or the Prospectus, or any amendment or supplement
        thereto, or arise out of or are based upon the omission or alleged
        omission to state therein a material fact required to be stated therein
        or necessary to make the statements therein not misleading, in each case
        to the extent, but only to the extent, that such untrue statement or
        alleged untrue statement or omission or alleged omission was made in any
        Preliminary Prospectus, the Registration Statement or the Prospectus or
        any such amendment or supplement in reliance upon and in conformity with
        written information furnished to the Company by such Underwriter through
        Goldman, Sachs & Co. expressly for use therein; and will reimburse the
        Company and each Selling Stockholder for any legal or other expenses
        reasonably incurred by the Company or such Selling Stockholder in
        connection with investigating or defending any such action or claim as
        such expenses are incurred.

                (d) Promptly after receipt by an indemnified party under
        subsection (a), (b) or (c) above of notice of the commencement of any
        action, such indemnified party shall, if a claim in respect thereof is
        to be made against an indemnifying party under such subsection, notify
        the indemnifying party in writing of the commencement thereof; but the
        omission so to notify the indemnifying party shall not relieve it from
        any liability which it may have to any indemnified party otherwise than
        under such subsection. In case any such action shall be brought against
        any indemnified party and it shall notify the indemnifying party of the
        commencement thereof, the indemnifying party shall be entitled to
        participate therein and, to the extent that it shall wish, jointly with
        any other indemnifying party similarly notified, to assume the defense
        thereof, with counsel


                                      -22-
   23
        satisfactory to such indemnified party (which shall not, except with the
        consent of the indemnified party, be counsel to the indemnifying party),
        and, after notice from the indemnifying party to such indemnified party
        of its election so to assume the defense thereof, the indemnifying party
        shall not be liable to such indemnified party under such subsection for
        any legal expenses of other counsel or any other expenses, in each case
        subsequently incurred by such indemnified party, in connection with the
        defense thereof other than reasonable costs of investigation. No
        indemnifying party shall, without the written consent of the indemnified
        party, effect the settlement or compromise of, or consent to the entry
        of any judgment with respect to, any pending or threatened action or
        claim in respect of which indemnification or contribution may be sought
        hereunder (whether or not the indemnified party is an actual or
        potential party to such action or claim) unless such settlement,
        compromise or judgment (i) includes an unconditional release of the
        indemnified party from all liability arising out of such action or claim
        and (ii) does not include a statement as to or an admission of fault,
        culpability or a failure to act, by or on behalf of any indemnified
        party.

                (e) If the indemnification provided for in this Section 8 is
        unavailable to or insufficient to hold harmless an indemnified party
        under subsection (a), (b) or (c) above in respect of any losses, claims,
        damages or liabilities (or actions in respect thereof) referred to
        therein, then each indemnifying party shall contribute to the amount
        paid or payable by such indemnified party as a result of such losses,
        claims, damages or liabilities (or actions in respect thereof) in such
        proportion as is appropriate to reflect the relative benefits received
        by the Company and the Selling Stockholders on the one hand and the
        Underwriters on the other from the offering of the Shares. If, however,
        the allocation provided by the immediately preceding sentence is not
        permitted by applicable law or if the indemnified party failed to give
        the notice required under subsection (c) above, then each indemnifying
        party shall contribute to such amount paid or payable by such
        indemnified party in such proportion as is appropriate to reflect not
        only such relative benefits but also the relative fault of the Company
        and the Selling Stockholders on the one hand and the Underwriters on the
        other in connection with the statements or omissions which resulted in
        such losses, claims, damages or liabilities (or actions in respect
        thereof), as well as any other relevant equitable considerations. The
        relative benefits received by the Company and the Selling Stockholders
        on the one hand and the Underwriters on the other shall be deemed to be
        in the same proportion as the total net proceeds from the offering of
        the Shares purchased under this Agreement (before deducting expenses)
        received by the Company and the Selling Stockholders bear to the total
        underwriting discounts and commissions received by the Underwriters with
        respect to the Shares purchased under this Agreement, in each case as
        set forth in the table on the cover page of the Prospectus. The relative
        fault shall be determined by reference to, among other things, whether
        the untrue or alleged untrue statement of a material fact or the
        omission or alleged omission to state a material fact relates to
        information supplied by the Company or the Selling Stockholders on the
        one hand or the Underwriters on the other and the parties' relative
        intent, knowledge, access to information and opportunity to correct or
        prevent such statement or omission. The Company, each of the Selling
        Stockholders and the Underwriters agree that it would not be just and
        equitable if contributions pursuant to this subsection (e) were
        determined by pro rata allocation


                                      -23-
   24
        (even if the Underwriters were treated as one entity for such purpose)
        or by any other method of allocation which does not take account of the
        equitable considerations referred to above in this subsection (e). The
        amount paid or payable by an indemnified party as a result of the
        losses, claims, damages or liabilities (or actions in respect thereof)
        referred to above in this subsection (e) shall be deemed to include any
        legal or other expenses reasonably incurred by such indemnified party in
        connection with investigating or defending any such action or claim.
        Notwithstanding the provisions of this subsection (e), no Underwriter
        shall be required to contribute any amount in excess of the amount by
        which the total price at which the Shares underwritten by it and
        distributed to the public were offered to the public exceeds the amount
        of any damages which such Underwriter has otherwise been required to pay
        by reason of such untrue or alleged untrue statement or omission or
        alleged omission. No person guilty of fraudulent misrepresentation
        (within the meaning of Section 11(f) of the Act) shall be entitled to
        contribution from any person who was not guilty of such fraudulent
        misrepresentation. The Underwriters' obligations in this subsection (e)
        to contribute are several in proportion to their respective underwriting
        obligations and not joint.

                (f) The obligations of the Company and the Selling Stockholders
        under this Section 8 shall be in addition to any liability which the
        Company and the respective Selling Stockholders may otherwise have and
        shall extend, upon the same terms and conditions, to each person, if
        any, who controls any Underwriter within the meaning of the Act; and the
        obligations of the Underwriters under this Section 8 shall be in
        addition to any liability which the respective Underwriters may
        otherwise have and shall extend, upon the same terms and conditions, to
        each officer and director of the Company and to each person, if any, who
        controls the Company or any Selling Stockholder within the meaning of
        the Act.

