s-4a
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As filed with the Securities and Exchange Commission on April 29, 2002
Registration No. 333-84614


SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


PRE-EFFECTIVE AMENDMENT NO. 1 TO

FORM S-4

REGISTRATION STATEMENT

UNDER
THE SECURITIES ACT OF 1933


CIENA Corporation

(Exact name of registrant as specified in its charter)
         
Delaware   3661   23-2725311
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)


1201 Winterson Road

Linthicum, MD 21090
(410) 865-8500
(Address, including zip code, and telephone number,
including area code, of registrant’s principal executive offices)


Russell B. Stevenson, Jr.

Senior Vice President, General Counsel and Secretary
CIENA Corporation
1201 Winterson Road
Linthicum, MD 21090
(410) 865-8500
(Name, address, including zip code, and telephone number,
including area code, of agent for service)


Copies to:

     
Michael J. Silver
Amy Bowerman Freed
Stephanie D. Marks
Hogan & Hartson L.L.P.
111 South Calvert Street
Baltimore, MD 21202
(410) 659-2700
  Richard L. Dickson
Horace L. Nash
David A. Bell
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
(650) 494-0600


      Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective and all other conditions to the merger contemplated by the Agreement and Plan of Merger dated as of February 17, 2002, as such agreement may be amended, described in the enclosed Prospectus have been satisfied or waived.

      If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. o

      If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, please check the following box and list the Securities Act of 1933 registration statement number of the earlier effective registration statement for the same offering. o          

      If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, check the following box and list the Securities Act of 1933 registration statement number of the earlier effective registration statement for the same offering. o          


      The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.




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The information in this joint proxy statement/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 joint proxy statement/prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

Preliminary Prospectus Dated April 29, 2002

 
(CIENA LOGO) (ONI Systems LOGO)

Dear CIENA and ONI Systems stockholders:

     On behalf of the boards of directors and management teams of both CIENA and ONI Systems, we are pleased to deliver our joint proxy statement/prospectus for the proposed acquisition of ONI Systems by CIENA. In the merger, each ONI Systems stockholder will receive 0.7104 shares of CIENA common stock for each share of ONI Systems common stock and will become a stockholder of CIENA. CIENA common stock is traded on the Nasdaq Stock Market under the trading symbol “CIEN.” The closing price for CIENA common stock reported on the Nasdaq National Market on April   , 2002 was $              per share. ONI Systems common stock is also traded on the Nasdaq Stock Market under the trading symbol “ONIS.” The closing price for ONI Systems common stock reported on the Nasdaq National Market on April   , 2002 was $              per share.

     CIENA will issue approximately 100,500,000 shares in the merger to holders of ONI Systems outstanding common stock, plus up to approximately 16,500,000 shares of CIENA common stock upon exercise of ONI Systems outstanding stock options, rights and warrants assumed in the merger. As of April 24, 2002, based on 329,693,568 outstanding shares of CIENA common stock and assuming that none of the ONI Systems options, rights or warrants have been exercised, ONI Systems stockholders would own approximately 23.4% of the combined company and CIENA stockholders would own approximately 76.6% of the combined company following the merger.

     This is the joint proxy statement/prospectus of CIENA and ONI Systems relating to CIENA’s offering of shares of CIENA common stock to ONI Systems stockholders in the proposed merger. It contains important information about CIENA, ONI Systems, the terms of the proposed merger and the conditions that must be satisfied before the merger can occur. You should carefully consider the risk factors relating to the merger and CIENA that are described starting on page 13 of this joint proxy statement/prospectus.

     Completion of the merger requires the approval of both CIENA and ONI Systems stockholders. CIENA and ONI Systems have scheduled special meetings of their stockholders to obtain these approvals on                    , 2002. Information regarding these special meetings is included in this joint proxy statement/ prospectus. The CIENA board of directors recommends that CIENA stockholders vote “FOR” the proposal to approve and adopt the merger agreement and approve the merger. The ONI Systems board of directors recommends that ONI Systems stockholders vote “FOR” the proposal to approve and adopt the merger agreement and approve the merger.

     Your vote is very important. Please vote on your company’s proposals by signing and dating the enclosed proxy card or voting instruction card today and returning it in the pre-addressed envelope provided.

     Thank you for your support.

     
Gary B. Smith
  Hugh C. Martin

Prospectus dated                     , 2002

First mailed to stockholders on or about                     , 2002

     Neither the Securities and Exchange Commission nor any state securities regulator has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus and proxy statement. Any representation to the contrary is a criminal offense.


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CIENA CORPORATION

1201 Winterson Road
Linthicum, Maryland 21090
(410) 865-8500

NOTICE OF THE SPECIAL MEETING OF STOCKHOLDERS

 
Time and Date                , local time, on             , 2002
 
Place BWI Marriott Hotel, 1743 W. Nursery Road, Linthicum, Maryland 21090
 
Items of Business (1) To consider and vote upon a proposal to approve and adopt the Agreement and Plan of Merger between CIENA Corporation and ONI Systems Corp. and approve the merger and the issuance of CIENA common stock contemplated by the Agreement and Plan of Merger.
 
(2) To consider and vote upon a proposal to grant CIENA’s board of directors discretionary authority to adjourn the special meeting to solicit additional votes for the approval of the merger.
 
(3) To consider and vote on such other matters as may properly come before the special meeting or any adjournment or postponement of the special meeting.
 
Adjournments and Postponements Any action on the items described above may be considered at the special meeting at the time and on the date specified above or at any time and date to which the special meeting may properly be adjourned or postponed.
 
Record Date You are entitled to vote only if you were a CIENA stockholder at the close of business on             , 2002.
 
Voting Your vote is very important. Whether or not you plan to attend the special meeting, we encourage you to read this joint proxy statement/ prospectus and submit your proxy or voting instructions for the special meeting as soon as possible. You may submit your proxy or voting instructions for the special meeting by completing, signing, dating and returning the proxy card or voting instruction card in the pre-addressed envelope provided. For specific instructions on how to vote your shares, please refer to the section entitled “The Special Meeting of CIENA Stockholders” beginning on page      of this joint proxy statement/ prospectus and the instructions on the proxy card or voting instruction card.

  By order of the Board of Directors

 
  Russell B. Stevenson, Jr.
  Senior Vice President, General Counsel and
  Secretary
            , 2002
Linthicum, Maryland


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ONI SYSTEMS CORP.

5965 Silver Creek Valley Road
San Jose, CA 95138
(408) 965-2600

NOTICE OF THE SPECIAL MEETING OF STOCKHOLDERS

 
Time and Date                , local time, on             , 2002
 
Place
 
Items of Business (1) To consider and vote upon a proposal to approve and adopt the Agreement and Plan of Merger between CIENA Corporation and ONI Systems Corp. and approve the merger contemplated by the Agreement and Plan of Merger.
 
(2) To consider and vote upon a proposal to grant ONI Systems’ board of directors discretionary authority to adjourn the special meeting to solicit additional votes for the approval of the merger.
 
(3) To consider and vote on such other matters as may properly come before the special meeting or any adjournment or postponement of the special meeting.
 
Adjournments and Postponements Any action on the items described above may be considered at the special meeting at the time and on the date specified above or at any time and date to which the special meeting may properly be adjourned or postponed.
 
Record Date You are entitled to vote only if you were an ONI Systems stockholder at the close of business on             , 2002.
 
Voting Your vote is very important. Whether or not you plan to attend the special meeting, we encourage you to read this joint proxy statement/ prospectus and submit your proxy or voting instructions for the special meeting as soon as possible. You may submit your proxy or voting instructions for the special meeting by completing, signing, dating and returning the proxy card or voting instruction card in the pre-addressed envelope provided. For specific instructions on how to vote your shares, please refer to the section entitled “The Special Meeting of ONI Systems Stockholders” beginning on page      of this joint proxy statement/ prospectus and the instructions on the proxy card or voting instruction card.

  By order of the Board of Directors

 
  Michael A. Dillon
  Vice President, General Counsel and Secretary
            , 2002
San Jose, California


TABLE OF CONTENTS

SUMMARY
RISK FACTORS
FORWARD-LOOKING STATEMENTS
THE SPECIAL MEETING OF ONI SYSTEMS STOCKHOLDERS
THE MERGER
TERMS OF THE MERGER AGREEMENT AND RELATED TRANSACTIONS
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
UNAUDITED PRO FORMA CIENA STATEMENT OF OPERATIONS
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
INFORMATION ABOUT CIENA
INFORMATION ABOUT ONI SYSTEMS
DESCRIPTION OF CIENA CAPITAL STOCK
COMPARISON OF STOCKHOLDER RIGHTS
OTHER MATTERS
WHERE YOU CAN FIND MORE INFORMATION
AGREEMENT AND PLAN OF MERGER
TABLE OF CONTENTS
FORM OF STOCKHOLDER AGREEMENT
FORM OF AFFILIATE LETTER
OPINION OF CIENA’S FINANCIAL ADVISOR
OPINION OF ONI SYSTEM’S FINANCIAL ADVISER
Consent of PricewaterhouseCoopers LLP
Consent of KPMG LLP
Consent of Deloitte & Touche LLP
Form of Ciena Proxy Card
Form of ONI Systems Corp. Proxy Card
Consent of Goldman, Sachs & Co.


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TABLE OF CONTENTS

           
Page

QUESTIONS AND ANSWERS ABOUT THE STOCKHOLDERS MEETINGS
    iv  
SUMMARY
    1  
RISK FACTORS
    13  
FORWARD-LOOKING STATEMENTS
    17  
THE SPECIAL MEETING OF CIENA STOCKHOLDERS
    18  
 
General
    18  
 
Date, Time and Place
    18  
 
Purpose of the Special Meeting
    18  
 
Record Date for the Special Meeting
    18  
 
Voting of Proxies at the Special Meeting and Revocation of Proxies
    18  
 
Votes Required for Approval and Adoption of the Merger Agreement and Approval of the Merger
    19  
 
Quorum and Abstentions
    19  
 
Solicitation of Proxies and Expenses
    20  
 
Board Recommendation
    20  
THE SPECIAL MEETING OF ONI SYSTEMS STOCKHOLDERS
    21  
 
General
    21  
 
Date, Time and Place
    21  
 
Purpose of the Special Meeting
    21  
 
Record Date for the Special Meeting
    21  
 
Voting of Proxies at the Special Meeting and Revocation of Proxies
    21  
 
Votes Required for Approval and Adoption of the Merger Agreement and Approval of the Merger
    22  
 
Quorum and Abstentions
    22  
 
Solicitation of Proxies and Expenses
    23  
 
Board Recommendation
    23  
THE MERGER
    25  
 
General
    25  
 
Background of the Merger
    25  
 
Recommendation of CIENA’s Board of Directors and Reasons for the Merger
    31  
 
Recommendation of the ONI Systems Board and Reasons for the Merger
    34  
 
Opinion of CIENA’s Financial Advisor
    37  
 
Opinion of ONI Systems’ Financial Advisor
    41  
 
Interests of Executive Officers and Directors in the Merger
    53  
 
Accounting Treatment
    58  
 
Listing on the Nasdaq National Market
    58  
 
Governmental and Regulatory Approvals
    58  
 
Federal Income Tax Consequences
    58  
 
ONI Systems 5% Convertible Subordinated Notes Due October 5, 2005
    60  
TERMS OF THE MERGER AGREEMENT AND RELATED TRANSACTIONS
    61  
 
General
    61  
 
Structure of the Merger
    61  
 
Management and Operations After the Merger
    61  
 
Treatment of Stock, Options and Warrants
    61  
 
Exchange of Certificates; Fractional Shares
    62  
 
Effective Time
    63  
 
Representations and Warrants
    63  
 
Business of ONI Systems and CIENA Pending the Merger; Other Agreements
    65  
 
No Solicitation by ONI Systems
    66  
 
Additional Agreements of CIENA and ONI Systems
    67  
 
Directors’ and Officers’ Insurance and Indemnification
    67  
 
Conditions Precedent to Each Party’s Obligation to Effect the Merger
    68  
 
Conditions Precedent to Obligations of CIENA
    68  
 
Conditions Precedent to ONI Systems Obligations
    68  
 
Termination of the Merger Agreement
    69  


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Page

 
Waiver and Amendment of the Merger Agreement
    71  
 
Expenses
    72  
 
Stockholder Agreements
    72  
 
Restrictions on Resales by Affiliates
    72  
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
    73  
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
    74  
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
    75  
UNAUDITED PRO FORMA CIENA STATEMENT OF OPERATIONS
    76  
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
    77  
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
    78  
INFORMATION ABOUT CIENA
    81  
 
General
    81  
 
Additional Information
    81  
INFORMATION ABOUT ONI SYSTEMS
    82  
 
General
    82  
 
Additional Information
    82  
CIENA CAPITAL STOCK AND COMPARISON OF STOCKHOLDER RIGHTS
    83  
DESCRIPTION OF CIENA CAPITAL STOCK
    84  
 
Authorized and Outstanding Capital Stock of CIENA
    84  
 
CIENA Common Stock
    84  
 
CIENA Preferred Stock
    84  
 
Limitation of Liability and Indemnification
    84  
 
Certain Charter and Statutory Provisions, Stockholder Rights Plan
    85  
 
Transfer Agent and Registrar
    86  
COMPARISON OF STOCKHOLDER RIGHTS
    87  
 
General
    87  
 
Capitalization
    87  
 
Voting Rights
    87  
 
Number and Classification of Directors
    87  
 
Removal of Directors
    87  
 
Filing Vacancies on the Board of Directors
    88  
 
Charter Amendments
    88  
 
Amendments to Bylaws
    88  
 
Action by Written Consent
    89  
 
Notice of Stockholder Actions
    89  
 
Right to Call Special Meeting of Stockholders
    89  
 
Dividends
    89  
 
Liquidation Rights
    89  
 
Conversion and Redemption
    89  
 
Stockholder Proposals
    90  
OTHER MATTERS
    91  
 
Legal Matters
    91  
 
Experts
    91  
 
Other Matters
    91  
WHERE YOU CAN FIND MORE INFORMATION
    91  
ANNEX A AGREEMENT AND PLAN OF MERGER
       
ANNEX B FORM OF STOCKHOLDER AGREEMENT
       
ANNEX C FORM OF AFFILIATE LETTER
       
ANNEX D OPINION OF CIENA’S FINANCIAL ADVISOR
       
ANNEX E OPINION OF ONI SYSTEMS’ FINANCIAL ADVISOR
       

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      This joint proxy statement/prospectus incorporates important business and financial information about CIENA and ONI Systems from documents that each company has filed with the Securities and Exchange Commission but that have not been included in or delivered with this joint proxy statement/ prospectus. For a listing of documents incorporated by reference into this joint proxy statement/prospectus, please see the section entitled “Where You Can Find More Information” beginning on page      of this joint proxy statement/ prospectus.

      CIENA will provide you with copies of this information relating to CIENA, without charge, upon written or oral request to:

CIENA Corporation

1202 Winterson Road
Linthicum, Maryland 21090
Attention: Investor Relations
Telephone Number: (410) 865-8500

      In addition, you may obtain copies of this information by sending an e-mail to ir@ciena.com. A list of those stockholders entitled to vote at the special meeting will be available for inspection for ten days preceding the meeting at the address set forth above, and will also be available for inspection at the meeting itself.

      ONI Systems will provide you with copies of this information relating to ONI Systems, without charge, upon written or oral request to:

ONI Systems Corp.

5965 Silver Creek Valley Road
San Jose, California 95138
Attention: Investor Relations
Telephone Number: (408) 571-4050

      In addition, you may obtain copies of this information by sending an e-mail to ir@oni.com. A list of those stockholders entitled to vote at the special meeting will be available for inspection for ten days preceding the meeting at the address set forth above, and will also be available for inspection at the meeting itself.

      In order for you to receive timely delivery of the documents in advance of the special meetings, CIENA or ONI Systems should receive your request no later than                .

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QUESTIONS AND ANSWERS ABOUT THE STOCKHOLDERS MEETINGS

Q: When and where will the special meetings take place?
 
A: ONI Systems Stockholders: The special meeting will be held on                     , 2002, at            a.m., local time, at                     .
 
CIENA Stockholders: The special meeting will be held on                     , 2002, at            a.m., local time, at the BWI Marriott Hotel, 1743 W. Nursery Road, Linthicum, Maryland 21090.
 
Q: What do I need to do now?
 
A:  You should carefully read and consider the information contained in this joint proxy statement/ prospectus. You should then complete and sign your proxy and return it in the enclosed return envelope as soon as possible so that your shares will be represented at your company’s special meeting. If you sign, date and mail your proxy card without identifying how you want to vote, your proxy will be voted “FOR” the merger and “FOR” the grant of discretionary authority to adjourn the special meeting. Failure to vote, return your proxy card or to give voting instructions to your broker or nominee will have the same effect as voting “AGAINST” the proposal to approve the merger.
 
Q: Who must approve the merger?
 
A:  In addition to the approvals of the boards of directors of CIENA and ONI Systems which have already been obtained, the stockholders of both ONI Systems and CIENA must also approve the merger.
 
Q: If my shares are held in “street name” by my broker, will my broker vote my shares for me?
 
A:  Your broker will not be able to vote your shares unless you provide instructions on how to vote your shares. You should instruct your broker to vote your shares following the directions provided by your broker. Without instructions, your shares will not be voted and you will, in effect, be voting against the merger.
 
Q:  Can I change my vote after I mail my signed proxy?
 
A: Yes. You can change your vote at any time before your proxy is voted at the special meeting of your company’s stockholders. You can do this in one of three ways. First, you can send a written notice stating that you would like to revoke your proxy. Second, you can complete and submit a new proxy. If you choose either of these two methods, you must submit your notice of revocation or your new proxy for CIENA shares at the address on page      and for ONI Systems shares at the address on page      . Third, you can attend the special meeting of your company’s stockholders and vote in person. Your attendance alone will not revoke your proxy. If you have instructed a broker to vote your shares, you must follow the directions received from your broker to change those instructions.
 
Q: Should I send in my certificates now?
 
A:  No, you should not send in your stock certificates with your proxy. ONI stockholders will receive instructions for exchanging their stock certificates if the merger is consummated. CIENA stockholders will not exchange their certificates.
 
Q: Who can help answer my questions?
 
A: If you have any questions about the merger, how to vote or revoke your proxy, or if you need additional copies of this joint proxy statement/ prospectus or the enclosed proxy, you should contact:

ONI Systems:
Innisfree M&A Incorporated
501 Madison Avenue, 20th Floor
New York, New York 10022
(212) 750-5833

CIENA Corporation:
Georgeson Shareholder Communications, Inc.

17 State Street
New York, New York 10004
(212) 440-9800

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SUMMARY

      This summary highlights selected information from this joint proxy statement/ prospectus. It does not contain all of the information that is important to you. You should carefully read this joint proxy statement/ prospectus and the other documents incorporated by reference into this joint proxy statement/ prospectus. See “Where You Can Find More Information” on page      . In this joint proxy statement/ prospectus, “we,” “us” and “our” may refer to either CIENA or ONI Systems, depending on the context in which they are used, and “you” and “your” refer to stockholders of ONI Systems or stockholders of CIENA, depending on the context in which they are used.

The Companies (page      )

CIENA Corporation

1201 Winterson Road
Linthicum, Maryland 21090
(410) 865-8500

CIENA is a leader in the intelligent optical networking equipment industry. CIENA offers a portfolio of products for communications service providers worldwide. CIENA’s customers include long-distance carriers, competitive and incumbent local exchange carriers, Internet service providers and wireless and wholesale carriers. CIENA offers optical transport and intelligent optical switching systems that enable service providers to provision, manage and deliver high-bandwidth services to their customers. CIENA’s strategy is to use its technologies to change the fundamental economics of building carrier-class tele- and data-communications networks, thereby providing our customers with a competitive advantage.

During fiscal 2002, reflecting the dramatic downturn affecting the telecommunications industry, CIENA has reduced its workforce by        % and has incurred or expects to incur restructuring charges associated with those reductions and write-downs of assets of between $               and $               during the first two quarters of fiscal 2002.

ONI Systems Corp.

5965 Silver Creek Valley Road
San Jose, CA 95138
(408) 571-4050

ONI Systems develops, markets and sells optical communications networking equipment specifically designed to address the bandwidth and service limitations of metropolitan area and regional networks. ONI Systems’ equipment uses pulses of light rather than electric current in the transmission and routing of telephone, Internet and other data communications in these networks. Communications service providers can cost-effectively deploy ONI Systems’ products to relieve the traffic bottleneck in their networks and offer new data communication services to their customers. ONI Systems’ products help service providers to rapidly build high capacity networks that are flexible, easy to expand and capable of supporting multiple services on a single platform. In addition, ONI Systems’ equipment can be introduced into a network without requiring complete replacement of the existing network infrastructure.

During the third quarter of 2001, in response to the dramatic downturn affecting the telecommunications industry, ONI Systems also implemented a restructuring program that included a reduction in force, consolidation of facilities and reduced manufacturing levels. ONI Systems recorded restructuring costs and other special charges of an aggregate of $67.6 million in the third quarter and $9.7 million in the fourth quarter of 2001.

Vote Required (page      )

Holders of a majority of the outstanding shares of CIENA common stock must vote in favor of the merger before the merger can occur. There were           shares of CIENA common stock outstanding as of                . Each holder of CIENA common stock is entitled to one vote per share. CIENA’s officers, directors and their respective affiliates owned      % of CIENA’s outstanding stock as of the record date.

Holders of a majority of the outstanding shares of ONI Systems common stock must also vote in favor of the merger before the merger can occur. There were                shares of ONI Systems common stock outstanding as of                          , 2002. Each holder of ONI Systems common stock is entitled to one vote per share. ONI Systems’ officers, directors and their respective affiliates owned      % of ONI Systems’ outstanding stock as of the record date.

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Several executive officers and directors of ONI Systems and their affiliates owning in the aggregate                shares of ONI Systems common stock, representing approximately        % of the outstanding ONI Systems’ common stock as of the record date, have entered into agreements with CIENA to vote their shares in favor of the merger.

The Merger (page      )

The merger agreement provides that ONI Systems will merge with and into CIENA and CIENA will be the surviving company.

The merger agreement is included as Annex A to this joint proxy statement/ prospectus. It is the legal document that governs the merger.

Reasons for the Merger and Recommendation of the CIENA Board of Directors (page      )

The CIENA board of directors has determined that the merger is advisable and in the best interests of CIENA and its stockholders. The CIENA board of directors recommends that CIENA stockholders vote “FOR” the proposal to approve and adopt the merger agreement and approve the merger.

See “The Merger — Recommendation of CIENA’s Board of Directors and Reasons for the Merger” for the reasons supporting the CIENA board of directors’ recommendations.

Reasons for the Merger and Recommendation of the ONI Systems Board of Directors (page      )

The ONI Systems board of directors has determined that the merger is advisable and in the best interests of ONI Systems and its stockholders. The ONI Systems board of directors recommends that ONI Systems stockholders vote “FOR” the proposal to approve and adopt the merger agreement and approve the merger.

See “The Merger — Recommendation of the ONI Systems Board of Directors and Reasons for the Merger” for the reasons supporting the ONI Systems board of directors’ recommendations.

What You Will Receive in the Merger (page      )

Each outstanding share of ONI Systems common stock will be cancelled and each ONI Systems stockholder will receive 0.7104 shares of CIENA common stock for each share of ONI Systems common stock that the stockholder owns. An ONI Systems stockholder will also receive a cash payment for any fraction of a share of CIENA common stock that the stockholder would otherwise be entitled to receive.

Because the number of shares of CIENA common stock to be received for each share of ONI Systems common stock is fixed, ONI Systems stockholders will not know the value of the CIENA common stock they will receive in the merger when the special meeting of the ONI Systems stockholders is held. The value of the CIENA common stock will depend upon its market price when the merger is completed.

For example, an ONI Systems stockholder who owns 100 shares of ONI Systems common stock upon completion of the merger will receive 71 shares of CIENA common stock plus cash equal to 0.04 times the closing price of a share of CIENA stock on the Nasdaq National Market on the closing date. The value received by that ONI Systems stockholder would vary as shown in the chart below depending on the market price of the CIENA common stock. The chart does not include cash received for fractional shares.

                     
Illustrative Number of Value of
Price of Shares of Shares of
CIENA CIENA Common CIENA Common
Common Stock Stock Issued Stock Issued
at Closing at Closing at Closing



$ 5.00       71     $ 355  
$ 7.00       71     $ 497  
$ 9.00       71     $ 639  

If the merger had closed on April 26, 2002, the value of CIENA common stock received by a holder of 100 shares of ONI Systems common stock would have been $532.50 plus $0.30 for fractional shares.

Total Consideration CIENA Will Pay

At the effective time of the merger, CIENA will issue approximately 100,500,000 shares of its common stock in exchange for all of ONI Systems outstanding common stock. As of April 26, 2002, these shares have an aggregate value of approximately $753,750,000. CIENA will also assume the obligation to issue an additional approximately 16,500,000 shares of CIENA common stock on the exercise of outstanding stock options, rights and warrants. In addition, CIENA

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will assume the $300,000,000 aggregate principal amount 5% convertible subordinated notes of ONI Systems, and these notes may, at the election of the holders, be convertible into CIENA common stock at a conversion price of $128.99 per share.

ONI Systems Employee Stock Options

Each outstanding option to purchase shares of ONI Systems common stock will be converted into an option to purchase a number of shares of CIENA common stock equal to the number of shares of ONI Systems common stock that were subject to the option multiplied by 0.7104. The exercise price per share for each ONI Systems option will be divided by 0.7104. Except for some acceleration of vesting for some officers that will occur as a result of the merger under the terms of their offer letters from ONI Systems, all other terms of the options will remain unchanged.

What is Needed to Complete the Merger (page      )

Several conditions must be satisfied before the merger will be completed. These include:

  •  approval of the merger by stockholders representing a majority of the outstanding shares of each of ONI Systems and CIENA;
 
  •  receipt by ONI Systems and CIENA of confirming opinions of tax counsel described below; and
 
  •  other customary contractual conditions set forth in the merger agreement.

If the law permits, CIENA or ONI Systems may each waive conditions for the benefit of their company and stockholders and complete the merger even though one or more of these conditions has not been met. Stockholder approval may not be waived. If a material condition is waived by either CIENA or ONI Systems, the company waiving the condition intends to resolicit the vote of its stockholders. We cannot assure you that the conditions will be satisfied or waived or that the merger will occur.

Termination of the Merger Agreement (page      )

CIENA and ONI Systems may mutually agree at any time to terminate the merger agreement without completing the merger, even if the ONI Systems or CIENA stockholders have approved it. Either party (so long as it has not materially breached the merger agreement) may terminate the merger if:

  •  the merger has not been consummated by September 30, 2002;
 
  •  the stockholders of either ONI Systems or CIENA do not approve the merger; or
 
  •  a court forbids the merger to occur.

ONI Systems may terminate the merger agreement prior to obtaining stockholder approval if:

  •  the ONI Systems board of directors determines to enter into an alternative transaction that it views as superior, or
 
  •  if CIENA’s board of directors changes its recommendation to stockholders in favor of the merger.

CIENA may similarly terminate the merger agreement if ONI Systems’ board of directors withdraws, modifies or amends, in any respect adverse to CIENA, its recommendation to stockholders in favor of the merger.

Fees and Expenses (page      )

ONI Systems agreed to pay CIENA a termination fee of $36.7 million and up to $2 million in expenses if:

  •  the merger agreement is terminated because of a change in ONI Systems’ board of directors recommendation (unless due to a material adverse effect on CIENA), or
 
  •  if ONI Systems accepts an alternative superior proposal.

ONI Systems also must pay this termination fee and expenses if:

  •  there is a change in ONI Systems’ board of directors recommendation and CIENA terminates the agreement, or
 
  •  ONI Systems’ stockholders do not approve the merger,

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and there is a publicly announced third party offer to acquire ONI Systems, which ONI Systems accepts within 12 months of the termination.

CIENA agreed to pay ONI Systems a similar fee and expense reimbursement if ONI Systems terminates the merger agreement because of a change in the CIENA board of director’s recommendation. However, if ONI Systems’ board of directors terminates the merger agreement because

  •  of a change in the CIENA board of directors recommendation, or
 
  •  the CIENA stockholders do not approve the merger,

and there is a publicly announced third party offer to acquire CIENA, which CIENA accepts within 12 months of the termination, then CIENA in most cases will pay ONI Systems a termination fee of $87.2 million, plus expenses of $2 million. There are also circumstances where terminations may occur without payment of any termination fees.

Federal Income Tax Consequences (page      )

CIENA has received an opinion of Hogan & Hartson L.L.P., its counsel, and ONI Systems has received an opinion of Fenwick & West LLP, its counsel, that the merger will qualify as a tax-free reorganization which means that no gain or loss will be recognized by CIENA or ONI Systems stockholders as a result of the merger, except with respect to cash received by ONI Systems stockholders in lieu of fractional shares. For a further discussion of the federal income tax consequences of the merger, see “The Merger — Federal Income Tax Consequences.” Different tax consequences may apply to you because of your individual circumstances or because special tax rules apply to you.

These matters are very complicated. You should consult your tax advisor for a full explanation of the tax consequences of the merger to you.

No Appraisal Rights for Dissenting Stockholders (page      )

Neither CIENA stockholders nor ONI Systems stockholders are entitled to dissenters’ rights of appraisal for their shares under the Delaware General Corporation Law in connection with the merger.

Opinion of CIENA’s Financial Advisor (page      )

On February 15, 2002, Morgan Stanley delivered its opinion to the CIENA board of directors, that, as of February 15, 2002, the exchange ratio pursuant to the merger agreement was fair to CIENA from a financial point of view. The full text of Morgan Stanley’s opinion is attached as Annex D to this joint proxy statement/ prospectus. Stockholders of CIENA are urged to read this opinion in its entirety. Morgan Stanley’s opinion does not constitute a recommendation as to how any stockholder should vote with respect to the merger.

Opinion of ONI Systems’ Financial Advisor (page      )

On February 15, 2002, Goldman Sachs proffered its oral opinion to the ONI Systems board of directors, which opinion was subsequently confirmed in writing on February 17, 2002 that, as of the date of that opinion, the exchange ratio was fair from a financial point of view to the holders of shares of ONI Systems common stock. In addition, on March 18, 2002, at the request of the ONI Systems board of directors, Goldman Sachs delivered its opinion to the ONI Systems board of directors, subsequently confirmed in writing, that, as of the date of that opinion, the exchange ratio was fair from a financial point of view to the holders of shares of ONI Systems common stock. The full text of Goldman Sachs’ opinion, dated March 18, 2002, is attached as Annex E to this joint proxy statement/prospectus. Stockholders of ONI Systems are urged to read this opinion in its entirety. The opinion of Goldman Sachs does not constitute a recommendation as to how any stockholder should vote with respect to the merger.

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SUMMARY SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA

OF CIENA AND ONI SYSTEMS

Summary Selected Consolidated Historical Financial Data of CIENA

      The information in the following summary selected consolidated financial data as of October 31, 1997, 1998, 1999, 2000 and 2001 and for the years ended October 31, 1997, 1998, 1999, 2000 and 2001 is derived from CIENA’s audited consolidated financial statements. You should read this information in conjunction with the financial statements and notes to the consolidated financial statements which are incorporated by reference into this joint proxy statement/ prospectus. See “Where You Can Find More Information” which begins on page      . CIENA’s financial statements as of October 31, 2000 and 2001 and for each of the three years ended October 31, 2001 were audited by PricewaterhouseCoopers LLP, independent accountants. Selected financial information as of January 31, 2001 and 2002 and for the three months then ended is derived from CIENA’s unaudited consolidated financial statements, which are incorporated into this joint proxy statement/ prospectus by reference. CIENA has a 52 or 53 week fiscal year, which ends on the Saturday nearest to the last day of October in each year. For purposes of financial statement presentation, each fiscal year is described as having ended on October 31. Fiscal 1997, 1998, 1999 and 2000 comprised 52 weeks and fiscal 2001 comprised 53 weeks. Historical events are not necessarily indicative of results to be expected in the future and results of interim periods are not necessarily indicative of the results of the entire year.

