SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K
                                   (Mark One)
      |X|  ANNUAL  REPORT  PURSUANT  TO  SECTION  13 OR 15(d) OF THE  SECURITIES
           EXCHANGE ACT OF 1934 For the fiscal year ended: December 31, 1996.

           OR
      |_|  TRANSITION  REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
           EXCHANGE ACT OF 1934 For the  transition  period from  ___________ to
           ___________.
           Commission File Number: 0-24578

                          CASCADE COMMUNICATIONS CORP.
             (Exact name of registrant as specified in its charter)

                      Delaware                         04-3099677
           (State or other jurisdiction of  (I.R.S. employer identification no.)
           incorporation or organization)

                   5 Carlisle Road                        01886
               Westford, Massachusetts                  (Zip code)
      (Address of principal executive offices)

Registrant's telephone number, including area code:  (508) 692-2600

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class                         Name of Exchange on Which Registered
None


Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
      (Title of class)

      Indicate by check mark whether the  registrant:  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes x No ___
      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
      Aggregate  market  value,  as of March 12,  1997,  of Common Stock held by
non-affiliates of the registrant: $2,578,444,329 based on the last reported sale
price on the Nasdaq National Market.
      Number of shares of Common Stock outstanding at March 12, 1997: 94,283,269

                       DOCUMENTS INCORPORATED BY REFERENCE
      The registrant  intends to file a definitive  proxy statement  pursuant to
Regulation 14A within 120 days of the end of the fiscal  year ended  
December  31,  1996.  Portions of such proxy  statement  are
incorporated by reference in Part III of this Form 10-K.
================================================================================
<PAGE>
                                     PART I

ITEM 1.    BUSINESS

      Cascade   Communications   Corp.  ("Cascade  or  the  Company")  develops,
manufactures,  markets and supports a family of high performance,  multi-service
wide area network  switches  that enable  public  service  providers and private
network  managers to provide  cost-effective,  high-speed  data, video and voice
communications  services to end users. Wide area networks built on the Company's
switches  are  designed  to support  one or more of the major  broadband  packet
communications protocols and services,  including Frame Relay, Internet Protocol
("IP"),  Switched  Multi-Megabit Data Service ("SMDS") and Asynchronous Transfer
Mode ("ATM").  Users or other networking  devices access the Company's  products
over a variety of media,  including twisted pair, coaxial and fiber optic leased
line facilities,  analog modem and Integrated  Services Digital Network ("ISDN")
dial facilities and wireless facilities.

Recent Developments

      On January 28,  1997,  Cascade  completed  its  acquisition  of Sahara,  a
privately  held  developer of scalable,  high-speed  broadband  access  products
located  in  Wallingford,  Connecticut,  by means of a merger of a  wholly-owned
subsidiary  of Cascade with and into Sahara.  As a result of the Merger,  Sahara
became a wholly-owned  subsidiary of Cascade.  Cascade issued  approximately 3.4
million  shares of Cascade  Common  Stock in  exchange  for all the  outstanding
shares of Sahara.  In addition,  Cascade  assumed all  outstanding  Sahara stock
options to purchase  approximately  400,000 shares of Cascade Common Stock.  The
combination will be accounted for as a purchase.

      Sahara  is in  the  process  of  designing,  manufacturing  and  marketing
integrated  broadband access products for  communications  services based on ATM
technology.  The Company expects to integrate  Sahara's  products into Cascade's
carrier-class network management,  Quality of Service and IP capabilities across
the Companies'  combined  product lines,  enabling  Cascade's  service  provider
customers  to extend their  high-speed  network  infrastructure  to the customer
premise. These products are intended to serve multiple markets focusing on Local
Exchange Carriers, Interexchange Carriers, Competitive Access Providers, Foreign
Post and  Telecommunications  Authorities  and large  information  intensive end
users.

Wide Area Network Industry

      Corporations have traditionally built their wide area networks ("WANs") by
purchasing  time  division  multiplexers  ("TDM")  from  equipment  vendors  and
interconnecting  them with long  distance  lines  leased  from  network  service
providers.  While  TDM  products  can  accommodate  many  forms of  information,
including  voice,  video and data,  they were  designed and  optimized for fixed
path, fixed bandwidth applications, especially voice.

      The rapid  growth in the number of personal  computers,  workstations  and
end-user applications has led to the extensive deployment of local area networks
("LANs") in corporate environments. As these LAN-based users need to communicate
with users at other  sites,  corporations  installed  bridges and  multiprotocol
routers to interconnect them across wide area networks.

      Most wide area  router-based  networks were  installed on the TDM networks
already put in place.  However,  these TDM  networks are not well suited for the
dynamic,  high  bandwidth  communications  of LAN-based data coming from PCs and
workstations.  Although vendors of TDM products have provided upgrade modules to
support the newer data and video traffic,  these older  architectures  have been
unable to scale to accommodate the tremendous growth in the data traffic as well
as support the dynamic nature of this  communication.  As such, a new generation
of wide area network  technologies  has been  developed to address  these needs,
including Frame Relay, SMDS and ATM.

      Frame  Relay,  the most  widely  deployed of the three  current  broadband
packet  technologies,   was  designed  to  provide  cost-effective  dynamic  WAN
connectivity  for  data  applications.  Frame  Relay is used by  public  network
service  providers  for  provisioning  of WAN data services as well as large end
users for private network applications. Although originally specified to operate
at speeds from 56 and 64 Kbps (thousands of bits per second) to T1 and E1 speeds
(1.5 Mbps, millions of bits per second and 2.048 Mbps, respectively), due to its
popularity,  Frame Relay has been extended to support lower speed  applications,
such as 9.6 Kbps and 19.2 Kbps to very high speed backbone  applications  at DS3
(45 Mbps) and E3 (European  equivalent at 34 Mbps).  Also, while popularized for
router-based networks, Frame Relay has also become a cost-effective solution for
hierarchical IBM-based System Network Architecture ("SNA") data networks as well
as packet-based voice and video applications.
<PAGE>
      SMDS was  designed by  Bellcore  as the basis of a very high speed  public
data service offering to be provisioned by the Regional Bell Operating Companies
("RBOCs").  SMDS only became accepted once lower speed support at 56/64 Kbps and
T1/E1 speeds were provided.  While still popular among many end users due to its
simplicity, SMDS has not become as popular as Frame Relay.

      ATM was  designed  with the very  broad  goal of  supporting  all forms of
communications,  including  voice,  video and data, in both the LAN and the WAN.
Within the wide area  network,  ATM has been  developed to provide two levels of
service offerings:  1) as a high bandwidth backbone  technology for other packet
data services, such as Frame Relay, SMDS and IP based router networks, and 2) as
the basis of a new high speed information service, simultaneously supporting all
forms of communications, including voice, video and data applications.

The Internet

      The Internet has become very popular with businesses as well as home users
for access to a wide  variety of  information  located  on  computing  resources
around  the  world.  While  many  refer to the  Internet  as if it were a single
network,  it is actually a network of  networks.  Originally  designed out of IP
based  routers for  providing  access by  governments  and  universities  to the
world's  research  information,  the Internet has become highly  popularized  by
Web-based  applications  and extends to business and home users for  accessing a
very broad range and types of information.

      New Internet  service  providers  have emerged to provide  access to these
computing and information  storage resources  available over the Internet.  They
provide  dedicated  access via leased lines for business users as well as analog
modem and ISDN  dial-in  access,  both for  business as well as home use.  These
Internet  access networks are  predominately  based on three types of networking
equipment:  a) IP routers; b) remote access servers;  and c) Frame Relay and ATM
switches.

The Cascade Solution

      Cascade  pioneered the concept of utilizing a single,  powerful  switching
platform to  simultaneously  support the major broadband  packet  communications
services,   including  Frame  Relay,  SMDS  and  ATM.  Cascade's  multi-service,
standards-based  products  enable public service  providers and private  network
managers  to select  the  transmission  services  with the cost and  performance
attributes that best fit the end user's requirements,  without requiring them to
build  multiple  separate  specialized  networks.  In addition to addressing the
requirements  for  provisioning  services  for  internal  communications  needs,
Cascade's Frame Relay and ATM product  offerings are widely deployed in numerous
Internet  access  provider  networks,  including  many  of the  world's  largest
Internet service providers.

      With the  acquisition  of Arris  Networks,  Inc.  ("Arris")  in May  1996,
Cascade  now offers a wide range of  options  to access  its  broadband  network
switches,   including  twisted  pair,   coaxial  and  fiber  optic  leased  line
facilities;  analog modem and ISDN dial  facilities;  and  wireless  facilities.
Cascade  together with Arris also now offers  comprehensive  and  cost-effective
deployment for all major broadband packet  technologies,  including Frame Relay,
ATM, SMDS and IP, for both Intranet as well as Internet applications.

Products

      With  the  introduction  of the AX 800 and AX 1600  High  Capacity  Access
Switches in September  1996,  Cascade now offers four  product  families of wide
area  network  switches  which  address a broad  range of  service  provisioning
options.  These include the STDX 6000, the B-STDX 8000 and 9000, the CBX 500 and
the AX 800 and 1600.  All Cascade  switches  are  modular in design,  and can be
configured  with many  types of  network  interface  modules  to  support a wide
variety of end user  access  devices  and  network  connections.  The  Company's
product architecture emphasizes  software-based solutions in order to permit the
implementation  of new services and standards in a  cost-effective  manner.  The
Company's  products  have been  designed for use as WAN switches  primarily  for
public service networks for internal as well as Internet access applications and
for use in large private networks.

      STDX 6000.  The STDX 6000 is designed to aggregate  low speed data traffic
from remote  sites onto  larger  networks  and to serve as a backbone  for small
networks.  A popular platform for medium and even large service providers in the
early  deployment  of Frame  Relay,  STDX  6000  networks  have  yielded  to the
distributed  packet processing  capabilities and complete  redundancy offered by
the B-STDX 8000 and 9000  platforms  now widely  deployed in large Frame  Relay,
SMDS and ATM networks worldwide. The STDX 6000 is still attractive in regions of
the world outside the United States where cost,  especially  at low speeds,  
is of highest  concern and where  traffic and redundancy  requirements are  
significantly  lower than in the U.S. and in other deregulated economies.

<PAGE>

      B-STDX 8000 and B-STDX 9000.  The B-STDX 8000 and 9000  multi-service  WAN
switches  offer a level  of  speed  and  capacity  representing  a  hundred-fold
increase in total system  throughput  over the STDX 6000 and up to ten times the
port  density for the B-STDX 9000 and five times the port density for the B-STDX
8000. The B-STDX 8000 and 9000 can function as multi-service access switches for
carriers to aggregate multiple end-user services onto an ATM backbone.  They can
also serve as the backbone of a  stand-alone  multi-service  network for private
network users and public service  providers  seeking an inexpensive  distributed
network solution.

      Cascade's  customers  generally deploy the B-STDX 9000 for the backbone of
medium to large-size public service providers and end users, and the B-STDX 8000
is being  deployed as a platform for these same service  providers and end users
to expand their  coverage to less dense  geographical  regions.  Both the B-STDX
8000 and 9000 are used in public service  provider and end user networks for the
provisioning of services for internal communications  (intranet applications) as
well as in public service provider networks designed for Internet  applications.
The B-STDX 8000 and 9000 are designed for high levels of redundancy  required in
mission  critical  applications.  These  switches  utilize a symmetrical  Reduce
Introduction Set Computing ("RISC")  multiprocessing  architecture,  employing a
Control  Processor  ("CP")  interacting  with up to fourteen  network  interface
modules  in the  B-STDX  9000 and six  interface  modules  in the  B-STDX  8000.
Separate RISC micro processors are used on the CP and on each network  interface
module providing for scaleable performance.

      CBX 500.  The CBX 500  (formerly  the  Cascade  500 ATM  Switch) is a high
capacity ATM switch which was first  commercially  deployed in the first quarter
of  1996.  The  CBX 500  features  a quad  plane  architecture  and  significant
scalability features.  Unlike competitive architectures that share ATM switching
resources  among  different  user  applications,  the  quad  plane  architecture
dedicates  switching  resources  to each of the ATM Forum's four user classes of
service. Dedicating resources in this manner assures that no user traffic of one
class  of  service  will  interfere  with  other  communications   taking  place
simultaneously assigned to a different service class. The initial release of the
CBX 500 supported 2.5 Gbps and 5 Gbps (billions of bits per second) of switching
capacity and DS3/E3  (defined  earlier) and OC3c/STM1 (155 Mbps)  interfaces for
user and network trunk  connections.  In December 1996 Cascade announced support
for  OC12c/STM4  (622 Mbps) and T1/E1  support in order to broaden  the range of
access speeds and network  trunking  capacities  available for the CBX 500. Like
the B-STDX 8000 and 9000, the CBX 500 offers complete redundancy options.

