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Capella Photonics Raises $10 Million From Bay Partners, BCE (Bell Canada Enterprises) Capital, and Vanguard Ventures

Additionally Awarded, in Partnership with RED-C, $1 Million in Grant Funding from US - Israel Bi-National Industrial Research and Development Foundation (BIRD Foundation) to Commercialize World's First Integrated EDFA/ROADM Subsystem

San Jose, California - September 21, 2005 - Capella Photonics, Inc., a leader in wavelength selective switch (WSS) modules for use in reconfigurable optical add/drop multiplexer (ROADM) and optical cross connect (OXC) applications, announced today the closing of $10 million in its Series D financing round.

The round was led by investors Bay Partner, BCE Capital, Vanguard Ventures and several private investors. The capital infusion will enable Capella to mass-produce, sell and support Capella's patented WavePath products.

In addition to receiving equity funding, Capella also announced today, that it and its development partner, RED-C Optical Networks Ltd., have been awarded a grant of $1 million from the US - Israel Bi-national Industrial Research and Development Foundation (BIRD Foundation), an organization that provides funding to joint U.S./Israeli business teams engaged in the development and commercialization of innovative, non-defense technological products. Capella and RED-C will deliver the world's first integrated EDFA/ROADM subsystem, offering intelligent management of optical transmission in a dynamic and remotely reconfigurable transparent network.

Capella's WavePath wavelength management modules coupled with RED-C's Self-managed amplifier, addresses the complex integration and development challenges faced by network system developers. Ultimately, the value of this technology will be realized by service providers that can expect to reduce the operating expenses needed to plan, deploy, provision and maintain next generation optical networks. Development of this integrated EDFA/ROADM is well underway and expected to be commercially available within the next 12 months.

Pete Magill, Director of AT&T's Optical Systems Research Labs, stated, "The colorless nature of Capella's WavePath wavelength selective switching products offers promising advantages with regard to cost effectively delivering broadband services."

"Capella has successfully crossed the chasm to commercial manufacturing of its industry leading WavePath products," said Dino Vendetti, General Partner at Bay Ventures. "Drawing strength from Capella's engineering roots, while fortifying sales, markseting and customer support, Capella is a mature business poised to dominate the market."

"This latest equity infusion reinforces our leadership position in the optical networks market," said Larry Schwerin, President and Chief Executive Officer of Capella Photonics. "We now can quickly populate the market with WavePath products - a readily accepted technology enabling the effective delivery of broadband services."

About Capella Photonics
Located in San Jose, California, Capella Photonics is the leading supplier of wavelength selective switch (WSS) modules for use in reconfigurable optical add/drop multiplexer (ROADM) and optical cross connect (OXC) applications. Capella's WavePath products enable system architects to design optical platforms that offer dynamic and remote reconfigurability, greatly simplifying the engineering and provisioning of optical networks. Coupled with channel equalization and optical channel monitoring functionality, Capella's WavePath products feature a high level of functional integration in a reliable, compact, cost effective module.

About RED-C
RED-C Optical Networks Ltd. specializes in the design, development and production of a comprehensive line of optical amplifiers. Relying on its multi-disciplinary expertise and its technological edge, RED-C's amplifiers are designed to provide system vendors with enhanced performance and special features. RED-C's products are shipped to leading system- vendors and widely deployed world-wide.

About BCE Capital
As a member of the BCE group of companies, BCE Capital is a leading North American venture capital fund that invests in early stage communications and networking companies. BCE is Canada's largest communications company.

About Bay Partners
Bay Partners is an early-stage venture capital firm with over $1 billion in capital under active management. Since 1976, Bay Partners has invested in more than 200 infrastructure technology companies.

About Vanguard Ventures
Founded in 1981, Vanguard Ventures is a leading venture capital firm specializing in early stage technology investments. In aggregate, Vanguard companies have created over $70 billion in market value and returned approximately $1 billion to investors.

Kenneth J. Falta, VP of Sales
Capella Photonics, Inc.
Tel: +1-408- 360-4241