                                                         
As of October 31, As of January 31,


1997 1998 1999 2000 2001 2001 2002







(in thousands)
Balance Sheet Data:
                                                       
Cash and cash equivalents
  $ 273,286     $ 250,714     $ 143,440     $ 143,187     $ 397,890     $ 176,725     $ 472,533  
Working capital
    338,078       391,305       427,471       639,675       1,936,707       724,025       1,653,035  
Total assets
    468,247       602,809       677,835       1,027,201       3,317,301       1,167,152       3,218,778  
Long-term obligations, excluding current portion
    1,900       3,029       4,881       4,882       869,865       4,986       695,740  
Stockholders’ equity
  $ 377,278     $ 501,036     $ 530,473     $ 809,835     $ 2,128,982     $ 921,861     $ 2,068,365  
                                                           
Three Months
Year Ended October 31, Ended January 31,


1997 1998 1999 2000 2001 2001 2002







(in thousands, except per share data)
Statement of Operations Data:
                                                       
Revenue
  $ 413,215     $ 508,087     $ 482,085     $ 858,750     $ 1,603,229     $ 351,989     $ 162,156  
Cost of goods sold
    166,472       256,014       299,769       477,393       904,549       191,837       139,687  
     
     
     
     
     
     
     
 
 
Gross profit
    246,743       252,073       182,316       381,357       698,680       160,152       22,469  
     
     
     
     
     
     
     
 
Operating expenses:
                                                       
 
Research and development (exclusive of $0, $0, $0, $0, $17,825, $0 and $3,951 deferred stock compensation costs)
    23,773       71,186       101,006       125,434       235,831       42,504       64,756  
 
Selling and marketing (exclusive of $0, $0, $0, $0, $8,336, $0 and $956 deferred stock compensation costs)
    22,627       47,343       61,603       90,922       146,949       29,636       37,600  
 
General and administrative (exclusive of $40, $40, $40, $40, $15,206, $90 and $227 deferred stock compensation costs)
    11,436       18,428       22,696       33,960       57,865       11,145       13,655  
 
Settlement of accrued contract obligation
                      (8,538 )                  
 
Deferred stock compensation costs
    40       40       40       40       41,367             5,134  
 
Amortization of goodwill
          2,341       3,197       3,197       177,786       898        
 
Amortization of intangible assets
          229       438       438       4,413       109       1,813  
 
In-process research and development
          9,503                   45,900              
 
Restructuring costs
                            15,439             6,828  

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Three Months
Year Ended October 31, Ended January 31,


1997 1998 1999 2000 2001 2001 2002







(in thousands, except per share data)
 
Goodwill impairment
                            1,719,426              
 
Pirelli litigation
    7,500       30,579                                
 
Merger related costs
          2,548       13,021                          
 
Provision for doubtful accounts
    489       806       250       28,010       (6,579 )            
     
     
     
     
     
     
     
 
   
Total operating expenses
    65,865       183,003       202,251       273,463       2,438,397       84,292       129,786  
     
     
     
     
     
     
     
 
Income (loss) from operations
    180,878       69,070       (19,935 )     107,894       (1,739,717 )     75,860       (107,317 )
Other income (expense), net
    7,178       12,830       13,944       12,680       32,988       4,209       361  
     
     
     
     
     
     
     
 
Income (loss) before income taxes
    188,056       81,900       (5,991 )     120,574       (1,706,729 )     80,069       (106,956 )
Provision (benefit) for income taxes
    72,488       36,200       (2,067 )     39,187       87,333       26,823       (36,365 )
     
     
     
     
     
     
     
 
Net income (loss)
  $ 115,568     $ 45,700     $ (3,924 )   $ 81,387     $ (1,794,062 )   $ 53,246     $ (70,591 )
     
     
     
     
     
     
     
 
Basic net income (loss) per common share
  $ 0.76     $ 0.19     $ (0.01 )   $ 0.29     $ (5.75 )   $ 0.19     $ (0.22 )
     
     
     
     
     
     
     
 
Diluted net income (loss) per common and dilutive potential common share
  $ 0.55     $ 0.18     $ (0.01 )   $ 0.27     $ (5.75 )   $ 0.18     $ (0.22 )
     
     
     
     
     
     
     
 
Weighted average basic common shares outstanding
    151,928       235,980       267,042       281,621       311,815       287,001       327,620  
     
     
     
     
     
     
     
 
Weighted average basic common and dilutive potential common shares outstanding
    209,686       255,788       267,042       299,662       311,815       300,956       327,620  
     
     
     
     
     
     
     
 

      Significant events affecting CIENA’s operating trends. The comparability of CIENA’s operating results is affected by a number of significant and nonrecurring items recognized in some periods as well as acquisitions. In fiscal 1997, CIENA incurred special charges of $7.5 million related to the Pirelli litigation. In fiscal 1998, CIENA incurred special charges of $30.6 million related to the Pirelli litigation, $2.6 million of merger related costs associated with an unsuccessful merger and $9.5 million in-process research and development charge associated with the acquisition of Terabit Technologies. In fiscal 1999, CIENA incurred $13.0 million of merger related costs associated with Omnia and Lightera. In fiscal 2000, CIENA incurred $28.0 million of additional provision for doubtful accounts associated with the write-off of customer receivables. In fiscal 2001, CIENA recorded a goodwill impairment of $1,719.4 million related to the Cyras acquisition, an in-process research and development charge of $45.9 million in connection with the Cyras acquisition, and restructuring costs to close facilities and terminate employees of $15.4 million. CIENA consummated the acquisition of Cyras Systems, Inc. on March 29, 2001. During the three months ended January 31, 2002, CIENA recorded $6.8 million of restructuring costs associated with exiting facilities and terminating employees. During the three months ended April 30, 2002, CIENA expects to record a restructuring charge of between $125 and $135 million associated with a workforce reduction, lease terminations, non-cancelable lease costs and the write-down of certain property, equipment and leasehold improvements. In addition, CIENA also expects to record for this period a charge of approximately $200 to $225 million, primarily related to excess inventory associated with its long-haul transport products and purchase commitments with suppliers. In April 2002, CIENA commenced a tender offer for employee stock options with exercise prices in excess of $12.00 per share. CIENA intends to grant replacement options to tendering option holders no earlier than six months and one day following the termination of the tender offer. As a result, CIENA expects that there will be no adverse accounting consequences from the tender offer.

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Summary Selected Consolidated Historical Financial Data of ONI Systems

      The information in the following summary selected consolidated financial data is derived from ONI Systems’ audited consolidated financial statements. You should read this information in conjunction with the financial statements and notes to the consolidated financial statements which are incorporated by reference into this joint proxy statement/ prospectus. See “Where You Can Find More Information” which begins on page                . ONI Systems’ financial statements as of December 31, 2000 and 2001 and for each of the three years ended December 31, 2001 were audited by KPMG LLP, independent accountants. The historical results are not necessarily indicative of results to be expected for any future period.

                                 
As of December 31,

1998 1999 2000 2001




(in thousands)
Balance Sheet Data:
                               
Cash and cash equivalents
  $ 19,092     $ 80,023     $ 852,360     $ 338,511  
Working capital
    19,627       81,758       917,608       415,336  
Total assets
    21,312       100,942       1,015,468       916,355  
Long term obligations, excluding current portion
    79       367       300,187       300,048  
Total stockholders’ equity
  $ 20,565     $ 91,728     $ 677,644     $ 557,780  
                                             
Period from
October 20, 1997
(inception) to Years Ended December 31,
December 31,
1997 1998 1999 2000 2001





(In thousands, except per share data)
Consolidated Statements of Operations Data:
                                       
Revenue
  $     $ 1,733     $ 3,034     $ 59,662     $ 195,680  
Costs of goods sold, excluding amortization of deferred stock compensation:
                                       
 
Product sales
          1,208       1,032       39,980       121,281  
 
Inventory related charges
                            45,335  
     
     
     
     
     
 
 
Gross profit
          525       2,002       19,682       29,064  
     
     
     
     
     
 
Operating expenses:
                                       
 
Research and development, excluding amortization of deferred stock compensation
    39       4,009       24,858       53,654       78,355  
 
Sales and marketing, excluding amortization of deferred stock compensation
    21       649       4,557       25,304       51,322  
 
General and administrative, excluding amortization of deferred stock compensation
    49       1,591       3,455       16,385       37,388  
 
Restructuring and impairment charges
                            17,350  
 
Amortization of deferred stock compensation
    89       3,310       11,422       66,413       27,009  
 
Amortization of goodwill and intangibles
                1,842       3,594       9,067  
 
Common stock warrant expense
                2,891       4,545        
 
In-process research and development
                170             8,240  
     
     
     
     
     
 
   
Total operating expenses
    198       9,559       49,195       169,895       228,731  
     
     
     
     
     
 
   
Operating loss
    (198 )     (9,034 )     (47,193 )     (150,213 )     (199,667 )
Interest and other income (expense), net
    (1 )     183       623       13,333       11,813  
     
     
     
     
     
 
   
Loss before income taxes
    (199 )     (8,851 )     (46,570 )     (136,880 )     (187,854 )
Income taxes
          1       2       7       412  
     
     
     
     
     
 
   
Net loss
    (199 )     (8,852 )     (46,572 )     (136,887 )     (188,266 )
Beneficial conversion of preferred stock
                      (4,242 )      
     
     
     
     
     
 

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Period from
October 20, 1997
(inception) to Years Ended December 31,
December 31,
1997 1998 1999 2000 2001





(In thousands, except per share data)
Net loss attributable to common stockholders
  $ (199 )   $ (8,852 )   $ (46,572 )   $ (141,129 )   $ (188,266 )
     
     
     
     
     
 
Basic and diluted net loss per share
  $ (0.77 )   $ (0.74 )   $ (2.58 )   $ (1.22 )   $ (1.40 )
     
     
     
     
     
 
Weighted-average shares outstanding used in computing basic and diluted net loss per share
    257       11,919       18,043       115,587       134,756  
     
     
     
     
     
 

      Significant events affecting ONI Systems’ operating trends. The comparability of ONI Systems’ operating results is affected by a number of significant and non-recurring items recognized in some periods. In fiscal 2001, ONI Systems recorded an in-process research and development charge of $8.2 million related to acquisition of a product line from Finisar Corporation, restructuring charges of $17.4 million related to the exiting of certain facilities and employee terminations and inventory related charges of $45.4 million.

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SUMMARY SELECTED UNAUDITED PRO FORMA COMBINED

FINANCIAL DATA

      The following selected unaudited pro forma combined financial data was prepared using the purchase method of accounting. Due to different fiscal period ends for CIENA and ONI Systems, the unaudited pro forma combined statement of earnings data combined the historical consolidated statements of earnings data for CIENA for the year ended October 31, 2001, with ONI Systems’ historical consolidated statements of income data for the year ended December 31, 2001, giving effect to the merger as if it had occurred on November 1, 2000. The unaudited pro forma combined balance sheet data combines CIENA’s historical consolidated balance sheet data as of January 31, 2002 with ONI Systems’ historical consolidated balance sheet data as of December 31, 2001, giving effect to the merger as if it had occurred as of January 31, 2002. Due to the differences in year ends, the ONI Systems fourth quarter 2001 operating results are included in both the year ended October 31, 2001 and the three months ended January 31, 2002 pro forma operating results. The ONI Systems revenue and net loss for the fourth quarter of 2001 are included in the unaudited pro forma combined statement of operations for the quarter ended January 31, 2002 on page      . On March 29, 2001, CIENA acquired Cyras Systems, Inc. in a purchase business combination. Due to the significance of that acquisition, the CIENA pro forma operating results include adjustments to reflect the acquisition of Cyras Systems as of November 1, 2000.

      The selected unaudited pro forma combined financial data is based on estimates and assumptions which are preliminary. This data is presented for informational purposes only and is not intended to represent or be indicative of the consolidated results of operations or financial condition of CIENA that would have been reported had the merger been completed as of the dates presented, and should not be taken as representative of future consolidated results of operations of CIENA.

      This selected unaudited pro forma combined financial data should be read in conjunction with the summary selected historical consolidated financial data and the unaudited pro forma combined financial data and accompanying notes contained elsewhere in this joint proxy statement/prospectus and the separate historical consolidated financial statements and accompanying notes of CIENA and ONI Systems incorporated by reference into this joint proxy statement/prospectus. See the section entitled “Where You Can Find More Information” beginning on page      of this joint proxy statement/prospectus.

                 
As of January 31,
2002

(in thousands)
PRO FORMA COMBINED BALANCE SHEET DATA:
               
Cash and cash equivalents
          $ 801,799  
Working capital
            2,059,126  
Total assets
            4,493,746  
Long-term obligations, excluding current position
            995,788  
Stockholders’ equity
            2,984,758  
                   
Three Months
Year Ended Ended
Oct. 31, 2001 Jan. 31, 2002


(in thousands, except per share
amounts)
PRO FORMA COMBINED STATEMENT OF OPERATIONS DATA:
               
Revenue
  $ 1,798,909     $ 204,319  
Cost of goods sold (exclusive of $6,941 and $1,244 deferred stock compensation costs)
    1,071,165       174,665  
     
     
 
 
Gross profit
    727,744       29,654  
     
     
 

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Three Months
Year Ended Ended
Oct. 31, 2001 Jan. 31, 2002


(in thousands, except per share
amounts)
Operating expenses
               
 
Research and development (exclusive of $39,952 and $6,418 deferred stock compensation costs)
    363,240       84,586  
 
Sales and marketing (exclusive of $23,755 and $3,279 deferred stock compensation costs)
    203,798       51,220  
 
General and administrative (exclusive of $22,884 and $1,090 deferred stock compensation costs)
    91,872       20,612  
 
Deferred stock compensation costs
    93,532       12,031  
 
Amortization of goodwill
    300,301        
 
Amortization of intangible assets
    15,477       3,467  
 
In-process research and development
    8,240        
 
Restructuring costs
    32,789       8,086  
 
Goodwill impairment
    1,719,426        
 
Provision for doubtful accounts
    4,042        
     
     
 
Total operating expenses
    2,832,717       180,002  
     
     
 
Loss from operations
    (2,104,973 )     (150,348 )
Other income (expense), net
    35,149       730  
     
     
 
Loss before income taxes
    (2,069,824 )     (149,618 )
Provision (benefit) for income taxes
    87,797       (36,110 )
     
     
 
Net loss
  $ (2,157,621 )   $ (113,508 )
     
     
 
Basic net loss per common share
  $ (5.14 )   $ (0.27 )
     
     
 
Diluted net loss per common and dilutive potential common share
  $ (5.14 )   $ (0.27 )
     
     
 
Weighted average basic common shares outstanding
    419,604       426,331  
     
     
 
Weighted average basic common and dilutive potential common shares outstanding
    419,604       426,331  
     
     
 

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COMPARATIVE PER SHARE DATA

      The following table reflects the historical net income and book value per share of CIENA common stock and the historical net loss and book value per share of ONI Systems common stock in comparison with the unaudited pro forma net loss and book value per share after giving effect to the pending merger of CIENA and ONI Systems. The information presented in the following table should be read in conjunction with the unaudited pro forma combined financial data and the CIENA historical consolidated financial statements and the ONI Systems historical financial statements incorporated by reference or included elsewhere in this joint proxy statement/prospectus.

                   
Three Months
Ended
Year Ended January 31,
October 31, 2001 2002


CIENA HISTORICAL PER SHARE DATA:
               
 
Basic net loss per common share
  $ (5.75 )   $ (0.22 )
 
Diluted net loss per common and dilutive potential common share
  $ (5.75 )   $ (0.22 )
 
Book value per share at period end(1)
          $ 6.29  
                   
Year Ended
December 31,
2001

ONI SYSTEMS HISTORICAL PER SHARE DATA:
               
 
Basic net loss per common share
  $ (1.40 )        
 
Diluted net loss per common and dilutive potential common share
  $ (1.40 )        
 
Book value per share at period end(2)
  $ 3.97          
                   
Three Months
Ended
Year Ended January 31,
October 31, 2001 2002


UNAUDITED PRO FORMA COMBINED CIENA (3):
               
 
Basic net loss per common share
  $ (5.14 )   $ (0.27 )
 
Diluted net loss per common and dilutive potential common share
  $ (5.14 )   $ (0.27 )
 
Book value per share at period end(4)
          $ 6.97  
                   
Three Months
Ended
Year Ended January 31,
October 31, 2001 2002


EQUIVALENT PRO FORMA COMBINED ONI SYSTEMS(5):
               
 
Basic net loss per common share
  $ (3.65 )   $ (0.19 )
 
Diluted net loss per common and dilutive potential common share
  $ (3.65 )   $ (0.19 )
 
Book value per share at period end
          $ 4.95  

1.  CIENA’s book value per share is computed by dividing stockholders’ equity by the number of shares of common stock outstanding at January 31, 2002.
2.  ONI Systems’ book value per share is computed by dividing stockholders’ equity by the number of shares of common stock outstanding at December 31, 2001.
3.  Pro forma combined per share CIENA information combines pro forma financial information of CIENA for the year ended October 31, 2001 (which includes certain pro forma adjustments related to the March 29, 2001 acquisition of Cyras System, Inc.) with the financial information of ONI Systems for the year ended December 31, 2001 and combines financial information of CIENA for the three months ended January 31, 2002 with the financial information of ONI Systems for the three months ended December 31, 2001. This information also assumes the merger occurred as of November 1, 2000 and was accounted for using the purchase method. The ONI Systems fourth quarter 2001 operating results are included in both the pro forma combined data for the year ended October 31, 2001 and the three months ended January 31, 2002.
4.  Pro forma combined book value per share is computed by dividing pro forma stockholders’ equity at January 31, 2002 by the pro forma number of shares of CIENA common stock which would have been outstanding had the merger been consummated as of January 31, 2002.
5.  The equivalent pro forma combined amounts are calculated by multiplying the pro forma combined per share amounts by the exchange ratio of 0.7104 shares of CIENA common stock for each share of ONI Systems common stock.

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COMPARATIVE PER SHARE MARKET PRICE DATA

      CIENA common stock trades on the Nasdaq Stock Market under the symbol “CIEN.” ONI Systems common stock trades on the Nasdaq Stock Market under the symbol “ONIS.”

      The following table shows the high and low sales prices per share of CIENA common stock and ONI Systems common stock, each as reported on the Nasdaq National Market on (i) February 15, 2002, the last full trading day preceding public announcement that CIENA and ONI Systems had entered into the merger agreement and (ii)                the last full trading day for which high and low sales prices were available as of the date of this joint proxy statement/prospectus.

      The table also includes the equivalent high and low sales prices per share of ONI Systems common stock on those dates. These equivalent high and low sales prices per share reflect the fluctuating value of the CIENA common stock that ONI Systems stockholders would receive in exchange for each share of ONI Systems common stock if the merger was completed on either of these dates, applying the exchange ratio of 0.7104 shares of CIENA common stock for each share of ONI Systems common stock.

                                                 
CIENA ONI Systems Equivalent
Common Stock Common Stock Price Per Share



High Low High Low High Low






February 15, 2002
  $ 9.20     $ 8.54     $ 5.54     $ 5.11     $ 6.54     $ 6.07  
April   , 2002
                                               

      The above table shows only historical comparisons. These comparisons may not provide meaningful information to CIENA stockholders in determining whether to approve the issuance of shares of CIENA common stock in connection with the merger and to ONI Systems stockholders in determining whether to approve and adopt the merger agreement and approve the merger. CIENA and ONI Systems stockholders are urged to obtain current market quotations for CIENA and ONI Systems common stock and to review carefully the other information contained in this joint proxy statement/prospectus or incorporated by reference into this joint proxy statement/prospectus in considering whether to approve and adopt the merger agreement and approve the merger. See the section entitled “Where You Can Find More Information” beginning on page      of this joint proxy statement/prospectus.

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RISK FACTORS

      In addition to the risks described in CIENA’s most recently filed Form 10-Q under Item 2 and ONI Systems’ most recently filed 10-K under Item 7, you should carefully consider the following risk factors relating to the merger before deciding how to vote your shares. You should also consider the other information contained in, or incorporated by reference into, this joint proxy statement/ prospectus. See “Where You Can Find More Information” on page      .

The value of the CIENA common stock that ONI Systems stockholders receive in the merger will depend on its market price at the time of the merger, and no adjustment will be made if that market price declines.

      The value of CIENA common stock that ONI Systems stockholders will receive in the merger depends on the market price of CIENA common stock. The market price of CIENA common stock may decline, causing the value of the consideration received by ONI Systems stockholders in the merger to decline. The market price of CIENA common stock is extremely volatile and has fluctuated over a wide range. From April 20, 2001 to April 26, 2002, CIENA common stock traded as high as $70.89 per share and as low as $7.13 per share. From February 15, 2002, the last trading day prior to the date on which the merger was announced, through April 26, 2002, the price of CIENA common stock has declined approximately 14%. The market price of CIENA common stock may continue to fluctuate significantly in response to various factors, including:

  •  quarterly variations in operating results principally due to customer purchasing decisions;
 
  •  changes in estimates by securities analysts;
 
  •  announced reductions in capital spending by customers; and
 
  •  general economic conditions.

Neither company can terminate the merger due to fluctuations in CIENA’s stock price.

      Neither party has the right to terminate the merger due to increases or decreases in CIENA’s stock price, even if those fluctuations would materially affect the value of the consideration ONI Systems stockholders will receive in the merger. CIENA has agreed to issue approximately 100,500,000 shares of CIENA common stock for all of ONI Systems outstanding common stock. This represented a value of approximately $877,365,000 on February 15, 2002, the last trading day prior to the date on which the merger was announced. CIENA has also agreed to assume the obligation to issue approximately 16,500,000 shares of CIENA common stock on the exercise of outstanding stock options, rights and warrants.

      If the price for CIENA common stock increases, CIENA would not be able to terminate the merger, even though it would be paying significantly more for ONI Systems. If the price for CIENA common stock decreases, ONI Systems would not be able to terminate the merger, even though its stockholders would receive less value for their shares of ONI Systems. Since February 15, 2002, the price per share of CIENA common stock has decreased from $8.73 to $7.50, thereby decreasing the value of the consideration to be paid for all of ONI Systems outstanding common stock to approximately $753,750,000.

CIENA will be less successful if it is unable to effectively integrate ONI Systems into its operations.

      The success of the combined company will depend in part on the integration of the technology, operations and personnel of the two companies in a timely and efficient manner. This involves many risks, including:

  •  assimilating ONI Systems’ technology and product offerings which may be more difficult than anticipated because the technology is very complex;
 
  •  coordinating research and development efforts which may involve unexpected problems;
 
  •  that a planned relocation of CIENA personnel from CIENA’s Fremont and possibly its Cupertino facilities to ONI Systems’ facilities in San Jose may result in higher cost, disruption and possible loss of employees;

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  •  that management attention may be diverted from business matters to integration issues;
 
  •  identifying and retaining key personnel which may be difficult in the combined company;
 
  •  integrating accounting, engineering, information technology, and administrative systems which may be unexpectedly difficult or costly;
 
  •  that significant cash expenditures will be required to retain personnel, eliminate unnecessary resources and integrate the business may reduce our cash reserves;
 
  •  maintaining uniform standards, controls, procedures and policies which may be harder than we anticipate and interfere with efficient administration of the combined company; and
 
  •  changes in the businesses as a result of the merger may impair relationships with employees, customers or vendors.

      Failure to overcome these risks or any other problems encountered in connection with the merger or other similar transactions could harm CIENA’s business, results of operations and financial condition.

Directors and officers of ONI Systems may have conflicts of interest that influenced their decisions to approve the merger.

      You should be aware of potential conflicts of interest of, and the benefits available to, directors and executive officers of ONI Systems when considering the ONI Systems board of directors’ recommendation of the merger agreement. The directors and executive officers of ONI Systems have interests in the merger that are in addition to, or different from, their interests as ONI Systems stockholders. These interests are described under “The Merger — Interests of Executive Officers and Directors in the Merger” on page      .

      These interests include:

  •  New Employment and Consulting Agreements. Hugh Martin has entered into a consulting agreement with CIENA. William Cumpston and Rohit Sharma have both entered into employment agreements with CIENA. Each of these agreements become effective upon the completion of the merger. Under the agreements, these individuals are entitled to receive compensation and benefits which other ONI Systems’ employees will not be entitled to receive.
 
  •  Stock Option Grants and Accelerations. ONI Systems stock options held by members of the ONI Systems board of directors will accelerate in connection with the merger and become 100% vested and exercisable in full. The ONI Systems options held by Robert J. Jandro and Michael A. Dillon, both of whom are executive officers of ONI Systems, will accelerate in connection with the merger so that 25% of the unvested shares subject to these options will become vested. In addition, several other employees of ONI Systems have stock options with acceleration of vesting in connection with the merger.
 
  •  Loan Agreements with Executive Officers. ONI Systems made two loans to Michael Dillon with a current balance of $102,407 and one loan to Hugh Martin, with a current balance of $1,726,576. In addition, the promissory note from Robert Jandro, with an outstanding balance of $2,451,164 was amended to allow for partial prepayment in proportion to the amount of stock sold. All of the promissory notes issued in exchange for the loans are secured by shares of ONI Systems common stock.
 
  •  Directors’ and Officers’ Insurance; Indemnification of ONI Systems’ Directors and Officers. Under the merger agreement, CIENA will purchase insurance and provide indemnification for present and former directors and officers of ONI Systems with respect to acts and omissions in their capacities as directors and officers of ONI Systems, for six years following closing, including acts and omissions relating to the merger.

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The $300 million in additional debt that CIENA will assume in connection with the merger may limit CIENA’s financing options in the future and could weaken our business.

      ONI Systems has $300 million principal amount of 5% convertible subordinated notes due October 15, 2005. CIENA will assume these ONI Systems notes at the effective date of the merger. In addition, CIENA has outstanding $690 million principal amount of 3.75% convertible notes due February 1, 2008 and has outstanding and recently tendered for $150 million principal amount of 4.50% convertible subordinated notes due August 15, 2005 which it assumed when it acquired Cyras Systems, Inc. in March 2001. The assumption of ONI Systems indebtedness could adversely affect CIENA in a number of ways, including:

  •  limiting CIENA’s ability to obtain additional financing in the future;
 
  •  limiting CIENA’s flexibility to plan for, or react to, changes in its business;
 
  •  requiring CIENA to use a substantial portion of its cash flow from operations or utilize a significant portion of cash on hand to repay the $300 million principal amount of indebtedness in fiscal 2005;
 
  •  making CIENA more highly leveraged than some of its competitors, which may place it at a competitive disadvantage; and
 
  •  making CIENA more vulnerable to a downturn in its business.

      Additionally, in the event that the holders of the notes convert their notes into CIENA common stock, CIENA would have to issue a significant number of shares of additional common stock. For example, if the merger occurs, CIENA would have to issue 2,325,757 shares of its common stock if holders of the entire $300 million convertible notes elected to convert. The 5% notes would be convertible at a conversion price of $128.99 per share of CIENA common stock. The 3.75% notes and the remaining 4.50% notes are currently convertible at conversion prices of $104.38 and $144.64 per share.

Significant merger-related charges against earnings will reduce CIENA’s earnings in the quarter in which we consummate the merger and during the post-merger integration period.

      If the merger is completed, CIENA will incur a charge for in-process research and development, which we currently estimate will be $                     million. The actual charge we incur could be greater than this estimate, which could have a material adverse effect on the combined company’s results of operations and financial condition. Also, in the future we will incur non-cash charges in connection with the merger related to goodwill and other intangible amortization and amortization of deferred stock compensation. Other merger-related costs will be capitalized as part of the acquisition’s purchase price and amortized in future periods.

The economic downturn could continue to adversely affect the revenues, gross margins and expenses of the combined company.

      The revenues and gross margins of the combined company will depend significantly on the overall demand for fiber-optic telecommunications equipment. Continued weakening demand for fiber-optic telecommunications equipment of CIENA and ONI Systems caused by the ongoing economic downturn may result in decreased revenues for the combined company. The downturn has contributed to revenue declines during recent quarters, as well as a lowered revenue outlook for both companies. It has also caused both companies to take restructuring actions and contributed to writedowns to reflect the impairment of certain assets. There could be more of these adverse effects. If the combined company cannot realign its costs relative to its revenues in response to economic conditions and competitive pressures, its margins could be adversely affected.

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The combined company may suffer if it cannot satisfactorily resolve litigation by Nortel against ONI Systems.

      In March 2000, Nortel Networks filed suit against ONI Systems in the United States District Court for the Northern District of California. The suit, as currently formulated, alleges that ONI Systems’ products infringe a patent held by Nortel Networks, and sets forth allegations of misappropriation of trade secrets, unlawful business practices and common law unfair competition. Nortel Networks is seeking preliminary and permanent injunctions and damages against ONI in connection with its claims. If Nortel Networks is able to obtain an injunction preventing the sale of ONI Systems’ products, the combined company would lose revenue and incur losses over an extended period of time. The combined company may incur substantial legal and other expenses as well as diversion of management time and attention in connection with this litigation. The expenses and diversion of resources associated with this litigation could seriously harm the business and financial condition of the combined company.

Because ONI Systems is prohibited from soliciting other offers, ONI Systems stockholders may not be presented with alternative offers they could consider superior.

      The merger agreement contains detailed provisions that prohibit ONI Systems and its officers and directors from taking any action to solicit or engage in discussions or negotiations with any person or group with respect to any acquisition proposal as defined in the merger agreement. The merger agreement does not, however, prohibit ONI Systems or its board of directors from considering, or in the event of a tender or exchange offer made directly to stockholders, recommending, an unsolicited bona fide written acquisition proposal from a third party, if specified conditions are met.

Pending lawsuits against ONI Systems seek to prevent the merger.

      On February 20, 2002, a complaint was filed on behalf of a purported class of ONI Systems security holders in the Superior Court of the State of California, County of San Mateo against ONI Systems, Matthew Bross, Kevin Compton, Jonathan Feiber, Gregory Maffei and Hugh Martin, seeking an injunction to prevent the consummation of the proposed merger with CIENA. The complaint alleges that the director defendants, in connection with the approval of the proposed merger with CIENA, breached their fiduciary duties, including duties of loyalty and good faith, to ONI stockholders by, among other things, allegedly failing to obtain the highest value for ONI stockholders, engaging in self-dealing and unjustly enriching themselves and other insiders or affiliates of ONI. The complaint, which is encaptioned K.W. Sams, On Behalf of Himself and All Others Similarly Situated v. ONI Systems Corporation, et al., Case No. CIV-420819, seeks declaratory, injunctive and other relief permitted by equity. On March 19, 2002, a substantially similar complaint was filed on behalf of the same purported class of ONI Systems security holders in Superior Court of the State of California, County of Santa Clara, against the same defendants seeking similar relief. The complaint is encaptioned Steven Myeary, On Behalf of Himself and All Others Similarly Situated v. ONI Systems Corporation, et al., Case No. CIV-806192. ONI Systems believes that these lawsuits are without merit and intends to defend them vigorously.

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FORWARD-LOOKING STATEMENTS

      Some of the statements contained, or incorporated by reference, in this joint proxy statement/prospectus discuss future expectations, contain projections of results of operations or financial condition or state other “forward-looking” information. Those statements are subject to known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from those contemplated by the statements. The “forward-looking” information is based on various factors and was derived using numerous assumptions. In some cases, you can identify these so-called “forward-looking statements” by words like “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of those words and other comparable words. You should be aware that those statements only reflect our predictions. Actual events or results may differ substantially. Important factors that could cause our actual results to be materially different from the forward-looking statements are disclosed under the heading “Risk Factors” beginning on page      and throughout this joint proxy statement/prospectus.

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THE SPECIAL MEETING OF CIENA STOCKHOLDERS

General

      CIENA is furnishing this document to holders of CIENA common stock in connection with the solicitation of proxies by the CIENA board of directors for use at the special meeting of CIENA stockholders to be held on                     , 2002 and at any adjournment or postponement thereof.

      This document was first mailed to stockholders of CIENA on or about                     , 2002.

Date, Time and Place

      The special meeting will be held on                     , 2002 at 9:00 a.m., local time, at the BWI Marriott Hotel, 1743 W. Nursery Road, Linthicum, Maryland 21090. CIENA’s telephone number is (410)865-8500.

