CIDRA CORP, S-1, 2000-10-11

CIDRA CORP
S-1, 2000-10-11

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<PAGE>

As filed with the Securities and Exchange Commission on October 11, 2000

Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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CIDRA CORPORATION
(Exact name of registrant as specified in its charter)

Delaware 3674 06-1461666
(Primary Standard (IRS Employer
(State or other Industrial Identification No.)
jurisdiction of Classification Code
incorporation or Number)
organization)

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50 Barnes Park North
Wallingford, CT 06492
(203) 265-0035
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)

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

F. Kevin Didden
President & Chief Executive Officer
CiDRA Corporation
50 Barnes Park North
Wallingford, CT 06492
(203) 265-0035
(Name, address, including zip code, and telephone number,
including area code, of agent for service)

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

With copies to:
Frank J. Marco, Esq. Michael Grillo, Esq. Alan Dean, Esq.
Lewis J. Geffen, Esq. Gerard L. DePardo, Esq. Davis Polk & Wardwell
Mintz, Levin, Cohn, CiDRA Corporation 450 Lexington Avenue
Ferris, 50 Barnes Park North New York, NY 10017
Glovsky and Popeo, P.C. Wallingford, CT 06492 (212) 450-4000
One Financial Center (203) 265-0035
Boston, MA 02111
(617) 542-6000

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

Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
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, 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 registration statement for the
same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier 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
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<TABLE>
<CAPTION>
Title of each class Proposed Maximum Aggregate Amount of
of securities to be registered Offering Price(1) Registration Fee(2)
--------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.001 par value
per share .................... $150,000,000 $39,600
--------------------------------------------------------------------------------
</TABLE>
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(1) Estimated solely for the purpose of calculating the amount of registration
fee pursuant to Rule 457(o) under the Securities Act, as amended.
(2) Calculated pursuant to Rule 457(a) based on an estimate of the proposed
maximum aggregate offering price.

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

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, as amended, or until the
Registration Statement shall become effective on such date as the Securities
and Exchange Commission, acting pursuant to Section 8(a), may determine.
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<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell securities, and we are not soliciting offers to buy these +
+securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued October 11, 2000

[CiDRA logo]
COMMON STOCK

-----------

CiDRA Corporation is offering shares of its common stock. This is our initial
public offering and no public market currently exists for our shares. We
anticipate that the initial public offering price will be between $ and $
per share.

-----------

We have applied to list our common stock on the Nasdaq National Market under
the symbol "CIDC."

-----------

Investing in our common stock involves risks. See "Risk Factors" beginning on
page 7.

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PRICE $ A SHARE

-----------

<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions CiDRA
-------- ------------- -----------
<S> <C> <C> <C>
Per Share.................... $ $ $
Total........................ $ $ $
</TABLE>

We have granted the underwriters the right to purchase up to an additional
shares of common stock to cover over-allotments.

The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.

Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers
on , 2000.

-----------
MORGAN STANLEY DEAN WITTER
CIBC WORLD MARKETS
UBS WARBURG LLC
THOMAS WEISEL PARTNERS LLC
RAYMOND JAMES & ASSOCIATES, INC.

, 2000
<PAGE>

[INSIDE FRONT COVER--ARTWORK TO COME]
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary......................................................... 4
Risk Factors............................................................... 7
Special Note Regarding Forward-Looking Statements.......................... 19
Use of Proceeds............................................................ 20
Dividend Policy............................................................ 20
Capitalization............................................................. 21
Dilution................................................................... 22
Selected Financial Data.................................................... 23
Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................. 24
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Business................................................................... 29
Management................................................................. 41
Related Party Transactions................................................. 50
Principal Stockholders..................................................... 52
Description of Capital Stock............................................... 54
Shares Eligible for Future Sale............................................ 57
Underwriters............................................................... 60
Legal Matters.............................................................. 63
Experts.................................................................... 63
Where You Can Find Additional Information.................................. 63
Index to Financial Statements.............................................. F-1
</TABLE>

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You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of common stock.

Until , 2000 (25 days after the date of this prospectus), all dealers
that buy, sell or trade our common stock, whether or not participating in this
offering, may be required to deliver a prospectus. This delivery requirement
is in addition to the obligation of dealers to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.

We were incorporated in Delaware on August 7, 1996. Our principal executive
offices are located at 50 Barnes Park North, Wallingford, Connecticut 06492,
and our telephone number is (203) 265-0035. Our web site address is
www.cidra.com. The information contained on our web site is not incorporated
by reference into this prospectus. We have included our web site address in
this prospectus only as an inactive textual reference and do not intend it to
be an active link to our web site. CiDRA, the CiDRA logo and AgileWave are our
trademarks. This prospectus also contains trademarks and trade names of other
entities.

Unless otherwise indicated, all information contained in this prospectus:

. assumes that the underwriters do not exercise their over-allotment
option;

. reflects a 2-for-1 split of our common stock effected on April 7, 2000;
and

. reflects the automatic conversion of all of our outstanding shares of
preferred stock into 38,995,680 shares of common stock upon completion
of this offering.

3
<PAGE>

PROSPECTUS SUMMARY

This summary is not complete and does not contain all of the information
that you should consider before investing in our common stock. You should read
the entire prospectus carefully, especially the risks of investing in our
common stock discussed under "Risk Factors."

CiDRA Corporation

We design, manufacture and market high-precision optical networking
products, based upon our proprietary optical waveguide technology, for next-
generation optical communications networks. Our products are designed to permit
highly accurate wavelength tuning to enable increased functionality,
flexibility and performance in optical networks. Our components serve as the
building blocks for our high value-added module and subsystem solutions, which
can actively route, condition and monitor, or manage, optical signals in real
time. Our unique manufacturing process is highly automated and scalable and is
designed to allow us to build customized wavelength management products in high
volumes. Our target customers include major suppliers of optical networking
equipment. We have recently received purchase orders from three large suppliers
of optical networking equipment, including Cisco Systems and Corvis
Corporation.

Technological innovation and the widespread use of the Internet, Internet-
based applications and corporate data networks have propelled the rapid growth
in the volume of data traffic transmitted across communications networks.
According to Ryan, Hankin & Kent, Inc., a leading market research and
consulting firm, the transmission of data traffic is predicted to increase from
350,000 terabytes per month in 1999 to more than 16 million terabytes per month
in 2003. Advanced next-generation optical networks built using new optical
components, modules and subsystems will serve as a primary means of addressing
this new demand.

We are developing a family of AgileWave components, modules and subsystems
to enable service providers to build next-generation optical networks,
principally by offering the following features and functionality:

. Higher Channel Counts. Our products can enable tighter channel spacings,
thereby allowing higher channel counts.

. Longer Reach, Greater Transmission Rates. Our products are being
developed to enable longer reach and greater transmission rates for
optical signals by providing critical monitoring and conditioning of
signal impairments that degrade quality and system performance.

. Increased Network Intelligence. Our AgileWave products are being
developed to bring greater intelligence to the optical layer to allow
communications service providers to more flexibly deliver bandwidth and
accelerate the provisioning of network services to better serve and
retain their customers.

. Stability and Reliability. We believe our products offer distinct
advantages over competing products in terms of thermal stability and the
limitation of undesired movement of wavelengths, or drift, and can
provide our customers increased network uptime and service reliability.

. Cost-Effectiveness. We are developing the manufacturing capacity for
high-volume production and offer several different products featuring a
common or substantially similar packaging technology, thereby reducing
our production costs.

Our objective is to be a leading provider of cost-effective optical
components, modules and subsystems for the optical networking industry and to
enable a new level of network flexibility, reliability and intelligence for
next-generation optical networks. In order to achieve this objective, a key
element of our strategy is to leverage and expand our innovative technology
platform to continue to develop precisely tunable, highly accurate and reliable
optical networking products. We will use this technology platform together with
our highly trained staff of optical engineers to rapidly respond to customer
requirements for customized solutions. We are also implementing a scalable,
efficient manufacturing process that we believe will enable us to deliver high
quality and reliable products while also enabling us to scale production to
large volumes.

4
<PAGE>

THE OFFERING

Common stock offered................
shares

Common stock to be outstanding
after this offering................. shares

Use of proceeds..................... We anticipate we will use the net
proceeds for general corporate
purposes, including capital
expenditures, product research and
development activities, working
capital and expansion of our sales
and marketing operations. See "Use
of Proceeds."

Proposed Nasdaq National Market
symbol.............................. CIDC

The information above is based on the number of shares of common stock
outstanding as of September 30, 2000 and assumes the conversion of all of our
preferred stock outstanding as of September 30, 2000 into 38,995,680 shares of
common stock upon the completion of this offering. It does not include:

. 1,726,948 shares of common stock issuable upon the exercise of stock
options outstanding as of September 30, 2000 at a weighted average
exercise price of $.83 per share;

. shares of common stock issuable upon the exercise of warrants
outstanding as of September 30, 2000 to purchase up to an aggregate
number of shares equal to five percent of the common stock sold to the
public in this offering at an exercise price equal to the initial public
offering price;

. shares of common stock reserved for future awards under our stock
plans; and

. 500,000 shares of common stock reserved for issuance under our 2000
Employee Stock Purchase Plan, which will become effective upon
completion of this offering.

5
<PAGE>

SUMMARY FINANCIAL DATA
(in thousands, except per share data)

<TABLE>
<CAPTION>
Year Ended December Six Months
31, Ended June 30,
------------------------ ---------------
1997 1998 1999 1999 2000
------ ------- ------- ------ -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue............................. $ -- $ -- $ -- $ -- $ 423
Loss from operations................ (2,418) (13,217) (21,491) (8,569) (12,697)
Net loss attributable to common
stockholders....................... (2,375) (12,715) (21,056) (8,476) (12,592)
====== ======= ======= ====== =======
Basic and diluted net loss
attributable to common
stockholders..................... $ (.72) $ (3.33) $ (3.39) $(1.50) $ (1.55)
====== ======= ======= ====== =======
Shares used in computing basic and
diluted net loss attributable to
common stockholders.............. 3,316 3,818 6,209 5,659 8,105
====== ======= ======= ====== =======
Pro forma basic and diluted net
loss per common share
(unaudited)...................... $ (.59) $ (.31)
======= =======
Pro forma shares used in computing
basic and diluted net loss per
common share (unaudited)......... 35,798 40,840
======= =======
</TABLE>

The summary balance sheet data as of June 30, 2000 are presented:

. on an actual basis;

. on a pro forma basis to give effect to the conversion of all of our
outstanding preferred stock into 38,995,680 shares of common stock upon
the completion of this offering; and

. on a pro forma as adjusted basis to give effect to the receipt of the
estimated net proceeds from the sale of the shares of common stock
in this offering at an assumed initial public offering price of $ per
share after deducting underwriting discounts and commissions and
estimated offering expenses.

<TABLE>
<CAPTION>
As of June 30, 2000
---------------------------
Pro
Pro Forma As
Actual Forma Adjusted
-------- -------- --------
(unaudited)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents......................... $103,947 $103,947 $
Working capital................................... 97,836 97,836
Total assets...................................... 116,975 116,975
Long-term debt, less current portion.............. 2,481 2,481
Manditorily redeemable convertible preferred
stock............................................ 150,425 --
Total stockholders' (deficit)/equity.............. (44,960) 105,465
</TABLE>

6
<PAGE>

RISK FACTORS

You should carefully consider the risks described below before making an
investment decision. The risks described below are not the only ones facing
us. Additional risks not presently known to us or that we currently deem
immaterial may also impair our business operations.

Our business, financial condition or results of operations could be
materially adversely affected by any of these risks. The trading price of our
common stock could decline due to any of these risks, and you may lose all or
part of your investment.

This prospectus also contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain
factors, including the risks faced by us described below and elsewhere in this
prospectus.

Risks Related to Our Business

We have never been profitable and expect to incur losses for the foreseeable
future

We have never been profitable and expect to continue to incur losses for
the foreseeable future. We incurred net losses of $239,000 in the period from
our inception on August 7, 1996 through December 31, 1996, $2.4 million in
1997, $12.7 million in 1998, $21.1 million in 1999, and $12.5 million in the
six months ended June 30, 2000. As of June 30, 2000, we had an accumulated
deficit of $49.0 million. To date, we have not achieved profitability on a
quarterly or annual basis. Due to lack of cash generated from operations, we
have funded our operations through the sale of equity securities, bank
borrowings and equipment lease financing. We have a large amount of fixed
expenses and we expect to continue to incur significant and increasing
manufacturing, sales and marketing, product development and administrative
expenses. We had no revenue for the period from our inception on August 7,
1996 through December 31, 1999. For the six months ended June 30, 2000, our
revenue of $423,000 was derived solely from the sale of industrial optical
sensing products, which is no longer the principal focus of our business. We
will need to generate revenue from optical networking products, the new focus
of our business, while containing our expenses, to achieve and maintain
profitability. We cannot assure you that we will ever generate sufficient
revenue to achieve and maintain profitability.

We have only recently shifted the focus of our business to optical networking
products therefore we have a limited operating history upon which you can
evaluate our business and prospects

We only recently shifted our business focus from industrial optical sensing
products to optical networking products. As a result, we have only a limited
operating history upon which you can evaluate our business and prospects. We
find it difficult to forecast our prospects accurately, and we do not have
meaningful historical financial data upon which to plan future operating
expenses. We did not shift our focus to optical networking products until the
first quarter of 2000, and we do not expect to begin commercial production of
our first optical networking product until the fourth quarter of 2000. We have
not yet generated any revenue from optical networking products. We face the
risks and difficulties frequently encountered by early stage companies in a
new and rapidly evolving market. The revenue and income potential of our
products and business are, and the size of our market is, unproven. Our
ability to sell products and achieve success will depend on, among other
things, the level of demand for our products and our capacity to meet demand.

We expect our quarterly revenue and operating results to fluctuate and the
price of our common stock could fall if quarterly results are lower than the
expectations of securities analysts and you may lose all or part of your
investment

We expect our revenue and operating results to fluctuate. As of June 30,
2000, all of our revenue had been derived from the sale of industrial optical
sensing products. As we expand our business focus on the development

7
<PAGE>

and sale of optical networking products, we expect that revenue from the sale
of industrial optical sensing products will represent an increasingly smaller
percentage of our revenue and that revenue from the sale of optical networking
products will eventually represent the substantial majority of our total
revenue. We anticipate that our revenue and operating results are likely to
vary significantly from quarter to quarter in the future. It is likely that in
future quarters our operating results may be below the expectations of public
market analysts or investors. If this occurs, the price of our common stock
will likely decrease. A number of factors, many of which are discussed in
other risk factors, may cause variations in our results of operations,
including:

. cancellations of orders and shipment rescheduling;

. our manufacturing capacity and yields;

. our ability to develop, introduce, manufacture and ship new and enhanced
products in a timely manner without defects;

. the mix of our products sold; and

. economic conditions and capital spending for optical networking
equipment in the communications and related industries.

A high percentage of our expenses, including those related to
manufacturing, engineering, sales and marketing, research and development and
general and administrative functions, are essentially fixed in the short term.
As a result, if we experience delays in generating and recognizing revenue,
our quarterly operating results are likely to be seriously harmed. As we
expand our manufacturing capacity, we will incur expenses for expansion in one
quarter that may not result in offsetting revenue until a subsequent quarter.
New product introductions can also result in a mismatching of research and
development expenses and sales and marketing expenses that are incurred in one
quarter with revenue that is not received until a subsequent quarter when the
new product is introduced. In addition, our quarterly results may be affected
by fluctuations in our manufacturing yields as we begin volume production of
our products. If growth in our revenue does not outpace the increase in our
expenses, our results of operations could be seriously harmed. Due to these
and other factors, we believe that quarter-to-quarter comparisons of our
operating results will not be meaningful. You should not rely on our results
for one quarter as any indication of our future performance.

We will only begin shipping the first of our optical networking products in
the fourth quarter of 2000 and our success depends on the commercial
acceptance of this product and the other optical products we have under
development

We will begin commercial shipments of our first optical networking product
in the fourth quarter of 2000. Until we are able to diversify our sales by
introducing other products, our optical networking revenues will be derived
solely from sales of our athermal channel filter. Our success will depend on
the commercial acceptance of this channel filter and our ability to develop
and find customers for the additional optical networking products we have
under development. In the near term, we expect that substantially all of our
optical networking revenues will be derived from a small number of products.

We expect that we will rely on a limited number of customers and that sales to
any single customer may vary significantly from quarter to quarter, which may
cause our operating results to fluctuate

We expect that our customer base will be limited and highly concentrated.
We also expect that sales to any single customer may vary significantly from
quarter to quarter. Customers in our industry tend to order large quantities
of products on an irregular basis. This means that customers who account for a
significant portion of our net revenue in one quarter may not place any orders
in the succeeding quarter. These ordering patterns may result in significant
quarterly fluctuations in our revenue and operating results. We do not expect
that our customers will have any minimum purchase obligations, and they may
stop placing orders with us at any time, regardless of any forecast they may
have previously provided. Accordingly, any downturn in our customers' business
could significantly decrease sales of our products to these customers. If
current and future customers do not place significant orders, or if we lose
key customers without a corresponding increase from other customers, our
operating results would be harmed.

8
<PAGE>

If we are unable to implement full-scale manufacturing capabilities for
optical networking products or expand our manufacturing capacity in a timely
manner when needed, we may have insufficient capacity, which will seriously
harm our revenue

We are currently in the process of completing our manufacturing
capabilities for full-scale production of optical networking products in our
facilities located in Wallingford, Connecticut. In addition, we plan to devote
significant resources to expanding our manufacturing capacity for optical
networking products in the future. We have no experience in manufacturing
optical networking products in commercial volumes or in rapidly increasing our
manufacturing capacity. We will be required to hire, train and manage
significant numbers of additional manufacturing personnel in order to develop
and increase our production capacity. There are numerous risks associated with
implementing full-scale production capabilities and rapidly increasing
capacity, including:

. the inability to procure and install the necessary equipment;

. lack of availability of manufacturing personnel;

. lack of availability of additional manufacturing facilities in desirable
locations on commercially reasonable terms;

. difficulties in achieving adequate yields from new manufacturing lines;
and

. the inability to match future order volumes with capacity.

If we are unable to develop or expand our manufacturing capacity in a
timely manner, we may have insufficient capacity, which will seriously harm
our business.

Because we depend on single or limited sources of supply for some of the
materials, components and equipment used to manufacture our products, we could
encounter difficulties in meeting scheduled product deliveries to our
customers, which could cause customers to cancel orders

We currently purchase several key materials and components used in our
products from single or limited sources of supply. These key materials and
components include optical waveguides, glass preforms and glass carriers. All
of our products include optical waveguides as a core component. We currently
purchase optical waveguides and stock preforms, which can be used to make
optical waveguides. We have no guaranteed supply arrangements for any of these
materials or components, which we generally purchase through purchase orders.
As a result, these suppliers could terminate the supply of these materials and
components at any time without penalty. Our failure to obtain these materials
and components or other single or limited-source materials and components
could delay or reduce our product shipments, which could result in lost
orders, increase our costs, reduce our control over quality and delivery
schedules or require us to redesign our products. If a significant supplier
became unable or unwilling to continue to manufacture or ship materials or
components in required volumes, we would have to identify and qualify an
acceptable replacement. A delay or reduction in shipments caused by a need to
identify and qualify replacement suppliers or a significant increase in our
need for materials or components that cannot be met on acceptable terms could
cause customers to cancel orders and would harm our business.

We also depend on a limited number of manufacturers and vendors that make
and sell the complex equipment that we use in our manufacturing process, such
as lasers. In periods of high market demand, the lead times from order to
delivery of this equipment could be as long as nine months. Delays in the
delivery of this equipment or increases in the cost of this equipment could
harm our operating results.

If we fail to manage our inventory levels for our manufacturing facilities
effectively, we could incur additional costs or experience manufacturing
delays

Because we experience long lead times for materials and are often required
to purchase significant amounts of these items far in advance of product
shipments, we may not effectively manage our inventory levels. It is very
important that we accurately predict both the demand for our products and the
lead times required to obtain

9
<PAGE>

the necessary components and materials. Lead times for components and
materials that we order vary significantly and depend on factors such as
specific supplier requirements, the size of the order, contract terms and
current market demand for the components or materials at a given time. For
substantial increases in production levels, some suppliers may need six months
or more lead time. If we overestimate our component and material requirements,
we may have excess or obsolete inventory, which would increase our costs. If
we underestimate our component and material requirements, we may have
inadequate inventory, which could interrupt our manufacturing and delay
delivery of our products to our customers, resulting in the loss of orders or
customers.

If we do not achieve acceptable manufacturing yields in a cost-effective
manner or achieve sufficient product reliability, our ability to ship products
to our customers could be delayed and our revenue may suffer

The manufacture of our products involves complex and precise processes.
Changes in our manufacturing processes or those of our suppliers, or their
inadvertent use of defective materials, could significantly reduce our
manufacturing yields and product reliability. The majority of our
manufacturing costs are relatively fixed. Accordingly, manufacturing yields
are critical to our results of operations. Lower than expected production
yields could delay product shipments and impair our gross margins. We cannot
assure you that we will achieve acceptable manufacturing yields in the future.

In some cases, existing manufacturing techniques involving substantial
manual labor may not allow us to meet our production goals cost-effectively.
We will need to develop new manufacturing processes and techniques that will
involve higher levels of automation to increase our gross margins and achieve
the price levels acceptable to our customers. However, we cannot assure you
that we can achieve manufacturing cost levels that will fully satisfy our
customer demands.

Because we plan to produce many of our products to meet the specifications
of our customers and to introduce new products and product enhancements
regularly, we must effectively transfer production information from our
product development department to our manufacturing group and coordinate our
efforts with those of our suppliers. If we fail to effectively manage this
process or if we experience delays, disruptions or quality control problems in
our manufacturing operations, our shipments of products to our customers could
be delayed, which could result in the loss of orders or customers.

If our customers do not qualify our products to be designed into their
products and systems, we could lose significant customer sales and
opportunities and may not be successful

Optical networking equipment manufacturers often undertake extensive
qualification processes prior to placing orders for large quantities of
products like ours, because these products must function as part of a larger
system or network. Once they decide to use a particular supplier's product or
component, these customers design the product into their system. Suppliers
whose products or components are not designed into a company's system are
unlikely to make sales to that company until at least the adoption of a future
redesigned system. Even then, many companies may be reluctant to design
entirely new products into their new systems, as it could involve significant
additional redesign efforts. If we fail in a potential customer's
qualification process, we will lose the opportunity for significant sales to
that customer for a lengthy period of time.

If our customers do not qualify our manufacturing lines for volume shipments,
they may not purchase our products and our operating results would suffer

Generally, optical networking equipment manufacturers do not purchase
products like ours, other than in limited numbers of evaluation units, prior
to qualification of the manufacturing line for volume production. Our existing
manufacturing lines, as well as each new manufacturing line, must pass through
varying levels of qualification with our customers. Although we have received
ISO 9001 certification, customers may also require that we be registered under
other quality standards, such as TL 9000. This customer qualification process
determines whether our manufacturing lines meet the customers' quality,
performance and reliability standards. If there are delays in qualification of
our manufacturing lines, our customers may drop the product from a long-term
supply program, which would result in significant lost revenue opportunity
over the term of that program.

10
<PAGE>

We expect a lengthy and variable qualification and sales cycle for our optical
networking products which will make it difficult to predict the timing or
probability of a sale and may cause us to have excess manufacturing capacity
or inventory

We expect our customers to expend significant efforts in evaluating and
qualifying our products and manufacturing process. This evaluation and
qualification process will likely result in a lengthy sales cycle. While
potential customers are evaluating our products and before they place an order
with us, we may incur substantial sales and marketing and research and
development expenses, expend significant management efforts, increase
manufacturing capacity and order long-lead-time supplies prior to receiving an
order. Even after this evaluation process, it is possible that a potential
customer will not purchase our products. In addition, product purchases are
frequently subject to unexpected delays. If we increase capacity and order
supplies in anticipation of an order that does not materialize, our gross
margins will decline and we will have to carry or write off excess inventory.
Even if we receive an order, the additional manufacturing capacity that we add
to service the customer's requirements may be underutilized in a subsequent
quarter. Either situation could cause our results of operations to be below
the expectations of investors and public market analysts, which could, in
turn, cause the price of our common stock to decline. Our expected long sales
cycles, as well as the practice of optical networking equipment manufacturers
to sporadically place large orders with short lead times, may cause our
revenue and operating results to vary significantly and unexpectedly from
quarter to quarter.

If we are unable to commit to deliver sufficient quantities of our products to
satisfy major customers' needs, we may not attract or retain orders and
customers

Optical networking equipment manufacturers typically require that suppliers
commit to provide specified quantities of products over a given period of
time. If we are unable to commit to deliver sufficient quantities of our
products to satisfy a customer's anticipated needs, we will lose the order and
the opportunity for significant sales to that customer for a lengthy period of
time. We need to increase manufacturing capacity significantly to enable us to
commit to provide a large number of customers with specified quantities of
products.

Our success depends upon our ability to develop and successfully introduce new
and enhanced products that meet the needs of our customers in a timely manner

Our success depends on our ability to anticipate our customers' needs and
develop products that address those needs. The optical networking industry is
characterized by rapid technological changes, frequent new product
introductions, changes in customer requirements and evolving industry
standards. We must continue to develop state-of-the-art products and introduce
them commercially in order to be successful. Introduction of new products and
product enhancements will require that we effectively transfer production
processes from research and development to manufacturing and coordinate our
efforts with the efforts of our suppliers to rapidly achieve volume
production. If we fail to effectively transfer production processes, develop
product enhancements or introduce new products that meet the needs of our
customers as scheduled, our revenue may decline.

We must substantially expand our sales staff in order to increase market
awareness and sales of our products or our revenue may not increase

The sale of our products will require long and involved efforts targeted at
several key departments within our prospective customers' organizations and
will require the prolonged efforts of executive personnel and applications
engineers working together with a number of dedicated salespersons. Currently,
our sales organization is limited. We will need to expand our sales force in
order to increase market awareness and sales of our products. Competition for
these individuals is intense, and we might not be able to hire the kind and
number of sales personnel and applications engineers we need. In addition, new
hires will take time to reach full productivity. If we are unable to expand
our sales operations, we may not be able to increase market awareness or sales
of our products, which would prevent us from increasing our revenue.