        9. (a) If any Underwriter shall default in its obligation to purchase
        the Shares which it has agreed to purchase hereunder at a Time of
        Delivery, you may in your discretion arrange for you or another party or
        other parties to purchase such Shares on the terms contained herein. If
        within thirty-six hours after such default by any Underwriter you do not
        arrange for the purchase of such Shares, then the Company and the
        Selling Stockholders shall be entitled to a further period of thirty-six
        hours within which to procure another party or other parties
        satisfactory to you to purchase such Shares on such terms. In the event
        that, within the respective prescribed periods, you notify the Company
        and the Selling Stockholders that you have so arranged for the purchase
        of such Shares, or the Company and the Selling Stockholders notify you
        that they have so arranged for the purchase of such Shares, you or the
        Company and the Selling Stockholders shall have the right to postpone
        such Time of Delivery for a period of not more than seven days, in order
        to effect whatever changes may thereby be made necessary in the
        Registration Statement or the Prospectus, or in any other documents or
        arrangements, and the Company agrees to file promptly any amendments to
        the Registration Statement or the Prospectus which in your opinion may
        thereby be made necessary. The term "Underwriter" as used in this
        Agreement shall include any person substituted under this Section with
        like effect as if such person had originally been a party to this
        Agreement with respect to


                                      -24-
   25
        such Shares.

                (b) If, after giving effect to any arrangements for the purchase
        of the Shares of a defaulting Underwriter or Underwriters by you and the
        Company and the Selling Stockholders as provided in subsection (a)
        above, the aggregate number of such Shares which remains unpurchased
        does not exceed one-eleventh of the aggregate number of all of the
        Shares to be purchased at such Time of Delivery, then the Company and
        the Selling Stockholders shall have the right to require each
        non-defaulting Underwriter to purchase the number of Shares which such
        Underwriter agreed to purchase hereunder at such Time of Delivery and,
        in addition, to require each non-defaulting Underwriter to purchase its
        pro rata share (based on the number of Shares which such Underwriter
        agreed to purchase hereunder) of the Shares of such defaulting
        Underwriter or Underwriters for which such arrangements have not been
        made; but nothing herein shall relieve a defaulting Underwriter from
        liability for its default.

                (c) If, after giving effect to any arrangements for the purchase
        of the Shares of a defaulting Underwriter or Underwriters by you and the
        Company and the Selling Stockholders as provided in subsection (a)
        above, the aggregate number of such Shares which remains unpurchased
        exceeds one-eleventh of the aggregate number of all of the Shares to be
        purchased at such Time of Delivery, or if the Company and the Selling
        Stockholders shall not exercise the right described in subsection (b)
        above to require non-defaulting Underwriters to purchase Shares of a
        defaulting Underwriter or Underwriters, then this Agreement (or, with
        respect to the Second Time of Delivery, the obligations of the
        Underwriters to purchase and of the Company to sell the Optional Shares)
        shall thereupon terminate, without liability on the part of any
        non-defaulting Underwriter or the Company or the Selling Stockholders,
        except for the expenses to be borne by the Company and the Selling
        Stockholders and the Underwriters as provided in Section 6 hereof and
        the indemnity and contribution agreements in Section 8 hereof; but
        nothing herein shall relieve a defaulting Underwriter from liability for
        its default.

        10. The respective indemnities, agreements, representations, warranties
and other statements of the Company, the Selling Stockholders and the several
Underwriters, as set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement, shall remain in full force and effect,
regardless of any investigation (or any statement as to the results thereof)
made by or on behalf of any Underwriter or any controlling person of any
Underwriter, or the Company, or any of the Selling Stockholders, or any officer
or director or controlling person of the Company, or any controlling person of
any Selling Stockholder, and shall survive delivery of and payment for the
Shares.

        11. If this Agreement shall be terminated pursuant to Section 9 hereof,
neither the Company nor the Selling Stockholders shall then be under any
liability to any Underwriter except as provided in Sections 6 and 8 hereof; but,
if for any other reason any Shares are not delivered by or on behalf of the
Company and the Selling Stockholders as provided herein, the Company and each of
the Selling Stockholders pro rata (based on the number of Shares to be sold by
the Company and such Selling Stockholder hereunder) will reimburse the
Underwriters through you for all out-of-pocket expenses approved in writing by
you, including


                                      -25-
   26
fees and disbursements of counsel, reasonably incurred by the Underwriters in
making preparations for the purchase, sale and delivery of the Shares not so
delivered, but the Company and the Selling Stockholders shall then be under no
further liability to any Underwriter in respect of the Shares not so delivered
except as provided in Sections 6 and 8 hereof.

        12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives; and in all dealings with any Selling Stockholder hereunder, you
and the Company shall be entitled to act and rely upon any statement, request,
notice or agreement on behalf of such Selling Stockholder made or given by any
or all of the Attorneys-in-Fact for such Selling Stockholder.

        All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 85 Broad Street, New York, New York 10004, Attention: Registration
Department; if to any Selling Stockholder shall be delivered or sent by mail,
telex or facsimile transmission to counsel for such Selling Stockholder at its
address set forth in Schedule II hereto; and if to the Company shall be
delivered or sent by mail, telex or facsimile transmission to the address of the
Company set forth in the Registration Statement, Attention: Secretary; provided,
however, that any notice to an Underwriter pursuant to Section 8(d) hereof shall
be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its Underwriters' Questionnaire or telex
constituting such Questionnaire, which address will be supplied to the Company
or the Selling Stockholders by you upon request. Any such statements, requests,
notices or agreements shall take effect upon receipt thereof.

        13. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters, the Company and the Selling Stockholders and, to
the extent provided in Sections 8 and 10 hereof, the officers and directors of
the Company and each person who controls the Company, any Selling Stockholder or
any Underwriter, and their respective heirs, executors, administrators,
successors and assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement. No purchaser of any of the Shares from any
Underwriter shall be deemed a successor or assign by reason merely of such
purchase.

        14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.

        15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.

        16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.


                                      -26-
   27
        If the foregoing is in accordance with your understanding, please sign
and return to us one for the Company and for each of the Representatives plus
one for each counsel and the Custodian, counterparts hereof, and upon the
acceptance hereof by you, on behalf of each of the Underwriters, this letter and
such acceptance hereof shall constitute a binding agreement among each of the
Underwriters, the Company and each of the Selling Stockholders. It is understood
that your acceptance of this letter on behalf of each of the Underwriters is
pursuant to the authority set forth in a form of Agreement among Underwriters
(U.S. Version), the form of which shall be submitted to the Company and the
Selling Stockholders for examination upon request, but without warranty on your
part as to the authority of the signers thereof.

        Any person executing and delivering this Agreement as Attorney-in-Fact
for a Selling Stockholder represents by so doing that he has been duly appointed
as Attorney-in-Fact by such Selling Stockholder pursuant to a validly existing
and binding Power of Attorney which authorizes such Attorney-in-Fact to take
such action.