Purpose of the Special Meeting

      At the special meeting, and any adjournment or postponement thereof the holders of CIENA common stock will be asked to consider and vote on proposals to:

  •  Approve and adopt the merger agreement by and among CIENA and ONI Systems and the related issuance of shares of CIENA common stock to ONI Systems’ stockholders in the merger;
 
  •  Grant the CIENA board of directors discretionary authority to adjourn the special meeting to solicit additional votes for approval and adoption of the merger agreement and for approval of the merger; and
 
  •  Transact such other business as may properly come before the special meeting or any adjournment or postponement thereof.

      A copy of the merger agreement is attached to this document as Annex A. CIENA stockholders are encouraged to read the merger agreement in its entirety.

Record Date for the Special Meeting

      The CIENA board of directors has fixed the close of business on                     , 2002 as the record date for determination of CIENA stockholders entitled to notice of and to vote at the special meeting.

Voting of Proxies at the Special Meeting and Revocation of Proxies

      CIENA requests that all holders of CIENA common stock on the record date complete, date and sign the accompanying proxy card and promptly return it in the accompanying envelope or otherwise mail it to CIENA. All properly executed proxies that CIENA receives prior to the vote at the special meeting, and that are not revoked, will be voted in accordance with the instructions indicated on the proxies. If no direction is indicated on such proxies, such proxies will be voted in favor of approval and adoption of the merger agreement and approval of the merger and the share issuance, and approval of the grant of discretionary authority to the CIENA board of directors to adjourn the special meeting to solicit additional votes for approval and adoption of the merger agreement and for approval of the merger. The CIENA board of directors does not currently intend to bring any other business before the special meeting and, to the knowledge of the CIENA board of directors, no other matters are to be brought before the special meeting. If other business properly comes before the special meeting, the proxies will vote in accordance with their own judgment.

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      A CIENA stockholder may revoke a proxy at any time prior to its use:

  •  by delivering to the Secretary of CIENA a signed notice of revocation;
 
  •  by delivering to the Secretary of CIENA a later-dated, signed proxy; or
 
  •  by attending the special meeting and voting in person.

      Attendance at the special meeting does not in itself constitute the revocation of a proxy.

Votes Required for Approval and Adoption of the Merger Agreement and Approval of the Merger

      In order for the merger to be effective, the holders of a majority of the shares of CIENA common stock outstanding as of the record date must vote to adopt and approve the merger agreement and approve the issuance of shares in the merger. As of the close of business on the record date for the special meeting,                      shares of CIENA common stock were outstanding and there were approximately                     stockholders of record. Each share of CIENA common stock outstanding on the record date is entitled to one vote at the special meeting on each matter to be voted on.

      As of the close of business on the record date for the special meeting, CIENA’s directors and executive officers (and their respective affiliates) held approximately                      shares of CIENA common stock, or approximately           % of the shares of CIENA common stock entitled to vote at the special meeting, excluding options and warrants to purchase CIENA common stock which were unexercised as of the record date.

Quorum and Abstentions

      A majority of all shares of CIENA common stock outstanding as of the record date, represented in person or by proxy, constitutes a quorum for the transaction of business at the special meeting. Broker non-votes and shares held by persons abstaining will be counted in determining whether a quorum is present at the CIENA special meeting. CIENA has appointed its Senior Vice President, General Counsel and Secretary to function as the inspector of elections of the special meeting. The inspector of elections will ascertain whether a quorum is present, tabulate votes and determine the voting results on all matters presented to CIENA stockholders at the special meeting. If a quorum is not present, or fewer shares of CIENA common stock are voted for the adoption and approval of the merger agreement and the approval of the merger than a majority of the shares eligible to vote at the special meeting in person or by proxy, the special meeting may be postponed or adjourned, if stockholders approve the grant of discretionary authority to the CIENA board of directors to adjourn the meeting, for the purpose of allowing additional time for obtaining additional proxies or votes, and, if stockholders approve the grant of discretionary authority to the CIENA board of directors to adjourn the meeting, at any subsequent reconvening of the special meeting, all proxies will be voted in the same manner as the proxies would have been voted at the original convening of the special meeting, except for any proxies that have been effectively revoked or withdrawn prior to the subsequent special meeting.

      If you submit a proxy that indicates an abstention from voting, your shares will be counted as present for the purpose of determining the existence of a quorum at the special meeting, but they will not be voted at the applicable special meeting. Consequently, your abstention will have the same effect as a vote against the proposal to adopt and approve the merger agreement and to approve the merger and share issuance.

      If your shares are held by your broker, your broker will vote your shares for you only if you provide instructions on how to vote your shares. You should follow the directions provided by your broker regarding how to instruct your broker to vote your shares. Your broker cannot vote your shares of common stock at the special meeting without specific instructions from you. Because the affirmative vote of a majority of the outstanding shares of CIENA common stock is required to adopt and approve the merger agreement and to approve the merger and share issuance, if you do not instruct your broker how to vote, it will have the effect of a vote against adoption and approval of the merger agreement and approval of the merger and share issuance.

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Solicitation of Proxies and Expenses

      CIENA will bear its own expenses in connection with the solicitation of proxies for its special meeting of stockholders, except that CIENA will bear all printing and filing costs and expenses, other than attorneys’ and accountants’ fees and expenses of ONI Systems. CIENA will bear all other expenses incurred in connection with the preparation of this document and the preparation and filing of the registration statement of which this document forms a part.

      In addition to solicitation by mail, directors, officers and employees of CIENA may solicit proxies from stockholders by telephone, facsimile, e-mail or in person. No additional compensation will be paid to these individuals for any such services. Nominees, fiduciaries and other custodians will be requested to forward soliciting materials to beneficial owners and will be reimbursed for their reasonable expenses incurred in sending proxy materials to beneficial owners. CIENA intends to use Georgeson Shareholder Communications, Inc. as a proxy solicitor to solicit proxies from stockholders, either personally, or by telephone, telegram, facsimile or electronic or United States mail, and will pay Georgeson a fee of approximately $13,500 for these services plus reimbursement of expenses. Additionally, if a telephone campaign to investors becomes necessary and is authorized by CIENA, there could be a charge of $5.00 per completed telephone contact.

Board of Directors Recommendation

      The CIENA board of directors has determined that the merger agreement is advisable, and that the terms of the merger agreement and the merger are fair to and in the best interests of CIENA and its stockholders. Accordingly, the CIENA board of directors has approved the merger agreement and recommends that stockholders vote “FOR” adoption and approval of the merger agreement, approval of the merger and approval of the issuance of shares in the merger, as well as approval of the grant of discretionary authority to the CIENA board of directors to adjourn the meeting.

      The matters to be considered at the special meeting are of great importance to the stockholders of CIENA. Accordingly, CIENA stockholders are urged to read and carefully consider the information presented in this document and to complete, date, sign and promptly return the enclosed proxy in the enclosed, postage-paid envelope.

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THE SPECIAL MEETING OF ONI SYSTEMS STOCKHOLDERS

General

      ONI Systems is furnishing this document to holders of ONI Systems common stock in connection with the solicitation of proxies by the ONI Systems board of directors for use at the special meeting of ONI Systems stockholders to be held on                     , 2002, and at any adjournment or postponement thereof. This document also is being furnished to ONI Systems stockholders by CIENA as a prospectus of CIENA in connection with the issuance by CIENA of shares of CIENA common stock as contemplated by the merger agreement.

      This document was first mailed to stockholders of ONI Systems on or about                     , 2002.

Date, Time and Place

      The special meeting will be held on                     , 2002 at 9:00 a.m., local time, at                                                                               . ONI Systems’ telephone number is (408) 965-2600.

Purpose of the Special Meeting

      The purpose of the ONI Systems’ special meeting is to consider and vote upon proposals to:

  •  Approve and adopt the Agreement and Plan of Merger dated as of February 17, 2002 between CIENA and ONI Systems. The merger agreement provides for the merger of ONI Systems with and into CIENA, with CIENA surviving the merger. In the merger, ONI Systems stockholders will receive 0.7104 shares of CIENA common stock, par value $0.01 per share, for each share of ONI Systems common stock, par value $0.0001 per share;
 
  •  Grant the ONI Systems board of directors discretionary authority to adjourn the special meeting to solicit additional votes for approval and adoption of the merger agreement and for approval of the merger; and
 
  •  Transact such other business as may properly come before the special meeting or any adjournment or postponement thereof.

      A copy of the merger agreement is attached to this document as Annex A. ONI Systems stockholders are encouraged to read the merger agreement in its entirety.

Record Date for the Special Meeting

      The ONI Systems board of directors has fixed the close of business on                     , 2002 as the record date for determination of ONI Systems stockholders entitled to notice of and to vote at the special meeting.

Voting of Proxies at the Special Meeting and Revocation of Proxies

      ONI Systems requests that all holders of ONI Systems common stock on the record date complete, date and sign the accompanying proxy card and promptly return it in the accompanying envelope or otherwise mail it to ONI Systems. All properly executed proxies that ONI Systems receives prior to the vote at the special meeting, and that are not revoked, will be voted in accordance with the instructions indicated on the proxies. If no direction is indicated on such proxies, such proxies will be voted in favor of approval and adoption of the merger agreement and approval of the merger, and approval of the grant of discretionary authority to the ONI Systems board of directors to adjourn the special meeting to solicit additional votes for approval and adoption of the merger agreement and approval of the merger.

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      An ONI Systems stockholder may revoke a proxy at any time prior to its use:

  •  by delivering to the Secretary of ONI Systems a signed notice of revocation;
 
  •  by delivering to the Secretary of ONI Systems a later-dated, signed proxy; or
 
  •  by attending the special meeting and voting in person.

      Attendance at the special meeting does not in itself constitute the revocation of a proxy. If you have instructed a broker to vote your shares, you must follow the directions received from your broker to change those instructions.

Votes Required for Approval and Adoption of the Merger Agreement and Approval of the Merger

      In order for the merger to be effective, the holders of a majority of the shares of ONI Systems common stock outstanding as of the record date must vote to adopt and approve the merger agreement and approve the merger. As of the close of business on the record date for the special meeting, approximately                      shares of ONI Systems common stock were outstanding and there were approximately                     stockholders of record. Each share of ONI Systems common stock outstanding on the record date is entitled to one vote at the special meeting on each matter to be voted on.

      As of the close of business on the record date for the special meeting, ONI Systems directors and executive officers (and their respective affiliates) held approximately                     shares of ONI Systems common stock or approximately           % of the shares of ONI Systems common stock entitled to vote at the special meeting, excluding options and warrants to purchase ONI Systems common stock which were unexercised as of the record date. In addition, directors, executive officers and stockholders of ONI Systems beneficially owning an aggregate of approximately                      shares of ONI Systems common stock (excluding any shares issuable upon the exercise of options and warrants) as of the close of business on the record date for the special meeting, or approximately           % of the shares of ONI Systems common stock entitled to vote at the special meeting, have entered into stockholder agreements, pursuant to which they have agreed to vote their ONI Systems shares in favor of adoption and approval of the merger agreement and approval of the merger, in favor of any matter that could reasonably be expected to facilitate the merger, against any proposal made in opposition to, or in competition with, the merger, and against any amendment of the ONI Systems certificate of incorporation or bylaws that is intended to, or that could reasonably be expected to impede, frustrate, prevent or nullify the merger or change the voting rights of the capital stock. As of the close of business on the record date for the special meeting, no director or executive officer of ONI Systems owned any shares of CIENA common stock. See the section entitled “The Merger — Interests of Executive Officers and Directors in the Merger.”

Quorum and Abstentions

      A majority of all shares of ONI Systems common stock outstanding as of the record date, represented in person or by proxy, constitutes a quorum for the transaction of business at the special meeting. Broker non-votes and shares held by persons abstaining will be counted in determining whether a quorum is present at the ONI Systems special meeting. ONI Systems has appointed its transfer agent, Mellon Investor Services LLC, to function as the inspector of elections of the special meeting. The inspector of elections will ascertain whether a quorum is present, tabulate votes and determine the voting results on all matters presented to ONI Systems stockholders at the special meeting. If a quorum is not present, or fewer shares of ONI Systems common stock are voted for the adoption and approval of the merger agreement and the approval of the merger than a majority of the shares eligible to vote at the special meeting in person or by proxy, the special meeting may be postponed or adjourned, if stockholders approve the grant of discretionary authority to the ONI Systems board of directors to adjourn the meeting, for the purpose of allowing additional time for obtaining additional proxies or votes, and, if stockholders approve the grant of discretionary authority to the ONI Systems board of directors to adjourn the meeting, at any subsequent reconvening of the special meeting, all proxies will be voted in the same manner as the proxies

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would have been voted at the original convening of the special meeting, except for any proxies that have been effectively revoked or withdrawn prior to the subsequent special meeting.

      If you submit a proxy that indicates an abstention from voting in all matters, your shares will be counted as present for the purpose of determining the existence of a quorum at the special meeting, but they will not be voted on any matter at the applicable special meeting. Consequently, your abstention will have the same effect as a vote against the proposal to adopt and approve the merger agreement and to approve the merger.

      If your shares are held by your broker, your broker will vote your shares for you only if you provide instructions on how to vote your shares. You should follow the directions provided by your broker regarding how to instruct your broker to vote your shares. Your broker cannot vote your shares of ONI Systems common stock at the special meeting without specific instructions from you. Because the affirmative vote of a majority of the outstanding shares of ONI Systems common stock is required to approve and adopt the merger agreement and to approve the merger, if you do not instruct your broker how to vote, it will have the effect of a vote against approval and adoption of the merger agreement and approval of the merger.

Solicitation of Proxies and Expenses

      ONI Systems will bear its own expenses in connection with the solicitation of proxies for its special meeting of stockholders, except that CIENA will bear all printing and filing costs and expenses, other than attorneys’ and accountants’ fees and expenses of ONI Systems. ONI Systems will bear all other expenses incurred in connection with the preparation of this document and the preparation and filing of the registration statement of which this document forms a part.

      In addition to solicitation by mail, directors, officers and employees of ONI Systems may solicit proxies from stockholders by telephone, facsimile, e-mail or in person. No additional compensation will be paid to these individuals for any such services. Some of these individuals may have interests in the merger that are different from, or in addition to, the interests of ONI Systems stockholders generally. See “The Merger and Related Transactions — Interests of Executive Officers and Directors in the Merger.” Nominees, fiduciaries and other custodians will be requested to forward soliciting materials to beneficial owners and will be reimbursed for their reasonable expenses incurred in sending proxy materials to beneficial owners. ONI Systems intends to use Innisfree M&A Incorporated as a proxy solicitor to solicit proxies from stockholders, either personally, or by telephone, telegram, facsimile or electronic or United States mail, and will pay Innisfree a fee of approximately $10,000 for these services plus reimbursement of expenses and a service fee of five percent of expenses. Additionally, if a telephone campaign to investors becomes necessary and is authorized by ONI Systems, there could be a charge of $5.50 per completed telephone contact.

Board of Directors Recommendation

      The ONI Systems board of directors has unanimously determined that the merger agreement is advisable, and that the terms of the merger agreement and the merger are fair to and in the best interests of ONI Systems and its stockholders. Accordingly, the ONI Systems board of directors has unanimously approved the merger agreement and unanimously recommends that stockholders vote “FOR” adoption and approval of the merger agreement and approval of the merger, as well as approval of the grant of discretionary authority to the ONI Systems board of directors to adjourn the meeting. In considering such recommendation, ONI Systems stockholders should be aware that some ONI Systems directors and officers have interests in the merger that are different from, or in addition to, those of ONI Systems stockholders, and that ONI Systems has agreed to provide indemnification arrangements to directors and officers of ONI Systems. See “The Merger and Related Transactions — Interests of Executive Officers and Directors of ONI Systems in the Merger.”

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      The matters to be considered at the special meeting are of great importance to the stockholders of ONI Systems. Accordingly, ONI Systems stockholders are urged to read and carefully consider the information presented in this document and to complete, date, sign and promptly return the enclosed proxy in the enclosed, postage-paid envelope.

      ONI Systems’ stockholders should not send any stock certificates with their proxy cards. A transmittal form with instructions for the surrender of ONI Systems common stock certificates will be mailed to ONI Systems stockholders promptly following completion of the merger. For more information regarding the procedures for exchanging ONI Systems stock certificates for CIENA stock certificates, see “Terms of the Merger Agreement and Related Transactions — Exchange of Certificates; Fractional Shares.”

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THE MERGER

General

      The boards of directors of CIENA and ONI Systems have each approved the merger agreement, which provides for the merger of ONI Systems with and into CIENA, with CIENA being the surviving corporation of the merger. Each share of ONI Systems common stock outstanding immediately prior to the merger will be converted into the right to receive 0.7104 shares of CIENA common stock. Fractional shares of CIENA common stock will not be issued in connection with the merger, and ONI Systems stockholders otherwise entitled to a fractional share will be paid in cash for the fractional share, in the manner described under “Terms of the Merger Agreement and Related Transactions — Exchange of Certificates; Fractional Shares.”

Background of the Merger

      As a regular part of their businesses, CIENA and ONI Systems from time to time have each independently considered opportunities to expand and strengthen their own technology, products, research and development capabilities and distribution channels, including opportunities through strategic acquisitions, business combinations, investments, licenses, development agreements and joint ventures.

      In late September 2001, Robert Finch, CIENA’s former Senior Vice President Corporate Development, contacted and had a brief conversation with Andrew Page, Vice President of Business Development for ONI Systems, whom he had met at a prior industry conference. The purpose of this call was to determine whether ONI Systems had any interest in discussing potential synergies between the two companies.

      In early October 2001, Mr. Page telephoned Mr. Finch and informed him that ONI Systems would be interested in a transaction only if it brought important strategic benefits to the combined company.

      On November 12, 2001, Dr. Patrick Nettles, CIENA’s Executive Chairman, met with Hugh Martin, Chairman, President and Chief Executive Officer of ONI Systems, at CIENA’s offices in Linthicum, Maryland to discuss a potential business combination or strategic relationship between the two companies. As a result of that meeting, Dr. Nettles asked Steve Chaddick, CIENA’s Senior Vice President and Chief Strategy Officer, to meet further with Mr. Martin to discuss ONI Systems. Thereafter, on December 6, 2001, Mr. Chaddick met with Mr. Martin in Cupertino, California.

      On December 17, 2001, Mr. Martin, Jonathan Feiber and Kevin Compton, all of whom are members of the ONI Systems board of directors, met to discuss overall business strategies and the potential combination of the two companies.

      Commencing in early January 2002 and continuing through Goldman, Sachs & Co.’s formal engagement later in January, ONI Systems executives held many discussions with representatives of Goldman Sachs regarding strategic alternatives and opportunities for ONI Systems.

      Commencing January 20, 2002, Lawton Fitt, a Managing Director of Goldman Sachs International, an affiliate of Goldman Sachs, who is also a director of CIENA, recused herself from deliberating and voting on any proposals presented to CIENA’s board of directors in respect of the merger agreement and merger.

      On January 8, 2002, both Mr. Chaddick and Gary Smith, CIENA’s President and Chief Executive Officer, had separate, brief conversations with Mr. Martin at an industry conference in Scottsdale, Arizona regarding potential strategic opportunities, including the potential combination of the two companies.

      On January 9, 2002, Stephen Alexander, Senior Vice President and Chief Technology Officer of CIENA, contacted Mr. Martin to inform him that CIENA was interested in pursuing a potential business combination between the two companies.

      On January 11, 2002, Mr. Chaddick met with Mr. Martin and Rohit Sharma, ONI Systems’ founder and Chief Technology Officer, at ONI Systems’ offices in San Jose, California. The ONI Systems executives gave a presentation of ONI Systems’ current products, product strategies and development efforts and a tour of ONI Systems’ manufacturing facilities.

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      On January 14, 2002, CIENA and ONI Systems entered into a general purpose nondisclosure agreement.

      Also on January 14, 2002, Mr. Alexander and Jeffrey Livas, CIENA’s Vice President Systems Technology, met with Messrs. Martin and Sharma, Paul Mitalas, ONI Systems’ Vice President ONLINE Development, and Brian Pheiffer, ONI Systems’ Senior Network Architect, at ONI Systems’ offices in San Jose. The CIENA executives presented an overview of CIENA’s various products and technologies. The ONI Systems executives presented an overview of ONI Systems’ products and a tour of its manufacturing facilities.

      On January 16, 2002, Mr. Martin and Mr. Smith had a telephone conversation to discuss due diligence issues and to set up further meetings to discuss a potential business combination of the two companies.

      On January 18, 2002, a meeting took place in Saratoga, California between representatives of CIENA and ONI Systems. CIENA’s team consisted of Messrs. Smith, Finch, Alexander and Joseph R. Chinnici, CIENA’s Senior Vice President, Finance and Chief Financial Officer. ONI Systems was represented by Messrs. Martin, Sharma, Page and William Cumpston, ONI Systems’ Executive Vice President and Chief Operating Officer. The ONI Systems executives provided a review of ONI Systems’ products, current business status and future prospects, and the parties engaged in a discussion regarding the possibility of a business combination.

      Also on January 18, 2002, members of the board of directors of ONI Systems held informal discussions during which Mr. Martin described the progress of the discussions between the companies regarding a potential business combination.

      At several meetings in January and February 2002, ONI Systems’ executives met with representatives of Goldman Sachs to discuss potential strategic combinations. ONI Systems’ management and representatives of Goldman Sachs considered additional companies that could potentially be interested in pursuing a business combination or other strategic transaction with ONI Systems. They also considered these companies’ business strategies, market valuations and financial abilities to pursue and consummate such a transaction. As a result of this analysis, representatives of Goldman Sachs contacted the companies that the board had determined would likely be interested in evaluating a potential business combination or other strategic transaction with ONI Systems (including CIENA and two other Nasdaq-listed telecommunications equipment companies, Company A and Company B).

      On January 24, 2002, at its regularly scheduled meeting, the ONI Systems board of directors met with representatives of its outside legal counsel, Fenwick & West LLP, and discussed the potential combination with CIENA among other matters. During this discussion it was proposed that ONI Systems engage Goldman Sachs as its financial advisor. Mr. Page presented the material terms of the engagement of Goldman Sachs, which were approved by the board. Representatives of Goldman Sachs joined the meeting, and, with its advisors, the board conducted an extensive discussion of the potential transaction with CIENA and other parties potentially interested in pursuing a strategic transaction with ONI Systems, including Company A and Company B. Representatives of Goldman Sachs presented a detailed initial analysis of a potential combination with CIENA, as well as analyses regarding potential combinations with other companies, including Company A, Company B and Company C, a NYSE-listed telecommunications equipment company and major issues associated with business combinations. The Goldman Sachs representatives left the meeting and the board further discussed the possibility of a business combination at length. The board directed ONI Systems’ management to obtain additional information on various subjects, including synergies, product roadmap and other matters.

      On January 25, 2002, Messrs. Smith and Finch met with Messrs. Martin, Sharma and Page at a hotel in McLean, Virginia, to discuss potential terms of a business combination. The CIENA executives gave a presentation of CIENA’s customers, business outlook and organization.

      On January 26 and 27, 2002, Messrs. Smith and Martin had further telephone conversations about the potential terms of a business combination.

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      Also on January 26, 2002, a representative of Goldman Sachs contacted a representative of Company A and Company B regarding a potential strategic relationship. Company B did not express interest in pursuing a strategic transaction.

      On January 28, 2002, the ONI Systems board of directors held a meeting by teleconference to receive an update from management regarding the status and substance of the discussions with CIENA and other possible business combinations or strategic relationships. Mr. Martin led a detailed discussion regarding management’s initial due diligence of CIENA including CIENA’s financial outlook, product lines and key accounts. Mr. Martin then updated the board on the current negotiations regarding the valuation and the role of ONI Systems’ management in the combined entity. Mr. Martin then described the status of discussions with other possible acquisition partners, including Company A. The board actively discussed the CIENA transaction and other possibilities at length, including the need for additional due diligence investigation. The board instructed management to conduct additional diligence on CIENA and authorized management and its advisors to continue discussions with CIENA, while also continuing to explore alternatives, including the possibility of a transaction with Company A.

      On January 29, 2002, CIENA and ONI Systems entered into a mutual non-disclosure agreement regarding discussions in connection with a potential combination, which superseded a prior general non-disclosure agreement between the companies dated January 14, 2002.

      From late January 2002 through February 17, 2002, representatives of CIENA and its advisors performed a detailed review of ONI Systems’ business operations, affairs and prospects. ONI Systems’ management made presentations to these representatives and advisors regarding ONI Systems’ business and finances, and these representatives and advisors reviewed ONI Systems’ legal and business documents.

      From late January 2002 through February 17, 2002, representatives of ONI Systems and its advisors performed a detailed review of CIENA’s business operations, affairs and prospects. CIENA management made presentations to these representatives and advisors regarding CIENA’s business and finances, and these representatives and advisors reviewed CIENA’s legal and business documents.

      On January 29, 30 and 31, 2002, a CIENA due diligence team conducted a series of meetings with ONI Systems’ representatives at the offices of Fenwick & West in Palo Alto, California and at a nearby hotel. CIENA representatives at those meetings included Messrs. Finch, Chinnici, Chaddick and Livas, Jesus Leon, CIENA’s Senior Vice President, Metro Transport and Metro Switching Divisions, and Dawn DiRocco, CIENA’s Senior Director, Global Financial Operations and Assistant Controller. CIENA’s financial advisors from Morgan Stanley, accounting advisors from PricewaterhouseCoopers LLP and legal advisors from Hogan & Hartson L.L.P. were also present at one or more of those meetings. ONI Systems representatives at those meetings included Messrs. Martin, Sharma, Cumpston, Page and Mitalas, David Lam, Senior Manager of Business Development, Michael Dillon, Vice President and General Counsel, George Reyes, Interim Chief Financial Officer, Lisa Blos-Johnson, Vice President, Human Resources, Stewart Grierson, Corporate Controller, Robert Jandro, Executive Vice President, Global Sales and Services, Ken Burckhardt, former Vice President, Finance and Interim Chief Financial Officer, Peter Evans, Senior Vice President, Product Marketing, Martin Desroches, Vice President, Operations, Jalal Habelrih, Vice President, Switching Product Development, and Robert Schlossman, Senior Counsel. ONI Systems’ financial advisors from Goldman Sachs and legal advisors from Fenwick & West were also present at one or more of those meetings. At these meetings CIENA and ONI Systems presented information on various topics, including human resources, manufacturing, procurement, sales, taxes, technology, operations, business outlook and potential field synergies.

      On January 30, 2002, CIENA directed Hogan & Hartson to send to ONI Systems and Fenwick & West a first draft of a definitive merger agreement and related agreements.

      Also on January 30, 2002, Company A contacted ONI Systems about continuing discussions regarding a potential business combination or other strategic relationship. Following this discussion, Messrs. Martin and Sharma met with executives of Company A in Denver regarding a potential business combination between ONI Systems and Company A.

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      On January 31, 2002, the ONI Systems board of directors held a meeting by teleconference to receive an update from management regarding the status and substance of the discussions with CIENA and Company A. A representative of Fenwick & West reviewed the significant terms of the proposed Agreement and Plan of Merger between CIENA and ONI Systems. Mr. Martin led a discussion about the proposed transaction with CIENA and the possibility of a transaction with Company A. Mr. Martin then described the proposed approach to due diligence regarding CIENA. After lengthy discussion the board directed management to proceed with their due diligence efforts and to pursue active negotiations of the merger agreement and ancillary agreements.

      Also on February 1, 2002, the CIENA due diligence team and representatives from Morgan Stanley made an informal presentation regarding the proposed transaction to the CIENA board of directors. On the same date, an ONI Systems due diligence team held due diligence meetings with CIENA representatives at the offices of Hogan & Hartson in Baltimore, Maryland to continue ONI Systems’ due diligence investigation regarding CIENA’s business, operations, sales pipeline and finances. ONI Systems’ representatives included Messrs. Martin, Cumpston, Burckhardt, Evans, Page, Dillon, Reyes and Lam. Investment banking advisors from Goldman Sachs, on behalf of ONI Systems, were also present. CIENA representatives at one or more of those meetings included Messrs. Smith, Chinnici and Finch, and Michael McCarthy, Senior Vice President Worldwide Sales and Support, Mark Cummings, Senior Vice President Operations, Rebecca Seidman, Senior Vice President Human Resources, Phil Moser, Vice President Sales Operations, Lynn Moore, Vice President Compensation and Acquisition Strategy, Russell B. Stevenson, Jr., Senior Vice President and General Counsel, Andrew C. Petrik, Vice President, Controller and Treasurer and Stephen Kaye, Vice President Corporate Development, as well as representatives from Morgan Stanley.

      On February 3, 2002, Mr. Smith contacted Mr. Martin by telephone and discussed certain financial information with respect to CIENA. In light of the lack of progress of the discussions, and CIENA’s disclosure to ONI Systems that CIENA expected to make a preliminary announcement about its first quarter 2002 earnings in the next several days, Mr. Smith and Mr. Martin agreed to suspend further negotiations.

      On February 4, 2002, ONI Systems and Company A entered into a mutual non-disclosure agreement. ONI Systems management began its due diligence investigation of Company A, including Company A’s business and finances, and began providing similar due diligence information to representatives of Company A. ONI Systems did not inform CIENA of its negotiations with Company A but was subsequently aware that ONI Systems may have been in discussions with one or more other parties.

      On February 5, 2002, CIENA publicly announced its anticipated first quarter 2002 earnings.

      On February 6, 2002, the ONI Systems board of directors held a meeting by teleconference to receive an update from management regarding the status and substance of the discussions with CIENA and Company A. Mr. Martin reviewed information resulting from ONI Systems’ due diligence efforts and described the agenda for a proposed meeting with Mr. Smith. After a lengthy discussion the board directed management to continue their due diligence efforts and to resume active negotiations of the merger agreement and ancillary agreements.

      As a result of ONI Systems’ decision to proceed with negotiations, on February 6, 2002, ONI Systems caused Fenwick & West to send to CIENA comments on the draft of the merger agreement and ancillary agreements on behalf of ONI Systems.

      On February 8, 2002, representatives of ONI Systems’ management met with representatives of Company A at a conference center in San Jose to continue due diligence investigations, including engineering, research and development, product roadmaps and market outlook. Later that day, the representatives of ONI Systems management and the representatives of Company A met at ONI Systems’ offices and the representatives of Company A were given a tour of ONI Systems’ manufacturing and engineering facilities.

      At a meeting on February 8, 2002, the ONI Systems board of directors discussed the status of Goldman Sachs’ contacts with the parties potentially interested in pursuing a strategic transaction.

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Mr. Martin presented the board with a detailed update of its plans for the due diligence meetings scheduled for February 9 and 10, 2002 and its investigations of CIENA including a review of CIENA’s customers and revenue forecasts. Mr. Cumpston then reviewed the results of his recent meetings with engineering representatives of Company A and Mr. Martin updated the board on current discussions with Company A. The board discussed the proposed strategy for negotiations with CIENA and further due diligence with Company A. The board instructed management to continue its due diligence investigations and requested additional information about CIENA’s revenue forecasts and customers.

      On February 9 and 10, 2002, CIENA and ONI Systems and their financial and legal advisors attended due diligence meetings in Palo Alto.

      Also on February 9 and 10, 2002, representatives of ONI Systems and Company A conducted detailed technical due diligence of the each other’s products and technologies.

      During the week of February 11, 2002, representatives of CIENA and ONI Systems and their respective legal advisors continued to negotiate the merger agreement and ancillary agreements.

      On February 11 and 12, 2002, a representative of Goldman Sachs spoke with a representative of Company A’s financial advisor regarding the potential timing of, and additional due diligence required for, a specific proposal from Company A. Company A’s financial advisor indicated that Company A was not then prepared to make a specific proposal.

      On February 14, 2002, CIENA provided Messrs. Cumpston and Sharma with drafts of employment agreements. These agreements were negotiated over the next three days.