11
<PAGE>

Our optical networking products will be deployed in large and complex systems
and may have defects that are not detected until after they have been
installed, which could damage our reputation, cause us to lose customers and
result in substantial costs

Our optical networking products are designed to be deployed in large and
complex optical networks. Because of the nature of these products, they can
only be fully tested for reliability when deployed in networks for long
periods of time. These products may contain undetected defects when first
introduced or as new versions are released, and our customers may discover
defects in our products only after they have been fully deployed and operated
under peak stress conditions. In addition, our products are combined with
products from other vendors. As a result, should problems occur, it may be
difficult to identify the source of the problem. If we are unable to fix
defects or other problems, we could experience, among other things:

. loss of customers;

. loss of revenue;

. damage to our brand reputation;

. failure to attract new customers or achieve market acceptance;

. increased service, warranty and insurance costs;

. diversion of development and engineering resources; and

. legal actions by our customers.

If we fail to manage our growth effectively, our business may not succeed

Our ability to offer our products and successfully implement our business
plan in a rapidly evolving market requires an effective planning and
management process. We plan to continue to expand the scope of our operations
and have increased the number of our employees substantially in the past
twelve months. As of September 30, 1999 we had a total of 122 employees and as
of September 30, 2000, we had grown to a total of 268 employees. We plan to
hire a significant number of employees over the next few quarters. We
currently have facilities in Wallingford, Connecticut and Houston, Texas. If
we outgrow our current facilities, we will need to locate and obtain
additional space. The commercial real estate market is extremely competitive
and we may not be able to obtain additional needed space on reasonable terms,
or at all. Our failure to obtain additional space could adversely impact our
ability to expand our business and operations and increase our revenue. The
increase in employees and the growth in our operations, has placed, and will
continue to place, a significant strain on our management systems and
resources. We expect that we will need to continue to improve our financial
and managerial controls, reporting systems and procedures and continue to
expand, train and manage our work force. The failure to effectively manage our
growth could adversely impact our ability to manufacture and sell our
products, which could reduce our revenue.

We may experience increased competition, which could reduce our sales and
gross margins, or cause us to lose market share

Competition in the optical networking product market in which we compete is
intense. We face competition from many companies, including Avanex
Corporation, Corning Incorporated, JDS Uniphase Corporation, Lucent
Technologies Inc., New Focus, Inc. and Nortel Networks Corporation. Additional
competitors may enter the market, and we are likely to compete with new
companies in the future. Many of our competitors are large public companies
that have longer operating histories and significantly greater financial,
technical, marketing and other resources than we have. As a result, these
competitors are able to devote greater resources than we can to the
development, promotion, sale and support of their products. In addition,
several of our competitors have large market capitalizations or cash reserves,
and are much better positioned than we are to acquire other companies in order
to gain new technologies or products that may displace our product lines. For
example, JDS Uniphase Corporation recently acquired E-Tek Dynamics and
announced the acquisition of SDL, Inc. These and similar

12
<PAGE>

acquisitions could give our competitors a strategic advantage. In addition,
potential customers may be acquired by our competitors, in which case they
would be less likely to purchase products from us. Alternatively, some of our
competitors may spin-out new companies in the optical networking components
market. For example, Lucent Technologies recently announced that it will spin-
off its microelectronics business, which includes the optoelectronics
components and integrated circuits division. These companies may compete more
aggressively than their former parent companies due to their greater
dependence on our markets. Many of our potential competitors have
significantly more established sales and customer support organizations than
we do. In addition, many of our competitors have much greater name
recognition, more extensive customer bases, better developed distribution
channels and broader product offerings than we have. These companies can take
advantage of their customer bases and broader product offerings and adopt
aggressive pricing policies to gain market share. We expect to encounter
potential customers that, due to existing relationships with our competitors,
are committed to the products offered by these competitors. As a result of the
foregoing factors, competitive pressures may result in price reductions,
reduced margins and loss of market share.

We depend on a number of key personnel to manage our business effectively, and
if we are unable to hire additional qualified personnel or retain existing
personnel, our ability to sell our products could be harmed

Our future success depends upon the continued services of our executive
officers and other key engineering, sales, marketing, manufacturing and
support personnel, particularly F. Kevin Didden, our President and Chief
Executive Officer, Faye A. Iseley, our Vice President, Chief Financial
Officer, Alan D. Kersey, Ph.D., our Vice President, Chief Technology Officer,
and John V. Viega, our Vice President, Operations. Although our executive
officers have entered into employment agreements, they may terminate these
agreements without notice. The loss of the services of any of these
individuals or any of our other senior management or key employees could
seriously impair our ability to operate.

In order to implement our business plan, we must hire a significant number
of additional employees, particularly engineering, sales and manufacturing
personnel. Our ability to continue to attract and retain highly skilled
personnel will be a critical factor in determining whether we will be
successful. Competition for highly skilled personnel is intense. We may not be
successful in attracting, assimilating or retaining qualified personnel to
fulfill our current or future needs, which could adversely impact our ability
to manufacture and sell our products.

If we are unable to protect and enforce our intellectual property rights, we
may be unable to compete effectively

Our ability to compete successfully and achieve future growth will depend,
in part, on our ability to protect our intellectual property rights relating
to our optical networking products. We attempt to protect our proprietary
technology by relying on patent, trademark, service mark, copyright and trade
secret laws. As of September 30, 2000, we owned two U.S. patents and had 27
pending U.S. patent applications and ten pending foreign patent applications
for technology related to our optical networking products. We cannot assure
you, however, that the patent applications that we have filed will be
approved, that any patents that may issue will protect our intellectual
property or that any patents issued will not be challenged by third parties.
Furthermore, other parties may independently develop similar or competing
technology or design around any patents that may be issued to us. We also rely
on confidentiality procedures and contractual provisions with our employees,
consultants and corporate partners. The steps we take to protect our
intellectual property may be inadequate, time consuming and expensive. Despite
our efforts, we may be unable to prevent third parties from infringing upon or
misappropriating our intellectual property, which could harm our business.

Necessary licenses of third-party technology may not be available to us or may
be very expensive, making it difficult or impossible to develop new products
and product enhancements

From time to time we may be required to license technology from third
parties to sell existing products, to develop new products or for product
enhancements. We cannot assure you that third-party licenses will be available
to us on commercially reasonable terms, if at all. The inability to obtain any
required third-party license could require us to obtain or develop substitute
technology of lower quality or performance standards or at greater cost,
either of which could prevent us from operating our business.

13
<PAGE>

We may become subject to intellectual property litigation, which could divert
management attention, cause us to incur significant costs and prevent us from
selling certain products

There has recently been significant litigation in the United States
involving patents and other intellectual property rights. There has been, and
we expect that there will continue to be, an increasing amount of this
litigation in our industry. Many patent holders aggressively use their patent
portfolios to realize the value of their proprietary rights or to bring
infringement claims against their competitors. We have occasionally been
contacted by patent holders regarding our interest in licensing their patents,
and we may in the future receive claims that we are infringing on the patent
rights of third parties. As a result, third parties may bring litigation
against us alleging infringement of their intellectual property rights. These
claims and any resulting lawsuits, if successful, could subject us to
significant liability for damages and invalidation of our proprietary rights.
These lawsuits, regardless of their success, would likely be time-consuming
and expensive to resolve and would consume management time and divert
attention. Any potential intellectual property litigation also could force us
to do one or more of the following:

. stop selling, incorporating or using our products that use the
challenged intellectual property;

. obtain from the owner of the infringed intellectual property right a
license to sell or use the relevant technology, which license may not be
available on commercially reasonable terms, or at all; or

. redesign the products so that they no longer use the challenged
technology.

If we are forced to take any of these actions, our business may be
seriously harmed. Although we carry general liability insurance, our insurance
may not cover potential claims of this type or may not be adequate to
indemnify us for all liability that may be imposed.

We may in the future initiate claims or litigation against third parties
for infringement of our proprietary rights in order to determine the scope and
validity of our proprietary rights or the proprietary rights of competitors.
These claims could result in costly litigation and the diversion of our
technical and management personnel.

We may face risks associated with international sales that could harm our
financial condition and results of operations

We plan to increase our international sales activities. Our international
sales will be limited if we cannot establish relationships with international
distributors, establish foreign sales operations and develop international
sales channel management, hire personnel and develop relationships with
international service providers. In addition, in the future we may choose to
expand our manufacturing capabilities by opening manufacturing facilities
overseas. Even if we are able to successfully establish international
operations, we may not be able to maintain or increase international market
demand for our products. Our international operations will be subject to the
following risks:

. greater difficulty in accounts receivable collection and longer
collection periods;

. difficulties and costs of staffing and managing foreign operations;

. the impact of recessions in economies outside the United States;

. unexpected changes in regulatory requirements;

. export restrictions;

. trade barriers;

. political instability; and

. potential adverse tax consequences.

While we expect our international revenue and expenses to be predominantly
in U.S. dollars, a portion of our international revenue and expenses may be
denominated in foreign currencies in the future. Accordingly, we could
experience the risks of fluctuating currencies and may choose to engage in
currency hedging activities to reduce these risks.

14
<PAGE>

We may need additional financing for our future capital needs, which we may
not be able to obtain

Because of our expected negative cash flow, we may need to raise additional
funds in the future, which we may not be able to do. Based on our current
operating plans, we anticipate that the net proceeds from this offering,
together with available funds, will be sufficient to meet our anticipated
needs for at least 12 months following this offering. We may need additional
financing sooner if we:

. decide to expand faster than planned;

. develop new or enhanced products ahead of schedule;

. fail to achieve our anticipated levels of revenue;

. need to respond more quickly than anticipated to competitive pressures;
or

. decide to acquire complementary products, businesses or technologies.

We may not be able to raise additional funds on terms favorable to us, or
at all. If future financing is not available or is not available on acceptable
terms, we may not be able to fund our future needs, which would seriously harm
our business and results of operations. In addition, if we raise additional
funds through the sale of equity or convertible debt securities, your
percentage ownership will be reduced. These transactions may dilute the value
of the stock outstanding. We may also have to issue securities that have
rights, preferences and privileges senior to our common stock.

Risks Related to Our Industry

If the Internet does not continue to expand and next-generation optical
networks are not deployed to satisfy the increased bandwidth requirements as
we anticipate, demand for our optical networking products may decline
Our future success depends on the continued growth of the Internet as a
widely-used medium for commerce and communications, the continuing increase in
the amount of data transmitted over communications networks, and the emergence
of next-generation optical networks to meet the increased demand for
bandwidth. If the Internet does not continue to expand as a widespread
communications medium and commercial marketplace, the need for significantly
increased bandwidth across networks and the market for our optical networking
products may not develop. Future demand for our products is uncertain and will
depend to a great degree on the continued growth and upgrading of optical
networks. If this growth does not continue, demand for our products may
decline, which would adversely affect our revenue.

The optical networking product market is new and unpredictable, and if this
market does not develop and expand as we anticipate, demand for our optical
networking products may decline

The optical communications market is new and characterized by rapid
technological change, frequent new product introductions, changes in customer
requirements and evolving industry standards. Because this market is new, it
is difficult to predict its potential size or future growth rate. Widespread
adoption of optical networks is critical to our future success. Communications
providers and other end-users of networking equipment who have invested
substantial resources in their existing copper lines or other systems may be
reluctant or slow to adopt a new approach, like optical networks. Our success
in generating revenue in this emerging market will depend on:

. developing, maintaining and enhancing our relationships with customers;

. educating our potential customers about how our optical components can
be used to build next-generation optical networks; and

. our ability to accurately develop and manufacture our products to meet
industry standards.

15
<PAGE>

The optical networking component industry is experiencing declining average
selling prices, which could cause our gross margins to decline and harm our
operating results

The optical networking component industry is experiencing declining average
selling prices as a result of increasing competition and greater unit volumes
as communications service providers continue to deploy optical networks. We
anticipate that average selling prices will continue to decrease in the future
in response to product introductions by competitors, price pressures from
significant customers and greater manufacturing efficiencies achieved through
increased automation in the manufacturing process. These price declines may
contribute to a decline in our gross margins, which could harm our results of
operations.

Risks Related to the Securities Markets and this Offering

There may be sales of a substantial amount of our common stock as soon as 90
days after this offering by our current stockholders, and these sales could
cause our stock price to fall

Our current stockholders hold a substantial number of shares, which they
will be able to sell in the public market in the near future. As of September
30, 2000, our executive officers, directors and substantially all of our
stockholders, who held an aggregate of shares of our common stock, or over
% of our total outstanding shares, had executed lock-up agreements that
prevent them from selling or otherwise disposing of our common stock for a
period of 180 days from the date of this prospectus, without the prior written
approval of Morgan Stanley & Co. Incorporated. When these lock-up agreements
expire, an aggregate of shares will be eligible for sale, in some cases
subject only to the volume, manner of sale and notice requirements of Rule 144
under the Securities Act. Morgan Stanley & Co. Incorporated, however, may in
its sole discretion, at any time without notice, release all or any portion of
the shares subject to lock-up agreements.

Notwithstanding the 180-day lock-up period, 25% of the locked-up shares,
excluding shares held by our executive officers but including shares held
by our directors, may be released from these restrictions beginning 90 days
from the date of this prospectus. This release will occur if the last reported
sale price of our common stock is at least two times the initial public
offering price per share for 20 of the 30 trading days (including the 30th
day) preceding the 90th day after the date of this prospectus. Of these shares
to be released, shares will be eligible for sale, in some cases subject
only to the volume, manner of sale and notice requirements of Rule 144. Sales
of a substantial number of shares of our common stock after this offering
could cause our stock price to fall. In addition, the sale of these shares
could impair our ability to raise capital through the sale of additional
stock.

Future issuances of preferred stock may dilute the rights of our common
stockholders

Our board of directors will have the authority to issue up to 5,000,000
shares of preferred stock and to determine the price, rights, privileges and
other terms of these shares. The board of directors may exercise this
authority without the approval of the stockholders. The rights of the holders
of common stock may be adversely affected by the rights of the holders of any
preferred stock that may be issued in the future.

Anti-takeover provisions of Delaware law and our charter could make a third-
party acquisition of us difficult

Because we are a Delaware corporation, the anti-takeover provisions of
Delaware law could make it more difficult for a third party to acquire control
of us, even if the change in control would be beneficial to stockholders. We
are subject to the provisions of Section 203 of the General Corporation Law of
Delaware. Section 203 will prohibit us from engaging in certain business
combinations, unless the business combination is approved in a prescribed
manner. Accordingly, Section 203 may discourage, delay or prevent someone from

16
<PAGE>

acquiring or merging with us. In addition, our certificate of incorporation
and bylaws also contain certain provisions that may make a third party
acquisition of us difficult, including:

. a classified board of directors, with three classes of directors each
serving a staggered three-year term;

. the ability of the board of directors to issue preferred stock; and

. the inability of our stockholders to call a special meeting or act by
written consent.

Insiders will continue to have substantial control over us after this offering
and could delay or prevent a change in our corporate control, which may
negatively affect your investment

We anticipate that our executive officers, directors and entities
affiliated with them will, in the aggregate, beneficially own approximately %
of our outstanding common stock following the completion of this offering.
These stockholders, if acting together, would be able to influence
significantly all matters requiring approval by our stockholders, including
the election of directors and the approval of mergers or other business
combination transactions.

Our management will have broad discretion as to the use of proceeds from this
offering

Our management will have broad discretion in the application of the net
proceeds of this offering, and you will not have the opportunity, as part of
your investment decision, to assess whether the proceeds are being used
appropriately. The net proceeds may be used for corporate purposes that do not
increase our profitability or our market value. Pending application of the
proceeds, they may be placed in investments that do not produce income or that
lose value.

There has been no prior market for our common stock and a public market for
our securities may not develop or be sustained, which could make it more
difficult for you to sell your stock

Prior to this offering, you could not buy or sell our common stock
publicly. An active public market for our common stock may not develop or be
sustained after this offering, and the market price might fall below the
initial public offering price. The initial public offering price may bear no
relationship to the price at which the common stock will trade subsequent to
the completion of this offering. The initial public offering price will be
determined based on negotiations between us and the representatives of the
underwriters, based on factors that may not be indicative of future market
performance.

You will experience immediate dilution in the book value per share of the
common stock you purchase

Because the price per share of our common stock being offered is
substantially higher than the book value per share of our common stock, you
will suffer substantial dilution in the net tangible book value of the common
stock you purchase in this offering. Based on an assumed initial public
offering price of $ per share, if you purchase shares of common stock in
this offering, you will suffer immediate and substantial dilution of $ per
share in the net tangible book value of the common stock. See "Dilution" for a
more detailed discussion of the dilution you will incur in this offering.

We expect to experience significant volatility in our stock price, which could
cause you to lose all or part of your investment

We expect the market price of our common stock to fluctuate significantly
in response to a number of company specific factors, some of which are beyond
our control, including:

. quarterly variations in our operating results;

. changes in financial estimates by securities analysts;

. changes in market valuations of optical networking companies;

17
<PAGE>

. announcements by our competitors of new products or of significant
acquisitions, strategic partnerships or joint ventures;

. any loss by us of a major customer;

. additions or departures of key management or engineering personnel;

. any deviations in our net revenue or in losses from levels expected by
securities analysts;

. future sales of our common stock; and

. fluctuations in the trading volume of our common stock, which are
particularly common among highly volatile securities of optical
networking companies.

The market prices for stocks in optical networking companies, particularly
following an initial public offering, frequently increase to levels that bear
no relationship to their operating performance. If our common stock
experiences such an increase, the increase will likely not be sustainable and
our stock price can be expected to fluctuate significantly.

18
<PAGE>

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business," and elsewhere in this prospectus constitute forward-
looking statements. These statements relate to future events or our future
financial performance and involve known and unknown risks, uncertainties and
other factors that may cause our or our industry's actual results, levels of
activity, performance or achievements to be materially different from any
future results, levels of activity, performance or achievements expressed or
implied by these forward-looking statements. Those factors include, among
other things, those listed under "Risk Factors" and elsewhere in this
prospectus. In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential" or "continue"
or the negative of these terms or other comparable terminology. These
statements are only predictions. Actual events or results may differ
materially. Moreover, neither we nor any other person assumes responsibility
for the accuracy or completeness of these statements. We are under no duty to
update any of the forward-looking statements after the date of this prospectus
to conform these statements to actual results.

19
<PAGE>

USE OF PROCEEDS

We estimate that our net proceeds from the sale of shares of common
stock in this offering will be approximately $ million after deducting
estimated offering expenses of $ and underwriting discounts and commissions
and assuming an initial public offering price of $ per share. If the over-
allotment option is exercised in full, we estimate that our net proceeds will
be approximately $ million.

Our management will have broad discretion as to the use of proceeds from
this offering. We currently anticipate that we will use the proceeds of this
offering for general corporate purposes, including capital expenditures,
product research and development activities, working capital and expansion of
our sales and marketing operations. We have not determined the amounts we may
spend on any of these purposes or the timing of any expenditures, and we may
allocate the net proceeds among these purposes, or other purposes, as we deem
necessary or appropriate. The amounts that we actually expend for these and
other purposes will vary significantly depending on a number of factors,
including future revenue growth, if any, and the amount of cash that we
generate from operations. A portion of the net proceeds may also be used to
acquire products, technologies or businesses that are complementary to our
current and future business and product lines. We have no current plans,
agreements or commitments for acquisitions of any businesses, products or
technologies. Pending use of the net proceeds of this offering, we intend to
invest the net proceeds in interest-bearing, investment-grade securities.

DIVIDEND POLICY

Since April 28, 2000, we have been obligated to pay a cash dividend of $.24
per year on each outstanding share of our Series A preferred stock. This
obligation will end upon the completion of this offering, when all outstanding
shares of Series A preferred stock will be converted into common stock. We
have never paid or declared any cash dividends on our common stock. We do not
anticipate paying any cash dividends on our common stock in the foreseeable
future. We intend to retain all available funds and any future earnings to
fund the development and expansion of our business.

20
<PAGE>

CAPITALIZATION

The following table presents the following information:

. our actual capitalization as of June 30, 2000;

. our pro forma capitalization reflecting the conversion of all
outstanding shares of preferred stock into 38,995,680 shares of common
stock upon the closing of this offering; and

. our pro forma as adjusted capitalization reflecting the sale of the
shares of common stock in this offering at an assumed initial public
offering price of $ per share after deducting underwriting discounts
and commissions and estimated offering expenses.

This table should be read with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our financial statements
and notes to those financial statements appearing elsewhere in this
prospectus.

<TABLE>
<CAPTION>
As of June 30, 2000
----------------------------
Pro
Pro Forma As
Actual Forma Adjusted
-------- -------- --------
(in thousands, except
share data)
(unaudited)
<S> <C> <C> <C>
Long-term debt (net of current portion)........... $ 2,481 $ 2,481 $
-------- -------- ----
Mandatorily redeemable convertible preferred
stock, $.01 par value; 7,020,000 shares
authorized, 6,499,280 shares issued and
outstanding actual; 7,020,000 shares authorized,
no shares issued and outstanding pro forma; no
shares authorized, issued and outstanding pro
forma as adjusted................................ 150,425 --
-------- -------- ----
Stockholders' Equity:
Common stock, $.001 par value; 62,720,000 shares
authorized, 9,449,294 shares issued and
outstanding actual; 62,720,000 shares authorized,
48,444,974 shares issued and outstanding pro
forma; 300,000,000 shares authorized, shares
issued and outstanding pro forma as adjusted..... 9 48
Additional paid-in capital........................ 11,279 161,665
Deferred compensation............................. (7,271) (7,271)
Accumulated deficit............................... (48,977) (48,977)
-------- -------- ----
Total stockholders' (deficit) equity............ (44,960) 105,465
-------- -------- ----
Total capitalization.......................... $107,946 $107,946 $
======== ======== ====
</TABLE>

The outstanding share information excludes:

. 1,726,948 shares of common stock issuable upon the exercise of stock
options outstanding as of September 30, 2000 at a weighted average
exercise price of $.83 per share;

. shares of common stock reserved for future awards under our stock
plans; and

. 500,000 shares of common stock reserved for issuance under our 2000
Employee Stock Purchase Plan, which will become effective upon
completion of this offering.

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<PAGE>

DILUTION

If you invest in our common stock, your interest will be diluted to the
extent of the difference between the initial public offering price per share
of our common stock and the pro forma net tangible book value per share of our
common stock after this offering. We calculate pro forma net tangible book
value per share by dividing the net tangible book value, tangible assets less
total liabilities, by the number of outstanding shares of common stock.

Our pro forma net tangible book value at June 30, 2000, was $105.5 million,
or $2.18 per share, based on 48,444,974 shares of our common stock outstanding
after giving effect to the conversion of all outstanding shares of our
preferred stock into common stock upon the closing of this offering. After
giving effect to the sale of shares of common stock by us at an assumed
initial public offering price of $ per share, less the underwriting
discounts and commissions and our estimated offering expenses, our pro forma
net tangible book value at June 30, 2000, would be $ million, or $ per
share. This represents an immediate increase in the pro forma net tangible
book value of $ per share to existing stockholders and an immediate
dilution of $ per share to new investors purchasing shares at an assumed
initial public offering price of $ per share. The following table
illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...................... $
Pro forma net tangible book value per share as of June 30, 2000.... $2.18
Increase per share attributable to new investors...................
-----
Pro forma net tangible book value per share after this offering......
----
Dilution per share to new investors.................................. $
====
</TABLE>

The following table shows on a pro forma basis at June 30, 2000, after
giving effect to the conversion of all outstanding shares of our preferred
stock into an aggregate of 38,995,680 shares of common stock upon the closing
of this offering the difference between the number of shares of common stock
purchased from us, the total consideration paid to us and the average price
paid per share by existing stockholders and by new investors purchasing common
stock in this offering:

<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ -------------------- Price
Number Percent Amount Percent Per Share
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 48,444,974 % $152,461,327 % $3.15
New investors................. $
---------- --- ------------ --- -----
Total....................... 100% $ 100%
========== === ============ === =====
</TABLE>

Assuming the underwriters' over-allotment option is exercised in full,
sales by us in this offering will reduce the percentage of shares held by
existing stockholders to % and will increase the number of shares held by new
investors to , or %. This information is based on shares outstanding as of
June 30, 2000. It excludes:

. 1,726,948 shares of common stock issuable upon the exercise of stock
options outstanding as of September 30, 2000 at a weighted average
exercise price of $.83 per share;

. shares of common stock reserved for future awards under our stock
plans; and

. 500,000 shares of common stock reserved for issuance under our 2000
Employee Stock Purchase Plan, which will become effective upon
completion of this offering.

To the extent these options or warrants are exercised, there will be
further dilution to the new investors.