      AX 800 and AX 1600 High Capacity  Access  Switches.  The AX product family
resulted from the  acquisition  of Arris and was introduced in the third quarter
of 1996.  While earlier  generations of remote access servers were developed for
commercial  telecommuting  applications,  the AX  product  family  was  designed
exclusively  for the carrier access market  segment.  Specifically,  the AX High
Capacity  Access  Switches  are  designed  for   performance,   scalability  and
availability  requirements of public service  providers with similar features to
those  found in  Cascade's  B-STDX and CBX  product  families,  such as hardware
redundant server modules and power supplies. The AX family of switches integrate
leased line and dial-in  traffic from modem and  ISDN-based  users and support a
wide array of multiservice  capabilities,  such as IP routing.  A multiprocessor
architecture  scales as the system  expands to deliver  high  performance,  high
availability, and multiple quality of service levels.

      The AX High Capacity Access Switch family includes two models: the AX 1600
and the AX 800. The AX 1600  provides  scalable  capacity for hundreds of users,
making it appealing to Internet and network service  providers.  The AX 800, for
applications  that  require  mid-range  capacity,  has  the  same  features  and
performance  of the AX 1600.  The models  share  common  hardware  and  software
architecture,  so users benefit from  investment  protection  as their  networks
evolve.  Both  the AX 800 and  the AX 1600  support  10 and  100  Mbps  Ethernet
connections for high speed connection to co-located devices,  such as a Point of
Presence ("POP") router or web servers,  as well as high speed leased line Frame
Relay  connections  to the  B-STDX  product  family.  The AX  product  family is
manageable  by the  same  network  management  platform,  CascadeView/UX,  which
manages  Cascade's B-STDX and CBX product families.  In addition,  the AX family
features a web-based monitoring and management tool.

<PAGE>

      Network  Management.  Extremely  important to the design,  operations  and
maintenance  of a public  service  provider  network is the  network  management
platform.  Cascade provides  CascadeView/DOS and CascadeView/UX software for the
management  and control of all of its WAN products.  These  products  offer easy
integration  with existing  network  management  systems due to their use of the
industry standard Simple Network Management  Protocol  ("SNMP").  CascadeView is
built on Hewlett-Packard OpenView running on an IBM compatible personal computer
(DOS version) or a diagnosis and fault management  RISC-based  workstation (UNIX
version). CascadeView's network management capabilities include a graphical user
interface, rate monitoring,  congestion management, usage statistics generation,
configuration management, remote diagnosis and fault management.

      In addition to the integrated network management application,  in 1996 the
Company began shipping Provisioning Server, Bulk Stats Server, Accounting Server
and modules for CascadeView, which are a series of management servers that allow
network service  providers to continue to scale the management of their networks
just as they  scale the  connectivity  to these  networks.  Each  server  module
provides  an enhanced  functional  version of the  software  that is part of the
integrated CascadeView application.

Markets and Customers

      The Company  markets its products and services  directly to public service
providers,  including  Interexchange Carriers ("IXCs"),  Local Exchange Carriers
("LECs"),  RBOCs and Competitive  Access Providers  ("CAPs") in the U.S., Postal
Telephone  and  Telegraph   ("PTTs")  and  Other  Licensed   Operators  ("OLOs")
internationally, and Internet Service Providers ("ISPs") and Value Added Network
providers ("VANs") worldwide.  The Company's products and services are also sold
to private network managers on a worldwide basis either directly or via partners
of the Company,  including Original  Equipment  Manufacturers  ("OEMs"),  system
integrators  and  international  distributors.  At December 31, 1996,  Cascade's
direct sales  organization  maintained  eighteen  offices  throughout the United
States  and  ten  offices   internationally.   Direct  and  indirect   sales  to
international  customers  accounted for 19%, 16%, and 20% of the Company's total
sales for the years ended December 31, 1996,  1995 and 1994,  respectively.  See
note J of the notes to the consolidated  financial  statements.  During the year
ended  December  31,  1996,  sales to no one  single  customer  exceeded  10% of
revenue.  In 1995, sales to Bell Atlantic and U.S. West, Inc.  accounted for 12%
and 17% of revenue,  respectively.  In 1994, sales to BellSouth  Corporation and
U.S.  West,  Inc.   accounted  for   approximately   12%  and  11%  of  revenue,
respectively.

Competition

      The market for WAN communications products is intensely competitive and is
subject  to  rapid  technological  change.  Although  to date  the  Company  has
experienced  significant  success against  competitive  product  offerings,  the
Company expects  competition to increase  significantly in the future.  To date,
the Company has faced  significant  competition  in the Frame Relay  market from
StrataCom, Newbridge Networks, and Nortel. However, in early 1996, Cisco Systems
Inc.  ("Cisco")  acquired  StrataCom,  and  as  such,  represents  even  greater
competition to the Company.  With the Company's entrance in the ATM WAN backbone
market in 1996,  the  Company  has begun to  compete  with  additional  industry
participants, including Bay Networks, Fore Systems and General Datacom. With the
introduction of the AX product family in 1996,  Cascade now also competes in the
remote  access  concentrator  portion  of the  wide  area  network  marketplace.
Competitors in this segment of the market include Cisco, Ascend  Communications,
U.S. Robotics, Shiva and Nortel.

      The principal competitive factors in the market for switching products are
breadth of network services supported,  conformance to industry standards, price
per  port,  performance,  product  features,  network  management  capabilities,
reliability and customer  support.  The Company  believes it presently  competes
favorably  in all of these areas.  However,  many of the  Company's  current and
potential  competitors  have  substantially  greater  financial,  marketing  and
technical resources than the Company. As such, significant success by any one of
them in the Company's  markets  could have an adverse  effect upon the Company's
business.

<PAGE>

Backlog

      Because of the generally lengthy and unpredictable sales cycle involved in
selling to public  service  providers,  the generally  short time period between
order and  shipment and  occasional  customer  changes in delivery  schedules or
cancellation  of orders  (which can be made without  significant  penalty),  the
Company  does  not  believe  that  its  backlog  as of any  particular  date  is
necessarily indicative of actual revenue for any future period.

Research and Product Development

      The market for the Company's products is characterized by rapidly changing
technology,  evolving industry standards and frequent new product introductions.
Management believes that the Company's future success depends in large part upon
its ability to continue to enhance  existing  products  and develop new products
that  maintain  technological  competitiveness.  The  Company  intends  to  make
substantial  investments in product and technology  development and continues to
participate  in  the  development  of  industry  standards.   Extensive  product
development  input is obtained through the comments and suggestions of customers
and prospective  customers and through the Company's  participation  in industry
organizations and standards-development bodies, such as the ATM Forum, the Frame
Relay Forum and the SMDS Interest Group. In 1996, the Company  announced several
new products,  including  remote access and ATM as well as  enhancements  to the
B-STDX and STDX product families.

      The Company is focusing  development  efforts on  expanding  the  protocol
capabilities  of its products,  expanding its network  management  capabilities,
providing  additional  interface  capabilities,  supporting  additional industry
standards and adding higher capacity platforms to the product family. During the
years  ended  December  31,  1996,  1995  and  1994,  research  and  development
expenditures were approximately  $53.4 million,  $20.7 million and $7.4 million,
respectively.

Customer Support and Service

      Cascade  installs,  maintains  and supports  products sold directly in the
United States with the Company's  service and support  personnel.  The Company's
resellers  generally  provide  installation,  maintenance  and  support to their
customers.  The Company also has agreements  with several third party vendors to
provide  worldwide  service and support for all of the Company's  products.  The
Company's  Technical  Assistance  Center  ("TAC") will  continue to be the first
point of contact for all customer problem  resolution.  If TAC determines that a
customer has a hardware problem, a third party representative will be dispatched
to the  customer  site.  The  vendors  also carry  Cascade  products  locally at
selected supply centers.  All software  problems will continue to be resolved by
TAC.

      The Company  generally  warrants  its  software  products for 90 days upon
shipment.  During this 90 day warranty period,  the Company will investigate all
reported problems and will endeavor to provide a solution. The Company generally
warrants its hardware products for 12 months.  During such warranty period,  the
Company  endeavors to take action to repair or replace failed  components within
24 hours of  notification.  The Company has experienced no significant  customer
returns and has accrued for expected warranty costs.

Manufacturing

      Cascade's  manufacturing  activities  are  conducted  in  its  Boxborough,
Massachusetts facility.  These activities consist primarily of material planning
and procurement,  testing,  burn-in,  final assembly and quality assurance.  The
Company uses  several  third-party  contract  manufacturers  to perform  printed
circuit board assembly,  in-circuit testing and product repair. In January 1995,
the Company received ISO 9001 certification. The Company significantly increased
manufacturing   capacity  in  1996   through   expansion   of  its   outsourcing
relationships and the expansion of its own facilities.

      The Company generally uses components  available from multiple  suppliers.
Certain components are, however,  available only from single or limited sources.
Cascade  has no supply  commitments  from its  vendors  and  generally  procures
products  on a  purchase  order  basis as  opposed  to  entering  into long term
procurement agreements. The inability of the Company or its third-party contract
manufacturers  to obtain certain  components could cause a delay in the shipment
of certain products. This could have a material, adverse affect on the Company's
operating  results.  The Company  believes  that its  inventory  levels of these
components are adequate for current forecasted demand.

<PAGE>

Proprietary Rights

      The Company has a number of patent applications that are currently pending
for certain of its existing  products and currently  relies on a combination  of
contractual  rights,  trade secrets and  copyrights  to protect its  proprietary
rights.  Although  the Company  intends to apply for  additional  patents in the
future,  there can be no  assurance  that the  Company's  intellectual  property
protection will be sufficient to prevent  competitors  from  developing  similar
technology.  Moreover,  in the  absence  of  patent  protection,  the  Company's
business may be adversely  affected by competitors  that  independently  develop
functionally equivalent technology.

      The Company  currently  licenses certain hardware and software  technology
from third parties and plans to continue to do so in the future. While it may be
necessary  in the  future to seek or renew  licenses  with  third  parties,  the
Company believes based upon past experience and standard  industry practice that
such licenses could be obtained on commercially reasonable terms.

Employees

      As of December 31, 1996, the Company employed a total of 833 persons. None
of the Company's employees are represented by a collective  bargaining agreement
and the Company's believes that its relations with employees are good.

ITEM 2.    FACILITIES

      The Company's corporate  headquarters are located in an 80,000 square foot
facility  in  Westford,  Massachusetts.  This  facility  accommodates  corporate
administration, marketing, sales and customer support. The Company occupies this
space under a five and one-half  year lease which  expires in March 1999 with an
option to extend the term of the lease for an  additional  three years at a rate
equivalent to 95% of the then current market rate for similar space in the area.

      The Company's  development  activities are located in a 97,500 square foot
facility in Westford, Massachusetts. The Company occupies this space under a two
and one-half  year  sub-lease  which  expires in November  1997.  The  Company's
manufacturing  activities  are  located in a 103,000  square  foot  facility  in
Boxborough, Massachusetts. The lease expires in March 1999 and the Company has a
option to renew the lease for an additional three years.

      The Company  entered  into a lease for a 279,000  square foot  facility in
Westford,  Massachusetts  to expand  its  development  activities.  The  Company
expects to begin  occupying this space in early 1997. The lease expires in March
2009 with an option to  extend  the lease for up to three  successive  five year
periods at the current  market rate for similar space in the area, as defined in
the lease which is filed herein as Exhibit 10.25.

      The Company also leases on a short-term  basis various sales office space,
including  space  in  the  metropolitan  areas  of:  Atlanta,  Chicago,  Dallas,
Minneapolis,  New York, Philadelphia,  San Francisco and Washington D.C. as well
as international sales offices in Brazil, Canada, China, Germany,  France, Great
Britain,  Japan,  Singapore and Spain. The Company expects that it will continue
to  acquire  additional  office  space in 1997 to meet  expected  growth  in its
domestic and international customer base.

ITEM 3.    LEGAL PROCEEDINGS

         In the  ordinary  course of business,  various  lawsuits and claims are
  filed against the Company. While the outcome of these matters is not currently
  determinable,  management  believes that the ultimate  outcome will not have a
  material  adverse  effect  on  the  Company's  results  of  operations  or its
  financial position.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      No matters were  submitted to a vote of security  holders  during the last
quarter of the fiscal year ended December 31, 1996.
<PAGE>
                                     PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

      The Company's  Common Stock is quoted on the Nasdaq  National Market under
the  symbol  "CSCC".  The  following  table  sets  forth  the  high  and low bid
information  as reported on the Nasdaq  National  Market for the last two fiscal
years. All share prices have been restated to reflect the following stock splits
in the form of stock  dividends:  a two-for-one in June 1995, a three-for-two in
February  1996  and  a  two-for-one  in  May  1996.  Such  information  reflects
inter-dealer prices, without retail mark-up,  markdown or commission and may not
necessarily represent actual transactions:

<TABLE>

---------------- ---------- ----------     --------------- ---------- ----------
    1995           High        Low            1996           High        Low
---------------- ---------- ----------     --------------- ---------- ----------
<S>              <C>        <C>            <C>             <C>        <C>
First Quarter    $ 12.54    $  9.54        First Quarter   $ 46.38    $ 20.42
Second Quarter     15.42      10.13        Second Quarter    68.50      39.75
Third Quarter      17.42      13.00        Third Quarter     83.38      46.25
Fourth Quarter     30.83      13.75        Fourth Quarter    91.25      54.88
</TABLE>

      As of December 31, 1996, the Company had approximately 625 stockholders of
record. This number does not include stockholders for whom shares were held in a
"nominee"  or "street  name".  The  Company has not paid cash  dividends  on its
Common Stock. The Company  anticipates it will continue to reinvest  earnings to
finance future operations and therefore does not intend to pay cash dividends in
the foreseeable future.