      On February 15, 2002, the CIENA board of directors held a meeting by teleconference, at which CIENA’s senior management team presented the proposed terms of the merger. Representatives of Hogan & Hartson L.L.P. also participated in the meeting. The board also reviewed a presentation by Morgan Stanley on the financial terms of the proposed merger, and Morgan Stanley delivered its opinion, subsequently confirmed in writing, that as of February 15, 2002, the exchange ratio pursuant to the merger agreement was fair to CIENA from a financial point of view. At the conclusion of the meeting, the CIENA board approved the terms of the merger and authorized management to complete and execute the merger agreement and related agreements. On that date, the closing price of CIENA common stock was $8.73, which implies a consideration value of $6.20 per share of ONI Systems common stock.

      Also on February 15, 2002, in the early afternoon, the ONI Systems board of directors held a special meeting with ONI Systems’ management and representatives of Fenwick & West and Goldman Sachs to discuss the CIENA transaction. Mr. Martin presented a detailed summary of the strategic rationale for the merger, an overview of the key transaction terms and the employment agreements to be entered by Messrs. Cumpston and Sharma. In addition, several members of ONI Systems’ management team presented detailed discussions of the due diligence of CIENA conducted by ONI Systems, including product fit and positioning of CIENA and ONI Systems, CIENA’s financial and accounting condition, synergies that may be realized by combining CIENA and ONI Systems, CIENA’s sales pipeline, CIENA’s research and development, CIENA’s operations, legal matters regarding CIENA, including those associated with CIENA’s intellectual property, customer contracts, significant licenses and outstanding litigation, and CIENA’s human resources function and policies. Representatives of Goldman Sachs made a detailed presentation to the board and stated that Goldman Sachs was prepared to proffer its opinion that, as of such date, the exchange ratio is fair to the stockholders of ONI Systems from a financial point of view. Representatives of Fenwick & West led a detailed discussion of the terms of the proposed merger, the proposed merger agreement and the related agreements, including the proposed stockholder and affiliate agreements, the terms of the non-solicitation covenants, the proposed employment agreements, the termination sections and the consequences of termination and the fiduciary duties of the ONI Systems’ board with respect to the proposed transaction. The board continued its discussion of the proposed merger and the risks associated therewith. The ONI Systems board of directors considered the possibility of other potential transactions, including a combination with Company A. The board noted that no specific alternative proposal had been forthcoming from Company A, that no other company had

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indicated substantial interest in a strategic relationship, and that Company A had indicated that a lengthy additional due diligence investigation by Company A would be required before Company A would consider whether to make a specific proposal, and weighed these factors against the relative certainty associated with the CIENA negotiations, which had proceeded further to date. The possibility of an alternative transaction with Company A or another company was further weighed against the possibility that CIENA might have been unwilling to proceed on the terms then under discussion if ONI Systems continued to engage in discussions with Company A or others. The ONI Systems board also considered that a definitive merger agreement with CIENA would contain provisions allowing ONI Systems to consider and respond to future unsolicited proposals from Company A or any other party if the ONI Systems board made a finding that it was required to do so to comply with its fiduciary duties to its stockholders, subject to the payment to CIENA of a $36.7 million merger termination fee plus up to $2 million of expenses and other provisions. The board also considered that the non-solicitation covenants in the merger agreement would preclude ONI Systems from initiating further discussions with Company A or any other party. Similarly, the board evaluated the discouraging effect that the substantial termination fee could have on other parties interested in pursuing a transaction with ONI Systems. The board then agreed to meet again later that evening to continue its consideration of the proposed merger.

      In the evening on February 15, 2002, the ONI Systems board held an additional special meeting by teleconference with representatives of Fenwick & West and Goldman Sachs to discuss the CIENA transaction, including additional discussion of the proposed employment agreements for Messrs. Cumpston and Sharma and a presentation regarding the principal terms of a consulting agreement to be entered by Mr. Martin. The board had a further discussion of the terms and conditions, and advisability of, the proposed merger. Representatives of Goldman Sachs proffered Goldman Sachs’ opinion that, as of such date, the exchange ratio was fair to the stockholders of ONI Systems from a financial point of view. At the conclusion of the meeting, the board approved the merger, merger agreement and related agreements.

      On February 16, 2002, CIENA provided Mr. Martin with a draft consulting agreement, which was negotiated on February 16 and 17, 2002.

      On February 16 and 17, 2002, representatives of CIENA and ONI Systems finalized the merger agreement and ancillary agreements. In addition, representatives of CIENA and each of Messrs. Martin, Cumpston and Sharma negotiated and finalized the employment and consulting agreements. In addition, Messrs. Smith and Martin had several discussions regarding organizational issues in connection with the merger. The merger agreement and related documents were executed on the evening of February 17, 2002.

      On February 18, 2002, CIENA and ONI Systems issued a joint press release announcing the signing of the merger agreement.

      On the evening of February 20, 2002, Mr. Smith called Mr. Martin and informed him that due to information recently received by CIENA, it had revised downward its revenue outlook for the fiscal second quarter of 2002.

      On the morning of February 21, 2002, CIENA publicly announced its financial results for the fiscal first quarter of 2002 and its revenue outlook for the fiscal second quarter of 2002 of approximately $100 million in revenue. CIENA’s revised revenue outlook for its second quarter revenues were substantially lower than the range of estimates CIENA had previously provided to ONI Systems. The closing price of CIENA common stock decreased from $8.70 on February 20, 2002, to $7.60 on February 21, 2002.

      On February 22, 2002, representatives of ONI Systems and a representative of Goldman Sachs, met in CIENA’s offices with representatives of CIENA to review and discuss CIENA’s revised revenue outlook. During the evening of February 22, 2002, the ONI Systems board of directors met to discuss the merger and CIENA’s revised revenue outlook. Mr. Reyes, Mr. Page and a representative of Goldman Sachs presented a report on the results of their inquiry and discussions with CIENA earlier that day. The board discussed these events, and, in consultation with ONI Systems’ financial and legal advisors,

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considered the impact of these developments on the merger. The board requested that additional information regarding CIENA’s revenue outlook be obtained.

      From February 22, 2002 through March 15, 2002, representatives of ONI Systems and CIENA and their financial advisors held numerous meetings and discussions regarding the merger and exchanged additional information concerning each party’s revenue outlook, other financial information and customer relationships.

      On February 27, 2002, the ONI Systems board of directors met to discuss further the merger with CIENA and the results of management’s review and discussions with CIENA. The board, in consultation with Fenwick & West, discussed the additional information obtained and instructed management to obtain additional information.

      On March 5 and 11, 2002, the ONI Systems board of directors met to discuss further the merger and the business outlook of both companies. A representative of Goldman Sachs reviewed recent industry events and trends and presented certain preliminary financial analyses based on updated information. The board consulted further with representatives of Goldman Sachs and Fenwick & West and instructed management to continue its review.

      On March 13, 2002, Mr. Martin informed Mr. Smith that due to recent information received from its customers, ONI Systems was considering revising downward its revenue outlook for its fiscal first quarter. Representatives of CIENA discussed this information internally and with its financial and legal advisors, in the context of the information on revenue outlook that CIENA had been provided by ONI Systems at the meetings between representatives of the companies since February 15, 2002.

      On March 15, 2002, the ONI Systems board of directors held a meeting to discuss the filing of the ONI Systems annual report and the results of management’s further inquiry. The board considered, and consulted further with representatives of Fenwick & West regarding, the fiduciary duties of the ONI Systems board with respect to the merger.

      On March 18, 2002, ONI Systems publicly announced its revised revenue outlook for the fiscal first quarter of 2002 of approximately $18 to $24 million in revenue which was substantially lower than their publicly announced estimate of flat to modestly down from their first quarter revenues of $42.2 million.

      On March 18, 2002, CIENA’s board of directors met and discussed, among other things, the merger and ONI Systems’ revised first quarter revenue outlook as announced by ONI Systems earlier in that day. On that date, the closing price of CIENA common stock was $8.89, which implies a consideration value of $6.32 per share of ONI Systems common stock.

      Also on March 18, 2002, the ONI Systems board of directors met. Mr. Martin gave a presentation of each company’s financial outlook. At the request of the ONI Systems board of directors, representatives of Goldman Sachs presented a detailed financial analysis and proffered Goldman Sachs’ opinion that as of March 18, 2002, the exchange ratio of 0.7104 shares of CIENA common stock per share of ONI Systems common stock pursuant to the merger agreement was fair to the stockholders of ONI Systems from a financial point of view. Representatives of Fenwick & West led a discussion of, and the board considered, the merger and the fiduciary duties of the ONI Systems board with respect to the transaction. After consideration of the benefits and risks of the merger at the conclusion of the meeting, the board reaffirmed its recommendation to stockholders and authorized the solicitation of stockholder approval.

Recommendation of CIENA’s Board of Directors and Reasons for the Merger

     Strategic Fit

      CIENA believes that a combination of CIENA, a leader in next-generation core optical networking equipment, and ONI Systems, a leader in next-generation metropolitan optical networking equipment, will result in one of the leading optical networking equipment companies in the world. ONI Systems currently possesses one of the leading products in the next-generation metropolitan DWDM space, which will complement and strengthen CIENA’s existing product line. CIENA believes that with an advanced,

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comprehensive and best-in-breed product portfolio extending from the core to the edges of the converged network, the combined company will be in a better position to further drive down the cost of operations for its customers and to execute on CIENA’s LightWorks™ initiative, providing an end-to-end intelligent optical architecture that provides customers with scalability, interoperability, provisioning and protection flexibility and reliability. In particular, CIENA believes that the following benefits will result from the merger:

  •  Product Compatibility. Optical networking products of the type offered by CIENA and ONI Systems perform a variety of functions, including “switching” (directing optical communications signals to their proper destination) and “transport” (transporting pulsed waves of light over optical fiber from one point to another and amplifying the signal as necessary to overcome transmission losses). Optical networks are conventionally divided into a “core” portion (which carries signals between metropolitan regions) and a “metro” portion (which carries signals within metropolitan regions), which is closer to the “edge” of a network.
 
    CIENA’s offerings include products designed for switching and transport, both in the core and metro portion of the network. ONI Systems products are designed primarily for use in the metro portion of the network. Its ONLINE series of products are used primarily for metro transport. They can handle a variety of different communications protocols and services, including SONET, Storage Area Networks, and Gigabit Ethernet.
 
    CIENA believes that the ONI Systems products are compatible with both CIENA’s CoreDirectorTM (core switch) and MetroDirector K2TM (metro switch). ONI Systems’ ONLINE products can be made to interconnect with both CoreDirector and MetroDirector and thus to transport optical signals to and from them within metro networks. CIENA believes this capability will strengthen its own suite of product offerings, both allowing it to sell complete systems to its customers and to offer “best-of-breed” products on a stand-alone basis. The ability of ONI Systems’ ONWAVE technology to handle multiple types of optical communications services adds to the value of its products as an addition to CIENA’s product portfolio. Adding this ability to CoreDirector and MetroDirector will enable CIENA to extend its service delivery capability closer to the edge of the network.
 
    CIENA calls the network architecture created by its products “LightWorks.” The components of CIENA’s LightWorks architecture can be sold together as a complete network solution or as separate best-of-breed products. CIENA’s LightWorks architecture is designed to dramatically simplify a carrier’s network by reducing the number of network elements. With appropriate modifications, the ONLINE products (ONLINE7000 and ONLINE9000) will integrate into LightWorks as the vehicle for metropolitan optical transport, directing data traffic to CoreDirector and MetroDirector.
 
  •  Customer Relationships. CIENA believes that ONI Systems has developed valuable relationships with regional bell operating companies and other domestic and international incumbent carriers. CIENA believes that these relationships will enhance CIENA’s ability to compete for business from RBOCs and complement CIENA’s existing sales and distribution channels. In addition, the merger with ONI Systems will expand CIENA’s existing customer base, bringing up to 20 new customer relationships to CIENA. Conversely, CIENA believes it will be able to leverage its existing sales channels and customer relationships to offer the ONI Systems product to a wider range of customers than ONI Systems currently reaches.
 
  •  Stronger Platform. CIENA believes that the proposed merger will provide CIENA with a larger addressable metropolitan customer base and a stronger presence with incumbent carriers. CIENA believes there is significant potential to acquire customers interested in a more comprehensive, end-to-end “intelligent optical networking” solution that would be made possible by the merger combination and the expanded product portfolio. In addition, CIENA believes that, based on the needs of each of CIENA’s and ONI Systems’ customer base, there will be substantial cross selling opportunities to both sets of customers.

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     Additional Reasons for the Merger

      The strategic fit with ONI Systems represents the principal rationale for the merger. However, the following factors, each of which CIENA took into account in evaluating the proposed merger, also support this rationale and enhance the likelihood of achieving the full potential of the combination:

  •  Operating Expense Savings. It is expected that the proposed merger will result in annualized operating expense savings of approximately $55 million to $65 million. These savings will primarily be derived from the elimination of duplicative infrastructures and the ability to take advantage of economies of scale. Additional savings may be possible through increased manufacturing efficiencies.
 
  •  Cultural Vision. CIENA and ONI Systems share a common heritage as entrepreneurial startups as well as complementary visions of “distributed network intelligence.” Both companies have established reputations for being flexible, innovative, agile and customer-focused. CIENA believes that this could result in fewer integration challenges than would be expected for organizations with dissimilar cultural values.
 
  •  World Class Engineering Teams. CIENA believes that ONI Systems’ engineering team is world class in quality, and would add significantly to CIENA’s ability to continue to innovate and rapidly bring new products to market.

      In reaching the decision to approve the merger with ONI Systems, the CIENA board of directors also considered, in addition to other matters, the following factors that may be relevant to CIENA stockholders:

  •  The effect on CIENA stockholder value of the pending ONI Systems merger, in light of the financial condition and prospects of CIENA and the current economic and industry environment. In particular, the CIENA board of directors discussed the possibility that, under some assumptions about future revenues and synergies to be obtained from the transaction, the merger could have an adverse effect on the per share profitability of the combined companies in the near term. It balanced this possibility against the longer-term strategic advantages anticipated from the transaction, in particular a substantial expansion of addressable market opportunities and customer relationships over those available to CIENA without the acquisition.
 
  •  The premium paid to ONI Systems stockholders over the price of ONI Systems common stock prior to the announcement of the merger. Based on the closing prices of the common stock of the two companies on February 15, 2002, that premium was approximately 12%.
 
  •  The risk facing CIENA that the integration of the businesses and management teams of CIENA and ONI Systems may not be successful and therefore the desired synergies might not be achieved.
 
  •  CIENA’s board of directors discussed the risks of retaining the key personnel of ONI Systems in view of their ability to sell their CIENA common stock immediately after the merger, at prices that could enable some key employees to become financially independent.
 
  •  The business risks associated with increased competition in the telecommunications equipment supply industry, and the likelihood of vigorous competitive response to the merger.
 
  •  The terms and conditions of the merger agreement, including the conditions to closing.

      In addition, the CIENA board of directors received advice from Morgan Stanley, its financial advisor, as to the financial aspects of the proposed merger, and received an opinion from Morgan Stanley that, as of February 15, 2002, the exchange ratio pursuant to the merger agreement was fair from a financial point of view to CIENA.

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      In view of the variety of factors considered in connection with its evaluation of the merger, the CIENA board of directors did not quantify or otherwise assign relative weights to the factors considered in reaching its conclusions. In addition, individual members of the CIENA board of directors may have given different weights to different factors. However, on an overall basis, the CIENA board of directors concluded that the factors favoring the merger outweigh the countervailing factors.

      For the strategic reasons set forth above, after consultation with CIENA’s senior management and its advisors, and consideration of the terms and conditions of the merger agreement and the transactions contemplated by the merger agreement, the CIENA board of directors determined that the merger agreement and the merger are in the best interests of CIENA and its stockholders.

      The CIENA board of directors has not requested an updated opinion from Morgan Stanley. The opinion delivered on February 15, 2002, addresses the fairness, from a financial point of view, of the merger consideration, which is a fixed exchange ratio. The CIENA board of directors does not believe that recent developments in the business or outlook of CIENA and ONI Systems negatively affect the strategic or financial factors that make the merger attractive to CIENA or alter the fairness of the exchange ratio to CIENA.

Recommendation of the ONI Systems’ Board of Directors and Reasons for the Merger

      The ONI Systems board of directors believes that the combination of CIENA and ONI Systems will create a strong company that for the first time is able to offer telecommunications and data communications service providers end-to-end and best-of-breed solutions. Combining the complementary product sets and development efforts of CIENA and ONI Systems would create a stronger competitor that is able to accelerate the deployment of next-generation optical networking equipment.

      In reaching the conclusion that the combination of CIENA and ONI Systems is in the best interests of ONI Systems and its stockholders, the board of directors of ONI Systems consulted with senior members of ONI Systems management team regarding the strategic and operational aspects of the merger and the results of the due diligence efforts undertaken by management. In addition, throughout the period in which it was engaged in active deliberations concerning the merger, the board of directors sought and received financial advice from Goldman Sachs concerning, among other things, strategic alternatives available to ONI Systems, the financial implications of such alternatives and the merger, and certain financial analyses that Goldman Sachs prepared. The board of directors also sought and received Goldman Sachs’ opinions as to the fairness, from a financial point of view, to ONI Systems’ stockholders of the proposed exchange ratio, which opinions were confirmed in writing and are described below under “The Merger — Opinion of ONI Systems’ Financial Advisor.” The board of directors of ONI Systems also consulted with ONI Systems’ internal counsel and with representatives of Fenwick & West LLP, outside counsel to ONI Systems, regarding the duties of the members of the board of directors, legal due diligence matters and the terms of the merger agreement and related agreements.

      In considering the information provided by senior members of ONI Systems’ management team, representatives of Goldman Sachs and representatives of Fenwick & West LLP, in analyzing the terms of the merger agreement, and in coming to its endorsement of the merger and its determinations to recommend approval and adoption of the merger agreement to ONI Systems’ stockholders, the board of directors considered several potential benefits of the merger, including:

  •  the opportunity to create a world-class optical networking company with best-of-breed end-to-end solutions at a time when telecommunications equipment providers are challenged by internal turmoil and difficult market conditions;
 
  •  the potential to create a combined company with the resources to serve the needs of communications service providers for next-generation optical networking products;
 
  •  the complementary nature of ONI Systems’ dynamic optical architecture and leading metropolitan wave division multiplexing network products with CIENA’s product family, particularly in the area of metropolitan networks;

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  •  the opportunity to combine ONI Systems’ and CIENA’s sales forces, combining ONI Systems’ current customer momentum with CIENA’s established product family to put the combined company in a stronger position to compete for product sales to communication service providers as their activity in building out communications networks resumes and spending on optical networking equipment rebounds;
 
  •  combining the complementary strengths of CIENA’s and ONI Systems’ management and technical teams to create a technical team with increased depth and breadth of knowledge of the communications equipment industry, and a management team with more business experience than either company has alone;
 
  •  the potential for the combined company to reach profitability earlier than would be the case for either company independently, as a result of a stronger product offering, potential revenue synergies, cross-selling opportunities, operating efficiencies (including expected annualized operating expense savings of approximately $55 million to $65 million), including volume purchases and to greater use of contract manufacturing, administrative efficiencies, combined development efforts, and more efficient utilization of in-house manufacturing capabilities; and
 
  •  the prospect of an improved competitive and market position for the combined company, which would offer a broad, integrated product suite providing customers with an end-to-end transport and switching products.

      In the course of its deliberations, the ONI Systems board of directors reviewed a number of factors relevant to the merger in consultation with ONI Systems’ management and outside legal counsel and financial advisors, including the strategic overview for ONI Systems and interests of some ONI Systems officers and directors in the merger that differ from those of ONI Systems stockholders generally. The ONI Systems board of directors also considered the following factors, among others, in connection with its review and analysis of the merger and its determinations to recommend approval and adoption of the merger agreement to the ONI Systems stockholders:

  •  historical information concerning CIENA’s and ONI Systems’ businesses, results of operations and financial condition, technology, management and competitive positions and publicly available information about CIENA and ONI Systems;
 
  •  ONI Systems’ management’s view as to the businesses, results of operations and financial condition, technology, management and competitive positions of CIENA and ONI Systems, both with and without giving effect to the merger, based on due diligence and publicly available earnings estimates;
 
  •  projections of financial benefits of the merger, including potential cost savings and costs anticipated prior to and after the merger, that were prepared by ONI Systems’ management based on due diligence;
 
  •  the content of CIENA’s announcements of its anticipated financial condition and results of operations for its first quarter of 2002 and its actual financial condition and results of operations for that quarter and its revenue outlook for the second quarter of 2002;
 
  •  the substantial accounting charges and costs to be incurred in connection with the merger, including the costs of integrating the businesses and transaction expenses arising from the merger;
 
  •  current financial market conditions and historical market prices, volatility and trading information with respect to CIENA common stock and ONI Systems common stock;
 
  •  their assessment of whether the proposed merger with CIENA would enable stockholders of ONI Systems to realize greater value for their shares sooner and with more certainty than other possible strategic alternatives for ONI Systems, such as internal development for new products, strategic alliances, joint ventures, co-marketing arrangements or business combinations involving other companies;

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  •  the ability of ONI Systems’ board of directors, in the exercise of its fiduciary duties in accordance with the merger agreement, to authorize ONI Systems’ management to provide information to, engage in negotiations with, and potentially enter into a transaction with another party as described under “The Merger Agreement — No Solicitation by ONI Systems”;
 
  •  the limited conditions to CIENA’s obligation to close the merger;
 
  •  the expectation that the merger would qualify as a tax-free reorganization;
 
  •  the premium that the merger would provide ONI Systems stockholders over the market price for their ONI Systems common stock immediately prior to the announcement to the merger and the premium that would be provided at various market prices for CIENA common stock;
 
  •  the exchange ratio set forth in the merger agreement and the percentage ownership of the combined company to be owned by ONI Systems’ stockholders;
 
  •  the financial analysis and opinion of Goldman Sachs proferred on February 15, 2002 to the effect that, as of that date and subject to and based on the considerations described in its opinion, the exchange ratio was fair from a financial point of view to holders of ONI Systems common stock;
 
  •  reports from management, legal advisors and financial advisors about the results of their investigations of CIENA; and
 
  •  the financial analysis and opinion of Goldman Sachs proffered on March 18, 2002 to the effect that, as of that date and subject to and based on the considerations described in its opinion, the exchange ratio was fair from a financial point of view to holders of ONI Systems common stock.

      The ONI Systems board of directors also considered a number of potential risks in its deliberations concerning the merger and its determinations to recommend approval and adoption of the merger agreement to the ONI Systems’ stockholders, including:

  •  the risks that the benefits, including expected synergies and cost savings, sought to be achieved by the merger would not be realized;
 
  •  the unpredictability of demand for CIENA’s and ONI Systems’ products;
 
  •  the risk that CIENA and ONI Systems would not be able to integrate their product lines, technologies and organizations, and otherwise integrate the companies;
 
  •  the risk that using a fixed exchange ratio would mean that the aggregate value of the consideration received by ONI Systems stockholders upon consummation of the merger could be less than the value immediately prior to the announcement of the merger;
 
  •  the risk that the merger might not be consummated;
 
  •  the risk that the merger and the announcement of the merger agreement might disrupt CIENA’s or ONI Systems’ relationships with current and potential customers;
 
  •  the possibility of distraction of management and employees and the possible loss of employees, including key personnel, in connection with the integration of the companies; and
 
  •  other risks relating to the operations of the combined company and the merger, including those described in “Risk Factors.”

      In addition, ONI Systems’ board of directors considered the interests that its officers and directors may have with respect to the merger in addition to their interests as ONI Systems stockholders. See “— Interests of Executive Officers and Directors in the Merger” for a more complete discussion of these interests.

      The discussion of the information and factors considered by the ONI Systems board of directors is not intended to be exhaustive. In view of the variety of factors considered in connection with its evaluation of the merger, the board of directors did not find it practicable to, and did not, quantify or otherwise assign relative weight to, the specific factors considered in reaching its determination. In addition, the ONI

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Systems board of directors did not undertake to make any specific determination as to whether any particular factor was favorable or unfavorable to its ultimate determination. Rather, the board of directors conducted an overall analysis of the factors described above, including through discussions with and questioning of ONI Systems management and management’s analysis of the proposed merger, based on information received from legal, financial and accounting advisors. In considering the factors described above, individual members of the board of directors may have given different weight to different factors. ONI Systems’ board of directors concluded that, on balance, the potential benefits to ONI Systems and its stockholders of the merger outweighed the risks associated with the merger.

Opinion of CIENA’s Financial Advisor

      Under an engagement letter dated January 21, 2002, CIENA formally retained Morgan Stanley to provide it with certain financial advisory services in connection with the merger. Morgan Stanley was selected by CIENA based on Morgan Stanley’s qualifications, expertise, reputation and its knowledge of the business and affairs of CIENA. At a meeting of CIENA’s board of directors on February 15, 2002, Morgan Stanley rendered its oral opinion, subsequently confirmed in writing, that as of February 15, 2002, based upon and subject to the various considerations set forth in the opinion, the exchange ratio pursuant to the merger agreement was fair from a financial point of view to CIENA.

      The full text of the written opinion of Morgan Stanley, dated February 15, 2002, is attached as Annex D to this document. The opinion sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Morgan Stanley in rendering its opinion. We urge you to read the entire opinion carefully. Morgan Stanley’s opinion is directed to CIENA’s board of directors and addresses only the fairness, from a financial point of view, of the exchange ratio pursuant to the merger agreement to CIENA as of the date of the opinion. It does not address any other aspect of the merger and does not address the prices at which ONI Systems common stock or CIENA common stock will trade following the consummation of the merger, nor does it constitute a recommendation to any holder of CIENA common stock as to how to vote at CIENA’s special meeting. The summary of the opinion of Morgan Stanley set forth in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of its opinion.

      In rendering its opinion, Morgan Stanley, among other things:

        (i) reviewed certain publicly available financial statements and other business and financial information of ONI Systems and CIENA;
 
        (ii) discussed certain internal financial statements and other financial and operating data concerning ONI Systems prepared by the managements of ONI Systems and CIENA, respectively;
 
        (iii) discussed certain financial forecasts, prepared by the managements of ONI Systems and CIENA, respectively;
 
        (iv) reviewed information relating to certain strategic, financial and operational benefits anticipated from the merger, prepared by the managements of ONI Systems and CIENA, respectively;
 
        (v) discussed the past and current operations and financial condition and the prospects of ONI Systems, including information relating to certain strategic, financial, and operational benefits anticipated from the merger, with senior executives of ONI Systems and CIENA, respectively;
 
        (vi) reviewed the pro forma impact of the merger on CIENA’s earnings per share, consolidated capitalization and financial ratios;
 
        (vii) reviewed the reported prices and trading activity for ONI Systems common stock and CIENA common stock;

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        (viii) compared the financial performance of ONI Systems and the prices and trading activity of ONI Systems common stock and CIENA common stock with that of certain other publicly-traded companies comparable with ONI Systems and CIENA, respectively, and their securities;
 
        (ix) reviewed the financial terms, to the extent publicly available, of certain comparable acquisition transactions;
 
        (x) participated in discussions and negotiations among representatives of ONI Systems and CIENA and their financial and legal advisors;
 
        (xi) reviewed the merger agreement and certain related documents; and
 
        (xii) considered such other factors and performed such other analyses as Morgan Stanley has deemed appropriate.

      In rendering its opinion, Morgan Stanley assumed and relied upon, without independent verification, the accuracy and completeness of the information reviewed by it for the purposes of its opinion. With respect to the financial forecasts, including information relating to certain strategic, financial and operational benefits anticipated from the merger, Morgan Stanley assumed that they were reasonably prepared on bases reflecting the best currently available estimates and judgments of the future financial performance and prospects of ONI Systems. Morgan Stanley relied upon the assessment by the managements of ONI Systems and CIENA of their ability to retain key employees. Morgan Stanley also relied upon, without independent verification, the assessment by the managements of ONI Systems and CIENA as to their respective technologies and products, the timing and risks associated with the integration of ONI Systems and CIENA, and the validity of, and risks associated with, ONI Systems’ and CIENA’s existing and future products and technologies.

      In addition, Morgan Stanley assumed that the merger will be consummated in accordance with the terms set forth in the merger agreement. Morgan Stanley did not make any independent valuation or appraisal of the assets or liabilities of ONI Systems, nor was it furnished with any such appraisals. Morgan Stanley’s opinion is necessarily based on the financial, economic, market and other conditions as in effect on, and the information made available to it as of February 15, 2002.

      The following is a brief summary of certain financial analyses performed by Morgan Stanley in connection with its opinion dated February 15, 2002. These summaries of financial analyses include information presented in tabular format. In order to fully understand the financial analyses used by Morgan Stanley, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses.

      Contribution Analysis. Morgan Stanley analyzed the relative contribution of CIENA and ONI Systems to historical and estimated revenues and gross profit of the combined company for fiscal years 2002 and 2003 based on publicly available research estimates for CIENA and ONI Systems. Morgan Stanley’s contribution analysis assumed no synergies. Morgan Stanley adjusted the contribution percentages for the capital structures of each company in order to determine the implied pro forma ownership for ONI Systems and CIENA, respectively. The range of results is set forth below:

                   
% Contribution

ONI Systems CIENA


Revenues
               
 
Last Quarter
    23.7 %     76.3 %
 
FY2002E
    23.9       76.1  
 
FY2003E
    23.1       76.9  
Gross Profit
               
 
Last Quarter
    35.9 %     64.1 %
 
FY2002E
    33.4       66.6  
 
FY2003E
    23.6       76.4  

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Morgan Stanley noted that the pro forma ownership of the combined company implied by the exchange ratio of 0.7104x set forth in the merger agreement would be 24.0% for ONI Systems and 76% for CIENA.

      Comparable Company Analysis. Morgan Stanley compared selected financial information for ONI Systems and CIENA with publicly available information for comparable networking equipment companies. Based upon publicly available calendar year 2002 projected revenue estimates of certain securities research analysts and using the closing prices as of February 15, 2002, Morgan Stanley calculated, for each of these companies, the multiple (ratio) of aggregate value to projected calendar year 2002 revenue estimates. The following table shows the results of these calculations:

         
Aggregate Value/
CY2002E
Revenues

CIENA
    3.1 x
ONI Systems
    2.6  
Alcatel
    1.0  
Avici
    (2.0 )
Corvis
    (2.3 )
Extreme
    2.2  
Foundry
    1.7  
Lucent
    1.3  
Marconi
    1.1  
Nortel
    1.5  
Redback
    4.5  
Riverstone
    3.1  
Siemens
    0.7  
Sycamore
    (0.3 )
Tellabs
    2.1  
Tellium
    0.2  

Morgan Stanley noted that the multiple of aggregate value to projected calendar year 2002 revenue estimates implied by the exchange ratio of 0.7104x set forth in the merger agreement would be 3.1x.

      No company included in the comparable company analyses is identical to CIENA or ONI Systems. In evaluating the comparable companies, Morgan Stanley made judgements and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters. Many of these matters are beyond the control of CIENA or ONI Systems, such as the impact of competition on the business of CIENA or ONI Systems and the industry in general, industry growth and the absence of any material adverse change in the financial condition and prospects of CIENA or ONI Systems or the industry or in the financial markets in general. Mathematical analysis, such as determining the average or median, or the high or low, is not in itself a meaningful method of using comparable company data.

      Discounted Equity Valuation (“DEV”) Analysis. Morgan Stanley reviewed current publicly available research analyst estimates for ONI Systems’ revenues. Morgan Stanley then applied a growth rate range of 25% to 35% to these estimates out to the calendar years of 2004 and 2006. Assuming a range of operating margins of 12.5% to 17.5% and a range of price to earnings multiples of 25x to 35x, Morgan Stanley derived a range of future share prices for ONI Systems based on these assumptions. Morgan Stanley then observed what the current share price of ONI Systems would be if these future share prices were discounted back to 2002 using a 19% illustrative discount rate (i.e., the rate used to determine the present value of future cash flows). Based on these assumptions, Morgan Stanley calculated the present value of future theoretical values to be approximately $4.75 to $10.75 per ONI Systems common share.

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Morgan Stanley further noted that the foregoing range of prices implied an exchange ratio range of 0.544x to 1.231x and compared it to the exchange ratio of 0.7104x as set forth in the merger agreement.