22
<PAGE>

SELECTED FINANCIAL DATA

The selected statement of operations data for each of the years ended
December 31, 1997, 1998 and 1999, and the selected balance sheet data as of
December 31, 1998 and 1999, have been derived from the audited financial
statements included elsewhere in this prospectus, which have been audited by
PricewaterhouseCoopers LLP, independent accountants. The selected statement of
operations data for the six months ended June 30, 1999 and 2000, and the
selected balance sheet data as of June 30, 2000, have been derived from our
unaudited financial statements included elsewhere in this prospectus. The
selected statement of operations data for the period from inception (August 7,
1996) through December 31, 1996 and the selected balance sheet data as of
December 31, 1996 and 1997 have been derived from our audited financial
statements not included in this prospectus. Our historical results are not
necessarily indicative of results to be expected for any future period. The
data presented below have been derived from financial statements that have
been prepared in accordance with generally accepted accounting principles and
should be read with our financial statements, including the related notes, and
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
--------------------------- -----------------
Period from
Inception
(August 7, 1996)
through
December 31, 1996 1997 1998 1999 1999 2000
----------------- ------- -------- -------- ------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue................. $ -- $ -- $ -- $ -- $ -- $ 423
Operating expenses:
Production costs...... -- -- -- 136 -- 838
Research and
development.......... 95 1,484 8,936 15,773 6,272 8,087
Sales and marketing... -- 86 1,281 1,594 537 929
General and
administrative....... 144 848 3,000 3,414 1,637 2,100
Deferred
compensation......... -- -- -- 574 123 1,166
------- ------- -------- -------- ------- --------
Total operating
expenses........... 239 2,418 13,217 21,491 8,569 13,120
------- ------- -------- -------- ------- --------
Loss from operations.... (239) (2,418) (13,217) (21,491) (8,569) (12,697)
Other income, net....... -- 43 502 435 93 156
------- ------- -------- -------- ------- --------
Net loss................ (239) (2,375) (12,715) (21,056) (8,476) (12,541)
Dividends on preferred
stock.................. -- -- -- -- -- 51
------- ------- -------- -------- ------- --------
Net loss attributable to
common stockholders.... $ (239) $(2,375) $(12,715) $(21,056) $(8,476) $(12,592)
======= ======= ======== ======== ======= ========
Basic and diluted net
loss per share
attributable to
common stockholders.. $ (.04) $ (.72) $ (3.33) $ (3.39) $ (1.50) $ (1.55)
======= ======= ======== ======== ======= ========
Shares used in
computing basic and
diluted net loss
attributable to
common stockholders.. 6,308 3,316 3,818 6,209 5,659 8,105
======= ======= ======== ======== ======= ========
Pro forma basic and
diluted net loss per
common share
(unaudited).......... $ (.59) $ (.31)
======== ========
Pro forma shares used
in computing net loss
per common share
(unaudited).......... 35,798 40,840
======== ========
</TABLE>

<TABLE>
<CAPTION>
As of December 31, As of June 30,
------------------------------------ ------------------
1996 1997 1998 1999 1999 2000
------ ------- -------- --------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............ $ 18 $ 357 $ 4,497 $ 16,871 $ 26,948 $103,947
Working capital......... (223) (230) 3,645 13,013 25,457 97,836
Total assets............ 27 1,382 10,941 25,430 35,227 116,975
Long term debt, less
current portion........ -- -- 3,691 2,116 4,934 2,481
Total stockholders'
deficit................ (223) (2,598) (15,127) (35,461) (23,805) (44,960)
</TABLE>

23
<PAGE>

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

You should read the following discussion and analysis of our financial
condition and results of operations together with "Selected Financial Data"
and our financial statements and related notes appearing elsewhere in this
prospectus. This discussion and analysis contains forward-looking statements
that involve risks, uncertainties and assumptions. The actual results may
differ materially from those anticipated in these forward-looking statements
as a result of certain factors, including, but not limited to, those set forth
under "Risk Factors" and elsewhere in this prospectus.

Overview

We design, manufacture and market high-precision optical networking
products, based upon our proprietary optical waveguide technology, for next-
generation optical communications networks. Our products are designed to
permit highly accurate wavelength tuning to enable increased functionality,
flexibility and performance in optical networks. We were incorporated in
August 1996. During the period from our inception through December 31, 1999,
we had no revenue. Our operating expenses during this period related primarily
to development of products, building our corporate infrastructure and raising
capital. From late 1996 until the first quarter of 2000 we focused on the
development of industrial optical sensing products. The technology we
originally developed for these sensing applications, where stability and
tunability in demanding environments were critical factors, provided us the
platform to develop products for the optical networking industry. In the first
quarter of 2000, we shifted the principal focus of our business to the
development of optical networking products to be sold to major suppliers of
optical networking equipment.

Revenue. We first recognized revenue during the six months ended June 30,
2000 from the sale of industrial optical sensing products. From our inception
through December 31, 1999, we had no revenue. In the third quarter of 2000, we
received three purchase orders for our optical networking products. We expect
that as we increase our focus on the development and marketing of optical
networking products, an increasing percentage of our revenue will be derived
from the sale of optical networking products and eventually a substantial
majority of our revenue will be derived from the sale of these products.

Production Costs. Our production costs consist of raw materials, direct
labor and manufacturing overhead, including contract manufacturing. Production
costs also include general operating expenses related to the development and
set-up of the manufacturing process for our products.

Research and Development. Research and development expenses consist
primarily of salaries and related personnel costs, facilities costs, material
costs and other expenses related to the design, development, testing and
enhancements of our products. We expense our research and development costs as
they are incurred. We believe that a significant level of investment for
product research and development is critical to achieving current and future
product objectives. Accordingly, we expect to continue to devote substantial
resources to product research and development, and we expect our research and
development expenses to continue to increase over the near term.

Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions and related personnel costs, trade shows and other
marketing programs and events and travel expenses. We intend to expand our
sales and marketing operations for our optical networking products, both
domestically and internationally, in order to increase market awareness and to
generate sales of our products.

General and Administrative. General and administrative expenses consist
primarily of salaries and related expenses for executive, finance, accounting,
legal, and human resources personnel, allocated facilities expenses,
recruiting expenses, professional fees and other corporate expenses. We expect
general and administrative expenses to increase as we add personnel and incur
additional costs related to the growth of our business and our operation as a
public company.

24
<PAGE>

Deferred Compensation. In connection with the grant of stock options to our
employees, directors and certain consultants, we recorded gross deferred
compensation of approximately $9.0 million through June 30, 2000, representing
the difference between the estimated fair market value of the common stock for
accounting purposes and the option exercise price of these options at the date
of grant. These amounts are being amortized using the accelerated attribution
method over the related vesting period of the stock options, which is
generally four years from the date of grant.

Other Income, Net. Other income, net includes interest income, interest
expense and income from an equity investment in an affiliate.

Since our inception we have incurred losses, and as of June 30, 2000 we had
an accumulated deficit of approximately $49.0 million. In view of our limited
operating history, our recent focus on the development of optical networking
products and the rapidly changing nature of our business, we believe that
period-to-period comparisons of revenue and operating results are not
necessarily meaningful and should not be relied upon as indications of our
future performance. We cannot be certain that we will be successful in
generating sales of our optical networking products. Our prospects must be
considered in light of the risks, expenses and difficulties encountered by
companies at an early stage of development, particularly companies in new and
rapidly evolving markets.

Results of Operations

Six months ended June 30, 2000 compared to six months ended June 30, 1999

Revenue. We had revenue of $423,000 for the six-month period ended June 30,
2000. We had no revenue in the six months ended June 30, 1999. All of our
revenue was from sales of our industrial optical sensing products. In the
future, we expect that revenue from the sale of our optical networking
products will represent an increasing percentage of our revenue and will
eventually represent the substantial majority of our revenue.

Production Costs. Production costs were $838,000 for the six-month period
ended June 30, 2000. We incurred no production costs for the six months ended
June 30, 1999. The amounts in 2000 reflect costs associated with manufacturing
and delivering our optical sensing products. We expect to incur production
costs in excess of revenue in the near term while we have excess manufacturing
capacity and as we refine our manufacturing processes.

Research and Development. Research and development expenses increased to
$8.1 million for the six months ended June 30, 2000 from $6.3 million for the
six months ended June 30, 1999. The increase in expenses was primarily due to
salary and benefits attributable to the hiring of additional personnel related
to the development of new optical networking products.

Sales and Marketing. Sales and marketing expenses increased to $929,000 for
the six months ended June 30, 2000 from $537,000 for the six months ended June
30, 1999. The increase was primarily attributable to salaries and benefits due
to the hiring of additional personnel.

General and Administrative. General and administrative expenses increased
to $2.1 million for the six months ended June 30, 2000 from $1.6 million for
the six months ended June 30, 1999. This increase was due to an increase in
salaries and benefits due to the addition of personnel.

Deferred Compensation. We recognized deferred compensation expense of $1.2
million for the six months ended June 30, 2000 and $123,000 for the six months
ended June 30, 1999. As of June 30, 2000, we had an unamortized deferred
compensation balance of $7.3 million. The deferred compensation expense
relates to options awarded to employees, consultants and directors.

Other Income, Net. Other income, net increased to $156,000 for the six
months ended June 30, 2000 from $93,000 for the six months ended June 30,
1999. This increase was primarily due to earnings on a higher average cash and
cash equivalents balance.

25
<PAGE>

Years ended December 31, 1997, 1998 and 1999

Revenue. We recognized no revenue in the years ended December 31, 1997,
1998 and 1999.

Production Costs. Production costs were $136,000 in 1999. These costs
represent expenses related to the development and set-up of the manufacturing
process for our products. We had no production costs in 1997 and 1998.

Research and Development. Research and development expenses increased from
$1.5 million in 1997 to $8.9 million in 1998 and to $15.8 million in 1999.
These increases were primarily due to salaries and related benefits, material
purchases and allocated facility expenses for our optical sensing products.

Sales and Marketing. Sales and marketing expenses increased from $86,000 in
1997 to $1.3 million in 1998 and to $1.6 million in 1999. These increases were
primarily attributable to salaries and related benefits due to the hiring of
additional personnel and travel expenses.

General and Administrative. General and administrative expenses increased
from $848,000 in 1997 to $3.0 million in 1998 and to $3.4 million in 1999.
These increases were primarily due to an increase in salaries and benefits due
to the addition of personnel.

Deferred Compensation. We recognized deferred compensation expense of
$574,000 in 1999 related to options awarded to employees, consultants and
directors. We recognized no deferred compensation expenses in 1997 and 1998.

Other Income, Net. Other income, net increased from $43,000 in 1997 to
$502,000 in 1998 and decreased to $435,000 in 1999. The increase from 1997 to
1998 was due to earnings on a higher cash and cash equivalents balance. The
decrease from 1998 to 1999 was due to an increase in interest expense due to
an increase in outstanding debt.

Liquidity and Capital Resources

Since inception we have financed our operations, capital expenditures and
working capital through private sales of convertible preferred stock, bank
debt and equipment financing. Our cash and cash equivalents increased from
$4.5 million as of December 31, 1998 to $16.9 million as of December 31, 1999
to $103.9 million as of June 30, 2000. The increase was primarily due to cash
generated from financing activities, including the receipt of approximately
$100 million in gross proceeds from the sale of our Series D preferred stock
on June 20, 2000.

Net cash used in operating activities was $2.0 million, $12.0 million and
$18.2 million for the years ended December 31, 1997, 1998 and 1999,
respectively, and $8.6 million for the six months ended June 30, 2000. This
use of cash was primarily attributable to net losses in each period, partially
offset by an increase in accounts payable and accrued expenses and
depreciation and amortization.

Cash used in investing activities was $0.9 million, $3.5 million and $2.6
million in the years ended December 31, 1997, 1998 and 1999, respectively, and
$5.1 million in the six-month period ended June 30, 2000. In each of these
periods, cash was used primarily to purchase equipment.

Cash generated by financing activities was $3.3 million, $19.7 million and
$33.2 million for the years ended 1997, 1998 and 1999, respectively, and
$100.7 million in the six months ended June 30, 2000. In each of these
periods, cash was generated primarily from the sale of our preferred stock. In
April and August of 1997, we completed a private placement of 1,133,333 shares
of Series A preferred stock for an aggregate purchase price of $3.4 million.
In February 1998, we completed a private placement of 2,489,272 shares of
Series B preferred stock for an aggregate purchase price of $17.4 million. In
April, June and July of 1999, we completed a private placement of an aggregate
of 1,624,225 shares of Series C preferred stock for an aggregate purchase
price of $31.7 million. In June 2000, we completed a private placement of
1,110,622 shares of Series D preferred stock for an aggregate purchase price
of $100 million.

26
<PAGE>

In December 1998, we entered into a $5.0 million revolving credit facility
with a bank. Under this facility, we are required to comply with various
financial and other covenants, including a requirement that we maintain our
account balances with this bank at least equal to the outstanding principal
under the loan. However, in the event that we maintain at least 90% of our
cash and cash equivalents in this bank, we shall only be required to maintain
account balances with this bank at least equal to 50% of the outstanding
principal amount under the loan. No commitment fees are due on unused portions
of the facility. As of June 30, 2000, we owed $3.5 million under this
facility, which matures in December 2000.

In October 1998, we entered into a master loan and security agreement that
provides up to $5.0 million for capital equipment purchases. Individual notes
payable under the agreement have terms of 60 months and bear interest at fixed
annual rates ranging from 13.5% to 14.3%. The notes are secured by the
underlying equipment. As of June 30, 2000, we owed $2.5 million under this
agreement.

As of June 30, 2000, we also owed $734,000 under an equipment term loan.
This loan is repayable in equal monthly installments ending in December 2004.

We expect to incur approximately $30.0 million in capital expenditures over
the next six months to purchase equipment and expand our operations and
manufacturing capacity. We anticipate funding these expenditures with existing
cash and cash equivalents.

We believe that the anticipated net proceeds from this offering, together
with current cash, cash equivalents and borrowings under our credit facility,
will be sufficient to meet our anticipated cash needs for working capital,
capital expenditures and scheduled debt retirement for at least the next 12
months. If cash generated from operations is insufficient to satisfy our long-
term liquidity requirements, additional financing will be necessary. In that
event, we may seek to sell additional equity or debt securities or to obtain
additional credit facilities. If additional funds are raised through the
issuance of debt securities, these securities could have rights, preferences
and privileges senior to holders of common stock, and the terms of any debt
facility could impose restrictions on our operations. The sale of additional
equity or debt securities could result in additional dilution to our
stockholders, and additional financing may not be available in amounts or on
terms acceptable to us, if at all. If we are unable to obtain this additional
financing, we may be required to reduce the scope of our planned product
development and marketing efforts, which could harm our business, financial
condition and operating results.

Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Sensitivity

We maintain our cash and cash equivalents primarily in money market funds
and certificates of deposit. We do not have any derivative financial
instruments. As of June 30, 2000, all of our investments mature in less than
one year. Accordingly, we do not believe that our investments have significant
exposure to interest rate risk.

Exchange Rate Sensitivity

We operate primarily in the United States, and all sales to date have been
made in U.S. dollars. Accordingly, we currently have no material exposure to
foreign currency rate fluctuations. While we expect our international revenue
and expenses to be denominated predominately in U. S. dollars, a portion of
our international revenue and expenses may be denominated in foreign
currencies in the future. Accordingly, we could experience the risks of
fluctuating currencies and may choose to engage in currency hedging activities
to reduce these risks.

Recent Accounting Pronouncements

27
<PAGE>

this interpretation would be recognized on a prospective basis from the
effective date. Accordingly, upon initial application for the final
interpretation, no adjustments would be made to the financial statements for
the periods before the effective date and no expense would be recognized for
any additional compensation cost measured that is attributable to periods
before the effective date. We expect that the adoption of this interpretation
would not have any effect on the accompanying financial statements.

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition." This bulletin summarizes
views of the Staff on applying generally accepted accounting principles to
revenue recognition in financial statements. We believe that our current
revenue recognition policy complies with the guidelines in the bulletin.

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133), which established accounting and reporting
standards for derivative instruments, including derivative instruments
embedded in other contracts, and for hedging activities. In June 1999, the
Board issued SFAS 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133," which
deferred the effective date of SFAS 133 until fiscal years beginning after
June 15, 2000. We will become subject to SFAS No. 133 on January 1, 2001. We
do not currently hold any derivative instruments and do not engage in hedging
activities and therefore do not believe that the adoption of SFAS No. 133 will
have a material impact on our financial position of results of operations. We
may, however, engage in this type of investment in the future as our
operations expand domestically and abroad. We will evaluate the impact of
foreign currency exchange risk and other derivative instrument risk on our
results of operations when appropriate.

28
<PAGE>

BUSINESS

Overview

Industry Background

Increased Demand for Bandwidth

Technological innovation and the widespread use of the Internet, Internet-
based applications and corporate data networks have propelled the rapid growth
in the volume of data traffic transmitted across communications networks.
According to Ryan, Hankin & Kent, Inc., or RHK, a leading market research and
consulting firm, the demand for additional bandwidth is likely to continue.
RHK predicts that the transmission of data traffic will increase from 350,000
terabytes per month in 1999 to more than 16 million terabytes per month in
2003. The dramatic growth in data traffic has forced communications service
providers to upgrade their networks using optical networking technologies.
Optical networks use pulses of light to transmit information through a glass
optical fiber and significantly increase bandwidth and enhance transmission
quality relative to legacy copper wire systems.

Optical Components, Modules and Subsystems Industry

The development of next-generation optical networking systems to meet
increasing bandwidth requirements depends on innovations in optical
components, modules and subsystems. According to RHK, the worldwide optical
component market is expected to grow at a 46% compound annual growth rate from
$5 billion in 1999 to $23 billion in 2003. Historically, the majority of
optical products were made in-house by system vendors. As system vendors have
shifted their focus towards software, value-added services and additional
product offerings, merchant suppliers have accounted for a larger proportion
of system vendors' component, module and subsystem needs. However, the supply
of these optical products has not kept pace with demand. The complexity of the
technology, difficult and labor intensive manufacturing processes and the
shortage of skilled personnel have contributed to supply constraint in the
optical industry. This presents a significant market opportunity for optical
product suppliers with leading technologies and scalable manufacturing
capabilities.

Next-Generation Optical Networks

To meet the needs of service providers, the optical networking industry is
developing a next generation of optical networking equipment to increase
bandwidth capacity and provide networking functionality at the optical level.
These next-generation optical networks will place an increased emphasis on the
ability to dynamically route and maintain, directly in the optical domain, the
quality of the optical signals transported. This in turn will place new
demands on the development of optical components, modules and subsystems that
can route, condition and monitor optical signals. The demand for next-
generation optical networks is being driven by the following factors:

Upgrade of Long-Haul Networks. Initial optical systems allowed for the
transmission of one channel, or wavelength, along a single fiber. Dense
Wavelength Division Multiplexing, or DWDM, technology significantly improved
upon initial optical networks by enabling the transmission of multiple
wavelengths on a single fiber,

29
<PAGE>

thereby further increasing bandwidth. DWDM technology has been especially
advantageous in long distance, or long-haul, networks, which are principally
devoted to point-to-point communications where added capacity has reduced
traffic bottlenecks between large metropolitan areas. However, next-generation
long-haul networks will deploy even higher channel count systems over longer
distances and multiple paths, making it increasingly difficult to manage and
maintain optical signal quality.

Build-Out of Metro Networks. The upgrade of long-haul networks has outpaced
improvements in the metropolitan and local, or metro, networks, resulting in a
new bottleneck at the edge of optical networks. A new generation of optical
networking systems is required to address the differing needs of metro
networks. The number of end users, or delivery points, is orders of magnitude
higher in the metro networks. Smaller streams of traffic are originated and
terminated at multiple points within metro networks, and service providers
must frequently change the locations at which a particular customer's traffic
is added and dropped as they move within a network. Meanwhile, customers are
demanding the ability to add greater capacity at peak hours of the day and
carriers must be able to flexibly change network capacity to meet the highly
variable flow of traffic and provide rapid, real-time provisioning of
services. Next-generation optical networking systems must address these metro
needs and be capable of re-routing optical signals across multiple paths and
reallocating channels to reconfigure the network to meet changing user needs.
These capabilities will require new optical components that can select and
redirect optical channels in real time while at the same time maintaining
signal quality.

Industry Deregulation. Industry deregulation has created an intensely
competitive market for service providers, which has lowered the rates they can
charge and has required service providers to maximize the capacity of their
installed fiber plant. To help carriers achieve this goal, equipment vendors
are demanding components that allow increased channel counts, transmission
speeds and optical transmission distances. They are also moving towards
deployment of an all-optical network, attempting to avoid costly optical to
electrical to optical, or OEO, conversions needed for signal regeneration and
switching. Further, service providers are moving towards mesh architectures,
as restoration and protection in current ring architectures are bandwidth
inefficient. At the same time, service providers are focused on increasing
revenues by offering new high-bandwidth applications and services such as
streaming multimedia and video-on-demand.

Requirements and Challenges of Next-Generation Optical Networks

Next-generation optical networks impose a number of requirements and
challenges upon optical equipment manufacturers including:

Higher Channel Counts. Current DWDM networks commonly have up to 96
channels. Next-generation networks will have 160 or more channels and require
tighter channel spacing within the transmission band. At these extremely tight
spacing levels, the likelihood of signal degradation, such as crosstalk,
increases significantly. This problem will be compounded as service providers
begin to expand their use of all available spectrum.

Longer Reach. To avoid frequent signal regeneration, which requires costly
OEO conversion, equipment vendors are developing optical systems with
increased transmission distances. In addition, the new network architectures
require signals to be routed between various intermediate destinations before
reaching their ultimate destination, often adding to transmission distances.
These longer transmission distances cause optical signals to weaken, or
attenuate, and also cause other serious signal distortion.

Greater Transmission Rates. Current networks transmit data up to 10
gigabits per second on each channel. Next-generation optical networks are now
being designed for even greater speeds of 40 gigabits per second. At these
higher speeds, signal impairments, such as chromatic dispersion, are much more
likely to degrade the quality of the optical signal.

Increased Network Intelligence. Next-generation optical systems will need
to dynamically deploy and distribute bandwidth to multiple points within the
network. This increased provisioning complexity will require flexible and
intelligent network elements, which provide control closer to the physical
layer. Added intelligence in optical components and modules that resides in
the physical layer will reduce the complexity of the network software required
to control and optimize the optical network.

30
<PAGE>

Stability and Reliability. Consumers are increasingly unwilling to tolerate
service problems and are more likely to turn to a growing number of competing
service providers. In order to avoid losing customers, service providers need
extremely reliable and stable systems. Next-generation optical networks, with
increased intelligence, longer reach, higher channel counts and greater
transmission rates, place even greater emphasis on wavelength management and
on stability and reliability of components.

Cost-Effectiveness. Government deregulation of the telecommunications
industry has fueled intense price competition among service providers,
resulting in the need for solutions that reduce overall network costs. At the
same time, next-generation optical networks require increased functionality,
capacity and intelligence of component technologies. Service providers face
the challenge to further drive down network costs while providing
significantly improved functionality to the network.

Our Solution

We design, manufacture and market high-precision optical products for next-
generation optical networks under our AgileWave brand. Our products are based
upon our proprietary optical waveguide technology that enables precise
wavelength tunability, high stability in extreme environments and expanded
functionality at the optical layer. We believe our components, modules and
subsystems offer several key competitive advantages and benefits, including
the following:

Higher Channel Counts. Our products enable precise processing, control and
management of wavelength transmission in high channel-count DWDM systems. The
majority of DWDM systems deployed today use channel spacings of 100 gigahertz
or more. Our athermal channel filters presently enable channel spacings of 50
gigahertz, thereby allowing higher channel counts within the same spectrum. As
the industry demands even greater capacities, we believe the stability of our
filters and the precise tunability of our AgileWave devices will enable our
technology to manage the increasingly dense channel configurations.

Longer Reach and Greater Transmission Rates. Our products are being
developed to enable longer reach and greater transmission rates for optical
signals by providing critical signal monitoring and conditioning to detect and
correct signal impairments that degrade quality and system performance. Our
tunable bandpass selector can precisely tune across an entire wavelength band
to route selected channels for optical performance monitoring and bit-error
rate testing. Customized derivatives of this module can be used for variable
control of chromatic dispersion to maintain the quality of routed signals
having traversed different transmission paths. We are developing a dynamic
gain equalization filter that adjusts the varying signal strength of
dynamically routed signals to maintain uniform signal strength across all
wavelengths.

Increased Network Intelligence. Our tunable bandpass selectors can bring
greater intelligence to the optical layer by dynamically routing individual
channels to local monitoring and diagnostic equipment. Our dynamically
reconfigurable optical add-drop multiplexers can enable network operators to
more effectively manage traffic by allowing a wide range of wavelengths to be
redirected entirely in the optical domain. Systems using our products can
allow communications service providers to more flexibly deliver bandwidth and
accelerate the provisioning of network services to better serve and retain
their customers.

Enhanced Stability and Reliability. Our family of AgileWave network
products is based upon our proprietary optical waveguide technology, which
allows extreme stability over a wide range of environmental conditions. Our
athermal channel filters and gain flattening filters feature compact packaging
with a demonstrated wide range of operating temperatures and limited undesired
movement of wavelengths, or drift. We believe our products feature thermal
stability that is up to four times better than competing products and long-
term drift characteristics that are significantly less than that of competing
products. We believe our products can provide our customers increased network
uptime and service reliability.

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<PAGE>

Improved Cost-Effectiveness. We are developing the manufacturing capacity
for high-volume production and offer several unique products featuring a
common or substantially similar packaging technology, thereby reducing our
production costs. Our family of AgileWave network products are widely
configurable or tunable across a range of wavelengths, providing network
flexibility, reduced network complexity and dynamic functionality with single
devices that otherwise would require a number of fixed-wavelength components
and switching elements.

Our Strategy

Our objective is to be a leading provider of cost-effective optical
components, modules and subsystems to the optical networking industry to
enable a new level of network flexibility, reliability and intelligence for
the next-generation optical network. To achieve this objective we will:

Continue to Leverage our Innovative Technology Platform. We have been
developing optical components since 1996. In that time, we have developed a
proprietary optical waveguide technology that provides a scalable platform for
precisely tunable, highly accurate and reliable optical networking products.
We have used this technology platform as a building block for developing a
family of value-added modules and subsystems, from tunable filters to
reconfigurable add-drop multiplexers. We intend to continue to leverage this
technology to build other value-added modules and subsystems, such as tunable
lasers, dynamic gain equalization filters, dynamic dispersion compensation
modules and optical amplifiers.

Continue to Expand our Technology Platform. In addition to our existing
technology platform, we intend to develop and/or acquire additional technology
platforms that will serve as building blocks for enhanced or new product
offerings. We intend to closely monitor our customers' needs and perform
market analysis to identify new products to develop and markets to enter. We
have also established a technology acquisition team that is dedicated to the
review and assessment of potential technology to meet our current and future
needs.

Provide Customer-Tailored Solutions. We are working closely with our
existing and potential customers to develop customized solutions for their
optical networking product needs. We have a dedicated and highly trained staff
of engineers who work with customers to develop unique solutions. With this
approach, we believe we will increase product performance and decrease time to
market for our customers.

Expand Manufacturing Capacity and Improve Efficiency. The demand for
products in the optical networking industry has consistently outpaced
manufacturing capacity. Accordingly, we are leveraging our resources,
production processes and infrastructure to enable us to quickly scale our
capacity to meet growing industry needs. Our manufacturing strategy includes:

. increasing overall manufacturing capacity, including facilities,
equipment and labor in advance of anticipated demand to provide for
higher throughput than we forecast will be necessary;

. creating manufacturing processes that allow us to build multiple devices
along the same production lines and allows us to customize the
performance of devices for customers without changing the manufacturing
line;

. investing in new equipment that provides higher volume batch
manufacturing; and

. automating processes with proprietary methodologies to maximize yields
and throughput.