                                            Very truly yours,

                                            CIENA CORPORATION


                                            By:______________________________



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



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


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


                                            By:    ____________________________
                                                   Name:
                                                   Title:

                                            As Attorney-in-Fact acting on behalf
                                            of each of the Selling Stockholders
                                            named in Schedule II to this
                                            Agreement.

Accepted as of the date hereof:


                                      -27-
   28
Goldman, Sachs & Co.
Alex. Brown & Sons Incorporated
Wessels, Arnold & Henderson, L.L.C.



By:  _____________________________
        (Goldman, Sachs & Co.)

On behalf of each of the Underwriters


                                      -28-
   29
                                   SCHEDULE I



                                                                        NUMBER OF OPTIONAL
                                                                        SHARES TO BE
                                                   TOTAL NUMBER OF      SOLD IF
                                                   FIRM SHARES          MAXIMUM OPTION
                                                   TO BE SOLD           EXERCISED
                                                   ----------           ---------
        UNDERWRITER
        -----------
                                                                  
Goldman, Sachs & Co.
Alex. Brown & Sons Incorporated
Wessels, Arnold & Henderson, L.L.C.



                                       -1-
   30
                                   SCHEDULE II



                                                                        NUMBER OF OPTIONAL
                                                                        SHARES TO BE
                                                   TOTAL NUMBER OF      PURCHASED IF
                                                   FIRM SHARES          MAXIMUM OPTION
                                                   TO BE PURCHASED      EXERCISED
                                                   ---------------      ---------
                                                                  
The Company.
The Selling Stockholders:(a)


        (a)These Selling Stockholders are represented by _______________________
and have appointed _______________, _________________ and ______________, and
each of them, as the Attorneys-in-Fact for such Selling Stockholders.


                                       -2-
   31
                                                                         ANNEX I

                          DESCRIPTION OF COMFORT LETTER

        Pursuant to Section 7(g) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:

                (i) They are independent certified public accountants with
        respect to the Company within the meaning of the Act and the applicable
        published rules and regulations thereunder;

                (ii) In their opinion, the financial statements and any
        supplementary financial information and schedules (and, if applicable,
        financial forecasts and/or pro forma financial information) examined by
        them and included in the Prospectus or the Registration Statement comply
        as to form in all material respects with the applicable accounting
        requirements of the Act and the related published rules and regulations
        thereunder; and, if applicable, they have made a review in accordance
        with standards established by the American Institute of Certified Public
        Accountants of the unaudited consolidated interim financial statements,
        selected financial data, pro forma financial information, financial
        forecasts and/or condensed financial statements derived from audited
        financial statements of the Company for the periods specified in such
        letter, as indicated in their reports thereon, copies of which have been
        furnished separately to the representatives of the Underwriters (the
        "Representatives") and are attached hereto;

                (iii) They have made a review in accordance with standards
        established by the American Institute of Certified Public Accountants of
        the unaudited condensed consolidated statements of income, consolidated
        balance sheets and consolidated statements of cash flows included in the
        Prospectus as indicated in their reports thereon copies of which are
        attached hereto and on the basis of specified procedures including
        inquiries of officials of the Company who have responsibility for
        financial and accounting matters regarding whether the unaudited
        condensed consolidated financial statements referred to in paragraph
        (vi)(A)(i) below comply as to form in all material respects with the
        applicable accounting requirements of the Act and the related published
        rules and regulations, nothing came to their attention that caused them
        to believe that the unaudited condensed consolidated financial
        statements do not comply as to form in all material respects with the
        applicable accounting requirements of the Act and the related published
        rules and regulations;

                (iv) The unaudited selected financial information with respect
        to the consolidated results of operations and financial position of the
        Company for the five most recent fiscal years included in the Prospectus
        agrees with the corresponding amounts (after restatements where
        applicable) in the audited consolidated financial statements for such
        five fiscal years;

                (v) They have compared the information in the Prospectus under
        selected captions


                                       -1-
   32
        with the disclosure requirements of Regulation S-K and on the basis of
        limited procedures specified in such letter nothing came to their
        attention as a result of the foregoing procedures that caused them to
        believe that this information does not conform in all material respects
        with the disclosure requirements of Items 301, 302, 402 and 503(d),
        respectively, of Regulation S-K;

                (vi) On the basis of limited procedures, not constituting an
        examination in accordance with generally accepted auditing standards,
        consisting of a reading of the unaudited financial statements and other
        information referred to below, a reading of the latest available interim
        financial statements of the Company, inspection of the minute books of
        the Company and its subsidiaries since the date of the latest audited
        financial statements included in the Prospectus, inquiries of officials
        of the Company responsible for financial and accounting matters and such
        other inquiries and procedures as may be specified in such letter,
        nothing came to their attention that caused them to believe that:

                (A) (i) the unaudited consolidated statements of income,
        consolidated balance sheets and consolidated statements of cash flows
        included in the Prospectus do not comply as to form in all material
        respects with the applicable accounting requirements of the Act and the
        related published rules and regulations, or (ii) any material
        modifications should be made to the unaudited condensed consolidated
        statements of income, consolidated balance sheets and consolidated
        statements of cash flows included in the Prospectus for them to be in
        conformity with generally accepted accounting principles;

                (B) any other unaudited income statement data and balance sheet
        items included in the Prospectus do not agree with the corresponding
        items in the unaudited consolidated financial statements from which such
        data and items were derived, and any such unaudited data and items were
        not determined on a basis substantially consistent with the basis for
        the corresponding amounts in the audited consolidated financial
        statements included in the Prospectus;

                (C) the unaudited financial statements which were not included
        in the Prospectus but from which were derived any unaudited condensed
        financial statements referred to in Clause (A) and any unaudited income
        statement data and balance sheet items included in the Prospectus and
        referred to in Clause (B) were not determined on a basis substantially
        consistent with the basis for the audited consolidated financial
        statements included in the Prospectus;

                (D) any unaudited pro forma consolidated condensed financial
        statements included in the Prospectus do not comply as to form in all
        material respects with the applicable accounting requirements of the Act
        and the published rules and regulations thereunder or the pro forma
        adjustments have not been properly applied to the historical amounts in
        the compilation of those statements;

                (E) as of a specified date not more than five days prior to the
        date of such letter, there have been any changes in the consolidated
        capital stock (other than


                                       -2-
   33
        issuances of capital stock upon exercise of options and stock
        appreciation rights, upon earn-outs of performance shares and upon
        conversions of convertible securities, in each case which were
        outstanding on the date of the latest financial statements included in
        the Prospectus) or any increase in the consolidated long-term debt of
        the Company, or any decreases in consolidated net current assets or
        stockholders' equity or other items specified by the Representatives, or
        any increases in any items specified by the Representatives, in each
        case as compared with amounts shown in the latest balance sheet included
        in the Prospectus, except in each case for changes, increases or
        decreases which the Prospectus discloses have occurred or may occur or
        which are described in such letter; and