      Precedent Transaction Analysis. Morgan Stanley compared certain publicly available statistics for selected networking equipment transactions from January 13, 1999 to November 19, 2001. The following table presents the indicated premiums paid to the average exchange ratio (defined as the average of the quotients obtained by dividing ONI Systems’ closing share price by CIENA’s closing share price for each trading day in the specified time period) 30 days before the announcement of the transaction and the average exchange ratio 60 days before the announcement of the transaction:

                 
Premium to

30-Day Average 60-Day Average
Exchange Ratio Exchange Ratio


Mean
    51.9 %     62.5 %
Median
    44.5 %     53.3 %
ONI Systems/ CIENA Premium
    55.2 %     60.1 %

Based on the foregoing analysis, Morgan Stanley calculated an acquisition value range for the ONI Systems common stock of $7.25 to $8.25 per share. Morgan Stanley further noted that this range of prices implied an exchange ratio range of 0.830x to 0.945x and compared it to the exchange ratio of 0.7104x as set forth in the merger agreement.

      No transaction included in the precedent transaction analyses is identical to the merger. In evaluating the precedent transactions, Morgan Stanley made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters. Many of these matters are beyond the control of CIENA or ONI Systems, such as the impact of competition on the business of CIENA or ONI Systems and the industry in general, industry growth and the absence of any material adverse change in the financial condition and prospects of CIENA or ONI Systems or the industry or in the financial markets in general. Mathematical analysis, such as determining the average or median, or the high or the low, is not in itself a meaningful method of using precedent transaction data.

      Exchange Ratio Premium Analysis: Morgan Stanley reviewed the ratios of the closing prices of ONI Systems common stock divided by the corresponding closing prices of CIENA common shares over various periods ending February 15, 2002. These ratios are referred to as period average exchange ratios. Morgan Stanley examined the premiums represented by the exchange ratio of 0.7104x, set forth in the merger agreement, over the averages of these daily ratios over various periods and found them to be as follows:

                 
Period Ending Period Average Premium to Period
February 15, 2002 Exchange Ratio Average Exchange Ratio



February 15, 2002
    0.635 x     11.9 %
Prior 5 Trading Days
    0.578       22.8  
Prior 10 Trading Days
    0.536       32.5  
Prior 30 Trading Days
    0.458       55.2  
Prior 60 Trading Days
    0.444       60.1  
Prior 90 Trading Days
    0.424       67.6  

      The preparation of a fairness opinion is a complex process and is not necessarily susceptible to a partial analysis or summary description. In arriving at its opinion, Morgan Stanley considered the results of all of its analyses as a whole and did not attribute any particular weight to any particular analysis or factor considered by it. Furthermore, Morgan Stanley believes that the summary provided and the analyses described above must be considered as a whole and that selecting any portion of Morgan Stanley’s analyses, without considering all its analyses, would create an incomplete view of the process underlying Morgan Stanley’s opinion. In addition, Morgan Stanley may have deemed various assumptions more or less probable than other assumptions, so that the range of valuations resulting from any particular analysis

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described above should not be taken to be Morgan Stanley’s view of the actual value of CIENA or ONI Systems.

      In performing its analyses, Morgan Stanley made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of CIENA or ONI Systems. Any estimates contained in Morgan Stanley’s analysis are not necessarily indicative of future results or actual values, which may be significantly more or less favorable than those suggested by such estimates. The analyses performed were prepared solely as part of Morgan Stanley’s analysis of the fairness from a financial point of view of the exchange ratio pursuant to the merger agreement to CIENA and were conducted in connection with the delivery of the Morgan Stanley opinion dated February 15, 2002 to the board of directors of CIENA. The analyses do not purport to be appraisals or to reflect the prices at which CIENA common stock or ONI Systems common stock might actually trade.

      The exchange ratio pursuant to the merger agreement and other terms of the merger agreement were determined through arm’s length negotiations between CIENA and ONI Systems and were approved by the CIENA board of directors. Morgan Stanley provided advice to CIENA during such negotiations; however, Morgan Stanley did not recommend any specific consideration to CIENA or that any specific consideration constituted the only appropriate consideration for the merger. In addition, as described above, Morgan Stanley’s opinion and presentation to the CIENA board of directors was one of many factors taken into consideration by CIENA’s board of directors in making its decision to approve the merger. Consequently, the Morgan Stanley analyses as described above should not be viewed as determinative of the opinion of the CIENA board of directors with respect to the value of CIENA or of whether the CIENA board of directors would have been willing to agree to a different consideration.

      Morgan Stanley is an internationally recognized investment banking and advisory firm. Morgan Stanley, as part of its investment banking and financial advisory business, is continuously engaged in the valuation of businesses and securities in connection with mergers and acquisitions, negotiated underwriting, competitive bidding, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. In the ordinary course of business, Morgan Stanley or its affiliates may at any time hold long or short positions, trade or otherwise effect transactions, for its own account or for the accounts of investment funds or other clients under the management of Morgan Stanley and for the accounts of its customers, in the equity or debt securities or senior loans of CIENA and/or ONI Systems.

      Pursuant to an engagement letter dated January 21, 2002, Morgan Stanley provided financial advisory services in connection with the merger, and CIENA agreed to pay Morgan Stanley a financial advisory fee of $8 million upon completion of the merger. CIENA has also agreed to reimburse Morgan Stanley for its expenses (which are anticipated to be approximately $160,000) incurred in performing its services. In addition, CIENA has agreed to indemnify Morgan Stanley and its affiliates, their respective directors, officers, agents and employees and each person, if any, controlling Morgan Stanley or any of its affiliates against certain liabilities and expenses, including certain liabilities under the federal securities laws, related to or arising out of Morgan Stanley’s engagement and any related transactions. In the past, Morgan Stanley and its affiliates have provided financial advisory services for CIENA and have received fees for the rendering of these services.

Opinion of ONI Systems’ Financial Advisor

      Goldman Sachs has acted as financial advisor to ONI Systems in connection with the merger. On February 15, 2002, Goldman Sachs proffered its oral opinion to the board of directors of ONI Systems, which opinion was subsequently confirmed in writing on February 17, 2002, the date of the merger agreement, that, as of the date of that opinion, the exchange ratio of 0.7104 shares of CIENA common stock to be received for each share of ONI Systems common stock pursuant to the merger agreement was fair from a financial point of view to the holders of shares of ONI Systems common stock. In addition, on March 18, 2002, at the request of the board of directors of ONI Systems, Goldman Sachs delivered its

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opinion to the board of directors of ONI Systems that, as of the date of that opinion, the exchange ratio of 0.7104 shares of CIENA common stock to be received for each share of ONI Systems common stock pursuant to the merger agreement was fair from a financial point of view to the holders of such shares of ONI Systems common stock, which opinion was subsequently confirmed in writing by means of an opinion letter dated as of March 18, 2002. The terms of the opinion letter dated February 17, 2002 were substantially identical to the terms of the opinion letter dated March 18, 2002.

      The full text of the written opinion letter of Goldman Sachs dated March 18, 2002, which identifies assumptions made, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex E to this joint proxy statement/prospectus. Goldman Sachs’ advisory services and its opinions were provided for the information and assistance of the board of directors of ONI Systems in connection with its consideration of the merger. The Goldman Sachs opinions do not constitute a recommendation as to how any holder of shares of ONI Systems common stock should vote with respect to the merger. Stockholders of ONI Systems are urged to, and should, read this opinion in its entirety.

      In connection with its opinions, Goldman Sachs reviewed, among other things:

  •  the merger agreement;
 
  •  the annual reports to stockholders and annual reports on Form 10-K of ONI Systems for the year ended December 31, 2000 and of CIENA for the five fiscal years ended October 31, 2001;
 
  •  the registration statement on Form S-1 of ONI Systems, including the prospectus dated May 31, 2000 included therein;
 
  •  certain interim reports to stockholders and quarterly reports on Form 10-Q of ONI Systems and CIENA;
 
  •  certain other communications from ONI Systems and CIENA to their respective stockholders; and
 
  •  certain cost savings and operating synergies projected by the management of ONI Systems to result from the transaction contemplated by the merger agreement.

      In addition, Goldman Sachs reviewed:

  •  certain forward looking management data for CIENA prepared by the management of CIENA;
 
  •  certain internal financial analyses and forecasts for ONI Systems prepared by the management of ONI Systems; and
 
  •  certain financial analyses and forecasts for CIENA prepared by the management of ONI Systems.

The data, analyses and forecasts that Goldman Sachs reviewed in connection with its March 18, 2002 opinion were updated versions of similar materials that it reviewed in connection with its February 17, 2002 opinion, but were generally of similar scope and level of detail.

      Goldman Sachs also held discussions with members of the senior managements of ONI Systems and CIENA regarding their assessment of the strategic rationale for, and the potential benefits of, the transaction contemplated by the merger agreement and the past and current business operations, financial condition and future prospects of their respective companies. In addition, Goldman Sachs:

  •  reviewed the reported price and trading activity for the shares of ONI Systems and CIENA common stock,
 
  •  compared certain financial and stock market information for ONI Systems and CIENA with similar information for certain other companies the securities of which are publicly traded, and
 
  •  reviewed the financial terms of certain recent business combinations in the communications technology industry specifically and in other industries generally and performed such other studies and analyses as it considered appropriate.

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      Goldman Sachs relied upon the accuracy and completeness of all of the financial, accounting and other information discussed with or reviewed by it and assumed such accuracy and completeness for purposes of rendering its opinions. In addition, with the consent of the board of directors of ONI Systems, Goldman Sachs assumed that the internal financial analyses and forecasts for ONI Systems prepared by the management of ONI Systems, financial analyses and forecasts for CIENA prepared by the management of ONI Systems and cost savings and operating synergies projected by the management of ONI Systems to result from the transaction contemplated by the merger agreement were reasonably prepared on a basis reflecting the then best currently available estimates and judgments of ONI Systems. In addition, Goldman Sachs did not make an independent evaluation or appraisal of the assets and liabilities of ONI Systems or CIENA or any of their subsidiaries and Goldman Sachs was not furnished with any such evaluation or appraisal.

      The following is a summary of the material financial analyses used by Goldman Sachs in connection with providing its opinions to ONI Systems’ board of directors. The following summary, however, does not purport to be a complete description of the analyses performed by Goldman Sachs. The order of the analyses described below does not represent the relative importance or weight given to those analyses by Goldman Sachs. Some of the following summaries of financial analyses include information presented in tabular format. The tables alone are not a complete description of Goldman Sachs’ financial analyses and should be read together with the text of each summary.

      Transaction Exchange Ratio and Premium Analysis: In connection with its February 17, 2002 opinion, Goldman Sachs reviewed the historical stock prices for ONI Systems common stock and CIENA common stock on the basis of their respective closing prices per share on February 14, 2002 and the respective closing prices and period averages for the prior five days, 10 days, 30 days, 60 days and 90 days. The following table presents:

  •  The implied exchange ratio, based on 147.9 million fully diluted shares of ONI Systems and 333.2 million fully diluted shares of CIENA, between the closing prices of ONI Systems common stock and CIENA common stock on February 14, 2002 and the implied exchange ratio between the average of the closing prices of ONI Systems common stock and CIENA common stock for the specified periods. “Implied exchange ratio” means the number of shares of CIENA common stock that would be equal in value to one share of ONI Systems common stock, based on the closing price data applicable to the given date or period.
 
  •  The premium over the implied exchange ratio is equal to the percentage by which the actual exchange ratio (0.7104 shares of CIENA common stock for each share of ONI Systems common stock) exceeds the implied exchange ratio.
                 
Premium Over Implied
Date or Period Implied Exchange Ratio Exchange Ratio



February 14, 2002
    0.587 x     21.1 %
5 day average
    0.559       27.0  
10 day average
    0.517       37.5  
30 day average
    0.452       57.2  
60 day average
    0.441       61.3  
90 day average
    0.422       68.5  

The foregoing table indicates that in the merger any given number of shares of ONI Systems common stock would be exchanged for between 21.1% and 68.5% more shares of CIENA common stock than those shares could have been exchanged for based on closing prices for the date or periods specified above.

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      Goldman Sachs also reviewed the historical closing price of ONI Systems common stock on February 14, 2002 and the closing prices and period averages for the prior five days, 10 days, 30 days, 60 days and 90 days. The following table presents:

  •  The closing price of ONI Systems common stock on February 14, 2002 and the average of the closing prices of ONI Systems common stock for the specified periods.
 
  •  The premium over the closing price of ONI Systems common stock on February 14, 2002 and the average closing prices of ONI Systems common stock for the specified periods implied by the actual exchange ratio in the merger. The premium was calculated by multiplying the actual exchange ratio (0.7104 shares of CIENA common stock for each share of ONI Systems common stock) by the closing price of CIENA common stock on February 14, 2002 and determining the percentage by which the product of the calculation exceeds the closing price or average closing price of ONI Systems common stock for the date or periods specified above.
                 
Premium Over Closing Price or
Closing Price or Average Average Closing Price of ONI
Closing Price of ONI Systems Common Stock
Date or Period Systems Common Stock Implied by the Exchange Ratio



February 14, 2002
  $ 5.35       21.1 %
5 day average
    5.47       18.4  
10 day average
    5.07       27.9  
30 day average
    5.71       13.4  
60 day average
    6.53       (0.8 )
90 day average
    6.51       (0.5 )

The foregoing table indicates that in the merger the premium over the closing price or average closing price of ONI Systems common stock was calculated at between -0.8% and 27.9% based on the closing price or average closing price for the date or periods specified above.

      In connection with its March 18, 2002 opinion, Goldman Sachs did not perform analyses similar to the analyses described above, as such analyses would not be informative after the proposed transaction had been announced because the announcement would likely have influenced movements in the ONI Systems stock price.

      Consideration Multiple Analysis: In connection with its February 17, 2002 opinion, Goldman Sachs also calculated the levered consideration to be received by ONI Systems stockholders as a multiple of estimated calendar years 2002 and 2003 revenue by dividing the levered consideration by the estimated revenue. Goldman Sachs calculated that the fully diluted equity consideration in the merger, meaning the total consideration to be paid to ONI Systems common stockholders, assuming that all outstanding options are exercised, would be $960 million. Goldman Sachs also determined that the levered consideration in the merger, meaning the fully diluted equity consideration less net cash would be $581 million. Using ONI Systems’ management high and low revenue projections for ONI Systems for fiscal years 2002 and 2003, Goldman Sachs derived levered consideration as a multiple of both low and high estimates of revenue.

      The results of these analyses are as follows:

                 
Low Estimate Revenue (in millions) Revenue Multiple



2002E
  $ 150       3.9 x
2003E
    350       1.7  
                 
High Estimate Revenue (in millions) Revenue Multiple



2002E
  $ 200       2.9 x
2003E
    400       1.5  

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The foregoing table indicates that, based on the analysis described above, the levered consideration in the merger was calculated at between 2.9 and 3.9 times the estimated calendar year 2002 revenue and was calculated at between 1.5 and 1.7 times the estimated calendar year 2003 revenue.

      Goldman Sachs performed a similar analysis in connection with its March 18, 2002 opinion. Goldman Sachs calculated the levered consideration to be received by ONI Systems stockholders as a multiple of estimated calendar years 2002 and 2003 revenue. Goldman Sachs calculated that the fully diluted equity consideration in the merger would be $940 million. Goldman Sachs also determined that the levered consideration in the merger, assuming no cash burn, meaning no depletion of cash by the combined company, would be $562 million, based on the fully diluted equity consideration and net debt of $379 million. Goldman Sachs also determined that the levered consideration in the merger, assuming cash burn for ONI Systems of $272 million based on ONI Systems’ revised management projections, would be $834 million. Using ONI Systems’ revised management high and low revenue projections for fiscal years 2002 and 2003, Goldman Sachs derived levered consideration as a multiple of both low and high estimates of revenue.

      The results of these analyses are as follows:

                         
Revenue Revenue Multiple Revenue Multiple
Low Estimate (in millions) (no cash burn) (with cash burn)




2002E
  $ 125       4.5 x     6.7 x
2003E
    225       2.5       3.7  
                         
Revenue Revenue Multiple Revenue Multiple
High Estimate (in millions) (no cash burn) (with cash burn)




2002E
  $ 150       3.7 x     5.6 x
2003E
    315       1.8       2.6  

The foregoing table indicates that, as a result of the analysis described above, the levered consideration in the merger, assuming no cash burn, was calculated at between 3.7 and 4.5 times the estimated calendar year 2002 revenue and is equal to between 1.8 and 2.5 times the estimated calendar year 2003 revenue. Assuming the cash burn estimated by ONI Systems management, the levered consideration in the merger was calculated at between 5.6 and 6.7 times the estimated calendar year 2002 revenue and in the merger was calculated at between 2.6 and 3.7 times the estimated calendar year 2003 revenue.

      Selected Companies Analysis: In connection with its February 17, 2002 opinion, Goldman Sachs reviewed and compared specified publicly-available financial information of ONI Systems and CIENA with specified publicly-available financial information, ratios and public market multiples for the following broad systems and optical components communications technology companies:

     
Next Generation Broad Systems


Corvis
Juniper
Riverstone
Sonus Networks
Sycamore
Tellium
  Alcatel
Cisco
Lucent
Nortel
Tellabs

      The following table presents for ONI Systems and CIENA and the groups of next generation and broad systems communications technologies companies:

  •  The February 14, 2002 closing price as a percentage of the stock’s 52 week high.
 
  •  Five-year forecasted compound annual growth rate of earnings per share, or EPS, meaning the forecasted rate at which EPS grows year over year, based on a five-year projection of EPS.

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  •  Projected 2002 and 2003 calendar year price to EPS, or PE, ratios, meaning the quotient of the February 14, 2002 closing price divided by projected EPS.
 
  •  Enterprise value, meaning the equity market capitalization (or the total number of shares outstanding, assuming that all options are exercised, multiplied by the share price) less net cash, as a multiple of projected 2002 and 2003 revenue, obtained by dividing the enterprise value by the projected revenue.
 
  •  Projected 2002-2003 percentage revenue growth.

      The multiples and other financial information calculated by Goldman Sachs were based on the closing prices on February 14, 2002 for ONI Systems, CIENA and the selected companies common stock and/or the most recent publicly available information for ONI Systems, CIENA and the selected companies. The projected PE ratios for calendar years 2002 and 2003 and the five-year EPS compound annual growth rate for ONI Systems, CIENA and the selected companies were based on median estimates provided by the Institutional Brokers Estimate System, or IBES. Enterprise value revenue multiples are based on securities analysts’ projections and IBES estimates. Equity market capitalization was based on the most recent publicly available financial statements. The values provided below are in millions, except per share data.

                                                           
February 14, 2002
Closing Share
Price as IBES 5-year Enterprise Projected
Percentage of EPS Value Revenue 2002-2003
52 week PE Ratio Compound Multiple Percentage
High Share
Annual
Revenue
Company Price 2002 2003 Growth Rate 2002 2003 Growth








ONI Systems
    11.2 %     NM       NM       25.0 %     2.2 x     1.7 x     29.0 %
CIENA
    10.2       NM       NM       22.5       3.2       2.5       28.8  
Selected Next Generation Companies
                                                       
 
Mean
    15.4       43.4 x     24.1 x     31.7       2.8       2.1       36.7  
 
Median
    11.1       35.0       22.6       32.5       3.1       2.3       32.4  
Selected Broad Systems Companies
                                                       
 
Mean
    34.4       53.8       59.6       12.2       2.7       2.3       10.3  
 
Median
    30.5       53.8       38.9       16.0       2.2       2.0       11.6  

      Goldman Sachs also performed similar analyses with respect to its March 18, 2002 opinion. The following table presents for ONI Systems and CIENA and the groups of next generation and incumbent communications technologies companies:

  •  The March 15, 2002 closing price as a percentage of the stock’s 52 week high.
 
  •  Five-year forecasted compound annual growth rate of EPS.
 
  •  Projected 2002 and 2003 calendar year PE ratios.
 
  •  Enterprise value as a multiple of projected 2002 and 2003 calendar year revenue.
 
  •  Enterprise value as a multiple of projected 2002 and 2003 calendar year revenue net excess cash, or the amount of cash burn required to break even.
 
  •  Projected 2002-2003 percentage revenue growth.

      The multiples and other financial information calculated by Goldman Sachs were based on the closing prices on March 15, 2002 for ONI Systems, CIENA and the selected companies’ common stock and/or the most recent publicly available information for ONI Systems, CIENA and the selected companies. The projected PE ratios for calendar years 2002 and 2003 for ONI Systems, CIENA and the selected companies were based on median estimates provided by IBES. Enterprise value revenue multiples are

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based on securities analysts’ projections. Equity market capitalization was based on the most recent publicly available financial statements. The cash burn required to break even was based on an estimated cash burn (i) for ONI Systems of $272 million based on ONI Systems’ management projections, (ii) for CIENA of $222 million based on ONI Systems’ management projections and (iii) for all others, on the 2001 fourth quarter’s estimated cash burn multiplied by six. The values provided below are in millions, except per share data.
                                                                           
March 15, 2002 Enterprise
Closing Share Value Revenue
Price as IBES 5-Year Enterprise Multiple Less Projected
Percentage of EPS Value Revenue Net Excess 2002-2003
52-week PE Ratio Compound Multiple Cash Percentage
High Share
Annual

Revenue
Company Price 2002 2003 Growth Rate 2002 2003 2002 2003 Growth










ONI Systems
    15.6 %     NM       NM       30.0 %     2.9 x     2.3 x     4.4 x     3.4 x     29.0 %
CIENA
    13.3       NM       NM       25.0       3.9       3.1       4.3       3.5       25.0  
Selected Next Generation Companies
                                                                       
 
Mean
    17.7       84.1 x     108.8 x     31.7       2.5       2.4       2.6       2.4       29.9  
 
Median
    15.9       67.2       48.2       32.5       1.3       0.9       1.3       1.2       32.3  
Selected Incumbent Companies
                                                                       
 
Mean
    40.0       52.9       63.0       12.6       2.2       2.0       2.4       2.2       12.2  
 
Median
    38.0       52.9       45.3       16.0       1.8       1.5       2.1       1.8       14.2  

      Selected Transactions Analysis: In connection with both its February 17, 2002 and March 18, 2002 opinions, Goldman Sachs analyzed certain information relating to the following 14 communications technology transactions since July 1997:

     
Acquiror Target


Siemens AG
  Efficient Networks
Nortel Networks
  Alteon Websystems Inc.
Cisco Systems
  Arrowpoint Communications
Alcatel SA
  Newbridge Networks Corp.
Corning Inc.
  NetOptix Corporation
Lucent Technologies Inc.
  Ortel Corporation
Corning Inc.
  Oak Industries
Nortel Networks
  Clarify
Alcatel
  Genesys Telecommunications Laboratories
Tellabs Inc.
  CIENA Corporation (first transaction – not completed)
Tellabs Inc.
  CIENA Corporation (second transaction – not completed)
Lucent Technologies Inc.
  Yurie Systems, Inc.
Tellabs Inc.
  Coherent Communications
Lucent Technologies Inc.
  Octel Communications

      For each transaction, Goldman Sachs analyzed:

  •  the levered aggregate consideration of the transaction;
 
  •  the levered aggregate consideration as a multiple of latest twelve months, or LTM, sales of the target company, obtained by dividing the levered aggregate consideration by LTM revenue;

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  •  the ratio of the acquiror’s LTM revenue multiple, obtained by dividing levered market value by the LTM revenue of the acquiror to the revenue multiple paid, obtained by dividing the levered aggregate consideration by LTM revenue of the target; and
 
  •  the premium paid in relation to market value of target’s stock price one week prior to announcement.

      This analysis indicated that, as of March 15, 2002, for the selected transactions (i) the median for levered aggregate consideration as a multiple of LTM sales was 9.2x, (ii) the median for the acquiror’s LTM revenue multiple to revenue multiple paid was 0.4x, and (iii) the median for the premium to market value of target’s stock price one week prior to announcement was 37.5%.

      Contribution Analyses: In connection with its February 17, 2002 opinion, Goldman Sachs reviewed the estimated future operating and financial information, including, among other things, revenue, gross profit, operating income and net income, for ONI Systems, CIENA and the pro forma combined entity resulting from the merger based on ONI Systems’ management projections. Goldman Sachs analyzed and compared the respective levered contributions of each of ONI Systems and CIENA to the combined company’s projected high and low revenue and gross profit for each calendar year 2002 and 2003, meaning the percentage of the combined entity’s revenue and gross profit represented by each company, based on ONI Systems’ management estimates dated February 13, 2002. Goldman Sachs also analyzed and compared the respective equity contributions of each of ONI Systems and CIENA to the combined company’s projected high and low revenue and gross profit for each calendar year 2002 and 2003, meaning the percentage of the combined entity’s revenue and gross profit represented by each company net of the effect of debt, based on ONI Systems’ management estimates dated February 13, 2002. Goldman Sachs also analyzed and compared the equity contributions of each of ONI Systems and CIENA to the combined company’s fully diluted equity value, meaning the total number of shares outstanding, assuming that all options are exercised, multiplied by the share price, as of February 14, 2002 and the levered contribution of each of ONI Systems and CIENA to the combined company’s levered market value, meaning the fully diluted equity value less net cash. The following table presents the results of that analysis:

                                 
Levered Contributions
to Total Equity Contributions to Total


% ONI Systems % CIENA % ONI Systems % CIENA




Revenue
                               
CY2002E (high estimate)
    20.5 %     79.5 %     23.3 %     76.7 %
CY2002E (low estimate)
    18.2       81.8       21.8       78.2  
CY2003E (high estimate)
    21.1       78.9       23.6       76.4  
CY2003E (low estimate)
    22.6       77.4       24.6       75.4  
 
Gross Profit
                               
CY2002E (high estimate)
    22.6 %     77.4 %     24.6 %     75.4 %
CY2002E (low estimate)
    25.4       74.6       26.5       73.5  
CY2003E (high estimate)
    20.0       80.0       23.0       77.0  
CY2003E (low estimate)
    22.7       77.3       24.7       75.3  
Fully Diluted Equity Value
                    20.7       79.3  
Levered Market Value
    16.4       83.6                  

The foregoing table indicates that, as a result of the analyses described above, the projected percentage of levered contribution of ONI Systems to the combined company’s revenue was calculated to be between 18.2% and 20.5% for calendar year 2002 and between 21.1% and 22.6% for calendar year 2003. The projected percentage of equity contribution of ONI Systems to the combined company’s revenue was calculated to be between 21.8% and 23.3% for calendar year 2002 and between 23.6% and 24.6% for calendar year 2003. The projected percentage of levered contribution of ONI Systems to the combined

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company’s gross profit was calculated to be between 22.6% and 25.4% for calendar year 2002 and between 20.0% and 22.7% for calendar year 2003. The projected percentage of equity contribution of ONI Systems to the combined company’s gross profit was calculated to be between 24.6% and 26.5% for calendar year 2002 and between 23.0% and 24.7% for calendar year 2003. The projected equity contribution of ONI Systems to the combined company’s fully diluted equity value was calculated to be 20.7% and the projected levered contribution to the combined company’s levered market value was calculated to be 16.4%.

      In connection with its March 18, 2002 opinion, Goldman Sachs similarly reviewed the estimated future operating and financial information, including, among other things, revenue, gross profit, operating income and net income, for ONI Systems, CIENA and the pro forma combined entity resulting from the merger based on ONI Systems’ management projections. Goldman Sachs analyzed the levered and equity contributions of ONI Systems to the combined company’s projected high and low revenue and gross profit for each calendar year 2002 and 2003, based on ONI Systems’ revised management estimates dated March 15, 2002 and based on 333.3 million fully diluted CIENA shares outstanding. Goldman Sachs also analyzed and compared the equity contribution of ONI Systems to the combined company’s fully diluted equity value as of March 15, 2002 and the levered contribution of ONI Systems to the combined company’s levered market value. Goldman Sachs performed two such analyses, first assuming no cash burn and second assuming estimated annual cash burn (i) for ONI Systems of $272 million and (ii) for CIENA of $222 million, based on ONI Systems’ management projections. The following table presents the results from the analyses:

                         
% ONI Equity
Contribution to Total
% ONI Levered
Contribution to Total No Cash Burn With Cash Burn



Revenue
                       
CY2002E (high estimate)
    22.6 %     24.0 %     19.8 %
CY2002E (low estimate)
    21.7       23.5       19.1  
CY2003E (high estimate)
    24.4       25.2       21.2  
CY2003E (low estimate)
    23.1       24.3       20.2  
 
Gross Profit
                       
CY2002E (high estimate)
    23.1 %     24.3 %     20.2 %
CY2002E (low estimate)
    25.7       26.0       22.2  
CY2003E (high estimate)
    24.4       25.2       21.2  
CY2003E (low estimate)
    24.2       25.0       21.0  
Fully Diluted Equity Value (with cash burn)
                    23.6  
Levered Market Value (no cash burn)
    21.9                  
Levered Market Value (with cash burn)
    27.4                  

As the foregoing table indicates, as a result of the analysis described above, the projected percentage of levered contribution of ONI Systems to the combined company’s revenue was calculated to be between 21.7% and 22.6% for calendar year 2002 and between 23.1% and 24.4% for calendar year 2003. The projected percentage of equity contribution of ONI Systems to the combined company’s revenue, assuming no cash burn, was calculated to be between 23.5% and 24.0% for calendar year 2002 and between 24.3% and 25.2% for calendar year 2003. The projected percentage of equity contribution of ONI Systems to the combined company’s revenue, assuming cash burn, was calculated to be between 19.1% and 19.8% for calendar year 2002 and between 20.2% and 21.2% for calendar year 2003. The projected percentage of levered contribution of ONI Systems to the combined company’s gross profit was calculated to be between 23.1% and 25.7% for calendar year 2002 and between 24.2% and 24.4% for calendar year 2003. The projected percentage of equity contribution of ONI Systems to the combined company’s gross profit, assuming no cash burn, was calculated to be between 24.3% and 26.0% for calendar year 2002 and between 25.0% and 25.2% for calendar year 2003. The projected percentage of equity contribution of ONI

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Systems to the combined company’s gross profit, assuming cash burn, was calculated to be between 20.2% and 22.2% for calendar year 2002 and between 21.0% and 21.2% for calendar year 2003. The projected equity contribution of ONI Systems to the combined company’s fully diluted equity value was calculated to be 21.9% and the projected levered contribution to the combined company’s levered market value is 27.4%. The pro forma percentage equity ownership of the combined company to be held by ONI Systems stockholders upon completion of the merger (on a fully diluted equity basis taking into account cash burn) was calculated to be 23.6%.

      In connection with its February 17, 2002 opinion, Goldman Sachs analyzed the relative 2003 revenues, net income and net cash contribution of ONI Systems, using high and low estimates provided by ONI Systems’ management, to the combined company on a pro forma basis both including and excluding any synergies that were projected to result from the transaction projections and based on ONI Systems’ pro forma 24% equity ownership in the combined company. The following table presents the results from that analysis:

                                                 
ONI Systems Pro Forma Pro Forma With
Current Combined Synergies



Low High Low High Low High






Total
                                               
Revenues
  $ 350     $ 400     $ 1550     $ 1900     $ 1550     $ 1900  
Net Income
    (76 )     (67 )     (118 )     (24 )     (62 )     32  
Net Cash
  $ 379     $ 379     $ 1310     $ 1310     $ 1310     $ 1310  
 
Implied Ownership of:
                                               
Revenues
  $ 350     $ 400     $ 372     $ 456     $ 372     $ 456  
Net Income
    (76 )     (67 )     (28 )     (6 )     (15 )     8  
Net Cash
  $ 379     $ 379     $ 314     $ 314     $ 314     $ 314  
 
Net Change:
                                               
Revenues
                  $ 22     $ 56     $ 22     $ 56  
Net Income
                    48       61       61       75  
Net Cash
                  $ (64 )   $ (64 )   $ (64 )   $ (64 )

As the foregoing table indicates, as a result of this analysis, ONI Systems’ implied ownership of the revenues and net income of the combined company was calculated to be higher (using both low and high estimates provided by ONI Systems’ management and both including and excluding any projected synergies) than ONI Systems’ current level of revenues and net income. ONI Systems’ implied ownership of the net cash of the combined company was calculated to be lower (using both low and high estimates provided by ONI Systems’ management and both including and excluding any projected synergies) than its then current level of net cash.