We believe that our manufacturing process will enable us to achieve high
quality and reliability in our products and to scale production to large
volumes.

Build a Substantial Intellectual Property Portfolio. Our intellectual
property strategy is to obtain broad patent protection on both products and
processes. Our intellectual property team works closely with our product
development teams prior to product release to identify patentable technology.
As of September 30, 2000, we owned two U.S. patents and had 27 pending U.S.
patent applications for technology relating to optical networking products. We
also seek to obtain international patent coverage in selected foreign
countries while seeking to balance costs. As of September 30, 2000, we had ten
pending foreign patent applications for technology relating to optical
networking products.

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<PAGE>

Technology

We have developed a proprietary optical waveguide technology that provides
a scalable platform for a family of tunable, highly accurate and reliable
optical networking products. We have initially applied our optical waveguide
technology to Bragg grating based filters, to bring tunable functionality and
environmental stability to these widely accepted and industry proven devices.
Our optical waveguide technology platform may also be applied to other optical
technologies that address the wide range of optical filtering and signal
conditioning requirements of our customers.

Tunable Bragg Grating and Optical Waveguide Technology. Our Bragg grating
based filters, utilizing our optical waveguide technology platform, provide
for precise tunability over a wide range of wavelengths and with highly stable
performance over a wide temperature range. We have also developed a
proprietary control and actuation technology that, when combined with our
optical waveguide technology platform, yields a new class of tunable channel
filters capable of accurate wavelength tuning without the need for optical
wavelength monitoring or referencing. This tuning capability has led to a
tunable channel filter product that has high tuning accuracy, and excellent
stability and reliability over a wide range of environmental conditions, which
enables a wide variety of filter functions to be implemented in the optical
waveguide platform. This capability also forms a fundamental building block
for developing wavelength-agile, or tunable, components and modules that are
critical for realizing the full potential of next-generation all-optical
networks.

Specific advantages of our tunable Bragg grating and optical waveguide
technologies include:

. the optical filter is intrinsic to the optical waveguide platform,
thereby improving optical performance by reducing coupling or insertion
loss;

. our optical filters are particularly well suited for applications
involving tight channel spacing DWDM systems;

. the filter function of the tunable Bragg grating filter can be easily
customized and adapted for specific applications, such as optical
channel filtering, gain equalization, and other signal conditioning
applications;

. our optical waveguide technology platform allows for highly reliable,
precise and repeatable tuning of the filter function; and

. the optical waveguide technology platform is easily coupled with other
existing complementary optical technologies.

We believe that our customers will benefit from the enhanced optical
functionality our optical waveguide platform provides for next-generation
optical networks.

Products

Optical Networking Products

The AgileWave family of products that we are developing includes a range of
components, modules and subsystems for optical networking systems providers
that will enable them to meet the demands of next-generation optical networks.
Our products address three important aspects of optical wavelength management:

. routing of wavelength channels, both static and dynamic;

. optical signal conditioning; and

. optical signal monitoring.

The following tables set forth these products and their capabilities. These
tables also indicate whether a product is (1) being shipped to customers, (2)
in beta testing, which refers to products in advanced customer testing, (3) in
alpha testing, which refers to products in early stages of product testing or
(4) under development.

33
<PAGE>

Routing:

<TABLE>
<CAPTION>
Product Description Benefits Status
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Athermal Channel Filter Passive athermal channel . Precise wavelength Shipping
filter for 100 and 50GHz transmission and routing Fourth Quarter
DWDM systems . Eliminates active thermal 2000
controls
----------------------------------------------------------------------------------------------------
Tunable Grating Module Tunable Bragg . Enables dynamic signal Beta Testing
grating filter routing
. Precise optical tuning and
wavelength setting
. Customization of filter
function and wavelengths
----------------------------------------------------------------------------------------------------
Optical Add/Drop Passive wavelength routing . Enables network Alpha Testing
Multiplexer element to add or drop configuration and
channels interconnection
. Precise wavelength routing
----------------------------------------------------------------------------------------------------
Reconfigurable Optical Dynamic wavelength . Enables network flexibility Alpha Testing
Add/Drop Multiplexer routing element to add or and reconfiguration
drop channels . Remote provisioning of
channels
</TABLE>

. Athermal Channel Filter. Channel filters reflect selected optical
channels while allowing other channels to pass and are used throughout
DWDM systems, primarily for combining or separating optical signals.
Conventional filters are sensitive to temperature and undergo wavelength
drift with changes in temperature and typically require active thermal
controls to maintain wavelength stability. Our athermal channel filter
passively stabilizes the grating wavelength, thus eliminating the need
for active thermal controls.

. Tunable Grating Module. Tunable grating modules precisely tune or set to
a desired wavelength band and are the enabling building blocks for
wavelength-agile, or tunable, network elements. These devices maintain a
channel within its assigned wavelength band. Our tunable grating modules
can be provided as standard DWDM channel filters or can be customized
for particular customer applications. The precise wavelength-tuning
feature of our tunable grating modules can enable advanced signal
conditioning devices needed for maintaining the quality and performance
of high speed optical transmission systems.

. Optical Add/Drop Multiplexers. Optical add/drop multiplexers, or OADMs,
add or drop preselected wavelength channels. These devices are used to
route wavelength signals and connect data transport links to subscriber
networks. Our OADMs incorporate our stable athermal channel filters to
provide precise wavelength control and performance over temperature.

. Reconfigurable Optical Add/Drop Multiplexer. Our reconfigurable optical
add/drop multiplexer is a programmable wavelength routing device to add
or drop wavelength channels. This can provide wavelength control and
redirection at the optical level, without the need for costly OEO
conversion. Accordingly, it can enable remote reallocation of channels
so service providers can more quickly and efficiently adjust to changing
traffic patterns, and provision services on demand.

34
<PAGE>

Conditioning:

<TABLE>
<CAPTION>
Product Description Benefits Status
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gain Equalization Filter Passive filter to equalize . Uniform channel power to Development
power of DWDM channels maintain system performance
. Eliminates active thermal
controls
--------------------------------------------------------------------------------------------------
Dynamic Gain Wavelength agile filter to . Dynamic adjustment of Development
Equalization Filter dynamically equalize power optical amplifier gain
of DWDM channels
--------------------------------------------------------------------------------------------------
Dynamic Dispersion Dynamically adjustable . Conditions optical signals Development
Compensation Module chromatic dispersion for improved performance
compensating device to
maintain quality of optical
signals
. Enables high speed
transmission
--------------------------------------------------------------------------------------------------
Tunable Laser Dynamically tunable laser . Lower maintenance cost Development
source for a range of DWDM . Network flexibility
channels . Enables sparing
--------------------------------------------------------------------------------------------------
Optical Amplifier Module High efficiency optical . Lower cost optical Development
amplifier module amplifiers
. Allow use of higher loss
network elements
</TABLE>

. Gain Equalization Filter. Optical amplifiers are used to boost weakened
optical signals transmitted across long distances. These amplifiers
generally do not amplify the signals for all channels equally.
Maintaining uniform channel power, however, is critical to the
performance of multi-channel DWDM systems. Accordingly, gain
equalization filters optically adjust the DWDM channels to equalize the
power level across all channels. These filters are typically sensitive
to temperature changes and require costly active thermal controls. Our
gain equalization filter, however, is being developed to eliminate the
need for such active thermal controls.

. Dynamic Gain Equalization Filters. Dynamic gain equalization filters are
used to dynamically adjust optical amplifier output power. These devices
are critical in maintaining constant signal strength for all wavelength
channels. Dynamic gain filters are a critical component to condition and
maintain performance of multiple weak and strong signals routed to and
from various destinations in next-generation interconnected optical
networks.

. Dynamic Dispersion Compensation Module. Fixed dispersion compensators
are currently deployed in point-to-point DWDM systems to compensate for
the effects of chromatic dispersion, a signal distortion caused by
wavelengths traveling over fiber at different speeds. As optical
networks become interconnected, dispersion compensation schemes must
become reconfigurable to adjust to routing and processing of wavelengths
that have traveled over varying optical paths. Our dynamic dispersion
compensation modules are being developed in close cooperation with
customers to allow wide adjustment of dispersion to compensate
individual channels, or bands of channels.

. Tunable Lasers. Tunable lasers are a key component to enable next-
generation optical networks to be reconfigurable. Current DWDM systems
are based on fixed single-wavelength laser sources which result in
inventory and maintenance issues for network operators because each
channel requires a separate laser. This problem is compounded as DWDM
systems continue to grow in channel count.

35
<PAGE>

We are developing tunable lasers that are tunable/settable across a
number of channels. We believe they will provide immediate relief of
this inventory problem and enable tunable transmitters for future
reconfigurable networks.

. Optical Amplifier Module. Erbium doped fiber amplifiers, or EDFAs, are
used throughout DWDM systems to amplify weak optical signals that result
from optical transmission losses. Conventional pump lasers are the main
cost element of EDFAs. We are developing technology that will enable
efficient coupling of pump power to EDFAs for higher output power at a
lower cost than conventional technology.

Monitoring:

<TABLE>
<CAPTION>
Product Description Benefits Status
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tunable Bandpass Widely tunable narrow . Precise selection of Beta Testing
Selector bandpass filter wavelength channels
-----------------------------------------------------------------------------------------------------
Optical Channel Analyzer Optical spectrum analyzer for . Improved channel selection Development
DWDM channel monitoring for better optical signal to
noise measurement
</TABLE>

. Tunable Bandpass Selector. Tunable bandpass selectors are devices that
filter light transmissions, allowing a narrow wavelength band to pass,
while rejecting all other wavelengths. These devices are used to
precisely select a single wavelength channel from a set of channels and
may be used for a variety of optical network applications.

. Optical Channel Analyzer. An optical channel analyzer provides
wavelength-level management of optical channels across a broad spectrum
of wavelengths. This module provides functions including channel
identification, power level measurement and optical signal to noise
measurement.

Industrial Optical Sensing Products

We are also a supplier of optical sensing products to the oil and gas
industry. Our optical sensing systems integrate optical fiber and WDM
technology and Bragg grating-based sensors to provide real-time reservoir
information. Our optical sensing products offer an extended operating lifetime
over conventional electronics technology. We offer distributed temperature and
pressure optical systems as a replacement to traditional electronic gauges for
reservoir monitoring. We have also introduced novel fluid flow and content
meters that provides information to help optimize oil production operations and
yield. We have also demonstrated an in-well seismic system that is currently
under development.

Customers

Our target customer base for our optical networking products includes major
suppliers of DWDM optical networking equipment. To date we have not generated
any revenue from the sale of optical networking products. We have recently
received purchase orders for optical networking products from three large
suppliers of optical networking equipment, including Cisco Systems and Corvis
Corporation. We are currently in discussions with other large suppliers of
optical networking equipment to test and/or purchase our optical networking
products.

Our target customer base for our industrial optical sensing products
includes large oil and gas companies. We began recognizing revenue from the
sale of optical sensing products in the six months ended June 30, 2000. During
this period, one customer, BP Exploration & Oil Inc. and Amoco Production
Company, accounted for 100% of our revenues. We are currently in discussions
with other large oil and gas companies to test and/or purchase our industrial
optical sensing products.

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<PAGE>

Sales and Marketing

Our sales and marketing strategy is to work closely with prospective
customers to analyze their needs and to provide a customized solution using
our proprietary technology and products to meet those needs. We work directly
with the customer to establish and define technical requirements and product
evaluation criteria. After delivery of a prototype, we work closely with the
customer to draft product development, qualification and manufacturing
milestones. Our potential customer base is diverse in their particular
requirements for and capabilities of product integration. We have a dedicated
and highly trained staff of engineers who work with the customer to develop
customized solutions for their optical networking needs. With this approach,
we believe we will increase product performance and decrease time to market
for our customers.

We intend to implement our sales and marketing strategy through a direct
sales team that will coordinate all customer contact and support, generate
product release strategies for each product, and establish a product
distribution network and customer support function. During the initial
customer acquisition phase, a team of product engineers will be dedicated to
work along with the sales team through product development and qualification.
As we introduce new products and begin to increase manufacturing operations,
our ability to grow our business will depend to a large extent on our ability
to attract and retain qualified sales staff.

Manufacturing

We are currently in the process of completing manufacturing facilities for
full-scale production of optical networking products at our headquarters
located in Wallingford, Connecticut. In addition, as our business grows, we
intend to significantly expand our manufacturing capacity and hire significant
numbers of new manufacturing employees.

The optical communications industry has traditionally been capacity-
constrained. Demand for quality optical communications products has
consistently outpaced manufacturing capacity. Accordingly, we intend to invest
in manufacturing resources not only to meet our sales forecasts, but also to
meet possible excess demand. As part of our manufacturing strategy we plan to:

. Expand and Scale Manufacturing Capacity. We intend to spend the
necessary resources to expand our facilities, equipment and labor force
in advance of customer purchase commitments to provide for higher
throughput than our forecasts predict. We have designed our
manufacturing processes so that they can be scaled for higher capacity.
We have developed a systematic approach that will allow us to increase
manufacturing capacity quickly should demand exceed our forecasts.

. Invest in Automation and Batch Manufacturing. Many aspects of
manufacturing optical networking products are manually intensive and, as
a result, throughput is constrained. Wherever possible, we intend to
automate traditionally manually labor intensive processes to increase
yields and throughput. We also intend to take advantage of new
manufacturing technology by selecting and procuring the latest
production equipment to enable higher volume batch manufacturing to
produce higher yields and throughput.

. Leverage and Enhance our Quality Manufacturing Capability. In April
1999, we were granted ISO 9001 certification. ISO 9001 is an
internationally recognized standard that prescribes quality assurance
management. We believe that this certification enhances our competitive
position. We are also planning to implement the standards of TL 9000 and
apply for registration. TL 9000 is a new standard developed by leaders
in the telecommunications industry that serves to define a quality
system specifically for telecommunication component manufacturers. Some
major network service providers are beginning to mandate TL 9000
registration for suppliers.

. Train and Maintain a Quality Workforce. The manufacturing of high-
quality optical components requires the use of a highly skilled
workforce to perform such critical functions as optical assembly,
alignment, soldering and component integration. We have invested and
intend to continue to invest significant resources in training and
maintaining the quality of our manufacturing workforce.

37
<PAGE>

. Leverage our Existing Infrastructure. We have made a significant
investment in infrastructure so that we can increase our ability to
rapidly scale production volumes. Since 1998, we have operated a
company-wide integrated enterprise resource planning system, which
includes inventory planning and management, manufacturing, and quality
modules. We maintain a supply chain management department that
identifies all elements in the supply chain and evaluates potential
risks associated with sources of supply and recommends appropriate
alternate sources. We are investing in a redundant advanced
manufacturing capability separate from our full-scale production
capability that will be used to fabricate and test pre-production
components and subassemblies, build pilot units, and refine tooling and
other aspects of the product. We believe this investment will help
eliminate manufacturing interruptions traditionally caused by the
introduction of new products into manufacturing.

As we develop our manufacturing capabilities and enter full-scale
production of our products, we will need to significantly increase our
manufacturing work force and acquire significant additional manufacturing
space. The competition for such personnel is intense and the availability of
industrial space that lends itself to scalable high technology, high volume
manufacturing is limited.

Product Development

We have assembled a team of engineers with significant experience in
optics, data networking and communications. As of September 30, 2000 we
employed 73 optical, electrical and mechanical engineers and technicians. Our
engineering team possesses expertise in the areas of grating technology, fiber
optics, electro-optics, optical instrumentation, opto-mechanical engineering,
software engineering and packaging technology. Our product development efforts
focus on enhancing our initial optical networking products, developing
additional products and continuing to develop next-generation technology to
support the growth in network bandwidth requirements and the transition to the
next-generation optical networks.

As of September 30, 2000 we employed 90 people in research and development,
45 of whom have advanced degrees. We have made, and will continue to make, a
substantial investment in research and development. Our research and
development expenses totaled $1.5 million for 1997, $8.9 million for 1998,
$15.8 million for 1999, and $8.1 million for the six months ended June 30,
2000.

The optical networking product industry is characterized by very rapid
technological change, frequent new product introductions and enhancements,
changes in customer demands and evolving industry standards. While we have
developed, and expect to continue to develop, our optical networking products
through internal research and development efforts, we expect to continuously
evaluate external technologies as a basis for expanding our internally
developed technology foundation through licensing, partnerships or
acquisitions.

Competition

Competition in the market for optical networking products is intense. Some
of our competitors include Avanex Corporation, Corning Incorporated, JDS
Uniphase Corporation, Lucent Technologies Inc., New Focus, Inc. and Nortel
Networks Corporation. Some of our competitors, such as Lucent and Nortel, are
vertically integrated manufacturers of optical networking equipment that are
also potential customers. While we compete with these companies with respect
to the optical components, modules and subsystems that they develop, market
and sell to third parties, they are potential customers with respect to the
components, modules and subsystems that we manufacture and they do not.

Many of our competitors are large public companies that have longer
operating histories and significantly greater financial, technical, marketing
and other resources than we have. As a result, these competitors are able to
devote greater resources than we can to the development, promotion, sale and
support of their products. In addition, many of our competitors have large
market capitalizations or cash reserves and are much better positioned than we
are to acquire other companies in order to gain new technologies or products
that may displace our product lines. Any of these acquisitions could give our
competitors a strategic advantage. Many of

38
<PAGE>

our potential competitors have significantly more established sales and
customer support organizations than we do. In addition, many of our
competitors have much greater name recognition, more extensive customer bases,
better developed distribution channels, broader product offerings and greater
manufacturing capacity than we have. These companies can use their broader
product offerings and adopt aggressive pricing policies to maintain and
broaden their customer base. As a result, we expect to encounter potential
customers that, due to existing relationships with our competitors, are
committed to the products offered by these competitors. Additional competitors
may enter the market and we are likely to compete with new companies in the
future.

The principal factors upon which we compete are:

. product features;

. ability to rapidly develop and introduce products that respond to
customer needs;

. product reliability;

. ability to deliver products in volume; and

. price.

We believe we compete favorably on each of these factors.

Intellectual Property

Our success and ability to compete depend substantially upon our internally
developed technology. Our intellectual property strategy is to obtain broad
patent protection for this technology both domestically and abroad. As of
September 30, 2000, we owned 13 U.S. patents and had 65 pending U.S. patent
applications and 35 pending foreign patent applications. Of these patents and
applications, two of the U.S. patents, 27 of the pending U.S. patent
applications and ten of the pending foreign patent applications relate to
technology applicable to optical networking products. We also have exclusive
and non-exclusive licenses to 39 patents, three of which relate to technology
for optical networking products. We intend to build a strong patent portfolio
for our products and obtain the broadest patent coverage possible. There can
be no assurance that patents will ever be issued for the -patent applications
we have filed. Furthermore, any patents issued to us may be invalidated,
circumvented or challenged. As a result, patents may not provide us with
competitive advantages or adequately protect our proprietary rights.

While we rely on patent, copyright, trade secret and trademark law to
protect our technology, we also believe that factors such as the technological
and creative skills of our personnel, new product developments, and frequent
product enhancements are essential to establishing and maintaining a
technology leadership position. We cannot assure you that others will not
develop technologies that are similar or superior to our technology.

We also generally enter into confidentiality or license agreements with our
employees, consultants and corporate partners, and control access to and
distribution of our proprietary information. Despite these efforts to protect
our proprietary rights, unauthorized parties may attempt to copy or otherwise
obtain and use our products or technology. Policing unauthorized use of our
products is difficult, and there can be no assurance that the steps taken by
us will prevent misappropriation of our technology, particularly in foreign
countries where the laws may not protect our proprietary rights as fully as do
the laws of the United States.

Substantial litigation regarding intellectual property rights exists in the
optical networking industry, and we expect that optical networking products
may be increasingly subject to third-party infringement claims. Many patent
holders aggressively use their patent portfolio to realize the value of their
proprietary rights or to bring infringement claims against their competitors.
We believe that many of our competitors have filed or intend to file patent
applications covering aspects of their technology on which they may claim our
technology infringes. We can not make any assurances that other third parties
will not claim infringement by us with respect

39
<PAGE>

to our products and our associated technology. Any infringement claims
asserted against us, with or without merit, could be time-consuming to defend,
result in costly litigation, divert management's attention and resources,
cause product shipment delays or require us to enter into royalty or licensing
agreements. Such royalty or licensing agreements, if required, may not be
available on terms acceptable to us, if at all. A successful claim of product
infringement against us and failure or inability by us to license the
infringed or similar technology could seriously harm our business. Although we
carry general liability insurance, our insurance may not cover potential
claims of this type or may not be adequate to indemnify us for all liability
that may be imposed.

Employees

As of September 30, 2000, we employed a total of 268 full-time employees in
the following areas:

. 92 in manufacturing;

. 90 in research and development;

. 4 in sales and marketing; and

. 82 in administration.

In addition, as of September 30, 2000, 40 persons provided technical
services to us pursuant to consulting arrangements. To support our anticipated
growth, we expect that we will need to hire a significant number of additional
employees, particularly in manufacturing and sales and marketing. We cannot
assure you that we will be able to do so. None of our employees is represented
by unions, and we believe that our relations with our employees are good.

Facilities

As of September 30, 2000 we leased an aggregate of 117,861 square feet of
space in Wallingford, Connecticut pursuant to the following two leases:

. an 89,776 square feet lease that expires in April 2005, subject to
renewal for an additional five-year period; and

. a 28,085 square feet lease that expires in September 2010, subject to
renewal for an additional five-year period.

We use our Wallingford space for sales and marketing, research and
development, administration and manufacturing of our optical networking
products. We also lease 31,410 square feet of space in Houston, Texas pursuant
to a lease that expires in October 2007. We have the right to renew the lease
for an additional five-year period. Our Houston space is used as the primary
manufacturing facility for our industrial optical sensing products.

If we grow as anticipated, we expect that we will need additional space,
particularly manufacturing space. We cannot assure you that we will be able to
obtain suitable space on commercially reasonable terms, or at all.

Legal Proceedings

We are not currently involved in any material legal proceedings, nor, to
our knowledge, are any threatened.

40
<PAGE>

MANAGEMENT

Executive Officers and Directors

The following table sets forth certain information concerning our executive
officers, directors and key employees as of October 11, 2000:

<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Executive Officers and Directors
President, Chief Executive Officer and
F. Kevin Didden................. 40 Director
Vice President, Chief Technology Officer
Alan D. Kersey, Ph.D............ 44 and Director
Faye A. Iseley.................. 44 Vice President, Chief Financial Officer
Michael Grillo.................. 39 Vice President, General Counsel
David R. Huber, Ph.D.(2)........ 49 Chairman of the Board
Will Honeybourne(1)(2).......... 49 Director
David F. Palmer(1)(2)........... 38 Director
Asmund Slogedal................. 63 Director
John B. Spirtos(1).............. 35 Director

Key Employees
Terrence J. Brennan............. 28 Director, Strategic Planning
Michael A. Davis, Ph.D.......... 31 Executive Engineer
Vice President, Intellectual Property
Gerald L. DePardo............... 40 Counsel
James R. Dunphy, Ph.D........... 52 Executive Engineer
Mark R. Fernald................. 43 Executive Engineer
Daniel L. Gysling, Ph.D......... 34 Vice President, Advanced Technology
Vice President and General Manager,
Keith R. Morley................. 49 Optical Sensing Systems
Mark R. Myers, Ph.D............. 44 Vice President, Information Technology
Ruth O'Connell.................. 44 Director, Investor Relations
Martin A. Putnam................ 33 Executive Engineer
Paul J. Rothman................. 40 Vice President, Product Realization
Paul E. Sanders................. 44 Vice President, Business Development
Michael A. Sapack............... 38 Executive Engineer
James S. Sirkis, Ph.D........... 40 Director, Technology Acquisition
John V. Viega................... 49 Vice President, Operations
Kent H. Wardley................. 40 Director, Sales and Marketing
</TABLE>
--------
(1) Member of our Audit Committee
(2) Member of our Compensation Committee

F. Kevin Didden has served as our President and Chief Executive Officer and
as a director since founding CiDRA in August 1996. From August 1995 through
August 1996, Mr. Didden was Managing Director of Trac, Inc., a technology
commercialization consulting firm. From 1992 to 1995, Mr. Didden was Manager
of Technology Applications for the United Technologies Corporation Technology
Center. Mr. Didden has over 10 years experience in technology management and
commercialization, along with extensive international technology joint venture
experience. Mr. Didden received a B.S. in Business Administration from the
University of Connecticut, an M.B.A. from Rensselaer Polytechnic Institute and
is completing an M.S. in Technology Management at Rensselaer Polytechnic
Institute.

Alan D. Kersey, Ph.D. has served as our Vice President, Chief Technology
Officer since joining CiDRA in June 1997, and as a director since June 2000.
From November 1984 to June 1997 he was with the Naval Research Laboratory,
Washington D.C., where he was involved in the application of fiber optics, and
particularly Bragg gratings, to both sensing and communications systems. Dr.
Kersey received a B.S. in Physics and Electronics from the University of
Warwick, and a Ph.D. from the University of Leeds. He has published

41
<PAGE>

extensively in the area of fiber optics, and holds over 30 patents in the area
of fiber optic systems. Dr. Kersey was elected Fellow of the Optical Society
of America in 1993.

Faye A. Iseley has served as our Vice President, Chief Financial Officer
since August 1999. From May 1998 through July 1999, Ms. Iseley was the Chief
Financial Officer of SL Green Realty Corporation, a publicly-traded commercial
real estate company. From March 1996 through September 1997, Ms. Iseley was
Corporate Treasurer of Mass Mutual Life Insurance Company and from June 1994
through February 1996, she was Chief Financial and Operations Officer of
Connecticut Mutual Financial Services. In addition, Ms. Iseley held various
financial positions at The Mack Company, Time-Life Books, Inc., and COMSAT.
Ms. Iseley received an A.B. from Brown University and an M.B.A. from The
Darden School at the University of Virginia. Ms. Iseley is also a certified
public accountant.