ITEM 6.    SELECTED CONSOLIDATED FINANCIAL DATA

      The selected consolidated financial information presented below is derived
from the  consolidated  financial  statements of the Company for the years ended
December 31, 1996,  1995,  1994,  1993 and 1992. The information set forth below
should be read in  conjunction  with  "Management's  Discussion  and Analysis of
Financial  Condition  and  Results  of  Operations"  included  as Item 7 and the
consolidated  financial  statements and related footnotes  included as Item 8 in
this Form 10-K.
<TABLE>

Selected Consolidated Financial Data
(in thousands, except per share data)

--------------------------------------------------------------------------------
                                             Year Ended December 31,
                                 1996       1995     1994      1993     1992
--------------------------------------------------------------------------------
<S>                            <C>        <C>        <C>       <C>      <C>
Consolidated Statement of 
  Operations Data:
Revenue                        $ 340,976  $ 134,834  $ 50,060  $ 6,960  $   816
Income (loss) from operations    110,282     38,078    10,317   (2,720)  (3,224)
Net income (loss)              $  70,779  $  25,410  $  9,266  $(2,613) $(3,145)
--------------------------------------------------------------------------------
Earnings per share:

Net income (loss) per 
   common share                $    0.72  $    0.28  $   0.11  $ (0.12) $ (0.14)
Net income (loss) per 
  common share -
  supplementary basis (1)      $    0.72  $    0.28  $   0.11  $ (0.04) $ (0.06)
--------------------------------------------------------------------------------
Consolidated Balance Sheet 
  Data:
Working capital                $ 184,564  $ 69,187   $ 46,308  $ 10,266 $ 5,703
Total  assets                    270,261   111,859     65,763    16,070   6,709
Long term obligations, 
  excluding current portion            -         -          -       256     113
Redeemable convertible 
  preferred stock                      -         -          -    18,269  10,408
Total stockholders' equity 
  (deficit)                    $ 219,783  $ 86,306   $ 52,479  $ (6,841)$(4,235)
--------------------------------------------------------------------------------

(1) Net income (loss) on a  supplementary  basis  assumes the  conversion of all
    previously outstanding preferred stock at the time of original issuance.
</TABLE>

<PAGE>

ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Business Environment and Risk Factors.

      The  following   discussion   should  be  read  in  conjunction  with  the
consolidated financial statements and related notes included elsewhere herein as
well as the section below under the heading "Risk Factors That May Affect Future
Results".  The  Company's  future  operating  results may be affected by various
trends and factors which are beyond the Company's control.  These include, among
other  factors,  changes in general  economic  conditions,  rapid or  unexpected
changes in technologies,  activities of competitors, timing of product shipments
and uncertain  business  conditions  that affect the data  networking  industry.
Accordingly,  past  results  and  trends  should  not be  used by  investors  to
anticipate future results or trends.

      With the exception of historical information,  the matters discussed below
under the headings "Results of Operations" and "Liquidity and Capital Resources"
may include forward-looking statements that involve risks and uncertainties. The
Company wishes to caution readers that a number of important factors,  including
those  identified in the section  entitled  "Risk Factors That May Affect Future
Results,"  as well as  factors  discussed  elsewhere  in this  report and in the
Company's other reports filed with the Securities and Exchange Commission, could
affect  the  Company's  actual  results  and  cause  actual  results  to  differ
materially from those in the forward-looking statements.

Results of Operations

      In 1996, the Company continued to increase  profitability  with net income
of $70.8 million on revenue of $341.0  million.  This compares with a net income
and revenue of $25.4  million and $134.8  million,  respectively,  in 1995.  The
Company reported net income of $9.3 million on revenue of $50.1 million in 1994.
The  following  table sets forth for the periods  indicated  the  percentage  of
revenue  represented  by certain items  reflected in the Company's  consolidated
statements of income:

<TABLE>

-------------------------------------------------------- ----------------------
                                      Year Ended December 31,
                                   1996            1995              1994
--------------------------------------------------- ---------------------------
<S>                               <C>              <C>               <C>   
Revenue                           100.0%           100.0%            100.0%
Cost of revenue                    35.1             36.0              38.2
-------------------------------------------------------------------------------
Gross profit                       64.9             64.0              61.8
-------------------------------------------------------------------------------
Operating expenses:
      Research and development     15.7             15.3              14.7
      Sales and marketing          13.1             15.3              21.1
      General and administrative    3.8              5.1               5.4
-------------------------------------------------------------------------------
Total operating expenses           32.6             35.7               41.2
-------------------------------------------------------------------------------
Income from operations             32.3             28.3               20.6
Interest income                     1.6              2.4                1.6
-------------------------------------------------------------------------------
Income before income taxes         33.9             30.7               22.2
Provision for income taxes         13.1             11.8                3.7
-------------------------------------------------------------------------------
Net income                         20.8%            18.9%              18.5%
-------------------------------------------------------------------------------
</TABLE>

Revenue

      The  Company's  revenue  increased  153% to  $341.0  million  in 1996,  as
compared with 1995 revenue of $134.8 million. Revenue in 1994 was $50.1 million.
The Company  believes that the increase in revenue is primarily  attributable to
the growth in the broadband packet equipment  market,  market  acceptance of the
Company's  products and new product  introductions by the Company.  Revenue from
the Company's Frame Relay products  represented a substantial portion of revenue
over each period presented. Additionally, in 1996 the Company introduced the CBX
500, an ATM product,  which accounted for approximately 11% of revenue. To date,
most of the Company's  customers have been public carriers and internet  service
providers which have been migrating to higher speed network access products such
as Frame Relay and ATM.

<PAGE>

      Direct and indirect  international  sales accounted for approximately 19%,
16% and 20% of  revenue  for  1996,  1995 and  1994,  respectively.  The  dollar
increase in  international  sales is primarily  attributable  to continued sales
growth  in the  Americas,  Pacific  Rim  and  European  markets  as  well as the
expansion  of  the  Company's  international  presence.  In  1996,  the  Company
established  sales  offices in Brazil,  China,  France,  Singapore and Spain and
increased  its sales and  marketing  personnel in existing  sales  offices.  The
Company  intends to increase  its  presence  internationally  and  expects  that
international  sales will continue to be a significant  portion of the Company's
business,  but may fluctuate as a percentage of revenue.  To date, the Company's
international  sales have been denominated in U.S.  currency;  however,  if this
were to change, the Company would be subject to exchange rate fluctuations.

Gross Profit

      Gross  profit  increased  to 64.9% of  revenue  or $221.5  million in 1996
compared to 64.0% of revenue in 1995 and 61.8% of revenue in 1994. The continued
improvement in gross profit as a percentage of revenue was due to  manufacturing
efficiencies from high volume  production of the Frame Relay products,  somewhat
offset by the initial  manufacturing  costs  associated  with new  products.  In
future  periods,  gross  profit  will vary  depending  upon a number of factors,
including  the  channels  of  distribution,  the  mix of  products  as  well  as
manufacturing and component costs. As the Company introduces new products, it is
possible that such products may have a lower gross profit than other established
products in high volume production. Accordingly, gross profit as a percentage of
revenue may vary.

Research and Development

      In 1996, research and development  expenses were $53.4 million or 15.7% of
revenue,  compared  to $20.7  million  and $7.4  million  or 15.3%  and 14.7% of
revenue  for  1995  and  1994,  respectively.   The  expense  increase  was  due
principally to the addition of personnel,  depreciation of capital  expenditures
and prototype  development,  design and testing.  Expenses were incurred for the
following research and development  projects  including:  the expansion into the
remote  access  market,  completion  of the  Company's  CBX 500 ATM  product and
enhancements  to the  Company's  Frame Relay  products.  The  Company  considers
product development expenditures to be critical to future revenue and expects to
increase spending in absolute dollars while such expenditures as a percentage of
revenue may vary.  There can be no  assurance  that the  Company's  research and
development  efforts will result in  commercially  successful new technology and
products in the future,  and those  efforts may be affected by other  factors as
noted below.

Sales and Marketing

      The Company's sales and marketing  expenses  increased to $44.7 million in
1996 from  $20.6  million  in 1995 and $10.5  million  in 1994.  These  expenses
decreased  as a  percentage  of  revenue to 13.1% in 1996 from 15.3% in 1995 and
21.1%  in 1994.  The  increase  in  dollars  spent  was due to the  addition  of
personnel, commissions associated with revenue growth, expansion of domestic and
international  sales  offices  and  product  promotional  expenses.  The Company
expects  to  increase  spending  in  1997  as part  of its  effort  to  increase
international  revenue and expand the markets for its products.  These  expenses
may vary as a percentage of revenue.

General and Administrative

      General and  administrative  expenses  increased to $13.1  million in 1996
from $7.0 million in 1995 and $2.7 million in 1994. These expenses  decreased as
a percentage of revenue to 3.8% in 1996 from 5.1% in 1995 and 5.4% in 1994.  The
increase  in  dollars  spent  reflects  increased   administrative,   legal  and
information   technology  costs  incurred  to  support  the  Company's  expanded
operations.  The Company expects that  administrative  expenses will increase in
absolute dollars, but may vary as a percentage of revenue in the future.

Interest Income

      Interest income  increased to $5.3 million or 1.6% of revenue in 1996 from
$3.2  million or 2.4% of  revenue  for 1995 and  $781,000  or 1.6% of revenue in
1994. The increase in 1996 and 1995 was  attributable  to interest income earned
on cash generated from operations and notes receivable.
<PAGE>
Provision for Income Taxes

      The Company's  effective tax rate was 38.8%, 38.5% and 16.5% in 1996, 1995
and 1994, respectively. The differences between the statutory federal income tax
rate and the Company's  effective tax rate are  principally  due to state income
taxes,  available  research and  experimentation  credits and the benefit of the
Company's foreign sales corporation.  The 1996 provision reflects certain merger
costs that are nondeductible for tax purposes.  In the absence of such expenses,
the  effective  tax rate for 1996  would  have been  38.5%.  The 1994  provision
reflected  the  Company's  utilization  of  all  available  net  operating  loss
carryforwards and tax credits.

Liquidity and Capital Resources

      At  December  31,  1996,  the  Company  had  cash,  cash  equivalents  and
marketable  securities of $112.3 million,  an increase of $51.7 million from the
prior year. The Company has continued to fund its operations  primarily  through
cash flows  generated  from  operations  and the  proceeds  from the sale of its
Common Stock through its employee stock purchase and option plans.

      Cash  generated  from  operations  was  $62.0  million  in 1996.  This was
primarily  generated from net income,  the tax benefits related to disqualifying
dispositions  of shares upon  exercise of stock  options and  increased  current
liabilities,  offset by increased  accounts  receivable and inventory  balances.
Accounts receivable  increased by $62.0 million primarily due to the increase in
revenue and the timing of orders.  Inventory balances increased by $11.7 million
to meet the demand for the  Company's  existing  products  and the desired  lead
times as well as anticipated demand for new product introductions, including the
CBX 500 and remote access products. The Company believes that inventory balances
are likely to increase  in future  periods to support  customer  demands and new
product introductions.  The increase of $24.9 million in current liabilities was
due primarily to increases in accounts payable, deferred revenue, warranty costs
and the general increase in business activity.

      Investment  activities  in 1996  included  capital  expenditures  of $32.3
million.  Capital investments include improvements to the Company's  facilities,
the purchase of engineering development equipment and the information technology
necessary to support the rapid growth of the Company's  business.  Net purchases
of  marketable  securities  were  $8.8  million.  The  purchases  of  marketable
securities  were  placed  in  U.S.  Government   obligations  and  highly  rated
commercial  paper. In 1996, the Company received  proceeds of $11.2 million from
the sale of its Common  Stock  through its  employee  stock  purchase and option
plans.  The  remaining  proceeds  received by the Company  relate  primarily  to
proceeds  received  by Arris for the sale of its  preferred  stock  prior to the
Company's acquisition of Arris.