      In connection with its March 18, 2002 opinion, Goldman Sachs performed a similar analysis of the relative 2003 revenues, net income and net cash contribution, first assuming no cash burn and second assuming cash burn, of ONI Systems, using revised high and low estimates provided by ONI Systems’ management, to the combined company on a pro forma basis both including and excluding any synergies that were projected to result from the transaction projections. These analyses were also based on ONI

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Systems’ pro forma 24% equity ownership in the combined company. The following table presents the results from that analysis:
                                                 
ONI Systems Pro Forma Pro Forma With
Current Combined Synergies



Low High Low High Low High






Total
                                               
Revenues
  $ 225     $ 315     $ 975     $ 1290     $ 975     $ 1290  
Net Income
    (110 )     (80 )     (120 )     (51 )     (64 )     5  
Net Cash (no cash burn)
  $ 379     $ 379     $ 1428     $ 1428     $ 1428     $ 1428  
Net Cash (with cash burn)
  $ 107     $ 107     $ 934     $ 934     $ 1104     $ 1104  
 
Implied Ownership of:
                                               
Revenues
  $ 225     $ 315     $ 234     $ 310     $ 234     $ 310  
Net Income
    (110 )     (80 )     (29 )     (12 )     (15 )     1  
Net Cash (no cash burn)
  $ 379     $ 379     $ 343     $ 343     $ 343     $ 343  
Net Cash (with cash burn)
  $ 107     $ 107     $ 224     $ 224     $ 265     $ 265  
 
Net Change:
                                               
Revenues
                  $ 9     $ (5 )   $ 9     $ (5 )
Net Income
                    81       68       95       81  
Net Cash (no cash burn)
                  $ (36 )   $ (36 )   $ (36 )   $ (36 )
Net Cash (with cash burn)
                  $ 118     $ 118     $ 158     $ 158  

The foregoing table indicates that when using low estimates provided by ONI Systems’ management, ONI Systems’ implied ownership of the revenues of the combined company was calculated to be higher (both including and excluding any projected synergies) than ONI Systems’ current level of revenues. When using high estimates provided by ONI Systems’ management, ONI Systems’ implied ownership of the revenues of the combined company was calculated to be lower (both including and excluding any projected synergies) than its current level of revenues. ONI Systems’ implied ownership of the net income of the combined company was calculated to be higher (using both low and high estimates provided by ONI Systems’ management and both including and excluding any projected synergies) than its current level of net income. When assuming no cash burn, ONI Systems’ implied ownership of the net cash of the combined company was calculated to be lower (using both low and high estimates provided by ONI Systems’ management and both including and excluding any projected synergies) than its current level of net cash. When assuming estimated cash burn, ONI Systems’ implied ownership of the net cash of the combined company was calculated to be higher (using both low and high estimates provided by ONI Systems’ management and both including and excluding any projected synergies) than its then current level of net cash.

      Pro Forma Merger Analysis: In connection with its February 17, 2002 and March 18, 2002 opinions, Goldman Sachs prepared pro forma analyses of the financial impact of the merger using publicly available information and estimates provided by ONI Systems’ management. For each of calendar years 2002 and 2003, Goldman Sachs compared the estimated revenue per share of ONI Systems common stock and CIENA common stock on a stand-alone basis to the estimated revenue per share of CIENA common stock on a pro forma basis for each of the low and high estimates of revenue per share projected by ONI Systems’ management for each such years. In addition, for each of calendar years 2002 and 2003, Goldman Sachs compared the estimated cash EPS of ONI Systems common stock and CIENA common stock on a stand-alone basis to the estimated cash EPS of CIENA common stock on a pro forma basis for each of the low and high estimates of cash EPS projected by ONI Systems’ management. In connection with its February 17, 2002 opinion, Goldman Sachs performed this analysis based on a price of $5.35 (the per share price of ONI Systems common stock on February 14, 2002) of ONI Systems common stock and $9.12 (the per share price of CIENA common stock on February 14, 2002) of CIENA common stock. Based on such analyses, for fiscal year 2002 and 2003, under both a low and a high estimate of

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revenues for the combined company, the proposed transaction would be accretive to ONI Systems stockholders on a revenue per share basis. In connection with its March 18, 2002 opinion, Goldman Sachs performed this analysis based on a price of $6.22 (the per share price of ONI Systems common stock on March 15, 2002) of ONI Systems common stock and $8.95 (the per share price of CIENA common stock on March 15, 2002) of CIENA common stock. Based on such analyses, for fiscal year 2002 and 2003, under both a low and high estimate of revenues for the combined company, the proposed transaction would be accretive to ONI Systems stockholders on a revenue per share basis.

      The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Goldman Sachs’ opinions. In arriving at its fairness determinations, Goldman Sachs considered the results of all such analyses and did not attribute any particular weight to any factor or analyses considered by it. Rather, Goldman Sachs made its determinations as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses. No company or transaction used in the above analyses as a comparison is directly comparable to ONI Systems or CIENA or the contemplated transaction.

      The analyses were prepared solely for purposes of Goldman Sachs’ providing its opinions to the ONI Systems board of directors as to the fairness from a financial point of view to the holders of the outstanding shares of ONI Systems common stock of the exchange ratio of 0.7104 shares of CIENA common stock to be received for each share of ONI Systems common stock pursuant to the merger agreement. These analyses do not purport to be appraisals or necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by such analyses. Because such analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of ONI Systems, CIENA, Goldman Sachs or any other person assumes responsibility if future results are materially different from those forecast.

      As described above, Goldman Sachs’ opinions to the board of directors of ONI Systems was one of many factors taken into consideration by the board of directors of ONI Systems in making its determination to approve the merger agreement and recommend approval of the merger agreement to the ONI Systems’ stockholders. The foregoing summary does not purport to be a complete description of the analyses performed by Goldman Sachs in connection with such opinions and is qualified by reference to the written opinions of Goldman Sachs.

      Goldman Sachs, as part of its investment banking business, is continually engaged in performing financial analyses with respect to businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities and private placements and for estate, corporate and other purposes. Goldman Sachs is familiar with ONI Systems having provided certain investment banking services to ONI Systems from time to time, including having acted as:

  •  Lead manager of the initial public offering of 8,000,000 shares of ONI Systems common stock in May 2000;
 
  •  Lead manager of the follow-on offering of 8,000,000 shares of ONI Systems common stock in October 2000;
 
  •  Lead manager of the public offering of ONI Systems’ 5% Convertible Subordinated Notes due in October 2005, in October 2000; and
 
  •  Financial advisor in connection with, and having participated in certain of the negotiations leading to, the merger agreement.

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      Goldman Sachs also has provided certain investment banking services to CIENA from time to time, including having acted as:

  •  Lead manager of the initial public offering of 5,000,000 shares of CIENA common stock in February 1997;
 
  •  Lead manager of the follow-on offering of 9,110,622 shares of CIENA common stock in July 1997;
 
  •  Lead manager of the public offering of 11,000,000 shares of CIENA common stock in February 2001; and
 
  •  Lead manager of the public offering of CIENA’s 3.75% Convertible Notes due in February 2008, in February 2001.

      Goldman Sachs may also provide investment banking services to ONI Systems, CIENA and their respective subsidiaries in the future. ONI Systems selected Goldman Sachs as its financial advisor because it is an internationally recognized investment banking firm that has substantial experience in transactions similar to the merger.

      Goldman Sachs provides a full range of financial advisory and securities services and, in the course of its normal trading activities, may from time to time effect transactions and hold positions in securities, including derivative securities, of ONI Systems or CIENA for its own account and for the accounts of customers.

      Lawton Fitt, a Managing Director of Goldman Sachs International, an affiliate of Goldman Sachs, is a director of CIENA. Goldman Sachs has been informed that Ms. Fitt recused herself from deliberating and voting on any proposals presented to CIENA’s board of directors in respect of the merger agreement and merger.

      Pursuant to a letter agreement dated January 20, 2002, or the Goldman Sachs engagement letter, ONI Systems engaged Goldman Sachs to act as its financial advisor in connection with the merger. Pursuant to the engagement letter, ONI Systems agreed to pay Goldman Sachs 0.80% of the aggregate consideration paid by CIENA (or approximately $               as of the date of this joint proxy statement/prospectus) upon consummation of the merger. ONI Systems has agreed to reimburse Goldman Sachs, upon Goldman Sachs’ request and upon consummation of the merger, for its reasonable out-of-pocket expenses, including attorneys’ fees, which expenses are estimated to be approximately $               as of the date of this joint proxy statement/prospectus and to indemnify Goldman Sachs against certain liabilities, including certain liabilities under the federal securities laws.

Interests of Executive Officers and Directors in the Merger

      In considering the recommendation of the ONI Systems board of directors regarding the merger, ONI Systems stockholders should be aware that some ONI Systems directors and executive officers have interests in the merger and related arrangements that are different from, or in addition to, their interests as ONI Systems stockholders. These interests may create potential conflicts of interest for these directors and officers because they may be more likely to approve the merger than ONI Systems stockholders generally. The ONI Systems board of directors was aware of these interests and took these interests into account in its deliberations of the merits of the merger and in approving the merger and the transactions contemplated by the merger agreement.

      Employment and Consulting Arrangements. Hugh C. Martin, the Chairman of the Board, Chief Executive Officer and President of ONI Systems, has signed a consulting agreement with CIENA for a term of one year following the closing of the merger. Under this consulting agreement Mr. Martin will receive a consulting fee of $23,334 per month, and the shares of CIENA common stock acquired by Mr. Martin as a result of the merger and the ONI Systems stock options issued to Mr. Martin and assumed by CIENA as a result of the merger will continue to vest during the term of the consulting agreement in accordance with the terms of the agreements under which Mr. Martin currently holds these shares and options.

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      William R. Cumpston, the Executive Vice President and Chief Operating Officer of ONI Systems, has signed an employment agreement with CIENA under which he agreed to serve as Senior Vice President, Metro Switching, Access and Transport of the combined company. Rohit Sharma, the Chief Technology Officer of ONI Systems, has signed an employment agreement with CIENA under which he agreed to serve as Senior Vice President and Chief Technology Officer, Metro Access and Transport of the combined company. Mr. Cumpston and Mr. Sharma will receive the following benefits under their respective employment agreements:

  •  Mr. Cumpston will receive a base salary in the amount of $275,000 per year, and will be eligible to participate in CIENA’s Incentive Bonus Plan at a rate of up to 50% of his base salary on a quarterly basis. During the first 12 months of the term of his employment agreement Mr. Cumpston will receive a guaranteed bonus in an amount such that his total compensation will be equal to at least $350,000;
 
  •  Mr. Sharma will receive a base salary in the amount of $250,000 per year, and will be eligible to participate in CIENA’s Incentive Bonus Plan at a rate of up to 50% of his base salary on a quarterly basis. During the first 12 months of the term of his employment agreement Mr. Sharma will receive a guaranteed bonus in an amount such that his total compensation will be equal to at least $300,000;
 
  •  both executives will be eligible to receive additional stock option grants in accordance with CIENA’s standard compensation plans; and
 
  •  both executives will be eligible to participate in CIENA’s executive benefits program.

      Mr. Cumpston and Mr. Sharma are entitled to receive specified benefits under their employment agreements with CIENA if their employment is terminated by CIENA without cause, or by the executive for good reason, within one year after the merger or within one year after the effective date of a transfer of control of CIENA. Upon termination as set forth above, each of these executives will receive the following benefits under the agreements:

  •  continuation for a period of 12 months following the last day of employment of the executive’s compensation equal to the executive’s annual base salary immediately prior to either the date of termination or the date of the transfer of control, whichever is higher;
 
  •  compensation equal to the executive’s annual bonus amount under any incentive plans or programs in which the executive participated immediately prior to either the date of termination or the date of the transfer of control, whichever annual bonus amount is higher, this bonus will be based on an assumed achievement of 100% of the targeted performance for the award and will be payable in quarterly installments;
 
  •  continuation of the executive’s participation in group medical, dental, life and disability plans on substantially the same basis as if the executive were an employee until the earlier of the anniversary of the date of termination or the last day of the month in which the executive begins employment with another employer, CIENA will also pay the executive at least annually an amount sufficient on an after tax basis to compensate the executive for all additional taxes incurred because of any income realized as a result of continued coverage to the extent the taxes would not be incurred if the executive was an employee of CIENA;
 
  •  CIENA will continue to maintain director and officer insurance covering the executive, and will maintain in effect any indemnification agreements providing for indemnification of the executive by CIENA, until the applicable statute of limitations has ended;
 
  •  if the executive is terminated within 12 months after the merger, the vesting of the executive’s options will continue for the same period during which the executive is receiving his salary, and the exercise period for the executive’s unexercised and exercisable options will be extended for thirty days after the end of the salary continuation period;

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  •  if the executive is terminated following a transfer of control, the executive’s options will become vested and exercisable upon the transfer of control to the extent provided for under the terms of the plan, program or arrangement under which the options were granted, vesting of the executive’s options will continue during the salary continuation period, and the exercise period for the executive’s unexercised and exercisable options will be extended for 30 days after the end of the salary continuation period; and
 
  •  if it is determined that any payment or distribution by CIENA to or for the benefit of the executive paid, payable or distributed under the terms of the agreement or otherwise, would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code or any interest or penalties are incurred by the executive with respect to the excise tax, then CIENA will pay the executive an additional amount equal to the excise tax imposed.

Each executive agreed not to compete with CIENA for a period of one year following termination of his employment. However, under Mr. Sharma’s employment agreement the non-competition provision will not apply, if, on or after the first anniversary of the date that the merger is completed, Mr. Sharma’s employment is terminated except in connection with a transfer of control of CIENA. If, on or after the first anniversary of the date that the merger is completed, Mr. Sharma is terminated by CIENA without cause or by Mr. Sharma with good reason, in either event within one year of the effective date of a transfer of control of CIENA, and Mr. Sharma elects to forego various benefits to which he would otherwise be entitled, the non-competition provision will not apply.

      Stock Ownership. As of March   , 2002, the directors and executive officers of ONI Systems beneficially owned                      shares, including stock options and warrants exercisable within 60 days of that date, representing approximately      % of the outstanding shares of ONI Systems. These shares would represent approximately      % of the outstanding shares of CIENA after completion of the merger, based on shares outstanding on March      , 2002.

      Assumption of Stock Options. Each outstanding option to purchase ONI Systems common stock, including any stock option held by any director or executive officer of ONI Systems, will be assumed by CIENA at the effective time of the merger. Each option will become an option to acquire common stock of the combined company after the merger, the number of shares subject to the option and the option exercise price will be equitably adjusted according to the 0.7104 exchange ratio.

      Acceleration of ONI Systems Stock Options. The ONI Systems stock options held by members of the ONI Systems board of directors that were granted under the ONI Systems 2000 Equity Incentive Plan will accelerate in connection with the merger and become 100% vested and exercisable in full. The ONI Systems options held by Robert J. Jandro and Michael A. Dillon, both of whom are executive officers of ONI Systems, will accelerate in connection with the merger so that 25% of the unvested shares subject to these options will become vested. In addition, some other employees of ONI Systems have stock options with acceleration of vesting in connection with the merger.

      The following tables present specific information regarding stock option acceleration for ONI Systems’ executive officers and directors. Only options granted to directors under the ONI Systems 2000 Equity Incentive Plan accelerate. Some directors have options granted under other plans that are not reflected in this table. Monetary value is calculated by subtracting the exercise price due upon exercise of the option from the value of the shares received, based on the closing price on the date indicated. Out of the money options are shown as having a monetary value of $0.

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      The table immediately below assumes that the merger was effective as of February 17, 2002 and uses the closing price on February 15, 2002 for all monetary value calculations. The closing price of ONI Systems common stock on February 15, 2002 was $5.54.

                                 
Unvested Options Monetary Value
Immediately Prior Unvested of Accelerated Exercise Price of
to Effective Time Options Options as of Accelerated
Name of Merger Accelerated February 17, 2002 Options





Directors
                               
Matthew W. Bross
    40,000       40,000     $ 0     $ 34.85  
Kevin R. Compton
    46,667       46,667     $ 0     $ 82.56  
      40,000       40,000     $ 0     $ 34.85  
Jonathan D. Feiber
    46,667       46,667     $ 0     $ 82.56  
      40,000       40,000     $ 0     $ 34.85  
James F. Jordan
    40,000       40,000     $ 0     $ 34.85  
Gregory B. Maffei
    40,000       40,000     $ 0     $ 34.85  
 
Executive Officers
                               
Michael A. Dillon
    125,000       31,250     $ 578,750     $ 0.91  
      35,000       8,750     $ 150,150     $ 1.25  
      8,155       2,039     $ 0     $ 10.00  
      19,969       4,992     $ 0     $ 10.00  
      1,042       261     $ 0     $ 49.31  
      36,458       9,114     $ 0     $ 49.31  
Robert J. Jandro
    13,951       3,488     $ 32,646     $ 3.20  
      387,835       96,959     $ 907,534     $ 3.20  
      3,765       941     $ 0     $ 49.31  
      71,235       17,809     $ 0     $ 49.31  

      The table immediately below assumes that the merger was effective as of April 24, 2002 and uses the closing price on April 24, 2002 for all monetary value calculations. The closing price of ONI Systems common stock on April 24, 2002 was $5.37.

                                 
Unvested Options Monetary Value
Immediately Prior Unvested of Accelerated Exercise Price of
to Effective Time Options Options as of Accelerated
Name of Merger Accelerated April 24, 2002 Options





Directors
                               
Matthew W. Bross
    40,000       40,000     $ 0     $ 34.85  
Kevin R. Compton
    43,333       43,333     $ 0     $ 82.56  
      40,000       40,000     $ 0     $ 34.85  
Jonathan D. Feiber
    43,333       43,333     $ 0     $ 82.56  
      40,000       40,000     $ 0     $ 34.85  
James F. Jordan
    40,000       40,000     $ 0     $ 34.85  
Gregory B. Maffei
    40,000       40,000     $ 0     $ 34.85  

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Unvested Options Monetary Value
Immediately Prior Unvested of Accelerated Exercise Price of
to Effective Time Options Options as of Accelerated
Name of Merger Accelerated April 24, 2002 Options





Executive Officers
                               
Michael A. Dillon
    112,500       28,125     $ 501,750     $ 0.91  
      32,083       8,021     $ 132,182     $ 1.25  
      7,991       1,998     $ 0     $ 10.00  
      18,050       4,513     $ 0     $ 10.00  
      1,042       260     $ 0     $ 49.31  
      34,548       8,637     $ 0     $ 49.31  
Robert J. Jandro
    12,835       3,209     $ 27,852     $ 3.20  
      356,808       89,202     $ 774,273     $ 3.20  
      3,755       939     $ 0     $ 49.31  
      67,425       16,856     $ 0     $ 49.31  

      Parachute Payments. For certain employees of ONI Systems the acceleration of the vesting of options upon completion of the merger or subsequent termination of employment may, together with any severance payments, result in “excess parachute payments” as defined in Section 280G of the Internal Revenue Code. Excess parachute payments are not deductible in accordance with Section 280G. As a result, CIENA will not be entitled to a tax deduction for the amount determined to be excess parachute payments.

      Indemnification. The merger agreement provides that, upon the completion of the merger, CIENA for a period of six years will fulfill the obligations of ONI Systems to indemnify and hold harmless each person who is or was a director or officer of ONI Systems against any losses incurred based upon matters existing or occurring prior to the completion of the merger to the same extent that these persons were indemnified pursuant to ONI Systems’ certificate of incorporation, bylaws or any indemnification agreement immediately prior to the merger. In addition, CIENA will cause the combined company to use commercially reasonable efforts to maintain in effect, if available, directors’ and officers’ liability insurance covering the individuals who are currently covered by ONI Systems’ directors’ and officers’ insurance, on terms that are comparable to those currently applicable to ONI Systems directors and officers, provided that CIENA will not be required to pay annual premiums for such individuals in excess of 200% of the last annual premium paid by ONI Systems for directors’ and officers’ liability insurance prior to the date of the merger, but will at least maintain the level of coverage that can be purchased for that amount.

      Stockholder Agreements. The following ONI Systems directors and officers have entered into stockholder agreements pursuant to which they have agreed to vote shares of ONI Systems common stock over which they exercise voting control in favor of the adoption of the merger agreement and the merger:

  •  Hugh C. Martin, Chairman, President and Chief Executive Officer;
 
  •  George Reyes, Interim Chief Financial Officer;
 
  •  William R. Cumpston, Executive Vice President and Chief Operating Officer;
 
  •  Michael A. Dillon, Vice President, General Counsel and Secretary;
 
  •  Robert J. Jandro, Executive Vice President, Global Sales and Services;
 
  •  Rohit Sharma, Founder and Chief Technology Officer;
 
  •  Matthew W. Bross, Director;
 
  •  Kevin Compton, Director;
 
  •  Jonathan D. Feiber, Director;
 
  •  James F. Jordan, Director; and
 
  •  Gregory B. Maffei, Director.

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      The total number of shares of ONI Systems common stock covered by these agreements is                     , which represents approximately      % of ONI Systems’ outstanding common stock as of                     , 2002.

      Loan Agreements ONI Systems made loans to some of its officers and directors, evidenced by promissory notes, which were used to purchase ONI Systems restricted stock and early exercisable options. The promissory notes provide that upon an officer or director’s termination of employment, the company has the right to immediately accelerate the notes. The loans are secured by the stock purchased. The following presents specific information regarding outstanding loans to ONI Systems’ executive officers and directors.

                                         
Date of Principal Interest Balance
Name Promissory Note Amount of Note Rate Due Date as of 3/1/02






Michael A. Dillon
    12/8/99     $ 18,200       6.20%       12/8/04     $ 20,716  
Michael A. Dillion
    2/14/00     $ 87,500       6.56%       2/14/05     $ 81,690  
Hugh C. Martin
    12/21/99     $ 1,519,793       6.20%       12/21/04     $ 1,726,576  
Robert J. Jandro
    3/1/00     $ 2,880,000       6.80%       3/1/05     $ 2,451,164  

Accounting Treatment

      The merger will be accounted for using the purchase method of accounting. CIENA will be deemed the acquiror for financial reporting purposes. Under the purchase method of accounting, the purchase price in the merger is allocated among the ONI Systems assets acquired and the ONI Systems liabilities assumed to the extent of their fair market value, with any excess purchase price being allocated to goodwill.

Listing on The Nasdaq Stock Market

      CIENA has agreed to cause the shares of CIENA common stock issued in the merger to be approved for listing on the Nasdaq Stock Market.

Governmental and Regulatory Approvals

      The Hart-Scott-Rodino Act and its related rules and regulations prohibit ONI Systems and CIENA from completing the merger until CIENA and ONI Systems each make a filing with the Antitrust Division of the Department of Justice and the Federal Trade Commission, and the Hart-Scott-Rodino Antitrust Improvements Act waiting period requirements have been satisfied. Even after the waiting period expires or terminates, the Antitrust Division or the Federal Trade Commission may later challenge the merger on antitrust grounds. CIENA made its Hart-Scott-Rodino filing with the Antitrust Division of the Department of Justice and the Federal Trade Commission on March 7, 2002. ONI Systems made its Hart-Scott-Rodino filing with the Antitrust Division of the Department of Justice and the Federal Trade Commission on March 18, 2002. The merger also may be subject to review by the governmental authorities of various other jurisdictions under the antitrust laws of those jurisdictions.

Federal Income Tax Consequences

      The following discussion describes the material federal income tax consequences of the exchange of shares of ONI Systems common stock for CIENA common stock pursuant to the merger that are generally applicable to holders of ONI Systems common stock. This discussion is based on currently existing provisions of the Internal Revenue Code of 1986, as amended (the “Code”), existing and proposed Treasury regulations thereunder and current administrative rulings and court decisions, all of which are subject to change. Any such change, which may or may not be retroactive, could alter the tax consequences to ONI Systems stockholders as described herein.

      ONI Systems stockholders should be aware that this discussion does not deal with all federal income tax considerations that may be relevant to particular ONI Systems stockholders in light of their particular circumstances, such as stockholders who are dealers in securities, who are subject to the alternative

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minimum tax provisions of the Code, who are foreign persons, insurance companies, tax-exempt organizations, financial institutions, or broker-dealers, who hold their shares as part of a hedge, straddle, conversion or other risk-reduction transaction, who do not hold their ONI Systems common stock as capital assets, or who acquired their shares in connection with stock option or stock purchase plans or in other compensatory transactions. In addition, the following discussion does not address the tax consequences of the merger under foreign, state or local tax laws, the tax consequences of transactions effectuated prior or subsequent to, or concurrently with, the merger (whether or not any such transactions are undertaken in connection with the merger), including without limitation any transaction in which shares of ONI Systems common stock are acquired or shares of CIENA common stock are disposed of, or the tax consequences of the assumption by CIENA of the ONI Systems employee options or the tax consequences of any receipt of rights to acquire CIENA common stock.

      Accordingly, ONI Systems stockholders are urged to consult their own tax advisors as to the specific tax consequences to them of the merger, including the applicable federal, state, local and foreign tax consequences.

      Subject to the limitations and qualifications discussed in such opinions, in the opinion of Hogan & Hartson L.L.P., counsel to CIENA, and Fenwick & West LLP, counsel to ONI Systems, the merger will be treated for federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code and the merger will result in the following federal income tax consequences to ONI Systems stockholders if the merger is completed under the current terms of the merger agreement:

  •  No gain or loss will be recognized by holders of ONI Systems common stock solely upon their receipt of CIENA common stock in exchange for ONI Systems common stock in the merger.
 
  •  The aggregate tax basis of the CIENA common stock received by ONI Systems stockholders in the merger (including any fractional share interest in CIENA common stock) will be the same as the aggregate tax basis of the ONI Systems common stock surrendered in exchange therefor.
 
  •  The holding period of the CIENA common stock received by ONI Systems stockholders in the merger will include the period for which the ONI Systems common stock surrendered in exchange therefor was considered to be held, provided that the ONI Systems common stock so surrendered is held as a capital asset at the time of the merger.
 
  •  Any cash payment received by a holder of ONI Systems common stock in lieu of a fractional share of CIENA common stock will be treated as if such fractional share had been issued in the merger and then redeemed by CIENA. An ONI Systems stockholder receiving such cash will recognize gain or loss, upon such payment, measured by the difference, if any, between the amount of cash received and the basis in such fractional share. The gain or loss will be capital gain provided that the shares of ONI Systems common stock were held as capital assets and will be long term capital gain or loss if the ONI Systems common stock had been held for more than one year at the time of the merger. However, if the receipt of cash instead of fractional shares is essentially equivalent to a dividend (determined by application of Section 302 of the Code on a stockholder by stockholder basis), some or all of this gain may be treated as a dividend and taxed as ordinary income.

      Opinions of counsel are based on certain representations as to factual matters made by, among others, CIENA and ONI Systems. Such representations, if incorrect, could jeopardize the conclusions reached in the opinions. Neither CIENA nor ONI Systems is currently aware of any facts or circumstances which would cause any such representations made to counsel to be untrue or incorrect in any material respect. Any opinion of counsel is not binding on the Internal Revenue Service or the courts. The parties have not and will not request a ruling from the Internal Revenue Service as to the tax consequences of the merger.

      A successful Internal Revenue Service challenge to the reorganization status of the merger would result in ONI Systems stockholders recognizing taxable gain or loss with respect to each share of ONI Systems common stock surrendered equal to the difference between the stockholder’s basis in such share and the fair market value, as of the effective time of the merger, of the CIENA common stock received in exchange therefor. In such event, a stockholder’s aggregate basis in the CIENA common stock so received

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would equal its fair market value, and the stockholder’s holding period for such stock would begin the day after the merger.

          Federal Backup Withholding

      A holder of ONI Systems common stock may be subject, under some circumstances, to backup withholding at a rate of 30% with respect to the amount of cash, if any, received in lieu of a fraction of a share of CIENA common stock in the merger unless the holder provides proof of an applicable exemption or a correct taxpayer identification number, and otherwise complies with applicable requirements of the backup withholding rules. Any amounts withheld under the backup withholding rules are not an additional tax and may be refunded or credited against the holder’s U.S. federal income tax liability, provided the required information is furnished to the Internal Revenue Service.

 
ONI Systems’ 5% Convertible Subordinated Notes Due October 15, 2005

      CIENA will execute a supplemental indenture that provides for the conversion of the ONI Systems $300,000,000 aggregate principal amount 5% convertible subordinated notes into 5% convertible subordinated notes of CIENA, convertible into CIENA common stock. Upon consummation of the merger, the notes will become debt obligations of CIENA, immediately convertible into approximately 7.7525 shares of CIENA common stock for each $1,000 in principal amount held, subject to adjustment.

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TERMS OF THE MERGER AGREEMENT AND RELATED TRANSACTIONS

      The following summary of the material terms and provisions of the merger agreement is qualified in its entirety by reference to the merger agreement. The merger agreement is attached as Annex A to this joint proxy statement/prospectus and is incorporated herein by reference. All stockholders are urged to read the merger agreement carefully.

General

      The merger agreement provides that ONI Systems will be merged with and into CIENA, at the effective time of the merger. Pursuant to the merger agreement, ONI Systems will cease to exist and CIENA will be the surviving corporation. At the effective time of the merger, each outstanding share of ONI Systems common stock will be converted into CIENA common stock, all as more fully described below.

      This section of the joint proxy statement/prospectus describes aspects of the merger, including the material provisions of the merger agreement.

Structure of the Merger

      Subject to the terms and conditions of the merger agreement and in accordance with the Delaware General Corporation Law, the DGCL, at the effective time of the merger, ONI Systems will merge with and into CIENA. ONI Systems will then cease to exist, and CIENA will continue as the surviving company. The certificate of incorporation of CIENA will be the certificate of incorporation of the surviving corporation. The bylaws of CIENA will be the bylaws of the surviving corporation and the board of directors and the officers of CIENA will remain the board of directors and officers of the surviving corporation.

Management and Operations After the Merger

      Following the merger, CIENA will integrate all of ONI Systems’ operations into its own. All of the officers and directors of CIENA before the merger will remain officers and directors of CIENA after the merger. The stockholders of ONI Systems will become stockholders of CIENA, and their rights as stockholders will be governed by CIENA’s articles of incorporation and bylaws, each as currently in effect, and the laws of the State of Delaware.

Treatment of Stock, Options and Warrants

      At the effective time of the merger, each issued and outstanding share of ONI Systems common stock, other than shares held in the treasury of ONI Systems, by CIENA or by any direct or indirect wholly owned subsidiary of ONI Systems or CIENA, will be converted into 0.7104 shares of CIENA common stock. Each share of CIENA common stock issued in the merger will include the corresponding fraction of a right to purchase shares of junior preferred stock, par value $0.01 per share, pursuant to the Rights Agreement dated as of December 29, 1997 between CIENA and Equiserve Trust Co., N.A. (formerly BankBoston, N.A.) as Rights Agent, as amended. If there is a change in the number of shares of CIENA common stock outstanding, under certain circumstances the exchange ratio will be adjusted.

      Each share of ONI Systems common stock held in the treasury of ONI Systems, by CIENA or by any direct or indirect wholly owned subsidiary of ONI Systems or of CIENA will be canceled and extinguished at the effective time of the merger without the payment of any consideration.

      CIENA will assume each option or warrant to acquire ONI Systems common stock granted under ONI Systems’ stock plan or otherwise issued by ONI Systems and that is outstanding and unexercised immediately prior to the effective time of the merger, and at the effective time of the merger, CIENA will replace them with an option or warrant, respectively, to purchase CIENA common stock. In each case, the number of shares of CIENA common stock subject to the new CIENA option or warrant will be equal to the number of shares of ONI Systems common stock subject to the ONI Systems stock option or

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warrant, assuming full vesting, multiplied by 0.7104 (and rounding any fractional share down to the nearest whole share) and the exercise price per share of CIENA common stock will be equal to the aggregate exercise price per share of ONI common stock subject to the ONI Systems stock option or warrant divided by 0.7104. The duration and other terms of each such CIENA option or warrant, including the vesting schedule, will be the same as the prior ONI Systems stock option or warrant.