                (F) for the period from the date of the latest financial
        statements included in the Prospectus to the specified date referred to
        in Clause (E) there were any decreases in consolidated net revenues or
        operating profit or the total or per share amounts of consolidated net
        income or other items specified by the Representatives, or any increases
        in any items specified by the Representatives, in each case as compared
        with the comparable period of the preceding year and with any other
        period of corresponding length specified by the Representatives, except
        in each case for decreases or increases which the Prospectus discloses
        have occurred or may occur or which are described in such letter; and

                (vii) In addition to the examination referred to in their
        report(s) included in the Prospectus and the limited procedures,
        inspection of minute books, inquiries and other procedures referred to
        in paragraphs (iii) and (vi) above, they have carried out certain
        specified procedures, not constituting an examination in accordance with
        generally accepted auditing standards, with respect to certain amounts,
        percentages and financial information specified by the Representatives,
        which are derived from the general accounting records of the Company,
        which appear in the Prospectus, or in Part II of, or in exhibits and
        schedules to, the Registration Statement specified by the
        Representatives, and have compared certain of such amounts, percentages
        and financial information with the accounting records of the Company and
        have found them to be in agreement.


                                       -3-
   34
                                                                      ANNEX I(a)

         COMFORT LETTER DELIVERED PRIOR TO EXECUTION OF THIS AGREEMENT


                                       -4-
   35
                                                                      ANNEX I(b)

                             UPDATED COMFORT LETTER


                                       -5-
   36
                                                                     ANNEX II(a)


                         OPINION OF UNDERWRITERS COUNSEL


                                       -6-
   37
                                                                     ANNEX II(b)


                           OPINION OF COMPANY COUNSEL


                                       -7-
   38
                                                                     ANNEX II(c)


                   OPINION OF GENERAL COUNSEL FOR THE COMPANY


                                       -8-
   39
                                                                     ANNEX II(d)


                        OPINION OF SPECIAL PATENT COUNSEL


                                       -9-
   40
                                                                     ANNEX II(e)


                   OPINION OF COUNSEL FOR SELLING STOCKHOLDERS


                                      -10-
   41
                                                                       ANNEX III


                          CERTAIN SELLING STOCKHOLDERS


                                             -11-

   1
                                                                     Exhibit 1.2

                                                                  FORM OF



                                CIENA CORPORATION

                     COMMON STOCK, PAR VALUE $.01 PER SHARE

                             UNDERWRITING AGREEMENT
                             (INTERNATIONAL VERSION)

                                                    ....................., 1997


Goldman Sachs International,
Alex. Brown & Sons Incorporated
Wessels, Arnold & Henderson, L.L.C.
  as representatives of the several
  Underwriters named in Schedule I hereto,
c/o Goldman Sachs International
Peterborough Court,
133 Fleet Street,
London EC4A 2BB, England.

Ladies and Gentlemen:

      CIENA Corporation, a Delaware corporation (the "Company"), proposes,
subject to the terms and conditions stated herein, to issue and sell to the
Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of
200,000 shares and, at the election of the Underwriters, up to 30,000 additional
shares of Common Stock, par value $.01 per share ("Stock"), of the Company and
the stockholders of the Company named in Schedule II hereto (the "Selling
Stockholders") propose, subject to the terms and conditions stated herein, to
sell to the Underwriters an aggregate of 1,800,000 shares and, at the election
of the Underwriters, up to 270,000 additional shares of Stock. The aggregate of
2,000,000 shares to be sold by the Company and the Selling Stockholders is
herein called the "Firm Shares" and the aggregate of 300,000 additional shares
to be sold by the Company and the Selling Stockholders is herein called the
"Optional Shares". The Firm Shares and the Optional Shares which the
Underwriters elect to purchase pursuant to Section 2 hereof are herein
collectively called, the "Shares".

      It is understood and agreed to by all parties that the Company and the
Selling Stockholders are concurrently entering into an agreement, a copy of
which is attached hereto (the "U.S. Underwriting Agreement"), providing for the
sale by the Company and the Selling Stockholders of up to a total of 9,200,000
shares of Stock (the "U.S. Shares"), including the overallotment option
thereunder, through arrangements with certain underwriters in the United States
(the "U.S. Underwriters"), for whom Goldman, Sachs & Co., Alex. Brown & Sons
Incorporated and Wessels, Arnold & Henderson, L.L.C. are acting as
representatives. Anything herein or therein to the contrary notwithstanding, the
respective closings under this Agreement and the U.S. Underwriting Agreement are
hereby expressly made conditional on one another. The Underwriters hereunder and
the U.S. Underwriters are simultaneously entering into an Agreement between U.S.
and International Underwriting Syndicates (the "Agreement between Syndicates")
which provides, among other things, for the transfer of shares of Stock between
the two syndicates and for consultation by the Lead Manager hereunder with
Goldman, Sachs & Co.
   2
prior to exercising the rights of the Underwriters under Section 7 hereof. Two
forms of prospectus are to be used in connection with the offering and sale of
shares of Stock contemplated by the foregoing, one relating to the Shares
hereunder and the other relating to the U.S. Shares. The latter form of
prospectus will be identical to the former except for certain substitute pages.
Except as used in Sections 2, 3, 4, 9 and 11 herein, and except as context may
otherwise require, references hereinafter to the Shares shall include all of the
shares of Stock which may be sold pursuant to either this Agreement or the U.S.
Underwriting Agreement, and references herein to any prospectus whether in
preliminary or final form, and whether as amended or supplemented, shall include
both the U.S. and the international versions thereof.

      In addition, this Agreement incorporates by reference certain provisions
from the U.S. Underwriting Agreement (including the related definitions of
terms, which are also used elsewhere herein) and, for purposes of applying the
same, references (whether in these precise words or their equivalent) in the
incorporated provisions to the "Underwriters" shall be to the Underwriters
hereunder, to the "Shares" shall be to the Shares hereunder as just defined, to
"this Agreement" (meaning therein the U.S. Underwriting Agreement) shall be to
this Agreement (except where this Agreement is already referred to or as the
context may otherwise require) and to the representatives of the Underwriters or
to Goldman, Sachs & Co. shall be to the addressees of this Agreement and to
Goldman Sachs International ("GSI"), and, in general, all such provisions and
defined terms shall be applied mutatis mutandis as if the incorporated
provisions were set forth in full herein having regard to their context in this
Agreement as opposed to the U.S. Underwriting Agreement.