      The  Company  believes  that  its  existing  cash,  cash  equivalents  and
marketable  securities,  along  with  anticipated  funds from  operations,  will
satisfy the Company's  working  capital and capital  expenditure  needs at least
through 1997.

Acquisitions

      In May 1996, the Company  expanded its product plans to include the remote
access market with the  acquisition  of Arris,  a developer of high  performance
remote access  technology  for carrier class  networks,  for  approximately  3.2
million  shares of its Common  Stock.  The Company also assumed all  outstanding
Arris options to purchase  approximately  242,000 shares of the Company's Common
Stock.  The  combination  was  accounted  for as a  pooling  of  interests.  The
operating  expenses of Arris from December 31, 1995 to the acquisition  date are
immaterial to the combined operations. The accompanying financial statements for
periods  prior  to  December  31,  1995 do not  include  the  amounts  for  this
acquisition as they were deemed to be immaterial.

     On January  28,  1997,  Cascade  completed  its  acquisition  of Sahara,  a
privately  held  developer of scalable,  high-speed  broadband  access  products
located  in  Wallingford,  Connecticut,  by means of a merger of a  wholly-owned
subsidiary  of Cascade with and into Sahara.  As a result of the Merger,  Sahara
became a wholly-owned  subsidiary of Cascade.  Cascade issued  approximately 3.4
million  shares of Cascade  Common  Stock in  exchange  for all the  outstanding
shares of Sahara.  In addition,  Cascade  assumed all  outstanding  Sahara stock
options to purchase approximately 400,000 shares of Cascade Common Stock.

      The  acquisition  will be  accounted  for  under  the  purchase  method of
accounting. Accordingly, the purchase price of $219 million was allocated to the
net assets acquired based upon their estimated fair market values. The estimated
fair value of the tangible  assets  acquired was $4 million.  In addition,  $215
million  of  the  purchase  price  was  allocated  to  in-process  research  and
development  that  has not  reached  technological  feasibility  and that has no
alternative  future use. No  completed  technology  was  purchased as Sahara has
brought  no  products  to  market  and  no   development   project  has  reached
technological  feasibility.  The estimated  costs to complete the technology are
approximately $4 million.

<PAGE>

Risk Factors That May Effect Future Results

      As noted  above,  the  foregoing  discussion  may include  forward-looking
statements   that   involve   risks  and   uncertainties.   The  Company   makes
forward-looking  statements under the provisions of the "safe harbor" section of
the  Private  Securities  Litigation  Reform  Act of  1995.  Thus,  some  of the
statements,  including  without  limitation  statements  relating to new product
development, expansion of operations,  international expansion and growth in the
market for WAN data communication  services,  are forward looking, and involve a
number of risks and uncertainties. In addition, Cascade identifies the following
risk factors  which could affect the  Company's  actual  results and could cause
actual  results  to  differ  materially  from  forward-looking  statements.  The
Company's  future results  remain  difficult to predict and may be affected by a
number of factors including  business  conditions  within the  telecommunication
industry;  timing of orders from, and shipments to, customers; the timing of new
product  introductions;  and the market  acceptance of those  products;  factors
associated with  international  operations;  increased  competition;  changes in
manufacturing costs; changes in world economic conditions; changes in the mix of
product  sales;  the rate of end user  adoption and carrier and private  network
development of WAN data communications  services and the risks identified in the
following  risk  factors.  Because of these and other  factors,  past  financial
performance should not be considered an indicator of future performance.

Difficulty of Integrating Acquired Businesses

      The Company  acquired Arris in May 1996 and Sahara in January 1997.  There
can be no assurance  that products,  technologies,  distribution  channels,  key
personnel and businesses of acquired  companies will be successfully  integrated
into the Company's business or product offerings,  or that such integration will
not adversely affect the Company's  business,  financial condition or results of
operations.  There can be no assurance that any acquired products,  technologies
or businesses will contribute  significantly to the Company's sales or earnings,
that the sales and  earnings  from  acquired  businesses  will not be  adversely
affected  by the  integration  process or other  factors.  If the Company is not
successful in the  integration  of such acquired  businesses,  there could be an
adverse impact on the financial results of the Company. The historical growth of
the computer networking industry,  coupled with critical time-to-market factors,
has caused increased competition and consolidation.  As a result, there has been
a  significant   increase  in  the  acquisition  value  of  computer  networking
companies. Therefore,  acquisitions are more likely to result in values that are
material to the Company's operations. There can be no assurance that the Company
will  continue  to be able  to  identify  and  consummate  suitable  acquisition
transactions in the future.

Fluctuations in Revenue and Operating Results

      The growth rates recently  experienced by the Company are not  necessarily
indicative  of the  operating  results  for any future  periods.  The  Company's
operating  results may  fluctuate as a result of a number of factors,  including
the  timing of orders  from,  and  shipments  to,  customers;  the timing of new
product  introductions  and the market  acceptance of those products;  increased
competition;  changes  in  manufacturing  costs;  changes  in the mix of product
sales; the rate of end user adoption and carrier and private network development
of WAN data  communications  services;  factors  associated  with  international
operations; and changes in world economic conditions.

Evolving Market

      The  Company's  success will depend in part on the growth in the broadband
packet equipment market.  The market for these services continues to evolve, and
there  are  a  number  of  competing   technologies  providing  these  services.
Regulatory  policies  affecting  the  telecommunications  industry in the United
States and  internationally  are likely to continue to have a significant impact
on  pricing  and  demand for both  voice and data  communications  products  and
services.  There can be no assurance whether,  and at what rate, end user demand
will develop for these services or that public carriers or private networks will
continue to adopt the  Company's  products and  technology  to  implement  these
services.

Management of Growth

      The Company is currently  experiencing  a period of rapid growth which has
placed, and could continue to place, a significant  strain on the resources.  In
order to support the growth of its business,  the Company plans to significantly
expand its level of  operations  during 1997.  If the  Company's  management  is
unable to manage growth  effectively,  the Company's  operating results could be
adversely affected.

<PAGE>

Timing of Product Orders and Shipments

      One of the risks which may affect the Company's  operating  results is the
fact that a  substantial  portion  of the  Company's  revenue  in any period may
result from shipments during the latter part of a period. Because revenue in any
quarter  may be  substantially  dependent  on orders  booked and shipped in that
quarter, particularly in the latter part of that quarter, revenue for any future
quarter may be  difficult  to predict.  Since the  Company's  operating  expense
levels are based on its operational goals, if orders and shipments in any period
do not meet  such  goals  the  Company's  operating  results  are  likely  to be
adversely  affected.  As a result,  the Company  believes that  period-to-period
comparisons  of the  Company's  results  of  operations  are  not and  will  not
necessarily  be  meaningful  and should not be relied upon as any  indication of
future performance.

Dependence on Key Employees

      The Company's success depends to a significant  degree upon the continuing
contributions of its key management,  sales, marketing, research and development
and  manufacturing  personnel,  many of whom would be difficult to replace.  The
Company does not have employment  contracts with its key personnel.  The Company
believes  that its future  success will depend in large part upon its ability to
attract and retain  highly-skilled  hardware and software engineers,  management
and sales and marketing  personnel.  Competition  for such personnel is intense,
and there can be no assurance  that the Company will be successful in attracting
and retaining such personnel.  Failure to attract and retain key personnel could
have a material adverse effect on the Company's business,  operating results and
financial condition.

Competition

      The market for wide area network and remote access communications products
is  intensely  competitive  and is subject to rapid  technological  change.  The
Company  expects  competition  to  increase  significantly  in the  future  from
existing  competitors  and a number of companies  which may enter the  Company's
existing or future  markets.  In addition to  competition  from other switch and
remote access  providers,  the Company  expects to face  competition  from other
vendors  in the  networking  market  such as  network  router  vendors,  who may
incorporate  switching  functionality into their products or provide alternative
network  solutions.  Increased  competition could adversely affect the Company's
revenue and profitability through price reductions and loss of market share. The
principal  competitive  factors in the market for switching products are breadth
of network  services  supported,  conformance to industry  standards,  price per
port,   performance,   product  features,   network   management   capabilities,
reliability and customer  support.  Many of the Company's  current and potential
competitors have longer operating histories and substantially greater financial,
technical,  sales and  marketing  resources  than the  Company.  There can be no
assurance that the Company will be able to continue to compete successfully with
its  existing  competitors  or will be able to  compete  successfully  with  new
competitors.

Third Party Manufacturing

      The  Company  relies on a variety  of  independent  third  party  assembly
companies to perform printed circuit board assembly, in circuit test and product
repair.  There can be no assurance that in the future the Company's  independent
contractors will be able to meet the Company's demand for manufacturing capacity
in a cost-effective manner. In the event that the Company's  subcontractors were
to  experience   financial,   operational,   production  or  quality   assurance
difficulties  that  resulted in a  reduction  or  interruption  in supply to the
Company,  the Company's  operating results would be adversely affected until the
Company established sufficient manufacturing supply from alternative sources.

Dependence on Sole Source Suppliers

      Some key components of the Company's products are currently available only
from single sources.  There can be no assurance that in the future the Company's
suppliers  will be able to meet the Company's  demand for components in a timely
and  cost-effective  manner.  The Company  generally  purchases  these single or
limited  source  components  pursuant to purchase  orders and has no  guaranteed
supply arrangements with the suppliers. In addition, the availability of many of
these  components  to the  Company is  dependent  in part on the  ability of the
Company or its  subcontractors to provide the suppliers with accurate  forecasts
of future  requirements.  The Company has generally been able to obtain adequate
supplies of parts and components in a timely manner from existing  sources.  The
Company's  operating  results  and  customer  relationships  could be  adversely
affected by either an increase in prices for, or an interruption or reduction in
supply of, any key components.

<PAGE>

Technological Change

      The market for the Company's products is characterized by rapidly changing
technology,  evolving industry standards,  emerging network  architectures,  and
frequent new product  introductions.  Current competitors or new market entrants
may  develop  new  products  with  features  that  could  adversely  affect  the
competitive  position of the Company's products.  There can be no assurance that
the Company will be  successful  in  selecting,  developing,  manufacturing  and
marketing  new products or enhancing  its existing  products or that the Company
will be able to respond effectively to technological  changes,  new standards or
product  announcements by competitors.  The timely  availability of new products
and enhancements,  and their acceptance by customers are important to the future
success  of the  Company.  Delays  in  such  availability  or a lack  of  market
acceptance could have an adverse affect on the Company.

Customer Concentration

      The Company's  customer base includes  public carrier  providers and ISPs,
many of whom generally  require product vendors to comply with rigorous industry
standards. Any failure to comply with such standards may result in a significant
loss or reduction of sales.  The Company has  diversified its customer base over
time; however, in recent periods,  certain customers have accounted for over 10%
of the  Company's  revenue.  In  1995,  sales  to two  customers  accounted  for
approximately 17% and 12% of revenue.  In 1994, sales to two customers accounted
for approximately 12% and 11% of revenue.  No other customer  accounted for more
than 10% of revenue in 1996, 1995 or 1994.  There can be no assurance that these
customers will place additional  orders,  or that the Company will obtain orders
of similar  magnitude  from other  customers.  A decline in demand  from  public
network  carriers  would  have an  adverse  effect  on the  Company's  operating
results.

International Operations

      Direct and indirect  international  sales accounted for approximately 19%,
16% and 20% of  revenue  for 1996,  1995 and  1994,  respectively.  The  Company
anticipates that international  sales will continue to account for a significant
portion of  revenue.  The  Company's  international  sales are  subject to risks
inherent  in foreign  operations  including  unexpected  changes  in  regulatory
requirements,   tariffs  or  other   barriers  and   potentially   negative  tax
consequences.  In addition,  sales of the  Company's  products in  international
markets are heavily dependent on third-party distribution channels. To date, the
Company's  international sales have been denominated in U.S. currency;  however,
if this  were  to  change,  the  Company  would  be  subject  to  exchange  rate
fluctuations.

Uncertainties Regarding Patents and Protection of Proprietary Technology

      The Company's  success will depend,  to a large extent,  on its ability to
protect  its  proprietary  technology.  The  Company  has  a  number  of  patent
applications that are currently pending for certain of its existing products and
currently  relies on a  combination  of  contractual  rights,  trade secrets and
copyrights to protect its  proprietary  rights.  Although the Company intends to
apply for additional  patents in the future,  there can be no assurance that the
Company's  intellectual  property  protection  will  be  sufficient  to  prevent
competitors  from developing  similar  technology.  Moreover,  in the absence of
patent  protection,   the  Company's  business  may  be  adversely  affected  by
competitors that independently develop functionally  equivalent technology.  The
Company currently  licenses certain hardware and software  technology from third
parties and plans to continue  to do so in the future.  The Company  attempts to
ensure  that its  products  and  processes  do not  infringe  patents  and other
proprietary rights, but there can be no assurance that such infringement may not
be alleged by third parties in the future. If infringement is alleged, there can
be no assurance  that the  necessary  licenses  would be available on acceptable
terms, if at all, or that the Company would prevail in any such challenge.