      CIENA has agreed under the terms of the merger agreement to assume ONI Systems’ commitment to issue options to certain employees in accordance with the terms of ONI Systems’ offer to exchange dated October 19, 2001. Accordingly, if the merger closes before the replacement option grant date which will be no earlier than May 20, 2002, CIENA will issue the replacement options, and the number of shares subject to the replacement options will be determined by multiplying the number of shares of ONI Systems common stock that would have been covered by each option by 0.7104. The exercise price of the replacement options will be the fair market value of CIENA’s common stock on the grant date. If the merger closes after the replacement option grant date, ONI Systems will issue the replacement options, which will then be converted to CIENA options at the exchange ratio following the closing of the merger. In addition to the foregoing, CIENA has assumed ONI Systems’ commitment to issue options to certain overseas employees of ONI Systems who were not eligible to participate in the Offer to Exchange. Options to purchase up to 5,159,535 shares of CIENA common stock may be issued under the offer to exchange and options to purchase up to 386,330 shares of CIENA common stock may be issued to employees of ONI Systems based overseas.

      CIENA has agreed under the terms of the merger agreement to assume ONI Systems’ employee stock purchase plan and the related commitment to issue and sell shares under the plan. Each assumed purchase right shall continue to have, and be subject to, the terms and conditions set forth in the employee stock purchase plan except that the number of shares of CIENA common stock issuable upon exercise thereof will equal the number of shares of ONI Systems common stock otherwise issuable multiplied by 0.7104 and the purchase price of the CIENA common stock on the purchase date thereof will be the lower of:

  •  85% of the fair market value per share of ONI Systems common stock on the offering date under the plan for the purchase period divided by 0.7104; and
 
  •  85% of the fair market value per share of CIENA common stock on the applicable purchase date.

Exchange of Certificates; Fractional Shares

      CIENA has agreed to deposit with a bank or trust company designated as exchange agent by CIENA for the benefit of the holders of issued and outstanding shares of ONI Systems common stock, certificates representing the shares of CIENA common stock to be issued pursuant to the merger agreement.

      At the earliest practicable date after the effective time of the merger, the exchange agent will mail a letter of transmittal to each holder of record of ONI Systems common stock. The letter of transmittal will contain instructions with respect to the surrender of stock certificates to the exchange agent.

      You should not return your stock certificates with the enclosed proxy nor should you forward them to the exchange agent unless and until you receive the letter of transmittal, at which time you should forward them only in accordance with the instructions specified in the letter of transmittal.

      Until the holders of certificates representing ONI Systems common stock to be converted into CIENA common stock in the merger surrender them for exchange at or after the effective time of the merger, they will accrue but will not receive dividends or other distributions declared after the effective time of the merger with respect to CIENA common stock into which their ONI Systems stock has been converted. When they surrender such certificates, any unpaid dividends or other distributions will be paid, without interest. All stock certificates presented after the effective time of the merger will be canceled and exchanged for a certificate representing the applicable number of shares of CIENA common stock.

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      CIENA will not issue any fractional shares. Instead, each ONI Systems’ stockholder who would otherwise have been entitled to receive a fractional share of CIENA common stock will receive cash, without interest, in an amount rounded to the nearest whole cent, determined by multiplying (1) the per share closing price on Nasdaq of CIENA common stock on the closing date (or, if the CIENA common stock is not trading on Nasdaq on that date, the first day of trading in CIENA common stock on Nasdaq thereafter) by (2) the fraction of a share of CIENA common stock to which the holder would otherwise be entitled.

      Any shares of CIENA common stock and cash that the exchange agent has not distributed six months after the effective time of the merger will be delivered to CIENA upon demand. Certificates representing ONI Systems common stock must thereafter be surrendered for exchange to CIENA. Neither CIENA, ONI Systems, nor the exchange agent will be liable for any shares of CIENA common stock, dividends or distributions with respect thereto, or cash delivered to a public official pursuant to any abandoned property, escheat or similar laws.

      If a certificate representing ONI Systems common stock is lost, stolen or destroyed, the exchange agent will issue the CIENA common stock in exchange for the certificate only upon the making of an affidavit of such loss, theft or destruction by the claimant, and, if required by CIENA, the posting of a bond as indemnity against any claim that may be made against CIENA or the exchange agent with respect to such certificate.

      For a description of the CIENA common stock and a description of the differences between the rights of the holders of CIENA common stock and holders of ONI Systems common stock, see “CIENA Capital Stock and Comparison of Stockholder Rights.”

Effective Time

      The merger will occur after specified conditions set forth in Article VI of the merger agreement have been satisfied or waived. On the second business day after the satisfaction or waiver of these conditions, the parties will hold a scheduled closing. On the day the merger occurs, CIENA will file a certificate of merger with the Secretary of State of the State of Delaware. The effective time of the merger will be the date and time of such filing. CIENA and ONI Systems each anticipate that, if the merger is approved at the special meetings, it will be consummated during the second or third calendar quarter of 2002. However, a delay in obtaining governmental consents required prior to consummation of the transactions contemplated in the merger agreement could delay the merger. There can be no assurances as to if or when such governmental consents will be obtained or that the merger will be consummated.

Representations and Warranties

      The merger agreement contains various representations of CIENA and ONI Systems. CIENA and ONI Systems make customary representations and warranties to each other relating to, among other things:

  •  the corporate organization and existence of each company, including that it is duly organized, validly existing and in good standing with the corporate power and authority to own, operate and lease its properties and to carry on its business as currently conducted;
 
  •  the certificate of incorporation and bylaws or other organizational documents of each company;
 
  •  the capitalization of each company, including the number of shares of capital stock authorized, the number of shares and rights to acquire shares outstanding and the number of shares reserved for issuance;
 
  •  the corporate power and authority of each company to execute and deliver the merger agreement and related documents and to consummate the transactions contemplated thereby;
 
  •  the compliance of the merger agreement and related documents with (1) each company’s certificate of incorporation and bylaws and the certificate or articles of incorporation and bylaws of

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  each company’s subsidiaries, (2) applicable laws, and (3) certain material agreements of each company, including the absence of events of default thereunder;
 
  •  the required governmental and third-party consents;
 
  •  the possession and validity of all required licenses, the filing of required regulatory reports and compliance with applicable laws by each company;
 
  •  each company’s financial statements, including that the information in the financial statements is a fair presentation of the financial condition and results of operations of each company and is in compliance with GAAP;
 
  •  the absence of material undisclosed liabilities;
 
  •  the absence of certain changes in ONI Systems’ business since December 31, 2000 and in CIENA’s business since October 31, 2001;
 
  •  the absence of material legal proceedings, injunctions and disputes;
 
  •  the validity of and absence of defaults under certain debt instruments, leases and other agreements of each company;
 
  •  compliance with laws relating to employees or the workplace, and the absence of material disputes with employees;
 
  •  the filing and accuracy of each company’s tax returns;
 
  •  the absence of certain business practices of each company;
 
  •  knowledge regarding customer and supplier relationships;
 
  •  the ownership and condition of the assets owned by each company;
 
  •  complete and correct books and records;
 
  •  the absence of intellectual property infringement or contests;
 
  •  the absence of brokers or finders other than Goldman Sachs and Morgan Stanley;
 
  •  the treatment of the merger as a reorganization under Section 368(a) of the Internal Revenue Code;
 
  •  compliance with environmental laws and the absence of environmental liabilities; and
 
  •  true and complete copies of all documents.

      ONI Systems makes additional representations and warranties to CIENA regarding:

  •  its employee benefit plans and related matters, including that the plans have been operated and administered in accordance with applicable laws;
 
  •  insurance;
 
  •  related party transactions; and
 
  •  the inapplicability of state anti-takeover statutes to the merger.

      CIENA makes an additional representation to ONI Systems that the shares of CIENA common stock to be issued in the merger will be duly and validly issued, fully paid and non-assessable.

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Business of ONI Systems and CIENA Pending the Merger; Other Agreements

      Pursuant to the merger agreement, ONI Systems and CIENA have each agreed to maintain its business in the ordinary course consistent with past practice. From the date of signing of the merger agreement until closing, each company will:

  •  maintain its existence in good standing;
 
  •  maintain the character of its business and properties and conduct its business in the ordinary and usual manner consistent with past practices, except as expressly permitted by the merger agreement;
 
  •  maintain business and accounting records consistent with past practices; and
 
  •  use its best efforts (1) to preserve its business intact, (2) to keep available to it the services of its present officers and employees, and (3) to preserve for it the goodwill of its suppliers, customers and others having business relations with it.

  Interim Operations of ONI Systems:

      Unless CIENA otherwise approves, ONI Systems and its subsidiaries may not:

  •  amend or otherwise change its certificate of incorporation or bylaws;
 
  •  issue any stock or grant any options with certain exceptions in the ordinary course, including under its option program;
 
  •  declare, set aside, make or pay any dividend or other distribution, payable in cash, stock, property or otherwise with respect to any of its capital stock;
 
  •  reclassify, combine, split, subdivide or redeem, purchase or otherwise acquire, directly or indirectly, any of its capital stock, except for repurchases from terminated employees;
 
  •  incur any indebtedness for borrowed money or issue any debt securities or assume, guarantee or endorse, or otherwise become responsible for, the obligations of any person, or make any loans or advances, with certain exceptions;
 
  •  acquire, including, without limitation, by merger, consolidation, or acquisition of stock or assets, any corporation, partnership, other business organization or any division thereof or any material amount of assets;
 
  •  enter into any contract or agreement other than in the ordinary course of business, consistent with past practice;
 
  •  authorize any capital commitment or capital lease which is in excess of $100,000 or capital expenditures which are, in the aggregate, in excess of $100,000 or are not included on ONI Systems’ capital budget for 2002;
 
  •  mortgage, pledge or subject to encumbrance any of its material assets or properties, or agree to do so, other than in the ordinary course of business;
 
  •  assume, guarantee or otherwise become responsible for the obligations of any other person or agree to so do;
 
  •  enter into or agree to enter into any employment agreement, other than offer letters or letter agreements entered into in the ordinary course of business;
 
  •  increase the compensation of its officers or employees, or grant any severance or termination pay to, or enter into any severance agreement with any director, officer or other employee of ONI Systems, or establish, adopt, enter into or amend any collective bargaining, bonus, profit sharing, thrift, compensation, stock option, restricted stock, pension, retirement, deferred compensation, employment, termination, severance or other plan, agreement, trust, fund, policy or arrangement for the benefit of any such director, officer or employee except for reasonable salary increases in connection

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  with customary officer and employee performance review process, customary bonuses consistent with past practices, and amendments to existing employee benefit plans as necessary to maintain compliance with applicable laws;
 
  •  change in any respect its accounting policies or procedures, including, without limitation, procedures with respect to the payment of accounts payable and collection of accounts receivables except as required by GAAP;
 
  •  make any tax election or settle or compromise any federal, state, local or foreign material income tax liability in excess of $50,000;
 
  •  settle or compromise any material pending or threatened suit, action or claim;
 
  •  pay, discharge or satisfy any claim, liability or obligation, other than the payment, discharge or satisfaction, in the ordinary course of business and consistent with past practice, of liabilities reflected or reserved against in the latest balance sheet included in the last audited financial statement provided to CIENA or subsequently incurred in the ordinary course of business and consistent with past practice;
 
  •  sell, assign, transfer, license or sublicense, other than in the ordinary course of business and consistent with past practice, pledge or otherwise encumber any of the intellectual property rights;
 
  •  initiate any litigation against a third party;
 
  •  adopt any stockholder rights or similar plans; or
 
  •  agree to do any of the foregoing.

     Interim Operations of CIENA:

      Unless ONI Systems otherwise approves, CIENA may not:

  •  declare, set aside, make or pay any dividend or other distribution, payable in cash, stock, property or otherwise with respect to any of its capital stock;
 
  •  redeem, purchase or otherwise acquire any of its capital stock;
 
  •  acquire, including, without limitation, by merger, consolidation or acquisition of stock or assets, any corporation, partnership, other business organization or any division thereof or any material amount of assets for a purchase price having a value in excess of 34 million shares of CIENA common stock;
 
  •  amend or otherwise change its certificate of incorporation or bylaws; or
 
  •  agree to do any of the foregoing.

No Solicitation by ONI Systems

      Pursuant to the merger agreement, ONI Systems may not, nor may it authorize or permit any of its affiliates or any officer, director, employee, investment banker, attorney or other adviser or representative of ONI Systems or any of its affiliates to:

  •  solicit, initiate, or encourage the submission of, any acquisition proposal;
 
  •  enter into any agreement with respect to any acquisition proposal; or
 
  •  participate in any discussions or negotiations regarding, or furnish to any person any information for the purpose of facilitating the making of, or take any other action to facilitate any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, any acquisition proposal.

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      The merger agreement does not preclude ONI Systems from, prior to receipt of the requisite stockholder approval, providing information to (subject to appropriate confidentiality protections), or entering into negotiations with, a person who has delivered an unsolicited written bona fide acquisition proposal, so long as in each case:

  •  the board of directors of ONI Systems determines in good faith, after receiving the advice of its financial advisor and outside legal counsel, that the acquisition proposal, if accepted, is reasonably likely to be consummated;
 
  •  the board of directors of ONI Systems determines in good faith, after receiving the advice of its financial advisor, that the acquisition proposal would, if consummated, result in a transaction that is more favorable to the ONI Systems stockholders with respect to financial terms and, if applicable, strategic benefit, taking into account the long-term value to stockholders of the CIENA shares being issued and the strategic nature of the merger; and
 
  •  the board of directors of ONI Systems determines in good faith, after receiving advice of its outside legal counsel, that taking such action is required or necessary in order to fulfill its fiduciary duties under applicable law.

      ONI Systems must promptly advise CIENA of any acquisition proposal and inquiries with respect to any acquisition proposal. Acquisition proposal means any proposal for a merger or other business combination involving ONI Systems or any proposal or offer to acquire in any manner, directly or indirectly, 10% or more of the equity securities, voting securities, or assets of ONI Systems.

      The merger agreement provides that the ONI Systems board of directors may not withdraw, amend, modify or qualify in a manner adverse to CIENA its recommendation of the merger to its stockholders unless it provides CIENA with three business days’ prior notice, it has otherwise complied in all respects with its obligations under the merger agreement, and after receiving the advice of its outside legal counsel, the ONI Systems board of directors determines in good faith that it is required to withdraw, amend or modify its recommendation in order to satisfy its fiduciary duties to ONI Systems’ stockholders under applicable law.

Additional Agreements of CIENA and ONI Systems

      Pursuant to the merger agreement, CIENA and ONI Systems have also agreed to use their reasonable best efforts to take all necessary, proper or appropriate actions to consummate the transactions contemplated by the merger agreement. In accordance with its certificate of incorporation and bylaws, CIENA and ONI Systems will take all action necessary to convene a meeting or meetings of the holders of CIENA and ONI Systems stock, as appropriate, to be held as promptly as practicable after the S-4 registration statement is declared effective.

      Subject to the fiduciary duty exceptions described below, each board of directors:

  •  will recommend approval by its stockholders;
 
  •  will not withdraw or modify its recommendation; and
 
  •  will take all lawful action to solicit stockholder approval as promptly as possible.

Each board of directors may withdraw, amend, modify or qualify in a manner adverse to the other its recommendation upon three business days notice, by following the procedures described above in the last paragraph of “— No Solicitation by ONI Systems.”

Directors’ and Officers’ Insurance and Indemnification

      CIENA has agreed to fulfill and honor in all respects the indemnification agreements ONI Systems has previously entered into with its officers and directors and to fulfill and honor any indemnification provisions of ONI Systems’ charter documents. The merger agreement provides that all rights to indemnification for present and former officers and directors of ONI Systems will survive the merger and

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continue in full force and effect for a period of not less than six years from the date of the completion of the merger in the case of certain omissions.

Conditions Precedent to Each Party’s Obligation to Effect the Merger

      The following conditions must be satisfied before the merger can become effective:

  •  All applicable waiting periods under the Hart-Scott-Rodino Act and any foreign competition laws, where a filing and waiting period are required, have expired or been terminated;
 
  •  CIENA and ONI Systems have obtained all authorizations, consents, orders, declarations or approvals of, or filings with, any governmental authority required in connection with the merger, which the failure to obtain, make or occur would have the effect of making the merger or any of the transactions contemplated by it illegal or would have a material adverse effect on CIENA or a material adverse effect on ONI Systems, assuming the merger had taken place;
 
  •  No governmental entity enacts, issues, promulgates, enforces or enters any statute, rule, regulation, judgment, decree, injunction or other order which is in effect and which makes the merger illegal or otherwise prohibits consummation of the merger;
 
  •  The S-4 Registration Statement must have become effective under the Securities Act, and there must be no stop order or threat of proceedings by the SEC to suspend the effectiveness of the S-4; and
 
  •  Holders of CIENA common stock and ONI Systems common stock must approve the merger.

Conditions Precedent to Obligations of CIENA

      CIENA’s obligations to effect the merger are subject to the fulfillment or satisfaction, prior to or on the closing date, of each of the following conditions:

  •  ONI Systems must have performed and complied in all material respects with all agreements and conditions to be performed prior to or on the closing date;
 
  •  Each of ONI Systems’ representations and warranties in the merger agreement must be true and correct as of the closing, except for changes permitted by the merger agreement or where the failure to be true and correct would not have or be reasonably likely to result in a material adverse effect on ONI Systems;
 
  •  No event, occurrence, development or change shall have occurred that has or is reasonably likely to have a material adverse effect on ONI Systems;
 
  •  Certain individuals shall have executed affiliate letters and/or stockholder agreements;
 
  •  ONI Systems must have received certain specified consents or waivers, in form and substance satisfactory to CIENA, from the other parties to certain contracts, leases or agreements to which ONI Systems is a party; and
 
  •  CIENA must have received the opinion of Hogan & Hartson L.L.P., counsel to CIENA, dated as of the closing date, confirming that the merger will qualify as a reorganization under Section 368(a) of the Internal Revenue Code.

Conditions Precedent to ONI Systems’ Obligations

      ONI Systems’ obligations to effect the merger are subject to the satisfaction of the following conditions prior to the closing date:

  •  CIENA must have performed and complied in all material respects with all agreements and conditions to be performed prior to or on the closing date;

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  •  Each of CIENA’s representations and warranties in the merger agreement must be true and correct in all material respects as of the closing date, except for changes permitted by the merger agreement or where the failure to be true and correct would not have or be reasonably likely to result in a material adverse effect on CIENA;
 
  •  No event, occurrence, development or change shall have occurred that has or is reasonably likely to have a material adverse effect on CIENA; and
 
  •  ONI Systems must have received the opinion of Fenwick & West, LLP, counsel to ONI Systems, dated as of the closing date, confirming that the merger will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code.

The term “material adverse effect,” as defined in the merger agreement with respect to CIENA and ONI Systems, means a material adverse effect on the business, financial condition, assets, liabilities or results of operations of either company and its subsidiaries, with certain exceptions, including:

  •  any failure to meet analysts’ published revenue or earnings predictions for any period ending on or after the date of the merger agreement;
 
  •  any adverse change, effect, event, occurrence, state of facts or development attributable to conditions affecting generally the industry in which CIENA or ONI Systems participates, the US economy as a whole or foreign economies in any locations where CIENA or ONI Systems have material operations, sales, or customers, except an adverse change, effect, event, occurrence, state of facts or development that has a materially disproportionate impact on the affected party; and
 
  •  any adverse change resulting from the announcement or pendency of the merger.

Termination of the Merger Agreement

      The merger agreement may be terminated, and the merger may be abandoned at any time prior to the closing date:

  •  by the mutual written agreement of the boards of directors of CIENA and ONI Systems;
 
  •  by CIENA or ONI Systems if:

  the closing date has not occurred by September 30, 2002; provided that the right to terminate the merger agreement is not available to any party who has caused the delay in the closing date by failing to fulfill its obligations under the merger agreement;
 
  the approval of CIENA’s and ONI Systems’ stockholders, as required by the merger agreement, has not been obtained at a meeting convened for that purpose; or
 
  any court of competent jurisdiction in the United States or other United States governmental authority issues an order or takes any other final and non-appealable action restraining, enjoining or otherwise prohibiting the merger.

  •  by ONI Systems if:

  ONI Systems’ board of directors authorizes ONI Systems, subject to complying with the merger agreement, to enter into a binding written agreement concerning a superior proposal and CIENA does not make, within five business days of receipt of notification of ONI Systems’ intent, an offer that the ONI Systems board of directors determines in good faith, after consultation with its outside legal counsel and its financial advisors, is at least as favorable as the superior proposal, taking into account the strategic benefit and long-term value to stockholders of the revised merger consideration and the strategic nature of the proposed merger with CIENA, as applicable;

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  CIENA or its board of directors shall have withdrawn, modified or amended in any respect adverse to ONI Systems its recommendation in favor of the merger or failed to reconfirm its recommendation within 5 business days of a written request of ONI Systems to do so;
 
  CIENA shall have failed to mail the joint proxy statement/prospectus to its stockholders as promptly as possible or failed to include the CIENA board of directors recommendation in the joint proxy statement/ prospectus;
 
  CIENA shall have taken specified steps toward the approval or consummation of any acquisition proposal, as a result of which CIENA would be acquired by any third party, or any offer whereby a third party would acquire 10% or more of CIENA’s securities or assets, or CIENA shall have failed to recommend rejection of a tender or exchange offer that is conditioned on termination of the merger with ONI Systems; or
 
  CIENA materially breaches any representation, warranty, covenant or agreement in the merger agreement, and fails to cure the breach thirty days after receiving written notice of it, if the effect of the breach would be or would be likely to result in a material adverse effect on CIENA.

  •  by CIENA if

  ONI Systems’ board of directors has withdrawn, modified or amended in any respect adverse to CIENA its recommendation in favor of the merger or failed to reconfirm its recommendation within 5 business days of a written request of CIENA to do so;
 
  ONI Systems has approved, publicly recommended or entered into an agreement with respect to, or consummated, or adopted a resolution to approve, publicly recommend, enter into an agreement with respect to, or consummate any acquisition proposal from a person other than CIENA or any of its affiliates;
 
  ONI Systems fails to recommend rejection of a tender or exchange offer made by a third party;
 
  ONI Systems shall have failed to mail the joint proxy statement/ prospectus to its stockholders as promptly as possible or failed to include the ONI Systems board of directors’ recommendation in the joint proxy statement/prospectus; or
 
  ONI Systems materially breaches any representation, warranty, covenant or agreement in the merger agreement, and fails to cure the breach thirty days after receiving notice of it, if the effect of the breach would be or would be likely to result in a material adverse effect on ONI Systems.

If the merger agreement is terminated by ONI Systems due to a superior proposal, or by CIENA because ONI Systems’ board of directors withdraws, amends or modifies its recommendation in favor of the merger, because ONI Systems fails to mail the joint proxy statement/ prospectus to its stockholders as promptly as possible or fails to include the board of directors’ recommendation in the joint proxy statement/ prospectus, because ONI Systems approves an acquisition proposal from a person other than CIENA or because ONI Systems fails to recommend rejection of a tender offer by a person other than CIENA, then ONI Systems must pay CIENA a termination fee of $36.7 million, as well as reimbursement of up to $2 million for expenses incurred in the merger negotiation. However, except as described in the next sentence, ONI Systems will have no obligation to pay a termination fee or to reimburse CIENA’s expenses if the merger agreement is terminated by CIENA as a result of a modification, withdrawal or amendment in a manner adverse to CIENA of ONI Systems’ board of directors’ recommendation to its stockholders and the principal reason for the change is a development or combination of developments relating to CIENA that, individually or in the aggregate, has had or is reasonably likely to result in a material adverse effect on CIENA. ONI Systems will also be required to pay the $36.7 million termination fee and to reimburse CIENA’s out-of-pocket expenses if the merger agreement is terminated by either party as a result of the failure to obtain stockholder consent or by

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CIENA in the event of a change in the ONI Systems board of directors’ recommendation for reasons relating to a material adverse effect on CIENA, if:

  •  at the time of ONI Systems’ stockholders meeting to vote on the merger or the change in the board of directors’ recommendation, as applicable, any person shall have made an acquisition proposal to ONI Systems or any of its stockholders that is then publicly known or shall have publicly announced an intention to make an acquisition proposal with respect to ONI Systems; and
 
  •  ONI Systems enters into an agreement concerning a transaction that constitutes an acquisition proposal within 12 months of termination of the merger agreement.

In the event of termination of the merger agreement by ONI Systems because CIENA’s board of directors withdraws, amends or modifies its recommendation in favor of the merger, because CIENA fails to mail the joint proxy statement/prospectus to its stockholders as promptly as possible or fails to include the board of directors’ recommendation in the joint proxy statement/prospectus, because CIENA takes specified steps toward the approval or consummation of any acquisition proposal as a result of which CIENA would be acquired by any third party, or a third party will acquire 10% or more of CIENA’s securities or assets, that is conditioned on termination of the merger with ONI Systems or CIENA fails to recommend rejection of a tender offer, then CIENA must pay ONI Systems a termination fee of $36.7 million, as well as reimbursement of up to $2 million for expenses incurred in the merger negotiation. However, except as described in the next sentence, CIENA will have no obligation to pay a termination fee or to reimburse ONI Systems’ expenses if the merger agreement is terminated by ONI Systems as a result of a modification, withdrawal or amendment in a manner adverse to ONI Systems of CIENA’s board of directors’ recommendation to its stockholders and the principal reason for the change is a development or combination of developments relating to ONI Systems that, individually or in the aggregate, has had or is reasonably likely to result in a material adverse effect on ONI Systems. CIENA will be required to pay a $87.2 million termination fee, less amounts previously paid, and to reimburse ONI Systems’ out-of-pocket expenses if the merger agreement is terminated by either party as a result of the failure to obtain stockholder consent or by ONI Systems in the event of a change in the CIENA board of directors’ recommendation for reasons relating to a material adverse effect on ONI Systems, if:

  •  at the time of CIENA’s stockholders meeting to vote on the merger or the change in the board of directors recommendation, as applicable, any person shall have made an acquisition proposal to CIENA or any of its stockholders that is then publicly known or shall have publicly announced an intention to make an acquisition proposal with respect to CIENA; and
 
  •  CIENA enters into an agreement concerning that transaction that constitutes an acquisition proposal within 12 months of termination of the merger agreement.

Waiver and Amendment of the Merger Agreement

      At any time prior to the effective time of the merger, the parties to the merger agreement may agree in writing to:

  •  extend the time for the performance of any obligation or other act required to be performed under the merger agreement;
 
  •  waive any inaccuracies in the representations and warranties contained in the merger agreement or in any document delivered pursuant to the merger agreement;
 
  •  waive compliance with any of the agreements or conditions contained in the merger agreement; or
 
  •  amend the merger agreement.

      Stockholder approval may not be waived. If a material condition is waived by either CIENA or ONI Systems, the company waiving the condition intends to resolicit the vote of its stockholders.

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Expenses

      CIENA and ONI Systems will pay their own expenses incidental to the preparation of the merger agreement, the carrying out of the provisions of the merger agreement and the consummation of the transactions contemplated by the merger agreement.

Stockholder Agreements

      Certain directors and officers of ONI Systems owning approximately        % of the ONI Systems common stock outstanding as of                         , 2002 have signed stockholder agreements in which they have agreed to do the following:

  •  vote in favor of adopting and approving the terms of the merger agreement;
 
  •  vote against any alternative acquisition proposal; and
 
  •  vote against any amendment of ONI Systems’ certificate of incorporation or bylaws, which amendment would in any manner impede, frustrate, prevent or nullify the merger or the merger agreement or change in any manner the voting rights of any class of capital stock of ONI Systems.

      These stockholders have also agreed not to:

  •  sell, transfer, pledge, assign or otherwise dispose of, or enter into any contract, option or other arrangement (including any profit-sharing arrangement) with respect to the transfer of their ONI Systems shares to any person, subject to limited exceptions;
 
  •  enter into any voting arrangement, whether by proxy, voting agreement or otherwise, in relation to their ONI Systems shares; or
 
  •  permit any affiliate, director, officer, employee, investment banker, attorney or other advisor or representative of the stockholder to (i) directly or indirectly solicit, initiate or knowingly encourage the submission of, any alternative acquisition proposal or (ii) directly or indirectly participate in any discussions or negotiations regarding, or furnish to any person any information with respect to, or facilitate any inquiries or the making of any proposal that constitutes or may lead to, any alternative acquisition proposal.

      The form of this stockholder agreement is attached as Annex B to this joint proxy statement/prospectus.

Restrictions on Resales by Affiliates

      The shares of CIENA stock to be issued to ONI Systems’ stockholders in the merger have been registered under the Securities Act. These shares may be traded freely and without restriction by those stockholders not deemed to be “affiliates” of ONI Systems as that term is defined under the Securities Act. An affiliate of a corporation, as defined by the rules promulgated under the Securities Act, is a person who directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, that corporation. Any transfer by an affiliate of ONI Systems must be one permitted by the resale provisions of Rule 145 promulgated under the Securities Act. If an ONI Systems affiliate becomes an affiliate of CIENA, any transfer must be permitted by the resale provisions of Rule 144 promulgated under the Securities Act or otherwise permitted under the Securities Act. These restrictions are expected to apply to the executive officers and directors of ONI Systems. Affiliates of ONI Systems have agreed to comply with these restrictions. In addition, pursuant to affiliate agreements executed by Messrs. Martin, Cumpston and Sharma, these executive officers have agreed not to sell shares of CIENA received in the merger for a period of 180 days after the completion of the merger. The form of affiliate agreement executed by Messrs. Martin, Cumpston and Sharma is attached as Annex C to this joint proxy statement/prospectus.

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UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

      The following unaudited pro forma combined financial statements present the effect of the pending merger between CIENA and ONI Systems as if the merger had been completed on November 1, 2000 for results of operations purposes and on January 31, 2002 for balance sheet purposes. Due to different fiscal periods for CIENA and ONI Systems, the January 31, 2002 pro forma combined balance sheet is based upon the historical consolidated balance sheet data of CIENA as of January 31, 2002, and the historical balance sheet data of ONI Systems as of December 31, 2001. The October 31, 2001 pro forma combined statement of operations includes the historical consolidated statement of operations data of CIENA for the twelve months ended October 31, 2001 and the consolidated historical statement of operations data of ONI Systems for the twelve months ended December 31, 2001. The January 31, 2002 pro forma combined statement of operations includes the historical consolidated statement of operations data of CIENA for the three months ended January 31, 2002 and the consolidated historical statement of operations data of ONI Systems for the three months ended December 31, 2001. Due to the difference in year ends, the ONI Systems fourth quarter 2001 operating results are included in both the year ended October 31, 2001 and three months ended January 31, 2002 pro forma operating results. On March 29, 2001, CIENA acquired Cyras Systems, Inc. in a purchase business combination. Due to the significance of that acquisition, the CIENA pro forma operating results include adjustments to reflect the acquisition of Cyras Systems as of November 1, 2000.

      The unaudited pro forma combined financial data is based on estimates and assumptions which are preliminary and have been made solely for the purposes of developing these unaudited pro forma combined financial data. The unaudited pro forma combined financial data is not necessarily an indication of the results that would have been achieved had the transaction been consummated as of the dates indicated or results that may be achieved in the future.

      This unaudited pro forma combined consolidated financial data should be read in conjunction with the summary selected historical consolidated financial data and the unaudited pro forma combined consolidated financial statements and accompanying notes contained elsewhere in this joint proxy statement/prospectus and the separate historical consolidated financial statements and accompanying notes of CIENA, Cyras Systems, Inc. and ONI Systems incorporated by reference into this joint proxy statement/prospectus. See the section entitled “Where You Can Find More Information” beginning on page      of this joint proxy statement/prospectus.