      1. The Company and each of the several Selling Stockholders hereby make to
the Underwriters the same respective representations, warranties and agreements
as are set forth in Section 1 of the U.S. Underwriting Agreement, which Section
is incorporated herein by this reference.

      2. Subject to the terms and conditions herein set forth, the Company and
each of the Selling Stockholders agree, severally and not jointly, to sell to
each of the Underwriters, and each of the Underwriters agrees, severally and not
jointly, to purchase from the Company and each of the Selling Stockholders, at a
purchase price per share of $............, the number of Firm Shares (to be
adjusted by you so as to eliminate fractional shares) determined by multiplying
the aggregate number of Firm Shares to be sold by the Company and each of the
Selling Stockholders as set forth opposite their respective names in Schedule II
hereto by a fraction, the numerator of which is the aggregate number of Firm
Shares to be purchased by such Underwriter as set forth opposite the name of
such Underwriter in Schedule I hereto and the denominator of which is the
aggregate number of Firm Shares to be purchased by all the Underwriters from the
Company and all the Selling Stockholders hereunder and (b) in the event and to
the extent that the Underwriters shall exercise the election to purchase
Optional Shares as provided below, the Company and each of the Selling
Stockholders agree, severally and not jointly, to sell to each of the
Underwriters, and each of the Underwriters agrees, severally and not jointly, to
purchase from the Company and each of the Selling Stockholders, at the purchase
price per share set forth in clause (a) of this Section 2, that portion of the
number of Optional Shares as to which such election shall have been exercised
(to be adjusted by you so as to eliminate fractional shares) determined by
multiplying such number of Optional Shares by a fraction the numerator of which
is the maximum number of Optional Shares which such Underwriter is entitled to
purchase as set forth opposite the name of such Underwriter in Schedule I hereto
and the denominator of which is the maximum number of Optional Shares that all
of the Underwriters are entitled to purchase hereunder.

      The Company and the Selling Stockholders, as and to the extent indicated
in Schedule II hereto, hereby grant, severally and not jointly, to the
Underwriters the right to purchase at their election up to
 ........................ Optional Shares, at the purchase price per share set
forth in the paragraph above, for the sole purpose of covering overallotments in
the sale of the Firm Shares. Any such election to purchase Optional Shares shall
be made [in proportion to the maximum number of Optional Shares to


                                        2
   3
be sold by the Company and each Selling Stockholder as set forth in Schedule II
hereto. Any such election to purchase Optional Shares may be exercised only by
written notice from you to the Company and the Attorneys-in-Fact, given within a
period of 30 calendar days after the date of this Agreement and setting forth
the aggregate number of Optional Shares to be purchased and the date on which
such Optional Shares are to be delivered, as determined by you but in no event
earlier than the First Time of Delivery (as defined in Section 4 hereof) or,
unless you and the Company and the Attorneys-in-Fact otherwise agree in writing,
earlier than two or later than ten business days after the date of such notice.

      3. Upon the authorization by GSI of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus and in the forms of Agreement among
Underwriters (International Version) and Selling Agreements, which have been
previously submitted to the Company by you. Each Underwriter hereby makes to and
with the Company and the Selling Stockholders the representations and agreements
of such Underwriter as a member of the selling group contained in Sections 3(d)
and 3(e) of the form of Selling Agreements.

      4. (a) The Shares to be purchased by each Underwriter hereunder, in
      definitive form, and in such authorized denominations and registered in
      such names as Goldman, Sachs & Co. may request upon at least forty-eight
      hours' prior notice to the Company and the Selling Stockholders shall be
      delivered by or on behalf of the Company and the Selling Stockholders to
      Goldman, Sachs & Co., through the facilities of The Depository Trust
      Company ("DTC"), for the account of such Underwriter, against payment by
      or on behalf of such Underwriter of the purchase price therefor by
      certified or official bank check or checks, payable to the order of the
      Company and the Custodian, as their interests may appear, in Federal (same
      day) funds. The Company will cause the certificates representing the
      Shares to be made available for checking and packaging at least
      twenty-four hours prior to the Time of Delivery (as defined below) with
      respect thereto at the office of DTC or its designated custodian (the
      "Designated Office"). The time and date of such delivery and payment shall
      be 9:30 a.m., New York City time, on ............., 1997 or such other
      time and date as Goldman, Sachs & Co., the Company and the Selling
      Stockholders may agree upon in writing. Such time and date are herein
      called the "Time of Delivery". The Time and date of such delivery and
      payment shall be, with respect to the Firm Shares, 9:30 a.m., New York
      City time, on ............., 1997 on such other time and date as Goldman,
      Sachs & Co., the Company and the Selling Stockholders may agree upon in
      writing, and, with respect to the Optional Shares, 9:30 a.m., New York
      time, on the date specified by Goldman, Sachs & Co. in the written notice
      given by Goldman, Sachs & Co. of the Underwriters' election to purchase
      such Optional Shares, or such other time and date as Goldman, Sachs & Co.,
      the Company and the Selling Stockholders may agree upon in writing. Such
      time and date for delivery of the Firm Shares is herein called the "First
      Time of Delivery", such time and date for delivery of the Firm Optional
      Shares, if not the First Time of Delivery, is herein called the "Second
      Time of Delivery", and each such time and date for delivery is herein
      called a "Time of Delivery".

      (b) The documents to be delivered at each Time of Delivery by or on behalf
      of the parties hereto pursuant to Section 7 of the U.S. Underwriting
      Agreement, including the cross-receipt for the Shares and any additional
      documents requested by the Underwriters pursuant to Section 7(m) of the
      U.S. Underwriting Agreement, will be delivered at the offices of Hale and
      Dorr LLP, The Williard Building, 1455 Pennsylvania Avenue, N.W.,
      Washington, D.C. 20004 (the "Closing Location"), and the Shares will be
      delivered at the Designated Office, all at the Time of Delivery. A meeting
      will be held at the Closing Location at ..............p.m., New York City
      time, on the New York Business Day next preceding each Time of Delivery,
      at which meeting the final drafts of the documents to be delivered
      pursuant to the preceding sentence will be available for review by the
      parties hereto. For the purposes of this Section 4, "New York Business
      Day" shall mean


                                        3
   4
      each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on
      which banking institutions in New York are generally authorized or
      obligated by law or executive order to close.

      5. The Company hereby makes with the Underwriters the same agreements as
are set forth in Section 5 of the U.S. Underwriting Agreement, which Section is
incorporated herein by this reference.

      6. The Company, each of the Selling Stockholders, and the Underwriters
hereby agree with respect to certain expenses on the same terms as are set forth
in Section 6 of the U.S. Underwriting Agreement, which Section is incorporated
herein by this reference.