Michael Grillo has served as our General Counsel since August 1997 and as
Vice President since July 1998. From April 1994 through August 1997, Mr.
Grillo was a member of the law firm of Ware, Fressola, Van Der Sluys and
Adolphson in Monroe, Connecticut. Mr. Grillo received a B.S. in Electrical
Engineering from the University of Delaware and a J.D. from the University of
Connecticut School of Law.

David R. Huber, Ph.D. has served as Chairman of the Board since April 1997.
Dr. Huber has 18 years of experience in the development of optical
communications systems. He is the founder of Corvis Corporation. He has served
as the Chairman of the Board, President and Chief Executive Officer of Corvis
since June 1997. From 1992 through April 1997, Dr. Huber served first as Chief
Technology Officer and later as Chief Scientist of Ciena Corporation, a
company he founded in 1992. From 1989 through 1992, Dr. Huber managed the
Lightwave Research and Development Program for General Instrument Corp. Prior
to 1989, Dr. Huber held positions in optical communications development at
Rockwell International Corp., Optelecom, Inc. and ITT Industries, Inc.,
formerly International Telephone & Telegraph Corp. Dr. Huber holds 41 U.S.
patents in optics technology and has numerous additional patents pending. He
received a B.S. in Physics from Eastern Oregon State University and a Ph.D. in
electrical engineering from Brigham Young University.

Will Honeybourne has served as a director since April 1999. Mr. Honeybourne
has been a Managing Director of First Reserve Corporation since January 1999.
From September 1996 to December 1998, Mr. Honeybourne was Senior Vice
President for Western Atlas International, Inc. From September 1993 through
October 1995, he served as President and Chief Executive Officer of Computalog
Ltd. He also serves on the board of directors of Destiny Resource Services
Corp. and Canadian Crude Separators Inc., both publicly-traded companies. He
also currently serves on the boards of directors of several private companies.
He received a B.S in Oil Technology and he is an Associate of the Royal School
of Mines, Imperial College, London University.

David F. Palmer has served as a director since February 1998. Mr. Palmer is
a partner of Vision Capital Partners, a merchant banking firm, which was
founded in 1997. In addition, he is the managing member of Velocity Capital
LLC, and VFP LLC. Prior to joining Vision Capital Partners, Mr. Palmer was a
founding partner of Velocity Capital LLC which was formed in July 1998 and he
was Vice President of FTL Investments from 1995 to July 1998. He is also
currently on the boards of several private companies. He received an A.B. in
Physical Chemistry from Hamilton College and an M.B.A. from the J. L. Kellogg
Graduate School of Management of Northwestern University.

Asmund Slogedal has served as a director since August 1997. Since 1990, Mr.
Slogedal has held several positions with Ventours Management KS, a Norwegian
venture capital firm, and he is currently a Managing Director. He also serves
on the board of directors of the Teknoinvest Fund V. He is Chairman of the
board of directors of Iterated Systems, Inc., and he also is on the boards of
directors of several private companies. Mr. Slogedal holds a B.S. in
Engineering from Perdue University.

John B. Spirtos has served as a director since April 1999. Mr. Spirtos has
served as the Vice Chairman of Optical Capital Group since February, 2000.
Prior to joining Optical Capital Group in February 2000, he served as General
Counsel for HRLD Venture Partners from October 1998 through February 2000.
From 1992 to October 1998, Mr. Spirtos was a member of the law firm
Kirkpatrick and Lockhart, LLP. Mr. Spirtos serves on the boards of directors
of several private companies. He received a B.S. from the University of
California and joint J.D. and M.B.A degrees from Georgetown University.

42
<PAGE>

Terrence J. Brennan has served as our Director, Strategic Planning since
July 2000 and served as our Director of Planning and Financial Analysis from
May 1999 to July 2000. From August 1994 to May 1999, Mr. Brennan was a Senior
Auditor with PricewaterhouseCoopers' Technology Industry Group, where he
provided financial due diligence services to public and private corporations
in a variety of emerging fields. He received his B.A., with a concentration in
Accounting, from Bryant College and is a licensed certified public accountant.

Michael A. Davis, Ph.D., has served as an Executive Engineer since October
2000 and he served as a Principal Engineer from October 1997 until October
2000. From May 1990 to October 1997, Dr. Davis worked at the Naval Research
Laboratory, where he was involved in the development of fiber optic based
optical components and sensing systems. Dr. Davis specialized in the use of
Bragg grating based devices for sensing and communications. Dr. Davis received
a B.S. in Physics from the College of William and Mary, and a Ph.D. in Physics
from the University of Virginia.

Gerald L. DePardo has served as our Intellectual Property Counsel since
February 1998 and as Vice President since April 1999. From June 1994 through
February 1998, Mr. DePardo was an Intellectual Property Attorney for United
Technologies Corporation and was involved with portfolio management,
technology licensing, contracts and corporate law. Mr. DePardo received a B.S.
in Electrical Engineering from Northeastern University, an M.S. in Electrical
Engineering from Rensselaer Polytechnic Institute and a J.D. from the
University of Connecticut School of Law.

James R. Dunphy, Ph.D., has served as an Executive Engineer since October
2000 and he served as a Technical Director from June 1997 until October 2000.
In these roles, he has been either technical team leader or a key technical
contributor for rapid prototyping efforts that emphasized component
refinements and system integration for product realization efforts. From
December 1975 through May 1997, he was a Senior Research Scientist at United
Technologies Research Center, where he spent nearly 22 years as a co-developer
of technology focused on multi-parameter sensors and multiplexing measurement
instrumentation applied to harsh aerospace environments. While at CiDRA, Dr.
Dunphy has co-authored two patents and 16 patent applications. He co-authored
nine patents in the area of multiplexed optical fiber sensor applications
while at United Technologies Research Center. He received a B.A. in Physics
and Mathematics from Linfield College and a Ph.D. in Applied Physics from the
Oregon Graduate Institute of Science and Technology.

Mark R. Fernald has served as an Executive Engineer since October 2000 and
he served as a Principal Engineer from December 1998 until October 2000. From
August 1997 to December 1998, he served as a Design Engineer for us. From May
1996 to August 1997, Mr. Fernald worked at United Technologies Research
Center, where he was involved in the development of fiber optic based optical
components. Mr. Fernald holds a B.S. in Electrical Engineering from the
University of Hartford.

Daniel L. Gysling, Ph.D., has served as Vice President, Advanced Technology
since April 2000. From February 1998 to April 2000, Dr. Gysling served as our
Technical Manager, Fluid Dynamics and later as Technical Director, Flow
Measurement. Dr. Gysling joined us in February 1998 from the United
Technologies Research Center where, from September 1993 to January 1998, he
served as Manager, Dynamic Fluids Systems Group and worked predominately in
the area of turbomachinery aerodynamics and aeroelasticity. Dr. Gysling holds
several U.S. patents in the area of fluid dynamic devices and has additional
patents pending. He received a B.S. with highest distinction in Aerospace
Engineering from The Pennsylvania State University, and an M.S. and a Ph.D. in
Aeronautics and Astronautics from the Massachusetts Institute of Technology.

Keith R. Morley has served as our Vice President and General Manager,
Optical Sensing Systems since joining CiDRA in August 1999. Prior to joining
us, Mr. Morley spent 26 years in the oil and gas service industry. From July
1998 to August 1999, he served as President and Chief Executive Officer of
Diversified Energy Services Corporation, a consulting firm for the oil and gas
industry. From December 1995 to July 1998, he served

43
<PAGE>

as President and Chief Operating Officer of both Phoenix Drilling Services
Inc. and Phoenix Energy Products Inc., subsidiaries of Phoenix Energy
Services, LLC. Additionally, Mr. Morley spent 18 years with various divisions
of Baker Hughes Incorporated, a major oilfield service, holding a broad range
of operations, sales and marketing, and executive management positions. Mr.
Morley received a Joint Honors B.S. from the University of London, England.

Mark R. Myers, Ph.D., has served as our Vice President, Information
Technology since October 2000. He served as our Vice President, Software
Development from February 2000 until October 2000. He served as Director of
Dynamic Systems and Software from December 1998 through February 2000. Dr.
Myers was a founding member of Tempest Technologies LLC, a consulting firm
specializing in algorithm and software development, which he led from May 1998
to December 1998. From January 1998 to May 1998, he was an Associate at Wager
Associates, where he managed software design activities to support the
development of commercial computer tools for gene sequence analysis. From July
1994 to January 1998, he was at United Technologies Corporation, first as the
Technology Area Coordinator for Dynamical Systems at the United Technologies
Research Center, and then as Design Chief within Pratt & Whitney's Compression
Systems Component Center, where he was responsible for the application of
collaborative computing systems to support engineering design processes. Dr.
Myers received a B.S. in Biological Sciences from the University of
California, Irvine and an M.S. and a Ph.D. in Applied Mathematics from Cornell
University.

Ruth O'Connell has served as Director, Investor Relations, since September
2000. From August 1996 to September 2000, she was at Lucent Technologies,
where she served as Managing Director, Investor Relations as well as Manager
of Industry Analyst Relations. Prior to 1996, she held several key management
positions within the Telecommunication and Networking division of Digital
Equipment Corporation, now Compaq Computer Corp. She has an extensive
background in the telecommunications sector, holding several key management
positions at Digital Equipment Corporation's Telecommunications and Networking
division. She received a B.S. from Boston University.

Martin A. Putnam has served as an Executive Engineer since October 2000 and
he served as a Technical Manager from July 1998 until October 2000, where he
has been responsible for development of Bragg gratings for optical add/drop
multiplexing, gain equalization, dispersion compensation and tunable filters.
He is also a member of our advanced technology development team. From June
1989 through July 1998, he was employed at the Naval Research Laboratory as a
Research Physicist in the Optical Sciences division. Mr. Putnam has four U.S.
patents in optical technology and has more than 20 patents pending. He
received a B.S. in Physics from SUNY Geneseo and an M.S. in Electrical
Engineering from the Johns Hopkins University.

Paul J. Rothman has served as Vice President, Product Realization since
October 2000 and he served as Director of Product Development from August 1998
until October 2000. From 1983 through July 1998, Mr. Rothman worked for United
Technologies in many engineering and management roles, most notably as the
Lead System Design Engineer and Technical Project Manager for various flight
critical turbine engine control systems. He received a B.A. from Saint Anselm
College and a B.S. in Mechanical Engineering from The University of Notre
Dame.

Paul E. Sanders joined CiDRA in March 1998, and has served as Vice
President, Business Development since June 1999. Mr. Sanders has over 20 years
of experience in the fiber optics industry. From December 1996 to March 1998,
Mr. Sanders was Business Development Manager at Uniphase Telecommunications
Products, now part of JDS Uniphase, and was responsible for marketing and
program management of new products serving the DWDM industry. From September
1982 through November 1996, he served in a number of engineering and business
development roles with 3M Corporation, and was a principal in launching 3M's
specialty optical fiber and Bragg grating business units. Mr. Sanders received
a B.S. in Chemistry from the University of Bridgeport.

Michael A. Sapack has served as an Executive Engineer since October 2000,
and he served as a member of our technical management staff from May 1997 to
October 2000. He also serves as a Product Development Manager for tunable
filter products. From 1995 through April 1997, Mr. Sapack was a member of the
technical staff at Pitney Bowes, where he developed systems for next
generation mailing automation products. Mr. Sapack holds two patents and
received a B.S. in Electrical Engineering from Worcester Polytechnic
Institute.

44
<PAGE>

James S. Sirkis, Ph.D. has served as Director, Technology Acquisitions
since December 1999, where he is responsible for our mergers and acquisitions
activities and advanced technology development. From August 1989 through
December 1999, he was a professor at the University of Maryland, where he
served as the Director of the Smart Materials and Structures Research Center,
a multidisciplinary research center that conducted advanced research in
optomechanical systems for telecommunications and sensing systems. Dr. Sirkis
has eight U.S. patents in optical technology and many others pending. Dr.
Sirkis received a B.S. in Engineering Science from the University of Florida
and an M.S. and a Ph.D. in Engineering Mechanics from the University of
Florida.

John V. Viega has served as our Vice President, Operations since December
1997. From March 1979 through December 1997, he held various financial,
operations and management positions with Gerber Systems Corporation, a
manufacturer of high-precision imaging systems. From April 1994 to December
1997, he served as Vice President, Operations for Gerber Systems. From June
1991 to April 1994, he served as the Director of Manufacturing for Gerber
Systems. From August 1986 to June 1991, Mr. Viega was Controller for Gerber
Systems where he was responsible for all financial and operational accounting.
He received a B.A. in Economics from the University of Connecticut and an
M.B.A. from the University of Hartford.

Kent H. Wardley has served as Director, Sales and Marketing since April
2000. Mr. Wardley has over 12 years of sales experience in fiber optics and
high-speed communication test equipment. From May 1997 to April 2000, he
served as the National Sales Manager for Queensgate SDL. From May 1995 to May
1997, Mr. Wardley was International/ Key Accounts Manager for Epitaxx, now
part of JDS Uniphase. From June 1993 to May 1995, he was Key Account Manager
for LeCroy, a manufacturer of high speed digital oscilloscopes for
communications. From September 1984 to June 1993, Mr. Wardley served as both a
Sales Engineer and Customer Engineer at Hewlett Packard. Mr. Wardley received
a B.S. in Electrical Engineering Technology and a M.S.B. in Marketing
Management from the New Jersey Institute of Technology.

Board Composition

Upon completion of this offering, our board of directors will consist of
seven members divided into three classes as nearly equal in number as
possible. Each year the stockholders will elect the members of one of the
three classes to a three-year term of office. Upon completion of this
offering, Messrs. Palmer and Slogedal will serve as the Class I directors,
whose term expires at the first annual meeting of stockholders after
completion of this offering; Dr. Kersey and Messrs. Honeybourne and Spirtos
will serve in as the Class II directors, whose term expires at the second
annual meeting of stockholders after completion of this offering; and Mr.
Didden and Dr. Huber will serve as the Class III directors, whose term expires
at the third annual meeting of stockholders after completion of this offering.
In addition, upon completion of this offering, the authorized number of
directors may be changed only by resolution of the board of directors. Any
additional directorships resulting from an increase in the number of directors
will be distributed among the three classes so that, as nearly as possible,
each class will consist of one-third of the directors. The classification of
our board of directors may have the effect of discouraging or making it more
difficult for a third party to acquire control of us.

Committees of the Board of Directors

Our board of directors has an audit committee and a compensation committee.

Audit Committee. The current members of our audit committee are Messrs.
Honeybourne, Palmer and Spirtos. Our audit committee reviews, acts on, and
reports to the board of directors with respect to various auditing and
accounting matters, including the selection of our independent auditors, the
scope of the annual audits, fees to be paid to the auditors, the performance
of our independent auditors and our accounting practices.

Compensation Committee. The current members of our compensation committee
are Dr. Huber and Messrs. Honeybourne and Palmer. Our compensation committee
determines the salaries and incentive compensation of our officers and
provides recommendations for the salaries and incentive compensation of our
other employees. The compensation committee also administers our stock option
plans.

45
<PAGE>

Compensation of Directors

Our directors who are also our employees receive no compensation for
serving on the board of directors. We reimburse our non-employee directors for
all travel and other reasonable expenses incurred in attending board of
director and committee meetings. Our non-employee directors are eligible to
receive nonqualified stock option grants under our 2000 Employee, Director and
Consultant Stock Plan. We may in the future grant nonqualified stock options
to non-employee directors as an incentive to join or remain on the board of
directors.

Compensation Committee Interlocks and Insider Participation

The compensation committee of our board of directors consists of Dr. Huber
and Messrs. Honeybourne and Palmer, none of whom has been an officer or
employee of CiDRA at any time since our inception. No executive officer of
CiDRA 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
our board of directors or compensation committee. In August 2000, we entered
into a purchase agreement with Corvis Corporation, of which Dr. Huber is
Chairman of the Board, President, Chief Executive Officer and a greater than
10% stockholder. See "Related Party Transactions--Purchase Agreement with
Corvis Corporation" for a further discussion of this affiliation. Prior to the
formation of the compensation committee, the board of directors as a whole
made decisions relating to the compensation of our executive officers.

Executive Compensation

The following table sets forth the total compensation paid or accrued
during the year ended December 31, 1999 to our Chief Executive Officer and our
two other most highly compensated executive officers who earned more than
$100,000 in salary and bonus during 1999. No other executive officer earned
more than $100,000 in salary and bonus during 1999. Faye A. Iseley, our Vice
President, Chief Financial Officer, joined us in August 1999 at an annual base
salary of $125,000.

Summary Compensation Table

<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
------------
Annual
Compensation Shares
------------------ Underlying All Other
Name and Principal Position Salary($) Bonus($) Options (#) Compensation ($)
--------------------------- --------- -------- ------------ ----------------
<S> <C> <C> <C> <C>
F. Kevin Didden............... $125,000 $ 450 -- $ --
President and Chief Executive
Officer
Alan D. Kersey, Ph.D. ........ 125,612 8,891 -- --
Vice President, Chief
Technology Officer
Michael Grillo................ 125,000 5,000 -- 30,000(1)
Vice President, General
Counsel
</TABLE>
--------
(1) Consists of $30,000 paid to Mr. Grillo in 1999 for relocation expenses.
Mr. Grillo elected not to relocate and repaid this amount to us in 2000.

Option Grants in Last Fiscal Year

There were no stock options granted to the executive officers named in the
summary compensation table above during our fiscal year ended December 31,
1999.

46
<PAGE>

Aggregate Option Exercises in 1999 and Year-End Option Values

The following table sets forth certain information with respect to option
exercises and the total value of options held by each executive officer named
in the summary compensation table above as of December 31, 1999. Because there
was no public trading market for the common stock as of December 31, 1999, the
value realized upon the exercise of options and the value of the unexercised
in-the-money options at year-end have been calculated using the assumed
initial public offering price of $ per share, minus the applicable per
share exercise price.

<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In-
Shares Options at Fiscal Year- the-Money Options at
Acquired End Fiscal Year-End
on Value ------------------------- -------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
F. Kevin Didden......... -- -- -- -- -- --
Alan D. Kersey, Ph.D.... -- -- 259,980 152,820
Michael Grillo.......... 50,000 43,333 66,667
</TABLE>

Employee Benefit Plans

2000 Employee, Director and Consultant Stock Plan

Our 2000 Employee, Director and Consultant Stock Plan was approved by our
board of directors in 2000, subject to stockholder approval. Under this
plan, we may grant incentive stock options and nonqualified stock options. As
of September 30, 2000, a total of shares of common stock had been reserved
for issuance under this plan. No shares have been issued pursuant to options
granted under this plan, no shares are subject to outstanding options and
shares are available for future grant. In addition, there will be an annual
increase in the number of shares reserved for issuance under the plan
beginning on equal to the lesser of:

. shares;

. 5% of the outstanding shares on the date of the increase; or

. a lesser amount determined by the board of directors.

Upon completion of this offering, this plan is to be administered by our
compensation committee. The compensation committee will determine the terms of
options granted pursuant to this plan, including:

. the exercise price and the number of shares subject to each option;

. the date on which the option becomes exercisable;

. the termination or cancellation provisions applicable to the options;
and

. the conditions relating to our right to reacquire shares subject to the
options.

The maximum term of options granted under this plan is ten years.

If we are acquired, the Compensation Committee will provide that
outstanding options under this plan shall be: (1) assumed by the successor or
acquiring company; (2) exercised within a specified number of days or the
options will terminate; or (3) terminated in exchange for a cash payment equal
to the value of the option at the time we are acquired. If we are acquired,
the Compensation Committee may also provide that all outstanding options fully
vest.

47
<PAGE>

1997 Option Plan

The 1997 Stock Option Plan was approved by our board of directors in
January 1997 and by our stockholders in April 1997. The plan was amended in
June 1997, December 1997, February 1998 and October 2000. The purpose of the
plan is to enhance our profitability and value for the benefit of our
stockholders by enabling us to offer stock-based incentives. The plan
authorizes the grant of options to purchase shares of common stock to our
employees and consultants. Under the plan, we may grant incentive stock
options within the meaning of Section 422 of the Internal Revenue Code of 1986
and non-qualified stock options. Incentive stock options may only be granted
to our employees. As of September 30, 2000, a total of 7,400,000 shares were
reserved for issuance under the plan, and 4,709,224 shares had been issued as
a result of the exercise of options, 1,726,948 shares were subject to
outstanding options, and 963,828 shares were available for future grants.

The plan is administered by our compensation committee. Subject to the
provisions of the plan, the compensation committee has authority to determine
the terms of options granted pursuant to this plan, including:

. the number of shares subject to an option;

. the date on which the option becomes exercisable;

. the option exercise price per share; and

. the duration of the option.

The plan provides that, in the event of our merger with or into another
corporation or a sale of substantially all of our assets, our board of
directors, or the board of directors of the acquiring corporation, will:

. provide that unexercised options will be assumed or an equivalent option
or right substituted by the acquiring corporation;

. provide notice that all unexercised options must be exercised within a
specific time period, after which all options will terminate; or

. purchase all unexercised options for the aggregate fair market value of
the shares subject to such options, less the aggregate exercise price.

If, following a change of control in which outstanding options under this plan
were assumed or substituted by the acquiring corporation, an option holder is
terminated without cause or terminates his or her employment for good reason,
all unvested options will vest immediately.

2000 Employee Stock Purchase Plan

In October 2000, subject to stockholder approval, our board of directors
adopted the 2000 Employee Stock Purchase Plan and reserved a total of 500,000
shares for issuance under the purchase plan. Generally, all employees that
work 20 hours or more per week, who have been continuously employed by us for
at least the three months immediately prior to any offering period, are
eligible to participate. However, any employee who would own more than five
percent of the total combined voting power of our stock immediately after a
grant under the Purchase Plan is not eligible to participate and no
participant may purchase more than $25,000 of our common stock in any one
calendar year.

The purchase plan is intended to qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Internal Revenue Code of 1986. The purchase
plan is implemented by a series of consecutive six-month offering periods. The
offering periods generally will start on April 1 and October 1 of each year,
except that the first offering period will start on the effective date of the
registration statement in connection with this offering and shall end on
September 28, 2001, with the option price on the first day of such offering
period equal to 85% of the initial public offering price.

48
<PAGE>

We will deduct up to 10% of each participating employee's pay, not to
exceed $21,250 per year, beginning on the first day of each designated
offering period. On the first day of each offering period, each participating
employee will be granted an option to purchase shares of our common stock.
Unless a participating employee withdraws from the purchase plan prior to the
end of the offering period, on the last day of the offering period the option
will be automatically exercised for the purchase of a number of shares of our
common stock determined by dividing the participating employee's contributions
during the offering period by the lesser of (1) 85% of the fair market value
of our common stock on the first day of the offering period, or (2) 85% of the
fair market value of our common stock on the last day of the offering period.
Participating employees may end their participation at any time during an
offering period, at which time they will receive all amounts deducted pursuant
to the purchase plan for that offering period. Participation in the purchase
plan ends automatically upon termination of employment.

Our board of directors may amend or terminate the purchase plan at any time
and in any respect without stockholder approval unless stockholder approval is
required by law. The purchase plan will continue in effect for a term of ten
years, subject to the right of the Board of Directors to terminate the
purchase plan at any earlier time.

Limitation of Directors' Liability and Indemnification

The Delaware General Corporation Law authorizes corporations to limit or
eliminate, subject to certain conditions, the personal liability of directors
to corporations and their stockholders for monetary damages for breach of
their fiduciary duties. Our certificate of incorporation limits the liability
of our directors to the fullest extent permitted by Delaware law.

We have obtained director and officer liability insurance to cover
liabilities our directors and officers may incur in connection with their
services to us, including matters arising under the Securities Act of 1933.
Our certificate of incorporation and bylaws also provide that we will
indemnify any of our directors and officers who, by reason of the fact that he
or she is one of our officers or directors, is involved in a legal proceeding
of any nature. We will repay certain expenses incurred by a director or
officer in connection with any civil or criminal action or proceeding,
specifically including actions by us or in our name (derivative suits). Such
indemnifiable expenses include, to the maximum extent permitted by law,
attorney's fees, judgments, civil or criminal fines, settlement amounts and
other expenses customarily incurred in connection with legal proceedings. A
director or officer will not receive indemnification if he or she is found not
to have acted in good faith and in a manner he or she reasonably believed to
be in, or not opposed to, our best interest.

There is no pending litigation or proceeding involving any of our
directors, officers, employees or agents in which indemnification will be
required or permitted. We are not aware of any threatened litigation or
proceeding that may result in a claim for such indemnification

49
<PAGE>

RELATED PARTY TRANSACTIONS

Sales of Our Common Stock and Preferred Stock

The following executive officers, directors or holders of more than five
percent of our voting securities purchased our common stock and preferred
stock in the amounts as of the dates set forth below. Each share of our Series
A, Series B, Series C and Series D preferred stock is convertible into six
shares of our common stock.

<TABLE>
<CAPTION>
Preferred Stock
Common --------------------------------------------------------
Directors and Executive Officers Stock Series A Series B Series C Series D
-------------------------------- -------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
F. Kevin Didden................. 4,008,534(1) -- -- -- --
Alan D. Kersey, Ph.D............ 543,320(2) -- -- -- --
Faye A. Iseley.................. 200,000(3) -- -- -- --
Michael Grillo.................. 192,000(4) -- -- -- --
David R. Huber, Ph.D............ -- 692,331 761,087 38,791 --
Will Honeybourne................ -- -- -- -- --
David F. Palmer................. -- -- -- -- --
Asmund Slogedal................. -- -- 11,400 -- --
John B. Spirtos................. -- -- -- -- --
5% Stockholders
Connecticut Innovations, Inc. .. -- 290,141 250,358 134,154 45,600
Teknoinvest Management AS....... -- 206,981 534,865 97,166 8,729
First Reserve Fund.............. -- -- -- 820,513 63,721
Price Per Share................. $.005-$.625 $3.00 $6.99 $19.50 $90.00
Date(s) of Purchase............. August 7, 1996 April 27, 1997 Feb. 12, 1998 Apr. 13, 1999 June 20, 2000
through and June 28, 1999
Sep. 29, 2000 Aug. 11, 1997 and
July 30, 1999
</TABLE>
--------
(1) Consists of 4,008,534 shares purchased for $.005 per share.
(2) Consists of 40,000 shares acquired upon exercise of options at $.075 per
share, 412,800 shares acquired upon exercise of options at $.15 per share
and 90,520 shares acquired upon exercise of options at $.625 per share.
(3) Consists of 200,000 shares acquired upon exercise of options at $.625 per
share.
(4) Consists of 40,000 shares acquired upon exercise of options at $.075 per
share, 120,000 shares acquired upon exercise of options at $.15 per share
and 32,000 shares acquired upon exercise of options at $.625 per share.