      The following factors, which have not been reflected in the unaudited pro forma combined financial statements, should be considered by the reader in connection with the following unaudited pro forma combined financial statements:

  •  ONI Systems has a commitment to issue options to certain employees in accordance with the terms of ONI Systems’ offer to exchange dated October 19, 2001. If the merger closes before the replacement option grant date which will be no earlier than May 20, 2002, CIENA will issue the replacement options, and the number of shares subject to the replacement options will be determined by multiplying the number of shares of ONI Systems common stock that would have been covered by each option by 0.7104. The exercise price of the replacement options will be the fair market value of CIENA’s common stock on the grant date. If the merger closes after the replacement option grant date, ONI Systems will issue the replacement options, which will then be converted into CIENA options at the exchange ratio following the closing of the merger. Options to purchase up to 5,159,535 shares of CIENA common stock may be issued under the offer to exchange and options to purchase up to 386,330 shares of CIENA common stock may be issued to employees of ONI Systems based overseas. If the merger closes before the replacement option grant date then CIENA would record these options in the same manner as it would record options issued to CIENA employees with no impact on the purchase price. If the merger closes after the replacement option grant date then CIENA would record the fair value of the options as additional purchase price with the intrinsic value of the options being recorded as deferred compensation.
 
  •  During the three months ended April 30, 2002, CIENA expects to record a restructuring charge of between $125 million and $135 million associated with workforce reduction, lease termination, non-cancellable lease costs and the write-down of certain property, equipment and leasehold improvements. In addition, CIENA also expects to record for this period a charge of approximately $200 million to $225 million, primarily related to excess inventory associated with its long-haul transport products and purchase commitments with suppliers.
 
  •  CIENA has an outstanding offer to repurchase $178.41 million of convertible subordinated notes due August 15, 2005. The offer expires on April 29, 2002 and CIENA expects for all of these convertible subordinated notes to be redeemed through the tender offer.

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UNAUDITED PRO FORMA COMBINED BALANCE SHEET

As of January 31, 2002
(in thousands)
                                     
Historical January 31, 2002

Pro Forma
January 31, December 31
CIENA ONI Systems Adjustments Combined




ASSETS
Current assets:
                               
 
Cash and cash equivalents
  $ 472,533     $ 338,511     $ (9,245 )A   $ 801,799  
 
Short-term investments
    1,051,117       26,457               1,077,574  
 
Accounts receivable, net
    150,221       43,945               194,166  
 
Inventory
    250,191       53,836               304,027  
 
Deferred income taxes
    60,234                     60,234  
 
Prepaid expenses and other
    47,110       11,114               58,224  
     
     
     
     
 
   
Total current assets
    2,031,406       473,863       (9,245 )     2,496,024  
Long-term investments
    416,330       313,834               730,164  
Equipment, furniture and fixtures, net
    316,039       97,286               413,325  
Goodwill
    178,891       10,946       351,477  A     541,314  
Other intangible assets, net
    46,061       12,519       16,381  A     74,961  
Deferred income taxes
    160,496                     160,496  
Other assets
    69,555       7,907               77,462  
     
     
     
     
 
   
Total assets
  $ 3,218,778     $ 916,355     $ 358,613     $ 4,493,746  
     
     
     
     
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
                               
 
Accounts payable
  $ 46,962     $ 8,953     $     $ 55,915  
 
Accrued liabilities
    125,883       44,076               169,959  
 
Income taxes payable
    6,399                     6,399  
 
Deferred revenue
    21,435       5,281               26,716  
 
Other current obligations
    1,159       217               1,376  
 
Convertible notes payable
    176,533                     176,533  
     
     
     
     
 
   
Total current liabilities
    378,371       58,527             436,898  
 
Deferred income taxes
    58,318                     58,318  
 
Long-term deferred revenue
    17,984                     17,984  
 
Other long-term obligations
    5,740       48               5,788  
 
Convertible notes payable
    690,000       300,000               990,000  
     
     
     
     
 
   
Total liabilities
    1,150,413       358,575             1,508,988  
     
     
     
     
 
Commitments and contingencies
                               
Stockholders’ equity:
                               
 
Preferred stock
                         
 
Common stock
    3,286       14       983  A     4,283  
 
Additional paid-in capital
    3,676,192       941,247       (18,727 )A, C     4,598,712  
 
Notes receivable from stockholders
    (2,453 )     (4,124 )             (6,577 )
 
Accumulated other comprehensive income
    5,347       1,419       (1,419 )A     5,347  
 
Accumulated deficit
    (1,614,007 )     (380,776 )     377,776  A     (1,617,007 )
     
     
     
     
 
   
Total stockholders’ equity
    2,068,365       557,780       358,613       2,984,758  
     
     
     
     
 
   
Total liabilities and stockholders’ equity
  $ 3,218,778     $ 916,355     $ 358,613     $ 4,493,746  
     
     
     
     
 

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UNAUDITED PRO FORMA COMBINED

STATEMENT OF OPERATIONS
Year Ended October 31, 2001
(In thousands, except per share data)
                                   
Pro Forma Historical Pro Forma
October 31, December 31, Combined
2001 2001 October 31,
CIENA ONI SYSTEMS Adjustments 2001




Revenue
  $ 1,603,229     $ 195,680     $     $ 1,798,909  
Cost of goods sold (exclusive of $0, $4,141, $2,800 and $6,941 deferred stock compensation costs)
    904,549       166,616             1,071,165  
     
     
     
     
 
 
Gross profit
    698,680       29,064             727,744  
     
     
     
     
 
Operating expenses
                               
 
Research and development (exclusive of $26,185, $11,205, $2,562 and $39,952 deferred stock compensation costs)
    284,885       78,355             363,240  
 
Sales and marketing (exclusive of $10,791, $7,937, $5,027 and $23,755 deferred stock compensation costs)
    152,476       51,322             203,798  
 
General and administrative (exclusive of $18,066, $3,726, $1,092 and $22,884 deferred stock compensation costs)
    65,105       26,767               91,872  
 
Deferred stock compensation costs
    55,042       27,009       11,481  C     93,532  
 
Amortization of goodwill
    300,301       3,981       (3,981 )D     300,301  
 
Amortization of intangible assets
    8,863       5,086       1,528  B     15,477  
 
In-process research and development
          8,240             8,240  
 
Restructuring costs
    15,439       17,350             32,789  
 
Goodwill impairment
    1,719,426                   1,719,426  
 
Provision for doubtful accounts
    (6,579 )     10,621             4,042  
     
     
     
     
 
Total operating expenses
    2,594,958       228,731       9,028       2,832,717  
     
     
     
     
 
Loss from operations
    (1,896,278 )     (199,667 )     (9,028 )     (2,104,973 )
Other income, net
    23,336       11,813             35,149  
     
     
     
     
 
Loss before income taxes
    (1,872,942 )     (187,854 )     (9,028 )     (2,069,824 )
Provision for income tax
    87,385       412             87,797  
     
     
     
     
 
Net loss
  $ (1,960,327 )   $ (188,266 )   $ (9,028 )   $ (2,157,621 )
     
     
     
     
 
Basic net loss per common share
  $ (6.11 )   $ (1.40 )           $ (5.14 )
     
     
             
 
Diluted net loss per common share and dilutive potential common share
  $ (6.11 )   $ (1.40 )           $ (5.14 )
     
     
             
 
Weighted average basic common shares outstanding
    320,893       134,756       (36,045 )A     419,604  
     
     
     
     
 
Weighted average basic common and dilutive potential common shares outstanding
    320,893       134,756       (36,045 )A     419,604  
     
     
     
     
 

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UNAUDITED PRO FORMA CIENA

STATEMENT OF OPERATIONS
Year Ended October 31, 2001
(In thousands, except per share data)
                                   
Five Months
Ended
October 31, March 29,
2001 2001 Pro Forma
Historical Historical October 31, 2001
CIENA Cyras Adjustments CIENA




Revenue
  $ 1,603,229     $     $     $ 1,603,229  
Cost of goods sold (exclusive of $0, $0, $0, and $0 deferred stock compensation costs)
    904,549                   904,549  
     
     
     
     
 
 
Gross profit
    698,680                   698,680  
     
     
     
     
 
Operating expenses
                               
 
Research and development (exclusive of $17,825, $16,830, ($8,470), and $26,185 deferred stock compensation costs)
    235,831       49,054             284,885  
 
Sales and marketing (exclusive of $8,336, $8,289, ($5,834), and $10,791 deferred stock compensation costs)
    146,949       5,527             152,476  
 
General and administrative (exclusive of $15,206, $8,371, ($5,511), and $18,066 deferred stock compensation costs)
    57,865       7,240             65,105  
 
Merger related expenses
          30,204       (30,204 )E      
 
Deferred stock compensation costs
    41,367       33,490       (19,815 )F     55,042  
 
Amortization of goodwill
    177,786               122,515  G     300,301  
 
Amortization of intangible assets
    4,413               4,450  H     8,863  
 
In-process research and development
    45,900               (45,900 )I      
 
Restructuring costs
    15,439                   15,439  
 
Goodwill impairment
    1,719,426                   1,719,426  
 
Provision for doubtful accounts
    (6,579 )                 (6,579 )
     
     
     
     
 
Total operating expenses
    2,438,397       125,515       31,046       2,594,958  
     
     
     
     
 
Loss from operations
    (1,739,717 )     (125,515 )     (31,046 )     (1,896,278 )
Other income (expense), net
    32,988       (9,652 )           23,336  
     
     
     
     
 
Loss before income taxes
    (1,706,729 )     (135,167 )     (31,046 )     (1,872,942 )
Provision (benefit) for income tax
    87,333       52             87,385  
     
     
     
     
 
Net loss
  $ (1,794,062 )   $ (135,219 )   $ (31,046 )   $ (1,960,327 )
     
     
     
     
 
Basic net loss per common share
  $ (5.75 )                   $ (6.11 )
     
                     
 
Diluted net loss per common share and dilutive potential common share
  $ (5.75 )                   $ (6.11 )
     
                     
 
Weighted average basic common shares
    311,815               9,078  J     320,893  
     
             
     
 
Weighted average basic common and dilutive potential common shares outstanding
    311,815               9,078  J     320,893  
     
             
     
 

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UNAUDITED PRO FORMA COMBINED

STATEMENT OF OPERATIONS
Three Months Ended January 31, 2002
(In thousands, except per share data)
                                   
Historical

Three Months
Three Months Three Months Ended
Ended Ended January 31,
January 31, December 31, 2002
2002 2001 Pro Forma
CIENA ONI Systems Adjustments Combined




Revenue
  $ 162,156     $ 42,163     $     $ 204,319  
Cost of good sold (exclusive of $0, ($275), $1,519 and $1,244 deferred stock compensation costs)
    139,687       34,978             174,665  
     
     
     
     
 
Gross profit
    22,469       7,185             29,654  
     
     
     
     
 
Operating expenses
                               
 
Research and development (exclusive of $3,951, ($981), $3,448 and $6,418 deferred stock compensation costs)
    64,756       19,830             84,586  
 
Sales and marketing (exclusive of $956, ($786), $3,109 and $3,279 deferred stock compensation costs)
    37,600       13,620             51,220  
 
General and administrative (exclusive of $227, ($292), $1,155 and $1,090 deferred stock compensation costs)
    13,655       6,957             20,612  
 
Deferred stock compensation costs
    5,134       (2,334 )     9,231  C     12,031  
 
Amortization of goodwill
          1,233       (1,233 )D      
 
Amortization of intangible assets
    1,813       1,473       181  B     3,467  
 
Restructuring costs
    6,828       1,258             8,086  
     
     
     
     
 
Total operating expenses
    129,786       42,037       8,179       180,002  
     
     
     
     
 
Loss from operations
    (107,317 )     (34,852 )     (8,179 )     (150,348 )
Other income, net
    361       369             730  
     
     
     
     
 
Loss before income taxes
    (106,956 )     (34,483 )     (8,179 )     (149,618 )
Provision (benefit) for income taxes
    (36,365 )     255             (36,110 )
     
     
     
     
 
Net loss
  $ (70,591 )     (34,738 )   $ (8,179 )   $ (113,508 )
     
     
     
     
 
Basic net loss per common share
  $ (0.22 )   $ (0.25 )           $ (0.27 )
     
     
             
 
Diluted net loss per common and dilutive potential common share
  $ (0.22 )   $ (0.25 )           $ (0.27 )
     
     
             
 
Weighted average basic common shares outstanding
    327,620       136,970       (38,259 )A     426,331  
     
     
     
     
 
Weighted average basic common and dilutive potential common shares outstanding
    327,620       136,970       (38,259 )A     426,331  
     
     
     
     
 

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NOTES TO UNAUDITED PRO FORMA

COMBINED FINANCIAL DATA

NOTE 1 — BASIS OF PRESENTATION

      On February 18, 2002, CIENA Corporation (“CIENA”) announced that it had entered into the agreement to acquire by merger ONI Systems in a transaction to be accounted for as a purchase. Under the terms of the agreement, each outstanding share of capital stock of ONI Systems will be exchanged for 0.7104 shares of CIENA common stock, and CIENA will assume all ONI Systems’ outstanding options and warrants as well as its outstanding convertible debt. Assuming the acquisition was consummated on February 19, 2002, the stockholders of ONI Systems would have received approximately 100,492,228 shares of CIENA common stock of which an estimated 1,780,909 are restricted and subject to repurchase. Additionally, CIENA would have converted approximately 13,686,002 ONI Systems options and warrants into approximately 9,722,535 options and warrants to purchase CIENA common stock. The purchase price of approximately $988.5 million is preliminary and the actual number of shares, stock options and warrants to be exchanged or assumed by CIENA will depend on the actual number outstanding as of the date of consummation of the merger.

      CIENA has been identified as the acquiring entity for accounting purposes. This is based on CIENA shares being issued to consummate the transaction and remaining as the surviving security; CIENA stockholders retaining the larger portion of the voting rights of the combined entity; executive management of CIENA including the chairman of the board, chief executive officer and chief financial officer continuing in these capacities in the combined companies; ONI Systems will not have any board representation; and the transaction exchange rate providing that ONI Systems stockholders would receive a premium over the market value of the ONI Systems stock exchanged (based on the date the transaction was announced).

      In determining the purchase price, CIENA used the estimated value of CIENA common stock is approximately $8.75 per share based on the average closing price of CIENA’s common stock for the two trading days before the announcement and the two trading days after the announcement. The actual purchase price allocation is not expected to materially differ from the amounts reflected below. The actual purchase price allocation is based upon the fair values of the acquired assets and assumed liabilities as of the acquisition date and dependent upon the finalization of the preliminary valuation report.

      The purchase was estimated as follows (in millions):

         
CIENA common stock issued for ONI Systems common stock
  $ 863.7  
Issuance of CIENA options, warrants and restricted stock for ONI Systems options, warrants and restricted stock
    115.6  
Estimated transaction costs
    9.2  
     
 
    $ 988.5  
     
 

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NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL DATA — (Continued)

      The following is a preliminary allocation of the purchase price using ONI Systems’ December 31, 2001 balances (in thousands):

           
Cash, cash equivalents, long and short-term investments
  $ 678,802  
Inventory
    53,836  
Equipment, furniture and fixtures, net
    97,286  
Other tangible assets and note receivable from stockholder
    67,090  
Existing technology
    26,000  
Non compete
    2,000  
Contracts
    900  
Goodwill
    362,423  
In-process research and development
    3,000  
Deferred stock compensation
    55,763  
Assumed liabilities
    (58,575 )
Convertible subordinated notes
    (300,000 )
     
 
 
Total purchase price
  $ 988,525  
     
 

      The actual purchase price allocation is also dependent upon the fair values of the acquired assets and assumed liabilities as of the acquisition date and the finalization of the preliminary valuation report. The $3.0 million amount allocated to in-process research and development represents the purchased in-process technology that, as of the date of the acquisition, had not yet reached technological feasibility and had no alternative future use. Based on preliminary assessments, the value of these projects was determined by estimating the resulting net cash flows from the sale of the products resulting from the completion of the projects, reduced by the portion of the revenue attributable to developed technology and the percentage of completion of the project. The resulting cash flows were then discounted back to their present values at appropriate discount rates.

      The nature of the efforts to develop the purchased in-process research and development into commercially viable products principally relates to the completion of all planning, designing, prototyping and testing activities that are necessary to establish that the product can be produced to meet its design specification including function, features and technical performance requirements. The resulting net cash flows from such products are based on estimates of revenue, cost of revenue, research and development costs, sales and marketing costs, and income taxes from such projects. The amounts allocated to in-process research and development will be charged to the statements of operations in the period the acquisition is consummated.

      CIENA is in the process of determining the amount of any integration or restructuring costs associated with the acquisition. These costs are expected to include expenses associated with involuntary employee terminations, employee relocations, lease terminations, non-cancelable lease costs and other costs associated with the integration and/or exit of certain business activities. It is expected that certain of these costs will qualify for treatment under EITF 95-3 “Recognition of Liabilities in Connection with a Purchase Business Combination” and be recorded as an element of the acquisition.

NOTE 2 — PRO FORMA ADJUSTMENTS

  A To reflect acquisition of ONI Systems based on the preliminary purchase price allocation described in Note 1.

  B To reflect amortization of developed technology over its estimated useful life of seven years and noncompete and contracts over their estimated useful life of one year, as if the acquisition occurred on November 1, 2000. The $3.0 million amount allocated to in-process research and development has not been included in the unaudited pro forma combined statements of

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NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL DATA — (Continued)

  operations as it is nonrecurring, but is included in the unaudited pro forma combined balance sheet. This amount will be expensed in the period the acquisition is consummated.
 
  C To eliminate historical deferred stock compensation and related amortization charges for ONI Systems stock option grants and record deferred stock compensation in accordance with FIN 44, “Accounting for Certain Transactions Involving Stock Compensation — an interpretation of APB 25,” related to ONI Systems unvested stock options and restricted common stock.

  D To eliminate historical goodwill amortization for ONI Systems related to the three months ended December 31, 2001 for consistency. Since CIENA adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (SFAS No. 142), CIENA ceased amortization of goodwill beginning on November 1, 2001.

On March 29, 2001, CIENA acquired all of the outstanding capital stock and assumed the options of Cyras Systems, Inc. (“Cyras”). The purchase price was approximately $2.2 billion and consisted of the issuance of 26.1 million shares of CIENA common stock, the assumption of approximately 1.9 million stock options and the indirect assumption of $150 million principal amount of Cyras’ convertible subordinated indebtedness. The transaction was recorded using the purchase accounting method. In connection with the acquisition, CIENA recorded goodwill of $2.1 billion, in-process research and development of $45.9 million and $47.7 million of intangibles associated with developed technology. Since the CIENA operating results for the year ended October 31, 2001 include 7 months of Cyras operations, the CIENA historical operating results have been adjusted to included an additional 5 months of Cyras operations in the pro forma statement of operations. The following are the descriptions of the pro forma adjustments related to the Cyras acquisition:

  E To eliminate the merger related costs incurred by Cyras in connection with the acquisition by CIENA. These costs would not have been incurred if the acquisition had been consummated as of November 1, 2000.

  F To eliminate the historical deferred stock compensation and related amortization charges for Cyras stock option grants and record deferred stock compensation in accordance with FIN 44, “Accounting for Certain Transactions Involving Stock Compensation — an interpretation of APB 25,” related to Cyras unvested stock options and restricted common stock.

  G To record goodwill amortization expense associated with the Cyras acquisition for the five-month period prior to the Cyras consummation date.
 
  H To record the amortization of other intangibles associated with the Cyras acquisition for the five-month period prior to the Cyras consummation date.

  I To eliminate the in-process research and development charge which CIENA recorded on the Cyras acquisition. This charge would not have been recorded during fiscal 2001 if the acquisition had been consummated as of November 1, 2000.
 
  J To adjust the CIENA weighted average common shares to reflect the acquisition of Cyras as of November 1, 2000.

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INFORMATION ABOUT CIENA

General

      CIENA is a leader in the intelligent optical networking equipment industry. CIENA offers a portfolio of products for communications service providers worldwide. CIENA’s customers include long-distance carriers, competitive and incumbent local exchange carriers, Internet service providers, and wireless and wholesale carriers. CIENA offers optical transport and intelligent optical switching systems that enable service providers to provision, manage and deliver high-bandwidth services to their customers. CIENA’s strategy is to use its technologies to change the fundamental economics of building carrier-class tele- and data-communications networks, thereby providing our customers with a competitive advantage.

Additional Information

      A detailed description of CIENA’s business and various benefit plans, including stock option plans, financial statements and other matters related to CIENA is incorporated by reference in this joint proxy statement/ prospectus or set forth in CIENA’s Annual Report on Form 10-K for the year ended October 31, 2001 and Quarterly Report on Form 10-Q for the quarter ended January 31, 2002. Stockholders desiring copies of such documents may contact CIENA at its address or telephone number indicated under the caption “Where You Can Find More Information.”

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INFORMATION ABOUT ONI SYSTEMS

General

      ONI Systems develops, markets and sells optical communications networking equipment specifically designed to address the bandwidth and service limitations of metropolitan area and regional networks. ONI Systems’ equipment uses pulses of light rather than electric current in the transmission and routing of telephone, Internet and other data communications in these networks. Communication service providers can cost-effectively deploy ONI Systems’ products to relieve the traffic bottleneck in their networks and offer new data communication services to their customers. ONI Systems’ products help service providers to rapidly build high capacity networks that are flexible, easy to expand and capable of supporting multiple services on a single platform. In addition, ONI Systems’ equipment can be introduced into a network without requiring complete replacement of the existing network infrastructure.

Additional Information

      A detailed description of ONI Systems’ business and various benefit plans, including stock option plans, financial statements and other matters related to ONI Systems is incorporated by reference in this joint proxy statement/ prospectus or set forth in ONI Systems’ Annual Report on Form 10-K for the year ended December 31, 2001. Stockholders desiring copies of such documents may contact ONI Systems at its address or telephone number indicated under the caption “Where You Can Find More Information.”

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CIENA CAPITAL STOCK AND COMPARISON OF STOCKHOLDER RIGHTS

      If the merger is completed, shares of ONI Systems common stock will be converted into shares of CIENA common stock. As a result, ONI Systems stockholders, whose rights are currently governed by the Delaware General Corporation Law and ONI Systems’ certificate of incorporation and bylaws, will become CIENA stockholders, whose rights are governed by the Delaware General Corporation Law and CIENA’s certificate of incorporation and bylaws.

      The following is a description of the capital stock of CIENA, including the CIENA common stock to be issued in the merger, and a summary of the material differences between the rights of CIENA stockholders and ONI Systems stockholders. These differences arise from the differences between CIENA’s certificate of incorporation and bylaws relative to ONI Systems’ certificate of incorporation and bylaws. Although it is impractical to compare all of the aspects in which the companies’ governing instruments differ with respect to stockholders’ rights, the following discussion summarizes the significant differences between them.

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DESCRIPTION OF CIENA CAPITAL STOCK

      The following summary description of the capital stock of CIENA does not purport to be complete and is qualified in its entirety by the provisions of CIENA’s certificate of incorporation and bylaws and by the applicable provisions of the Delaware General Corporation Law. For information on how to obtain copies of CIENA’s certificate of incorporation and bylaws, see “Where You Can Find More Information.”

Authorized and Outstanding Capital Stock of CIENA

      Pursuant to CIENA’s certificate of incorporation, CIENA has authority to issue 1,000,000,000 shares of capital stock, consisting of 980,000,000 shares of CIENA common stock, par value $0.01 per share, and 20,000,000 shares of preferred stock, par value $.01 per share. As of                               , 2002,                     shares of CIENA common stock, and no shares of CIENA preferred stock were issued and outstanding.

      The rights of the holders of CIENA common stock discussed below are subject to such rights as the CIENA board of directors may hereafter confer on holders of CIENA preferred stock that may be issued in the future. Such rights may adversely affect the rights of holders of CIENA common stock.

CIENA Common Stock

      Voting Rights. Each holder of CIENA common stock is entitled to attend all special and annual meetings of the stockholders of CIENA and to vote upon any matter, including, without limitation, the election of directors, properly considered and acted upon by the stockholders of CIENA. Holders of CIENA common stock are entitled to one vote per share of common stock held.

      Liquidation Rights. In the event of any dissolution, liquidation or winding up of CIENA, whether voluntary or involuntary, the holders of CIENA common stock and holders of any class or series of stock entitled to participate therewith, will be entitled to participate in the distribution of any assets of CIENA remaining after CIENA has paid all of its debts and liabilities and after CIENA has paid, or set aside for payment, to the holders of any class of stock having preference over the CIENA common stock in the event of dissolution, liquidation or winding up the full preferential amounts, if any, to which they are entitled.

      Dividends. Dividends may be paid on the CIENA common stock and on any class or series of stock entitled to participate therewith when and as declared by the CIENA board of directors out of funds available for the payment of dividends as provided by law.

      No Preemptive or Conversion Rights. The holders of CIENA common stock have no preemptive or subscription rights to purchase additional securities issued by CIENA nor any rights to convert their CIENA common stock into other securities of CIENA or to have their shares redeemed by CIENA.

CIENA Preferred Stock

      CIENA has no preferred stock outstanding. However, CIENA has classified shares of series A junior participating preferred stock in connection with the establishment of its Stockholder Rights Plan, as described further below.

Limitation of Liability and Indemnification

      Limitations of Director Liability. Delaware law authorizes corporations to limit or eliminate the personal liability of directors to corporations and their stockholders for monetary damages for breach of directors’ fiduciary duty of care. Although Delaware law does not change directors’ duty of care, it enables corporations to limit available relief to equitable remedies such as injunction or rescission. CIENA’s certificate of incorporation limits the liability of directors to CIENA or its stockholders to the full extent permitted by Delaware law. Specifically, directors of CIENA are not personally liable for monetary

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damages to CIENA or its stockholders for breach of the director’s fiduciary duty as a director, except for liability for:

  •  any breach of the director’s duty of loyalty to CIENA or its stockholders;
 
  •  acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;
 
  •  unlawful payments of dividends or unlawful stock repurchases or redemptions; or
 
  •  any transaction from which the director derived an improper personal benefit.

      Indemnification. CIENA’s bylaws provide for mandatory indemnification of directors and officers of CIENA to the fullest extent permitted by the Delaware General Corporation Law against any expense, liability or loss to which they may become subject, or which they may incur as a result of being or having been a director or officer of CIENA. In addition, CIENA must advance or reimburse directors and officers for expenses they incur in connection with indemnifiable claims or may pay such expenses in advance of the final disposition of the claim upon receipt of an undertaking by such director or officer to repay advanced expenses if it is ultimately determined that the director is not entitle to indemnification.

      CIENA also maintains directors’ and officers’ liability insurance.

Certain Charter and Statutory Provisions; Stockholder Rights Plan

      Classified Board of Directors. CIENA’s certificate of incorporation provides for the division of the CIENA board of directors into three classes of directors, consisting of two or more directors each, serving staggered three-year terms. CIENA’s certificate of incorporation further provides that the approval of the holders of at least two-thirds of the shares entitled to vote thereon and the approval of a majority of the entire CIENA board of directors are necessary for the alteration, amendment or repeal of certain sections of CIENA’s certificate of incorporation relating to the election and classification of the CIENA board of directors, action by written consent, limitation of director liability, indemnification and the vote requirements for such amendments to CIENA’s certificate of incorporation. These provisions may deter hostile takeovers or delay changes in control or management of CIENA.

      Action by Written Consents. CIENA’s certificate of incorporation eliminates action by written consent of stockholders. This provision, which makes it difficult for stockholders to act outside of a special meeting, may also deter hostile takeovers or delay changes in control or management of CIENA.

      Certain Statutory Provisions. CIENA is subject to the provisions of Section 203 of the DGCL. In general, this statute 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:

  •  prior to such date, the corporation’s board of directors approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;
 
  •  upon consummation of the transaction that resulted in such person becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding, for purposes of determining the number of shares outstanding, shares owned by certain directors or certain employee stock plans; or
 
  •  on or after the date the stockholder became an interested stockholder, the business combination is approved by the corporation’s board of directors and authorized by the affirmative vote, and not by written consent, of at least two-thirds of the outstanding voting stock of the corporation excluding that stock owned by the interested stockholder.

A “business combination” includes a merger, asset sale or other transaction resulting in a financial benefit to the interested stockholder. An “interested stockholder” is a person, other than the corporation and any direct or indirect wholly owned subsidiary of the corporation, who together with affiliates and associates,

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owns or, as an affiliate or associate, within three years prior, did own 15% or more of the corporation’s outstanding voting stock.

      Section 203 expressly exempts from the requirements described above any business combination by a corporation with an interested stockholder who becomes an interested stockholder in a transaction approved by that corporation’s board of directors.

      Stockholder Rights Plan. In December 1997, CIENA’s board of directors adopted a stockholders rights plan. This plan is designed to deter any potential coercive or unfair takeover tactics in the event of an unsolicited takeover attempt. It is not intended to prevent a takeover of CIENA on terms that are favorable and fair to all stockholders and will not interfere with a merger approved by the board of directors. Under the plan, each CIENA stockholder received a right that entitles stockholders to buy one one-thousandth of a share of junior preferred stock of CIENA for each share of common stock held. The rights will be exercisable only if a person or a group acquires or announces a tender or exchange offer to acquire 15% or more of CIENA’s common stock or if CIENA enters into certain other business combination transactions not approved by the board of directors. In the event the rights become exercisable, the rights plan allows for CIENA stockholders to acquire stock of CIENA or the surviving corporation, whether or not CIENA is the surviving corporation, having a value twice that of the exercise price of the rights. The rights were distributed to stockholders of record in January 1998. The rights will expire December 29, 2007 and are redeemable for $0.001 per right at the approval of CIENA’s board of directors. All of the CIENA shares to be issued to ONI Systems’ stockholders will be issued with rights attached.

Transfer Agent and Registrar

      The transfer agent and registrar for the CIENA common stock is EquiServe Trust Company.

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COMPARISON OF STOCKHOLDER RIGHTS

General

      Both CIENA and ONI Systems are corporations organized under the laws of Delaware and are therefore subject to the Delaware corporation statute. However, there are certain differences in the charters and bylaws of CIENA and ONI Systems that affect the rights of their respective stockholders.

Capitalization

      CIENA. CIENA is authorized to issue 980,000,000 shares of common stock and 20,000,000 shares of preferred stock. On                               , 2002,                     shares of CIENA common stock were outstanding and no shares of CIENA preferred stock were outstanding. CIENA’s board of directors has the authority, without stockholder approval, to issue shares of authorized preferred stock from time to time in one or more series and to fix the rights and preferences, including voting rights, of each such series of preferred stock, which rights and preferences may be superior to that of CIENA’s common stock.

      ONI Systems. ONI Systems is authorized to issue 700,000,000 shares of common stock, and 10,000,000 shares of preferred stock. As of                               , 2002, ONI Systems had issued and outstanding                     shares of common stock, and no shares of preferred stock.

Voting Rights

      CIENA. Each holder of CIENA common stock is entitled to one vote for each share of capital stock held and may not cumulate votes for the election of directors.

      ONI Systems. Each holder of ONI Systems common stock is entitled to one vote for each share of capital stock held and may not cumulate votes for the election of directors.

Number and Classification of Directors

      CIENA. CIENA’s charter provides that its board of directors will be comprised of three classes of two or more directors each, with each class elected for a term of three years, so that a different class of directors stands for election each year. CIENA currently has eight directors and the board of directors may increase or decrease the size of the board of directors by resolution.

      ONI Systems. ONI Systems’ bylaws provide that the initial number of directors will be six and thereafter will be fixed from time to time exclusively by resolution of its board of directors. Each director holds office until that director’s successor is elected and qualified or until that director’s earlier death, resignation or removal. No decrease in the authorized number of directors may shorten the term of any incumbent director. ONI Systems’ bylaws create three classes of directors with the number of directors in each class to be as equal as reasonably possible. The three classes of directors serve three year staggered terms, so that a different class stands for election each year.

Removal of Directors

      CIENA. CIENA’s charter provides that, subject to the rights of any then-outstanding series of preferred stock, any director or the entire board of directors may be removed from office at any time, with or without cause by the affirmative vote of a majority of the shares of capital stock of CIENA outstanding and entitled to vote on the election of directors, voting together as a separate class. CIENA’s bylaws provide that a director may only be removed from office by the stockholders at a special meeting called f