      7. Subject to the provisions of the Agreement between Syndicates, the
obligations of the Underwriters hereunder shall be subject, in their discretion,
at each Time of Delivery to the condition that all representations and
warranties and other statements of the Company, and the Selling Stockholders
herein are, at and as of such Time of Delivery, true and correct, the condition
that the Company and the Selling Stockholders shall have performed all of their
respective obligations hereunder theretofore to be performed, and additional
conditions identical to those set forth in Section 7 of the U.S. Underwriting
Agreement, which Section is incorporated herein by this reference.

      8. (a) The Company and each of the Selling Stockholders identified in
      Annex III to the U.S. Underwriting Agreement, jointly and severally, will
      indemnify and hold harmless each Underwriter against any losses, claims,
      damages or liabilities, joint or several, to which such Underwriter may
      become subject, under the Act or otherwise, insofar as such losses,
      claims, damages or liabilities (or actions in respect thereof) arise out
      of or are based upon an untrue statement or alleged untrue statement of a
      material fact contained in any Preliminary Prospectus, the Registration
      Statement or the Prospectus, or any amendment or supplement thereto, or
      arise out of or are based upon the omission or alleged omission to state
      therein a material fact required to be stated therein or necessary to make
      the statements therein not misleading, and will reimburse each Underwriter
      for any legal or other expenses reasonably incurred by such Underwriter in
      connection with investigating or defending any such action or claim as
      such expenses are incurred; provided, however, that the Company and such
      Selling Stockholders shall not be liable in any such case to the extent
      that any such loss, claim, damage or liability arises out of or is based
      upon an untrue statement or alleged untrue statement or omission or
      alleged omission made in any Preliminary Prospectus, the Registration
      Statement or the Prospectus or any such amendment or supplement in
      reliance upon and in conformity with written information furnished to the
      Company by any Underwriter through GSI expressly for use therein;
      provided, further, that the liability of a Selling Stockholder pursuant to
      this subsection 8(a) and subsection (b) shall not exceed the product of
      the number of shares sold by such Selling Stockholder and the initial
      public offering price of the Shares as set forth in the Prospectus.

      (b) Each of the Selling Stockholders will indemnify and hold harmless each
      Underwriter against any losses, claims, damages or liabilities, joint or
      several, to which such Underwriter may become subject, under the Act or
      otherwise, insofar as such losses, claims, damages or liabilities (or
      actions in respect thereof) arise out of or are based upon an untrue
      statement or alleged untrue statement of a material fact contained in any
      Preliminary Prospectus, the Registration Statement or the Prospectus, or
      any amendment or supplement thereto, or arise out of or are based upon the
      omission or alleged omission to state therein a material fact required to
      be stated therein or necessary to make the statements therein not
      misleading, in each case to the extent, but only to the extent, that such
      untrue statement or alleged untrue statement or omission or alleged
      omission was made in any Preliminary Prospectus, the Registration
      Statement or the Prospectus or any such amendment or supplement in
      reliance upon and in


                                        4
   5
      conformity with written information furnished to the Company by such
      Selling Stockholder expressly for use therein; and will reimburse each
      Underwriter for any legal or other expenses reasonably incurred by such
      Underwriter in connection with investigating or defending any such action
      or claim as such expenses are incurred; provided, however, that such
      Selling Stockholder shall not be liable in any such case to the extent
      that any such loss, claim, damage or liability arises out of or is based
      upon an untrue statement or alleged untrue statement or omission or
      alleged omission made in any Preliminary Prospectus, the Registration
      Statement or the Prospectus or any such amendment or supplement in
      reliance upon and in conformity with written information furnished to the
      Company by any Underwriter through GSI expressly for use therein;
      provided, further, that the liability of a Selling Stockholder pursuant to
      subsection 8(a) and this subsection 8(b) shall not exceed the product of
      the number of shares sold by such Selling Stockholder and the initial
      public offering price of the shares as set forth in the Prospectus.

            (c) Each Underwriter will indemnify and hold harmless the Company
      and each Selling Stockholder against any losses, claims, damages or
      liabilities to which the Company or such Selling Stockholder may become
      subject, under the Act or otherwise, insofar as such losses, claims,
      damages or liabilities (or actions in respect thereof) arise out of or are
      based upon an untrue statement or alleged untrue statement of a material
      fact contained in any Preliminary Prospectus, the Registration Statement
      or the Prospectus, or any amendment or supplement thereto, or arise out of
      or are based upon the omission or alleged omission to state therein a
      material fact required to be stated therein or necessary to make the
      statements therein not misleading, in each case to the extent, but only to
      the extent, that such untrue statement or alleged untrue statement or
      omission or alleged omission was made in any Preliminary Prospectus, the
      Registration Statement or the Prospectus or any such amendment or
      supplement in reliance upon and in conformity with written information
      furnished to the Company by such Underwriter through GSI expressly for use
      therein; and will reimburse the Company and each Selling Stockholder for
      any legal or other expenses reasonably incurred by the Company or such
      Selling Stockholder in connection with investigating or defending any such
      action or claim as such expenses are incurred.

            (d) Promptly after receipt by an indemnified party under subsection
      (a), (b) or (c) above of notice of the commencement of any action, such
      indemnified party shall, if a claim in respect thereof is to be made
      against an indemnifying party under such subsection, notify the
      indemnifying party in writing of the commencement thereof; but the
      omission so to notify the indemnifying party shall not relieve it from any
      liability which it may have to any indemnified party otherwise than under
      such subsection. In case any such action shall be brought against any
      indemnified party and it shall notify the indemnifying party of the
      commencement thereof, the indemnifying party shall be entitled to
      participate therein and, to the extent that it shall wish, jointly with
      any other indemnifying party similarly notified, to assume the defense
      thereof, with counsel satisfactory to such indemnified party (who shall
      not, except with the consent of the indemnified party, be counsel to the
      indemnifying party), and, after notice from the indemnifying party to such
      indemnified party of its election so to assume the defense thereof, the
      indemnifying party shall not be liable to such indemnified party under
      such subsection for any legal expenses of other counsel or any other
      expenses, in each case subsequently incurred by such indemnified party, in
      connection with the defense thereof other than reasonable costs of
      investigation. No indemnifying party shall, without the written consent of
      the indemnified party, effect the settlement or compromise of, or consent
      to the entry of any judgment with respect to, any pending or threatened
      action or claim in respect of which indemnification or contribution may be
      sought hereunder (whether or not the indemnified party is an actual or
      potential party to such action or claim) unless such settlement,
      compromise or judgment (i) includes an unconditional release of the
      indemnified party from all liability arising out of such action or claim
      and (ii) does

                                        5
   6
      not include a statement as to or an admission of fault, culpability or a
      failure to act, by or on behalf of any indemnified party.