Purchase Agreement with Corvis Corporation

In August 2000, we entered into a purchase agreement with Corvis
Corporation. This agreement has a term of two years and obligates Corvis to
purchase optical networking products from us based on a rolling forecast
provided to us by Corvis. To date, we have not shipped any products under this
agreement. David R. Huber, Ph.D., our Chairman of the Board, is the Chairman
of the Board, President, Chief Executive Officer and a greater

50
<PAGE>

than 10% stockholder of Corvis. We believe that the terms of this transaction
with Corvis were at least as favorable as those we could have obtained from an
unaffiliated third party.

2000 Executive Loan Program

In August 2000, pursuant to our 2000 Executive Loan Program we lent an
aggregate of $600,000 to our four executive officers. These loans are secured
by a pledge of an aggregate of 200,000 shares of our common stock held by the
executive officers, based on a per share price of $3.00 per share. These loans
are payable in full on the earlier of (1) two years from the date the loan was
made, (2) 30 days after voluntary or involuntary termination of the executive
officer's employment with us or (3) 90 days after termination of the executive
officer's employment with us as a result of retirement, disability or death.
From and after the date the loan becomes due, the outstanding principal
balance will accrue interest at a rate equal to the prime rate. Prior to the
date the loan becomes due, the principal does not bear interest. The number of
shares pledged by each executive officer is subject to adjustment by the board
of directors based on changes in the fair market value of our common stock. We
have loans with the following executive officers in the amounts indicated:

<TABLE>
<CAPTION>
Executive Officer Amount Date of Loan
----------------- -------- --------------
<S> <C> <C>
F. Kevin Didden......................................... $150,000 August 1, 2000
Alan D. Kersey, Ph.D.................................... $150,000 August 1, 2000
Faye A. Iseley.......................................... $150,000 August 1, 2000
Michael Grillo.......................................... $150,000 August 1, 2000
</TABLE>

Connecticut Presence Requirement

Pursuant to the Preferred Stock Purchase Agreement dated June 20, 2000,
Connecticut Innovations, Inc., a greater than five percent stockholder, has
the right to require us to repurchase the 4,321,518 shares of common stock
owned by them, and their affiliated entities, if we do not (1) maintain our
principal place of business, (2) base a majority of our employees and (3)
conduct a majority of our operations in Connecticut. If this right is
triggered, they would have the right to require us to purchase these shares of
common stock at a per share price equal to the greater of:

. the initial purchase price plus a 25% rate of return compounded annually
from the date of purchase; or

. the fair market value of the share as mutually determined by us and
Connecticut Innovations.

The shares held by Connecticut Innovations and its related entities were
originally purchased in the form of Series A, Series B, Series C and Series D
preferred stock at the prices and on the dates set forth in "Related Party
Transactions--Sales of Our Common Stock and Preferred Stock." This right
terminates once all of the shares held by Connecticut Innovations and its
related entities are freely tradeable without registration under the
Securities Act of 1933.

Future Transactions

All future transactions, including any loans from us to our officers,
directors, principal stockholders or affiliates, will be approved by a
majority of the board of directors, including a majority of the independent
and disinterested members of the board of directors or, if required by law, a
majority of disinterested stockholders, and will be on terms no less favorable
to us than could be obtained from unaffiliated third parties.

51
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth information regarding the beneficial
ownership of our common stock as of September 30, 2000, and as adjusted to
reflect the sale of our common stock offered by this prospectus by:

. the executive officers named in the summary compensation table;

. each of our directors;

. all of our current directors and executive officers as a group; and

. each stockholder known by us to own beneficially more than five percent
of our common stock.

Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power
with respect to the securities. Shares of common stock that may be acquired by
an individual or group within 60 days of September 30, 2000, pursuant to the
exercise of options or warrants, are deemed to be outstanding for the purpose
of computing the percentage ownership of such individual or group, but are not
deemed to be outstanding for the purpose of computing the percentage ownership
of any other person shown in the table. Percentage of ownership is based on
50,722,408 shares of common stock outstanding on September 30, 2000, which
assumes the conversion of all outstanding shares of preferred stock into
common stock, and shares of common stock outstanding after the completion
of this offering.

Except as indicated in footnotes to this table, we believe that the
stockholders named in this table have sole voting and investment power with
respect to all shares of common stock shown to be beneficially owned by them
based on information provided to us by such stockholders. Unless otherwise
indicated, the address for each director and executive officer listed is: c/o
CiDRA Corporation, 50 Barnes Park North, Wallingford, Connecticut 06492.

<TABLE>
<CAPTION>
Percentage of
Common Stock
Beneficially
Number of Owned
Shares -----------------
Beneficially Before After
Beneficial Owner Owned Offering Offering
---------------- ------------ -------- --------
<S> <C> <C> <C>
Directors and Executive Officers
F. Kevin Didden (1)............................. 3,924,734 7.7%
Alan D. Kersey, Ph.D. (2)....................... 525,820 1.0
Michael Grillo (3).............................. 187,000 *
David R. Huber, Ph.D. (4)....................... 10,781,466 21.3
Will Honeybourne (5)............................ 5,305,404 10.5
David F. Palmer (6)............................. 2,406,210 4.7
Asmund Slogedal (7)............................. 5,763,396 11.4
John B. Spirtos (8)............................. 1,828,212 3.6
All current executive officers and directors as
a group
(9 persons) (9)................................ 29,094,030 57.4
5% Stockholders
Connecticut Innovations, Inc. (10).............. 4,321,518 8.5
Teknoinvest Management AS (11).................. 5,086,446 10.0
First Reserve Corporation (5)................... 5,305,404 10.5
</TABLE>
--------
* Represents beneficial ownership of less than 1% of the shares of Common
Stock.

52
<PAGE>

(1) Includes 641,844 shares held in trust for Mr. Didden's minor children.
Mr. Didden disclaims beneficial ownership of these shares.
(2) Includes 172,590 shares subject to our right of repurchase, which lapses
over time. Also includes 20,000 shares held in trust for Dr. Kersey's
minor children and 5,000 shares owned by Dr. Kersey's wife. Dr. Kersey
disclaims beneficial ownership of these shares.
(3) Includes 68,667 shares subject to our right of repurchase, which lapses
over time. Also includes 30,000 shares held in trust for Mr. Grillo's
minor children and 5,000 shares owned by Mr. Grillo's wife. Mr. Grillo
disclaims beneficial ownership of these shares.
(4) Includes 79,458 shares held by The David R. Huber Grantor Retained
Annuity Trust, 159,150 shares held by HRLD Corporation, of which Dr.
Huber is President, 153,714 shares held by HRLD LP, of which Dr. Huber
is a limited partner and 1,515,348 shares held by Optical Capital Group,
LLC, of which Dr. Huber is Chairman. Dr. Huber disclaims beneficial
ownership of shares held by these entities except to the extent of his
pecuniary interest in these entities.
(5) Includes 1,591,620 shares held by First Reserve Fund VII, LP and
3,713,784 shares held by First Reserve Fund VIII, L.P. Mr. Honeybourne
is a Managing Director of First Reserve Corporation which is the General
Partner of the General Partner of First Reserve Fund VII, L.P. and First
Reserve Fund VIII, L.P. Mr. Honeybourne disclaims beneficial ownership
of shares held by these entities except to the extent of his pecuniary
interest in these entities. First Reserve Corporation is located at 475
Steamboat Road, Greenwich, Connecticut 06830.
(6) Includes 2,260,872 shares held by Velocity Capital, LLC, 33,336 shares
held by VPF CiDRA, LLC and 112,002 shares held by VPF CiDRA Investments
II, LLC. Mr. Palmer is the Managing Member of each of these entities.
Mr. Palmer disclaims beneficial ownership of shares held by these
entities except to the extent of his pecuniary interest in these
entities.
(7) Includes 520,140 shares held by Venturos I DA and 88,410 shares held by
Venturos Holding AS. Venturos I DA is managed by Venturos Management KS,
which is a subsidiary of Venturos Holding AS. Mr. Slogedal is a Managing
Director of Venturos Management KS. Also includes 4,465,740 shares held
by KS Teknoinvest V and 620,706 shares held by Teknoinvest VI. Mr.
Slogedal is a director of each of these entities. Mr. Slogedal disclaims
beneficial ownership of shares held by all of these entities except to
the extent of his pecuniary interest in these entities.
(8) Includes 159,150 shares held by HRLD Corporation, of which Mr. Spirtos
is General Counsel, 153,714 shares held by HRLD LP, of which HRLD
Corporation is the General Partner, and 1,515,348 shares held by Optical
Capital Group, LLC, of which Mr. Spirtos is Vice Chairman. Mr. Spirtos
disclaims beneficial ownership of shares held by these entities except
to the extent of his pecuniary interest in these entities.
(9) See Notes 1 through 8 above. Also includes an additional 118,750 shares
subject to our right of repurchase, which lapses over time.
(10) Includes 945,378 shares held by CII/NEV LLC and 66,666 shares held by
Connecticut Innovations/Webster LLC. Connecticut Innovations, Inc. is
the Managing Member of these entities. Connecticut Innovations, Inc. is
located at 999 West Street, Rocky Hill, Connecticut 06067.
(11) Includes 4,465,740 shares held by KS Teknoinvest V and 620,706 shares
held by KS Teknoinvest VI. Teknoinvest Management AS is the manager of
KS Teknoinvest V and KS Teknoinvest VI. Teknoinvest Management AS is
located at Grev Wedels Plass 5, P.O. Box 556 Sentrum, 0151 Oslo, Norway.

53
<PAGE>

DESCRIPTION OF CAPITAL STOCK

Upon completion of this offering, we will be authorized to issue
300,000,000 shares of common stock, $.001 par value per share, and 5,000,000
shares of preferred stock, $.01 par value per share, and there will be
shares of common stock and no shares of preferred stock outstanding. Assuming
the conversion of our preferred stock, as of September 30, 2000, we had
50,722,408 shares of common stock outstanding held of record by 367
stockholders, and there were outstanding options to purchase 1,726,948 shares
of common stock and outstanding warrants to purchase up to an aggregate number
of shares equal to five percent of the common stock sold to the public in this
offering.

Common Stock

Holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders and do not have
cumulative voting rights. Subject to preferences that may be applicable to any
outstanding shares of preferred stock, holders of common stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time
by our board of directors out of funds legally available for dividend
payments. All outstanding shares of common stock are fully paid and
nonassessable, and the shares of common stock to be issued upon completion of
this offering will be fully paid and nonassessable. The holders of common
stock have no preferences or rights of conversion, exchange, pre-emption or
other subscription rights. There are no redemption or sinking fund provisions
applicable to the common stock. In the event of any liquidation, dissolution
or winding-up of our affairs, holders of common stock will be entitled to
share ratably in our assets that are remaining after payment or provision for
payment of all of our debts and obligations and after liquidation payments to
holders of outstanding shares of preferred stock, if any.

Preferred Stock

The preferred stock, if issued, would have priority over the common stock
with respect to dividends and other distributions, including the distribution
of assets upon liquidation. Our board of directors has the authority, without
further stockholder authorization, to issue from time to time shares of
preferred stock in one or more series and to fix the terms, limitations,
relative rights and preferences and variations of each series. Although we
have no present plans to issue any shares of preferred stock, the issuance of
shares of preferred stock, or the issuance of rights to purchase such shares,
could decrease the amount of earnings and assets available for distribution to
the holders of common stock, adversely affect the rights and powers, including
voting rights, of the common stock, and have the effect of delaying, deterring
or preventing a change in control of us or an unsolicited acquisition
proposal.

Warrants

As of September 30, 2000, we had outstanding warrants to purchase up to an
aggregate number of shares of common stock equal to five percent of the shares
sold to the public in this offering. These warrants were issued in connection
with our Series D preferred stock financing and are exercisable at a price
equal to the initial public offering price. The warrants may be exercised for
a one-year period beginning on the day after the registration statement in
connection with this offering is declared effective by the Securities and
Exchange Commission.

Registration Rights

Holders of shares of our common stock are entitled to registration rights
with respect to those shares, as set forth below. These registration rights
are subject to certain conditions and limitations, including the right of the
underwriters of an offering to limit the number of shares included in any such
registration under certain circumstances. All expenses incurred in connection
with registrations effected in connection with the following rights will be
borne by us.

54
<PAGE>

Demand Rights. The holders of 44,527,240 shares of common stock and an
aggregate number of shares of common stock equal to five percent of the common
stock sold to the public in this offering issuable upon the exercise of
warrants will have rights to cause us to register those shares under the
Securities Act. We may be required to effect up to three such registrations.
Stockholders with these registration rights who are not part of an initial
registration demand are entitled to notice and are entitled to include their
shares of common stock in the registration.

Piggyback Rights. If at any time after this offering we propose to register
any of our equity securities under the Securities Act, other than in
connection with:

. a registration relating solely to our stock option plans or other
employee benefit plans, or

. a registration relating solely to a business combination or merger
involving us,

the holders of 44,527,240 shares of common stock and an aggregate number of
shares of common stock equal to five percent of the common stock sold to the
public in this offering issuable upon the exercise of warrants are entitled to
notice of such registration and are entitled to include their common stock in
the registration.

Shelf Registration Rights. In addition, the holders of 44,527,240 shares of
common stock and an aggregate number of shares of common stock equal to five
percent of the common stock sold to the public in this offering issuable upon
the exercise of warrants will have the right to cause us to register these
shares on a Form S-3, provided that we are eligible to use this form. We may
be required to effect up to three such registrations. We will not be required
to effect such a registration unless the aggregate offering price of the
shares to be registered is expected to be at least $5.0 million, and we will
only be required to effect one such registration in any twelve-month period.
Stockholders with these registration rights who are not part of an initial
registration demand are entitled to notice and are entitled to include their
shares of common stock in the registration.

Delaware Law and Certain Charter and By-law Provisions

The provisions of (1) Delaware law, (2) our amended and restated
certificate of incorporation and (3) our restated bylaws discussed below could
discourage or make it more difficult to accomplish a proxy contest or other
change in our management or the acquisition of control by a holder of a
substantial amount of our voting stock. It is possible that these provisions
could make it more difficult to accomplish, or could deter, transactions that
stockholders may otherwise consider to be in their best interests or in our
best interests. These provisions are intended to enhance the likelihood of
continuity and stability in the composition of our board of directors and in
the policies formulated by the board of directors and to discourage certain
types of transactions that may involve an actual or threatened change of
control of us. These provisions are designed to reduce our vulnerability to an
unsolicited acquisition proposal. The provisions also are intended to
discourage certain tactics that may be used in proxy fights. Such provisions
also may have the effect of preventing changes in our management.

Delaware Statutory Business Combinations Provision. We are subject to the
anti-takeover provisions of Section 203 of the Delaware General Corporations
Law. In general, Section 203 prohibits a publicly-held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for
a period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is, or the
transaction in which the person became an interested stockholder was, approved
in a prescribed manner or another prescribed exception applies. For purposes
of Section 203, a "business combination" is defined broadly to include a
merger, asset sale or other transaction resulting in a financial benefit to
the interested stockholder, and, subject to certain exceptions, an "interested
stockholder" is a person who, together with his or her affiliates and
associates, owns (or within three years prior, did own) 15% or more of the
corporation's voting stock.

55
<PAGE>

Classified Board of Directors. Our amended and restated certificate of
incorporation provides that our board of directors will be divided into three
classes as nearly equal in number as possible. Each year, the stockholders
will elect the members of one of the three classes to a three-year term of
office. All directors elected to our classified board of directors will serve
until the election and qualification of their respective successors or their
earlier resignation or removal. The board of directors is authorized to create
new directorships and to fill such positions so created and is permitted to
specify the class to which any such new position is assigned. The person
filling such position would serve for the term applicable to that class. The
board of directors (or its remaining members, even if less than a quorum) is
also empowered to fill vacancies on the board of directors occurring for any
reason for the remainder of the term of the class of directors in which the
vacancy occurred. Members of the board of directors may only be removed for
cause. These provisions are likely to increase the time required for
stockholders to change the composition of the board of directors. For example,
in general, at least two annual meetings will be necessary for stockholders to
effect a change in a majority of the members of the board of directors.

Advance Notice Provisions for Stockholder Proposals and Stockholder
Nominations of Directors. Our restated bylaws provide that, for nominations to
the board of directors or for other business to be properly brought by a
stockholder before a meeting of stockholders, the stockholder must first have
given timely notice of the proposal in writing to our Secretary. For an annual
meeting, a stockholder's notice generally must be delivered not less than 45
days nor more than 75 days prior to the anniversary of the mailing date of the
proxy statement for the previous year's annual meeting. If the date of the
annual meeting is more than 30 days before or after the anniversary date of
the preceding year's annual meeting, or if there was no annual meeting in the
preceding year, notice must be delivered not less than the later of 60 days
prior to the meeting or ten days following public announcement of the meeting
and not more than 90 days prior to the meeting. For a special meeting, the
notice must generally be delivered by the later of 90 days prior to the
special meeting or ten days following the day on which public announcement of
the meeting is first made. Detailed requirements as to the form of the notice
and information required in the notice are specified in the restated bylaws.
If it is determined that business was not properly brought before a meeting in
accordance with our bylaw provisions, such business will not be conducted at
the meeting.

Special Meetings of Stockholders. Special meetings of the stockholders may
be called only by our board of directors pursuant to a resolution adopted by a
majority of the total number of directors.

No Stockholder Action by Written Consent. Our restated certificate of
incorporation does not permit our stockholders to act by written consent. As a
result, any action to be effected by our stockholders must be effected at a
duly called annual or special meeting of the stockholders.

Super-Majority Stockholder Vote required for Certain Actions. The Delaware
General Corporation Law provides generally that the affirmative vote of a
majority of the shares entitled to vote on any matter is required to amend a
corporation's certificate of incorporation or bylaws, unless the corporation's
certificate of incorporation or bylaws, as the case may be, requires a greater
percentage. Our amended and restated certificate of incorporation requires the
affirmative vote of the holders of at least 66 2/3% of our outstanding voting
stock to amend or repeal any of the provisions discussed in this section of
this prospectus entitled "Delaware Law and Certain Charter and By-law
Provisions" or to reduce the number of authorized shares of common stock or
preferred stock. This 66 2/3% stockholder vote would be in addition to any
separate class vote that might in the future be required pursuant to the terms
of any preferred stock that might then be outstanding. A 66 2/3% vote is also
required for any amendment to, or repeal of, our bylaws by the stockholders.
Our bylaws may be amended or repealed by a simple majority vote of the board
of directors.

Transfer Agent and Registrar

The transfer agent and registrar for the common stock will be .

Listing

We will complete an application for listing our common stock on the Nasdaq
National Market under the symbol "CIDC."

56
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of our common stock in the public market
could adversely affect market prices prevailing from time to time.
Furthermore, because only a limited number of shares will be available for
sale shortly after this offering due to existing contractual and legal
restrictions on resale as described below, there may be sales of substantial
amounts of our common stock in the public market after the restrictions lapse.
This may adversely affect the prevailing market price and our ability to raise
equity capital in the future.

Upon completion of this offering, we will have shares of common stock
outstanding, assuming the conversion of all outstanding shares of preferred
stock and no exercise of any options and warrants outstanding as of September
30, 2000. Of these shares, the shares sold in this offering will be freely
transferable without restriction or registration under the Securities Act,
except for any shares purchased by one of our existing "affiliates," as that
term is defined in Rule 144 under the Securities Act. The remaining 50,722,408
shares of common stock existing are "restricted shares" as defined in Rule
144. Restricted shares may be sold in the public market only if registered or
if they qualify for an exemption from registration under Rules 144 or 701 of
the Securities Act. As a result of the contractual 180-day lock-up period
described below and the provisions of Rules 144 and 701, these shares will be
available for sale in the public market as follows:

<TABLE>
<CAPTION>
Number of Shares Date
---------------- ----
<S> <C>
....................... On the date of this prospectus.
....................... After 90 days from the date of this prospectus.
....................... After 180 days from the date of this prospectus
(subject, in some cases, to volume limitations).
....................... At various times after 180 days from the date of
this prospectus (subject, in some cases, to
volume limitations).
</TABLE>

Rule 144

In general, under Rule 144 as currently in effect, beginning 90 days after
this offering, a person, or persons whose shares are aggregated, who owns
shares that were purchased from us, or any affiliate, at least one year
previously, is entitled to sell within any three-month period a number of
shares that does not exceed the greater of 1% of our then-outstanding shares
of common stock, which will equal approximately shares immediately after
this offering, or the average weekly trading volume of our common stock on the
Nasdaq National Market during the four calendar weeks preceding the filing of
a notice of the sale on Form 144. Sales under Rule 144 are also subject to
manner of sale provisions, notice requirements and the availability of current
public information about us. We are unable to estimate the number of shares
that will be sold under rule 144 since this will depend on the market price
for our common stock, the personal circumstances of the stockholder and other
factors.

Rule 144(k)

Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the three months preceding a sale, and who owns
shares within the definition of "restricted securities" under Rule 144 that
were purchased from us, or any affiliate, at least two years previously, would
be entitled to sell shares under Rule 144(k) without regard to the volume
limitations, manner of sale provisions, public information requirements or
notice requirements described above.

Rule 701

In general, under Rule 701, any of our employees, directors, officers,
consultants or advisors who purchases shares from us in connection with a
compensatory stock or option plan or other written agreement before the

57
<PAGE>

effective date of this offering is entitled to resell such shares 90 days
after the effective date of this offering in reliance on Rule 144, without
having to comply with the holding period requirements or other restrictions
contained in Rule 701.

The Securities and Exchange Commission has indicated that Rule 701 will
apply to typical stock options granted by an issuer before it becomes subject
to the reporting requirements of the Securities Exchange Act of 1934, along
with the shares acquired upon exercise of such options, including exercises
after the date of this prospectus. Securities issued in reliance on Rule 701
are restricted securities and, subject to the contractual restrictions
described above, beginning 90 days after the date of this prospectus, may be
sold by persons other than "affiliates," as defined in Rule 144, subject only
to the manner of sale provisions of Rule 144 and by "affiliates" under Rule
144 without compliance with its one-year minimum holding period requirement.

Registration Rights

Upon completion of this offering, the holders of approximately 44,527,240
shares of common stock and an aggregate number of shares of common stock equal
to five percent of the common stock sold to the public in this offering
issuable upon the exercise of warrants or their transferees, will be entitled
to various rights with respect to the registration of these shares under the
Securities Act. Registration of these shares under the Securities Act would
result in these shares becoming freely tradable without restriction under the
Securities Act immediately upon the effectiveness of the registration, except
for shares purchased by affiliates.

Stock Options

As of September 30, 2000, options to purchase a total of 1,726,948 shares
of common stock were outstanding. All of the shares subject to options are
subject to lock-up agreements. An additional shares of common stock were
available for future option grants under our stock plans.

Upon completion of this offering, we intend to file a registration
statement under the Securities Act covering all shares of common stock subject
to outstanding options or issuable pursuant to our 2000 Employee, Director and
Consultant Stock Option Plan, our 1997 Stock Option Plan and our 2000 Employee
Stock Purchase Plan. Subject to Rule 144 volume limitations applicable to
affiliates, shares registered under any registration statements will be
available for sale in the open market, beginning 90 days after the date of the
prospectus, except to the extent that the shares are subject to vesting
restrictions with us or the contractual restrictions described below.

Lock-up Agreements

Our officers, directors and substantially all of our stockholders, who hold
an aggregate of approximately shares of our common stock, have agreed,
subject to limited exceptions, not to offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, or otherwise transfer or
dispose of, directly or indirectly, or enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of any shares of common stock or any
securities convertible into or exercisable or exchangeable for shares of
common stock for a period of 180 days after the date of this prospectus,
without the prior written consent of Morgan Stanley & Co. Incorporated.

If the reported last sale price of the common stock on the Nasdaq National
Market is at least twice the initial public offering price per share for 20 of
the 30 trading days (including the 30th day) ending on the last trading day
preceding the 90th day after the date of this prospectus, 25% of the shares of
our common stock subject to

58
<PAGE>

the 180-day restriction described above excluding shares owned by our
executive officers, or shares, will be released from these restrictions.
The release of these shares will occur on the later to occur of:

. the 90th day after the date of this prospectus if we make our first
post-offering public release of our quarterly or annual earnings results
during the period beginning on the eleventh trading day after the date
of this prospectus and ending on the day prior to the 90th day after the
date of this prospectus, or

. on the second trading day following the first public release of our
quarterly or annual results occurring on or after the 90th day after the
date of this prospectus, if we do not make our first post-offering
public release as described in the preceding clause.

Of the shares to be released, shares will be eligible for sale, in some
cases subject only to the volume, manner of sale and notice requirements of
Rule 144. In addition, Morgan Stanley & Co. Incorporated may in its sole
discretion choose to release any or all of these shares from these
restrictions prior to the expiration of either the 90- or 180-day period.

59
<PAGE>

UNDERWRITERS

Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus, the underwriters named below, for
whom Morgan Stanley & Co. Incorporated, CIBC World Markets Corp., UBS Warburg
LLC, Thomas Weisel Partners LLC and Raymond James & Associates, Inc. are
acting as representatives, have severally agreed to purchase, and we have
agreed to sell to them, severally, the number of shares of common stock set
forth opposite the names of these underwriters below:

<TABLE>
<CAPTION>
Number of
Name Shares
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated.....................................
CIBC World Markets Corp...............................................
UBS Warburg LLC.......................................................
Thomas Weisel Partners LLC............................................
Raymond James & Associates, Inc.......................................
Total...............................................................
===
</TABLE>

The underwriters are offering the shares of common stock subject to their
acceptance of the shares from us and subject to prior sale. The underwriting
agreement provides that the obligations of the several underwriters to pay for
and accept delivery of the shares of common stock offered by this prospectus
are subject to the approval of specified legal matters by their counsel and to
other conditions. The underwriters are obligated to take and pay for all of
the shares of common stock offered by this prospectus, if any such shares are
taken. However, the underwriters are not required to take or pay for the
shares covered by the underwriters' over-allotment option described below.