Possible Volatility of Stock Price

      The market price of the Company's Common Stock has increased significantly
since the Company's  initial public  offering in July 1994, and has  experienced
fluctuations  during this period. The market price of the Company's Common Stock
has been, and may continue to be, extremely  volatile.  The trading price of the
Company's  Common  Stock  could be subject to wide  fluctuations  in response to
quarter-to-quarter   variations  in  operating  results,   changes  in  earnings
estimates  by  analysts,  announcements  of  technological  innovations  or  new
products  by  the  Company  or  its  competitors,   challenges  associated  with
integration  of businesses and other events or factors.  In addition,  the stock
market has from time to time experienced  extreme price and volume  fluctuations
which  have  particularly  affected  the market  price for many high  technology
companies and which often have been  unrelated to the operating  performance  of
these companies. These broad market fluctuations may adversely affect the market
price of the Company's Common Stock.

<PAGE>

ITEM 8.   CONSOLIDATED FINANCIAL STATEMENTS

The  following  consolidated  financial  statements  are  filed  as part of this
report:

      Consolidated Financial Statements

        Consolidated Balance Sheets as of December 31, 1996 and 1995

        Consolidated Statements of Income for the years ended 
             December 31, 1996, 1995 and 1994

        Consolidated Statements of Cash Flows for the years ended 
             December 31, 1996, 1995 and 1994

        Consolidated  Statements of Stockholders'  Equity (Deficit) for the
             years ended December 31, 1996, 1995 and 1994

        Notes to Consolidated Financial Statements

        Report of Independent Accountants

<PAGE>

<TABLE>
Cascade Communications Corp.
Consolidated Balance Sheets
(in thousands, except share data)
==============================================================================
                                                    December 31,
                                              1996                   1995
------------------------------------------------------------------------------
<S>                                       <C>                   <C>
Assets

Current assets:
     Cash and cash equivalents            $   98,399             $   55,474
     Marketable securities                    13,920                  5,120
     Accounts receivable, net of allowance 
       for doubtful accounts of $632 in 1996 
       and $302 in 1995                       81,949                 19,910
     Notes receivable                          1,750                  1,548
     Inventories                              19,303                  7,645
     Deferred income taxes                     8,300                  4,262
     Prepaid expenses                         11,421                    781
------------------------------------------------------------------------------
Total current assets                         235,042                 94,740
Property and equipment, net                   33,012                 13,980
Other assets                                   2,207                  3,139
------------------------------------------------------------------------------
Total assets                               $ 270,261              $ 111,859
------------------------------------------------------------------------------

Liabilities and Stockholders' Equity

Current liabilities:
     Accounts payable                     $   17,555             $    6,771
     Deferred revenue                          9,038                  1,585
     Accrued expenses                         23,885                 12,197
     Accrued income taxes                          -                  5,000
------------------------------------------------------------------------------
Total current liabilities                     50,478                 25,553

Commitments and contingencies (Notes F and K)

Stockholders' equity:
  Preferred stock, $.01 par value; 
     authorized 2,000,000 shares; 
     no shares issued or outstanding              -                       -
  Common stock, $.001 par value;  
     authorized 225,000,000 shares;
     90,154,507 and 83,781,082 shares 
     issued and outstanding in
     1996 and 1995, respectively                  90                     84
  Additional paid-in capital                 121,809                 58,397
  Retained earnings                           97,884                 27,825
------------------------------------------------------------------------------
Total stockholders' equity                   219,783                 86,306
------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 270,261              $ 111,859
------------------------------------------------------------------------------

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

</TABLE>

<PAGE>

<TABLE>
Cascade Communications Corp.
Consolidated Statements of Income
(in thousands, except per share data)


------------------------------------------------------------------------------
                                           Year Ended December 31,
                                  1996            1995            1994
------------------------------------------------------------------------------
<S>                           <C>             <C>              <C>     
Revenue                       $ 340,976       $ 134,834        $ 50,060
Cost of revenue                 119,519          48,563          19,113
------------------------------------------------------------------------------
   Gross profit                 221,457          86,271          30,947

Operating expenses:
   Research and development      53,378          20,651           7,384
   Sales and marketing           44,687          20,587          10,547
   General and administrative    13,110           6,955           2,699
------------------------------------------------------------------------------
   Total operating expenses     111,175          48,193          20,630
------------------------------------------------------------------------------
Income from operations          110,282          38,078          10,317
Interest income                   5,307           3,238             781
------------------------------------------------------------------------------
Income before income taxes      115,589          41,316          11,098
Provision for income taxes       44,810          15,906           1,832
------------------------------------------------------------------------------
Net income                    $  70,779      $   25,410       $   9,266
------------------------------------------------------------------------------

Net income per common share   $    0.72      $     0.28       $    0.11
------------------------------------------------------------------------------
Weighted average number of 
 common and common equivalent 
 shares outstanding              97,767          91,220          81,074
------------------------------------------------------------------------------

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

</TABLE>
<PAGE>

<TABLE>

Cascade Communications Corp.
Consolidated Statements of Cash Flows
(in thousands)

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

                                                      Year Ended December 31,
                                                 1996        1995         1994
------------------------------------------------------------------------------
<S>                                           <C>         <C>         <C>
Cash flows from operating activities:
   Net income                                 $ 70,779    $ 25,410    $  9,266
   Adjustments to reconcile net income to net
     cash provided by operating activities:
     Depreciation and amortization              13,662       5,503       1,651
     Deferred income taxes                      (4,875)     (3,051)     (1,447)
     Issuance of Common Stock in exchange
     for consulting services                         -           -          40
     Tax benefits related to stock options 
        exercised                               40,272       6,143         700
Changes in operating assets and liabilities:
     Accounts receivable                       (62,039)    (11,683)     (5,901)
     Notes receivable                            1,556      (3,967)       (238)
     Inventories                               (11,658)        292      (3,177)
     Prepaid expenses                          (10,640)       (441)       (264)
     Accounts payable                           10,784       2,027       1,367
     Accrued income taxes                       (5,000)      2,986       2,014
     Accrued expenses and deferred revenue      19,141       7,256       5,787
-------------------------------------------------------------------------------
Net cash provided by operating activities       61,982      30,475       9,798
-------------------------------------------------------------------------------
Cash flows from investing activities:
     Purchases of property and equipment       (32,334)    (13,529)     (6,282)
     Purchases of marketable securities        (27,200)    (36,029)    (19,598)
     Proceeds from maturities of marketable
      securities                                18,400      45,630       4,876
     Cash acquired from Arris pooling            4,538           -           -
     Decrease (increase) in other assets            11        (206)        (71)
-------------------------------------------------------------------------------
Net cash used in investing activities          (36,585)     (4,134)    (21,075)
-------------------------------------------------------------------------------
Cash flows from financing activities:
     Issuance of Common Stock, net              17,528       2,274      31,046
     Payments of notes payable, net                  -           -       (526)
-------------------------------------------------------------------------------
Net cash provided by financing activities       17,528       2,274      30,520
-------------------------------------------------------------------------------
Net increase in cash and cash equivalents       42,925      28,615      19,243
Cash and cash equivalents, beginning of year    55,474      26,859       7,616
-------------------------------------------------------------------------------
Cash and cash equivalents, end of year        $ 98,399    $ 55,474    $ 26,859
-------------------------------------------------------------------------------

Supplemental cash flow information:
     Income taxes paid                        $ 20,175    $  9,828    $    564
     Interest paid                                   -           -    $     62
-------------------------------------------------------------------------------

</TABLE>

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

<PAGE>

<TABLE>
Cascade Communications Corp.
Consolidated Statements of Stockholders' Equity (Deficit)
(in thousands, except share data)

                      Common Stock        Additional  Retained  Total
                      Number of $ .001    Paid- in    Earnings  Stockholders'
                      Shares    Par Value Capital     (Deficit) Equity (Deficit)
-------------------------------------------------------------------------------
<S>                   <C>          <C>     <C>       <C>        <C>
Balance, December 31,
  1993                  8,828,850  $   9   $     2   $ (6,851)  $   (6,840)
                                       
Issuance of Common 
  Stock, net           13,830,000     14    31,056          -        31,070
Exercise of stock 
  options and warrants    739,350      1        14          -            15
Conversion of redeemable
  preferred stock      58,089,540     58    18,210          -        18,268
Tax benefits relating
  to stock options 
  exercised                     -      -       700          -           700
                                                           
Net income                      -      -          -      9,266        9,266
                                                                 
-------------------------------------------------------------------------------
Balance, December 31,
 1994                   81,487,740    82    49,982       2,415       52,479
Exercise of stock 
 options and warrants    2,293,342     2     2,272           -        2,274
Tax benefits relating 
 to stock options 
 exercised                      -      -     6,143           -        6,143
Net income                      -      -        -       25,410       25,410
-------------------------------------------------------------------------------
Balance, December 31, 
  1995                  83,781,082    84    58,397      27,825       86,306
Pooling of interests 
  with Arris             2,542,639     2     5,616       (720)        4,898
-------------------------------------------------------------------------------
Balance, as restated    86,323,721    86    64,013      27,105       91,204
-------------------------------------------------------------------------------
Issuance of Common 
  Stock, net               633,927     1     6,309           -        6,310
Exercise of stock 
  options                3,196,859     3    11,215           -       11,218
Tax benefits relating 
  to stock options 
  exercised                      -     -    40,272           -       40,272
Net income                       -     -         -      70,779       70,779
-------------------------------------------------------------------------------
Balance, December 31, 
 1996                   90,154,507 $  90 $ 121,809    $ 97,884    $ 219,783
-------------------------------------------------------------------------------

</TABLE>
The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

<PAGE>

Cascade Communications Corp.
Notes to Consolidated Financial Statements

A.    Nature of Business

      Cascade Communications Corp. (the "Company") was incorporated in Delaware
on October 16, 1990.  The Company designs, develops, manufactures, markets and 
supports a family of high performance multi-service wide area network switches.

B.    Summary of Significant Accounting Policies

Basis of Presentation

      Certain prior year amounts have been  reclassified  to be consistent  with
current year presentation.

Principles of Consolidation

      The consolidated  financial statements include the accounts of the Company
and its  wholly-owned  subsidiaries.  All  intercompany  transactions  have been
eliminated in  consolidation.  Transaction and translation  gains and losses are
immaterial for all years presented.

Acquisition

      On May 3, 1996, the Company  acquired Arris Networks,  Inc.  ("Arris"),  a
developer  of high  performance  remote  access  technology  for  carrier  class
networks,  for approximately 3.2 million shares of its Common Stock. The Company
also assumed all  outstanding  Arris options to purchase  approximately  242,000
shares of the Company's  Common Stock.  The  combination  was accounted for as a
pooling of interests.  The operating expenses of Arris from December 31, 1995 to
the acquisition date are immaterial to the combined operations. The accompanying
financial  statements  for periods prior to December 31, 1995 do not include the
amounts for this acquisition as they were deemed to be immaterial.

Cash, Cash Equivalents and Investments

      The Company considers all highly liquid debt instruments purchased with an
original  maturity of three months or less to be cash  equivalents.  Investments
include high grade commercial paper and short-term U.S.  Government  securities.
Investments are classified as  available-for-sale  to support current operations
or to take advantage of other  investment  opportunities.  These  securities are
stated at cost plus accrued  interest which  approximates  fair market value and
mature within one year. The following  table  summarizes  cash  equivalents  and
investments held at December 31, 1996 and 1995:
<TABLE>
--------------------------------- ------------------- -------------------
(in thousands)                                  1996                1995

--------------------------------- ------------------- -------------------
<S>                                       <C>                   <C>     
Commercial paper                          $   91,863            $ 35,537
U.S. Government securities                     8,926              20,261
--------------------------------- ------------------- -------------------
                                           $ 100,789            $ 55,798
--------------------------------- ------------------- -------------------
</TABLE>
Revenue Recognition

      Revenue from product sales is generally recognized at the time of shipment
or, for certain  initial  shipments of new products,  upon customer  acceptance,
when  collectibility  is reasonably  assured.  The Company records  reserves for
anticipated  product returns and warranty costs at the time of product shipment.
Revenue  from service  agreements,  consisting  primarily of one-year  equipment
maintenance  contracts,  is recognized  ratably over the term of the agreements.
Revenue from customer funded contracts is generally recognized on the percentage
of completion method of accounting.