            (e) If the indemnification provided for in this Section 8 is
      unavailable to or insufficient to hold harmless an indemnified party under
      subsection (a), (b) or (c) above in respect of any losses, claims, damages
      or liabilities (or actions in respect thereof) referred to therein, then
      each indemnifying party shall contribute to the amount paid or payable by
      such indemnified party as a result of such losses, claims, damages or
      liabilities (or actions in respect thereof) in such proportion as is
      appropriate to reflect the relative benefits received by the Company and
      the Selling Stockholders on the one hand and the Underwriters on the other
      from the offering of the Shares. If, however, the allocation provided by
      the immediately preceding sentence is not permitted by applicable law or
      if the indemnified party failed to give the notice required under
      subsection (d) above, then each indemnifying party shall contribute to
      such amount paid or payable by such indemnified party in such proportion
      as is appropriate to reflect not only such relative benefits but also the
      relative fault of the Company and the Selling Stockholders on the one hand
      and the Underwriters on the other in connection with the statements or
      omissions which resulted in such losses, claims, damages or liabilities
      (or actions in respect thereof), as well as any other relevant equitable
      considerations. The relative benefits received by the Company and the
      Selling Stockholders on the one hand and the Underwriters on the other
      shall be deemed to be in the same proportion as the total net proceeds
      from the offering of the Shares purchased under this Agreement (before
      deducting expenses) received by the Company and the Selling Stockholders
      bear to the total underwriting discounts and commissions received by the
      Underwriters with respect to the Shares purchased under this Agreement, in
      each case as set forth in the table on the cover page of the Prospectus.
      The relative fault shall be determined by reference to, among other
      things, whether the untrue or alleged untrue statement of a material fact
      or the omission or alleged omission to state a material fact relates to
      information supplied by the Company or the Selling Stockholders on the one
      hand or the Underwriters on the other and the parties' relative intent,
      knowledge, access to information and opportunity to correct or prevent
      such statement or omission. The Company, each of the Selling Stockholders
      and the Underwriters agree that it would not be just and equitable if
      contributions pursuant to this subsection (e) were determined by pro rata
      allocation (even if the Underwriters were treated as one entity for such
      purpose) or by any other method of allocation which does not take account
      of the equitable considerations referred to above in this subsection (e).
      The amount paid or payable by an indemnified party as a result of the
      losses, claims, damages or liabilities (or actions in respect thereof)
      referred to above in this subsection (e) shall be deemed to include any
      legal or other expenses reasonably incurred by such indemnified party in
      connection with investigating or defending any such action or claim.
      Notwithstanding the provisions of this subsection (e), no Underwriter
      shall be required to contribute any amount in excess of the amount by
      which the total price at which the Shares underwritten by it and
      distributed to the public were offered to the public exceeds the amount of
      any damages which such Underwriter has otherwise been required to pay by
      reason of such untrue or alleged untrue statement or omission or alleged
      omission. No person guilty of fraudulent misrepresentation (within the
      meaning of Section 11(f) of the Act) shall be entitled to contribution
      from any person who was not guilty of such fraudulent misrepresentation.
      The Underwriters' obligations in this subsection (e) to contribute are
      several in proportion to their respective underwriting obligations and not
      joint.

            (f) The obligations of the Company and the Selling Stockholders
      under this Section 8 shall be in addition to any liability which the
      Company and the respective Selling Stockholders may otherwise have and
      shall extend, upon the same terms and conditions, to each person, if any,
      who controls any Underwriter within the meaning of the Act; and the
      obligations of the Underwriters under this Section 8 shall be in addition
      to any liability which the respective

                                      6
   7
      Underwriters may otherwise have and shall extend, upon the same terms and
      conditions, to each officer and director of the Company and to each
      person, if any, who controls the Company or any Selling Stockholder within
      the meaning of the Act.

      9. (a) If any Underwriter shall default in its obligation to purchase the
      Shares which it has agreed to purchase hereunder at a Time of Delivery,
      you may in your discretion arrange for you or another party or other
      parties to purchase such Shares on the terms contained herein. If within
      thirty-six hours after such default by any Underwriter you do not arrange
      for the purchase of such Shares, then the Company and the Selling
      Stockholders shall be entitled to a further period of thirty-six hours
      within which to procure another party or other parties satisfactory to you
      to purchase such Shares on such terms. In the event that, within the
      respective prescribed periods, you notify the Company and the Selling
      Stockholders that you have so arranged for the purchase of such Shares, or
      the Company and the Selling Stockholders notify you that they have so
      arranged for the purchase of such Shares, you or the Company and the
      Selling Stockholders shall have the right to postpone such Time of
      Delivery for a period of not more than seven days, in order to effect
      whatever changes may thereby be made necessary in the Registration
      Statement or the Prospectus, or in any other documents or arrangements,
      and the Company agrees to file promptly any amendments to the Registration
      Statement or the Prospectus which in your opinion may thereby be made
      necessary. The term "Underwriter" as used in this Agreement shall include
      any person substituted under this Section with like effect as if such
      person had originally been a party to this Agreement with respect to such
      Shares.

            (b) If, after giving effect to any arrangements for the purchase of
      the Shares of a defaulting Underwriter or Underwriters by you and the
      Company and the Selling Stockholders as provided in subsection (a) above,
      the aggregate number of such Shares which remains unpurchased does not
      exceed one-eleventh of the aggregate number of all the Shares to be
      purchased at such Time of Delivery, then the Company and the Selling
      Stockholders shall have the right to require each non-defaulting
      Underwriter to purchase the number of shares which such Underwriter agreed
      to purchase hereunder at such Time of Delivery and, in addition, to
      require each non-defaulting Underwriter to purchase its pro rata share
      (based on the number of Shares which such Underwriter agreed to purchase
      hereunder) of the Shares of such defaulting Underwriter or Underwriters
      for which such arrangements have not been made; but nothing herein shall
      relieve a defaulting Underwriter from liability for its default.

            (c) If, after giving effect to any arrangements for the purchase of
      the Shares of a defaulting Underwriter or Underwriters by you and the
      Company and the Selling Stockholders as provided in subsection (a) above,
      the aggregate number of such Shares which remains unpurchased exceeds
      one-eleventh of the aggregate number of all the Shares to be purchased at
      such Time of Delivery, or if the Company and the Selling Stockholders
      shall not exercise the right described in subsection (b) above to require
      non-defaulting Underwriters to purchase Shares of a defaulting Underwriter
      or Underwriters, then this Agreement (or, with respect to the Second Time
      of Delivery, the obligations of the Underwriters to purchase and of the
      Company and the Selling Stockholders to sell the Optional Shares) shall
      thereupon terminate, without liability on the part of any non-defaulting
      Underwriter or the Company or the Selling Stockholders, except for the
      expenses to be borne by the Company and the Selling Stockholders and the
      Underwriters as provided in Section 6 hereof and the indemnity and
      contribution agreements in Section 8 hereof; but nothing herein shall
      relieve a defaulting Underwriter from liability for its default.