The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price set forth on the
cover page of this prospectus and a portion to some dealers at a price that
represents a concession not in excess of $ per share under the public
offering price. Any underwriter may allow, and such dealers may reallow, a
concession not in excess of $ per share to other underwriters or to other
dealers. After the initial offering of the shares of common stock, the
offering price and other selling terms may from time to time be varied by the
representatives of the underwriters.

Pursuant to the underwriting agreement, we have granted to the underwriters
an option, exercisable for 30 days from the date of this prospectus, to
purchase up to an aggregate of additional shares of common stock at the
public offering price set forth on the cover page of this prospectus, less
underwriting discounts and commissions. The underwriters may exercise this
option solely for the purpose of covering over-allotments, if any, made in
connection with the offering of the shares offered by this prospectus. To the
extent this option is exercised, each underwriter will become obligated,
subject to specified conditions, to purchase about the same percentage of
additional shares as the number set forth next to the underwriter's name in
the preceding table bears to the total number of shares set forth next to the
names of all underwriters in the preceding table. If the underwriters exercise
the over-allotment option in full, the total price to the public for this
offering would be $ , the total underwriting discounts and commissions would
be $ and the total proceeds to us would be $ before deducting estimated
offering expenses of $ .

The underwriters have informed us that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
common stock offered by them.

We have filed an application for our common stock to be quoted on the
Nasdaq National Market under the symbol "CIDC."

We, our directors and executive officers and substantially all of our
stockholders and option holders have each agreed that, without the prior
written consent of Morgan Stanley & Co. Incorporated on behalf of the

60
<PAGE>

underwriters, we will not, directly or indirectly, during the period ending
180 days after the date of this prospectus:

. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or

. enter into any swap or other agreement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock,

whether any transaction described above is to be settled by delivery of common
stock or such other securities, in cash or otherwise. This lock-up restriction
is subject, in specified circumstances, to earlier release. For a description
of the circumstances leading to this earlier release, please see "Shares
Eligible for Future Sale--Lock-up Agreements."

The restrictions described in the immediately preceding paragraph do not
apply to:

. the sale by us to the underwriters of the shares of common stock under
the underwriting agreement;

. the issuance by us of shares of common stock upon the exercise of an
option or a warrant or the conversion of a security outstanding on the
date of this prospectus of which the underwriters have been advised in
writing; or

. transactions by any person other than us relating to shares of common
stock or other securities acquired in open market transactions after the
completion of this offering.

In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may sell more shares
than they are obligated to purchase under the underwriting agreement, creating
a short position. A short sale is covered if the short position is no greater
than the number of shares available for purchase by the underwriters under the
over allotment option. The underwriters can close out a covered short sale by
exercising the over allotment option or purchasing shares in the open market.
In determining the source of shares to close out a covered short sale, the
underwriters will consider, among other things, the open market price of
shares compared to the price available under the over allotment option. The
underwriters may also sell shares in excess of the over allotment option,
creating a naked short position. The underwriters must close out any naked
short position by purchasing shares in the open market. A naked short position
is more likely to be created if the underwriters are concerned that there may
be downward pressure on the price of the common stock in the open market after
pricing that could adversely affect investors who purchase in the offering. As
an additional means of facilitating the offering, the underwriters may bid
for, and purchase, shares of common stock in the open market to stabilize the
price of the common stock. The underwriting syndicate may also reclaim selling
concessions allowed to an underwriter or a dealer for distributing the common
stock in the offering, if the syndicate repurchases previously distributed
common stock to cover syndicate short positions or to stabilize the price of
the common stock. These activities may raise or maintain the market price of
the common stock above independent market levels or prevent or retard a
decline in the market price of the common stock. The underwriters are not
required to engage in these activities, and may end any of these activities at
any time.

We and the underwriters have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act.

At our request, the underwriters have reserved up to shares of common
stock offered by this prospectus for sale at the initial public offering price
to some of our directors, officers, employees, customers and other business
associates. There can be no assurance that any of the reserved shares will be
purchased. The number of shares available for sale to the general public will
be reduced to the extent that these parties purchase the reserved shares. Any
reserved shares not so purchased will be offered by the underwriters to the
general public on the same basis as the other shares offered by this
prospectus.

61
<PAGE>

Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since
December 1998, Thomas Weisel Partners has been named as a lead or co-manager
on 146 completed transactions, and has acted as a syndicate member in an
additional 128 public offerings of equity securities. Thomas Weisel Partners
does not have any material relationship with us or any of our officers,
directors or other controlling persons, except with respect to its contractual
relationship with us pursuant to the underwriting agreement entered into in
connection with this offering.

On June 20, 2000, Morgan Stanley Dean Witter Equity Funding, Inc.,
purchased 55,556 shares of our Series D preferred stock for an aggregate
amount of $5.0 million, or $90 per share. Morgan Stanley Dean Witter Equity
Funding and Morgan Stanley & Co. Incorporated, which is an underwriter in this
offering, are wholly-owned subsidiaries of Morgan Stanley Dean Witter & Co.

Pricing of the Offering

Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiations
between us and the representatives of the underwriters. Among the factors to
be considered in determining the initial public offering price will be:

. our record of operations, our current financial position and future
prospects;

. the experience of our management;

. sales, earnings and certain of our other financial and operating
information in recent periods; and

. the price-earnings ratios, price-sales ratios, market prices of
securities and certain financial and operating information of companies
engaged in activities similar to ours.

The estimated initial public offering price range set forth on the cover
page of this prospectus is subject to change as a result of market conditions
and other factors.

62
<PAGE>

LEGAL MATTERS

The validity of the common stock offered by us in this offering will be
passed upon for us by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.,
Boston, Massachusetts and for the underwriters by Davis Polk & Wardwell, New
York, New York.

EXPERTS

The financial statements as of December 31, 1998 and 1999 and for each of
the three years in the period ended December 31, 1999 included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed with the SEC a registration statement on Form S-1 under the
Securities Act, with respect to the common stock offered by this prospectus.
This prospectus, which is part of the registration statement, omits certain
information, exhibits, schedules and undertakings set forth in the
registration statement. For further information pertaining to us and our
common stock, reference is made to the registration statement and the exhibits
and schedules to the registration statement. Statements contained in this
prospectus as to the contents or provisions of any documents referred to in
this prospectus are not necessarily complete, and in each instance where a
copy of the document has been filed as an exhibit to the registration
statement, reference is made to the exhibit for a more complete description of
the matters involved.

You may read and copy all or any portion of the registration statement
without charge at the office of the SEC at 450 Fifth Street, N.W., Washington,
D.C. 20549. Copies of the registration statement may be obtained from the SEC
at prescribed rates from the Public Reference Section of the SEC at such
address, and at the SEC's regional offices located at 7 World Trade Center,
13th Floor, New York, New York 10048, and at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. In addition, registration
statements and certain other filings made with the SEC electronically are
publicly available through the SEC's web site at http://www.sec.gov. The
registration statement, including all exhibits and amendments to the
registration statement, has been filed electronically with the SEC.

Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act and,
accordingly, will file annual reports containing financial statements audited
by an independent public accounting firm, quarterly reports containing
unaudited financial data, current reports, proxy statements and other
information with the SEC. You will be able to inspect and copy such periodic
reports, proxy statements and other information at the SEC's public reference
room, and the web site of the SEC referred to above.

63
<PAGE>

CIDRA CORPORATION

INDEX TO FINANCIAL STATEMENTS

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

Balance Sheets as of December 31, 1998 and 1999 and June 30, 2000
(unaudited).............................................................. F-3

Statements of Operations for each of the three years in the period ended
December 31, 1999 and
for the six months ended June 30, 1999 (unaudited) and 2000 (unaudited).. F-4

Statements of Changes in Stockholders' Deficit for each of the three years
in the period ended December 31, 1999 and for the six months ended June
30, 2000 (unaudited)..................................................... F-5

Statements of Cash Flows for each of the three years in the period ended
December 31, 1999 and
for the six months ended June 30, 1999 (unaudited) and 2000 (unaudited).. F-6

Notes to Financial Statements............................................. F-7
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of CiDRA Corporation

In our opinion, the accompanying balance sheets and the related statements
of operations, changes in stockholders' deficit and cash flows present fairly,
in all material respects, the financial position of CiDRA Corporation at
December 31, 1998 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999 in
conformity with accounting principles generally accepted in the United States
of America. 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 auditing standards generally accepted in the United States,
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.

/s/ PRICEWATERHOUSECOOPERS LLP

March 6, 2000, except for the stock split described in Note 7 which is as of
April 7, 2000

F-2
<PAGE>

CIDRA CORPORATION

BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
June 30,
2000
Pro Forma
December 31, Stockholders'
------------------ June 30, Equity
1998 1999 2000 (Note 2)
-------- -------- -------- -------------
(Unaudited)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents (Note
2)............................. $ 4,497 $ 16,871 $103,947
Restricted cash (Note 2)........ -- 1,750 1,796
Accounts receivable............. -- -- 27
Inventories..................... 772 750 843
Other current assets............ 113 154 252
-------- -------- --------
Total current assets.......... 5,382 19,525 106,865
Fixed assets, net (Note 3)........ 3,882 5,347 9,575
Restricted cash................... 1,367 367 321
Other assets (Note 4)............. 310 191 214
-------- -------- --------
Total assets.................. $ 10,941 $ 25,430 $116,975
======== ======== ========
Liabilities, Mandatorily
Redeemable Convertible
Preferred Stock and Stockholders'
(Deficit) Equity
Current liabilities:
Accounts payable and accrued
liabilities.................... $ 1,494 $ 2,552 $ 4,778
Current portion of long-term
debt (Note 5).................. 243 3,960 4,251
-------- -------- --------
Total current liabilities..... 1,737 6,512 9,029
-------- -------- --------
Long-term debt (Note 5)........... 3,691 2,116 2,481
-------- -------- --------
Commitments and contingencies
(Note 10)
Mandatorily redeemable convertible
preferred stock, (Note 6) $.01
par value, 7,020,000 shares
authorized; 3,764,433, 5,388,658,
6,499,280 (unaudited), and 0
(unaudited) shares issued and
outstanding at December 31, 1998,
December 31, 1999, June 30, 2000
and June 30, 2000 pro forma,
respectively, stated at
redemption value................. 20,640 52,263 150,425 $ --
========
Stockholders' (deficit) equity
(Note 7):
Common stock, $.001 par value;
62,720,000 shares authorized;
7,430,478, 8,292,030, 9,449,294
(unaudited) and 48,444,974
(unaudited) shares issued and
outstanding at December 31,
1998, December 31, 1999, June
30, 2000 and June 30, 2000 pro
forma, respectively............ 8 8 9 $ 48
Additional paid-in capital...... 194 2,567 11,279 161,665
Deferred compensation........... -- (1,651) (7,271) (7,271)
Accumulated deficit............. (15,329) (36,385) (48,977) (48,977)
-------- -------- -------- --------
Total stockholders' (deficit)
equity....................... (15,127) (35,461) (44,960) $105,465
-------- -------- -------- --------
--------
Total liabilities, mandatorily
redeemable preferred stock
and stockholders' (deficit)
equity....................... $ 10,941 $ 25,430 $116,975
======== ======== ========
</TABLE>

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

F-3
<PAGE>

CIDRA CORPORATION

STATEMENT OF OPERATIONS
(in thousands, except per share data)

<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31, June 30,
--------------------------- -----------------
1997 1998 1999 1999 2000
------- -------- -------- ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenue....................... $ -- $ -- $ -- $ -- $ 423
Operating expenses:
Production costs, exclusive
of stock compensation
expense of $0, $0, $84, $22
and $144, respectively..... -- -- 136 -- 838
Research and development,
exclusive of stock
compensation expense of $0,
$0, $211, $68, and $502,
respectively............... 1,484 8,936 15,773 6,272 8,087
Sales and marketing,
exclusive of stock
compensation expense of $0,
$0, $11, $1 and $84,
respectively............... 86 1,281 1,594 537 929
General and administrative,
exclusive of stock
compensation expense of $0,
$0, $268, $32, and $436,
respectively............... 848 3,000 3,414 1,637 2,100
Deferred compensation....... -- -- 574 123 1,166
------- -------- -------- ------- --------
Total operating expenses.. 2,418 13,217 21,491 8,569 13,120
------- -------- -------- ------- --------
Loss from operations.......... (2,418) (13,217) (21,491) (8,569) (12,697)
Other income, net............. 43 502 435 93 156
------- -------- -------- ------- --------
Net loss.................. (2,375) (12,715) (21,056) (8,476) (12,541)
Dividends on preferred stock.. -- -- -- -- 51
------- -------- -------- ------- --------
Net loss attributable to
common stockholders........ $(2,375) $(12,715) $(21,056) $(8,476) $(12,592)
======= ======== ======== ======= ========
Basic and diluted net loss
per share attributable to
common stockholders........ $ (.72) $ (3.33) $ (3.39) $ (1.50) $ (1.55)
======= ======== ======== ======= ========
Shares used in computing basic
and diluted net loss per
share attributable to common
stockholders................. 3,316 3,818 6,209 5,659 8,105
======= ======== ======== ======= ========
Pro forma basic and diluted
net loss per common share
(unaudited).................. $ (.59) $ (.31)
======== ========
Shares used in computing pro
forma basic and diluted net
loss per common share
(unaudited).................. 35,798 40,840
======== ========
</TABLE>

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

F-4
<PAGE>

CIDRA CORPORATION

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(dollars in thousands)

<TABLE>
<CAPTION>
Common Stock Additional
---------------- Paid in Deferred Accumulated
Shares Amount Capital Compensation Deficit Total
--------- ------ ---------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1996....... 6,307,504 $6 $ 10 -- $ (239) $ (223)
Net loss................ -- -- -- -- (2,375) (2,375)
--------- --- ------- ------- -------- --------
December 31, 1997....... 6,307,504 6 10 -- (2,614) (2,598)
Share issued for
OptoPlan
investment (Note 4).... 700,000 2 156 -- -- 158
Options exercised....... 422,974 -- 28 -- -- 28
Net loss................ -- -- -- -- (12,715) (12,715)
--------- --- ------- ------- -------- --------
December 31, 1998....... 7,430,478 8 194 -- (15,329) (15,127)
Options exercised....... 861,552 -- 148 -- -- 148
Deferred compensation... -- -- 2,225 (2,225) -- --
Amortization of deferred
compensation........... -- -- -- 574 -- 574
Net loss................ -- -- -- -- (21,056) (21,056)
--------- --- ------- ------- -------- --------
December 31, 1999....... 8,292,030 8 2,567 (1,651) (36,385) (35,461)
Options exercised
(unaudited)............ 1,157,264 1 226 -- -- 227
Issuance of warrants
(unaudited)............ -- -- 1,700 -- -- 1,700
Deferred compensation
(unaudited)............ -- -- 6,786 (6,786) -- --
Amortization of deferred
compensation
(unaudited)............ -- -- 1,166 -- 1,166
Dividends (unaudited)... -- -- -- -- (51) (51)
Net loss (unaudited).... -- -- -- -- (12,541) (12,541)
--------- --- ------- ------- -------- --------
June 30, 2000
(unaudited)............ 9,449,294 $ 9 $11,279 $(7,271) $(48,977) $(44,960)
========= === ======= ======= ======== ========
</TABLE>

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

F-5
<PAGE>

CIDRA CORPORATION

STATEMENTS OF CASH FLOWS
(in thousands)

<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31, June 30,
--------------------------- -----------------
1997 1998 1999 1999 2000
------- -------- -------- ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss..................... $(2,375) $(12,715) $(21,056) $(8,476) $(12,541)
Depreciation and
amortization................ 39 508 1,164 488 841
Amortization of deferred
compensation................ -- -- 574 123 1,166
Changes in operating assets
and liabilities:
Inventories................ (29) (743) 22 21 (93)
Other current assets and
other assets.............. (90) (171) 78 (116) (148)
Accounts payable and
accrued expenses.......... 417 1,077 1,058 558 2,175
------- -------- -------- ------- --------
Net cash used in
operating activities.... (2,038) (12,044) (18,160) (7,402) (8,600)
------- -------- -------- ------- --------
Cash flows from investing
activities:
Purchases of fixed assets.... (936) (3,488) (2,629) (1,478) (5,069)
------- -------- -------- ------- --------
Cash flows from financing
activities:
Proceeds from issuance of
debt........................ -- 4,042 2,475 1,500 967
Debt repayment............... -- (358) (333) (118) (311)
Restricted cash.............. -- (1,367) (750) (750) --
Proceeds from exercise of
stock options............... -- 28 148 27 227
Net proceeds from sale of
mandatorily redeemable
convertible preferred stock
and warrants................ 3,313 17,327 31,623 30,672 99,862
------- -------- -------- ------- --------
Net cash provided by
financing activities.... 3,313 19,672 33,163 31,331 100,745
------- -------- -------- ------- --------
Net increase in cash and cash
equivalents................... 339 4,140 12,374 22,451 87,076
Cash and cash equivalents at
beginning of period........... 18 357 4,497 4,497 16,871
------- -------- -------- ------- --------
Cash and cash equivalents at
end of period................. $ 357 $ 4,497 $ 16,871 $26,948 $103,947
------- -------- -------- ------- --------
Supplemental disclosures of
cash flow information:
Cash paid during the year
for:
Interest paid.............. $ 8 $ 74 $ 529 $ 207 $ 349
======= ======== ======== ======= ========
</TABLE>

Noncash transactions disclosed in Note 4.

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

F-6
<PAGE>

CIDRA CORPORATION

NOTES TO FINANCIAL STATEMENTS

1. Formation and Operations of the Company

CiDRA Corporation (the "Company") was incorporated in Delaware on August 7,
1996. The Company is engaged in the design, manufacture and marketing of high-
precision optical networking products, based upon proprietary optical
waveguide technology, for next-generation optical communications networks. The
Company's products are designed to permit highly accurate wavelength tuning to
enable increased functionality, flexibility and performance in optical
networks.

The Company has funded its operations through the issuance of equity
securities, bank borrowings and equipment financing. During the first half of
2000, the Company raised $99,862,000 from the sale of preferred stock.
Management believes the existing cash on hand at June 30, 2000 and cash
generated from operations will be adequate to fund the Company's cash
requirements for the remainder of 2000 and into 2001.

2. Summary of Significant Accounting Policies

Significant accounting policies followed in the preparation of these
financial statements are as follows:

Cash, cash equivalents and restricted cash

The Company considers all highly liquid investments with original
maturities of three months or less at date of purchase to be cash equivalents.
The Company invests excess cash primarily in money market funds, certificates
of deposits and repurchase agreements at financial institutions which are
subject to minimal credit and market risk.

The Company's cash equivalents and short-term investments at June 30, 2000
consisted of approximately $103.9 million ($16.9 million at December 31, 1999)
in money market funds, certificates of deposit and a repurchase agreement. All
securities are classified as available-for-sale and are recorded at cost which
approximates fair value. Gross unrealized and realized gains and losses on
sales of securities as of and for the six months ended June 30, 2000 and as of
and for the year ended December 31, 1999 were not significant.

Restricted cash of $2.1 million at June 30, 2000 and December 31, 1999 is
comprised of amounts restricted under the Company's credit facilities. (See
Note 5).

Concentration of credit risk

Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash, cash equivalents,
marketable securities and accounts receivable. The Company's cash and
investment policies limit investments to short-term investment grade
instruments.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined
by the first-in, first-out method. The components of inventories are:

<TABLE>
<CAPTION>
December
31,
--------- June 30,
1998 1999 2000
---- ---- -----------
(unaudited)
<S> <C> <C> <C>
Raw materials.......................................... $528 $629 $269
Work in process........................................ 244 62 292
Finished goods......................................... -- 59 282
---- ---- ----
$772 $750 $843
==== ==== ====
</TABLE>

F-7
<PAGE>

CIDRA CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

Fixed assets

Fixed assets are stated at cost and are depreciated using the straight-line
method over the estimated useful lives of the assets ranging from 3 to 7
years. Leasehold improvements are amortized over the shorter of the useful
life of the assets or the life of the lease term.

The Company periodically reviews the carrying value of its fixed assets
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable, in accordance with Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets." No
impairment losses have been recognized to date.

Revenue recognition

The Company recognizes revenue from product sales upon shipment, provided
that there are no significant remaining obligations, the sales price is fixed
or determinable and collectibility is probable. Warranty costs are estimated
and recorded at the time of product revenue recognition.

Stock compensation

The Company applies APB Opinion 25 ("APB 25") and related interpretations
in accounting for its stock option plan and stock awards. Under APB 25,
compensation expense is recognized to the extent that the fair market value of
the underlying stock on the date of grant exceeds the exercise price of the
employee stock option or stock award. Compensation so computed is then
recognized over the vesting period. The Company accounts for equity
instruments issued to nonemployees in accordance with FAS 123.

Research and development

Research and development costs are expensed as incurred.

Income taxes

The Company uses the liability method of accounting for income taxes, as
set forth in Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." Under this method, deferred tax assets and liabilities are
recognized for the expected future tax consequences of temporary differences
between the carrying amounts and the tax basis of assets and liabilities.

Use of estimates

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

Unaudited interim financial information

The unaudited interim financial information as of June 30, 2000 and for the
six months ended June 30, 2000 and 1999 have been prepared on a basis
consistent with the annual audited financial statements. In the opinion of
management, such information contains all adjustments, consisting of only
normal recurring adjustments, considered necessary for a fair presentation.
The operating results for any interim period are not necessarily indicative of
the results for the entire year or for any future periods.

F-8
<PAGE>

CIDRA CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

Unaudited pro forma stockholders' equity

If the offering contemplated in this prospectus is consummated, all of the
mandatorily redeemable convertible preferred stock shares outstanding as of
June 30, 2000 will automatically convert into 38,995,680 shares of common
stock (the "Common Stock"). The unaudited pro forma presentation of the June
30, 2000 mandatorily redeemable convertible preferred stock and stockholders'
equity (deficit) has been prepared assuming such conversion. Pro forma basic
and diluted net loss per common share have been computed assuming the
conversion of all outstanding shares of mandatorily redeemable preferred stock
into common stock as of the beginning of the periods presented or as of the
date of issuance, if later.

Fair value of financial instruments

The Company's financial instruments consist primarily of cash and cash
equivalents, prepaid expenses, accounts payable and term loans. The carrying
amounts of these instruments approximate their fair value.

Net loss per share

The Company follows the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share." Basic and diluted net loss per share
is computed by dividing net loss available for common stockholders by the
weighted average number of common shares outstanding during the period less
outstanding nonvested shares. Outstanding nonvested shares are not included in
the computation of weighted average shares outstanding until the time-based
vesting restrictions have lapsed.

The Company has excluded the impact of all convertible preferred stock,
common stock subject to repurchase, warrants for common stock and outstanding
stock options from the calculation of diluted loss per common share because
all such securities are antidilutive for all periods presented.

Segment information

Through June 30, 2000, the Company operated as one segment.

Comprehensive income (loss)

The Company reports comprehensive income (loss) in accordance with
Statement of Financial Accounting Standard (SFAS) No. 130, "Reporting
Comprehensive Income." During the periods presented, comprehensive income was
not materially different from net income.

Recent accounting pronouncements

In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation--an Interpretation of APB
Opinion No. 25." The interpretation clarifies the application of APB Opinion
No. 25 in specified events, as defined. The interpretation is effective July
1, 2000, but covers certain events occurring during the period after December
15, 1998, but before the effective date. To the extent that events occurring
during the period after December 15, 1998, but before the effective date, the
effects of applying this interpretation would be recognized on a prospective
basis from the effective date. Accordingly, upon initial application for the
final interpretation, no adjustments would be made to the financial statements
for the periods before the effective date and no expense would be recognized
for any additional compensation cost measured that is attributable to periods
before the effective date. The adoption of this interpretation is not expected
to have any effect on the accompanying financial statements.

F-9
<PAGE>

CIDRA CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101 "Revenue Recognition." This bulletin, as
amended by SAB 101A and SAB 101B, summarizes views of the Staff on the
measurement and timing of revenue recognition in financial statements of
public companies. We believe that our current revenue recognition policy
complies with the guidelines in the bulletin.

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (FAS 133), which established accounting and reporting
standards for derivative instruments, including derivative instruments
embedded in other contracts, and for hedging activities. In June 1999, the
Board issued SFAS 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133," which
deferred the effective date of SFAS 133 until fiscal years beginning after
June 15, 2000. The Company will become subject to SFAS No. 133 on January 1,
2001. The Company does not currently hold any derivative instruments and does
not engage in hedging activities. The adoption of SFAS No. 133 will not have a
material impact on our financial position or results of operations.

3. Fixed Assets

<TABLE>
<CAPTION>
December 31,
------------- June 30,
1998 1999 2000
------ ------ -----------
(unaudited)
<S> <C> <C> <C>
Machinery and equipment............................ $3,631 $5,842 $ 9,586
Furniture.......................................... 288 487 916
Software........................................... 212 372 415
Leasehold improvements............................. 293 352 1,202
------ ------ -------
4,424 7,053 12,119
Less accumulated depreciation...................... 542 1,706 2,544
------ ------ -------
$3,882 $5,347 $ 9,575
====== ====== =======
</TABLE>

Depreciation expense for the years ended 1997, 1998, 1999 and for the six
months ended June 30, 2000 was $39,000, $503,000, $1,164,000 and $839,000,
respectively.

4. Other Assets

On February 18, 1998, the Company entered into a stock purchase agreement
with OptoPlan A.S. ("OptoPlan"), a Norwegian corporation. OptoPlan was
organized to develop, produce and market an experimental single point quartz
resonant fiber optic pressure sensor to be used in the oil and petroleum
industry. In consideration for a 40% equity interest in OptoPlan, the Company
issued 700,000 shares of its Common Stock. The Company's investment in
OptoPlan was $214,000 at June 30, 2000 (unaudited) and $191,000 at December
31, 1999. The investment is accounted for under the equity method of
accounting and is included within other assets.

As part of the stock purchase agreement with OptoPlan, the Company has the
right to purchase additional shares of OptoPlan common stock upon the
occurrence of a triggering event, defined as the authorization by the Board of
Directors to effect an initial public offering ("IPO") of the common stock of
the Company. If the Company should fail to effect an IPO, fail to become
acquired, or become insolvent, on or before the fourth anniversary of the
share purchase agreement, OptoPlan may repurchase the stock owned by the
Company. The Company also has the right of first refusal with respect to the
sale of any shares of OptoPlan to a third party.