<PAGE>

Cascade Communications Corp.
Notes to Consolidated Financial Statements

Concentrations of Credit Risk

      Financial   instruments,   which   potentially   subject  the  Company  to
concentrations  of credit risk, are  principally  cash  investments and accounts
receivable.  The Company places its investments in highly rated commercial paper
and high credit quality  financial  institutions.  Concentration  of credit risk
with  respect  to  accounts  receivable  is limited  due to the large  number of
customers  comprising the Company's  customer base and their  dispersion  across
different geographic regions. To reduce risk, the Company routinely assesses the
financial  strength of its customers  and, as a  consequence,  believes that its
trade accounts receivable credit risk exposure is limited. The Company generally
does not require  collateral and  historically  has not experienced  significant
losses on trade receivables.

Inventories

      Inventories  are  stated  at the  lower  of  cost  or  market,  with  cost
determined under the first-in, first-out method.

Property and Equipment

      Property  and  equipment  are stated at cost.  The  Company  provides  for
depreciation by using the  straight-line  method over the estimated useful lives
of the assets as follows:
<TABLE>
------------------------------------------------------------------------------
    Asset Classification                    Estimated Useful Life
------------------------------------------------------------------------------

    <S>                                <C>       
    Computer equipment                            2-3  years
    Office equipment                                5  years
    Furniture and fixtures                          5  years
    Leasehold improvements             Shorter of lease term
                                       or estimated useful life.
------------------------------------------------------------------------------
</TABLE>
      Maintenance  and  repairs  are  charged  to  expense  as  incurred.   Upon
retirement  or  sale,  the  cost  of  the  asset  disposed  of and  the  related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is credited or charged to income.

Research and Development

      Research  and  development  costs are  charged  to  expense  as  incurred.
Capitalization  of computer  software  costs  begins upon the  establishment  of
technological  feasibility.  The Company has not  capitalized  any such costs as
eligible amounts were immaterial for all years presented.

Income Taxes

      Deferred  tax  liabilities  and assets are  recognized  based on temporary
differences  between  the  financial  statement  and tax  bases  of  assets  and
liabilities  using current  statutory  rates. A valuation  allowance is recorded
against net deferred tax assets if, based on the weighted available evidence, it
is more likely than not that some or all of the  deferred tax assets will not be
realized.

Use of Accounting Estimates

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

<PAGE>

Cascade Communications Corp.
Notes to Consolidated Financial Statements

Manufacturing Risks

      The Company  purchases  certain  components from suppliers who the Company
believes are  currently  the only  suppliers of such  components  that meets the
Company's  requirements.  A failure by any such  supplier to meet the  Company's
requirements for an extended period of time could adversely affect the Company's
operating  results  until  the  Company  established  sufficient   manufacturing
supplies from alternative sources.

Net Income Per Common Share

      Net income per common share is computed  based upon the  weighted  average
number of common shares and common  equivalent  shares (using the treasury stock
method) outstanding.  Fully diluted net income per common share is not presented
as the dilutive effect is immaterial.

C.    Inventories
<TABLE>
Inventories consist of:
                                                      December 31,
                                            ---------------- -----------------
(in thousands)                                    1996              1995
                                            ---------------- -----------------
<S>                                             <C>                <C>    
Raw materials                                   $ 14,827           $ 5,095
Work-in-process                                      552               890
Finished goods                                     3,924             1,660
                                            ---------------- -----------------

                                                $ 19,303           $ 7,645
                                            ---------------- -----------------
</TABLE>

D.    Property and Equipment

<TABLE>
Property and equipment consist of:
                                                      December 31,
                                             ---------------- -----------------
(in thousands)                                      1996              1995
                                             ---------------- -----------------
<S>                                              <C>               <C>     
Computer equipment                               $ 45,242          $ 17,969
Furniture and fixtures                              1,818             1,093
Office equipment                                    1,015               662
Leasehold improvements                              4,134             1,480
                                             ---------------- -----------------
                                                   52,209            21,204
Less accumulated depreciation and 
  amortization                                     19,197             7,224
                                             ---------------- -----------------

                                                 $ 33,012          $ 13,980
                                             ---------------- -----------------
</TABLE>

E.    Accrued Expenses

<TABLE>
Accrued expenses consist of:
                                                       December 31,
                                             ---------------- -----------------
(in thousands)                                       1996              1995
                                             ---------------- -----------------
<S>                                              <C>               <C>      
Accrued compensation                             $   5,442         $   2,276
Warranty costs                                       3,384             2,372
Other                                               15,059             7,549
                                            ---------------- -----------------
                                                  $ 23,885          $ 12,197
                                            ---------------- -----------------
</TABLE>

<PAGE>



Cascade Communications Corp.
Notes to Consolidated Financial Statements

F.    Commitments

      The Company rents its facilities and various sales offices under operating
leases,  some of which  contain  escalation  clauses,  through  March 2009.  The
agreements  generally  require the  payment of  utilities,  real  estate  taxes,
insurance and repairs. In most cases management expects, in the normal course of
business, leases that expire will be renewed or replaced by other leases.

      The  approximate  future minimum lease  commitments  under these leases at
December 31, 1996 are as follows:

      1997                    $    3,962,000
      1998                         3,526,000
      1999                         2,523,000
      2000                         2,066,000
      2001                         2,066,000
      Thereafter                  14,804,000
                                  ----------
                                $ 28,947,000
                                  ----------

      Rental  expense  charged  to  operations  was  approximately   $2,398,000,
$1,187,000  and $338,000 for the years ended  December 31, 1996,  1995 and 1994,
respectively.  At  December  31,  1996,  the  Company  had a  letter  of  credit
outstanding of $4,000,000 used as a deposit for commitments to construct certain
leasehold improvements.  The fair value of this letter of credit is estimated to
be the same as the contract value based upon the nature of the arrangement  with
the issuing bank.


G.    Stockholders' Equity

Initial Public Offering

      On August 4, 1994,  the  Company  completed  its Initial  Public  Offering
("IPO") and sold an aggregate of 13,800,000  shares of Common Stock at $2.50 per
share,  resulting in net proceeds,  after deducting  underwriting  discounts and
expenses,  of $31,030,000.  In addition,  upon the closing of the IPO all issued
and outstanding shares of Series 1, 2, 3 and 4 Redeemable  Convertible Preferred
Stock were  automatically  converted into  58,089,540  shares of Common Stock in
accordance with the underlying agreements.

Common Stock

      At  the  stockholder  meetings  of the  Company  in  1995  and  1996,  the
stockholders  approved  amendments to the Company's  Articles of Organization to
increase  its  authorized  number of shares of Common  Stock to  50,000,000  and
225,000,000  shares,  respectively.  The Company  effected the  following  stock
splits in the form of stock dividends:  two-for-one in June 1995,  three-for-two
in February 1996 and  two-for-one in May 1996. All share and per share data have
been  restated in these  consolidated  financial  statements  for all periods to
reflect  the  stock  splits.  Prior  to  the  merger,  Arris  issued  redeemable
convertible  preferred  stock for  $6,310,000  that was  converted  into 633,927
shares of Cascade Common Stock.

Preferred Stock

      The Company is authorized to issue up to an aggregate of 2,000,000  shares
of  Preferred  Stock,  $.01 par value per share.  Each such series of  Preferred
Stock  shall  have  such  rights,  preferences,   privileges  and  restrictions,
including  voting  rights,  dividend  rights,   conversion  rights,   redemption
privileges and liquidation preferences as determined by the Board of Directors.

<PAGE>


Cascade Communications Corp.
Notes to Consolidated Financial Statements

H.    Employee Benefit Plans

Retirement Savings Plan

      During  1992,  the  Company  adopted  a  Retirement  Savings  Plan for its
employees, which has been qualified under Section 401(k) of the Internal Revenue
Code.  Eligible employees are permitted to contribute to the 401(k) Plan through
payroll  deductions within statutory  limitations and subject to any limitations
included in the 401(k) Plan. To date, the Company has made no  contributions  to
the Plan.

Stock-Based Compensation Plans

      The Company has several stock-based compensation plans which are described
below.  The  Company  applies  Accounting   Principles  Board  Opinion  No.  25,
"Accounting  for Stock  Issued to  Employees",  and related  interpretations  in
accounting for its stock-based compensation plans. Accordingly,  no compensation
expense  has been  recognized  for its  stock-based  compensation  plans for any
options as none have been  granted  below fair  value of the common  stock.  Had
compensation cost for the stock-based  compensation  plans been determined based
upon the fair value at the grant date for awards  consistent  with the method of
Statement of Financial Accounting Standards No. 123 ("SFAS 123") "Accounting for
Stock-Based Compensation", the Company's net income and earnings per share would
have been reduced to the pro forma amounts indicated below:

<TABLE>
                                             ---------------- -----------------
                                                 1996              1995
                                              ---------------- -----------------

<S>                    <C>                    <C>               <C>     
Net income             As reported              $ 70,779          $ 25,410
                       Pro forma                  49,870            22,198

Earnings per share     As reported              $   0.72          $   0.28
                       Pro forma                    0.52              0.25
</TABLE>

      The fair value of each option  grant is estimated on the date of the grant
using the  Black-Scholes  option-pricing  model.  In  computing  these pro forma
amounts,   the  Company  has  assumed  a  risk-free   interest   rate  equal  to
approximately  6.46% and 5.44%,  expected  volatility 64% and 66%, zero dividend
yields  and  expected  lives of six  years for 1996 and 1995  respectively.  The
average fair value of the options  granted  during 1996 and 1995 is estimated as
$34.36 and $12.39, respectively on the date of the grant.

1991 Stock Option Plan

      The 1991 Stock  Option  Plan (the  "Plan")  provides  for the  issuance of
incentive stock options and nonqualified stock options to purchase the Company's
Common Stock. The Company may issue up to a maximum of 24,000,000  shares of its
Common Stock  pursuant to the exercise of options which may be granted under the
Plan.  All options  granted under the plan will have an exercise  price equal to
the fair market value of the Common Stock on the date of grant.  Options  issued
generally  vest ratably  over five years.  The term of each option will be for a
period of ten years from the date of grant.

Director Stock Option Plan

      The 1994  Non-Employee  Director Stock Option Plan (the  "Director  Option
Plan") provides for the grant of options to purchase a maximum of 720,000 shares
of Common Stock of the Company to non-employee  directors of the Company.  Under
the  Director  Option  Plan,  each  director  who is not also an employee of the
Company received an option to purchase 90,000 shares of Common Stock, vesting in
three equal annual installments  commencing on the first anniversary of the date
of grant.

      In  addition,  on the date of each annual  meeting of  stockholders,  each
director will receive an option to purchase  12,000 shares of Common Stock.  All
options  granted  under the plan will have an  exercise  price equal to the fair
market value of the Common  Stock on the date of grant.  The term of each option
will be for a period of ten years from the date of grant.

<PAGE>

Cascade Communications Corp.
Notes to Consolidated Financial Statements

Arris Stock Plan

      In  conjunction  with  the  Arris  merger,  the  Company  assumed  242,000
outstanding options on May 3, 1996. These assumed options were granted at prices
equal to the fair  market  value at the date of  grant,  become  exercisable  in
installments  (generally ratably over five years), and expire ten years from the
date of grant. The Company does not intend to issue any additional options under
the Arris stock option plan.

      The  following  table  summarizes  stock  option  activity  for the  above
mentioned stock option plans:

<TABLE>
------------------------------------------------- ---------------- ------------
                                   Number of      Weighted Average     Number
                                    Options        Exercise Price   Exercisable
------------------------------------------------- ---------------- ------------
<S>                                 <C>               <C>            <C>      
Outstanding at December 31, 1993    7,550,976         $   0.03       1,439,029
------------------------------------------------- ---------------- ------------
  Granted                           3,595,260             3.90
  Exercised                          (561,360)            0.03
  Canceled                            (62,880)            0.47
------------------------------------------------- ---------------- ------------
Outstanding at December 31, 1994   10,521,996             1.35       2,643,924
------------------------------------------------- ---------------- ------------
  Granted                           5,165,274            18.31
  Exercised                        (2,050,350)            0.66
  Canceled                           (370,866)            3.55
------------------------------------------------- ---------------- ------------
Outstanding at December 31, 1995   13,266,054             7.99       3,501,660
------------------------------------------------- ---------------- ------------
 Granted                            2,903,885            53.27
 Exercised                         (3,083,721)            2.84
 Canceled                            (319,360)           22.61
------------------------------------------------- ---------------- ------------
Outstanding at December 31, 1996   12,766,858          $ 19.17         969,604
------------------------------------------------- ---------------- -----------
Options available for future grants 5,908,883
</TABLE>


The following table summarizes  information concerning currently outstanding and
exercisable options:
<TABLE>
-------------------------------------------------------------------------------
                                        Weighted
                                        Average      Weighted          Weighted
                                        Remaining    Average   Number  Average
Range of Exercise Prices   Number       Contractual  Exercise  Exerci- Exercise 
                           Outstanding  Life         Price     sable   Price
-------------------------------------------------------------------------------
<C>                       <C>           <C>       <C>        <C>      <C>   
$   0.01 - $   0.03        2,974,228     5.85      $   0.02   245,300  $ 0.02
    0.13 -     9.29        2,628,643     7.45          3.39   329,982    3.27 
   10.69 -    25.58        3,364,799     8.59         17.51   280,478   12.27
   27.00 -    58.50        2,631,029     9.14         37.10   113,844   29.72
$  60.63 - $  79.13        1,168,159     9.71      $  67.84         -  $    -
-------------------------------------------------------------------------------
                           12,766,858                         969,604
-------------------------------------------------------------------------------
</TABLE>

1994 Employee Stock Purchase Plan

      The 1994  Employee  Stock  Purchase  Plan (the  "Plan")  provides  for the
issuance  of a maximum  of  1,440,000  shares of Common  Stock  pursuant  to the
exercise of  nontransferable  options granted to participating  employees.  Each
eligible  employee  may  authorize  payroll   deductions  up  to  10%  of  their
compensation  (as  defined)  not to exceed a maximum  of $25,000  per year.  The
purchase  price under the Plan is 85% of the fair market  value per share on the
first or last day of the  offering  period  (as  defined),  whichever  is lower.
During 1996 and 1995, 113,240 and 132,532 shares were issued under this Plan and
1,194,316 shares are reserved for future issuance.