      10. The respective indemnities, agreements, representations, warranties
and other statements of the Company, the Selling Stockholders and the several
Underwriters, as set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement, shall remain in


                                        7
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full force and effect, regardless of any investigation (or any statement as to
the results thereof) made by or on behalf of any Underwriter or any controlling
person of any Underwriter, or the Company or any of the Selling Stockholders, or
any officer or director or controlling person of the Company or any controlling
person of any Selling Stockholders, and shall survive delivery of and payment
for the Shares.

      11. If this Agreement shall be terminated pursuant to Section 9 hereof,
neither the Company nor the Selling Stockholders shall then be under any
liability to any Underwriter except as provided in Section 6 and Section 8
hereof; but, if for any other reason, any Shares are not delivered by or on
behalf of the Company and the Selling Stockholders as provided herein, the
Company and each of the Selling Stockholders pro rata (based on the number of
Shares to be sold by the Company and such Selling Stockholder hereunder) will
reimburse the Underwriters through GSI for all out-of-pocket expenses approved
in writing by GSI, including fees and disbursements of counsel, reasonably
incurred by the Underwriters in making preparations for the purchase, sale and
delivery of the Shares not so delivered, but the Company and the Selling
Stockholders shall then be under no further liability to any Underwriter in
respect of the Shares not so delivered except as provided in Sections 6 and 8
hereof.

      12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by GSI on behalf of you as the representatives of the
Underwriters; and in all dealings with any Selling Stockholder hereunder, you
and the Company shall be entitled to act and rely upon any statement, request,
notice or agreement on behalf of such Selling Stockholder made or given by any
or all of the Attorneys-in-Fact for such Selling Stockholder.

      All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to the Underwriters in care of GSI, Peterborough Court,
133 Fleet Street, London EC4A 2BB, England, Attention: Equity Capital Markets,
Telex No. 94012165, facsimile transmission No. (071) 774-1550; if to any Selling
Stockholder shall be delivered or sent by mail, telex or facsimile transmission
to counsel for such Selling Stockholder at its address set forth in Schedule II
hereto; and if to the Company shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the
Registration Statement, Attention: Secretary; provided, however, that any notice
to an Underwriter pursuant to Section 8(c)(d) hereof shall be delivered or sent
by mail, telex or facsimile transmission to such Underwriter at its address set
forth in its Underwriters' Questionnaire, or telex constituting such
Questionnaire, which address will be supplied to the Company or the Selling
Stockholders by GSI upon request. Any such statements, requests, notices or
agreements shall take effect upon receipt thereof.

      13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and the Selling Stockholders and, to the
extent provided in Sections 8 and 10 hereof, the officers and directors of the
Company and each person who controls the Company, any Selling Stockholder or any
Underwriter, and their respective heirs, executors, administrators, successors
and assigns, and no other person shall acquire or have any right under or by
virtue of this Agreement. No purchaser of any of the Shares from any Underwriter
shall be deemed a successor or assign by reason merely of such purchase.

      14. Time shall be of the essence of this Agreement.

      15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA.


                                        8
   9
      16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.

      If the foregoing is in accordance with your understanding, please sign and
return to us one for the Company and one for each of the Lead Managers or Lead
Managing Underwriters plus one for each counsel and the Custodian, if any]
counterparts hereof, and upon the acceptance hereof by you, on behalf of each of
the Underwriters, this letter and such acceptance hereof shall constitute a
binding agreement among each of the Underwriters, the Company and each of the
Selling Stockholders. It is understood that your acceptance of this letter on
behalf of each of the Underwriters is pursuant to the authority set forth in a
form of Agreement among Underwriters (International Version), the form of which
shall be furnished to the Company and the Selling Stockholders for examination
upon request, but without warranty on your part as to the authority of the
signers thereof.

      Any person executing and delivering this Agreement as Attorney-in-Fact for
a Selling Stockholder represents by so doing that he has been duly appointed as
Attorney-in-Fact by such Selling Stockholder pursuant to a validly existing and
binding Power of Attorney which authorizes such Attorney-in-Fact to take such
action.


                                    Very truly yours,

                                    CIENA CORPORATION


                                    By:   
                                          ------------------------------




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



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



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



                                    By:   
                                          ------------------------------
                                          Name:
                                          Title:

      As Attorney-in-Fact acting on behalf of each of the Selling Stockholders
named in Schedule II to this Agreement.


                                        9
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Accepted as of the date hereof:


Goldman Sachs International
Alex. Brown & Sons Incorporated
Wessels, Arnold & Henderson, L.L.C.


By:   Goldman Sachs International



By:   ____________________________
      (Attorney-in-fact)
      On behalf of each of the Underwriters


                                       10
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                                   SCHEDULE I



                                                            NUMBER OF OPTIONAL
                                                            SHARES TO BE
                                    TOTAL NUMBER OF         PURCHASED IF
                                    FIRM SHARES TO          MAXIMUM OPTION
UNDERWRITER                         BE PURCHASED            EXERCISED
- -----------                         ------------            ---------
                                                      
Goldman Sachs International
Alex. Brown & Sons Incorporated
Wessels, Arnold & Henderson, L.L.C.



TOTAL



                                       11
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                                   SCHEDULE II



                                                            NUMBER OF OPTIONAL
                                                            SHARES TO BE
                                    TOTAL NUMBER OF         SOLD IF
                                    FIRM SHARES TO          MAXIMUM OPTION
                                    BE SOLD                 EXERCISED
                                    -------                 ---------
                                                      
The Company
The Selling Stockholder(s):

                        (a)



      (a) This Selling Stockholder is represented by [NAME AND ADDRESS OF
COUNSEL] and has appointed __________________________ and
____________________________ and each of them, as the Attorneys-in-Fact for such
Selling Stockholder.


                                       12

   1
                                                                    EXHIBIT 23.2

                       CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of
this Registration Statement on Form S-1 of our report dated November 27, 1996,
except as to the stock split and share authorizations described in Note 14
which is as of December 10, 1996, relating to the financial statements of CIENA
Corporation, which appears in such Prospectus.  We also consent to the
reference to us under the heading "Experts" in such Prospectus.



/s/ PRICE WATERHOUSE LLP

PRICE WATERHOUSE LLP

Falls Church, VA
June 11, 1997