F-10
<PAGE>

CIDRA CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

5. Debt

In December 1998, the Company entered into a $5 million revolving credit
facility with a bank. At December 31, 1999, approximately $3.5 million of
notes payable were outstanding under this facility. The Company is required
under this facility to comply with various financial and other covenants,
including a requirement that the Company maintain account balances with the
bank at least equal to the outstanding principal amount under the loan.
However, in the event the Company maintains at least 90% of its funds in the
bank, the Company is only required to maintain account balances with the bank
at least equal to 50% of the outstanding principal amount under the loan. No
commitment fees are due on unused portions of the facility.

In October 1998, the Company entered into a master loan and security
agreement to provide up to $5 million for capital equipment purchases.
Individual notes payable under the agreement have monthly repayment terms of
sixty months and bear interest at annual fixed rates ranging from 13.5% to
14.3%. The notes are secured by the underlying equipment.

In August 1997, the Company entered into a $750,000 revolving equipment
line of credit/term loan with a bank to finance up to eighty percent of
capital equipment purchased. Interest is at the bank's prime rate plus 150
basis points. The loan is secured by the underlying equipment. Principal
payments begin in January 2001 in 48 equal monthly payments.

The following tables present information about the Company's debt balances:

<TABLE>
<CAPTION>
December 31,
------------- June 30,
1998 1999 2000
------ ------ -----------
(unaudited)
<S> <C> <C> <C>
Term notes payable under master loan and security
agreement.......................................... $1,200 $1,842 $2,498
Term note payable to bank; interest at bank's prime
rate plus 1.5% (9.5% at June 30, 2000 and 8.5% at
December 31, 1999); monthly principal payments
commencing January 2001 and continuing through
December 2004...................................... 734 734 734
Note payable to bank; interest at bank's prime rate
plus .125% (9.5% at June 30, 2000 and 8.5% at
December 31, 1999); balance payable in full on
December 31, 2000.................................. 2,000 3,500 3,500
------ ------ ------
3,934 6,076 6,732
Less current portion................................ 243 3,960 4,251
------ ------ ------
Long-term debt...................................... $3,691 $2,116 $2,481
====== ====== ======
</TABLE>

Future maturities of long-term debt as of December 31, 1999 are as follows:

F-11
<PAGE>

CIDRA CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

6. Mandatorily Redeemable Convertible Preferred Stock

On April 28 and August 11, 1997, the Company issued 1,133,333 shares of
Series A Cumulative Redeemable Convertible Voting Preferred Stock ("Series A
Preferred Stock") for $3.00 per share. Concurrent with the August 1997
issuance, in accordance with anti-dilution provisions, the April 1997
preferred stock purchasers were issued an additional 141,828 shares.

On February 12, 1998, the Company issued 2,489,272 shares of Series B
Cumulative Redeemable Convertible Voting Preferred Stock ("Series B Preferred
Stock") for $6.99 per share. The Series B Preferred Stock shares have the same
characteristics as the Series A Preferred Stock issued in 1997.

On April 13, June 28 and July 30, 1999, the Company issued 1,521,661,
51,282 and 51,282 shares, respectively, of Series C Cumulative Redeemable
Convertible Voting Preferred Stock ("Series C Preferred Stock") for $19.50 per
share. The Series C Preferred Stock shares have the same characteristics as
the Series A and Series B Preferred Stock.

On June 20, 2000, the Company issued 1,110,622 shares of Series D
Cumulative Redeemable Convertible Voting Preferred Stock ("Series D Preferred
Stock") for $90.00 per share (unaudited). The Series D Preferred Stock shares
have the same characteristics as the Series A, Series B and Series C Preferred
Stock, except that holders of Series D Preferred Stock also received warrants
to purchase up to an aggregate number of shares of common stock equal to 5% of
the shares sold to the public in an initial public offering. These warrants
are exercisable at a price equal to the initial public offering price. The
warrants may be exercised for a one-year period beginning on the day after the
registration statement in connection with this offering is declared effective
by the Securities and Exchange Commission ("SEC"). The warrants, which expire
June 20, 2001 if an initial public offering is not effected, have an aggregate
value of approximately $1,700,000 (unaudited) and have been recorded as a
component of additional paid in capital.

At the option of the preferred stockholders, shares are convertible 6 for 1
into Class A Common Stock, subject to adjustment for certain dilutive events
and issues. The Series A, Series B, Series C and Series D Preferred Stock
(collectively, the "Preferred Stock") will automatically convert into shares
of Class A Common Stock upon the public offering of the Company's Common Stock
if a minimum of $20 million is raised and the per share sales price is at
least $22.50 per share. The Preferred Stock has voting rights equivalent to
the number of shares of Common Stock into which it is convertible and also has
a liquidation preference over the common stockholders. At June 30, 2000, the
Company has reserved 38,995,680 (unaudited) shares of common stock for
conversion of the Preferred Stock.

Preferred Stock accrues dividends at 8% per annum of the initial purchase
price, cumulative beginning April 28, 2000, February 12, 2001, April 13, 2002
and April 13, 2002 for the Series A, Series B, Series C and Series D
(unaudited), respectively. Upon conversion of Preferred Stock to Common Stock,
unpaid dividends shall be paid either in cash or Common Stock (at the then
fair market value). Payments of Preferred Stock dividends are payable prior to
dividends on Common Stock. During the six months ended June 30, 2000 the
Company accrued $51,000 (unaudited) of such dividends.

In the event of any voluntary or involuntary liquidation of the Company,
the preferred stockholders shall be entitled to the original per share
issuance price, plus any declared but unpaid dividends. Remaining assets, if
any, shall be distributed to the Preferred and Common stockholders on a pro
rata basis assuming full conversion of all such preferred stock. Under the
terms of the Certificate of Incorporation, any acquisition, merger or
consolidation which result in a majority ownership change will be deemed to be
a liquidation of the Company, resulting in the redemption of the remaining
preferred stockholder interest. Management does not consider any of the events
that would trigger redemption to be probable.

F-12
<PAGE>

CIDRA CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

Shares of Preferred Stock shall, at the election of no less than 75% of the
preferred stockholders, be redeemed by the Company, subject to the Company
having funds legally available. The Preferred Stock will be redeemed in equal
amounts on or about April 13, 2004, 2005 and 2006. The redemption price will
be equal to the initial purchase price of the Preferred Stock, plus any
accrued and unpaid dividends.

As a requirement of the Preferred Stock issued to Connecticut Innovations,
Inc. ("CII"), the Company must maintain its principal place of business, base
a majority of its employees and conduct the majority of its operations in
Connecticut. If the Company fails to maintain its Connecticut presence, CII
has the right to redeem 290,141 shares of Series A Preferred Stock, 250,358
shares of Series B Preferred Stock, 134,154 shares of Series C Preferred Stock
and 45,600 shares of Series D Preferred Stock at the greater of (i) the fair
market value of the shares, or (ii) an amount equal to the initial purchase
price plus an amount calculated to yield a 25% annually compounded rate of
return. CII's redemption rights are also available to other preferred
stockholders.

7. Stockholders' Deficit

Common Stock

The Company has authorized 67,200,000 shares of Class A Common Stock (the
"Common Stock"), par value $.001.

In 1997, the Company declared a 283 for 1 stock exchange, whereby the
Common Stockholders received restricted Common Stock. Effective April 7, 2000,
the Company declared a 2 for 1 stock split. The accompanying financial
statements retroactively reflect these stock splits.

The Company has adopted a Shareholders' Agreement, which provides for the
granting of restricted Common Stock awards to employees, directors and non-
employees, as determined by the Board of Directors. Under the Shareholders'
Agreement, the Board of Directors determines the number of shares for each
award, the rate at which each award vests, whether additional restrictions
will be imposed, the period over which the employee may purchase the awarded
shares and the purchase price of the stock to the employee. The restricted
Common Stock issued vests twenty-five percent on the first anniversary date
and monthly thereafter through the fourth year. As of December 31, 1999, the
Company has 983,062 shares of restricted Common Stock subject to future
vesting.

Common Stock Options

The Company's Board of Directors adopted the 1997 Stock Option Plan (the
"Plan") for directors, consultants and key employees. The Plan permits the
granting of incentive stock options and non-qualified stock options to
purchase up to 7,400,000 shares of Common Stock.

Options issued under the 1997 Stock Option plan vest twenty-five percent on
the first anniversary date and monthly thereafter through the fourth year. The
stock options are exercisable over a period of ten years from the date of
grant.

F-13
<PAGE>

CIDRA CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

A summary of stock option activity under the Plan is as follows:

<TABLE>
<CAPTION>
Number of Shares Exercise Price
---------------- --------------
<S> <C> <C>
Outstanding at December 31, 1996
Granted................................... 2,768,250 $.0025-.1500
Exercised................................. -- --
Forfeited................................. -- --
---------- ------------
Outstanding at December 31, 1997............ 2,768,250 $ .0025-.150
Granted................................... 1,644,000 .1500-.225
Exercised................................. (422,974) .0025-.075
Forfeited................................. (86,824) .0025-.225
---------- ------------
Outstanding at December 31, 1998............ 3,902,452 $ .0025-.225
Granted................................... 1,035,000 .2250-.625
Exercised................................. (861,552) .0750-.225
Forfeited................................. (185,624) .1500-.625
---------- ------------
Outstanding at December 31, 1999............ 3,890,276 $ .0025-.625
Granted (unaudited)....................... 691,270 .625
Exercised (unaudited)..................... (1,157,264) .0750-.625
Forfeited (unaudited)..................... (32,500) .625
---------- ------------
Outstanding at June 30, 2000 (unaudited).... 3,391,782 $ .0025-.625
========== ============
</TABLE>

In December 1997, all option holders were given the opportunity to convert
any non-vested, non-qualified stock options into incentive stock options with
an exercise price of $.15 per share. The vesting period for the options
converted remained unchanged. Options to purchase an aggregate of 2,312,250
shares of common stock were converted into incentive stock options in 1998.

The following summarizes additional information about stock options
outstanding at December 31, 1999:

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------- ---------------------------------
Weighted
Number Average Weighted Number
Outstanding Remaining Average Exercisable
at December 31, Contractual Exercise at December 31, Exercise
1999 Life Price 1999 Price
--------------- ----------- -------- --------------- --------
<S> <C> <C> <C> <C>
2,855,276 7.3-8.9 $.151 945,704 $.0025-.225
61,000 9.0-9.2 .225 -- --
974,000 9.3-9.9 .625 -- --
--------- ------- -----------
3,890,276 945,704 $.0025-.225
========= ======= ===========
</TABLE>

If compensation expense had been recognized based on the fair value of
options at their grant date, in accordance with Financial Accounting Standard
No. 123 ("FAS 123"), the results of operations would have been as follows:

<TABLE>
<CAPTION>
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
Net loss:
As reported.................................. $(2,375) $(12,715) $(21,056)
Pro forma under FAS 123...................... (2,404) (12,768) (21,217)
</TABLE>

The minimum value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions
used for options granted:

F-14
<PAGE>

CIDRA CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Risk free interest rate.................. 5.38%-6.86% 4.36%-5.56% 4.80%-6.38%
Expected dividend yield.................. None None None
Expected life of option.................. 7 years 7 years 7 years
Expected volatility...................... 0% 0% 0%
</TABLE>

The above pro forma results are not necessarily indicative of future pro
forma results. Future option grants will be valued using a volatility factor
which will change the value of such options. At June 30, 2000 there were
4,968,210 shares (6,125,474 shares at December 31, 1999) of Common Stock
reserved for the exercise of stock options.

Deferred compensation

During the year ended December 31, 1999 and the six months ended June 30,
1999 and 2000, the Company recorded non-cash deferred compensation of
$2,225,000, $843,000 and $6,786,000, respectively. This represents the
aggregate difference between the exercise price and the fair value of the
common stock on the date of grant. Compensation expense will be recognized
over the vesting period of the stock options using the accelerated attribution
method.

8. Income Taxes

The Company's gross deferred tax assets and liabilities were as follows:

<TABLE>
<CAPTION>
December 31,
---------------
1998 1999
------ -------
<S> <C> <C>
Gross deferred tax assets:
Carryforwards:
Net operating losses.................................... $6,284 $14,342
Research and development tax credits.................... 763 1,331
Other..................................................... -- 575
------ -------
7,047 16,248
------ -------
Gross deferred tax liability:
Depreciation.............................................. 309 375
------ -------
Net deferred tax asset...................................... 6,738 15,873
------ -------
Less: valuation allowance................................... (6,738) (15,873)
------ -------
$ -- $ --
====== =======
</TABLE>

The Company has provided a valuation allowance for the full amount of the
deferred tax assets in excess of the deferred tax liability since management
has not determined that it is more likely than not that the future benefit
will be realized.

At December 31, 1999, the Company had approximately $35.4 million of
federal net operating loss carryforwards that begin to expire in the year
2012, approximately $34.6 million of state net operating loss carryforwards
that begin to expire in 2002 and federal and state research and development
tax credit carryforwards of approximately $1.3 million that begin to expire in
the year 2012.

The amount of the net operating loss and research and development tax
credit carryforwards that may be utilized annually to offset future taxable
income and tax liability will be limited as a result of certain ownership
changes pursuant to Section 382 of the Internal Revenue Code.

F-15
<PAGE>

CIDRA CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

9. 401(k) Retirement Savings Plan

The Company has a 401(k) Retirement Savings Plan covering substantially all
of its employees, subject to certain eligibility requirements. Participants
have the option of contributing up to 15% of their annual compensation. The
Company did not make any matching contributions in 2000 or, 1999 or 1998.

10. Commitments and Contingencies

The Company leases facilities and certain equipment under operating leases
with varying terms, renewal options and expiration dates. Aggregate future
minimum lease payments under non-cancelable operating leases at December 31,
1999 are as follows:

<TABLE>
<S> <C>
2000.................................................................... $578
2001.................................................................... 589
2002.................................................................... 601
2003.................................................................... 597
2004.................................................................... 614
Thereafter.............................................................. 156
</TABLE>

Rent expense under non-cancelable operating leases for 1997, 1998 and 1999
was approximately $55,000, $416,000 and $554,000, respectively, and $381,000
for the six months ended June 30, 2000.

In 1996, the Company entered into a Royalty License Agreement (the
"Agreement"), whereby the Company obtained the exclusive right to a patented
technology in exchange for 141,500 shares of the Company's Common Stock. Under
the Agreement, the Company is obligated for royalty payments of up to 10% of
the related product sales. The Company is obligated for minimum royalty
payments of $500,000 through December 31, 1999, and subsequently the Company
is obligated for minimum annual royalty payments of $350,000 for each calendar
year thereafter. The Agreement will terminate in the event that the Company
does not meet the minimum royalty payment requirements. Accrued royalties
totaled $170,000, $500,000 and $175,000 at December 31, 1998 and 1999 and June
30, 2000, respectively.

The Company is obligated under a $248,000 standby letter of credit with a
bank. The beneficiary is the lessor of the Company's operating facility.

11. Related Parties

During the six months ended June 30, 2000 and the years ended December 31,
1999 and 1998, the Company received consulting services and purchased material
from OptoPlan totaling $230,000, $941,000 and $666,000, respectively.

12. Subsequent events (unaudited)

On September 20, 2000, the Company's Board of Directors accelerated the
vesting of incentive stock options to make them immediately exercisable. In
return for such acceleration, each employee agreed to execute a stock
restriction agreement. Any stock purchased under such options becomes subject
to a stock restriction which provides the Company an option to repurchase the
stock at its original purchase price (the employee's exercise price) if the
employee leaves prior to completion of their original vesting period. Such
stock restriction expires ratable over the employee's original vesting term.
Generally all options granted under the Plan after September 21, 2000 are
immediately exercisable, subject to this same stock restriction agreement.

On October 3, 2000, the Company's Board of Directors increased the number
of shares authorized under the 1997 Stock Option Plan to 8,400,000 shares.

F-16
<PAGE>

[CiDRA logo]

<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

The following table sets forth an itemization of the various expenses, all
of which we will pay, in connection with the issuance and distribution of the
securities being registered. All of the amounts shown are estimated except the
SEC Registration Fee, The Nasdaq National Market Listing Fee and the NASD
Filing Fee.

<TABLE>
<S> <C>
SEC Registration Fee............................................ $ 39,600
Nasdaq National Market Listing Fee.............................. 90,000
NASD Filing Fee................................................. 15,500
Printing and Engraving Fees..................................... 150,000
Legal Fees and Expenses......................................... 350,000
Accounting Fees and Expenses.................................... 250,000
Blue Sky Fees and Expenses...................................... 10,000
Transfer Agent and Registrar Fees............................... 10,000
Miscellaneous................................................... 34,900
--------
Total......................................................... $950,000
========
</TABLE>

Item 14. Indemnification of Directors and Officers.

Our certificate of incorporation provides that we shall indemnify, to the
fullest extent authorized by the Delaware General Corporation Law, each person
who is involved in any litigation or other proceeding because such person is
or was a director or officer of CiDRA Corporation or is or was serving as an
officer or director of another entity at our request, against all expense,
loss or liability reasonably incurred or suffered in connection therewith. Our
certificate of incorporation provides that the right to indemnification
includes the right to be paid expenses incurred in defending any proceeding in
advance of its final disposition, provided, however, that such advance payment
will only be made upon delivery to us of an undertaking, by or on behalf of
the director or officer, to repay all amounts so advanced if it is ultimately
determined that such director is not entitled to indemnification. If we do not
pay a proper claim for indemnification in full within 60 days after we receive
a written claim for such indemnification, the certificate of incorporation and
our bylaws authorize the claimant to bring an action against us and prescribe
what constitutes a defense to such action.

Section 145 of the Delaware General Corporation Law permits a corporation
to indemnify any director or officer of the corporation against expenses
(including attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with any action, suit or
proceeding brought by reason of the fact that such person is or was a director
or officer of the corporation, if such person acted in good faith and in a
manner that he reasonably believed to be in, or not opposed to, the best
interests of the corporation, and, with respect to any criminal action or
proceeding, if he or she had no reason to believe his or her conduct was
unlawful. In a derivative action, (i.e., one brought by or on behalf of the
corporation), indemnification may be provided only for expenses actually and
reasonably incurred by any director or officer in connection with the defense
or settlement of such an action or suit if such person acted in good faith and
in a manner that he or she reasonably believed to be in, or not opposed to,
the best interests of the corporation, except that no indemnification shall be
provided if such person shall have been adjudged to be liable to the
corporation, unless and only to the extent that the court in which the action
or suit was brought shall determine that the defendant is fairly and
reasonably entitled to indemnity for such expenses despite such adjudication
of liability.

Pursuant to Section 102(b)(7) of the Delaware General Corporation Law,
Article Tenth of our certificate of incorporation eliminates the liability of
a director to us or our stockholders for monetary damages for such a breach of
fiduciary duty as a director, except for liabilities arising:

. from any breach of the director's duty of loyalty to us or our
stockholders;

II-1
<PAGE>

. from acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;

. under Section 174 of the Delaware General Corporation Law; and

. from any transaction from which the director derived an improper
personal benefit.

We carry insurance policies insuring our directors and officers against
certain liabilities that they may incur in their capacity as directors and
officers.

Additionally, reference is made to the Underwriting Agreement filed as
Exhibit 1.1 hereto, which provides for indemnification by the underwriters of
CiDRA, our directors and officers who sign the Registration Statement and
persons who control CiDRA, under certain circumstances.

Item 15. Recent Sales of Unregistered Securities.

In the three years preceding the filing of this Registration Statement, we
have sold the following securities that were not registered under the
Securities Act. The following information gives effect to a 2-for-1 split of
our common stock effected on April 7, 2000.

(a) Issuances of Capital Stock and Warrants

The sale and issuance of the securities described in paragraphs (1), (2),
(3), and (4) below were deemed to be exempt from registration under the
Securities Act by virtue of Section 4(2) or Regulation D promulgated
thereunder. With respect to the issuance of the securities described in
paragraph (5) an exemption from registration was unnecessary in that this
transaction did not involve a "sale" of securities as this term is used in
Section 2(3) of the Securities Act.

(1) On April 28, 1997 and August 11, 1997, we sold and issued a total of
1,275,161 shares of Series A Convertible Preferred Stock for $3.00 per
share to four investors in a private placement. Each share of our
Series A preferred stock is convertible into six shares of common
stock.

(2) On February 12, 1998, we sold and issued a total of 2,489,272 shares
of Series B Convertible Preferred Stock for $6.99 per share to ten
investors in a private placement. Each share of our Series B preferred
stock is convertible into six shares of common stock.

(3) On April 13, 1999, June 28, 1999 and July 30, 1999, we sold and issued
a total of 1,624,225 shares of Series C Convertible Preferred Stock
for $19.50 per share to 13 investors in a private placement. Each
share of our Series C preferred stock is convertible into six shares
of common stock.

(4) On June 20, 2000, we sold and issued a total of 1,110,622 shares of
Series D Convertible Preferred Stock for $90.00 per share to 65
investors in a private placement. Each share of our Series D preferred
stock is convertible into six shares of common stock. In addition,
these investors also received warrants to purchase up to an aggregate
number of shares of common stock equal to five percent of the shares
sold to the public in this offering. These warrants are exercisable at
a price equal to the initial public offering price.

(5) On February 18, 1998, we issued 700,000 shares of our common stock to
one entity in exchange for a 40% equity interest in OptoPlan A.S., a
Norwegian company.

(b) Certain Grants and Exercises of Stock Options

The sale and issuance of the securities described below were deemed to be
exempt from registration under the Securities Act in reliance on Rule 701
promulgated under Section 3(b) of the Securities Act, as transactions by an
issuer not involving a public offering or transactions pursuant to
compensatory benefit plans and contracts relating to compensation as provided
under Rule 701.

II-2
<PAGE>

Pursuant to our stock plans and certain stand-alone stock option agreements,
we have issued options to purchase an aggregate of 6,761,120 shares of common
stock. Of these options:

. options to purchase 314,948 shares of common stock have been canceled or
lapsed without being exercised;

. options to purchase 4,719,224 shares of common stock have been
exercised, of which 1,829,040 shares are subject to a right of
repurchase by us that lapses over time; and

. options to purchase a total of 1,726,948 shares of common stock are
currently outstanding, at a weighted average exercise price of $.83 per
share.

Item 16. Exhibits and Financial Statement Schedules.

(a) Exhibits

<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S>
*1.1 Form of Underwriting Agreement.
3.1 Fifth Restated Certificate of Incorporation of the Registrant.
*3.1.1 Certificate of Amendment to the Fifth Restated Certificate of
Incorporation of the Registrant.
*3.2 Restated Certificate of Incorporation of the Registrant to be filed
upon completion of this offering.
3.3 Amended and Restated Bylaws of the Registrant.
*3.4 Restated Bylaws of the Registrant to be effective upon completion of
this offering.
*4.1 Form of Common Stock Certificate.
*5.1 Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.,
counsel to the Registrant, with respect to the legality of securities
being registered.
*10.1 The Registrant's 2000 Employee, Director and Consultant Stock Plan.
10.2 The Registrant's 1997 Stock Option Plan.
*10.3 The Registrant's 2000 Employee Stock Purchase Plan
10.4 Preferred Stock Purchase Agreement dated June 20, 2000 by and among
the Registrant and certain investors.
10.5 Lease dated March 11, 1998, as amended on June 1, 1998, by and between
WEI Barnes Road, LLC and the Registrant.
10.6 Lease effective as of October 1, 2000 by and between 6750 Main Street,
Inc. and the Registrant.
10.7 Lease dated July 7, 2000, as amended, by and between D/S 16600 Park
Row, Ltd. and the Registrant.
10.8 The Registrant's 2000 Executive Loan Program.
10.9 Consulting Services Contract dated August 1, 2000 by and between BP
Exploration & Oil, Inc. and Amoco Production Company and the
Registrant.
11.1 Statement of Computation of Loss Per Share
23.1 Consent of PricewaterhouseCoopers LLP
*23.2 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. (see
Exhibit 5.1)
24.1 Powers of Attorney (See page II-5)
27.1 Financial Data Schedule
</TABLE>
--------
* To be filed by amendment.

II-3
<PAGE>

(b) Financial Statement Schedules

Financial Statement Schedules are omitted because the information is
included in our financial statements or notes to those financial statements.

Item 17. Undertakings

The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 14 above, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of
1933, 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.

(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.

II-4
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in Wallingford,
Connecticut, on October 11, 2000.

CiDRA Corporation

/s/ F. Kevin Didden
By: _________________________________
F. Kevin Didden
President & Chief Executive
Officer

POWER OF ATTORNEY

We the undersigned officers and directors of CiDRA Corporation, hereby
severally constitute and appoint F. Kevin Didden, Faye A. Iseley and Michael
Grillo, and each of them singly (with full power to each of them to act
alone), our true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution in each of them for him and in his name, place
and stead, and in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement (or any
other Registration Statement for the same offering that is to be effective
upon filing pursuant to Rule 462(b) under the Securities Act of 1933), and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as full to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-
in-fact and agents or any of them or their or his or her substitute or
substitutes may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities held on the dates indicated.

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----

<S> <C> <C>
/s/ F. Kevin Didden President, Chief Executive October 11, 2000
______________________________________ Officer and Director (principal
F. Kevin Didden executive officer)

/s/ Faye A. Iseley Vice President and Chief October 11, 2000
______________________________________ Financial Officer (principal
Faye A. Iseley financial and accounting
officer)

/s/ Alan D. Kersey Director October 11, 2000
______________________________________
Alan D. Kersey

/s/ Will Honeybourne Director October 11, 2000
______________________________________
Will Honeybourne
</TABLE>

II-5
<PAGE>

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----

<S> <C> <C>
/s/ David Huber Director October 11, 2000
______________________________________
David Huber, Ph.D.

/s/ David Palmer Director October 11, 2000
______________________________________
David Palmer

/s/ Asmund Slogedal Director October 11, 2000
______________________________________
Asmund Slogedal

/s/ John Spirtos Director October 11, 2000
______________________________________
John Spirtos
</TABLE>

II-6
<PAGE>