<PAGE>

Cascade Communications Corp.
Notes to Consolidated Financial Statements


I.    Income Taxes

      The  provisions  for income  taxes for the years ended  December 31, 1996,
1995 and 1994 are as follows:

<TABLE>

                      ---------------- ------------------- --------------------
(in thousands)             1996                1995                 1994
                      ----------------- ------------------- --------------------

<S>                     <C>                <C>                   <C> 
Current:
   Federal              $ 41,580            $ 16,741              $ 2,280
   State                   8,105               2,216                  999
                      ----------------- ------------------- --------------------
                          49,685              18,957                3,279
Deferred benefit:
   Federal                (4,388)             (2,694)              (1,266)
   State                    (487)               (357)                (181)
                      ----------------- ------------------- --------------------
                          (4,875)             (3,051)              (1,447)
                      ----------------- ------------------- --------------------
Provision for 
  income taxes           $ 44,810            $ 15,906              $ 1,832
                      ----------------- ------------------- --------------------
</TABLE>

           The  following  is a summary  of the  significant  components  of the
Company's deferred tax assets as of December 31, 1996 and 1995:

<TABLE>
                                      ----------------- ------------------
(in thousands)                            1996               1995
                                      ----------------- ------------------

<S>                                      <C>                <C>    
Inventory reserves                       $ 5,151            $ 2,765
Warranty reserves                          1,303                949
Net operating loss carryforwards             765                  -
Compensation and vacation accruals           781                402
Accounts receivable reserve                  243                121
Other                                        822                 25
Depreciation                               1,073                236
                                      ----------------- ------------------
Total deferred tax  assets                10,138              4,498
Valuation allowance                         (765)                  -
                                      ----------------- ------------------
   Net deferred tax assets               $ 9,373            $ 4,498
                                      ----------------- ------------------
</TABLE>

      The Company assumed a net operating loss carryforward of $1,986,000,  as a
result of the  merger  with  Arris  which  expires  in 2010.  The  amount of the
deferred tax asset was offset by a full valuation  allowance due the limitations
imposed by the Internal  Revenue Code affecting the  realization of the deferred
tax asset. Management believes that it is more likely than not that the deferred
tax asset will not be realized.

      A  reconciliation  between the statutory  federal  income tax rate and the
Company's effective tax rate for the years ended December 31, 1996,1995 and 1994
is as follows:

<TABLE>
                                      ------------------------------------------
                                          1996          1995           1994
                                      ------------------------------------------
<S>                                      <C>           <C>            <C>  
Statutory federal income tax rate        35.0%         35.0%          35.0%
State taxes, net of federal tax benefit   4.2           4.5            5.9
Utilization of net operating loss
   and credit carryforwards                 -            -           (21.9)
Foreign sales corporation benefit        (0.4)         (0.6)          (0.3)
Research and development tax credits     (0.6)         (0.7)          (2.6)
Other                                     0.6           0.3            0.4
                                      ------------------------------------------
   Effective tax rate                    38.8%         38.5%          16.5%
                                      ------------------------------------------
</TABLE>

<PAGE>

Cascade Communications Corp.
Notes to Consolidated Financial Statements

J.    Significant Customers and Export Sales

      The  Company is active in one  business  segment:  designing,  developing,
manufacturing,   marketing   and   supporting  a  family  of  high   performance
multi-service  wide area network  switches.  In 1995, sales to the Company's two
largest customers  represented  approximately  17% and 12% of revenue.  In 1994,
sales to the Company's two largest customers  represented  approximately 12% and
11% of total revenue.  Export sales for the years ended December 31, 1996,  1995
and 1994 can be grouped in the following geographic areas.

<TABLE>
                                          --------------------------------------
(in thousands)                                  1996         1995        1994
                                          --------------------------------------

<S>                                          <C>         <C>          <C>     
Europe/Africa                                $ 27,401    $  11,713    $  6,297
North and South America (other than U.S.)      11,057        1,426         620
Pacific Rim/Asia                               18,541        8,375       2,896
                                           -------------------------------------
   Total                                     $ 56,999    $  21,514    $  9,813
                                           -------------------------------------
</TABLE>

K.    Legal Matters

      In the ordinary course of business,  various lawsuits and claims are filed
against  the  Company.  While the  outcome  of these  matters  is not  currently
determinable,  management believes that the ultimate resolution of these matters
will not have a material  adverse effect on the Company's  results of operations
or its financial position.

L.    Quarterly Results of Income (Unaudited)
      (in thousands, except per share amounts)

<TABLE>
--------------------------------------------------------------------------------
Quarters ended                       Dec. 31    Sept. 28    June 29    March 30
                                        1996        1996       1996        1996
--------------------------------------------------------------------------------
<S>                                <C>          <C>        <C>         <C>     
Revenue                            $ 110,300    $ 94,207   $ 80,432    $ 56,037
Gross profit                          71,678      61,242     52,282      36,255
Income from operations                36,470      31,526     25,914      16,372
Net income                         $  23,395    $ 20,263   $ 16,686    $ 10,435
--------------------------------------------------------------------------------
Net income per common share        $    0.24    $   0.21   $   0.17    $   0.11
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Quarters ended                       Dec. 31    Sept. 30     July 1     April 1
                                       1995        1995       1995         1995

--------------------------------------------------------------------------------
Revenue                             $  46,204   $  36,015  $  29,109   $  23,506
Gross profit                           29,799      23,049     18,506      14,917
Income from operations                 13,899      10,072      7,866       6,241
Net income                          $   9,132   $   6,787  $   5,267       4,224
--------------------------------------------------------------------------------
Net income per common share         $    0.10   $    0.07  $    0.06   $    0.05
--------------------------------------------------------------------------------
</TABLE>

M.    Subsequent Event

     On January  28,  1997,  Cascade  completed  its  acquisition  of Sahara,  a
privately  held  developer of scalable,  high-speed  broadband  access  products
located  in  Wallingford,  Connecticut,  by means of a merger of a  wholly-owned
subsidiary  of Cascade with and into Sahara.  As a result of the Merger,  Sahara
became a wholly-owned  subsidiary of Cascade.  Cascade issued  approximately 3.4
million  shares of Cascade  Common  Stock in  exchange  for all the  outstanding
shares of Sahara.  In addition,  Cascade  assumed all  outstanding  Sahara stock
options to purchase approximately 400,000 shares of Cascade Common Stock.


<PAGE>

Cascade Communications Corp.
Notes to Consolidated Financial Statements

     The  acquisition  will be  accounted  for  under  the  purchase  method  of
accounting. Accordingly, the purchase price of $219 million was allocated to the
net assets acquired based upon their estimated fair market values. The estimated
fair value of the tangible net assets acquired was $4 million. In addition, $215
million  of  the  purchase  price  was  allocated  to  in-process  research  and
development  that  has not  reached  technological  feasibility  and that has no
alternative  future use. No  completed  technology  was  purchased as Sahara has
brought  no  products  to  market  and  no   development   project  has  reached
technological  feasibility.  The estimated  costs to complete the technology are
approximately $4 million.


<PAGE>



                     REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and Stockholders of
Cascade Communications Corp.:


      We have audited the  accompanying  consolidated  balance sheets of Cascade
Communications  Corp.  as  of  December  31,  1996  and  1995  and  the  related
consolidated statements of income, cash flows and stockholders' equity (deficit)
for each of the  three  years in the  period  ended  December  31,  1996.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

      We conducted our audits in accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, the financial statements referred to above present fairly,
in all  material  respects,  the  consolidated  financial  position  of  Cascade
Communications  Corp.  as of  December  31,  1996 and 1995 and the  consolidated
results of its  operations and its cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.


                                                     COOPERS & LYBRAND L.L.P.


Boston, Massachusetts
January 22, 1997,
except for Note M as to which
the date is January 28, 1997


<PAGE>


ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
             FINANCIAL DISCLOSURE

      Not Applicable.
                                                         PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors

      The information  concerning  directors of the Company  required under this
item is  incorporated  herein by reference  to the  Company's  definitive  proxy
statement  pursuant to Regulation 14A, to be filed with the Commission not later
than 120 days after the close of the  Company's  fiscal year ended  December 31,
1996 under the headings  "Election of Directors" and  "Occupations  of Directors
and Executive Officers."

Executive Officers

      The  information  concerning  executive  officers of the Company  required
under this item is incorporated herein by reference to the Company's  definitive
proxy statement  pursuant to Regulation 14A, to be filed with the Commission not
later than 120 days after the close of the Company's  fiscal year ended December
31, 1996 under the heading "Occupations of Directors and Executive Officers."

Compliance with Section 16(a) of the Exchange Act

      The information  concerning  compliance with Section 16(a) of the Exchange
Act required  under this is  incorporated  herein by reference to the  Company's
definitive  proxy  statement  pursuant to  Regulation  14A, to be filed with the
Commission not later than 120 days after the close of the Company's  fiscal year
ended December 31, 1996, under the heading  "Section 16(a) Beneficial  Ownership
Reporting Compliance."

ITEM 11.  EXECUTIVE COMPENSATION

      The  information  required  under  this  item is  incorporated  herein  by
reference to the Company's  definitive  proxy  statement  pursuant to Regulation
14A, to be filed with the  Commission not later than 120 days after the close of
the  Company's   fiscal  year  ended  December  31,  1996,   under  the  heading
"Compensation and Other Information Concerning Directors and Officers."

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The  information  required  under  this  item is  incorporated  herein  by
reference to the Company's  definitive  proxy  statement  pursuant to Regulation
14A, to be filed with the  Commission not later than 120 days after the close of
the Company's  fiscal year ended  December 31, 1996,  under the headings  "Stock
Ownership  of  Certain  Beneficial  Owners  and  Management"  and  "Election  of
Directors."

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The  information  required  under  this  item is  incorporated  herein  by
reference to the Company's  definitive  proxy  statement  pursuant to Regulation
14A,  to be filed  with the  Commission  within  120 days after the close of the
Company's  fiscal  year  ended  December  31,  1996  under the  headings  "Stock
Ownership   of  Certain   Beneficial   Owners  and   Management"   and  "Certain
Relationships and Related Transactions."

<PAGE>


                                                           PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K

(a)  (1)           Consolidated Financial Statements.

The following  consolidated  financial  statements  and  supplementary  data are
included in Part II Item 8 filed as part of this report:

         Consolidated Balance Sheets as of December 31, 1996 and 1995

         Consolidated Statements of Income for the years ended 
           December 31, 1996, 1995 and 1994

         Consolidated Statements of Cash Flows for the years ended 
           December 31, 1996, 1995 and 1994

         Consolidated Statements of  Stockholders' Equity (Deficit) for the 
            years ended December 31, 1996, 1995 and 1994

         Notes to Consolidated Financial Statements

         Report of Independent Accountants


(a)  (2) Financial Statement Schedule.

         Report of Independent Accountants

         Schedule II - Valuation and Qualifying Accounts

         All other schedules are omitted  because they are not  applicable,  not
         required  or  because  the  required   information   is  shown  in  the
         consolidated  financial  statements  or the  notes to the  consolidated
         financial statements.


<PAGE>


(a)  (3)   List of Exhibits

Exhibit
 Number         Exhibit Description

   2.1     (h)  Agreement and Plan of Merger and Reorganization dated as of 
                January 2, 1997 by and among the Company, Camel Acquisition 
                Corporation and Sahara Networks, Inc.

   3.1     (a) Amended and Restated Certificate of Incorporation of the Company.

   3.2     (g)  Certificate of Amendment of Amended and Restated Certificate of
                Incorporation of the Company.

   3.3     (a)  Amended and Restated By-Laws of the Company.

   4.1     (a)  Specimen certificate representing the Common Stock.

  10.1   (b),(c)Amended and Restated 1991 Stock Plan, as amended.

  10.2   (a),(c)1994 Employee Stock Purchase Plan.

  10.3   (a),(c)1994 Non-Employee Director Stock Option Plan.

  10.8   (a),(c)Amended and Restated  Registration Rights Agreement dated
                as of August 19, 1992 by and among the Company and the Investors
                named therein,  as amended by the Stock Purchase Agreement dated
                as of September 17, 1993 and as further amended by the Amendment
                thereto dated as of December 21, 1993.

  10.9   (a),(c)Letter of Employment dated March 12, 1992 between the Company 
                and Daniel E. Smith.

  10.10   (a)   Letter  agreement  dated  August 4, 1993 between the Company
                and Fleet Bank of  Massachusetts,  N.A.,  as amended by the Loan
                Modification Agreement thereto dated as of April 30, 1994.

  10.11   (a)    Lease dated July 27, 1993 between  Westford  Office  Venture
                and the Company, as amended by the First Amendment thereto dated
                February 24, 1994.

  10.12    (a)  Joint Marketing Agreement with Cisco Systems, Inc. dated as of 
                December 15, 1993.

  10.13    (a)  Source Code License Agreement with Cisco Systems, Inc. dated as
                of December 15, 1993.

  10.14    (a)  OEM Program license Agreement dated November 24, 1992 between 
                the Company and Q900 Software (d/b/a Telenetworks).

  10.15    (a)  Manufacturing Agreement dated as of July 22, 1993 between the 
                Company and SCI Systems, Inc.

  10.16    (a)  Software License Agreement dated September 22, 1992 between 
                Software Components Group and the Company.

  10.17    (a)  Software License Agreement dated March 8, 1994 by and between 
                the Company and WANDL, Inc.

  10.18    (a)  Software License Agreement dated February 10, 1992 between the 
                Company and Hewlett-Packard Company.

  10.19    (a)  OSPF License Agreement dated September 9, 1991 between the 
                Company and the University of Maryland.

  10.20    (d)  Second amendment to the lease dated July 27, 1993 between 
                Westford Office Ventures and the Company dated July 27, 1994.

  10.21    (d)  Third amendment to the lease dated July 27, 1993 between 
               Westford Office Ventures and the Company dated November 10, 1994.

<PAGE>


Exhibit
 Number         Exhibit Description

  10.22    (d)  Master Lease Agreement with Performance Systems International,
                Inc. dated November 3, 1994.

  10.23    (e)  Sublease agreement dated April 26, 1995 between the Company and
                Digital Equipment Corporation.

  10.24    (f)  Fourth amendment to the lease dated July 27, 1993 between 
                Westford Office Ventures and the Company dated December 1, 1995.


  10.25    (i)  Lease dated November 14, 1996 between0the Company and Nashoba
                View Associates, LLC

  11.1     (i)  Weighted Shares Used in Computation1of Earnings Per Share.

  21.1     (i)  Subsidiaries of the Company.

  23.1     (i)  Consent of Coopers & Lybrand L.L.P.

  27       (i)  Financial Data Schedule

-------------------------------------------------------------------------------
(a)   Incorporated herein by reference to the Company's  Registration  Statement
      on Form S-1 (File No. 33- 79330)  filed with the  Securities  and Exchange
      Commission  (the  "Commission")  on  May  26,  1994,  as  amended,   which
      Registration Statement became effective on July 28, 1994.

(b)   Incorporated herein by reference to the Company's Registration Statement 
      on Form S-8 (File No. 33- 93152) filed with the Commission on 
      June 6, 1995.

(c)   Indicates a management contract or any compensatory plan, contract or
      arrangement.

(d)   Incorporated by reference to the corresponding exhibit previously filed as
      an Exhibit  to  Registrant's  Form 10-K  filed for the  fiscal  year ended
      December 31, 1994 on March 29, 1995.

(e)  Incorporated by reference to the Company's Form 10-Q for the fiscal quarter
     ended July 1, 1995.

(f)  Incorporated by reference to the corresponding  exhibit previously filed as
     an  Exhibit  to  Registrant's  Form 10-K  filed for the  fiscal  year ended
     December 31, 1995 on March 1, 1996.

(g)  Incorporated by reference to the Company's Registration Statement on 
     Form S-8 (File No. 333-06417) filed with the Commission on June 20, 1996.

(h)  Incorporated by reference to the Company's Current Report on Form 8-K dated
     January 28, 1997 and filed with the Commission on February 4, 1997.

(i)   Filed herewith.

(b)   Reports on Form 8-K

        (1)  The Company filed a current report on Form 8-K dated 
             January 16, 1997 reporting the election of Gururaj Deshpande 
             as the Chairman of the Board.

        (2)  The Company filed a current  report on Form 8-K dated January 28,
             1997 reporting the acquisition by the Company of Sahara Networks,
             Inc., a Delaware corporation.

(c)   Exhibits
        The Company  hereby files as part of this Form 10-K the Exhibits  listed
in Item 14(a)(3) as set forth above.


<PAGE>


                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and Stockholders
of Cascade Communications Corp.:


      Our  report  on  the   consolidated   financial   statements   of  Cascade
Communications  Corp.  is  included  in this  Annual  Report  on Form  10-K.  In
connection  with our audits of such financial  statements,  we have also audited
the related financial  statement schedule listed in item 14(a)(2) in this Annual
Report on Form 10-K.

      In our opinion,  the financial  statement schedule referred to above, when
considered  in  relation  to the basic  financial  statements  taken as a whole,
presents  fairly,  in all  material  respects,  the  information  required to be
included therein.


                                                      COOPERS & LYBRAND L.L.P.


Boston, Massachusetts
January 22, 1997



<PAGE>


CASCADE COMMUNICATIONS CORP.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

<TABLE>

Column A            Column B   Column C                     Column D    Column E
                                              Recoveries    Uncollect-  Balance
                    Balance At                For Accounts  ible        At End
Allowance For       Beginning  Provision For  Previously    Accounts    Of
Doubtful Accounts   Of Period  Bad Debt       Written Off   Written Off Period
                                                                        

<S>                 <C>       <C>            <C>          <C>         <C> 
Year Ended 
 December 31, 1996 $ 302,089   $  335,202     $   -        $ (4,809)   $632,482

Year Ended 
 December 31, 1995    75,000      238,500         -         (11,411)    302,089

Year Ended 
 December 31, 1994    35,904      39,391          -            (295)     75,000

</TABLE>

<PAGE>



Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                 CASCADE COMMUNICATIONS CORP.



Date:   March 14, 1997            _/s/_ Gururaj Deshpande
                                  Gururaj Deshpande
                                  Executive Vice President, Business Development
                                  and Chairman of the Board


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities and on the dates indicated.


Date:   March 14, 1997          _/s/_ Gururaj Deshpande
                                Gururaj Deshpande
                                Executive Vice President, Business Development
                                and Chairman of the Board

Date:   March 14, 1997          _/s/_ Daniel E. Smith
                                Daniel E. Smith
                                President, Chief Executive Officer
                                and Director (Principal Executive Officer)

Date:   March 14, 1997          _/s/_ Paul E. Blondin
                                Paul E. Blondin
                                Vice President of Finance and Administration,
                                Chief Financial Officer, Treasurer and Secretary
                                (Principal Financial and Accounting Officer)

Date:   March 14, 1997          _/s/_ Victoria A. Brown
                                Victoria A. Brown, Director


Date:   March 14, 1997          _/s/_ Richard M. Burnes
                                Richard M. Burnes, Jr., Director

Date:   March 14, 1997          _/s/_ Paul J. Ferri
                                Paul J. Ferri, Director

Date:   March 14, 1997          _/s/_ Bruns H. Grayson
                                Bruns H. Grayson, Director

Date:   March 14, 1997          _/s/_ Steven C. Walske
                                Steven C. Walske, Director


<PAGE>

                                EXHIBIT INDEX

Exhibit
 Number         Exhibit Description

   2.1     (h)  Agreement and Plan of Merger and Reorganization dated as of 
                January 2, 1997 by and among the Company, Camel Acquisition 
                Corporation and Sahara Networks, Inc.

   3.1     (a)  Amended and Restated Certificate of Incorporation of the 
                Company.

   3.2     (g)  Certificate of Amendment of Amended and Restated Certificate of
                Incorporation of the Company.

   3.3     (a)  Amended and Restated By-Laws of the Company.

   4.1     (a)  Specimen certificate representing the Common Stock.

  10.1   (b),(c)Amended and Restated 1991 Stock Plan, as amended.

  10.2   (a),(c)1994 Employee Stock Purchase Plan.

  10.3   (a),(c)1994 Non-Employee Director Stock Option Plan.

  10.8   (a),(c)Amended and Restated  Registration Rights Agreement dated
                as of August 19, 1992 by and among the Company and the Investors
                named therein,  as amended by the Stock Purchase Agreement dated
                as of September 17, 1993 and as further amended by the Amendment
                thereto dated as of December 21, 1993.

  10.9   (a),(c)Letter of Employment dated March 12, 1992 between the Company 
                and Daniel E. Smith.

  10.10  (a)    Letter  agreement  dated  August 4, 1993 between the Company
                and Fleet Bank of  Massachusetts,  N.A.,  as amended by the Loan
                Modification Agreement thereto dated as of April 30, 1994.

  10.11  (a)    Lease dated July 27, 1993 between  Westford  Office  Venture
                and the Company, as amended by the First Amendment thereto dated
                February 24, 1994.

  10.12    (a)  Joint Marketing Agreement with Cisco Systems, Inc. dated as of 
                December 15, 1993.

  10.13    (a)  Source Code License Agreement with Cisco Systems, Inc. dated 
                as of December 15, 1993.

  10.14    (a)  OEM Program license Agreement dated November 24, 1992 between 
                the Company and Q900 Software(d/b/a Telenetworks).

  10.15    (a)  Manufacturing Agreement dated as of July 22, 1993 between the 
                Company and SCI Systems, Inc.

  10.16    (a)  Software License Agreement dated September 22, 1992 between 
                Software Components Group and the Company.

  10.17    (a)  Software License Agreement dated March 8, 1994 by and between 
                the Company and WANDL, Inc.

  10.18    (a)  Software License Agreement dated February 10, 1992 between 
                the Company and Hewlett-Packard Company.

  10.19    (a)  OSPF License Agreement dated September 9, 1991 between the 
                Company and the University of Maryland.

  10.20    (d)  Second amendment to the lease dated July 27, 1993 between 
                Westford Office Ventures and the Company dated July 27, 1994.

  10.21    (d)  Third amendment to the lease dated July 27, 1993 between 
               Westford Office Ventures and the Company dated November 10, 1994.


<PAGE>



Exhibit
 Number         Exhibit Description

  10.22    (d)  Master Lease Agreement with Performance Systems International,
                Inc. dated November 3, 1994.

  10.23    (e)  Sublease agreement dated April 26, 1995 between the Company and
                Digital Equipment Corporation.

  10.24    (f)  Fourth amendment to the lease dated July 27, 1993 between 
                Westford Office Ventures and the Company dated December 1, 1995.

  10.25    (i)  Lease dated November 14, 1996 between the Company and Nashoba 
                View Associates, LLC.

  11.1     (i)  Weighted Shares Used in Computation of Earnings Per Share.

  21.1     (i)  Subsidiaries of the Company.

  23.1     (i)  Consent of Coopers & Lybrand L.L.P.

  27       (i)  Financial Data Schedule
-------------------------------------------------------------------------------
(a)   Incorporated herein by reference to the Company's  Registration  Statement
      on Form S-1 (File No. 33- 79330)  filed with the  Securities  and Exchange
      Commission  (the  "Commission")  on  May  26,  1994,  as  amended,   which
      Registration Statement became effective on July 28, 1994.

(b)   Incorporated herein by reference to the Company's Registration Statement
      on Form S-8 (File No. 33- 93152) filed with the Commission on 
      June 6, 1995.

(c)   Indicates a management contract or any compensatory plan, contract
      or arrangement.

(d)   Incorporated by reference to the corresponding exhibit previously filed as
      an  Exhibit  to  Registrant's  Form  10-filed  for the  fiscal  year ended
      December 31, 1994 on March 29, 1995.

(e)   Incorporated by reference to the Company's Form 10-Q for the fiscal 
      quarter ended July 1, 1995

(f)  Incorporated by reference to the corresponding exhibit previously filed
     as an  Exhibit  to  Registrant's  Form 10 filed for the  fiscal  year ended
     December 31, 1995 on March 1, 1996.

(g)  Incorporated by reference to the Company's Registration Statement on 
     Form S-8 (File No. 333-06417) filed with the Commission on June 20, 1996.

(h)  Incorporated by reference to the Company's  Current Report on Form 8-K
     dated January 28, 1997 and filed with the Commission on February 4, 1997.

(i)   Filed herewith.


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